UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 20-F

(Mark One)

 

☐REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES
EXCHANGE ACT OF 1934

 

OR

 

☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 20192020

 

OR

 

☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                         to                         .

 

OR

 

☐SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Date of event requiring this shell company report                                 

 

Commission file number: 001-34476

 

BANCO SANTANDER (Brasil) S.A.
(Exact name of Registrant as specified in its charter)

 

SANTANDER (BRAZIL) BANK, INC.
(Translation of Registrant’s name into English)

 

Federative Republic of Brazil
(Jurisdiction of incorporation)

 

Avenida Presidente Juscelino Kubitschek, 2,041 and 2,235 – Bloco A
Vila Olímpia
São Paulo, SP 04543-011
Federative Republic of Brazil

(Address of principal executive offices)

 

Mercedes Pacheco, Managing Director – Senior Legal Counsel
Banco Santander, S.A.
New York Branch
45 E. 53rd Street
New York, New York 10022
(212) 350-3604
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

 

Securities registered or to be registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol

Name of each exchange on which registered

Units, each composed of 1 common share, no par value, and 1 preferred share, no par value

SANB11

New York Stock Exchange*

Common Shares, no par valueSANB3New York Stock Exchange*
Preferred Shares, no par valueSANB4New York Stock Exchange*
American Depositary Shares, each representing one unit (or a right to receive one unit) which is composed of 1 common share, no par value, and 1 preferred share, no par value, of Banco Santander (Brasil) S.A.

BSBR



New York Stock Exchange

*Not for trading purposes, but only in connection with the listing of American Depositary Shares pursuant to the requirements of the Securities and Exchange Commission.

 

 

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and Exchange Commission.

Securities registered or to be registered pursuant to Section 12(g) of the Act:

 

None

 

(Title of Class)

 

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

 

Title of Class

7.375% Tier 1 Subordinated Perpetual Notes
6.000% Tier 2 Subordinated Notes due 2024

 

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

 

Title of Class

Number of Shares Outstanding

Common shares3,818,695,031
Preferred shares3,679,836,020

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

 

Yes☒ No☐

Yes ☒No ☐

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

 

Yes☐ No☒

Yes ☐No ☒

Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 

Yes☒ No☐

Yes ☒No ☐

Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

 

Yes☒ No☐

Yes ☒No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “large accelerated filer”, “accelerated filer”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large Accelerated Filer☒Accelerated Filer☐Non-accelerated Filer☐Emerging growth company☐

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act.☐

 

† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒

 

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

 

☐U.S. GAAP

 

☒International Financial Reporting Standards as issued by the International Accounting Standards Board

 

☐Other

 

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If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.

 

☐Item 17☐ Item 18

☐ Item 17☐ Item 18

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 

Yes☐ No☒

Yes ☐No ☒

 

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table of contents

 

Page

 

PRESENTATION OF FINANCIAL AND OTHER INFORMATION7
FORWARD-LOOKING STATEMENTS9
PART I1112
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS1112
1A.Directors and Senior Management1112
1B.Advisers1112
1C.   Auditors1112
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE1112
2A.Offer Statistics1112
2B.Method and Expected Timetable1112
ITEM 3. KEY INFORMATION1112
3A.Selected Financial Data1112
3B.Capitalization and Indebtedness1921
3C.Reasons for the Offer and Use of Proceeds1921
3D.Risk Factors1921
ITEM 4. INFORMATION ON THE COMPANY5164
4A.History and Development of the Company5164
4B.Business Overview5571
4C.Organizational Structure121147
4D.Property, Plant and Equipment123149
ITEM 4A. UNRESOLVED STAFF COMMENTS124149
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS124149
5A.Operating Results124149
5B.Liquidity and Capital Resources148181
5C.Research and Development, Patents and Licenses, etc.152185
5D.Trend Information152185
5E.Off-Balance Sheet Arrangements153186
5F.Contractual Obligations153187
5G.Safe Harbor154187
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES154187
6A6A.   Board of Directors and Board of Executive Officers154185
6B.Compensation167201
6C.Board Practices172206
6D.Employees179214
6E.Share Ownership180216
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS182217
7A.   Major Shareholders182217

 

 

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7B.Related Party Transactions183219
7C.Interests of Experts and Counsel184220
ITEM 8. FINANCIAL INFORMATION184220
8A.Consolidated Statements and Other Financial Information184220
8B.Significant Changes194230
ITEM 9. THE OFFER AND LISTING194230
9A.   Offering and Listing Details194230
9B.Plan of Distribution197237
9C.   Markets197237
9D.   Selling Shareholders200237
9E.   Dilution200237
9F.   Expenses of the Issue200237
ITEM 10. ADDITIONAL INFORMATION200237
10A.Share Capital201237
10B.By-Laws202237
10C.Material Contracts212249
10D.Exchange Controls212249
10E.  Taxation214250
10F.  Dividends and Paying Agents222258
10G.  Statement by Experts222259
10H.  Documents on Display223259
10I.   Subsidiary Information223259
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK223259
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES246282
12A.Debt Securities246282
12B.Warrants and Rights246282
12C.Other Securities246282
12D.American Depositary Receipts246282
PART II248284
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES248284
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS248284
ITEM 15. CONTROLS AND PROCEDURES248284
15A.   Disclosure Controls and Procedures248284
15B.   Management’s Annual Report on Internal Control over Financial Reporting248284
15C.   Audit Report of the Registered Public Accounting Firm249285
15D.   Changes in Internal Control over Financial Reporting249285
ITEM 16. [RESERVED]249285
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT249285

 

 

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ITEM 16B. SANTANDER BRASIL’S CODE OF ETHICAL CONDUCT250286
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES250286
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES251287
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS251287
ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT252288
ITEM 16G. CORPORATE GOVERNANCE252288
ITEM 16H. MINE SAFETY DISCLOSURE255291
PART III256292
ITEM 17. FINANCIAL STATEMENTS256292
ITEM 18. FINANCIAL STATEMENTS256292
ITEM 19. EXHIBITS256292

 

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PRESENTATION OF FINANCIAL AND OTHER INFORMATION

 

General

 

In this annual report, the terms “Santander Brasil,” the “Bank,” “we,” “us,” “our,” “our company” and “our organization” meanrefer to Banco Santander (Brasil) S.A. and its consolidated subsidiaries, unless otherwise indicated. References to “Banco Real” mean Banco ABN AMRO Real S.A. and ABN AMRO Brasil Dois Participações S.A. and their respective consolidated subsidiaries, unless otherwise indicated. References to “Banespa” mean Banco do Estado de São Paulo S.A. – Banespa, one of our predecessor entities. The term “Santander Spain” means Banco Santander, S.A. References to “Santander Group” mean the worldwide operations of the Santander Spain conglomerate, as indirectly controlled by Santander Spain and its consolidated subsidiaries, including Santander Brasil.

 

All references herein to the “real,” “reais” or “R$” are to the Brazilianreal, the official currency of Brazil. All references to “U.S. dollars,” “dollars” or “U.S.$” are to United States (or “U.S.”) dollars. All references to “euro,” “euros” or “€” are to the common legal currency of the member states participating in the European Economic and Monetary Union. References to “CI$” are to Cayman Islands dollars. References to “£” are to United Kingdom pounds sterling. See “Item 3. Key Information—A. Selected Financial Data—Exchange Rates” for information regarding exchange rates for the Brazilian currency.

 

Solely for the convenience of the reader, we have translated certain amounts included in “Item 3. Key Information—A. Selected Financial Data” and elsewhere in this annual report fromreais into U.S. dollars using the exchange rate as reported by the Brazilian Central Bank (Banco Central do Brasil), or the “Brazilian Central Bank,” as of December 31, 2019,2020, which was R$4.03075.1967 to U.S.$1.00, or on the indicated dates (subject, on any applicable date, to rounding adjustments). We make no representation that thereal or U.S. dollar amounts actually represent or could have been or could be converted into U.S. dollars at the rates indicated, at any particular exchange rate or at all.

 

Certain figures included in this annual report have been subject to rounding adjustments. Accordingly, figures shown as totals in certain tables may not be an arithmetic aggregation of the figures that precede them.

 

Consolidated Financial Statements

 

We maintain our books and records inreais, our functional currency and the presentation currency for our consolidated financial statements.

 

This annual report contains our consolidated financial statements as of December 31, 2020, 2019 2018 and 2017,2018, and for the years ended December 31, 2020, 2019 2018 and 2017.2018. Such consolidated financial statements have been prepared in accordance with International Financial Reporting Standards, or “IFRS”, as issued by the International Accounting Standards Board, or “IASB” and interpretations issued by the IFRS Interpretation Committee, or “IFRIC”. Our consolidated financial statements as of and for the years ended December 31, 2020, 2019 2018 and 20172018 have been audited by PricewaterhouseCoopers Auditores Independentes, or “PwC.” PwC is an independent registered public accounting firm, whose report and unqualified opinion is included herein.

 

IFRS differs in certain significant aspects in comparison with the generally accepted accounting principles in the United States, or “U.S. GAAP”. IFRS also differs in certain significant aspects in comparison with the Brazilian GAAP (as defined below). Appendix I to our audited consolidated financial statements for the years ended December 31, 2020, 2019 2018 and 2017,2018, included herein, contains information relating to certain differences between IFRS and Brazilian GAAP.

 

Under Brazilian law, we are7 

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As required by the Brazilian Central Bank toand Brazilian law, we must prepare consolidated financial statements according toin accordance with IFRS. However, we will also continue to prepare statutory financial statements in accordance with accounting practices and standards established byby: (i) Law No. 6,404 datedof December 15, 1976, as amended by Law 11,638 or(“Brazilian Corporate Law”); (ii) the “Brazilian Corporate Law” and standards established by the

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National Monetary Council (Conselho Monetário Nacional)Nacional), or “CMN,”“CMN”; (iii) the Brazilian Central Bank and document template providedincluding the regulatory reports set forth in the AccountingStandard Chart of Accounts for NationalBrazilian Financial System Institutions (Plano Contábil das Instituições do Sistema Financeiro Nacional), and(iv) the Brazilian Securities and Exchange Commission (Comissão de Valores Mobiliários)rios), or “CVM,”“CVM”, to the extent that such practices do not conflict with the rules of the Brazilian Central Bank,Bank; (v) the Accounting Pronouncements Committee (Comitê de Pronunciamentos Contábeis), to the extent that such practices are approved by the Brazilian Central Bank,Bank; (vi) the National Council of Private Insurance (Conselho Nacional de Seguros Privados),; and (vii) the Superintendence of Private Insurance (Superintendência de Seguros Privados,“SUSEP”), or “SUSEP.”which is the insurance commissioner, responsible for the supervision and control of the insurance, open private pension funds and capitalization markets in Brazil. We refer to such Brazilian accounting practices as “Brazilian GAAP.” See “Item 4. Information on the Company—B. Business Overview—Regulation and Supervision—Other Applicable Laws and Regulations—Auditing Requirements.”Requirements” for additional information.

 

Market Share and Other Information

 

We obtained the market and competitive position data, including market forecasts, used throughout this annual report from internal surveys, market research, publicly available information and industry publications. These data are updated to the latest available information as of the date of this annual report. We have made these statements on the basis of information from third-party sources that we believe are reliable, such as the Brazilian association of savings and mortgage financing entities (Associação Brasileira das Entidades de Crédito Imobiliário e Poupança) or “ABECIP”; the Brazilian association of credit card companies (Associação Brasileira de Empresas de Cartões de Crédito e Serviços) or “ABECS”; the Brazilian association of leasing companies (Associação Brasileira de Empresas de Leasing); the national associationNational Association of financialFinancial and capital markets entitiesCapital Markets Entities (Associação Brasileira das Entidades dos Mercados Financeiro e de Capitais) or “ANBIMA”; the Brazilian Central Bank; the Brazilian socialSocial and economic development bankEconomic Development Bank (Banco Nacional de Desenvolvimento Econômico e Social) or “BNDES”; the Brazilian Institute of Geography and Statistics (Instituto Brasileiro de Geografia e Estatística) or the “IBGE”; the Brazilian bank federationBank Federation (Federação Brasileira de Bancos), or “FEBRABAN”; the national federationNational Federation of private retirementPrivate Retirement and life insuranceLife Insurance (Federação Nacional de Previdência Privada e Vida); the Getúlio Vargas Foundation (Fundação Getúlio Vargas) or “FGV”; the Brazilian Central Bank system (Sistema do Banco Central); the SUSEP; and the CVM, among others.

 

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FORWARD-LOOKING STATEMENTS

 

This annual report contains estimates and forward-looking statements subject to risks and uncertainties, principally in “Item 3. Key Information—D. Risk Factors,” “Item 5. Operating and Financial Review and Prospects” and “Item 4. Information on the Company—B. Business Overview.” Some of the matters discussed concerning our business operations and financial performance include estimates and forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995.

 

Our estimates and forward-looking statements are based mainly on our current expectations and estimates or projections of future events and trends, which affect or may affect our businesses and results of operations. Although we believe that these estimates and forward-looking statements are based upon reasonable assumptions, they are subject to certain risks and uncertainties and are made in light of information currently available to us. Our estimates and forward-looking statements may be influenced by the following factors, among others:

 

·the COVID-19 pandemic and other actual or potential epidemics, pandemics, outbreaks, or other public health crises, which could have an adverse impact on our business (see “Item 3. Key Information—D. Risk Factors—Risks Relating to the Brazilian Financial Services Industry and Our Business—The current global COVID-19 pandemic has materially impacted our business, and the continuance of this pandemic or any future outbreak of any other highly contagious diseases or other public health emergency, could materially and adversely impact our business, financial condition, liquidity and results of operations,” “Item 4. Information on the Company—A. History and Development of the Company—Important Events—Impact of COVID-19” and “Item 5. Operating and Financial Review and Prospects—A. Operating Results—Principal Factors Affecting Our Financial Condition and Results of Operations—Impact of COVID-19”);

·the impact of the COVID-19 pandemic on general economic and business conditions in Brazil, Latin America and globally and any restrictive measures imposed by governmental authorities in response to the outbreak;

·our ability to implement, in a timely and efficient manner, any measure necessary to respond to, or reduce the impacts of the COVID-19 pandemic on our business, operations, cash flow, prospects, liquidity and financial condition;

·general economic, political, social and business conditions in Brazil, including the impact of the current international economic environment and the macroeconomic conditions in Brazil, and the policies of the administration of Brazil which took office on January 1, 2019;

 

·exposure to various types of inflation and interest rate risks, and the Brazilian governmentgovernment’s efforts to control inflation and interest rates;

 

·exposure to the sovereign debt of Brazil;

 

·the effect of interest rate fluctuations on our obligations under employee pension funds;

 

·exchange rate volatility;

 

·infrastructure and labor force deficiencies in Brazil;

 

·economic developments and perception of risk in other countries, including a global downturn;

 

·the future relationship of the United Kingdom with the European Union;

 

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·increasing competition and consolidation in the Brazilian financial services industry;

 

·extensive regulation by the Brazilian government and the Brazilian Central Bank, among others;

 

·changes in reserve requirements;

 

·changes in taxes or other fiscal assessments;

 

·potential losses associated with an increase in the level of nonperforming loans or non-performance by counterparties to other types of financial instruments;

 

·a decrease in the rate of growth of our loan portfolio;

 

·potential prepayment of our loan and investment portfolio;

 

·potential increase in our cost of funding, in particular with relation to short-term deposits;

 

·a default on, or a ratings downgrade of, the sovereign debt of Brazil or of our controlling shareholder;

 

·restrictions on the distributionsdistribution of dividends to holders of our shares and ADSs;ADRs representing American Depositary Shares (or “ADSs”);

 

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·the effectiveness of our credit risk management policies;

 

·our ability to adequately manage market and operational risks;

 

·potential deterioration in the value of the collateral securing our loan portfolio;

 

·failure to adequately protect ourselves against risks relating to cybersecurity;

 

·our dependence on the proper functioning of information technology systems;

 

·our ability to protect personal data;

 

·our ability to protect ourselves against cybersecurity risks;

 

·our ability to protect our reputation;

 

·our ability to detect and prevent money laundering and other illegal activities;

 

·our ability to manage the growth of our operations;

 

·our ability to successfully and effectively integrate acquisitions or to evaluate risks arising from asset acquisitions; and

 

·other risk factors as set forth under “Item 3. Key Information—D. Risk Factors” in this annual report.

 

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The words “believe,” “may,” “will,” “aim,” “estimate,” “continue,” “anticipate,” “intend,” “expect,” “forecast,” and similar words are intended to identify estimates and forward-looking statements. Estimates and forward-looking statements are intended to be accurate only as of the date they were made, and we undertake no obligation to update or to review any estimate and/or forward-looking statement because of new information, future events or other factors. Estimates and forward-looking statements involve risks and uncertainties and are not guarantees of future performance. Our future results may differ materially from those expressed in these estimates and forward-looking statements. You should therefore not make any investment decision based on these estimates and forward-looking statements.

 

The forward-looking statements contained in this report speak only as of the date of this report. We do not undertake to update any forward-looking statement to reflect events or circumstances after that date or to reflect the occurrence of unanticipated events.

 

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PART I

 

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

 

1A.Directors and Senior Management

1A. Directors and Senior Management

Not applicable.

1B.Advisers

Not applicable.

1C.Auditors

 

Not applicable.

 

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE1B. Advisers

2A.Offer Statistics

Not applicable.

2B.Method and Expected Timetable

 

Not applicable.

 

1C. Auditors

Not applicable.

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

2A. Offer Statistics

Not applicable.

2B. Method and Expected Timetable

Not applicable.

ITEM 3. KEY INFORMATION

 

3A.Selected Financial Data

3A. Selected Financial Data

 

FinancialThe following tables set forth the selected financial information forof Santander Brasil as of and for the years ended December 31, 2020, 2019, 2018, 2017 2016 and 2015 has been2016 derived from our audited consolidated financial statements prepared in accordance with IFRS as issued by the IASB. See “Item 18. Financial Statements.” This financial information should be read in conjunction with our audited consolidated financial statements the related notes and “Item 5. Operating and Financial Review and Prospects”, as well as our audited consolidated financial statements and the related notes thereto included within this annual report.

 

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Income Statement Data

 

  For the Year Ended December 31,
  2019 2019 2018 2017 2016 2015
  (in millions of U.S.$)(1) (in millions of R$)
Interest and similar income  18,072   72,841   70,478   71,418   77,146   69,870 
Interest expense and similar charges  (7,076)  (28,520)  (28,557)  (36,472)  (46,560)  (38,533)
Net interest income  10,996   44,321   41,921   34,946   30,586   31,337 
Income from equity instruments  5   19   33   83   259   143 
Income from companies accounted for by the equity method  37   149   66   72   48   116 
Fee and commission income  5,059   20,392   17,728   15,816   13,548   11,797 
Fee and commission expense  (1,161)  (4,679)  (3,596)  (3,094)  (2,571)  (2,314)
Gains (losses) on financial assets and liabilities (net)  611   2,463   (2,783)  969   3,016   (20,002)

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 For the Year Ended December 31,
 2020 2020 2019 2018 2017 2016
 (in millions of U.S.$)(1) (in millions of R$)
Interest and similar income  12,080   62,775   72,841   70,478   71,418   77,146 
Interest expense and similar charges  (3,528)  (18,332)  (28,520)  (28,557)  (36,472)  (46,560)
Net interest income  8,552   44,443   44,321   41,921   34,946   30,586 
Income from equity instruments  6   34   19   33   83   259 
Income from companies accounted for by the equity method  22   112   149   66   72   48 
Fee and commission income  3,965   20,607   20,392   17,728   15,816   13,548 
Fee and commission expense  (843)  (4,378)  (4,679)  (3,596)  (3,094)  (2,571)
Gains (losses) on financial assets and liabilities (net)  2,501   12,998   2,463   (2,783)  969   3,016 
Exchange differences (net)  (692)  (2,789)  (2,806)  605   4,575   10,084   (4,753)  (24,701)  (2,789)  (2,806)  605   4,575 
Other operating income (expenses)  (275)  (1,108)  (1,056)  (672)  (625)  (347)  (168)  (873)  (1,108)  (1,056)  (672)  (625)
Total income  14,580   58,769   49,507   48,725   48,837   30,814   9,283   48,242   58,769   49,507   48,725   48,837 
Administrative expenses  (4,203)  (16,942)  (16,792)  (16,121)  (14,920)  (14,515)  (3,293)  (17,115)  (16,942)  (16,792)  (16,121)  (14,920)
Depreciation and amortization  (593)  (2,392)  (1,740)  (1,662)  (1,483)  (1,490)  (496)  (2,579)  (2,392)  (1,740)  (1,662)  (1,483)
Provisions (net)(2)  (913)  (3,682)  (2,000)  (3,309)  (2,725)  (4,001)  (319)  (1,657)  (3,682)  (2,000)  (3,309)  (2,725)
Impairment losses on financial assets (net)(3)  (3,317)  (13,370)  (12,713)  (12,338)  (13,301)  (13,634)  (3,358)  (17,450)  (13,370)  (12,713)  (12,338)  (13,301)
Impairment losses on other assets (net)  (33)  (131)  (508)  (457)  (114)  (1,221)  (16)  (85)  (131)  (508)  (457)  (114)
Gains (losses) on disposal of assets not classified as non-current assets held for sale  3   11   (25)  (64)  4   781   44   231   11   (25)  (64)  4 
Gains (losses) on non-current assets held for sale not classified as discontinued operations  2   10   182   (260)  87   50   15   77   10   182   (260)  87 
Operating profit before tax  5,526   22,273   15,910   14,514   16,384   (3,216)  1,860   9,664   22,273   15,910   14,514   16,384 
Income taxes  (1,400)  (5,642)  (3,110)  (5,376)  (8,919)  13,050   729   3,787   (5,642)  (3,110)  (5,376)  (8,919)
Consolidated Profit for the Year  4,126   16,631   12,800   9,138   7,465   9,834   2,588   13,451   16,631   12,800   9,138   7,465 
(1)Translated for convenience only using the selling rate as reported by the Brazilian Central Bank as of December 31, 2019,2020, forreais into U.S. dollars of R$4.03075.1967 to U.S.$1.00.

(2)Mainly provisions for tax risks and legal obligations, and judicial and administrative proceedings of labor and civil lawsuits. For further discussion, see notes 2221 and 2322 to our consolidated financial statements.

(3)Net provisions to the creditCredit loss allowance less recovery of loans previously written off.

 

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Earnings and Dividend per Share Information

 

  For the Year Ended December 31,
  2019 2018 2017 2016 2015
Basic and Diluted Earnings per 1,000 shares          
From continuing and discontinued operations(1)        
Basic Earnings per shares (reais)          
Common Shares  2,094.83   1,604.34   1,133.43   929.93   1,236.96 
Preferred Shares  2,304.32   1,764.78   1,246.77   1,022.92   1,360.66 
Diluted Earnings per shares (reais)                    
Common Shares  2,094.83   1,604.34   1,132.44   929.03   1,235.79 
Preferred Shares  2,304.32   1,764.78   1,245.69   1,021.93   1,359.36 
Basic Earnings per shares (U.S. dollars) (2)                    
Common Shares  519.72   414.05   342.63   285.34   316.78 
Preferred Shares  571.69   455.45   376.90   313.87   348.46 
Diluted Earnings per shares (U.S. dollars) (2)                    
Common Shares  519.72   414.05   342.33   285.06   316.48 
Preferred Shares  571.69   455.45   376.57   313.57   348.13 
From continuing operations                    
Basic Earnings per shares (reais)                    
Common Shares  2,094.83   1,604.34   1,133.43   929.93   1,236.96 
Preferred Shares  2,304.32   1,764.78   1,246.77   1,022.92   1,360.66 
Diluted Earnings per shares (reais)                    
Common Shares  2,094.83   1,604.34   1,132.44   929.03   1,235.79 
Preferred Shares  2,304.32   1,764.78   1,245.69   1,021.93   1,359.36 
Basic Earnings per shares (U.S. dollars) (2)                    
Common Shares  519.72   414.05   342.63   285.34   316.78 
Preferred Shares  571.69   455.45   376.90   313.87   348.46 
Diluted Earnings per shares (U.S. dollars) (2)                    
Common Shares  519.72   414.05   342.33   285.06   316.48 
Preferred Shares  571.69   455.45   376.57   313.57   348.13 
                     
Dividends and interest on capital per 1,000 shares (undiluted)                    

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 For the Year Ended December 31,
 2020 2019 2018 2017 2016
Basic and Diluted Earnings per 1,000 shares          
From continuing and discontinued operations(1)                    
Basic Earnings per shares (reais)                    
Common Shares  1,713.45   2,094.83   1,604.34   1,133.43   929.93 
Preferred Shares  1,884.80   2,304.32   1,764.78   1,246.77   1,022.92 
Diluted Earnings per shares (reais)                    
Common Shares  1,713.45   2,094.83   1,604.34   1,132.44   929.03 
Preferred Shares  1,884.80   2,304.32   1,764.78   1,245.69   1,021.93 
Basic Earnings per shares (U.S. dollars) (2)                    
Common Shares  329.72   519.72   414.05   342.63   285.34 
Preferred Shares  362.69   571.69   455.45   376.90   313.87 
Diluted Earnings per shares (U.S. dollars) (2)                    
Common Shares  329.72   519.72   414.05   342.33   285.06 
Preferred Shares  362.69   571.69   455.45   376.57   313.57 
From continuing operations                    
Basic Earnings per shares (reais)                    
Common Shares  1,713.45   2,094.83   1,604.34   1,133.43   929.93 
Preferred Shares  1,884.80   2,304.32   1,764.78   1,246.77   1,022.92 
Diluted Earnings per shares (reais)                    
Common Shares  1,713.45   2,094.83   1,604.34   1,132.44   929.03 
Preferred Shares  1,884.80   2,304.32   1,764.78   1,245.69   1,021.93 
Basic Earnings per shares (U.S. dollars) (2)                    
Common Shares  329.72   519.72   414.05   342.63   285.34 
Preferred Shares  362.69   571.69   455.45   376.90   313.87 
Diluted Earnings per shares (U.S. dollars) (2)                    
Common Shares  329.72   519.72   414.05   342.33   285.06 
Preferred Shares  362.69   571.69   455.45   376.57   313.57 
                    
Dividends and interest on capital per 1,000 shares (undiluted)                    
Common Shares (reais)  1,378.87   841.68   801.63   666.21   784.90   1,693.28   1,378.87   841.68   801.63   666.21 
Preferred Shares (reais)  1,516.76   925.85   881.80   732.83   863.39   1,631.71   1,516.76   925.85   881.80   732.83 
Common Shares (U.S. dollars)(2)  342.09   217.22   242.33   204.42   201.01   325.84   342.09   217.22   242.33   204.42 
Preferred Shares (U.S. dollars)(2)  376.30   238.94   266.57   224.86   221.11   313.99   376.30   238.94   266.57   224.86 
Weighted average share outstanding (in thousands) – basic                                        
Common Shares  3,802,303   3,807,386   3,822,057   3,828,555   3,839,159   3,800,140   3,802,303   3,807,386   3,822,057   3,828,555 
Preferred Shares  3,663,444   3,668,527   3,683,145   3,689,696   3,700,299   3,664,666   3,663,444   3,668,527   3,683,145   3,689,696 
Weighted average shares outstanding (in thousands) – diluted(3)                    
Weighted average shares outstanding (in thousands) – diluted                    
Common Shares  3,802,303   3,807,386   3,825,313   3,832,211   3,842,744   3,800,140   3,802,303   3,807,386   3,825,313   3,832,211 
Preferred Shares  3,663,444   3,668,527   3,686,401   3,693,352   3,703,884   3,664,666   3,663,444   3,668,527   3,686,401   3,693,352 
(1)Per share amounts reflect the effects of the bonus share issue and reverse share split for each period presented.

(2)Translated for convenience only using the selling rate as reported by the Brazilian Central Bank as of December 31, 2019,2020, forreais into U.S. dollars of R$4.03075.1967 to U.S.$1.00.

 

(3)Average annual balance sheet data has been calculated based upon the average of the monthly balances at 13 dates: as of December 31 of the prior year and each of the month-end balances of the 12 subsequent months.

Balance Sheet Data

  As of December 31,
  2019 2019 2018 2017 2016 2015
  (in millions of U.S.$)(1) (in millions of R$)
Assets            
Cash and balances with the Brazilian Central Bank(2)  4,993   20,127   19,464   20,642   26,285   89,143 
Financial assets held for trading  -     -     -     86,271   131,245   50,537 
Financial Assets Measured At Fair Value Through Profit Or Loss  8,024   32,342   43,712   -     -     -   
Financial Assets Measured At Fair Value Through Profit Or Loss Held For Trading  14,147   57,021   68,852   -     -     -   
Non-Trading Financial Assets Mandatorily Measured At Fair Value Through Profit Or Loss  42   171   917   -     -     -   
Other financial assets at fair value through profit or loss  -     -     -     1,692   1,711   2,080 
Available-for-sale financial assets  -     -     -     85,823   57,815   68,265 
Financial Assets Measured At Fair Value Through Other Comprehensive Income  23,847   96,120   85,437   -     -     -   
Held to maturity investments  -     -     -     10,214   10,048   10,098 
Loans and receivables(2)  -     -     -     368,729   333,997   306,269 
Financial Assets Measured At Amortized Cost (2)  117,766   474,681   429,731   -     -     -   
Hedging derivatives  84   340   344   193   223   1,312 
Non-current assets held for sale  329   1,325   1,380   1,155   1,338   1,237 
Investments in associates and joint ventures  266   1,071   1,053   867   990   1,061 
Tax assets  8,336   33,599   31,566   28,826   28,753   34,770 
Other assets  1,256   5,061   4,800   4,578   5,104   3,802 
Tangible assets  2,427   9,782   6,589   6,510   6,646   7,006 
Intangible assets  7,591   30,596   30,019   30,202   30,237   29,814 
Total assets  189,108   762,237   723,865   645,703   634,393   605,395 
Average total assets*  182,476   735,507   685,531   637,511   605,646   571,918 
Liabilities                        
Financial liabilities held for trading  -     -     -     49,323   51,620   42,388 
Financial Liabilities Measured At Fair Value Through Profit Or Loss Held For Trading  11,428   46,065   50,939   -     -     -   
Financial Liabilities Measured At Fair Value Through Profit Or Loss  1,320   5,319   1,946   -     -     -   
Financial liabilities at amortized cost  142,712   575,230   547,295   478,881   471,579   457,282 

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Balance Sheet Data

 

 As of December 31,
 2020 2020 2019 2018 2017 2016
 (in millions of U.S.$)(1) (in millions of R$)
Assets            
Cash and balances with the Brazilian Central Bank(2)  3,876   20,149   20,127   19,464   20,642   26,285 
Financial assets held for trading(2)  -   -   -   -   86,271   131,245 
Financial Assets Measured At Fair Value Through Profit Or Loss  11,719   60,900   32,342   43,712   -   - 
Financial Assets Measured At Fair Value Through Profit Or Loss Held For Trading  18,948   98,467   57,021   68,852   -   - 
Non-Trading Financial Assets Mandatorily Measured At Fair Value Through Profit Or Loss  95   500   171   917   -   - 
Other financial assets at fair value through profit or loss  -   -   -   -   1,692   1,711 
Available-for-sale financial assets  -   -   -   -   85,823   57,815 
Financial Assets Measured At Fair Value Through Other Comprehensive Income  21,117   109,740   96,120   85,437   -   - 
Held to maturity investments  -   -   -   -   10,214   10,048 
Loans and receivables(2)  -   -   -   -   368,729   333,997 
Financial Assets Measured At Amortized Cost (2)  106,784   554,925   474,681   429,731   -   - 
Hedging derivatives  143   743   340   344   193   223 
Non-current assets held for sale  210   1,093   1,325   1,380   1,155   1,338 
Investments in associates and joint ventures  211   1,095   1,071   1,053   867   990 
Tax assets  7,902   41,064   33,599   31,566   28,826   28,753 
Other assets  1,390   7,222   5,061   4,800   4,578   5,104 
Tangible assets  1,835   9,537   9,782   6,589   6,510   6,646 
Intangible assets  5,920   30,766   30,596   30,019   30,202   30,237 
Total assets  180,153   936,201   762,237   723,865   645,703   634,393 
Average total assets*  164,453   854,615   735,507   685,531   637,511   605,646 
Liabilities                        
Financial liabilities held for trading  14,941   77,643   -   -   49,323   51,620 
Financial Liabilities Measured At Fair Value Through Profit Or Loss Held For Trading  -   -   46,065   50,939   -   - 
Financial Liabilities Measured At Fair Value Through Profit Or Loss  1,354   7,038   5,319   1,946   -   - 
Financial liabilities at amortized cost  136,103   707,289   575,230   547,295   478,881   471,579 
Deposits from the Brazilian Central Bank and deposits from credit institutions  24,629   99,271   99,023   79,375   78,634   69,451   25,335   131,657   99,271   99,023   79,375   78,634 
Customer deposits  83,488   336,515   304,198   276,042   247,445   243,043   85,788   445,814   336,515   304,198   276,042   247,445 
Marketable debt securities  18,285   73,702   74,626   70,247   99,843   94,658   10,945   56,876   73,702   74,626   70,247   99,843 
Subordinated debts  -     -     9,886   519   466   8,097   -   -   -   9,886   519   466 
Debt Instruments Eligible to Compose Capital  2,525   10,176   9,780   8,437   8,312   9,959   2,525   13,120   10,176   9,780   8,437   8,312 
Other financial liabilities  13,786   55,566   49,783   44,261   36,879   32,073   11,512   59,823   55,566   49,783   44,261   36,879 
Hedging derivatives  50   201   224   163   311   2,377   28   145   201   224   163   311 
Provisions(3)  4,052   16,332   14,696   13,987   11,776   11,410   2,658   13,815   16,332   14,696   13,987   11,776 
Tax liabilities  2,719   10,960   8,075   8,248   6,095   5,253   1,949   10,130   10,960   8,075   8,248   6,095 
Other liabilities  2,709   10,921   9,095   8,014   8,199   6,850   2,704   14,051   10,921   9,095   8,014   8,199 
Total liabilities  164,991   665,028   632,270   558,615   549,581   525,559   159,738   830,112   665,028   632,270   558,615   549,581 
Stockholders’ equity  23,994   96,711   91,882   87,425   85,435   83,532   20,437   106,205   96,711   91,882   87,425   85,435 
Other Comprehensive Income  (21)  (86)  (879)  (774)  (1,348)  (4,132)  (82)  (428)  (86)  (879)  (774)  (1,348)
Non-controlling interests  145   583   593   437   726   435   60   313   583   593   437   726 
Total Stockholders’ Equity  24,117   97,209   91,595   87,088   84,812   79,835   20,415   106,090   97,209   91,595   87,088   84,812 
Total liabilities and stockholders’ equity  189,108   762,237   723,865   645,703   634,393   605,395   180,153   936,201   762,237   723,865   645,703   634,393 
Average interest-bearing liabilities*  121,861   491,187   463,388   416,816   408,067   400,008   110,345   573,429   491,187   463,388   416,816   408,067 
Average total stockholders’ equity*  23,777   95,836   89,263   87,868   84,283   81,475   19,538   101,531   95,836   89,263   87,868   84,283 
*The average annual balance sheet data has been calculated based upon the average of the monthly balances at 13 dates: as of December 31 of the prior year and for each of the month-end balances of the 12 subsequent months.

(1)Translated for convenience only using the selling rate as reported by the Brazilian Central Bank as of December 31, 2019,2020, forreais into U.S. dollars of R$4.03075.1967 to U.S.$1.00.

(2)In the fiscal year ended December 31, 2019,2018, as a result of the implementation of IFRS 9, the balances related loans and receivables, assets held for trading, held to maturity, available for sale and compulsory deposits on time deposits were reclassified from cash and reserves at the Brazilian Central Bank to the item Loans and other amounts with credit institutions for better presentation and, consequently, the respective comparative balances also have been reclassified.new accounts prescribed by IFRS 9.

(3)Mainly provisions for tax risks and legal obligations, and judicial and administrative proceedings of labor and civil lawsuits.

 

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Selected Consolidated Ratios (*)

 

  As of and for the Year Ended December 31,
  2019 2018 2017 2016 2015
  (%)
Profitability and performance          
Return on average total assets  2.3   1.9   1.4   1.2   1.7 
Asset quality                    
Impaired assets as a percentage of loans and advances to customers (gross)(1)  6.7   7.0   6.7   7.0   7.0 
Impaired assets as a percentage of total assets(1)  3.1   3.1   3.0   3.0   3.1 
Impairment losses to customers as a percentage of impaired assets(1) (4)  87.8   90.3   80.5   87.0   81.9 
Impairment losses to customers as a percentage of loans and advances to customers (gross) (5)  5.9   6.3   5.4   6.1   5.7 
Derecognized assets as a percentage of loans and advances to customers (gross)  4.3   3.5   4.7   4.3   4.4 
Impaired assets as a percentage of stockholders’ equity(1)  24.3   24.5   22.0   22.3   23.3 
Capital adequacy                    
Basel capital adequacy ratio(2)  15.0   15.1   15.8   16.3   15.7 
Efficiency                    
Efficiency ratio(3)  28.8   33.9   33.1   30.6   47.1 

  As of and for the Year Ended December 31,
  2020 2019 2018 2017 2016
          (%)         
Profitability and performance                    
Return on average total assets  1.6   2.3   1.9   1.4   1.2 
Asset quality                    
Impaired assets as a percentage of loans and advances to customers (gross)(1)  5.5   6.7   7.0   6.7   7.0 
Impaired assets as a percentage of total assets(1)  2.5   3.1   3.1   3.0   3.0 
Impairment losses to customers as a percentage of impaired assets(1) (4)  103.8   87.8   90.3   80.5   87.0 
Impairment losses to customers as a percentage of loans and advances to customers (gross) (5)  5.8   5.9   6.3   5.4   6.1 
Derecognized assets as a percentage of loans and advances to customers (gross)  3.7   4.3   3.5   4.7   4.3 
Impaired assets as a percentage of stockholders’ equity(1)  21.8   24.3   24.5   22.0   22.3 
Capital adequacy                    
Basel capital adequacy ratio(2)  15.3   15.0   15.1   15.8   16.3 
Efficiency                    
Efficiency ratio(3)  35.5   28.8   33.9   33.1   30.6 
*The average annual balance sheet data has been calculated based upon the average of the monthly balances at 13 dates: as of December 31 of the prior year and for each of the month-end balances of the 12 subsequent months.

(1)Impaired assets include all loans and advances past due by more than 90 days and other doubtful credits. For further information, refersee to “Item 4. Information on the Company—B. Business Overview—Selected Statistical Information—Assets—Impaired Assets.”

(2)Basel capital adequacy ratio is measured pursuant to Brazilian Central Bank rules in effect as from December 31, 2014. This ratio is subject to a phased-in implementation schedule established by the Brazilian Central Bank, which is expected to be completed by 2019. The Basel III framework applies to all commercial banks operating in Brazil and covers, among other things, minimum capital requirements, capital buffers, risk-based capital measures, liquidity standards, net stable funding ratio, leverage ratio, exposures to central counterparties, as well as the definition of consolidated enterprise level (conglomerado prudencial). Since the enactment of the initial Basel III framework in 2013, the authorities have been implementing additional regulations and some important amendments to the existing framework. For more information, see “Item 4. Information on the Company—B. Business Overview—Regulation andrules.

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Supervision—Capital Adequacy and Leverage – Basel.”

(3)Efficiency ratio is determined by takingdividing administrative expenses divided by total income.

(4)In 2019,2020, including the debt instruments accounted for in the loans and receivables,as financial assets measured at amortized cost, the ratio is 96.8%110.6%. For 20182019 the ratio was 78.1%96.8%. The debt instruments amount was not material in preceding years.

(5)In 2020, including the debt instruments accounted for as financial assets measured at amortized cost, the ratio is 6.1%. For 2019 the ratio was 5.8%. The debt instruments amount was not material in preceding years.

 

(5)In 2019, including the debt instruments accounted for in the loans and receivables the ratio is 5.8%. For 2018, the ratio was 6.3%. The debt instruments amount was not material in preceding years.

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Selected Consolidated Ratios, Including Non-GAAP Ratios (*)

 

  As of and for the Year Ended December 31,
  2019 2018 2017 2016 2015
  (%)
Profitability and performance          
Net yield(1)  6.8   6.9   6.4   6.2   6.6 
Return on average stockholders’ equity(2)  17.4   14.3   10.4   8.9   12.1 
Adjusted return on average stockholders’ equity(2)  24.7   21.0   15.4   13.3   18.5 
Average stockholders’ equity as a percentage of average total assets(2)(*)  13.0   13.0   13.8   13.9   14.2 
Average stockholders’ equity excluding goodwill as a percentage of average total assets excluding goodwill(2)(*)  9.6   9.3   9.8   9.7   9.8 
Asset quality                    
Impaired assets as a percentage of credit risk exposure (3)  6.0   6.2   5.8   6.3   6.0 
Impaired assets as a percentage of stockholders’ equity excluding goodwill(2)(3)  34.4   35.5   32.6   33.5   36.1 
Liquidity                    
Loans and advances to customers, net as a percentage of total funding(4)  62.9   60.6   62.7   58.0   59.3 
Efficiency                    
Adjusted efficiency ratio(5)  28.2   30.3   32.5   34.9   34.8 

  As of and for the Year Ended December 31,
  2020 2019 2018 2017 2016
   (%) 
Profitability and performance                    
Net yield (1)  6.0   6.8   6.9   6.4   6.2 
Return on average stockholders’ equity (2)  13.2   17.4   14.3   10.4   8.9 
Adjusted return on average stockholders’ equity (2)  18.4   24.7   21.0   15.4   13.3 
Average stockholders’ equity as a percentage of average total assets (2)(*)  11.9   13.0   13.0   13.8   13.9 
Average stockholders’ equity excluding goodwill as a percentage of average total assets excluding goodwill (2)(*)  8.8   9.6   9.3   9.8   9.7 
Asset quality                    
Impaired assets as a percentage of credit risk exposure (3)  5.0   6.0   6.2   5.8   6.3 
Impaired assets as a percentage of stockholders’ equity excluding goodwill (2)(3)  29.8   34.4   35.5   32.6   33.5 
Liquidity                    
Loans and advances to customers, net as a percentage of total funding (4)  76.3   62.9   60.6   62.7   58.0 
Efficiency                    
Adjusted efficiency ratio(5)  27.7   28.2   30.3   32.5   34.9 

(*) The average annual balance sheet data has been calculated based upon the average of the monthly balances at 13 dates: at December 31 of the prior year and for each of the month-end balances of the 12 subsequent months.

(1) “Net yield” is defined as net interest income (including dividends on equity securities) divided by average interest earning assets.

 

(2) “Adjusted return on average stockholders’ equity,” “Average stockholders’ equity excluding goodwill as a percentage of average total assets excluding goodwill” and “Impaired assets as a percentage of stockholders’ equity excluding goodwill” are non-GAAP financial measures which adjust “Return on average stockholders’ equity,” “Average stockholders’ equity as a percentage of average total assets” and “Impaired assets as a percentage of stockholders’ equity,” to exclude the goodwill arising from the acquisition of Banco Real in 2008, Getnet Adquirência e Serviços para Meios de Pagamento S.A., or “GetNet” and Super Pagamentos e Administração de Meios Eletrônicos Ltda., or “Super”, both in 2014, Banco Olé Bonsucesso Consignado S.A. (current(the current name of Banco Bonsucesso Consignado S.A.) 60% in 2015 and the remaining 40% in 2020, and BW Guirapá I S.A. in 2016. Our calculation of these non-GAAP financial measures may differ from the calculation of similarly titled measures used by other companies. We believe that these non-GAAP financial measures supplement the GAAP information provided to investors regarding the substantial impact of the R$27 billion goodwill arising from the acquisition of Banco Real during the year ended December 31, 2008, the R$1.1 billion goodwill arising from the acquisition of GetNet and Super both during 2014, the acquisition of an interest in Banco Olé Bonsucesso Consignado S.A. in 2015. Accordingly, we believe that the non-GAAP financial measures presented are useful to investors. The limitation associated with the exclusion of goodwill from stockholders’ equity is that it has the effect of excluding a portion of the total investment in our assets. We compensate for this limitation by also considering stockholders’ equity including goodwill.

(3) Credit risk exposure is the sum of the amortized cost amounts of loans and advances to customers (including impaired assets), guarantees and documentary credits. We include off-balance sheet information in this measure to better demonstrate our total managed credit risk. The reconciliation of the measure to the most comparable IFRS measure is disclosed in the table of non-GAAP financial measures presented immediately after these notes.

 

(4) Total funding is the sum of financial liabilities at amortized cost, excluding other financial liabilities. For a breakdown of the components of total funding, see “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Liquidity and Funding.”

(5) Adjusted efficiency ratio excludes the effect of the hedge for investments held abroad. This exclusion affects the income tax, gains (losses) on financial assets and liabilities and exchange rate differences line items but does not affect the “Net profit from continuing operations” line item because the adjustment to gains (losses) on financial assets and liabilities and exchange rate difference is offset by the adjustment to income tax. Our management believes that the adjusted efficiency ratio provides a more consistent framework for evaluating and conducting business, as a result of excluding from our revenues the effect of the volatility caused by possible gains and losses on our hedging strategies for tax purposes. For more details, see the table below.

 

  For the Year Ended December 31,
  2019 2018 2017 2016 2015
  (in millions of R$, except percentages)
Effects of the hedge for investments held abroad  1,264   5,867   810  (6,140)  10,919 
Efficiency ratio  28.8%  33.9%  33.1%  30.6%  47.1%
Adjusted efficiency ratio  28.2%  30.3%  32.5%  34.9%  34.8%

  For the Year Ended December 31,
  2020 2019 2018 2017 2016
  (in millions of R$, except percentages)
Effects of the hedge for investments held abroad  13,583   1,264   5,867   (810)  (6,140)
Efficiency ratio  35.5%  28.8%  33.9%  33.1%  30.6%
Adjusted efficiency ratio  27.7%  28.2%  30.3%  32.5%  34.9%

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Reconciliation of Non-GAAP Measures and Ratios to Their Most Directly Comparable IFRS Financial Measures

 

Reconciliation of Non-GAAP Ratios to Their Most Directly Comparable IFRS Financial Measures

 

The information in the table below presents the calculation of specified non-GAAP financial measures to the most directly comparable IFRS financial measures. Our calculation of these non-GAAP financial measures may differ from the calculation of similarly titled measures used by other companies. We believe that these non-GAAP financial measures supplement the GAAP information provided to investors regarding the substantial impact of the R$1.1 billion goodwill arising from the acquisition of GetNet and Super both during 2014, the acquisition of Banco Olé Bonsucesso Consignado S.A. in 2015 and the significance of other factors affecting stockholders’ equity and the related ratios. See “Item 4. Information on the Company—4A. History and Development of the Company—Important Events.” The limitation associated with the exclusion of goodwill from stockholders’ equity is that it has the effect of excluding a portion of the total investment in our assets. We compensate for this limitation by also considering stockholders’ equity including goodwill, as set forth in the above tables. Accordingly, while we believe that the non-GAAP financial measures presented are useful to investors and support their analysis, the non-GAAP financial measures have important limitations as analytical tools, and investors should not consider them in isolation or as substitutes for analysis of our results as reported under GAAP measures including under IFRS.

 

  As of and for the Year Ended December 31,
  2019 2018 2017 2016 2015
  (in millions of R$, except as otherwise indicated)
Return on average stockholders’ equity:          
Consolidated profit for the year  16,631   12,800   9,138   7,465   9,834 
Average stockholders’ equity (*)  95,836   89,263   87,868   84,283   81,475 
Return on average stockholders’ equity (*)  17.4%  14.3%  10.4%  8.9%  12.1%
Adjusted return on average stockholders’ equity(*):                    
Consolidated profit for the year  16,631   12,800   9,138   7,465   9,834 
Average stockholders’ equity(*)  95,836   89,263   87,868   84,283   81,475 
Average goodwill(*)  28,213   28,176   28,360   28,343   28,376 
Average stockholders’ equity excluding goodwill(*)  67,623   61,087   59,508   55,940   53,130 
Adjusted return on average stockholders’ equity(*)(3)  24.6%  21.0%  15.4%  13.3%  18.5%
Average stockholders’ equity as a percentage of average total assets(*):                    
Average stockholders’ equity(*)  95,836   89,263   87,868   84,283   81,475 
Average total assets(*)  735,507   685,531   637,511   605,646   571,918 
Average stockholders’ equity as a percentage of average total assets(*)  13.0%  13.0%  13.8%  13.9%  14.2%
Average stockholders’ equity excluding goodwill as a percentage of average total assets excluding goodwill(*):                    
Average stockholders’ equity(*)  95,836   89,263   87,868   84,283   81,475 
Average goodwill(*)  28,213   28,176   28,360   28,343   28,376 
Average stockholders’ equity excluding goodwill(*)  67,623   61,087   59,508   55,940   53,130 
Average total assets(*)  735,507   685,531   637,511   605,646   571,918 
Average goodwill(*)  28,213   28,176   28,360   28,343   28,376 
Average total assets excluding goodwill(*)  707,294   657,355   609,151   577,334   543,542 
Average stockholders’ equity excluding goodwill as a percentage of average total assets excluding goodwill(*)  9.6%  9.3%  9.8%  9.7%  9.8%
Impaired assets as a percentage of stockholders’ equity:                    
Impaired assets  23,426   22,426   19,145   18,887   18,599 
Stockholders’ equity  97,209   91,595   87,088   84,813   79,835 
Impaired assets as a percentage of stockholders’ equity  24.1%  24.5%  22.0%  22.3%  23.3%

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 As of and for the Year Ended December 31,
 2020 2019 2018 2017 2016
 (in millions of R$, except as otherwise indicated)
Return on average stockholders’ equity:                    
Consolidated profit for the year  13,451   16,631   12,800   9,138   7,465 
Average stockholders’ equity (*)  101,531   95,836   89,263   87,868   84,283 
Return on average stockholders’ equity (*)  13.2%  17.4%  14.3%  10.4%  8.9%
Adjusted return on average stockholders’ equity(*):                    
Consolidated profit for the year  13,451   16,631   12,800   9,138   7,465 
Average stockholders’ equity(*)  101,531   95,836   89,263   87,868   84,283 
Average goodwill(*)  28,513   28,213   28,176   28,360   28,343 
Average stockholders’ equity excluding goodwill(*)  73,018   67,623   61,087   59,508   55,940 
Adjusted return on average stockholders’ equity(*)(3)  18.4%  24.6%  21.0%  15.4%  13.3%
Average stockholders’ equity as a percentage of average total assets(*):                    
Average stockholders’ equity(*)  101,531   95,836   89,263   87,868   84,283 
Average total assets(*)  854,615   735,507   685,531   637,511   605,646 
Average stockholders’ equity as a percentage of average total assets(*)  11.9%  13.0%  13.0%  13.8%  13.9%
Average stockholders’ equity excluding goodwill as a percentage of average total assets excluding goodwill(*):                    
Average stockholders’ equity(*)  101,531   95,836   89,263   87,868   84,283 
Average goodwill(*)  28,513   28,213   28,176   28,360   28,343 
Average stockholders’ equity excluding goodwill(*)  73,018   67,623   61,087   59,508   55,940 
Average total assets(*)  854,615   735,507   685,531   637,511   605,646 
Average goodwill(*)  28,513   28,213   28,176   28,360   28,343 
Average total assets excluding goodwill(*)  826,102   707,294   657,355   609,151   577,334 
Average stockholders’ equity excluding goodwill as a percentage of average total assets excluding goodwill(*)  8.8%  9.6%  9.3%  9.8%  9.7%
Impaired assets as a percentage of stockholders’ equity:                    
Impaired assets  23,176   23,426   22,426   19,145   18,887 
Stockholders’ equity  106,090   97,209   91,595   87,088   84,813 
Impaired assets as a percentage of stockholders’ equity  21.8%  24.1%  24.5%  22.0%  22.3%
Impaired assets as a percentage of stockholders’ equity excluding goodwill:                                        
Impaired assets  23,426   22,426   19,145   18,887   18,599   23,176   23,426   22,426   19,145   18,887 
Stockholders’ equity  97,209   91,595   87,088   84,813   79,835   106,090   97,209   91,595   87,089   84,813 
Goodwill  28,375   28,378   28,364   28,355   28,333   28,360   28,375   28,378   28,364   28,355 
Stockholders’ equity excluding goodwill  68,834   63,217   58,724   56,458   51,502   77,730   68,834   63,217   58,724   56,458 
Impaired assets as a percentage of stockholders’ equity excluding goodwill  34.0%  35.5%  32.6%  33.5%  36.1%  29.8%  34.0%  35.5%  32.6%  33.5%
Impaired assets as a percentage of loans and receivables:                                        
Loans and advances to customers, gross  347,257   321,933   287,829   268,438   267,266   417,822   347,257   321,933   287,829   268,438 
Impaired assets  23,426   22,426   19,145   18,887   18,599   23,176   23,426   22,426   19,145   18,887 
Impaired assets as a percentage of loans and receivables  6.7%  7.0%  6.7%  7.0%  7.0%  5.5%  6.7%  7.0%  6.7%  7.0%
Impaired assets as a percentage of credit risk exposure:                                        
Loans and advances to customers, gross  347,257   321,933   287,829   268,438   267,266   417,822   347,257   321,933   287,829   268,438 
Guarantees  44,313   42,260   42,645   33,265   43,611   48,282   44,313   42,260   42,645   33,265 
Credit risk exposure  391,569   364,182   330,474   301,703   310,887   466,115   391,569   364,182   330,474   301,703 
Impaired assets  23,426   22,426   19,145   18,887   18,599   23,176   23,426   22,426   19,145   18,887 
Impaired assets as a percentage of credit risk exposure  6.0%  6.2%  5.8%  6.3%  6.0%  5.0%  6.0%  6.2%  5.8%  6.3%
Loans and advances to customers, net as a percentage of total funding:                                        
Loans and advances to customers, gross  347,257   321,933   287,829   268,438   267,266   417,822   347,257   321,933   287,829   268,438 
Impairment losses(1)  20,557   20,242   15,409   16,435   15,233   24,054   20,557   20,242   15,409   16,435 
Total Funding(2)  519,664   497,513   434,620   434,502   425,209   647,465   519,664   497,512   434,620   434,502 
Loans and advances to customers, net as a percentage of total funding(2)  62.4%  60.6%  62.7%  58.0%  59.3%  60.8%  62.9%  60.6%  62.7%  58.0%
(*)The average annual balance sheet data has been calculated based upon the average of the monthly balances at 13 dates: at December 31 of the prior year and for each of the month-end balances of the 12 subsequent months.

(1)Provision for impairment losses of loans and advances to customers.

(2)Total funding is the sum of financial liabilities at amortized cost, excluding the other financial liabilities.

 

The table below presents the reconciliation of our adjusted efficiency ratio to the most directly comparable IFRS financial measures for each of the periods presented.

 

 As of and for the Year Ended December 31, As of and for the Year Ended December 31,
 2019 2018 2017 2016 2015 2020 2019 2018 2017 2016
 (in millions of R$, except as otherwise indicated) (in millions of R$, except as otherwise indicated)
Efficiency ratio                              
Administrative expenses  16,942   16,792   16,121   14,920   14,515   17,115   16,942   16,792   16,121   14,920 
Total income  58,769   49,507   48,725   48,837   30,814   48,242   58,769   49,507   48,725   48,837 
of which:                                        
Gains (losses) on financial assets and liabilities (net) and exchange differences (net)  (326)  (5,589)  1,574   7,591   (9,918)  (11,703)  (326)  (5,589)  1,574   7,590 
Efficiency ratio  28.8%  33.9%  33.1%  30.6%  47.1%  35.5%  28.8%  33.9%  33.1%  30.6%
Total Income  58,769   49,507   48,725   48,837   30,814   48,242   58,769   49,507   48,725   48,837 
Effects of the hedge for investments held abroad  1,264   5,867   810  6,140   (10,919)  13,583   1,264   5,867   (810)  (6,140)
Total income excluding effects of the hedge for investments held abroad  57,505   43,640   47,915   42,697   41,733   61,825   60,033   55,374   47,915   42,697 
Administrative expenses  16,942   16,792   16,121   14,920   14,515   17,115   16,942   16,792   16,121   14,920 
Efficiency ratio adjusted for effects of the hedge for investments held abroad  29.5%  38.5%  33.6%  34.9%  34.8%  27.7%  28.2%  30.3%  33.6%  34.9%

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Reconciliation of Non-GAAP Measures to Their Most Directly Comparable IFRS Financial Measures

 

The information in the table below presents the calculation of specified non-GAAP financial measures from each of their most directly comparable IFRS financial measures. Our calculation of these non-GAAP financial measures may differ from the calculation of similarly titled measures used by other companies. We believe that these non-GAAP financial measures supplement the GAAP information provided to investors regarding effects of the hedge for investments held abroad. The limitation associated with the exclusion of effects of the hedge for investments held abroad is that it has the effect

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of excluding a portion of gains/losses on financial assets and liabilities (net) plus exchange differences (net) line item which is offset by excluding a portion in the Income tax line item. Accordingly, while we believe that the non-GAAP financial measures presented are useful to investors and support their analysis, the non-GAAP financial measures have important limitations as analytical tools, and investors should not consider them in isolation or as substitutes for analysis of our results as reported under GAAP measures including under IFRS.


  As of and for the year ended December 31,
  2020 2019 2018 2017 2016
  (in millions of R$, except as otherwise indicated)
           
Gains/losses on financial assets and liabilities (net) plus exchange differences (net)  (11,703)  (326)  (5,589)  1,574   7,591 
Effects on hedge for investment held abroad  13,583   1,264   5,867   (810)  (6,140)
Adjusted Gains/losses on financial assets and liabilities (net) plus exchange differences (net)  (25,286)  (1,590)  (11,456)  764   1,451 
Total Income  48,242   58,769   49,507   48,725   48,837 
Effects on hedge for investment held abroad  13,583   1,264   5,867   (810)  (6,140)
Adjusted Total Income  61,825   60,033   55,374   47,915   42,697 
Operating profit before tax  9,664   22,273   15,910   14,514   16,384 
Effects on hedge for investment held abroad  13,583   1,264   5,867   (810)  (6,140)
Adjusted Operating profit before tax  23,247   23,537   21,777   13,704   10,244 
Income Tax  3,787   (5,642)  (3,110)  (5,376)  (8,919)
Effects on hedge for investment held abroad  (13,583)  (1,264)  (5,867)  810   6,140 
Adjusted Income tax  (9,796)  (6,906)  (8,897)  (4,566)  (2,779)
Operating profit before tax – Commercial Banking  4,666   18,375   12,397   11,220   12,652 
Effects on hedge for investment held abroad  13,583   1,264   5,867   810   6,140 
Adjusted Operating Profit before tax – Commercial Banking  18,249   19,639   18,264   12,030   6,512 

 

  As of and for the year ended December 31,
  2019 2018 2017 2016 2015
  (in millions of R$, except as otherwise indicated)
           
Gains/losses on financial assets and liabilities
(net) plus exchange differences (net)
  (326)  (5,589)  1,574   7,591   (9,918)
Effects on hedge for investment held abroad  1,264   5,867   810   (6,140)  10,919 

Adjusted Gains/losses on financial assets and

liabilities (net) plus exchange differences (net)

  (938)  (11,456)  764   1,451   1,001 
Total Income  58,769   49,507   48,725   48,837   30,814 
Effects on hedge for investment held abroad  1,264   5,867   810   6,140   (10,919)
Adjusted Total Income  57,505   43,640   47,915   42,697   41,733 
Operating profit before tax  22,273   15,910   14,514   16,384   (3,216)
Effects on hedge for investment held abroad  1,264   5,867   810   6,140   (10,919)
Adjusted Operating profit before tax  21,009   10,043   13,704   10,244   7,703 
Income Tax  (5,642)  (3,110)  (5,376)  (8,919)  13,050 
Effects on hedge for investment held abroad  (1,264)  (5,867)  (810)  6,140   (10,919)
Adjusted Income tax   (6,906)  (8,977)  (6,186)  (2,779)  2,130 
Operating profit before tax – Commercial Banking  18,375   12,397   11,220   12,652   (5,565)
Effects on hedge for investment held abroad  1,264   5,867   810   6,140   (10,919)
Adjusted Operating Profit before tax – Commercial Banking  17,111   6,530   10,411   6,512   5,354 


Exchange Rates

 

The Brazilian foreign exchange system allows the purchase and sale of foreign currency and the international transfer ofreaisby any person or legal entity, regardless of the amount, subject to certain regulatory procedures.

 

Since 1999, the Brazilian Central Bank has allowed thereal/U.S. dollar exchange rate to float freely, which resulted in increasing exchange rate volatility. In the past,However, the Brazilian Central Bank has intervened occasionally to control high volatility in the foreignmoderate exchange rates.rate volatility. We cannot predict whether the Brazilian Central Bank or the Brazilian government will continue to permit thereal to float freely or will intervene in the exchange rate market through the return of a currency band system or otherwise. In the future, thereal may fluctuate substantially against the U.S. dollar.

 

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Furthermore, Brazilian law provides that, whenever there is a serious imbalance in Brazil’s balance of payments or there are compelling reasons to foresee a serious imbalance; temporary restrictions may be imposed on remittances of foreign capital abroad. Any such restrictions on remittances of foreign capital abroad may limit our ability to make distributions to holders of our American Depositary Receipts, or “ADRs”. We cannot assure that such measures will not be taken by the Brazilian government in the future. Exchange rate fluctuations will affect the U.S. dollar equivalent of the price of our shares inreais on the São Paulo Stock Exchange, B3 S.A. – Brasil, Bolsa, Balcão, or “B3” as well as the U.S. dollar equivalent of any distributions we make with respect to our shares, which will be made exclusively inreais. Exchange rate fluctuations may also adversely affect our financial condition. For further information on these risks, see “—“Item 3. Key Information—D. Risk Factors—Risks Relating to Brazil and Macroeconomic Conditions in Brazil and Globally—Exchange rate volatility may have a material adverse effect on the Brazilian economy and on us.”

 

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The following tables set forth the selling rate, expressed inreais per U.S. dollar (R$/U.S.$), for the periods indicated:

 

  Period-end Average(1) Low High
  (per U.S. dollar)
Year:        
2016  3.26   3.48   3.12   4.16 
2017  3.31   3.19   3.05   3.38 
2018  3.87   3.68   3.14   4.19 
2019  4.03   4.11   4.02   4.22 
2020  5.20   5.16   4.02   5.94 
Month Ended:                
September 2020  5.64   5.40   5.25   5.65 
October 2020  5.77   5.63   5.52   5.78 
November 2020  5.33   5.42   5.28   5.69 
December 2020  5.20   5.15   5.06   5.28 
January 2021  5.48   5.36   5.16   5.51 
February 2021 (through February 24, 2021)  5.42   5.41   5.34   5.50 

  Period-endAverage(1)LowHigh
  (per U.S. dollar)
Year:     
2015 3.903.342.574.19
2016 3.263.483.124.16
2017 3.313.193.053.38
2018 3.873.683.144.19
2019 4.034.114.024.22
Month Ended:     
August 2019 4.154.033.844.17
September 2019 4.164.124.064.19
October 2019 4.024.093.994.18
November 2019 4.244.163.994.26
December 2019 4.034.114.024.22
January 2020 4.284.154.024.28
February 2020 4.504.344.244.50
March 2020 (through March 5, 2020) 4.624.534.494.62

Source: Brazilian Central Bank.

 

(1)Represents the average of the exchange rates at the close of each business day during the period.

 

Our parent company, Santander Spain, reports its financial condition and results of operations in euros. As of December 31, 2019,2020, the exchange rate foreuro toreal was R$4.4097 6.3779 per €1.00.

 

3B.Capitalization and Indebtedness

3B. Capitalization and Indebtedness

 

Not applicable.

 

3C.Reasons for the Offer and Use of Proceeds

3C. Reasons for the Offer and Use of Proceeds

 

Not applicable.

 

3D.

3D. Risk Factors

The below risks could materially and adversely affected the financial and operational state of our Company, and as result, could impact the investment of our shareholders.

 

This section is intended to be a summary of more detailed discussions contained elsewhere in this annual report. You should carefully read and consider the following risks, along with the other information included in this Annual Report on Form 20-F. The risks described below are not the only ones we face. Additional risks that we do not presently consider material, or of which we are not currently aware, may also affect us. Our business, results of operations or financial condition could be impacted if any of these risks materialize and, as a result, the market price of our Units and of our ADRs could be affected.

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Summary of Risk Factors

Summary of Risks Relating to Brazil and Macroeconomic and Political Conditions in Brazil and Globally

 

·The Brazilian government has exercised significant influence over the Brazilian economy. The Brazilian government’s macroeconomic management strategies, as well as Brazilian political and economic conditions, could adversely affect us and the trading price of our securities.

·Inflation, government efforts to control inflation, and changes in interest rates may hinder the growth of the Brazilian economy and could have an adverse effect on us.

·Exposure to Brazilian federal government debt could have a material adverse effect on us.

·Fluctuations in interest rates and other factors may affect our obligations under legacy employee pension funds.

·Exchange rate volatility may have a material adverse effect on the Brazilian economy and on us.

·Infrastructure, labor force deficiency and other factors in Brazil may impact economic growth and have a material adverse effect on us.

·Disruption or volatility in global financial and credit markets could adversely affect the financial and economic environment in Brazil, which could have a material adverse effect on us.

Summary of Risks Relating to the Brazilian Financial Services Industry and Our Business

·The current global COVID-19 pandemic has materially impacted our business, and the continuance of this pandemic or any future outbreak of any other highly contagious diseases or other public health emergency, could materially and adversely impact our business, financial condition, liquidity and results of operations.

·The strong competitive environment in the Brazilian financial services market may adversely affect us, including our business prospects.

·We may not be able to detect or prevent money laundering and other criminal activities fully or on a timely basis, which could expose us to additional liability and could have a material adverse effect on us.

·We are subject to increasing scrutiny and regulation from data protection laws. Failure to protect personal information could adversely affect us.

·We are exposed to risk of loss from legal and regulatory proceedings.

·Disclosure controls and procedures over financial reporting may not prevent or detect all errors or acts of fraud.

·Changes in taxes and other fiscal assessments may adversely affect us. Furthermore, we are subject to review by tax authorities, and an incorrect interpretation by us of tax laws and regulations may have a material adverse effect on us.

·Our loan and investment portfolios are subject to risk of prepayment, which could have a material adverse effect on us.

·The credit quality of our loan portfolio may deteriorate and our loan loss reserves could be insufficient to cover our loan losses, which could have a material adverse effect on us.

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·Liquidity and funding risks are inherent in our business, and since our principal sources of funds are short-term deposits, a sudden shortage of funds could cause an increase in costs of funding and an adverse effect on our revenues and our liquidity levels.

·The value of the collateral securing our loans may not be sufficient, and we may be unable to realize the full value of the collateral securing our loan portfolio. We may face significant challenges in possessing and realizing value from collateral with respect to loans in default.

·We may not effectively manage risks associated with the replacement or reform of benchmark indices.

·Failure to successfully implement and continue to improve our risk management policies, procedures and methods, including our credit risk management system, could materially and adversely affect us, and we may be exposed to unidentified or unanticipated risks.

·Failure to adequately protect ourselves against risks relating to cybersecurity could materially and adversely affect us. We are also subject to increasing scrutiny and regulation governing cybersecurity risks.

·We are subject to counterparty risk in our business.

·Our financial results are constantly exposed to market risk. We are subject to fluctuations in interest rates and other market risks, which may materially and adversely affect us.

·We engage in transactions with related parties that others may not consider to be on an arm’s-length basis.

·Our business is highly dependent on the proper functioning of information technology systems.

Summary of Risks Relating to Our Controlling Shareholder, Our Units and American Depositary Receipts (ADRs)

·Our ultimate controlling shareholder has a great deal of influence over our business and its interests could conflict with ours.

·Our status as a controlled company and a foreign private issuer exempts us from certain of the corporate governance standards of the New York Stock Exchange, or “NYSE”, limiting the protections afforded to investors. Furthermore, our corporate disclosure may differ from disclosure regularly published by issuers of securities in other countries, including the U.S.

·The liquidity and market prices of the units and the ADRs may be adversely affected by the cancellation of units or substantial sale of units and shares in the market.

·The relative volatility and limited liquidity of the Brazilian securities markets may negatively affect the liquidity and market prices of the units and the ADRs.

·Holders of our units and our ADRs may not receive any dividends or interest on stockholders’ equity, may be unable to exercise preemptive rights with respect to our units underlying the ADRs, and may find it difficult to exercise voting rights at our shareholders’ meetings.

·Investors may find it difficult to enforce civil liabilities against us, our directors or officers. In addition, judgments of Brazilian courts with respect to our units or ADRs will be payable only in reais.

·Holders of ADRs and could be subject to Brazilian income tax on capital gains from sales of ADRs. Furthermore, if you exchange your ADRs for their underlying Units, you risk losing Brazilian tax advantages and the ability to remit foreign currency abroad.

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Risks Relating to Brazil and Macroeconomic and Political Conditions in Brazil and Globally

The Brazilian government has exercised significant influence over the Brazilian economy. The Brazilian government’s macroeconomic management strategies, as well as Brazilian political and economic conditions, could adversely affect us and the trading price of our securities.

 

The Brazilian government has frequently intervened in the Brazilian economy and has on occasion made significant changes in policy and regulations. In the past, the Brazilian government has adopted measures, including, among others, changes in regulations, price controls, capital controls, changes in the exchange rate regime, and limitations on imports, which have affected Brazilian asset prices. Recently, the Brazilian government has adopted measures, including changes in tax policies, and constraints that have affected Brazilian asset prices and the trading price of our securities.

 

We and the trading price of our securities may be adversely affected by changes in policy, laws or regulations at the federal, state and municipal levels involving or affecting factors such as:

 

·interest rates;

 

·currency volatility;

 

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·inflation;

 

·reserve requirements;

 

·capital requirements;

 

·liquidity of capital and lending markets;

 

·non-performing loans;

 

·tax policies;

 

·the regulatory framework governing our industry;

 

·exchange rate controls and restrictions on remittances abroad; and

 

·other political, social and economic developments in or affecting Brazil.

 

Uncertainty over whether the Brazilian government will implement changes in policy or regulation creates instability in the Brazilian economy, increasing the volatility of the Brazilian securities markets, which may have an adverse effect on us and our securities. Recent economic and political instability has led to a negative perception of the Brazilian economy and higher volatility in the Brazilian securities markets, which also may adversely affect us and our securities. The overall trend of the Brazilian political and economic arenas may also affect the business of the Brazilian financial industry.

 

We are not able to fully estimate the impact of global and Brazilian political and macroeconomic developments and economic regulatory policy changes on our business and lending activity, nor are we able to predict how current or future measures implemented by regulatory policy-makers may impact our business. In addition, due to the current political instability, there exists substantial uncertainty regarding future economic policies and we cannot predict what policies will be adopted by the Brazilian government and whether these policies will negatively affect the economy or our business or financial performance. Any changes in regulatory capital requirements for lending, reserve requirements, or product and service regulations, among others, or continued political uncertainty may materially adversely affect our business.

 

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Political instability in Brazil may adversely affect Brazil’s economy and investment levels, and have a material adverse effect on us.

 

Brazil’s political environment has historically influenced, and continues to influence, the performance of the country’sBrazil’s economy by impacting the confidence of investors and the general public, which has historically resulted in economic deceleration and heightened volatility in the securities issued by Brazilian companies.

In recent years, there has been significant political turmoil in connection with the impeachment of the former president (who was removed from office in August 2016) and ongoing investigations of her successor (who left office in January 2019) as part of the ongoingLava Jato investigations.

 

There are uncertainties regarding the ability of the current government to implement policies and reforms, as well as external perception regarding the Brazilian economy and political environment, all of which could have a negative impact on our business and the price of our securities. In addition, the revocation of the income tax exemption on the payment of dividends, which, if enacted, would increase the tax expenses associated with any dividend or distribution by Brazilian companies, could impact our capacity to receive future cash dividends or distributions net of taxes from our subsidiaries. Any such new policies or changes to current policies may have a material adverse effect on us.

 

Furthermore, Brazil’s federal budget has been in deficit since 2014. Similarly, the governments of Brazil’s constituent states are also facing fiscal concerns due to their high debt burdens, declining revenues and inflexible expenditures.

 

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Uncertainty about the Brazilian government’s implementation of changes in policies or regulations that affect such implementation may contribute to economic instability in Brazil and increase the volatility of securities issued abroad by Brazilian companies, including our securities.

 

Ongoing investigations relating to corruption and diversion of public funds that are being conducted by the Brazilian federal police as well as other Brazilian and non-Brazilian regulators and law enforcement officials may adversely affect the growth of the Brazilian economy and could have a material adverse effect on us.

 

Certain Brazilian companies active in the oil and gas, energy, construction, and infrastructure sectors are facing investigations by the CVM, the U.S. Securities and Exchange Commission, or the “SEC,” the U.S. Department of Justice, the Brazilian Federal Police and the Brazilian Federal Prosecutor’s Office, the Comptroller General of Brazil, and other relevant governmental authorities, in connection with corruption allegations (theLava Jato investigations). The Brazilian Federal Police insare also investigating allegations of improper payments made by Brazilian companies to officials of the Board of Tax Appeals (Conselho Administrativo de Recursos Fiscais), or “CARF”, a tax appeals tribunal (the so-calledOperação Zelotes). It is alleged that the purpose of such improper payments was to induce those officials to reduce or waive certain tax-related penalties imposed by the Brazilian Federal Revenue Authority, which were under appeal in the CARF. Such investigations involve several companies and individuals, including representatives of various companies, politicians and third parties. Certain of these individuals are being investigated by the Brazilian Federal Police and others were formally charged and are facing criminal proceedings and/or have already been convicted by the Brazilian Federal Courts.

 

Depending on the duration and outcome of such investigations, the companies involved may face a reduction in their revenues, downgrades from rating agencies or funding restrictions, among other negative effects. Given the significance of the companies cited in these investigations in the Brazilian economy, the investigations and their fallout have had an adverse effect on Brazil’s economic growth prospects in the near short to medium term. Furthermore, the negative effects on such companies and others may also impact the level of investments in infrastructure in Brazil, which may lead to lower economic growth or contraction in the near to medium term (according to data from the IBGE, the Brazilian economy’s gross domestic product, or “GDP,” contracted by 3.3% in 2016, butthen increased by 1.3% in 2017 and 2018, and 1.1% in 2019)2019 and it is estimated to have contracted by 4.1% in 2020). In addition, although we have reduced our exposure to companies involved in theLava Jato and other government investigations, we cannot assure that new investigations will not be launched or that additional persons will not become subject to investigation. To the extent that the repayment ability of these companies is hampered by any fines and/or other sanctions that may be imposed upon them or reputational or commercial damage as a result of the Lava Jato investigations, we may also be materially adversely affected.

 

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As a result of the allegations under theLava Jato investigations and the economic downturn, Brazil was downgraded to non-investment grade status by S&P in September 2015, by Fitch in December 2015, by Moody’s Investor Service, or “Moody’s,” in February 2016, and downgraded again by Fitch in May 2016. In addition, Brazil was further downgraded by S&P to BB- with a stable outlook in January 2018 as a result of the failure of the prior Brazilian government to approve certain reforms. Brazil’s sovereign rating is currently rated by the three major risk-ratingrisk- rating agencies as follows: BB- by S&P and Fitch and Ba2 by Moody’s. Further downgrading of Brazil’s credit rating could reduce the trading price of units and ADRs. Various major Brazilian companies were also downgraded. Such downgrades have further worsened the conditions of the Brazilian economy and the condition of Brazilian companies, especially those relying on foreign investments. In addition, theLava Jatoinvestigations have also reached members of the executive and legislative branches of the Brazilian government, which has caused considerable political instability, and, as a result, persistently poor economic conditions in Brazil could have a material adverse effect on us. It is difficult to predict the effects of such political instability, which may include further deteriorations in Brazil’s economic conditions.

 

Inflation, government efforts to control inflation, and changes in interest rates may hinder the growth of the Brazilian economy and could have an adverse effect on us.

 

The Brazilian government’s measures to fight inflation, principally through the Brazilian Central Bank, that have had significant effects on the Brazilian economy and our business, and can continue to do so. Tight monetary policies with high compulsory reserve requirements may restrict Brazil’s growth and the availability of credit, reduce our loan volumes, and increase our loan loss provisions. Conversely, less strict government and Brazilian Central Bank policies and interest rate decreases may trigger increases in inflation, and, consequently, growth volatility and the need for sudden and significant interest rate increases, which could negatively affect our spreads.

 

In DecemberSince mid-2016, the Brazilian base interest rate, or SELIC, has been on a downward trend. The SELIC rate reached a high as 14.25% as of October, 2016, before decreasing to 13.75% p.a. by the end of 2016. The SELIC rate fell further to 7.00% p.a. by the end of 2017, and to 6.50% p.a. in March 2018. The SELIC rate remained at this level until June 2019, when it resumed its downward trend, ending 2019 at 4.50% p.a. As a result of the negative economic impact of the COVID-19 pandemic, the SELIC rate (the basic interest ratecontinued fall during 2020, and reached a historical low at 2.00% p.a. in Brazil) was lowered to 13.75%, and in January 2017,August 2020, which is the SELIC rate was further lowered to 13.0%, and to 12.25% in February 2017. In May 2017, the Monetary Policy Committee (Comitê de Política Monetária)current level as of the Brazilian Central Bank, or “COPOM”, decided to lower the SELIC rate to 10.25%, then lowering it to 9.25% in July 2017, to 7.50% in October 2017 and to 7.0% in December 2017. In February 2018, the COPOM lowered the SELIC rate to 6.75% and then to 6.50% in March 2018 and kept throughout the year 2018. In 2019, the

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COPOM continued this trend for the first half of the year until August 2019, when the rate was lowered to 6.00%, and then successively lowered further to 5.50% in September 2019, 5.00% in October 2019 and 4.50% in December 2019. In February 2020, the COPOM cut the SELIC rate to 4.25%.report.

 

The majority of our income, expenses, assets and liabilities are directly tied to interest rates. Therefore, our results of operations and financial condition are affected by inflation, interest rate fluctuations and related government monetary policies, all of which may materially and adversely affect the growth of the Brazilian economy, our loan portfolios, our cost of funding and our income from credit operations. We estimate that, in 2019,2020, a 1.0% increase or decrease in the basicbase interest rate would have resulted in a decrease or increase, respectively, in our net interest income of R$334432 million. Any changes in interest rates may negatively impact our business, financial condition and results of operations. In addition, increases in base interest rates may adversely affect us by reducing the demand for our credit and investment products, increasing funding costs, and increasing in the short run the risk of default by our customers.

 

Inflation adversely affects our personnel and other administrative expenses that are directly or indirectly tied to inflation indexes, generallysuch as the consumer price index (Í(Índice de Preços ao Consumidor – Amplo)Amplo), or “IPCA,” and the general index of market prices (Í(Índice Geral de Preços-Mercado)os-Mercado), or “IGPM.” For example, considering the amounts in 2019,2020, each additional percentage point change in inflation would impact our personnel and other administrative expenses by approximately R$9394 million and R$7677 million, respectively.

 

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Inflation has increased slightly during 2019,2020, reaching 4.31%4.52% for the 12-month period endingended December 31, 20192020 (compared to 3.75%4.31% in 2018)2019), mainly as a result of temporary supply shocks affecting the current market conditions.prices of foodstuffs.

 

Inflation, government measures to curb inflation, and speculation related to possible measures regarding inflation may significantly contribute to uncertainty regarding the Brazilian economy and weaken investors’ confidence in Brazil. Future Brazilian governmental actions, intervention in the foreign exchange market, and actions to adjust or fix the value of thereal, may trigger increases in inflation and adversely affect the performance of the Brazilian economy as a whole. Any of these actions may adversely affect our asset quality. Furthermore, Brazil’s high rate of inflation, compounded by high and increasing interest rates, declining consumer spending and increasing unemployment, may have a material adverse impact on the Brazilian economy as a whole, as well as on us.

 

Exposure to Brazilian federal government debt could have a material adverse effect on us.

 

We invest in Brazilian federal government sovereign bonds. As of December 31, 2019,2020, approximately 17.8%20.5% of our total assets, and 78.4%83.4% of our securities portfolio, consisted of debt securities issued by the Brazilian federal government. Any failure by the Brazilian Government to make timely payments under the terms of these securities, or a significant decrease in their market value, will have a material adverse effect on us.

 

Fluctuations in interest rates and other factors may affect our obligations under legacy employee pension funds.

 

We sponsor defined benefit pension plans and a healthcare plan thatfor former and current employees, most of which were inherited from Banespa (though we discontinued the use of defined benefit pension plans for our employees in 2005).

 

In order to determine the funded status of each legacy defined benefit pension plan and, consequently, the carried reserves necessary to pay future beneficiaries, we use certain actuarial techniques and assumptions, which are inherently uncertain and involve the exercise of significant judgment, including with respect to interest rates, which are a key assumption in determining our current obligations under the legacy pension plans. For further information, refer to note 2221 to our consolidated financial statements.

 

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Changes in the present value of our obligations under our legacy defined benefit pension plans could require us to increase contributions, which would divert resources from use in other areas of our business. Any such increase may be due to factors over which we have no or limited control. Increases in our pension liabilities and obligations could have a material adverse effect on our business, financial condition and results of operations.

 

Decreases in interest rates can increase the present value of obligations under our legacy defined benefit pension plans and may materially and adversely affectlifetime medical assistance plan. However, in 2020, there were two factors that contributed to the funded statusreduction of our legacy defined benefit plansprovisions when compared to 2019: first, the greater-than-average profitability of investments indexed to the IGPM, and require us to make additional contributions to these plans to meet our pension funding obligations.secondly, a reduction of medical expenses.

 

As of December 31, 2019, we had2020, our provisions for pensions and other obligations in the amount oftotaled R$1614 million. See moreFor additional information, insee note 2321 to our audited consolidated financial statements included in this annual report.

 

Exchange rate volatility may have a material adverse effect on the Brazilian economy and on us.

 

The Brazilian currency has experienced frequent and substantial variations in relation to the U.S. dollar and other foreign currencies. The Brazilian government has implemented various economic plans and used various exchange rate policies, including sudden devaluations, periodic mini-devaluations (during which the frequency of adjustments has ranged from daily to monthly), exchange controls, dual exchange rate markets and a floating exchange rate system.

 

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Although long-term depreciation of thereal is generally linked to the rate of inflation in Brazil, depreciation of therealoccurring over shorter periods of time has resulted in significant variations in the exchange rate among thereal, the U.S. dollar and other currencies. From 2013 to 2014,As a result of fluctuations in commodity prices, international developments and periods of progress and setbacks on the domestic front—such as during the presidential impeachment process in 2016, or the approval of the national pension system reform in 2019—the real depreciated againsthas weakened over the U.S. dollar due to a decrease in commodities prices, reachinglast few years. After having ended 2013 with an exchange rate of R$2.34 per U.S.$1.00, on December 31, 2013 andthe real/U.S. dollar exchange rate was R$2.65 per U.S.$1.00 on December 31, 2014. During 2015, due2014, depreciating further to the poor economic conditions in Brazil, including as a result of political instability, thereal devalued at a much higher rate than in previous years. On September 24, 2015, thereal depreciated to R$4.20 per U.S.$1.00. Overall, in 2015, thereal depreciated 47% against the U.S. dollar, reaching R$3.91 per U.S.$1.00 on December 31, 2015. In 2016,Despite the instability caused by a change in Brazil’s presidency, the real faced continuing fluctuations, primarily as a result of Brazil’s political instability, but had appreciated 17.0% year-over-yearyear-on-year against the U.S. dollar as of December 31, 2016 to R$3.26 per U.S.$1.00. In 2017, thereal remained relatively stable against the U.S. dollar, with an exchange rate of R$3.31 per U.S.$1.00 as of December 31, 2017. In 2018, thereal2017, but continued to depreciate againstin the U.S. dollar with the exchange ratefollowing years, reaching R$3.88 per U.S.$1.00 as of December 31, 2018. In 2019, thereal continued to depreciate against the U.S. dollar, with the exchange rate reaching2018, and R$4.03 per U.S.$1.00 as of December 31, 2019. On March 5,In May 2020, in response to the turbulence and uncertainty caused by the COVID-19 pandemic, the exchange rate wasalmost surpassed the level of R$4.506.00 per U.S.$1.00, but finished the year at R$5.20 per U.S.$1.00. There can be no assurance that therealwill not substantially depreciate or appreciate further against the U.S. dollar.

 

In the year ended December 31, 2019,2020, a variation of 1.0% in the exchange rate ofreais to U.S. dollars would have resulted in a variation of income on our net foreign exchange position denominated in U.S. dollars of R$1,2642.55 million.

 

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Depreciationdepreciation of thereal relative to the U.S. dollar has created additional inflationary pressures in Brazil, which has led to increases in interest rates and limited Brazilian companies’ access to foreign financial markets and prompted the adoption of recessionary policies by the Brazilian government. Depreciation of thereal may also, in the context of an economic slowdown, lead to decreased consumer spending, deflationary pressures and reduced growth of the Brazilian economy as a whole, and thereby harm our asset base, financial condition and results of operations. Additionally, depreciation of thereal could make our foreign-currency-linked obligations and funding more expensive, negatively affect the market price of our securities portfolios, and have similar consequences for our borrowers. Conversely, appreciation of thereal relative to the U.S. dollar and other foreign currencies could lead to a deterioration of the Brazilian balance of payments, as well as dampenhinder export-driven growth. Depending on the circumstances, either a depreciation or appreciation of thereal could materially and adversely affect the growth of the Brazilian economy and our business, financial condition and results of operations.

 

Infrastructure, workforcelabor force deficiency and other factors in Brazil may impact economic growth and have a material adverse effect on us.

 

Our performance depends on the overall health and growth of the Brazilian economy. Brazilian gross domestic product, or “GDP” growth has fluctuated over the past few years, with a contraction of 3.5% in 2016 andbeing followed by a three-year streak of growth of 1.0% and 1.1% in 2017 (1.0%), 2018 (1.1%) and 2018, respectively, and2019 (1.0%). For 2020, based on our internal estimates, we expect that Brazilian GDP declined by 4.1% as a growthresult of 1.0% in 2019.the impacts of the COVID-19 pandemic. Growth ishas been limited by the lack of private and public investments, resulting in potential energy shortages and deficient transportation, declining logistics and telecommunication sectors, and a lack of a qualified labor force. In addition, the growth and performance of the Brazilian economy may be impacted by other factors such as nationwide strikes, natural disasters or other disruptive events. Any of these factors could lead to labor market volatility and generally impact income, purchasing power and consumption levels, which could limit growth, increase delinquency rates and ultimately have a material adverse effect on us.

 

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Developments and the perception of risk in other countries may adversely affect the Brazilian economy and market price of Brazilian issuers’ securities.

 

The market value of securities of Brazilian issuers is affected by economic and market conditions in other countries, including the United States, European countries (including Spain, where Santander Spain, our controlling shareholder, is based), and in other Latin American and emerging market countries. Although economic conditions in Europe and in the United States may differ significantly from economic conditions in Brazil, investors’ reactions to developments in these countries may have an adverse effect on the market value of securities of Brazilian issuers. In particular, investor perceptions of the risks associated with our securities may be affected by perception of risk conditions in Spain. Additionally, crises in other emerging market countries may diminish investor interest in securities of Brazilian issuers, including our securities. This could adversely affect the market price of our securities, restrict our access to capital markets and compromise our ability to finance our operations in the future on favorable terms, or at all.

 

In 2020, 2019 2018 and 2017,2018, there was an increase in volatility in all Brazilian markets due to, among other factors, uncertainties about how monetary policy adjustments in the United States would affect the international financial markets and the increasing risk aversion to emerging market countries. In 2020, the fallout of the COVID-19 pandemic has also affected the performance of Brazilian markets. These uncertainties adversely affected us and the market value of our securities.

 

In addition, we continue to be exposed to disruptions and volatility in the global financial markets because of their effects on the financial and economic environment, particularly in Brazil, such as a slowdown in the economy, an increase in the unemployment rate, a decrease in the purchasing power of consumers and the lack of credit availability. We lend primarily to Brazilian borrowers, and these effects could materially and adversely affect our customers and increase our non-performing loans, resulting in increased risk associated with our lending activity and requiring us to make corresponding revisions to our risk management and loan loss reserve models.

 

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A global economic downturn could have a material adverse effect on us.

 

The global macroeconomic environment is facing challenges, including the economic slowdown in China and the Eurozone, the end of funding by the U.S. Federal Reserve, the uncertain impact of Brexitthe UK’s withdrawal from the European Union and, potential adoption of U.S. tariffs on steel importedmore recently, the economic setbacks derived from Brazil and Argentina.the COVID-19 pandemic. There is considerable uncertainty over the long-term effects of the expansionary monetary and fiscal policies adopted by the central banks and financial authorities of some of the world’s leading economies, including the United States. There have been concerns over conflicts, unrest and terrorist threats in the Middle East, Europe and Africa, which have resulted in volatility in oil and other markets. The United States and China have recently been involved in controversy over trade barriers in China that threatened a trade war between the countries and have implemented or proposed to implement tariffs on certain imported products. Sustained tension between the United States and China over trade policies could significantly undermine the stability of the global economy. It is unclear whether these challenges and uncertainties will be contained or resolved, and what effects they may have on the global political and economic conditions in the long term.

 

Any slowdown or instability in the global economy could impact income, purchasing power and consumption levels in Brazil, among other things, which could limit growth, increase delinquency rates and ultimately have a material adverse effect on us while also creating a more volatile economy, limiting potential access to capital and liquidity. In addition, any global economic slowdown or uncertainty may result in volatile conditions in the global financial markets, which could have a material adverse effect on us, including on our ability to access capital and liquidity on financial terms acceptable to us, if at all. Any such adverse effect on capital markets funding availability or costs or in deposit rates could have a material adverse effect on our interest margins and liquidity.

 

Disruption or volatility in global financial and credit markets could adversely affect the financial and economic environment in Brazil, which could have a material adverse effect on us.

 

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Volatility and uncertainty in global financial and credit markets have generally led to a decrease in liquidity and an increase in the cost of funding for Brazilian and international issuers and borrowers. Such conditions may adversely affect our ability to access capital and liquidity on financial terms acceptable to us, if at all.

 

Part of our funding originates from repurchase agreements which are generally short-term and volatile in terms of volume, as they are directly impacted by market liquidity. As these transactions are typically guaranteed by Brazilian government securities, the value and/or perception of value of the securities may significantly impact the availability of funds, as the cost of funding will increase if the quality of the Brazilian government securities used as collateral is adversely affected as a result of conditions in financial and credit markets, making this source of funding inefficient for us.

 

If the size and/or liquidity of the Brazilian government bond and/or repurchase agreement markets decrease, or if there is increased collateral credit risk and we are unable to access capital and liquidity on financial terms acceptable to us or at all, our financial condition and the results of our operations may be adversely affected.

 

The exit of the United Kingdom (the “UK”) from the European Union (the “EU”) and the definition of its future relationship with the EU could adversely impact global economic or market conditions, as well as our operations, financial condition and prospects.

 

On January 31, January 2020 the UK ceased to be a member of the EU, on withdrawal terms which establishestablished a transition period until December 31, December 2020, during which the UK willcontinued to be treated as if it were still aan EU member ofstate and applicable EU legislation continued to be in force. A trade deal was agreed between the European Union. Although the withdrawal agreement foresees the possibility to extend the transition period for one or two more years after the 31 January 2020, this is not automaticUK and the UK has enshrined the 31 December 2020 date in domestic legislation passing the withdrawal agreement asEU prior to the end of the transition period signaling a current desireand the new regulations came into force on January 1, 2021. The trade deal, however, did not to extend it. Uncertainlyinclude agreements on certain areas, such as financial services and data adequacy. Hence, some uncertainty remains around the terms of the UK's relationship with the EU atand the endlack of the transition period. If the transition period were to end without a fully comprehensive trade agreement may negatively impact the UK’s and Europe’s

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economic growth may be negatively impacted. The uncertainty regarding and terms of both regions. By the UK’s future relationship with the EU, as well as anysame token, an adverse effect which it may have on the UK and the EU andmay hit the wider global economy could adversely affect global economic or market conditions and investor confidence. This could, in turn, have a material adverse effect on our operations, financial condition and prospects and/or the market value of our securities.

 

Our operations and results may be negatively impacted by the coronavirus outbreak.

Global or national health concerns, including the outbreak of pandemic or contagious disease, such as the recent coronavirus, may adversely affect us.

Since December 2019, a novel strain of coronavirus has spread in China and other countries. Such events could cause disruption of regional or global economic activity, which could affect our operations and financial results. The extent to which the coronavirus impacts our results will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the coronavirus and the actions to contain the coronavirus or treat its impact, among others.

Risks Relating to the Brazilian Financial Services Industry and Our Business.

 

Climate change can create transition risks, physical risksThe current global COVID-19 pandemic has materially impacted our business, and the continuance of this pandemic or any future outbreak of any other highly contagious diseases or other public health emergency, could materially and adversely impact our business, financial condition, liquidity and results of operations.

Since December 2019, a disease caused by a new strain of coronavirus, or COVID-19, spread in the People’s Republic of China and progressively to the rest of the world, mainly to Europe, Latin America (including Brazil) and the United States, among others. The outbreak was declared a public health emergency of international concern and a global pandemic by the World Health Organization.

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Countries around the world have responded to the COVID-19 pandemic by adopting a variety of measures in an attempt to contain the spread and impact of COVID-19, including imposing mass quarantines or other containment measures, shelter-in-place orders and medical screenings, restricting travel, limiting public gatherings and suspending most economic activities. These measures have resulted in a severe decrease of global economic activity and falls in production and demand, which has led to sharp declines in the GDP of those countries that are most affected by the pandemic, and is expected to continue to have an overall negative impact on global GDP in 2020 and 2021. Other consequences include increased unemployment levels, sharp decreases and high volatility in the stock markets, disruption of global supply chains, exchange rate volatility, steady customer draws on lines of credit, decline in real estate prices, and uncertainty in relation to the future impact in regional and global economies in the medium and long term. These measures have also negatively impacted, and could continue to negatively impact, businesses, market participants, our counterparties and customers, and the global economy for a prolonged period of time. Furthermore, it is unclear how the macroeconomic business environment or societal norms may be impacted after the pandemic. The post-COVID-19 environment may undergo unexpected developments or changes in the financial markets, fiscal, tax and regulatory environments as well as customer and corporate client behavior which could have an adverse impact on our business.

Many governments and regulatory authorities, including central banks, have acted, and may further act, to provide relief from the economic and market disruptions resulting from the COVID-19 pandemic, including providing fiscal and monetary stimuli to support the global economy, lowering federal funds rates and interest rates, and granting partial or total deferral (grace period) of principal and/or interest payments due on loans. It is difficult to predict how effective these and other measures taken to mitigate the economic effects of the pandemic will be. For more information on the measures taken by the Brazilian Central Bank to combat the COVID-19 pandemic, see “Item 4. Information on the Company—B. Business Overview—Regulation and Supervision—Other Applicable Laws and Regulations—Regulatory Developments Related to COVID-19.”

Should current economic conditions persist or continue to deteriorate, we expect that this macroeconomic environment will have a continued material adverse effect on our business and results of operations, which could include, but is not limited to (i) a continued decreased demand for our products and services; (ii) protracted periods of lower interest rates and resulting pressure on our margins; (iii) further material impairment of our loans and other assets including goodwill; (iv) decline in value of collateral; (v) constraints on our liquidity due to market conditions, exchange rates and customer withdrawal of deposits and continued draws on lines of credit; and (vi) downgrades to our credit ratings. See also “Our cost of funding is affected by our credit ratings and any risks that couldmay have an adverse effect on our credit ratings and our cost of funds. Any downgrade in Brazil’s, our controlling shareholders, or our credit rating, would likely increase our cost of funding, requiring us to post additional collateral under some of our derivative and other contracts and adversely affect us.our interest margins and results of operations.”

 

Climate change may imply three primaryAdditionally, unprecedented movement in economic and market drivers related to the COVID-19 pandemic impact the performance of financial models including credit loss models, capital models, traded risk models and models used in the asset/liability management process. This has required additional monitoring and adjustments to comply with the guidance and recommendations of standard setters, regulators and supervisors, particularly for credit loss models. It also has resulted in the use of mitigants for model limitations, such as adjustments to model outputs to reflect consideration of management judgment. The performance and usage of models has been and may continue to be impacted by the consequences of the COVID-19 pandemic. While it is too early to be entirely certain of the magnitude of change required for our models, it is likely that could adversely affect us:capital, credit risk and other models will need to be adjusted. The effectiveness of our models will depend in large part on the depth and length of the economic downturn.

 

• TransitionMoreover, our operations will continue to be impacted by risks associatedfrom remote working arrangements or bans on non-essential activities. For example, some of our branches in Brazil have been closed and others have been functioning with reduced hours for a significant period of time. During 2020, we had more than half of our total workforce working remotely, which has increased cybersecurity risks given greater use of computer networks outside the movecorporate environment. If we become unable to a low-carbon economy, both at idiosyncratic and systemic levels, such as through policy, regulatory and technological changes.

• Physicalsuccessfully operate our business from remote locations including, for example, due to failures of our technology infrastructure, increased cybersecurity risks, related to extreme weather impacts and longer-term trends, whichor governmental restrictions that affect our operations, this could result in financial lossesbusiness disruptions that could impair asset valueshave a material and the creditworthiness ofadverse effect on our customers.business.

 

• Liability risks derived from parties whoWe may suffer losses fromalso be adversely affected by measures taken by the Brazilian and other governments to mitigate the effects of climate changethe COVID-19 pandemic. For example, a temporary suspension on dividends and other distributions was enacted in Brazil through Resolution No. 4,820, limiting the distributions to shareholders 30% of adjusted net profit (following amendments enacted on December 23, 2020). As a result, we only distributed R$3,837 million as dividends and interest on equity in 2020 compared to R$10,800 million in 2019.

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If the COVID-19 pandemic continues to adversely affect the global economy and/or adversely affect our business, financial condition, liquidity or results of operations, it may seek compensation from those they hold responsible such as state entities, regulators, investors and lenders.also increase the likelihood and/or magnitude of other risks described in this “Risk Factors” section.

 

These primary drivers could materialize,For more information about specific measures that we have adopted and potential impacts on our business operations, see “Item 4. Information on the Company—A. History and Development of the Company—Important Events—Impact of COVID-19” and “Item 5. Operating and Financial Review and Prospects—A. Operating Results—Principal Factors Affecting Our Financial Condition and Results of Operations—Impact of COVID-19.”

Our growth, asset quality and profitability, among others, may be adversely affected by a slowdown in the following financial risks:Brazil, as well as volatile macroeconomic and political conditions.

 

• Credit risks: Physical climate changeDuring 2020, most world economies faced severe recession as a result of COVID-19 which could lead major financial institutions, including some of the world’s largest global commercial banks, investment banks, mortgage lenders, mortgage guarantors and insurance companies to increased credit exposure, and companies with business models not aligned withexperience significant difficulties, including runs on deposits, the transitionneed for government assistance or the need to a low-carbon economy may face a higher risk of reduced corporate earnings and business disruption duereduce or cease providing funding to new regulations or market shifts.borrowers (including to other financial institutions).

 

• Market risks: Market changesVolatile conditions in the most carbon-intensive sectorsglobal financial markets could affect energyalso have a material adverse effect on us, including on our ability to access capital and commodity prices, corporate bonds, equities and certain derivatives contracts. Increasing frequency of severe weather events could affect macroeconomic conditions, weakening fundamental factors such as economic growth, employment and inflation.

• Operational risks: Severe weather events could directly impact business continuity and operations both ofliquidity on financial terms acceptable to us, if at all. If capital markets financing ceases to become available, or becomes excessively expensive, we may be forced to raise the rates we pay on deposits to attract more customers and ours.

• Reputational risk could also arise from shifting sentiment among customers and increasing attention and scrutiny from other stakeholders (investors, regulators, etc.) on our responsebecome unable to climate change.

maintain certain liability maturities. Any of the conditions described abovesuch increase in capital markets funding availability or costs or in deposit rates could have a material adverse effect on our interest margins and liquidity.

In particular, we face, among others, the following risks related to the economic downturn and volatile conditions:

·Reduced demand for our products and services.

·Increased regulation of our industry. Compliance with such regulation will continue to increase our costs and may affect the pricing for our products and services, increase our conduct and regulatory risks related to non-compliance and limit our ability to pursue business opportunities.

·Inability of our borrowers to timely or fully comply with their existing obligations. Macroeconomic shocks may negatively impact the income of our customers, both retail and corporate, and may adversely affect the recoverability of our loans, resulting in increased loan losses. 

The process we use to estimate losses inherent in our credit exposure requires complex judgements, including forecasts of economic conditions and how these economic conditions might impair the ability of our borrowers to repay their loans. The degree of uncertainty concerning economic conditions may adversely affect the accuracy of our estimates, which may, in turn, impact the reliability of the process and the sufficiency of our loan loss allowances.

The value and liquidity of the portfolio of investment securities that we hold may be adversely affected.

The recoverability of our loan portfolios and our ability to increase the amount of loans outstanding and our results of operations and financial condition in general, are dependent to a significant extent on the level of economic activity in Brazil. See “—The credit quality of our loan portfolio may deteriorate and our loan loss reserves could be insufficient to cover our loan losses, which could have a material adverse effect on us.”

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In addition, we are exposed to sovereign debt in Brazil. Recessionary conditions in Brazil would likely have a significant adverse impact on our loan portfolio and sovereign debt holdings and, as a result, on our financial condition, cash flows and results of operations.

 

Our revenues are also subject to risk of deterioration from unfavorable political and diplomatic developments, social instability, and changes in governmental policies, including expropriation, nationalization, international ownership legislation, interest-rate caps, tax and monetary policies.

 

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TableThe economy of ContentsBrazil has experienced significant volatility in recent decades. This volatility resulted in fluctuations in the levels of deposits and in the relative economic strength of various segments of the Brazilian economy to which we lend. In addition, Brazil is affected by commodities price fluctuations, which in turn may affect financial market conditions through exchange rate fluctuations, interest rate volatility and deposits volatility. Negative and fluctuating economic conditions, such as slowing or negative growth and a changing interest rate environment, could impact our profitability by causing lending margins to decrease and credit quality to decline and leading to decreased demand for higher margin products and services. In particular, the recent political and social instability in Chile could have a negative impact on the economy of Brazil and may have a material adverse effect on us.

The strong competitive environment in the Brazilian financial services market may adversely affect us, including our business prospects.

 

The Brazilian financial markets, including the banking, insurance and asset management sectors, are highly competitive, with this competition increasing in recent years. We face significant competition in all of our main areas of operation from other Brazilian and international banks, as well as state-owned institutions, including through portability of loans.

 

Non-traditional providers of banking services, such as Internet-basedinternet-based e-commerce providers, mobile telephone companies and Internetinternet search engines, as well as payment services for blockchainblock-chain technologies, may offer and/or increase their offerings of financial products and services directly to customers. These non-traditional providers of banking services currently have an advantage over traditional providers because they are not subject to banking regulation. Several of these competitors may have long operating histories, large customer bases, strong brand recognition and significant financial, marketing and other resources. They may adopt more aggressive pricingprices and rates and devote more resources to technology, infrastructure and marketing. For more information, see “Item 4. Information on the Company—B. Business Overview—Regulation and Supervision—Other Applicable Laws and Regulations—Regulation of New Financial Institutions That Operate in Online Lending.”

 

New competitors may enter the market or existing competitors may adjust their services with unique product or service offerings or approaches to providing banking services. If we are unable to successfully compete with current and new competitors, or if we are unable to anticipate and adapt our offerings to changing banking industry trends, including technological changes, our business may be adversely affected. In addition, our failure to effectively anticipate or adapt to emerging technologies or changes in customer behavior, including among younger customers, could delay or prevent our access to new digital-based markets, which would in turn have an adverse effect on our competitive position and business. Furthermore, the widespread adoption of new technologies, including distributed ledger, artificial intelligence and/or biometrics, to provide services such as cryptocurrencies and payment systems,payments, could require substantial expenditures to modify or adapt our existing products and services as we continue to grow our internet and mobile banking capabilities. Our customers may choose to conduct business or offer products in areas that may be considered speculative or risky. Such new technologies and mobile banking platforms could negatively impact the value of our investments in bank premises, equipment and personnel for our branch network. The persistence or acceleration of this shift in demand toward internet and mobile banking may necessitate changes to our retail distribution strategy. Our failure to swiftly and effectively implement changes to our distribution strategy could have an adverse effect on our competitive position.

 

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In particular, we face the challenge to compete in an ecosystem where the relationship with the consumer is based on access to digital data and interactions. This access is increasingly dominated by digital platforms who are already eroding our results in very relevant markets such as payments. This privileged access to data can be used as a leverage to compete with us in other adjacent markets and may reduce our operations and margins in core businesses such as lending or wealth management. The alliances that our competitors are starting to build with major technology companies can make it more difficult for us to successfully compete with them and could adversely affect us.

Increasing competition could also require that we increase our rates offered on deposits or lower the rates we charge on loans, which could also have a material adverse effect on our profitability, as well as limit our ability to increase our customer base and expand our operations, andfurther increasing competition for investment opportunities.

 

In addition, if our customer service levels wereare perceived by the market to be materially below those of our competitor financial institutions, we could lose existing and potential business. If we are not successful in retaining and strengthening customer relationships, we may lose market share, incur losses on some or all of our activities, or fail to attract new deposits or retain existing deposits, which could have a material adverse effect on us.

 

Our ability to maintain our competitive position depends, in part, on the success of new products and services that we offer to our customers, as well as our ability to offer products and services that meet the customers’ needs throughout their entire life cycle, and we may not be able to manage emerging risks as we expand our range of products and services, which could have a material adverse effect on us.

The success of our operations and our profitability depends, in part, on the success of new products and services we offer our customers and our ability to offer products and services that meet the customers’ needs during their entire life cycle. However, our customers’ needs and/or desires may change over time, and such changes may render our products and services obsolete, outdated or unattractive and we may not be able to develop new products that meet our customers’ changing needs and/or desires. Our success is also dependent on our ability to anticipate and leverage new and existing technologies that may have an impact on products and services in the banking industry. Technological changes may further intensify and complicate the competitive landscape and influence client behavior. If we cannot respond in a timely fashion to the changing needs and/or desires of our customers, we may lose them, which could in turn materially and adversely affect us. In addition, the cost of developing products is likely to affect our results of operations.

As we expand the range of our products and services, some of which may be at an early stage of development certain regional markets where we operate, we will be exposed to new and potentially increasingly complex risks, such as conduct risk arising from relationships with customers, and development expenses. Our employees and risk management systems, as well as our experience and that of our partners may not be sufficient to enable us to properly manage such risks. Any or all of these factors, individually or collectively, could have a material adverse effect on us.

While we have successfully increased our customer service levels in recent years, should these levels ever be perceived by the market to be materially below those of our competitor financial institutions, we could lose existing and potential business. If we are not successful in retaining and strengthening customer relationships, we may lose market share, incur losses on some or all of our activities or fail to attract new deposits or retain existing deposits, which could have a material adverse effect on our operating results, financial condition and prospects.

We are subject to extensive regulation and regulatory and governmental oversight, which could adversely affect our business, operations and financial condition.

 

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The Brazilian financial markets are subject to extensive and continuous regulatory control by the Brazilian government, principally by the Brazilian Central Bank, the CVM and the CMN, which, in each case, materially affects our business. We have no control over the issuance of new regulations that may affect our operations, including in respect of:

 

·minimum capital requirements;

 

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·reserve and compulsory deposit requirements;

 

·limits on investments in fixed assets;

 

·lending limits and other credit restrictions, including compulsory allocations;

 

·limits and other restrictions on interest rates and fees;

 

·limits on the amount of interest banks can charge or the period for capitalizing interest; and

 

·accounting and statistical requirements.

 

The regulationregulations governing Brazilian financial institutions isare continuously evolving, and the Brazilian Central Bank has reacted actively and extensively to developments in our industry.

 

Changes in regulations in Brazil and international markets may expose us to increased compliance costs and limit our ability to pursue certain business opportunities and provide certain products and services. Brazilian regulators are constantly updating prudential standards in accordance with the recommendations of the Basel Committee on Banking Supervision, in particular with respect to capital and liquidity, which could impose additional significant regulatory burdens on us. For example, future liquidity standards could require us to maintain a greater proportion of our assets in highly liquid but lower-yielding financial instruments, which would negatively affect our net interest margin. There can be no assurance that future changes in regulations or in their interpretation or application will not have a material adverse effect on us.

 

As some of the banking laws and regulations have been recently issued or become effective, the manner in which those laws and related regulations are applied to the operations of financial institutions is still evolving. Moreover, to the extent that these recently adopted regulations are implemented inconsistently in Brazil, we may face higher compliance costs. The measures of the Brazilian Central Bank and the amendment of existing laws and regulations, or the adoption of new laws or regulations, could adversely affect our ability to provide loans, make investments or render certain financial services. No assurance can be given generally that laws or regulations will be adopted, enforced or interpreted in a manner that will not have a material adverse effect on our business and results of operations. Furthermore, regulatory authorities have substantial discretion in how to regulate banks, and this discretion, and the regulatory mechanisms available to the regulators, have been increasing during recent years. RegulationRegulations may be imposed on an ad hoc basis by governments and regulators in response to a crisis, and these may especially affect financial institutions such as those, which may be deemed to be systemically important. In addition, the volume, granularity, frequency and scale of regulatory and other reporting requirements require a clear data strategy to enable consistent data aggregation, reporting and management. Inadequate management information systems or processes, including those relating to risk data aggregation and risk reporting, could lead to a failure to meet regulatory reporting requirements or other internal or external information demands, and we may face supervisory measures as a result.

 

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We may also be subject to potential impacts relating to regulatory changes affecting our controlling shareholder, Santander Spain, due to continued significant financial regulatory reform in jurisdictions outside of Brazil that directly or indirectly affect Santander Spain’s businesses, including Spain, the European Union, the United States and other jurisdictions. In Spain and in other countries in which Santander Spain’s subsidiaries operate (including Brazil), there is continuing political, competitive and regulatory scrutiny of the banking industry. Political involvement in the regulatory process, in the behavior and governance of the banking sector and in the major financial institutions in which the local governments have a direct financial interest, and in their products and services, and the prices and other terms they applyapplied to them, is likely to continue. Changes to current legislation and their implementation through regulation (including additional capital, leverage, funding, liquidity and tax requirements), policies (including fiscal and monetary policies established by central banks and financial regulators, and changes to global trade policies), and other legal and regulatory actions may impose additional

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regulatory burdens on Santander Group, including Santander Brasil, in these jurisdictions. In the European Union, these reforms could include changes relating to capital requirements, liquidity and funding, or other measures, implemented as a result of the unification of the European banking system under a European Banking Union. In the United States, many changes have occurred as a result of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) and its implementing regulations, most of which are now in place. In May 2018, the United States Congress passed, and President Donald Trump signed into law, the Economic Growth, Regulatory Relief, and Consumer Protection Act, or “EGRRCPA,” the first major piece of legislation rebalancing the financial regulatory landscape since the passage of the Dodd-Frank Act. The U.S. financial regulatory agencies have begun to propose regulations implementing EGRRCPA, but the ultimate impact of these reforms on our operations is currently uncertain. For more information, see “Item 4. Information on the Company—B. Business Overview—Regulation and Supervision—Other Applicable Laws and Regulations—U.S. Banking Regulation.” We cannot predict the outcome of any financial regulatory reforms in the European Banking Union, the United States or other jurisdictions, and we cannot yet determine their effects on Santander Spain and, consequently, their effects on us, but regulatory changes may result in additional costs for us.

 

We are subject to potential intervention by any of our regulators or supervisors.

 

Our business and operations are subject to increasingly significant rules and regulations set by the Brazilian Central Bank, the CVM and the CMN, thatwhich are required to conduct banking and financial services business. These apply to business operations, affect financial returns, and include reserve and reporting requirements and conduct-of-business regulations.

 

In their supervisory roles, the Brazilian Central Bank, the CVM and the CMN seek to maintain the safety and soundness of financial institutions with the aim of strengthening the protection of customers and the financial system. Their continuing supervision of financial institutions is conducted through a variety of regulatory tools, including the collection of information by way of prudential returns, reports obtained from skilled persons, visits to firms and regular meetings with management to discuss issues such as performance, risk management and strategy. As a result, we face increased supervisory scrutiny (resulting in increasing internal compliance costs and supervision fees), and in the event of a breach of our regulatory obligations we are likely to face more stringent regulatory fines.

 

We are subject to regulation on a consolidated basis and may be subject to liquidation or intervention on a consolidated basis.

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We operate in a number of credit and financial-services-related sectors through entities under our control. For certain purposes related to regulation and supervision, the Brazilian Central Bank treats us and our subsidiaries and affiliates as a single financial institution. While our consolidated capital base provides financial strength and flexibility to our subsidiaries and affiliates, their individual activities could indirectly put our capital base at risk. Any investigation or intervention by the Brazilian Central Bank, particularly in the activities carried out by any of our subsidiaries and affiliates, could have a material adverse impact on our other subsidiaries and affiliates and, ultimately, on us. If we or any of our financial subsidiaries become insolvent, the Brazilian Central Bank may carry out an intervention or liquidation process on a consolidated basis rather than conduct such procedures for each individual entity. In the event of an intervention or a liquidation process on a consolidated basis, our creditors would have claims to our assets and the assets of our consolidated financial subsidiaries. In this case, claims of creditors of the same nature held against us and our consolidated financial subsidiaries would rank equally in respect of payment. If the Brazilian Central Bank carries out a liquidation or intervention process with respect to us or any of our financial subsidiaries on an individual basis, our creditors would not have a direct claim on the assets of such financial subsidiaries, and the creditors of such financial subsidiaries would have priority in relation to our creditors in connection with such financial subsidiaries’ assets. The Brazilian Central Bank also has the authority to carry out other corporate reorganizations or transfers of control under an intervention or liquidation process.

Increases in reserve, compulsory deposit and minimum capital requirements may have a material adverse effect on us.

 

The Brazilian Central Bank has periodically changed the level of reserves and compulsory deposits that financial institutions in Brazil are required to maintain, , as well as determined compulsory allocation requirements to finance government programs, with these changes continuing to be a potential area of risk as they may increase the reserve and compulsory deposit or allocation requirements in the future or impose new requirements, which as a result could reduce our liquidity to fund our loan portfolio and other investments and, as a result, may have a material adverse effect on us.

 

Compulsory deposits and allocations generally do not yield the same return as other investments and deposits because a portion of compulsory deposits and allocations:

 

·do not bear interest;

·must be held in Brazilian federal government securities; and

 

·must be used to finance government programs, including a federal housing program and rural sector subsidies.

 

In recent years, the CMN and Brazilian Central Bank published several rules to implement Basel III in Brazil. This new set of regulations covers the revised definition of capital, capital requirements, capital buffers, credit valuation adjustments, exposures to central counterparties, leverage and liquidity coverage ratios, and treatment of systemically important financial institutions. No assurance can be

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given that the Basel III rules will be adopted, enforced or interpreted in a manner that will not have an adverse effect on us. Furthermore, in January 2017, the CMN issued a new rule by means of which the Brazilian Central Bank established the terms for segmentation for financial institutions, financial institution groups, and other institutions authorized to operate by the Brazilian Central Bank for proportional application of the prudential regulation, considering the size, international activity and risk profile of members of each segment. We have been categorized by the Brazilian Central Bank in segment 1, the highest level for application of regulation for banks in Brazil.

 

For more information on the rules implementing Basel III, see “Item 4. Information on the Company—B. Business Overview—Regulation and Supervision—Capital Adequacy and Leverage—Basel”Leverage - Basel—Basel III” and “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Capital Management.”

 

We may not be able to detect or prevent money laundering and other criminal activities fully or on a timely basis, which could expose us to additional liability and could have a material adverse effect on us.

 

We are required to comply with applicable anti-money laundering, or “AML,” anti-terrorism, anti-bribery and corruption, sanctions and other laws and regulations applicable to us. These laws and regulations require us, among other things, to conduct full customer due diligence (including sanctions and politically exposed person screening) and keep our customer, account and transaction information up to date. We have implemented financial crime policies and procedures detailing what is required from those responsible. We are also required to conduct AML training for our employees and to report suspicious transactions and activity to appropriate law enforcement following full investigation by the Special Incidents area.

 

Financial crime has become the subject of enhanced regulatory scrutiny and supervision by regulators globally. AML, anti-bribery, anti-corruption and sanctions laws and regulations are increasingly complex and detailed. The Basel Committee is now introducing guidelines to strengthen the interaction and cooperation between prudential and AML/Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT supervisors.supervisors). Compliance with these laws and regulations requires automated systems, sophisticated monitoring and skilled compliance personnel.

 

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We maintain updated policies and procedures aimed at detecting and preventing the use of our banking network for money laundering and other financial crime related activities. However, emerging technologies, such as cryptocurrencies and blockchain, could limit our ability to track the movement of funds and therefore, present a risk to our Company. Our ability to comply with the legal requirements depends on our ability to improve detection and reporting capabilities and reduce variation in control processes and oversight accountability. These require implementation and embedding within our business effective controls and monitoring, which in turn requires ongoing changes to systems and operational activities. Financial crime is continually evolving and, as noted, is subject to increasingly stringent regulatory oversight and focus. This requires proactive and adaptable responses from us so that we are able to deter threats and criminality effectively. Even known threats can never be fully eliminated, and there will be instances where we may be used by other parties to engage in money laundering and other illegal or improper activities. In addition, we rely heavily on our employees to assist us by spotting such activities and reporting them, and our employees have varying degrees of experience in recognizing criminal tactics and understanding the level of sophistication of criminal organizations. Where we outsource any of our customer due diligence, customer screening or anti-financial crime operations, we remain responsible and accountable for full compliance and any breaches. If we are unable to apply the necessary scrutiny and oversight of third parties to whom we outsource certain tasks and processes, there remains a risk of regulatory breach.

 

Additionally, in 2015 and early 2016, pursuant to a new resolution issued by the United Nations Security Council, as well as a recently enacted lawlaws and regulations issued by the Brazilian Central Bank forrequiring the implementation of the aforementioned resolution in Brazil, additional compliance requirements were imposed on us and other financial institutions operating in Brazil, which relate to the local

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enforcement of sanctions imposed by the United Nations Security Council resulting from certain resolutions. We believe we already have the control and compliance procedures in place to satisfy such additional compliance requirements. However, we continue to evaluate their impact on our control and compliance procedures and whether adjustments will need to be made to our control and compliance procedures as a result.

 

If we are unable to fully comply with applicable laws, regulations and expectations, our regulators and relevant law enforcement agencies have the ability and authority to impose significant fines and other penalties on us, including requiring a complete review of our business systems, day-to-day supervision by external consultants and ultimately the revocation of licenses.

 

The reputational damage to our business and global brand would be severe if we were found to have breached AML, anti-bribery, anti-corruption or sanctions requirements. Our reputation could also suffer if we are unable to protect our customers’ data and bank products and services from being accessed or used for illegal or improper purposes.

 

TheFurthermore, the Brazilian Federal Public Prosecutor’s Office, or “MPF,” has charged one of our officers in connection with the alleged bribery of a Brazilian tax auditor to secure favorable decisions in tax cases, resulting in a claimed benefit of R$83 million (approximately U.S.$25 million) benefit tofor us. On October 23, 2018, the officer was formally indicted and asked to present his defense. On November 5, 2018 the officer in question presented his defense. The proceedings isare currently in course. We are not a party to these proceedings. We have voluntarily provided information to the Brazilian authorities and have relinquished the benefit of certain tax credits to which the allegations relate in order to show good faith.

 

In addition, we rely uponheavily on our relevant counterparties to a large degree to maintain and appropriately apply their own appropriate compliance measures, procedures and internal policies. Such measures may not be completely effective in preventing third parties from using our (and our relevant counterparties’) services as a conduit for illicit purposes (including illegal cash operations) without our (or our relevant counterparties’) knowledge. If we are associated with, or even accused of being associated with, breaches of AML, anti-terrorism, or sanctions requirements, our reputation could suffer and/or we could become subject to fines, sanctions and/or legal enforcement (including being added to “black“blocked lists” that would prohibit certain parties from engaging in transactions with us), any one of which could have a material adverse effect on our operating results, financial condition and prospects.

 

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We are subject to increasing scrutiny and regulation from data protection laws, including penalties in the event of noncompliance with the terms and conditions of certain new European and Brazilian regulations.

 

As data privacy risks for banking organizations and the broader financial system have significantly increased in recent years, data privacy issues have become the subject of increasing legislative and regulatory focus.

 

On May 25, 2018, the Regulation (EU) 2016/279 of the European Parliament and of the Council of April 27, 2016 on the protection of natural persons with regard to the processing of personal data and on the free movement of such data (the “General Data Protection Regulation” or “GDPR”) became directly applicable in all member states of the European Union. In addition to the GDPR, we will soon face new regulations from Brazilian authorities. The Brazilian General Data Protection Act (Law no.No. 13,709/2018), or “LGPD,“GDPA,” (Lei Geral de Proteção de Dados) was approved in the Federal Official Gazette on August 14, 2018 and, as amended by the Law no.No. 13,853/2019, will taketook effect in AugustSeptember 2020. Law no.No. 13,853/2019 also set up the National Data Protection Authority for purposes of monitoring, implementing and supervising compliance with the LGPDGDPA in Brazil. The LGPDGDPA also brings about deep changes in the conditions for personal data processing, with a set of rules to be observed in activities such as collection, processing, storage, use, transfer, sharing and erasure of information concerning identified or identifiable natural persons in Brazil.

 

Although a number of basic existing principles have remained the same, the GDPR has introduced extensive new obligations on data controllers and rights for data subjects. The LGPDGDPA applies to

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individuals, as well as private and public entities, regardless of the country where they are headquartered or where data is hosted, as long as (i) data processing takes place in Brazil; (ii) the data processing activity is intended to offer or supply goods or services or to process data of individuals located in Brazil; or (iii) the data subjects are located in Brazil at the time their personal data is collected. The application of the LGPDGDPA will apply irrespective of industry or business when dealing with personal data and is not restricted to data processing activities performed through digital media and/or on the Internet.internet.

 

The GDPR has also introduced new fines and penalties for a breach of requirements, including fines for systematic breaches of up to the higher of 4% of annual worldwide turnover or €20 million, and fines of up to the higher of 2% of annual worldwide turnover or €10 million (whichever is highest) for other specific infringements. The LGPDGDPA similarly sets out several penalties, which include warnings, blocking and erasure of data, public disclosure of the offense, and fines of up to two percent (2%)2% of the economic group’s turnover in Brazil in the preceding year, capped at R$50 million per offense.

 

The implementation of the GDPR and of the LGPDGDPA has required substantial amendments to our procedures and policies. The changes have impacted, and could further adversely impact, our business by increasing our operational and compliance costs. Further, there is a risk that the measures may not be implemented correctly or that there may be partial non-compliancenoncompliance with the new procedures. If there are breaches of the GDPR and or the LGPDGDPA obligations, as the case may be, we could face significant administrative and monetary sanctions, as well as reputational damage, which could have a material adverse effect on our operations, financial condition and prospects. Furthermore, following any such breach, we may be ordered to change our business practices, policies or systems in a manner that adversely impacts our operating results.

 

For more information on the rules implementing GDPA, see “Item 4. Information on the Company—B. Business Overview—Regulation and Supervision— Other Applicable Laws and Regulations—Data Protection Requirements.”

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We are exposed to risk of loss from legal and regulatory proceedings.

 

We face risk of loss from legal and regulatory proceedings, including tax proceedings that could subject us to monetary judgments, fines and penalties. The current regulatory and tax enforcement environment in Brazil reflects an increased supervisory focus on enforcement, combined with uncertainty about the evolution of the regulatory regime, and may lead to material operational and compliance costs.

 

We are from time to time subject to regulatory investigations and civil and tax claims and party to certain legal proceedings incidental to the normal course of our business, including in connection with conflicts of interest, lending activities, relationships with our employees, economic plans, and other commercial or tax matters. In view of the inherent difficulty of predicting the outcome of legal matters, particularly where the claimants seek very large or indeterminate damages, or where the cases present novel legal theories, involve a large number of parties or are in the early stages of investigation or discovery, and we cannot state accuratelywith certainty what the eventual outcome of these pending matters will be. The amount of our reserves in respect to these matters is substantially less than the total amount of the claims asserted against us, and, in light of the uncertainties involved in such claims and proceedings, there is no assurance that the ultimate resolution of these matters will not significantly exceed the reserves currently accrued by us. As a result, the outcome of a highly uncertain matter may become material to our operating results. As of December 31, 2019,2020, we had provisions for taxes, other legal contingencies and other provisions forof R$11,3669,887 million. See more information in note 2322 to our audited consolidated financial statements included in this annual report.

We may face operational difficulties under the Brazilian instant payment scheme.

On November 16, 2020, the Brazilian Central Bank instituted its instant payment scheme (“PIX”), as well as the Instant Payment System (“SPI”), which enables participants to settle electronic transfers of funds in real time and available for 24 hours a day, seven days a week and every day in the year.

As a direct participant of the PIX, we may face operational issues, as well as difficulties in adapting to the requirements established by the PIX payment scheme regulations and by the other applicable rules, mainly related to the minimum level of service to be provided on a recurring basis to customers. As a result, we may be the target of administrative sanctions and/or judicial claims, either by the Brazilian Central Bank itself or as a result of complaints brought by our customers. Furthermore, as a consequence of potential administrative sanctions or judicial claims, we may face difficulties in retaining customers in relation to Santander SX, our solution for our customers to access PIX, which may have a material adverse effect on our financial results, as well as our reputation.

In addition, the Brazilian Central Bank may issue new and stricter rules applicable to PIX participants, including new operational capacity requirements. The imposition by the Brazilian Central Bank of new requirements may adversely affect our operations.

For more information related to the PIX and the SPI, see “Item 4. Information on the Company—B.—Business Overview—Regulation and Supervision—Other Applicable Laws and Regulations—Brazilian Payment and Settlement System.” For more information related to Santander SX, see “Item 4. Information on the Company—B. Business Overview—Our Portfolio of Products and Services—Customer Solutions—Santander SX.”

 

Disclosure controls and procedures over financial reporting may not prevent or detect all errors or acts of fraud.

 

Disclosure controls and procedures, including internal controls over financial reporting, are designed to provide reasonable assurance that information required to be disclosed by the companyus in reports filed or submitted under the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”), is accumulated and communicated to management, and recorded, processed, summarized and reported within the time periods specified in the U.S. Securities and Exchange Commission’s rules and forms.

 

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forms.

These disclosure controls and procedures have inherent limitations, which include the possibility that judgments in decision-making can be faulty and result in errors or mistakes. Additionally, controls can be circumvented by any unauthorized override of the controls. Consequently, our business is exposed to risk from potential noncompliance with policies, employee misconduct, or negligence and fraud, which could result in regulatory sanctions, civil claims, and serious reputational or financial harm. In recent years, a number of multinational financial institutions have suffered material losses due to the actions of “rogue traders” or other employees. It is not always possible to deter employee misconduct, and the precautions we take to prevent and detect this activity may not always be effective. Accordingly, because of the inherent limitations in the control system, misstatements due to error or fraud may occur and not be detected.

 

We are subject to review by tax authorities, and an incorrect interpretation by us of tax laws and regulations may have a material adverse effect on us.

 

The preparation of our tax returns requires the use of estimates and interpretations of complex tax laws and regulations and is subject to review by taxingtax authorities. We are subject to the income tax laws of Brazil. These tax laws are complex and subject to different interpretations by the taxpayer and relevant governmental taxingtax authorities, leading to disputes, which are sometimes subject to prolonged evaluation periods until a final resolution is reached. In establishing a provision for income tax expense and filing returns, we must make judgments and interpretations about the application of these inherently complex tax laws. If the judgment, estimates and assumptions we use in preparing our tax returns are subsequently found to be incorrect, there could be a material adverse effect on us. The interpretations of Brazilian taxingtax authorities are unpredictable and frequently involve litigation, which introduces further uncertainty and risk as to tax expense.

 

Changes in taxes and other fiscal assessments may adversely affect us.

 

The Brazilian government regularly enacts reforms to the tax and other assessment regimes to which we and our customers are subject. Such reforms include changes in tax rates and, occasionally, enactment of temporary levies, the proceeds of which are earmarked for designated governmental purposes. The effects of these changes and any other changes that result from enactment of additional tax reforms cannot be quantified and there can be no assurance that any such reforms would not have an adverse effect upon our business. Furthermore, such changes may produce uncertainty in the financial system, increasing the cost of borrowing and contributing to the increase in our non-performing credit portfolio.

 

Changes in tax policy, including the creation of new taxes, may occur with relative frequency and such changes could have an adverse effect on our financial position or operating results. For example, in 2011, the Brazilian government established the Tax on Financial Transactions (the “IOF Tax”). It applied, which used to be charged at a rate of 1.0% per day onover the notional value of increased foreign exchange exposure, but has currently been reduced the rate to zero with respect to foreign exchange. The IOF Tax rates applicable to local loans toof individuals and legal entities have been frequently adjusted (both increases and decreases) in recent years. The currently applicable IOF Tax rates applicable to local loans are approximately 1.5% for legal entities and 3.0% for individuals but could change in the future. We cannot estimate the impact that a change in tax laws or tax policy could have on our operations. For example, the IOF Tax is a tool used by the Brazilian government to regulate economic activity, which does not directly impact our results of operations, though changes in the IOF Tax can impact our business volumes generally.

 

Also, the Brazilian Congress may discuss broad tax reforms in Brazil to improve the efficiency of allocation of the economic resources, as proposed by the executive branch of the Brazilian federal government. Major tax reforms in Brazil have been discussed over the last few years. We cannot predict if tax reforms will be implemented in the future. The effects of these changes, if enacted, and any other changes that could result from the enactment of additional tax reforms, cannot be quantified.

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Our loan and investment portfolios are subject to risk of prepayment, which could have a material adverse effect on us.

 

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Our fixed-rate loan and investment portfolios are subject to prepayment risk, which results from the ability of a borrower or issuer to pay a debt obligation prior to maturity. Generally, in a low interest rate environment, prepayment activity increases, which reduces the weighted average terms of our earning assets and could have a material adverse effect on us. We would also be required to amortize net premiums or commissions into income over a shorter period of time, thereby reducing the corresponding asset yield and net interest income. Prepayment risk also has a significant adverse impact on credit card and collateralized mortgage loans, since prepayments could shorten the weighted average life of these assets, which may result in a mismatch in our funding obligations and reinvestment at lower yields. Prepayment risk is inherent to our commercial activity, and an increase in prepayments could have a material adverse effect on us.

 

The credit quality of our loan portfolio may deteriorate and our loan loss reserves could be insufficient to cover our loan losses, which could have a material adverse effect on us.

 

Risks arising from changes in credit quality and the recoverability of loans and amounts due from counterparties are inherent to a wide range of our businesses. Non-performing or low credit quality loans can negatively impactedimpact our results of operations as the amount of our reported non-performing loans may increase in the future as a result of growth in our total loan portfolio, including as a result of loan portfolios that we may acquire in the future (the credit quality of which may turn out to be worse than we had anticipated), or other factors, including factors beyond our control, such as adverse changes in the credit quality of our borrowers and counterparties or a general deterioration in economic conditions in Brazil and globally.globally, including as a result of the COVID-19 pandemic. In response to COVID-19, with the purpose of helping our customers from the credit perspective and foster their economic resilience, we have implemented several actions, including (i) providing liquidity and credit facilities to customers facing hardship; (ii) granting payment deferrals in outstanding loans; (iii) focus credit risk management on those economic sectors more affected by the pandemic; (iv) focus on collections and recoveries readiness; and (v) quantifying the provision overlay on the expected credit losses as a result of the macroeconomic shock. If we were unable to control the level of our non-performing or poor credit quality loans, this could have a material adverse effect on us.

 

Our provisions for impairment losses are based on our current assessment, as well as expectations, concerning various factors affecting the quality of our loan portfolio. These factors include, among other things, our borrowers’ financial condition, repayment abilities intentions, the realizable value of any collateral, the prospects for support from any guarantor, government macroeconomic policies, interest rates, and the legal and regulatory environment. As many of these factors are beyond our control and there is no infallible method for predicting loan and credit losses, we cannot assure you that our current or future provisions for impairment losses will be sufficient to cover actual losses. If our assessment of and expectations concerning the abovementioned factors differ from actual developments, if the quality of our total loan portfolio deteriorates, for any reason, or if the future actual losses exceed our estimates of expected losses, we may be required to increase our provisions for impairment losses, which may adversely affect us. If we were unable to control or reduce the level of our non-performing or poor credit quality loans, this could have a material adverse effect on us.

 

On December 31, 2020, our credit risk (which includes gross loans and advances to customers, guarantees and documentary credits) amounted to R$466,104 million (compared to R$391,569 million as of December 31, 2019).

Economic uncertainty may lead to a contraction in our loan portfolio.

 

The recent slow growth rate of the Brazilian economy in 2020, 2019 and 2018, and 2017 and recession in 2016,as well as a slowdown in the growth of customer demand, an increase in market competition, changes in governmental regulation, and a decrease of the SELIC rate since 2017, as well as a recession in 2016 have adversely affected the rate of growth of our loan portfolio in recent years. Ongoing economic uncertainty could adversely affect the liquidity, businesses and financial condition of our customers, as well as lead to a general decline in consumer spending, a rise in unemployment and an increase in household indebtedness. All of this could lead to a decrease in demand for borrowings in general, which could have a material adverse effect on our business.

 

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Liquidity and funding risks are inherent in our business, and since our principal sources of funds are short-term deposits, a sudden shortage of funds could cause an increase in costs of funding and an adverse effect on our revenues and our liquidity levels.

 

Liquidity risk is the risk that we either do not have available sufficient financial resources to meet our obligations as they fall due or can secure them only at excessive cost. This risk is inherent in any retail and commercial banking business and can be heightened by a number of enterprise-specific

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factors, including over-relianceoverreliance on a particular source of funding, changes in credit ratings or market-wide phenomena such as market dislocation.dislocation, including as a result of the COVID-19 pandemic. Constraints in the supply of liquidity, including in interbank lending, can materially and adversely affect the cost of funding of our business, and extreme liquidity constraints may affect our current operations, our growth potential and our ability to fulfill regulatory liquidity requirements.

 

Our cost of obtaining funds is directly related to prevailing interest rates and to our credit spreads, with increases in these factors increasing the cost of our funding. Credit spread variations are market-driven and may be influenced by market perceptions of our creditworthiness. Changes to interest rates and our credit spreads occur continuously and may be unpredictable and highly volatile.

 

Disruption and volatility in the global financial markets could have a material adverse effect on our ability to access capital and liquidity on financial terms acceptable to us. If wholesale markets financing ceases to become available, or becomes excessively expensive, we may be forced to raise the rates we pay on deposits, with a view to attracting more customers, and/or to sell assets, potentially at depressed prices. The persistence or worsening of these adverse market conditions or an increase in base interest rates could have a material adverse effect on our ability to access liquidity and cost of funding.

 

We rely primarily on retail deposits as our main source of funding. As of December 31, 2019, 80.6%2020, 82.0% of our customer deposits had remaining maturities of one year or less, or were payable on demand, while 31.6%48.9% of our assets havehad maturities of one year or more, resulting in a mismatch between the maturities of liabilities and the maturities of assets. The ongoing availability of this type of funding is sensitive to a variety of factors beyond our control, including: general economic conditions, the confidence of retail depositors in the economy and in the financial services industry, the availability and extent of deposit guarantees, as well as competition for deposits between banks or with other products. Any of these factors could significantly increase the amount of retail deposit withdrawals in a short period of time, thereby reducing our ability to access retail deposit funding on economically appropriate and reasonable terms, or at all, in the future. If these circumstances were to arise, this could have a material adverse effect on our operating results, financial condition and prospects.

 

Central banks around the world have taken extraordinary measures to increase liquidity in the financial markets as a response to the financial crisis and the COVID-19 crisis. If current credit facilities wereare rapidly removed or significantly reduced, this could have a material adverse effect on our ability to access liquidity and on our funding costs.

Additionally, our activities could be adversely impacted by liquidity tensions arising from generalized drawdowns of committed credit lines to our customers.

 

Our ability to manage our funding base may also be affected by changes to the regulation on compulsory reserve requirements in Brazil. For more information on the rules on compulsory reserve requirements, see “Item 4. Information on the Company—B. Business Overview—Regulation and Supervision—Other Applicable Laws and Regulations—Compulsory Reserve Requirements.”

 

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We cannot assure that in the event of a sudden or unexpected shortage of funds in the banking system, we will be able to maintain levels of funding without incurring high funding costs, a reduction in the term of funding instruments or the liquidation of certain assets. If this were to happen, we could be materially adversely affected. Finally, the implementation of internationally accepted liquidity ratios might require changes in business practices that affect our profitability. The liquidity coverage ratio, or “LCR,” is a liquidity standard that measures if banks have sufficient high-quality liquid assets to cover expected net cash outflows over a 30-day liquidity stress period. TheFor the observations in this disclosure (exercise(exercised with daily balances for October, November and December 2019)2020), the institution had aan LCR of 126.7%170.7%, above the 100% minimum requirement. The Net Stable Funding Ratio, or “NSFR,” provides a sustainable maturity structure of assets and liabilities suchso that banks maintain a stable funding profile in relation to their activities. The NSFR, which must remain at a minimum of 100% beginning from October 1, 2018 according to CMN rules, stands at over 112.3%118.6% for us as of December 31, 2019.

2020.

 

Our cost of funding is affected by our credit ratings, and any risks may have an adverse effect on both variables. Any downgrade in (i) the rating of Brazil’s, (ii) our controlling shareholders, or (iii) our credit rating would likely increase our cost of funding, requiring us to post additional collateral under some of our derivative and other contracts and adversely affect our interest margins and operations results.

 

Credit ratings affect the cost and other terms upon which we are able to obtain funding. Rating agencies regularly evaluate us, and their ratings of our long-term debt are based on a number of factors, including our financial strength, conditions that affect the financial services industry and the economic environment in which we operate. In addition, due to the methodology of the main rating agencies, our credit rating is affected by the rating of Brazilian sovereign debt and the rating of our controlling shareholders. If Brazil’s sovereign debt or the debt of our controlling shareholder were downgraded, our credit rating would also likely be downgraded to a similar degree.

 

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Any downgrade in Brazil’s sovereign credit ratings, those of our controlling shareholder, or in our ratings, would likely increase our borrowing costs. For example, a ratingsrating downgrade could adversely affect our ability to sell or markettrade some of our products, such as subordinated securities, engage in certain longer-term and derivatives transactions, and retain our customers, particularly customers who need a minimum rating threshold in order to invest. In addition, under the terms of certain derivative contracts and other financial commitments, we may be required to maintain a minimum credit rating or risk termination of such contracts or require the posting of collateral. Any of these results of a ratings downgrade could reduce our liquidity and have an adverse effect on us, including our operating results and financial condition.

 

While certain potential impacts of these downgrades are contractual and quantifiable, the full consequences of a credit rating downgrade are inherently uncertain, as they depend upon numerous dynamic, complex and interrelated factors and assumptions, including market conditions at the time of any downgrade, whether the downgrade of our long-term credit rating indirectly downgrades our short-term credit rating, and assumptions about the potential behaviors of various customers, investors and counterparties. Actual outflows could be higher or lower than any hypothetical examples, depending upon certain factors, including: the credit rating agency issuing the downgrade, any management or restructuring actions that could be taken to reduce cash outflows, and the potential liquidity impact from loss of unsecured funding (such as from money market funds) or loss of secured funding capacity. Although unsecured and secured funding stresses are included in our stress-testing scenarios and a portion of our total liquid assets is held against these risks, a credit rating downgrade could still have a material adverse effect on us.

 

Santander Spain’s long-term debt is currently rated investment grade by the major rating agencies: A2 stable outlook by Moody’s, A with a stablenegative outlook by Standard & Poor’s Ratings Services, or “S&P,” and A- with a stablenegative outlook by Fitch Ratings Ltd., or “Fitch”. In February 2017, S&P revised the outlook from stable to positive, reflecting the revised funding plans announced by Santander Spain, which give S&P comfort that Santander Spain will build a substantial additional loss-absorbing capacity buffer over the next two years. In June 2017, S&P revised the outlook from positive to stable as a result of the risks associated with the acquisition of Banco Popular Español, S.A. by Santander Spain. FollowingApril 2018, following the upgrade of the Spanish sovereign debt rating, in April 2018 S&P and Moody’s upgraded their ratings of Santander Spain from A- to A and from A3 to A2, respectively, and in July 2018, Fitch confirmed its rating and outlook. In 2019, the agencies maintained their 2018 analysis, considering, in some cases, a positive rating depending Santander Spain’s performance in 2019. However, due to the crisis caused by the COVID-19 pandemic and the macroeconomic deterioration in 2020, S&P and Fitch revised the outlook to negative, while Moody’s maintained its rating and outlook.

 

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Our long-term debt in foreign currency is currently rated BB- with a stable outlook by S&P and Ba3Ba1 with a stable outlook by Moody’s.

 

S&P lowered Brazil’s credit rating in September 2015 from BBB- to BB+ (a non-investment-grade rating), and then again in mid-February 2016 from BB+ to BB with a negative outlook, mainly due to the continuing weak economic conditions of Brazil, political instability, the ongoingLava Jato investigations, and uncertainty as to whether the Brazilian government will enact reforms in the 2016 federal budget to improve the country’sBrazil’s fiscal accounts and economic situation. In January 2018, Brazil was further downgraded by S&P to BB- with a stable outlook as a result of the failure of the prior Brazilian government to approve certain reforms. Fitch also lowered Brazil’s credit rating in December 2015 from BBB to BB+ (a non-investment grade rating), and then again in May 2016 from BB+ to BB, citing Brazil’s worsening economic outlook and growing political crisis as reasons for downgrading the country.Brazil. In February 2018, Fitch further downgraded Brazil to BB-. Moody’s lowered Brazil’s credit rating from Baa2 to Baa3 (the lowest investment grade rating) in August 2015, and then to Ba2 (a non-investment-grade rating). Brazil’s sovereign rating is currently rated by the three major risk rating agencies as follows: BB- (stable) by S&P and Fitch, and Ba2 (stable) by Moody’s. Any further downgrade in Brazil’s sovereign rating would likely increase our funding costs and adversely affect us, including our asset quality.

 

As a result of the lowering of Brazil’s sovereign credit rating, our long-term foreign currency credit rating was lowered during the course of 2015 and in early 2016. On August 12, 2015, Moody’s lowered our credit rating from Baa2 to Baa3, lowering it again on February 25, 2016 to Ba3, and in March and

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May 2017, it affirmed the rating at Ba3.of Ba1. On September 10, 2015, S&P lowered our credit rating from BBB- to BB+ (a non-investment-grade rating), lowering it again on February 17, 2016 to BB and maintaining the rating at BB in August 2017 while changing the outlook to negative. In January 2018, Santander Brasil waswe were downgraded by S&P to BB- with a stable outlook from BB with a negative outlook. In February 2019, Santander Brasil was upgraded by S&P to BB- with a stable outlook from BB- with a negative outlook. We are currently rated as follows: Ba1BB- by S&P and Ba3Ba1 by Moody’s, both with a stable outlook. Any further downgrade in our long-term debt in foreign currency would likely increase our funding costs and adversely affect our interest margins and results of operations.

 

We cannot assure that the rating agencies will maintain their current ratings or outlooks, or with regard to those rating agencies that have a negative outlook with respect to us or our controlling shareholder, there can be no assurances that such agencies will revise such outlooks upward. In general, the future evolution of our ratings will be linked, to a large extent, to the macroeconomic outlook and to the impact of the COVID-19 pandemic (including, for example, additional waves, new lockdowns, etc.) on our asset quality, profitability and capital, as well as on the rating of Santander Spain. Our failure to maintain favorable ratings and outlooks would likely increase our cost of funding and adversely affect our interest margins and results of operations.

 

The effectiveness of our credit risk management is affected by the quality and scope of information available in Brazil.

 

In assessing customers’ creditworthiness, we rely largely on the credit information available from our own internal databases, certain publicly available customer credit information, information relating to credit contracted, which is provided by the Brazilian Central Bank and other sources. Due to limitations in the availability of information and the developing information infrastructure in Brazil, our assessment of credit risk associated with a particular customer may not be based on complete, accurate or reliable information. In addition, we cannot assure that our credit scoring systems collect complete or accurate information reflecting the actual behavior of customers or that their credit risk can be assessed correctly. Without complete, accurate and reliable information, we have to rely on other publicly available resources and our internal resources, which may not be effective. As a result, our ability to effectively manage our credit risk and subsequently our allowances for impairment losses may be materially adversely affected.

 

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Our hedging strategy may not be able to prevent losses.

 

We use a range of strategies and instruments, including entering into derivative and other transactions, to hedge our exposure to market, credit and operational risks. Nevertheless, we may not be able to hedge all risks to which we are exposed, whether partially or in full. Furthermore, the hedging strategies and instruments on which we rely may not achieve their intended purpose. Any failure in our hedging strategy or in the hedging instruments on which we rely could result in losses to us and have a material adverse effect on our business, financial condition and results of operations.

 

Inadequate pricing methodologies for insurance, pension plan and premium bond products may adversely affect us.

 

We establish prices and make calculations in relation to our insurance and pension products based on actuarial or statistical estimates. The pricing of our insurance and pension plan products is based on models that include a number of assumptions and projections that may prove to be incorrect, since these assumptions and projections involve the exercise of judgment with respect to the levels and timing of receipt or payment of premiums, contributions, provisions, benefits, claims, expenses, interest, investment results, retirement, mortality, morbidity, and persistence. We could suffer losses due to events that are contrary to our expectations as a result of, among others, incorrect biometric and economic assumptions or the use of incorrect actuarial bases in the calculation of contributions and provisions.

 

Although the pricing of our insurance and pension plan products and the adequacy of the associated reserves are reassessed on a yearly basis, we cannot accurately determine whether our assets supporting our policy liabilities, together with future premiums and contributions, will be sufficient for the payment of benefits, claims and expenses. Accordingly, the occurrence of significant deviations from our pricing assumptions could have an adverse effect on the profitability of our insurance and pension products. In

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addition, if we conclude that our reserves and future premiums are insufficient to cover future policy benefits and claims, we will be required to increase our reserves and record these effects in our financial statements, which may have a material adverse effect on us.

 

Social and environmental risks may have a material adverse effect on us.

 

As part of the risk analysis we undertake with respect to our customers, we take into account environmental factors (such as soil and water contamination, vegetation suppression, or lack of environmental authorizations) as well as social factors (such as the existence of working conditions akin to slavery). Any failure by us to identify and accurately assess these factors and the potential risks to us before entering into proposed transactions with our customers may result in damage to our image and reputation, as well as have a material adverse effect on our business, results of operations and financial condition.

 

The value of the collateral securing our loans may not be sufficient, and we may be unable to realize the full value of the collateral securing our loan portfolio.

 

The value of the collateral securing our loan portfolio may fluctuate or decline due to factors beyond our control, including, among others, macroeconomic factors globally and in Brazil, as well asforce majeure events. We may also not have sufficiently recent information on the value of collateral, which may result in an inaccurate assessment for impairment losses of our loans secured by such collateral. If any of the above were to occur, we may need to make additional provisions to cover actual impairment losses of our loans, which may materially and adversely affect our results of operations and financial condition.

 

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We may face significant challenges in possessing and realizing value from collateral with respect to loans in default.

 

If all resources appliedwe are unable to recover ofsums owed to us under secured loans in default through extrajudicial measures are not sufficient,such as restructurings, our last recourse with respect to such loans may be to enforce the collateral secured in our favor by the applicable borrower. Depending on the type of collateral granted, we mayeither have to enforce thesuch collateral through the courts or through extrajudicial measures. However, we may face delays oneven where the enforcement mechanism is duly established by the law, Brazilian law allows borrowers to challenge the enforcement in the courts, even if such challenge is unfounded, which can delay the realization of value from the collateral due to juridical measures foreseen bycollateral. In addition, our secured claims under Brazilian law will in certain cases rank below those of preferred creditors such as challenge in the courts, ranking of preferred creditors.employees and tax authorities. As a result, we may not be able to realize value from the collateral, or may only be able to do so to a limited extent or after a significant amount of time, thereby potentially adversely affecting our financial condition and results may be potentially affect by the inability to realize the value of the collateral, in full or at all or, by delay in realizing such collateraloperations.

 

We are subject to market, operational and other related risks associated with our derivative transactions and our investment positions that could have a material adverse effect on us.

 

We enter into derivative transactions for trading purposes, as well as for hedging purposes. We are subject to market, credit and operational risks associated with these transactions, including basis risk (the risk of loss associated with variations in the spread between the asset yield and the funding and/or hedge cost) and credit or default risk (the risk of insolvency or other inability of the counterparty to a particular transaction to perform its obligations thereunder, including providing sufficient collateral). We also hold securities in our own portfolio as part of our investment and hedging strategies.

 

Financial instruments, including derivative instruments and securities represented 86.7%88.1% of our total assets as of December 31, 2019. 2020. As of December 31, 2020, the notional value of derivatives in our books amounted to R$2,752,683 million (with a market value of R$28,871 million of debit balance and R$31,980 million of credit balance).

Any realized or unrealized future gains or losses from these investments or hedging strategies could have a significant impact on our income. These gains and losses, which we account for when we sell or mark to market investments in financial instruments, can vary considerably from one period to another. If, for example, we enter into derivatives transactions to protect ourselves against decreases in the value of thereal or in interest rates and thereal instead increases in value or interest rates increase, we may incur financial losses. We cannot forecast the amount of gains or losses in any future period, and the variations experienced from one period to another do not necessarily provide a meaningful forward-looking reference point. Gains or losses in our investment portfolio may create volatility in net revenue levels, and we may not earn a return on our consolidated investment portfolio, or on a part of the portfolio in the future. Any losses on our securities and derivative financial instruments could materially and adversely affect our operating income and

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financial condition. In addition, any decrease in the value of these securities and derivatives portfolios may result in a decrease in our capital ratios, which could impair our ability to engage in lending activity at the levels we currently anticipate.

 

The execution and performance of these transactions depend on our ability to maintain adequate control and administration systems. Our ability to adequately monitor, analyze and report derivative transactions continues to depend, largely, on our information technology systems. These factors further increase the risks associated with these transactions and could have a material adverse effect on us.

 

We may not effectively manage risks associated with the replacement or reform of benchmark indices.

 

Interest rate, equity, foreign exchange rate and other types of indices, which are deemed to be “benchmarks” are“benchmarks,” including those in widespread and long-standing use, have been the subject of ongoing international, national and other regulatory scrutiny and initiatives and proposals for reform. Some of these reforms are already effective while others are still to be implemented or are under consideration. These reforms may cause benchmarks to perform differently than in the past, or to disappear entirely, or have other consequences, which cannot be fully anticipated.

Any of the benchmark reforms which have been proposed or implemented, or the general increased regulatory scrutiny. For example, regardingscrutiny of benchmarks, could also increase the interestcosts and risks of administering or otherwise participating in the setting of benchmarks and complying with regulations or requirements relating to benchmarks. Such factors may have the effect of discouraging market participants from continuing to administer or contribute to certain benchmarks, trigger changes in the rules or methodologies used in certain benchmarks or lead to the disappearance of certain benchmarks.

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Any of these developments, and any future initiatives to regulate, reform or change the administration of benchmarks, could result in adverse consequences to the return on, value of and market for loans, mortgages, securities, derivatives and other financial instruments whose returns are linked to any such benchmark, including those issued, funded or held by Santander Brasil. Various regulators, industry bodies and other market participants in the U.S. and other countries have worked to develop, introduce and encourage the use of alternative rates to replace certain benchmarks. A transition away from the widespread use of certain benchmarks to alternative rates has begun and will continue over the course of the next few years. There is no assurance that these new rates will be accepted or widely used by market participants, or that the characteristics of any of these new rates will be similar to, or produce the economic equivalent of, the benchmarks that they seek to replace. If a particular benchmark were to be discontinued and an alternative rate benchmarks,has not been successfully introduced to replace that benchmark, this could result in widespread dislocation in the financial markets, engender volatility in the pricing of securities, derivatives and other instruments, and suppress capital markets activities, all of which could have adverse effects on Santander Brasil’s results of operations. In addition, the transition of a particular benchmark to a replacement rate could affect hedge accounting relationships between financial instruments linked to that benchmark and any related derivatives, which could adversely affect Santander Brasil’s results.

On July 27, 2017, the UK’sChief Executive of the U.K. Financial Conduct Authority, or the “FCA,” which regulates the London interbank offered rate, or “LIBOR,” announced that itthe FCA will no longer persuade or compel banks to submit rates for the calculation of the London interbank offered rate, or “LIBOR,”LIBOR benchmark after 2021. This announcement indicatesindicated that the continuation of LIBOR on the current basis cannot and willcould not be guaranteed after 2021. On December 4, 2020, ICE Benchmark Administration Limited, which administers LIBOR, published a consultation on its intention to cease the publication of most LIBOR settings as of the end of December 2021, except for the publication until June 30, 2023 of certain U.S. dollar LIBOR settings. Therefore, after 2021 most LIBOR settings may cease to be produced.calculated. The Bank of England andis publishing a reformed Sterling Overnight Index Average, , comprised of a broader set of overnight Sterling money market transactions, which has been selected by the FCA are working with market participantsWorking Group on Sterling Risk-Free Reference Rates as the alternative rate to catalyze a transitionSterling LIBOR. In addition, the Federal Reserve Bank of New York now publishes three reference rates based on overnight U.S. Treasury repurchase agreement transactions, including the Secured Overnight Financing Rate, or “SOFR,” which has been recommended as the alternative to using Sonia. In addition,U.S. dollar LIBOR. Furthermore, the European Money Market Institute, (“EMMI”)or “EMMI,” announced the discontinuation of the Euro OverNight Index Average, or “EONIA,”EONIA after 3 January 3, 2022 and that from 2 October 2, 2019 until its total discontinuation it will be replaced by the euro short-term rate, or “€STR,”)STR” plus a spread of 8.5 basis points. Many unresolved issues remain, such as the timing of the successor benchmarks’ introduction and the transition of a particular benchmark to a replacement rate, which could result in widespread dislocation in the financial markets, engender volatility in the pricing of securities, derivatives and other instruments, and suppress capital markets activities. These and other reforms may cause benchmarks to perform differently than in the past, or to disappear entirely, or have other consequences, which cannot be fully anticipated, which introduces a number of risks for us. These risks include (i) legal risks arising from potential changes required to documentation for new and existing transactions; (ii) risk management, financial and accounting risks arising from market risk models and from valuation, hedging, discontinuation and recognition of financial instruments linked to benchmark rates; (iii) business risk that theof a decrease in revenues of products linked to LIBOR (in particular those indices that will be replaced) decrease;replaced; (iv) pricing risks arising from how changes to benchmark indices could impact pricing mechanisms on some instruments; (v) operational risks arising from the potential requirement to adapt IT systems, trade reporting infrastructure and operational processes; and (vi) conduct risks arising from the potential impact of communication with customers and engagement during the transition period.period and (vii) litigation risks regarding our existing products and services, which could adversely impact our profitability. The replacement benchmarks and their transition path have been defined, but the mechanisms for implementation are under development. Accordingly, it is not currently possible to determine whether, or to what extent, any such changes would affect us. However, the implementation of alternative benchmark rates may have a material adverse effect on our business, results of operations, financial condition and prospects. We may also be adversely affected if the change restricts our ability to provide products and services or if it necessitates the development of additional information technology systems.

 

The changes provided for in Phase 2 of the LIBOR reform address issues that may affect the financial statements during the reform of a reference interest rate, including the effects of changes in contractual cash flows or hedging relationships resulting from the replacement of a rate with an alternative reference rate (substitution issues). The effective date of application of this amendment is January 1, 2021. Our contracts linked to LIBOR are being reviewed between the parties and will be updated with the respective alternative rates disclosed, plus a spread. Management estimates that the updated cash flows will be economically equivalent to the original, and does not expect material impacts related to this replacement.

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Failure to successfully implement and continue to improve our risk management policies, procedures and methods, including our credit risk management system, could materially and adversely affect us, and we may be exposed to unidentified or unanticipated risks.

 

The management of risk is an integral part of our activities. We seek to monitor and manage our risk exposure through a variety of separate but complementary financial, credit, market, operational, compliance and legal reporting systems, among others. We employ a broad and diversified set of risk monitoring and risk mitigation techniques, which may not be fully effective in mitigating our risk exposure in all economic market environments or against all types of risk, including risks that we may fail to identify or anticipate.

 

We use certain qualitative tools and metrics for managing market risk, including our use of value at risk, or “VaR,” and statistical modeling tools, which are based upon our use of observed historical market behavior. We apply statistical and other tools to these observations to arrive at quantifications of our risk exposures. These qualitative tools and metrics may fail to predict future risk exposures. These risk exposures could, for example, arise from factors we did not anticipate or correctly evaluate in our statistical models. This would limit our ability to manage our risks. Our losses thus could be significantly greater than the historical measures indicate. In addition, our quantified modeling does not

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take all risks into account. Our more qualitative approach to managing those risks could prove insufficient, exposing us to material unanticipated losses. We could face adverse consequences as a result of decisions, which may lead management to, based on models that are poorly developed, implemented or used, or as a result of the modeled outcome, misunderstand or misuse such information for purposes for which it was not designed. In addition, if existing or potential customers or counterparties believe our risk management is inadequate, they could take their business elsewhere or seek to limit their transactions with us. Any of these factors could have a material adverse effect on our reputation, as well as our revenues and profits. We also face risks from operational losses that may occur due to inadequate processes, people and systems failures or even from external events like natural disasters, terrorism, robbery and vandalism. Despite the operational risk management process supported by the Board and the internal audit tests, the internal controls and procedures effectiveness may not be fully adequate or sufficient to avoid all the known and unknown operational risks. We have suffered losses from operational risk in the past, including losses related to the migration of customer accounts in connection with acquisitions, phishing scams perpetuated by third parties, and information system platform upgrades. There can be no assurance that we will not suffer material losses from operational risk in the future, including losses related to security breaches.

 

As a retail bank, one of the main types of risks inherent in our business is credit risk. For example, an important feature of our credit risk management system is to employ an internal credit rating system to assess the particular risk profile of a customer. As this process involves detailed analyses of the customer, taking into account both quantitative and qualitative factors, it is subject to human or IT systems errors. In exercising their judgment on current or future credit risk behavior of our customers, our employees may not always be able to assign an accurate credit rating, which may result in our exposure to higher credit risks than indicated by our risk rating system.

 

Some of the models and other analytical and judgment-based estimations we use in managing risks are subject to review by, and require the approval of, our regulators. If models do not comply with all their expectations, our regulators may require us to make changes to such models, may approve them with additional capital requirements, or we may be precluded from using them. Any of these potential situations could limit our ability to expand our businesses or have a material impact on our financial results.

 

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Failure to effectively implement, consistently monitor or continuously refine our credit risk management system may result in an increase in the level of non-performing loans and a higher risk exposure for us, which could have a material adverse effect on us.

 

Failure to adequately protect ourselves against risks relating to cybersecurity could materially and adversely affect us. We are also subject to increasing scrutiny and regulation governing cybersecurity risks.

 

We face various cybersecurity risks, including but not limited to: penetration of our information technology systems and platforms by ill-intentioned third parties, infiltration of malware (such as computer viruses) into our systems, contamination (whether intentional or accidental) of our networks and systems by third parties with whom we exchange data, unauthorized access to confidential customer and/or proprietary data by persons inside or outside our organization, and cyber-attacks causing systems degradation or service unavailability that may result in business losses.

 

We may not be able to successfully protect our information technology systems and platforms against such threats. We have seen in recent years computer systems of companies and organizations being increasingly targeted, and the techniques used to obtain unauthorized, improper or illegal access to information technology systems have become increasingly complex and sophisticated. Furthermore, such techniques change frequently and are often not recognized or detected until after they have been launched and can originate from a wide variety of sources, including not only by cyber criminals, but also by activists and rogue states. We have been and continue to be subject to a range of cyber-attacks, such as denial of service, malware and phishing. Cyber-attacks could give rise to the loss of significant amounts of customer data and other sensitive information, as well as significant levels of liquid assets (including cash). In addition, cyber-attacks could give rise to the disablement ofdisrupt our information technologyelectronic systems used to service our customers.

 

If we fall victim to successful cyber-attacks or experience cybersecurity incidents in the future, we

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may incur substantial costs and suffer other negative consequences, such as remediation costs (liabilities for stolen assets or information, or repairs of system damage, among others), increased cybersecurity protection costs, lost revenues arising from the unauthorized use of proprietary information or the failure to retain or attract customers following an attack, as already mentioned, litigation and legal risks, increased insurance premiums, reputational damage affecting our customers’ and investors’ confidence, as well as damages to our competitiveness, stock price and long-term shareholder value.

 

We are also subject to increasing scrutiny and regulation governing cybersecurity risks. Such regulation is fragmented and constantly evolving. See “Item 4B—4. Information on the Company—B. Business Overview—Regulation and Supervision—Other Applicable Laws and Regulations—Regulations on Cybersecurity”. We could be adversely affected if new legislation or regulations are adopted or if existing legislation or regulations are modified such that we are required to alter our systems or require changes to our business practices or policies. A failure to implement all or some of these new global and local regulations, that in some cases have severe sanctions regimes, could also have a material adverse effect on us. If we fail to effectively manage our cybersecurity risk, for example, by failing to update our systems and processes in response to new threats, this could harm our reputation and adversely affect our operating results, financial condition and prospects through the payment of customer compensation or other damages, litigation expenses, regulatory penalties and fines and/or through the loss of assets. Furthermore, upon a failure to comply with applicable law and regulation, we may be ordered to change our business practices, policies or systems in a manner that adversely impacts our operating results.

 

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In addition, we may also be subject to cyber-attacks against critical infrastructures of Brazil. Our information technology systems are dependent on such critical infrastructure, and any cyber-attack against such critical infrastructure could negatively affect our ability to service our customers. As we do not operate such critical infrastructure, we have limited ability to protect our information technology systems from the adverse effects of such a cyber-attack. See “Item 4. Information on the Company—B. Business Overview.”

 

It is important to highlight that even when a failure of or interruption in our systems or facilities is resolved timely or an attempted cyber incident or other security breach is successfully avoided or thwarted, normally substantial resources are expended in doing so, and we may be required to take actions that could adversely affect customer satisfaction or behavior, as well as represent a threat to our reputation.

 

For additional information, see also “—We are subject to increasing scrutiny and regulation from data protection laws, including penalties in the event of noncompliance with the terms and conditions of certain new European and Brazilian regulations” and “—Failure to protect personal information could adversely affect us.”

 

We are subject to counterparty risk in our business.

 

We are exposed to counterparty risk in addition to credit risks associated with lending activities. Counterparty risk may arise from, for example, investing in securities of third parties, entering into derivative contracts under which counterparties have obligations to make payments to us, or executing securities, futures, currency or commodity trades from proprietary trading activities that fail to settle at the required time due to non-delivery by the counterparty or systems failure by clearing agents, clearing houses or other financial intermediaries.

 

We routinely transact with counterparties in the financial services industry, including brokers and dealers, commercial banks, investment banks, mutual funds, hedge funds and other institutional customers. Defaults by, and even rumors or questions about the solvency of, certain financial institutions and the financial services industry generally have led to market-wide liquidity problems and could lead to losses or defaults by other institutions. Many of the routine transactions we enter into expose us to significant credit risk in the event of default by one of our significant counterparties.

 

If these risks give rise to losses, this could materially and adversely affect us. We have a diversified loan portfolio, with no specific concentration exceeding 10% of total loans. Furthermore, currently, 0.9%1.3% of our loan portfolio is allocated to our largest debtor and 6.9%6.5% to our next 10 largest debtors.

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However, we cannot assure this will continue to be the case. If counterparty risks give rise to losses, this could materially and adversely affect our results of operations and financial condition.

 

Our financial results are constantly exposed to market risk. We are subject to fluctuations in interest rates and other market risks, which may materially and adversely affect us and our profitability.

The COVID-19 pandemic has caused high market volatility which may materially and adversely affect us and our trading and banking book.

Market risk refers to the probability of variations in our interest income/(charges) or in the market value of our assets and liabilities due to volatility of interest rate, inflation, exchange rate or equity price. Changes in interest rates affect the following areas, among others, of our business:

·interest income / (charges);

·the volume of loans originated;

·credit spreads;

·the market value of our securities holdings;

·the value of our loans and deposits; and

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·the value of our derivatives transactions.

Interest rates are sensitive to many factors beyond our control, including increased regulation of the financial sector, monetary policies and domestic and international economic and political conditions. Variations in interest rates could affect the interest earned on our assets and the interest paid on our borrowings, thereby affecting our interest income/(charges), which comprises the majority of our revenue, reducing our growth rate and potentially resulting in losses. In addition, costs we incur as we implement strategies to reduce interest rate exposure could increase in the future (which, in turn, will impact our results).

Increases in interest rates may reduce the volume of loans we originate. Sustained high interest rates have historically discouraged customers from borrowing and have resulted in increased delinquencies in outstanding loans and deterioration in the quality of assets. Increases in interest rates may reduce the value of our financial assets and may reduce gains or require us to record losses on sales of our loans or securities.

Due to the historically low interest rate environment in Brazil in recent years, the rates on many of our interest-bearing deposit products have been priced at or near zero or negative, limiting our ability to further reduce rates and thus negatively impacting our margins. If the current low interest rate environment in Brazil persists in the long run, it may be difficult to increase our interest income / (charges), which will impact our results.

We are also exposed to foreign exchange rate risk as a result of mismatches between assets and liabilities denominated in different currencies. Fluctuations in the exchange rate between currencies may negatively affect our earnings and value of our assets and securities.

We are also exposed to equity price risk in our investments in equity securities in the banking book and in the trading portfolio. The performance of financial markets may cause changes in the value of our investment and trading portfolios. The volatility of world equity markets due to the continued economic uncertainty and sovereign debt crisis has had a particularly strong impact on the financial sector. Continued volatility may affect the value of our investments in equity securities and, depending on their fair value and future recovery expectations, could become a permanent impairment which would be subject to write-offs against our results.

Market conditions have resulted and could result in material changes to the estimated fair values of our financial assets. Negative fair value adjustments could have a material adverse effect on our operating results, financial condition and prospects.

In the past, financial markets have been subject to significant stress resulting in steep falls in perceived or actual financial asset values, particularly due to volatility in global financial markets and the resulting widening of credit spreads, including as a result of the COVID-19 pandemic. We have material exposures to securities, loans and other investments that are recorded at fair value and are therefore exposed to potential negative fair value adjustments. Asset valuations in future periods, reflecting then-prevailing market conditions, may result in negative changes in the fair values of our financial assets and these may also translate into increased impairments. In addition, the value ultimately realized by us on disposal may be lower than the current fair value. Any of these factors could require us to record negative fair value adjustments, which may have a material adverse effect on our operating results, financial condition or prospects.

In addition, to the extent that fair values are determined using financial valuation models, such values may be inaccurate or subject to change, as the data used by such models may not be available or may become unavailable due to changes in market conditions, particularly for illiquid assets, and particularly in times of economic instability. In such circumstances, our valuation methodologies require us to make assumptions, judgements and estimates in order to establish fair value, and reliable assumptions are difficult to make and are inherently uncertain and valuation models are complex, making them inherently imperfect predictors of actual results. Any consequential impairments or write-downs could have a material adverse effect on our operating results, financial condition and prospects.

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We face risks related to market concentration.

 

Concentration risk is an essential factorthe risk associated with potential high financial losses triggered by significant exposure to particular component of risk, whether it be related to a particular counterparty, industry or geographic concentration. Examples of such risks include significant exposure to a single counterparty, to counterparties operating in the management of credit risk and is therefore monitored continuously. Aspects such as thesame economic sector concentration of risk in certain groups of customers and products, are assessed monthly as part ofor geographical region, or to financial instruments that depend on the Risk Appetite exercise. This risk arises from the imperfect diversification of credit portfolios, which may derive from “name concentration” (incomplete diversification of the borrower's idiosyncratic risk) and “concentration sector ”(existence of multiple systematic risk factors, generally related to sectors of the economy, but also has other sources as origin, such as geographic locationsame index or factors macroeconomic conditions).currency.

 

We acknowledgebelieve that anyan excessive concentration ofwith respect to a particular risk factor could havegenerate a material adverse effect onrelevant financial loss for us, especially if the relevant risk materializesis one described in this annual report. We recognize the importance of this risk and generates a substantial financial loss.the potential impacts that may affect our portfolio and results of operations.

 

The financial problems faced by our customers could adversely affect us.

 

Market turmoil and economic recession could materially and adversely affect the liquidity, credit ratings, businesses and/or financial conditions of our borrowers, which could in turn increase our non-performingnonperforming loan ratios, impair our loan and other financial assets, and result in decreased demand for borrowings in general. We have credit exposure to borrowers whichthat have entered or may shortly enter into bankruptcy or similar proceedings. We may experience material losses from this exposure.

 

In addition, our customers may further significantly decrease their risk tolerance to non-deposit investments such as stocks, bonds and mutual funds, which would adversely affect our fee and commission income. Any of the conditions described above could have a material adverse effect on us.

 

We engage in transactions with related parties that others may not consider to be on an arm’s- lengtharm’s-length basis.

 

We and our affiliates have entered into a number of services agreements pursuant to which we render and/or receive services, such as administrative, accounting, finance, treasury, legal services and others from (or provide such services to) related parties. We are likely to continue to engage in transactions with such related parties (including our controlling shareholder) that others may not consider to be on an arm’s-length basis. Future conflicts of interests may arise between us and any of our affiliates, or among our affiliates, which may not be resolved in our favor. See “Item 7. Major Shareholders and Related Party Transactions.”

 

Changes in accounting standards could impact reported earnings.

 

The accounting standard setters and other regulatory bodies periodically change the financial accounting and reporting standards that govern the preparation of our consolidated financial statements. These changes can materially impact how we record and report our financial condition and results of operations. In some cases, we could be required to apply a new or revised standard retroactively, resulting in the restatement of prior period financial statements. For further information about developments in financial accounting and reporting standards see note 1 to our consolidated financial statements included elsewhere in this annual report.

 

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Our financial statements are based in part on assumptions and estimates which if inaccurate, could cause material misstatement ofimpact the results of our operations and financial position.operations.

 

The preparation of financial statements requires management to make judgments, estimates and assumptions that affect the reported amounts of assets, liabilities, income and expenses. Due to the inherent uncertainty in making estimates, actual results reported in future periods may be based upon amounts whichthat differ from those estimates. Estimates, judgments and assumptions are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Revisions to accounting estimates

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are recognized in the period in which the estimate is revised and in any future periods affected. The accounting policies deemed critical to our results and financial position, based upon materiality and significant judgments and estimates, include impairment of loans and advances,financial assets measured at amortized cost, goodwill impairment, valuation of financial instruments, impairment of available-for-sale financial assets measured at fair value through other comprehensive income, deferred tax assets provision, and pension obligation for liabilities.

 

If the judgment, estimates and assumptions we use in preparing our consolidated financial statements are subsequently found to be incorrect, there could be a material effect on our results of operations and a corresponding effect on our funding requirements and capital ratios.

 

Our business is highly dependent on the proper functioning of our information technology systems.

 

Our business is highly dependent on the ability of our information technology systems to accurately process a large number of transactions across numerous and diverse markets and products in a timely manner, and on our ability to rely on our digital technologies, computer and email services, software, and networks, as well as on the secure processing, storage and transmission of confidential data and other information in our computer systems and networks. The proper functioning of our financial control, risk management, accounting, customer service and other data processing systems is critical to our business and our ability to compete effectively.

 

We do not operate all of our redundant systems on a real-time basis and cannot assure that our business activities would not be materially disrupted if there were a partial or complete failure of any of these primary information technology systems or communication networks. Such failures could be caused by, among other things, major natural catastrophes, software bugs, computer virus attacks, conversion errors due to system upgrading, security breaches caused by unauthorized access to information or systems, or intentional malfunctions or loss or corruption of data, software, hardware or other computer equipment. Any such failures could disrupt our business and impair our ability to provide our services and products effectively to our customers, which could adversely affect our reputation as well as our business, results of operations and financial condition.

 

Our ability to remain competitive and achieve further growth will depend in part on our ability to upgrade our information technology systems and increase our capacity on a timely and cost-effective basis. We must continually make significant investments and improvements in our information technology infrastructure in order to remain competitive. We cannot assure that in the future we will be able to maintain the level of capital expenditures necessary to support the improvement or upgrading of our information technology infrastructure. Any substantial failure to improve or upgrade our information technology systems effectively or on a timely basis could materially and adversely affect us.

 

Failure to protect personal information could adversely affect us.

 

We receive, maintain and store confidential personal information of our customers and counterparties, including, but not limited to, personally identifiable information and personal financial information in the ordinary course of our banking operations. The sharing, use, disclosure and protection of this information are governed by various Brazilian and foreign laws.

 

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Although we have procedures and controls in place to safeguard personal and other confidential or sensitive information in our possession, unauthorized disclosuresaccess or security breachesdisclosures could subject us to legal actions and administrative sanctions, as well as damages and reputational harm that could materially and adversely affect our operating results, financial condition and prospects. Further, our business is exposed to risk from employees’ potential non-compliance with policies, employee misconduct, or negligence andor fraud, which could result in regulatory sanctions and serious reputational orand financial harm. It is not always possible to deter or prevent employee misconduct, and the precautions we take to detect and prevent this activity may not always be effective. We also face the risk that the design of our controls and procedures prove to be inadequate or are circumvented such that the data we hold is incomplete, not recoverable or not securely stored. In addition, we may be required to report events related to information security issues, (including any cyber security issues), events where customer information may be compromised, unauthorized access to our systems and other security

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breaches, to the relevant regulatory authorities. Any material disruption or slowdown of our systems could cause information, including data related to customer requests, to be lost or delivered to our customers with delays or errors, which could reduce demand for our services and products and could materially and adversely affect us. In addition, ifIf we cannot maintain an effective and secure electronic data and information, management systemand processing systems or if we fail to maintain complete physical and electronic records, this could result in disruptions to our operations, claims from customers, regulators, employees and other parties, violations of applicable privacy and other laws, regulatory sanctions and serious reputational and financial harm to us. Moreover, as a result of the COVID-19 pandemic, we have increased the number of employees working remotely, which may increase the vulnerability of our systems and impact our ability to conduct business.

 

For additional information, see also “—We are subject to increasing scrutiny and regulation from data protection laws, including penalties in the event of noncompliance with the terms and conditions of certain new European and Brazilian regulations” and “—Failure to adequately protect ourselves against risks relating to cybersecurity could materially and adversely affect us. We are also subject to increasing scrutiny and regulation governing cybersecurity risks.”

 

Damage to our reputation could cause harm to us.

 

Maintaining a positive reputation is critical to protect our brand, attract and retain customers, investors and employees and conduct business transactions with counterparties. Damage to our reputation can therefore cause significant harm to our business and prospects. Harm to our reputation can arise from numerous sources, including, among others, employee misconduct, including the possibility of fraud perpetrated by our employees, litigation or regulatory enforcement, failure to deliver minimum standards of service and quality, dealings with sectors that are not well perceived by the public, ratings downgrades, significant fluctuations in our share price, dealing with customers in sanctions lists, rating downgrades, significant variations in the price of our ADRs throughout the year, compliance failures, unethical behavior, and the activities of customers, service providers and other counterparties, including activities that negatively affect the environment. Further, negative publicity regarding us may result in harm to our prospects.

 

Actions by the financial services industry generally or by certain members of, or individuals in, the industry can also affect our reputation. For example, the role played by financial services firms in the financial crisis and the seeming shift toward increasing regulatory supervision and enforcement has caused public perception of us and others in the financial services industry to decline.

 

We could suffer significant reputational harm if we fail to identify and manage potential conflicts of interest properly. The failure, or perceived failure, to adequately address conflicts of interest could affect the willingness of clientscustomers to deal with us, or give rise to litigation or enforcement actions against us. Therefore, there can be no assurance that conflicts of interest will not arise in the future that could cause material harm to us.

 

We may be the subject of misinformation and misrepresentations deliberately propagated to harm our reputation or for other deceitful purposes, or by profiteering short sellers seeking to gain an illegal market advantage by spreading false information about us. There can be no assurance that we will effectively neutralize and contain false information that may be propagated regarding us, which could have an adverse effect on our operating results, financial condition and prospects.

 

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We plan to continue to expand our operations and we may not be able to manage such growth effectively, which could have an adverse impact on us, including our profitability.

 

We allocate management and planning resources to develop strategic plans for organic growth and to identify possible acquisitions and disposals and areas for restructuring our businesses. From time to time, we evaluate acquisition and partnership opportunities that can offer additional value to our shareholders and are consistent with our business strategy. However, we may not be able to identify suitable acquisition or partnership candidates, and our ability to benefit from any such acquisitions and partnerships will depend in part on our successful integration of those businesses. Any such integration entails significant risks such as unforeseen difficulties in integrating operations and systems and unexpected liabilities or contingencies relating to the acquired businesses, including legal claims. We cannot provide assurance that we will, in all cases, be able to manage our growth effectively or deliver our strategic growth objectives. Challenges that may result from our strategic growth decisions include our ability to:

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·manage efficiently the operations and employees of expanding businesses;

 

·maintain or grow our existing customer base;

 

·assess the value, strengths and weaknesses of investment or acquisition candidates, including local regulation that can reduce or eliminate expected synergies;

 

·finance and integrate strategic investments or acquisitions;

 

·align our current information technology systems adequately with those of an enlarged group;

 

·apply our risk management policy effectively to an enlarged group; and

 

·manage a growing number of entities without over-committing management or losing key personnel.

 

Any failure to manage growth effectively could have a material adverse effect on our operating results, financial condition and prospects.

 

In addition, any acquisition or venture could result in the loss of key employees and inconsistencies in standards, controls, procedures and policies.

 

Moreover, the success of the acquisition or venture will at least in part be subject to a number of political, economic and other factors that are beyond our control. Any of these factors, individually or collectively, could have a material adverse effect on us.

 

Goodwill impairments may be required in relation to acquired businesses.

 

We have made business acquisitions in the past and may make further acquisitions in the future. It is possible that the goodwill which has been attributed, or may be attributed, to these businesses may have to be written down if our valuation assumptions are required to be reassessed as a result of any deterioration in their underlying profitability, asset quality and other relevant matters. Impairment testing in respect of goodwill is performed annually, or more frequently if there are impairment indicators present, and comprises a comparison of the carrying amount of the cash-generating unit with its recoverable amount. Goodwill impairment does not, however, affect our regulatory capital. There can be no assurances that we will not have to write down the value attributed to goodwill in the future, which would adversely affect our results and net assets.

 

We rely on recruiting, retaining and developing appropriate senior management and skilled personnel.

 

Our continued success depends in part on the continued service of key members of our senior executive team and other key employees. The ability to continue to attract, train, motivate and retain highly qualified and talented professionals is a key element of our strategy. The successful implementation of our strategy and culture depends on the availability of skilled and appropriate management, both at our head office and in each of our business units. If we or one of our business units or other functions fails to staff its operations appropriately, or loses one or more of its key senior executives or other key employees and fails to replace them in a satisfactory and timely manner, our business, financial condition and results of operations, including control and operational risks, may be adversely affected.

 

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In addition, the financial industry has and may continue to experience more stringent regulation of employee compensation, which could have an adverse effect on our ability to hire or retain the most qualified employees. If we fail or are unable to attract and appropriately train, motivate and retain qualified professionals, our business may also be adversely affected.

 

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We rely on third parties and affiliates for important products and services.

 

Third-party vendors and certain affiliated companies provide key components of our business infrastructure such as loan and deposit servicing systems, back office and business process support, information technology production and support, internet connections, and network access. Relying on these third parties and affiliated companies can be a source of operational and regulatory risk to us, including with respect to security breaches affecting such parties. We are also subject to risk with respect to security breaches affecting the vendors and other parties that interact with these service providers. As our interconnectivity with these third parties and affiliated companies increases, we face the risk of operational failure with respect to their systems. We may be required to take steps to protect the integrity of our operational systems, thereby increasing our operational costs. In addition, certain problems caused by these third parties or affiliated companies could affect our ability to deliver products and services to customers. Replacing these third-party vendors could also entail delays and expense. Further, the operational and regulatory risk we face as a result of these arrangements may be increased to the extent that we restructure such arrangements. Restructurings could involve significant expense to us and entail significant delivery and execution risk, which could have a material adverse effect on our business, operations and financial condition.

 

Past performance of our loan portfolio may not be indicative of future performance; changes in the profile of our business may adversely affect our loan portfolio. In addition, the value of any collateral securing our loans may not be sufficient, and we may be unable to realize the full value of the collateral securing our loan portfolio.

Our historical loan loss experience may not be indicative of our future loan losses. While the quality of our loan portfolio is associated with the default risk in the sectors in which we operate, changes in our business profile may occur due, among other factors, to our organic growth, merger and acquisition activity, changes in local economic and political conditions, a slowdown in customer demand, an increase in market competition, changes in regulation and in the tax regimes applicable to the sectors in which we operate and, to a lesser extent, other related changes in countries in which we operate and in the international economic environment. In addition, the market value of any collateral related to our loan portfolio may fluctuate, from the time we evaluate it at the beginning of the trade to the time such collateral can be executed upon, due to the factors related to changes in economic, political or sectorial factors beyond our control, and we may be unable to realize the full value of the collateral securing our loan portfolio.

Climate change can create transition risks, physical risks and other risks that could adversely affect us.

Climate risk is as a transversal risk that can be an aggravating factor for the types of traditional risks managed by Santander: credit, market, operational (including reputational risk).

In order to identify the vulnerability of the Santander Group’s exposures to climate change, we have adopted the classifications used by TCFD (Task-Force on Climate-Related Financial Disclosures), and we consider that there are two primary sources of climate change related financial risks: physical and transition.

Physical risks resulting from climate change can be event-driven (acute) or long-term shifts (chronic) in climate patterns:

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·Acute physical risks include increased severity of extreme weather events, such as drought, hurricanes, or floods.

·Chronic physical risks include changes in precipitation patterns and extreme variability in weather patterns, rising mean temperatures, chronic heat waves or rising sea levels.

Transition risks refer to actions brought on to address mitigation and adaptation requirements related to climate change, and they can fall into various categories such as policy, technology, and market changes:

·Policy actions generally fall into two categories—those that attempt to constrain actions that contribute to the adverse effects of climate change and those that seek to promote adaptation to climate change. The risk associated with and the financial impact of policy changes depend on the nature and timing of the policy change.

·Technology risk arises from improvements or innovations to support the transition to a lower-carbon, energy efficient economic system that can have a significant impact on companies to the extent that new technology displaces old systems and disrupts some parts of the existing economic system.

·Market risk may manifest through shifts in supply and demand for certain commodities, products, and services, as climate-related risks and opportunities are increasingly taken into account.

Risks Relating to Our Controlling Shareholder, Our Units and American Depositary Receipts (ADRs)

 

Our ultimate controlling shareholder has a great deal of influence over our business and its interests could conflict with ours.

 

Santander Spain, our ultimate controlling shareholder, currently owns, directly and indirectly, approximately 89.5% of our total capital (not including the shares held by Banco Madesant – Sociedade Unipessoal).capital. Due to its share ownership, our controlling shareholder has the power to control us and our subsidiaries, including the power to:

 

·elect a majority of our directors that appoint our executive officers, set our management policies and exercise overall control over our companyCompany and subsidiaries;

 

·influence the appointment of our principal officers;

 

·declare the payment of any dividends;

 

·agree to sell or otherwise transfer its controlling stake in our company;Company; and

 

·determine the outcome of substantially all actions requiring shareholder approval, including amendments of our bylaws, transactions with related parties, corporate reorganizations, acquisitions and dispositions of assets, and dividends.

 

In December 2012, primarily in response to the requirements of the European Banking Authority, Santander Spain adopted a corporate governance framework (Marco de Gobierno Interno del Grupo Santander) to organize and standardize the corporate governance practices of certain companies of the Santander Group (including us). We adopted this corporate governance framework in May 2013, subject to the precedence of applicable Brazilian laws, regulations and limitations. Our corporate governance model was further amended in 2015 to reflect certain new requirements imposed on our parent company, Santander Spain, by the European Central Bank, the Bank of Spain and regulators in different jurisdictions. See “Item 16G. Corporate Governance.”

 

We operate as a stand-alone subsidiary within the Santander Group. Our controlling shareholder has no liability for our banking operations, except for the amount of its holdings of our capital stock and for other specific limited circumstances under Brazilian law. The interests of Santander Spain may differ from the interests of our other shareholders, and the concentration of control in Santander Spain

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will limit other stockholders’ ability to influence corporate matters. As a result, we may take actions that our other shareholders do not view as beneficial.

 

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Our status as a controlled company and a foreign private issuer exempts us from certain of the corporate governance standards of the New York Stock Exchange, or “NYSE”, limiting the protections afforded to investors.

 

We are a “controlled company” and a “foreign private issuer” within the meaning of the NYSE corporate governance standards. Under the NYSE rules, a controlled company is exempt from certain NYSE corporate governance requirements. In addition, a foreign private issuer may elect to comply with the practice of its home country and not to comply with certain NYSE corporate governance requirements, including the requirements that (i) a majority of the board of directors consists of independent directors, (ii) a nominating and corporate governance committee be established that is composed entirely of independent directors and has a written charter addressing the committee’s purpose and responsibilities, (iii) a compensation committee be established that is composed entirely of independent directors and has a written charter addressing the committee’s purpose and responsibilities, and (iv) an annual performance evaluation of the nominating and corporate governance and compensation committees be undertaken. Although we have similar practices, they do not entirely conform to the NYSE requirements; therefore, we currently use these exemptions and intend to continue using them. Accordingly, you will not have the same protections provided to shareholders of companies that are subject to all NYSE corporate governance requirements.

 

The liquidity and market prices of the units and the ADRs may be adversely affected by the cancellation of units or substantial sale of units and shares in the market.

 

Holders of units may present these units or some of these units for cancellation in Brazil in exchange for the common shares and preferred shares underlying these units. If unit holders present a significant number of units for cancellation in exchange for the underlying common shares and preferred shares, the liquidity and price of the units and ADRs may be materially and adversely affected.

 

Also, sales of a substantial number of our units, common shares or preferred shares in the future, or the anticipation of such sales, could negatively affect the market prices of our units and ADRs. If, in the future, substantial sales of units, common shares or preferred shares are made by existing or future holders, the market prices of the ADRs may decrease significantly. As a result, holders of ADRs may not be able to sell their ADRs at or above the price they paid for them.

 

The relative volatility and limited liquidity of the Brazilian securities markets may negatively affect the liquidity and market prices of the units and the ADRs.

 

The B3 is significantly less liquid than the NYSE or other major exchanges in the world. As of December 31, 2019,2020, the aggregate market capitalization of the B3 was equivalent to approximately R$ 4.85.1 trillion (U.S.$1.21.0 trillion), and the top ten stocks in terms of trading volume accounted for approximately 36%34% of all shares traded on B3 in the year ended December 31, 2019.2020. In contrast, as of December 31, 2019,2020, the aggregate market capitalization of the NYSE was approximately U.S. 24.1U.S.28.6 trillion. Although any of the outstanding shares of a listed company may trade on the B3, in most cases fewer than half of the listed shares are actually available for trading by the public, the remainder being held by small groups of controlling persons, government entities or a principal shareholder.

The uncertainties caused by the outbreak of COVID-19 had an adverse impact on the global economy and global capital markets, including in Brazil, during the course of 2020. As a result of this volatility, the B3’s circuit breaker mechanism was triggered eight times during March 2020. The prices of most of the securities traded on the NYSE and the B3, including the price of our securities, was adversely affected by the COVID-19 pandemic. Impacts similar to those described above may reoccur, which may result in volatility in the prices of our securities traded on the NYSE and on the B3. We cannot assure you that the price of our securities will not fall below the lowest levels at which our securities traded during the ongoing pandemic.

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The relative volatility and limited liquidity of the Brazilian securities markets may substantially limit your ability to sell the units or ADRs at the time and price you desire and, as a result, could negatively impact the market price of these securities.

 

If securities analysts do not publish research or reports about our business or if they downgrade our ADRs or securities issued by other companies in our sector, the price and trading volume of our ADRs and/or our shares could decline.

 

The trading market for our ADRs and our shares has been affected in part by the research and reports that industry and financial analysts publish about us or our business. We do not control these

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analysts. Furthermore, if one or more of the analysts downgrade our ADRs, our shares or our industry, change their views regarding the shares of any of our competitors, or other companies in our sector, or publish inaccurate or unfavorable research about our business, the market price of our ADRs and/or shares could decline. If one or more of these analysts stops providing reports or fails to publish reports on us regularly, we could lose visibility in the market, which in turn could cause our ADR and/or share price or trading volume to decline.

 

The economic value of your investment may be diluted.

 

We may, from time to time, need additional funds and we may issue additional units or shares. Any additional funds obtained by such a capital increase may dilute your interest in our company.Company.

 

Discontinuation of the current corporate governance practices may negatively affect the price of our ADRs and units.

 

After completion of the voluntary exchange offers by Santander Spain in Brazil and in the United States (respectively, the “Brazilian Exchange Offer” and the “U.S. Exchange Offer”) for the acquisition of up to all of our shares that were not held by the Santander Group at that time, we are no longer subject to the obligations of the special listing segment of B3 known as Corporate Governance Level 2 (the “Level 2 Segment”). Currently, we voluntarily comply with certain of the corporate governance requirements for companies listed on the Level 2 Segment.

 

Discontinuation, in whole or in part, of our existing corporate governance practices or minimum protections may adversely affect your rights as a security holder and may result in a decrease of the price of our shares, units and ADRs.

 

Holders of our units and our ADRs may not receive any dividends or interest on stockholders’ equity.

 

According to our By-Laws, we must generally pay our shareholders at least 25.0% of our annual net income as dividends or interest on stockholders’ equity, as calculated and adjusted under Brazilian Corporate Law, or “adjusted net income,” which may differ significantly from our net income as determined under IFRS. This adjusted net income may be used to increase capital or to absorb losses, or otherwise retained as allowed under Brazilian Corporate Law, and may not be available to be paid as dividends or interest on stockholders’ equity. Additionally, Brazilian Corporate Law allows a publicly traded company, like ours, to suspend the mandatory distribution of dividends and interest on stockholders’ equity in any particular year if our board of directors informs our shareholders that such distributions would be inadvisable in view of our financial condition or cash availability. We paid R$$3.3 billion, R$10.8 billion, and R$6.6 billion and R$6.3 billion (R$0.89, R$2.90, R$1.77 and R$1.681.6877 per unit, respectively) as dividends and interest on stockholders’ equity (considering gross value) in 2020, 2019, 2018 and 2017, respectively, in accordance with our dividend policy, but there can be no assurance that dividends and interest on stockholders’ equity will be paid in the future. We are also subject to Brazilian banking regulations that may limit the payment of dividends or interest on stockholders’ equity. Seeequity, including, since April 2020, a temporary restriction on dividend distributions and other payments as a result of measures taken by the Brazilian Central Bank to combat the COVID-19 pandemic’s effect on the Brazilian financial sector (see “Item 4. Information on the Company—B. Business Overview—Regulation and Supervision—Other Applicable Laws and Regulations—Regulatory Developments Related to COVID-19—Temporary Suspension of Dividend Distributions and Other Payments.” Also, see “Item 8. Financial Information—A. Consolidated Statements and Other Financial Information—History of Payment of Dividends and Interest Attributable to Stockholders’ Equity.”

 

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Holders of ADRs may find it difficult to exercise voting rights at our stockholders’shareholders’ meetings.

 

Holders of ADRs will not be our direct shareholders and will be unable to enforce directly the rights of shareholders under our By-Laws and Brazilian Corporate Law. Holders of ADRs may exercise voting rights with respect to the units represented by ADRs only in accordance with the deposit agreement governing the ADRs. Holders of ADRs will face practical limitations in exercising their voting rights because of the additional steps involved in our communications with ADR holders. For example, we are required to publish a notice of our stockholders’ meetings in specified newspapers in Brazil. Holders of our units will be able to exercise their voting rights by attending a stockholders’ meeting in person or voting by proxy. By contrast, holders of ADRs will receive notice of a stockholders’ meeting by mail from the ADRs depositary following our notice to the depositary requesting the depositary to do so. To

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exercise their voting rights, holders of ADRs must instruct the ADR depositary on a timely basis on how they wish to vote. This voting process necessarily will take longer for holders of ADRs than for holders of our units or shares. If the ADR depositary fails to receive timely voting instructions for all or part of the ADRs, the depositary will assume that the holders of those ADRs are instructing it to give a discretionary proxy to a person designated by us to vote their ADRs, except in limited circumstances.

 

Holders of ADRs also may not receive the voting materials in time to instruct the depositary to vote the units underlying their ADRs. In addition, the depositary and its agents are not responsible for failing to carry out voting instructions of the holders of ADRs or for the manner of carrying out those voting instructions. Accordingly, holders of ADRs may not be able to exercise voting rights, and they will have little, if any, recourse if the units underlying their ADRs are not voted as requested.

 

Holders of ADRs could be subject to Brazilian income tax on capital gains from sales of ADRs.

 

Law No. 10,833 of December 29, 2003 provides that the disposal of assets located in Brazil by a nonresident to either a Brazilian resident or a nonresident is subject to taxation in Brazil, regardless of whether the disposal occurs outside or within Brazil. This provision results in the imposition of income tax on the gains arising from a disposal of our units by a nonresident of Brazil to another nonresident of Brazil. It is unclear whether ADRs representing our units, which are issued by the ADR depositary outside Brazil, will be deemed to be “property located in Brazil” for purposes of this law. We believe ADRs do not qualify as property located in Brazil and, thus, should not be subject to Brazilian income tax. Nevertheless, there is no judicial guidance as to the application of Law no. 10,833 of December 29, 2003 and, accordingly, we are unable to predict whether Brazilian courts may decide that it applies to dispositions of our ADRs between non-residentsnonresidents of Brazil. However, in the event that the disposition of assets is interpreted to include a disposition of our ADRs, this tax law would accordingly impose withholding taxes on the disposition of our ADRs by a nonresident of Brazil to another nonresident of Brazil. See “Item 10. Additional Information—E. Taxation—Brazilian Tax Considerations.”

 

Any gain or loss recognized by a U.S. taxpayer will generally be treated as U.S. source gain or loss. A U.S. taxpayer would not be able to credit any Brazilian tax imposed on the disposition of our units or ADRs against such person’s U.S. federal income tax liability, unless such credit can be applied (subject to applicable limitations) against tax due on other income of such person from foreign sources. See “Item 10. Additional Information—E. Taxation—Material U.S. Federal Income Tax Considerations for U.S. Holders.”

 

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Our corporate disclosure may differ from disclosure regularly published by issuers of securities in other countries, including the United States.

 

Issuers of securities in Brazil are required to make public disclosures that are different from, and that may be reported under presentations that are not consistent with, disclosures required in other countries, including the United States. In particular, for regulatory purposes, we currently prepare and will continue to prepare and make available to our shareholders statutory financial statements in accordance with IFRS as issued by the IASB and Brazilian GAAP, both of which differ from U.S. GAAP in a number of respects. In addition, as a foreign private issuer, we are not subject to the same disclosure requirements in the United States as a domestic U.S. registrant under the Exchange Act, including the requirements to prepare and issue quarterly reports, the proxy rules applicable to domestic U.S. registrants under Section 14 of the Exchange Act or the insider reporting and short-swing profit rules under Section 16 of the Exchange Act. Accordingly, the information about us available to you will not be the same as the information available to shareholders of a U.S. company and may be reported in a manner with which you are not familiar.

 

Investors may find it difficult to enforce civil liabilities against us or our directors and officers.

 

The majority of our directors and officers reside outside of the United States. In addition, all or a substantial portion of our assets and the assets of our directors and officers are located outside of the United States. Although we have appointed an agent for service of process in any action against us in the United States with respect to our ADRs, none of our directors or officers has consented to service

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of process in the United States or to the jurisdiction of any U.S. court. As a result, it may be difficult for investors to effect service of process within the United States on such persons.

 

Judgments of Brazilian courts with respect to our units or ADRs will be payable only in reais.

 

Our By-Laws provide that we, our shareholders, our directors and officers and the members of our fiscal council shall submit to arbitration any and all disputes or controversies that may arise amongst ourselves relating to, or originating from, the application, validity, effectiveness, interpretation, violations and effects of violations of the provisions of Brazilian Corporate Law, our By-Laws, the rules and regulations of the CMN, the Brazilian Central Bank and the CVM, as well as other rules and regulations applicable to the Brazilian capital markets and the rules and regulations of the Arbitration Regulation of the Market Arbitration Chamber. However, in specific situations, including whenever precautionary motions are needed for protection of rights, the dispute or controversy may have to be brought to a Brazilian court. If proceedings are brought in the courts of Brazil seeking to enforce our obligations in respect of the units or ADRs, we will not be required to discharge our obligations in a currency other thanreais. Under Brazilian exchange control limitations and according to Brazilian laws, an obligation in Brazil to pay amounts denominated in a currency other thanreais may be satisfied in Brazilian currency only at the exchange rate, as determined by the Brazilian Central Bank or competent court, in effect on the date the judgment is obtained, and such amounts are then adjusted to reflect exchange rate variations through the effective payment date. The then-prevailing exchange rate may not afford non-Brazilian investors with full compensation for any claim arising out of or related to our obligations under the units or ADRs.

 

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Holders of ADRs may be unable to exercise preemptive rights with respect to our units underlying the ADRs.

 

Holders of ADRs will be unable to exercise the preemptive rights relating to our units underlying ADRs unless a registration statement under the Securities Act is effective with respect to the shares for which those rights are exercisable or an exemption from the registration requirements of the Securities Act is available. We are not obligated to file a registration statement with respect to the shares relating to these preemptive rights or to take any other action to make preemptive rights available to holders of units or ADRs. We may decide, at our discretion, not to file any such registration statement. If we do not file a registration statement or if we and the ADR depositary decide not to make preemptive rights available to holders of units or ADRs, those holders may receive only the net proceeds from the sale of their preemptive rights by the depositary, or if they are not sold, their preemptive rights will be allowed to lapse.

 

As a holder of ADRs you will have different shareholders’ rights than do shareholders of companies incorporated in the United States and certain other jurisdictions.

 

Our corporate affairs are governed by our By-Laws and by Brazilian Corporate Law, which may differ from the legal principles that would apply if we were incorporated in a jurisdiction in the United States or in certain other jurisdictions outside Brazil.

 

Under Brazilian Corporate Law, holders of the ADRs are not our direct shareholders and will have to exercise their voting rights through the depositary. Therefore, holders of ADRs may have fewer and less well-defined rights to protect their interests relative to actions taken by our board of directors or the holders of our common shares under Brazilian law than under the laws of other jurisdictions outside Brazil.

 

Although Brazilian Corporate Law imposes restrictions on insider trading and price manipulation, the form of these regulations and the manner of their enforcement may differ from that in the U.S. securities markets or markets in certain other jurisdictions. In addition, in Brazil, self-dealing and the preservation of shareholder interests may be regulated differently, which could potentially disadvantage you as a holder of the preferred shares underlying ADRs.

 

If you exchange your ADRs for their underlying Units, you risk losing Brazilian tax advantages and the ability to remit foreign currency abroad.

Brazilian law requires that parties obtain registration with the Brazilian Central Bank in order to remit foreign currencies, including U.S. dollars, abroad. The Brazilian custodian for the Units must obtain the necessary registration with the Brazilian Central Bank for payment of dividends or other cash distributions relating to the Units or after disposal of the Units. If you exchange your ADRs for the underlying Units, however, you may only rely on the custodian’s certificate for five business days from the date of exchange. Thereafter, you must obtain your own registration in accordance with the rules of the Brazilian Central Bank and the CVM, in order to obtain and remit U.S. dollars abroad after the disposal of the Units or the receipt of distributions relating to the Units. If you do not obtain a certificate of registration, you may not be able to remit U.S. dollars or other currencies abroad and may be subject to less favorable tax treatment on gains with respect to the Units. For more information, see “Item 10.D. Exchange Controls.”

If you attempt to obtain your own registration, you may incur expenses or suffer delays in the application process, which could delay your receipt of dividends or distributions relating to the Units or the return of your capital in a timely manner. The custodian’s registration and any certificate of foreign capital registration you may obtain may be affected by future legislative changes. Additional restrictions applicable to you, to the disposal of the underlying Units or to the repatriation of the proceeds from disposal may be imposed in the future.

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ITEM 4. INFORMATION ON THE COMPANY

 

4A.History and Development of the Company

4A. History and Development of the Company

 

General

 

We are a publicly held corporation (sociedade(sociedade anônima)nima) of indefinite term, incorporated under Brazilian law on August 9, 1985. Documentation of our incorporation is duly registered with the Commercial Registry of the State of São Paulo (Junta Comercial do Estado de São Paulo or “JUCESP”), under NIRE (Registry Number) 35300332067. Our corporate name is Banco Santander (Brasil) S.A. and our commercial name is Banco Santander. Our headquarters are located in Brazil, in the city of São Paulo, state of São Paulo, at Avenida Presidente Juscelino Kubitschek, 2,041 and 2,235, Bloco A, Vila Olímpia, 04543-011. Our telephone number is 55-11-3553-3300+55-11-3553-3300 and theour website is https://www.santander.com.br/ri. In addition, the SEC maintains a website at www.sec.gov that contains information filed by us electronically. The information contained on our website, any website mentioned in this annual report or any website directly or indirectly linked to these websites, is not part of, and is not incorporated by reference in, this annual report and you should not rely on such information.

 

Our agent for service is Mercedes Pacheco, Managing Director – Senior Legal Counsel, Banco Santander, S.A., New York Branch, 45 E. 53rd Street New York, New York 10022.

 

History

 

We are currently the third-largest privately ownedthird largest privately-owned bank in Brazil, and the only international bank with scale in the country. With high value added offers, wethat operates countrywide. We operate in both the retail and wholesale segments with high-added value offers, which allows us to meet the needs ofprovide our products and services to individuals, small and medium enterprises, and large corporate customers.

 

We are part of the Santander Group, a Spanish bankfinancial institution founded in Spain in 1857, and that has expanded globally through numerous acquisitions. We believe that this give us an advantage over our competitors. Although, underUnder the Santander Group’s business model each major unit is autonomous and required to be self-sufficient in terms of capital and liquidity,liquidity. However, our relationship with the Santander Group allows us to:

 

·access the Santander Group’s global operations, providingoperation network, using the operational synergies with the Santander Group and enhancingto enhance our ability to provide global products and services to our customers, while reducing technology development costs;

 

·provide our customers with the benefits of a strong presence in certain international markets, predominantly in Latin America and Western Europe;

 

·take advantage ofassimilate best practices with regardsrespect to products, services, internal controls and risk management, alreadythat were implemented in other countries;by the Santander Group internationally; and

 

·develop our employees’ skills throughby means of local and international training and development as well as by allow them to gaininitiatives, including international experience in otherexperiences at Santander Group’s offices of the Santander Group.worldwide.

 

Our history in the Brazilian banking industry goes back to the 1970’s1970s and is as summarized in the following figure:

 

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Santander Brasil Timeline

 

In 1957, the Santander Group entered the Brazilian market for the first time through an operating agreement with Banco Intercontinental do Brasil S.A. In 1970, the Santander Group opened a representative office in Brazil, followed by its first branch in 1982. The foundation of Santander Brasil was in 1985 through an acquisition of a local bank.

 

InSince the 1990s, the Santander Group has sought to establishestablished its presence in Latin America, particularly in Brazil, by capitalizing on organic growth as well asand pursuing an acquisition strategy, including the following most notable acquisitions:

 

·In November 2000, the Santander Group acquired Banespa, a bank owned by the State of São Paulo which becamethat resulted in the Santander Group becoming one of Brazil’s largest financial groups.

 

·On July 24, 2008, Santander Spain took an indirect share control of Banco Real, which itwas then absorbed into the Santander Group in order to further consolidate its investments in Brazil. On August 29, 2008, theSantander Brasil’s acquisition of Banco Real’s share capital by Santander Brasil was approved through a share exchange transaction andon August 29, 2008, which resulted in Banco Real becamebecoming a wholly-ownedwholly owned subsidiary of Santander Brasil. Subsequently, it was merged into Santander Brasil on April 30, 2009.

 

Since October 7, 2009, our units, and common and preferred shares have been listed and traded on B3 under the tickerssymbols: “SANB11”, “SANB3” and “SANB4”, respectively, while ourrespectively. Our ADRs representing American Depositary Shares (or “ADSs”) have been registered with the SEC under the Securities Act and are listed and traded on the NYSE under the tickersymbol “BSBR”. For further information, see “Item 9. The Offer and Listing—A. Offering and Listing Details.”

 

Important Events

 

We have set forth below important recent events in the development of our business. For further information, please refer to Note 3 Basis of consolidation of IFRS Financial Statements to our consolidated financial statements included in “Item 18. Financial Statements” of this annual report.

 

Sale of equity stake in Super Pagamentos e Administração de Meios Eletrônicos S.A.

 

On February 28, 2020, we sold to Superdigital Holding Company, S.L., a company indirectly controlled by Santander Spain, our entire equity interest in Super Pagamentos e Administração de Meios Eletrônicos S.A. (“Superdigital”). We received consideration, or “Superdigital,” to Superdigital Holding Company, S.L., a company indirectly controlled by Santander Spain, for the amount of R$270 million for our interest in Superdigital.as consideration. As a result of such transaction, we are no longer a shareholder of Superdigital.

 

Put option of the remaining equity interest in Banco Olé Consignado S.A. against Aymoré Crédito, Financiamento e Investimento S.A.

 

On March 14, 2019, the minority shareholder of Banco Olé formalized its interest in exercising the put option right provided in the Investment Agreement executed with Aymoré CFI on July 30, 2014, to sell its 40% equity interest in Banco Olé to Aymoré CFI, a controlled entity of Santander Brasil.

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On January31, 2020, Santander Brasil and the shareholders of Bosan Participações S.A. (holding(a holding company whose single asset areis the shares representing 40% of the corporate capital of Banco Olé) have entered into the definitive agreements and performed the closing acts related to the purchase and sale of all shares issued by Bosan, upon transferringthe transfer of Bosan’s shares to Santander Brasil and the payment to the sellers of the total price of R$1,608,772,783,47.1,608.8 million to the sellers. As a result, Santander Brasil became, both directly and indirectly, the holder of all shares issued by Banco Olé.

Merger of Banco Olé Consignado S.A. into Banco Santander (Brasil) S.A.

Following the acquisition of the remaining equity interest over Banco Olé Consignado S.A., through the holding company Bosan Participações S.A. (together referred to as “Olé Companies”), the shareholders of Santander Brasil and the Olé Companies approved the merger of Olé Companies into Santander Brasil, as provide by the general meetings held on August 31, 2020. As a result, the Olé Companies ceased to exist and were succeeded by Santander Brazil. The incorporation of the Olé Companies is under the process of ratification by the Brazilian Central Bank.

 

Establishment of the Credit Intelligence Bureau

 

On January 20, 2016, we entered into a non-binding memorandum of understanding with Banco Bradesco S.A., Banco do Brasil S.A., Caixa Econômica Federal and Itaú Unibanco S.A., for the creation of a credit intelligence bureau, GestoraCredit Intelligence Bureau (Gestora de Inteligência de Crédito S.A., or “CIB”). The CIB was structured as a corporation and each of Santander Brasil, Banco Bradesco S.A., Banco do Brasil S.A., Caixa Econômica Federal and Itaú Unibanco S.A. havehas a 20% ownership stakeequity interest in the corporation.

 

The purpose of the CIB is to develop a database that, in conformitycompliance with the applicable laws,law, will collect, reconcile and handleprocess the credit information of registered individuals and legal entities who expressly authorize the inclusion of their credit information on the CIB’ssuch database. On April 14, 2017, the definitive documents were signedexecuted by theCIB’s shareholders. The necessary regulatory authorizations, including those issued by the Brazilian Central Bank and theby CADE, have already been granted. The CIB became fully operational in 2019.

 

Joint Venture with Hyundai Capital Services, Inc.

 

On April 28, 2016, our wholly-ownedwholly owned subsidiary Aymoré CFI entered into a joint venture with Hyundai Capital Services, Inc., or “Hyundai Capital”, for the purposes of incorporating (i) Banco Hyundai Capital Brasil S.A. and (ii) an insurance brokerage company. These entities were incorporated to provide, respectively, auto financefinancing and insurance brokerage services and products to consumers through the Hyundai dealerships in Brazil.

 

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Aymoré CFI holdsowns a 50% equity stakeinterest in Banco Hyundai Capital Brasil S.A., whileand Hyundai Capital holdsowns the remaining 50% equity interest.

 

On February 21, 2019, the Brazilian Central Bank granted Banco Hyundai Capital Brasil S.A. the authorization to operate as a banking entity. Banco Hyundai Capital Brasil S.A. began operating in the first half of 2019.

 

On April 30, 2019, the Brazilian Central Bank authorized the formation of the insurance brokerage company. The insurance brokerage company was incorporated on July 2, 2019 and began operating in November 2019.

 

Acquisition of equity stake in Ipanema Empreendimentos e Participações S.A., currently named Return Capital Serviços de Recuperação de Créditos S.A. (“Return Credit Management”), and Gestora de Investimentos Ipanema S.A., currently named Return Gestão de Recursos S.A. (“Return Asset” and, together with Return Credit Management, the “Return Entities”)

 

On October 16, 2019, Atual Companhia Securitizadora de Créditos Financeiros, or “Atual,” informed the remaining shareholders of the Return Entities´Entities of its decision to exercise its call option for shares representing the remaining 30% of the Return Entities’ total voting capital owned for a value of approximately R$17 million. The transaction was completed on November 1, 2019. As a result of this transaction, Atual currently owns 100% of the Return Entities’ issued and outstanding share capital. The Return Entities are active in the credit recovery intelligence sector, providing services such as credit portfolio evaluation and pricing, collection, management and recovery of non-performing loans.

 

Joint Venture with HDI Seguros

 

On December 20, 2017, we entered into binding agreements with HDI Seguros for the formation

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of a partnership through the creation of a new insurance company called Santander Auto S.A., or “Santander Auto”. Sancap Investimentos e Participações S.A., a company controlled by Santander Brasil, will hold 50% of the issued share capital of Santander Auto with the remaining 50% being held by HDI Seguros. Santander Auto will focus on offering motor insurance policies through a fully digital platform. The transaction closed on October 9, 2018 when the documentation to form Santander Auto S.A. was executed. On January 11, 2019, Santander Auto was granted regulatory authorization to begin operations by SUSEP.SUSEP and effectively started its operations on October 2019.

 

Creation of PI Distribuidora de Títulos e Valores Mobiliários S.A.

 

On May 3, 2018, our indirectly controlled subsidiary Santander Finance Arrendamento Mercantil S.A. was converted into a securities brokerage company and had its corporate name changed to SI Distribuidora de Títulos e Valores Mobiliários S.A. The conversion was approved by the Brazilian Central Bank on November 21, 2018.

 

On December 17, 2018, SI Distribuidora de Títulos e Valores Mobiliários S.A. changed its name to PI Distribuidora de Títulos e Valores Mobiliários S.A., or “PI DTVM.” The corporate name change was approved by the Brazilian Central Bank on January 22, 2019.

 

PI DTVM is a securities brokerage company, with an open digital platform, which willwhose focus is to broaden the portfolio of financial products we are able to offer to our clients.customers.

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Purchase of Equity Interest in Gira – Gestão Integrada de Recebíveis do Agronegócio S.A.

On August 11, 2020, Santander Brasil executed a share purchase and sale agreement and other covenants with the shareholders of Gira (Gestão Integrada de Agronegócio S.A. or “Gira”) to acquire 80% of Gira’s share capital. Gira is a technology company that operates in the management of agribusiness receivables and whose platform has the potential to make agricultural credit transactions more secure. This increased layer of security is achieved through the use of applications, such as geolocation of productive areas, capture and analysis of agronomic data and permanent monitoring of production performance for sites involved in credit transactions. Gira’s solutions also include the review and digital registration of collateral provided under commercial contracts and continuous observation of crop development as a way of monitoring risks. The applicable regulatory approvals were received on December 18, 2020 and the closing of the transaction took place on January 8, 2021.

 

Formation of BEN Beneficios

 

On June 11, 2018, we incorporated BEN Beneficios, Benefícios e Serviços S.A. (“Ben”) an entity fully held by Santander Brasil, whose purpose is to create, supply and administer various types of vouchers and tickets used to provide employee benefits (such as for meals, transportation and cultural events) in the form of printed electronic and magnetic cards. BEN Beneficios began operating in the second quarter of 2019.

 

Acquisition of residual equity stake in Getnet

 

On December 19, 2018, the minority shareholders of Getnet Adquirência e Serviços para Meios de Pagamentos S.A., or “Getnet,” exercised their right to sell all of their shares to Santander Brasil, or the “Put Option”, pursuant to the Shares’ Purchase and Sale Agreement and Other Covenants executed between the parties on April 4, 2014, or “SPA”. On the exercise date of the Put Option, we entered into a binding amendment to the SPA, to acquire all of the Getnet shares owned by minority shareholders, corresponding to 11.5% of the entity’s equity interest, in the amount of R$1.431 billion. The acquisition transaction was approved by the Brazilian Central Bank on February 18, 2019 and the transaction closed on February 25, 2019. As a result, Santander Brasil currently owns 100% of Getnet’s issued and outstanding share capital.

Proposal to Spin Off Getnet

On February 25, 2021, further to the Material Facts disclosed on November 16, 2020 and February 2, 2021, we announced that our Board of Directors approved a separation from our merchant payment business, which is undertaken by our subsidiary, Getnet, in order to concentrate the technology and payments businesses of Santander Group within PagoNxt, a new technology-focused global payment platform. Following the potential spin-off of our equity interest held in Getnet, or the “Spin-Off,” which will be resolved upon by our shareholders in an extraordinary shareholders’ meeting, our shareholders would become direct shareholders in Getnet on a pro rata basis. Accordingly, our shareholders immediately prior to the Spin-Off would hold a percentage of equity interest in Getnet in the same proportion as they held in Santander Brasil prior to the Spin-Off. After the approval of the Spin-off by our extraordinary shareholders’ meeting, our shares and units will be traded with the right to receive the shares and units issued by Getnet until the record date, which, once determined, will be disclosed to the market by means of a Notice to Shareholders.

 

Sale of equity stake in CIBRASEC – Companhia Brasileira de Securitização

 

On July 24, 2019, we completed the sale to ISEC Securitizadora S.A. (“ISEC”) of our entire equity interest in CIBRASEC – Companhia Brasileira de Securitização (“Cibrasec”), corresponding to ISEC Securitizadora S.A. (“ISEC”). Our interest amounted to 4,000 common shares and 50 Class A preferred shares, representing, in the aggregate, approximately 9.72% of Cibrasec’s total capital stock. The transaction was effected pursuant to the Shares Purchase and Other Covenants Agreement executed on the same date byamong Santander Brasil, the other shareholders of Cibrasec, ISEC and Cibrasec, who acted as an intervening party. We received consideration of R$ 9.8 million for our interest in Cibrasec. As a result, we are no longer a shareholder of Cibrasec.

 

Projections DisclosurePurchase of Equity Interest over Toro Controle e Participações S.A.

 

On October 8, 2019, we informedSeptember 29, 2020 Santander Brasil’s subsidiary, PI DTVM , entered into an investment and other covenant agreement with the shareholders of Toro Controle e Participações S.A. , or “Toro Controle” to invest in Toro Controle. Toro Controle, an investment platform, operating as a securities broker focused on the retail market that we have decidedwas founded in Belo Horizonte in 2010. Toro Controle is the holding company of Toro Corretora de Títulos e Valores Mobiliários Ltda, or “Toro Corretora,” and Toro Investimentos S.A., or “Toro Investimentos.” We refer to disclose projections (guidance) with respect to certainToro Controle, Toro Corretora and Toro Investimentos as “Toro,” Upon completion of our indicators for the yeartransaction, PI DTVM will hold 60% of 2022. While we believe that the projections, which we intend to disclose, are based on reasonable assumptions made by our management, such projections are nevertheless subject to significant uncertainties and matters outside of our control, including: the future average growth of our loan portfolio, return on equity (ROE), costToro Controle’s share capital.

 

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In addition, PI DTVM and Toro Corretora will combine their market experiences to develop a complete platform of fixed and variable income (end of term), the future average growthproducts. This platform will be based on shared expertise, technology and operate in the numbergrowing Brazilian investment market. The completion of our active customersthe transaction is subject to the execution of certain customary agreements between the parties, the fulfillment of customary conditions precedent and ourProspera (microcredit) customers.the receipt of certain regulatory approvals, including the approval of the Brazilian Central Bank.

 

Buyback Program

 

On November 1, 2019,February 2, 2021, our board of directors approved inthe continuation of the buyback program (previously set to expire on November 5, 2019, a buyback program4, 2020) of our units and ADRs. Our units and ADRs issued by us,will be acquired either directly or through our branch in the Cayman Islands, to be held in treasury or subsequently sold. The buyback program will cover the acquisition of up to 37,256,07236,956,402 units or ADRs, representing a combination of 37,256,07236,956,402 common and 37,256,07236,956,402 preferred shares, corresponding to approximately 1% of our share capital. The term of the buyback program is up to 1218 months beginning November 5, 2019,on February 3, 2021 and expiring on November 4, 2020.August 2, 2022.

 

Issuance of Notes

 

On November 5, 2018, our board of directors approved the issuance, through our Cayman Islands branch, of debt instruments to form part of our Tier 1 and Tier 2 regulatory capital in the aggregate amount of U.S.$2.5 billion, pursuant to an offering made to non-U.S. Persons under Regulation S of the U.S. Securities Act of 1993, as amended, or the “Notes Offer”Offering”.

 

OurIn addition, our board of directors also approved the redemption of debt instruments issued to form part of our Tier 1 and Tier 2 regulatory capital, as set out in accordance with the boardboard’s resolution of January 14, 2014. The redemption were carried out with funds raised throughproceeds from the Notes Offer.Offering were used to fund this redemption.

 

On December 18, 2018, the Brazilian Central Bank authorized the transactions contemplated in the Notes OfferOffering and the redemption, which were completed on January 29, 2019.

Disclosure of Projections

On July 29, 2020, we informed the market that we will no longer disclose guidance, as previously announced in the material fact dated October 8, 2019. This decision comes in response to the ongoing uncertainty with respect to the impact of the COVID-19 pandemic on our business, financial condition, assets, liquidity, cash flows and results of operations, as well as on the macroeconomic environment in Brazil and globally.

 

Capital Expenditures and Divestitures

 

Our main capital expenditures include investments in our Information Technology (“IT”)information technology platform. Our ITinformation technology platform focuses on our customers and supports our business model. In 2020, 2019 2018 and 2017,2018, total investments in ITinformation technology were R$1,432 million, R$1,858 million R$1,276 million and R$1,1321,276 million, respectively.

 

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In 2020, 2019 and 2018, we realized meaningful transformationscontinually improved in our operations and technologic infrastructure,technology platforms by means of investment in our digital applications, including through the implementation of various and modernnew solutions in the areas of Artificial Intelligence (Machine Learning,artificial intelligence (machine learning, AIOPs), Micro Services, BPM, Block Chain, Cybernetic Insurance, Facial Recognition, MultiCloud,micro services, blockchain technology, cyber insurance, facial recognition and cloud-based technologies, among others. The application of these new technologies allowed the renovation ofimproved our digital channels for continually improve the experience of interaction between clients and the bank, searching for offer services more and more practical and intuitive, besides makes possible the launch of products all digital and innovativewith our customers enabled us to provide solutions across credit, consortium, payroll loan, insurance, private banking, cards,  payments, agribusiness, investments to better address client needs. We also continued to invest in the areas of Credit, Consortium, Payments, Agribusiness, Investments, in a way to serve the demands and expectations of the modern client.

In theour physical service’s scope (Branch,distribution network (branches, PABs and PAEs), applying new functionalities, including: biometrybiometric identification for clients PJ in transactions with card,corporate customers, digital purchase and payment of exchange, by digital treasure, administration of single line for a more efficient organization of the service and recognition of preferential clients in the totem of branches, searching for more security, agility and service’s personalization.among other initiatives. For more details about our technology and infrastructure, of Technology, consultsee the item “ “—B. Business Overview - Overview—Technology and Infrastructure”.

Our ongoing capital expenditures consist primarily of investments in information technology We expect to fund our ongoing capital expenditures principally from our cash flow from operations.

 

Our major divestiture in the past three fiscal years and until the date of this annual report was the sale of BW I in 2017.Super Pagamentos.

 

For more information, see “Item 5. Operating and Financial Review and Prospects—A. Operating Results—Other Factors Affecting the Comparability of Our Results of OperationsOperations”.

Impact of COVID-19

We are closely monitoring the evolution of the COVID-19 pandemic in Brazil and “—Important Events—Saleglobally, in order to take preventive measures to minimize the spread of BW Guirapá I S.A.”).the virus, ensure the continuity of operations and safeguard the health and safety of our personnel. Based on the information available as of the date of this annual report, we present below a summary of the main effects of the COVID-19 pandemic on our business and results of operations:

·As the COVID-19 pandemic escalated in Brazil starting March 2020, we adjusted our operations to be able to continue providing our products and services to our customers while ensuring the health and safety of our employees. As part of these measures we transitioned our administrative office staff into remote working arrangements from March 17,2020 to May 25, 2020, and we had up to 80% of our employees working from home in that period. From May 25, 2020 we begin a phased return to our offices in compliance with strict hygiene and social distancing procedures.

·We supported our employees throughout the COVID-19 pandemic by offering them and their dependent remote medical care through an agreement with a leading Brazilian hospital. We also provided advance payment of thirteenth salary installments in April 2020 (these are normally paid in December of each year).

·Since March 2020, our branches have been operating with reduced service hours; from 9:00 a.m. to 2:00 p.m. from March 2020 to July 2020 and then from 9:00 a.m. to 3:00 p.m. through to the date of this annual report. We also adopted a staggered entry system in branches with heavy customer traffic in order to reduce the total number of customers in the branch at any given time. We also reserved the period from 9:00 am to 10:00 am for customers who would are more vulnerable to COVID-19. To provide continuous service and meet the increased demand of our call centers, we temporarily relocated retail employees to our call centers to help deal with the increased demand for remote banking services. In line with our commitment to clear customer communication, we launched the “Overcome Together” and “Santander Supports You” websites, which gathered resources and initiatives related to our business.

 

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·We offered individual, microentrepreneur and SME customers the possibility of deferring their loan payments for up to 60 days. In May 2020, we allowed an extension for an additional 30 days, as a result of which our deferred loan portfolio reached a total of R$ 49.8 billion as of June 30, 2020 and R$40.6 million as of December 31, 2020. At the same time we continuously monitored our loan quality indicators, which remained at acceptable levels throughout the COVID-19 pandemic and through to the date of this annual report. We also participated in government programs that granted special credit lines for businesses, particularly in retail, including CMN Resolution No. 4,846, which was published on August 24, 2020 and regulated lending under the Emergency Employment Support Program, initially established by Provisional Measure No. 944/2020. For more information, see “—B. Business Overview—Regulation and Supervision—Other Applicable Laws and Regulations—Regulatory Developments Related to COVID-19” As a result, our total portfolio balance of government-sponsored loans reached R$14 billion as of December 31, 2020. It is worth noting that these government-sponsored credit lines were created in 2020 to minimize the negative effects of the pandemic.

4B.·Business OverviewThe onset of COVID-19 had a negative impact on our net fee and commission income, especially in the first half of 2020, due to a lower volume of customer transactions, which adversely affected the total amounts we were able to charge in credit and debit card fees. As a result, we experienced reductions in the growth rates of our net fee and commission income and of our net interest income from the six months ended June 30, 2019 to the six months ended June 30, 2020, as compared to the growth rates of our net fee and commission income and of our net interest income from the six months ended June 30, 2018 to the six months ended June 30, 2019. These reductions were due to the abovementioned lower transaction volumes, a higher share of global wholesale banking in the loan portfolio, alongside a shift in the product mix, with a decreased share of higher risk products, such as credit cards and overdrafts. For more information, see “Item 5. Operating and Financial Review and Prospectus—A. Operating Results—Results of Operations for the Years Ended December 31, 2020, 2019 and 2018—Results of Operations—Net Interest Income ” and “Item 5. Operating and Financial Review and Prospectus—A. Operating Results— Results of Operations for the Years Ended December 31, 2020, 2019 and 2018—Results of Operations—Net Fee and Commission Income.”

·In 2020, we constituted an additional provision in the amount of R$3,200 million. This provision was calculated based on the analysis of the potential macroeconomic effects and took into account not only quantitative and qualitative indicators, but also the adequate and accurate identification of risks and a collective assessment of exposures. For more information, see “Item 5. Operating and Financial Review and Prospectus—5A. Operating Results—Results of Operations—Impairment Losses on Financial Assets (Net).”

·In 2020, the National Monetary Council, or “CMN,” and the Brazilian Central Bank introduced measures to minimize the impact of COVID-19 on the financial system. With respect to liquidity, these changes included: (i) a reduction in the time deposit reserve requirement from 31% to 17%; and (ii) an increase in the additional limit on the reserve requirement treated as High Quality Liquidity Assets from 15% to 30%, ensuring greater liquidity in a stress scenario. In addition, a temporary suspension on dividends and other distributions was enacted through Resolution No. 4,820, limiting the distributions to shareholders 30% of adjusted net profit (following amendments enacted on December 23, 2020). As a result, we only distributed R$3,837 million as dividends and interest on equity in 2020 compared to R$10,800 million in 2019. The CMN also published Resolution No. 4,783, which temporarily reduced the capital conservation buffer (where all rates relate to the total amount of risk-weighted assets) required from financial institutions from 2.5% to 1.25%, leading our Basel ratio to reach 15.3% as of December 31, 2020. For more information, see “—B. Business Overview—Regulation and Supervision—Other Applicable Laws and Regulations—Regulatory Developments Related to COVID-19” and “—4B. Business Overview—Regulation and Supervision—Other Applicable Laws and Regulations—Compulsory Reserve Requirements.”

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·We experienced an increase in digital business. Specifically, we recorded an increase of 151% in the number of new contracts originated through digital channels in December 2020 as compared to January and February 2020.

See also “Item 3. Key Information—3D. Risk Factors—Risks Relating to the Brazilian Financial Services Industry and Our Business—The current global COVID-19 pandemic has materially impacted our business, and the continuance of this pandemic or any future outbreak of any other highly contagious diseases or other public health emergency, could materially and adversely impact our business, financial condition, liquidity and results of operations” and “Item 5. Operating and Financial Review and Prospects—A. Operating Results—Principal Factors Affecting Our Financial Condition and Results of Operations—Impact of COVID-19.”

4B. Business Overview

 

Our Strategy

 

Our strategy is to endeavor to grow in a profitable, recurring and sustainable manner by providing services with excellence and to consistently strive to enhance customer satisfaction levels, expand our customer base and increase the loyalty of our customers.

 

To accomplishachieve this goal, we have been deeply focused on understanding how the Brazilian market works to address its demands effectively. As a consequence of our initiatives, Santander Brasil has made substantial progress in all key business areas, highlighted by a remarkable ROE evolution in the last five years. We believeIn line with this approach, we have been able to redirect our efforts toward a customer-centric business model with efficiency and risk model accuracy.

We have sought to identify our different types of customers and their specific consumption needs. Based on that,Accordingly, we have adopted a strategy which reliesthat is based on serving our customers wherever and whenever they want through multi-channel (digital and/or physical) solutions that deliverprovide a customized and innovative portfolio of services and products.

 

We endeavor to seize allbe pioneers and anticipate market trends to capture business opportunities over the opportunities presentedyears.

In 2016 we began our commercial transformation, which consisted of implementing new work models and simplifying and digitizing our processes, and introduced a culture of innovation, while also providing further vehicle loans at a time when the market was moving in the opposite direction. In 2017 we focused on the quality of the services we provide and placed customer satisfaction at the center of our strategy, which is reflected in the implementation of the net promoter score, or NPS, as a measure of customer satisfaction. In 2018, we were pioneers in bringing an industrial approach to costs into the banking sector, covering three key fronts: organization, technology and culture. We believe this strategy has already yielded results and will allow us to further refine our productivity and customer experience. In 2019, we expanded our Santander ecosystem with new businesses and reduced our exposure to the card market, as we concentrated on lower-risk products. Finally, in 2020 we focused on supporting our customers through a challenging time period, by our ecosystem in orderproviding relevant products, while also focusing on efficiency and responding swiftly to cross-sell and upsell ourmarket trends, as illustrated by the launch of SX, which set ourselves apart from the Brazilian Central Bank’s instant payment solution, PIX, by offering exclusive benefits to customers. We have also launched new disruptive products and services. For example, our automotive-related ecosystem consisting of Santander Financiamentos, Webmotors and Olé Consignado, has been instrumental in attracting new customers to Santander Brasil. Moreover, we have invested in initiatives that we believe have growth potential,into the market such BEN,as Sim, emDia, Santander Auto and PI. We believe that continuingBen. As a result of this strategic repositioning, we have been able to cross-sellrealize substantial growth in all our key business areas, as evidenced by the evolution of our return on equity, or ROE, in recent years (for further information see “Item 3. Key Information—A. Selected Financial Data—Reconciliation of Non-GAAP Measures and upsell across our business and investing in initiatives, which we believeRatios to be promising, are key pillars for usTheir Most Directly Comparable IFRS Financial Measures—Reconciliation of Non-GAAP Ratios to attract new customers and retain existing ones.Their Most Directly Comparable IFRS Financial Measures—Return on average stockholders’ equity”).

 

Further evidence that we are on the right track is the fact that in 2019 we were recognized by Euromoney Awards for Excellence as the Best Bank in Brazil and the Best Bank in Latin America.

Below we outline the main initiatives we have taken during these last years:

•       Net promoter score or NPS. We introduced the NPS as our main customer satisfaction metric in 2017 and in 2018, we were pioneers in disclosing this index to the market. After each interaction with Santander Brasil, our customers are asked randomly to rate their experience following the NPS methodology. Nowadays, we take into account our NPS with respect to our compensation (profit sharing) metrics, affecting virtually every department and position level at the organization, including the administrative and commercial departments. Additionally, and reinforcing our commitment to service excellence, we invited our senior management to become personally involved in enhancing customer satisfaction, by getting in touch with at least three detractors (unsatisfied customers) in order to understand and solve their problems and turn them into promoters (satisfied customers). We ended 2019 with an NPS of 56 points andSimilarly, we believe that our positioning, combined with a culture that values our people, promotes diversity, encourages speed in execution and fosters innovation, prepares us for this high level in satisfaction translates into an expansion of our loyal customer base.new cycle and allows us to keep anticipating market trends.

 

•       Operational excellence.WithWe believe our core business has the goal of fine-tuning the customer journeypotential to grow through innovation and boosting efficiency, we have transformed several aspects oftechnology, and by delivering a higher service level to our operational model. First, we switched to an industrial approach, which means that we now have an end-to-end view of the customer experience, reducing manual activitiescustomers. Our products and dispersion,businesses include, among others, payments (i.e. payment platforms), auto and consumer goods loans through Santander Financiamentos, mortgages, payroll and agribusiness loans, as well as enhancing cost transparency. Additionally, this year we launched a new service modelinvestments, in large part of our low-income portfolio, where we have transformed five types of careers into a single business and service manager career, further optimizing our customer service at our branches, generating more business and delivering greater efficiency. With these changes, we have already obtained notable results, such as a decrease inaddition to the time needed for customers to finalize the purchase of certain products and an increase in the number of agreements issued.

•       Digital strategy.We are in constant digital transformation to better serveservices we offer through our customers. We have implemented a collaborative work system in our organization based on the “Agile” methodology, commonly used in IT. This new approach consists of multidisciplinary teams, with employees fromwholesale segment.

 

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In order to strengthen our ecosystem, we have launched new businesses which continue to mature, such as (i) Ben, which reached breakeven in May 2020 and expanded its customer base in 2020 to 217 thousand cards alongside 1.4 thousand human resources customers and 338 thousand partner merchants; (ii) Sim, which achieved positive net profit in 2020 after 15 months of operation and a loan portfolio of R$700 million as of December 31, 2020; (iii) emDia, which had four million customers as of December 31, 2020 and R$46 million in credit recovered volume in 2020, and (iv) Santander Auto, which reached a penetration rate of 16% of Santander Financiamentos’ contracts leading to the issuance of more than R$100 million in premiums during 2020. More recently, in September 2020, we announced the acquisition of Toro Corretora to complement our PI DTVM investment platform, thereby expanding our product offering. The completion of the transaction is subject to the execution of certain customary agreements between the parties, the fulfillment of customary conditions precedent and the receipt of certain regulatory approvals, including approval by the Brazilian Central Bank.

Our growth is based on a commitment to asset quality, which we believe is demonstrated by the performance of certain quality indicators such as our cost of risk, which we believe remains at controlled levels despite the current macroeconomic scenario. It is worth noting that since 2019, we have focused on expanding our lower-risk products, particularly those that are collateralized. As a result, we believe that our loan quality indicators are at appropriate levels. Similarly, collateralized loans represent a significant portion of our loan portfolio to individuals, accounting for approximately 76% of our loan portfolio as of December 31, 2020 (four percentage points higher than December 31, 2019). The collateralized loans includes payroll loans.

We believe that our business was able to adapt swiftly to the changing environment in 2020 in order to meet the needs of our customers. We offered a plan to defer loan repayment installments to customers who fulfilled certain requirements. We provided special lines of credit, including through government programs, for the corporate and technology areas, whosmall and medium enterprise, or SME, segments. We believe that all these initiatives strengthened our customers’ loyalty and helped us achieve better control of our risk indicators. As a result of our actions, we reached the highest NPS level in our history in 2020, recording an NPS score of 63 points in 2020 (compared to 56 points in 2019), which we believe is evidence of our commitment to customers.

We acknowledge our responsibility as a financial institution to support society and contribute to Brazil’s economic growth. This attitude is embedded into our culture and is transversal to our business. In 2020, we held two events focused on supporting society at the onset the pandemic through our “Amigo de Valor” program, one in the first half of the year, and another one in the second half, raising an aggregate of approximately R$23 million (including donations from employees, customers and Santander Brasil, with R$7 million raised in the first edition and R$15.7 million raised in the second edition). We also hosted a donation marathon for the “Mães da Favela” project with the participation of customers and employees, which generated positive results: R$7.2 million was raised (including donations from employees, customers and Santander Brasil) to support more than 20,000 families.

Additionally, we encouraged other initiatives, such as volunteering to provide remote assistance to the elderly under the “Parceiro do Idoso” program, and the offer of special products to healthcare professionals. Finally, together with our private bank peers, we donated 5 million rapid COVID-19 tests, 17.7 million face masks and R$20 million to purchase computerized tomography scanners. Finally, we also donated a total of R$100 million to contribute to the fight against COVID-19.

Below are given autonomy to make decisions rapidly. Thanks tothe main commercial initiatives that we have been able to offer products and services, as well as add system updates through all our available channels quickly. These tools include: (i) providing a wide range of services across all channels according to customers' choices and/or needs; (ii) giving customers the ability to meet all their needs through digital channels; and (iii) integrating all service channels to ensure that customers have a homogeneous experience, regardless of the channel chosen.undertaken in recent years:

 

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Table of commercial tools.We have simplified day-to-day operationsContents

•Net promoter score or NPS. We introduced the NPS as our primary metric for customer satisfaction in 2017 and, in 2018, we were pioneers in disclosing our score to the market. After each interaction with Santander Brasil, our customers are randomly selected to rate their experience using the NPS methodology. Nowadays, the NPS is part of our compensation (profit sharing) metrics, affecting virtually every department and position level at the organization, including the administrative and commercial departments. In 2020, despite the ongoing COVID-19 pandemic, we achieved our highest level of customer satisfaction, with an NPS of 63 points, rising 7.5 points over the immediately preceding 12 months. This performance contributed to the sustainable growth of our customer base, which saw a net increase of 1.8 million active customers in the 12 months ended December 31, 2020.

•Digital strategy. We are in constant digital transformation to better serve our customers. We have implemented a collaborative work system in our organization based on the “Agile” methodology, which is commonly used in information technology. We believe this methodology has allowed us to offer more suitable products and services, as well as quickly perform system updates through all our available channels. In 2020, we strengthened our digital channels by improving the availability of services. We also launched GENTE, our virtual assistant, which was developed by drawing on the diverse talents and experiences of our employees. Customers can access GENTE through WhatsApp, our web portal, mobile banking and our Santander Way app, gaining quick access to advice and transaction assistance. GENTE has already achieved notable metrics, such as 37.7 million of interactions with approximately 70% accuracy and achieving an NPS of 76 points on mobile banking for individual customers between May 2020 and January 2021. All these initiatives illustrate the growing importance of digital channels, which account for 29% of new active customer acquisitions in retail and 74.4% of total bank financial transactions in 2020, 11.2 p.p. higher than a year ago. E-commerce sales grew 41.1% in 2020, compared to 2019.

•Countryside expansion. With the objective of being closer to customers, we have been expanding our physical presence to strategic regions in Brazil’s countryside. These dedicated stores cater to customers in the agricultural sector more effectively. One of our fronts in this initiative is to open additional Prospera Santander Microcredit stores to encourage entrepreneurship and promote financial education. As of December 2020, we had a total of 99 stores, reaching more than 543 thousand customers. Another front is Agribusiness, where we have reached a total of 40 Agro stores (with return in less than eighteen months), alongside the 300 sector-oriented branches.

•Greater empowerment and incentives for branch staff. We have sought to decentralize the management of branch resources. Branch managers are now responsible for managing the expenses of their branches, and generating their branch’s own results report. This independence gives branch employees and managers a stronger sense of autonomy and responsibility, as well as the feeling of being part of their own branch's success. In addition, we have made some adjustments to the compensation structure of branch employees and managers to ensure that the variable components of their compensation depend on the performance of the branch where they work.

•Operational excellence. With the goal of fine-tuning the customer journey and boosting efficiency, we have transformed several aspects of our operational model. First, we switched to an industrial approach, which means that we now have an end-to-end view of the customer experience, reducing manual activities and dispersion, as well as enhancing cost transparency. Additionally, in 2019, we launched a new service model for most of our low-income portfolio, through which we transformed five types of careers into a single business and service manager career, further optimizing our customer service at our branches, generating more business and increasing efficiency. Based on data as of December 31, 2020, these changes have already produced noteworthy results, including: (i) faster service, as the lead time to closing a mortgage loan declined by three days to 25 calendar days in the year ended December 31, 2020 as compared to December 31, 2019; (ii) higher efficiency, with 86.7% of credit card bills being issued in digital format or by e-mail in the year ended December 31, 2020, compared to 61.0% in the year ended December 31, 2019; (iii) more business, as the volume of transactions in the commodities portfolio increased significantly to 729 transactions in the year ended December 31, 2020 from 111 transactions in the year ended December 31, 2019; and (iv) better service, by reducing 96% of the amount of rework involved in opening business current accounts (process improvement) at our branches in the year ended December 31 , 2020 as compared to the year ended December 31, 2019.

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Table of branch staff, so that they can spend more time meeting customer needs. As part of this initiative, we provided our employees with new features in our customer relationship tool (CRM) that centralizes all the information they need for their daily commercial and financial activities. We have also implemented time-saving tools, which reduce the amount of information and steps required to perform operational tasks.Contents

•       Greater empowerment and incentives for branch staff.We have sought to decentralize the management of branch resources. Branch managers are now responsible for managing the expenses of their branches, and each branch has its own results report. This gives branch employees and managers a higher sense of autonomy and responsibility, as well as the feeling of being part of their own branch's success. Additionally, we have made some adjustments to the compensation structure of branch employees and managers to ensure that the variable components of their compensation depend on the performance of the branch where they work.

•       Culture strengthening. We believe that committed employees make the business sustainable. With that in mind, we have established clear and horizontal communication of senior management with employees, promoting meritocracy and diversity. In line with this practice, Santander Academy encourages our staff to assume a proactive role in their technical training and has been attended by 75% of total employees, who act as internal multipliers. As a result, in 2019, we were recognized for the fourth consecutive year as one of the Best Companies to Work for in Brazil, according to the GPTW (Great Place to Work) survey.

•Strengthening our culture and our people. We believe that committed employees lead to a more sustainable business. With that in mind, we have established clear and horizontal communication of senior management with employees, promoting meritocracy and diversity. In line with this practice, Santander Academy encourages our staff to assume a proactive role in their technical training, with 87% of total employees having attended the academy in 2020. In addition, employees who act as internal multipliers within the Company give 80% of the training. As a result, in 2020 we were recognized by GPTW (Great Place to Work) as one of the best companies to work for in Brazil in which we were ranked 22 positions ahead of the ranking achieved in 2016. We have also been ranked in the top 10 best companies to work for racial and ethnic minorities and women,. We promote and value diversity and, for this reason, we celebrate having women account for 29% of our executive leadership positions and 33% of our Board of Directors, while also having Black employees account for 25% of our total employees across our organization as of December 31, 2020. Moreover, we were recognized as the best company to work for in the financial sector by Exame Magazine’s Diversity 2020 Guide for the second consecutive year.

 

Finally, aligned with the Santander Group’s responsiblesustainable growth strategy, Santander Brasilwe have has made several public commitments to society, including: (i) having 30% of our leadership positions held by women by 2024 (today women account for 26%29% of leading roles at Santander Brasil); and; (ii) having 100% of our operations powered by renewable energy by 2025; and (iii) eradicating2025. Furthermore, we committed to eliminating single-use plasticplastics consumption atwithin our facilities by 2020.organization. Another equally important component in fulfilling our responsibilities to society is the “Prospera” microcredit program, through which we helpaimed at helping Brazilians in low-income communities to prosper by giving them access to credit and financial products, and whichproducts. This program contributed to placing us in the top spot among banks on Fortune magazine’s 2019 “Change the World” list. Finally,

In July 2020, along with two other private banks, we were named Companypresented a plan to the Brazilian federal government dedicated to supporting sustainable development in the Amazon. This plan sets out 10 measures to protect the environment and support the development of the Year on Exame Magazine’s diversity ranking,local economy by investing in addition to being recognized assustainable infrastructure and protecting the financial institution withrights of the best inclusionregion's population. We also promoted sustainable enterprises by: (i) leading and diversity practicesstructuring the issuance of decarbonization credits (CBIO), resulting in Brazil’s first CBIO deal; (ii) conducting the first green financing in the country.Brazilian market – in other words, a loan with interest rates tied to sustainable goals; (iii) coordinating the world’s second sustainable-linked bond transaction, amounting to US$ 750 million; (iv) launching a R$ 5 billion credit line for new investments in water and sanitation; (v) relaunching the Ethical Fund, managed by Santander Asset Management, which uses a proprietary methodology with local and global analysis of sustainability criteria; and (vi) launching the ESG-focused Santander Go fund in partnership with asset manager Robeco, which invests in global equities on the basis of sustainability criteria.

 

As a result of all actions, we received the following 2020 awards:

·Best Bank in the Americas and Brazil (The Banker)

·Best Company in Social Responsibility (Prêmio Notáveis CNN 2020)

·Most Honored Company (Institutional Investor)

·Best Bank In Latin America And The World For SMEs (Euromoney Awards for Excellence 2020)

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·Among The Country’s Leading Companies On Climate Change (CDP)

·Part Of B3’s Corporate Sustainability Index (ISE B3)

·Best Infrastructure Bank In The Country (Latin Finance 2020)

·One Of The Best Companies To Work For (GPTW Brazil 2020)

Our Business

 

We provide our 26.3complete portfolio of products and services to our 27.9 million active customers as of December 31, 2019 with our complete portfolio of products and services2020 through the following business divisions:segments:

 

•       Commercial Banking:This includes individuals and companies (except for global corporate customers, managed by our Global Wholesale Banking). Revenue from this segment is rendering of banking and financial products and services to our account holder and non-account holder customers.

·Commercial Banking: provides services and products to individuals and companies (except for global corporate customers who are managed by our Global Wholesale Banking). The revenue from this segment is derived from the banking and financial products and services available to our account and non-account holders.

 

•       Global Wholesale Banking:We offer a wide range of national and international tailored financial services and structured solutions for our global corporate customers, principally local and multinational corporations, and it also carries out proprietary trading activities.

·Global Wholesale Banking: offers a wide range of national and international tailored financial services and structured solutions for our global corporate customers, comprised mostly of local and multinational corporations.

 

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We outline below the operatingbusiness divisions underfor each of our operating segments, as well as the breakdown of our net interest income and profit before tax by segment:

 

Commercial Banking

Global Wholesale Banking

1.     Retail Banking1.         Santander Corporate & Investment Banking (“SCIB”)
Individuals2.         Proprietary Trading
SMEs
2.     Consumer Finance
3.     Corporate

  For the Year Ended December 31,
  2019 2018 2017 2019 2018 2017
  Net interest income Operating profit before tax
  (R$ millions)
Commercial Banking (1)  42,044   39,391   32,392   18,657   12,397   11,220 
Global Wholesale Banking  2,277   2,531   2,554   3,616   3,512   3,293 
Total  44,321   41,922   34,946   22,273   15,909   14,513 

(1)Profit before tax reported under commercial banking includes the effects of the hedge for investments held abroad (offset in the same amount in the “Income Tax” line). The effect of the hedge for investments held abroad in 2019, 2018 and 2017 amounted to gains of R$1,264 million, gains of R$5,867 million and expenses of R$810 million, respectively.

The following table shows a managerial breakdown of our loans and advances by customer type at the dates indicated:

  As of December 31, Change between 2018 Change between 2017
  2019 2018 2017 and 2019 and 2018
  (R$ millions)
Individuals  156,177   133,603   107,610   16.9%  24.2%
Consumer Finance  48,421   40,964   33,170   18.2%  23.5%
SMEs  53,119   49,624   46,879   7.0%  5.9%
Corporate(1)  89,539   97,742   100,171   -8.4%  -2.4%
Total Credit Portfolio  347,257   321,933   287,829   7.9%  11.8%

(1)For purposes of loan portfolio presentation, “corporate” includes companies with annual gross revenues exceeding R$200 million, including our Global Corporate Banking customers.

Commercial Banking

1.        Retail

Individuals

We have structured this customer segment as follows:

Private Banking– is responsible for select group of customers with at least R$5.0 million in assets available for investment. In this segment, we offer a complete and tailored portfolio of onshore and offshore financial products and services, investment advice, loans and asset management through a dedicated manager for investments and banking services.

•    Santander Select– is responsible for customers with a monthly income above R$20,000, or a monthly income above R$10,000 and R$30,000 in investments, or more than R$ 300,000 in

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investments. The offer here consists of a value proposition with differentiated products and services, exclusive service spaces, relationship managers who serve a small number of customers and provide asset management advisory services.

•    Santander Van Gogh– is responsible for customers with a monthly income from R$4,000 to R$10,000, or with investments above R$40,000. Our goal is to understand the needs of our customers at each stage of their life and provide them with financial advice through a multi-channel solution, including financial products and services as well as financial advice.

•    Santander Especial- is responsible for customers who earn up to R$4,000 per month. Our business model offers simple and efficient solutions with an attractive cost benefit to the customer, primarily through electronic channels.

It is worth noting that we also support our Select and Van Gogh customers through our Santander Direct channel. Santander Direct is suited to customers who want more flexible service hours, from 8:00 a.m. to 10:00 p.m., and who prefer using a remote method, such as telephone, e-mail or chat, as well as access to digital channels. This service complements our offering and broadens our capillarity by also catering to regions where we do not have a physical presence.

Small and Medium Enterprises (SMEs)

We serve SMEs under the Santander Negócios e Empresas brand, under the following segmentation:

•Empresas Núcleos (Core Companies)– is responsible for companies with annual revenues between R$30 million and R$200 million. Our service model is based on dedicated relationship managers, a team of experts for more complex demands and loan managers specializing in risk management. We also provide specialized services to multinational companies and other major corporations in order to meet their specific needs.

•Empresas Polo (Hub Companies)- is responsible for companies with annual revenues of between R$3 million and R$30 million. We offer these customers a comprehensive range of products and services in a user-friendly interface.

•Negócios Agência (Branches Business)- is responsible for companies with annual sales of up to R$3 million. We offer these customers a simple banking solution through an integrated account that combines a corporate account with a point of sale (POS) terminal. This arrangement provides our customers with benefits while they use the Getnet terminal in their credit card sales and receipts in a Santander Brasil current account.

•Empresas MEI (Individual Microentrepreneur)- is responsible for companies with annual revenues up to R$81,000. We offer these customers a simplified and cost-effective option (Santander Conta MEI).

It is worth noting that we also offer an attendance channel, the Negócios Direct (Direct Business), which is responsible for companies with annual revenues of up to R$1 million. We support these clients through a relationship manager who is available during extended service hours and via remote channels, such as telephone, e-mail or chat, as well as access to digital channels that facilitate a customer’s daily life.

2. Consumer Finance

We provide consumer credit to finance motor vehicles, goods and services directly or through intermediate agencies. Santander Financiamentos is our main service channel but we also operate under multiple brands.

The following table sets forth certain key financial and operating data regarding our credit finance for motor vehicles to individuals for the periods indicated:

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  As of December 31, Change between 2018 and Change between 2017 and
  2019 2018 2017 2019 2018
Consumer finance loan portfolio market share (1) (%)  25.0%  25.4%  24.0%  (0.4) p.p   1.4 p.p 

(1)Source: Brazilian Central Bank.

1.Corporate

Our corporate customer segment caters to large companies that have annual gross revenues greater than R$200 million (except for our Santander Corporate & Investment Banking customers). We focus on fostering a close relationship with our corporate customers through managers and specialists geographically distributed across Brazil, providing customer-tailored services with a complete portfolio of local and global products (including products from Commercial Banking and SCIB as defined below).

Global Wholesale Banking

·     Retail Banking·     Santander Corporate & Investment Banking (“SCIB”)IndividualsSMEs·     Consumer Finance·     Corporate

  For the Year Ended December 31,
  2020 2019 2018 2020 2019 2018
  Net interest income Operating profit before tax
  (R$ millions)
Commercial Banking (1)  41,457   42,044   39,391   4,666   18,375   12,397 
Global Wholesale Banking  2,985   2,277   2,531   4,998   3,898   3,512 
Total  44,443   44,321   41,922   9,664   22,273   15,909 
(1)Profit before tax reported under commercial banking includes the effects of the hedge for investments held abroad (offset in the same amount in the “Income Tax” line). The effect of the hedge for investments held abroad in 2020, 2019 and 2018 amounted to loss of R$13.583 million, loss of R$1.264 million and loss of R$5,867 million, respectively.

The following table shows a managerial breakdown of our loans and advances by customer type at the dates indicated:

  As of December 31, Change between 2019 Change between 2018
  2020 2019 2018 and 2020 and 2019
  (R$ millions)
Individuals  174,042   156,177   133,603   11.4%  16.9%
Consumer Finance  51,637   48,421   40,964   6.6%  18.2%
SMEs  54,525   53,119   49,624   2.6%  7.0%
Corporate(1)  137,618   89,539   97,742   53.7%  -8.4%
Total Credit Portfolio  417,822   347,257   321,933   20.3%  7.9%
(1)For purposes of loan portfolio presentation, “corporate” includes companies with annual gross revenues exceeding R$200 million, including our Global Corporate Banking customers.

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Commercial Banking

Retail

Individuals

We have structured the individual customer service segment as follows:

· Private Banking – is responsible for customers with at least R$5.0 million in assets available for investment. In this segment, we offer a complete and tailored portfolio of financial products and services, investment advice, loans and asset management through a dedicated manager for investments and banking services.

· Santander Select – is responsible for customers with a monthly income above R$20,000, or a monthly income above R$10,000 and R$30,000 in investments, or more than R$300,000 in investments. The offer here consists of a value proposition with differentiated products and services, exclusive service spaces, relationship managers who serve a small number of customers and provide asset management advisory services.

· Santander Van Gogh – is responsible for customers with a monthly income ranging from R$4,000 to R$10,000, or with investments above R$40,000. Our goal is to understand the needs of our customers at each stage of their lives and provide them with financial advice through a multi-channel solution, including financial products and services, as well as financial advice.

· Santander Especial – is responsible for customers who earn up to R$4,000 per month. Our business model offers simple and efficient solutions with an attractive cost benefit to the customer, primarily through electronic channels.

Furthermore, we also support our Select and Van Gogh customers through our Santander Direct channel. Santander Direct is suited to customers who want more flexible service hours, from 8:00 a.m. to 10:00 p.m., and who prefer using a remote method, such as telephone, e-mail or chat, as well as access to digital channels. This service complements our offering and broadens our capillarity by catering to regions where we do not have a physical presence.

Small and Medium Enterprises (SMEs)

We serve SMEs under the Santander Negócios e Empresas brand, with the following customer service segmentation model:

·Empresas Núcleos (Core Companies) – responsible for companies with annual revenues between R$30 million and R$200 million. Our service model is based on dedicated relationship managers, a team of experts for more complex demands and loan managers specializing in risk management. We also provide specialized services to multinational companies and other major corporations in order to meet their specific needs.

·Empresas Polo (Hub Companies) - responsible for companies with annual revenues between R$3 million and R$30 million. We offer these customers a comprehensive range of products and services through a user-friendly interface.

·Negócios Agência (Branch Businesses) - responsible for companies with annual revenues of up to R$3 million. We offer these customers a simple banking solution through an integrated account that combines a corporate account with a point of sale (POS) terminal hosted by Getnet. Through this arrangement, our customers receive benefits for using the Getnet terminal to process their credit card sales, with receipts being posted to a Santander Brasil checking account.

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·Empresas MEI (Individual Microentrepreneur) - responsible for companies with annual revenues of up to R$81 thousand. We offer these customers a simplified and cost-effective option through our Santander Conta MEI.

In addition, for companies with annual revenues of up to R$300 thousand, we also offer Negócios Direct (Direct Business). Under this segment, customers have direct access to a relationship manager who is available during extended service hours and via remote channels, such as telephone, e-mail or chat, as well as access to digital channels that facilitate the client’s day to day needs.

Consumer Finance

We provide consumer credit to finance motor vehicles, goods and services directly or through intermediate agencies. Santander Financiamentos is our main service channel, but we also operate under multiple brands.

The following table sets forth certain key financial and operating data regarding our consumer finance business for the periods indicated:

  As of December 31, Change between 2019 and Change between 2018 and
  2020 2019 2018 2020 2019
Individual consumer finance loan portfolio market share (1) (%)  25.1% 25.0%  25.4%  0.1 p.p   (0.4) p.p 
(1)Source: Brazilian Central Bank.

Corporate

Our corporate customer segment comprises large companies that have annual gross revenues greater than R$200 million (except for our Santander Corporate & Investment Banking customers). We focus on fostering a close relationship with our corporate customers through managers and specialists geographically distributed across Brazil, providing customer-tailored services with a complete portfolio of local and global products (products from Commercial Banking and SCIB).

Global Wholesale Banking

 

1.Santander Corporate & Investment Banking (SCIB)

SCIB is the global business unit that covers those customers, which, due to their size and complexity, require tailored services or high-value-added wholesale products. In this segment, we provide a wide range of domestic and international financial services to large Brazilian and multinational companies. Our customer portfolio consists of a range of industries, including telecommunications, retail, aviation, real estate and logistics, power, construction and infrastructure, natural resources, food, agribusiness and financial institutions.

Our customers in the SCIB segment benefit from the global structure of services provided

Santander Corporate & Investment Banking (SCIB)

SCIB is the global business unit that serves customers, who, due to their size and complexity, require tailored services or high-value-added wholesale products. In this segment, we provide a wide range of domestic and international financial services to large Brazilian and multinational companies. Our customer portfolio comprises a range of industries, including telecommunications, retail, aviation, real estate and logistics, power, construction and infrastructure, natural resources, food, agribusiness and financial institutions.

Our customers in the SCIB segment benefit from Santander Group’s global structure of services, which is supported by the Santander Group with its worldwide-integrated wholesale banking network and global services solutions, combined with its worldwide-integrated wholesale banking network and global services solutions, as well as local market expertise and provision of integrated services.

 

2.Proprietary Trading

Our proprietary trading division is responsible for managing our proprietary books and liquidity positions.

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Our Portfolio of Products and Services

 

Payments

 

1.Credit and Debit Cards

Credit and Debit Cards

 

We operate in the credit and debit card market by issuing these products to our customers (including both account and non-account holders), with the majority of customers being individuals. Our strategy is to offer credit and debit cards that are compatible with the income level and lifestyle of each of our customers.

In order to reach a greater number of customers and remain competitive, we launched the SX card in November 2020, as part of the SX strategy detailed below. This product benefits highly engaged and transactional customers, facilitating the exemption from annual card fees. In addition, we also took the opportunity with the SX card to launch a more modern and ambitious card design for our customers.

We also improved our digital journey to provide better customer self-service, which we believe is a key component for higher customer engagement and was especially important in this new cycle. A recent novelty is “Clique e Retire”, a new physical card delivery system that provides autonomy and agility by allowing customers to opt to collect their cards from self-service machines.

The following table sets forth certain key financial and operating data regarding our credit card business for the periods indicated.

  As of and For the Year Ended December 31, Change between 2019 and Change between 2018 and
  2020 2019 2018 2020 2019
Credit card portfolio market share(1)  13.4%  12.9%  13.3%  0.5 p.p   (0.37) p.p 
Credit card portfolio (R$ billion) (2)  37.8   36.1   30.9   (100.0%)  16.8%
Total card turnover (R$ billion) (2)  242.0   236.4   201.6   2.4%  17.3%
Credit card turnover (R$ billion) (2)  158.7   161.0   137.1   (1.4%)  17.4%
Total card transactions (in millions) (2)  2,570.8   2,725.4   2,338.2   (5.7%)  16.6%
Credit card transactions (in millions) (2)  1,300.0   1,450.9   1,206.1   (10.4%)  20.3%
Participation of credit card in the household consumption – Market overview (2)(%)  24.3%  24.5%  23.1%  (0.24p.p)  2.94 p.p 
(1)Source: Brazilian Central Bank, as of December 31, 2020.

(2)Source ABECS – “Monitor bandeiras”. The data relating for the credit and debit card market by issuing these products to our customers (including both account and non-account holders), with the majority of customers being individuals. Our strategy is to offer credit and debit cards compatible with the income level and lifestyle of each of our customers.

We are the exclusive distributorsyear ended December 31, 2018 has been revised as a consequence of the AAdvantage® card in Brazil, which is linked to the American Airlines loyalty program, onerestatement of the most recognized programs in the market.

We highlight the Crediário, launched in March 2019, which allows our customers to simulate and pay for their purchases in installments directly on a POS device. Merchants receive payments two days after they are effective.

The following table sets forth certain key financial and operating data regarding our credit card business for the periods indicated.

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  As of and For the Year Ended December 31, Change between 2018 and Change between 2017 and
  2019 2018 2017 2019 2018
Credit card portfolio market share(1)  12.9%  13.3%  12.8%  (0.37) p.p   1.2 p.p 
Credit card portfolio (R$ billion) (2)  36.1   30.9   25.1   16.8%  23.1%
Total card turnover (R$ billion)  (2)  236.4   201.6   168.3   17.3%  19.8%
Credit card turnover (R$ billion) (2)  161.0   137.1   111.9   17.4%  22.5%
Total card transactions (in millions) (2)  2,725.4   2,338.2   1,987.6   16.6%  17.6%
Credit card transactions (in millions) (2)  1,450.9   1,206.1   992.9   20.3%  21.5%
Participation of credit card in the household consumption – Market overview (2) (%)  24.5%  23.1%  21.6%  2.94 p.p   1.4 p.p 

(1)Source: Brazilian Central Bank, as of December, 2018. The data relating to the year ended December 31, 2017 has been revised as a consequence of the restatement of the way to measure the market share datamonitoring issued by ABECS.

 

(2)Source ABECS – “Monitor bandeiras”. In 2018 the methodology began to include all acquirings and for better comparison the 2017 and 2016 values were restated. The data relating to the years ended December 31, 2018 and 2017 has been revised as a consequence of the restatement of the methodology of monitoring issued by ABECS.

2.Santander Way

SantanderWay an app that allows customers to manage all their Santander Brasil cards through a digital channel and has also become a payment platform, with new features that allow instant transfers peer-to-peer through contact list or QR Code, account sharing between users and payments via QR Code in POS Getnet.

 

3.Merchant Acquiring Market | Getnet

Santander Way is an app offered to our cardholders that allows them to manage their Santander Brasil cards at any time. This complete payment platform also works as a digital wallet, enabling customers to conduct instant contactless payments. The app is frequently updated with new features. Some of the most notable features launched in 2020 included: (i) extra loan and installment offers, (ii) virtual cards, (iii) functions for safer online purchases without a physical card, (iv) prepaid mobile recharges, and (v) chatbots for customer service. In 2020, we had 9 million active customers using Santander Way.

Superdigital

Superdigital is a digital, pre-paid solution that allows customers to manage their daily financial activities and pre-paid accounts entirely online through a user-friendly interface.

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Superdigital customers can easily and rapidly (i) make withdrawals in the “Banco24Horas” ATM network; (ii) send and receive money from any bank institution; (iii) recharge prepaid mobile phones; (iv) carry out foreign exchange transactions in up to 10 different currencies; and (v) recharge public transportation passes using an app. In addition to all these features, customers also receive an international MasterCard credit card to make purchases in physical and online stores, and gain access to our rewards and “MasterCard Surpreenda” programs, which offer a range of benefits and discounts.

On February 28, 2020, we sold our entire equity interest in Superdigital to Superdigital Holding Company, S.L. a company indirectly controlled by Santander Spain. For further information regarding this sale, see “See “Item 4. Information on the Company—4A. History and Development of the Company—Important Events.”

Merchant Acquiring Market | Getnet

 

Getnet is a technology company that offers solutions, both physically and digitally, to individuals and businesses. The acquisition of Getnet, which was completed in 2019, gave us more flexibility, and enabled us to create more complete and tailored solutions for our customers by integrating its services with the Bank.

Through Getnet, we are able to offer a wide array of payment solutions for individuals and businesses, including: (i) mobile and Wi-Fi point of sale or POS devices; (ii) SuperGet, a mobile POS device that self-employed professionals and small companies can buy or rent; (iii) TEF (Electronic Transfer of Funds), a solution for establishments with a significant number of transactions, operating in synergy with the establishment’s systems and offering sales reconciliation through our bank-integrated customer benefits; (iv) Getnet App, which allows users to track detailed sales transactions in real time and amounts that can be anticipated, while also providing business analytics information and richer data sets that offers physical and digital solutions, to people and businesses. The acquisition of Getnet, which was completed in 2019, gave us more flexibility, and enabled us to create more complete and tailored solutions for our customers, integrating its services with Santander Brasil.

Through Getnet, we are able to offer a wide array of payment solutions to individuals and companies, including: (i) mobile and Wi-Fi point of sale or POS devices; (ii) SuperGet, a mobile POS device that self-employed professionals and small companies can buy or rent from us; (iii) TEF, a solution for establishments with a significant number of transactions, operating in synergy with the establishment’s systems and which offers sales reconciliation through our bank-integrated customer benefits; (iv) Getnet App, which allows its users to track sales details in real time, and anticipate amounts, while also providing business analytics information, such as the best time to make a sale, thus helping business owners can use to better manage their activities, such as best times of the day to sell; (v) Digital POS, a complete solution that can be customized and, when connected to the internet, allows app downloads and the use of integrated management functions; (vi) Getnet Digital Platform, a tool for all e-commerce environments, with integrated services such as safe boxes, recurrence and anti-fraud systems, which is modeled after the “one-stop shop” concept and provides financial intermediation between a marketplace and its storeowners, as well as several other financial services, such as bill generation, and sales conciliation; and (vii) Getnet Digital Store, which is geared towards SMEs, allows users to set up their stores online, and offers a number of services such as a payment platform, alongside visual and fully integrated management.

The following table sets forth certain key financial and operating data regarding our merchant acquiring business for the periods indicated.

  As of and For the Year Ended December 31, Change between 2019 and Change between 2018 and
  2020 2019 2018 2020 2019
  (R$ millions, except as otherwise indicated)
Market share of total turnover(1)  13.6%  11.3%  12.3%  2.3 p.p   (1.0p.p)
Debit turnover  105.8   80.9   73.4   30.8%  10.2%
Credit turnover  167.9   126.6   114.1   32.6%  11.0%
Number of debit transactions (thousand)  1,572,685   1,415,089   1,245,269   11.1%  13.6%
Number of credit transactions (thousand)  1,234,105   1,070,717   893,519   15.3%  19.8%
(1)Source: Data for 2020 is based on a richer set of data; (v) Digital POS, a complete solution that can be customized and, when connected to the internet, allows app downloads and the use of integrated management functions; and (vi) Getnet Digital Platform, a tool for all e-commerce environments, with integrated services such as safe boxes, recurrence and anti-fraud systems, which is modeled after the “one-stop shop” concept and provides financial intermediation between a marketplace and its storeowners, as well as several other financial services, such bill generation, and sales conciliation; (vii) Getnet Digital, which is geared towards Small and Medium-sized Enterprises (SME) and allows its users to set up their stores online, in addition to offering a number of services, such as payment platform, alongside visual and fully integrated management.

Getnet also enables us to provide SME customers with a fully integrated offer, including card payment solutions. One of them is “Conta Integrada,” a bundle that combines a current account with an integrated card payment solution, which rewards customers who concentrate their sales on POS devices.

The following table sets forth certain key financial and operatingABECS Monitor Bandeiras - Acquirers data regarding our merchant acquiring business for the periods indicated.

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  As of and For the Year Ended December 31, Change between 2018 and Change between 2017 and
  2019 2018 2017 2019 2018
  (R$ millions, except as otherwise indicated)
Market share of total turnover(1)  11.3%  12.3%  11.0%  (1.0) p.p.   1.3 p.p. 
Debit turnover  80.9   73.4   51.2   10.2%  43.4%
Credit turnover  126.6   114.1   90.9   11.0%  25.5%
Number of debit transactions (thousand)  1,415,089   1,245,269   840,171   13.6%  48.2%
Number of credit transactions (thousand)  1,070,717   893,519   743,263   19.8%  20.2%

(1)Source: Data for 2019 is based on ABECS Monitor Bandeiras - Acquirers data for the nine-month period ended September 30, 2019. Data for the year ended December 31, 2019 was not available as of the date of this annual report. For comparison purposes, the difference between September 30, 2019 and September 30, 2018 would be: (0.9)the date of this annual report. For comparison purposes, the difference between September 30, 2020 and September 30, 2019 would be: +2.3 p.p

 

4.Superdigital

Superdigital is a digital pre-paid solution that allows customers to manage their daily financial activities entirely online through a pre-paid account with a user-friendly interface. As mentioned above, on February 28, 2020, we sold to Superdigital Holding Company, S.L., a company indirectly controlled by Santander Spain, our entire equity interest in Superdigital.

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On February 25, 2021, further to the Material Facts disclosed on November 16, 2020 and February 2, 2021, we announced that our Board of Directors approved a separation from our merchant payment business, which is undertaken by our subsidiary, Getnet, in order to concentrate the technology and payments businesses of Santander Group within PagoNxt, a new technology-focused global payment platform. Following the potential spin-off of our equity interest held in Getnet, or the “Spin-Off,” which will be resolved upon by our shareholders in an extraordinary shareholders’ meeting, our shareholders would become direct shareholders in Getnet on a pro rata basis. Accordingly, our shareholders immediately prior to the Spin-Off would hold a percentage of equity interest in Getnet in the same proportion as they held in Santander Brasil prior to the Spin-Off. After the approval of the Spin-off by our extraordinary shareholders’ meeting, our shares and units will be traded with the right to receive the shares and units issued by Getnet until the record date, which, once determined, will be disclosed to the market by means of a Notice to Shareholders.

 

5.Esfera

Esfera is our loyalty program, which can be accessed through a dedicated website and mobile app. Our loyalty program enables holders of credit cards issued by Santander Brasil to exchange their reward points for many products, services and travel benefits, with

Esfera

Esfera is our loyalty program, which can be accessed through its own website and mobile app. Our loyalty platforms enable our credit card holders to exchange their reward points for many products, services and travel benefits, including exclusive deals and discounts with partners such as Cinépolis, FastShop and Casas Bahia, among others.

 

6.BEN Benefícios

BEN is a benefits company that brings greater freedom, purchasing power and quality of life to the people who use them, in addition to delivering an integrated digital experience, as mentioned above in the “Item 4.A—History and development of the Company—Important Events.”

Payroll Loans

Payroll loans support account holders and non-account holders in the execution of projects and financial organization. Monthly installments are deducted directly from borrowers’ paychecks by their own employers, and are then credited to Santander Brasil, significantly reducing our credit risk. As a result, payroll loan rates are lower than other credit options. We make payroll loans available to our account holders, as well as to non-account holders through Olé Consignado.

Payroll loans are offered through our mobile banking platform and through our branches. Our customers have the possibility of refinancing their payroll loans, as well as choosing from other options to help them manage their debts.

The following table sets forth certain key financial and operating data regarding our payroll loans

Ben

Ben is an employee benefits company that provides greater flexibility, purchasing power and quality of life to its users by creating, supplying and managing various types of employee benefit vouchers (e.g. meals, such as Vale Alimentação and Vale Refeição, as well as transportation) in the form of magnetic cards. These benefits are offered through an integrated digital platform.

Since 2019, Ben has provided transportation benefits in partnership with RB Serviços Empresariais LTDA.

Ben is currently working on sales partnerships and the development of new products, such as gift cards and other benefit options to expand its portfolio.

The following table sets forth certain key financial and operating data regarding our merchant acquiring business for the periods indicated.

  

As of and For the Year Ended

December 31,

  2020 2019 2018
  (in R$ millions, except as otherwise indicated)
Card Purchases  946   560   - 
Number of Cards (in thousands)  217   98   1 
Number of Transactions (in thousands)  12,192   9,534   - 
Merchant accredited (in thousands)  338   253   4 

For further information, see also “Item 4. Information on the Company—A—History and Development of the Company—Important Events.”

Payroll Loans

Payroll loans support both account and non-account holders in the execution of projects and financial organization. Under these loans, monthly installments are deducted directly from the borrowers’ paychecks by their own employers, and then credited to Santander Brasil, significantly reducing our credit risk. We offer these payroll loans to our customers through our mobile banking platform and our branches. Our customers can refinance their payroll loans, as well as choose from other options to help them manage their debts. Furthermore, these loans are also offered to non-account holders through Olé Consignado. For further information on relevant events relating to Olé Consignado’s corporate events, see “Item 4. Information on the Company—A—History and Development of the Company—Important Events.”

The following table sets forth certain key financial and operating data regarding our payroll loans as of the dates indicated.

  As of December 31, Change between 2019 and Change between 2018 and
  2020 2019 2018 2020 2019
Market share in origination (1)  22.3%  13.2%   12.2%   9.09 p.p   1.01 p.p 
Payroll loan portfolio (R$ billion)  48.1       43.0      33.8       11.9%   27.1%
(1)Source: Brazilian Central Bank, as of the dates indicated.

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  As of December 31, Change between 2018 and Change between 2017 and
  2019 2018 2017 2019 2018
Market share in origination (1)  13.2%  12.2%  12.1%  1.01 p.p   0.1 p.p 

Payroll loan portfolio (R$ billion)43.0 33.825.527.1%32.5%December 31, 2020, December 31, 2019 and December 31, 2018, as applicable.

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SIM

 

(1)Source: Brazilian Central Bank, as of December 31, 2019, December 31, 2018 and December 31, 2017, as applicable.

Mortgages

We offer long-term financing to our customers for the purchase of real estate, secured by deeds of trust, or for customers who wish to obtain a loan using real estate as collateral. We consider mortgages to be a strategic product due to their lower risk (since the acquired property serves as collateral) and ability to increase customer loyalty with the Bank (especially given that we offer customers more attractive rates if they choose to bank with us). In this market, our customers and those of our competitors are primarily individuals.

We do not offer mortgage loans that do not meet prime lending regulatory standards, which means that (i) we do not make any financing for more than 90% of the value of the property to be purchased, (ii) borrowers must meet certain minimum monthly income levels evidenced by recent payroll information and tax returns to confirm their employment or other types of revenue, which allows us to evaluate their credit risk profile and (iii) other indebtedness added to the financing cannot exceed 35% of borrowers’ monthly gross income.

To improve practicality for our customers, we have launched our real estate portal, a digital channel that enable customers to obtain mortgages in a 100% digital fashion. We believe we are first bank in Brazil to offer customers the opportunity to obtain a mortgage while only need to be physically present to sign the contract and then return it duly registered. We have established a partnership with the largest real estate portal in Brazil in order to improve our sales network and strengthen our digital presence. In addition, we launched a high-impact marketing campaign, in conjunction with a major retailer in which we offered customers market-leading terms to obtain mortgage financing or transfer their existing mortgage financing to us, while also giving customers the chance to win a refrigerator.

The following table sets forth certain key financial and operating data regarding our mortgage business for the periods indicated.

  As of December 31, Change between Change between
  2019 2018 2017 2018 and 2019 2017 and 2018
  (in R$ billions, except percentages)
Mortgage loan portfolio  39.3   36.3   34.8   8.3%  4.3%
Individual sector mortgage loans  37.2   31.4   28.2   18.4%  11.3%
Loan to value(1) – Production (% quarterly average)  62.9%  60.6%  58.6%  2.31 p.p   2 p.p 
Loan to value(2) – Portfolio (%)  49.4%  48.7%  46.4%  0.73 p.p   2.3 p.p 

SIM is a digital lending platform for individuals through which customers can apply, and be approved, for a loan completely online. After 15 months of operation, SIM has already achieved a positive net profit, a loan portfolio of R$700 million as of December 31, 2020 and a market share of 0.5%. as of December 31, 2020. SIM also has a high level of customer satisfaction, with an NPS of 80 points.

emDia

emDia is an online debt renegotiation platform. It provides customers with a simple platform to access debt renegotiation services on a 24/7 basis. As of December 31, 2020, emDia had 4 million customers and had contributed to the recovery of R$46 million in credit volume in 2020.

Mortgages

We offer long-term financing to our customers for real estate purchases, secured by deeds of trust. We consider mortgages to be a strategic product due to their lower risk (since the acquired property serves as collateral) and their ability to increase our customer loyalty (especially since we offer customers more attractive rates if they choose to bank with us). In this market, our customers, and those of our competitors, are primarily individuals.

We do not offer mortgage loans that do not meet prime lending regulatory standards, which means that (i) we do not finance more than 90% of the value of the property to be purchased, (ii) borrowers must meet certain minimum monthly income levels evidenced by recent payroll information and tax returns to confirm their employment status or other revenue sources, allowing us to evaluate their credit risk profile, and (iii) any other indebtedness added to the financing cannot exceed 35% of the borrower’s monthly gross income.

To facilitate the process for our customers, we provide a real estate digital platform where customers can obtain mortgages completely online. We were the first bank in Brazil to offer customers the opportunity to secure a mortgage without being physically present, except for the signing of the agreement and returning it duly registered. We have a partnership with the largest real estate platform in Brazil in order to improve our sales network and strengthen our digital presence.

The following table sets forth certain key financial and operating data regarding our mortgage business for the periods indicated.

  As of December 31, Change between Change between
  2020 2019 2018 2019 and 2020 2018 and 2019
  (in R$ billions, except percentages)
Mortgage loan portfolio  45.8   39.7   36.3   15.4%  8.3%
Individual sector mortgage loans  44.0   37.2   31.4   18.3%  18.4%
Loan to value(1) – Production (% quarterly average)  64.9%  62.9%  60.6%  2.00 p.p   2.31 p.p 
Loan to value – Portfolio (%)  52.2%  49.4%  48.7%  2.75 p.p   0.73 p.p 
 

(1)Ratio between loans and the value of the collateral, excluding home equity.

 

(2)As of 2017, the LTV guarantee is calculated at market value. In the previous years it was calculated based on the value of the collateral registered in the contract. For better comparison, the 2017 value was restated.

Tailored Products and Services

We have a complete offering of services and products worldwide. In this way, we have a portfolio that ranges from basic to tailor-made and highly complex solutions in the following areas:

·Global Transaction Banking -which includes the sale and management of local and global transactional banking products, which includes local loans, commercial finance (confirming), transfers of BNDES onlending, trade finance, guarantees, structured loans, cash management solutions and funding from international banks.

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·Global Transactional Services - which is responsible for sales and management of global transactional banking, trade finance, guarantees, structured loans, and funding from international banks;

·Global Debt Financing - which includes funding and financial advisory services related to projects, origination and distribution of fixed-income securities in the debt capital markets, financing of acquisitions and syndicated loans, other structured financing arrangements, subordinated debt and energy efficiency transactions.

·Investment Banking - which includes advisory services in mergers and acquisitions and equity capital markets transactions, including initial public offering and follow-on offerings.

·Equities - which includes stock brokerage and advisory services, equity services for individuals, corporate and financial institutional investors in stocks, derivatives, as well as equity research.

·Treasury Customers - which is responsible for structuring and offering foreign exchange, derivative and investment products for customers from several segments of Santander Brasil, including institutional investors, corporate and retail customers.

·Market Making - which is responsible for the pricing of customer deals originated by our sales force from corporate, institutional, private banking and retail segments.

We are one of the leading banks in capital markets and financial advisory services in the Brazilian and international markets as evidenced by the awards we have received, the principal among

Home Equity

In our portfolio of loan products, we also offer a “home equity” financing product called “Use Casa”, where customers can receive a loan and provide real estate as collateral. This product enables customers to access financing to pursue their personal objectives. “Use Casa” experienced a marked increase in market share, achieving an overall market share of 29.5% in 2020 as compared to 20.5% in 2019.

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We do not offer home equity loans that do not meet prime lending regulatory standards, which means that (i) we do not finance more than 60% of the value of the property, (ii) borrowers must meet certain minimum monthly income levels evidenced by recent payroll information and tax returns to confirm their employment status or other revenue sources, allowing us to evaluate their credit risk profile, and (iii) any other indebtedness added to the financing cannot exceed 35% of borrowers’ monthly gross income.

To facilitate the process, customers can obtain home equity loans completely online through our real estate digital platform. When using this option, customers only need to be physically present when signing the contract and also when returning it once it is duly registered.

Tailored Products and Services

As mentioned above, we offer a complete set of services and products worldwide. In this way, we have a portfolio that ranges from basic to tailor-made and highly complex solutions in the following areas:

·     Global Transaction Banking - responsible for the sale and management of local and global transactional banking products, which includes local loans, commercial finance, transfers of BNDES on-lending, guarantees, structured loans and cash management solutions.

·     Global Transactional Services - responsible for sales and management of global transactional banking, trade finance, guarantees, structured loans, and funding from international banks.

·     Global Debt Financing - includes funding and financial advisory services related to projects, origination and distribution of fixed-income securities in the debt capital markets (DCM), financing of acquisitions and syndicated loans, other structured financing arrangements, subordinated debt and energy efficiency transactions.

·     Investment Banking - offers advisory services for mergers and acquisitions (M&A) and equity capital markets transactions, including initial public offerings and follow-on offerings.

·     Equities – provides stock brokerage and advisory services, equity services for individuals, corporate, and financial institutional investors in stocks, derivatives, as well as equity research.

·     Treasury Customers - responsible for structuring and offering foreign exchange, derivative and investment products for customers from several segments of Santander Brasil, including institutional investors, corporate and retail customers.

·     Market Making - responsible for the pricing of customer deals originated by our sales force from corporate, institutional, private banking and retail segments. This department also conducts our proprietary trading activities.

We are one of the leading banks in capital markets and financial advisory services in the Brazilian and international markets as evidenced by the awards we have received, of which the most significant are listed in the table below.

 

Area
CompanyAcknowledgments

Global

Transaction

Banking

1st place in BNDES Disbursements to Large Companies and 4th place in BNDES Disbursements to Small and Medium Enterprises in the first half of 2017, according to the BNDES
Best Trade Bank in Latin America and Deal of the Year Latin America: Seaborn Networks by Global Trade Review in 2016 and 2017
1stplace in Trade Finance Bank, according to Febraban
Dealogic

First Quarter of 2020

 

#2 M&A LatAm - Deal Announced¹

64

#3 M&A Brasil - Deal Announced¹

#6 M&A Brasil - Volume Announced¹

#4 ECM Brasil - Deal Announced2

#11 ECM Brasil - Volume Announced2

#1 Global Financial Advisor - Deals Announced (Brasil in the International Markets)

#1 Global Renewables MLA - Deals & Volume Announced

#1 Global Renewables MLA - Deals Announced

#1 Americas MLA - Deals Announced

#1 Americas Financial Advisor - Deals Announced

#1 LatAm & Caribe MLA - Deals & Volume Announced

#2 Global Financial Advisor - Volume Announced (Brasil in the International Markets

#2 Americas Renewables MLA - Volume Announced

#2 Americas Financial Advisor - Volume Announced

#3 Americas MLA - Volume Announced

#1 Global ECA Financing Volume by MLA

#1 LatAm & Caribbean ECA Financing Volume by MLA

OBS:

GDF: Position 2019 FY

IB: (1) excludes fairness opinions / (2) Not included deals made in the EUA – YTD´20

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TableGlobal Finance

Best Provider of ContentsShort-Term Investments/Money for 2020

EquitiesRanked as 4th place among Brazilian banks and 6th place among banks in Latin America. Ranked as 1st place in the Energy & Sanitation and Transportation (Latin America), Education (Brazil) and Strategy (Brazil and Latin America) sectors, and several leading positions in Brazil’s Research rankings by U.S. magazine Institutional Investor in 2017

Santander Corretora was authorized to use B3’s Agro Broker certificates. It now has all B3 qualification certificates

Santander Corretora has ranked 1st place in stock picking since 2012, according to Valor Econômico

Market Funds in Latin America for 2020 

Best Trade Finance Bank in LatAm 2020

World´s Best Payment Hub Solution for 2020 

Best Supply Chain Finance Provider in LatAm 2019

Best Trade Finance Provider in LatAm 2019

Institutional Investors

#1 The Latin America Strategy Team                           

First Quarter of 2020

#4 The Latin America Sales Team

# Sales Trading Institutional Team 

#5 Research Team

Clients Treasury

TMI Awards

1stplace in the Foreign Exchange Rankings by the Brazilian Central Bank since 2014
Best Treasury in Brazil in 2017, according to Euromoney
Global Debt Financing (GDF)

Financial advisory: 1st place in Latam and Brazil ranking in 3Q19 by Dealogic

LatinFinance 2017 Awards

Best Infrastructure Financing: Brazil

Ventos do Araripe III

2nd place in DCM International – Brazilian Bonds by BondRadar

ü1st place as Financial Advisor and Structurer (number of projects)

ü1st place as Financial Advisor for Auctions

(financial volume)

2018:

ü1st place - Financial Advisor by Volume

ü1st place - Auction Financial Advisor by Volume

ü1st place - Arranger by Volume

Best Trade & Supply Chain Finance Bank in South America 2020

B3

Customer Solutions

#2 Derivatives

October 2020

FX Markets

 

AgribusinessBest Bank for emerging LatAm currencies 2020

Best Bank for LatAm 2020 

Best Bank for USD/BRL 2020

Global Trade Review

Best Trade Finance Bank in LatAm 2020

First Quarter of 2020

Best Deal Award Route 2020
Best Supply Chain Bank 2020

Bond Radar

#1 DCM Distributed in the International Market

Full Year 2020

Brasil Bonds & Corporate Bonds

Trade Finance an IJ Global

 

Agribusiness remains oneBest Supply Chain Finance Bank 2020

Best Receivables Financier 2020 

PFI Awards

Global Adviser of our key areasthe year                           

First Quarter of expansion,2020

Anbima

#3 DCM Distributed in the Local Markets                   

First Quarter of 2020

#3 3 DCM Originated in Local Markets– Fixed Income Consolidation
Project Finance                                                              Full Year 2019
Financing advisory #1 Announced value and we believe that expanding our agribusiness network further also helps broadening our reach within the Brazilian countryside to areas in which are not present yet. We provide a full range of productsNº Deals
Concession Auction Financial Advisor #2 Announced values and services focused on the agribusiness sector. Our approach to rural producers differs from the approach we take with our other customers as we offer rural producers a specialized relationship, which we believe to be more agile and efficient through a network of physical stores and digital solutions.#2 Nº Deals
Structuring #5 Announced value #3 Nº Deals

Risk Net

 

The following table sets forth certain key financial and operating data regarding our agribusiness forRisk Solutions House of the periods indicated.Year 2020

Deals: Cosan (EDQ) / Syngenta (Special Sits)

 

  As of and For the Year Ended December 31, Change between Change between
  2019 2018 2017 2018 and 2019 2017 and 2018
           
Number of agribusiness-focused stores  34   21   14   13   7 
Agribusiness loan portfolio (R$ billion)  10.9   11.8   11.5   -7.9%  2.6%

MicrofinanceLatin Finance

 

Prospera Santander Microfinance isFinancial Advisor of the largest productive and microcredit-oriented operation among privately owned banks in Brazil, based on market share and portfolio value. It is geared toward supporting formal and informal microentrepreneurs in society with the purpose of generating work and income. With a 100% digitalized service process, in addition to products intended to improve business management skills, we have clients who hire us for services previously not available to them, because they do otherwise have access to financial services, such as property finance, consortium and investment services.2020: LatAm

 

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#1 Total FX                           

May 2020

The Banker

 

WebmotorsMost innovative investment bank of the year for structured finance 2019

 

Webmotors is the first and biggest

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Customer Solutions

Santander SX

As required by the new Brazilian instant payment system, PIX, which was established by the Brazilian Central Bank, we developed Santander SX, a system that allows individual and corporate customers to instantly transfer money, at any time, free of charges, in a practical and safe way.

In the fourth quarter of 2020, we introduced SX. We believe that SX is complementary to the Brazilian Central Bank’s instant payment solutions, by offering exclusive benefits to customers, including 10 days of interest-free overdraft for individuals and five days for businesses. Since its launch in November 2020, we have processed more than 36 million PIX transactions (sent and received), totaling more than R$ 43 billion, through SX. More specifically, regarding the financial volume of PIX sent, we achieved a share of 15% in the fourth quarter of 2020, outperforming our regular market share in the credit market.

Agribusiness

Agribusiness remains one of our key areas of expansion, and we believe that expanding our agribusiness network will help broaden our reach into the Brazilian countryside to strategic areas in which we are not yet present. We provide a full range of products and services focused on the agribusiness sector. Our approach towards rural producers differs from the one taken with our other customers in that we offer a specialized relationship to our rural producers. We believe that a network of physical stores and digital solutions will result in a more agile and efficient communication with these customers.

The following table sets forth certain key financial and operating data regarding our agribusiness for the periods indicated.

  As of and For the Year Ended December 31, Change between Change between
  2020 2019 2018 2019 and 2020 2018 and 2019
           
Number of agribusiness-focused stores  40      34      21      6%    13% 
Agribusiness loan portfolio (R$ billion)  13.7   10.9   11.8   26.2%  (7.9)%) 

Microfinance

We believe that Prospera Santander Microfinance is a leading microcredit-oriented operation among privately owned banks in Brazil, based on market share and portfolio value. This product aims to support formal and informal microentrepreneurs by generating business and income. With a 100% digitalized service process, in addition to products intended to improve business management skills, we have customers who hire us for services previously not available to them, because they do otherwise have access to financial services, such as property finance, consortium and investment services.

  As of and For the Year Ended December 31, Change between 2019 and Change between 2018 and
  2020 2019 2018 2020 2019
Number of Prospera stores  99   100   45   (1.0%)  122.2% 
Microfinance loan portfolio (R$ billion)  1.3   1.2   0.7   8.3%  79.1%

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Webmotors

Webmotors is the first and largest Brazilian technology company focused on providing automotive purchase and sale solutions for dealers, original equipment manufacturers and private sellers, holding the largest online automotive listing in Brazil.

Webmotors received over 30.2 million visits each month and had an average of over 3.9 million vehicles listed in 2020. Through the Cockpit, a pioneering and disruptive platform for car dealers, which combines solutions for the entire chain described above, we offer the following solutions: business management/performance, buyer profile (CRM), data intelligence, predictive pricing models and market data (AutoGuru).

We have also launched “+Fidelidade,” a loyalty program aimed at offering incentives to our agents based on their loyalty and relationship level with Grupo Santander Brasil and Webmotors. We have sought to improve customers’ after-sales experience through several functionalities made available on an online portal.

During 2020, we launched two service products, Car Delivery and “Troca com Troco” in partnership with Webmotors.

Through Car Delivery, customers seek virtual assistance through video calls, resolve concerns online, and receive their vehicle at home, sanitized and with all necessary support. “Troca com Troco” allows customers to sell their current financed vehicles while financing the purchase of a less expensive vehicle, and pocket the difference. This product allows the Bank to better manage credit exposure and control the credit quality of the portfolio with leading customer service.

Santander Auto

In 2019, we launched Santander Auto, a fully digital car insurance solution which relies on the use of big data analytics for pricing.

The Brazilian insurance market is characterized by: (i) low insurance penetration as a proportion of GDP; (ii) low technological evolution, dominated by companies with low innovation rates, still focused on financial results (due to a history of high interest rates); and (iii) retail brokers as the main distribution channel. As a result, the subscription process still requires that the customer complete a question form (approximately 40 questions). As a result, only approximately 20% of Brazilian vehicles are insured.

Actuarial techniques and behavioral models enable Santander Auto to make an insurance proposal, without making additional information requests from the customer, based on information already available to us.

During its first year of operation almost 110 thousand policies were sold, which represents a penetration rate of 16% (i.e., total insurance contracts sold as a percentage of the contracts relating for loans by Santander Financiamentos). These results are based on a pricing system based on information bureaus which provides have a more accurate price, which makes it possible to make an offer at the time the vehicle is purchased, and which enables customers to include insurance in their purchase with a single click. During 2020, we focused on consolidating our insurance offer, by ensuring that all customers have at least one insurance offer, while also covering the most diverse types of risk. We intend to expand the business through the optimization of our ecosystem and penetration in our customer base.

+ Negócios and + Vezes | Santander Financiamentos

In 2017, we launched “+Negócios,” which we believe to be an innovative digital trading platform. This simple and intuitive platform enables faster execution of loan simulations, receipt of credit approval and proposal formalization for vehicles, in addition to providing portfolio management reports. In the same year, we also introduced “+Vezes”, a digital trading platform allowing retailers to offer installment payment options for the sale solutions for dealers, original equipment manufacturers and private sellers, holding the biggest online automotive classified in Brazil.

Webmotors received over 30 million visits each month and had an average over 450,000 cars listed. Through the Cockpit, a pioneering and disruptive platform for car dealers, which combines solutions for the entire chain described above, we offer the following solutions: business management/performance, buyer profile (CRM), data intelligence, predictive pricing models and market data (AutoGuru). This hub generated positive results, such as a 25% increase in the volume of contracts by sellers and a 15% decrease in the time of these contracts with end-customers. With that, we experienced a 30% growth in the number of dealerships with a high level of engagement with us.

We have also launched “+Fidelidade,” a loyalty program aimed at providing our intermediate customers with a full value offer through a model of incentives to store owners based on their loyalty and relationship level with Grupo Santander Brasil and Webmotors. We have sought to improve customers’ after-sales experience through several functionalities made available on an online portal.

+ Negócios and + Vezes

In 2017 we launched + Negócios, an innovative digital trading platform designed to be simple and intuitive, which enables faster execution of loan simulations, receipt of credit approval and proposal formalization for vehicle, in addition to providing portfolio management reports. In the same year we introduced “+Vezes”, a digital trading platform which allows retailers to offer installment payment options when they sell goods and services.

 

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In 2020, approximately 15 million separate Brazilian individual taxpayer identification numbers were used to simulate vehicle leasing through the “+Negocios” platform, which makes us one of the most widely used platform in Brazil’s vehicle leasing market.

We also reformulated the “+Vezes” platform in 2020 to improve customer experience and the platform's stability. We also increased our sales force in this business through sales representatives giving us a presence throughout Brazil.

Cash Management

 

We offer cash management solutions to corporate customers and SMEs online through our Internet banking and mobile banking services.

Our revenues from cash management include fees fromcharged for offering the following products which we offer:products: (i) collections, in which we assist customers in carrying out commercial transactions using printed or online payment slips; (ii) payments, consisting of simple and automatic management of our customers’ accounts payable activities through individual transactions or via electronic file transfer; (iii) payroll, which is intended to facilitate the management of salary and benefits payments to our customers’ employees via an online tool; (iv) collection of values, which consists of the payment of cash values and checks at the customer’s points of sale; and (v) custody, by which we perform the custody, control and deposit of predated checks up to the date of clearing.

In addition, we also provide other revenue-generating products generate revenue andwhich are structured and tailored to the customer’s operation.

 

Customer Funding

 

Our main sources of liquidity are customer funding through deposits and other bank funding instruments. These deposits, combined with equity and other instruments, enable us to meet most of our liquidity and legal reserve requirements.

 

For further information, see “Item 5. Review and Operating and Financial Outlook—Review and Prospects—B. Liquidity and Capital Resources—Liquidity and Funding.”

 

Investments

 

Our investment process for retail customers seeks to provide qualified guidance and help them to achieve their financial objectives based on four major pillars:

 

·Client investment profile -We appraise theassess our customer’s situation of our costumer to understand their level of financial knowledge, investment horizons, liquidity needs and the levels of risk they are willing to assume, among other factors. This analysis is reviewed periodically, according to the customer’s needs and local regulations.

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of financial culture, investment horizons, liquidity needs and the levels of risk they are willing to assume, among other factors. This analysis is reviewed periodically, according to customer’s needs and local regulations.

 

·Investment strategy - Our investment philosophy aims to provide long-term returns through a structured asset allocation process and mitigate market risks from diversificationby diversifying among different asset classes.

 

·We define strategic portfolios for each customer profile and build our “Model Portfolio” on a monthly basis according to market conditions and trends. This tactical view arises from the Asset Allocation Committee, which consists of economists from oursour economics department, our Santander Asset Management division, our Private Banking unit and our brokerage house (Santander Corretora).

 

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·Execution and implementation - To assure a successful execution of investment strategy, we provide a complete array of financial products, ranging from banking instruments, bonds, stocks, structured notes, investment funds with an open architecture withand selected investment providers, real Estateestate funds and exchange traded funds, among other capital markets instruments. Our partnership with Zurich Santander completes this offering with a wide range of private pension plans. Furthermore, our recent acquisition of Toro Corretora has further enhanced our PI DTVM investment platform by expanding our product offering. For more information regarding this acquisition, see “—A. History and Development of the Company—Important Events— Purchase of Equity Interest over Toro Controle e Participações S.A.”

 

·Follow-up- Our advisory team performs, along with the client, a thorough and frequent revision of their profile, objectives and results, seeking to keep thetheir investments within the established parameters and Model Portfolio’s guidance.

 

In order to identify possible deviations in the positions from the investment profile,profile’s recommended positions, we also rely on automated monitoring systems. These controls warns the costumersalert customers of any operationstransactions that compromise the suitability of their portfolio and are in line towith our commitment to protect our costumer’scustomers’ interests.

 

Furthermore, each customer has direct access to itstheir positions through a private access site on the Internet and Mobile App, enabling them towhere they can view the evolution of their investment strategies.

 

Programa Avançar

 

We also have a non-financial solution, known as “Programa Avançar”, which is aimed at entrepreneurial customers, which we make available a web platform through whichcustomers. Through this solution, SMEs can access content and solutions related to management and innovation, internationalization, team building, and other topics that we believe are relevant to businesses.businesses via a web platform. We see this program as a key component of our offering to Brazilian entrepreneurs.

In addition, we offer a digital account solution to these customers, especially individual entrepreneurs.

Similarly, we offer “Santander Copiloto”, an enterprise resource planning tool designed for our SME customers. This tool is integrated with the Santander Digital channels, and provides solutions such as e-commerce, sales point software and tax compliance.

 

Service Channels

 

We offer our financial services and products to our customers through our multichannel distribution network composed of: (i) physical channels, such as branches, mini-branches and ATMs; (ii) call centers; and (iii) digital channels, such as Internet banking and mobile banking.

 

Physical Distribution Network

 

Our distribution network provides integrated financial services and products to our customers. The following table presents our physical distribution network as of the dates indicated.

 

 As of December 31, As of December 31,
 2019 2018 2017 2020 2019 2018
Branches  2,328   2,283   2,255     2,153     2,328   2  ,283 
Mini-branches  1,512   1,267   1,211     1,411   1,512   1,267 
Own ATMs  13,296   13,641   13,522   12,949 13,296 13,641 
Shared ATMs  23,780   23,049   21,195   23,798 23,780 23,049 

 

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Branch Network

 

Our branch network offers our customers our entire portfolio of products and services withto our customers through a personal and customized customer service.approach. The table below shows the geographic distribution of our branch network as of the dates indicated.

 

  As of December 31,
  2019 2018 2017
Northeast  9%  8%  8%
North and Midwest  7%  7%  6%
Southeast  70%  71%  72%
South  13%  13%  13%

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   As of December 31,
   202020192018
Northeast    9%  9%  8%
North and Midwest    7%  7%  7%
Southeast  70%70%71%
South  14%14%14%

 

PABs (Mini-branches)

 

We offer daily banking services to our SME andSMEs, as well as corporate customers and their employees through our PABs (the acronym stands for (“Postos de Atendimento Bancário in Portuguese)rio”), which are exclusive sales points located on their sites,at our customers’ buildings, as well as in hospitals and universities. Our PABs are generally exclusive sale points at customers’ sites. The presence of PABs in our customers’ offices strengthens our relationship and builds loyalty with those customers, who benefit from the convenience of conducting their banking transactions at their workplace.

 

ATMs

 

We operate an extensive network of 13,29612,949 ATMs, including those located in our branches and Mini-branches.mini-branches. In addition, our customers have access to the “Banco24Horas” network, which operates 23,78023,798 ATM units. Through this network, our customers are able tocan access their accounts and conduct banking transactions, as well as purchase most of the products and services available in our portfolio.

 

Call Centers

 

Our call centers provide active Santander Brasil customers (account and single product holders) with consultation, financial transactions and product hiring services. This important distribution channel has a variety of customer self-service facilities. Our call centers received over 150 million contacts in 2019.2020.

 

Digital Channels

 

Our digital channels include Internet banking, mobile banking and other digital solutions intendedaimed at facilitating our customers’ access to provide our customers a convenient manner in which to access the products and services that we offer. We highlight the following key features:

 

·OnePay – This service is available through the Santander App and enables customers to transfer funds to foreign countries in various currencies.

 

• Santander On “Financial control” – This service is also available through Santander App and enables our customers view all of their commitments to us, as well as pending issues with the Brazilian tax authorities (Receita Federal do Brasil), Serasa (a Brazilian credit bureau) and the Brazilian Central Bank and transparency in the credit relationship with Santander Brasil. Its service shows, with easy interface and simple language, credit quality and the use of debt with Santander, allowing income to be updated without the necessity of showing any voucher, as well as relocation of available limits.

·Santander On “Financial control” – Through the Santander App, customers can access this service to view all of their commitments to us, as well as pending issues with the Brazilian tax authority (Receita Federal do Brasil), Serasa (a Brazilian credit bureau) and the Brazilian Central Bank, thereby enhancing the transparency of the credit relationship with Santander Brasil. Customers can easily access credit quality information and the use of debt with Santander, as well as easily update income data without having to present any payroll or tax documents, and readjust available limits.

 

The following table provides certain key operating information with regards to our digital channels as of the dates indicated.

 

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  For the Year Ended
  December 31,
  2019 2018 2017
  (in millions)
             

Number of digital customers(1)  13.4   11.4   8.6 
Number of digital channel transactions(2)  4,311   4,073   3,699 

  For the Year Ended
  December 31,
  2020 2019 2018
  (in millions)
Number of digital customers(1)    15.6   1  3.4   1  1.4 
Number of digital channel transactions(2)  5,262   4,311   4,073 
(1)We define digital customers as customersthose who have used at least one of theSantander Brasil’s digital channels made available by Santander Brasil (i.e.(e.g., mobile banking and internet banking) in the preceding 30 days preceding the end of year end.the applicable year.

(2)Refers to transactions carried out through internet banking, mobile banking and other digital platforms. The data relating to the year ended December 31, 2018 has been revised as a consequence ofdue to a change in the criteria applicable to digital transactions accounting.

 

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The following table provides an overview of the weight of each key non-physical distribution channel in our overall distribution system.

 

  For the Year Ended
  December 31,
  2019 2018 2017
  (%)
Internet banking  39.7   46.1   54.0 
ATMs  8.9   10.4   14.4 
Mobile(1)  39.0   34.5   19.9 
Branch  4.1   5.2   5.4 
Interactive Voice Response (IVR) (2)  7.4   2.3   2.7 
Call Center  0.9   1.4   3.5 

   For the Year Ended
   December 31,
   202020192018
   (%)
Internet banking  36.939.746.1
ATMs  5.98.910.4
Mobile(1)  48.039.034.5
Branch  2.24.15.2
IVR(2)  6.17.42.3
Call Center  0.80.91.4
(1)Includes tablet transactions. Data refersRefers to total transactions (account holder and unique product-holder).

 

(2)Interactive voice response is an automated telephonytelephone system in which a computer interacts with callers (who can use their voice and tones input via aor the telephone keypad to communicate with the computer), gathers information and routes callstransfers caller to the appropriate recipient.representative.

 

In addition to Internet banking and mobile banking, we have digital solutions that play an important role in providing a better digital experience for our customers and potential customers, including:

 

·Digital account opening - We have made it possible to– Customers can open an account with Santander Brasil entirely online.

 

·Santander Corretora AppArtificial Intelligence GENTE - We provide– Launched in 2020, this solution offers a more personalized digital trading platformservice that provides greater autonomy for our brokerage customers.

 

·LAB 033 – Launched in 2019, this is innovation laboratory is focused on creating new solutions that can support transformational projects across our organization.

·Santander Corretora App - A digital trading platform offered to our brokerage customers.

·Autocompara- It allowsAllows customers to obtain insurance quotes from six different insurance companies and purchase the best offer through Autocompara’s website.

 

·Pi DTVM– This is a solution that actsActing as a digital broker empowering clientssince 2019, this solution empowers customers to invest through a simple and intuitive digital platform. ItPI DTVM also provides market information and financial education tools. Pi was launched

Technology and Infrastructure

In 2020, we optimized our technology investments, in order to provide more efficiency, digitalization, security and quality to the products and services provided to our customers. In the challenging scenario brought by the COVID-19 pandemic, we took on the important role of serving as an ally to our customers and the Brazilian economy. Through sizeable investments in technology and enhancements to the capabilities of our channels and digital platforms, we were able to quickly face up to the new reality, while simplifying internal processes and business models.

We established a new technological innovation center (Lab 33) in the city of São Carlos (in the state of São Paulo) and built partnerships with local universities and technical schools in order to identify and recruit qualified talent. In addition to creating job opportunities in São Carlos, this innovation center resulted in the creation of other direct and indirect positions in our technology ecosystem. Furthermore, we boosted the agility and scalability of our software development and deployment processes, while increasing automation levels and adopting advanced cloud computing and artificial intelligence solutions. We have listed below a few other initiatives delivered throughout the year:

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·GENTE: in 2019.order to speed up and optimize the digital services provided to our customers, we released GENTE, a virtual self-service assistant that customers can use to search for information, ask questions, access account statements, review credit card limits, as well as to perform financial transactions such as transfers and invoices payments, all through the Santander Mobile App, our commercial portal, WhatsApp or Santander Way.

 

·SimSantander SX: – This isas required by the Brazilian Central Bank, we developed Santander SX, an instant payments platform that allows individual and corporate customers to make money transfers that reach the recipient’s account in a digital credit solution for non-account holders, with competitive conditionsjust a few seconds 24 hours a day. Transactions can be performed from transactional account identifier directory (or “DICT”) keys, such as e-mail address, cell phone number, national tax number as well as static and a better experience and usability. It is a complete credit marketplace, which we believe to be transparent and through which we offer financial guidance. Sim was launched in 2019.dynamic QR codes.

 

·emDia –Individual Bank Account (Mobile): This debt renegotiation solution is an evolutionin order to enhance our customers’ experience, we improved our mobile app services by adding new consulting and sharing features to our individual account mobile app, including the ability to generate credit card invoices in portable document format, or “PDF”, check date and time of the traditional collection model. It provides a self-service debt management portal to indebted customerslast balance update, as well as view all charges and number of days the overdraft account was launched in 2019.used.

 

Technology and Infrastructure

·Corporate Bank Account (Mobile): in line with our sustainability goals, we launched a new digital service for our corporate customers that offers paperless processes and greater agility in opening new accounts, with a strong lead-time reduction from a few hours to just a few minutes to open an account. Since the launch of this new service, over 20,000 new corporate accounts have been opened using this service.

 

Throughout 2019, we accelerated our investments in technology. Our goal was to deliver an innovative and agile bank, being able to face pertinent challenges to our digital transformation with competitiveness and service quality. Through technology, we aimed to boost our efficiency to grow faster.

·Credit Cards: in addition to offering our customers the option of acquiring credit cards through our digital channels, we now provide new after-sales services, such as sending digital invoices and card passwords via text messages. In December 2020, over 74% of credit card invoices were made available via digital channels, while 91% of card passwords were sent via text messaging.

 

·Car Insurance: our car insurance services are offered through a 100% digital platform, where customers may perform simulations, request inspection services and sign-up for insurance contracts spanning over 12, 24 or 36 months. This new platform aims to boost sales through simple navigation, reduce average quotes and contract time, as well as increase the number of insurance contracts and total premium amount.

In 2019, we launched a program to simplify and digitize our sales network and customer support

·Mortgage Services: we have improved the after-sales experience of our real estate loan customers. Our customers can access relevant information about their contract through a single page on our web portal, including total contract amount financed, balance due, overdue balance, interest rates and maturity date, as well as installment due payments.

·Security and Antifraud: we have expanded the types of electronic authentication methods available, so that our customers can validate transactions via biometry, QR code (Santander ID), Token ID and credit card passwords. We have also developed the fraud alert center, an antifraud solution designed to send alerts to customers about events identified while accessing our digital channels or any changes to the information registered in our databases. These actions contributed to protecting our business and our customers from sensitive information leaks or exposure.

 

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processes by 2022. We have also improved our development and system implementation chain by adopting a more automated, robust and scalable architecture based on micro services and cloud computing as well as by refining our DevSecTestOps practices for application development and infrastructure operations. We have listed below a few initiatives we have delivered this year:

• Corporate Platform:We have redesigned our mobile channel, in order to deliver a simple and safer navigation. We have deployed the QR Code authentication on ATMs, a new chat services platform, registration of favorite contacts for future transactions and digital access to Getnet sales receipt, online access to consolidated receipts within Corporate Internet Banking and payment of municipal, state and federal taxes through bar code, ensuring a more transparent and digital experience to our corporate customers.

•Santander Way Transformation:We improved our payment platform by launching version 2.0 of the Santander Way App. We believe that the improved layout emphasizes important functionalities, such as ID Santander, NFC (Near Field Communication) and OPC (“Online Purchase Card”), besides many upgrades to ensure an even better customer experience. Additionally, new features were incorporated to the application, allowing customers to receive, send and charge cash: P2P transfers through contact list or QR Code, purchase split with contacts within mobile’s contact list and payments through QR Code scanning on Getnet POS.

•Investments Platform Evolution –We simplified the customer registration experience on the brokerage platform in order to make it faster and intuitive. We have also increased the number of investment products offered in our investment platform.

• Multicloud:We have executed our Cloud First global strategy, which focuses on providing an Infrastructure as a Service (IaaS and PaaS), supported by a secure integration architecture between Santander’s Datacenter in Brazil and various local public cloud service providers. This infrastructure allows applications to be balanced between internal environment and the public cloud, ensuring greater flexibility and agility for an accelerated implementation of new business structures with the development of modern, digital and continually monitored applications. This transformation adds more robustness and scalability to our technology solutions, increasing the offer and availability of services provided to our customers and then leveraging the growth of our business while keeping high quality and performance standards.

• Business Process Digitization:In order to improve efficiency and productivity, we digitized over seventeen major processes from our asset, transactional services, manufacture and treasury/cards departments, by developing new business rules in our business process management tool. This reduced the total analysis time for each process, paper printing and increased our overall control over the processes.

• Payroll loans:we have made improvements to the product’s digital journeys, in order to make the customer’s interaction more intuitive and decrease the amount of complaints reported to local regulatory agencies. We have launched new preventive credit products in order to support our customer’s doubts clarification and increase the institution’s capital allocation efficiency. Furthermore, we have improved the point of sales designation, making the post sales experience more transparent to our customers and increasing the accuracy of the point of sales goals control.

• Interactive Voice Response (IVR) Transformation:we have deployed a newly humanized interactive voice response, or IVR for contact center and corporate customers support, with conversation mechanisms and a language closer to human language. The IVR can also predict customer’s actions, enabling a better self-service experience and minimizing the need for intervention from human assistants. Additionally, new features were incorporated into the IVR for individual customers, such as identification of defaulting customers and call transfer to the debt collection department so that customers can renegotiate credit products debts.

• Chatbots:we have implemented a modern chatbot platform to develop and evolve new communication solutions with our customers. These solutions take advantage of artificial intelligence and Natural Language Processing (NLU), to allow our customers to solve their needs with the support of chats and virtual assistants, in a practical and digital way.

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•Brazilian General Data Protection Act (Law no. 13,709/2018), or “LGPD”):We have begun taking steps to make our systems comply with the LGPD’s requirements through technical alignment with digital and human channels responsible for meeting holder’s rights, carrying out an assessment to identify the systems that store and use personal identifiable information, adaptation of technical and structural components processes, policies and procedures review.

• Technology lifecycle management and applications portfolio optimization:In 2019, we updated and renewed over nearly 18% of our software applications, avoiding risks of upcoming obsolescence events, which could lead to high unavailability incidents, security, and data breaches as well as long time to recover on service outages. Additionally, we have strongly optimized our software applications portfolio: almost 8% of our software applications were decommissioned in the means of functional consolidation toward fewer software components holding same business products and services.

Secure Bank (Cyber Security and Antifraud)

•Cyber Security:In order to protect our business and our customers against potential sensitive data leaks or confidential data, we have strengthened our infrastructure and capabilities to detect and prevent cyber attacks in 2019. We integrated our cyber security systems and processes at a global level, expanded the use of artificial intelligence to proactively identify behaviors of potential threats, evolved our security operational centers (SOCs) and expanded our data protection and access control levels.

•Antifraud:On the field of fraud prevention, we have enhanced our biometric platform through the deployment of facial recognition solutions to authenticate online inquiries and payments on checking account or Santander Way applications. On the corporate platform, we have developed a new module to monitor malwares installed in computers that access our Internet Banking, preventing our customers to be redirected to fake websites.

Communications and Marketing

We operate under multiple brands. A key aspect of our brand positioning strategy is to endeavor to fulfill our role as a responsible bank, i.e. one that does not just offer products and services, but also encourages its customers to use these responsibly by offering financial education and by seeking to be transparent in all of our actions.

 

We use and monitor several communication tools in order to achievecommunicate effectively with our multiple customer portfolio with a unique approach and visual identity. Thiscustomers. These include not only the traditional media, such as television and printed media, but also the internet, mobile advertising and mobile advertising.social networks.

 

Even though social isolation prevented in-person events in 2020, our customer outreach, conducted through direct communication across all available media, including social networks, remained unaffected. We had over 7.8 million users connectedregularly provided information through these channels, seeking to us acrossmake a real and positive difference in the lives of our customers. Such information included guidance on how to access credit lines and other government-sponsored initiatives to combat the COVID-19 pandemic, as well as information on the solutions we introduced, such as our mortgage rate reduction, deferral of loan installment payments and vehicle financing with auto insurance, without inspection. Internally, we released more than 200 videos aimed at instructing our teams on how to best-serve our customers, and guidelines to prevent COVID-19 in the workplace. Externally, we ran more than 192 video advertisements on TV and social networks. Our communications campaign generated significant feedback, with more than 34,000 articles published in newspapers and magazines, as well as more than 20 stories featured in Brazilian national media outlets. On social media, (Facebook, Instagram, Twitter, LinkedIn and Youtube) as of December 31, 2019, which enables us to reach significant audiences.we averaged 10 posts per day, with nearly 800 million impressions. We also carried out important television campaigns, whichlaunched new media formats on networks such as Spotify (podcast) and TikTok. Additionally, we believe demonstratedconducted more than 150 live broadcasts and events where our constant search for democratizationsenior management, as well as experts and government officials were invited to address several topics, including the current economic scenario, social investment, sustainability, diversity, women’s leadership, entrepreneurship, and culture and entertainment. The Third Edition of Global Citizen, organized in accesscollaboration with newspaper Valor Econômico and featuring actress and activist Viola Davis and Esther Duflo, the youngest person ever to informationwin the Nobel Prize in Economics, received more than one million views. Also, the 21st Annual Santander Conference focused on discussing actions to fight COVID-19, with the participation of major chief executive officers, public authorities and financial services, in addition to maintaining transparency about allour leadership. The conference was broadcasted on YouTube, garnering a total of our actions.6.1 million views.

 

Sustainability

Based on a responsible internal management, a consistent risk culture, ethical values as a basis and technology at the service of people and business we seek to support the Brazilian society in its transformation into the Brazil of the 21st century by fostering the economic growth in a resilient and inclusive manner, stimulating the development of human potential and promoting an efficient and strategic use of natural resources.

 

In Brazil, sustainability governance is based on global guidelines, locally identified commitments and demands, and our local business strategy. Decision-making goes through the Board of Directors, the Executive Committee and the Sustainability Executive Superintendents. The Sustainability Committee (responsibleis responsible for clarificationsproviding clarification and recommendations to the Board of Directors regarding the development of guidelines relatedsustainability-related guidelines.

We have organized our activities to sustainability),create what we believe to be one of the best financial platforms in Brazil and to serve as an agent for the transformation and prosperity of society. This involves promoting sustainability through our executive committeebusiness, operations and relationships. We have directed our efforts to improve Brazil’s business environment, which allows people to live up to their full potential and strategically promote the use of Brazil’s natural capital.

This stance is present in the three pillars of our sustainability strategy, which reflects Brazil that we want to help build, together with our employees, customers, shareholders and society, while also contributing to the UN’s Sustainable Development Goals (“SDGs”): surrounding a Resilient and Inclusive Economy, the Development of Potential and the Sustainability Executive SuperintendenceEfficient and Strategic use of Natural Resources.

 

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Resilient and Inclusive Economy

 

Our broad commercial activity allows us to advise and support both from large clientsall of our customers and projects as well as informal entrepreneurs. Thus, ourprojects. Our role is to be a facilitator and contribute to the generation of jobs and income, and the improvement of logistics and infrastructure in order to contribute to the development of Brazil.for Brazil’s development.

 

Through this pillar, for example, we seek to financially empower people who are unbanked, underbanked or who may be financially vulnerable by offeringoffer access to banking services, products and non-financial initiatives. Regarding

We have specific products to support micro entrepreneurs and SMEs, such as the “Prospera Santander Microfinanças”, “Programa Avançar” and “Parceiros em Ação” programs. Additionally, we increasingly seek to include the topic of financial management in the client's relationship with the Bank, using tools such as Santander On.

In 2020, by digitalizing our initiatives, we reached 156,000 participations in financial education in 2019, we trained approximately 28,000 people.initiatives. This also included providing in-person training atnumber includes content for our branches oversocial networks, as well as live streams and podcasts on personal financial management and investment. For the weekend, where volunteers taught over 1,961 people.first time during the national financial education week, our customer services team, or “SAC,” offered personalized financial advice to customers.

 

In addition, we have specific offers supportingFurthermore, Santander Brasil launched several benefits to support customers and companies during the COVID-19 pandemic, including the “A Gente Banca” program, as well as long term payroll loans, installment extensions, and service packages aimed at individual microentrepreneurs and small and medium enterprises such as above mentioned Santander ON and Prospera SantanderMicrofinanças.among others.

 

Development of Potentials

 

Our commitment to the development of potential begins with our employees. We have been ranked as one of the best companies to work for in the Great Place to Work, or GPTW, survey since 2016. Guided by our corporate culture and internal policies, we offer opportunities supporting thethat promote development and professional growth, in order to build a culture of delivering results, respect, innovation, inclusion and diversity.

 

We also contributework to the promotioncreate a culture of respect, inclusion and equity, where everyone can develop their talents with their unique attributes. Diversity is one of the rightsfive principles of childrenour Code of Ethical Conduct. Our priorities are gender and adolescents. Through Amigo de Valor Program, Santander Brasil,racial equity, inclusion of LGBTI+ and people with disabilities, as well as diversity of experience and generational diversity. Since 2018, we have set inclusion targets for Afro-Brazilian employees in the bank and clients directly donate a partfemale employees in leadership, which in 2020, were 27.4% and 28%, respectively. As of December 31, 2020, our Afro-Brazilian and female employees accounted for 25.3% and 28.8%. Additionally, in 2020, we received two diversity awards from GPTW: one for our ethnic-racial practices and another, for the fourth time, as one of the due income taxbest companies for women to the Funds for the Rights of Children and Adolescents (Fundo dos Direitos da Criança e do Adolescente). In 2019, this program raised funds R$19 million.work.

 

Through the Santander Universities Program, we offer initiatives focused on granting national and international scholarships, programs for theentrepreneurial development, of entrepreneurs andas well as internship and employment programs. On December 31, 2019,2020, about 6,00024,900 scholarships and entrepreneurships were granted with a total investment of about R$2727.2 million.

 

EfficientWe also contribute to the promotion of children and strategic useadolescents’ rights. Through the “Amigo de Valor” program, Santander Brasil, employees and customers may directly donate a part of their due income tax to the Natural ResourceFunds for the Rights of Children and Adolescents (“Fundo dos Direitos da Criança e do Adolescente”). In 2020, this program raised R$15.7 million.

 

In 2019,2020, we took several steps to support society during the COVID-19 pandemic:

·Between March and December 2020, we donated more than R$100 million to initiatives to mitigate the impact of COVID-19;

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·We raised R$3.5 million, and donated another R$3.5 million, out of the R$100 million mentioned above, to five hospitals to create new intensive care units and purchase personal protective equipment;

·In partnership with the other two main private banks in Brazil, we helped lower income women manufacture and distribute more than 17.7 million protective cloth masks. This initiative allowed us to help support their income during the pandemic while also providing masks to those in need;

·Our employees donated about 790 tons of food, clothes and hygiene products, to over 500 non-governmental organizations around Brazil, impacting more than 170 thousand people;

·Through our volunteering program, 83 volunteers interacted weekly with elderly people living in shelters supported by “Parceiros do Idoso” in order to give them company and support.

We also organized a 12-hour live festival, streamed on television and radio to help single mothers in deprived communities across Brazil and raised R$3.5 million to the support the “Mães da Favela” project. With our donation included, we are giving a total of more than R$7 million to more than 20,000 mothers through SuperDigital. Through this initiative, we can also introduce these families to our banking services.

Efficient and Strategic Use of Natural Resources

We are implementing changes that contribute towards the goal of helping Brazil make responsible and efficient use of its environmental resources and move towards a low-carbon economy. Our activities include, in addition to the responsible environmental management of our operations, financing and advising companies in the fields of infrastructure and renewable energy, and providing support for sustainable agribusiness.

In 2020, Santander Brasil made important public commitments towards Brazil’s sustainable development, such as the introduction of a R$5 billion credit line for new investments in water and sanitation, as well as the “Amazon Plan” that was launched in partnership with the two other private banks in Brazil. In addition, we believe we are at the forefront of environmental, social and governance matters, or ESG, in Brazil, evidenced by the offer of ESG-linked loans and Renovabio products to customers.

The total amount of environmental, social and governance, or ESG, financing withwhich Santander Brasil facilitated acrossprovided through Santander Financiamentos, Responsible Agribusiness, Corporate, Retail (Individualresponsible agribusiness, corporate, retail (individual and Corporate clients)corporate customers), Project Finance andproject finance, Santander Corporate, and Investment Banking,investment banking, including Green Bonds,green bonds, totaled approximately R$1327 billion.

Since 2002, we have adopted social and environmental parameters in risk analysis of credit concession for projects and companies. The assessment carried out by specialized professionals may result in conditions or restrictions for companies to operate with the Bank. For customers with revenues of over R$200 million, this analysis may also influence credit rating, affecting rates, limits, terms and guarantee requirements.

 

In relation to internal environmental management, inwe have been carbon neutral since 2010, by completely offsetting our Scope 1 and 2 emissions. Also, since 2013, we follow a methodology for selecting projects from which to purchase Verified Emission Reductions (“VERs”), to ensure the social and environmental benefits for that region. In recent years, we have been purchasing VERs from reforestation and renewable energy ventures.

In 2019, we announcedcommitted publicly to:

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·reducing single-use plastic consumption at Santander Brasil, by launching the #Desplastifique program. The implementation plan started with administrative buildings, in 2019 and was scheduled to be completed during the course of 2020. However, due the COVID-19 pandemic, we expect that it will be fully implemented in all branches by the end of 2021; and

·powering 100% of our operations with renewable energy by 2025. In December 2020, approximately 47% of our consumed electricity was derived from renewable sources.

We improved our decision“Paperfree” program in 2020 to encourage digitalization, promote the use of rational resources and eliminate bureaucratic processes. The goal is to try to eliminate the single-use plastic consumptionuse of postal stamps. As a result of the program, at Santander Brasil, by launching the #Desplastifique program. The implementation plan started with theour administrative buildings in 2019, and will be present in all branches by the end of 2020.stores, we collected and recycled around 72,000 stamps.

 

We also intend to have 100% of our operations powered by renewal energy by 2025. In December 2019, approximately 24% of the electricity we consumed was derived from renewable sources.

Socio-Environmental Responsibility Policy

 

Our Socio-Environmental Responsibility Policy, or PRSA“PRSA”, meets the requirements of CMN Resolution n° 4.327/14 and SARB Regulation 14 of FEBRABAN. It definesThese regulations define guidelines and consolidatesconsolidate specific policies for socio-environmental practices in business and relationships with certain parties. These practices include socio-environmental opportunities and impacts, and risk management related to subjects,

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such as suitability in granting and using credits, management of suppliers and socio-environmental risk analysis. There is aIn 2020, the vice-president of Legal Issues joined our PRSA Senior Group, of our PRSA, which consists of our vice-presidents of Risks, Corporate, Human Resources, Finance and Communication, Marketing, Institutional Relationships and Sustainability, as well as theand officers of Agribusiness and the Compliance Officers.Compliance. This Senior Group is involved in the decision-making related to the PRSA and operates as ain connection with our Executive Committee.

 

Competition and Industry Transformation

 

Currently, there are five commercial financial institutions at the forefront of the Brazilian financial industry in terms of assets: Santander Brasil, Bradesco, Itaú Unibanco, Banco do Brasil and Caixa Econômica Federal. Together, these financial institutions accounted for 73.3%73.2% of the credit and 68.8%75.2% of the deposits available in the country in September 2019,Brazil as of December 31, 2020, according to the Brazilian Central Bank and the financial statements of the aforementioned banks.

 

The following table shows the total loans and deposits of the five leading financial institutions in Brazil at the dates indicated:

 

  Santander Brasil Bradesco Itaú Unibanco Banco do Brasil Caixa Economica Federal Financial System
  December 2019 (R$ billions)
Total loans(1)  352.0   454.0   429.4   621.3   693.7   3,478.5 
Total deposits(1)  268.5   367.8   402.1   330.7   433.6   2,621.8 
  Santander Brasil Bradesco Itaú Unibanco Banco do Brasil Caixa Econômica Federal (2) Financial System
  December 2020 (R$ billion)
 Total loans(1)   411.7   510.3   508.6   681.8   756.5   2,868.9 
 Total deposits(1)   384.9   545.3   786.6   437.0   512.9   2,666.7 

 

 
(1)According to the Brazilian Central Bank, reported and presented in accordance with Brazilian GAAP (December 2020).

 

(1)       According to the Brazilian Central Bank, reported and presented in accordance with Brazilian GAAP (December 2019).

(2)Represents total loans and deposits of Caixa Econômica Federal as of September 2020 because as of the date of this report, Caixa Econômica Federal had not disclosed the information for December 31, 2020.

 

Insurance Coverage

 

We maintain insurance policies that we reneware renewed annually in order to protect our assets. All of our branches, affiliates and administrative buildings are insured against losslosses caused by fire, lightning, explosions and other risks. Such coverage establishes reimbursement for the asset replacement value.

 

In addition, we also maintain the following insurance policies:

 

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·policies against material and/or bodily damage caused to third parties for which we are held responsible;

 

·policies against financial losses due to fraud or employee misconduct, among others;

 

·directors’ and officers’ insurance policy for our management against third-party complaints regarding management acts. There are insurance policies against crimes, employee dishonesty and damages arising out of public offerings; and

 

·policies against hacker attacks and cyber-crimes.

 

Dependence on Patents, Licenses, Contracts and Processes

 

The major trademarks we use, including, among others, the “Santander” brand,trademark, are owned by Santander Investment Bank. Santander Brasil has a license to use this brand.trademark. All trademarks of our business are registered withor applied through the National Institute of Intellectual PropertyBrazilian Patent and Trademark Office (Instituto Nacional de Propriedade Industrial, or “INPI”), the agency responsible for registering trademarks, patents and designs in Brazil, or have been submitted to INPI by us or by the Santander Group.Brazil. After registration,

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the owner has exclusive rights ofto use of the trademark throughoutin Brazil for a ten-year10-year period that can be successively renewed for equal periods.

 

As of the date of this annual report, we own 567a total of 553 trademarks in Brazil, among them,with Santander Brasil ownsowning over 100 trademark registrations in Brazil with123 of these trademarks, while the remaining are owned by other companies of the Santander Group.

 

REGULATION AND SUPERVISION

 

The basic institutional framework of the Brazilian financial system was established by Law 4,595, of December 31, 1964, as amended from time to time, or the “Banking Reform Law”. The Banking Reform Law created the CMN, responsible for establishing the general guidelines of the monetary, foreign currency and credit policies, as well as regulating the institutions of the financial system.

 

Principal Regulatory Agencies

 

CMN

 

The CMN oversees the Brazilian monetary, credit, budgetary, fiscal and public debt policies. The board of the CMN is composed of the president of the Brazilian Central Bank, the Minister of Planning and the Minister of Finance, who also chairs the Board. Pursuant to the Banking Reform Law, the CMN is the highest regulatory entity within the Brazilian financial system, and is authorized to regulate the credit operations of Brazilian financial institutions, to regulate the Brazilian currency, to supervise Brazil’s gold reserves of gold and foreign exchange, to determine Brazilian savings and investment policies and to regulate the Brazilian capital markets with the purpose of promoting the economic and social development of Brazil. In this regard, the CMN also oversees the activities of the Brazilian Central Bank and the CVM.

 

Brazilian Central Bank

 

The Brazilian Central Bank is responsible for the implementation of the CMN policies related to foreign currency and credit, the regulation of Brazilian financial institutions, including asparticularly in regards to the minimum capital and compulsory deposit requirements, as well as the disclosure of the transactions carried out by financial institutions as well asand their financial information. The Brazilian Central Bank has committees to addressaddresses specific issues. COPOM, one of these, hasissues through the purpose ofMonetary Policy Committee (COPOM), a committee responsible for adopting measures to fulfill themeet inflation targets defined by the CMN and establishing monetary policy guidelines. The activity ofIn order to meet inflation targets, the COPOM in the control of inflation targets includes the definition ofmust set the target for the SELIC Rate (the average rate for daily financing, backed by federal instruments, as assessed under the Special Settlement and Custody System) and publication ofpublish reports on the Brazilian economic and financial environment and projections for the inflation rate.

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CVM

 

The CVM is responsible for the implementation of theCMN policies established by the CMN related to securities, with the purpose of regulating, developing, controlling and inspecting the securities market and its participants (companies with securities traded in the market, investment funds, investors, financial agents, such as custodians of instruments and securities, asset managers, independent auditors, consultants and, as well as instruments and securities analysts).

 

Self-Regulating Entities

 

The Brazilian financial and capital markets are also subject to the regulation of self-regulating entities that are divided by field of activity. TheThese self-regulating entities include, among others, the National Association of Investment Banks – ANBIMA, the Brazilian Association of Credit Card and Services Companies – ABECS, the Brazilian Banks Federation – FEBRABAN, the Brazilian Association of Publicly-Held Companies – ABRASCA and the B3.

 

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Principal Limitations and Obligations of Financial Institutions

 

In line with leading international standards of regulation, Brazilian financial institutions are subject to a series of limitations and obligations. In general, such limitations and obligations concern the offering of credit, the concentration of risk, investments, operating procedures, loans and other transactions in foreign currency, the administration of third-party funds and micro-credit. The restrictions and requirements for banking activities, established by applicable legislation and regulations, include the following:

 

·No financial institution may operate in Brazil without the prior approval of the Brazilian Central Bank. In December 2017, the CMN enacted a new rule establishing that all such requests submitted to the Brazilian Central Bank must be approved within 12 months (subject to suspension of the term in some instances);

 

·A Brazilian financial institution may not hold direct or indirect equity interests in any company located in Brazil or abroad registered as permanent assets without prior approval of the Brazilian Central Bank. The corporate purpose of such company shall be complementary or subsidiary to the activities carried out by the financial institution;

 

·Brazilian financial institutions must submit for prior approval by the Brazilian Central Bank the corporate documents that govern their organization and operation, such as capital increases, transfer of headquarters, opening, transfer or closing of branches (whether in Brazil or abroad), election of the members of the statutory bodies and any corporate restructuring or alteration in the composition of their equity control. The requests for change ofchanges in control submitted to the Brazilian Central Bank must be approved within 12 months and requests for changes to organizational documents must be approved within three months (in both cases subject to suspension of the term in some instances);

 

·Brazilian financial institutions must fulfill minimum capital and compulsory deposit requirements and must comply with certain operational limits;

 

·A Brazilian financial institution may not own real estate, except for properties it occupies and subject to certain limitations imposed by the CMN. If a financial institution receives real estate, for example, in satisfaction of a debt, such property must be sold within one year, unless otherwise authorized by the Brazilian Central Bank;

 

·Brazilian financial institutions must comply with the principles of selectivity, guarantee, liquidity and risk diversification;

 

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·A Brazilian financial institution belonging to the S1 segment, as is the case of Santander Brasil, cannot lend more than 25% of its Tier 1 Regulatory Capital (patrimônio de referência) to a single person or a group and the maximum exposure to concentrated individual clientscustomers or group of connected clientscustomers of such Segment 1 financial institution is 600% of its Tier 1 Regulatory Capital (a concentrated individual client would mean, for the purpose of the proposed rule, as any one client to which exposure is equal to or higher than 10% of its Tier 1 Regulatory Capital);

 

·According to the Banking Reform Law, a Brazilian financial institution cannot carry out credit transactions with (i) its controlling shareholders, directors and members of other statutory bodies (fiscal, advisory and other) and their respective spouses and relatives up to second degree, (ii) with the individuals or legal entities that hold a qualified interest (15% of the capital stock) in their capital, (iii) with the legal entities in which they have qualified interest (direct or indirect), (iv) with the legal entities in which they have effective operational control or preponderance in the deliberations, regardless of the equity interest, and (v) with the legal entities with common directors or members of the board of directors. Such prohibition does not apply, subject to limits and conditions established by the CMN through the enactment ofResolution No. 4,693 in October 2018, to: (i) transactions with a counterparty that has an officer or director in common with the financial institution providing credit, provided that the officer or director is considered an independent member in both entities; (ii) transactions carried out under market-compatible conditions, without additional benefits or different benefits when compared to the operations deferred to the institution to other customers with the same profile, (iii) credit operations that have as counterparty a financial institution that is part of the institution prudential conglomerate, provided that they contain contractual clauses of subordination, except in the case of overnight and loan transactions with other financial institutions specified by the law, (iv) the interbank deposits, according to the law, (v) the obligations assumed by related parties under the compensation and settlement services authorized by the Brazilian Central Bank or by the CVM and their respective counterparties, and (vi) other cases authorized by the CMN; the management of third-party assets must be segregated from other activities and must follow the regulations issued by the CVM.

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or director in common with the financial institution providing credit, provided that the officer or director is considered an independent member in both entities; (ii) transactions carried out under market-compatible conditions, without additional benefits or different benefits when compared to the operations deferred to the institution to other customers with the same profile, (iii) credit operations that have as counterparty a financial institution that is part of the institution prudential conglomerate, provided that they contain contractual clauses of subordination, except in the case of overnight and loan transactions with other financial institutions specified by the law, (iv) the interbank deposits, according to the law, (v) the obligations assumed by related parties under the compensation and settlement services authorized by the Brazilian Central Bank or by the CVM and their respective counterparties, and (vi) other cases authorized by the CMN; the management of third-party assets must be segregated from other activities and must follow the regulations issued by the CVM.

 

·The total amount of the funds applied in permanent assets of the financial institutions cannot exceed 50% of their adjusted stockholders’ equity;

 

·Brazilian financial institutions must comply with anti-money laundering and anti-corruption regulations;

 

·Brazilian financial institutions must implement policies and internal procedures to control their systems of financial, operating and management information, as well as their conformity to all applicable regulations;

 

·Brazilian financial institutions must implement a policy for remuneration of board members and executive officers that is compatible with their risk management policies; and

 

·The Banking Reform Law and specific regulations enacted by the CMN provide for the imposition ofimpose penalties on financial institutions in certain situations where applicable requirements, controls and requisites have not been observed. In addition, the Brazilian Central Bank may cancel the financial institution’s authorization to operate in certain situations. The cancellation of an authorization for operation of a financial institution may only occur upon the establishment and processing of the appropriate administrative proceeding by the Brazilian Central Bank.

 

Additionally, as part of the Santander Group and due to the global nature of our organization we are subject to related international rules.

 

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Capital Adequacy and Leverage – Basel

 

Current Requirements

 

The Brazilian Central Bank supervises the Brazilian banking system in accordance with the Basel Committee on Banking Supervision, or “Basel Committee”, guidelines and other applicable regulations, including the Basel II Accord, or “Basel II”, which was recently implemented in Brazil, and the Basel III Accord, or “Basel III”, which supplements and amends Basel II and is in the process of being implemented.regulations. For this purpose, banks provide the Brazilian Central Bank with theany information necessary forwhich it to performdeems useful in performing its supervisory functions, which includeincludes supervising the changes in the solvency and the capital adequacy of banks.

 

The main principle that guides the directives set forth in the Basel II and Basel IIICommittee is that a bank’s own resources must cover its principal risks, including credit risk, market risk and operational risk.

 

Brazilian financial institutions are subject to capital measurement and standards based on a risk weighted asset ratio. The parameters of this methodology resemble the international framework for minimum capital measurements adopted by Basel II, except for certain differences (for instance, Basel II requires banks to have a capital to risk weighted assets ratio of at least 8.0%, while current Brazilian rules require minimum capital of 11.0% of risk weighted assets). Brazilian financial institutions’III.

 

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Regulatory Capital is composed of two tiers. Tier I capital is represented by stockholders’ equity plus certain reserves, earned income and hybrid debt and capital instruments authorized by the Brazilian Central Bank. Tier II capital is represented by revaluation reserves, contingency reserves, special profit reserves related to mandatory dividends not yet distributed, preferred cumulative stock, certain subordinated debt and hybrid instruments and non-realized earnings related to available-for-sale securities market value adjustments.

Basel III

 

On December 16, 2010, the Basel Committee issued the Basel III framework, which supplements and amends Basel II. Basel III includes higher minimum capital requirements, and new conservation and countercyclical buffer capital requirements, revised risk-based capital measures and the introduction of a new leverage ratio, andas well as two liquidity standards. As with other Basel directives, theThe Basel III framework will not be self-effectuating and will beis being implemented gradually by each country through legislation or regulation to be imposed upon that country’s home banks. Basel III is currently being implemented in Brazil and its implementation is expected to conclude on January 1, 2022, according to the agreed international time frame.banks, including Brazil.

 

Regulatory Capital will continue to beis composed ofby Core Capital and two tiers.additional tiers:

 

Tier I capital will have to reach a minimum index of 6.0% (according to the schedule established by the Brazilian Central Bank), divided into two portions: (i) PrincipalCore Capital consisting mainly of corporate capital and profit reserves (shares, units of ownership, reserves and earned income) of at least 4.5%, of RWA, and (ii) Supplementary CapitalAdditional Tier I consisting mainly of perpetual hybrid securities and capital instruments authorized by the Brazilian Central Bank (but excluding amounts relating to funding instruments issued by other local or foreign financial institutions) and any of our own shares purchased by us and the integration of which into the SupplementaryAdditional Tier I Capital is permitted. To improve the quality of the capital of financial institutions, Basel III restricts the acceptance of financial instruments that fail to demonstrate effective capability of absorbing losses and requires the reduction of assets that in certain situations could jeopardize the financial institution’s capital value due to the instruments’ low liquidity, dependence on future profits for realization or difficulty of value measurement.

 

There is also an additional 2% of Tier II capital requirement, for a total of 8% of minimum capital ratio. Current hybrid instruments and subordinated debt approved by the Brazilian Central Bank as additional capital requirements, or Tier II, are expected to be maintained if they also comply with requirements introduced by Basel III, including the mandatory conversion clauses into equity or write-off upon the occurrence of triggering events provided for in the regulations. The instruments that do not comply with Basel III rules have been gradually reduced since January 1, 2013 and shall continue to be so reduced until they do not consist of any portion of our Regulatory Capital as from January 1, 2022.

 

In accordance with the Basel III standards, the Brazilian Central Bank created the Premium PrincipalAdditional Core Capital buffer (Adicional de Capital Principal), which correspondsis composed by the sum of three buffers:

·Core Capital Conservation buffer (Adicional de Capital Principal de Conservação), which was introduced to ensure that banks have an additional layer of usable capital that can be drawn down when losses are incurred. Whenever the buffer falls below 2.5%, automatic constraints on capital distribution (for example, dividends, share buybacks and discretionary bonus payments) will be imposed so that the buffer can be replenished.

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·Countercyclical capital buffer (Adicional Contracíclico de Capital Principal), which aims to protect the banking sector from periods of excess aggregate credit growth that have often been associated with the build-up of system-wide risks.

·Core Capital Systemic buffer (Adicional de Importância Sistêmica de Capital Principal), which is applicable to the S1 bank segment (banks with an asset base equivalent to over 10% of Brazil’s GDP or that engage in relevant international activity).

On March 16, 2020, due to additional capitals (buffers) that create additional capital reserves to be used in periods of stress. In accordance with CMN regulation,the challenging macroeconomic environment resulting from the COVID-19 pandemic, the Brazilian Central Bank is entitled to establishissued Resolution No. 4,783, which decreased the percentage of the Premium Principal Capital within certain minimum and maximum limits previously set forth by the CMN, the final minimum and maximum limits being 2.5% and 5%, respectively, of the risk weighted asset ratio.

On December 29, 2014, the Brazilian Central Bank established that the amount of the Premium Principal Capital was to start at 0.625% of the risk weighted asset ratio as of January 1, 2016, increasing to 1.25% on January 1, 2017, 1.875% on January 1, 2018 and 2.5% on January 1, 2019.

In 2015, the CMN and the Brazilian Central Bank enacted a set of rules which determined that the Premium Principal Capital will be equivalent to the sum of the Capital Conservation Buffer (Adicionallevel (Adicional de Conservação de Capital Principal),Principal) in 2020 from 2.5% to 1.25%. This level will phase-in towards the Countercyclical Buffer (Adicional Contracíclico de Capital Principal), and2019 level by 2022, as shown in the Systemic Relevance Premium Principal Capital (Adicional de Importância Sistêmica de Capital Principal). The regulation establishesimage below. This buffer change decreased the minimum Core Capital and Total Capital requirements, reaching 6.75% and methods to calculate each10.25%, respectively, as of them separately. The Conservation Buffer and the Countercyclical Buffer will compose the Premium Principal Capital of all financial institutions and institutions authorized to operate by theDecember 31, 2020.

 

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According to the new rules on regulatory capital in Brazil, the value of Contentsgoodwill, intangible assets and some types of deferred tax assets, for the calculation of the capital base, was deducted in accordance with the “phase-in” for implementation of Basel III in Brazil, which was completed by January 1, 2019. The following table sets forth the percentage of required deductions for each year up to 2019:

Basel III Phase in
201620172018201920202021
40%60%80%100%100%100%

Source: Brazilian Central Bank; Resolution No. 4,192 of the Brazilian Central Bank (except for those expressly waived from complying with Regulatory Capital requirements). The Systemic Relevance Premium Principal Capital will only apply to multiple banks, commercial banks, investment banks and saving banks (caixas econômicas).

The Basel III minimum capital index increased from the former 11% to a maximum of 13% as from 2019. The total index will be calculated as the sum of two parts: the Regulatory Capital and the Premium Principal Capital.March 2013.

 

The Basel III rules also provide for the implementation of a leverage ratio calculated by the division ofdividing the Tier I capital by athe bank’s total exposure. In early 2015, the Brazilian Central Bank issued a new regulation governing the calculation and reporting of the leverage ratio of Brazilian financial institutions in line with the Basel III rules, which became effective in October 2015. Financial institutions classified as segment 1 (S1), as is the case for Santander Brasil, or segment 2 (S2), for purposes of the application of prudential rules, are required to maintain a minimum RA of 3% as from January 1, 2018.

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Additionally, in order to enable the implementation of the Basel III framework in Brazil, certain legislative changes were made. Among others, Law No. 12,838, enacted on July 9, 2013, granted powers to the Brazilian Central Bank to limit the payment of dividends by financial institutions in case of non-compliance with the prudential capital requirements defined by the CMN.

 

In 2015, the CMN and the Brazilian Central Bank also issued a set of rules for the implementation in Brazil of the liquidity coverage ratio or “LCR,” a short-term liquidity index. The purpose of the LCR is to demonstrate that financial institutions have sufficient liquid assets to make it through a stress scenario lasting one month. According to the recently enactedthese rules, the largest Brazilian banks have beenwere required to maintain an LCR of at least 60% since October 2015. This ratio will increaseincreased 10% annually until it reachesreached 100% in 2019. The Brazilian Central Bank also released, in 2015, the local methodology for calculating the LCR so as to align the existing rules with the guidelines of the document “Basel III: The Liquidity Coverage Ratio and liquidity risk monitoring tools” issued by the Bank for International Settlements in January 2013. In January 2017, the Brazilian Central Bank enacted a new rule amending the calculation method and procedures for disclosure of LCR information. The new regulation establishes a new possible stress scenario and, for purposes of LCR retail, includes spot and forward deposits.

 

As mentioned above, the LCR is a short-term liquidity ratio for a 30-day stress scenario. It represents the resultratio of the division of the high qualityhigh-quality liquidity assets byto net outflows. High Quality Liquidity Assets are composed mainly byof Brazilian federal government bonds and reserve requirementsrequirement returns. Net Outflows are mainly composed byof losses ofon deposits, offset in part by Inflows, which are mainly credits. In the months ending on October 31, November 30 and December 31, 2017, Santander Brasil had a surplus (difference between net assets and net cash outflows) of R$14.6 billion, which resulted in an LCR of 123%, above the regulatory requirement of 80%.

 

In November 2017, the CMN established a minimum limit for the Net Stable Funding Ratio (Índice de Liquidez de Longo Prazo, or “NSFR”) and the Leverage Ratio (Razão de Alavancagem, or “RA”) with which Brazilian financial institutions are required to comply. The NSFR corresponds to the ratio between the Available Stable Funds (Recursos Estáveis Disponíveis, or “ASF”) and the Required Stable Funds (Recursos Estáveis Requeridos, or “RSF”) of the financial institution. The financial institutions classified as “segment 1” for purposes of the application of prudential rules, as we are, and must maintain, as from October 1, 2018, a minimum NSFR of 1.00. The RA consists ofRegarding the leverage ratio, between the sum of the principal capital and the supplementary capital divided by the total liabilities of the financial institution as determined pursuant to applicable regulation. The financial institutions classified as “segment 1,” as we are, or “segment 2” for purposes of the application of prudential rules are required to maintain a minimum RA of 3% as from January 1, 2018.

 

The following table presents an estimate of the implementation schedule of the main changes related to capital adequacy and leverage expected as a result of Basel III, as established by the Brazilian Central Bank:

Parameters 2014 2015 2016 2017 2018 2019 As from 2020
Common equity  4.5%  4.5%  4.5%  4.5%  4.5%  4.5%  4.5%
Tier I  5.5%  6.0%  6.0%  6.0%  6.0%  6.0%  6.0%
Regulatory Capital  11.0%  11.0%  9.9%  9.3%  8.6%  8.0%  8.0%
Capital conservation buffer  0.0%  0.0%  0.6%  1.3%  1.9%  2.5%  2.5%
Countercyclical bufferup to 0.6%up to 1.3%up to 1.9%up to 2.5%up to 2.5%up to 2.5%up to 2.5%

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In addition, in order to enable the implementation of the Basel III framework in Brazil, certain legislative changes were made. Among others, Law No 12,838 enacted on July 9, 2013, granted powers to the Brazilian Central Bank to limit the payment of dividends by financial institutions in case of non-compliance with the prudential capital requirements defined by the CMN.

Systemically Important Financial Institutions

The assessment of the global systemic importance of financial institutions, or “IAISG” comprises the index of systemic importance, or “ISG” and the aggregate of ancillary indexes established by regulations issued by the Brazilian Central Bank, which take into account, among other things, amounts relating to certain current and long-term liabilities, deposits, financial transactions and revenues. The Brazilian Central Bank adopted the same components set out by the Basel Committee to calculate the ISG, including (i) size; (ii) interconnectedness; (iii) lack of readily available substitute or financial institution infrastructure for the services provided; (iv) global or cross-jurisdictional activity; and (v) complexity, with each of these components receiving an equal weight in the assessment.

This assessment should be carried out by banks with total exposure in excess of R$500 billion, individually or at the consolidated enterprise level (conglomerado prudencial), as the case may be. Our controlling shareholder Santander Spain is considered a global systemically important financial institution in accordance with the Basel Committee rules. In Brazil, we are considered a systemically important financial institution pursuant to regulations issued by the Brazilian Central Bank.

Other Applicable Laws and Regulations

 

Consolidated Enterprise Level (conglomerado prudencial)

 

Financial institutions must submit to the Brazilian Central Bank, monthly and semiannually, consolidated financial statements based on the “consolidated enterprise level” (conglomerado prudencial)(conglomerado prudencial) of which the financial institution is a member, which serve as the basis for calculation of the required Regulatory Capital of the Brazilian institutions. The “consolidated enterprise level” includes data relative to the financial institutions and other institutions authorized to operate by the Brazilian Central Bank, administrators of consortia, payment institutions and credit factoring companies, including real estate credit, or of credit rights, such as mercantile foment companies, securitization companies and specific purpose companies, located in Brazil or abroad, as well as other legal entities headquartered in Brazil that have equity participation in the mentioned entities as their exclusive business purpose.

 

On January 29, 2020, the CMN published Resolution No. 4,776,4,818, which requires financial institutions categorized as S1, S2 and S3 to publish IFRS financial statements. The requirement is already in force for publicly held financial institutions and financial institutions which are leaders of a prudential conglomerate, and will come into effect for all remaining financial institutions on January 1, 2022.

 

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Segmentation for the Proportional Application of Prudential Regulation

 

In January 2017, the CMN enacted a resolution establishing segmentation for financial institutions, financial institution groups, and other institutions authorized to operate by the Brazilian Central Bank for the purposes of proportional application of the prudential regulation. The segmentation is based on the size, international activity and risk profile of members of each segment. Pursuant to the resolution, the segments are as follows:

 

(i)       Segment 1 comprises multiservice banks, commercial banks, investment banks, foreign exchange banks and savings banks with (a) an asset base equivalent or superior to 10% of Brazil’s GDP;

·Segment 1 comprises multiservice banks, commercial banks, investment banks, foreign exchange banks and savings banks with (a) an asset base equivalent or superior to 10% of Brazil’s GDP; or (b) which perform relevant international activities, irrespective of the size of the institution;

 

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or (b) which perform relevant international activities, irrespective of the size of the institution;

·Segment 2 comprises multiservice banks, commercial banks, investment banks, foreign exchange banks and savings banks with (a) an asset base lower than 10% of Brazil’s GDP; and (b) other institutions with an asset base equivalent to or greater than 1% of Brazil’s GDP;

 

(ii)       Segment 2 comprises multiservice banks, commercial banks, investment banks, foreign exchange banks and savings banks with (a) an asset base lower than 10% of Brazil’s GDP; and (b) other institutions with an asset base equivalent to or greater than 1% of Brazil’s GDP;

·Segment 3 comprises institutions with an asset base lower than 1% and equivalent to or greater than 0.1% of Brazil’s GDP;

 

(iii)       Segment 3 comprises institutions with an asset base lower than 1% and equivalent to or greater than 0.1% of Brazil’s GDP;

·Segment 4 comprises institutions with an asset base lower than 0.1% of Brazil’s GDP; and

 

(iv)       Segment 4 comprises institutions with an asset base lower than 0.1% of Brazil’s GDP; and

(v)        Segment 5 comprises institutions with an asset base lower than 0.1% of Brazil’s GDP that applies a simplified optional method for the verification of reference equity’s minimum requirements, except for multiservice banks, commercial banks, investment banks, foreign exchange banks and savings bank.

·Segment 5 comprises institutions with an asset base lower than 0.1% of Brazil’s GDP, that apply a simplified optional method for verifying the regulatory capital’s minimum requirements, except for multiservice banks, commercial banks, investment banks, foreign exchange banks and savings banks.

 

We have been categorized by the Brazilian Central Bank in segment 1, the highest level for application of regulation for banks in Brazil.

 

Regulation of Risk and Capital Management Structure

 

The rules enacted by the CMN and the Brazilian Central Bank provide that risk management must be conducted through an integrated effort by the relevant entity (i.e., not only must risks be analyzed on an individual basis, but must also control and mitigate the adverse effects caused by the interaction between different risks). The rules set out different structures for risk and capital management, which are applicable for different risk profiles. This means that a financial institution of limited systemic importance can have a simplified structure of management, while institutions of larger complexity have to follow stricter protocols.

 

Compulsory Reserve Requirements

 

Currently, the Brazilian Central Bank imposes a series of compulsory reserves requirements. Financial institutions must deposit these reserves with the Brazilian Central Bank. The Brazilian Central Bank uses these reserve requirements as a mechanism to control the liquidity of the Brazilian financial system for both monetary policy and risk mitigation purposes. Reserves imposed on time deposits, demand deposits and saving accounts represent almost the entirety of the amount that must be deposited at the Brazilian Central Bank.

 

·    Time Deposits (CDBs). The Brazilian Central Bank imposes a reserve requirement of 31%17% in relation to time deposits. Financial institutions must deposit an amount equivalent to the surplus of (i) R$3.6 billion for financial institutions with consolidated Tier 1 capital under R$3 billion; (ii) R$2.4 billion for financial institutions with consolidated Tier 1 capital between R$3 billion and R$10 billion; (iii) R$1.2 billion for financial institutions with consolidated Tier 1 capital between R$10 billion and R$15 billion; and (iv) zero for financial institutions with a Regulatory Capital greater than R$15 billion.

 

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Additionally, sinceas from the issuing of Brazilian Central Bank Circular No. 3,943 ofon May 23, 2019, was enacted, interbank deposits made by leasing companies are excluded from the assessment base of the compulsory reserve requirement for time deposits of financial institutions of the same conglomerate.

 

·    Demand Deposits. As a general rule, the Brazilian Central Bank imposes a reserve requirement of 21% in relation to demand deposits.

 

·    Savings Deposits. The Brazilian Central Bank imposes a reserve requirement of 20% in relation to general savings deposits and to rural savings deposits.

 

Asset Composition Requirements

 

Permanent assets (defined as property and equipment other than commercial leasing operations,

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unconsolidated investments and deferred charges) of Brazilian financial institutions may not exceed 50% of their adjusted net equity, calculated in accordance with the criteria established by the Brazilian Central Bank.

 

Brazilian financial institutions, as a general rule, may not have more than 25% of their Tier 1 Regulatory Capital allocated to credit and leasing transactions and guarantees extended to the same customer or group of customers acting jointly or representing the same economic interest. In addition, Brazilian financial institutions must comply with an exposure limit of 25% of their Regulatory Capital in connection with underwriting for or investments in securities of the same entity, its affiliates, or controlled or controlling companies. Repurchase transactions executed in Brazil are subject to operational capital limits based on the financial institution’s Regulatory Capital, as adjusted in accordance with Brazilian Central Bank regulations. A financial institution may carry out repurchase transactions in an amount of up to 30 times its Regulatory Capital. Within that limit, repurchase transactions involving private securities may not exceed five times the Regulatory Capital. Limits on repurchase transactions involving securities backed by Brazilian governmental authorities vary in accordance with the type of security involved in the transaction and the perceived risk of the issuer as determined by the Brazilian Central Bank.

 

The regulation issued by the Brazilian Central Bank with respect to the classification and valuation of securities and derivative financial instruments — including government securities — owned by financial institutions, based on the investment strategy of the financial institution, determined that securities and derivatives are to be classified into three categories: (i) trading; (ii) available for sale; and (iii) held to maturity.

 

“Trading” and “available for sale” securities are to be marked-to-market with effects in income and stockholders’ equity, respectively. Securities classified as “held to maturity” are recorded at amortized cost. Derivatives are marked-to-market and recorded as assets and liabilities in the balance sheet. Changes in the market value of derivatives are generally recognized in income with certain modifications, if these are designated as hedges and qualify for hedge accounting under the regulations issued by the Brazilian Central Bank. Securities and derivatives in the “held to maturity” portfolio may be hedged for accounting purposes but their increase or decrease in value as derived from the marked-to-market accounting method should not be taken into account.

 

On June 31, 2018, the CMN enacted a rule providing that financial institutions categorized as “Segment 1” as per the Brazilian Central Bank’s classification system established in 2017 (which is our case) (1) may not have more than 25.0% of their Regulatory Capital allocated to a single legal or natural person, and (2) that the total exposure of such financial institutions to one individual customer may not exceed 600% of their Regulatory Capital allocated to focused exposure, that is 10% of their Regulatory Capital – Tier 1. The rule also subjects financial institutions categorized as segment 2, segment 3 or segment 4 to less restrictive rules.

 

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Centralized Registration and Deposit of Financial Assets and Securities

 

Law No. 13,476/17 consolidates the provisions on creation of liens over financial assets and securities. CMN Rule No. 4,593/2017, as amended, regulates the registration and deposit of financial instruments and securities by financial institutions as well as the provision of custody services by such institutions.

 

Resolution 4,734/19 sets out the guidelines applicable to the establishment of liens and encumbrances on credit and debit payment instruments due to credit operations with financial institutions andregulatescredit operations guaranteed by receivables from payment arrangements. The amount of receivables perfected into guarantees for a certain credit transaction will be reduced, whenever applicable, so that they are limited to the outstanding balance of the transaction or to the maximum limit extended, in the case of an extension of a non-dischargeable credit facility by a financial institution on an absolute and unilateral basis.

 

Circular 3,952/19, deals in particular with the procedures for the registration of receivables, and

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requires a convention between market infrastructures to guarantee the uniqueness of the receivables as financial assets that can be registered, interoperability, exchange of information between registration systems and participants in the structure. On October 29, 2020, the Brazilian Central Bank issued BCB Resolution 35/20, which postponed the entry into effectiveness of Circular 3,952/19 to February 17, 2021.

 

Brazilian Payment and Settlement System

 

The rules for the settlement of payments in Brazil are based on the guidelines adopted by the Bank of International Settlements, or “BIS,” and the current Brazilian Payment and Settlement System (Sistema(Sistema de Pagamentos Brasileiroor the “SPB”). The Brazilian Central Bank and CVM (in relation to transactions with securities) have the power to regulate and supervise this system. SPB is composed of systems for the clearing of checks, clearing and settlement of debit and credit electronic orders, transfer of funds and other financial assets, clearing and settlement of transactions involving securities, clearing and settlement of transactions carried out in commodities and futures, and others, collectively designated as Financial Market Infrastructures, as well as the payment arrangements and payment institutions.

 

Within the scope of SPB, the Brazilian Central Bank operates the Reserves Transfer System, or “STR” and the SELIC. STR is a system of transfer of funds with real-time gross settlement, which means that transfers are made at the processing time, one by one, and are subject to the existence of outstanding balance in the account. STR is composed of financial institutions, clearing and settlement houses and the National Treasury Office. SELIC is a system intended for custody of book-entry securities issued by the National Treasury Office and for the registration and settlement of transactions involving such securities.

 

Instant Payment System

The Brazilian Central Bank also plans to implementimplemented an instant payment ecosystem byin November 2020, and is taking steps to launch the ecosystem before the scheduled implementation date, such as studying and testing available technologies, establishing parameters and participants of the system.2020. The settlement of the system will beis centralized at the Brazilian Central Bank. In addition to increasing the speed at which payments or transfers are made and received, available 24 hours a day, seven days a week in all days of the year, the ecosystem has the potential to increase market competitiveness and efficiency; lower costs; and enhance customer experience.

 

On February 18,June 12, 2020, the Brazilian Central Bank publishedissued Circular No. 3,985,4,027/20, which sets out implementation procedures and participation criteria forestablished the Brazilian Instant PaymentsPayment System (Sistema(Sistema de Pagamentos Instantâneos, or “SPI”). Circular 4,027/20 also approved the regulation with which the direct and indirect participants in the SPI must comply. Circular 4,027/20 establishes that the SPI start of operations on November 3, 2020 with features of the system, becoming available gradually until it is fully operational as of November 16, 2020. Circular Letter 4,055/20, establishes the procedures and timetable for the tests necessary for to register as a direct participant in the SPI, as per Circular Letters No. 4,006 and 4,022. Circular Letter No. 4,056, in turn, establishes the procedures for the adherence to the instant payment arrangement (PIX).

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According to the by-laws of the SPI, the participation in the SPI will be mandatory for the participants of the PIX arrangement, and optional for (i) the clearing houses and other providers of clearing services, and (ii) the National Treasury Department.

There are two types of participation in the SPI: (i) direct, participation, in which the participant holds an instant payment account and is directly connected to the SPI; and (ii) indirect, in which the participant institution does not hold an instant payment account and its participation occurs via a direct participant to the SPI, responsible for registering the indirect participant in the SPI and to act as its clearing agent in the SPI for instant payments. Circular 4,027/20 came into effect on July 1, 2020.

On August 13, 2020, the Brazilian Central Bank’s instant payments arrangement. The rule determines that allBank issued Central Bank Resolution No. 1, or “Central Bank Resolution 1/2020”, establishing the Pix System payment arrangement and approving the regulation governing it, or (the “Pix Regulation”).

Pursuant to Central Bank Resolution 1/2020, participation in the Pix System is mandatory for financial institutions and payment institutions with a licenseauthorized to operate granted by the Brazilian Central Bank and whichthat have more than 500,000 active clientcustomer accounts, (including checking,considering cash deposit accounts, savings deposit accounts and prepaid payment accounts. Participation in the PIX System is optional for financial institutions and payment accounts) will mandatorily participateinstitutions that do not meet this threshold, as well as for the National Treasury Secretariat.

The Pix Regulation applies to all Pix System participants. According to the Pix Regulation, there are three types of participation: (i) transactional account provider, which is a financial institution or a payment institution that offers deposit accounts or payment accounts to end users; (ii) government entity, which is the National Treasury Secretariat, with the exclusive purpose of making collections and payments related to its activities; and (iii) special clearing houses, that are the financial institutions and payment institutions that (a) within the scope of the Pix System, have the exclusive purpose of providing settlement services to other participants, (b) meet the requirements to act as settlement participant in the Brazilian Central Bank’s SPI, and (c) do not meet the criteria of mandatory participation in the Pix System.

Brazilian Central Banks instant payments arrangement. Circular No. 3,985 will enterBank Resolution 1/2020 came into effect on March 2,September 1, 2020. Pix System transactions started operating on a restricted basis through to November 3, 2020 and was fully as of November 16, 2020.

Open Banking Regulation in Brazil

On May 4, 2020, the Brazilian Central Bank and the CMN enacted Joint Resolution No. 1, which regulates open banking. Open banking consists of the sharing of data and payment initiation services and forwarding credit transaction proposals, by financial institutions and other authorized entities (with customers permission) and the integration of information systems.

Among other topics, the resolution sets forth the mandatory and voluntary participating institutions, the data and services covered, the requirements for sharing, the responsibilities for sharing, the implementation schedule and the form of agreement to be entered into by the participating institutions.

According to the resolution, financial institutions and prudential conglomerates belonging to the S1 and S2 segments, as is our case, are required to participate in open banking.

Open banking has a four-stage implementation plan, as follows:

·Stage 1 (as of February 1, 2021): public access to participating institutions’ data on their access channels and product/service channels related to checking, savings, prepaid payment accounts and to lending transactions.

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·Stage 2 (by July 15, 2021): sharing of customer reference data and customer transactional data among the participating institutions.

·Stage 3 (by August 30, 2021): sharing of payment transaction initiation services, as well as forwarding credit transaction proposals.

·Stage 4 (by December 15, 2021): expansion of in-scope data to encompass foreign exchange, investment, insurance, and open-end private pension transactions.

·On October 29, 2020, the Brazilian Central Bank issued Central Bank Resolution 32/2020, which sets forth the technical and operational requirements to be observed by institutions which participate in the Brazilian Open Banking System.

The new rule lays out, among others, rules relating to (i) the scope of the data and services to be shared by participating institutions within Open Banking, which shall be detailed in a specific manual; (ii) the standards for the development of application programming interfaces (APIs) by participating institutions, which will likewise be detailed in a specific manual, which shall deal with their design, data transmission protocols, data exchange formats, control accesses, version control systems and specification parameters; among other things; (iii) criteria for registration and cancellation of registration in Open Banking; (iv) services to be rendered by the Open Banking Governance Structure, which also shall be detailed in a specific manual, including the maintenance of a repository of participating institutions and a website containing updated information about Open Banking and its implementation; and (v) minimal security standards and certifications, which will also be detailed in a separate manual.

Regulatory Sandbox

On November 28, 2019, the Brazilian Central Bank published Public Consultation No. 72/2019, which ended on January 31, 2020, regarding the Controlled Testing Environment for Financial Innovations or “Sandbox” which is intended to enable institutions test innovative financial and payment projects for a specified period.

After receiving comments on the Public Consultation, the CMN and the Brazilian Central Bank issued, on November 26, 2020, CMN Resolution 4,865/20 and BCB Resolution 29/20, to regulate the Sandbox These rules set forth the applicable conditions for the implementation of the Sandbox, among which are the specific rules for the first cycle of tests, such as duration and number of participants, required documentation, criteria for the classification of institutions and the schedule for registration, selection and authorization processes of such entities. The Brazilian Central Bank expects that the process for selecting the first cycle will start in the first half of 2021.

 

Treatment of Overdue Debts

 

The Brazilian Central Bank requires financial institutions to classify credit transactions in accordance with their level of credit risk and to make provisions according to the level attributed to each transaction. Such credit classifications shall be determined in accordance with criteria set forth from time to time by the Brazilian Central Bank, relating to the conditions of the debtor and the guarantor and the transaction terms. Where there are several credit transactions involving the same customer, economic group or group of companies, the credit risk must be determined by analyzing the particular credit transaction of such customer or group that represents the greatest credit risk to the financial institution.

 

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Credit transactions of up to R$50,000 may be classified either by the financial institution’s own evaluation method or according to the number of days such transaction is past due, whichever is the more stringent. Credit classifications are required to be reviewed (i) monthly, in the event of a delay in the payment of any installment of principal or interest, in accordance with the maximum risk classifications; (ii) every six months, in the case of transactions involving the same customer, economic group or group of companies, the amount of which exceeds 5% of the adjusted net worth of the financial

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institution in question; and (iii) once every 12 months, in all circumstances, except in the case of credit transactions with a customer whose total liability is lower than R$50,000, the classification of which may be reviewed as provided above. Such R$50,000 limit may be amended by the Brazilian Central Bank from time to time.

 

The provisions set forth above are not applicable to our IFRS consolidated financial statements, which are based on the criteria described under “Item 5. Operating and Financial Review and Prospects—A. Operating Results—Critical Accounting Policies—Impairment Losses on Financial Assets.”

 

Regulation of the Transfer of Customer Data by Financial Institutions to Database Managers

 

Brazilian law regulates the formation and consultation of databases with information regarding performance, individuals or legal entities, for the formation of credit history. Resolution No. 4,737 determines that the history of the following operations should be provided: (i) credit operations; (ii) leasing operations; (iii) self-financing operations executed upon consortium groups; and (iv) other operations with characteristics of credit granting; and defines the criteria for the registration of database managers, such as the identification of the natural and legal persons that are part of the control group of the database manager.

 

Collection of Bank Fees

 

Bank services to individuals are divided into the following four groups: (i) essential services; (ii) priority services; (iii) special services; and (iv) specific or differentiated services.

 

Banks are not able to collect fees in exchange for supplying essential services to individuals with regard to checking accounts, such as (i) supplying a debit card; (ii) supplying 10 checks per month to account holders who meet the requirements to use checks, as per the applicable rules; (iii) supplying a second debit card (except in cases of loss, theft, damage and other reasons not caused by the bank); (iv) up to four withdrawals per month, which can be made at a branch of the bank, using checks or in ATM terminals; (v) supplying up to two statements describing the transactions during the month, to be obtained through ATM terminals; (vi) inquiries over the Internet;internet; (vii) up to two transfers of funds between accounts held by the same bank, per month, at a branch, through ATM terminals or over the Internet;internet; (viii) clearing checks; and (ix) supplying a consolidated statement describing, on a month-by-month basis, the fees charged over the preceding year with regard to checking accounts and savings accounts.

 

Certain services rendered to individuals with regard to savings accounts also fall under the category of essential services and therefore are exempt from the payment of fees. CMN prohibits banks from charging fees for supplying essential services in connection with deposit and savings accounts where customers agree to access and use their accounts by electronic means only (being authorized to charge fees for supplying essential services only when the customer voluntarily elects to obtain personal service at the banks’ branches or customer service locations).

 

Priority services are those rendered to individuals with regard to checking accounts, transfers of funds, credit transactions, leasing, standard credit cards, over-the-counter exchange transactions for the purchase or sale of foreign currency in respect of international travel, and records, and are subject to the collection of fees by the financial institutions only if the service and its nomenclature are listed in its regulations. Commercial banks must also offer to their individual customers a “standardized package” of priority services, whose content is defined, as well as the customers’ option to acquire individual services instead of adhering to the package.

 

The collection of fees in exchange for the supply of special services (including, among others, services relating to rural credit, currency exchange market and onlendingon lending of funds from the real estate financial system) is governed by the specific provisions found in the laws and regulations relating to such services. The regulation authorizes financial institutions to charge fees for the performance of specific services, provided either that the account holder or user is informed of the conditions for use

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and payment or that the fee and charging method are defined in the contract.

 

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It is worth pointing out: (i) the prohibition against charging fees in cases of adhesion contract amendments, except in the cases of asset replacement in leasing transactions, early liquidation or amortization, cancellation or termination; (ii) the prohibition against including services related to credit cards and other services not subject to fees in service packages that include priority, special and/or differentiated services; (iii) the requirement that subscription to service packages must be through a separate contract; (iv) the requirement that information given to the customer with respect to a service package must include the value of each service included in the package, the number of times that each service may be utilized per month, and the total price of the package; (v) the requirement that a customer’s annual banking statement must separately identify default interest, penalties and other costs charged on loans and leasing transactions; (vi) the requirement that registration fees cannot be cumulatively charged; and (vii) the requirement that overdraft fees can be charged, at most, once over the course of 30 days.

 

In addition, CMN regulations establish that all debits related to the collection of fees must be charged to a bank account only if there are sufficient funds to cover such debits in such account and thus forbid overdrafts caused by the collection of banking fees. Furthermore, a minimum of 30 days’ notice must precede any increase or creation of fees (except if related to credit card services, when a minimum of 45 days’ notice is required), while fees related to priority services and the “standardized package” can be increased only after 180 days from the date of the last increase (except if related to credit card services, when a minimum of 365 days’ notice is required) whereas reductions can take place at any time.

 

Late Payment Fees

 

The default payment fees charged by financial institutions, consumer credit companies (financeiras), and leasing companies are expressly limited to compensatory interest per day on the amount that is overdue, interest on arrears and fines on arrears.

 

Credit Cards

 

The banking regulations also have specific rules relative to the charging of credit card fees, the publication of information in the card invoices and the obligation to provide a package of basic services upon offering credit cards to customers. Credit card holders must pay monthly at least 15% of outstanding credit card balances. This minimum payment does not apply to credit cards with payment by means of direct payroll deductions.

 

Revolving credit for financings of credit card bills may only be extended to customers until the due date of the following credit card bill. After this term, financial institutions offer customers another product with conditions more favorable than the ones typically found in the credit card market. Banks are prohibited from offering this type of credit to customers who have already contracted one revolving credit for financing of credit card bills which were not repaid in a timely manner.

 

Payment Agents and Payment Arrangements

 

The regulation issued by the Brazilian Central Bank, determines, among other aspects: (i) consumer protection, anti-money laundering compliance and risk prevention systems that should be observed by payment agents and payment arrangers; (ii) the procedures for incorporation, organization, authorization and operation of payment agents, as well as transfer of shareholding control, subject to the Brazilian Central Bank’s prior approval; (iii) capital requirements; (iv) definition of arrangements excluded from the SPB; and (v) rules related to payment accounts, which are divided into prepaid and postpaid accounts and require the allocation of the totality of their balance to a special account at the Brazilian Central Bank or investment in government bonds.

 

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Portability of Credit Transactions

 

Financial institutions’ customers can transfer their credit transactions from one institution to another. Such transfers must comply with the specific rules established by the Brazilian Central Bank, including, among others, the requirement that the amount and term of the transaction in the receiving financial institution must not be higher than the amount due and term of the original transaction.

 

Digitalization of Documents and Record Keeping

 

Financial institutions and other institutions authorized to operate by the Brazilian Central Bank may keep onin their records digital documents instead of physical documents, provided that certain requirements to ensure the documents’ authenticity and validity are met.

 

Anti-Money Laundering Regulations

 

Under the Brazilian Anti-Money Laundering Law, it is a crime to conceal or dissimulate the nature, origin, location, availability, transaction or ownership of assets, rights or amounts resulting, directly or indirectly, from any criminal offense, as well as their use in economic or financial activity and to participate in a group, association or office while being aware that its principal or secondary activities are directed toward the practice of such acts.

 

The Brazilian Anti-Money Laundering Law also created the Financial Intelligence Unit (UnidadeActivities Control Council (Conselho de Inteligência FinanceiraControle de Atividades Financeiras or “UIF”“COAF”), which operates under the jurisdiction of the Ministry of Finance. The purpose of the UIFCOAF is to investigate, examine, identify and impose administrative sanctions in respect of any suspicious occurrences of illicit activities related to money laundering in Brazil.

 

The UIFCOAF is composed of individuals with recognized competence in this area, appointed by the Minister of Finance, all of whom are nominated by each of the following entities: (i) the Brazilian Central Bank; (ii) the CVM; (iii) the SUSEP; (iv) the National Treasury Attorney-General’s Office; (v) the Brazilian Federal Revenue; (vi) the Federal Intelligence Agency; (vii) the Ministry of Foreign Affairs; (viii) the Ministry of Justice; (ix) the Federal Police Department; (x) the Ministry of Social Security; and (xi) the General Comptroller’s Office, one of whom will be the president, which shall be appointed by the President of Brazil on the basis of recommendations by the Minister of Finance.

 

Financial institutions must maintain specific records of (i) the transactions in cash (deposit, withdrawal, withdrawal by means of a prepaid card or request of provision for withdrawal) so as to enable the identification of a deposit in cash, withdrawal in cash, withdrawal in cash by means of a prepaid card, or request of provision for withdrawal, of (a) an amount equal to or greater than R$100,000.00 or (b) that presents evidence of concealment or dissimulation of the nature, of the origin, of the location, of the disposal, of the movement or of the ownership of assets, rights and valuables; and (ii) the issuances of cashier’s checks, funds electronic transfers (TED) or of any other instrument of transfer of funds upon payment in cash, for an amount equal to or greater than R$100,000.00.

 

Financial institutions must maintain records of all operations, products and services contracted, including withdrawals, deposits, contributions, payments, receipts and transfers of funds. Additionally, the institutions must also keep specific records of (i) transactions in cash with an individual value greater than R$2,000.00; (ii) deposit or cash transactions of an individual value equal to or greater than R$50,000.00; and (iii) withdrawal transactions, including those carried out by check or money order, with an individual value equal to or greater than R$50,000.00.

 

The regulations also impose an obligation on financial institutions to request that both clientscustomers and non-clientsnon-customers a providing a withdrawal request at least three working days in advance for withdrawals (including those carried out by check or money order) in an amount equal to or greater than R$50,000.00.

 

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On January 23, 2020, the Brazilian Central Bank published Circular No. 3,978, which improves

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the regulation applicable to financial institutions, by expanding the adoption of a risk-based approach and will entercame into effect on July 1, 2020. Regulated institutions must carry out specific internal risk assessments in order to identify and measure the risk of using their products and services in the practice of money laundering and terrorist funding.

 

In connection with the aforementioned change, the Know-Your-Client procedures were also improved and includesinclude the identification, qualification and classification of the customer, compatible with the risk profile, the nature of the relationship with the AML policy and the institution'sinstitution’s internal risk assessment, which must be permanently reassessed, according to the evolution of the business relationship and the risk profile of the client. The procedures must also include the verification of the client's (their representatives,client’s (including their representatives’, family membersmembers’ or close collaborators) condition as a Politically Exposed Individual, as well as consider them in the monitoring, selection and analysis of operations and situations with indications of suspected money laundering or terrorist funding.

 

On December 5, 2019, the CVM issued CVM Instruction No. 617, which establishes a new framework for the prevention of money laundering and the financing of terrorism in the Brazilian securities market. CVM Instruction No. 617 is in line with the practices currently implemented in the principal global securities markets, including with regard to the recommendations of the Financial Action Group against Money Laundering and the Financing of Terrorism (GAFI/FATF), as well as with the duties arising from Brazilian anti-money laundering laws.

 

Brazilian Anti-Corruption Law

 

Law No. 12,846/13 of August 1, 2013, or the “Brazilian Anti-Corruption Law” establishes that legal entities will have strict liability regardless of fault or willful misconduct for acts against the public administration carried out in their interest or for their benefit. The Law encompasses not only performance of acts of corruption but also performance of other injurious acts contrary to the Brazilian or foreign public administration.

 

Corporations that violate the Brazilian Anti-Corruption Law’s provisions will be subject to heavy penalties, some of which may be imposed through administrative proceedings and others solely through judicial channels. The Brazilian Anti-Corruption Law also creates a leniency program under which self-disclosure of violations and cooperation by corporations might result in the reduction of fines and other sanctions.

 

Politically Exposed Individuals

 

Financial institutions and other institutions authorized by the Brazilian Central Bank to operate must take certain actions and have certain controls in order to establish business relationships with and to follow up on the financial transactions of customers who are deemed to be politically exposed individuals (public agents and their immediate family members, spouses, life partners and stepchildren who occupy or have occupied a relevant public office or position over the past five years in Brazil or other countries, territories and foreign jurisdictions). The internal procedures developed and implemented for this purpose by financial institutions must be structured in such a way as to enable the identification of politically exposed individuals, as well as the origin of the funds involved in the transactions of such customers. One option is to verify the compatibility between the customer’s transactions and the net worth stated in such customer’s file.

 

Bank Secrecy

 

Brazilian financial and payment institutions shall also maintain the secrecy of their banking operations and services provided to their customers. The only circumstances in which information about customers, services or transactions of Brazilian financial and payment institutions may be disclosed to third parties are the following:

 

·the disclosure of information with the express consent of the interested parties;

 

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·the exchange of information between financial institutions for record purposes;

 

·the supplying to credit reference agencies of information based on data from the records of issuers of bank checks drawn on accounts without sufficient funds and defaulting debtors; and

 

·the occurrence or suspicion that criminal or administrative illegal acts have been performed, in which case the financial institutions and the credit card companies may provide the pertinent authorities with information relating to such criminal acts when necessary for the investigation of such acts.

 

Complementary Law 105/01 also allows the Brazilian Central Bank or the CVM to exchange information with foreign governmental authorities, provided that a specific treaty has previously been executed.

 

The government of the Federal Republic of Brazil and the government of the United States of America executed an agreement on March 20, 2007, by means of which these governments established rules for the exchange of information relating to tax, or the “2007 Agreement”. Under the 2007 Agreement, the Brazilian tax authority would be able to send information it receives by virtue of Section 5 of the Bank Secrecy Law to the U.S. tax authority.

 

Data Protection Requirements

 

The GDPA, or in Portuguese, “Lei Geral de Proteção de Dados”, was published in the Federal Official Gazette on August 15, 2018 and was amended by Law No. 13,853, issued on July 8, 2019 or “Law 13,853/2019”. The GDPA will takecame into effect in September 2020, except for administrative sanctions, which will come into effect on August 2020.1, 2021, pursuant to Law No. 14,010/20, which delayed the applicability of certain provisions of the GDPA.

 

Before the GDPA, Brazil lacked regulations specific to data privacy and a data protection authority. Despite this, privacy has been generally protected through the Federal Constitution, the Civil Code (Law No. 10,406 of January 10, 2002), the Consumer Protection Code (Law No. 8,078 of September 11, 1990) and the Civil Rights Framework for the Internet (Law No. 12,965 of April 23, 2014 and the Decree 8,771 of May 11, 2016, also known as the Internet Law).

 

The GDPA brings about profound changes in the rules and regulations applicable to the processing of personal data, processing, with a set of rules to be complied with in activities such as the collection, processing, storage, use, transfer, sharing and erasure of information concerning identified or identifiable natural persons.

 

The GDPA has a wide range of applications and extends to individuals as well as private and public entities, regardless of the country where they are headquartered or where data are hosted, as long as (i) the data processing takes place in Brazil; (ii) the data processing activity is intended to offer or supply goods or services to, or to process data of individuals located in Brazil; or (iii) the subjects of the data are located in Brazil at the time their personal data are collected. The GDPA will apply irrespective of the industry or business when dealing with personal data and is not restricted to data processing activities performed through digital media and/or on the internet.

 

The GDPA sets out several rules related to data processing such as principles, requirements and duties imposed to data controllers and data processors; rights of data subjects; requirements in connection with cross-border transfers of data; the obligation to appoint a data protection officer; data security and data breach notification; corporate governance practices; and the regime for civil liabilities and penalties in case of a breach of the provisions of the GDPA. Penalties include warnings, blocking and erasure of data, public disclosure of the offense and fines of up to 2% of the economic group’s turnover in Brazil in the preceding year, capped at R$50 million per offense.

 

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Moreover, Law 13,853/2019 created the Brazilian National Data Protection Authority, or “ANPD”, which will have powers and responsibilities analogous to the European data protection authorities, exercising a triple role of (i) investigation, comprising the power to issue norms and procedures, deliberate on the interpretation of the GDPA and request information of controllers and

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processors; (ii) enforcement, in cases of noncompliance with the law, through an administrative process; and (iii) education, with the responsibility to disseminate information about and foster knowledge of the GDPA and security measures, fostering standards for services and products that facilitate control of data, and elaborating studies on national and international practices for the protection of personal data and privacy, among others.

 

The ANPD has been assured technical independence, although it is subordinated to the Presidency of the Republic. It will be composed of five commissioners, to be appointed by the President of Brazil, and advised by a National Council for the Protection of Personal Data and Privacy, composed of 23 unpaid members.

 

Regulations on Cybersecurity

 

Financial institutions must follow certain cyber risk management and cloud outsourcing requirements which apply to the design and adaptation of internal controls. Policies and action plans to prevent and respond to cybersecurity incidents must be in place before May 2019, and fully compliant by December 2021. Data location and processing may occur inside or outside Brazil, but access to data stored abroad must be granted at all times to the Brazilian Central Bank for inspection purposes. The contracting of relevant processing services must be communicated to the Brazilian Central Bank within 10 days from the execution of the agreement.

 

Auditing Requirements

 

The legislation and regulations issued by the CMN, CVM and B3 determine that the periodic financial statements of financial institutions must be audited by independent auditors (individuals or legal entities) that are registered with the CVM and who meet the minimum requirements set forth by the Brazilian Central Bank, and that the financial statements must be presented together with an independent auditor’s report. Our financial statements are audited in accordance with International Standards on Auditing with regard to Brazilian GAAP and also with the standards of the Public Company Accounting Oversight Board with regard to IFRS as issued by the IASB, as required by the SEC. For purposes of the financial statements prepared according to Brazilian GAAP, as from January 2017 all financial institutions and other institutions authorized to operate by the Brazilian Central Bank are required to create provisions for all losses related to financial guarantees issued by them. As a result of the auditing work, the independent auditor must prepare the following reports: (i) an audit report, issuing an opinion regarding the accounting statements and the respective explanatory notes, including regarding the compliance with financial regulations issued by the CMN and the Brazilian Central Bank; (ii) an internal control system quality and adequacy evaluation report, including regarding electronic data processing and risk management systems, evidencing any identified deficiencies; (iii) a legal and regulatory provisions noncompliance report, regarding those which have, or may have, material impacts on the financial statements or on the audited financial institution’s operations; (iv) a limited assurance report, analyzing Santander Brasil’sour Annual and Sustainability Report pursuant to the guidelines and requirements of the Global Reporting Initiative, or “GRI”; and (v) any other reports required by the Brazilian Central Bank, CVM and B3. The reports issued by independent auditors must be available for consultation upon request by the overseeing authorities.

 

Independent auditors and the audit committee, when established, individually or jointly, must formally notify the Brazilian Central Bank of the existence or evidence of error or fraud, within three business days of the identification of the respective occurrence, including:

 

·noncompliance with legal rules and regulations that place the continuity of the audited entity at risk;

 

·frauds of any amount perpetrated by the management of the institution;

 

·material frauds perpetrated by the institution’s employees or third parties; and

 

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·errors that result in major incorrectness in the financial statements of the audited entity.

 

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The executive office of the financial institution must inform the independent auditor and the audit committee, when established, if any of the above situations occur.

 

CMN regulation also requires financial institutions and certain other entities holding Regulatory Capital equal to or greater than R$1 billion to create a corporate body designated as the “audit committee”. To obtain more information concerning the audit committee, see “Item 6. Directors, Senior Management and Employees—C. Board Practices—Board Advisory Committees—Audit Committee.”

 

Internal Auditing of Financial Institutions

 

Financial institutions are required to establish and maintain internal audit activities compatible with their operational specifications, so that such internal bodies are able to perform an independent, autonomous and impartial audit of the quality and effectiveness of the institution’s internal systems. Such unit shall be directly controlled by the institution’s board of directors. Internal and external independent auditors are also liable for failures of the financial institution’s internal control mechanisms.

 

Socio-Environmental Responsibility Policy

 

Financial institutions are required to have a responsibility policy, which must guide the social and environmental actions in conducting their businesses, their relationship with their customers and other users of their products and services. The responsibility policy must also guide the financial institution’s relationship with its personnel and with any others affected by the financial institution’s activities. In addition, the responsibility policy must provide for the management of social and environmental risks (which, according to the Brazilian Central Bank, represent one of the several categories of risk to which financial institutions are exposed).

 

Policy for Succession of Financial Institutions Managers

 

Brazilian financial institutions and other institutions authorized to operate by the Brazilian Central Bank shall implement and maintain internal policies for succession of managers, applicable to higher levels of the institution’s management. The internal policy shall encompass the procedures related to recruitment, promotion, appointment and retention of managers in accordance with the institution’s rules for identification, evaluation, training and selection of the candidates to management offices.

 

Corporate Governance of Financial Institutions

 

Financial institutions must (i) remit to the Brazilian Central Bank information on the financial institution’s management, controlling group and relevant shareholders, including the obligation to communicate to the regulator any information that may affect the reputation of any such persons; (ii) make available a communication channel allowing employees, contributors, customers, users, associates, or services providers to report anonymously situations indicating illegalities of any nature related to the institution; and (iii) have an internal body responsible for receiving the information and complying with the reporting obligations.

 

Compliance Policy

 

Financial institutions must implement and maintain a compliance policy compatible with the nature, size, complexity, structure, risk profile and business model of the institution, which is intended to ensure an effective compliance risk management by the institution and may be established at the consolidated enterprise level (conglomerado prudencial). The compliance policy must establish the scope and purpose of the compliance function in the institution, set forth the organizational structure of the compliance function, specify which personnel is allocated to the compliance function, and establish a segregation of roles among personnel in order to avoid conflicts of interest.

 

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The compliance policy must be approved by the board of directors and the regulation also assigns to the board the responsibility to ensure the following: adequate management of the compliance policy

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throughout the institution, its effectiveness and continued application, its communication to all employees and services providers, as well as the dissemination of the integrity and ethical standards as part of the institution’s culture. The board of directors is also responsible for ensuring the application of measures in case of noncompliance, and for providing the necessary means for the activities related to the compliance functions to be adequately conducted.

 

Consumer Protection

 

Relationships between consumers and financial institutions are governed by Law 8,078, dated September 11, 1990, or the “Brazilian Consumer Protection Code”, which grants consumers certain rights and sets forth measures to be observed by suppliers, which must be complied with by financial institutions. The Brazilian Consumer Protection Code sets forth as consumer rights, among others, the assistance/facilitation in the defense of consumers’ rights, including through reverse burden of proof in their favor, and possibility of judicial review of contractual provisions deemed abusive.

 

Furthermore, banking regulation establishes procedures that financial institutions must observe when contracting any transactions, as well as when rendering services. We may highlight the following as examples of said procedures:

 

·to timely provide the necessary information including rights, duties, responsibilities, costs or advantages, penalties and possible risks when carrying out a transaction or rendering a service to allow customers and users free choice and decision-making;

 

·to timely provide, to the customer or user, agreements, receipts, statements, advice and other documents related to the transactions and services, as well as the possibility of timely cancellation of the agreements;

 

·formalization of an adequate instrument setting forth the rights and obligations for opening, using and maintaining a postpaid payment account;

 

·to forward a payment instrument to the customers’ or users’ residence or to enable the respective instrument only upon express request or authorization; and

 

·identification of end users’ beneficiaries for payments or transfer in statements and bills of the payer, including in situations in which the payment service involves institutions participating in different payment arrangements.

 

Financial institutions operating exclusively via digital means are excluded from the scope of certain aspects of the regulation.

 

Policy for Relationship with Customers and Users of Financial Products and Services

 

Financial institutions and other institutions authorized to operate by the Brazilian Central Bank must have a policy governing the relationship with customers and users of financial products and services. In addition, such entities shall comply with the principles of ethics, liability, transparency and diligence promoting the convergence of interests and the consolidation of the institutional image of credibility, security and expertise.

 

Ombudsman

 

Financial institutions and other entities that are authorized to operate by the Brazilian Central Bank must have an ombudsman office. An ombudsman office has the following attributes according to the current regulation:

 

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·to provide last resort assistance in connection with customer claims that have not been resolved through the conventional customer service channels (including the banking correspondents and the customer service attendance channel-SAC)assistance channel (Serviço de Atendimento ao Consumidor), or SAC); and

 

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·to act as a communication channel between the financial institutions and their customers, including for dispute resolution; and

·to keep management informed of its activities.resolution

 

Institutions that are part of a financial group are allowed to establish one ombudsman department to service the whole group. The officer in charge of the ombudsman office must prepare a report every six months, which must be provided to the management and auditing bodies, as well asbodies. The reports and recordings of interactions of the ombudsman unit with consumers must be available to the Brazilian Central Bank for a period of at least five years.

 

Investment Funds Industry Regulation

 

Investment funds are subject to the regulation and supervision of the CMN and the CVM and, in certain specific matters, the Brazilian Central Bank. Investment funds may be managed by full-service banks, commercial banks, savings banks, investment banks, credit, financing and investment companies and brokerage and dealer companies within certain operational limits.

 

Investment funds may invest in any type of financial instrument available in the financial and capital markets, including, for example, fixed income instruments, stocks, debentures and derivative products, provided that, in addition to the denomination of the fund, a reference to the relevant type of fund is included.

 

Broker-Dealer Regulation

 

Broker and dealer firms are part of the national financial system and are subject to CMN, Brazilian Central Bank and CVM regulation and supervision. Brokerage firms must be chartered by the Brazilian Central Bank and are the only institutions in Brazil authorized to trade on stock exchanges. Both brokers and dealers may act as underwriters in the public placement of securities and engage in the brokerage of foreign currency in any exchange market.

 

As ofSince August 29, 2019, securities brokers and dealers may loan their own securities to their clientscustomers as long as they use the funds as collateral for operations in which the institution itself intermediates. The loan transaction consists of the transfer of assets from the institution: (i) to the customer, in conjunction with the transfer of that asset to the clearinghouse or clearing and settlement service provider; or (ii) to the clearinghouse or clearing and settlement service provider on behalf of the customer through powers established in a formal written power of attorney. In either case, the assets or set of assets in question shall return to the positions originally held at the end of the period stipulated in the contract. To offer this new service, securities brokers and dealers must appoint a director responsible for the loan operations under consideration.

 

Since November 27, 2020, securities brokers and dealers may issue electronic currency and maintain payment accounts.

Foreign Exchange Market

 

Transactions involving the sale and purchase of foreign currency in Brazil may be conducted only by institutions duly authorized by the Brazilian Central Bank to operate in the foreign exchange market. There is no current limit to long or short positions in foreign currency for banks authorized to carry out transactions on the foreign exchange market. Other institutions within the national financial system are not allowed to have short positions in foreign currency, although there are no limits with respect to foreign exchange long positions.

 

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The Brazilian Central Bank imposes a limit on the total exposure in foreign currency transactions and transactions subject to foreign exchange fluctuation undertaken by Brazilian financial institutions, including branches abroad, and their direct and indirect affiliates. The limit is currently equivalent to 30.0% of the financial institution’s Regulatory Capital (Patrimônio de Referência), on a consolidated basis. The CMN, the Brazilian Central Bank and the Brazilian government may change the regulation applicable to foreign currency and foreign exchange transactions undertaken by Brazilian financial institutions in accordance with Brazil’s economic policy (including its foreign exchange policy).

 

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On October 7, 2019, the Brazilian Central Bank, sent to the President of Brazil a draft bill to change the way in which the Brazilian foreign exchange market is regulated (“New Foreign Exchange Bill”). The draft also contains provisions regarding Brazilian capital abroad and foreign capital within Brazil. The initiative aims to modernize, simplify and reduce legal doubts associated with current Brazilian foreign exchange legislation.

 

The main aspects of the New Foreign Exchange Bill are: (i) ratification, at the legal level, that foreign exchange transactions may be carried out freely (provided such transactions are carried out by entities authorized to operate in this market and subject to applicable rules); (ii) granting of broad powers to the CMN and the Brazilian Central Bank to regulate the foreign exchange market and foreign exchange operations; (iii) expansion of international correspondence activities by Brazilian banks; (iv) possibility of Brazilian financial institutions investing and lending abroad funds that have been raised in Brazil or abroad; (v) the exclusion from its scope of foreign currency purchase and sale operations of up to US$1,000 carried out between individuals on an occasional and non-professional basis; and (vi) the granting of powers to the monetary authorities to establish situations in which the prohibition of the private offset of credits between residents and nonresidents, as well as payments in foreign currency in Brazil, would not apply.

On December 22, 2020, the Brazilian House of Representatives approved the base wording of the New Foreign Exchange Bill. The Brazilian House of Representatives is expected to vote on any motions by representatives for amendment or redaction of specific sections of the New Foreign Exchange Bill in early 2021. Upon approval by the Brazilian House of Representatives, the bill will be sent to the Brazilian Senate for approval. As of the date of this date, the Brazilian Congress is still reviewing the proposal andannual report, it is not possible to estimate if and when it will be approved by the Brazilian Senate, or what changes will be proposed.approved by the House of Representatives.

 

Foreign Investment in Brazilian Financial Institutions

 

According to the Brazilian federal constitution, the acquisition of equity interests by foreign individuals or legal entities in the capital stock of Brazilian financial institutions is forbidden, unless permitted by bilateral international treaties or by the Brazilian government by means of a presidential decree. A presidential decree issued on November 13, 1997, issued in respect of Banco Meridional do Brasil S.A. (our legal predecessor) allows 100% foreign participation in our capital stock. Foreign investors may acquire the shares issued by Santander Brasil as a result of this decree. In addition, foreign investors may acquire publicly traded nonvoting shares of Brazilian financial institutions traded on a stock exchange or securities depositary receipts offered abroad representing shares without specific authorization.

 

Following the enactment of Decree No. 10,029, the Brazilian Central Bank published, on January 22, 2020, Circular No.3,977No. 3,977 recognizing as an interest of the Brazilian government the foreign holding of equity or increase in equity interest of financial institutions headquartered in Brazil (which is still subject to the same requirements and procedures applicable to the any acquisition of equity in any Brazilian financial institution), as well as the opening of local branches of foreign financial institutions. However, since Santander Brasil had already been granted a specific presidential decree authorizing the foreign interest in its share capital, prior to Decree 10,029/19 being issued it does not affect its operations in Brazil.

 

A foreign financial institution duly authorized to operate in Brazil through a branch or a subsidiary is subject to the same rules, regulations and requirements that are applicable to any Brazilian financial institution.

 

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Bank Correspondents

 

Financial institutions are allowed to provide specific services to customers, including customer services, through other entities. These entities are called “bank correspondents” and the relationship between the financial institution and the bank correspondent is ruled by a specific regulation published by CMN and is subject to the supervision of the Brazilian Central Bank.

 

Regulation of Branches

 

Authorization by the Brazilian Central Bank is required for operations of branches or subsidiaries of Brazilian financial institutions, upon the compliance with certain term, capital and equity requirements, as well as the submission of an economic and financial feasibility analysis.

 

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The Brazilian Central Bank’s prior authorization is also required in order to: (i) allocate new funds to branches or subsidiaries abroad; (ii) subscribe capital increases, directly or indirectly, in subsidiaries abroad; (iii) increase equity participation, directly or indirectly, in subsidiaries abroad; and/or (iv) merge or spin off, directly or indirectly, subsidiaries abroad.

 

The Brazilian Central Bank determines that financial institutions can install the following establishments in Brazil: (i) branches, (ii) teller booths, (iii) automatic teller machines, and (iv) segregated administrative units, provided that, for items (i) to (iii), conformity with requirements of minimum capital and operating limits are necessary.

 

Cayman Islands Banking Regulation

 

We have a branch in the Cayman Islands with its own staff and representative officers. Banco Santander (Brasil) S.A. – Grand Cayman Branch is licensed under The Banks and Trust Companies Law (2013 Revision) of the Cayman Islands, or the “Banks and Trust Companies Law,” as a Category “B” Bank and it is duly registered as a Foreign Company with the Registrar of Companies in the Cayman Islands. The branch, therefore, is duly authorized to carry on banking business in the Cayman Islands. The branch was authorized by the local authorities to act as its own registered office and it is located at the Waterfront Centre Building, 28, North Church Street – 2nd floor, George Town, Grand Cayman, Cayman Islands, P.O. Box 10444 – KYI-1004, Phone: 1-345-769-4401 and Fax: 1-345-769-4601.

 

Our Grand Cayman Branch is currently engaged in the business of sourcing funds in the international banking and capital markets to provide credit lines for us, which are then extended to our customers for working capital and trade-related financings. It also takes deposits in foreign currency from corporate and individual customers and extends credit to Brazilian and non-Brazilian customers, mainly to support trade transactions with Brazil. The results of the operations of the Grand Cayman Branch are consolidated in our consolidated financial statements.

 

Banks and trust companies wishing to conduct business from within the Cayman Islands must be licensed by the Cayman Islands Monetary Authority under the Banks and Trust Companies Law, irrespective of whether the business is to be actually conducted in the Cayman Islands.

 

Under the Banks and Trust Companies Law, there are two main categories of banking license: a category “A” license, which permits unrestricted domestic and offshore banking business, and a category “B” license, which permits principally offshore banking business. The holder of a category “B” license may have an office in the Cayman Islands and conduct business with other licensees and offshore companies but, except in limited circumstances, may not do banking business locally with the public or residents of the Cayman Islands. We have an unrestricted category “B” license.

 

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There are no specific ratio or liquidity requirements under the Banks and Trust Companies Law, but the Cayman Islands Monetary Authority will expect observance of prudent banking practices, and the Banks and Trust Companies Law imposes a minimum net worth requirement of an amount equal to CI$400,000 (or, in the case of licensees holding a restricted category “B” or a restricted trust license, CI$20,000). As of December 31, 2019,2020, CI$1 was equivalent to R$4.88,6.29, according to the Brazilian Central Bank.

 

Luxembourg Banking Regulation

 

Branches of credit institutions from outside the European Union (“non-EU credit institutions”) must be licensed by the Luxembourg Minister of Finance under the law of 5 April 1993 on the financial sector, as amended, in order to operate in Luxembourg.

 

We have a branch in Luxembourg with its own staff and representative officers. Our Luxembourg branch is licensed as a Luxembourg branch of a non-EU credit institution and is duly registered with the Luxembourg Trade and Companies’ Registry. The branch, therefore, is duly authorized to carry on banking business in Luxembourg. Its registered offices are at 35F, avenue J.F. Kennedy, 2nd floor, L-

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1855L-1855 Luxembourg, Grand Duchy of Luxembourg.

 

Our Luxembourg branch is currently engaged in the business of sourcing funds in the international banking and capital markets to provide credit lines for us, which are then extended to our customers for working capital and trade-related financings. It also takes deposits in foreign currency from corporate and individual customers and extends credit to Brazilian and non-Brazilian customers, mainly to support trade transactions involving Brazil. The results of the operations of the Luxembourg branch are consolidated in our consolidated financial statements.

 

Luxembourg law requires the Luxembourg branch to have a minimum endowment capital of €8,700,000 and the solvency, and liquidity requirements deriving, among others, from EU Regulation No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms apply to it.

 

Foreign Subsidiary

 

We had established an independent subsidiary in Spain, Santander EFC, in order to complement our foreign trade strategy for corporate customers, which are composed of large Brazilian companies and their operations abroad. This allowshas allowed us to provide financial products and services by means of an offshore entity, which is not established in a “tax haven,” such as our Cayman Islands branch, in accordance with Law No. 12,249, of June 11, 2010, and Brazilian Federal Revenue Normative Ruling No. 1,037, of June 4, 2010.

 

The establishment of our foreign subsidiary was approved by the Brazilian Central Bank on September 26, 2011, by the SpanishMinisterio de Economia y Hacienda on February, 6, 2012 and by the Bank of Spain on March 28, 2012. The remittance of resources to pay up the share capital of the subsidiary was carried out on March 5, 2012, totaling €748 million. Santander EFC has beenwas operational since March 2012.from 2012 to November 12, 2020, when we approved its liquidation. As a consequence of the liquidation, we, as sole shareholder of Santander EFC, have participated in the net assets of the corporation, in the net amount of €741 million.

 

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U.S. Banking Regulation

 

Financial Regulatory Reform

 

Banking statutes and regulations are continually under review by the United States Congress. In addition to laws and regulations, the U.S. bank regulatory agencies may issue policy statements, interpretive letters and similar written guidance. Many changes have occurred as a result of the 2010 Dodd-Frank Act and its implementing regulations, most of which are now in place. More recently,In 2017, the President of the United States issued an executive order in 2017 that sets forth principles for financial regulatory and reform. In May 2018, the United States Congress passed, and President Trump signed into law the Economic Growth, Regulatory Relief, and Consumer Protection Act (“EGRRCPA”) which, among other things, revised the thresholds for total consolidated assets at which certain enhanced prudential standards apply to bank holding companies. EGRRCPA made clear that the Board of Governors of the Federal Reserve System (the "Federal“Federal Reserve Board"Board”) retains the right to apply enhanced prudential standards to FBOs with greater than $100 billion in global total consolidated assets, such as Santander Spain.

 

In October 2019, the federal banking agencies issued final rules (the "Tailoring Rules"“Tailoring Rules”) that, pursuant to EGRRCPA, adjust the thresholds at which certain enhanced prudential standards and capital and liquidity requirements apply to certain banking organizations, including large FBOs such as Santander Spain. As a result, Santander Spain is now generally subject to less restrictive enhanced prudential standards and capital and liquidity requirements than under previously applicable regulations.

 

Volcker Rule

 

Section 13 of the U.S. Bank Holding Company Act of 1956, as amended, and its implementing rules (collectively, the “Volker“Volcker Rule”) prohibits “banking entities” from engaging in certain forms of

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proprietary trading or from sponsoring or investing in “covered funds,” in each case subject to certain exceptions. The Volcker Rule also limits the ability of banking entities and their affiliates to enter into certain transactions with covered funds with which they or their affiliates have certain relationships. Banking entities such as Santander Brasil and Santander Spain were required to bring their activities and investments into compliance with the requirements of the Volcker Rule by the end of the conformance period applicable to each requirement. Santander Spain has assessed how the Volcker Rule affects its businesses and subsidiaries, including Santander Brasil, and has brought its activities into compliance. Santander Brasil has adopted processes to establish, maintain, enforce, review and test the compliance program designed to achieve and maintain compliance with the Volcker Rule. The Volcker Rule contains exclusions and certain exemptions for market-making, hedging, underwriting, trading in U.S. government and agency obligations, as well as certain foreign government obligations, and trading solely outside the United States, and also permits certain ownership interests in certain types of funds to be retained. Santander Spain’s non-U.S. banking organization subsidiaries, including Santander Brasil, are largely able to continue their activities outside the United States in reliance on the “solely outside the U.S.” exemptions from the Volcker Rule. Those exemptions generally exempt proprietary trading, and sponsoring or investing in covered funds if, among other restrictions, the essential actions take place outside the United States and any transactions are not with U.S. persons.

 

On July 21, 2017, the five regulatory agencies charged with implementing the Volcker Rule announced the coordination of reviews of the treatment of certain foreign funds that are investment funds organized and offered outside of the United States and that are excluded from the definition of covered fund under the agencies’ implementing regulations. Also in July 2017, the Federal Reserve issued guidelines for banking entities seeking an extension to conform certain “seeding” investments in covered funds to the requirements of the Volcker Rule.

 

As of October 2019, the five regulatory agencies charged with implementing the Volcker Rule finalized amendments to the Volcker Rule. These amendments tailor the Volcker Rule’s compliance requirements to the amount of a firm’s trading activity, revise the definition of trading account, clarify certain key provisions in the Volcker Rule, and modify the information companies are required to provide the federal agencies. Santander Brasil will still largely rely on the “solely outside the U.S. exemption” to conduct its trading activities.

 

In early 2020, the five federal agencies proposed additional amendments to the Volcker Rule related to the restrictions on ownership interests in and relationships with covered funds. Santander Spain will continue to monitor these Volcker Rule-related developments and assess their impact on its operations, including those of Santander Brasil, as necessary.

 

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U.S. Anti-Money Laundering, Anti-Terrorist Financing, and Foreign Corrupt Practices Act Regulations

 

Santander Brasil, as a foreign private issuer whose securities are registered under the Exchange Act, is subject to the U.S. Foreign Corrupt Practices Act, or the “FCPA”. The FCPA generally prohibits such issuers and their directors, officers, employees and agents from using any means or instrumentality of U.S. interstate commerce in furtherance of any offer or payment of money to any foreign official or political party for the purpose of influencing a decision of such person in order to obtain or retain business. It also requires that the issuer maintain books and records and a system of internal accounting controls sufficient to provide reasonable assurance that accountability of assets is maintained and accurate financial statements can be prepared. Penalties, fines and imprisonment of Santander Brasil’s officers and/or directors can be imposed for violations of the FCPA.

 

Furthermore, Santander Brasil is subject to a variety of U.S. anti-money laundering and anti-terrorist financing laws and regulations, such as the Bank Secrecy Act of 1970, as amended, and the USA Patriot Act of 2001, as amended, and a violation of such laws and regulations may result in substantial penalties, fines and imprisonment of Santander Brasil’s officers and/or directors.

 

U.S. Sanctions

 

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“Sanction(s)” means any international economic sanction administered or enforced by the United States government (including without limitation, OFAC), the United Nations Security Council, the European Union or Her Majesty’s Treasury. The Office of Foreign Assets Control (“OFAC”) is responsible for administering economic sanctions imposed against designated foreign countries, governments, individuals and entities pursuant to various Executive Orders, statutes and regulations.

OFAC-administered sanctions take many different forms. For example, sanctions may include: (1) restrictions on U.S. persons’ trade with or investment in a sanctioned country, including prohibitions against direct or indirect imports from and exports to a sanctioned country and prohibitions on U.S. persons engaging in financial transactions relating to, making investments in, or providing investment-related advice or assistance to, a sanctioned country; and (2) blocking of assets of targeted governments or “specially designated nationals,” by prohibiting transfers of property subject to U.S. jurisdiction, including property in the possession or control of U.S. persons. Blocked assets, such as property and bank deposits, cannot be paid out, withdrawn, set off or transferred in any manner without a license from OFAC. In addition, non-U.S. persons can be liable for “causing” a sanctions violation by a U.S. person or can violate U.S. sanctions by exporting services from the United States to a sanctions target, for example by engaging in transactions with targets of U.S. sanctions denominated in U.S. dollars that clear through U.S. financial institutions (including through U.S. branches or subsidiaries of non-U.S. banks).

 

Failure to comply with applicable U.S. sanctions could have serious legal and reputational consequences, including significant civil monetary penalties and, in the most severe cases, criminal penalties.

 

In addition, the U.S. government has implemented various sanctions that target non-U.S. persons, including non-U.S. financial institutions, that engage in certain activities undertaken outside the United States and without the involvement of any U.S. persons (“secondary sanctions”) that involve Iran, North Korea, Russia, or Hezbollah or other persons designated by the U.S.United States under the speciallySpecially Designated Global Terrorist, (SDGT)or “SDGT,” sanctions program. If a non-U.S. financial institution were determined to have engaged in activities targeted by certain secondary U.S. sanctions or used proceeds produced by such activities targeted, it could lose its ability to open or maintain correspondent or payable-through accounts with U.S. financial institutions, among other potential consequences.

 

Antitrust Regulation

 

According to the Brazilian antitrust law, actions that concentrate market share must be previously submitted to CADE for approval if the following criteria are met: (i) at least one of the groups involved in the deal has posted annual gross revenues or volume of business equal to or over R$750 million, in Brazil, in the year prior to the transaction; and (ii) at least another group has posted annual gross revenues or volume of business equal to or over R$75 million, in Brazil, in the year prior to the transaction. Closing of a transaction without CADE’s approval will subject the parties to fines ranging from R$60,000 to R$60 million.

 

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The Brazilian Central Bank will also examine certain corporate reorganizations and other acts involving two or more financial institutions not only considering their potential effects on the financial system and its stability but also any potential impacts regarding market concentration and competition. Upon approval of the transaction, the Brazilian Central Bank may establish certain restrictions and require that the financial institutions execute an agreement of market concentration control, pursuant to which the terms and conditions of the sharing of the efficiency gain resulting from the act shall be set forth.

 

In December 2018, the Brazilian Central Bank and CADE approved a joint normative act establishing procedures with the purpose of increasing efficiency for their respective actions regarding antitrust matters. Pursuant to the joint normative act, the authorities are authorized to share information for the purposes of their respective activities and carry out meetings with each other to discuss matters requiring the regulatory cooperation between both authorities.

 

Insolvency Laws Concerning Financial Institutions

 

Financial institutions are subject to the proceedings established by Law 6,024 of March 13, 1974, or “Law 6024”, which establishes the applicable provisions in the event of intervention or extrajudicial

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liquidation by the Brazilian Central Bank, as well as to bankruptcy proceedings.

 

Intervention and extrajudicial liquidation occur when the Brazilian Central Bank has determined that the financial institution is in bad financial condition or upon the occurrence of events that may impact the creditors’ situation. Such measures are imposed by the Brazilian Central Bank in order to avoid the bankruptcy of the entity.

 

Intervention

 

An intervention can be carried out at the discretion of the Brazilian Central Bank in the following cases:

 

·risk to the creditors due to mismanagement;

 

·consistent violation of Brazilian banking laws or regulations; or

 

·if the intervention is a feasible alternative to the liquidation of the financial institution.

 

As of the date on which it is ordered, the intervention will automatically suspend the enforceability of the payable obligations; prevent early termination or maturity of any previously contracted obligations; and freeze deposits existing on the date on which the intervention is decreed.

 

The intervention will cease if interested parties undertake to continue the economic activities of the financial institution, by presenting the necessary guarantees, as determined by the Brazilian Central Bank, when the situation of the entity is regularized as determined by the Brazilian Central Bank; or when extrajudicial liquidation or bankruptcy of the entity is ordered.

 

Intervention may also be ordered upon the request of a financial institution’s management.

 

Extrajudicial Liquidation

 

Extrajudicial liquidation is an administrative proceeding decreed by the Brazilian Central Bank (except that it is not applicable to financial institutions controlled by the Brazilian federal government) and conducted by a liquidator appointed by the Brazilian Central Bank. This extraordinary measure aims at terminating the activities of the affected financial institution, liquidating its assets and paying its liabilities, as in a judicially decreed bankruptcy. The Brazilian Central Bank will place a financial institution in extrajudicial liquidation if:

 

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·the institution’s economic or financial situation is at risk, particularly when the institution ceases to meet its obligations as they become due, or upon the occurrence of an event that could indicate a state of insolvency under the rules of the Bankruptcy Law;

 

·management seriously violates Brazilian banking laws, regulations or rulings;

 

·the institution suffers a loss which subjects its unprivileged and unsecured creditors to severe risk; and/or

 

·upon revocation of the authorization to operate, the institution does not initiate ordinary liquidation proceedings within 90 days or, if initiated, the Brazilian Central Bank determines that the pace of the liquidation may harm the institution’s creditors.

 

A request for liquidation procedures can also be filed on reasonable grounds by the officers of the respective financial institution or by the receiver appointed by the Brazilian Central Bank in the receivership procedure.

 

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The decree of extrajudicial liquidation will: (i) suspend the actions or foreclose on rights and interests relating to the estate of the entity being liquidated, while no other actions or executions may be brought during the liquidation; (ii) accelerate the obligations of the entity; and (iii) interrupt the statute of limitations with regard to the obligations assumed by the institution.

 

Extrajudicial liquidation procedures may be terminated:

 

·by discretionary decision of the Brazilian Central Bank if the parties involved undertake the administration of the financial institution after having provided the necessary guarantees; or

 

·when the final accounts of the receiver are delivered and approved and subsequently registered in the relevant public records; or

 

·when converted into ordinary liquidation; or

 

·when a financial institution is declared bankrupt.

 

Temporary Special Administration Regime (Regime de Administração Especial Temporária or “RAET”)

 

In addition to the intervention procedures described above, the Brazilian Central Bank may also establish a RAET, under Law 9447, dated March 14, 1997 combined with Law 6,024/74, which is a less severe form of the Brazilian Central Bank intervention in private and nonfederal public financial institutions whichthat allows institutions to continue to operate normally. The RAET may be ordered in the case of an institution that:

 

·continually enters into recurrent operations that are against economic or financial policies set forth in federal law;

 

·faces a shortage of assets;

 

·fails to comply with the compulsory reserves rules;

 

·reveals the existence of hidden liabilities;

 

·experiences the occurrence of situations that cause receivership pursuant to current legislation;

 

·has reckless or fraudulent management; or

 

·carries out activities which call for an intervention.

 

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The main objective of a RAET is to assist the recovery of the financial condition of the institution under special administration and thereby avoid intervention and/or liquidation. Therefore, a RAET does not affect the day-to-day business, operations, liabilities or rights of the financial institution, which continues to operate in the ordinary course of business. Measures which may be adopted by the institution include the transfer of assets, rights and obligations to other entities, and corporate restructuring of these entities, with a view to the continuity of the institution’s business or activities.

 

There is no minimum term for a RAET, which ceases upon the occurrence of any of the following events: (i) acquisition by the Brazilian federal government of control of the financial institution, (ii) corporate restructuring, merger, spinoff, amalgamation or transfer of the controlling interest of the financial institution, (iii) decision by the Brazilian Central Bank, or (iv) declaration of extrajudicial liquidation of the financial institution.

 

Regulatory Sandbox

Bankruptcy

On November 28, 2019, the Brazilian Central Bank published Public Consultation No. 72/2019, which ended on January 31, 2020, regarding the Controlled Testing Environment for Financial Innovations or “Sandbox” which is intended to enable institutions test innovative financial and payment projects for a specified period.

After receiving comments on the Public Consultation, the CMN and the Brazilian Central Bank issued, on November 26, 2020, CMN Resolution 4,865/20 and BCB Resolution 29/20, to regulate the Sandbox These rules set forth the applicable conditions for the implementation of the Sandbox, among which are the specific rules for the first cycle of tests, such as duration and number of participants, required documentation, criteria for the classification of institutions and the schedule for registration, selection and authorization processes of such entities. The Brazilian Central Bank expects that the process for selecting the first cycle will start in the first half of 2021.

Treatment of Overdue Debts

The Brazilian Central Bank requires financial institutions to classify credit transactions in accordance with their level of credit risk and to make provisions according to the level attributed to each transaction. Such credit classifications shall be determined in accordance with criteria set forth from time to time by the Brazilian Central Bank, relating to the conditions of the debtor and the guarantor and the transaction terms. Where there are several credit transactions involving the same customer, economic group or group of companies, the credit risk must be determined by analyzing the particular credit transaction of such customer or group that represents the greatest credit risk to the financial institution.

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Credit transactions of up to R$50,000 may be classified either by the financial institution’s own evaluation method or according to the number of days such transaction is past due, whichever is the more stringent. Credit classifications are required to be reviewed (i) monthly, in the event of a delay in the payment of any installment of principal or interest, in accordance with the maximum risk classifications; (ii) every six months, in the case of transactions involving the same customer, economic group or group of companies, the amount of which exceeds 5% of the adjusted net worth of the financial institution in question; and (iii) once every 12 months, in all circumstances, except in the case of credit transactions with a customer whose total liability is lower than R$50,000, the classification of which may be reviewed as provided above. Such R$50,000 limit may be amended by the Brazilian Central Bank from time to time.

The provisions set forth above are not applicable to our IFRS consolidated financial statements, which are based on the criteria described under “Item 5. Operating and Financial Review and Prospects—A. Operating Results—Critical Accounting Policies—Impairment Losses on Financial Assets.”

Regulation of the Transfer of Customer Data by Financial Institutions to Database Managers

Brazilian law regulates the formation and consultation of databases with information regarding performance, individuals or legal entities, for the formation of credit history. Resolution No. 4,737 determines that the history of the following operations should be provided: (i) credit operations; (ii) leasing operations; (iii) self-financing operations executed upon consortium groups; and (iv) other operations with characteristics of credit granting; and defines the criteria for the registration of database managers, such as the identification of the natural and legal persons that are part of the control group of the database manager.

Collection of Bank Fees

Bank services to individuals are divided into the following four groups: (i) essential services; (ii) priority services; (iii) special services; and (iv) specific or differentiated services.

Banks are not able to collect fees in exchange for supplying essential services to individuals with regard to checking accounts, such as (i) supplying a debit card; (ii) supplying 10 checks per month to account holders who meet the requirements to use checks, as per the applicable rules; (iii) supplying a second debit card (except in cases of loss, theft, damage and other reasons not caused by the bank); (iv) up to four withdrawals per month, which can be made at a branch of the bank, using checks or in ATM terminals; (v) supplying up to two statements describing the transactions during the month, to be obtained through ATM terminals; (vi) inquiries over the internet; (vii) up to two transfers of funds between accounts held by the same bank, per month, at a branch, through ATM terminals or over the internet; (viii) clearing checks; and (ix) supplying a consolidated statement describing, on a month-by-month basis, the fees charged over the preceding year with regard to checking accounts and savings accounts.

Certain services rendered to individuals with regard to savings accounts also fall under the category of essential services and therefore are exempt from the payment of fees. CMN prohibits banks from charging fees for supplying essential services in connection with deposit and savings accounts where customers agree to access and use their accounts by electronic means only (being authorized to charge fees for supplying essential services only when the customer voluntarily elects to obtain personal service at the banks’ branches or customer service locations).

Priority services are those rendered to individuals with regard to checking accounts, transfers of funds, credit transactions, leasing, standard credit cards, over-the-counter exchange transactions for the purchase or sale of foreign currency in respect of international travel, and records, and are subject to the collection of fees by the financial institutions only if the service and its nomenclature are listed in its regulations. Commercial banks must also offer to their individual customers a “standardized package” of priority services, whose content is defined, as well as the customers’ option to acquire individual services instead of adhering to the package.

The collection of fees in exchange for the supply of special services (including, among others, services relating to rural credit, currency exchange market and on lending of funds from the real estate financial system) is governed by the specific provisions found in the laws and regulations relating to such services. The regulation authorizes financial institutions to charge fees for the performance of specific services, provided either that the account holder or user is informed of the conditions for use and payment or that the fee and charging method are defined in the contract.

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It is worth pointing out: (i) the prohibition against charging fees in cases of adhesion contract amendments, except in the cases of asset replacement in leasing transactions, early liquidation or amortization, cancellation or termination; (ii) the prohibition against including services related to credit cards and other services not subject to fees in service packages that include priority, special and/or differentiated services; (iii) the requirement that subscription to service packages must be through a separate contract; (iv) the requirement that information given to the customer with respect to a service package must include the value of each service included in the package, the number of times that each service may be utilized per month, and the total price of the package; (v) the requirement that a customer’s annual banking statement must separately identify default interest, penalties and other costs charged on loans and leasing transactions; (vi) the requirement that registration fees cannot be cumulatively charged; and (vii) the requirement that overdraft fees can be charged, at most, once over the course of 30 days.

In addition, CMN regulations establish that all debits related to the collection of fees must be charged to a bank account only if there are sufficient funds to cover such debits in such account and thus forbid overdrafts caused by the collection of banking fees. Furthermore, a minimum of 30 days’ notice must precede any increase or creation of fees (except if related to credit card services, when a minimum of 45 days’ notice is required), while fees related to priority services and the “standardized package” can be increased only after 180 days from the date of the last increase (except if related to credit card services, when a minimum of 365 days’ notice is required) whereas reductions can take place at any time.

Late Payment Fees

The default payment fees charged by financial institutions, consumer credit companies (financeiras), and leasing companies are expressly limited to compensatory interest per day on the amount that is overdue, interest on arrears and fines on arrears.

Credit Cards

The banking regulations also have specific rules relative to the charging of credit card fees, the publication of information in the card invoices and the obligation to provide a package of basic services upon offering credit cards to customers. Credit card holders must pay monthly at least 15% of outstanding credit card balances. This minimum payment does not apply to credit cards with payment by means of direct payroll deductions.

Revolving credit for financings of credit card bills may only be extended to customers until the due date of the following credit card bill. After this term, financial institutions offer customers another product with conditions more favorable than the ones typically found in the credit card market. Banks are prohibited from offering this type of credit to customers who have already contracted one revolving credit for financing of credit card bills which were not repaid in a timely manner.

Payment Agents and Payment Arrangements

The regulation issued by the Brazilian Central Bank, determines, among other aspects: (i) consumer protection, anti-money laundering compliance and risk prevention systems that should be observed by payment agents and payment arrangers; (ii) the procedures for incorporation, organization, authorization and operation of payment agents, as well as transfer of shareholding control, subject to the Brazilian Central Bank’s prior approval; (iii) capital requirements; (iv) definition of arrangements excluded from the SPB; and (v) rules related to payment accounts, which are divided into prepaid and postpaid accounts and require the allocation of the totality of their balance to a special account at the Brazilian Central Bank or investment in government bonds.

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Portability of Credit Transactions

Financial institutions’ customers can transfer their credit transactions from one institution to another. Such transfers must comply with the specific rules established by the Brazilian Central Bank, including, among others, the requirement that the amount and term of the transaction in the receiving financial institution must not be higher than the amount due and term of the original transaction.

Digitalization of Documents and Record Keeping

Financial institutions and other institutions authorized to operate by the Brazilian Central Bank may keep in their records digital documents instead of physical documents, provided that certain requirements to ensure the documents’ authenticity and validity are met.

Anti-Money Laundering Regulations

Under the Brazilian Anti-Money Laundering Law, it is a crime to conceal or dissimulate the nature, origin, location, availability, transaction or ownership of assets, rights or amounts resulting, directly or indirectly, from any criminal offense, as well as their use in economic or financial activity and to participate in a group, association or office while being aware that its principal or secondary activities are directed toward the practice of such acts.

The Brazilian Anti-Money Laundering Law also created the Financial Activities Control Council (Conselho de Controle de Atividades Financeiras or “COAF”), which operates under the jurisdiction of the Ministry of Finance. The purpose of the COAF is to investigate, examine, identify and impose administrative sanctions in respect of any suspicious occurrences of illicit activities related to money laundering in Brazil.

The COAF is composed of individuals with recognized competence in this area, appointed by the Minister of Finance, all of whom are nominated by each of the following entities: (i) the Brazilian Central Bank; (ii) the CVM; (iii) the SUSEP; (iv) the National Treasury Attorney-General’s Office; (v) the Brazilian Federal Revenue; (vi) the Federal Intelligence Agency; (vii) the Ministry of Foreign Affairs; (viii) the Ministry of Justice; (ix) the Federal Police Department; (x) the Ministry of Social Security; and (xi) the General Comptroller’s Office, one of whom will be the president, which shall be appointed by the President of Brazil on the basis of recommendations by the Minister of Finance.

Financial institutions must maintain specific records of (i) the transactions in cash (deposit, withdrawal, withdrawal by means of a prepaid card or request of provision for withdrawal) so as to enable the identification of a deposit in cash, withdrawal in cash, withdrawal in cash by means of a prepaid card, or request of provision for withdrawal, of (a) an amount equal to or greater than R$100,000.00 or (b) that presents evidence of concealment or dissimulation of the nature, of the origin, of the location, of the disposal, of the movement or of the ownership of assets, rights and valuables; and (ii) the issuances of cashier’s checks, funds electronic transfers (TED) or of any other instrument of transfer of funds upon payment in cash, for an amount equal to or greater than R$100,000.00.

Financial institutions must maintain records of all operations, products and services contracted, including withdrawals, deposits, contributions, payments, receipts and transfers of funds. Additionally, the institutions must also keep specific records of (i) transactions in cash with an individual value greater than R$2,000.00; (ii) deposit or cash transactions of an individual value equal to or greater than R$50,000.00; and (iii) withdrawal transactions, including those carried out by check or money order, with an individual value equal to or greater than R$50,000.00.

The regulations also impose an obligation on financial institutions to request that both customers and non-customers a providing a withdrawal request at least three working days in advance for withdrawals (including those carried out by check or money order) in an amount equal to or greater than R$50,000.00.

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On January 23, 2020, the Brazilian Central Bank published Circular No. 3,978, which improves the regulation applicable to financial institutions, by expanding the adoption of a risk-based approach and came into effect on July 1, 2020. Regulated institutions must carry out specific internal risk assessments in order to identify and measure the risk of using their products and services in the practice of money laundering and terrorist funding.

In connection with the aforementioned change, the Know-Your-Client procedures were also improved and include the identification, qualification and classification of the customer, compatible with the risk profile, the nature of the relationship with the AML policy and the institution’s internal risk assessment, which must be permanently reassessed, according to the evolution of the business relationship and the risk profile of the client. The procedures must also include the verification of the client’s (including their representatives’, family members’ or close collaborators) condition as a Politically Exposed Individual, as well as consider them in the monitoring, selection and analysis of operations and situations with indications of suspected money laundering or terrorist funding.

On December 5, 2019, the CVM issued CVM Instruction No. 617, which establishes a new framework for the prevention of money laundering and the financing of terrorism in the Brazilian securities market. CVM Instruction No. 617 is in line with the practices currently implemented in the principal global securities markets, including with regard to the recommendations of the Financial Action Group against Money Laundering and the Financing of Terrorism (GAFI/FATF), as well as with the duties arising from Brazilian anti-money laundering laws.

Brazilian Anti-Corruption Law

 

Law No. 11,101,12,846/13 of February 9, 2005, as amended,August 1, 2013, or the “Bankruptcy“Brazilian Anti-Corruption Law”, regulates establishes that legal entities will have strict liability regardless of fault or willful misconduct for acts against the public administration carried out in their interest or for their benefit. The Law encompasses not only performance of acts of corruption but also performance of other injurious acts contrary to the Brazilian or foreign public administration.

Corporations that violate the Brazilian Anti-Corruption Law’s provisions will be subject to heavy penalties, some of which may be imposed through administrative proceedings and others solely through judicial reorganizations, out-of-court reorganizationschannels. The Brazilian Anti-Corruption Law also creates a leniency program under which self-disclosure of violations and cooperation by corporations might result in the reduction of fines and other sanctions.

Politically Exposed Individuals

Financial institutions and other institutions authorized by the Brazilian Central Bank to operate must take certain actions and have certain controls in order to establish business relationships with and to follow up on the financial transactions of customers who are deemed to be politically exposed individuals (public agents and their immediate family members, spouses, life partners and stepchildren who occupy or have occupied a relevant public office or position over the past five years in Brazil or other countries, territories and foreign jurisdictions). The internal procedures developed and implemented for this purpose by financial institutions must be structured in such a way as to enable the identification of politically exposed individuals, as well as the origin of the funds involved in the transactions of such customers. One option is to verify the compatibility between the customer’s transactions and the bankruptcynet worth stated in such customer’s file.

Bank Secrecy

Brazilian financial and payment institutions shall also maintain the secrecy of individualstheir banking operations and corporations thatservices provided to their customers. The only circumstances in which information about customers, services or transactions of Brazilian financial and payment institutions may be disclosed to third parties are the following:

·the disclosure of information with the express consent of the interested parties;

 

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·the exchange of information between financial institutions for record purposes;

have occurred since 2005 and applies to financial institutions only with respect to the matters not specifically regulated by the intervention and extrajudicial liquidation regimes described above.

·the supplying to credit reference agencies of information based on data from the records of issuers of bank checks drawn on accounts without sufficient funds and defaulting debtors; and

·the occurrence or suspicion that criminal or administrative illegal acts have been performed, in which case the financial institutions and the credit card companies may provide the pertinent authorities with information relating to such criminal acts when necessary for the investigation of such acts.

 

Repayment of Creditors inComplementary Law 105/01 also allows the Brazilian Central Bank or the CVM to exchange information with foreign governmental authorities, provided that a Liquidation or Bankruptcy

In the event of extrajudicial liquidation or bankruptcy of a financial institution, creditors are paid pursuant to their priorities and privileges. Prepetition claims are paid on a ratable basis in the following order: labor credits; secured credits; tax credits; credits with special privileges; credits with general privileges; unsecured credits; contractual fines and pecuniary penalties for breach of administrative or criminal laws, including those of a tax nature; and subordinated credits.specific treaty has previously been executed.

 

The currentgovernment of the Federal Republic of Brazil and the government of the United States of America executed an agreement on March 20, 2007, by means of which these governments established rules for the exchange of information relating to tax, or the “2007 Agreement”. Under the 2007 Agreement, the Brazilian tax authority would be able to send information it receives by virtue of Section 5 of the Bank Secrecy Law to the U.S. tax authority.

Data Protection Requirements

The GDPA, or in Portuguese, “Lei Geral de Proteção de Dados”, was published in the Federal Official Gazette on August 15, 2018 and was amended by Law No. 13,853, issued on July 8, 2019 or “Law 13,853/2019”. The GDPA came into effect in September 2020, except for administrative sanctions, which will come into effect on August 1, 2021, pursuant to Law No. 14,010/20, which delayed the applicability of certain provisions of the GDPA.

Before the GDPA, Brazil lacked regulations specific to data privacy and a data protection authority. Despite this, privacy has been generally protected through the Federal Constitution, the Civil Code (Law No. 10,406 of January 10, 2002), the Consumer Protection Code (Law No. 8,078 of September 11, 1990) and the Civil Rights Framework for the Internet (Law No. 12,965 of April 23, 2014 and the Decree 8,771 of May 11, 2016, also known as the Internet Law).

The GDPA brings about profound changes in the rules and regulations applicable to the processing of personal data, with a set of rules to be complied with in activities such as the collection, processing, storage, use, transfer, sharing and erasure of information concerning identified or identifiable natural persons.

The GDPA has a wide range of applications and extends to individuals as well as private and public entities, regardless of the country where they are headquartered or where data are hosted, as long as (i) the data processing takes place in Brazil; (ii) the data processing activity is intended to offer or supply goods or services to, or to process data of individuals located in Brazil; or (iii) the subjects of the data are located in Brazil at the time their personal data are collected. The GDPA will apply irrespective of the industry or business when dealing with personal data and is not restricted to data processing activities performed through digital media and/or on the internet.

The GDPA sets out several rules related to data processing such as principles, requirements and duties imposed to data controllers and data processors; rights of data subjects; requirements in connection with cross-border transfers of data; the obligation to appoint a data protection officer; data security and data breach notification; corporate governance practices; and the regime for civil liabilities and penalties in case of a breach of the provisions of the GDPA. Penalties include warnings, blocking and erasure of data, public disclosure of the offense and fines of up to 2% of the economic group’s turnover in Brazil in the preceding year, capped at R$50 million per offense.

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Moreover, Law 13,853/2019 created the Brazilian National Data Protection Authority, or “ANPD”, which will have powers and responsibilities analogous to the European data protection authorities, exercising a triple role of (i) investigation, comprising the power to issue norms and procedures, deliberate on the interpretation of the GDPA and request information of controllers and processors; (ii) enforcement, in cases of noncompliance with the law, confers immunity from attachmentthrough an administrative process; and (iii) education, with the responsibility to disseminate information about and foster knowledge of compulsory deposits maintainedthe GDPA and security measures, fostering standards for services and products that facilitate control of data, and elaborating studies on national and international practices for the protection of personal data and privacy, among others.

The ANPD has been assured technical independence, although it is subordinated to the Presidency of the Republic. It will be composed of five commissioners, to be appointed by financialthe President of Brazil, and advised by a National Council for the Protection of Personal Data and Privacy, composed of 23 unpaid members.

Regulations on Cybersecurity

Financial institutions withmust follow certain cyber risk management and cloud outsourcing requirements which apply to the design and adaptation of internal controls. Policies and action plans to prevent and respond to cybersecurity incidents must be in place before May 2019, and fully compliant by December 2021. Data location and processing may occur inside or outside Brazil, but access to data stored abroad must be granted at all times to the Brazilian Central Bank. Such deposits may notBank for inspection purposes. The contracting of relevant processing services must be attached in actionscommunicated to the Brazilian Central Bank within 10 days from the execution of the agreement.

Auditing Requirements

The legislation and regulations issued by a bank’s general creditors for the repayment of debtsCMN, CVM and requireB3 determine that the assetsperiodic financial statements of any insolvent bank funded by loans made by foreign banks under trade finance lines be used to repay amounts owing under such lines in preference to those amounts owing to the general creditors of such insolvent bank.

Recovery Plans for Systematically Important Financial Institutions

Systemically important Brazilian financial institutions must implement a recovery plan (plano de recuperação),be audited by independent auditors (individuals or legal entities) that are registered with the aim of reestablishing adequate levels of capitalCVM and liquiditywho meet the minimum requirements set forth by the Brazilian Central Bank, and that the financial statements must be presented together with an independent auditor’s report. Our financial statements are audited in accordance with International Standards on Auditing with regard to preserveBrazilian GAAP and also with the viability of such institutions. The recovery plans must identify their critical functions for the National Financial System, adopt stress-testing scenarios, define clear and transparent governance procedures, assess possible barriers to the entity’s recovery, as well as implement effective communication plans with key stakeholders.

Deposit Insurance - FGC

The purposestandards of the FGC isPublic Company Accounting Oversight Board with regard to guarantee the payment of funds deposited with financial institutions in case of intervention, liquidation, bankruptcy or insolvency. The FGC is funded by ordinary contributions madeIFRS as issued by the financial institutions inIASB, as required by the amount of up to 0.0125%SEC. For purposes of the total amount of outstanding balances of the accounts correspondingfinancial statements prepared according to guaranteed obligations, and certain special contributionsBrazilian GAAP, as determined. Delay in performing such contributions is subject to a penalty of 2% over the amount of the contribution.

The total amount of credit in the form of demand deposits, savings deposits, time deposits, deposits maintained in accounts blocked for transactions with checks (for the registration and control of funds relating to the rendering of services of payment of salaries, earnings, pensions), bills of exchange, real estate bills, mortgage bills, real estate credit bills and repurchase and resale agreements whose objects are instruments issued after March 8, 2012 by a company of the same group due to each customer by a financial institution (or by financial institutions of the same financial group) will be guaranteed by the FGC for up to a maximum of R$250,000 per customer. When the assets of the FGC reach 2% of the total amounts they guarantee, the CMN may temporarily suspend or reduce the contribution of financial institutions to the FGC. As from February 2016, credits ofJanuary 2017 all financial institutions and other institutions authorized to operate by the Brazilian Central Bank complementary welfareare required to create provisions for all losses related to financial guarantees issued by them. As a result of the auditing work, the independent auditor must prepare the following reports: (i) an audit report, issuing an opinion regarding the accounting statements and the respective explanatory notes, including regarding the compliance with financial regulations issued by the CMN and the Brazilian Central Bank; (ii) an internal control system quality and adequacy evaluation report, including regarding electronic data processing and risk management systems, evidencing any identified deficiencies; (iii) a legal and regulatory provisions noncompliance report, regarding those which have, or may have, material impacts on the financial statements or on the audited financial institution’s operations; (iv) a limited assurance report, analyzing our Annual and Sustainability Report pursuant to the guidelines and requirements of the Global Reporting Initiative, or “GRI”; and (v) any other reports required by the Brazilian Central Bank, CVM and B3. The reports issued by independent auditors must be available for consultation upon request by the overseeing authorities.

Independent auditors and the audit committee, individually or jointly, must formally notify the Brazilian Central Bank of the existence or evidence of error or fraud, within three business days of the identification of the respective occurrence, including:

·noncompliance with legal rules and regulations that place the continuity of the audited entity at risk;

·frauds of any amount perpetrated by the management of the institution;

·material frauds perpetrated by the institution’s employees or third parties; and

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·errors that result in major incorrectness in the financial statements of the audited entity.

The executive office of the financial institution must inform the independent auditor and the audit committee, if any of the above situations occur.

CMN regulation also requires financial institutions and certain other entities insurance companies, capitalization companies, investment clubsholding Regulatory Capital equal to or greater than R$1 billion to create a corporate body designated as the “audit committee”. To obtain more information concerning the audit committee, see “Item 6. Directors, Senior Management and investment funds,Employees—C. Board Practices—Board Advisory Committees—Audit Committee.”

Internal Auditing of Financial Institutions

Financial institutions are required to establish and maintain internal audit activities compatible with their operational specifications, so that such internal bodies are able to perform an independent, autonomous and impartial audit of the quality and effectiveness of the institution’s internal systems. Such unit shall be directly controlled by the institution’s board of directors. Internal and external independent auditors are also liable for failures of the financial institution’s internal control mechanisms.

Socio-Environmental Responsibility Policy

Financial institutions are required to have a responsibility policy, which must guide the social and environmental actions in conducting their businesses, their relationship with their customers and other users of their products and services. The responsibility policy must also guide the financial institution’s relationship with its personnel and with any others affected by the financial institution’s activities. In addition, the responsibility policy must provide for the management of social and environmental risks (which, according to the Brazilian Central Bank, represent one of the several categories of risk to which financial institutions are exposed).

Policy for Succession of Financial Institutions Managers

Brazilian financial institutions and other institutions authorized to operate by the Brazilian Central Bank shall implement and maintain internal policies for succession of managers, applicable to higher levels of the institution’s management. The internal policy shall encompass the procedures related to recruitment, promotion, appointment and retention of managers in accordance with the institution’s rules for identification, evaluation, training and selection of the candidates to management offices.

Corporate Governance of Financial Institutions

Financial institutions must (i) remit to the Brazilian Central Bank information on the financial institution’s management, controlling group and relevant shareholders, including the obligation to communicate to the regulator any information that may affect the reputation of any such persons; (ii) make available a communication channel allowing employees, contributors, customers, users, associates, or services providers to report anonymously situations indicating illegalities of any nature related to the institution; and (iii) have an internal body responsible for receiving the information and complying with the reporting obligations.

Compliance Policy

Financial institutions must implement and maintain a compliance policy compatible with the nature, size, complexity, structure, risk profile and business model of the institution, which is intended to ensure an effective compliance risk management by the institution and may be established at the consolidated enterprise level (conglomerado prudencial). The compliance policy must establish the scope and purpose of the compliance function in the institution, set forth the organizational structure of the compliance function, specify which personnel is allocated to the compliance function, and establish a segregation of roles among personnel in order to avoid conflicts of interest.

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The compliance policy must be approved by the board of directors and the regulation also assigns to the board the responsibility to ensure the following: adequate management of the compliance policy throughout the institution, its effectiveness and continued application, its communication to all employees and services providers, as well as thosethe dissemination of the integrity and ethical standards as part of the institution’s culture. The board of directors is also responsible for ensuring the application of measures in case of noncompliance, and for providing the necessary means for the activities related to the compliance functions to be adequately conducted.

Consumer Protection

Relationships between consumers and financial institutions are governed by Law 8,078, dated September 11, 1990, or the “Brazilian Consumer Protection Code”, which grants consumers certain rights and sets forth measures to be observed by suppliers, which must be complied with by financial institutions. The Brazilian Consumer Protection Code sets forth as consumer rights, among others, the assistance/facilitation in the defense of consumers’ rights, including through reverse burden of proof in their favor, and possibility of judicial review of contractual provisions deemed abusive.

Furthermore, banking regulation establishes procedures that financial institutions must observe when contracting any transactions, as well as when rendering services. We may highlight the following as examples of said procedures:

·to timely provide the necessary information including rights, duties, responsibilities, costs or advantages, penalties and possible risks when carrying out a transaction or rendering a service to allow customers and users free choice and decision-making;

·to timely provide, to the customer or user, agreements, receipts, statements, advice and other documents related to the transactions and services, as well as the possibility of timely cancellation of the agreements;

·formalization of an adequate instrument setting forth the rights and obligations for opening, using and maintaining a postpaid payment account;

·to forward a payment instrument to the customers’ or users’ residence or to enable the respective instrument only upon express request or authorization; and

·identification of end users’ beneficiaries for payments or transfer in statements and bills of the payer, including in situations in which the payment service involves institutions participating in different payment arrangements.

Financial institutions operating exclusively via digital means are excluded from the scope of certain aspects of the regulation.

Policy for Relationship with Customers and Users of Financial Products and Services

Financial institutions and other institutions authorized to operate by the Brazilian Central Bank must have a policy governing the relationship with customers and users of financial products and services. In addition, such entities shall comply with the principles of ethics, liability, transparency and diligence promoting the convergence of interests and the consolidation of the institutional image of credibility, security and expertise.

Ombudsman

Financial institutions and other entities that are authorized to operate by the Brazilian Central Bank must have an ombudsman office. An ombudsman office has the following attributes according to the current regulation:

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·to provide last resort assistance in connection with customer claims that have not been resolved through the conventional customer service channels (including the banking correspondents and the customer service assistance channel (Serviço de Atendimento ao Consumidor), or SAC); and

·to act as a communication channel between the financial institutions and their customers, including for dispute resolution

Institutions that are part of a financial group are allowed to establish one ombudsman department to service the whole group. The officer in charge of the ombudsman office must prepare a report every six months, which must be provided to the management and auditing bodies. The reports and recordings of interactions of the ombudsman unit with consumers must be available to the Brazilian Central Bank for a period of at least five years.

Investment Funds Industry Regulation

Investment funds are subject to the regulation and supervision of the CMN and the CVM and, in certain specific matters, the Brazilian Central Bank. Investment funds may be managed by full-service banks, commercial banks, savings banks, investment banks, credit, financing and investment companies and brokerage and dealer companies within certain operational limits.

Investment funds may invest in any type of financial instrument available in the financial and capital markets, including, for example, fixed income instruments, stocks, debentures and derivative products, provided that, in addition to the denomination of the fund, a reference to the relevant type of fund is included.

Broker-Dealer Regulation

Broker and dealer firms are part of the national financial system and are subject to CMN, Brazilian Central Bank and CVM regulation and supervision. Brokerage firms must be chartered by the Brazilian Central Bank and are the only institutions in Brazil authorized to trade on stock exchanges. Both brokers and dealers may act as underwriters in the public placement of securities and engage in the brokerage of foreign currency in any exchange market.

Since August 29, 2019, securities brokers and dealers may loan their own securities to their customers as long as they use the funds as collateral for operations in which the institution itself intermediates. The loan transaction consists of the transfer of assets from the institution: (i) to the customer, in conjunction with the transfer of that asset to the clearinghouse or clearing and settlement service provider; or (ii) to the clearinghouse or clearing and settlement service provider on behalf of the customer through powers established in a formal written power of attorney. In either case, the assets or set of assets in question shall return to the positions originally held at the end of the period stipulated in the contract. To offer this new service, securities brokers and dealers must appoint a director responsible for the loan operations under consideration.

Since November 27, 2020, securities brokers and dealers may issue electronic currency and maintain payment accounts.

Foreign Exchange Market

Transactions involving the sale and purchase of foreign currency in Brazil may be conducted only by institutions duly authorized by the Brazilian Central Bank to operate in the foreign exchange market. There is no current limit to long or short positions in foreign currency for banks authorized to carry out transactions on the foreign exchange market. Other institutions within the national financial system are not allowed to have short positions in foreign currency, although there are no limits with respect to foreign exchange long positions.

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The Brazilian Central Bank imposes a limit on the total exposure in foreign currency transactions and transactions subject to foreign exchange fluctuation undertaken by Brazilian financial institutions, including branches abroad, and their direct and indirect affiliates. The limit is currently equivalent to 30.0% of the financial institution’s Regulatory Capital (Patrimônio de Referência), on a consolidated basis. The CMN, the Brazilian Central Bank and the Brazilian government may change the regulation applicable to foreign currency and foreign exchange transactions undertaken by Brazilian financial institutions in accordance with Brazil’s economic policy (including its foreign exchange policy).

On October 7, 2019, the Brazilian Central Bank, sent to the President of Brazil a draft bill to change the way in which the Brazilian foreign exchange market is regulated (“New Foreign Exchange Bill”). The draft also contains provisions regarding Brazilian capital abroad and foreign capital within Brazil. The initiative aims to modernize, simplify and reduce legal doubts associated with current Brazilian foreign exchange legislation.

The main aspects of the New Foreign Exchange Bill are: (i) ratification, at the legal level, that foreign exchange transactions may be carried out freely (provided such transactions are carried out by entities authorized to operate in this market and subject to applicable rules); (ii) granting of broad powers to the CMN and the Brazilian Central Bank to regulate the foreign exchange market and foreign exchange operations; (iii) expansion of international correspondence activities by Brazilian banks; (iv) possibility of Brazilian financial institutions investing and lending abroad funds that have been raised in Brazil or abroad; (v) the exclusion from its scope of foreign currency purchase and sale operations of up to US$1,000 carried out between individuals on an occasional and non-professional basis; and (vi) the granting of powers to the monetary authorities to establish situations in which the prohibition of the private offset of credits between residents and nonresidents, as well as payments in foreign currency in Brazil, would not apply.

On December 22, 2020, the Brazilian House of Representatives approved the base wording of the New Foreign Exchange Bill. The Brazilian House of Representatives is expected to vote on any motions by representatives for amendment or redaction of specific sections of the New Foreign Exchange Bill in early 2021. Upon approval by the Brazilian House of Representatives, the bill will be sent to the Brazilian Senate for approval. As of the date of this annual report, it is not possible to estimate if and when it will be approved by the Brazilian Senate, or what changes will be approved by the House of Representatives.

Foreign Investment in Brazilian Financial Institutions

According to the Brazilian federal constitution, the acquisition of equity interests by foreign individuals or legal entities in the capital stock of Brazilian financial institutions is forbidden, unless permitted by bilateral international treaties or by the Brazilian government by means of a presidential decree. A presidential decree issued on November 13, 1997, issued in respect of Banco Meridional do Brasil S.A. (our legal predecessor) allows 100% foreign participation in our capital stock. Foreign investors may acquire the shares issued by Santander Brasil as a result of this decree. In addition, foreign investors may acquire publicly traded nonvoting shares of Brazilian financial institutions traded on a stock exchange or securities depositary receipts offered abroad representing shares without specific authorization.

Following the enactment of Decree No. 10,029, the Brazilian Central Bank published, on January 22, 2020, Circular No. 3,977 recognizing as an interest of the Brazilian government the foreign holding of equity or increase in equity interest of financial institutions headquartered in Brazil (which is still subject to the same requirements and procedures applicable to the acquisition of equity in any Brazilian financial institution), as well as the opening of local branches of foreign financial institutions. However, since Santander Brasil had already been granted a specific presidential decree authorizing the foreign interest in its share capital, prior to Decree 10,029/19 being issued it does not affect its operations in Brazil.

A foreign financial institution duly authorized to operate in Brazil through a branch or a subsidiary is subject to the same rules, regulations and requirements that are applicable to any Brazilian financial instrument heldinstitution.

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Bank Correspondents

Financial institutions are allowed to provide specific services to customers, including customer services, through other entities. These entities are called “bank correspondents” and the relationship between the financial institution and the bank correspondent is ruled by a specific regulation published by CMN and is subject to the supervision of the Brazilian Central Bank.

Regulation of Branches

Authorization by the Brazilian Central Bank is required for operations of branches or subsidiaries of Brazilian financial institutions, upon the compliance with certain term, capital and equity requirements, as well as the submission of an economic and financial feasibility analysis.

The Brazilian Central Bank’s prior authorization is also required in order to: (i) allocate new funds to branches or subsidiaries abroad; (ii) subscribe capital increases, directly or indirectly, in subsidiaries abroad; (iii) increase equity participation, directly or indirectly, in subsidiaries abroad; and/or (iv) merge or spin off, directly or indirectly, subsidiaries abroad.

The Brazilian Central Bank determines that financial institutions can install the following establishments in Brazil: (i) branches, (ii) teller booths, (iii) automatic teller machines, and (iv) segregated administrative units, provided that, for items (i) to (iii), conformity with requirements of minimum capital and operating limits are necessary.

Cayman Islands Banking Regulation

We have a branch in the Cayman Islands with its own staff and representative officers. Banco Santander (Brasil) S.A. – Grand Cayman Branch is licensed under The Banks and Trust Companies Law (2013 Revision) of the Cayman Islands, or the “Banks and Trust Companies Law,” as a Category “B” Bank and it is duly registered as a Foreign Company with the Registrar of Companies in the Cayman Islands. The branch, therefore, is duly authorized to carry on banking business in the Cayman Islands. The branch was authorized by the local authorities to act as its own registered office and it is located at the Waterfront Centre Building, 28, North Church Street – 2nd floor, George Town, Grand Cayman, Cayman Islands, P.O. Box 10444 – KYI-1004, Phone: 1-345-769-4401 and Fax: 1-345-769-4601.

Our Grand Cayman Branch is currently engaged in the business of sourcing funds in the international banking and capital markets to provide credit lines for us, which are then extended to our customers for working capital and trade-related financings. It also takes deposits in foreign currency from corporate and individual customers and extends credit to Brazilian and non-Brazilian customers, mainly to support trade transactions with Brazil. The results of the operations of the Grand Cayman Branch are consolidated in our consolidated financial statements.

Banks and trust companies wishing to conduct business from within the Cayman Islands must be licensed by the Cayman Islands Monetary Authority under the Banks and Trust Companies Law, irrespective of whether the business is to be actually conducted in the Cayman Islands.

Under the Banks and Trust Companies Law, there are two main categories of banking license: a category “A” license, which permits unrestricted domestic and offshore banking business, and a category “B” license, which permits principally offshore banking business. The holder of a category “B” license may have an office in the Cayman Islands and conduct business with other licensees and offshore companies but, except in limited circumstances, may not do banking business locally with the public or residents of the Cayman Islands. We have an unrestricted category “B” license.

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There are no specific ratio or liquidity requirements under the Banks and Trust Companies Law, but the Cayman Islands Monetary Authority will expect observance of prudent banking practices, and the Banks and Trust Companies Law imposes a minimum net worth requirement of an amount equal to CI$400,000 (or, in the case of licensees holding a restricted category “B” or a restricted trust license, CI$20,000). As of December 31, 2020, CI$1 was equivalent to R$6.29, according to the Brazilian Central Bank.

Luxembourg Banking Regulation

Branches of credit institutions from outside the European Union (“non-EU credit institutions”) must be licensed by the Luxembourg Minister of Finance under the law of 5 April 1993 on the financial sector, as amended, in order to operate in Luxembourg.

We have a branch in Luxembourg with its own staff and representative officers. Our Luxembourg branch is licensed as a Luxembourg branch of a non-EU credit institution and is duly registered with the Luxembourg Trade and Companies’ Registry. The branch, therefore, is duly authorized to carry on banking business in Luxembourg. Its registered offices are at 35F, avenue J.F. Kennedy, 2nd floor, L-1855 Luxembourg, Grand Duchy of Luxembourg.

Our Luxembourg branch is currently engaged in the business of sourcing funds in the international banking and capital markets to provide credit lines for us, which are then extended to our customers for working capital and trade-related financings. It also takes deposits in foreign currency from corporate and individual customers and extends credit to Brazilian and non-Brazilian customers, mainly to support trade transactions involving Brazil. The results of the operations of the Luxembourg branch are consolidated in our consolidated financial statements.

Luxembourg law requires the Luxembourg branch to have a minimum endowment capital of €8,700,000 and the solvency, and liquidity requirements deriving, among others, from EU Regulation No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms apply to it.

Foreign Subsidiary

We had established an independent subsidiary in Spain, Santander EFC, in order to complement our foreign trade strategy for corporate customers, which are composed of large Brazilian companies and their operations abroad. This has allowed us to provide financial products and services by means of an offshore entity, which is not established in a “tax haven,” such as our Cayman Islands branch, in accordance with Law No. 12,249, of June 11, 2010, and Brazilian Federal Revenue Normative Ruling No. 1,037, of June 4, 2010.

The establishment of our foreign subsidiary was approved by the Brazilian Central Bank on September 26, 2011, by the Spanish Ministerio de Economia y Hacienda on February, 6, 2012 and by the Bank of Spain on March 28, 2012. The remittance of resources to pay up the share capital of the subsidiary was carried out on March 5, 2012, totaling €748 million. Santander EFC was operational from 2012 to November 12, 2020, when we approved its liquidation. As a consequence of the liquidation, we, as sole shareholder of Santander EFC, have participated in the net assets of the corporation, in the net amount of €741 million.

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U.S. Banking Regulation

Financial Regulatory Reform

Banking statutes and regulations are continually under review by the United States Congress. In addition to laws and regulations, the U.S. bank regulatory agencies may issue policy statements, interpretive letters and similar written guidance. Many changes have occurred as a result of the 2010 Dodd-Frank Act and its implementing regulations, most of which are now in place. In 2017, the President of the United States issued an executive order that sets forth principles for financial regulatory reform. In May 2018, the United States Congress passed, and President Trump signed into law the Economic Growth, Regulatory Relief, and Consumer Protection Act (“EGRRCPA”) which, among other things, revised the thresholds for total consolidated assets at which certain enhanced prudential standards apply to bank holding companies. EGRRCPA made clear that the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”) retains the right to apply enhanced prudential standards to FBOs with greater than $100 billion in global total consolidated assets, such as Santander Spain.

In October 2019, the federal banking agencies issued final rules (the “Tailoring Rules”) that, pursuant to EGRRCPA, adjust the thresholds at which certain enhanced prudential standards and capital and liquidity requirements apply to certain banking organizations, including large FBOs such as Santander Spain. As a result, Santander Spain is now generally subject to less restrictive enhanced prudential standards and capital and liquidity requirements than under previously applicable regulations.

Volcker Rule

Section 13 of the U.S. Bank Holding Company Act of 1956, as amended, and its implementing rules (collectively, the “Volcker Rule”) prohibits “banking entities” from engaging in certain forms of proprietary trading or from sponsoring or investing in “covered funds,” in each case subject to certain exceptions. The Volcker Rule also limits the ability of banking entities and their affiliates to enter into certain transactions with covered funds with which they or their affiliates have certain relationships. Banking entities such as Santander Brasil and Santander Spain were required to bring their activities and investments into compliance with the requirements of the Volcker Rule by the end of the conformance period applicable to each requirement. Santander Spain has assessed how the Volcker Rule affects its businesses and subsidiaries, including Santander Brasil, and has brought its activities into compliance. Santander Brasil has adopted processes to establish, maintain, enforce, review and test the compliance program designed to achieve and maintain compliance with the Volcker Rule. The Volcker Rule contains exclusions and certain exemptions for market-making, hedging, underwriting, trading in U.S. government and agency obligations, as well as certain foreign government obligations, and trading solely outside the United States, and also permits certain ownership interests in certain types of funds to be retained. Santander Spain’s non-U.S. banking organization subsidiaries, including Santander Brasil, are largely able to continue their activities outside the United States in reliance on the “solely outside the U.S.” exemptions from the Volcker Rule. Those exemptions generally exempt proprietary trading, and sponsoring or investing in covered funds if, among other restrictions, the essential actions take place outside the United States and any transactions are not with U.S. persons.

On July 21, 2017, the five regulatory agencies charged with implementing the Volcker Rule announced the coordination of reviews of the treatment of certain foreign funds that are investment funds organized and offered outside the United States and that are excluded from the definition of covered fund under the agencies’ implementing regulations. Also in July 2017, the Federal Reserve issued guidelines for banking entities seeking an extension to conform certain “seeding” investments in covered funds to the requirements of the Volcker Rule.

As of October 2019, the five regulatory agencies charged with implementing the Volcker Rule finalized amendments to the Volcker Rule. These amendments tailor the Volcker Rule’s compliance requirements to the amount of a firm’s trading activity, revise the definition of trading account, clarify certain key provisions in the Volcker Rule, and modify the information companies are required to provide the federal agencies. Santander Brasil will still largely rely on the “solely outside the U.S. exemption” to conduct its trading activities.

In early 2020, the five federal agencies proposed additional amendments to the Volcker Rule related to the restrictions on ownership interests in and relationships with covered funds. Santander Spain will continue to monitor these Volcker Rule-related developments and assess their impact on its operations, including those of Santander Brasil, as necessary.

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U.S. Anti-Money Laundering, Anti-Terrorist Financing, and Foreign Corrupt Practices Act Regulations

Santander Brasil, as a foreign private issuer whose securities are registered under the Exchange Act, is subject to the U.S. Foreign Corrupt Practices Act, or the “FCPA”. The FCPA generally prohibits such issuers and their directors, officers, employees and agents from using any means or instrumentality of U.S. interstate commerce in furtherance of any offer or payment of money to any foreign official or political party for the purpose of influencing a decision of such person in order to obtain or retain business. It also requires that the issuer maintain books and records and a system of internal accounting controls sufficient to provide reasonable assurance that accountability of assets is maintained and accurate financial statements can be prepared. Penalties, fines and imprisonment of Santander Brasil’s officers and/or directors can be imposed for violations of the FCPA.

Furthermore, Santander Brasil is subject to a variety of U.S. anti-money laundering and anti-terrorist financing laws and regulations, such as the Bank Secrecy Act of 1970, as amended, and the USA Patriot Act of 2001, as amended, and a violation of such laws and regulations may result in substantial penalties, fines and imprisonment of Santander Brasil’s officers and/or directors.

U.S. Sanctions

“Sanction(s)” means any international economic sanction administered or enforced by the United States government (including without limitation, OFAC), the United Nations Security Council, the European Union or Her Majesty’s Treasury. The Office of Foreign Assets Control (“OFAC”) is responsible for administering economic sanctions imposed against designated foreign countries, governments, individuals and entities pursuant to various Executive Orders, statutes and regulations.

OFAC-administered sanctions take many different forms. For example, sanctions may include: (1) restrictions on U.S. persons’ trade with or investment in a sanctioned country, including prohibitions against direct or indirect imports from and exports to a sanctioned country and prohibitions on U.S. persons engaging in financial transactions relating to, making investments in, or providing investment-related advice or assistance to, a sanctioned country; and (2) blocking of assets of targeted governments or “specially designated nationals,” by prohibiting transfers of property subject to U.S. jurisdiction, including property in the possession or control of U.S. persons. Blocked assets, such as property and bank deposits, cannot be paid out, withdrawn, set off or transferred in any manner without a license from OFAC. In addition, non-U.S. persons can be liable for “causing” a sanctions violation by a U.S. person or can violate U.S. sanctions by exporting services from the United States to a sanctions target, for example by engaging in transactions with targets of U.S. sanctions denominated in U.S. dollars that clear through U.S. financial institutions (including through U.S. branches or subsidiaries of non-U.S. banks).

Failure to comply with applicable U.S. sanctions could have serious legal and reputational consequences, including significant civil monetary penalties and, in the most severe cases, criminal penalties.

In addition, the U.S. government has implemented various sanctions that target non-U.S. persons, including non-U.S. financial institutions, that engage in certain activities undertaken outside the United States and without the involvement of any U.S. persons (“secondary sanctions”) that involve Iran, North Korea, Russia, or Hezbollah or other persons designated by the United States under the Specially Designated Global Terrorist, or “SDGT,” sanctions program. If a non-U.S. financial institution were determined to have engaged in activities targeted by certain secondary U.S. sanctions or used proceeds produced by such entities,activities targeted, it could lose its ability to open or maintain correspondent or payable-through accounts with U.S. financial institutions, among other potential consequences.

Antitrust Regulation

According to the Brazilian antitrust law, actions that concentrate market share must be previously submitted to CADE for approval if the following criteria are met: (i) at least one of the groups involved in the deal has posted annual gross revenues or volume of business equal to or over R$750 million, in Brazil, in the year prior to the transaction; and (ii) at least another group has posted annual gross revenues or volume of business equal to or over R$75 million, in Brazil, in the year prior to the transaction. Closing of a transaction without CADE’s approval will subject the parties to fines ranging from R$60,000 to R$60 million.

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The Brazilian Central Bank will also examine certain corporate reorganizations and other acts involving two or more financial institutions not protectedonly considering their potential effects on the financial system and its stability but also any potential impacts regarding market concentration and competition. Upon approval of the transaction, the Brazilian Central Bank may establish certain restrictions and require that the financial institutions execute an agreement of market concentration control, pursuant to which the terms and conditions of the sharing of the efficiency gain resulting from the act shall be set forth.

In December 2018, the Brazilian Central Bank and CADE approved a joint normative act establishing procedures with the purpose of increasing efficiency for their respective actions regarding antitrust matters. Pursuant to the joint normative act, the authorities are authorized to share information for the purposes of their respective activities and carry out meetings with each other to discuss matters requiring the regulatory cooperation between both authorities.

Insolvency Laws Concerning Financial Institutions

Financial institutions are subject to the proceedings established by Law 6,024 of March 13, 1974, or “Law 6024”, which establishes the applicable provisions in the event of intervention or extrajudicial liquidation by the ordinary guaranteeBrazilian Central Bank, as well as to bankruptcy proceedings.

Intervention and extrajudicial liquidation occur when the Brazilian Central Bank has determined that the financial institution is in bad financial condition or upon the occurrence of FGC. In December 2017,events that may impact the CMN enacted a new rule amending certain provisionscreditors’ situation. Such measures are imposed by the Brazilian Central Bank in order to avoid the bankruptcy of the FGC regulation amongentity.

Intervention

An intervention can be carried out at the discretion of the Brazilian Central Bank in the following cases:

·risk to the creditors due to mismanagement;

·consistent violation of Brazilian banking laws or regulations; or

·if the intervention is a feasible alternative to the liquidation of the financial institution.

As of the date on which includesit is ordered, the establishmentintervention will automatically suspend the enforceability of the payable obligations; prevent early termination or maturity of any previously contracted obligations; and freeze deposits existing on the date on which the intervention is decreed.

The intervention will cease if interested parties undertake to continue the economic activities of the financial institution, by presenting the necessary guarantees, as determined by the Brazilian Central Bank, when the situation of the entity is regularized as determined by the Brazilian Central Bank; or when extrajudicial liquidation or bankruptcy of the entity is ordered.

Intervention may also be ordered upon the request of a limit of R$1 million per four-year period forfinancial institution’s management.

Extrajudicial Liquidation

Extrajudicial liquidation is an administrative proceeding decreed by the coverageBrazilian Central Bank (except that it is not applicable to financial institutions controlled by the Brazilian federal government) and conducted by a liquidator appointed by the Brazilian Central Bank. This extraordinary measure aims at terminating the activities of the creditsaffected financial institution, liquidating its assets and paying its liabilities, as in a judicially decreed bankruptcy. The Brazilian Central Bank will place a financial institution in extrajudicial liquidation if:

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·the institution’s economic or financial situation is at risk, particularly when the institution ceases to meet its obligations as they become due, or upon the occurrence of an event that could indicate a state of insolvency under the rules of the Bankruptcy Law;

·management seriously violates Brazilian banking laws, regulations or rulings;

·the institution suffers a loss which subjects its unprivileged and unsecured creditors to severe risk; and/or

·upon revocation of the authorization to operate, the institution does not initiate ordinary liquidation proceedings within 90 days or, if initiated, the Brazilian Central Bank determines that the pace of the liquidation may harm the institution’s creditors.

A request for liquidation procedures can also be filed on reasonable grounds by the officers of the respective financial institution or by the receiver appointed by the Brazilian Central Bank in the receivership procedure.

The decree of extrajudicial liquidation will: (i) suspend the actions or foreclose on rights and interests relating to the estate of the entity being liquidated, while no other actions or executions may be brought during the liquidation; (ii) accelerate the obligations of the entity; and (iii) interrupt the statute of limitations with regard to the obligations assumed by the institution.

Extrajudicial liquidation procedures may be terminated:

·by discretionary decision of the Brazilian Central Bank if the parties involved undertake the administration of the financial institution after having provided the necessary guarantees; or

·when the final accounts of the receiver are delivered and approved and subsequently registered in the relevant public records; or

·when converted into ordinary liquidation; or

·when a financial institution is declared bankrupt.

Temporary Special Administration Regime (Regime de Administração Especial Temporária or “RAET”)

In addition to the intervention procedures described above, the Brazilian Central Bank may also establish a RAET, under Law 9447, dated March 14, 1997 combined with Law 6,024/74, which is a less severe form of the Brazilian Central Bank intervention in private and nonfederal public financial institutions that allows institutions to continue to operate normally. The RAET may be ordered in the case of an institution that:

·continually enters into recurrent operations that are against economic or financial policies set forth in federal law;

·faces a shortage of assets;

·fails to comply with the compulsory reserves rules;

·reveals the existence of hidden liabilities;

·experiences the occurrence of situations that cause receivership pursuant to current legislation;

·has reckless or fraudulent management; or

·carries out activities which call for an intervention.

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The main objective of a certain creditor againstRAET is to assist the grouprecovery of associatedthe financial institutions.condition of the institution under special administration and thereby avoid intervention and/or liquidation. Therefore, a RAET does not affect the day-to-day business, operations, liabilities or rights of the financial institution, which continues to operate in the ordinary course of business. Measures which may be adopted by the institution include the transfer of assets, rights and obligations to other entities, and corporate restructuring of these entities, with a view to the continuity of the institution’s business or activities.

 

Amendments toThere is no minimum term for a RAET, which ceases upon the Administrative Proceedings inoccurrence of any of the following events: (i) acquisition by the Brazilian National Financial System,federal government of control of the Brazilian Payment System and Capital Markets

Law 13,506 applies to entities authorizedfinancial institution, (ii) corporate restructuring, merger, spinoff, amalgamation or supervisedtransfer of the controlling interest of the financial institution, (iii) decision by the Brazilian Central Bank, or by the CVM, as well as to market participants. Some(iv) declaration of the key aspectsextrajudicial liquidation of Law 13,506 are that: (i) it increases

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the maximum fine applicable by the Brazilian Central Bank from R$250,000 to R$2 billion or 0.5% of the revenues of the company arising from services and financial products in the year prior to the violation; (ii) it increases the maximum fine applicable by the CVM from R$500,000 to R$50 million; (iii) it makes additional types of violations subject to penalties; (iv) it provides that the penalty of “public admonition” may be cumulative to other penalties applicable by the Brazilian Central Bank; (v) it provides that Brazilian Central Bank may enter into cease-and-desist commitments; and (vi) it provides that the Brazilian Central Bank and the CVM may enter into administrative agreements similar to leniency agreements.

Opening, Maintenance and Closing of Deposit Accounts

CMN Resolution No. 4,753 provides criteria for the opening, maintenance and closing of deposit accounts. The regulation determines that financial institutions must adopt procedures and controls that allow the verification and validation of the identity and qualification of the account holders and, if applicable, their representatives, as well as the authenticity of the information provided by the client. This information must be kept updated by the financial institution.

 

The rule also requires financial institutions to ensure, through the procedures and technology used for the opening, maintaining and closing of deposit accounts, the integrity authenticity and confidentiality, as well as the protection against unauthorized access, use, alteration, reproduction and destruction, of the information and the electronic documents used by them during the process.

Issuance of Credit Instruments Electronically

Provisional Measure No. 897 (“MP 897/2019”) among other provisions, (i) created a new credit instrument, the Rural Real Estate Note (Cédula Imobiliária Rural or “CIR”), with the purpose of advancing rural real estate financing by the creation of an instrument specifically designed to that end; (ii) changed the rules governing Bank Deposit Certificates (Certificado de Depósito Bancário or “CDB”), especially regarding their issuance and the transfer of their ownership, by providing among other changes that CDB issued in book-entry form should be transferred by electronic endorsement, exclusively by means of a specific notation in the issuing institution's own electronic system or, when deposited in central depositary, by means of specific notation in the corresponding electronic system; and (iii) authorized that customary credit instruments such as the Agricultural Certificate of Deposit (Certificado de Depósito do Agronegócio - CDA), the Agricultural Warrant (Warrant Agropecuário - WA), the Real Estate Credit Certificate (Certificado de Crédito Imobiliário- CCI), the Bank Credit Note (Cédula de Crédito Bancário - CCB), the Rural Credit Note (Cédula de Crédito Rural - CCR) , the Rural Promissory Note (Nota Promissória Rural - NPR), the Rural Trade Bill (Duplicata Rural - DR), may be issued in book-entry form through the electronic bookkeeping system held at a financial institution or other entity authorized by the Central Bank to perform electronic bookkeeping activity.

Guidelines for Implementation of Open Banking in Brazil

The Brazilian Central Bank announced the initial guidelines for open banking regulation in Brazil through Notice No. 33,455 on April 25, 2019. Open Banking consists in the sharing of data and payment solutions by financial institutions and other authorized entities, upon customer’s authorization and via integration of information systems. Brazilian Central Bank has looked at open banking as an important tool for innovation in the financial market, making the banking industry more efficient and competitive.

The Brazilian open banking model will comprise financial institutions, payment institutions and other Brazilian Central Bank-licensed entities by making it possible to share, in a phased-in approach, (i) data on products and services, (ii) customer record data, and (iii) customer transaction data. Open banking will eventually cover the provision of payment services. The criteria and specifications of each phase will be specified by the Brazilian Central Bank on specific regulation and self-regulation yet to be issued. Within this context, Brazilian Central Bank-licensed entities opting to join the open banking ecosystem must share the information listed above with other participating institutions. At its inception the open banking model will only be compulsory for financial institutions belonging to prudential conglomerates in segments S1 and S2. With regard to customer data, customer authorization will always

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be required.

On November 28, 2019, the Brazilian Central Bank launched Public Consultation No. 73/2019, which ended on January 21, 2020, which disclosed the draft resolution to implement Open Banking in Brazil to the public, so as to collect comments and suggestions on the proposed resolution. Among other topics, the draft resolution deals with the duties and responsibilities of participants and the minimum requirements for the operationalization of the system. According to the draft, financial institutions and prudential conglomerates belonging to the S1 and S2 segments, as is the case of Santander Brasil, are required to participate in Open Banking.

Regulatory Sandbox

 

On November 28, 2019, the Brazilian Central Bank published Public Consultation No. 72/2019, which ended on January 31, 2020, regarding the Controlled Testing Environment for Financial Innovations (“Sandbox”)or “Sandbox” which is intended to enable institutions test innovative financial and payment projects for a specified period. The draft resolution released by

After receiving comments on the Public Consultation, the CMN and the Brazilian Central Bank establishesissued, on November 26, 2020, CMN Resolution 4,865/20 and BCB Resolution 29/20, to regulate the Sandbox These rules set forth the applicable conditions for the implementation of the Sandbox, among which are the specific rules for the first cycle of tests, such as duration and number of participants, required documentation, criteria for the classification of institutions and the schedule for registration, selection and authorization processes of such entities. The Brazilian Central Bank expects that the process for selecting the first cycle will start in the first half of 2021.

Treatment of Overdue Debts

The Brazilian Central Bank requires financial institutions to classify credit transactions in accordance with their level of credit risk and to make provisions according to the level attributed to each transaction. Such credit classifications shall be determined in accordance with criteria set forth from time to time by the Brazilian Central Bank, relating to the conditions of the debtor and the guarantor and the transaction terms. Where there are several credit transactions involving the same customer, economic group or group of companies, the credit risk must be determined by analyzing the particular credit transaction of such customer or group that represents the greatest credit risk to the financial institution.

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Credit transactions of up to R$50,000 may be classified either by the financial institution’s own evaluation method or according to the number of days such transaction is past due, whichever is the more stringent. Credit classifications are required to be reviewed (i) monthly, in the event of a delay in the payment of any installment of principal or interest, in accordance with the maximum risk classifications; (ii) every six months, in the case of transactions involving the same customer, economic group or group of companies, the amount of which exceeds 5% of the adjusted net worth of the financial institution in question; and (iii) once every 12 months, in all circumstances, except in the case of credit transactions with a customer whose total liability is lower than R$50,000, the classification of which may be reviewed as provided above. Such R$50,000 limit may be amended by the Brazilian Central Bank from time to time.

The provisions set forth above are not applicable to our IFRS consolidated financial statements, which are based on the criteria described under “Item 5. Operating and Financial Review and Prospects—A. Operating Results—Critical Accounting Policies—Impairment Losses on Financial Assets.”

Regulation of the Transfer of Customer Data by Financial Institutions to Database Managers

Brazilian law regulates the formation and consultation of databases with information regarding performance, individuals or legal entities, for the formation of credit history. Resolution No. 4,737 determines that the history of the following operations should be provided: (i) credit operations; (ii) leasing operations; (iii) self-financing operations executed upon consortium groups; and (iv) other operations with characteristics of credit granting; and defines the criteria for the registration of database managers, such as the identification of the natural and legal persons that are part of the control group of the database manager.

Collection of Bank Fees

Bank services to individuals are divided into the following four groups: (i) essential services; (ii) priority services; (iii) special services; and (iv) specific or differentiated services.

Banks are not able to collect fees in exchange for supplying essential services to individuals with regard to checking accounts, such as (i) supplying a debit card; (ii) supplying 10 checks per month to account holders who meet the requirements to use checks, as per the applicable rules; (iii) supplying a second debit card (except in cases of loss, theft, damage and other reasons not caused by the bank); (iv) up to four withdrawals per month, which can be made at a branch of the bank, using checks or in ATM terminals; (v) supplying up to two statements describing the transactions during the month, to be obtained through ATM terminals; (vi) inquiries over the internet; (vii) up to two transfers of funds between accounts held by the same bank, per month, at a branch, through ATM terminals or over the internet; (viii) clearing checks; and (ix) supplying a consolidated statement describing, on a month-by-month basis, the fees charged over the preceding year with regard to checking accounts and savings accounts.

Certain services rendered to individuals with regard to savings accounts also fall under the category of essential services and therefore are exempt from the payment of fees. CMN prohibits banks from charging fees for supplying essential services in connection with deposit and savings accounts where customers agree to access and use their accounts by electronic means only (being authorized to charge fees for supplying essential services only when the customer voluntarily elects to obtain personal service at the banks’ branches or customer service locations).

Priority services are those rendered to individuals with regard to checking accounts, transfers of funds, credit transactions, leasing, standard credit cards, over-the-counter exchange transactions for the purchase or sale of foreign currency in respect of international travel, and records, and are subject to the collection of fees by the financial institutions only if the service and its nomenclature are listed in its regulations. Commercial banks must also offer to their individual customers a “standardized package” of priority services, whose content is defined, as well as the customers’ option to acquire individual services instead of adhering to the package.

The collection of fees in exchange for the supply of special services (including, among others, services relating to rural credit, currency exchange market and on lending of funds from the real estate financial system) is governed by the specific provisions found in the laws and regulations relating to such services. The regulation authorizes financial institutions to charge fees for the performance of specific services, provided either that the account holder or user is informed of the conditions for use and payment or that the fee and charging method are defined in the contract.

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It is worth pointing out: (i) the prohibition against charging fees in cases of adhesion contract amendments, except in the cases of asset replacement in leasing transactions, early liquidation or amortization, cancellation or termination; (ii) the prohibition against including services related to credit cards and other services not subject to fees in service packages that include priority, special and/or differentiated services; (iii) the requirement that subscription to service packages must be through a separate contract; (iv) the requirement that information given to the customer with respect to a service package must include the value of each service included in the package, the number of times that each service may be utilized per month, and the total price of the package; (v) the requirement that a customer’s annual banking statement must separately identify default interest, penalties and other costs charged on loans and leasing transactions; (vi) the requirement that registration fees cannot be cumulatively charged; and (vii) the requirement that overdraft fees can be charged, at most, once over the course of 30 days.

In addition, CMN regulations establish that all debits related to the collection of fees must be charged to a bank account only if there are sufficient funds to cover such debits in such account and thus forbid overdrafts caused by the collection of banking fees. Furthermore, a minimum of 30 days’ notice must precede any increase or creation of fees (except if related to credit card services, when a minimum of 45 days’ notice is required), while fees related to priority services and the “standardized package” can be increased only after 180 days from the date of the last increase (except if related to credit card services, when a minimum of 365 days’ notice is required) whereas reductions can take place at any time.

Late Payment Fees

The default payment fees charged by financial institutions, consumer credit companies (financeiras), and leasing companies are expressly limited to compensatory interest per day on the amount that is overdue, interest on arrears and fines on arrears.

Credit Cards

The banking regulations also have specific rules relative to the charging of credit card fees, the publication of information in the card invoices and the obligation to provide a package of basic services upon offering credit cards to customers. Credit card holders must pay monthly at least 15% of outstanding credit card balances. This minimum payment does not apply to credit cards with payment by means of direct payroll deductions.

Revolving credit for financings of credit card bills may only be extended to customers until the due date of the following credit card bill. After this term, financial institutions offer customers another product with conditions more favorable than the ones typically found in the credit card market. Banks are prohibited from offering this type of credit to customers who have already contracted one revolving credit for financing of credit card bills which were not repaid in a timely manner.

Payment Agents and Payment Arrangements

The regulation issued by the Brazilian Central Bank, determines, among other aspects: (i) consumer protection, anti-money laundering compliance and risk prevention systems that should be observed by payment agents and payment arrangers; (ii) the procedures for incorporation, organization, authorization and operation of payment agents, as well as transfer of shareholding control, subject to the Brazilian Central Bank’s prior approval; (iii) capital requirements; (iv) definition of arrangements excluded from the SPB; and (v) rules related to payment accounts, which are divided into prepaid and postpaid accounts and require the allocation of the totality of their balance to a special account at the Brazilian Central Bank or investment in government bonds.

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Portability of Credit Transactions

Financial institutions’ customers can transfer their credit transactions from one institution to another. Such transfers must comply with the specific rules established by the Brazilian Central Bank, including, among others, the requirement that the amount and term of the transaction in the receiving financial institution must not be higher than the amount due and term of the original transaction.

Digitalization of Documents and Record Keeping

Financial institutions and other institutions authorized to operate by the Brazilian Central Bank may keep in their records digital documents instead of physical documents, provided that certain requirements to ensure the documents’ authenticity and validity are met.

Anti-Money Laundering Regulations

Under the Brazilian Anti-Money Laundering Law, it is a crime to conceal or dissimulate the nature, origin, location, availability, transaction or ownership of assets, rights or amounts resulting, directly or indirectly, from any criminal offense, as well as their use in economic or financial activity and to participate in a group, association or office while being aware that its principal or secondary activities are directed toward the practice of such acts.

The Brazilian Anti-Money Laundering Law also created the Financial Activities Control Council (Conselho de Controle de Atividades Financeiras or “COAF”), which operates under the jurisdiction of the Ministry of Finance. The purpose of the COAF is to investigate, examine, identify and impose administrative sanctions in respect of any suspicious occurrences of illicit activities related to money laundering in Brazil.

The COAF is composed of individuals with recognized competence in this area, appointed by the Minister of Finance, all of whom are nominated by each of the following entities: (i) the Brazilian Central Bank; (ii) the CVM; (iii) the SUSEP; (iv) the National Treasury Attorney-General’s Office; (v) the Brazilian Federal Revenue; (vi) the Federal Intelligence Agency; (vii) the Ministry of Foreign Affairs; (viii) the Ministry of Justice; (ix) the Federal Police Department; (x) the Ministry of Social Security; and (xi) the General Comptroller’s Office, one of whom will be the president, which shall be appointed by the President of Brazil on the basis of recommendations by the Minister of Finance.

Financial institutions must maintain specific records of (i) the transactions in cash (deposit, withdrawal, withdrawal by means of a prepaid card or request of provision for withdrawal) so as to enable the identification of a deposit in cash, withdrawal in cash, withdrawal in cash by means of a prepaid card, or request of provision for withdrawal, of (a) an amount equal to or greater than R$100,000.00 or (b) that presents evidence of concealment or dissimulation of the nature, of the origin, of the location, of the disposal, of the movement or of the ownership of assets, rights and valuables; and (ii) the issuances of cashier’s checks, funds electronic transfers (TED) or of any other instrument of transfer of funds upon payment in cash, for an amount equal to or greater than R$100,000.00.

Financial institutions must maintain records of all operations, products and services contracted, including withdrawals, deposits, contributions, payments, receipts and transfers of funds. Additionally, the institutions must also keep specific records of (i) transactions in cash with an individual value greater than R$2,000.00; (ii) deposit or cash transactions of an individual value equal to or greater than R$50,000.00; and (iii) withdrawal transactions, including those carried out by check or money order, with an individual value equal to or greater than R$50,000.00.

The regulations also impose an obligation on financial institutions to request that both customers and non-customers a providing a withdrawal request at least three working days in advance for withdrawals (including those carried out by check or money order) in an amount equal to or greater than R$50,000.00.

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On January 23, 2020, the Brazilian Central Bank published Circular No. 3,978, which improves the regulation applicable to financial institutions, by expanding the adoption of a risk-based approach and came into effect on July 1, 2020. Regulated institutions must carry out specific internal risk assessments in order to identify and measure the risk of using their products and services in the practice of money laundering and terrorist funding.

In connection with the aforementioned change, the Know-Your-Client procedures were also improved and include the identification, qualification and classification of the customer, compatible with the risk profile, the nature of the relationship with the AML policy and the institution’s internal risk assessment, which must be permanently reassessed, according to the evolution of the business relationship and the risk profile of the client. The procedures must also include the verification of the client’s (including their representatives’, family members’ or close collaborators) condition as a Politically Exposed Individual, as well as consider them in the monitoring, selection and analysis of operations and situations with indications of suspected money laundering or terrorist funding.

On December 5, 2019, the CVM issued CVM Instruction No. 617, which establishes a new framework for the prevention of money laundering and the financing of terrorism in the Brazilian securities market. CVM Instruction No. 617 is in line with the practices currently implemented in the principal global securities markets, including with regard to the recommendations of the Financial Action Group against Money Laundering and the Financing of Terrorism (GAFI/FATF), as well as with the duties arising from Brazilian anti-money laundering laws.

Brazilian Anti-Corruption Law

Law No. 12,846/13 of August 1, 2013, or the “Brazilian Anti-Corruption Law” establishes that legal entities will have strict liability regardless of fault or willful misconduct for acts against the public administration carried out in their interest or for their benefit. The Law encompasses not only performance of acts of corruption but also performance of other injurious acts contrary to the Brazilian or foreign public administration.

Corporations that violate the Brazilian Anti-Corruption Law’s provisions will be subject to heavy penalties, some of which may be imposed through administrative proceedings and others solely through judicial channels. The Brazilian Anti-Corruption Law also creates a leniency program under which self-disclosure of violations and cooperation by corporations might result in the reduction of fines and other sanctions.

Politically Exposed Individuals

Financial institutions and other institutions authorized by the Brazilian Central Bank to operate must take certain actions and have certain controls in order to establish business relationships with and to follow up on the financial transactions of customers who are deemed to be politically exposed individuals (public agents and their immediate family members, spouses, life partners and stepchildren who occupy or have occupied a relevant public office or position over the past five years in Brazil or other countries, territories and foreign jurisdictions). The internal procedures developed and implemented for this purpose by financial institutions must be structured in such a way as to enable the identification of politically exposed individuals, as well as the origin of the funds involved in the transactions of such customers. One option is to verify the compatibility between the customer’s transactions and the net worth stated in such customer’s file.

Bank Secrecy

Brazilian financial and payment institutions shall also maintain the secrecy of their banking operations and services provided to their customers. The only circumstances in which information about customers, services or transactions of Brazilian financial and payment institutions may be disclosed to third parties are the following:

·the disclosure of information with the express consent of the interested parties;

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·the exchange of information between financial institutions for record purposes;

·the supplying to credit reference agencies of information based on data from the records of issuers of bank checks drawn on accounts without sufficient funds and defaulting debtors; and

·the occurrence or suspicion that criminal or administrative illegal acts have been performed, in which case the financial institutions and the credit card companies may provide the pertinent authorities with information relating to such criminal acts when necessary for the investigation of such acts.

Complementary Law 105/01 also allows the Brazilian Central Bank or the CVM to exchange information with foreign governmental authorities, provided that a specific treaty has previously been executed.

The government of the Federal Republic of Brazil and the government of the United States of America executed an agreement on March 20, 2007, by means of which these governments established rules for the exchange of information relating to tax, or the “2007 Agreement”. Under the 2007 Agreement, the Brazilian tax authority would be able to send information it receives by virtue of Section 5 of the Bank Secrecy Law to the U.S. tax authority.

Data Protection Requirements

The GDPA, or in Portuguese, “Lei Geral de Proteção de Dados”, was published in the Federal Official Gazette on August 15, 2018 and was amended by Law No. 13,853, issued on July 8, 2019 or “Law 13,853/2019”. The GDPA came into effect in September 2020, except for administrative sanctions, which will come into effect on August 1, 2021, pursuant to Law No. 14,010/20, which delayed the applicability of certain provisions of the GDPA.

Before the GDPA, Brazil lacked regulations specific to data privacy and a data protection authority. Despite this, privacy has been generally protected through the Federal Constitution, the Civil Code (Law No. 10,406 of January 10, 2002), the Consumer Protection Code (Law No. 8,078 of September 11, 1990) and the Civil Rights Framework for the Internet (Law No. 12,965 of April 23, 2014 and the Decree 8,771 of May 11, 2016, also known as the Internet Law).

The GDPA brings about profound changes in the rules and regulations applicable to the processing of personal data, with a set of rules to be complied with in activities such as the collection, processing, storage, use, transfer, sharing and erasure of information concerning identified or identifiable natural persons.

The GDPA has a wide range of applications and extends to individuals as well as private and public entities, regardless of the country where they are headquartered or where data are hosted, as long as (i) the data processing takes place in Brazil; (ii) the data processing activity is intended to offer or supply goods or services to, or to process data of individuals located in Brazil; or (iii) the subjects of the data are located in Brazil at the time their personal data are collected. The GDPA will apply irrespective of the industry or business when dealing with personal data and is not restricted to data processing activities performed through digital media and/or on the internet.

The GDPA sets out several rules related to data processing such as principles, requirements and duties imposed to data controllers and data processors; rights of data subjects; requirements in connection with cross-border transfers of data; the obligation to appoint a data protection officer; data security and data breach notification; corporate governance practices; and the regime for civil liabilities and penalties in case of a breach of the provisions of the GDPA. Penalties include warnings, blocking and erasure of data, public disclosure of the offense and fines of up to 2% of the economic group’s turnover in Brazil in the preceding year, capped at R$50 million per offense.

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Moreover, Law 13,853/2019 created the Brazilian National Data Protection Authority, or “ANPD”, which will have powers and responsibilities analogous to the European data protection authorities, exercising a triple role of (i) investigation, comprising the power to issue norms and procedures, deliberate on the interpretation of the GDPA and request information of controllers and processors; (ii) enforcement, in cases of noncompliance with the law, through an administrative process; and (iii) education, with the responsibility to disseminate information about and foster knowledge of the GDPA and security measures, fostering standards for services and products that facilitate control of data, and elaborating studies on national and international practices for the protection of personal data and privacy, among others.

The ANPD has been assured technical independence, although it is subordinated to the Presidency of the Republic. It will be composed of five commissioners, to be appointed by the President of Brazil, and advised by a National Council for the Protection of Personal Data and Privacy, composed of 23 unpaid members.

Regulations on Cybersecurity

Financial institutions must follow certain cyber risk management and cloud outsourcing requirements which apply to the design and adaptation of internal controls. Policies and action plans to prevent and respond to cybersecurity incidents must be in place before May 2019, and fully compliant by December 2021. Data location and processing may occur inside or outside Brazil, but access to data stored abroad must be granted at all times to the Brazilian Central Bank for inspection purposes. The contracting of relevant processing services must be communicated to the Brazilian Central Bank within 10 days from the execution of the agreement.

Auditing Requirements

The legislation and regulations issued by the CMN, CVM and B3 determine that the periodic financial statements of financial institutions must be audited by independent auditors (individuals or legal entities) that are registered with the CVM and who meet the minimum requirements set forth by the Brazilian Central Bank, and that the financial statements must be presented together with an independent auditor’s report. Our financial statements are audited in accordance with International Standards on Auditing with regard to Brazilian GAAP and also with the standards of the Public ConsultationCompany Accounting Oversight Board with regard to IFRS as issued by the IASB, as required by the SEC. For purposes of the financial statements prepared according to Brazilian GAAP, as from January 2017 all financial institutions and other institutions authorized to operate by the Brazilian Central Bank are required to create provisions for all losses related to financial guarantees issued by them. As a result of the auditing work, the independent auditor must prepare the following reports: (i) an audit report, issuing an opinion regarding the accounting statements and the respective explanatory notes, including regarding the compliance with financial regulations issued by the CMN and the Brazilian Central Bank; (ii) an internal control system quality and adequacy evaluation report, including regarding electronic data processing and risk management systems, evidencing any identified deficiencies; (iii) a legal and regulatory provisions noncompliance report, regarding those which have, or may have, material impacts on the financial statements or on the audited financial institution’s operations; (iv) a limited assurance report, analyzing our Annual and Sustainability Report pursuant to the guidelines and requirements of the Global Reporting Initiative, or “GRI”; and (v) any other reports required by the Brazilian Central Bank, CVM and B3. The reports issued by independent auditors must be available for consultation upon request by the overseeing authorities.

Independent auditors and the audit committee, individually or jointly, must formally notify the Brazilian Central Bank of the existence or evidence of error or fraud, within three business days of the identification of the respective occurrence, including:

·noncompliance with legal rules and regulations that place the continuity of the audited entity at risk;

·frauds of any amount perpetrated by the management of the institution;

·material frauds perpetrated by the institution’s employees or third parties; and

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·errors that result in major incorrectness in the financial statements of the audited entity.

The executive office of the financial institution must inform the independent auditor and the audit committee, if any of the above situations occur.

CMN regulation also requires financial institutions and certain other entities holding Regulatory Capital equal to or greater than R$1 billion to create a corporate body designated as the “audit committee”. To obtain more information concerning the audit committee, see “Item 6. Directors, Senior Management and Employees—C. Board Practices—Board Advisory Committees—Audit Committee.”

Internal Auditing of Financial Institutions

Financial institutions are required to establish and maintain internal audit activities compatible with their operational specifications, so that such internal bodies are able to perform an independent, autonomous and impartial audit of the quality and effectiveness of the institution’s internal systems. Such unit shall be directly controlled by the institution’s board of directors. Internal and external independent auditors are also liable for failures of the financial institution’s internal control mechanisms.

Socio-Environmental Responsibility Policy

Financial institutions are required to have a responsibility policy, which must guide the social and environmental actions in conducting their businesses, their relationship with their customers and other users of their products and services. The responsibility policy must also guide the financial institution’s relationship with its personnel and with any others affected by the financial institution’s activities. In addition, the responsibility policy must provide for the management of social and environmental risks (which, according to the Brazilian Central Bank, represent one of the several categories of risk to which financial institutions are exposed).

Policy for Succession of Financial Institutions Managers

Brazilian financial institutions and other institutions authorized to operate by the Brazilian Central Bank shall implement and maintain internal policies for succession of managers, applicable to higher levels of the institution’s management. The internal policy shall encompass the procedures related to recruitment, promotion, appointment and retention of managers in accordance with the institution’s rules for identification, evaluation, training and selection of the candidates to management offices.

Corporate Governance of Financial Institutions

Financial institutions must (i) remit to the Brazilian Central Bank information on the financial institution’s management, controlling group and relevant shareholders, including the obligation to communicate to the regulator any information that may affect the reputation of any such persons; (ii) make available a communication channel allowing employees, contributors, customers, users, associates, or services providers to report anonymously situations indicating illegalities of any nature related to the institution; and (iii) have an internal body responsible for receiving the information and complying with the reporting obligations.

Compliance Policy

Financial institutions must implement and maintain a compliance policy compatible with the nature, size, complexity, structure, risk profile and business model of the institution, which is intended to ensure an effective compliance risk management by the institution and may be established at the consolidated enterprise level (conglomerado prudencial). The compliance policy must establish the scope and purpose of the compliance function in the institution, set forth the organizational structure of the compliance function, specify which personnel is allocated to the compliance function, and establish a segregation of roles among personnel in order to avoid conflicts of interest.

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The compliance policy must be approved by the board of directors and the regulation also assigns to the board the responsibility to ensure the following: adequate management of the compliance policy throughout the institution, its effectiveness and continued application, its communication to all employees and services providers, as well as the dissemination of the integrity and ethical standards as part of the institution’s culture. The board of directors is also responsible for ensuring the application of measures in case of noncompliance, and for providing the necessary means for the activities related to the compliance functions to be adequately conducted.

Consumer Protection

Relationships between consumers and financial institutions are governed by Law 8,078, dated September 11, 1990, or the “Brazilian Consumer Protection Code”, which grants consumers certain rights and sets forth measures to be observed by suppliers, which must be complied with by financial institutions. The Brazilian Consumer Protection Code sets forth as consumer rights, among others, the assistance/facilitation in the defense of consumers’ rights, including through reverse burden of proof in their favor, and possibility of judicial review of contractual provisions deemed abusive.

Furthermore, banking regulation establishes procedures that financial institutions must observe when contracting any transactions, as well as when rendering services. We may highlight the following as examples of said procedures:

·to timely provide the necessary information including rights, duties, responsibilities, costs or advantages, penalties and possible risks when carrying out a transaction or rendering a service to allow customers and users free choice and decision-making;

·to timely provide, to the customer or user, agreements, receipts, statements, advice and other documents related to the transactions and services, as well as the possibility of timely cancellation of the agreements;

·formalization of an adequate instrument setting forth the rights and obligations for opening, using and maintaining a postpaid payment account;

·to forward a payment instrument to the customers’ or users’ residence or to enable the respective instrument only upon express request or authorization; and

·identification of end users’ beneficiaries for payments or transfer in statements and bills of the payer, including in situations in which the payment service involves institutions participating in different payment arrangements.

Financial institutions operating exclusively via digital means are excluded from the scope of certain aspects of the regulation.

Policy for Relationship with Customers and Users of Financial Products and Services

Financial institutions and other institutions authorized to operate by the Brazilian Central Bank must have a policy governing the relationship with customers and users of financial products and services. In addition, such entities shall comply with the principles of ethics, liability, transparency and diligence promoting the convergence of interests and the consolidation of the institutional image of credibility, security and expertise.

Ombudsman

Financial institutions and other entities that are authorized to operate by the Brazilian Central Bank must have an ombudsman office. An ombudsman office has the following attributes according to the current regulation:

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·to provide last resort assistance in connection with customer claims that have not been resolved through the conventional customer service channels (including the banking correspondents and the customer service assistance channel (Serviço de Atendimento ao Consumidor), or SAC); and

·to act as a communication channel between the financial institutions and their customers, including for dispute resolution

Institutions that are part of a financial group are allowed to establish one ombudsman department to service the whole group. The officer in charge of the ombudsman office must prepare a report every six months, which must be provided to the management and auditing bodies. The reports and recordings of interactions of the ombudsman unit with consumers must be available to the Brazilian Central Bank for a period of at least five years.

Investment Funds Industry Regulation

Investment funds are subject to the regulation and supervision of the CMN and the CVM and, in certain specific matters, the Brazilian Central Bank. Investment funds may be managed by full-service banks, commercial banks, savings banks, investment banks, credit, financing and investment companies and brokerage and dealer companies within certain operational limits.

Investment funds may invest in any type of financial instrument available in the financial and capital markets, including, for example, fixed income instruments, stocks, debentures and derivative products, provided that, in addition to the denomination of the fund, a reference to the relevant type of fund is included.

Broker-Dealer Regulation

Broker and dealer firms are part of the national financial system and are subject to CMN, Brazilian Central Bank and CVM regulation and supervision. Brokerage firms must be chartered by the Brazilian Central Bank and are the only institutions in Brazil authorized to trade on stock exchanges. Both brokers and dealers may act as underwriters in the public placement of securities and engage in the brokerage of foreign currency in any exchange market.

Since August 29, 2019, securities brokers and dealers may loan their own securities to their customers as long as they use the funds as collateral for operations in which the institution itself intermediates. The loan transaction consists of the transfer of assets from the institution: (i) to the customer, in conjunction with the transfer of that asset to the clearinghouse or clearing and settlement service provider; or (ii) to the clearinghouse or clearing and settlement service provider on behalf of the customer through powers established in a formal written power of attorney. In either case, the assets or set of assets in question shall return to the positions originally held at the end of the period stipulated in the contract. To offer this new service, securities brokers and dealers must appoint a director responsible for the loan operations under consideration.

Since November 27, 2020, securities brokers and dealers may issue electronic currency and maintain payment accounts.

Foreign Exchange Market

Transactions involving the sale and purchase of foreign currency in Brazil may be conducted only by institutions duly authorized by the Brazilian Central Bank to operate in the foreign exchange market. There is no current limit to long or short positions in foreign currency for banks authorized to carry out transactions on the foreign exchange market. Other institutions within the national financial system are not allowed to have short positions in foreign currency, although there are no limits with respect to foreign exchange long positions.

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The Brazilian Central Bank imposes a limit on the total exposure in foreign currency transactions and transactions subject to foreign exchange fluctuation undertaken by Brazilian financial institutions, including branches abroad, and their direct and indirect affiliates. The limit is currently equivalent to 30.0% of the financial institution’s Regulatory Capital (Patrimônio de Referência), on a consolidated basis. The CMN, the Brazilian Central Bank and the Brazilian government may change the regulation applicable to foreign currency and foreign exchange transactions undertaken by Brazilian financial institutions in accordance with Brazil’s economic policy (including its foreign exchange policy).

On October 7, 2019, the Brazilian Central Bank, sent to the President of Brazil a draft bill to change the way in which the Brazilian foreign exchange market is regulated (“New Foreign Exchange Bill”). The draft also contains provisions regarding Brazilian capital abroad and foreign capital within Brazil. The initiative aims to modernize, simplify and reduce legal doubts associated with current Brazilian foreign exchange legislation.

The main aspects of the New Foreign Exchange Bill are: (i) ratification, at the legal level, that foreign exchange transactions may be carried out freely (provided such transactions are carried out by entities authorized to operate in this market and subject to applicable rules); (ii) granting of broad powers to the CMN and the Brazilian Central Bank to regulate the foreign exchange market and foreign exchange operations; (iii) expansion of international correspondence activities by Brazilian banks; (iv) possibility of Brazilian financial institutions investing and lending abroad funds that have been raised in Brazil or abroad; (v) the exclusion from its scope of foreign currency purchase and sale operations of up to US$1,000 carried out between individuals on an occasional and non-professional basis; and (vi) the granting of powers to the monetary authorities to establish situations in which the prohibition of the private offset of credits between residents and nonresidents, as well as payments in foreign currency in Brazil, would not apply.

On December 22, 2020, the Brazilian House of Representatives approved the base wording of the New Foreign Exchange Bill. The Brazilian House of Representatives is expected to vote on any motions by representatives for amendment or redaction of specific sections of the New Foreign Exchange Bill in early 2021. Upon approval by the Brazilian House of Representatives, the bill will be sent to the Brazilian Senate for approval. As of the date of this annual report, it is not possible to estimate if and when it will be approved by the Brazilian Senate, or what changes will be approved by the House of Representatives.

Foreign Investment in Brazilian Financial Institutions

According to the Brazilian federal constitution, the acquisition of equity interests by foreign individuals or legal entities in the capital stock of Brazilian financial institutions is forbidden, unless permitted by bilateral international treaties or by the Brazilian government by means of a presidential decree. A presidential decree issued on November 13, 1997, issued in respect of Banco Meridional do Brasil S.A. (our legal predecessor) allows 100% foreign participation in our capital stock. Foreign investors may acquire the shares issued by Santander Brasil as a result of this decree. In addition, foreign investors may acquire publicly traded nonvoting shares of Brazilian financial institutions traded on a stock exchange or securities depositary receipts offered abroad representing shares without specific authorization.

Following the enactment of Decree No. 10,029, the Brazilian Central Bank published, on January 31, 2019,22, 2020, Circular No. 3,977 recognizing as an interest of the Brazilian government the foreign holding of equity or increase in equity interest of financial institutions headquartered in Brazil (which is still subject to the same requirements and procedures applicable to the acquisition of equity in any Brazilian financial institution), as well as the opening of this date,local branches of foreign financial institutions. However, since Santander Brasil had already been granted a specific presidential decree authorizing the foreign interest in its share capital, prior to Decree 10,029/19 being issued it does not affect its operations in Brazil.

A foreign financial institution duly authorized to operate in Brazil through a branch or a subsidiary is subject to the same rules, regulations and requirements that are applicable to any Brazilian financial institution.

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Bank Correspondents

Financial institutions are allowed to provide specific services to customers, including customer services, through other entities. These entities are called “bank correspondents” and the relationship between the financial institution and the bank correspondent is ruled by a specific regulation published by CMN and is subject to the supervision of the Brazilian Central Bank.

Regulation of Branches

Authorization by the Brazilian Central Bank is yetrequired for operations of branches or subsidiaries of Brazilian financial institutions, upon the compliance with certain term, capital and equity requirements, as well as the submission of an economic and financial feasibility analysis.

The Brazilian Central Bank’s prior authorization is also required in order to: (i) allocate new funds to receive contributionsbranches or subsidiaries abroad; (ii) subscribe capital increases, directly or indirectly, in subsidiaries abroad; (iii) increase equity participation, directly or indirectly, in subsidiaries abroad; and/or (iv) merge or spin off, directly or indirectly, subsidiaries abroad.

The Brazilian Central Bank determines that financial institutions can install the following establishments in Brazil: (i) branches, (ii) teller booths, (iii) automatic teller machines, and (iv) segregated administrative units, provided that, for items (i) to (iii), conformity with requirements of minimum capital and operating limits are necessary.

Cayman Islands Banking Regulation

We have a branch in the Cayman Islands with its own staff and representative officers. Banco Santander (Brasil) S.A. – Grand Cayman Branch is licensed under The Banks and Trust Companies Law (2013 Revision) of the Cayman Islands, or the “Banks and Trust Companies Law,” as a Category “B” Bank and it is duly registered as a Foreign Company with the Registrar of Companies in the Cayman Islands. The branch, therefore, is duly authorized to carry on banking business in the Cayman Islands. The branch was authorized by the local authorities to act as its own registered office and it is located at the Waterfront Centre Building, 28, North Church Street – 2nd floor, George Town, Grand Cayman, Cayman Islands, P.O. Box 10444 – KYI-1004, Phone: 1-345-769-4401 and Fax: 1-345-769-4601.

Our Grand Cayman Branch is currently engaged in the business of sourcing funds in the international banking and capital markets to provide credit lines for us, which are then extended to our customers for working capital and trade-related financings. It also takes deposits in foreign currency from various marketcorporate and individual customers and extends credit to Brazilian and non-Brazilian customers, mainly to support trade transactions with Brazil. The results of the operations of the Grand Cayman Branch are consolidated in our consolidated financial statements.

Banks and trust companies wishing to conduct business from within the Cayman Islands must be licensed by the Cayman Islands Monetary Authority under the Banks and Trust Companies Law, irrespective of whether the business is to be actually conducted in the Cayman Islands.

Under the Banks and Trust Companies Law, there are two main categories of banking license: a category “A” license, which permits unrestricted domestic and offshore banking business, and a category “B” license, which permits principally offshore banking business. The holder of a category “B” license may have an office in the Cayman Islands and conduct business with other licensees and offshore companies but, except in limited circumstances, may not do banking business locally with the public or residents of the Cayman Islands. We have an unrestricted category “B” license.

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There are no specific ratio or liquidity requirements under the Banks and Trust Companies Law, but the Cayman Islands Monetary Authority will expect observance of prudent banking practices, and the Banks and Trust Companies Law imposes a minimum net worth requirement of an amount equal to CI$400,000 (or, in the case of licensees holding a restricted category “B” or a restricted trust license, CI$20,000). As of December 31, 2020, CI$1 was equivalent to R$6.29, according to the Brazilian Central Bank.

Luxembourg Banking Regulation

Branches of credit institutions from outside the European Union (“non-EU credit institutions”) must be licensed by the Luxembourg Minister of Finance under the law of 5 April 1993 on the financial sector, as amended, in order to operate in Luxembourg.

We have a branch in Luxembourg with its own staff and representative officers. Our Luxembourg branch is licensed as a Luxembourg branch of a non-EU credit institution and is duly registered with the Luxembourg Trade and Companies’ Registry. The branch, therefore, is duly authorized to carry on banking business in Luxembourg. Its registered offices are at 35F, avenue J.F. Kennedy, 2nd floor, L-1855 Luxembourg, Grand Duchy of Luxembourg.

Our Luxembourg branch is currently engaged in the business of sourcing funds in the international banking and capital markets to provide credit lines for us, which are then extended to our customers for working capital and trade-related financings. It also takes deposits in foreign currency from corporate and individual customers and extends credit to Brazilian and non-Brazilian customers, mainly to support trade transactions involving Brazil. The results of the operations of the Luxembourg branch are consolidated in our consolidated financial statements.

Luxembourg law requires the Luxembourg branch to have a minimum endowment capital of €8,700,000 and the solvency, and liquidity requirements deriving, among others, from EU Regulation No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms apply to it.

Foreign Subsidiary

We had established an independent subsidiary in Spain, Santander EFC, in order to complement our foreign trade strategy for corporate customers, which are composed of large Brazilian companies and their operations abroad. This has allowed us to provide financial products and services by means of an offshore entity, which is not established in a “tax haven,” such as our Cayman Islands branch, in accordance with Law No. 12,249, of June 11, 2010, and Brazilian Federal Revenue Normative Ruling No. 1,037, of June 4, 2010.

The establishment of our foreign subsidiary was approved by the Brazilian Central Bank on September 26, 2011, by the Spanish Ministerio de Economia y Hacienda on February, 6, 2012 and by the Bank of Spain on March 28, 2012. The remittance of resources to pay up the share capital of the subsidiary was carried out on March 5, 2012, totaling €748 million. Santander EFC was operational from 2012 to November 12, 2020, when we approved its liquidation. As a consequence of the liquidation, we, as sole shareholder of Santander EFC, have participated in the net assets of the corporation, in the net amount of €741 million.

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U.S. Banking Regulation

Financial Regulatory Reform

Banking statutes and regulations are continually under review by the United States Congress. In addition to laws and regulations, the U.S. bank regulatory agencies may issue policy statements, interpretive letters and similar written guidance. Many changes have occurred as a result of the 2010 Dodd-Frank Act and its implementing regulations, most of which are now in place. In 2017, the President of the United States issued an executive order that sets forth principles for financial regulatory reform. In May 2018, the United States Congress passed, and President Trump signed into law the Economic Growth, Regulatory Relief, and Consumer Protection Act (“EGRRCPA”) which, among other things, revised the thresholds for total consolidated assets at which certain enhanced prudential standards apply to bank holding companies. EGRRCPA made clear that the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”) retains the right to apply enhanced prudential standards to FBOs with greater than $100 billion in global total consolidated assets, such as Santander Spain.

In October 2019, the federal banking agencies issued final rules (the “Tailoring Rules”) that, pursuant to EGRRCPA, adjust the thresholds at which certain enhanced prudential standards and capital and liquidity requirements apply to certain banking organizations, including large FBOs such as Santander Spain. As a result, Santander Spain is now generally subject to less restrictive enhanced prudential standards and capital and liquidity requirements than under previously applicable regulations.

Volcker Rule

Section 13 of the U.S. Bank Holding Company Act of 1956, as amended, and its implementing rules (collectively, the “Volcker Rule”) prohibits “banking entities” from engaging in certain forms of proprietary trading or from sponsoring or investing in “covered funds,” in each case subject to certain exceptions. The Volcker Rule also limits the ability of banking entities and their affiliates to enter into certain transactions with covered funds with which they or their affiliates have certain relationships. Banking entities such as Santander Brasil and Santander Spain were required to bring their activities and investments into compliance with the requirements of the Volcker Rule by the end of the conformance period applicable to each requirement. Santander Spain has assessed how the Volcker Rule affects its businesses and subsidiaries, including Santander Brasil, and has brought its activities into compliance. Santander Brasil has adopted processes to establish, maintain, enforce, review and test the compliance program designed to achieve and maintain compliance with the Volcker Rule. The Volcker Rule contains exclusions and certain exemptions for market-making, hedging, underwriting, trading in U.S. government and agency obligations, as well as certain foreign government obligations, and trading solely outside the United States, and also permits certain ownership interests in certain types of funds to be retained. Santander Spain’s non-U.S. banking organization subsidiaries, including Santander Brasil, are largely able to continue their activities outside the United States in reliance on the “solely outside the U.S.” exemptions from the Volcker Rule. Those exemptions generally exempt proprietary trading, and sponsoring or investing in covered funds if, among other restrictions, the essential actions take place outside the United States and any transactions are not with U.S. persons.

On July 21, 2017, the five regulatory agencies charged with implementing the Volcker Rule announced the coordination of reviews of the treatment of certain foreign funds that are investment funds organized and offered outside the United States and that are excluded from the definition of covered fund under the agencies’ implementing regulations. Also in July 2017, the Federal Reserve issued guidelines for banking entities seeking an extension to conform certain “seeding” investments in covered funds to the requirements of the Volcker Rule.

As of October 2019, the five regulatory agencies charged with implementing the Volcker Rule finalized amendments to the Volcker Rule. These amendments tailor the Volcker Rule’s compliance requirements to the amount of a firm’s trading activity, revise the definition of trading account, clarify certain key provisions in the Volcker Rule, and modify the information companies are required to provide the federal agencies. Santander Brasil will still largely rely on the “solely outside the U.S. exemption” to conduct its trading activities.

In early 2020, the five federal agencies proposed additional amendments to the Volcker Rule related to the restrictions on ownership interests in and relationships with covered funds. Santander Spain will continue to monitor these Volcker Rule-related developments and assess their impact on its operations, including those of Santander Brasil, as necessary.

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U.S. Anti-Money Laundering, Anti-Terrorist Financing, and Foreign Corrupt Practices Act Regulations

Santander Brasil, as a foreign private issuer whose securities are registered under the Exchange Act, is subject to the U.S. Foreign Corrupt Practices Act, or the “FCPA”. The FCPA generally prohibits such issuers and their directors, officers, employees and agents which willfrom using any means or instrumentality of U.S. interstate commerce in furtherance of any offer or payment of money to any foreign official or political party for the purpose of influencing a decision of such person in order to obtain or retain business. It also requires that the issuer maintain books and records and a system of internal accounting controls sufficient to provide reasonable assurance that accountability of assets is maintained and accurate financial statements can be prepared. Penalties, fines and imprisonment of Santander Brasil’s officers and/or directors can be imposed for violations of the FCPA.

Furthermore, Santander Brasil is subject to a variety of U.S. anti-money laundering and anti-terrorist financing laws and regulations, such as the Bank Secrecy Act of 1970, as amended, and the USA Patriot Act of 2001, as amended, and a violation of such laws and regulations may result in alterationssubstantial penalties, fines and imprisonment of Santander Brasil’s officers and/or directors.

U.S. Sanctions

“Sanction(s)” means any international economic sanction administered or enforced by the United States government (including without limitation, OFAC), the United Nations Security Council, the European Union or Her Majesty’s Treasury. The Office of Foreign Assets Control (“OFAC”) is responsible for administering economic sanctions imposed against designated foreign countries, governments, individuals and entities pursuant to various Executive Orders, statutes and regulations.

OFAC-administered sanctions take many different forms. For example, sanctions may include: (1) restrictions on U.S. persons’ trade with or investment in a sanctioned country, including prohibitions against direct or indirect imports from and exports to a sanctioned country and prohibitions on U.S. persons engaging in financial transactions relating to, making investments in, or providing investment-related advice or assistance to, a sanctioned country; and (2) blocking of assets of targeted governments or “specially designated nationals,” by prohibiting transfers of property subject to U.S. jurisdiction, including property in the possession or control of U.S. persons. Blocked assets, such as property and bank deposits, cannot be paid out, withdrawn, set off or transferred in any manner without a license from OFAC. In addition, non-U.S. persons can be liable for “causing” a sanctions violation by a U.S. person or can violate U.S. sanctions by exporting services from the United States to a sanctions target, for example by engaging in transactions with targets of U.S. sanctions denominated in U.S. dollars that clear through U.S. financial institutions (including through U.S. branches or subsidiaries of non-U.S. banks).

Failure to comply with applicable U.S. sanctions could have serious legal and reputational consequences, including significant civil monetary penalties and, in the most severe cases, criminal penalties.

In addition, the U.S. government has implemented various sanctions that target non-U.S. persons, including non-U.S. financial institutions, that engage in certain activities undertaken outside the United States and without the involvement of any U.S. persons (“secondary sanctions”) that involve Iran, North Korea, Russia, or Hezbollah or other persons designated by the United States under the Specially Designated Global Terrorist, or “SDGT,” sanctions program. If a non-U.S. financial institution were determined to have engaged in activities targeted by certain secondary U.S. sanctions or used proceeds produced by such activities targeted, it could lose its ability to open or maintain correspondent or payable-through accounts with U.S. financial institutions, among other potential consequences.

Antitrust Regulation

According to the Brazilian antitrust law, actions that concentrate market share must be previously submitted to CADE for approval if the following criteria are met: (i) at least one of the groups involved in the deal has posted annual gross revenues or volume of business equal to or over R$750 million, in Brazil, in the year prior to the transaction; and (ii) at least another group has posted annual gross revenues or volume of business equal to or over R$75 million, in Brazil, in the year prior to the transaction. Closing of a transaction without CADE’s approval will subject the parties to fines ranging from R$60,000 to R$60 million.

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The Brazilian Central Bank will also examine certain corporate reorganizations and other acts involving two or more financial institutions not only considering their potential effects on the proposed draft.financial system and its stability but also any potential impacts regarding market concentration and competition. Upon approval of the transaction, the Brazilian Central Bank may establish certain restrictions and require that the financial institutions execute an agreement of market concentration control, pursuant to which the terms and conditions of the sharing of the efficiency gain resulting from the act shall be set forth.

 

In December 2018, the Brazilian Central Bank and CADE approved a joint normative act establishing procedures with the purpose of increasing efficiency for their respective actions regarding antitrust matters. Pursuant to the joint normative act, the authorities are authorized to share information for the purposes of their respective activities and carry out meetings with each other to discuss matters requiring the regulatory cooperation between both authorities.

Insolvency Laws Concerning Financial Institutions

Financial institutions are subject to the proceedings established by Law 6,024 of March 13, 1974, or “Law 6024”, which establishes the applicable provisions in the event of intervention or extrajudicial liquidation by the Brazilian Central Bank, as well as to bankruptcy proceedings.

Intervention and extrajudicial liquidation occur when the Brazilian Central Bank has determined that the financial institution is in bad financial condition or upon the occurrence of events that may impact the creditors’ situation. Such measures are imposed by the Brazilian Central Bank in order to avoid the bankruptcy of the entity.

Intervention

An intervention can be carried out at the discretion of the Brazilian Central Bank in the following cases:

·risk to the creditors due to mismanagement;

·consistent violation of Brazilian banking laws or regulations; or

·if the intervention is a feasible alternative to the liquidation of the financial institution.

As of the date on which it is ordered, the intervention will automatically suspend the enforceability of the payable obligations; prevent early termination or maturity of any previously contracted obligations; and freeze deposits existing on the date on which the intervention is decreed.

The intervention will cease if interested parties undertake to continue the economic activities of the financial institution, by presenting the necessary guarantees, as determined by the Brazilian Central Bank, when the situation of the entity is regularized as determined by the Brazilian Central Bank; or when extrajudicial liquidation or bankruptcy of the entity is ordered.

Intervention may also be ordered upon the request of a financial institution’s management.

Extrajudicial Liquidation

Extrajudicial liquidation is an administrative proceeding decreed by the Brazilian Central Bank (except that it is not applicable to financial institutions controlled by the Brazilian federal government) and conducted by a liquidator appointed by the Brazilian Central Bank. This extraordinary measure aims at terminating the activities of the affected financial institution, liquidating its assets and paying its liabilities, as in a judicially decreed bankruptcy. The Brazilian Central Bank will place a financial institution in extrajudicial liquidation if:

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·the institution’s economic or financial situation is at risk, particularly when the institution ceases to meet its obligations as they become due, or upon the occurrence of an event that could indicate a state of insolvency under the rules of the Bankruptcy Law;

·management seriously violates Brazilian banking laws, regulations or rulings;

·the institution suffers a loss which subjects its unprivileged and unsecured creditors to severe risk; and/or

·upon revocation of the authorization to operate, the institution does not initiate ordinary liquidation proceedings within 90 days or, if initiated, the Brazilian Central Bank determines that the pace of the liquidation may harm the institution’s creditors.

A request for liquidation procedures can also be filed on reasonable grounds by the officers of the respective financial institution or by the receiver appointed by the Brazilian Central Bank in the receivership procedure.

The decree of extrajudicial liquidation will: (i) suspend the actions or foreclose on rights and interests relating to the estate of the entity being liquidated, while no other actions or executions may be brought during the liquidation; (ii) accelerate the obligations of the entity; and (iii) interrupt the statute of limitations with regard to the obligations assumed by the institution.

Extrajudicial liquidation procedures may be terminated:

·by discretionary decision of the Brazilian Central Bank if the parties involved undertake the administration of the financial institution after having provided the necessary guarantees; or

·when the final accounts of the receiver are delivered and approved and subsequently registered in the relevant public records; or

·when converted into ordinary liquidation; or

·when a financial institution is declared bankrupt.

Temporary Special Administration Regime (Regime de Administração Especial Temporária or “RAET”)

In addition to the intervention procedures described above, the Brazilian Central Bank may also establish a RAET, under Law 9447, dated March 14, 1997 combined with Law 6,024/74, which is a less severe form of the Brazilian Central Bank intervention in private and nonfederal public financial institutions that allows institutions to continue to operate normally. The RAET may be ordered in the case of an institution that:

·continually enters into recurrent operations that are against economic or financial policies set forth in federal law;

·faces a shortage of assets;

·fails to comply with the compulsory reserves rules;

·reveals the existence of hidden liabilities;

·experiences the occurrence of situations that cause receivership pursuant to current legislation;

·has reckless or fraudulent management; or

·carries out activities which call for an intervention.

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The main objective of a RAET is to assist the recovery of the financial condition of the institution under special administration and thereby avoid intervention and/or liquidation. Therefore, a RAET does not affect the day-to-day business, operations, liabilities or rights of the financial institution, which continues to operate in the ordinary course of business. Measures which may be adopted by the institution include the transfer of assets, rights and obligations to other entities, and corporate restructuring of these entities, with a view to the continuity of the institution’s business or activities.

There is no minimum term for a RAET, which ceases upon the occurrence of any of the following events: (i) acquisition by the Brazilian federal government of control of the financial institution, (ii) corporate restructuring, merger, spinoff, amalgamation or transfer of the controlling interest of the financial institution, (iii) decision by the Brazilian Central Bank, or (iv) declaration of extrajudicial liquidation of the financial institution.

Bankruptcy Law

Law No. 11,101, of February 9, 2005, as amended, or the “Bankruptcy Law”, regulates judicial reorganizations, out-of-court reorganizations and the bankruptcy of individuals and corporations that have occurred since 2005 and applies to financial institutions only with respect to the matters not specifically regulated by the intervention and extrajudicial liquidation regimes described above.

On December 24, 2020, Law 14,112, or “Law 11,112/20,” was passed. Law 11,112/20 overhauls the current Bankruptcy Law in several material aspects. Law 14,112/20 came into effect on January 23, 2021. Certain changes arising from this new legislation may affect enforcement and priority matters, such as: (i) the possibility of creditors putting forward an alternative judicial reorganization plan; (ii) new rules on the approval of post-petition loans in judicial reorganization and on priority claims in case of conversion to bankruptcy liquidation; (iii) more flexible quorum and mechanics in the extrajudicial reorganization process; (iv) new rules to expedite the bankruptcy liquidation process; (v) new methods for restructuring of the debtor's tax liabilities and installment payments, as well as new taxation schemes; and (vi) incorporation of rules on cross-border insolvency proceedings into the Brazilian framework.

Law 14,112/20 replicates, with some adjustments, the provisions of the UNCITRAL Model Law on Cross-Border Insolvency. As a result, Law 14,112/20 sets out some rules on access of foreign representatives to courts in Brazil, the method and requirements for recognition of foreign main and ancillary proceedings, authorization for the debtor and his representatives to act in other countries, methods of communication and cooperation between foreign authorities and representatives and the Brazilian jurisdiction, and the processing of concurrent proceedings.

Law 14,112/20 also sets forth, among other measures, (i) a protection for creditors that agree on the conversion of debt into equity against potential transfer of liability with regard to the debtor's obligations; (ii) the stay period and constraints on the assets of the debtor under judicial reorganization; (iii) conciliation and mediation measures before and during judicial reorganization proceedings; and (iv) the rules on procedural and substantive consolidation. Law 14,112/20 also sets out that a bankruptcy decree does not reach beyond the bankrupt itself, save when the disregard doctrine is to apply.

Repayment of Creditors in a Liquidation or Bankruptcy

In the event of extrajudicial liquidation or bankruptcy of a financial institution, creditors are paid pursuant to their priorities and privileges. Prepetition claims are paid on a ratable basis in the following order: labor credits; secured credits; tax credits; credits with special privileges; credits with general privileges; unsecured credits; contractual fines and pecuniary penalties for breach of administrative or criminal laws, including those of a tax nature; and subordinated credits.

The current law confers immunity from attachment of compulsory deposits maintained by financial institutions with the Brazilian Central Bank. Such deposits may not be attached in actions by a bank’s general creditors for the repayment of debts and require that the assets of any insolvent bank funded by loans made by foreign banks under trade finance lines be used to repay amounts owing under such lines in preference to those amounts owing to the general creditors of such insolvent bank.

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Recovery Plans for Systematically Important Financial Institutions

Systemically important Brazilian financial institutions must implement a recovery plan (plano de recuperação), with the aim of reestablishing adequate levels of capital and liquidity and to preserve the viability of such institutions. The recovery plans must identify their critical functions for the National Financial System, adopt stress-testing scenarios, define clear and transparent governance procedures, assess possible barriers to the entity’s recovery, as well as implement effective communication plans with key stakeholders.

Deposit Insurance - FGC

The purpose of the FGC is to guarantee the payment of funds deposited with financial institutions in case of intervention, liquidation, bankruptcy or insolvency. The FGC is funded by ordinary contributions made by the financial institutions in the amount of up to 0.0125% of the total amount of outstanding balances of the accounts corresponding to guaranteed obligations, and certain special contributions as determined. Delay in performing such contributions is subject to a penalty of 2% over the amount of the contribution.

The total amount of credit in the form of demand deposits, savings deposits, time deposits, deposits maintained in accounts blocked for transactions with checks (for the registration and control of funds relating to the rendering of services of payment of salaries, earnings, pensions), bills of exchange, real estate bills, mortgage bills, real estate credit bills and repurchase and resale agreements whose objects are instruments issued after March 8, 2012 by a company of the same group due to each customer by a financial institution (or by financial institutions of the same financial group) will be guaranteed by the FGC for up to a maximum of R$250,000 per customer. When the assets of the FGC reach 2% of the total amounts they guarantee, the CMN may temporarily suspend or reduce the contribution of financial institutions to the FGC. As from February 2016, credits of financial institutions and other institutions authorized to operate by the Brazilian Central Bank, complementary welfare entities, insurance companies, capitalization companies, investment clubs and investment funds, as well as those representing any interest in or financial instrument held by such entities, are not protected by the ordinary guarantee of FGC. In December 2017, the CMN enacted a new rule amending certain provisions of the FGC regulation among which includes the establishment of a limit of R$1 million per four-year period for the coverage of the credits of a certain creditor against the group of associated financial institutions.

Administrative Proceedings in the Brazilian National Financial System, the Brazilian Payment System and Capital Markets

Law 13,506 of November 13, 2017 or “Law 13,506/17” applies to entities authorized or supervised by the Brazilian Central Bank or by the CVM, as well as to market participants. Some of the key aspects of Law 13,506 are that: (i) it increases the maximum fine applicable by the Brazilian Central Bank from R$250,000 to R$2 billion or 0.5% of the revenues of the company arising from services and financial products in the year prior to the violation; (ii) it increases the maximum fine applicable by the CVM from R$500,000 to R$50 million; (iii) it makes additional types of violations subject to penalties; (iv) it provides that the penalty of “public admonition” may be cumulative to other penalties applicable by the Brazilian Central Bank; (v) it provides that Brazilian Central Bank may enter into cease-and-desist commitments; and (vi) it provides that the Brazilian Central Bank and the CVM may enter into administrative agreements similar to leniency agreements.

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LimitationsOpening, Maintenance and Closing of Deposit Accounts

CMN Resolution No. 4,753/19 provides criteria for the opening, maintenance and closing of deposit accounts. The regulation determines that financial institutions must adopt procedures and controls that allow the verification and validation of the identity and qualification of the account holders and, if applicable, their representatives, as well as the authenticity of the information provided by the client. This information must be kept updated by the financial institution.

The rule also requires financial institutions to ensure, through the procedures and technology used for the opening, maintaining and closing of deposit accounts, the integrity authenticity and confidentiality, as well as the protection against unauthorized access, use, alteration, reproduction and destruction, of the information and the electronic documents used by them during the process.

Issuance of Credit Instruments Electronically

Provisional Measure No. 897, or “MP 897/2019,” among other provisions, (i) created a new credit instrument, the Rural Real Estate Note (Cédula Imobiliária Rural or “CIR”), with the purpose of advancing rural real estate financing by the creation of an instrument specifically designed to that end; (ii) changed the rules governing Bank Deposit Certificates (Certificado de Depósito Bancário or “CDB”), especially regarding their issuance and the transfer of their ownership, by providing among other changes that CDB issued in book-entry form should be transferred by electronic endorsement, exclusively by means of a specific notation in the issuing institution’s own electronic system or, when deposited in central depositary, by means of specific notation in the corresponding electronic system; and (iii) authorized that customary credit instruments such as the Agricultural Certificate of Deposit (Certificado de Depósito do Agronegócio - CDA), the Agricultural Warrant (Warrant Agropecuário - WA), the Real Estate Credit Certificate (Certificado de Crédito Imobiliário - CCI), the Bank Credit Note (Cédula de Crédito Bancário - CCB), the Rural Credit Note (Cédula de Crédito Rural - CCR) , the Rural Promissory Note (Nota Promissória Rural - NPR), the Rural Trade Bill (Duplicata Rural - DR), may be issued in book-entry form through the electronic bookkeeping system held at a financial institution or other entity authorized by the Brazilian Central Bank to perform electronic bookkeeping activity.

On July 15, 2020, the Brazilian Central Bank regulated, through Circular No. 4,036/20, the electronic issuance of book-entry CCBs and CCRs by financial institutions. A financial institution must render the following services in respect of the bookkeeping of CCBs and CCRs: (i) issue the instrument in book-entry form at the request of the borrower; (ii) include of all obligatory information related to CCBs and CCRs, as well as ancillary documents and/or information for the purposes of verifying the outstanding balance of the underlying credit transaction; (iii) verify the effective title or fiduciary title of the instruments; (iv) make the payment CCBs and CCRs for the settlement of obligations available to the debtor; (v) control the financial flow related to the CCBs and CCRs, including prepayments; (vi) record security interests in an entity authorized to perform centralized registration or deposit of financial assets; (vii) make information about the CCBs and CCRs available to debtors, holders, collateral beneficiaries or any other legally qualified interested party; and (viii) carry out the issuance of certificates regarding the instruments whenever required.

Limitation to the fees and interest rates on overdraft-secured checks

 

On November 27, 2019, the CMN issued Resolution No. 4,765 or “Resolution No. 4,765/2019”, providing for new rules on the overdraft granted by financial institutions in checking accounts held by individuals and individual micro entrepreneurs. The new rule limits the charging of fees on overdraft-secured checks to: (i) 0% for the opening credit facilities of up to R$500.00; and (ii) 0.25% for the opening of credit facilities larger than R$500.00, calculated with the amount of the facility that exceeds R$500.00. It also limits interest rates over the overdraft-secured check to up to 8% per month, to which must be added a discount of the overdraft fees already charged monthly by the financial institution. If the interest is less than or equal to the overdraft fees, such interest rates must be equal to zero. In addition, Resolution No. 4,765/2019 establishes that the overdraft-secured check must be compatible with the customer’s risk profile.

 

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Resolution No. 4,765/2019 has comecame into force on January 6, 2020, for agreements executed after the referred date, will comecame into force on June 1, 2020, for agreements executed prior to such date. Regarding the 8% limitation above, the rule applies to all contracts from January 6, 2020, regardless of the date the applicable contract was entered into.

 

On February 6, 2020, the Brazilian Central Bank issued Circular No. 3,981, which deals with the new information regarding overdraft facilities that must be highlighted in the statement of the checking accounts held by natural persons or MEIs. Circular No. 3,981 will entercame into effect on June 1, 2020.

 

Automatic debit of banking accounts

 

On December 19, 2018,March 26, 2020, CMN issued Resolution No. 4,771,4,790, which sets forth new rules for the automatic debit payments from checking account and accounts designated for the payment of an individual’s wages. The new rule sets forth that financial institutions should only process automatic debit payments upon prior and express authorization of the client, and provides for the procedures for the authorization and cancellation of automatic debit payments. The new rule will comecame into force on MayMarch 1,st, 2020. 2021. CMN Resolution No. 4,790 repealed CMN Resolution 4,771.

 

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Taxation

 

Corporate Income Tax (IRPJ) and Social Contribution Tax (CSLL)

 

The IRPJ is calculated at a rate of 15.0%, plus a surtax of 10.0% which is levied on profits exceeding the amount of R$240,000 per year and the CSLL is calculated at a rate of 15.0% or 20.0% for financial institutions (until February, 2020) and 9.0% for companies, after adjustments determined by the tax legislation.

 

Constitutional amendment No. 103/2019 increased the CSLL tax rate for financial institutionsapplicable to banks from 15.0% to 20.0% from March 1, 2020.

 

Deferred tax assets and liabilities are measured based on temporary differences between the book basis and tax basis of assets and liabilities, tax losses, and adjustments to fair value of securities and derivatives.

 

According to the requirements in the current regulations, the expected realization of deferred tax assets is based on projections of future results and a technical study approved by the Directors of Santander Brasil.

 

Income tax (IRPJ) and Social Contribution Tax (CSLL) on Foreign Exchange Variation of Hedges for Investments Held Abroad (Law No. 14,031/2020)

Pursuant to Law No. 14,031/2020, which came in force in July 2020, exchange rate variations arising from hedges on investments held abroad are taxable starting in 2021. Accordingly, in 2021, 50% of the exchange rate variation shall be taxable under the IRPJ and CSLL, while, in 2022, 100% of the exchange rate variation will be considered as taxable.

Tax on Services (ISS)

 

Each of the Municipalities of Brazil and the Federal District are responsible for establishing the applicable ISS rate, which is charged on the value of services provided by the company, to the municipality where the service renderer is located. The rates vary from 2.0%2% to 5.0%5% and depend on the nature of the service.

 

On December 30, 2016, Complementary Law n°No. 157/2016 was enacted. This new legislation establishes a minimum rate of 2.0%2% for these types of taxes, no reductions or deductions being permitted. This Law provides that the following services are subject to ISS in the municipality in which the service taker is located: (i) card management, including POS services, that may be paid to the municipality where the corresponding POS device has been registered; (ii) leasing; (iii) fund management; and (iv) consortium.

 

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Before the aforementioned Law was enacted, the ISS was due in the municipality in which the service provider was located (irrespective of where the service taker was located). With this new legislation, ISS rates may vary depending on where the service taker is located.

 

There are several complications that may arise from this new legislation, including (i) as service takers are generally located in several municipalities, it is logistically difficult to comply and collect the taxes; and (ii) there are situations where the municipality of the service taker is not easily identifiable by the credit card company (as is the case for online transactions, for example).

 

Since the ISS is a municipal tax, the rule must be regulated by each municipality in order to be enforceable. This new rule is only applicable to triggering events occurring from 2018 onwards, when the municipal regulations applicable to the ComplementarySupplementary Law n°No. 157 come into force.

 

On March 23, 2018, the Brazilian Supreme Court suspended the application of the Complementary Law n°No. 157. It is still suspended. Although,suspended as of the Congress is discussingdate of this annual report. This suspension may be circumvented by the enactment of Complementary Law No. 175/20.

Complementary Law No. 175, published on September 24, 2020, was enacted to create a Complementary law propositionunified ISS collection system, in which taxpayers would be able to centralizecollect ISS in every municipality in Brazil. It’s an effort to facilitate tax collection in order to tackleconsidering the complexity regarding the multiple rulings on ISS, since each municipality can pass its own laws on ISS.

The system is currently under development and it is expected that it would enable Complementary Law n°No. 157 suspension while making tax collection easier.to be brought back into effect.

 

PIS and COFINS Tax Rates

 

PIS and COFINS (respectively, the profit participation contribution and the social security financing contribution, both of which are social contributions due on financialcertain revenues and commissions, net of financial expenses, which arecertain expenses) payable by financial institutions. Theinstitutions and similar entities, as defined by law, are due at the rate isof 0.65% for PIS and 4% for COFINS., respectively. They are levied cumulatively on an accrual basis, and collected monthly.gross revenue billed, which is defined as the total revenues earned by the legal entity, net of certain expenses, such as funding costs.

 

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The non-financialNon-financial entities are taxed at the rates of 1.65% and 7.6% of PIS and COFINS, respectively, and are subject to non-cumulative incidence, which consists of deduction of certain expenses from the tax base as allowed by law.

 

Tax on Financial Transactions (IOF)

 

IOF is a tax levied on credit, currency exchange, insurance and securities transactions and it is imposed on the following transactions and at the following rates:

 

Transaction(1)

Maximum Legal Rate

Current Rate

Credit extended by financial institutions and non-financial entities1.5% or 3%0.0041% per day for loans contracted by legal entities and 0.0082% per day for individuals capped at 365 days. An additional 0.38% rate is applicable in both cases.
Transactions relating to securities(2)1.5% per day0.5% per day for certain investment funds.
  0% on transactions with equity securities and certain debt securities, such as debentures and real estate receivables and agribusiness receivables (CRI/CRA).

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Transaction(1)

Maximum Legal Rate

Current Rate

  1% per day on transactions with fixed income derived from federal, state, or municipal public and private bonds, and fixed income investment funds limited to certain percentages of the income raised from investment. This rate is reduced to zero from the 30th day following the acquisition date of the investment and on repurchase agreements carried out by financial institutions and other institutions authorized by the Brazilian Central Bank with debentures issued by institutions belonging to the same group (Decree 8,731/2016).
  0% on the assignment of securities to permit the issuance of Depositary Receipts abroad.
Transactions relating to derivatives25.0%Although the maximum rate is 25%, it has been reduced to zero at this moment.
Insurance transactions entered into by insurance companies25%2.38% for health insurance.
  0.38% for life insurance.
  7.38% for other types of insurance.
Foreign exchange transactions(2)25%0.38% (general rule).
  6.38% on credit card transactions as from April 27, 2011.
  6.38% on withdrawals abroad using

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Transaction(1)

Maximum Legal Rate

Current Rate

credit or debit cards as from December 28, 2013.
  6.38% on purchase of travelers checks or loading of international prepaid card as from December 28, 2013.
  0% for outflow of funds related to the payment of principal and interest in connection with foreign loans and financings.
  6% for the inflow of funds into Brazil, related to foreign loans subject to registration before the Brazilian Central Bank whose average maturity term is equal or less than 180 days.
  0% for the inflow of funds into Brazil, related to foreign loans subject to registration before the Brazilian Central Bank whose average maturity term is higher than 180 days.
  0% for interbank transactions.
  0% for exchange transactions in connection with the outflow of proceeds from Brazil for the remittance of interest on net equity and dividends to be received by foreign investors.

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Transaction(1)

Maximum Legal Rate

Current Rate

  0% for exchange transactions, including by means of simultaneous foreign exchange transactions, for the inflow of funds by foreign investors in the Brazilian financial and capital markets.
  0% for exchange transactions, including by means of simultaneous foreign exchange transactions, for the inflow of funds by foreign investors for purposes of initial or additional margin requirements in connection with transactions in stock exchanges.
  0% for exchange transactions for the outflow of funds invested by foreign investors in the Brazilian financial and capital markets.
  0% for exchange transactions for the inflow and outflow of funds invested by foreign investors, including by means of simultaneous foreign exchange transactions, in certificates of deposit of securities, known as Brazilian Depositary Receipts.Receipts (“BDRs”).
  0% for simultaneous exchange transactions, for the inflow of funds by

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Transaction(1)

Maximum Legal Rate

Current Rate

foreign investors derived from the conversion of direct investments in Brazil made pursuant to Law 4,131/62 into investments in stock tradable in stock exchanges, as from May 2, 2016.
  0% for revenues related to the export of goods and services transactions.
  

The applicable rate is 1.10% for acquisitions of foreign currency (Decree 8,731/2016).

The applicable rate for credit on a

foreign bank account belonging to a

resident in Brazil is 1.10%, as from

March 3, 2018.

 

(1)The transactions mentioned in the table are for illustration purposes and do not reflect an exhaustive list of transactions subject to the IOF.

(2)There are some exemptions or specific cases in which the applicable rate is zero.

 

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FATCA

 

The Foreign Account Tax Compliance Act, or “FATCA,” became law in the United States on March 18, 2010. The legislation requires foreign financial institutions, or “FFIs,” (such as Santander Brasil) to enter into an FFI agreement under which they agree to identify and provide the U.S. Internal Revenue Service, or “IRS,” with information on accounts held by U.S. persons and certain U.S.-owned foreign entities, or otherwise face a 30% withholding tax on certain U.S. source withholdable payments. In addition, FFIs that have entered into an FFI agreement will be required to withhold on such payments made to FFIs that have not entered into an FFI agreement, account holders who fail to provide sufficient information to classify an account as a U.S. or non-U.S. account, and U.S. account holders who do not agree to the FFI reporting their accounts to the IRS.

 

On September 23, 2014, Brazil and the United States announced that they entered into an intergovernmental agreement, or “IGA”, which became effective in Brazil by virtue of Decree No. 8,506 as of August 24, 2015. The aim of the IGA is to improve international tax compliance and implement FATCA. The IGA establishes an automatic annual bilateral exchange of information with the U.S. tax authorities. Under this agreement, Brazilian financial institutions will generally be required to provide certain information about their U.S. account holders to the Brazilian tax authorities (Receita Federal do Brasil), which will share that information with the IRS.

 

Complying with the required identification, withholding and reporting obligations requires significant investment in an FFI’s compliance and reporting framework. We are continuing to follow developments regarding FATCA closely and are coordinating with all relevant authorities.

 

Common Reporting Standard

 

On December 28, 2016, Normative Ruling n°No. 1,680 was enacted, introducing the Common Reporting Standard in Brazil. The Common Reporting Standard provides for certain account reporting obligations similar to those existing under FATCA. It was created in the context of the OrganisationOrganization for Economic Co-operation and Development’s Base Erosion and Profit Shifting project, which is aimed at reducing tax avoidance. Normative Ruling n° 1,680 applies to legal entities required to present the e-Financeira pursuant to Normative Ruling n° 1,571, dated July 2, 2016.

 

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On the same date, the Normative Ruling n° 1,681 was enacted providing for the obligation to annually deliver the “Country to Country Statement,” an ancillary obligation also arising from the discussions under the BEPS Project, before the Brazilian Federal Revenue Service, or “RFB” as a measure to expand information exchange and improve the level of international tax transparency. This new regulation should not have any impact on Santander Brasil, since, as it is controlled by a legal entity resident in Spain, it is not required by the Brazilian regulation to present such statement.

 

Income Tax Levied on Capital Gains

 

Law 13,259, of March 16, 2016 (“Lawor “Law 13,259/16”) introduced the application of progressive tax rates for income taxation over capital gains recognized by Brazilian individuals and by holders that are not domiciled in Brazil for purposes of Brazilian taxation (“Non-Resident Holders”) on the disposition of assets in general. Under Law 13,259/16, the income tax rates applicable to capital gains realized by these investors would be: (i) 15% for the portion of the gains up to R$5 million, (ii) 17.5% for the portion of the gain that exceeds R$5 million but does not exceed R$10 million, (iii) 20% for the portion of the gain that exceeds R$10 million but does not exceed R$30 million, and (iv) 22.5% for the portion of the gain that exceeds R$30 million.

 

The provisions of Law 13,259/16 may apply to Non Resident Holders pursuant to CMN Resolution 4,373, provided such Non Resident Holders are not located in a Tax Haven. However, Non Resident Holders (whether they are considered to be Non-Resident Holders as a result of CMN Resolution 4373 or otherwise) located in a Tax Haven are subject to a specific tax regulation and will continue to be taxed at a rate of 25.0%25%.

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Most transactions carried out by Non Resident Holders pursuant to CMN Resolution 4,373 and that result in capital gains are subject to taxation at a fixed 15% rate, provided they are not located in a Tax Haven.

 

The tax must be withheld and paid by the buyer or, in cases where the buyer and seller are domiciled abroad, a legal representative of buyer shall be designated for the payment of the tax.

 

New IncomeTemporary IOF/Credit Tax Bylaw (RIR/18)Relief

 

Decree 9,580/18,10,305/20, published in April 2020, along with further amendments, reduced the rate of IOF tax applicable to credit transactions to zero between April 3 and November 2018, revoked and replaced RIR/99 (Decree 3,000/99).27, 2020.

 

The new RIR/18 consolidates rules regarding Income Tax published until December 31st, 2016.Credit transactions in which funds were redeemed by the customer between the aforementioned dates are not subject to IOF tax. Subsequent renegotiations on credit transactions covered by Decree 10,305/20 that do not include the provision of additional funds are also not subject to IOF tax. Any additional funds are subject to IOF.

 

It includes several rule changes which occurred over time, such as transfer pricing and thin capitalization rules, financial products’ taxation and corporate income tax changes brought by Law 12973/2014, listed below:

·Tax effects connected to IFRS;

·Transitional Tax Regime (RTT) revocation, which was implemented in order to neutralize temporarily the effects related to IFRS until Law 12,973 was enacted;

·Equity-method company valuation, including new provision to tax treatment on goodwill or the discount paid on these entities investments;

·Tax regimen applicable to profits, dividends and interests on equity by Brazilian companies;

·Creation of new tax regimen regarding foreign controlled companies (CFC rules) e its effects on taxation arising from the profits earned abroad by these companies; and

·A new PIS/COFINS calculation basis for financial institutions, including income from essential activity.

Disclosure pursuant to Section 219 of the Iran threat reduction and Syria Human Rights Act

 

Pursuant to Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012, which added Section 13(r) to the Exchange Act, an issuer is required to disclose in its annual or quarterly reports, as applicable, whether it or any of its affiliates knowingly engaged in certain activities, transactions or dealings relating to Iran or with individuals or entities designated pursuant to certain Executive Orders. Disclosure is generally required even where the activities, transactions or dealings were conducted in compliance with applicable law.

 

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As we are part of the Santander Group, we must also disclose the exposure of other entities of the Santander Group to Iran. The following activities are disclosed in response to Section 13(r) with respect to the Santander Group and its affiliates. During the period covered by this annual report:

 

(a)       Santander UK holds five blocked accounts for twothree customers, with the first customer holding one GBP Savings Accountsavings account and one GBP Current Account, andcurrent account, the second customer holding one GBP Savings Account. Bothsavings account, and the third customer holding two GBP current accounts. All three customers, who are resident in the UK, are currently designated by the USU.S. under the SDGT sanctions program. Revenues and profits generated by Santander UK on these accounts in the year ended December 31, 2019 were negligible relative to the overall profits of Banco Santander S.A.

 

(b)       During the period covered by this annual report, Santander UK held one savings account with a balance of £1.24, and one current account with a balance of £1,884.53 for another customer resident in the UK who is currently designated by the US under the SDGT sanctions program. The customer relationship pre-dates the designations of the customer under these sanctions. The United Nations and European Union removed this customer from their equivalent sanctions lists in 2008. Santander UK determined to put a block on these accounts and the accounts were subsequently closed on 14 January 2019. Revenues and profits generated by Santander UK on these accounts in the year ended 31 December 2019 were negligible relative to the overall profits of Banco Santander S.A.

(c)       Santander UK holds two frozen current accounts for two UK nationals who are designated by the USU.S. under the SDGT sanctions program. The accounts held by eachone customer have been frozen since theirwere fully inaccessible at the time of the US designation and were blocked at the time of the account going into a debit balance. The accounts held by the second customer were blocked immediately following the US designation and have remained frozen through 2019.throughout 2020. These accounts are frozen in order to comply with Articles 2, 3 and 7 of Council Regulation (EC) No 881/2002 imposing certain specific restrictive measures directed against certain persons and entities associated with the Al-Qaeda network, by virtue of Commission Implementing Regulation (EU) 2015/1815. The accounts are in arrears (£1,844.73 in debit combined) and are currently being managed by Santander UK Collections & Recoveries department. No revenues or profits were generated by Santander UK on these accounts in the year ended December 31, 2019.2020.

(c)       Santander Consumer Bank, S.A. holds seven blocked correspondent accounts for Bank Melli. Three USD accounts and four EUR accounts. The accounts have been blocked since 2008. Bank Melli is currently designated by the US under the Specially Designated Global Terrorist (SDGT) sanctions program. No revenues or profits were generated by Santander Consumer Bank, S.A. on these accounts in the year ended 31 December 2020.

 

(d) The Santander Group also has certain legacy performance guarantees for the benefit of Bank Sepah and Bank Mellat (stand-by(standby letters of credit to guarantee the obligations – either under tender documents or under contracting agreements – of contractors who participated in public bids in Iran) that were in place prior to April 27, 2007.

 

(e)       During the period covered by this annual report, Santander Brasil held one current account with a balance130 

Table of R$100.0 for a customer resident in Brazil who is currently designated by the U.S. under the SDGT sanctions program. The customer relationship pre-dates the designation of the customer under these sanctions. Santander Brasil determined to terminate the account even prior to the customer being formally designated under the SDGT sanctions program on September 10, 2019, and the account was subsequently closed on October 9, 2019. Revenues and profits generated by Santander Brasil on this account in the year ended December 31, 2019 were negligible relative to the overall profits of Banco Santander S.A.Contents

In the aggregate, all of the transactions described above resulted in gross revenues and net profits in the year ended December 31, 2019,2020, which were negligible relative to the overall revenues and profits of Banco Santander, S.A. The Santander Group has undertaken significant steps to withdraw from the Iranian market such as closing its representative office in Iran and ceasing all banking activities therein, including correspondent relationships, deposit takingdeposit-taking from Iranian entities and issuing export letters of credit, except for the legacy transactions described above. The Santander Group is not contractually permitted to cancel these arrangements without either (i) paying the guaranteed amount (in the case of the performance guarantees), or (ii) forfeiting the outstanding amounts due to it (in the case of the export credits). As such, the Santander Group intends to continue to provide the guarantees and hold these assets in accordance with company policy and applicable laws.

 

Regulatory Developments Related to COVID-19

The following section summarizes the measures implemented by the CMN and the Brazilian Central Bank to mitigate the consequences of the COVID-19 pandemic on the Brazilian financial system.

Temporary Suspension of Dividend Distributions and Other Payments

On May 29, 2020 the CMN enacted Resolution No. 4,820 in response to the COVID-19 pandemic. Resolution No. 4,820 prohibits financial institutions, such as us, to: (i) offset their capital, including by means of early payment, in excess of amounts equivalent to the minimum mandatory dividend required by the Brazilian Corporate Law, including as interest on capital (ii) repurchase their own shares, subject to certain exceptions as authorized by the Brazilian Central Bank; (iii) reduce their capital stock, except if such reduction is  required by law or approved by the Brazilian Central Bank; and (iv) increase the compensation of their officers, directors and members of the board of directors and audit committee, including fixed and variable compensation. CMN Resolution No. 4,280 repealed CMN Resolution No. 4,797.

On December 23, 2020, the CMN enacted Resolution 4,885, which made the payment of dividends or interest on capital more flexible. As a result, financial institutions were not allowed to pay in excess of the greater of (x) the amount corresponding to 30% of the adjusted net profit in accordance with item I of article 202 of the Brazilian Corporate Law; and (y) the amount equivalent to the mandatory dividends as set forth in article 202 of the Brazilian Corporate Law. This is the only restriction still in force as a result of Resolution 4,820/20.

As a result, we only distributed R$3,837 million as dividends and interest on equity in 2020 compared to R$10,800 million in 2019.

Reduction of Capital Conservation Buffer

On March 16, 2020, the CMN enacted Resolution No. 4,783, which temporarily reduces the Capital Conservation Buffer (where all rates relate to the total amount of risk weighted assets) required from financial institutions, from 2.5% to 1.25%. The rate of 1.25% will remain in effect through March 31, 2021. From April 1, 2021 through April 1, 2022 the Capital Conservation Buffer requirement will gradually be restored to 2.5%. The measure aims to increase the ability of banks to renegotiate credit transactions and maintain engagement in new transactions, considering the current scenario of increased demand for financial services.

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Repos on Sovereign Bonds Denominated in U.S. Dollars

On March 18, 2020, the Brazilian Central Bank issued Circular No. 3,990, which allowed the repurchase transactions of U.S. Dollar denominated federal bonds between the Brazilian Central Bank and Brazilian financial institutions. The Brazilian Central Bank can purchase such bonds with a discount of 10% in comparison to market prices and the financial institution assumes the obligation to purchase the bonds in a future date. The rules also set out a margin transfer during the term of the transaction whenever the exposure is equal or greater than US$500,000. The purpose of this measure is to provide liquidity to the Brazilian sovereign bonds market, by offering liquidity in U.S. Dollars to Brazilian banks and reducing trading volatility of such bonds.

Changes to Provision Requirements

On March 16, 2020 CMN enacted Resolution No. 4,782/20, which was amended by Resolution No. 4.856/20, exempting financial institutions from considering certain restructuring of contracts as an indicative that a counterparty may default. Therefore, the measure allows loans to be granted to solvent companies without requiring additional provisions through September 30, 2020.

New Time Deposits with Special Collateral

CMN Resolution No. 4,799/20 has regulated funding through new Time Deposits with Special Collateral (Novo Depósito a Prazo com Garantias Especiais or “DPGEs”), which are deposits taken by financial institutions and guaranteed by the Credit Guarantee Fund (Fundo Garantidor de Crédito or “FGC”). The resolution increased the cap from R$20 million to R$40 million, and is intended to strengthen the liquidity strength of smaller financial institutions.

Central Bank Loans Backed by Debentures and Financial Bills Held by Financial Institutions

On March 23, 2020, the CMN enacted Resolution No. 4,786, which authorized the Brazilian Central Bank to grant loans to multiservice banks, commercial banks, investment banks and saving banks, backed by debentures (corporate debt instruments) held by such institutions and acquired in the secondary market, provided that certain provisions set forth in the ruling are complied with. It is worth mentioning the ruling sets forth that said loans will also be secured by mandatory deposits in Bank Reserve Accounts, in amount equivalent to, at least, the total amount of the transactions, as well as by the debenture collateral.

This is considered a Temporary Special Liquidity Credit Facility, and is another measure to offer financial institutions more liquidity in their transactions. The loans established in Resolution No. 4,786/20 will be available to financial institutions until April 30, 2020 and may be engaged for a 125 business day term, which may be extended, at the Brazilian Central Bank’s discretion, for more 125 business days, provided the maximum term of 359 calendar days.

On April 2, 2020, the CMN enacted Resolution No. 4,795, which authorizes the Brazilian Central Bank to grant loans to financial institutions under specific conditions, by means of a Temporary Special Liquidity Credit Facility, upon direct acquisition, in the primary market, of Financial Bills secured by financial assets or securities. The loan will be available in tranches, and could reach 100% of the Reference Assets of such financial institutions. The facility will be available to financial institutions through December 31, 2020 and the Financial Bills issued thereunder will have a term between 30 and 359 calendar days. The first tranche was approved on May 12, 2020, in a total amount of R$17.5 billion.

Flexibilization of Funding Requirements Through Agribusiness Credit Notes (Letras de Crédito do Agronegócio or “LCAs”)

On March 23, 2020, the CMN issued Resolution No. 4,787, which adjusted the assessment base of the mandatory reserve requirements of funds raised through LCAs, which are credit notes issued exclusively by financial institutions and related to credit rights originated from transactions conducted between rural producers and their cooperatives and agents of the agribusiness production chain, with the purpose of increasing their liquidity. As a result, the rules for applying funds originated from agribusiness activities were relaxed. The Brazilian Central Bank expects an increase in credit extension directed to agribusiness of R$6.3 billion as a result of the measure.

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Employment Support Program providing emergency payroll financing for small and medium-sized businesses

The CMN enacted Resolution No. 4,846 on August 24, 2020, which regulates the granting of loans under the Emergency Employment Support Program (Programa Emergencial de Suporte a Empregos or “PESE”), established through Provisional Measure No. 944/2020. PESE sets forth the offering of an emergency credit line of R$40 billion to finance, for two months, the payroll of small and medium-sized companies that adhere to the program, with the purpose of preserving jobs. Regarding the funding of said credit line, 85% will derive from the National Treasury and the remaining 15% from participating financial institutions, including Santander Brasil. The adhering small and medium-sized businesses will not be able to dismiss workers during the period that the loan is taken out and up to the 60th day after the business receives its last installment. The maximum amount financed per worker will be up to two minimum wages. The funding will go directly to the worker’s account, as is done today through payrolls operated by financial institutions. PESE came into effect on April 6, 2020. CMN Resolution No. 4,846 repealed CMN Resolution No. 4,800.

FX overhedge of equity interests abroad

On March 18, 2020, the CMN enacted Resolution No. 4,784, which amended CMN Resolution No. 4,192, of March 1, 2013. The rule sets forth that the tax credits arising from losses on excess FX position aimed at hedging of investments held abroad by financial institutions will not be deducted from their regulatory capital (patrimônio de referência). The measure aims at providing further capital relief and hence additional comfort for financial institutions to maintain and extend credit.

Higher ceiling for repurchase of financial bills (letras financeiras) by financial institutions

Pursuant to CMN Resolution No. 4,788, issued on March 23, 2020, financial institutions classified as Segment 1 for the proportional application of the prudential regulation, as is our case, may, from March 23 to April 30, 2020, repurchase up to 20% of financial bills of their own issuance, a substantial increase from the previous ceiling of 5%.

Brazilian Central Bank authorized to buy and sell government bonds and private financial assets and securities in the secondary market

Constitutional Amendment No. 106, enacted on May 7, 2020, sets forth emergency economic and budget measures for the Brazilian government during the COVID-19 pandemic. Among them, the Amendment authorizes the Brazilian Central Bank, for the duration of the pandemic, to buy and sell (i) government bonds in local and foreign secondary markets; and (ii) other assets, in domestic secondary financial, capital and payments markets, provided that, at the time of purchase, they have a credit risk rating in the local market equivalent to BB- or higher, conferred by at least one of the three largest international rating agencies, as well as a reference price published by a financial market entity accredited by the Brazilian Central Bank.

SELECTED STATISTICAL INFORMATION

 

The following information for Santander Brasil is included for analytical purposes and is derived from, and should be read in conjunction with, the consolidated financial statements and related notes contained elsewhere herein, as well as “Item 5. Operating and Financial Review and Prospects.”

 

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Average annual balance sheet data has been calculated based upon the average of the monthly balances at 13 dates: as of December 31 of the prior year and each of the month-end balances of the 12 subsequent months. Average income statement and balance sheet data and other related statistical information have been prepared on a consolidated annual basis.

 

The selected statistical information set forth below includes information atas of and for the years ended December 31, 2020, 2019, 2018, 2017, 2016 and 20152018 extracted from the audited financial statements prepared in conformity with IFRS as issued by the IASB. See “Presentation of Financial and Other Information” and “Item 3. Key Information-A.Information—A. Selected Financial Data.”

 

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Average Balance Sheet and Interest Rates

 

The following tables show our average balances and interest rates for each of the periods presented. With respect to the tables below and the tables under “—Changes in Net Interest Income – Volume and Rate Analysis” and “—Assets—Earning Assets–Yield Spread,” (i) we have stated average balances on a gross basis, before netting impairment losses, except for the total average asset figures, which include such netting, and (ii) all average data have been calculated using month-end balances, which is not significantly different from having used daily averages. We stop accruing interest on loans once they are more than 60 days past due. All our non-accrual loans are included in the table below under “Other assets.”

 

  For the Year Ended December 31,
  2019 2018 2017
  Average Balance Interest Average Rate Average Balance Interest Average Rate Average Balance Interest Average Rate
  (in millions of R$, except percentages)
Assets and Interest                
Income                
Cash and balances with the Brazilian Central Bank  48,670   3,828   7.9%  81,018   5,096   6.3%  105,301   5,954   5.7%
Loans and amounts due from credit institutions  101,981   3,844   3.8%  56,093   2,978   5.3%  23,460   5,107   21.8%
Loans and advances to customers  323,180   50,406   15.6%  304,633   46,471   15.3%  277,797   44,507   16.0%
Debt instruments  178,811   13,528   7.6%  164,111   13,629   8.3%  146,822   13,457   9.2%
Other interest – earning assets  -     1,235   -     -     2,304   -     -     2,393   -   
Total interest – earning assets  652,642   72,841   11.2%  605,855   70,478   11.6%  553,380   71,418   12.9%
Equity instruments  1,464   19   1.3%  1,213   33   2.7%  1,871   83   4.4%
Investments in associates  1,060   -     -     963   -     -     987   -     -   
Total earning assets  655,166   72,860   11.1%  608,031   70,511   11.6%  556,238   71,501   12.9%
Cash and balances with the Brazilian Central Bank  4,538   -     -     4,351   -     -     4,569   -     -   
Loans and amounts due from credit institutions  2,258   -     -     1,676   -     -     2,455   -     -   
Impairment losses  (22,528)  -     -     (21,056)  -     -     (18,169)  -     -   
Other assets  56,912   -     -     56,276   -     -     55,648   -     -   
Tangible assets  9,091   -     -     6,414   -     -     6,484   -     -   
Intangible assets  30,070   -     -     29,839   -     -     30,286   -     -   
Total average assets  735,507   72,860   9.9%  685,531   70,511   10.3%  637,511   71,501   11.2%
Liabilities and Interest Expense                                    
Deposits from the Brazilian Central Bank and
  Deposits from credit institutions		  100,473   4,866   4.8%  95,217   5,367   5.6%  81,797   3,783   4.6%

  For the Year Ended December 31,
  2020 2019 2018
  Average Balance Interest Average Rate Average Balance Interest Average Rate Average Balance Interest Average Rate
  (in millions of R$, except percentages)
Assets and Interest                
Income                
Cash and balances with the Brazilian Central Bank  54,531   1,552   2.8%  48,670   3,828   7.9%  81,018   5,096   6.3%
Loans and amounts due from credit institutions  104,759   1,519   1.4%  101,981   3,844   3.8%  56,093   2,978   5.3%
Loans and advances to customers  384,389   44,102   11.5%  323,180   50,406   15.6%  304,633   46,471   15.3%
Debt instruments  203,578   13,556   6.7%  178,811   13,528   7.6%  164,111   13,629   8.3%
Other interest – earning assets  -   2,044   -   -   1,235   -   -   2,304   - 
Total interest – earning assets  747,257   62,773   8.4%  652,642   72,841   11.2%  605,855   70,478   11.6%
Equity instruments  1,730   34   2.0%  1,464   19   1.3%  1,213   33   2.7%
Investments in associates  1,098   -   -   1,060   -   -   963   -   - 
Total earning assets  750,085   62,807   8.4%  655,166   72,860   11.1%  608,031   70,511   11.6%
Cash and balances with the Brazilian Central Bank  4,800   -   -   4,538   -   -   4,351   -   - 
Loans and amounts due from credit institutions  6,668   -   -   2,258   -   -   1,676   -   - 
Impairment losses  (23,936)  -   -   (22,528)  -   -   (21,056)  -   - 
Other assets  76,642   -   -   56,912   -   -   56,276   -   - 
Tangible assets  9,587   -   -   9,091   -   -   6,414   -   - 
Intangible assets  30,769   -   -   30,070   -   -   29,839   -   - 
Total average assets  854,615   62,807   7.3%  735,507   72,860   9.9%  685,531   70,511   10.3%
Liabilities and Interest Expense                                    
Deposits from the Brazilian Central Bank and Deposits from credit institutions  111,684   4,327   3.9%  100,473   4,866   4.8%  95,217   5,367   5.6%
Customer deposits  380,058   7,498   2.0%  303,741   14,966   4.9%  285,694   13,577   4.8%
Marketable debt securities  68,585   2,514   3.7%  76,194   5,138   6.7%  71,525   4,607   6.4%
Subordinated debts  13,102   863   6.6%  10,779   660   6.1%  10,952   630   5.8%
Other interest-bearing liabilities  -   3,125   -   -   2,890   -   -   4,376   - 
Total interest-bearing liabilities  573,429   18,327   3.2%  491,187   28,520   5.8%  463,388   28,557   6.2%
Noninterest bearing demand deposits  28,581   -   -   14,612   -   -   11,127   -   - 
Other liabilities  150,759   -   -   133,255   -   -   121,198   -   - 
Non-controlling interests  315   -   -   617   -   -   555   -   - 
Stockholders’ Equity  101,531   -   -   95,836   -   -   89,263   -   - 
Total average liabilities and equity  854,615   18,327   2.1%  735,507   28,520   3.9%  685,531   28,557   4.2%

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Customer deposits  303,741   14,966   4.9%  285,694   13,577   4.8%  244,364   19,491   8.0%
Marketable debt securities  76,194   5,138   6.7%  71,525   4,607   6.4%  82,055   7,901   9.6%
Subordinated debts  10,779   660   6.1%  10,952   630   5.8%  8,599   548   6.4%
Other interest-bearing liabilities  -     2,890   -     -     4,376   -     -     4,749   -   
Total interest-bearing liabilities  491,187   28,520   5.8%  463,388   28,557   6.2%  416,815   36,472   8.8%
Noninterest bearing demand deposits  14,612   -     -     11,127   -     -     16,394   -     -   
Other liabilities  133,255   -     -     121,198   -     -     115,689   -     -   
Non-controlling interests  617   -     -     555   -     -     745   -     -   
Stockholders’ Equity  95,836   -     -     89,263   -     -     87,868   -     -   
Total average liabilities and equity  735,507   28,520   3.9%  685,531   28,557   4.2%  637,511   36,472   5.7%

Changes in Net Interest Income – Volume and Rate Analysis

 

The following tables present the changes in our net interest income allocated between changes in average volume and changes in average rate for the year ended December 31, 2020, compared to the year ended December 31, 2019, and for the year ended December 31, 2019 compared to the year ended December 31, 2018, and for the year ended December 31, 2018 compared to the year ended December 31, 2017.2018. We have calculated volume variances based on movements in average balances over the period and rate variance based on changes in interest rates on average interest-earning assets and average interest-bearing liabilities. We have allocated variances caused by changes in both volume and rate to volume. You should read the following tables and the footnotes thereto in light of our observations noted in “—Average Balance Sheet and Interest Rates.”

  For the Years Ended 2020/2019 For the Years Ended 2019/2018
  Increase (decrease) due to changes in
  Volume Rate Net change Volume Rate Net change
  (in millions of R$)
Interest and Similar Income
Interest-earning assets                        
Cash and balances with the Brazilian Central Bank  414   (2,690)  (2,276)  (2,348)  1,080   (1,268)
Loans and amounts due from credit institutions  102   (2,427)  (2,325)  1,915   (1,049)  866 
Loans and advances to customers  8,493   (14,797)  (6,304)  2,876   1,059   3,935 
Debt instruments  1,753   (1,725)  28   1,166   (1,267)  (101)
Other interest-earning assets  809   -   809   (1,069)  -   (1,069)
Total interest-earning assets  11,571   (21,639)  (10,068)  2,540   (177)  2,363 
Equity Instruments  4   11   15   6   (20)  (14)
Total earning assets  11,575   (21,628)  (10,053)  2,546   (197)  2,349 
Interest Expense and Similar Charges
Interest-bearing liabilities                        
Deposits from the Brazilian Central Bank and Deposits from credit institutions  504   (1,043)  (539)  285   (786)  (501)
Customer deposits  3,095   (10,563)  (7,468)  878   511   1,389 
Marketable debt securities  (471)  (2,153)  (2,624)  309   222   531 
Subordinated liabilities  150   53   203   (10)  40   30 
Other interest-bearing liabilities  235   -   235   (1,486)  -   1,486 
Total interest-bearing liabilities  3,513   (13,706)  (10,193)  (24)  (13)  (37)

 

  For the Years Ended 2019/2018 For the Years Ended 2018/2017
  Increase (decrease) due to changes in
  Volume Rate Net change Volume Rate Net change
  (in millions of R$)
Interest and Similar Income
Interest-earning assets            
Cash and balances with the Brazilian Central Bank  (2,348)  1,080   (1,268)  (1,477)  619   (858)
Loans and amounts due from credit institutions  1,915   (1,049)  866   3,624   (5,753)  (2,129)
Loans and advances to customers  2,876   1,059   3,935   4,162   (2,198)  1,964 
Debt instruments  1,166   (1,267)  (101)  1,502   (1,330)  172 
Other interest-earning assets  (1,069)  -     (1,069)  (89)  -     (89)
Total interest-earning assets  2,540   (177)  2,363   7,722   (8,662)  (940)
Equity Instruments  6   (20)  (14)  (24)  (26)  (50)
Total earning assets  2,546   (197)  2,349   7,698   (8,688)  (990)
Interest Expense and Similar Charges
Interest-bearing liabilities                        
Deposits from the Brazilian Central Bank and Deposits from credit institutions  285   (786)  (501)  679   905   1,584 
Customer deposits  878   511   1,389   2,903   (8,817)  (5,914)
Marketable debt securities  309   222   531   (920)  (2,374)  (3,294)
Subordinated liabilities  (10)  40   30   139   (57)  82 
Other interest-bearing liabilities  (1,486)  -     (1,486)  (80)  -     (80)

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Total interest-bearing liabilities(24)(13)(37)2,721(10,343)(7,622)

Assets

 

Earning Assets – Yield Spread

 

The following table analyzes our average earning assets, interest income and dividends on equity securities and net interest income and shows gross yields, net yields and yield spread for each of the periods indicated. You should read this table and the footnotes thereto in light of our observations noted in “—Average Balance Sheet and Interest Rates.”

 

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  For the Year Ended December 31,
  2019 2018 2017
  (in millions of R$, except percentages)
Average total interest – earning assets  652,642   605,855   553,380 
Interest and dividends on equity securities(1)  72,860   70,511   71,501 
Net interest income  44,340   41,954   35,029 
Gross yield(2)  11.2%  11.6%  12.9%
Net yield(3)  6.8%  6.9%  6.3%
Yield spread(4)  5.3%  5.4%  4.0%

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  For the Year Ended December 31,
  2020 2019 2018
  (in millions of R$, except percentages)
Average earning assets  747,257   652,642   605,855 
Interest and dividends on equity securities(1)  62,807   72,860   70,511 
Net interest income  44,480   44,340   41,954 
Gross yield(2) (*)  8.4%  11.2%  11.6%
Net yield(3) (*)  6.0%  6.8%  6.9%
Yield spread(4) (*)  5.2%  5.3%  5.4%

 

(*)Yield information does not give effect to changes in fair value that are reflected as a component of stockholder’s equity.

(1)Total earning assets plus dividends from companies accounted for by the equity method (equity instruments).

(2)Gross yield is the amount of “Interest and dividends on equity securities” divided by “Average earning assets.”

(3)Net yield is the amount of “Net interest income” divided by “Average earning assets.”

(4)Yield spread is the difference between the average rate of “Total earning asset” and the average rate of “Total interest-bearing liabilities.”

 

Return on Equity and Assets

 

The following table presents our selected financial ratios for the periods indicated.

 

  For the Year Ended December 31,
  2019 2018 2017
ROA: Return on average total assets  2.3%  1.9%  1.4%
ROE: Return on average stockholders’ equity  17.4%  14.3%  10.4%
ROE (adjusted) (1)  24.6%  21.0%  15.4%
Average stockholders’ equity as a percentage of average total assets  13.0%  13.0%  13.8%
Payout(2)  65.8%  52.5%  70.7%

  For the Year Ended December 31,
  2020 2019 2018
ROA: Return on average total assets  1.6%  2.3%  1.9%
ROE: Return on average stockholders’ equity  13.3%  17.4%  14.3%
ROE (adjusted) (1)  18.5%  24.6%  21.0%
Average stockholders’ equity as a percentage of average total assets  11.9%  13.0%  13.0%
Payout (2)  24.6%  65.8%  52.5%

 

(1)“Average stockholders’ equity excluding goodwill as a percentage of average total assets excluding goodwill” is a non-GAAP financial measure which adjusts “Return on average stockholders’ equity” to exclude the goodwill arising from the acquisition of Banco Real in 2008, Getnet Adquirência e Serviços para Meios de Pagamento S.A., or “GetNet” and Super Pagamentos e Administração de Meios Eletrônicos Ltda., or “Super”, both in 2014 and Banco Olé Bonsucesso Consignado S.A. in 2015,60%, and the remaining 40% in 2020. See “Item 3. Key Information—A. Selected Financial Data—Selected Consolidated Ratios” for a reconciliation of “Average stockholders’ equity excluding goodwill as a percentage of average total assets excluding goodwill” to “Return on average stockholders’ equity.”

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equity” to exclude the goodwill arising from the acquisition of Banco Real in 2008. See “Item 3. Key Information—A. Selected Financial Data—Selected Consolidated Ratios” for a reconciliation of “Average stockholders’ equity excluding goodwill as a percentage of average total assets excluding goodwill” to “Return on average stockholders’ equity.”

 

(2)Dividend payout ratio (dividends declared per preferred share divided by net income per preferred share).

 

Interest-Earning Assets (other than Loans)

 

The following table shows the percentage mix of our average interest-earning assets for the years indicated. You should read this table in light of our observations noted in “—Average Balance Sheet and Interest Rates.”

 

 For the Year Ended December 31, For the Year Ended December 31,
 2019 2018 2017 2020 2019 2018
Cash and balances with the Brazilian Central Bank  7.5%  13.4%  19.0%  7.3%  7.5%  13.4%
Loans and amounts due from credit institutions  15.6%  9.3%  4.2%  14.1%  15.6%  9.3%
Loans and advances to customers  49.5%  50.3%  50.2%  51.4%  49.5%  50.3%
Debt instruments  27.4%  27.0%  26.5%  27.2%  27.4%  27.0%
Total interest-earning assets  100%  100%  100%  100%  100%  100%

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Loans and Amounts Due from Credit Institutions

 

For further information about Loans and Amounts Due from Credit Institutions, see note “5 – Loans and amounts due from credit institutions” to our audited consolidated financial statements included elsewhere in “Item 18. Financial Statements” of this annual report.

 

Investment Securities

 

As of December 31, 20192020 and 2018,2019, the book value of investment securities was R$176232 billion and R$177176 billion, respectively (representing 23%24.7% and 23.0%, respectively, of our total assets as of such dates). Brazilian government securities totaled R$192 billion, or 82.8% and R$136 billion, or 77.3% and R$117 billion, or 66.0% of our investment securities as of December 31, 20192020 and 2018,2019, respectively. For a discussion of how our investment securities are valued, see notes 7 and 8 to our audited consolidated financial statements.statements included elsewhere in this annual report.

 

The following table shows the carrying amounts of our investment securities by type and residence of the counterparty at each of the indicated dates:

 

 As of December 31, As of December 31,
 2019 2018 2017 2020 2019 2018
 (in millions of R$) (in millions of R$)
Debt securities                  
Government securities—Brazil  135,848   116,531   122,362   191,896   135,848   116,531 
Debentures and promissory notes  13,875   10,556   12,097   17,072   13,875   10,556 
Other debt securities  23,609   48,346   14,626   21,134   23,609   48,346 
Total domestic/debt securities  173,332   175,433   149,086   230,102   173,332   175,433 
                        
Equity securities                        
Shares of Brazilian companies  665   783   389   1,953   665   783 
Shares of foreign companies  -     2   5   -   -   2 
Investment fund units and shares  1,693   320   1,235   363   1,693   320 
Total equity securities  2,358   1,106   1,629   2,316   2,358   1,106 
Total investment securities  175,690   176,539   150,715   232,418   175,690   176,539 

 

As of December 31, 20192020 and 2018,2019, we held no securities of single issuers or related groups of companies whose aggregate book or market value exceedexceeded 1% of our stockholders’ equity, other than the Brazilian government securities, which represented 140%180.5% and 127%140.5%, respectively of our stockholders’ equity. As of December 31, 20192020 and 2018,2019, the total value of our debt securities was

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approximately 179%217.4% and 191%181.8%, respectively, of stockholders’ equity.

 

The following table analyzes the maturities and weighted average yields of our debt investment securities (before impairment allowance) as of December 31, 2019.2020. Yields on tax-exempt obligations have not been calculated on a tax equivalent basis because the effect on such calculation is not significant.

 

  Maturing within 1 year Maturing between 1 and 5 years Maturing between 5 and 10 years Maturing after 10 years Total
  (in R$ millions)
Debt securities          
Government securities—Brazil  20,263   90,716   20,476   8,775   135,848 
Other debt securities  -     25,031   8,071   -     37,484 
Total debt investment securities  20,263   115,747   28,547   8,775   173,332 

  Maturing within 1 year Maturing between 1 and 5 years Maturing between 5 and 10 years Maturing after 10 years Total
  (in R$ millions)
Debt securities                    
Government securities—Brazil  46,475   135,212   44,041   -   225,728 
Other debt securities  1,015   437   2,922   -   4,374 
Total debt investment securities  47,490   135,649   46,963   -   230,102 

The average rate for debt investment securities is 7.6%6.7%.

 

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Domestic and Foreign Currency

 

The following table shows our assets and liabilities by domestic and foreign currency, as of the dates indicated.

 

 As of December 31, As of December 31,
 2019 2018 2017 2020 2019 2018
 Domestic Currency Foreign Currency Domestic Currency Foreign Currency Domestic Currency Foreign Currency Domestic Currency Foreign Currency Domestic Currency Foreign Currency Domestic Currency Foreign Currency
 (in millions of R$) (in millions of R$)
Assets                        
Cash and balances with the Brazilian Central Bank (1)  4,878   15,250   16,651   15,065   18,144   15,981   4,531   15,617   4,878   15,250   16,651   15,065 
Debt instruments  164,447   8,885   166,743   8,690   137,420   11,666   226,787   3,315   164,447   8,885   166,743   8,690 
Loans and amounts due from credit institutions, gross (1)  107,694   1,553   79,166   454   65,279   -     109,339   3,520   107,694   1,553   79,166   454 
Loans and advances to customers, gross  326,421   20,835   304,031   17,902   269,126   18,703   396,950   20,822   326,421   20,835   304,031   17,902 
Equity Instruments  2,358   -     1,106   -     1,624   6   1,675   -   2,358   -   1,106   - 
Total assets  605,798   46,523   567,697   42,111   491,593   46,356   739,283   43,275   605,798   46,523   567,697   42,111 
Liabilities                                                
Financial Liabilities at Amortized cost:                                                
Deposits from the Brazilian Central Bank and Deposits from credit institutions  58,283   40,988   74,160   24,863   56,563   22,812   86,564   45,093   58,283   40,988   74,160   24,863 
Customer deposits  336,515   -     304,198   -     276,042   -     445,900   -   336,515   -   304,198   - 
Marketable debt securities  64,987   8,715   70,109   4,517   68,335   1,912   47,476   9,399   64,987   8,715   70,109   4,517 
Subordinated debts  -     -     9,886   -     519   -     -   -   -   -  ��9,886   - 
Debt instruments eligible to compose capital  -     10,176   -     9,780   8,435   -     -   13,120   -   10,176   -   9,780 
Other financial liabilities  60,885   -     51,729   -     44,261   -     66,727   153   60,885   -   51,729   - 
Total liabilities  520,670   59,879   510,082   39,160   454,155   24,724   646,667   67,766   520,670   59,879   510,082   39,160 

 

(1)In the fiscal year ended December 31, 2019, the balances related to compulsory deposits were reclassified from cash and reserves at the Brazilian Central Bank to the item Loans and other amounts with credit institutions for better presentation and, consequently, the respective comparative balances also have been reclassified.

(1) In the fiscal year ended December 31, 2018, the balances related to compulsory deposits were reclassified from cash and reserves at the Brazilian Central Bank to the item Loans and other amounts with credit institutions for better presentation and, consequently, the respective comparative balances also have been reclassified.

 

Loan Portfolio

 

As of December 31, 2019,2020, our total loans and advances to customers weretotaled R$347418 billion (45.6%(54.8% of our total assets). Net impairment losses, loans and advances to customers weretotaled R$327418 billion as ofDecember 31, 2019 (42.9%2020 (48.0% of our total assets). In addition to loans, we had outstanding as of December

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31, 2019, 2018, 2017, 2016 and 2015,loan commitments drawable by third parties totaling R$131.9 billion, R$125.9 billion, R$122.7 billion, R$106.9 billion and R$91.2 billion as of December 31, 2020, 2019, 2018, 2017 and R$91.9 billion respectively, of loan commitments drawable by third parties.2016, respectively.

 

Types of Loans by Type of Customer

 

Substantially allThe majority of ourthe loans we have outstanding are to borrowers domiciled in Brazil and are denominated inreais. The table below analyzesbreaks down our loans and advances to customers (including securities purchased under agreements to resell), by type of customer, loan, at each of the dates indicated. For each loan category, of loan, we maintain specific risk management policies that are in line with the standards of the Santander Group, and aswhich in turn, are managed and monitored by our board of officers through the credit committee. OurThe credit approval processesprocess for each loan category of loan areis structured primarily around our business segments. See “Item 11. Quantitative and Qualitative Disclosures about Risk—Credit Risk” for details on our credit approval policies for retail and wholesale lending.

 

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We have a diversified loan portfolio, with no specific concentration exceeding 10% of our total loans. Furthermore, currently, 1.01%Currently, 1.3% of our loan portfolio is allocated to our largest debtor and 6.79%6.5% to ourthe next 10 largest debtors.

 

For further information about the breakdown of our Loans breakdown and Maturity see note “9 – Loans and advances to clients” sections “a - Breakdown” and “b – Detail” in “Item 18. Financial Statements,” which containsof note “9 – Loans and advances to customers” to our audited consolidated financial statements preparedincluded in accordance with IFRS as issued by the IASB.this annual report.

 

Fixed and Variable Rate Loans

 

The following table sets forth a breakdown of our fixed and variable rate loans by maturity as of December 31, 2019.2020.

 

 Fixed and variable rate loans with maturity Fixed and variable rate loans with maturity
 Less than one year One to five years Over five years Total Less than one year One to five years Over five years Total
 Balance % of Total Balance % of Total Balance % of Total Balance % of Total Balance % of Total Balance % of Total Balance % of Total Balance % of Total
 (in millions of R$, except percentages) (in millions of R$, except percentages)
Fixed rate  155,506   84   91,283   77   11,972   28   258,761   75   162,684   74   113,662   77   16,538   32   292,884   70 
Variable rate  30,691   16   26,558   23   31,247   72   88,496   25   56,378   26   33,352   23   35,208   68   124,938   30 
Total  186,197   100   117,841   100   43,218   100   347,256   100   219,063   100   147,014   100   51,745   100   417,822   100 

 

Cross-Border Outstandings

 

The following table presents, at each balance sheet date indicated, the aggregate amount of our cross-border outstandings (which consist of loans, interest-bearing deposits with other banks, acceptances and other monetary assets denominated in a currency other than the home-country currency of the office where the item is booked). Cross-border outstandings do not include local currency loans made by subsidiary banks in other countries to the extent that such loans are funded in the local currency or hedged. As a result, they do not include the majority of the loans made by our Cayman Islands branch, which are fully hedged.

 

      As of December 31,    
  2019   2018   2017  
  Balance % of Total Assets Balance % of Total Assets Balance % of Total Assets
  (in millions of R$, except percentages)          
OECD countries(1)            
Spain  2,589   0.3   1,984   0.3   1,217   0.2 
United States  9,081   1.2   3,721   0.5   3,304   0.5 
Netherlands  2,355   0,3   1,531   0.2   3,853   0.6 
United Kingdom()  158   0.0   1,003   0.1   6,508   1.0 

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Other OECD countries(2)  218   0.0   16,264   2.4   1,072   0.1 
Total OECD  14,401   1.9   24,503   3.6   15,954   2.5 
Non-OECD countries                        
Latin American countries(2)  189   0.0   1,382   0.2   314   -   
Cayman Islands  467   0.1   3,528   0.5   (8,304)  (1.3)
Other(2)  483   0.1   2,397   0.3   100   -   
Total non-OECD  1,139   0.1   7,307   1.1   (7,890)  (1.3)
Total  15,540   2.0   31,810   4.6   8,064   1.2 

  As of December 31,          
  2020   2019   2018  
  Balance % of Total Assets Balance % of Total Assets Balance % of Total Assets
  (in millions of R$, except percentages)
OECD countries(1)            
Spain  437   0.1   1,984   0.3   1,217   0.2 
United States  12,674   1.8   3,721   0.5   3,304   0.5 
Netherlands  80   0.0   1,531   0.2   3,853   0.6 
United Kingdom(3)  29   0.0   1,003   0.1   6,508   1.0 
Other OECD countries(2)  3,534   0.5   16,264   2.4   1,072   0.1 
Total OECD  16,754   2.4   24,503   3.6   15,954   2.5 
Non-OECD countries                        
Latin American countries(2)  1,204   0.2   1,382   0.2   314   - 
Cayman Islands  2,917   0.4   3,528   0.5   (8,304)  (1.3)
Other(2)  1,189   0.2   2,397   0.3   100   - 
Total non-OECD  5,310   0.8   7,307   1.1   (7,890)  (1.3)
Total  22,064   3.2   31,810   4.6   8,064   1.2 
 

(1)The Organization for Economic Cooperation and Development.

(2)Aggregate outstandings in any single country in this category do not exceed 1.2%1.5% of our total assets.

 

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The following table presents the amounts of our cross-border outstandings as of December 31, 2020, 2019 2018 and 20172018 by type of borrower where outstandings in the borrower’s country exceeded 1.2% of our total assets.

 

  Government Banks and Other Financial Institutions Commercial and Industrial Other Loans Total
  (in millions of R$)
2017          
United States  -     3,168   20   115   3,303 
Netherlands  -     -     3,853   -     3,853 
Austria  -     -     280   (5)  275 
United Kingdom  -     5   247   6,256   6,508 
Cayman Islands  5,656   -     1,485   (15,445)  (8,304)
Total  5,656   3,172   5,885   (9,079)  5,634 
2018                    
United States  -     3,569   23   130   3,722 
Netherlands  -     -     1,531   -     1,531 
Austria  -     -     197   (4)  193 
United Kingdom  -     1   38   964   1,003 
Cayman Islands  3,541   1,987   3,685   (5,685)  3,528 
Total  3,541   5,557   5,474   (4,595)  9,977 
2019                    
United States  -     8,710   55   316   9,081 
Netherlands  -     -     2,355   -     2,355 
Austria  -     -     127   (2)  125 
United Kingdom  -     -     7   151   158 
Cayman Islands  469   263   488   (752)  467 
Total  469   8,973   3,030   (287)  12.185 

  Government Banks and Other Financial Institutions Commercial and Industrial Other Loans Total
  (in millions of R$)
2018          
United States  -   3,569   23   130   3,722 
Netherlands  -   -   1,531   -   1,531 
Austria  -   -   197   (4)  193 
United Kingdom  -   1   38   964   1,003 
Cayman Islands  3,541   1,987   3,685   (5,685)  3,528 
Total  3,541   5,557   5,474   (4,595)  9,977 
2019                    
United States  -   8,710   55   316   9,081 
Netherlands  -   -   2,355   -   2,355 
Austria  -   -   127   (2)  125 
United Kingdom  -   -   7   151   158 
Cayman Islands  469   263   488   (752)  468 
Total  469   8,973   3,030   (287)  12,187 
2020                    
United States  -   12,653   9   12   12,674 
Netherlands  -   -   80   -   80 
Austria  -   -   -   444   444 
United Kingdom  -   28   -   1   29 
Cayman Islands  -   1,341   (1)  1,577   2,917 
Total  -   14,022   88   2,034   16,144 
 

 

Non-current assets held for sale

 

For further information, see note “10 - Non-current assets held for sale” in “Item 18. Financial Statements,” which containsto our audited consolidated financial statements preparedincluded elsewhere in accordance with IFRS as issued by the IASB.this annual report.

 

Liabilities

 

Deposits

 

The principal components of our deposits are customer demand, time and notice deposits, and international and domestic interbank deposits. Our retail customers are the principal source of our demand, time and notice deposits.

 

For further information, see note “16 – Deposits from the Brazilian Central Bank and Deposits from Credit Institutions” and “17 – Client deposits” in “Financial Statements” in “Item 18. Financial

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Statements,” which containsto our audited consolidated financial statements preparedincluded elsewhere in accordance with IFRS as issued by the IASB.this annual report.

 

The following table shows the maturity of time deposits (excluding inter-bank deposits) in denominations of U.S.$100,000 or more at the dates indicated. Large denomination customer deposits may be a less stable source of funds than demand and savings deposits.

 

  As of December 31, 20192020
  Domestic International
  (in millions of R$)
Under 3 months  216,896344,923   - 
3 to 6 months  62,67263,380   - 
6 to 12 months  62,67163,390   - 
Over 12 months  93,547105,788   - 
Total  435,786577,470   - 

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Short-Term Borrowings

 

The following table shows our short-term borrowings consisting of government securities that we sold under agreements to repurchase for purpose of funding our operations.

 

  As of December 31,
  2019 2018 2017
  Amount Average Rate Amount Average Rate Amount Average Rate
  (in millions of R$, except percentages)
Securities sold under agreements to repurchase            
As of December 31  123,941   5.00%  99,379   7.34%  97,421   8.33%
Average during the period (1)  100,473   4.84%  102,051   9.67%  98,567   10.63%
Maximum month-end balance  123,941       113,691       119,007     
Total short-term borrowings at year end  123,941       99,379       97,421     

  As of December 31,
  2020 2019 2018
  Amount Average Rate Amount Average Rate Amount Average Rate
  (in millions of R$, except percentages)
Securities sold under agreements to repurchase                        
As of December 31  112,477   1.90%  123,941   5.00%  99,379   7.34%
Average during the period (1)  112,096   2.71%  100,473   4.84%  102,051   9.67%
Maximum month-end balance  155,174       123,941       113,691     
Total short-term borrowings at year end  112,477       123,941       99,379     
 

(1)The average annual balance sheet data has been calculated based upon the average of the monthly balances at 13 dates: at December 31 of the prior year and for each of the month-end balances of the 12 subsequent months.

 

Changes in Allowances for Impairment Losses on the Balances of “Loans and receivables”

 

The following tables analyze changes in our allowances for impairment losses for the periods indicated. For further discussion of movements in the allowances for impairment losses,information regarding these changes, see “Item 5. Operating and Financial Review and Prospects—A. Operating Results—Results of Operations for the Years Ended December 31, 2020, 2019 2018 and 2017—2018—Results of Operations—Impairment Losses on Financial Assets (Net).”

 

  As of December 31,
  2019 2018 2017 2016 2015
  (in millions of R$)
Balance at beginning of year  22,969   18,262   18,191   15,412   13,563 
Initial adoption of IFRS 9  -     2,461   -     -     -   
Balance adjusted  22,969   20,723   18,191   15,412   13,563 
Impairment losses charged to income for the year  14,361   13,540   13,493   14,383   13,723 
Write-off of impaired balances against recorded impairment allowance  (14,705)  (11,294)  (13,422)  (11,605)  (11,874)
Balance at end of year  22,625   22,969   18,262   18,191   15,412 
Of which:                    
Loans and advances to customers  20,557   20,242   15,409   16,435   15,233 
Loans and amounts due from credit institutions  14   14   69   201   179 

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Provision for Debt Instruments  2,055   2,714   2,784   1,555   144 
Recoveries of loans previously charged off(1)  991   827   1,154   994   757 

  As of December 31,
  2020 2019 2018 2017 2016
  (in millions of R$)
Balance at beginning of year  22,625   22,969   18,262   18,191   15,412 
Initial adoption of IFRS 9  -   -   2,461   -   - 
Balance adjusted  22,625   22,969   20,723   18,191   15,412 
Impairment losses charged to income for the year  18,311   14,361   13,540   13,493   14,383 
Write-off of impaired balances against recorded impairment allowance  (15,297)  (14,705)  (11,294)  (13,422)  (11,605)
Balance at end of year  25,640   22,625   22,969   18,262   18,191 
Of which:                    
Loans and advances to customers  24,054   20,557   20,242   15,409   16,435 
Loans and amounts due from credit institutions  9   14   14   69   201 
Debt Instruments  1,577   2,055   2,714   2,784   1,555 
Recoveries of loans previously written off(1)  861   991   827   1,154   994 
(1)Impairment losses on financial assets, net, as reported in our consolidated financial statements, reflect net provisions for credit losses less recoveries of loans previously written off.

 

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Allowance by Type of Borrower

 

The table below shows a breakdown of recoveries, net provisions and write-offs against credit loss allowance by type of borrower for the periods indicated.

 

  For the Year Ended December 31,
  2019 2018 2017 2016 2015
  (in millions of R$)
Recoveries of loans previously charged  off(1)  991   827   1,154   994   757 
Commercial and industrial  481   345   413   563   294 
Real estate – construction  47   103   210   103   86 
Installment loans to individuals  456   370   521   314   348 
Lease finance  8   9   10   14   29 
Impairment losses charged to income for the year(1)  14,361   13,540   13,492   14,383   13,723 
Commercial and industrial  2,377   3,620   5,499   6,523   6,634 
Real estate – construction  95   193   471   369   91 
Installment loans to individuals  11,866   9,708   7,461   7,617   6,766 
Lease finance  23   19   61   (125)  232 
Write-off of impaired balances against recorded impairment allowance  (14,705)  (11,294)  (13,422)  (11,605)  (11,874)
Commercial and industrial  (4,101)  (3,981)  (5,716)  (4,553)  (4,953)
Real estate – construction  (93)  (191)  (342)  (190)  (77)
Installment loans to individuals  (10,462)  (7,100)  (7,312)  (6,811)  (6,622)
Lease finance  (49)  (22)  (52)  (51)  (222)

  For the Year Ended December 31,
  2020 2019 2018 2017 2016
  (in millions of R$)
Recoveries of loans previously charged off(1)  861   991   827   1,154   994 
Commercial and industrial  422   520   345   413   563 
Real estate – construction  56   47   103   210   103 
Installment loans to individuals  370   417   370   521   314 
Lease finance  13   8   9   10   14 
Impairment losses charged to income for the year(1)  18,311   14,361   13,540   13,492   14,383 
Commercial and industrial  6,919   2,377   3,620   5,499   6,523 
Real estate – construction  81   95   193   471   369 
Installment loans to individuals  11,309   11,866   9,708   7,461   7,617 
Lease finance  3   23   19   61   (125)
Write-off of impaired balances against recorded impairment allowance  (15,297)  (14,705)  (11,294)  (13,422)  (11,605)
Commercial and industrial  (4,617)  (5,713)  (3,981)  (5,716)  (4,553)
Real estate – construction  (232)  (108)  (191)  (342)  (190)
Installment loans to individuals  (10,433)  (8,834)  (7,100)  (7,312)  (6,811)
Lease finance  (15)  (49)  (22)  (52)  (51)
(1)Impairment losses on financial assets, net, as reported in our consolidated financial statements, reflect net provisions for credit losses less recoveries of loans previously written off.

 

The table below shows a breakdown of allowances for credit losses by type of borrowers and the percentage of loans in each category as a share of total loans at the date indicated.

 

 As of December 31, As of December 31,
 2019 % of Total Loans 2018 % of Total Loans 2017 % of Total Loans 2020 % of Total Loans 2019 % of Total Loans 2018 % of Total Loans
 (in millions of R$, except percentages) (in millions of R$, except percentages)
Borrowers                        
Commercial and industrial  7,836   35   10,792   47   10,338   56.6   9,757   38   7,455   33   10,792   47 
Real estate – construction  355   2   358   2   493   2.7 
Real estate  194   1   345   2   358   2 
Installment loans to individuals  14,409   64   11,768   51   7,374   40.4   15,676   61   14,800   65   11,768   51 
Lease financing  25   0   51   0   56   0.3   14   0   26   0   51   0 
Total  22,625   100   22,969   100.0   18,261   100.0   25,640   100   22,625   100   22,969   100 

 

Internal Risk Rating

 

The following table presents a breakdown of our portfolio by internal risk rating, at the dates indicated:

 

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  As of
  December 31,
  2019 2018 2017
  (in millions of R$)
Internal Risk Rating      
             

Low  257,133   240,440   226,098 
Medium-low  56,549   50,486   33,635 
Medium  11,755   11,967   10,423 
Medium-high  8,513   7,722   8,215 
High  13,307   11,318   9,457 
Loans and advances to customers, gross  347,257   321,933   287,829 

  As of
  December 31,
  2020 2019 2018
  (in millions of R$)
Internal Risk Rating            
Low  347,315   257,133   240,440 
Medium-low  24,277   56,549   50,486 
Medium  26,232   11,755   11,967 
Medium-high  3,896   8,512   7,722 
High  16,101   13,307   11,318 
Loans and advances to customers, gross  417,819   347,257   321,933 

 

For further information on our internal risk rating levels and their corresponding probability of default, see “Item 11. Quantitative and Qualitative Disclosures about Market Risk—Credit Risk—Credit Monitoring.”

 

Renegotiation Portfolio

 

The renegotiation portfolio for the year ended on December 31, 20192020 amounted to R$1520 billion, compared to R$1415 billion for the same period in 2018,2019, an increase of R$1,9665,008 million or 14.5%32.8%. This portfolio includes loans and advances to customers that were extended and/or modified to facilitate repayment under conditions agreed upon with customers.

 

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The renegotiation portfolio was covered by allowances for impairment losses of 44.0% as of December 31, 2020 and 48.5% as of December 31, 2019 and 53.9% as of December 31, 2018.2019. These levels are considered appropriate for the characteristics of these loans and advances to customers.

 

The following table presents a breakdown of our renegotiation portfolio by type of customer, allowances for impairment losses and our coverage ratio at the dates indicated:

 

 2019 2018 2017 2020 2019 2018
 (in millions of R$, except percentages) (in millions of R$, except percentages)
Renegotiation Portfolio by type of customer            
Commercial and industrial  5,141   5,949   6,086   5,862   5,141   5,949 
Real Estate  -     -     1 
Installment loans to individuals  10,102   7,492   6,047   14,623   10,102   7,492 
Financial leasing  239   75   79   5   239   75 
Total  15,482   13,516   12,213   20,490   15,482   13,516 
Allowances for impairment losses  7,501   7,279   6,596   9,019   7,501   7,279 
Coverage ratio  48.45%  53.85%  54.0%  44.0%  48.5%  53.8%

 

Balances are deemed to be impaired when there are reasonable doubts as to their full recovery and/or the collection of the related interest for the amounts on the dates indicated in the loan agreement, after taking into account the collateral guarantees received to secure (fully or partially) collection of the related balances.

 

In relation to renegotiated products, we, throughAs established in our internal renegotiation policy, require at least a minimum amount of payment of quotasin order for any renegotiated products to be consideredclassified as performing, we must, receive an amount equivalent to at least 10% of the total amount outstanding in the six months which follow the renegotiation date (note that the classification of suchthese transactions will remain classified as renegotiated operations will remain even after receiving such payments). Renegotiated loans that are more than 60 days later than due dateoverdue are also accounted for as impaired.

 

Since 2015, weWe increased our efforts regarding the collection of loans that are less than 60 days past due and also in relation to written off loans. We are also continuing with our strategy (in place since 2012) of granting loans to persons with low risk profile and higher levels of collaterals and guarantees.

 

Impaired Assets

 

The following table shows our impaired assets. assets, excluding country risk.

 

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  As of December 31,
  2019 2018 2017 2016 2015
  (in millions of R$, except percentages)
Impaired assets          
                     

Past due and other impaired assets(1)  23,426   22,426   19,145   18,887   18,599 
Impaired assets as a percentage of total loans  6.7%  7.0%  6.7%  7.0%  7.0%
Net loan charge-offs as a percentage of total loans  4.3%  3.5%  4.7%  4.3%  4.4%
Net loan charge-offs as a percentage of average total loans  5.3%  3.8%  4.8%  4.5%  4.5%

  As of December 31,
  2020 2019 2018 2017 2016
  (in millions of R$, except percentages)
Impaired assets                    
Past due and other impaired assets(1)  23,176   23,426   22,426   19,145   18,887 
Impaired assets as a percentage of total loans  5.5%  6.7%  7.0%  6.7%  7.0%
Net loan charge-offs as a percentage of total loans  3.7%  4.3%  3.5%  4.7%  4.3%
Net loan charge-offs as a percentage of average total loans  3.8%  5.3%  3.8%  4.8%  4.5%
(1)Includes as of December 31, 2019,2020, R$2,7882,028 million of doubtful loans (R$2,788 million in 2019, R$3,754 million in 2018, R$5,439 million in 2017 and R$5,576 million in 2016 and R$5,549 million in 2015)2016) that were not past-due.

 

Evolution of Impaired Assets

 

Our impaired assets increaseddecreased by 4.5%1.1%, or R$1,000250 million, to R$23,176 million as of December 31, 2020, compared to R$23,426 million as of December 31, 2019, compared to R$22,426 million as of December 31, 2018.2019. Provisions for impairment losses, including total recoveries of loans previously charged off, decreased 1.5%increased 13.3%, or R$3443,015 million, to R$22,626 25,640 million as of December 31, 2019,2020, compared to R$22,969 22,625 million as of December 31, 2018.2019. Offsetting these effects were recoveries of R$991861 million on loans previously written off as of December 31, 20192020 and R$ 827991 million as of December 31, 2018.2019.

 

We believe the provisions made were adequate to cover all known or reasonably probable losses or incurred losses in the credit portfolio of loans and other assets as of December 31, 2020.

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The following table shows the changes in our impaired assets at the dates indicated:

 

  As of December 31,
  2019 2018 2017 2016 2015
  (in millions of R$)
Balance at beginning of year  22,426   19,145   18,887   18,599   14,011 
Initial Adoption of IFRS9(1)  -     703   -     -     -   
Adjusted Balance  22,426   19,848   18,887   18,599   14,011 
Net additions  16,001   13,872   13,679   11,893   16,462 
Write-offs  (15,001)  (11,294)  (13,422)  (11,605)  (11,874)
Balance at end of year  23,426   22,426   19,145   18,887   18,599 

  As of December 31,
  2020 2019 2018 2017 2016
  (in millions of R$)
Balance at beginning of year  23,426   22,426   19,145   18,887   18,599 
Initial Adoption of IFRS9 (1)  -   -   703   -   - 
Adjusted Balance  23,426   22,426   19,848   18,887   18,599 
Net additions  14,672   16,001   13,872   13,679   11,893 
Write-offs  (14,922)  (15,001)  (11,294)  (13,422)  (11,605)
Balance at end of year  23,176   23,426   22,426   19,145   18,887 
(1)Further information, see Financial Statements notes 1 and 9.

 

The amount of “net additions” for any period is assets that became impaired in that period less assets that were impaired but became performing in that period. In 2019, better2020, the debt restructuring options to restructure debts collaboratedwere improved to maintain theconsistent levels of “net additions” relatively at the same level.and “write-offs”.

 

Impaired Assets by Type of Customer

 

The following table shows the amount of our impaired assets by type of customers at the dates indicated:

 

 As of December 31, As of December 31,
 2019 2018 2020 2019
 (in millions of R$) (in millions of R$)
Commercial and industrial  10,073   11,832   10,558   10,073 
Real estate – construction  827   1,036 
Real estate  456   827 
Installment loans to individuals  12,497   9,499   12,144   12,497 
Lease financing  29   59 
Financial leasing  17   29 
Total  23,426   22,426   23,176   23,426 

 

Commercial and Industrial

 

Impaired assets in the portfolio ofour commercial and industrial loans portfolio amounted to R$10,558 million as of December 31, 2020, an increase of R$485 million, or 4.8%, compared to R$10,073 million as of December 31, 2019,2019. This increase was mainly due to the collective assessment of R$1,660 million performed by Santander Brasil which was based on forecasts of senstivity to macroeconomic conditions which indicate staged transfers following a deterioration of the portfolio.

Real Estate

Impaired assets in the real estate lending portfolio totaled R$456 million on December 31, 2020, a decrease of R$1,759371 million, or 15%44.8%, compared to R$11,832827 million as of December 31, 2018.2019. The decrease in impaired assets in this portfolio was primarily due tothe result of the measures that Santander Brasil put in place to manage it, including collection practices with respect to our borrowers.

Installment Loans to Individuals

Impaired assets in the installment loans to individuals lending portfolio totaled R$12,144 million as of December 31, 2020, with a decrease of R$353 million, or 2.8%, compared to 2019. The decrease in impaired assets in this portfolio was the result of the measures that Santander Brasil put in place to manage it, including collection practices with respect to our borrowers whereby we offered certain customers the chance to negotiate a restructuring of their debts, especially during the COVID-19 pandemic, or asset disposal.

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Real Estatedisposals.

 

Impaired assets in the real estate lending portfolio totaled R$827 million on December 31, 2019, a decrease of R$209 million, or 20.2%, compared to R$1,036 million as of December 31, 2018. The decrease was primarily due to change on macroeconomic conditions lead to reduction on the interest rates on real estate portfolio in Brazil.

Installment Loans to Individuals

Impaired assets in the installment loans to individuals lending portfolio totaled R$12,497 million as of December 31, 2019, with an increase of R$2,998 million, or 31.6%, compared to 2018. This increase was a consequence of the recurrent growth the portfolio and the weak macroeconomic conditions related to the portfolio in Brazil, such as unemployment rate and degree of income commitment.

Lease FinancingFinancial Leasing

 

Impaired assets in the lease financing lending portfolio totaled R$2917 million on December 31, 2019,2020, a decrease of R$3012 million compared to December 31, 2018.2019. This decrease in impaired assets was mainly due to asset write-offs in an amount of R$15.6 million in 2020.

 

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Methodology for Impairment Losses

 

We evaluate all loans regarding the provision for impairment losses from credit risk. Loans are either individually evaluated for impairment, or collectively evaluated by grouping similar risk characteristics. Loans that are individually evaluated for impairment losses are not evaluated collectively.

 

To measure the impairment loss on loans individually evaluated for impairment, we consider the conditions of the borrowers, such as their economic and financial situation, level of indebtedness, ability to generate income, cash flow, management, corporate governance and quality of internal controls, payment history, industry expertise, contingencies and credit limits, as well as the characteristics of assets, such as their nature and purpose, type, sufficiency and liquidity level guarantees and total amount of credit, as well as based on historical experience of impairment and other circumstances known at the time of evaluation.

 

To measure the impairment loss on loans collectively evaluated for impairment, we segregate financial assets into groups considering the characteristics and similarity of credit risk. In other words, according to segment, the type of assets, guarantees and other factors associated such as the historical experience of impairment and other circumstances known at the time of assessment.

 

The expected loss measurement is made through the following factors:

 

·Exposure at Default (EAD): is the amount of a transaction exposed to credit risk including the ratio of current outstanding balance exposure that could be provided at default. Developed models incorporate hypotheses considering possible modifications to the payment schedule.

 

·Probability of Default (PD): is defined as the probability that the counterparty can meet its obligations to pay the principal and / or interest. For the purposes of IFRS 9, both will be considered: PD - 12 months (Stage 1), which is the probability that the financial instrument will default during the next 12 months as well as PD - life time (Stage 2 and 3), which considers the probability that the transaction between in default between the balance sheet date and the residual maturity date of the transaction. The standard requires that future information relevant to the estimation of these parameters should be considered.

 

·Loss Given Default (LGD): is the loss produced in the event of default. In other words, this reflects the percentage of exposure that could not be recovered in the event of a default. It depends mainly on the collateral, which is considered as credit risk mitigants associated with each financial asset, and the future cash flows that are expected to be recovered. According to the standard, forward-looking information must be taken into account in the estimation.

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and the future cash flows that are expected to be recovered. According to the standard, forward-looking information must be taken into account in the estimation.

 

·Discount rate: the rate applied to the future cash flows estimated during the expected life of the asset, and which is equal to the net present value of the financial instrument at its carrying value.

 

In order to estimate the above parameters, the Bank has applied its experience in developing internal models for parameters calculation both for regulatory and management purposes.

 

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Loans Past Due for Less Than 90 Days but Not Classified as Impaired

 

The following table shows the loans past due for less than 90 days but not classified as impaired at the dates indicated:

 

  As of December 31,
  2019 % of total 2018 % of total
  (in millions of R$, except percentages)
Commercial and industrial  3,517   15.4   4,424   19.8 
Mortgage loans  5,782   25.3   4,527   20.2 
Installment loans to individuals  13,489   59.1   13,256   59.2 
Lease financing  24   0.1   168   0.8 
Total (*)  22,812   100.0   22,375   100.0 

  As of December 31,
  2020 % of total 2019 % of total
  (in millions of R$, except percentages)
Commercial and industrial  5,132   25.8   3,517   15.4 
Mortgage loans  3,085   15.5   5,782   25.3 
Installment loans to individuals  11,661   58.6   13,489   59.1 
Lease financing  13   0.1   24   0.1 
Total (*)  19,891   100.0   22,812   100.0 
 

(*)Refers only to loans past due between 1 and 90 days.

 

Impaired Asset Ratios

 

Our Creditcredit risk exposure portfolio increased by R$27.474.5 billion to R$466.1 billion as of December 31, 2020, compared to R$391.6 billion as of December 31, 2019, compared to R$364.2 billion as of December 31, 2018.2019. Our impaired assets increaseddecreased by approximately R$10.2 billion in the same period, from R$22.423.4 billion to R$23.423.2 billion. The default rate decreased by 2010 basis points in 20192020 in comparison to 2018, explained in part by2019, primarily due to the recurrent growth of the credit portfolio and the measures that Santander Brasil put in place to manage impaired assets.assets, including collection practices.

 

The following table shows the ratio of our impaired assets to total credit risk exposure and our coverage ratio at the dates indicated.

 

  As of December 31,
  2019 2018 2017 2016 2015
  (in millions of R$ except percentages)
Loans and advances to customers, gross  347,257   321,933   287,829   268,438   267,266 
Impaired assets  23,426   22,426   19,145   18,887   18,599 
Provisions for impairment losses  22,626   22,969   18,262   18,191   15,412 
Credit risk exposure Non-GAAP – customers(1)  391,569   364,194   330,474   301,703   310,877 
Ratios                    
Impaired assets to credit risk exposure  6.0%  6.2%  5.8%  6.3%  6.0%
Coverage ratio(2)  96.6%  102.4%  95.4%  96.3%  82.9%
Impairment losses  (13,370)  (12,713)  (12,338)  (13,389)  (12,966)

Gains (losses) due to derecognition of financial assets measured at amortized cost(3)		  -     -     -  88   (524)
Impairment losses on financial assets (net) (4)  (13,370)  (12,713)  (12,338)  (13,301)  (13,490)

  As of December 31,
  2020 2019 2018 2017 2016
  (in millions of R$ except percentages)
Loans and advances to customers, gross  417,822   347,257   321,933   287,829   268,438 
Impaired assets  23,176   23,426   22,426   19,145   18,887 
Provisions for impairment losses  25,640   22,626   22,969   18,262   18,191 
Credit risk exposure Non-GAAP – customers (1)  466,104   391,569   364,194   330,474   301,703 
Ratios                    
Impaired assets to credit risk exposure  5.0%  6.0%  6.2%  5.8%  6.3%
Coverage ratio (2)  110.6%  96.6%  102.4%  95.4%  96.3%
Impairment losses  (17,451)  (13,370)  (12,713)  (12,339)  (13,388)
Losses on other financial instruments not
  measured at fair value (3)		  -   -   -   -   88 
Impairment losses on financial assets (net) (4)  (17,451)  (13,370)  (12,713)  (12,339)  (13,300)
(1)Credit risk exposure is a non-GAAP financial measure. Credit risk exposure is the sum of the amortized cost amounts of loans and advances to customers (including impaired assets) amounting to R$347 billion417,822 million as of December 31, 201920 and guarantees and documentary credits amounting to R$44 billion48,282 million as of December 31, 2019.2020. We include off-balance sheet information in this measure to better demonstrate our total managed credit risk.

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to better demonstrate our total managed credit risk.

(2)Provisions for impairment losses as a percentage of impaired assets.

(3)Corresponds to the registration of losses of a permanent character in the realization value of bonds and securities classified as “securities available for sale” currently accounted for in “earnings on financial assets (net).”

(4)As of December 31, 20192020 impairment losses on financial assets (net) included R$2,0551,577 million relating to debt instruments.

 

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The following chart shows our impaired assets to credit risk ratio from 20142016 through 2019:2020:

 

-

 

4C.Organizational Structure

4C. Organizational Structure

 

Santander Group controls Santander Brasil directly and indirectly through Santander Spain, Sterrebeeck B.V., or “Sterrebeeck”, and Grupo Empresarial Santander, S.L. which are controlled subsidiaries of the Santander Group. As of December 31, 2019,2020, Santander Spain held, directly and indirectly, 89.5% of our voting stock (not including the shares held by Banco Madesant - Sociedade Unipessoal).stock.

 

As of December 31, 2019,2020, Santander Spain was the largest bank in the euro zone by market capitalization, with a market capitalization of approximately €61,986€44,011 million. As of December 31, 2019,2020, Santander Spain’s attributable profit totaled €6,515€-8,771 million, 17%234.6% lower than the previous year, and the total shareholder remuneration on account of the earnings for the 20192020 financial year is €0.23€-0.538 per share (subject to the approval by the 2020 annual shareholders’ meeting).share. The Santander Group operates principally in Spain, the United Kingdom, other European countries, Brazil and other Latin American countries and the United States, offering a wide range of financial products. In Latin America, the Santander Group has majority shareholdings in financial institutions in Argentina, Brazil, Chile, Mexico, Peru, Puerto Rico and Uruguay. As of December 31, 2019,2020, Santander Brasil contributed 28%€2,113 million of the profit attributable to the Santander Group.

 

The following table presents the name, country of incorporation or residence and proportion of ownership interest of our main subsidiaries in accordance with the criteria for consolidation pursuant to IFRS:

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 ActivityCountry of IncorporationOwnership Interest

Direct and Indirect subsidiaries of Banco Santander (Brasil) S.A.   
Banco Bandepe S.A.BankBrazil100.00%
Santander Leasing S.A. Arrendamento MercantilLeasingBrazil99.99%
Aymoré Crédito, Financiamento e Investimento S.A.FinancialBrazil100.00%
Santander Brasil Administradora de Consórcio Ltda.Buying clubBrazil100.00%
Atual Serviços de Recuperação de Créditos e Meios Digitais S.A. (current name of Atual Companhia Securitizadora de Créditos S.A.)Credit Recovery ServicesBrazil100.00%
Santander Corretora de Câmbio e Valores Mobiliários S.A.BrokerBrazil100.00%

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Santander Corretora de Seguros, Investimentos e Serviços S.A.HoldingBrazil100.00%
Getnet Adquirência e Serviços para Meios de Pagamento S.A.(1)Payment InstitutionBrazil88.50%
SANB Promotora de Vendas e Cobrança Ltda.Other ActivitiesBrazil100.00%
Sancap Investimentos e Participações S.A. HoldingBrazil100.00%
Santander Brasil, EFCFinancialSpain100.00%
Santander Holding Imobiliária S.A. (current name of Webcasas S.A.)HoldingBrazil100.00%
Santander Brasil Tecnologia S.A.TechnologyBrazil100.00%
Rojo Entretenimento S.A.Other ActivitiesBrazil94.60%
Santander Tecnologia e Inovação Ltda.Other ActivitiesBrazil100.00%
BEN Benefícios e Serviços S.A.Other ActivitiesBrazil100.00%
Toque Fale Serviços de Telemarketing Ltda.Other ActivitiesBrazil100.00%
Esfera Fidelidade S.A.Other ActivitiesBrazil100.00%
Super Pagamentos e Administração de Meios Eletrônicos S.A.(2).Other ActivitiesBrazil100.00%
Banco Olé Consignado S.A. (current name of Banco Bonsucesso Consignado S.A.)(3).BankBrazil60.00%
Controlled by Atual Serviços de Recuperação de Créditos e Meios Digitais S.A. (current name of Atual Companhia Securitizadora de Créditos S.A.)   
Return Capital Serviços de Recuperação de Créditos S.A. (current name of Ipanema Empreendimentos e Participações S.A.)Credit Recovery ServicesBrazil100.00%
Controlled by Return Capital Serviços de Recuperação de Créditos S.A. (current name of Ipanema Empreendimentos e Participações S.A.)   
Return Gestão de Recursos S.A. (current name of Gestora de Investimentos Ipanema S.A.)Asset ManagementBrazil100.00%
Controlled by Sancap Investimentos e Participações S.A.   
Santander Capitalização S.A. Savings and annuitiesBrazil100.00%
Evidence Previdência S.A.Social SecuritiesBrazil100.00%
Controlled by Getnet Adquirência e Serviços para Meios de Pagamento S.A.   
Auttar HUT Processamento de Dados Ltda.Other ActivitiesBrazil100.00%
Toque Fale Serviços de Telemarketing Ltda.Other ActivitiesBrazil100.00%
Controlled by Aymoré Crédito, Financiamento e Investimento S.A.   
Banco PSA Finance Brasil S.A. (6) BankBrazil50.00%
Banco Hyundai Capital Brasil S.A. (current name of BHJV Assessoria e Consultoria Empresarial Ltda.)BankBrazil50.00%
Controlled by Banco Olé Consignado
Crediperto Promotora de Vendas e Cobrança Ltda.Other ActivitiesBrazil100.00%

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Olé Tecnologia Ltda.Other ActivitiesBrazil100.00%
Controlled by Santander Leasing S.A. Arrendamento Mercantil   
Pi Distribuidora de Títulos e Valores Mobiliários S.A. (current name of Santander Finance Arrendamento Mercantil)LeasingBrazil100.00%
Consolidated Investment Funds   
Santander FIC FI Contract I Referenciado DIInvestment FundBrazil(a)
Santander Fundo de Investimento Unix Multimercado Crédito PrivadoInvestment FundBrazil(a)
Santander Fundo de Investimento Diamantina Multimercado Crédito Privado de Investimento no ExteriorInvestment FundBrazil(a)
Santander Fundo de Investimento Amazonas Multimercado Crédito Privado de Investimento no ExteriorInvestment FundBrazil(a)
Santander Fundo de Investimento SBAC Referenciado DI Crédito PrivadoInvestment FundBrazil(a)

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Santander Fundo de Investimento Guarujá Multimercado Crédito Privado de Investimento no ExteriorInvestment FundBrazil(a)
Santander Fundo de Investimento Financial Curto PrazoInvestment FundBrazil(a)
Santander Fundo de Investimento Capitalization Renda FixaInvestment FundBrazil(a)
Santander Paraty QIF PLC (5)(1)Investment FundBrazil(a)
Santander FI Hedge Strategies Fund (5)(1)Investment FundBrazil(a)
BRL VPrime 16 - Fundo de Investimento Imobiliário-FII  (4)Real Estate Investment FundBrazil(a)
Fundo de Investimento em Direitos Creditórios Multisegmentos NPL Ipanema VI - Não PadronizadoInvestment FundBrazil(a)
Fundo de Investimento em Direitos Creditórios Multisegmentos NPL Ipanema VI - Não PadronizadoInvestment FundBrazil(a)
Santander Hermes Multimercado Crédito Privado Infraestrutura Fundo de InvestimentosInvestment FundBrazil(a)

 

(a)Company to which we are exposed, or have rights to variable returns and have the ability to affect those returns by making certain decisions in accordance with IFRS 10 - Consolidated Financial Statements. We and/or our subsidiaries hold 100% of the quotas of these investment funds.

(1)In May 2016, Super received approval from the Brazilian Central Bank to operate as a payment institution.

(2)On February 28, 2020, we sold to Superdigital Holding Company, S.L., a company indirectly controlled by Santander Spain, our entire equity interest in Super Pagamentos e Administração de Meios Eletrônicos S.A. (“Superdigital”). We received consideration of R$ 270 million for our interest in Superdigital. As a result, we are no longer a shareholder of Superdigital.

(3)On December 31, 2020, Santander Brasil and the shareholders of Bosan Participações S.A. (holding company whose single asset are the shares representing 40% of the corporate capital of Banco Olé) have entered into the definitive agreements and performed the closing acts related to the purchase and sale of all shares issued by Bosan, upon transferring Bosan’s shares to Santander Brasil and the payment to the sellers of the total price of R$1,608,772,783.47. As a result, Santander Brasil became, directly and indirectly, the holder of all shares issued by Banco Olé.

(4)This fund was established and became consolidated from August 2016. It is a structure in which Santander Brasil is the creditor of certain debts guaranteed by real estate. The real estate provided as guarantee was converted into capital contributions to the fund. Simultaneously with this, the shares in the fund were transferred to Santander Brasil.

(5)Santander Brasil, through its subsidiaries, holds the risks and benefits of Santander Paraty QIF PLC and the sub-fund Santander FI Hedge Strategies Fund, both of which are based in Ireland and since August 2016 are fully consolidated into Santander Brasil’s financial statements. Santander Paraty QIF PLC does not hold any investments itself, acting instead through Santander FI Hedge Strategies Fund.

 

(6)Investment acquired on August 1, 2016.

4D. Property, Plant and Equipment

4D.Property, Plant and Equipment

 

We operate four major administrative operational centers, all of which are owned properties. Additionally, we own 405 properties for the activities of our banking network and rent 2,1302,276 properties

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for the same purpose. Furthermore, in 2014, we opened and concluded the migration oftransferred our operation to thea new data center located in Campinas, which also is an owned property. For further information about the location of our branches, see “—Item 4. Information on the Company—B. Business Overview—Service Channels—Physical Distribution Network.” Our headquarters are located at Av. Presidente Juscelino Kubitschek, 2,041 and 2,235 Block A, Vila Olímpia, City of São Paulo, State of São Paulo, Brazil.

 

ITEM 4A. UNRESOLVED STAFF COMMENTS

 

Not applicable.

 

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

 

5A.Operating Results

5A. Operating Results

 

The following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements for the years ended December 31, 2020, 2019 2018 and 20172018 and the related notes thereto, and with the financial information presented under the section entitled “Item 3. Key Information—A. Selected Financial Data” included elsewhere in this annual report. The preparation of the consolidated financial statements referred to in this section required the adoption of assumptions and estimates that affect the amounts recorded as assets, liabilities, revenue and expenses in the years and periods presented and are subject to certain risks and uncertainties. Our future results may vary substantially from those indicated as a result of various factors that affect our business, including, among others, those mentioned in the sections “Forward-Looking Statements” and “Item 3. Key Information—D. Risk Factors,” and other factors discussed elsewhere in this annual report. Our consolidated financial statements for the years ended December 31, 2020, 2019 2018 and 2017,2018, prepared in accordance with IFRS as issued by the IASB and the report of our independent registered public accounting firm are included in “Item 18. Financial Statements.”

 

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Principal Factors Affecting Our Financial Condition and Results of Operations

 

Impact of COVID-19

We are closely monitoring the evolution of the COVID-19 pandemic in Brazil and globally, in order to take preventive measures to minimize the spread of the virus, ensure the continuity of operations and safeguard the health and safety of our personnel. See “Item 4. Information on the Company—A. History and Development of the Company—Important Events—Impact of COVID-19” for information on the impact of the COVID-19 pandemic on our business and also “Item 3. Key Information—3D. Risk Factors—Risks Relating to the Brazilian Financial Services Industry and Our Business—The current global COVID-19 pandemic has materially impacted our business, and the continuance of this pandemic or any future outbreak of any other highly contagious diseases or other public health emergency, could materially and adversely impact our business, financial condition, liquidity and results of operations.”

Brazilian Macroeconomic Environment

Overview

 

As a Brazilian bank, we are significantly affected by the general economic environment in Brazil.Brazil, which suffered a severe impact as a result of the COVID-19 pandemic, as set out under “—Impact of COVID-19” below. The Brazilian economic environment has historically been characterized by significant variations in economic growth, inflation and currency exchange rates. Our results of operations and financial condition are influenced by these factors and the effect that these factors have on employment rates, the availability of credit and average wages in Brazil. The following table presents key data of the Brazilian economy for the periods indicated:

 

  For the year ended December 31,
  2019 2018 2017
GDP growth (1)  1.2%  1.1%  1.0%
CDI rate (2)  6.0%  6.4%  9.9%
TJLP (3)  5.6%  7.0%  7.0%
SELIC rate (4)  4.5%  6.5%  7.00%
Increase (decrease) in real rate against the U.S. dollar  4.0%  17.1%  -16.5%
Selling exchange rate (at period end) R$ per U.S.$1.00  4.03   3.87   3.31 
Average exchange rate R$ per U.S.$1.00 (5)  3.94   3.65   3.19 
Inflation (IGP-M) (6)  7.3%  7.6%  -0.5%
Inflation (IPCA) (7)  4.3%  3.8%  2.9%

  For the year ended December 31,
  2020 2019 2018
GDP growth (1)  (4.1%)  1.2%  1.1%
CDI rate (2)  2.1%  6.0%  6.4%
TJLP (3)  4.6%  5.6%  7.0%
SELIC rate (4)  2.0%  4.5%  6.5%
Selling exchange rate (at period end) R$ per U.S.$1.00  5.20   4.03   3.87 
Decrease (increase) in real rate against the U.S. dollar  28.9%  4.0%  17.1%
Average exchange rate R$ per U.S.$1.00 (5)  5.16   3.94   3.65 
Inflation (IGP-M) (6)  23.1%  7.3%  7.6%
Inflation (IPCA) (7)  4.5%  4.3%  3.8%
 

Sources: BNDES, Brazilian Central Bank, FGV and IBGE.

 

(1)RevisedGDP growth for 2020 is based on Santander Brasil’s internal estimates. For 2019 and 2018 the source is the IBGE’s revised series. Source: IBGE.

(2)The overnight interbank deposit rate (Certificado de Depósito Interbancário), or “CDI” is the average daily interbank deposit rate in Brazil (at the end of each month and annually). This is the average rate for the given year.

(3)Represents the interest rate applied by the BNDES for long-term financing (at the end of the period).

(4)The benchmark interest rate payable to holders of some securities, such as treasury financial letters, issued by the Brazilian government and traded on the SELIC rate at the end of the applicable period.

(5)Average of the selling exchange rate for the business days during the period.

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(6)The inflation rate is the general index of market prices (Índice Geral de Preços-Mercado, or “IGP-M”), as calculated by FGV.

(7)The inflation rate is the consumer price index (Índice de Preços ao Consumidor – Amplo, or “IPCA”), as calculated by the IBGE.

 

General economic stability in Brazil following the onset of the global financial crisis in 2009 allowed the Brazilian Central Bank to continue its policy of reducing interest rates. Due to inflation and other general macroeconomic concerns, the Brazilian Central Bank began increasing interest rates, with the SELIC, a benchmark interest rate, reaching 10.00% at the end of December 31, 2013, 11.75% at the end of December 31, 2014 and 14.25% at the end of December 31, 2015. The Brazilian Central Bank has been reducing interest rates since then, with the SELIC reaching 13.75% as of December 31, 2016, 7.00% as of December 31, 2017, 6.50% as of December 31, 2018, and 4.50% as of December 31, 2019.2019 and 2.0% as of December 31, 2020. In 2020, in response to the negative fallout of the COVID-19 pandemic, the Brazilian Central Bank reduced the base interest rate to its historical low at 2.00% in August 2020 and it kept it at this level through to the date of this annual report.

 

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The resolution of theBrazil’s political and economic crisis in Brazil depends on the approval ofapproving reforms that are expected to be promoted by the President of Brazil (elected in October 2018). In addition, as further detailed below under “—Impact of COVID-19,” the COVID-19 pandemic and ensuing economic crisis caused a steep decrease in Brazilian GDP in the first half of 2020 before a gradual recovery from the third quarter of 2020 onwards. This will place additional demands for spending on the public sector going forward, which may adversely affect investor sentiment and lead Brazil’s economy to grow more slowly than it was expected to do prior to the COVID-19 pandemic. The economic and political crisis in Brazil may adversely affect the performance of the Brazilian economy. As a result, our Brazil-focused credit portfolio which is focused on Brazil, may not grow or could decrease and our provisions for loan lossesloss provisions could increase.

 

Any deterioration in Brazil’s rate of economic growth, changes in interest rates, the unemployment rate or price levels generally may adversely affect our business, financial conditions and results of operations. As previously mentioned, the economic fallout from COVID-19 increased the chance of a deterioration in the outlook for the Brazilian macroeconomic environment.

Impact of COVID-19

The Brazilian economy was severely affected by the COVID-19 pandemic and ensuring economic crisis in 2020. The social distancing measures adopted during the first months of the COVID-19 outbreak reduced consumption and resulted in a sharp decrease in gross domestic product in the first half of 2020. In order to mitigate the effects of the pandemic in the economy, the Brazilian government adopted monetary and fiscal measures. On the monetary front, the Brazilian Central Bank reduced the basic interest rates and announced measures to provide liquidity to the system. On the fiscal front, the Brazilian government provided a fiscal package that included financial aid for households, companies and regional governments, and expenditure on public healthcare. The economic measures along with the reopening of the economy in the third quarter of 2020 allowed the Brazilian economy to recover to an extent, although it remained 4% below the pre-crisis level. A negative consequence of the fiscal package was a sharp increase in the fiscal deficit and public debt. Moreover, the structural reform agenda was delayed, while the government has kept the commitment with the fiscal adjustment once the crisis is over. Finally, financial markets have reacted very negatively to the crisis. The Brazilian currency was negatively affected by a higher global risk aversion, drop in commodity prices and deterioration of the fiscal scenario.

 

Interest Rates

 

A decrease in the SELIC rate may have a positive impact on our operations by promoting volume growth, even though it may also create pressure on asset-side spreads, while liability spreads should remain stable or even improve.

 

The following table presents the low, high, average and period-end SELIC rate since 2015,2016, as reported by the Brazilian Central Bank:

 

  Low High(1) Average(2) Period-End
Year        
2015  11.75   14.25   13.58   14.25 
2016  13.75   14.25   14.15   13.75 
2017  7.00   13.75   9.83   7.00 
2018  6.50   7.00   6.75   6.50 
2019  4.50   6.50   6.13   4.50 
2020 (through March 5, 2020)  4.25   4.50   4.38   -   

   LowHigh(1)Average(2)Period-End
Year      
2016  13.75  14.25  14.15  13.75  
2017  7.0013.75  9.837.00
2018  6.507.006.756.50
2019  4.506.506.134.50
2020  2.004.502.812.00
2021 (through February 24, 2021)2.002.002.002.00
 

(1)Highest month-end rate.

 

(2)Average of month-end rates during the period.

 

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Our assets are predominantly fixed rate and our liabilities are predominantly floating. The resulting exposure to increases in market rates of interest is modified by our use of cash flow hedges to convert floating rates to fixed, but we maintain an exposure to interest rate movements. As of December 31, 2019,2020, a 100 basis point increase in the yield curve would have resulted in R$334432 million decline in the net interest income over a one-year period.

 

Credit Volume and Quality in Brazil

 

Our annual growth ofIn 2015, outstanding credit of 6.7%grew 7.0%, awhile the ratio of nonperforming loans to individuals increased tostood at 4.2% and a decrease of the household debt burden amounted to 21.2%.20.4% of household income. In 2016, outstanding credit contracted 3.5% in nominal terms, but delinquency continued to fall:fell slightly: the ratio of nonperforming loans to individuals reached 6.1%4.0% (as compared to 4.2% in 2015). Subsequently, in 2017, 2018 and 2019, the ratio of nonperforming loans to individuals reached 5.3%3.5%, 4.8%3.2% and 5.0%3.5%, respectively. After having fluctuated around the 19% level (19.1% in 2017, and 19.2% in 2018), the household debt burden reached 20.0% of household income in 2019. In 2020, outstanding credit increased 15.5% as a result of credit support programs put in place by the Brazilian government to mitigate the impact of the COVID-19 pandemic, which also helped to keep the ratio of nonperforming loans at 2.8%, while further increasing the household debt burden to 20.9% of household income.

 

The total outstanding credit to GDP increased from 34.7% in December 2007 to 49.7% in December 2016, and fell to 47.1% in 2017. The ratio increased to 47.3% in 2018 and climbed to 47.8% in 2019.

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  2019 2018 2017
             

  (in billions of R$)
Total Credit Outstanding (*)  3,471   3,261   3,064 
Earmarked credit  1,465   1,500   1,511 
Non-earmarked based credit  2,006   1,761   1,553 
of which:            
Corporate  905   814   705 
Individuals (retail)  1,101   948   847 

  2020 2019 2018
  (in billions of R$)
Total Credit Outstanding (*)  3,261   3,471   3,261 
Earmarked credit  1,500   1,465   1,500 
Non-earmarked based credit  1,761   2,006   1,761 
of which:            
Corporate     814      905      814 
Individuals (retail)     948   1,101      948 
 

(*)Some figures may be subject to revision by the Brazilian Central Bank.

 

Source: Brazilian Central Bank.

 

Foreign Exchange Rates

 

Our policy is to maintain limited foreign exchange rate exposure by seeking to match foreign currency denominated assets and liabilities as closely as possible, including through the use of derivative instruments. In 2019,2020, we recorded foreign exchange expenses of R$24,697 million, foreign exchange expenses of R$2,789 million in 2019 and foreign exchange expenses of R$2,806 million in 2018 and foreign exchange revenues R$605 million in 2017.2018. These results are due to the variation of the U.S. dollar against thereal on our assets and liabilities positions in U.S. dollar denominated instruments during these years. These foreign exchange gains and losses were offset in large part in each year by a corresponding loss or gain on derivatives entered into to hedge this exposure. Such losses and gains are recorded under “Exchange differences (net).”

 

The Brazilian currency has, during the last decades, experienced frequent and substantial variations in relation to the U.S. dollar and other foreign currencies. During 2016, thereal appreciated 17% against the U.S. dollar as a result of improved macroeconomic conditions in Brazil. On December 31, 2016, the exchange rate was R$3.26 per U.S.$1.00. In 2017 therealremained relatively stable against the U.S. dollar, with a small depreciation of 1.5% to R$3.31 per U.S.$1.00 as of December 31, 2017. Therealdepreciated further against the U.S. dollar throughout 2018, with a depreciation of 17%. On December 31, 2018, the exchange rate was R$3.87 per U.S.$1.00. In 2019, the real continued to depreciate against the U.S. dollar and as of December 31, 2019, it was at R$4.03 per U.S.$1.00. In 2020, the real continued to depreciate, and as of December 31, 2020 it was at R$5.20 per U.S.$1.00. In 2021, and through to the date of this annual report, the real has depreciatedcontinued to weaken against the U.S. dollar.dollar due to the COVID-19 pandemic. As of December 31, 2019,February 24, 2021, the exchange rate was R$4.035.42 per U.S.$1.00.

 

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Depreciation of thereal relative to the U.S. dollar has created additional inflationary pressures in Brazil, which havehas led to decreasesincreases in interest rates and limited Brazilian companies’ access to foreign financial markets, and prompted the adoption of recessionary policies by the Brazilian government. Depreciation of thereal may also, in the context of an economic slowdown, lead to decreased consumer spending, inflationarydeflationary pressures and reduced growth of the Brazilian economy as a whole, and thereby harm our asset base, financial condition and results of operations. Additionally, depreciation of thereal could make our foreign currency-linkedforeign-currency-linked obligations and funding more expensive, negatively affect the market price of our securities portfolios, and have similar consequences for our borrowers. Conversely, appreciation of thereal relative to the U.S. dollar and other foreign currencies could lead to a deterioration of the Brazilian foreign exchange currency accounts,balance of payments, as well as dampen export-driven growth. Depending on the circumstances, either depreciation or appreciation of thereal could materially and adversely affect the growth of the Brazilian economy and our business, financial condition and results of operations.

 

Inflation

 

In recent years, inflation has been oscillating around the target, which is set by the CMN. From 2005 to 2018, the targeted level was 4.5%, with a tolerance interval of 2.0 percentage points that prevailed until 2016 – since then the tolerance band has been narrowed to 1.5 percentage point. In addition, the targeted set for 2019 by the CMN was lowered to 4.25% and additional 0.25 percentage point decreases have already been defined for the targets until 2022 (4.00% for 2020, 3.75% for 2021 and 3.50% for 2022).

 

Between 2012 and 2014, inflation ranged from 5.8% to 6.4%, i.e., it was close to the top of the fluctuation range in the Brazilian Central Bank’s inflation targeting range. In 2015, as a result of the indexation of a significant portion of contracts for services to the inflation levels of the previous years,

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the impact of adjustment of tariffs and the impact of the depreciation of the real on prices, the inflation rate reached a level of 10.7%, the highest on record since May 2005 and well above the Brazilian Central Bank’s inflation target of 4.5%. In 2017, inflation fell substantially as a result of the consistent efforts of the Brazilian Central Bank to reduce the inflation rate, ending the year at 2.95% (12-month accumulated rate). As a result, the Brazilian Central Bank was required to send a letter to the CMN explaining the reasons for not meeting the target in which the Brazilian Central Bank explained that it expected that the monetary easing undertaken in 2018would2018 would make the actual inflation rate converge toward the target. In 2018 the inflation increased to 3.75%, thus reinforcing the efficiency of the monetary policy in the country.Brazil. In 2019, as a result of temporary price shocks affecting edible items, inflation ended the year slightly above the targeted level, at 4.31%. In 2020, inflation increased to 4.5%. In 2021, and through to the date of this annual report, inflation reached 3.3%has increased to 4.56% in 12-month accumulatedyear-on-year terms.

 

The majority of our income, expenses, assets and liabilities are directly tied to interest rates. Therefore, our results of operations and financial condition are significantly affected by inflation, interest rate fluctuations and related government monetary policies, all of which may materially and adversely affect the growth of the Brazilian economy, our loan portfolios, our cost of funding and our income from credit operations. We estimate that in 2019,2020, a 1.0% increase or decrease in the base interest rate would have resulted in a decrease or increase, respectively, in our net interest income of R$443432 million. Any changes in interest rates may negatively impact our business, financial condition and results of operations. In addition, increases in base interest rates may adversely affect us by reducing the demand for our credit and investment products, increasing funding costs and increasing in the short run the risk of default by our customers.

 

Inflation adversely affects our personnel and other administrative expenses that are directly or indirectly tied to inflation indexes, generally the consumer price index (Índice de Preços ao Consumidor – Amplo), or “IPCA,” and the general index of market prices (Índice Geral de Preços-Mercado), or “IGPM.” For example, considering the amounts in 2019, each additional percentage point change in inflation, would impact our personnel and other administrative expenses by approximately R$9394 million and R$7677 million, respectively.

 

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Reserve and Lending RequirementsAcquisition of residual equity stake in Getnet

 

On December 19, 2018, the minority shareholders of Getnet Adquirência e Serviços para Meios de Pagamentos S.A., or “Getnet,” exercised their right to sell all of their shares to Santander Brasil, or the “Put Option”, pursuant to the Shares’ Purchase and Sale Agreement and Other Covenants executed between the parties on April 4, 2014, or “SPA”. On the exercise date of the Put Option, we entered into a binding amendment to the SPA, to acquire all of the Getnet shares owned by minority shareholders, corresponding to 11.5% of the entity’s equity interest, in the amount of R$1.431 billion. The requirements settransaction was approved by the Brazilian Central Bank for reserveson February 18, 2019 and credit hasclosed on February 25, 2019. As a significant impactresult, Santander Brasil currently owns 100% of Getnet’s issued and outstanding share capital.

Proposal to Spin Off Getnet

On February 25, 2021, further to the Material Facts disclosed on November 16, 2020 and February 2, 2021, we announced that our Board of Directors approved a separation from our merchant payment business, which is undertaken by our subsidiary, Getnet, in order to concentrate the technology and payments businesses of Santander Group within PagoNxt, a new technology-focused global payment platform. Following the potential spin-off of our equity interest held in Getnet, or the “Spin-Off,” which will be resolved upon by our shareholders in an extraordinary shareholders’ meeting, our shareholders would become direct shareholders in Getnet on a pro rata basis. Accordingly, our shareholders immediately prior to the Spin-Off would hold a percentage of equity interest in Getnet in the same proportion as they held in Santander Brasil prior to the Spin-Off. After the approval of the Spin-off by our extraordinary shareholders’ meeting, our shares and units will be traded with the right to receive the shares and units issued by Getnet until the record date, which, once determined, will be disclosed to the market by means of a Notice to Shareholders.

Sale of equity stake in CIBRASEC – Companhia Brasileira de Securitização

On July 24, 2019, we completed the sale of our entire equity interest in CIBRASEC – Companhia Brasileira de Securitização (“Cibrasec”) to ISEC Securitizadora S.A. (“ISEC”). Our interest amounted to 4,000 common shares and 50 Class A preferred shares, representing, in the aggregate, approximately 9.72% of Cibrasec’s total capital stock. The transaction was effected pursuant to the Shares Purchase and Other Covenants Agreement executed on the operational resultssame date among Santander Brasil, the other shareholders of Cibrasec, ISEC and Cibrasec, who acted as an intervening party. We received consideration of R$ 9.8 million for our interest in Cibrasec. As a result, we are no longer a shareholder of Cibrasec.

Purchase of Equity Interest over Toro Controle e Participações S.A.

On September 29, 2020 Santander Brasil’s subsidiary, PI DTVM , entered into an investment and other covenant agreement with the shareholders of Toro Controle e Participações S.A. , or “Toro Controle” to invest in Toro Controle. Toro Controle, an investment platform, operating as a securities broker focused on the retail market was founded in Belo Horizonte in 2010. Toro Controle is the holding company of Toro Corretora de Títulos e Valores Mobiliários Ltda, or “Toro Corretora,” and Toro Investimentos S.A., or “Toro Investimentos.” We refer to Toro Controle, Toro Corretora and Toro Investimentos as “Toro,” Upon completion of the financial institutions in Brazil. Increases or decreases in such requirements may have an impact on our operational results by limiting or expanding the amounts available for commercial credit transactions.transaction, PI DTVM will hold 60% of Toro Controle’s share capital.

 

The table below shows the requirements for reserves and credit to which we are subject for each financing category:

Product As of December 31, 2019 As of December 31, 2018 Form of Required Reserve Yield
Demand deposits        
Rural credit loans (1)  30.00%  30.00% Loans Cap rate: 7.0% p.a.
Microcredit loans (2)  2.00%  2.00% Loans Cap rate: 2.0% p.m.
Reserve requirements (4)  21.00%  21.00% Cash Zero
Additional reserve requirements  0.00%  0.00% Cash SELIC
Free funding (3)  47.00%  47.00%    
             
Savings accounts            
Mortgage loans  65%  65% Loans TR + 12.0% p.a.
Reserve requirements (4)  20.00%  20.00% Cash TR + 70.0% of the target SELIC
Additional reserve requirements  0.00%  0.00% Cash SELIC
Free funding (3)  15.00%  15.00%    
             
Time deposits            
Reserve requirements (4)  31%  33% Cash SELIC

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In addition, PI DTVM and Toro Corretora will combine their market experiences to develop a complete platform of fixed and variable income products. This platform will be based on shared expertise, technology and operate in the growing Brazilian investment market. The completion of the transaction is subject to the execution of certain customary agreements between the parties, the fulfillment of customary conditions precedent and the receipt of certain regulatory approvals, including the approval of the Brazilian Central Bank.

 

In cash or other instruments  0.00%  0.00% Cash or other instruments SELIC for Cash
In cash  0.00%  0.00% Cash SELIC
Additional reserve requirements  0.00%  0.00% Cash SELIC
Free funding(3)  69.00%  67.00%    

Buyback Program

 

On February 2, 2021, our board of directors approved the continuation of the buyback program (previously set to expire on November 4, 2020) of our units and ADRs. Our units and ADRs will be acquired either directly or through our branch in the Cayman Islands, to be held in treasury or subsequently sold. The buyback program will cover the acquisition of up to 36,956,402 units or ADRs, representing a combination of 36,956,402 common and 36,956,402 preferred shares, corresponding to approximately 1% of our share capital. The term of the buyback program is up to 18 months beginning on February 3, 2021 and expiring on August 2, 2022.

Issuance of Notes

On November 5, 2018, our board of directors approved the issuance, through our Cayman Islands branch, of debt instruments to form part of our Tier 1 and Tier 2 regulatory capital in the aggregate amount of U.S.$ 2.5 billion, pursuant to an offering made to non-U.S. Persons under Regulation S of the U.S. Securities Act of 1993, as amended, or the “Notes Offering”.

In addition, our board of directors also approved the redemption of debt instruments issued to form part of our Tier 1 and Tier 2 regulatory capital, as set out in the board’s resolution of January 14, 2014. The proceeds from the Notes Offering were used to fund this redemption.

On December 18, 2018, the Brazilian Central Bank authorized the transactions contemplated in the Notes Offering and the redemption, which were completed on January 29, 2019.

Disclosure of Projections

On July 29, 2020, we informed the market that we will no longer disclose guidance, as previously announced in the material fact dated October 8, 2019. This decision comes in response to the ongoing uncertainty with respect to the impact of the COVID-19 pandemic on our business, financial condition, assets, liquidity, cash flows and results of operations, as well as on the macroeconomic environment in Brazil and globally.

Capital Expenditures and Divestitures

Our main capital expenditures include investments in our information technology platform. Our information technology platform focuses on our customers and supports our business model. In 2020, 2019 and 2018, total investments in information technology were R$1,432 million, R$1,858 million and R$1,276 million, respectively.

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In 2020, 2019 and 2018, we continually improved in our technology platforms by means of investment in our digital applications, including through the implementation of new solutions in the areas of artificial intelligence (machine learning, AIOPs), micro services, blockchain technology, cyber insurance, facial recognition and cloud-based technologies, among others. The application of these new technologies improved our interaction with our customers enabled us to provide solutions across credit, consortium, payroll loan, insurance, private banking, cards,  payments, agribusiness, investments to better address client needs. We also continued to invest in our physical distribution network (branches, PABs and PAEs), including: biometric identification for corporate customers, digital purchase and payment of exchange, among other initiatives. For more details about our technology and infrastructure, see the item “—B. Business Overview—Technology and Infrastructure”.

Our ongoing capital expenditures consist primarily of investments in information technology We expect to fund our ongoing capital expenditures principally from our cash flow from operations.

Our major divestiture in the past three fiscal years and until the date of this annual report was the sale of Super Pagamentos.

For more information, see “Item 5. Operating and Financial Review and Prospects—A. Operating Results—Other Factors Affecting the Comparability of Our Results of Operations”.

Impact of COVID-19

We are closely monitoring the evolution of the COVID-19 pandemic in Brazil and globally, in order to take preventive measures to minimize the spread of the virus, ensure the continuity of operations and safeguard the health and safety of our personnel. Based on the information available as of the date of this annual report, we present below a summary of the main effects of the COVID-19 pandemic on our business and results of operations:

 

(1)·Rural creditsAs the COVID-19 pandemic escalated in Brazil starting March 2020, we adjusted our operations to be able to continue providing our products and services to our customers while ensuring the health and safety of our employees. As part of these measures we transitioned our administrative office staff into remote working arrangements from March 17,2020 to May 25, 2020, and we had up to 80% of our employees working from home in that period. From May 25, 2020 we begin a phased return to our offices in compliance with strict hygiene and social distancing procedures.

·We supported our employees throughout the COVID-19 pandemic by offering them and their dependent remote medical care through an agreement with a leading Brazilian hospital. We also provided advance payment of thirteenth salary installments in April 2020 (these are creditsnormally paid in December of each year).

·Since March 2020, our branches have been operating with reduced service hours; from 9:00 a.m. to 2:00 p.m. from March 2020 to July 2020 and then from 9:00 a.m. to 3:00 p.m. through to the date of this annual report. We also adopted a staggered entry system in branches with heavy customer traffic in order to reduce the total number of customers in the branch at any given time. We also reserved the period from 9:00 am to 10:00 am for customers who would are more vulnerable to COVID-19. To provide continuous service and meet the increased demand of our call centers, we temporarily relocated retail employees to our call centers to help deal with the increased demand for remote banking services. In line with our commitment to clear customer communication, we launched the “Overcome Together” and “Santander Supports You” websites, which gathered resources and initiatives related to our business.

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·We offered individual, microentrepreneur and SME customers the possibility of deferring their loan payments for up to 60 days. In May 2020, we allowed an extension for an additional 30 days, as a result of which our deferred loan portfolio reached a total of R$ 49.8 billion as of June 30, 2020 and R$40.6 million as of December 31, 2020. At the same time we continuously monitored our loan quality indicators, which remained at acceptable levels throughout the COVID-19 pandemic and through to the date of this annual report. We also participated in government programs that granted special credit lines for businesses, particularly in retail, including CMN Resolution No. 4,846, which was published on August 24, 2020 and regulated lending under the Emergency Employment Support Program, initially established by Provisional Measure No. 944/2020. For more information, see “—B. Business Overview—Regulation and Supervision—Other Applicable Laws and Regulations—Regulatory Developments Related to farmersCOVID-19” As a result, our total portfolio balance of government-sponsored loans reached R$14 billion as of December 31, 2020. It is worth noting that these government-sponsored credit lines were created in 2020 to minimize the negative effects of the pandemic.

·The onset of COVID-19 had a negative impact on our net fee and commission income, especially in the first half of 2020, due to a lower volume of customer transactions, which adversely affected the total amounts we were able to charge in credit and debit card fees. As a result, we experienced reductions in the growth rates of our net fee and commission income and of our net interest income from the six months ended June 30, 2019 to the six months ended June 30, 2020, as compared to the growth rates of our net fee and commission income and of our net interest income from the six months ended June 30, 2018 to the six months ended June 30, 2019. These reductions were due to the abovementioned lower transaction volumes, a higher share of global wholesale banking in the loan portfolio, alongside a shift in the product mix, with a decreased share of higher risk products, such as credit cards and overdrafts. For more information, see “Item 5. Operating and Financial Review and Prospectus—A. Operating Results—Results of Operations for the Years Ended December 31, 2020, 2019 and 2018—Results of Operations—Net Interest Income ” and “Item 5. Operating and Financial Review and Prospectus—A. Operating Results— Results of Operations for the Years Ended December 31, 2020, 2019 and 2018—Results of Operations—Net Fee and Commission Income.”

·In 2020, we constituted an additional provision in the amount of R$12.9 billion3,200 million. This provision was calculated based on the analysis of the potential macroeconomic effects and took into account not only quantitative and qualitative indicators, but also the adequate and accurate identification of risks and a collective assessment of exposures. For more information, see “Item 5. Operating and Financial Review and Prospectus—5A. Operating Results—Results of Operations—Impairment Losses on Financial Assets (Net).”

·In 2020, the National Monetary Council, or “CMN,” and the Brazilian Central Bank introduced measures to minimize the impact of COVID-19 on the financial system. With respect to liquidity, these changes included: (i) a reduction in the time deposit reserve requirement from 31% to 17%; and (ii) an increase in the additional limit on the reserve requirement treated as High Quality Liquidity Assets from 15% to 30%, ensuring greater liquidity in a stress scenario. In addition, a temporary suspension on dividends and other distributions was enacted through Resolution No. 4,820, limiting the distributions to shareholders 30% of adjusted net profit (following amendments enacted on December 23, 2020). As a result, we only distributed R$11.8 billion3,837 million as dividends and interest on equity in 2020 compared to R$10,800 million in 2019. The CMN also published Resolution No. 4,783, which temporarily reduced the capital conservation buffer (where all rates relate to the total amount of risk-weighted assets) required from financial institutions from 2.5% to 1.25%, leading our Basel ratio to reach 15.3% as of December 31, 2020. For more information, see “—B. Business Overview—Regulation and Supervision—Other Applicable Laws and Regulations—Regulatory Developments Related to COVID-19” and “—4B. Business Overview—Regulation and Supervision—Other Applicable Laws and Regulations—Compulsory Reserve Requirements.”

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·We experienced an increase in digital business. Specifically, we recorded an increase of 151% in the number of new contracts originated through digital channels in December 2020 as compared to January and February 2020.

See also “Item 3. Key Information—3D. Risk Factors—Risks Relating to the Brazilian Financial Services Industry and Our Business—The current global COVID-19 pandemic has materially impacted our business, and the continuance of this pandemic or any future outbreak of any other highly contagious diseases or other public health emergency, could materially and adversely impact our business, financial condition, liquidity and results of operations” and “Item 5. Operating and Financial Review and Prospects—A. Operating Results—Principal Factors Affecting Our Financial Condition and Results of Operations—Impact of COVID-19.”

4B. Business Overview

Our Strategy

Our strategy is to endeavor to grow in a profitable, recurring and sustainable manner by providing services with excellence and to consistently strive to enhance customer satisfaction levels, expand our customer base and increase the loyalty of our customers.

To achieve this goal, we have been deeply focused on understanding how the Brazilian market works to address its demands effectively. In line with this approach, we have sought to identify our different types of customers and their specific needs. Accordingly, we adopted a strategy that is based on serving our customers wherever and whenever they want through multi-channel (digital and/or physical) solutions that provide a customized and innovative portfolio of services and products.

We endeavor to be pioneers and anticipate market trends to capture business opportunities over the years.

In 2016 we began our commercial transformation, which consisted of implementing new work models and simplifying and digitizing our processes, and introduced a culture of innovation, while also providing further vehicle loans at a time when the market was moving in the opposite direction. In 2017 we focused on the quality of the services we provide and placed customer satisfaction at the center of our strategy, which is reflected in the implementation of the net promoter score, or NPS, as a measure of customer satisfaction. In 2018, we were pioneers in bringing an industrial approach to costs into the banking sector, covering three key fronts: organization, technology and culture. We believe this strategy has already yielded results and will allow us to further refine our productivity and customer experience. In 2019, we expanded our Santander ecosystem with new businesses and reduced our exposure to the card market, as we concentrated on lower-risk products. Finally, in 2020 we focused on supporting our customers through a challenging time period, by providing relevant products, while also focusing on efficiency and responding swiftly to market trends, as illustrated by the launch of SX, which set ourselves apart from the Brazilian Central Bank’s instant payment solution, PIX, by offering exclusive benefits to customers. We have also launched new disruptive products into the market such as Sim, emDia, Santander Auto and Ben. As a result of this strategic repositioning, we have been able to realize substantial growth in all our key business areas, as evidenced by the evolution of our return on equity, or ROE, in recent years (for further information see “Item 3. Key Information—A. Selected Financial Data—Reconciliation of Non-GAAP Measures and Ratios to Their Most Directly Comparable IFRS Financial Measures—Reconciliation of Non-GAAP Ratios to Their Most Directly Comparable IFRS Financial Measures—Return on average stockholders’ equity”).

Similarly, we believe that our positioning, combined with a culture that values our people, promotes diversity, encourages speed in execution and fosters innovation, prepares us for this new cycle and allows us to keep anticipating market trends.

We believe our core business has the potential to grow through innovation and technology, and by delivering a higher service level to our customers. Our products and businesses include, among others, payments (i.e. payment platforms), auto and consumer goods loans through Santander Financiamentos, mortgages, payroll and agribusiness loans, as well as investments, in addition to the products and services we offer through our wholesale segment.

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In order to strengthen our ecosystem, we have launched new businesses which continue to mature, such as (i) Ben, which reached breakeven in May 2020 and expanded its customer base in 2020 to 217 thousand cards alongside 1.4 thousand human resources customers and 338 thousand partner merchants; (ii) Sim, which achieved positive net profit in 2020 after 15 months of operation and a loan portfolio of R$700 million as of December 31, 2020; (iii) emDia, which had four million customers as of December 31, 2020 and R$46 million in credit recovered volume in 2020, and (iv) Santander Auto, which reached a penetration rate of 16% of Santander Financiamentos’ contracts leading to the issuance of more than R$100 million in premiums during 2020. More recently, in September 2020, we announced the acquisition of Toro Corretora to complement our PI DTVM investment platform, thereby expanding our product offering. The completion of the transaction is subject to the execution of certain customary agreements between the parties, the fulfillment of customary conditions precedent and the receipt of certain regulatory approvals, including approval by the Brazilian Central Bank.

Our growth is based on a commitment to asset quality, which we believe is demonstrated by the performance of certain quality indicators such as our cost of risk, which we believe remains at controlled levels despite the current macroeconomic scenario. It is worth noting that since 2019, we have focused on expanding our lower-risk products, particularly those that are collateralized. As a result, we believe that our loan quality indicators are at appropriate levels. Similarly, collateralized loans represent a significant portion of our loan portfolio to individuals, accounting for approximately 76% of our loan portfolio as of December 31, 2020 (four percentage points higher than December 31, 2019). The collateralized loans includes payroll loans.

We believe that our business was able to adapt swiftly to the changing environment in 2020 in order to meet the needs of our customers. We offered a plan to defer loan repayment installments to customers who fulfilled certain requirements. We provided special lines of credit, including through government programs, for the corporate and small and medium enterprise, or SME, segments. We believe that all these initiatives strengthened our customers’ loyalty and helped us achieve better control of our risk indicators. As a result of our actions, we reached the highest NPS level in our history in 2020, recording an NPS score of 63 points in 2020 (compared to 56 points in 2019), which we believe is evidence of our commitment to customers.

We acknowledge our responsibility as a financial institution to support society and contribute to Brazil’s economic growth. This attitude is embedded into our culture and is transversal to our business. In 2020, we held two events focused on supporting society at the onset the pandemic through our “Amigo de Valor” program, one in the first half of the year, and another one in the second half, raising an aggregate of approximately R$23 million (including donations from employees, customers and Santander Brasil, with R$7 million raised in the first edition and R$15.7 million raised in the second edition). We also hosted a donation marathon for the “Mães da Favela” project with the participation of customers and employees, which generated positive results: R$7.2 million was raised (including donations from employees, customers and Santander Brasil) to support more than 20,000 families.

Additionally, we encouraged other initiatives, such as volunteering to provide remote assistance to the elderly under the “Parceiro do Idoso” program, and the offer of special products to healthcare professionals. Finally, together with our private bank peers, we donated 5 million rapid COVID-19 tests, 17.7 million face masks and R$20 million to purchase computerized tomography scanners. Finally, we also donated a total of R$100 million to contribute to the fight against COVID-19.

Below are the main commercial initiatives that we have undertaken in recent years:

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•Net promoter score or NPS. We introduced the NPS as our primary metric for customer satisfaction in 2017 and, in 2018, we were pioneers in disclosing our score to the market. After each interaction with Santander Brasil, our customers are randomly selected to rate their experience using the NPS methodology. Nowadays, the NPS is part of our compensation (profit sharing) metrics, affecting virtually every department and position level at the organization, including the administrative and commercial departments. In 2020, despite the ongoing COVID-19 pandemic, we achieved our highest level of customer satisfaction, with an NPS of 63 points, rising 7.5 points over the immediately preceding 12 months. This performance contributed to the sustainable growth of our customer base, which saw a net increase of 1.8 million active customers in the 12 months ended December 31, 2020.

•Digital strategy. We are in constant digital transformation to better serve our customers. We have implemented a collaborative work system in our organization based on the “Agile” methodology, which is commonly used in information technology. We believe this methodology has allowed us to offer more suitable products and services, as well as quickly perform system updates through all our available channels. In 2020, we strengthened our digital channels by improving the availability of services. We also launched GENTE, our virtual assistant, which was developed by drawing on the diverse talents and experiences of our employees. Customers can access GENTE through WhatsApp, our web portal, mobile banking and our Santander Way app, gaining quick access to advice and transaction assistance. GENTE has already achieved notable metrics, such as 37.7 million of interactions with approximately 70% accuracy and achieving an NPS of 76 points on mobile banking for individual customers between May 2020 and January 2021. All these initiatives illustrate the growing importance of digital channels, which account for 29% of new active customer acquisitions in retail and 74.4% of total bank financial transactions in 2020, 11.2 p.p. higher than a year ago. E-commerce sales grew 41.1% in 2020, compared to 2019.

•Countryside expansion. With the objective of being closer to customers, we have been expanding our physical presence to strategic regions in Brazil’s countryside. These dedicated stores cater to customers in the agricultural sector more effectively. One of our fronts in this initiative is to open additional Prospera Santander Microcredit stores to encourage entrepreneurship and promote financial education. As of December 2020, we had a total of 99 stores, reaching more than 543 thousand customers. Another front is Agribusiness, where we have reached a total of 40 Agro stores (with return in less than eighteen months), alongside the 300 sector-oriented branches.

•Greater empowerment and incentives for branch staff. We have sought to decentralize the management of branch resources. Branch managers are now responsible for managing the expenses of their branches, and generating their branch’s own results report. This independence gives branch employees and managers a stronger sense of autonomy and responsibility, as well as the feeling of being part of their own branch's success. In addition, we have made some adjustments to the compensation structure of branch employees and managers to ensure that the variable components of their compensation depend on the performance of the branch where they work.

•Operational excellence. With the goal of fine-tuning the customer journey and boosting efficiency, we have transformed several aspects of our operational model. First, we switched to an industrial approach, which means that we now have an end-to-end view of the customer experience, reducing manual activities and dispersion, as well as enhancing cost transparency. Additionally, in 2019, we launched a new service model for most of our low-income portfolio, through which we transformed five types of careers into a single business and service manager career, further optimizing our customer service at our branches, generating more business and increasing efficiency. Based on data as of December 31, 2020, these changes have already produced noteworthy results, including: (i) faster service, as the lead time to closing a mortgage loan declined by three days to 25 calendar days in the year ended December 31, 2020 as compared to December 31, 2019; (ii) higher efficiency, with 86.7% of credit card bills being issued in digital format or by e-mail in the year ended December 31, 2020, compared to 61.0% in the year ended December 31, 2019; (iii) more business, as the volume of transactions in the commodities portfolio increased significantly to 729 transactions in the year ended December 31, 2020 from 111 transactions in the year ended December 31, 2019; and (iv) better service, by reducing 96% of the amount of rework involved in opening business current accounts (process improvement) at our branches in the year ended December 31 , 2020 as compared to the year ended December 31, 2019.

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•Strengthening our culture and our people. We believe that committed employees lead to a more sustainable business. With that in mind, we have established clear and horizontal communication of senior management with employees, promoting meritocracy and diversity. In line with this practice, Santander Academy encourages our staff to assume a proactive role in their technical training, with 87% of total employees having attended the academy in 2020. In addition, employees who act as internal multipliers within the Company give 80% of the training. As a result, in 2020 we were recognized by GPTW (Great Place to Work) as one of the best companies to work for in Brazil in which we were ranked 22 positions ahead of the ranking achieved in 2016. We have also been ranked in the top 10 best companies to work for racial and ethnic minorities and women,. We promote and value diversity and, for this reason, we celebrate having women account for 29% of our executive leadership positions and 33% of our Board of Directors, while also having Black employees account for 25% of our total employees across our organization as of December 31, 2020. Moreover, we were recognized as the best company to work for in the financial sector by Exame Magazine’s Diversity 2020 Guide for the second consecutive year.

Finally, aligned with the Santander Group’s sustainable growth strategy, we have has made several public commitments to society, including: (i) having 30% of our leadership positions held by women by 2024 (today women account for 29% of leading roles at Santander Brasil) and; (ii) having 100% of our operations powered by renewable energy by 2025. Furthermore, we committed to eliminating single-use plastics consumption within our organization. Another equally important component in fulfilling our responsibilities to society is the “Prospera” microcredit program, aimed at helping Brazilians in low-income communities to prosper by giving them access to credit and financial products. This program contributed to placing us in the top spot among banks on Fortune magazine’s 2019 “Change the World” list.

In July 2020, along with two other private banks, we presented a plan to the Brazilian federal government dedicated to supporting sustainable development in the Amazon. This plan sets out 10 measures to protect the environment and support the development of the local economy by investing in sustainable infrastructure and protecting the rights of the region's population. We also promoted sustainable enterprises by: (i) leading and structuring the issuance of decarbonization credits (CBIO), resulting in Brazil’s first CBIO deal; (ii) conducting the first green financing in the Brazilian market – in other words, a loan with interest rates tied to sustainable goals; (iii) coordinating the world’s second sustainable-linked bond transaction, amounting to US$ 750 million; (iv) launching a R$ 5 billion credit line for new investments in water and sanitation; (v) relaunching the Ethical Fund, managed by Santander Asset Management, which uses a proprietary methodology with local and global analysis of sustainability criteria; and (vi) launching the ESG-focused Santander Go fund in partnership with asset manager Robeco, which invests in global equities on the basis of sustainability criteria.

As a result of all actions, we received the following 2020 awards:

·Best Bank in the Americas and Brazil (The Banker)

·Best Company in Social Responsibility (Prêmio Notáveis CNN 2020)

·Most Honored Company (Institutional Investor)

·Best Bank In Latin America And The World For SMEs (Euromoney Awards for Excellence 2020)

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·Among The Country’s Leading Companies On Climate Change (CDP)

·Part Of B3’s Corporate Sustainability Index (ISE B3)

·Best Infrastructure Bank In The Country (Latin Finance 2020)

·One Of The Best Companies To Work For (GPTW Brazil 2020)

Our Business

We provide our complete portfolio of products and services to our 27.9 million active customers as of December 31, 2020 through the following business segments:

·Commercial Banking: provides services and products to individuals and companies (except for global corporate customers who are managed by our Global Wholesale Banking). The revenue from this segment is derived from the banking and financial products and services available to our account and non-account holders.

·Global Wholesale Banking: offers a wide range of national and international tailored financial services and structured solutions for our global corporate customers, comprised mostly of local and multinational corporations.

We outline below the business divisions for each of our operating segments, as well as the breakdown of our net interest income and profit before tax by segment:

Commercial Banking

Global Wholesale Banking

·     Retail Banking·     Santander Corporate & Investment Banking (“SCIB”)
Individuals
SMEs
·     Consumer Finance
·     Corporate

  For the Year Ended December 31,
  2020 2019 2018 2020 2019 2018
  Net interest income Operating profit before tax
  (R$ millions)
Commercial Banking (1)  41,457   42,044   39,391   4,666   18,375   12,397 
Global Wholesale Banking  2,985   2,277   2,531   4,998   3,898   3,512 
Total  44,443   44,321   41,922   9,664   22,273   15,909 
(1)Profit before tax reported under commercial banking includes the effects of the hedge for investments held abroad (offset in the same amount in the “Income Tax” line). The effect of the hedge for investments held abroad in 2020, 2019 and 2018 amounted to loss of R$13.583 million, loss of R$1.264 million and loss of R$5,867 million, respectively.

The following table shows a managerial breakdown of our loans and advances by customer type at the dates indicated:

  As of December 31, Change between 2019 Change between 2018
  2020 2019 2018 and 2020 and 2019
  (R$ millions)
Individuals  174,042   156,177   133,603   11.4%  16.9%
Consumer Finance  51,637   48,421   40,964   6.6%  18.2%
SMEs  54,525   53,119   49,624   2.6%  7.0%
Corporate(1)  137,618   89,539   97,742   53.7%  -8.4%
Total Credit Portfolio  417,822   347,257   321,933   20.3%  7.9%
(1)For purposes of loan portfolio presentation, “corporate” includes companies with annual gross revenues exceeding R$200 million, including our Global Corporate Banking customers.

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Commercial Banking

Retail

Individuals

We have structured the individual customer service segment as follows:

· Private Banking – is responsible for customers with at least R$5.0 million in assets available for investment. In this segment, we offer a complete and tailored portfolio of financial products and services, investment advice, loans and asset management through a dedicated manager for investments and banking services.

· Santander Select – is responsible for customers with a monthly income above R$20,000, or a monthly income above R$10,000 and R$30,000 in investments, or more than R$300,000 in investments. The offer here consists of a value proposition with differentiated products and services, exclusive service spaces, relationship managers who serve a small number of customers and provide asset management advisory services.

· Santander Van Gogh – is responsible for customers with a monthly income ranging from R$4,000 to R$10,000, or with investments above R$40,000. Our goal is to understand the needs of our customers at each stage of their lives and provide them with financial advice through a multi-channel solution, including financial products and services, as well as financial advice.

· Santander Especial – is responsible for customers who earn up to R$4,000 per month. Our business model offers simple and efficient solutions with an attractive cost benefit to the customer, primarily through electronic channels.

Furthermore, we also support our Select and Van Gogh customers through our Santander Direct channel. Santander Direct is suited to customers who want more flexible service hours, from 8:00 a.m. to 10:00 p.m., and who prefer using a remote method, such as telephone, e-mail or chat, as well as access to digital channels. This service complements our offering and broadens our capillarity by catering to regions where we do not have a physical presence.

Small and Medium Enterprises (SMEs)

We serve SMEs under the Santander Negócios e Empresas brand, with the following customer service segmentation model:

·Empresas Núcleos (Core Companies) – responsible for companies with annual revenues between R$30 million and R$200 million. Our service model is based on dedicated relationship managers, a team of experts for more complex demands and loan managers specializing in risk management. We also provide specialized services to multinational companies and other major corporations in order to meet their specific needs.

·Empresas Polo (Hub Companies) - responsible for companies with annual revenues between R$3 million and R$30 million. We offer these customers a comprehensive range of products and services through a user-friendly interface.

·Negócios Agência (Branch Businesses) - responsible for companies with annual revenues of up to R$3 million. We offer these customers a simple banking solution through an integrated account that combines a corporate account with a point of sale (POS) terminal hosted by Getnet. Through this arrangement, our customers receive benefits for using the Getnet terminal to process their credit card sales, with receipts being posted to a Santander Brasil checking account.

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·Empresas MEI (Individual Microentrepreneur) - responsible for companies with annual revenues of up to R$81 thousand. We offer these customers a simplified and cost-effective option through our Santander Conta MEI.

In addition, for companies with annual revenues of up to R$300 thousand, we also offer Negócios Direct (Direct Business). Under this segment, customers have direct access to a relationship manager who is available during extended service hours and via remote channels, such as telephone, e-mail or chat, as well as access to digital channels that facilitate the client’s day to day needs.

Consumer Finance

We provide consumer credit to finance motor vehicles, goods and services directly or through intermediate agencies. Santander Financiamentos is our main service channel, but we also operate under multiple brands.

The following table sets forth certain key financial and operating data regarding our consumer finance business for the periods indicated:

  As of December 31, Change between 2019 and Change between 2018 and
  2020 2019 2018 2020 2019
Individual consumer finance loan portfolio market share (1) (%)  25.1% 25.0%  25.4%  0.1 p.p   (0.4) p.p 
(1)Source: Brazilian Central Bank.

Corporate

Our corporate customer segment comprises large companies that have annual gross revenues greater than R$200 million (except for our Santander Corporate & Investment Banking customers). We focus on fostering a close relationship with our corporate customers through managers and specialists geographically distributed across Brazil, providing customer-tailored services with a complete portfolio of local and global products (products from Commercial Banking and SCIB).

Global Wholesale Banking

Santander Corporate & Investment Banking (SCIB)

SCIB is the global business unit that serves customers, who, due to their size and complexity, require tailored services or high-value-added wholesale products. In this segment, we provide a wide range of domestic and international financial services to large Brazilian and multinational companies. Our customer portfolio comprises a range of industries, including telecommunications, retail, aviation, real estate and logistics, power, construction and infrastructure, natural resources, food, agribusiness and financial institutions.

Our customers in the SCIB segment benefit from Santander Group’s global structure of services, which is supported by its worldwide-integrated wholesale banking network and global services solutions, as well as local market expertise and provision of integrated services.

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Our Portfolio of Products and Services

Payments

Credit and Debit Cards

We operate in the credit and debit card market by issuing these products to our customers (including both account and non-account holders), with the majority of customers being individuals. Our strategy is to offer credit and debit cards that are compatible with the income level and lifestyle of each of our customers.

In order to reach a greater number of customers and remain competitive, we launched the SX card in November 2020, as part of the SX strategy detailed below. This product benefits highly engaged and transactional customers, facilitating the exemption from annual card fees. In addition, we also took the opportunity with the SX card to launch a more modern and ambitious card design for our customers.

We also improved our digital journey to provide better customer self-service, which we believe is a key component for higher customer engagement and was especially important in this new cycle. A recent novelty is “Clique e Retire”, a new physical card delivery system that provides autonomy and agility by allowing customers to opt to collect their cards from self-service machines.

The following table sets forth certain key financial and operating data regarding our credit card business for the periods indicated.

  As of and For the Year Ended December 31, Change between 2019 and Change between 2018 and
  2020 2019 2018 2020 2019
Credit card portfolio market share(1)  13.4%  12.9%  13.3%  0.5 p.p   (0.37) p.p 
Credit card portfolio (R$ billion) (2)  37.8   36.1   30.9   (100.0%)  16.8%
Total card turnover (R$ billion) (2)  242.0   236.4   201.6   2.4%  17.3%
Credit card turnover (R$ billion) (2)  158.7   161.0   137.1   (1.4%)  17.4%
Total card transactions (in millions) (2)  2,570.8   2,725.4   2,338.2   (5.7%)  16.6%
Credit card transactions (in millions) (2)  1,300.0   1,450.9   1,206.1   (10.4%)  20.3%
Participation of credit card in the household consumption – Market overview (2)(%)  24.3%  24.5%  23.1%  (0.24p.p)  2.94 p.p 
(1)Source: Brazilian Central Bank, as of December 31, 2020.

(2)Source ABECS – “Monitor bandeiras”. The data relating for the year ended December 31, 2018 has been revised as a consequence of the restatement of the methodology of monitoring issued by ABECS.

Santander Way

Santander Way is an app offered to our cardholders that allows them to manage their Santander Brasil cards at any time. This complete payment platform also works as a digital wallet, enabling customers to conduct instant contactless payments. The app is frequently updated with new features. Some of the most notable features launched in 2020 included: (i) extra loan and installment offers, (ii) virtual cards, (iii) functions for safer online purchases without a physical card, (iv) prepaid mobile recharges, and (v) chatbots for customer service. In 2020, we had 9 million active customers using Santander Way.

Superdigital

Superdigital is a digital, pre-paid solution that allows customers to manage their daily financial activities and pre-paid accounts entirely online through a user-friendly interface.

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Superdigital customers can easily and rapidly (i) make withdrawals in the “Banco24Horas” ATM network; (ii) send and receive money from any bank institution; (iii) recharge prepaid mobile phones; (iv) carry out foreign exchange transactions in up to 10 different currencies; and (v) recharge public transportation passes using an app. In addition to all these features, customers also receive an international MasterCard credit card to make purchases in physical and online stores, and gain access to our rewards and “MasterCard Surpreenda” programs, which offer a range of benefits and discounts.

On February 28, 2020, we sold our entire equity interest in Superdigital to Superdigital Holding Company, S.L. a company indirectly controlled by Santander Spain. For further information regarding this sale, see “See “Item 4. Information on the Company—4A. History and Development of the Company—Important Events.”

Merchant Acquiring Market | Getnet

Getnet is a technology company that offers solutions, both physically and digitally, to individuals and businesses. The acquisition of Getnet, which was completed in 2019, gave us more flexibility, and enabled us to create more complete and tailored solutions for our customers by integrating its services with the Bank.

Through Getnet, we are able to offer a wide array of payment solutions for individuals and businesses, including: (i) mobile and Wi-Fi point of sale or POS devices; (ii) SuperGet, a mobile POS device that self-employed professionals and small companies can buy or rent; (iii) TEF (Electronic Transfer of Funds), a solution for establishments with a significant number of transactions, operating in synergy with the establishment’s systems and offering sales reconciliation through our bank-integrated customer benefits; (iv) Getnet App, which allows users to track detailed sales transactions in real time and amounts that can be anticipated, while also providing business analytics information and richer data sets that business owners can use to better manage their activities, such as best times of the day to sell; (v) Digital POS, a complete solution that can be customized and, when connected to the internet, allows app downloads and the use of integrated management functions; (vi) Getnet Digital Platform, a tool for all e-commerce environments, with integrated services such as safe boxes, recurrence and anti-fraud systems, which is modeled after the “one-stop shop” concept and provides financial intermediation between a marketplace and its storeowners, as well as several other financial services, such as bill generation, and sales conciliation; and (vii) Getnet Digital Store, which is geared towards SMEs, allows users to set up their stores online, and offers a number of services such as a payment platform, alongside visual and fully integrated management.

The following table sets forth certain key financial and operating data regarding our merchant acquiring business for the periods indicated.

  As of and For the Year Ended December 31, Change between 2019 and Change between 2018 and
  2020 2019 2018 2020 2019
  (R$ millions, except as otherwise indicated)
Market share of total turnover(1)  13.6%  11.3%  12.3%  2.3 p.p   (1.0p.p)
Debit turnover  105.8   80.9   73.4   30.8%  10.2%
Credit turnover  167.9   126.6   114.1   32.6%  11.0%
Number of debit transactions (thousand)  1,572,685   1,415,089   1,245,269   11.1%  13.6%
Number of credit transactions (thousand)  1,234,105   1,070,717   893,519   15.3%  19.8%
(1)Source: Data for 2020 is based on ABECS Monitor Bandeiras - Acquirers data for the nine-month period ended September 30, 2020. Data for the year ended December 31, 2020 was not available as of the date of this annual report. For comparison purposes, the difference between September 30, 2020 and September 30, 2019 would be: +2.3 p.p

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On February 25, 2021, further to the Material Facts disclosed on November 16, 2020 and February 2, 2021, we announced that our Board of Directors approved a separation from our merchant payment business, which is undertaken by our subsidiary, Getnet, in order to concentrate the technology and payments businesses of Santander Group within PagoNxt, a new technology-focused global payment platform. Following the potential spin-off of our equity interest held in Getnet, or the “Spin-Off,” which will be resolved upon by our shareholders in an extraordinary shareholders’ meeting, our shareholders would become direct shareholders in Getnet on a pro rata basis. Accordingly, our shareholders immediately prior to the Spin-Off would hold a percentage of equity interest in Getnet in the same proportion as they held in Santander Brasil prior to the Spin-Off. After the approval of the Spin-off by our extraordinary shareholders’ meeting, our shares and units will be traded with the right to receive the shares and units issued by Getnet until the record date, which, once determined, will be disclosed to the market by means of a Notice to Shareholders.

Esfera

Esfera is our loyalty program, which can be accessed through its own website and mobile app. Our loyalty platforms enable our credit card holders to exchange their reward points for many products, services and travel benefits, including exclusive deals and discounts with partners such as Cinépolis, FastShop and Casas Bahia, among others.

Ben

Ben is an employee benefits company that provides greater flexibility, purchasing power and quality of life to its users by creating, supplying and managing various types of employee benefit vouchers (e.g. meals, such as Vale Alimentação and Vale Refeição, as well as transportation) in the form of magnetic cards. These benefits are offered through an integrated digital platform.

Since 2019, Ben has provided transportation benefits in partnership with RB Serviços Empresariais LTDA.

Ben is currently working on sales partnerships and the development of new products, such as gift cards and other benefit options to expand its portfolio.

The following table sets forth certain key financial and operating data regarding our merchant acquiring business for the periods indicated.

  

As of and For the Year Ended

December 31,

  2020 2019 2018
  (in R$ millions, except as otherwise indicated)
Card Purchases  946   560   - 
Number of Cards (in thousands)  217   98   1 
Number of Transactions (in thousands)  12,192   9,534   - 
Merchant accredited (in thousands)  338   253   4 

For further information, see also “Item 4. Information on the Company—A—History and Development of the Company—Important Events.”

Payroll Loans

Payroll loans support both account and non-account holders in the execution of projects and financial organization. Under these loans, monthly installments are deducted directly from the borrowers’ paychecks by their own employers, and then credited to Santander Brasil, significantly reducing our credit risk. We offer these payroll loans to our customers through our mobile banking platform and our branches. Our customers can refinance their payroll loans, as well as choose from other options to help them manage their debts. Furthermore, these loans are also offered to non-account holders through Olé Consignado. For further information on relevant events relating to Olé Consignado’s corporate events, see “Item 4. Information on the Company—A—History and Development of the Company—Important Events.”

The following table sets forth certain key financial and operating data regarding our payroll loans as of the dates indicated.

  As of December 31, Change between 2019 and Change between 2018 and
  2020 2019 2018 2020 2019
Market share in origination (1)  22.3%  13.2%   12.2%   9.09 p.p   1.01 p.p 
Payroll loan portfolio (R$ billion)  48.1       43.0      33.8       11.9%   27.1%
(1)Source: Brazilian Central Bank, as of December 31, 2020, December 31, 2019 and December 31, 2018, respectively.as applicable.

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SIM

SIM is a digital lending platform for individuals through which customers can apply, and be approved, for a loan completely online. After 15 months of operation, SIM has already achieved a positive net profit, a loan portfolio of R$700 million as of December 31, 2020 and a market share of 0.5%. as of December 31, 2020. SIM also has a high level of customer satisfaction, with an NPS of 80 points.

emDia

emDia is an online debt renegotiation platform. It provides customers with a simple platform to access debt renegotiation services on a 24/7 basis. As of December 31, 2020, emDia had 4 million customers and had contributed to the recovery of R$46 million in credit volume in 2020.

Mortgages

We offer long-term financing to our customers for real estate purchases, secured by deeds of trust. We consider mortgages to be a strategic product due to their lower risk (since the acquired property serves as collateral) and their ability to increase our customer loyalty (especially since we offer customers more attractive rates if they choose to bank with us). In this market, our customers, and those of our competitors, are primarily individuals.

We do not offer mortgage loans that do not meet prime lending regulatory standards, which means that (i) we do not finance more than 90% of the value of the property to be purchased, (ii) borrowers must meet certain minimum monthly income levels evidenced by recent payroll information and tax returns to confirm their employment status or other revenue sources, allowing us to evaluate their credit risk profile, and (iii) any other indebtedness added to the financing cannot exceed 35% of the borrower’s monthly gross income.

To facilitate the process for our customers, we provide a real estate digital platform where customers can obtain mortgages completely online. We were the first bank in Brazil to offer customers the opportunity to secure a mortgage without being physically present, except for the signing of the agreement and returning it duly registered. We have a partnership with the largest real estate platform in Brazil in order to improve our sales network and strengthen our digital presence.

The following table sets forth certain key financial and operating data regarding our mortgage business for the periods indicated.

  As of December 31, Change between Change between
  2020 2019 2018 2019 and 2020 2018 and 2019
  (in R$ billions, except percentages)
Mortgage loan portfolio  45.8   39.7   36.3   15.4%  8.3%
Individual sector mortgage loans  44.0   37.2   31.4   18.3%  18.4%
Loan to value(1) – Production (% quarterly average)  64.9%  62.9%  60.6%  2.00 p.p   2.31 p.p 
Loan to value – Portfolio (%)  52.2%  49.4%  48.7%  2.75 p.p   0.73 p.p 
(1)Ratio between loans and the value of the collateral, excluding home equity.

Home Equity

In our portfolio of loan products, we also offer a “home equity” financing product called “Use Casa”, where customers can receive a loan and provide real estate as collateral. This product enables customers to access financing to pursue their personal objectives. “Use Casa” experienced a marked increase in market share, achieving an overall market share of 29.5% in 2020 as compared to 20.5% in 2019.

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We do not offer home equity loans that do not meet prime lending regulatory standards, which means that (i) we do not finance more than 60% of the value of the property, (ii) borrowers must meet certain minimum monthly income levels evidenced by recent payroll information and tax returns to confirm their employment status or other revenue sources, allowing us to evaluate their credit risk profile, and (iii) any other indebtedness added to the financing cannot exceed 35% of borrowers’ monthly gross income.

To facilitate the process, customers can obtain home equity loans completely online through our real estate digital platform. When using this option, customers only need to be physically present when signing the contract and also when returning it once it is duly registered.

Tailored Products and Services

As mentioned above, we offer a complete set of services and products worldwide. In this way, we have a portfolio that ranges from basic to tailor-made and highly complex solutions in the following areas:

·     Global Transaction Banking - responsible for the sale and management of local and global transactional banking products, which includes local loans, commercial finance, transfers of BNDES on-lending, guarantees, structured loans and cash management solutions.

·     Global Transactional Services - responsible for sales and management of global transactional banking, trade finance, guarantees, structured loans, and funding from international banks.

·     Global Debt Financing - includes funding and financial advisory services related to projects, origination and distribution of fixed-income securities in the debt capital markets (DCM), financing of acquisitions and syndicated loans, other structured financing arrangements, subordinated debt and energy efficiency transactions.

·     Investment Banking - offers advisory services for mergers and acquisitions (M&A) and equity capital markets transactions, including initial public offerings and follow-on offerings.

·     Equities – provides stock brokerage and advisory services, equity services for individuals, corporate, and financial institutional investors in stocks, derivatives, as well as equity research.

·     Treasury Customers - responsible for structuring and offering foreign exchange, derivative and investment products for customers from several segments of Santander Brasil, including institutional investors, corporate and retail customers.

·     Market Making - responsible for the pricing of customer deals originated by our sales force from corporate, institutional, private banking and retail segments. This department also conducts our proprietary trading activities.

We are one of the leading banks in capital markets and financial advisory services in the Brazilian and international markets as evidenced by the awards we have received, of which the most significant are listed in the table below.

CompanyAcknowledgments
Dealogic

First Quarter of 2020

#2 M&A LatAm - Deal Announced¹

#3 M&A Brasil - Deal Announced¹

#6 M&A Brasil - Volume Announced¹

#4 ECM Brasil - Deal Announced2

#11 ECM Brasil - Volume Announced2

#1 Global Financial Advisor - Deals Announced (Brasil in the International Markets)

#1 Global Renewables MLA - Deals & Volume Announced

#1 Global Renewables MLA - Deals Announced

#1 Americas MLA - Deals Announced

#1 Americas Financial Advisor - Deals Announced

#1 LatAm & Caribe MLA - Deals & Volume Announced

#2 Global Financial Advisor - Volume Announced (Brasil in the International Markets

#2 Americas Renewables MLA - Volume Announced

#2 Americas Financial Advisor - Volume Announced

#3 Americas MLA - Volume Announced

#1 Global ECA Financing Volume by MLA

#1 LatAm & Caribbean ECA Financing Volume by MLA

OBS:

GDF: Position 2019 FY

IB: (1) excludes fairness opinions / (2) Not included deals made in the EUA – YTD´20

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Global Finance

Best Provider of Short-Term Investments/Money for 2020

Market Funds in Latin America for 2020 

Best Trade Finance Bank in LatAm 2020

World´s Best Payment Hub Solution for 2020 

Best Supply Chain Finance Provider in LatAm 2019

Best Trade Finance Provider in LatAm 2019

Institutional Investors

#1 The Latin America Strategy Team                           

First Quarter of 2020

#4 The Latin America Sales Team

# Sales Trading Institutional Team 

#5 Research Team

TMI Awards

Best Trade & Supply Chain Finance Bank in South America 2020

B3

#2 Derivatives

October 2020

FX Markets

Best Bank for emerging LatAm currencies 2020

Best Bank for LatAm 2020 

Best Bank for USD/BRL 2020

Global Trade Review

Best Trade Finance Bank in LatAm 2020

First Quarter of 2020

Best Deal Award Route 2020
Best Supply Chain Bank 2020

Bond Radar

#1 DCM Distributed in the International Market

Full Year 2020

Brasil Bonds & Corporate Bonds

Trade Finance an IJ Global

Best Supply Chain Finance Bank 2020

Best Receivables Financier 2020 

PFI Awards

Global Adviser of the year                           

First Quarter of 2020

Anbima

#3 DCM Distributed in the Local Markets                   

First Quarter of 2020

#3 3 DCM Originated in Local Markets– Fixed Income Consolidation
Project Finance                                                              Full Year 2019
Financing advisory #1 Announced value and Nº Deals
Concession Auction Financial Advisor #2 Announced values and #2 Nº Deals
Structuring #5 Announced value #3 Nº Deals

Risk Net

Risk Solutions House of the Year 2020

Deals: Cosan (EDQ) / Syngenta (Special Sits)

Latin Finance

Financial Advisor of the 2020: LatAm

Bacen

#1 Total FX                           

May 2020

The Banker

Most innovative investment bank of the year for structured finance 2019

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Customer Solutions

Santander SX

As required by the new Brazilian instant payment system, PIX, which was established by the Brazilian Central Bank, we developed Santander SX, a system that allows individual and corporate customers to instantly transfer money, at any time, free of charges, in a practical and safe way.

In the fourth quarter of 2020, we introduced SX. We believe that SX is complementary to the Brazilian Central Bank’s instant payment solutions, by offering exclusive benefits to customers, including 10 days of interest-free overdraft for individuals and five days for businesses. Since its launch in November 2020, we have processed more than 36 million PIX transactions (sent and received), totaling more than R$ 43 billion, through SX. More specifically, regarding the financial volume of PIX sent, we achieved a share of 15% in the fourth quarter of 2020, outperforming our regular market share in the credit market.

Agribusiness

Agribusiness remains one of our key areas of expansion, and we believe that expanding our agribusiness network will help broaden our reach into the Brazilian countryside to strategic areas in which we are not yet present. We provide a full range of products and services focused on the agribusiness sector. Our approach towards rural producers differs from the one taken with our other customers in that we offer a specialized relationship to our rural producers. We believe that a network of physical stores and digital solutions will result in a more agile and efficient communication with these customers.

The following table sets forth certain key financial and operating data regarding our agribusiness for the periods indicated.

  As of and For the Year Ended December 31, Change between Change between
  2020 2019 2018 2019 and 2020 2018 and 2019
           
Number of agribusiness-focused stores  40      34      21      6%    13% 
Agribusiness loan portfolio (R$ billion)  13.7   10.9   11.8   26.2%  (7.9)%) 

Microfinance

We believe that Prospera Santander Microfinance is a leading microcredit-oriented operation among privately owned banks in Brazil, based on market share and portfolio value. This product aims to support formal and informal microentrepreneurs by generating business and income. With a 100% digitalized service process, in addition to products intended to improve business management skills, we have customers who hire us for services previously not available to them, because they do otherwise have access to financial services, such as property finance, consortium and investment services.

  As of and For the Year Ended December 31, Change between 2019 and Change between 2018 and
  2020 2019 2018 2020 2019
Number of Prospera stores  99   100   45   (1.0%)  122.2% 
Microfinance loan portfolio (R$ billion)  1.3   1.2   0.7   8.3%  79.1%

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Webmotors

Webmotors is the first and largest Brazilian technology company focused on providing automotive purchase and sale solutions for dealers, original equipment manufacturers and private sellers, holding the largest online automotive listing in Brazil.

Webmotors received over 30.2 million visits each month and had an average of over 3.9 million vehicles listed in 2020. Through the Cockpit, a pioneering and disruptive platform for car dealers, which combines solutions for the entire chain described above, we offer the following solutions: business management/performance, buyer profile (CRM), data intelligence, predictive pricing models and market data (AutoGuru).

We have also launched “+Fidelidade,” a loyalty program aimed at offering incentives to our agents based on their loyalty and relationship level with Grupo Santander Brasil and Webmotors. We have sought to improve customers’ after-sales experience through several functionalities made available on an online portal.

During 2020, we launched two service products, Car Delivery and “Troca com Troco” in partnership with Webmotors.

Through Car Delivery, customers seek virtual assistance through video calls, resolve concerns online, and receive their vehicle at home, sanitized and with all necessary support. “Troca com Troco” allows customers to sell their current financed vehicles while financing the purchase of a less expensive vehicle, and pocket the difference. This product allows the Bank to better manage credit exposure and control the credit quality of the portfolio with leading customer service.

Santander Auto

In 2019, we launched Santander Auto, a fully digital car insurance solution which relies on the use of big data analytics for pricing.

The Brazilian insurance market is characterized by: (i) low insurance penetration as a proportion of GDP; (ii) low technological evolution, dominated by companies with low innovation rates, still focused on financial results (due to a history of high interest rates); and (iii) retail brokers as the main distribution channel. As a result, the subscription process still requires that the customer complete a question form (approximately 40 questions). As a result, only approximately 20% of Brazilian vehicles are insured.

Actuarial techniques and behavioral models enable Santander Auto to make an insurance proposal, without making additional information requests from the customer, based on information already available to us.

During its first year of operation almost 110 thousand policies were sold, which represents a penetration rate of 16% (i.e., total insurance contracts sold as a percentage of the contracts relating for loans by Santander Financiamentos). These results are based on a pricing system based on information bureaus which provides have a more accurate price, which makes it possible to make an offer at the time the vehicle is purchased, and which enables customers to include insurance in their purchase with a single click. During 2020, we focused on consolidating our insurance offer, by ensuring that all customers have at least one insurance offer, while also covering the most diverse types of risk. We intend to expand the business through the optimization of our ecosystem and penetration in our customer base.

+ Negócios and + Vezes | Santander Financiamentos

In 2017, we launched “+Negócios,” which we believe to be an innovative digital trading platform. This simple and intuitive platform enables faster execution of loan simulations, receipt of credit approval and proposal formalization for vehicles, in addition to providing portfolio management reports. In the same year, we also introduced “+Vezes”, a digital trading platform allowing retailers to offer installment payment options for the sale of goods and services.

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In 2020, approximately 15 million separate Brazilian individual taxpayer identification numbers were used to simulate vehicle leasing through the “+Negocios” platform, which makes us one of the most widely used platform in Brazil’s vehicle leasing market.

We also reformulated the “+Vezes” platform in 2020 to improve customer experience and the platform's stability. We also increased our sales force in this business through sales representatives giving us a presence throughout Brazil.

Cash Management

We offer cash management solutions to corporate customers and SMEs online through our Internet banking and mobile banking services.

Our revenues from cash management include fees charged for offering the following products: (i) collections, in which we assist customers in carrying out commercial transactions using printed or online payment slips; (ii) payments, consisting of simple and automatic management of our customers’ accounts payable activities through individual transactions or via electronic file transfer; (iii) payroll, which is intended to facilitate the management of salary and benefits payments to our customers’ employees via an online tool; (iv) collection of values, which consists of the payment of cash values and checks at the customer’s points of sale; and (v) custody, by which we perform the custody, control and deposit of predated checks up to the date of clearing.

In addition, we also provide other revenue-generating products which are structured and tailored to the customer’s operation.

Customer Funding

Our main sources of liquidity are customer funding through deposits and other bank funding instruments. These deposits, combined with equity and other instruments, enable us to meet most of our liquidity and legal reserve requirements.

For further information, see “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Liquidity and Funding.”

Investments

Our investment process for retail customers seeks to provide qualified guidance and help them achieve their financial objectives based on four major pillars:

·Client investment profile - We assess our customer’s situation to understand their level of financial knowledge, investment horizons, liquidity needs and the levels of risk they are willing to assume, among other factors. This analysis is reviewed periodically, according to the customer’s needs and local regulations.

·Investment strategy - Our investment philosophy aims to provide long-term returns through a structured asset allocation process and mitigate market risks by diversifying among different asset classes.

·We define strategic portfolios for each customer profile and build our “Model Portfolio” on a monthly basis according to market conditions and trends. This tactical view arises from the Asset Allocation Committee, which consists of economists from our economics department, our Santander Asset Management division, our Private Banking unit and our brokerage house (Santander Corretora).

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·Execution and implementation - To assure a successful execution of investment strategy, we provide a complete array of financial products, ranging from banking instruments, bonds, stocks, structured notes, investment funds with an open architecture and selected investment providers, real estate funds and exchange traded funds, among other capital markets instruments. Our partnership with Zurich Santander completes this offering with a wide range of private pension plans. Furthermore, our recent acquisition of Toro Corretora has further enhanced our PI DTVM investment platform by expanding our product offering. For more information regarding this acquisition, see “—A. History and Development of the Company—Important Events— Purchase of Equity Interest over Toro Controle e Participações S.A.”

·Follow-up - Our advisory team performs, along with the client, a thorough and frequent revision of their profile, objectives and results, seeking to keep their investments within the established parameters and Model Portfolio’s guidance.

In order to identify possible deviations from the investment profile’s recommended positions, we also rely on automated monitoring systems. These controls alert customers of any transactions that compromise the suitability of their portfolio and are in line with our commitment to protect our customers’ interests.

Furthermore, each customer has direct access to their positions through a private access site on the Internet and Mobile App, where they can view the evolution of their investment strategies.

Programa Avançar

We also have a non-financial solution, known as “Programa Avançar”, which is aimed at entrepreneurial customers. Through this solution, SMEs can access content and solutions related to management and innovation, internationalization, team building, and other topics relevant to businesses via a web platform. We see this program as a key component of our offering to Brazilian entrepreneurs.

In addition, we offer a digital account solution to these customers, especially individual entrepreneurs.

Similarly, we offer “Santander Copiloto”, an enterprise resource planning tool designed for our SME customers. This tool is integrated with the Santander Digital channels, and provides solutions such as e-commerce, sales point software and tax compliance.

Service Channels

We offer our financial services and products to our customers through our multichannel distribution network composed of: (i) physical channels, such as branches, mini-branches and ATMs; (ii) call centers; and (iii) digital channels, such as Internet banking and mobile banking.

Physical Distribution Network

Our distribution network provides integrated financial services and products to our customers. The following table presents our physical distribution network as of the dates indicated.

  As of December 31,
  2020 2019 2018
Branches    2,153     2,328   2  ,283 
Mini-branches    1,411     1,512     1,267 
Own ATMs  12,949   13,296   13,641 
Shared ATMs  23,798   23,780   23,049 

Branch Network

Our branch network offers our entire portfolio of products and services to our customers through a personal and customized approach. The table below shows the geographic distribution of our branch network as of the dates indicated.

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   As of December 31,
   202020192018
Northeast    9%  9%  8%
North and Midwest    7%  7%  7%
Southeast  70%70%71%
South  14%14%14%

PABs (Mini-branches)

We offer daily banking services to our SMEs, as well as corporate customers and their employees through our PABs (“Postos de Atendimento Bancário”), which are exclusive sales points located at our customers’ buildings, as well as in hospitals and universities. The presence of PABs in our customers’ offices strengthens our relationship and builds loyalty with those customers, who benefit from the convenience of conducting their banking transactions at their workplace.

ATMs

We operate an extensive network of 12,949 ATMs, including those located in our branches and mini-branches. In addition, our customers have access to the “Banco24Horas” network, which operates 23,798 ATM units. Through this network, our customers can access their accounts and conduct banking transactions, as well as purchase most of the products and services available in our portfolio.

Call Centers

Our call centers provide active Santander Brasil customers (account and single product holders) with consultation, financial transactions and product hiring services. This important distribution channel has a variety of customer self-service facilities. Our call centers received over 150 million contacts in 2020.

Digital Channels

Our digital channels include Internet banking, mobile banking and other digital solutions aimed at facilitating our customers’ access to the products and services that we offer. We highlight the following key features:

·OnePay – This service is available through the Santander App and enables customers to transfer funds to foreign countries in various currencies.

·Santander On “Financial control” – Through the Santander App, customers can access this service to view all of their commitments to us, as well as pending issues with the Brazilian tax authority (Receita Federal do Brasil), Serasa (a Brazilian credit bureau) and the Brazilian Central Bank, thereby enhancing the transparency of the credit relationship with Santander Brasil. Customers can easily access credit quality information and the use of debt with Santander, as well as easily update income data without having to present any payroll or tax documents, and readjust available limits.

The following table provides certain key operating information with regards to our digital channels as of the dates indicated.

  For the Year Ended
  December 31,
  2020 2019 2018
  (in millions)
Number of digital customers(1)    15.6   1  3.4   1  1.4 
Number of digital channel transactions(2)  5,262   4,311   4,073 
(1)We define digital customers as those who used at least one of Santander Brasil’s digital channels (e.g., mobile banking and internet banking) in the 30 days preceding the end of the applicable year.

(2)Refers to transactions carried out through internet banking, mobile banking and other digital platforms. The data relating to the year ended December 31, 2018 has been revised due to a change in the criteria applicable to digital transactions accounting.

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The following table provides an overview of the weight of each key distribution channel in our overall distribution system.

   For the Year Ended
   December 31,
   202020192018
   (%)
Internet banking  36.939.746.1
ATMs  5.98.910.4
Mobile(1)  48.039.034.5
Branch  2.24.15.2
IVR(2)  6.17.42.3
Call Center  0.80.91.4
(1)Refers to total transactions (account holder and unique product-holder).

 

(2)MicrocreditInteractive voice response is an automated telephone system in which a credit grantedcomputer interacts with callers (who can use their voice or the telephone keypad to very small businesses,communicate with the computer), gathers information and transfers caller to the appropriate representative.

In addition to Internet banking and mobile banking, we have digital solutions that play an important role in providing a better digital experience for our customers and potential customers, including:

·Digital account opening – Customers can open an open position of R$1.2 billion and R$642.0 million on December 31, 2019 and December 31, 2018, respectively.account with Santander Brasil entirely online.

 

(3)·Interest-free financing is the amount to be used onArtificial Intelligence GENTE – Launched in 2020, this solution offers a free of interest basismore personalized digital service that provides greater autonomy for other purposes in each financing category.our customers.

 

(4)·AccordingLAB 033 – Launched in 2019, this is innovation laboratory is focused on creating new solutions that can support transformational projects across our organization.

·Santander Corretora App - A digital trading platform offered to Circular No. 3,823 ofour brokerage customers.

·Autocompara - Allows customers to obtain insurance quotes from six different insurance companies and purchase the CMN,best offer through Autocompara’s website.

·Pi DTVM – Acting as a digital broker since 2019, this solution empowers customers to invest through a simple and intuitive digital platform. PI DTVM also provides market information and financial education tools.

Technology and Infrastructure

In 2020, we optimized our technology investments, in order to provide more efficiency, digitalization, security and quality to the products and services provided to our customers. In the challenging scenario brought by the COVID-19 pandemic, we took on the important role of serving as an ally to our customers and the Brazilian economy. Through sizeable investments in technology and enhancements to the capabilities of our channels and digital platforms, we were able to quickly face up to the new reality, while simplifying internal processes and business models.

We established a new technological innovation center (Lab 33) in the city of São Carlos (in the state of São Paulo) and built partnerships with local universities and technical schools in order to identify and recruit qualified talent. In addition to creating job opportunities in São Carlos, this innovation center resulted in the creation of other direct and indirect positions in our technology ecosystem. Furthermore, we boosted the agility and scalability of our software development and deployment processes, while increasing automation levels and adopting advanced cloud computing and artificial intelligence solutions. We have listed below a few other initiatives delivered throughout the year:

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·GENTE: in order to speed up and optimize the digital services provided to our customers, we released GENTE, a virtual self-service assistant that customers can use to search for information, ask questions, access account statements, review credit card limits, as well as to perform financial transactions such as transfers and invoices payments, all through the Santander Mobile App, our commercial portal, WhatsApp or Santander Way.

·Santander SX: as required by the Brazilian Central Bank, replacedwe developed Santander SX, an instant payments platform that allows individual and corporate customers to make money transfers that reach the reserve requirement deductionrecipient’s account in a just a few seconds 24 hours a day. Transactions can be performed from transactional account identifier directory (or “DICT”) keys, such as e-mail address, cell phone number, national tax number as well as static and dynamic QR codes.

·Individual Bank Account (Mobile): in order to enhance our customers’ experience, we improved our mobile app services by adding new consulting and sharing features to our individual account mobile app, including the ability to generate credit card invoices in portable document format, or “PDF”, check date and time of the last balance update, as well as view all charges and number of days the overdraft account was used.

·Corporate Bank Account (Mobile): in line with our sustainability goals, we launched a new digital service for our corporate customers that offers paperless processes and greater agility in opening new accounts, with a strong lead-time reduction from a few hours to just a few minutes to open an account. Since the launch of this new service, over 20,000 new corporate accounts have been opened using this service.

·Credit Cards: in addition to offering our customers the option of acquiring credit cards through our digital channels, we now provide new after-sales services, such as sending digital invoices and card passwords via text messages. In December 2020, over 74% of credit card invoices were made available via digital channels, while 91% of card passwords were sent via text messaging.

·Car Insurance: our car insurance services are offered through a 100% digital platform, where customers may perform simulations, request inspection services and sign-up for insurance contracts spanning over 12, 24 or 36 months. This new platform aims to boost sales through simple navigation, reduce average quotes and contract time, depositsas well as increase the number of insurance contracts and demand depositstotal premium amount.

·Mortgage Services: we have improved the after-sales experience of our real estate loan customers. Our customers can access relevant information about their contract through a single page on our web portal, including total contract amount financed, balance due, overdue balance, interest rates and maturity date, as well as installment due payments.

·Security and Antifraud: we have expanded the types of electronic authentication methods available, so that our customers can validate transactions via biometry, QR code (Santander ID), Token ID and credit card passwords. We have also developed the fraud alert center, an antifraud solution designed to send alerts to customers about events identified while accessing our digital channels or any changes to the information registered in our databases. These actions contributed to protecting our business and our customers from sensitive information leaks or exposure.

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Communications and Marketing

We use and monitor several tools in order to communicate effectively with our customers. These include not only traditional media, such as television and printed media, but also the internet, mobile advertising and social networks.

Even though social isolation prevented in-person events in 2020, our customer outreach, conducted through direct communication across all available media, including social networks, remained unaffected. We regularly provided information through these channels, seeking to make a real and positive difference in the lives of our customers. Such information included guidance on how to access credit lines and other government-sponsored initiatives to combat the COVID-19 pandemic, as well as information on the solutions we introduced, such as our mortgage rate reduction, deferral of loan installment payments and vehicle financing with auto insurance, without inspection. Internally, we released more than 200 videos aimed at instructing our teams on how to best-serve our customers, and guidelines to prevent COVID-19 in the workplace. Externally, we ran more than 192 video advertisements on TV and social networks. Our communications campaign generated significant feedback, with more than 34,000 articles published in newspapers and magazines, as well as more than 20 stories featured in Brazilian national media outlets. On social media, we averaged 10 posts per day, with nearly 800 million impressions. We also launched new media formats on networks such as Spotify (podcast) and TikTok. Additionally, we conducted more than 150 live broadcasts and events where our senior management, as well as experts and government officials were invited to address several topics, including the current economic scenario, social investment, sustainability, diversity, women’s leadership, entrepreneurship, and culture and entertainment. The Third Edition of Global Citizen, organized in collaboration with newspaper Valor Econômico and featuring actress and activist Viola Davis and Esther Duflo, the youngest person ever to win the Nobel Prize in Economics, received more than one million views. Also, the 21st Annual Santander Conference focused on discussing actions to fight COVID-19, with the participation of major chief executive officers, public authorities and our leadership. The conference was broadcasted on YouTube, garnering a total of 6.1 million views.

Sustainability

In Brazil, sustainability governance is based on global guidelines, locally identified commitments and demands, and our local business strategy. Decision-making goes through the Board of Directors, the Executive Committee and the Sustainability Executive Superintendents. The Sustainability Committee is responsible for providing clarification and recommendations to the Board of Directors regarding the development of sustainability-related guidelines.

We have organized our activities to create what we believe to be one of the best financial platforms in Brazil and to serve as an agent for the transformation and prosperity of society. This involves promoting sustainability through our business, operations and relationships. We have directed our efforts to improve Brazil’s business environment, which allows people to live up to their full potential and strategically promote the use of Brazil’s natural capital.

This stance is present in the three pillars of our sustainability strategy, which reflects Brazil that we want to help build, together with our employees, customers, shareholders and society, while also contributing to the UN’s Sustainable Development Goals (“SDGs”): surrounding a Resilient and Inclusive Economy, the Development of Potential and the Efficient and Strategic use of Natural Resources.

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Resilient and Inclusive Economy

Our broad commercial activity allows us to advise and support all of our customers and projects. Our role is to be a facilitator and contribute to the generation of jobs and income, and the improvement of logistics and infrastructure for Brazil’s development.

Through this pillar, for example, we offer access to banking services, products and non-financial initiatives.

We have specific products to support micro entrepreneurs and SMEs, such as the “Prospera Santander Microfinanças”, “Programa Avançar” and “Parceiros em Ação” programs. Additionally, we increasingly seek to include the topic of financial management in the client's relationship with the Bank, using tools such as Santander On.

In 2020, by digitalizing our initiatives, we reached 156,000 participations in financial education initiatives. This number includes content for our social networks, as well as live streams and podcasts on personal financial management and investment. For the first time during the national financial education week, our customer services team, or “SAC,” offered personalized financial advice to customers.

Furthermore, Santander Brasil launched several benefits to support customers and companies during the COVID-19 pandemic, including the “A Gente Banca” program, as well as long term payroll loans, installment extensions, and service packages aimed at individual microentrepreneurs among others.

Development of Potentials

Our commitment to the development of potential begins with our employees. We have ranked as one of the best companies to work for in the Great Place to Work, or GPTW, survey since 2016. Guided by our corporate culture and internal policies, we offer opportunities that promote development and professional growth, in order to build a culture of delivering results, respect, innovation, inclusion and diversity.

We work to create a culture of respect, inclusion and equity, where everyone can develop their talents with their unique attributes. Diversity is one of the five principles of our Code of Ethical Conduct. Our priorities are gender and racial equity, inclusion of LGBTI+ and people with disabilities, as well as diversity of experience and generational diversity. Since 2018, we have set inclusion targets for Afro-Brazilian employees in the bank and female employees in leadership, which in 2020, were 27.4% and 28%, respectively. As of December 31, 2020, our Afro-Brazilian and female employees accounted for 25.3% and 28.8%. Additionally, in 2020, we received two diversity awards from GPTW: one for our ethnic-racial practices and another, for the fourth time, as one of the best companies for women to work.

Through the Santander Universities Program, we offer initiatives focused on granting national and international scholarships, programs for entrepreneurial development, as well as internship and employment programs. On December 31, 2020, about 24,900 scholarships and entrepreneurships were granted with a total investment of about R$27.2 million.

We also contribute to the promotion of children and adolescents’ rights. Through the “Amigo de Valor” program, Santander Brasil, employees and customers may directly donate a part of their due income tax to the Funds for the Rights of Children and Adolescents (“Fundo dos Direitos da Criança e do Adolescente”). In 2020, this program raised R$15.7 million.

In 2020, we took several steps to support society during the COVID-19 pandemic:

·Between March and December 2020, we donated more than R$100 million to initiatives to mitigate the impact of COVID-19;

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·We raised R$3.5 million, and donated another R$3.5 million, out of the R$100 million mentioned above, to five hospitals to create new intensive care units and purchase personal protective equipment;

·In partnership with the other two main private banks in Brazil, we helped lower income women manufacture and distribute more than 17.7 million protective cloth masks. This initiative allowed us to help support their income during the pandemic while also providing masks to those in need;

·Our employees donated about 790 tons of food, clothes and hygiene products, to over 500 non-governmental organizations around Brazil, impacting more than 170 thousand people;

·Through our volunteering program, 83 volunteers interacted weekly with elderly people living in shelters supported by a fixed amount, based on total deductions as of January 20, 2017. From 2020, no deductions will be allowed. No deductions are allowed“Parceiros do Idoso” in order to meet reserve requirements for saving accounts.give them company and support.

 

TaxesWe also organized a 12-hour live festival, streamed on television and radio to help single mothers in deprived communities across Brazil and raised R$3.5 million to the support the “Mães da Favela” project. With our donation included, we are giving a total of more than R$7 million to more than 20,000 mothers through SuperDigital. Through this initiative, we can also introduce these families to our banking services.

 

See “Item 4. InformationEfficient and Strategic Use of Natural Resources

We are implementing changes that contribute towards the goal of helping Brazil make responsible and efficient use of its environmental resources and move towards a low-carbon economy. Our activities include, in addition to the responsible environmental management of our operations, financing and advising companies in the fields of infrastructure and renewable energy, and providing support for sustainable agribusiness.

In 2020, Santander Brasil made important public commitments towards Brazil’s sustainable development, such as the introduction of a R$5 billion credit line for new investments in water and sanitation, as well as the “Amazon Plan” that was launched in partnership with the two other private banks in Brazil. In addition, we believe we are at the forefront of environmental, social and governance matters, or ESG, in Brazil, evidenced by the offer of ESG-linked loans and Renovabio products to customers.

The total amount of environmental, social and governance, or ESG, financing which Santander Brasil provided through Santander Financiamentos, responsible agribusiness, corporate, retail (individual and corporate customers), project finance, Santander Corporate, and investment banking, including green bonds, totaled approximately R$27 billion.

Since 2002, we have adopted social and environmental parameters in risk analysis of credit concession for projects and companies. The assessment carried out by specialized professionals may result in conditions or restrictions for companies to operate with the Bank. For customers with revenues of over R$200 million, this analysis may also influence credit rating, affecting rates, limits, terms and guarantee requirements.

In relation to internal environmental management, we have been carbon neutral since 2010, by completely offsetting our Scope 1 and 2 emissions. Also, since 2013, we follow a methodology for selecting projects from which to purchase Verified Emission Reductions (“VERs”), to ensure the social and environmental benefits for that region. In recent years, we have been purchasing VERs from reforestation and renewable energy ventures.

In 2019, we committed publicly to:

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·reducing single-use plastic consumption at Santander Brasil, by launching the #Desplastifique program. The implementation plan started with administrative buildings, in 2019 and was scheduled to be completed during the course of 2020. However, due the COVID-19 pandemic, we expect that it will be fully implemented in all branches by the end of 2021; and

·powering 100% of our operations with renewable energy by 2025. In December 2020, approximately 47% of our consumed electricity was derived from renewable sources.

We improved our “Paperfree” program in 2020 to encourage digitalization, promote the use of rational resources and eliminate bureaucratic processes. The goal is to try to eliminate the use of postal stamps. As a result of the program, at our administrative buildings and stores, we collected and recycled around 72,000 stamps.

Socio-Environmental Responsibility Policy

Our Socio-Environmental Responsibility Policy, or “PRSA”, meets the requirements of CMN Resolution n° 4.327/14 and SARB Regulation 14 of FEBRABAN. These regulations define guidelines and consolidate specific policies for socio-environmental practices in business and relationships with certain parties. These practices include socio-environmental opportunities and impacts, and risk management such as suitability in granting and using credits, management of suppliers and socio-environmental risk analysis. In 2020, the vice-president of Legal Issues joined our PRSA Senior Group, which consists of our vice-presidents of Risks, Corporate, Human Resources, Finance and Communication, Marketing, Institutional Relationships and Sustainability, and officers of Agribusiness and Compliance. This Group is involved in decision-making related to the PRSA and operates in connection with our Executive Committee.

Competition and Industry Transformation

Currently, there are five commercial financial institutions at the forefront of the Brazilian financial industry in terms of assets: Santander Brasil, Bradesco, Itaú Unibanco, Banco do Brasil and Caixa Econômica Federal. Together, these financial institutions accounted for 73.2% of the credit and 75.2% of the deposits available in Brazil as of December 31, 2020, according to the Brazilian Central Bank and the financial statements of the aforementioned banks.

The following table shows the total loans and deposits of the five leading financial institutions in Brazil at the dates indicated:

  Santander Brasil Bradesco Itaú Unibanco Banco do Brasil Caixa Econômica Federal (2) Financial System
  December 2020 (R$ billion)
 Total loans(1)   411.7   510.3   508.6   681.8   756.5   2,868.9 
 Total deposits(1)   384.9   545.3   786.6   437.0   512.9   2,666.7 

(1)According to the Brazilian Central Bank, reported and presented in accordance with Brazilian GAAP (December 2020).

(2)Represents total loans and deposits of Caixa Econômica Federal as of September 2020 because as of the date of this report, Caixa Econômica Federal had not disclosed the information for December 31, 2020.

Insurance Coverage

We maintain insurance policies that are renewed annually in order to protect our assets. All of our branches, affiliates and administrative buildings are insured against losses caused by fire, lightning, explosions and other risks. Such coverage establishes reimbursement for the asset replacement value.

In addition, we also maintain the following insurance policies:

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·policies against material and/or bodily damage caused to third parties for which we are held responsible;

·policies against financial losses due to fraud or employee misconduct, among others;

·directors’ and officers’ insurance policy for our management against third-party complaints regarding management acts. There are insurance policies against crimes, employee dishonesty and damages arising out of public offerings; and

·policies against hacker attacks and cyber-crimes.

Dependence on Patents, Licenses, Contracts and Processes

The major trademarks we use, including, among others, the “Santander” trademark, are owned by Santander Investment Bank. Santander Brasil has a license to use this trademark. All trademarks of our business are registered or applied through the Brazilian Patent and Trademark Office (Instituto Nacional de Propriedade Industrial, or “INPI”), the agency responsible for registering trademarks, patents and designs in Brazil. After registration, the owner has exclusive rights to use of the trademark in Brazil for a 10-year period that can be successively renewed for equal periods.

As of the date of this annual report, we own a total of 553 trademarks in Brazil, with Santander Brasil owning over 123 of these trademarks, while the remaining are owned by other companies of the Santander Group.

REGULATION AND SUPERVISION

The basic institutional framework of the Brazilian financial system was established by Law 4,595, of December 31, 1964, as amended from time to time, or the “Banking Reform Law”. The Banking Reform Law created the CMN, responsible for establishing the general guidelines of monetary, foreign currency and credit policies, as well as regulating the institutions of the financial system.

Principal Regulatory Agencies

CMN

The CMN oversees the Brazilian monetary, credit, budgetary, fiscal and public debt policies. The board of the CMN is composed of the president of the Brazilian Central Bank, the Minister of Planning and the Minister of Finance, who also chairs the Board. Pursuant to the Banking Reform Law, the CMN is the highest regulatory entity within the Brazilian financial system, and is authorized to regulate the credit operations of Brazilian financial institutions, to regulate the Brazilian currency, to supervise Brazil’s gold reserves and foreign exchange, to determine Brazilian savings and investment policies and to regulate the Brazilian capital markets with the purpose of promoting the economic and social development of Brazil. In this regard, the CMN also oversees the activities of the Brazilian Central Bank and the CVM.

Brazilian Central Bank

The Brazilian Central Bank is responsible for the implementation of CMN policies related to foreign currency and credit, the regulation of Brazilian financial institutions, particularly in regards to the minimum capital and compulsory deposit requirements, as well as the disclosure of the transactions carried out by financial institutions and their financial information. The Brazilian Central Bank addresses specific issues through the Monetary Policy Committee (COPOM), a committee responsible for adopting measures to meet inflation targets defined by the CMN and establishing monetary policy guidelines. In order to meet inflation targets, the COPOM must set the target for the SELIC Rate (the average rate for daily financing, backed by federal instruments, as assessed under the Special Settlement and Custody System) and publish reports on the Company—B. Business Overview—RegulationBrazilian economic and Supervision—financial environment and projections for the inflation rate.

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CVM

The CVM is responsible for the implementation of CMN policies related to securities, with the purpose of regulating, developing, controlling and inspecting the securities market and its participants (companies with securities traded in the market, investment funds, investors, financial agents, such as custodians of instruments and securities, asset managers, independent auditors, consultants , as well as instruments and securities analysts).

Self-Regulating Entities

The Brazilian financial and capital markets are also subject to the regulation of self-regulating entities that are divided by field of activity. These self-regulating entities include, among others, the National Association of Investment Banks – ANBIMA, the Brazilian Association of Credit Card and Services Companies – ABECS, the Brazilian Banks Federation – FEBRABAN, the Brazilian Association of Publicly-Held Companies – ABRASCA and the B3.

Principal Limitations and Obligations of Financial Institutions

In line with leading international standards of regulation, Brazilian financial institutions are subject to a series of limitations and obligations. In general, such limitations and obligations concern the offering of credit, the concentration of risk, investments, operating procedures, loans and other transactions in foreign currency, the administration of third-party funds and micro-credit. The restrictions and requirements for banking activities, established by applicable legislation and regulations, include the following:

·No financial institution may operate in Brazil without the prior approval of the Brazilian Central Bank. In December 2017, the CMN enacted a new rule establishing that all such requests submitted to the Brazilian Central Bank must be approved within 12 months (subject to suspension of the term in some instances);

·A Brazilian financial institution may not hold direct or indirect equity interests in any company located in Brazil or abroad registered as permanent assets without prior approval of the Brazilian Central Bank. The corporate purpose of such company shall be complementary or subsidiary to the activities carried out by the financial institution;

·Brazilian financial institutions must submit for prior approval by the Brazilian Central Bank the corporate documents that govern their organization and operation, such as capital increases, transfer of headquarters, opening, transfer or closing of branches (whether in Brazil or abroad), election of the members of the statutory bodies and any corporate restructuring or alteration in the composition of their equity control. The requests for changes in control submitted to the Brazilian Central Bank must be approved within 12 months and requests for changes to organizational documents must be approved within three months (in both cases subject to suspension of the term in some instances);

·Brazilian financial institutions must fulfill minimum capital and compulsory deposit requirements and must comply with certain operational limits;

·A Brazilian financial institution may not own real estate, except for properties it occupies and subject to certain limitations imposed by the CMN. If a financial institution receives real estate, for example, in satisfaction of a debt, such property must be sold within one year, unless otherwise authorized by the Brazilian Central Bank;

·Brazilian financial institutions must comply with the principles of selectivity, guarantee, liquidity and risk diversification;

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·A Brazilian financial institution belonging to the S1 segment, as is the case of Santander Brasil, cannot lend more than 25% of its Tier 1 Regulatory Capital (patrimônio de referência) to a single person or a group and the maximum exposure to concentrated individual customers or group of connected customers of such Segment 1 financial institution is 600% of its Tier 1 Regulatory Capital (a concentrated individual client would mean, for the purpose of the proposed rule, as any one client to which exposure is equal to or higher than 10% of its Tier 1 Regulatory Capital);

·According to the Banking Reform Law, a Brazilian financial institution cannot carry out credit transactions with (i) its controlling shareholders, directors and members of other statutory bodies (fiscal, advisory and other) and their respective spouses and relatives up to second degree, (ii) the individuals or legal entities that hold a qualified interest (15% of the capital stock) in their capital, (iii) the legal entities in which they have qualified interest (direct or indirect), (iv) the legal entities in which they have effective operational control or preponderance in the deliberations, regardless of the equity interest, and (v) the legal entities with common directors or members of the board of directors. Such prohibition does not apply, subject to limits and conditions established by the CMN through the enactment of Resolution No. 4,693 in October 2018, to: (i) transactions with a counterparty that has an officer or director in common with the financial institution providing credit, provided that the officer or director is considered an independent member in both entities; (ii) transactions carried out under market-compatible conditions, without additional benefits or different benefits when compared to the operations deferred to the institution to other customers with the same profile, (iii) credit operations that have as counterparty a financial institution that is part of the institution prudential conglomerate, provided that they contain contractual clauses of subordination, except in the case of overnight and loan transactions with other financial institutions specified by the law, (iv) the interbank deposits, according to the law, (v) the obligations assumed by related parties under the compensation and settlement services authorized by the Brazilian Central Bank or by the CVM and their respective counterparties, and (vi) other cases authorized by the CMN; the management of third-party assets must be segregated from other activities and must follow the regulations issued by the CVM.

·The total amount of funds applied in permanent assets of the financial institutions cannot exceed 50% of their adjusted stockholders’ equity;

·Brazilian financial institutions must comply with anti-money laundering and anti-corruption regulations;

·Brazilian financial institutions must implement policies and internal procedures to control their systems of financial, operating and management information, as well as their conformity to all applicable regulations;

·Brazilian financial institutions must implement a policy for remuneration of board members and executive officers that is compatible with their risk management policies; and

·The Banking Reform Law and specific regulations enacted by the CMN impose penalties on financial institutions in certain situations where applicable requirements, controls and requisites have not been observed. In addition, the Brazilian Central Bank may cancel the financial institution’s authorization to operate in certain situations. The cancellation of an authorization for operation of a financial institution may only occur upon the establishment and processing of the appropriate administrative proceeding by the Brazilian Central Bank.

Additionally, as part of the Santander Group and due to the global nature of our organization we are subject to related international rules.

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Capital Adequacy and Leverage – Basel

Current Requirements

The Brazilian Central Bank supervises the Brazilian banking system in accordance with the Basel Committee on Banking Supervision, or “Basel Committee”, guidelines and other applicable regulations. For this purpose, banks provide the Brazilian Central Bank with any information which it deems useful in performing its supervisory functions, which includes supervising changes in solvency and capital adequacy of banks.

The main principle that guides the directives set forth in the Basel Committee is that a bank’s own resources must cover its principal risks, including credit risk, market risk and operational risk.

Brazilian financial institutions are subject to capital measurement and standards based on a risk weighted asset ratio. The parameters of this methodology resemble the international framework for minimum capital measurements adopted by Basel III.

Basel III

On December 16, 2010, the Basel Committee issued the Basel III framework, which supplements and amends Basel II. Basel III includes higher minimum capital requirements, new conservation and countercyclical buffer capital requirements, revised risk-based capital measures and the introduction of a new leverage ratio, as well as two liquidity standards. The Basel III framework is being implemented gradually by each country through legislation or regulation to be imposed upon that country’s home banks, including Brazil.

Regulatory Capital is composed by Core Capital and two additional tiers:

Tier I capital will have to reach a minimum index of 6.0% (according to the schedule established by the Brazilian Central Bank), divided into two portions: (i) Core Capital consisting mainly of corporate capital and profit reserves (shares, units of ownership, reserves and earned income) of at least 4.5% of RWA, and (ii) Additional Tier I consisting mainly of perpetual hybrid securities and capital instruments authorized by the Brazilian Central Bank (but excluding amounts relating to funding instruments issued by other local or foreign financial institutions) and any of our own shares purchased by us and the integration of which into the Additional Tier I Capital is permitted. To improve the quality of the capital of financial institutions, Basel III restricts the acceptance of financial instruments that fail to demonstrate effective capability of absorbing losses and requires the reduction of assets that in certain situations could jeopardize the financial institution’s capital value due to the instruments’ low liquidity, dependence on future profits for realization or difficulty of value measurement.

There is also an additional 2% of Tier II capital requirement, for a total of 8% of minimum capital ratio. Current hybrid subordinated debt approved by the Brazilian Central Bank as additional capital requirements, or Tier II, are expected to be maintained if they also comply with requirements introduced by Basel III, including the mandatory conversion clauses into equity or write-off upon the occurrence of triggering events provided for in the regulations.

In accordance with the Basel III standards, the Brazilian Central Bank created the Additional Core Capital buffer (Adicional de Capital Principal), which is composed by the sum of three buffers:

·Core Capital Conservation buffer (Adicional de Capital Principal de Conservação), which was introduced to ensure that banks have an additional layer of usable capital that can be drawn down when losses are incurred. Whenever the buffer falls below 2.5%, automatic constraints on capital distribution (for example, dividends, share buybacks and discretionary bonus payments) will be imposed so that the buffer can be replenished.

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·Countercyclical capital buffer (Adicional Contracíclico de Capital Principal), which aims to protect the banking sector from periods of excess aggregate credit growth that have often been associated with the build-up of system-wide risks.

·Core Capital Systemic buffer (Adicional de Importância Sistêmica de Capital Principal), which is applicable to the S1 bank segment (banks with an asset base equivalent to over 10% of Brazil’s GDP or that engage in relevant international activity).

On March 16, 2020, due to the challenging macroeconomic environment resulting from the COVID-19 pandemic, the Brazilian Central Bank issued Resolution No. 4,783, which decreased the Conservation Buffer level (Adicional de Conservação de Capital Principal) in 2020 from 2.5% to 1.25%. This level will phase-in towards the 2019 level by 2022, as shown in the image below. This buffer change decreased the minimum Core Capital and Total Capital requirements, reaching 6.75% and 10.25%, respectively, as of December 31, 2020.

According to the new rules on regulatory capital in Brazil, the value of goodwill, intangible assets and some types of deferred tax assets, for the calculation of the capital base, was deducted in accordance with the “phase-in” for implementation of Basel III in Brazil, which was completed by January 1, 2019. The following table sets forth the percentage of required deductions for each year up to 2019:

Basel III Phase in
201620172018201920202021
40%60%80%100%100%100%

Source: Brazilian Central Bank; Resolution No. 4,192 of the Brazilian Central Bank of March 2013.

The Basel III rules also provide for the implementation of a leverage ratio calculated by dividing the Tier I capital by the bank’s total exposure. In early 2015, the Brazilian Central Bank issued a new regulation governing the calculation and reporting of the leverage ratio of Brazilian financial institutions in line with the Basel III rules, which became effective in October 2015. Financial institutions classified as segment 1 (S1), as is the case for Santander Brasil, or segment 2 (S2), for purposes of the application of prudential rules, are required to maintain a minimum RA of 3% as from January 1, 2018.

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Additionally, in order to enable the implementation of the Basel III framework in Brazil, certain legislative changes were made. Among others, Law No. 12,838, enacted on July 9, 2013, granted powers to the Brazilian Central Bank to limit the payment of dividends by financial institutions in case of non-compliance with the prudential capital requirements defined by the CMN.

In 2015, the CMN and the Brazilian Central Bank also issued a set of rules for the implementation of the liquidity coverage ratio or “LCR,” a short-term liquidity index. The purpose of the LCR is to demonstrate that financial institutions have sufficient liquid assets to make it through a stress scenario lasting one month. According to these rules, the largest Brazilian banks were required to maintain an LCR of at least 60% since October 2015. This ratio increased 10% annually until it reached 100% in 2019. The Brazilian Central Bank also released, in 2015, the local methodology for calculating the LCR so as to align the existing rules with the guidelines of the document “Basel III: The Liquidity Coverage Ratio and liquidity risk monitoring tools” issued by the Bank for International Settlements in January 2013. In January 2017, the Brazilian Central Bank enacted a new rule amending the calculation method and procedures for disclosure of LCR information. The new regulation establishes a new possible stress scenario and, for purposes of LCR retail, includes spot and forward deposits.

As mentioned above, the LCR is a short-term liquidity ratio for a 30-day stress scenario. It represents the ratio of high-quality liquidity assets to net outflows. High Quality Liquidity Assets are composed mainly of Brazilian federal government bonds and reserve requirement returns. Net Outflows are mainly composed of losses on deposits, offset in part by Inflows, which are mainly credits.

In November 2017, the CMN established a minimum limit for the Net Stable Funding Ratio (Índice de Liquidez de Longo Prazo, or “NSFR”) and the Leverage Ratio (Razão de Alavancagem, or “RA”) with which Brazilian financial institutions are required to comply. The NSFR corresponds to the ratio between the Available Stable Funds (Recursos Estáveis Disponíveis, or “ASF”) and the Required Stable Funds (Recursos Estáveis Requeridos, or “RSF”) of the financial institution. The financial institutions classified as “segment 1” for purposes of the application of prudential rules, as we are, must maintain, as from October 1, 2018, a minimum NSFR of 1.00. Regarding the leverage ratio, the financial institutions classified as “segment 1,” as we are, or “segment 2” for purposes of the application of prudential rules are required to maintain a minimum RA of 3% as from January 1, 2018.

Other Applicable Laws and Regulations

Consolidated Enterprise Level (conglomerado prudencial)

Financial institutions must submit to the Brazilian Central Bank, monthly and semiannually, consolidated financial statements based on the “consolidated enterprise level” (conglomerado prudencial) of which the financial institution is a member, which serve as the basis for calculation of the required Regulatory Capital of the Brazilian institutions. The “consolidated enterprise level” includes data relative to the financial institutions and other institutions authorized to operate by the Brazilian Central Bank, administrators of consortia, payment institutions and credit factoring companies, including real estate credit, or of credit rights, such as mercantile foment companies, securitization companies and specific purpose companies, located in Brazil or abroad, as well as other legal entities headquartered in Brazil that have equity participation in the mentioned entities as their exclusive business purpose.

On January 29, 2020, the CMN published Resolution No. 4,818, which requires financial institutions categorized as S1, S2 and S3 to publish IFRS financial statements. The requirement is already in force for publicly held financial institutions and financial institutions which are leaders of a prudential conglomerate, and will come into effect for all remaining financial institutions on January 1, 2022.

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Segmentation for the Proportional Application of Prudential Regulation

In January 2017, the CMN enacted a resolution establishing segmentation for financial institutions, financial institution groups, and other institutions authorized to operate by the Brazilian Central Bank for the purposes of proportional application of the prudential regulation. The segmentation is based on the size, international activity and risk profile of members of each segment. Pursuant to the resolution, the segments are as follows:

·Segment 1 comprises multiservice banks, commercial banks, investment banks, foreign exchange banks and savings banks with (a) an asset base equivalent or superior to 10% of Brazil’s GDP; or (b) which perform relevant international activities, irrespective of the size of the institution;

·Segment 2 comprises multiservice banks, commercial banks, investment banks, foreign exchange banks and savings banks with (a) an asset base lower than 10% of Brazil’s GDP; and (b) other institutions with an asset base equivalent to or greater than 1% of Brazil’s GDP;

·Segment 3 comprises institutions with an asset base lower than 1% and equivalent to or greater than 0.1% of Brazil’s GDP;

·Segment 4 comprises institutions with an asset base lower than 0.1% of Brazil’s GDP; and

·Segment 5 comprises institutions with an asset base lower than 0.1% of Brazil’s GDP, that apply a simplified optional method for verifying the regulatory capital’s minimum requirements, except for multiservice banks, commercial banks, investment banks, foreign exchange banks and savings banks.

We have been categorized by the Brazilian Central Bank in segment 1, the highest level for application of regulation for banks in Brazil.

Regulation —Taxation.of Risk and Capital Management Structure

The rules enacted by the CMN and the Brazilian Central Bank provide that risk management must be conducted through an integrated effort by the relevant entity (i.e., not only must risks be analyzed on an individual basis, but must also control and mitigate the adverse effects caused by the interaction between different risks). The rules set out different structures for risk and capital management, which are applicable for different risk profiles. This means that a financial institution of limited systemic importance can have a simplified structure of management, while institutions of larger complexity have to follow stricter protocols.

Compulsory Reserve Requirements

Currently, the Brazilian Central Bank imposes a series of compulsory reserves requirements. Financial institutions must deposit these reserves with the Brazilian Central Bank. The Brazilian Central Bank uses these reserve requirements as a mechanism to control the liquidity of the Brazilian financial system for both monetary policy and risk mitigation purposes. Reserves imposed on time deposits, demand deposits and saving accounts represent almost the entirety of the amount that must be deposited at the Brazilian Central Bank.

· Time Deposits (CDBs). The Brazilian Central Bank imposes a reserve requirement of 17% in relation to time deposits. Financial institutions must deposit an amount equivalent to the surplus of (i) R$3.6 billion for financial institutions with consolidated Tier 1 capital under R$3 billion; (ii) R$2.4 billion for financial institutions with consolidated Tier 1 capital between R$3 billion and R$10 billion; (iii) R$1.2 billion for financial institutions with consolidated Tier 1 capital between R$10 billion and R$15 billion; and (iv) zero for financial institutions with a Regulatory Capital greater than R$15 billion.

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Additionally, as from the issuing of Brazilian Central Bank Circular No. 3,943 on May 23, 2019, interbank deposits made by leasing companies are excluded from the assessment base of the compulsory reserve requirement for time deposits of financial institutions of the same conglomerate.

· Demand Deposits. As a general rule, the Brazilian Central Bank imposes a reserve requirement of 21% in relation to demand deposits.

· Savings Deposits. The Brazilian Central Bank imposes a reserve requirement of 20% in relation to general savings deposits and to rural savings deposits.

Asset Composition Requirements

Permanent assets (defined as property and equipment other than commercial leasing operations, unconsolidated investments and deferred charges) of Brazilian financial institutions may not exceed 50% of their adjusted net equity, calculated in accordance with the criteria established by the Brazilian Central Bank.

Brazilian financial institutions, as a general rule, may not have more than 25% of their Tier 1 Regulatory Capital allocated to credit and leasing transactions and guarantees extended to the same customer or group of customers acting jointly or representing the same economic interest. In addition, Brazilian financial institutions must comply with an exposure limit of 25% of their Regulatory Capital in connection with underwriting for or investments in securities of the same entity, its affiliates, or controlled or controlling companies. Repurchase transactions executed in Brazil are subject to operational capital limits based on the financial institution’s Regulatory Capital, as adjusted in accordance with Brazilian Central Bank regulations. A financial institution may carry out repurchase transactions in an amount of up to 30 times its Regulatory Capital. Within that limit, repurchase transactions involving private securities may not exceed five times the Regulatory Capital. Limits on repurchase transactions involving securities backed by Brazilian governmental authorities vary in accordance with the type of security involved in the transaction and the perceived risk of the issuer as determined by the Brazilian Central Bank.

The regulation issued by the Brazilian Central Bank with respect to the classification and valuation of securities and derivative financial instruments — including government securities — owned by financial institutions, based on the investment strategy of the financial institution, determined that securities and derivatives are to be classified into three categories: (i) trading; (ii) available for sale; and (iii) held to maturity.

“Trading” and “available for sale” securities are to be marked-to-market with effects in income and stockholders’ equity, respectively. Securities classified as “held to maturity” are recorded at amortized cost. Derivatives are marked-to-market and recorded as assets and liabilities in the balance sheet. Changes in the market value of derivatives are generally recognized in income with certain modifications, if these are designated as hedges and qualify for hedge accounting under the regulations issued by the Brazilian Central Bank. Securities and derivatives in the “held to maturity” portfolio may be hedged for accounting purposes but their increase or decrease in value as derived from the marked-to-market accounting method should not be taken into account.

On June 31, 2018, the CMN enacted a rule providing that financial institutions categorized as “Segment 1” as per the Brazilian Central Bank’s classification system established in 2017 (which is our case) (1) may not have more than 25.0% of their Regulatory Capital allocated to a single legal or natural person, and (2) that the total exposure of such financial institutions to one individual customer may not exceed 600% of their Regulatory Capital allocated to focused exposure, that is 10% of their Regulatory Capital – Tier 1. The rule also subjects financial institutions categorized as segment 2, segment 3 or segment 4 to less restrictive rules.

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Centralized Registration and Deposit of Financial Assets and Securities

Law No. 13,476/17 consolidates the provisions on creation of liens over financial assets and securities. CMN Rule No. 4,593/2017, as amended, regulates the registration and deposit of financial instruments and securities by financial institutions as well as the provision of custody services by such institutions.

Resolution 4,734/19 sets out the guidelines applicable to the establishment of liens and encumbrances on credit and debit payment instruments due to credit operations with financial institutions and regulates credit operations guaranteed by receivables from payment arrangements. The amount of receivables perfected into guarantees for a certain credit transaction will be reduced, whenever applicable, so that they are limited to the outstanding balance of the transaction or to the maximum limit extended, in the case of an extension of a non-dischargeable credit facility by a financial institution on an absolute and unilateral basis.

Circular 3,952/19, deals in particular with the procedures for the registration of receivables, and requires a convention between market infrastructures to guarantee the uniqueness of the receivables as financial assets that can be registered, interoperability, exchange of information between registration systems and participants in the structure. On October 29, 2020, the Brazilian Central Bank issued BCB Resolution 35/20, which postponed the entry into effectiveness of Circular 3,952/19 to February 17, 2021.

Brazilian Payment and Settlement System

The rules for the settlement of payments in Brazil are based on the guidelines adopted by the Bank of International Settlements, or “BIS,” and the current Brazilian Payment and Settlement System (Sistema de Pagamentos Brasileiro or the “SPB”). The Brazilian Central Bank and CVM (in relation to transactions with securities) have the power to regulate and supervise this system. SPB is composed of systems for the clearing of checks, clearing and settlement of debit and credit electronic orders, transfer of funds and other financial assets, clearing and settlement of transactions involving securities, clearing and settlement of transactions carried out in commodities and futures, and others, collectively designated as Financial Market Infrastructures, as well as the payment arrangements and payment institutions.

Within the scope of SPB, the Brazilian Central Bank operates the Reserves Transfer System, or “STR” and the SELIC. STR is a system of transfer of funds with real-time gross settlement, which means that transfers are made at the processing time, one by one, and are subject to the existence of outstanding balance in the account. STR is composed of financial institutions, clearing and settlement houses and the National Treasury Office. SELIC is a system intended for custody of book-entry securities issued by the National Treasury Office and for the registration and settlement of transactions involving such securities.

Instant Payment System

The Brazilian Central Bank also implemented an instant payment ecosystem in November 2020. The settlement of the system is centralized at the Brazilian Central Bank. In addition to increasing the speed at which payments or transfers are made and received, available 24 hours a day, seven days a week in all days of the year, the ecosystem has the potential to increase market competitiveness and efficiency; lower costs; and enhance customer experience.

On June 12, 2020, the Brazilian Central Bank issued Circular 4,027/20, which established the Brazilian Instant Payment System (Sistema de Pagamentos Instantâneos, or “SPI”). Circular 4,027/20 also approved the regulation with which the direct and indirect participants in the SPI must comply. Circular 4,027/20 establishes that the SPI start of operations on November 3, 2020 with features of the system, becoming available gradually until it is fully operational as of November 16, 2020. Circular Letter 4,055/20, establishes the procedures and timetable for the tests necessary for to register as a direct participant in the SPI, as per Circular Letters No. 4,006 and 4,022. Circular Letter No. 4,056, in turn, establishes the procedures for the adherence to the instant payment arrangement (PIX).

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According to the by-laws of the SPI, the participation in the SPI will be mandatory for the participants of the PIX arrangement, and optional for (i) the clearing houses and other providers of clearing services, and (ii) the National Treasury Department.

There are two types of participation in the SPI: (i) direct, participation, in which the participant holds an instant payment account and is directly connected to the SPI; and (ii) indirect, in which the participant institution does not hold an instant payment account and its participation occurs via a direct participant to the SPI, responsible for registering the indirect participant in the SPI and to act as its clearing agent in the SPI for instant payments. Circular 4,027/20 came into effect on July 1, 2020.

On August 13, 2020, the Brazilian Central Bank issued Central Bank Resolution No. 1, or “Central Bank Resolution 1/2020”, establishing the Pix System payment arrangement and approving the regulation governing it, or (the “Pix Regulation”).

Pursuant to Central Bank Resolution 1/2020, participation in the Pix System is mandatory for financial institutions and payment institutions authorized to operate by the Brazilian Central Bank that have more than 500,000 active customer accounts, considering cash deposit accounts, savings deposit accounts and prepaid payment accounts. Participation in the PIX System is optional for financial institutions and payment institutions that do not meet this threshold, as well as for the National Treasury Secretariat.

The Pix Regulation applies to all Pix System participants. According to the Pix Regulation, there are three types of participation: (i) transactional account provider, which is a financial institution or a payment institution that offers deposit accounts or payment accounts to end users; (ii) government entity, which is the National Treasury Secretariat, with the exclusive purpose of making collections and payments related to its activities; and (iii) special clearing houses, that are the financial institutions and payment institutions that (a) within the scope of the Pix System, have the exclusive purpose of providing settlement services to other participants, (b) meet the requirements to act as settlement participant in the Brazilian Central Bank’s SPI, and (c) do not meet the criteria of mandatory participation in the Pix System.

Brazilian Central Bank Resolution 1/2020 came into effect on September 1, 2020. Pix System transactions started operating on a restricted basis through to November 3, 2020 and was fully as of November 16, 2020.

Open Banking Regulation in Brazil

On May 4, 2020, the Brazilian Central Bank and the CMN enacted Joint Resolution No. 1, which regulates open banking. Open banking consists of the sharing of data and payment initiation services and forwarding credit transaction proposals, by financial institutions and other authorized entities (with customers permission) and the integration of information systems.

Among other topics, the resolution sets forth the mandatory and voluntary participating institutions, the data and services covered, the requirements for sharing, the responsibilities for sharing, the implementation schedule and the form of agreement to be entered into by the participating institutions.

According to the resolution, financial institutions and prudential conglomerates belonging to the S1 and S2 segments, as is our case, are required to participate in open banking.

Open banking has a four-stage implementation plan, as follows:

·Stage 1 (as of February 1, 2021): public access to participating institutions’ data on their access channels and product/service channels related to checking, savings, prepaid payment accounts and to lending transactions.

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·Stage 2 (by July 15, 2021): sharing of customer reference data and customer transactional data among the participating institutions.

·Stage 3 (by August 30, 2021): sharing of payment transaction initiation services, as well as forwarding credit transaction proposals.

·Stage 4 (by December 15, 2021): expansion of in-scope data to encompass foreign exchange, investment, insurance, and open-end private pension transactions.

·On October 29, 2020, the Brazilian Central Bank issued Central Bank Resolution 32/2020, which sets forth the technical and operational requirements to be observed by institutions which participate in the Brazilian Open Banking System.

The new rule lays out, among others, rules relating to (i) the scope of the data and services to be shared by participating institutions within Open Banking, which shall be detailed in a specific manual; (ii) the standards for the development of application programming interfaces (APIs) by participating institutions, which will likewise be detailed in a specific manual, which shall deal with their design, data transmission protocols, data exchange formats, control accesses, version control systems and specification parameters; among other things; (iii) criteria for registration and cancellation of registration in Open Banking; (iv) services to be rendered by the Open Banking Governance Structure, which also shall be detailed in a specific manual, including the maintenance of a repository of participating institutions and a website containing updated information about Open Banking and its implementation; and (v) minimal security standards and certifications, which will also be detailed in a separate manual.

Regulatory Sandbox

On November 28, 2019, the Brazilian Central Bank published Public Consultation No. 72/2019, which ended on January 31, 2020, regarding the Controlled Testing Environment for Financial Innovations or “Sandbox” which is intended to enable institutions test innovative financial and payment projects for a specified period.

After receiving comments on the Public Consultation, the CMN and the Brazilian Central Bank issued, on November 26, 2020, CMN Resolution 4,865/20 and BCB Resolution 29/20, to regulate the Sandbox These rules set forth the applicable conditions for the implementation of the Sandbox, among which are the specific rules for the first cycle of tests, such as duration and number of participants, required documentation, criteria for the classification of institutions and the schedule for registration, selection and authorization processes of such entities. The Brazilian Central Bank expects that the process for selecting the first cycle will start in the first half of 2021.

Treatment of Overdue Debts

The Brazilian Central Bank requires financial institutions to classify credit transactions in accordance with their level of credit risk and to make provisions according to the level attributed to each transaction. Such credit classifications shall be determined in accordance with criteria set forth from time to time by the Brazilian Central Bank, relating to the conditions of the debtor and the guarantor and the transaction terms. Where there are several credit transactions involving the same customer, economic group or group of companies, the credit risk must be determined by analyzing the particular credit transaction of such customer or group that represents the greatest credit risk to the financial institution.

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Credit transactions of up to R$50,000 may be classified either by the financial institution’s own evaluation method or according to the number of days such transaction is past due, whichever is the more stringent. Credit classifications are required to be reviewed (i) monthly, in the event of a delay in the payment of any installment of principal or interest, in accordance with the maximum risk classifications; (ii) every six months, in the case of transactions involving the same customer, economic group or group of companies, the amount of which exceeds 5% of the adjusted net worth of the financial institution in question; and (iii) once every 12 months, in all circumstances, except in the case of credit transactions with a customer whose total liability is lower than R$50,000, the classification of which may be reviewed as provided above. Such R$50,000 limit may be amended by the Brazilian Central Bank from time to time.

The provisions set forth above are not applicable to our IFRS consolidated financial statements, which are based on the criteria described under “Item 5. Operating and Financial Review and Prospects—A. Operating Results—Critical Accounting Policies—Impairment Losses on Financial Assets.”

 

Hedging in Foreign InvestmentsRegulation of the Transfer of Customer Data by Financial Institutions to Database Managers

 

Brazilian law regulates the formation and consultation of databases with information regarding performance, individuals or legal entities, for the formation of credit history. Resolution No. 4,737 determines that the history of the following operations should be provided: (i) credit operations; (ii) leasing operations; (iii) self-financing operations executed upon consortium groups; and (iv) other operations with characteristics of credit granting; and defines the criteria for the registration of database managers, such as the identification of the natural and legal persons that are part of the control group of the database manager.

Collection of Bank Fees

Bank services to individuals are divided into the following four groups: (i) essential services; (ii) priority services; (iii) special services; and (iv) specific or differentiated services.

Banks are not able to collect fees in exchange for supplying essential services to individuals with regard to checking accounts, such as (i) supplying a debit card; (ii) supplying 10 checks per month to account holders who meet the requirements to use checks, as per the applicable rules; (iii) supplying a second debit card (except in cases of loss, theft, damage and other reasons not caused by the bank); (iv) up to four withdrawals per month, which can be made at a branch of the bank, using checks or in ATM terminals; (v) supplying up to two statements describing the transactions during the month, to be obtained through ATM terminals; (vi) inquiries over the internet; (vii) up to two transfers of funds between accounts held by the same bank, per month, at a branch, through ATM terminals or over the internet; (viii) clearing checks; and (ix) supplying a consolidated statement describing, on a month-by-month basis, the fees charged over the preceding year with regard to checking accounts and savings accounts.

Certain services rendered to individuals with regard to savings accounts also fall under the category of essential services and therefore are exempt from the payment of fees. CMN prohibits banks from charging fees for supplying essential services in connection with deposit and savings accounts where customers agree to access and use their accounts by electronic means only (being authorized to charge fees for supplying essential services only when the customer voluntarily elects to obtain personal service at the banks’ branches or customer service locations).

Priority services are those rendered to individuals with regard to checking accounts, transfers of funds, credit transactions, leasing, standard credit cards, over-the-counter exchange transactions for the purchase or sale of foreign currency in respect of international travel, and records, and are subject to the collection of fees by the financial institutions only if the service and its nomenclature are listed in its regulations. Commercial banks must also offer to their individual customers a “standardized package” of priority services, whose content is defined, as well as the customers’ option to acquire individual services instead of adhering to the package.

The collection of fees in exchange for the supply of special services (including, among others, services relating to rural credit, currency exchange market and on lending of funds from the real estate financial system) is governed by the specific provisions found in the laws and regulations relating to such services. The regulation authorizes financial institutions to charge fees for the performance of specific services, provided either that the account holder or user is informed of the conditions for use and payment or that the fee and charging method are defined in the contract.

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It is worth pointing out: (i) the prohibition against charging fees in cases of adhesion contract amendments, except in the cases of asset replacement in leasing transactions, early liquidation or amortization, cancellation or termination; (ii) the prohibition against including services related to credit cards and other services not subject to fees in service packages that include priority, special and/or differentiated services; (iii) the requirement that subscription to service packages must be through a separate contract; (iv) the requirement that information given to the customer with respect to a service package must include the value of each service included in the package, the number of times that each service may be utilized per month, and the total price of the package; (v) the requirement that a customer’s annual banking statement must separately identify default interest, penalties and other costs charged on loans and leasing transactions; (vi) the requirement that registration fees cannot be cumulatively charged; and (vii) the requirement that overdraft fees can be charged, at most, once over the course of 30 days.

In addition, CMN regulations establish that all debits related to the collection of fees must be charged to a bank account only if there are sufficient funds to cover such debits in such account and thus forbid overdrafts caused by the collection of banking fees. Furthermore, a minimum of 30 days’ notice must precede any increase or creation of fees (except if related to credit card services, when a minimum of 45 days’ notice is required), while fees related to priority services and the “standardized package” can be increased only after 180 days from the date of the last increase (except if related to credit card services, when a minimum of 365 days’ notice is required) whereas reductions can take place at any time.

Late Payment Fees

The default payment fees charged by financial institutions, consumer credit companies (financeiras), and leasing companies are expressly limited to compensatory interest per day on the amount that is overdue, interest on arrears and fines on arrears.

Credit Cards

The banking regulations also have specific rules relative to the charging of credit card fees, the publication of information in the card invoices and the obligation to provide a package of basic services upon offering credit cards to customers. Credit card holders must pay monthly at least 15% of outstanding credit card balances. This minimum payment does not apply to credit cards with payment by means of direct payroll deductions.

Revolving credit for financings of credit card bills may only be extended to customers until the due date of the following credit card bill. After this term, financial institutions offer customers another product with conditions more favorable than the ones typically found in the credit card market. Banks are prohibited from offering this type of credit to customers who have already contracted one revolving credit for financing of credit card bills which were not repaid in a timely manner.

Payment Agents and Payment Arrangements

The regulation issued by the Brazilian Central Bank, determines, among other aspects: (i) consumer protection, anti-money laundering compliance and risk prevention systems that should be observed by payment agents and payment arrangers; (ii) the procedures for incorporation, organization, authorization and operation of payment agents, as well as transfer of shareholding control, subject to the Brazilian Central Bank’s prior approval; (iii) capital requirements; (iv) definition of arrangements excluded from the SPB; and (v) rules related to payment accounts, which are divided into prepaid and postpaid accounts and require the allocation of the totality of their balance to a special account at the Brazilian Central Bank or investment in government bonds.

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Portability of Credit Transactions

Financial institutions’ customers can transfer their credit transactions from one institution to another. Such transfers must comply with the specific rules established by the Brazilian Central Bank, including, among others, the requirement that the amount and term of the transaction in the receiving financial institution must not be higher than the amount due and term of the original transaction.

Digitalization of Documents and Record Keeping

Financial institutions and other institutions authorized to operate by the Brazilian Central Bank may keep in their records digital documents instead of physical documents, provided that certain requirements to ensure the documents’ authenticity and validity are met.

Anti-Money Laundering Regulations

Under the Brazilian Anti-Money Laundering Law, it is a crime to conceal or dissimulate the nature, origin, location, availability, transaction or ownership of assets, rights or amounts resulting, directly or indirectly, from any criminal offense, as well as their use in economic or financial activity and to participate in a group, association or office while being aware that its principal or secondary activities are directed toward the practice of such acts.

The Brazilian Anti-Money Laundering Law also created the Financial Activities Control Council (Conselho de Controle de Atividades Financeiras or “COAF”), which operates under the jurisdiction of the Ministry of Finance. The purpose of the COAF is to investigate, examine, identify and impose administrative sanctions in respect of any suspicious occurrences of illicit activities related to money laundering in Brazil.

The COAF is composed of individuals with recognized competence in this area, appointed by the Minister of Finance, all of whom are nominated by each of the following entities: (i) the Brazilian Central Bank; (ii) the CVM; (iii) the SUSEP; (iv) the National Treasury Attorney-General’s Office; (v) the Brazilian Federal Revenue; (vi) the Federal Intelligence Agency; (vii) the Ministry of Foreign Affairs; (viii) the Ministry of Justice; (ix) the Federal Police Department; (x) the Ministry of Social Security; and (xi) the General Comptroller’s Office, one of whom will be the president, which shall be appointed by the President of Brazil on the basis of recommendations by the Minister of Finance.

Financial institutions must maintain specific records of (i) the transactions in cash (deposit, withdrawal, withdrawal by means of a prepaid card or request of provision for withdrawal) so as to enable the identification of a deposit in cash, withdrawal in cash, withdrawal in cash by means of a prepaid card, or request of provision for withdrawal, of (a) an amount equal to or greater than R$100,000.00 or (b) that presents evidence of concealment or dissimulation of the nature, of the origin, of the location, of the disposal, of the movement or of the ownership of assets, rights and valuables; and (ii) the issuances of cashier’s checks, funds electronic transfers (TED) or of any other instrument of transfer of funds upon payment in cash, for an amount equal to or greater than R$100,000.00.

Financial institutions must maintain records of all operations, products and services contracted, including withdrawals, deposits, contributions, payments, receipts and transfers of funds. Additionally, the institutions must also keep specific records of (i) transactions in cash with an individual value greater than R$2,000.00; (ii) deposit or cash transactions of an individual value equal to or greater than R$50,000.00; and (iii) withdrawal transactions, including those carried out by check or money order, with an individual value equal to or greater than R$50,000.00.

The regulations also impose an obligation on financial institutions to request that both customers and non-customers a providing a withdrawal request at least three working days in advance for withdrawals (including those carried out by check or money order) in an amount equal to or greater than R$50,000.00.

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On January 23, 2020, the Brazilian Central Bank published Circular No. 3,978, which improves the regulation applicable to financial institutions, by expanding the adoption of a risk-based approach and came into effect on July 1, 2020. Regulated institutions must carry out specific internal risk assessments in order to identify and measure the risk of using their products and services in the practice of money laundering and terrorist funding.

In connection with the aforementioned change, the Know-Your-Client procedures were also improved and include the identification, qualification and classification of the customer, compatible with the risk profile, the nature of the relationship with the AML policy and the institution’s internal risk assessment, which must be permanently reassessed, according to the evolution of the business relationship and the risk profile of the client. The procedures must also include the verification of the client’s (including their representatives’, family members’ or close collaborators) condition as a Politically Exposed Individual, as well as consider them in the monitoring, selection and analysis of operations and situations with indications of suspected money laundering or terrorist funding.

On December 5, 2019, the CVM issued CVM Instruction No. 617, which establishes a new framework for the prevention of money laundering and the financing of terrorism in the Brazilian securities market. CVM Instruction No. 617 is in line with the practices currently implemented in the principal global securities markets, including with regard to the recommendations of the Financial Action Group against Money Laundering and the Financing of Terrorism (GAFI/FATF), as well as with the duties arising from Brazilian anti-money laundering laws.

Brazilian Anti-Corruption Law

Law No. 12,846/13 of August 1, 2013, or the “Brazilian Anti-Corruption Law” establishes that legal entities will have strict liability regardless of fault or willful misconduct for acts against the public administration carried out in their interest or for their benefit. The Law encompasses not only performance of acts of corruption but also performance of other injurious acts contrary to the Brazilian or foreign public administration.

Corporations that violate the Brazilian Anti-Corruption Law’s provisions will be subject to heavy penalties, some of which may be imposed through administrative proceedings and others solely through judicial channels. The Brazilian Anti-Corruption Law also creates a leniency program under which self-disclosure of violations and cooperation by corporations might result in the reduction of fines and other sanctions.

Politically Exposed Individuals

Financial institutions and other institutions authorized by the Brazilian Central Bank to operate must take certain actions and have certain controls in order to establish business relationships with and to follow up on the financial transactions of customers who are deemed to be politically exposed individuals (public agents and their immediate family members, spouses, life partners and stepchildren who occupy or have occupied a relevant public office or position over the past five years in Brazil or other countries, territories and foreign jurisdictions). The internal procedures developed and implemented for this purpose by financial institutions must be structured in such a way as to enable the identification of politically exposed individuals, as well as the origin of the funds involved in the transactions of such customers. One option is to verify the compatibility between the customer’s transactions and the net worth stated in such customer’s file.

Bank Secrecy

Brazilian financial and payment institutions shall also maintain the secrecy of their banking operations and services provided to their customers. The only circumstances in which information about customers, services or transactions of Brazilian financial and payment institutions may be disclosed to third parties are the following:

·the disclosure of information with the express consent of the interested parties;

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·the exchange of information between financial institutions for record purposes;

·the supplying to credit reference agencies of information based on data from the records of issuers of bank checks drawn on accounts without sufficient funds and defaulting debtors; and

·the occurrence or suspicion that criminal or administrative illegal acts have been performed, in which case the financial institutions and the credit card companies may provide the pertinent authorities with information relating to such criminal acts when necessary for the investigation of such acts.

Complementary Law 105/01 also allows the Brazilian Central Bank or the CVM to exchange information with foreign governmental authorities, provided that a specific treaty has previously been executed.

The government of the Federal Republic of Brazil and the government of the United States of America executed an agreement on March 20, 2007, by means of which these governments established rules for the exchange of information relating to tax, or the “2007 Agreement”. Under the 2007 Agreement, the Brazilian tax authority would be able to send information it receives by virtue of Section 5 of the Bank Secrecy Law to the U.S. tax authority.

Data Protection Requirements

The GDPA, or in Portuguese, “Lei Geral de Proteção de Dados”, was published in the Federal Official Gazette on August 15, 2018 and was amended by Law No. 13,853, issued on July 8, 2019 or “Law 13,853/2019”. The GDPA came into effect in September 2020, except for administrative sanctions, which will come into effect on August 1, 2021, pursuant to Law No. 14,010/20, which delayed the applicability of certain provisions of the GDPA.

Before the GDPA, Brazil lacked regulations specific to data privacy and a data protection authority. Despite this, privacy has been generally protected through the Federal Constitution, the Civil Code (Law No. 10,406 of January 10, 2002), the Consumer Protection Code (Law No. 8,078 of September 11, 1990) and the Civil Rights Framework for the Internet (Law No. 12,965 of April 23, 2014 and the Decree 8,771 of May 11, 2016, also known as the Internet Law).

The GDPA brings about profound changes in the rules and regulations applicable to the processing of personal data, with a set of rules to be complied with in activities such as the collection, processing, storage, use, transfer, sharing and erasure of information concerning identified or identifiable natural persons.

The GDPA has a wide range of applications and extends to individuals as well as private and public entities, regardless of the country where they are headquartered or where data are hosted, as long as (i) the data processing takes place in Brazil; (ii) the data processing activity is intended to offer or supply goods or services to, or to process data of individuals located in Brazil; or (iii) the subjects of the data are located in Brazil at the time their personal data are collected. The GDPA will apply irrespective of the industry or business when dealing with personal data and is not restricted to data processing activities performed through digital media and/or on the internet.

The GDPA sets out several rules related to data processing such as principles, requirements and duties imposed to data controllers and data processors; rights of data subjects; requirements in connection with cross-border transfers of data; the obligation to appoint a data protection officer; data security and data breach notification; corporate governance practices; and the regime for civil liabilities and penalties in case of a breach of the provisions of the GDPA. Penalties include warnings, blocking and erasure of data, public disclosure of the offense and fines of up to 2% of the economic group’s turnover in Brazil in the preceding year, capped at R$50 million per offense.

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Moreover, Law 13,853/2019 created the Brazilian National Data Protection Authority, or “ANPD”, which will have powers and responsibilities analogous to the European data protection authorities, exercising a triple role of (i) investigation, comprising the power to issue norms and procedures, deliberate on the interpretation of the GDPA and request information of controllers and processors; (ii) enforcement, in cases of noncompliance with the law, through an administrative process; and (iii) education, with the responsibility to disseminate information about and foster knowledge of the GDPA and security measures, fostering standards for services and products that facilitate control of data, and elaborating studies on national and international practices for the protection of personal data and privacy, among others.

The ANPD has been assured technical independence, although it is subordinated to the Presidency of the Republic. It will be composed of five commissioners, to be appointed by the President of Brazil, and advised by a National Council for the Protection of Personal Data and Privacy, composed of 23 unpaid members.

Regulations on Cybersecurity

Financial institutions must follow certain cyber risk management and cloud outsourcing requirements which apply to the design and adaptation of internal controls. Policies and action plans to prevent and respond to cybersecurity incidents must be in place before May 2019, and fully compliant by December 2021. Data location and processing may occur inside or outside Brazil, but access to data stored abroad must be granted at all times to the Brazilian Central Bank for inspection purposes. The contracting of relevant processing services must be communicated to the Brazilian Central Bank within 10 days from the execution of the agreement.

Auditing Requirements

The legislation and regulations issued by the CMN, CVM and B3 determine that the periodic financial statements of financial institutions must be audited by independent auditors (individuals or legal entities) that are registered with the CVM and who meet the minimum requirements set forth by the Brazilian Central Bank, and that the financial statements must be presented together with an independent auditor’s report. Our financial statements are audited in accordance with International Standards on Auditing with regard to Brazilian GAAP and also with the standards of the Public Company Accounting Oversight Board with regard to IFRS as issued by the IASB, as required by the SEC. For purposes of the financial statements prepared according to Brazilian GAAP, as from January 2017 all financial institutions and other institutions authorized to operate by the Brazilian Central Bank are required to create provisions for all losses related to financial guarantees issued by them. As a result of the auditing work, the independent auditor must prepare the following reports: (i) an audit report, issuing an opinion regarding the accounting statements and the respective explanatory notes, including regarding the compliance with financial regulations issued by the CMN and the Brazilian Central Bank; (ii) an internal control system quality and adequacy evaluation report, including regarding electronic data processing and risk management systems, evidencing any identified deficiencies; (iii) a legal and regulatory provisions noncompliance report, regarding those which have, or may have, material impacts on the financial statements or on the audited financial institution’s operations; (iv) a limited assurance report, analyzing our Annual and Sustainability Report pursuant to the guidelines and requirements of the Global Reporting Initiative, or “GRI”; and (v) any other reports required by the Brazilian Central Bank, CVM and B3. The reports issued by independent auditors must be available for consultation upon request by the overseeing authorities.

Independent auditors and the audit committee, individually or jointly, must formally notify the Brazilian Central Bank of the existence or evidence of error or fraud, within three business days of the identification of the respective occurrence, including:

·noncompliance with legal rules and regulations that place the continuity of the audited entity at risk;

·frauds of any amount perpetrated by the management of the institution;

·material frauds perpetrated by the institution’s employees or third parties; and

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·errors that result in major incorrectness in the financial statements of the audited entity.

The executive office of the financial institution must inform the independent auditor and the audit committee, if any of the above situations occur.

CMN regulation also requires financial institutions and certain other entities holding Regulatory Capital equal to or greater than R$1 billion to create a corporate body designated as the “audit committee”. To obtain more information concerning the audit committee, see “Item 6. Directors, Senior Management and Employees—C. Board Practices—Board Advisory Committees—Audit Committee.”

Internal Auditing of Financial Institutions

Financial institutions are required to establish and maintain internal audit activities compatible with their operational specifications, so that such internal bodies are able to perform an independent, autonomous and impartial audit of the quality and effectiveness of the institution’s internal systems. Such unit shall be directly controlled by the institution’s board of directors. Internal and external independent auditors are also liable for failures of the financial institution’s internal control mechanisms.

Socio-Environmental Responsibility Policy

Financial institutions are required to have a responsibility policy, which must guide the social and environmental actions in conducting their businesses, their relationship with their customers and other users of their products and services. The responsibility policy must also guide the financial institution’s relationship with its personnel and with any others affected by the financial institution’s activities. In addition, the responsibility policy must provide for the management of social and environmental risks (which, according to the Brazilian Central Bank, represent one of the several categories of risk to which financial institutions are exposed).

Policy for Succession of Financial Institutions Managers

Brazilian financial institutions and other institutions authorized to operate by the Brazilian Central Bank shall implement and maintain internal policies for succession of managers, applicable to higher levels of the institution’s management. The internal policy shall encompass the procedures related to recruitment, promotion, appointment and retention of managers in accordance with the institution’s rules for identification, evaluation, training and selection of the candidates to management offices.

Corporate Governance of Financial Institutions

Financial institutions must (i) remit to the Brazilian Central Bank information on the financial institution’s management, controlling group and relevant shareholders, including the obligation to communicate to the regulator any information that may affect the reputation of any such persons; (ii) make available a communication channel allowing employees, contributors, customers, users, associates, or services providers to report anonymously situations indicating illegalities of any nature related to the institution; and (iii) have an internal body responsible for receiving the information and complying with the reporting obligations.

Compliance Policy

Financial institutions must implement and maintain a compliance policy compatible with the nature, size, complexity, structure, risk profile and business model of the institution, which is intended to ensure an effective compliance risk management by the institution and may be established at the consolidated enterprise level (conglomerado prudencial). The compliance policy must establish the scope and purpose of the compliance function in the institution, set forth the organizational structure of the compliance function, specify which personnel is allocated to the compliance function, and establish a segregation of roles among personnel in order to avoid conflicts of interest.

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The compliance policy must be approved by the board of directors and the regulation also assigns to the board the responsibility to ensure the following: adequate management of the compliance policy throughout the institution, its effectiveness and continued application, its communication to all employees and services providers, as well as the dissemination of the integrity and ethical standards as part of the institution’s culture. The board of directors is also responsible for ensuring the application of measures in case of noncompliance, and for providing the necessary means for the activities related to the compliance functions to be adequately conducted.

Consumer Protection

Relationships between consumers and financial institutions are governed by Law 8,078, dated September 11, 1990, or the “Brazilian Consumer Protection Code”, which grants consumers certain rights and sets forth measures to be observed by suppliers, which must be complied with by financial institutions. The Brazilian Consumer Protection Code sets forth as consumer rights, among others, the assistance/facilitation in the defense of consumers’ rights, including through reverse burden of proof in their favor, and possibility of judicial review of contractual provisions deemed abusive.

Furthermore, banking regulation establishes procedures that financial institutions must observe when contracting any transactions, as well as when rendering services. We may highlight the following as examples of said procedures:

·to timely provide the necessary information including rights, duties, responsibilities, costs or advantages, penalties and possible risks when carrying out a transaction or rendering a service to allow customers and users free choice and decision-making;

·to timely provide, to the customer or user, agreements, receipts, statements, advice and other documents related to the transactions and services, as well as the possibility of timely cancellation of the agreements;

·formalization of an adequate instrument setting forth the rights and obligations for opening, using and maintaining a postpaid payment account;

·to forward a payment instrument to the customers’ or users’ residence or to enable the respective instrument only upon express request or authorization; and

·identification of end users’ beneficiaries for payments or transfer in statements and bills of the payer, including in situations in which the payment service involves institutions participating in different payment arrangements.

Financial institutions operating exclusively via digital means are excluded from the scope of certain aspects of the regulation.

Policy for Relationship with Customers and Users of Financial Products and Services

Financial institutions and other institutions authorized to operate twoby the Brazilian Central Bank must have a policy governing the relationship with customers and users of financial products and services. In addition, such entities shall comply with the principles of ethics, liability, transparency and diligence promoting the convergence of interests and the consolidation of the institutional image of credibility, security and expertise.

Ombudsman

Financial institutions and other entities that are authorized to operate by the Brazilian Central Bank must have an ombudsman office. An ombudsman office has the following attributes according to the current regulation:

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·to provide last resort assistance in connection with customer claims that have not been resolved through the conventional customer service channels (including the banking correspondents and the customer service assistance channel (Serviço de Atendimento ao Consumidor), or SAC); and

·to act as a communication channel between the financial institutions and their customers, including for dispute resolution

Institutions that are part of a financial group are allowed to establish one ombudsman department to service the whole group. The officer in charge of the ombudsman office must prepare a report every six months, which must be provided to the management and auditing bodies. The reports and recordings of interactions of the ombudsman unit with consumers must be available to the Brazilian Central Bank for a period of at least five years.

Investment Funds Industry Regulation

Investment funds are subject to the regulation and supervision of the CMN and the CVM and, in certain specific matters, the Brazilian Central Bank. Investment funds may be managed by full-service banks, commercial banks, savings banks, investment banks, credit, financing and investment companies and brokerage and dealer companies within certain operational limits.

Investment funds may invest in any type of financial instrument available in the financial and capital markets, including, for example, fixed income instruments, stocks, debentures and derivative products, provided that, in addition to the denomination of the fund, a reference to the relevant type of fund is included.

Broker-Dealer Regulation

Broker and dealer firms are part of the national financial system and are subject to CMN, Brazilian Central Bank and CVM regulation and supervision. Brokerage firms must be chartered by the Brazilian Central Bank and are the only institutions in Brazil authorized to trade on stock exchanges. Both brokers and dealers may act as underwriters in the public placement of securities and engage in the brokerage of foreign currency in any exchange market.

Since August 29, 2019, securities brokers and dealers may loan their own securities to their customers as long as they use the funds as collateral for operations in which the institution itself intermediates. The loan transaction consists of the transfer of assets from the institution: (i) to the customer, in conjunction with the transfer of that asset to the clearinghouse or clearing and settlement service provider; or (ii) to the clearinghouse or clearing and settlement service provider on behalf of the customer through powers established in a formal written power of attorney. In either case, the assets or set of assets in question shall return to the positions originally held at the end of the period stipulated in the contract. To offer this new service, securities brokers and dealers must appoint a director responsible for the loan operations under consideration.

Since November 27, 2020, securities brokers and dealers may issue electronic currency and maintain payment accounts.

Foreign Exchange Market

Transactions involving the sale and purchase of foreign currency in Brazil may be conducted only by institutions duly authorized by the Brazilian Central Bank to operate in the foreign exchange market. There is no current limit to long or short positions in foreign currency for banks authorized to carry out transactions on the foreign exchange market. Other institutions within the national financial system are not allowed to have short positions in foreign currency, although there are no limits with respect to foreign exchange long positions.

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The Brazilian Central Bank imposes a limit on the total exposure in foreign currency transactions and transactions subject to foreign exchange fluctuation undertaken by Brazilian financial institutions, including branches oneabroad, and their direct and indirect affiliates. The limit is currently equivalent to 30.0% of the financial institution’s Regulatory Capital (Patrimônio de Referência), on a consolidated basis. The CMN, the Brazilian Central Bank and the Brazilian government may change the regulation applicable to foreign currency and foreign exchange transactions undertaken by Brazilian financial institutions in accordance with Brazil’s economic policy (including its foreign exchange policy).

On October 7, 2019, the Brazilian Central Bank, sent to the President of Brazil a draft bill to change the way in which the Brazilian foreign exchange market is regulated (“New Foreign Exchange Bill”). The draft also contains provisions regarding Brazilian capital abroad and foreign capital within Brazil. The initiative aims to modernize, simplify and reduce legal doubts associated with current Brazilian foreign exchange legislation.

The main aspects of the New Foreign Exchange Bill are: (i) ratification, at the legal level, that foreign exchange transactions may be carried out freely (provided such transactions are carried out by entities authorized to operate in this market and subject to applicable rules); (ii) granting of broad powers to the CMN and the Brazilian Central Bank to regulate the foreign exchange market and foreign exchange operations; (iii) expansion of international correspondence activities by Brazilian banks; (iv) possibility of Brazilian financial institutions investing and lending abroad funds that have been raised in Brazil or abroad; (v) the exclusion from its scope of foreign currency purchase and sale operations of up to US$1,000 carried out between individuals on an occasional and non-professional basis; and (vi) the granting of powers to the monetary authorities to establish situations in which the prohibition of the private offset of credits between residents and nonresidents, as well as payments in foreign currency in Brazil, would not apply.

On December 22, 2020, the Brazilian House of Representatives approved the base wording of the New Foreign Exchange Bill. The Brazilian House of Representatives is expected to vote on any motions by representatives for amendment or redaction of specific sections of the New Foreign Exchange Bill in early 2021. Upon approval by the Brazilian House of Representatives, the bill will be sent to the Brazilian Senate for approval. As of the date of this annual report, it is not possible to estimate if and when it will be approved by the Brazilian Senate, or what changes will be approved by the House of Representatives.

Foreign Investment in Brazilian Financial Institutions

According to the Brazilian federal constitution, the acquisition of equity interests by foreign individuals or legal entities in the capital stock of Brazilian financial institutions is forbidden, unless permitted by bilateral international treaties or by the Brazilian government by means of a presidential decree. A presidential decree issued on November 13, 1997, issued in respect of Banco Meridional do Brasil S.A. (our legal predecessor) allows 100% foreign participation in our capital stock. Foreign investors may acquire the shares issued by Santander Brasil as a result of this decree. In addition, foreign investors may acquire publicly traded nonvoting shares of Brazilian financial institutions traded on a stock exchange or securities depositary receipts offered abroad representing shares without specific authorization.

Following the enactment of Decree No. 10,029, the Brazilian Central Bank published, on January 22, 2020, Circular No. 3,977 recognizing as an interest of the Brazilian government the foreign holding of equity or increase in equity interest of financial institutions headquartered in Brazil (which is still subject to the same requirements and procedures applicable to the acquisition of equity in any Brazilian financial institution), as well as the opening of local branches of foreign financial institutions. However, since Santander Brasil had already been granted a specific presidential decree authorizing the foreign interest in its share capital, prior to Decree 10,029/19 being issued it does not affect its operations in Brazil.

A foreign financial institution duly authorized to operate in Brazil through a branch or a subsidiary is subject to the same rules, regulations and requirements that are applicable to any Brazilian financial institution.

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Bank Correspondents

Financial institutions are allowed to provide specific services to customers, including customer services, through other entities. These entities are called “bank correspondents” and the relationship between the financial institution and the bank correspondent is ruled by a specific regulation published by CMN and is subject to the supervision of the Brazilian Central Bank.

Regulation of Branches

Authorization by the Brazilian Central Bank is required for operations of branches or subsidiaries of Brazilian financial institutions, upon the compliance with certain term, capital and equity requirements, as well as the submission of an economic and financial feasibility analysis.

The Brazilian Central Bank’s prior authorization is also required in order to: (i) allocate new funds to branches or subsidiaries abroad; (ii) subscribe capital increases, directly or indirectly, in subsidiaries abroad; (iii) increase equity participation, directly or indirectly, in subsidiaries abroad; and/or (iv) merge or spin off, directly or indirectly, subsidiaries abroad.

The Brazilian Central Bank determines that financial institutions can install the following establishments in Brazil: (i) branches, (ii) teller booths, (iii) automatic teller machines, and (iv) segregated administrative units, provided that, for items (i) to (iii), conformity with requirements of minimum capital and operating limits are necessary.

Cayman Islands Banking Regulation

We have a branch in the Cayman Islands with its own staff and another onerepresentative officers. Banco Santander (Brasil) S.A. – Grand Cayman Branch is licensed under The Banks and Trust Companies Law (2013 Revision) of the Cayman Islands, or the “Banks and Trust Companies Law,” as a Category “B” Bank and it is duly registered as a Foreign Company with the Registrar of Companies in Luxemburg,the Cayman Islands. The branch, therefore, is duly authorized to carry on banking business in the Cayman Islands. The branch was authorized by the local authorities to act as its own registered office and have a subsidiary named Santander Brasil Establecimiento Financiero de Credito, EFC, or “Santander EFC” (an independent wholly-owned subsidiaryit is located at the Waterfront Centre Building, 28, North Church Street – 2nd floor, George Town, Grand Cayman, Cayman Islands, P.O. Box 10444 – KYI-1004, Phone: 1-345-769-4401 and Fax: 1-345-769-4601.

Our Grand Cayman Branch is currently engaged in Spain) which are used primarily forthe business of sourcing funds in the international banking and capital markets to provide credit lines for us, thatwhich are then extended to our customers for working capital and trade-related financings. UnderIt also takes deposits in foreign currency from corporate and individual customers and extends credit to Brazilian income tax rules, the gains or losses resulting from the impact of appreciation or devaluation of thereal on foreign investments are non-taxable or non-deductible. This tax treatmentand non-Brazilian customers, mainly to support trade transactions with Brazil. The results in volatility of the income tax line item in our income statement. This asymmetry is offset through a derivative position in U.S. dollar futures, which generates gains or losses dependent on any devaluation or appreciationoperations of thereal, which is our strategy to protect our after-tax results. The reconciliation of our effective tax rate to the statutory tax rate is set forth Grand Cayman Branch are consolidated in note 23b to our consolidated financial statements asstatements.

Banks and trust companies wishing to conduct business from within the Cayman Islands must be licensed by the Cayman Islands Monetary Authority under the Banks and Trust Companies Law, irrespective of whether the business is to be actually conducted in the Cayman Islands.

Under the Banks and forTrust Companies Law, there are two main categories of banking license: a category “A” license, which permits unrestricted domestic and offshore banking business, and a category “B” license, which permits principally offshore banking business. The holder of a category “B” license may have an office in the year endedCayman Islands and conduct business with other licensees and offshore companies but, except in limited circumstances, may not do banking business locally with the public or residents of the Cayman Islands. We have an unrestricted category “B” license.

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There are no specific ratio or liquidity requirements under the Banks and Trust Companies Law, but the Cayman Islands Monetary Authority will expect observance of prudent banking practices, and the Banks and Trust Companies Law imposes a minimum net worth requirement of an amount equal to CI$400,000 (or, in the case of licensees holding a restricted category “B” or a restricted trust license, CI$20,000). As of December 31, 2019.2020, CI$1 was equivalent to R$6.29, according to the Brazilian Central Bank.

 

GoodwillLuxembourg Banking Regulation

Branches of Banco Realcredit institutions from outside the European Union (“non-EU credit institutions”) must be licensed by the Luxembourg Minister of Finance under the law of 5 April 1993 on the financial sector, as amended, in order to operate in Luxembourg.

 

We generated goodwillhave a branch in Luxembourg with its own staff and representative officers. Our Luxembourg branch is licensed as a Luxembourg branch of R$27 billiona non-EU credit institution and is duly registered with the Luxembourg Trade and Companies’ Registry. The branch, therefore, is duly authorized to carry on banking business in Luxembourg. Its registered offices are at 35F, avenue J.F. Kennedy, 2nd floor, L-1855 Luxembourg, Grand Duchy of Luxembourg.

Our Luxembourg branch is currently engaged in the business of sourcing funds in the international banking and capital markets to provide credit lines for us, which are then extended to our customers for working capital and trade-related financings. It also takes deposits in foreign currency from corporate and individual customers and extends credit to Brazilian and non-Brazilian customers, mainly to support trade transactions involving Brazil. The results of the operations of the Luxembourg branch are consolidated in our consolidated financial statements.

Luxembourg law requires the Luxembourg branch to have a minimum endowment capital of €8,700,000 and the solvency, and liquidity requirements deriving, among others, from EU Regulation No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms apply to it.

Foreign Subsidiary

We had established an independent subsidiary in Spain, Santander EFC, in order to complement our foreign trade strategy for corporate customers, which are composed of large Brazilian companies and their operations abroad. This has allowed us to provide financial products and services by means of an offshore entity, which is not established in a “tax haven,” such as our Cayman Islands branch, in accordance with Law No. 12,249, of June 11, 2010, and Brazilian Federal Revenue Normative Ruling No. 1,037, of June 4, 2010.

The establishment of our foreign subsidiary was approved by the Brazilian Central Bank on September 26, 2011, by the Spanish Ministerio de Economia y Hacienda on February, 6, 2012 and by the Bank of Spain on March 28, 2012. The remittance of resources to pay up the share capital of the subsidiary was carried out on March 5, 2012, totaling €748 million. Santander EFC was operational from 2012 to November 12, 2020, when we approved its liquidation. As a consequence of the liquidation, we, as sole shareholder of Santander EFC, have participated in the net assets of the corporation, in the net amount of €741 million.

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U.S. Banking Regulation

Financial Regulatory Reform

Banking statutes and regulations are continually under review by the United States Congress. In addition to laws and regulations, the U.S. bank regulatory agencies may issue policy statements, interpretive letters and similar written guidance. Many changes have occurred as a result of our acquisitionthe 2010 Dodd-Frank Act and its implementing regulations, most of Banco Realwhich are now in 2008. Under IFRS, weplace. In 2017, the President of the United States issued an executive order that sets forth principles for financial regulatory reform. In May 2018, the United States Congress passed, and President Trump signed into law the Economic Growth, Regulatory Relief, and Consumer Protection Act (“EGRRCPA”) which, among other things, revised the thresholds for total consolidated assets at which certain enhanced prudential standards apply to bank holding companies. EGRRCPA made clear that the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”) retains the right to apply enhanced prudential standards to FBOs with greater than $100 billion in global total consolidated assets, such as Santander Spain.

In October 2019, the federal banking agencies issued final rules (the “Tailoring Rules”) that, pursuant to EGRRCPA, adjust the thresholds at which certain enhanced prudential standards and capital and liquidity requirements apply to certain banking organizations, including large FBOs such as Santander Spain. As a result, Santander Spain is now generally subject to less restrictive enhanced prudential standards and capital and liquidity requirements than under previously applicable regulations.

Volcker Rule

Section 13 of the U.S. Bank Holding Company Act of 1956, as amended, and its implementing rules (collectively, the “Volcker Rule”) prohibits “banking entities” from engaging in certain forms of proprietary trading or from sponsoring or investing in “covered funds,” in each case subject to certain exceptions. The Volcker Rule also limits the ability of banking entities and their affiliates to enter into certain transactions with covered funds with which they or their affiliates have certain relationships. Banking entities such as Santander Brasil and Santander Spain were required to bring their activities and investments into compliance with the requirements of the Volcker Rule by the end of the conformance period applicable to each requirement. Santander Spain has assessed how the Volcker Rule affects its businesses and subsidiaries, including Santander Brasil, and has brought its activities into compliance. Santander Brasil has adopted processes to establish, maintain, enforce, review and test the compliance program designed to achieve and maintain compliance with the Volcker Rule. The Volcker Rule contains exclusions and certain exemptions for market-making, hedging, underwriting, trading in U.S. government and agency obligations, as well as certain foreign government obligations, and trading solely outside the United States, and also permits certain ownership interests in certain types of funds to be retained. Santander Spain’s non-U.S. banking organization subsidiaries, including Santander Brasil, are largely able to continue their activities outside the United States in reliance on the “solely outside the U.S.” exemptions from the Volcker Rule. Those exemptions generally exempt proprietary trading, and sponsoring or investing in covered funds if, among other restrictions, the essential actions take place outside the United States and any transactions are not with U.S. persons.

On July 21, 2017, the five regulatory agencies charged with implementing the Volcker Rule announced the coordination of reviews of the treatment of certain foreign funds that are investment funds organized and offered outside the United States and that are excluded from the definition of covered fund under the agencies’ implementing regulations. Also in July 2017, the Federal Reserve issued guidelines for banking entities seeking an extension to conform certain “seeding” investments in covered funds to the requirements of the Volcker Rule.

As of October 2019, the five regulatory agencies charged with implementing the Volcker Rule finalized amendments to the Volcker Rule. These amendments tailor the Volcker Rule’s compliance requirements to the amount of a firm’s trading activity, revise the definition of trading account, clarify certain key provisions in the Volcker Rule, and modify the information companies are required to analyze goodwillprovide the federal agencies. Santander Brasil will still largely rely on the “solely outside the U.S. exemption” to conduct its trading activities.

In early 2020, the five federal agencies proposed additional amendments to the Volcker Rule related to the restrictions on ownership interests in and relationships with covered funds. Santander Spain will continue to monitor these Volcker Rule-related developments and assess their impact on its operations, including those of Santander Brasil, as necessary.

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U.S. Anti-Money Laundering, Anti-Terrorist Financing, and Foreign Corrupt Practices Act Regulations

Santander Brasil, as a foreign private issuer whose securities are registered under the Exchange Act, is subject to the U.S. Foreign Corrupt Practices Act, or the “FCPA”. The FCPA generally prohibits such issuers and their directors, officers, employees and agents from using any means or instrumentality of U.S. interstate commerce in furtherance of any offer or payment of money to any foreign official or political party for impairmentthe purpose of influencing a decision of such person in order to obtain or retain business. It also requires that the issuer maintain books and records and a system of internal accounting controls sufficient to provide reasonable assurance that accountability of assets is maintained and accurate financial statements can be prepared. Penalties, fines and imprisonment of Santander Brasil’s officers and/or directors can be imposed for violations of the FCPA.

Furthermore, Santander Brasil is subject to a variety of U.S. anti-money laundering and anti-terrorist financing laws and regulations, such as the Bank Secrecy Act of 1970, as amended, and the USA Patriot Act of 2001, as amended, and a violation of such laws and regulations may result in substantial penalties, fines and imprisonment of Santander Brasil’s officers and/or directors.

U.S. Sanctions

“Sanction(s)” means any international economic sanction administered or enforced by the United States government (including without limitation, OFAC), the United Nations Security Council, the European Union or Her Majesty’s Treasury. The Office of Foreign Assets Control (“OFAC”) is responsible for administering economic sanctions imposed against designated foreign countries, governments, individuals and entities pursuant to various Executive Orders, statutes and regulations.

OFAC-administered sanctions take many different forms. For example, sanctions may include: (1) restrictions on U.S. persons’ trade with or investment in a sanctioned country, including prohibitions against direct or indirect imports from and exports to a sanctioned country and prohibitions on U.S. persons engaging in financial transactions relating to, making investments in, or providing investment-related advice or assistance to, a sanctioned country; and (2) blocking of assets of targeted governments or “specially designated nationals,” by prohibiting transfers of property subject to U.S. jurisdiction, including property in the possession or control of U.S. persons. Blocked assets, such as property and bank deposits, cannot be paid out, withdrawn, set off or transferred in any manner without a license from OFAC. In addition, non-U.S. persons can be liable for “causing” a sanctions violation by a U.S. person or can violate U.S. sanctions by exporting services from the United States to a sanctions target, for example by engaging in transactions with targets of U.S. sanctions denominated in U.S. dollars that clear through U.S. financial institutions (including through U.S. branches or subsidiaries of non-U.S. banks).

Failure to comply with applicable U.S. sanctions could have serious legal and reputational consequences, including significant civil monetary penalties and, in the most severe cases, criminal penalties.

In addition, the U.S. government has implemented various sanctions that target non-U.S. persons, including non-U.S. financial institutions, that engage in certain activities undertaken outside the United States and without the involvement of any U.S. persons (“secondary sanctions”) that involve Iran, North Korea, Russia, or Hezbollah or other persons designated by the United States under the Specially Designated Global Terrorist, or “SDGT,” sanctions program. If a non-U.S. financial institution were determined to have engaged in activities targeted by certain secondary U.S. sanctions or used proceeds produced by such activities targeted, it could lose its ability to open or maintain correspondent or payable-through accounts with U.S. financial institutions, among other potential consequences.

Antitrust Regulation

According to the Brazilian antitrust law, actions that concentrate market share must be previously submitted to CADE for approval if the following criteria are met: (i) at least annuallyone of the groups involved in the deal has posted annual gross revenues or whenever therevolume of business equal to or over R$750 million, in Brazil, in the year prior to the transaction; and (ii) at least another group has posted annual gross revenues or volume of business equal to or over R$75 million, in Brazil, in the year prior to the transaction. Closing of a transaction without CADE’s approval will subject the parties to fines ranging from R$60,000 to R$60 million.

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The Brazilian Central Bank will also examine certain corporate reorganizations and other acts involving two or more financial institutions not only considering their potential effects on the financial system and its stability but also any potential impacts regarding market concentration and competition. Upon approval of the transaction, the Brazilian Central Bank may establish certain restrictions and require that the financial institutions execute an agreement of market concentration control, pursuant to which the terms and conditions of the sharing of the efficiency gain resulting from the act shall be set forth.

In December 2018, the Brazilian Central Bank and CADE approved a joint normative act establishing procedures with the purpose of increasing efficiency for their respective actions regarding antitrust matters. Pursuant to the joint normative act, the authorities are indicationsauthorized to share information for the purposes of impairment. In 2019, 2018their respective activities and 2017,carry out meetings with each other to discuss matters requiring the recoverable goodwill amountsregulatory cooperation between both authorities.

Insolvency Laws Concerning Financial Institutions

Financial institutions are subject to the proceedings established by Law 6,024 of March 13, 1974, or “Law 6024”, which establishes the applicable provisions in the event of intervention or extrajudicial liquidation by the Brazilian Central Bank, as well as to bankruptcy proceedings.

Intervention and extrajudicial liquidation occur when the Brazilian Central Bank has determined from “valuethat the financial institution is in use” calculations. For this purpose, we estimate cash flow for a periodbad financial condition or upon the occurrence of five years. We prepare cash flow estimates considering several factors, including: (i) macroeconomic projections, such as interest rates, inflation and exchange rates, among others, (ii)events that may impact the performance and growth estimatescreditors’ situation. Such measures are imposed by the Brazilian Central Bank in order to avoid the bankruptcy of the entity.

Intervention

An intervention can be carried out at the discretion of the Brazilian Central Bank in the following cases:

·risk to the creditors due to mismanagement;

·consistent violation of Brazilian banking laws or regulations; or

·if the intervention is a feasible alternative to the liquidation of the financial institution.

As of the date on which it is ordered, the intervention will automatically suspend the enforceability of the payable obligations; prevent early termination or maturity of any previously contracted obligations; and freeze deposits existing on the date on which the intervention is decreed.

The intervention will cease if interested parties undertake to continue the economic activities of the financial system,institution, by presenting the necessary guarantees, as determined by the Brazilian Central Bank, when the situation of the entity is regularized as determined by the Brazilian Central Bank; or when extrajudicial liquidation or bankruptcy of the entity is ordered.

Intervention may also be ordered upon the request of a financial institution’s management.

Extrajudicial Liquidation

Extrajudicial liquidation is an administrative proceeding decreed by the Brazilian Central Bank (except that it is not applicable to financial institutions controlled by the Brazilian federal government) and conducted by a liquidator appointed by the Brazilian Central Bank. This extraordinary measure aims at terminating the activities of the affected financial institution, liquidating its assets and paying its liabilities, as in a judicially decreed bankruptcy. The Brazilian Central Bank will place a financial institution in extrajudicial liquidation if:

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·the institution’s economic or financial situation is at risk, particularly when the institution ceases to meet its obligations as they become due, or upon the occurrence of an event that could indicate a state of insolvency under the rules of the Bankruptcy Law;

·management seriously violates Brazilian banking laws, regulations or rulings;

·the institution suffers a loss which subjects its unprivileged and unsecured creditors to severe risk; and/or

·upon revocation of the authorization to operate, the institution does not initiate ordinary liquidation proceedings within 90 days or, if initiated, the Brazilian Central Bank determines that the pace of the liquidation may harm the institution’s creditors.

A request for liquidation procedures can also be filed on reasonable grounds by the officers of the respective financial institution or by the receiver appointed by the Brazilian Central Bank in the receivership procedure.

The decree of extrajudicial liquidation will: (i) suspend the actions or foreclose on rights and interests relating to the estate of the entity being liquidated, while no other actions or executions may be brought during the liquidation; (ii) accelerate the obligations of the entity; and (iii) increased costs, returns, synergiesinterrupt the statute of limitations with regard to the obligations assumed by the institution.

Extrajudicial liquidation procedures may be terminated:

·by discretionary decision of the Brazilian Central Bank if the parties involved undertake the administration of the financial institution after having provided the necessary guarantees; or

·when the final accounts of the receiver are delivered and approved and subsequently registered in the relevant public records; or

·when converted into ordinary liquidation; or

·when a financial institution is declared bankrupt.

Temporary Special Administration Regime (Regime de Administração Especial Temporária or “RAET”)

In addition to the intervention procedures described above, the Brazilian Central Bank may also establish a RAET, under Law 9447, dated March 14, 1997 combined with Law 6,024/74, which is a less severe form of the Brazilian Central Bank intervention in private and nonfederal public financial institutions that allows institutions to continue to operate normally. The RAET may be ordered in the case of an institution that:

·continually enters into recurrent operations that are against economic or financial policies set forth in federal law;

·faces a shortage of assets;

·fails to comply with the compulsory reserves rules;

·reveals the existence of hidden liabilities;

·experiences the occurrence of situations that cause receivership pursuant to current legislation;

·has reckless or fraudulent management; or

·carries out activities which call for an intervention.

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The main objective of a RAET is to assist the recovery of the financial condition of the institution under special administration and thereby avoid intervention and/or liquidation. Therefore, a RAET does not affect the day-to-day business, operations, liabilities or rights of the financial institution, which continues to operate in the ordinary course of business. Measures which may be adopted by the institution include the transfer of assets, rights and obligations to other entities, and corporate restructuring of these entities, with a view to the continuity of the institution’s business or activities.

There is no minimum term for a RAET, which ceases upon the occurrence of any of the following events: (i) acquisition by the Brazilian federal government of control of the financial institution, (ii) corporate restructuring, merger, spinoff, amalgamation or transfer of the controlling interest of the financial institution, (iii) decision by the Brazilian Central Bank, or (iv) declaration of extrajudicial liquidation of the financial institution.

Bankruptcy Law

Law No. 11,101, of February 9, 2005, as amended, or the “Bankruptcy Law”, regulates judicial reorganizations, out-of-court reorganizations and the bankruptcy of individuals and corporations that have occurred since 2005 and applies to financial institutions only with respect to the matters not specifically regulated by the intervention and extrajudicial liquidation regimes described above.

On December 24, 2020, Law 14,112, or “Law 11,112/20,” was passed. Law 11,112/20 overhauls the current Bankruptcy Law in several material aspects. Law 14,112/20 came into effect on January 23, 2021. Certain changes arising from this new legislation may affect enforcement and priority matters, such as: (i) the possibility of creditors putting forward an alternative judicial reorganization plan; (ii) new rules on the approval of post-petition loans in judicial reorganization and on priority claims in case of conversion to bankruptcy liquidation; (iii) more flexible quorum and mechanics in the extrajudicial reorganization process; (iv) new rules to expedite the bankruptcy liquidation process; (v) new methods for restructuring of the debtor's tax liabilities and installment payments, as well as new taxation schemes; and (vi) incorporation of rules on cross-border insolvency proceedings into the Brazilian framework.

Law 14,112/20 replicates, with some adjustments, the provisions of the UNCITRAL Model Law on Cross-Border Insolvency. As a result, Law 14,112/20 sets out some rules on access of foreign representatives to courts in Brazil, the method and requirements for recognition of foreign main and ancillary proceedings, authorization for the debtor and his representatives to act in other countries, methods of communication and cooperation between foreign authorities and representatives and the Brazilian jurisdiction, and the processing of concurrent proceedings.

Law 14,112/20 also sets forth, among other measures, (i) a protection for creditors that agree on the conversion of debt into equity against potential transfer of liability with regard to the debtor's obligations; (ii) the stay period and constraints on the assets of the debtor under judicial reorganization; (iii) conciliation and mediation measures before and during judicial reorganization proceedings; and (iv) the rules on procedural and substantive consolidation. Law 14,112/20 also sets out that a bankruptcy decree does not reach beyond the bankrupt itself, save when the disregard doctrine is to apply.

Repayment of Creditors in a Liquidation or Bankruptcy

In the event of extrajudicial liquidation or bankruptcy of a financial institution, creditors are paid pursuant to their priorities and privileges. Prepetition claims are paid on a ratable basis in the following order: labor credits; secured credits; tax credits; credits with special privileges; credits with general privileges; unsecured credits; contractual fines and pecuniary penalties for breach of administrative or criminal laws, including those of a tax nature; and subordinated credits.

The current law confers immunity from attachment of compulsory deposits maintained by financial institutions with the Brazilian Central Bank. Such deposits may not be attached in actions by a bank’s general creditors for the repayment of debts and require that the assets of any insolvent bank funded by loans made by foreign banks under trade finance lines be used to repay amounts owing under such lines in preference to those amounts owing to the general creditors of such insolvent bank.

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Recovery Plans for Systematically Important Financial Institutions

Systemically important Brazilian financial institutions must implement a recovery plan (plano de recuperação), with the aim of reestablishing adequate levels of capital and liquidity and to preserve the viability of such institutions. The recovery plans must identify their critical functions for the National Financial System, adopt stress-testing scenarios, define clear and transparent governance procedures, assess possible barriers to the entity’s recovery, as well as implement effective communication plans with key stakeholders.

Deposit Insurance - FGC

The purpose of the FGC is to guarantee the payment of funds deposited with financial institutions in case of intervention, liquidation, bankruptcy or insolvency. The FGC is funded by ordinary contributions made by the financial institutions in the amount of up to 0.0125% of the total amount of outstanding balances of the accounts corresponding to guaranteed obligations, and certain special contributions as determined. Delay in performing such contributions is subject to a penalty of 2% over the amount of the contribution.

The total amount of credit in the form of demand deposits, savings deposits, time deposits, deposits maintained in accounts blocked for transactions with checks (for the registration and control of funds relating to the rendering of services of payment of salaries, earnings, pensions), bills of exchange, real estate bills, mortgage bills, real estate credit bills and repurchase and resale agreements whose objects are instruments issued after March 8, 2012 by a company of the same group due to each customer by a financial institution (or by financial institutions of the same financial group) will be guaranteed by the FGC for up to a maximum of R$250,000 per customer. When the assets of the FGC reach 2% of the total amounts they guarantee, the CMN may temporarily suspend or reduce the contribution of financial institutions to the FGC. As from February 2016, credits of financial institutions and other institutions authorized to operate by the Brazilian Central Bank, complementary welfare entities, insurance companies, capitalization companies, investment clubs and investment plans,funds, as well as those representing any interest in or financial instrument held by such entities, are not protected by the ordinary guarantee of FGC. In December 2017, the CMN enacted a new rule amending certain provisions of the FGC regulation among which includes the establishment of a limit of R$1 million per four-year period for the coverage of the credits of a certain creditor against the group of associated financial institutions.

Administrative Proceedings in the Brazilian National Financial System, the Brazilian Payment System and Capital Markets

Law 13,506 of November 13, 2017 or “Law 13,506/17” applies to entities authorized or supervised by the Brazilian Central Bank or by the CVM, as well as to market participants. Some of the key aspects of Law 13,506 are that: (i) it increases the maximum fine applicable by the Brazilian Central Bank from R$250,000 to R$2 billion or 0.5% of the revenues of the company arising from services and financial products in the year prior to the violation; (ii) it increases the maximum fine applicable by the CVM from R$500,000 to R$50 million; (iii) it makes additional types of violations subject to penalties; (iv) it provides that the behaviorpenalty of customers,“public admonition” may be cumulative to other penalties applicable by the Brazilian Central Bank; (v) it provides that Brazilian Central Bank may enter into cease-and-desist commitments; and (vi) it provides that the Brazilian Central Bank and the CVM may enter into administrative agreements similar to leniency agreements.

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Opening, Maintenance and Closing of Deposit Accounts

CMN Resolution No. 4,753/19 provides criteria for the opening, maintenance and closing of deposit accounts. The regulation determines that financial institutions must adopt procedures and controls that allow the verification and validation of the identity and qualification of the account holders and, if applicable, their representatives, as well as the authenticity of the information provided by the client. This information must be kept updated by the financial institution.

The rule also requires financial institutions to ensure, through the procedures and technology used for the opening, maintaining and closing of deposit accounts, the integrity authenticity and confidentiality, as well as the protection against unauthorized access, use, alteration, reproduction and destruction, of the information and the electronic documents used by them during the process.

Issuance of Credit Instruments Electronically

Provisional Measure No. 897, or “MP 897/2019,” among other provisions, (i) created a new credit instrument, the Rural Real Estate Note (Cédula Imobiliária Rural or “CIR”), with the purpose of advancing rural real estate financing by the creation of an instrument specifically designed to that end; (ii) changed the rules governing Bank Deposit Certificates (Certificado de Depósito Bancário or “CDB”), especially regarding their issuance and the transfer of their ownership, by providing among other changes that CDB issued in book-entry form should be transferred by electronic endorsement, exclusively by means of a specific notation in the issuing institution’s own electronic system or, when deposited in central depositary, by means of specific notation in the corresponding electronic system; and (iii) authorized that customary credit instruments such as the Agricultural Certificate of Deposit (Certificado de Depósito do Agronegócio - CDA), the Agricultural Warrant (Warrant Agropecuário - WA), the Real Estate Credit Certificate (Certificado de Crédito Imobiliário - CCI), the Bank Credit Note (Cédula de Crédito Bancário - CCB), the Rural Credit Note (Cédula de Crédito Rural - CCR) , the Rural Promissory Note (Nota Promissória Rural - NPR), the Rural Trade Bill (Duplicata Rural - DR), may be issued in book-entry form through the electronic bookkeeping system held at a financial institution or other entity authorized by the Brazilian Central Bank to perform electronic bookkeeping activity.

On July 15, 2020, the Brazilian Central Bank regulated, through Circular No. 4,036/20, the electronic issuance of book-entry CCBs and CCRs by financial institutions. A financial institution must render the following services in respect of the bookkeeping of CCBs and CCRs: (i) issue the instrument in book-entry form at the request of the borrower; (ii) include of all obligatory information related to CCBs and CCRs, as well as ancillary documents and/or information for the purposes of verifying the outstanding balance of the underlying credit transaction; (iii) verify the effective title or fiduciary title of the instruments; (iv) make the payment CCBs and CCRs for the settlement of obligations available to the debtor; (v) control the growthfinancial flow related to the CCBs and CCRs, including prepayments; (vi) record security interests in an entity authorized to perform centralized registration or deposit of financial assets; (vii) make information about the CCBs and CCRs available to debtors, holders, collateral beneficiaries or any other legally qualified interested party; and (viii) carry out the issuance of certificates regarding the instruments whenever required.

Limitation to the fees and interest rates on overdraft-secured checks

On November 27, 2019, the CMN issued Resolution No. 4,765 or “Resolution No. 4,765/2019”, providing for new rules on the overdraft granted by financial institutions in checking accounts held by individuals and individual micro entrepreneurs. The new rule limits the charging of fees on overdraft-secured checks to: (i) 0% for the opening credit facilities of up to R$500.00; and (ii) 0.25% for the opening of credit facilities larger than R$500.00, calculated with the amount of the facility that exceeds R$500.00. It also limits interest rates over the overdraft-secured check to up to 8% per month, to which must be added a discount of the overdraft fees already charged monthly by the financial institution. If the interest is less than or equal to the overdraft fees, such interest rates must be equal to zero. In addition, Resolution No. 4,765/2019 establishes that the overdraft-secured check must be compatible with the customer’s risk profile.

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Resolution No. 4,765/2019 came into force on January 6, 2020, for agreements executed after the referred date, came into force on June 1, 2020, for agreements executed prior to such date. Regarding the 8% limitation above, the rule applies to all contracts from January 6, 2020, regardless of the date the applicable contract was entered into.

On February 6, 2020, the Brazilian Central Bank issued Circular No. 3,981, which deals with the new information regarding overdraft facilities that must be highlighted in the statement of the checking accounts held by natural persons or MEIs. Circular No. 3,981 came into effect on June 1, 2020.

Automatic debit of banking accounts

On March 26, 2020, CMN issued Resolution No. 4,790, which sets forth new rules for the automatic debit payments from checking account and accounts designated for the payment of an individual’s wages. The new rule sets forth that financial institutions should only process automatic debit payments upon prior and express authorization of the client, and provides for the procedures for the authorization and cancellation of automatic debit payments. The new rule came into force on March 1, 2021. CMN Resolution No. 4,790 repealed CMN Resolution 4,771.

Taxation

Corporate Income Tax (IRPJ) and Social Contribution Tax (CSLL)

The IRPJ is calculated at a rate of 15.0%, plus a surtax of 10.0% which is levied on profits exceeding the amount of R$240,000 per year and long-termthe CSLL is calculated at a rate of 15.0% or 20.0% for financial institutions and 9.0% for companies, after adjustments determined by the tax legislation.

Constitutional amendment 103/2019 increased the CSLL tax rate applicable to banks from 15.0% to 20.0% from March 1, 2020.

Deferred tax assets and liabilities are measured based on temporary differences between the book basis and tax basis of assets and liabilities, tax losses, and adjustments to cash flows. These estimates rely on assumptions regardingfair value of securities and derivatives.

According to the likelihoodrequirements in the current regulations, the expected realization of future events, and changing certain factors could result in different outcomes. The estimate of cash flowsdeferred tax assets is based on valuations prepared by an independent research company, which is reviewedprojections of future results and a technical study approved by the boardDirectors of directors. Therefore, amortizationSantander Brasil.

Income tax (IRPJ) and Social Contribution Tax (CSLL) on Foreign Exchange Variation of goodwillHedges for tax purposes generates a permanent difference and, as a result, no recordInvestments Held Abroad (Law No. 14,031/2020)

Pursuant to Law No. 14,031/2020, which came in force in July 2020, exchange rate variations arising from hedges on investments held abroad are taxable starting in 2021. Accordingly, in 2021, 50% of the deferredexchange rate variation shall be taxable under the IRPJ and CSLL, while, in 2022, 100% of the exchange rate variation will be considered as taxable.

Tax on Services (ISS)

Each of the Municipalities of Brazil and the Federal District are responsible for establishing the applicable ISS rate, which is charged on the value of services provided by the company, to the municipality where the service renderer is located. The rates vary from 2% to 5% and depend on the nature of the service.

On December 30, 2016, Complementary Law No. 157/2016 was enacted. This new legislation establishes a minimum rate of 2% for these types of taxes, no reductions or deductions being permitted. This Law provides that the following services are subject to ISS in the municipality in which the service taker is located: (i) card management, including POS services, that may be paid to the municipality where the corresponding POS device has been registered; (ii) leasing; (iii) fund management; and (iv) consortium.

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Before the aforementioned Law was enacted, the ISS was due in the municipality in which the service provider was located (irrespective of where the service taker was located). With this new legislation, ISS rates may vary depending on where the service taker is located.

There are several complications that may arise from this new legislation, including (i) as service takers are generally located in several municipalities, it is logistically difficult to comply and collect the taxes; and (ii) there are situations where the municipality of the service taker is not easily identifiable by the credit card company (as is the case for online transactions, for example).

Since the ISS is a municipal tax, liability.the rule must be regulated by each municipality in order to be enforceable. This new rule is only applicable to triggering events occurring from 2018 onwards, when the municipal regulations applicable to Supplementary Law No. 157 come into force.

On March 23, 2018, the Brazilian Supreme Court suspended the application of the Complementary Law No. 157. It is still suspended as of the date of this annual report. This suspension may be circumvented by the enactment of Complementary Law No. 175/20.

Complementary Law No. 175, published on September 24, 2020, was enacted to create a unified ISS collection system, in which taxpayers would be able to collect ISS in every municipality in Brazil. It’s an effort to facilitate tax collection considering the complexity regarding the multiple rulings on ISS, since each municipality can pass its own laws on ISS.

 

The following table shows the main assumptions for the basis of valuation as of the dates indicated.system is currently under development and it is expected that it would enable Complementary Law No. 157 to be brought back into effect.

 

  2019 2018 2017
  (Value in use: cash flows)
Main Assumptions(*)      
Basis of valuation      
Period of the projections of cash flows(1)  5 years   5 years   5 years 
Growth rate(2)  4.8%  5.1%  8.3%
Discount rate(3)  12.5%  13.6%  14.6%

PIS and COFINS Tax Rates

PIS and COFINS (respectively, the profit participation contribution and the social security financing contribution, both of which are social contributions due on certain revenues net of certain expenses) payable by financial institutions and similar entities, as defined by law, are due at the rate of 0.65% and 4%, respectively. They are levied cumulatively on gross revenue billed, which is defined as the total revenues earned by the legal entity, net of certain expenses, such as funding costs.

Non-financial entities are taxed at the rates of 1.65% and 7.6% of PIS and COFINS, respectively, and are subject to non-cumulative incidence, which consists of deduction of certain expenses from the tax base as allowed by law.

Tax on Financial Transactions (IOF)

IOF is a tax levied on credit, currency exchange, insurance and securities transactions and it is imposed on the following transactions and at the following rates:

Transaction(1)

Maximum Legal Rate

Current Rate

Credit extended by financial institutions and non-financial entities1.5% or 3%0.0041% per day for loans contracted by legal entities and 0.0082% per day for individuals capped at 365 days. An additional 0.38% rate is applicable in both cases.
Transactions relating to securities(2)1.5% per day0.5% per day for certain investment funds.
0% on transactions with equity securities and certain debt securities, such as debentures and real estate receivables and agribusiness receivables (CRI/CRA).

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Transaction(1)

Maximum Legal Rate

Current Rate

1% per day on transactions with fixed income derived from federal, state, or municipal public and private bonds, and fixed income investment funds limited to certain percentages of the income raised from investment. This rate is reduced to zero from the 30th day following the acquisition date of the investment and on repurchase agreements carried out by financial institutions and other institutions authorized by the Brazilian Central Bank with debentures issued by institutions belonging to the same group (Decree 8,731/2016).
0% on the assignment of securities to permit the issuance of Depositary Receipts abroad.
Transactions relating to derivatives25.0%Although the maximum rate is 25%, it has been reduced to zero at this moment.
Insurance transactions entered into by insurance companies25%2.38% for health insurance.
0.38% for life insurance.
7.38% for other types of insurance.
Foreign exchange transactions(2)25%0.38% (general rule).
6.38% on credit card transactions as from April 27, 2011.
6.38% on withdrawals abroad using credit or debit cards as from December 28, 2013.
6.38% on purchase of travelers checks or loading of international prepaid card as from December 28, 2013.
0% for outflow of funds related to the payment of principal and interest in connection with foreign loans and financings.
6% for the inflow of funds into Brazil, related to foreign loans subject to registration before the Brazilian Central Bank whose average maturity term is equal or less than 180 days.
0% for the inflow of funds into Brazil, related to foreign loans subject to registration before the Brazilian Central Bank whose average maturity term is higher than 180 days.
0% for interbank transactions.
0% for exchange transactions in connection with the outflow of proceeds from Brazil for the remittance of interest on net equity and dividends to be received by foreign investors.

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Transaction(1)

Maximum Legal Rate

Current Rate

0% for exchange transactions, including by means of simultaneous foreign exchange transactions, for the inflow of funds by foreign investors in the Brazilian financial and capital markets.
0% for exchange transactions, including by means of simultaneous foreign exchange transactions, for the inflow of funds by foreign investors for purposes of initial or additional margin requirements in connection with transactions in stock exchanges.
0% for exchange transactions for the outflow of funds invested by foreign investors in the Brazilian financial and capital markets.
0% for exchange transactions for the inflow and outflow of funds invested by foreign investors, including by means of simultaneous foreign exchange transactions, in certificates of deposit of securities, known as Brazilian Depositary Receipts (“BDRs”).
0% for simultaneous exchange transactions, for the inflow of funds by foreign investors derived from the conversion of direct investments in Brazil made pursuant to Law 4,131/62 into investments in stock tradable in stock exchanges, as from May 2, 2016.
0% for revenues related to the export of goods and services transactions.

The applicable rate is 1.10% for acquisitions of foreign currency (Decree 8,731/2016).

The applicable rate for credit on a foreign bank account belonging to a resident in Brazil is 1.10%, as from March 3, 2018.

(1)The transactions mentioned in the table are for illustration purposes and do not reflect an exhaustive list of transactions subject to the IOF.

(2)There are some exemptions or specific cases in which the applicable rate is zero.

 

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FATCA

The Foreign Account Tax Compliance Act, or “FATCA,” became law in the United States on March 18, 2010. The legislation requires foreign financial institutions, or “FFIs,” (such as Santander Brasil) to enter into an FFI agreement under which they agree to identify and provide the U.S. Internal Revenue Service, or “IRS,” with information on accounts held by U.S. persons and certain U.S.-owned foreign entities, or otherwise face a 30% withholding tax on certain U.S. source withholdable payments. In addition, FFIs that have entered into an FFI agreement will be required to withhold on such payments made to FFIs that have not entered into an FFI agreement, account holders who fail to provide sufficient information to classify an account as a U.S. or non-U.S. account, and U.S. account holders who do not agree to the FFI reporting their accounts to the IRS.

On September 23, 2014, Brazil and the United States announced that they entered into an intergovernmental agreement, or “IGA”, which became effective in Brazil by virtue of Decree No. 8,506 as of August 24, 2015. The aim of the IGA is to improve international tax compliance and implement FATCA. The IGA establishes an automatic annual bilateral exchange of information with the U.S. tax authorities. Under this agreement, Brazilian financial institutions will generally be required to provide certain information about their U.S. account holders to the Brazilian tax authorities (Receita Federal do Brasil), which will share that information with the IRS.

Complying with the required identification, withholding and reporting obligations requires significant investment in an FFI’s compliance and reporting framework. We are continuing to follow developments regarding FATCA closely and are coordinating with all relevant authorities.

Common Reporting Standard

On December 28, 2016, Normative Ruling No. 1,680 was enacted, introducing the Common Reporting Standard in Brazil. The Common Reporting Standard provides for certain account reporting obligations similar to those existing under FATCA. It was created in the context of the Organization for Economic Co-operation and Development’s Base Erosion and Profit Shifting project, which is aimed at reducing tax avoidance. Normative Ruling n° 1,680 applies to legal entities required to present the e-Financeira pursuant to Normative Ruling n° 1,571, dated July 2, 2016.

On the same date, the Normative Ruling n° 1,681 was enacted providing for the obligation to annually deliver the “Country to Country Statement,” an ancillary obligation also arising from the discussions under the BEPS Project, before the Brazilian Federal Revenue Service, or “RFB” as a measure to expand information exchange and improve the level of international tax transparency. This new regulation should not have any impact on Santander Brasil, since, as it is controlled by a legal entity resident in Spain, it is not required by the Brazilian regulation to present such statement.

Income Tax Levied on Capital Gains

Law 13,259, of March 16, 2016 or “Law 13,259/16” introduced the application of progressive tax rates for income taxation over capital gains recognized by Brazilian individuals and by holders that are not domiciled in Brazil for purposes of Brazilian taxation (“Non-Resident Holders”) on the disposition of assets in general. Under Law 13,259/16, the income tax rates applicable to capital gains realized by these investors would be: (i) 15% for the portion of the gains up to R$5 million, (ii) 17.5% for the portion of the gain that exceeds R$5 million but does not exceed R$10 million, (iii) 20% for the portion of the gain that exceeds R$10 million but does not exceed R$30 million, and (iv) 22.5% for the portion of the gain that exceeds R$30 million.

The provisions of Law 13,259/16 may apply to Non Resident Holders pursuant to CMN Resolution 4,373, provided such Non Resident Holders are not located in a Tax Haven. However, Non Resident Holders (whether they are considered to be Non-Resident Holders as a result of CMN Resolution 4373 or otherwise) located in a Tax Haven are subject to a specific tax regulation and will continue to be taxed at a rate of 25%.

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Most transactions carried out by Non Resident Holders pursuant to CMN Resolution 4,373 and that result in capital gains are subject to taxation at a fixed 15% rate, provided they are not located in a Tax Haven.

The tax must be withheld and paid by the buyer or, in cases where the buyer and seller are domiciled abroad, a legal representative of buyer shall be designated for the payment of the tax.

Temporary IOF/Credit Tax Relief

Decree 10,305/20, published in April 2020, along with further amendments, reduced the rate of IOF tax applicable to credit transactions to zero between April 3 and November 27, 2020.

Credit transactions in which funds were redeemed by the customer between the aforementioned dates are not subject to IOF tax. Subsequent renegotiations on credit transactions covered by Decree 10,305/20 that do not include the provision of additional funds are also not subject to IOF tax. Any additional funds are subject to IOF.

Disclosure pursuant to Section 219 of the Iran threat reduction and Syria Human Rights Act

Pursuant to Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012, which added Section 13(r) to the Exchange Act, an issuer is required to disclose in its annual or quarterly reports, as applicable, whether it or any of its affiliates knowingly engaged in certain activities, transactions or dealings relating to Iran or with individuals or entities designated pursuant to certain Executive Orders. Disclosure is generally required even where the activities, transactions or dealings were conducted in compliance with applicable law.

As we are part of the Santander Group, we must also disclose the exposure of other entities of the Santander Group to Iran. The following activities are disclosed in response to Section 13(r) with respect to the Santander Group and its affiliates. During the period covered by this annual report:

(a)       Santander UK holds five blocked accounts for three customers, with the first customer holding one GBP savings account and one GBP current account, the second customer holding one GBP savings account, and the third customer holding two GBP current accounts. All three customers, who are resident in the UK, are currently designated by the U.S. under the SDGT sanctions program. Revenues and profits generated by Santander UK on these accounts in the year ended December 31, 2019 were negligible relative to the overall profits of Banco Santander S.A.

(b)       Santander UK holds two frozen current accounts for two UK nationals who are designated by the U.S. under the SDGT sanctions program. The accounts held by one customer were fully inaccessible at the time of the US designation and were blocked at the time of the account going into a debit balance. The accounts held by the second customer were blocked immediately following the US designation and have remained frozen throughout 2020. These accounts are frozen in order to comply with Articles 2, 3 and 7 of Council Regulation (EC) No 881/2002 imposing certain specific restrictive measures directed against certain persons and entities associated with the Al-Qaeda network, by virtue of Commission Implementing Regulation (EU) 2015/1815. The accounts are in arrears (£1,844.73 in debit combined) and are currently being managed by Santander UK Collections & Recoveries department. No revenues or profits were generated by Santander UK on these accounts in the year ended December 31, 2020.

(c)       Santander Consumer Bank, S.A. holds seven blocked correspondent accounts for Bank Melli. Three USD accounts and four EUR accounts. The accounts have been blocked since 2008. Bank Melli is currently designated by the US under the Specially Designated Global Terrorist (SDGT) sanctions program. No revenues or profits were generated by Santander Consumer Bank, S.A. on these accounts in the year ended 31 December 2020.

(d) The Santander Group also has certain legacy performance guarantees for the benefit of Bank Mellat (standby letters of credit to guarantee the obligations – either under tender documents or under contracting agreements – of contractors who participated in public bids in Iran) that were in place prior to April 27, 2007.

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In the aggregate, all of the transactions described above resulted in gross revenues and net profits in the year ended December 31, 2020, which were negligible relative to the overall revenues and profits of Banco Santander, S.A. The Santander Group has undertaken significant steps to withdraw from the Iranian market such as closing its representative office in Iran and ceasing all banking activities therein, including correspondent relationships, deposit-taking from Iranian entities and issuing export letters of credit, except for the legacy transactions described above. The Santander Group is not contractually permitted to cancel these arrangements without either (i) paying the guaranteed amount (in the case of the performance guarantees), or (ii) forfeiting the outstanding amounts due to it (in the case of the export credits). As such, the Santander Group intends to continue to provide the guarantees and hold these assets in accordance with company policy and applicable laws.

Regulatory Developments Related to COVID-19

The following section summarizes the measures implemented by the CMN and the Brazilian Central Bank to mitigate the consequences of the COVID-19 pandemic on the Brazilian financial system.

Temporary Suspension of Dividend Distributions and Other Payments

On May 29, 2020 the CMN enacted Resolution No. 4,820 in response to the COVID-19 pandemic. Resolution No. 4,820 prohibits financial institutions, such as us, to: (i) offset their capital, including by means of early payment, in excess of amounts equivalent to the minimum mandatory dividend required by the Brazilian Corporate Law, including as interest on capital (ii) repurchase their own shares, subject to certain exceptions as authorized by the Brazilian Central Bank; (iii) reduce their capital stock, except if such reduction is  required by law or approved by the Brazilian Central Bank; and (iv) increase the compensation of their officers, directors and members of the board of directors and audit committee, including fixed and variable compensation. CMN Resolution No. 4,280 repealed CMN Resolution No. 4,797.

On December 23, 2020, the CMN enacted Resolution 4,885, which made the payment of dividends or interest on capital more flexible. As a result, financial institutions were not allowed to pay in excess of the greater of (x) the amount corresponding to 30% of the adjusted net profit in accordance with item I of article 202 of the Brazilian Corporate Law; and (y) the amount equivalent to the mandatory dividends as set forth in article 202 of the Brazilian Corporate Law. This is the only restriction still in force as a result of Resolution 4,820/20.

As a result, we only distributed R$3,837 million as dividends and interest on equity in 2020 compared to R$10,800 million in 2019.

Reduction of Capital Conservation Buffer

On March 16, 2020, the CMN enacted Resolution No. 4,783, which temporarily reduces the Capital Conservation Buffer (where all rates relate to the total amount of risk weighted assets) required from financial institutions, from 2.5% to 1.25%. The rate of 1.25% will remain in effect through March 31, 2021. From April 1, 2021 through April 1, 2022 the Capital Conservation Buffer requirement will gradually be restored to 2.5%. The measure aims to increase the ability of banks to renegotiate credit transactions and maintain engagement in new transactions, considering the current scenario of increased demand for financial services.

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Repos on Sovereign Bonds Denominated in U.S. Dollars

On March 18, 2020, the Brazilian Central Bank issued Circular No. 3,990, which allowed the repurchase transactions of U.S. Dollar denominated federal bonds between the Brazilian Central Bank and Brazilian financial institutions. The Brazilian Central Bank can purchase such bonds with a discount of 10% in comparison to market prices and the financial institution assumes the obligation to purchase the bonds in a future date. The rules also set out a margin transfer during the term of the transaction whenever the exposure is equal or greater than US$500,000. The purpose of this measure is to provide liquidity to the Brazilian sovereign bonds market, by offering liquidity in U.S. Dollars to Brazilian banks and reducing trading volatility of such bonds.

Changes to Provision Requirements

On March 16, 2020 CMN enacted Resolution No. 4,782/20, which was amended by Resolution No. 4.856/20, exempting financial institutions from considering certain restructuring of contracts as an indicative that a counterparty may default. Therefore, the measure allows loans to be granted to solvent companies without requiring additional provisions through September 30, 2020.

New Time Deposits with Special Collateral

CMN Resolution No. 4,799/20 has regulated funding through new Time Deposits with Special Collateral (Novo Depósito a Prazo com Garantias Especiais or “DPGEs”), which are deposits taken by financial institutions and guaranteed by the Credit Guarantee Fund (Fundo Garantidor de Crédito or “FGC”). The resolution increased the cap from R$20 million to R$40 million, and is intended to strengthen the liquidity strength of smaller financial institutions.

Central Bank Loans Backed by Debentures and Financial Bills Held by Financial Institutions

On March 23, 2020, the CMN enacted Resolution No. 4,786, which authorized the Brazilian Central Bank to grant loans to multiservice banks, commercial banks, investment banks and saving banks, backed by debentures (corporate debt instruments) held by such institutions and acquired in the secondary market, provided that certain provisions set forth in the ruling are complied with. It is worth mentioning the ruling sets forth that said loans will also be secured by mandatory deposits in Bank Reserve Accounts, in amount equivalent to, at least, the total amount of the transactions, as well as by the debenture collateral.

This is considered a Temporary Special Liquidity Credit Facility, and is another measure to offer financial institutions more liquidity in their transactions. The loans established in Resolution No. 4,786/20 will be available to financial institutions until April 30, 2020 and may be engaged for a 125 business day term, which may be extended, at the Brazilian Central Bank’s discretion, for more 125 business days, provided the maximum term of 359 calendar days.

On April 2, 2020, the CMN enacted Resolution No. 4,795, which authorizes the Brazilian Central Bank to grant loans to financial institutions under specific conditions, by means of a Temporary Special Liquidity Credit Facility, upon direct acquisition, in the primary market, of Financial Bills secured by financial assets or securities. The loan will be available in tranches, and could reach 100% of the Reference Assets of such financial institutions. The facility will be available to financial institutions through December 31, 2020 and the Financial Bills issued thereunder will have a term between 30 and 359 calendar days. The first tranche was approved on May 12, 2020, in a total amount of R$17.5 billion.

Flexibilization of Funding Requirements Through Agribusiness Credit Notes (Letras de Crédito do Agronegócio or “LCAs”)

On March 23, 2020, the CMN issued Resolution No. 4,787, which adjusted the assessment base of the mandatory reserve requirements of funds raised through LCAs, which are credit notes issued exclusively by financial institutions and related to credit rights originated from transactions conducted between rural producers and their cooperatives and agents of the agribusiness production chain, with the purpose of increasing their liquidity. As a result, the rules for applying funds originated from agribusiness activities were relaxed. The Brazilian Central Bank expects an increase in credit extension directed to agribusiness of R$6.3 billion as a result of the measure.

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Employment Support Program providing emergency payroll financing for small and medium-sized businesses

The CMN enacted Resolution No. 4,846 on August 24, 2020, which regulates the granting of loans under the Emergency Employment Support Program (Programa Emergencial de Suporte a Empregos or “PESE”), established through Provisional Measure No. 944/2020. PESE sets forth the offering of an emergency credit line of R$40 billion to finance, for two months, the payroll of small and medium-sized companies that adhere to the program, with the purpose of preserving jobs. Regarding the funding of said credit line, 85% will derive from the National Treasury and the remaining 15% from participating financial institutions, including Santander Brasil. The adhering small and medium-sized businesses will not be able to dismiss workers during the period that the loan is taken out and up to the 60th day after the business receives its last installment. The maximum amount financed per worker will be up to two minimum wages. The funding will go directly to the worker’s account, as is done today through payrolls operated by financial institutions. PESE came into effect on April 6, 2020. CMN Resolution No. 4,846 repealed CMN Resolution No. 4,800.

FX overhedge of equity interests abroad

On March 18, 2020, the CMN enacted Resolution No. 4,784, which amended CMN Resolution No. 4,192, of March 1, 2013. The rule sets forth that the tax credits arising from losses on excess FX position aimed at hedging of investments held abroad by financial institutions will not be deducted from their regulatory capital (patrimônio de referência). The measure aims at providing further capital relief and hence additional comfort for financial institutions to maintain and extend credit.

Higher ceiling for repurchase of financial bills (letras financeiras) by financial institutions

Pursuant to CMN Resolution No. 4,788, issued on March 23, 2020, financial institutions classified as Segment 1 for the proportional application of the prudential regulation, as is our case, may, from March 23 to April 30, 2020, repurchase up to 20% of financial bills of their own issuance, a substantial increase from the previous ceiling of 5%.

Brazilian Central Bank authorized to buy and sell government bonds and private financial assets and securities in the secondary market

Constitutional Amendment No. 106, enacted on May 7, 2020, sets forth emergency economic and budget measures for the Brazilian government during the COVID-19 pandemic. Among them, the Amendment authorizes the Brazilian Central Bank, for the duration of the pandemic, to buy and sell (i) government bonds in local and foreign secondary markets; and (ii) other assets, in domestic secondary financial, capital and payments markets, provided that, at the time of purchase, they have a credit risk rating in the local market equivalent to BB- or higher, conferred by at least one of the three largest international rating agencies, as well as a reference price published by a financial market entity accredited by the Brazilian Central Bank.

SELECTED STATISTICAL INFORMATION

The following information for Santander Brasil is included for analytical purposes and is derived from, and should be read in conjunction with, the consolidated financial statements and related notes contained elsewhere herein, as well as “Item 5. Operating and Financial Review and Prospects.”

Average annual balance sheet data has been calculated based upon the average of the monthly balances at 13 dates: as of December 31 of the prior year and each of the month-end balances of the 12 subsequent months. Average income statement and balance sheet data and other related statistical information have been prepared on a consolidated annual basis.

The selected statistical information set forth below includes information as of and for the years ended December 31, 2020, 2019, and 2018 extracted from the audited financial statements prepared in conformity with IFRS as issued by the IASB. See “Presentation of Financial and Other Information” and “Item 3. Key Information—A. Selected Financial Data.”

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Average Balance Sheet and Interest Rates

The following tables show our average balances and interest rates for each of the periods presented. With respect to the tables below and the tables under “—Changes in Net Interest Income – Volume and Rate Analysis” and “—Assets—Earning Assets–Yield Spread,” (i) we have stated average balances on a gross basis, before netting impairment losses, except for the total average asset figures, which include such netting, and (ii) all average data have been calculated using month-end balances, which is not significantly different from having used daily averages. We stop accruing interest on loans once they are more than 60 days past due. All our non-accrual loans are included in the table below under “Other assets.”

  For the Year Ended December 31,
  2020 2019 2018
  Average Balance Interest Average Rate Average Balance Interest Average Rate Average Balance Interest Average Rate
  (in millions of R$, except percentages)
Assets and Interest                
Income                
Cash and balances with the Brazilian Central Bank  54,531   1,552   2.8%  48,670   3,828   7.9%  81,018   5,096   6.3%
Loans and amounts due from credit institutions  104,759   1,519   1.4%  101,981   3,844   3.8%  56,093   2,978   5.3%
Loans and advances to customers  384,389   44,102   11.5%  323,180   50,406   15.6%  304,633   46,471   15.3%
Debt instruments  203,578   13,556   6.7%  178,811   13,528   7.6%  164,111   13,629   8.3%
Other interest – earning assets  -   2,044   -   -   1,235   -   -   2,304   - 
Total interest – earning assets  747,257   62,773   8.4%  652,642   72,841   11.2%  605,855   70,478   11.6%
Equity instruments  1,730   34   2.0%  1,464   19   1.3%  1,213   33   2.7%
Investments in associates  1,098   -   -   1,060   -   -   963   -   - 
Total earning assets  750,085   62,807   8.4%  655,166   72,860   11.1%  608,031   70,511   11.6%
Cash and balances with the Brazilian Central Bank  4,800   -   -   4,538   -   -   4,351   -   - 
Loans and amounts due from credit institutions  6,668   -   -   2,258   -   -   1,676   -   - 
Impairment losses  (23,936)  -   -   (22,528)  -   -   (21,056)  -   - 
Other assets  76,642   -   -   56,912   -   -   56,276   -   - 
Tangible assets  9,587   -   -   9,091   -   -   6,414   -   - 
Intangible assets  30,769   -   -   30,070   -   -   29,839   -   - 
Total average assets  854,615   62,807   7.3%  735,507   72,860   9.9%  685,531   70,511   10.3%
Liabilities and Interest Expense                                    
Deposits from the Brazilian Central Bank and Deposits from credit institutions  111,684   4,327   3.9%  100,473   4,866   4.8%  95,217   5,367   5.6%
Customer deposits  380,058   7,498   2.0%  303,741   14,966   4.9%  285,694   13,577   4.8%
Marketable debt securities  68,585   2,514   3.7%  76,194   5,138   6.7%  71,525   4,607   6.4%
Subordinated debts  13,102   863   6.6%  10,779   660   6.1%  10,952   630   5.8%
Other interest-bearing liabilities  -   3,125   -   -   2,890   -   -   4,376   - 
Total interest-bearing liabilities  573,429   18,327   3.2%  491,187   28,520   5.8%  463,388   28,557   6.2%
Noninterest bearing demand deposits  28,581   -   -   14,612   -   -   11,127   -   - 
Other liabilities  150,759   -   -   133,255   -   -   121,198   -   - 
Non-controlling interests  315   -   -   617   -   -   555   -   - 
Stockholders’ Equity  101,531   -   -   95,836   -   -   89,263   -   - 
Total average liabilities and equity  854,615   18,327   2.1%  735,507   28,520   3.9%  685,531   28,557   4.2%

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Changes in Net Interest Income – Volume and Rate Analysis

The following tables present the changes in our net interest income allocated between changes in average volume and changes in average rate for the year ended December 31, 2020, compared to the year ended December 31, 2019, and for the year ended December 31, 2019 compared to the year ended December 31, 2018. We have calculated volume variances based on movements in average balances over the period and rate variance based on changes in interest rates on average interest-earning assets and average interest-bearing liabilities. We have allocated variances caused by changes in both volume and rate to volume. You should read the following tables and the footnotes thereto in light of our observations noted in “—Average Balance Sheet and Interest Rates.”

  For the Years Ended 2020/2019 For the Years Ended 2019/2018
  Increase (decrease) due to changes in
  Volume Rate Net change Volume Rate Net change
  (in millions of R$)
Interest and Similar Income
Interest-earning assets                        
Cash and balances with the Brazilian Central Bank  414   (2,690)  (2,276)  (2,348)  1,080   (1,268)
Loans and amounts due from credit institutions  102   (2,427)  (2,325)  1,915   (1,049)  866 
Loans and advances to customers  8,493   (14,797)  (6,304)  2,876   1,059   3,935 
Debt instruments  1,753   (1,725)  28   1,166   (1,267)  (101)
Other interest-earning assets  809   -   809   (1,069)  -   (1,069)
Total interest-earning assets  11,571   (21,639)  (10,068)  2,540   (177)  2,363 
Equity Instruments  4   11   15   6   (20)  (14)
Total earning assets  11,575   (21,628)  (10,053)  2,546   (197)  2,349 
Interest Expense and Similar Charges
Interest-bearing liabilities                        
Deposits from the Brazilian Central Bank and Deposits from credit institutions  504   (1,043)  (539)  285   (786)  (501)
Customer deposits  3,095   (10,563)  (7,468)  878   511   1,389 
Marketable debt securities  (471)  (2,153)  (2,624)  309   222   531 
Subordinated liabilities  150   53   203   (10)  40   30 
Other interest-bearing liabilities  235   -   235   (1,486)  -   1,486 
Total interest-bearing liabilities  3,513   (13,706)  (10,193)  (24)  (13)  (37)

Assets

Earning Assets – Yield Spread

The following table analyzes our average earning assets, interest income and dividends on equity securities and net interest income and shows gross yields, net yields and yield spread for each of the periods indicated. You should read this table and the footnotes thereto in light of our observations noted in “—Average Balance Sheet and Interest Rates.”

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  For the Year Ended December 31,
  2020 2019 2018
  (in millions of R$, except percentages)
Average earning assets  747,257   652,642   605,855 
Interest and dividends on equity securities(1)  62,807   72,860   70,511 
Net interest income  44,480   44,340   41,954 
Gross yield(2) (*)  8.4%  11.2%  11.6%
Net yield(3) (*)  6.0%  6.8%  6.9%
Yield spread(4) (*)  5.2%  5.3%  5.4%

 
(*)Yield information does not give effect to changes in fair value that are reflected as a component of stockholder’s equity.

(1)The projectionsTotal earning assets plus dividends from companies accounted for by the equity method (equity instruments).

(2)Gross yield is the amount of cash flow are prepared using internal budget“Interest and growth plansdividends on equity securities” divided by “Average earning assets.”

(3)Net yield is the amount of management, based“Net interest income” divided by “Average earning assets.”

(4)Yield spread is the difference between the average rate of “Total earning asset” and the average rate of “Total interest-bearing liabilities.”

Return on Equity and Assets

The following table presents our selected financial ratios for the periods indicated.

  For the Year Ended December 31,
  2020 2019 2018
ROA: Return on average total assets  1.6%  2.3%  1.9%
ROE: Return on average stockholders’ equity  13.3%  17.4%  14.3%
ROE (adjusted) (1)  18.5%  24.6%  21.0%
Average stockholders’ equity as a percentage of average total assets  11.9%  13.0%  13.0%
Payout (2)  24.6%  65.8%  52.5%

(1)“Average stockholders’ equity excluding goodwill as a percentage of average total assets excluding goodwill” is a non-GAAP financial measure which adjusts “Return on historical data, market expectationsaverage stockholders’ equity” to exclude the goodwill arising from the acquisition of Banco Real in 2008, Getnet Adquirência e Serviços para Meios de Pagamento S.A., or “GetNet” and conditions suchSuper Pagamentos e Administração de Meios Eletrônicos Ltda., or “Super”, both in 2014 and Banco Olé Bonsucesso Consignado S.A. in 2015,60%, and the remaining 40% in 2020. See “Item 3. Key Information—A. Selected Financial Data—Selected Consolidated Ratios” for a reconciliation of “Average stockholders’ equity excluding goodwill as industry growth, interest rate and inflation.a percentage of average total assets excluding goodwill” to “Return on average stockholders’ equity.”

 

(2)Dividend payout ratio (dividends declared per preferred share divided by net income per preferred share).

Interest-Earning Assets (other than Loans)

The following table shows the percentage mix of our average interest-earning assets for the years indicated. You should read this table in light of our observations noted in “—Average Balance Sheet and Interest Rates.”

  For the Year Ended December 31,
  2020 2019 2018
Cash and balances with the Brazilian Central Bank  7.3%  7.5%  13.4%
Loans and amounts due from credit institutions  14.1%  15.6%  9.3%
Loans and advances to customers  51.4%  49.5%  50.3%
Debt instruments  27.2%  27.4%  27.0%
Total interest-earning assets  100%  100%  100%

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Loans and Amounts Due from Credit Institutions

For further information about Loans and Amounts Due from Credit Institutions, see note “5 – Loans and amounts due from credit institutions” to our audited consolidated financial statements included elsewhere in this annual report.

Investment Securities

As of December 31, 2020 and 2019, the book value of investment securities was R$232 billion and R$176 billion, respectively (representing 24.7% and 23.0%, respectively, of our total assets as of such dates). Brazilian government securities totaled R$192 billion, or 82.8% and R$136 billion, or 77.3% of our investment securities as of December 31, 2020 and 2019, respectively. For a discussion of how our investment securities are valued, see notes 7 and 8 to our audited consolidated financial statements included elsewhere in this annual report.

The following table shows the carrying amounts of our investment securities by type and residence of the counterparty at each of the indicated dates:

  As of December 31,
  2020 2019 2018
  (in millions of R$)
Debt securities            
Government securities—Brazil  191,896   135,848   116,531 
Debentures and promissory notes  17,072   13,875   10,556 
Other debt securities  21,134   23,609   48,346 
Total domestic/debt securities  230,102   173,332   175,433 
             
Equity securities            
Shares of Brazilian companies  1,953   665   783 
Shares of foreign companies  -   -   2 
Investment fund units and shares  363   1,693   320 
Total equity securities  2,316   2,358   1,106 
Total investment securities  232,418   175,690   176,539 

As of December 31, 2020 and 2019, we held no securities of single issuers or related groups of companies whose aggregate book or market value exceeded 1% of our stockholders’ equity, other than the Brazilian government securities, which represented 180.5% and 140.5%, respectively of our stockholders’ equity. As of December 31, 2020 and 2019, the total value of our debt securities was approximately 217.4% and 181.8%, respectively, of stockholders’ equity.

The following table analyzes the maturities and weighted average yields of our debt investment securities (before impairment allowance) as of December 31, 2020. Yields on tax-exempt obligations have not been calculated on a tax equivalent basis because the effect on such calculation is not significant.

  Maturing within 1 year Maturing between 1 and 5 years Maturing between 5 and 10 years Maturing after 10 years Total
  (in R$ millions)
Debt securities                    
Government securities—Brazil  46,475   135,212   44,041   -   225,728 
Other debt securities  1,015   437   2,922   -   4,374 
Total debt investment securities  47,490   135,649   46,963   -   230,102 

The average rate for debt investment securities is 6.7%.

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Domestic and Foreign Currency

The following table shows our assets and liabilities by domestic and foreign currency, as of the dates indicated.

  As of December 31,
  2020 2019 2018
  Domestic Currency Foreign Currency Domestic Currency Foreign Currency Domestic Currency Foreign Currency
  (in millions of R$)
Assets            
Cash and balances with the Brazilian Central Bank (1)  4,531   15,617   4,878   15,250   16,651   15,065 
Debt instruments  226,787   3,315   164,447   8,885   166,743   8,690 
Loans and amounts due from credit institutions, gross (1)  109,339   3,520   107,694   1,553   79,166   454 
Loans and advances to customers, gross  396,950   20,822   326,421   20,835   304,031   17,902 
Equity Instruments  1,675   -   2,358   -   1,106   - 
Total assets  739,283   43,275   605,798   46,523   567,697   42,111 
Liabilities                        
Financial Liabilities at Amortized cost:                        
Deposits from the Brazilian Central Bank and Deposits from credit institutions  86,564   45,093   58,283   40,988   74,160   24,863 
Customer deposits  445,900   -   336,515   -   304,198   - 
Marketable debt securities  47,476   9,399   64,987   8,715   70,109   4,517 
Subordinated debts  -   -   -   -  ��9,886   - 
Debt instruments eligible to compose capital  -   13,120   -   10,176   -   9,780 
Other financial liabilities  66,727   153   60,885   -   51,729   - 
Total liabilities  646,667   67,766   520,670   59,879   510,082   39,160 

(1) In the fiscal year ended December 31, 2018, the balances related to compulsory deposits were reclassified from cash and reserves at the Brazilian Central Bank to the item Loans and other amounts with credit institutions for better presentation and, consequently, the respective comparative balances also have been reclassified.

Loan Portfolio

As of December 31, 2020, our loans and advances to customers totaled R$418 billion (54.8% of our total assets). Net impairment losses, loans and advances to customers totaled R$418 billion as of December 31, 2020 (48.0% of our total assets). In addition to loans, we had outstanding loan commitments drawable by third parties totaling R$131.9 billion, R$125.9 billion, R$122.7 billion, R$106.9 billion and R$91.2 billion as of December 31, 2020, 2019, 2018, 2017 and 2016, respectively.

Types of Loans by Type of Customer

The majority of the loans we have outstanding are to borrowers domiciled in Brazil and are denominated in reais. The table below breaks down our loans and advances to customers (including securities purchased under agreements to resell), by type of customer, at each of the dates indicated. For each loan category, we maintain specific risk management policies that are in line with the standards of the Santander Group, which in turn, are managed and monitored by our board of officers through the credit committee. The credit approval process for each loan category is structured primarily around our business segments. See “Item 11. Quantitative and Qualitative Disclosures about Risk—Credit Risk” for details on our credit approval policies for retail and wholesale lending.

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We have a diversified loan portfolio, with no specific concentration exceeding 10% of our total loans. Currently, 1.3% of our loan portfolio is allocated to our largest debtor and 6.5% to the next 10 largest debtors.

For further information about the breakdown of our Loans and Maturity see sections “a - Breakdown” and “b – Detail” of note “9 – Loans and advances to customers” to our audited consolidated financial statements included in this annual report.

Fixed and Variable Rate Loans

The following table sets forth a breakdown of our fixed and variable rate loans by maturity as of December 31, 2020.

  Fixed and variable rate loans with maturity
  Less than one year One to five years Over five years Total
  Balance % of Total Balance % of Total Balance % of Total Balance % of Total
  (in millions of R$, except percentages)
Fixed rate  162,684   74   113,662   77   16,538   32   292,884   70 
Variable rate  56,378   26   33,352   23   35,208   68   124,938   30 
Total  219,063   100   147,014   100   51,745   100   417,822   100 

Cross-Border Outstandings

The following table presents, at each balance sheet date indicated, the aggregate amount of our cross-border outstandings (which consist of loans, interest-bearing deposits with other banks, acceptances and other monetary assets denominated in a currency other than the home-country currency of the office where the item is booked). Cross-border outstandings do not include local currency loans made by subsidiary banks in other countries to the extent that such loans are funded in the local currency or hedged. As a result, they do not include the majority of the loans made by our Cayman Islands branch, which are fully hedged.

  As of December 31,          
  2020   2019   2018  
  Balance % of Total Assets Balance % of Total Assets Balance % of Total Assets
  (in millions of R$, except percentages)
OECD countries(1)            
Spain  437   0.1   1,984   0.3   1,217   0.2 
United States  12,674   1.8   3,721   0.5   3,304   0.5 
Netherlands  80   0.0   1,531   0.2   3,853   0.6 
United Kingdom(3)  29   0.0   1,003   0.1   6,508   1.0 
Other OECD countries(2)  3,534   0.5   16,264   2.4   1,072   0.1 
Total OECD  16,754   2.4   24,503   3.6   15,954   2.5 
Non-OECD countries                        
Latin American countries(2)  1,204   0.2   1,382   0.2   314   - 
Cayman Islands  2,917   0.4   3,528   0.5   (8,304)  (1.3)
Other(2)  1,189   0.2   2,397   0.3   100   - 
Total non-OECD  5,310   0.8   7,307   1.1   (7,890)  (1.3)
Total  22,064   3.2   31,810   4.6   8,064   1.2 
(1)The growth rate isOrganization for Economic Cooperation and Development.

(2)Aggregate outstandings in any single country in this category do not exceed 1.5% of our total assets.

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The following table presents the amounts of our cross-border outstandings as of December 31, 2020, 2019 and 2018 by type of borrower where outstandings in the borrower’s country exceeded 1.2% of our total assets.

  Government Banks and Other Financial Institutions Commercial and Industrial Other Loans Total
  (in millions of R$)
2018          
United States  -   3,569   23   130   3,722 
Netherlands  -   -   1,531   -   1,531 
Austria  -   -   197   (4)  193 
United Kingdom  -   1   38   964   1,003 
Cayman Islands  3,541   1,987   3,685   (5,685)  3,528 
Total  3,541   5,557   5,474   (4,595)  9,977 
2019                    
United States  -   8,710   55   316   9,081 
Netherlands  -   -   2,355   -   2,355 
Austria  -   -   127   (2)  125 
United Kingdom  -   -   7   151   158 
Cayman Islands  469   263   488   (752)  468 
Total  469   8,973   3,030   (287)  12,187 
2020                    
United States  -   12,653   9   12   12,674 
Netherlands  -   -   80   -   80 
Austria  -   -   -   444   444 
United Kingdom  -   28   -   1   29 
Cayman Islands  -   1,341   (1)  1,577   2,917 
Total  -   14,022   88   2,034   16,144 

Non-current assets held for sale

For further information, see note “10 - Non-current assets held for sale” to our audited consolidated financial statements included elsewhere in this annual report.

Liabilities

Deposits

The principal components of our deposits are customer demand, time and notice deposits, and international and domestic interbank deposits. Our retail customers are the principal source of our demand, time and notice deposits.

For further information, see note “16 – Deposits from the Brazilian Central Bank and Deposits from Credit Institutions” and “17 – Client deposits” in “Financial Statements” to our audited consolidated financial statements included elsewhere in this annual report.

The following table shows the maturity of time deposits (excluding inter-bank deposits) in denominations of U.S.$100,000 or more at the dates indicated. Large denomination customer deposits may be a less stable source of funds than demand and savings deposits.

As of December 31, 2020
DomesticInternational
(in millions of R$)
Under 3 months344,923-
3 to 6 months63,380-
6 to 12 months63,390-
Over 12 months105,788-
Total577,470-

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Short-Term Borrowings

The following table shows our short-term borrowings consisting of government securities that we sold under agreements to repurchase for purpose of funding our operations.

  As of December 31,
  2020 2019 2018
  Amount Average Rate Amount Average Rate Amount Average Rate
  (in millions of R$, except percentages)
Securities sold under agreements to repurchase                        
As of December 31  112,477   1.90%  123,941   5.00%  99,379   7.34%
Average during the period (1)  112,096   2.71%  100,473   4.84%  102,051   9.67%
Maximum month-end balance  155,174       123,941       113,691     
Total short-term borrowings at year end  112,477       123,941       99,379     
(1)The average annual balance sheet data has been calculated based upon the average of the monthly balances at 13 dates: at December 31 of the prior year and for each of the month-end balances of the 12 subsequent months.

Changes in Allowances for Impairment Losses on the Balances of “Loans and receivables”

The following tables analyze changes in our allowances for impairment losses for the periods indicated. For further information regarding these changes, see “Item 5. Operating and Financial Review and Prospects—A. Operating Results—Results of Operations for the Years Ended December 31, 2020, 2019 and 2018—Results of Operations—Impairment Losses on Financial Assets (Net).”

  As of December 31,
  2020 2019 2018 2017 2016
  (in millions of R$)
Balance at beginning of year  22,625   22,969   18,262   18,191   15,412 
Initial adoption of IFRS 9  -   -   2,461   -   - 
Balance adjusted  22,625   22,969   20,723   18,191   15,412 
Impairment losses charged to income for the year  18,311   14,361   13,540   13,493   14,383 
Write-off of impaired balances against recorded impairment allowance  (15,297)  (14,705)  (11,294)  (13,422)  (11,605)
Balance at end of year  25,640   22,625   22,969   18,262   18,191 
Of which:                    
Loans and advances to customers  24,054   20,557   20,242   15,409   16,435 
Loans and amounts due from credit institutions  9   14   14   69   201 
Debt Instruments  1,577   2,055   2,714   2,784   1,555 
Recoveries of loans previously written off(1)  861   991   827   1,154   994 
(1)Impairment losses on areal growth ratefinancial assets, net, as reported in our consolidated financial statements, reflect net provisions for credit losses less recoveries of 1% p.a. plus annual long-term inflationloans previously written off.

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Allowance by Type of Borrower

The table below shows a breakdown of recoveries, net provisions and write-offs against credit loss allowance by type of borrower for the periods indicated.

  For the Year Ended December 31,
  2020 2019 2018 2017 2016
  (in millions of R$)
Recoveries of loans previously charged off(1)  861   991   827   1,154   994 
Commercial and industrial  422   520   345   413   563 
Real estate – construction  56   47   103   210   103 
Installment loans to individuals  370   417   370   521   314 
Lease finance  13   8   9   10   14 
Impairment losses charged to income for the year(1)  18,311   14,361   13,540   13,492   14,383 
Commercial and industrial  6,919   2,377   3,620   5,499   6,523 
Real estate – construction  81   95   193   471   369 
Installment loans to individuals  11,309   11,866   9,708   7,461   7,617 
Lease finance  3   23   19   61   (125)
Write-off of impaired balances against recorded impairment allowance  (15,297)  (14,705)  (11,294)  (13,422)  (11,605)
Commercial and industrial  (4,617)  (5,713)  (3,981)  (5,716)  (4,553)
Real estate – construction  (232)  (108)  (191)  (342)  (190)
Installment loans to individuals  (10,433)  (8,834)  (7,100)  (7,312)  (6,811)
Lease finance  (15)  (49)  (22)  (52)  (51)
(1)Impairment losses on financial assets, net, as reported in 2019.our consolidated financial statements, reflect net provisions for credit losses less recoveries of loans previously written off.

The table below shows a breakdown of allowances for credit losses by type of borrowers and the percentage of loans in each category as a share of total loans at the date indicated.

  As of December 31,
  2020 % of Total Loans 2019 % of Total Loans 2018 % of Total Loans
  (in millions of R$, except percentages)
Borrowers            
Commercial and industrial  9,757   38   7,455   33   10,792   47 
Real estate  194   1   345   2   358   2 
Installment loans to individuals  15,676   61   14,800   65   11,768   51 
Lease financing  14   0   26   0   51   0 
Total  25,640   100   22,625   100   22,969   100 

Internal Risk Rating

The following table presents a breakdown of our portfolio by internal risk rating, at the dates indicated:

  As of
  December 31,
  2020 2019 2018
  (in millions of R$)
Internal Risk Rating            
Low  347,315   257,133   240,440 
Medium-low  24,277   56,549   50,486 
Medium  26,232   11,755   11,967 
Medium-high  3,896   8,512   7,722 
High  16,101   13,307   11,318 
Loans and advances to customers, gross  417,819   347,257   321,933 

For further information on our internal risk rating levels and their corresponding probability of default, see “Item 11. Quantitative and Qualitative Disclosures about Market Risk—Credit Risk—Credit Monitoring.”

Renegotiation Portfolio

The renegotiation portfolio for the year ended on December 31, 2020 amounted to R$20 billion, compared to R$15 billion for the same period in 2019, an increase of R$5,008 million or 32.8%. This portfolio includes loans and advances to customers that were extended and/or modified to facilitate repayment under conditions agreed upon with customers.

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The renegotiation portfolio was covered by allowances for impairment losses of 44.0% as of December 31, 2020 and 48.5% as of December 31, 2019. These levels are considered appropriate for the characteristics of these loans and advances to customers.

The following table presents a breakdown of our renegotiation portfolio by type of customer, allowances for impairment losses and our coverage ratio at the dates indicated:

  2020 2019 2018
  (in millions of R$, except percentages)
Renegotiation Portfolio by type of customer      
Commercial and industrial  5,862   5,141   5,949 
Installment loans to individuals  14,623   10,102   7,492 
Financial leasing  5   239   75 
Total  20,490   15,482   13,516 
Allowances for impairment losses  9,019   7,501   7,279 
Coverage ratio  44.0%  48.5%  53.8%

Balances are deemed to be impaired when there are reasonable doubts as to their full recovery and/or the collection of the related interest for the amounts on the dates indicated in the loan agreement, after taking into account the collateral guarantees received to secure (fully or partially) collection of the related balances.

As established in our internal renegotiation policy, in order for renegotiated products to be classified as performing, we must, receive an amount equivalent to at least 10% of the total amount outstanding in the six months which follow the renegotiation date (note that these transactions will remain classified as renegotiated operations even after receiving such payments). Renegotiated loans that are more than 60 days overdue are also accounted for as impaired.

We increased our efforts regarding the collection of loans that are less than 60 days past due and also in relation to written off loans. We are also continuing with our strategy of granting loans to persons with low risk profile and higher levels of collaterals and guarantees.

Impaired Assets

The following table shows our impaired assets, excluding country risk.

  As of December 31,
  2020 2019 2018 2017 2016
  (in millions of R$, except percentages)
Impaired assets                    
Past due and other impaired assets(1)  23,176   23,426   22,426   19,145   18,887 
Impaired assets as a percentage of total loans  5.5%  6.7%  7.0%  6.7%  7.0%
Net loan charge-offs as a percentage of total loans  3.7%  4.3%  3.5%  4.7%  4.3%
Net loan charge-offs as a percentage of average total loans  3.8%  5.3%  3.8%  4.8%  4.5%
(1)Includes as of December 31, 2020, R$2,028 million of doubtful loans (R$2,788 million in 2019, R$3,754 million in 2018, R$5,439 million in 2017 and R$5,576 million in 2016) that were not past-due.

Evolution of Impaired Assets

Our impaired assets decreased by 1.1%, or R$250 million, to R$23,176 million as of December 31, 2020, compared to R$23,426 million as of December 31, 2019. Provisions for impairment losses, including total recoveries of loans previously charged off, increased 13.3%, or R$3,015 million, to R$ 25,640 million as of December 31, 2020, compared to R$ 22,625 million as of December 31, 2019. Offsetting these effects were recoveries of R$861 million on loans previously written off as of December 31, 2020 and R$ 991 million as of December 31, 2019.

We believe the provisions made were adequate to cover all known or reasonably probable losses or incurred losses in the credit portfolio of loans and other assets as of December 31, 2020.

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The following table shows the changes in our impaired assets at the dates indicated:

  As of December 31,
  2020 2019 2018 2017 2016
  (in millions of R$)
Balance at beginning of year  23,426   22,426   19,145   18,887   18,599 
Initial Adoption of IFRS9 (1)  -   -   703   -   - 
Adjusted Balance  23,426   22,426   19,848   18,887   18,599 
Net additions  14,672   16,001   13,872   13,679   11,893 
Write-offs  (14,922)  (15,001)  (11,294)  (13,422)  (11,605)
Balance at end of year  23,176   23,426   22,426   19,145   18,887 
(1)Further information, see Financial Statements notes 1 and 9.

The amount of “net additions” for any period is assets that became impaired in that period less assets that were impaired but became performing in that period. In 2020, the debt restructuring options were improved to maintain consistent levels of “net additions” and “write-offs”.

Impaired Assets by Type of Customer

The following table shows the amount of our impaired assets by type of customers at the dates indicated:

  As of December 31,
  2020 2019
  (in millions of R$)
Commercial and industrial  10,558   10,073 
Real estate  456   827 
Installment loans to individuals  12,144   12,497 
Financial leasing  17   29 
Total  23,176   23,426 

Commercial and Industrial

Impaired assets in our commercial and industrial loans portfolio amounted to R$10,558 million as of December 31, 2020, an increase of R$485 million, or 4.8%, compared to R$10,073 million as of December 31, 2019. This increase was mainly due to the collective assessment of R$1,660 million performed by Santander Brasil which was based on forecasts of senstivity to macroeconomic conditions which indicate staged transfers following a deterioration of the portfolio.

Real Estate

Impaired assets in the real estate lending portfolio totaled R$456 million on December 31, 2020, a decrease of R$371 million, or 44.8%, compared to R$827 million as of December 31, 2019. The decrease in impaired assets in this portfolio was the result of the measures that Santander Brasil put in place to manage it, including collection practices with respect to our borrowers.

Installment Loans to Individuals

Impaired assets in the installment loans to individuals lending portfolio totaled R$12,144 million as of December 31, 2020, with a decrease of R$353 million, or 2.8%, compared to 2019. The decrease in impaired assets in this portfolio was the result of the measures that Santander Brasil put in place to manage it, including collection practices with respect to our borrowers whereby we offered certain customers the chance to negotiate a restructuring of their debts, especially during the COVID-19 pandemic, or asset disposals.

Financial Leasing

Impaired assets in the lease financing lending portfolio totaled R$17 million on December 31, 2020, a decrease of R$12 million compared to December 31, 2019. This decrease in impaired assets was mainly due to asset write-offs in an amount of R$15.6 million in 2020.

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Methodology for Impairment Losses

We evaluate all loans regarding the provision for impairment losses from credit risk. Loans are either individually evaluated for impairment, or collectively evaluated by grouping similar risk characteristics. Loans that are individually evaluated for impairment losses are not evaluated collectively.

To measure the impairment loss on loans individually evaluated for impairment, we consider the conditions of the borrowers, such as their economic and financial situation, level of indebtedness, ability to generate income, cash flow, management, corporate governance and quality of internal controls, payment history, industry expertise, contingencies and credit limits, as well as the characteristics of assets, such as their nature and purpose, type, sufficiency and liquidity level guarantees and total amount of credit, as well as based on historical experience of impairment and other circumstances known at the time of evaluation.

To measure the impairment loss on loans collectively evaluated for impairment, we segregate financial assets into groups considering the characteristics and similarity of credit risk. In other words, according to segment, the type of assets, guarantees and other factors associated such as the historical experience of impairment and other circumstances known at the time of assessment.

The expected loss measurement is made through the following factors:

·Exposure at Default (EAD): is the amount of a transaction exposed to credit risk including the ratio of current outstanding balance exposure that could be provided at default. Developed models incorporate hypotheses considering possible modifications to the payment schedule.

 

(3)·Probability of Default (PD): is defined as the probability that the counterparty can meet its obligations to pay the principal and / or interest. For the purposes of IFRS 9, both will be considered: PD - 12 months (Stage 1), which is the probability that the financial instrument will default during the next 12 months as well as PD - life time (Stage 2 and 3), which considers the probability that the transaction between in default between the balance sheet date and the residual maturity date of the transaction. The discount rate is calculated based onstandard requires that future information relevant to the capital asset pricing model. The discount rate before tax is 17,78% in 2019, 19.33% in 2018 and 20.42% in 2017.estimation of these parameters should be considered.

 

·Loss Given Default (LGD): is the loss produced in the event of default. In other words, this reflects the percentage of exposure that could not be recovered in the event of a default. It depends mainly on the collateral, which is considered as credit risk mitigants associated with each financial asset, and the future cash flows that are expected to be recovered. According to the standard, forward-looking information must be taken into account in the estimation.

·Discount rate: the rate applied to the future cash flows estimated during the expected life of the asset, and which is equal to the net present value of the financial instrument at its carrying value.

In order to estimate the above parameters, the Bank has applied its experience in developing internal models for parameters calculation both for regulatory and management purposes.

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Loans Past Due for Less Than 90 Days but Not Classified as Impaired

The following table shows the loans past due for less than 90 days but not classified as impaired at the dates indicated:

  As of December 31,
  2020 % of total 2019 % of total
  (in millions of R$, except percentages)
Commercial and industrial  5,132   25.8   3,517   15.4 
Mortgage loans  3,085   15.5   5,782   25.3 
Installment loans to individuals  11,661   58.6   13,489   59.1 
Lease financing  13   0.1   24   0.1 
Total (*)  19,891   100.0   22,812   100.0 
(*)The recoverability test was performed duringRefers only to loans past due between 1 and 90 days.

Impaired Asset Ratios

Our credit risk exposure portfolio increased by R$74.5 billion to R$466.1 billion as of December 31, 2020, compared to R$391.6 billion as of December 31, 2019. Our impaired assets decreased by approximately R$0.2 billion in the same period, from R$23.4 billion to R$23.2 billion. The default rate decreased by 10 basis points in 2020 in comparison to 2019, primarily due to the recurrent growth of the credit portfolio and the measures that Santander Brasil put in place to manage impaired assets, including collection practices.

The following table shows the ratio of our impaired assets to total credit risk exposure and our coverage ratio at the dates indicated.

  As of December 31,
  2020 2019 2018 2017 2016
  (in millions of R$ except percentages)
Loans and advances to customers, gross  417,822   347,257   321,933   287,829   268,438 
Impaired assets  23,176   23,426   22,426   19,145   18,887 
Provisions for impairment losses  25,640   22,626   22,969   18,262   18,191 
Credit risk exposure Non-GAAP – customers (1)  466,104   391,569   364,194   330,474   301,703 
Ratios                    
Impaired assets to credit risk exposure  5.0%  6.0%  6.2%  5.8%  6.3%
Coverage ratio (2)  110.6%  96.6%  102.4%  95.4%  96.3%
Impairment losses  (17,451)  (13,370)  (12,713)  (12,339)  (13,388)
Losses on other financial instruments not
  measured at fair value (3)		  -   -   -   -   88 
Impairment losses on financial assets (net) (4)  (17,451)  (13,370)  (12,713)  (12,339)  (13,300)
(1)Credit risk exposure is a non-GAAP financial measure. Credit risk exposure is the second halfsum of 2017. Goodwill is testedthe amortized cost amounts of loans and advances to customers (including impaired assets) amounting to R$417,822 million as of December 31, 20 and guarantees and documentary credits amounting to R$48,282 million as of December 31, 2020. We include off-balance sheet information in this measure to better demonstrate our total managed credit risk.

(2)Provisions for impairment losses as a percentage of impaired assets.

(3)Corresponds to the registration of losses of a permanent character in the realization value of bonds and securities classified as “securities available for sale” currently accounted for in “earnings on financial assets (net).”

(4)As of December 31, 2020 impairment losses on financial assets (net) included R$1,577 million relating to debt instruments.

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The following chart shows our impaired assets to credit risk ratio from 2016 through 2020:

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4C. Organizational Structure

Santander Group controls Santander Brasil directly and indirectly through Santander Spain, Sterrebeeck B.V., or “Sterrebeeck”, and Grupo Empresarial Santander, S.L. which are controlled subsidiaries of the Santander Group. As of December 31, 2020, Santander Spain held, directly and indirectly, 89.5% of our voting stock.

As of December 31, 2020, Santander Spain was the largest bank in the euro zone by market capitalization, with a market capitalization of approximately €44,011 million. As of December 31, 2020, Santander Spain’s attributable profit totaled €-8,771 million, 234.6% lower than the previous year, and the total shareholder remuneration on account of the earnings for the 2020 financial year is €-0.538 per share. The Santander Group operates principally in Spain, the United Kingdom, other European countries, Brazil and other Latin American countries and the United States, offering a wide range of financial products. In Latin America, the Santander Group has majority shareholdings in financial institutions in Argentina, Brazil, Chile, Mexico, Peru, Puerto Rico and Uruguay. As of December 31, 2020, Santander Brasil contributed €2,113 million of the profit attributable to the Santander Group.

The following table presents the name, country of incorporation or residence and proportion of ownership interest of our main subsidiaries in accordance with the criteria for consolidation pursuant to IFRS:

ActivityCountry of IncorporationOwnership Interest
Direct and Indirect subsidiaries of Banco Santander (Brasil) S.A.
Banco Bandepe S.A.BankBrazil100.00%
Santander Leasing S.A. Arrendamento MercantilLeasingBrazil99.99%
Aymoré Crédito, Financiamento e Investimento S.A.FinancialBrazil100.00%
Santander Brasil Administradora de Consórcio Ltda.Buying clubBrazil100.00%
Atual Serviços de Recuperação de Créditos e Meios Digitais S.A. (current name of Atual Companhia Securitizadora de Créditos S.A.)Credit Recovery ServicesBrazil100.00%
Santander Corretora de Câmbio e Valores Mobiliários S.A.BrokerBrazil100.00%

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Santander Corretora de Seguros, Investimentos e Serviços S.A.HoldingBrazil100.00%
Getnet Adquirência e Serviços para Meios de Pagamento S.A.Payment InstitutionBrazil88.50%
SANB Promotora de Vendas e Cobrança Ltda.Other ActivitiesBrazil100.00%
Sancap Investimentos e Participações S.A.HoldingBrazil100.00%
Santander Holding Imobiliária S.A. (current name of Webcasas S.A.)HoldingBrazil100.00%
Santander Brasil Tecnologia S.A.TechnologyBrazil100.00%
Rojo Entretenimento S.A.Other ActivitiesBrazil94.60%
Santander Tecnologia e Inovação Ltda.Other ActivitiesBrazil100.00%
BEN Benefícios e Serviços S.A.Other ActivitiesBrazil100.00%
Toque Fale Serviços de Telemarketing Ltda.Other ActivitiesBrazil100.00%
Esfera Fidelidade S.A.Other ActivitiesBrazil100.00%
Controlled by Atual Serviços de Recuperação de Créditos e Meios Digitais S.A. (current name of Atual Companhia Securitizadora de Créditos S.A.)
Return Capital Serviços de Recuperação de Créditos S.A. (current name of Ipanema Empreendimentos e Participações S.A.)Credit Recovery ServicesBrazil100.00%
Controlled by Return Capital Serviços de Recuperação de Créditos S.A. (current name of Ipanema Empreendimentos e Participações S.A.)
Return Gestão de Recursos S.A. (current name of Gestora de Investimentos Ipanema S.A.)Asset ManagementBrazil100.00%
Controlled by Sancap Investimentos e Participações S.A.
Santander Capitalização S.A.Savings and annuitiesBrazil100.00%
Evidence Previdência S.A.Social SecuritiesBrazil100.00%
Controlled by Getnet Adquirência e Serviços para Meios de Pagamento S.A.
Auttar HUT Processamento de Dados Ltda.Other ActivitiesBrazil100.00%
Controlled by Aymoré Crédito, Financiamento e Investimento S.A.
Banco PSA Finance Brasil S.A. (6)BankBrazil50.00%
Banco Hyundai Capital Brasil S.A. (current name of BHJV Assessoria e Consultoria Empresarial Ltda.)BankBrazil50.00%
Controlled by Santander Leasing S.A. Arrendamento Mercantil
Pi Distribuidora de Títulos e Valores Mobiliários S.A. (current name of Santander Finance Arrendamento Mercantil)LeasingBrazil100.00%
Consolidated Investment Funds
Santander FIC FI Contract I Referenciado DIInvestment FundBrazil(a)
Santander Fundo de Investimento Unix Multimercado Crédito PrivadoInvestment FundBrazil(a)
Santander Fundo de Investimento Diamantina Multimercado Crédito Privado de Investimento no ExteriorInvestment FundBrazil(a)
Santander Fundo de Investimento Amazonas Multimercado Crédito Privado de Investimento no ExteriorInvestment FundBrazil(a)
Santander Fundo de Investimento SBAC Referenciado DI Crédito PrivadoInvestment FundBrazil(a)

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Santander Fundo de Investimento Guarujá Multimercado Crédito Privado de Investimento no ExteriorInvestment FundBrazil(a)
Santander Fundo de Investimento Financial Curto PrazoInvestment FundBrazil(a)
Santander Fundo de Investimento Capitalization Renda FixaInvestment FundBrazil(a)
Santander Paraty QIF PLC (1)Investment FundBrazil(a)
Santander FI Hedge Strategies Fund (1)Investment FundBrazil(a)
Prime 16 - Fundo de Investimento Imobiliário-FII  Real Estate Investment FundBrazil(a)
Fundo de Investimento em Direitos Creditórios Multisegmentos NPL Ipanema VI - Não PadronizadoInvestment FundBrazil(a)
Fundo de Investimento em Direitos Creditórios Multisegmentos NPL Ipanema VI - Não PadronizadoInvestment FundBrazil(a)
Santander Hermes Multimercado Crédito Privado Infraestrutura Fundo de InvestimentosInvestment FundBrazil(a)
(a)Company to which we are exposed, or have rights to variable returns and have the ability to affect those returns by making certain decisions in accordance with IFRS 10 - Consolidated Financial Statements. We and/or our subsidiaries hold 100% of the quotas of these investment funds.

(1)Santander Brasil, through its subsidiaries, holds the risks and benefits of Santander Paraty QIF PLC and the sub-fund Santander FI Hedge Strategies Fund, both of which are based in Ireland and since August 2016 are fully consolidated into Santander Brasil’s financial statements. Santander Paraty QIF PLC does not hold any investments itself, acting instead through Santander FI Hedge Strategies Fund.

4D. Property, Plant and Equipment

We operate four major administrative operational centers, all of which are owned properties. Additionally, we own 405 properties for the activities of our banking network and rent 2,276 properties for the same purpose. Furthermore, in 2014, we transferred our operation to a new data center located in Campinas, which also is an owned property. For further information about the location of our branches, see “—B. Business Overview—Service Channels—Physical Distribution Network.” Our headquarters are located at Av. Presidente Juscelino Kubitschek, 2,041 and 2,235 Block A, Vila Olímpia, City of São Paulo, State of São Paulo, Brazil.

ITEM 4A. UNRESOLVED STAFF COMMENTS

Not applicable.

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

5A. Operating Results

The following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements for the years ended December 31, 2020, 2019 and 2018 and the related notes thereto, and with the financial information presented under the section entitled “Item 3. Key Information—A. Selected Financial Data” included elsewhere in this annual report. The preparation of the consolidated financial statements referred to in this section required the adoption of assumptions and estimates that affect the amounts recorded as assets, liabilities, revenue and expenses in the years and periods presented and are subject to certain risks and uncertainties. Our future results may vary substantially from those indicated as a result of various factors that affect our business, including, among others, those mentioned in the sections “Forward-Looking Statements” and “Item 3. Key Information—D. Risk Factors,” and other factors discussed elsewhere in this annual report. Our consolidated financial statements for the years ended December 31, 2020, 2019 and 2018, prepared in accordance with IFRS as issued by the IASB and the report of our independent registered public accounting firm are included in “Item 18. Financial Statements.”

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Principal Factors Affecting Our Financial Condition and Results of Operations

Impact of COVID-19

We are closely monitoring the evolution of the COVID-19 pandemic in Brazil and globally, in order to take preventive measures to minimize the spread of the virus, ensure the continuity of operations and safeguard the health and safety of our personnel. See “Item 4. Information on the Company—A. History and Development of the Company—Important Events—Impact of COVID-19” for information on the impact of the COVID-19 pandemic on our business and also “Item 3. Key Information—3D. Risk Factors—Risks Relating to the Brazilian Financial Services Industry and Our Business—The current global COVID-19 pandemic has materially impacted our business, and the continuance of this pandemic or any future outbreak of any other highly contagious diseases or other public health emergency, could materially and adversely impact our business, financial condition, liquidity and results of operations.”

Brazilian Macroeconomic Environment

Overview

As a Brazilian bank, we are significantly affected by the general economic environment in Brazil, which suffered a severe impact as a result of the COVID-19 pandemic, as set out under “—Impact of COVID-19” below. The Brazilian economic environment has historically been characterized by significant variations in economic growth, inflation and currency exchange rates. Our results of operations and financial condition are influenced by these factors and the effect that these factors have on employment rates, the availability of credit and average wages in Brazil. The following table presents key data of the Brazilian economy for the periods indicated:

  For the year ended December 31,
  2020 2019 2018
GDP growth (1)  (4.1%)  1.2%  1.1%
CDI rate (2)  2.1%  6.0%  6.4%
TJLP (3)  4.6%  5.6%  7.0%
SELIC rate (4)  2.0%  4.5%  6.5%
Selling exchange rate (at period end) R$ per U.S.$1.00  5.20   4.03   3.87 
Decrease (increase) in real rate against the U.S. dollar  28.9%  4.0%  17.1%
Average exchange rate R$ per U.S.$1.00 (5)  5.16   3.94   3.65 
Inflation (IGP-M) (6)  23.1%  7.3%  7.6%
Inflation (IPCA) (7)  4.5%  4.3%  3.8%

Sources: BNDES, Brazilian Central Bank, FGV and IBGE.

(1)GDP growth for 2020 is based on Santander Brasil’s internal estimates. For 2019 and 2018 the source is the IBGE’s revised series.

(2)The overnight interbank deposit rate (Certificado de Depósito Interbancário), or “CDI” is the average daily interbank deposit rate in Brazil (at the end of each month and annually). This is the average rate for the given year.

(3)Represents the interest rate applied by the BNDES for long-term financing (at the end of the period).

(4)The benchmark interest rate payable to holders of some securities, such as treasury financial letters, issued by the Brazilian government and traded on the SELIC rate at the end of each reportable periodthe applicable period.

(5)Average of the selling exchange rate for the business days during the period.

(6)The inflation rate is the general index of market prices (Índice Geral de Preços-Mercado, or whenever there“IGP-M”), as calculated by FGV.

(7)The inflation rate is any indication of a potential impairment.the consumer price index (Índice de Preços ao Consumidor – Amplo, or “IPCA”), as calculated by the IBGE.

 

We performedGeneral economic stability in Brazil following the onset of the global financial crisis in 2009 allowed the Brazilian Central Bank to continue its policy of reducing interest rates. Due to inflation and other general macroeconomic concerns, the Brazilian Central Bank began increasing interest rates, with the SELIC, a sensitivity testbenchmark interest rate, reaching 10.00% at the end of December 31, 2013, 11.75% at the end of December 31, 2014 and 14.25% at the end of December 31, 2015. The Brazilian Central Bank has been reducing interest rates since then, with the SELIC reaching 13.75% as of December 31, 2016, 7.00% as of December 31, 2017, 6.50% as of December 31, 2018, 4.50% as of December 31, 2019 and 2.0% as of December 31, 2020. In 2020, in response to the negative fallout of the COVID-19 pandemic, the Brazilian Central Bank reduced the base interest rate to its historical low at 2.00% in August 2020 and it kept it at this level through to the date of this annual report.

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The resolution of Brazil’s political and economic crisis depends on approving reforms that are expected to be promoted by the President of Brazil (elected in October 2018). In addition, as further detailed below under “—Impact of COVID-19,” the COVID-19 pandemic and ensuing economic crisis caused a steep decrease in Brazilian GDP in the goodwill impairment analysisfirst half of 2020 before a gradual recovery from the third quarter of 2020 onwards. This will place additional demands for spending on the public sector going forward, which may adversely affect investor sentiment and lead Brazil’s economy to grow more slowly than it was expected to do prior to the COVID-19 pandemic. The economic and political crisis in Brazil may adversely affect the performance of the Brazilian economy. As a result, our Brazil-focused credit portfolio may not grow or could decrease and our loan loss provisions could increase.

Any deterioration in Brazil’s rate of economic growth, changes in interest rates, the unemployment rate or price levels generally may adversely affect our business, financial conditions and results of operations. As previously mentioned, the economic fallout from COVID-19 increased the chance of a deterioration in the outlook for the Brazilian macroeconomic environment.

Impact of COVID-19

The Brazilian economy was severely affected by the COVID-19 pandemic and ensuring economic crisis in 2020. The social distancing measures adopted during the first months of the COVID-19 outbreak reduced consumption and resulted in a sharp decrease in gross domestic product in the first half of 2020. In order to mitigate the effects of the pandemic in the economy, the Brazilian government adopted monetary and fiscal measures. On the monetary front, the Brazilian Central Bank reduced the basic interest rates and announced measures to provide liquidity to the system. On the fiscal front, the Brazilian government provided a fiscal package that included financial aid for households, companies and regional governments, and expenditure on public healthcare. The economic measures along with the reopening of the economy in the third quarter of 2020 allowed the Brazilian economy to recover to an extent, although it remained 4% below the pre-crisis level. A negative consequence of the fiscal package was a sharp increase in the fiscal deficit and public debt. Moreover, the structural reform agenda was delayed, while the government has kept the commitment with the fiscal adjustment once the crisis is over. Finally, financial markets have reacted very negatively to the crisis. The Brazilian currency was negatively affected by a higher global risk aversion, drop in commodity prices and deterioration of the fiscal scenario.

Interest Rates

A decrease in the SELIC rate may have a positive impact on our operations by promoting volume growth, even though it may also create pressure on asset-side spreads, while liability spreads should remain stable or even improve.

The following table presents the low, high, average and period-end SELIC rate since 2016, as reported by the Brazilian Central Bank:

   LowHigh(1)Average(2)Period-End
Year      
2016  13.75  14.25  14.15  13.75  
2017  7.0013.75  9.837.00
2018  6.507.006.756.50
2019  4.506.506.134.50
2020  2.004.502.812.00
2021 (through February 24, 2021)2.002.002.002.00
(1)Highest month-end rate.

(2)Average of month-end rates during the period.

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Our assets are predominantly fixed rate and our liabilities are predominantly floating. The resulting exposure to increases in market rates of interest is modified by our use of cash flow hedges to convert floating rates to fixed, but we maintain an exposure to interest rate movements. As of December 31, 2020, a 100 basis point increase in the yield curve would have resulted in R$432 million decline in the net interest income over a one-year period.

Credit Volume and Quality in Brazil

In 2015, outstanding credit grew 7.0%, while the ratio of nonperforming loans to individuals stood at 4.2% and the household debt burden amounted to 20.4% of household income. In 2016, outstanding credit contracted 3.5% in nominal terms, but delinquency fell slightly: the ratio of nonperforming loans to individuals reached 4.0% (as compared to 4.2% in 2015). Subsequently, in 2017, 2018 and 2019, the ratio of nonperforming loans to individuals reached 3.5%, 3.2% and 3.5%, respectively. After having fluctuated around the 19% level (19.1% in 2017, and 19.2% in 2018), the household debt burden reached 20.0% of household income in 2019. In 2020, outstanding credit increased 15.5% as a result of credit support programs put in place by the Brazilian government to mitigate the impact of the COVID-19 pandemic, which also helped to keep the ratio of nonperforming loans at 2.8%, while further increasing the household debt burden to 20.9% of household income.

  2020 2019 2018
  (in billions of R$)
Total Credit Outstanding (*)  3,261   3,471   3,261 
Earmarked credit  1,500   1,465   1,500 
Non-earmarked based credit  1,761   2,006   1,761 
of which:            
Corporate     814      905      814 
Individuals (retail)     948   1,101      948 
(*)Some figures may be subject to revision by the Brazilian Central Bank.

Source: Brazilian Central Bank.

Foreign Exchange Rates

Our policy is to maintain limited foreign exchange rate exposure by seeking to match foreign currency denominated assets and liabilities as closely as possible, including through the use of derivative instruments. In 2020, we recorded foreign exchange expenses of R$24,697 million, foreign exchange expenses of R$2,789 million in 2019 and foreign exchange expenses of R$2,806 million in 2018. These results are due to the variation of the U.S. dollar against the real on our assets and liabilities positions in U.S. dollar denominated instruments during these years. These foreign exchange gains and losses were offset in large part in each year by a corresponding loss or gain on derivatives entered into to hedge this exposure. Such losses and gains are recorded under “Exchange differences (net).”

The Brazilian currency has, during the last decades, experienced frequent and substantial variations in relation to the U.S. dollar and other foreign currencies. During 2016, the real appreciated 17% against the U.S. dollar as a result of improved macroeconomic conditions in Brazil. On December 31, 2016, the exchange rate was R$3.26 per U.S.$1.00. In 2017 the real remained relatively stable against the U.S. dollar, with a small depreciation of 1.5% to R$3.31 per U.S.$1.00 as of December 31, 2017. The real depreciated further against the U.S. dollar throughout 2018, with a depreciation of 17%. On December 31, 2018, the exchange rate was R$3.87 per U.S.$1.00. In 2019, the real continued to depreciate against the U.S. dollar and as of December 31, 2019, it was at R$4.03 per U.S.$1.00. In 2020, the real continued to depreciate, and as of December 31, 2020 it was at R$5.20 per U.S.$1.00. In 2021, and through to the date of this annual report, the real has continued to weaken against the U.S. dollar due to the COVID-19 pandemic. As of February 24, 2021, the exchange rate was R$5.42 per U.S.$1.00.

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Depreciation of the real relative to the U.S. dollar has created additional inflationary pressures in Brazil, which has led to increases in interest rates and limited Brazilian companies’ access to foreign financial markets, and prompted the adoption of recessionary policies by the Brazilian government. Depreciation of the real may also, in the context of an economic slowdown, lead to decreased consumer spending, deflationary pressures and reduced growth of the Brazilian economy as a whole, and thereby harm our asset base, financial condition and results of operations. Additionally, depreciation of the real could make our foreign-currency-linked obligations and funding more expensive, negatively affect the market price of our securities portfolios, and have similar consequences for our borrowers. Conversely, appreciation of the real relative to the U.S. dollar and other foreign currencies could lead to a deterioration of the Brazilian foreign exchange currency balance of payments, as well as dampen export-driven growth. Depending on the circumstances, either depreciation or appreciation of the real could materially and adversely affect the growth of the Brazilian economy and our business, financial condition and results of operations.

Inflation

In recent years, inflation has been oscillating around the target, which is set by the CMN. From 2005 to 2018, the targeted level was 4.5%, with a tolerance interval of 2.0 percentage points that prevailed until 2016 – since then the tolerance band has been narrowed to 1.5 percentage point. In addition, the targeted set for 2019 by the CMN was lowered to 4.25% and additional 0.25 percentage point decreases have already been defined for the targets until 2022 (4.00% for 2020, 3.75% for 2021 and 3.50% for 2022).

Between 2012 and 2014, inflation ranged from 5.8% to 6.4%, i.e., it was close to the top of the fluctuation range in the Brazilian Central Bank’s inflation targeting range. In 2015, as a result of the indexation of a significant portion of contracts for services to the inflation levels of the previous years, the impact of adjustment of tariffs and the impact of the depreciation of the real on prices, the inflation rate reached a level of 10.7%, the highest on record since May 2005 and well above the Brazilian Central Bank’s inflation target of 4.5%. In 2017, inflation fell substantially as a result of the consistent efforts of the Brazilian Central Bank to reduce the inflation rate, ending the year at 2.95% (12-month accumulated rate). As a result, the Brazilian Central Bank was required to send a letter to the CMN explaining the reasons for not meeting the target in which the Brazilian Central Bank explained that it expected that the monetary easing undertaken in 2018 would make the actual inflation rate converge toward the target. In 2018 the inflation increased to 3.75%, thus reinforcing the efficiency of the monetary policy in Brazil. In 2019, as a result of temporary price shocks affecting edible items, inflation ended the year slightly above the targeted level, at 4.31%. In 2020, inflation increased to 4.5%. In 2021, and through to the date of this annual report, inflation has increased to 4.56% in year-on-year terms.

The majority of our income, expenses, assets and liabilities are directly tied to interest rates. Therefore, our results of operations and financial condition are significantly affected by inflation, interest rate fluctuations and related government monetary policies, all of which may materially and adversely affect the growth of the Brazilian economy, our loan portfolios, our cost of funding and our income from credit operations. We estimate that in 2020, a 1.0% increase or decrease in the base interest rate would have resulted in a decrease or increase, respectively, in our net interest income of R$432 million. Any changes in interest rates may negatively impact our business, financial condition and results of operations. In addition, increases in base interest rates may adversely affect us by reducing the demand for our credit and investment products, increasing funding costs and increasing in the short run the risk of default by our customers.

Inflation adversely affects our personnel and other administrative expenses that are directly or indirectly tied to inflation indexes, generally the consumer price index (Índice de Preços ao Consumidor – Amplo), or “IPCA,” and the general index of market prices (Índice Geral de Preços-Mercado), or “IGPM.” For example, considering the main assumptions that could reasonably be expected to possiblyamounts in 2019, each additional percentage point change as requiredin inflation, would impact our personnel and other administrative expenses by the IFRS. Accordingly, we applied such a test considering the discount rateapproximately R$94 million and perpetuity growth rate as the main assumption subject to reasonably possible change and we did not identify any impairment to goodwill.R$77 million, respectively.

 

Other Factors Affecting the Comparability153 

Table of Our Results of OperationsContents

Acquisition of residual equity stake in Getnet

 

On December 19, 2018, the minority shareholders of Getnet Adquirência e Serviços para Meios de Pagamentos S.A., or “Getnet,” exercised their right to sell all of their shares to Santander Brasil, or the “Put Option”, pursuant to the Shares’ Purchase and Sale Agreement and Other Covenants executed between the parties on April 4, 2014, or “SPA”. On the exercise date of the Put Option, we entered into a binding amendment to the SPA, to acquire all of the Getnet shares owned by minority shareholders, corresponding to 11.5% of the entity’s equity interest, in the amount of R$1.431 billion. The transaction was approved by the Brazilian Central Bank on February 18, 2019 and closed on February 25, 2019. As a result, Santander Brasil currently owns 100% of Getnet’s issued and outstanding share capital.

Proposal to Spin Off Getnet

On February 25, 2021, further to the Material Facts disclosed on November 16, 2020 and February 2, 2021, we announced that our Board of Directors approved a separation from our merchant payment business, which is undertaken by our subsidiary, Getnet, in order to concentrate the technology and payments businesses of Santander Group within PagoNxt, a new technology-focused global payment platform. Following the potential spin-off of our equity interest held in Getnet, or the “Spin-Off,” which will be resolved upon by our shareholders in an extraordinary shareholders’ meeting, our shareholders would become direct shareholders in Getnet on a pro rata basis. Accordingly, our shareholders immediately prior to the Spin-Off would hold a percentage of equity interest in Getnet in the same proportion as they held in Santander Brasil prior to the Spin-Off. After the approval of the Spin-off by our extraordinary shareholders’ meeting, our shares and units will be traded with the right to receive the shares and units issued by Getnet until the record date, which, once determined, will be disclosed to the market by means of a Notice to Shareholders.

Sale of equity stake in CIBRASEC – Companhia Brasileira de Securitização

On July 24, 2019, we completed the sale of our entire equity interest in CIBRASEC – Companhia Brasileira de Securitização (“Cibrasec”) to ISEC Securitizadora S.A. (“ISEC”). Our interest amounted to 4,000 common shares and 50 Class A preferred shares, representing, in the aggregate, approximately 9.72% of Cibrasec’s total capital stock. The transaction was effected pursuant to the Shares Purchase and Other Covenants Agreement executed on the same date among Santander Brasil, the other shareholders of Cibrasec, ISEC and Cibrasec, who acted as an intervening party. We received consideration of R$ 9.8 million for our interest in Cibrasec. As a result, we are no longer a shareholder of Cibrasec.

Purchase of Equity Interest over Toro Controle e Participações S.A.

On September 29, 2020 Santander Brasil’s subsidiary, PI DTVM , entered into an investment and other covenant agreement with the shareholders of Toro Controle e Participações S.A. , or “Toro Controle” to invest in Toro Controle. Toro Controle, an investment platform, operating as a securities broker focused on the retail market was founded in Belo Horizonte in 2010. Toro Controle is the holding company of Toro Corretora de Títulos e Valores Mobiliários Ltda, or “Toro Corretora,” and Toro Investimentos S.A., or “Toro Investimentos.” We refer to Toro Controle, Toro Corretora and Toro Investimentos as “Toro,” Upon completion of the transaction, PI DTVM will hold 60% of Toro Controle’s share capital.

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In addition, PI DTVM and Toro Corretora will combine their market experiences to develop a complete platform of fixed and variable income products. This platform will be based on shared expertise, technology and operate in the growing Brazilian investment market. The completion of the transaction is subject to the execution of certain customary agreements between the parties, the fulfillment of customary conditions precedent and the receipt of certain regulatory approvals, including the approval of the Brazilian Central Bank.

Buyback Program

On February 2, 2021, our board of directors approved the continuation of the buyback program (previously set to expire on November 4, 2020) of our units and ADRs. Our units and ADRs will be acquired either directly or through our branch in the Cayman Islands, to be held in treasury or subsequently sold. The buyback program will cover the acquisition of up to 36,956,402 units or ADRs, representing a combination of 36,956,402 common and 36,956,402 preferred shares, corresponding to approximately 1% of our share capital. The term of the buyback program is up to 18 months beginning on February 3, 2021 and expiring on August 2, 2022.

Issuance of Notes

On November 5, 2018, our board of directors approved the issuance, through our Cayman Islands branch, of debt instruments to form part of our Tier 1 and Tier 2 regulatory capital in the aggregate amount of U.S.$ 2.5 billion, pursuant to an offering made to non-U.S. Persons under Regulation S of the U.S. Securities Act of 1993, as amended, or the “Notes Offering”.

In addition, our board of directors also approved the redemption of debt instruments issued to form part of our Tier 1 and Tier 2 regulatory capital, as set out in the board’s resolution of January 14, 2014. The proceeds from the Notes Offering were used to fund this redemption.

On December 18, 2018, the Brazilian Central Bank authorized the transactions contemplated in the Notes Offering and the redemption, which were completed on January 29, 2019.

Disclosure of Projections

On July 29, 2020, we informed the market that we will no longer disclose guidance, as previously announced in the material fact dated October 8, 2019. This decision comes in response to the ongoing uncertainty with respect to the impact of the COVID-19 pandemic on our business, financial condition, assets, liquidity, cash flows and results of operations, as well as on the macroeconomic environment in Brazil and globally.

Capital Expenditures and Divestitures

Our main capital expenditures include investments in our information technology platform. Our information technology platform focuses on our customers and supports our business model. In 2020, 2019 and 2018, total investments in information technology were R$1,432 million, R$1,858 million and R$1,276 million, respectively.

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In 2020, 2019 and 2018, we continually improved in our technology platforms by means of investment in our digital applications, including through the implementation of new solutions in the areas of artificial intelligence (machine learning, AIOPs), micro services, blockchain technology, cyber insurance, facial recognition and cloud-based technologies, among others. The application of these new technologies improved our interaction with our customers enabled us to provide solutions across credit, consortium, payroll loan, insurance, private banking, cards,  payments, agribusiness, investments to better address client needs. We also continued to invest in our physical distribution network (branches, PABs and PAEs), including: biometric identification for corporate customers, digital purchase and payment of exchange, among other initiatives. For more details about our technology and infrastructure, see the item “—B. Business Overview—Technology and Infrastructure”.

Our ongoing capital expenditures consist primarily of investments in information technology We expect to fund our ongoing capital expenditures principally from our cash flow from operations.

Our major divestiture in the past three fiscal years and until the date of this annual report was the sale of Super Pagamentos.

For more information, see “Item 5. Operating and Financial Review and Prospects—A. Operating Results—Other Factors Affecting the Comparability of Our Results of Operations”.

Impact of COVID-19

We are closely monitoring the evolution of the COVID-19 pandemic in Brazil and globally, in order to take preventive measures to minimize the spread of the virus, ensure the continuity of operations and safeguard the health and safety of our personnel. Based on the information available as of the date of this annual report, we present below a summary of the main effects of the COVID-19 pandemic on our business and results of operations:

·As the COVID-19 pandemic escalated in Brazil starting March 2020, we adjusted our operations to be able to continue providing our products and services to our customers while ensuring the health and safety of our employees. As part of these measures we transitioned our administrative office staff into remote working arrangements from March 17,2020 to May 25, 2020, and we had up to 80% of our employees working from home in that period. From May 25, 2020 we begin a phased return to our offices in compliance with strict hygiene and social distancing procedures.

·We supported our employees throughout the COVID-19 pandemic by offering them and their dependent remote medical care through an agreement with a leading Brazilian hospital. We also provided advance payment of thirteenth salary installments in April 2020 (these are normally paid in December of each year).

·Since March 2020, our branches have been operating with reduced service hours; from 9:00 a.m. to 2:00 p.m. from March 2020 to July 2020 and then from 9:00 a.m. to 3:00 p.m. through to the date of this annual report. We also adopted a staggered entry system in branches with heavy customer traffic in order to reduce the total number of customers in the branch at any given time. We also reserved the period from 9:00 am to 10:00 am for customers who would are more vulnerable to COVID-19. To provide continuous service and meet the increased demand of our call centers, we temporarily relocated retail employees to our call centers to help deal with the increased demand for remote banking services. In line with our commitment to clear customer communication, we launched the “Overcome Together” and “Santander Supports You” websites, which gathered resources and initiatives related to our business.

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·We offered individual, microentrepreneur and SME customers the possibility of deferring their loan payments for up to 60 days. In May 2020, we allowed an extension for an additional 30 days, as a result of which our deferred loan portfolio reached a total of R$ 49.8 billion as of June 30, 2020 and R$40.6 million as of December 31, 2020. At the same time we continuously monitored our loan quality indicators, which remained at acceptable levels throughout the COVID-19 pandemic and through to the date of this annual report. We also participated in government programs that granted special credit lines for businesses, particularly in retail, including CMN Resolution No. 4,846, which was published on August 24, 2020 and regulated lending under the Emergency Employment Support Program, initially established by Provisional Measure No. 944/2020. For more information, see “—B. Business Overview—Regulation and Supervision—Other Applicable Laws and Regulations—Regulatory Developments Related to COVID-19” As a result, our total portfolio balance of government-sponsored loans reached R$14 billion as of December 31, 2020. It is worth noting that these government-sponsored credit lines were created in 2020 to minimize the negative effects of the pandemic.

·The onset of COVID-19 had a negative impact on our net fee and commission income, especially in the first half of 2020, due to a lower volume of customer transactions, which adversely affected the total amounts we were able to charge in credit and debit card fees. As a result, we experienced reductions in the growth rates of our net fee and commission income and of our net interest income from the six months ended June 30, 2019 to the six months ended June 30, 2020, as compared to the growth rates of our net fee and commission income and of our net interest income from the six months ended June 30, 2018 to the six months ended June 30, 2019. These reductions were due to the abovementioned lower transaction volumes, a higher share of global wholesale banking in the loan portfolio, alongside a shift in the product mix, with a decreased share of higher risk products, such as credit cards and overdrafts. For more information, see “Item 5. Operating and Financial Review and Prospectus—A. Operating Results—Results of Operations for the Years Ended December 31, 2020, 2019 and 2018—Results of Operations—Net Interest Income ” and “Item 5. Operating and Financial Review and Prospectus—A. Operating Results— Results of Operations for the Years Ended December 31, 2020, 2019 and 2018—Results of Operations—Net Fee and Commission Income.”

·In 2020, we constituted an additional provision in the amount of R$3,200 million. This provision was calculated based on the analysis of the potential macroeconomic effects and took into account not only quantitative and qualitative indicators, but also the adequate and accurate identification of risks and a collective assessment of exposures. For more information, see “Item 5. Operating and Financial Review and Prospectus—5A. Operating Results—Results of Operations—Impairment Losses on Financial Assets (Net).”

·In 2020, the National Monetary Council, or “CMN,” and the Brazilian Central Bank introduced measures to minimize the impact of COVID-19 on the financial system. With respect to liquidity, these changes included: (i) a reduction in the time deposit reserve requirement from 31% to 17%; and (ii) an increase in the additional limit on the reserve requirement treated as High Quality Liquidity Assets from 15% to 30%, ensuring greater liquidity in a stress scenario. In addition, a temporary suspension on dividends and other distributions was enacted through Resolution No. 4,820, limiting the distributions to shareholders 30% of adjusted net profit (following amendments enacted on December 23, 2020). As a result, we only distributed R$3,837 million as dividends and interest on equity in 2020 compared to R$10,800 million in 2019. The CMN also published Resolution No. 4,783, which temporarily reduced the capital conservation buffer (where all rates relate to the total amount of risk-weighted assets) required from financial institutions from 2.5% to 1.25%, leading our Basel ratio to reach 15.3% as of December 31, 2020. For more information, see “—B. Business Overview—Regulation and Supervision—Other Applicable Laws and Regulations—Regulatory Developments Related to COVID-19” and “—4B. Business Overview—Regulation and Supervision—Other Applicable Laws and Regulations—Compulsory Reserve Requirements.”

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·We experienced an increase in digital business. Specifically, we recorded an increase of 151% in the number of new contracts originated through digital channels in December 2020 as compared to January and February 2020.

See also “Item 3. Key Information—3D. Risk Factors—Risks Relating to the Brazilian Financial Services Industry and Our Business—The current global COVID-19 pandemic has materially impacted our business, and the continuance of this pandemic or any future outbreak of any other highly contagious diseases or other public health emergency, could materially and adversely impact our business, financial condition, liquidity and results of operations” and “Item 5. Operating and Financial Review and Prospects—A. Operating Results—Principal Factors Affecting Our Financial Condition and Results of Operations—Impact of COVID-19.”

4B. Business Overview

Our Strategy

Our strategy is to endeavor to grow in a profitable, recurring and sustainable manner by providing services with excellence and to consistently strive to enhance customer satisfaction levels, expand our customer base and increase the loyalty of our customers.

To achieve this goal, we have been deeply focused on understanding how the Brazilian market works to address its demands effectively. In line with this approach, we have sought to identify our different types of customers and their specific needs. Accordingly, we adopted a strategy that is based on serving our customers wherever and whenever they want through multi-channel (digital and/or physical) solutions that provide a customized and innovative portfolio of services and products.

We endeavor to be pioneers and anticipate market trends to capture business opportunities over the years.

In 2016 we began our commercial transformation, which consisted of implementing new work models and simplifying and digitizing our processes, and introduced a culture of innovation, while also providing further vehicle loans at a time when the market was moving in the opposite direction. In 2017 we focused on the quality of the services we provide and placed customer satisfaction at the center of our strategy, which is reflected in the implementation of the net promoter score, or NPS, as a measure of customer satisfaction. In 2018, we were pioneers in bringing an industrial approach to costs into the banking sector, covering three key fronts: organization, technology and culture. We believe this strategy has already yielded results and will allow us to further refine our productivity and customer experience. In 2019, we expanded our Santander ecosystem with new businesses and reduced our exposure to the card market, as we concentrated on lower-risk products. Finally, in 2020 we focused on supporting our customers through a challenging time period, by providing relevant products, while also focusing on efficiency and responding swiftly to market trends, as illustrated by the launch of SX, which set ourselves apart from the Brazilian Central Bank’s instant payment solution, PIX, by offering exclusive benefits to customers. We have also launched new disruptive products into the market such as Sim, emDia, Santander Auto and Ben. As a result of this strategic repositioning, we have been able to realize substantial growth in all our key business areas, as evidenced by the evolution of our return on equity, or ROE, in recent years (for further information see “Item 3. Key Information—A. Selected Financial Data—Reconciliation of Non-GAAP Measures and Ratios to Their Most Directly Comparable IFRS Financial Measures—Reconciliation of Non-GAAP Ratios to Their Most Directly Comparable IFRS Financial Measures—Return on average stockholders’ equity”).

Similarly, we believe that our positioning, combined with a culture that values our people, promotes diversity, encourages speed in execution and fosters innovation, prepares us for this new cycle and allows us to keep anticipating market trends.

We believe our core business has the potential to grow through innovation and technology, and by delivering a higher service level to our customers. Our products and businesses include, among others, payments (i.e. payment platforms), auto and consumer goods loans through Santander Financiamentos, mortgages, payroll and agribusiness loans, as well as investments, in addition to the products and services we offer through our wholesale segment.

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In order to strengthen our ecosystem, we have launched new businesses which continue to mature, such as (i) Ben, which reached breakeven in May 2020 and expanded its customer base in 2020 to 217 thousand cards alongside 1.4 thousand human resources customers and 338 thousand partner merchants; (ii) Sim, which achieved positive net profit in 2020 after 15 months of operation and a loan portfolio of R$700 million as of December 31, 2020; (iii) emDia, which had four million customers as of December 31, 2020 and R$46 million in credit recovered volume in 2020, and (iv) Santander Auto, which reached a penetration rate of 16% of Santander Financiamentos’ contracts leading to the issuance of more than R$100 million in premiums during 2020. More recently, in September 2020, we announced the acquisition of Toro Corretora to complement our PI DTVM investment platform, thereby expanding our product offering. The completion of the transaction is subject to the execution of certain customary agreements between the parties, the fulfillment of customary conditions precedent and the receipt of certain regulatory approvals, including approval by the Brazilian Central Bank.

Our growth is based on a commitment to asset quality, which we believe is demonstrated by the performance of certain quality indicators such as our cost of risk, which we believe remains at controlled levels despite the current macroeconomic scenario. It is worth noting that since 2019, we have focused on expanding our lower-risk products, particularly those that are collateralized. As a result, we believe that our loan quality indicators are at appropriate levels. Similarly, collateralized loans represent a significant portion of our loan portfolio to individuals, accounting for approximately 76% of our loan portfolio as of December 31, 2020 (four percentage points higher than December 31, 2019). The collateralized loans includes payroll loans.

We believe that our business was able to adapt swiftly to the changing environment in 2020 in order to meet the needs of our customers. We offered a plan to defer loan repayment installments to customers who fulfilled certain requirements. We provided special lines of credit, including through government programs, for the corporate and small and medium enterprise, or SME, segments. We believe that all these initiatives strengthened our customers’ loyalty and helped us achieve better control of our risk indicators. As a result of our actions, we reached the highest NPS level in our history in 2020, recording an NPS score of 63 points in 2020 (compared to 56 points in 2019), which we believe is evidence of our commitment to customers.

We acknowledge our responsibility as a financial institution to support society and contribute to Brazil’s economic growth. This attitude is embedded into our culture and is transversal to our business. In 2020, we held two events focused on supporting society at the onset the pandemic through our “Amigo de Valor” program, one in the first half of the year, and another one in the second half, raising an aggregate of approximately R$23 million (including donations from employees, customers and Santander Brasil, with R$7 million raised in the first edition and R$15.7 million raised in the second edition). We also hosted a donation marathon for the “Mães da Favela” project with the participation of customers and employees, which generated positive results: R$7.2 million was raised (including donations from employees, customers and Santander Brasil) to support more than 20,000 families.

Additionally, we encouraged other initiatives, such as volunteering to provide remote assistance to the elderly under the “Parceiro do Idoso” program, and the offer of special products to healthcare professionals. Finally, together with our private bank peers, we donated 5 million rapid COVID-19 tests, 17.7 million face masks and R$20 million to purchase computerized tomography scanners. Finally, we also donated a total of R$100 million to contribute to the fight against COVID-19.

Below are the main commercial initiatives that we have undertaken in recent years:

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•Net promoter score or NPS. We introduced the NPS as our primary metric for customer satisfaction in 2017 and, in 2018, we were pioneers in disclosing our score to the market. After each interaction with Santander Brasil, our customers are randomly selected to rate their experience using the NPS methodology. Nowadays, the NPS is part of our compensation (profit sharing) metrics, affecting virtually every department and position level at the organization, including the administrative and commercial departments. In 2020, despite the ongoing COVID-19 pandemic, we achieved our highest level of customer satisfaction, with an NPS of 63 points, rising 7.5 points over the immediately preceding 12 months. This performance contributed to the sustainable growth of our customer base, which saw a net increase of 1.8 million active customers in the 12 months ended December 31, 2020.

•Digital strategy. We are in constant digital transformation to better serve our customers. We have implemented a collaborative work system in our organization based on the “Agile” methodology, which is commonly used in information technology. We believe this methodology has allowed us to offer more suitable products and services, as well as quickly perform system updates through all our available channels. In 2020, we strengthened our digital channels by improving the availability of services. We also launched GENTE, our virtual assistant, which was developed by drawing on the diverse talents and experiences of our employees. Customers can access GENTE through WhatsApp, our web portal, mobile banking and our Santander Way app, gaining quick access to advice and transaction assistance. GENTE has already achieved notable metrics, such as 37.7 million of interactions with approximately 70% accuracy and achieving an NPS of 76 points on mobile banking for individual customers between May 2020 and January 2021. All these initiatives illustrate the growing importance of digital channels, which account for 29% of new active customer acquisitions in retail and 74.4% of total bank financial transactions in 2020, 11.2 p.p. higher than a year ago. E-commerce sales grew 41.1% in 2020, compared to 2019.

•Countryside expansion. With the objective of being closer to customers, we have been expanding our physical presence to strategic regions in Brazil’s countryside. These dedicated stores cater to customers in the agricultural sector more effectively. One of our fronts in this initiative is to open additional Prospera Santander Microcredit stores to encourage entrepreneurship and promote financial education. As of December 2020, we had a total of 99 stores, reaching more than 543 thousand customers. Another front is Agribusiness, where we have reached a total of 40 Agro stores (with return in less than eighteen months), alongside the 300 sector-oriented branches.

•Greater empowerment and incentives for branch staff. We have sought to decentralize the management of branch resources. Branch managers are now responsible for managing the expenses of their branches, and generating their branch’s own results report. This independence gives branch employees and managers a stronger sense of autonomy and responsibility, as well as the feeling of being part of their own branch's success. In addition, we have made some adjustments to the compensation structure of branch employees and managers to ensure that the variable components of their compensation depend on the performance of the branch where they work.

•Operational excellence. With the goal of fine-tuning the customer journey and boosting efficiency, we have transformed several aspects of our operational model. First, we switched to an industrial approach, which means that we now have an end-to-end view of the customer experience, reducing manual activities and dispersion, as well as enhancing cost transparency. Additionally, in 2019, we launched a new service model for most of our low-income portfolio, through which we transformed five types of careers into a single business and service manager career, further optimizing our customer service at our branches, generating more business and increasing efficiency. Based on data as of December 31, 2020, these changes have already produced noteworthy results, including: (i) faster service, as the lead time to closing a mortgage loan declined by three days to 25 calendar days in the year ended December 31, 2020 as compared to December 31, 2019; (ii) higher efficiency, with 86.7% of credit card bills being issued in digital format or by e-mail in the year ended December 31, 2020, compared to 61.0% in the year ended December 31, 2019; (iii) more business, as the volume of transactions in the commodities portfolio increased significantly to 729 transactions in the year ended December 31, 2020 from 111 transactions in the year ended December 31, 2019; and (iv) better service, by reducing 96% of the amount of rework involved in opening business current accounts (process improvement) at our branches in the year ended December 31 , 2020 as compared to the year ended December 31, 2019.

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•Strengthening our culture and our people. We believe that committed employees lead to a more sustainable business. With that in mind, we have established clear and horizontal communication of senior management with employees, promoting meritocracy and diversity. In line with this practice, Santander Academy encourages our staff to assume a proactive role in their technical training, with 87% of total employees having attended the academy in 2020. In addition, employees who act as internal multipliers within the Company give 80% of the training. As a result, in 2020 we were recognized by GPTW (Great Place to Work) as one of the best companies to work for in Brazil in which we were ranked 22 positions ahead of the ranking achieved in 2016. We have also been ranked in the top 10 best companies to work for racial and ethnic minorities and women,. We promote and value diversity and, for this reason, we celebrate having women account for 29% of our executive leadership positions and 33% of our Board of Directors, while also having Black employees account for 25% of our total employees across our organization as of December 31, 2020. Moreover, we were recognized as the best company to work for in the financial sector by Exame Magazine’s Diversity 2020 Guide for the second consecutive year.

Finally, aligned with the Santander Group’s sustainable growth strategy, we have has made several public commitments to society, including: (i) having 30% of our leadership positions held by women by 2024 (today women account for 29% of leading roles at Santander Brasil) and; (ii) having 100% of our operations powered by renewable energy by 2025. Furthermore, we committed to eliminating single-use plastics consumption within our organization. Another equally important component in fulfilling our responsibilities to society is the “Prospera” microcredit program, aimed at helping Brazilians in low-income communities to prosper by giving them access to credit and financial products. This program contributed to placing us in the top spot among banks on Fortune magazine’s 2019 “Change the World” list.

In July 2020, along with two other private banks, we presented a plan to the Brazilian federal government dedicated to supporting sustainable development in the Amazon. This plan sets out 10 measures to protect the environment and support the development of the local economy by investing in sustainable infrastructure and protecting the rights of the region's population. We also promoted sustainable enterprises by: (i) leading and structuring the issuance of decarbonization credits (CBIO), resulting in Brazil’s first CBIO deal; (ii) conducting the first green financing in the Brazilian market – in other words, a loan with interest rates tied to sustainable goals; (iii) coordinating the world’s second sustainable-linked bond transaction, amounting to US$ 750 million; (iv) launching a R$ 5 billion credit line for new investments in water and sanitation; (v) relaunching the Ethical Fund, managed by Santander Asset Management, which uses a proprietary methodology with local and global analysis of sustainability criteria; and (vi) launching the ESG-focused Santander Go fund in partnership with asset manager Robeco, which invests in global equities on the basis of sustainability criteria.

As a result of all actions, we received the following 2020 awards:

·Best Bank in the Americas and Brazil (The Banker)

·Best Company in Social Responsibility (Prêmio Notáveis CNN 2020)

·Most Honored Company (Institutional Investor)

·Best Bank In Latin America And The World For SMEs (Euromoney Awards for Excellence 2020)

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·Among The Country’s Leading Companies On Climate Change (CDP)

·Part Of B3’s Corporate Sustainability Index (ISE B3)

·Best Infrastructure Bank In The Country (Latin Finance 2020)

·One Of The Best Companies To Work For (GPTW Brazil 2020)

Our Business

We provide our complete portfolio of products and services to our 27.9 million active customers as of December 31, 2020 through the following business segments:

·Commercial Banking: provides services and products to individuals and companies (except for global corporate customers who are managed by our Global Wholesale Banking). The revenue from this segment is derived from the banking and financial products and services available to our account and non-account holders.

·Global Wholesale Banking: offers a wide range of national and international tailored financial services and structured solutions for our global corporate customers, comprised mostly of local and multinational corporations.

We outline below the business divisions for each of our operating segments, as well as the breakdown of our net interest income and profit before tax by segment:

Commercial Banking

Global Wholesale Banking

·     Retail Banking·     Santander Corporate & Investment Banking (“SCIB”)
Individuals
SMEs
·     Consumer Finance
·     Corporate

  For the Year Ended December 31,
  2020 2019 2018 2020 2019 2018
  Net interest income Operating profit before tax
  (R$ millions)
Commercial Banking (1)  41,457   42,044   39,391   4,666   18,375   12,397 
Global Wholesale Banking  2,985   2,277   2,531   4,998   3,898   3,512 
Total  44,443   44,321   41,922   9,664   22,273   15,909 
(1)Profit before tax reported under commercial banking includes the effects of the hedge for investments held abroad (offset in the same amount in the “Income Tax” line). The effect of the hedge for investments held abroad in 2020, 2019 and 2018 amounted to loss of R$13.583 million, loss of R$1.264 million and loss of R$5,867 million, respectively.

The following table shows a managerial breakdown of our loans and advances by customer type at the dates indicated:

  As of December 31, Change between 2019 Change between 2018
  2020 2019 2018 and 2020 and 2019
  (R$ millions)
Individuals  174,042   156,177   133,603   11.4%  16.9%
Consumer Finance  51,637   48,421   40,964   6.6%  18.2%
SMEs  54,525   53,119   49,624   2.6%  7.0%
Corporate(1)  137,618   89,539   97,742   53.7%  -8.4%
Total Credit Portfolio  417,822   347,257   321,933   20.3%  7.9%
(1)For purposes of loan portfolio presentation, “corporate” includes companies with annual gross revenues exceeding R$200 million, including our Global Corporate Banking customers.

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Commercial Banking

Retail

Individuals

We have structured the individual customer service segment as follows:

· Private Banking – is responsible for customers with at least R$5.0 million in assets available for investment. In this segment, we offer a complete and tailored portfolio of financial products and services, investment advice, loans and asset management through a dedicated manager for investments and banking services.

· Santander Select – is responsible for customers with a monthly income above R$20,000, or a monthly income above R$10,000 and R$30,000 in investments, or more than R$300,000 in investments. The offer here consists of a value proposition with differentiated products and services, exclusive service spaces, relationship managers who serve a small number of customers and provide asset management advisory services.

· Santander Van Gogh – is responsible for customers with a monthly income ranging from R$4,000 to R$10,000, or with investments above R$40,000. Our goal is to understand the needs of our customers at each stage of their lives and provide them with financial advice through a multi-channel solution, including financial products and services, as well as financial advice.

· Santander Especial – is responsible for customers who earn up to R$4,000 per month. Our business model offers simple and efficient solutions with an attractive cost benefit to the customer, primarily through electronic channels.

Furthermore, we also support our Select and Van Gogh customers through our Santander Direct channel. Santander Direct is suited to customers who want more flexible service hours, from 8:00 a.m. to 10:00 p.m., and who prefer using a remote method, such as telephone, e-mail or chat, as well as access to digital channels. This service complements our offering and broadens our capillarity by catering to regions where we do not have a physical presence.

Small and Medium Enterprises (SMEs)

We serve SMEs under the Santander Negócios e Empresas brand, with the following customer service segmentation model:

·Empresas Núcleos (Core Companies) – responsible for companies with annual revenues between R$30 million and R$200 million. Our service model is based on dedicated relationship managers, a team of experts for more complex demands and loan managers specializing in risk management. We also provide specialized services to multinational companies and other major corporations in order to meet their specific needs.

·Empresas Polo (Hub Companies) - responsible for companies with annual revenues between R$3 million and R$30 million. We offer these customers a comprehensive range of products and services through a user-friendly interface.

·Negócios Agência (Branch Businesses) - responsible for companies with annual revenues of up to R$3 million. We offer these customers a simple banking solution through an integrated account that combines a corporate account with a point of sale (POS) terminal hosted by Getnet. Through this arrangement, our customers receive benefits for using the Getnet terminal to process their credit card sales, with receipts being posted to a Santander Brasil checking account.

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·Empresas MEI (Individual Microentrepreneur) - responsible for companies with annual revenues of up to R$81 thousand. We offer these customers a simplified and cost-effective option through our Santander Conta MEI.

In addition, for companies with annual revenues of up to R$300 thousand, we also offer Negócios Direct (Direct Business). Under this segment, customers have direct access to a relationship manager who is available during extended service hours and via remote channels, such as telephone, e-mail or chat, as well as access to digital channels that facilitate the client’s day to day needs.

Consumer Finance

We provide consumer credit to finance motor vehicles, goods and services directly or through intermediate agencies. Santander Financiamentos is our main service channel, but we also operate under multiple brands.

The following table sets forth certain key financial and operating data regarding our consumer finance business for the periods indicated:

  As of December 31, Change between 2019 and Change between 2018 and
  2020 2019 2018 2020 2019
Individual consumer finance loan portfolio market share (1) (%)  25.1% 25.0%  25.4%  0.1 p.p   (0.4) p.p 
(1)Source: Brazilian Central Bank.

Corporate

Our corporate customer segment comprises large companies that have annual gross revenues greater than R$200 million (except for our Santander Corporate & Investment Banking customers). We focus on fostering a close relationship with our corporate customers through managers and specialists geographically distributed across Brazil, providing customer-tailored services with a complete portfolio of local and global products (products from Commercial Banking and SCIB).

Global Wholesale Banking

Santander Corporate & Investment Banking (SCIB)

SCIB is the global business unit that serves customers, who, due to their size and complexity, require tailored services or high-value-added wholesale products. In this segment, we provide a wide range of domestic and international financial services to large Brazilian and multinational companies. Our customer portfolio comprises a range of industries, including telecommunications, retail, aviation, real estate and logistics, power, construction and infrastructure, natural resources, food, agribusiness and financial institutions.

Our customers in the SCIB segment benefit from Santander Group’s global structure of services, which is supported by its worldwide-integrated wholesale banking network and global services solutions, as well as local market expertise and provision of integrated services.

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Our Portfolio of Products and Services

Payments

Credit and Debit Cards

We operate in the credit and debit card market by issuing these products to our customers (including both account and non-account holders), with the majority of customers being individuals. Our strategy is to offer credit and debit cards that are compatible with the income level and lifestyle of each of our customers.

In order to reach a greater number of customers and remain competitive, we launched the SX card in November 2020, as part of the SX strategy detailed below. This product benefits highly engaged and transactional customers, facilitating the exemption from annual card fees. In addition, we also took the opportunity with the SX card to launch a more modern and ambitious card design for our customers.

We also improved our digital journey to provide better customer self-service, which we believe is a key component for higher customer engagement and was especially important in this new cycle. A recent novelty is “Clique e Retire”, a new physical card delivery system that provides autonomy and agility by allowing customers to opt to collect their cards from self-service machines.

The following table sets forth certain key financial and operating data regarding our credit card business for the periods indicated.

  As of and For the Year Ended December 31, Change between 2019 and Change between 2018 and
  2020 2019 2018 2020 2019
Credit card portfolio market share(1)  13.4%  12.9%  13.3%  0.5 p.p   (0.37) p.p 
Credit card portfolio (R$ billion) (2)  37.8   36.1   30.9   (100.0%)  16.8%
Total card turnover (R$ billion) (2)  242.0   236.4   201.6   2.4%  17.3%
Credit card turnover (R$ billion) (2)  158.7   161.0   137.1   (1.4%)  17.4%
Total card transactions (in millions) (2)  2,570.8   2,725.4   2,338.2   (5.7%)  16.6%
Credit card transactions (in millions) (2)  1,300.0   1,450.9   1,206.1   (10.4%)  20.3%
Participation of credit card in the household consumption – Market overview (2)(%)  24.3%  24.5%  23.1%  (0.24p.p)  2.94 p.p 
(1)Source: Brazilian Central Bank, as of December 31, 2020.

(2)Source ABECS – “Monitor bandeiras”. The data relating for the year ended December 31, 2018 has been revised as a consequence of the restatement of the methodology of monitoring issued by ABECS.

Santander Way

Santander Way is an app offered to our cardholders that allows them to manage their Santander Brasil cards at any time. This complete payment platform also works as a digital wallet, enabling customers to conduct instant contactless payments. The app is frequently updated with new features. Some of the most notable features launched in 2020 included: (i) extra loan and installment offers, (ii) virtual cards, (iii) functions for safer online purchases without a physical card, (iv) prepaid mobile recharges, and (v) chatbots for customer service. In 2020, we had 9 million active customers using Santander Way.

Superdigital

Superdigital is a digital, pre-paid solution that allows customers to manage their daily financial activities and pre-paid accounts entirely online through a user-friendly interface.

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Superdigital customers can easily and rapidly (i) make withdrawals in the “Banco24Horas” ATM network; (ii) send and receive money from any bank institution; (iii) recharge prepaid mobile phones; (iv) carry out foreign exchange transactions in up to 10 different currencies; and (v) recharge public transportation passes using an app. In addition to all these features, customers also receive an international MasterCard credit card to make purchases in physical and online stores, and gain access to our rewards and “MasterCard Surpreenda” programs, which offer a range of benefits and discounts.

On February 28, 2020, we sold our entire equity interest in Superdigital to Superdigital Holding Company, S.L. a company indirectly controlled by Santander Spain. For further information regarding this sale, see “See “Item 4. Information on the Company—4A. History and Development of the Company—Important Events.”

Merchant Acquiring Market | Getnet

Getnet is a technology company that offers solutions, both physically and digitally, to individuals and businesses. The acquisition of Getnet, which was completed in 2019, gave us more flexibility, and enabled us to create more complete and tailored solutions for our customers by integrating its services with the Bank.

Through Getnet, we are able to offer a wide array of payment solutions for individuals and businesses, including: (i) mobile and Wi-Fi point of sale or POS devices; (ii) SuperGet, a mobile POS device that self-employed professionals and small companies can buy or rent; (iii) TEF (Electronic Transfer of Funds), a solution for establishments with a significant number of transactions, operating in synergy with the establishment’s systems and offering sales reconciliation through our bank-integrated customer benefits; (iv) Getnet App, which allows users to track detailed sales transactions in real time and amounts that can be anticipated, while also providing business analytics information and richer data sets that business owners can use to better manage their activities, such as best times of the day to sell; (v) Digital POS, a complete solution that can be customized and, when connected to the internet, allows app downloads and the use of integrated management functions; (vi) Getnet Digital Platform, a tool for all e-commerce environments, with integrated services such as safe boxes, recurrence and anti-fraud systems, which is modeled after the “one-stop shop” concept and provides financial intermediation between a marketplace and its storeowners, as well as several other financial services, such as bill generation, and sales conciliation; and (vii) Getnet Digital Store, which is geared towards SMEs, allows users to set up their stores online, and offers a number of services such as a payment platform, alongside visual and fully integrated management.

The following table sets forth certain key financial and operating data regarding our merchant acquiring business for the periods indicated.

  As of and For the Year Ended December 31, Change between 2019 and Change between 2018 and
  2020 2019 2018 2020 2019
  (R$ millions, except as otherwise indicated)
Market share of total turnover(1)  13.6%  11.3%  12.3%  2.3 p.p   (1.0p.p)
Debit turnover  105.8   80.9   73.4   30.8%  10.2%
Credit turnover  167.9   126.6   114.1   32.6%  11.0%
Number of debit transactions (thousand)  1,572,685   1,415,089   1,245,269   11.1%  13.6%
Number of credit transactions (thousand)  1,234,105   1,070,717   893,519   15.3%  19.8%
(1)Source: Data for 2020 is based on ABECS Monitor Bandeiras - Acquirers data for the nine-month period ended September 30, 2020. Data for the year ended December 31, 2020 was not available as of the date of this annual report. For comparison purposes, the difference between September 30, 2020 and September 30, 2019 would be: +2.3 p.p

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On February 25, 2021, further to the Material Facts disclosed on November 16, 2020 and February 2, 2021, we announced that our Board of Directors approved a separation from our merchant payment business, which is undertaken by our subsidiary, Getnet, in order to concentrate the technology and payments businesses of Santander Group within PagoNxt, a new technology-focused global payment platform. Following the potential spin-off of our equity interest held in Getnet, or the “Spin-Off,” which will be resolved upon by our shareholders in an extraordinary shareholders’ meeting, our shareholders would become direct shareholders in Getnet on a pro rata basis. Accordingly, our shareholders immediately prior to the Spin-Off would hold a percentage of equity interest in Getnet in the same proportion as they held in Santander Brasil prior to the Spin-Off. After the approval of the Spin-off by our extraordinary shareholders’ meeting, our shares and units will be traded with the right to receive the shares and units issued by Getnet until the record date, which, once determined, will be disclosed to the market by means of a Notice to Shareholders.

Esfera

Esfera is our loyalty program, which can be accessed through its own website and mobile app. Our loyalty platforms enable our credit card holders to exchange their reward points for many products, services and travel benefits, including exclusive deals and discounts with partners such as Cinépolis, FastShop and Casas Bahia, among others.

Ben

Ben is an employee benefits company that provides greater flexibility, purchasing power and quality of life to its users by creating, supplying and managing various types of employee benefit vouchers (e.g. meals, such as Vale Alimentação and Vale Refeição, as well as transportation) in the form of magnetic cards. These benefits are offered through an integrated digital platform.

Since 2019, Ben has provided transportation benefits in partnership with RB Serviços Empresariais LTDA.

Ben is currently working on sales partnerships and the development of new products, such as gift cards and other benefit options to expand its portfolio.

The following table sets forth certain key financial and operating data regarding our merchant acquiring business for the periods indicated.

  

As of and For the Year Ended

December 31,

  2020 2019 2018
  (in R$ millions, except as otherwise indicated)
Card Purchases  946   560   - 
Number of Cards (in thousands)  217   98   1 
Number of Transactions (in thousands)  12,192   9,534   - 
Merchant accredited (in thousands)  338   253   4 

For further information, see also “Item 4. Information on the Company—A—History and Development of the Company—Important Events.”

Payroll Loans

Payroll loans support both account and non-account holders in the execution of projects and financial organization. Under these loans, monthly installments are deducted directly from the borrowers’ paychecks by their own employers, and then credited to Santander Brasil, significantly reducing our credit risk. We offer these payroll loans to our customers through our mobile banking platform and our branches. Our customers can refinance their payroll loans, as well as choose from other options to help them manage their debts. Furthermore, these loans are also offered to non-account holders through Olé Consignado. For further information on relevant events relating to Olé Consignado’s corporate events, see “Item 4. Information on the Company—A—History and Development of the Company—Important Events.”

The following table sets forth certain key financial and operating data regarding our payroll loans as of the dates indicated.

  As of December 31, Change between 2019 and Change between 2018 and
  2020 2019 2018 2020 2019
Market share in origination (1)  22.3%  13.2%   12.2%   9.09 p.p   1.01 p.p 
Payroll loan portfolio (R$ billion)  48.1       43.0      33.8       11.9%   27.1%
(1)Source: Brazilian Central Bank, as of December 31, 2020, December 31, 2019 and December 31, 2018, as applicable.

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SIM

SIM is a digital lending platform for individuals through which customers can apply, and be approved, for a loan completely online. After 15 months of operation, SIM has already achieved a positive net profit, a loan portfolio of R$700 million as of December 31, 2020 and a market share of 0.5%. as of December 31, 2020. SIM also has a high level of customer satisfaction, with an NPS of 80 points.

emDia

emDia is an online debt renegotiation platform. It provides customers with a simple platform to access debt renegotiation services on a 24/7 basis. As of December 31, 2020, emDia had 4 million customers and had contributed to the recovery of R$46 million in credit volume in 2020.

Mortgages

We offer long-term financing to our customers for real estate purchases, secured by deeds of trust. We consider mortgages to be a strategic product due to their lower risk (since the acquired property serves as collateral) and their ability to increase our customer loyalty (especially since we offer customers more attractive rates if they choose to bank with us). In this market, our customers, and those of our competitors, are primarily individuals.

We do not offer mortgage loans that do not meet prime lending regulatory standards, which means that (i) we do not finance more than 90% of the value of the property to be purchased, (ii) borrowers must meet certain minimum monthly income levels evidenced by recent payroll information and tax returns to confirm their employment status or other revenue sources, allowing us to evaluate their credit risk profile, and (iii) any other indebtedness added to the financing cannot exceed 35% of the borrower’s monthly gross income.

To facilitate the process for our customers, we provide a real estate digital platform where customers can obtain mortgages completely online. We were the first bank in Brazil to offer customers the opportunity to secure a mortgage without being physically present, except for the signing of the agreement and returning it duly registered. We have a partnership with the largest real estate platform in Brazil in order to improve our sales network and strengthen our digital presence.

The following table sets forth certain key financial and operating data regarding our mortgage business for the periods indicated.

  As of December 31, Change between Change between
  2020 2019 2018 2019 and 2020 2018 and 2019
  (in R$ billions, except percentages)
Mortgage loan portfolio  45.8   39.7   36.3   15.4%  8.3%
Individual sector mortgage loans  44.0   37.2   31.4   18.3%  18.4%
Loan to value(1) – Production (% quarterly average)  64.9%  62.9%  60.6%  2.00 p.p   2.31 p.p 
Loan to value – Portfolio (%)  52.2%  49.4%  48.7%  2.75 p.p   0.73 p.p 
(1)Ratio between loans and the value of the collateral, excluding home equity.

Home Equity

In our portfolio of loan products, we also offer a “home equity” financing product called “Use Casa”, where customers can receive a loan and provide real estate as collateral. This product enables customers to access financing to pursue their personal objectives. “Use Casa” experienced a marked increase in market share, achieving an overall market share of 29.5% in 2020 as compared to 20.5% in 2019.

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We do not offer home equity loans that do not meet prime lending regulatory standards, which means that (i) we do not finance more than 60% of the value of the property, (ii) borrowers must meet certain minimum monthly income levels evidenced by recent payroll information and tax returns to confirm their employment status or other revenue sources, allowing us to evaluate their credit risk profile, and (iii) any other indebtedness added to the financing cannot exceed 35% of borrowers’ monthly gross income.

To facilitate the process, customers can obtain home equity loans completely online through our real estate digital platform. When using this option, customers only need to be physically present when signing the contract and also when returning it once it is duly registered.

Tailored Products and Services

As mentioned above, we offer a complete set of services and products worldwide. In this way, we have a portfolio that ranges from basic to tailor-made and highly complex solutions in the following areas:

·     Global Transaction Banking - responsible for the sale and management of local and global transactional banking products, which includes local loans, commercial finance, transfers of BNDES on-lending, guarantees, structured loans and cash management solutions.

·     Global Transactional Services - responsible for sales and management of global transactional banking, trade finance, guarantees, structured loans, and funding from international banks.

·     Global Debt Financing - includes funding and financial advisory services related to projects, origination and distribution of fixed-income securities in the debt capital markets (DCM), financing of acquisitions and syndicated loans, other structured financing arrangements, subordinated debt and energy efficiency transactions.

·     Investment Banking - offers advisory services for mergers and acquisitions (M&A) and equity capital markets transactions, including initial public offerings and follow-on offerings.

·     Equities – provides stock brokerage and advisory services, equity services for individuals, corporate, and financial institutional investors in stocks, derivatives, as well as equity research.

·     Treasury Customers - responsible for structuring and offering foreign exchange, derivative and investment products for customers from several segments of Santander Brasil, including institutional investors, corporate and retail customers.

·     Market Making - responsible for the pricing of customer deals originated by our sales force from corporate, institutional, private banking and retail segments. This department also conducts our proprietary trading activities.

We are one of the leading banks in capital markets and financial advisory services in the Brazilian and international markets as evidenced by the awards we have received, of which the most significant are listed in the table below.

CompanyAcknowledgments
Dealogic

First Quarter of 2020

#2 M&A LatAm - Deal Announced¹

#3 M&A Brasil - Deal Announced¹

#6 M&A Brasil - Volume Announced¹

#4 ECM Brasil - Deal Announced2

#11 ECM Brasil - Volume Announced2

#1 Global Financial Advisor - Deals Announced (Brasil in the International Markets)

#1 Global Renewables MLA - Deals & Volume Announced

#1 Global Renewables MLA - Deals Announced

#1 Americas MLA - Deals Announced

#1 Americas Financial Advisor - Deals Announced

#1 LatAm & Caribe MLA - Deals & Volume Announced

#2 Global Financial Advisor - Volume Announced (Brasil in the International Markets

#2 Americas Renewables MLA - Volume Announced

#2 Americas Financial Advisor - Volume Announced

#3 Americas MLA - Volume Announced

#1 Global ECA Financing Volume by MLA

#1 LatAm & Caribbean ECA Financing Volume by MLA

OBS:

GDF: Position 2019 FY

IB: (1) excludes fairness opinions / (2) Not included deals made in the EUA – YTD´20

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Global Finance

Best Provider of Short-Term Investments/Money for 2020

Market Funds in Latin America for 2020 

Best Trade Finance Bank in LatAm 2020

World´s Best Payment Hub Solution for 2020 

Best Supply Chain Finance Provider in LatAm 2019

Best Trade Finance Provider in LatAm 2019

Institutional Investors

#1 The Latin America Strategy Team                           

First Quarter of 2020

#4 The Latin America Sales Team

# Sales Trading Institutional Team 

#5 Research Team

TMI Awards

Best Trade & Supply Chain Finance Bank in South America 2020

B3

#2 Derivatives

October 2020

FX Markets

Best Bank for emerging LatAm currencies 2020

Best Bank for LatAm 2020 

Best Bank for USD/BRL 2020

Global Trade Review

Best Trade Finance Bank in LatAm 2020

First Quarter of 2020

Best Deal Award Route 2020
Best Supply Chain Bank 2020

Bond Radar

#1 DCM Distributed in the International Market

Full Year 2020

Brasil Bonds & Corporate Bonds

Trade Finance an IJ Global

Best Supply Chain Finance Bank 2020

Best Receivables Financier 2020 

PFI Awards

Global Adviser of the year                           

First Quarter of 2020

Anbima

#3 DCM Distributed in the Local Markets                   

First Quarter of 2020

#3 3 DCM Originated in Local Markets– Fixed Income Consolidation
Project Finance                                                              Full Year 2019
Financing advisory #1 Announced value and Nº Deals
Concession Auction Financial Advisor #2 Announced values and #2 Nº Deals
Structuring #5 Announced value #3 Nº Deals

Risk Net

Risk Solutions House of the Year 2020

Deals: Cosan (EDQ) / Syngenta (Special Sits)

Latin Finance

Financial Advisor of the 2020: LatAm

Bacen

#1 Total FX                           

May 2020

The Banker

Most innovative investment bank of the year for structured finance 2019

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Customer Solutions

Santander SX

As required by the new Brazilian instant payment system, PIX, which was established by the Brazilian Central Bank, we developed Santander SX, a system that allows individual and corporate customers to instantly transfer money, at any time, free of charges, in a practical and safe way.

In the fourth quarter of 2020, we introduced SX. We believe that SX is complementary to the Brazilian Central Bank’s instant payment solutions, by offering exclusive benefits to customers, including 10 days of interest-free overdraft for individuals and five days for businesses. Since its launch in November 2020, we have processed more than 36 million PIX transactions (sent and received), totaling more than R$ 43 billion, through SX. More specifically, regarding the financial volume of PIX sent, we achieved a share of 15% in the fourth quarter of 2020, outperforming our regular market share in the credit market.

Agribusiness

Agribusiness remains one of our key areas of expansion, and we believe that expanding our agribusiness network will help broaden our reach into the Brazilian countryside to strategic areas in which we are not yet present. We provide a full range of products and services focused on the agribusiness sector. Our approach towards rural producers differs from the one taken with our other customers in that we offer a specialized relationship to our rural producers. We believe that a network of physical stores and digital solutions will result in a more agile and efficient communication with these customers.

The following table sets forth certain key financial and operating data regarding our agribusiness for the periods indicated.

  As of and For the Year Ended December 31, Change between Change between
  2020 2019 2018 2019 and 2020 2018 and 2019
           
Number of agribusiness-focused stores  40      34      21      6%    13% 
Agribusiness loan portfolio (R$ billion)  13.7   10.9   11.8   26.2%  (7.9)%) 

Microfinance

We believe that Prospera Santander Microfinance is a leading microcredit-oriented operation among privately owned banks in Brazil, based on market share and portfolio value. This product aims to support formal and informal microentrepreneurs by generating business and income. With a 100% digitalized service process, in addition to products intended to improve business management skills, we have customers who hire us for services previously not available to them, because they do otherwise have access to financial services, such as property finance, consortium and investment services.

  As of and For the Year Ended December 31, Change between 2019 and Change between 2018 and
  2020 2019 2018 2020 2019
Number of Prospera stores  99   100   45   (1.0%)  122.2% 
Microfinance loan portfolio (R$ billion)  1.3   1.2   0.7   8.3%  79.1%

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Webmotors

Webmotors is the first and largest Brazilian technology company focused on providing automotive purchase and sale solutions for dealers, original equipment manufacturers and private sellers, holding the largest online automotive listing in Brazil.

Webmotors received over 30.2 million visits each month and had an average of over 3.9 million vehicles listed in 2020. Through the Cockpit, a pioneering and disruptive platform for car dealers, which combines solutions for the entire chain described above, we offer the following solutions: business management/performance, buyer profile (CRM), data intelligence, predictive pricing models and market data (AutoGuru).

We have also launched “+Fidelidade,” a loyalty program aimed at offering incentives to our agents based on their loyalty and relationship level with Grupo Santander Brasil and Webmotors. We have sought to improve customers’ after-sales experience through several functionalities made available on an online portal.

During 2020, we launched two service products, Car Delivery and “Troca com Troco” in partnership with Webmotors.

Through Car Delivery, customers seek virtual assistance through video calls, resolve concerns online, and receive their vehicle at home, sanitized and with all necessary support. “Troca com Troco” allows customers to sell their current financed vehicles while financing the purchase of a less expensive vehicle, and pocket the difference. This product allows the Bank to better manage credit exposure and control the credit quality of the portfolio with leading customer service.

Santander Auto

In 2019, we launched Santander Auto, a fully digital car insurance solution which relies on the use of big data analytics for pricing.

The Brazilian insurance market is characterized by: (i) low insurance penetration as a proportion of GDP; (ii) low technological evolution, dominated by companies with low innovation rates, still focused on financial results (due to a history of high interest rates); and (iii) retail brokers as the main distribution channel. As a result, the subscription process still requires that the customer complete a question form (approximately 40 questions). As a result, only approximately 20% of Brazilian vehicles are insured.

Actuarial techniques and behavioral models enable Santander Auto to make an insurance proposal, without making additional information requests from the customer, based on information already available to us.

During its first year of operation almost 110 thousand policies were sold, which represents a penetration rate of 16% (i.e., total insurance contracts sold as a percentage of the contracts relating for loans by Santander Financiamentos). These results are based on a pricing system based on information bureaus which provides have a more accurate price, which makes it possible to make an offer at the time the vehicle is purchased, and which enables customers to include insurance in their purchase with a single click. During 2020, we focused on consolidating our insurance offer, by ensuring that all customers have at least one insurance offer, while also covering the most diverse types of risk. We intend to expand the business through the optimization of our ecosystem and penetration in our customer base.

+ Negócios and + Vezes | Santander Financiamentos

In 2017, we launched “+Negócios,” which we believe to be an innovative digital trading platform. This simple and intuitive platform enables faster execution of loan simulations, receipt of credit approval and proposal formalization for vehicles, in addition to providing portfolio management reports. In the same year, we also introduced “+Vezes”, a digital trading platform allowing retailers to offer installment payment options for the sale of goods and services.

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In 2020, approximately 15 million separate Brazilian individual taxpayer identification numbers were used to simulate vehicle leasing through the “+Negocios” platform, which makes us one of the most widely used platform in Brazil’s vehicle leasing market.

We also reformulated the “+Vezes” platform in 2020 to improve customer experience and the platform's stability. We also increased our sales force in this business through sales representatives giving us a presence throughout Brazil.

Cash Management

We offer cash management solutions to corporate customers and SMEs online through our Internet banking and mobile banking services.

Our revenues from cash management include fees charged for offering the following products: (i) collections, in which we assist customers in carrying out commercial transactions using printed or online payment slips; (ii) payments, consisting of simple and automatic management of our customers’ accounts payable activities through individual transactions or via electronic file transfer; (iii) payroll, which is intended to facilitate the management of salary and benefits payments to our customers’ employees via an online tool; (iv) collection of values, which consists of the payment of cash values and checks at the customer’s points of sale; and (v) custody, by which we perform the custody, control and deposit of predated checks up to the date of clearing.

In addition, we also provide other revenue-generating products which are structured and tailored to the customer’s operation.

Customer Funding

Our main sources of liquidity are customer funding through deposits and other bank funding instruments. These deposits, combined with equity and other instruments, enable us to meet most of our liquidity and legal reserve requirements.

For further information, see “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Liquidity and Funding.”

Investments

Our investment process for retail customers seeks to provide qualified guidance and help them achieve their financial objectives based on four major pillars:

·Client investment profile - We assess our customer’s situation to understand their level of financial knowledge, investment horizons, liquidity needs and the levels of risk they are willing to assume, among other factors. This analysis is reviewed periodically, according to the customer’s needs and local regulations.

·Investment strategy - Our investment philosophy aims to provide long-term returns through a structured asset allocation process and mitigate market risks by diversifying among different asset classes.

·We define strategic portfolios for each customer profile and build our “Model Portfolio” on a monthly basis according to market conditions and trends. This tactical view arises from the Asset Allocation Committee, which consists of economists from our economics department, our Santander Asset Management division, our Private Banking unit and our brokerage house (Santander Corretora).

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·Execution and implementation - To assure a successful execution of investment strategy, we provide a complete array of financial products, ranging from banking instruments, bonds, stocks, structured notes, investment funds with an open architecture and selected investment providers, real estate funds and exchange traded funds, among other capital markets instruments. Our partnership with Zurich Santander completes this offering with a wide range of private pension plans. Furthermore, our recent acquisition of Toro Corretora has further enhanced our PI DTVM investment platform by expanding our product offering. For more information regarding this acquisition, see “—A. History and Development of the Company—Important Events— Purchase of Equity Interest over Toro Controle e Participações S.A.”

·Follow-up - Our advisory team performs, along with the client, a thorough and frequent revision of their profile, objectives and results, seeking to keep their investments within the established parameters and Model Portfolio’s guidance.

In order to identify possible deviations from the investment profile’s recommended positions, we also rely on automated monitoring systems. These controls alert customers of any transactions that compromise the suitability of their portfolio and are in line with our commitment to protect our customers’ interests.

Furthermore, each customer has direct access to their positions through a private access site on the Internet and Mobile App, where they can view the evolution of their investment strategies.

Programa Avançar

We also have a non-financial solution, known as “Programa Avançar”, which is aimed at entrepreneurial customers. Through this solution, SMEs can access content and solutions related to management and innovation, internationalization, team building, and other topics relevant to businesses via a web platform. We see this program as a key component of our offering to Brazilian entrepreneurs.

In addition, we offer a digital account solution to these customers, especially individual entrepreneurs.

Similarly, we offer “Santander Copiloto”, an enterprise resource planning tool designed for our SME customers. This tool is integrated with the Santander Digital channels, and provides solutions such as e-commerce, sales point software and tax compliance.

Service Channels

We offer our financial services and products to our customers through our multichannel distribution network composed of: (i) physical channels, such as branches, mini-branches and ATMs; (ii) call centers; and (iii) digital channels, such as Internet banking and mobile banking.

Physical Distribution Network

Our distribution network provides integrated financial services and products to our customers. The following table presents our physical distribution network as of the dates indicated.

  As of December 31,
  2020 2019 2018
Branches    2,153     2,328   2  ,283 
Mini-branches    1,411     1,512     1,267 
Own ATMs  12,949   13,296   13,641 
Shared ATMs  23,798   23,780   23,049 

Branch Network

Our branch network offers our entire portfolio of products and services to our customers through a personal and customized approach. The table below shows the geographic distribution of our branch network as of the dates indicated.

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   As of December 31,
   202020192018
Northeast    9%  9%  8%
North and Midwest    7%  7%  7%
Southeast  70%70%71%
South  14%14%14%

PABs (Mini-branches)

We offer daily banking services to our SMEs, as well as corporate customers and their employees through our PABs (“Postos de Atendimento Bancário”), which are exclusive sales points located at our customers’ buildings, as well as in hospitals and universities. The presence of PABs in our customers’ offices strengthens our relationship and builds loyalty with those customers, who benefit from the convenience of conducting their banking transactions at their workplace.

ATMs

We operate an extensive network of 12,949 ATMs, including those located in our branches and mini-branches. In addition, our customers have access to the “Banco24Horas” network, which operates 23,798 ATM units. Through this network, our customers can access their accounts and conduct banking transactions, as well as purchase most of the products and services available in our portfolio.

Call Centers

Our call centers provide active Santander Brasil customers (account and single product holders) with consultation, financial transactions and product hiring services. This important distribution channel has a variety of customer self-service facilities. Our call centers received over 150 million contacts in 2020.

Digital Channels

Our digital channels include Internet banking, mobile banking and other digital solutions aimed at facilitating our customers’ access to the products and services that we offer. We highlight the following key features:

·OnePay – This service is available through the Santander App and enables customers to transfer funds to foreign countries in various currencies.

·Santander On “Financial control” – Through the Santander App, customers can access this service to view all of their commitments to us, as well as pending issues with the Brazilian tax authority (Receita Federal do Brasil), Serasa (a Brazilian credit bureau) and the Brazilian Central Bank, thereby enhancing the transparency of the credit relationship with Santander Brasil. Customers can easily access credit quality information and the use of debt with Santander, as well as easily update income data without having to present any payroll or tax documents, and readjust available limits.

The following table provides certain key operating information with regards to our digital channels as of the dates indicated.

  For the Year Ended
  December 31,
  2020 2019 2018
  (in millions)
Number of digital customers(1)    15.6   1  3.4   1  1.4 
Number of digital channel transactions(2)  5,262   4,311   4,073 
(1)We define digital customers as those who used at least one of Santander Brasil’s digital channels (e.g., mobile banking and internet banking) in the 30 days preceding the end of the applicable year.

(2)Refers to transactions carried out through internet banking, mobile banking and other digital platforms. The data relating to the year ended December 31, 2018 has been revised due to a change in the criteria applicable to digital transactions accounting.

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The following table provides an overview of the weight of each key distribution channel in our overall distribution system.

   For the Year Ended
   December 31,
   202020192018
   (%)
Internet banking  36.939.746.1
ATMs  5.98.910.4
Mobile(1)  48.039.034.5
Branch  2.24.15.2
IVR(2)  6.17.42.3
Call Center  0.80.91.4
(1)Refers to total transactions (account holder and unique product-holder).

(2)Interactive voice response is an automated telephone system in which a computer interacts with callers (who can use their voice or the telephone keypad to communicate with the computer), gathers information and transfers caller to the appropriate representative.

In addition to Internet banking and mobile banking, we have digital solutions that play an important role in providing a better digital experience for our customers and potential customers, including:

·Digital account opening – Customers can open an account with Santander Brasil entirely online.

·Artificial Intelligence GENTE – Launched in 2020, this solution offers a more personalized digital service that provides greater autonomy for our customers.

·LAB 033 – Launched in 2019, this is innovation laboratory is focused on creating new solutions that can support transformational projects across our organization.

·Santander Corretora App - A digital trading platform offered to our brokerage customers.

·Autocompara - Allows customers to obtain insurance quotes from six different insurance companies and purchase the best offer through Autocompara’s website.

·Pi DTVM – Acting as a digital broker since 2019, this solution empowers customers to invest through a simple and intuitive digital platform. PI DTVM also provides market information and financial education tools.

Technology and Infrastructure

In 2020, we optimized our technology investments, in order to provide more efficiency, digitalization, security and quality to the products and services provided to our customers. In the challenging scenario brought by the COVID-19 pandemic, we took on the important role of serving as an ally to our customers and the Brazilian economy. Through sizeable investments in technology and enhancements to the capabilities of our channels and digital platforms, we were able to quickly face up to the new reality, while simplifying internal processes and business models.

We established a new technological innovation center (Lab 33) in the city of São Carlos (in the state of São Paulo) and built partnerships with local universities and technical schools in order to identify and recruit qualified talent. In addition to creating job opportunities in São Carlos, this innovation center resulted in the creation of other direct and indirect positions in our technology ecosystem. Furthermore, we boosted the agility and scalability of our software development and deployment processes, while increasing automation levels and adopting advanced cloud computing and artificial intelligence solutions. We have listed below a few other initiatives delivered throughout the year:

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·GENTE: in order to speed up and optimize the digital services provided to our customers, we released GENTE, a virtual self-service assistant that customers can use to search for information, ask questions, access account statements, review credit card limits, as well as to perform financial transactions such as transfers and invoices payments, all through the Santander Mobile App, our commercial portal, WhatsApp or Santander Way.

·Santander SX: as required by the Brazilian Central Bank, we developed Santander SX, an instant payments platform that allows individual and corporate customers to make money transfers that reach the recipient’s account in a just a few seconds 24 hours a day. Transactions can be performed from transactional account identifier directory (or “DICT”) keys, such as e-mail address, cell phone number, national tax number as well as static and dynamic QR codes.

·Individual Bank Account (Mobile): in order to enhance our customers’ experience, we improved our mobile app services by adding new consulting and sharing features to our individual account mobile app, including the ability to generate credit card invoices in portable document format, or “PDF”, check date and time of the last balance update, as well as view all charges and number of days the overdraft account was used.

·Corporate Bank Account (Mobile): in line with our sustainability goals, we launched a new digital service for our corporate customers that offers paperless processes and greater agility in opening new accounts, with a strong lead-time reduction from a few hours to just a few minutes to open an account. Since the launch of this new service, over 20,000 new corporate accounts have been opened using this service.

·Credit Cards: in addition to offering our customers the option of acquiring credit cards through our digital channels, we now provide new after-sales services, such as sending digital invoices and card passwords via text messages. In December 2020, over 74% of credit card invoices were made available via digital channels, while 91% of card passwords were sent via text messaging.

·Car Insurance: our car insurance services are offered through a 100% digital platform, where customers may perform simulations, request inspection services and sign-up for insurance contracts spanning over 12, 24 or 36 months. This new platform aims to boost sales through simple navigation, reduce average quotes and contract time, as well as increase the number of insurance contracts and total premium amount.

·Mortgage Services: we have improved the after-sales experience of our real estate loan customers. Our customers can access relevant information about their contract through a single page on our web portal, including total contract amount financed, balance due, overdue balance, interest rates and maturity date, as well as installment due payments.

·Security and Antifraud: we have expanded the types of electronic authentication methods available, so that our customers can validate transactions via biometry, QR code (Santander ID), Token ID and credit card passwords. We have also developed the fraud alert center, an antifraud solution designed to send alerts to customers about events identified while accessing our digital channels or any changes to the information registered in our databases. These actions contributed to protecting our business and our customers from sensitive information leaks or exposure.

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Communications and Marketing

We use and monitor several tools in order to communicate effectively with our customers. These include not only traditional media, such as television and printed media, but also the internet, mobile advertising and social networks.

Even though social isolation prevented in-person events in 2020, our customer outreach, conducted through direct communication across all available media, including social networks, remained unaffected. We regularly provided information through these channels, seeking to make a real and positive difference in the lives of our customers. Such information included guidance on how to access credit lines and other government-sponsored initiatives to combat the COVID-19 pandemic, as well as information on the solutions we introduced, such as our mortgage rate reduction, deferral of loan installment payments and vehicle financing with auto insurance, without inspection. Internally, we released more than 200 videos aimed at instructing our teams on how to best-serve our customers, and guidelines to prevent COVID-19 in the workplace. Externally, we ran more than 192 video advertisements on TV and social networks. Our communications campaign generated significant feedback, with more than 34,000 articles published in newspapers and magazines, as well as more than 20 stories featured in Brazilian national media outlets. On social media, we averaged 10 posts per day, with nearly 800 million impressions. We also launched new media formats on networks such as Spotify (podcast) and TikTok. Additionally, we conducted more than 150 live broadcasts and events where our senior management, as well as experts and government officials were invited to address several topics, including the current economic scenario, social investment, sustainability, diversity, women’s leadership, entrepreneurship, and culture and entertainment. The Third Edition of Global Citizen, organized in collaboration with newspaper Valor Econômico and featuring actress and activist Viola Davis and Esther Duflo, the youngest person ever to win the Nobel Prize in Economics, received more than one million views. Also, the 21st Annual Santander Conference focused on discussing actions to fight COVID-19, with the participation of major chief executive officers, public authorities and our leadership. The conference was broadcasted on YouTube, garnering a total of 6.1 million views.

Sustainability

In Brazil, sustainability governance is based on global guidelines, locally identified commitments and demands, and our local business strategy. Decision-making goes through the Board of Directors, the Executive Committee and the Sustainability Executive Superintendents. The Sustainability Committee is responsible for providing clarification and recommendations to the Board of Directors regarding the development of sustainability-related guidelines.

We have organized our activities to create what we believe to be one of the best financial platforms in Brazil and to serve as an agent for the transformation and prosperity of society. This involves promoting sustainability through our business, operations and relationships. We have directed our efforts to improve Brazil’s business environment, which allows people to live up to their full potential and strategically promote the use of Brazil’s natural capital.

This stance is present in the three pillars of our sustainability strategy, which reflects Brazil that we want to help build, together with our employees, customers, shareholders and society, while also contributing to the UN’s Sustainable Development Goals (“SDGs”): surrounding a Resilient and Inclusive Economy, the Development of Potential and the Efficient and Strategic use of Natural Resources.

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Resilient and Inclusive Economy

Our broad commercial activity allows us to advise and support all of our customers and projects. Our role is to be a facilitator and contribute to the generation of jobs and income, and the improvement of logistics and infrastructure for Brazil’s development.

Through this pillar, for example, we offer access to banking services, products and non-financial initiatives.

We have specific products to support micro entrepreneurs and SMEs, such as the “Prospera Santander Microfinanças”, “Programa Avançar” and “Parceiros em Ação” programs. Additionally, we increasingly seek to include the topic of financial management in the client's relationship with the Bank, using tools such as Santander On.

In 2020, by digitalizing our initiatives, we reached 156,000 participations in financial education initiatives. This number includes content for our social networks, as well as live streams and podcasts on personal financial management and investment. For the first time during the national financial education week, our customer services team, or “SAC,” offered personalized financial advice to customers.

Furthermore, Santander Brasil launched several benefits to support customers and companies during the COVID-19 pandemic, including the “A Gente Banca” program, as well as long term payroll loans, installment extensions, and service packages aimed at individual microentrepreneurs among others.

Development of Potentials

Our commitment to the development of potential begins with our employees. We have ranked as one of the best companies to work for in the Great Place to Work, or GPTW, survey since 2016. Guided by our corporate culture and internal policies, we offer opportunities that promote development and professional growth, in order to build a culture of delivering results, respect, innovation, inclusion and diversity.

We work to create a culture of respect, inclusion and equity, where everyone can develop their talents with their unique attributes. Diversity is one of the five principles of our Code of Ethical Conduct. Our priorities are gender and racial equity, inclusion of LGBTI+ and people with disabilities, as well as diversity of experience and generational diversity. Since 2018, we have set inclusion targets for Afro-Brazilian employees in the bank and female employees in leadership, which in 2020, were 27.4% and 28%, respectively. As of December 31, 2020, our Afro-Brazilian and female employees accounted for 25.3% and 28.8%. Additionally, in 2020, we received two diversity awards from GPTW: one for our ethnic-racial practices and another, for the fourth time, as one of the best companies for women to work.

Through the Santander Universities Program, we offer initiatives focused on granting national and international scholarships, programs for entrepreneurial development, as well as internship and employment programs. On December 31, 2020, about 24,900 scholarships and entrepreneurships were granted with a total investment of about R$27.2 million.

We also contribute to the promotion of children and adolescents’ rights. Through the “Amigo de Valor” program, Santander Brasil, employees and customers may directly donate a part of their due income tax to the Funds for the Rights of Children and Adolescents (“Fundo dos Direitos da Criança e do Adolescente”). In 2020, this program raised R$15.7 million.

In 2020, we took several steps to support society during the COVID-19 pandemic:

·Between March and December 2020, we donated more than R$100 million to initiatives to mitigate the impact of COVID-19;

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·We raised R$3.5 million, and donated another R$3.5 million, out of the R$100 million mentioned above, to five hospitals to create new intensive care units and purchase personal protective equipment;

·In partnership with the other two main private banks in Brazil, we helped lower income women manufacture and distribute more than 17.7 million protective cloth masks. This initiative allowed us to help support their income during the pandemic while also providing masks to those in need;

·Our employees donated about 790 tons of food, clothes and hygiene products, to over 500 non-governmental organizations around Brazil, impacting more than 170 thousand people;

·Through our volunteering program, 83 volunteers interacted weekly with elderly people living in shelters supported by “Parceiros do Idoso” in order to give them company and support.

We also organized a 12-hour live festival, streamed on television and radio to help single mothers in deprived communities across Brazil and raised R$3.5 million to the support the “Mães da Favela” project. With our donation included, we are giving a total of more than R$7 million to more than 20,000 mothers through SuperDigital. Through this initiative, we can also introduce these families to our banking services.

Efficient and Strategic Use of Natural Resources

We are implementing changes that contribute towards the goal of helping Brazil make responsible and efficient use of its environmental resources and move towards a low-carbon economy. Our activities include, in addition to the responsible environmental management of our operations, financing and advising companies in the fields of infrastructure and renewable energy, and providing support for sustainable agribusiness.

In 2020, Santander Brasil made important public commitments towards Brazil’s sustainable development, such as the introduction of a R$5 billion credit line for new investments in water and sanitation, as well as the “Amazon Plan” that was launched in partnership with the two other private banks in Brazil. In addition, we believe we are at the forefront of environmental, social and governance matters, or ESG, in Brazil, evidenced by the offer of ESG-linked loans and Renovabio products to customers.

The total amount of environmental, social and governance, or ESG, financing which Santander Brasil provided through Santander Financiamentos, responsible agribusiness, corporate, retail (individual and corporate customers), project finance, Santander Corporate, and investment banking, including green bonds, totaled approximately R$27 billion.

Since 2002, we have adopted social and environmental parameters in risk analysis of credit concession for projects and companies. The assessment carried out by specialized professionals may result in conditions or restrictions for companies to operate with the Bank. For customers with revenues of over R$200 million, this analysis may also influence credit rating, affecting rates, limits, terms and guarantee requirements.

In relation to internal environmental management, we have been carbon neutral since 2010, by completely offsetting our Scope 1 and 2 emissions. Also, since 2013, we follow a methodology for selecting projects from which to purchase Verified Emission Reductions (“VERs”), to ensure the social and environmental benefits for that region. In recent years, we have been purchasing VERs from reforestation and renewable energy ventures.

In 2019, we committed publicly to:

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·reducing single-use plastic consumption at Santander Brasil, by launching the #Desplastifique program. The implementation plan started with administrative buildings, in 2019 and was scheduled to be completed during the course of 2020. However, due the COVID-19 pandemic, we expect that it will be fully implemented in all branches by the end of 2021; and

·powering 100% of our operations with renewable energy by 2025. In December 2020, approximately 47% of our consumed electricity was derived from renewable sources.

We improved our “Paperfree” program in 2020 to encourage digitalization, promote the use of rational resources and eliminate bureaucratic processes. The goal is to try to eliminate the use of postal stamps. As a result of the program, at our administrative buildings and stores, we collected and recycled around 72,000 stamps.

Socio-Environmental Responsibility Policy

Our Socio-Environmental Responsibility Policy, or “PRSA”, meets the requirements of CMN Resolution n° 4.327/14 and SARB Regulation 14 of FEBRABAN. These regulations define guidelines and consolidate specific policies for socio-environmental practices in business and relationships with certain parties. These practices include socio-environmental opportunities and impacts, and risk management such as suitability in granting and using credits, management of suppliers and socio-environmental risk analysis. In 2020, the vice-president of Legal Issues joined our PRSA Senior Group, which consists of our vice-presidents of Risks, Corporate, Human Resources, Finance and Communication, Marketing, Institutional Relationships and Sustainability, and officers of Agribusiness and Compliance. This Group is involved in decision-making related to the PRSA and operates in connection with our Executive Committee.

Competition and Industry Transformation

Currently, there are five commercial financial institutions at the forefront of the Brazilian financial industry in terms of assets: Santander Brasil, Bradesco, Itaú Unibanco, Banco do Brasil and Caixa Econômica Federal. Together, these financial institutions accounted for 73.2% of the credit and 75.2% of the deposits available in Brazil as of December 31, 2020, according to the Brazilian Central Bank and the financial statements of the aforementioned banks.

The following table shows the total loans and deposits of the five leading financial institutions in Brazil at the dates indicated:

  Santander Brasil Bradesco Itaú Unibanco Banco do Brasil Caixa Econômica Federal (2) Financial System
  December 2020 (R$ billion)
 Total loans(1)   411.7   510.3   508.6   681.8   756.5   2,868.9 
 Total deposits(1)   384.9   545.3   786.6   437.0   512.9   2,666.7 

(1)According to the Brazilian Central Bank, reported and presented in accordance with Brazilian GAAP (December 2020).

(2)Represents total loans and deposits of Caixa Econômica Federal as of September 2020 because as of the date of this report, Caixa Econômica Federal had not disclosed the information for December 31, 2020.

Insurance Coverage

We maintain insurance policies that are renewed annually in order to protect our assets. All of our branches, affiliates and administrative buildings are insured against losses caused by fire, lightning, explosions and other risks. Such coverage establishes reimbursement for the asset replacement value.

In addition, we also maintain the following insurance policies:

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·policies against material and/or bodily damage caused to third parties for which we are held responsible;

·policies against financial losses due to fraud or employee misconduct, among others;

·directors’ and officers’ insurance policy for our management against third-party complaints regarding management acts. There are insurance policies against crimes, employee dishonesty and damages arising out of public offerings; and

·policies against hacker attacks and cyber-crimes.

Dependence on Patents, Licenses, Contracts and Processes

The major trademarks we use, including, among others, the “Santander” trademark, are owned by Santander Investment Bank. Santander Brasil has a license to use this trademark. All trademarks of our business are registered or applied through the Brazilian Patent and Trademark Office (Instituto Nacional de Propriedade Industrial, or “INPI”), the agency responsible for registering trademarks, patents and designs in Brazil. After registration, the owner has exclusive rights to use of the trademark in Brazil for a 10-year period that can be successively renewed for equal periods.

As of the date of this annual report, we own a total of 553 trademarks in Brazil, with Santander Brasil owning over 123 of these trademarks, while the remaining are owned by other companies of the Santander Group.

REGULATION AND SUPERVISION

The basic institutional framework of the Brazilian financial system was established by Law 4,595, of December 31, 1964, as amended from time to time, or the “Banking Reform Law”. The Banking Reform Law created the CMN, responsible for establishing the general guidelines of monetary, foreign currency and credit policies, as well as regulating the institutions of the financial system.

Principal Regulatory Agencies

CMN

The CMN oversees the Brazilian monetary, credit, budgetary, fiscal and public debt policies. The board of the CMN is composed of the president of the Brazilian Central Bank, the Minister of Planning and the Minister of Finance, who also chairs the Board. Pursuant to the Banking Reform Law, the CMN is the highest regulatory entity within the Brazilian financial system, and is authorized to regulate the credit operations of Brazilian financial institutions, to regulate the Brazilian currency, to supervise Brazil’s gold reserves and foreign exchange, to determine Brazilian savings and investment policies and to regulate the Brazilian capital markets with the purpose of promoting the economic and social development of Brazil. In this regard, the CMN also oversees the activities of the Brazilian Central Bank and the CVM.

Brazilian Central Bank

The Brazilian Central Bank is responsible for the implementation of CMN policies related to foreign currency and credit, the regulation of Brazilian financial institutions, particularly in regards to the minimum capital and compulsory deposit requirements, as well as the disclosure of the transactions carried out by financial institutions and their financial information. The Brazilian Central Bank addresses specific issues through the Monetary Policy Committee (COPOM), a committee responsible for adopting measures to meet inflation targets defined by the CMN and establishing monetary policy guidelines. In order to meet inflation targets, the COPOM must set the target for the SELIC Rate (the average rate for daily financing, backed by federal instruments, as assessed under the Special Settlement and Custody System) and publish reports on the Brazilian economic and financial environment and projections for the inflation rate.

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CVM

The CVM is responsible for the implementation of CMN policies related to securities, with the purpose of regulating, developing, controlling and inspecting the securities market and its participants (companies with securities traded in the market, investment funds, investors, financial agents, such as custodians of instruments and securities, asset managers, independent auditors, consultants , as well as instruments and securities analysts).

Self-Regulating Entities

The Brazilian financial and capital markets are also subject to the regulation of self-regulating entities that are divided by field of activity. These self-regulating entities include, among others, the National Association of Investment Banks – ANBIMA, the Brazilian Association of Credit Card and Services Companies – ABECS, the Brazilian Banks Federation – FEBRABAN, the Brazilian Association of Publicly-Held Companies – ABRASCA and the B3.

Principal Limitations and Obligations of Financial Institutions

In line with leading international standards of regulation, Brazilian financial institutions are subject to a series of limitations and obligations. In general, such limitations and obligations concern the offering of credit, the concentration of risk, investments, operating procedures, loans and other transactions in foreign currency, the administration of third-party funds and micro-credit. The restrictions and requirements for banking activities, established by applicable legislation and regulations, include the following:

·No financial institution may operate in Brazil without the prior approval of the Brazilian Central Bank. In December 2017, the CMN enacted a new rule establishing that all such requests submitted to the Brazilian Central Bank must be approved within 12 months (subject to suspension of the term in some instances);

·A Brazilian financial institution may not hold direct or indirect equity interests in any company located in Brazil or abroad registered as permanent assets without prior approval of the Brazilian Central Bank. The corporate purpose of such company shall be complementary or subsidiary to the activities carried out by the financial institution;

·Brazilian financial institutions must submit for prior approval by the Brazilian Central Bank the corporate documents that govern their organization and operation, such as capital increases, transfer of headquarters, opening, transfer or closing of branches (whether in Brazil or abroad), election of the members of the statutory bodies and any corporate restructuring or alteration in the composition of their equity control. The requests for changes in control submitted to the Brazilian Central Bank must be approved within 12 months and requests for changes to organizational documents must be approved within three months (in both cases subject to suspension of the term in some instances);

·Brazilian financial institutions must fulfill minimum capital and compulsory deposit requirements and must comply with certain operational limits;

·A Brazilian financial institution may not own real estate, except for properties it occupies and subject to certain limitations imposed by the CMN. If a financial institution receives real estate, for example, in satisfaction of a debt, such property must be sold within one year, unless otherwise authorized by the Brazilian Central Bank;

·Brazilian financial institutions must comply with the principles of selectivity, guarantee, liquidity and risk diversification;

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·A Brazilian financial institution belonging to the S1 segment, as is the case of Santander Brasil, cannot lend more than 25% of its Tier 1 Regulatory Capital (patrimônio de referência) to a single person or a group and the maximum exposure to concentrated individual customers or group of connected customers of such Segment 1 financial institution is 600% of its Tier 1 Regulatory Capital (a concentrated individual client would mean, for the purpose of the proposed rule, as any one client to which exposure is equal to or higher than 10% of its Tier 1 Regulatory Capital);

·According to the Banking Reform Law, a Brazilian financial institution cannot carry out credit transactions with (i) its controlling shareholders, directors and members of other statutory bodies (fiscal, advisory and other) and their respective spouses and relatives up to second degree, (ii) the individuals or legal entities that hold a qualified interest (15% of the capital stock) in their capital, (iii) the legal entities in which they have qualified interest (direct or indirect), (iv) the legal entities in which they have effective operational control or preponderance in the deliberations, regardless of the equity interest, and (v) the legal entities with common directors or members of the board of directors. Such prohibition does not apply, subject to limits and conditions established by the CMN through the enactment of Resolution No. 4,693 in October 2018, to: (i) transactions with a counterparty that has an officer or director in common with the financial institution providing credit, provided that the officer or director is considered an independent member in both entities; (ii) transactions carried out under market-compatible conditions, without additional benefits or different benefits when compared to the operations deferred to the institution to other customers with the same profile, (iii) credit operations that have as counterparty a financial institution that is part of the institution prudential conglomerate, provided that they contain contractual clauses of subordination, except in the case of overnight and loan transactions with other financial institutions specified by the law, (iv) the interbank deposits, according to the law, (v) the obligations assumed by related parties under the compensation and settlement services authorized by the Brazilian Central Bank or by the CVM and their respective counterparties, and (vi) other cases authorized by the CMN; the management of third-party assets must be segregated from other activities and must follow the regulations issued by the CVM.

·The total amount of funds applied in permanent assets of the financial institutions cannot exceed 50% of their adjusted stockholders’ equity;

·Brazilian financial institutions must comply with anti-money laundering and anti-corruption regulations;

·Brazilian financial institutions must implement policies and internal procedures to control their systems of financial, operating and management information, as well as their conformity to all applicable regulations;

·Brazilian financial institutions must implement a policy for remuneration of board members and executive officers that is compatible with their risk management policies; and

·The Banking Reform Law and specific regulations enacted by the CMN impose penalties on financial institutions in certain situations where applicable requirements, controls and requisites have not been observed. In addition, the Brazilian Central Bank may cancel the financial institution’s authorization to operate in certain situations. The cancellation of an authorization for operation of a financial institution may only occur upon the establishment and processing of the appropriate administrative proceeding by the Brazilian Central Bank.

Additionally, as part of the Santander Group and due to the global nature of our organization we are subject to related international rules.

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Capital Adequacy and Leverage – Basel

Current Requirements

The Brazilian Central Bank supervises the Brazilian banking system in accordance with the Basel Committee on Banking Supervision, or “Basel Committee”, guidelines and other applicable regulations. For this purpose, banks provide the Brazilian Central Bank with any information which it deems useful in performing its supervisory functions, which includes supervising changes in solvency and capital adequacy of banks.

The main principle that guides the directives set forth in the Basel Committee is that a bank’s own resources must cover its principal risks, including credit risk, market risk and operational risk.

Brazilian financial institutions are subject to capital measurement and standards based on a risk weighted asset ratio. The parameters of this methodology resemble the international framework for minimum capital measurements adopted by Basel III.

Basel III

On December 16, 2010, the Basel Committee issued the Basel III framework, which supplements and amends Basel II. Basel III includes higher minimum capital requirements, new conservation and countercyclical buffer capital requirements, revised risk-based capital measures and the introduction of a new leverage ratio, as well as two liquidity standards. The Basel III framework is being implemented gradually by each country through legislation or regulation to be imposed upon that country’s home banks, including Brazil.

Regulatory Capital is composed by Core Capital and two additional tiers:

Tier I capital will have to reach a minimum index of 6.0% (according to the schedule established by the Brazilian Central Bank), divided into two portions: (i) Core Capital consisting mainly of corporate capital and profit reserves (shares, units of ownership, reserves and earned income) of at least 4.5% of RWA, and (ii) Additional Tier I consisting mainly of perpetual hybrid securities and capital instruments authorized by the Brazilian Central Bank (but excluding amounts relating to funding instruments issued by other local or foreign financial institutions) and any of our own shares purchased by us and the integration of which into the Additional Tier I Capital is permitted. To improve the quality of the capital of financial institutions, Basel III restricts the acceptance of financial instruments that fail to demonstrate effective capability of absorbing losses and requires the reduction of assets that in certain situations could jeopardize the financial institution’s capital value due to the instruments’ low liquidity, dependence on future profits for realization or difficulty of value measurement.

There is also an additional 2% of Tier II capital requirement, for a total of 8% of minimum capital ratio. Current hybrid subordinated debt approved by the Brazilian Central Bank as additional capital requirements, or Tier II, are expected to be maintained if they also comply with requirements introduced by Basel III, including the mandatory conversion clauses into equity or write-off upon the occurrence of triggering events provided for in the regulations.

In accordance with the Basel III standards, the Brazilian Central Bank created the Additional Core Capital buffer (Adicional de Capital Principal), which is composed by the sum of three buffers:

·Core Capital Conservation buffer (Adicional de Capital Principal de Conservação), which was introduced to ensure that banks have an additional layer of usable capital that can be drawn down when losses are incurred. Whenever the buffer falls below 2.5%, automatic constraints on capital distribution (for example, dividends, share buybacks and discretionary bonus payments) will be imposed so that the buffer can be replenished.

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·Countercyclical capital buffer (Adicional Contracíclico de Capital Principal), which aims to protect the banking sector from periods of excess aggregate credit growth that have often been associated with the build-up of system-wide risks.

·Core Capital Systemic buffer (Adicional de Importância Sistêmica de Capital Principal), which is applicable to the S1 bank segment (banks with an asset base equivalent to over 10% of Brazil’s GDP or that engage in relevant international activity).

On March 16, 2020, due to the challenging macroeconomic environment resulting from the COVID-19 pandemic, the Brazilian Central Bank issued Resolution No. 4,783, which decreased the Conservation Buffer level (Adicional de Conservação de Capital Principal) in 2020 from 2.5% to 1.25%. This level will phase-in towards the 2019 level by 2022, as shown in the image below. This buffer change decreased the minimum Core Capital and Total Capital requirements, reaching 6.75% and 10.25%, respectively, as of December 31, 2020.

According to the new rules on regulatory capital in Brazil, the value of goodwill, intangible assets and some types of deferred tax assets, for the calculation of the capital base, was deducted in accordance with the “phase-in” for implementation of Basel III in Brazil, which was completed by January 1, 2019. The following table sets forth the percentage of required deductions for each year up to 2019:

Basel III Phase in
201620172018201920202021
40%60%80%100%100%100%

Source: Brazilian Central Bank; Resolution No. 4,192 of the Brazilian Central Bank of March 2013.

The Basel III rules also provide for the implementation of a leverage ratio calculated by dividing the Tier I capital by the bank’s total exposure. In early 2015, the Brazilian Central Bank issued a new regulation governing the calculation and reporting of the leverage ratio of Brazilian financial institutions in line with the Basel III rules, which became effective in October 2015. Financial institutions classified as segment 1 (S1), as is the case for Santander Brasil, or segment 2 (S2), for purposes of the application of prudential rules, are required to maintain a minimum RA of 3% as from January 1, 2018.

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Additionally, in order to enable the implementation of the Basel III framework in Brazil, certain legislative changes were made. Among others, Law No. 12,838, enacted on July 9, 2013, granted powers to the Brazilian Central Bank to limit the payment of dividends by financial institutions in case of non-compliance with the prudential capital requirements defined by the CMN.

In 2015, the CMN and the Brazilian Central Bank also issued a set of rules for the implementation of the liquidity coverage ratio or “LCR,” a short-term liquidity index. The purpose of the LCR is to demonstrate that financial institutions have sufficient liquid assets to make it through a stress scenario lasting one month. According to these rules, the largest Brazilian banks were required to maintain an LCR of at least 60% since October 2015. This ratio increased 10% annually until it reached 100% in 2019. The Brazilian Central Bank also released, in 2015, the local methodology for calculating the LCR so as to align the existing rules with the guidelines of the document “Basel III: The Liquidity Coverage Ratio and liquidity risk monitoring tools” issued by the Bank for International Settlements in January 2013. In January 2017, the Brazilian Central Bank enacted a new rule amending the calculation method and procedures for disclosure of LCR information. The new regulation establishes a new possible stress scenario and, for purposes of LCR retail, includes spot and forward deposits.

As mentioned above, the LCR is a short-term liquidity ratio for a 30-day stress scenario. It represents the ratio of high-quality liquidity assets to net outflows. High Quality Liquidity Assets are composed mainly of Brazilian federal government bonds and reserve requirement returns. Net Outflows are mainly composed of losses on deposits, offset in part by Inflows, which are mainly credits.

In November 2017, the CMN established a minimum limit for the Net Stable Funding Ratio (Índice de Liquidez de Longo Prazo, or “NSFR”) and the Leverage Ratio (Razão de Alavancagem, or “RA”) with which Brazilian financial institutions are required to comply. The NSFR corresponds to the ratio between the Available Stable Funds (Recursos Estáveis Disponíveis, or “ASF”) and the Required Stable Funds (Recursos Estáveis Requeridos, or “RSF”) of the financial institution. The financial institutions classified as “segment 1” for purposes of the application of prudential rules, as we are, must maintain, as from October 1, 2018, a minimum NSFR of 1.00. Regarding the leverage ratio, the financial institutions classified as “segment 1,” as we are, or “segment 2” for purposes of the application of prudential rules are required to maintain a minimum RA of 3% as from January 1, 2018.

Other Applicable Laws and Regulations

Consolidated Enterprise Level (conglomerado prudencial)

Financial institutions must submit to the Brazilian Central Bank, monthly and semiannually, consolidated financial statements based on the “consolidated enterprise level” (conglomerado prudencial) of which the financial institution is a member, which serve as the basis for calculation of the required Regulatory Capital of the Brazilian institutions. The “consolidated enterprise level” includes data relative to the financial institutions and other institutions authorized to operate by the Brazilian Central Bank, administrators of consortia, payment institutions and credit factoring companies, including real estate credit, or of credit rights, such as mercantile foment companies, securitization companies and specific purpose companies, located in Brazil or abroad, as well as other legal entities headquartered in Brazil that have equity participation in the mentioned entities as their exclusive business purpose.

On January 29, 2020, the CMN published Resolution No. 4,818, which requires financial institutions categorized as S1, S2 and S3 to publish IFRS financial statements. The requirement is already in force for publicly held financial institutions and financial institutions which are leaders of a prudential conglomerate, and will come into effect for all remaining financial institutions on January 1, 2022.

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Segmentation for the Proportional Application of Prudential Regulation

In January 2017, the CMN enacted a resolution establishing segmentation for financial institutions, financial institution groups, and other institutions authorized to operate by the Brazilian Central Bank for the purposes of proportional application of the prudential regulation. The segmentation is based on the size, international activity and risk profile of members of each segment. Pursuant to the resolution, the segments are as follows:

·Segment 1 comprises multiservice banks, commercial banks, investment banks, foreign exchange banks and savings banks with (a) an asset base equivalent or superior to 10% of Brazil’s GDP; or (b) which perform relevant international activities, irrespective of the size of the institution;

·Segment 2 comprises multiservice banks, commercial banks, investment banks, foreign exchange banks and savings banks with (a) an asset base lower than 10% of Brazil’s GDP; and (b) other institutions with an asset base equivalent to or greater than 1% of Brazil’s GDP;

·Segment 3 comprises institutions with an asset base lower than 1% and equivalent to or greater than 0.1% of Brazil’s GDP;

·Segment 4 comprises institutions with an asset base lower than 0.1% of Brazil’s GDP; and

·Segment 5 comprises institutions with an asset base lower than 0.1% of Brazil’s GDP, that apply a simplified optional method for verifying the regulatory capital’s minimum requirements, except for multiservice banks, commercial banks, investment banks, foreign exchange banks and savings banks.

We have been categorized by the Brazilian Central Bank in segment 1, the highest level for application of regulation for banks in Brazil.

Regulation of Risk and Capital Management Structure

The rules enacted by the CMN and the Brazilian Central Bank provide that risk management must be conducted through an integrated effort by the relevant entity (i.e., not only must risks be analyzed on an individual basis, but must also control and mitigate the adverse effects caused by the interaction between different risks). The rules set out different structures for risk and capital management, which are applicable for different risk profiles. This means that a financial institution of limited systemic importance can have a simplified structure of management, while institutions of larger complexity have to follow stricter protocols.

Compulsory Reserve Requirements

Currently, the Brazilian Central Bank imposes a series of compulsory reserves requirements. Financial institutions must deposit these reserves with the Brazilian Central Bank. The Brazilian Central Bank uses these reserve requirements as a mechanism to control the liquidity of the Brazilian financial system for both monetary policy and risk mitigation purposes. Reserves imposed on time deposits, demand deposits and saving accounts represent almost the entirety of the amount that must be deposited at the Brazilian Central Bank.

· Time Deposits (CDBs). The Brazilian Central Bank imposes a reserve requirement of 17% in relation to time deposits. Financial institutions must deposit an amount equivalent to the surplus of (i) R$3.6 billion for financial institutions with consolidated Tier 1 capital under R$3 billion; (ii) R$2.4 billion for financial institutions with consolidated Tier 1 capital between R$3 billion and R$10 billion; (iii) R$1.2 billion for financial institutions with consolidated Tier 1 capital between R$10 billion and R$15 billion; and (iv) zero for financial institutions with a Regulatory Capital greater than R$15 billion.

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Additionally, as from the issuing of Brazilian Central Bank Circular No. 3,943 on May 23, 2019, interbank deposits made by leasing companies are excluded from the assessment base of the compulsory reserve requirement for time deposits of financial institutions of the same conglomerate.

· Demand Deposits. As a general rule, the Brazilian Central Bank imposes a reserve requirement of 21% in relation to demand deposits.

· Savings Deposits. The Brazilian Central Bank imposes a reserve requirement of 20% in relation to general savings deposits and to rural savings deposits.

Asset Composition Requirements

Permanent assets (defined as property and equipment other than commercial leasing operations, unconsolidated investments and deferred charges) of Brazilian financial institutions may not exceed 50% of their adjusted net equity, calculated in accordance with the criteria established by the Brazilian Central Bank.

Brazilian financial institutions, as a general rule, may not have more than 25% of their Tier 1 Regulatory Capital allocated to credit and leasing transactions and guarantees extended to the same customer or group of customers acting jointly or representing the same economic interest. In addition, Brazilian financial institutions must comply with an exposure limit of 25% of their Regulatory Capital in connection with underwriting for or investments in securities of the same entity, its affiliates, or controlled or controlling companies. Repurchase transactions executed in Brazil are subject to operational capital limits based on the financial institution’s Regulatory Capital, as adjusted in accordance with Brazilian Central Bank regulations. A financial institution may carry out repurchase transactions in an amount of up to 30 times its Regulatory Capital. Within that limit, repurchase transactions involving private securities may not exceed five times the Regulatory Capital. Limits on repurchase transactions involving securities backed by Brazilian governmental authorities vary in accordance with the type of security involved in the transaction and the perceived risk of the issuer as determined by the Brazilian Central Bank.

The regulation issued by the Brazilian Central Bank with respect to the classification and valuation of securities and derivative financial instruments — including government securities — owned by financial institutions, based on the investment strategy of the financial institution, determined that securities and derivatives are to be classified into three categories: (i) trading; (ii) available for sale; and (iii) held to maturity.

“Trading” and “available for sale” securities are to be marked-to-market with effects in income and stockholders’ equity, respectively. Securities classified as “held to maturity” are recorded at amortized cost. Derivatives are marked-to-market and recorded as assets and liabilities in the balance sheet. Changes in the market value of derivatives are generally recognized in income with certain modifications, if these are designated as hedges and qualify for hedge accounting under the regulations issued by the Brazilian Central Bank. Securities and derivatives in the “held to maturity” portfolio may be hedged for accounting purposes but their increase or decrease in value as derived from the marked-to-market accounting method should not be taken into account.

On June 31, 2018, the CMN enacted a rule providing that financial institutions categorized as “Segment 1” as per the Brazilian Central Bank’s classification system established in 2017 (which is our case) (1) may not have more than 25.0% of their Regulatory Capital allocated to a single legal or natural person, and (2) that the total exposure of such financial institutions to one individual customer may not exceed 600% of their Regulatory Capital allocated to focused exposure, that is 10% of their Regulatory Capital – Tier 1. The rule also subjects financial institutions categorized as segment 2, segment 3 or segment 4 to less restrictive rules.

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Centralized Registration and Deposit of Financial Assets and Securities

Law No. 13,476/17 consolidates the provisions on creation of liens over financial assets and securities. CMN Rule No. 4,593/2017, as amended, regulates the registration and deposit of financial instruments and securities by financial institutions as well as the provision of custody services by such institutions.

Resolution 4,734/19 sets out the guidelines applicable to the establishment of liens and encumbrances on credit and debit payment instruments due to credit operations with financial institutions and regulates credit operations guaranteed by receivables from payment arrangements. The amount of receivables perfected into guarantees for a certain credit transaction will be reduced, whenever applicable, so that they are limited to the outstanding balance of the transaction or to the maximum limit extended, in the case of an extension of a non-dischargeable credit facility by a financial institution on an absolute and unilateral basis.

Circular 3,952/19, deals in particular with the procedures for the registration of receivables, and requires a convention between market infrastructures to guarantee the uniqueness of the receivables as financial assets that can be registered, interoperability, exchange of information between registration systems and participants in the structure. On October 29, 2020, the Brazilian Central Bank issued BCB Resolution 35/20, which postponed the entry into effectiveness of Circular 3,952/19 to February 17, 2021.

Brazilian Payment and Settlement System

The rules for the settlement of payments in Brazil are based on the guidelines adopted by the Bank of International Settlements, or “BIS,” and the current Brazilian Payment and Settlement System (Sistema de Pagamentos Brasileiro or the “SPB”). The Brazilian Central Bank and CVM (in relation to transactions with securities) have the power to regulate and supervise this system. SPB is composed of systems for the clearing of checks, clearing and settlement of debit and credit electronic orders, transfer of funds and other financial assets, clearing and settlement of transactions involving securities, clearing and settlement of transactions carried out in commodities and futures, and others, collectively designated as Financial Market Infrastructures, as well as the payment arrangements and payment institutions.

Within the scope of SPB, the Brazilian Central Bank operates the Reserves Transfer System, or “STR” and the SELIC. STR is a system of transfer of funds with real-time gross settlement, which means that transfers are made at the processing time, one by one, and are subject to the existence of outstanding balance in the account. STR is composed of financial institutions, clearing and settlement houses and the National Treasury Office. SELIC is a system intended for custody of book-entry securities issued by the National Treasury Office and for the registration and settlement of transactions involving such securities.

Instant Payment System

The Brazilian Central Bank also implemented an instant payment ecosystem in November 2020. The settlement of the system is centralized at the Brazilian Central Bank. In addition to increasing the speed at which payments or transfers are made and received, available 24 hours a day, seven days a week in all days of the year, the ecosystem has the potential to increase market competitiveness and efficiency; lower costs; and enhance customer experience.

On June 12, 2020, the Brazilian Central Bank issued Circular 4,027/20, which established the Brazilian Instant Payment System (Sistema de Pagamentos Instantâneos, or “SPI”). Circular 4,027/20 also approved the regulation with which the direct and indirect participants in the SPI must comply. Circular 4,027/20 establishes that the SPI start of operations on November 3, 2020 with features of the system, becoming available gradually until it is fully operational as of November 16, 2020. Circular Letter 4,055/20, establishes the procedures and timetable for the tests necessary for to register as a direct participant in the SPI, as per Circular Letters No. 4,006 and 4,022. Circular Letter No. 4,056, in turn, establishes the procedures for the adherence to the instant payment arrangement (PIX).

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According to the by-laws of the SPI, the participation in the SPI will be mandatory for the participants of the PIX arrangement, and optional for (i) the clearing houses and other providers of clearing services, and (ii) the National Treasury Department.

There are two types of participation in the SPI: (i) direct, participation, in which the participant holds an instant payment account and is directly connected to the SPI; and (ii) indirect, in which the participant institution does not hold an instant payment account and its participation occurs via a direct participant to the SPI, responsible for registering the indirect participant in the SPI and to act as its clearing agent in the SPI for instant payments. Circular 4,027/20 came into effect on July 1, 2020.

On August 13, 2020, the Brazilian Central Bank issued Central Bank Resolution No. 1, or “Central Bank Resolution 1/2020”, establishing the Pix System payment arrangement and approving the regulation governing it, or (the “Pix Regulation”).

Pursuant to Central Bank Resolution 1/2020, participation in the Pix System is mandatory for financial institutions and payment institutions authorized to operate by the Brazilian Central Bank that have more than 500,000 active customer accounts, considering cash deposit accounts, savings deposit accounts and prepaid payment accounts. Participation in the PIX System is optional for financial institutions and payment institutions that do not meet this threshold, as well as for the National Treasury Secretariat.

The Pix Regulation applies to all Pix System participants. According to the Pix Regulation, there are three types of participation: (i) transactional account provider, which is a financial institution or a payment institution that offers deposit accounts or payment accounts to end users; (ii) government entity, which is the National Treasury Secretariat, with the exclusive purpose of making collections and payments related to its activities; and (iii) special clearing houses, that are the financial institutions and payment institutions that (a) within the scope of the Pix System, have the exclusive purpose of providing settlement services to other participants, (b) meet the requirements to act as settlement participant in the Brazilian Central Bank’s SPI, and (c) do not meet the criteria of mandatory participation in the Pix System.

Brazilian Central Bank Resolution 1/2020 came into effect on September 1, 2020. Pix System transactions started operating on a restricted basis through to November 3, 2020 and was fully as of November 16, 2020.

Open Banking Regulation in Brazil

On May 4, 2020, the Brazilian Central Bank and the CMN enacted Joint Resolution No. 1, which regulates open banking. Open banking consists of the sharing of data and payment initiation services and forwarding credit transaction proposals, by financial institutions and other authorized entities (with customers permission) and the integration of information systems.

Among other topics, the resolution sets forth the mandatory and voluntary participating institutions, the data and services covered, the requirements for sharing, the responsibilities for sharing, the implementation schedule and the form of agreement to be entered into by the participating institutions.

According to the resolution, financial institutions and prudential conglomerates belonging to the S1 and S2 segments, as is our case, are required to participate in open banking.

Open banking has a four-stage implementation plan, as follows:

·Stage 1 (as of February 1, 2021): public access to participating institutions’ data on their access channels and product/service channels related to checking, savings, prepaid payment accounts and to lending transactions.

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·Stage 2 (by July 15, 2021): sharing of customer reference data and customer transactional data among the participating institutions.

·Stage 3 (by August 30, 2021): sharing of payment transaction initiation services, as well as forwarding credit transaction proposals.

·Stage 4 (by December 15, 2021): expansion of in-scope data to encompass foreign exchange, investment, insurance, and open-end private pension transactions.

·On October 29, 2020, the Brazilian Central Bank issued Central Bank Resolution 32/2020, which sets forth the technical and operational requirements to be observed by institutions which participate in the Brazilian Open Banking System.

The new rule lays out, among others, rules relating to (i) the scope of the data and services to be shared by participating institutions within Open Banking, which shall be detailed in a specific manual; (ii) the standards for the development of application programming interfaces (APIs) by participating institutions, which will likewise be detailed in a specific manual, which shall deal with their design, data transmission protocols, data exchange formats, control accesses, version control systems and specification parameters; among other things; (iii) criteria for registration and cancellation of registration in Open Banking; (iv) services to be rendered by the Open Banking Governance Structure, which also shall be detailed in a specific manual, including the maintenance of a repository of participating institutions and a website containing updated information about Open Banking and its implementation; and (v) minimal security standards and certifications, which will also be detailed in a separate manual.

Regulatory Sandbox

On November 28, 2019, the Brazilian Central Bank published Public Consultation No. 72/2019, which ended on January 31, 2020, regarding the Controlled Testing Environment for Financial Innovations or “Sandbox” which is intended to enable institutions test innovative financial and payment projects for a specified period.

After receiving comments on the Public Consultation, the CMN and the Brazilian Central Bank issued, on November 26, 2020, CMN Resolution 4,865/20 and BCB Resolution 29/20, to regulate the Sandbox These rules set forth the applicable conditions for the implementation of the Sandbox, among which are the specific rules for the first cycle of tests, such as duration and number of participants, required documentation, criteria for the classification of institutions and the schedule for registration, selection and authorization processes of such entities. The Brazilian Central Bank expects that the process for selecting the first cycle will start in the first half of 2021.

Treatment of Overdue Debts

The Brazilian Central Bank requires financial institutions to classify credit transactions in accordance with their level of credit risk and to make provisions according to the level attributed to each transaction. Such credit classifications shall be determined in accordance with criteria set forth from time to time by the Brazilian Central Bank, relating to the conditions of the debtor and the guarantor and the transaction terms. Where there are several credit transactions involving the same customer, economic group or group of companies, the credit risk must be determined by analyzing the particular credit transaction of such customer or group that represents the greatest credit risk to the financial institution.

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Credit transactions of up to R$50,000 may be classified either by the financial institution’s own evaluation method or according to the number of days such transaction is past due, whichever is the more stringent. Credit classifications are required to be reviewed (i) monthly, in the event of a delay in the payment of any installment of principal or interest, in accordance with the maximum risk classifications; (ii) every six months, in the case of transactions involving the same customer, economic group or group of companies, the amount of which exceeds 5% of the adjusted net worth of the financial institution in question; and (iii) once every 12 months, in all circumstances, except in the case of credit transactions with a customer whose total liability is lower than R$50,000, the classification of which may be reviewed as provided above. Such R$50,000 limit may be amended by the Brazilian Central Bank from time to time.

The provisions set forth above are not applicable to our IFRS consolidated financial statements, which are based on the criteria described under “Item 5. Operating and Financial Review and Prospects—A. Operating Results—Critical Accounting Policies—Impairment Losses on Financial Assets.”

Regulation of the Transfer of Customer Data by Financial Institutions to Database Managers

Brazilian law regulates the formation and consultation of databases with information regarding performance, individuals or legal entities, for the formation of credit history. Resolution No. 4,737 determines that the history of the following operations should be provided: (i) credit operations; (ii) leasing operations; (iii) self-financing operations executed upon consortium groups; and (iv) other operations with characteristics of credit granting; and defines the criteria for the registration of database managers, such as the identification of the natural and legal persons that are part of the control group of the database manager.

Collection of Bank Fees

Bank services to individuals are divided into the following four groups: (i) essential services; (ii) priority services; (iii) special services; and (iv) specific or differentiated services.

Banks are not able to collect fees in exchange for supplying essential services to individuals with regard to checking accounts, such as (i) supplying a debit card; (ii) supplying 10 checks per month to account holders who meet the requirements to use checks, as per the applicable rules; (iii) supplying a second debit card (except in cases of loss, theft, damage and other reasons not caused by the bank); (iv) up to four withdrawals per month, which can be made at a branch of the bank, using checks or in ATM terminals; (v) supplying up to two statements describing the transactions during the month, to be obtained through ATM terminals; (vi) inquiries over the internet; (vii) up to two transfers of funds between accounts held by the same bank, per month, at a branch, through ATM terminals or over the internet; (viii) clearing checks; and (ix) supplying a consolidated statement describing, on a month-by-month basis, the fees charged over the preceding year with regard to checking accounts and savings accounts.

Certain services rendered to individuals with regard to savings accounts also fall under the category of essential services and therefore are exempt from the payment of fees. CMN prohibits banks from charging fees for supplying essential services in connection with deposit and savings accounts where customers agree to access and use their accounts by electronic means only (being authorized to charge fees for supplying essential services only when the customer voluntarily elects to obtain personal service at the banks’ branches or customer service locations).

Priority services are those rendered to individuals with regard to checking accounts, transfers of funds, credit transactions, leasing, standard credit cards, over-the-counter exchange transactions for the purchase or sale of foreign currency in respect of international travel, and records, and are subject to the collection of fees by the financial institutions only if the service and its nomenclature are listed in its regulations. Commercial banks must also offer to their individual customers a “standardized package” of priority services, whose content is defined, as well as the customers’ option to acquire individual services instead of adhering to the package.

The collection of fees in exchange for the supply of special services (including, among others, services relating to rural credit, currency exchange market and on lending of funds from the real estate financial system) is governed by the specific provisions found in the laws and regulations relating to such services. The regulation authorizes financial institutions to charge fees for the performance of specific services, provided either that the account holder or user is informed of the conditions for use and payment or that the fee and charging method are defined in the contract.

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It is worth pointing out: (i) the prohibition against charging fees in cases of adhesion contract amendments, except in the cases of asset replacement in leasing transactions, early liquidation or amortization, cancellation or termination; (ii) the prohibition against including services related to credit cards and other services not subject to fees in service packages that include priority, special and/or differentiated services; (iii) the requirement that subscription to service packages must be through a separate contract; (iv) the requirement that information given to the customer with respect to a service package must include the value of each service included in the package, the number of times that each service may be utilized per month, and the total price of the package; (v) the requirement that a customer’s annual banking statement must separately identify default interest, penalties and other costs charged on loans and leasing transactions; (vi) the requirement that registration fees cannot be cumulatively charged; and (vii) the requirement that overdraft fees can be charged, at most, once over the course of 30 days.

In addition, CMN regulations establish that all debits related to the collection of fees must be charged to a bank account only if there are sufficient funds to cover such debits in such account and thus forbid overdrafts caused by the collection of banking fees. Furthermore, a minimum of 30 days’ notice must precede any increase or creation of fees (except if related to credit card services, when a minimum of 45 days’ notice is required), while fees related to priority services and the “standardized package” can be increased only after 180 days from the date of the last increase (except if related to credit card services, when a minimum of 365 days’ notice is required) whereas reductions can take place at any time.

Late Payment Fees

The default payment fees charged by financial institutions, consumer credit companies (financeiras), and leasing companies are expressly limited to compensatory interest per day on the amount that is overdue, interest on arrears and fines on arrears.

Credit Cards

The banking regulations also have specific rules relative to the charging of credit card fees, the publication of information in the card invoices and the obligation to provide a package of basic services upon offering credit cards to customers. Credit card holders must pay monthly at least 15% of outstanding credit card balances. This minimum payment does not apply to credit cards with payment by means of direct payroll deductions.

Revolving credit for financings of credit card bills may only be extended to customers until the due date of the following credit card bill. After this term, financial institutions offer customers another product with conditions more favorable than the ones typically found in the credit card market. Banks are prohibited from offering this type of credit to customers who have already contracted one revolving credit for financing of credit card bills which were not repaid in a timely manner.

Payment Agents and Payment Arrangements

The regulation issued by the Brazilian Central Bank, determines, among other aspects: (i) consumer protection, anti-money laundering compliance and risk prevention systems that should be observed by payment agents and payment arrangers; (ii) the procedures for incorporation, organization, authorization and operation of payment agents, as well as transfer of shareholding control, subject to the Brazilian Central Bank’s prior approval; (iii) capital requirements; (iv) definition of arrangements excluded from the SPB; and (v) rules related to payment accounts, which are divided into prepaid and postpaid accounts and require the allocation of the totality of their balance to a special account at the Brazilian Central Bank or investment in government bonds.

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Portability of Credit Transactions

Financial institutions’ customers can transfer their credit transactions from one institution to another. Such transfers must comply with the specific rules established by the Brazilian Central Bank, including, among others, the requirement that the amount and term of the transaction in the receiving financial institution must not be higher than the amount due and term of the original transaction.

Digitalization of Documents and Record Keeping

Financial institutions and other institutions authorized to operate by the Brazilian Central Bank may keep in their records digital documents instead of physical documents, provided that certain requirements to ensure the documents’ authenticity and validity are met.

Anti-Money Laundering Regulations

Under the Brazilian Anti-Money Laundering Law, it is a crime to conceal or dissimulate the nature, origin, location, availability, transaction or ownership of assets, rights or amounts resulting, directly or indirectly, from any criminal offense, as well as their use in economic or financial activity and to participate in a group, association or office while being aware that its principal or secondary activities are directed toward the practice of such acts.

The Brazilian Anti-Money Laundering Law also created the Financial Activities Control Council (Conselho de Controle de Atividades Financeiras or “COAF”), which operates under the jurisdiction of the Ministry of Finance. The purpose of the COAF is to investigate, examine, identify and impose administrative sanctions in respect of any suspicious occurrences of illicit activities related to money laundering in Brazil.

The COAF is composed of individuals with recognized competence in this area, appointed by the Minister of Finance, all of whom are nominated by each of the following entities: (i) the Brazilian Central Bank; (ii) the CVM; (iii) the SUSEP; (iv) the National Treasury Attorney-General’s Office; (v) the Brazilian Federal Revenue; (vi) the Federal Intelligence Agency; (vii) the Ministry of Foreign Affairs; (viii) the Ministry of Justice; (ix) the Federal Police Department; (x) the Ministry of Social Security; and (xi) the General Comptroller’s Office, one of whom will be the president, which shall be appointed by the President of Brazil on the basis of recommendations by the Minister of Finance.

Financial institutions must maintain specific records of (i) the transactions in cash (deposit, withdrawal, withdrawal by means of a prepaid card or request of provision for withdrawal) so as to enable the identification of a deposit in cash, withdrawal in cash, withdrawal in cash by means of a prepaid card, or request of provision for withdrawal, of (a) an amount equal to or greater than R$100,000.00 or (b) that presents evidence of concealment or dissimulation of the nature, of the origin, of the location, of the disposal, of the movement or of the ownership of assets, rights and valuables; and (ii) the issuances of cashier’s checks, funds electronic transfers (TED) or of any other instrument of transfer of funds upon payment in cash, for an amount equal to or greater than R$100,000.00.

Financial institutions must maintain records of all operations, products and services contracted, including withdrawals, deposits, contributions, payments, receipts and transfers of funds. Additionally, the institutions must also keep specific records of (i) transactions in cash with an individual value greater than R$2,000.00; (ii) deposit or cash transactions of an individual value equal to or greater than R$50,000.00; and (iii) withdrawal transactions, including those carried out by check or money order, with an individual value equal to or greater than R$50,000.00.

The regulations also impose an obligation on financial institutions to request that both customers and non-customers a providing a withdrawal request at least three working days in advance for withdrawals (including those carried out by check or money order) in an amount equal to or greater than R$50,000.00.

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On January 23, 2020, the Brazilian Central Bank published Circular No. 3,978, which improves the regulation applicable to financial institutions, by expanding the adoption of a risk-based approach and came into effect on July 1, 2020. Regulated institutions must carry out specific internal risk assessments in order to identify and measure the risk of using their products and services in the practice of money laundering and terrorist funding.

In connection with the aforementioned change, the Know-Your-Client procedures were also improved and include the identification, qualification and classification of the customer, compatible with the risk profile, the nature of the relationship with the AML policy and the institution’s internal risk assessment, which must be permanently reassessed, according to the evolution of the business relationship and the risk profile of the client. The procedures must also include the verification of the client’s (including their representatives’, family members’ or close collaborators) condition as a Politically Exposed Individual, as well as consider them in the monitoring, selection and analysis of operations and situations with indications of suspected money laundering or terrorist funding.

On December 5, 2019, the CVM issued CVM Instruction No. 617, which establishes a new framework for the prevention of money laundering and the financing of terrorism in the Brazilian securities market. CVM Instruction No. 617 is in line with the practices currently implemented in the principal global securities markets, including with regard to the recommendations of the Financial Action Group against Money Laundering and the Financing of Terrorism (GAFI/FATF), as well as with the duties arising from Brazilian anti-money laundering laws.

Brazilian Anti-Corruption Law

Law No. 12,846/13 of August 1, 2013, or the “Brazilian Anti-Corruption Law” establishes that legal entities will have strict liability regardless of fault or willful misconduct for acts against the public administration carried out in their interest or for their benefit. The Law encompasses not only performance of acts of corruption but also performance of other injurious acts contrary to the Brazilian or foreign public administration.

Corporations that violate the Brazilian Anti-Corruption Law’s provisions will be subject to heavy penalties, some of which may be imposed through administrative proceedings and others solely through judicial channels. The Brazilian Anti-Corruption Law also creates a leniency program under which self-disclosure of violations and cooperation by corporations might result in the reduction of fines and other sanctions.

Politically Exposed Individuals

Financial institutions and other institutions authorized by the Brazilian Central Bank to operate must take certain actions and have certain controls in order to establish business relationships with and to follow up on the financial transactions of customers who are deemed to be politically exposed individuals (public agents and their immediate family members, spouses, life partners and stepchildren who occupy or have occupied a relevant public office or position over the past five years in Brazil or other countries, territories and foreign jurisdictions). The internal procedures developed and implemented for this purpose by financial institutions must be structured in such a way as to enable the identification of politically exposed individuals, as well as the origin of the funds involved in the transactions of such customers. One option is to verify the compatibility between the customer’s transactions and the net worth stated in such customer’s file.

Bank Secrecy

Brazilian financial and payment institutions shall also maintain the secrecy of their banking operations and services provided to their customers. The only circumstances in which information about customers, services or transactions of Brazilian financial and payment institutions may be disclosed to third parties are the following:

·the disclosure of information with the express consent of the interested parties;

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·the exchange of information between financial institutions for record purposes;

·the supplying to credit reference agencies of information based on data from the records of issuers of bank checks drawn on accounts without sufficient funds and defaulting debtors; and

·the occurrence or suspicion that criminal or administrative illegal acts have been performed, in which case the financial institutions and the credit card companies may provide the pertinent authorities with information relating to such criminal acts when necessary for the investigation of such acts.

Complementary Law 105/01 also allows the Brazilian Central Bank or the CVM to exchange information with foreign governmental authorities, provided that a specific treaty has previously been executed.

The government of the Federal Republic of Brazil and the government of the United States of America executed an agreement on March 20, 2007, by means of which these governments established rules for the exchange of information relating to tax, or the “2007 Agreement”. Under the 2007 Agreement, the Brazilian tax authority would be able to send information it receives by virtue of Section 5 of the Bank Secrecy Law to the U.S. tax authority.

Data Protection Requirements

The GDPA, or in Portuguese, “Lei Geral de Proteção de Dados”, was published in the Federal Official Gazette on August 15, 2018 and was amended by Law No. 13,853, issued on July 8, 2019 or “Law 13,853/2019”. The GDPA came into effect in September 2020, except for administrative sanctions, which will come into effect on August 1, 2021, pursuant to Law No. 14,010/20, which delayed the applicability of certain provisions of the GDPA.

Before the GDPA, Brazil lacked regulations specific to data privacy and a data protection authority. Despite this, privacy has been generally protected through the Federal Constitution, the Civil Code (Law No. 10,406 of January 10, 2002), the Consumer Protection Code (Law No. 8,078 of September 11, 1990) and the Civil Rights Framework for the Internet (Law No. 12,965 of April 23, 2014 and the Decree 8,771 of May 11, 2016, also known as the Internet Law).

The GDPA brings about profound changes in the rules and regulations applicable to the processing of personal data, with a set of rules to be complied with in activities such as the collection, processing, storage, use, transfer, sharing and erasure of information concerning identified or identifiable natural persons.

The GDPA has a wide range of applications and extends to individuals as well as private and public entities, regardless of the country where they are headquartered or where data are hosted, as long as (i) the data processing takes place in Brazil; (ii) the data processing activity is intended to offer or supply goods or services to, or to process data of individuals located in Brazil; or (iii) the subjects of the data are located in Brazil at the time their personal data are collected. The GDPA will apply irrespective of the industry or business when dealing with personal data and is not restricted to data processing activities performed through digital media and/or on the internet.

The GDPA sets out several rules related to data processing such as principles, requirements and duties imposed to data controllers and data processors; rights of data subjects; requirements in connection with cross-border transfers of data; the obligation to appoint a data protection officer; data security and data breach notification; corporate governance practices; and the regime for civil liabilities and penalties in case of a breach of the provisions of the GDPA. Penalties include warnings, blocking and erasure of data, public disclosure of the offense and fines of up to 2% of the economic group’s turnover in Brazil in the preceding year, capped at R$50 million per offense.

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Moreover, Law 13,853/2019 created the Brazilian National Data Protection Authority, or “ANPD”, which will have powers and responsibilities analogous to the European data protection authorities, exercising a triple role of (i) investigation, comprising the power to issue norms and procedures, deliberate on the interpretation of the GDPA and request information of controllers and processors; (ii) enforcement, in cases of noncompliance with the law, through an administrative process; and (iii) education, with the responsibility to disseminate information about and foster knowledge of the GDPA and security measures, fostering standards for services and products that facilitate control of data, and elaborating studies on national and international practices for the protection of personal data and privacy, among others.

The ANPD has been assured technical independence, although it is subordinated to the Presidency of the Republic. It will be composed of five commissioners, to be appointed by the President of Brazil, and advised by a National Council for the Protection of Personal Data and Privacy, composed of 23 unpaid members.

Regulations on Cybersecurity

Financial institutions must follow certain cyber risk management and cloud outsourcing requirements which apply to the design and adaptation of internal controls. Policies and action plans to prevent and respond to cybersecurity incidents must be in place before May 2019, and fully compliant by December 2021. Data location and processing may occur inside or outside Brazil, but access to data stored abroad must be granted at all times to the Brazilian Central Bank for inspection purposes. The contracting of relevant processing services must be communicated to the Brazilian Central Bank within 10 days from the execution of the agreement.

Auditing Requirements

The legislation and regulations issued by the CMN, CVM and B3 determine that the periodic financial statements of financial institutions must be audited by independent auditors (individuals or legal entities) that are registered with the CVM and who meet the minimum requirements set forth by the Brazilian Central Bank, and that the financial statements must be presented together with an independent auditor’s report. Our financial statements are audited in accordance with International Standards on Auditing with regard to Brazilian GAAP and also with the standards of the Public Company Accounting Oversight Board with regard to IFRS as issued by the IASB, as required by the SEC. For purposes of the financial statements prepared according to Brazilian GAAP, as from January 2017 all financial institutions and other institutions authorized to operate by the Brazilian Central Bank are required to create provisions for all losses related to financial guarantees issued by them. As a result of the auditing work, the independent auditor must prepare the following reports: (i) an audit report, issuing an opinion regarding the accounting statements and the respective explanatory notes, including regarding the compliance with financial regulations issued by the CMN and the Brazilian Central Bank; (ii) an internal control system quality and adequacy evaluation report, including regarding electronic data processing and risk management systems, evidencing any identified deficiencies; (iii) a legal and regulatory provisions noncompliance report, regarding those which have, or may have, material impacts on the financial statements or on the audited financial institution’s operations; (iv) a limited assurance report, analyzing our Annual and Sustainability Report pursuant to the guidelines and requirements of the Global Reporting Initiative, or “GRI”; and (v) any other reports required by the Brazilian Central Bank, CVM and B3. The reports issued by independent auditors must be available for consultation upon request by the overseeing authorities.

Independent auditors and the audit committee, individually or jointly, must formally notify the Brazilian Central Bank of the existence or evidence of error or fraud, within three business days of the identification of the respective occurrence, including:

·noncompliance with legal rules and regulations that place the continuity of the audited entity at risk;

·frauds of any amount perpetrated by the management of the institution;

·material frauds perpetrated by the institution’s employees or third parties; and

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·errors that result in major incorrectness in the financial statements of the audited entity.

The executive office of the financial institution must inform the independent auditor and the audit committee, if any of the above situations occur.

CMN regulation also requires financial institutions and certain other entities holding Regulatory Capital equal to or greater than R$1 billion to create a corporate body designated as the “audit committee”. To obtain more information concerning the audit committee, see “Item 6. Directors, Senior Management and Employees—C. Board Practices—Board Advisory Committees—Audit Committee.”

Internal Auditing of Financial Institutions

Financial institutions are required to establish and maintain internal audit activities compatible with their operational specifications, so that such internal bodies are able to perform an independent, autonomous and impartial audit of the quality and effectiveness of the institution’s internal systems. Such unit shall be directly controlled by the institution’s board of directors. Internal and external independent auditors are also liable for failures of the financial institution’s internal control mechanisms.

Socio-Environmental Responsibility Policy

Financial institutions are required to have a responsibility policy, which must guide the social and environmental actions in conducting their businesses, their relationship with their customers and other users of their products and services. The responsibility policy must also guide the financial institution’s relationship with its personnel and with any others affected by the financial institution’s activities. In addition, the responsibility policy must provide for the management of social and environmental risks (which, according to the Brazilian Central Bank, represent one of the several categories of risk to which financial institutions are exposed).

Policy for Succession of Financial Institutions Managers

Brazilian financial institutions and other institutions authorized to operate by the Brazilian Central Bank shall implement and maintain internal policies for succession of managers, applicable to higher levels of the institution’s management. The internal policy shall encompass the procedures related to recruitment, promotion, appointment and retention of managers in accordance with the institution’s rules for identification, evaluation, training and selection of the candidates to management offices.

Corporate Governance of Financial Institutions

Financial institutions must (i) remit to the Brazilian Central Bank information on the financial institution’s management, controlling group and relevant shareholders, including the obligation to communicate to the regulator any information that may affect the reputation of any such persons; (ii) make available a communication channel allowing employees, contributors, customers, users, associates, or services providers to report anonymously situations indicating illegalities of any nature related to the institution; and (iii) have an internal body responsible for receiving the information and complying with the reporting obligations.

Compliance Policy

Financial institutions must implement and maintain a compliance policy compatible with the nature, size, complexity, structure, risk profile and business model of the institution, which is intended to ensure an effective compliance risk management by the institution and may be established at the consolidated enterprise level (conglomerado prudencial). The compliance policy must establish the scope and purpose of the compliance function in the institution, set forth the organizational structure of the compliance function, specify which personnel is allocated to the compliance function, and establish a segregation of roles among personnel in order to avoid conflicts of interest.

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The compliance policy must be approved by the board of directors and the regulation also assigns to the board the responsibility to ensure the following: adequate management of the compliance policy throughout the institution, its effectiveness and continued application, its communication to all employees and services providers, as well as the dissemination of the integrity and ethical standards as part of the institution’s culture. The board of directors is also responsible for ensuring the application of measures in case of noncompliance, and for providing the necessary means for the activities related to the compliance functions to be adequately conducted.

Consumer Protection

Relationships between consumers and financial institutions are governed by Law 8,078, dated September 11, 1990, or the “Brazilian Consumer Protection Code”, which grants consumers certain rights and sets forth measures to be observed by suppliers, which must be complied with by financial institutions. The Brazilian Consumer Protection Code sets forth as consumer rights, among others, the assistance/facilitation in the defense of consumers’ rights, including through reverse burden of proof in their favor, and possibility of judicial review of contractual provisions deemed abusive.

Furthermore, banking regulation establishes procedures that financial institutions must observe when contracting any transactions, as well as when rendering services. We may highlight the following as examples of said procedures:

·to timely provide the necessary information including rights, duties, responsibilities, costs or advantages, penalties and possible risks when carrying out a transaction or rendering a service to allow customers and users free choice and decision-making;

·to timely provide, to the customer or user, agreements, receipts, statements, advice and other documents related to the transactions and services, as well as the possibility of timely cancellation of the agreements;

·formalization of an adequate instrument setting forth the rights and obligations for opening, using and maintaining a postpaid payment account;

·to forward a payment instrument to the customers’ or users’ residence or to enable the respective instrument only upon express request or authorization; and

·identification of end users’ beneficiaries for payments or transfer in statements and bills of the payer, including in situations in which the payment service involves institutions participating in different payment arrangements.

Financial institutions operating exclusively via digital means are excluded from the scope of certain aspects of the regulation.

Policy for Relationship with Customers and Users of Financial Products and Services

Financial institutions and other institutions authorized to operate by the Brazilian Central Bank must have a policy governing the relationship with customers and users of financial products and services. In addition, such entities shall comply with the principles of ethics, liability, transparency and diligence promoting the convergence of interests and the consolidation of the institutional image of credibility, security and expertise.

Ombudsman

Financial institutions and other entities that are authorized to operate by the Brazilian Central Bank must have an ombudsman office. An ombudsman office has the following attributes according to the current regulation:

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·to provide last resort assistance in connection with customer claims that have not been resolved through the conventional customer service channels (including the banking correspondents and the customer service assistance channel (Serviço de Atendimento ao Consumidor), or SAC); and

·to act as a communication channel between the financial institutions and their customers, including for dispute resolution

Institutions that are part of a financial group are allowed to establish one ombudsman department to service the whole group. The officer in charge of the ombudsman office must prepare a report every six months, which must be provided to the management and auditing bodies. The reports and recordings of interactions of the ombudsman unit with consumers must be available to the Brazilian Central Bank for a period of at least five years.

Investment Funds Industry Regulation

Investment funds are subject to the regulation and supervision of the CMN and the CVM and, in certain specific matters, the Brazilian Central Bank. Investment funds may be managed by full-service banks, commercial banks, savings banks, investment banks, credit, financing and investment companies and brokerage and dealer companies within certain operational limits.

Investment funds may invest in any type of financial instrument available in the financial and capital markets, including, for example, fixed income instruments, stocks, debentures and derivative products, provided that, in addition to the denomination of the fund, a reference to the relevant type of fund is included.

Broker-Dealer Regulation

Broker and dealer firms are part of the national financial system and are subject to CMN, Brazilian Central Bank and CVM regulation and supervision. Brokerage firms must be chartered by the Brazilian Central Bank and are the only institutions in Brazil authorized to trade on stock exchanges. Both brokers and dealers may act as underwriters in the public placement of securities and engage in the brokerage of foreign currency in any exchange market.

Since August 29, 2019, securities brokers and dealers may loan their own securities to their customers as long as they use the funds as collateral for operations in which the institution itself intermediates. The loan transaction consists of the transfer of assets from the institution: (i) to the customer, in conjunction with the transfer of that asset to the clearinghouse or clearing and settlement service provider; or (ii) to the clearinghouse or clearing and settlement service provider on behalf of the customer through powers established in a formal written power of attorney. In either case, the assets or set of assets in question shall return to the positions originally held at the end of the period stipulated in the contract. To offer this new service, securities brokers and dealers must appoint a director responsible for the loan operations under consideration.

Since November 27, 2020, securities brokers and dealers may issue electronic currency and maintain payment accounts.

Foreign Exchange Market

Transactions involving the sale and purchase of foreign currency in Brazil may be conducted only by institutions duly authorized by the Brazilian Central Bank to operate in the foreign exchange market. There is no current limit to long or short positions in foreign currency for banks authorized to carry out transactions on the foreign exchange market. Other institutions within the national financial system are not allowed to have short positions in foreign currency, although there are no limits with respect to foreign exchange long positions.

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The Brazilian Central Bank imposes a limit on the total exposure in foreign currency transactions and transactions subject to foreign exchange fluctuation undertaken by Brazilian financial institutions, including branches abroad, and their direct and indirect affiliates. The limit is currently equivalent to 30.0% of the financial institution’s Regulatory Capital (Patrimônio de Referência), on a consolidated basis. The CMN, the Brazilian Central Bank and the Brazilian government may change the regulation applicable to foreign currency and foreign exchange transactions undertaken by Brazilian financial institutions in accordance with Brazil’s economic policy (including its foreign exchange policy).

On October 7, 2019, the Brazilian Central Bank, sent to the President of Brazil a draft bill to change the way in which the Brazilian foreign exchange market is regulated (“New Foreign Exchange Bill”). The draft also contains provisions regarding Brazilian capital abroad and foreign capital within Brazil. The initiative aims to modernize, simplify and reduce legal doubts associated with current Brazilian foreign exchange legislation.

The main aspects of the New Foreign Exchange Bill are: (i) ratification, at the legal level, that foreign exchange transactions may be carried out freely (provided such transactions are carried out by entities authorized to operate in this market and subject to applicable rules); (ii) granting of broad powers to the CMN and the Brazilian Central Bank to regulate the foreign exchange market and foreign exchange operations; (iii) expansion of international correspondence activities by Brazilian banks; (iv) possibility of Brazilian financial institutions investing and lending abroad funds that have been raised in Brazil or abroad; (v) the exclusion from its scope of foreign currency purchase and sale operations of up to US$1,000 carried out between individuals on an occasional and non-professional basis; and (vi) the granting of powers to the monetary authorities to establish situations in which the prohibition of the private offset of credits between residents and nonresidents, as well as payments in foreign currency in Brazil, would not apply.

On December 22, 2020, the Brazilian House of Representatives approved the base wording of the New Foreign Exchange Bill. The Brazilian House of Representatives is expected to vote on any motions by representatives for amendment or redaction of specific sections of the New Foreign Exchange Bill in early 2021. Upon approval by the Brazilian House of Representatives, the bill will be sent to the Brazilian Senate for approval. As of the date of this annual report, it is not possible to estimate if and when it will be approved by the Brazilian Senate, or what changes will be approved by the House of Representatives.

Foreign Investment in Brazilian Financial Institutions

According to the Brazilian federal constitution, the acquisition of equity interests by foreign individuals or legal entities in the capital stock of Brazilian financial institutions is forbidden, unless permitted by bilateral international treaties or by the Brazilian government by means of a presidential decree. A presidential decree issued on November 13, 1997, issued in respect of Banco Meridional do Brasil S.A. (our legal predecessor) allows 100% foreign participation in our capital stock. Foreign investors may acquire the shares issued by Santander Brasil as a result of this decree. In addition, foreign investors may acquire publicly traded nonvoting shares of Brazilian financial institutions traded on a stock exchange or securities depositary receipts offered abroad representing shares without specific authorization.

Following the enactment of Decree No. 10,029, the Brazilian Central Bank published, on January 22, 2020, Circular No. 3,977 recognizing as an interest of the Brazilian government the foreign holding of equity or increase in equity interest of financial institutions headquartered in Brazil (which is still subject to the same requirements and procedures applicable to the acquisition of equity in any Brazilian financial institution), as well as the opening of local branches of foreign financial institutions. However, since Santander Brasil had already been granted a specific presidential decree authorizing the foreign interest in its share capital, prior to Decree 10,029/19 being issued it does not affect its operations in Brazil.

A foreign financial institution duly authorized to operate in Brazil through a branch or a subsidiary is subject to the same rules, regulations and requirements that are applicable to any Brazilian financial institution.

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Bank Correspondents

Financial institutions are allowed to provide specific services to customers, including customer services, through other entities. These entities are called “bank correspondents” and the relationship between the financial institution and the bank correspondent is ruled by a specific regulation published by CMN and is subject to the supervision of the Brazilian Central Bank.

Regulation of Branches

Authorization by the Brazilian Central Bank is required for operations of branches or subsidiaries of Brazilian financial institutions, upon the compliance with certain term, capital and equity requirements, as well as the submission of an economic and financial feasibility analysis.

The Brazilian Central Bank’s prior authorization is also required in order to: (i) allocate new funds to branches or subsidiaries abroad; (ii) subscribe capital increases, directly or indirectly, in subsidiaries abroad; (iii) increase equity participation, directly or indirectly, in subsidiaries abroad; and/or (iv) merge or spin off, directly or indirectly, subsidiaries abroad.

The Brazilian Central Bank determines that financial institutions can install the following establishments in Brazil: (i) branches, (ii) teller booths, (iii) automatic teller machines, and (iv) segregated administrative units, provided that, for items (i) to (iii), conformity with requirements of minimum capital and operating limits are necessary.

Cayman Islands Banking Regulation

We have a branch in the Cayman Islands with its own staff and representative officers. Banco Santander (Brasil) S.A. – Grand Cayman Branch is licensed under The Banks and Trust Companies Law (2013 Revision) of the Cayman Islands, or the “Banks and Trust Companies Law,” as a Category “B” Bank and it is duly registered as a Foreign Company with the Registrar of Companies in the Cayman Islands. The branch, therefore, is duly authorized to carry on banking business in the Cayman Islands. The branch was authorized by the local authorities to act as its own registered office and it is located at the Waterfront Centre Building, 28, North Church Street – 2nd floor, George Town, Grand Cayman, Cayman Islands, P.O. Box 10444 – KYI-1004, Phone: 1-345-769-4401 and Fax: 1-345-769-4601.

Our Grand Cayman Branch is currently engaged in the business of sourcing funds in the international banking and capital markets to provide credit lines for us, which are then extended to our customers for working capital and trade-related financings. It also takes deposits in foreign currency from corporate and individual customers and extends credit to Brazilian and non-Brazilian customers, mainly to support trade transactions with Brazil. The results of the operations of the Grand Cayman Branch are consolidated in our consolidated financial statements.

Banks and trust companies wishing to conduct business from within the Cayman Islands must be licensed by the Cayman Islands Monetary Authority under the Banks and Trust Companies Law, irrespective of whether the business is to be actually conducted in the Cayman Islands.

Under the Banks and Trust Companies Law, there are two main categories of banking license: a category “A” license, which permits unrestricted domestic and offshore banking business, and a category “B” license, which permits principally offshore banking business. The holder of a category “B” license may have an office in the Cayman Islands and conduct business with other licensees and offshore companies but, except in limited circumstances, may not do banking business locally with the public or residents of the Cayman Islands. We have an unrestricted category “B” license.

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There are no specific ratio or liquidity requirements under the Banks and Trust Companies Law, but the Cayman Islands Monetary Authority will expect observance of prudent banking practices, and the Banks and Trust Companies Law imposes a minimum net worth requirement of an amount equal to CI$400,000 (or, in the case of licensees holding a restricted category “B” or a restricted trust license, CI$20,000). As of December 31, 2020, CI$1 was equivalent to R$6.29, according to the Brazilian Central Bank.

Luxembourg Banking Regulation

Branches of credit institutions from outside the European Union (“non-EU credit institutions”) must be licensed by the Luxembourg Minister of Finance under the law of 5 April 1993 on the financial sector, as amended, in order to operate in Luxembourg.

We have a branch in Luxembourg with its own staff and representative officers. Our Luxembourg branch is licensed as a Luxembourg branch of a non-EU credit institution and is duly registered with the Luxembourg Trade and Companies’ Registry. The branch, therefore, is duly authorized to carry on banking business in Luxembourg. Its registered offices are at 35F, avenue J.F. Kennedy, 2nd floor, L-1855 Luxembourg, Grand Duchy of Luxembourg.

Our Luxembourg branch is currently engaged in the business of sourcing funds in the international banking and capital markets to provide credit lines for us, which are then extended to our customers for working capital and trade-related financings. It also takes deposits in foreign currency from corporate and individual customers and extends credit to Brazilian and non-Brazilian customers, mainly to support trade transactions involving Brazil. The results of the operations of the Luxembourg branch are consolidated in our consolidated financial statements.

Luxembourg law requires the Luxembourg branch to have a minimum endowment capital of €8,700,000 and the solvency, and liquidity requirements deriving, among others, from EU Regulation No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms apply to it.

Foreign Subsidiary

We had established an independent subsidiary in Spain, Santander EFC, in order to complement our foreign trade strategy for corporate customers, which are composed of large Brazilian companies and their operations abroad. This has allowed us to provide financial products and services by means of an offshore entity, which is not established in a “tax haven,” such as our Cayman Islands branch, in accordance with Law No. 12,249, of June 11, 2010, and Brazilian Federal Revenue Normative Ruling No. 1,037, of June 4, 2010.

The establishment of our foreign subsidiary was approved by the Brazilian Central Bank on September 26, 2011, by the Spanish Ministerio de Economia y Hacienda on February, 6, 2012 and by the Bank of Spain on March 28, 2012. The remittance of resources to pay up the share capital of the subsidiary was carried out on March 5, 2012, totaling €748 million. Santander EFC was operational from 2012 to November 12, 2020, when we approved its liquidation. As a consequence of the liquidation, we, as sole shareholder of Santander EFC, have participated in the net assets of the corporation, in the net amount of €741 million.

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U.S. Banking Regulation

Financial Regulatory Reform

Banking statutes and regulations are continually under review by the United States Congress. In addition to laws and regulations, the U.S. bank regulatory agencies may issue policy statements, interpretive letters and similar written guidance. Many changes have occurred as a result of the 2010 Dodd-Frank Act and its implementing regulations, most of which are now in place. In 2017, the President of the United States issued an executive order that sets forth principles for financial regulatory reform. In May 2018, the United States Congress passed, and President Trump signed into law the Economic Growth, Regulatory Relief, and Consumer Protection Act (“EGRRCPA”) which, among other things, revised the thresholds for total consolidated assets at which certain enhanced prudential standards apply to bank holding companies. EGRRCPA made clear that the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”) retains the right to apply enhanced prudential standards to FBOs with greater than $100 billion in global total consolidated assets, such as Santander Spain.

In October 2019, the federal banking agencies issued final rules (the “Tailoring Rules”) that, pursuant to EGRRCPA, adjust the thresholds at which certain enhanced prudential standards and capital and liquidity requirements apply to certain banking organizations, including large FBOs such as Santander Spain. As a result, Santander Spain is now generally subject to less restrictive enhanced prudential standards and capital and liquidity requirements than under previously applicable regulations.

Volcker Rule

Section 13 of the U.S. Bank Holding Company Act of 1956, as amended, and its implementing rules (collectively, the “Volcker Rule”) prohibits “banking entities” from engaging in certain forms of proprietary trading or from sponsoring or investing in “covered funds,” in each case subject to certain exceptions. The Volcker Rule also limits the ability of banking entities and their affiliates to enter into certain transactions with covered funds with which they or their affiliates have certain relationships. Banking entities such as Santander Brasil and Santander Spain were required to bring their activities and investments into compliance with the requirements of the Volcker Rule by the end of the conformance period applicable to each requirement. Santander Spain has assessed how the Volcker Rule affects its businesses and subsidiaries, including Santander Brasil, and has brought its activities into compliance. Santander Brasil has adopted processes to establish, maintain, enforce, review and test the compliance program designed to achieve and maintain compliance with the Volcker Rule. The Volcker Rule contains exclusions and certain exemptions for market-making, hedging, underwriting, trading in U.S. government and agency obligations, as well as certain foreign government obligations, and trading solely outside the United States, and also permits certain ownership interests in certain types of funds to be retained. Santander Spain’s non-U.S. banking organization subsidiaries, including Santander Brasil, are largely able to continue their activities outside the United States in reliance on the “solely outside the U.S.” exemptions from the Volcker Rule. Those exemptions generally exempt proprietary trading, and sponsoring or investing in covered funds if, among other restrictions, the essential actions take place outside the United States and any transactions are not with U.S. persons.

On July 21, 2017, the five regulatory agencies charged with implementing the Volcker Rule announced the coordination of reviews of the treatment of certain foreign funds that are investment funds organized and offered outside the United States and that are excluded from the definition of covered fund under the agencies’ implementing regulations. Also in July 2017, the Federal Reserve issued guidelines for banking entities seeking an extension to conform certain “seeding” investments in covered funds to the requirements of the Volcker Rule.

As of October 2019, the five regulatory agencies charged with implementing the Volcker Rule finalized amendments to the Volcker Rule. These amendments tailor the Volcker Rule’s compliance requirements to the amount of a firm’s trading activity, revise the definition of trading account, clarify certain key provisions in the Volcker Rule, and modify the information companies are required to provide the federal agencies. Santander Brasil will still largely rely on the “solely outside the U.S. exemption” to conduct its trading activities.

In early 2020, the five federal agencies proposed additional amendments to the Volcker Rule related to the restrictions on ownership interests in and relationships with covered funds. Santander Spain will continue to monitor these Volcker Rule-related developments and assess their impact on its operations, including those of Santander Brasil, as necessary.

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U.S. Anti-Money Laundering, Anti-Terrorist Financing, and Foreign Corrupt Practices Act Regulations

Santander Brasil, as a foreign private issuer whose securities are registered under the Exchange Act, is subject to the U.S. Foreign Corrupt Practices Act, or the “FCPA”. The FCPA generally prohibits such issuers and their directors, officers, employees and agents from using any means or instrumentality of U.S. interstate commerce in furtherance of any offer or payment of money to any foreign official or political party for the purpose of influencing a decision of such person in order to obtain or retain business. It also requires that the issuer maintain books and records and a system of internal accounting controls sufficient to provide reasonable assurance that accountability of assets is maintained and accurate financial statements can be prepared. Penalties, fines and imprisonment of Santander Brasil’s officers and/or directors can be imposed for violations of the FCPA.

Furthermore, Santander Brasil is subject to a variety of U.S. anti-money laundering and anti-terrorist financing laws and regulations, such as the Bank Secrecy Act of 1970, as amended, and the USA Patriot Act of 2001, as amended, and a violation of such laws and regulations may result in substantial penalties, fines and imprisonment of Santander Brasil’s officers and/or directors.

U.S. Sanctions

“Sanction(s)” means any international economic sanction administered or enforced by the United States government (including without limitation, OFAC), the United Nations Security Council, the European Union or Her Majesty’s Treasury. The Office of Foreign Assets Control (“OFAC”) is responsible for administering economic sanctions imposed against designated foreign countries, governments, individuals and entities pursuant to various Executive Orders, statutes and regulations.

OFAC-administered sanctions take many different forms. For example, sanctions may include: (1) restrictions on U.S. persons’ trade with or investment in a sanctioned country, including prohibitions against direct or indirect imports from and exports to a sanctioned country and prohibitions on U.S. persons engaging in financial transactions relating to, making investments in, or providing investment-related advice or assistance to, a sanctioned country; and (2) blocking of assets of targeted governments or “specially designated nationals,” by prohibiting transfers of property subject to U.S. jurisdiction, including property in the possession or control of U.S. persons. Blocked assets, such as property and bank deposits, cannot be paid out, withdrawn, set off or transferred in any manner without a license from OFAC. In addition, non-U.S. persons can be liable for “causing” a sanctions violation by a U.S. person or can violate U.S. sanctions by exporting services from the United States to a sanctions target, for example by engaging in transactions with targets of U.S. sanctions denominated in U.S. dollars that clear through U.S. financial institutions (including through U.S. branches or subsidiaries of non-U.S. banks).

Failure to comply with applicable U.S. sanctions could have serious legal and reputational consequences, including significant civil monetary penalties and, in the most severe cases, criminal penalties.

In addition, the U.S. government has implemented various sanctions that target non-U.S. persons, including non-U.S. financial institutions, that engage in certain activities undertaken outside the United States and without the involvement of any U.S. persons (“secondary sanctions”) that involve Iran, North Korea, Russia, or Hezbollah or other persons designated by the United States under the Specially Designated Global Terrorist, or “SDGT,” sanctions program. If a non-U.S. financial institution were determined to have engaged in activities targeted by certain secondary U.S. sanctions or used proceeds produced by such activities targeted, it could lose its ability to open or maintain correspondent or payable-through accounts with U.S. financial institutions, among other potential consequences.

Antitrust Regulation

According to the Brazilian antitrust law, actions that concentrate market share must be previously submitted to CADE for approval if the following criteria are met: (i) at least one of the groups involved in the deal has posted annual gross revenues or volume of business equal to or over R$750 million, in Brazil, in the year prior to the transaction; and (ii) at least another group has posted annual gross revenues or volume of business equal to or over R$75 million, in Brazil, in the year prior to the transaction. Closing of a transaction without CADE’s approval will subject the parties to fines ranging from R$60,000 to R$60 million.

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The Brazilian Central Bank will also examine certain corporate reorganizations and other acts involving two or more financial institutions not only considering their potential effects on the financial system and its stability but also any potential impacts regarding market concentration and competition. Upon approval of the transaction, the Brazilian Central Bank may establish certain restrictions and require that the financial institutions execute an agreement of market concentration control, pursuant to which the terms and conditions of the sharing of the efficiency gain resulting from the act shall be set forth.

In December 2018, the Brazilian Central Bank and CADE approved a joint normative act establishing procedures with the purpose of increasing efficiency for their respective actions regarding antitrust matters. Pursuant to the joint normative act, the authorities are authorized to share information for the purposes of their respective activities and carry out meetings with each other to discuss matters requiring the regulatory cooperation between both authorities.

Insolvency Laws Concerning Financial Institutions

Financial institutions are subject to the proceedings established by Law 6,024 of March 13, 1974, or “Law 6024”, which establishes the applicable provisions in the event of intervention or extrajudicial liquidation by the Brazilian Central Bank, as well as to bankruptcy proceedings.

Intervention and extrajudicial liquidation occur when the Brazilian Central Bank has determined that the financial institution is in bad financial condition or upon the occurrence of events that may impact the creditors’ situation. Such measures are imposed by the Brazilian Central Bank in order to avoid the bankruptcy of the entity.

Intervention

An intervention can be carried out at the discretion of the Brazilian Central Bank in the following cases:

·risk to the creditors due to mismanagement;

·consistent violation of Brazilian banking laws or regulations; or

·if the intervention is a feasible alternative to the liquidation of the financial institution.

As of the date on which it is ordered, the intervention will automatically suspend the enforceability of the payable obligations; prevent early termination or maturity of any previously contracted obligations; and freeze deposits existing on the date on which the intervention is decreed.

The intervention will cease if interested parties undertake to continue the economic activities of the financial institution, by presenting the necessary guarantees, as determined by the Brazilian Central Bank, when the situation of the entity is regularized as determined by the Brazilian Central Bank; or when extrajudicial liquidation or bankruptcy of the entity is ordered.

Intervention may also be ordered upon the request of a financial institution’s management.

Extrajudicial Liquidation

Extrajudicial liquidation is an administrative proceeding decreed by the Brazilian Central Bank (except that it is not applicable to financial institutions controlled by the Brazilian federal government) and conducted by a liquidator appointed by the Brazilian Central Bank. This extraordinary measure aims at terminating the activities of the affected financial institution, liquidating its assets and paying its liabilities, as in a judicially decreed bankruptcy. The Brazilian Central Bank will place a financial institution in extrajudicial liquidation if:

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·the institution’s economic or financial situation is at risk, particularly when the institution ceases to meet its obligations as they become due, or upon the occurrence of an event that could indicate a state of insolvency under the rules of the Bankruptcy Law;

·management seriously violates Brazilian banking laws, regulations or rulings;

·the institution suffers a loss which subjects its unprivileged and unsecured creditors to severe risk; and/or

·upon revocation of the authorization to operate, the institution does not initiate ordinary liquidation proceedings within 90 days or, if initiated, the Brazilian Central Bank determines that the pace of the liquidation may harm the institution’s creditors.

A request for liquidation procedures can also be filed on reasonable grounds by the officers of the respective financial institution or by the receiver appointed by the Brazilian Central Bank in the receivership procedure.

The decree of extrajudicial liquidation will: (i) suspend the actions or foreclose on rights and interests relating to the estate of the entity being liquidated, while no other actions or executions may be brought during the liquidation; (ii) accelerate the obligations of the entity; and (iii) interrupt the statute of limitations with regard to the obligations assumed by the institution.

Extrajudicial liquidation procedures may be terminated:

·by discretionary decision of the Brazilian Central Bank if the parties involved undertake the administration of the financial institution after having provided the necessary guarantees; or

·when the final accounts of the receiver are delivered and approved and subsequently registered in the relevant public records; or

·when converted into ordinary liquidation; or

·when a financial institution is declared bankrupt.

Temporary Special Administration Regime (Regime de Administração Especial Temporária or “RAET”)

In addition to the intervention procedures described above, the Brazilian Central Bank may also establish a RAET, under Law 9447, dated March 14, 1997 combined with Law 6,024/74, which is a less severe form of the Brazilian Central Bank intervention in private and nonfederal public financial institutions that allows institutions to continue to operate normally. The RAET may be ordered in the case of an institution that:

·continually enters into recurrent operations that are against economic or financial policies set forth in federal law;

·faces a shortage of assets;

·fails to comply with the compulsory reserves rules;

·reveals the existence of hidden liabilities;

·experiences the occurrence of situations that cause receivership pursuant to current legislation;

·has reckless or fraudulent management; or

·carries out activities which call for an intervention.

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The main objective of a RAET is to assist the recovery of the financial condition of the institution under special administration and thereby avoid intervention and/or liquidation. Therefore, a RAET does not affect the day-to-day business, operations, liabilities or rights of the financial institution, which continues to operate in the ordinary course of business. Measures which may be adopted by the institution include the transfer of assets, rights and obligations to other entities, and corporate restructuring of these entities, with a view to the continuity of the institution’s business or activities.

There is no minimum term for a RAET, which ceases upon the occurrence of any of the following events: (i) acquisition by the Brazilian federal government of control of the financial institution, (ii) corporate restructuring, merger, spinoff, amalgamation or transfer of the controlling interest of the financial institution, (iii) decision by the Brazilian Central Bank, or (iv) declaration of extrajudicial liquidation of the financial institution.

Bankruptcy Law

Law No. 11,101, of February 9, 2005, as amended, or the “Bankruptcy Law”, regulates judicial reorganizations, out-of-court reorganizations and the bankruptcy of individuals and corporations that have occurred since 2005 and applies to financial institutions only with respect to the matters not specifically regulated by the intervention and extrajudicial liquidation regimes described above.

On December 24, 2020, Law 14,112, or “Law 11,112/20,” was passed. Law 11,112/20 overhauls the current Bankruptcy Law in several material aspects. Law 14,112/20 came into effect on January 23, 2021. Certain changes arising from this new legislation may affect enforcement and priority matters, such as: (i) the possibility of creditors putting forward an alternative judicial reorganization plan; (ii) new rules on the approval of post-petition loans in judicial reorganization and on priority claims in case of conversion to bankruptcy liquidation; (iii) more flexible quorum and mechanics in the extrajudicial reorganization process; (iv) new rules to expedite the bankruptcy liquidation process; (v) new methods for restructuring of the debtor's tax liabilities and installment payments, as well as new taxation schemes; and (vi) incorporation of rules on cross-border insolvency proceedings into the Brazilian framework.

Law 14,112/20 replicates, with some adjustments, the provisions of the UNCITRAL Model Law on Cross-Border Insolvency. As a result, Law 14,112/20 sets out some rules on access of foreign representatives to courts in Brazil, the method and requirements for recognition of foreign main and ancillary proceedings, authorization for the debtor and his representatives to act in other countries, methods of communication and cooperation between foreign authorities and representatives and the Brazilian jurisdiction, and the processing of concurrent proceedings.

Law 14,112/20 also sets forth, among other measures, (i) a protection for creditors that agree on the conversion of debt into equity against potential transfer of liability with regard to the debtor's obligations; (ii) the stay period and constraints on the assets of the debtor under judicial reorganization; (iii) conciliation and mediation measures before and during judicial reorganization proceedings; and (iv) the rules on procedural and substantive consolidation. Law 14,112/20 also sets out that a bankruptcy decree does not reach beyond the bankrupt itself, save when the disregard doctrine is to apply.

Repayment of Creditors in a Liquidation or Bankruptcy

In the event of extrajudicial liquidation or bankruptcy of a financial institution, creditors are paid pursuant to their priorities and privileges. Prepetition claims are paid on a ratable basis in the following order: labor credits; secured credits; tax credits; credits with special privileges; credits with general privileges; unsecured credits; contractual fines and pecuniary penalties for breach of administrative or criminal laws, including those of a tax nature; and subordinated credits.

The current law confers immunity from attachment of compulsory deposits maintained by financial institutions with the Brazilian Central Bank. Such deposits may not be attached in actions by a bank’s general creditors for the repayment of debts and require that the assets of any insolvent bank funded by loans made by foreign banks under trade finance lines be used to repay amounts owing under such lines in preference to those amounts owing to the general creditors of such insolvent bank.

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Recovery Plans for Systematically Important Financial Institutions

Systemically important Brazilian financial institutions must implement a recovery plan (plano de recuperação), with the aim of reestablishing adequate levels of capital and liquidity and to preserve the viability of such institutions. The recovery plans must identify their critical functions for the National Financial System, adopt stress-testing scenarios, define clear and transparent governance procedures, assess possible barriers to the entity’s recovery, as well as implement effective communication plans with key stakeholders.

Deposit Insurance - FGC

The purpose of the FGC is to guarantee the payment of funds deposited with financial institutions in case of intervention, liquidation, bankruptcy or insolvency. The FGC is funded by ordinary contributions made by the financial institutions in the amount of up to 0.0125% of the total amount of outstanding balances of the accounts corresponding to guaranteed obligations, and certain special contributions as determined. Delay in performing such contributions is subject to a penalty of 2% over the amount of the contribution.

The total amount of credit in the form of demand deposits, savings deposits, time deposits, deposits maintained in accounts blocked for transactions with checks (for the registration and control of funds relating to the rendering of services of payment of salaries, earnings, pensions), bills of exchange, real estate bills, mortgage bills, real estate credit bills and repurchase and resale agreements whose objects are instruments issued after March 8, 2012 by a company of the same group due to each customer by a financial institution (or by financial institutions of the same financial group) will be guaranteed by the FGC for up to a maximum of R$250,000 per customer. When the assets of the FGC reach 2% of the total amounts they guarantee, the CMN may temporarily suspend or reduce the contribution of financial institutions to the FGC. As from February 2016, credits of financial institutions and other institutions authorized to operate by the Brazilian Central Bank, complementary welfare entities, insurance companies, capitalization companies, investment clubs and investment funds, as well as those representing any interest in or financial instrument held by such entities, are not protected by the ordinary guarantee of FGC. In December 2017, the CMN enacted a new rule amending certain provisions of the FGC regulation among which includes the establishment of a limit of R$1 million per four-year period for the coverage of the credits of a certain creditor against the group of associated financial institutions.

Administrative Proceedings in the Brazilian National Financial System, the Brazilian Payment System and Capital Markets

Law 13,506 of November 13, 2017 or “Law 13,506/17” applies to entities authorized or supervised by the Brazilian Central Bank or by the CVM, as well as to market participants. Some of the key aspects of Law 13,506 are that: (i) it increases the maximum fine applicable by the Brazilian Central Bank from R$250,000 to R$2 billion or 0.5% of the revenues of the company arising from services and financial products in the year prior to the violation; (ii) it increases the maximum fine applicable by the CVM from R$500,000 to R$50 million; (iii) it makes additional types of violations subject to penalties; (iv) it provides that the penalty of “public admonition” may be cumulative to other penalties applicable by the Brazilian Central Bank; (v) it provides that Brazilian Central Bank may enter into cease-and-desist commitments; and (vi) it provides that the Brazilian Central Bank and the CVM may enter into administrative agreements similar to leniency agreements.

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Opening, Maintenance and Closing of Deposit Accounts

CMN Resolution No. 4,753/19 provides criteria for the opening, maintenance and closing of deposit accounts. The regulation determines that financial institutions must adopt procedures and controls that allow the verification and validation of the identity and qualification of the account holders and, if applicable, their representatives, as well as the authenticity of the information provided by the client. This information must be kept updated by the financial institution.

The rule also requires financial institutions to ensure, through the procedures and technology used for the opening, maintaining and closing of deposit accounts, the integrity authenticity and confidentiality, as well as the protection against unauthorized access, use, alteration, reproduction and destruction, of the information and the electronic documents used by them during the process.

Issuance of Credit Instruments Electronically

Provisional Measure No. 897, or “MP 897/2019,” among other provisions, (i) created a new credit instrument, the Rural Real Estate Note (Cédula Imobiliária Rural or “CIR”), with the purpose of advancing rural real estate financing by the creation of an instrument specifically designed to that end; (ii) changed the rules governing Bank Deposit Certificates (Certificado de Depósito Bancário or “CDB”), especially regarding their issuance and the transfer of their ownership, by providing among other changes that CDB issued in book-entry form should be transferred by electronic endorsement, exclusively by means of a specific notation in the issuing institution’s own electronic system or, when deposited in central depositary, by means of specific notation in the corresponding electronic system; and (iii) authorized that customary credit instruments such as the Agricultural Certificate of Deposit (Certificado de Depósito do Agronegócio - CDA), the Agricultural Warrant (Warrant Agropecuário - WA), the Real Estate Credit Certificate (Certificado de Crédito Imobiliário - CCI), the Bank Credit Note (Cédula de Crédito Bancário - CCB), the Rural Credit Note (Cédula de Crédito Rural - CCR) , the Rural Promissory Note (Nota Promissória Rural - NPR), the Rural Trade Bill (Duplicata Rural - DR), may be issued in book-entry form through the electronic bookkeeping system held at a financial institution or other entity authorized by the Brazilian Central Bank to perform electronic bookkeeping activity.

On July 15, 2020, the Brazilian Central Bank regulated, through Circular No. 4,036/20, the electronic issuance of book-entry CCBs and CCRs by financial institutions. A financial institution must render the following services in respect of the bookkeeping of CCBs and CCRs: (i) issue the instrument in book-entry form at the request of the borrower; (ii) include of all obligatory information related to CCBs and CCRs, as well as ancillary documents and/or information for the purposes of verifying the outstanding balance of the underlying credit transaction; (iii) verify the effective title or fiduciary title of the instruments; (iv) make the payment CCBs and CCRs for the settlement of obligations available to the debtor; (v) control the financial flow related to the CCBs and CCRs, including prepayments; (vi) record security interests in an entity authorized to perform centralized registration or deposit of financial assets; (vii) make information about the CCBs and CCRs available to debtors, holders, collateral beneficiaries or any other legally qualified interested party; and (viii) carry out the issuance of certificates regarding the instruments whenever required.

Limitation to the fees and interest rates on overdraft-secured checks

On November 27, 2019, the CMN issued Resolution No. 4,765 or “Resolution No. 4,765/2019”, providing for new rules on the overdraft granted by financial institutions in checking accounts held by individuals and individual micro entrepreneurs. The new rule limits the charging of fees on overdraft-secured checks to: (i) 0% for the opening credit facilities of up to R$500.00; and (ii) 0.25% for the opening of credit facilities larger than R$500.00, calculated with the amount of the facility that exceeds R$500.00. It also limits interest rates over the overdraft-secured check to up to 8% per month, to which must be added a discount of the overdraft fees already charged monthly by the financial institution. If the interest is less than or equal to the overdraft fees, such interest rates must be equal to zero. In addition, Resolution No. 4,765/2019 establishes that the overdraft-secured check must be compatible with the customer’s risk profile.

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Resolution No. 4,765/2019 came into force on January 6, 2020, for agreements executed after the referred date, came into force on June 1, 2020, for agreements executed prior to such date. Regarding the 8% limitation above, the rule applies to all contracts from January 6, 2020, regardless of the date the applicable contract was entered into.

On February 6, 2020, the Brazilian Central Bank issued Circular No. 3,981, which deals with the new information regarding overdraft facilities that must be highlighted in the statement of the checking accounts held by natural persons or MEIs. Circular No. 3,981 came into effect on June 1, 2020.

Automatic debit of banking accounts

On March 26, 2020, CMN issued Resolution No. 4,790, which sets forth new rules for the automatic debit payments from checking account and accounts designated for the payment of an individual’s wages. The new rule sets forth that financial institutions should only process automatic debit payments upon prior and express authorization of the client, and provides for the procedures for the authorization and cancellation of automatic debit payments. The new rule came into force on March 1, 2021. CMN Resolution No. 4,790 repealed CMN Resolution 4,771.

Taxation

Corporate Income Tax (IRPJ) and Social Contribution Tax (CSLL)

The IRPJ is calculated at a rate of 15.0%, plus a surtax of 10.0% which is levied on profits exceeding the amount of R$240,000 per year and the CSLL is calculated at a rate of 15.0% or 20.0% for financial institutions and 9.0% for companies, after adjustments determined by the tax legislation.

Constitutional amendment 103/2019 increased the CSLL tax rate applicable to banks from 15.0% to 20.0% from March 1, 2020.

Deferred tax assets and liabilities are measured based on temporary differences between the book basis and tax basis of assets and liabilities, tax losses, and adjustments to fair value of securities and derivatives.

According to the requirements in the current regulations, the expected realization of deferred tax assets is based on projections of future results and a technical study approved by the Directors of Santander Brasil.

Income tax (IRPJ) and Social Contribution Tax (CSLL) on Foreign Exchange Variation of Hedges for Investments Held Abroad (Law No. 14,031/2020)

Pursuant to Law No. 14,031/2020, which came in force in July 2020, exchange rate variations arising from hedges on investments held abroad are taxable starting in 2021. Accordingly, in 2021, 50% of the exchange rate variation shall be taxable under the IRPJ and CSLL, while, in 2022, 100% of the exchange rate variation will be considered as taxable.

Tax on Services (ISS)

Each of the Municipalities of Brazil and the Federal District are responsible for establishing the applicable ISS rate, which is charged on the value of services provided by the company, to the municipality where the service renderer is located. The rates vary from 2% to 5% and depend on the nature of the service.

On December 30, 2016, Complementary Law No. 157/2016 was enacted. This new legislation establishes a minimum rate of 2% for these types of taxes, no reductions or deductions being permitted. This Law provides that the following services are subject to ISS in the municipality in which the service taker is located: (i) card management, including POS services, that may be paid to the municipality where the corresponding POS device has been registered; (ii) leasing; (iii) fund management; and (iv) consortium.

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Before the aforementioned Law was enacted, the ISS was due in the municipality in which the service provider was located (irrespective of where the service taker was located). With this new legislation, ISS rates may vary depending on where the service taker is located.

There are several complications that may arise from this new legislation, including (i) as service takers are generally located in several municipalities, it is logistically difficult to comply and collect the taxes; and (ii) there are situations where the municipality of the service taker is not easily identifiable by the credit card company (as is the case for online transactions, for example).

Since the ISS is a municipal tax, the rule must be regulated by each municipality in order to be enforceable. This new rule is only applicable to triggering events occurring from 2018 onwards, when the municipal regulations applicable to Supplementary Law No. 157 come into force.

On March 23, 2018, the Brazilian Supreme Court suspended the application of the Complementary Law No. 157. It is still suspended as of the date of this annual report. This suspension may be circumvented by the enactment of Complementary Law No. 175/20.

Complementary Law No. 175, published on September 24, 2020, was enacted to create a unified ISS collection system, in which taxpayers would be able to collect ISS in every municipality in Brazil. It’s an effort to facilitate tax collection considering the complexity regarding the multiple rulings on ISS, since each municipality can pass its own laws on ISS.

The system is currently under development and it is expected that it would enable Complementary Law No. 157 to be brought back into effect.

PIS and COFINS Tax Rates

PIS and COFINS (respectively, the profit participation contribution and the social security financing contribution, both of which are social contributions due on certain revenues net of certain expenses) payable by financial institutions and similar entities, as defined by law, are due at the rate of 0.65% and 4%, respectively. They are levied cumulatively on gross revenue billed, which is defined as the total revenues earned by the legal entity, net of certain expenses, such as funding costs.

Non-financial entities are taxed at the rates of 1.65% and 7.6% of PIS and COFINS, respectively, and are subject to non-cumulative incidence, which consists of deduction of certain expenses from the tax base as allowed by law.

Tax on Financial Transactions (IOF)

IOF is a tax levied on credit, currency exchange, insurance and securities transactions and it is imposed on the following transactions and at the following rates:

Transaction(1)

Maximum Legal Rate

Current Rate

Credit extended by financial institutions and non-financial entities1.5% or 3%0.0041% per day for loans contracted by legal entities and 0.0082% per day for individuals capped at 365 days. An additional 0.38% rate is applicable in both cases.
Transactions relating to securities(2)1.5% per day0.5% per day for certain investment funds.
0% on transactions with equity securities and certain debt securities, such as debentures and real estate receivables and agribusiness receivables (CRI/CRA).

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Transaction(1)

Maximum Legal Rate

Current Rate

1% per day on transactions with fixed income derived from federal, state, or municipal public and private bonds, and fixed income investment funds limited to certain percentages of the income raised from investment. This rate is reduced to zero from the 30th day following the acquisition date of the investment and on repurchase agreements carried out by financial institutions and other institutions authorized by the Brazilian Central Bank with debentures issued by institutions belonging to the same group (Decree 8,731/2016).
0% on the assignment of securities to permit the issuance of Depositary Receipts abroad.
Transactions relating to derivatives25.0%Although the maximum rate is 25%, it has been reduced to zero at this moment.
Insurance transactions entered into by insurance companies25%2.38% for health insurance.
0.38% for life insurance.
7.38% for other types of insurance.
Foreign exchange transactions(2)25%0.38% (general rule).
6.38% on credit card transactions as from April 27, 2011.
6.38% on withdrawals abroad using credit or debit cards as from December 28, 2013.
6.38% on purchase of travelers checks or loading of international prepaid card as from December 28, 2013.
0% for outflow of funds related to the payment of principal and interest in connection with foreign loans and financings.
6% for the inflow of funds into Brazil, related to foreign loans subject to registration before the Brazilian Central Bank whose average maturity term is equal or less than 180 days.
0% for the inflow of funds into Brazil, related to foreign loans subject to registration before the Brazilian Central Bank whose average maturity term is higher than 180 days.
0% for interbank transactions.
0% for exchange transactions in connection with the outflow of proceeds from Brazil for the remittance of interest on net equity and dividends to be received by foreign investors.

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Transaction(1)

Maximum Legal Rate

Current Rate

0% for exchange transactions, including by means of simultaneous foreign exchange transactions, for the inflow of funds by foreign investors in the Brazilian financial and capital markets.
0% for exchange transactions, including by means of simultaneous foreign exchange transactions, for the inflow of funds by foreign investors for purposes of initial or additional margin requirements in connection with transactions in stock exchanges.
0% for exchange transactions for the outflow of funds invested by foreign investors in the Brazilian financial and capital markets.
0% for exchange transactions for the inflow and outflow of funds invested by foreign investors, including by means of simultaneous foreign exchange transactions, in certificates of deposit of securities, known as Brazilian Depositary Receipts (“BDRs”).
0% for simultaneous exchange transactions, for the inflow of funds by foreign investors derived from the conversion of direct investments in Brazil made pursuant to Law 4,131/62 into investments in stock tradable in stock exchanges, as from May 2, 2016.
0% for revenues related to the export of goods and services transactions.

The applicable rate is 1.10% for acquisitions of foreign currency (Decree 8,731/2016).

The applicable rate for credit on a foreign bank account belonging to a resident in Brazil is 1.10%, as from March 3, 2018.

(1)The transactions mentioned in the table are for illustration purposes and do not reflect an exhaustive list of transactions subject to the IOF.

(2)There are some exemptions or specific cases in which the applicable rate is zero.

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FATCA

The Foreign Account Tax Compliance Act, or “FATCA,” became law in the United States on March 18, 2010. The legislation requires foreign financial institutions, or “FFIs,” (such as Santander Brasil) to enter into an FFI agreement under which they agree to identify and provide the U.S. Internal Revenue Service, or “IRS,” with information on accounts held by U.S. persons and certain U.S.-owned foreign entities, or otherwise face a 30% withholding tax on certain U.S. source withholdable payments. In addition, FFIs that have entered into an FFI agreement will be required to withhold on such payments made to FFIs that have not entered into an FFI agreement, account holders who fail to provide sufficient information to classify an account as a U.S. or non-U.S. account, and U.S. account holders who do not agree to the FFI reporting their accounts to the IRS.

On September 23, 2014, Brazil and the United States announced that they entered into an intergovernmental agreement, or “IGA”, which became effective in Brazil by virtue of Decree No. 8,506 as of August 24, 2015. The aim of the IGA is to improve international tax compliance and implement FATCA. The IGA establishes an automatic annual bilateral exchange of information with the U.S. tax authorities. Under this agreement, Brazilian financial institutions will generally be required to provide certain information about their U.S. account holders to the Brazilian tax authorities (Receita Federal do Brasil), which will share that information with the IRS.

Complying with the required identification, withholding and reporting obligations requires significant investment in an FFI’s compliance and reporting framework. We are continuing to follow developments regarding FATCA closely and are coordinating with all relevant authorities.

Common Reporting Standard

On December 28, 2016, Normative Ruling No. 1,680 was enacted, introducing the Common Reporting Standard in Brazil. The Common Reporting Standard provides for certain account reporting obligations similar to those existing under FATCA. It was created in the context of the Organization for Economic Co-operation and Development’s Base Erosion and Profit Shifting project, which is aimed at reducing tax avoidance. Normative Ruling n° 1,680 applies to legal entities required to present the e-Financeira pursuant to Normative Ruling n° 1,571, dated July 2, 2016.

On the same date, the Normative Ruling n° 1,681 was enacted providing for the obligation to annually deliver the “Country to Country Statement,” an ancillary obligation also arising from the discussions under the BEPS Project, before the Brazilian Federal Revenue Service, or “RFB” as a measure to expand information exchange and improve the level of international tax transparency. This new regulation should not have any impact on Santander Brasil, since, as it is controlled by a legal entity resident in Spain, it is not required by the Brazilian regulation to present such statement.

Income Tax Levied on Capital Gains

Law 13,259, of March 16, 2016 or “Law 13,259/16” introduced the application of progressive tax rates for income taxation over capital gains recognized by Brazilian individuals and by holders that are not domiciled in Brazil for purposes of Brazilian taxation (“Non-Resident Holders”) on the disposition of assets in general. Under Law 13,259/16, the income tax rates applicable to capital gains realized by these investors would be: (i) 15% for the portion of the gains up to R$5 million, (ii) 17.5% for the portion of the gain that exceeds R$5 million but does not exceed R$10 million, (iii) 20% for the portion of the gain that exceeds R$10 million but does not exceed R$30 million, and (iv) 22.5% for the portion of the gain that exceeds R$30 million.

The provisions of Law 13,259/16 may apply to Non Resident Holders pursuant to CMN Resolution 4,373, provided such Non Resident Holders are not located in a Tax Haven. However, Non Resident Holders (whether they are considered to be Non-Resident Holders as a result of CMN Resolution 4373 or otherwise) located in a Tax Haven are subject to a specific tax regulation and will continue to be taxed at a rate of 25%.

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Most transactions carried out by Non Resident Holders pursuant to CMN Resolution 4,373 and that result in capital gains are subject to taxation at a fixed 15% rate, provided they are not located in a Tax Haven.

The tax must be withheld and paid by the buyer or, in cases where the buyer and seller are domiciled abroad, a legal representative of buyer shall be designated for the payment of the tax.

Temporary IOF/Credit Tax Relief

Decree 10,305/20, published in April 2020, along with further amendments, reduced the rate of IOF tax applicable to credit transactions to zero between April 3 and November 27, 2020.

Credit transactions in which funds were redeemed by the customer between the aforementioned dates are not subject to IOF tax. Subsequent renegotiations on credit transactions covered by Decree 10,305/20 that do not include the provision of additional funds are also not subject to IOF tax. Any additional funds are subject to IOF.

Disclosure pursuant to Section 219 of the Iran threat reduction and Syria Human Rights Act

Pursuant to Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012, which added Section 13(r) to the Exchange Act, an issuer is required to disclose in its annual or quarterly reports, as applicable, whether it or any of its affiliates knowingly engaged in certain activities, transactions or dealings relating to Iran or with individuals or entities designated pursuant to certain Executive Orders. Disclosure is generally required even where the activities, transactions or dealings were conducted in compliance with applicable law.

As we are part of the Santander Group, we must also disclose the exposure of other entities of the Santander Group to Iran. The following activities are disclosed in response to Section 13(r) with respect to the Santander Group and its affiliates. During the period covered by this annual report:

(a)       Santander UK holds five blocked accounts for three customers, with the first customer holding one GBP savings account and one GBP current account, the second customer holding one GBP savings account, and the third customer holding two GBP current accounts. All three customers, who are resident in the UK, are currently designated by the U.S. under the SDGT sanctions program. Revenues and profits generated by Santander UK on these accounts in the year ended December 31, 2019 were negligible relative to the overall profits of Banco Santander S.A.

(b)       Santander UK holds two frozen current accounts for two UK nationals who are designated by the U.S. under the SDGT sanctions program. The accounts held by one customer were fully inaccessible at the time of the US designation and were blocked at the time of the account going into a debit balance. The accounts held by the second customer were blocked immediately following the US designation and have remained frozen throughout 2020. These accounts are frozen in order to comply with Articles 2, 3 and 7 of Council Regulation (EC) No 881/2002 imposing certain specific restrictive measures directed against certain persons and entities associated with the Al-Qaeda network, by virtue of Commission Implementing Regulation (EU) 2015/1815. The accounts are in arrears (£1,844.73 in debit combined) and are currently being managed by Santander UK Collections & Recoveries department. No revenues or profits were generated by Santander UK on these accounts in the year ended December 31, 2020.

(c)       Santander Consumer Bank, S.A. holds seven blocked correspondent accounts for Bank Melli. Three USD accounts and four EUR accounts. The accounts have been blocked since 2008. Bank Melli is currently designated by the US under the Specially Designated Global Terrorist (SDGT) sanctions program. No revenues or profits were generated by Santander Consumer Bank, S.A. on these accounts in the year ended 31 December 2020.

(d) The Santander Group also has certain legacy performance guarantees for the benefit of Bank Mellat (standby letters of credit to guarantee the obligations – either under tender documents or under contracting agreements – of contractors who participated in public bids in Iran) that were in place prior to April 27, 2007.

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In the aggregate, all of the transactions described above resulted in gross revenues and net profits in the year ended December 31, 2020, which were negligible relative to the overall revenues and profits of Banco Santander, S.A. The Santander Group has undertaken significant steps to withdraw from the Iranian market such as closing its representative office in Iran and ceasing all banking activities therein, including correspondent relationships, deposit-taking from Iranian entities and issuing export letters of credit, except for the legacy transactions described above. The Santander Group is not contractually permitted to cancel these arrangements without either (i) paying the guaranteed amount (in the case of the performance guarantees), or (ii) forfeiting the outstanding amounts due to it (in the case of the export credits). As such, the Santander Group intends to continue to provide the guarantees and hold these assets in accordance with company policy and applicable laws.

Regulatory Developments Related to COVID-19

The following section summarizes the measures implemented by the CMN and the Brazilian Central Bank to mitigate the consequences of the COVID-19 pandemic on the Brazilian financial system.

Temporary Suspension of Dividend Distributions and Other Payments

On May 29, 2020 the CMN enacted Resolution No. 4,820 in response to the COVID-19 pandemic. Resolution No. 4,820 prohibits financial institutions, such as us, to: (i) offset their capital, including by means of early payment, in excess of amounts equivalent to the minimum mandatory dividend required by the Brazilian Corporate Law, including as interest on capital (ii) repurchase their own shares, subject to certain exceptions as authorized by the Brazilian Central Bank; (iii) reduce their capital stock, except if such reduction is  required by law or approved by the Brazilian Central Bank; and (iv) increase the compensation of their officers, directors and members of the board of directors and audit committee, including fixed and variable compensation. CMN Resolution No. 4,280 repealed CMN Resolution No. 4,797.

On December 23, 2020, the CMN enacted Resolution 4,885, which made the payment of dividends or interest on capital more flexible. As a result, financial institutions were not allowed to pay in excess of the greater of (x) the amount corresponding to 30% of the adjusted net profit in accordance with item I of article 202 of the Brazilian Corporate Law; and (y) the amount equivalent to the mandatory dividends as set forth in article 202 of the Brazilian Corporate Law. This is the only restriction still in force as a result of Resolution 4,820/20.

As a result, we only distributed R$3,837 million as dividends and interest on equity in 2020 compared to R$10,800 million in 2019.

Reduction of Capital Conservation Buffer

On March 16, 2020, the CMN enacted Resolution No. 4,783, which temporarily reduces the Capital Conservation Buffer (where all rates relate to the total amount of risk weighted assets) required from financial institutions, from 2.5% to 1.25%. The rate of 1.25% will remain in effect through March 31, 2021. From April 1, 2021 through April 1, 2022 the Capital Conservation Buffer requirement will gradually be restored to 2.5%. The measure aims to increase the ability of banks to renegotiate credit transactions and maintain engagement in new transactions, considering the current scenario of increased demand for financial services.

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Repos on Sovereign Bonds Denominated in U.S. Dollars

On March 18, 2020, the Brazilian Central Bank issued Circular No. 3,990, which allowed the repurchase transactions of U.S. Dollar denominated federal bonds between the Brazilian Central Bank and Brazilian financial institutions. The Brazilian Central Bank can purchase such bonds with a discount of 10% in comparison to market prices and the financial institution assumes the obligation to purchase the bonds in a future date. The rules also set out a margin transfer during the term of the transaction whenever the exposure is equal or greater than US$500,000. The purpose of this measure is to provide liquidity to the Brazilian sovereign bonds market, by offering liquidity in U.S. Dollars to Brazilian banks and reducing trading volatility of such bonds.

Changes to Provision Requirements

On March 16, 2020 CMN enacted Resolution No. 4,782/20, which was amended by Resolution No. 4.856/20, exempting financial institutions from considering certain restructuring of contracts as an indicative that a counterparty may default. Therefore, the measure allows loans to be granted to solvent companies without requiring additional provisions through September 30, 2020.

New Time Deposits with Special Collateral

CMN Resolution No. 4,799/20 has regulated funding through new Time Deposits with Special Collateral (Novo Depósito a Prazo com Garantias Especiais or “DPGEs”), which are deposits taken by financial institutions and guaranteed by the Credit Guarantee Fund (Fundo Garantidor de Crédito or “FGC”). The resolution increased the cap from R$20 million to R$40 million, and is intended to strengthen the liquidity strength of smaller financial institutions.

Central Bank Loans Backed by Debentures and Financial Bills Held by Financial Institutions

On March 23, 2020, the CMN enacted Resolution No. 4,786, which authorized the Brazilian Central Bank to grant loans to multiservice banks, commercial banks, investment banks and saving banks, backed by debentures (corporate debt instruments) held by such institutions and acquired in the secondary market, provided that certain provisions set forth in the ruling are complied with. It is worth mentioning the ruling sets forth that said loans will also be secured by mandatory deposits in Bank Reserve Accounts, in amount equivalent to, at least, the total amount of the transactions, as well as by the debenture collateral.

This is considered a Temporary Special Liquidity Credit Facility, and is another measure to offer financial institutions more liquidity in their transactions. The loans established in Resolution No. 4,786/20 will be available to financial institutions until April 30, 2020 and may be engaged for a 125 business day term, which may be extended, at the Brazilian Central Bank’s discretion, for more 125 business days, provided the maximum term of 359 calendar days.

On April 2, 2020, the CMN enacted Resolution No. 4,795, which authorizes the Brazilian Central Bank to grant loans to financial institutions under specific conditions, by means of a Temporary Special Liquidity Credit Facility, upon direct acquisition, in the primary market, of Financial Bills secured by financial assets or securities. The loan will be available in tranches, and could reach 100% of the Reference Assets of such financial institutions. The facility will be available to financial institutions through December 31, 2020 and the Financial Bills issued thereunder will have a term between 30 and 359 calendar days. The first tranche was approved on May 12, 2020, in a total amount of R$17.5 billion.

Flexibilization of Funding Requirements Through Agribusiness Credit Notes (Letras de Crédito do Agronegócio or “LCAs”)

On March 23, 2020, the CMN issued Resolution No. 4,787, which adjusted the assessment base of the mandatory reserve requirements of funds raised through LCAs, which are credit notes issued exclusively by financial institutions and related to credit rights originated from transactions conducted between rural producers and their cooperatives and agents of the agribusiness production chain, with the purpose of increasing their liquidity. As a result, the rules for applying funds originated from agribusiness activities were relaxed. The Brazilian Central Bank expects an increase in credit extension directed to agribusiness of R$6.3 billion as a result of the measure.

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Employment Support Program providing emergency payroll financing for small and medium-sized businesses

The CMN enacted Resolution No. 4,846 on August 24, 2020, which regulates the granting of loans under the Emergency Employment Support Program (Programa Emergencial de Suporte a Empregos or “PESE”), established through Provisional Measure No. 944/2020. PESE sets forth the offering of an emergency credit line of R$40 billion to finance, for two months, the payroll of small and medium-sized companies that adhere to the program, with the purpose of preserving jobs. Regarding the funding of said credit line, 85% will derive from the National Treasury and the remaining 15% from participating financial institutions, including Santander Brasil. The adhering small and medium-sized businesses will not be able to dismiss workers during the period that the loan is taken out and up to the 60th day after the business receives its last installment. The maximum amount financed per worker will be up to two minimum wages. The funding will go directly to the worker’s account, as is done today through payrolls operated by financial institutions. PESE came into effect on April 6, 2020. CMN Resolution No. 4,846 repealed CMN Resolution No. 4,800.

FX overhedge of equity interests abroad

On March 18, 2020, the CMN enacted Resolution No. 4,784, which amended CMN Resolution No. 4,192, of March 1, 2013. The rule sets forth that the tax credits arising from losses on excess FX position aimed at hedging of investments held abroad by financial institutions will not be deducted from their regulatory capital (patrimônio de referência). The measure aims at providing further capital relief and hence additional comfort for financial institutions to maintain and extend credit.

Higher ceiling for repurchase of financial bills (letras financeiras) by financial institutions

Pursuant to CMN Resolution No. 4,788, issued on March 23, 2020, financial institutions classified as Segment 1 for the proportional application of the prudential regulation, as is our case, may, from March 23 to April 30, 2020, repurchase up to 20% of financial bills of their own issuance, a substantial increase from the previous ceiling of 5%.

Brazilian Central Bank authorized to buy and sell government bonds and private financial assets and securities in the secondary market

Constitutional Amendment No. 106, enacted on May 7, 2020, sets forth emergency economic and budget measures for the Brazilian government during the COVID-19 pandemic. Among them, the Amendment authorizes the Brazilian Central Bank, for the duration of the pandemic, to buy and sell (i) government bonds in local and foreign secondary markets; and (ii) other assets, in domestic secondary financial, capital and payments markets, provided that, at the time of purchase, they have a credit risk rating in the local market equivalent to BB- or higher, conferred by at least one of the three largest international rating agencies, as well as a reference price published by a financial market entity accredited by the Brazilian Central Bank.

SELECTED STATISTICAL INFORMATION

The following information for Santander Brasil is included for analytical purposes and is derived from, and should be read in conjunction with, the consolidated financial statements and related notes contained elsewhere herein, as well as “Item 5. Operating and Financial Review and Prospects.”

Average annual balance sheet data has been calculated based upon the average of the monthly balances at 13 dates: as of December 31 of the prior year and each of the month-end balances of the 12 subsequent months. Average income statement and balance sheet data and other related statistical information have been prepared on a consolidated annual basis.

The selected statistical information set forth below includes information as of and for the years ended December 31, 2020, 2019, and 2018 extracted from the audited financial statements prepared in conformity with IFRS as issued by the IASB. See “Presentation of Financial and Other Information” and “Item 3. Key Information—A. Selected Financial Data.”

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Average Balance Sheet and Interest Rates

The following tables show our average balances and interest rates for each of the periods presented. With respect to the tables below and the tables under “—Changes in Net Interest Income – Volume and Rate Analysis” and “—Assets—Earning Assets–Yield Spread,” (i) we have stated average balances on a gross basis, before netting impairment losses, except for the total average asset figures, which include such netting, and (ii) all average data have been calculated using month-end balances, which is not significantly different from having used daily averages. We stop accruing interest on loans once they are more than 60 days past due. All our non-accrual loans are included in the table below under “Other assets.”

  For the Year Ended December 31,
  2020 2019 2018
  Average Balance Interest Average Rate Average Balance Interest Average Rate Average Balance Interest Average Rate
  (in millions of R$, except percentages)
Assets and Interest                
Income                
Cash and balances with the Brazilian Central Bank  54,531   1,552   2.8%  48,670   3,828   7.9%  81,018   5,096   6.3%
Loans and amounts due from credit institutions  104,759   1,519   1.4%  101,981   3,844   3.8%  56,093   2,978   5.3%
Loans and advances to customers  384,389   44,102   11.5%  323,180   50,406   15.6%  304,633   46,471   15.3%
Debt instruments  203,578   13,556   6.7%  178,811   13,528   7.6%  164,111   13,629   8.3%
Other interest – earning assets  -   2,044   -   -   1,235   -   -   2,304   - 
Total interest – earning assets  747,257   62,773   8.4%  652,642   72,841   11.2%  605,855   70,478   11.6%
Equity instruments  1,730   34   2.0%  1,464   19   1.3%  1,213   33   2.7%
Investments in associates  1,098   -   -   1,060   -   -   963   -   - 
Total earning assets  750,085   62,807   8.4%  655,166   72,860   11.1%  608,031   70,511   11.6%
Cash and balances with the Brazilian Central Bank  4,800   -   -   4,538   -   -   4,351   -   - 
Loans and amounts due from credit institutions  6,668   -   -   2,258   -   -   1,676   -   - 
Impairment losses  (23,936)  -   -   (22,528)  -   -   (21,056)  -   - 
Other assets  76,642   -   -   56,912   -   -   56,276   -   - 
Tangible assets  9,587   -   -   9,091   -   -   6,414   -   - 
Intangible assets  30,769   -   -   30,070   -   -   29,839   -   - 
Total average assets  854,615   62,807   7.3%  735,507   72,860   9.9%  685,531   70,511   10.3%
Liabilities and Interest Expense                                    
Deposits from the Brazilian Central Bank and Deposits from credit institutions  111,684   4,327   3.9%  100,473   4,866   4.8%  95,217   5,367   5.6%
Customer deposits  380,058   7,498   2.0%  303,741   14,966   4.9%  285,694   13,577   4.8%
Marketable debt securities  68,585   2,514   3.7%  76,194   5,138   6.7%  71,525   4,607   6.4%
Subordinated debts  13,102   863   6.6%  10,779   660   6.1%  10,952   630   5.8%
Other interest-bearing liabilities  -   3,125   -   -   2,890   -   -   4,376   - 
Total interest-bearing liabilities  573,429   18,327   3.2%  491,187   28,520   5.8%  463,388   28,557   6.2%
Noninterest bearing demand deposits  28,581   -   -   14,612   -   -   11,127   -   - 
Other liabilities  150,759   -   -   133,255   -   -   121,198   -   - 
Non-controlling interests  315   -   -   617   -   -   555   -   - 
Stockholders’ Equity  101,531   -   -   95,836   -   -   89,263   -   - 
Total average liabilities and equity  854,615   18,327   2.1%  735,507   28,520   3.9%  685,531   28,557   4.2%

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Changes in Net Interest Income – Volume and Rate Analysis

The following tables present the changes in our net interest income allocated between changes in average volume and changes in average rate for the year ended December 31, 2020, compared to the year ended December 31, 2019, and for the year ended December 31, 2019 compared to the year ended December 31, 2018. We have calculated volume variances based on movements in average balances over the period and rate variance based on changes in interest rates on average interest-earning assets and average interest-bearing liabilities. We have allocated variances caused by changes in both volume and rate to volume. You should read the following tables and the footnotes thereto in light of our observations noted in “—Average Balance Sheet and Interest Rates.”

  For the Years Ended 2020/2019 For the Years Ended 2019/2018
  Increase (decrease) due to changes in
  Volume Rate Net change Volume Rate Net change
  (in millions of R$)
Interest and Similar Income
Interest-earning assets                        
Cash and balances with the Brazilian Central Bank  414   (2,690)  (2,276)  (2,348)  1,080   (1,268)
Loans and amounts due from credit institutions  102   (2,427)  (2,325)  1,915   (1,049)  866 
Loans and advances to customers  8,493   (14,797)  (6,304)  2,876   1,059   3,935 
Debt instruments  1,753   (1,725)  28   1,166   (1,267)  (101)
Other interest-earning assets  809   -   809   (1,069)  -   (1,069)
Total interest-earning assets  11,571   (21,639)  (10,068)  2,540   (177)  2,363 
Equity Instruments  4   11   15   6   (20)  (14)
Total earning assets  11,575   (21,628)  (10,053)  2,546   (197)  2,349 
Interest Expense and Similar Charges
Interest-bearing liabilities                        
Deposits from the Brazilian Central Bank and Deposits from credit institutions  504   (1,043)  (539)  285   (786)  (501)
Customer deposits  3,095   (10,563)  (7,468)  878   511   1,389 
Marketable debt securities  (471)  (2,153)  (2,624)  309   222   531 
Subordinated liabilities  150   53   203   (10)  40   30 
Other interest-bearing liabilities  235   -   235   (1,486)  -   1,486 
Total interest-bearing liabilities  3,513   (13,706)  (10,193)  (24)  (13)  (37)

Assets

Earning Assets – Yield Spread

The following table analyzes our average earning assets, interest income and dividends on equity securities and net interest income and shows gross yields, net yields and yield spread for each of the periods indicated. You should read this table and the footnotes thereto in light of our observations noted in “—Average Balance Sheet and Interest Rates.”

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  For the Year Ended December 31,
  2020 2019 2018
  (in millions of R$, except percentages)
Average earning assets  747,257   652,642   605,855 
Interest and dividends on equity securities(1)  62,807   72,860   70,511 
Net interest income  44,480   44,340   41,954 
Gross yield(2) (*)  8.4%  11.2%  11.6%
Net yield(3) (*)  6.0%  6.8%  6.9%
Yield spread(4) (*)  5.2%  5.3%  5.4%

(*)Yield information does not give effect to changes in fair value that are reflected as a component of stockholder’s equity.

(1)Total earning assets plus dividends from companies accounted for by the equity method (equity instruments).

(2)Gross yield is the amount of “Interest and dividends on equity securities” divided by “Average earning assets.”

(3)Net yield is the amount of “Net interest income” divided by “Average earning assets.”

(4)Yield spread is the difference between the average rate of “Total earning asset” and the average rate of “Total interest-bearing liabilities.”

Return on Equity and Assets

The following table presents our selected financial ratios for the periods indicated.

  For the Year Ended December 31,
  2020 2019 2018
ROA: Return on average total assets  1.6%  2.3%  1.9%
ROE: Return on average stockholders’ equity  13.3%  17.4%  14.3%
ROE (adjusted) (1)  18.5%  24.6%  21.0%
Average stockholders’ equity as a percentage of average total assets  11.9%  13.0%  13.0%
Payout (2)  24.6%  65.8%  52.5%

(1)“Average stockholders’ equity excluding goodwill as a percentage of average total assets excluding goodwill” is a non-GAAP financial measure which adjusts “Return on average stockholders’ equity” to exclude the goodwill arising from the acquisition of Banco Real in 2008, Getnet Adquirência e Serviços para Meios de Pagamento S.A., or “GetNet” and Super Pagamentos e Administração de Meios Eletrônicos Ltda., or “Super”, both in 2014 and Banco Olé Bonsucesso Consignado S.A. in 2015,60%, and the remaining 40% in 2020. See “Item 3. Key Information—A. Selected Financial Data—Selected Consolidated Ratios” for a reconciliation of “Average stockholders’ equity excluding goodwill as a percentage of average total assets excluding goodwill” to “Return on average stockholders’ equity.”

(2)Dividend payout ratio (dividends declared per preferred share divided by net income per preferred share).

Interest-Earning Assets (other than Loans)

The following table shows the percentage mix of our average interest-earning assets for the years indicated. You should read this table in light of our observations noted in “—Average Balance Sheet and Interest Rates.”

  For the Year Ended December 31,
  2020 2019 2018
Cash and balances with the Brazilian Central Bank  7.3%  7.5%  13.4%
Loans and amounts due from credit institutions  14.1%  15.6%  9.3%
Loans and advances to customers  51.4%  49.5%  50.3%
Debt instruments  27.2%  27.4%  27.0%
Total interest-earning assets  100%  100%  100%

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Loans and Amounts Due from Credit Institutions

For further information about Loans and Amounts Due from Credit Institutions, see note “5 – Loans and amounts due from credit institutions” to our audited consolidated financial statements included elsewhere in this annual report.

Investment Securities

As of December 31, 2020 and 2019, the book value of investment securities was R$232 billion and R$176 billion, respectively (representing 24.7% and 23.0%, respectively, of our total assets as of such dates). Brazilian government securities totaled R$192 billion, or 82.8% and R$136 billion, or 77.3% of our investment securities as of December 31, 2020 and 2019, respectively. For a discussion of how our investment securities are valued, see notes 7 and 8 to our audited consolidated financial statements included elsewhere in this annual report.

The following table shows the carrying amounts of our investment securities by type and residence of the counterparty at each of the indicated dates:

  As of December 31,
  2020 2019 2018
  (in millions of R$)
Debt securities            
Government securities—Brazil  191,896   135,848   116,531 
Debentures and promissory notes  17,072   13,875   10,556 
Other debt securities  21,134   23,609   48,346 
Total domestic/debt securities  230,102   173,332   175,433 
             
Equity securities            
Shares of Brazilian companies  1,953   665   783 
Shares of foreign companies  -   -   2 
Investment fund units and shares  363   1,693   320 
Total equity securities  2,316   2,358   1,106 
Total investment securities  232,418   175,690   176,539 

As of December 31, 2020 and 2019, we held no securities of single issuers or related groups of companies whose aggregate book or market value exceeded 1% of our stockholders’ equity, other than the Brazilian government securities, which represented 180.5% and 140.5%, respectively of our stockholders’ equity. As of December 31, 2020 and 2019, the total value of our debt securities was approximately 217.4% and 181.8%, respectively, of stockholders’ equity.

The following table analyzes the maturities and weighted average yields of our debt investment securities (before impairment allowance) as of December 31, 2020. Yields on tax-exempt obligations have not been calculated on a tax equivalent basis because the effect on such calculation is not significant.

  Maturing within 1 year Maturing between 1 and 5 years Maturing between 5 and 10 years Maturing after 10 years Total
  (in R$ millions)
Debt securities                    
Government securities—Brazil  46,475   135,212   44,041   -   225,728 
Other debt securities  1,015   437   2,922   -   4,374 
Total debt investment securities  47,490   135,649   46,963   -   230,102 

The average rate for debt investment securities is 6.7%.

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Domestic and Foreign Currency

The following table shows our assets and liabilities by domestic and foreign currency, as of the dates indicated.

  As of December 31,
  2020 2019 2018
  Domestic Currency Foreign Currency Domestic Currency Foreign Currency Domestic Currency Foreign Currency
  (in millions of R$)
Assets            
Cash and balances with the Brazilian Central Bank (1)  4,531   15,617   4,878   15,250   16,651   15,065 
Debt instruments  226,787   3,315   164,447   8,885   166,743   8,690 
Loans and amounts due from credit institutions, gross (1)  109,339   3,520   107,694   1,553   79,166   454 
Loans and advances to customers, gross  396,950   20,822   326,421   20,835   304,031   17,902 
Equity Instruments  1,675   -   2,358   -   1,106   - 
Total assets  739,283   43,275   605,798   46,523   567,697   42,111 
Liabilities                        
Financial Liabilities at Amortized cost:                        
Deposits from the Brazilian Central Bank and Deposits from credit institutions  86,564   45,093   58,283   40,988   74,160   24,863 
Customer deposits  445,900   -   336,515   -   304,198   - 
Marketable debt securities  47,476   9,399   64,987   8,715   70,109   4,517 
Subordinated debts  -   -   -   -  ��9,886   - 
Debt instruments eligible to compose capital  -   13,120   -   10,176   -   9,780 
Other financial liabilities  66,727   153   60,885   -   51,729   - 
Total liabilities  646,667   67,766   520,670   59,879   510,082   39,160 

(1) In the fiscal year ended December 31, 2018, the balances related to compulsory deposits were reclassified from cash and reserves at the Brazilian Central Bank to the item Loans and other amounts with credit institutions for better presentation and, consequently, the respective comparative balances also have been reclassified.

Loan Portfolio

As of December 31, 2020, our loans and advances to customers totaled R$418 billion (54.8% of our total assets). Net impairment losses, loans and advances to customers totaled R$418 billion as of December 31, 2020 (48.0% of our total assets). In addition to loans, we had outstanding loan commitments drawable by third parties totaling R$131.9 billion, R$125.9 billion, R$122.7 billion, R$106.9 billion and R$91.2 billion as of December 31, 2020, 2019, 2018, 2017 and 2016, respectively.

Types of Loans by Type of Customer

The majority of the loans we have outstanding are to borrowers domiciled in Brazil and are denominated in reais. The table below breaks down our loans and advances to customers (including securities purchased under agreements to resell), by type of customer, at each of the dates indicated. For each loan category, we maintain specific risk management policies that are in line with the standards of the Santander Group, which in turn, are managed and monitored by our board of officers through the credit committee. The credit approval process for each loan category is structured primarily around our business segments. See “Item 11. Quantitative and Qualitative Disclosures about Risk—Credit Risk” for details on our credit approval policies for retail and wholesale lending.

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We have a diversified loan portfolio, with no specific concentration exceeding 10% of our total loans. Currently, 1.3% of our loan portfolio is allocated to our largest debtor and 6.5% to the next 10 largest debtors.

For further information about the breakdown of our Loans and Maturity see sections “a - Breakdown” and “b – Detail” of note “9 – Loans and advances to customers” to our audited consolidated financial statements included in this annual report.

Fixed and Variable Rate Loans

The following table sets forth a breakdown of our fixed and variable rate loans by maturity as of December 31, 2020.

  Fixed and variable rate loans with maturity
  Less than one year One to five years Over five years Total
  Balance % of Total Balance % of Total Balance % of Total Balance % of Total
  (in millions of R$, except percentages)
Fixed rate  162,684   74   113,662   77   16,538   32   292,884   70 
Variable rate  56,378   26   33,352   23   35,208   68   124,938   30 
Total  219,063   100   147,014   100   51,745   100   417,822   100 

Cross-Border Outstandings

The following table presents, at each balance sheet date indicated, the aggregate amount of our cross-border outstandings (which consist of loans, interest-bearing deposits with other banks, acceptances and other monetary assets denominated in a currency other than the home-country currency of the office where the item is booked). Cross-border outstandings do not include local currency loans made by subsidiary banks in other countries to the extent that such loans are funded in the local currency or hedged. As a result, they do not include the majority of the loans made by our Cayman Islands branch, which are fully hedged.

  As of December 31,          
  2020   2019   2018  
  Balance % of Total Assets Balance % of Total Assets Balance % of Total Assets
  (in millions of R$, except percentages)
OECD countries(1)            
Spain  437   0.1   1,984   0.3   1,217   0.2 
United States  12,674   1.8   3,721   0.5   3,304   0.5 
Netherlands  80   0.0   1,531   0.2   3,853   0.6 
United Kingdom(3)  29   0.0   1,003   0.1   6,508   1.0 
Other OECD countries(2)  3,534   0.5   16,264   2.4   1,072   0.1 
Total OECD  16,754   2.4   24,503   3.6   15,954   2.5 
Non-OECD countries                        
Latin American countries(2)  1,204   0.2   1,382   0.2   314   - 
Cayman Islands  2,917   0.4   3,528   0.5   (8,304)  (1.3)
Other(2)  1,189   0.2   2,397   0.3   100   - 
Total non-OECD  5,310   0.8   7,307   1.1   (7,890)  (1.3)
Total  22,064   3.2   31,810   4.6   8,064   1.2 
(1)The Organization for Economic Cooperation and Development.

(2)Aggregate outstandings in any single country in this category do not exceed 1.5% of our total assets.

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The following table presents the amounts of our cross-border outstandings as of December 31, 2020, 2019 and 2018 by type of borrower where outstandings in the borrower’s country exceeded 1.2% of our total assets.

  Government Banks and Other Financial Institutions Commercial and Industrial Other Loans Total
  (in millions of R$)
2018          
United States  -   3,569   23   130   3,722 
Netherlands  -   -   1,531   -   1,531 
Austria  -   -   197   (4)  193 
United Kingdom  -   1   38   964   1,003 
Cayman Islands  3,541   1,987   3,685   (5,685)  3,528 
Total  3,541   5,557   5,474   (4,595)  9,977 
2019                    
United States  -   8,710   55   316   9,081 
Netherlands  -   -   2,355   -   2,355 
Austria  -   -   127   (2)  125 
United Kingdom  -   -   7   151   158 
Cayman Islands  469   263   488   (752)  468 
Total  469   8,973   3,030   (287)  12,187 
2020                    
United States  -   12,653   9   12   12,674 
Netherlands  -   -   80   -   80 
Austria  -   -   -   444   444 
United Kingdom  -   28   -   1   29 
Cayman Islands  -   1,341   (1)  1,577   2,917 
Total  -   14,022   88   2,034   16,144 

Non-current assets held for sale

For further information, see note “10 - Non-current assets held for sale” to our audited consolidated financial statements included elsewhere in this annual report.

Liabilities

Deposits

The principal components of our deposits are customer demand, time and notice deposits, and international and domestic interbank deposits. Our retail customers are the principal source of our demand, time and notice deposits.

For further information, see note “16 – Deposits from the Brazilian Central Bank and Deposits from Credit Institutions” and “17 – Client deposits” in “Financial Statements” to our audited consolidated financial statements included elsewhere in this annual report.

The following table shows the maturity of time deposits (excluding inter-bank deposits) in denominations of U.S.$100,000 or more at the dates indicated. Large denomination customer deposits may be a less stable source of funds than demand and savings deposits.

As of December 31, 2020
DomesticInternational
(in millions of R$)
Under 3 months344,923-
3 to 6 months63,380-
6 to 12 months63,390-
Over 12 months105,788-
Total577,470-

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Short-Term Borrowings

The following table shows our short-term borrowings consisting of government securities that we sold under agreements to repurchase for purpose of funding our operations.

  As of December 31,
  2020 2019 2018
  Amount Average Rate Amount Average Rate Amount Average Rate
  (in millions of R$, except percentages)
Securities sold under agreements to repurchase                        
As of December 31  112,477   1.90%  123,941   5.00%  99,379   7.34%
Average during the period (1)  112,096   2.71%  100,473   4.84%  102,051   9.67%
Maximum month-end balance  155,174       123,941       113,691     
Total short-term borrowings at year end  112,477       123,941       99,379     
(1)The average annual balance sheet data has been calculated based upon the average of the monthly balances at 13 dates: at December 31 of the prior year and for each of the month-end balances of the 12 subsequent months.

Changes in Allowances for Impairment Losses on the Balances of “Loans and receivables”

The following tables analyze changes in our allowances for impairment losses for the periods indicated. For further information regarding these changes, see “Item 5. Operating and Financial Review and Prospects—A. Operating Results—Results of Operations for the Years Ended December 31, 2020, 2019 and 2018—Results of Operations—Impairment Losses on Financial Assets (Net).”

  As of December 31,
  2020 2019 2018 2017 2016
  (in millions of R$)
Balance at beginning of year  22,625   22,969   18,262   18,191   15,412 
Initial adoption of IFRS 9  -   -   2,461   -   - 
Balance adjusted  22,625   22,969   20,723   18,191   15,412 
Impairment losses charged to income for the year  18,311   14,361   13,540   13,493   14,383 
Write-off of impaired balances against recorded impairment allowance  (15,297)  (14,705)  (11,294)  (13,422)  (11,605)
Balance at end of year  25,640   22,625   22,969   18,262   18,191 
Of which:                    
Loans and advances to customers  24,054   20,557   20,242   15,409   16,435 
Loans and amounts due from credit institutions  9   14   14   69   201 
Debt Instruments  1,577   2,055   2,714   2,784   1,555 
Recoveries of loans previously written off(1)  861   991   827   1,154   994 
(1)Impairment losses on financial assets, net, as reported in our consolidated financial statements, reflect net provisions for credit losses less recoveries of loans previously written off.

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Allowance by Type of Borrower

The table below shows a breakdown of recoveries, net provisions and write-offs against credit loss allowance by type of borrower for the periods indicated.

  For the Year Ended December 31,
  2020 2019 2018 2017 2016
  (in millions of R$)
Recoveries of loans previously charged off(1)  861   991   827   1,154   994 
Commercial and industrial  422   520   345   413   563 
Real estate – construction  56   47   103   210   103 
Installment loans to individuals  370   417   370   521   314 
Lease finance  13   8   9   10   14 
Impairment losses charged to income for the year(1)  18,311   14,361   13,540   13,492   14,383 
Commercial and industrial  6,919   2,377   3,620   5,499   6,523 
Real estate – construction  81   95   193   471   369 
Installment loans to individuals  11,309   11,866   9,708   7,461   7,617 
Lease finance  3   23   19   61   (125)
Write-off of impaired balances against recorded impairment allowance  (15,297)  (14,705)  (11,294)  (13,422)  (11,605)
Commercial and industrial  (4,617)  (5,713)  (3,981)  (5,716)  (4,553)
Real estate – construction  (232)  (108)  (191)  (342)  (190)
Installment loans to individuals  (10,433)  (8,834)  (7,100)  (7,312)  (6,811)
Lease finance  (15)  (49)  (22)  (52)  (51)
(1)Impairment losses on financial assets, net, as reported in our consolidated financial statements, reflect net provisions for credit losses less recoveries of loans previously written off.

The table below shows a breakdown of allowances for credit losses by type of borrowers and the percentage of loans in each category as a share of total loans at the date indicated.

  As of December 31,
  2020 % of Total Loans 2019 % of Total Loans 2018 % of Total Loans
  (in millions of R$, except percentages)
Borrowers            
Commercial and industrial  9,757   38   7,455   33   10,792   47 
Real estate  194   1   345   2   358   2 
Installment loans to individuals  15,676   61   14,800   65   11,768   51 
Lease financing  14   0   26   0   51   0 
Total  25,640   100   22,625   100   22,969   100 

Internal Risk Rating

The following table presents a breakdown of our portfolio by internal risk rating, at the dates indicated:

  As of
  December 31,
  2020 2019 2018
  (in millions of R$)
Internal Risk Rating            
Low  347,315   257,133   240,440 
Medium-low  24,277   56,549   50,486 
Medium  26,232   11,755   11,967 
Medium-high  3,896   8,512   7,722 
High  16,101   13,307   11,318 
Loans and advances to customers, gross  417,819   347,257   321,933 

For further information on our internal risk rating levels and their corresponding probability of default, see “Item 11. Quantitative and Qualitative Disclosures about Market Risk—Credit Risk—Credit Monitoring.”

Renegotiation Portfolio

The renegotiation portfolio for the year ended on December 31, 2020 amounted to R$20 billion, compared to R$15 billion for the same period in 2019, an increase of R$5,008 million or 32.8%. This portfolio includes loans and advances to customers that were extended and/or modified to facilitate repayment under conditions agreed upon with customers.

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The renegotiation portfolio was covered by allowances for impairment losses of 44.0% as of December 31, 2020 and 48.5% as of December 31, 2019. These levels are considered appropriate for the characteristics of these loans and advances to customers.

The following table presents a breakdown of our renegotiation portfolio by type of customer, allowances for impairment losses and our coverage ratio at the dates indicated:

  2020 2019 2018
  (in millions of R$, except percentages)
Renegotiation Portfolio by type of customer      
Commercial and industrial  5,862   5,141   5,949 
Installment loans to individuals  14,623   10,102   7,492 
Financial leasing  5   239   75 
Total  20,490   15,482   13,516 
Allowances for impairment losses  9,019   7,501   7,279 
Coverage ratio  44.0%  48.5%  53.8%

Balances are deemed to be impaired when there are reasonable doubts as to their full recovery and/or the collection of the related interest for the amounts on the dates indicated in the loan agreement, after taking into account the collateral guarantees received to secure (fully or partially) collection of the related balances.

As established in our internal renegotiation policy, in order for renegotiated products to be classified as performing, we must, receive an amount equivalent to at least 10% of the total amount outstanding in the six months which follow the renegotiation date (note that these transactions will remain classified as renegotiated operations even after receiving such payments). Renegotiated loans that are more than 60 days overdue are also accounted for as impaired.

We increased our efforts regarding the collection of loans that are less than 60 days past due and also in relation to written off loans. We are also continuing with our strategy of granting loans to persons with low risk profile and higher levels of collaterals and guarantees.

Impaired Assets

The following table shows our impaired assets, excluding country risk.

  As of December 31,
  2020 2019 2018 2017 2016
  (in millions of R$, except percentages)
Impaired assets                    
Past due and other impaired assets(1)  23,176   23,426   22,426   19,145   18,887 
Impaired assets as a percentage of total loans  5.5%  6.7%  7.0%  6.7%  7.0%
Net loan charge-offs as a percentage of total loans  3.7%  4.3%  3.5%  4.7%  4.3%
Net loan charge-offs as a percentage of average total loans  3.8%  5.3%  3.8%  4.8%  4.5%
(1)Includes as of December 31, 2020, R$2,028 million of doubtful loans (R$2,788 million in 2019, R$3,754 million in 2018, R$5,439 million in 2017 and R$5,576 million in 2016) that were not past-due.

Evolution of Impaired Assets

Our impaired assets decreased by 1.1%, or R$250 million, to R$23,176 million as of December 31, 2020, compared to R$23,426 million as of December 31, 2019. Provisions for impairment losses, including total recoveries of loans previously charged off, increased 13.3%, or R$3,015 million, to R$ 25,640 million as of December 31, 2020, compared to R$ 22,625 million as of December 31, 2019. Offsetting these effects were recoveries of R$861 million on loans previously written off as of December 31, 2020 and R$ 991 million as of December 31, 2019.

We believe the provisions made were adequate to cover all known or reasonably probable losses or incurred losses in the credit portfolio of loans and other assets as of December 31, 2020.

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The following table shows the changes in our impaired assets at the dates indicated:

  As of December 31,
  2020 2019 2018 2017 2016
  (in millions of R$)
Balance at beginning of year  23,426   22,426   19,145   18,887   18,599 
Initial Adoption of IFRS9 (1)  -   -   703   -   - 
Adjusted Balance  23,426   22,426   19,848   18,887   18,599 
Net additions  14,672   16,001   13,872   13,679   11,893 
Write-offs  (14,922)  (15,001)  (11,294)  (13,422)  (11,605)
Balance at end of year  23,176   23,426   22,426   19,145   18,887 
(1)Further information, see Financial Statements notes 1 and 9.

The amount of “net additions” for any period is assets that became impaired in that period less assets that were impaired but became performing in that period. In 2020, the debt restructuring options were improved to maintain consistent levels of “net additions” and “write-offs”.

Impaired Assets by Type of Customer

The following table shows the amount of our impaired assets by type of customers at the dates indicated:

  As of December 31,
  2020 2019
  (in millions of R$)
Commercial and industrial  10,558   10,073 
Real estate  456   827 
Installment loans to individuals  12,144   12,497 
Financial leasing  17   29 
Total  23,176   23,426 

Commercial and Industrial

Impaired assets in our commercial and industrial loans portfolio amounted to R$10,558 million as of December 31, 2020, an increase of R$485 million, or 4.8%, compared to R$10,073 million as of December 31, 2019. This increase was mainly due to the collective assessment of R$1,660 million performed by Santander Brasil which was based on forecasts of senstivity to macroeconomic conditions which indicate staged transfers following a deterioration of the portfolio.

Real Estate

Impaired assets in the real estate lending portfolio totaled R$456 million on December 31, 2020, a decrease of R$371 million, or 44.8%, compared to R$827 million as of December 31, 2019. The decrease in impaired assets in this portfolio was the result of the measures that Santander Brasil put in place to manage it, including collection practices with respect to our borrowers.

Installment Loans to Individuals

Impaired assets in the installment loans to individuals lending portfolio totaled R$12,144 million as of December 31, 2020, with a decrease of R$353 million, or 2.8%, compared to 2019. The decrease in impaired assets in this portfolio was the result of the measures that Santander Brasil put in place to manage it, including collection practices with respect to our borrowers whereby we offered certain customers the chance to negotiate a restructuring of their debts, especially during the COVID-19 pandemic, or asset disposals.

Financial Leasing

Impaired assets in the lease financing lending portfolio totaled R$17 million on December 31, 2020, a decrease of R$12 million compared to December 31, 2019. This decrease in impaired assets was mainly due to asset write-offs in an amount of R$15.6 million in 2020.

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Methodology for Impairment Losses

We evaluate all loans regarding the provision for impairment losses from credit risk. Loans are either individually evaluated for impairment, or collectively evaluated by grouping similar risk characteristics. Loans that are individually evaluated for impairment losses are not evaluated collectively.

To measure the impairment loss on loans individually evaluated for impairment, we consider the conditions of the borrowers, such as their economic and financial situation, level of indebtedness, ability to generate income, cash flow, management, corporate governance and quality of internal controls, payment history, industry expertise, contingencies and credit limits, as well as the characteristics of assets, such as their nature and purpose, type, sufficiency and liquidity level guarantees and total amount of credit, as well as based on historical experience of impairment and other circumstances known at the time of evaluation.

To measure the impairment loss on loans collectively evaluated for impairment, we segregate financial assets into groups considering the characteristics and similarity of credit risk. In other words, according to segment, the type of assets, guarantees and other factors associated such as the historical experience of impairment and other circumstances known at the time of assessment.

The expected loss measurement is made through the following factors:

·Exposure at Default (EAD): is the amount of a transaction exposed to credit risk including the ratio of current outstanding balance exposure that could be provided at default. Developed models incorporate hypotheses considering possible modifications to the payment schedule.

·Probability of Default (PD): is defined as the probability that the counterparty can meet its obligations to pay the principal and / or interest. For the purposes of IFRS 9, both will be considered: PD - 12 months (Stage 1), which is the probability that the financial instrument will default during the next 12 months as well as PD - life time (Stage 2 and 3), which considers the probability that the transaction between in default between the balance sheet date and the residual maturity date of the transaction. The standard requires that future information relevant to the estimation of these parameters should be considered.

·Loss Given Default (LGD): is the loss produced in the event of default. In other words, this reflects the percentage of exposure that could not be recovered in the event of a default. It depends mainly on the collateral, which is considered as credit risk mitigants associated with each financial asset, and the future cash flows that are expected to be recovered. According to the standard, forward-looking information must be taken into account in the estimation.

·Discount rate: the rate applied to the future cash flows estimated during the expected life of the asset, and which is equal to the net present value of the financial instrument at its carrying value.

In order to estimate the above parameters, the Bank has applied its experience in developing internal models for parameters calculation both for regulatory and management purposes.

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Loans Past Due for Less Than 90 Days but Not Classified as Impaired

The following table shows the loans past due for less than 90 days but not classified as impaired at the dates indicated:

  As of December 31,
  2020 % of total 2019 % of total
  (in millions of R$, except percentages)
Commercial and industrial  5,132   25.8   3,517   15.4 
Mortgage loans  3,085   15.5   5,782   25.3 
Installment loans to individuals  11,661   58.6   13,489   59.1 
Lease financing  13   0.1   24   0.1 
Total (*)  19,891   100.0   22,812   100.0 
(*)Refers only to loans past due between 1 and 90 days.

Impaired Asset Ratios

Our credit risk exposure portfolio increased by R$74.5 billion to R$466.1 billion as of December 31, 2020, compared to R$391.6 billion as of December 31, 2019. Our impaired assets decreased by approximately R$0.2 billion in the same period, from R$23.4 billion to R$23.2 billion. The default rate decreased by 10 basis points in 2020 in comparison to 2019, primarily due to the recurrent growth of the credit portfolio and the measures that Santander Brasil put in place to manage impaired assets, including collection practices.

The following table shows the ratio of our impaired assets to total credit risk exposure and our coverage ratio at the dates indicated.

  As of December 31,
  2020 2019 2018 2017 2016
  (in millions of R$ except percentages)
Loans and advances to customers, gross  417,822   347,257   321,933   287,829   268,438 
Impaired assets  23,176   23,426   22,426   19,145   18,887 
Provisions for impairment losses  25,640   22,626   22,969   18,262   18,191 
Credit risk exposure Non-GAAP – customers (1)  466,104   391,569   364,194   330,474   301,703 
Ratios                    
Impaired assets to credit risk exposure  5.0%  6.0%  6.2%  5.8%  6.3%
Coverage ratio (2)  110.6%  96.6%  102.4%  95.4%  96.3%
Impairment losses  (17,451)  (13,370)  (12,713)  (12,339)  (13,388)
Losses on other financial instruments not
  measured at fair value (3)		  -   -   -   -   88 
Impairment losses on financial assets (net) (4)  (17,451)  (13,370)  (12,713)  (12,339)  (13,300)
(1)Credit risk exposure is a non-GAAP financial measure. Credit risk exposure is the sum of the amortized cost amounts of loans and advances to customers (including impaired assets) amounting to R$417,822 million as of December 31, 20 and guarantees and documentary credits amounting to R$48,282 million as of December 31, 2020. We include off-balance sheet information in this measure to better demonstrate our total managed credit risk.

(2)Provisions for impairment losses as a percentage of impaired assets.

(3)Corresponds to the registration of losses of a permanent character in the realization value of bonds and securities classified as “securities available for sale” currently accounted for in “earnings on financial assets (net).”

(4)As of December 31, 2020 impairment losses on financial assets (net) included R$1,577 million relating to debt instruments.

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The following chart shows our impaired assets to credit risk ratio from 2016 through 2020:

-

4C. Organizational Structure

Santander Group controls Santander Brasil directly and indirectly through Santander Spain, Sterrebeeck B.V., or “Sterrebeeck”, and Grupo Empresarial Santander, S.L. which are controlled subsidiaries of the Santander Group. As of December 31, 2020, Santander Spain held, directly and indirectly, 89.5% of our voting stock.

As of December 31, 2020, Santander Spain was the largest bank in the euro zone by market capitalization, with a market capitalization of approximately €44,011 million. As of December 31, 2020, Santander Spain’s attributable profit totaled €-8,771 million, 234.6% lower than the previous year, and the total shareholder remuneration on account of the earnings for the 2020 financial year is €-0.538 per share. The Santander Group operates principally in Spain, the United Kingdom, other European countries, Brazil and other Latin American countries and the United States, offering a wide range of financial products. In Latin America, the Santander Group has majority shareholdings in financial institutions in Argentina, Brazil, Chile, Mexico, Peru, Puerto Rico and Uruguay. As of December 31, 2020, Santander Brasil contributed €2,113 million of the profit attributable to the Santander Group.

The following table presents the name, country of incorporation or residence and proportion of ownership interest of our main subsidiaries in accordance with the criteria for consolidation pursuant to IFRS:

ActivityCountry of IncorporationOwnership Interest
Direct and Indirect subsidiaries of Banco Santander (Brasil) S.A.
Banco Bandepe S.A.BankBrazil100.00%
Santander Leasing S.A. Arrendamento MercantilLeasingBrazil99.99%
Aymoré Crédito, Financiamento e Investimento S.A.FinancialBrazil100.00%
Santander Brasil Administradora de Consórcio Ltda.Buying clubBrazil100.00%
Atual Serviços de Recuperação de Créditos e Meios Digitais S.A. (current name of Atual Companhia Securitizadora de Créditos S.A.)Credit Recovery ServicesBrazil100.00%
Santander Corretora de Câmbio e Valores Mobiliários S.A.BrokerBrazil100.00%

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Santander Corretora de Seguros, Investimentos e Serviços S.A.HoldingBrazil100.00%
Getnet Adquirência e Serviços para Meios de Pagamento S.A.Payment InstitutionBrazil88.50%
SANB Promotora de Vendas e Cobrança Ltda.Other ActivitiesBrazil100.00%
Sancap Investimentos e Participações S.A.HoldingBrazil100.00%
Santander Holding Imobiliária S.A. (current name of Webcasas S.A.)HoldingBrazil100.00%
Santander Brasil Tecnologia S.A.TechnologyBrazil100.00%
Rojo Entretenimento S.A.Other ActivitiesBrazil94.60%
Santander Tecnologia e Inovação Ltda.Other ActivitiesBrazil100.00%
BEN Benefícios e Serviços S.A.Other ActivitiesBrazil100.00%
Toque Fale Serviços de Telemarketing Ltda.Other ActivitiesBrazil100.00%
Esfera Fidelidade S.A.Other ActivitiesBrazil100.00%
Controlled by Atual Serviços de Recuperação de Créditos e Meios Digitais S.A. (current name of Atual Companhia Securitizadora de Créditos S.A.)
Return Capital Serviços de Recuperação de Créditos S.A. (current name of Ipanema Empreendimentos e Participações S.A.)Credit Recovery ServicesBrazil100.00%
Controlled by Return Capital Serviços de Recuperação de Créditos S.A. (current name of Ipanema Empreendimentos e Participações S.A.)
Return Gestão de Recursos S.A. (current name of Gestora de Investimentos Ipanema S.A.)Asset ManagementBrazil100.00%
Controlled by Sancap Investimentos e Participações S.A.
Santander Capitalização S.A.Savings and annuitiesBrazil100.00%
Evidence Previdência S.A.Social SecuritiesBrazil100.00%
Controlled by Getnet Adquirência e Serviços para Meios de Pagamento S.A.
Auttar HUT Processamento de Dados Ltda.Other ActivitiesBrazil100.00%
Controlled by Aymoré Crédito, Financiamento e Investimento S.A.
Banco PSA Finance Brasil S.A. (6)BankBrazil50.00%
Banco Hyundai Capital Brasil S.A. (current name of BHJV Assessoria e Consultoria Empresarial Ltda.)BankBrazil50.00%
Controlled by Santander Leasing S.A. Arrendamento Mercantil
Pi Distribuidora de Títulos e Valores Mobiliários S.A. (current name of Santander Finance Arrendamento Mercantil)LeasingBrazil100.00%
Consolidated Investment Funds
Santander FIC FI Contract I Referenciado DIInvestment FundBrazil(a)
Santander Fundo de Investimento Unix Multimercado Crédito PrivadoInvestment FundBrazil(a)
Santander Fundo de Investimento Diamantina Multimercado Crédito Privado de Investimento no ExteriorInvestment FundBrazil(a)
Santander Fundo de Investimento Amazonas Multimercado Crédito Privado de Investimento no ExteriorInvestment FundBrazil(a)
Santander Fundo de Investimento SBAC Referenciado DI Crédito PrivadoInvestment FundBrazil(a)

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Santander Fundo de Investimento Guarujá Multimercado Crédito Privado de Investimento no ExteriorInvestment FundBrazil(a)
Santander Fundo de Investimento Financial Curto PrazoInvestment FundBrazil(a)
Santander Fundo de Investimento Capitalization Renda FixaInvestment FundBrazil(a)
Santander Paraty QIF PLC (1)Investment FundBrazil(a)
Santander FI Hedge Strategies Fund (1)Investment FundBrazil(a)
Prime 16 - Fundo de Investimento Imobiliário-FII  Real Estate Investment FundBrazil(a)
Fundo de Investimento em Direitos Creditórios Multisegmentos NPL Ipanema VI - Não PadronizadoInvestment FundBrazil(a)
Fundo de Investimento em Direitos Creditórios Multisegmentos NPL Ipanema VI - Não PadronizadoInvestment FundBrazil(a)
Santander Hermes Multimercado Crédito Privado Infraestrutura Fundo de InvestimentosInvestment FundBrazil(a)
(a)Company to which we are exposed, or have rights to variable returns and have the ability to affect those returns by making certain decisions in accordance with IFRS 10 - Consolidated Financial Statements. We and/or our subsidiaries hold 100% of the quotas of these investment funds.

(1)Santander Brasil, through its subsidiaries, holds the risks and benefits of Santander Paraty QIF PLC and the sub-fund Santander FI Hedge Strategies Fund, both of which are based in Ireland and since August 2016 are fully consolidated into Santander Brasil’s financial statements. Santander Paraty QIF PLC does not hold any investments itself, acting instead through Santander FI Hedge Strategies Fund.

4D. Property, Plant and Equipment

We operate four major administrative operational centers, all of which are owned properties. Additionally, we own 405 properties for the activities of our banking network and rent 2,276 properties for the same purpose. Furthermore, in 2014, we transferred our operation to a new data center located in Campinas, which also is an owned property. For further information about the location of our branches, see “—B. Business Overview—Service Channels—Physical Distribution Network.” Our headquarters are located at Av. Presidente Juscelino Kubitschek, 2,041 and 2,235 Block A, Vila Olímpia, City of São Paulo, State of São Paulo, Brazil.

ITEM 4A. UNRESOLVED STAFF COMMENTS

Not applicable.

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

5A. Operating Results

The following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements for the years ended December 31, 2020, 2019 and 2018 and the related notes thereto, and with the financial information presented under the section entitled “Item 3. Key Information—A. Selected Financial Data” included elsewhere in this annual report. The preparation of the consolidated financial statements referred to in this section required the adoption of assumptions and estimates that affect the amounts recorded as assets, liabilities, revenue and expenses in the years and periods presented and are subject to certain risks and uncertainties. Our future results may vary substantially from those indicated as a result of various factors that affect our business, including, among others, those mentioned in the sections “Forward-Looking Statements” and “Item 3. Key Information—D. Risk Factors,” and other factors discussed elsewhere in this annual report. Our consolidated financial statements for the years ended December 31, 2020, 2019 and 2018, prepared in accordance with IFRS as issued by the IASB and the report of our independent registered public accounting firm are included in “Item 18. Financial Statements.”

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Principal Factors Affecting Our Financial Condition and Results of Operations

Impact of COVID-19

We are closely monitoring the evolution of the COVID-19 pandemic in Brazil and globally, in order to take preventive measures to minimize the spread of the virus, ensure the continuity of operations and safeguard the health and safety of our personnel. See “Item 4. Information on the Company—A. History and Development of the Company—Important Events—Impact of COVID-19” for information on the impact of the COVID-19 pandemic on our business and also “Item 3. Key Information—3D. Risk Factors—Risks Relating to the Brazilian Financial Services Industry and Our Business—The current global COVID-19 pandemic has materially impacted our business, and the continuance of this pandemic or any future outbreak of any other highly contagious diseases or other public health emergency, could materially and adversely impact our business, financial condition, liquidity and results of operations.”

Brazilian Macroeconomic Environment

Overview

As a Brazilian bank, we are significantly affected by the general economic environment in Brazil, which suffered a severe impact as a result of the COVID-19 pandemic, as set out under “—Impact of COVID-19” below. The Brazilian economic environment has historically been characterized by significant variations in economic growth, inflation and currency exchange rates. Our results of operations and financial condition are influenced by these factors and the effect that these factors have on employment rates, the availability of credit and average wages in Brazil. The following table presents key data of the Brazilian economy for the periods indicated:

  For the year ended December 31,
  2020 2019 2018
GDP growth (1)  (4.1%)  1.2%  1.1%
CDI rate (2)  2.1%  6.0%  6.4%
TJLP (3)  4.6%  5.6%  7.0%
SELIC rate (4)  2.0%  4.5%  6.5%
Selling exchange rate (at period end) R$ per U.S.$1.00  5.20   4.03   3.87 
Decrease (increase) in real rate against the U.S. dollar  28.9%  4.0%  17.1%
Average exchange rate R$ per U.S.$1.00 (5)  5.16   3.94   3.65 
Inflation (IGP-M) (6)  23.1%  7.3%  7.6%
Inflation (IPCA) (7)  4.5%  4.3%  3.8%

Sources: BNDES, Brazilian Central Bank, FGV and IBGE.

(1)GDP growth for 2020 is based on Santander Brasil’s internal estimates. For 2019 and 2018 the source is the IBGE’s revised series.

(2)The overnight interbank deposit rate (Certificado de Depósito Interbancário), or “CDI” is the average daily interbank deposit rate in Brazil (at the end of each month and annually). This is the average rate for the given year.

(3)Represents the interest rate applied by the BNDES for long-term financing (at the end of the period).

(4)The benchmark interest rate payable to holders of some securities, such as treasury financial letters, issued by the Brazilian government and traded on the SELIC rate at the end of the applicable period.

(5)Average of the selling exchange rate for the business days during the period.

(6)The inflation rate is the general index of market prices (Índice Geral de Preços-Mercado, or “IGP-M”), as calculated by FGV.

(7)The inflation rate is the consumer price index (Índice de Preços ao Consumidor – Amplo, or “IPCA”), as calculated by the IBGE.

General economic stability in Brazil following the onset of the global financial crisis in 2009 allowed the Brazilian Central Bank to continue its policy of reducing interest rates. Due to inflation and other general macroeconomic concerns, the Brazilian Central Bank began increasing interest rates, with the SELIC, a benchmark interest rate, reaching 10.00% at the end of December 31, 2013, 11.75% at the end of December 31, 2014 and 14.25% at the end of December 31, 2015. The Brazilian Central Bank has been reducing interest rates since then, with the SELIC reaching 13.75% as of December 31, 2016, 7.00% as of December 31, 2017, 6.50% as of December 31, 2018, 4.50% as of December 31, 2019 and 2.0% as of December 31, 2020. In 2020, in response to the negative fallout of the COVID-19 pandemic, the Brazilian Central Bank reduced the base interest rate to its historical low at 2.00% in August 2020 and it kept it at this level through to the date of this annual report.

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The resolution of Brazil’s political and economic crisis depends on approving reforms that are expected to be promoted by the President of Brazil (elected in October 2018). In addition, as further detailed below under “—Impact of COVID-19,” the COVID-19 pandemic and ensuing economic crisis caused a steep decrease in Brazilian GDP in the first half of 2020 before a gradual recovery from the third quarter of 2020 onwards. This will place additional demands for spending on the public sector going forward, which may adversely affect investor sentiment and lead Brazil’s economy to grow more slowly than it was expected to do prior to the COVID-19 pandemic. The economic and political crisis in Brazil may adversely affect the performance of the Brazilian economy. As a result, our Brazil-focused credit portfolio may not grow or could decrease and our loan loss provisions could increase.

Any deterioration in Brazil’s rate of economic growth, changes in interest rates, the unemployment rate or price levels generally may adversely affect our business, financial conditions and results of operations. As previously mentioned, the economic fallout from COVID-19 increased the chance of a deterioration in the outlook for the Brazilian macroeconomic environment.

Impact of COVID-19

The Brazilian economy was severely affected by the COVID-19 pandemic and ensuring economic crisis in 2020. The social distancing measures adopted during the first months of the COVID-19 outbreak reduced consumption and resulted in a sharp decrease in gross domestic product in the first half of 2020. In order to mitigate the effects of the pandemic in the economy, the Brazilian government adopted monetary and fiscal measures. On the monetary front, the Brazilian Central Bank reduced the basic interest rates and announced measures to provide liquidity to the system. On the fiscal front, the Brazilian government provided a fiscal package that included financial aid for households, companies and regional governments, and expenditure on public healthcare. The economic measures along with the reopening of the economy in the third quarter of 2020 allowed the Brazilian economy to recover to an extent, although it remained 4% below the pre-crisis level. A negative consequence of the fiscal package was a sharp increase in the fiscal deficit and public debt. Moreover, the structural reform agenda was delayed, while the government has kept the commitment with the fiscal adjustment once the crisis is over. Finally, financial markets have reacted very negatively to the crisis. The Brazilian currency was negatively affected by a higher global risk aversion, drop in commodity prices and deterioration of the fiscal scenario.

Interest Rates

A decrease in the SELIC rate may have a positive impact on our operations by promoting volume growth, even though it may also create pressure on asset-side spreads, while liability spreads should remain stable or even improve.

The following table presents the low, high, average and period-end SELIC rate since 2016, as reported by the Brazilian Central Bank:

   LowHigh(1)Average(2)Period-End
Year      
2016  13.75  14.25  14.15  13.75  
2017  7.0013.75  9.837.00
2018  6.507.006.756.50
2019  4.506.506.134.50
2020  2.004.502.812.00
2021 (through February 24, 2021)2.002.002.002.00
(1)Highest month-end rate.

(2)Average of month-end rates during the period.

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Our assets are predominantly fixed rate and our liabilities are predominantly floating. The resulting exposure to increases in market rates of interest is modified by our use of cash flow hedges to convert floating rates to fixed, but we maintain an exposure to interest rate movements. As of December 31, 2020, a 100 basis point increase in the yield curve would have resulted in R$432 million decline in the net interest income over a one-year period.

Credit Volume and Quality in Brazil

In 2015, outstanding credit grew 7.0%, while the ratio of nonperforming loans to individuals stood at 4.2% and the household debt burden amounted to 20.4% of household income. In 2016, outstanding credit contracted 3.5% in nominal terms, but delinquency fell slightly: the ratio of nonperforming loans to individuals reached 4.0% (as compared to 4.2% in 2015). Subsequently, in 2017, 2018 and 2019, the ratio of nonperforming loans to individuals reached 3.5%, 3.2% and 3.5%, respectively. After having fluctuated around the 19% level (19.1% in 2017, and 19.2% in 2018), the household debt burden reached 20.0% of household income in 2019. In 2020, outstanding credit increased 15.5% as a result of credit support programs put in place by the Brazilian government to mitigate the impact of the COVID-19 pandemic, which also helped to keep the ratio of nonperforming loans at 2.8%, while further increasing the household debt burden to 20.9% of household income.

  2020 2019 2018
  (in billions of R$)
Total Credit Outstanding (*)  3,261   3,471   3,261 
Earmarked credit  1,500   1,465   1,500 
Non-earmarked based credit  1,761   2,006   1,761 
of which:            
Corporate     814      905      814 
Individuals (retail)     948   1,101      948 
(*)Some figures may be subject to revision by the Brazilian Central Bank.

Source: Brazilian Central Bank.

Foreign Exchange Rates

Our policy is to maintain limited foreign exchange rate exposure by seeking to match foreign currency denominated assets and liabilities as closely as possible, including through the use of derivative instruments. In 2020, we recorded foreign exchange expenses of R$24,697 million, foreign exchange expenses of R$2,789 million in 2019 and foreign exchange expenses of R$2,806 million in 2018. These results are due to the variation of the U.S. dollar against the real on our assets and liabilities positions in U.S. dollar denominated instruments during these years. These foreign exchange gains and losses were offset in large part in each year by a corresponding loss or gain on derivatives entered into to hedge this exposure. Such losses and gains are recorded under “Exchange differences (net).”

The Brazilian currency has, during the last decades, experienced frequent and substantial variations in relation to the U.S. dollar and other foreign currencies. During 2016, the real appreciated 17% against the U.S. dollar as a result of improved macroeconomic conditions in Brazil. On December 31, 2016, the exchange rate was R$3.26 per U.S.$1.00. In 2017 the real remained relatively stable against the U.S. dollar, with a small depreciation of 1.5% to R$3.31 per U.S.$1.00 as of December 31, 2017. The real depreciated further against the U.S. dollar throughout 2018, with a depreciation of 17%. On December 31, 2018, the exchange rate was R$3.87 per U.S.$1.00. In 2019, the real continued to depreciate against the U.S. dollar and as of December 31, 2019, it was at R$4.03 per U.S.$1.00. In 2020, the real continued to depreciate, and as of December 31, 2020 it was at R$5.20 per U.S.$1.00. In 2021, and through to the date of this annual report, the real has continued to weaken against the U.S. dollar due to the COVID-19 pandemic. As of February 24, 2021, the exchange rate was R$5.42 per U.S.$1.00.

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Depreciation of the real relative to the U.S. dollar has created additional inflationary pressures in Brazil, which has led to increases in interest rates and limited Brazilian companies’ access to foreign financial markets, and prompted the adoption of recessionary policies by the Brazilian government. Depreciation of the real may also, in the context of an economic slowdown, lead to decreased consumer spending, deflationary pressures and reduced growth of the Brazilian economy as a whole, and thereby harm our asset base, financial condition and results of operations. Additionally, depreciation of the real could make our foreign-currency-linked obligations and funding more expensive, negatively affect the market price of our securities portfolios, and have similar consequences for our borrowers. Conversely, appreciation of the real relative to the U.S. dollar and other foreign currencies could lead to a deterioration of the Brazilian foreign exchange currency balance of payments, as well as dampen export-driven growth. Depending on the circumstances, either depreciation or appreciation of the real could materially and adversely affect the growth of the Brazilian economy and our business, financial condition and results of operations.

Inflation

In recent years, inflation has been oscillating around the target, which is set by the CMN. From 2005 to 2018, the targeted level was 4.5%, with a tolerance interval of 2.0 percentage points that prevailed until 2016 – since then the tolerance band has been narrowed to 1.5 percentage point. In addition, the targeted set for 2019 by the CMN was lowered to 4.25% and additional 0.25 percentage point decreases have already been defined for the targets until 2022 (4.00% for 2020, 3.75% for 2021 and 3.50% for 2022).

Between 2012 and 2014, inflation ranged from 5.8% to 6.4%, i.e., it was close to the top of the fluctuation range in the Brazilian Central Bank’s inflation targeting range. In 2015, as a result of the indexation of a significant portion of contracts for services to the inflation levels of the previous years, the impact of adjustment of tariffs and the impact of the depreciation of the real on prices, the inflation rate reached a level of 10.7%, the highest on record since May 2005 and well above the Brazilian Central Bank’s inflation target of 4.5%. In 2017, inflation fell substantially as a result of the consistent efforts of the Brazilian Central Bank to reduce the inflation rate, ending the year at 2.95% (12-month accumulated rate). As a result, the Brazilian Central Bank was required to send a letter to the CMN explaining the reasons for not meeting the target in which the Brazilian Central Bank explained that it expected that the monetary easing undertaken in 2018 would make the actual inflation rate converge toward the target. In 2018 the inflation increased to 3.75%, thus reinforcing the efficiency of the monetary policy in Brazil. In 2019, as a result of temporary price shocks affecting edible items, inflation ended the year slightly above the targeted level, at 4.31%. In 2020, inflation increased to 4.5%. In 2021, and through to the date of this annual report, inflation has increased to 4.56% in year-on-year terms.

The majority of our income, expenses, assets and liabilities are directly tied to interest rates. Therefore, our results of operations and financial condition are significantly affected by inflation, interest rate fluctuations and related government monetary policies, all of which may materially and adversely affect the growth of the Brazilian economy, our loan portfolios, our cost of funding and our income from credit operations. We estimate that in 2020, a 1.0% increase or decrease in the base interest rate would have resulted in a decrease or increase, respectively, in our net interest income of R$432 million. Any changes in interest rates may negatively impact our business, financial condition and results of operations. In addition, increases in base interest rates may adversely affect us by reducing the demand for our credit and investment products, increasing funding costs and increasing in the short run the risk of default by our customers.

Inflation adversely affects our personnel and other administrative expenses that are directly or indirectly tied to inflation indexes, generally the consumer price index (Índice de Preços ao Consumidor – Amplo), or “IPCA,” and the general index of market prices (Índice Geral de Preços-Mercado), or “IGPM.” For example, considering the amounts in 2019, each additional percentage point change in inflation, would impact our personnel and other administrative expenses by approximately R$94 million and R$77 million, respectively.

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Reserve and Lending Requirements

The requirements set by the Brazilian Central Bank for reserves and credit has a significant impact on the operational results of the financial institutions in Brazil. Increases or decreases in such requirements may have an impact on our operational results by limiting or expanding the amounts available for commercial credit transactions.

The table below shows the requirements for reserves and credit to which we are subject for each financing category:

Product As of December 31, 2020 As of December 31, 2019 Form of Required Reserve Yield
Demand deposits            
Rural credit loans (1)  27.50%  30.00% Loans Cap rate: 6.0% p.a.
Microcredit loans (2)  2.00%  2.00% Loans Cap rate: 4.0% p.m.
Reserve requirements (3)  21.00%  21.00% Cash Zero
Additional reserve requirements  0.00%  0.00% Cash n/a
Free funding (4)  49.50%  47.00%    
             
Savings accounts            
Mortgage loans  65.00%  65% Loans Cap rate (SFH): TR + 12.0% p.a.
Reserve requirements (3)  20.00%  20.00% Cash TR + 70.0% of the target SELIC
Additional reserve requirements  0.00%  0.00% Cash n/a
Free funding (4)  15.00%  15.00%    
             
Time deposits            
Reserve requirements (3)  17.00%  31% Cash SELIC
In cash or other instruments  0.00%  0.00% Cash or other instruments n/a
In cash  0.00%  0.00% Cash n/a
Additional reserve requirements  0.00%  0.00% Cash n/a
Free funding(4)  83.00%  69.00%    
(1)Rural credits are credits granted to farmers in the amount of R$13.6 billion and R$12.9 billion on December 31, 2020 and December 31, 2019, respectively.

(2)Microcredit is a credit granted to very small businesses, with an open position of R$1.3 billion and R$1.2 billion on December 31, 2020 and December 31, 2019, respectively.

(3)Deductions can be applied on reserve requirements. The Brazilian Central Bank details the rules to apply any deduction in Circular Nos. 3,917, 3,975 and 4,001.

(4)Interest-free financing is the amount to be used on a free of interest basis for other purposes in each financing category.

Taxes

See “Item 4. Information on the Company—B. Business Overview—Regulation and Supervision—Other Applicable Laws and Regulation —Taxation.”

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Hedging in Foreign Investments

We operate two foreign branches, one in the Cayman Islands, and another one in Luxemburg. We previously operated an independent wholly-owned subsidiary in Spain, named Santander Brasil Establecimiento Financiero de Credito, EFC, which we used primarily for sourcing funds in the international banking and capital markets to provide credit lines for us that are extended to our customers for working capital and trade-related financings. Under Brazilian income tax rules, the gains or losses resulting from the impact of appreciation or devaluation of the real on foreign investments are non-taxable or non-deductible. This tax treatment results in volatility of the income tax line item in our income statement. This asymmetry is offset through a derivative position in U.S. dollar futures, which generates gains or losses dependent on any devaluation or appreciation of the real, which is our strategy to protect our after-tax results. The reconciliation of our effective tax rate to the statutory tax rate is set forth in note 23b to our consolidated financial statements as of and for the year ended December 31, 2020. Santander EFC was operational from 2012 until 2020, when we approved its liquidation. For further information, see “Item 4. Information on the Company—B. Business Overview—Regulation and Supervision—Other Applicable Laws and Regulations—Foreign Subsidiary.”

Goodwill of Banco Real

We generated goodwill of R$27 billion as a result of our acquisition of Banco Real in 2008. Under IFRS, we are required to analyze goodwill for impairment at least annually or whenever there are indications of impairment. In 2020, 2019 and 2018, the recoverable goodwill amounts are determined from “value in use” calculations. For this purpose, we estimate cash flow for a period of five years. We prepare cash flow estimates considering several factors, including: (i) macroeconomic projections, such as interest rates, inflation and exchange rates, among others, (ii) the performance and growth estimates of the Brazilian financial system, (iii) increased costs, returns, synergies and investment plans, (iv) the behavior of customers, and (v) the growth rate of, and long-term adjustments to, cash flows. These estimates rely on assumptions regarding the likelihood of future events, and changing certain factors could result in different outcomes. The estimate of cash flows is based on valuations prepared by an independent research company, which is reviewed and approved by the board of directors. Therefore, amortization of goodwill for tax purposes generates a permanent difference and, as a result, no record of the deferred tax liability.

The following table shows the main assumptions for the basis of valuation as of the dates indicated.

  2020 2019 2018
  (Value in use: cash flows)
Main Assumptions(*)      
Basis of valuation      
Period of the projections of cash flows(1)  5 years   5 years   5 years 
Growth rate(2)  4.3%  4.8%  5.1%
Discount rate(3)  12.4%  12.5%  13.6%
(1)The projections of cash flow are prepared using internal budget and growth plans of management, based on historical data, market expectations and conditions such as industry growth, interest rate and inflation.

(2)The growth rate is calculated based on a real growth rate of 1% p.a. plus annual long-term inflation in 2020.

(3)The discount rate is calculated based on the capital asset pricing model. The discount rate before tax is 19.56% in 2020, 17.78% in 2019 and 19.33% in 2018.

(*)The recoverability test was performed during the second half of 2020. Goodwill is tested for impairment on an annual basis or whenever there is any indication of a potential impairment. At the end of each year, a qualitative assessment is carried out in order to check the existence of signs of impairment. For the years 2020, 2019 and 2018, no indication of impairment was identified.

We performed a sensitivity test in the goodwill impairment analysis considering the main assumptions that could reasonably be expected to possibly change, as required by the IFRS. Accordingly, we applied such a test considering the discount rate and perpetuity growth rate as the main assumption subject to reasonably possible change and we did not identify any impairment to goodwill.

Other Factors Affecting the Comparability of Our Results of Operations

Dissolution and liquidation of Santander Brasil, Establecimiento Financiero de Credito, S.A.

On November 12, 2020, we approved the dissolution and liquidation of Santander Brasil, Establecimiento Financiero de Credito, S.A., a Spanish entity wholly-owned by us , which we used primarily for sourcing funds in the international banking and capital markets to provide credit lines for us that are extended to our customers for working capital and trade-related financings. The capital invested abroad was repatriated to Brazil in November 2020. The deed of dissolution and liquidation of the entity was registered with the Mercantile Registry of Madrid and effective on December 15, 2020. These activities are now carried out by our Luxembourg branch.

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Disposal of the equity interest held in Super Payments and Administration of Means of Electronic Media S.A.

On February 28, 2020, we sold our entire equity interest in Superdigital to Superdigital Holding Company, S.L. a company indirectly controlled by Santander Spain. For further information regarding this sale, see “See “Item 4. Information on the Company—4A. History and Development of the Company—Important Events.”

Put option of the remaining equity interest in Banco Olé Consignado S.A. against Aymoré Crédito, Financiamento e Investimento S.A.

On March 14, 2019, the minority shareholder of Banco Olé formalized its interest in exercising the put option right provided in the Investment Agreement executed with Aymoré CFI on July 30, 2014, to sell its 40% equity interest in Banco Olé to Aymoré CFI, a controlled entity of Santander Brasil. On January 31, 2020, Santander Brasil and the shareholders of Bosan Participações S.A. (a holding company whose single asset is the shares representing 40% of the corporate capital of Banco Olé) entered into the definitive agreements and performed the closing acts related to the purchase and sale of all shares issued by Bosan, upon the transfer of Bosan’s shares to Santander Brasil and payment of the total price of R$1,608.8 million to the sellers. As a result, Santander Brasil became, both directly and indirectly, the holder of all shares issued by Banco Olé.

Acquisition of direct equity interest in Toque Fale Serviços de Telemarketing LTDA

On March 24, 2020, we acquired all of the outstanding share of Toque Fale Serviços de Telemarketing Ltda., or “Toque Fale,” held by our subsidiaries Getnet Adquirência e Serviços para Meios de Pagamento S.A. and Auttar HUT Processamento de Dados LTDA for an amount of R$1.1 million, corresponding to the equity value of the quotas on February 29, 2020. As a result, we became the direct holders of 100% of Toque Fale’s share capital.

Acquisition of equity stake in Ipanema Empreendimentos e Participações S.A., currently named Return Capital Serviços de Recuperação de Créditos S.A. (“Return Credit Management”), and Gestora de Investimentos Ipanema S.A., currently named Return Gestão de Recursos S.A. (“Return Asset” and, together with Return Credit Management, the “Return Entities”)

On October 16, 2019, Atual Companhia Securitizadora de Créditos Financeiros, or “Atual,” informed the remaining shareholders of the Return Entities of its decision to exercise its call option for shares representing the remaining 30% of the Return Entities’ total voting capital owned for a value of approximately R$17 million. The transaction was completed on November 1, 2019. As a result of this transaction, Atual currently owns 100% of the Return Entities’ issued and outstanding share capital. The Return Entities are active in the credit recovery intelligence sector, providing services such as credit portfolio evaluation and pricing, collection, management and recovery of non-performing loans.

Acquisition of Summer Empreendimentos Ltda.

On May 14, 2019, we and our wholly-owned subsidiary Santander Holding Imobiliária S.A., or “SHI,” entered into a binding document with the shareholders of Summer Empreendimentos Ltda, or “Summer,” for the acquisition of Summer’s issued share capital. The acquisition was approved by the Brazilian Central Bank on September 16, 2019 and concluded on September 20, 2019. We now hold, directly and indirectly through SHI, 100% of Summer’s share capital. Initially, Summer was not consolidated in our financial statements because it was treated as a temporary investment (non-current assets for sale). However, the investment is no longer considered temporary, and therefore Summer is included in our consolidated financial statements.

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Capital reduction of Norchem Holding e Negócios S.A. and Norchem Participações e Consultoria S.A.

On October 8, 2020, the shareholders of Norchem Holding e Negócios S.A. and Norchem Participações e Consultoria S.A., which we refer to jointly as the “Norchem Companies,” approved a capital reduction in the two Norchem Companies, in the amounts of R$14.7 million and R$19.9 million, respectively. As a result, we ceased to be shareholders of the Norchem Companies.

Purchase of Equity Interest over Toro Controle e Participações S.A.

On September 29, 2020 Santander Brasil’s subsidiary, PI DTVM , entered into an investment and other covenant agreement with the shareholders of Toro Controle e Participações S.A. , or “Toro Controle” to invest in Toro Controle. Toro Controle, an investment platform, operating as a securities broker focused on the retail market was founded in Belo Horizonte in 2010. Toro Controle is the holding company of Toro Corretora de Títulos e Valores Mobiliários Ltda, or “Toro Corretora,” and Toro Investimentos S.A., or “Toro Investimentos.” We refer to Toro Controle, Toro Corretora and Toro Investimentos as “Toro,” Upon completion of the transaction, PI DTVM will hold 60% of Toro Controle’s share capital.

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Purchase of Equity Interest in Gira – Gestão Integrada de Recebíveis do Agronegócio S.A.

On August 11, 2020, Santander Brasil executed a share purchase and sale agreement and other covenants with the shareholders of Gira (Gestão Integrada de Agronegócio S.A. or “Gira”)to acquire 80% of Gira’s share capital. Gira is a technology company that operates in the management of agribusiness receivables and whose platform has the potential to make agricultural credit transactions more secure. This increased layer of security is achieved through the use of applications, such as geolocation of productive areas, capture and analysis of agronomic data and permanent monitoring of production performance for sites involved in credit transactions. Gira’s solutions also include the review and digital registration of collateral provided under commercial contracts and continuous observation of crop development as a way of monitoring risks. The applicable regulatory approvals were received on December 18, 2020 and the closing of the transaction took place on January 8, 2021.

Execution of a contract for the Acquisition of Paytec Tecnologia em Payments Ltda, and Paytec Logística e Armazém EIRELI

On December 8, 2020, we entered into a quota purchase agreement with the owners of Paytec Tecnologia em Payments Ltda, and Paytec Logística e Armazém Eireli (jointly “Paytec”). Once the transaction is completed, we will hold 100% of Paytec’s share capital. Paytec is a logistics operator with Brazil-wide coverage which focuses on the payments market. The completion of the transaction is subject to the signing of definitive instruments and approval by the Brazilian Central Bank.

Sale of equity stake in CIBRASEC – Companhia Brasileira de Securitização

On July 24, 2019, we completed the sale of our entire equity interest in CIBRASEC – Companhia Brasileira de Securitização (“Cibrasec”) to ISEC Securitizadora S.A. (“ISEC”). Our interest amounted to 4,000 common shares and 50 Class A preferred shares, representing in aggregate, approximately 9.72% of Cibrasec’s total capital stock. We received consideration of R$9.8 million for our interest in Cibrasec. As a result, we are no longer a shareholder of Cibrasec.

Incorporation of the spun-off portion of Integry Tecnologia e Serviços A.H.U Ltda.

On October 31, 2019, we approved a spin-off of Integry Tecnologia e Serviços AHU Ltda, or “Integry,” a then wholly-owned subsidiary of Getnet Adquirência e Serviços para Meios de Pagamento S.A., or “Getnet.” Subsequently on December 20, 2019, Getnet and Santander Merchant Platform Solutions, S.L., or “SMPS Global,” a company based in Spain and controlled by Santander Spain, entered into a share purchase agreement as a result of which SMPS Global now holds 100% of Integry’s share capital. On December 23, 2019, Integry changed its name to Santander Merchant Platform Solutions Brasil Ltda.

Acquisition of residual equity stake in Getnet

On December 19, 2018, the minority shareholders of Getnet exercised their Put Option pursuant to the applicable Share Purchase Agreement, or SPA. On the exercise date of the Put Option, we entered into a binding amendment to the SPA, to acquire all of the Getnet shares owned by minority shareholders, corresponding to 11.5% Getnet’s share capital, for anof the entity’s equity interest, in the amount of R$1.4311,431 billion. The acquisition transaction was approved by the Brazilian Central Bank on February 18, 2019 and settledclosed on February 25, 2019, and we became the holders of2019. As a result, Santander Brasil currently owns 100% of Getnet’s shares.issued and outstanding share capital.

 

Formation of Esfera Fidelidade S.A.

 

Esfera Fidelidade was incorporated on August 14, 2018 as our wholly-owned subsidiary. Esfera Fidelidade was formed to develop and manage customer loyalty programs. The company started its operations in November 2018.

 

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Investment in Loop Gestão de Pátios S.A.

 

In 2018, Webmotors, S.A., a company in which we own an indirect 70% equity interest, entered into an agreement with Allpark Empreendimentos, Participações e Serviços S.A. and Celta L.A. Participações S.A. to acquire a 51% stake in Loop through a capital increase and issuance of new shares by Loop which were fully subscribed and paid-in by Webmotors. Loop conducts physical and virtual car auctions. This acquisition has enabled Webmotors to expand its service portfolio and strengthen its competitive position. The transaction was completed on September 25, 2018 for the amount of R$23.9 million.

 

Formation of BEN Benefícios e Serviços S.A.

 

On June 11, 2018, Santander Brasil incorporated BEN Beneficios. BEN BeneficiosBen. Ben is engaged in create, supply and administer various types of vouchers and tickets used for the provision of employee benefits (such as for meals, transportation and cultural events) in the form of printed electronic and magnetic cards. The company beganbegun its operations in the second quarter of 2019.

 

Creation of PI Distribuidora de Títulos e Valores Mobiliários S.A.DTVM

 

On May 3, 2018, Santander Finance Arrendamento Mercantil S.A., one of our indirect subsidiaries, was converted into a securities brokerage and changed its corporate name to SI Distribuidora de Títulos e Valores Mobiliários S.A. The conversion process was approved by the Brazilian Central Bank on November 21, 2018. On December 17, 2018, SI Distribuidora de Títulos e Valores Mobiliários S.A. changed its corporate name to PI Distribuidora de Títulos e Valores Mobiliários S.A..S.A. On January 22, 2019 it received approval for the aforementioned name change from the Brazilian Central Bank. The

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company begunbegan its operations in March 2019.

 

Acquisition of Isban Brasil S.A. and Produban Serviços de Informática S.A. Companies

 

On February 19 and 28, 2018, respectively, we purchased all shares issued by Isban Brasil from Ingenería de Software Bancário, S.L., and all shares issued by Produban Serviços de Informática S.A. from Produban Servicios Informáticos Generales, S.L., for R$61,078 thousand and R$42,731 thousand, respectively. While all parties to these transactions are ultimately controlled by Santander Spain, the transactions were conducted on an arm’s length basis. On February 28, 2018, Isban Brasil was merged into Produban Serviços de Informática S.A. and on the same date, Produban Serviços de Informática S.A. changed its corporate name to Santander Brasil Tecnologia S.AS.A.

 

Sale of equity interest in BW Guirapá I S.A.

 

On December 22, 2017, Santander Investimentos, Corretora de Seguros, Cia. de Ferro Ligas da Bahia – Ferbasa S.A. andS.A.and Brazil Wind S.A. entered into an agreement for the sale of 100% of the shares issued by BW Guirapá I S.A. held by Santander Corretora de Seguros and Brazil Wind to Cia. de Ferro Ligas da Bahia – Ferbasa S.A. The transaction also encompassed the seven wind farms organized as special purpose companies held by BW I. The base consideration paid was R$414450 million, and an additional amount of up to R$35 million may still be paid if certain contractual targets are met. The transaction closed on April 2, 2018.

 

Formation of Santander Auto S.A.

 

On December 20, 2017, we entered into binding agreements with HDI Seguros for the formation of a partnership throughinvolving the creation of a new insurance company called Santander Auto S.A., or “Santander Auto”.Auto.” Sancap Investimentos e Participações S.A., a company controlled by Santander Brasil, will hold 50% of the issued share capital of Santander Auto with the remaining 50% being held by HDI Seguros. Santander Auto will focusfocuses on offering motor insurance policies through a 100% digital platform. The transaction closed on October 9, 2018 for the amount of R$15 million when the documentation to form Santander Auto S.A. was executed.executed and we and HDI Seguros undertook a joint capital contribution of R$15 million into Santander Auto. On January 9, 2019, SUSEP granted Santander Auto the regulatory authorization to operate. Santander Auto began its operation onoperations in August 2019.

 

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Acquisition of equity stake in the ReturnsReturn Entities

 

On October 16, 2017, Santander Brasil, through its wholly-owned subsidiary Atual Companhia Securitizadora de Créditos Financeiros, or “Atual”, acquired a direct equity interest in Return Credit Management, and an indirect equity interest in Return Asset corresponding to 70% of Return Entities’ share capital.

 

On October 16, 2019, Atual informed the remaining shareholders of its decision to exercise the call option for the shares representing the remaining 30% the Return Entities’sEntities’ total voting capital owned by them, for a value of approximately R$17 million. The transaction was completed on November 1, 2019. As a result of this transaction, Atual currently owns 100% of the Return Entities’ issued and outstanding share capital.

 

JoinedAccession to Certain Tax Payment Plans

 

In August 2017, we joined the PERT. The program allows for certain tax debts to be repaid in installments. In connection with our participation in this program, we are repaying in installments certain amounts due as a result of lawsuits and administrative proceedings relating to corporate income tax and social security contributions for the periods from 1999 to 2005 in a total amount of R$492 million in January 2018 (taking into account the reduction arising from our participation in the program). A payment of R$191.9 million was due in August 2017 and a further payment of R$299.7

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million was due by January 2018, both of which we have made within the prescribed time limits. As a result of our participation, we recorded expenses in an amount of R$364 million (after tax) in the third quarter of 2017.

 

In October 2017, we joined the Incentive Payment Programs and Installments (Programas de Parcelamento Incentivado) created by the cities Rio de Janeiro and São Paulo. The program allows for certain tax debts to be repaid in installments. In connection with our participation in these programs, we are repaying in installments certain amounts due as a result of lawsuits and administrative proceedings relating to ISS for the periods from 2005 to 2016 in a total amount of R$293 million as of December 31, 2017. As we had made provisions for these losses, we registered income of R$435 million as a result of the reversal of certain provisions, net of tax effects, in an amount of R$96 million.

 

Establishment of Credit Intelligence Bureau

 

On January 20, 2016, we entered into a non-binding memorandum of understanding with Banco Bradesco S.A., Banco do Brasil S.A., Caixa Econômica Federal and Itaú Unibanco S.A., for the creation of a credit intelligence bureau, the CIB. The CIB was structured as a corporation and each of Santander Brasil, Banco Bradesco S.A., Banco do Brasil S.A., Caixa Econômica Federal and Itaú Unibanco S.A. will have a 20% ownership stake in the corporation.

 

The purpose of the CIB is to develop a database that, in conformity with applicable laws, will collect, reconcile and handle the credit information of individuals and legal entities that register with the CIB and expressly authorize the inclusion of their credit information on the CIB’s database. We believe this initiative will lead to an increased degree of efficiency and improvement of our credit management activities, and will also facilitate the disbursement of long and medium-term lines of credit to participants in the Brazilian Financial System and to other corporate entities.

 

On April 14, 2017, the definitive documents were signed by the shareholders. At the extraordinary shareholders’ meeting held on October 5, 2017, a capital increase in an amount of R$285,205 thousand was approved as a result of which CIB’s capital stock increased from R$65,823 thousand to R$351,028 thousand. The company began its activitiesCIB became fully operational in 2019.

 

Formation of Banco Hyundai Capital Brasil S.A.

 

On April 28, 2016, our wholly-ownedwholly owned subsidiary Aymoré CFI entered into a joint venture with Hyundai Capital, for the incorporationpurposes of incorporating (i) Banco Hyundai Capital Brasil S.A. and (ii) an insurance brokerage company, in ordercompany. These entities were incorporated to provide, respectively, auto financefinancing and insurance brokerage services, as well asand products to consumers andthrough the Hyundai dealerships in Brazil.

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Aymoré CFI holdsowns a 50% equity stakeinterest in Banco Hyundai Capital Brasil S.A. while, and Hyundai Capital holdsowns the remaining 50% equity interest.

On February 21, 2019, the Brazilian Central Bank granted to Banco Hyundai Capital Brasil S.A. the authorization to operate as a banking entity. Banco Hyundai Capital Brasil S.A. began its operationsoperating in the first half of 2019.

On April 30, 2019, the Brazilian Central Bank granted the authorization toauthorized the formation of the insurance brokerage company. The insurance brokerage company which was incorporated on July 2, 2019. The company2019 and began its operations onoperating in November 2019.

 

Sale of Santander Securities Services Brasil Distribuidora de Títulos e Valores Mobiliários S.A., or “SSS DTVM”DTVM.”

 

On June 19, 2014, we executed preliminary documents containing the main terms and conditions of the sale of our qualified custody business and the sale of our subsidiary SSS DTVM, which renders third party fund administration services, to a holding company owned by Santander Spain and a group of private equity funds managed by Warburg Pincus. Following the sale, we will continue to act as the administrator of the funds, as per CVM Instruction No. 306, dated as of May 5, 1999, as amended.

 

The closing of the transaction occurred on August 31, 2015, when all of our shares in SSS DTVM were formally transferred to Santander Securities Brasil and SSS DTVM acquired our qualified custody business. We received R$859 million at the closing of the transaction which generated gains of R$751

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million before taxes recorded in the “Other non-financial gains/losses” line.

 

IssuancePlans to Optimize our Capital Structure

On September 26, 2013, we announced that, in order to optimize our capital structure, our board of Notesdirectors submitted a proposal to optimize the composition of our regulatory capital to our shareholders for their approval (“PR Optimization Plan”). The aim was to establish a more efficient capital structure, consistent with recent capital rules and aligned with our business strategy and asset growth plan. The PR Optimization Plan was composed of the following items: (i) an equity distribution to the shareholders of Santander Brasil in the total amount of R$6 billion, with no reduction in the number of shares; (ii) the issuance abroad of capital instruments to compose Tier I and Tier II of our regulatory capital; and (iii) a bonus share program and an adjustment in the composition of the Units, followed by a reverse share split, with the purpose of eliminating trading in cents of reais.

 

On November 5, 2018, our board of directors approved the issuance, throughNotes Offering In addition, our Cayman Islands branch, of debt instruments to form part of our Tier 1 and Tier 2 regulatory capital in the aggregate amount of U.S.$2.5 billion, pursuant to an offering made to non-U.S. Persons under Regulation S of the U.S. Securities Act of 1993, as amended, or the “Notes Offer”.

Our board of directors also approved the redemption of debt instruments issued to form part of our Tier 1 and Tier 2 regulatory capital, as set out in accordance with the boardboard’s resolution of January 14, 2014. The redemption were carried out with funds raised throughproceeds from the Notes Offer.

Offering were used to fund this redemption. On December 18, 2018, the Brazilian Central Bank authorized the transactions contemplated in the Notes OfferOffering and the redemption, which were completed on January 29, 2019.

 

Critical Accounting Policies

 

Our consolidated financial statements have been prepared in accordance with IFRS as issued by the IASB and theIASB.

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General

Our principal accounting policies are described in Notenote 2 - Accounting policies and method of measurement to our audited consolidated financial statements. The following discussion describes those areas that require use of certain critical accounting estimates and the most judgmentexercise of judgement regarding matters that are inherently uncertain and that impact our financial condition and operational results. In this regard, if management decides to change these estimates, or involveapply such estimates for different durations a higher degree of complexitymaterial impact on our financial condition and operational results could result.

Management bases its estimates and judgments on historical experience and on various other factors and circumstances, which are believed to be reasonable. Actual results may differ from these estimates if assumptions and conditions change. Any judgments or changes in assumptions are submitted to the audit committee and to our regulatory authorities and are disclosed in the application of the accounting policies.related notes to our consolidated financial statements, which are included in this annual report.

 

Fair Value of Financial Instruments

We record a financial asset as measured at (i) fair value through profit or loss, (ii) fair value through other comprehensive income or (iii) amortized cost. In general, financial liabilities are measured at amortized cost. Exceptions include financial liabilities measured at: (i) fair value through profit or loss, (ii) other financial liabilities at fair value through profit or loss and (iii) financial liabilities designated as hedge items (or hedging instruments) measured at fair value. See Item 3. Key Information—3A. Selected Financial Data—Balance Sheet Data.

 

The fair value of a financial instrument is the price that would be received to sell an asset, or the amount paid to transfer a liability in an orderly transaction between market participants, atin a transaction on the measurement date of which fair value is measured, regardless of whether that price is directly observable or estimated using another valuation technique.

 

For further information, see notes “5 - LoansIn estimating the fair value of an asset or a liability, we take into account relevant characteristics if market participants would also consider the same when pricing the asset and amounts due from credit institutions”; “6 - Debt instruments”; “7 - Equity instruments”; “8 - Derivativeliability at the time fair value is measured. An assumed transaction like this establishes an asset sale price or transfer cost for the liability. In the absence thereof, price is established using valuation techniques commonly used by financial markets.

We use derivative financial instruments for both trading and Short positions”; “9 - Loansnon-trading activities. The principal types of derivatives used are interest rate swaps, options and advances to clients”; “26 - Other Comprehensive Income”;future rate agreements; foreign exchange forwards, futures, options, and “30 - Fairswaps; cross-currency swaps; equity index futures; and equity options and swaps. The fair value of exchange-traded derivatives is calculated based on published price quotations. The fair value of over-the-counter derivatives is calculated as the sum of expected future cash flows arising from the instrument, discounted to the (“present value” or “theoretical close”) at the date fair value is measured using techniques commonly applied by financial assetsmarkets as follows:

·The present value method is used for financial instruments permitting static hedging (principally, forwards and swaps), loans and advances. This method uses expected future cash flows that are discounted through interest rate curves of the applicable currencies. These interest rate curves are generally observable market data.

·The Black-Scholes model is used to value financial instruments requiring dynamic hedging (principally structured options and other structured instruments). Certain observable market inputs are used in the model to generate variables such as the bid-offer spread, exchange rates, volatility, correlation between indexes and market liquidity, as appropriate.

·The present value method and the Black-Scholes model are used for valuing financial instruments exposed to interest rate risk, such as interest rate futures, caps and floors. Main inputs used in these models are principally observable market data, including appropriate interest rate curves, volatilities, correlations and exchange rates.

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·Dynamic models similar to those used in measuring of interest rate risk for measuring credit risk of linear instruments (such as bonds and fixed-income derivatives). In the case of non-linear instruments, if the portfolio is exposed to credit risk (such as credit derivatives), the joint probability of default is determined using the Standard Gaussian Copula model. The main inputs used to determine the underlying cost of credit for credit derivatives are quoted credit risk spreads, and the correlation between quoted credit derivatives of various issuers.

·The determination of fair value requires us to make certain estimates and assumptions. If quoted market prices are unavailable, fair value is then calculated using widely accepted pricing models that consider contractual terms and prices of the underlying financial instruments, yield curves, observable market data and other relevant factors. The use of different estimates or assumptions in these pricing models could lead to a different valuation being recorded in our consolidated financial statements.

See note 2e (i) to our consolidated financial statements for additional information on valuation techniques, details on our modeled principal assumptions and liabilities”estimates and a sensitivity analysis for the valuation of financial instruments to those changes in “Item 18. Financial Statements,”.principal assumptions and estimates and note 46.c.8 of our consolidated financial statements for a sensitivity analysis relating to the valuation of financial instruments to those changes in principal assumptions.

 

Impairment Losses on Financial Assets

Definition

 

A financial asset is considered impaired when there is objective evidence that shows events have occurred which:

 

·give rise to an adverse impact on future cash flows estimated at the transaction date, in the case of debt instruments (loans and debt securities), give rise to an adverse impact on the future cash flows that were estimated at the transaction date;;

 

·in the case offor equity instruments, mean that their carrying amount may not be fully recovered;

 

·arise from the violation of terms of loans; and

 

·arise during the Bankruptcy process.

 

As a general rule, the value adjustment of impaired financial instruments is recognized in the consolidated income statement for the period in which the impairment becomes evident. The reversal, if any, is recognized in the same manner for previous statements for which the impairment is reversed or reduced. Financial assets are deemed to be impaired, and the accrued interest suspended, when there are reasonable doubts as to their full recovery and/or the collection of the related interest for the amounts and on the dates indicated in the loan agreement after taking into account collateral guarantees received to secure (fully or partially) the collection of related balances.

For further information, see notes “5 - Loansall non-performing past due assets, any collections relating to impaired loans and advances are used to recognize the accrued interest. The remainder, if any, is applied to reduce the principal amount outstanding Debt Instruments Carried at Amortized Cost.

Debt Instruments Carried at Amortized Cost

The impairment loss amount incurred for determining a recoverable amount on a debt instrument measured at amortized cost is equal to the difference between its carrying amount and the present value of its estimated future cash flows (excluding future credit losses not incurred). This cash flow is discounted to the financial asset’s original effective interest rate (or the effective interest rate at initial recognition), which is presented as a reduction of the asset balance and recorded on income statements.

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In estimating the future cash flows of debt instruments, the following factors are taken into account:

·all amounts that are expected to be obtained over the remaining life of the instrument, (such as provided guarantees);

·impairment loss considers the likelihood of collecting accrued interest receivable;

·various types of risk to which each instrument is subject;

·circumstances in which collections will foreseeably be made; and

·that cash flows are subsequently discounted using the instrument’s effective interest rate.

A debt instrument is impaired due to insolvency when there is evidence of deterioration in the obligor’s ability to pay, either because such obligor is in arrears or for other reasons. An example is recoverable losses resulting from a materialization of the insolvency risk of obligors (credit risk).

We have certain policies, methods and procedures for minimizing our exposure to counterparty insolvency. These policies, methods and procedures are applied in the granting, examination and documentation of debt instruments, contingent liabilities and commitments; identification of recoverable amounts dueand calculation of amounts necessary to cover the related credit risk.

The procedures employed in the identification, measurement, control and reduction of exposure to credit risk, are applied on an individual basis or through grouping similar credit risk characteristics.

Customers with individual management include wholesale segment customers, financial institutions and certain companies. Risk management is performed through an analysis complemented by tools to support a decision-making model based on credit risk assessment using internal procedure.

Customers with standardized management include individuals and companies not classified as individual customers. Risk management models are based on automated decision-making and risk assessment procedure, which are complemented by teams of analysts specializing in credit risk. The credits related to standardized customers are usually considered to be not recoverable when they have experience of historical loss and a delay greater than 90 days.

Methodology for Impairment Losses

We evaluate all loans in respect of the provision for impairment losses from credit institutions”; “6 - Debt instruments”; “7 - Equity instruments”; “8 - Derivativerisk. Loans are either individually evaluated for impairment or collectively evaluated by grouping similar risk characteristics for loans accounted as amortized cost. Loans that are individually evaluated for impairment losses are not evaluated collectively.

To measure the impairment loss on loans individually evaluated for impairment, we consider borrower conditions, such as their economic and financial instrumentssituation; level of indebtedness; ability to generate income; cash flow; management; corporate governance and Short positions”;quality of internal controls; payment history; industry expertise; and “9 - Loanscontingencies and advancescredit limits. The characteristics of assets are also considered, which include: the nature and purpose; type; sufficiency and liquidity level guarantees; total amount of credit; historical experience of impairment; and other circumstances known at the time of evaluation.

To measure the impairment loss on loans collectively evaluated for impairment, we segregate financial assets into groups considering the characteristics and similarity to clients”credit risk, or in “Item 18. Financial Statements,”other words, according to segment, the type of assets, guarantees and other factors associated such as the historical experience of impairment and other circumstances known at the time of assessment.

Impairment loss is calculated using statistical models that consider the following factors:

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·Exposure at Default or “EAD” is the amount of risk exposure at the date of default by the counterparty. In accordance with IFRS, the exposure at default used for this calculation is also the current exposure, as reported in the balance sheets.

·Probability of Default or (“PD”) is the probability of the borrower failing to meet its principal and/or interest payment obligations. PD is measured using an annual time horizon to quantify the probability of the borrower defaulting in the coming year. A loan is in default if either the principal or interest is past due by ninety days or more or the loan is current but there are doubts as to the solvency of the counterparty (subjective doubtful assets).

·Loss Given Default, or (“LGD,”) is the loss arising in the event of default. LGD calculation is based on the net charge offs on defaulted loans, taking into account the guarantees/collateral associated with the loans, the income and expenses associated with the recovery process and the timing of default.

·Loss Identification Period, or (“LIP,”) is the time period between the occurrence of a loss event and the identification of an objective evidence of this loss. In other words, it represents the time horizon from the credit loss occurrence until the effective confirmation of such loss.

Moreover, prior to loans be written-off (which is only done after the Bank has completed all recovery efforts and after about 360 days late), a fully registered provision (allowance for loan losses) of the loan’s remaining balance applies. As a result, this provision fully covers the losses. Thus, the Bank understands that its loan loss allowance methodology has been developed to meet its risk metrics and capture loans that could potentially become impaired.

 

Impairment

 

Certain assets, such as intangible assets, including goodwill, equity method investments, financial assets not carried at fair value through profit or loss and other assets are subject to impairment review.

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We record impairment charges when we believe there is objective evidence of impairment, or that the cost of the assets may not be recoverable.

 

The assessment of what constitutes an impairment is based on the following models:

We test goodwill for impairment on an annual basis, or more frequently if events or changes in economic circumstances, such as an adverse change in Santander Brasil’s business condition or observable market data, indicate that these assets may be impaired. The recoverable amount determination used in the impairment assessment requires prices of comparable businesses, present value or other valuation techniques, or a combination thereof, requiring management to make subjective judgments and assumptions. Events and factors that may significantly affect estimates include, among other things, competitive forces, customer behaviors and attrition, changes in revenue growth trends, cost structures and technology, and changes in discount rates and specific industry or market sector conditions. If an impairment loss is recognized for goodwill, it may not be reversed in a subsequent period. The recognition of impairment is applicable when significant changes occur in the main estimates used to evaluate the recoverable amounts of the cash-generating unit recoverable amount below the carrying amount. Based on the assumptions described above, no impairment of goodwill in 2020, 2019 and 2018 was identified.

Given the level of uncertainty related to these assumptions, our officers carry out a sensitivity analysis using reasonably possible changes in the key assumptions on which the recoverable amount of the cash-generating units are based in order to confirm that the recoverable amounts still exceed the carrying amounts.

All debt and equity securities (other than those carried at fair value through profit or loss) are subject to impairment testing every reporting period. The carrying value is reviewed in order to determine whether an impairment loss has been incurred.

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Evaluation for impairment includes both quantitative and qualitative information. For furtherdebt securities, such information seeincludes actual and estimated incurred credit losses indicated by payment default, market data on (estimated) incurred losses and other current evidence that the issuer may not pay amounts when due. Equity securities are impaired when management believes that, based on a significant or prolonged decline of fair value below the acquisition price, there is sufficient reason to believe that the acquisition cost may not be recovered. “Significant” and “prolonged” are interpreted on a case-by-case basis for specific equity securities.

Upon the impairment of either debt or equity instruments, the amount considered as effective loss is recognized in profit or loss. In addition, we did not identify any impairment of tangible assets in 2020, 2019 and 2018 (see notes “13 - Intangible assets - Goodwill”14, 13 and “24 - Tax assets and liabilities” in “Item 18. Financial Statements”12, respectively, to our audited consolidated financial statements).

 

Post-employment Benefit Plan

 

The post-employment benefits plans includePost-employment benefit plan includes the following obligations undertaken by us: (i) to supplement the public social security system benefits, and (ii) medical assistance in the event of retirement, permanent disability or death for eligible employees and their direct beneficiaries.

 

Defined Contribution Plan

A defined contribution plan is the post-employment benefit plan for which we and our controlled entities as employers make pre-determined contributions to a separate entity and, in turn, have no legal or constructive obligation to pay further contributions if the separate entity does not hold sufficient assets to honor all benefits relating to the services rendered in the current and prior periods.

These contributions are recognized as personnel expenses in the consolidated income statement.

Defined Benefit Plan

A defined benefit plan is the post-employment benefit plan as is shown in note 21 to our audited consolidated financial statements. For further information, see notes “22 - Provisionsthis type of plan, the sponsoring entity’s obligation is to provide the agreed benefits to employees, assuming the potential actuarial risk that benefits will cost more than expected.

The amendment of IAS 19 established fundamental changes in the accounting for pensions and similar obligations”disclosure of employee post-employment benefits such as removing the mechanism of the corridor approach for recording of the obligation of the plans. Fundamental changes also include changes in “Item 18. Financial Statements”the criteria for recognition of conventional interest of plan assets (valuation based on the discount rate actuarial liability).

 

The adoption of this accounting policy involved, fundamentally, full recognition of liabilities on account of actuarial losses (actuarial deficit) not recognized previously, against the stockholders’ equity (Statements of Comprehensive Income).

Main Definitions:

·The present value of the defined benefit obligation is the present value of expected future payments required to settle the obligation resulting from employee service in the current and past periods, without deducting any plan assets.

·Deficit or surplus is: (a) the present value of the defined benefit obligation, less (b) the fair value of plan assets.

·The sponsoring entity may recognize the plan’s assets in the balance sheet when they meet the following characteristics: (i) the assets of the fund are sufficient to meet all employee benefit plan or sponsor obligations; or (ii) the assets are returned to the sponsoring entity in order to reimburse it for employee benefits already paid.

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·Actuarial gains and losses are changes in present value of defined benefit obligation resulting from: (a) adjustments due to experience (the effects of differences between the actuarial assumptions adopted and what has actually occurred); and (b) effects of changes in actuarial assumptions.

·Current service cost is the increase in the present value of the defined benefit obligation resulting from employee service in the current period.

·The past service cost is the change in present value of defined benefit obligation for employee service in prior periods resulting from a change in the plan or reductions in the number of employees covered.

Post-employment benefits are recognized in the income statement within “Interest expense and similar charges” and “Provisions (net).”

The defined benefit plans are recorded based on an actuarial study, and conducted by an external consultant, at the end of each year to therein be effective for the subsequent period.

New Accounting PronouncementsStandards

 

The new accountingIFRS standards which will come into forceeffective after December 31, 2019January 1, 2021 are mentioned in our audited consolidated financial statements included in this annual report. For further information, see note “1 - Introduction, basis of presentation of the consolidated financial statements and other information” to our audited consolidated financial statements.

 

All accounting policies and measurement bases with a material effect on the consolidated financial statements for 20192020 were applied in the preparation of such financial statements.

 

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Results of Operations for the Years Ended December 31, 2020, 2019 2018 and 20172018

 

Executive Summary – Santander Brasil Results at a glance

Total Income amounted to R$58,76948,242 million in 2019, an increase2020, a decrease of 18.7%17.9% in comparison with the year ended December 31, 2018, reflecting2019, primarily due to the good performanceimpact of our business lines.the COVID-19 pandemic on the Brazilian economy. Excluding the effects of the hedge for investment abroad, which had a high impact in 2020 due to the exchange rate variation, our total income would have amounted to R$60,03361,825 million in the year, an increase of 8.4%3.0% compared to the same period of the previous year. For further information, see “Item 3. Key Information—A. Selected Financial Data—Reconciliation of Non- GAAP Measures and Ratios to Their Most Directly Comparable IFRS Financial Measures”.

 

Consolidated Profit for 20192020 totaled R$16.613,451 million, in the year ended December 31, 2019, 29.9% increase2020, a decrease of 19.1% over the year ended December 31, 2018, as a result2019, mainly impacted by the performance of an increase in net interest income and net fees and commissions as well as lower losses in gains/losses on financial assets and liabilities (net) and exchange differences (net). line.

 

 Loan Portfolio to customers amounted R$347418 billion as of December 2019,2020, an increase of 7.9%20.3% compared to December 31, 2018,2019, mainly due to anthe increase in loans to individualscommercial and consumer finance portfolio.industrial, and individual portfolios.

 

Credit Qualityremains at reasonable levels and supportsupports our growth.Impaired assets to credit risk ratio was 6.0%5.0% for the year ended December 31, 2019,2020, a 0.11.0 p.p. decrease as compared the previous year.Coverage ratio was 96.6%110.6% in the year ended December 31, 2019,2020, a 5.814.0 p.p. decrease to 102.4%increase from 96.6% the year ended December 31, 2018.2019. Our Basel Capital adequacy ratio was 15.04%15.3% in the year ended December 31, 2019, a decrease2020, an increase of 0.02%0.3% compared to the year ended December 31, 2018. 2019. 

 

Deposits from Brazilian Central Bank and deposits from credit institutions plus customer deposits increased by 8.1% to32.5% reaching R$436 578 billion in 2019.2020.

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Results of Operations

 

The following table presents our consolidated results of operations for the years ended December 31, 2020, 2019 2018 and 2017:2018:

  For the Year Ended December 31,
  2020 2019 2018 

% Change

2020/2019

 

%Change

2019/2018

  (in millions of R$, except percentages)
Net interest income  44,443   44,321   41,921   0.3   5.7 
Income from equity instruments  34   19   33   78.9   (42.4)
Income from companies accounted for by the equity method  112   149   66   (24.8)  125.8 
Net fee and commission income  16,229   15,713   14,132   3.3   11.2 
Gains/losses on financial assets and liabilities (net) and exchange differences (net)  (11,703)  (326)  (5,589)  3,489.9   (94.2)
Other operating income (expenses)  (873)  (1,108)  (1,056)  (21.3)  4.9 
Total income  48,242   58,769   49,507   (17.9)  18.7 
Administrative expenses  (17,115)  (16,942)  (16,792)  1.0   0.9 
Depreciation and amortization  (2,579)  (2,392)  (1,740)  7.8   37.5 
Provisions (net)  (1,657)  (3,682)  (2,000)  (55.0)  84.1 
Impairment losses on financial assets (net)  (17,450)  (13,370)  (12,713)  30.5   5.2 
Impairment losses on other assets (net)  (85)  (131)  (508)  (35.1)  (74.2)
Other nonfinancial gain (losses)  308   21   156   1,440.0   (87.2)
Operating profit before tax  9,664   22,273   15,910   (56.6)  40.0 
Income tax  3,787   (5,642)  (3,110)  (167.1)  81.4 
Consolidated profit for the year  13,451   16,631   12,800   (19.1)  29.9 

Consolidated Profit for the Year

 

  For the Year Ended December 31,
        % Change % Change
  2019 2018 2017  
        2019/2018 2018/2017
  (in millions of R$, except percentages)
Net interest income  44,321   41,921   34,946   5.7   20.0 
Income from equity instruments  19   33   83   (42.0)  (60.8)
Income from companies accounted for by the equity method  149   66   72   126.6   (8.4)
Net fee and commission income  15,713   14,132   12,722   11.2   11.1 
Gains/losses on financial assets and liabilities (net) and exchange differences (net)  (326)  (5,589)  1,574   (94.2)  (455.1)
Other operating income (expenses)  (1,108)  (1,056)  (672)  4.9   57.1 
Total income  58,769   49,507   48,725   18.7   1.6 
Administrative expenses  (16,942)  (16,792)  (16,121)  0.9   4.2 
Depreciation and amortization  (2,392)  (1,740)  (1,662)  37.5   4.7 
Provisions (net)  (3,682)  (2,000)  (3,309)  84.1   (39.6)
Impairment losses on financial assets (net)  (13,370)  (12,713)  (12,338)  5.2   3.0 
Impairment losses on other assets (net)  (131)  (508)  (457)  (74.1)  11.3 
Other nonfinancial gain (losses)  20   156   (324)  (86.9)  (148.2)
Operating profit before tax  22,273   15,910   14,514   40.0   9.6 
Income tax  (5,642)  (3,110)  (5,376)  81.4   (42.2)
Consolidated profit for the year  16,631   12,800   9,138   29.9   40.1 

Our consolidated profit for the year ended December 31, 2020 was R$13,451 million, a decrease of R$3,180 million, or 19.1%, as compared to our consolidated profit of R$16,631 million for the year ended December 31, 2019 as a result of an increase of R$4,080 in impairment losses on financial assets (net) mainly due to the global COVID-19 pandemic that resulted in a R$3,200 million additional allowance for potential loan losses. This was partially offset by the growth of the credit portfolio.

 

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Our consolidated profit for the year ended December 31, 2019 was R$16,631 million, an increase of R$3,832 million, or 29.9%, as compared to our consolidated profit of R$12,800 million for the year ended December 31, 2018 as a result of:

 

(i)an increase of R$2,400 million in net interest income mainly due to the growth in our loan portfolio driven by our commercial banking segment;

 

(ii)an increase of R$1,581 million in net fees and commission,commissions, primarily as a result of an increase of R$722 million in revenues from credit and debit cards, an increase of R$417 million in revenues from sale of insurance and premium bonds, an increase of R$295 million in revenues from capital markets and an increase of R$138 million in revenues from current account services. These increases were explained for the expansion ofdue to a 7% increase in our total active customer base, greater loyalty and higher transactionality.a 12% increase in the number of loyal customers.

 

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Net Interest Income

Net interest income for the year ended December 31, 20182020 was R$12,80044,443 million, ana 0.3% or R$122 million increase offrom R$3,662 million, or 40.1%, as compared to our consolidated profit of R$9,13844,321 million for the year ended December 31, 2017 as2019. This increase was mainly due to a result of:20.3% in our credit portfolio driven by our global wholesale banking segment.

 

(i)Average total earning assets in 2020 were R$750.1 billion, a 14.5% or R$94.9 billion increase from R$655.2 billion in 2019. The principal drivers were an increase of R$6,975 million61.2 billion, or 18.9%, in the average of loans and advance to customers and an R$24.8 billion increase in average of debt instruments. Net yield (the net interest income mostly drivendivided by growthaverage earning assets) was 5.9% in our loan portfolio driven by our commercial banking segment;2020 compared to 6.8% in 2019, a decrease of 0.8 p.p.

 

(ii)Average total interest-bearing liabilities in 2020 were R$572.0 billion, a 16.5% or R$80.8 billion increase from R$491.2 billion in 2019. The main driver of this growth was an increase of R$1,410 million109.4 billion in net feescustomer deposits, given the shift in investor assets toward more stable instruments.

Finally, the yield spread (the difference between gross yield on earning assets and commissions, primarily as a result of: (a) an increasethe average cost of R$571 millioninterest-bearing liabilities) was 5.2% in revenues from credit and debit cards; (b) an increase of R$370 million in revenues from current account services; and (c) an increase of R$354 million in revenues from insurance and premium bonds. These increases were in turn2020, mainly due to an 11.6% increaselower share of our Commercial Banking segment in our total active customer baseresults and a 24.8% increasethe effect of the reduction in the number of loyal customers; and

(iii) a decrease of R$7,163 millionSELIC interest rate from 4.5% in gains/losses on financial assets and liabilities (net) and exchange differences (net), both of which include the effects of the hedge for investment held abroad.

Net Interest Income2019 to 2.0% in 2020.

 

Net interest income for the year ended December 31, 2019 was R$44,321 million, a 5.7% or R$2,400 million increase from R$41,921 million for the year ended December 31, 2018. This increase was mainly explained by a 7.9% increase in the volume of our credit portfolio, driven by individuals and consumer finance.

 

Average total earning assets in 2019 were R$655.2 billion, a 7.8% or R$47.1 billion increase from R$608.0 billion in 2018. The principal drivers were an increase of R$45.9 billion, or 81.8%, in the average of loans and amounts due from credit institutions, a R$18.5 billion increase in average of loans and advance to customers and a R$14.7 billion increase in average of debit instruments, which were partially offset by a R$32.3 billion decrease in average of cash on balances with the Brazilian Central Bank.

Net yield (the net interest income divided by average earning assets) was 6.8% in 2019 compared to 6.9% in 2018, ana decrease of 0.1 p.p.

 

Average total interest-bearing liabilities in 2019 were R$491.2 billion, a 6.0% or R$27.8 billion increase from R$463.4 billion in 2018. The main drivers of this growth were an increase of R$18.0 billion in customer deposits, an increase of R$5.3 billion in deposits from the Brazilian Central Bank and deposits from credit institutions and an increase of R$4.7 billion in marketable debt securities.

 

Finally, the yield spread (the difference between gross yield on earning assets and the average cost of interest-bearing liabilities) was 5.3% in 2019 as compared to 5.4% in 2018, mainly due to a decrease in the cost of funding, associated with the overall reduction in Brazil’sthe SELIC interest rate from 6.50% in 2018 to 4.5% in 2019.

 

Net interest incomeIncome from Equity Instruments

Income from equity instruments for the year ended December 31, 2018 was2020 totaled R$41,92134 million, a 20.0% or

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R$6,97515 million increase from R$34,94619 million for the year ended December 31, 2017. This increase was2019, mainly due to an 11.6% increase inhigher dividend gains from the volume of our credit portfolio which was primarily concentrated in our commercial banking segment, and which was partially offset a decrease in our revenues from depositsSantander Fundo de Investimento Amazonas Multimercado Crédito Privado Investimento no Exterior as a result of the interest rate being lowergains in the fiscal year ended December 31, 2018 than the fiscal year ended December 31, 2017.

Average total earning assets in 2018 were R$608.0 billion, a 9.3% or R$51.8 billion increase from R$556.2 billion in 2017. The principal drivers were an increase of R$32.6 billion increase in the average of loans and amounts due to credit institutions, a R$26.8 billion, or 9.7%, in the average of loans and advances to customers, a R$17.3 billion increase in average of debt instruments , which were partially offset by a R$ 24.3 billion decrease in average of cash on balances with the Brazilian Central Bank. Net yield (the net interest income divided by average earning assets) was 6.9% in 2018 compared to 6.4% in 2017, an increase of 0.5 p.p.

Average total interest-bearing liabilities in 2018 were R$463.4 billion, an 11.2% or R$46.6 billion increase from R$416.8 billion in 2017. The main drivers of this growth were an increase of R$41.3 billion in customer deposits, an increase of R$13.4 billion in deposits from the Brazilian Central Bank and deposits from credit institutions and an increase of R$2.4 billion in subordinated debts, which were offset by a decrease of R$10.5 billion in marketable debt securities.

Finally, the yield spread (the difference between gross yield on earning assets and the average cost of interest-bearing liabilities) was 5.4% in 2018, as compared to 4.1% in 2017, mainly due our Commercial Banking segment accounting for a greater share of in our total results and a decrease in the cost of funding, associated with the overall reduction in Brazil’s interest rate.

Income from Equity Instrumentsequities positions towards derivatives hedge.

 

Income from equity instruments for the year ended December 31, 2019 totaled R$19 million, a R$14 million decrease from R$33 million for the year ended December 31, 2018, mainly due to lower dividends received from Santander Fundo de Investimento Guarujá Multimercado Crédito Privado Investimento no Exterior.

 

Income from equity instruments in 2018, totaled R$33 million, a R$50 million decrease from R$83 million for the year ended December 31, 2017. This decrease was primarily due to a receipt169 

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Income from Companies Accounted for by the Equity Method

Income from companies accounted for by the equity method for the year ended December 31, 2020 was R$112 million, a R$37 million decrease from R$149 million for the year ended 2019, mainly due to a decrease of R$33 million of operation of Banco RCI Brasil S.A. and a decrease of R$8 million of operation of Gestora de Inteligência de Crédito, both jointly-controlled company. These results were partially offset by an increase of R$10 million of operation of Tecban (Tecnologia Bancária S.A.), a jointly-controlled company.

 

Income from companies accounted for by the equity method for the year ended December 31, 2019 was R$149 million, an R$84 million increase from R$66 million for the year ended 2018, mainly due to an increase of R$59 million in the result of operations of Banco RCI Brasil S., a jointly-controlled company, an increase of R$19 million in the results of operations of Tecban (TecnologiaTecnologia Bancária S.A.), a jointly-controlled company and an increase of R$12 million in the results of operations of Webmotors S.A., a jointly-controlled company. These improved results wereThis was partially offset by a decrease of R$5 million in the results of operations of Gestora de Inteligência de Crédito, a jointly-controlled company and a R$2 million reduction in the results of operations of Santander Auto S.A. a jointly-controlled company.

 

Net Fee and Commission Income from companies accounted for by the equity method

Net fee and commission income for the year ended December 31, 2018 was2020 reached R$6616,229 million, a 3.3% or R$6515 million decrease fromincrease compared to R$7215,713 million for the year ended December 31, 2017. This increase was2019, impacted mainly due to the positive results of operations of Banco RCI Brasil S.A., a jointly-controlled company, which were partially offset by negative results of operations of Webmotors S.A., a jointly-controlled company.

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Net Feeincrease in (i) trade finance, (ii) insurance and Commission Income

capitalization and (iii) credit and debit cards.

 

Net fee and commission income for the year ended December 31, 2019 reached R$15,713 million, an increase of 11.2% or R$1,581 million compared to R$14,132 million for the year ended December 31, 2018. This increase was mainly due to an increase of R$722 million in revenues from credit and debit cards, R$417 million in revenues from sale of insurance and premium bonds, R$295 million in revenues from capital markets and R$138 million from revenues from current account services.

 

Net fees and commissions for the year ended December 31, 2018 reachedfrom trade finance totaled R$14,132 million, a 11.1%, or R$1,410 million, increase from R$12,7221,740 million for the year ended December 31, 2017.2020, an increase of 32.1% compared to the year ended December 31, 2019. This increase was mainly a result of higher demand for this service during the COVID-19 pandemic and the effects of variations in exchange rates.

Net fees and commissions from trade finance R$1,317 million for the year ended December 31, 2019, an increase of 7.2% compared to the year ended December 31, 2018. This increase was primarily as a result of variations in exchange rates.

Net fees and commissions from insurance and capitalization totaled R$3,831 million for the year ended December 31, 2020, a 6.8% increase compared to the year ended December 31, 2019. For the year ended December 31, 2019, the net fees and commissions from insurance and capitalization totaled R$3,586 million, a 13.2% increase compared to the year ended December 31, 2018. The performance in both periods was primarily driven by increases in our portfolio of credit life insurance.

Net fees and commissions from credit and debit cards totaled R$5,151 million for the year ended December 31, 2020, an increase of 3.3% compared to the year ended December 31, 2019. This increase was mainly due to an increasea recovery of R$571 milliontransaction volumes in revenues from credit and debit cards, R$370 millionthe second half of 2020, despite the reduction in revenues from current account services, R$354 million in revenues from insurance and premium bonds.volume during the first half of 2020.

 

Net fees and commissions from credit and debit cards totaled R$4,986 million for the year ended December 31, 2019, an increase of 16.9% compared to the year ended December 31, 2018. This increase was as a result of a higher turnover (R$236.4 billion in the fiscal year ended December 31, 2019 as compared to R$201.6 billion the fiscal year ended December 31, 2018.

Net fees and commissions from credit and debit cards totaled R$4,264 million for the year ended December 31, 2018, an increase of 15.5% compared to the year ended December 31, 2017. This increase was primarily due to a higher transaction volume (2,338.2 million in the year ended December 31, 2018 as compared to 1,987.6 million the year ended December 31, 2017)2018).

 

Net fees and commissions from insurance and premium bonds totaled R$3,586 million for the year ended December 31, 2019, a 13.1% increase compared to the year ended December 31, 2018, mainly due to credit life insurance associated to the good evolution170 

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Net fees and commissions from insurance and premium bonds totaled R$3,169 million for the year ended December 31, 2018, an increase of 12.6% compared to the year ended December 31, 2017, mainly due to credit life insurance associated with portfolio dynamics.

Revenues from fees and commissions charged in connection with capital markets totaled R$1,211 million for the year ended December 31, 2019, an increase of 32.2% compared to the year ended 2018, mainly due to an increase of R$263 million in revenues from securities underwriting and placement and an increase of R$32 million in revenues from administration and custody.

Revenues from fees and commissions charged in connection with capital markets totaled R$916 million for the year ended December 31, 2018, an increase of 4.9% compared to the year ended 2017, mainly due to an increase in revenues from securities placements.

Net fees and commissions from current account services totaled R$4,051 million for the year ended December 31, 2019, an increase of 3.5% compared to the year ended 2018 driven by the expansion of our active current account holders due to greater customer loyalty.

Net fees and commissions from current account totaled R$3,913 million for the year ended December 31, 2018, an increase of 10.4% compared to the year ended December 31, 2017 explained by the growth of digital transactions and the increase of active current account holders.

The following table reflects the breakdown of net fee and commission income for the year ended December 31, 2020, 2019 2018 and 2017:2018:

 

  For the Year Ended December 31
  2019 2018 2017 % Change 2019/2018 Change% 2018/2017
    (in millions of R$, except percentages)
Current account services  4,051   3,913   3,544   3.5   10.4 
Collection and payment services  1,313   1,291   1,152   1.7   12.1 
Insurance and capitalization  3,586   3,169   2,815   13.2   12.6 
Asset Management and pension funds  1,434   1,289   824   11.2   56.4 
Credit and debit cards  4,986   4,264   3,692   16.9   15.5 

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 For the Year Ended December 31
 2020 2019 2018 % Change 2020/2019 Change% 2019/2018
   (in millions of R$, except percentages)
Current account services  3,716   4,051   3,913   (8.3)  3.5 
Collection and payment services  1,459   1,313   1,291   11.1   1.7 
Insurance and capitalization  3,831   3,586   3,169   6.8   13.2 
Asset Management and pension funds  1,114   1,434   1,289   (22.3)  11.2 
Credit and debit cards  5,151   4,986   4,264   3.3   16.9 
Capital markets  1,211   916   873   32.2   4.9   858   1,211   916   (29.2)  32.2 
Trade finance  1,317   1,228   956   7.2   28.5   1,740   1,317   1,228   32.1   7.2 
Tax on services  (622)  (671)  (526)  (7.3)  27.6   (678)  (622)  (671)  8.9   (7.3)
Others  (1,562)  (1,266)  (608)  23.4   108.2   (964)  (1,562)  (1,266)  (38.2)  23.4 
Total  15,713   14,133   12,722   11.2   11.1   16,229   15,713   14,133   3.3   11.2 

 

Gains/losses on Financial Assets and Liabilities (net) and Exchange Differences (net)

Gains/losses on financial assets and liabilities (net) and exchange differences (net) for the year ended December 31, 2020 were losses of R$11,703 million, a R$11,377 million increase from losses of R$326 million for the year ended December 31, 2019. This variation is mainly due to gains of R$9,732 million related to financial assets measure at fair value through profit or loss held for trading and losses of R$21,912 million related to exchange differences (net). Excluding the results of hedging on investments abroad effect, gains/losses on financial assets and liabilities (net) and exchange differences (net) were gains of R$1,880 million for the year ended December 31, 2020, a R$942 million increase from gains of R$938 million compared to the year ended December 31, 2019 mainly due to the positive results in our derivative position. Gains/losses on financial assets and liabilities (net) and exchange differences (net) excluding the effects of the hedge investment abroad is a non-GAAP measure. For further information, see “Item 3. Key Information—A. Selected Financial Data—Reconciliation of Non-GAAP Measures and Ratios to Their Most Directly Comparable IFRS Financial Measures.”

 

Gains/losses on financial assets and liabilities (net) and exchange differences (net) for the year ended December 31, 2019 were losses of R$326 million, a reduction of R$5,263 million in losses from R$5,589 million for the year ended December 31, 2018. This variation is mainly due to gains of R$5,156 million related to financial assets measure at fair value through profit or loss held and gains of R$17.9 million related to exchange differences (net). Excluding the results of hedging on investments abroad effect, gains/losses on financial assets and liabilities (net) and exchange differences (net) were gains of R$938 million for the year ended December 31, 2019, a R$660 million increase from gains of R$278 million compared to the year ended December 31, 2018 mainly due to the positive results in our derivative positions. Gains/losses on financial assets and liabilities (net) and exchange differences (net) excluding the effects of the hedge investment abroad is a non-GAAP measure. For further information, see “Item 3. Key Information—A. Selected Financial Data—Reconciliation of Non-GAAP Measures and Ratios to Their Most Directly Comparable IFRS Financial Measures.”.

Gains/losses on financial assets and liabilities (net) and exchange differences (net) for the year ended December 31, 2018 were losses of R$5,589 million, a decrease of R$7,163 million from gains of R$1,574 million for the year ended December 31, 2017. This variation is mainly due to a decrease of R$5,057 million in derivatives transactions as a consequence of our results on investment abroad, which was offset by the same amount in income taxes. Excluding the results of hedging on investments abroad effect, gains/losses on financial assets and liabilities (net) and exchange differences (net) were R$278 million for the year ended December 31, 2018, a 88.3% decrease from R$2,384 million compared to the year ended December 31, 2017, primarily due to positive results in our derivative positions as a result of market volatility which occurred in the fiscal year ended December 31, 2017 did not occur in the fiscal year ended December 31, 2018. Gains/losses on financial assets and liabilities (net) and exchange differences (net) excluding the effects of the hedge investment abroad is a non-GAAP measure. For further information, see “Item 3. Key Information—A. Selected Financial Data—Reconciliation of Non-GAAP Measures and Ratios to Their Most Directly Comparable IFRS Financial Measures.”Measures”.

 

The following table presents our gains/losses on Financial Assets and Liabilities (net) and Exchange Differences (net) for the periods indicated.

 

  For the Year Ended December 31
  2019 2018 2017 % Change 2019/2018 Change% 2018/2017
  (in millions of R$, except percentages)
Gains/losses on financial assets and liabilities (net) and exchange differences (net)  (326)  (5,589)  1,574   (94.2)  (455.1)
Effects of the hedge for investment held abroad  1,264   5,867   810   (78.5)  624.3 
Gains/losses on financial assets and liabilities (net) and exchange differences (net) excluding Hedge Impact(1)  938   278   2,384   237.7   (88.4)

  For the Year Ended December 31
  2020 2019 2018 % Change 2020/2019 Change% 2019/2018
  (in millions of R$, except percentages)
Gains/losses on financial assets and liabilities (net) and exchange differences (net)  (11,703)  (326)  (5,589)  3,489.9   (94.2)
Effects of the hedge for investment held abroad  13,583   1,264   5,867   974.6   (78.5)
Gains/losses on financial assets and liabilities (net) and exchange differences (net) excluding Hedge Impact(1)  1,880   938   278   100.4   237.7 
(1)Gains/losses on financial assets and liabilities (net) and exchange differences (net) excluding the effects of the hedge investment abroad is a non-GAAP measure. For further information, see “Item 3. Key Information—A. Selected Financial Data—Reconciliation of Non-GAAP Measures and Ratios to Their Most Directly Comparable IFRS Financial Measures.”

 

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Other Operating Income/Expenses

 

Other operating income/expenses for the year ended December 31, 20192020 were expenses of R$873 million, a decrease of R$236 million compared to expenses of R$1,108 million anfor the year ended December 31, 2019, mainly due to the lower result of our FGB pension plan and higher FGC (Fundo Garantidor de Crédito) expenses given the increase in the balance of deposits. For the year ended December 31, 2019, other operating income/expenses were expenses of R$521,108 million, compared to expenses of R$1,056 million for the year ended December 31, 2018. Other operating income/expenses for the year ended December 31, 2018, were expenses of R$1,056 million, an increase of R$384 million compared to expenses of R$672 million for the year ended December 31, 2017, mainly due to assets we received as guarantees from our customers.

 

Administrative Expenses

 

Administrative expenses for the year ended December 31, 20192020 were R$17,115 million, a R$173 million increase compared to expenses of R$16,942 million for the year ended December 31, 2019 mainly as a result of higher expenses with technology and systems. For the year ended December 31, 2019, our administrative expenses of R$16,942 million reflected a R$149 million increase compared to administrative expenses of R$16,792 million for the year ended December 31, 2018. For the year ended December 31, 2018, our administrative expenses of R$16,792 million reflected a R$672 millionmainly explained by an increase compared to administrative expenses of R$16,121 million for the year ended December 31, 2017. The performance in both periods is primarily attributed to the increase in: (i) personnel expenses, which are in line, with our meritocratic culture and the performance of our business;line; and (ii) data processing expenses line in order to support the increase in the volume of our customer transactions.

 

Personnel expenses increaseddecreased R$122457 million for the year ended December 31, 2020, primarily resulting from lower employee wages and salaries, benefits and share-based compensation. In the year ended December 31, 2019, as a consequence ofour personnel expenses increased R$122 million (compared to the same period in 2018). This performance can be attributed to the increase in the benefits line and higher wages and salaries with a result of the renegotiation of our collective bargaining agreement. In the year ended December 31, 2018, our personnel expenses increased R$269 million compared to the same period in 2017. This performance can be attributed to the increase in wages and salaries and social security costs and benefits, which are in line with our meritocratic culture and the performance of our business.salaries.

 

The following table sets forth our personnel expenses for each of the periods indicated:

 

 For the Year Ended December 31, For the Year Ended December 31,
 2019 2018 2017 % Change 2019/2018 Change% 2018/2017 2020 2019 2018 % Change 2020/2019 Change% 2019/2018
 (in millions of R$, except percentages) (in millions of R$, except percentages)
Wages and salaries  5,876   5,813   5,714   1.1   1.7   5,730   5,876   5,813   (2.5)  1.1 
Social security costs  1,277   1,405   1,381   (9.1)  1.7   1,222   1,277   1,405   (4.3)  (9.1)
Benefits  1,492   1,387   1,309   7.5   6.0   1,390   1,492   1,387   (6.8)  7.5 
Training  66   63   58   4.8   8.6   49   66   63   (25.8)  4.8 
Other personnel expenses  617   538   475   14.7   13.3   480   617   538   (22.2)  14.7 
Total  9,328   9,206   8,937   1.3   3.0   8,871   9,328   9,206   (4.9)  1.3 

Other administrative expenses increased R$629 million to R$8,244 million for the year ended December 31, 2020 from R$7,614 million for the year ended December 31, 2019 mainly due to a R$296 million increase in technology and systems, and a R$176 million increase in communications.

 

Other administrative expenses increased R$28 million to R$7,614 million for the year ended December 31, 2019 from R$7,586 million for the year ended December 31, 2018, mainly due to a R$272 million increase in technology and systems, a R$91 million increase in advertising, R$83 million increase in specialized and technical service, both expenses derived from more intense commercial actions in our business, partially offset by a decrease of R$582 million with general maintenance expenses which as a result of the adoption of IFRS 16.

In Prior to the year ended December 31, 2018 other administrativeadoption, leasing expenses increased R$403 million to R$7,586 million forwere recognized as general maintenance expenses. After the year ended December 31, 2018 from R$7,183 million for the year ended December 31, 2017, mainly due to: (i) a R$422 million increase in technologyadoption of IFRS 16, these expenses are now split into interest and systems associated with greater transactionality and expansion of our customer base, (ii) an R$189 million increase in specialized and technical services especially technology services. This growth in expenses was partially offset by R$136 million decrease in communications-relateddepreciation expenses.

 

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The following table sets forth our other administrative expenses for each of the periods indicated:

  For the Year Ended December 31,
  2020 2019 2018 % Change 2020/2019 Change% 2019/2018
  (in millions of R$, except percentages)
Specialized and technical services  2,171   2,173   2,090   (0.1)  4.0 
Property, fixtures and supplies  744   748   1,331   (0.5)  (43.8)
Technology and systems  2,355   2,059   1,786   14.4   15.3 
Advertising  654   713   622   (8.3)  14.6 
Communications  649   473   457   37.2   3.5 
Per diems and travel expenses  70   140   127   (50.1)  10.2 
Taxes other than income tax  280   112   89   150.1   25.9 
Surveillance and cash courier services  595   631   617   (5.7)  2.3 
Insurance premiums  17   35   29   (51.4)  18.2 
Other (1)  709   531   437   33.5   21.5 
Total  8,244   7,614   7,586   8.3   0.4 
________________________________

(1)For the year ended December 31, 2020, includes mainly Data Processing Expenses in the balance of R$176.1 million (2019 – R$2.4 million and 2018 – R$67.7 million), Service Expenses in the balance of R$27.7 million (2019 - revenue of R$2.2 million and 2018 - R$26. 8 million), Expenses with Benefit Guarantor Fund - FGB R$8.5 million (2019 – R$53.5 million and 2018 - R$35.0 million), Interest on Own Capital R$0 (2019 – R$0 and 2018 - R$38.0 million) and Recovery of Charges and Expenses R$212.8 million (2019 – R$97.4 million and 2018 – R$92.4 million).

 

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   For the Year Ended December 31,
   2019 2018 2017 % Change 2019/2018 Change% 2018/2017
                      

  (in millions of R$, except percentages)
Specialized and technical services  2,173   2,090   1,901   4.0   9.9 
General maintenance expenses  748   1,331   1,284   (43.8)  3.7 
Technology maintenance expenses  2,059   1,786   1,365   15.3   30.8 
Advertising  713   622   618   14.6   0.6 
Communications  473   457   593   3.5   (22.9)
Per diems and travel expenses  140   127   107   10.2   18.7 
Taxes other than income tax  112   89   123   25.9   (27.4)
Surveillance and cash courier services  631   617   630   2.3   (2.1)
Insurance premiums  35   29   27   20.7   7.4 
Other administrative expenses  (1)  531   535   595   21.5   (18.3)
Total  7,614   7,586   7,183   0.4   5.6 

(1) In December 31, 2019, includes mainly Data Processing Expenses in the balance of R$2.4 million (2018 – R$67.7 million and 2017 - R$73.7 million), Service Expenses in the balance of R$2.2 million (2018 - revenue of R$26.8 million and 2017 - R$87.2 million), Expenses with Benefit Guarantor Fund - FGB R$53.5 milion (2018 – R$35.0 million and 2017 - R$5.3 million), Interest on Own Capital R$0 (2018 – R$38.0 million and 2017 - R$20.8 million), and Recovery of Charges and Expenses R$97.4 million (2018 – R$92.4 million and 2017 – R$89.4 million).

The efficiency ratio, which we calculate as total administrative expenses divided by total income, decreasedincreased to 28.8%35.5% in the year ended December 31, 2019,2020, as compared to 33.9%28.8% for the year ended December 31, 20182019. This increase of 6.7 p.p. in the ratio is primarily due to the effects of the hedge for investment held abroad. For the year ended December 31, 2017 it2018, the efficiency ratio was 33.1%33.9%. Our adjusted efficiency ratio, which excludes the effect of the hedge for investment held abroad (see “—Hedging in Foreign Investments” and “Selected Financial Data—Selected Consolidated Ratios, Including Non-GAAP Ratios”), was 28.2%27.7%, 28.2% and 30.3% in 2020, 2019 and 32.5% in 2019, 2018, and 2017, respectively.

 

Depreciation and Amortization

 

Depreciation and amortization for the year ended December 31, 2020 was R$2,579 million, a R$187 million increase from R$2,392 million for the year ended December 31, 2019, wasprimarily due to higher expenses with amortization of hardware and software items, resulting from investments made in this period. For the year ended December 31, 2019, depreciation and amortization amounted to R$2,392 million, a R$652 million increase from R$1,740 million for the year ended December 31, 2018, primarily due to the change in accounting practices resulting from the adoption of IFRS 16 following the principles of IAS 17. For further information, please see “Item 1 Introduction, basis of presentation of the consolidated financial statements and other information, c.1) Adoption of new standards and interpretations of our consolidated financial statements included elsewhere in “item 18.Financial Statements of this annual report. For the year ended December 31, 2018, depreciation and amortization amounted to R$1,740 million, a R$78 million increase from R$1,662 million for the year ended December 31, 2017, mainly due to higher depreciation expenses related to technology items and higher amortization expenses in relation to third party real estate and facilities.

 

Provisions (Net)

 

Provisions principally include provisions for tax, civil, and especially labor claims. Provisions (net) totaled R$1,657 million for the year ended December 31, 2020, a decrease of R$2,025 million compared to R$3,682 million for the year ended December 31, 2019, primarily due to a higher than usual level of provisions in 2019, as explained below.

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In the year ended December 31, 2019, provisions (net) totaled R$3,682 million, an increase of R$1,682 million compared to R$2,000 million for the year ended December 31, 2018, mainly due to an increase of R$700 million related to the creation of an efficiency and productivity fund, an increase in civil and labor proceedings due to revision of the operational model and a constitution of provisions related to the legal proceeding brought by the association of retired employees of Banespa (Associação dos Funcionários Aposentados do Banco do Estado de São Paulo), or AFABESP, an association of former employees of Banespa in which the classification of the chance of loss was revised to probable in December 2019 (for further information see note 2322 to our audited consolidated financial statements included in the ”Item 18. Financial Statements” of this annual report).

In the year ended December 31, 2018, provisions (net) totaled R$2,000 million, a increase of R$1,310 million compared to R$3,309 million for the year ended December 31, 2017, mainly due to a decrease of R$816 million related to the past service cost in the contribution established for a post-employment benefit plan named Cabesp due to changes in the plan in the first half of 2018 (for further information, see note 22. to our audited consolidated financial statements included in “Item 18. Financial Statements” of in this annual report) and lower gains related to foreclosed assets.

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Impairment Losses on Financial Assets (Net)

 

Impairment losses on financial assets (net) for the year ended December 31, 2020 were R$17,450 million, an R$4,080 million increase compared to R$13,370 million for the year ended December 31, 2019. This increase was principally due to global COVID-19 pandemic that resulted in a R$3,200 million additional allowance for potential loan losses and the recurrent growth of the credit portfolio.

For the year ended December 31, 2019, impairment losses on financial assets (net) were R$13,370 million, ana R$657 million increase compared to R$12,713 million for the year ended December 31, 2018. This increase was2018, principally due to Installment Loans to Individuals, due to the recurrent growth of the creditour portfolio in this segment.

For the year ended December 31, 2018, impairment losses on financial assets (net) were R$12,713 million, an R$375 million increase comparedof installment loans to R$12,338 million for the year ended December 31, 2017 principally due to:

An increase of 3%, or R$375 million, in impairment loss for loans and receivables to R$12,713 million as of December 31, 2018, from R$12,338 million on December 31, 2017. This increase was primarily a result of the adoption of IFRS 9 criteria.individuals.

 

Our credit risk exposure portfolio increased by R$25.374.5 billion to R$347.3466.1 billion as of December 31, 20192020 compared to R$321.9391.6 billion as of December 31, 2018.2019. Furthermore, our impaired assets increaseddecreased R$10.2 billion from R$23.4 billion as of December 31, 20182019 to R$22.423.2 billion for the year ended December 31, 2019.2020. The default rate decreased by 2010 base points in 20192020 in comparison with 2018.2019.

 

The following table shows the ratio of our impaired assets to total credit risk exposure and our coverage ratio as of December 31, 20192020 and December 31, 20182019 and 2017.2018.

 

  As of December 31,
  2019 2018 2017 % Change 2019/2018 % Change 2018/2017
  (in millions of R$ except percentages)
Loans and advances to customers, gross  347,257   321,933   287,829   7.9   11.8 
Impaired assets  23,426   22,426   19,145   4.5   17.1 
Provisions for impairment losses  22,625   22,969   18,262   (1.5)  25.8 
Credit risk exposure Non-GAAP – customers(1)  391,569   364,194   330,474   7.5   10.2 
Ratios                    
Impaired assets to credit risk exposure  6.0%  6.2%  5.8%  (0.2)  0.4
Coverage ratio(2)  96.6%  102.4%  95.4%  (5.7)  7.3
Impairment losses  (13,370)  (12,713)  (12,338)  5.2  3.0
Gains (losses) due to derecognition of financial assets
measured at amortized cost(3)		  -     -     -    -   (100)
Impairment losses on financial assets (net) (4)  (13,370)  (12,713)  (12,338)  5.2  3.0

  As of December 31,
  2020 2019 2018 2017 2016
  (in millions of R$ except percentages)
Loans and advances to customers, gross  417,819   347,257   321,933   287,829   268,438 
Impaired assets  23,176   23,426   22,426   19,145   18,887 
Provisions for impairment losses  25,640   22,626   22,969   18,262   18,191 
Credit risk exposure Non-GAAP – customers (1)  466,104   391,569   364,194   330,474   301,703 
Ratios   ��                
Impaired assets to credit risk exposure  5.0%  6.0%  6.2%  5.8%  6.3%
Coverage ratio (2)  110.6%  96.6%  102.4%  95.4%  96.3%
Impairment losses  (17,451)  (13,370)  (12,713)  (12,339)  (13,388)
Losses on other financial instruments not
  measured at fair value (3)		  -   -   -   -   88 
Impairment losses on financial assets (net) (4)  (17,451)  (13,370)  (12,713)  (12,339)  (13,300)
________________________________

 

(1)Credit risk exposure is a non-GAAP financial measure. Credit risk exposure is the sum of the amortized cost amounts of loans and advances to customers (including impaired assets) amounting to R$391.6466,115 million and guarantees and documentary credits amounting to R$44 billion.48,282 million. We present the off-balance information to better demonstrate our total managed credit risk.

(2)Provisions for impairment losses as a percentage of impaired assets.

(3)Corresponds to registration of losses of a permanent character in the realization value of bonds and securities classified as “Securities available for sale” currently accounted for “Earnings on financials assets (net).”

(4)As of December 31, 2020, 2019 2018 and 2017,2018, our total of impairment losses on financial instruments included R$2,0551,577 million, R$2,7142,055 million and R$2,7842,714 million, respectively, relating to debt instruments.

 

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The following chart shows our impaired assets to credit risk ratio from 20142016 through 2019:2020:

 

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Impaired Assets by Type of Loan

 

The following table shows our impaired assets by type of loan as of December 31, 2020, 2019 2018 and 2017.2018.

 

 For the Year Ended December 31, For the Year Ended December 31,
 2019 2018 2017 % Change 2019/2018 Change% 2018/2017 2020 2019 2018 % Change 2020/2019 Change% 2019/2018
 (in millions of R$, except percentages) (in millions of R$, except percentages)
Commercial and industrial  10,073   11,832   11,994   (14.9)  (1.3)  10,558   10,073   11,832   4.8   (14.9)
Real estate – construction  827   1,035   782   (20.1)  32.4 
Real estate  456   827   1,036   (44.8)  (20.2)
Installment loans to individuals  12,497   9,499   6,304   31.6   50.7   12,144   12,497   9,499   (2.8)  31.6 
Lease financing  29   59   65   (50.8)  (9.3)
Financial leasing  17   29   59   (40.6)  (50.2)
Total  23,426   22,426   19,145   4.5   17.1   23,176   23,426   22,426   (1.1)  4.5 

 

For a discussion of the evolution in impairment in our lending portfolios and our methodology for loan loss allowances with respect to the following lending portfolios, see “Item 4. Information on the Company—B. Business Overview—Selected Statistical Information—Assets—Impaired Assets—Methodology for Impairment Losses.” See also “Item 3. Key Information—D. Risk Factors—Risks Relating to Brazil and Macroeconomic and Political Conditions in Brazil and Globally—Ongoing investigations relating to corruption and diversion of public funds that are being conducted by the Brazilian federal police as well as other Brazilian and non-Brazilian regulators and law enforcement officials may adversely affect the growth of the Brazilian economy and could have a material adverse effect on us” and “Item 3. Key Information—D. Risk Factors—Risks Relating to Brazil and Macroeconomic and Political Conditions in Brazil and Globally—The financial problems faced by our customers could adversely affect us.”

 

Commercial and Industrial

 

Impaired assets in the commercial and industrial loans portfolio amounted to R$10,558 million as of December 31, 2020, an increase of R$485 million, or 4.8%, compared to R$10,073 million as of December 31, 2019. This increase was mainly due to the collective assessment of R$1,660 million performed by Santander Brasil which was based on macroeconomic forecasts sensitiveness that indicates stage transfers upon a deterioration of the portfolio.

Impaired assets in the portfolio of commercial and industrial loans amounted to R$10,073 million as of December 31, 2019, a decrease of R$1,759 million, or 14.9%, compared to R$11,832 million as of December 31, 2018. The decrease in impaired assets in this portfolio was the result of the measures that Santander Brasil put in place to manage it, including collection practices with respect to our borrowers whereby we offered certain customers the chance to negotiate a restructuring of their debts or asset disposal.

 

Impaired assets in the portfolio of commercial and industrial loans amounted to R$11,832 million as of December 31, 2018, a decrease of R$162 million, or 1.3%, compared to R$11,994 million as of December 31, 2017. This decrease in impaired assets in this portfolio was mainly caused by the slowdown in the Brazilian economy between 2014 and 2017, affecting our commercial and industrial

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portfolio.

For further information, please see “Item 4. Information on the Company—B. Business Overview—Selected Statistical Information—Assets—Impaired Assets—Methodology for Impairment Losses.”

 

Real Estate

Impaired assets in the real estate lending portfolio totaled R$456 million on December 31, 2020, a decrease of R$371 million, or 44.8%, compared to R$827 million as of December 31, 2019. The decrease in impaired assets in this portfolio was the result of the measures that Santander Brasil put in place to manage it, including collection practices with respect to our borrowers.

 

Impaired assets in the real estate lending portfolio totaled R$827 million on December 31, 2019, a decrease of R$209 million, or 20.2%, compared to R$1,036 million as of December 31, 2018. The decrease was primarily due to changes on monetary policy that leadled to reduction on the interest rates on real estate portfolio in Brazil.

Impaired assets in the real estate lending portfolio totaled R$1,036 million on December 31, 2018, an increase of R$254 million compared to R$782 million as of December 31, 2017.

 

For further information, please see “Item 4. Information on the Company—B. Business Overview—Selected Statistical Information—Assets—Impaired Assets—Methodology for Impairment Losses.”

 

Installment Loans to Individuals

 

Impaired assets in the installment loans to individuals lending portfolio totaled R$12,144 million as of December 31, 2020, with a decrease of R$353 million, or 2.8%, compared to 2019. The decrease in impaired assets in this portfolio was the result of the measures that Santander Brasil put in place to manage it, including collection practices with respect to our borrowers whereby we offered certain customers the chance to negotiate a restructuring of their debts, especially during the COVID-19 pandemic, or asset disposal.

Impaired assets in the installment loans to individuals lending portfolio totaled R$12,497 million as of December 31, 2019, with an increase of R$2,998 million, or 31.6%, compared to 2018. This increase was a consequence of the recurrent growth of the portfolio and the weak macroeconomic conditions related toin Brazil which affected the portfolio, in Brazil, such as the unemployment rate and degree of income commitment.

Impaired assets in the installment loans to individuals lending portfolio totaled R$9,499 million as of December 31, 2018, with an increase of R$3,195 million, or 50.7%, compared to 2017. This increase was a result of adoption of IFRS 9 criteria this year and the weak macroeconomic conditions in Brazil.

 

For further information, please see “Item 4. Information on the Company—B. Business Overview—Selected Statistical Information—Assets—Impaired Assets—Methodology for Impairment Losses.”

 

Financial Leasing

 

Impaired assets in the lease financing lending portfolio totaled R$17 million on December 31, 2020, a decrease of R$12 million compared to December 31, 2019. This decrease in impaired assets was mainly due to asset write-offs in an amount of R$15.6 million which took place in 2020.

Impaired assets in the lease financing lending portfolio totaled R$29 million on December 31, 2019, a decrease of R$30 million compared to December 31, 2018.

Impaired assets in the financial leasing lending portfolio amounted to R$59 million as of December 31, 2018, a decrease of R$6 million compared to December 31, 2017. This decrease in impaired assets was mainly due to defaults by certain borrowers as a result of weak macroeconomic conditions in Brazil.

 

For further information, please see “Item 4. Information on the Company—B. Business Overview—Selected Statistical Information—Assets—Impaired Assets—Methodology for Impairment Losses”.

 

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Impairment Losses on Other Assets (Net)

 

Impairment losses on other assets (net) for the year ended December 31, 2020 amounted to losses of R$85 million, a decrease of R$46 million as compared to the year ended December 31, 2019, mainly due to less intangible asset impairment losses during the year. For the year ended December 31, 2019, impairment losses on other assets (net) amounted to losses of R$131 million, a decrease of R$377 million as compared to the year ended December 31, 2018, mainly due to impairment loss of assets in the acquisition and development of software that was recorded due to obsolescence function and disruption of these systems in 2018 that did not occur in 2019. For the year ended December 31, 2018, impairment losses on other assets (net) amounted to losses of R$508 million, an increase of R$52 million as compared to 2017, mainly due to higher loss provision of non onlending payroll loans.

 

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Other Nonfinancial Gains/Losses

 

Other nonfinancial gains/losses were gains of R$308 million during the year ended December 31, 2020, a positive variation of R$288 million from gains of R$20 million during the year ended December 31, 2019, primarily due to the R$169 million gain on the sale of Superdigital in the first quarter of 2020.

During the year ended December 31, 2019, other nonfinancial gains/losses were gains of R$20 million, a negative variation of R$136 million from lossesgains of R$156 million during the year ended December 31, 2018, primarily due to (i) an increase of R$104 million relating to income from the reversal of the provision for impairment of properties and R$78 million which is related to the sale of assets received in the recovery of credits with customers that occurred in 2018 that did not occur in 2019.

 

During the year ended December 31, 2018, other nonfinancial gains/losses were losses of R$156 million, a negative variation of R$168 million from gains of R$324 million during the year ended December 31, 2017, primarily due to (i) an increase of R$272 million related to provisions for devaluations on real estate that occurred in the fiscal year ended December 31, 2017 that did not occur in the fiscal year ended December 31, 2018 and (ii) an increase of R$182 million of which R$104 million relating to income from the reversal of the provision for impairment of properties and R$78 million which is related to the sale of assets received in the recovery of credits with customers. For further information, see note 42 and 43 from our audited consolidated financial statements included in this annual report.

Operating

Global Wholesale Banking

·     Retail Banking·     Santander Corporate & Investment Banking (“SCIB”)
Individuals
SMEs
·     Consumer Finance
·     Corporate

  For the Year Ended December 31,
  2020 2019 2018 2020 2019 2018
  Net interest income Operating profit before tax
  (R$ millions)
Commercial Banking (1)  41,457   42,044   39,391   4,666   18,375   12,397 
Global Wholesale Banking  2,985   2,277   2,531   4,998   3,898   3,512 
Total  44,443   44,321   41,922   9,664   22,273   15,909 
(1)Profit Before Taxbefore tax reported under commercial banking includes the effects of the hedge for investments held abroad (offset in the same amount in the “Income Tax” line). The effect of the hedge for investments held abroad in 2020, 2019 and 2018 amounted to loss of R$13.583 million, loss of R$1.264 million and loss of R$5,867 million, respectively.

The following table shows a managerial breakdown of our loans and advances by customer type at the dates indicated:

  As of December 31, Change between 2019 Change between 2018
  2020 2019 2018 and 2020 and 2019
  (R$ millions)
Individuals  174,042   156,177   133,603   11.4%  16.9%
Consumer Finance  51,637   48,421   40,964   6.6%  18.2%
SMEs  54,525   53,119   49,624   2.6%  7.0%
Corporate(1)  137,618   89,539   97,742   53.7%  -8.4%
Total Credit Portfolio  417,822   347,257   321,933   20.3%  7.9%
(1)For purposes of loan portfolio presentation, “corporate” includes companies with annual gross revenues exceeding R$200 million, including our Global Corporate Banking customers.

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Commercial Banking

Retail

Individuals

We have structured the individual customer service segment as follows:

· Private Banking – is responsible for customers with at least R$5.0 million in assets available for investment. In this segment, we offer a complete and tailored portfolio of financial products and services, investment advice, loans and asset management through a dedicated manager for investments and banking services.

· Santander Select – is responsible for customers with a monthly income above R$20,000, or a monthly income above R$10,000 and R$30,000 in investments, or more than R$300,000 in investments. The offer here consists of a value proposition with differentiated products and services, exclusive service spaces, relationship managers who serve a small number of customers and provide asset management advisory services.

· Santander Van Gogh – is responsible for customers with a monthly income ranging from R$4,000 to R$10,000, or with investments above R$40,000. Our goal is to understand the needs of our customers at each stage of their lives and provide them with financial advice through a multi-channel solution, including financial products and services, as well as financial advice.

· Santander Especial – is responsible for customers who earn up to R$4,000 per month. Our business model offers simple and efficient solutions with an attractive cost benefit to the customer, primarily through electronic channels.

Furthermore, we also support our Select and Van Gogh customers through our Santander Direct channel. Santander Direct is suited to customers who want more flexible service hours, from 8:00 a.m. to 10:00 p.m., and who prefer using a remote method, such as telephone, e-mail or chat, as well as access to digital channels. This service complements our offering and broadens our capillarity by catering to regions where we do not have a physical presence.

Small and Medium Enterprises (SMEs)

We serve SMEs under the Santander Negócios e Empresas brand, with the following customer service segmentation model:

 

Operating profit before tax
·Empresas Núcleos (Core Companies) – responsible for companies with annual revenues between R$30 million and R$200 million. Our service model is based on dedicated relationship managers, a team of experts for more complex demands and loan managers specializing in risk management. We also provide specialized services to multinational companies and other major corporations in order to meet their specific needs.

·Empresas Polo (Hub Companies) - responsible for companies with annual revenues between R$3 million and R$30 million. We offer these customers a comprehensive range of products and services through a user-friendly interface.

·Negócios Agência (Branch Businesses) - responsible for companies with annual revenues of up to R$3 million. We offer these customers a simple banking solution through an integrated account that combines a corporate account with a point of sale (POS) terminal hosted by Getnet. Through this arrangement, our customers receive benefits for using the Getnet terminal to process their credit card sales, with receipts being posted to a Santander Brasil checking account.

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·Empresas MEI (Individual Microentrepreneur) - responsible for companies with annual revenues of up to R$81 thousand. We offer these customers a simplified and cost-effective option through our Santander Conta MEI.

In addition, for companies with annual revenues of up to R$300 thousand, we also offer Negócios Direct (Direct Business). Under this segment, customers have direct access to a relationship manager who is available during extended service hours and via remote channels, such as telephone, e-mail or chat, as well as access to digital channels that facilitate the client’s day to day needs.

Consumer Finance

We provide consumer credit to finance motor vehicles, goods and services directly or through intermediate agencies. Santander Financiamentos is our main service channel, but we also operate under multiple brands.

The following table sets forth certain key financial and operating data regarding our consumer finance business for the periods indicated:

  As of December 31, Change between 2019 and Change between 2018 and
  2020 2019 2018 2020 2019
Individual consumer finance loan portfolio market share (1) (%)  25.1% 25.0%  25.4%  0.1 p.p   (0.4) p.p 
(1)Source: Brazilian Central Bank.

Corporate

Our corporate customer segment comprises large companies that have annual gross revenues greater than R$200 million (except for our Santander Corporate & Investment Banking customers). We focus on fostering a close relationship with our corporate customers through managers and specialists geographically distributed across Brazil, providing customer-tailored services with a complete portfolio of local and global products (products from Commercial Banking and SCIB).

Global Wholesale Banking

Santander Corporate & Investment Banking (SCIB)

SCIB is the global business unit that serves customers, who, due to their size and complexity, require tailored services or high-value-added wholesale products. In this segment, we provide a wide range of domestic and international financial services to large Brazilian and multinational companies. Our customer portfolio comprises a range of industries, including telecommunications, retail, aviation, real estate and logistics, power, construction and infrastructure, natural resources, food, agribusiness and financial institutions.

Our customers in the SCIB segment benefit from Santander Group’s global structure of services, which is supported by its worldwide-integrated wholesale banking network and global services solutions, as well as local market expertise and provision of integrated services.

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Our Portfolio of Products and Services

Payments

Credit and Debit Cards

We operate in the credit and debit card market by issuing these products to our customers (including both account and non-account holders), with the majority of customers being individuals. Our strategy is to offer credit and debit cards that are compatible with the income level and lifestyle of each of our customers.

In order to reach a greater number of customers and remain competitive, we launched the SX card in November 2020, as part of the SX strategy detailed below. This product benefits highly engaged and transactional customers, facilitating the exemption from annual card fees. In addition, we also took the opportunity with the SX card to launch a more modern and ambitious card design for our customers.

We also improved our digital journey to provide better customer self-service, which we believe is a key component for higher customer engagement and was especially important in this new cycle. A recent novelty is “Clique e Retire”, a new physical card delivery system that provides autonomy and agility by allowing customers to opt to collect their cards from self-service machines.

The following table sets forth certain key financial and operating data regarding our credit card business for the periods indicated.

  As of and For the Year Ended December 31, Change between 2019 and Change between 2018 and
  2020 2019 2018 2020 2019
Credit card portfolio market share(1)  13.4%  12.9%  13.3%  0.5 p.p   (0.37) p.p 
Credit card portfolio (R$ billion) (2)  37.8   36.1   30.9   (100.0%)  16.8%
Total card turnover (R$ billion) (2)  242.0   236.4   201.6   2.4%  17.3%
Credit card turnover (R$ billion) (2)  158.7   161.0   137.1   (1.4%)  17.4%
Total card transactions (in millions) (2)  2,570.8   2,725.4   2,338.2   (5.7%)  16.6%
Credit card transactions (in millions) (2)  1,300.0   1,450.9   1,206.1   (10.4%)  20.3%
Participation of credit card in the household consumption – Market overview (2)(%)  24.3%  24.5%  23.1%  (0.24p.p)  2.94 p.p 
(1)Source: Brazilian Central Bank, as of December 31, 2020.

(2)Source ABECS – “Monitor bandeiras”. The data relating for the year ended December 31, 2019 was R$22,273 million, an increase2018 has been revised as a consequence of R$6,363 million, or 40.0%, as compared to R$15,910the restatement of the methodology of monitoring issued by ABECS.

Santander Way

Santander Way is an app offered to our cardholders that allows them to manage their Santander Brasil cards at any time. This complete payment platform also works as a digital wallet, enabling customers to conduct instant contactless payments. The app is frequently updated with new features. Some of the most notable features launched in 2020 included: (i) extra loan and installment offers, (ii) virtual cards, (iii) functions for safer online purchases without a physical card, (iv) prepaid mobile recharges, and (v) chatbots for customer service. In 2020, we had 9 million active customers using Santander Way.

Superdigital

Superdigital is a digital, pre-paid solution that allows customers to manage their daily financial activities and pre-paid accounts entirely online through a user-friendly interface.

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Superdigital customers can easily and rapidly (i) make withdrawals in the “Banco24Horas” ATM network; (ii) send and receive money from any bank institution; (iii) recharge prepaid mobile phones; (iv) carry out foreign exchange transactions in up to 10 different currencies; and (v) recharge public transportation passes using an app. In addition to all these features, customers also receive an international MasterCard credit card to make purchases in physical and online stores, and gain access to our rewards and “MasterCard Surpreenda” programs, which offer a range of benefits and discounts.

On February 28, 2020, we sold our entire equity interest in Superdigital to Superdigital Holding Company, S.L. a company indirectly controlled by Santander Spain. For further information regarding this sale, see “See “Item 4. Information on the Company—4A. History and Development of the Company—Important Events.”

Merchant Acquiring Market | Getnet

Getnet is a technology company that offers solutions, both physically and digitally, to individuals and businesses. The acquisition of Getnet, which was completed in 2019, gave us more flexibility, and enabled us to create more complete and tailored solutions for our customers by integrating its services with the Bank.

Through Getnet, we are able to offer a wide array of payment solutions for individuals and businesses, including: (i) mobile and Wi-Fi point of sale or POS devices; (ii) SuperGet, a mobile POS device that self-employed professionals and small companies can buy or rent; (iii) TEF (Electronic Transfer of Funds), a solution for establishments with a significant number of transactions, operating in synergy with the establishment’s systems and offering sales reconciliation through our bank-integrated customer benefits; (iv) Getnet App, which allows users to track detailed sales transactions in real time and amounts that can be anticipated, while also providing business analytics information and richer data sets that business owners can use to better manage their activities, such as best times of the day to sell; (v) Digital POS, a complete solution that can be customized and, when connected to the internet, allows app downloads and the use of integrated management functions; (vi) Getnet Digital Platform, a tool for all e-commerce environments, with integrated services such as safe boxes, recurrence and anti-fraud systems, which is modeled after the “one-stop shop” concept and provides financial intermediation between a marketplace and its storeowners, as well as several other financial services, such as bill generation, and sales conciliation; and (vii) Getnet Digital Store, which is geared towards SMEs, allows users to set up their stores online, and offers a number of services such as a payment platform, alongside visual and fully integrated management.

The following table sets forth certain key financial and operating data regarding our merchant acquiring business for the periods indicated.

  As of and For the Year Ended December 31, Change between 2019 and Change between 2018 and
  2020 2019 2018 2020 2019
  (R$ millions, except as otherwise indicated)
Market share of total turnover(1)  13.6%  11.3%  12.3%  2.3 p.p   (1.0p.p)
Debit turnover  105.8   80.9   73.4   30.8%  10.2%
Credit turnover  167.9   126.6   114.1   32.6%  11.0%
Number of debit transactions (thousand)  1,572,685   1,415,089   1,245,269   11.1%  13.6%
Number of credit transactions (thousand)  1,234,105   1,070,717   893,519   15.3%  19.8%
(1)Source: Data for 2020 is based on ABECS Monitor Bandeiras - Acquirers data for the nine-month period ended September 30, 2020. Data for the year ended December 31, 2018.2020 was not available as of the date of this annual report. For comparison purposes, the difference between September 30, 2020 and September 30, 2019 would be: +2.3 p.p

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On February 25, 2021, further to the Material Facts disclosed on November 16, 2020 and February 2, 2021, we announced that our Board of Directors approved a separation from our merchant payment business, which is undertaken by our subsidiary, Getnet, in order to concentrate the technology and payments businesses of Santander Group within PagoNxt, a new technology-focused global payment platform. Following the potential spin-off of our equity interest held in Getnet, or the “Spin-Off,” which will be resolved upon by our shareholders in an extraordinary shareholders’ meeting, our shareholders would become direct shareholders in Getnet on a pro rata basis. Accordingly, our shareholders immediately prior to the Spin-Off would hold a percentage of equity interest in Getnet in the same proportion as they held in Santander Brasil prior to the Spin-Off. After the approval of the Spin-off by our extraordinary shareholders’ meeting, our shares and units will be traded with the right to receive the shares and units issued by Getnet until the record date, which, once determined, will be disclosed to the market by means of a Notice to Shareholders.

Esfera

Esfera is our loyalty program, which can be accessed through its own website and mobile app. Our loyalty platforms enable our credit card holders to exchange their reward points for many products, services and travel benefits, including exclusive deals and discounts with partners such as Cinépolis, FastShop and Casas Bahia, among others.

Ben

Ben is an employee benefits company that provides greater flexibility, purchasing power and quality of life to its users by creating, supplying and managing various types of employee benefit vouchers (e.g. meals, such as Vale Alimentação and Vale Refeição, as well as transportation) in the form of magnetic cards. These benefits are offered through an integrated digital platform.

Since 2019, Ben has provided transportation benefits in partnership with RB Serviços Empresariais LTDA.

Ben is currently working on sales partnerships and the development of new products, such as gift cards and other benefit options to expand its portfolio.

The following table sets forth certain key financial and operating data regarding our merchant acquiring business for the periods indicated.

  

As of and For the Year Ended

December 31,

  2020 2019 2018
  (in R$ millions, except as otherwise indicated)
Card Purchases  946   560   - 
Number of Cards (in thousands)  217   98   1 
Number of Transactions (in thousands)  12,192   9,534   - 
Merchant accredited (in thousands)  338   253   4 

For further information, see also “Item 4. Information on the Company—A—History and Development of the Company—Important Events.”

Payroll Loans

Payroll loans support both account and non-account holders in the execution of projects and financial organization. Under these loans, monthly installments are deducted directly from the borrowers’ paychecks by their own employers, and then credited to Santander Brasil, significantly reducing our credit risk. We offer these payroll loans to our customers through our mobile banking platform and our branches. Our customers can refinance their payroll loans, as well as choose from other options to help them manage their debts. Furthermore, these loans are also offered to non-account holders through Olé Consignado. For further information on relevant events relating to Olé Consignado’s corporate events, see “Item 4. Information on the Company—A—History and Development of the Company—Important Events.”

The following table sets forth certain key financial and operating data regarding our payroll loans as of the dates indicated.

  As of December 31, Change between 2019 and Change between 2018 and
  2020 2019 2018 2020 2019
Market share in origination (1)  22.3%  13.2%   12.2%   9.09 p.p   1.01 p.p 
Payroll loan portfolio (R$ billion)  48.1       43.0      33.8       11.9%   27.1%
(1)Source: Brazilian Central Bank, as of December 31, 2020, December 31, 2019 and December 31, 2018, as applicable.

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SIM

SIM is a digital lending platform for individuals through which customers can apply, and be approved, for a loan completely online. After 15 months of operation, SIM has already achieved a positive net profit, a loan portfolio of R$700 million as of December 31, 2020 and a market share of 0.5%. as of December 31, 2020. SIM also has a high level of customer satisfaction, with an NPS of 80 points.

emDia

emDia is an online debt renegotiation platform. It provides customers with a simple platform to access debt renegotiation services on a 24/7 basis. As of December 31, 2020, emDia had 4 million customers and had contributed to the recovery of R$46 million in credit volume in 2020.

Mortgages

We offer long-term financing to our customers for real estate purchases, secured by deeds of trust. We consider mortgages to be a strategic product due to their lower risk (since the acquired property serves as collateral) and their ability to increase our customer loyalty (especially since we offer customers more attractive rates if they choose to bank with us). In this market, our customers, and those of our competitors, are primarily individuals.

We do not offer mortgage loans that do not meet prime lending regulatory standards, which means that (i) we do not finance more than 90% of the value of the property to be purchased, (ii) borrowers must meet certain minimum monthly income levels evidenced by recent payroll information and tax returns to confirm their employment status or other revenue sources, allowing us to evaluate their credit risk profile, and (iii) any other indebtedness added to the financing cannot exceed 35% of the borrower’s monthly gross income.

To facilitate the process for our customers, we provide a real estate digital platform where customers can obtain mortgages completely online. We were the first bank in Brazil to offer customers the opportunity to secure a mortgage without being physically present, except for the signing of the agreement and returning it duly registered. We have a partnership with the largest real estate platform in Brazil in order to improve our sales network and strengthen our digital presence.

The following table sets forth certain key financial and operating data regarding our mortgage business for the periods indicated.

  As of December 31, Change between Change between
  2020 2019 2018 2019 and 2020 2018 and 2019
  (in R$ billions, except percentages)
Mortgage loan portfolio  45.8   39.7   36.3   15.4%  8.3%
Individual sector mortgage loans  44.0   37.2   31.4   18.3%  18.4%
Loan to value(1) – Production (% quarterly average)  64.9%  62.9%  60.6%  2.00 p.p   2.31 p.p 
Loan to value – Portfolio (%)  52.2%  49.4%  48.7%  2.75 p.p   0.73 p.p 
(1)Ratio between loans and the value of the collateral, excluding home equity.

Home Equity

In our portfolio of loan products, we also offer a “home equity” financing product called “Use Casa”, where customers can receive a loan and provide real estate as collateral. This product enables customers to access financing to pursue their personal objectives. “Use Casa” experienced a marked increase in market share, achieving an overall market share of 29.5% in 2020 as compared to 20.5% in 2019.

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We do not offer home equity loans that do not meet prime lending regulatory standards, which means that (i) we do not finance more than 60% of the value of the property, (ii) borrowers must meet certain minimum monthly income levels evidenced by recent payroll information and tax returns to confirm their employment status or other revenue sources, allowing us to evaluate their credit risk profile, and (iii) any other indebtedness added to the financing cannot exceed 35% of borrowers’ monthly gross income.

To facilitate the process, customers can obtain home equity loans completely online through our real estate digital platform. When using this option, customers only need to be physically present when signing the contract and also when returning it once it is duly registered.

Tailored Products and Services

As mentioned above, we offer a complete set of services and products worldwide. In this way, we have a portfolio that ranges from basic to tailor-made and highly complex solutions in the following areas:

·     Global Transaction Banking - responsible for the sale and management of local and global transactional banking products, which includes local loans, commercial finance, transfers of BNDES on-lending, guarantees, structured loans and cash management solutions.

·     Global Transactional Services - responsible for sales and management of global transactional banking, trade finance, guarantees, structured loans, and funding from international banks.

·     Global Debt Financing - includes funding and financial advisory services related to projects, origination and distribution of fixed-income securities in the debt capital markets (DCM), financing of acquisitions and syndicated loans, other structured financing arrangements, subordinated debt and energy efficiency transactions.

·     Investment Banking - offers advisory services for mergers and acquisitions (M&A) and equity capital markets transactions, including initial public offerings and follow-on offerings.

·     Equities – provides stock brokerage and advisory services, equity services for individuals, corporate, and financial institutional investors in stocks, derivatives, as well as equity research.

·     Treasury Customers - responsible for structuring and offering foreign exchange, derivative and investment products for customers from several segments of Santander Brasil, including institutional investors, corporate and retail customers.

·     Market Making - responsible for the pricing of customer deals originated by our sales force from corporate, institutional, private banking and retail segments. This department also conducts our proprietary trading activities.

We are one of the leading banks in capital markets and financial advisory services in the Brazilian and international markets as evidenced by the awards we have received, of which the most significant are listed in the table below.

CompanyAcknowledgments
Dealogic

First Quarter of 2020

#2 M&A LatAm - Deal Announced¹

#3 M&A Brasil - Deal Announced¹

#6 M&A Brasil - Volume Announced¹

#4 ECM Brasil - Deal Announced2

#11 ECM Brasil - Volume Announced2

#1 Global Financial Advisor - Deals Announced (Brasil in the International Markets)

#1 Global Renewables MLA - Deals & Volume Announced

#1 Global Renewables MLA - Deals Announced

#1 Americas MLA - Deals Announced

#1 Americas Financial Advisor - Deals Announced

#1 LatAm & Caribe MLA - Deals & Volume Announced

#2 Global Financial Advisor - Volume Announced (Brasil in the International Markets

#2 Americas Renewables MLA - Volume Announced

#2 Americas Financial Advisor - Volume Announced

#3 Americas MLA - Volume Announced

#1 Global ECA Financing Volume by MLA

#1 LatAm & Caribbean ECA Financing Volume by MLA

OBS:

GDF: Position 2019 FY

IB: (1) excludes fairness opinions / (2) Not included deals made in the EUA – YTD´20

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Global Finance

Best Provider of Short-Term Investments/Money for 2020

Market Funds in Latin America for 2020 

Best Trade Finance Bank in LatAm 2020

World´s Best Payment Hub Solution for 2020 

Best Supply Chain Finance Provider in LatAm 2019

Best Trade Finance Provider in LatAm 2019

Institutional Investors

#1 The Latin America Strategy Team                           

First Quarter of 2020

#4 The Latin America Sales Team

# Sales Trading Institutional Team 

#5 Research Team

TMI Awards

Best Trade & Supply Chain Finance Bank in South America 2020

B3

#2 Derivatives

October 2020

FX Markets

Best Bank for emerging LatAm currencies 2020

Best Bank for LatAm 2020 

Best Bank for USD/BRL 2020

Global Trade Review

Best Trade Finance Bank in LatAm 2020

First Quarter of 2020

Best Deal Award Route 2020
Best Supply Chain Bank 2020

Bond Radar

#1 DCM Distributed in the International Market

Full Year 2020

Brasil Bonds & Corporate Bonds

Trade Finance an IJ Global

Best Supply Chain Finance Bank 2020

Best Receivables Financier 2020 

PFI Awards

Global Adviser of the year                           

First Quarter of 2020

Anbima

#3 DCM Distributed in the Local Markets                   

First Quarter of 2020

#3 3 DCM Originated in Local Markets– Fixed Income Consolidation
Project Finance                                                              Full Year 2019
Financing advisory #1 Announced value and Nº Deals
Concession Auction Financial Advisor #2 Announced values and #2 Nº Deals
Structuring #5 Announced value #3 Nº Deals

Risk Net

Risk Solutions House of the Year 2020

Deals: Cosan (EDQ) / Syngenta (Special Sits)

Latin Finance

Financial Advisor of the 2020: LatAm

Bacen

#1 Total FX                           

May 2020

The Banker

Most innovative investment bank of the year for structured finance 2019

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Customer Solutions

Santander SX

As required by the new Brazilian instant payment system, PIX, which was established by the Brazilian Central Bank, we developed Santander SX, a system that allows individual and corporate customers to instantly transfer money, at any time, free of charges, in a practical and safe way.

In the fourth quarter of 2020, we introduced SX. We believe that SX is complementary to the Brazilian Central Bank’s instant payment solutions, by offering exclusive benefits to customers, including 10 days of interest-free overdraft for individuals and five days for businesses. Since its launch in November 2020, we have processed more than 36 million PIX transactions (sent and received), totaling more than R$ 43 billion, through SX. More specifically, regarding the financial volume of PIX sent, we achieved a share of 15% in the fourth quarter of 2020, outperforming our regular market share in the credit market.

Agribusiness

Agribusiness remains one of our key areas of expansion, and we believe that expanding our agribusiness network will help broaden our reach into the Brazilian countryside to strategic areas in which we are not yet present. We provide a full range of products and services focused on the agribusiness sector. Our approach towards rural producers differs from the one taken with our other customers in that we offer a specialized relationship to our rural producers. We believe that a network of physical stores and digital solutions will result in a more agile and efficient communication with these customers.

The following table sets forth certain key financial and operating data regarding our agribusiness for the periods indicated.

  As of and For the Year Ended December 31, Change between Change between
  2020 2019 2018 2019 and 2020 2018 and 2019
           
Number of agribusiness-focused stores  40      34      21      6%    13% 
Agribusiness loan portfolio (R$ billion)  13.7   10.9   11.8   26.2%  (7.9)%) 

Microfinance

We believe that Prospera Santander Microfinance is a leading microcredit-oriented operation among privately owned banks in Brazil, based on market share and portfolio value. This product aims to support formal and informal microentrepreneurs by generating business and income. With a 100% digitalized service process, in addition to products intended to improve business management skills, we have customers who hire us for services previously not available to them, because they do otherwise have access to financial services, such as property finance, consortium and investment services.

  As of and For the Year Ended December 31, Change between 2019 and Change between 2018 and
  2020 2019 2018 2020 2019
Number of Prospera stores  99   100   45   (1.0%)  122.2% 
Microfinance loan portfolio (R$ billion)  1.3   1.2   0.7   8.3%  79.1%

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Webmotors

Webmotors is the first and largest Brazilian technology company focused on providing automotive purchase and sale solutions for dealers, original equipment manufacturers and private sellers, holding the largest online automotive listing in Brazil.

Webmotors received over 30.2 million visits each month and had an average of over 3.9 million vehicles listed in 2020. Through the Cockpit, a pioneering and disruptive platform for car dealers, which combines solutions for the entire chain described above, we offer the following solutions: business management/performance, buyer profile (CRM), data intelligence, predictive pricing models and market data (AutoGuru).

We have also launched “+Fidelidade,” a loyalty program aimed at offering incentives to our agents based on their loyalty and relationship level with Grupo Santander Brasil and Webmotors. We have sought to improve customers’ after-sales experience through several functionalities made available on an online portal.

During 2020, we launched two service products, Car Delivery and “Troca com Troco” in partnership with Webmotors.

Through Car Delivery, customers seek virtual assistance through video calls, resolve concerns online, and receive their vehicle at home, sanitized and with all necessary support. “Troca com Troco” allows customers to sell their current financed vehicles while financing the purchase of a less expensive vehicle, and pocket the difference. This product allows the Bank to better manage credit exposure and control the credit quality of the portfolio with leading customer service.

Santander Auto

In 2019, we launched Santander Auto, a fully digital car insurance solution which relies on the use of big data analytics for pricing.

The Brazilian insurance market is characterized by: (i) low insurance penetration as a proportion of GDP; (ii) low technological evolution, dominated by companies with low innovation rates, still focused on financial results (due to a history of high interest rates); and (iii) retail brokers as the main distribution channel. As a result, the subscription process still requires that the customer complete a question form (approximately 40 questions). As a result, only approximately 20% of Brazilian vehicles are insured.

Actuarial techniques and behavioral models enable Santander Auto to make an insurance proposal, without making additional information requests from the customer, based on information already available to us.

During its first year of operation almost 110 thousand policies were sold, which represents a penetration rate of 16% (i.e., total insurance contracts sold as a percentage of the contracts relating for loans by Santander Financiamentos). These results are based on a pricing system based on information bureaus which provides have a more accurate price, which makes it possible to make an offer at the time the vehicle is purchased, and which enables customers to include insurance in their purchase with a single click. During 2020, we focused on consolidating our insurance offer, by ensuring that all customers have at least one insurance offer, while also covering the most diverse types of risk. We intend to expand the business through the optimization of our ecosystem and penetration in our customer base.

+ Negócios and + Vezes | Santander Financiamentos

In 2017, we launched “+Negócios,” which we believe to be an innovative digital trading platform. This simple and intuitive platform enables faster execution of loan simulations, receipt of credit approval and proposal formalization for vehicles, in addition to providing portfolio management reports. In the same year, we also introduced “+Vezes”, a digital trading platform allowing retailers to offer installment payment options for the sale of goods and services.

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In 2020, approximately 15 million separate Brazilian individual taxpayer identification numbers were used to simulate vehicle leasing through the “+Negocios” platform, which makes us one of the most widely used platform in Brazil’s vehicle leasing market.

We also reformulated the “+Vezes” platform in 2020 to improve customer experience and the platform's stability. We also increased our sales force in this business through sales representatives giving us a presence throughout Brazil.

Cash Management

We offer cash management solutions to corporate customers and SMEs online through our Internet banking and mobile banking services.

Our revenues from cash management include fees charged for offering the following products: (i) collections, in which we assist customers in carrying out commercial transactions using printed or online payment slips; (ii) payments, consisting of simple and automatic management of our customers’ accounts payable activities through individual transactions or via electronic file transfer; (iii) payroll, which is intended to facilitate the management of salary and benefits payments to our customers’ employees via an online tool; (iv) collection of values, which consists of the payment of cash values and checks at the customer’s points of sale; and (v) custody, by which we perform the custody, control and deposit of predated checks up to the date of clearing.

In addition, we also provide other revenue-generating products which are structured and tailored to the customer’s operation.

Customer Funding

Our main sources of liquidity are customer funding through deposits and other bank funding instruments. These deposits, combined with equity and other instruments, enable us to meet most of our liquidity and legal reserve requirements.

For further information, see “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Liquidity and Funding.”

Investments

Our investment process for retail customers seeks to provide qualified guidance and help them achieve their financial objectives based on four major pillars:

·Client investment profile - We assess our customer’s situation to understand their level of financial knowledge, investment horizons, liquidity needs and the levels of risk they are willing to assume, among other factors. This analysis is reviewed periodically, according to the customer’s needs and local regulations.

·Investment strategy - Our investment philosophy aims to provide long-term returns through a structured asset allocation process and mitigate market risks by diversifying among different asset classes.

·We define strategic portfolios for each customer profile and build our “Model Portfolio” on a monthly basis according to market conditions and trends. This tactical view arises from the Asset Allocation Committee, which consists of economists from our economics department, our Santander Asset Management division, our Private Banking unit and our brokerage house (Santander Corretora).

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·Execution and implementation - To assure a successful execution of investment strategy, we provide a complete array of financial products, ranging from banking instruments, bonds, stocks, structured notes, investment funds with an open architecture and selected investment providers, real estate funds and exchange traded funds, among other capital markets instruments. Our partnership with Zurich Santander completes this offering with a wide range of private pension plans. Furthermore, our recent acquisition of Toro Corretora has further enhanced our PI DTVM investment platform by expanding our product offering. For more information regarding this acquisition, see “—A. History and Development of the Company—Important Events— Purchase of Equity Interest over Toro Controle e Participações S.A.”

·Follow-up - Our advisory team performs, along with the client, a thorough and frequent revision of their profile, objectives and results, seeking to keep their investments within the established parameters and Model Portfolio’s guidance.

In order to identify possible deviations from the investment profile’s recommended positions, we also rely on automated monitoring systems. These controls alert customers of any transactions that compromise the suitability of their portfolio and are in line with our commitment to protect our customers’ interests.

Furthermore, each customer has direct access to their positions through a private access site on the Internet and Mobile App, where they can view the evolution of their investment strategies.

Programa Avançar

We also have a non-financial solution, known as “Programa Avançar”, which is aimed at entrepreneurial customers. Through this solution, SMEs can access content and solutions related to management and innovation, internationalization, team building, and other topics relevant to businesses via a web platform. We see this program as a key component of our offering to Brazilian entrepreneurs.

In addition, we offer a digital account solution to these customers, especially individual entrepreneurs.

Similarly, we offer “Santander Copiloto”, an enterprise resource planning tool designed for our SME customers. This tool is integrated with the Santander Digital channels, and provides solutions such as e-commerce, sales point software and tax compliance.

Service Channels

We offer our financial services and products to our customers through our multichannel distribution network composed of: (i) physical channels, such as branches, mini-branches and ATMs; (ii) call centers; and (iii) digital channels, such as Internet banking and mobile banking.

Physical Distribution Network

Our distribution network provides integrated financial services and products to our customers. The following table presents our physical distribution network as of the dates indicated.

  As of December 31,
  2020 2019 2018
Branches    2,153     2,328   2  ,283 
Mini-branches    1,411     1,512     1,267 
Own ATMs  12,949   13,296   13,641 
Shared ATMs  23,798   23,780   23,049 

Branch Network

Our branch network offers our entire portfolio of products and services to our customers through a personal and customized approach. The table below shows the geographic distribution of our branch network as of the dates indicated.

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   As of December 31,
   202020192018
Northeast    9%  9%  8%
North and Midwest    7%  7%  7%
Southeast  70%70%71%
South  14%14%14%

PABs (Mini-branches)

We offer daily banking services to our SMEs, as well as corporate customers and their employees through our PABs (“Postos de Atendimento Bancário”), which are exclusive sales points located at our customers’ buildings, as well as in hospitals and universities. The presence of PABs in our customers’ offices strengthens our relationship and builds loyalty with those customers, who benefit from the convenience of conducting their banking transactions at their workplace.

ATMs

We operate an extensive network of 12,949 ATMs, including those located in our branches and mini-branches. In addition, our customers have access to the “Banco24Horas” network, which operates 23,798 ATM units. Through this network, our customers can access their accounts and conduct banking transactions, as well as purchase most of the products and services available in our portfolio.

Call Centers

Our call centers provide active Santander Brasil customers (account and single product holders) with consultation, financial transactions and product hiring services. This important distribution channel has a variety of customer self-service facilities. Our call centers received over 150 million contacts in 2020.

Digital Channels

Our digital channels include Internet banking, mobile banking and other digital solutions aimed at facilitating our customers’ access to the products and services that we offer. We highlight the following key features:

·OnePay – This service is available through the Santander App and enables customers to transfer funds to foreign countries in various currencies.

·Santander On “Financial control” – Through the Santander App, customers can access this service to view all of their commitments to us, as well as pending issues with the Brazilian tax authority (Receita Federal do Brasil), Serasa (a Brazilian credit bureau) and the Brazilian Central Bank, thereby enhancing the transparency of the credit relationship with Santander Brasil. Customers can easily access credit quality information and the use of debt with Santander, as well as easily update income data without having to present any payroll or tax documents, and readjust available limits.

The following table provides certain key operating information with regards to our digital channels as of the dates indicated.

  For the Year Ended
  December 31,
  2020 2019 2018
  (in millions)
Number of digital customers(1)    15.6   1  3.4   1  1.4 
Number of digital channel transactions(2)  5,262   4,311   4,073 
(1)We define digital customers as those who used at least one of Santander Brasil’s digital channels (e.g., mobile banking and internet banking) in the 30 days preceding the end of the applicable year.

(2)Refers to transactions carried out through internet banking, mobile banking and other digital platforms. The data relating to the year ended December 31, 2017,2018 has been revised due to a change in the criteria applicable to digital transactions accounting.

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The following table provides an overview of the weight of each key distribution channel in our overall distribution system.

   For the Year Ended
   December 31,
   202020192018
   (%)
Internet banking  36.939.746.1
ATMs  5.98.910.4
Mobile(1)  48.039.034.5
Branch  2.24.15.2
IVR(2)  6.17.42.3
Call Center  0.80.91.4
(1)Refers to total transactions (account holder and unique product-holder).

(2)Interactive voice response is an automated telephone system in which a computer interacts with callers (who can use their voice or the telephone keypad to communicate with the computer), gathers information and transfers caller to the appropriate representative.

In addition to Internet banking and mobile banking, we have digital solutions that play an important role in providing a better digital experience for our customers and potential customers, including:

·Digital account opening – Customers can open an account with Santander Brasil entirely online.

·Artificial Intelligence GENTE – Launched in 2020, this solution offers a more personalized digital service that provides greater autonomy for our operating profit beforecustomers.

·LAB 033 – Launched in 2019, this is innovation laboratory is focused on creating new solutions that can support transformational projects across our organization.

·Santander Corretora App - A digital trading platform offered to our brokerage customers.

·Autocompara - Allows customers to obtain insurance quotes from six different insurance companies and purchase the best offer through Autocompara’s website.

·Pi DTVM – Acting as a digital broker since 2019, this solution empowers customers to invest through a simple and intuitive digital platform. PI DTVM also provides market information and financial education tools.

Technology and Infrastructure

In 2020, we optimized our technology investments, in order to provide more efficiency, digitalization, security and quality to the products and services provided to our customers. In the challenging scenario brought by the COVID-19 pandemic, we took on the important role of serving as an ally to our customers and the Brazilian economy. Through sizeable investments in technology and enhancements to the capabilities of our channels and digital platforms, we were able to quickly face up to the new reality, while simplifying internal processes and business models.

We established a new technological innovation center (Lab 33) in the city of São Carlos (in the state of São Paulo) and built partnerships with local universities and technical schools in order to identify and recruit qualified talent. In addition to creating job opportunities in São Carlos, this innovation center resulted in the creation of other direct and indirect positions in our technology ecosystem. Furthermore, we boosted the agility and scalability of our software development and deployment processes, while increasing automation levels and adopting advanced cloud computing and artificial intelligence solutions. We have listed below a few other initiatives delivered throughout the year:

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·GENTE: in order to speed up and optimize the digital services provided to our customers, we released GENTE, a virtual self-service assistant that customers can use to search for information, ask questions, access account statements, review credit card limits, as well as to perform financial transactions such as transfers and invoices payments, all through the Santander Mobile App, our commercial portal, WhatsApp or Santander Way.

·Santander SX: as required by the Brazilian Central Bank, we developed Santander SX, an instant payments platform that allows individual and corporate customers to make money transfers that reach the recipient’s account in a just a few seconds 24 hours a day. Transactions can be performed from transactional account identifier directory (or “DICT”) keys, such as e-mail address, cell phone number, national tax number as well as static and dynamic QR codes.

·Individual Bank Account (Mobile): in order to enhance our customers’ experience, we improved our mobile app services by adding new consulting and sharing features to our individual account mobile app, including the ability to generate credit card invoices in portable document format, or “PDF”, check date and time of the last balance update, as well as view all charges and number of days the overdraft account was used.

·Corporate Bank Account (Mobile): in line with our sustainability goals, we launched a new digital service for our corporate customers that offers paperless processes and greater agility in opening new accounts, with a strong lead-time reduction from a few hours to just a few minutes to open an account. Since the year was R$14,514launch of this new service, over 20,000 new corporate accounts have been opened using this service.

·Credit Cards: in addition to offering our customers the option of acquiring credit cards through our digital channels, we now provide new after-sales services, such as sending digital invoices and card passwords via text messages. In December 2020, over 74% of credit card invoices were made available via digital channels, while 91% of card passwords were sent via text messaging.

·Car Insurance: our car insurance services are offered through a 100% digital platform, where customers may perform simulations, request inspection services and sign-up for insurance contracts spanning over 12, 24 or 36 months. This new platform aims to boost sales through simple navigation, reduce average quotes and contract time, as well as increase the number of insurance contracts and total premium amount.

·Mortgage Services: we have improved the after-sales experience of our real estate loan customers. Our customers can access relevant information about their contract through a single page on our web portal, including total contract amount financed, balance due, overdue balance, interest rates and maturity date, as well as installment due payments.

·Security and Antifraud: we have expanded the types of electronic authentication methods available, so that our customers can validate transactions via biometry, QR code (Santander ID), Token ID and credit card passwords. We have also developed the fraud alert center, an antifraud solution designed to send alerts to customers about events identified while accessing our digital channels or any changes to the information registered in our databases. These actions contributed to protecting our business and our customers from sensitive information leaks or exposure.

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Communications and Marketing

We use and monitor several tools in order to communicate effectively with our customers. These include not only traditional media, such as television and printed media, but also the internet, mobile advertising and social networks.

Even though social isolation prevented in-person events in 2020, our customer outreach, conducted through direct communication across all available media, including social networks, remained unaffected. We regularly provided information through these channels, seeking to make a real and positive difference in the lives of our customers. Such information included guidance on how to access credit lines and other government-sponsored initiatives to combat the COVID-19 pandemic, as well as information on the solutions we introduced, such as our mortgage rate reduction, deferral of loan installment payments and vehicle financing with auto insurance, without inspection. Internally, we released more than 200 videos aimed at instructing our teams on how to best-serve our customers, and guidelines to prevent COVID-19 in the workplace. Externally, we ran more than 192 video advertisements on TV and social networks. Our communications campaign generated significant feedback, with more than 34,000 articles published in newspapers and magazines, as well as more than 20 stories featured in Brazilian national media outlets. On social media, we averaged 10 posts per day, with nearly 800 million impressions. We also launched new media formats on networks such as Spotify (podcast) and TikTok. Additionally, we conducted more than 150 live broadcasts and events where our senior management, as well as experts and government officials were invited to address several topics, including the current economic scenario, social investment, sustainability, diversity, women’s leadership, entrepreneurship, and culture and entertainment. The Third Edition of Global Citizen, organized in collaboration with newspaper Valor Econômico and featuring actress and activist Viola Davis and Esther Duflo, the youngest person ever to win the Nobel Prize in Economics, received more than one million views. Also, the 21st Annual Santander Conference focused on discussing actions to fight COVID-19, with the participation of major chief executive officers, public authorities and our leadership. The conference was broadcasted on YouTube, garnering a total of 6.1 million views.

Sustainability

In Brazil, sustainability governance is based on global guidelines, locally identified commitments and demands, and our local business strategy. Decision-making goes through the Board of Directors, the Executive Committee and the Sustainability Executive Superintendents. The Sustainability Committee is responsible for providing clarification and recommendations to the Board of Directors regarding the development of sustainability-related guidelines.

We have organized our activities to create what we believe to be one of the best financial platforms in Brazil and to serve as an agent for the transformation and prosperity of society. This involves promoting sustainability through our business, operations and relationships. We have directed our efforts to improve Brazil’s business environment, which allows people to live up to their full potential and strategically promote the use of Brazil’s natural capital.

This stance is present in the three pillars of our sustainability strategy, which reflects Brazil that we want to help build, together with our employees, customers, shareholders and society, while also contributing to the UN’s Sustainable Development Goals (“SDGs”): surrounding a Resilient and Inclusive Economy, the Development of Potential and the Efficient and Strategic use of Natural Resources.

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Resilient and Inclusive Economy

Our broad commercial activity allows us to advise and support all of our customers and projects. Our role is to be a facilitator and contribute to the generation of jobs and income, and the improvement of logistics and infrastructure for Brazil’s development.

Through this pillar, for example, we offer access to banking services, products and non-financial initiatives.

We have specific products to support micro entrepreneurs and SMEs, such as the “Prospera Santander Microfinanças”, “Programa Avançar” and “Parceiros em Ação” programs. Additionally, we increasingly seek to include the topic of financial management in the client's relationship with the Bank, using tools such as Santander On.

In 2020, by digitalizing our initiatives, we reached 156,000 participations in financial education initiatives. This number includes content for our social networks, as well as live streams and podcasts on personal financial management and investment. For the first time during the national financial education week, our customer services team, or “SAC,” offered personalized financial advice to customers.

Furthermore, Santander Brasil launched several benefits to support customers and companies during the COVID-19 pandemic, including the “A Gente Banca” program, as well as long term payroll loans, installment extensions, and service packages aimed at individual microentrepreneurs among others.

Development of Potentials

Our commitment to the development of potential begins with our employees. We have ranked as one of the best companies to work for in the Great Place to Work, or GPTW, survey since 2016. Guided by our corporate culture and internal policies, we offer opportunities that promote development and professional growth, in order to build a culture of delivering results, respect, innovation, inclusion and diversity.

We work to create a culture of respect, inclusion and equity, where everyone can develop their talents with their unique attributes. Diversity is one of the five principles of our Code of Ethical Conduct. Our priorities are gender and racial equity, inclusion of LGBTI+ and people with disabilities, as well as diversity of experience and generational diversity. Since 2018, we have set inclusion targets for Afro-Brazilian employees in the bank and female employees in leadership, which in 2020, were 27.4% and 28%, respectively. As of December 31, 2020, our Afro-Brazilian and female employees accounted for 25.3% and 28.8%. Additionally, in 2020, we received two diversity awards from GPTW: one for our ethnic-racial practices and another, for the fourth time, as one of the best companies for women to work.

Through the Santander Universities Program, we offer initiatives focused on granting national and international scholarships, programs for entrepreneurial development, as well as internship and employment programs. On December 31, 2020, about 24,900 scholarships and entrepreneurships were granted with a total investment of about R$27.2 million.

 

We also contribute to the promotion of children and adolescents’ rights. Through the “Amigo de Valor” program, Santander Brasil, employees and customers may directly donate a part of their due income tax to the Funds for the Rights of Children and Adolescents (“Fundo dos Direitos da Criança e do Adolescente”). In 2020, this program raised R$15.7 million.

In 2020, we took several steps to support society during the COVID-19 pandemic:

·Between March and December 2020, we donated more than R$100 million to initiatives to mitigate the impact of COVID-19;

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·We raised R$3.5 million, and donated another R$3.5 million, out of the R$100 million mentioned above, to five hospitals to create new intensive care units and purchase personal protective equipment;

·In partnership with the other two main private banks in Brazil, we helped lower income women manufacture and distribute more than 17.7 million protective cloth masks. This initiative allowed us to help support their income during the pandemic while also providing masks to those in need;

·Our employees donated about 790 tons of food, clothes and hygiene products, to over 500 non-governmental organizations around Brazil, impacting more than 170 thousand people;

·Through our volunteering program, 83 volunteers interacted weekly with elderly people living in shelters supported by “Parceiros do Idoso” in order to give them company and support.

We also organized a 12-hour live festival, streamed on television and radio to help single mothers in deprived communities across Brazil and raised R$3.5 million to the support the “Mães da Favela” project. With our donation included, we are giving a total of more than R$7 million to more than 20,000 mothers through SuperDigital. Through this initiative, we can also introduce these families to our banking services.

Efficient and Strategic Use of Natural Resources

We are implementing changes that contribute towards the goal of helping Brazil make responsible and efficient use of its environmental resources and move towards a low-carbon economy. Our activities include, in addition to the responsible environmental management of our operations, financing and advising companies in the fields of infrastructure and renewable energy, and providing support for sustainable agribusiness.

In 2020, Santander Brasil made important public commitments towards Brazil’s sustainable development, such as the introduction of a R$5 billion credit line for new investments in water and sanitation, as well as the “Amazon Plan” that was launched in partnership with the two other private banks in Brazil. In addition, we believe we are at the forefront of environmental, social and governance matters, or ESG, in Brazil, evidenced by the offer of ESG-linked loans and Renovabio products to customers.

The total amount of environmental, social and governance, or ESG, financing which Santander Brasil provided through Santander Financiamentos, responsible agribusiness, corporate, retail (individual and corporate customers), project finance, Santander Corporate, and investment banking, including green bonds, totaled approximately R$27 billion.

Since 2002, we have adopted social and environmental parameters in risk analysis of credit concession for projects and companies. The assessment carried out by specialized professionals may result in conditions or restrictions for companies to operate with the Bank. For customers with revenues of over R$200 million, this analysis may also influence credit rating, affecting rates, limits, terms and guarantee requirements.

In relation to internal environmental management, we have been carbon neutral since 2010, by completely offsetting our Scope 1 and 2 emissions. Also, since 2013, we follow a methodology for selecting projects from which to purchase Verified Emission Reductions (“VERs”), to ensure the social and environmental benefits for that region. In recent years, we have been purchasing VERs from reforestation and renewable energy ventures.

In 2019, we committed publicly to:

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·reducing single-use plastic consumption at Santander Brasil, by launching the #Desplastifique program. The implementation plan started with administrative buildings, in 2019 and was scheduled to be completed during the course of 2020. However, due the COVID-19 pandemic, we expect that it will be fully implemented in all branches by the end of 2021; and

·powering 100% of our operations with renewable energy by 2025. In December 2020, approximately 47% of our consumed electricity was derived from renewable sources.

We improved our “Paperfree” program in 2020 to encourage digitalization, promote the use of rational resources and eliminate bureaucratic processes. The goal is to try to eliminate the use of postal stamps. As a result of the program, at our administrative buildings and stores, we collected and recycled around 72,000 stamps.

Socio-Environmental Responsibility Policy

Our Socio-Environmental Responsibility Policy, or “PRSA”, meets the requirements of CMN Resolution n° 4.327/14 and SARB Regulation 14 of FEBRABAN. These regulations define guidelines and consolidate specific policies for socio-environmental practices in business and relationships with certain parties. These practices include socio-environmental opportunities and impacts, and risk management such as suitability in granting and using credits, management of suppliers and socio-environmental risk analysis. In 2020, the vice-president of Legal Issues joined our PRSA Senior Group, which consists of our vice-presidents of Risks, Corporate, Human Resources, Finance and Communication, Marketing, Institutional Relationships and Sustainability, and officers of Agribusiness and Compliance. This Group is involved in decision-making related to the PRSA and operates in connection with our Executive Committee.

Competition and Industry Transformation

Currently, there are five commercial financial institutions at the forefront of the Brazilian financial industry in terms of assets: Santander Brasil, Bradesco, Itaú Unibanco, Banco do Brasil and Caixa Econômica Federal. Together, these financial institutions accounted for 73.2% of the credit and 75.2% of the deposits available in Brazil as of December 31, 2020, according to the Brazilian Central Bank and the financial statements of the aforementioned banks.

The following table shows the total loans and deposits of the five leading financial institutions in Brazil at the dates indicated:

  Santander Brasil Bradesco Itaú Unibanco Banco do Brasil Caixa Econômica Federal (2) Financial System
  December 2020 (R$ billion)
 Total loans(1)   411.7   510.3   508.6   681.8   756.5   2,868.9 
 Total deposits(1)   384.9   545.3   786.6   437.0   512.9   2,666.7 

(1)According to the Brazilian Central Bank, reported and presented in accordance with Brazilian GAAP (December 2020).

(2)Represents total loans and deposits of Caixa Econômica Federal as of September 2020 because as of the date of this report, Caixa Econômica Federal had not disclosed the information for December 31, 2020.

Insurance Coverage

We maintain insurance policies that are renewed annually in order to protect our assets. All of our branches, affiliates and administrative buildings are insured against losses caused by fire, lightning, explosions and other risks. Such coverage establishes reimbursement for the asset replacement value.

In addition, we also maintain the following insurance policies:

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·policies against material and/or bodily damage caused to third parties for which we are held responsible;

·policies against financial losses due to fraud or employee misconduct, among others;

·directors’ and officers’ insurance policy for our management against third-party complaints regarding management acts. There are insurance policies against crimes, employee dishonesty and damages arising out of public offerings; and

·policies against hacker attacks and cyber-crimes.

Dependence on Patents, Licenses, Contracts and Processes

The major trademarks we use, including, among others, the “Santander” trademark, are owned by Santander Investment Bank. Santander Brasil has a license to use this trademark. All trademarks of our business are registered or applied through the Brazilian Patent and Trademark Office (Instituto Nacional de Propriedade Industrial, or “INPI”), the agency responsible for registering trademarks, patents and designs in Brazil. After registration, the owner has exclusive rights to use of the trademark in Brazil for a 10-year period that can be successively renewed for equal periods.

As of the date of this annual report, we own a total of 553 trademarks in Brazil, with Santander Brasil owning over 123 of these trademarks, while the remaining are owned by other companies of the Santander Group.

REGULATION AND SUPERVISION

The basic institutional framework of the Brazilian financial system was established by Law 4,595, of December 31, 1964, as amended from time to time, or the “Banking Reform Law”. The Banking Reform Law created the CMN, responsible for establishing the general guidelines of monetary, foreign currency and credit policies, as well as regulating the institutions of the financial system.

Principal Regulatory Agencies

CMN

The CMN oversees the Brazilian monetary, credit, budgetary, fiscal and public debt policies. The board of the CMN is composed of the president of the Brazilian Central Bank, the Minister of Planning and the Minister of Finance, who also chairs the Board. Pursuant to the Banking Reform Law, the CMN is the highest regulatory entity within the Brazilian financial system, and is authorized to regulate the credit operations of Brazilian financial institutions, to regulate the Brazilian currency, to supervise Brazil’s gold reserves and foreign exchange, to determine Brazilian savings and investment policies and to regulate the Brazilian capital markets with the purpose of promoting the economic and social development of Brazil. In this regard, the CMN also oversees the activities of the Brazilian Central Bank and the CVM.

Brazilian Central Bank

The Brazilian Central Bank is responsible for the implementation of CMN policies related to foreign currency and credit, the regulation of Brazilian financial institutions, particularly in regards to the minimum capital and compulsory deposit requirements, as well as the disclosure of the transactions carried out by financial institutions and their financial information. The Brazilian Central Bank addresses specific issues through the Monetary Policy Committee (COPOM), a committee responsible for adopting measures to meet inflation targets defined by the CMN and establishing monetary policy guidelines. In order to meet inflation targets, the COPOM must set the target for the SELIC Rate (the average rate for daily financing, backed by federal instruments, as assessed under the Special Settlement and Custody System) and publish reports on the Brazilian economic and financial environment and projections for the inflation rate.

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CVM

The CVM is responsible for the implementation of CMN policies related to securities, with the purpose of regulating, developing, controlling and inspecting the securities market and its participants (companies with securities traded in the market, investment funds, investors, financial agents, such as custodians of instruments and securities, asset managers, independent auditors, consultants , as well as instruments and securities analysts).

Self-Regulating Entities

The Brazilian financial and capital markets are also subject to the regulation of self-regulating entities that are divided by field of activity. These self-regulating entities include, among others, the National Association of Investment Banks – ANBIMA, the Brazilian Association of Credit Card and Services Companies – ABECS, the Brazilian Banks Federation – FEBRABAN, the Brazilian Association of Publicly-Held Companies – ABRASCA and the B3.

Principal Limitations and Obligations of Financial Institutions

In line with leading international standards of regulation, Brazilian financial institutions are subject to a series of limitations and obligations. In general, such limitations and obligations concern the offering of credit, the concentration of risk, investments, operating procedures, loans and other transactions in foreign currency, the administration of third-party funds and micro-credit. The restrictions and requirements for banking activities, established by applicable legislation and regulations, include the following:

·No financial institution may operate in Brazil without the prior approval of the Brazilian Central Bank. In December 2017, the CMN enacted a new rule establishing that all such requests submitted to the Brazilian Central Bank must be approved within 12 months (subject to suspension of the term in some instances);

·A Brazilian financial institution may not hold direct or indirect equity interests in any company located in Brazil or abroad registered as permanent assets without prior approval of the Brazilian Central Bank. The corporate purpose of such company shall be complementary or subsidiary to the activities carried out by the financial institution;

·Brazilian financial institutions must submit for prior approval by the Brazilian Central Bank the corporate documents that govern their organization and operation, such as capital increases, transfer of headquarters, opening, transfer or closing of branches (whether in Brazil or abroad), election of the members of the statutory bodies and any corporate restructuring or alteration in the composition of their equity control. The requests for changes in control submitted to the Brazilian Central Bank must be approved within 12 months and requests for changes to organizational documents must be approved within three months (in both cases subject to suspension of the term in some instances);

·Brazilian financial institutions must fulfill minimum capital and compulsory deposit requirements and must comply with certain operational limits;

·A Brazilian financial institution may not own real estate, except for properties it occupies and subject to certain limitations imposed by the CMN. If a financial institution receives real estate, for example, in satisfaction of a debt, such property must be sold within one year, unless otherwise authorized by the Brazilian Central Bank;

·Brazilian financial institutions must comply with the principles of selectivity, guarantee, liquidity and risk diversification;

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·A Brazilian financial institution belonging to the S1 segment, as is the case of Santander Brasil, cannot lend more than 25% of its Tier 1 Regulatory Capital (patrimônio de referência) to a single person or a group and the maximum exposure to concentrated individual customers or group of connected customers of such Segment 1 financial institution is 600% of its Tier 1 Regulatory Capital (a concentrated individual client would mean, for the purpose of the proposed rule, as any one client to which exposure is equal to or higher than 10% of its Tier 1 Regulatory Capital);

·According to the Banking Reform Law, a Brazilian financial institution cannot carry out credit transactions with (i) its controlling shareholders, directors and members of other statutory bodies (fiscal, advisory and other) and their respective spouses and relatives up to second degree, (ii) the individuals or legal entities that hold a qualified interest (15% of the capital stock) in their capital, (iii) the legal entities in which they have qualified interest (direct or indirect), (iv) the legal entities in which they have effective operational control or preponderance in the deliberations, regardless of the equity interest, and (v) the legal entities with common directors or members of the board of directors. Such prohibition does not apply, subject to limits and conditions established by the CMN through the enactment of Resolution No. 4,693 in October 2018, to: (i) transactions with a counterparty that has an officer or director in common with the financial institution providing credit, provided that the officer or director is considered an independent member in both entities; (ii) transactions carried out under market-compatible conditions, without additional benefits or different benefits when compared to the operations deferred to the institution to other customers with the same profile, (iii) credit operations that have as counterparty a financial institution that is part of the institution prudential conglomerate, provided that they contain contractual clauses of subordination, except in the case of overnight and loan transactions with other financial institutions specified by the law, (iv) the interbank deposits, according to the law, (v) the obligations assumed by related parties under the compensation and settlement services authorized by the Brazilian Central Bank or by the CVM and their respective counterparties, and (vi) other cases authorized by the CMN; the management of third-party assets must be segregated from other activities and must follow the regulations issued by the CVM.

·The total amount of funds applied in permanent assets of the financial institutions cannot exceed 50% of their adjusted stockholders’ equity;

·Brazilian financial institutions must comply with anti-money laundering and anti-corruption regulations;

·Brazilian financial institutions must implement policies and internal procedures to control their systems of financial, operating and management information, as well as their conformity to all applicable regulations;

·Brazilian financial institutions must implement a policy for remuneration of board members and executive officers that is compatible with their risk management policies; and

·The Banking Reform Law and specific regulations enacted by the CMN impose penalties on financial institutions in certain situations where applicable requirements, controls and requisites have not been observed. In addition, the Brazilian Central Bank may cancel the financial institution’s authorization to operate in certain situations. The cancellation of an authorization for operation of a financial institution may only occur upon the establishment and processing of the appropriate administrative proceeding by the Brazilian Central Bank.

Additionally, as part of the Santander Group and due to the global nature of our organization we are subject to related international rules.

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Capital Adequacy and Leverage – Basel

Current Requirements

The Brazilian Central Bank supervises the Brazilian banking system in accordance with the Basel Committee on Banking Supervision, or “Basel Committee”, guidelines and other applicable regulations. For this purpose, banks provide the Brazilian Central Bank with any information which it deems useful in performing its supervisory functions, which includes supervising changes in solvency and capital adequacy of banks.

The main principle that guides the directives set forth in the Basel Committee is that a bank’s own resources must cover its principal risks, including credit risk, market risk and operational risk.

Brazilian financial institutions are subject to capital measurement and standards based on a risk weighted asset ratio. The parameters of this methodology resemble the international framework for minimum capital measurements adopted by Basel III.

Basel III

On December 16, 2010, the Basel Committee issued the Basel III framework, which supplements and amends Basel II. Basel III includes higher minimum capital requirements, new conservation and countercyclical buffer capital requirements, revised risk-based capital measures and the introduction of a new leverage ratio, as well as two liquidity standards. The Basel III framework is being implemented gradually by each country through legislation or regulation to be imposed upon that country’s home banks, including Brazil.

Regulatory Capital is composed by Core Capital and two additional tiers:

Tier I capital will have to reach a minimum index of 6.0% (according to the schedule established by the Brazilian Central Bank), divided into two portions: (i) Core Capital consisting mainly of corporate capital and profit reserves (shares, units of ownership, reserves and earned income) of at least 4.5% of RWA, and (ii) Additional Tier I consisting mainly of perpetual hybrid securities and capital instruments authorized by the Brazilian Central Bank (but excluding amounts relating to funding instruments issued by other local or foreign financial institutions) and any of our own shares purchased by us and the integration of which into the Additional Tier I Capital is permitted. To improve the quality of the capital of financial institutions, Basel III restricts the acceptance of financial instruments that fail to demonstrate effective capability of absorbing losses and requires the reduction of assets that in certain situations could jeopardize the financial institution’s capital value due to the instruments’ low liquidity, dependence on future profits for realization or difficulty of value measurement.

There is also an additional 2% of Tier II capital requirement, for a total of 8% of minimum capital ratio. Current hybrid subordinated debt approved by the Brazilian Central Bank as additional capital requirements, or Tier II, are expected to be maintained if they also comply with requirements introduced by Basel III, including the mandatory conversion clauses into equity or write-off upon the occurrence of triggering events provided for in the regulations.

In accordance with the Basel III standards, the Brazilian Central Bank created the Additional Core Capital buffer (Adicional de Capital Principal), which is composed by the sum of three buffers:

·Core Capital Conservation buffer (Adicional de Capital Principal de Conservação), which was introduced to ensure that banks have an additional layer of usable capital that can be drawn down when losses are incurred. Whenever the buffer falls below 2.5%, automatic constraints on capital distribution (for example, dividends, share buybacks and discretionary bonus payments) will be imposed so that the buffer can be replenished.

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·Countercyclical capital buffer (Adicional Contracíclico de Capital Principal), which aims to protect the banking sector from periods of excess aggregate credit growth that have often been associated with the build-up of system-wide risks.

·Core Capital Systemic buffer (Adicional de Importância Sistêmica de Capital Principal), which is applicable to the S1 bank segment (banks with an asset base equivalent to over 10% of Brazil’s GDP or that engage in relevant international activity).

On March 16, 2020, due to the challenging macroeconomic environment resulting from the COVID-19 pandemic, the Brazilian Central Bank issued Resolution No. 4,783, which decreased the Conservation Buffer level (Adicional de Conservação de Capital Principal) in 2020 from 2.5% to 1.25%. This level will phase-in towards the 2019 level by 2022, as shown in the image below. This buffer change decreased the minimum Core Capital and Total Capital requirements, reaching 6.75% and 10.25%, respectively, as of December 31, 2020.

According to the new rules on regulatory capital in Brazil, the value of goodwill, intangible assets and some types of deferred tax assets, for the calculation of the capital base, was deducted in accordance with the “phase-in” for implementation of Basel III in Brazil, which was completed by January 1, 2019. The following table sets forth the percentage of required deductions for each year up to 2019:

Basel III Phase in
201620172018201920202021
40%60%80%100%100%100%

Source: Brazilian Central Bank; Resolution No. 4,192 of the Brazilian Central Bank of March 2013.

The Basel III rules also provide for the implementation of a leverage ratio calculated by dividing the Tier I capital by the bank’s total exposure. In early 2015, the Brazilian Central Bank issued a new regulation governing the calculation and reporting of the leverage ratio of Brazilian financial institutions in line with the Basel III rules, which became effective in October 2015. Financial institutions classified as segment 1 (S1), as is the case for Santander Brasil, or segment 2 (S2), for purposes of the application of prudential rules, are required to maintain a minimum RA of 3% as from January 1, 2018.

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Additionally, in order to enable the implementation of the Basel III framework in Brazil, certain legislative changes were made. Among others, Law No. 12,838, enacted on July 9, 2013, granted powers to the Brazilian Central Bank to limit the payment of dividends by financial institutions in case of non-compliance with the prudential capital requirements defined by the CMN.

In 2015, the CMN and the Brazilian Central Bank also issued a set of rules for the implementation of the liquidity coverage ratio or “LCR,” a short-term liquidity index. The purpose of the LCR is to demonstrate that financial institutions have sufficient liquid assets to make it through a stress scenario lasting one month. According to these rules, the largest Brazilian banks were required to maintain an LCR of at least 60% since October 2015. This ratio increased 10% annually until it reached 100% in 2019. The Brazilian Central Bank also released, in 2015, the local methodology for calculating the LCR so as to align the existing rules with the guidelines of the document “Basel III: The Liquidity Coverage Ratio and liquidity risk monitoring tools” issued by the Bank for International Settlements in January 2013. In January 2017, the Brazilian Central Bank enacted a new rule amending the calculation method and procedures for disclosure of LCR information. The new regulation establishes a new possible stress scenario and, for purposes of LCR retail, includes spot and forward deposits.

As mentioned above, the LCR is a short-term liquidity ratio for a 30-day stress scenario. It represents the ratio of high-quality liquidity assets to net outflows. High Quality Liquidity Assets are composed mainly of Brazilian federal government bonds and reserve requirement returns. Net Outflows are mainly composed of losses on deposits, offset in part by Inflows, which are mainly credits.

In November 2017, the CMN established a minimum limit for the Net Stable Funding Ratio (Índice de Liquidez de Longo Prazo, or “NSFR”) and the Leverage Ratio (Razão de Alavancagem, or “RA”) with which Brazilian financial institutions are required to comply. The NSFR corresponds to the ratio between the Available Stable Funds (Recursos Estáveis Disponíveis, or “ASF”) and the Required Stable Funds (Recursos Estáveis Requeridos, or “RSF”) of the financial institution. The financial institutions classified as “segment 1” for purposes of the application of prudential rules, as we are, must maintain, as from October 1, 2018, a minimum NSFR of 1.00. Regarding the leverage ratio, the financial institutions classified as “segment 1,” as we are, or “segment 2” for purposes of the application of prudential rules are required to maintain a minimum RA of 3% as from January 1, 2018.

Other Applicable Laws and Regulations

Consolidated Enterprise Level (conglomerado prudencial)

Financial institutions must submit to the Brazilian Central Bank, monthly and semiannually, consolidated financial statements based on the “consolidated enterprise level” (conglomerado prudencial) of which the financial institution is a member, which serve as the basis for calculation of the required Regulatory Capital of the Brazilian institutions. The “consolidated enterprise level” includes data relative to the financial institutions and other institutions authorized to operate by the Brazilian Central Bank, administrators of consortia, payment institutions and credit factoring companies, including real estate credit, or of credit rights, such as mercantile foment companies, securitization companies and specific purpose companies, located in Brazil or abroad, as well as other legal entities headquartered in Brazil that have equity participation in the mentioned entities as their exclusive business purpose.

On January 29, 2020, the CMN published Resolution No. 4,818, which requires financial institutions categorized as S1, S2 and S3 to publish IFRS financial statements. The requirement is already in force for publicly held financial institutions and financial institutions which are leaders of a prudential conglomerate, and will come into effect for all remaining financial institutions on January 1, 2022.

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Segmentation for the Proportional Application of Prudential Regulation

In January 2017, the CMN enacted a resolution establishing segmentation for financial institutions, financial institution groups, and other institutions authorized to operate by the Brazilian Central Bank for the purposes of proportional application of the prudential regulation. The segmentation is based on the size, international activity and risk profile of members of each segment. Pursuant to the resolution, the segments are as follows:

·Segment 1 comprises multiservice banks, commercial banks, investment banks, foreign exchange banks and savings banks with (a) an asset base equivalent or superior to 10% of Brazil’s GDP; or (b) which perform relevant international activities, irrespective of the size of the institution;

·Segment 2 comprises multiservice banks, commercial banks, investment banks, foreign exchange banks and savings banks with (a) an asset base lower than 10% of Brazil’s GDP; and (b) other institutions with an asset base equivalent to or greater than 1% of Brazil’s GDP;

·Segment 3 comprises institutions with an asset base lower than 1% and equivalent to or greater than 0.1% of Brazil’s GDP;

·Segment 4 comprises institutions with an asset base lower than 0.1% of Brazil’s GDP; and

·Segment 5 comprises institutions with an asset base lower than 0.1% of Brazil’s GDP, that apply a simplified optional method for verifying the regulatory capital’s minimum requirements, except for multiservice banks, commercial banks, investment banks, foreign exchange banks and savings banks.

We have been categorized by the Brazilian Central Bank in segment 1, the highest level for application of regulation for banks in Brazil.

Regulation of Risk and Capital Management Structure

The rules enacted by the CMN and the Brazilian Central Bank provide that risk management must be conducted through an integrated effort by the relevant entity (i.e., not only must risks be analyzed on an individual basis, but must also control and mitigate the adverse effects caused by the interaction between different risks). The rules set out different structures for risk and capital management, which are applicable for different risk profiles. This means that a financial institution of limited systemic importance can have a simplified structure of management, while institutions of larger complexity have to follow stricter protocols.

Compulsory Reserve Requirements

Currently, the Brazilian Central Bank imposes a series of compulsory reserves requirements. Financial institutions must deposit these reserves with the Brazilian Central Bank. The Brazilian Central Bank uses these reserve requirements as a mechanism to control the liquidity of the Brazilian financial system for both monetary policy and risk mitigation purposes. Reserves imposed on time deposits, demand deposits and saving accounts represent almost the entirety of the amount that must be deposited at the Brazilian Central Bank.

· Time Deposits (CDBs). The Brazilian Central Bank imposes a reserve requirement of 17% in relation to time deposits. Financial institutions must deposit an amount equivalent to the surplus of (i) R$3.6 billion for financial institutions with consolidated Tier 1 capital under R$3 billion; (ii) R$2.4 billion for financial institutions with consolidated Tier 1 capital between R$3 billion and R$10 billion; (iii) R$1.2 billion for financial institutions with consolidated Tier 1 capital between R$10 billion and R$15 billion; and (iv) zero for financial institutions with a Regulatory Capital greater than R$15 billion.

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Additionally, as from the issuing of Brazilian Central Bank Circular No. 3,943 on May 23, 2019, interbank deposits made by leasing companies are excluded from the assessment base of the compulsory reserve requirement for time deposits of financial institutions of the same conglomerate.

· Demand Deposits. As a general rule, the Brazilian Central Bank imposes a reserve requirement of 21% in relation to demand deposits.

· Savings Deposits. The Brazilian Central Bank imposes a reserve requirement of 20% in relation to general savings deposits and to rural savings deposits.

Asset Composition Requirements

Permanent assets (defined as property and equipment other than commercial leasing operations, unconsolidated investments and deferred charges) of Brazilian financial institutions may not exceed 50% of their adjusted net equity, calculated in accordance with the criteria established by the Brazilian Central Bank.

Brazilian financial institutions, as a general rule, may not have more than 25% of their Tier 1 Regulatory Capital allocated to credit and leasing transactions and guarantees extended to the same customer or group of customers acting jointly or representing the same economic interest. In addition, Brazilian financial institutions must comply with an exposure limit of 25% of their Regulatory Capital in connection with underwriting for or investments in securities of the same entity, its affiliates, or controlled or controlling companies. Repurchase transactions executed in Brazil are subject to operational capital limits based on the financial institution’s Regulatory Capital, as adjusted in accordance with Brazilian Central Bank regulations. A financial institution may carry out repurchase transactions in an amount of up to 30 times its Regulatory Capital. Within that limit, repurchase transactions involving private securities may not exceed five times the Regulatory Capital. Limits on repurchase transactions involving securities backed by Brazilian governmental authorities vary in accordance with the type of security involved in the transaction and the perceived risk of the issuer as determined by the Brazilian Central Bank.

The regulation issued by the Brazilian Central Bank with respect to the classification and valuation of securities and derivative financial instruments — including government securities — owned by financial institutions, based on the investment strategy of the financial institution, determined that securities and derivatives are to be classified into three categories: (i) trading; (ii) available for sale; and (iii) held to maturity.

“Trading” and “available for sale” securities are to be marked-to-market with effects in income and stockholders’ equity, respectively. Securities classified as “held to maturity” are recorded at amortized cost. Derivatives are marked-to-market and recorded as assets and liabilities in the balance sheet. Changes in the market value of derivatives are generally recognized in income with certain modifications, if these are designated as hedges and qualify for hedge accounting under the regulations issued by the Brazilian Central Bank. Securities and derivatives in the “held to maturity” portfolio may be hedged for accounting purposes but their increase or decrease in value as derived from the marked-to-market accounting method should not be taken into account.

On June 31, 2018, the CMN enacted a rule providing that financial institutions categorized as “Segment 1” as per the Brazilian Central Bank’s classification system established in 2017 (which is our case) (1) may not have more than 25.0% of their Regulatory Capital allocated to a single legal or natural person, and (2) that the total exposure of such financial institutions to one individual customer may not exceed 600% of their Regulatory Capital allocated to focused exposure, that is 10% of their Regulatory Capital – Tier 1. The rule also subjects financial institutions categorized as segment 2, segment 3 or segment 4 to less restrictive rules.

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Centralized Registration and Deposit of Financial Assets and Securities

Law No. 13,476/17 consolidates the provisions on creation of liens over financial assets and securities. CMN Rule No. 4,593/2017, as amended, regulates the registration and deposit of financial instruments and securities by financial institutions as well as the provision of custody services by such institutions.

Resolution 4,734/19 sets out the guidelines applicable to the establishment of liens and encumbrances on credit and debit payment instruments due to credit operations with financial institutions and regulates credit operations guaranteed by receivables from payment arrangements. The amount of receivables perfected into guarantees for a certain credit transaction will be reduced, whenever applicable, so that they are limited to the outstanding balance of the transaction or to the maximum limit extended, in the case of an extension of a non-dischargeable credit facility by a financial institution on an absolute and unilateral basis.

Circular 3,952/19, deals in particular with the procedures for the registration of receivables, and requires a convention between market infrastructures to guarantee the uniqueness of the receivables as financial assets that can be registered, interoperability, exchange of information between registration systems and participants in the structure. On October 29, 2020, the Brazilian Central Bank issued BCB Resolution 35/20, which postponed the entry into effectiveness of Circular 3,952/19 to February 17, 2021.

Brazilian Payment and Settlement System

The rules for the settlement of payments in Brazil are based on the guidelines adopted by the Bank of International Settlements, or “BIS,” and the current Brazilian Payment and Settlement System (Sistema de Pagamentos Brasileiro or the “SPB”). The Brazilian Central Bank and CVM (in relation to transactions with securities) have the power to regulate and supervise this system. SPB is composed of systems for the clearing of checks, clearing and settlement of debit and credit electronic orders, transfer of funds and other financial assets, clearing and settlement of transactions involving securities, clearing and settlement of transactions carried out in commodities and futures, and others, collectively designated as Financial Market Infrastructures, as well as the payment arrangements and payment institutions.

Within the scope of SPB, the Brazilian Central Bank operates the Reserves Transfer System, or “STR” and the SELIC. STR is a system of transfer of funds with real-time gross settlement, which means that transfers are made at the processing time, one by one, and are subject to the existence of outstanding balance in the account. STR is composed of financial institutions, clearing and settlement houses and the National Treasury Office. SELIC is a system intended for custody of book-entry securities issued by the National Treasury Office and for the registration and settlement of transactions involving such securities.

Instant Payment System

The Brazilian Central Bank also implemented an instant payment ecosystem in November 2020. The settlement of the system is centralized at the Brazilian Central Bank. In addition to increasing the speed at which payments or transfers are made and received, available 24 hours a day, seven days a week in all days of the year, the ecosystem has the potential to increase market competitiveness and efficiency; lower costs; and enhance customer experience.

On June 12, 2020, the Brazilian Central Bank issued Circular 4,027/20, which established the Brazilian Instant Payment System (Sistema de Pagamentos Instantâneos, or “SPI”). Circular 4,027/20 also approved the regulation with which the direct and indirect participants in the SPI must comply. Circular 4,027/20 establishes that the SPI start of operations on November 3, 2020 with features of the system, becoming available gradually until it is fully operational as of November 16, 2020. Circular Letter 4,055/20, establishes the procedures and timetable for the tests necessary for to register as a direct participant in the SPI, as per Circular Letters No. 4,006 and 4,022. Circular Letter No. 4,056, in turn, establishes the procedures for the adherence to the instant payment arrangement (PIX).

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According to the by-laws of the SPI, the participation in the SPI will be mandatory for the participants of the PIX arrangement, and optional for (i) the clearing houses and other providers of clearing services, and (ii) the National Treasury Department.

There are two types of participation in the SPI: (i) direct, participation, in which the participant holds an instant payment account and is directly connected to the SPI; and (ii) indirect, in which the participant institution does not hold an instant payment account and its participation occurs via a direct participant to the SPI, responsible for registering the indirect participant in the SPI and to act as its clearing agent in the SPI for instant payments. Circular 4,027/20 came into effect on July 1, 2020.

On August 13, 2020, the Brazilian Central Bank issued Central Bank Resolution No. 1, or “Central Bank Resolution 1/2020”, establishing the Pix System payment arrangement and approving the regulation governing it, or (the “Pix Regulation”).

Pursuant to Central Bank Resolution 1/2020, participation in the Pix System is mandatory for financial institutions and payment institutions authorized to operate by the Brazilian Central Bank that have more than 500,000 active customer accounts, considering cash deposit accounts, savings deposit accounts and prepaid payment accounts. Participation in the PIX System is optional for financial institutions and payment institutions that do not meet this threshold, as well as for the National Treasury Secretariat.

The Pix Regulation applies to all Pix System participants. According to the Pix Regulation, there are three types of participation: (i) transactional account provider, which is a financial institution or a payment institution that offers deposit accounts or payment accounts to end users; (ii) government entity, which is the National Treasury Secretariat, with the exclusive purpose of making collections and payments related to its activities; and (iii) special clearing houses, that are the financial institutions and payment institutions that (a) within the scope of the Pix System, have the exclusive purpose of providing settlement services to other participants, (b) meet the requirements to act as settlement participant in the Brazilian Central Bank’s SPI, and (c) do not meet the criteria of mandatory participation in the Pix System.

Brazilian Central Bank Resolution 1/2020 came into effect on September 1, 2020. Pix System transactions started operating on a restricted basis through to November 3, 2020 and was fully as of November 16, 2020.

Open Banking Regulation in Brazil

On May 4, 2020, the Brazilian Central Bank and the CMN enacted Joint Resolution No. 1, which regulates open banking. Open banking consists of the sharing of data and payment initiation services and forwarding credit transaction proposals, by financial institutions and other authorized entities (with customers permission) and the integration of information systems.

Among other topics, the resolution sets forth the mandatory and voluntary participating institutions, the data and services covered, the requirements for sharing, the responsibilities for sharing, the implementation schedule and the form of agreement to be entered into by the participating institutions.

According to the resolution, financial institutions and prudential conglomerates belonging to the S1 and S2 segments, as is our case, are required to participate in open banking.

Open banking has a four-stage implementation plan, as follows:

·Stage 1 (as of February 1, 2021): public access to participating institutions’ data on their access channels and product/service channels related to checking, savings, prepaid payment accounts and to lending transactions.

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·Stage 2 (by July 15, 2021): sharing of customer reference data and customer transactional data among the participating institutions.

·Stage 3 (by August 30, 2021): sharing of payment transaction initiation services, as well as forwarding credit transaction proposals.

·Stage 4 (by December 15, 2021): expansion of in-scope data to encompass foreign exchange, investment, insurance, and open-end private pension transactions.

·On October 29, 2020, the Brazilian Central Bank issued Central Bank Resolution 32/2020, which sets forth the technical and operational requirements to be observed by institutions which participate in the Brazilian Open Banking System.

The new rule lays out, among others, rules relating to (i) the scope of the data and services to be shared by participating institutions within Open Banking, which shall be detailed in a specific manual; (ii) the standards for the development of application programming interfaces (APIs) by participating institutions, which will likewise be detailed in a specific manual, which shall deal with their design, data transmission protocols, data exchange formats, control accesses, version control systems and specification parameters; among other things; (iii) criteria for registration and cancellation of registration in Open Banking; (iv) services to be rendered by the Open Banking Governance Structure, which also shall be detailed in a specific manual, including the maintenance of a repository of participating institutions and a website containing updated information about Open Banking and its implementation; and (v) minimal security standards and certifications, which will also be detailed in a separate manual.

Regulatory Sandbox

On November 28, 2019, the Brazilian Central Bank published Public Consultation No. 72/2019, which ended on January 31, 2020, regarding the Controlled Testing Environment for Financial Innovations or “Sandbox” which is intended to enable institutions test innovative financial and payment projects for a specified period.

After receiving comments on the Public Consultation, the CMN and the Brazilian Central Bank issued, on November 26, 2020, CMN Resolution 4,865/20 and BCB Resolution 29/20, to regulate the Sandbox These rules set forth the applicable conditions for the implementation of the Sandbox, among which are the specific rules for the first cycle of tests, such as duration and number of participants, required documentation, criteria for the classification of institutions and the schedule for registration, selection and authorization processes of such entities. The Brazilian Central Bank expects that the process for selecting the first cycle will start in the first half of 2021.

Treatment of Overdue Debts

The Brazilian Central Bank requires financial institutions to classify credit transactions in accordance with their level of credit risk and to make provisions according to the level attributed to each transaction. Such credit classifications shall be determined in accordance with criteria set forth from time to time by the Brazilian Central Bank, relating to the conditions of the debtor and the guarantor and the transaction terms. Where there are several credit transactions involving the same customer, economic group or group of companies, the credit risk must be determined by analyzing the particular credit transaction of such customer or group that represents the greatest credit risk to the financial institution.

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Credit transactions of up to R$50,000 may be classified either by the financial institution’s own evaluation method or according to the number of days such transaction is past due, whichever is the more stringent. Credit classifications are required to be reviewed (i) monthly, in the event of a delay in the payment of any installment of principal or interest, in accordance with the maximum risk classifications; (ii) every six months, in the case of transactions involving the same customer, economic group or group of companies, the amount of which exceeds 5% of the adjusted net worth of the financial institution in question; and (iii) once every 12 months, in all circumstances, except in the case of credit transactions with a customer whose total liability is lower than R$50,000, the classification of which may be reviewed as provided above. Such R$50,000 limit may be amended by the Brazilian Central Bank from time to time.

The provisions set forth above are not applicable to our IFRS consolidated financial statements, which are based on the criteria described under “Item 5. Operating and Financial Review and Prospects—A. Operating Results—Critical Accounting Policies—Impairment Losses on Financial Assets.”

Regulation of the Transfer of Customer Data by Financial Institutions to Database Managers

Brazilian law regulates the formation and consultation of databases with information regarding performance, individuals or legal entities, for the formation of credit history. Resolution No. 4,737 determines that the history of the following operations should be provided: (i) credit operations; (ii) leasing operations; (iii) self-financing operations executed upon consortium groups; and (iv) other operations with characteristics of credit granting; and defines the criteria for the registration of database managers, such as the identification of the natural and legal persons that are part of the control group of the database manager.

Collection of Bank Fees

Bank services to individuals are divided into the following four groups: (i) essential services; (ii) priority services; (iii) special services; and (iv) specific or differentiated services.

Banks are not able to collect fees in exchange for supplying essential services to individuals with regard to checking accounts, such as (i) supplying a debit card; (ii) supplying 10 checks per month to account holders who meet the requirements to use checks, as per the applicable rules; (iii) supplying a second debit card (except in cases of loss, theft, damage and other reasons not caused by the bank); (iv) up to four withdrawals per month, which can be made at a branch of the bank, using checks or in ATM terminals; (v) supplying up to two statements describing the transactions during the month, to be obtained through ATM terminals; (vi) inquiries over the internet; (vii) up to two transfers of funds between accounts held by the same bank, per month, at a branch, through ATM terminals or over the internet; (viii) clearing checks; and (ix) supplying a consolidated statement describing, on a month-by-month basis, the fees charged over the preceding year with regard to checking accounts and savings accounts.

Certain services rendered to individuals with regard to savings accounts also fall under the category of essential services and therefore are exempt from the payment of fees. CMN prohibits banks from charging fees for supplying essential services in connection with deposit and savings accounts where customers agree to access and use their accounts by electronic means only (being authorized to charge fees for supplying essential services only when the customer voluntarily elects to obtain personal service at the banks’ branches or customer service locations).

Priority services are those rendered to individuals with regard to checking accounts, transfers of funds, credit transactions, leasing, standard credit cards, over-the-counter exchange transactions for the purchase or sale of foreign currency in respect of international travel, and records, and are subject to the collection of fees by the financial institutions only if the service and its nomenclature are listed in its regulations. Commercial banks must also offer to their individual customers a “standardized package” of priority services, whose content is defined, as well as the customers’ option to acquire individual services instead of adhering to the package.

The collection of fees in exchange for the supply of special services (including, among others, services relating to rural credit, currency exchange market and on lending of funds from the real estate financial system) is governed by the specific provisions found in the laws and regulations relating to such services. The regulation authorizes financial institutions to charge fees for the performance of specific services, provided either that the account holder or user is informed of the conditions for use and payment or that the fee and charging method are defined in the contract.

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It is worth pointing out: (i) the prohibition against charging fees in cases of adhesion contract amendments, except in the cases of asset replacement in leasing transactions, early liquidation or amortization, cancellation or termination; (ii) the prohibition against including services related to credit cards and other services not subject to fees in service packages that include priority, special and/or differentiated services; (iii) the requirement that subscription to service packages must be through a separate contract; (iv) the requirement that information given to the customer with respect to a service package must include the value of each service included in the package, the number of times that each service may be utilized per month, and the total price of the package; (v) the requirement that a customer’s annual banking statement must separately identify default interest, penalties and other costs charged on loans and leasing transactions; (vi) the requirement that registration fees cannot be cumulatively charged; and (vii) the requirement that overdraft fees can be charged, at most, once over the course of 30 days.

In addition, CMN regulations establish that all debits related to the collection of fees must be charged to a bank account only if there are sufficient funds to cover such debits in such account and thus forbid overdrafts caused by the collection of banking fees. Furthermore, a minimum of 30 days’ notice must precede any increase or creation of fees (except if related to credit card services, when a minimum of 45 days’ notice is required), while fees related to priority services and the “standardized package” can be increased only after 180 days from the date of the last increase (except if related to credit card services, when a minimum of 365 days’ notice is required) whereas reductions can take place at any time.

Late Payment Fees

The default payment fees charged by financial institutions, consumer credit companies (financeiras), and leasing companies are expressly limited to compensatory interest per day on the amount that is overdue, interest on arrears and fines on arrears.

Credit Cards

The banking regulations also have specific rules relative to the charging of credit card fees, the publication of information in the card invoices and the obligation to provide a package of basic services upon offering credit cards to customers. Credit card holders must pay monthly at least 15% of outstanding credit card balances. This minimum payment does not apply to credit cards with payment by means of direct payroll deductions.

Revolving credit for financings of credit card bills may only be extended to customers until the due date of the following credit card bill. After this term, financial institutions offer customers another product with conditions more favorable than the ones typically found in the credit card market. Banks are prohibited from offering this type of credit to customers who have already contracted one revolving credit for financing of credit card bills which were not repaid in a timely manner.

Payment Agents and Payment Arrangements

The regulation issued by the Brazilian Central Bank, determines, among other aspects: (i) consumer protection, anti-money laundering compliance and risk prevention systems that should be observed by payment agents and payment arrangers; (ii) the procedures for incorporation, organization, authorization and operation of payment agents, as well as transfer of shareholding control, subject to the Brazilian Central Bank’s prior approval; (iii) capital requirements; (iv) definition of arrangements excluded from the SPB; and (v) rules related to payment accounts, which are divided into prepaid and postpaid accounts and require the allocation of the totality of their balance to a special account at the Brazilian Central Bank or investment in government bonds.

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Portability of Credit Transactions

Financial institutions’ customers can transfer their credit transactions from one institution to another. Such transfers must comply with the specific rules established by the Brazilian Central Bank, including, among others, the requirement that the amount and term of the transaction in the receiving financial institution must not be higher than the amount due and term of the original transaction.

Digitalization of Documents and Record Keeping

Financial institutions and other institutions authorized to operate by the Brazilian Central Bank may keep in their records digital documents instead of physical documents, provided that certain requirements to ensure the documents’ authenticity and validity are met.

Anti-Money Laundering Regulations

Under the Brazilian Anti-Money Laundering Law, it is a crime to conceal or dissimulate the nature, origin, location, availability, transaction or ownership of assets, rights or amounts resulting, directly or indirectly, from any criminal offense, as well as their use in economic or financial activity and to participate in a group, association or office while being aware that its principal or secondary activities are directed toward the practice of such acts.

The Brazilian Anti-Money Laundering Law also created the Financial Activities Control Council (Conselho de Controle de Atividades Financeiras or “COAF”), which operates under the jurisdiction of the Ministry of Finance. The purpose of the COAF is to investigate, examine, identify and impose administrative sanctions in respect of any suspicious occurrences of illicit activities related to money laundering in Brazil.

The COAF is composed of individuals with recognized competence in this area, appointed by the Minister of Finance, all of whom are nominated by each of the following entities: (i) the Brazilian Central Bank; (ii) the CVM; (iii) the SUSEP; (iv) the National Treasury Attorney-General’s Office; (v) the Brazilian Federal Revenue; (vi) the Federal Intelligence Agency; (vii) the Ministry of Foreign Affairs; (viii) the Ministry of Justice; (ix) the Federal Police Department; (x) the Ministry of Social Security; and (xi) the General Comptroller’s Office, one of whom will be the president, which shall be appointed by the President of Brazil on the basis of recommendations by the Minister of Finance.

Financial institutions must maintain specific records of (i) the transactions in cash (deposit, withdrawal, withdrawal by means of a prepaid card or request of provision for withdrawal) so as to enable the identification of a deposit in cash, withdrawal in cash, withdrawal in cash by means of a prepaid card, or request of provision for withdrawal, of (a) an amount equal to or greater than R$100,000.00 or (b) that presents evidence of concealment or dissimulation of the nature, of the origin, of the location, of the disposal, of the movement or of the ownership of assets, rights and valuables; and (ii) the issuances of cashier’s checks, funds electronic transfers (TED) or of any other instrument of transfer of funds upon payment in cash, for an amount equal to or greater than R$100,000.00.

Financial institutions must maintain records of all operations, products and services contracted, including withdrawals, deposits, contributions, payments, receipts and transfers of funds. Additionally, the institutions must also keep specific records of (i) transactions in cash with an individual value greater than R$2,000.00; (ii) deposit or cash transactions of an individual value equal to or greater than R$50,000.00; and (iii) withdrawal transactions, including those carried out by check or money order, with an individual value equal to or greater than R$50,000.00.

The regulations also impose an obligation on financial institutions to request that both customers and non-customers a providing a withdrawal request at least three working days in advance for withdrawals (including those carried out by check or money order) in an amount equal to or greater than R$50,000.00.

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On January 23, 2020, the Brazilian Central Bank published Circular No. 3,978, which improves the regulation applicable to financial institutions, by expanding the adoption of a risk-based approach and came into effect on July 1, 2020. Regulated institutions must carry out specific internal risk assessments in order to identify and measure the risk of using their products and services in the practice of money laundering and terrorist funding.

In connection with the aforementioned change, the Know-Your-Client procedures were also improved and include the identification, qualification and classification of the customer, compatible with the risk profile, the nature of the relationship with the AML policy and the institution’s internal risk assessment, which must be permanently reassessed, according to the evolution of the business relationship and the risk profile of the client. The procedures must also include the verification of the client’s (including their representatives’, family members’ or close collaborators) condition as a Politically Exposed Individual, as well as consider them in the monitoring, selection and analysis of operations and situations with indications of suspected money laundering or terrorist funding.

On December 5, 2019, the CVM issued CVM Instruction No. 617, which establishes a new framework for the prevention of money laundering and the financing of terrorism in the Brazilian securities market. CVM Instruction No. 617 is in line with the practices currently implemented in the principal global securities markets, including with regard to the recommendations of the Financial Action Group against Money Laundering and the Financing of Terrorism (GAFI/FATF), as well as with the duties arising from Brazilian anti-money laundering laws.

Brazilian Anti-Corruption Law

Law No. 12,846/13 of August 1, 2013, or the “Brazilian Anti-Corruption Law” establishes that legal entities will have strict liability regardless of fault or willful misconduct for acts against the public administration carried out in their interest or for their benefit. The Law encompasses not only performance of acts of corruption but also performance of other injurious acts contrary to the Brazilian or foreign public administration.

Corporations that violate the Brazilian Anti-Corruption Law’s provisions will be subject to heavy penalties, some of which may be imposed through administrative proceedings and others solely through judicial channels. The Brazilian Anti-Corruption Law also creates a leniency program under which self-disclosure of violations and cooperation by corporations might result in the reduction of fines and other sanctions.

Politically Exposed Individuals

Financial institutions and other institutions authorized by the Brazilian Central Bank to operate must take certain actions and have certain controls in order to establish business relationships with and to follow up on the financial transactions of customers who are deemed to be politically exposed individuals (public agents and their immediate family members, spouses, life partners and stepchildren who occupy or have occupied a relevant public office or position over the past five years in Brazil or other countries, territories and foreign jurisdictions). The internal procedures developed and implemented for this purpose by financial institutions must be structured in such a way as to enable the identification of politically exposed individuals, as well as the origin of the funds involved in the transactions of such customers. One option is to verify the compatibility between the customer’s transactions and the net worth stated in such customer’s file.

Bank Secrecy

Brazilian financial and payment institutions shall also maintain the secrecy of their banking operations and services provided to their customers. The only circumstances in which information about customers, services or transactions of Brazilian financial and payment institutions may be disclosed to third parties are the following:

·the disclosure of information with the express consent of the interested parties;

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·the exchange of information between financial institutions for record purposes;

·the supplying to credit reference agencies of information based on data from the records of issuers of bank checks drawn on accounts without sufficient funds and defaulting debtors; and

·the occurrence or suspicion that criminal or administrative illegal acts have been performed, in which case the financial institutions and the credit card companies may provide the pertinent authorities with information relating to such criminal acts when necessary for the investigation of such acts.

Complementary Law 105/01 also allows the Brazilian Central Bank or the CVM to exchange information with foreign governmental authorities, provided that a specific treaty has previously been executed.

The government of the Federal Republic of Brazil and the government of the United States of America executed an agreement on March 20, 2007, by means of which these governments established rules for the exchange of information relating to tax, or the “2007 Agreement”. Under the 2007 Agreement, the Brazilian tax authority would be able to send information it receives by virtue of Section 5 of the Bank Secrecy Law to the U.S. tax authority.

Data Protection Requirements

The GDPA, or in Portuguese, “Lei Geral de Proteção de Dados”, was published in the Federal Official Gazette on August 15, 2018 and was amended by Law No. 13,853, issued on July 8, 2019 or “Law 13,853/2019”. The GDPA came into effect in September 2020, except for administrative sanctions, which will come into effect on August 1, 2021, pursuant to Law No. 14,010/20, which delayed the applicability of certain provisions of the GDPA.

Before the GDPA, Brazil lacked regulations specific to data privacy and a data protection authority. Despite this, privacy has been generally protected through the Federal Constitution, the Civil Code (Law No. 10,406 of January 10, 2002), the Consumer Protection Code (Law No. 8,078 of September 11, 1990) and the Civil Rights Framework for the Internet (Law No. 12,965 of April 23, 2014 and the Decree 8,771 of May 11, 2016, also known as the Internet Law).

The GDPA brings about profound changes in the rules and regulations applicable to the processing of personal data, with a set of rules to be complied with in activities such as the collection, processing, storage, use, transfer, sharing and erasure of information concerning identified or identifiable natural persons.

The GDPA has a wide range of applications and extends to individuals as well as private and public entities, regardless of the country where they are headquartered or where data are hosted, as long as (i) the data processing takes place in Brazil; (ii) the data processing activity is intended to offer or supply goods or services to, or to process data of individuals located in Brazil; or (iii) the subjects of the data are located in Brazil at the time their personal data are collected. The GDPA will apply irrespective of the industry or business when dealing with personal data and is not restricted to data processing activities performed through digital media and/or on the internet.

The GDPA sets out several rules related to data processing such as principles, requirements and duties imposed to data controllers and data processors; rights of data subjects; requirements in connection with cross-border transfers of data; the obligation to appoint a data protection officer; data security and data breach notification; corporate governance practices; and the regime for civil liabilities and penalties in case of a breach of the provisions of the GDPA. Penalties include warnings, blocking and erasure of data, public disclosure of the offense and fines of up to 2% of the economic group’s turnover in Brazil in the preceding year, capped at R$50 million per offense.

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Moreover, Law 13,853/2019 created the Brazilian National Data Protection Authority, or “ANPD”, which will have powers and responsibilities analogous to the European data protection authorities, exercising a triple role of (i) investigation, comprising the power to issue norms and procedures, deliberate on the interpretation of the GDPA and request information of controllers and processors; (ii) enforcement, in cases of noncompliance with the law, through an administrative process; and (iii) education, with the responsibility to disseminate information about and foster knowledge of the GDPA and security measures, fostering standards for services and products that facilitate control of data, and elaborating studies on national and international practices for the protection of personal data and privacy, among others.

The ANPD has been assured technical independence, although it is subordinated to the Presidency of the Republic. It will be composed of five commissioners, to be appointed by the President of Brazil, and advised by a National Council for the Protection of Personal Data and Privacy, composed of 23 unpaid members.

Regulations on Cybersecurity

Financial institutions must follow certain cyber risk management and cloud outsourcing requirements which apply to the design and adaptation of internal controls. Policies and action plans to prevent and respond to cybersecurity incidents must be in place before May 2019, and fully compliant by December 2021. Data location and processing may occur inside or outside Brazil, but access to data stored abroad must be granted at all times to the Brazilian Central Bank for inspection purposes. The contracting of relevant processing services must be communicated to the Brazilian Central Bank within 10 days from the execution of the agreement.

Auditing Requirements

The legislation and regulations issued by the CMN, CVM and B3 determine that the periodic financial statements of financial institutions must be audited by independent auditors (individuals or legal entities) that are registered with the CVM and who meet the minimum requirements set forth by the Brazilian Central Bank, and that the financial statements must be presented together with an independent auditor’s report. Our financial statements are audited in accordance with International Standards on Auditing with regard to Brazilian GAAP and also with the standards of the Public Company Accounting Oversight Board with regard to IFRS as issued by the IASB, as required by the SEC. For purposes of the financial statements prepared according to Brazilian GAAP, as from January 2017 all financial institutions and other institutions authorized to operate by the Brazilian Central Bank are required to create provisions for all losses related to financial guarantees issued by them. As a result of the auditing work, the independent auditor must prepare the following reports: (i) an audit report, issuing an opinion regarding the accounting statements and the respective explanatory notes, including regarding the compliance with financial regulations issued by the CMN and the Brazilian Central Bank; (ii) an internal control system quality and adequacy evaluation report, including regarding electronic data processing and risk management systems, evidencing any identified deficiencies; (iii) a legal and regulatory provisions noncompliance report, regarding those which have, or may have, material impacts on the financial statements or on the audited financial institution’s operations; (iv) a limited assurance report, analyzing our Annual and Sustainability Report pursuant to the guidelines and requirements of the Global Reporting Initiative, or “GRI”; and (v) any other reports required by the Brazilian Central Bank, CVM and B3. The reports issued by independent auditors must be available for consultation upon request by the overseeing authorities.

Independent auditors and the audit committee, individually or jointly, must formally notify the Brazilian Central Bank of the existence or evidence of error or fraud, within three business days of the identification of the respective occurrence, including:

·noncompliance with legal rules and regulations that place the continuity of the audited entity at risk;

·frauds of any amount perpetrated by the management of the institution;

·material frauds perpetrated by the institution’s employees or third parties; and

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·errors that result in major incorrectness in the financial statements of the audited entity.

The executive office of the financial institution must inform the independent auditor and the audit committee, if any of the above situations occur.

CMN regulation also requires financial institutions and certain other entities holding Regulatory Capital equal to or greater than R$1 billion to create a corporate body designated as the “audit committee”. To obtain more information concerning the audit committee, see “Item 6. Directors, Senior Management and Employees—C. Board Practices—Board Advisory Committees—Audit Committee.”

Internal Auditing of Financial Institutions

Financial institutions are required to establish and maintain internal audit activities compatible with their operational specifications, so that such internal bodies are able to perform an independent, autonomous and impartial audit of the quality and effectiveness of the institution’s internal systems. Such unit shall be directly controlled by the institution’s board of directors. Internal and external independent auditors are also liable for failures of the financial institution’s internal control mechanisms.

Socio-Environmental Responsibility Policy

Financial institutions are required to have a responsibility policy, which must guide the social and environmental actions in conducting their businesses, their relationship with their customers and other users of their products and services. The responsibility policy must also guide the financial institution’s relationship with its personnel and with any others affected by the financial institution’s activities. In addition, the responsibility policy must provide for the management of social and environmental risks (which, according to the Brazilian Central Bank, represent one of the several categories of risk to which financial institutions are exposed).

Policy for Succession of Financial Institutions Managers

Brazilian financial institutions and other institutions authorized to operate by the Brazilian Central Bank shall implement and maintain internal policies for succession of managers, applicable to higher levels of the institution’s management. The internal policy shall encompass the procedures related to recruitment, promotion, appointment and retention of managers in accordance with the institution’s rules for identification, evaluation, training and selection of the candidates to management offices.

Corporate Governance of Financial Institutions

Financial institutions must (i) remit to the Brazilian Central Bank information on the financial institution’s management, controlling group and relevant shareholders, including the obligation to communicate to the regulator any information that may affect the reputation of any such persons; (ii) make available a communication channel allowing employees, contributors, customers, users, associates, or services providers to report anonymously situations indicating illegalities of any nature related to the institution; and (iii) have an internal body responsible for receiving the information and complying with the reporting obligations.

Compliance Policy

Financial institutions must implement and maintain a compliance policy compatible with the nature, size, complexity, structure, risk profile and business model of the institution, which is intended to ensure an effective compliance risk management by the institution and may be established at the consolidated enterprise level (conglomerado prudencial). The compliance policy must establish the scope and purpose of the compliance function in the institution, set forth the organizational structure of the compliance function, specify which personnel is allocated to the compliance function, and establish a segregation of roles among personnel in order to avoid conflicts of interest.

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The compliance policy must be approved by the board of directors and the regulation also assigns to the board the responsibility to ensure the following: adequate management of the compliance policy throughout the institution, its effectiveness and continued application, its communication to all employees and services providers, as well as the dissemination of the integrity and ethical standards as part of the institution’s culture. The board of directors is also responsible for ensuring the application of measures in case of noncompliance, and for providing the necessary means for the activities related to the compliance functions to be adequately conducted.

Consumer Protection

Relationships between consumers and financial institutions are governed by Law 8,078, dated September 11, 1990, or the “Brazilian Consumer Protection Code”, which grants consumers certain rights and sets forth measures to be observed by suppliers, which must be complied with by financial institutions. The Brazilian Consumer Protection Code sets forth as consumer rights, among others, the assistance/facilitation in the defense of consumers’ rights, including through reverse burden of proof in their favor, and possibility of judicial review of contractual provisions deemed abusive.

Furthermore, banking regulation establishes procedures that financial institutions must observe when contracting any transactions, as well as when rendering services. We may highlight the following as examples of said procedures:

·to timely provide the necessary information including rights, duties, responsibilities, costs or advantages, penalties and possible risks when carrying out a transaction or rendering a service to allow customers and users free choice and decision-making;

·to timely provide, to the customer or user, agreements, receipts, statements, advice and other documents related to the transactions and services, as well as the possibility of timely cancellation of the agreements;

·formalization of an adequate instrument setting forth the rights and obligations for opening, using and maintaining a postpaid payment account;

·to forward a payment instrument to the customers’ or users’ residence or to enable the respective instrument only upon express request or authorization; and

·identification of end users’ beneficiaries for payments or transfer in statements and bills of the payer, including in situations in which the payment service involves institutions participating in different payment arrangements.

Financial institutions operating exclusively via digital means are excluded from the scope of certain aspects of the regulation.

Policy for Relationship with Customers and Users of Financial Products and Services

Financial institutions and other institutions authorized to operate by the Brazilian Central Bank must have a policy governing the relationship with customers and users of financial products and services. In addition, such entities shall comply with the principles of ethics, liability, transparency and diligence promoting the convergence of interests and the consolidation of the institutional image of credibility, security and expertise.

Ombudsman

Financial institutions and other entities that are authorized to operate by the Brazilian Central Bank must have an ombudsman office. An ombudsman office has the following attributes according to the current regulation:

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·to provide last resort assistance in connection with customer claims that have not been resolved through the conventional customer service channels (including the banking correspondents and the customer service assistance channel (Serviço de Atendimento ao Consumidor), or SAC); and

·to act as a communication channel between the financial institutions and their customers, including for dispute resolution

Institutions that are part of a financial group are allowed to establish one ombudsman department to service the whole group. The officer in charge of the ombudsman office must prepare a report every six months, which must be provided to the management and auditing bodies. The reports and recordings of interactions of the ombudsman unit with consumers must be available to the Brazilian Central Bank for a period of at least five years.

Investment Funds Industry Regulation

Investment funds are subject to the regulation and supervision of the CMN and the CVM and, in certain specific matters, the Brazilian Central Bank. Investment funds may be managed by full-service banks, commercial banks, savings banks, investment banks, credit, financing and investment companies and brokerage and dealer companies within certain operational limits.

Investment funds may invest in any type of financial instrument available in the financial and capital markets, including, for example, fixed income instruments, stocks, debentures and derivative products, provided that, in addition to the denomination of the fund, a reference to the relevant type of fund is included.

Broker-Dealer Regulation

Broker and dealer firms are part of the national financial system and are subject to CMN, Brazilian Central Bank and CVM regulation and supervision. Brokerage firms must be chartered by the Brazilian Central Bank and are the only institutions in Brazil authorized to trade on stock exchanges. Both brokers and dealers may act as underwriters in the public placement of securities and engage in the brokerage of foreign currency in any exchange market.

Since August 29, 2019, securities brokers and dealers may loan their own securities to their customers as long as they use the funds as collateral for operations in which the institution itself intermediates. The loan transaction consists of the transfer of assets from the institution: (i) to the customer, in conjunction with the transfer of that asset to the clearinghouse or clearing and settlement service provider; or (ii) to the clearinghouse or clearing and settlement service provider on behalf of the customer through powers established in a formal written power of attorney. In either case, the assets or set of assets in question shall return to the positions originally held at the end of the period stipulated in the contract. To offer this new service, securities brokers and dealers must appoint a director responsible for the loan operations under consideration.

Since November 27, 2020, securities brokers and dealers may issue electronic currency and maintain payment accounts.

Foreign Exchange Market

Transactions involving the sale and purchase of foreign currency in Brazil may be conducted only by institutions duly authorized by the Brazilian Central Bank to operate in the foreign exchange market. There is no current limit to long or short positions in foreign currency for banks authorized to carry out transactions on the foreign exchange market. Other institutions within the national financial system are not allowed to have short positions in foreign currency, although there are no limits with respect to foreign exchange long positions.

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The Brazilian Central Bank imposes a limit on the total exposure in foreign currency transactions and transactions subject to foreign exchange fluctuation undertaken by Brazilian financial institutions, including branches abroad, and their direct and indirect affiliates. The limit is currently equivalent to 30.0% of the financial institution’s Regulatory Capital (Patrimônio de Referência), on a consolidated basis. The CMN, the Brazilian Central Bank and the Brazilian government may change the regulation applicable to foreign currency and foreign exchange transactions undertaken by Brazilian financial institutions in accordance with Brazil’s economic policy (including its foreign exchange policy).

On October 7, 2019, the Brazilian Central Bank, sent to the President of Brazil a draft bill to change the way in which the Brazilian foreign exchange market is regulated (“New Foreign Exchange Bill”). The draft also contains provisions regarding Brazilian capital abroad and foreign capital within Brazil. The initiative aims to modernize, simplify and reduce legal doubts associated with current Brazilian foreign exchange legislation.

The main aspects of the New Foreign Exchange Bill are: (i) ratification, at the legal level, that foreign exchange transactions may be carried out freely (provided such transactions are carried out by entities authorized to operate in this market and subject to applicable rules); (ii) granting of broad powers to the CMN and the Brazilian Central Bank to regulate the foreign exchange market and foreign exchange operations; (iii) expansion of international correspondence activities by Brazilian banks; (iv) possibility of Brazilian financial institutions investing and lending abroad funds that have been raised in Brazil or abroad; (v) the exclusion from its scope of foreign currency purchase and sale operations of up to US$1,000 carried out between individuals on an occasional and non-professional basis; and (vi) the granting of powers to the monetary authorities to establish situations in which the prohibition of the private offset of credits between residents and nonresidents, as well as payments in foreign currency in Brazil, would not apply.

On December 22, 2020, the Brazilian House of Representatives approved the base wording of the New Foreign Exchange Bill. The Brazilian House of Representatives is expected to vote on any motions by representatives for amendment or redaction of specific sections of the New Foreign Exchange Bill in early 2021. Upon approval by the Brazilian House of Representatives, the bill will be sent to the Brazilian Senate for approval. As of the date of this annual report, it is not possible to estimate if and when it will be approved by the Brazilian Senate, or what changes will be approved by the House of Representatives.

Foreign Investment in Brazilian Financial Institutions

According to the Brazilian federal constitution, the acquisition of equity interests by foreign individuals or legal entities in the capital stock of Brazilian financial institutions is forbidden, unless permitted by bilateral international treaties or by the Brazilian government by means of a presidential decree. A presidential decree issued on November 13, 1997, issued in respect of Banco Meridional do Brasil S.A. (our legal predecessor) allows 100% foreign participation in our capital stock. Foreign investors may acquire the shares issued by Santander Brasil as a result of this decree. In addition, foreign investors may acquire publicly traded nonvoting shares of Brazilian financial institutions traded on a stock exchange or securities depositary receipts offered abroad representing shares without specific authorization.

Following the enactment of Decree No. 10,029, the Brazilian Central Bank published, on January 22, 2020, Circular No. 3,977 recognizing as an interest of the Brazilian government the foreign holding of equity or increase in equity interest of financial institutions headquartered in Brazil (which is still subject to the same requirements and procedures applicable to the acquisition of equity in any Brazilian financial institution), as well as the opening of local branches of foreign financial institutions. However, since Santander Brasil had already been granted a specific presidential decree authorizing the foreign interest in its share capital, prior to Decree 10,029/19 being issued it does not affect its operations in Brazil.

A foreign financial institution duly authorized to operate in Brazil through a branch or a subsidiary is subject to the same rules, regulations and requirements that are applicable to any Brazilian financial institution.

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Bank Correspondents

Financial institutions are allowed to provide specific services to customers, including customer services, through other entities. These entities are called “bank correspondents” and the relationship between the financial institution and the bank correspondent is ruled by a specific regulation published by CMN and is subject to the supervision of the Brazilian Central Bank.

Regulation of Branches

Authorization by the Brazilian Central Bank is required for operations of branches or subsidiaries of Brazilian financial institutions, upon the compliance with certain term, capital and equity requirements, as well as the submission of an economic and financial feasibility analysis.

The Brazilian Central Bank’s prior authorization is also required in order to: (i) allocate new funds to branches or subsidiaries abroad; (ii) subscribe capital increases, directly or indirectly, in subsidiaries abroad; (iii) increase equity participation, directly or indirectly, in subsidiaries abroad; and/or (iv) merge or spin off, directly or indirectly, subsidiaries abroad.

The Brazilian Central Bank determines that financial institutions can install the following establishments in Brazil: (i) branches, (ii) teller booths, (iii) automatic teller machines, and (iv) segregated administrative units, provided that, for items (i) to (iii), conformity with requirements of minimum capital and operating limits are necessary.

Cayman Islands Banking Regulation

We have a branch in the Cayman Islands with its own staff and representative officers. Banco Santander (Brasil) S.A. – Grand Cayman Branch is licensed under The Banks and Trust Companies Law (2013 Revision) of the Cayman Islands, or the “Banks and Trust Companies Law,” as a Category “B” Bank and it is duly registered as a Foreign Company with the Registrar of Companies in the Cayman Islands. The branch, therefore, is duly authorized to carry on banking business in the Cayman Islands. The branch was authorized by the local authorities to act as its own registered office and it is located at the Waterfront Centre Building, 28, North Church Street – 2nd floor, George Town, Grand Cayman, Cayman Islands, P.O. Box 10444 – KYI-1004, Phone: 1-345-769-4401 and Fax: 1-345-769-4601.

Our Grand Cayman Branch is currently engaged in the business of sourcing funds in the international banking and capital markets to provide credit lines for us, which are then extended to our customers for working capital and trade-related financings. It also takes deposits in foreign currency from corporate and individual customers and extends credit to Brazilian and non-Brazilian customers, mainly to support trade transactions with Brazil. The results of the operations of the Grand Cayman Branch are consolidated in our consolidated financial statements.

Banks and trust companies wishing to conduct business from within the Cayman Islands must be licensed by the Cayman Islands Monetary Authority under the Banks and Trust Companies Law, irrespective of whether the business is to be actually conducted in the Cayman Islands.

Under the Banks and Trust Companies Law, there are two main categories of banking license: a category “A” license, which permits unrestricted domestic and offshore banking business, and a category “B” license, which permits principally offshore banking business. The holder of a category “B” license may have an office in the Cayman Islands and conduct business with other licensees and offshore companies but, except in limited circumstances, may not do banking business locally with the public or residents of the Cayman Islands. We have an unrestricted category “B” license.

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There are no specific ratio or liquidity requirements under the Banks and Trust Companies Law, but the Cayman Islands Monetary Authority will expect observance of prudent banking practices, and the Banks and Trust Companies Law imposes a minimum net worth requirement of an amount equal to CI$400,000 (or, in the case of licensees holding a restricted category “B” or a restricted trust license, CI$20,000). As of December 31, 2020, CI$1 was equivalent to R$6.29, according to the Brazilian Central Bank.

Luxembourg Banking Regulation

Branches of credit institutions from outside the European Union (“non-EU credit institutions”) must be licensed by the Luxembourg Minister of Finance under the law of 5 April 1993 on the financial sector, as amended, in order to operate in Luxembourg.

We have a branch in Luxembourg with its own staff and representative officers. Our Luxembourg branch is licensed as a Luxembourg branch of a non-EU credit institution and is duly registered with the Luxembourg Trade and Companies’ Registry. The branch, therefore, is duly authorized to carry on banking business in Luxembourg. Its registered offices are at 35F, avenue J.F. Kennedy, 2nd floor, L-1855 Luxembourg, Grand Duchy of Luxembourg.

Our Luxembourg branch is currently engaged in the business of sourcing funds in the international banking and capital markets to provide credit lines for us, which are then extended to our customers for working capital and trade-related financings. It also takes deposits in foreign currency from corporate and individual customers and extends credit to Brazilian and non-Brazilian customers, mainly to support trade transactions involving Brazil. The results of the operations of the Luxembourg branch are consolidated in our consolidated financial statements.

Luxembourg law requires the Luxembourg branch to have a minimum endowment capital of €8,700,000 and the solvency, and liquidity requirements deriving, among others, from EU Regulation No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms apply to it.

Foreign Subsidiary

We had established an independent subsidiary in Spain, Santander EFC, in order to complement our foreign trade strategy for corporate customers, which are composed of large Brazilian companies and their operations abroad. This has allowed us to provide financial products and services by means of an offshore entity, which is not established in a “tax haven,” such as our Cayman Islands branch, in accordance with Law No. 12,249, of June 11, 2010, and Brazilian Federal Revenue Normative Ruling No. 1,037, of June 4, 2010.

The establishment of our foreign subsidiary was approved by the Brazilian Central Bank on September 26, 2011, by the Spanish Ministerio de Economia y Hacienda on February, 6, 2012 and by the Bank of Spain on March 28, 2012. The remittance of resources to pay up the share capital of the subsidiary was carried out on March 5, 2012, totaling €748 million. Santander EFC was operational from 2012 to November 12, 2020, when we approved its liquidation. As a consequence of the liquidation, we, as sole shareholder of Santander EFC, have participated in the net assets of the corporation, in the net amount of €741 million.

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U.S. Banking Regulation

Financial Regulatory Reform

Banking statutes and regulations are continually under review by the United States Congress. In addition to laws and regulations, the U.S. bank regulatory agencies may issue policy statements, interpretive letters and similar written guidance. Many changes have occurred as a result of the 2010 Dodd-Frank Act and its implementing regulations, most of which are now in place. In 2017, the President of the United States issued an executive order that sets forth principles for financial regulatory reform. In May 2018, the United States Congress passed, and President Trump signed into law the Economic Growth, Regulatory Relief, and Consumer Protection Act (“EGRRCPA”) which, among other things, revised the thresholds for total consolidated assets at which certain enhanced prudential standards apply to bank holding companies. EGRRCPA made clear that the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”) retains the right to apply enhanced prudential standards to FBOs with greater than $100 billion in global total consolidated assets, such as Santander Spain.

In October 2019, the federal banking agencies issued final rules (the “Tailoring Rules”) that, pursuant to EGRRCPA, adjust the thresholds at which certain enhanced prudential standards and capital and liquidity requirements apply to certain banking organizations, including large FBOs such as Santander Spain. As a result, Santander Spain is now generally subject to less restrictive enhanced prudential standards and capital and liquidity requirements than under previously applicable regulations.

Volcker Rule

Section 13 of the U.S. Bank Holding Company Act of 1956, as amended, and its implementing rules (collectively, the “Volcker Rule”) prohibits “banking entities” from engaging in certain forms of proprietary trading or from sponsoring or investing in “covered funds,” in each case subject to certain exceptions. The Volcker Rule also limits the ability of banking entities and their affiliates to enter into certain transactions with covered funds with which they or their affiliates have certain relationships. Banking entities such as Santander Brasil and Santander Spain were required to bring their activities and investments into compliance with the requirements of the Volcker Rule by the end of the conformance period applicable to each requirement. Santander Spain has assessed how the Volcker Rule affects its businesses and subsidiaries, including Santander Brasil, and has brought its activities into compliance. Santander Brasil has adopted processes to establish, maintain, enforce, review and test the compliance program designed to achieve and maintain compliance with the Volcker Rule. The Volcker Rule contains exclusions and certain exemptions for market-making, hedging, underwriting, trading in U.S. government and agency obligations, as well as certain foreign government obligations, and trading solely outside the United States, and also permits certain ownership interests in certain types of funds to be retained. Santander Spain’s non-U.S. banking organization subsidiaries, including Santander Brasil, are largely able to continue their activities outside the United States in reliance on the “solely outside the U.S.” exemptions from the Volcker Rule. Those exemptions generally exempt proprietary trading, and sponsoring or investing in covered funds if, among other restrictions, the essential actions take place outside the United States and any transactions are not with U.S. persons.

On July 21, 2017, the five regulatory agencies charged with implementing the Volcker Rule announced the coordination of reviews of the treatment of certain foreign funds that are investment funds organized and offered outside the United States and that are excluded from the definition of covered fund under the agencies’ implementing regulations. Also in July 2017, the Federal Reserve issued guidelines for banking entities seeking an extension to conform certain “seeding” investments in covered funds to the requirements of the Volcker Rule.

As of October 2019, the five regulatory agencies charged with implementing the Volcker Rule finalized amendments to the Volcker Rule. These amendments tailor the Volcker Rule’s compliance requirements to the amount of a firm’s trading activity, revise the definition of trading account, clarify certain key provisions in the Volcker Rule, and modify the information companies are required to provide the federal agencies. Santander Brasil will still largely rely on the “solely outside the U.S. exemption” to conduct its trading activities.

In early 2020, the five federal agencies proposed additional amendments to the Volcker Rule related to the restrictions on ownership interests in and relationships with covered funds. Santander Spain will continue to monitor these Volcker Rule-related developments and assess their impact on its operations, including those of Santander Brasil, as necessary.

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U.S. Anti-Money Laundering, Anti-Terrorist Financing, and Foreign Corrupt Practices Act Regulations

Santander Brasil, as a foreign private issuer whose securities are registered under the Exchange Act, is subject to the U.S. Foreign Corrupt Practices Act, or the “FCPA”. The FCPA generally prohibits such issuers and their directors, officers, employees and agents from using any means or instrumentality of U.S. interstate commerce in furtherance of any offer or payment of money to any foreign official or political party for the purpose of influencing a decision of such person in order to obtain or retain business. It also requires that the issuer maintain books and records and a system of internal accounting controls sufficient to provide reasonable assurance that accountability of assets is maintained and accurate financial statements can be prepared. Penalties, fines and imprisonment of Santander Brasil’s officers and/or directors can be imposed for violations of the FCPA.

Furthermore, Santander Brasil is subject to a variety of U.S. anti-money laundering and anti-terrorist financing laws and regulations, such as the Bank Secrecy Act of 1970, as amended, and the USA Patriot Act of 2001, as amended, and a violation of such laws and regulations may result in substantial penalties, fines and imprisonment of Santander Brasil’s officers and/or directors.

U.S. Sanctions

“Sanction(s)” means any international economic sanction administered or enforced by the United States government (including without limitation, OFAC), the United Nations Security Council, the European Union or Her Majesty’s Treasury. The Office of Foreign Assets Control (“OFAC”) is responsible for administering economic sanctions imposed against designated foreign countries, governments, individuals and entities pursuant to various Executive Orders, statutes and regulations.

OFAC-administered sanctions take many different forms. For example, sanctions may include: (1) restrictions on U.S. persons’ trade with or investment in a sanctioned country, including prohibitions against direct or indirect imports from and exports to a sanctioned country and prohibitions on U.S. persons engaging in financial transactions relating to, making investments in, or providing investment-related advice or assistance to, a sanctioned country; and (2) blocking of assets of targeted governments or “specially designated nationals,” by prohibiting transfers of property subject to U.S. jurisdiction, including property in the possession or control of U.S. persons. Blocked assets, such as property and bank deposits, cannot be paid out, withdrawn, set off or transferred in any manner without a license from OFAC. In addition, non-U.S. persons can be liable for “causing” a sanctions violation by a U.S. person or can violate U.S. sanctions by exporting services from the United States to a sanctions target, for example by engaging in transactions with targets of U.S. sanctions denominated in U.S. dollars that clear through U.S. financial institutions (including through U.S. branches or subsidiaries of non-U.S. banks).

Failure to comply with applicable U.S. sanctions could have serious legal and reputational consequences, including significant civil monetary penalties and, in the most severe cases, criminal penalties.

In addition, the U.S. government has implemented various sanctions that target non-U.S. persons, including non-U.S. financial institutions, that engage in certain activities undertaken outside the United States and without the involvement of any U.S. persons (“secondary sanctions”) that involve Iran, North Korea, Russia, or Hezbollah or other persons designated by the United States under the Specially Designated Global Terrorist, or “SDGT,” sanctions program. If a non-U.S. financial institution were determined to have engaged in activities targeted by certain secondary U.S. sanctions or used proceeds produced by such activities targeted, it could lose its ability to open or maintain correspondent or payable-through accounts with U.S. financial institutions, among other potential consequences.

Antitrust Regulation

According to the Brazilian antitrust law, actions that concentrate market share must be previously submitted to CADE for approval if the following criteria are met: (i) at least one of the groups involved in the deal has posted annual gross revenues or volume of business equal to or over R$750 million, in Brazil, in the year prior to the transaction; and (ii) at least another group has posted annual gross revenues or volume of business equal to or over R$75 million, in Brazil, in the year prior to the transaction. Closing of a transaction without CADE’s approval will subject the parties to fines ranging from R$60,000 to R$60 million.

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The Brazilian Central Bank will also examine certain corporate reorganizations and other acts involving two or more financial institutions not only considering their potential effects on the financial system and its stability but also any potential impacts regarding market concentration and competition. Upon approval of the transaction, the Brazilian Central Bank may establish certain restrictions and require that the financial institutions execute an agreement of market concentration control, pursuant to which the terms and conditions of the sharing of the efficiency gain resulting from the act shall be set forth.

In December 2018, the Brazilian Central Bank and CADE approved a joint normative act establishing procedures with the purpose of increasing efficiency for their respective actions regarding antitrust matters. Pursuant to the joint normative act, the authorities are authorized to share information for the purposes of their respective activities and carry out meetings with each other to discuss matters requiring the regulatory cooperation between both authorities.

Insolvency Laws Concerning Financial Institutions

Financial institutions are subject to the proceedings established by Law 6,024 of March 13, 1974, or “Law 6024”, which establishes the applicable provisions in the event of intervention or extrajudicial liquidation by the Brazilian Central Bank, as well as to bankruptcy proceedings.

Intervention and extrajudicial liquidation occur when the Brazilian Central Bank has determined that the financial institution is in bad financial condition or upon the occurrence of events that may impact the creditors’ situation. Such measures are imposed by the Brazilian Central Bank in order to avoid the bankruptcy of the entity.

Intervention

An intervention can be carried out at the discretion of the Brazilian Central Bank in the following cases:

·risk to the creditors due to mismanagement;

·consistent violation of Brazilian banking laws or regulations; or

·if the intervention is a feasible alternative to the liquidation of the financial institution.

As of the date on which it is ordered, the intervention will automatically suspend the enforceability of the payable obligations; prevent early termination or maturity of any previously contracted obligations; and freeze deposits existing on the date on which the intervention is decreed.

The intervention will cease if interested parties undertake to continue the economic activities of the financial institution, by presenting the necessary guarantees, as determined by the Brazilian Central Bank, when the situation of the entity is regularized as determined by the Brazilian Central Bank; or when extrajudicial liquidation or bankruptcy of the entity is ordered.

Intervention may also be ordered upon the request of a financial institution’s management.

Extrajudicial Liquidation

Extrajudicial liquidation is an administrative proceeding decreed by the Brazilian Central Bank (except that it is not applicable to financial institutions controlled by the Brazilian federal government) and conducted by a liquidator appointed by the Brazilian Central Bank. This extraordinary measure aims at terminating the activities of the affected financial institution, liquidating its assets and paying its liabilities, as in a judicially decreed bankruptcy. The Brazilian Central Bank will place a financial institution in extrajudicial liquidation if:

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·the institution’s economic or financial situation is at risk, particularly when the institution ceases to meet its obligations as they become due, or upon the occurrence of an event that could indicate a state of insolvency under the rules of the Bankruptcy Law;

·management seriously violates Brazilian banking laws, regulations or rulings;

·the institution suffers a loss which subjects its unprivileged and unsecured creditors to severe risk; and/or

·upon revocation of the authorization to operate, the institution does not initiate ordinary liquidation proceedings within 90 days or, if initiated, the Brazilian Central Bank determines that the pace of the liquidation may harm the institution’s creditors.

A request for liquidation procedures can also be filed on reasonable grounds by the officers of the respective financial institution or by the receiver appointed by the Brazilian Central Bank in the receivership procedure.

The decree of extrajudicial liquidation will: (i) suspend the actions or foreclose on rights and interests relating to the estate of the entity being liquidated, while no other actions or executions may be brought during the liquidation; (ii) accelerate the obligations of the entity; and (iii) interrupt the statute of limitations with regard to the obligations assumed by the institution.

Extrajudicial liquidation procedures may be terminated:

·by discretionary decision of the Brazilian Central Bank if the parties involved undertake the administration of the financial institution after having provided the necessary guarantees; or

·when the final accounts of the receiver are delivered and approved and subsequently registered in the relevant public records; or

·when converted into ordinary liquidation; or

·when a financial institution is declared bankrupt.

Temporary Special Administration Regime (Regime de Administração Especial Temporária or “RAET”)

In addition to the intervention procedures described above, the Brazilian Central Bank may also establish a RAET, under Law 9447, dated March 14, 1997 combined with Law 6,024/74, which is a less severe form of the Brazilian Central Bank intervention in private and nonfederal public financial institutions that allows institutions to continue to operate normally. The RAET may be ordered in the case of an institution that:

·continually enters into recurrent operations that are against economic or financial policies set forth in federal law;

·faces a shortage of assets;

·fails to comply with the compulsory reserves rules;

·reveals the existence of hidden liabilities;

·experiences the occurrence of situations that cause receivership pursuant to current legislation;

·has reckless or fraudulent management; or

·carries out activities which call for an intervention.

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The main objective of a RAET is to assist the recovery of the financial condition of the institution under special administration and thereby avoid intervention and/or liquidation. Therefore, a RAET does not affect the day-to-day business, operations, liabilities or rights of the financial institution, which continues to operate in the ordinary course of business. Measures which may be adopted by the institution include the transfer of assets, rights and obligations to other entities, and corporate restructuring of these entities, with a view to the continuity of the institution’s business or activities.

There is no minimum term for a RAET, which ceases upon the occurrence of any of the following events: (i) acquisition by the Brazilian federal government of control of the financial institution, (ii) corporate restructuring, merger, spinoff, amalgamation or transfer of the controlling interest of the financial institution, (iii) decision by the Brazilian Central Bank, or (iv) declaration of extrajudicial liquidation of the financial institution.

Bankruptcy Law

Law No. 11,101, of February 9, 2005, as amended, or the “Bankruptcy Law”, regulates judicial reorganizations, out-of-court reorganizations and the bankruptcy of individuals and corporations that have occurred since 2005 and applies to financial institutions only with respect to the matters not specifically regulated by the intervention and extrajudicial liquidation regimes described above.

On December 24, 2020, Law 14,112, or “Law 11,112/20,” was passed. Law 11,112/20 overhauls the current Bankruptcy Law in several material aspects. Law 14,112/20 came into effect on January 23, 2021. Certain changes arising from this new legislation may affect enforcement and priority matters, such as: (i) the possibility of creditors putting forward an alternative judicial reorganization plan; (ii) new rules on the approval of post-petition loans in judicial reorganization and on priority claims in case of conversion to bankruptcy liquidation; (iii) more flexible quorum and mechanics in the extrajudicial reorganization process; (iv) new rules to expedite the bankruptcy liquidation process; (v) new methods for restructuring of the debtor's tax liabilities and installment payments, as well as new taxation schemes; and (vi) incorporation of rules on cross-border insolvency proceedings into the Brazilian framework.

Law 14,112/20 replicates, with some adjustments, the provisions of the UNCITRAL Model Law on Cross-Border Insolvency. As a result, Law 14,112/20 sets out some rules on access of foreign representatives to courts in Brazil, the method and requirements for recognition of foreign main and ancillary proceedings, authorization for the debtor and his representatives to act in other countries, methods of communication and cooperation between foreign authorities and representatives and the Brazilian jurisdiction, and the processing of concurrent proceedings.

Law 14,112/20 also sets forth, among other measures, (i) a protection for creditors that agree on the conversion of debt into equity against potential transfer of liability with regard to the debtor's obligations; (ii) the stay period and constraints on the assets of the debtor under judicial reorganization; (iii) conciliation and mediation measures before and during judicial reorganization proceedings; and (iv) the rules on procedural and substantive consolidation. Law 14,112/20 also sets out that a bankruptcy decree does not reach beyond the bankrupt itself, save when the disregard doctrine is to apply.

Repayment of Creditors in a Liquidation or Bankruptcy

In the event of extrajudicial liquidation or bankruptcy of a financial institution, creditors are paid pursuant to their priorities and privileges. Prepetition claims are paid on a ratable basis in the following order: labor credits; secured credits; tax credits; credits with special privileges; credits with general privileges; unsecured credits; contractual fines and pecuniary penalties for breach of administrative or criminal laws, including those of a tax nature; and subordinated credits.

The current law confers immunity from attachment of compulsory deposits maintained by financial institutions with the Brazilian Central Bank. Such deposits may not be attached in actions by a bank’s general creditors for the repayment of debts and require that the assets of any insolvent bank funded by loans made by foreign banks under trade finance lines be used to repay amounts owing under such lines in preference to those amounts owing to the general creditors of such insolvent bank.

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Recovery Plans for Systematically Important Financial Institutions

Systemically important Brazilian financial institutions must implement a recovery plan (plano de recuperação), with the aim of reestablishing adequate levels of capital and liquidity and to preserve the viability of such institutions. The recovery plans must identify their critical functions for the National Financial System, adopt stress-testing scenarios, define clear and transparent governance procedures, assess possible barriers to the entity’s recovery, as well as implement effective communication plans with key stakeholders.

Deposit Insurance - FGC

The purpose of the FGC is to guarantee the payment of funds deposited with financial institutions in case of intervention, liquidation, bankruptcy or insolvency. The FGC is funded by ordinary contributions made by the financial institutions in the amount of up to 0.0125% of the total amount of outstanding balances of the accounts corresponding to guaranteed obligations, and certain special contributions as determined. Delay in performing such contributions is subject to a penalty of 2% over the amount of the contribution.

The total amount of credit in the form of demand deposits, savings deposits, time deposits, deposits maintained in accounts blocked for transactions with checks (for the registration and control of funds relating to the rendering of services of payment of salaries, earnings, pensions), bills of exchange, real estate bills, mortgage bills, real estate credit bills and repurchase and resale agreements whose objects are instruments issued after March 8, 2012 by a company of the same group due to each customer by a financial institution (or by financial institutions of the same financial group) will be guaranteed by the FGC for up to a maximum of R$250,000 per customer. When the assets of the FGC reach 2% of the total amounts they guarantee, the CMN may temporarily suspend or reduce the contribution of financial institutions to the FGC. As from February 2016, credits of financial institutions and other institutions authorized to operate by the Brazilian Central Bank, complementary welfare entities, insurance companies, capitalization companies, investment clubs and investment funds, as well as those representing any interest in or financial instrument held by such entities, are not protected by the ordinary guarantee of FGC. In December 2017, the CMN enacted a new rule amending certain provisions of the FGC regulation among which includes the establishment of a limit of R$1 million per four-year period for the coverage of the credits of a certain creditor against the group of associated financial institutions.

Administrative Proceedings in the Brazilian National Financial System, the Brazilian Payment System and Capital Markets

Law 13,506 of November 13, 2017 or “Law 13,506/17” applies to entities authorized or supervised by the Brazilian Central Bank or by the CVM, as well as to market participants. Some of the key aspects of Law 13,506 are that: (i) it increases the maximum fine applicable by the Brazilian Central Bank from R$250,000 to R$2 billion or 0.5% of the revenues of the company arising from services and financial products in the year prior to the violation; (ii) it increases the maximum fine applicable by the CVM from R$500,000 to R$50 million; (iii) it makes additional types of violations subject to penalties; (iv) it provides that the penalty of “public admonition” may be cumulative to other penalties applicable by the Brazilian Central Bank; (v) it provides that Brazilian Central Bank may enter into cease-and-desist commitments; and (vi) it provides that the Brazilian Central Bank and the CVM may enter into administrative agreements similar to leniency agreements.

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Opening, Maintenance and Closing of Deposit Accounts

CMN Resolution No. 4,753/19 provides criteria for the opening, maintenance and closing of deposit accounts. The regulation determines that financial institutions must adopt procedures and controls that allow the verification and validation of the identity and qualification of the account holders and, if applicable, their representatives, as well as the authenticity of the information provided by the client. This information must be kept updated by the financial institution.

The rule also requires financial institutions to ensure, through the procedures and technology used for the opening, maintaining and closing of deposit accounts, the integrity authenticity and confidentiality, as well as the protection against unauthorized access, use, alteration, reproduction and destruction, of the information and the electronic documents used by them during the process.

Issuance of Credit Instruments Electronically

Provisional Measure No. 897, or “MP 897/2019,” among other provisions, (i) created a new credit instrument, the Rural Real Estate Note (Cédula Imobiliária Rural or “CIR”), with the purpose of advancing rural real estate financing by the creation of an instrument specifically designed to that end; (ii) changed the rules governing Bank Deposit Certificates (Certificado de Depósito Bancário or “CDB”), especially regarding their issuance and the transfer of their ownership, by providing among other changes that CDB issued in book-entry form should be transferred by electronic endorsement, exclusively by means of a specific notation in the issuing institution’s own electronic system or, when deposited in central depositary, by means of specific notation in the corresponding electronic system; and (iii) authorized that customary credit instruments such as the Agricultural Certificate of Deposit (Certificado de Depósito do Agronegócio - CDA), the Agricultural Warrant (Warrant Agropecuário - WA), the Real Estate Credit Certificate (Certificado de Crédito Imobiliário - CCI), the Bank Credit Note (Cédula de Crédito Bancário - CCB), the Rural Credit Note (Cédula de Crédito Rural - CCR) , the Rural Promissory Note (Nota Promissória Rural - NPR), the Rural Trade Bill (Duplicata Rural - DR), may be issued in book-entry form through the electronic bookkeeping system held at a financial institution or other entity authorized by the Brazilian Central Bank to perform electronic bookkeeping activity.

On July 15, 2020, the Brazilian Central Bank regulated, through Circular No. 4,036/20, the electronic issuance of book-entry CCBs and CCRs by financial institutions. A financial institution must render the following services in respect of the bookkeeping of CCBs and CCRs: (i) issue the instrument in book-entry form at the request of the borrower; (ii) include of all obligatory information related to CCBs and CCRs, as well as ancillary documents and/or information for the purposes of verifying the outstanding balance of the underlying credit transaction; (iii) verify the effective title or fiduciary title of the instruments; (iv) make the payment CCBs and CCRs for the settlement of obligations available to the debtor; (v) control the financial flow related to the CCBs and CCRs, including prepayments; (vi) record security interests in an entity authorized to perform centralized registration or deposit of financial assets; (vii) make information about the CCBs and CCRs available to debtors, holders, collateral beneficiaries or any other legally qualified interested party; and (viii) carry out the issuance of certificates regarding the instruments whenever required.

Limitation to the fees and interest rates on overdraft-secured checks

On November 27, 2019, the CMN issued Resolution No. 4,765 or “Resolution No. 4,765/2019”, providing for new rules on the overdraft granted by financial institutions in checking accounts held by individuals and individual micro entrepreneurs. The new rule limits the charging of fees on overdraft-secured checks to: (i) 0% for the opening credit facilities of up to R$500.00; and (ii) 0.25% for the opening of credit facilities larger than R$500.00, calculated with the amount of the facility that exceeds R$500.00. It also limits interest rates over the overdraft-secured check to up to 8% per month, to which must be added a discount of the overdraft fees already charged monthly by the financial institution. If the interest is less than or equal to the overdraft fees, such interest rates must be equal to zero. In addition, Resolution No. 4,765/2019 establishes that the overdraft-secured check must be compatible with the customer’s risk profile.

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Resolution No. 4,765/2019 came into force on January 6, 2020, for agreements executed after the referred date, came into force on June 1, 2020, for agreements executed prior to such date. Regarding the 8% limitation above, the rule applies to all contracts from January 6, 2020, regardless of the date the applicable contract was entered into.

On February 6, 2020, the Brazilian Central Bank issued Circular No. 3,981, which deals with the new information regarding overdraft facilities that must be highlighted in the statement of the checking accounts held by natural persons or MEIs. Circular No. 3,981 came into effect on June 1, 2020.

Automatic debit of banking accounts

On March 26, 2020, CMN issued Resolution No. 4,790, which sets forth new rules for the automatic debit payments from checking account and accounts designated for the payment of an individual’s wages. The new rule sets forth that financial institutions should only process automatic debit payments upon prior and express authorization of the client, and provides for the procedures for the authorization and cancellation of automatic debit payments. The new rule came into force on March 1, 2021. CMN Resolution No. 4,790 repealed CMN Resolution 4,771.

Taxation

Corporate Income Tax (IRPJ) and Social Contribution Tax (CSLL)

The IRPJ is calculated at a rate of 15.0%, plus a surtax of 10.0% which is levied on profits exceeding the amount of R$240,000 per year and the CSLL is calculated at a rate of 15.0% or 20.0% for financial institutions and 9.0% for companies, after adjustments determined by the tax legislation.

Constitutional amendment 103/2019 increased the CSLL tax rate applicable to banks from 15.0% to 20.0% from March 1, 2020.

Deferred tax assets and liabilities are measured based on temporary differences between the book basis and tax basis of assets and liabilities, tax losses, and adjustments to fair value of securities and derivatives.

According to the requirements in the current regulations, the expected realization of deferred tax assets is based on projections of future results and a technical study approved by the Directors of Santander Brasil.

Income tax (IRPJ) and Social Contribution Tax (CSLL) on Foreign Exchange Variation of Hedges for Investments Held Abroad (Law No. 14,031/2020)

Pursuant to Law No. 14,031/2020, which came in force in July 2020, exchange rate variations arising from hedges on investments held abroad are taxable starting in 2021. Accordingly, in 2021, 50% of the exchange rate variation shall be taxable under the IRPJ and CSLL, while, in 2022, 100% of the exchange rate variation will be considered as taxable.

Tax on Services (ISS)

Each of the Municipalities of Brazil and the Federal District are responsible for establishing the applicable ISS rate, which is charged on the value of services provided by the company, to the municipality where the service renderer is located. The rates vary from 2% to 5% and depend on the nature of the service.

On December 30, 2016, Complementary Law No. 157/2016 was enacted. This new legislation establishes a minimum rate of 2% for these types of taxes, no reductions or deductions being permitted. This Law provides that the following services are subject to ISS in the municipality in which the service taker is located: (i) card management, including POS services, that may be paid to the municipality where the corresponding POS device has been registered; (ii) leasing; (iii) fund management; and (iv) consortium.

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Before the aforementioned Law was enacted, the ISS was due in the municipality in which the service provider was located (irrespective of where the service taker was located). With this new legislation, ISS rates may vary depending on where the service taker is located.

There are several complications that may arise from this new legislation, including (i) as service takers are generally located in several municipalities, it is logistically difficult to comply and collect the taxes; and (ii) there are situations where the municipality of the service taker is not easily identifiable by the credit card company (as is the case for online transactions, for example).

Since the ISS is a municipal tax, the rule must be regulated by each municipality in order to be enforceable. This new rule is only applicable to triggering events occurring from 2018 onwards, when the municipal regulations applicable to Supplementary Law No. 157 come into force.

On March 23, 2018, the Brazilian Supreme Court suspended the application of the Complementary Law No. 157. It is still suspended as of the date of this annual report. This suspension may be circumvented by the enactment of Complementary Law No. 175/20.

Complementary Law No. 175, published on September 24, 2020, was enacted to create a unified ISS collection system, in which taxpayers would be able to collect ISS in every municipality in Brazil. It’s an effort to facilitate tax collection considering the complexity regarding the multiple rulings on ISS, since each municipality can pass its own laws on ISS.

The system is currently under development and it is expected that it would enable Complementary Law No. 157 to be brought back into effect.

PIS and COFINS Tax Rates

PIS and COFINS (respectively, the profit participation contribution and the social security financing contribution, both of which are social contributions due on certain revenues net of certain expenses) payable by financial institutions and similar entities, as defined by law, are due at the rate of 0.65% and 4%, respectively. They are levied cumulatively on gross revenue billed, which is defined as the total revenues earned by the legal entity, net of certain expenses, such as funding costs.

Non-financial entities are taxed at the rates of 1.65% and 7.6% of PIS and COFINS, respectively, and are subject to non-cumulative incidence, which consists of deduction of certain expenses from the tax base as allowed by law.

Tax on Financial Transactions (IOF)

IOF is a tax levied on credit, currency exchange, insurance and securities transactions and it is imposed on the following transactions and at the following rates:

Transaction(1)

Maximum Legal Rate

Current Rate

Credit extended by financial institutions and non-financial entities1.5% or 3%0.0041% per day for loans contracted by legal entities and 0.0082% per day for individuals capped at 365 days. An additional 0.38% rate is applicable in both cases.
Transactions relating to securities(2)1.5% per day0.5% per day for certain investment funds.
0% on transactions with equity securities and certain debt securities, such as debentures and real estate receivables and agribusiness receivables (CRI/CRA).

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Transaction(1)

Maximum Legal Rate

Current Rate

1% per day on transactions with fixed income derived from federal, state, or municipal public and private bonds, and fixed income investment funds limited to certain percentages of the income raised from investment. This rate is reduced to zero from the 30th day following the acquisition date of the investment and on repurchase agreements carried out by financial institutions and other institutions authorized by the Brazilian Central Bank with debentures issued by institutions belonging to the same group (Decree 8,731/2016).
0% on the assignment of securities to permit the issuance of Depositary Receipts abroad.
Transactions relating to derivatives25.0%Although the maximum rate is 25%, it has been reduced to zero at this moment.
Insurance transactions entered into by insurance companies25%2.38% for health insurance.
0.38% for life insurance.
7.38% for other types of insurance.
Foreign exchange transactions(2)25%0.38% (general rule).
6.38% on credit card transactions as from April 27, 2011.
6.38% on withdrawals abroad using credit or debit cards as from December 28, 2013.
6.38% on purchase of travelers checks or loading of international prepaid card as from December 28, 2013.
0% for outflow of funds related to the payment of principal and interest in connection with foreign loans and financings.
6% for the inflow of funds into Brazil, related to foreign loans subject to registration before the Brazilian Central Bank whose average maturity term is equal or less than 180 days.
0% for the inflow of funds into Brazil, related to foreign loans subject to registration before the Brazilian Central Bank whose average maturity term is higher than 180 days.
0% for interbank transactions.
0% for exchange transactions in connection with the outflow of proceeds from Brazil for the remittance of interest on net equity and dividends to be received by foreign investors.

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Transaction(1)

Maximum Legal Rate

Current Rate

0% for exchange transactions, including by means of simultaneous foreign exchange transactions, for the inflow of funds by foreign investors in the Brazilian financial and capital markets.
0% for exchange transactions, including by means of simultaneous foreign exchange transactions, for the inflow of funds by foreign investors for purposes of initial or additional margin requirements in connection with transactions in stock exchanges.
0% for exchange transactions for the outflow of funds invested by foreign investors in the Brazilian financial and capital markets.
0% for exchange transactions for the inflow and outflow of funds invested by foreign investors, including by means of simultaneous foreign exchange transactions, in certificates of deposit of securities, known as Brazilian Depositary Receipts (“BDRs”).
0% for simultaneous exchange transactions, for the inflow of funds by foreign investors derived from the conversion of direct investments in Brazil made pursuant to Law 4,131/62 into investments in stock tradable in stock exchanges, as from May 2, 2016.
0% for revenues related to the export of goods and services transactions.

The applicable rate is 1.10% for acquisitions of foreign currency (Decree 8,731/2016).

The applicable rate for credit on a foreign bank account belonging to a resident in Brazil is 1.10%, as from March 3, 2018.

(1)The transactions mentioned in the table are for illustration purposes and do not reflect an exhaustive list of transactions subject to the IOF.

(2)There are some exemptions or specific cases in which the applicable rate is zero.

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FATCA

The Foreign Account Tax Compliance Act, or “FATCA,” became law in the United States on March 18, 2010. The legislation requires foreign financial institutions, or “FFIs,” (such as Santander Brasil) to enter into an FFI agreement under which they agree to identify and provide the U.S. Internal Revenue Service, or “IRS,” with information on accounts held by U.S. persons and certain U.S.-owned foreign entities, or otherwise face a 30% withholding tax on certain U.S. source withholdable payments. In addition, FFIs that have entered into an FFI agreement will be required to withhold on such payments made to FFIs that have not entered into an FFI agreement, account holders who fail to provide sufficient information to classify an account as a U.S. or non-U.S. account, and U.S. account holders who do not agree to the FFI reporting their accounts to the IRS.

On September 23, 2014, Brazil and the United States announced that they entered into an intergovernmental agreement, or “IGA”, which became effective in Brazil by virtue of Decree No. 8,506 as of August 24, 2015. The aim of the IGA is to improve international tax compliance and implement FATCA. The IGA establishes an automatic annual bilateral exchange of information with the U.S. tax authorities. Under this agreement, Brazilian financial institutions will generally be required to provide certain information about their U.S. account holders to the Brazilian tax authorities (Receita Federal do Brasil), which will share that information with the IRS.

Complying with the required identification, withholding and reporting obligations requires significant investment in an FFI’s compliance and reporting framework. We are continuing to follow developments regarding FATCA closely and are coordinating with all relevant authorities.

Common Reporting Standard

On December 28, 2016, Normative Ruling No. 1,680 was enacted, introducing the Common Reporting Standard in Brazil. The Common Reporting Standard provides for certain account reporting obligations similar to those existing under FATCA. It was created in the context of the Organization for Economic Co-operation and Development’s Base Erosion and Profit Shifting project, which is aimed at reducing tax avoidance. Normative Ruling n° 1,680 applies to legal entities required to present the e-Financeira pursuant to Normative Ruling n° 1,571, dated July 2, 2016.

On the same date, the Normative Ruling n° 1,681 was enacted providing for the obligation to annually deliver the “Country to Country Statement,” an ancillary obligation also arising from the discussions under the BEPS Project, before the Brazilian Federal Revenue Service, or “RFB” as a measure to expand information exchange and improve the level of international tax transparency. This new regulation should not have any impact on Santander Brasil, since, as it is controlled by a legal entity resident in Spain, it is not required by the Brazilian regulation to present such statement.

Income Tax Levied on Capital Gains

Law 13,259, of March 16, 2016 or “Law 13,259/16” introduced the application of progressive tax rates for income taxation over capital gains recognized by Brazilian individuals and by holders that are not domiciled in Brazil for purposes of Brazilian taxation (“Non-Resident Holders”) on the disposition of assets in general. Under Law 13,259/16, the income tax rates applicable to capital gains realized by these investors would be: (i) 15% for the portion of the gains up to R$5 million, (ii) 17.5% for the portion of the gain that exceeds R$5 million but does not exceed R$10 million, (iii) 20% for the portion of the gain that exceeds R$10 million but does not exceed R$30 million, and (iv) 22.5% for the portion of the gain that exceeds R$30 million.

The provisions of Law 13,259/16 may apply to Non Resident Holders pursuant to CMN Resolution 4,373, provided such Non Resident Holders are not located in a Tax Haven. However, Non Resident Holders (whether they are considered to be Non-Resident Holders as a result of CMN Resolution 4373 or otherwise) located in a Tax Haven are subject to a specific tax regulation and will continue to be taxed at a rate of 25%.

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Most transactions carried out by Non Resident Holders pursuant to CMN Resolution 4,373 and that result in capital gains are subject to taxation at a fixed 15% rate, provided they are not located in a Tax Haven.

The tax must be withheld and paid by the buyer or, in cases where the buyer and seller are domiciled abroad, a legal representative of buyer shall be designated for the payment of the tax.

Temporary IOF/Credit Tax Relief

Decree 10,305/20, published in April 2020, along with further amendments, reduced the rate of IOF tax applicable to credit transactions to zero between April 3 and November 27, 2020.

Credit transactions in which funds were redeemed by the customer between the aforementioned dates are not subject to IOF tax. Subsequent renegotiations on credit transactions covered by Decree 10,305/20 that do not include the provision of additional funds are also not subject to IOF tax. Any additional funds are subject to IOF.

Disclosure pursuant to Section 219 of the Iran threat reduction and Syria Human Rights Act

Pursuant to Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012, which added Section 13(r) to the Exchange Act, an issuer is required to disclose in its annual or quarterly reports, as applicable, whether it or any of its affiliates knowingly engaged in certain activities, transactions or dealings relating to Iran or with individuals or entities designated pursuant to certain Executive Orders. Disclosure is generally required even where the activities, transactions or dealings were conducted in compliance with applicable law.

As we are part of the Santander Group, we must also disclose the exposure of other entities of the Santander Group to Iran. The following activities are disclosed in response to Section 13(r) with respect to the Santander Group and its affiliates. During the period covered by this annual report:

(a)       Santander UK holds five blocked accounts for three customers, with the first customer holding one GBP savings account and one GBP current account, the second customer holding one GBP savings account, and the third customer holding two GBP current accounts. All three customers, who are resident in the UK, are currently designated by the U.S. under the SDGT sanctions program. Revenues and profits generated by Santander UK on these accounts in the year ended December 31, 2019 were negligible relative to the overall profits of Banco Santander S.A.

(b)       Santander UK holds two frozen current accounts for two UK nationals who are designated by the U.S. under the SDGT sanctions program. The accounts held by one customer were fully inaccessible at the time of the US designation and were blocked at the time of the account going into a debit balance. The accounts held by the second customer were blocked immediately following the US designation and have remained frozen throughout 2020. These accounts are frozen in order to comply with Articles 2, 3 and 7 of Council Regulation (EC) No 881/2002 imposing certain specific restrictive measures directed against certain persons and entities associated with the Al-Qaeda network, by virtue of Commission Implementing Regulation (EU) 2015/1815. The accounts are in arrears (£1,844.73 in debit combined) and are currently being managed by Santander UK Collections & Recoveries department. No revenues or profits were generated by Santander UK on these accounts in the year ended December 31, 2020.

(c)       Santander Consumer Bank, S.A. holds seven blocked correspondent accounts for Bank Melli. Three USD accounts and four EUR accounts. The accounts have been blocked since 2008. Bank Melli is currently designated by the US under the Specially Designated Global Terrorist (SDGT) sanctions program. No revenues or profits were generated by Santander Consumer Bank, S.A. on these accounts in the year ended 31 December 2020.

(d) The Santander Group also has certain legacy performance guarantees for the benefit of Bank Mellat (standby letters of credit to guarantee the obligations – either under tender documents or under contracting agreements – of contractors who participated in public bids in Iran) that were in place prior to April 27, 2007.

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In the aggregate, all of the transactions described above resulted in gross revenues and net profits in the year ended December 31, 2020, which were negligible relative to the overall revenues and profits of Banco Santander, S.A. The Santander Group has undertaken significant steps to withdraw from the Iranian market such as closing its representative office in Iran and ceasing all banking activities therein, including correspondent relationships, deposit-taking from Iranian entities and issuing export letters of credit, except for the legacy transactions described above. The Santander Group is not contractually permitted to cancel these arrangements without either (i) paying the guaranteed amount (in the case of the performance guarantees), or (ii) forfeiting the outstanding amounts due to it (in the case of the export credits). As such, the Santander Group intends to continue to provide the guarantees and hold these assets in accordance with company policy and applicable laws.

Regulatory Developments Related to COVID-19

The following section summarizes the measures implemented by the CMN and the Brazilian Central Bank to mitigate the consequences of the COVID-19 pandemic on the Brazilian financial system.

Temporary Suspension of Dividend Distributions and Other Payments

On May 29, 2020 the CMN enacted Resolution No. 4,820 in response to the COVID-19 pandemic. Resolution No. 4,820 prohibits financial institutions, such as us, to: (i) offset their capital, including by means of early payment, in excess of amounts equivalent to the minimum mandatory dividend required by the Brazilian Corporate Law, including as interest on capital (ii) repurchase their own shares, subject to certain exceptions as authorized by the Brazilian Central Bank; (iii) reduce their capital stock, except if such reduction is  required by law or approved by the Brazilian Central Bank; and (iv) increase the compensation of their officers, directors and members of the board of directors and audit committee, including fixed and variable compensation. CMN Resolution No. 4,280 repealed CMN Resolution No. 4,797.

On December 23, 2020, the CMN enacted Resolution 4,885, which made the payment of dividends or interest on capital more flexible. As a result, financial institutions were not allowed to pay in excess of the greater of (x) the amount corresponding to 30% of the adjusted net profit in accordance with item I of article 202 of the Brazilian Corporate Law; and (y) the amount equivalent to the mandatory dividends as set forth in article 202 of the Brazilian Corporate Law. This is the only restriction still in force as a result of Resolution 4,820/20.

As a result, we only distributed R$3,837 million as dividends and interest on equity in 2020 compared to R$10,800 million in 2019.

Reduction of Capital Conservation Buffer

On March 16, 2020, the CMN enacted Resolution No. 4,783, which temporarily reduces the Capital Conservation Buffer (where all rates relate to the total amount of risk weighted assets) required from financial institutions, from 2.5% to 1.25%. The rate of 1.25% will remain in effect through March 31, 2021. From April 1, 2021 through April 1, 2022 the Capital Conservation Buffer requirement will gradually be restored to 2.5%. The measure aims to increase the ability of banks to renegotiate credit transactions and maintain engagement in new transactions, considering the current scenario of increased demand for financial services.

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Repos on Sovereign Bonds Denominated in U.S. Dollars

On March 18, 2020, the Brazilian Central Bank issued Circular No. 3,990, which allowed the repurchase transactions of U.S. Dollar denominated federal bonds between the Brazilian Central Bank and Brazilian financial institutions. The Brazilian Central Bank can purchase such bonds with a discount of 10% in comparison to market prices and the financial institution assumes the obligation to purchase the bonds in a future date. The rules also set out a margin transfer during the term of the transaction whenever the exposure is equal or greater than US$500,000. The purpose of this measure is to provide liquidity to the Brazilian sovereign bonds market, by offering liquidity in U.S. Dollars to Brazilian banks and reducing trading volatility of such bonds.

Changes to Provision Requirements

On March 16, 2020 CMN enacted Resolution No. 4,782/20, which was amended by Resolution No. 4.856/20, exempting financial institutions from considering certain restructuring of contracts as an indicative that a counterparty may default. Therefore, the measure allows loans to be granted to solvent companies without requiring additional provisions through September 30, 2020.

New Time Deposits with Special Collateral

CMN Resolution No. 4,799/20 has regulated funding through new Time Deposits with Special Collateral (Novo Depósito a Prazo com Garantias Especiais or “DPGEs”), which are deposits taken by financial institutions and guaranteed by the Credit Guarantee Fund (Fundo Garantidor de Crédito or “FGC”). The resolution increased the cap from R$20 million to R$40 million, and is intended to strengthen the liquidity strength of smaller financial institutions.

Central Bank Loans Backed by Debentures and Financial Bills Held by Financial Institutions

On March 23, 2020, the CMN enacted Resolution No. 4,786, which authorized the Brazilian Central Bank to grant loans to multiservice banks, commercial banks, investment banks and saving banks, backed by debentures (corporate debt instruments) held by such institutions and acquired in the secondary market, provided that certain provisions set forth in the ruling are complied with. It is worth mentioning the ruling sets forth that said loans will also be secured by mandatory deposits in Bank Reserve Accounts, in amount equivalent to, at least, the total amount of the transactions, as well as by the debenture collateral.

This is considered a Temporary Special Liquidity Credit Facility, and is another measure to offer financial institutions more liquidity in their transactions. The loans established in Resolution No. 4,786/20 will be available to financial institutions until April 30, 2020 and may be engaged for a 125 business day term, which may be extended, at the Brazilian Central Bank’s discretion, for more 125 business days, provided the maximum term of 359 calendar days.

On April 2, 2020, the CMN enacted Resolution No. 4,795, which authorizes the Brazilian Central Bank to grant loans to financial institutions under specific conditions, by means of a Temporary Special Liquidity Credit Facility, upon direct acquisition, in the primary market, of Financial Bills secured by financial assets or securities. The loan will be available in tranches, and could reach 100% of the Reference Assets of such financial institutions. The facility will be available to financial institutions through December 31, 2020 and the Financial Bills issued thereunder will have a term between 30 and 359 calendar days. The first tranche was approved on May 12, 2020, in a total amount of R$17.5 billion.

Flexibilization of Funding Requirements Through Agribusiness Credit Notes (Letras de Crédito do Agronegócio or “LCAs”)

On March 23, 2020, the CMN issued Resolution No. 4,787, which adjusted the assessment base of the mandatory reserve requirements of funds raised through LCAs, which are credit notes issued exclusively by financial institutions and related to credit rights originated from transactions conducted between rural producers and their cooperatives and agents of the agribusiness production chain, with the purpose of increasing their liquidity. As a result, the rules for applying funds originated from agribusiness activities were relaxed. The Brazilian Central Bank expects an increase in credit extension directed to agribusiness of R$6.3 billion as a result of the measure.

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Employment Support Program providing emergency payroll financing for small and medium-sized businesses

The CMN enacted Resolution No. 4,846 on August 24, 2020, which regulates the granting of loans under the Emergency Employment Support Program (Programa Emergencial de Suporte a Empregos or “PESE”), established through Provisional Measure No. 944/2020. PESE sets forth the offering of an emergency credit line of R$40 billion to finance, for two months, the payroll of small and medium-sized companies that adhere to the program, with the purpose of preserving jobs. Regarding the funding of said credit line, 85% will derive from the National Treasury and the remaining 15% from participating financial institutions, including Santander Brasil. The adhering small and medium-sized businesses will not be able to dismiss workers during the period that the loan is taken out and up to the 60th day after the business receives its last installment. The maximum amount financed per worker will be up to two minimum wages. The funding will go directly to the worker’s account, as is done today through payrolls operated by financial institutions. PESE came into effect on April 6, 2020. CMN Resolution No. 4,846 repealed CMN Resolution No. 4,800.

FX overhedge of equity interests abroad

On March 18, 2020, the CMN enacted Resolution No. 4,784, which amended CMN Resolution No. 4,192, of March 1, 2013. The rule sets forth that the tax credits arising from losses on excess FX position aimed at hedging of investments held abroad by financial institutions will not be deducted from their regulatory capital (patrimônio de referência). The measure aims at providing further capital relief and hence additional comfort for financial institutions to maintain and extend credit.

Higher ceiling for repurchase of financial bills (letras financeiras) by financial institutions

Pursuant to CMN Resolution No. 4,788, issued on March 23, 2020, financial institutions classified as Segment 1 for the proportional application of the prudential regulation, as is our case, may, from March 23 to April 30, 2020, repurchase up to 20% of financial bills of their own issuance, a substantial increase from the previous ceiling of 5%.

Brazilian Central Bank authorized to buy and sell government bonds and private financial assets and securities in the secondary market

Constitutional Amendment No. 106, enacted on May 7, 2020, sets forth emergency economic and budget measures for the Brazilian government during the COVID-19 pandemic. Among them, the Amendment authorizes the Brazilian Central Bank, for the duration of the pandemic, to buy and sell (i) government bonds in local and foreign secondary markets; and (ii) other assets, in domestic secondary financial, capital and payments markets, provided that, at the time of purchase, they have a credit risk rating in the local market equivalent to BB- or higher, conferred by at least one of the three largest international rating agencies, as well as a reference price published by a financial market entity accredited by the Brazilian Central Bank.

SELECTED STATISTICAL INFORMATION

The following information for Santander Brasil is included for analytical purposes and is derived from, and should be read in conjunction with, the consolidated financial statements and related notes contained elsewhere herein, as well as “Item 5. Operating and Financial Review and Prospects.”

Average annual balance sheet data has been calculated based upon the average of the monthly balances at 13 dates: as of December 31 of the prior year and each of the month-end balances of the 12 subsequent months. Average income statement and balance sheet data and other related statistical information have been prepared on a consolidated annual basis.

The selected statistical information set forth below includes information as of and for the years ended December 31, 2020, 2019, and 2018 extracted from the audited financial statements prepared in conformity with IFRS as issued by the IASB. See “Presentation of Financial and Other Information” and “Item 3. Key Information—A. Selected Financial Data.”

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Average Balance Sheet and Interest Rates

The following tables show our average balances and interest rates for each of the periods presented. With respect to the tables below and the tables under “—Changes in Net Interest Income – Volume and Rate Analysis” and “—Assets—Earning Assets–Yield Spread,” (i) we have stated average balances on a gross basis, before netting impairment losses, except for the total average asset figures, which include such netting, and (ii) all average data have been calculated using month-end balances, which is not significantly different from having used daily averages. We stop accruing interest on loans once they are more than 60 days past due. All our non-accrual loans are included in the table below under “Other assets.”

  For the Year Ended December 31,
  2020 2019 2018
  Average Balance Interest Average Rate Average Balance Interest Average Rate Average Balance Interest Average Rate
  (in millions of R$, except percentages)
Assets and Interest                
Income                
Cash and balances with the Brazilian Central Bank  54,531   1,552   2.8%  48,670   3,828   7.9%  81,018   5,096   6.3%
Loans and amounts due from credit institutions  104,759   1,519   1.4%  101,981   3,844   3.8%  56,093   2,978   5.3%
Loans and advances to customers  384,389   44,102   11.5%  323,180   50,406   15.6%  304,633   46,471   15.3%
Debt instruments  203,578   13,556   6.7%  178,811   13,528   7.6%  164,111   13,629   8.3%
Other interest – earning assets  -   2,044   -   -   1,235   -   -   2,304   - 
Total interest – earning assets  747,257   62,773   8.4%  652,642   72,841   11.2%  605,855   70,478   11.6%
Equity instruments  1,730   34   2.0%  1,464   19   1.3%  1,213   33   2.7%
Investments in associates  1,098   -   -   1,060   -   -   963   -   - 
Total earning assets  750,085   62,807   8.4%  655,166   72,860   11.1%  608,031   70,511   11.6%
Cash and balances with the Brazilian Central Bank  4,800   -   -   4,538   -   -   4,351   -   - 
Loans and amounts due from credit institutions  6,668   -   -   2,258   -   -   1,676   -   - 
Impairment losses  (23,936)  -   -   (22,528)  -   -   (21,056)  -   - 
Other assets  76,642   -   -   56,912   -   -   56,276   -   - 
Tangible assets  9,587   -   -   9,091   -   -   6,414   -   - 
Intangible assets  30,769   -   -   30,070   -   -   29,839   -   - 
Total average assets  854,615   62,807   7.3%  735,507   72,860   9.9%  685,531   70,511   10.3%
Liabilities and Interest Expense                                    
Deposits from the Brazilian Central Bank and Deposits from credit institutions  111,684   4,327   3.9%  100,473   4,866   4.8%  95,217   5,367   5.6%
Customer deposits  380,058   7,498   2.0%  303,741   14,966   4.9%  285,694   13,577   4.8%
Marketable debt securities  68,585   2,514   3.7%  76,194   5,138   6.7%  71,525   4,607   6.4%
Subordinated debts  13,102   863   6.6%  10,779   660   6.1%  10,952   630   5.8%
Other interest-bearing liabilities  -   3,125   -   -   2,890   -   -   4,376   - 
Total interest-bearing liabilities  573,429   18,327   3.2%  491,187   28,520   5.8%  463,388   28,557   6.2%
Noninterest bearing demand deposits  28,581   -   -   14,612   -   -   11,127   -   - 
Other liabilities  150,759   -   -   133,255   -   -   121,198   -   - 
Non-controlling interests  315   -   -   617   -   -   555   -   - 
Stockholders’ Equity  101,531   -   -   95,836   -   -   89,263   -   - 
Total average liabilities and equity  854,615   18,327   2.1%  735,507   28,520   3.9%  685,531   28,557   4.2%

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Changes in Net Interest Income – Volume and Rate Analysis

The following tables present the changes in our net interest income allocated between changes in average volume and changes in average rate for the year ended December 31, 2020, compared to the year ended December 31, 2019, and for the year ended December 31, 2019 compared to the year ended December 31, 2018. We have calculated volume variances based on movements in average balances over the period and rate variance based on changes in interest rates on average interest-earning assets and average interest-bearing liabilities. We have allocated variances caused by changes in both volume and rate to volume. You should read the following tables and the footnotes thereto in light of our observations noted in “—Average Balance Sheet and Interest Rates.”

  For the Years Ended 2020/2019 For the Years Ended 2019/2018
  Increase (decrease) due to changes in
  Volume Rate Net change Volume Rate Net change
  (in millions of R$)
Interest and Similar Income
Interest-earning assets                        
Cash and balances with the Brazilian Central Bank  414   (2,690)  (2,276)  (2,348)  1,080   (1,268)
Loans and amounts due from credit institutions  102   (2,427)  (2,325)  1,915   (1,049)  866 
Loans and advances to customers  8,493   (14,797)  (6,304)  2,876   1,059   3,935 
Debt instruments  1,753   (1,725)  28   1,166   (1,267)  (101)
Other interest-earning assets  809   -   809   (1,069)  -   (1,069)
Total interest-earning assets  11,571   (21,639)  (10,068)  2,540   (177)  2,363 
Equity Instruments  4   11   15   6   (20)  (14)
Total earning assets  11,575   (21,628)  (10,053)  2,546   (197)  2,349 
Interest Expense and Similar Charges
Interest-bearing liabilities                        
Deposits from the Brazilian Central Bank and Deposits from credit institutions  504   (1,043)  (539)  285   (786)  (501)
Customer deposits  3,095   (10,563)  (7,468)  878   511   1,389 
Marketable debt securities  (471)  (2,153)  (2,624)  309   222   531 
Subordinated liabilities  150   53   203   (10)  40   30 
Other interest-bearing liabilities  235   -   235   (1,486)  -   1,486 
Total interest-bearing liabilities  3,513   (13,706)  (10,193)  (24)  (13)  (37)

Assets

Earning Assets – Yield Spread

The following table analyzes our average earning assets, interest income and dividends on equity securities and net interest income and shows gross yields, net yields and yield spread for each of the periods indicated. You should read this table and the footnotes thereto in light of our observations noted in “—Average Balance Sheet and Interest Rates.”

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  For the Year Ended December 31,
  2020 2019 2018
  (in millions of R$, except percentages)
Average earning assets  747,257   652,642   605,855 
Interest and dividends on equity securities(1)  62,807   72,860   70,511 
Net interest income  44,480   44,340   41,954 
Gross yield(2) (*)  8.4%  11.2%  11.6%
Net yield(3) (*)  6.0%  6.8%  6.9%
Yield spread(4) (*)  5.2%  5.3%  5.4%

(*)Yield information does not give effect to changes in fair value that are reflected as a component of stockholder’s equity.

(1)Total earning assets plus dividends from companies accounted for by the equity method (equity instruments).

(2)Gross yield is the amount of “Interest and dividends on equity securities” divided by “Average earning assets.”

(3)Net yield is the amount of “Net interest income” divided by “Average earning assets.”

(4)Yield spread is the difference between the average rate of “Total earning asset” and the average rate of “Total interest-bearing liabilities.”

Return on Equity and Assets

The following table presents our selected financial ratios for the periods indicated.

  For the Year Ended December 31,
  2020 2019 2018
ROA: Return on average total assets  1.6%  2.3%  1.9%
ROE: Return on average stockholders’ equity  13.3%  17.4%  14.3%
ROE (adjusted) (1)  18.5%  24.6%  21.0%
Average stockholders’ equity as a percentage of average total assets  11.9%  13.0%  13.0%
Payout (2)  24.6%  65.8%  52.5%

(1)“Average stockholders’ equity excluding goodwill as a percentage of average total assets excluding goodwill” is a non-GAAP financial measure which adjusts “Return on average stockholders’ equity” to exclude the goodwill arising from the acquisition of Banco Real in 2008, Getnet Adquirência e Serviços para Meios de Pagamento S.A., or “GetNet” and Super Pagamentos e Administração de Meios Eletrônicos Ltda., or “Super”, both in 2014 and Banco Olé Bonsucesso Consignado S.A. in 2015,60%, and the remaining 40% in 2020. See “Item 3. Key Information—A. Selected Financial Data—Selected Consolidated Ratios” for a reconciliation of “Average stockholders’ equity excluding goodwill as a percentage of average total assets excluding goodwill” to “Return on average stockholders’ equity.”

(2)Dividend payout ratio (dividends declared per preferred share divided by net income per preferred share).

Interest-Earning Assets (other than Loans)

The following table shows the percentage mix of our average interest-earning assets for the years indicated. You should read this table in light of our observations noted in “—Average Balance Sheet and Interest Rates.”

  For the Year Ended December 31,
  2020 2019 2018
Cash and balances with the Brazilian Central Bank  7.3%  7.5%  13.4%
Loans and amounts due from credit institutions  14.1%  15.6%  9.3%
Loans and advances to customers  51.4%  49.5%  50.3%
Debt instruments  27.2%  27.4%  27.0%
Total interest-earning assets  100%  100%  100%

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Loans and Amounts Due from Credit Institutions

For further information about Loans and Amounts Due from Credit Institutions, see note “5 – Loans and amounts due from credit institutions” to our audited consolidated financial statements included elsewhere in this annual report.

Investment Securities

As of December 31, 2020 and 2019, the book value of investment securities was R$232 billion and R$176 billion, respectively (representing 24.7% and 23.0%, respectively, of our total assets as of such dates). Brazilian government securities totaled R$192 billion, or 82.8% and R$136 billion, or 77.3% of our investment securities as of December 31, 2020 and 2019, respectively. For a discussion of how our investment securities are valued, see notes 7 and 8 to our audited consolidated financial statements included elsewhere in this annual report.

The following table shows the carrying amounts of our investment securities by type and residence of the counterparty at each of the indicated dates:

  As of December 31,
  2020 2019 2018
  (in millions of R$)
Debt securities            
Government securities—Brazil  191,896   135,848   116,531 
Debentures and promissory notes  17,072   13,875   10,556 
Other debt securities  21,134   23,609   48,346 
Total domestic/debt securities  230,102   173,332   175,433 
             
Equity securities            
Shares of Brazilian companies  1,953   665   783 
Shares of foreign companies  -   -   2 
Investment fund units and shares  363   1,693   320 
Total equity securities  2,316   2,358   1,106 
Total investment securities  232,418   175,690   176,539 

As of December 31, 2020 and 2019, we held no securities of single issuers or related groups of companies whose aggregate book or market value exceeded 1% of our stockholders’ equity, other than the Brazilian government securities, which represented 180.5% and 140.5%, respectively of our stockholders’ equity. As of December 31, 2020 and 2019, the total value of our debt securities was approximately 217.4% and 181.8%, respectively, of stockholders’ equity.

The following table analyzes the maturities and weighted average yields of our debt investment securities (before impairment allowance) as of December 31, 2020. Yields on tax-exempt obligations have not been calculated on a tax equivalent basis because the effect on such calculation is not significant.

  Maturing within 1 year Maturing between 1 and 5 years Maturing between 5 and 10 years Maturing after 10 years Total
  (in R$ millions)
Debt securities                    
Government securities—Brazil  46,475   135,212   44,041   -   225,728 
Other debt securities  1,015   437   2,922   -   4,374 
Total debt investment securities  47,490   135,649   46,963   -   230,102 

The average rate for debt investment securities is 6.7%.

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Domestic and Foreign Currency

The following table shows our assets and liabilities by domestic and foreign currency, as of the dates indicated.

  As of December 31,
  2020 2019 2018
  Domestic Currency Foreign Currency Domestic Currency Foreign Currency Domestic Currency Foreign Currency
  (in millions of R$)
Assets            
Cash and balances with the Brazilian Central Bank (1)  4,531   15,617   4,878   15,250   16,651   15,065 
Debt instruments  226,787   3,315   164,447   8,885   166,743   8,690 
Loans and amounts due from credit institutions, gross (1)  109,339   3,520   107,694   1,553   79,166   454 
Loans and advances to customers, gross  396,950   20,822   326,421   20,835   304,031   17,902 
Equity Instruments  1,675   -   2,358   -   1,106   - 
Total assets  739,283   43,275   605,798   46,523   567,697   42,111 
Liabilities                        
Financial Liabilities at Amortized cost:                        
Deposits from the Brazilian Central Bank and Deposits from credit institutions  86,564   45,093   58,283   40,988   74,160   24,863 
Customer deposits  445,900   -   336,515   -   304,198   - 
Marketable debt securities  47,476   9,399   64,987   8,715   70,109   4,517 
Subordinated debts  -   -   -   -  ��9,886   - 
Debt instruments eligible to compose capital  -   13,120   -   10,176   -   9,780 
Other financial liabilities  66,727   153   60,885   -   51,729   - 
Total liabilities  646,667   67,766   520,670   59,879   510,082   39,160 

(1) In the fiscal year ended December 31, 2018, the balances related to compulsory deposits were reclassified from cash and reserves at the Brazilian Central Bank to the item Loans and other amounts with credit institutions for better presentation and, consequently, the respective comparative balances also have been reclassified.

Loan Portfolio

As of December 31, 2020, our loans and advances to customers totaled R$418 billion (54.8% of our total assets). Net impairment losses, loans and advances to customers totaled R$418 billion as of December 31, 2020 (48.0% of our total assets). In addition to loans, we had outstanding loan commitments drawable by third parties totaling R$131.9 billion, R$125.9 billion, R$122.7 billion, R$106.9 billion and R$91.2 billion as of December 31, 2020, 2019, 2018, 2017 and 2016, respectively.

Types of Loans by Type of Customer

The majority of the loans we have outstanding are to borrowers domiciled in Brazil and are denominated in reais. The table below breaks down our loans and advances to customers (including securities purchased under agreements to resell), by type of customer, at each of the dates indicated. For each loan category, we maintain specific risk management policies that are in line with the standards of the Santander Group, which in turn, are managed and monitored by our board of officers through the credit committee. The credit approval process for each loan category is structured primarily around our business segments. See “Item 11. Quantitative and Qualitative Disclosures about Risk—Credit Risk” for details on our credit approval policies for retail and wholesale lending.

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We have a diversified loan portfolio, with no specific concentration exceeding 10% of our total loans. Currently, 1.3% of our loan portfolio is allocated to our largest debtor and 6.5% to the next 10 largest debtors.

For further information about the breakdown of our Loans and Maturity see sections “a - Breakdown” and “b – Detail” of note “9 – Loans and advances to customers” to our audited consolidated financial statements included in this annual report.

Fixed and Variable Rate Loans

The following table sets forth a breakdown of our fixed and variable rate loans by maturity as of December 31, 2020.

  Fixed and variable rate loans with maturity
  Less than one year One to five years Over five years Total
  Balance % of Total Balance % of Total Balance % of Total Balance % of Total
  (in millions of R$, except percentages)
Fixed rate  162,684   74   113,662   77   16,538   32   292,884   70 
Variable rate  56,378   26   33,352   23   35,208   68   124,938   30 
Total  219,063   100   147,014   100   51,745   100   417,822   100 

Cross-Border Outstandings

The following table presents, at each balance sheet date indicated, the aggregate amount of our cross-border outstandings (which consist of loans, interest-bearing deposits with other banks, acceptances and other monetary assets denominated in a currency other than the home-country currency of the office where the item is booked). Cross-border outstandings do not include local currency loans made by subsidiary banks in other countries to the extent that such loans are funded in the local currency or hedged. As a result, they do not include the majority of the loans made by our Cayman Islands branch, which are fully hedged.

  As of December 31,          
  2020   2019   2018  
  Balance % of Total Assets Balance % of Total Assets Balance % of Total Assets
  (in millions of R$, except percentages)
OECD countries(1)            
Spain  437   0.1   1,984   0.3   1,217   0.2 
United States  12,674   1.8   3,721   0.5   3,304   0.5 
Netherlands  80   0.0   1,531   0.2   3,853   0.6 
United Kingdom(3)  29   0.0   1,003   0.1   6,508   1.0 
Other OECD countries(2)  3,534   0.5   16,264   2.4   1,072   0.1 
Total OECD  16,754   2.4   24,503   3.6   15,954   2.5 
Non-OECD countries                        
Latin American countries(2)  1,204   0.2   1,382   0.2   314   - 
Cayman Islands  2,917   0.4   3,528   0.5   (8,304)  (1.3)
Other(2)  1,189   0.2   2,397   0.3   100   - 
Total non-OECD  5,310   0.8   7,307   1.1   (7,890)  (1.3)
Total  22,064   3.2   31,810   4.6   8,064   1.2 
(1)The Organization for Economic Cooperation and Development.

(2)Aggregate outstandings in any single country in this category do not exceed 1.5% of our total assets.

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The following table presents the amounts of our cross-border outstandings as of December 31, 2020, 2019 and 2018 by type of borrower where outstandings in the borrower’s country exceeded 1.2% of our total assets.

  Government Banks and Other Financial Institutions Commercial and Industrial Other Loans Total
  (in millions of R$)
2018          
United States  -   3,569   23   130   3,722 
Netherlands  -   -   1,531   -   1,531 
Austria  -   -   197   (4)  193 
United Kingdom  -   1   38   964   1,003 
Cayman Islands  3,541   1,987   3,685   (5,685)  3,528 
Total  3,541   5,557   5,474   (4,595)  9,977 
2019                    
United States  -   8,710   55   316   9,081 
Netherlands  -   -   2,355   -   2,355 
Austria  -   -   127   (2)  125 
United Kingdom  -   -   7   151   158 
Cayman Islands  469   263   488   (752)  468 
Total  469   8,973   3,030   (287)  12,187 
2020                    
United States  -   12,653   9   12   12,674 
Netherlands  -   -   80   -   80 
Austria  -   -   -   444   444 
United Kingdom  -   28   -   1   29 
Cayman Islands  -   1,341   (1)  1,577   2,917 
Total  -   14,022   88   2,034   16,144 

Non-current assets held for sale

For further information, see note “10 - Non-current assets held for sale” to our audited consolidated financial statements included elsewhere in this annual report.

Liabilities

Deposits

The principal components of our deposits are customer demand, time and notice deposits, and international and domestic interbank deposits. Our retail customers are the principal source of our demand, time and notice deposits.

For further information, see note “16 – Deposits from the Brazilian Central Bank and Deposits from Credit Institutions” and “17 – Client deposits” in “Financial Statements” to our audited consolidated financial statements included elsewhere in this annual report.

The following table shows the maturity of time deposits (excluding inter-bank deposits) in denominations of U.S.$100,000 or more at the dates indicated. Large denomination customer deposits may be a less stable source of funds than demand and savings deposits.

As of December 31, 2020
DomesticInternational
(in millions of R$)
Under 3 months344,923-
3 to 6 months63,380-
6 to 12 months63,390-
Over 12 months105,788-
Total577,470-

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Short-Term Borrowings

The following table shows our short-term borrowings consisting of government securities that we sold under agreements to repurchase for purpose of funding our operations.

  As of December 31,
  2020 2019 2018
  Amount Average Rate Amount Average Rate Amount Average Rate
  (in millions of R$, except percentages)
Securities sold under agreements to repurchase                        
As of December 31  112,477   1.90%  123,941   5.00%  99,379   7.34%
Average during the period (1)  112,096   2.71%  100,473   4.84%  102,051   9.67%
Maximum month-end balance  155,174       123,941       113,691     
Total short-term borrowings at year end  112,477       123,941       99,379     
(1)The average annual balance sheet data has been calculated based upon the average of the monthly balances at 13 dates: at December 31 of the prior year and for each of the month-end balances of the 12 subsequent months.

Changes in Allowances for Impairment Losses on the Balances of “Loans and receivables”

The following tables analyze changes in our allowances for impairment losses for the periods indicated. For further information regarding these changes, see “Item 5. Operating and Financial Review and Prospects—A. Operating Results—Results of Operations for the Years Ended December 31, 2020, 2019 and 2018—Results of Operations—Impairment Losses on Financial Assets (Net).”

  As of December 31,
  2020 2019 2018 2017 2016
  (in millions of R$)
Balance at beginning of year  22,625   22,969   18,262   18,191   15,412 
Initial adoption of IFRS 9  -   -   2,461   -   - 
Balance adjusted  22,625   22,969   20,723   18,191   15,412 
Impairment losses charged to income for the year  18,311   14,361   13,540   13,493   14,383 
Write-off of impaired balances against recorded impairment allowance  (15,297)  (14,705)  (11,294)  (13,422)  (11,605)
Balance at end of year  25,640   22,625   22,969   18,262   18,191 
Of which:                    
Loans and advances to customers  24,054   20,557   20,242   15,409   16,435 
Loans and amounts due from credit institutions  9   14   14   69   201 
Debt Instruments  1,577   2,055   2,714   2,784   1,555 
Recoveries of loans previously written off(1)  861   991   827   1,154   994 
(1)Impairment losses on financial assets, net, as reported in our consolidated financial statements, reflect net provisions for credit losses less recoveries of loans previously written off.

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Allowance by Type of Borrower

The table below shows a breakdown of recoveries, net provisions and write-offs against credit loss allowance by type of borrower for the periods indicated.

  For the Year Ended December 31,
  2020 2019 2018 2017 2016
  (in millions of R$)
Recoveries of loans previously charged off(1)  861   991   827   1,154   994 
Commercial and industrial  422   520   345   413   563 
Real estate – construction  56   47   103   210   103 
Installment loans to individuals  370   417   370   521   314 
Lease finance  13   8   9   10   14 
Impairment losses charged to income for the year(1)  18,311   14,361   13,540   13,492   14,383 
Commercial and industrial  6,919   2,377   3,620   5,499   6,523 
Real estate – construction  81   95   193   471   369 
Installment loans to individuals  11,309   11,866   9,708   7,461   7,617 
Lease finance  3   23   19   61   (125)
Write-off of impaired balances against recorded impairment allowance  (15,297)  (14,705)  (11,294)  (13,422)  (11,605)
Commercial and industrial  (4,617)  (5,713)  (3,981)  (5,716)  (4,553)
Real estate – construction  (232)  (108)  (191)  (342)  (190)
Installment loans to individuals  (10,433)  (8,834)  (7,100)  (7,312)  (6,811)
Lease finance  (15)  (49)  (22)  (52)  (51)
(1)Impairment losses on financial assets, net, as reported in our consolidated financial statements, reflect net provisions for credit losses less recoveries of loans previously written off.

The table below shows a breakdown of allowances for credit losses by type of borrowers and the percentage of loans in each category as a share of total loans at the date indicated.

  As of December 31,
  2020 % of Total Loans 2019 % of Total Loans 2018 % of Total Loans
  (in millions of R$, except percentages)
Borrowers            
Commercial and industrial  9,757   38   7,455   33   10,792   47 
Real estate  194   1   345   2   358   2 
Installment loans to individuals  15,676   61   14,800   65   11,768   51 
Lease financing  14   0   26   0   51   0 
Total  25,640   100   22,625   100   22,969   100 

Internal Risk Rating

The following table presents a breakdown of our portfolio by internal risk rating, at the dates indicated:

  As of
  December 31,
  2020 2019 2018
  (in millions of R$)
Internal Risk Rating            
Low  347,315   257,133   240,440 
Medium-low  24,277   56,549   50,486 
Medium  26,232   11,755   11,967 
Medium-high  3,896   8,512   7,722 
High  16,101   13,307   11,318 
Loans and advances to customers, gross  417,819   347,257   321,933 

For further information on our internal risk rating levels and their corresponding probability of default, see “Item 11. Quantitative and Qualitative Disclosures about Market Risk—Credit Risk—Credit Monitoring.”

Renegotiation Portfolio

The renegotiation portfolio for the year ended on December 31, 2020 amounted to R$20 billion, compared to R$15 billion for the same period in 2019, an increase of R$5,008 million or 32.8%. This portfolio includes loans and advances to customers that were extended and/or modified to facilitate repayment under conditions agreed upon with customers.

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The renegotiation portfolio was covered by allowances for impairment losses of 44.0% as of December 31, 2020 and 48.5% as of December 31, 2019. These levels are considered appropriate for the characteristics of these loans and advances to customers.

The following table presents a breakdown of our renegotiation portfolio by type of customer, allowances for impairment losses and our coverage ratio at the dates indicated:

  2020 2019 2018
  (in millions of R$, except percentages)
Renegotiation Portfolio by type of customer      
Commercial and industrial  5,862   5,141   5,949 
Installment loans to individuals  14,623   10,102   7,492 
Financial leasing  5   239   75 
Total  20,490   15,482   13,516 
Allowances for impairment losses  9,019   7,501   7,279 
Coverage ratio  44.0%  48.5%  53.8%

Balances are deemed to be impaired when there are reasonable doubts as to their full recovery and/or the collection of the related interest for the amounts on the dates indicated in the loan agreement, after taking into account the collateral guarantees received to secure (fully or partially) collection of the related balances.

As established in our internal renegotiation policy, in order for renegotiated products to be classified as performing, we must, receive an amount equivalent to at least 10% of the total amount outstanding in the six months which follow the renegotiation date (note that these transactions will remain classified as renegotiated operations even after receiving such payments). Renegotiated loans that are more than 60 days overdue are also accounted for as impaired.

We increased our efforts regarding the collection of loans that are less than 60 days past due and also in relation to written off loans. We are also continuing with our strategy of granting loans to persons with low risk profile and higher levels of collaterals and guarantees.

Impaired Assets

The following table shows our impaired assets, excluding country risk.

  As of December 31,
  2020 2019 2018 2017 2016
  (in millions of R$, except percentages)
Impaired assets                    
Past due and other impaired assets(1)  23,176   23,426   22,426   19,145   18,887 
Impaired assets as a percentage of total loans  5.5%  6.7%  7.0%  6.7%  7.0%
Net loan charge-offs as a percentage of total loans  3.7%  4.3%  3.5%  4.7%  4.3%
Net loan charge-offs as a percentage of average total loans  3.8%  5.3%  3.8%  4.8%  4.5%
(1)Includes as of December 31, 2020, R$2,028 million of doubtful loans (R$2,788 million in 2019, R$3,754 million in 2018, R$5,439 million in 2017 and R$5,576 million in 2016) that were not past-due.

Evolution of Impaired Assets

Our impaired assets decreased by 1.1%, or R$250 million, to R$23,176 million as of December 31, 2020, compared to R$23,426 million as of December 31, 2019. Provisions for impairment losses, including total recoveries of loans previously charged off, increased 13.3%, or R$3,015 million, to R$ 25,640 million as of December 31, 2020, compared to R$ 22,625 million as of December 31, 2019. Offsetting these effects were recoveries of R$861 million on loans previously written off as of December 31, 2020 and R$ 991 million as of December 31, 2019.

We believe the provisions made were adequate to cover all known or reasonably probable losses or incurred losses in the credit portfolio of loans and other assets as of December 31, 2020.

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The following table shows the changes in our impaired assets at the dates indicated:

  As of December 31,
  2020 2019 2018 2017 2016
  (in millions of R$)
Balance at beginning of year  23,426   22,426   19,145   18,887   18,599 
Initial Adoption of IFRS9 (1)  -   -   703   -   - 
Adjusted Balance  23,426   22,426   19,848   18,887   18,599 
Net additions  14,672   16,001   13,872   13,679   11,893 
Write-offs  (14,922)  (15,001)  (11,294)  (13,422)  (11,605)
Balance at end of year  23,176   23,426   22,426   19,145   18,887 
(1)Further information, see Financial Statements notes 1 and 9.

The amount of “net additions” for any period is assets that became impaired in that period less assets that were impaired but became performing in that period. In 2020, the debt restructuring options were improved to maintain consistent levels of “net additions” and “write-offs”.

Impaired Assets by Type of Customer

The following table shows the amount of our impaired assets by type of customers at the dates indicated:

  As of December 31,
  2020 2019
  (in millions of R$)
Commercial and industrial  10,558   10,073 
Real estate  456   827 
Installment loans to individuals  12,144   12,497 
Financial leasing  17   29 
Total  23,176   23,426 

Commercial and Industrial

Impaired assets in our commercial and industrial loans portfolio amounted to R$10,558 million as of December 31, 2020, an increase of R$485 million, or 4.8%, compared to R$10,073 million as of December 31, 2019. This increase was mainly due to the collective assessment of R$1,660 million performed by Santander Brasil which was based on forecasts of senstivity to macroeconomic conditions which indicate staged transfers following a deterioration of the portfolio.

Real Estate

Impaired assets in the real estate lending portfolio totaled R$456 million on December 31, 2020, a decrease of R$371 million, or 44.8%, compared to R$827 million as of December 31, 2019. The decrease in impaired assets in this portfolio was the result of the measures that Santander Brasil put in place to manage it, including collection practices with respect to our borrowers.

Installment Loans to Individuals

Impaired assets in the installment loans to individuals lending portfolio totaled R$12,144 million as of December 31, 2020, with a decrease of R$353 million, or 2.8%, compared to 2019. The decrease in impaired assets in this portfolio was the result of the measures that Santander Brasil put in place to manage it, including collection practices with respect to our borrowers whereby we offered certain customers the chance to negotiate a restructuring of their debts, especially during the COVID-19 pandemic, or asset disposals.

Financial Leasing

Impaired assets in the lease financing lending portfolio totaled R$17 million on December 31, 2020, a decrease of R$12 million compared to December 31, 2019. This decrease in impaired assets was mainly due to asset write-offs in an amount of R$15.6 million in 2020.

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Methodology for Impairment Losses

We evaluate all loans regarding the provision for impairment losses from credit risk. Loans are either individually evaluated for impairment, or collectively evaluated by grouping similar risk characteristics. Loans that are individually evaluated for impairment losses are not evaluated collectively.

To measure the impairment loss on loans individually evaluated for impairment, we consider the conditions of the borrowers, such as their economic and financial situation, level of indebtedness, ability to generate income, cash flow, management, corporate governance and quality of internal controls, payment history, industry expertise, contingencies and credit limits, as well as the characteristics of assets, such as their nature and purpose, type, sufficiency and liquidity level guarantees and total amount of credit, as well as based on historical experience of impairment and other circumstances known at the time of evaluation.

To measure the impairment loss on loans collectively evaluated for impairment, we segregate financial assets into groups considering the characteristics and similarity of credit risk. In other words, according to segment, the type of assets, guarantees and other factors associated such as the historical experience of impairment and other circumstances known at the time of assessment.

The expected loss measurement is made through the following factors:

·Exposure at Default (EAD): is the amount of a transaction exposed to credit risk including the ratio of current outstanding balance exposure that could be provided at default. Developed models incorporate hypotheses considering possible modifications to the payment schedule.

·Probability of Default (PD): is defined as the probability that the counterparty can meet its obligations to pay the principal and / or interest. For the purposes of IFRS 9, both will be considered: PD - 12 months (Stage 1), which is the probability that the financial instrument will default during the next 12 months as well as PD - life time (Stage 2 and 3), which considers the probability that the transaction between in default between the balance sheet date and the residual maturity date of the transaction. The standard requires that future information relevant to the estimation of these parameters should be considered.

·Loss Given Default (LGD): is the loss produced in the event of default. In other words, this reflects the percentage of exposure that could not be recovered in the event of a default. It depends mainly on the collateral, which is considered as credit risk mitigants associated with each financial asset, and the future cash flows that are expected to be recovered. According to the standard, forward-looking information must be taken into account in the estimation.

·Discount rate: the rate applied to the future cash flows estimated during the expected life of the asset, and which is equal to the net present value of the financial instrument at its carrying value.

In order to estimate the above parameters, the Bank has applied its experience in developing internal models for parameters calculation both for regulatory and management purposes.

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Loans Past Due for Less Than 90 Days but Not Classified as Impaired

The following table shows the loans past due for less than 90 days but not classified as impaired at the dates indicated:

  As of December 31,
  2020 % of total 2019 % of total
  (in millions of R$, except percentages)
Commercial and industrial  5,132   25.8   3,517   15.4 
Mortgage loans  3,085   15.5   5,782   25.3 
Installment loans to individuals  11,661   58.6   13,489   59.1 
Lease financing  13   0.1   24   0.1 
Total (*)  19,891   100.0   22,812   100.0 
(*)Refers only to loans past due between 1 and 90 days.

Impaired Asset Ratios

Our credit risk exposure portfolio increased by R$74.5 billion to R$466.1 billion as of December 31, 2020, compared to R$391.6 billion as of December 31, 2019. Our impaired assets decreased by approximately R$0.2 billion in the same period, from R$23.4 billion to R$23.2 billion. The default rate decreased by 10 basis points in 2020 in comparison to 2019, primarily due to the recurrent growth of the credit portfolio and the measures that Santander Brasil put in place to manage impaired assets, including collection practices.

The following table shows the ratio of our impaired assets to total credit risk exposure and our coverage ratio at the dates indicated.

  As of December 31,
  2020 2019 2018 2017 2016
  (in millions of R$ except percentages)
Loans and advances to customers, gross  417,822   347,257   321,933   287,829   268,438 
Impaired assets  23,176   23,426   22,426   19,145   18,887 
Provisions for impairment losses  25,640   22,626   22,969   18,262   18,191 
Credit risk exposure Non-GAAP – customers (1)  466,104   391,569   364,194   330,474   301,703 
Ratios                    
Impaired assets to credit risk exposure  5.0%  6.0%  6.2%  5.8%  6.3%
Coverage ratio (2)  110.6%  96.6%  102.4%  95.4%  96.3%
Impairment losses  (17,451)  (13,370)  (12,713)  (12,339)  (13,388)
Losses on other financial instruments not
  measured at fair value (3)		  -   -   -   -   88 
Impairment losses on financial assets (net) (4)  (17,451)  (13,370)  (12,713)  (12,339)  (13,300)
(1)Credit risk exposure is a non-GAAP financial measure. Credit risk exposure is the sum of the amortized cost amounts of loans and advances to customers (including impaired assets) amounting to R$417,822 million as of December 31, 20 and guarantees and documentary credits amounting to R$48,282 million as of December 31, 2020. We include off-balance sheet information in this measure to better demonstrate our total managed credit risk.

(2)Provisions for impairment losses as a percentage of impaired assets.

(3)Corresponds to the registration of losses of a permanent character in the realization value of bonds and securities classified as “securities available for sale” currently accounted for in “earnings on financial assets (net).”

(4)As of December 31, 2020 impairment losses on financial assets (net) included R$1,577 million relating to debt instruments.

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The following chart shows our impaired assets to credit risk ratio from 2016 through 2020:

-

4C. Organizational Structure

Santander Group controls Santander Brasil directly and indirectly through Santander Spain, Sterrebeeck B.V., or “Sterrebeeck”, and Grupo Empresarial Santander, S.L. which are controlled subsidiaries of the Santander Group. As of December 31, 2020, Santander Spain held, directly and indirectly, 89.5% of our voting stock.

As of December 31, 2020, Santander Spain was the largest bank in the euro zone by market capitalization, with a market capitalization of approximately €44,011 million. As of December 31, 2020, Santander Spain’s attributable profit totaled €-8,771 million, 234.6% lower than the previous year, and the total shareholder remuneration on account of the earnings for the 2020 financial year is €-0.538 per share. The Santander Group operates principally in Spain, the United Kingdom, other European countries, Brazil and other Latin American countries and the United States, offering a wide range of financial products. In Latin America, the Santander Group has majority shareholdings in financial institutions in Argentina, Brazil, Chile, Mexico, Peru, Puerto Rico and Uruguay. As of December 31, 2020, Santander Brasil contributed €2,113 million of the profit attributable to the Santander Group.

The following table presents the name, country of incorporation or residence and proportion of ownership interest of our main subsidiaries in accordance with the criteria for consolidation pursuant to IFRS:

ActivityCountry of IncorporationOwnership Interest
Direct and Indirect subsidiaries of Banco Santander (Brasil) S.A.
Banco Bandepe S.A.BankBrazil100.00%
Santander Leasing S.A. Arrendamento MercantilLeasingBrazil99.99%
Aymoré Crédito, Financiamento e Investimento S.A.FinancialBrazil100.00%
Santander Brasil Administradora de Consórcio Ltda.Buying clubBrazil100.00%
Atual Serviços de Recuperação de Créditos e Meios Digitais S.A. (current name of Atual Companhia Securitizadora de Créditos S.A.)Credit Recovery ServicesBrazil100.00%
Santander Corretora de Câmbio e Valores Mobiliários S.A.BrokerBrazil100.00%

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Santander Corretora de Seguros, Investimentos e Serviços S.A.HoldingBrazil100.00%
Getnet Adquirência e Serviços para Meios de Pagamento S.A.Payment InstitutionBrazil88.50%
SANB Promotora de Vendas e Cobrança Ltda.Other ActivitiesBrazil100.00%
Sancap Investimentos e Participações S.A.HoldingBrazil100.00%
Santander Holding Imobiliária S.A. (current name of Webcasas S.A.)HoldingBrazil100.00%
Santander Brasil Tecnologia S.A.TechnologyBrazil100.00%
Rojo Entretenimento S.A.Other ActivitiesBrazil94.60%
Santander Tecnologia e Inovação Ltda.Other ActivitiesBrazil100.00%
BEN Benefícios e Serviços S.A.Other ActivitiesBrazil100.00%
Toque Fale Serviços de Telemarketing Ltda.Other ActivitiesBrazil100.00%
Esfera Fidelidade S.A.Other ActivitiesBrazil100.00%
Controlled by Atual Serviços de Recuperação de Créditos e Meios Digitais S.A. (current name of Atual Companhia Securitizadora de Créditos S.A.)
Return Capital Serviços de Recuperação de Créditos S.A. (current name of Ipanema Empreendimentos e Participações S.A.)Credit Recovery ServicesBrazil100.00%
Controlled by Return Capital Serviços de Recuperação de Créditos S.A. (current name of Ipanema Empreendimentos e Participações S.A.)
Return Gestão de Recursos S.A. (current name of Gestora de Investimentos Ipanema S.A.)Asset ManagementBrazil100.00%
Controlled by Sancap Investimentos e Participações S.A.
Santander Capitalização S.A.Savings and annuitiesBrazil100.00%
Evidence Previdência S.A.Social SecuritiesBrazil100.00%
Controlled by Getnet Adquirência e Serviços para Meios de Pagamento S.A.
Auttar HUT Processamento de Dados Ltda.Other ActivitiesBrazil100.00%
Controlled by Aymoré Crédito, Financiamento e Investimento S.A.
Banco PSA Finance Brasil S.A. (6)BankBrazil50.00%
Banco Hyundai Capital Brasil S.A. (current name of BHJV Assessoria e Consultoria Empresarial Ltda.)BankBrazil50.00%
Controlled by Santander Leasing S.A. Arrendamento Mercantil
Pi Distribuidora de Títulos e Valores Mobiliários S.A. (current name of Santander Finance Arrendamento Mercantil)LeasingBrazil100.00%
Consolidated Investment Funds
Santander FIC FI Contract I Referenciado DIInvestment FundBrazil(a)
Santander Fundo de Investimento Unix Multimercado Crédito PrivadoInvestment FundBrazil(a)
Santander Fundo de Investimento Diamantina Multimercado Crédito Privado de Investimento no ExteriorInvestment FundBrazil(a)
Santander Fundo de Investimento Amazonas Multimercado Crédito Privado de Investimento no ExteriorInvestment FundBrazil(a)
Santander Fundo de Investimento SBAC Referenciado DI Crédito PrivadoInvestment FundBrazil(a)

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Santander Fundo de Investimento Guarujá Multimercado Crédito Privado de Investimento no ExteriorInvestment FundBrazil(a)
Santander Fundo de Investimento Financial Curto PrazoInvestment FundBrazil(a)
Santander Fundo de Investimento Capitalization Renda FixaInvestment FundBrazil(a)
Santander Paraty QIF PLC (1)Investment FundBrazil(a)
Santander FI Hedge Strategies Fund (1)Investment FundBrazil(a)
Prime 16 - Fundo de Investimento Imobiliário-FII  Real Estate Investment FundBrazil(a)
Fundo de Investimento em Direitos Creditórios Multisegmentos NPL Ipanema VI - Não PadronizadoInvestment FundBrazil(a)
Fundo de Investimento em Direitos Creditórios Multisegmentos NPL Ipanema VI - Não PadronizadoInvestment FundBrazil(a)
Santander Hermes Multimercado Crédito Privado Infraestrutura Fundo de InvestimentosInvestment FundBrazil(a)
(a)Company to which we are exposed, or have rights to variable returns and have the ability to affect those returns by making certain decisions in accordance with IFRS 10 - Consolidated Financial Statements. We and/or our subsidiaries hold 100% of the quotas of these investment funds.

(1)Santander Brasil, through its subsidiaries, holds the risks and benefits of Santander Paraty QIF PLC and the sub-fund Santander FI Hedge Strategies Fund, both of which are based in Ireland and since August 2016 are fully consolidated into Santander Brasil’s financial statements. Santander Paraty QIF PLC does not hold any investments itself, acting instead through Santander FI Hedge Strategies Fund.

4D. Property, Plant and Equipment

We operate four major administrative operational centers, all of which are owned properties. Additionally, we own 405 properties for the activities of our banking network and rent 2,276 properties for the same purpose. Furthermore, in 2014, we transferred our operation to a new data center located in Campinas, which also is an owned property. For further information about the location of our branches, see “—B. Business Overview—Service Channels—Physical Distribution Network.” Our headquarters are located at Av. Presidente Juscelino Kubitschek, 2,041 and 2,235 Block A, Vila Olímpia, City of São Paulo, State of São Paulo, Brazil.

ITEM 4A. UNRESOLVED STAFF COMMENTS

Not applicable.

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

5A. Operating Results

The following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements for the years ended December 31, 2020, 2019 and 2018 and the related notes thereto, and with the financial information presented under the section entitled “Item 3. Key Information—A. Selected Financial Data” included elsewhere in this annual report. The preparation of the consolidated financial statements referred to in this section required the adoption of assumptions and estimates that affect the amounts recorded as assets, liabilities, revenue and expenses in the years and periods presented and are subject to certain risks and uncertainties. Our future results may vary substantially from those indicated as a result of various factors that affect our business, including, among others, those mentioned in the sections “Forward-Looking Statements” and “Item 3. Key Information—D. Risk Factors,” and other factors discussed elsewhere in this annual report. Our consolidated financial statements for the years ended December 31, 2020, 2019 and 2018, prepared in accordance with IFRS as issued by the IASB and the report of our independent registered public accounting firm are included in “Item 18. Financial Statements.”

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Principal Factors Affecting Our Financial Condition and Results of Operations

Impact of COVID-19

We are closely monitoring the evolution of the COVID-19 pandemic in Brazil and globally, in order to take preventive measures to minimize the spread of the virus, ensure the continuity of operations and safeguard the health and safety of our personnel. See “Item 4. Information on the Company—A. History and Development of the Company—Important Events—Impact of COVID-19” for information on the impact of the COVID-19 pandemic on our business and also “Item 3. Key Information—3D. Risk Factors—Risks Relating to the Brazilian Financial Services Industry and Our Business—The current global COVID-19 pandemic has materially impacted our business, and the continuance of this pandemic or any future outbreak of any other highly contagious diseases or other public health emergency, could materially and adversely impact our business, financial condition, liquidity and results of operations.”

Brazilian Macroeconomic Environment

Overview

As a Brazilian bank, we are significantly affected by the general economic environment in Brazil, which suffered a severe impact as a result of the COVID-19 pandemic, as set out under “—Impact of COVID-19” below. The Brazilian economic environment has historically been characterized by significant variations in economic growth, inflation and currency exchange rates. Our results of operations and financial condition are influenced by these factors and the effect that these factors have on employment rates, the availability of credit and average wages in Brazil. The following table presents key data of the Brazilian economy for the periods indicated:

  For the year ended December 31,
  2020 2019 2018
GDP growth (1)  (4.1%)  1.2%  1.1%
CDI rate (2)  2.1%  6.0%  6.4%
TJLP (3)  4.6%  5.6%  7.0%
SELIC rate (4)  2.0%  4.5%  6.5%
Selling exchange rate (at period end) R$ per U.S.$1.00  5.20   4.03   3.87 
Decrease (increase) in real rate against the U.S. dollar  28.9%  4.0%  17.1%
Average exchange rate R$ per U.S.$1.00 (5)  5.16   3.94   3.65 
Inflation (IGP-M) (6)  23.1%  7.3%  7.6%
Inflation (IPCA) (7)  4.5%  4.3%  3.8%

Sources: BNDES, Brazilian Central Bank, FGV and IBGE.

(1)GDP growth for 2020 is based on Santander Brasil’s internal estimates. For 2019 and 2018 the source is the IBGE’s revised series.

(2)The overnight interbank deposit rate (Certificado de Depósito Interbancário), or “CDI” is the average daily interbank deposit rate in Brazil (at the end of each month and annually). This is the average rate for the given year.

(3)Represents the interest rate applied by the BNDES for long-term financing (at the end of the period).

(4)The benchmark interest rate payable to holders of some securities, such as treasury financial letters, issued by the Brazilian government and traded on the SELIC rate at the end of the applicable period.

(5)Average of the selling exchange rate for the business days during the period.

(6)The inflation rate is the general index of market prices (Índice Geral de Preços-Mercado, or “IGP-M”), as calculated by FGV.

(7)The inflation rate is the consumer price index (Índice de Preços ao Consumidor – Amplo, or “IPCA”), as calculated by the IBGE.

General economic stability in Brazil following the onset of the global financial crisis in 2009 allowed the Brazilian Central Bank to continue its policy of reducing interest rates. Due to inflation and other general macroeconomic concerns, the Brazilian Central Bank began increasing interest rates, with the SELIC, a benchmark interest rate, reaching 10.00% at the end of December 31, 2013, 11.75% at the end of December 31, 2014 and 14.25% at the end of December 31, 2015. The Brazilian Central Bank has been reducing interest rates since then, with the SELIC reaching 13.75% as of December 31, 2016, 7.00% as of December 31, 2017, 6.50% as of December 31, 2018, 4.50% as of December 31, 2019 and 2.0% as of December 31, 2020. In 2020, in response to the negative fallout of the COVID-19 pandemic, the Brazilian Central Bank reduced the base interest rate to its historical low at 2.00% in August 2020 and it kept it at this level through to the date of this annual report.

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The resolution of Brazil’s political and economic crisis depends on approving reforms that are expected to be promoted by the President of Brazil (elected in October 2018). In addition, as further detailed below under “—Impact of COVID-19,” the COVID-19 pandemic and ensuing economic crisis caused a steep decrease in Brazilian GDP in the first half of 2020 before a gradual recovery from the third quarter of 2020 onwards. This will place additional demands for spending on the public sector going forward, which may adversely affect investor sentiment and lead Brazil’s economy to grow more slowly than it was expected to do prior to the COVID-19 pandemic. The economic and political crisis in Brazil may adversely affect the performance of the Brazilian economy. As a result, our Brazil-focused credit portfolio may not grow or could decrease and our loan loss provisions could increase.

Any deterioration in Brazil’s rate of economic growth, changes in interest rates, the unemployment rate or price levels generally may adversely affect our business, financial conditions and results of operations. As previously mentioned, the economic fallout from COVID-19 increased the chance of a deterioration in the outlook for the Brazilian macroeconomic environment.

Impact of COVID-19

The Brazilian economy was severely affected by the COVID-19 pandemic and ensuring economic crisis in 2020. The social distancing measures adopted during the first months of the COVID-19 outbreak reduced consumption and resulted in a sharp decrease in gross domestic product in the first half of 2020. In order to mitigate the effects of the pandemic in the economy, the Brazilian government adopted monetary and fiscal measures. On the monetary front, the Brazilian Central Bank reduced the basic interest rates and announced measures to provide liquidity to the system. On the fiscal front, the Brazilian government provided a fiscal package that included financial aid for households, companies and regional governments, and expenditure on public healthcare. The economic measures along with the reopening of the economy in the third quarter of 2020 allowed the Brazilian economy to recover to an extent, although it remained 4% below the pre-crisis level. A negative consequence of the fiscal package was a sharp increase in the fiscal deficit and public debt. Moreover, the structural reform agenda was delayed, while the government has kept the commitment with the fiscal adjustment once the crisis is over. Finally, financial markets have reacted very negatively to the crisis. The Brazilian currency was negatively affected by a higher global risk aversion, drop in commodity prices and deterioration of the fiscal scenario.

Interest Rates

A decrease in the SELIC rate may have a positive impact on our operations by promoting volume growth, even though it may also create pressure on asset-side spreads, while liability spreads should remain stable or even improve.

The following table presents the low, high, average and period-end SELIC rate since 2016, as reported by the Brazilian Central Bank:

   LowHigh(1)Average(2)Period-End
Year      
2016  13.75  14.25  14.15  13.75  
2017  7.0013.75  9.837.00
2018  6.507.006.756.50
2019  4.506.506.134.50
2020  2.004.502.812.00
2021 (through February 24, 2021)2.002.002.002.00
(1)Highest month-end rate.

(2)Average of month-end rates during the period.

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Our assets are predominantly fixed rate and our liabilities are predominantly floating. The resulting exposure to increases in market rates of interest is modified by our use of cash flow hedges to convert floating rates to fixed, but we maintain an exposure to interest rate movements. As of December 31, 2020, a 100 basis point increase in the yield curve would have resulted in R$432 million decline in the net interest income over a one-year period.

Credit Volume and Quality in Brazil

In 2015, outstanding credit grew 7.0%, while the ratio of nonperforming loans to individuals stood at 4.2% and the household debt burden amounted to 20.4% of household income. In 2016, outstanding credit contracted 3.5% in nominal terms, but delinquency fell slightly: the ratio of nonperforming loans to individuals reached 4.0% (as compared to 4.2% in 2015). Subsequently, in 2017, 2018 and 2019, the ratio of nonperforming loans to individuals reached 3.5%, 3.2% and 3.5%, respectively. After having fluctuated around the 19% level (19.1% in 2017, and 19.2% in 2018), the household debt burden reached 20.0% of household income in 2019. In 2020, outstanding credit increased 15.5% as a result of credit support programs put in place by the Brazilian government to mitigate the impact of the COVID-19 pandemic, which also helped to keep the ratio of nonperforming loans at 2.8%, while further increasing the household debt burden to 20.9% of household income.

  2020 2019 2018
  (in billions of R$)
Total Credit Outstanding (*)  3,261   3,471   3,261 
Earmarked credit  1,500   1,465   1,500 
Non-earmarked based credit  1,761   2,006   1,761 
of which:            
Corporate     814      905      814 
Individuals (retail)     948   1,101      948 
(*)Some figures may be subject to revision by the Brazilian Central Bank.

Source: Brazilian Central Bank.

Foreign Exchange Rates

Our policy is to maintain limited foreign exchange rate exposure by seeking to match foreign currency denominated assets and liabilities as closely as possible, including through the use of derivative instruments. In 2020, we recorded foreign exchange expenses of R$24,697 million, foreign exchange expenses of R$2,789 million in 2019 and foreign exchange expenses of R$2,806 million in 2018. These results are due to the variation of the U.S. dollar against the real on our assets and liabilities positions in U.S. dollar denominated instruments during these years. These foreign exchange gains and losses were offset in large part in each year by a corresponding loss or gain on derivatives entered into to hedge this exposure. Such losses and gains are recorded under “Exchange differences (net).”

The Brazilian currency has, during the last decades, experienced frequent and substantial variations in relation to the U.S. dollar and other foreign currencies. During 2016, the real appreciated 17% against the U.S. dollar as a result of improved macroeconomic conditions in Brazil. On December 31, 2016, the exchange rate was R$3.26 per U.S.$1.00. In 2017 the real remained relatively stable against the U.S. dollar, with a small depreciation of 1.5% to R$3.31 per U.S.$1.00 as of December 31, 2017. The real depreciated further against the U.S. dollar throughout 2018, with a depreciation of 17%. On December 31, 2018, the exchange rate was R$3.87 per U.S.$1.00. In 2019, the real continued to depreciate against the U.S. dollar and as of December 31, 2019, it was at R$4.03 per U.S.$1.00. In 2020, the real continued to depreciate, and as of December 31, 2020 it was at R$5.20 per U.S.$1.00. In 2021, and through to the date of this annual report, the real has continued to weaken against the U.S. dollar due to the COVID-19 pandemic. As of February 24, 2021, the exchange rate was R$5.42 per U.S.$1.00.

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Depreciation of the real relative to the U.S. dollar has created additional inflationary pressures in Brazil, which has led to increases in interest rates and limited Brazilian companies’ access to foreign financial markets, and prompted the adoption of recessionary policies by the Brazilian government. Depreciation of the real may also, in the context of an economic slowdown, lead to decreased consumer spending, deflationary pressures and reduced growth of the Brazilian economy as a whole, and thereby harm our asset base, financial condition and results of operations. Additionally, depreciation of the real could make our foreign-currency-linked obligations and funding more expensive, negatively affect the market price of our securities portfolios, and have similar consequences for our borrowers. Conversely, appreciation of the real relative to the U.S. dollar and other foreign currencies could lead to a deterioration of the Brazilian foreign exchange currency balance of payments, as well as dampen export-driven growth. Depending on the circumstances, either depreciation or appreciation of the real could materially and adversely affect the growth of the Brazilian economy and our business, financial condition and results of operations.

Inflation

In recent years, inflation has been oscillating around the target, which is set by the CMN. From 2005 to 2018, the targeted level was 4.5%, with a tolerance interval of 2.0 percentage points that prevailed until 2016 – since then the tolerance band has been narrowed to 1.5 percentage point. In addition, the targeted set for 2019 by the CMN was lowered to 4.25% and additional 0.25 percentage point decreases have already been defined for the targets until 2022 (4.00% for 2020, 3.75% for 2021 and 3.50% for 2022).

Between 2012 and 2014, inflation ranged from 5.8% to 6.4%, i.e., it was close to the top of the fluctuation range in the Brazilian Central Bank’s inflation targeting range. In 2015, as a result of the indexation of a significant portion of contracts for services to the inflation levels of the previous years, the impact of adjustment of tariffs and the impact of the depreciation of the real on prices, the inflation rate reached a level of 10.7%, the highest on record since May 2005 and well above the Brazilian Central Bank’s inflation target of 4.5%. In 2017, inflation fell substantially as a result of the consistent efforts of the Brazilian Central Bank to reduce the inflation rate, ending the year at 2.95% (12-month accumulated rate). As a result, the Brazilian Central Bank was required to send a letter to the CMN explaining the reasons for not meeting the target in which the Brazilian Central Bank explained that it expected that the monetary easing undertaken in 2018 would make the actual inflation rate converge toward the target. In 2018 the inflation increased to 3.75%, thus reinforcing the efficiency of the monetary policy in Brazil. In 2019, as a result of temporary price shocks affecting edible items, inflation ended the year slightly above the targeted level, at 4.31%. In 2020, inflation increased to 4.5%. In 2021, and through to the date of this annual report, inflation has increased to 4.56% in year-on-year terms.

The majority of our income, expenses, assets and liabilities are directly tied to interest rates. Therefore, our results of operations and financial condition are significantly affected by inflation, interest rate fluctuations and related government monetary policies, all of which may materially and adversely affect the growth of the Brazilian economy, our loan portfolios, our cost of funding and our income from credit operations. We estimate that in 2020, a 1.0% increase or decrease in the base interest rate would have resulted in a decrease or increase, respectively, in our net interest income of R$432 million. Any changes in interest rates may negatively impact our business, financial condition and results of operations. In addition, increases in base interest rates may adversely affect us by reducing the demand for our credit and investment products, increasing funding costs and increasing in the short run the risk of default by our customers.

Inflation adversely affects our personnel and other administrative expenses that are directly or indirectly tied to inflation indexes, generally the consumer price index (Índice de Preços ao Consumidor – Amplo), or “IPCA,” and the general index of market prices (Índice Geral de Preços-Mercado), or “IGPM.” For example, considering the amounts in 2019, each additional percentage point change in inflation, would impact our personnel and other administrative expenses by approximately R$94 million and R$77 million, respectively.

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Reserve and Lending Requirements

The requirements set by the Brazilian Central Bank for reserves and credit has a significant impact on the operational results of the financial institutions in Brazil. Increases or decreases in such requirements may have an impact on our operational results by limiting or expanding the amounts available for commercial credit transactions.

The table below shows the requirements for reserves and credit to which we are subject for each financing category:

Product As of December 31, 2020 As of December 31, 2019 Form of Required Reserve Yield
Demand deposits            
Rural credit loans (1)  27.50%  30.00% Loans Cap rate: 6.0% p.a.
Microcredit loans (2)  2.00%  2.00% Loans Cap rate: 4.0% p.m.
Reserve requirements (3)  21.00%  21.00% Cash Zero
Additional reserve requirements  0.00%  0.00% Cash n/a
Free funding (4)  49.50%  47.00%    
             
Savings accounts            
Mortgage loans  65.00%  65% Loans Cap rate (SFH): TR + 12.0% p.a.
Reserve requirements (3)  20.00%  20.00% Cash TR + 70.0% of the target SELIC
Additional reserve requirements  0.00%  0.00% Cash n/a
Free funding (4)  15.00%  15.00%    
             
Time deposits            
Reserve requirements (3)  17.00%  31% Cash SELIC
In cash or other instruments  0.00%  0.00% Cash or other instruments n/a
In cash  0.00%  0.00% Cash n/a
Additional reserve requirements  0.00%  0.00% Cash n/a
Free funding(4)  83.00%  69.00%    
(1)Rural credits are credits granted to farmers in the amount of R$13.6 billion and R$12.9 billion on December 31, 2020 and December 31, 2019, respectively.

(2)Microcredit is a credit granted to very small businesses, with an open position of R$1.3 billion and R$1.2 billion on December 31, 2020 and December 31, 2019, respectively.

(3)Deductions can be applied on reserve requirements. The Brazilian Central Bank details the rules to apply any deduction in Circular Nos. 3,917, 3,975 and 4,001.

(4)Interest-free financing is the amount to be used on a free of interest basis for other purposes in each financing category.

Taxes

See “Item 4. Information on the Company—B. Business Overview—Regulation and Supervision—Other Applicable Laws and Regulation —Taxation.”

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Hedging in Foreign Investments

We operate two foreign branches, one in the Cayman Islands, and another one in Luxemburg. We previously operated an independent wholly-owned subsidiary in Spain, named Santander Brasil Establecimiento Financiero de Credito, EFC, which we used primarily for sourcing funds in the international banking and capital markets to provide credit lines for us that are extended to our customers for working capital and trade-related financings. Under Brazilian income tax rules, the gains or losses resulting from the impact of appreciation or devaluation of the real on foreign investments are non-taxable or non-deductible. This tax treatment results in volatility of the income tax line item in our income statement. This asymmetry is offset through a derivative position in U.S. dollar futures, which generates gains or losses dependent on any devaluation or appreciation of the real, which is our strategy to protect our after-tax results. The reconciliation of our effective tax rate to the statutory tax rate is set forth in note 23b to our consolidated financial statements as of and for the year ended December 31, 2020. Santander EFC was operational from 2012 until 2020, when we approved its liquidation. For further information, see “Item 4. Information on the Company—B. Business Overview—Regulation and Supervision—Other Applicable Laws and Regulations—Foreign Subsidiary.”

Goodwill of Banco Real

We generated goodwill of R$27 billion as a result of our acquisition of Banco Real in 2008. Under IFRS, we are required to analyze goodwill for impairment at least annually or whenever there are indications of impairment. In 2020, 2019 and 2018, the recoverable goodwill amounts are determined from “value in use” calculations. For this purpose, we estimate cash flow for a period of five years. We prepare cash flow estimates considering several factors, including: (i) macroeconomic projections, such as interest rates, inflation and exchange rates, among others, (ii) the performance and growth estimates of the Brazilian financial system, (iii) increased costs, returns, synergies and investment plans, (iv) the behavior of customers, and (v) the growth rate of, and long-term adjustments to, cash flows. These estimates rely on assumptions regarding the likelihood of future events, and changing certain factors could result in different outcomes. The estimate of cash flows is based on valuations prepared by an independent research company, which is reviewed and approved by the board of directors. Therefore, amortization of goodwill for tax purposes generates a permanent difference and, as a result, no record of the deferred tax liability.

The following table shows the main assumptions for the basis of valuation as of the dates indicated.

  2020 2019 2018
  (Value in use: cash flows)
Main Assumptions(*)      
Basis of valuation      
Period of the projections of cash flows(1)  5 years   5 years   5 years 
Growth rate(2)  4.3%  4.8%  5.1%
Discount rate(3)  12.4%  12.5%  13.6%
(1)The projections of cash flow are prepared using internal budget and growth plans of management, based on historical data, market expectations and conditions such as industry growth, interest rate and inflation.

(2)The growth rate is calculated based on a real growth rate of 1% p.a. plus annual long-term inflation in 2020.

(3)The discount rate is calculated based on the capital asset pricing model. The discount rate before tax is 19.56% in 2020, 17.78% in 2019 and 19.33% in 2018.

(*)The recoverability test was performed during the second half of 2020. Goodwill is tested for impairment on an annual basis or whenever there is any indication of a potential impairment. At the end of each year, a qualitative assessment is carried out in order to check the existence of signs of impairment. For the years 2020, 2019 and 2018, no indication of impairment was identified.

We performed a sensitivity test in the goodwill impairment analysis considering the main assumptions that could reasonably be expected to possibly change, as required by the IFRS. Accordingly, we applied such a test considering the discount rate and perpetuity growth rate as the main assumption subject to reasonably possible change and we did not identify any impairment to goodwill.

Other Factors Affecting the Comparability of Our Results of Operations

Dissolution and liquidation of Santander Brasil, Establecimiento Financiero de Credito, S.A.

On November 12, 2020, we approved the dissolution and liquidation of Santander Brasil, Establecimiento Financiero de Credito, S.A., a Spanish entity wholly-owned by us , which we used primarily for sourcing funds in the international banking and capital markets to provide credit lines for us that are extended to our customers for working capital and trade-related financings. The capital invested abroad was repatriated to Brazil in November 2020. The deed of dissolution and liquidation of the entity was registered with the Mercantile Registry of Madrid and effective on December 15, 2020. These activities are now carried out by our Luxembourg branch.

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Disposal of the equity interest held in Super Payments and Administration of Means of Electronic Media S.A.

On February 28, 2020, we sold our entire equity interest in Superdigital to Superdigital Holding Company, S.L. a company indirectly controlled by Santander Spain. For further information regarding this sale, see “See “Item 4. Information on the Company—4A. History and Development of the Company—Important Events.”

Put option of the remaining equity interest in Banco Olé Consignado S.A. against Aymoré Crédito, Financiamento e Investimento S.A.

On March 14, 2019, the minority shareholder of Banco Olé formalized its interest in exercising the put option right provided in the Investment Agreement executed with Aymoré CFI on July 30, 2014, to sell its 40% equity interest in Banco Olé to Aymoré CFI, a controlled entity of Santander Brasil. On January 31, 2020, Santander Brasil and the shareholders of Bosan Participações S.A. (a holding company whose single asset is the shares representing 40% of the corporate capital of Banco Olé) entered into the definitive agreements and performed the closing acts related to the purchase and sale of all shares issued by Bosan, upon the transfer of Bosan’s shares to Santander Brasil and payment of the total price of R$1,608.8 million to the sellers. As a result, Santander Brasil became, both directly and indirectly, the holder of all shares issued by Banco Olé.

Acquisition of direct equity interest in Toque Fale Serviços de Telemarketing LTDA

On March 24, 2020, we acquired all of the outstanding share of Toque Fale Serviços de Telemarketing Ltda., or “Toque Fale,” held by our subsidiaries Getnet Adquirência e Serviços para Meios de Pagamento S.A. and Auttar HUT Processamento de Dados LTDA for an amount of R$1.1 million, corresponding to the equity value of the quotas on February 29, 2020. As a result, we became the direct holders of 100% of Toque Fale’s share capital.

Acquisition of equity stake in Ipanema Empreendimentos e Participações S.A., currently named Return Capital Serviços de Recuperação de Créditos S.A. (“Return Credit Management”), and Gestora de Investimentos Ipanema S.A., currently named Return Gestão de Recursos S.A. (“Return Asset” and, together with Return Credit Management, the “Return Entities”)

On October 16, 2019, Atual Companhia Securitizadora de Créditos Financeiros, or “Atual,” informed the remaining shareholders of the Return Entities of its decision to exercise its call option for shares representing the remaining 30% of the Return Entities’ total voting capital owned for a value of approximately R$17 million. The transaction was completed on November 1, 2019. As a result of this transaction, Atual currently owns 100% of the Return Entities’ issued and outstanding share capital. The Return Entities are active in the credit recovery intelligence sector, providing services such as credit portfolio evaluation and pricing, collection, management and recovery of non-performing loans.

Acquisition of Summer Empreendimentos Ltda.

On May 14, 2019, we and our wholly-owned subsidiary Santander Holding Imobiliária S.A., or “SHI,” entered into a binding document with the shareholders of Summer Empreendimentos Ltda, or “Summer,” for the acquisition of Summer’s issued share capital. The acquisition was approved by the Brazilian Central Bank on September 16, 2019 and concluded on September 20, 2019. We now hold, directly and indirectly through SHI, 100% of Summer’s share capital. Initially, Summer was not consolidated in our financial statements because it was treated as a temporary investment (non-current assets for sale). However, the investment is no longer considered temporary, and therefore Summer is included in our consolidated financial statements.

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Capital reduction of Norchem Holding e Negócios S.A. and Norchem Participações e Consultoria S.A.

On October 8, 2020, the shareholders of Norchem Holding e Negócios S.A. and Norchem Participações e Consultoria S.A., which we refer to jointly as the “Norchem Companies,” approved a capital reduction in the two Norchem Companies, in the amounts of R$14.7 million and R$19.9 million, respectively. As a result, we ceased to be shareholders of the Norchem Companies.

Purchase of Equity Interest over Toro Controle e Participações S.A.

On September 29, 2020 Santander Brasil’s subsidiary, PI DTVM , entered into an investment and other covenant agreement with the shareholders of Toro Controle e Participações S.A. , or “Toro Controle” to invest in Toro Controle. Toro Controle, an investment platform, operating as a securities broker focused on the retail market was founded in Belo Horizonte in 2010. Toro Controle is the holding company of Toro Corretora de Títulos e Valores Mobiliários Ltda, or “Toro Corretora,” and Toro Investimentos S.A., or “Toro Investimentos.” We refer to Toro Controle, Toro Corretora and Toro Investimentos as “Toro,” Upon completion of the transaction, PI DTVM will hold 60% of Toro Controle’s share capital.

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Purchase of Equity Interest in Gira – Gestão Integrada de Recebíveis do Agronegócio S.A.

On August 11, 2020, Santander Brasil executed a share purchase and sale agreement and other covenants with the shareholders of Gira (Gestão Integrada de Agronegócio S.A. or “Gira”)to acquire 80% of Gira’s share capital. Gira is a technology company that operates in the management of agribusiness receivables and whose platform has the potential to make agricultural credit transactions more secure. This increased layer of security is achieved through the use of applications, such as geolocation of productive areas, capture and analysis of agronomic data and permanent monitoring of production performance for sites involved in credit transactions. Gira’s solutions also include the review and digital registration of collateral provided under commercial contracts and continuous observation of crop development as a way of monitoring risks. The applicable regulatory approvals were received on December 18, 2020 and the closing of the transaction took place on January 8, 2021.

Execution of a contract for the Acquisition of Paytec Tecnologia em Payments Ltda, and Paytec Logística e Armazém EIRELI

On December 8, 2020, we entered into a quota purchase agreement with the owners of Paytec Tecnologia em Payments Ltda, and Paytec Logística e Armazém Eireli (jointly “Paytec”). Once the transaction is completed, we will hold 100% of Paytec’s share capital. Paytec is a logistics operator with Brazil-wide coverage which focuses on the payments market. The completion of the transaction is subject to the signing of definitive instruments and approval by the Brazilian Central Bank.

Sale of equity stake in CIBRASEC – Companhia Brasileira de Securitização

On July 24, 2019, we completed the sale of our entire equity interest in CIBRASEC – Companhia Brasileira de Securitização (“Cibrasec”) to ISEC Securitizadora S.A. (“ISEC”). Our interest amounted to 4,000 common shares and 50 Class A preferred shares, representing in aggregate, approximately 9.72% of Cibrasec’s total capital stock. We received consideration of R$9.8 million for our interest in Cibrasec. As a result, we are no longer a shareholder of Cibrasec.

Incorporation of the spun-off portion of Integry Tecnologia e Serviços A.H.U Ltda.

On October 31, 2019, we approved a spin-off of Integry Tecnologia e Serviços AHU Ltda, or “Integry,” a then wholly-owned subsidiary of Getnet Adquirência e Serviços para Meios de Pagamento S.A., or “Getnet.” Subsequently on December 20, 2019, Getnet and Santander Merchant Platform Solutions, S.L., or “SMPS Global,” a company based in Spain and controlled by Santander Spain, entered into a share purchase agreement as a result of which SMPS Global now holds 100% of Integry’s share capital. On December 23, 2019, Integry changed its name to Santander Merchant Platform Solutions Brasil Ltda.

Acquisition of residual equity stake in Getnet

On December 19, 2018, the minority shareholders of Getnet exercised their Put Option pursuant to the SPA. On the exercise date of the Put Option, we entered into a binding amendment to the SPA, to acquire all of the Getnet shares owned by minority shareholders, corresponding to 11.5% of the entity’s equity interest, in the amount of R$1,431 billion. The transaction was approved by the Brazilian Central Bank on February 18, 2019 and closed on February 25, 2019. As a result, Santander Brasil currently owns 100% of Getnet’s issued and outstanding share capital.

Formation of Esfera Fidelidade S.A.

Esfera Fidelidade was incorporated on August 14, 2018 as our wholly-owned subsidiary. Esfera Fidelidade was formed to develop and manage customer loyalty programs. The company started its operations in November 2018.

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Investment in Loop Gestão de Pátios S.A.

In 2018, Webmotors, a company in which we own an indirect 70% equity interest, entered into an agreement with Allpark Empreendimentos, Participações e Serviços S.A. and Celta L.A. Participações S.A. to acquire a 51% stake in Loop through a capital increase and issuance of new shares by Loop which were fully subscribed and paid-in by Webmotors. Loop conducts physical and virtual car auctions. This acquisition has enabled Webmotors to expand its service portfolio and strengthen its competitive position. The transaction was completed on September 25, 2018 for the amount of R$23.9 million.

Formation of BEN Benefícios e Serviços S.A.

On June 11, 2018, Santander Brasil incorporated Ben. Ben is engaged in create, supply and administer various types of vouchers and tickets used for the provision of employee benefits (such as for meals, transportation and cultural events) in the form of printed electronic and magnetic cards. The company begun its operations in the second quarter of 2019.

Creation of PI DTVM

On May 3, 2018, Santander Finance Arrendamento Mercantil S.A., one of our indirect subsidiaries, was converted into a securities brokerage and changed its corporate name to SI Distribuidora de Títulos e Valores Mobiliários S.A. The conversion process was approved by the Brazilian Central Bank on November 21, 2018. On December 17, 2018, SI Distribuidora de Títulos e Valores Mobiliários S.A. changed its corporate name to PI Distribuidora de Títulos e Valores Mobiliários S.A. On January 22, 2019 it received approval for the aforementioned name change from the Brazilian Central Bank. The company began its operations in March 2019.

Acquisition of Isban Brasil S.A. and Produban Serviços de Informática S.A. Companies

On February 19 and 28, 2018, respectively, we purchased all shares issued by Isban Brasil from Ingenería de Software Bancário, S.L., and all shares issued by Produban Serviços de Informática S.A. from Produban Servicios Informáticos Generales, S.L., for R$61,078 thousand and R$42,731 thousand, respectively. While all parties to these transactions are ultimately controlled by Santander Spain, the transactions were conducted on an arm’s length basis. On February 28, 2018, Isban Brasil was merged into Produban Serviços de Informática S.A. and on the same date, Produban Serviços de Informática S.A. changed its corporate name to Santander Brasil Tecnologia S.A.

Sale of equity interest in BW Guirapá I S.A.

On December 22, 2017, Santander Investimentos, Corretora de Seguros, Cia. de Ferro Ligas da Bahia – Ferbasa S.A.and Brazil Wind S.A. entered into an agreement for the sale of 100% of the shares issued by BW Guirapá I S.A. held by Santander Corretora de Seguros and Brazil Wind to Cia. de Ferro Ligas da Bahia – Ferbasa S.A. The transaction also encompassed the seven wind farms organized as special purpose companies held by BW I. The base consideration paid was R$450 million, and an additional amount of up to R$35 million may still be paid if certain contractual targets are met. The transaction closed on April 2, 2018.

Formation of Santander Auto S.A.

On December 20, 2017, we entered into binding agreements with HDI Seguros for the formation of a partnership involving the creation of a new insurance company called Santander Auto S.A., or “Santander Auto.” Sancap Investimentos e Participações S.A., a company controlled by Santander Brasil, will hold 50% of the issued share capital of Santander Auto with the remaining 50% being held by HDI Seguros. Santander Auto focuses on offering motor insurance policies through a 100% digital platform. The transaction closed on October 9, 2018 when the documentation to form Santander Auto S.A. was executed and we and HDI Seguros undertook a joint capital contribution of R$15 million into Santander Auto. On January 9, 2019, SUSEP granted Santander Auto the regulatory authorization to operate. Santander Auto began its operations in August 2019.

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Acquisition of equity stake in the Return Entities

On October 16, 2017, Santander Brasil, through its wholly-owned subsidiary Atual Companhia Securitizadora de Créditos Financeiros, acquired a direct equity interest in Return Credit Management, and an indirect equity interest in Return Asset corresponding to 70% of Return Entities’ share capital.

On October 16, 2019, Atual informed the remaining shareholders of its decision to exercise the call option for the shares representing the remaining 30% the Return Entities’ total voting capital owned by them, for a value of approximately R$17 million. The transaction was completed on November 1, 2019. As a result of this transaction, Atual currently owns 100% of the Return Entities’ issued and outstanding share capital.

Accession to Certain Tax Payment Plans

In August 2017, we joined the PERT. The program allows for certain tax debts to be repaid in installments. In connection with our participation in this program, we are repaying in installments certain amounts due as a result of lawsuits and administrative proceedings relating to corporate income tax and social security contributions for the periods from 1999 to 2005 in a total amount of R$492 million in January 2018 (taking into account the reduction arising from our participation in the program). A payment of R$191.9 million was due in August 2017 and a further payment of R$299.7 million was due by January 2018, both of which we have made within the prescribed time limits. As a result of our participation, we recorded expenses in an amount of R$364 million (after tax) in the third quarter of 2017.

In October 2017, we joined the Incentive Payment Programs and Installments (Programas de Parcelamento Incentivado) created by the cities Rio de Janeiro and São Paulo. The program allows for certain tax debts to be repaid in installments. In connection with our participation in these programs, we are repaying in installments certain amounts due as a result of lawsuits and administrative proceedings relating to ISS for the periods from 2005 to 2016 in a total amount of R$293 million as of December 31, 2017. As we had made provisions for these losses, we registered income of R$435 million as a result of the reversal of certain provisions, net of tax effects, in an amount of R$96 million.

Establishment of Credit Intelligence Bureau

On January 20, 2016, we entered into a non-binding memorandum of understanding with Banco Bradesco S.A., Banco do Brasil S.A., Caixa Econômica Federal and Itaú Unibanco S.A., for the creation of a credit intelligence bureau, the CIB. The CIB was structured as a corporation and each of Santander Brasil, Banco Bradesco S.A., Banco do Brasil S.A., Caixa Econômica Federal and Itaú Unibanco S.A. will have a 20% ownership stake in the corporation.

The purpose of the CIB is to develop a database that, in conformity with applicable laws, will collect, reconcile and handle the credit information of individuals and legal entities that register with the CIB and expressly authorize the inclusion of their credit information on the CIB’s database. We believe this initiative will lead to an increased degree of efficiency and improvement of our credit management activities, and will also facilitate the disbursement of long and medium-term lines of credit to participants in the Brazilian Financial System and to other corporate entities.

On April 14, 2017, the definitive documents were signed by the shareholders. At the extraordinary shareholders’ meeting held on October 5, 2017, a capital increase in an amount of R$285,205 thousand was approved as a result of which CIB’s capital stock increased from R$65,823 thousand to R$351,028 thousand. The CIB became fully operational in 2019.

Formation of Banco Hyundai Capital Brasil S.A.

On April 28, 2016, our wholly owned subsidiary Aymoré CFI entered into a joint venture with Hyundai Capital, for the purposes of incorporating (i) Banco Hyundai Capital Brasil S.A. and (ii) an insurance brokerage company. These entities were incorporated to provide, respectively, auto financing and insurance brokerage services, and products to consumers through the Hyundai dealerships in Brazil.

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Aymoré CFI owns a 50% equity interest in Banco Hyundai Capital Brasil S.A., and Hyundai Capital owns the remaining 50% equity interest.

On February 21, 2019, the Brazilian Central Bank granted Banco Hyundai Capital Brasil S.A. the authorization to operate as a banking entity. Banco Hyundai Capital Brasil S.A. began operating in the first half of 2019.

On April 30, 2019, the Brazilian Central Bank authorized the formation of the insurance brokerage company. The insurance brokerage company was incorporated on July 2, 2019 and began operating in November 2019.

Sale of Santander Securities Services Brasil Distribuidora de Títulos e Valores Mobiliários S.A., or “SSS DTVM.”

On June 19, 2014, we executed preliminary documents containing the main terms and conditions of the sale of our qualified custody business and the sale of our subsidiary SSS DTVM, which renders third party fund administration services, to a holding company owned by Santander Spain and a group of private equity funds managed by Warburg Pincus. Following the sale, we will continue to act as the administrator of the funds, as per CVM Instruction No. 306, dated as of May 5, 1999, as amended.

The closing of the transaction occurred on August 31, 2015, when all of our shares in SSS DTVM were formally transferred to Santander Securities Brasil and SSS DTVM acquired our qualified custody business. We received R$859 million at the closing of the transaction which generated gains of R$751 million before taxes recorded in the “Other non-financial gains/losses” line.

Plans to Optimize our Capital Structure

On September 26, 2013, we announced that, in order to optimize our capital structure, our board of directors submitted a proposal to optimize the composition of our regulatory capital to our shareholders for their approval (“PR Optimization Plan”). The aim was to establish a more efficient capital structure, consistent with recent capital rules and aligned with our business strategy and asset growth plan. The PR Optimization Plan was composed of the following items: (i) an equity distribution to the shareholders of Santander Brasil in the total amount of R$6 billion, with no reduction in the number of shares; (ii) the issuance abroad of capital instruments to compose Tier I and Tier II of our regulatory capital; and (iii) a bonus share program and an adjustment in the composition of the Units, followed by a reverse share split, with the purpose of eliminating trading in cents of reais.

On November 5, 2018, our board of directors approved the Notes Offering In addition, our board of directors also approved the redemption of debt instruments issued to form part of our Tier 1 and Tier 2 regulatory capital, as set out in the board’s resolution of January 14, 2014. The proceeds from the Notes Offering were used to fund this redemption. On December 18, 2018, the Brazilian Central Bank authorized the transactions contemplated in the Notes Offering and the redemption, which were completed on January 29, 2019.

Critical Accounting Policies

Our consolidated financial statements have been prepared in accordance with IFRS as issued by the IASB.

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General

Our principal accounting policies are described in note 2 to our audited consolidated financial statements. The following discussion describes areas that require use of certain critical accounting estimates and the exercise of judgement regarding matters that are inherently uncertain and that impact our financial condition and operational results. In this regard, if management decides to change these estimates, or apply such estimates for different durations a material impact on our financial condition and operational results could result.

Management bases its estimates and judgments on historical experience and on various other factors and circumstances, which are believed to be reasonable. Actual results may differ from these estimates if assumptions and conditions change. Any judgments or changes in assumptions are submitted to the audit committee and to our regulatory authorities and are disclosed in the related notes to our consolidated financial statements, which are included in this annual report.

Fair Value of Financial Instruments

We record a financial asset as measured at (i) fair value through profit or loss, (ii) fair value through other comprehensive income or (iii) amortized cost. In general, financial liabilities are measured at amortized cost. Exceptions include financial liabilities measured at: (i) fair value through profit or loss, (ii) other financial liabilities at fair value through profit or loss and (iii) financial liabilities designated as hedge items (or hedging instruments) measured at fair value. See Item 3. Key Information—3A. Selected Financial Data—Balance Sheet Data.

The fair value of a financial instrument is the price that would be received to sell an asset, or the amount paid to transfer a liability between market participants, in a transaction on the date of which fair value is measured, regardless of whether that price is directly observable or estimated using another valuation technique.

In estimating the fair value of an asset or a liability, we take into account relevant characteristics if market participants would also consider the same when pricing the asset and liability at the time fair value is measured. An assumed transaction like this establishes an asset sale price or transfer cost for the liability. In the absence thereof, price is established using valuation techniques commonly used by financial markets.

We use derivative financial instruments for both trading and non-trading activities. The principal types of derivatives used are interest rate swaps, options and future rate agreements; foreign exchange forwards, futures, options, and swaps; cross-currency swaps; equity index futures; and equity options and swaps. The fair value of exchange-traded derivatives is calculated based on published price quotations. The fair value of over-the-counter derivatives is calculated as the sum of expected future cash flows arising from the instrument, discounted to the (“present value” or “theoretical close”) at the date fair value is measured using techniques commonly applied by financial markets as follows:

·The present value method is used for financial instruments permitting static hedging (principally, forwards and swaps), loans and advances. This method uses expected future cash flows that are discounted through interest rate curves of the applicable currencies. These interest rate curves are generally observable market data.

·The Black-Scholes model is used to value financial instruments requiring dynamic hedging (principally structured options and other structured instruments). Certain observable market inputs are used in the model to generate variables such as the bid-offer spread, exchange rates, volatility, correlation between indexes and market liquidity, as appropriate.

·The present value method and the Black-Scholes model are used for valuing financial instruments exposed to interest rate risk, such as interest rate futures, caps and floors. Main inputs used in these models are principally observable market data, including appropriate interest rate curves, volatilities, correlations and exchange rates.

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·Dynamic models similar to those used in measuring of interest rate risk for measuring credit risk of linear instruments (such as bonds and fixed-income derivatives). In the case of non-linear instruments, if the portfolio is exposed to credit risk (such as credit derivatives), the joint probability of default is determined using the Standard Gaussian Copula model. The main inputs used to determine the underlying cost of credit for credit derivatives are quoted credit risk spreads, and the correlation between quoted credit derivatives of various issuers.

·The determination of fair value requires us to make certain estimates and assumptions. If quoted market prices are unavailable, fair value is then calculated using widely accepted pricing models that consider contractual terms and prices of the underlying financial instruments, yield curves, observable market data and other relevant factors. The use of different estimates or assumptions in these pricing models could lead to a different valuation being recorded in our consolidated financial statements.

See note 2e (i) to our consolidated financial statements for additional information on valuation techniques, details on our modeled principal assumptions and estimates and a sensitivity analysis for the valuation of financial instruments to those changes in principal assumptions and estimates and note 46.c.8 of our consolidated financial statements for a sensitivity analysis relating to the valuation of financial instruments to those changes in principal assumptions.

Impairment Losses on Financial Assets

Definition

A financial asset is considered impaired when there is objective evidence that shows events have occurred which:

·give rise to an adverse impact on future cash flows estimated at the transaction date, in the case of debt instruments (loans and debt securities);

·for equity instruments, their carrying amount may not be fully recovered;

·arise from the violation of terms of loans; and

·during the Bankruptcy process.

As a general rule, the value adjustment of impaired financial instruments is recognized in the consolidated income statement for the period in which the impairment becomes evident. The reversal, if any, is recognized in the same manner for previous statements for which the impairment is reversed or reduced. Financial assets are deemed to be impaired, and the accrued interest suspended, when there are reasonable doubts as to their full recovery and/or the collection of the related interest for the amounts and on the dates indicated in the loan agreement after taking into account collateral guarantees received to secure (fully or partially) the collection of related balances.

For all non-performing past due assets, any collections relating to impaired loans and advances are used to recognize the accrued interest. The remainder, if any, is applied to reduce the principal amount outstanding Debt Instruments Carried at Amortized Cost.

Debt Instruments Carried at Amortized Cost

The impairment loss amount incurred for determining a recoverable amount on a debt instrument measured at amortized cost is equal to the difference between its carrying amount and the present value of its estimated future cash flows (excluding future credit losses not incurred). This cash flow is discounted to the financial asset’s original effective interest rate (or the effective interest rate at initial recognition), which is presented as a reduction of the asset balance and recorded on income statements.

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In estimating the future cash flows of debt instruments, the following factors are taken into account:

·all amounts that are expected to be obtained over the remaining life of the instrument, (such as provided guarantees);

·impairment loss considers the likelihood of collecting accrued interest receivable;

·various types of risk to which each instrument is subject;

·circumstances in which collections will foreseeably be made; and

·that cash flows are subsequently discounted using the instrument’s effective interest rate.

A debt instrument is impaired due to insolvency when there is evidence of deterioration in the obligor’s ability to pay, either because such obligor is in arrears or for other reasons. An example is recoverable losses resulting from a materialization of the insolvency risk of obligors (credit risk).

We have certain policies, methods and procedures for minimizing our exposure to counterparty insolvency. These policies, methods and procedures are applied in the granting, examination and documentation of debt instruments, contingent liabilities and commitments; identification of recoverable amounts and calculation of amounts necessary to cover the related credit risk.

The procedures employed in the identification, measurement, control and reduction of exposure to credit risk, are applied on an individual basis or through grouping similar credit risk characteristics.

Customers with individual management include wholesale segment customers, financial institutions and certain companies. Risk management is performed through an analysis complemented by tools to support a decision-making model based on credit risk assessment using internal procedure.

Customers with standardized management include individuals and companies not classified as individual customers. Risk management models are based on automated decision-making and risk assessment procedure, which are complemented by teams of analysts specializing in credit risk. The credits related to standardized customers are usually considered to be not recoverable when they have experience of historical loss and a delay greater than 90 days.

Methodology for Impairment Losses

We evaluate all loans in respect of the provision for impairment losses from credit risk. Loans are either individually evaluated for impairment or collectively evaluated by grouping similar risk characteristics for loans accounted as amortized cost. Loans that are individually evaluated for impairment losses are not evaluated collectively.

To measure the impairment loss on loans individually evaluated for impairment, we consider borrower conditions, such as their economic and financial situation; level of indebtedness; ability to generate income; cash flow; management; corporate governance and quality of internal controls; payment history; industry expertise; and contingencies and credit limits. The characteristics of assets are also considered, which include: the nature and purpose; type; sufficiency and liquidity level guarantees; total amount of credit; historical experience of impairment; and other circumstances known at the time of evaluation.

To measure the impairment loss on loans collectively evaluated for impairment, we segregate financial assets into groups considering the characteristics and similarity to credit risk, or in other words, according to segment, the type of assets, guarantees and other factors associated such as the historical experience of impairment and other circumstances known at the time of assessment.

Impairment loss is calculated using statistical models that consider the following factors:

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·Exposure at Default or “EAD” is the amount of risk exposure at the date of default by the counterparty. In accordance with IFRS, the exposure at default used for this calculation is also the current exposure, as reported in the balance sheets.

·Probability of Default or (“PD”) is the probability of the borrower failing to meet its principal and/or interest payment obligations. PD is measured using an annual time horizon to quantify the probability of the borrower defaulting in the coming year. A loan is in default if either the principal or interest is past due by ninety days or more or the loan is current but there are doubts as to the solvency of the counterparty (subjective doubtful assets).

·Loss Given Default, or (“LGD,”) is the loss arising in the event of default. LGD calculation is based on the net charge offs on defaulted loans, taking into account the guarantees/collateral associated with the loans, the income and expenses associated with the recovery process and the timing of default.

·Loss Identification Period, or (“LIP,”) is the time period between the occurrence of a loss event and the identification of an objective evidence of this loss. In other words, it represents the time horizon from the credit loss occurrence until the effective confirmation of such loss.

Moreover, prior to loans be written-off (which is only done after the Bank has completed all recovery efforts and after about 360 days late), a fully registered provision (allowance for loan losses) of the loan’s remaining balance applies. As a result, this provision fully covers the losses. Thus, the Bank understands that its loan loss allowance methodology has been developed to meet its risk metrics and capture loans that could potentially become impaired.

Impairment

Certain assets, such as intangible assets, including goodwill, equity method investments, financial assets not carried at fair value through profit or loss and other assets are subject to impairment review. We record impairment charges when we believe there is objective evidence of impairment, or that the cost of the assets may not be recoverable.

The assessment of what constitutes an impairment is based on the following models:

We test goodwill for impairment on an annual basis, or more frequently if events or changes in economic circumstances, such as an adverse change in Santander Brasil’s business condition or observable market data, indicate that these assets may be impaired. The recoverable amount determination used in the impairment assessment requires prices of comparable businesses, present value or other valuation techniques, or a combination thereof, requiring management to make subjective judgments and assumptions. Events and factors that may significantly affect estimates include, among other things, competitive forces, customer behaviors and attrition, changes in revenue growth trends, cost structures and technology, and changes in discount rates and specific industry or market sector conditions. If an impairment loss is recognized for goodwill, it may not be reversed in a subsequent period. The recognition of impairment is applicable when significant changes occur in the main estimates used to evaluate the recoverable amounts of the cash-generating unit recoverable amount below the carrying amount. Based on the assumptions described above, no impairment of goodwill in 2020, 2019 and 2018 was identified.

Given the level of uncertainty related to these assumptions, our officers carry out a sensitivity analysis using reasonably possible changes in the key assumptions on which the recoverable amount of the cash-generating units are based in order to confirm that the recoverable amounts still exceed the carrying amounts.

All debt and equity securities (other than those carried at fair value through profit or loss) are subject to impairment testing every reporting period. The carrying value is reviewed in order to determine whether an impairment loss has been incurred.

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Evaluation for impairment includes both quantitative and qualitative information. For debt securities, such information includes actual and estimated incurred credit losses indicated by payment default, market data on (estimated) incurred losses and other current evidence that the issuer may not pay amounts when due. Equity securities are impaired when management believes that, based on a significant or prolonged decline of fair value below the acquisition price, there is sufficient reason to believe that the acquisition cost may not be recovered. “Significant” and “prolonged” are interpreted on a case-by-case basis for specific equity securities.

Upon the impairment of either debt or equity instruments, the amount considered as effective loss is recognized in profit or loss. In addition, we did not identify any impairment of tangible assets in 2020, 2019 and 2018 (see notes 14, 13 and 12, respectively, to our audited consolidated financial statements).

Post-employment Benefit Plan

The Post-employment benefit plan includes the following obligations undertaken by us: (i) to supplement the public social security system benefits, and (ii) medical assistance in the event of retirement, permanent disability or death for eligible employees and their direct beneficiaries.

Defined Contribution Plan

A defined contribution plan is the post-employment benefit plan for which we and our controlled entities as employers make pre-determined contributions to a separate entity and, in turn, have no legal or constructive obligation to pay further contributions if the separate entity does not hold sufficient assets to honor all benefits relating to the services rendered in the current and prior periods.

These contributions are recognized as personnel expenses in the consolidated income statement.

Defined Benefit Plan

A defined benefit plan is the post-employment benefit plan as is shown in note 21 to our audited consolidated financial statements. For this type of plan, the sponsoring entity’s obligation is to provide the agreed benefits to employees, assuming the potential actuarial risk that benefits will cost more than expected.

The amendment of IAS 19 established fundamental changes in the accounting for and disclosure of employee post-employment benefits such as removing the mechanism of the corridor approach for recording of the obligation of the plans. Fundamental changes also include changes in the criteria for recognition of conventional interest of plan assets (valuation based on the discount rate actuarial liability).

The adoption of this accounting policy involved, fundamentally, full recognition of liabilities on account of actuarial losses (actuarial deficit) not recognized previously, against the stockholders’ equity (Statements of Comprehensive Income).

Main Definitions:

·The present value of the defined benefit obligation is the present value of expected future payments required to settle the obligation resulting from employee service in the current and past periods, without deducting any plan assets.

·Deficit or surplus is: (a) the present value of the defined benefit obligation, less (b) the fair value of plan assets.

·The sponsoring entity may recognize the plan’s assets in the balance sheet when they meet the following characteristics: (i) the assets of the fund are sufficient to meet all employee benefit plan or sponsor obligations; or (ii) the assets are returned to the sponsoring entity in order to reimburse it for employee benefits already paid.

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·Actuarial gains and losses are changes in present value of defined benefit obligation resulting from: (a) adjustments due to experience (the effects of differences between the actuarial assumptions adopted and what has actually occurred); and (b) effects of changes in actuarial assumptions.

·Current service cost is the increase in the present value of the defined benefit obligation resulting from employee service in the current period.

·The past service cost is the change in present value of defined benefit obligation for employee service in prior periods resulting from a change in the plan or reductions in the number of employees covered.

Post-employment benefits are recognized in the income statement within “Interest expense and similar charges” and “Provisions (net).”

The defined benefit plans are recorded based on an actuarial study, and conducted by an external consultant, at the end of each year to therein be effective for the subsequent period.

New Accounting Standards

The new IFRS standards effective after January 1, 2021 are mentioned in our audited consolidated financial statements included in this annual report. For further information, see note “1 - Introduction, basis of presentation of the consolidated financial statements and other information” to our audited consolidated financial statements.

All accounting policies and measurement bases with a material effect on the consolidated financial statements for 2020 were applied in the preparation of such financial statements.

Results of Operations for the Years Ended December 31, 2020, 2019 and 2018

Executive Summary – Santander Brasil Results at a glance

Total Income amounted to R$48,242 million in 2020, a decrease of 17.9% in comparison with the year ended December 31, 2019, primarily due to the impact of the COVID-19 pandemic on the Brazilian economy. Excluding the effects of the hedge for investment held abroad, operating profit before taxwhich had a high impact in 2020 due to the exchange rate variation, our total income would have amounted to R$23,53761,825 million forin the year, ended December 31, 2019, an 8.1% increase from R$21,777 millionof 3.0% compared to the year ended December 31, 2018. In the year ended December 31, 2017 operating profit before tax was R$14,514 million. Operating profit before tax excluding the effectssame period of the hedge for investment held abroad is a non-GAAP measure.previous year. For further information, see “Item 3. Key Information—A. Selected Financial Data—Reconciliation of Non-GAAPNon- GAAP Measures and Ratios to Their Most Directly Comparable IFRS Financial Measures.”Measures”.

 

The table below presents our operating profit before tax and our operating profit before tax excludingConsolidated Profit for 2020 totaled R$13,451 million, in the effectsyear ended December 31, 2020, a decrease of the hedge for investment held abroad for the periods presented.

  For the Year Ended December 31,
  2019 2018 2017 % Change 2019/2018 Change% 2018/2017
  (in millions of R$, except percentages)
Operating Profit Before Tax  22,273   15,910   14,514   40.0   9.6 
Effects of the hedge for investment held abroad  1,264  5,867  810   (78.5)  624.3 
Adjusted operating profit before tax (1)  23,537   21,777   15,324   8.1   42.1 

(1)Adjusted operating profit is a non-GAAP measure. For further information, see “Item 3. Key Information—A. Selected Financial Data—Reconciliation of Non-GAAP Measures and Ratios to Their Most Directly Comparable IFRS Financial Measures.”

Income Taxes

Income taxes expense includes income tax, social contribution, PIS and COFINS. Income taxes amounted to expenses of R$5,642 million for19.1% over the year ended December 31, 2019, a R$2,532 million increase from expensesmainly impacted by the performance of R$3,110 million for the year ended December 31, 2018. This increase was mainly attributable to the following events: (i) foreign exchange losses of R$1,512 million as a result of the effects of exchange rate variations on investments abroad and losses on

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hedge instruments, affecting the line “Gains (losses) on financial assets and liabilities (net)” line; (ii) the increase in Operating Income before taxation arising from the result of the entities' operations, and (iii) the recognition of certain deferred tax credits in December 2019 as a result of the adjustment of CSLL tax credits derived from the tax rate increase to 20% for banks (Constitutional amendment nº103/2019). For further information, see note 24 from our audited consolidated financial statements included in this annual report.

For the year ended December 31, 2018, income taxes amounted to expenses of R$3,110 million for the year of 2018, a R$2,266 million decrease from expenses of R$5,376 million for the year ended December 31, 2017. This decrease was mainly attributable to the foreign exchange gains of R$5,057 million as a consequence of the effects of foreign exchange rate variations in investments abroad for our foreign branches and subsidiary, and the associated hedging instruments, affecting the “Gains (losses) on financial assets and liabilities (net)” line.

The following table shows our income taxes and income taxes excluding the effects of the hedge for investment held abroad for the periods indicated.

  For the Year Ended December 31,
  2019 2018 2017 %Change 2019/2018 Change% 2018/2017
  (in millions of R$, except percentages)
Income taxes  (5,642)  (3,110)  (5,376)  81.4   (42.1)
Effects of the hedge for investment held abroad  (1,264)  (5,867)  (810)  (78.5)  624.3 
Income taxes excluding effects of the hedge for investment held abroad  (6,906)  (8,977)  (6,186)  (23.1)  45.1 

*Income taxes excluding effects of the hedge for investment held abroad is a non-GAAP measure. For further information, see “Item 3. Key Information—A. Selected Financial Data—Reconciliation of Non-GAAP Measures and Ratios to Their Most Directly Comparable IFRS Financial Measures.”

Results of Operations by Segment for the Years Ended December 31, 2019, 2018 and 2017

The following tables show our results of operations for the years ended December 31, 2019, 2018 and 2017, for each of our operating segments.

Commercial Banking

  For the Year Ended December 31,
  2019 2018 2017 % Change 2019/2018 

%

Change 2018/2017

  (in millions of R$, except percentages)
Net interest income  42,044   39,391   32,392   6.7   21.6 
Income from equity instruments  5   10   83   (51.0)  (88.0)
Income from companies accounted for by the equity method  150   66   72   126.5   (8.3)
Net fee and commission income  13,923   12,537   11,262   11.1   11.3 
Gains/losses on financial assets and liabilities (net) and exchange differences (net)  (1,541)  (6,752)  (26)  (77.2)  26,275.0 
Other operating income (expenses)  (1,069)  (966)  (641)  10.7   50.7 

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Total income  53,511   44,286   43,143   20.8   2.7 
Personnel expenses  (8,554)  (8,404)  (8,167)  1.8   2.9 
Other administrative expenses  (7,140)  (7,186)  (7,012)  (0.6)  2.5 
Depreciation and amortization  (2,297)  (1,637)  (1,560)  40.3   4.9 
Provisions (net)  (3,669)  (1,948)  (3,190)  88.3   (38.9)
Impairment losses on financial assets (net)  (13,423)  (12,420)  (11,233)  8.1   10.6 
Impairment losses on non-financial assets (net)  (73)  (450)  (436)  (83.7)  3.2 
Other nonfinancial gain (losses)  20   156   (324)  (86.9)  (148.1)
Operating profit before tax  18,375   12,397   11,220   48.2   10.5 

  For the Year Ended December 31,
  2019  2018 2017 

%

Change 2019/2018

 

%

Change 2018/2017

  (in millions of R$, except percentages)
Operating Profit Before Tax  18,375   12,397   11,220   48.2   10.5 
Effects of the hedge for investment held abroad  1,264   5,867  810  (78.5)  624.3 
Adjusted Operating Profit Before tax  19,639   18,264   12,030   7.5   51.8 

2019 and 2018

Operating profit before tax attributed to the Commercial Banking segment for the year ended December 31, 2019 was R$18.4 billion, a 48.2% or R$6.0 billion increase from R$12.4 billion for the year ended December 31, 2018. This variation was mainly due to:

• an increase of R$2,653 million in net interest income for the year ended December 31, 2019, compared to the year ended December 31, 2018 mainly due to an 15.0% increase in the volume of our credit.

• an increase of R$1,386 million in net fee and commission income for the year ended December 31, 2019, compared to the year ended December 31, 2018, mainly due to (i) an increase in revenues from credit and debit cards, (ii) an increase in revenues from sale of insurance and premium bonds, and (iii) an increase in revenues from current account service; and.

• a decrease of R$377 million in impairment losses on other assets (net) mainly due to impairment loss of assets in the acquisition and development of software that was recorded due to obsolescence function and disruption of these systems in 2018 that did not occur in 2019.

2018 and 2017

Operating profit before tax attributed to the Commercial Banking segment for the year ended December 31, 2018 was R$12.4 billion, a 10.5%, or R$1.2 billion increase from R$11.2 billion for the year ended December 31, 2017. This variation was mainly due to:

• an increase of R$6,998 million in net interest income for the year ended December 31, 2018, compared to the year ended December 31, 2017, as a result of an increase in volume of loans extended to customers, partially offset by revenues from deposits decreased as a result of interest rates beinglower in the fiscal year ended December 31, 2018 than in the fiscal year ended December 31, 2017; and

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an increase of R$1,275 million in net fee and commission income for the year ended December 31, 2018, compared to the year ended December 31, 2017, mainly due to (i) an increase in revenues from credit and debit cards, (ii) an increase in revenues from current accounts, and (iii) an increase in revenues from insurance and premium bonds. These results were partially offset by:

• a decrease of R$6,726 million in gains/losses on financial assets and liabilities (net) and exchange differences (net) line.

Loan Portfolio to customers amounted R$418 billion as of December 2020, an increase of 20.3% compared to December 31, 2019, mainly due to the increase in loans to commercial and industrial, and individual portfolios.

Credit Quality remains at reasonable levels and supports our growth. Impaired assets to credit risk ratio was 5.0% for the year ended December 31, 2018,2020, a 1.0 p.p. decrease as compared the previous year. Coverage ratio was 110.6% in the year ended December 31, 2020, a 14.0 p.p. increase from 96.6% the year ended December 31, 2019. Our Basel Capital adequacy ratio was 15.3% in the year ended December 31, 2020, an increase of 0.3% compared to the year ended December 31, 2017. This variation is2019. 

Deposits from Brazilian Central Bank and deposits from credit institutions plus customer deposits increased by 32.5% reaching R$ 578 billion in 2020.

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Results of Operations

The following table presents our consolidated results of operations for the years ended December 31, 2020, 2019 and 2018:

  For the Year Ended December 31,
  2020 2019 2018 

% Change

2020/2019

 

%Change

2019/2018

  (in millions of R$, except percentages)
Net interest income  44,443   44,321   41,921   0.3   5.7 
Income from equity instruments  34   19   33   78.9   (42.4)
Income from companies accounted for by the equity method  112   149   66   (24.8)  125.8 
Net fee and commission income  16,229   15,713   14,132   3.3   11.2 
Gains/losses on financial assets and liabilities (net) and exchange differences (net)  (11,703)  (326)  (5,589)  3,489.9   (94.2)
Other operating income (expenses)  (873)  (1,108)  (1,056)  (21.3)  4.9 
Total income  48,242   58,769   49,507   (17.9)  18.7 
Administrative expenses  (17,115)  (16,942)  (16,792)  1.0   0.9 
Depreciation and amortization  (2,579)  (2,392)  (1,740)  7.8   37.5 
Provisions (net)  (1,657)  (3,682)  (2,000)  (55.0)  84.1 
Impairment losses on financial assets (net)  (17,450)  (13,370)  (12,713)  30.5   5.2 
Impairment losses on other assets (net)  (85)  (131)  (508)  (35.1)  (74.2)
Other nonfinancial gain (losses)  308   21   156   1,440.0   (87.2)
Operating profit before tax  9,664   22,273   15,910   (56.6)  40.0 
Income tax  3,787   (5,642)  (3,110)  (167.1)  81.4 
Consolidated profit for the year  13,451   16,631   12,800   (19.1)  29.9 

Consolidated Profit for the Year

Our consolidated profit for the year ended December 31, 2020 was R$13,451 million, a decrease of R$3,180 million, or 19.1%, as compared to our consolidated profit of R$16,631 million for the year ended December 31, 2019 as a result of an increase of R$4,080 in impairment losses on financial assets (net) mainly due to the global COVID-19 pandemic that resulted in a R$3,200 million additional allowance for potential loan losses. This was partially offset by the growth of the credit portfolio.

Our consolidated profit for the year ended December 31, 2019 was R$16,631 million, an increase of R$3,832 million, or 29.9%, as compared to our consolidated profit of R$12,800 million for the year ended December 31, 2018 as a result of:

(i)an increase of R$2,400 million in net interest income mainly due to a decreasethe growth in our loan portfolio driven by our commercial banking segment;

(ii)an increase of R$5,0571,581 million in derivatives transactionsnet fees and commissions, primarily as a consequenceresult of an increase of R$722 million in revenues from credit and debit cards, an increase of R$417 million in revenues from sale of insurance and premium bonds, an increase of R$295 million in revenues from capital markets and an increase of R$138 million in revenues from current account services. These increases were due to a 7% increase in our results of hedging on investment abroad. For further information, see “— Other Factors Affecting Our Financial Condition and Results of Operations—Hedging in Foreign Investments.”

Excluding the effects of the hedge for investments held abroad on our revenues, our operating profit before taxes would have been R$19.6 billion, 7.5% higher thantotal active customer base, a 12% increase in the fiscal year ended December 31, 2018. For the year ended December 31, 2017 our adjusted operation profit before tax was R$12.0 billion. Operating profit before taxes excluding the hedgenumber of investmentsloyal customers.

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Net Interest Income

Net interest income for the year ended December 31, 2020 was R$44,443 million, a 0.3% or R$122 million increase from R$44,321 million for the year ended December 31, 2019. This increase was mainly due to a 20.3% in our credit portfolio driven by our global wholesale banking segment.

Average total earning assets in 2020 were R$750.1 billion, a 14.5% or R$94.9 billion increase from R$655.2 billion in 2019. The principal drivers were an increase of R$61.2 billion, or 18.9%, in the average of loans and advance to customers and an R$24.8 billion increase in average of debt instruments. Net yield (the net interest income divided by average earning assets) was 5.9% in 2020 compared to 6.8% in 2019, a decrease of 0.8 p.p.

Average total interest-bearing liabilities in 2020 were R$572.0 billion, a 16.5% or R$80.8 billion increase from R$491.2 billion in 2019. The main driver of this growth was an increase of R$109.4 billion in customer deposits, given the shift in investor assets toward more stable instruments.

Finally, the yield spread (the difference between gross yield on earning assets and the average cost of interest-bearing liabilities) was 5.2% in 2020, mainly due to lower share of our Commercial Banking segment in our total results and the effect of the reduction in the SELIC interest rate from 4.5% in 2019 to 2.0% in 2020.

Net interest income for the year ended December 31, 2019 was R$44,321 million, a 5.7% or R$2,400 million increase from R$41,921 million for the year ended December 31, 2018. This increase was mainly explained by a 7.9% increase in the volume of our credit portfolio, driven by individuals and consumer finance.

Average total earning assets in 2019 were R$655.2 billion, a 7.8% or R$47.1 billion increase from R$608.0 billion in 2018. The principal drivers were an increase of R$45.9 billion, or 81.8%, in the average of loans and amounts due from credit institutions, a R$18.5 billion increase in average of loans and advance to customers and a R$14.7 billion increase in average of debit instruments, which were partially offset by a R$32.3 billion decrease in average of cash on balances with the Brazilian Central Bank.

Net yield (the net interest income divided by average earning assets) was 6.8% in 2019 compared to 6.9% in 2018, a decrease of 0.1 p.p.

Average total interest-bearing liabilities in 2019 were R$491.2 billion, a 6.0% or R$27.8 billion increase from R$463.4 billion in 2018. The main drivers of this growth were an increase of R$18.0 billion in customer deposits, an increase of R$5.3 billion in deposits from the Brazilian Central Bank and deposits from credit institutions and an increase of R$4.7 billion in marketable debt securities.

Finally, the yield spread (the difference between gross yield on earning assets and the average cost of interest-bearing liabilities) was 5.3% in 2019 as compared to 5.4% in 2018, mainly due to a decrease in the cost of funding, associated with the overall reduction in the SELIC interest rate from 6.50% in 2018 to 4.5% in 2019.

Income from Equity Instruments

Income from equity instruments for the year ended December 31, 2020 totaled R$34 million, a R$15 million increase from R$19 million for the year ended December 31, 2019, mainly due to higher dividend gains from the Santander Fundo de Investimento Amazonas Multimercado Crédito Privado Investimento no Exterior as a result of gains in the equities positions towards derivatives hedge.

Income from equity instruments for the year ended December 31, 2019 totaled R$19 million, a R$14 million decrease from R$33 million for the year ended December 31, 2018, mainly due to lower dividends received from Santander Fundo de Investimento Guarujá Multimercado Crédito Privado Investimento no Exterior.

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Income from Companies Accounted for by the Equity Method

Income from companies accounted for by the equity method for the year ended December 31, 2020 was R$112 million, a R$37 million decrease from R$149 million for the year ended 2019, mainly due to a decrease of R$33 million of operation of Banco RCI Brasil S.A. and a decrease of R$8 million of operation of Gestora de Inteligência de Crédito, both jointly-controlled company. These results were partially offset by an increase of R$10 million of operation of Tecban (Tecnologia Bancária S.A.), a jointly-controlled company.

Income from companies accounted for by the equity method for the year ended December 31, 2019 was R$149 million, an R$84 million increase from R$66 million for the year ended 2018, mainly due to an increase of R$59 million in the result of operations of Banco RCI Brasil S., a jointly-controlled company, an increase of R$19 million in the results of operations of Tecnologia Bancária S.A., a jointly-controlled company and an increase of R$12 million in the results of operations of Webmotors S.A., a jointly-controlled company. This was partially offset by a decrease of R$5 million in the results of operations of Gestora de Inteligência de Crédito, a jointly-controlled company and a R$2 million reduction in the results of operations of Santander Auto S.A. a jointly-controlled company.

Net Fee and Commission Income

Net fee and commission income for the year ended December 31, 2020 reached R$16,229 million, a 3.3% or R$515 million increase compared to R$15,713 million for the year ended December 31, 2019, impacted mainly due to the increase in (i) trade finance, (ii) insurance and capitalization and (iii) credit and debit cards.

Net fee and commission income for the year ended December 31, 2019 reached R$15,713 million, an increase of 11.2% or R$1,581 million compared to R$14,132 million for the year ended December 31, 2018. This increase was mainly due to an increase of R$722 million in revenues from credit and debit cards, R$417 million in revenues from sale of insurance and premium bonds, R$295 million in revenues from capital markets and R$138 million from revenues from current account services.

Net fees and commissions from trade finance totaled R$1,740 million for the year ended December 31, 2020, an increase of 32.1% compared to the year ended December 31, 2019. This increase was mainly a result of higher demand for this service during the COVID-19 pandemic and the effects of variations in exchange rates.

Net fees and commissions from trade finance R$1,317 million for the year ended December 31, 2019, an increase of 7.2% compared to the year ended December 31, 2018. This increase was primarily as a result of variations in exchange rates.

Net fees and commissions from insurance and capitalization totaled R$3,831 million for the year ended December 31, 2020, a 6.8% increase compared to the year ended December 31, 2019. For the year ended December 31, 2019, the net fees and commissions from insurance and capitalization totaled R$3,586 million, a 13.2% increase compared to the year ended December 31, 2018. The performance in both periods was primarily driven by increases in our portfolio of credit life insurance.

Net fees and commissions from credit and debit cards totaled R$5,151 million for the year ended December 31, 2020, an increase of 3.3% compared to the year ended December 31, 2019. This increase was mainly due to a recovery of transaction volumes in the second half of 2020, despite the reduction in volume during the first half of 2020.

Net fees and commissions from credit and debit cards totaled R$4,986 million for the year ended December 31, 2019, an increase of 16.9% compared to the year ended December 31, 2018. This increase was as a result of a higher turnover (R$236.4 billion in the fiscal year ended December 31, 2019 as compared to R$201.6 billion the fiscal year ended December 31, 2018).

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The following table reflects the breakdown of net fee and commission income for the year ended December 31, 2020, 2019 and 2018:

  For the Year Ended December 31
  2020 2019 2018 % Change 2020/2019 Change% 2019/2018
    (in millions of R$, except percentages)
Current account services  3,716   4,051   3,913   (8.3)  3.5 
Collection and payment services  1,459   1,313   1,291   11.1   1.7 
Insurance and capitalization  3,831   3,586   3,169   6.8   13.2 
Asset Management and pension funds  1,114   1,434   1,289   (22.3)  11.2 
Credit and debit cards  5,151   4,986   4,264   3.3   16.9 
Capital markets  858   1,211   916   (29.2)  32.2 
Trade finance  1,740   1,317   1,228   32.1   7.2 
Tax on services  (678)  (622)  (671)  8.9   (7.3)
Others  (964)  (1,562)  (1,266)  (38.2)  23.4 
Total  16,229   15,713   14,133   3.3   11.2 

Gains/losses on Financial Assets and Liabilities (net) and Exchange Differences (net)

Gains/losses on financial assets and liabilities (net) and exchange differences (net) for the year ended December 31, 2020 were losses of R$11,703 million, a R$11,377 million increase from losses of R$326 million for the year ended December 31, 2019. This variation is mainly due to gains of R$9,732 million related to financial assets measure at fair value through profit or loss held for trading and losses of R$21,912 million related to exchange differences (net). Excluding the results of hedging on investments abroad effect, gains/losses on financial assets and liabilities (net) and exchange differences (net) were gains of R$1,880 million for the year ended December 31, 2020, a R$942 million increase from gains of R$938 million compared to the year ended December 31, 2019 mainly due to the positive results in our derivative position. Gains/losses on financial assets and liabilities (net) and exchange differences (net) excluding the effects of the hedge investment abroad is a non-GAAP measure. For further information, see “Item 3. Key Information—A. Selected Financial Data—Reconciliation of Non-GAAP Measures and Ratios to Their Most Directly Comparable IFRS Financial Measures.”

 

Gains/losses on financial assets and liabilities (net) and exchange differences (net) for the year ended December 31, 2019 were losses of R$326 million, a reduction of R$5,263 million in losses from R$5,589 million for the year ended December 31, 2018. This variation is mainly due to gains of R$5,156 million related to financial assets measure at fair value through profit or loss held and gains of R$17.9 million related to exchange differences (net). Excluding the results of hedging on investments abroad effect, gains/losses on financial assets and liabilities (net) and exchange differences (net) were gains of R$938 million for the year ended December 31, 2019, a R$660 million increase from gains of R$278 million compared to the year ended December 31, 2018 mainly due to the positive results in our derivative positions. Gains/losses on financial assets and liabilities (net) and exchange differences (net) excluding the effects of the hedge investment abroad is a non-GAAP measure. For further information, see “Item 3. Key Information—A. Selected Financial Data—Reconciliation of Non-GAAP Measures and Ratios to Their Most Directly Comparable IFRS Financial Measures”.

The following table presents our gains/losses on Financial Assets and Liabilities (net) and Exchange Differences (net) for the periods indicated.

  For the Year Ended December 31
  2020 2019 2018 % Change 2020/2019 Change% 2019/2018
  (in millions of R$, except percentages)
Gains/losses on financial assets and liabilities (net) and exchange differences (net)  (11,703)  (326)  (5,589)  3,489.9   (94.2)
Effects of the hedge for investment held abroad  13,583   1,264   5,867   974.6   (78.5)
Gains/losses on financial assets and liabilities (net) and exchange differences (net) excluding Hedge Impact(1)  1,880   938   278   100.4   237.7 
(1)Gains/losses on financial assets and liabilities (net) and exchange differences (net) excluding the effects of the hedge investment abroad is a non-GAAP measure. For further information, see “Item 3. Key Information—A. Selected Financial Data—Reconciliation of Non-GAAP Measures and Ratios to Their Most Directly Comparable IFRS Financial Measures.”

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Other Operating Income/Expenses

Other operating income/expenses for the year ended December 31, 2020 were expenses of R$873 million, a decrease of R$236 million compared to expenses of R$1,108 million for the year ended December 31, 2019, mainly due to the lower result of our FGB pension plan and higher FGC (Fundo Garantidor de Crédito) expenses given the increase in the balance of deposits. For the year ended December 31, 2019, other operating income/expenses were expenses of R$1,108 million, compared to expenses of R$1,056 million for the year ended December 31, 2018.

Administrative Expenses

Administrative expenses for the year ended December 31, 2020 were R$17,115 million, a R$173 million increase compared to expenses of R$16,942 million for the year ended December 31, 2019 mainly as a result of higher expenses with technology and systems. For the year ended December 31, 2019, our administrative expenses of R$16,942 million reflected a R$149 million increase compared to administrative expenses of R$16,792 million for the year ended December 31, 2018, mainly explained by an increase in (i) personnel expenses, which are in line; and (ii) data processing expenses in order to support the increase in the volume of our customer transactions.

Personnel expenses decreased R$457 million for the year ended December 31, 2020, primarily resulting from lower employee wages and salaries, benefits and share-based compensation. In the year ended December 31, 2019, our personnel expenses increased R$122 million (compared to the same period in 2018). This performance can be attributed to the increase in the benefits line and higher wages and salaries.

The following table sets forth our personnel expenses for each of the periods indicated:

  For the Year Ended December 31,
  2020 2019 2018 % Change 2020/2019 Change% 2019/2018
  (in millions of R$, except percentages)
Wages and salaries  5,730   5,876   5,813   (2.5)  1.1 
Social security costs  1,222   1,277   1,405   (4.3)  (9.1)
Benefits  1,390   1,492   1,387   (6.8)  7.5 
Training  49   66   63   (25.8)  4.8 
Other personnel expenses  480   617   538   (22.2)  14.7 
Total  8,871   9,328   9,206   (4.9)  1.3 

Other administrative expenses increased R$629 million to R$8,244 million for the year ended December 31, 2020 from R$7,614 million for the year ended December 31, 2019 mainly due to a R$296 million increase in technology and systems, and a R$176 million increase in communications.

Other administrative expenses increased R$28 million to R$7,614 million for the year ended December 31, 2019 from R$7,586 million for the year ended December 31, 2018, mainly due to a R$272 million increase in technology and systems, a R$91 million increase in advertising, R$83 million increase in specialized and technical service, both expenses derived from more intense commercial actions in our business, partially offset by a decrease of R$582 million with general maintenance expenses as a result of the adoption of IFRS 16. Prior to the adoption, leasing expenses were recognized as general maintenance expenses. After the adoption of IFRS 16, these expenses are now split into interest and depreciation expenses.

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The following table sets forth our other administrative expenses for each of the periods indicated:

  For the Year Ended December 31,
  2020 2019 2018 % Change 2020/2019 Change% 2019/2018
  (in millions of R$, except percentages)
Specialized and technical services  2,171   2,173   2,090   (0.1)  4.0 
Property, fixtures and supplies  744   748   1,331   (0.5)  (43.8)
Technology and systems  2,355   2,059   1,786   14.4   15.3 
Advertising  654   713   622   (8.3)  14.6 
Communications  649   473   457   37.2   3.5 
Per diems and travel expenses  70   140   127   (50.1)  10.2 
Taxes other than income tax  280   112   89   150.1   25.9 
Surveillance and cash courier services  595   631   617   (5.7)  2.3 
Insurance premiums  17   35   29   (51.4)  18.2 
Other (1)  709   531   437   33.5   21.5 
Total  8,244   7,614   7,586   8.3   0.4 
________________________________

(1)For the year ended December 31, 2020, includes mainly Data Processing Expenses in the balance of R$176.1 million (2019 – R$2.4 million and 2018 – R$67.7 million), Service Expenses in the balance of R$27.7 million (2019 - revenue of R$2.2 million and 2018 - R$26. 8 million), Expenses with Benefit Guarantor Fund - FGB R$8.5 million (2019 – R$53.5 million and 2018 - R$35.0 million), Interest on Own Capital R$0 (2019 – R$0 and 2018 - R$38.0 million) and Recovery of Charges and Expenses R$212.8 million (2019 – R$97.4 million and 2018 – R$92.4 million).

The efficiency ratio, which we calculate as total administrative expenses divided by total income, increased to 35.5% in the year ended December 31, 2020, as compared to 28.8% for the year ended December 31, 2019. This increase of 6.7 p.p. in the ratio is primarily due to the effects of the hedge for investment held abroad. For the year ended December 31, 2018, the efficiency ratio was 33.9%. Our adjusted efficiency ratio, which excludes the effect of the hedge for investment held abroad (see “—Hedging in Foreign Investments” and “Selected Financial Data—Selected Consolidated Ratios, Including Non-GAAP Ratios”), was 27.7%, 28.2% and 30.3% in 2020, 2019 and 2018, respectively.

Depreciation and Amortization

Depreciation and amortization for the year ended December 31, 2020 was R$2,579 million, a R$187 million increase from R$2,392 million for the year ended December 31, 2019, primarily due to higher expenses with amortization of hardware and software items, resulting from investments made in this period. For the year ended December 31, 2019, depreciation and amortization amounted to R$2,392 million, a R$652 million increase from R$1,740 million for the year ended December 31, 2018, primarily due to the change in accounting practices resulting from the adoption of IFRS 16 following the principles of IAS 17. For further information, please see “Item 1 Introduction, basis of presentation of the consolidated financial statements and other information, c.1) Adoption of new standards and interpretations of our consolidated financial statements included elsewhere in this annual report.

Provisions (Net)

Provisions principally include provisions for tax, civil, and especially labor claims. Provisions (net) totaled R$1,657 million for the year ended December 31, 2020, a decrease of R$2,025 million compared to R$3,682 million for the year ended December 31, 2019, primarily due to a higher than usual level of provisions in 2019, as explained below.

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In the year ended December 31, 2019, provisions (net) totaled R$3,682 million, an increase of R$1,682 million compared to R$2,000 million for the year ended December 31, 2018, mainly due to an increase of R$700 million related to the creation of an efficiency and productivity fund, an increase in civil and labor proceedings due to revision of the operational model and a constitution of provisions related to the legal proceeding brought by the association of retired employees of Banespa (Associação dos Funcionários Aposentados do Banco do Estado de São Paulo), or AFABESP, an association of former employees of Banespa in which the classification of the chance of loss was revised to probable in December 2019 (for further information see note 22 to our audited consolidated financial statements included in the ”Item 18. Financial Statements” of this annual report).

Impairment Losses on Financial Assets (Net)

Impairment losses on financial assets (net) for the year ended December 31, 2020 were R$17,450 million, an R$4,080 million increase compared to R$13,370 million for the year ended December 31, 2019. This increase was principally due to global COVID-19 pandemic that resulted in a R$3,200 million additional allowance for potential loan losses and the recurrent growth of the credit portfolio.

For the year ended December 31, 2019, impairment losses on financial assets (net) were R$13,370 million, a R$657 million increase compared to R$12,713 million for the year ended December 31, 2018, principally due to the growth of our portfolio of installment loans to individuals.

Our credit risk exposure portfolio increased by R$74.5 billion to R$466.1 billion as of December 31, 2020 compared to R$391.6 billion as of December 31, 2019. Furthermore, our impaired assets decreased R$0.2 billion from R$23.4 billion as of December 31, 2019 to R$23.2 billion for the year ended December 31, 2020. The default rate decreased by 10 base points in 2020 in comparison with 2019.

The following table shows the ratio of our impaired assets to total credit risk exposure and our coverage ratio as of December 31, 2020 and December 31, 2019 and 2018.

  As of December 31,
  2020 2019 2018 2017 2016
  (in millions of R$ except percentages)
Loans and advances to customers, gross  417,819   347,257   321,933   287,829   268,438 
Impaired assets  23,176   23,426   22,426   19,145   18,887 
Provisions for impairment losses  25,640   22,626   22,969   18,262   18,191 
Credit risk exposure Non-GAAP – customers (1)  466,104   391,569   364,194   330,474   301,703 
Ratios   ��                
Impaired assets to credit risk exposure  5.0%  6.0%  6.2%  5.8%  6.3%
Coverage ratio (2)  110.6%  96.6%  102.4%  95.4%  96.3%
Impairment losses  (17,451)  (13,370)  (12,713)  (12,339)  (13,388)
Losses on other financial instruments not
  measured at fair value (3)		  -   -   -   -   88 
Impairment losses on financial assets (net) (4)  (17,451)  (13,370)  (12,713)  (12,339)  (13,300)
________________________________

(1)Credit risk exposure is a non-GAAP financial measure. Credit risk exposure is the sum of the amortized cost amounts of loans and advances to customers (including impaired assets) amounting to R$466,115 million and guarantees and documentary credits amounting to R$48,282 million. We present the off-balance information to better demonstrate our total managed credit risk.

(2)Provisions for impairment losses as a percentage of impaired assets.

(3)Corresponds to registration of losses of a permanent character in the realization value of bonds and securities classified as “Securities available for sale” currently accounted for “Earnings on financials assets (net).”

(4)As of December 31, 2020, 2019 and 2018, our total of impairment losses on financial instruments included R$1,577 million, R$2,055 million and R$2,714 million, respectively, relating to debt instruments.

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The following chart shows our impaired assets to credit risk ratio from 2016 through 2020:

Impaired Assets by Type of Loan

The following table shows our impaired assets by type of loan as of December 31, 2020, 2019 and 2018.

  For the Year Ended December 31,
  2020 2019 2018 % Change 2020/2019 Change% 2019/2018
  (in millions of R$, except percentages)
Commercial and industrial  10,558   10,073   11,832   4.8   (14.9)
Real estate  456   827   1,036   (44.8)  (20.2)
Installment loans to individuals  12,144   12,497   9,499   (2.8)  31.6 
Financial leasing  17   29   59   (40.6)  (50.2)
Total  23,176   23,426   22,426   (1.1)  4.5 

For a discussion of the evolution in impairment in our lending portfolios and our methodology for loan loss allowances with respect to the following lending portfolios, see “Item 4. Information on the Company—B. Business Overview—Selected Statistical Information—Assets—Impaired Assets—Methodology for Impairment Losses.” See also “Item 3. Key Information—D. Risk Factors—Risks Relating to Brazil and Macroeconomic and Political Conditions in Brazil and Globally—Ongoing investigations relating to corruption and diversion of public funds that are being conducted by the Brazilian federal police as well as other Brazilian and non-Brazilian regulators and law enforcement officials may adversely affect the growth of the Brazilian economy and could have a material adverse effect on us” and “Item 3. Key Information—D. Risk Factors—Risks Relating to Brazil and Macroeconomic and Political Conditions in Brazil and Globally—The financial problems faced by our customers could adversely affect us.”

Commercial and Industrial

Impaired assets in the commercial and industrial loans portfolio amounted to R$10,558 million as of December 31, 2020, an increase of R$485 million, or 4.8%, compared to R$10,073 million as of December 31, 2019. This increase was mainly due to the collective assessment of R$1,660 million performed by Santander Brasil which was based on macroeconomic forecasts sensitiveness that indicates stage transfers upon a deterioration of the portfolio.

Impaired assets in the portfolio of commercial and industrial loans amounted to R$10,073 million as of December 31, 2019, a decrease of R$1,759 million, or 14.9%, compared to R$11,832 million as of December 31, 2018. The decrease in impaired assets in this portfolio was the result of the measures that Santander Brasil put in place to manage it, including collection practices with respect to our borrowers whereby we offered certain customers the chance to negotiate a restructuring of their debts or asset disposal.

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For further information, please see “Item 4. Information on the Company—B. Business Overview—Selected Statistical Information—Assets—Impaired Assets—Methodology for Impairment Losses.”

Real Estate

Impaired assets in the real estate lending portfolio totaled R$456 million on December 31, 2020, a decrease of R$371 million, or 44.8%, compared to R$827 million as of December 31, 2019. The decrease in impaired assets in this portfolio was the result of the measures that Santander Brasil put in place to manage it, including collection practices with respect to our borrowers.

Impaired assets in the real estate lending portfolio totaled R$827 million on December 31, 2019, a decrease of R$209 million, or 20.2%, compared to R$1,036 million as of December 31, 2018. The decrease was primarily due to changes on monetary policy that led to reduction on the interest rates on real estate portfolio in Brazil.

For further information, please see “Item 4. Information on the Company—B. Business Overview—Selected Statistical Information—Assets—Impaired Assets—Methodology for Impairment Losses.”

Installment Loans to Individuals

Impaired assets in the installment loans to individuals lending portfolio totaled R$12,144 million as of December 31, 2020, with a decrease of R$353 million, or 2.8%, compared to 2019. The decrease in impaired assets in this portfolio was the result of the measures that Santander Brasil put in place to manage it, including collection practices with respect to our borrowers whereby we offered certain customers the chance to negotiate a restructuring of their debts, especially during the COVID-19 pandemic, or asset disposal.

Impaired assets in the installment loans to individuals lending portfolio totaled R$12,497 million as of December 31, 2019, with an increase of R$2,998 million, or 31.6%, compared to 2018. This increase was a consequence of the recurrent growth of the portfolio and the weak macroeconomic conditions in Brazil which affected the portfolio, such as the unemployment rate and degree of income commitment.

For further information, please see “Item 4. Information on the Company—B. Business Overview—Selected Statistical Information—Assets—Impaired Assets—Methodology for Impairment Losses.”

Financial Leasing

Impaired assets in the lease financing lending portfolio totaled R$17 million on December 31, 2020, a decrease of R$12 million compared to December 31, 2019. This decrease in impaired assets was mainly due to asset write-offs in an amount of R$15.6 million which took place in 2020.

Impaired assets in the lease financing lending portfolio totaled R$29 million on December 31, 2019, a decrease of R$30 million compared to December 31, 2018. This decrease in impaired assets was mainly due to defaults by certain borrowers as a result of weak macroeconomic conditions in Brazil.

For further information, please see “Item 4. Information on the Company—B. Business Overview—Selected Statistical Information—Assets—Impaired Assets—Methodology for Impairment Losses”.

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Impairment Losses on Other Assets (Net)

Impairment losses on other assets (net) for the year ended December 31, 2020 amounted to losses of R$85 million, a decrease of R$46 million as compared to the year ended December 31, 2019, mainly due to less intangible asset impairment losses during the year. For the year ended December 31, 2019, impairment losses on other assets (net) amounted to losses of R$131 million, a decrease of R$377 million as compared to 2018, mainly due to impairment loss of assets in the acquisition and development of software that was recorded due to obsolescence function and disruption of these systems in 2018 that did not occur in 2019.

Other Nonfinancial Gains/Losses

Other nonfinancial gains/losses were gains of R$308 million during the year ended December 31, 2020, a positive variation of R$288 million from gains of R$20 million during the year ended December 31, 2019, primarily due to the R$169 million gain on the sale of Superdigital in the first quarter of 2020.

During the year ended December 31, 2019, other nonfinancial gains/losses were gains of R$20 million, a negative variation of R$136 million from gains of R$156 million during the year ended December 31, 2018, primarily due to an increase of R$104 million relating to income from the reversal of the provision for impairment of properties and R$78 million which is related to the sale of assets received in the recovery of credits with customers that occurred in 2018 that did not occur in 2019.

Global Wholesale Banking

·     Retail Banking·     Santander Corporate & Investment Banking (“SCIB”)
Individuals
SMEs
·     Consumer Finance
·     Corporate

  For the Year Ended December 31,
  2020 2019 2018 2020 2019 2018
  Net interest income Operating profit before tax
  (R$ millions)
Commercial Banking (1)  41,457   42,044   39,391   4,666   18,375   12,397 
Global Wholesale Banking  2,985   2,277   2,531   4,998   3,898   3,512 
Total  44,443   44,321   41,922   9,664   22,273   15,909 
(1)Profit before tax reported under commercial banking includes the effects of the hedge for investments held abroad (offset in the same amount in the “Income Tax” line). The effect of the hedge for investments held abroad in 2020, 2019 and 2018 amounted to loss of R$13.583 million, loss of R$1.264 million and loss of R$5,867 million, respectively.

The following table shows a managerial breakdown of our loans and advances by customer type at the dates indicated:

  As of December 31, Change between 2019 Change between 2018
  2020 2019 2018 and 2020 and 2019
  (R$ millions)
Individuals  174,042   156,177   133,603   11.4%  16.9%
Consumer Finance  51,637   48,421   40,964   6.6%  18.2%
SMEs  54,525   53,119   49,624   2.6%  7.0%
Corporate(1)  137,618   89,539   97,742   53.7%  -8.4%
Total Credit Portfolio  417,822   347,257   321,933   20.3%  7.9%
(1)For purposes of loan portfolio presentation, “corporate” includes companies with annual gross revenues exceeding R$200 million, including our Global Corporate Banking customers.

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Commercial Banking

Retail

Individuals

We have structured the individual customer service segment as follows:

· Private Banking – is responsible for customers with at least R$5.0 million in assets available for investment. In this segment, we offer a complete and tailored portfolio of financial products and services, investment advice, loans and asset management through a dedicated manager for investments and banking services.

· Santander Select – is responsible for customers with a monthly income above R$20,000, or a monthly income above R$10,000 and R$30,000 in investments, or more than R$300,000 in investments. The offer here consists of a value proposition with differentiated products and services, exclusive service spaces, relationship managers who serve a small number of customers and provide asset management advisory services.

· Santander Van Gogh – is responsible for customers with a monthly income ranging from R$4,000 to R$10,000, or with investments above R$40,000. Our goal is to understand the needs of our customers at each stage of their lives and provide them with financial advice through a multi-channel solution, including financial products and services, as well as financial advice.

· Santander Especial – is responsible for customers who earn up to R$4,000 per month. Our business model offers simple and efficient solutions with an attractive cost benefit to the customer, primarily through electronic channels.

Furthermore, we also support our Select and Van Gogh customers through our Santander Direct channel. Santander Direct is suited to customers who want more flexible service hours, from 8:00 a.m. to 10:00 p.m., and who prefer using a remote method, such as telephone, e-mail or chat, as well as access to digital channels. This service complements our offering and broadens our capillarity by catering to regions where we do not have a physical presence.

Small and Medium Enterprises (SMEs)

We serve SMEs under the Santander Negócios e Empresas brand, with the following customer service segmentation model:

 

  For the Year Ended December 31,
  2019 2018 2017 % Change 2019/2018 

%

Change 2018/2017

  (in millions of R$, except percentages)
Net interest income  2,277   2,531   2,554   (10.0)  (0.9)
Income from equity instruments  14   23   -     (38.7)  -   
Net fee and commission income  1,790   1,595   1,460   12.2   9.2 
Gains/losses on financial assets and liabilities (net) and exchange differences (net)  1,215   1,163   1,600   4.5   (27.3)
Other operating income (expenses)  (39)  (90)  (31)  (57.0)  190.3 
Total income  5,258   5,222   5,582   0.7   (6.5)
Administrative expenses  (1,248)  (1,202)  (943)  3.8   27.5 
Personnel expenses  (774)  (802)  (771)  (3.6)  4.0 
Other administrative expenses  (474)  (400)  (172)  18.5   132.6 
Depreciation and amortization  (95)  (103)  (102)  (8.0)  1.0 
Provisions (net)  (13)  (53)  (119)  (75.7)  (55.5)
Impairment losses on financial assets (net)  54   (294)  (1,105)  (118.2)  (73.4)
Impairment losses on non-financial assets (net)  (58)  (58)  (21)  0.3   176.2 
Operating profit before tax  3,898   3,512   3,293   11.0   6.7 
·Empresas Núcleos (Core Companies) – responsible for companies with annual revenues between R$30 million and R$200 million. Our service model is based on dedicated relationship managers, a team of experts for more complex demands and loan managers specializing in risk management. We also provide specialized services to multinational companies and other major corporations in order to meet their specific needs.

 

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·Empresas Polo (Hub Companies) - responsible for companies with annual revenues between R$3 million and R$30 million. We offer these customers a comprehensive range of products and services through a user-friendly interface.

·Negócios Agência (Branch Businesses) - responsible for companies with annual revenues of up to R$3 million. We offer these customers a simple banking solution through an integrated account that combines a corporate account with a point of sale (POS) terminal hosted by Getnet. Through this arrangement, our customers receive benefits for using the Getnet terminal to process their credit card sales, with receipts being posted to a Santander Brasil checking account.

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Table
·Empresas MEI (Individual Microentrepreneur) - responsible for companies with annual revenues of up to R$81 thousand. We offer these customers a simplified and cost-effective option through our Santander Conta MEI.

In addition, for companies with annual revenues of up to R$300 thousand, we also offer Negócios Direct (Direct Business). Under this segment, customers have direct access to a relationship manager who is available during extended service hours and via remote channels, such as telephone, e-mail or chat, as well as access to digital channels that facilitate the client’s day to day needs.

Consumer Finance

We provide consumer credit to finance motor vehicles, goods and services directly or through intermediate agencies. Santander Financiamentos is our main service channel, but we also operate under multiple brands.

The following table sets forth certain key financial and operating data regarding our consumer finance business for the periods indicated:

  As of December 31, Change between 2019 and Change between 2018 and
  2020 2019 2018 2020 2019
Individual consumer finance loan portfolio market share (1) (%)  25.1% 25.0%  25.4%  0.1 p.p   (0.4) p.p 
(1)Source: Brazilian Central Bank.

Corporate

Our corporate customer segment comprises large companies that have annual gross revenues greater than R$200 million (except for our Santander Corporate & Investment Banking customers). We focus on fostering a close relationship with our corporate customers through managers and specialists geographically distributed across Brazil, providing customer-tailored services with a complete portfolio of local and global products (products from Commercial Banking and SCIB).

Global Wholesale Banking

Santander Corporate & Investment Banking (SCIB)

SCIB is the global business unit that serves customers, who, due to their size and complexity, require tailored services or high-value-added wholesale products. In this segment, we provide a wide range of domestic and international financial services to large Brazilian and multinational companies. Our customer portfolio comprises a range of industries, including telecommunications, retail, aviation, real estate and logistics, power, construction and infrastructure, natural resources, food, agribusiness and financial institutions.

Our customers in the SCIB segment benefit from Santander Group’s global structure of services, which is supported by its worldwide-integrated wholesale banking network and global services solutions, as well as local market expertise and provision of integrated services.

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Our Portfolio of Products and Services

Payments

Credit and Debit Cards

We operate in the credit and debit card market by issuing these products to our customers (including both account and non-account holders), with the majority of customers being individuals. Our strategy is to offer credit and debit cards that are compatible with the income level and lifestyle of each of our customers.

In order to reach a greater number of customers and remain competitive, we launched the SX card in November 2020, as part of the SX strategy detailed below. This product benefits highly engaged and transactional customers, facilitating the exemption from annual card fees. In addition, we also took the opportunity with the SX card to launch a more modern and ambitious card design for our customers.

We also improved our digital journey to provide better customer self-service, which we believe is a key component for higher customer engagement and was especially important in this new cycle. A recent novelty is “Clique e Retire”, a new physical card delivery system that provides autonomy and agility by allowing customers to opt to collect their cards from self-service machines.

The following table sets forth certain key financial and operating data regarding our credit card business for the periods indicated.

  As of and For the Year Ended December 31, Change between 2019 and Change between 2018 and
  2020 2019 2018 2020 2019
Credit card portfolio market share(1)  13.4%  12.9%  13.3%  0.5 p.p   (0.37) p.p 
Credit card portfolio (R$ billion) (2)  37.8   36.1   30.9   (100.0%)  16.8%
Total card turnover (R$ billion) (2)  242.0   236.4   201.6   2.4%  17.3%
Credit card turnover (R$ billion) (2)  158.7   161.0   137.1   (1.4%)  17.4%
Total card transactions (in millions) (2)  2,570.8   2,725.4   2,338.2   (5.7%)  16.6%
Credit card transactions (in millions) (2)  1,300.0   1,450.9   1,206.1   (10.4%)  20.3%
Participation of credit card in the household consumption – Market overview (2)(%)  24.3%  24.5%  23.1%  (0.24p.p)  2.94 p.p 
(1)Source: Brazilian Central Bank, as of December 31, 2020.

(2)Source ABECS – “Monitor bandeiras”. The data relating for the year ended December 31, 2018 has been revised as a consequence of the restatement of the methodology of monitoring issued by ABECS.

Santander Way

Santander Way is an app offered to our cardholders that allows them to manage their Santander Brasil cards at any time. This complete payment platform also works as a digital wallet, enabling customers to conduct instant contactless payments. The app is frequently updated with new features. Some of the most notable features launched in 2020 included: (i) extra loan and installment offers, (ii) virtual cards, (iii) functions for safer online purchases without a physical card, (iv) prepaid mobile recharges, and (v) chatbots for customer service. In 2020, we had 9 million active customers using Santander Way.

Superdigital

Superdigital is a digital, pre-paid solution that allows customers to manage their daily financial activities and pre-paid accounts entirely online through a user-friendly interface.

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Superdigital customers can easily and rapidly (i) make withdrawals in the “Banco24Horas” ATM network; (ii) send and receive money from any bank institution; (iii) recharge prepaid mobile phones; (iv) carry out foreign exchange transactions in up to 10 different currencies; and (v) recharge public transportation passes using an app. In addition to all these features, customers also receive an international MasterCard credit card to make purchases in physical and online stores, and gain access to our rewards and “MasterCard Surpreenda” programs, which offer a range of benefits and discounts.

On February 28, 2020, we sold our entire equity interest in Superdigital to Superdigital Holding Company, S.L. a company indirectly controlled by Santander Spain. For further information regarding this sale, see “See “Item 4. Information on the Company—4A. History and Development of the Company—Important Events.”

Merchant Acquiring Market | Getnet

Getnet is a technology company that offers solutions, both physically and digitally, to individuals and businesses. The acquisition of Getnet, which was completed in 2019, gave us more flexibility, and enabled us to create more complete and tailored solutions for our customers by integrating its services with the Bank.

Through Getnet, we are able to offer a wide array of payment solutions for individuals and businesses, including: (i) mobile and Wi-Fi point of sale or POS devices; (ii) SuperGet, a mobile POS device that self-employed professionals and small companies can buy or rent; (iii) TEF (Electronic Transfer of Funds), a solution for establishments with a significant number of transactions, operating in synergy with the establishment’s systems and offering sales reconciliation through our bank-integrated customer benefits; (iv) Getnet App, which allows users to track detailed sales transactions in real time and amounts that can be anticipated, while also providing business analytics information and richer data sets that business owners can use to better manage their activities, such as best times of the day to sell; (v) Digital POS, a complete solution that can be customized and, when connected to the internet, allows app downloads and the use of integrated management functions; (vi) Getnet Digital Platform, a tool for all e-commerce environments, with integrated services such as safe boxes, recurrence and anti-fraud systems, which is modeled after the “one-stop shop” concept and provides financial intermediation between a marketplace and its storeowners, as well as several other financial services, such as bill generation, and sales conciliation; and (vii) Getnet Digital Store, which is geared towards SMEs, allows users to set up their stores online, and offers a number of services such as a payment platform, alongside visual and fully integrated management.

The following table sets forth certain key financial and operating data regarding our merchant acquiring business for the periods indicated.

  As of and For the Year Ended December 31, Change between 2019 and Change between 2018 and
  2020 2019 2018 2020 2019
  (R$ millions, except as otherwise indicated)
Market share of total turnover(1)  13.6%  11.3%  12.3%  2.3 p.p   (1.0p.p)
Debit turnover  105.8   80.9   73.4   30.8%  10.2%
Credit turnover  167.9   126.6   114.1   32.6%  11.0%
Number of debit transactions (thousand)  1,572,685   1,415,089   1,245,269   11.1%  13.6%
Number of credit transactions (thousand)  1,234,105   1,070,717   893,519   15.3%  19.8%
(1)Source: Data for 2020 is based on ABECS Monitor Bandeiras - Acquirers data for the nine-month period ended September 30, 2020. Data for the year ended December 31, 2020 was not available as of the date of this annual report. For comparison purposes, the difference between September 30, 2020 and September 30, 2019 would be: +2.3 p.p

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On February 25, 2021, further to the Material Facts disclosed on November 16, 2020 and February 2, 2021, we announced that our Board of Directors approved a separation from our merchant payment business, which is undertaken by our subsidiary, Getnet, in order to concentrate the technology and payments businesses of Santander Group within PagoNxt, a new technology-focused global payment platform. Following the potential spin-off of our equity interest held in Getnet, or the “Spin-Off,” which will be resolved upon by our shareholders in an extraordinary shareholders’ meeting, our shareholders would become direct shareholders in Getnet on a pro rata basis. Accordingly, our shareholders immediately prior to the Spin-Off would hold a percentage of equity interest in Getnet in the same proportion as they held in Santander Brasil prior to the Spin-Off. After the approval of the Spin-off by our extraordinary shareholders’ meeting, our shares and units will be traded with the right to receive the shares and units issued by Getnet until the record date, which, once determined, will be disclosed to the market by means of a Notice to Shareholders.

Esfera

Esfera is our loyalty program, which can be accessed through its own website and mobile app. Our loyalty platforms enable our credit card holders to exchange their reward points for many products, services and travel benefits, including exclusive deals and discounts with partners such as Cinépolis, FastShop and Casas Bahia, among others.

Ben

Ben is an employee benefits company that provides greater flexibility, purchasing power and quality of life to its users by creating, supplying and managing various types of employee benefit vouchers (e.g. meals, such as Vale Alimentação and Vale Refeição, as well as transportation) in the form of magnetic cards. These benefits are offered through an integrated digital platform.

Since 2019, Ben has provided transportation benefits in partnership with RB Serviços Empresariais LTDA.

Ben is currently working on sales partnerships and the development of new products, such as gift cards and other benefit options to expand its portfolio.

The following table sets forth certain key financial and operating data regarding our merchant acquiring business for the periods indicated.

  

As of and For the Year Ended

December 31,

  2020 2019 2018
  (in R$ millions, except as otherwise indicated)
Card Purchases  946   560   - 
Number of Cards (in thousands)  217   98   1 
Number of Transactions (in thousands)  12,192   9,534   - 
Merchant accredited (in thousands)  338   253   4 

For further information, see also “Item 4. Information on the Company—A—History and Development of the Company—Important Events.”

Payroll Loans

Payroll loans support both account and non-account holders in the execution of projects and financial organization. Under these loans, monthly installments are deducted directly from the borrowers’ paychecks by their own employers, and then credited to Santander Brasil, significantly reducing our credit risk. We offer these payroll loans to our customers through our mobile banking platform and our branches. Our customers can refinance their payroll loans, as well as choose from other options to help them manage their debts. Furthermore, these loans are also offered to non-account holders through Olé Consignado. For further information on relevant events relating to Olé Consignado’s corporate events, see “Item 4. Information on the Company—A—History and Development of the Company—Important Events.”

The following table sets forth certain key financial and operating data regarding our payroll loans as of the dates indicated.

  As of December 31, Change between 2019 and Change between 2018 and
  2020 2019 2018 2020 2019
Market share in origination (1)  22.3%  13.2%   12.2%   9.09 p.p   1.01 p.p 
Payroll loan portfolio (R$ billion)  48.1       43.0      33.8       11.9%   27.1%
(1)Source: Brazilian Central Bank, as of December 31, 2020, December 31, 2019 and December 31, 2018, as applicable.

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SIM

SIM is a digital lending platform for individuals through which customers can apply, and be approved, for a loan completely online. After 15 months of operation, SIM has already achieved a positive net profit, a loan portfolio of R$700 million as of December 31, 2020 and a market share of 0.5%. as of December 31, 2020. SIM also has a high level of customer satisfaction, with an NPS of 80 points.

emDia

emDia is an online debt renegotiation platform. It provides customers with a simple platform to access debt renegotiation services on a 24/7 basis. As of December 31, 2020, emDia had 4 million customers and had contributed to the recovery of R$46 million in credit volume in 2020.

Mortgages

We offer long-term financing to our customers for real estate purchases, secured by deeds of trust. We consider mortgages to be a strategic product due to their lower risk (since the acquired property serves as collateral) and their ability to increase our customer loyalty (especially since we offer customers more attractive rates if they choose to bank with us). In this market, our customers, and those of our competitors, are primarily individuals.

We do not offer mortgage loans that do not meet prime lending regulatory standards, which means that (i) we do not finance more than 90% of the value of the property to be purchased, (ii) borrowers must meet certain minimum monthly income levels evidenced by recent payroll information and tax returns to confirm their employment status or other revenue sources, allowing us to evaluate their credit risk profile, and (iii) any other indebtedness added to the financing cannot exceed 35% of the borrower’s monthly gross income.

To facilitate the process for our customers, we provide a real estate digital platform where customers can obtain mortgages completely online. We were the first bank in Brazil to offer customers the opportunity to secure a mortgage without being physically present, except for the signing of the agreement and returning it duly registered. We have a partnership with the largest real estate platform in Brazil in order to improve our sales network and strengthen our digital presence.

The following table sets forth certain key financial and operating data regarding our mortgage business for the periods indicated.

  As of December 31, Change between Change between
  2020 2019 2018 2019 and 2020 2018 and 2019
  (in R$ billions, except percentages)
Mortgage loan portfolio  45.8   39.7   36.3   15.4%  8.3%
Individual sector mortgage loans  44.0   37.2   31.4   18.3%  18.4%
Loan to value(1) – Production (% quarterly average)  64.9%  62.9%  60.6%  2.00 p.p   2.31 p.p 
Loan to value – Portfolio (%)  52.2%  49.4%  48.7%  2.75 p.p   0.73 p.p 
(1)Ratio between loans and the value of the collateral, excluding home equity.

Home Equity

In our portfolio of loan products, we also offer a “home equity” financing product called “Use Casa”, where customers can receive a loan and provide real estate as collateral. This product enables customers to access financing to pursue their personal objectives. “Use Casa” experienced a marked increase in market share, achieving an overall market share of 29.5% in 2020 as compared to 20.5% in 2019.

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We do not offer home equity loans that do not meet prime lending regulatory standards, which means that (i) we do not finance more than 60% of the value of the property, (ii) borrowers must meet certain minimum monthly income levels evidenced by recent payroll information and tax returns to confirm their employment status or other revenue sources, allowing us to evaluate their credit risk profile, and (iii) any other indebtedness added to the financing cannot exceed 35% of borrowers’ monthly gross income.

To facilitate the process, customers can obtain home equity loans completely online through our real estate digital platform. When using this option, customers only need to be physically present when signing the contract and also when returning it once it is duly registered.

Tailored Products and Services

As mentioned above, we offer a complete set of services and products worldwide. In this way, we have a portfolio that ranges from basic to tailor-made and highly complex solutions in the following areas:

·     Global Transaction Banking - responsible for the sale and management of local and global transactional banking products, which includes local loans, commercial finance, transfers of BNDES on-lending, guarantees, structured loans and cash management solutions.

·     Global Transactional Services - responsible for sales and management of global transactional banking, trade finance, guarantees, structured loans, and funding from international banks.

·     Global Debt Financing - includes funding and financial advisory services related to projects, origination and distribution of fixed-income securities in the debt capital markets (DCM), financing of acquisitions and syndicated loans, other structured financing arrangements, subordinated debt and energy efficiency transactions.

·     Investment Banking - offers advisory services for mergers and acquisitions (M&A) and equity capital markets transactions, including initial public offerings and follow-on offerings.

·     Equities – provides stock brokerage and advisory services, equity services for individuals, corporate, and financial institutional investors in stocks, derivatives, as well as equity research.

·     Treasury Customers - responsible for structuring and offering foreign exchange, derivative and investment products for customers from several segments of Santander Brasil, including institutional investors, corporate and retail customers.

·     Market Making - responsible for the pricing of customer deals originated by our sales force from corporate, institutional, private banking and retail segments. This department also conducts our proprietary trading activities.

We are one of the leading banks in capital markets and financial advisory services in the Brazilian and international markets as evidenced by the awards we have received, of which the most significant are listed in the table below.

CompanyAcknowledgments
Dealogic

First Quarter of 2020

#2 M&A LatAm - Deal Announced¹

#3 M&A Brasil - Deal Announced¹

#6 M&A Brasil - Volume Announced¹

#4 ECM Brasil - Deal Announced2

#11 ECM Brasil - Volume Announced2

#1 Global Financial Advisor - Deals Announced (Brasil in the International Markets)

#1 Global Renewables MLA - Deals & Volume Announced

#1 Global Renewables MLA - Deals Announced

#1 Americas MLA - Deals Announced

#1 Americas Financial Advisor - Deals Announced

#1 LatAm & Caribe MLA - Deals & Volume Announced

#2 Global Financial Advisor - Volume Announced (Brasil in the International Markets

#2 Americas Renewables MLA - Volume Announced

#2 Americas Financial Advisor - Volume Announced

#3 Americas MLA - Volume Announced

#1 Global ECA Financing Volume by MLA

#1 LatAm & Caribbean ECA Financing Volume by MLA

OBS:

GDF: Position 2019 FY

IB: (1) excludes fairness opinions / (2) Not included deals made in the EUA – YTD´20

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Global Finance

Best Provider of Short-Term Investments/Money for 2020

Market Funds in Latin America for 2020 

Best Trade Finance Bank in LatAm 2020

World´s Best Payment Hub Solution for 2020 

Best Supply Chain Finance Provider in LatAm 2019

Best Trade Finance Provider in LatAm 2019

Institutional Investors

#1 The Latin America Strategy Team                           

First Quarter of 2020

#4 The Latin America Sales Team

# Sales Trading Institutional Team 

#5 Research Team

TMI Awards

Best Trade & Supply Chain Finance Bank in South America 2020

B3

#2 Derivatives

October 2020

FX Markets

Best Bank for emerging LatAm currencies 2020

Best Bank for LatAm 2020 

Best Bank for USD/BRL 2020

Global Trade Review

Best Trade Finance Bank in LatAm 2020

First Quarter of 2020

Best Deal Award Route 2020
Best Supply Chain Bank 2020

Bond Radar

#1 DCM Distributed in the International Market

Full Year 2020

Brasil Bonds & Corporate Bonds

Trade Finance an IJ Global

Best Supply Chain Finance Bank 2020

Best Receivables Financier 2020 

PFI Awards

Global Adviser of the year                           

First Quarter of 2020

Anbima

#3 DCM Distributed in the Local Markets                   

First Quarter of 2020

#3 3 DCM Originated in Local Markets– Fixed Income Consolidation
Project Finance                                                              Full Year 2019
Financing advisory #1 Announced value and Nº Deals
Concession Auction Financial Advisor #2 Announced values and #2 Nº Deals
Structuring #5 Announced value #3 Nº Deals

Risk Net

Risk Solutions House of the Year 2020

Deals: Cosan (EDQ) / Syngenta (Special Sits)

Latin Finance

Financial Advisor of the 2020: LatAm

Bacen

#1 Total FX                           

May 2020

The Banker

Most innovative investment bank of the year for structured finance 2019

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Customer Solutions

Santander SX

As required by the new Brazilian instant payment system, PIX, which was established by the Brazilian Central Bank, we developed Santander SX, a system that allows individual and corporate customers to instantly transfer money, at any time, free of charges, in a practical and safe way.

In the fourth quarter of 2020, we introduced SX. We believe that SX is complementary to the Brazilian Central Bank’s instant payment solutions, by offering exclusive benefits to customers, including 10 days of interest-free overdraft for individuals and five days for businesses. Since its launch in November 2020, we have processed more than 36 million PIX transactions (sent and received), totaling more than R$ 43 billion, through SX. More specifically, regarding the financial volume of PIX sent, we achieved a share of 15% in the fourth quarter of 2020, outperforming our regular market share in the credit market.

Agribusiness

Agribusiness remains one of our key areas of expansion, and we believe that expanding our agribusiness network will help broaden our reach into the Brazilian countryside to strategic areas in which we are not yet present. We provide a full range of products and services focused on the agribusiness sector. Our approach towards rural producers differs from the one taken with our other customers in that we offer a specialized relationship to our rural producers. We believe that a network of physical stores and digital solutions will result in a more agile and efficient communication with these customers.

The following table sets forth certain key financial and operating data regarding our agribusiness for the periods indicated.

  As of and For the Year Ended December 31, Change between Change between
  2020 2019 2018 2019 and 2020 2018 and 2019
           
Number of agribusiness-focused stores  40      34      21      6%    13% 
Agribusiness loan portfolio (R$ billion)  13.7   10.9   11.8   26.2%  (7.9)%) 

Microfinance

We believe that Prospera Santander Microfinance is a leading microcredit-oriented operation among privately owned banks in Brazil, based on market share and portfolio value. This product aims to support formal and informal microentrepreneurs by generating business and income. With a 100% digitalized service process, in addition to products intended to improve business management skills, we have customers who hire us for services previously not available to them, because they do otherwise have access to financial services, such as property finance, consortium and investment services.

  As of and For the Year Ended December 31, Change between 2019 and Change between 2018 and
  2020 2019 2018 2020 2019
Number of Prospera stores  99   100   45   (1.0%)  122.2% 
Microfinance loan portfolio (R$ billion)  1.3   1.2   0.7   8.3%  79.1%

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Webmotors

Webmotors is the first and largest Brazilian technology company focused on providing automotive purchase and sale solutions for dealers, original equipment manufacturers and private sellers, holding the largest online automotive listing in Brazil.

Webmotors received over 30.2 million visits each month and had an average of over 3.9 million vehicles listed in 2020. Through the Cockpit, a pioneering and disruptive platform for car dealers, which combines solutions for the entire chain described above, we offer the following solutions: business management/performance, buyer profile (CRM), data intelligence, predictive pricing models and market data (AutoGuru).

We have also launched “+Fidelidade,” a loyalty program aimed at offering incentives to our agents based on their loyalty and relationship level with Grupo Santander Brasil and Webmotors. We have sought to improve customers’ after-sales experience through several functionalities made available on an online portal.

During 2020, we launched two service products, Car Delivery and “Troca com Troco” in partnership with Webmotors.

Through Car Delivery, customers seek virtual assistance through video calls, resolve concerns online, and receive their vehicle at home, sanitized and with all necessary support. “Troca com Troco” allows customers to sell their current financed vehicles while financing the purchase of a less expensive vehicle, and pocket the difference. This product allows the Bank to better manage credit exposure and control the credit quality of the portfolio with leading customer service.

Santander Auto

In 2019, we launched Santander Auto, a fully digital car insurance solution which relies on the use of big data analytics for pricing.

The Brazilian insurance market is characterized by: (i) low insurance penetration as a proportion of GDP; (ii) low technological evolution, dominated by companies with low innovation rates, still focused on financial results (due to a history of high interest rates); and (iii) retail brokers as the main distribution channel. As a result, the subscription process still requires that the customer complete a question form (approximately 40 questions). As a result, only approximately 20% of Brazilian vehicles are insured.

Actuarial techniques and behavioral models enable Santander Auto to make an insurance proposal, without making additional information requests from the customer, based on information already available to us.

During its first year of operation almost 110 thousand policies were sold, which represents a penetration rate of 16% (i.e., total insurance contracts sold as a percentage of the contracts relating for loans by Santander Financiamentos). These results are based on a pricing system based on information bureaus which provides have a more accurate price, which makes it possible to make an offer at the time the vehicle is purchased, and which enables customers to include insurance in their purchase with a single click. During 2020, we focused on consolidating our insurance offer, by ensuring that all customers have at least one insurance offer, while also covering the most diverse types of risk. We intend to expand the business through the optimization of our ecosystem and penetration in our customer base.

+ Negócios and + Vezes | Santander Financiamentos

In 2017, we launched “+Negócios,” which we believe to be an innovative digital trading platform. This simple and intuitive platform enables faster execution of loan simulations, receipt of credit approval and proposal formalization for vehicles, in addition to providing portfolio management reports. In the same year, we also introduced “+Vezes”, a digital trading platform allowing retailers to offer installment payment options for the sale of goods and services.

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In 2020, approximately 15 million separate Brazilian individual taxpayer identification numbers were used to simulate vehicle leasing through the “+Negocios” platform, which makes us one of the most widely used platform in Brazil’s vehicle leasing market.

We also reformulated the “+Vezes” platform in 2020 to improve customer experience and the platform's stability. We also increased our sales force in this business through sales representatives giving us a presence throughout Brazil.

Cash Management

We offer cash management solutions to corporate customers and SMEs online through our Internet banking and mobile banking services.

Our revenues from cash management include fees charged for offering the following products: (i) collections, in which we assist customers in carrying out commercial transactions using printed or online payment slips; (ii) payments, consisting of simple and automatic management of our customers’ accounts payable activities through individual transactions or via electronic file transfer; (iii) payroll, which is intended to facilitate the management of salary and benefits payments to our customers’ employees via an online tool; (iv) collection of values, which consists of the payment of cash values and checks at the customer’s points of sale; and (v) custody, by which we perform the custody, control and deposit of predated checks up to the date of clearing.

In addition, we also provide other revenue-generating products which are structured and tailored to the customer’s operation.

Customer Funding

Our main sources of liquidity are customer funding through deposits and other bank funding instruments. These deposits, combined with equity and other instruments, enable us to meet most of our liquidity and legal reserve requirements.

For further information, see “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Liquidity and Funding.”

Investments

Our investment process for retail customers seeks to provide qualified guidance and help them achieve their financial objectives based on four major pillars:

·Client investment profile - We assess our customer’s situation to understand their level of financial knowledge, investment horizons, liquidity needs and the levels of risk they are willing to assume, among other factors. This analysis is reviewed periodically, according to the customer’s needs and local regulations.

·Investment strategy - Our investment philosophy aims to provide long-term returns through a structured asset allocation process and mitigate market risks by diversifying among different asset classes.

·We define strategic portfolios for each customer profile and build our “Model Portfolio” on a monthly basis according to market conditions and trends. This tactical view arises from the Asset Allocation Committee, which consists of economists from our economics department, our Santander Asset Management division, our Private Banking unit and our brokerage house (Santander Corretora).

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·Execution and implementation - To assure a successful execution of investment strategy, we provide a complete array of financial products, ranging from banking instruments, bonds, stocks, structured notes, investment funds with an open architecture and selected investment providers, real estate funds and exchange traded funds, among other capital markets instruments. Our partnership with Zurich Santander completes this offering with a wide range of private pension plans. Furthermore, our recent acquisition of Toro Corretora has further enhanced our PI DTVM investment platform by expanding our product offering. For more information regarding this acquisition, see “—A. History and Development of the Company—Important Events— Purchase of Equity Interest over Toro Controle e Participações S.A.”

·Follow-up - Our advisory team performs, along with the client, a thorough and frequent revision of their profile, objectives and results, seeking to keep their investments within the established parameters and Model Portfolio’s guidance.

In order to identify possible deviations from the investment profile’s recommended positions, we also rely on automated monitoring systems. These controls alert customers of any transactions that compromise the suitability of their portfolio and are in line with our commitment to protect our customers’ interests.

Furthermore, each customer has direct access to their positions through a private access site on the Internet and Mobile App, where they can view the evolution of their investment strategies.

Programa Avançar

We also have a non-financial solution, known as “Programa Avançar”, which is aimed at entrepreneurial customers. Through this solution, SMEs can access content and solutions related to management and innovation, internationalization, team building, and other topics relevant to businesses via a web platform. We see this program as a key component of our offering to Brazilian entrepreneurs.

In addition, we offer a digital account solution to these customers, especially individual entrepreneurs.

Similarly, we offer “Santander Copiloto”, an enterprise resource planning tool designed for our SME customers. This tool is integrated with the Santander Digital channels, and provides solutions such as e-commerce, sales point software and tax compliance.

Service Channels

We offer our financial services and products to our customers through our multichannel distribution network composed of: (i) physical channels, such as branches, mini-branches and ATMs; (ii) call centers; and (iii) digital channels, such as Internet banking and mobile banking.

Physical Distribution Network

Our distribution network provides integrated financial services and products to our customers. The following table presents our physical distribution network as of the dates indicated.

  As of December 31,
  2020 2019 2018
Branches    2,153     2,328   2  ,283 
Mini-branches    1,411     1,512     1,267 
Own ATMs  12,949   13,296   13,641 
Shared ATMs  23,798   23,780   23,049 

Branch Network

Our branch network offers our entire portfolio of products and services to our customers through a personal and customized approach. The table below shows the geographic distribution of our branch network as of the dates indicated.

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   As of December 31,
   202020192018
Northeast    9%  9%  8%
North and Midwest    7%  7%  7%
Southeast  70%70%71%
South  14%14%14%

PABs (Mini-branches)

We offer daily banking services to our SMEs, as well as corporate customers and their employees through our PABs (“Postos de Atendimento Bancário”), which are exclusive sales points located at our customers’ buildings, as well as in hospitals and universities. The presence of PABs in our customers’ offices strengthens our relationship and builds loyalty with those customers, who benefit from the convenience of conducting their banking transactions at their workplace.

ATMs

We operate an extensive network of 12,949 ATMs, including those located in our branches and mini-branches. In addition, our customers have access to the “Banco24Horas” network, which operates 23,798 ATM units. Through this network, our customers can access their accounts and conduct banking transactions, as well as purchase most of the products and services available in our portfolio.

Call Centers

Our call centers provide active Santander Brasil customers (account and single product holders) with consultation, financial transactions and product hiring services. This important distribution channel has a variety of customer self-service facilities. Our call centers received over 150 million contacts in 2020.

Digital Channels

Our digital channels include Internet banking, mobile banking and other digital solutions aimed at facilitating our customers’ access to the products and services that we offer. We highlight the following key features:

·OnePay – This service is available through the Santander App and enables customers to transfer funds to foreign countries in various currencies.

·Santander On “Financial control” – Through the Santander App, customers can access this service to view all of their commitments to us, as well as pending issues with the Brazilian tax authority (Receita Federal do Brasil), Serasa (a Brazilian credit bureau) and the Brazilian Central Bank, thereby enhancing the transparency of the credit relationship with Santander Brasil. Customers can easily access credit quality information and the use of debt with Santander, as well as easily update income data without having to present any payroll or tax documents, and readjust available limits.

The following table provides certain key operating information with regards to our digital channels as of the dates indicated.

  For the Year Ended
  December 31,
  2020 2019 2018
  (in millions)
Number of digital customers(1)    15.6   1  3.4   1  1.4 
Number of digital channel transactions(2)  5,262   4,311   4,073 
(1)We define digital customers as those who used at least one of Santander Brasil’s digital channels (e.g., mobile banking and internet banking) in the 30 days preceding the end of the applicable year.

(2)Refers to transactions carried out through internet banking, mobile banking and other digital platforms. The data relating to the year ended December 31, 2018 has been revised due to a change in the criteria applicable to digital transactions accounting.

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The following table provides an overview of the weight of each key distribution channel in our overall distribution system.

   For the Year Ended
   December 31,
   202020192018
   (%)
Internet banking  36.939.746.1
ATMs  5.98.910.4
Mobile(1)  48.039.034.5
Branch  2.24.15.2
IVR(2)  6.17.42.3
Call Center  0.80.91.4
(1)Refers to total transactions (account holder and unique product-holder).

(2)Interactive voice response is an automated telephone system in which a computer interacts with callers (who can use their voice or the telephone keypad to communicate with the computer), gathers information and transfers caller to the appropriate representative.

In addition to Internet banking and mobile banking, we have digital solutions that play an important role in providing a better digital experience for our customers and potential customers, including:

·Digital account opening – Customers can open an account with Santander Brasil entirely online.

·Artificial Intelligence GENTE – Launched in 2020, this solution offers a more personalized digital service that provides greater autonomy for our customers.

·LAB 033 – Launched in 2019, this is innovation laboratory is focused on creating new solutions that can support transformational projects across our organization.

·Santander Corretora App - A digital trading platform offered to our brokerage customers.

·Autocompara - Allows customers to obtain insurance quotes from six different insurance companies and purchase the best offer through Autocompara’s website.

·Pi DTVM – Acting as a digital broker since 2019, this solution empowers customers to invest through a simple and intuitive digital platform. PI DTVM also provides market information and financial education tools.

Technology and Infrastructure

In 2020, we optimized our technology investments, in order to provide more efficiency, digitalization, security and quality to the products and services provided to our customers. In the challenging scenario brought by the COVID-19 pandemic, we took on the important role of serving as an ally to our customers and the Brazilian economy. Through sizeable investments in technology and enhancements to the capabilities of our channels and digital platforms, we were able to quickly face up to the new reality, while simplifying internal processes and business models.

We established a new technological innovation center (Lab 33) in the city of São Carlos (in the state of São Paulo) and built partnerships with local universities and technical schools in order to identify and recruit qualified talent. In addition to creating job opportunities in São Carlos, this innovation center resulted in the creation of other direct and indirect positions in our technology ecosystem. Furthermore, we boosted the agility and scalability of our software development and deployment processes, while increasing automation levels and adopting advanced cloud computing and artificial intelligence solutions. We have listed below a few other initiatives delivered throughout the year:

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·GENTE: in order to speed up and optimize the digital services provided to our customers, we released GENTE, a virtual self-service assistant that customers can use to search for information, ask questions, access account statements, review credit card limits, as well as to perform financial transactions such as transfers and invoices payments, all through the Santander Mobile App, our commercial portal, WhatsApp or Santander Way.

·Santander SX: as required by the Brazilian Central Bank, we developed Santander SX, an instant payments platform that allows individual and corporate customers to make money transfers that reach the recipient’s account in a just a few seconds 24 hours a day. Transactions can be performed from transactional account identifier directory (or “DICT”) keys, such as e-mail address, cell phone number, national tax number as well as static and dynamic QR codes.

·Individual Bank Account (Mobile): in order to enhance our customers’ experience, we improved our mobile app services by adding new consulting and sharing features to our individual account mobile app, including the ability to generate credit card invoices in portable document format, or “PDF”, check date and time of the last balance update, as well as view all charges and number of days the overdraft account was used.

·Corporate Bank Account (Mobile): in line with our sustainability goals, we launched a new digital service for our corporate customers that offers paperless processes and greater agility in opening new accounts, with a strong lead-time reduction from a few hours to just a few minutes to open an account. Since the launch of this new service, over 20,000 new corporate accounts have been opened using this service.

·Credit Cards: in addition to offering our customers the option of acquiring credit cards through our digital channels, we now provide new after-sales services, such as sending digital invoices and card passwords via text messages. In December 2020, over 74% of credit card invoices were made available via digital channels, while 91% of card passwords were sent via text messaging.

·Car Insurance: our car insurance services are offered through a 100% digital platform, where customers may perform simulations, request inspection services and sign-up for insurance contracts spanning over 12, 24 or 36 months. This new platform aims to boost sales through simple navigation, reduce average quotes and contract time, as well as increase the number of insurance contracts and total premium amount.

·Mortgage Services: we have improved the after-sales experience of our real estate loan customers. Our customers can access relevant information about their contract through a single page on our web portal, including total contract amount financed, balance due, overdue balance, interest rates and maturity date, as well as installment due payments.

·Security and Antifraud: we have expanded the types of electronic authentication methods available, so that our customers can validate transactions via biometry, QR code (Santander ID), Token ID and credit card passwords. We have also developed the fraud alert center, an antifraud solution designed to send alerts to customers about events identified while accessing our digital channels or any changes to the information registered in our databases. These actions contributed to protecting our business and our customers from sensitive information leaks or exposure.

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Communications and Marketing

We use and monitor several tools in order to communicate effectively with our customers. These include not only traditional media, such as television and printed media, but also the internet, mobile advertising and social networks.

Even though social isolation prevented in-person events in 2020, our customer outreach, conducted through direct communication across all available media, including social networks, remained unaffected. We regularly provided information through these channels, seeking to make a real and positive difference in the lives of our customers. Such information included guidance on how to access credit lines and other government-sponsored initiatives to combat the COVID-19 pandemic, as well as information on the solutions we introduced, such as our mortgage rate reduction, deferral of loan installment payments and vehicle financing with auto insurance, without inspection. Internally, we released more than 200 videos aimed at instructing our teams on how to best-serve our customers, and guidelines to prevent COVID-19 in the workplace. Externally, we ran more than 192 video advertisements on TV and social networks. Our communications campaign generated significant feedback, with more than 34,000 articles published in newspapers and magazines, as well as more than 20 stories featured in Brazilian national media outlets. On social media, we averaged 10 posts per day, with nearly 800 million impressions. We also launched new media formats on networks such as Spotify (podcast) and TikTok. Additionally, we conducted more than 150 live broadcasts and events where our senior management, as well as experts and government officials were invited to address several topics, including the current economic scenario, social investment, sustainability, diversity, women’s leadership, entrepreneurship, and culture and entertainment. The Third Edition of Global Citizen, organized in collaboration with newspaper Valor Econômico and featuring actress and activist Viola Davis and Esther Duflo, the youngest person ever to win the Nobel Prize in Economics, received more than one million views. Also, the 21st Annual Santander Conference focused on discussing actions to fight COVID-19, with the participation of major chief executive officers, public authorities and our leadership. The conference was broadcasted on YouTube, garnering a total of 6.1 million views.

Sustainability

In Brazil, sustainability governance is based on global guidelines, locally identified commitments and demands, and our local business strategy. Decision-making goes through the Board of Directors, the Executive Committee and the Sustainability Executive Superintendents. The Sustainability Committee is responsible for providing clarification and recommendations to the Board of Directors regarding the development of sustainability-related guidelines.

We have organized our activities to create what we believe to be one of the best financial platforms in Brazil and to serve as an agent for the transformation and prosperity of society. This involves promoting sustainability through our business, operations and relationships. We have directed our efforts to improve Brazil’s business environment, which allows people to live up to their full potential and strategically promote the use of Brazil’s natural capital.

This stance is present in the three pillars of our sustainability strategy, which reflects Brazil that we want to help build, together with our employees, customers, shareholders and society, while also contributing to the UN’s Sustainable Development Goals (“SDGs”): surrounding a Resilient and Inclusive Economy, the Development of Potential and the Efficient and Strategic use of Natural Resources.

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Resilient and Inclusive Economy

Our broad commercial activity allows us to advise and support all of our customers and projects. Our role is to be a facilitator and contribute to the generation of jobs and income, and the improvement of logistics and infrastructure for Brazil’s development.

Through this pillar, for example, we offer access to banking services, products and non-financial initiatives.

We have specific products to support micro entrepreneurs and SMEs, such as the “Prospera Santander Microfinanças”, “Programa Avançar” and “Parceiros em Ação” programs. Additionally, we increasingly seek to include the topic of financial management in the client's relationship with the Bank, using tools such as Santander On.

In 2020, by digitalizing our initiatives, we reached 156,000 participations in financial education initiatives. This number includes content for our social networks, as well as live streams and podcasts on personal financial management and investment. For the first time during the national financial education week, our customer services team, or “SAC,” offered personalized financial advice to customers.

Furthermore, Santander Brasil launched several benefits to support customers and companies during the COVID-19 pandemic, including the “A Gente Banca” program, as well as long term payroll loans, installment extensions, and service packages aimed at individual microentrepreneurs among others.

Development of Potentials

Our commitment to the development of potential begins with our employees. We have ranked as one of the best companies to work for in the Great Place to Work, or GPTW, survey since 2016. Guided by our corporate culture and internal policies, we offer opportunities that promote development and professional growth, in order to build a culture of delivering results, respect, innovation, inclusion and diversity.

We work to create a culture of respect, inclusion and equity, where everyone can develop their talents with their unique attributes. Diversity is one of the five principles of our Code of Ethical Conduct. Our priorities are gender and racial equity, inclusion of LGBTI+ and people with disabilities, as well as diversity of experience and generational diversity. Since 2018, we have set inclusion targets for Afro-Brazilian employees in the bank and female employees in leadership, which in 2020, were 27.4% and 28%, respectively. As of December 31, 2020, our Afro-Brazilian and female employees accounted for 25.3% and 28.8%. Additionally, in 2020, we received two diversity awards from GPTW: one for our ethnic-racial practices and another, for the fourth time, as one of the best companies for women to work.

Through the Santander Universities Program, we offer initiatives focused on granting national and international scholarships, programs for entrepreneurial development, as well as internship and employment programs. On December 31, 2020, about 24,900 scholarships and entrepreneurships were granted with a total investment of about R$27.2 million.

We also contribute to the promotion of children and adolescents’ rights. Through the “Amigo de Valor” program, Santander Brasil, employees and customers may directly donate a part of their due income tax to the Funds for the Rights of Children and Adolescents (“Fundo dos Direitos da Criança e do Adolescente”). In 2020, this program raised R$15.7 million.

In 2020, we took several steps to support society during the COVID-19 pandemic:

·Between March and December 2020, we donated more than R$100 million to initiatives to mitigate the impact of COVID-19;

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·We raised R$3.5 million, and donated another R$3.5 million, out of the R$100 million mentioned above, to five hospitals to create new intensive care units and purchase personal protective equipment;

·In partnership with the other two main private banks in Brazil, we helped lower income women manufacture and distribute more than 17.7 million protective cloth masks. This initiative allowed us to help support their income during the pandemic while also providing masks to those in need;

·Our employees donated about 790 tons of food, clothes and hygiene products, to over 500 non-governmental organizations around Brazil, impacting more than 170 thousand people;

·Through our volunteering program, 83 volunteers interacted weekly with elderly people living in shelters supported by “Parceiros do Idoso” in order to give them company and support.

We also organized a 12-hour live festival, streamed on television and radio to help single mothers in deprived communities across Brazil and raised R$3.5 million to the support the “Mães da Favela” project. With our donation included, we are giving a total of more than R$7 million to more than 20,000 mothers through SuperDigital. Through this initiative, we can also introduce these families to our banking services.

Efficient and Strategic Use of Natural Resources

We are implementing changes that contribute towards the goal of helping Brazil make responsible and efficient use of its environmental resources and move towards a low-carbon economy. Our activities include, in addition to the responsible environmental management of our operations, financing and advising companies in the fields of infrastructure and renewable energy, and providing support for sustainable agribusiness.

In 2020, Santander Brasil made important public commitments towards Brazil’s sustainable development, such as the introduction of a R$5 billion credit line for new investments in water and sanitation, as well as the “Amazon Plan” that was launched in partnership with the two other private banks in Brazil. In addition, we believe we are at the forefront of environmental, social and governance matters, or ESG, in Brazil, evidenced by the offer of ESG-linked loans and Renovabio products to customers.

The total amount of environmental, social and governance, or ESG, financing which Santander Brasil provided through Santander Financiamentos, responsible agribusiness, corporate, retail (individual and corporate customers), project finance, Santander Corporate, and investment banking, including green bonds, totaled approximately R$27 billion.

Since 2002, we have adopted social and environmental parameters in risk analysis of credit concession for projects and companies. The assessment carried out by specialized professionals may result in conditions or restrictions for companies to operate with the Bank. For customers with revenues of over R$200 million, this analysis may also influence credit rating, affecting rates, limits, terms and guarantee requirements.

In relation to internal environmental management, we have been carbon neutral since 2010, by completely offsetting our Scope 1 and 2 emissions. Also, since 2013, we follow a methodology for selecting projects from which to purchase Verified Emission Reductions (“VERs”), to ensure the social and environmental benefits for that region. In recent years, we have been purchasing VERs from reforestation and renewable energy ventures.

In 2019, we committed publicly to:

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·reducing single-use plastic consumption at Santander Brasil, by launching the #Desplastifique program. The implementation plan started with administrative buildings, in 2019 and was scheduled to be completed during the course of 2020. However, due the COVID-19 pandemic, we expect that it will be fully implemented in all branches by the end of 2021; and

·powering 100% of our operations with renewable energy by 2025. In December 2020, approximately 47% of our consumed electricity was derived from renewable sources.

We improved our “Paperfree” program in 2020 to encourage digitalization, promote the use of rational resources and eliminate bureaucratic processes. The goal is to try to eliminate the use of postal stamps. As a result of the program, at our administrative buildings and stores, we collected and recycled around 72,000 stamps.

Socio-Environmental Responsibility Policy

Our Socio-Environmental Responsibility Policy, or “PRSA”, meets the requirements of CMN Resolution n° 4.327/14 and SARB Regulation 14 of FEBRABAN. These regulations define guidelines and consolidate specific policies for socio-environmental practices in business and relationships with certain parties. These practices include socio-environmental opportunities and impacts, and risk management such as suitability in granting and using credits, management of suppliers and socio-environmental risk analysis. In 2020, the vice-president of Legal Issues joined our PRSA Senior Group, which consists of our vice-presidents of Risks, Corporate, Human Resources, Finance and Communication, Marketing, Institutional Relationships and Sustainability, and officers of Agribusiness and Compliance. This Group is involved in decision-making related to the PRSA and operates in connection with our Executive Committee.

Competition and Industry Transformation

Currently, there are five commercial financial institutions at the forefront of the Brazilian financial industry in terms of assets: Santander Brasil, Bradesco, Itaú Unibanco, Banco do Brasil and Caixa Econômica Federal. Together, these financial institutions accounted for 73.2% of the credit and 75.2% of the deposits available in Brazil as of December 31, 2020, according to the Brazilian Central Bank and the financial statements of the aforementioned banks.

The following table shows the total loans and deposits of the five leading financial institutions in Brazil at the dates indicated:

  Santander Brasil Bradesco Itaú Unibanco Banco do Brasil Caixa Econômica Federal (2) Financial System
  December 2020 (R$ billion)
 Total loans(1)   411.7   510.3   508.6   681.8   756.5   2,868.9 
 Total deposits(1)   384.9   545.3   786.6   437.0   512.9   2,666.7 

(1)According to the Brazilian Central Bank, reported and presented in accordance with Brazilian GAAP (December 2020).

(2)Represents total loans and deposits of Caixa Econômica Federal as of September 2020 because as of the date of this report, Caixa Econômica Federal had not disclosed the information for December 31, 2020.

Insurance Coverage

We maintain insurance policies that are renewed annually in order to protect our assets. All of our branches, affiliates and administrative buildings are insured against losses caused by fire, lightning, explosions and other risks. Such coverage establishes reimbursement for the asset replacement value.

In addition, we also maintain the following insurance policies:

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·policies against material and/or bodily damage caused to third parties for which we are held responsible;

·policies against financial losses due to fraud or employee misconduct, among others;

·directors’ and officers’ insurance policy for our management against third-party complaints regarding management acts. There are insurance policies against crimes, employee dishonesty and damages arising out of public offerings; and

·policies against hacker attacks and cyber-crimes.

Dependence on Patents, Licenses, Contracts and Processes

The major trademarks we use, including, among others, the “Santander” trademark, are owned by Santander Investment Bank. Santander Brasil has a license to use this trademark. All trademarks of our business are registered or applied through the Brazilian Patent and Trademark Office (Instituto Nacional de Propriedade Industrial, or “INPI”), the agency responsible for registering trademarks, patents and designs in Brazil. After registration, the owner has exclusive rights to use of the trademark in Brazil for a 10-year period that can be successively renewed for equal periods.

As of the date of this annual report, we own a total of 553 trademarks in Brazil, with Santander Brasil owning over 123 of these trademarks, while the remaining are owned by other companies of the Santander Group.

REGULATION AND SUPERVISION

The basic institutional framework of the Brazilian financial system was established by Law 4,595, of December 31, 1964, as amended from time to time, or the “Banking Reform Law”. The Banking Reform Law created the CMN, responsible for establishing the general guidelines of monetary, foreign currency and credit policies, as well as regulating the institutions of the financial system.

Principal Regulatory Agencies

CMN

The CMN oversees the Brazilian monetary, credit, budgetary, fiscal and public debt policies. The board of the CMN is composed of the president of the Brazilian Central Bank, the Minister of Planning and the Minister of Finance, who also chairs the Board. Pursuant to the Banking Reform Law, the CMN is the highest regulatory entity within the Brazilian financial system, and is authorized to regulate the credit operations of Brazilian financial institutions, to regulate the Brazilian currency, to supervise Brazil’s gold reserves and foreign exchange, to determine Brazilian savings and investment policies and to regulate the Brazilian capital markets with the purpose of promoting the economic and social development of Brazil. In this regard, the CMN also oversees the activities of the Brazilian Central Bank and the CVM.

Brazilian Central Bank

The Brazilian Central Bank is responsible for the implementation of CMN policies related to foreign currency and credit, the regulation of Brazilian financial institutions, particularly in regards to the minimum capital and compulsory deposit requirements, as well as the disclosure of the transactions carried out by financial institutions and their financial information. The Brazilian Central Bank addresses specific issues through the Monetary Policy Committee (COPOM), a committee responsible for adopting measures to meet inflation targets defined by the CMN and establishing monetary policy guidelines. In order to meet inflation targets, the COPOM must set the target for the SELIC Rate (the average rate for daily financing, backed by federal instruments, as assessed under the Special Settlement and Custody System) and publish reports on the Brazilian economic and financial environment and projections for the inflation rate.

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CVM

The CVM is responsible for the implementation of CMN policies related to securities, with the purpose of regulating, developing, controlling and inspecting the securities market and its participants (companies with securities traded in the market, investment funds, investors, financial agents, such as custodians of instruments and securities, asset managers, independent auditors, consultants , as well as instruments and securities analysts).

Self-Regulating Entities

The Brazilian financial and capital markets are also subject to the regulation of self-regulating entities that are divided by field of activity. These self-regulating entities include, among others, the National Association of Investment Banks – ANBIMA, the Brazilian Association of Credit Card and Services Companies – ABECS, the Brazilian Banks Federation – FEBRABAN, the Brazilian Association of Publicly-Held Companies – ABRASCA and the B3.

Principal Limitations and Obligations of Financial Institutions

In line with leading international standards of regulation, Brazilian financial institutions are subject to a series of limitations and obligations. In general, such limitations and obligations concern the offering of credit, the concentration of risk, investments, operating procedures, loans and other transactions in foreign currency, the administration of third-party funds and micro-credit. The restrictions and requirements for banking activities, established by applicable legislation and regulations, include the following:

·No financial institution may operate in Brazil without the prior approval of the Brazilian Central Bank. In December 2017, the CMN enacted a new rule establishing that all such requests submitted to the Brazilian Central Bank must be approved within 12 months (subject to suspension of the term in some instances);

·A Brazilian financial institution may not hold direct or indirect equity interests in any company located in Brazil or abroad registered as permanent assets without prior approval of the Brazilian Central Bank. The corporate purpose of such company shall be complementary or subsidiary to the activities carried out by the financial institution;

·Brazilian financial institutions must submit for prior approval by the Brazilian Central Bank the corporate documents that govern their organization and operation, such as capital increases, transfer of headquarters, opening, transfer or closing of branches (whether in Brazil or abroad), election of the members of the statutory bodies and any corporate restructuring or alteration in the composition of their equity control. The requests for changes in control submitted to the Brazilian Central Bank must be approved within 12 months and requests for changes to organizational documents must be approved within three months (in both cases subject to suspension of the term in some instances);

·Brazilian financial institutions must fulfill minimum capital and compulsory deposit requirements and must comply with certain operational limits;

·A Brazilian financial institution may not own real estate, except for properties it occupies and subject to certain limitations imposed by the CMN. If a financial institution receives real estate, for example, in satisfaction of a debt, such property must be sold within one year, unless otherwise authorized by the Brazilian Central Bank;

·Brazilian financial institutions must comply with the principles of selectivity, guarantee, liquidity and risk diversification;

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·A Brazilian financial institution belonging to the S1 segment, as is the case of Santander Brasil, cannot lend more than 25% of its Tier 1 Regulatory Capital (patrimônio de referência) to a single person or a group and the maximum exposure to concentrated individual customers or group of connected customers of such Segment 1 financial institution is 600% of its Tier 1 Regulatory Capital (a concentrated individual client would mean, for the purpose of the proposed rule, as any one client to which exposure is equal to or higher than 10% of its Tier 1 Regulatory Capital);

·According to the Banking Reform Law, a Brazilian financial institution cannot carry out credit transactions with (i) its controlling shareholders, directors and members of other statutory bodies (fiscal, advisory and other) and their respective spouses and relatives up to second degree, (ii) the individuals or legal entities that hold a qualified interest (15% of the capital stock) in their capital, (iii) the legal entities in which they have qualified interest (direct or indirect), (iv) the legal entities in which they have effective operational control or preponderance in the deliberations, regardless of the equity interest, and (v) the legal entities with common directors or members of the board of directors. Such prohibition does not apply, subject to limits and conditions established by the CMN through the enactment of Resolution No. 4,693 in October 2018, to: (i) transactions with a counterparty that has an officer or director in common with the financial institution providing credit, provided that the officer or director is considered an independent member in both entities; (ii) transactions carried out under market-compatible conditions, without additional benefits or different benefits when compared to the operations deferred to the institution to other customers with the same profile, (iii) credit operations that have as counterparty a financial institution that is part of the institution prudential conglomerate, provided that they contain contractual clauses of subordination, except in the case of overnight and loan transactions with other financial institutions specified by the law, (iv) the interbank deposits, according to the law, (v) the obligations assumed by related parties under the compensation and settlement services authorized by the Brazilian Central Bank or by the CVM and their respective counterparties, and (vi) other cases authorized by the CMN; the management of third-party assets must be segregated from other activities and must follow the regulations issued by the CVM.

·The total amount of funds applied in permanent assets of the financial institutions cannot exceed 50% of their adjusted stockholders’ equity;

·Brazilian financial institutions must comply with anti-money laundering and anti-corruption regulations;

·Brazilian financial institutions must implement policies and internal procedures to control their systems of financial, operating and management information, as well as their conformity to all applicable regulations;

·Brazilian financial institutions must implement a policy for remuneration of board members and executive officers that is compatible with their risk management policies; and

·The Banking Reform Law and specific regulations enacted by the CMN impose penalties on financial institutions in certain situations where applicable requirements, controls and requisites have not been observed. In addition, the Brazilian Central Bank may cancel the financial institution’s authorization to operate in certain situations. The cancellation of an authorization for operation of a financial institution may only occur upon the establishment and processing of the appropriate administrative proceeding by the Brazilian Central Bank.

Additionally, as part of the Santander Group and due to the global nature of our organization we are subject to related international rules.

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Capital Adequacy and Leverage – Basel

Current Requirements

The Brazilian Central Bank supervises the Brazilian banking system in accordance with the Basel Committee on Banking Supervision, or “Basel Committee”, guidelines and other applicable regulations. For this purpose, banks provide the Brazilian Central Bank with any information which it deems useful in performing its supervisory functions, which includes supervising changes in solvency and capital adequacy of banks.

The main principle that guides the directives set forth in the Basel Committee is that a bank’s own resources must cover its principal risks, including credit risk, market risk and operational risk.

Brazilian financial institutions are subject to capital measurement and standards based on a risk weighted asset ratio. The parameters of this methodology resemble the international framework for minimum capital measurements adopted by Basel III.

Basel III

On December 16, 2010, the Basel Committee issued the Basel III framework, which supplements and amends Basel II. Basel III includes higher minimum capital requirements, new conservation and countercyclical buffer capital requirements, revised risk-based capital measures and the introduction of a new leverage ratio, as well as two liquidity standards. The Basel III framework is being implemented gradually by each country through legislation or regulation to be imposed upon that country’s home banks, including Brazil.

Regulatory Capital is composed by Core Capital and two additional tiers:

Tier I capital will have to reach a minimum index of 6.0% (according to the schedule established by the Brazilian Central Bank), divided into two portions: (i) Core Capital consisting mainly of corporate capital and profit reserves (shares, units of ownership, reserves and earned income) of at least 4.5% of RWA, and (ii) Additional Tier I consisting mainly of perpetual hybrid securities and capital instruments authorized by the Brazilian Central Bank (but excluding amounts relating to funding instruments issued by other local or foreign financial institutions) and any of our own shares purchased by us and the integration of which into the Additional Tier I Capital is permitted. To improve the quality of the capital of financial institutions, Basel III restricts the acceptance of financial instruments that fail to demonstrate effective capability of absorbing losses and requires the reduction of assets that in certain situations could jeopardize the financial institution’s capital value due to the instruments’ low liquidity, dependence on future profits for realization or difficulty of value measurement.

There is also an additional 2% of Tier II capital requirement, for a total of 8% of minimum capital ratio. Current hybrid subordinated debt approved by the Brazilian Central Bank as additional capital requirements, or Tier II, are expected to be maintained if they also comply with requirements introduced by Basel III, including the mandatory conversion clauses into equity or write-off upon the occurrence of triggering events provided for in the regulations.

In accordance with the Basel III standards, the Brazilian Central Bank created the Additional Core Capital buffer (Adicional de Capital Principal), which is composed by the sum of three buffers:

·Core Capital Conservation buffer (Adicional de Capital Principal de Conservação), which was introduced to ensure that banks have an additional layer of usable capital that can be drawn down when losses are incurred. Whenever the buffer falls below 2.5%, automatic constraints on capital distribution (for example, dividends, share buybacks and discretionary bonus payments) will be imposed so that the buffer can be replenished.

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·Countercyclical capital buffer (Adicional Contracíclico de Capital Principal), which aims to protect the banking sector from periods of excess aggregate credit growth that have often been associated with the build-up of system-wide risks.

·Core Capital Systemic buffer (Adicional de Importância Sistêmica de Capital Principal), which is applicable to the S1 bank segment (banks with an asset base equivalent to over 10% of Brazil’s GDP or that engage in relevant international activity).

On March 16, 2020, due to the challenging macroeconomic environment resulting from the COVID-19 pandemic, the Brazilian Central Bank issued Resolution No. 4,783, which decreased the Conservation Buffer level (Adicional de Conservação de Capital Principal) in 2020 from 2.5% to 1.25%. This level will phase-in towards the 2019 level by 2022, as shown in the image below. This buffer change decreased the minimum Core Capital and Total Capital requirements, reaching 6.75% and 10.25%, respectively, as of December 31, 2020.

According to the new rules on regulatory capital in Brazil, the value of goodwill, intangible assets and some types of deferred tax assets, for the calculation of the capital base, was deducted in accordance with the “phase-in” for implementation of Basel III in Brazil, which was completed by January 1, 2019. The following table sets forth the percentage of required deductions for each year up to 2019:

Basel III Phase in
201620172018201920202021
40%60%80%100%100%100%

Source: Brazilian Central Bank; Resolution No. 4,192 of the Brazilian Central Bank of March 2013.

The Basel III rules also provide for the implementation of a leverage ratio calculated by dividing the Tier I capital by the bank’s total exposure. In early 2015, the Brazilian Central Bank issued a new regulation governing the calculation and reporting of the leverage ratio of Brazilian financial institutions in line with the Basel III rules, which became effective in October 2015. Financial institutions classified as segment 1 (S1), as is the case for Santander Brasil, or segment 2 (S2), for purposes of the application of prudential rules, are required to maintain a minimum RA of 3% as from January 1, 2018.

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Additionally, in order to enable the implementation of the Basel III framework in Brazil, certain legislative changes were made. Among others, Law No. 12,838, enacted on July 9, 2013, granted powers to the Brazilian Central Bank to limit the payment of dividends by financial institutions in case of non-compliance with the prudential capital requirements defined by the CMN.

In 2015, the CMN and the Brazilian Central Bank also issued a set of rules for the implementation of the liquidity coverage ratio or “LCR,” a short-term liquidity index. The purpose of the LCR is to demonstrate that financial institutions have sufficient liquid assets to make it through a stress scenario lasting one month. According to these rules, the largest Brazilian banks were required to maintain an LCR of at least 60% since October 2015. This ratio increased 10% annually until it reached 100% in 2019. The Brazilian Central Bank also released, in 2015, the local methodology for calculating the LCR so as to align the existing rules with the guidelines of the document “Basel III: The Liquidity Coverage Ratio and liquidity risk monitoring tools” issued by the Bank for International Settlements in January 2013. In January 2017, the Brazilian Central Bank enacted a new rule amending the calculation method and procedures for disclosure of LCR information. The new regulation establishes a new possible stress scenario and, for purposes of LCR retail, includes spot and forward deposits.

As mentioned above, the LCR is a short-term liquidity ratio for a 30-day stress scenario. It represents the ratio of high-quality liquidity assets to net outflows. High Quality Liquidity Assets are composed mainly of Brazilian federal government bonds and reserve requirement returns. Net Outflows are mainly composed of losses on deposits, offset in part by Inflows, which are mainly credits.

In November 2017, the CMN established a minimum limit for the Net Stable Funding Ratio (Índice de Liquidez de Longo Prazo, or “NSFR”) and the Leverage Ratio (Razão de Alavancagem, or “RA”) with which Brazilian financial institutions are required to comply. The NSFR corresponds to the ratio between the Available Stable Funds (Recursos Estáveis Disponíveis, or “ASF”) and the Required Stable Funds (Recursos Estáveis Requeridos, or “RSF”) of the financial institution. The financial institutions classified as “segment 1” for purposes of the application of prudential rules, as we are, must maintain, as from October 1, 2018, a minimum NSFR of 1.00. Regarding the leverage ratio, the financial institutions classified as “segment 1,” as we are, or “segment 2” for purposes of the application of prudential rules are required to maintain a minimum RA of 3% as from January 1, 2018.

Other Applicable Laws and Regulations

Consolidated Enterprise Level (conglomerado prudencial)

Financial institutions must submit to the Brazilian Central Bank, monthly and semiannually, consolidated financial statements based on the “consolidated enterprise level” (conglomerado prudencial) of which the financial institution is a member, which serve as the basis for calculation of the required Regulatory Capital of the Brazilian institutions. The “consolidated enterprise level” includes data relative to the financial institutions and other institutions authorized to operate by the Brazilian Central Bank, administrators of consortia, payment institutions and credit factoring companies, including real estate credit, or of credit rights, such as mercantile foment companies, securitization companies and specific purpose companies, located in Brazil or abroad, as well as other legal entities headquartered in Brazil that have equity participation in the mentioned entities as their exclusive business purpose.

On January 29, 2020, the CMN published Resolution No. 4,818, which requires financial institutions categorized as S1, S2 and S3 to publish IFRS financial statements. The requirement is already in force for publicly held financial institutions and financial institutions which are leaders of a prudential conglomerate, and will come into effect for all remaining financial institutions on January 1, 2022.

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Segmentation for the Proportional Application of Prudential Regulation

In January 2017, the CMN enacted a resolution establishing segmentation for financial institutions, financial institution groups, and other institutions authorized to operate by the Brazilian Central Bank for the purposes of proportional application of the prudential regulation. The segmentation is based on the size, international activity and risk profile of members of each segment. Pursuant to the resolution, the segments are as follows:

·Segment 1 comprises multiservice banks, commercial banks, investment banks, foreign exchange banks and savings banks with (a) an asset base equivalent or superior to 10% of Brazil’s GDP; or (b) which perform relevant international activities, irrespective of the size of the institution;

·Segment 2 comprises multiservice banks, commercial banks, investment banks, foreign exchange banks and savings banks with (a) an asset base lower than 10% of Brazil’s GDP; and (b) other institutions with an asset base equivalent to or greater than 1% of Brazil’s GDP;

·Segment 3 comprises institutions with an asset base lower than 1% and equivalent to or greater than 0.1% of Brazil’s GDP;

·Segment 4 comprises institutions with an asset base lower than 0.1% of Brazil’s GDP; and

·Segment 5 comprises institutions with an asset base lower than 0.1% of Brazil’s GDP, that apply a simplified optional method for verifying the regulatory capital’s minimum requirements, except for multiservice banks, commercial banks, investment banks, foreign exchange banks and savings banks.

We have been categorized by the Brazilian Central Bank in segment 1, the highest level for application of regulation for banks in Brazil.

Regulation of Risk and Capital Management Structure

The rules enacted by the CMN and the Brazilian Central Bank provide that risk management must be conducted through an integrated effort by the relevant entity (i.e., not only must risks be analyzed on an individual basis, but must also control and mitigate the adverse effects caused by the interaction between different risks). The rules set out different structures for risk and capital management, which are applicable for different risk profiles. This means that a financial institution of limited systemic importance can have a simplified structure of management, while institutions of larger complexity have to follow stricter protocols.

Compulsory Reserve Requirements

Currently, the Brazilian Central Bank imposes a series of compulsory reserves requirements. Financial institutions must deposit these reserves with the Brazilian Central Bank. The Brazilian Central Bank uses these reserve requirements as a mechanism to control the liquidity of the Brazilian financial system for both monetary policy and risk mitigation purposes. Reserves imposed on time deposits, demand deposits and saving accounts represent almost the entirety of the amount that must be deposited at the Brazilian Central Bank.

· Time Deposits (CDBs). The Brazilian Central Bank imposes a reserve requirement of 17% in relation to time deposits. Financial institutions must deposit an amount equivalent to the surplus of (i) R$3.6 billion for financial institutions with consolidated Tier 1 capital under R$3 billion; (ii) R$2.4 billion for financial institutions with consolidated Tier 1 capital between R$3 billion and R$10 billion; (iii) R$1.2 billion for financial institutions with consolidated Tier 1 capital between R$10 billion and R$15 billion; and (iv) zero for financial institutions with a Regulatory Capital greater than R$15 billion.

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Additionally, as from the issuing of Brazilian Central Bank Circular No. 3,943 on May 23, 2019, interbank deposits made by leasing companies are excluded from the assessment base of the compulsory reserve requirement for time deposits of financial institutions of the same conglomerate.

· Demand Deposits. As a general rule, the Brazilian Central Bank imposes a reserve requirement of 21% in relation to demand deposits.

· Savings Deposits. The Brazilian Central Bank imposes a reserve requirement of 20% in relation to general savings deposits and to rural savings deposits.

Asset Composition Requirements

Permanent assets (defined as property and equipment other than commercial leasing operations, unconsolidated investments and deferred charges) of Brazilian financial institutions may not exceed 50% of their adjusted net equity, calculated in accordance with the criteria established by the Brazilian Central Bank.

Brazilian financial institutions, as a general rule, may not have more than 25% of their Tier 1 Regulatory Capital allocated to credit and leasing transactions and guarantees extended to the same customer or group of customers acting jointly or representing the same economic interest. In addition, Brazilian financial institutions must comply with an exposure limit of 25% of their Regulatory Capital in connection with underwriting for or investments in securities of the same entity, its affiliates, or controlled or controlling companies. Repurchase transactions executed in Brazil are subject to operational capital limits based on the financial institution’s Regulatory Capital, as adjusted in accordance with Brazilian Central Bank regulations. A financial institution may carry out repurchase transactions in an amount of up to 30 times its Regulatory Capital. Within that limit, repurchase transactions involving private securities may not exceed five times the Regulatory Capital. Limits on repurchase transactions involving securities backed by Brazilian governmental authorities vary in accordance with the type of security involved in the transaction and the perceived risk of the issuer as determined by the Brazilian Central Bank.

The regulation issued by the Brazilian Central Bank with respect to the classification and valuation of securities and derivative financial instruments — including government securities — owned by financial institutions, based on the investment strategy of the financial institution, determined that securities and derivatives are to be classified into three categories: (i) trading; (ii) available for sale; and (iii) held to maturity.

“Trading” and “available for sale” securities are to be marked-to-market with effects in income and stockholders’ equity, respectively. Securities classified as “held to maturity” are recorded at amortized cost. Derivatives are marked-to-market and recorded as assets and liabilities in the balance sheet. Changes in the market value of derivatives are generally recognized in income with certain modifications, if these are designated as hedges and qualify for hedge accounting under the regulations issued by the Brazilian Central Bank. Securities and derivatives in the “held to maturity” portfolio may be hedged for accounting purposes but their increase or decrease in value as derived from the marked-to-market accounting method should not be taken into account.

On June 31, 2018, the CMN enacted a rule providing that financial institutions categorized as “Segment 1” as per the Brazilian Central Bank’s classification system established in 2017 (which is our case) (1) may not have more than 25.0% of their Regulatory Capital allocated to a single legal or natural person, and (2) that the total exposure of such financial institutions to one individual customer may not exceed 600% of their Regulatory Capital allocated to focused exposure, that is 10% of their Regulatory Capital – Tier 1. The rule also subjects financial institutions categorized as segment 2, segment 3 or segment 4 to less restrictive rules.

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Centralized Registration and Deposit of Financial Assets and Securities

Law No. 13,476/17 consolidates the provisions on creation of liens over financial assets and securities. CMN Rule No. 4,593/2017, as amended, regulates the registration and deposit of financial instruments and securities by financial institutions as well as the provision of custody services by such institutions.

Resolution 4,734/19 sets out the guidelines applicable to the establishment of liens and encumbrances on credit and debit payment instruments due to credit operations with financial institutions and regulates credit operations guaranteed by receivables from payment arrangements. The amount of receivables perfected into guarantees for a certain credit transaction will be reduced, whenever applicable, so that they are limited to the outstanding balance of the transaction or to the maximum limit extended, in the case of an extension of a non-dischargeable credit facility by a financial institution on an absolute and unilateral basis.

Circular 3,952/19, deals in particular with the procedures for the registration of receivables, and requires a convention between market infrastructures to guarantee the uniqueness of the receivables as financial assets that can be registered, interoperability, exchange of information between registration systems and participants in the structure. On October 29, 2020, the Brazilian Central Bank issued BCB Resolution 35/20, which postponed the entry into effectiveness of Circular 3,952/19 to February 17, 2021.

Brazilian Payment and Settlement System

The rules for the settlement of payments in Brazil are based on the guidelines adopted by the Bank of International Settlements, or “BIS,” and the current Brazilian Payment and Settlement System (Sistema de Pagamentos Brasileiro or the “SPB”). The Brazilian Central Bank and CVM (in relation to transactions with securities) have the power to regulate and supervise this system. SPB is composed of systems for the clearing of checks, clearing and settlement of debit and credit electronic orders, transfer of funds and other financial assets, clearing and settlement of transactions involving securities, clearing and settlement of transactions carried out in commodities and futures, and others, collectively designated as Financial Market Infrastructures, as well as the payment arrangements and payment institutions.

Within the scope of SPB, the Brazilian Central Bank operates the Reserves Transfer System, or “STR” and the SELIC. STR is a system of transfer of funds with real-time gross settlement, which means that transfers are made at the processing time, one by one, and are subject to the existence of outstanding balance in the account. STR is composed of financial institutions, clearing and settlement houses and the National Treasury Office. SELIC is a system intended for custody of book-entry securities issued by the National Treasury Office and for the registration and settlement of transactions involving such securities.

Instant Payment System

The Brazilian Central Bank also implemented an instant payment ecosystem in November 2020. The settlement of the system is centralized at the Brazilian Central Bank. In addition to increasing the speed at which payments or transfers are made and received, available 24 hours a day, seven days a week in all days of the year, the ecosystem has the potential to increase market competitiveness and efficiency; lower costs; and enhance customer experience.

On June 12, 2020, the Brazilian Central Bank issued Circular 4,027/20, which established the Brazilian Instant Payment System (Sistema de Pagamentos Instantâneos, or “SPI”). Circular 4,027/20 also approved the regulation with which the direct and indirect participants in the SPI must comply. Circular 4,027/20 establishes that the SPI start of operations on November 3, 2020 with features of the system, becoming available gradually until it is fully operational as of November 16, 2020. Circular Letter 4,055/20, establishes the procedures and timetable for the tests necessary for to register as a direct participant in the SPI, as per Circular Letters No. 4,006 and 4,022. Circular Letter No. 4,056, in turn, establishes the procedures for the adherence to the instant payment arrangement (PIX).

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According to the by-laws of the SPI, the participation in the SPI will be mandatory for the participants of the PIX arrangement, and optional for (i) the clearing houses and other providers of clearing services, and (ii) the National Treasury Department.

There are two types of participation in the SPI: (i) direct, participation, in which the participant holds an instant payment account and is directly connected to the SPI; and (ii) indirect, in which the participant institution does not hold an instant payment account and its participation occurs via a direct participant to the SPI, responsible for registering the indirect participant in the SPI and to act as its clearing agent in the SPI for instant payments. Circular 4,027/20 came into effect on July 1, 2020.

On August 13, 2020, the Brazilian Central Bank issued Central Bank Resolution No. 1, or “Central Bank Resolution 1/2020”, establishing the Pix System payment arrangement and approving the regulation governing it, or (the “Pix Regulation”).

Pursuant to Central Bank Resolution 1/2020, participation in the Pix System is mandatory for financial institutions and payment institutions authorized to operate by the Brazilian Central Bank that have more than 500,000 active customer accounts, considering cash deposit accounts, savings deposit accounts and prepaid payment accounts. Participation in the PIX System is optional for financial institutions and payment institutions that do not meet this threshold, as well as for the National Treasury Secretariat.

The Pix Regulation applies to all Pix System participants. According to the Pix Regulation, there are three types of participation: (i) transactional account provider, which is a financial institution or a payment institution that offers deposit accounts or payment accounts to end users; (ii) government entity, which is the National Treasury Secretariat, with the exclusive purpose of making collections and payments related to its activities; and (iii) special clearing houses, that are the financial institutions and payment institutions that (a) within the scope of the Pix System, have the exclusive purpose of providing settlement services to other participants, (b) meet the requirements to act as settlement participant in the Brazilian Central Bank’s SPI, and (c) do not meet the criteria of mandatory participation in the Pix System.

Brazilian Central Bank Resolution 1/2020 came into effect on September 1, 2020. Pix System transactions started operating on a restricted basis through to November 3, 2020 and was fully as of November 16, 2020.

Open Banking Regulation in Brazil

On May 4, 2020, the Brazilian Central Bank and the CMN enacted Joint Resolution No. 1, which regulates open banking. Open banking consists of the sharing of data and payment initiation services and forwarding credit transaction proposals, by financial institutions and other authorized entities (with customers permission) and the integration of information systems.

Among other topics, the resolution sets forth the mandatory and voluntary participating institutions, the data and services covered, the requirements for sharing, the responsibilities for sharing, the implementation schedule and the form of agreement to be entered into by the participating institutions.

According to the resolution, financial institutions and prudential conglomerates belonging to the S1 and S2 segments, as is our case, are required to participate in open banking.

Open banking has a four-stage implementation plan, as follows:

·Stage 1 (as of February 1, 2021): public access to participating institutions’ data on their access channels and product/service channels related to checking, savings, prepaid payment accounts and to lending transactions.

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·Stage 2 (by July 15, 2021): sharing of customer reference data and customer transactional data among the participating institutions.

·Stage 3 (by August 30, 2021): sharing of payment transaction initiation services, as well as forwarding credit transaction proposals.

·Stage 4 (by December 15, 2021): expansion of in-scope data to encompass foreign exchange, investment, insurance, and open-end private pension transactions.

·On October 29, 2020, the Brazilian Central Bank issued Central Bank Resolution 32/2020, which sets forth the technical and operational requirements to be observed by institutions which participate in the Brazilian Open Banking System.

The new rule lays out, among others, rules relating to (i) the scope of the data and services to be shared by participating institutions within Open Banking, which shall be detailed in a specific manual; (ii) the standards for the development of application programming interfaces (APIs) by participating institutions, which will likewise be detailed in a specific manual, which shall deal with their design, data transmission protocols, data exchange formats, control accesses, version control systems and specification parameters; among other things; (iii) criteria for registration and cancellation of registration in Open Banking; (iv) services to be rendered by the Open Banking Governance Structure, which also shall be detailed in a specific manual, including the maintenance of a repository of participating institutions and a website containing updated information about Open Banking and its implementation; and (v) minimal security standards and certifications, which will also be detailed in a separate manual.

Regulatory Sandbox

On November 28, 2019, the Brazilian Central Bank published Public Consultation No. 72/2019, which ended on January 31, 2020, regarding the Controlled Testing Environment for Financial Innovations or “Sandbox” which is intended to enable institutions test innovative financial and payment projects for a specified period.

After receiving comments on the Public Consultation, the CMN and the Brazilian Central Bank issued, on November 26, 2020, CMN Resolution 4,865/20 and BCB Resolution 29/20, to regulate the Sandbox These rules set forth the applicable conditions for the implementation of the Sandbox, among which are the specific rules for the first cycle of tests, such as duration and number of participants, required documentation, criteria for the classification of institutions and the schedule for registration, selection and authorization processes of such entities. The Brazilian Central Bank expects that the process for selecting the first cycle will start in the first half of 2021.

Treatment of Overdue Debts

The Brazilian Central Bank requires financial institutions to classify credit transactions in accordance with their level of credit risk and to make provisions according to the level attributed to each transaction. Such credit classifications shall be determined in accordance with criteria set forth from time to time by the Brazilian Central Bank, relating to the conditions of the debtor and the guarantor and the transaction terms. Where there are several credit transactions involving the same customer, economic group or group of companies, the credit risk must be determined by analyzing the particular credit transaction of such customer or group that represents the greatest credit risk to the financial institution.

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Credit transactions of up to R$50,000 may be classified either by the financial institution’s own evaluation method or according to the number of days such transaction is past due, whichever is the more stringent. Credit classifications are required to be reviewed (i) monthly, in the event of a delay in the payment of any installment of principal or interest, in accordance with the maximum risk classifications; (ii) every six months, in the case of transactions involving the same customer, economic group or group of companies, the amount of which exceeds 5% of the adjusted net worth of the financial institution in question; and (iii) once every 12 months, in all circumstances, except in the case of credit transactions with a customer whose total liability is lower than R$50,000, the classification of which may be reviewed as provided above. Such R$50,000 limit may be amended by the Brazilian Central Bank from time to time.

The provisions set forth above are not applicable to our IFRS consolidated financial statements, which are based on the criteria described under “Item 5. Operating and Financial Review and Prospects—A. Operating Results—Critical Accounting Policies—Impairment Losses on Financial Assets.”

Regulation of the Transfer of Customer Data by Financial Institutions to Database Managers

Brazilian law regulates the formation and consultation of databases with information regarding performance, individuals or legal entities, for the formation of credit history. Resolution No. 4,737 determines that the history of the following operations should be provided: (i) credit operations; (ii) leasing operations; (iii) self-financing operations executed upon consortium groups; and (iv) other operations with characteristics of credit granting; and defines the criteria for the registration of database managers, such as the identification of the natural and legal persons that are part of the control group of the database manager.

Collection of Bank Fees

Bank services to individuals are divided into the following four groups: (i) essential services; (ii) priority services; (iii) special services; and (iv) specific or differentiated services.

Banks are not able to collect fees in exchange for supplying essential services to individuals with regard to checking accounts, such as (i) supplying a debit card; (ii) supplying 10 checks per month to account holders who meet the requirements to use checks, as per the applicable rules; (iii) supplying a second debit card (except in cases of loss, theft, damage and other reasons not caused by the bank); (iv) up to four withdrawals per month, which can be made at a branch of the bank, using checks or in ATM terminals; (v) supplying up to two statements describing the transactions during the month, to be obtained through ATM terminals; (vi) inquiries over the internet; (vii) up to two transfers of funds between accounts held by the same bank, per month, at a branch, through ATM terminals or over the internet; (viii) clearing checks; and (ix) supplying a consolidated statement describing, on a month-by-month basis, the fees charged over the preceding year with regard to checking accounts and savings accounts.

Certain services rendered to individuals with regard to savings accounts also fall under the category of essential services and therefore are exempt from the payment of fees. CMN prohibits banks from charging fees for supplying essential services in connection with deposit and savings accounts where customers agree to access and use their accounts by electronic means only (being authorized to charge fees for supplying essential services only when the customer voluntarily elects to obtain personal service at the banks’ branches or customer service locations).

Priority services are those rendered to individuals with regard to checking accounts, transfers of funds, credit transactions, leasing, standard credit cards, over-the-counter exchange transactions for the purchase or sale of foreign currency in respect of international travel, and records, and are subject to the collection of fees by the financial institutions only if the service and its nomenclature are listed in its regulations. Commercial banks must also offer to their individual customers a “standardized package” of priority services, whose content is defined, as well as the customers’ option to acquire individual services instead of adhering to the package.

The collection of fees in exchange for the supply of special services (including, among others, services relating to rural credit, currency exchange market and on lending of funds from the real estate financial system) is governed by the specific provisions found in the laws and regulations relating to such services. The regulation authorizes financial institutions to charge fees for the performance of specific services, provided either that the account holder or user is informed of the conditions for use and payment or that the fee and charging method are defined in the contract.

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It is worth pointing out: (i) the prohibition against charging fees in cases of adhesion contract amendments, except in the cases of asset replacement in leasing transactions, early liquidation or amortization, cancellation or termination; (ii) the prohibition against including services related to credit cards and other services not subject to fees in service packages that include priority, special and/or differentiated services; (iii) the requirement that subscription to service packages must be through a separate contract; (iv) the requirement that information given to the customer with respect to a service package must include the value of each service included in the package, the number of times that each service may be utilized per month, and the total price of the package; (v) the requirement that a customer’s annual banking statement must separately identify default interest, penalties and other costs charged on loans and leasing transactions; (vi) the requirement that registration fees cannot be cumulatively charged; and (vii) the requirement that overdraft fees can be charged, at most, once over the course of 30 days.

In addition, CMN regulations establish that all debits related to the collection of fees must be charged to a bank account only if there are sufficient funds to cover such debits in such account and thus forbid overdrafts caused by the collection of banking fees. Furthermore, a minimum of 30 days’ notice must precede any increase or creation of fees (except if related to credit card services, when a minimum of 45 days’ notice is required), while fees related to priority services and the “standardized package” can be increased only after 180 days from the date of the last increase (except if related to credit card services, when a minimum of 365 days’ notice is required) whereas reductions can take place at any time.

Late Payment Fees

The default payment fees charged by financial institutions, consumer credit companies (financeiras), and leasing companies are expressly limited to compensatory interest per day on the amount that is overdue, interest on arrears and fines on arrears.

Credit Cards

The banking regulations also have specific rules relative to the charging of credit card fees, the publication of information in the card invoices and the obligation to provide a package of basic services upon offering credit cards to customers. Credit card holders must pay monthly at least 15% of outstanding credit card balances. This minimum payment does not apply to credit cards with payment by means of direct payroll deductions.

Revolving credit for financings of credit card bills may only be extended to customers until the due date of the following credit card bill. After this term, financial institutions offer customers another product with conditions more favorable than the ones typically found in the credit card market. Banks are prohibited from offering this type of credit to customers who have already contracted one revolving credit for financing of credit card bills which were not repaid in a timely manner.

Payment Agents and Payment Arrangements

The regulation issued by the Brazilian Central Bank, determines, among other aspects: (i) consumer protection, anti-money laundering compliance and risk prevention systems that should be observed by payment agents and payment arrangers; (ii) the procedures for incorporation, organization, authorization and operation of payment agents, as well as transfer of shareholding control, subject to the Brazilian Central Bank’s prior approval; (iii) capital requirements; (iv) definition of arrangements excluded from the SPB; and (v) rules related to payment accounts, which are divided into prepaid and postpaid accounts and require the allocation of the totality of their balance to a special account at the Brazilian Central Bank or investment in government bonds.

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Portability of Credit Transactions

Financial institutions’ customers can transfer their credit transactions from one institution to another. Such transfers must comply with the specific rules established by the Brazilian Central Bank, including, among others, the requirement that the amount and term of the transaction in the receiving financial institution must not be higher than the amount due and term of the original transaction.

Digitalization of Documents and Record Keeping

Financial institutions and other institutions authorized to operate by the Brazilian Central Bank may keep in their records digital documents instead of physical documents, provided that certain requirements to ensure the documents’ authenticity and validity are met.

Anti-Money Laundering Regulations

Under the Brazilian Anti-Money Laundering Law, it is a crime to conceal or dissimulate the nature, origin, location, availability, transaction or ownership of assets, rights or amounts resulting, directly or indirectly, from any criminal offense, as well as their use in economic or financial activity and to participate in a group, association or office while being aware that its principal or secondary activities are directed toward the practice of such acts.

The Brazilian Anti-Money Laundering Law also created the Financial Activities Control Council (Conselho de Controle de Atividades Financeiras or “COAF”), which operates under the jurisdiction of the Ministry of Finance. The purpose of the COAF is to investigate, examine, identify and impose administrative sanctions in respect of any suspicious occurrences of illicit activities related to money laundering in Brazil.

The COAF is composed of individuals with recognized competence in this area, appointed by the Minister of Finance, all of whom are nominated by each of the following entities: (i) the Brazilian Central Bank; (ii) the CVM; (iii) the SUSEP; (iv) the National Treasury Attorney-General’s Office; (v) the Brazilian Federal Revenue; (vi) the Federal Intelligence Agency; (vii) the Ministry of Foreign Affairs; (viii) the Ministry of Justice; (ix) the Federal Police Department; (x) the Ministry of Social Security; and (xi) the General Comptroller’s Office, one of whom will be the president, which shall be appointed by the President of Brazil on the basis of recommendations by the Minister of Finance.

Financial institutions must maintain specific records of (i) the transactions in cash (deposit, withdrawal, withdrawal by means of a prepaid card or request of provision for withdrawal) so as to enable the identification of a deposit in cash, withdrawal in cash, withdrawal in cash by means of a prepaid card, or request of provision for withdrawal, of (a) an amount equal to or greater than R$100,000.00 or (b) that presents evidence of concealment or dissimulation of the nature, of the origin, of the location, of the disposal, of the movement or of the ownership of assets, rights and valuables; and (ii) the issuances of cashier’s checks, funds electronic transfers (TED) or of any other instrument of transfer of funds upon payment in cash, for an amount equal to or greater than R$100,000.00.

Financial institutions must maintain records of all operations, products and services contracted, including withdrawals, deposits, contributions, payments, receipts and transfers of funds. Additionally, the institutions must also keep specific records of (i) transactions in cash with an individual value greater than R$2,000.00; (ii) deposit or cash transactions of an individual value equal to or greater than R$50,000.00; and (iii) withdrawal transactions, including those carried out by check or money order, with an individual value equal to or greater than R$50,000.00.

The regulations also impose an obligation on financial institutions to request that both customers and non-customers a providing a withdrawal request at least three working days in advance for withdrawals (including those carried out by check or money order) in an amount equal to or greater than R$50,000.00.

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On January 23, 2020, the Brazilian Central Bank published Circular No. 3,978, which improves the regulation applicable to financial institutions, by expanding the adoption of a risk-based approach and came into effect on July 1, 2020. Regulated institutions must carry out specific internal risk assessments in order to identify and measure the risk of using their products and services in the practice of money laundering and terrorist funding.

In connection with the aforementioned change, the Know-Your-Client procedures were also improved and include the identification, qualification and classification of the customer, compatible with the risk profile, the nature of the relationship with the AML policy and the institution’s internal risk assessment, which must be permanently reassessed, according to the evolution of the business relationship and the risk profile of the client. The procedures must also include the verification of the client’s (including their representatives’, family members’ or close collaborators) condition as a Politically Exposed Individual, as well as consider them in the monitoring, selection and analysis of operations and situations with indications of suspected money laundering or terrorist funding.

On December 5, 2019, the CVM issued CVM Instruction No. 617, which establishes a new framework for the prevention of money laundering and the financing of terrorism in the Brazilian securities market. CVM Instruction No. 617 is in line with the practices currently implemented in the principal global securities markets, including with regard to the recommendations of the Financial Action Group against Money Laundering and the Financing of Terrorism (GAFI/FATF), as well as with the duties arising from Brazilian anti-money laundering laws.

Brazilian Anti-Corruption Law

Law No. 12,846/13 of August 1, 2013, or the “Brazilian Anti-Corruption Law” establishes that legal entities will have strict liability regardless of fault or willful misconduct for acts against the public administration carried out in their interest or for their benefit. The Law encompasses not only performance of acts of corruption but also performance of other injurious acts contrary to the Brazilian or foreign public administration.

Corporations that violate the Brazilian Anti-Corruption Law’s provisions will be subject to heavy penalties, some of which may be imposed through administrative proceedings and others solely through judicial channels. The Brazilian Anti-Corruption Law also creates a leniency program under which self-disclosure of violations and cooperation by corporations might result in the reduction of fines and other sanctions.

Politically Exposed Individuals

Financial institutions and other institutions authorized by the Brazilian Central Bank to operate must take certain actions and have certain controls in order to establish business relationships with and to follow up on the financial transactions of customers who are deemed to be politically exposed individuals (public agents and their immediate family members, spouses, life partners and stepchildren who occupy or have occupied a relevant public office or position over the past five years in Brazil or other countries, territories and foreign jurisdictions). The internal procedures developed and implemented for this purpose by financial institutions must be structured in such a way as to enable the identification of politically exposed individuals, as well as the origin of the funds involved in the transactions of such customers. One option is to verify the compatibility between the customer’s transactions and the net worth stated in such customer’s file.

Bank Secrecy

Brazilian financial and payment institutions shall also maintain the secrecy of their banking operations and services provided to their customers. The only circumstances in which information about customers, services or transactions of Brazilian financial and payment institutions may be disclosed to third parties are the following:

·the disclosure of information with the express consent of the interested parties;

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·the exchange of information between financial institutions for record purposes;

·the supplying to credit reference agencies of information based on data from the records of issuers of bank checks drawn on accounts without sufficient funds and defaulting debtors; and

·the occurrence or suspicion that criminal or administrative illegal acts have been performed, in which case the financial institutions and the credit card companies may provide the pertinent authorities with information relating to such criminal acts when necessary for the investigation of such acts.

Complementary Law 105/01 also allows the Brazilian Central Bank or the CVM to exchange information with foreign governmental authorities, provided that a specific treaty has previously been executed.

The government of the Federal Republic of Brazil and the government of the United States of America executed an agreement on March 20, 2007, by means of which these governments established rules for the exchange of information relating to tax, or the “2007 Agreement”. Under the 2007 Agreement, the Brazilian tax authority would be able to send information it receives by virtue of Section 5 of the Bank Secrecy Law to the U.S. tax authority.

Data Protection Requirements

The GDPA, or in Portuguese, “Lei Geral de Proteção de Dados”, was published in the Federal Official Gazette on August 15, 2018 and was amended by Law No. 13,853, issued on July 8, 2019 or “Law 13,853/2019”. The GDPA came into effect in September 2020, except for administrative sanctions, which will come into effect on August 1, 2021, pursuant to Law No. 14,010/20, which delayed the applicability of certain provisions of the GDPA.

Before the GDPA, Brazil lacked regulations specific to data privacy and a data protection authority. Despite this, privacy has been generally protected through the Federal Constitution, the Civil Code (Law No. 10,406 of January 10, 2002), the Consumer Protection Code (Law No. 8,078 of September 11, 1990) and the Civil Rights Framework for the Internet (Law No. 12,965 of April 23, 2014 and the Decree 8,771 of May 11, 2016, also known as the Internet Law).

The GDPA brings about profound changes in the rules and regulations applicable to the processing of personal data, with a set of rules to be complied with in activities such as the collection, processing, storage, use, transfer, sharing and erasure of information concerning identified or identifiable natural persons.

The GDPA has a wide range of applications and extends to individuals as well as private and public entities, regardless of the country where they are headquartered or where data are hosted, as long as (i) the data processing takes place in Brazil; (ii) the data processing activity is intended to offer or supply goods or services to, or to process data of individuals located in Brazil; or (iii) the subjects of the data are located in Brazil at the time their personal data are collected. The GDPA will apply irrespective of the industry or business when dealing with personal data and is not restricted to data processing activities performed through digital media and/or on the internet.

The GDPA sets out several rules related to data processing such as principles, requirements and duties imposed to data controllers and data processors; rights of data subjects; requirements in connection with cross-border transfers of data; the obligation to appoint a data protection officer; data security and data breach notification; corporate governance practices; and the regime for civil liabilities and penalties in case of a breach of the provisions of the GDPA. Penalties include warnings, blocking and erasure of data, public disclosure of the offense and fines of up to 2% of the economic group’s turnover in Brazil in the preceding year, capped at R$50 million per offense.

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Moreover, Law 13,853/2019 created the Brazilian National Data Protection Authority, or “ANPD”, which will have powers and responsibilities analogous to the European data protection authorities, exercising a triple role of (i) investigation, comprising the power to issue norms and procedures, deliberate on the interpretation of the GDPA and request information of controllers and processors; (ii) enforcement, in cases of noncompliance with the law, through an administrative process; and (iii) education, with the responsibility to disseminate information about and foster knowledge of the GDPA and security measures, fostering standards for services and products that facilitate control of data, and elaborating studies on national and international practices for the protection of personal data and privacy, among others.

The ANPD has been assured technical independence, although it is subordinated to the Presidency of the Republic. It will be composed of five commissioners, to be appointed by the President of Brazil, and advised by a National Council for the Protection of Personal Data and Privacy, composed of 23 unpaid members.

Regulations on Cybersecurity

Financial institutions must follow certain cyber risk management and cloud outsourcing requirements which apply to the design and adaptation of internal controls. Policies and action plans to prevent and respond to cybersecurity incidents must be in place before May 2019, and fully compliant by December 2021. Data location and processing may occur inside or outside Brazil, but access to data stored abroad must be granted at all times to the Brazilian Central Bank for inspection purposes. The contracting of relevant processing services must be communicated to the Brazilian Central Bank within 10 days from the execution of the agreement.

Auditing Requirements

The legislation and regulations issued by the CMN, CVM and B3 determine that the periodic financial statements of financial institutions must be audited by independent auditors (individuals or legal entities) that are registered with the CVM and who meet the minimum requirements set forth by the Brazilian Central Bank, and that the financial statements must be presented together with an independent auditor’s report. Our financial statements are audited in accordance with International Standards on Auditing with regard to Brazilian GAAP and also with the standards of the Public Company Accounting Oversight Board with regard to IFRS as issued by the IASB, as required by the SEC. For purposes of the financial statements prepared according to Brazilian GAAP, as from January 2017 all financial institutions and other institutions authorized to operate by the Brazilian Central Bank are required to create provisions for all losses related to financial guarantees issued by them. As a result of the auditing work, the independent auditor must prepare the following reports: (i) an audit report, issuing an opinion regarding the accounting statements and the respective explanatory notes, including regarding the compliance with financial regulations issued by the CMN and the Brazilian Central Bank; (ii) an internal control system quality and adequacy evaluation report, including regarding electronic data processing and risk management systems, evidencing any identified deficiencies; (iii) a legal and regulatory provisions noncompliance report, regarding those which have, or may have, material impacts on the financial statements or on the audited financial institution’s operations; (iv) a limited assurance report, analyzing our Annual and Sustainability Report pursuant to the guidelines and requirements of the Global Reporting Initiative, or “GRI”; and (v) any other reports required by the Brazilian Central Bank, CVM and B3. The reports issued by independent auditors must be available for consultation upon request by the overseeing authorities.

Independent auditors and the audit committee, individually or jointly, must formally notify the Brazilian Central Bank of the existence or evidence of error or fraud, within three business days of the identification of the respective occurrence, including:

·noncompliance with legal rules and regulations that place the continuity of the audited entity at risk;

·frauds of any amount perpetrated by the management of the institution;

·material frauds perpetrated by the institution’s employees or third parties; and

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·errors that result in major incorrectness in the financial statements of the audited entity.

The executive office of the financial institution must inform the independent auditor and the audit committee, if any of the above situations occur.

CMN regulation also requires financial institutions and certain other entities holding Regulatory Capital equal to or greater than R$1 billion to create a corporate body designated as the “audit committee”. To obtain more information concerning the audit committee, see “Item 6. Directors, Senior Management and Employees—C. Board Practices—Board Advisory Committees—Audit Committee.”

Internal Auditing of Financial Institutions

Financial institutions are required to establish and maintain internal audit activities compatible with their operational specifications, so that such internal bodies are able to perform an independent, autonomous and impartial audit of the quality and effectiveness of the institution’s internal systems. Such unit shall be directly controlled by the institution’s board of directors. Internal and external independent auditors are also liable for failures of the financial institution’s internal control mechanisms.

Socio-Environmental Responsibility Policy

Financial institutions are required to have a responsibility policy, which must guide the social and environmental actions in conducting their businesses, their relationship with their customers and other users of their products and services. The responsibility policy must also guide the financial institution’s relationship with its personnel and with any others affected by the financial institution’s activities. In addition, the responsibility policy must provide for the management of social and environmental risks (which, according to the Brazilian Central Bank, represent one of the several categories of risk to which financial institutions are exposed).

Policy for Succession of Financial Institutions Managers

Brazilian financial institutions and other institutions authorized to operate by the Brazilian Central Bank shall implement and maintain internal policies for succession of managers, applicable to higher levels of the institution’s management. The internal policy shall encompass the procedures related to recruitment, promotion, appointment and retention of managers in accordance with the institution’s rules for identification, evaluation, training and selection of the candidates to management offices.

Corporate Governance of Financial Institutions

Financial institutions must (i) remit to the Brazilian Central Bank information on the financial institution’s management, controlling group and relevant shareholders, including the obligation to communicate to the regulator any information that may affect the reputation of any such persons; (ii) make available a communication channel allowing employees, contributors, customers, users, associates, or services providers to report anonymously situations indicating illegalities of any nature related to the institution; and (iii) have an internal body responsible for receiving the information and complying with the reporting obligations.

Compliance Policy

Financial institutions must implement and maintain a compliance policy compatible with the nature, size, complexity, structure, risk profile and business model of the institution, which is intended to ensure an effective compliance risk management by the institution and may be established at the consolidated enterprise level (conglomerado prudencial). The compliance policy must establish the scope and purpose of the compliance function in the institution, set forth the organizational structure of the compliance function, specify which personnel is allocated to the compliance function, and establish a segregation of roles among personnel in order to avoid conflicts of interest.

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The compliance policy must be approved by the board of directors and the regulation also assigns to the board the responsibility to ensure the following: adequate management of the compliance policy throughout the institution, its effectiveness and continued application, its communication to all employees and services providers, as well as the dissemination of the integrity and ethical standards as part of the institution’s culture. The board of directors is also responsible for ensuring the application of measures in case of noncompliance, and for providing the necessary means for the activities related to the compliance functions to be adequately conducted.

Consumer Protection

Relationships between consumers and financial institutions are governed by Law 8,078, dated September 11, 1990, or the “Brazilian Consumer Protection Code”, which grants consumers certain rights and sets forth measures to be observed by suppliers, which must be complied with by financial institutions. The Brazilian Consumer Protection Code sets forth as consumer rights, among others, the assistance/facilitation in the defense of consumers’ rights, including through reverse burden of proof in their favor, and possibility of judicial review of contractual provisions deemed abusive.

Furthermore, banking regulation establishes procedures that financial institutions must observe when contracting any transactions, as well as when rendering services. We may highlight the following as examples of said procedures:

·to timely provide the necessary information including rights, duties, responsibilities, costs or advantages, penalties and possible risks when carrying out a transaction or rendering a service to allow customers and users free choice and decision-making;

·to timely provide, to the customer or user, agreements, receipts, statements, advice and other documents related to the transactions and services, as well as the possibility of timely cancellation of the agreements;

·formalization of an adequate instrument setting forth the rights and obligations for opening, using and maintaining a postpaid payment account;

·to forward a payment instrument to the customers’ or users’ residence or to enable the respective instrument only upon express request or authorization; and

·identification of end users’ beneficiaries for payments or transfer in statements and bills of the payer, including in situations in which the payment service involves institutions participating in different payment arrangements.

Financial institutions operating exclusively via digital means are excluded from the scope of certain aspects of the regulation.

Policy for Relationship with Customers and Users of Financial Products and Services

Financial institutions and other institutions authorized to operate by the Brazilian Central Bank must have a policy governing the relationship with customers and users of financial products and services. In addition, such entities shall comply with the principles of ethics, liability, transparency and diligence promoting the convergence of interests and the consolidation of the institutional image of credibility, security and expertise.

Ombudsman

Financial institutions and other entities that are authorized to operate by the Brazilian Central Bank must have an ombudsman office. An ombudsman office has the following attributes according to the current regulation:

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·to provide last resort assistance in connection with customer claims that have not been resolved through the conventional customer service channels (including the banking correspondents and the customer service assistance channel (Serviço de Atendimento ao Consumidor), or SAC); and

·to act as a communication channel between the financial institutions and their customers, including for dispute resolution

Institutions that are part of a financial group are allowed to establish one ombudsman department to service the whole group. The officer in charge of the ombudsman office must prepare a report every six months, which must be provided to the management and auditing bodies. The reports and recordings of interactions of the ombudsman unit with consumers must be available to the Brazilian Central Bank for a period of at least five years.

Investment Funds Industry Regulation

Investment funds are subject to the regulation and supervision of the CMN and the CVM and, in certain specific matters, the Brazilian Central Bank. Investment funds may be managed by full-service banks, commercial banks, savings banks, investment banks, credit, financing and investment companies and brokerage and dealer companies within certain operational limits.

Investment funds may invest in any type of financial instrument available in the financial and capital markets, including, for example, fixed income instruments, stocks, debentures and derivative products, provided that, in addition to the denomination of the fund, a reference to the relevant type of fund is included.

Broker-Dealer Regulation

Broker and dealer firms are part of the national financial system and are subject to CMN, Brazilian Central Bank and CVM regulation and supervision. Brokerage firms must be chartered by the Brazilian Central Bank and are the only institutions in Brazil authorized to trade on stock exchanges. Both brokers and dealers may act as underwriters in the public placement of securities and engage in the brokerage of foreign currency in any exchange market.

Since August 29, 2019, securities brokers and dealers may loan their own securities to their customers as long as they use the funds as collateral for operations in which the institution itself intermediates. The loan transaction consists of the transfer of assets from the institution: (i) to the customer, in conjunction with the transfer of that asset to the clearinghouse or clearing and settlement service provider; or (ii) to the clearinghouse or clearing and settlement service provider on behalf of the customer through powers established in a formal written power of attorney. In either case, the assets or set of assets in question shall return to the positions originally held at the end of the period stipulated in the contract. To offer this new service, securities brokers and dealers must appoint a director responsible for the loan operations under consideration.

Since November 27, 2020, securities brokers and dealers may issue electronic currency and maintain payment accounts.

Foreign Exchange Market

Transactions involving the sale and purchase of foreign currency in Brazil may be conducted only by institutions duly authorized by the Brazilian Central Bank to operate in the foreign exchange market. There is no current limit to long or short positions in foreign currency for banks authorized to carry out transactions on the foreign exchange market. Other institutions within the national financial system are not allowed to have short positions in foreign currency, although there are no limits with respect to foreign exchange long positions.

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The Brazilian Central Bank imposes a limit on the total exposure in foreign currency transactions and transactions subject to foreign exchange fluctuation undertaken by Brazilian financial institutions, including branches abroad, and their direct and indirect affiliates. The limit is currently equivalent to 30.0% of the financial institution’s Regulatory Capital (Patrimônio de Referência), on a consolidated basis. The CMN, the Brazilian Central Bank and the Brazilian government may change the regulation applicable to foreign currency and foreign exchange transactions undertaken by Brazilian financial institutions in accordance with Brazil’s economic policy (including its foreign exchange policy).

On October 7, 2019, the Brazilian Central Bank, sent to the President of Brazil a draft bill to change the way in which the Brazilian foreign exchange market is regulated (“New Foreign Exchange Bill”). The draft also contains provisions regarding Brazilian capital abroad and foreign capital within Brazil. The initiative aims to modernize, simplify and reduce legal doubts associated with current Brazilian foreign exchange legislation.

The main aspects of the New Foreign Exchange Bill are: (i) ratification, at the legal level, that foreign exchange transactions may be carried out freely (provided such transactions are carried out by entities authorized to operate in this market and subject to applicable rules); (ii) granting of broad powers to the CMN and the Brazilian Central Bank to regulate the foreign exchange market and foreign exchange operations; (iii) expansion of international correspondence activities by Brazilian banks; (iv) possibility of Brazilian financial institutions investing and lending abroad funds that have been raised in Brazil or abroad; (v) the exclusion from its scope of foreign currency purchase and sale operations of up to US$1,000 carried out between individuals on an occasional and non-professional basis; and (vi) the granting of powers to the monetary authorities to establish situations in which the prohibition of the private offset of credits between residents and nonresidents, as well as payments in foreign currency in Brazil, would not apply.

On December 22, 2020, the Brazilian House of Representatives approved the base wording of the New Foreign Exchange Bill. The Brazilian House of Representatives is expected to vote on any motions by representatives for amendment or redaction of specific sections of the New Foreign Exchange Bill in early 2021. Upon approval by the Brazilian House of Representatives, the bill will be sent to the Brazilian Senate for approval. As of the date of this annual report, it is not possible to estimate if and when it will be approved by the Brazilian Senate, or what changes will be approved by the House of Representatives.

Foreign Investment in Brazilian Financial Institutions

According to the Brazilian federal constitution, the acquisition of equity interests by foreign individuals or legal entities in the capital stock of Brazilian financial institutions is forbidden, unless permitted by bilateral international treaties or by the Brazilian government by means of a presidential decree. A presidential decree issued on November 13, 1997, issued in respect of Banco Meridional do Brasil S.A. (our legal predecessor) allows 100% foreign participation in our capital stock. Foreign investors may acquire the shares issued by Santander Brasil as a result of this decree. In addition, foreign investors may acquire publicly traded nonvoting shares of Brazilian financial institutions traded on a stock exchange or securities depositary receipts offered abroad representing shares without specific authorization.

Following the enactment of Decree No. 10,029, the Brazilian Central Bank published, on January 22, 2020, Circular No. 3,977 recognizing as an interest of the Brazilian government the foreign holding of equity or increase in equity interest of financial institutions headquartered in Brazil (which is still subject to the same requirements and procedures applicable to the acquisition of equity in any Brazilian financial institution), as well as the opening of local branches of foreign financial institutions. However, since Santander Brasil had already been granted a specific presidential decree authorizing the foreign interest in its share capital, prior to Decree 10,029/19 being issued it does not affect its operations in Brazil.

A foreign financial institution duly authorized to operate in Brazil through a branch or a subsidiary is subject to the same rules, regulations and requirements that are applicable to any Brazilian financial institution.

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Bank Correspondents

Financial institutions are allowed to provide specific services to customers, including customer services, through other entities. These entities are called “bank correspondents” and the relationship between the financial institution and the bank correspondent is ruled by a specific regulation published by CMN and is subject to the supervision of the Brazilian Central Bank.

Regulation of Branches

Authorization by the Brazilian Central Bank is required for operations of branches or subsidiaries of Brazilian financial institutions, upon the compliance with certain term, capital and equity requirements, as well as the submission of an economic and financial feasibility analysis.

The Brazilian Central Bank’s prior authorization is also required in order to: (i) allocate new funds to branches or subsidiaries abroad; (ii) subscribe capital increases, directly or indirectly, in subsidiaries abroad; (iii) increase equity participation, directly or indirectly, in subsidiaries abroad; and/or (iv) merge or spin off, directly or indirectly, subsidiaries abroad.

The Brazilian Central Bank determines that financial institutions can install the following establishments in Brazil: (i) branches, (ii) teller booths, (iii) automatic teller machines, and (iv) segregated administrative units, provided that, for items (i) to (iii), conformity with requirements of minimum capital and operating limits are necessary.

Cayman Islands Banking Regulation

We have a branch in the Cayman Islands with its own staff and representative officers. Banco Santander (Brasil) S.A. – Grand Cayman Branch is licensed under The Banks and Trust Companies Law (2013 Revision) of the Cayman Islands, or the “Banks and Trust Companies Law,” as a Category “B” Bank and it is duly registered as a Foreign Company with the Registrar of Companies in the Cayman Islands. The branch, therefore, is duly authorized to carry on banking business in the Cayman Islands. The branch was authorized by the local authorities to act as its own registered office and it is located at the Waterfront Centre Building, 28, North Church Street – 2nd floor, George Town, Grand Cayman, Cayman Islands, P.O. Box 10444 – KYI-1004, Phone: 1-345-769-4401 and Fax: 1-345-769-4601.

Our Grand Cayman Branch is currently engaged in the business of sourcing funds in the international banking and capital markets to provide credit lines for us, which are then extended to our customers for working capital and trade-related financings. It also takes deposits in foreign currency from corporate and individual customers and extends credit to Brazilian and non-Brazilian customers, mainly to support trade transactions with Brazil. The results of the operations of the Grand Cayman Branch are consolidated in our consolidated financial statements.

Banks and trust companies wishing to conduct business from within the Cayman Islands must be licensed by the Cayman Islands Monetary Authority under the Banks and Trust Companies Law, irrespective of whether the business is to be actually conducted in the Cayman Islands.

Under the Banks and Trust Companies Law, there are two main categories of banking license: a category “A” license, which permits unrestricted domestic and offshore banking business, and a category “B” license, which permits principally offshore banking business. The holder of a category “B” license may have an office in the Cayman Islands and conduct business with other licensees and offshore companies but, except in limited circumstances, may not do banking business locally with the public or residents of the Cayman Islands. We have an unrestricted category “B” license.

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There are no specific ratio or liquidity requirements under the Banks and Trust Companies Law, but the Cayman Islands Monetary Authority will expect observance of prudent banking practices, and the Banks and Trust Companies Law imposes a minimum net worth requirement of an amount equal to CI$400,000 (or, in the case of licensees holding a restricted category “B” or a restricted trust license, CI$20,000). As of December 31, 2020, CI$1 was equivalent to R$6.29, according to the Brazilian Central Bank.

Luxembourg Banking Regulation

Branches of credit institutions from outside the European Union (“non-EU credit institutions”) must be licensed by the Luxembourg Minister of Finance under the law of 5 April 1993 on the financial sector, as amended, in order to operate in Luxembourg.

We have a branch in Luxembourg with its own staff and representative officers. Our Luxembourg branch is licensed as a Luxembourg branch of a non-EU credit institution and is duly registered with the Luxembourg Trade and Companies’ Registry. The branch, therefore, is duly authorized to carry on banking business in Luxembourg. Its registered offices are at 35F, avenue J.F. Kennedy, 2nd floor, L-1855 Luxembourg, Grand Duchy of Luxembourg.

Our Luxembourg branch is currently engaged in the business of sourcing funds in the international banking and capital markets to provide credit lines for us, which are then extended to our customers for working capital and trade-related financings. It also takes deposits in foreign currency from corporate and individual customers and extends credit to Brazilian and non-Brazilian customers, mainly to support trade transactions involving Brazil. The results of the operations of the Luxembourg branch are consolidated in our consolidated financial statements.

Luxembourg law requires the Luxembourg branch to have a minimum endowment capital of €8,700,000 and the solvency, and liquidity requirements deriving, among others, from EU Regulation No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms apply to it.

Foreign Subsidiary

We had established an independent subsidiary in Spain, Santander EFC, in order to complement our foreign trade strategy for corporate customers, which are composed of large Brazilian companies and their operations abroad. This has allowed us to provide financial products and services by means of an offshore entity, which is not established in a “tax haven,” such as our Cayman Islands branch, in accordance with Law No. 12,249, of June 11, 2010, and Brazilian Federal Revenue Normative Ruling No. 1,037, of June 4, 2010.

The establishment of our foreign subsidiary was approved by the Brazilian Central Bank on September 26, 2011, by the Spanish Ministerio de Economia y Hacienda on February, 6, 2012 and by the Bank of Spain on March 28, 2012. The remittance of resources to pay up the share capital of the subsidiary was carried out on March 5, 2012, totaling €748 million. Santander EFC was operational from 2012 to November 12, 2020, when we approved its liquidation. As a consequence of the liquidation, we, as sole shareholder of Santander EFC, have participated in the net assets of the corporation, in the net amount of €741 million.

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U.S. Banking Regulation

Financial Regulatory Reform

Banking statutes and regulations are continually under review by the United States Congress. In addition to laws and regulations, the U.S. bank regulatory agencies may issue policy statements, interpretive letters and similar written guidance. Many changes have occurred as a result of the 2010 Dodd-Frank Act and its implementing regulations, most of which are now in place. In 2017, the President of the United States issued an executive order that sets forth principles for financial regulatory reform. In May 2018, the United States Congress passed, and President Trump signed into law the Economic Growth, Regulatory Relief, and Consumer Protection Act (“EGRRCPA”) which, among other things, revised the thresholds for total consolidated assets at which certain enhanced prudential standards apply to bank holding companies. EGRRCPA made clear that the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”) retains the right to apply enhanced prudential standards to FBOs with greater than $100 billion in global total consolidated assets, such as Santander Spain.

In October 2019, the federal banking agencies issued final rules (the “Tailoring Rules”) that, pursuant to EGRRCPA, adjust the thresholds at which certain enhanced prudential standards and capital and liquidity requirements apply to certain banking organizations, including large FBOs such as Santander Spain. As a result, Santander Spain is now generally subject to less restrictive enhanced prudential standards and capital and liquidity requirements than under previously applicable regulations.

Volcker Rule

Section 13 of the U.S. Bank Holding Company Act of 1956, as amended, and its implementing rules (collectively, the “Volcker Rule”) prohibits “banking entities” from engaging in certain forms of proprietary trading or from sponsoring or investing in “covered funds,” in each case subject to certain exceptions. The Volcker Rule also limits the ability of banking entities and their affiliates to enter into certain transactions with covered funds with which they or their affiliates have certain relationships. Banking entities such as Santander Brasil and Santander Spain were required to bring their activities and investments into compliance with the requirements of the Volcker Rule by the end of the conformance period applicable to each requirement. Santander Spain has assessed how the Volcker Rule affects its businesses and subsidiaries, including Santander Brasil, and has brought its activities into compliance. Santander Brasil has adopted processes to establish, maintain, enforce, review and test the compliance program designed to achieve and maintain compliance with the Volcker Rule. The Volcker Rule contains exclusions and certain exemptions for market-making, hedging, underwriting, trading in U.S. government and agency obligations, as well as certain foreign government obligations, and trading solely outside the United States, and also permits certain ownership interests in certain types of funds to be retained. Santander Spain’s non-U.S. banking organization subsidiaries, including Santander Brasil, are largely able to continue their activities outside the United States in reliance on the “solely outside the U.S.” exemptions from the Volcker Rule. Those exemptions generally exempt proprietary trading, and sponsoring or investing in covered funds if, among other restrictions, the essential actions take place outside the United States and any transactions are not with U.S. persons.

On July 21, 2017, the five regulatory agencies charged with implementing the Volcker Rule announced the coordination of reviews of the treatment of certain foreign funds that are investment funds organized and offered outside the United States and that are excluded from the definition of covered fund under the agencies’ implementing regulations. Also in July 2017, the Federal Reserve issued guidelines for banking entities seeking an extension to conform certain “seeding” investments in covered funds to the requirements of the Volcker Rule.

As of October 2019, the five regulatory agencies charged with implementing the Volcker Rule finalized amendments to the Volcker Rule. These amendments tailor the Volcker Rule’s compliance requirements to the amount of a firm’s trading activity, revise the definition of trading account, clarify certain key provisions in the Volcker Rule, and modify the information companies are required to provide the federal agencies. Santander Brasil will still largely rely on the “solely outside the U.S. exemption” to conduct its trading activities.

In early 2020, the five federal agencies proposed additional amendments to the Volcker Rule related to the restrictions on ownership interests in and relationships with covered funds. Santander Spain will continue to monitor these Volcker Rule-related developments and assess their impact on its operations, including those of Santander Brasil, as necessary.

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U.S. Anti-Money Laundering, Anti-Terrorist Financing, and Foreign Corrupt Practices Act Regulations

Santander Brasil, as a foreign private issuer whose securities are registered under the Exchange Act, is subject to the U.S. Foreign Corrupt Practices Act, or the “FCPA”. The FCPA generally prohibits such issuers and their directors, officers, employees and agents from using any means or instrumentality of U.S. interstate commerce in furtherance of any offer or payment of money to any foreign official or political party for the purpose of influencing a decision of such person in order to obtain or retain business. It also requires that the issuer maintain books and records and a system of internal accounting controls sufficient to provide reasonable assurance that accountability of assets is maintained and accurate financial statements can be prepared. Penalties, fines and imprisonment of Santander Brasil’s officers and/or directors can be imposed for violations of the FCPA.

Furthermore, Santander Brasil is subject to a variety of U.S. anti-money laundering and anti-terrorist financing laws and regulations, such as the Bank Secrecy Act of 1970, as amended, and the USA Patriot Act of 2001, as amended, and a violation of such laws and regulations may result in substantial penalties, fines and imprisonment of Santander Brasil’s officers and/or directors.

U.S. Sanctions

“Sanction(s)” means any international economic sanction administered or enforced by the United States government (including without limitation, OFAC), the United Nations Security Council, the European Union or Her Majesty’s Treasury. The Office of Foreign Assets Control (“OFAC”) is responsible for administering economic sanctions imposed against designated foreign countries, governments, individuals and entities pursuant to various Executive Orders, statutes and regulations.

OFAC-administered sanctions take many different forms. For example, sanctions may include: (1) restrictions on U.S. persons’ trade with or investment in a sanctioned country, including prohibitions against direct or indirect imports from and exports to a sanctioned country and prohibitions on U.S. persons engaging in financial transactions relating to, making investments in, or providing investment-related advice or assistance to, a sanctioned country; and (2) blocking of assets of targeted governments or “specially designated nationals,” by prohibiting transfers of property subject to U.S. jurisdiction, including property in the possession or control of U.S. persons. Blocked assets, such as property and bank deposits, cannot be paid out, withdrawn, set off or transferred in any manner without a license from OFAC. In addition, non-U.S. persons can be liable for “causing” a sanctions violation by a U.S. person or can violate U.S. sanctions by exporting services from the United States to a sanctions target, for example by engaging in transactions with targets of U.S. sanctions denominated in U.S. dollars that clear through U.S. financial institutions (including through U.S. branches or subsidiaries of non-U.S. banks).

Failure to comply with applicable U.S. sanctions could have serious legal and reputational consequences, including significant civil monetary penalties and, in the most severe cases, criminal penalties.

In addition, the U.S. government has implemented various sanctions that target non-U.S. persons, including non-U.S. financial institutions, that engage in certain activities undertaken outside the United States and without the involvement of any U.S. persons (“secondary sanctions”) that involve Iran, North Korea, Russia, or Hezbollah or other persons designated by the United States under the Specially Designated Global Terrorist, or “SDGT,” sanctions program. If a non-U.S. financial institution were determined to have engaged in activities targeted by certain secondary U.S. sanctions or used proceeds produced by such activities targeted, it could lose its ability to open or maintain correspondent or payable-through accounts with U.S. financial institutions, among other potential consequences.

Antitrust Regulation

According to the Brazilian antitrust law, actions that concentrate market share must be previously submitted to CADE for approval if the following criteria are met: (i) at least one of the groups involved in the deal has posted annual gross revenues or volume of business equal to or over R$750 million, in Brazil, in the year prior to the transaction; and (ii) at least another group has posted annual gross revenues or volume of business equal to or over R$75 million, in Brazil, in the year prior to the transaction. Closing of a transaction without CADE’s approval will subject the parties to fines ranging from R$60,000 to R$60 million.

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The Brazilian Central Bank will also examine certain corporate reorganizations and other acts involving two or more financial institutions not only considering their potential effects on the financial system and its stability but also any potential impacts regarding market concentration and competition. Upon approval of the transaction, the Brazilian Central Bank may establish certain restrictions and require that the financial institutions execute an agreement of market concentration control, pursuant to which the terms and conditions of the sharing of the efficiency gain resulting from the act shall be set forth.

In December 2018, the Brazilian Central Bank and CADE approved a joint normative act establishing procedures with the purpose of increasing efficiency for their respective actions regarding antitrust matters. Pursuant to the joint normative act, the authorities are authorized to share information for the purposes of their respective activities and carry out meetings with each other to discuss matters requiring the regulatory cooperation between both authorities.

Insolvency Laws Concerning Financial Institutions

Financial institutions are subject to the proceedings established by Law 6,024 of March 13, 1974, or “Law 6024”, which establishes the applicable provisions in the event of intervention or extrajudicial liquidation by the Brazilian Central Bank, as well as to bankruptcy proceedings.

Intervention and extrajudicial liquidation occur when the Brazilian Central Bank has determined that the financial institution is in bad financial condition or upon the occurrence of events that may impact the creditors’ situation. Such measures are imposed by the Brazilian Central Bank in order to avoid the bankruptcy of the entity.

Intervention

An intervention can be carried out at the discretion of the Brazilian Central Bank in the following cases:

·risk to the creditors due to mismanagement;

·consistent violation of Brazilian banking laws or regulations; or

·if the intervention is a feasible alternative to the liquidation of the financial institution.

As of the date on which it is ordered, the intervention will automatically suspend the enforceability of the payable obligations; prevent early termination or maturity of any previously contracted obligations; and freeze deposits existing on the date on which the intervention is decreed.

The intervention will cease if interested parties undertake to continue the economic activities of the financial institution, by presenting the necessary guarantees, as determined by the Brazilian Central Bank, when the situation of the entity is regularized as determined by the Brazilian Central Bank; or when extrajudicial liquidation or bankruptcy of the entity is ordered.

Intervention may also be ordered upon the request of a financial institution’s management.

Extrajudicial Liquidation

Extrajudicial liquidation is an administrative proceeding decreed by the Brazilian Central Bank (except that it is not applicable to financial institutions controlled by the Brazilian federal government) and conducted by a liquidator appointed by the Brazilian Central Bank. This extraordinary measure aims at terminating the activities of the affected financial institution, liquidating its assets and paying its liabilities, as in a judicially decreed bankruptcy. The Brazilian Central Bank will place a financial institution in extrajudicial liquidation if:

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·the institution’s economic or financial situation is at risk, particularly when the institution ceases to meet its obligations as they become due, or upon the occurrence of an event that could indicate a state of insolvency under the rules of the Bankruptcy Law;

·management seriously violates Brazilian banking laws, regulations or rulings;

·the institution suffers a loss which subjects its unprivileged and unsecured creditors to severe risk; and/or

·upon revocation of the authorization to operate, the institution does not initiate ordinary liquidation proceedings within 90 days or, if initiated, the Brazilian Central Bank determines that the pace of the liquidation may harm the institution’s creditors.

A request for liquidation procedures can also be filed on reasonable grounds by the officers of the respective financial institution or by the receiver appointed by the Brazilian Central Bank in the receivership procedure.

The decree of extrajudicial liquidation will: (i) suspend the actions or foreclose on rights and interests relating to the estate of the entity being liquidated, while no other actions or executions may be brought during the liquidation; (ii) accelerate the obligations of the entity; and (iii) interrupt the statute of limitations with regard to the obligations assumed by the institution.

Extrajudicial liquidation procedures may be terminated:

·by discretionary decision of the Brazilian Central Bank if the parties involved undertake the administration of the financial institution after having provided the necessary guarantees; or

·when the final accounts of the receiver are delivered and approved and subsequently registered in the relevant public records; or

·when converted into ordinary liquidation; or

·when a financial institution is declared bankrupt.

Temporary Special Administration Regime (Regime de Administração Especial Temporária or “RAET”)

In addition to the intervention procedures described above, the Brazilian Central Bank may also establish a RAET, under Law 9447, dated March 14, 1997 combined with Law 6,024/74, which is a less severe form of the Brazilian Central Bank intervention in private and nonfederal public financial institutions that allows institutions to continue to operate normally. The RAET may be ordered in the case of an institution that:

·continually enters into recurrent operations that are against economic or financial policies set forth in federal law;

·faces a shortage of assets;

·fails to comply with the compulsory reserves rules;

·reveals the existence of hidden liabilities;

·experiences the occurrence of situations that cause receivership pursuant to current legislation;

·has reckless or fraudulent management; or

·carries out activities which call for an intervention.

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The main objective of a RAET is to assist the recovery of the financial condition of the institution under special administration and thereby avoid intervention and/or liquidation. Therefore, a RAET does not affect the day-to-day business, operations, liabilities or rights of the financial institution, which continues to operate in the ordinary course of business. Measures which may be adopted by the institution include the transfer of assets, rights and obligations to other entities, and corporate restructuring of these entities, with a view to the continuity of the institution’s business or activities.

There is no minimum term for a RAET, which ceases upon the occurrence of any of the following events: (i) acquisition by the Brazilian federal government of control of the financial institution, (ii) corporate restructuring, merger, spinoff, amalgamation or transfer of the controlling interest of the financial institution, (iii) decision by the Brazilian Central Bank, or (iv) declaration of extrajudicial liquidation of the financial institution.

Bankruptcy Law

Law No. 11,101, of February 9, 2005, as amended, or the “Bankruptcy Law”, regulates judicial reorganizations, out-of-court reorganizations and the bankruptcy of individuals and corporations that have occurred since 2005 and applies to financial institutions only with respect to the matters not specifically regulated by the intervention and extrajudicial liquidation regimes described above.

On December 24, 2020, Law 14,112, or “Law 11,112/20,” was passed. Law 11,112/20 overhauls the current Bankruptcy Law in several material aspects. Law 14,112/20 came into effect on January 23, 2021. Certain changes arising from this new legislation may affect enforcement and priority matters, such as: (i) the possibility of creditors putting forward an alternative judicial reorganization plan; (ii) new rules on the approval of post-petition loans in judicial reorganization and on priority claims in case of conversion to bankruptcy liquidation; (iii) more flexible quorum and mechanics in the extrajudicial reorganization process; (iv) new rules to expedite the bankruptcy liquidation process; (v) new methods for restructuring of the debtor's tax liabilities and installment payments, as well as new taxation schemes; and (vi) incorporation of rules on cross-border insolvency proceedings into the Brazilian framework.

Law 14,112/20 replicates, with some adjustments, the provisions of the UNCITRAL Model Law on Cross-Border Insolvency. As a result, Law 14,112/20 sets out some rules on access of foreign representatives to courts in Brazil, the method and requirements for recognition of foreign main and ancillary proceedings, authorization for the debtor and his representatives to act in other countries, methods of communication and cooperation between foreign authorities and representatives and the Brazilian jurisdiction, and the processing of concurrent proceedings.

Law 14,112/20 also sets forth, among other measures, (i) a protection for creditors that agree on the conversion of debt into equity against potential transfer of liability with regard to the debtor's obligations; (ii) the stay period and constraints on the assets of the debtor under judicial reorganization; (iii) conciliation and mediation measures before and during judicial reorganization proceedings; and (iv) the rules on procedural and substantive consolidation. Law 14,112/20 also sets out that a bankruptcy decree does not reach beyond the bankrupt itself, save when the disregard doctrine is to apply.

Repayment of Creditors in a Liquidation or Bankruptcy

In the event of extrajudicial liquidation or bankruptcy of a financial institution, creditors are paid pursuant to their priorities and privileges. Prepetition claims are paid on a ratable basis in the following order: labor credits; secured credits; tax credits; credits with special privileges; credits with general privileges; unsecured credits; contractual fines and pecuniary penalties for breach of administrative or criminal laws, including those of a tax nature; and subordinated credits.

The current law confers immunity from attachment of compulsory deposits maintained by financial institutions with the Brazilian Central Bank. Such deposits may not be attached in actions by a bank’s general creditors for the repayment of debts and require that the assets of any insolvent bank funded by loans made by foreign banks under trade finance lines be used to repay amounts owing under such lines in preference to those amounts owing to the general creditors of such insolvent bank.

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Recovery Plans for Systematically Important Financial Institutions

Systemically important Brazilian financial institutions must implement a recovery plan (plano de recuperação), with the aim of reestablishing adequate levels of capital and liquidity and to preserve the viability of such institutions. The recovery plans must identify their critical functions for the National Financial System, adopt stress-testing scenarios, define clear and transparent governance procedures, assess possible barriers to the entity’s recovery, as well as implement effective communication plans with key stakeholders.

Deposit Insurance - FGC

The purpose of the FGC is to guarantee the payment of funds deposited with financial institutions in case of intervention, liquidation, bankruptcy or insolvency. The FGC is funded by ordinary contributions made by the financial institutions in the amount of up to 0.0125% of the total amount of outstanding balances of the accounts corresponding to guaranteed obligations, and certain special contributions as determined. Delay in performing such contributions is subject to a penalty of 2% over the amount of the contribution.

The total amount of credit in the form of demand deposits, savings deposits, time deposits, deposits maintained in accounts blocked for transactions with checks (for the registration and control of funds relating to the rendering of services of payment of salaries, earnings, pensions), bills of exchange, real estate bills, mortgage bills, real estate credit bills and repurchase and resale agreements whose objects are instruments issued after March 8, 2012 by a company of the same group due to each customer by a financial institution (or by financial institutions of the same financial group) will be guaranteed by the FGC for up to a maximum of R$250,000 per customer. When the assets of the FGC reach 2% of the total amounts they guarantee, the CMN may temporarily suspend or reduce the contribution of financial institutions to the FGC. As from February 2016, credits of financial institutions and other institutions authorized to operate by the Brazilian Central Bank, complementary welfare entities, insurance companies, capitalization companies, investment clubs and investment funds, as well as those representing any interest in or financial instrument held by such entities, are not protected by the ordinary guarantee of FGC. In December 2017, the CMN enacted a new rule amending certain provisions of the FGC regulation among which includes the establishment of a limit of R$1 million per four-year period for the coverage of the credits of a certain creditor against the group of associated financial institutions.

Administrative Proceedings in the Brazilian National Financial System, the Brazilian Payment System and Capital Markets

Law 13,506 of November 13, 2017 or “Law 13,506/17” applies to entities authorized or supervised by the Brazilian Central Bank or by the CVM, as well as to market participants. Some of the key aspects of Law 13,506 are that: (i) it increases the maximum fine applicable by the Brazilian Central Bank from R$250,000 to R$2 billion or 0.5% of the revenues of the company arising from services and financial products in the year prior to the violation; (ii) it increases the maximum fine applicable by the CVM from R$500,000 to R$50 million; (iii) it makes additional types of violations subject to penalties; (iv) it provides that the penalty of “public admonition” may be cumulative to other penalties applicable by the Brazilian Central Bank; (v) it provides that Brazilian Central Bank may enter into cease-and-desist commitments; and (vi) it provides that the Brazilian Central Bank and the CVM may enter into administrative agreements similar to leniency agreements.

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Opening, Maintenance and Closing of Deposit Accounts

CMN Resolution No. 4,753/19 provides criteria for the opening, maintenance and closing of deposit accounts. The regulation determines that financial institutions must adopt procedures and controls that allow the verification and validation of the identity and qualification of the account holders and, if applicable, their representatives, as well as the authenticity of the information provided by the client. This information must be kept updated by the financial institution.

The rule also requires financial institutions to ensure, through the procedures and technology used for the opening, maintaining and closing of deposit accounts, the integrity authenticity and confidentiality, as well as the protection against unauthorized access, use, alteration, reproduction and destruction, of the information and the electronic documents used by them during the process.

Issuance of Credit Instruments Electronically

Provisional Measure No. 897, or “MP 897/2019,” among other provisions, (i) created a new credit instrument, the Rural Real Estate Note (Cédula Imobiliária Rural or “CIR”), with the purpose of advancing rural real estate financing by the creation of an instrument specifically designed to that end; (ii) changed the rules governing Bank Deposit Certificates (Certificado de Depósito Bancário or “CDB”), especially regarding their issuance and the transfer of their ownership, by providing among other changes that CDB issued in book-entry form should be transferred by electronic endorsement, exclusively by means of a specific notation in the issuing institution’s own electronic system or, when deposited in central depositary, by means of specific notation in the corresponding electronic system; and (iii) authorized that customary credit instruments such as the Agricultural Certificate of Deposit (Certificado de Depósito do Agronegócio - CDA), the Agricultural Warrant (Warrant Agropecuário - WA), the Real Estate Credit Certificate (Certificado de Crédito Imobiliário - CCI), the Bank Credit Note (Cédula de Crédito Bancário - CCB), the Rural Credit Note (Cédula de Crédito Rural - CCR) , the Rural Promissory Note (Nota Promissória Rural - NPR), the Rural Trade Bill (Duplicata Rural - DR), may be issued in book-entry form through the electronic bookkeeping system held at a financial institution or other entity authorized by the Brazilian Central Bank to perform electronic bookkeeping activity.

On July 15, 2020, the Brazilian Central Bank regulated, through Circular No. 4,036/20, the electronic issuance of book-entry CCBs and CCRs by financial institutions. A financial institution must render the following services in respect of the bookkeeping of CCBs and CCRs: (i) issue the instrument in book-entry form at the request of the borrower; (ii) include of all obligatory information related to CCBs and CCRs, as well as ancillary documents and/or information for the purposes of verifying the outstanding balance of the underlying credit transaction; (iii) verify the effective title or fiduciary title of the instruments; (iv) make the payment CCBs and CCRs for the settlement of obligations available to the debtor; (v) control the financial flow related to the CCBs and CCRs, including prepayments; (vi) record security interests in an entity authorized to perform centralized registration or deposit of financial assets; (vii) make information about the CCBs and CCRs available to debtors, holders, collateral beneficiaries or any other legally qualified interested party; and (viii) carry out the issuance of certificates regarding the instruments whenever required.

Limitation to the fees and interest rates on overdraft-secured checks

On November 27, 2019, the CMN issued Resolution No. 4,765 or “Resolution No. 4,765/2019”, providing for new rules on the overdraft granted by financial institutions in checking accounts held by individuals and individual micro entrepreneurs. The new rule limits the charging of fees on overdraft-secured checks to: (i) 0% for the opening credit facilities of up to R$500.00; and (ii) 0.25% for the opening of credit facilities larger than R$500.00, calculated with the amount of the facility that exceeds R$500.00. It also limits interest rates over the overdraft-secured check to up to 8% per month, to which must be added a discount of the overdraft fees already charged monthly by the financial institution. If the interest is less than or equal to the overdraft fees, such interest rates must be equal to zero. In addition, Resolution No. 4,765/2019 establishes that the overdraft-secured check must be compatible with the customer’s risk profile.

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Resolution No. 4,765/2019 came into force on January 6, 2020, for agreements executed after the referred date, came into force on June 1, 2020, for agreements executed prior to such date. Regarding the 8% limitation above, the rule applies to all contracts from January 6, 2020, regardless of the date the applicable contract was entered into.

On February 6, 2020, the Brazilian Central Bank issued Circular No. 3,981, which deals with the new information regarding overdraft facilities that must be highlighted in the statement of the checking accounts held by natural persons or MEIs. Circular No. 3,981 came into effect on June 1, 2020.

Automatic debit of banking accounts

On March 26, 2020, CMN issued Resolution No. 4,790, which sets forth new rules for the automatic debit payments from checking account and accounts designated for the payment of an individual’s wages. The new rule sets forth that financial institutions should only process automatic debit payments upon prior and express authorization of the client, and provides for the procedures for the authorization and cancellation of automatic debit payments. The new rule came into force on March 1, 2021. CMN Resolution No. 4,790 repealed CMN Resolution 4,771.

Taxation

Corporate Income Tax (IRPJ) and Social Contribution Tax (CSLL)

The IRPJ is calculated at a rate of 15.0%, plus a surtax of 10.0% which is levied on profits exceeding the amount of R$240,000 per year and the CSLL is calculated at a rate of 15.0% or 20.0% for financial institutions and 9.0% for companies, after adjustments determined by the tax legislation.

Constitutional amendment 103/2019 increased the CSLL tax rate applicable to banks from 15.0% to 20.0% from March 1, 2020.

Deferred tax assets and liabilities are measured based on temporary differences between the book basis and tax basis of assets and liabilities, tax losses, and adjustments to fair value of securities and derivatives.

According to the requirements in the current regulations, the expected realization of deferred tax assets is based on projections of future results and a technical study approved by the Directors of Santander Brasil.

Income tax (IRPJ) and Social Contribution Tax (CSLL) on Foreign Exchange Variation of Hedges for Investments Held Abroad (Law No. 14,031/2020)

Pursuant to Law No. 14,031/2020, which came in force in July 2020, exchange rate variations arising from hedges on investments held abroad are taxable starting in 2021. Accordingly, in 2021, 50% of the exchange rate variation shall be taxable under the IRPJ and CSLL, while, in 2022, 100% of the exchange rate variation will be considered as taxable.

Tax on Services (ISS)

Each of the Municipalities of Brazil and the Federal District are responsible for establishing the applicable ISS rate, which is charged on the value of services provided by the company, to the municipality where the service renderer is located. The rates vary from 2% to 5% and depend on the nature of the service.

On December 30, 2016, Complementary Law No. 157/2016 was enacted. This new legislation establishes a minimum rate of 2% for these types of taxes, no reductions or deductions being permitted. This Law provides that the following services are subject to ISS in the municipality in which the service taker is located: (i) card management, including POS services, that may be paid to the municipality where the corresponding POS device has been registered; (ii) leasing; (iii) fund management; and (iv) consortium.

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Before the aforementioned Law was enacted, the ISS was due in the municipality in which the service provider was located (irrespective of where the service taker was located). With this new legislation, ISS rates may vary depending on where the service taker is located.

There are several complications that may arise from this new legislation, including (i) as service takers are generally located in several municipalities, it is logistically difficult to comply and collect the taxes; and (ii) there are situations where the municipality of the service taker is not easily identifiable by the credit card company (as is the case for online transactions, for example).

Since the ISS is a municipal tax, the rule must be regulated by each municipality in order to be enforceable. This new rule is only applicable to triggering events occurring from 2018 onwards, when the municipal regulations applicable to Supplementary Law No. 157 come into force.

On March 23, 2018, the Brazilian Supreme Court suspended the application of the Complementary Law No. 157. It is still suspended as of the date of this annual report. This suspension may be circumvented by the enactment of Complementary Law No. 175/20.

Complementary Law No. 175, published on September 24, 2020, was enacted to create a unified ISS collection system, in which taxpayers would be able to collect ISS in every municipality in Brazil. It’s an effort to facilitate tax collection considering the complexity regarding the multiple rulings on ISS, since each municipality can pass its own laws on ISS.

The system is currently under development and it is expected that it would enable Complementary Law No. 157 to be brought back into effect.

PIS and COFINS Tax Rates

PIS and COFINS (respectively, the profit participation contribution and the social security financing contribution, both of which are social contributions due on certain revenues net of certain expenses) payable by financial institutions and similar entities, as defined by law, are due at the rate of 0.65% and 4%, respectively. They are levied cumulatively on gross revenue billed, which is defined as the total revenues earned by the legal entity, net of certain expenses, such as funding costs.

Non-financial entities are taxed at the rates of 1.65% and 7.6% of PIS and COFINS, respectively, and are subject to non-cumulative incidence, which consists of deduction of certain expenses from the tax base as allowed by law.

Tax on Financial Transactions (IOF)

IOF is a tax levied on credit, currency exchange, insurance and securities transactions and it is imposed on the following transactions and at the following rates:

Transaction(1)

Maximum Legal Rate

Current Rate

Credit extended by financial institutions and non-financial entities1.5% or 3%0.0041% per day for loans contracted by legal entities and 0.0082% per day for individuals capped at 365 days. An additional 0.38% rate is applicable in both cases.
Transactions relating to securities(2)1.5% per day0.5% per day for certain investment funds.
0% on transactions with equity securities and certain debt securities, such as debentures and real estate receivables and agribusiness receivables (CRI/CRA).

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Transaction(1)

Maximum Legal Rate

Current Rate

1% per day on transactions with fixed income derived from federal, state, or municipal public and private bonds, and fixed income investment funds limited to certain percentages of the income raised from investment. This rate is reduced to zero from the 30th day following the acquisition date of the investment and on repurchase agreements carried out by financial institutions and other institutions authorized by the Brazilian Central Bank with debentures issued by institutions belonging to the same group (Decree 8,731/2016).
0% on the assignment of securities to permit the issuance of Depositary Receipts abroad.
Transactions relating to derivatives25.0%Although the maximum rate is 25%, it has been reduced to zero at this moment.
Insurance transactions entered into by insurance companies25%2.38% for health insurance.
0.38% for life insurance.
7.38% for other types of insurance.
Foreign exchange transactions(2)25%0.38% (general rule).
6.38% on credit card transactions as from April 27, 2011.
6.38% on withdrawals abroad using credit or debit cards as from December 28, 2013.
6.38% on purchase of travelers checks or loading of international prepaid card as from December 28, 2013.
0% for outflow of funds related to the payment of principal and interest in connection with foreign loans and financings.
6% for the inflow of funds into Brazil, related to foreign loans subject to registration before the Brazilian Central Bank whose average maturity term is equal or less than 180 days.
0% for the inflow of funds into Brazil, related to foreign loans subject to registration before the Brazilian Central Bank whose average maturity term is higher than 180 days.
0% for interbank transactions.
0% for exchange transactions in connection with the outflow of proceeds from Brazil for the remittance of interest on net equity and dividends to be received by foreign investors.

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Transaction(1)

Maximum Legal Rate

Current Rate

0% for exchange transactions, including by means of simultaneous foreign exchange transactions, for the inflow of funds by foreign investors in the Brazilian financial and capital markets.
0% for exchange transactions, including by means of simultaneous foreign exchange transactions, for the inflow of funds by foreign investors for purposes of initial or additional margin requirements in connection with transactions in stock exchanges.
0% for exchange transactions for the outflow of funds invested by foreign investors in the Brazilian financial and capital markets.
0% for exchange transactions for the inflow and outflow of funds invested by foreign investors, including by means of simultaneous foreign exchange transactions, in certificates of deposit of securities, known as Brazilian Depositary Receipts (“BDRs”).
0% for simultaneous exchange transactions, for the inflow of funds by foreign investors derived from the conversion of direct investments in Brazil made pursuant to Law 4,131/62 into investments in stock tradable in stock exchanges, as from May 2, 2016.
0% for revenues related to the export of goods and services transactions.

The applicable rate is 1.10% for acquisitions of foreign currency (Decree 8,731/2016).

The applicable rate for credit on a foreign bank account belonging to a resident in Brazil is 1.10%, as from March 3, 2018.

(1)The transactions mentioned in the table are for illustration purposes and do not reflect an exhaustive list of transactions subject to the IOF.

(2)There are some exemptions or specific cases in which the applicable rate is zero.

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FATCA

The Foreign Account Tax Compliance Act, or “FATCA,” became law in the United States on March 18, 2010. The legislation requires foreign financial institutions, or “FFIs,” (such as Santander Brasil) to enter into an FFI agreement under which they agree to identify and provide the U.S. Internal Revenue Service, or “IRS,” with information on accounts held by U.S. persons and certain U.S.-owned foreign entities, or otherwise face a 30% withholding tax on certain U.S. source withholdable payments. In addition, FFIs that have entered into an FFI agreement will be required to withhold on such payments made to FFIs that have not entered into an FFI agreement, account holders who fail to provide sufficient information to classify an account as a U.S. or non-U.S. account, and U.S. account holders who do not agree to the FFI reporting their accounts to the IRS.

On September 23, 2014, Brazil and the United States announced that they entered into an intergovernmental agreement, or “IGA”, which became effective in Brazil by virtue of Decree No. 8,506 as of August 24, 2015. The aim of the IGA is to improve international tax compliance and implement FATCA. The IGA establishes an automatic annual bilateral exchange of information with the U.S. tax authorities. Under this agreement, Brazilian financial institutions will generally be required to provide certain information about their U.S. account holders to the Brazilian tax authorities (Receita Federal do Brasil), which will share that information with the IRS.

Complying with the required identification, withholding and reporting obligations requires significant investment in an FFI’s compliance and reporting framework. We are continuing to follow developments regarding FATCA closely and are coordinating with all relevant authorities.

Common Reporting Standard

On December 28, 2016, Normative Ruling No. 1,680 was enacted, introducing the Common Reporting Standard in Brazil. The Common Reporting Standard provides for certain account reporting obligations similar to those existing under FATCA. It was created in the context of the Organization for Economic Co-operation and Development’s Base Erosion and Profit Shifting project, which is aimed at reducing tax avoidance. Normative Ruling n° 1,680 applies to legal entities required to present the e-Financeira pursuant to Normative Ruling n° 1,571, dated July 2, 2016.

On the same date, the Normative Ruling n° 1,681 was enacted providing for the obligation to annually deliver the “Country to Country Statement,” an ancillary obligation also arising from the discussions under the BEPS Project, before the Brazilian Federal Revenue Service, or “RFB” as a measure to expand information exchange and improve the level of international tax transparency. This new regulation should not have any impact on Santander Brasil, since, as it is controlled by a legal entity resident in Spain, it is not required by the Brazilian regulation to present such statement.

Income Tax Levied on Capital Gains

Law 13,259, of March 16, 2016 or “Law 13,259/16” introduced the application of progressive tax rates for income taxation over capital gains recognized by Brazilian individuals and by holders that are not domiciled in Brazil for purposes of Brazilian taxation (“Non-Resident Holders”) on the disposition of assets in general. Under Law 13,259/16, the income tax rates applicable to capital gains realized by these investors would be: (i) 15% for the portion of the gains up to R$5 million, (ii) 17.5% for the portion of the gain that exceeds R$5 million but does not exceed R$10 million, (iii) 20% for the portion of the gain that exceeds R$10 million but does not exceed R$30 million, and (iv) 22.5% for the portion of the gain that exceeds R$30 million.

The provisions of Law 13,259/16 may apply to Non Resident Holders pursuant to CMN Resolution 4,373, provided such Non Resident Holders are not located in a Tax Haven. However, Non Resident Holders (whether they are considered to be Non-Resident Holders as a result of CMN Resolution 4373 or otherwise) located in a Tax Haven are subject to a specific tax regulation and will continue to be taxed at a rate of 25%.

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Most transactions carried out by Non Resident Holders pursuant to CMN Resolution 4,373 and that result in capital gains are subject to taxation at a fixed 15% rate, provided they are not located in a Tax Haven.

The tax must be withheld and paid by the buyer or, in cases where the buyer and seller are domiciled abroad, a legal representative of buyer shall be designated for the payment of the tax.

Temporary IOF/Credit Tax Relief

Decree 10,305/20, published in April 2020, along with further amendments, reduced the rate of IOF tax applicable to credit transactions to zero between April 3 and November 27, 2020.

Credit transactions in which funds were redeemed by the customer between the aforementioned dates are not subject to IOF tax. Subsequent renegotiations on credit transactions covered by Decree 10,305/20 that do not include the provision of additional funds are also not subject to IOF tax. Any additional funds are subject to IOF.

Disclosure pursuant to Section 219 of the Iran threat reduction and Syria Human Rights Act

Pursuant to Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012, which added Section 13(r) to the Exchange Act, an issuer is required to disclose in its annual or quarterly reports, as applicable, whether it or any of its affiliates knowingly engaged in certain activities, transactions or dealings relating to Iran or with individuals or entities designated pursuant to certain Executive Orders. Disclosure is generally required even where the activities, transactions or dealings were conducted in compliance with applicable law.

As we are part of the Santander Group, we must also disclose the exposure of other entities of the Santander Group to Iran. The following activities are disclosed in response to Section 13(r) with respect to the Santander Group and its affiliates. During the period covered by this annual report:

(a)       Santander UK holds five blocked accounts for three customers, with the first customer holding one GBP savings account and one GBP current account, the second customer holding one GBP savings account, and the third customer holding two GBP current accounts. All three customers, who are resident in the UK, are currently designated by the U.S. under the SDGT sanctions program. Revenues and profits generated by Santander UK on these accounts in the year ended December 31, 2019 were negligible relative to the overall profits of Banco Santander S.A.

(b)       Santander UK holds two frozen current accounts for two UK nationals who are designated by the U.S. under the SDGT sanctions program. The accounts held by one customer were fully inaccessible at the time of the US designation and were blocked at the time of the account going into a debit balance. The accounts held by the second customer were blocked immediately following the US designation and have remained frozen throughout 2020. These accounts are frozen in order to comply with Articles 2, 3 and 7 of Council Regulation (EC) No 881/2002 imposing certain specific restrictive measures directed against certain persons and entities associated with the Al-Qaeda network, by virtue of Commission Implementing Regulation (EU) 2015/1815. The accounts are in arrears (£1,844.73 in debit combined) and are currently being managed by Santander UK Collections & Recoveries department. No revenues or profits were generated by Santander UK on these accounts in the year ended December 31, 2020.

(c)       Santander Consumer Bank, S.A. holds seven blocked correspondent accounts for Bank Melli. Three USD accounts and four EUR accounts. The accounts have been blocked since 2008. Bank Melli is currently designated by the US under the Specially Designated Global Terrorist (SDGT) sanctions program. No revenues or profits were generated by Santander Consumer Bank, S.A. on these accounts in the year ended 31 December 2020.

(d) The Santander Group also has certain legacy performance guarantees for the benefit of Bank Mellat (standby letters of credit to guarantee the obligations – either under tender documents or under contracting agreements – of contractors who participated in public bids in Iran) that were in place prior to April 27, 2007.

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In the aggregate, all of the transactions described above resulted in gross revenues and net profits in the year ended December 31, 2020, which were negligible relative to the overall revenues and profits of Banco Santander, S.A. The Santander Group has undertaken significant steps to withdraw from the Iranian market such as closing its representative office in Iran and ceasing all banking activities therein, including correspondent relationships, deposit-taking from Iranian entities and issuing export letters of credit, except for the legacy transactions described above. The Santander Group is not contractually permitted to cancel these arrangements without either (i) paying the guaranteed amount (in the case of the performance guarantees), or (ii) forfeiting the outstanding amounts due to it (in the case of the export credits). As such, the Santander Group intends to continue to provide the guarantees and hold these assets in accordance with company policy and applicable laws.

Regulatory Developments Related to COVID-19

The following section summarizes the measures implemented by the CMN and the Brazilian Central Bank to mitigate the consequences of the COVID-19 pandemic on the Brazilian financial system.

Temporary Suspension of Dividend Distributions and Other Payments

On May 29, 2020 the CMN enacted Resolution No. 4,820 in response to the COVID-19 pandemic. Resolution No. 4,820 prohibits financial institutions, such as us, to: (i) offset their capital, including by means of early payment, in excess of amounts equivalent to the minimum mandatory dividend required by the Brazilian Corporate Law, including as interest on capital (ii) repurchase their own shares, subject to certain exceptions as authorized by the Brazilian Central Bank; (iii) reduce their capital stock, except if such reduction is  required by law or approved by the Brazilian Central Bank; and (iv) increase the compensation of their officers, directors and members of the board of directors and audit committee, including fixed and variable compensation. CMN Resolution No. 4,280 repealed CMN Resolution No. 4,797.

On December 23, 2020, the CMN enacted Resolution 4,885, which made the payment of dividends or interest on capital more flexible. As a result, financial institutions were not allowed to pay in excess of the greater of (x) the amount corresponding to 30% of the adjusted net profit in accordance with item I of article 202 of the Brazilian Corporate Law; and (y) the amount equivalent to the mandatory dividends as set forth in article 202 of the Brazilian Corporate Law. This is the only restriction still in force as a result of Resolution 4,820/20.

As a result, we only distributed R$3,837 million as dividends and interest on equity in 2020 compared to R$10,800 million in 2019.

Reduction of Capital Conservation Buffer

On March 16, 2020, the CMN enacted Resolution No. 4,783, which temporarily reduces the Capital Conservation Buffer (where all rates relate to the total amount of risk weighted assets) required from financial institutions, from 2.5% to 1.25%. The rate of 1.25% will remain in effect through March 31, 2021. From April 1, 2021 through April 1, 2022 the Capital Conservation Buffer requirement will gradually be restored to 2.5%. The measure aims to increase the ability of banks to renegotiate credit transactions and maintain engagement in new transactions, considering the current scenario of increased demand for financial services.

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Repos on Sovereign Bonds Denominated in U.S. Dollars

On March 18, 2020, the Brazilian Central Bank issued Circular No. 3,990, which allowed the repurchase transactions of U.S. Dollar denominated federal bonds between the Brazilian Central Bank and Brazilian financial institutions. The Brazilian Central Bank can purchase such bonds with a discount of 10% in comparison to market prices and the financial institution assumes the obligation to purchase the bonds in a future date. The rules also set out a margin transfer during the term of the transaction whenever the exposure is equal or greater than US$500,000. The purpose of this measure is to provide liquidity to the Brazilian sovereign bonds market, by offering liquidity in U.S. Dollars to Brazilian banks and reducing trading volatility of such bonds.

Changes to Provision Requirements

On March 16, 2020 CMN enacted Resolution No. 4,782/20, which was amended by Resolution No. 4.856/20, exempting financial institutions from considering certain restructuring of contracts as an indicative that a counterparty may default. Therefore, the measure allows loans to be granted to solvent companies without requiring additional provisions through September 30, 2020.

New Time Deposits with Special Collateral

CMN Resolution No. 4,799/20 has regulated funding through new Time Deposits with Special Collateral (Novo Depósito a Prazo com Garantias Especiais or “DPGEs”), which are deposits taken by financial institutions and guaranteed by the Credit Guarantee Fund (Fundo Garantidor de Crédito or “FGC”). The resolution increased the cap from R$20 million to R$40 million, and is intended to strengthen the liquidity strength of smaller financial institutions.

Central Bank Loans Backed by Debentures and Financial Bills Held by Financial Institutions

On March 23, 2020, the CMN enacted Resolution No. 4,786, which authorized the Brazilian Central Bank to grant loans to multiservice banks, commercial banks, investment banks and saving banks, backed by debentures (corporate debt instruments) held by such institutions and acquired in the secondary market, provided that certain provisions set forth in the ruling are complied with. It is worth mentioning the ruling sets forth that said loans will also be secured by mandatory deposits in Bank Reserve Accounts, in amount equivalent to, at least, the total amount of the transactions, as well as by the debenture collateral.

This is considered a Temporary Special Liquidity Credit Facility, and is another measure to offer financial institutions more liquidity in their transactions. The loans established in Resolution No. 4,786/20 will be available to financial institutions until April 30, 2020 and may be engaged for a 125 business day term, which may be extended, at the Brazilian Central Bank’s discretion, for more 125 business days, provided the maximum term of 359 calendar days.

On April 2, 2020, the CMN enacted Resolution No. 4,795, which authorizes the Brazilian Central Bank to grant loans to financial institutions under specific conditions, by means of a Temporary Special Liquidity Credit Facility, upon direct acquisition, in the primary market, of Financial Bills secured by financial assets or securities. The loan will be available in tranches, and could reach 100% of the Reference Assets of such financial institutions. The facility will be available to financial institutions through December 31, 2020 and the Financial Bills issued thereunder will have a term between 30 and 359 calendar days. The first tranche was approved on May 12, 2020, in a total amount of R$17.5 billion.

Flexibilization of Funding Requirements Through Agribusiness Credit Notes (Letras de Crédito do Agronegócio or “LCAs”)

On March 23, 2020, the CMN issued Resolution No. 4,787, which adjusted the assessment base of the mandatory reserve requirements of funds raised through LCAs, which are credit notes issued exclusively by financial institutions and related to credit rights originated from transactions conducted between rural producers and their cooperatives and agents of the agribusiness production chain, with the purpose of increasing their liquidity. As a result, the rules for applying funds originated from agribusiness activities were relaxed. The Brazilian Central Bank expects an increase in credit extension directed to agribusiness of R$6.3 billion as a result of the measure.

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Employment Support Program providing emergency payroll financing for small and medium-sized businesses

The CMN enacted Resolution No. 4,846 on August 24, 2020, which regulates the granting of loans under the Emergency Employment Support Program (Programa Emergencial de Suporte a Empregos or “PESE”), established through Provisional Measure No. 944/2020. PESE sets forth the offering of an emergency credit line of R$40 billion to finance, for two months, the payroll of small and medium-sized companies that adhere to the program, with the purpose of preserving jobs. Regarding the funding of said credit line, 85% will derive from the National Treasury and the remaining 15% from participating financial institutions, including Santander Brasil. The adhering small and medium-sized businesses will not be able to dismiss workers during the period that the loan is taken out and up to the 60th day after the business receives its last installment. The maximum amount financed per worker will be up to two minimum wages. The funding will go directly to the worker’s account, as is done today through payrolls operated by financial institutions. PESE came into effect on April 6, 2020. CMN Resolution No. 4,846 repealed CMN Resolution No. 4,800.

FX overhedge of equity interests abroad

On March 18, 2020, the CMN enacted Resolution No. 4,784, which amended CMN Resolution No. 4,192, of March 1, 2013. The rule sets forth that the tax credits arising from losses on excess FX position aimed at hedging of investments held abroad by financial institutions will not be deducted from their regulatory capital (patrimônio de referência). The measure aims at providing further capital relief and hence additional comfort for financial institutions to maintain and extend credit.

Higher ceiling for repurchase of financial bills (letras financeiras) by financial institutions

Pursuant to CMN Resolution No. 4,788, issued on March 23, 2020, financial institutions classified as Segment 1 for the proportional application of the prudential regulation, as is our case, may, from March 23 to April 30, 2020, repurchase up to 20% of financial bills of their own issuance, a substantial increase from the previous ceiling of 5%.

Brazilian Central Bank authorized to buy and sell government bonds and private financial assets and securities in the secondary market

Constitutional Amendment No. 106, enacted on May 7, 2020, sets forth emergency economic and budget measures for the Brazilian government during the COVID-19 pandemic. Among them, the Amendment authorizes the Brazilian Central Bank, for the duration of the pandemic, to buy and sell (i) government bonds in local and foreign secondary markets; and (ii) other assets, in domestic secondary financial, capital and payments markets, provided that, at the time of purchase, they have a credit risk rating in the local market equivalent to BB- or higher, conferred by at least one of the three largest international rating agencies, as well as a reference price published by a financial market entity accredited by the Brazilian Central Bank.

SELECTED STATISTICAL INFORMATION

The following information for Santander Brasil is included for analytical purposes and is derived from, and should be read in conjunction with, the consolidated financial statements and related notes contained elsewhere herein, as well as “Item 5. Operating and Financial Review and Prospects.”

Average annual balance sheet data has been calculated based upon the average of the monthly balances at 13 dates: as of December 31 of the prior year and each of the month-end balances of the 12 subsequent months. Average income statement and balance sheet data and other related statistical information have been prepared on a consolidated annual basis.

The selected statistical information set forth below includes information as of and for the years ended December 31, 2020, 2019, and 2018 extracted from the audited financial statements prepared in conformity with IFRS as issued by the IASB. See “Presentation of Financial and Other Information” and “Item 3. Key Information—A. Selected Financial Data.”

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Average Balance Sheet and Interest Rates

The following tables show our average balances and interest rates for each of the periods presented. With respect to the tables below and the tables under “—Changes in Net Interest Income – Volume and Rate Analysis” and “—Assets—Earning Assets–Yield Spread,” (i) we have stated average balances on a gross basis, before netting impairment losses, except for the total average asset figures, which include such netting, and (ii) all average data have been calculated using month-end balances, which is not significantly different from having used daily averages. We stop accruing interest on loans once they are more than 60 days past due. All our non-accrual loans are included in the table below under “Other assets.”

  For the Year Ended December 31,
  2020 2019 2018
  Average Balance Interest Average Rate Average Balance Interest Average Rate Average Balance Interest Average Rate
  (in millions of R$, except percentages)
Assets and Interest                
Income                
Cash and balances with the Brazilian Central Bank  54,531   1,552   2.8%  48,670   3,828   7.9%  81,018   5,096   6.3%
Loans and amounts due from credit institutions  104,759   1,519   1.4%  101,981   3,844   3.8%  56,093   2,978   5.3%
Loans and advances to customers  384,389   44,102   11.5%  323,180   50,406   15.6%  304,633   46,471   15.3%
Debt instruments  203,578   13,556   6.7%  178,811   13,528   7.6%  164,111   13,629   8.3%
Other interest – earning assets  -   2,044   -   -   1,235   -   -   2,304   - 
Total interest – earning assets  747,257   62,773   8.4%  652,642   72,841   11.2%  605,855   70,478   11.6%
Equity instruments  1,730   34   2.0%  1,464   19   1.3%  1,213   33   2.7%
Investments in associates  1,098   -   -   1,060   -   -   963   -   - 
Total earning assets  750,085   62,807   8.4%  655,166   72,860   11.1%  608,031   70,511   11.6%
Cash and balances with the Brazilian Central Bank  4,800   -   -   4,538   -   -   4,351   -   - 
Loans and amounts due from credit institutions  6,668   -   -   2,258   -   -   1,676   -   - 
Impairment losses  (23,936)  -   -   (22,528)  -   -   (21,056)  -   - 
Other assets  76,642   -   -   56,912   -   -   56,276   -   - 
Tangible assets  9,587   -   -   9,091   -   -   6,414   -   - 
Intangible assets  30,769   -   -   30,070   -   -   29,839   -   - 
Total average assets  854,615   62,807   7.3%  735,507   72,860   9.9%  685,531   70,511   10.3%
Liabilities and Interest Expense                                    
Deposits from the Brazilian Central Bank and Deposits from credit institutions  111,684   4,327   3.9%  100,473   4,866   4.8%  95,217   5,367   5.6%
Customer deposits  380,058   7,498   2.0%  303,741   14,966   4.9%  285,694   13,577   4.8%
Marketable debt securities  68,585   2,514   3.7%  76,194   5,138   6.7%  71,525   4,607   6.4%
Subordinated debts  13,102   863   6.6%  10,779   660   6.1%  10,952   630   5.8%
Other interest-bearing liabilities  -   3,125   -   -   2,890   -   -   4,376   - 
Total interest-bearing liabilities  573,429   18,327   3.2%  491,187   28,520   5.8%  463,388   28,557   6.2%
Noninterest bearing demand deposits  28,581   -   -   14,612   -   -   11,127   -   - 
Other liabilities  150,759   -   -   133,255   -   -   121,198   -   - 
Non-controlling interests  315   -   -   617   -   -   555   -   - 
Stockholders’ Equity  101,531   -   -   95,836   -   -   89,263   -   - 
Total average liabilities and equity  854,615   18,327   2.1%  735,507   28,520   3.9%  685,531   28,557   4.2%

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Changes in Net Interest Income – Volume and Rate Analysis

The following tables present the changes in our net interest income allocated between changes in average volume and changes in average rate for the year ended December 31, 2020, compared to the year ended December 31, 2019, and for the year ended December 31, 2019 compared to the year ended December 31, 2018. We have calculated volume variances based on movements in average balances over the period and rate variance based on changes in interest rates on average interest-earning assets and average interest-bearing liabilities. We have allocated variances caused by changes in both volume and rate to volume. You should read the following tables and the footnotes thereto in light of our observations noted in “—Average Balance Sheet and Interest Rates.”

  For the Years Ended 2020/2019 For the Years Ended 2019/2018
  Increase (decrease) due to changes in
  Volume Rate Net change Volume Rate Net change
  (in millions of R$)
Interest and Similar Income
Interest-earning assets                        
Cash and balances with the Brazilian Central Bank  414   (2,690)  (2,276)  (2,348)  1,080   (1,268)
Loans and amounts due from credit institutions  102   (2,427)  (2,325)  1,915   (1,049)  866 
Loans and advances to customers  8,493   (14,797)  (6,304)  2,876   1,059   3,935 
Debt instruments  1,753   (1,725)  28   1,166   (1,267)  (101)
Other interest-earning assets  809   -   809   (1,069)  -   (1,069)
Total interest-earning assets  11,571   (21,639)  (10,068)  2,540   (177)  2,363 
Equity Instruments  4   11   15   6   (20)  (14)
Total earning assets  11,575   (21,628)  (10,053)  2,546   (197)  2,349 
Interest Expense and Similar Charges
Interest-bearing liabilities                        
Deposits from the Brazilian Central Bank and Deposits from credit institutions  504   (1,043)  (539)  285   (786)  (501)
Customer deposits  3,095   (10,563)  (7,468)  878   511   1,389 
Marketable debt securities  (471)  (2,153)  (2,624)  309   222   531 
Subordinated liabilities  150   53   203   (10)  40   30 
Other interest-bearing liabilities  235   -   235   (1,486)  -   1,486 
Total interest-bearing liabilities  3,513   (13,706)  (10,193)  (24)  (13)  (37)

Assets

Earning Assets – Yield Spread

The following table analyzes our average earning assets, interest income and dividends on equity securities and net interest income and shows gross yields, net yields and yield spread for each of the periods indicated. You should read this table and the footnotes thereto in light of our observations noted in “—Average Balance Sheet and Interest Rates.”

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  For the Year Ended December 31,
  2020 2019 2018
  (in millions of R$, except percentages)
Average earning assets  747,257   652,642   605,855 
Interest and dividends on equity securities(1)  62,807   72,860   70,511 
Net interest income  44,480   44,340   41,954 
Gross yield(2) (*)  8.4%  11.2%  11.6%
Net yield(3) (*)  6.0%  6.8%  6.9%
Yield spread(4) (*)  5.2%  5.3%  5.4%

(*)Yield information does not give effect to changes in fair value that are reflected as a component of stockholder’s equity.

(1)Total earning assets plus dividends from companies accounted for by the equity method (equity instruments).

(2)Gross yield is the amount of “Interest and dividends on equity securities” divided by “Average earning assets.”

(3)Net yield is the amount of “Net interest income” divided by “Average earning assets.”

(4)Yield spread is the difference between the average rate of “Total earning asset” and the average rate of “Total interest-bearing liabilities.”

Return on Equity and Assets

The following table presents our selected financial ratios for the periods indicated.

  For the Year Ended December 31,
  2020 2019 2018
ROA: Return on average total assets  1.6%  2.3%  1.9%
ROE: Return on average stockholders’ equity  13.3%  17.4%  14.3%
ROE (adjusted) (1)  18.5%  24.6%  21.0%
Average stockholders’ equity as a percentage of average total assets  11.9%  13.0%  13.0%
Payout (2)  24.6%  65.8%  52.5%

(1)“Average stockholders’ equity excluding goodwill as a percentage of average total assets excluding goodwill” is a non-GAAP financial measure which adjusts “Return on average stockholders’ equity” to exclude the goodwill arising from the acquisition of Banco Real in 2008, Getnet Adquirência e Serviços para Meios de Pagamento S.A., or “GetNet” and Super Pagamentos e Administração de Meios Eletrônicos Ltda., or “Super”, both in 2014 and Banco Olé Bonsucesso Consignado S.A. in 2015,60%, and the remaining 40% in 2020. See “Item 3. Key Information—A. Selected Financial Data—Selected Consolidated Ratios” for a reconciliation of “Average stockholders’ equity excluding goodwill as a percentage of average total assets excluding goodwill” to “Return on average stockholders’ equity.”

(2)Dividend payout ratio (dividends declared per preferred share divided by net income per preferred share).

Interest-Earning Assets (other than Loans)

The following table shows the percentage mix of our average interest-earning assets for the years indicated. You should read this table in light of our observations noted in “—Average Balance Sheet and Interest Rates.”

  For the Year Ended December 31,
  2020 2019 2018
Cash and balances with the Brazilian Central Bank  7.3%  7.5%  13.4%
Loans and amounts due from credit institutions  14.1%  15.6%  9.3%
Loans and advances to customers  51.4%  49.5%  50.3%
Debt instruments  27.2%  27.4%  27.0%
Total interest-earning assets  100%  100%  100%

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Loans and Amounts Due from Credit Institutions

For further information about Loans and Amounts Due from Credit Institutions, see note “5 – Loans and amounts due from credit institutions” to our audited consolidated financial statements included elsewhere in this annual report.

Investment Securities

As of December 31, 2020 and 2019, the book value of investment securities was R$232 billion and R$176 billion, respectively (representing 24.7% and 23.0%, respectively, of our total assets as of such dates). Brazilian government securities totaled R$192 billion, or 82.8% and R$136 billion, or 77.3% of our investment securities as of December 31, 2020 and 2019, respectively. For a discussion of how our investment securities are valued, see notes 7 and 8 to our audited consolidated financial statements included elsewhere in this annual report.

The following table shows the carrying amounts of our investment securities by type and residence of the counterparty at each of the indicated dates:

  As of December 31,
  2020 2019 2018
  (in millions of R$)
Debt securities            
Government securities—Brazil  191,896   135,848   116,531 
Debentures and promissory notes  17,072   13,875   10,556 
Other debt securities  21,134   23,609   48,346 
Total domestic/debt securities  230,102   173,332   175,433 
             
Equity securities            
Shares of Brazilian companies  1,953   665   783 
Shares of foreign companies  -   -   2 
Investment fund units and shares  363   1,693   320 
Total equity securities  2,316   2,358   1,106 
Total investment securities  232,418   175,690   176,539 

As of December 31, 2020 and 2019, we held no securities of single issuers or related groups of companies whose aggregate book or market value exceeded 1% of our stockholders’ equity, other than the Brazilian government securities, which represented 180.5% and 140.5%, respectively of our stockholders’ equity. As of December 31, 2020 and 2019, the total value of our debt securities was approximately 217.4% and 181.8%, respectively, of stockholders’ equity.

The following table analyzes the maturities and weighted average yields of our debt investment securities (before impairment allowance) as of December 31, 2020. Yields on tax-exempt obligations have not been calculated on a tax equivalent basis because the effect on such calculation is not significant.

  Maturing within 1 year Maturing between 1 and 5 years Maturing between 5 and 10 years Maturing after 10 years Total
  (in R$ millions)
Debt securities                    
Government securities—Brazil  46,475   135,212   44,041   -   225,728 
Other debt securities  1,015   437   2,922   -   4,374 
Total debt investment securities  47,490   135,649   46,963   -   230,102 

The average rate for debt investment securities is 6.7%.

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Domestic and Foreign Currency

The following table shows our assets and liabilities by domestic and foreign currency, as of the dates indicated.

  As of December 31,
  2020 2019 2018
  Domestic Currency Foreign Currency Domestic Currency Foreign Currency Domestic Currency Foreign Currency
  (in millions of R$)
Assets            
Cash and balances with the Brazilian Central Bank (1)  4,531   15,617   4,878   15,250   16,651   15,065 
Debt instruments  226,787   3,315   164,447   8,885   166,743   8,690 
Loans and amounts due from credit institutions, gross (1)  109,339   3,520   107,694   1,553   79,166   454 
Loans and advances to customers, gross  396,950   20,822   326,421   20,835   304,031   17,902 
Equity Instruments  1,675   -   2,358   -   1,106   - 
Total assets  739,283   43,275   605,798   46,523   567,697   42,111 
Liabilities                        
Financial Liabilities at Amortized cost:                        
Deposits from the Brazilian Central Bank and Deposits from credit institutions  86,564   45,093   58,283   40,988   74,160   24,863 
Customer deposits  445,900   -   336,515   -   304,198   - 
Marketable debt securities  47,476   9,399   64,987   8,715   70,109   4,517 
Subordinated debts  -   -   -   -  ��9,886   - 
Debt instruments eligible to compose capital  -   13,120   -   10,176   -   9,780 
Other financial liabilities  66,727   153   60,885   -   51,729   - 
Total liabilities  646,667   67,766   520,670   59,879   510,082   39,160 

(1) In the fiscal year ended December 31, 2018, the balances related to compulsory deposits were reclassified from cash and reserves at the Brazilian Central Bank to the item Loans and other amounts with credit institutions for better presentation and, consequently, the respective comparative balances also have been reclassified.

Loan Portfolio

As of December 31, 2020, our loans and advances to customers totaled R$418 billion (54.8% of our total assets). Net impairment losses, loans and advances to customers totaled R$418 billion as of December 31, 2020 (48.0% of our total assets). In addition to loans, we had outstanding loan commitments drawable by third parties totaling R$131.9 billion, R$125.9 billion, R$122.7 billion, R$106.9 billion and R$91.2 billion as of December 31, 2020, 2019, 2018, 2017 and 2016, respectively.

Types of Loans by Type of Customer

The majority of the loans we have outstanding are to borrowers domiciled in Brazil and are denominated in reais. The table below breaks down our loans and advances to customers (including securities purchased under agreements to resell), by type of customer, at each of the dates indicated. For each loan category, we maintain specific risk management policies that are in line with the standards of the Santander Group, which in turn, are managed and monitored by our board of officers through the credit committee. The credit approval process for each loan category is structured primarily around our business segments. See “Item 11. Quantitative and Qualitative Disclosures about Risk—Credit Risk” for details on our credit approval policies for retail and wholesale lending.

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We have a diversified loan portfolio, with no specific concentration exceeding 10% of our total loans. Currently, 1.3% of our loan portfolio is allocated to our largest debtor and 6.5% to the next 10 largest debtors.

For further information about the breakdown of our Loans and Maturity see sections “a - Breakdown” and “b – Detail” of note “9 – Loans and advances to customers” to our audited consolidated financial statements included in this annual report.

Fixed and Variable Rate Loans

The following table sets forth a breakdown of our fixed and variable rate loans by maturity as of December 31, 2020.

  Fixed and variable rate loans with maturity
  Less than one year One to five years Over five years Total
  Balance % of Total Balance % of Total Balance % of Total Balance % of Total
  (in millions of R$, except percentages)
Fixed rate  162,684   74   113,662   77   16,538   32   292,884   70 
Variable rate  56,378   26   33,352   23   35,208   68   124,938   30 
Total  219,063   100   147,014   100   51,745   100   417,822   100 

Cross-Border Outstandings

The following table presents, at each balance sheet date indicated, the aggregate amount of our cross-border outstandings (which consist of loans, interest-bearing deposits with other banks, acceptances and other monetary assets denominated in a currency other than the home-country currency of the office where the item is booked). Cross-border outstandings do not include local currency loans made by subsidiary banks in other countries to the extent that such loans are funded in the local currency or hedged. As a result, they do not include the majority of the loans made by our Cayman Islands branch, which are fully hedged.

  As of December 31,          
  2020   2019   2018  
  Balance % of Total Assets Balance % of Total Assets Balance % of Total Assets
  (in millions of R$, except percentages)
OECD countries(1)            
Spain  437   0.1   1,984   0.3   1,217   0.2 
United States  12,674   1.8   3,721   0.5   3,304   0.5 
Netherlands  80   0.0   1,531   0.2   3,853   0.6 
United Kingdom(3)  29   0.0   1,003   0.1   6,508   1.0 
Other OECD countries(2)  3,534   0.5   16,264   2.4   1,072   0.1 
Total OECD  16,754   2.4   24,503   3.6   15,954   2.5 
Non-OECD countries                        
Latin American countries(2)  1,204   0.2   1,382   0.2   314   - 
Cayman Islands  2,917   0.4   3,528   0.5   (8,304)  (1.3)
Other(2)  1,189   0.2   2,397   0.3   100   - 
Total non-OECD  5,310   0.8   7,307   1.1   (7,890)  (1.3)
Total  22,064   3.2   31,810   4.6   8,064   1.2 
(1)The Organization for Economic Cooperation and Development.

(2)Aggregate outstandings in any single country in this category do not exceed 1.5% of our total assets.

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The following table presents the amounts of our cross-border outstandings as of December 31, 2020, 2019 and 2018 by type of borrower where outstandings in the borrower’s country exceeded 1.2% of our total assets.

  Government Banks and Other Financial Institutions Commercial and Industrial Other Loans Total
  (in millions of R$)
2018          
United States  -   3,569   23   130   3,722 
Netherlands  -   -   1,531   -   1,531 
Austria  -   -   197   (4)  193 
United Kingdom  -   1   38   964   1,003 
Cayman Islands  3,541   1,987   3,685   (5,685)  3,528 
Total  3,541   5,557   5,474   (4,595)  9,977 
2019                    
United States  -   8,710   55   316   9,081 
Netherlands  -   -   2,355   -   2,355 
Austria  -   -   127   (2)  125 
United Kingdom  -   -   7   151   158 
Cayman Islands  469   263   488   (752)  468 
Total  469   8,973   3,030   (287)  12,187 
2020                    
United States  -   12,653   9   12   12,674 
Netherlands  -   -   80   -   80 
Austria  -   -   -   444   444 
United Kingdom  -   28   -   1   29 
Cayman Islands  -   1,341   (1)  1,577   2,917 
Total  -   14,022   88   2,034   16,144 

Non-current assets held for sale

For further information, see note “10 - Non-current assets held for sale” to our audited consolidated financial statements included elsewhere in this annual report.

Liabilities

Deposits

The principal components of our deposits are customer demand, time and notice deposits, and international and domestic interbank deposits. Our retail customers are the principal source of our demand, time and notice deposits.

For further information, see note “16 – Deposits from the Brazilian Central Bank and Deposits from Credit Institutions” and “17 – Client deposits” in “Financial Statements” to our audited consolidated financial statements included elsewhere in this annual report.

The following table shows the maturity of time deposits (excluding inter-bank deposits) in denominations of U.S.$100,000 or more at the dates indicated. Large denomination customer deposits may be a less stable source of funds than demand and savings deposits.

As of December 31, 2020
DomesticInternational
(in millions of R$)
Under 3 months344,923-
3 to 6 months63,380-
6 to 12 months63,390-
Over 12 months105,788-
Total577,470-

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Short-Term Borrowings

The following table shows our short-term borrowings consisting of government securities that we sold under agreements to repurchase for purpose of funding our operations.

  As of December 31,
  2020 2019 2018
  Amount Average Rate Amount Average Rate Amount Average Rate
  (in millions of R$, except percentages)
Securities sold under agreements to repurchase                        
As of December 31  112,477   1.90%  123,941   5.00%  99,379   7.34%
Average during the period (1)  112,096   2.71%  100,473   4.84%  102,051   9.67%
Maximum month-end balance  155,174       123,941       113,691     
Total short-term borrowings at year end  112,477       123,941       99,379     
(1)The average annual balance sheet data has been calculated based upon the average of the monthly balances at 13 dates: at December 31 of the prior year and for each of the month-end balances of the 12 subsequent months.

Changes in Allowances for Impairment Losses on the Balances of “Loans and receivables”

The following tables analyze changes in our allowances for impairment losses for the periods indicated. For further information regarding these changes, see “Item 5. Operating and Financial Review and Prospects—A. Operating Results—Results of Operations for the Years Ended December 31, 2020, 2019 and 2018—Results of Operations—Impairment Losses on Financial Assets (Net).”

  As of December 31,
  2020 2019 2018 2017 2016
  (in millions of R$)
Balance at beginning of year  22,625   22,969   18,262   18,191   15,412 
Initial adoption of IFRS 9  -   -   2,461   -   - 
Balance adjusted  22,625   22,969   20,723   18,191   15,412 
Impairment losses charged to income for the year  18,311   14,361   13,540   13,493   14,383 
Write-off of impaired balances against recorded impairment allowance  (15,297)  (14,705)  (11,294)  (13,422)  (11,605)
Balance at end of year  25,640   22,625   22,969   18,262   18,191 
Of which:                    
Loans and advances to customers  24,054   20,557   20,242   15,409   16,435 
Loans and amounts due from credit institutions  9   14   14   69   201 
Debt Instruments  1,577   2,055   2,714   2,784   1,555 
Recoveries of loans previously written off(1)  861   991   827   1,154   994 
(1)Impairment losses on financial assets, net, as reported in our consolidated financial statements, reflect net provisions for credit losses less recoveries of loans previously written off.

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Allowance by Type of Borrower

The table below shows a breakdown of recoveries, net provisions and write-offs against credit loss allowance by type of borrower for the periods indicated.

  For the Year Ended December 31,
  2020 2019 2018 2017 2016
  (in millions of R$)
Recoveries of loans previously charged off(1)  861   991   827   1,154   994 
Commercial and industrial  422   520   345   413   563 
Real estate – construction  56   47   103   210   103 
Installment loans to individuals  370   417   370   521   314 
Lease finance  13   8   9   10   14 
Impairment losses charged to income for the year(1)  18,311   14,361   13,540   13,492   14,383 
Commercial and industrial  6,919   2,377   3,620   5,499   6,523 
Real estate – construction  81   95   193   471   369 
Installment loans to individuals  11,309   11,866   9,708   7,461   7,617 
Lease finance  3   23   19   61   (125)
Write-off of impaired balances against recorded impairment allowance  (15,297)  (14,705)  (11,294)  (13,422)  (11,605)
Commercial and industrial  (4,617)  (5,713)  (3,981)  (5,716)  (4,553)
Real estate – construction  (232)  (108)  (191)  (342)  (190)
Installment loans to individuals  (10,433)  (8,834)  (7,100)  (7,312)  (6,811)
Lease finance  (15)  (49)  (22)  (52)  (51)
(1)Impairment losses on financial assets, net, as reported in our consolidated financial statements, reflect net provisions for credit losses less recoveries of loans previously written off.

The table below shows a breakdown of allowances for credit losses by type of borrowers and the percentage of loans in each category as a share of total loans at the date indicated.

  As of December 31,
  2020 % of Total Loans 2019 % of Total Loans 2018 % of Total Loans
  (in millions of R$, except percentages)
Borrowers            
Commercial and industrial  9,757   38   7,455   33   10,792   47 
Real estate  194   1   345   2   358   2 
Installment loans to individuals  15,676   61   14,800   65   11,768   51 
Lease financing  14   0   26   0   51   0 
Total  25,640   100   22,625   100   22,969   100 

Internal Risk Rating

The following table presents a breakdown of our portfolio by internal risk rating, at the dates indicated:

  As of
  December 31,
  2020 2019 2018
  (in millions of R$)
Internal Risk Rating            
Low  347,315   257,133   240,440 
Medium-low  24,277   56,549   50,486 
Medium  26,232   11,755   11,967 
Medium-high  3,896   8,512   7,722 
High  16,101   13,307   11,318 
Loans and advances to customers, gross  417,819   347,257   321,933 

For further information on our internal risk rating levels and their corresponding probability of default, see “Item 11. Quantitative and Qualitative Disclosures about Market Risk—Credit Risk—Credit Monitoring.”

Renegotiation Portfolio

The renegotiation portfolio for the year ended on December 31, 2020 amounted to R$20 billion, compared to R$15 billion for the same period in 2019, an increase of R$5,008 million or 32.8%. This portfolio includes loans and advances to customers that were extended and/or modified to facilitate repayment under conditions agreed upon with customers.

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The renegotiation portfolio was covered by allowances for impairment losses of 44.0% as of December 31, 2020 and 48.5% as of December 31, 2019. These levels are considered appropriate for the characteristics of these loans and advances to customers.

The following table presents a breakdown of our renegotiation portfolio by type of customer, allowances for impairment losses and our coverage ratio at the dates indicated:

  2020 2019 2018
  (in millions of R$, except percentages)
Renegotiation Portfolio by type of customer      
Commercial and industrial  5,862   5,141   5,949 
Installment loans to individuals  14,623   10,102   7,492 
Financial leasing  5   239   75 
Total  20,490   15,482   13,516 
Allowances for impairment losses  9,019   7,501   7,279 
Coverage ratio  44.0%  48.5%  53.8%

Balances are deemed to be impaired when there are reasonable doubts as to their full recovery and/or the collection of the related interest for the amounts on the dates indicated in the loan agreement, after taking into account the collateral guarantees received to secure (fully or partially) collection of the related balances.

As established in our internal renegotiation policy, in order for renegotiated products to be classified as performing, we must, receive an amount equivalent to at least 10% of the total amount outstanding in the six months which follow the renegotiation date (note that these transactions will remain classified as renegotiated operations even after receiving such payments). Renegotiated loans that are more than 60 days overdue are also accounted for as impaired.

We increased our efforts regarding the collection of loans that are less than 60 days past due and also in relation to written off loans. We are also continuing with our strategy of granting loans to persons with low risk profile and higher levels of collaterals and guarantees.

Impaired Assets

The following table shows our impaired assets, excluding country risk.

  As of December 31,
  2020 2019 2018 2017 2016
  (in millions of R$, except percentages)
Impaired assets                    
Past due and other impaired assets(1)  23,176   23,426   22,426   19,145   18,887 
Impaired assets as a percentage of total loans  5.5%  6.7%  7.0%  6.7%  7.0%
Net loan charge-offs as a percentage of total loans  3.7%  4.3%  3.5%  4.7%  4.3%
Net loan charge-offs as a percentage of average total loans  3.8%  5.3%  3.8%  4.8%  4.5%
(1)Includes as of December 31, 2020, R$2,028 million of doubtful loans (R$2,788 million in 2019, R$3,754 million in 2018, R$5,439 million in 2017 and R$5,576 million in 2016) that were not past-due.

Evolution of Impaired Assets

Our impaired assets decreased by 1.1%, or R$250 million, to R$23,176 million as of December 31, 2020, compared to R$23,426 million as of December 31, 2019. Provisions for impairment losses, including total recoveries of loans previously charged off, increased 13.3%, or R$3,015 million, to R$ 25,640 million as of December 31, 2020, compared to R$ 22,625 million as of December 31, 2019. Offsetting these effects were recoveries of R$861 million on loans previously written off as of December 31, 2020 and R$ 991 million as of December 31, 2019.

We believe the provisions made were adequate to cover all known or reasonably probable losses or incurred losses in the credit portfolio of loans and other assets as of December 31, 2020.

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The following table shows the changes in our impaired assets at the dates indicated:

  As of December 31,
  2020 2019 2018 2017 2016
  (in millions of R$)
Balance at beginning of year  23,426   22,426   19,145   18,887   18,599 
Initial Adoption of IFRS9 (1)  -   -   703   -   - 
Adjusted Balance  23,426   22,426   19,848   18,887   18,599 
Net additions  14,672   16,001   13,872   13,679   11,893 
Write-offs  (14,922)  (15,001)  (11,294)  (13,422)  (11,605)
Balance at end of year  23,176   23,426   22,426   19,145   18,887 
(1)Further information, see Financial Statements notes 1 and 9.

The amount of “net additions” for any period is assets that became impaired in that period less assets that were impaired but became performing in that period. In 2020, the debt restructuring options were improved to maintain consistent levels of “net additions” and “write-offs”.

Impaired Assets by Type of Customer

The following table shows the amount of our impaired assets by type of customers at the dates indicated:

  As of December 31,
  2020 2019
  (in millions of R$)
Commercial and industrial  10,558   10,073 
Real estate  456   827 
Installment loans to individuals  12,144   12,497 
Financial leasing  17   29 
Total  23,176   23,426 

Commercial and Industrial

Impaired assets in our commercial and industrial loans portfolio amounted to R$10,558 million as of December 31, 2020, an increase of R$485 million, or 4.8%, compared to R$10,073 million as of December 31, 2019. This increase was mainly due to the collective assessment of R$1,660 million performed by Santander Brasil which was based on forecasts of senstivity to macroeconomic conditions which indicate staged transfers following a deterioration of the portfolio.

Real Estate

Impaired assets in the real estate lending portfolio totaled R$456 million on December 31, 2020, a decrease of R$371 million, or 44.8%, compared to R$827 million as of December 31, 2019. The decrease in impaired assets in this portfolio was the result of the measures that Santander Brasil put in place to manage it, including collection practices with respect to our borrowers.

Installment Loans to Individuals

Impaired assets in the installment loans to individuals lending portfolio totaled R$12,144 million as of December 31, 2020, with a decrease of R$353 million, or 2.8%, compared to 2019. The decrease in impaired assets in this portfolio was the result of the measures that Santander Brasil put in place to manage it, including collection practices with respect to our borrowers whereby we offered certain customers the chance to negotiate a restructuring of their debts, especially during the COVID-19 pandemic, or asset disposals.

Financial Leasing

Impaired assets in the lease financing lending portfolio totaled R$17 million on December 31, 2020, a decrease of R$12 million compared to December 31, 2019. This decrease in impaired assets was mainly due to asset write-offs in an amount of R$15.6 million in 2020.

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Methodology for Impairment Losses

We evaluate all loans regarding the provision for impairment losses from credit risk. Loans are either individually evaluated for impairment, or collectively evaluated by grouping similar risk characteristics. Loans that are individually evaluated for impairment losses are not evaluated collectively.

To measure the impairment loss on loans individually evaluated for impairment, we consider the conditions of the borrowers, such as their economic and financial situation, level of indebtedness, ability to generate income, cash flow, management, corporate governance and quality of internal controls, payment history, industry expertise, contingencies and credit limits, as well as the characteristics of assets, such as their nature and purpose, type, sufficiency and liquidity level guarantees and total amount of credit, as well as based on historical experience of impairment and other circumstances known at the time of evaluation.

To measure the impairment loss on loans collectively evaluated for impairment, we segregate financial assets into groups considering the characteristics and similarity of credit risk. In other words, according to segment, the type of assets, guarantees and other factors associated such as the historical experience of impairment and other circumstances known at the time of assessment.

The expected loss measurement is made through the following factors:

·Exposure at Default (EAD): is the amount of a transaction exposed to credit risk including the ratio of current outstanding balance exposure that could be provided at default. Developed models incorporate hypotheses considering possible modifications to the payment schedule.

·Probability of Default (PD): is defined as the probability that the counterparty can meet its obligations to pay the principal and / or interest. For the purposes of IFRS 9, both will be considered: PD - 12 months (Stage 1), which is the probability that the financial instrument will default during the next 12 months as well as PD - life time (Stage 2 and 3), which considers the probability that the transaction between in default between the balance sheet date and the residual maturity date of the transaction. The standard requires that future information relevant to the estimation of these parameters should be considered.

·Loss Given Default (LGD): is the loss produced in the event of default. In other words, this reflects the percentage of exposure that could not be recovered in the event of a default. It depends mainly on the collateral, which is considered as credit risk mitigants associated with each financial asset, and the future cash flows that are expected to be recovered. According to the standard, forward-looking information must be taken into account in the estimation.

·Discount rate: the rate applied to the future cash flows estimated during the expected life of the asset, and which is equal to the net present value of the financial instrument at its carrying value.

In order to estimate the above parameters, the Bank has applied its experience in developing internal models for parameters calculation both for regulatory and management purposes.

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Loans Past Due for Less Than 90 Days but Not Classified as Impaired

The following table shows the loans past due for less than 90 days but not classified as impaired at the dates indicated:

  As of December 31,
  2020 % of total 2019 % of total
  (in millions of R$, except percentages)
Commercial and industrial  5,132   25.8   3,517   15.4 
Mortgage loans  3,085   15.5   5,782   25.3 
Installment loans to individuals  11,661   58.6   13,489   59.1 
Lease financing  13   0.1   24   0.1 
Total (*)  19,891   100.0   22,812   100.0 
(*)Refers only to loans past due between 1 and 90 days.

Impaired Asset Ratios

Our credit risk exposure portfolio increased by R$74.5 billion to R$466.1 billion as of December 31, 2020, compared to R$391.6 billion as of December 31, 2019. Our impaired assets decreased by approximately R$0.2 billion in the same period, from R$23.4 billion to R$23.2 billion. The default rate decreased by 10 basis points in 2020 in comparison to 2019, primarily due to the recurrent growth of the credit portfolio and the measures that Santander Brasil put in place to manage impaired assets, including collection practices.

The following table shows the ratio of our impaired assets to total credit risk exposure and our coverage ratio at the dates indicated.

  As of December 31,
  2020 2019 2018 2017 2016
  (in millions of R$ except percentages)
Loans and advances to customers, gross  417,822   347,257   321,933   287,829   268,438 
Impaired assets  23,176   23,426   22,426   19,145   18,887 
Provisions for impairment losses  25,640   22,626   22,969   18,262   18,191 
Credit risk exposure Non-GAAP – customers (1)  466,104   391,569   364,194   330,474   301,703 
Ratios                    
Impaired assets to credit risk exposure  5.0%  6.0%  6.2%  5.8%  6.3%
Coverage ratio (2)  110.6%  96.6%  102.4%  95.4%  96.3%
Impairment losses  (17,451)  (13,370)  (12,713)  (12,339)  (13,388)
Losses on other financial instruments not
  measured at fair value (3)		  -   -   -   -   88 
Impairment losses on financial assets (net) (4)  (17,451)  (13,370)  (12,713)  (12,339)  (13,300)
(1)Credit risk exposure is a non-GAAP financial measure. Credit risk exposure is the sum of the amortized cost amounts of loans and advances to customers (including impaired assets) amounting to R$417,822 million as of December 31, 20 and guarantees and documentary credits amounting to R$48,282 million as of December 31, 2020. We include off-balance sheet information in this measure to better demonstrate our total managed credit risk.

(2)Provisions for impairment losses as a percentage of impaired assets.

(3)Corresponds to the registration of losses of a permanent character in the realization value of bonds and securities classified as “securities available for sale” currently accounted for in “earnings on financial assets (net).”

(4)As of December 31, 2020 impairment losses on financial assets (net) included R$1,577 million relating to debt instruments.

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The following chart shows our impaired assets to credit risk ratio from 2016 through 2020:

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4C. Organizational Structure

Santander Group controls Santander Brasil directly and indirectly through Santander Spain, Sterrebeeck B.V., or “Sterrebeeck”, and Grupo Empresarial Santander, S.L. which are controlled subsidiaries of the Santander Group. As of December 31, 2020, Santander Spain held, directly and indirectly, 89.5% of our voting stock.

As of December 31, 2020, Santander Spain was the largest bank in the euro zone by market capitalization, with a market capitalization of approximately €44,011 million. As of December 31, 2020, Santander Spain’s attributable profit totaled €-8,771 million, 234.6% lower than the previous year, and the total shareholder remuneration on account of the earnings for the 2020 financial year is €-0.538 per share. The Santander Group operates principally in Spain, the United Kingdom, other European countries, Brazil and other Latin American countries and the United States, offering a wide range of financial products. In Latin America, the Santander Group has majority shareholdings in financial institutions in Argentina, Brazil, Chile, Mexico, Peru, Puerto Rico and Uruguay. As of December 31, 2020, Santander Brasil contributed €2,113 million of the profit attributable to the Santander Group.

The following table presents the name, country of incorporation or residence and proportion of ownership interest of our main subsidiaries in accordance with the criteria for consolidation pursuant to IFRS:

ActivityCountry of IncorporationOwnership Interest
Direct and Indirect subsidiaries of Banco Santander (Brasil) S.A.
Banco Bandepe S.A.BankBrazil100.00%
Santander Leasing S.A. Arrendamento MercantilLeasingBrazil99.99%
Aymoré Crédito, Financiamento e Investimento S.A.FinancialBrazil100.00%
Santander Brasil Administradora de Consórcio Ltda.Buying clubBrazil100.00%
Atual Serviços de Recuperação de Créditos e Meios Digitais S.A. (current name of Atual Companhia Securitizadora de Créditos S.A.)Credit Recovery ServicesBrazil100.00%
Santander Corretora de Câmbio e Valores Mobiliários S.A.BrokerBrazil100.00%

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Santander Corretora de Seguros, Investimentos e Serviços S.A.HoldingBrazil100.00%
Getnet Adquirência e Serviços para Meios de Pagamento S.A.Payment InstitutionBrazil88.50%
SANB Promotora de Vendas e Cobrança Ltda.Other ActivitiesBrazil100.00%
Sancap Investimentos e Participações S.A.HoldingBrazil100.00%
Santander Holding Imobiliária S.A. (current name of Webcasas S.A.)HoldingBrazil100.00%
Santander Brasil Tecnologia S.A.TechnologyBrazil100.00%
Rojo Entretenimento S.A.Other ActivitiesBrazil94.60%
Santander Tecnologia e Inovação Ltda.Other ActivitiesBrazil100.00%
BEN Benefícios e Serviços S.A.Other ActivitiesBrazil100.00%
Toque Fale Serviços de Telemarketing Ltda.Other ActivitiesBrazil100.00%
Esfera Fidelidade S.A.Other ActivitiesBrazil100.00%
Controlled by Atual Serviços de Recuperação de Créditos e Meios Digitais S.A. (current name of Atual Companhia Securitizadora de Créditos S.A.)
Return Capital Serviços de Recuperação de Créditos S.A. (current name of Ipanema Empreendimentos e Participações S.A.)Credit Recovery ServicesBrazil100.00%
Controlled by Return Capital Serviços de Recuperação de Créditos S.A. (current name of Ipanema Empreendimentos e Participações S.A.)
Return Gestão de Recursos S.A. (current name of Gestora de Investimentos Ipanema S.A.)Asset ManagementBrazil100.00%
Controlled by Sancap Investimentos e Participações S.A.
Santander Capitalização S.A.Savings and annuitiesBrazil100.00%
Evidence Previdência S.A.Social SecuritiesBrazil100.00%
Controlled by Getnet Adquirência e Serviços para Meios de Pagamento S.A.
Auttar HUT Processamento de Dados Ltda.Other ActivitiesBrazil100.00%
Controlled by Aymoré Crédito, Financiamento e Investimento S.A.
Banco PSA Finance Brasil S.A. (6)BankBrazil50.00%
Banco Hyundai Capital Brasil S.A. (current name of BHJV Assessoria e Consultoria Empresarial Ltda.)BankBrazil50.00%
Controlled by Santander Leasing S.A. Arrendamento Mercantil
Pi Distribuidora de Títulos e Valores Mobiliários S.A. (current name of Santander Finance Arrendamento Mercantil)LeasingBrazil100.00%
Consolidated Investment Funds
Santander FIC FI Contract I Referenciado DIInvestment FundBrazil(a)
Santander Fundo de Investimento Unix Multimercado Crédito PrivadoInvestment FundBrazil(a)
Santander Fundo de Investimento Diamantina Multimercado Crédito Privado de Investimento no ExteriorInvestment FundBrazil(a)
Santander Fundo de Investimento Amazonas Multimercado Crédito Privado de Investimento no ExteriorInvestment FundBrazil(a)
Santander Fundo de Investimento SBAC Referenciado DI Crédito PrivadoInvestment FundBrazil(a)

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Santander Fundo de Investimento Guarujá Multimercado Crédito Privado de Investimento no ExteriorInvestment FundBrazil(a)
Santander Fundo de Investimento Financial Curto PrazoInvestment FundBrazil(a)
Santander Fundo de Investimento Capitalization Renda FixaInvestment FundBrazil(a)
Santander Paraty QIF PLC (1)Investment FundBrazil(a)
Santander FI Hedge Strategies Fund (1)Investment FundBrazil(a)
Prime 16 - Fundo de Investimento Imobiliário-FII  Real Estate Investment FundBrazil(a)
Fundo de Investimento em Direitos Creditórios Multisegmentos NPL Ipanema VI - Não PadronizadoInvestment FundBrazil(a)
Fundo de Investimento em Direitos Creditórios Multisegmentos NPL Ipanema VI - Não PadronizadoInvestment FundBrazil(a)
Santander Hermes Multimercado Crédito Privado Infraestrutura Fundo de InvestimentosInvestment FundBrazil(a)
(a)Company to which we are exposed, or have rights to variable returns and have the ability to affect those returns by making certain decisions in accordance with IFRS 10 - Consolidated Financial Statements. We and/or our subsidiaries hold 100% of the quotas of these investment funds.

(1)Santander Brasil, through its subsidiaries, holds the risks and benefits of Santander Paraty QIF PLC and the sub-fund Santander FI Hedge Strategies Fund, both of which are based in Ireland and since August 2016 are fully consolidated into Santander Brasil’s financial statements. Santander Paraty QIF PLC does not hold any investments itself, acting instead through Santander FI Hedge Strategies Fund.

4D. Property, Plant and Equipment

We operate four major administrative operational centers, all of which are owned properties. Additionally, we own 405 properties for the activities of our banking network and rent 2,276 properties for the same purpose. Furthermore, in 2014, we transferred our operation to a new data center located in Campinas, which also is an owned property. For further information about the location of our branches, see “—B. Business Overview—Service Channels—Physical Distribution Network.” Our headquarters are located at Av. Presidente Juscelino Kubitschek, 2,041 and 2,235 Block A, Vila Olímpia, City of São Paulo, State of São Paulo, Brazil.

ITEM 4A. UNRESOLVED STAFF COMMENTS

Not applicable.

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

5A. Operating Results

The following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements for the years ended December 31, 2020, 2019 and 2018 and the related notes thereto, and with the financial information presented under the section entitled “Item 3. Key Information—A. Selected Financial Data” included elsewhere in this annual report. The preparation of the consolidated financial statements referred to in this section required the adoption of assumptions and estimates that affect the amounts recorded as assets, liabilities, revenue and expenses in the years and periods presented and are subject to certain risks and uncertainties. Our future results may vary substantially from those indicated as a result of various factors that affect our business, including, among others, those mentioned in the sections “Forward-Looking Statements” and “Item 3. Key Information—D. Risk Factors,” and other factors discussed elsewhere in this annual report. Our consolidated financial statements for the years ended December 31, 2020, 2019 and 2018, prepared in accordance with IFRS as issued by the IASB and the report of our independent registered public accounting firm are included in “Item 18. Financial Statements.”

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Principal Factors Affecting Our Financial Condition and Results of Operations

Impact of COVID-19

We are closely monitoring the evolution of the COVID-19 pandemic in Brazil and globally, in order to take preventive measures to minimize the spread of the virus, ensure the continuity of operations and safeguard the health and safety of our personnel. See “Item 4. Information on the Company—A. History and Development of the Company—Important Events—Impact of COVID-19” for information on the impact of the COVID-19 pandemic on our business and also “Item 3. Key Information—3D. Risk Factors—Risks Relating to the Brazilian Financial Services Industry and Our Business—The current global COVID-19 pandemic has materially impacted our business, and the continuance of this pandemic or any future outbreak of any other highly contagious diseases or other public health emergency, could materially and adversely impact our business, financial condition, liquidity and results of operations.”

Brazilian Macroeconomic Environment

Overview

As a Brazilian bank, we are significantly affected by the general economic environment in Brazil, which suffered a severe impact as a result of the COVID-19 pandemic, as set out under “—Impact of COVID-19” below. The Brazilian economic environment has historically been characterized by significant variations in economic growth, inflation and currency exchange rates. Our results of operations and financial condition are influenced by these factors and the effect that these factors have on employment rates, the availability of credit and average wages in Brazil. The following table presents key data of the Brazilian economy for the periods indicated:

  For the year ended December 31,
  2020 2019 2018
GDP growth (1)  (4.1%)  1.2%  1.1%
CDI rate (2)  2.1%  6.0%  6.4%
TJLP (3)  4.6%  5.6%  7.0%
SELIC rate (4)  2.0%  4.5%  6.5%
Selling exchange rate (at period end) R$ per U.S.$1.00  5.20   4.03   3.87 
Decrease (increase) in real rate against the U.S. dollar  28.9%  4.0%  17.1%
Average exchange rate R$ per U.S.$1.00 (5)  5.16   3.94   3.65 
Inflation (IGP-M) (6)  23.1%  7.3%  7.6%
Inflation (IPCA) (7)  4.5%  4.3%  3.8%

Sources: BNDES, Brazilian Central Bank, FGV and IBGE.

(1)GDP growth for 2020 is based on Santander Brasil’s internal estimates. For 2019 and 2018 the source is the IBGE’s revised series.

(2)The overnight interbank deposit rate (Certificado de Depósito Interbancário), or “CDI” is the average daily interbank deposit rate in Brazil (at the end of each month and annually). This is the average rate for the given year.

(3)Represents the interest rate applied by the BNDES for long-term financing (at the end of the period).

(4)The benchmark interest rate payable to holders of some securities, such as treasury financial letters, issued by the Brazilian government and traded on the SELIC rate at the end of the applicable period.

(5)Average of the selling exchange rate for the business days during the period.

(6)The inflation rate is the general index of market prices (Índice Geral de Preços-Mercado, or “IGP-M”), as calculated by FGV.

(7)The inflation rate is the consumer price index (Índice de Preços ao Consumidor – Amplo, or “IPCA”), as calculated by the IBGE.

General economic stability in Brazil following the onset of the global financial crisis in 2009 allowed the Brazilian Central Bank to continue its policy of reducing interest rates. Due to inflation and other general macroeconomic concerns, the Brazilian Central Bank began increasing interest rates, with the SELIC, a benchmark interest rate, reaching 10.00% at the end of December 31, 2013, 11.75% at the end of December 31, 2014 and 14.25% at the end of December 31, 2015. The Brazilian Central Bank has been reducing interest rates since then, with the SELIC reaching 13.75% as of December 31, 2016, 7.00% as of December 31, 2017, 6.50% as of December 31, 2018, 4.50% as of December 31, 2019 and 2.0% as of December 31, 2020. In 2020, in response to the negative fallout of the COVID-19 pandemic, the Brazilian Central Bank reduced the base interest rate to its historical low at 2.00% in August 2020 and it kept it at this level through to the date of this annual report.

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The resolution of Brazil’s political and economic crisis depends on approving reforms that are expected to be promoted by the President of Brazil (elected in October 2018). In addition, as further detailed below under “—Impact of COVID-19,” the COVID-19 pandemic and ensuing economic crisis caused a steep decrease in Brazilian GDP in the first half of 2020 before a gradual recovery from the third quarter of 2020 onwards. This will place additional demands for spending on the public sector going forward, which may adversely affect investor sentiment and lead Brazil’s economy to grow more slowly than it was expected to do prior to the COVID-19 pandemic. The economic and political crisis in Brazil may adversely affect the performance of the Brazilian economy. As a result, our Brazil-focused credit portfolio may not grow or could decrease and our loan loss provisions could increase.

Any deterioration in Brazil’s rate of economic growth, changes in interest rates, the unemployment rate or price levels generally may adversely affect our business, financial conditions and results of operations. As previously mentioned, the economic fallout from COVID-19 increased the chance of a deterioration in the outlook for the Brazilian macroeconomic environment.

Impact of COVID-19

The Brazilian economy was severely affected by the COVID-19 pandemic and ensuring economic crisis in 2020. The social distancing measures adopted during the first months of the COVID-19 outbreak reduced consumption and resulted in a sharp decrease in gross domestic product in the first half of 2020. In order to mitigate the effects of the pandemic in the economy, the Brazilian government adopted monetary and fiscal measures. On the monetary front, the Brazilian Central Bank reduced the basic interest rates and announced measures to provide liquidity to the system. On the fiscal front, the Brazilian government provided a fiscal package that included financial aid for households, companies and regional governments, and expenditure on public healthcare. The economic measures along with the reopening of the economy in the third quarter of 2020 allowed the Brazilian economy to recover to an extent, although it remained 4% below the pre-crisis level. A negative consequence of the fiscal package was a sharp increase in the fiscal deficit and public debt. Moreover, the structural reform agenda was delayed, while the government has kept the commitment with the fiscal adjustment once the crisis is over. Finally, financial markets have reacted very negatively to the crisis. The Brazilian currency was negatively affected by a higher global risk aversion, drop in commodity prices and deterioration of the fiscal scenario.

Interest Rates

A decrease in the SELIC rate may have a positive impact on our operations by promoting volume growth, even though it may also create pressure on asset-side spreads, while liability spreads should remain stable or even improve.

The following table presents the low, high, average and period-end SELIC rate since 2016, as reported by the Brazilian Central Bank:

   LowHigh(1)Average(2)Period-End
Year      
2016  13.75  14.25  14.15  13.75  
2017  7.0013.75  9.837.00
2018  6.507.006.756.50
2019  4.506.506.134.50
2020  2.004.502.812.00
2021 (through February 24, 2021)2.002.002.002.00
(1)Highest month-end rate.

(2)Average of month-end rates during the period.

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Our assets are predominantly fixed rate and our liabilities are predominantly floating. The resulting exposure to increases in market rates of interest is modified by our use of cash flow hedges to convert floating rates to fixed, but we maintain an exposure to interest rate movements. As of December 31, 2020, a 100 basis point increase in the yield curve would have resulted in R$432 million decline in the net interest income over a one-year period.

Credit Volume and Quality in Brazil

In 2015, outstanding credit grew 7.0%, while the ratio of nonperforming loans to individuals stood at 4.2% and the household debt burden amounted to 20.4% of household income. In 2016, outstanding credit contracted 3.5% in nominal terms, but delinquency fell slightly: the ratio of nonperforming loans to individuals reached 4.0% (as compared to 4.2% in 2015). Subsequently, in 2017, 2018 and 2019, the ratio of nonperforming loans to individuals reached 3.5%, 3.2% and 3.5%, respectively. After having fluctuated around the 19% level (19.1% in 2017, and 19.2% in 2018), the household debt burden reached 20.0% of household income in 2019. In 2020, outstanding credit increased 15.5% as a result of credit support programs put in place by the Brazilian government to mitigate the impact of the COVID-19 pandemic, which also helped to keep the ratio of nonperforming loans at 2.8%, while further increasing the household debt burden to 20.9% of household income.

  2020 2019 2018
  (in billions of R$)
Total Credit Outstanding (*)  3,261   3,471   3,261 
Earmarked credit  1,500   1,465   1,500 
Non-earmarked based credit  1,761   2,006   1,761 
of which:            
Corporate     814      905      814 
Individuals (retail)     948   1,101      948 
(*)Some figures may be subject to revision by the Brazilian Central Bank.

Source: Brazilian Central Bank.

Foreign Exchange Rates

Our policy is to maintain limited foreign exchange rate exposure by seeking to match foreign currency denominated assets and liabilities as closely as possible, including through the use of derivative instruments. In 2020, we recorded foreign exchange expenses of R$24,697 million, foreign exchange expenses of R$2,789 million in 2019 and foreign exchange expenses of R$2,806 million in 2018. These results are due to the variation of the U.S. dollar against the real on our assets and liabilities positions in U.S. dollar denominated instruments during these years. These foreign exchange gains and losses were offset in large part in each year by a corresponding loss or gain on derivatives entered into to hedge this exposure. Such losses and gains are recorded under “Exchange differences (net).”

The Brazilian currency has, during the last decades, experienced frequent and substantial variations in relation to the U.S. dollar and other foreign currencies. During 2016, the real appreciated 17% against the U.S. dollar as a result of improved macroeconomic conditions in Brazil. On December 31, 2016, the exchange rate was R$3.26 per U.S.$1.00. In 2017 the real remained relatively stable against the U.S. dollar, with a small depreciation of 1.5% to R$3.31 per U.S.$1.00 as of December 31, 2017. The real depreciated further against the U.S. dollar throughout 2018, with a depreciation of 17%. On December 31, 2018, the exchange rate was R$3.87 per U.S.$1.00. In 2019, the real continued to depreciate against the U.S. dollar and as of December 31, 2019, it was at R$4.03 per U.S.$1.00. In 2020, the real continued to depreciate, and as of December 31, 2020 it was at R$5.20 per U.S.$1.00. In 2021, and through to the date of this annual report, the real has continued to weaken against the U.S. dollar due to the COVID-19 pandemic. As of February 24, 2021, the exchange rate was R$5.42 per U.S.$1.00.

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Depreciation of the real relative to the U.S. dollar has created additional inflationary pressures in Brazil, which has led to increases in interest rates and limited Brazilian companies’ access to foreign financial markets, and prompted the adoption of recessionary policies by the Brazilian government. Depreciation of the real may also, in the context of an economic slowdown, lead to decreased consumer spending, deflationary pressures and reduced growth of the Brazilian economy as a whole, and thereby harm our asset base, financial condition and results of operations. Additionally, depreciation of the real could make our foreign-currency-linked obligations and funding more expensive, negatively affect the market price of our securities portfolios, and have similar consequences for our borrowers. Conversely, appreciation of the real relative to the U.S. dollar and other foreign currencies could lead to a deterioration of the Brazilian foreign exchange currency balance of payments, as well as dampen export-driven growth. Depending on the circumstances, either depreciation or appreciation of the real could materially and adversely affect the growth of the Brazilian economy and our business, financial condition and results of operations.

Inflation

In recent years, inflation has been oscillating around the target, which is set by the CMN. From 2005 to 2018, the targeted level was 4.5%, with a tolerance interval of 2.0 percentage points that prevailed until 2016 – since then the tolerance band has been narrowed to 1.5 percentage point. In addition, the targeted set for 2019 by the CMN was lowered to 4.25% and additional 0.25 percentage point decreases have already been defined for the targets until 2022 (4.00% for 2020, 3.75% for 2021 and 3.50% for 2022).

Between 2012 and 2014, inflation ranged from 5.8% to 6.4%, i.e., it was close to the top of the fluctuation range in the Brazilian Central Bank’s inflation targeting range. In 2015, as a result of the indexation of a significant portion of contracts for services to the inflation levels of the previous years, the impact of adjustment of tariffs and the impact of the depreciation of the real on prices, the inflation rate reached a level of 10.7%, the highest on record since May 2005 and well above the Brazilian Central Bank’s inflation target of 4.5%. In 2017, inflation fell substantially as a result of the consistent efforts of the Brazilian Central Bank to reduce the inflation rate, ending the year at 2.95% (12-month accumulated rate). As a result, the Brazilian Central Bank was required to send a letter to the CMN explaining the reasons for not meeting the target in which the Brazilian Central Bank explained that it expected that the monetary easing undertaken in 2018 would make the actual inflation rate converge toward the target. In 2018 the inflation increased to 3.75%, thus reinforcing the efficiency of the monetary policy in Brazil. In 2019, as a result of temporary price shocks affecting edible items, inflation ended the year slightly above the targeted level, at 4.31%. In 2020, inflation increased to 4.5%. In 2021, and through to the date of this annual report, inflation has increased to 4.56% in year-on-year terms.

The majority of our income, expenses, assets and liabilities are directly tied to interest rates. Therefore, our results of operations and financial condition are significantly affected by inflation, interest rate fluctuations and related government monetary policies, all of which may materially and adversely affect the growth of the Brazilian economy, our loan portfolios, our cost of funding and our income from credit operations. We estimate that in 2020, a 1.0% increase or decrease in the base interest rate would have resulted in a decrease or increase, respectively, in our net interest income of R$432 million. Any changes in interest rates may negatively impact our business, financial condition and results of operations. In addition, increases in base interest rates may adversely affect us by reducing the demand for our credit and investment products, increasing funding costs and increasing in the short run the risk of default by our customers.

Inflation adversely affects our personnel and other administrative expenses that are directly or indirectly tied to inflation indexes, generally the consumer price index (Índice de Preços ao Consumidor – Amplo), or “IPCA,” and the general index of market prices (Índice Geral de Preços-Mercado), or “IGPM.” For example, considering the amounts in 2019, each additional percentage point change in inflation, would impact our personnel and other administrative expenses by approximately R$94 million and R$77 million, respectively.

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Reserve and Lending Requirements

The requirements set by the Brazilian Central Bank for reserves and credit has a significant impact on the operational results of the financial institutions in Brazil. Increases or decreases in such requirements may have an impact on our operational results by limiting or expanding the amounts available for commercial credit transactions.

The table below shows the requirements for reserves and credit to which we are subject for each financing category:

Product As of December 31, 2020 As of December 31, 2019 Form of Required Reserve Yield
Demand deposits            
Rural credit loans (1)  27.50%  30.00% Loans Cap rate: 6.0% p.a.
Microcredit loans (2)  2.00%  2.00% Loans Cap rate: 4.0% p.m.
Reserve requirements (3)  21.00%  21.00% Cash Zero
Additional reserve requirements  0.00%  0.00% Cash n/a
Free funding (4)  49.50%  47.00%    
             
Savings accounts            
Mortgage loans  65.00%  65% Loans Cap rate (SFH): TR + 12.0% p.a.
Reserve requirements (3)  20.00%  20.00% Cash TR + 70.0% of the target SELIC
Additional reserve requirements  0.00%  0.00% Cash n/a
Free funding (4)  15.00%  15.00%    
             
Time deposits            
Reserve requirements (3)  17.00%  31% Cash SELIC
In cash or other instruments  0.00%  0.00% Cash or other instruments n/a
In cash  0.00%  0.00% Cash n/a
Additional reserve requirements  0.00%  0.00% Cash n/a
Free funding(4)  83.00%  69.00%    
(1)Rural credits are credits granted to farmers in the amount of R$13.6 billion and R$12.9 billion on December 31, 2020 and December 31, 2019, respectively.

(2)Microcredit is a credit granted to very small businesses, with an open position of R$1.3 billion and R$1.2 billion on December 31, 2020 and December 31, 2019, respectively.

(3)Deductions can be applied on reserve requirements. The Brazilian Central Bank details the rules to apply any deduction in Circular Nos. 3,917, 3,975 and 4,001.

(4)Interest-free financing is the amount to be used on a free of interest basis for other purposes in each financing category.

Taxes

See “Item 4. Information on the Company—B. Business Overview—Regulation and Supervision—Other Applicable Laws and Regulation —Taxation.”

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Hedging in Foreign Investments

We operate two foreign branches, one in the Cayman Islands, and another one in Luxemburg. We previously operated an independent wholly-owned subsidiary in Spain, named Santander Brasil Establecimiento Financiero de Credito, EFC, which we used primarily for sourcing funds in the international banking and capital markets to provide credit lines for us that are extended to our customers for working capital and trade-related financings. Under Brazilian income tax rules, the gains or losses resulting from the impact of appreciation or devaluation of the real on foreign investments are non-taxable or non-deductible. This tax treatment results in volatility of the income tax line item in our income statement. This asymmetry is offset through a derivative position in U.S. dollar futures, which generates gains or losses dependent on any devaluation or appreciation of the real, which is our strategy to protect our after-tax results. The reconciliation of our effective tax rate to the statutory tax rate is set forth in note 23b to our consolidated financial statements as of and for the year ended December 31, 2020. Santander EFC was operational from 2012 until 2020, when we approved its liquidation. For further information, see “Item 4. Information on the Company—B. Business Overview—Regulation and Supervision—Other Applicable Laws and Regulations—Foreign Subsidiary.”

Goodwill of Banco Real

We generated goodwill of R$27 billion as a result of our acquisition of Banco Real in 2008. Under IFRS, we are required to analyze goodwill for impairment at least annually or whenever there are indications of impairment. In 2020, 2019 and 2018, the recoverable goodwill amounts are determined from “value in use” calculations. For this purpose, we estimate cash flow for a period of five years. We prepare cash flow estimates considering several factors, including: (i) macroeconomic projections, such as interest rates, inflation and exchange rates, among others, (ii) the performance and growth estimates of the Brazilian financial system, (iii) increased costs, returns, synergies and investment plans, (iv) the behavior of customers, and (v) the growth rate of, and long-term adjustments to, cash flows. These estimates rely on assumptions regarding the likelihood of future events, and changing certain factors could result in different outcomes. The estimate of cash flows is based on valuations prepared by an independent research company, which is reviewed and approved by the board of directors. Therefore, amortization of goodwill for tax purposes generates a permanent difference and, as a result, no record of the deferred tax liability.

The following table shows the main assumptions for the basis of valuation as of the dates indicated.

  2020 2019 2018
  (Value in use: cash flows)
Main Assumptions(*)      
Basis of valuation      
Period of the projections of cash flows(1)  5 years   5 years   5 years 
Growth rate(2)  4.3%  4.8%  5.1%
Discount rate(3)  12.4%  12.5%  13.6%
(1)The projections of cash flow are prepared using internal budget and growth plans of management, based on historical data, market expectations and conditions such as industry growth, interest rate and inflation.

(2)The growth rate is calculated based on a real growth rate of 1% p.a. plus annual long-term inflation in 2020.

(3)The discount rate is calculated based on the capital asset pricing model. The discount rate before tax is 19.56% in 2020, 17.78% in 2019 and 19.33% in 2018.

(*)The recoverability test was performed during the second half of 2020. Goodwill is tested for impairment on an annual basis or whenever there is any indication of a potential impairment. At the end of each year, a qualitative assessment is carried out in order to check the existence of signs of impairment. For the years 2020, 2019 and 2018, no indication of impairment was identified.

We performed a sensitivity test in the goodwill impairment analysis considering the main assumptions that could reasonably be expected to possibly change, as required by the IFRS. Accordingly, we applied such a test considering the discount rate and perpetuity growth rate as the main assumption subject to reasonably possible change and we did not identify any impairment to goodwill.

Other Factors Affecting the Comparability of Our Results of Operations

Dissolution and liquidation of Santander Brasil, Establecimiento Financiero de Credito, S.A.

On November 12, 2020, we approved the dissolution and liquidation of Santander Brasil, Establecimiento Financiero de Credito, S.A., a Spanish entity wholly-owned by us , which we used primarily for sourcing funds in the international banking and capital markets to provide credit lines for us that are extended to our customers for working capital and trade-related financings. The capital invested abroad was repatriated to Brazil in November 2020. The deed of dissolution and liquidation of the entity was registered with the Mercantile Registry of Madrid and effective on December 15, 2020. These activities are now carried out by our Luxembourg branch.

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Disposal of the equity interest held in Super Payments and Administration of Means of Electronic Media S.A.

On February 28, 2020, we sold our entire equity interest in Superdigital to Superdigital Holding Company, S.L. a company indirectly controlled by Santander Spain. For further information regarding this sale, see “See “Item 4. Information on the Company—4A. History and Development of the Company—Important Events.”

Put option of the remaining equity interest in Banco Olé Consignado S.A. against Aymoré Crédito, Financiamento e Investimento S.A.

On March 14, 2019, the minority shareholder of Banco Olé formalized its interest in exercising the put option right provided in the Investment Agreement executed with Aymoré CFI on July 30, 2014, to sell its 40% equity interest in Banco Olé to Aymoré CFI, a controlled entity of Santander Brasil. On January 31, 2020, Santander Brasil and the shareholders of Bosan Participações S.A. (a holding company whose single asset is the shares representing 40% of the corporate capital of Banco Olé) entered into the definitive agreements and performed the closing acts related to the purchase and sale of all shares issued by Bosan, upon the transfer of Bosan’s shares to Santander Brasil and payment of the total price of R$1,608.8 million to the sellers. As a result, Santander Brasil became, both directly and indirectly, the holder of all shares issued by Banco Olé.

Acquisition of direct equity interest in Toque Fale Serviços de Telemarketing LTDA

On March 24, 2020, we acquired all of the outstanding share of Toque Fale Serviços de Telemarketing Ltda., or “Toque Fale,” held by our subsidiaries Getnet Adquirência e Serviços para Meios de Pagamento S.A. and Auttar HUT Processamento de Dados LTDA for an amount of R$1.1 million, corresponding to the equity value of the quotas on February 29, 2020. As a result, we became the direct holders of 100% of Toque Fale’s share capital.

Acquisition of equity stake in Ipanema Empreendimentos e Participações S.A., currently named Return Capital Serviços de Recuperação de Créditos S.A. (“Return Credit Management”), and Gestora de Investimentos Ipanema S.A., currently named Return Gestão de Recursos S.A. (“Return Asset” and, together with Return Credit Management, the “Return Entities”)

On October 16, 2019, Atual Companhia Securitizadora de Créditos Financeiros, or “Atual,” informed the remaining shareholders of the Return Entities of its decision to exercise its call option for shares representing the remaining 30% of the Return Entities’ total voting capital owned for a value of approximately R$17 million. The transaction was completed on November 1, 2019. As a result of this transaction, Atual currently owns 100% of the Return Entities’ issued and outstanding share capital. The Return Entities are active in the credit recovery intelligence sector, providing services such as credit portfolio evaluation and pricing, collection, management and recovery of non-performing loans.

Acquisition of Summer Empreendimentos Ltda.

On May 14, 2019, we and our wholly-owned subsidiary Santander Holding Imobiliária S.A., or “SHI,” entered into a binding document with the shareholders of Summer Empreendimentos Ltda, or “Summer,” for the acquisition of Summer’s issued share capital. The acquisition was approved by the Brazilian Central Bank on September 16, 2019 and concluded on September 20, 2019. We now hold, directly and indirectly through SHI, 100% of Summer’s share capital. Initially, Summer was not consolidated in our financial statements because it was treated as a temporary investment (non-current assets for sale). However, the investment is no longer considered temporary, and therefore Summer is included in our consolidated financial statements.

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Capital reduction of Norchem Holding e Negócios S.A. and Norchem Participações e Consultoria S.A.

On October 8, 2020, the shareholders of Norchem Holding e Negócios S.A. and Norchem Participações e Consultoria S.A., which we refer to jointly as the “Norchem Companies,” approved a capital reduction in the two Norchem Companies, in the amounts of R$14.7 million and R$19.9 million, respectively. As a result, we ceased to be shareholders of the Norchem Companies.

Purchase of Equity Interest over Toro Controle e Participações S.A.

On September 29, 2020 Santander Brasil’s subsidiary, PI DTVM , entered into an investment and other covenant agreement with the shareholders of Toro Controle e Participações S.A. , or “Toro Controle” to invest in Toro Controle. Toro Controle, an investment platform, operating as a securities broker focused on the retail market was founded in Belo Horizonte in 2010. Toro Controle is the holding company of Toro Corretora de Títulos e Valores Mobiliários Ltda, or “Toro Corretora,” and Toro Investimentos S.A., or “Toro Investimentos.” We refer to Toro Controle, Toro Corretora and Toro Investimentos as “Toro,” Upon completion of the transaction, PI DTVM will hold 60% of Toro Controle’s share capital.

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Purchase of Equity Interest in Gira – Gestão Integrada de Recebíveis do Agronegócio S.A.

On August 11, 2020, Santander Brasil executed a share purchase and sale agreement and other covenants with the shareholders of Gira (Gestão Integrada de Agronegócio S.A. or “Gira”)to acquire 80% of Gira’s share capital. Gira is a technology company that operates in the management of agribusiness receivables and whose platform has the potential to make agricultural credit transactions more secure. This increased layer of security is achieved through the use of applications, such as geolocation of productive areas, capture and analysis of agronomic data and permanent monitoring of production performance for sites involved in credit transactions. Gira’s solutions also include the review and digital registration of collateral provided under commercial contracts and continuous observation of crop development as a way of monitoring risks. The applicable regulatory approvals were received on December 18, 2020 and the closing of the transaction took place on January 8, 2021.

Execution of a contract for the Acquisition of Paytec Tecnologia em Payments Ltda, and Paytec Logística e Armazém EIRELI

On December 8, 2020, we entered into a quota purchase agreement with the owners of Paytec Tecnologia em Payments Ltda, and Paytec Logística e Armazém Eireli (jointly “Paytec”). Once the transaction is completed, we will hold 100% of Paytec’s share capital. Paytec is a logistics operator with Brazil-wide coverage which focuses on the payments market. The completion of the transaction is subject to the signing of definitive instruments and approval by the Brazilian Central Bank.

Sale of equity stake in CIBRASEC – Companhia Brasileira de Securitização

On July 24, 2019, we completed the sale of our entire equity interest in CIBRASEC – Companhia Brasileira de Securitização (“Cibrasec”) to ISEC Securitizadora S.A. (“ISEC”). Our interest amounted to 4,000 common shares and 50 Class A preferred shares, representing in aggregate, approximately 9.72% of Cibrasec’s total capital stock. We received consideration of R$9.8 million for our interest in Cibrasec. As a result, we are no longer a shareholder of Cibrasec.

Incorporation of the spun-off portion of Integry Tecnologia e Serviços A.H.U Ltda.

On October 31, 2019, we approved a spin-off of Integry Tecnologia e Serviços AHU Ltda, or “Integry,” a then wholly-owned subsidiary of Getnet Adquirência e Serviços para Meios de Pagamento S.A., or “Getnet.” Subsequently on December 20, 2019, Getnet and Santander Merchant Platform Solutions, S.L., or “SMPS Global,” a company based in Spain and controlled by Santander Spain, entered into a share purchase agreement as a result of which SMPS Global now holds 100% of Integry’s share capital. On December 23, 2019, Integry changed its name to Santander Merchant Platform Solutions Brasil Ltda.

Acquisition of residual equity stake in Getnet

On December 19, 2018, the minority shareholders of Getnet exercised their Put Option pursuant to the SPA. On the exercise date of the Put Option, we entered into a binding amendment to the SPA, to acquire all of the Getnet shares owned by minority shareholders, corresponding to 11.5% of the entity’s equity interest, in the amount of R$1,431 billion. The transaction was approved by the Brazilian Central Bank on February 18, 2019 and closed on February 25, 2019. As a result, Santander Brasil currently owns 100% of Getnet’s issued and outstanding share capital.

Formation of Esfera Fidelidade S.A.

Esfera Fidelidade was incorporated on August 14, 2018 as our wholly-owned subsidiary. Esfera Fidelidade was formed to develop and manage customer loyalty programs. The company started its operations in November 2018.

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Investment in Loop Gestão de Pátios S.A.

In 2018, Webmotors, a company in which we own an indirect 70% equity interest, entered into an agreement with Allpark Empreendimentos, Participações e Serviços S.A. and Celta L.A. Participações S.A. to acquire a 51% stake in Loop through a capital increase and issuance of new shares by Loop which were fully subscribed and paid-in by Webmotors. Loop conducts physical and virtual car auctions. This acquisition has enabled Webmotors to expand its service portfolio and strengthen its competitive position. The transaction was completed on September 25, 2018 for the amount of R$23.9 million.

Formation of BEN Benefícios e Serviços S.A.

On June 11, 2018, Santander Brasil incorporated Ben. Ben is engaged in create, supply and administer various types of vouchers and tickets used for the provision of employee benefits (such as for meals, transportation and cultural events) in the form of printed electronic and magnetic cards. The company begun its operations in the second quarter of 2019.

Creation of PI DTVM

On May 3, 2018, Santander Finance Arrendamento Mercantil S.A., one of our indirect subsidiaries, was converted into a securities brokerage and changed its corporate name to SI Distribuidora de Títulos e Valores Mobiliários S.A. The conversion process was approved by the Brazilian Central Bank on November 21, 2018. On December 17, 2018, SI Distribuidora de Títulos e Valores Mobiliários S.A. changed its corporate name to PI Distribuidora de Títulos e Valores Mobiliários S.A. On January 22, 2019 it received approval for the aforementioned name change from the Brazilian Central Bank. The company began its operations in March 2019.

Acquisition of Isban Brasil S.A. and Produban Serviços de Informática S.A. Companies

On February 19 and 28, 2018, respectively, we purchased all shares issued by Isban Brasil from Ingenería de Software Bancário, S.L., and all shares issued by Produban Serviços de Informática S.A. from Produban Servicios Informáticos Generales, S.L., for R$61,078 thousand and R$42,731 thousand, respectively. While all parties to these transactions are ultimately controlled by Santander Spain, the transactions were conducted on an arm’s length basis. On February 28, 2018, Isban Brasil was merged into Produban Serviços de Informática S.A. and on the same date, Produban Serviços de Informática S.A. changed its corporate name to Santander Brasil Tecnologia S.A.

Sale of equity interest in BW Guirapá I S.A.

On December 22, 2017, Santander Investimentos, Corretora de Seguros, Cia. de Ferro Ligas da Bahia – Ferbasa S.A.and Brazil Wind S.A. entered into an agreement for the sale of 100% of the shares issued by BW Guirapá I S.A. held by Santander Corretora de Seguros and Brazil Wind to Cia. de Ferro Ligas da Bahia – Ferbasa S.A. The transaction also encompassed the seven wind farms organized as special purpose companies held by BW I. The base consideration paid was R$450 million, and an additional amount of up to R$35 million may still be paid if certain contractual targets are met. The transaction closed on April 2, 2018.

Formation of Santander Auto S.A.

On December 20, 2017, we entered into binding agreements with HDI Seguros for the formation of a partnership involving the creation of a new insurance company called Santander Auto S.A., or “Santander Auto.” Sancap Investimentos e Participações S.A., a company controlled by Santander Brasil, will hold 50% of the issued share capital of Santander Auto with the remaining 50% being held by HDI Seguros. Santander Auto focuses on offering motor insurance policies through a 100% digital platform. The transaction closed on October 9, 2018 when the documentation to form Santander Auto S.A. was executed and we and HDI Seguros undertook a joint capital contribution of R$15 million into Santander Auto. On January 9, 2019, SUSEP granted Santander Auto the regulatory authorization to operate. Santander Auto began its operations in August 2019.

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Acquisition of equity stake in the Return Entities

On October 16, 2017, Santander Brasil, through its wholly-owned subsidiary Atual Companhia Securitizadora de Créditos Financeiros, acquired a direct equity interest in Return Credit Management, and an indirect equity interest in Return Asset corresponding to 70% of Return Entities’ share capital.

On October 16, 2019, Atual informed the remaining shareholders of its decision to exercise the call option for the shares representing the remaining 30% the Return Entities’ total voting capital owned by them, for a value of approximately R$17 million. The transaction was completed on November 1, 2019. As a result of this transaction, Atual currently owns 100% of the Return Entities’ issued and outstanding share capital.

Accession to Certain Tax Payment Plans

In August 2017, we joined the PERT. The program allows for certain tax debts to be repaid in installments. In connection with our participation in this program, we are repaying in installments certain amounts due as a result of lawsuits and administrative proceedings relating to corporate income tax and social security contributions for the periods from 1999 to 2005 in a total amount of R$492 million in January 2018 (taking into account the reduction arising from our participation in the program). A payment of R$191.9 million was due in August 2017 and a further payment of R$299.7 million was due by January 2018, both of which we have made within the prescribed time limits. As a result of our participation, we recorded expenses in an amount of R$364 million (after tax) in the third quarter of 2017.

In October 2017, we joined the Incentive Payment Programs and Installments (Programas de Parcelamento Incentivado) created by the cities Rio de Janeiro and São Paulo. The program allows for certain tax debts to be repaid in installments. In connection with our participation in these programs, we are repaying in installments certain amounts due as a result of lawsuits and administrative proceedings relating to ISS for the periods from 2005 to 2016 in a total amount of R$293 million as of December 31, 2017. As we had made provisions for these losses, we registered income of R$435 million as a result of the reversal of certain provisions, net of tax effects, in an amount of R$96 million.

Establishment of Credit Intelligence Bureau

On January 20, 2016, we entered into a non-binding memorandum of understanding with Banco Bradesco S.A., Banco do Brasil S.A., Caixa Econômica Federal and Itaú Unibanco S.A., for the creation of a credit intelligence bureau, the CIB. The CIB was structured as a corporation and each of Santander Brasil, Banco Bradesco S.A., Banco do Brasil S.A., Caixa Econômica Federal and Itaú Unibanco S.A. will have a 20% ownership stake in the corporation.

The purpose of the CIB is to develop a database that, in conformity with applicable laws, will collect, reconcile and handle the credit information of individuals and legal entities that register with the CIB and expressly authorize the inclusion of their credit information on the CIB’s database. We believe this initiative will lead to an increased degree of efficiency and improvement of our credit management activities, and will also facilitate the disbursement of long and medium-term lines of credit to participants in the Brazilian Financial System and to other corporate entities.

On April 14, 2017, the definitive documents were signed by the shareholders. At the extraordinary shareholders’ meeting held on October 5, 2017, a capital increase in an amount of R$285,205 thousand was approved as a result of which CIB’s capital stock increased from R$65,823 thousand to R$351,028 thousand. The CIB became fully operational in 2019.

Formation of Banco Hyundai Capital Brasil S.A.

On April 28, 2016, our wholly owned subsidiary Aymoré CFI entered into a joint venture with Hyundai Capital, for the purposes of incorporating (i) Banco Hyundai Capital Brasil S.A. and (ii) an insurance brokerage company. These entities were incorporated to provide, respectively, auto financing and insurance brokerage services, and products to consumers through the Hyundai dealerships in Brazil.

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Aymoré CFI owns a 50% equity interest in Banco Hyundai Capital Brasil S.A., and Hyundai Capital owns the remaining 50% equity interest.

On February 21, 2019, the Brazilian Central Bank granted Banco Hyundai Capital Brasil S.A. the authorization to operate as a banking entity. Banco Hyundai Capital Brasil S.A. began operating in the first half of 2019.

On April 30, 2019, the Brazilian Central Bank authorized the formation of the insurance brokerage company. The insurance brokerage company was incorporated on July 2, 2019 and began operating in November 2019.

Sale of Santander Securities Services Brasil Distribuidora de Títulos e Valores Mobiliários S.A., or “SSS DTVM.”

On June 19, 2014, we executed preliminary documents containing the main terms and conditions of the sale of our qualified custody business and the sale of our subsidiary SSS DTVM, which renders third party fund administration services, to a holding company owned by Santander Spain and a group of private equity funds managed by Warburg Pincus. Following the sale, we will continue to act as the administrator of the funds, as per CVM Instruction No. 306, dated as of May 5, 1999, as amended.

The closing of the transaction occurred on August 31, 2015, when all of our shares in SSS DTVM were formally transferred to Santander Securities Brasil and SSS DTVM acquired our qualified custody business. We received R$859 million at the closing of the transaction which generated gains of R$751 million before taxes recorded in the “Other non-financial gains/losses” line.

Plans to Optimize our Capital Structure

On September 26, 2013, we announced that, in order to optimize our capital structure, our board of directors submitted a proposal to optimize the composition of our regulatory capital to our shareholders for their approval (“PR Optimization Plan”). The aim was to establish a more efficient capital structure, consistent with recent capital rules and aligned with our business strategy and asset growth plan. The PR Optimization Plan was composed of the following items: (i) an equity distribution to the shareholders of Santander Brasil in the total amount of R$6 billion, with no reduction in the number of shares; (ii) the issuance abroad of capital instruments to compose Tier I and Tier II of our regulatory capital; and (iii) a bonus share program and an adjustment in the composition of the Units, followed by a reverse share split, with the purpose of eliminating trading in cents of reais.

On November 5, 2018, our board of directors approved the Notes Offering In addition, our board of directors also approved the redemption of debt instruments issued to form part of our Tier 1 and Tier 2 regulatory capital, as set out in the board’s resolution of January 14, 2014. The proceeds from the Notes Offering were used to fund this redemption. On December 18, 2018, the Brazilian Central Bank authorized the transactions contemplated in the Notes Offering and the redemption, which were completed on January 29, 2019.

Critical Accounting Policies

Our consolidated financial statements have been prepared in accordance with IFRS as issued by the IASB.

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General

Our principal accounting policies are described in note 2 to our audited consolidated financial statements. The following discussion describes areas that require use of certain critical accounting estimates and the exercise of judgement regarding matters that are inherently uncertain and that impact our financial condition and operational results. In this regard, if management decides to change these estimates, or apply such estimates for different durations a material impact on our financial condition and operational results could result.

Management bases its estimates and judgments on historical experience and on various other factors and circumstances, which are believed to be reasonable. Actual results may differ from these estimates if assumptions and conditions change. Any judgments or changes in assumptions are submitted to the audit committee and to our regulatory authorities and are disclosed in the related notes to our consolidated financial statements, which are included in this annual report.

Fair Value of Financial Instruments

We record a financial asset as measured at (i) fair value through profit or loss, (ii) fair value through other comprehensive income or (iii) amortized cost. In general, financial liabilities are measured at amortized cost. Exceptions include financial liabilities measured at: (i) fair value through profit or loss, (ii) other financial liabilities at fair value through profit or loss and (iii) financial liabilities designated as hedge items (or hedging instruments) measured at fair value. See Item 3. Key Information—3A. Selected Financial Data—Balance Sheet Data.

The fair value of a financial instrument is the price that would be received to sell an asset, or the amount paid to transfer a liability between market participants, in a transaction on the date of which fair value is measured, regardless of whether that price is directly observable or estimated using another valuation technique.

In estimating the fair value of an asset or a liability, we take into account relevant characteristics if market participants would also consider the same when pricing the asset and liability at the time fair value is measured. An assumed transaction like this establishes an asset sale price or transfer cost for the liability. In the absence thereof, price is established using valuation techniques commonly used by financial markets.

We use derivative financial instruments for both trading and non-trading activities. The principal types of derivatives used are interest rate swaps, options and future rate agreements; foreign exchange forwards, futures, options, and swaps; cross-currency swaps; equity index futures; and equity options and swaps. The fair value of exchange-traded derivatives is calculated based on published price quotations. The fair value of over-the-counter derivatives is calculated as the sum of expected future cash flows arising from the instrument, discounted to the (“present value” or “theoretical close”) at the date fair value is measured using techniques commonly applied by financial markets as follows:

·The present value method is used for financial instruments permitting static hedging (principally, forwards and swaps), loans and advances. This method uses expected future cash flows that are discounted through interest rate curves of the applicable currencies. These interest rate curves are generally observable market data.

·The Black-Scholes model is used to value financial instruments requiring dynamic hedging (principally structured options and other structured instruments). Certain observable market inputs are used in the model to generate variables such as the bid-offer spread, exchange rates, volatility, correlation between indexes and market liquidity, as appropriate.

·The present value method and the Black-Scholes model are used for valuing financial instruments exposed to interest rate risk, such as interest rate futures, caps and floors. Main inputs used in these models are principally observable market data, including appropriate interest rate curves, volatilities, correlations and exchange rates.

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·Dynamic models similar to those used in measuring of interest rate risk for measuring credit risk of linear instruments (such as bonds and fixed-income derivatives). In the case of non-linear instruments, if the portfolio is exposed to credit risk (such as credit derivatives), the joint probability of default is determined using the Standard Gaussian Copula model. The main inputs used to determine the underlying cost of credit for credit derivatives are quoted credit risk spreads, and the correlation between quoted credit derivatives of various issuers.

·The determination of fair value requires us to make certain estimates and assumptions. If quoted market prices are unavailable, fair value is then calculated using widely accepted pricing models that consider contractual terms and prices of the underlying financial instruments, yield curves, observable market data and other relevant factors. The use of different estimates or assumptions in these pricing models could lead to a different valuation being recorded in our consolidated financial statements.

See note 2e (i) to our consolidated financial statements for additional information on valuation techniques, details on our modeled principal assumptions and estimates and a sensitivity analysis for the valuation of financial instruments to those changes in principal assumptions and estimates and note 46.c.8 of our consolidated financial statements for a sensitivity analysis relating to the valuation of financial instruments to those changes in principal assumptions.

Impairment Losses on Financial Assets

Definition

A financial asset is considered impaired when there is objective evidence that shows events have occurred which:

·give rise to an adverse impact on future cash flows estimated at the transaction date, in the case of debt instruments (loans and debt securities);

·for equity instruments, their carrying amount may not be fully recovered;

·arise from the violation of terms of loans; and

·during the Bankruptcy process.

As a general rule, the value adjustment of impaired financial instruments is recognized in the consolidated income statement for the period in which the impairment becomes evident. The reversal, if any, is recognized in the same manner for previous statements for which the impairment is reversed or reduced. Financial assets are deemed to be impaired, and the accrued interest suspended, when there are reasonable doubts as to their full recovery and/or the collection of the related interest for the amounts and on the dates indicated in the loan agreement after taking into account collateral guarantees received to secure (fully or partially) the collection of related balances.

For all non-performing past due assets, any collections relating to impaired loans and advances are used to recognize the accrued interest. The remainder, if any, is applied to reduce the principal amount outstanding Debt Instruments Carried at Amortized Cost.

Debt Instruments Carried at Amortized Cost

The impairment loss amount incurred for determining a recoverable amount on a debt instrument measured at amortized cost is equal to the difference between its carrying amount and the present value of its estimated future cash flows (excluding future credit losses not incurred). This cash flow is discounted to the financial asset’s original effective interest rate (or the effective interest rate at initial recognition), which is presented as a reduction of the asset balance and recorded on income statements.

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In estimating the future cash flows of debt instruments, the following factors are taken into account:

·all amounts that are expected to be obtained over the remaining life of the instrument, (such as provided guarantees);

·impairment loss considers the likelihood of collecting accrued interest receivable;

·various types of risk to which each instrument is subject;

·circumstances in which collections will foreseeably be made; and

·that cash flows are subsequently discounted using the instrument’s effective interest rate.

A debt instrument is impaired due to insolvency when there is evidence of deterioration in the obligor’s ability to pay, either because such obligor is in arrears or for other reasons. An example is recoverable losses resulting from a materialization of the insolvency risk of obligors (credit risk).

We have certain policies, methods and procedures for minimizing our exposure to counterparty insolvency. These policies, methods and procedures are applied in the granting, examination and documentation of debt instruments, contingent liabilities and commitments; identification of recoverable amounts and calculation of amounts necessary to cover the related credit risk.

The procedures employed in the identification, measurement, control and reduction of exposure to credit risk, are applied on an individual basis or through grouping similar credit risk characteristics.

Customers with individual management include wholesale segment customers, financial institutions and certain companies. Risk management is performed through an analysis complemented by tools to support a decision-making model based on credit risk assessment using internal procedure.

Customers with standardized management include individuals and companies not classified as individual customers. Risk management models are based on automated decision-making and risk assessment procedure, which are complemented by teams of analysts specializing in credit risk. The credits related to standardized customers are usually considered to be not recoverable when they have experience of historical loss and a delay greater than 90 days.

Methodology for Impairment Losses

We evaluate all loans in respect of the provision for impairment losses from credit risk. Loans are either individually evaluated for impairment or collectively evaluated by grouping similar risk characteristics for loans accounted as amortized cost. Loans that are individually evaluated for impairment losses are not evaluated collectively.

To measure the impairment loss on loans individually evaluated for impairment, we consider borrower conditions, such as their economic and financial situation; level of indebtedness; ability to generate income; cash flow; management; corporate governance and quality of internal controls; payment history; industry expertise; and contingencies and credit limits. The characteristics of assets are also considered, which include: the nature and purpose; type; sufficiency and liquidity level guarantees; total amount of credit; historical experience of impairment; and other circumstances known at the time of evaluation.

To measure the impairment loss on loans collectively evaluated for impairment, we segregate financial assets into groups considering the characteristics and similarity to credit risk, or in other words, according to segment, the type of assets, guarantees and other factors associated such as the historical experience of impairment and other circumstances known at the time of assessment.

Impairment loss is calculated using statistical models that consider the following factors:

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·Exposure at Default or “EAD” is the amount of risk exposure at the date of default by the counterparty. In accordance with IFRS, the exposure at default used for this calculation is also the current exposure, as reported in the balance sheets.

·Probability of Default or (“PD”) is the probability of the borrower failing to meet its principal and/or interest payment obligations. PD is measured using an annual time horizon to quantify the probability of the borrower defaulting in the coming year. A loan is in default if either the principal or interest is past due by ninety days or more or the loan is current but there are doubts as to the solvency of the counterparty (subjective doubtful assets).

·Loss Given Default, or (“LGD,”) is the loss arising in the event of default. LGD calculation is based on the net charge offs on defaulted loans, taking into account the guarantees/collateral associated with the loans, the income and expenses associated with the recovery process and the timing of default.

·Loss Identification Period, or (“LIP,”) is the time period between the occurrence of a loss event and the identification of an objective evidence of this loss. In other words, it represents the time horizon from the credit loss occurrence until the effective confirmation of such loss.

Moreover, prior to loans be written-off (which is only done after the Bank has completed all recovery efforts and after about 360 days late), a fully registered provision (allowance for loan losses) of the loan’s remaining balance applies. As a result, this provision fully covers the losses. Thus, the Bank understands that its loan loss allowance methodology has been developed to meet its risk metrics and capture loans that could potentially become impaired.

Impairment

Certain assets, such as intangible assets, including goodwill, equity method investments, financial assets not carried at fair value through profit or loss and other assets are subject to impairment review. We record impairment charges when we believe there is objective evidence of impairment, or that the cost of the assets may not be recoverable.

The assessment of what constitutes an impairment is based on the following models:

We test goodwill for impairment on an annual basis, or more frequently if events or changes in economic circumstances, such as an adverse change in Santander Brasil’s business condition or observable market data, indicate that these assets may be impaired. The recoverable amount determination used in the impairment assessment requires prices of comparable businesses, present value or other valuation techniques, or a combination thereof, requiring management to make subjective judgments and assumptions. Events and factors that may significantly affect estimates include, among other things, competitive forces, customer behaviors and attrition, changes in revenue growth trends, cost structures and technology, and changes in discount rates and specific industry or market sector conditions. If an impairment loss is recognized for goodwill, it may not be reversed in a subsequent period. The recognition of impairment is applicable when significant changes occur in the main estimates used to evaluate the recoverable amounts of the cash-generating unit recoverable amount below the carrying amount. Based on the assumptions described above, no impairment of goodwill in 2020, 2019 and 2018 was identified.

Given the level of uncertainty related to these assumptions, our officers carry out a sensitivity analysis using reasonably possible changes in the key assumptions on which the recoverable amount of the cash-generating units are based in order to confirm that the recoverable amounts still exceed the carrying amounts.

All debt and equity securities (other than those carried at fair value through profit or loss) are subject to impairment testing every reporting period. The carrying value is reviewed in order to determine whether an impairment loss has been incurred.

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Evaluation for impairment includes both quantitative and qualitative information. For debt securities, such information includes actual and estimated incurred credit losses indicated by payment default, market data on (estimated) incurred losses and other current evidence that the issuer may not pay amounts when due. Equity securities are impaired when management believes that, based on a significant or prolonged decline of fair value below the acquisition price, there is sufficient reason to believe that the acquisition cost may not be recovered. “Significant” and “prolonged” are interpreted on a case-by-case basis for specific equity securities.

Upon the impairment of either debt or equity instruments, the amount considered as effective loss is recognized in profit or loss. In addition, we did not identify any impairment of tangible assets in 2020, 2019 and 2018 (see notes 14, 13 and 12, respectively, to our audited consolidated financial statements).

Post-employment Benefit Plan

The Post-employment benefit plan includes the following obligations undertaken by us: (i) to supplement the public social security system benefits, and (ii) medical assistance in the event of retirement, permanent disability or death for eligible employees and their direct beneficiaries.

Defined Contribution Plan

A defined contribution plan is the post-employment benefit plan for which we and our controlled entities as employers make pre-determined contributions to a separate entity and, in turn, have no legal or constructive obligation to pay further contributions if the separate entity does not hold sufficient assets to honor all benefits relating to the services rendered in the current and prior periods.

These contributions are recognized as personnel expenses in the consolidated income statement.

Defined Benefit Plan

A defined benefit plan is the post-employment benefit plan as is shown in note 21 to our audited consolidated financial statements. For this type of plan, the sponsoring entity’s obligation is to provide the agreed benefits to employees, assuming the potential actuarial risk that benefits will cost more than expected.

The amendment of IAS 19 established fundamental changes in the accounting for and disclosure of employee post-employment benefits such as removing the mechanism of the corridor approach for recording of the obligation of the plans. Fundamental changes also include changes in the criteria for recognition of conventional interest of plan assets (valuation based on the discount rate actuarial liability).

The adoption of this accounting policy involved, fundamentally, full recognition of liabilities on account of actuarial losses (actuarial deficit) not recognized previously, against the stockholders’ equity (Statements of Comprehensive Income).

Main Definitions:

·The present value of the defined benefit obligation is the present value of expected future payments required to settle the obligation resulting from employee service in the current and past periods, without deducting any plan assets.

·Deficit or surplus is: (a) the present value of the defined benefit obligation, less (b) the fair value of plan assets.

·The sponsoring entity may recognize the plan’s assets in the balance sheet when they meet the following characteristics: (i) the assets of the fund are sufficient to meet all employee benefit plan or sponsor obligations; or (ii) the assets are returned to the sponsoring entity in order to reimburse it for employee benefits already paid.

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·Actuarial gains and losses are changes in present value of defined benefit obligation resulting from: (a) adjustments due to experience (the effects of differences between the actuarial assumptions adopted and what has actually occurred); and (b) effects of changes in actuarial assumptions.

·Current service cost is the increase in the present value of the defined benefit obligation resulting from employee service in the current period.

·The past service cost is the change in present value of defined benefit obligation for employee service in prior periods resulting from a change in the plan or reductions in the number of employees covered.

Post-employment benefits are recognized in the income statement within “Interest expense and similar charges” and “Provisions (net).”

The defined benefit plans are recorded based on an actuarial study, and conducted by an external consultant, at the end of each year to therein be effective for the subsequent period.

New Accounting Standards

The new IFRS standards effective after January 1, 2021 are mentioned in our audited consolidated financial statements included in this annual report. For further information, see note “1 - Introduction, basis of presentation of the consolidated financial statements and other information” to our audited consolidated financial statements.

All accounting policies and measurement bases with a material effect on the consolidated financial statements for 2020 were applied in the preparation of such financial statements.

Results of Operations for the Years Ended December 31, 2020, 2019 and 2018

 

Executive Summary – Santander Brasil Results at a glance

Total Income amounted to R$48,242 million in 2020, a decrease of 17.9% in comparison with the year ended December 31, 2019, primarily due to the impact of the COVID-19 pandemic on the Brazilian economy. Excluding the effects of the hedge for investment abroad, which had a high impact in 2020 due to the exchange rate variation, our total income would have amounted to R$61,825 million in the year, an increase of 3.0% compared to the same period of the previous year. For further information, see “Item 3. Key Information—A. Selected Financial Data—Reconciliation of Non- GAAP Measures and Ratios to Their Most Directly Comparable IFRS Financial Measures”.

Consolidated Profit for 2020 totaled R$13,451 million, in the year ended December 31, 2020, a decrease of 19.1% over the year ended December 31, 2019, mainly impacted by the performance of gains/losses on financial assets and liabilities (net) and exchange differences (net) line.

Loan Portfolio to customers amounted R$418 billion as of December 2020, an increase of 20.3% compared to December 31, 2019, mainly due to the increase in loans to commercial and industrial, and individual portfolios.

Credit Quality remains at reasonable levels and supports our growth. Impaired assets to credit risk ratio was 5.0% for the year ended December 31, 2020, a 1.0 p.p. decrease as compared the previous year. Coverage ratio was 110.6% in the year ended December 31, 2020, a 14.0 p.p. increase from 96.6% the year ended December 31, 2019. Our Basel Capital adequacy ratio was 15.3% in the year ended December 31, 2020, an increase of 0.3% compared to the year ended December 31, 2019. 

Deposits from Brazilian Central Bank and deposits from credit institutions plus customer deposits increased by 32.5% reaching R$ 578 billion in 2020.

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Results of Operations

The following table presents our consolidated results of operations for the years ended December 31, 2020, 2019 and 2018:

  For the Year Ended December 31,
  2020 2019 2018 

% Change

2020/2019

 

%Change

2019/2018

  (in millions of R$, except percentages)
Net interest income  44,443   44,321   41,921   0.3   5.7 
Income from equity instruments  34   19   33   78.9   (42.4)
Income from companies accounted for by the equity method  112   149   66   (24.8)  125.8 
Net fee and commission income  16,229   15,713   14,132   3.3   11.2 
Gains/losses on financial assets and liabilities (net) and exchange differences (net)  (11,703)  (326)  (5,589)  3,489.9   (94.2)
Other operating income (expenses)  (873)  (1,108)  (1,056)  (21.3)  4.9 
Total income  48,242   58,769   49,507   (17.9)  18.7 
Administrative expenses  (17,115)  (16,942)  (16,792)  1.0   0.9 
Depreciation and amortization  (2,579)  (2,392)  (1,740)  7.8   37.5 
Provisions (net)  (1,657)  (3,682)  (2,000)  (55.0)  84.1 
Impairment losses on financial assets (net)  (17,450)  (13,370)  (12,713)  30.5   5.2 
Impairment losses on other assets (net)  (85)  (131)  (508)  (35.1)  (74.2)
Other nonfinancial gain (losses)  308   21   156   1,440.0   (87.2)
Operating profit before tax  9,664   22,273   15,910   (56.6)  40.0 
Income tax  3,787   (5,642)  (3,110)  (167.1)  81.4 
Consolidated profit for the year  13,451   16,631   12,800   (19.1)  29.9 

Consolidated Profit for the Year

Our consolidated profit for the year ended December 31, 2020 was R$13,451 million, a decrease of R$3,180 million, or 19.1%, as compared to our consolidated profit of R$16,631 million for the year ended December 31, 2019 as a result of an increase of R$4,080 in impairment losses on financial assets (net) mainly due to the global COVID-19 pandemic that resulted in a R$3,200 million additional allowance for potential loan losses. This was partially offset by the growth of the credit portfolio.

Our consolidated profit for the year ended December 31, 2019 was R$16,631 million, an increase of R$3,832 million, or 29.9%, as compared to our consolidated profit of R$12,800 million for the year ended December 31, 2018 as a result of:

(i)an increase of R$2,400 million in net interest income mainly due to the growth in our loan portfolio driven by our commercial banking segment;

(ii)an increase of R$1,581 million in net fees and commissions, primarily as a result of an increase of R$722 million in revenues from credit and debit cards, an increase of R$417 million in revenues from sale of insurance and premium bonds, an increase of R$295 million in revenues from capital markets and an increase of R$138 million in revenues from current account services. These increases were due to a 7% increase in our total active customer base, a 12% increase in the number of loyal customers.

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Net Interest Income

Net interest income for the year ended December 31, 2020 was R$44,443 million, a 0.3% or R$122 million increase from R$44,321 million for the year ended December 31, 2019. This increase was mainly due to a 20.3% in our credit portfolio driven by our global wholesale banking segment.

Average total earning assets in 2020 were R$750.1 billion, a 14.5% or R$94.9 billion increase from R$655.2 billion in 2019. The principal drivers were an increase of R$61.2 billion, or 18.9%, in the average of loans and advance to customers and an R$24.8 billion increase in average of debt instruments. Net yield (the net interest income divided by average earning assets) was 5.9% in 2020 compared to 6.8% in 2019, a decrease of 0.8 p.p.

Average total interest-bearing liabilities in 2020 were R$572.0 billion, a 16.5% or R$80.8 billion increase from R$491.2 billion in 2019. The main driver of this growth was an increase of R$109.4 billion in customer deposits, given the shift in investor assets toward more stable instruments.

Finally, the yield spread (the difference between gross yield on earning assets and the average cost of interest-bearing liabilities) was 5.2% in 2020, mainly due to lower share of our Commercial Banking segment in our total results and the effect of the reduction in the SELIC interest rate from 4.5% in 2019 to 2.0% in 2020.

Net interest income for the year ended December 31, 2019 was R$44,321 million, a 5.7% or R$2,400 million increase from R$41,921 million for the year ended December 31, 2018. This increase was mainly explained by a 7.9% increase in the volume of our credit portfolio, driven by individuals and consumer finance.

Average total earning assets in 2019 were R$655.2 billion, a 7.8% or R$47.1 billion increase from R$608.0 billion in 2018. The principal drivers were an increase of R$45.9 billion, or 81.8%, in the average of loans and amounts due from credit institutions, a R$18.5 billion increase in average of loans and advance to customers and a R$14.7 billion increase in average of debit instruments, which were partially offset by a R$32.3 billion decrease in average of cash on balances with the Brazilian Central Bank.

Net yield (the net interest income divided by average earning assets) was 6.8% in 2019 compared to 6.9% in 2018, a decrease of 0.1 p.p.

Average total interest-bearing liabilities in 2019 were R$491.2 billion, a 6.0% or R$27.8 billion increase from R$463.4 billion in 2018. The main drivers of this growth were an increase of R$18.0 billion in customer deposits, an increase of R$5.3 billion in deposits from the Brazilian Central Bank and deposits from credit institutions and an increase of R$4.7 billion in marketable debt securities.

Finally, the yield spread (the difference between gross yield on earning assets and the average cost of interest-bearing liabilities) was 5.3% in 2019 as compared to 5.4% in 2018, mainly due to a decrease in the cost of funding, associated with the overall reduction in the SELIC interest rate from 6.50% in 2018 to 4.5% in 2019.

Income from Equity Instruments

Income from equity instruments for the year ended December 31, 2020 totaled R$34 million, a R$15 million increase from R$19 million for the year ended December 31, 2019, mainly due to higher dividend gains from the Santander Fundo de Investimento Amazonas Multimercado Crédito Privado Investimento no Exterior as a result of gains in the equities positions towards derivatives hedge.

Income from equity instruments for the year ended December 31, 2019 totaled R$19 million, a R$14 million decrease from R$33 million for the year ended December 31, 2018, mainly due to lower dividends received from Santander Fundo de Investimento Guarujá Multimercado Crédito Privado Investimento no Exterior.

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Income from Companies Accounted for by the Equity Method

Income from companies accounted for by the equity method for the year ended December 31, 2020 was R$112 million, a R$37 million decrease from R$149 million for the year ended 2019, mainly due to a decrease of R$33 million of operation of Banco RCI Brasil S.A. and a decrease of R$8 million of operation of Gestora de Inteligência de Crédito, both jointly-controlled company. These results were partially offset by an increase of R$10 million of operation of Tecban (Tecnologia Bancária S.A.), a jointly-controlled company.

Income from companies accounted for by the equity method for the year ended December 31, 2019 was R$149 million, an R$84 million increase from R$66 million for the year ended 2018, mainly due to an increase of R$59 million in the result of operations of Banco RCI Brasil S., a jointly-controlled company, an increase of R$19 million in the results of operations of Tecnologia Bancária S.A., a jointly-controlled company and an increase of R$12 million in the results of operations of Webmotors S.A., a jointly-controlled company. This was partially offset by a decrease of R$5 million in the results of operations of Gestora de Inteligência de Crédito, a jointly-controlled company and a R$2 million reduction in the results of operations of Santander Auto S.A. a jointly-controlled company.

Net Fee and Commission Income

Net fee and commission income for the year ended December 31, 2020 reached R$16,229 million, a 3.3% or R$515 million increase compared to R$15,713 million for the year ended December 31, 2019, impacted mainly due to the increase in (i) trade finance, (ii) insurance and capitalization and (iii) credit and debit cards.

Net fee and commission income for the year ended December 31, 2019 reached R$15,713 million, an increase of 11.2% or R$1,581 million compared to R$14,132 million for the year ended December 31, 2018. This increase was mainly due to an increase of R$722 million in revenues from credit and debit cards, R$417 million in revenues from sale of insurance and premium bonds, R$295 million in revenues from capital markets and R$138 million from revenues from current account services.

Net fees and commissions from trade finance totaled R$1,740 million for the year ended December 31, 2020, an increase of 32.1% compared to the year ended December 31, 2019. This increase was mainly a result of higher demand for this service during the COVID-19 pandemic and the effects of variations in exchange rates.

Net fees and commissions from trade finance R$1,317 million for the year ended December 31, 2019, an increase of 7.2% compared to the year ended December 31, 2018. This increase was primarily as a result of variations in exchange rates.

Net fees and commissions from insurance and capitalization totaled R$3,831 million for the year ended December 31, 2020, a 6.8% increase compared to the year ended December 31, 2019. For the year ended December 31, 2019, the net fees and commissions from insurance and capitalization totaled R$3,586 million, a 13.2% increase compared to the year ended December 31, 2018. The performance in both periods was primarily driven by increases in our portfolio of credit life insurance.

Net fees and commissions from credit and debit cards totaled R$5,151 million for the year ended December 31, 2020, an increase of 3.3% compared to the year ended December 31, 2019. This increase was mainly due to a recovery of transaction volumes in the second half of 2020, despite the reduction in volume during the first half of 2020.

Net fees and commissions from credit and debit cards totaled R$4,986 million for the year ended December 31, 2019, an increase of 16.9% compared to the year ended December 31, 2018. This increase was as a result of a higher turnover (R$236.4 billion in the fiscal year ended December 31, 2019 as compared to R$201.6 billion the fiscal year ended December 31, 2018).

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The following table reflects the breakdown of net fee and commission income for the year ended December 31, 2020, 2019 and 2018:

  For the Year Ended December 31
  2020 2019 2018 % Change 2020/2019 Change% 2019/2018
    (in millions of R$, except percentages)
Current account services  3,716   4,051   3,913   (8.3)  3.5 
Collection and payment services  1,459   1,313   1,291   11.1   1.7 
Insurance and capitalization  3,831   3,586   3,169   6.8   13.2 
Asset Management and pension funds  1,114   1,434   1,289   (22.3)  11.2 
Credit and debit cards  5,151   4,986   4,264   3.3   16.9 
Capital markets  858   1,211   916   (29.2)  32.2 
Trade finance  1,740   1,317   1,228   32.1   7.2 
Tax on services  (678)  (622)  (671)  8.9   (7.3)
Others  (964)  (1,562)  (1,266)  (38.2)  23.4 
Total  16,229   15,713   14,133   3.3   11.2 

Gains/losses on Financial Assets and Liabilities (net) and Exchange Differences (net)

Gains/losses on financial assets and liabilities (net) and exchange differences (net) for the year ended December 31, 2020 were losses of R$11,703 million, a R$11,377 million increase from losses of R$326 million for the year ended December 31, 2019. This variation is mainly due to gains of R$9,732 million related to financial assets measure at fair value through profit or loss held for trading and losses of R$21,912 million related to exchange differences (net). Excluding the results of hedging on investments abroad effect, gains/losses on financial assets and liabilities (net) and exchange differences (net) were gains of R$1,880 million for the year ended December 31, 2020, a R$942 million increase from gains of R$938 million compared to the year ended December 31, 2019 mainly due to the positive results in our derivative position. Gains/losses on financial assets and liabilities (net) and exchange differences (net) excluding the effects of the hedge investment abroad is a non-GAAP measure. For further information, see “Item 3. Key Information—A. Selected Financial Data—Reconciliation of Non-GAAP Measures and Ratios to Their Most Directly Comparable IFRS Financial Measures.”

Gains/losses on financial assets and liabilities (net) and exchange differences (net) for the year ended December 31, 2019 were losses of R$326 million, a reduction of R$5,263 million in losses from R$5,589 million for the year ended December 31, 2018. This variation is mainly due to gains of R$5,156 million related to financial assets measure at fair value through profit or loss held and gains of R$17.9 million related to exchange differences (net). Excluding the results of hedging on investments abroad effect, gains/losses on financial assets and liabilities (net) and exchange differences (net) were gains of R$938 million for the year ended December 31, 2019, a R$660 million increase from gains of R$278 million compared to the year ended December 31, 2018 mainly due to the positive results in our derivative positions. Gains/losses on financial assets and liabilities (net) and exchange differences (net) excluding the effects of the hedge investment abroad is a non-GAAP measure. For further information, see “Item 3. Key Information—A. Selected Financial Data—Reconciliation of Non-GAAP Measures and Ratios to Their Most Directly Comparable IFRS Financial Measures”.

The following table presents our gains/losses on Financial Assets and Liabilities (net) and Exchange Differences (net) for the periods indicated.

  For the Year Ended December 31
  2020 2019 2018 % Change 2020/2019 Change% 2019/2018
  (in millions of R$, except percentages)
Gains/losses on financial assets and liabilities (net) and exchange differences (net)  (11,703)  (326)  (5,589)  3,489.9   (94.2)
Effects of the hedge for investment held abroad  13,583   1,264   5,867   974.6   (78.5)
Gains/losses on financial assets and liabilities (net) and exchange differences (net) excluding Hedge Impact(1)  1,880   938   278   100.4   237.7 
(1)Gains/losses on financial assets and liabilities (net) and exchange differences (net) excluding the effects of the hedge investment abroad is a non-GAAP measure. For further information, see “Item 3. Key Information—A. Selected Financial Data—Reconciliation of Non-GAAP Measures and Ratios to Their Most Directly Comparable IFRS Financial Measures.”

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Other Operating Income/Expenses

Other operating income/expenses for the year ended December 31, 2020 were expenses of R$873 million, a decrease of R$236 million compared to expenses of R$1,108 million for the year ended December 31, 2019, mainly due to the lower result of our FGB pension plan and higher FGC (Fundo Garantidor de Crédito) expenses given the increase in the balance of deposits. For the year ended December 31, 2019, other operating income/expenses were expenses of R$1,108 million, compared to expenses of R$1,056 million for the year ended December 31, 2018.

Administrative Expenses

Administrative expenses for the year ended December 31, 2020 were R$17,115 million, a R$173 million increase compared to expenses of R$16,942 million for the year ended December 31, 2019 mainly as a result of higher expenses with technology and systems. For the year ended December 31, 2019, our administrative expenses of R$16,942 million reflected a R$149 million increase compared to administrative expenses of R$16,792 million for the year ended December 31, 2018, mainly explained by an increase in (i) personnel expenses, which are in line; and (ii) data processing expenses in order to support the increase in the volume of our customer transactions.

Personnel expenses decreased R$457 million for the year ended December 31, 2020, primarily resulting from lower employee wages and salaries, benefits and share-based compensation. In the year ended December 31, 2019, our personnel expenses increased R$122 million (compared to the same period in 2018). This performance can be attributed to the increase in the benefits line and higher wages and salaries.

The following table sets forth our personnel expenses for each of the periods indicated:

  For the Year Ended December 31,
  2020 2019 2018 % Change 2020/2019 Change% 2019/2018
  (in millions of R$, except percentages)
Wages and salaries  5,730   5,876   5,813   (2.5)  1.1 
Social security costs  1,222   1,277   1,405   (4.3)  (9.1)
Benefits  1,390   1,492   1,387   (6.8)  7.5 
Training  49   66   63   (25.8)  4.8 
Other personnel expenses  480   617   538   (22.2)  14.7 
Total  8,871   9,328   9,206   (4.9)  1.3 

Other administrative expenses increased R$629 million to R$8,244 million for the year ended December 31, 2020 from R$7,614 million for the year ended December 31, 2019 mainly due to a R$296 million increase in technology and systems, and a R$176 million increase in communications.

Other administrative expenses increased R$28 million to R$7,614 million for the year ended December 31, 2019 from R$7,586 million for the year ended December 31, 2018, mainly due to a R$272 million increase in technology and systems, a R$91 million increase in advertising, R$83 million increase in specialized and technical service, both expenses derived from more intense commercial actions in our business, partially offset by a decrease of R$582 million with general maintenance expenses as a result of the adoption of IFRS 16. Prior to the adoption, leasing expenses were recognized as general maintenance expenses. After the adoption of IFRS 16, these expenses are now split into interest and depreciation expenses.

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The following table sets forth our other administrative expenses for each of the periods indicated:

  For the Year Ended December 31,
  2020 2019 2018 % Change 2020/2019 Change% 2019/2018
  (in millions of R$, except percentages)
Specialized and technical services  2,171   2,173   2,090   (0.1)  4.0 
Property, fixtures and supplies  744   748   1,331   (0.5)  (43.8)
Technology and systems  2,355   2,059   1,786   14.4   15.3 
Advertising  654   713   622   (8.3)  14.6 
Communications  649   473   457   37.2   3.5 
Per diems and travel expenses  70   140   127   (50.1)  10.2 
Taxes other than income tax  280   112   89   150.1   25.9 
Surveillance and cash courier services  595   631   617   (5.7)  2.3 
Insurance premiums  17   35   29   (51.4)  18.2 
Other (1)  709   531   437   33.5   21.5 
Total  8,244   7,614   7,586   8.3   0.4 
________________________________

(1)For the year ended December 31, 2020, includes mainly Data Processing Expenses in the balance of R$176.1 million (2019 – R$2.4 million and 2018 – R$67.7 million), Service Expenses in the balance of R$27.7 million (2019 - revenue of R$2.2 million and 2018 - R$26. 8 million), Expenses with Benefit Guarantor Fund - FGB R$8.5 million (2019 – R$53.5 million and 2018 - R$35.0 million), Interest on Own Capital R$0 (2019 – R$0 and 2018 - R$38.0 million) and Recovery of Charges and Expenses R$212.8 million (2019 – R$97.4 million and 2018 – R$92.4 million).

The efficiency ratio, which we calculate as total administrative expenses divided by total income, increased to 35.5% in the year ended December 31, 2020, as compared to 28.8% for the year ended December 31, 2019. This increase of 6.7 p.p. in the ratio is primarily due to the effects of the hedge for investment held abroad. For the year ended December 31, 2018, the efficiency ratio was 33.9%. Our adjusted efficiency ratio, which excludes the effect of the hedge for investment held abroad (see “—Hedging in Foreign Investments” and “Selected Financial Data—Selected Consolidated Ratios, Including Non-GAAP Ratios”), was 27.7%, 28.2% and 30.3% in 2020, 2019 and 2018, respectively.

Depreciation and Amortization

Depreciation and amortization for the year ended December 31, 2020 was R$2,579 million, a R$187 million increase from R$2,392 million for the year ended December 31, 2019, primarily due to higher expenses with amortization of hardware and software items, resulting from investments made in this period. For the year ended December 31, 2019, depreciation and amortization amounted to R$2,392 million, a R$652 million increase from R$1,740 million for the year ended December 31, 2018, primarily due to the change in accounting practices resulting from the adoption of IFRS 16 following the principles of IAS 17. For further information, please see “Item 1 Introduction, basis of presentation of the consolidated financial statements and other information, c.1) Adoption of new standards and interpretations of our consolidated financial statements included elsewhere in this annual report.

Provisions (Net)

Provisions principally include provisions for tax, civil, and especially labor claims. Provisions (net) totaled R$1,657 million for the year ended December 31, 2020, a decrease of R$2,025 million compared to R$3,682 million for the year ended December 31, 2019, primarily due to a higher than usual level of provisions in 2019, as explained below.

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In the year ended December 31, 2019, provisions (net) totaled R$3,682 million, an increase of R$1,682 million compared to R$2,000 million for the year ended December 31, 2018, mainly due to an increase of R$700 million related to the creation of an efficiency and productivity fund, an increase in civil and labor proceedings due to revision of the operational model and a constitution of provisions related to the legal proceeding brought by the association of retired employees of Banespa (Associação dos Funcionários Aposentados do Banco do Estado de São Paulo), or AFABESP, an association of former employees of Banespa in which the classification of the chance of loss was revised to probable in December 2019 (for further information see note 22 to our audited consolidated financial statements included in the ”Item 18. Financial Statements” of this annual report).

Impairment Losses on Financial Assets (Net)

Impairment losses on financial assets (net) for the year ended December 31, 2020 were R$17,450 million, an R$4,080 million increase compared to R$13,370 million for the year ended December 31, 2019. This increase was principally due to global COVID-19 pandemic that resulted in a R$3,200 million additional allowance for potential loan losses and the recurrent growth of the credit portfolio.

For the year ended December 31, 2019, impairment losses on financial assets (net) were R$13,370 million, a R$657 million increase compared to R$12,713 million for the year ended December 31, 2018, principally due to the growth of our portfolio of installment loans to individuals.

Our credit risk exposure portfolio increased by R$74.5 billion to R$466.1 billion as of December 31, 2020 compared to R$391.6 billion as of December 31, 2019. Furthermore, our impaired assets decreased R$0.2 billion from R$23.4 billion as of December 31, 2019 to R$23.2 billion for the year ended December 31, 2020. The default rate decreased by 10 base points in 2020 in comparison with 2019.

The following table shows the ratio of our impaired assets to total credit risk exposure and our coverage ratio as of December 31, 2020 and December 31, 2019 and 2018.

  As of December 31,
  2020 2019 2018 2017 2016
  (in millions of R$ except percentages)
Loans and advances to customers, gross  417,819   347,257   321,933   287,829   268,438 
Impaired assets  23,176   23,426   22,426   19,145   18,887 
Provisions for impairment losses  25,640   22,626   22,969   18,262   18,191 
Credit risk exposure Non-GAAP – customers (1)  466,104   391,569   364,194   330,474   301,703 
Ratios   ��                
Impaired assets to credit risk exposure  5.0%  6.0%  6.2%  5.8%  6.3%
Coverage ratio (2)  110.6%  96.6%  102.4%  95.4%  96.3%
Impairment losses  (17,451)  (13,370)  (12,713)  (12,339)  (13,388)
Losses on other financial instruments not
  measured at fair value (3)		  -   -   -   -   88 
Impairment losses on financial assets (net) (4)  (17,451)  (13,370)  (12,713)  (12,339)  (13,300)
________________________________

(1)Credit risk exposure is a non-GAAP financial measure. Credit risk exposure is the sum of the amortized cost amounts of loans and advances to customers (including impaired assets) amounting to R$466,115 million and guarantees and documentary credits amounting to R$48,282 million. We present the off-balance information to better demonstrate our total managed credit risk.

(2)Provisions for impairment losses as a percentage of impaired assets.

(3)Corresponds to registration of losses of a permanent character in the realization value of bonds and securities classified as “Securities available for sale” currently accounted for “Earnings on financials assets (net).”

(4)As of December 31, 2020, 2019 and 2018, our total of impairment losses on financial instruments included R$1,577 million, R$2,055 million and R$2,714 million, respectively, relating to debt instruments.

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The following chart shows our impaired assets to credit risk ratio from 2016 through 2020:

Impaired Assets by Type of Loan

The following table shows our impaired assets by type of loan as of December 31, 2020, 2019 and 2018.

  For the Year Ended December 31,
  2020 2019 2018 % Change 2020/2019 Change% 2019/2018
  (in millions of R$, except percentages)
Commercial and industrial  10,558   10,073   11,832   4.8   (14.9)
Real estate  456   827   1,036   (44.8)  (20.2)
Installment loans to individuals  12,144   12,497   9,499   (2.8)  31.6 
Financial leasing  17   29   59   (40.6)  (50.2)
Total  23,176   23,426   22,426   (1.1)  4.5 

For a discussion of the evolution in impairment in our lending portfolios and our methodology for loan loss allowances with respect to the following lending portfolios, see “Item 4. Information on the Company—B. Business Overview—Selected Statistical Information—Assets—Impaired Assets—Methodology for Impairment Losses.” See also “Item 3. Key Information—D. Risk Factors—Risks Relating to Brazil and Macroeconomic and Political Conditions in Brazil and Globally—Ongoing investigations relating to corruption and diversion of public funds that are being conducted by the Brazilian federal police as well as other Brazilian and non-Brazilian regulators and law enforcement officials may adversely affect the growth of the Brazilian economy and could have a material adverse effect on us” and “Item 3. Key Information—D. Risk Factors—Risks Relating to Brazil and Macroeconomic and Political Conditions in Brazil and Globally—The financial problems faced by our customers could adversely affect us.”

Commercial and Industrial

Impaired assets in the commercial and industrial loans portfolio amounted to R$10,558 million as of December 31, 2020, an increase of R$485 million, or 4.8%, compared to R$10,073 million as of December 31, 2019. This increase was mainly due to the collective assessment of R$1,660 million performed by Santander Brasil which was based on macroeconomic forecasts sensitiveness that indicates stage transfers upon a deterioration of the portfolio.

Impaired assets in the portfolio of commercial and industrial loans amounted to R$10,073 million as of December 31, 2019, a decrease of R$1,759 million, or 14.9%, compared to R$11,832 million as of December 31, 2018. The decrease in impaired assets in this portfolio was the result of the measures that Santander Brasil put in place to manage it, including collection practices with respect to our borrowers whereby we offered certain customers the chance to negotiate a restructuring of their debts or asset disposal.

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For further information, please see “Item 4. Information on the Company—B. Business Overview—Selected Statistical Information—Assets—Impaired Assets—Methodology for Impairment Losses.”

Real Estate

Impaired assets in the real estate lending portfolio totaled R$456 million on December 31, 2020, a decrease of R$371 million, or 44.8%, compared to R$827 million as of December 31, 2019. The decrease in impaired assets in this portfolio was the result of the measures that Santander Brasil put in place to manage it, including collection practices with respect to our borrowers.

Impaired assets in the real estate lending portfolio totaled R$827 million on December 31, 2019, a decrease of R$209 million, or 20.2%, compared to R$1,036 million as of December 31, 2018. The decrease was primarily due to changes on monetary policy that led to reduction on the interest rates on real estate portfolio in Brazil.

For further information, please see “Item 4. Information on the Company—B. Business Overview—Selected Statistical Information—Assets—Impaired Assets—Methodology for Impairment Losses.”

Installment Loans to Individuals

Impaired assets in the installment loans to individuals lending portfolio totaled R$12,144 million as of December 31, 2020, with a decrease of R$353 million, or 2.8%, compared to 2019. The decrease in impaired assets in this portfolio was the result of the measures that Santander Brasil put in place to manage it, including collection practices with respect to our borrowers whereby we offered certain customers the chance to negotiate a restructuring of their debts, especially during the COVID-19 pandemic, or asset disposal.

Impaired assets in the installment loans to individuals lending portfolio totaled R$12,497 million as of December 31, 2019, with an increase of R$2,998 million, or 31.6%, compared to 2018. This increase was a consequence of the recurrent growth of the portfolio and the weak macroeconomic conditions in Brazil which affected the portfolio, such as the unemployment rate and degree of income commitment.

For further information, please see “Item 4. Information on the Company—B. Business Overview—Selected Statistical Information—Assets—Impaired Assets—Methodology for Impairment Losses.”

Financial Leasing

Impaired assets in the lease financing lending portfolio totaled R$17 million on December 31, 2020, a decrease of R$12 million compared to December 31, 2019. This decrease in impaired assets was mainly due to asset write-offs in an amount of R$15.6 million which took place in 2020.

Impaired assets in the lease financing lending portfolio totaled R$29 million on December 31, 2019, a decrease of R$30 million compared to December 31, 2018. This decrease in impaired assets was mainly due to defaults by certain borrowers as a result of weak macroeconomic conditions in Brazil.

For further information, please see “Item 4. Information on the Company—B. Business Overview—Selected Statistical Information—Assets—Impaired Assets—Methodology for Impairment Losses”.

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Impairment Losses on Other Assets (Net)

Impairment losses on other assets (net) for the year ended December 31, 2020 amounted to losses of R$85 million, a decrease of R$46 million as compared to the year ended December 31, 2019, mainly due to less intangible asset impairment losses during the year. For the year ended December 31, 2019, impairment losses on other assets (net) amounted to losses of R$131 million, a decrease of R$377 million as compared to 2018, mainly due to impairment loss of assets in the acquisition and development of software that was recorded due to obsolescence function and disruption of these systems in 2018 that did not occur in 2019.

Other Nonfinancial Gains/Losses

Other nonfinancial gains/losses were gains of R$308 million during the year ended December 31, 2020, a positive variation of R$288 million from gains of R$20 million during the year ended December 31, 2019, primarily due to the R$169 million gain on the sale of Superdigital in the first quarter of 2020.

During the year ended December 31, 2019, other nonfinancial gains/losses were gains of R$20 million, a negative variation of R$136 million from gains of R$156 million during the year ended December 31, 2018, primarily due to an increase of R$104 million relating to income from the reversal of the provision for impairment of properties and R$78 million which is related to the sale of assets received in the recovery of credits with customers that occurred in 2018 that did not occur in 2019.

Operating Profit Before Tax

Operating profit before tax for the year ended December 31, 2020 was R$9,664 million, a decrease of R$12,609 million, or 56.6%, as compared to R$22,273 million for the year ended December 31, 2019. In the year ended December 31, 2018, our operating profit before tax for the year was R$15,910 million.

Excluding the effects of the hedge for investment held abroad operating profit before tax amounted to R$23,247 million for the year ended December 31, 2020, a 1.2% decrease from R$23,537 million compared to the year ended December 31, 2019. In the year ended December 31, 2018, operating profit before tax was R$21,777 million. Operating profit before tax excluding the effects of the hedge for investment held abroad is a non-GAAP measure. For further information, see “Item 3. Key Information—A. Selected Financial Data—Reconciliation of Non-GAAP Measures and Ratios to Their Most Directly Comparable IFRS Financial Measures.”

The table below presents our operating profit before tax and our operating profit before tax excluding the effects of the hedge for investment held abroad for the periods presented.

  For the Year Ended December 31,
  2020 2019 2018 % Change 2019/2018 Change% 2018/2017
  (in millions of R$, except percentages)
Operating Profit Before Tax  9,664   22,273   15,910   (56.6)  40.00 
Effects of the hedge for investment held abroad  13,583   1,264   5,867   974.6   (78.5)
Adjusted operating profit before tax (1)  23,247   23,537   21,777   (1.2)  8.1 
(1)Adjusted operating profit is a non-GAAP measure. For further information, see “Item 3. Key Information—A. Selected Financial Data—Reconciliation of Non-GAAP Measures and Ratios to Their Most Directly Comparable IFRS Financial Measures.”

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Income Taxes

Income tax expenses include income tax, social contribution, PIS and COFINS (which are social contributions due on certain income net of some expenses). The sum of income tax totaled R$3,787 million in the year ended December 31, 2020, with an improvement in income tax of R$9,429 million in relation to expenses of R$5,642 million in the year ended December 31, 2019. This improvement was mainly attributed to the following events: (i) losses of R$13,583 million as a result of the effects of exchange rate variations on foreign investment in our subsidiary and subsidiary abroad and for hedge instruments, affecting the “Gains (losses) on financial assets and liabilities (net)” line; (ii) the reduction in Operating Income before taxation resulting from the result of the entities' operations, and (iii) the recognition of certain deferred tax credits during the year of 2020. For more information, see note 23 to our financial statements audited consolidated figures included in this annual report.

For the year ended December 31, 2019, income tax expenses amounted to of R$5,642 million for the year of 2019, a R$2,532 million increase from expenses of R$3,110 million for the year ended December 31, 2018. This increase was mainly attributable to the following events: (i) foreign exchange losses of R$1,512 million as a result of the effects of exchange rate variations on investments abroad and losses on hedge instruments, affecting the line “Gains (losses) on financial assets and liabilities (net)” line; (ii) the increase in Operating Income before taxation arising from the result of the entities' operations, and (iii) the recognition of certain deferred tax credits in December 2019 as a result of the adjustment of CSLL tax credits derived from the tax rate increase to 20% for banks (due to constitutional amendment No. 103/2019). For further information, see note 23 from our audited consolidated financial statements included in this annual report.

The following table shows our income taxes and income taxes excluding the effects of the hedge for investment held abroad for the periods indicated.

  For the Year Ended December 31,
  2020 2019 2018 %Change 2020/2019 Change% 2019/2018
  (in millions of R$, except percentages)
Income taxes  3,787   (5,642)  (3,110)  (167.1)  81.4 
Effects of the hedge for investment held abroad  (13,583)  (1,264)  (5,867)  974.6   (78.5)
Income taxes excluding effects of the hedge for investment held abroad (*)  (9,796)  (6,906)  (8,977)  41.9   (23.1)
*Income taxes excluding effects of the hedge for investment held abroad is a non-GAAP measure. For further information, see “Item 3. Key Information—A. Selected Financial Data—Reconciliation of Non-GAAP Measures and Ratios to Their Most Directly Comparable IFRS Financial Measures.”

Results of Operations by Segment for the Years Ended December 31, 2020, 2019 and 2018

The following tables show our results of operations for the years ended December 31, 2020, 2019 and 2018, for each of our operating segments.

Commercial Banking

  For the Year Ended December 31,
  2020 2019 2018 % Change 2020/2019 %Change 2019/2018
  (in millions of R$, except percentages)
Net interest income  41,457   42,044   39,391   (1.4)  6.7 
Income from equity instruments  4   5   10   (25.6)  (51.0)
Income from companies accounted for by the equity method  84   150   66   (43.8)  126.5 
Net fee and commission income  14,404   13,923   12,537   3.5   11.1 
Gains/losses on financial assets and liabilities (net) and exchange differences (net)  (13,515)  (1,541)  (6,752)  777.0   (77.2)
Other operating income (expenses)  (767)  (1,069)  (966)  (28.3)  10.7 
Total income  41,667   53,511   44,286   (22.1)  20.8 
Personnel expenses  (8,140)  (8,554)  (8,404)  (4.8)  1.8 
Other administrative expenses  (7,635)  (7,140)  (7,186)  6.9   (0.6)
Administrative expenses  (15,775)  (15,694)  (15,590)  0.5   0.7 
Depreciation and amortization  (2,489)  (2,297)  (1,637)  8.4   40.3 
Provisions (net)  (1,639)  (3,669)  (1,948)  (55.3)  88.3 
Impairment losses on financial assets (net)  (17,379)  (13,423)  (12,420)  29.5   8.1 
Impairment losses on other assets (net)  (28)  (73)  (450)  (61.2)  (83.7)
Other nonfinancial gain (losses)  309   21   156   1,404.1   (86.9)
Operating profit before tax  4,666   18,375   12,397   (74.6)  48.2 

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  For the Year Ended December 31,
  2020 2019 2018 %Change 2019/2018 %Change 2018/2017
  (in millions of R$, except percentages)
Operating Profit Before Tax  4,666   18,375   12,397   (74.6)  48.2 
Effects of the hedge for investment held abroad  13,583   1,264   5,867   974.6   (78.5)
Adjusted Operating Profit Before tax  18,249   19,639   18,264   (7.1)  7.5 

2020 and 2019

Operating profit before tax attributed to the Commercial Banking segment for the year ended December 31, 2020 was R$4.7 billion, a R$13.7 billion decrease from R$18.4 billion for the year ended December 31, 2019. This variation was mainly due to:

·an increase of R$3,956 million in impairment losses on financial assets mainly due to the global COVID 19 pandemic that resulted in a R$3,200 million additional allowance for potential loan losses and the recurrent growth of the credit portfolio.

·a decrease of R$587 million in net interest income for the year ended December 31, 2020, compared to the year ended December 31, 2019 mainly attributed to the Global Wholesaleimpact from spread pressure and the mix effect as a result of the economic effects of the COVID-19 pandemic.

This variation was partially offset by an increase of R$481 million in net fee and commission income for the year ended December 31, 2020, compared to the year ended December 31, 2019, mainly due to (i) an increase in revenues from the sale of insurance and capitalization, and (ii) an increase in revenues from trade finance, and (iii) an increase in revenues from credit and debit cards.

Excluding the effects of the hedge for investments held abroad on our revenues, our operating profit before taxes would have been R$18.2 billion, 7.1% lower than in the fiscal year ended December 31, 2019.

2019 and 2018

Operating profit before tax attributed to the Commercial Banking segment for the year ended December 31, 2019 was R$18.4 billion, a 48.2% or R$6.0 billion increase from R$12.4 billion for the year ended December 31, 2018. This variation was mainly due to:

·an increase of R$2,653 million in net interest income for the year ended December 31, 2019, was R$3.9 billion, a 11.0%, or R$385 million increase compared to the year ended December 31, 2018.

This variation was2018 mainly due to:to an 15.0% increase in the volume of our credit;

·a decrease of R$347 million in impairment losses on financial assets (net) principally owing to our preventive management.

·an increase of R$195
·an increase of R$1,386 million in net fee and commission income manly due to an increase in revenues from securities underwriting and placement and an increase in revenues from administration and custody.

These results were partially offset by:

·a decrease of R$253 million in net interest income mainly lower volume in the corporate portfolio.

2018 and 2017

Profit before tax attributed to the Global Wholesale Banking segment for the year ended December 31, 2018 was R$3.5 billion, a 6.7%, or R$220 million, a decrease from R$3.3 billion for2019, compared to the year ended December 31, 2017.

This variation was2018, mainly due to:

·an increase of R$812 million in impairment losses on financial assets (net) principally as a result of our risk management strategyto (i) an increase in revenues from credit and debit cards, (ii) an increase in revenues from sale of insurance and premium bonds, and (iii) an increase in revenues from current account service; and recovery campaigns for our customers.

 

These results were partially offset by:

·a decrease of R$437 million in gains/losses on financial assets and liabilities (net) and exchange differences (net), mainly explained by a decrease in gains from derivatives and market positions and a decrease in gains from proprietary trading.
·a decrease of R$377 million in impairment losses on other assets (net) mainly due to impairment loss of assets in the acquisition and development of software that was recorded due to obsolescence function and disruption of these systems in 2018 that did not occur in 2019.

 

5B.Liquidity and Capital Resources

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In 2019, our operating profit before taxes, excluding the effects of the hedge for investments held abroad, on our revenues would have been R$19.6 billion, 7.5% higher than in the fiscal year ended December 31, 2018. Operating profit before taxes excluding the hedge of investments held abroad is a non-GAAP measure. For further information, see “Item 3. Key Information—A. Selected Financial Data—Reconciliation of Non-GAAP Measures and Ratios to Their Most Directly Comparable IFRS Financial Measures.”

Global Wholesale Banking

  For the Year Ended December 31,
  2020 2019 2018 % Change 2020/2019 %Change 2019/2018
  (in millions of R$, except percentages)
Net interest income  2,985   2,277   2,531   31.1   (10.0)
Income from equity instruments  30   14   23   114.2   (37.9)
   28   -   -   -   - 
Net fee and commission income  1,823   1,790   1,595   1.8   12.2 
Gains/losses on financial assets and liabilities (net) and exchange differences (net)  1,812   1,215   1,163   49.2   4.5 
Other operating income (expenses)  (105)  (39)  (90)  172.4   (57.0)
Total income  6,574   5,258   5,222   25.0   0.7 
Administrative expenses  (1,340)  (1,248)  (1,202)  7.4   3.8 
Personnel expenses  (732)  (774)  (802)  (5.4)  (3.6)
Other administrative expenses  (609)  (474)  (400)  28.4   18.5 
Depreciation and amortization  (91)  (95)  (103)  (4.6)  (8.3)
Provisions (net)  (18)  (13)  (53)  37.9   (75.5)
Impairment losses on financial assets (net)  (71)  54��  (294)  (229.7)  (118.4)
Impairment losses on other assets (net)  (56)  (58)  (58)  (4.7)  - 
Operating profit before tax  4,998   3,898   3,512   28.2   11.0 

2020 and 2019

Operating profit before tax attributed to the Global Wholesale Banking segment for the year ended December 31, 2020 was R$5.0 billion, a 28.2%, or R$1,100 million increase from R$3.9 billion for the year ended December 31, 2019.

This variation was mainly due to:

·an increase of R$708 million in net interest income, representing a 31% change from 2019, mainly due to the increase in the credit portfolio resulting from the economic effects of the COVID-19 pandemic.

 

·Gain on financial assets and liabilities and exchange differences of R$597 million due to the positive gains from increased market operations in derivatives and especially gains in the IPCA-indexed bonds portfolio.

This variation was partially offset by an increase of R$125 million in impairment losses on financial assets due to an increase in the coverage for potential loan losses.

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2019 and 2018

Operating profit before tax attributed to the Global Wholesale Banking segment for the year ended December 31, 2019 was R$3.9 billion, a 11.0%, or R$385 million increase compared to December 31, 2018.

This variation was mainly due to:

·a decrease of R$347 million in impairment losses on financial assets (net) principally owing to our preventive management.

·an increase of R$195 million in in net fee and commission income manly due to an increase in revenues from securities underwriting and placement and an increase in revenues from administration and custody.

This variation was partially offset by a decrease of R$253 million in net interest income mainly lower volume in the corporate portfolio.

5B. Liquidity and Capital Resources

Our asset and liability management strategy is set by the asset and liability committee, which operates under strict guidelines and procedures established by the Santander Group. The asset and liability committee establishes, among other policies, our funding strategy, and the target positioning with respect to structural balance sheet risk.

 

Pursuant to the Santander Group’s model, all subsidiaries have to be self-funded in terms of liquidity and capital. In addition, our general asset and liability management policy is to maintain a close match of maturity, interest rate and currency exposures. Subject to our internal risk management policies we aim to maintain adequate liquidity to meet our present and future financial obligations and to capitalize on business and market opportunities as they arise.

 

Most of our liquidity is raised in the local market and we maintain a portfolio of high quality public bonds for liquidity management. Legal reserve requirements consume a significant amount of funding in Brazil, see “Item 4. Information on the Company—B. Business Overview—Regulation and Supervision—Other Applicable Laws and Regulations—Compulsory Reserve Requirements.”

Due to our diversified sources of funding, which include a large client deposit base in the local market and a large number of correspondent banks with long-standing relationships, historically we have not experienced liquidity problems. In our opinion, our current levels of liquidity and working capital are sufficient for our present requirements.

See also “Item 4. Information on the Company—B. Business Overview—Selected Statistical Information.”

 

Due to our diversified sources of funding, which include a large client deposit base in the local market and a large number of correspondent banks with long-standing relationships, historically we have not experienced liquidity problems. In our opinion, our current levels of liquidity and working capital are sufficient for our present requirements.

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See also “Item 4. Information on the Company—B. Business Overview—Selected Statistical Information” and Note 47. Risk Management from Item 18. Financial Statements of this form.

Liquidity and Funding

 

In addition to a minimum liquidity level that meets our stress scenarios, we monitor concentration of funding ratios and the short term (LCR) and long term (Net Stable Funding Ratio) liquidity metrics, which aims to guarantee a stable funding profile. We control, manage and review our liquidity analyzing current and expected levels of liquidity, structuring the sources of financing to achieve an optimal diversification in terms of maturities, instruments, currencies, markets, as well as setting forth contingency plans. The objective is to ensure that we have sufficient liquidity to honor our commitments in light of market conditions, our institutional needs and market opportunities.

 

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Due to our stable and diversified funding sources, which include a large base of customer deposits as detailed below, we have historically had no liquidity deficiencies.

 

As part of our liquidity management, we have a formal plan with measures to be taken in the event of a systemic liquidity crisis and/or for liquidity concerns arising from possible reputational risk. Our liquidity contingency plan contains defined thresholds, preventive measures and actions to be taken when a liquidity deficiency occurs and our reserves fall below certain levels.

 

The following resources and strategies may be used as sources of funding: (i) increase of customer deposits; (ii) securities issuances; (iii) repurchase agreements; (iv) a review of transfer pricing practices; and (v) establishment of more restrictive credit policies.

 

For further information, see Notes 16. Deposits from the Brazilian Central Bank and Deposits from credit institutions, 17. Client deposits, 18. Marketable debt securities, 19. Subordinated liabilities and 20. Debt Instruments Eligible to Compose Capital from Item 18.and 20. Other Financial Statements ofLiabilities to our consolidated financial statements included elsewhere in this form.annual report.

 

The following tables present the composition of our consolidated funding at the dates indicated.

 

  As of December 31,
  2019 2018 2017
  (in millions of R$)
Customer deposits  336,515   304,198   276,042 
Current accounts  29,524   18,854   17,560 
Savings accounts  49,040   46,068   40,572 
Time deposits  175,994   190,983   146,818 
Repurchase agreements  81,957   48,293   71,092 
Backed operations with Private Securities(1)  8,743   6,978   33,903 
Backed operations with Government Securities(1)  73,214   41,316   37,189 
Deposits from the Brazilian Central Bank and credit institutions  99,271   99,023   79,375 
Demand deposits  685   710   306 
Time deposits(2)  56,602   47,227   52,739 
Repurchase agreements  41,984   51,086   26,329 
Backed operations with Private Securities(1)  9,506   6,978   -   
Backed operations with Government Securities(1)  32,478   44,108   26,329 
Total deposits  435,786   403,221   355,417 
Marketable debt securities  73,702   74,626   70,247 
Agribusiness Credit Notes  14,777   11,925   8,854 
Treasury Bills  27,587   30,721   31,686 
Real Estate Credit Notes  21,266   27,160   27,714 
Bonds and other securities  10,072   4,820   1,993 
Debt Instruments Eligible to Compose Tier 1 and Tier 2 Capital  10,176   9,780   8,437 
Subordinated liabilities  -     9,886   519 
Total Funding  519,664   497,513   434,620 

  As of December 31,
  2020 2019 2018
  (in millions of R$)
Customer deposits  445,813   336,515   304,198 
Current accounts  35,550   28,231   18,854 
Savings accounts  62,210   49,040   46,068 
Time deposits  269,929   200,740   190,983 
Repurchase agreements  78,124   58,504   48,293 
Backed operations with Private Securities(1)  14,944   9,506   6,978 
Backed operations with Public Securities(1)  63,180   48,997   41,316 
Deposits from the Brazilian Central Bank and credit institutions  131,657   99,271   99,023 
Demand deposits  296   685   710 
Time deposits(2)  76,489   56,602   47,227 
Repurchase agreements  54,872   41,984   51,086 
Backed operations with Private Securities(1)  13,844   9,506   6,978 
Backed operations with Public Securities(1)  41,028   32,478   44,108 
Total deposits  577,470   435,786   403,221 
Marketable debt securities  56,875   73,702   74,626 
Agribusiness Credit Notes  14,747   14,777   11,925 
Treasury Bills  12,750   27,587   30,721 
Real Estate Credit Notes  19,979   22,623   27,463 
Bonds and other securities  9,399   8,715   4,517 
Debt Instruments Eligible to Compose Tier 1 and Tier 2 Capital  13,120   10,176   9,780 
Subordinated liabilities  -   -   9,886 
Total Funding  647,465   519,664   497,513 
 

(1)Refers primarily to repurchase agreements backed by debentures of own issue.issued by the Bank as collateral security.

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(2)This includes transactions with credit institutions in connection with export and import financing lines, BNDES and FINAME onlendingon-lending and abroad on other credit lines abroad.

 

Deposits

 

Customer Deposits

 

Our balance of customer deposits was R$445.9 billion on December 31, 2020, R$336.5 billion on December 31, 2019, and R$304.2 billion on December 31, 2018, representing 68.9%, 64.8% and R$276.0 billion on December 31, 2017, representing 64.8%, 61.1% and 63.5% of our total funding, respectively.

 

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Current Accounts

 

Our balance of current accounts was R$35.7 billion on December 31, 2020, R$29.5 billion on December 31, 2019 and R$18.9 billion on December 31, 2018, and R$17.6 billion on December 31, 2017, representing 6.2%, 6.8%, 4.7%, and 4.9%4.7% of total deposits, respectively.

 

Customer Savings Deposits

 

Our balance of customer savings deposits was R$62.2 billion on December 31, 2020, R$49.0 billion on December 31, 2019 and R$46.1 billion on December 31, 2018, and R$40.6 billion on December 31, 2017, representing 11.3%10.8%, 11.4%11.3% and 11.4% of total deposits, respectively.

 

Customer Time Deposits

 

Our balance of customer time deposits was R$269.9 billion on December 31, 2020, R$176.0 billion on December 31, 2019 and R$191.0 billion on December 31, 2018, representing 46.7%, 40.4% and R$146.8 billion on December 31, 2017, representing 40.4%, 47.4% and 41.3% of total deposits, respectively.

 

Customer Deposits – Repurchase Agreements

 

We maintain a portfolio of Brazilian public and private sector debt instruments used to obtain overnight funds from other financial institutions or investment funds by selling such securities and simultaneously agreeing to repurchase them. Due to the short-term (overnight) nature of this funding source, such transactions are volatile and composed, generally, of Brazilian public securities and of repurchase agreements linked to debentures. Securities sold under repurchase agreements increaseddecreased to R$78.1 billion on December 31, 2020 from R$82.0 billion on December 31, 2019 fromand R$48.3 billion on December 31, 2018, representing 13.5%, 18.8% and R$71.1 billion on December 31, 2017, representing 18.8%, 12.0% and 20.0% of total deposits, respectively.

 

Deposits from the Brazilian Central Bank and Credit Institutions

 

Our balance of deposits from the Brazilian Central Bank and credit institutions was R$131.7 billion on December 31, 2020, R$99.3 billion on December 31, 2019 and R$99.0 billion on December 31, 2018, and R$79.4 billion on December 31, 2017, representing 22.8%, 24.6%22.8% and 22.3%24.6% of total deposits, respectively.

 

Our balance of deposits includes mainly borrowings and domestic onlendings:

 

·Borrowings. We have relationships with banks all over the world, providing credit lines as foreign currency-linked (either to the U.S. dollar or to a basket of foreign currencies). We apply the proceeds from these transactions mainly to U.S. dollar-linked lending operations and in particular to trade finance operations.

 

·Domestic Onlendings. We onlendlend from public institutions, mainly BNDES and FINAME, for which we act as a financial agent. Funding from these sources in Brazil represents a method of providing long-term loans with attractive average interest rates to certain sectors of the economy. Loans from these funds are allocated by BNDES through banks to specific sectors targeted for economic development. This type of lending is known as “repassing” or “onlending.” Because the repassed funds are generally matched and/or funded by loans from a federal government agency, we take no interest rate or maturity mismatch risk nor charge interest at a fixed margin over the cost of funds. We, however, retain the commercial credit risk of the borrower and therefore have discretion in the lending decision and application of the credit criteria. This type of funding is not affected by compulsory deposit requirements. The onlending is generally secured or guaranteed, although this is not required by the terms of the onlending.

 

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of the borrower and therefore have discretion in the lending decision and application of the credit criteria. This type of funding is not affected by compulsory deposit requirements. The onlending is generally secured or guaranteed, although this is not required by the terms of the onlending.

Other Funding

 

Marketable Debt Securities

 

Our balance of marketable debt securities was R$56.9 billion on December 31, 2020, R$73.7 billion on December 31, 2019 and R$74.6 billion on December 31, 2018, representing 8.8%, 14.2% and R$70.2 billion on December 31, 2017, representing 14.2%, 15.0% and 16.2% of our total funding, respectively.

 

Agribusiness credit notes (Letra de Crédito do Agronegócio), which are credit notes that are freely negotiable and represent an unconditional promise of payment in cash, are issued exclusively by financial institutions and related to credit rights originated from transactions conducted between rural producers and their cooperatives and agents of the agribusiness production chain and the exchange acceptances. The balance for these instrumentsacceptances, reached R$14.7 billion on December 31, 2020, R$14.8 billion on December 31, 2019, and R$11.9 billion on December 31, 2018, and R$8.9 billion on December 31, 2017.2018.

 

Treasury bill instrumentsbills (Letras financeirasFinanceiras) are a funding alternative available to banks that can be characterized as senior or eligible to compose the Regulatory Capital. Pursuant to CMN Resolution 4,1234.733 of August 23, 2012,June, 2019, its minimum term must be 24 months and it must be issued for a minimum amount of R$300,000 for subordinated transactions and R$150,00050,000 for senior transactions. Our balance of treasury bills instruments totaled R$27.612.8 billion as of December 31, 2019,2020, a 10.2%53.8% decrease from December 2018.2019.

 

Real estate credit notes (Letras de Crédito Imobiliário) decreased 21.7%6.1%, from R$27.2 billion on December 31, 2018 to R$21.3 billion on December 31, 2019.2019 to R$20.0 billion on December 31, 2020.

 

We undertake issuances of securities, including under our U.S.$10,000,000,000 Global Medium Term Notes Program. Our balance of bonds and other securities was R$9.4 billion on December 31, 2020 and R$10.1 billion on December 31, 2019 and R$4.8 billion on December 31, 2018.2019. This change was principally due to the non Replacement offact that certain debt instruments reaching maturity.maturity were not replaced.

 

Debt Instruments Eligible to Compose Tier 1 and Tier 2 Capital

 

We haveOn November 2018, we issued U.S. dollar-denominated Notes that constitute Tier 1 and Tier 2 regulatory capital as part of our plan to optimize our capital structure. structure, as follows:

·USD1.25 billion indexed 7.25% per year with no maturity (perpetual) and interest paid semiannually; and

·USD1.25 billion indexed 6.125% per year maturing in November 2028 and interest paid semiannually.

These issuances were made through the Cayman Agency and as a result they do not generate liability for income tax at source.

As of December 31, 20192020 the balance for both Tier 1 and Tier 2 debt instruments was R$10.213.1 billion compared to R$9.810.2 billion as of December 31, 2018.2019. This variation was caused by:

a)new issuances on November 2018 as of:

i.  R$1.25 billion bearing interest at 7.25% per year with no maturity (perpetual) and interest paid semiannually, asdue to foreign exchange differences arising from the depreciation of May 8, 2019; and

ii.  R$1.25 billion bearing interest at 6.125% per year maturingthe real relative to the U.S. dollar in November 2028 and interest paid semiannually, as of May 8,2020 compared to 2019.

b)The reclassification of the balances of December 31, 2017 to Subordinated Liabilities as approved by the Brazilian Central Bank on December 17, 2018, as of the date of their issuance, Levels I and II of Regulatory Capital must be excluded.

The issuances generated from November 2018 were made through the Cayman Agency and, consequently, there is no incidence of Income Tax at Source.

 

Subordinated Liabilities

 

Our subordinated liabilities as ofOn December 31, 2018 the subordinated liabilities we had were repurchased, on January 2019, withaccording to the approval issued by the Brazilian Central Bank on December 18, 2018. For further information, see note

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“19 “19 - Subordinated liabilities”Debt Instruments Eligible to Compose Capital” in “Item 18. Financial Statements”.

 

Capital Management

 

Our capital management is based on conservative principles and continuous monitoring of the items that affect our solvency level. We are required to comply with Brazilian capital adequacy regulations under Brazilian Central Bank rules. In October 2013, the new regulations implementing the capital and the regulatory capital requirements of the Basel Committee on Banking Supervision (Basel III) came into effect in Brazil. The

For additional information regarding minimum regulatory capital requirement is currently at 11%. The Tier I requirement is 6.0%, divided into core capital of at least 4.5%, consisting mainly of corporate capitallevel and profit reserves, including shares, units of ownership, reserves and earned income, and additional capital consisting mainly of certain reserves, revenue earned and hybrid securities and instruments as capital authorized by the Brazilian Central Bank.

According to the new rules on regulatory capital in Brazil, the value of goodwill for the calculation of capital base was deducted in accordance with the “phase-in” for implementation of Basel III in Brazil, which will be completed by January 1, 2019. The following table sets forth the percentage of required goodwill deduction for each year up to 2019:

Basel III Phase in
201520162017201820192020
40%60%80%100%100%100%

Source: Brazilian Central Bank; Resolution No. 4,192 of the Brazilian Central Bank of March 2013.

Ifother Basel III requirements, were fully implemented as ofsee “Item 4. Information on the date hereof, we would continue to maintain an adequate regulatory capital ratio under Company—B. Business Overview—Regulation and Supervision— Capital Adequacy and Leverage - Basel—Basel IIIIII” and Brazilian Central Bank rules.

For more information, see note “31“30 - Operational Ratios” in “Item 18. Financial Statements,” which containsto our audited consolidated financial statements prepared in accordance with IFRS as issued by the IASB.

 

5C.Research and Development, Patents and Licenses, etc.

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5C. Research and Development, Patents and Licenses, etc.

 

We do not have any significant policiespolicy or projects relating tosignificate project involving research and development, and we do not own no relevant patents or licenses.patents licenses, bearing in mind that we only have licenses involving trademarks.

 

5D.Trend Information

5D. Trend Information

The following discussion is based largely upon our current expectations about future events, and trends affecting our business. Actual results for our industry and performance could differ substantially. For further information related to our forward-looking statements, see “Forward-Looking Statements” and for a description of certain factors that could affect our industry in the future and our own future performance, see “Item 3. Key Information—3D. Risk Factors.”

Impact of COVID-19 on our Business

We expect that our business will continue to be affected by the COVID-19 pandemic and governmental responses to it, including by their respective impacts on our customers, suppliers and other third parties with whom interact as well as on Brazilian and global economic conditions. See “Item 3. Key Information—D. Risk Factors—Risks Relating to the Brazilian Financial Services Industry and Our Business—The current global COVID-19 pandemic has materially impacted our business, and the continuance of this pandemic or any future outbreak of any other highly contagious diseases or other public health emergency, could materially and adversely impact our business, financial condition, liquidity and results of operations,” “Item 4. Information on the Company—A. History and Development of the Company—Important Events—Impact of COVID-19” and “—A. Operating Results—Principal Factors Affecting Our Financial Condition and Results of Operations—Impact of COVID-19.”

Other Trends Affecting our Business

 

The following list sets forth, in our view, the most important trends, uncertainties and events that are reasonably likely to continue to have a material effect on our revenues, income from continuing operations, profitability, liquidity and capital resources, or that may cause reported financial information to be not necessarily indicative of future operating results or financial condition:

The economic and political crisiscondition, in Brazil may adversely affect the performanceaddition to those set forth under “—Impact of the Brazilian economy. As a result,COVID-19 on our credit portfolio, which is focused on Brazil, may not grow or could decrease and our provisions for loan losses increase;

Financial problems in certain countries in Europe, including in the United Kingdom or in other countries as a result of the exit of the United Kingdom from the European Union, could lead to another international financial crisis. If this occurs, Brazilian GDP growth in future periods may be depressed and, as a result, our credit portfolio may not grow or could decrease and our provisions for loan losses would increase;Business”:

 

·Potentialsince December 2019, a novel strain of coronavirus has spread in China and other countries, culminating in the COVID-19 pandemic. Such events have caused disruption of regional or global economic activity, which could affect our operations and financial results. The extent to which the COVID-19 pandemic impacts our results will depend on future developments, which are highly uncertain, including new information which may emerge concerning the severity of the coronavirus and the actions to contain the COVID-19 pandemic or treat its impact, among others. See “Item 3. Key Information—D. Risk Factors—Risks Relating to the Brazilian Financial Services Industry and Our Business—The current global COVID-19 pandemic has materially impacted our business, and the continuance of this pandemic or any future outbreak of any other highly contagious diseases or other public health emergency, could materially and adversely impact our business, financial condition, liquidity and results of operations,” “Item 4. Information on the Company—A. History and Development of the Company—Important Events—Impact of COVID-19” and “—A. Operating Results—Principal Factors Affecting Our Financial Condition and Results of Operations—Impact of COVID-19”;

·the economic and political crisis in Brazil may adversely affect the performance of the Brazilian economy. As a result, our credit portfolio, which is focused on Brazil, may not grow or could decrease and our provisions for loan losses increase;

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·financial problems in certain countries in Europe, including in the United Kingdom or in other countries as a result of the exit of the United Kingdom from the European Union, could lead to another international financial crisis. If this occurs, Brazilian GDP growth in future periods may be depressed and, as a result, our credit portfolio may not grow or could decrease and our provisions for loan losses would increase;

·potential inflation increases that could cause an increase in interest rates and lower growth in lending activities;

 

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·Continuedcontinued market volatility and instability that could affect our revenues;

 

·Restrictiverestrictive regulations or government intervention in the banking business, which could affect our margins and/or growth in lending activities;

 

·Regulatoryregulatory capital changes toward more restrictive rules as a response to any potential financial crisis or general macroeconomic conditions;

 

·Decreaseddecreased liquidity in domestic capital markets;

 

·Taxtax policies that could decrease our profitability;

 

·Currencycurrency fluctuation and exchange rate controls that could have an adverse impact on international investors;

 

·Failurefailure to adequately protect ourselves against risks relating to cyber-security;

 

·Ourour dependence on the proper functioning of information technology systems; and

 

·Inin contrast to all the points mentioned above, a recovery in the Brazilian economy, with new reforms underway (such as the pension reform and the foreign trade reform), and ongoing control of inflation, could have a positive effect on the economic environment and, therefore, impact our business.

 

For more information, see “Item 3. Key Information—D. Risk Factors” where we present the risks we face in our business that may affect our commercial activities, operating results or liquidity.

 

5E.Off-Balance Sheet Arrangements

5E. Off-Balance Sheet Arrangements

 

We have entered, in the normal course of business, into several types of off-balance sheet arrangements, including lines and letters of credit and financial guarantees. For more information, see note “44“43 – Other disclosures” in “Financial Statements”.our consolidated financial statements included elsewhere in this annual report.

 

Lending-Related Financial Instruments and Guarantees

 

We use lines and letters of credit and financial guarantee instruments to meet the financing needs of our customers. The contractual amount of these financial instruments represents represent the maximum possible credit risk should the counterparty draw down the commitment or we fulfill our obligation under the guarantee, and the counterparty subsequently fails to perform according to the terms of the contract. Most of these commitments and guarantees expire without the counterparty drawing on the credit line or a default occurring. As a result, the total contractual amount of these instruments does not represent our future credit exposure or funding requirements. Further, certain commitments, primarily related to consumer financing are cancelable, upon notice, at our option.

 

The “maximum potential amount of future payments” represents thea notional amount that could bepotentially lost if there were a total default by the guaranteed parties occurred, without consideration ofconsidering possible recoveries from collateral held or pledged, or recoveriesthose under recourse provisions. There is no relationship between these amounts and probable losses on these guarantees. In fact, the maximum potential amount of future payments significantly exceeds inherent losses.

 

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For further information, see note “44“43 – Other Information”disclosures” in “Item 18. Financial Statements,” which contains our audited consolidated financial statements prepared in accordance with IFRS as issued by the IASB.

 

5F.Contractual Obligations

5F. Contractual Obligations

 

Our contractual obligations as of December 31, 20192020 are summarized as follows:

 

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  As of December 31, 2019
  Total Less than 1 year 1-3 years 3-5 years More than 5 years
  (in millions of R$)
Contractual Obligations          
Deposits from the Brazilian Central Bank and credit institutions  99,271   66,073   25,656   4,877   2,666 
Customer deposits  336,515   275,480   44,112   16,923   -   
Marketable debt securities  73,702   11,370   37,269   3,900   21,163 
Debt Instruments Eligible to Compose Capital(1)  10,176   171   -     -     10,005 
Total  519,664   523,923   107,037   25,7   33,834 

  As of December 31, 2020
  Total Less than 1 year 1-3 years 3-5 years More than 5 years
  (in millions of R$)
Contractual Obligations                    
Deposits from the Brazilian Central Bank and credit institutions  131,657   127,238   3,764   -   655 
Customer deposits  445,900   346,515   62,769   36,578   38 
Marketable debt securities  56,876   27,552   28,158   747   418 
Debt Instruments Eligible to Compose Capital(1)  13,120   220   12,899   -   - 
Total  647,552   501,525   107,590   37,325   1,110 
 

(1)The table above excludes the notional and any interest payments relating to our perpetual Tier I bonds which interests are discretionary as described in “Item 5A—Operating And Financial Review And Prospects—A. Operating Results.”

(2)Calculated for all Deposits from credit institutions, Customer Deposits, Marketable debt securities, Subordinated liabilities and Debt Instruments Eligible to Compose Capital (Tier II) assuming a constant interest rate based on data as of December 31, 2020 over time for all maturities, and those obligations with maturities of more than five years have an average life of ten years.

 

The above table does not reflect amounts that we may have to paypayable on derivative contracts. The amounts ultimately payable will depend upon movementscontracts as they are dependent on changes in the financial markets. The net fair value position of our derivative contracts as of December 31, 20192020 reflected liabilities of R$1,9833,109 million, compared to liabilities of R$1031,983 million as of December 31, 2018.2019.

 

In addition, we lease manyseveral properties under standard real estate lease contracts, which can be cancelled or renewed at our option and include renewal options and escalation clauses. TotalThe total future minimum payments of non-cancelable operating leases as of December 31, 20192020 was R$2,291 million, of which2,450 million. From this total, R$651671 million matures in up to one year, R$1,4921,608 million matures from one year to up to five years and R$147171 million matures after five years. Additionally, we have contracts with indeterminate maturities totaling R$0.9 million per month.for the year ended December 31, 2020.

 

5G.Safe Harbor

5G. Safe Harbor

 

See “Forward-Looking Statements.”

 

ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

 

6A.Board of Directors and Board of Executive Officers

6A. Board of Directors and Board of Executive Officers

 

Pursuant to our By-Laws, we are managed by a board of directors (conselho de administração) and a board of executive officers (diretoria executiva). The board of directors is our supervisory board as set out in our By-Laws and in applicable legislation. Our board of executive officers is responsible for our day-to-day management. Our board of directors comprises a minimum of five members and a maximum of twelve members, of which at least 20.0% must be independent members. The board of directors has a chairman and a vice-chairman, each elected at the general shareholders’ meeting by majority vote.

 

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Our board of executive officers comprises a minimum of two members and a maximum of 75 members, one of them being appointed as the Chief Executive Officer, and the others may be appointed as senior vice president executive officers, vice president executive officers, investor relations officers, executive officers and officers without specific designations. Some of our executive officers are also members of the boards of executive officers and/or boards of directors of our subsidiaries.

 

Pursuant to Brazilian law, the election of each member of the board of directors and board of executive officers must be approved by the Brazilian Central Bank.

 

The following table presents the names, positions and dates of birth of the current members of our board of directors and board of executive officers:

 

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Members of the Board of Directors:

 

Name

Position

Date of Birth

Álvaro Antonio Cardoso de SouzaChairmanSeptember 5, 1948
Sergio Agapito Lires RialVice-ChairmanJuly 28, 1960
José Antonio Álvarez ÁlvarezMemberJanuary 6, 1960
José de Paiva FerreiraMemberMarch 1, 1959
José Maria Nus BadíaMemberDecember 9, 1950
Celso Clemente GiacomettiPedro Augusto de MeloIndependent MemberOctober 13, 1943November 4, 1961
Deborah Patricia WrightIndependent MemberSeptember 4, 1957
Deborah Stern VieitasIndependent MemberAugust 21, 1957
Marília Artimonte RoccaIndependent MemberJanuary 31, 1973

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Members of the Board of Executive Officers:

 

Name

Position

Date of Birth

Sergio Agapito Lires RialChief Executive OfficerJuly 28, 1960
Alberto Monteiro de Queiroz NettoVice President Executive OfficerNovember 30, 1967
Angel Santodomingo MartellVice President Executive Officer and Investor Relations OfficerNovember 16, 1965
Alessandro TomaoVice President Executive OfficerMarch 8, 1977
Antonio Pardo de Santayana MontesVice President Executive OfficerNovember 5, 1971
Carlos Rey de VicenteVice President Executive OfficerFebruary 20, 1974
Ede Ilson Viani ………………….Vice President Executive OfficerSeptember 5, 1967
Jean Pierre DupuiVice President Executive OfficerSeptember 23, 1968
Juan Sebastián Moreno BlancoVice President Executive OfficerDecember 17, 1964
Mário Roberto Opice LeãoVice President Executive OfficerJuly 21, 1975
Patricia Souto AudiVice President Executive OfficerMay 15, 1968
Vanessa de Souza Lobato BarbosaVice President Executive OfficerDecember 24, 1968
José Roberto Machado FilhoAdriana Marques Lourenço de AlmeidaExecutive OfficerAugust 25, 1968October 4, 1972
Amancio Acúrcio GouveiaOfficerMarch 31, 1963
Ana Paula Vitali Janes Vescovi….OfficerApril 08, 1969
André de Carvalho NovaesOfficerApril 14, 1969
Carlos Aguiar NetoOfficerMarch 5, 1971
Cassio SchmittOfficerApril 23, 1971
Claudenice Lopes DuarteOfficerJuly 25, 1972
Daniel Fantossi Assa……………………………AssaOfficerDecember 12, 1975
Elita Vechin Pastorelo Ariaz……………………AriazOfficerMarch 28, 1970
Francisco Soares da Silva JuniorOfficerJanuary 23, 1970
Franco Luigi FasoliOfficerSeptember 18, 1975
Geraldo José Rodrigues Alckmin Neto(*)...........NetoOfficerSeptember 8, 1981
Germanuela de Almeida de AbreuOfficerDecember 6, 1975
Gustavo Alejo VivianiOfficerAugust 26, 1975
Igor Mario PugaOfficerNovember 10, 1981
Jean Paulo Kambourakis...............KambourakisOfficerMay 09, 1980
João Marcos Pequeno De BiaseOfficerOctober 12, 1967
José Teixeira de Vasconcelos NetoOfficerMarch 8, 1975
Luis Guilherme Mattos de Oliem BittencourtOfficerDecember 4, 1973
Luiz Masagão Ribeiro FilhoOfficerSeptember 1, 1976
Marcelo Augusto Dutra LabutoOfficerSeptember 9, 1971
Marilize Ferrazza SantinoniOfficerNovember 20,1965
Marino Alexandre Calheiros AguiarOfficerMay, 14, 1971
Rafael Bello NoyaOfficerOctober 19, 1977
Ramón Sanchez DíezOfficerOctober 29, 1968
Ramon Sanchez Santiago………………………SantiagoOfficerMay 25, 1969
Reginaldo Antonio RibeiroOfficerMay 19, 1969
Ricardo Olivare de MagalhãesOfficerJanuary 26, 1979
Roberto Alexandre Borges Fischetti………...FischettiOfficerAugust 28, 1975
Robson de Souza RezendeOfficerJanuary 24, 1967
Sandro Kohler Marcondes(*)...............................MarcondesOfficerApril 16, 1964
Sandro Rogério da Silva Gamba(*)GambaOfficerAugust 31,197531, 1975
Thomas Gregor IlgOfficerSeptember 12, 1968
Vitor Ohtsuki(*)...................................................OhtsukiOfficerJune 05, 1977

(*) Pending approval by the Brazilian Central Bank

Below are the biographies of the members of our board(i) Board of directorsDirectors, which were elected at the Shareholders’ Meetings held on April 26, 2019 (election of all members but Pedro Augusto de Melo); and boardJune 10, 2020 (election of officers.Pedro Augusto de Melo); and (ii) our Board of Executive Officers, as elected at the Board Meetings held on May 3, 2019 (election of all members but Ana Paula Vitali Janes Vescovi, Sandro Rogério da Silva Gamba, Marcelo Augusto Dutra Labuto, João Marcos Pequeno De Biase, Adriana Marques Lourenço de Almeida, Francisco Soares da Silva Junior, Marilize Ferrazza Santinoni, and Ricardo Olivare de Magalhães); July 2, 2019 (election of Ana Paula Vitali Janes Vescovi); December 31, 2019 (conduction of Ede Ilson Viani from the position of Officer to the position of Vice President Executive Officer); February 28, 2020 (election of Sandro Rogério da Silva Gamba); April 7, 2020 (election of Marcelo Augusto Dutra Labuto); July 3, 2020 (election of João Marcos Pequeno De Biase); and December 18, 2020 (election of Adriana Marques Lourenço de Almeida, Francisco Soares da Silva Junior, Marilize Ferrazza Santinoni, and Ricardo Olivare de Magalhães).

 

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Members of the Board of Directors:

 

Álvaro Antonio Cardoso de Souza. Mr. Souza is Portuguese and was born on September 5, 1948.

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He holds degrees in Economics and Business Administration from the Pontifícia Universidade Católica de São Paulo, and attended several specialization courses from a number of American universities, such as the University of Pittsburgh and The Wharton Business School ofat the University of Pennsylvania. He is the Managing Director of AdS - Management, Consulting and Investments, a firm which provides advice on investments and general management. He is the Chairman of the Board of Santander Brasil and a member of Santander Global Board in Spain. He developed his career in the banking business and has worked at Citigroup for thirty-two years, in Brazil and abroad. OutsideIn addition to the period he worked at Citigroup, Álvarohe was thefounder and President of Banco ABC-Roma,ABC, then a subsidiary of the media and entertainment Globo Group, Chairman of the Deliberative Council of Fundo Brasileiro para Biodiversidade (FUNBIO), and President of the American Chamber of Commerce in São Paulo (AmCham). He was also a board member of WWF International, WWF BrazilMasterCard International and of several Brazilian companies such as AmBev S.A., Celbrás, Ultraquímica, SPCI Computers, Signature Lazard Brazil Bank, Triângulo Bank, CSU Cardsystems, Duratex S/A. and Gol Airlines. He served as a board memberwas also President of MasterCard International. Hethe Board of Directors of WWF Brasil. Mr. Souza is alsocoordinator of the Nomination and Governance Committee, and a member of our riskthe Compensation Committee and compliance committee,Risk and Compliance Committee of Santander Brasil, as well as chairman of the Group Board Risk and Compliance Committee of Santander Group.

 

Sérgio Agapito Lires Rial. Mr. Rial is Brazilian and was born on July 28, 1960. He has a degree in Law from the Universidade Federal do Rio de Janeiro and a degree in Economics from the Universidade Gama Filho, andFilho. Mr. Rial also holds an MBA from IBMEC in São Paulo, as well as specialization degrees from Harvard Business School, the Wharton School of Business at the University of Pennsylvania, and INSEAD in France. His professional career includes serving as Chief Executive Officer of Marfrig Global Foods S.A, Vice-President Executive Officer and World Chief Financial Officer of Cargill. He was also a member of the board of directors of Cargill for nine years. He was a Managing Director of Bear Stearns & Co., in New York, Officer of ABN AMRO Bank and a member of the board of directors of ABN AMRO Bank in the Netherlands, as well as a member of the board of directors of Mosaic Fertilizers. Currently, he is Vice-Chairman of the Board of Directors and the Chief Executive Officer of Santander Brasil, and Chairman of the Board of Directors of Universia Brasil S.A.S.A and member of the Board of Directors of the Santander Group.

 

José Antonio Álvarez Álvarez. Mr. Álvarez is Spanish and was born on January 6, 1960. He holds a bachelor’sBachelor’s degree (Hons) in Administration and Business Economics from Universidad Santiago de Compostela in Spain and an MBA from the University of Chicago’s Graduate School of Business. Mr. Álvarez became CEO of Santander Group on January 1, 2015, and Executive Vice PresidentChairman on January 15, 2019. Earlier, from 2004Prior to 2015,this, he wasserved as Executive Vice President of Finance of Santander Spain, from 2004 to 2015 and Head of the Finance Division from 2002 to 2004. Before working atjoining Santander Group, he served as Head of the Finance Division of Banco Bilbao Vizcaya Argentaria, S.A. in Spain from 1999 to 2002 and as Financial Officer of Corporación Bancaria de España, S.A. (Argentaria) from 1995 to 1999. He was alsoPreviously, he served as Chief Financial Officer of Banco Hipotecario, S.A. in Spain, Vice President of Finanpostal Gestión Fondos de Inversión y Pensiones, and held positions at Banco de Crédito Industrial and Instituto Nacional de Industria. He wasserved as a member of the Board of Directors of Santander Consumer Finance S.A, Santander Consumer Bank AG and Banco de Crédito Local S.AS.A., among others, and served on the supervisory boards of Santander Group's independent subsidiaries, such as Poland, Germany and the United States. He was Chairman of the European Banking Federation Board and chaired the Banking Supervision Committee from 2009 to 2012. Mr. Álvarez is currently a member of the Board of Directors of SAM Investments Holdings Limited and a member of our Board of Directors since 2009.

 

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José de Paiva Ferreira. Mr. Paiva is Portuguese and was born on March 1, 1959. He has a specialization degree in Business Administration from the Fundação Getúlio Vargas, and an MBA from the Wharton School of Business at the University of Pennsylvania. He has worked in the financial markets for more than 40 years. He started at Banco Bradesco in 1973 and occupied several different positions. Afterwards, he joined Banco Geral do Comércio, Noroeste and Santander Brasil, where he was Vice President Executive Officer, responsible for the Business, Human Resources, Operations, Technology, Property, Products, Marketing, Credit Cards, Insurance, Leasing and Branch Network. From 2000 to 2001, he occupied the position of e-Business Officer for Latin America, forin the American Division of Santander Central Hispano. At the end of 2001, he came backreturned to Brazil in order to work at Banco Banespa as Vice President Executive Officer of Banco Banespa, where he was responsible for the OperationalHuman Resources, Department.Technology, Operations and Patrimony. In 2003, he became Vice President Executive Officer responsible for Marketing, Products and Retail Business for Santander Brasil. In 2008, he became the Chief Executive Officer of Santander

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Brasil, a position that he occupied until the merger with Banco Real, when he became Senior Vice President Executive Officer, responsible for the Retail Business. In March 2011, he became Directora member of Santander Brasil’s Board of Directors, and joined the board business groupMitsubishi Corp Group based in Los Angeles, California, USA, where his main activities involved technological innovations. From July 2013 to December 2019, he returned to Santander Brasil and acted as Senior Vice President Executive Officer, responsible for Human Resources, Organization, Property, Proceedings, Operations, Technology and Costs. Additionally, he performed the following functions: Executive Director of Febraban (2014 to 2019), Chairman of the Febraban Self-Regulation Board (2016 to 2019), Chairman of the Board of Directors of CIP- Interbank Payment Chamber (2015 to 2018), President of Tecban Council - Banking Technology (2014 to 2015), Advisor of the Cancer Institute - SP (2009 to 2010) and Mentor of the Inova Unicamp Program (2011 to 2013). Currently, he is a member of our Board of Directors and a member of our risk and compliance committee.

 

José Maria Nus Badía. Mr. Badía is Spanish and was born on December 9, 1950. He holds a degree in Business Administration, Economics and Political Science from the Business School of the University of Zaragoza. He started at Santander as Chief Executive Director and Chief Risk Officer at Banco Español de Credito, S.A. (Banesto). In 2010, Mr. Badía served as Executive Director and Chief Risk Officer of Santander UK and wasUK. From June 2014 to 2019, he served as Chief Risk Officer of Santander Group. He also has been its Chief Risk Officer since June 2018. Previously,Currently, Mr. Badía was also the Executive Vice President for Risk at Banco Bilbao Vizcaya Argentaria and Bankinter. Currently, heBadia is Group Chairman Senior Executive Vice President and Risk Advisor of the Chairman of the Board of Directors of Santander Group, andas well as a member of the Board of Directors of Santander Brasil.Brasil, Santander Spain and other entities of the Santander Group.

 

Celso Clemente GiacomettiPedro Augusto de Melo. Mr. Giacomettide Melo is Brazilian and was born on October 13, 1943.November 4, 1961. He holds a graduate degree in Business Administrationaccounting and a postgraduate degree in accounting and financial administration from the Faculdade de Economia São Luís and graduated with anJudas Tadeu University of Accounting Sciences degree from(São Paulo). Since March 2, 2020, Mr. de Melo has served as CEO of the Faculdade de Ciências Econômicas de Ribeirão Preto.Brazilian Institute of Corporate Governance (IBGC). He startedis also a member of the Governance Committee of Amcham Brasil and executive of the Union of Accounting Companies - SESCON. He developed his career in 1960 as traineethe audit areas of Deloitte and reviewer at Citibank.KPMG. From 19632008 to 20012017, he worked at Arthur Andersen, becoming a partner in 1974 and acting aswas CEO of Brazilian operationsKPMG Brazil, attaining, in 2015, the position of CEO for KPMG South America. On October 1, 2017, he assumed the roles of COO for South America and Leader of Customers and Markets for South America until he retired from 1985 to 2000.the firm in early 2020. Additionally, he actively participated in other levels of Governance at KPMG International, KPMG Americas and KPMG South America. He served onwas Chairman of the Board of Directors and audit committees of Lojas Marisa S.A., Tarpon Investments, TIM Participações, Sabó Autopeças and Votorantim Indústrias. He was a member of the Fiscal Council of CTEEP/ISAIBRACON - Transmissão Paulista. He was also the CEO of Souto Vidigal, a holding company and family office, from 2004 to 2006. On February 3, 2010, he was elected as an independent member of our Board of Directors, a body over which he presided between October 2011 and June 2013 and between August 2013 and March 2015. He is President of the Fiscal Council and member of the Audit Committee of Ambev S.A. He is the Manager Partner of Giacometti Serviços Profissionais Ltda. Mr. Giacometti is also one of the co-founders and former board member of IBGC (BrazilianBrazilian Institute of Corporate Governance)Independent Auditors between 2009 and a current member of its Governance and Nomination Commission.2010. Currently, he is an independent member of our Boardboard of Directors, as well as a memberdirectors and the coordinator of our CompensationRisk and Compliance Committee and Chairman of our Nomination and Governance Committee.Santander Brasil S.A.

 

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Deborah Patricia Wright. Mrs. Wright is Brazilian and was born on September 4, 1957. She holds a Business Administration degree from the São Paulo School of Business Administration (EAESP-FGV). Mrs. Wright started her career in 1980 at Kibon’s Marketing Department, where she remained until 1989. In 1989, she joined Unilever as Marketing Manager and worked in the food division. In 1991, she returned to Kibon as Marketing Director, becoming Commercial Vice President in 1994. In 1995 she became the General Manager of Kraft Suchard Foods. In 1997, she reached the position of General Manager of Kibon. At ICI/Paints, she was the General Manager for Tintas Coral Brasil from 1997 to 1999, and subsequently the Regional Manager for ICI. She was also General Officer at Parmalat Brasil in 1999, and Chief Executive Officer of Pão de Açúcar’s Group Internet Division from 2000 to 2001. From 2002 to 2007, she was Corporate Vice President/Commercial Vice President in the area of Sales and Corporate Marketing of the Abril Group. From 2009 to 2010, she was Chief Executive Officer/Country Manager of Ipsos Brasil, a market research firm. Shefirm, where she has also been acting as a board member since 2001. From 2001 to 2005, she was a member of the Escola Americana de São Paulo’s board (Graded School). From 2005 to 2006, she was a member of the superior board of CONAR (National Board of Advertising Self-Regulation). From 2008 to 2009 she was a member of the Board of Directors of the Samaritano Hospital in São Paulo. From 2008 to 2014, she was a member of Lojas Renner’s board, as well as Chairwoman of the Sustainability Committee from 2012 to 2014. SheFrom 2013 to 2016, she was a member of the consultative councilAdvisory Board of Eurofarma, from 2013 to 2016.4th largest Brazilian pharmaceutical company, still privately owned and not listed on stock exchange. Currently, she is associated with:with the following entities: Brazilian subsidiary of WCD Brazilian Group (Women Corporate Directors);, of which she co-founded in 2010; Strategy and Innovation Committee of theCommission at IBGC (Brazilian Institute of Corporate Governance), where she leads a work and study group of DEI (Diversity , Equity and Inclusion); she is part of AmCham’s (American Chamber of Commerce) Strategic Forum of Corporate Governance; and she is an ambassador of the Group Gender Diversity – Women30% Club and WOB (Women on Boards) and has been involved in Boards. Sheadvocacy for gender diversity for over a decade. Besides that, she is also an independent member of our boardthe Board of directors,Directors, a member of our nominationthe nominations andgovernance committee and a chairwoman of our compensation committee.

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Santander Brasil S.A.

 

Deborah Stern Vieitas. Mrs. Vieitas is Brazilian and was born on August 21, 1957. She holds a degree in Public Administration from FGV-SP and Journalism from the School of Communications and Arts (Escola de Comunicações e Artes) of the University of São Paulo. She also holds a master’s degree in Business from FGV-SP and in Public Administration from École Nationale d’Administration. She is currently the Chief Executive Officer of American Chamber of Commerce Brazil (Amcham Brazil). From 2015 to 2017, she was an independent member of the Board of AXA Seguros SA. From 2008 to 2014, she was CEO and Board Member of the Banco Caixa Geral – Brasil. From 2000 to 2008, she was anas Executive Vice President of Banco BNP Paribas Brasil, Mrs. Vieitas was responsible for Corporate Coverage and Loan and Financing portfolios. From 1998 to 2000, she was an Executive Vice President of Banco CCF Brasil and in charge of Large Corporate & Corporate Coverage, Capital Markets, Trade Finance and Foreign Exchange. Currently she is an independent member of our Board of Directors and chairwoman of the Audit Committee, coordinator.in addition to having already been a member of the Risks and Compliance Committee.

 

Marília Artimonte Rocca.Ms. Rocca is Brazilian and was born on January 31, 1973. She holdsserves as CEO of Hinode Group since November 2018, the largest Marketing Multilevel consumer goods company in Brazil, with operations also in Latin America. Previously, she was Ticket’s Managing Director in Brazil, a degreefood voucher Edenred Group company. Formerly, she served as vice president at TOTVS, the 6th largest software company worldwide based in São Paulo. From 2008 until 2012, Ms. Rocca was a managing partner at Mãe Terra, a natural and organic foods B-Corp sold to Unilever in 2017. Prior to that she co-founded and managed Endeavor Brazil, the most successful NGO supporting innovative entrepreneurship in Brazil. In 2000, she also co-founded Fundação Brava, a family foundation focused on transferring management tools to the public sector and Brazilian NGOs to boost their effectiveness. From 1995-98, Ms. Rocca worked for Walmart as one of the organization's first female directors in Brazil. For 20 years, Ms. Rocca has served as a board member at privately and public held companies in the Education, Information Technology, Services and Consumer Goods industries. Ms. Rocca earned a BA in Business Administration from the EAESP/Fundação Getúlio Vargas of São Paulo and an MBA in Business AdministrationManagement from Columbia Business School, New York.University, attending on the Fundação Estudar Scholarship. She attended the Executive – Family in Business Program at Harvard Business School in Boston. Ms. Rocca began her career in the Operations Departmentis a 2006 Henry Crown Fellow of Walmart Brazil,The Aspen Institute and worked at the company until 1998. She had managed nonprofit organizations for six years and co-founded and was General Director of Endeavor Brazil, NGO leader in high-impact entrepreneurship, and Brava Foundation, an organization dedicated to promoting public management. She inaugurated and still develops part of the Family Office of the Lemann, Sicupira and Telles families. She also was Vice President of TOTVS and partner of Mãe Terra. Ms. Rocca was a member of the Boards of Directors of TOTVS from 2001 to 2012 and of Endeavor Brasil from 2005 to 2012. She was also a member of the Board of Directors of the IBMEC Group from 2004 to 2008 and was appointed to the position of member of the External Evaluation Committee of Insper. From 2012 to 2016,Aspen Global Leadership Network. Also, Ms. Rocca served as an independent member of the Board of Directors of Santander Brasil and from August 2016 to June 2018, she served as Executive Director of Ticket. Currently she is CEO of the Hinode Group and is an independent member of our Board of Directorsmember and coordinator of the Sustainability Committee.Committee of Santander Brasil.

 

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Members of the Board of Executive Officers:

 

Sérgio Agapito Lires Rial. See “—Members of the Board of Directors.”

 

Alberto Monteiro de Queiroz NettoNetto. Mr. Monteiro is Brazilian and was born on November 30, 1967. He holds a bachelor’s degree in Business Administration from Faculdade de Ciências Políticas e Econômicas do Rio de Janeiro. He also completed a post graduate degree in Banking at Universidade de São Paulo and received an MBA in corporate finance at Fundação Getúlio Vargas do Rio de Janeiro. From 2009 to 2011, he served as Chief Financial Officer and Investor Relations Officer at CSN – Companhia Siderúrgica Nacional. Between 2011 and 2014, he was also Chief Financial Officer and Investor Relations Officer of Suzano Papel e Celulose SA. Between 2014 and 2016, he held the position of Executive Vice President at Graninvestimentos S.A., where he was responsible for finance. In 2017, Mr. Monteiro served as Executive Vice President atof Banco do Brasil S.A. in charge of, overseeing the Finance, Investor Relations and M&A Departments. Currently, Mr. Monteiro is the Vice President Executive Officer and Head of the Private Banking Segment of Santander Brasil. He is also a memberthe Chief Executive Officer of the Advisory Board of Santander BrasilReturn Gestão de Recursos Ltda.S.A.

 

Angel Santodomingo Martell. Mr. Santodomingo is Spanish and was born on November 16, 1965. He holds a degree in Economics and Business with specialization in Finance from the ICADE University in Madrid and a CFA (Chartered Financial Analyst) from the CFA Society of the United States. As one of our Vice President Executive Officers, he holds the position of Chief Financial Officer and Investor Relations Officer. He started at the Santander Group in 2005 as Head of International Developments and Asset Management and then became globally responsible for the investor relations area. He was the head of Grupo Fortis in Brazil and an officer and board member at Banesto Bolsa. He

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also worked at Usera y Morenés S.V.B. - Sociedade de Valores y Bolsa and Arthur Andersen (Deloitte). From 1996 to 2008, he occupied the position of Chief Executive Officer of the CFA Society in Spain, where he acted as a founding member of suchthis nonprofit organization focused on serving the holders of financial analyst accreditationaccreditations (CFA) and. Additionally, from 2009 to 2014, wasMr. Santodomingo served as Vice President of AERI’s (Asociación Española de Relaciones con Inversores) Board of Directors. He is also Chief Executive Officer of Aymoré CFI, Santander Leasing S.A. Arrendamento Mercantil, and Santander Corretora de Seguros, Investimentos e Serviços S.A. and Atual Serviços de Recuperação de Créditos e Meios Digitais S.A., Executive Officer of Santander Cultural and Santander Holding Imobiliária S.A., Chairman of the boardBoard of directorsDirectors of Webmotors S.A., Banco Hyundai Capital Brasil S.A., and Banco PSA Finance Brasil S.A., and a member of the boardsBoard of directorsDirectors of Banco Hyundai Capital Brasil S.A., Banco PSA Finance Brasil S.A., Banco RCI Brasil S.A., Santander Leasing S.A. Arrendamento Mercantil and Super Pagamentos e Administração de Meios Eletrônicos S.A.Mercantil.

 

Alessandro Tomao. Mr. Tomao is Brazilian and was born on March 8, 1977. He holds a bachelor’s degree in Law from the FMU University and a master’s degree in Business Administration - HR degree from the University of São Paulo. As one of our Executive Vice Presidents, he has been responsible for the Company’s Legal and Corporate Affairs department since February 2018. From June 2010 to February 2018, he was the Head of the Legal Litigation, Legal Consulting in Labor and Pension Funds Departments at Santander Brasil. From January 2000 to May 2010, he served as the head of labor and pension funds legal department at Banco Itaú S.A. Previously, from 1998 to 2000, he acted as a trainee at Whirlpool Brazil, where he started his career. Since 2015, he has been a permanent member of the legal counsel of FEBRABAN, where he acted from 2011 to 2015 as the coordinator of the labor committee. Since January 2017, he is a member of the Legal Counsel of ABRAPP (Brazilian Association of Pension Funds). He is also a member of the board of directors of Santander Cultural and Santander Caceis Brasil Distribuidora de Títulos e Valores Mobiliários S.A.

 

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Antonio Pardo de Santayana Montes Mr. Pardo is Spanish and was born on November 5, 1971. He holds a degreedegrees in Economics and Law from the ICADE School of the Universidade Pontifícia Comillas. As one of our Vice President Executive Officers, he is responsible for the risk management department, having previously held the post of Officer responsible for the Risk Credit Recovery area and Officer of Wholesale Risks and Aymoré CFI. He was a consultant at PricewaterhouseCoopers from 1995 to 1998, Senior Risk Analyst for Santander Central Hispano/Santander Investment from 1998 to 2000, and senior manager of Monitor Company from 2000 to 2005. He returned to the Santander Group in 2005 as Associate Officer in the Wholesale Risks area, where he remained until 2009, when he came to work in Brazil. He is also ExecutiveVice-President Officer of Banco Bandepe S.A., and Executive Officer of Aymoré CFI, Santander Leasing S.A. Arrendamento Mercantil, and Sancap Investimentos e Participações S.A.

 

Carlos Rey de Vicente. Mr. Rey is Spanish and was born on February 20, 1974. He graduated with a degree in Law from the Universidad Complutense de Madrid, and he became a member of the Colégio de Abogados de Madrid in 1997. In 2010, he started at Santander Spain, where he was responsible for the strategy and planning of the banks of Santander México, Chile, Argentina, Puerto Rico, Uruguay, Peru and Colombia. From 2001 to May 2010, Mr. Rey was a partner of McKinsey & Co., where he was responsible for heading several projects on strategic consulting. His activities were always concentrated on banking and insurance matters, besides acting onas well as team management. Before, hePreviously, Mr. Rey worked as a lawyer in two different law firms, at one of which he was a Partner and Founder, dealing mainly with insurance and civil responsibility. Currently, Mr. Rey is our Vice President Executive Officer responsible for the Finance, Strategy and Quality department.departments. He is also a member of the BoardsBoard of Directors of Santander Leasing S.A. Arrendamento Mercantil, Super Pagamentos e Administração de Meios Eletrônicos S.A., Santander Caceis Brasil Distribuidora de Títulos e Valores Mobiliários S.A., Zurich Santander Brasil Seguros e Previdência S.A., Zurich Santander Brasil Seguros S.A. and Santander Brasil Establecimiento Financeiro de Crédito S.A., Administrative Officer of Norchem Participações e Consultoria S.A. and Mr. Rey currently serves as Vice President Officer and Chairman of the Board of Directors of Santander Cultural.Cultural, as well as Executive Officer of Esfera Fidelidade S.A. and Santander Corretora de Seguros, Investimentos e Serviços S.A. He is also a member of our Sustainability Committee.

 

Ede Ilson Viani. Mr. Viani is Brazilian and was born on September 5, 1967. He holds a degree in Accounting from Faculdade Tibiriçá, and an MBA from Instituto de Ensino e Pesquisa - Insper. He was an auditor at Banco Itaú S.A. from 1986 to 1990, and worked at BankBoston S.A for 16 years as a Senior Auditor, the Credit Risk Management Superintendent, the localLocal Currency Loans Head Officer

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and the smallSmall and medium companies head officer.Medium Companies Head Officer. He joined Santander Brasil in 2007 as officer (or Head Officer) for small and medium business banking and, from July 2010 to 2014, as Retail Banking Risk Management Director (or Head Officer). As one of our officers, he was responsible for our retail banking branches until December 2019, when he was promoted to the position of Vice President Executive Officer, responsible for the Organization, Property, Proceedings, Operations, Technology and Costs area.areas. He is also a member of the Board of Directors of Super PagamentosTecnologia Bancária S.A. and President Officer of Santander Brasil Tecnologia S.A., and Executive Officer of Santander Tecnologia e AdministraçInovação de Meios Eletrônicos S.A.Ltda.

 

Jean Pierre Dupui. Mr. Dupui is Brazilian and was born on September 23, 1968. He holds a bachelor’s degree in Economics and a specialization degree, both from Boston University. Currently, he is responsible for Global Corporate Banking at Santander Brasil. From 1992 to 1998, he worked at the structured finance and trade finance department of Lloyds TSB Group in São Paulo and London. From 1998 to 2001, he worked at the structured finance department of Citigroup Brasil. From 2001 to 2004, he worked for BBVA Brasil in the Debt Capital Markets Department. From 2004 to 2006, he was a Corporate Finance Officer at Citigroup New York and São Paulo. He started his career in Santander Group in 2006, where he took charge of the Credit Markets Department of Santander Brasil. From 2009 to 2012, he was responsible for Global Transaction Banking of Santander in Madrid. Mr. Dupui is also an Executive Officer of Santander Cultural, and Banco Bandepe S.A. and Return Gestão de Recursos S.A., as well as member of the Board of Directors of Santander Caceis Brasil Distribuidora de Títulos e Valores Mobiliários S.A.

 

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Juan Sebastián Moreno Blanco. Mr. Moreno was born on December 17, 1964, in Spain. He graduated in Business Administration from the University of Houston, TX. From 1987 to 1994, he worked at Bankinter as Commercial Officer, where he was responsible for the Commercial Department as well as for the Enterprises segment in Santander. From 1994 to 1997, he worked as Project Officer in the financial system of Mexico and Brazil, for Booz, Allen & Hamilton, in Mexico. He joined the Santander Group in 1997, where he served as Executive Officer of Companies and Institutions, after which he became Executive Officer of Business Development at Banco Santander Mexico, with responsibility for activities inoverseeing the area of products of the bank. In 2006, he became responsible for the segments of Large Enterprises, Corporate, Institutional and High Income in Latin America, in addition to leading the product areas for the countries of Latin America (Comex, Cash Management, Payroll etc.). From 2008 to 2010, he performed the role of Chief Executive Officer of Banco Santander – Puerto Rico. As of 2010, he occupied the position of Vice President Officer of the Commercial area of Banco Santander Mexico, with responsibility foroverseeing the business areas. At that time, he was also a member of the Board of Directors, Steering Committee, Asset and Liability Committee, Finance Committee and Risk Committee. As a Vice President Executive Officer, he is responsible for our Retail and Commercial Branches. He is also an Executive Officer of Banco Bandepe S.A. and President Officer of Atual Serviços de Recuperação de Créditos e Meios Digitais S.A.

 

Mário Roberto Opice Leão. Mr. Leão is Brazilian and was born on July 21, 1975. He holds a degree in Production Engineering from the Escola Politecnica of the Universidade de São Paulo. He began his career in 1996 as an associate at Citigroup, in the financial control area, being the Financial Analyst of all wholesale products from Citigroup Brazil, including global markets, financing, and corporate banking accounts. In 2006, he served as Global Markets Manager, and had an active role in the development and innovation of derivatives in Brazil. From 2006 to 2008, he worked at Goldman Sachs as Fixed Income, Currencies and Commodities Manager, and, between 2008 to 2015, as Global Capital Markets Executive Superintendent of Morgan Stanley. Since October 2015, he has been part of the executive team of Santander Brasil, being responsible for wholesale banking, leading a team of 70 people servicing more than 700 large national and international companies in Brazil. This position also covers foreign exchange loans and treasury products. As one of our Vice President Executive Officers, he is also a member of our Sustainability Committee.

 

Patricia Souto Audi.Ms. Audi is Brazilian and was born on May 15, 1968. She holds a bachelor’s degree in Business Administration, and she is an expert in public policies and government management. Between 2015 and 2018, she served as the secretary of Transparency and Prevention of Corruption at the Brazilian Ministry of Transparency; director of Benefits at INSS (National Institute of Social Security); coordinator at ILO (International Labor Organization) in Brazil; secretary of Management at the Ministry of Planning, Budget and Management of the Federal government and secretary of the

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Social Development Council at Civil House, a governmental body directly connected to the Presidency of the Republic of Brazil. She joined Santander Brasil in August 2018 as Executive Superintendent Head of the Institutional Relations Department. Since January 2019, she is one of our Vice President Executive Officers, responsible for the Communication, Marketing, Institutional Relations and Sustainability Departments of Santander Brasil. She is also chief executive officer of Rojo Entretenimento S.A., Executive Officer of Universia Brasil S.A. and a member of the Board of Directors of Santander Cultural.

 

Vanessa de Souza Lobato Barbosa. Ms. Lobato is Brazilian and was born on December 24, 1968. She holds a bachelor’s degree in Business Administration from Pontifícia Universidade Católica de Minas Gerais, and a specialization degree in Marketing from Universidade Federal de Minas Gerais. From 1992 to 1995, she served as Marketing Local Manager at Banco Nacional, with responsibilitywhere she was responsible for the sponsorship budget and micromarketing activities focused on the retail network. She also worked at Unibanco, in Recife, from 1995 to 1999, where she was responsible for different branches in the city of Recife. In 1999 she started at Santander Brasil, where she worked as General Manager of the Recife branch office. From 2001 to 2006, she served as Local Superintendent, where she was responsible for one of the Retail’s Locals, with its head office in Belo Horizonte, covering the states of Minas Gerais, Goiás, as well as Brasília, and the states of the Northeast Region. From 2006 to 2013, Ms. Lobato was Executive Superintendent of one of our branch networks, with responsibility foroverseeing the “SPI Centro Sul” branch based in Campinas, State of São Paulo, covering important cities such as: Campinas, Jundiaí, Sorocaba, Piracicaba, Limeira and Americana.Americana, totaling 258 branches in 94 cities. As one of our Vice President Executive Officers, she is currently responsible for the Human Resources department. She is also a member of the Board of Directors of Santander Cultural.

 

José Roberto Machado Filho. Mr. Machado is Brazilian and was born on August 25, 1968. He holds a degree in Electrical Engineering from Faculdade de Engenharia Industrial in São Paulo and has a master’s degree in Business, Economics and Finance from the Universidade de São Paulo. He was an engineer for Keumkang Limited from 1990 to 1991, a foreign Exchange Manager from 1992 to 1995 and a Manager195 

Table of the emerging markets trading desk from 1992 to 1996 of Banco CCF Brasil S.A. He was also an Executive Officer of Banco Rabobank Internacional Brasil S.A. from 1998 to 2003 and was an Executive Officer of Banco Real from 2003 to 2009. Currently, he is responsible for the Individual Businesses area. He is also Executive Officer of Banco Bandepe S.A., administrator of Santander Brasil Administradora de Consórcio Ltda. and a member of the boards of directors of Zurich Santander Brasil Seguros e Previdência S.A., Zurich Santander Brasil Seguros S.A., Santander Cultural, and B3- Brasil, Bolsa, Balcão.Contents

Amancio Acúrcio Gouveia. Mr. Gouveia is Brazilian and was born on March 31, 1963. He holds a degree in Accounting from the Universidade Santa Úrsula. As one of our officers, he has been acting as a controller working in the Accounting and Fiscal management areas of our companies since 2001. He was an Audit Manager for KPMG until 1991 and an accounting manager of Unibanco – União de Bancos Brasileiros S.A. from 1991 to 1999, and assistant superintendent of BankBoston Banco Múltiplo S.A. from 1999 to 2001. He is Chief Executive Officer of Banco Bandepe S.A. and Executive Officer of Santander Leasing S.A. Arrendamento Mercantil, Atual Serviços de Recuperação de Créditos e Meios Digitais S.A., Santander Capitalização S.A., Aymoré CFI, Evidence Previdência S.A. and Sancap Investimentos e Participações S.A. He is also Administrator of Santander Brasil Administradora de Consórcio Ltda. He also serves as a member of the Fiscal Council of the Brazilian Federation of Banks, of the National Federation of Banks, of the Brazilian Institute of Banking Science and of the Banks Union in the States of São Paulo, Paraná, Mato Grosso, Mato Grosso do Sul, Acre, Amazonas, Pará, Amapá, Rondônia and Roraima. He has professional experience as a teacher: at ABEU—Faculdades Integradasm as Professor III, between March 1991 and February 1999, as a teacher for General Accounting under the accounting degree curriculum; at the Faculdade de Direito Cândido Mendes, as a substitute professor between March of 1997 and December of 1998 where he taught Elements of Accounting under the law degree curriculum; and at the Sponsor of Seminars promoted by IOB and IBRACON, in the year 1990, where he taught as part of the Training Programs of Accounting for Non-Accountants.

 

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Ana Paula Vitali Janes Vescovi. Mrs. Vescovi is Brazilian and was born on April 8, 1969. She graduated in Economics from Universidade Federal do Espírito Santo, Master in Public Administration from Brazilian School of Public Administration at Fundação Getúlio Vargas/RJ, Master in Public Economics from Universidade de Brasilia/DF and postgraduate in Public Policies and Government Management from the National School of Public Administration/DF. Since 1999, she has worked in public service, with an emphasis on fiscal and financial management and public policies, with executive experience in the three spheres of government. Since 2015, she served as Chairman of the board of directors of Banco do Estado do Espírito Santo – BANESTES, Instituto de Resseguros do Brasil and Caixa Econômica Federal, and member of the Board of Directors of Eletrobras.Eletrobras and currently serves as a board member of Ultrapar. As one of our officers, she is responsible for the macroeconomic research area.

 

André de Carvalho Novaes. Mr. Novaes is Brazilian and was born on April 14, 1969. He holds a degree in Economics from the Universidade Federal Fluminense and an executive MBA from BPS Business School (São Paulo and Toronto). From 1993 to 1997, he served as Products Coordinator in Santander Brasil, where he was responsible for credit proposals analysis, and in several areas at Aymoré CFI and in posts as commercial operator, credit and collection chief. In 1996, he served as coordinator of products in São Paulo. From 1997 to 2001, he served as commercial manager. From 2002 to 2008, he served as Regional Manager. From 2008 to 2012, he served within Santander Brasil as the person responsible for the Other Assets segment in Aymoré CFI. Since 2012, he has served as Executive Superintendent in Santander Brasil, with responsibility for Aymoré CFI’s Vehicle Partnerships. In December 2012, he became the Commercial Coordinator of Aymoré CFI, with responsibility for the Commercial and Partnerships team. Currently, Mr. Novaes is head of Santander Financiamentos and reports to the CFO. He is also Executive Officer of Aymoré CFI, Vice Chairman of the Board of Directors and Vice President Officer of Webmotors S.A., a member of the Board of Directors of Banco Hyundai Capital Brasil S.A., Santander Auto S.A. and Santander AutoLoop Gestão de Pátios S.A. and a member of the Board of Directors and Institutional Relations Officer of Banco RCI Brasil S.A.

 

Carlos Aguiar Neto. Mr. Aguiar is Brazilian and was born on March 5, 1971. He holds a degree in Electrical Engineering from Fundação Armando Alvares Penteado with specialization in Business Administration from Fundação Getúlio Vargas. From 1996 to 2007, he worked as Treasurer of Cargill Agrícola S.A., officer of Cargill Previdência and Executive Officer of Banco Cargill S/A. From 2007 to 2010, he was CFO and Investor Relations at BrasilAgro – Cia Brasileira de Propriedades Agrícolas S.A. From 2010 to 2015, he was CEO at Macquarie Crop Partners LP at Macquarie Bank responsible for funds that invest in farms and grain production in Brazil and Australia. Since 2015, he has been responsible for the agribusiness area of Santander Brasil. He is also a member of our Sustainability Committee.Committee and a member of the Board of Directors of Gira, Gestão Integrada de Recebíveis do Agronegócio S.A.

 

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Cassio Schmitt. Mr. Schmitt is Brazilian and was born on April 23, 1971. He holds a degree in Economics from the Universidade Federal do Rio Grande do Sul, a master’s degree in Corporate Economics from Fundação Getúlio Vargas and an MBA from the Sloan School of Business, Massachusetts Institute of Technology. He was the Economist of Banco de Crédito Nacional S.A. from 1995 to 1996, and Senior Economist at UNIBANCO – União de Bancos Brasileiros S.A. from 1996 to 1999. He was an associate of the Leveraged Finance team of UBS Warburg in 2000 in New York, Project Finance Superintendent of UNIBANCO from 2001 to 2003 and Corporate Banking Superintendent of UNIBANCO Representative Office in New York from 2003 to 2004. He became responsible for the project finance team of Santander Brasil in 2004 and for the areas of acquisition finance and syndicated lending in 2010. From 2011 to 2012, he was the Director responsible for the GCB Clients Risk Department, from 2013 to 2014 he was responsible for Global Transaction Banking and from 2015 to 2018 he was the officer responsible for the Credit Recovery Business and Personal and Real Estate Loans.Loans, and from 2019 to 2020 he was in charge of the Retail Corporate Business, Government and Institutional customers. Currently, Mr. Schmitt serves as our officer in charge of the Companies Business, GovernmentRetail Credit Products and Institutional Retail sector.a member of the Board of Directors of Gira, Gestão Integrada de Recebíveis do Agronegócio S.A.

 

Claudenice Lopes Duarte. Mrs. Duarte is Brazilian and was born on July 25, 1972. She holds a degree in Journalism from Faculdades Integradas Alcântara Machado with a specialization in Business Communication from Fundação Getúlio Vargas. From 1996 to 2009, she worked at GWA Comunicação

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Integrada as Senior Director. From 2009 to 2010, she was Executive Manager of Press Relations at Santander Brasil. From 2011 to 2012, she was Superintendent of Relations with the Press and Institutional Relations at Santander Brasil and, as one of our officers, she is currently responsible for Internal and External Communications at Santander Brasil.

 

Daniel Fantoni Assa.Mr. Assa is Brazilian and was born on December 12, 1975. He holds a degree in Business Administration from Fundação Alberto Alvares Penteado and an MBA from Instituto Brasileiro de Mercado de Capitais. He started his career at Banco Real working at Corporate and Investment Bank and was responsible for structuring the areas of the commercial bank and investment bank. At Santander Brasil, between 2008 and 2011, he was Executive Superintendent of Corporate & Investment Banking; between 2011 and 2014, he was Executive Superintendent of Credit Recovery; between 2015 and 2016, he was Executive Superintendent of Corporate; and between 2016 and 2019, he was Executive Superintendent of Wholesale Risk. As one of our officers, he is responsible for the Corporate Risks area.

 

Elita Vechin Pastorelo Ariaz. Ms. Vechin is Brazilian and was born on March 28, 1970. She holds a degree in Law from Universidade de São Paulo, Master of Laws (LL.M.) from Temple University – Pennsylvania, and is a graduate of the Special Program in Corporate Finance from New York University. She is a member of the Bar Association in both Brazil and New York. Between 1992 and 1996, she was a lawyer at Tenege – Técnica Nacional de Engenharia S.A; between 1997 and 1998, she was foreign attorney at Cameron & Hornbostell LLP, Washington, DC; between 1998 and 2001, she was associate at Lebouf, Lamb, Greene and Macre, LLP in New York, NY. In 2002, she was Senior Counsel at Grupo Ultra. Between 2002 and 2018, she was head of the Legal Department of the Investment Bank at Grupo Safra. In 2018, she joined Santander Brasil as Executive Superintendent of the Legal Affairs Department, where she now serves as one of our officers. She is also Executive Officer of Return Gestão de Recursos S.A.

 

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Franco Luigi Fasoli.Mr. Fasoli is Brazilian and was born on September 18, 1975. He holds a degree in Business Administration from Fundação Alberto Alvares Penteado and a postgraduate degree in Financial Economics from Universidade de São Paulo. Working since 1997 with financial institutions, he started his career at Santander Brasil as Senior Manager of Products and Marketing. In 2001, he started at Banco Real as Senior Manager of Products and Marketing. After returning to Santander Brasil in 2001, he was Head of Trade Finance & Correspondent Banking & Cash Management at foreign branches such as Argentina, Italia and Spain. Since 2014, in Brazil, he has served as Head of Commercial Network for Middle Market and Retail. As one of our officers, he is currently responsible for the SP Capital branches network.

 

Geraldo José Rodrigues Alckmin Neto.Mr. Rodrigues is Brazilian and was born on September 8, 1981. He graduated in Business Administration from Pontifícia Universidade Católica de São Paulo. At Santander Brasil he served as Executive Superintendent since 2013. Between 2008 and 2013 he was Executive Superintendent of Insurances at Banco Santander México, attending the “Programa de Futuros Diretivos”. From 2004 to 2008, he served as Relationship Manager and Foreign Trade.

 

Germanuela de Almeida de Abreu. Mrs. de Abreu is Venezuelan and was born on December 6, 1975. She holds a degree in Economics from Universidad Católica Andrés Bello – Caracas/Venezuela with an MBA in Human Resources from USP (Universidade de São Paulo – São Paulo). She completed the Development Program for Board Members by Fundação Dom Cabral. She served at Banco da Venezuela (Grupo Santander Caracas) as Senior Risk Analyst from 1999 to 2001. At Santander Brasil, she was Senior Sales Support Manager between 2001 and 2002, Human Resources Training Consultant between 2002 and 2003, HR Risk Consultant between 2003 and 2006, Executive Manager of HR between 2006 and 2008 and Superintendent of Human Resources between 2008 and 2013. SinceAt Santander Brasil, she served as Executive Superintendent between 2013 and 2018, with responsibility over the strategy of Performance Management, Careers, Compensation, Benefits and Budget and Expenditure Management for the Bank and, in 2018, she has been ourwas appointed as officer responsible for strategy related to performance management, career development, compensation, benefits and budget and spending management.the HR department.

 

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Gustavo Alejo Viviani. Mr. Alejo is Argentinian and was born on August 26, 1975. He holds a degree in Economics from Pontifícia Universidade Católica of São Paulo and a CFA (Chartered Financial Analyst) from the CFA Society of the United States. He completed academic extension courses in Business Administration at the University of California-Berkeley and Advanced Corporate Finance at the London Business School. From July 1997 to March 1999, he was a Junior Research Analyst of Shares and Fixed Income at Citibank (Brasil). He has served at Santander Brasil since 2000, where he has been a Credit Consultant, a Trader, a Senior Relationship Manager, the Superintendent of Corporate and Investment Banking and the Managing Director of our Corporate and Investment Banking Division. He currently serves as our officer responsible for the Credit and Recovery Division. He is also Executive Officer of Atual Serviços de Recuperação de Créditos e Meios Digitais S.A.

 

Igor Mario Puga. Mr. Puga is Brazilian and was born on November 10, 1981. He holds a degree in Social Communication from the Casper Líbero School of Social Communication and a degree in Statistics and Applied Research from the Institute of Mathematics and Statistics of the University of São Paulo. After joining IG - Internet Group of Brazil (2000 to 2001) and Terra Networks (2002), he was JWT’s Digital Intelligence Manager from 2003 to 2004 and Africa Propaganda’s Digital Media Manager (from 2005 to 2006). From 2007 to 2014, as Founding Partner and General Officer, he served in the ID\TBWA group. Between 2014 and 2016, he served as Chief Interactive Officer and then Vice President of Integration and Innovation of the DM9DDB. Mr. Puga joined Santander Brasil in 2016, as the officer responsible for the Marketing Department. He is also a member of the Board of Directors of Santander Cultural.

 

Jean Paulo Kambourakis.Mr. Kambourakis is Brazilian and was born on May 9, 1980. He holds a degree in Electrical Engineering from Universidade de São Paulo and a degree in Business Administration from Fundação Getúlio Vargas. He started his career at Banco Real, where between 2004 and 2006, he was trainee, Senior Project Analyst and Project Consultant. He has been at Santander Brasil since 2006, where he has been Superintendent of Projects; Executive Superintendent of Organization and Efficiency; Executive Superintendent of Planning; and Executive Superintendent of Planning, Expenses and Efficiency. As one of our officers, he is currently responsible for the Securitization area. He is also Executive Officer of Atual Serviços de Recuperação de Créditos e Meios Digitais S.A.

 

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José Teixeira de Vasconcelos Neto. Mr. Neto is Brazilian and was born on March 8, 1975. He holds a degree in Business Administration from the Universidade de Pernambuco - FCAP and in Economic Sciences from the Universidade Católica de Pernambuco. He completed specialization courses in Finance from FCAP-University of Pernambuco, an MBA in Marketing from Fundação Getúlio Vargas and an MBA in Retail (GVPEC) from Fundação Getúlio Vargas. He was General Manager of the Banco Citibank S.A. from 2000 to 2003. He served as Commercial Superintendent and Executive Superintendent at Banco Citibank S.A. - Consumer Finance Unit (Citi Financial) from 2003 to 2007. He was Regional Superintendent at Santander Brasil from August 2007 to July 2010. From August 2010 to September 2015, Mr. Neto served as the Executive Superintendent of the Network in Banco HSBC Brasil. He served as one of the officers responsible for our Branch network since 2015, and since January 2019, he has been responsible for the Direct network.

 

Luis Guilherme Mattos de Oliem Bittencourt. Mr. Bittencourt is Brazilian and was born on December 4, 1973. He holds a degree in Computer Engineering from the University of Campinas. He started his professional career in Banco Itaú-Unibanco serving in the areas of Business Intelligence, Electronic Channels and CRM, where he acquired 14 years of experience. From 2010 to 2012, in Banco HSBC Brasil, Mr. Bittencourt served in the areas of Distribution, Digital Channels and Customer Relationship Management, or “CRM.” Since 2013, Mr. Bittencourt has served in Santander Brasil, initially as Executive Superintendent of CRM, Digital Channels and Management Information System, Customers Intelligence and CRM and, currently serves as the officer responsible for Customers’ Service.

 

Luiz Masagão Ribeiro Filho. Mr. Masagão is Brazilian and was born on September 1, 1976. He holds a degree in Business Administration from Fundação Getulio Vargas. He started his career in 1997, serving as Operator of Interest Rates Options in Brazil at Banco Citibank S.A. until 2005. He was the Senior Operator of Foreign Exchange Options from February 2005 to September 2005 in ING Bank

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N.V. Back to Banco Citibank S.A., he was Executive Manager from 2005 to 2008 and Superintendent from 2008 to 2009. Mr. Masagão served as Executive Superintendent of Fixed Income Sales from 2009 to 2010 at Morgan Stanley and then joined Santander Brasil’s team, initially serving as Chief of the GCB/Corporate Sales team, from 2010 to 2014, and last as Brazil’s Sales Executive Superintendent. On November 2018, he became the Treasurer of Santander Brasil, responsible for treasury operations, including Proprietary Trading, Market Making, Sales and Products. He is also Executive Officer of Banco Bandepe S.A. and Santander Corretora de Seguros, Investimentos e Serviços S.A.

 

Marino Alexandre Calheiros Aguiar. Mr. Aguiar is Portuguese and was born on May 14, 1971. He graduated with a degree in Business Administration from the Technical University of Lisbon and an MBA in Information Technology and Internet. Mr. Aguiar started his career in 1994 as a Systems Analyst at Accenture in Portugal, responsible for Functional Design and Technical Computer Systems. From 1996 to 1999, he had the task of Coordinator and, in 1999, became Manager responsible for providing consulting and technology services to banking institutions in Portugal and Brazil. He held the position of Senior Manager from 2002 to 2006, and was an officer from 2006 to 2008, responsible for developing the commercial and relationship strategy of the Insurance segment. Between 2008 and 2010, he worked for CPM Braxis as an officer, with responsibility for the technology program of a major financial institution in Brazil. In 2010, Mr. Aguiar became a statutory officer at Accenture Brazil, responsible for technology services to the financial industry in Latin America. He is currently one of our officers, and is responsible for our Technology area in the Vice Presidency of Proceedings, Technology and Operations unit. He is also Superintendent Executive Officer of Santander Brasil Tecnologia S.A. and Santander Tecnologia e Inovação Ltda.

 

Rafael Bello Noya. Mr. Noya is Brazilian and was born on October 19, 1977. He holds a degree in Business Administration from Universidade de São Paulo and completed several courses, including Building and Sustaining Competitive Advantage at Harvard Business School, and Leadership in Talent Management and Development at IMD International. He also completed the LEAD Program at the IE Business School and Corporate Leadership Program at IESE Business School. He began his career at Citibank, where he worked from 1996 to 2007 across several divisions. He also served as a member199 

Table of the Citibank Credit Committee. He joined Santander Brasil in 2007, where he became responsible for clients coverage in the Corporate Investment Banking Department. From June 2015 to August 2017, Mr. Noya was the Head of the Credit Markets Unit at Santander Brasil, where he was responsible for a team of 70 specialists on the origination and execution of operations in the areas of Capital Markets (both domestic and international), Syndicated Loans, Project Financing, Acquisitions and Asset and Capital Structuring. During this period, he was also the Chairman of the Board of Directors and a member of the Human Resources Executive Committee at BW Guirapa I S.A. Since August 2017, Mr. Noya has been the Head of Banking, where he has been responsible for leading a team of approximately 60 people that covers the largest Brazilian corporate companies, financial institutions and private equity institutions. He is also an officer of Santander Leasing S.A. Arrendamento Mercantil and of Atual Serviços de Recuperação de Crédito e Meios Digitais S.A.Contents

Ramón Sanchez Díez. Mr. Sanchez is Spanish and was born on October 29, 1968. He holds a bachelor’s degree in Economics from the Universidad Autónoma de Madrid and has completed an Advanced Management Program at the Wharton School of Business at the University of Pennsylvania. He is a Certified Regulatory and Compliance Professional (CRCP) and a Certified Anti-Money Laundering Specialist (CAMS).  He served as a Financial Analyst and Portfolio Manager for Santander Brasil’s New York branch from 1992 to 1997, and as an officer for Strategy and Analysis for Latin American banks at Santander Spain in Madrid from 1997 to 2003. He was an officer for Strategy and Investor Relations for Santander Brasil from 2004 to 2006, Head of Customer Acquisition from 2007 to 2009, was in charge of our retail banking channels (call center, internet, mobile and ATM) from 2009 until 2011 and, before his current position, was the Head of Retail Commercial Planning and Communication. Mr. Díez was president of the Spanish Chamber of Commerce in Brazil between 2006 and 2009. As one of our officers, he is responsible for our Compliance Department. He also serves as Executive Officer of Banco Bandepe S.A. and Santander Corretora de Seguros, Investimentos e Serviços S.A.

 

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Ramon Sanchez Santiago. Mr. Ramon Sanchez Santiago is Spanish and was born on May 25, 1969. He graduated in Law from the University of Salamanca, Spain. Between 2010 and 2011, he was Project Leader of the Santander Group, responsible for the project to reduce the Risk Weighted Assets (RWA) throughout the Group. He was also Head of Internal Audit at Santander UK from 2011 to 2014. From 2015 to 2018, he served as Internal Audit Officer of the Santander Group for Capital and Solvency. As one of our Executive Officers, Mr. Santiago has been responsible for our Internal Audit area since September 2018.

 

Reginaldo Antonio Ribeiro. Mr. Ribeiro is Brazilian and was born on May 19, 1969. He holds a degree in Economics from the Universidade Estadual de Campinas, an Accounting degree from the Universidade Paulista and an MBA from the Fundação Instituto de Pesquisas Contábeis, Atuariais e Financeiras – FIPECAFI of the Universidade de São Paulo. He worked for Arthur Andersen Consultoria Fiscal Financeira S/C Ltda. from 1990 to 2001 rendering tax advisory services to Brazilian and multinationals entities. He was also a member of the Fiscal Council of Companhia Energética de São Paulo and AES Tietê from 2002 to 2006. As one of our officers, he is responsible for accounting and tax procedures, planning strategies and corporate reorganization processes. He also serves as Administrator of Aquanima Brasil Ltda. and Summer Empreendimentos Ltda., as Executive Officer of Atual Serviços de Recuperação de Créditos e Meios Digitais S.A., Banco Bandepe S.A. and Santander Holding Imobiliária S.A., as Vice President Officer of Santander Corretora de Seguros, Investimentos e Serviços S.A., and as Administrative OfficerChairman of Norchem Participações e Consultoriathe Board of Directors of Santander Leasing S.A. Arrendamento Mercantil.

 

Roberto Alexandre Borges Fischetti. Mr. Fischetti is Brazilian and was born in August 28, 1975. He holds a degree in Economics from the business school of the University of São Paulo (Faculdade de Economia, Administração e Contabilidade (FEA), Universidade de São Paulo). Mr. Fischetti has acted in the Brazilian financial market and banking industry since 1998. From 1998 to 2003, he worked at Deustche Bank as Fixed Income Trader, responsible for management of proprietary interest and exchange positions. From 2004 to 2007, he was Superintendent of Treasury Products at Banco Real, responsible for the structuring of operations and treasury products and coordination of the product team. Since 2007, Mr. Fischetti was Financial Executive Superintendent of Santander Brasil, responsible for the management of structural interest and exchange rate exposures, local and external liquidity management, and the pricing of commercial operations. As one of our officers, he is responsible for the ALM financial management. He is also aan alternate member of the Board of Directors of Banco RCI Brasil S.A.

 

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Robson de Souza Rezende. Mr. Rezende is Brazilian, born January 24, 1967. He holds a degree in Statistics from Associação - Salgado de Oliveira de Educação e Cultura in Niteroi in the state of Rio de Janeiro and an MBA in Marketing from ESPM-SP. He began his career at Unibanco, where he worked between 1985 and 1999 in the Management of Agencies and later in the Human Resources Area working in Training and Development with a focus on the Agencies of Unibanco. Mr. Rezende joined Santander Brasil in 1999. From 1999 to 2003, he served as a Superintendent of Human Resources. From 2003 to 2008, he served as Regional Superintendent. From 2008 to 2010, he worked as Superintendent of Commercial Models, during which time he participated in the integration of the commercial model of Santander Brasil and Banco Real. He also led the Santander branch expansion project in Brazil for three years from 2010 to 2013. He was responsible for the Branch network in the state of Rio de Janeiro, managing approximately 290 branches and 3,700 employees in the region. As one of our officers, he is currently responsible for the Commercial Retail Network.

 

Sandro Kohler Marcondes.Mr. Marcondes is Brazilian and was born on April 16, 1964. He graduatedholds a degree in Business Administration from Unicentro Paraná. He completed Master and a Master’s Degree in Business Administration byfrom Fundação Getúlio Vargas. At Santander Brasil since 2018, he served as Executive Superintendent Global Debt Financing. In 2018, he served as Executive Officer of Financing and Investor Relations at Neoenergia S.A. From 2005 to 2018 he served as Executive Officer at Banco do Brasil S.A. and also at Banco do Brasil S.A. from 1999 to 2004 he served as General Manager in Paris and Assistant General Manager.

 

Sandro Rogério da Silva Gamba. –Mr. Gamba is Brazilian and was born on August 31, 1975. He graduatedholds a degree in Civil Engineering from Universidade Mackenzie, post graduatedpost-graduate degrees in ProductionIndustrial Engineering from Universidade de São Paulo –USP and Real State Business from Fundação Armando Alvares Penteado – FAAP, and holds an MBA degree from Insper. AtMr. Gamba served at Gafisa S.A., from 1998 to 2004 held positions like:in different positions: as an engineer, coordinator and manager; frommanager. From 2004 to 2007, he served at Gafisa S.A. as new business manager; from 2007 to 2011 served as Director; from 2011 to 2014 served as Executive Officer and, at last, heMr. Gamba served as CEO at Gafisa S.A from 2014 to 2018. In addition, he served as member of the Board of Directors of Construtora Tenda from 2012 to 2014, and of Alphaville Urbanismo from 2017 to 2019.

He also occupies the position of Chief Executive Officer of Santander Holding Imobiliária S.A.

 

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Thomas Gregor Ilg. Mr. Ilg is Brazilian and was born on September 12, 1968. He holds a degree in Agricultural Engineering from the Universidade Estadual de Campinas, and a postgraduate diploma in Business Administration from the Fundação Getúlio Vargas. He has been engaged in the financial markets for almost 30 years, including almost 20 years with Santander Brasil and 10 years with The First National Bank of Boston, where he first joined as a trainee in the Risks and Business areas. At Santander Brasil, he was responsible for the Corporate Banking Business until the beginning of 2007 when he joined our Treasury Division to develop an area designed to distribute derivatives to the Middle Market, Private Banking and Retail Business in general. At the end of 2008, he moved to the Credit Division to manage the Corporate Banking Risk area, and currently he is responsible for our SMEs Retail Risks area. He is also a member of the Board of Directors of Banco RCI Brasil S.A.

 

Vitor Ohtsuki. Mr. Ohtsuki is Brazilian and was born on June 5, 1977. He graduatedholds a degree in Production Engineering from Universidade de São Paulo. He completed thePaulo, an MBA degree in Marketing byfrom Universidade de São Paulo and a Master’s Degree in Global Management byfrom Stanford University. At Santander Brasil since 2004, he served as Private Banking Head, Executive Superintendent of Wealth Management, Private Banking Superintendent, Executive Manager and General Manager. Also, heMr. Ohtsuki served as Marketing Manager at Banco Citibank S.A. from 2000 to 2004.

 

Certain Arrangements and Relationships

 

We have no knowledge of any arrangement or understanding with major shareholders, customers, suppliers or any other person, pursuant to which any person was selected as a director or executive officer. None of the members of our board of directors, or of our board of executive officers, have any family relationships with each other, or with any other members of our senior management.

 

6B.Compensation

6B. Compensation

 

Compensation of Directors, Executive Officers and Members of the Audit Committee and Members of Our Fiscal Council

 

Our shareholders establish the maximum total annual aggregate compensation of our Directors and Officers at the annual shareholders’ meeting. The compensation of the members of our Audit Committee is established by our Board of Directors. The compensation of the members of our Fiscal Council is established at the annual shareholders’ meeting. The compensation of our directors, officers and members of our audit committee is as follows:

 

Board of Directors

 

FixedAll members of our Board of Directors are entitled to fixed compensation composed of monthly payments and benefits within the overall limit approved at our annual general shareholders’ meeting. In exceptional and fully justified cases, the Chairman of our Board of Directors may also receive an annual variable compensation for his or her duties as determined by the Compensation Committee and the Board of Directors, within the annual limit set forth at the annual shareholdersshareholders’ meeting. If granted, such variable compensation should consider the form of payment and the different deferral percentages, according to the level of variable compensation received in the year, and observe the Malusmalus and/or Clawback clauseclawback clauses with the possibility of reducing and/or returning up to 100% of the value of the variable compensation.

 

In the event that a member of the Board of Directors is also a member of our audit committee, pursuant to the applicable regulations and the internal rules of the audit committee, such member must choose to receive the compensation package of either the board of directors or the audit committee.

Board of Executive Officers

 

FixedOur executive officers are entitled to fixed compensation composed of monthly payments, benefits, pensions and variable compensation, always within the overall limit of annual compensation, approved at the annual general shareholders’ meeting.

 

The variable compensation shall be paid considering the different deferral percentages, depending on the level of the variable compensation received in the year (includes amount of Long-Term Incentive - ILP in the year of grant, valued at the granting price), and observe the Malusmalus and/or Clawback clauseclawback clauses with the possibility of reducing and/or returning up to 100% of the value of the variable compensation in the assumptions.

 

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Audit Committee

 

FixedThe members of our Audit Committee are entitled to fixed compensation consisting of monthly fees, as established by the Board of Directors. In cases whereHowever, according to the applicable regulations and internal rules of the committee itself, if a member of the Board of Directors is also a member of ourthe Audit Committee, in accordance with the applicable regulations and internal rules of the committee itself, such member should elect to receive compensation in relation to their functions for either the Board of Directors or the Audit Committee.

 

Supervisory BoardFiscal Council

 

FixedMembers of our Fiscal Council are entitled to fixed compensation composed of monthly fees in the amount approved at our General Shareholders'Shareholders’ Meeting.

 

In relation to the other Advisory Committees such

The members of advisory committees are also entitled to a fixed compensation composed of monthly fees.

 

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Compensation Plan Overview

 

At the general shareholders meeting held on April 26, 2019,30, 2020, the compensation limit was set up to R$400 million for our Directors and Executive Officers and R$4.0 million for our Audit Committee for the 12-month period starting on January 1, 2019,2020, as proposed by the Board of Directors at the meeting held on March 27, 2019.26, 2020. As for the Fiscal Council, the general shareholders’ meeting approved a monthly compensation of R$11.8 thousand for each of the members, provided that the alternate members shall only receive such compensation in the event they replace the effective members. For the abovementioned twelve-month period, members of our Board of Directors and Executive Officers received a total of approximately R$277258.3 million, and members of our Audit Committee received a total of approximately R$3.2 million.2.9 million and members of our Fiscal Council received a total of approximately R$419 thousand. The total amount of contributions for pension plans of our Board of Directors and Executive Officers in 20192020 was R$3837.9 million.

 

Under Brazilian law, companies are required to disclose the highest, lowest and average compensation of our Directors,their directors, members of the Fiscal Council, if installed, and officers without indicating any individual name. Please findstating their names. The table below presents the information for the years of 2017, 20182020, 2019 and 2019:2018:

 

 Board of Executive Officers Board of Directors Fiscal Council
Board of Executive OfficersBoard of Directors Fiscal Council  Year ended December 31, 2020 Year ended December 31, 2019 Year ended December 31, 2018 Year ended December 31, 2020 Year ended December 31, 2019 Year ended December 31, 2018 Year ended December 31, 2020 Year ended December 31, 2019 Year ended December 31, 2018
12/31/201912/31/201812/31/201712/31/201912/31/201812/31/201712/31/201912/31/201812/31/2017                  
Nº of members41.7042.2044.009.9010.002.50--  45.00   41.70   42.20   9.00   9.90   10.00   6.00   2.50   - 
Nº of paid members40.9040.8040.504.805.004.171.30-  39.00   40.90   40.80   4.75   4.80   5.00   3.00   1.30   - 
Value of highest compensation (Reais)45,325,345.0043,068,683.2629,985,549.151,752,022.721,563,056.441,444,916.6055,370.00-
Value of lowest compensation (Reais)1,843,405.072,026,240.061,795,457.14769,131.80700,542.46544,316.60-
Average value of compensation (Reais)6,647,842.606,884,079.475,675,740.271,012,232.27772,680.82752,412.19132,888.00-
Value of highest compensation (Reais)  46,953,181.92   45,325,345.00   43,068,683.26   1,802,918.40   1,752,022.72   1,563,056.44   139,600.00   55,370.00   - 
Value of lowest compensation (Reais) (1)  1,791,418.04   1,843,405.07   2,026,240.06   762,000.00   769,131.80   700,542.46   139,600.00   -   - 
Average value of compensation (Reais)  6,495,886.87   6,647,842.60   6,884,079.47   1,037,445.25   1,012,232.27   772,680.82   139,600.00   132,888.00   - 

(1)The value of the lowest individual remuneration considers only members who have exercised their functions in the 12-month period of the fiscal year in question. The amounts do not include social charges.

 

As approved by our Board of Directors at the meeting held on December 23, 2009, we indemnify our Directors and Executive Officers, and members of theas well as Audit Committee fromand Fiscal Council members are indemnified in relation to claims arising during thetheir time they occupy their respective offices. This relates,in office. The indemnity exclusively tocovers court or administrative costs and attorneys’legal fees, except in cases of bad faith, gross negligence, willful misconduct or mismanagement by our Directors or Executive Officers. This indemnity was also granted to the members of the Audit Committee, the Compensation Committee and the Compensation Committee.Fiscal Council.

 

Variable Compensation

 

The criteria for granting and paying variable compensation vary according to the activities performed by the different areas and, therefore, payment of the variable compensation may differ depending on the department and activities performed by each member.

 

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Long Term Incentive Programs

 

We have fourthree programs for long-term compensation: (i) the Deferral Program; (ii) Long Term Incentive Plan - Private Ultra High; (iii) the Second Long-Term Incentive Global Plan CRDIVLTIP DTA 2019, and (iii) Nine Local Plans – Grant 2015Grants between 2019 and (iv) LTIP Technology.2020.

 

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Executive Officers and Executives in key positions are eligible to participate in these plans, which last three years, and promote our Executive Officers and Executives’ commitment to our long-term results. Members of the Board of Directors can only participate if they are Executive Officers.

 

Deferral Program

 

Our deferral program is available to our Statutory Officers, Officers in positions of management and certain other eligible employees. As part of the deferral program, we defer between 40% and 60% of the variable compensation of an employee over a period of three to five years, depending on the employee’s level of responsibility.

 

The program aims to (i) align the program with the principles of the Financial Stability Board, or “FSB,” agreed upon at the G20; (ii) align our interests with those of the plan’s participants (to achieve sustainable and recurring growth and profitability of our businesses and to recognize the participants’ contributions); (iii) allow the retention of participants; and (iv) improve our performance and protect the interests of shareholders via a long-term commitment.

 

Pursuant to Brazilian law, variable compensation is required to be compatible with the financial institution’s own risk management policies. At least 50% of variable compensation must be paid in stock or stock-based instruments and at least 40% of variable compensation must be deferred for future payment by at least 3 years. These rules are effective as from January 1, 2012.

 

The following table summarizes the rules of payment to variable compensation taking as an example the exercise ended of December 31, 2019.2020.

 

2020

2021

2022

2023

2021

2022

2023

2024

At the time of the award

Deferred

Deferred

30% in cashRemaining 20% in cashRemaining 20% in cash
Payment calculated on ⅓ cash awardedPayment calculated on ⅓ cash awardedPayment calculated on ⅓ cash awardedPayment calculated on ⅓ cash awarded
30% in units
(with one year lockup)		Remaining 20% in unitsRemaining 20% in units (with one year lockup)
Payment calculated on ⅓ units awardedPayment calculated on ⅓ units awardedPayment calculated on ⅓ units awardedPayment calculated on ⅓ units awarded

 

IfThe deferral percentage will also depend on the amountlevel of the variable compensation is between R$5.5 million and R$8 million,received in the deferral is 50%, which shall be paid in up to five tranches, 25% of which is paid in cash andyear, with the other 25% is paid in units, each with a one-year lock-up. If the variable compensation amount is equal to or greater than R$8 million, the deferral is 60%, which shall be paid in up to five tranches, 30% of which is paid in cash, and the other 30% paid in units with a one-year lock-up. In the case of the Chief Executive Officer, the deferral in this program is at least 50%, with at least 25% paid in accordance with above.above-mentioned criteria applied as minimum.

 

Still pursuant to Brazilian law, payments made under theall deferral programplans are subject to total or partial cancellation, or claw back, in cases of: (i) our unsatisfactory financial performance (financial results audited lower than as defined in our business plan or lossthe application of malus/clawback, that is, the Board of Directors of the Company, on the recommendation of the Compensation Committee and after the evaluation of the Malus/Clawback Committee, may approve to reduce up to 100% of the amount of each participant in the period); (ii) failure to comply with internal policies, especially policies for risk management (with the need for reclassification of operations or revision of provisions); (iii) substantial change in our financial condition, unless arising from changes in accounting standards (damages, financial loss); or (iv) significant changes in our share capital or risk profile. If the board of directors deems it necessary, it may also take into account any change in the capital base of the Santander Group.cases previously approved by Internal Governance.

 

We renew and update our deferral program every year. As of December 31, 2019,2020, we had fivesix plans outstanding: one for each fiscal year: 2015, 2016, 2017, 2018, and 2019. As of December 31, 2019,2020, werecorded total expenses of R$203202 million in connection with our Deferral Program compared to total expenses of R$126203 million in 2018.

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2019.

 

Deferral Program –2015, 2016, 2017, 2018 and 20192018

 

Our 2015 to 20192018 deferral programs are divided in two programs:

 

·Collective Identified. Statutory officers and executives who take significant risks in Santander Brasil and are in charge of the control areas. Deferred compensation will be paid 50% in cash, indexed to 100% of the CDI, and 50% in Units.

 

·Collective Unidentified – Employees. Individuals eligible for this program include manager employees and certain of our other employees. Deferred compensation will be paid 100% in cash, indexed to 100% of the CDI.

 

From the financial year 2019, the rule for the Collective Unidentified was changed to:203 

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Deferral Program –2019 and 2020

 

• Superintendents:Employees. Superintendent-level employees are eligible for this program. Deferred compensation is paid 50% in cash, and 50% in units.

• Other: Employees.Employees with variable remuneration above a minimum stipulated amount are eligible. Deferred compensation is paid 50% in cash, and 50% in units.

·From the financial year 2019, the rule for the Collective Unidentified was changed to “Other Employees”, which includes superintendents and other employees with variable compensation above a minimum established value, and they are also eligible to receive a specific deferral model, applicable according to the function and the level of the variable compensation. Deferred compensation is paid 50% in cash, and 50% in units.

 

Long-Term Incentive Plan - Private Ultra HighPlans

 

ReleasedOur long-term programs are divided into Local and Global plans. Each plan has specific performance indicators and conditions to best maintain the participant’s employment relationship until the payment date in 2017, its objectiveorder to be entitled to the receipt.

The payment of the plans is to align the interests of Banco Santander and the participant aiming,calculated based on the one hand, to the growth and profitabilitypercentage of achievement of the Private business and,indicators applied on the other, to the recognition of the participant's contribution. The Plan’s objective is the payment of variable compensation by the Bank to the participants.reference value (target).

 

On December 31, 2019 the performance period ended and as the indicators had no minimum achievement, there will be no payment to the participants in this plan.Local Long-Term Incentive Program

 

LTIP Technology

It is aWe have nine retention planplans for key positions launched in Julyduring 2019 where the participant must remain in employment until the payment date to be entitled to receive it.

Each executive had a reference value defined in Reais, which was converted into shares of Santander Brasil (SANB11) at a price of R$44.66, whichand 2020. These plans will be deliveredpaid in July 2022, with a 1-year restriction.

Payment isSANB11 units and are subject to the application of the Malus / Clawbackmalus/clawback clauses, which may result in a reduction or full cancellation in the number of shares to be delivered in cases of failure to comply with internal rules and exposure to excessive risks.

Each participant has a reference value defined in cash, converted into SANB11 units, usually at the price of the last 15 trading sessions of the month immediately prior to the grant under each plan. At the end of the vesting period, the resulting shares are delivered with a one-year restriction, and this payment is still subject to the application of the malus/clawback clauses, which may reduce or cancel the shares to be delivered in cases of non-compliance with internal rules and exposure to excessive risks.

 

For the fiscal year 2020, we incurred expenses of R$11 million, with respect to the Local Long-Term Incentive Program.

Global Long-Term Incentive Program

 

Second LTIP Digital Transformation Award

This global plan was launched in September 2019. The eligible executives had a target incentive defined in reais. The payment, according the achievement of performance indicators, will be in shares and options of Grupo Santander (SAN), after a deferral period of three years.

In the year ended December 31, 2020, we incurred expenses of R$0.9 million, with respect to the Global Long-Term Incentive Program.

Long-Term Incentive Global Plan CRDIV – Grant 2015

 

In 2015, a second global long-term incentive plan was created for executives included in the Identified Collective (CRDIV Global Plan).

The indicators that will be used to measure the attainment of the targets are presented below and will be used at two different stages: (i) to calculate the maximum target of each participant (2015-2016); and (ii) to calculate the amount of shares to be paid (2016, 2017 and 2018).

 

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1.       TSR vs. Competitor

 

RTA in 2015     “Coefficient RTA 2015”
(% on the RTA 2015 budgeted)     
≥ 90%     1
> 75% to < 90%     0.75 – 1 (*)
≤ 75%     0

 

(*)Linear increase of the RTA 2015 coefficient in function of the concrete percentage that the RTA 2015 represents on the budget of this scale line.

 

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2.       ROTE Bank (Return on Tangible Equity) vsvs. Budgeted

 

ROTE in 2015     “Coefficient ROTE 2015”
(% on the ROTE 2015 budgeted)     
≥ 90%     1
> 75% to < 90%     0.75 – 1 (*)
≤ 75%     0

 

(*)Linear increment of the ROTE 2015 coefficient in function of the concrete percentage that the ROTE 2015 represents on the budget of this scale line.

 

3.       EmployeesEmployee Satisfaction

 

Position among the best banks to work in 2017     “Coefficient Employees”
1st to 3rd     1
4th or subsequent     0

 

4.       Client satisfactionSatisfaction

 

Position among the best banks according to client satisfaction index in 2017     “Coefficient Clients”
1st to 3rd     1
4th or subsequent     0.5 – 1 (*)

 

5.       Business bindings vsvs. Budgeted

 

Clients companies 1 and 2 linked     “Coefficient Companies”
(% on budget for the corresponding market)     
≥ 100%     1
> 90% and < 100%     0.5 – 1 (*)
≤ 90%     0

 

(*)Linear increment of the coefficient companies according to the concrete percentage, within these lines of each scale that the number of linked clients of each type represents on December 31, 2017 on the budgeted.

 

Each executive had a target inreais, which has been converted into Santander Group shares for a price of R$17.47317,473 which was delivered in 2019, with a lockup of one year after each delivery.

 

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Due to the Group'sSantander Group’s capital increase (2017), the number of target shares was increased by approximately 1.5%.

 

At the end of the benchmarking period, the achievement of Phase 1 was 91.5% and Phase 2 was 73.09%, resulting in the plan's final achievement of 66.88%.

 

Payment for the SANSantander Spain shares resulting from the final achievement of the plan was made in cash in March / 2019 based on the quotationat a price of R $ R$45.49 to the “Extended Group” participants (without restriction of disposal) and to the participants of the Identified Collective in March 2020, after the 1one year restriction period.

 

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In the yearyears ended December 31, 2020 and 2019, there were no “pro rata” expenses recorded relating to costs on the respective dates of the cycles of the global program. The expenses related to the plans are recognized as “Other liabilities—Provision for share-based payments.”

 

Contract Termination

 

Employment contracts have an undefined period. The termination of the employment relationship for non-fulfillment of obligations or voluntarily does not entitle executives to any financial compensation.

 

Pension and Retirement Benefits

 

Members of our board of directors and our executive officers may enroll in our retirement plan, SBPrevi, while they are affiliated with Santander Brasil.

For further information on SBPrev, please see “— D. Employees.”

 

6C.Board Practices

6C. Board Practices

 

Our shareholders elect members of our Board of Directors at the annual general shareholders’ meeting for two-year terms (members may be reelected). The Board of Directors appoints our executive officers for two-year terms (members may be reelected).

 

The current members of the Board of Directors were elected at the ordinary shareholders’ meeting held on April 26, 2019 and on the extraordinary shareholders’ meeting held on June 10, 2020, to serve until the ordinary shareholders’ meeting to be held in 2021. The current Executive Officers were elected at Board of Directors meetings held on May 3, 2019, July 2, 2019, and February 3, 2020, February 28, 2020, April 7, 2020, July 3, 2020 and December 18, 2020 for terms of office until the first Board of Directors meeting occurs after the ordinary shareholders’ meeting, which is to be held in 2021. The Board of Directors usually meets eightnine times a year, but meetings may be held more frequently as the discretion of the Chairman of the Board of Directors. The Executive Officers meet as often as required by the Chief Executive Officer, or a designated person.

 

On August 31, 2017,May 27, 2020, our Board of Directors approved its regulations, which can be accessed by shareholders on the website www.santander.com.br/ri, in the section entitled “Corporate Governance—Management Board—Regulations of the Board of Directors”. The information contained on our website, any website mentioned in this annual report, or any website directly or indirectly linked to these websites, is not part of and is not incorporated by reference in, this annual report.

 

Fiscal Council

 

According to Brazilian Corporate Law, the adoption of a permanent fiscal council, as a publicly held company, is voluntary. Our By-Laws provide for a nonpermanent fiscal council, which can be installed at the request of shareholders, representing at least one percent of the voting shares or two percent of the nonvoting shares. The fiscal council was installed at our ordinary shareholders’ meeting held on April 26, 2019.30, 2020. All current members of our fiscal council were elected at the ordinary shareholders’ meeting held on April 26, 201930, 2020 to serve until the ordinary shareholders’ meeting to be held in 2020.2021.

 

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The fiscal council is an independent body elected by shareholders to supervise the activities of managers and independent auditors. The responsibilities of the fiscal council are established by Brazilian Corporate Law and include oversight of management’s compliance with laws and By-Laws, the issuance of a report on the company’s annual and quarterly reports, certain matters submitted for shareholders’ approval, calling of shareholders’ meetings in some cases and reporting on specific matters arising at those meetings.

 

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The following table sets forth the members of our fiscal council as of the date of this annual report:

 

Name

Position

Date of Birth

Antonio Melchiades BaldiseraMemberJanuary 26, 1952
João Guilherme de Andrade So ConsiglioMemberDecember 7, 1968
Louise BarsiMemberSeptember 7, 1994
Manoel Marcos MadureiraDeputy MemberDecember 30, 1951
Luciano Faleiros PaolucciDeputy MemberDecember 12, 1977
Valmir Pedro RossiDeputy MemberJune 10, 1961

 

Below are the biographies of the members of our fiscal council.

 

Antonio Melchiades Baldisera. Mr. Baldisera is Brazilian and was born on January 26, 1952. He graduated with a degree in Accounting, a postgraduate degree in Accounting Management from the Fundação Getúlio Vargas and with an MBA in Controlling, Audit and Tax Management from Fundação Getúlio Vargas. He served as General Accounting Manager at Banco Noroeste S.A. until 1997. At Santander Brasil, he served as General Manager and Deputy Officer of the Accounting Department from 1998 to 2000. He was General Audit Manager of Banco Sudameris do Brasil S.A. from 2000 to 2003. He was also representative at FEBRABAN at the Electronic Fraud and Operational Security Subcommissions (Subcomissão de Fraudes Eletrônicas e Subcomissão de Segurança Operacional), and representative at FEBRABAN at the Internal Audit Committee. He was Executive Superintendent of Santander Brasil between 2003 and 2018, working in the Internal, External and Electronic Fraud Management area. He is currently a Consultant at AMB - Business Consulting in Prevention and Treatment of Financial Fraud, Operational Safety and Audit.

 

João Guilherme de Andrade So Consiglio.Mr. Consiglio is Brazilian and Italian and was born on December 7, 1968. He is graduatedhas a degree in Economics from the Universidade de São Paulo (USP), with a postgraduate degree from Degli Studi University, Genova, Italy. He has worked in the financial market and as an economist for more than 25over 30 years. He was Executive Vice President of Santander Brasil and member of the Executive Committee of the Bank in Brazil for seven years, responsible for business with large corporate clients (Corporate). He was also Product Officer of ABN AMRO/Banco Real and worked in the Corporate Development area, leading acquisitions and divestments of the Bank in Brazil, Private Equity and Capital Market operations. Prior to joining the financial market, he was an economist at the Bunge Group. He has participated in several boards of directors such as Banco RCI Brasil S.A, CIP (Interbank Chamber of Payments) and Cia. Brasileira de Soluções e Serviços, among others. He is currently a partner at Guilder Capital Investimentos, a board member of Unipar Carbocloro S.A., a Board member and member of Audit Committee of You Inc S.A., an Advisory Board member of Banco MUFG Brasil S.A. and Chairman and member of Fiscal Council of the Banco Santander (Brasil) S.A.

 

Louise Barsi. Ms. Barsi is Brazilian and was born on September 7, 1994. She holds a degree in Economics from Universidade Presbiteriana Mackenzie and in Accounting from Fundação Escola de Comércio Álvares Penteado (FECAP). Currently sheShe holds a post-graduate degree in Capital Markets at the Fundação Escola de Comércio Álvares Penteado (FECAP) and a master's degree in Accounting with a financial specialization from Fundação Escola de Comércio Álvares Penteado (FECAP). Ms. Barsi is a CNPI analyst, having worked at Elite Investimentos andfrom 2015 to 2019, she has also participated in the Fiscal Council of Unipar Carbocloro from April 2016 to October 2017.2017, Fiscal Council of Aes Brasil from April 2019 to July 2020 and was a substitute member of the Fiscal Council of Eletropaulo (Enel). She is currently member of the boardBoard of directorsDirectors at Eternit since December 2017, where she also coordinates the Audit and Finance Committee, is a Deputy Member of the Board of Directors at Unipar Carboclo since April 2018 and has been a substitute memberFiscal Member at Klabin since April 2019.

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Manoel Marcos Madureira. Mr. Madureira is Brazilian and was born on December 30, 1951. He holds a Bachelor's degree in Mechanical Engineering from the Universidade de Taubaté in São Paulo and a degree in Business Administration from the Tokyo International Center in Japan. From 1976 to 2005 he worked in the automotive industry, as an officer of institutional relations and communications for Fiat Automóveis and Mercedes Benz of Brasil. From 1998 to 2005 he was Vice President of the boardAutomobile Manufacturers Association and President of directors at Unipar Carbocloro since Aprilthe Automotive Engineering Association. In 2006, he was elected Vice President of 2018the Corporate Affairs department of Santander Brasil, and in 2007 assumed the Vice Presidency of the Brazilian Federation of Banks. In 2008, he was transferred to the Santander Spain Group as the Communication Officer for Latin America, where he remained until September 2012. In October 2012, he returned to Brazil as Executive Officer in charge of the Corporate Communications and Institutional Relations Departments of Santander Brasil, and was Executive Vice President responsible for the Communication, Marketing, Institutional Relations and Sustainability departments of Santander Brasil until 2018. Mr. Madureira was also the Chief Executive Officer of Rojo Entretenimento S.A. and Executive Officer of Universia Brasil S.A. (companies part of Santander Group). Mr. Madureira is currently an Alternate Memberalternate member of the Fiscal Council of Eletropaulo (a subsidiarySantander Brasil and President of Enel)the Brazilian – Spain Chamber of Commerce.

Luciano Faleiros Paolucci. Mr. Paolucci is Brazilian and Italian and was born on December 12, 1977. He has a degree in law from UNIFEB, with a Master’s Degree from the University of Sussex (England) - LLM International Commercial Law. He also holds two specializations in Corporate Law and Financial and Capital Markets by INSPER. He is currently studying a Master’s Degree in Agribusiness Finance from ESALQ and the law school of University of São Paulo. Mr. Paolucci has four years of experience in England, where he worked as a foreign lawyer. Initially, he worked at the DMH Stallard Solicitors in Brighton, where he worked with contracts, real estate law and damages. Later, he worked at Simmons & Simmons in London, one of the largest law firms in the United Kingdom, working in Finance/Business Law within the department responsible for Project Finance / Oil & Gas. In Brazil, he worked as a lawyer in the corporate department of Demarest e Almeida Advogados, focused on M&A and Corporate Law. He then worked at Mattos Filho Advogados, where he worked with commercial contracts in general. He was a lawyer at Santander Brasil for seven years, working in the Private Equity, Corporate Law and the M&A departments. He is currently one of the partners of De Luca & Oliveira Advogados, responsible for corporate related matters. Mr. Paolucci was an effective member of the Fiscal Board of Banco Olé Consignado between June 2019 and January 2020, and since April 2019, is an alternate member of the Fiscal Council of Santander Brasil.

Valmir Pedro Rossi. Mr. Rossi is Brazilian and was born on June 10, 1961. He holds a degree in Accounting from the Universidade de Passo Fundo, a postgraduate degree in Finance from the Universidade de Caxias do Sul, a Marketing degree from PUC Rio de Janeiro, a Master of Business Administration from Universidade de São Paulo, and a degree in Business Management from UNB-Brasília. He is a Board member and Fiscal Council member certified from IBGC – Brazilian Institute of Corporate Governance. He also acted as an Accountant at Casfor Ogr. Contábeis and Bertol S.A., and consultant at Sebrae RS. Mr Rossi also spent 30 years at Banco do Brasil S.A, occupying several positions, with emphasis on the State Superintendent of Pará, State Superintendent of Rio Grande do Sul, Superintendent of retail at São Paulo, and also Corporate and Regional Superintendent for Latin America. He also served as CEO of Banco da Amazônia, a publicly traded federal bank, headquartered in Belém (PA). He worked as a Board or Fiscal Council member at the following companies: Metalúrgica Gerdau S.A.; Brasilprev S.A.; BB Seguridade S.A, Fucapi S.A.; Banco da Amazônia S.A.; in addition to several entities and associations. He is currently an effective member of the Fiscal Council of KaMin Cadam S.A., and CSN S.A. and a member of the Audit Committee of BRF S.A. and SIMPAR S.A. (holding company of JSI, Movida etc). He is also an alternate member of the Fiscal Council of Santander Brasil for the term of 2020/2021. He was elected in a separate vote by the majority of shareholders, along with minority shareholders holding preferred shares without voting rights that attended the Annual General Meeting held in April 2020.

 

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Board Advisory Committees

 

Audit Committee

 

According to Brazilian Central Bank regulations, an audit committee is a statutory board, separate from the board of directors and created by a shareholders’ resolution. The members of the audit committee may be members of the board of directors, provided that they meet certain independence requirements. All members of our audit committee meet such independence requirements. In addition, under Brazilian law, the function of hiring independent auditors is reserved for the board of directors. As a result, as specified in Section 3(a)(58) of the Exchange Act, our board of directors functions as our audit committee for the purpose of approving any engagement of our independent auditors for audit and non-audit services provided to our subsidiaries or to us. Except in these respects, our audit committee performs the functions of the audit committees of U.S. companies. For more information, see “Item 16D. Exemptions from the Listing Standards for Audit Committees.”

 

Our audit committee is composed of three to six members, elected by our board of directors, among persons, members of the board of directors and others, who meet all statutory and regulatory requirements for the exercise of their office, including any requirements to ensure their independent judgment, and who shall serve for a one-year term and may be reelected pursuant to applicable legislation for up to four consecutive times to a maximum five-year term of office. One of the members shall be designated as the audit committee’s coordinator, and at least one member must have proven knowledge in the areas of accounting and auditing (financial expert).

 

Our audit committee has as its main functions:

 

·to advise the board of directors on the engagement or replacement of the independent auditor;

 

·to review, prior to publication, the interim financial statements, including the notes, the management report and the opinion of the independent auditor;

 

·to evaluate the effectiveness of the independent and internal audits, including in regard to compliance with normative provisions applicable to us, in addition to internal regulation and codes;

 

·to evaluate the fulfillment by our management of the recommendations made by the independent or internal auditors; and

 

·to prepare, at the end of the six-month period ended on June 30 and December 31 of each year, the report of the audit committee, meeting the applicable legal and regulatory provisions.provisions; and

·to receive and review the reports required by the regulatory bodies concerning the activities of the ombudsman, on each June 30 and December 31 or when a material event is identified.

 

The current members of the audit committee are Deborah Stern Vieitas, who act as coordinator, Luiz Carlos Nannini, who acts as financial expert, and Maria Elena Cardoso Figueira, Julio Sergio de Souza Cardozo and Deborah Stern Vieitas, who act as coordinator.René Luiz Grande. Our audit committee meets ordinarily once a month. The current members of the audit committee were appointed on May 3, 201921, 2020 and June 29, 2020 to serve for a one-year term.

 

Set forth below are the biographies of the members of our audit committee:

 

Maria Elena Cardoso Figueira. Ms. Figueira is Brazilian, was born on November 29, 1965 and graduated in Economics from the Pontifical Catholic University of Rio de Janeiro (Pontifícia Universidade Católica do Rio de Janeiro). Ms. Figueira is a board, supervisory board and audit committee member certified member of the Board of Directorsby IBGC and supervisory Board of IBGC (the Brazilian Institute of Corporate Governance) and a partner of Figueira Consultoria Financeira, her individual financial advisory firm. Ms. Figueira has attended training programs in Brazil (through ISE, FAAP, KPMG and IBGC) and abroad (through IESE and IE) and has extensive professional experience in finance and tax, including at Arthur

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Andersen, Banco Bilbao Vizcaya, KPMG, Santander (in Brazil, as Deputy Director in charge of Tax Planning, and in Spain, from April 2012 to May 2014, where she worked in the Department of Financial Regulation and Accounting Standards focusing on capital allocation). Since 2004, Ms. Figueira has also served as a member of the Audit Committees and advisory Boards of: (i) Santander Brasil, acting as an independent member of the Audit Committee since May 2018; (ii) HSBC Brasil S.A . - Banco de Investimentos

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(from (from June 2017 to April 2018), as a member and Chairman of the Advisory and Audit and Risk Committee; (iii) HSBC Brasil S.A. - Banco Múltiplo, from October 2014 to June 2016, as chairman and member of the Advisory Board and the Audit and Risk Committee; and (iv) Santander Brasil, from August 2004 to April 2012, as an independent member of the Audit Committee, Coordinator and financial expert. Currently Ms. Figueira is a member of the audit committee of Lojas Americanas S.A. and of the supervisory board of Camil Alimentos S.A. Since 2015, Ms. Figueira has been an associate member of the IBGC Financial Institutions Governance Committee, a member of the Women Corporate Directors - WCD - Brazil chapter and, since 2017, she is an associate member of the Strategic Governance Committee of American Chamber of Commerce in Brazil (Amcham Brasil).

 

Luiz Carlos Nannini. Mr. Nannini is Brazilian and was born on January 2, 1960. He holds a degree in Accounting Sciences, with several specialization courses in Brazil and abroad, including a leadership course at Harvard. He has more than 30 years of experience in the conduct of independent audit services, including: the preparation of financial statements in accordance with IFRS and U.S. GAAP; due diligence; implementation of internal controls (including IT); corporate restructuring; tax planning and affairs; and participation in advisory councils in Brazil, the U.S. and globally. Furthermore, Mr. Nannini has significant experience in audit committees and fiscal councils of publicly held Brazilian companies. Currently he is a member and financial expert of our Audit Committee.Committee and member of the Audit and Statutory Risks Committee of Eletrobrás, as well as a member of the Audit Committees of the following companies: Via Varejo, Centauro, BR Malls and CDHU.

 

Julio Sergio de Souza CardozoRené Luiz Grande. Mr. CardozoGrande is Brazilian and was born on August 18, 1944.April 19, 1953. He holds a degree in Accounting and Business AdministrationEconomics from Pontificia Universidade Presbiteriana Mackenzie of RioCatólica de JaneiroSão Paulo, and a PhDspecialization degree in FinanceNational Financial System from Fundação Instituto de Administração. He was an employee of the Brazilian Central Bank, qualified by the public examination since June, 1975, and Internal Controls fromworked in the Universidade do Estado do Rio de Janeiro, where he acted as AuditorSupervision and Accounting Professor atInspection Department of the undergraduate and graduate levels until August 2016. From 1985 to 2001,National Financial System. During his career in the Brazilian Central Bank he served as Audit Partner at Ernst & Young Brazil. From 2001an Analyst from 1975 to 2007, he held the positions of CEO and Chairman1978; Technical Assistant from 1978 to 1989; Inspection Supervisor from 1989 to 1999; Head of the BoardBanking Supervisory and Technical Department from 1999 to 2003; and Deputy Head of Ernst & Young Brazil, as well as Boardthe Banking Supervisory and Financial Conglomerates Department from 2003 to 2011. Before working with the Brazilian Central Bank, he occupied the position of Head of Human Resources with the Companhia Brasileira de Embalagens Metálicas BRASILATA from 1973 to 1975. Currently, Mr. Grande was Coordinator of our Audit Committee between the years 2012 and 2017 and member of Ernst & Young Americas (New York). In the same period, he served as CEOour Risks and Chairman of the Board of EY South AmericaCompliance Committee between January 2018 and a member of the Fiscal Council of USIMINAS, Santa Catarina Power Plants and BRADESPAR. He has also served as a member of the Board of Directors and coordinator member of the Audit Committee of the credit card manager AVISTA S.A. Currently, Cardozo is the Managing Partner of Júlio Sergio Cardozo & Associados Consultoria em Negócios Ltda.; member of the Board of Directors of Saraiva S.A. Livreiros e Editores; member of the Fiscal Council of Centrais Elétricas do Ceará and professor of the MBA Program in Finance of Fundação Getúlio Vargas.June 2020.

 

Deborah Stern Vieitas. See “—A. Board of Directors and Board of Executive Officers—Members of the Board of Directors.”

 

Compensation Committee

 

In compliance with regulations issued by the Brazilian Central Bank (specifically, CMN Resolution No. 3,921/2010 of November 25, 2010), on February 7, 2012, our shareholders established the compensation committee in our By-laws, which also acts as the compensation committee for certain of our affiliates and subsidiaries.

 

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Our compensation committee is composed of three to five members, appointed by the board of directors from among persons who meet all statutory and regulatory requirements for the exercise of their office. At least one of the members cannot be an executive officer and the others may or may not be members of our board of directors, and at least two members shall be independent, pursuant to paragraph 3 of article 14 of our By-Laws. The compensation committee shall have in its composition qualified members with the experience required for competent and independent judgment regarding our internal compensation policy and the repercussions of this internal compensation policy on risk management. Such persons shall serve for a term of two years and may be reelected for up to four consecutive times, pursuant to applicable legislation.

 

Our compensation committee has as its main functions:

 

·to develop internal compensation policies applicable to our management and make proposals to our board of directors regarding policies for variable and fixed compensation, benefits, and special programs for recruiting and terminations;

 

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·to supervise the implementation and coming into operation of the compensation policy for our management;

 

·to propose to the board of directors the aggregate compensation of our management to be submitted to the general meeting, pursuant to Article 152 of Brazilian Corporate Law;

 

·to analyze our internal officer and board compensation policies and procedures in comparison with market practice, and recommend changes to align our policies with market practice if significant differences from market practice are identified;

 

·to prepare annually, within 90 days as from December 31 of each year, the compensation committee report, in accordance with applicable statutory and regulatory provisions; and

 

·to ensure that the management compensation policy is compatible with our risk management policy, the goals and current and expected financial condition, as well as with the provisions set forth in applicable regulatory provisions and regulations published by the Brazilian Central Bank.

 

The current members of the compensation committee are Deborah Patricia Wright (who acts as coordinator), Álvaro Antonio Cardoso de Souza Celso Clemente Giacometti and Luiz Fernando Sanzogo Giorgi. The current members of the compensation committee were appointed on May 3, 2019 to serve until the first board of directors meeting occurring after the ordinary shareholders’ meeting to be held in 2021.

 

Set forth below are the biographies of the members of our compensation committee:

 

Deborah Patricia Wright. See “—A. Board of Directors and Board of Executive Officers—Members of the Board of Directors.”

 

Álvaro Antonio Cardoso de Souza. See “—A. Board of Directors and Board of Executive Officers—Members of the Board of Directors.”

 

Celso Clemente Giacometti. See “—Members of the Board of Directors.”

Luiz Fernando Sanzogo Giorgi. Mr. Giorgi is Brazilian and was born on September 3, 1964. He has a bachelor’s degree in Business Administration from Fundação Armando Alvares Penteado (FAAP) and over 26 years of experience in management. He started his career in 1982 at Price Waterhouse, where he worked until 1986, and, then at Embraer, where he worked between 1986 and 1989. From 1989 to 2003, he worked as a consultant and director at Hay Group, and from 2003 to 2005, he worked for the Suzano Group as a Vice Chairman of Suzano Holding. He was a member of the Management Committee of the Board of Directors of Suzano Papel e Celulose, Chief Executive Officer of Suzano Petroquímica and a full member of the Board of Petroflex. In September of 2005, he founded LFG – Assessoria em Gestão Empresarial e Liderança. From 2007 to 2015, he served as a member of the board of directors of Santher S.A.; from 2007 to 2011, he served as a full member of the board of directors of J. Macedo Alimentos S.A.; in 2008, he served as a full member of the board of directors of Vix Logística S.A.; from 2007 to 2008, he served as a member of the HR Committee of the board of directors of Grupo Libra S.A.; and in 2013, he served as a member of the board of directors of Itautec S.A. Currently, he serves as a member of the boards of directors of Vonpar S.A. and Empresas Concremat. He is also a member of the Advisory Board of Heads Agência de Propaganda and chairman of the Board of Directors of Teadit S.A. He holds the position of member of the HR Committees of Sul América Seguros S.A., Lojas Marisa S.A. and Martins Atacadista S.A. He is also a member of our Nomination and Governance Committee.

 

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Risk and Compliance Committee

 

The Risk and Compliance Committee is a consultative body, which has the responsibility of advising our Board of Directors on subjects related to the policies, operational directions and methodologies of capital allocation, risk management and exposure edges, according to applicable law, as well as advising on compliance practices that enhance our management regarding transparency and monitoring of compliance functions of the institution. For more details about risk management, see the information under note 47:46: Risk Management of the financial statements.

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The risk and compliance committee is composed of three to six members, provided that the majority of them: (i) may not be, nor may they have been, employees of Santander Brasil in the last six months prior to their appointment; (ii) may not be the spouse or relative of a person referred to in item (i) herein; (iii) cannot receive from us any compensation that does not relate to their role as a member of the risk and compliance committee or the board of directors; (iv) must have experience in risk management; and (v) may not be a controlling shareholder of Santander Brasil nor participate in decisions at the executive level. The term of office is two years, reelection permitted, and the members may be removed at any time. The risk and compliance committee meetings are held at least four times a year or when extraordinarily convened by its coordinator.

 

The current members of the risk and compliance committee are Bernardo ParnesPedro Augusto de Melo (who acts as coordinator), Álvaro Antônio Cardoso de Souza, José de Paiva Ferreira and René Luiz Grande.Virginie Genès-Petrolinho. The current members of the risk and compliance committee were appointed on May 3, 2019, April 28, 2020 and June 12, 2020, to serve until the first board of directors meeting occurring after the ordinary shareholders’ meeting to be held in 2021.

 

Bernardo ParnesPedro Augusto de Melo. Mr. Parnes is BrazilianSee “—A. Board of Directors and was born on March 4, 1960. He holds a degree in Business Administration with a focus on finance from Fundação Armando Álvares Penteado, SP, and Law from Faculdade de Direito da Universidade de São Paulo, focused in Business Law. He also has a postgraduate in Economics and Finance from Fundação Getúlio Vargas. Mr. Bernardo was CEOBoard of Deutsche Bank Latin America and Chief Country Officer of Deutsche Bank Brazil. At Deutsche Bank, he was also a memberExecutive Officers—Members of the Americas’ Executive Committee, the Regional Management Executive Committee and the Latin American Advisory Board. Prior to Deutsche Bank, he was CEOBoard of Banco Bradesco BBI S.A., and before that, he was CEO of JSI Investimentos Ltda., part of the Safra Group. Mr. Parnes also worked for 14 years at Merrill Lynch, where he was Country Head of Brazil, and worked for seven years at Citigroup in Brazil. He is currently a member of the board of directors of Albert Einstein Hospital, MASP (São Paulo Art Museum) and Coordinator of our Risk and Compliance Committee.Directors.”

 

Álvaro Antônio Cardoso de Souza. See “—A. Board of Directors and Board of Executive Officers—Members of the Board of Directors.”

 

José de Paiva Ferreira. See “—A. Board of Directors and Board of Executive Officers—Members of the Board of Directors.”

 

René Luiz GrandeVirginie Genès-Petronilho. Mr. GrandeMs. Genès-Petronilho is a naturalized Brazilian citizen and was born in France on April 19, 1953. HeAugust 17, 1962. She holds a degree in Economicsbusiness administration from Pontificia Universidade Católica deESCP EUROPE in Paris, France. With 34 years of experience in the banking and reinsurance sectors, she served as Executive Superintendent at BNP Paribas in São Paulo, and a specialization degree in National Financial System from Fundação Instituto de Administração. He was an employeebeing responsible for the business management of the Brazilian Central Bank, qualified bycustomer relationship areas and for the public examination since June, 1975, andcredit portfolio management in Latin America. She also was responsible for the Management of the Credit Risk at Banco Caixa Brasil, also in São Paulo, from May 2009 to October 2011. She worked for 18 years in the Supervision and Inspection DepartmentABN AMRO Group: in March 1997 she served as a senior corporate credit analyst at ABN AMRO Bank NV in Amsterdam until 2000, when she became Vice President of the National Financial System. During his careerCorporate Credit area within the Risk Department for Latin America at ABN AMRO Banco Real in the Brazilian CentralSão Paulo, performing this role until 2005. She was Risk Director at ABN AMRO Bank he served as an Analyst from 1975 to 1978; Technical Assistant from 1978 to 1989; Inspection Supervisor fromin Mexico between 2005 and 2008. From 1989 to 1999; Head of the Banking Supervisory1997 she was Relationship Manager at Banque de Nelflize Schluberger Mallet in Paris and Technical Department from 19991981 to 2003; and Deputy Head of the Banking Supervisory and Financial Conglomerates Department from 2003 to 2011. Before working with the Brazilian Central Bank, he occupied the position of Head of Human Resources with the Companhia Brasileira1989 she was Relationship Manager at Credit Commercial de Embalagens Metálicas BRASILATA from 1973 to 1975. Currently, Mr. Grande isFrance. Ms. Genès-Petronilho has been a member of ourthe Board of Directors of Camara França Brasil since March 2020 and since February 2017 she is Vice President of Risk and Compliance Committee, having heldManagement for Latin America of the positionReinsurance Business Unit of Coordinator of our Audit Committee from 2012 to 2017.Swiss Re Brasil Resseguros in São Paulo.

 

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Nomination and Governance Committee

 

The nomination and governance committee is a consultative body which is responsible for advising the board of directors on subjects related to the nomination and governance of Santander Brasil.

 

The committee is composed of three to seven members, and the majority of those memberswhich must be independent and, preferably, also members of the board of directors. The term of office is two years, reelection permitted, and the members may be removed at any time. The committee meetings are held at least four times a year or when extraordinarily convened by its coordinator.

 

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The current members of the nomination and governance committee are Celso Clemente GiacomettiÁlvaro Antonio Cardoso de Souza (who acts as coordinator), Álvaro Antonio Cardoso de Souza, Deborah Patricia Wright and Luiz Fernando Sanzogo Giorgi. The current members of the nomination and governance committee were appointed on May 3, 2019 to serve until the first board of directors meeting occurring after the ordinary shareholders’ meeting to be held in 2021.

 

Celso Clemente Giacometti. See “—Members of the Board of Directors.”

Álvaro Antonio Cardoso de Souza. See “—A. Board of Directors and Board of Executive Officers—Members of the Board of Directors.”

 

Deborah Patricia Wright. See “—A. Board of Directors and Board of Executive Officers—Members of the Board of Directors.”

 

Luiz Fernando Sanzogo Giorgi. See “—Compensation Committee.”

 

Sustainability Committee

 

The sustainability committee is a consultative body which is responsible for advising the board of directors on subjects relating to social and sustainable development issues, including the promotion of sustainable development and other social initiatives.

 

The committee comprises three to five members, and at least one of these members must be independent. The term of office is of two years, reelection permitted, and the members may be removed at any time. The committee meetings are held at least four times a year or when extraordinarily convened by its coordinator.

 

The current members of the sustainability committee are Marília Artimonte Rocca (who also acts as coordinator), Carlos Rey de Vicente, Carlos Aguiar Neto, Mário Roberto Opice Leão, and Tarcila Reis Corrêa Ursini.Ursini and Tasso Rezende de Azevedo. The current members of the sustainability committee were appointed on May 3, 2019, August 6, 2019, and December 31, 2019 and October 9, 2020 to serve until the first board of directors meeting occurring after the ordinary shareholders’ meeting to be held in 2021.

 

Marília Artimonte Rocca.See “—A. Board of Directors and Board of Executive Officers—Members of the Board of Directors.”

 

Carlos Rey de Vicente. See “—A. Board of Directors and Board of Executive Officers—Members of the Board of Executive Officers.”

 

Carlos Aguiar Neto. See “—A. Board of Directors and Board of Executive Officers—Members of the Board of Executive Officers.”

 

Mario Roberto Opice Leão. See “—A. Board of Directors and Board of Executive Officers—Members of the Board of Executive Officers.”

 

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Tarcila Reis Corrêa Ursini. Ms. Corrêa Ursini is Brazilian, born on May 9, 1974. She holds a degree in Economics from the University of São Paulo (Universidade de São Paulo), a Law degree from the Pontifical Catholic University of São Paulo (Pontifícia Universidade Católica de São Paulo) and a master's degree in Development and Law from Kings College, London. Ms. Corrêa Ursini began her career as a lawyer, with work experiences in Brazil, Spain and England. She was an associated lawyer at Machado, Meyer, Sendancz and Opice from 1997 to 2000 in the Corporate and Mergers and Acquisitions area. Since 2001 she has been working on sustainability strategy, management and research, advising organizations from the most diverse sectors, sizes and cultures. She was manager of the Ethos Institute from 2003 to 2007. She was international representative of Brazil in the development of ISO 26000. Ms. Corrêa Ursini was a member of the International Council of Stakeholders of the Global Reporting Initiative (GRI), Netherlands. She is an independent member of the Duratex S.A. Board of Sustainability Committee since June 2012, beginning to preside it in 2016; is an independent member of the Sustainability Committee of the Baumgart Group Council since February 2017; is an independent member of the Sustainability Committee of Precon Engenharia since 2016. She is a member of the Brazilian Institute of Corporate Governance - IBGC, of the Sustainability Studies Committee since its foundation, was part of the 40th group of Formation Counselors. She is a member of WCD - Women Corporate Directors (IFC / IBGC / KPMG), Women's Leadership Group for Sustainability, Ministry of the Environment and voluntary supporter of various civil society organizations. She is a postgraduate professor in Socio-Environmental Management at FIA. She is co-author of The World Guide to CSR, chapter Brazil, Greenleaf 2009, a collaborator of Communication in Progress of the United Nations Global Compact, co-author of the Term of Reference that defined the Sustainability of the Sebrae System.

 

Tasso Rezende de Azevedo. Mr. Azevedo is Brazilian and was born on March 25, 1972. He graduated as a forest engineer from the Luiz de Queiroz School of Agriculture at the University of São Paulo, with a specialization in Forest Policy from the University of Oxford and Forest Certification in Sweden. He is a forestry, climate and sustainability consultant, a social entrepreneur, and a leading forestry certification auditor since 1998. Mr. Azevedo is the coordinator of Greenhouse Gas Emission and Removal Estimating System (SEEG) which is a system to estimate greenhouse gas emissions in Brazil, Peru and India, as well as MAPBIOMAS, a platform to track historical land cover and land use change maps of Brazil, Amazon Basin and other regions through a multi-institutional collaboration. Mr. Azevedo also serves as board member on several organizations including Rainforest Alliance, NEPCon, Imaflora, and the Institute of Energy and Environment.

 

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Executive Committee

 

The Chief Executive Officer, Senior Vice President Executive Officers and Vice President Executive Officers make up the Executive Committee, which examines policies for business management, operational support, human resources and capital allocation. It also deliberates on the main technological, infrastructure and services projects.

 

Contract termination

 

Employment contracts have an undefined term.period. The voluntary termination of the employment relationship or termination for non-fulfillment of obligations or voluntary does not entitle executives to any financial compensation.

 

6D.Employees

6D. Employees

 

On December 31, 2019,2020, we had 47,81944,599 full-time, permanent employees. The following table presents the breakdown of our full-time, permanent employees (in accordance with local criteria) at the datedates indicated.

 

 As of December 31, As of December 31,
 2019 2018 2017 2020 2019 2018
Administrative employees  12,188   12,480   10,936   12,722   12,188   12,480 
Commercial areas employees  35,631   35,532   36,468   31,877   35,631   35,532 
Total  47,819   48,012   47,404   44,599   47,819   48,012 
            

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The following table presents a breakdown of our full-time, permanent employees (in accordance with local criteria) by geographic location within Brazil at the dates indicated.

 

  As of December 31,
Region 2020 2019 2018
Midwest  1,430   1,021   1,560 
Northeast  4,066   4,283   3,785 
North  674   760   671 
Southeast  30,595   34,732   35,974 
South  3,596   5,957   6,022 
Other  4,238   1,066   - 
Total  44,599   47,819   48,012 
             

We provide a competitive benefits package, which contributes to the engagement, attraction and retention of our employees. To ensure competitiveness, we compare our annual benefit package to market practices and trends. Policies are developed and offered based on the needs of our employees. We also have a policy of providing continuous training to our employees, allowing them to hone their skills and create a more effective team, committed to the values of the group.

 

We have a profit sharing plan with our employees based on predetermined goals for our annual operating and financial results. As a result, if we meet or exceed certain goals, our employees can share in our financial performance. See “—B. Compensation.”

 

We also offer a defined contribution pension plan where employees can choose to contribute part of their wages and to which we can also make contributions on behalf of such employees. This plan provides retirement benefits, and disability and death benefits. Currently the mainlargest plan is SantanderPrevi, a plan that since July 2018 is closed for new participants. As of January 2018, the SBPrev pension plan, administered by Icatu Seguros, was implemented for new employees and new members. As of December 31, 2019, 38,3792020, 34,681 participants were enrolled in SantanderPrevi plan, the total assets under management under the plan was approximately R$4,0824 billion. As of December 31, 2019,2020, we had 4,032 registered participants in the SBPrev plan, we had 3,770 registered participants, with total amount under management of R$195,188271,600 million. For additional information on our pension plans, see note 2321 to our audited consolidated financial statements.

 

The Brazilian Banking Employees’ Union represents most of our employees. In the event of a potential conflict with our banking employees and/or the banking union, negotiations are conducted by the FENABAN. Every two years, generally in September, all Brazilian banks have a collective negotiation period in which they revise salary structures. During this period, the Brazilian Banking Employees’ Union negotiates bank employees’ salaries within the scope of the Brazilian Banking Collective Agreement with the FENABAN. Negotiations pertaining to wages and salaries for the period 2018-20202020-2022 have already been concluded and the levels of compensation agreed are consistent with market practice. Since the acquisition of our predecessor banks by our indirect shareholder Santander Spain, we have not suffered significant losses through strikes and our management believes it has good relations with our employees.

 

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6E. Share Ownership

6E.Share Ownership

 

The following table provides the names of our directors and executive officers as well as members of our fiscal councilFiscal Council who owned shares of Santander Brasil as of March 6, 2020.February 24, 2021.

 

ShareholdersCommon SharesPercentage of Outstanding Common SharesPreferred SharesPercentage of Outstanding Preferred SharesPercentage of Total Share Capital
Alberto Monteiro de Queiroz Netto       38,753                  (1)       38,753                (1)               (1)
Alessandro Tomao       97,861                  (1)       97,861                (1)               (1)
Amancio Acúrcio Gouveia     170,226                  (1)     170,226                (1)               (1)
André de Carvalho Novaes       34,165                  (1)       34,165                (1)               (1)
Angel Santodomingo Martell     146,632                  (1)     146,632                (1)               (1)
Antonio Melchiades Baldisera       10,096                  (1)       10,096                (1)               (1)
Antonio Pardo de Santayana Montes     144,860                  (1)     144,860                (1)               (1)
Carlos Aguiar Neto       45,155                  (1)       45,155                (1)               (1)
Carlos Rey de Vicente     172,260                  (1)     172,260                (1)               (1)
Cassio Schmitt     137,906                  (1)     137,906                (1)               (1)
Celso Clemente Giacometti                1                  (1)               -                   (1)               (1)
Claudenice Lopes Duarte       16,816                  (1)       16,816                (1)               (1)
Conrado Engel     653,191                  (1)     653,191                (1)               (1)
Daniel Fantoni Assa     101,892                  (1)     101,892                (1)               (1)
Ede Ilson Viani     115,288                  (1)     115,288                (1)               (1)
Elita Vechin Pastorelo Ariaz       17,534                  (1)       17,534                (1)               (1)
Germanuela de Almeida de Abreu       36,781                  (1)       36,781                (1)               (1)
Gilberto Duarte de Abreu Filho     192,060                  (1)     192,060                (1)               (1)
Gustavo Alejo Viviani     195,593                  (1)     195,593                (1)               (1)
Igor Mario Puga       15,924                  (1)       15,924                (1)               (1)
Jean Paulo Kambourakis       60,253                  (1)       60,253                (1)               (1)
Jean Pierre Dupui     338,095                  (1)     338,095                (1)               (1)
João Guilherme A S Consiglio     160,645                  (1)     160,645                (1)               (1)
José Antônio Alvarez Alvarez                1                  (1)               -                   (1)               (1)
José de Paiva Ferreira     429,607                  (1)     429,607                (1)               (1)
José Roberto Machado Filho     106,614                  (1)     106,614                (1)               (1)
José Teixeira de Vasconcelos Neto       28,011                  (1)       28,011                (1)               (1)
Juan Sebastian Moreno Blanco     595,436                  (1)     595,436                (1)               (1)
Luis Guilherme Mattos de Oliem Bittencourt       48,160                  (1)       48,160                (1)               (1)
Luiz Masagão Ribeiro Filho     176,413                  (1)     176,413                (1)               (1)
Manoel Marcos Madureira     151,164                  (1)     151,164                (1)               (1)
Marino Alexandre Calheiros Aguiar       24,319                  (1)       24,319                (1)               (1)
Mário Roberto Opice Leão     155,466                  (1)     155,466                (1)               (1)
Patrícia Souto Audi       10,132                  (1)       10,132                (1)               (1)
Rafael Bello Noya       71,793                  (1)       71,793                (1)               (1)
Ramón Sanches Santiago         8,588                  (1)         8,588                (1)               (1)
Ramón Sanchez Díez       79,548                  (1)       79,548                (1)               (1)
Reginaldo Antonio Ribeiro       59,915                  (1)       59,915                (1)               (1)
Roberto Alexandre Borges Fischetti     162,860                  (1)     162,860                (1)               (1)
Robson de Souza Rezende       34,329                  (1)       34,329                (1)               (1)

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Sergio Agapito Lires Rial     496,197                  (1)     496,197                (1)               (1)
Thomas Gregor Ilg       90,551                  (1)       90,551                (1)               (1)
Ulisses Gomes Guimarães       29,256                  (1)       29,256                (1)               (1)
Vanessa de Souza Lobato Barbosa     105,012                  (1)     105,012                (1)               (1)
Employees  3,907,014

0.11

 

  3,914,470

0.12

 

            0.12
Total  9,672,373   9,679,827  

Shareholders Common Shares Percentage of Outstanding Common Shares Preferred Shares Percentage of Outstanding Preferred Shares Percentage of Total Share Capital
Alberto Monteiro de Queiroz Netto  25,218   (1)  25,218   (1)  (1)
Alessandro Tomao  97,861   (1)  97,861   (1)  (1)
Amancio Acúrcio Gouveia  170,226   (1)  170,226   (1)  (1)
Ana Paula Vitali Janes Vescovi  4,407   (1)  4,407   (1)  (1)
André de Carvalho Novaes  17,811   (1)  17,811   (1)  (1)
Angel Santodomingo Martell  146,632   (1)  146,632   (1)  (1)
Antonio Melchiades Baldisera  10,096   (1)  10,096   (1)  (1)
Antonio Pardo de Santayana Montes  120,860   (1)  120,860   (1)  (1)
Carlos Aguiar Neto  22,549   (1)  22,549   (1)  (1)
Carlos Rey de Vicente  41,999   (1)  41,999   (1)  (1)
Cassio Schmitt  137,906   (1)  137,906   (1)  (1)
Claudenice Lopes Duarte  8,974   (1)  8,974   (1)  (1)
Daniel Fantoni Assa  101,892   (1)  101,892   (1)  (1)
Ede Ilson Viani  71,288   (1)  71,288   (1)  (1)
Elita Vechin Pastorelo Ariaz  17,534   (1)  17,534   (1)  (1)
Franco Luigi Fasoli  13,413   (1)  13,413   (1)  (1)
Geraldo José Rodrigues Alckmin Neto  59,320   (1)  59,320   (1)  (1)
Germanuela de Almeida de Abreu  26,781   (1)  26,781   (1)  (1)
Gustavo Alejo Viviani  150,593   (1)  150,593   (1)  (1)
Igor Mario Puga  15,924   (1)  15,924   (1)  (1)
Jean Paulo Kambourakis  40,853   (1)  40,853   (1)  (1)
Jean Pierre Dupui  201,075   (1)  201,075   (1)  (1)
João Guilherme A s Consiglio  160,645   (1)  160,645   (1)  (1)
João Marcos Pequeno de Biase  48,964   (1)  48,964   (1)  (1)
Jose Antonio Álvarez Alvarez  1   (1)  -   (1)  (1)
Jose de Paiva Ferreira  429,608   (1)  429,607   (1)  (1)
Jose Teixeira de Vasconcelos Neto  15,011   (1)  15,011   (1)  (1)
Juan Sebastian Moreno Blanco  595,436   (1)  595,436   (1)  (1)
Luis Guilherme Mattos de Oliem Bittencourt  20,160   (1)  20,160   (1)  (1)
Luiz Masagão Ribeiro Filho  176,413   (1)  176,413   (1)  (1)
Manoel Marcos Madureira  151,164   (1)  151,164   (1)  (1)
Marcelo Augusto Dutra Labuto  43,448   (1)  43,448   (1)  (1)
Marino Alexandre Calheiros Aguiar  13,229   (1)  13,229   (1)  (1)
Mário Roberto Opice Leão  155,466   (1)  155,466   (1)  (1)
Patrícia Souto Audi  10,132   (1)  10,132   (1)  (1)
Ramon Sanchez Santiago  8,588   (1)  8,588   (1)  (1)
Ramón Sanchez Díez  49,548   (1)  49,548   (1)  (1)
Reginaldo Antonio Ribeiro  59,915   (1)  59,915   (1)  (1)
Roberto Alexandre Borges Fischetti  162,860   (1)  162,860   (1)  (1)
Robson de Souza Rezende  34,329   (1)  34,329   (1)  (1)
Sandro Kohler Marcondes  13,746   (1)  13,746   (1)  (1)
Sandro Rogério da Silva Gamba  29,823   (1)  29,823   (1)  (1)
Sérgio Agapito Lires Rial  218,115   (1)  218,115   (1)  (1)
Thomas Gregor Ilg  47,651   (1)  47,651   (1)  (1)
Vanessa de Souza Lobato Barbosa  70,012   (1)  70,012   (1)  (1)
Vítor Ohtsuki  16,267   (1)  16,267   (1)  (1)
Employees  2,046,755       2,046,757         
Total  5,758,593       5,758,593         
 

(1)Owns less than 0.01%.

 

(2)No longer an officer.

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Shares held by members of our boardBoard of directors,Directors, our officers and members of our fiscal councilFiscal Council do not have special voting rights in relation to shares held by our other shareholders.

 

For a description of our equity compensation plans, see “Item 6. Directors, Senior Management and Employees ––“––B. Compensation.”

 

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ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

 

7A.Major Shareholders

7A. Major Shareholders

 

As of March 6, 2020,February 24, 2021, Santander Spain directly and indirectly through its subsidiaries, Grupo Empresarial Santander, S.L. and Sterrebeeck B.V., owned approximately 89.5% of our total capital stock (not including the shares held by Banco Madesant - Sociedade Unipessoal).stock.

 

The following table presents the beneficial ownership of our common and preferred shares as of February 28, 2020.24, 2021.

 

Principal Shareholders Common Shares Percentage of Outstanding Common Shares Preferred Shares Percentage of Outstanding Preferred Shares Total Shares (thousands) Percentage of Total Share Capital Common Shares Percentage of Outstanding Common Shares Preferred Shares Percentage of Outstanding Preferred Shares Total Shares (thousands) Percentage of Total Share Capital
 (in thousands, except percentages) (in thousands, except percentages)
Sterrebeeck BV(1)  1,809,583   47.39%  1,733,643   47.11%  3,543,226   47.25%
Sterrebeeck BV (1)  1,809,583   47.39%  1,733,644   47.11%  3,543,227   47.25%
Grupo Empresarial Santander SL  1,107,672   29.01%  1,019,645 �� 27.71%  2,127,317   28.37%  1,627,891   42.63%  1,539,863   41.85%  3,167,755   42.25%
Banco Santander, S.A.  521,964   13.67%  519,268   14.11%  1,041,232   13.89%  2,696   0.07%  -   0.00%  2,696   0.04%
Treasury Shares(2)  16,820   0.44%  16,701   0.45%  33,521   0.45%  18,829   0.49%  18,829   0.51%  37,658   0.50%
Employees(3)(2)  9,672   0.25%  9,679   0.26%  19,351   0.26%  6,265   0.16%  6,273   0.17%  12,538   0.17%
Other minority shareholders  352,981   9.24%  380,897   10.35%  733,878   9.79%  353,430   9.26%  381,227   10.36%  734,657   9.80%
Total  3,818,692   100%  3,679,833   100%  7,498,525   100%  3,818,695   100%  3,679,836   100%  7,498,531   100%

(1) An affiliate within the Santander Group.

(2) Includes members of senior management. See “Item 6. Directors, Senior Management and Employees—E. Share Ownership.”

(1)An affiliate within the Santander Group.

(2)On September 18, 2017, our shareholders approved the cancellation of 64,551,366 shares held in treasury (32,275,683 common shares and 32,275,683 preferred shares).

(3)Includes members of senior management. See “6E. Share Ownership.”

 

For further information of our ownership structure, see Item“Item 18. Financial StatementsStatements” of this formannual report on Form 20-F, in notes 2827 - Shareholders’ equity (letter a) and 4645 - Related party transactions (letter c).

 

Regarding theThe total number of ADRs held by U.S. investors as of December 31, 2019,2020 is 161,153,083.145,927,657. The total number of Units held by U.S. investors as of December 31, 2019,2020, is 58,273,91753,392,884 (excluding Units held by The Bank of New York Mellon as depositary).

 

Significant Changes in Percentage Ownership of Principal Shareholders

 

On April 11, 2017, Qatar Holding LLC, or the “Selling Shareholder,” participated in a secondary offering of 80,000,000 units, each of which is composed of one common share, no par value, and one preferred share, no par value, of Santander Brasil. Furthermore, the Selling Shareholder granted the international underwriters the option to purchase up to 12,000,000 additional ADSs of Santander Brasil within 30 days from, but not including, April 5, 2017, solely to cover over-allotments of ADSs, if any. The international underwriters exercised the option for 5,065,000 ADSs, and the settlement took place on May 9, 2017.

 

On September 18, 2017, our shareholders approved the cancellation of 64,551,366 shares held in treasury, representing 32,275,683 common shares and 32,275,683 preferred shares. Such treasury shares corresponded, as of that date, to the totality of the shares then held in treasury.

 

On December 31, 2018, we held 26,633,004 shares in treasury, of which 13,316,502 were common shares and 13,316,502 were preferred shares.

 

On December 31, 2019, we held 34,466,574 shares in treasury, of which 17,233,287 were common shares and 17,233,287 were preferred shares.

 

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On February 20,December 22, 2020, (i) Santander Spain transferred to 519,268,168,572 ADRs issued by Santander Brasil to Grupo Empresarial Santander S.L. and (ii) Banco Madesant Sociedade Unipessoal S.A. transferred 950,000 ADRs issued by Santander Brasil to Grupo Empresarial Santander S.L. As these transfers were both within the Santander Group there was no change in our ultimate indirect control.

On December 31, 2020, we held 35,356,57437,657,924 shares in treasury, of which 17,678,28718,828,962 were common shares and 17,678,28718,828,962 were preferred shares.

 

On February 24, 2021, we held 37,657,924 shares in treasury, of which 18,828,962 were common shares and 18,828,962 were preferred shares.

Voting Rights of Principal Shareholders

 

Our principal shareholders do not have voting rights distinct from those of our other shareholders. See “Item 10. Additional Information—B. By-Laws—Rights of Common Shares and Preferred Shares.

 

7B.Related Party Transactions

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7B. Related Party Transactions

 

We have a related party transactions policy, with respect to related party transactions, which requires that any related transactions be approved by the board of directors. This is intended to ensure that all transactions covered by the policy are conducted in our interest and that any related party transactions are conducted on an arm’s length basis on terms substantially similar to those of comparable transactions in the market. The policy defines the power to approve certain transactions as resting with the board of directors. The policy defines related transactions as those occurring between us and our shareholders, our subsidiaries, our employees, directors and officers, as well as our subsidiaries’ employees, directors and officers. The policy defines the power to approve certain transactions as resting with the board of directors. Additionally, related party transactions are included in the regular auditing program developed by our internal audit.

 

We currently engage in, and expect from time to time in the future to engage in, financial and commercial transactions with our subsidiaries and affiliates and those of the Santander Group. We have credit lines outstanding with certain of our affiliates within the Santander Group and its affiliated financial institutions around the world.Group. As of December 31, 2019,2020, borrowings and deposits from the Santander Group represented approximately 1%3.8% of our total funding. In addition, from time to time, we enter into certain transactions with the Santander Group and other related parties for the provision of advisory and advertising services. Such transactions are conducted on an arm’s-length basis, based on terms that would have been applied for transactions with third parties.

 

The transactions and remuneration of services with related parties are made in the ordinary course of business on an arms’ length basis under similar conditions, including interest rates, terms and guarantees, and involve no greater risk than transactions with unrelated parties carried out in the ordinary course and have no other disadvantages. The following discussion describes all of our material related party transactions.

 

Information Technology Platform

 

We have entered into agreements with some affiliates of the Santander Group (Santander Global Technology, S.L., Santander Brasil Tecnologia S.A, (Brazil) and Santander Global Technology Brasil Ltda. and the new branch Santander Tecnologia e Inovação Ltda) for the outsourcing of certain products and services relating to our information technology platform, including software development and maintenance, infrastructure and cybersecurity.

 

We believe the provisions of these services are provided on an arm’s-length basis with terms substantially similar to those available from other providers in the market. In 2019 and 2018,2020, Santander Group affiliates received approximately R$859 million and R$586 million,1 billion, respectively, for the products and outsourcing provided above. In 2020, the exchange rate variations had a significant impact on the value of the contracts into which we have entered with Santander Group affiliates outside of Brazil. See “Item 4. Information on the Company—B. Business Overview— Technology and Commercial Transformation—Technological Infrastructure.”

 

Procurement Services

 

We have entered into agreements with Aquanima Brasil Ltda., an affiliate of the Santander Group, which provides procurement services with Santander Brasil and its affiliates. We contracthire solutions in Tradetrade negotiations, Tacticaltactical and Strategic Purchasing, Online Procurement, Supplier Management, Outsourcingstrategic purchasing, online procurement, supplier management, outsourcing and Consulting.consulting. Among the strategies used, we highlight possible joint purchases of

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materials and services between different customers and other economic groups, which allow greater efficiency in price negotiations and rationalization of services.services, as well as the engagement of a vendor risk assessment in 2020. We paid Aquanima Brasil Ltda. approximately R$40 million in 2020 and R$29 million in 2019 and R$27 millionfor the services rendered in 2018.those years.

 

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Other Related Party Transactions

 

For further information, see note “46“45 - Related party transactions (letter d)”transactions” in “Item 18. Financial Statements,” which contains our audited consolidated financial statements prepared in accordance with IFRS as issued by the IASB.

 

7C.Interests of Experts and Counsel

On February 28, 2020, we sold our entire equity interest in Superdigital to Superdigital Holding Company, S.L. a company indirectly controlled by Santander Spain. For further information regarding this sale, see “See “Item 4. Information on the Company—4A. History and Development of the Company—Important Events.”

7C. Interests of Experts and Counsel

 

Not applicable.

 

ITEM 8. FINANCIAL INFORMATION

 

8A.Consolidated Statements and Other Financial Information

8A. Consolidated Statements and Other Financial Information

 

See “Item 18. Financial Statements,” which contains our audited consolidated financial statements prepared in accordance with IFRS as issued by the IASB.

 

Legal Proceedings

 

We are a party to lawsuits and administrative proceedings incidental to the normal course of our business. The main categories of lawsuits and administrative proceedings to which we are subject include:

 

·administrative and judicial actions relating to taxes;

 

·administrative and indemnification suits for damages related to consumer rights, especially in particular with respectrelation to credit cards, checking accounts and loan disputes;

 

·lawsuits involving disputes related to contracts and instruments to which we are a party, including claims related to breach of contracts;

 

·civil lawsuits mainly from depositors and civil associations, including individual lawsuits and class actions, challenging monetary adjustments determined by government economic plans instituted to combat inflation during the 1980s and 1990s;

 

·lawsuits relating to the privatization of Banespa;

 

·class actions involving agreements and settlement of debts with the public sector; and

 

·suits brought by employees, former employees, associations and unions relating to alleged labor rights violations.

 

In accordance with IAS 37 – Provisions, Contingent Liabilities and Contingent Assets, we record provisions for judicial proceedings in which we assess the risk of loss to be probable and we do not record provisions when the risk of loss is possible or remote. In cases where there is ongoing litigation, we record a provision for our estimate of the probable loss based on historical data for similar claims. In addition, we record provisions (i) on a case-by-case basis based on the analysis and legal opinion of internal and external counsel or (ii) by considering the historical average amount of loss of such category of lawsuits. Due to the established provisions and the legal opinions provided by our counsel, we believe that any liabilities related to lawsuits or proceedings to which we are a party, both individually and in the aggregate, will not have a material adverse effect on our financial condition or results of operations.

 

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As of December 31, 2019,2020, our judicial and administrative proceedings classified as probable loss risk (tax, labor and civil) and legal obligation amounted to approximately R$9.2 billion11,723 million and have been provisioned. We believe that we have made adequate provisions related to the costs anticipated to be incurred in connection with our judicial and administrative proceedings. Our judicial and administrative proceedings classified as possible loss risk (tax, labor and civil) amounted to approximately R$27.6 billion.29,352 million.

 

Tax Litigation

 

We are a party to several tax-related lawsuits and judicial and administrative proceedings.

 

The main lawsuits related to tax legal obligations fully recognized as obligations are:

 

·PIS/COFINS. We filed lawsuits seeking to invalidate the provisions of Law 9,718/98, pursuant to which PIS and COFINS taxes must be levied on all revenues of legal entities. Prior to the enactment of such provisions, which have been overruled by recent Supreme Court decisions for non-financial institutions, PIS and COFINS were levied only on revenues from services and sale of goods. On April 23, 2015, the Supreme Court issued a decision, applicable solely to Santander Brasil, accepting jurisdiction over the appeal regarding PIS and rejecting jurisdiction over the appeal related to COFINS. The tax authorities appealed the decision of the Supreme Court related to COFINS and their appeal was denied on August 19, 2015. In respect of COFINS, the case is finished with a favorable decision applicable to Santander Brasil. The appeal related to PIS, as well as the appeals submitted by other companies in the group, are pending. As of December 31, 2019,2020, such claims amounted to R$3,7563,994 million and are fully provisioned.

 

As of December 31, 2019,2020, our probable loss risk for tax litigation amounted to approximately R$6,2776,054 million fully provisioned and our possible loss risk for tax litigation amounted to approximately R$24,70827,447 million.

 

The main judicial and administrative proceedings to whichclassified with a probable loss risk assessment relates are:

 

·Tax on services for financial institutions. Certain municipalities levy Service Tax(Imposto Sobre Serviços – ISS) on certain revenues derived from transactions not usually classified as the rendering of services. In such cases,services, for which we have argued in administrative and judicial proceedings against the payment of ISS.such taxes. As of December 31, 2019,2020, amounts related to these proceedings totaled R$225263 million, which are fully provisioned.

 

·Social security contribution. We are involved in administrative and judicial proceedings regarding the collection of income tax on social security and education allowance contributions, as we believe that these benefits do not constitute salary. As of December 31, 2019,2020, amounts related to these proceedings totaled R$28251 million, which are fully provisioned.

 

·Taxes on banking transactions. In May 2003, the Federal Revenue Service issued a tax assessment against Santander Distribuidora de Títulos e Valores Mobiliários Ltda. (Santander DTVM), or “Santander DTVM” and another tax assessment against Santander Brasil. The tax assessments refer to the collection of CPMF (Contribuição Provisória sobre Movimentação Financeira) tax on transactions conducted by Santander DTVM in the cash management of its customers’ funds and clearance services provided by Santander Brasil to Santander DTVM in 2000, 2001 and 2002. Based on our tax advisors’ opinion, the procedures adopted by Santander DTVM were correct. Santander Brasil DTVM succeeded in the first instance in its proceeding before the tax appeals board, but this decision was overturned in the Superior Chamber of Tax Appeals, and we were found liableThe administrative discussion ended unfavorably for the tax assessment. Both decisions were appealed before the Board of Tax Appeals (Conselho Administrativo de Recursos Fiscais), or the “CARF.” In June 2015, the CARF upheld the decision of the Superior Chamber of Tax Appeals.both companies. On July 3, 2015, Santander Brasil and Produban Serviços de InformáticaSantander Brasil Tecnologia S.A. (current(the current name of Santander DTVM) filed a lawsuit requesting the cancellation of both tax assessments. This request was judged unfavorably. We have appealed to the court. On December 8, 2020, the appeals were decided unfavorably. We have filed a motion for clarification and are awaiting a decision. The amount as of December 31, 2020 totaled R$1,678 million. Based on the assessment of legal counsel, a provision of R$924 million was made to cover the probable risk of loss in these proceedings.

 

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lawsuit requesting the cancellation of both tax assessments. The lawsuit was judged unfavorably and a decision on an appeal is currently pending judgment in court. The amount as of December 31, 2019 totaled R$1,489 billion. Based on the assessment of legal counsel, a provision of R$743 million was made to cover the probable risk of loss in these proceedings.

Contingent liabilities classified as possible risk of loss refer to judicial and administrative proceedings involving tax matters assessed by the management, taking ininto account the advice of our legal counsels, as possible losses, which were not recognized as liabilities. The main lawsuits include:

 

·Losses on loans. We have challenged the tax assessments issued by the Brazilian Federal Revenue Service claiming that our deduction of losses on loans from our corporate income tax (Imposto de Renda das Pessoas Jurídicas – IRPJ) and CSLL (Contribuição Social sobre o Lucro Líquido) bases have not met the relevant requirements under applicable law. As of December 31, 20192020 the amount related to this challenge was approximately R$1,517581 million.

 

·Social Security Contribution – Profit Sharing Payments (Participação nos Lucros e Resultados, or “PLR”). We are involved in administrative and judicial proceedings arising from tax assessment with respect to the collection of social security contributions on profit sharing payments. The tax authorities claim that payments by us were not made in accordance with law. We have appealed against these infraction notices, since we consider the tax treatment to be appropriate based on applicable law and the nature of the payments. As of December 31, 20192020, amounts related to these infraction notices totaled approximately R$6,5874,931 million.

 

·IRPJ and CSLL – Capital Gain. The Brazilian Federal Revenue Service issued a tax assessment against Santander Seguros S.A. (legal successor of ABN AMRO Brasil Dois Participações S.A. (AAB Dois Par)) charging income tax and social contribution related to the 2005 fiscal year. The Brazilian Federal Revenue Service claims that the capital gain on the sale of Real Seguros S.A. and Real Vida e Previdência S.A. by AAB Dois Par should be paid at a 34.0% tax rate instead of 15.0%. The assessment was appealed at the administrative level based on our understanding that the tax treatment adopted in the transaction was in compliance with the current tax law and the capital gain was properly taxed. We are awaitingThe administrative discussion ended unfavorably. The company filed a decision bylawsuit requesting the CARF.cancellation of tax assessments. We are responsible for any adverse outcome in this process as a former controlling shareholder of Zurich Santander Brasil Seguros e Previdência S.A. As of December 31, 20192020 the amount related to this proceeding was approximately R$400488 million.

 

·Goodwill amortization of the acquisition of Banco Real. In October 2014, the Brazilian Federal Revenue Service issued a tax assessment against Santander Brasil in the amount of R$1,063 billion,million, claiming income tax and social contribution relating to the 2009 tax year. The argument of the Brazilian Federal Revenue Service is that the amortization of goodwill arising before our merger with Banco Real cannot be deducted. We are awaiting a decision by the CARF. As of December 31, 20192020 the amounts related to this proceeding totaled approximately R$1,4161,440 million. This case is classified as possible risk of loss concerning the amortization of goodwill and as remote loss in relation to the fine charged in the case.

 

·Goodwill amortization of the acquisition of Banco Sudameris. In November 2014, we received a tax assessment of R$196 million related to the deduction of goodwill amortization relatingin relation to the acquisition of Banco Sudameris. In December 2012, we received a similar tax assessment in the amount of R$239 million relating to the fiscal years encompassing August 2007 to April 2009. We have appealed in both cases to the CARF. We consider our risk of loss in this case as possible. As of December 31, 20192020 the amount related to this proceeding was approximately R$634646 million.

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·Unrecognized Compensation. We are currently engaged in legal and administrative proceedings with the Brazilian federal revenue serviceFederal Revenue Service relating to the failure to ratify certain tax offsets with credits due to overpayment or undue payment. As of December 31, 20192020, the amount related to these proceedings was approximately R$4,1824,641 million. The risk of loss is classified as possible.

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·Tax on Services (ISS) - Financial Institutions - We are currently party to proceedings relating to the payment of ISS to various municipalities with respect to various revenues arising from operations that are usually not classified as services. On December 31, 20192020 the amounts related to these proceedings totaled approximately R$3,0323,582 million.

Joined Certain Tax Repayment Programs

·In August 2017 we joined the PERT. The program allows for certain tax debts to be repaid in installments. In connection with our participation in this program, we are repaying in installments certain amounts due as a result of lawsuits and administrative proceedings relating to corporate income tax and social security contributions for the periods from 1999 to 2005 in a total amount of R$492 million in January 2018 (taking into account the reduction arising from our participation in the program). A payment of R$191.9 million was due in August 2017 and a further payment of R$299.7 million was due by January 2018, both of which we have made within the prescribed time limits. As a result, we recorded expenses in an amount of R$364 million (after tax) in the third quarter of 2017.

 

·In October 2017 we joined the Incentive Payment ProgramsUse of CSLL Tax and Installments (Programas de Parcelamento IncentivadoNegative Tax Loss ) created by the cities of Rio de Janeiro and São Paulo. The programs allow for certain tax debts to be repaid in installments. In connection with our participation in these programs, we– We are repaying in installments certain amounts due as a result of lawsuits and administrativecurrently party to proceedings relating to ISS fortax assessments issued by the periods from 2005Federal Revenue Service in 2009. These proceedings relate to 2016the alleged undue compensation of tax loss carryforwards and negative basis of CSLL, because of tax assessments drawn up in a total amount of R$293 million asprevious periods. Judgment is pending at the administrative level. As of December 31, 2017. As we had made provisions for these losses, we registered income of2020, the amount was R$435 million as a result of the reversal of certain provisions, net of tax effects, in an amount of R$961,072 million.

 

·Goodwill Amortization of Getnet Tecnologia – The tax authorities have issued infraction notices against Getnet Adquirência e Serviços para Meios de Pagamentos S.A and Santander Brasil, to require the income tax and social contribution payments, including late charges, relating to tax deduction of amortization of goodwill from the acquisition of Getnet Tecnologia for the period of 2014 to 2018. Tax authorities considered that the companies did not comply with the legal requirements for such amortization. Both companies presented their respective defenses, and are awaiting judgment at the administrative level. As of December 31, 2020, the amounts related to these proceedings totaled approximately R$807 million.

Labor Litigation

 

Similar to many other Brazilian banks, we are party to lawsuits brought by labor unions, associations and individual employees seeking, in general, compensation for overtime work, lost wages and retiree complaints about pension benefits and other labor rights. We believe we have either paid or adequately provisioned for all such potential liabilities. In addition, we are defendants in labor lawsuits filed by third-party employees that rendered or render services to us through service providers. Brazilian courts understand that if a third-party service provider fails to pay its employee, the employee has the right to demand payment directly from the company to which it rendered its services. As of December 31, 2019,2020, our probable loss risk of labor-related litigation amounted to R$3.3 billion,3,001 million, which amount has been provisioned. Our possible loss risk of labor-related litigation amounted to R$220.2227 million.

 

Former employees of Banco do Estado de São Paulo S.A.:

 

·A claim was filed in 1998 by the association of retired Banespa employees (AFABESP) requesting the payment of a half-yearly bonus contemplated in the bylaws of Banespa in the event that Banespa obtained a profit and that the distribution of this profit were approved by the Board of Directors. The bonus was not paid in 1994 and 1995 since Banespa had not made a profit during those years. Partial payments were made from 1996 to 2000, as approved by the board of directors. The relevant clause in the by-lawsbylaws was eliminated in 2001. The Regional Labor Court and the High Employment Court ordered Santander Brasil, as successor to Banespa, to pay this half-yearly bonus for the period from 1996 to the present. On March 20, 2019, a decision from the Federal Court of Justice (Supremo Tribunal Federal, or “STF”) rejected the extraordinary appeal filed by Santander Brasil. We have brought a rescission action to revert the decision in the main proceedings and suspend procedural enforcement. While thereThe rescission action was dismissed in 2020 and, as of the date of this annual report, the deadline to file an extraordinary appeal to the STF has not yet lapsed. Our legal advisors have classified the risk of loss as probable. The current court decision does not define a specific amount to be paid by the defendants (this would only be determined once a final decision is an injunction in force authorizingissued and the enforcement process has begun, which is not the case yet).

 

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certain steps of the execution any acts of seizure of assets or freezing of funds are prohibited until the judgment present is delivered in ongoing rescission action. Our legal advisors have classified the risk of loss as probable. The current court decision does not define a specific amount to be paid by the defendants (this would only be determined once a final decision is issued and the enforcement process has begun).

IGPDI

IGPDI

 

·A claim was filed in 2002 in Brazilian Federal Court by AFABESP on behalf of its members requesting that certain pension supplements to which persons admitted to the relevant retirement plan prior to May 22, 1975 be adjusted pursuant to the IGP-DI index (Índice Geral de Preços - Disponibilidade Interna). The first instance judgment was favorable to the plaintiffs, requiring that the correction be made but only in the periods in which no other form of adjustment was applied. We and Banesprev have appealed this decision. In Provisional Execution calculations were presented bycase the decision is unfavorable to Santander Brasil and Banesprev, with "zero" result duethere would be no estimated impact as any potential beneficiaries are parties to the exclusion of participants who, among other reasons, are listed as authors in other actionsongoing litigation or have already had some type ofbenefitted from an adjustment. The contingent liabilities are classified as possible risk of loss. The amount related to this action is not disclosed due to the current stage of the process and the possible impact that such disclosure may generate on the progress of the claim. We are currently waiting the Brazilian Federal Regional Court to determine the date of the judgment.

 

Abusive Targets Class Action - 2017

 

The labor Federal Public Prosecutor’s Office (Ministério Público Federal) filed a class action against Santander Brasil alleging that our management of our employees is in appropriate. Specifically, the class action alleges that we apply constant pressure to meet abusive, excessive and continuously increased goals, make excessive and inappropriate demands, impose excessive workloads resulting in physical and psychological strain, make constant threats of dismissal for failure to meet targets, have a staff too small to deal with the existing workload, run an organizational model based on stress and humiliation, and that, as a result, we have allegedly caused irreparable damage to employees’ physical and mental health as a result of which the public social security system has suffered losses of more than R$90 million due to the 7,677 accident-related and social security benefits granted to employees from 2010 to 2015.

·The labor Federal Public Prosecutor’s Office (Ministério Público Federal do Trabalho) filed a class action against Santander Brasil alleging that our management of our employees is inappropriate. Specifically, the class action alleges that we apply constant pressure to meet abusive, excessive and continuously increased goals, make excessive and inappropriate demands, impose excessive workloads resulting in physical and psychological strain, make constant threats of dismissal for failure to meet targets, have a staff too small to deal with the existing workload, run an organizational model based on stress and humiliation, and that, as a result, we have allegedly caused irreparable damage to employees’ physical and mental health as a result of which the public social security system has suffered losses of more than R$90 million due to the 7,677 accident-related and social security benefits granted to employees from 2010 to 2015.

 

The Federal Public Prosecutor’s Office’s claim demands that we refrain from subjecting employees to abusive targets, to reduce the target levels, refrain from increasing targets by more than 10% per year, institute a quarterly targeting system, and refrain from adopting targets for operational areas. There is also a claim for the payment of indemnity for collective moral damages in an amount not belowless than R$460 million and that we be prohibited from contracting with the government for 10 years. The Federal Public Prosecutor’s Office is also demanding that a fine of R$500 thousand be set for any breach by us of the obligations imposed on us following the judgment.

 

The lower court ruling prohibited submitting employees to abusive targets. It also determined that the targets should only be reviewed only annually and that their annual variation should be subject to collective bargaining between Santander Brasil and the unions. The ruling also prohibited setting targets for employees in the back office and control departments and required payment of indemnity for collective moral damages in the amount of R$274.4 million, in addition to imposition of certain daily fines. Finally, the ruling determined that we are required to implement a new experimental target program under the terms provided for in the decision from January 1, 2020. We appealed this decision and obtained a momentary suspension of the condemnatory decision. We estimate the risk of loss as remote.

 

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Civil Litigation

 

We are a party to civil lawsuits claiming damages and other civil remedies. These disputes normally fall within one of the following categories: (i) actions requesting the review of contractual terms and conditions or seeking monetary adjustments, including the alleged effects of implementation of certain

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economic government plans (as described below); (ii) actions arising from loan agreements; (iii) execution actions; and (iv) actions seeking damages. As of December 31, 2019,2020, our probable loss risk in connection with civil litigation liabilities amounted to R$2.5 billion,2,669 million, which has been provisioned in full and our possible loss risk in connection with civil litigation liabilities amounted to R$1,5 billion.1,753 million. For civil lawsuits considered to be common and similar in nature, the provisions are recorded based on statistically averaged previous payments, and on the legal counsel’s evaluation of success. Provisions for other lawsuits are determined individually on a case-by-case basis.

 

Economic Plans

 

Like the rest of the banking system, we have been the subject of claims from customers and depositors and of class actions brought for a common reason, arising from a series of legislative changes relating to the calculation of inflation in the 1980s and 1990s (“planos econômicos”micos”). The claimants considered that their vested rights had been impaired due to the immediate application of these adjustments. The claims relate to the adjustments to the calculation of inflation applied on the amounts held in (i) savings deposit accounts (depósitos em conta poupança); (ii) time deposits (CDBs); and (iii) court deposits (depósito judicial).

 

In April 2010, the High Court of Justice, or “STJ,” set a limitation period for these class actions at five years, as claimed by the banks, rather than twenty years, as sought by the claimants. There are no new claims in connection with this matter due to the statute of limitations. The decisions issued to date have been adverse for the banks, although some proceedings have been brought to the STJ and the STF which are expected to be definitively settled. In August 2010, STJ handed down a decision finding for the plaintiffs in terms of substance, but excluding one of the “planos” from the claim, thereby reducing the amount thereof, and once again confirming the five-year statute of limitations period. Shortly thereafter, the STF issued an injunctive relief order whereby the proceedings in progress are stayed until the court issues a final decision. Although the STF initiated judgment in November 2013, a formal ruling has not been handed down as of the date hereof and we cannot predict when a formal ruling will be handed down by either the STJ or the STF. In December 2017, the Brazilian Attorney-General’s Office (Advocacia-Geral da União), the Brazilian Central Bank, the Brazilian Consumer Protection Institute (Instituto Brasileiro de Defesa do Consumidor), the Brazilian Savers’ Association (Frente Brasileira pelos Poupadores) and the Brazilian Federation of Banks (Federação Brasileira dos Bancos) have signed an agreement to resolve existing disputes over the impact of the economic plans on the amounts held by claimants in savings deposit accounts. The settlement discussions did not address the full value of the payments and focused on setting the amount that would be paid to each person according to the relevant balance at the plan date. The total value of the payments will depend on the number of persons adhering, as well as on the number of savers who have proved in court the existence of the account and the balance on the date of the anniversary of the change in indices. The terms of agreement were negotiated between the parties and submitted to the STF, which approved the terms of the agreement on March 1, 2018 (for further details about the agreement please see the specific section “Cartilha Planos Econômicos” on the website of the Brazilian Banks Federation, which is not incorporated herein by reference). All existing claims were suspended for two years in which period claimants must decide whether or not they will adhere to the agreement.

 

In November 2018, the STF handed down a decision recognizing the leading court status (repercussão geral) of an appeal discussing the matter of understated inflation in the monetary restatement of court deposits and determined that procedures related to this matter will be stayed until a final decision is reached by the court.

 

On March 3, 2020, the agreement was extended by means of an amendment, with the inclusion of actions that involve only the discussion of the Collor I Plan. This extension has a term of five years. The approval of the terms of the amendment occurred on June 3, 2020.

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Insilene Indústria de Silenciosos do Nordeste Ltda.

 

This is a judicial claim filed against our wholly-owned subsidiary Banco Bandepe S.A., or “Bandepe,” in connection with a loan agreement entered into between Bandepe and Insilene Indústria de Silenciosos do Nordeste Ltda., or “Insilene”. According to the complaint, Bandepe never provided the loan foreseen in the agreement, as a result of which Insilene went into bankruptcy. In this judicial process, the judge ruled in favor of Insilene and such decision may no longer be appealable. The

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proceeding is in its liquidation phase, and there is disagreement between Bandepe and Insilene regarding the value to be paid. The Court of Justice of the State of Pernambuco approved the amount indicated in the expert’s report and denied the calculation criteria sustained by Bandepe. Bandepe filed an appeal to the STJ to change the form of liquidation to a form more favorable to Bandepe, on the basis that Insilene could have foreseen the damages. This appeal was successful and the liquidation phase will be restarted. After such decision and considering the changes in the form of liquidation, the risk of effective financial loss was reclassified as remote.

 

Fundo de Investimento em Direitos Creditórios Trendbank Banco de Fomento – Multisetorial.

 

A legal proceeding was filed against us in connection with the provision of custody services to Fundo de Investimento em Direitos Creditórios Trendbank Banco de Fomento – Multisetorial, or the “Fund,” related to the acquisition of fake or defective bonds. In a decision by the first instance court, the case was dismissed in relation to us on the grounds that the custodian could not be held responsible for the acquisition of bonds. The Court of Justice reversed the decision of the lower court as a result of which the case will be retried following the expert phase. We estimate the risk of loss as possible.

 

Similar proceedings have been brought by the Federal General Accounting Office (Tribunal de Contas de União- TCU) and the CVM, to determine the liability for losses caused to pension funds as a result of their investments in the Fund. InThe pension funds involved in the CVM proceeding pension funds are PETROS - Fundação Petrobras de Seguridade Social and Postalis – Instituto de Previdência Complementar andComplementar. Only damages to Postalis are under discussion in the TCU proceeding only the liability for losses caused to POSTALIS pension fund is under discussion.. In both proceedings, weWe have presented our defense.defenses to both proceedings.

 

Camargo Corrêa S.A. and Camargo Corrêa Administração e Participações Ltda.

 

We filed a judicial proceeding, along with certain affiliates of ours, against Camargo Corrêa S.A. and Camargo Corrêa Administração e Participações Ltda., or “Camargo Corrêa,” in connection with the association agreement entered into for the implementation of the control and administration of Banco Geral do Comércio S.A., or “BGC,” and its affiliates, or the “Association Agreement.” Under this proceeding, the plaintiffs seek compensation for damages arising from obligations originated from events whichthat took place before the signature of the Association Agreement, and whichthat were only disclosed to the parties after the implementation of the agreement, and we (along with our affiliates) assumed BGC’s management. In response, Camargo Corrêa filed a counterclaim arguing to be our creditor. The judge ruled partially against our affiliates and us. In an appeal decision, the Court of Justice of the State of São Paulo (TJSP) reversed the decision in full, following grounds and granting the compensation claimed by us and our affiliates. There is stillThe judicial process was concluded with a possibility of appealing from Camargo Correa. We estimate the risk of loss as possible.settlement in July 2020.

 

IBAMA

 

On October 10, 2016, after an inspection conducted in rural properties located in the State of Mato Grosso, the Brazilian Environment Authority (Instituto Brasileiro do Meio Ambiente e dos Recursos Naturais Renováveis), or “IBAMA,”“IBAMA”) filed an infraction notice against us alleging that we had financed the production of corn in a protected area. The amount of the fine was set at R$47.5 million (approximately U.S.$15 million). According to IBAMA, financing seed production in protected areas is considered an environmental infraction due to the potential environmental damage whichthat it may cause. We filed an administrative defense on November 9, 2016, stating that we had not financed production in a protected area, given that the financing agreement with the property owner had no

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connection with the production of seeds. As a consequence of the filing of the administrative defense, the enforceability of the fine is suspended. Although we believe we have presented valid arguments, we believe that the chancerisk of loss in the administrative proceedings is possible. If we were to lose the administrative proceedings, we may seek a review of the administrative finding by a court.

 

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Other Litigation

 

In addition to the matters described above, we are from time to time subject to certain claims and party to certain legal proceedings incidental to the normal course of our business, including in connection with our lending activities, relationships with our employees and other commercial or tax matters. In view of the inherent difficulty of predicting the outcome of these legal matters, particularly where the claimants seek very large or indeterminate damages, or where the cases present novel legal theories, or those that involve a large number of parties or are in the early stages of discovery, we cannot state with confidence what the eventual outcome of these pending matters will be, what the timing of the ultimate resolution of these matters will be or what the eventual loss, fines or penalties related to each pending matter may be. We believe that we have made adequate provisions related to the costs anticipated to be incurred in connection with these various claims and legal proceedings and believe that liabilities related to such claims and proceedings should not have, in the aggregate, a material adverse effect on our business, financial condition, or results of operations. However, in light of the uncertainties involved in such claims and proceedings, there is no assurance that the ultimate resolution of these matters will not significantly exceed the provisions currently accrued by us; as a result, the outcome of a particular matter may be material to our operating results for a particular period, depending upon, among other factors, the size of the loss or liability imposed and our level of income for that period.

 

Contingent liabilities classified as remote risk of loss refer to judicial and administrative proceedings involving other matters assessed by legal counsels, whichthat have not been provided for. The main lawsuits are discussed in the following paragraphs.

 

In December 2008, the Brazilian Federal Revenue Service issued a tax assessment against us in the total amount of R$3.9 billion with respect to IRPJ and CSLL related to 2002 to 2004. The tax authorities assert that we did not meet the legal requirements for deducting amortization of the goodwill arising from the acquisition of Banespa. On October 21, 2011, a unanimous decision of CARF was handed down to cancel the tax assessments corresponding to fiscal years 2002 to 2004. The Brazilian Federal Revenue Service appealed to the Câmara Superior de Recursos Fiscais with respect to the merits but not the fine, and the 2002 fiscal year, which was already being subject to the statute of limitation. Because of these two items, the assessment was reduced to R$1.8 billion. In December 2017, thatthis favorable decision was reformedmodified in favor of the Brazilian Federal Revenue Service. Concurrently with the administrative proceeding, through “Popular Action,”a collective action (Ação Popular), the administrative proceeding was returned to the CARF for a new judgment.judgment, which has not yet been handed down. However, the Brazilian Federal Revenue Service continues to charge us; therefore, a new lawsuit was filed to discuss this issue. There has been no decision at first instance. In June 2010, the Brazilian Federal Revenue Service issued two other infraction notices in the total amount of R$1.4 billion, based on the same concepts as the previous notice, with respect to IRPJ and CSLL related to 2005 to 2007. In these cases, Santander Brasil was not granted a favorable decision, and it has been appealed on its merits, though there was a reduction in the fine of R$367 million, and the assessment was reduced to R$984 million, the proceedings were partially unfavorable. We have filed claims for cancellation of these tax assessments. As of December 2013, the Brazilian Federal Revenue Service issued another infraction notice, in the total amount of R$344 million with respect to income tax and social contribution related to 2008. Santander Brasil challenged this tax assessment and was granted a favorable decision in the first instance. The tax authority has appealed the decision and this was accepted. We are currently awaiting final decision. In accordance with the advice of our external legal counsel, we believe that the Brazilian Federal Revenue Service’s position is incorrect, and that the risk of loss is remote. We did not record any provision since this issue should not have an impact on our consolidated financial statements.

 

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In addition to the aforementioned proceedings, in June 2013, the Brazilian tax authorities issued an infraction notice against us as the responsible party liable for the tax on the capital gain allegedly obtained in Brazil by an entity not resident in Brazil, Sterrebeeck B.V., as a result of the “incorporação de ações” (a shares merger) transaction carried out in August 2008. Through this transaction, we acquired all the shares of Banco Real and AAB Dois Par by providing the shareholders of these entities’ newly issued shares through a capital increase carried out for that purpose. The Brazilian tax authorities take the view that in the aforementioned transaction Sterrebeeck B.V. obtained income subject to tax in Brazil consisting of the difference between the issuance value of our shares that were received and the

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acquisition cost of the shares delivered in the exchange. WeA new appeal was filed an appeal against the infraction notice beforewith the CARF, which is awaiting judgment. This appeal was dismissed in March 2019. This decision will be subject to clarification actionpartially allowed and further appeal atwe filed an injuction against the CARF.unfavorable portion of the appeal. The case is currently awaiting judgment. Based on the advice of our external legal counsel, the position taken by the Brazilian tax authorities is not correct, and there are arguments for appeal against the infraction notice. As a result, the risk of loss is considered to be remote. Consequently, we have not recognized any provisions in connection with these proceedings.

 

On December 8, 2016, the General Superintendent of the CADE began an investigation into alleged anticompetitive conduct in the real onshore foreign exchange market. The investigation concerns 11 financial institutions, including Santander Brasil, and 19 individuals active in the Brazilian foreign exchange market between 2009 and 2012. On January 8, 2018, we filed an administrative defense stating our understandings that there is no evidence that we were involved in the alleged conduct. We expect that these investigations will not have a significant financial impact on us.

 

The MPF has charged one of our officers in connection with the alleged bribery of a Brazilian tax auditor to secure favorable decisions in tax cases, resulting in a claimed benefit of R$83 million (approximately U.S.$25 million) benefit tofor us. On October 23, 2018, the officer was formally indicted and asked to present his defense. On November 5, 2018 the officer in question presented his defense. The proceedings isare currently in course.ongoing. We are not a party to these proceedings. We have voluntarily provided information to the Brazilian authorities and have relinquished the benefit of certain tax credits to which the allegations relate in order to show good faith.

 

Dividend Policy

 

General Rules

 

We are required by Brazilian Corporate Law and our By-Laws to hold an annual general shareholders’ meeting by no later than the fourth month after each fiscal year, at which time, the allocation of the net profits in the preceding year and the distribution of an annual dividend are approved by our shareholders. Provisional Measure (Medida Provisória) No. 931 issued on March 30, 2020 -(with respect to the fiscal year ended December 31, 2019) extended this timeframe to the seventh month after the end of the fiscal year as a consequence of the COVID-19 pandemic. This provisional measure was later converted into Law No. 14,030 on July 28, 2020. The payment of annual dividends is based on our consolidated audited financial statements prepared for the immediately preceding fiscal year.

 

Our By-Laws provide that an amount equal to at least 25.0% of our adjusted net income, after deducting allocations to the legal and contingency reserves, should be available for distribution as a dividend or interest attributable to shareholders’ equity in any given year. This amount represents the mandatory dividend.

 

Our board of directors may declare interim dividends or interest attributable to shareholders’ equity based on income verified in semiannual consolidated financial statements. The board of directors may also declare dividends or interest attributable to shareholders’ equity based on consolidated financial statements prepared for shorter periods, provided that the total dividends paid in each six-month period do not exceed the capital reserves amount required by Brazilian Corporate

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Law. The board of directors may also declare interim dividends or interest attributable to shareholders’ equity out of retained earnings or income reserves recorded in the last annual or semiannual balance sheet. Any payment of interim dividends or interest on shareholders’ equity may be set off against the mandatory dividends relating to the net income earned in the year in which the interim dividends were paid.

 

The amount distributed to shareholders as interest attributable to shareholders’ equity, net of any withholding tax, may be included as part of the minimum mandatory dividend. In accordance with applicable law, we are required to pay to shareholders an amount sufficient to ensure that the net amount they receive in respect of interest attributable to shareholders’ equity, after payment of the applicable withholding tax, plus the amount of declared dividends, is at least equivalent to the amount of the minimum mandatory dividend.

 

However, Brazilian Corporate Law allows our shareholders to suspend dividends distribution if our board of directors reports at our annual shareholders’ meeting that the distribution would not be advisable given our financial condition. Our fiscal council should review any suspension of the

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mandatory dividend. In addition, our management should submit a report to the CVM setting out the reasons for the suspension. Net income not distributed by virtue of a suspension is allocated to a separate reserve and, if not absorbed by subsequent losses, is required to be distributed as a dividend as soon as our financial condition permits such payment.

In addition, the CMN issued Resolutions No. 4,797 and No. 4,820 on April 7 and May 29, 2020 which among other restrictions, prohibited the payment of dividends by financial institutions in excess of the mandatory dividend payments required under applicable Brazilian law until December 31, 2020 On December 23, 2020, the CMN enacted Resolution 4,885, which is intended to make the payment of dividends or interest on capital more flexible. As a result, financial institutions are not allowed to pay in excess of the greater of (x) the amount corresponding to 30% of the adjusted net profit in accordance with item I of article 202 of the Brazilian Corporate Law; and (y) the amount equivalent to the mandatory dividends as set forth in article 202 of the Brazilian Corporate Law.

 

Current and Future Dividend Policy

 

We currently recommend to our shareholders a 50% distribution of our yearly adjusted net income as dividends and/or interest attributable to shareholders’ equity. Our future dividend policy and the amount of future dividends and/or interest attributable to shareholders’ equity we decide to recommend to our shareholders for approval will depend on a number of factors, including, but not limited to, our cash flow, financial condition (including capital position), investment plans, prospects, legal requirements, economic climate, regulatory provisions (such as CMN Resolution No. 4,820 of May 29, 2020) and such other factors as we may deem relevant at the time.

 

Payment of Dividends

 

Any holder of record of shares at the time a dividend is declared is entitled to receive dividends. Under Brazilian Corporate Law, dividends are generally required to be paid within 60 days following the date on which the dividend is declared, unless the shareholders’ resolution establishes another payment date, which must occur prior to the end of the fiscal year in which such dividend was declared. Based on Brazilian Corporate Law, unclaimed dividends do not bear interest, are not monetarily adjusted and may revert to us three years after being declared.

 

The depositary is the registered owner of the units underlying the ADRs on the records of the registrar. Such units are held since December 13, 2016 by Santander Caceis Brasil Distribuidora de Títulos e Valores Mobiliários S.A. (currently the(the current corporate name of Santander Securities Services Brasil Distribuidora de Títulos e Valores Mobiliários S.A.) in Brazil, acting as the custodian and agent for the depositary for our ADRs.

 

Payments of cash dividends and distributions, if any, are made inreais to the custodian on behalf of the depositary, which then converts such proceeds into U.S. dollars and causes such U.S. dollars to be delivered to the depositary for distribution to holders of ADRs. In the event that the custodian is unable to convert the Brazilian currency received as dividends into U.S. dollars immediately, the amount of U.S. dollars payable to holders of ADRs may be adversely affected by changes in the exchange rate of the real with thefor reais into U.S. dollar.dollars.

 

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The following table sets forth the amounts available for distribution as dividends based on the Brazilian GAAP calculation of net income. The reconciliation of net income under Brazilian GAAP to net income under IFRS is presented in Appendix I of our audited consolidated financial statements for the years ended December 31, 2020, 2019 2018 and 2017.2018.

 

 For the year ended December 31, For the year ended December 31,
 2019 2018 2017 2020 2019 2018
 (in millions of R$) (in millions of R$)
Net Income under Brazilian GAAP  14,088   12,166   7,996   14,056   14,088   12,166 
(-) Legal Reserve  704   608   391   703   704   608 
(=) Amounts Available for distribution  13,384   11,558   7,605   13,353   13,384   11,558 
Mandatory Dividends – 25.0%  3,346   2,890   1,901   3,338   3,346   2,890 
Interest on Shareholder’s Equity  4,010   4,080   3,800   3,325   4,010   4,080 
Dividends  6,790   2,520   2,500   512   6,790   2,520 
Total (Interest on Shareholder’s Equity and Dividends)  10,800   6,600   6,300   3,837   10,800   6,600 
Dividends distributed in excess of the Mandatory Dividend  7,454   3,710   4,399   499   7,454   3,710 

 

History of Payment of Dividends and Interest Attributable to Shareholders’ Equity

 

In 2019,2020, we declared dividends and interest on shareholders’ equity in the gross amount of R$10,8003,837 million, of which R$1,000 million was paid on April 29, 2019, R$1,000 million on July 31, 2019, R$1,000 million on October 30, 2019 and R$7,800 million on February 21, 2020.

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The table below shows the amounts paid to our shareholders in the periods indicated.

 

  For the year ended December 31,
  2019 2018 2017 2016 2015
  (in millions of R$, except per share figures)
Dividends  6,790   2,520   2,500   1,400   4,800 
Interest attributable to shareholders’ equity  4,010   4,080   3,800   3,850   1,400 
Total  10,800   6,600   6,300   5,250   6,200 
Dividends and interest on capital per 1,000 shares                    
Common shares  1,378.87   841.68   776.17   666.21   784.90 
Preferred shares  1,516.76   925.85   853.79   732.83   863.39 

8B.Significant Changes
  For the year ended December 31,
  2020 2019 2018 2017 2016
  (in millions of R$, except per share figures)
Dividends  512   6,790   2,520   2,500   1,400 
Interest attributable to shareholders’ equity  3,325   4,010   4,080   3,800   3,850 
Total  3,837   10,800   6,600   6,300   5,250 
Dividends and interest on capital per 1,000 shares                    
Common shares  490   1,379   842   776   666 
Preferred shares  539   1,517   926   854   733 

 

8B. Significant Changes

There has been no significant change since the date of our last audited financial statements, except for the subsequent events related to the sale of Superdigital, described in “Item 4. Information on the Company—History and Development of the Company—Important Events—Sale of equity stake in Super Pagamentos e Administração de Meios Eletrônicos S.A.” and to the acquisition of the remaining 40% of non-controlling interest held by Bosan Participações in Banco Olé Consignado, in each case as referred to in note 48 to our audited consolidated financial statements in "Item 18. Financial Statements." statements.

 

ITEM 9. THE OFFER AND LISTING

 

9A.Offering and Listing Details

9A. Offering and Listing Details

 

Market Price and Volume Information

 

On September 18, 2009, our Board of Directors approved the implementation of the Global Public Offering, which included the issue of 525,000,000 Units (each representing, at that date, 55 common shares and 50 preferred shares), which were all registered, without par value, free and clear of any liens or encumbrances. This offering consisted of the simultaneous initial public offering of (i) Units in Brazil on the over-the-counter market, in accordance with CVM Instruction 400 of December 29, 2003, as amended, and (ii) Units abroad, including in the form of ADRs representing ADSs registered with the SEC under the Securities Act.

 

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On October 6, 2009, the Global Public Offering priced shares at R$23.50 per unit and U.S. $13.40 per ADR. The Units have been traded on the B3 and since October 7, 2009, and our ADRs have been traded on the NYSE since October 7, 2009.

 

On April 29, 2014, Santander Spain, our indirect controlling shareholder, announced its intention to launch voluntary exchange offers in Brazil and in the United States to acquire up to all of our shares that were not held by the Santander Group, representing approximately 25% of our share capital, with payment in Brazilian depositary receipts or ADRs representative of Santander Spain’s common shares.

 

On October 30, 2014, the Brazilian Exchange Offer and the U.S. Exchange Offer were concluded. As a result of these offers, the Santander Group’s shareholding increased to 88.3% of our total share capital (not including the shares held by Banco Madesant - Sociedade Unipessoal).capital. Further, as a result of the offer in Brazil, our Units were delisted from the Level 2 Segment and are now traded at the basic listing segment of B3.

 

The uncertainties caused by the outbreak of the COVID-19 pandemic had an adverse impact on the global economy and global capital markets and in Brazil, including markets volatility, which resulted in the B3’s circuit breaker mechanism being triggered eight times during March 2020. The price of our units and ADSs may experience volatility, which could negatively impact holders of our Units and ADSs.

The following table shows our outstanding publicly traded common shares and preferred shares as of February 28, 2020:24, 2021:

 

Free Float B3 NYSE B3 NYSE
Common shares  204,840,333   152,473,083   210,515,193   145,127,657 
Preferred shares  232,644,747   152,473,083   234,266,896   145,127,657 
Total  437,485,080   304,946,166   444,782,089   290,255,314 

  

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Units, Common and Preferred Shares Traded on B3

The table below sets forth the high, low and last daily sales prices inreais for our common shares on the B3 for the periods indicated.

  

  Reais per share – SANB3 (Common Shares)
  High  Low  Last 
2014 Annual(1)  8.50   0.10   6.70 
2015 Annual  10.80   6.10   8.83 
2016 Annual  19.46   6.60   19.36 
1st Quarter  10.13   6.60   9.31 
2nd Quarter  11.42   8.75   9.90 
3rd Quarter  14.20   9.61   13.51 
4th Quarter  19.46   12.90   19.36 
2017 Annual  22.92   13.01   18.49 
1st Quarter  22.92   16.00   16.13 
2nd Quarter  17.60   13.01   14.75 
3rd Quarter  17.40   14.30   15.10 
4th Quarter  20.03   14.90   18.49 
2018 Annual  24.60   14.06   22.22 
1st Quarter  23.00   16.91   23.00 
2nd Quarter  24.60   14.16   15.05 
3rd Quarter  21.05   14.06   19.40 
4th Quarter  23.72   19.01   22.22 
2019 Annual  28.99   20.30   25.45 
1st Quarter  26.65   20.49   21.94 
2nd Quarter  23.71   20.50   23.00 
3rd Quarter  24.60   20.30   23.77 
4th Quarter  28.99   22.27   25.45 
Last 6 Months  24.40   20.70   23.77 
September 2019  28.99   22.27   26.05 
October 2019  27.24   23.99   23.99 
November 2019  28.00   23.80   25.45 
December 2019  26.90   21.41   21.41 
January 2020  22.33   20.36   21.15 
February 2020  24.40   20.70   23.77 

  Reais per share – SANB3 (Common Shares)
  High Low Last
2015 Annual  10.80   6.10   8.83 
2016 Annual  19.46   6.60   19.36 
2017 Annual  22.92   13.01   18.49 
1st Quarter  22.92   16.00   16.13 
2nd Quarter  17.60   13.01   14.75 
3rd Quarter  17.40   14.30   15.10 
4th Quarter  20.03   14.90   18.49 
2018 Annual  24.60   14.06   22.22 
1st Quarter  23.00   16.91   23.00 
2nd Quarter  24.60   14.16   15.05 
3rd Quarter  21.05   14.06   19.40 
4th Quarter  23.72   19.01   22.22 
2019 Annual  28.99   20.30   25.45 
1st Quarter  26.65   20.49   21.94 
2nd Quarter  23.71   20.50   23.00 
3rd Quarter  24.60   20.30   23.77 
4th Quarter  28.99   22.27   25.45 
2020 Annual  25.90   10.50   21.66 
1st Quarter  25.90   11.29   12.99 
2nd Quarter  16.57   10.50   13.97 
3rd Quarter  15.62   12.51   13.05 
4th Quarter  22.35   12.71   21.66 
Last 6 Months  22.35   12.51   18.93 
September 2020  14.70   12.51   13.05 
October 2020  16.69   12.71   14.60 
November 2020  18.91   14.62   17.84 
December 2020  22.35   18.00   21.66 
January 2021  22.25   18.00   18.93 
February 2021 (through to February 24, 2021)  20.80   18.50   18.90 
 

(1)With the purpose of eliminating the trading in cents of SANB3 (common) and SANB4 (preferred) shares, increasing liquidity and reducing the transaction costs thereof, our shareholders approved on March 18, 2014 (i) a bonus share issue of 19,002,100,957 preferred shares to our shareholders, at the ratio of 0.047619048 preferred shares for each common share (SANB3) or preferred share (SANB4). This resulted in a bonus share issue of five preferred shares for each Unit (SANB11), through the capitalization of reserves in the amount of approximately R$172 million; and (ii) a reverse share split (inplit) of the totality of our common shares and preferred shares at a ratio of 1:55, so that each fifty-five common shares and fifty-five preferred shares would thereafter correspond to one common share and one preferred share, respectively. As a result, each Unit (ticker SANB11) came to be comprised of one common share and one preferred share. The bonus share issue and reverse share split were implemented on June 2, 2014.

  Reais per share – SANB4 (Preferred Shares)
  High Low Last
2014 Annual(1)  8.18   0.10   6.02 
2015 Annual  7.92   5.52   7.23 
2016 Annual  10.59   5.40   10.05 
1st Quarter  8.00   5.40   7.40 
2nd Quarter  8.27   7.20   8.09 
3rd Quarter  9.64   7.86   8.53 
4th Quarter  10.59   8.57   10.05 
2017 Annual  14.04   9.31   13.22 
1st Quarter  13.79   9.31   11.68 
2nd Quarter  11.60   9.80   10.08 
3rd Quarter  13.58   9.99   12.50 
4th Quarter  14.04   12.16   13.22 
2018 Annual  22.89   13.50   20.53 
1st Quarter  16.95   13.53   16.89 
2nd Quarter  17.57   13.50   13.90 
3rd Quarter  17.30   13.71   16.25 
4th Quarter  22.89   15.97   20.53 
2019 Annual  24.73   19.32   23.53 
1st Quarter  24.73   20.26   21.70 
2nd Quarter  23.44   20.59   22.70 
3rd Quarter  23.85   19.32   21.80 
4th Quarter  23.56   19.59   23.53 

Last 6 Months  23.85   19.32   23.53 
September 2019  22.14   19.98   21.80 
October 2019  22.50   20.10   20.80 
November 2019  21.18   19.59   20.05 
December 2019  23.56   19.89   23.53 
January 2020  25.35   20.30   20.50 
February 2020  21.19   19.60   20.26 

(1)On June 2, 2014, as part of our plan to optimize our capital, we carried out a reverse share split of the totality of our issued share capital at rate of 55:1 for each of our common and preferred shares.

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  B3
  Units – SANB11
  High Low Last
  R$ per share
2014 Annual  16.49   10.84   13.46 
2015 Annual  17.99   12.21   16.04 
2016 Annual  29.80   12.33   29.53 
1st Quarter  18.63   12.33   16.95 
2nd Quarter  19.46   16.53   18.18 
3rd Quarter  23.45   17.74   22.00 
4th Quarter  29.80   21.80   29.53 
2017 Annual  36.13   22.75   31.88 
1st Quarter  36.13   27.42   27.65 
2nd Quarter  29.24   22.75   25.00 
3rd Quarter  29.55   24.94   27.64 
4th Quarter  33.21   27.23   31.88 
2018 Annual  45.19   28.02   42.70 
1st Quarter  40.00   31.62   39.91 
2nd Quarter  40.80   28.02   29.30 
3rd Quarter  38.35   28.80   35.71 
4th Quarter  45.19   35.01   42.70 
2019 Annual  50.68   40.35   49.52 
1st Quarter  50.68   41.14   43.97 
2nd Quarter  46.77   41.28   45.46 
3rd Quarter  48.36   40.35   45.33 
4th Quarter  50.17   42.97   49.52 
Last 6 Months  46.40   41.11   45.33 
September 2019  49.87   42.97   47.06 
October 2019  48.59   43.90   44.10 
November 2019  50.17   44.00   49.52 
December 2019  51.58   41.65   42.07 
January 2020  43.42   40.19   41.19 
February 2020  46.40   41.11   45.33 

The table below sets forth the high, low and last daily sales prices in reais for our preferred shares on the B3 for the periods indicated.

 

  Reais per share – SANB4 (Preferred Shares)
  High Low Last
2015 Annual  10.80   6.10   8.83 
2016 Annual  19.46   6.60   19.36 
2017 Annual  22.92   13.01   18.49 
1st Quarter  22.92   16.00   16.13 
2nd Quarter  17.60   13.01   14.75 
3rd Quarter  17.40   14.30   15.10 
4th Quarter  20.03   14.90   18.49 
2018 Annual  24.60   14.06   22.22 
1st Quarter  23.00   16.91   23.00 
2nd Quarter  24.60   14.16   15.05 
3rd Quarter  21.05   14.06   19.40 
4th Quarter  23.72   19.01   22.22 
2019 Annual  28.99   20.30   25.45 
1st Quarter  26.65   20.49   21.94 
2nd Quarter  23.71   20.50   23.00 
3rd Quarter  24.60   20.30   23.77 
4th Quarter  28.99   22.27   25.45 
2020 Annual  24.28   11.42   23.49 
1st Quarter  24.25   12.00   13.87 
2nd Quarter  16.46   11.42   14.22 
3rd Quarter  16.19   13.96   14.90 
4th Quarter  24.28   14.56   23.49 
Last 6 Months  25.00   13.96   20.28 
September 2020  16.05   13.96   14.90 
October 2020  19.75   14.56   17.16 
November 2020  23.20   16.97   21.06 
December 2020  24.28   21.40   23.49 
January 2021  25.00   19.96   20.28 
February 2021 (through to February 24, 2021)  22.30   20.21   20.66 
 

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(1)On June 2, 2014, we carried out a reverse share split of the totality of our issued share capital at rate of 55:1 for each of our common and preferred shares. Bonus Shares and Reverse Share Split (Inplit).
  B3
  Units – SANB11
  High Low Last
  R$ per share
2015 Annual  10.80   6.10   8.83 
2016 Annual  19.46   6.60   19.36 
2017 Annual  22.92   13.01   18.49 
1st Quarter  22.92   16.00   16.13 
2nd Quarter  17.60   13.01   14.75 
3rd Quarter  17.40   14.30   15.10 
4th Quarter  20.03   14.90   18.49 
2018 Annual  24.60   14.06   22.22 
1st Quarter  23.00   16.91   23.00 
2nd Quarter  24.60   14.16   15.05 
3rd Quarter  21.05   14.06   19.40 
4th Quarter  23.72   19.01   22.22 
2019 Annual  28.99   20.30   25.45 
1st Quarter  26.65   20.49   21.94 
2nd Quarter  23.71   20.50   23.00 
3rd Quarter  24.60   20.30   23.77 
4th Quarter  28.99   22.27   25.45 
2020 Annual  48.21   21.54   44.83 
1st Quarter  48.21   22.75   26.00 
2nd Quarter  32.47   21.54   27.59 
3rd Quarter  31.41   26.22   27.72 
4th Quarter  46.60   27.00   44.83 
Last 6 Months  47.20   26.22   39.26 
September 2020  30.51   26.22   27.72 
October 2020  35.96   27.00   31.78 
November 2020  41.34   31.48   39.15 
December 2020  46.60   40.10   44.83 
January 2021  47.20   38.38   39.26 
February 2021 (through to February 24, 2021)  43.12   38.80   39.44 

 

For information on the rights attaching to our common shares and to our preferred shares, please see “Item 10. Additional Information—B. By-Laws—Rights of Common Shares and Preferred Shares.”

 

ADRs Traded on NYSE

 

Our ADRs have been listed and traded on the NYSE since October 7, 2009. Our Units abroad, including in the form of ADRs representing ADSs, are registered with the SEC under the Exchange Act.

 

The deposit agreement pursuant to which ADRs have been issued is between us and The Bank of New York Mellon, as depositary, and all the holders from time to time of ADRs. For further information on our arrangements with The Bank of New York Mellon, please see “Item 12. Description of Securities other than Equity Securities—D. American Depositary Receipts.”

 

Since certain of our shares and our ADRs are held by nominees, the number of record holders may not be representative of the number of beneficial owners.

 

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  NYSE
  ADR – BSBR
  High Low Last
  U.S.$ per ADR
2015 Annual  10.80   6.10   8.83 
2016 Annual  19.46   6.60   19.36 
2017 Annual  22.92   13.01   18.49 
1st Quarter  22.92   16.00   16.13 
2nd Quarter  17.60   13.01   14.75 
3rd Quarter  17.40   14.30   15.10 
4th Quarter  20.03   14.90   18.49 
2018 Annual  24.60   14.06   22.22 
1st Quarter  23.00   16.91   23.00 
2nd Quarter  24.60   14.16   15.05 
3rd Quarter  21.05   14.06   19.40 
4th Quarter  23.72   19.01   22.22 
2019 Annual  28.99   20.30   25.45 
1st Quarter  26.65   20.49   21.94 
2nd Quarter  23.71   20.50   23.00 
3rd Quarter  24.60   20.30   23.77 
4th Quarter  28.99   22.27   25.45 
2020 Annual  12.68   3.69   8.64 
1st Quarter  12.68   4.55   5.17 
2nd Quarter  6.74   3.69   5.22 
3rd Quarter  6.11   4.76   4.94 
4th Quarter  8.95   4.80   8.64 
Last 6 Months  8.95   4.76   7.22 
September 2020  5.78   4.76   4.94 
October 2020  6.17   4.80   5.54 
November 2020  7.69   5.52   7.28 
December 2020  8.95   7.66   8.64 
January 2021  8.83   7.09   7.22 
February 2021 (through to February 24, 2021)  7.93   7.05   7.26 

 

9B. Plan of Distribution

  NYSE
  ADR – BSBR
  High Low Last
  U.S.$ per ADR
2014 Annual  7.18   4.48   5.02 
2015 Annual  5.98   2.96   3.89 
2016 Annual  9.12   3.02   8.89 
1st Quarter  4.93   3.02   4.65 
2nd Quarter  5.74   4.41   5.70 
3rd Quarter  7.19   5.33   6.70 
4th Quarter  9.12   6.66   8.89 
2017 Annual  11.75   6.86   9.67 
1st Quarter  11.75   8.67   8.82 
2nd Quarter  9.40   6.86   7.53 
3rd Quarter  9.48   7.48   8.74 
4th Quarter  10.00   8.36   9.67 
2018 Annual  12.25   7.20   8.72 
1st Quarter  12.05   9.78   9.99 
2nd Quarter  12.11   7.20   11.91 
3rd Quarter  10.20   7.32   7.38 
4th Quarter  12.25   8.65   8.72 
2019 Annual  13.72   9.68   12.13 
1st Quarter  13.72   10.44   11.23 
2nd Quarter  12.17   10.05   11.87 
3rd Quarter  12.85   9.68   10.89 
4th Quarter  12.45   10.27   12.13 
Last 6 Months  12.85   9.68   12.13 
September 2019  11.16   9.85   10.89 
October 2019  12.45   10.43   11.74 
November 2019  11.98   10.27   10.39 
December 2019  12.36   10.44   12.13 
January 2020  12.68   9.67   9.70 
February 2020  10.11   9.20   9.38 

9B.Plan of Distribution

 

Not applicable.

 

9C.Markets

9C. Markets

 

Our Units and common and preferred shares are traded on the B3. The regulation of Brazilian securities markets which affects these securities is discussed below. In addition, we also have ADRs which have been listed and traded on the NYSE since October 7, 2009. For further information, see “Item 9. The Offer and Listing—“—A. Offering and Listing Details.”.

 

Regulation of Brazilian Securities Markets

 

The Brazilian securities market is regulated by the CVM, as provided for by Law 6,385 of December 7, 1976, or the “Brazilian Securities Market Law,” and by the Brazilian Corporate Law, as well as the CMN and the Brazilian Central Bank.

 

Under Brazilian Corporate Law, a corporation is either publicly held (companhia aberta) or privately held (companhia fechada) and unlisted. All publicly held companies must be registered with the CVM and are subject to reporting and other regulatory requirements. A company registered with the CVM may list its securities either on the Brazilian stock exchange market or on Brazilian over-the-counter markets. The shares of a publicly held company may also be traded privately.

 

In Brazil, the over-the-counter market is divided into two categories: (i) organized over-the-counter markets, in which the transactions are supervised by self-regulating entities authorized by the CVM; and (ii) non-organized over-the-counter markets, in which the transactions are not supervised. In either

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case, the over-the-counter markets consist of direct trades, outside of the stock exchange market, through a financial institution registered with the CVM, which serves as an intermediary. No special application, other than registration with the CVM (and, in case of organized over-the-counter markets, registration with the applicable one), is necessary for securities of a public company to be traded in these markets.

 

To be listed on the B3, a company must apply for registration with the CVM and B3.

 

Trading on the B3 (current name of BM&FBOVESPA)

 

The B3 currently facilitates all trading activities of shares and commodities in Brazil, including settlement, clearing and depositary services.

 

Trading on the Brazilian stock exchange is conducted by authorized members. Trading sessions in the shares market take place every business day, from 10:00 a.m. to 5:00 p.m. between March and October and from 10:00 a.m. to 6:00 p.m. between November and February, on an electronic trading system called PUMA. Trading is also conducted from March to October between 5:30 p.m. and 6:00 p.m. in an after-market system connected to both traditional brokerage firms and brokerage firms operating on the Internet.internet. This after-market trading is subject to regulatory limits on price volatility of securities traded by investors operating on the Internet.internet.

 

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The trading of securities on the B3 may be suspended at the request of a company in anticipation of a material announcement. Trading may also be suspended on the initiative of the B3 or the CVM, among other reasons, based on or due to a belief that a company has provided inadequate information regarding a significant event or has provided inadequate responses to inquiries by the CVM or the B3.

 

In addition, in order to maintain control over the fluctuation of the B3 index, the B3 has adopted a “circuit breaker” insystem pursuant to which trading sessions may be suspended for a period of 30 minutes, one hour, or a time to be defined by B3, whenever the B3 index falls below 10.0%, 15.0% or 20.0%, respectively, in relation to the value of closing index levels of the previous trading session.

 

When investors trade shares on the B3, the trade is settled two business days after the trade date, without adjustments to the purchase price. The seller is ordinarily required to deliver the shares to the exchange on the second business day following the trade date. Delivery of and payment for shares are made through the facilities of an independent clearing house, a division of the B3, which handles the multilateral settlement of both financial obligations and transactions involving securities. According to the regulations of the B3, financial settlement is carried out through the system of transfer of funds of the Brazilian Central Bank and the transactions involving the sale and purchase of shares are settled through the B3 custody system. All deliveries against final payment are irrevocable.

 

In order to keep our securities listed on the B3, we are required to comply with the provisions of the B3’s Issuer Manual (Manual do Emissor), which establishes technical and operational procedures and criteria applicable to companies that have securities for listed on the B3. The most up-to-date version of the B3’s Issuer Manual became effective as of January 1, 2018.October 22, 2020.

 

Corporate Governance Practices

 

In 2000, the B3 introduced three special listing segments, Levels 1 and 2 of Corporate Governance and Novo Mercado, which were aimed at fostering a secondary market for securities issued by Brazilian companies that voluntarily abide by corporate governance practices and disclosure requirements in addition to those already imposed by Brazilian law.

 

Our Units were initially listed on the Level 2 Segment. However, as a result of the Brazilian Exchange Offer and the U.S. Exchange Offer launched by Santander Spain in Brazil for the acquisition of our shares, our Units were delisted from the Level 2 Segment and are now traded at the basic listing segment of the B3.

 

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Within the B3, we are a part of one sustainability index: the ISE (Índice de Sustentabilidade Empresarial – Entrepreneurial Sustainability Index) which is a reference for socially responsible investments in Brazil. To be part of the portfolio, currently composed of 4039 companies, the company’s performance is evaluated in regardswith respect to sustainability, including economic efficiency, environmental balance, social practices and corporate governance.

 

In 2016, the Brazilian Code of Corporate Governance for Publicly-held Companies (Código Brasileiro de Governança Corporativa – Companhias Abertas), or the “Governance Code,” was published by the Brazilian Institute of Corporate Governance (Instituto Brasileiro de Governança Corporativa). It sets forth corporate governance principles, guidelines and actions applicable for publicly held companies and establishes a “comply or explain” enforcement model. On June 8, 2017, following a public consultation on the implications of the Governance Code for Brazilian companies, the CVM issued Normative Ruling No. 586 introducing the necessary changes to the existing securities regulation in order to make these consistent with the provisions of the Governance Code.

 

The new rules established by this ruling apply to companies (i) which are registered as category “A” issuers, (ii) whose securities have been traded on the B3 since January 1, 2018, and (iii) which, on the publication date of CVM Instruction 586,had at least one of their securities included in the Brazil Index 100 – IBrX-100 (Índice Brasil 100) or within the Bovespa Index – IBOVESPA (Índice Bovespa). We fulfill all three of these criteria and are therefore subject to the new CVM rules.

 

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Investment in Our Units by Non-Residents of Brazil

 

Investors residing outside Brazil, including institutional investors, may either register their investments in securities in Brazil, as a foreign direct investment under Law 4,131/62, or as a portfolio investment under the applicable regulation enacted by CMN and CVM. Foreign investors, regardless of whether their investments are made as direct investments or portfolio investments, must be enrolled with the Brazilian Internal Revenue. This registration process is undertaken by a financial institution or an institution authorized to operate by the Brazilian Central Bank as the investor’s legal representative in Brazil.

 

Since March 30, 2015, portfolio investments are regulated by CMN Resolution 4,373, enacted on September 29, 2014, or “CMN Resolution 4,373,” which superseded CMN Resolution 2,689, which had been in force for about 15 years.

 

The main purpose of CMN Resolution 4,373 is to facilitate the entry of foreign investors in the Brazilian financial and capital markets. CMN Resolution 4,373 introduces the possibility for foreign investors to make investments in local currency with funds held in their foreign bank accounts, or with bills of payment denominated inreais but issued abroad.

 

With certain limited exceptions, CMN Resolution 4,373 allows investors to carry out any type of transaction in the Brazilian capital markets involving a security traded on a Brazilian stock or futures exchange, or through an organized over-the-counter market, but investors may not transfer the ownership of investments made under such regulation to other non-Brazilian holders through private transactions. Investments and remittances outside Brazil for gains, dividends, profits or other payments under our Units are made through the foreign exchange market.

 

For further information on the requirements for the registration of foreign portfolio investments, see “Item 10. Additional Information—D. Exchange Controls—Foreign Investment in Brazil—Capital Markets Investment.”

 

Foreign direct investors under Law 4,131/62 may sell their shares in both private and open market transactions, but these investors are currently subject to a less favorable tax treatment on gains, apart from being subject to taxation on the execution of foreign exchange transactions. For more information on foreign direct investors, see “Item 10. Additional Information—D. Exchange Controls—Foreign Investment in Brazil—Foreign Direct Investment.”

 

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Since March 30, 2015, CMN Resolution 4,373 also deals with investments of foreign capital in Brazil through Depositary Receipts, or “DRs,” and superseded the former rule (CMN Resolution 1,927 of May 18, 1992).

 

We filed an application to have the ADRs approved under the former rule by the Brazilian Central Bank and the CVM, and we received final approval on October 1, 2009.

 

If a holder of ADRs decides to exchange such ADRs for the underlying Units, the holder will be entitled to (i) sell the Units on the B3 and rely on the depositary’s electronic registration for five business days from the date of exchange to obtain and remit U.S. dollars abroad upon the holder’s sale of our Units, (ii) convert its investment into a foreign portfolio investment under CMN Resolution 4,373, or (iii) convert its investment into a foreign direct investment under Law 4,131/62. See “Item 10. Additional Information—E. Taxation—Brazilian Tax Considerations” for a description of the tax consequences for an investor residing outside Brazil of investing in our Units in Brazil.

 

If a holder of ADRs wishes to convert its investment into either a foreign portfolio investment under CMN Resolution 4,373 or a foreign direct investment under Law 4,131/62, it should begin the process of obtaining its own foreign investor registration with the Brazilian Central Bank or with the CVM, as the case may be, in advance of exchanging the ADRs for Units.

 

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The custodian is authorized to update the depositary’s electronic registration to reflect conversions of ADRs into foreign portfolio investments. If a holder of ADRs elects to convert its ADRs into a foreign direct investment under Law 4,131/62, the conversion will be effectedcarried out by the Brazilian Central Bank after receipt of an electronic request from the custodian with details of the transaction. This may also require the Units to be converted into shares.

 

If a foreign direct investor under Law 4,131/62 wishes to deposit its Units into the ADR program in exchange for ADRs, such holder will be required to present to the custodian evidence of payment of capital gains taxes. The conversion will be effectedcarried out by the Brazilian Central Bank after receipt of an electronic request from the custodian with details of the transaction. This may also involve the need to change the Units into shares.

 

The Brazilian federal constitution permits foreign individuals or companies to invest in the voting shares of Brazilian financial institutions only if they have specific authorization by the President of Brazil based on national interest or reciprocity. A presidential decree issued on November 13, 1997, in respect of Banco Meridional do Brasil S.A. (a predecessor entity) allows up to 100% foreign participation in our capital stock. Foreign investors may acquire our Units or ADRs as a result of this decree. In addition, foreign investors may acquire publicly traded non-votingnonvoting shares of Brazilian financial institutions traded on a stock exchange or depositary receipts offered abroad representing non-votingnonvoting shares without specific authorization. See “Item 4. Information on the Company—B. Business Overview—Regulation and Supervision— Other Applicable Laws and Regulations Foreign Investment in Brazilian Financial Institutions.”

 

9D.Selling Shareholders

9D. Selling Shareholders

Not applicable.

9E.Dilution

Not applicable.

9F.Expenses of the Issue

 

Not applicable.

 

ITEM 10. ADDITIONAL INFORMATION9E. Dilution

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10A.Share Capital

 

Not applicable.

 

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Table9F. Expenses of Contentsthe Issue

 

Not applicable.

10B.By-Laws

ITEM 10. ADDITIONAL INFORMATION

10A. Share Capital

Not applicable.

10B. By-Laws

 

Below we provide a summary of the important provisions of our By-Laws and of the corporate and Brazilian capital markets legislation and regulations. This description is not intended to be exhaustive. It is based on our By-Laws (an English translation of which is attached as an exhibit to this annual report), as well as on the legislation and regulations applicable to companies and the Brazilian capital market currently in effect.

 

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Registration and Business Purpose

 

We are a publicly held company, incorporated under Brazilian law. Our documents of incorporation are duly registered with JUCESP, under NIRE 35300332067.

 

Pursuant to article 4 of our By-Laws, our corporate purpose is to (i) participate in asset, liability and accessory transactions related to our respective authorized portfolios (commercial, investment, credit, financing and investment, real estate credit and leasing), (ii) carry out foreign exchange transactions; (iii) manage investment portfolios; (iv) any other transaction that would be allowed by law and regulations in force; and (v) participate, as shareholder or quotaholder, in other companies.

 

Managers’Directors’ and Executive Officers’ Role and Conflict of Interests

 

Brazilian Corporate Law imposes on the members of the Board of Directors and Officers the duty of diligence during the performance of their functions, as well as the duty of loyalty to the company, besides prohibiting members of the Board of Directors and the Officers from: (i) receiving any type of direct or indirect personal advantage from third parties, by virtue of the position occupied, without authorization in the By-Laws or from a shareholders’ meeting; (ii) taking part in any corporate transaction in which he or she has an interest that conflicts with our interest or in the decisions made by other directors on the matter; (iii) use any commercial opportunity which may come to his or her knowledge, by virtue of his or her position, for his or her own benefit or that of a third party, whether or not harmful to the company; (iv) fail to exercise or protect the company’s rights or to take advantage of a commercial opportunity of interest to the company, in seeking to obtain advantages for himself or herself or for a third party; and (v) acquire for resale with profit property or rights which he or she knows the company needs or which the company intends to acquire.

 

As we are a financial institution, we are subject to certain prohibitions establishedlimitations set forth by the Banking Reform Law, as amended by Law 13,506 of November 13, 2017, or “Law 13,506/17,” as well as related regulations. For more information in relation to such prohibitions,limitations, see “Item 4B.4. Information on the Company—B. Business Overview—Regulation and Supervision—Principal Limitations and Obligations of Financial Institutions.Institutions” and “Item 4. Information on the Company—B. Business Overview—Regulation and Supervision—Other Applicable Laws and Regulations—Administrative Proceedings in the Brazilian National Financial System, the Brazilian Payment System and Capital Markets.”

 

In addition to these provisions, Article 10 of our By-Laws provides that members of the Board of Directors and Officers are forbidden to be involved in the analysis, approval or settlement of business deals or loans relating to a company where they (i) they hold more than 5% of the capital stock as partners or shareholders, or where they are members of the management, or (ii) had been members within a period of up to six months before their appointment. Finally, our policy for transactions with related parties also sets forth procedures to be followed by managers involved in such transactions, and when other potential conflicts of interest may arise.

 

Rights of Common Shares and Preferred Shares

 

Each common share gives its holder the right to a vote at general meetings, however, the preferred shares do not grant voting rights in our shareholders’ general meetings, except as related to the following matters:

 

·change of corporate status, merger, consolidation or spin-off;

 

·approval of agreements entered into between us and our controlling shareholder, directly or indirectly, and agreements with other companies in which our controlling shareholder has an interest, whenever the law or the By-Laws provide that they must be approved at a shareholders’ general meeting; and

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indirectly, and agreements with other companies in which our controlling shareholder has an interest, whenever the law or the By-Laws provide that they must be approved at a shareholders’ general meeting; and

 

·the appraisal of assets to be contributed to increase our capital stock.

 

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Regarding the election of members of the Board of Directors, the Brazilian Corporate Law sets forth that, when members of the Board of Directors are elected, the following parties have the right to elect one member of our Board of Directors:

 

·minority holders of shares in public companies holding a minimum of 15% of the total number of voting shares, or

 

·holders of preferred shares without voting rights, or with restricted voting rights, representing 10% of the capital stock, or

 

·holders of common and preferred shares who jointly represent at least 10% of the capital stock, in a separate vote.

 

Nevertheless, these rights can only be exercised by the holders of shares who maintained their holding for at least three months before the date of the annual shareholders’ meeting. The Brazilian Corporate Law also permits a multiple vote procedure to be adopted, upon request by shareholders representing at least 10% of our voting capital. Pursuant to CVM Instruction 282 of June 26, 1998, the percentage needed to call for a multiple vote to elect members of the board of directors, in public companies with capital stock exceeding R$100 million, is 5% of the voting capital per request of multiple vote.

 

The holders of preferred shares are entitled to the following rights according to our By-Laws:

 

·dividends and interest on shareholders’ own equity in an amount 10% higher than those attributed to common shares, as well as priority in the distribution;

 

·participation on equal terms with the common shares conditions, in capital increases arising from the capitalization of reserves and income, as well as in the distribution of bonus shares created by the capitalization of accrued income, reserves or any other resources;

 

·priority in reimbursement of capital, without payment of premium, in the case of liquidation; and

 

·tag-along rights in the event of a change in our control, under the same terms and conditions extended to our controlling shareholders.

 

Common shares not belonging to the controlling shareholders also give their holders tag-along rights in the event that our control is transferred on the same terms and conditions as those granted to our controlling shareholders.

 

The shareholders’ general meeting may decide on conversion of the preferred shares into common shares.

 

The Brazilian Corporate Law sets forth that shares without voting rights or shares with restricted rights, including our preferred shares, shall be granted unrestricted voting rights if the company ceases to distribute, during three consecutive fiscal years, any fixed or minimum dividend granted to these shares, until the respective distributions are made.

 

According to our By-Laws, the dividends that are not claimed by shareholders within three years, from the beginning of their payment, shall prescribe to our benefit.

 

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an adverse financial effect on the rights of holders of preferred shares, or any change that results in the creation of a more favored class of preferred shares, must be approved by a resolution at a general shareholders’ meeting and will become valid and effective only after approval by a majority of our preferred shareholders.

 

Brazilian Corporate Law also sets forth that the following shareholders’ rights cannot be repealed or modified by our By-Laws or decisions made at shareholders’ meetings:

 

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·the right to vote at general meetings, in the case of holders of common shares;

 

·the right to share in the distribution of dividends and interest on shareholders’ equity, and to share in the surplus assets in the event of our liquidation;

 

·preemptive rights in subscribing for shares or convertible securities in specific circumstances;

 

·the right to monitor the management; and

 

·the right of withdrawal in the circumstances established by law, including our consolidation, merger and spin-off.

 

Description of Units

 

The Units are share deposit certificates, each representing one common share and one preferred share, all of them free and unencumbered. The shares represented by the Units shall be registered in a trust account linked to the Units, and their ownership can only be transferred by means of transfer of the corresponding Units, upon written instructions from the holder. Earnings from the Units and the amount received in the case of redemption or repayment shall only be paid to the holder of the Units registered in the books of the custodian.

 

None of the shares underlying the Units, the earnings thereon or the corresponding redemption or repayment amounts may be pledged, encumbered or in any other way given in guarantee by the holder of the Units, nor may they be subject to attachment (penhora), seizure (arresto), impounding (sequestro), search and apprehension (busca e apreensão), or to any other lien or encumbrance.

 

The Units are held by us (except units that underlie the ADSs which are held by our affiliate, Santander Caceis Brasil Distribuidora de Títulos e Valores Mobiliários S.A.), as the custodian, in book-entry form in an account opened in the holder’s name. The transfer of ownership is effected by debiting the seller’s Unit account and crediting the buyer’s Unit account according to a written transfer order issued by the seller or a court authorization or transfer order delivered to the custodian, all of which are retained by the custodian. Dividends, interest on shareholders’ equity and/or cash bonuses shall be paid to the custodian and the custodian shall then transfer the amount to the custody agents for payment to the Unit holders. The pledge, usufruct, right of succession, fiduciary transfer in guarantee and any other conditions, onus or encumbrances on the Units must be registered in the custodian’s records, as well as noted in the corresponding statement of account of Units.

 

The custodian shall provide Unit holders with a statement of account at the end of each month in which there is movement and, when there is no movement, at least once a year. The statement shall show the date and place of issue, the name and details of the holder of the Unit account, an indication that it is a statement of Unit account, details of the shares deposited, a statement that the shares deposited, their earnings and any amounts received in the event of redemption or repayment shall only be paid to the holder of the Unit account or to the holder’s order in writing, our charge for the deposit, if any, and the addresses where Unit holders may obtain assistance.

 

Upon a written order issued by the holder of the Unit account to a broker authorized by the stock exchange where the Units are traded, the custodian shall block the corresponding Units and transfer them to the buyer upon receipt of a confirmation of the sale from the stock exchange.

 

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The Unit holder shall have the right, at any time, to instruct a broker to cancel Units and transfer the underlying shares. The broker must request to us, as the agent, to transfer the Units to the share deposit accounts held by the custodian in the holder’s name. The Unit holder shall bear any transfer and cancellation costs involved. Similarly, the holder may instruct a broker to assemble Units by transferring the number of shares that jointly represent a Unit, which shall be registered by the custodian in a trust account linked to the Units.

 

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The right to cancel Units may be suspended in the event of a public offering for distribution of Units, either in the domestic or the international market, in which case the suspension may not last longer than 180 days. Units subject to any lien or encumbrance may not be cancelled.

 

The following rules apply to the exercise of the rights granted to the shares represented by Units:

 

·Dividends and share redemption or repayment amounts delivered to us, as depository of the shares, shall be paid by us to the Unit holder;

 

·Only the Unit holder shall have the right to attend our general meetings and to exercise all of the prerogatives conferred on our shareholders by the shares represented by the Units;

 

·In the event of a stock split, cancellation or reverse stock split or new issuances of shares by us while the Units are in existence, the following rules will be observed:

 

(1)       In the event there is a change in the number of shares represented by Units as a result of a reverse stock split or cancellation of shares, we will debit the number of cancelled shares from each Unit holder’s account and proceed with the automatic cancellation of Units, observing the ratio of one common share and one preferred share issued by us to each Unit. We will deliver to the shareholders the shares which are insufficient to constitute a Unit in the form of shares, rather than Units; and

 

(2)       In the event there is a change in the number of shares represented by the Units as a result of a stock split or new issuances of shares, the custodian will register the deposit of the new shares and issue new Units, registering them in the accounts of their respective holders, so as to reflect the new number of shares held by unit holders. In this way, the accounts will maintain a ratio of one common share and one preferred share issued by us and represented by Units, and the custodian will deliver to holders the shares which are insufficient to constitute a Unit in the form of shares rather than Units;

 

In the event of a capital increase, by means of the issuance of shares that may be converted into new Units, Unit holders may exercise the preemption rights belonging to the shares represented by their Units. We shall create new Units in the register of book-entry Units and credit them to their holders so as to reflect the new number of common and preferred shares issued by us, subject to the current proportion of ordinary and preferred shares to constitute the Units. Shares that are too few to constitute a Unit shall be delivered to the shareholders as shares, rather than Units. There shall be no automatic credit of Units in the event of the exercise of preemption rights in the issue of securities other than shares.

 

Unit holders will be entitled to receive any shares issued as a result of our spin-off, consolidation or merger.

 

General Meetings

 

At our duly convened general meetings, our shareholders are authorized to make resolutions on matters relating to our activities and to make decisions deemed to be in our best interests.

 

Our shareholders are exclusively responsible for approving the financial statements at the annual general meeting, and to decide on the destination of net earnings and the distribution of dividends for the year immediately preceding the meeting. The members of the Board of Directors and Fiscal Councilare, as a general rule, elected at annual general meetings unless for an exceptional reason they have to be elected at an extraordinary general meeting.

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An extraordinary general meeting may be held at any time, including together with an annual general meeting. Our shareholders in a general meeting are exclusively responsible for approving, among other matters: (i) amendments to our By-Laws; (ii) election and dismissal of members of our board of directors; (iii) creation of any reserves of profits, other than the legal reserve; (iv) suspension of the rights of a shareholder that has failed to comply with obligations under the law or our By-Laws; (v) approval of our incorporation, merger or spin-off; and (vi) approval of our dissolution or liquidation, approval of reports prepared by the liquidators and the election of a liquidator and members of the fiscal council to operate during a liquidation.

 

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Quorum of General Meetings

 

As a general rule, the Brazilian Corporate Law sets forth that a general meeting can be held if shareholders holding at least 25% of the voting capital stock are present, at the first call, and at the second call if any number of holders of voting shares are present. If the shareholders have been convened to resolve on amendments to the By-Laws, the quorum at the first call must be at least 2/3two-thirds of the voting shares and, at the second call, any number of holders of voting shares.

 

The CVM may authorize the aforementioned quorum, set forth in the Brazilian Corporate Law, to be reduced in the case of a publicly held company with widely held shares, and where the last three general meetings have been attended by shareholders representing less than half the voting shares.

 

In general, the approval of any matter must occur through votes of shareholders attending a general meeting in person, or through a proxy, corresponding to at least the majority of the common shares represented at the meeting, and abstentions are not taken into account for this calculation. Nevertheless, the affirmative vote of shareholders representing at least one halfone-half of the voting shares is needed for the approval of the following matters, among others: (i) reduction of the mandatory dividend to be distributed to our shareholders; (ii) changes in our business purpose; (iii) our merger, spin-off or incorporation; (iv) our participation in a corporate group (as defined by the Brazilian Corporate Law); (v) the termination of a state of liquidation; and (vi) our dissolution.

 

Call Notice of ourOur Shareholders’ General Meetings

 

The Brazilian Corporate Law requires all general meetings to be called by a minimum of three entries in the Official Gazette of the State of São Paulo and in other mass circulation newspapers in São Paulo, where the B3 is located. Our call notices for meetings are currently published in the Official Gazette of the State of São Paulo, the official journal of São Paulo state, and in the Valor Econômico newspaper. The first call must be published not more than 30 days before the date of the meeting, and the second call not more than eight days in advance. However, in certain circumstances, at the request of any shareholder, the CVM may (i) after consulting us, require the shareholders’ meeting to be postponed and held 30 days after the first call; and/or (ii) suspend for up to 15 days the advance notice required for an extraordinary general meeting, to give the shareholder time to understand and analyze the proposals to be voted on at the meeting. The call notices must give full details of the agenda for the meeting (the term “general matters” being prohibited) and the adequate supporting documents must be available to the public on the CVM’s website from the date of publication of the first call.

 

Place of Our Shareholders’ General Meetings

 

Our shareholders’ meetings are held at our headquarters at Avenida Presidente Juscelino Kubitschek, 2041/2235, Bloco A, Vila Olímpia, in the city of São Paulo, state of São Paulo, Brazil. The Brazilian Corporate Law allows our shareholders to hold meetings outside our headquarters in an event of force majeure, provided that the meetings are held in the city of São Paulo and the relevant notice contains a clear indication of the place where the meeting will be held.

 

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Responsibility for Calling General Meetings

 

It is usually the responsibility of our Board of Directors to call a general meeting, provided that such meetings may also be called by the following persons or bodies: (i) any shareholder, when our directors fail to call a meeting within 60 days of the date required by law or by our By-Laws; (ii) shareholders representing a minimum of 5% of our capital stock, if our managers fail to call a meeting, within eight days, in response to a justified request submitting matters to be discussed; (iii)

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shareholders representing a minimum of 5% of our capital stock, if our Board of Directors failfails to call a meeting intended to install a Fiscal Council, within eight days of the request being made; and (iv) the Fiscal Council (if already installed), if our Board of Directors fails to call the annual general meeting; and the Fiscal Council can also call an extraordinary general meeting whenever there are serious or urgent reasons.

 

Conditions for Admission to a General Shareholders’ Meetings

 

Shareholders attending general meetings must prove that they are the holders of shares with voting rights, as set forth in the Brazilian Corporate Law. Our shareholders may be represented by a proxy (including a public proxy in accordance with CVM Instruction 481, of December 17, 2009, as amended), appointed not more than one year before the date of the meeting, and this representative must be a shareholder, a manager, a lawyer or, in the case of a publicly held company, as ours is, a financial institution. Investment funds may be represented by their respective administrators.

 

Remote Voting

 

The CVM has enacted a regulation which establishes rules for remote participation and voting in general meetings of publicly held companies.

 

Since January 1, 2017, the rule became applicable to all publicly held companies that had at least one type or class of share listed included in either the IBrX-100 or the IBOVESPA indices, as is our case. Accordingly, since the beginning of 2017, we have put in place the necessary structure to allow our shareholders to participate and vote remotely at general meetings. For this purpose, our shareholders must follow the voting procedures disclosed by us in the call notice for the relevant general meeting to transfer the voting pronouncements including by contacting either us or the custodians (whom(who will be responsible for transferring the voting pronouncements to us), pursuant to the terms of the applicable regulation.

 

Policy on Trading in Our Own Securities

 

The objective of our Policy on Trading in Our Own Securities, prepared in accordance with CVM Instruction 358 of January 3, 2002, as amended, or “CVM Instruction 358,” is: (i) to control and punish those persons with access to privileged information and who use this information to trade in securities issued by us; and (ii) to establish rules for trading in our securities.

 

The purpose of this policy is to avoid insider trading (the furnishing of privileged information from which third parties may benefit) and to ensure transparency in the trading of our securities. Our trading policy establishes blackout periods for trading our shares by ourselves, our controlling shareholders (direct or indirect), members of the Board of Directors, Executive Officers and members of our Fiscal Council (when one has been installed) and other technical or consultative bodies or other persons who, by virtue of their job, position or commercial, professional or trust relationship with us, have access to any privileged information. This is intended to avoid improper use of information not disclosed by us.

 

Among other matters, persons subject to our policy shall refrain from buying or selling, by themselves through direct dependents or by using directly or indirectly controlled companies, any securities issued by us, or backed by them, as well as their respective derivatives, including:

 

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(1)From the time when such persons become aware of material information that may affect the value of our securities, until such information is disclosed to the public. Those subject to the policy may trade in Company securities received or acquired under our variable compensation plans only during a period of 30 days from the date when such securities are vested, and after the end of the corresponding lock-up period, for the purpose of disposing of them, subject to the undertakings described in the following items;

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(2)During the period between our decision to increase capital stock, issue securities, distribute dividends, pay bonuses, or execute a stock split or a reverse stock split, and the publication of the corresponding notices or announcements;

 

(3)When it is intended to carry out a takeover, a total or partial spin-off, transformation or corporate reorganization; and

 

(4)During the 30-day period prior to the publication of annual or six-monthly financial statements, or quarterly financial information. However, exceptionally in the case of issues of fixed-rate securities by us by means of a public offer overseas, in order to raise funds for us in the ordinary course of our business, including medium term notes issued by us, this period shall be reduced to 15 days before the publication of such statements.

 

Our policy also establishes that our controlling shareholders, officers, and members of our Board of Directors, members of our Fiscal Council (when there is an active one) and members of any other bodies with technical or consulting functions created by a provision in the By-Laws, shall not trade securities issued by us or their respective derivatives on the same day that we, our controlled or associated companies or any other company under their common control are selling shares held in treasury or purchasing shares to be held in treasury, or while holding open orders to deal in our shares. However, such prohibition shall not apply if the acquisition or sale of our shares by us has the specific purpose of managing the risk arising out of our activities as market maker of certain funds indexes.

 

Right to Withdrawal

 

The Brazilian Corporate Law gives our shareholders the right to withdraw from Santander Brasil, upon reimbursement of the equity value of their shares, if the shareholder disagrees with or abstains from voting on certain resolutions approved in shareholders’ general meetings.

 

According to the Brazilian Corporate Law, the right of withdrawal may be exercised in the following circumstances, among others as provided by law: (i) a change in the preferences, privileges or repayment or redemption conditions granted to our preferred shares, or the creation of a new, more favored class of shares (in which case, only a shareholder who is adversely affected by such change or creation shall have the right of withdrawal); (ii) spin-off (subject to the conditions below); (iii) a reduction in our mandatory dividend; (iv) a change in our corporate purpose; (v) a merger or incorporation with another company in specific circumstances (as described below); (vi) our joining to a group of companies, as defined in the Brazilian Corporate Law; (vii) a corporate transformation; (viii) the takeover of all of our shares by another Brazilian company, so as to make us its wholly owned subsidiary; or (ix) the acquisition of control of another company at a price exceeding the legal limits.

 

The Brazilian Corporate Law also provides that a spin-off of a company shall entitle its shareholders to withdraw only if it results in: (i) a change in the corporate purpose, unless the assets spun off are transferred to a company whose principal activity coincides with the business purpose of the spun-off company; (ii) a reduction in the mandatory dividend; or (iii) becoming part of a group of companies, as defined in the Brazilian Corporate Law. Besides,In addition, in the event of a consolidation or merger of us into another company, or when we become part of a group of companies (as defined in the Brazilian Corporate Law), our shareholders will not be entitled to withdraw from our company if the shares of such companies (a) are liquid, i.e., are listed on the three general indexes or on any other Stock Exchange index, as defined by the CVM, and (b) are widely held, such that our controlling shareholders or other companies under common control hold less than half the shares of the type or class to which the right of withdrawal corresponds. The right of withdrawal must be exercised within 30 days of publication of the minutes of the general meeting resolving on the matter that gave rise to such right. Furthermore, we have the right to reconsider any resolution that has given rise to a right of withdrawal, during the 10

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days following the end of the period for exercising the right, if we consider that the payment of the price for buying out dissident shareholders would put our financial stability at risk.

 

Shareholders who exercise the right to withdrawal shall receive the equity value of their shares,

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based on the latest balance sheet approved at a general meeting. If, however, the resolution giving rise to the right of withdrawal was passed more than 60 days after the date of the latest approved balance sheet, a shareholder may call for a special balance sheet to be prepared as of a date not more than 60 days before the resolution, to assess the value of the shares. In this case, we must immediately pay 80% of the reimbursement value, calculated according to the latest balance sheet approved by our shareholders, and the balance within 120 days of the date of the resolution of the general meeting.

 

Redemption of Shares

 

According to the Brazilian Corporate Law, we may redeem our shares by means of a resolution passed at a general meeting by votes representing at least 50% of the shares affected by the redemption. Shares may be redeemed out of retained profits, revenues reserves or capital reserves. If not all of the shares are to be redeemed, a lottery ballot shall be held. If custody shares are selected in the ballot and the custody agreement does not provide for the situation, the financial institution must specify the proportion of shares to be redeemed.

 

Preemption Rights

 

Our shareholders have preemptive rights to subscribe for shares in any capital increase, in proportion to their shareholding at the time of the increase. Our shareholders also have preemptive rights in any offer of our shares or subscription warrants. A period of not less than 30 days from the publication of the notice to shareholders of the capital increase is allowed for the exercise of preemptive rights, and these rights are transferable.

 

However, according to the Brazilian Corporate Law and our By-Laws, our shareholders do not have preemptive rights in cases of granting or exercise of any share call option. In addition, our Board of Directors may exclude the preemptive right of our shareholders or reduce the exercise period, in the issuance of shares and subscription warrants whose placement is made through sale on stock exchange or public subscription, or share exchange, in a public offering of control acquisition.

 

Purchase of Our Own Shares

 

Our By-Laws authorize our Board of Directors to approve the purchase of our own shares. In any of the following circumstances, the decision will only become effective upon prior approval at a shareholders meeting: (i) acquisition on an organized securities market involving more than 5% of our outstanding shares of a certain type or class in less than 18 months; (ii) acquisition on an organized securities market for prices 10% above the market price; (iii) acquisition aiming at changing or preserving our share control composition or our management structure; or (iv) where the counterparty in an acquisition out of the organized securities markets is related to us (according to the applicable accounting rules). The decision to purchase our shares will be disclosed to the markets and the respective trade will be settled within 18 months from the approval.

 

The decision to acquire our shares is also subject to certain restrictions. It may not, among others:other things: (i) aim for the acquisition of shares belonging to our controlling shareholders; (ii) be carried out in the organized markets for prices above the market prices; (iii) take place simultaneously with a public offering for the purchase of our shares; or (iv) require the use of funds exceeding the available funds (considered all capital or profits reserves plus the realized results of the ongoing fiscal year, excluded,excluding, in both cases, the legal reserve, the reserve for realizable profits, the special reserve for non-distributed compulsory dividends and the tax incentives).

 

We may not hold in treasury more than 10% of our outstanding shares of a certain type or class, including shares held by our subsidiaries and affiliated companies and the shares corresponding to the economical exposure arising from derivatives or deferred settlement transactions entered into by us, our

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subsidiaries and affiliated companies. This limit does not apply to reimbursed shares, forfeited shares, or acquisitions in the scope of a public offering for acquisition of shares, which will be subject to specific laws and regulation.

 

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We may purchase our shares on the stock exchange, but not for a price above the market value. Acquisitions by means of private transactions must observe the applicable limitations and the approval by the shareholders meeting may be required. We may also buy our own shares in the event that we should cease to be a publicly held company. We may also purchase or issue put or call options on our shares.

 

On September 18, 2017, our shareholders approved the cancellation of 64,551,366 shares held in treasury, representing 32,275,683 common shares and 32,275,683 preferred shares. Such treasury shares corresponded, as of that date, to the totality of the shares then held in treasury.

 

On November 1, 2019, our Board of Directors approved the Unit repurchase program to cover the acquisition of up to 37,256,072 Units or ADRs, representing 37,256,072 common shares and 37,256,072 preferred shares by us or our branch in Cayman, corresponding to approximately 1% of the totality of our corporate capital. The repurchase program ends on November 4, 2020.

 

Cancellation of Registration as a Publicly Held Company

 

We may cancel our registration as a publicly held company and, for this purpose, our controlling shareholders must necessarily make a public offer to acquire all our shares in the market, according to the Brazilian Corporate Law and the regulations issued by the CVM. The minimum offer price must be at least equal to the economic value of our shares, as valued by a specialized company using any generally accepted and recognized valuation method, or any other criteria defined by the CVM.

 

The valuation report must be prepared by a specialized and experienced appraiser, who is independent of Santander Brasil, our management team and our controlling shareholders and who shall be chosen by the board of directors. The controlling shareholder shall bear the costs of preparing the valuation report.

 

Disposal of Control

 

Our By-Laws state that disposal of control of our company, either in a single transaction or in a series of transactions, must be subject to the condition, whether a suspensive or resolutory condition, that the acquirer is obligated to make a public offer to acquire all the shares held by our other shareholders, both common and preferred. This is further pursuant to the conditions and deadlines required by the current legislation, ensuring that they receive equal treatment with respect to the controlling shareholder in the disposal.

 

This offer will still be required (i) in cases where there is assignment for consideration of rights to subscribe for shares that may result in the disposal of the company’s control; and (ii) in case of disposal of control of a company that holds the controlling power over us.

 

Requirement for Disclosure of Information

 

As a publicly held company, we must comply with the requirements for disclosure of information set forth by the Brazilian Corporate Law and the CVM.

 

Periodic and Occasional Disclosure of Information

 

The regulations applicable to publicly held companies issued by the CVM, including CVM Instruction 358, provide that we must disclose both periodic and occasional information. Among such items of information are, for example, our financial statements accompanied by the management reports and the reports of our independent auditors, our standard financial information form (formulário de informações financeiras padronizadas – DFP), our quarterly report (formulário de informações trimestrais – ITR) and our reference form (formulário de referência).

 

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According to CVM Instruction 480, of December 7, 2009, as amended, the reference form (formulário de referência) must be filed with the CVM annually, within five months of the closing date of the reporting period, in the form established by the regulation. The reference form (formulário de referência) shall be updated, prior to a public offer, as well as upon the occurrence of certain events determined by the regulation that alter the information described therein, within seven business days of the respective change. This document contains complete information regarding us and, in general, includes the matters addressed in this annual report.

 

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CVM Instruction 457, of July 13, 2007, as amended, or “CVM Instruction 457,” provides that we are also subject to the disclosure of our consolidated financial statements based on IFRS within four months of the end of each reporting period. The financial statements mentioned by CVM Instruction 457 must be disclosed in their entirety, together with (i) the management report, (ii) explanatory note expressly stating without reservation that the consolidated financial statements are in accordance with IFRS as issued by the IASB and Brazilian GAAP, and (iii) the opinion of the independent auditors. Within 15 days following the term established by Brazilian law for disclosure of our quarterly information, we must: (i) disclose our full quarterly information translated tointo English; or (ii) disclose our financial statements or consolidated financial statements in accordance with IFRS as issued by the IASB, accompanied by the independent auditors’ review report.

 

Disclosure of Information Aboutabout Trading by Our Managers and Related Persons

 

Our Officers, members of our Board of Directors, Fiscal Council, if in operation, and any technical or consulting body created by our By-Laws must disclose to us the securities issued by us, our controlling or controlled companies, when publicly held, and the derivatives and other securities referenced by such securities that are held by them, as well as the trades with such securities. This obligation includes the securities held by the spouses, companions and any dependents of the aforementioned persons, as well as the companies directly or indirectly controlled by them.

 

We are obliged to send such information to CVM and B3 within ten10 days following the end of the month in which there is a change in the holding position or the month in which the relevant person is invested in the position (including name of person acquiring the shares, number and characteristics of the securities, form, price and date of acquisition). Upon the issuance of CVM Instruction 568 on September 17, 2015, it also became mandatory to provide the CVM and B3 within the same time period the information related to the securities traded by us, our entities and affiliated companies.

 

Disclosure of Information Aboutabout Our Shareholders with Relevant Interest

 

CVM Instruction 358, as amended, sets forth that (i) any direct or indirect controlling shareholders, (ii) any shareholders entitled to elect members of the board of directors and fiscal council, as well as (iii) any person or group of persons acting jointly with the aforementioned persons or representing the same interest, that carries out relevant transactions (that is, transactions whereby the direct or indirect holding of the aforementioned persons surpasses, upwards or downwards the thresholds of 5%, 10%, 15%, and so on successively, of our shares of a certain class and type) must disclose to us information on their trades, which will be sent to the CVM.

 

The ruling establishes that the following information must be provided: (i) the name and qualification of the person acquiring the shares, including the registration number in the Natural Persons Registry (CPF) or the National Register of Legal Entities (CNPJ); (ii) the reason for the participation and aimed quantity of shares, containing, if it were the case, a declaration by the acquiring party that it does not intend to alter the composition of its control or the structure of the company’s administration; (iii) the number of shares and other securities or other financial instruments referenced in such shares, of physical or financial settlement, specifying the number, class and type of such shares; (iv) indication of any agreements ruling the exercise of voting rights or the purchase and sale of our securities; and (v) if the shareholder is resident or domiciled abroad, the name and the registration number in the Natural Persons Registry (CPF) or the National Register of Legal Entities (CNPJ) of its agent or legal representative in Brazil for the purposes of article 119 of the Brazilian Corporate Law.

 

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Such obligations also apply to (i) the acquisition of any right over our shares and other securities subject to disclosure; and (ii) execution of any derivative financial instruments referenced in our shares, even without physical settlement provisions.

 

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Our Investor Relations Officer is responsible for sending this information to the CVM and to the B3 as soon as received.

 

Disclosure of Material Facts

 

The Brazilian Securities Market Law and CVM Instruction 358 set forth that we must disclose any decision made by a controlling shareholder, by the general shareholders’ meeting or by any of our management bodies, or by any other act or event in connection with our business that could influence: (i) the trading price of our securities or securities referenced to our securities; (ii) the decision by investors to buy, sell or keep those securities; and (iii) the decision by investors to exercise any rights they have as holders of those securities.

 

Examples of material facts are: the signing of shareholders’ agreements, the transfer of control of the company, a consolidation, merger or spin-off involving the company or associated companies, the change in rights and advantages of the securities issued by the company, the split or reverse split of shares, among others.

 

Our Investor Relations Officer is responsible for the disclosure of any material facts to the market.

 

The applicable regulation authorizes us, on an exceptional basis, to request confidential treatment of certain material developments from the CVM when our management believes that disclosure of the respective fact to the public could result in adverse consequences to us.

 

10C.Material Contracts

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10C. Material Contracts

 

For the two years immediately preceding the publication of this annual report.report, we were not a party to any material contract outside the ordinary course of business.

 

10D.Exchange Controls

10D. Exchange Controls

 

Foreign Investment in Brazil

 

Foreign Direct Investment

 

Foreign direct investment in Brazil is regulated by Law 4,131 and Law 4,390, enacted on September 3, 1962 and August 29, 1964, respectively, as amended. A foreign direct investor under Law 4,131/62 must:

 

·register as a foreign direct investor with the Brazilian Central Bank;

 

·obtain a taxpayer identification number from the Brazilian tax authorities;

 

·appoint a tax representative in Brazil; and

 

·appoint a representative in Brazil for service of process in respect of suits based on the Brazilian Corporate Law.

 

Foreign capital must be registered with the Brazilian Central Bank through the Electronic Registration System – Foreign Direct Investment, or the “Registro Declaratório Eletrônico – Investimento Externo Direto,” within 30 days of the flow of funds into Brazil in accordance with Law 4,131. The registration of foreign capital is required for the remittance of profits abroad, the repatriation

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of capital and the registration of reinvestments. Investments will always be registered in the foreign currency in which they are actually made, or in Brazilian currency, if the funds are derived from a non-resident account properly held in Brazil.

 

On December 28, 2006, Law 11,371 allowed the registration of the foreign capital invested in Brazilian companies but not yet duly registered and not subject to other types of registration. For the purposes of such registration the amount of foreign capital inreais to be registered must be evidenced in the accounting records of the relevant Brazilian company and must be registered prior to the last business day of the subsequent calendar year during which the company becomes obligated to register the capital.

 

Other than such registration, foreign investment is not subject to government approvals or authorizations and there are no requirements regarding minimum investment or local participation in capital (except in very limited cases such as in regard to financial institutions, insurance companies and other entities subject to specific regulations). Foreign participation, however, is limited (that is, subject to approvals) or forbidden in several sectors.

 

Foreign investments in currency must be officially channeled through financial institutions duly authorized to deal in foreign exchange. Foreign currency must be converted into Brazilian currency and vice versa through the execution of an exchange contract. Foreign investments may also be made through the contribution of assets and equipment intended for the local production of goods and services.

 

The Brazilian Congress is currently debating a bill to amend Law 4,131 and other laws that govern the Brazilian foreign exchange market. See “Item 4. Information on the Company—B. Business Overview—Regulation and Supervision—Other Applicable Laws and Regulations—Foreign Exchange Market”.Market.”

 

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Capital Markets Investment

 

Investors residing outside Brazil, including institutional investors, are authorized to purchase securities in Brazil on the Brazilian stock exchange, provided that they comply with the registration requirements set forth in the applicable regulation enacted by CMN and the CVM.

 

Since March 30, 2015, portfolio investments arehave been regulated by CMN Resolution 4,373, which revoked the former rule (CMN Resolution 2,689, of January 26, 2000) which had been in force for about 15 years.

 

The main purpose of CMN Resolution 4,373 is to facilitate the entry of foreign investors in the Brazilian financial and capital markets. It introduced, among other things, the possibility for foreign investors of making investments in local currency with funds held in foreign bank accounts of the non-resident investor, or with bills of payment denominated inreais but issued abroad.

 

With certain limited exceptions, under CMN Resolution 4,373 investors are permitted to carry out any type of transaction in the Brazilian capital markets involving a security traded on a stock or futures exchange or an organized over-the-counter market, but may not transfer the ownership of investments made under such regulation to other non-Brazilian holders through private transactions. Investments and remittances outside Brazil of gains, dividends, profits or other payments under Santander Brasil’s shares are made through the commercial rate exchange market.

 

Under CMN Resolution 4,373, an investor residing outside Brazil must:

 

·appoint at least one financial institution or an institution authorized to operate by the Brazilian Central Bank as representative in Brazil that will be responsible for complying with the registration and reporting requirements and reporting procedures of the Brazilian Central Bank and the CVM;

 

·register as a foreign investor with the CVM;

 

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·appoint one or more custodians authorized by the CVM;

 

·register the foreign investment with the Brazilian Central Bank;

 

·appoint a tax representative in Brazil; and

 

·obtain a taxpayer identification number from the Brazilian federal tax authorities.

 

Securities and other financial assets held by foreign investors pursuant to said regulation must be registered or maintained in deposit accounts or under the custody of an entity duly licensed by the Brazilian Central Bank or the CVM. In addition, securities trading by foreign investors is generally restricted to transactions involving securities listed on the Brazilian stock exchanges or traded in organized over-the-counter markets licensed by the CVM.

 

CVM Instruction No. 560, of March 27, 2015, as amended, introduced in Brazilian securities regulation the obligation of the representatives of investors residing outside Brazil to inform the CVM of the movements and applications of funds of such investors participating in collective accounts and holders of own accounts represented by them.

 

10E.Taxation

10E. Taxation

 

The following summary contains a description of certain Brazilian and U.S. federal income tax consequences of the ownership and disposition of units or ADRs, but it does not purport to be a comprehensive description of all the tax considerations that may be relevant to the ownership or disposition of units or ADRs. The summary is based on the tax laws of Brazil and regulations thereunder and on the tax laws of the United States and regulations thereunder, as of the date hereof, which are subject to change.

 

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Although there is at present no income tax treaty between Brazil and the United States, the tax authorities of the two countries have had discussions that may culminate in a treaty. No assurance can be given, however, as to whether or when a treaty will enter into force or how it will affect the U.S. Holders (as defined below) of units or ADRs. Prospective holders of units or ADRs should consult their tax advisors as to the tax consequences of the acquisition, ownership and disposition of units or ADRs in their particular circumstances.

 

Brazilian Tax Considerations

 

The following discussion is a summary of the Brazilian tax considerations relating to the acquisition, exchange, ownership and disposition of units or ADRs by a Non-Resident Holder. The discussion is based on Brazilian law as currently in effect, which is subject to change, possibly with retroactive effect, and to differences of interpretation. Any change in such law may change the consequences described below.

 

The tax consequences described below do not take into account the effects of any tax treaties or reciprocity of tax treatment entered into by Brazil and other countries. The discussion also does not address any tax consequences under the tax laws of any state or locality of Brazil.

 

The description below is not intended to constitute a complete analysis of all tax consequences relating to the acquisition, exchange, ownership and disposition of our units or ADRs. Holders of units or ADRs and prospective purchasers thereof should consult their tax advisors with respect to the tax consequences of owning and disposing of our units or ADRs in light of their particular investment circumstances.

 

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Income Tax

 

Dividends

 

Dividends paid by a Brazilian company, such as ourselves, including stock dividends to a Non-Resident Holder are currently not subject to withholding income tax in Brazil, to the extent that such amounts are related to profits generated since January 1, 1996. Dividends relating to profits generated prior to January 1, 1996 may be subject to Brazilian withholding tax at varying rates, depending on the year the profits were generated.

 

Interest Attributable to Shareholders’ Equity

 

Law 9,249, dated December 1995, as amended, allows a Brazilian corporation, such as ourselves, to make distributions to shareholders of interest on net equity and to treat those payments as a deductible expense for purposes of calculating Brazilian corporate income tax and social contribution on net profits, subject to the limits described below. These distributions may be paid in cash. For tax purposes, this interest is limited to the daily pro rata variation of the Long-Term Rate (Taxa de Longo Prazo – TLP), as determined by the Brazilian Central Bank from time to time, and the amount of this deductible expense may not exceed the greater of:

 

·50% of the net income (after the deduction of social contribution on net profit but before taking into account allowances for income tax and the interest attributable to shareholders’ equity) for the period in respect of which the payment is made; and

 

·50% of our accumulated profits.

 

Payment of interest on shareholders’ equity to a Non-Resident Holder is subject to withholding income tax at the rate of 15%, or 25% for individuals or entities residing in a “Tax Haven.” According to Brazilian legislation, a “Tax Haven” jurisdiction is one in which there is no income taxation or where the local income tax rate is generally applied at rates under 20%. Ordinance 488 dated December 12, 2014, provided for the possibility of that 20% threshold being reduced to 17% if the corresponding jurisdictions are aligned with international standards of fiscal transparency in

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accordance with rules to be established by the Brazilian tax authorities, or where local legislation imposes restrictions on disclosure regarding shareholder composition or investment ownership. These payments may be included, at their net value, as part of any mandatory dividend, as discussed above under “—Dividend Policy.”

 

Distributions of interest on shareholders’ equity to Non-Resident Holders may be converted into U.S. dollars and remitted outside Brazil, subject to applicable exchange controls, if the investment is registered with the Brazilian Central Bank.

 

Capital Gains

 

(i)       Taxation of Capital Gain Earned in the Country in a Transaction Not Carried Out on the Brazilian Stock Exchange (Or Similar Exchange)

 

According to Law 10,833/03, the gains recognized on a disposition of assets located in Brazil, such as our units, by a Non-Resident Holder, could be subject to withholding tax in Brazil. This rule is applicable regardless of whether the disposition occurs in Brazil or abroad and regardless of whether the disposition is made to an individual or entity resident or domiciled in Brazil.

 

As a general rule, capital gains realized as a result of a disposition of units are the positive difference between the amount realized on the disposition of the units and the acquisition cost of such units.

 

Historically, the income tax on these gains had to be withheld at source and the tax rate would vary depending on the domicile of the Non-Resident Holder:

 

·If the Non-Resident Holder is not located in a Tax Haven, a progressive tax rate will be applied as provided for in Law No. 13,259/16, as follows: (i) at a rate of 15% for the portion of the gain up to R$5 million, (ii) at a rate of 17.5% for the portion of the gain that exceeds R$5 million but does not exceed R$10 million, (iii) at a rate of 20% for the portion of the gain that exceeds R$10 million but does not exceed R$30 million, and (iv) 22.5% for the portion of the gain that exceeds R$30 million; and

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·If the Non-Resident Holder is located in a Tax Haven, the tax rate will be 25%.

 

The tax must be withheld and paid by the buyer or, in cases where the buyer and seller are domiciled abroad, a legal representative of buyer shall be designated for the payment of the tax.

 

(ii)       Taxation of the Capital Gains Earned in the Country in a Transaction Carried Out on the Brazilian Stock Exchange (Or Similar Exchange)

 

There could also be the levy of income tax on net gains earned by a Non-Resident Holder on the disposition of units sold on the Brazilian stock exchange, commodities or futures exchange (or similar exchange). The tax rate will vary according to the type of investment registration made by the Non-Resident Holder at the Brazilian Central Bank, as well as the location of the beneficiary:

 

·Capital gains earned by a Non-Resident Holder who (i) has its investment registered in Brazil with the Brazilian Central Bank under the rules of CMN Resolution 4,373, or “Registered Holder,” and (ii) is not a Tax Haven resident are exempt from income tax; and

 

·Capital gains earned by a Non-Resident Holder who is not a Registered Holder or is a Tax Haven resident (Registered Holder or not) are currently subject to income tax at a rate of 15%. In this case, withholding income tax of 0.005% will be levied by the intermediary institution (that is, a broker) that receives the order directly from the Non-Resident Holder, which can be later offset against the 15% income tax due on the capital gain, which will be paid by the Non-Resident Holder’s tax representative in Brazil.

 

Any other gains realized on a disposition of units that is not carried out in an exchange

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environment or that is conducted in the non-organized “OTC market” are subject to the same rules set forth in item “(i) Taxation of Capital Gain Earned in the Country in a Transaction Not Carried Out on the Brazilian Stock Exchange (Or Similar Exchange).” Gains realized by a Non-Resident Holder on the disposition of preemptive rights held in stock will be subject to Brazilian income tax, according to the same rules applicable to the sale of units or ADRs.

 

(iii)       Capital Reduction

 

In case of a capital reduction by a Brazilian corporation, such as ourselves, the positive difference between the amount received by the Non-Resident Holder and the acquisition cost of the shares is treated as capital gain derived from a transaction held out of a Brazilian exchange described above in (i) and is therefore currently subject to withholding tax at the following progressive rates: (i) 15% for the portion of the gains up to R$5 million, (ii) 17.5% for the portion of the gain that exceeds R$5 million but does not exceed R$10 million, (iii) 20% for the portion of the gain that exceeds R$10 million but does not exceed R$30 million, and (iv) 22.5% for the portion of the gain that exceeds R$30 million for a Non-Resident Holder not located in a Tax Haven or up to 25% for a Non-Resident Holder located in a Tax Haven.

 

Although subject to interpretation, in the case of Non-Resident Holders carrying out investments pursuant to CMN Resolution 4,373, it is possible to sustain that the income tax should not apply at progressive rates under Law 13,259/16.16, but at a fixed rate of 15%. Moreover, Non-Resident Holders located in a Tax Haven jurisdiction are subject to a specific tax regulation and remain taxed to a tax rate of 25%.

 

Sale of ADRs

 

Pursuant to Section 26 of Law 10,833/2003, the sale of an asset located in Brazil by a Non-Resident Holder, whether to a Brazilian resident or to another Non-Resident Holder, is subject to Brazilian income tax. Our understanding is that ADRs do not qualify as assets located in Brazil and thus should not be subject to the Brazilian income tax. Notwithstanding the foregoing, since the tax rule referred to in Section 26 of Law 10,833 provides broad language and has not been definitely analyzed by the administrative or judicial courts, we are unable to assure you of the final outcome of such discussion.

 

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Gains on the exchangeExchange of ADRs for unitsUnits

 

Non-Resident Holders may exchange ADRs for the underlying units, sell the units on the Brazilian stock exchange and the sale proceeds may be remitted abroad. As a general rule, the exchange of ADRs for shares is not subject to income taxation in Brazil.

 

Upon receipt of the underlying units in exchange for ADRs, Non-Resident Holders may also elect to register with the Brazilian Central Bank the U.S. dollar value of such units with the Brazilian Central Bank as a foreign portfolio investment under CMN Resolution 4373, which will entitle them to the tax treatment applicable to Registered Holders described above.

 

Alternatively, the Non-Resident Holder is also entitled to register with the Brazilian Central Bank the U.S. dollar value of such units as a foreign direct investment with the Brazilian Central Bank under Law 4,131/62, in which case the respective sale would be subject to the tax treatment applicable to transactions carried out of by a Non-Resident Holder that is not a Registered Holder.

 

Gains on the exchangeExchange of unitsUnits for ADRs

 

The deposit of units in exchange for ADRs by a Non-Resident Holder may be subject to Brazilian income tax on capital gains if the acquisition cost of the units is lower than the market price for such units.

 

The difference between the acquisition cost and the average price of the units is considered a

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capital gain currently subject to income tax at the following progressive rates: (i) 15% for the portion of the gains up to R$5 million, (ii) 17.5% for the portion of the gain that exceeds R$5 million but does not exceed R$10 million, (iii) 20% for the portion of the gain that exceeds R$10 million but does not exceed R$30 million, and (iv) 22.5% for the portion of the gain that exceeds R$30 million), or 25.0% for Tax Haven residents. If a Non-Resident Holder that is a foreign direct investor under Law 4,131/62 wishes to deposit its units into the ADR program in exchange for ADRs, such Non-Resident Holder will be required to present to the custodian evidence, if applicable, of payment of the income tax assessed on capital gains at the aforementioned progressive rates previously noted or, in the case of a Tax Haven resident, 25%.

 

Pursuant to CMN Resolution 4,373 the progressive rates of Law 13,259/16 to capital gains obtained by Non-Resident Holders not located in a Tax Haven will be applicable and for Non-Resident Holders (whether they are considered to be Non-Resident Holders as a result of CMN Resolution 4373 or otherwise) located in a Tax Haven are subject to a specific tax regulation and remain taxed to a tax rate of 25%.

 

However, in certain circumstances, there may be arguments to sustain the position that such taxation is not applicable to 4,373 Holders that are not resident or domiciled in a Low or Nil Tax Jurisdiction, which should be subject to the assessment of the withholding income tax at a fixed 15% rate.

Moreover, there are arguments to support the position that there should be no withholding tax on this transaction, because: (i) the deposit of units would not have represented the disposal of the investment; and (ii) the transaction is registered on the stock exchange. Given the uncertainty of these two positions, we recommend that you consult your tax advisors.

 

Tax on Foreign Exchange Transactions (IOF/Exchange)

 

The Tax on Foreign Exchange Transactions, or “IOF/Exchange,” is due on the conversion of Brazilian or foreign currency, or any document that represents it, into an available equivalent amount. Currently, for most foreign exchange transactions, the IOF/Exchange rate is 0.38%.

 

However, currently different IOF/Exchange rates apply to foreign exchange transactions carried out in connection with investments made by Non-Resident Holders in the Brazilian financial and capital markets under CMN Resolution 4373. These rates are:

i.investment in financial and capital markets (Fixed Income), constitution of guaranteed margin, derivatives operations with predetermined yield, including simultaneous transactions: zero;

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ii.investment in variable income securities negotiated on a stock exchange, commodities and futures, acquisition of shares in public offerings or subscription of shares, as long as they belong to publicly-held companies whose shares are subject to trading on the stock exchange: zero;

iii.investment in private equity funds (FIP), investment funds in emerging companies (FIEE) and investment funds in shares from these funds (FIC-FIP and FIC-FIEE): zero;

iv.simultaneous foreign exchange transactions resulting from the cancellation of depositary receipts for the acquisition of shares negotiated on the stock exchange: zero;

v.returns of investments made in the Brazilian capital and financial markets: zero;

vi.distribution of interest on shareholders’ equity and dividends: zero;

vii.investment in Brazilian Depositary Receipts: zero; and

viii.investments in bonds related to infrastructure projects, which comply with the requirements provided for in Article 1 of Law 12,431/2011: zero.

 

Under the provisions of the Law, the Brazilian government may increase any of these rates at any time, up to 25%. However, any increase in rates may only apply to future transactions.

 

Tax on Transactions Involving Bonds and Securities and Derivatives

 

Brazilian law imposes a Tax on Transactions Involving Bonds and Securities, known as “IOF/Bonds Tax.”

 

Currently, the IOF Bonds Tax is due at a daily rate of 1.0%, limited to 96.0% of the income generated by fixed income bonds, on the redemption amount or the amount received from assignment or renegotiation. The rate is reduced to zero as from the thirtieth day.

 

The rate of IOF/Bonds Tax applicable to transactions of variable income securities, including those traded in stock, commodities or futures markets that involve shares, or units composed of shares, is reduced to zero.

 

The IOF Derivatives Tax was established by Decree 7,563 of September 16, 2011, with the original levy of 1% on the notional value of the adjusted purchase sale or maturity of financial derivative contract in the countryBrazil that individually results in an increased foreign exchange exposure on a short position. However, under Decree 8,027 of June 12, 2013 the tax rate was reduced to zero.

 

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Other Brazilian Taxes

 

The inheritance and gift tax, or “ITCMD,” is applicable to the transfer of any goods or rights by gift or bequest. The transfer of shares, or units comprised of shares, that are abroad to individuals who are residentsresident in Brazil is subject to taxation. If the shares are in Brazil and are transferred to a non-resident, the ITCMD will apply if the donor is domiciled in Brazil and the recipient is domiciled abroad. The ITCMD is a state tax with a maximum rate of 8%.

 

Material U.S. Federal Income Tax Considerations for U.S. Holders

 

The following summary describes the material U.S. federal income tax consequences of the ownership and disposition of ADRs or units, but it does not purport to be a comprehensive description of all of the tax considerations that may be relevant to a particular person’s decision to acquire such securities. This summary does not address “Medicare contribution tax” consequences and applies only to U.S. Holders (as defined below) that hold ADRs or units as capital assets for U.S. federal income tax purposes and does not address special classes of holders, such as:

 

i.certain financial institutions;

 

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ii.insurance companies;

 

iii.dealers and traders in securities that use a mark-to-market method of tax accounting;

 

iv.persons holding ADRs or units as part of a hedge, “straddle,” conversion transaction or integrated transaction;

 

v.holders whose “functional currency” is not the U.S. dollar;

 

vi.holders liable for the alternative minimum tax;

 

vii.tax exempt entities, including “individual retirement accounts” and “Roth IRAs”;

 

viii.partnerships or other entities classified as partnerships for U.S. federal income tax purposes;

 

ix.holders that own or are deemed to own 10% or more of our shares by vote or value;

 

x.persons holding ADRs or units in connection with a trade or business conducted outside the United States; and

 

xi.xipersons who acquired ADRs or units pursuant to the exercise of an employee stock option or otherwise as compensation.

 

If an entity that is classified as a partnership for U.S. federal income tax purposes holds units or ADRs, the U.S. federal income tax treatment of a partner will generally depend on the status of the partner and upon the activities of the partnership. Partnerships holding units or ADRs and partners in such partnerships should consult their tax advisors as to the particular U.S. federal income tax consequences of holding and disposing of the units or ADRs.

 

The summary is based upon the Internal Revenue Code of 1986, as amended, or the “Code,” administrative pronouncements, judicial decisions and final, temporary and proposed Treasury Regulations, all as of the date hereof, changes to any of which may affect the tax consequences described herein, possibly with retroactive effect. In addition, the summary is based in part on representations of the depositary and assumes that each obligation provided for in, or otherwise contemplated by, the deposit agreement or any other related document will be performed in accordance with its terms. U.S. Holders are urged to consult their tax advisors as to the U.S. federal income tax consequences of the acquisition, ownership and disposition of ADRs or units in their particular circumstances.

 

As used herein, a “U.S. Holder” is, for U.S. federal income tax purposes, a beneficial owner of ADRs or units that is:

 

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(1)an individual who is a citizen or resident of the United States;

 

(2)a corporation, or other entity taxable as a corporation, created or organized in or under the laws of the United States, any state thereof or the District of Columbia;

 

(3)an estate the income of which is subject to U.S. federal income taxation regardless of its source; or

 

(4)a trust if (a) a court within the United States is able to exercise primary supervision for the administration of the trust, and one or more U.S. persons have the authority to control all substantial decisions of the trust, or (b) the trust has validly elected under applicable Treasury Regulations to be treated as a U.S. person.

 

In general, for U.S. federal income tax purposes, U.S. Holders of ADRs will be treated as the owners of the underlying units represented by those ADRs. Accordingly, no gain or loss will be recognized if a U.S. Holder exchanges ADRs for the underlying units represented by those ADRs.

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The U.S. Treasury has expressed concerns that parties to whom American depositary shares are released before delivery of shares to the depositary (a practice called “pre-release”) or intermediaries in the chain of ownership between U.S. Holders and the issuer of the security underlying the American depositary shares, may be taking actions that are inconsistent with the claiming of foreign tax credits by U.S. Holders of American depositary shares. These actions would also be inconsistent with the claiming of the preferential tax rates described below, applicable to dividends received by certain non-corporate holders. Accordingly, the creditability of Brazilian taxes and the availability of the preferential tax rates for dividends received by certain non-corporate holders, each described below, could be affected by actions taken by these parties or intermediaries.

 

Taxation of Distributions

 

Distributions paid on our units or ADRs (including distributions to shareholders that are treated as interest on net equity for Brazilian tax purposes and amounts withheld in respect of Brazilian tax), other than certain pro rata distributions of our common shares, will be treated as dividends to the extent paid out of our current or accumulated earnings and profits (as determined under U.S. federal income tax principles). Because we do not maintain calculations of our earnings and profits under U.S. federal income tax principles, it is expected that distributions generally will be reported to U.S. Holders as dividends. These dividends will be included in a U.S. Holder’s income on the date of the U.S. Holder’s (or in the case of ADRs, the depositary’s) receipt of the dividend, and will not be eligible for the “dividends received deduction” generally allowed to corporations receiving dividends from domestic corporations under the Code. The amount of the distribution will equal the U.S. dollar value of thereaisreceived, calculated by reference to the exchange rate in effect on the date that distribution is received (which, for U.S. Holders of ADRs, will be the date on which the distribution is received by the depositary), whether or not the depositary or U.S. Holder in fact converts anyreais received into U.S. dollars at that time. If the dividend is converted into U.S. dollars on the date of receipt, a U.S. Holder generally will not be required to recognize foreign currency gain or loss in respect of the dividend income. A U.S. Holder may have foreign currency gain or loss if the dividend is converted into U.S. dollars after the date of receipt. Any gains or losses resulting from the conversion ofreais into U.S. dollars will be treated as ordinary income or loss, as the case may be, of the U.S. Holder and will generally be U.S. source.

 

Subject to applicable limitations (including the requirement that the ADRs be readily tradable on an established securities market in the United States), the discussion above regarding concerns expressed by the U.S. Treasury and the discussion of the passive foreign investment company rules below, under current law, dividends paid with respect to our ADRs to certain non-corporate U.S. Holders will be taxable at the preferential rates applicable to long-term capital gain. Non-corporate U.S. Holders should consult their tax advisors regarding the availability of these favorable rates in their particular circumstances.

 

Sale or Other Disposition of ADRs or Units

 

Subject to the discussion of the passive foreign investment company rules below, gain or loss realized by a U.S. Holder on the sale or exchange of ADRs or units will be subject to U.S. federal income tax as capital gain or loss in an amount equal to the difference between the U.S. Holder’s adjusted tax basis in the ADRs or units and the amount realized on the disposition, in each case as determined in U.S. dollars. Such gain or loss will be long-term capital gain or loss to the extent that the U.S. Holder’s holding period with respect to the ADRs or units exceeds one year. Gain or loss, if any, will generally be U.S. source for foreign tax credit purposes. The deductibility of capital losses is

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subject to limitations. Long-term capital gain of a non-corporate U.S. Holder is generally taxed at preferential rates. If a Brazilian tax is withheld on the sale or other disposition of ADRs or units, a U.S. Holder’s amount realized will include the gross amount of proceeds of the sale or disposition before the deduction of the Brazilian tax. See “—Brazilian Tax Considerations” for a description of when a disposition may be subject to taxation by Brazil.

 

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Foreign Tax Credits

 

Subject to certain generally applicable limitations, which may vary depending upon a U.S. Holder’s circumstances, and subject to the discussion above regarding concerns expressed by the U.S. Treasury, a U.S. Holder will be entitled to a credit against its U.S. federal income tax liability for Brazilian income taxes withheld from dividends on ADRs or units. A U.S. Holder will be entitled to use these foreign tax credits to offset only the portion of its U.S. tax liability that is attributable to foreign-source income. This limitation on foreign taxes eligible for credit is calculated separately with regard to specific classes of income. In addition, a U.S. Holder must satisfy minimum holding period requirements in order to be eligible to claim a foreign tax credit for foreign taxes withheld on dividends.

 

Because a U.S. Holder’s gains from the sale or exchange of ADRs or units will generally be treated as U.S. source income, the limitation described above may preclude a U.S. Holder from claiming a credit for all or a portion of the foreign taxes imposed on any such gains. U.S. Holders should consult their tax advisors as to whether these Brazilian taxes may be creditable against the U.S. Holder’s U.S. federal income tax liability on foreign-source income from other sources. Instead of claiming a credit, a U.S. Holder may, at its election, deduct such otherwise creditable Brazilian income taxes in computing taxable income, subject to generally applicable limitations under U.S. law. An election to deduct foreign taxes instead of claiming foreign tax credits applies to all foreign taxes paid or accrued in the taxable year.

 

The Brazilian IOF/Exchange Tax imposed on the purchase of units and the IOF/Bonds Tax on the deposit of units in exchange for ADRs (as discussed above under “—Brazilian Tax Considerations”) will not be treated as creditable foreign tax for U.S. federal income tax purposes. U.S. Holders should consult their tax advisors as to whether those taxes would be deductible for U.S. federal income tax purposes.

 

The rules governing foreign tax credits are complex and, therefore, U.S. Holders are urged to consult their own tax advisors to determine whether they are subject to any special rules that limit their ability to make effective use of foreign tax credits.

 

Passive Foreign Investment Company Rules

 

Based on proposed Treasury Regulations, including regulations which are proposed to be effective for taxable years beginning after December 31, 1994, we believe we were not a passive foreign investment company (a “PFIC”) for our taxable year ended December 31, 2019.2020. However, because the proposed Treasury Regulations may not be finalized in their current form, because the application of the proposed regulations is not entirely clear and because the composition of our income and assets will vary over time, there can be no assurance that we will not be a PFIC for any taxable year. The determination of whether we are a PFIC is made annually and is based upon the composition of our income and assets (including, among others, entities in which we hold at least a 25.0% interest), and the nature of our activities.

 

If we were a PFIC for any taxable year during which a U.S. Holder held our ADRs or units, any gain recognized by a U.S. Holder on a sale or other disposition of ADRs or units would be allocated ratably over the U.S. Holder’s holding period for the ADRs or units. The amounts allocated to the taxable year of the sale or other exchange and to any year before we became a PFIC would be taxed as ordinary income. The amount allocated to all other taxable years would be subject to tax at the highest rate in effect for individuals or corporations, as appropriate, for that taxable year, and an interest charge would be imposed on the resulting tax liability for each of those taxable years. Further, the portion of any distribution in respect of ADRs or units that is in excess of 125.0% of the average

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of the annual distributions on ADRs or units received by the U.S. Holder during the preceding three years or the U.S. Holder’s holding period, whichever is shorter, would be subject to taxation as described above. Certain elections may be available that would result in alternative treatments (such as mark-to-market treatment) of the ADRs or units. U.S. Holders should consult their tax advisors to determine whether any of these elections would be available and, if so, what the consequences of the alternative treatments would be in their particular circumstances.

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If we were to be treated as a PFIC in any taxable year in which a U.S. Holder held units or ADRs, a U.S. Holder would generally be required to file IRS Form 8621 with its annual U.S. federal income tax returns, subject to certain exceptions.

 

In addition, if we were to be treated as a PFIC in a taxable year in which we pay a dividend or the prior taxable year, the preferential dividend rates discussed above with respect to certain dividends paid to non-corporate holders would not apply.

 

Information Reporting and Backup Withholding

 

Payments of dividends and sales proceeds that are made within the United States or through certain U.S.-related financial intermediaries generally are subject to information reporting, and may be subject to backup withholding unless (i) the U.S. Holder is an exempt recipient or (ii) in the case of backup withholding, the U.S. Holder provides a correct taxpayer identification number and certifies that it is not subject to backup withholding. The amount of any backup withholding from a payment to a U.S. Holder will be allowed as a credit against the U.S. Holder’s U.S. federal income tax liability and may entitle the U.S. Holder to a refund, provided that the required information is timely furnished to the IRS.

 

Certain U.S. Holders who are individuals (and specified entities that are formed or availed of for purposes of holding certain foreign financial assets) may be required to report information relating to their ownership of an interest in certain foreign financial assets, including stock of a non-U.S. entity, subject to certain exceptions (including an exception for publicly traded stock and interests held in custodial accounts maintained by a U.S. financial institution). U.S. Holders are urged to consult their tax advisors regarding the effect, if any, of this requirement on the ownership and disposition of ADRs or units.

 

FATCA

 

The United States has enacted legislation, commonly referred to as “FATCA,” that generally imposes a reporting and withholding regime with respect to certain U.S. source payments (including interest and dividends), and to payments of gross proceeds from the disposition of property that can produce U.S. source interest and dividends and certain payments made by entities that are classified as financial institutions under FATCA. However, regulations proposed in 2018 (the preamble to which specifies that taxpayers are permitted to rely on them pending finalization) eliminate the withholding requirement on payments of gross proceeds of a taxable disposition. The United States has entered into an intergovernmental agreement regarding the implementation of FATCA with Brazil, or the “IGA”. For further information, see “Item 4. Information on the Company—B. Business Overview—Regulation and Supervision—Other Applicable Laws and Regulations—FATCA,” above. Under the current terms and conditions of the IGA, we do not expect payments made on or with respect to the ADRs or units to be subject to withholding under FATCA. However, significant aspects of when and how FATCA will apply remain unclear, and no assurance can be given that withholding under FATCA will not become relevant with respect to payments made on or with respect to the ADRs or units in the future. Prospective investors should consult their own tax advisors regarding the potential application of FATCA.

 

10F.Dividends and Paying Agents

10F. Dividends and Paying Agents

 

Not applicable.

 

10G.Statement by Experts

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10G. Statement by Experts

 

Not applicable.

 

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10H.10H. Documents on Display

 

We are subject to the information requirements of the Exchange Act, except that as a foreign issuer, we are not subject to the proxy rules or the short-swing profit disclosure rules of the Exchange Act. In accordance with these statutory requirements, we file with or furnish reports and other information to the SEC. Reports and other information filed or furnished by us to the SEC may be inspected and copied at the public reference facilities maintained by the SEC at Room 1024, 100 F Street, N.E., Washington, D.C. 20549. Copies of such material may also be inspected at the offices of the NYSE, 11 Wall Street, New York, New York 10005, on which our ADRs are listed. In addition, the SEC maintains a website that contains information which we have filed electronically with the SEC, which can be accessed over the Internetinternet at http://www.sec.gov.

 

We also file consolidated financial statements and other periodic reports with the CVM located at Rua Sete de Setembro, 111, Rio de Janeiro, Rio de Janeiro 20159-900, Brazil. The CVM maintains an Internetinternet website that contains reports and other information about issuers, like us, that file electronically with the CVM. The address of that website is http://www.cvm.gov.br. We also file consolidated financial statements and other periodic information with the B3. The address of the B3 website is http://www.bmfbovespa.com.br.

 

10I.Subsidiary Information

10I. Subsidiary Information

 

Not applicable.

 

ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Overview

 

In addition to establishing and applying our local risk management policies and procedures, we have incorporated the Santander Group’s global risk management functions at various levels of our organization, including financial, credit, market, operational and compliance risk, to ensure a consistent worldwide approach worldwide.

 

In addition, committees led by senior management are responsible for controlling risks by overseeing credit approval and compliance with the exposure policies defined and approved by the Bank’s board of directors.

 

The Control department and Risk Consolidation department provided their respective Risk management reports to senior management. Likewise, the reports for senior management of the Santander Group’s financial entities and foreign branches are generated mainly by the risk control departments of each of those entities and branches.

 

The presentation of such information to senior management is designed to enhance the understanding and management of risks for the Santander Group’s administrative bodies and branches. The type of information and highlights in each report varies depending on the intended audiences within senior management, such as the Santander Group, its financial entities, or its foreign branches. Information can be transmitted to senior management through our intranet risk reporting tool, by e-mail or through live presentations.

 

Information, analyses and decisions are also disseminated through the channels described below, fostering communication among all areas of the organization:

 

i.internal department mailboxes, which allow for the exchange of information within groups and areas;

 

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ii.periodic meetings (departmental, monthly, quarterly, off-site, conventions), which allow for regular exchange of information on an in-person basis;

 

iii.our regulations portal, which is an internal portal within our intranet where we maintain our current risk management policies;

 

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iv.e-mail;

 

v.video and teleconferences with Santander Spain; and

 

vi.risk committees, including the executive risk committee for Brazil and the Risk control committee.

 

Information is prepared with the goal of improving risk management and is classified into two groups:

 

i.Standard information: this information is generated on a regular basis and with fixed content, subject to revision, made available to senior management for select target areas, depending on the type of information included in the report. The reports are used to facilitate knowledge about the risk for which the Risk Management department is responsible, including credit use, instrument valuation and results, as well as the analyses needed to manage these risks and optimize capital.

 

ii.Non-standard information: this includes presentations and information not included in the reports above prepared for our senior management on an ad hoc basis or upon specific request. When the request for certain information becomes more regular, such reporting is integrated into automated “Standard information”.

 

iii.Each report varied by the nature of the information and its frequency. The nature of the information provided is either quantitative or qualitative.

 

Quantitative Information. Quantitative information includes risk metrics that permit our senior management to better analyze situations, trends and developments in each segment, activity or portfolio, relating to planned scenarios or defined limits, with emphasis on any scenarios falling outside such limits. Quantitative information primarily addressed the liquidity and market risk (trading and banking book) which includes, among other items, measurements of positions, mark-to-market valuations, sensitivity analyses, volume analyses, measures of liquidity gaps and country risk models, impacts of risks on results, economic risks, stress test simulations and back-testing.

 

Qualitative Information. Qualitative information includes internal and external events relating to the economic, financial or competitive environment, and an evaluation and analysis of the causes and known or foreseeable consequences of such events. These also include measures used to prepare such models.

 

The frequency with which quantitative and qualitative risk management information is prepared depends on the information provided, as follows:

 

Daily information:

 

i.liquidity and market risk: includes data on treasury limits (VaR, positions, sensitivity of linear and non-linear econometric models) and the principal changes in the treasury portfolio. Also includes LCRshort-term liquidity and liquidity buffer calculation.

 

Weekly information:

 

i.focuses on generating updated high-level information in different segments (focused on solvency risk) or portfolios (focused on market risk), as well as a summary of the relevant facts and expected short-term changes;

 

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ii.is generated for our senior management, including the chief executive officer and vice president executive officers of retail, risks and finance, and an independent member of our board of directors; and

 

iii.is drawn from our risk management framework and policies globally and is validated by local market risk areas.

 

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Monthly information:

 

i.liquidity and market risk: facilitatesfacilitate the analysis of the current activity, including structural and interest rate risks; it also includes a detailed analysis of alternative measures, stress scenarios and short, long and concentration liquidity metrics.

 

Monthly information is generally more detailed than weekly information.

 

Risk Management Committees

 

The following table describes the main risk committees in Brazil (which are responsible for credit decisions and for ongoing control of credit risk matters), including their responsibilities, members and frequency of meetings.

 

Committee

Main Responsibilities

Members

Meeting Frequency

Executive Risk Committee·     Apply the Group’s risk policies locally in a manner compatible with the objectives of the business areas;

·     CEO

 

Weekly
 ·     Approves the risk appetite secondary metrics that will be proposed to the board of directors of Santander Brasil;·     Vice President Executive Officer (Chief Risk Officer). 
 ·     Manage exposures from different clients,customers, economic sectors and types of risks, including, among others, the following functions:

·     Vice President Executive Officer of Legal and Corporate Affairs

 
 ·     Approve risk proposals for credit and market operations, including, among others, underwriting operations of fixed and variable income, customer limits for Treasury products, ALCO (Assets and Liabilities Committee) limits, debt restructuring proposals and payment arrangements;

·     Executive Superintendent of Wholesale’s Risks

 

 
 ·     Handle general issues related to market risk, cross-border limits, country risk, global banking operations, and market risk approvals;·     Vice-President Executive Officer of Corporate and Investment Banking 
 ·     Adopt and, if necessary, validate, portfolio sales or individual asset-credits;·     Vice President Executive Officer of Corporate 

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 ·     Approve predefined internal risk regulations as well as changes in risk policies with impact on revenue, margin or provisionand monitor the Strategic Business Plan main indicators;·     Vice President Executive Officer of Private Banking and Wealth

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      expenses on the Strategic Business Plan as well as on any related matters;Management 
 ·     Authorize management tools, improvement initiatives, follow up on projects and any other relevant activities related to risk management;  
 ·     Approve the policy and standards of methodological models and validate their effectiveness;  
 ·     Be aware of and take the necessary measures regarding risk to comply with the recommendations and directions issued by supervisory authorities in the exercise of its functions and the internal audit of the Bank;  
 ·     Provide information to the board of directors and to the executive committee and assistance, if needed, in order to execute the tasks assigned to risk management by applicable law, the by-laws, the board of directors´ rules of procedure and the regulation of the Risk Executive Committee; and  
 ·     Approve the creation, modification and termination of other committees or decision bodies and their regulations and delegate to those committees or people empowerment on decision-making and risk management.  

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Committee

Main Responsibilities

Members

Meeting Frequency

    
Risk Control Committee·     Oversee the Risk Identification and Assessment (RIA) exercise;·     Chief Financial OfficerBiweekly

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 ·     Conduct a full segment and regular follow up of all risks, including Conduct Risk, checking if the risk profile is set in accordance with the risk

·     Chief Risk Officer

·     Chief IT Officer

appetite, the commercial and strategic plan and the budget approved by the board of directors;

·      Chief Risk Officer

·      Chief IT Officer

 
 ·     Conduct an independent and periodic control report on risk management activities, which includes:·     Executive Superintendents ofSuperintendent of- Enterprise Risk Architecture and Risk ControlManagement 
 ·     Full risk profile view of the different businesses, including among others, benchmarking of the main competitors of the Bank and monitoring of key strategic projects;·      Chief Audit Officer     Executive Superintendent of GIR and Relationship with Supervisors 
 

·     Monitor the observance of appetite and risk policies, advising the board risk committee on these issues;

 

·     Approve the secondary metrics of Risk Appetite.

·      Review and monitor compliance with the General Risk Framework and Risk Appetite, identifying exposures to the most relevant risks through risk reports

·      Monitor all relevant aspects of capital management and its impacts.impacts

·      Approve, review and guarantee the correct and effective risk governance, including the control and decision forums, structures, policies and reports to ensure that all relevant risks are identified, managed and reported.

·      Approve and review the Strategic, Financial, Business Continuity and Recovery Plans

·     Vice President Executive Officer of Finance and Strategy.

 

·     Chief Compliance Officer

 

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 ·     Support and assist the board in carrying out stress tests, in particular valuingby evaluating the scenarios and assumptions to be used andin these tests, valuing the results of these tests and analyzing the measures proposed by the risk function as a consequence of the results;  
 ·     Validate the information on risks that must be submitted to the board of directors when so required and without prejudice to the direct access to the person responsible for the risk function (Chief Risk Officer) to the board;  
 

·     Supervise measures taken regarding risks to comply with the recommendations and directions issued by the supervisory authorities in the exercise of its function and Santander Brasil’s audit;

  
 

·     Provide the board of directors, through the board risk committee, and the executive committee the information and assistance needed regarding risks for the fulfillment of its functions in risk management matters assigned to it by law, the board of directors´ rules of procedure and the regulation of the Risk Control Committee – RCC; and

 

·     Approve the operation of hierarchically lower-risk control committees and their respective regulations;

  

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The Executive Risk Committee and Risk Control Committee, which are described above in detail above, make decisions with regard to risk management in Brazil with representatives of our senior management, including our Chief Executive Officer (CEO), our Vice President Executive Officer of Risk Management (CRO) and other members of the Executive Committee. The main responsibilities of the Executive Risk Committee and Risk Control Committee include defining our level of risk tolerance, monitoring our loan portfolios and market conditions, as well as following up on any recommendations made by the Brazilian Central Bank. They also raise any matters to our board of directors that exceed the authority of the committee. Each of our risk management committees havehas certain authority and approval levels, in each case subject to Brazilian law and regulations. Decisions at the committee level are intended to be collegial in a manner to ensure that differing opinions are all considered.

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Credit Risk

 

Santander Group’s risk management model is based on a prudent management, driven by the risk appetite defined by the unit and approved by the headquarters. We operate within the limits of the Santander Group's risk management guidelines and Brazilian Central Bank regulations, in order to protect and optimize capital and promote profitability. One of our credit risk management principles is that of independence among our business areas, providing sufficient autonomy for proper risk management. Another important characteristic of our risk management is the direct involvement of senior management in the decision-making process through credit committees. Our credit risk management process, especially new loan approval and risk monitoring, is structured according to our customer and product classifications, and is divided into retail and wholesale lending.

 

Retail Lending

 

In retail banking, credit requests made by individuals are analyzed by a credit approval system, which assigns a credit rating based on our policies and approved scoring model, which takes into account the credit history of the individual, the individual’s relationship with us and the type of credit requested.

 

These requests can come from one of our many service channels, including branches, internet banking, mobile applications and ATMs.

 

We use two distinct scoring models depending on the phase ofin which the customer is in with respect to their interaction with us (the “application” phase and the “behavior” phase). A credit scoring model is applied in the application phase when the customer begins a relationship with us and a behavioral scoring model is used when the customer has

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already had a relationship with us for a period established by our risk management policies (i.e., during the “ongoing” phase). This policy allows us to evaluate our existing customers with a more complete analysis than if we applied a pure scoring model for all customers.

 

For financing products offered to SMEs (retail businesses), the method used to grantevaluate if approval should be granted is determined based on internally-developed credit risk approval limits, developed internally, as well as the customer´s creditworthiness. These approval methods include system automation, or manual individual analysis, which generates a credit risk rating based on our internal models. Additional information, such as the characteristics of the financing product being offered, including related terms and conditions, as well as collateral granted in connection therewith, is also taken into account in the approval process.

 

Pre-approved limits on lines of credit for a both individuals or anand SMEs are granted based on creditworthiness, as determined by our scoring criteria. Credit limits are managed based on the performance of the customers, taking into accountconsidering each customer’s risk profile.

 

Credit authorizationsauthorization limits are established through policies which define rules and responsibilities of each member ofthese are automatically applied to all credit requests. When an automatic credit decision results in the committee. We have established procedures and authorized certain organizational bodiescustomer’s needs, the commercial area has the authority to approve credit requests in amounts greater than those delegated to individual branches (bothsubmit a request for individuals and SMEs).manual approval. Such approvals are madesubjected to review by analysts or committees, depending on the relevant authorized organizational body through applyingvalue of the relevant scoring model and individualized analysis.loan sought.

 

The following table presents the individuals or organizational bodies authorized to make extensions of credit to retail borrowers for the amounts specified:

 

Authorization RequiredAmount
Branch (1)Up to R$500 thousand
Decision centers(2)   Up to R$30 million
Retail Risk Higher Committee and Wholesale(3)   Up to R$680 million

(1) For individuals, the maximum value is R$200,000. For SMEs the maximum is R$500,000.

(2) Members of risk decision-making centers include superintendents and other representatives of the risk area.

 

(3) Members of the higher Risk Committee include, among others, the Chief Executive Officer of the group, the officers of Wholesale, Retail, Market Risk, Recovery and representatives of the Risk and Compliance Departments.

 

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Wholesale Lending

 

In Wholesalewholesale banking, each customer is analyzed on an individual basis. Commercial and risk areas analyze the client'sclient’s needs and indicators, checkinganalyzing profitability, creditworthiness and adequacy into the risk appetite metrics of Santander Group RAS – Risk Appetite Statement, in order to determine and take the proposed limitsubmit it for approval.

 

Wholesale lending risk appetite metrics and limits are set annually and tracked monthly through reports sent to the headquarters of the Santander headquarters.Group. These limits are defined considering the risk appetite of the Group, in line with current regulations (Brazilian Central Bank and European Central Bank), and the expectations of the commercial area. Individual and sectoral portfolio concentrations are monitored to mitigate the risk of the portfolio.

 

All credit requests from our wholesale customers must be approved by a credit committee, which are outlined below:

 

Authorization RequiredLimit
Territorial CommitteeUp to R$50 million
Superior and High Risk CommitteeUp to R$170 million
Wholesale CommitteeUp to R$340 million
Executive Risk CommitteeUp to R$680 million

 

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Credit Monitoring

 

Credit lines to retail banking SME customers are reviewed weekly, whereas individual clientscustomers are systematically reviewed daily, based on the client’s credit rating. This process allows for improvements in credit exposure forto customers who present good credit quality. FurtherAdditional specific early warnings are automatically generated when deterioration of a customer’s credit quality is identified. When this occurs, a process to reduce credit risk and prevent default is implemented. For SMEs, this includes monthly monitoring of their financial performance, the financial situation of each enterprise is discussed by specific committees in the presence of the commercial area. These processes are implemented, with the goal of continuously improving the quality of our loan portfolio.

 

Credit lines to wholesale customers and related credit quality are reviewed on an annual basis. When any specific concern the credit quality of a certain customer, we use a customer monitoring system known as SCAN (Santander Customer Assessment Note), which allows possible actions to be taken under the following categories: “monitoring,” “intensive monitoring,” “proactive monitoring” or “block and exit.” A customer subject to action under one of these categories will be reviewed on a quarterly or a semi-annual basis, depending on the situation.

 

We use proprietary internal rating models to measure the credit quality of a given customer or transaction. Each rating relates to a certain probability of default or non-payment, determined on the basis of the customer’s history, with the exception of certain portfolios classified as “low default portfolios.” These ratings and models are used in our loan approval and risk monitoring processes.

 

The table below shows the internal risk rating levels and their corresponding probability of default:

 

Internal Risk RatingProbability of Default
LowSmallerLower than 2.1%
Medium-lowBiggerGreater than 2.1% and SmallerLower than 4.1%
MediumBiggerGreater than 4.1% and SmallerLower than 6.3%
Medium-highBiggerGreater than 6.3% and SmallerLower than 10.0%
HighBiggerGreater than 10.0%

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For a breakdown of our portfolio by internal risk rating, see “Item 4. Information on the Company—B. Business Overview—Selected Statistical Information —Assets —Internal Risk Rating.”

 

Recovery

 

Our business recovery area is responsible for all nonperforming portfolios. This area uses statistical tools to study the behavior of clientscustomers and then defines, implements and monitors strategies related to these portfolios, seeking to ensure maximum recovery subject to applicable Brazilian law and regulation.

 

Customers with greater probability of payment are classified as low-risk customers and those with a low probability are classified as high risk. The aforementioned risk classification determines the intensity of collection efforts expended.

 

The channels of operation are defined as “Mapa de Responsabilidade,” (Responsibility Map), using the time value of default versus risk value, in addition to other characteristics, to create strategies for recovery.

 

Our credit recovery tools include daily contact through our call center, inclusion of defaulting clientscustomers within external sources of credit protection, sending collection letters, and direct contact through our branch network. In addition to the aforementioned tools, we use the following strategies:

 

·Internal teams specialized in restructuring and debt recovery work directly with defaulting clientscustomers with loans of higher values and/or are overdue more than 60 days.

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·We use specialized external firms to collect, report and assess high-risk customers. These firms are remunerated according to pre-established percentages applied to the amounts recovered.

·In addition, we use digital channels as a mean of increasing the availability of renegotiation offers to our customers.

 

Once we have exhausted all of the credit recovery resources available to us, we conduct sales of any remaining nonperforming loans. These sales are held periodically through an auction process, with the aim of obtaining optimal prices in the markets and thereby reducing the impact on us.

 

Assets and Liabilities Committee

 

Our asset and liability management strategy is defined by our assets and liabilities committee (ALCO), which operates under the guidelines and procedures established by the Santander Group. Members of the committee include our Chief Executive Officer, Chief Risk Officer, Vice President Executive Officer - Finance and Strategy, Vice President Executive Officer - CFO, Director - Financial Management and the Chief Economist. The assets and liabilities committee establishes strategies, policies and procedures with the objective of managing our balance sheet and risk structure.

 

Market Risk

 

Types of market risk

 

Interest rate risk

 

Interest rate risk is the possibility that changes in interest rates could adversely affect the value of a financial instrument, a portfolio or our operations as a whole. We are exposed to interest rate risk whenever there is a mismatch between interest rate sensitive assets and liabilities, subject to any hedging we have engaged in using interest rate swaps or other off-balance sheet derivative instruments. Interest rate risk arises in connection with both our trading and non-trading activities.

 

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Credit spread risk

 

Credit spread risk arises due to changes in credit spread curves associated with specific issuers and debt types may adversely affect the value of a financial instrument, a portfolio or Santander Group as a whole.

 

Exchange rate risk

 

Exchange rate risk arises due to the sensitivity of a foreign currency position in relation to a base currency (in our case,reais) due to a potential change in exchange rates. We are exposed to foreign exchange rate risk as a result of mismatches between assets and liabilities, and off-balance sheet items denominated in different currencies, either as a result of trading or in the normal course of business. We maintain non-trading open currency positions arising from our investments in overseas subsidiaries (such as our Cayman Islands and Luxembourg branches), affiliates and their respective currency funding. Our principal non-trading currency exposure is the U.S. dollar, which, as mandated by our policies, is hedged to thereal within established limits.

 

Equity price risk

 

Equity price risk arises due to the sensitivity of an investment position in equity markets to adverse movements in the market prices or in response to expectations of future dividends. Among other instruments, equity price risk affects positions in shares, stock market indices and derivatives using shares as the underlying asset (puts, calls, and equity swaps). We are exposed to equity price risk in both our trading and non-trading investments in equity securities.

 

Commodities price risk

 

Commodities price risk relates to the potential negative effect of changes in commodity prices.

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Our exposure to this risk is not significant and is concentrated in derivative operations involving commodities for clients.customers.

 

Inflation risk

 

Inflation risk is the risk that changes in inflation rates may adversely affect the value of a financial instrument, a portfolio or Santander Group as a whole.

 

Volatility risk

 

Volatility risk is the sensitivity of a portfolio to volatility in a number of risk factors, including interest rates, exchange rates, share prices and commodity prices. This risk is applicable to financial instruments which have volatility as a variable in their valuation model.

 

Other, more complex, risks to which we may be exposed include:

 

Correlation risk

 

Correlation risk is the sensitivity to changes in the relation between risk factors, whether of the same type (for example, between two exchange rates) or of a different nature (for example, between an interest rate and the price of a commodity).

 

Market liquidity risk

 

Market liquidity risk is the possibility of a Bank entity or the Santander Group as a whole finding itself unable to exit or close a position in time without affecting the market price or the cost of the transaction. This risk can be caused by a decrease in the number of market participants or institutional investors, the execution of large volumes of operations, market instability or increases of the concentration existing in certain products and currencies. Market depth is the main liquidity driver in our trading portfolio, even though our policy is to trade the most liquid assets. Our liquidity risk also arises in non-trading activity, due to the maturity gap between assets and liabilities mostly in the retail banking business.

 

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Risk of prepayment or cancellation

 

In certain transactions, the relevant loan agreement allows, explicitly or implicitly, voluntary prepayment prior to maturity without any penalty, which creates a risk that the cash flows received as a result of the prepayment will be reinvested at a potentially lower interest rate. This mainly affects loans or mortgage securities.mortgage.

 

Underwriting risk

 

Underwriting risk occurs in the underwriting of a placement of securities or another type of debt, assuming the risk of partially owning the issue or the loan due to non-placement of all or any proportion of any issuance among potential buyers.

 

Derivatives used in Managing Market Risks

 

We use derivatives both in trading and non-trading activities to manage market risks. Trading derivatives are used to eliminate, reduce or modify risk in trading portfolios (interest rate, foreign exchange, commodities and equity price risk), and to provide financial services to customers. Our principal counterparties (in addition to customers) for this activity are financial institutions and the B3. Our principal derivative instruments include interest rate swaps, interest rate futures, foreign exchange forwards, foreign exchange futures, foreign exchange options, cross currency swaps, commodities derivatives, equity index futures and equity options and interest rate options. With respect to non-trading activity, derivatives are used in order to manage interest rate risks and foreign exchange risks arising from asset and liability management activity. We also use interest rate and foreign exchange linear derivatives in non-trading activity. As no market exists in Brazil, we do not use credit derivatives

 

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Activities subject to market risk

 

Our market risk area is responsible for measuring, controlling and monitoring risk, in respect to the above identified areas, as a result of changes in market factors. Market risk arises due to changes and potential volatility in interest rates, exchange rates, share prices and commodities prices, as well as due to liquidity risk of the various products and markets in which we operate.

 

The following outlines the main source of risk for which we are exposed:

 

Trading book

 

The trading book includes financial services to customers and purchase-sale and positioning mainly in fixed income, equity and currency products. The trading book comprises our proprietary positions in financial instruments held for resale and/or bought to take advantage of current and/or expected differences between purchase and sale prices. This portfolio also includes positions in financial instruments deriving from market-making and sales activities. As a result of trading fixed income, equity, commodities and foreign exchange products, we are exposed to their respective market risks. We are also exposed to volatility when non-linear derivatives are used.

 

Non-trading book (banking/structural)

 

The non-trading book consists of market risks inherent in the balance sheet, excluding the trading portfolio. These include:

 

i.Structural interest rate risks. This arises from mismatches in the maturities and re-pricing of all assets and liabilities.

 

ii.Structural exchange rate risk/hedging of results.results and offshore investments. Exchange rate risk occurs when the currency in which the investment is made is different from therealin companies or branches that are consolidated and those that are not (structural exchange rate). In addition, exchange rate hedging of future results generated in currencies other than thereal(hedging of results).

 

iii.Structural equity risk. This involves investments via stakes in financial or non-financial companies that are not consolidated, as well as portfolios available for sale formed by equity positions.

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In addition, exchange rate hedging of future results generated in currencies other than the real (hedging of results).

 

Market Risk Management Framework

 

Our board of directors is responsible for establishing our policies, procedures and limits with respect to market risk, including which businesses to invest in and maintain. The risk committee monitors our overall performance in relation the risks we assume. Together with the local and global assets and liabilities committees, each market risk unit measures and monitors our market and liquidity risk and provides figures to the assets and liabilities committees to use in managing such risks.

 

Market risk is regulated and controlled through certain policies, set forth in our market and liquidity risk management policies manual, as well as through specific exposure limits established for the entire Santander Group. In addition, authorized products are listed and reviewed periodically.

 

These policies, procedures and limits on market risk are applicable to all units, businesses or portfolios susceptible to market risk, and are built on five basic pillars, which we believe are vital for correct management of market risks:

 

i.Market and structural risk measurement, analysis and control;

 

ii.Calculation, analysis, explanation and reconciliation of profit and loss (P&L);

 

iii.Definition, capture, validation and distribution of market data;

 

iv.Definition of limits, products and underlyings; and

 

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v.Consolidation of information.

 

In turn, our market risk management is guided by the following basic principles:

 

i.Independence of the trading and balance sheet activities;

 

ii.Global overview of the risks taken;

 

iii.Definition of limits and empowerment;

 

iv.Control and oversight;

 

v.Homogeneous aggregated metrics;

 

vi.Homogeneous and documented methodologies;

 

vii.Measuring risk;

 

viii.Information consolidation; and

 

ix.Contingency plans and technical capability.

 

Structure of Limits Regarding Market Risk

 

The market risk limit structure represents Santander Brasil’s risk appetite and is aligned with our global market risk management policies, which encompass all of our business units and serve to:

 

i.identify and define the main types of risk incurred in a manner consistent with our business strategy;

 

ii.quantify and report to our business segments with respect to appropriate risk levels and risk profile in line with senior management’s assessment of risks to help avoid any of our business segments taking undesired risks;

 

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iii.provide flexibility to our business segments to timely and efficiently establish risk positions that are responsive to market changes and our business strategies, and always within risk levels acceptable to Santander Brasil;

 

iv.allow the individuals and teams originating new business to take prudent risks that will help attain budgeted results;

 

v.establish investment alternatives by limiting equity requirements; and

 

vi.define the range of products and underlying assets within which each unit of treasury can operate, taking into consideration our risk modeling and valuation systems and our liquidity tools. This will help to constrain market risk within our defined risk strategy.

 

Global market risk management policies define our risk limit structure while the risk committee reviews and approves such policies. Business managers administer their activities within these limits. The risk limit structure covers both our trading and non-trading portfolios and includes limits on fixed income instruments, equity securities, foreign exchange and derivative instruments.

 

Limits considered to be global limits refer to the business unit level. To date, system restrictions prevent intra-day limits. Our business units must comply with approved limits. Potential excesses require a range of actions carried out by the global market risk function unit including (i) providing risk-reducing suggestions and controls, which are the result of breaking “alarm” limits and (ii) taking executive actions that require risk takers to close out positions in order to reduce risk levels.

 

The market risk limits used by us are established along different metrics intended to cover all activity subject to market risk from many perspectives, applying criteria we believe to be conservative.

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The principal limits include:

 

Trading limits

 

i. VaR limits;

i.VaR limits;

 

ii.limits of equivalent positions and/or nominal;

 

iii.sensitivity limits to interest rates;

 

iv.vega limits; and

 

v.limits aimed at reducing the volume of effective losses or protecting results already generated during the period:

 

·loss trigger; and

 

·stop loss.

 

Structural limits

 

i.structural interest rate risk of the balance sheet:

 

·sensitivity limit of net interest margin (“NIM”) over a one year horizon; and

 

·sensitivity limit of market value of equity (“MVE”);

 

ii.structural exchange rate risk comprised of the net position in each currency; and

 

iii.liquidity risk: limits defined for short, long and concentration metrics and considering BAU and Stress scenario.

 

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Market Risk Statistical Tools

 

Locally, we use a variety of mathematical and statistical models, including VaR models, historical simulations and stress testing to measure, monitor, report and manage market risk. Such numbers, produced locally, also serve as input for global activities such as evaluations of RORAC, and to allocate economic capital to various activities in order to evaluate the RORAC of such activities.

 

Trading Activity

 

·VaR: as calculated by us, our internal VaR model is an estimate of the expected maximum loss in the market value of a given portfolio over a one-day time horizon at a 99% confidence level, subject to certain assumptions and limitations discussed below. Our standard methodology is based on historical simulation of 520 days and is calculated using the VaR methodology “full revaluation.” In order to capture recent market volatility in the model, the reported VaR is the higher between the 1% percentile and the 1% weighted percentile of the simulated PnL distribution. The first VaR figure gives the same weight to all observed values, and the second one applies an exponential declining factor to give a higher weight for the most recent observations. This methodology makes our VaR numbers react very quickly to changes in current volatility, significantly reducing the likelihood of back testing exceptions. We use VaR estimates to alert senior management whenever the statistically estimated losses in our portfolios exceed prudent levels.

 

1.Assumptions and limitations: our VaR methodology should be interpreted in light of the limitations that (i) a one-day time horizon may not fully capture the market risk of positions that cannot be liquidated or hedged within one day and (ii) at present, we compute VaR at the close of business and trading positions may change substantially during the course of the trading day.

 

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2.Calibration measures: in order to calibrate our VaR model, we use back testing, which is a comparative analysis between VaR estimates and the daily clean Profit and Loss (theoretical result generated assuming the mark-to-market daily variation of the portfolio considering only the movement of the market variables). The purpose of these tests is to verify and measure the precision of the models used to calculate VaR.

 

·Stressed VaR: our stressed VaR model uses the same calculation methodology as VaR with the following two exceptions: (i) the stressed VaR uses a window of 250 days, instead of 520 days for the VaR; (ii) unlike when calculating the VaR the higher of the percentile uniformly weighted and the one exponentially weighted is not applied. Instead, only the uniformly weighted percentile is used. All the other aspects regarding the methodology and the inputs for calculating the stressed VaR are the same as those for the VaR. To determine the period of observation the market risk area has analyzed the history of the main market risk factors, which were chosen on the basis of expert criteria, and taking into account the most significant positions of our portfolio.

 

·Stress Test: this is a simulation technique, which consists of estimating the potential impact on results by applying different stress scenarios to all the trading portfolios and considering the same assumptions according to the relevant risk factor. These scenarios can replicate events that happened in the past (such as crisis events) or hypothetical scenarios. These results are analyzed at least monthly and, along with the VaR provide a fuller spectrum of the risk profile.

 

·Sensitivities: our market risk sensitivity measures gauge the change (or sensitivity) of the market value of an instrument or portfolio to changes in each of the risk factors. The sensitivity of the value of an instrument to changes in market factors may be obtained through analytical approximations by partial derivatives or through a full revaluation of the portfolio.

 

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Non-trading Activities

 

·Interest rate gap of assets and liabilities: focuses on lags or mismatches between changes in the value of assets, liabilities and off-balance sheet items. Gap analysis provides a basic representation of the balance sheet structure and allows for the detection of interest rate risk by concentration of maturities. It is also a useful tool for estimating the impact of future interest rate movements on NIM or equity. All on- and off-balance sheet items must be broken down by their flows and analyzed in terms of re-pricing and maturity. In the case of those items that do not have a contractual maturity, an internal model of analysis is used and estimates are made of their duration and sensitivity.

 

·NIM sensitivity: measures the change in the short- and medium-term in the accruals expected over a 12-month horizon, in response to a shift in the yield curve. The yield curve is calculated by simulating the NIM, with a shift in the yield curve, as well as for the current scenario. The sensitivity is the difference between the calculation of the two margins.

 

·MVE sensitivity: Net worth sensitivity measures the interest risk implicit in net worth (equity) over the entire life of the operation on the basis of the effect that a change in interest rates has on the current values of financial assets and liabilities. This is an additional measure to the sensitivity of the NIM.

 

·Value at risk: The VaR for balance sheet activity and investment portfolios.

 

·Analysis of results arising from the interest rate scenarios established by Circular No. 3,876 of the BrazilBrazilian Central Bank: there are six shock scenarios for MVE sensitivity and two for NIM sensitivity.

 

·Liquidity risk: our ability to finance our commitments at reasonable market prices, as well as to carry out our business plans with stable sources of funding. We permanently monitor maximum gap profiles. The measures used to control liquidity risk are the liquidity gap, stress scenarios and contingency plans.

 

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·Liquidity gap: provides information on contractual and expected cash inflows and outflows for a certain period of time, for each of the currencies in which we operate. The gap measures the net need or excess of funds at a particularspecific date and reflects the level of liquidity maintained under normal market conditions.

 

·Analysis of scenarios/contingency plan: includes the local and external activities and consists of a formal set of preventive and corrective actions taken in times of liquidity crises. Using analysis of historical scenarios and simulations of impacts on bank liquidity, we define action plans and contingencies to establish roles and responsibilities and levels to trigger the contingency plan. Each unit should prepare its contingency plan. Additionally, Santander Spain must be periodically informed about the contingency plan of each subsidiary. The frequency with which this plan must be updated depends on market liquidity conditions.

 

Quantitative Analysis

 

Trading Activity

 

Quantitative Analysis of Daily VaR in 20192020

 

Our risk performance with regard to trading activity in financial markets between 20172018 and 2019,2020, measured by daily VaR (measured at a 99% of confidence level, over a one day time frame), is shown in the following graph.

 

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During 2019,2020, VaR presented a lowhigh volatility, fluctuating between R$20.89.6 million and R$85.4120.9 million (on March 21 2019,20, 2020 when it was announced the arrest of Michel Temer)WHO declared the COVID-19 epidemic to be a pandemic), with an average of R$41.926.3 million. The histogram below shows the distribution of average risk in terms of VaR in 20192020 where the accumulation of days with VaR levels between R$3020 million and R$6040 million can be observed in 88.9%88.1% of the distribution.

 

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VaR by Risk Factor

 

The minimum, maximum, average and year-end 20192020 VaR values by risk factor were as follows:

 

  2018 2019
  Period End Low Average High Period End
  (in millions of R$)
Trading VaR  46.5   20.8   41.9   85.4   20.9 
Diversification Effect  (23.8)  1.7   (11.4)  (32.8)  (10.7)
Interest Rate VaR  33.9   14.7   31.0   66.0   16.7 
Equity VaR  11.6   2.0   8.6   29.2   7.4 
Foreign Exchange VaR  24.6   1.6   13.8   31.3   7.5 
Commodities VaR  0.2   0.0   0.0   0.4   0.0 

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  2019 2020
  Period End Low Average High Period End
  (in millions of R$)
Trading VaR  20.9   9.6   26.3   120.9   31.6 
Diversification Effect  (10.7)  (2.1)  (12.0)  (33.7)  (33.7)
Interest Rate VaR  16.7   9.9   23.0   109.5   26.6 
Equity VaR  7.4   1.2   5.8   34.0   2.8 
Foreign Exchange VaR  7.5   1.4   9.3   42.4   35.6 
Commodity VaR  -   0.0   0.2   2.5   0.3 

 

The average VaR for 20192020 was R$41.926.3 million, with most of the risk due to interest rate positions. Santander Brasil was relatively conservative in equity and commodities trading activity.activity in line with the approach taken over the last few years.

 

The average VaR of the three main risk factors, interest rates, equity prices and exchange rates, were R$31.023.0 million, R$8.65.8 million and R$13.89.3 million, respectively, with a negative average diversification effect of R$11.412.0 million. The chart below shows the evolution of the VaR interest rates (IR), VaR exchange rates (FX) and VaR equity prices (EQ) (at a 99% confidence level, over a day time frame and a 15 day moving average).

 

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Risk Management of Structured Derivatives

 

Our structured derivatives activity is mainly focused on designing investment products and managing hedging risks for clients.customers. Our risk management is focused on ensuring that the net risk exposure is the lowest possible. These transactions include options on equities, currencies, fixed-income instruments.

 

The chart below shows the VaR Vega performance of our structured derivatives business in 2020, 2019 2018 and 2017.2018. In the most recent year, this figure fluctuated around an average of R$4.55.73 million. In general, the periods with higher VaR Vega levels are related to episodes of significant increases in market volatility.

 

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Scenario analysis

 

Different stress test scenarios were analyzed during 2019.2020. A correlation break scenario generated the results presented below.

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Worst Case Scenario

 

The table below shows the maximum daily losses for each risk factor (fixed-income, equities and currencies) as of December 31, 2019,2020, in a scenario that uses historical volatilities and simulates variations of the risk factors for +/-3 and +/-6 standard deviations on a daily basis. From this group of scenarios, we generate a table of stress test results, which identifies the largest loss per risk factor. The sum of the largest losses of each risk factor is the result of the Worst Case Scenario, which considers the break of correlation between risk factors.

 

Worst Case Stress Test Exchange Rate Fixed Income Equity Total Exchange Rate Fixed Income Equity Total
 (in millions of R$) (in millions of R$)
Total trading  (54.8)  (79.0)  (35.1)  (168.8) (59.4)  (93.4)  (27.4)  (180.2)

 

The stress test shows that the economic loss suffered by the group in the marked-to-market result would be, if this scenario materialized in the market, R$168.8180.2 million.

 

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Non-trading Activity

 

Quantitative Analysis of Interest Rate Risk in 20192020

 

Convertible Currencies

 

At the end of 2019,2020, the sensitivity of NIM at one year, to a parallel rise of 100 basis points in the local yield curve was R$334432 million.

 

In addition, at the end of 2019,2020, the sensitivity of net worthMVE to parallel rises of 100 basis points in the yield curves was R$2,0631,771.0 million in the local currency yield curve.

 

Structural Gap

 

The following table shows the managerial gaps between the re-pricing dates of our assets and liabilities as of December 31, 20192020 in millions ofreais.

 

 Total 0-1 month 1-3 months 3-6 months 6-12 months 1-3 years 3-5 years > 5 years Not Sensitive Total 0-1 month 1-3 months 3-6 months 6-12 months 1-3 years 3-5 years > 5 years Not Sensitive
 (in millions of R$) (in millions of R$)
Structural Gap                                                      
Money Market  272,311   83,617   696   1,208   11,398   23,946   19,059   37,881   94,506   342,642   39,835   7,668   9,289   25,582   41,157   45,305   22,399   151,407 
Loans  337,639   80,230   43,964   41,351   48,774   59,367   22,408   25,053   16,492   375,398   37,443   63,756   53,904   53,128   102,741   34,298   29,136   993 
Permanent  16,782   -     -     -     -     -     -     -     16,782   14,836   -   -   -   -   -   -   -   14,836 
Other  231,613   50,960   259   129   36   -     -     -     180,230   266,285   41,946   561   613   1,555   7,221   3,931   2,196   208,262 
Total Assets  858,346   214,808   44,919   42,687   60,207   83,314   41,467   62,934   308,009   999,161   119,223   71,985   63,805   80,265   151,119   83,535   53,731   375,498 
Money Market  (122,348)  (74,002)  (1,917)  (3,293)  (3,208)  (3,950)  (13,957)  (8,457)  (13,564)  (97,764)  (5,830)  (10,188)  (11,409)  (11,192)  (42,543)  (8,138)  (5,547)  (2,917)
Deposits  (404,842)  (200,816)  (5,377)  (6,174)  (9,587)  (24,901)  (13,092)  (27,995)  (116,899)  (546,675)  (57,293)  (44,200)  (38,971)  (58,035)  (97,008)  (30,490)  (76,972)  (143,706)
Equity and Other  (331,156)  (54,789)  (11,339)  (6,784)  (7,361)  (722)  (599)  (2,490)  (247,074)  (354,723)  (68,312)  (22,833)  (8,024)  (8,447)  (1,094)  (3,992)  834   (242,854)
Total Liabilities  (858,346)  (329,607)  (18,633)  (16,251)  (20,156)  (29,573)  (27,648)  (38,942)  (377,537)  (999,161)  (131,435)  (77,220)  (58,404)  (77,674)  (140,645)  (42,620)  (81,685)  (389,477)
– Balance Gap  -     (114,799)  26,286   26,437   40,052   53,741   13,819   23,993   (69,528)  (0)  (12,212)  (5,235)  5,401   2,591   10,474   40,915   (27,954)  (13,980)
Off-Balance Gap  -     58,910   (7,262)  (3,197)  (13,889)  (19,836)  (2,377)  (11,425)  30,838   17,157   20   221   179   380   1,691   744   443 �� 13,479 
Total
Structural Gap		  -     (55,889)  19,024   23,240   26,162   33,905   11,442   12,568   (38,689)  17,157   (12,192)  (5,015)  5,580   2,971   12,165   41,659   (27,511)  (501)
Accumulated Gap
  -     (55,890)  (36,866)  (13,626)  12,536   46,441   57,883   70,451   31,762   17,157   4,965   (50)  5,530   8,501   20,666   62,325   34,814   34,313 

 

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The interest rate risk of our balance sheet management portfolios, measured by the sensitivity of the net margin to a parallel movement of 100 basis points, increased R$135305 million during 2019,2020, reaching a maximum of R$334640 million in December. The sensitivity of the market value decreasedincreased R$202451 million during 2019,2020, reaching a maximum of R$2,3422.514 million in October. The main factors in 2019

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2020 that influenced the sensitivity were the volatility of the interest curve, updating of methodologies and the effects of strategies in the business areas.

 

The following chart shows our NIM and MVE sensitivity during each month in 2019.2020.

 

 

 

Interest Rate Risk Profile as of December 31, 20192020

 

The currency gap tables below show the managerial distribution of risk by maturity and currency in Brazil as of December 31, 20192020 in millions ofreais.

 

 Total 0-1 month 1-3 months 3-6 months 6-12 months 1-3 years 3-5 years > 5 years Not Sensitive Total 0-1 month 1-3 months 3-6 months 6-12 months 1-3 years 3-5 years > 5 years Not Sensitive

Gaps in

Local

currency

                  
Gaps in local currency                  
Money Market
  243,106   82,104   646   1,023   10,980   21,542   12,671   30,916   83,223   301,612   37,972   7,581   7,693   25,190   37,819   31,111   20,307   133,939 
Loans  285,391   61,762   30,786   32,699   43,599   58,580   20,151   23,682   14,132   331,054   29,062   50,829   45,608   46,552   101,121   30,096   29,128   (1,341)
Permanent  16,782   -     -     -     -     -     -     -     16,782   14,836   -   -   -   -   -   -   -   14,836 
Others  103,613   24,461   -     -     -     -     -     -     79,153   173,576   30,292   367   (1,080)  1,139   3,882   (10,262)  104   149,134 

Total

Assets

  648,892   168,326   31,432   33,722   54,579   80,122   32,823   54,598   193,289   821,077   97,326   58,777   52,221   72,881   142,821   50,945   49,539   296,567 
Money Market  (104,130)  (72,943)  (609)  (1,126)  (2,662)  (3,583)  (2,187)  (7,456)  (13,564)  (73,868)  (5,123)  (6,141)  (10,116)  (10,527)  (29,003)  (4,494)  (5,547)  (2,917)
Deposits  (385,544)  (194,698)  (3,876)  (4,431)  (8,136)  (21,281)  (11,499)  (26,695)  (114,927)  (510,807)  (49,418)  (36,985)  (37,317)  (55,060)  (89,012)  (27,239)  (74,319)  (141,457)
Equity and Other
  (177,481)  (27,448)  -     -     -     -     -     309   (150,342)  (201,819)  (38,196)  (41)  (61)  (122)  (490)  (469)  834   (163,273)

Total

Liabilities

  (667,155)  (295,089)  (4,486)  (5,557)  (10,799)  (24,864)  (13,686)  (33,842)  (278,832)  (786,494)  (92,736)  (43,167)  (47,495)  (65,709)  (118,505)  (32,202)  (79,032)  (307,648)

Off-Balance Gap

  (56,847)  57,544   8,092   1,330   (4,276)  (14,620)  (485)  (10,361)  (62,310)  40,604   (169)  22,675   59   81   4,310   2,033   457   11,160 
Gap  (75,111)  (69,218)  35,039   29,496   39,504   40,638   18,652   10,396   (147,854)  75,188   4,420   38,285   4,785   7,252   28,626   20,776   (29,036)  80 

 

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 Total 0-1 month 1-3 months 3-6 months 6-12 months 1-3 years 3-5 years > 5 years Not Sensitive Total 0-1 month 1-3 months 3-6 months 6-12 months 1-3 years 3-5 years > 5 years Not Sensitive

Gaps in

foreign

currency

                                                      
Money
Market		  29,206   1,513   50   185   418   2,404   6,388   6,965   11,283   41,030   1,863   87   1,595   392   3,339   14,194   2,092   17,468 
Loans  52,248   18,469   13,178   8,651   5,175   787   2,256   1,371   2,360   44,344   8,381   12,927   8,296   6,576   1,620   4,202   8   2,334 
Permanent  1   -     -     -     -     -     -     -     1   1   -   -   -   -   -   -   -   1 
Others  128,000   26,500   259   129   36   -     -     -     101,077   92,709   11,653   194   1,693   416   3,339   14,194   2,092   59,128 

Total

Assets

  209,454   46,482   13,487   8,965   5,629   3,191   8,644   8,336   114,720   178,084   21,897   13,208   11,584   7,384   8,298   32,589   4,192   78,930 
Money Market
  (18,218)  (1,060)  (1,308)  (2,167)  (546)  (367)  (11,770)  (1,001)  -     (23,895)  (707)  (4,047)  (1,292)  (666)  (13,540)  (3,644)  -   - 
Deposits  (19,298)  (6,118)  (1,501)  (1,743)  (1,451)  (3,620)  (1,593)  (1,300)  (1,972)  (35,868)  (7,875)  (7,215)  (1,654)  (2,974)  (7,996)  (3,251)  (2,653)  (2,249)
Equity and Other
  (153,675)  (27,340)  (11,339)  (6,784)  (7,361)  (722)  (599)  (2,799)  (96,732)  (152,904)  (30,117)  (22,792)  (7,963)  (8,325)  (604)  (3,523)  -   (79,581)

Total

Liabilities

  (191,191)  (34,518)  (14,148)  (10,694)  (9,357)  (4,709)  (13,961)  (5,100)  (98,705)  (212,667)  (38,698)  (34,054)  (10,909)  (11,965)  (22,140)  (10,418)  (2,653)  (81,830)
Off-Balance Gap  56,847   1,366   (15,354)  (4,527)  (9,613)  (5,216)  (1,893)  (1,064)  93,149   (23,448)  189   (22,454)  120   300   (2,619)  (1,288)  (14)  2,319 
Gap  75,110   13,329   (16,015)  (6,256)  (13,342)  (6,733)  (7,209)  2,172   109,165   (58,031)  (16,612)  (43,300)  796   (4,281)  (16,461)  20,883   1,525   (581)

 

Market Risk: VaR Consolidated Analysis

 

Our total daily VaR as of December 31, 20182019 and December 31, 2019,2020, broken down by trading and structural (non-trading) portfolios, is set forth below. Our VaR data for trading and non-trading portfolios were summed and thus do not reflect the diversification effect.

 

  2019 2018
  Low Average High Period End Period End
  (in millions of R$)
Trading  20.8   41.9   85.4   20.9   46.5 
Non-trading  1,336.3   1,915.0   2,203.7   1,755.1   1,743.7 
Diversification effect  -     -     -     -     -   
Total  1,357.1   1,956.9   2,289.1   1,776.0   1,790.2 

  2020 2019
  Low Average High Period End Period End
  (in millions of R$)
Trading  9.6   26.3   120.9   31.6   20.9 
Non-trading  941.9   2,044.2   2,875.6   1,364.7   1,755.1 
Diversification effect  -   -   -   -   - 
Total  951.5   2,070.5   2,996.5   1,396.3   1,776.0 
 

Note:VaR figures for trading and non-trading portfolios were added, thus disregarding the diversification effect.

 

Our daily VaR estimates of interest rate risk, foreign exchange rate risk and equity price risk were as set forth below:

 

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Interest Rate Risk

 

  2019 2018
  Low Average High Period End Period End
  (in millions of R$)
Interest rate risk          
                     

Interest rate risk          
Trading  14.7   31.0   66.0   16.7   33.9 
Non-trading  1,336.3   1,915.0   2,203.7   1,755.1   1,743.7 
Diversification effect  -     -     -     -     -   
Total  1,351.0   1,946.0   2,269.7   1,771.8   1,777.6 

  2020 2019
  Low Average High Period End Period End
  (in millions of R$)
Interest rate risk                    
Trading  9.9   23.0   109.5   26.6   16.7 
Non-trading  941.9   2,044.2   2,875.6   1,364.7   1,755.1 
Diversification effect  -   -   -   -   - 
Total  951.8   2,067.2   2,985.1   1,391.3   1,771.8 
 

Note:VaR figures for trading and non-trading portfolios were added, thus disregarding the diversification effect.

 

Foreign Exchange Rate Risk

 

  2019 2018
  Low Average High Period End Period End
  (in millions of R$)
Exchange rate risk          
Trading  1.6   13.8   31.3   7.5   24.6 
Non–trading  N.A.   N.A.   N.A.   N.A.   N.A. 
Diversification effect  -     -     -     -     -   
Total  1.6   13.8   31.3   7.5   24.6 

  2020 2019
  Low Average High Period End Period End
  (in millions of R$)
Exchange rate risk                    
Trading  1.4   9.3   42.4   35.6   7.5 
Non–trading  -   -   -   -   N.A. 
Diversification effect  -   -   -   -   - 
Total  1.4   9.3   42.4   35.6   7.5 
 

Note:VaR figures for trading and non-trading portfolios were added, thus disregarding the diversification effect.

 

Equity Price Risk

 

  2019 2018
  Low Average High Period End Period End
  (in millions of R$)
Equity price risk          
Trading  2.0   8.6   29.2   7.4   11.6 
Non–trading  N.A.   N.A.   N.A.   N.A.   N.A. 
Diversification effect  -     -     -     -     -   
Total  2.0   8.6   29.2   7.4   11.6 

  2020 2019
  Low Average High Period End Period End
  (in millions of R$)
Equity price risk          
Trading  1.2   5.8   34.0   2.8   7.4 
Non–trading  -   -   -   -   N.A. 
Diversification effect  -   -   -   -   - 
Total  1.2   5.8   34.0   2.8   7.4 
 

Note:VaR figures for trading and non-trading portfolios were added, thus disregarding the diversification effect.

 

Commodity Price Risk

 

  2019 2018
  Low Average High Period End Period End
  (in millions of R$)
Commodities price risk          
Trading  0.0   0.0   0.4   0.0   0.2 
Non–trading  N.A.   N.A.   N.A.   N.A.   N.A. 
Diversification effect  -     -     -     -     -   
Total0.00.00.40.00.2

  At December 31st,
  2020 2019
  Low Average High Period End Period End
Commodity price risk (in millions of R$)
Trading  0.0   0.2   2.5   0.3   0.0 
Non-trading   N.A.    N.A.    N.A.    N.A.    N.A. 
Diversification effect  -   -   -   -   - 
Total  0.0   0.2   2.5   0.3   0.0 

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Our daily VaR estimates by activity were as set forth below:

 

  2019 2018
  Low Average High Period End Period End
  (in millions of R$)
Trading          
Interest rate risk  14.7   31.0   66.0   16.7   33.9 
Exchange rate risk  1.6   13.8   31.3   7.5   24.6 
Equity  2.0   8.6   29.2   7.4   11.6 
Commodities price risk  0.0   0.0   0.4   0.0   0.2 
Total Trading  20.8   41.9   85.4   20.9   46.5 
Non-trading                    
Interest rate  1,336.3   1,915.0   2,203.7   1,755.1   1,743.7 
Exchange rate  N.A.   N.A.   N.A.   N.A.   N.A. 
Equity   N.A.    N.A.    N.A.    N.A.    N.A. 
Total Non-Trading  1,336.3   1,915.0   2,203.7   1,755.1   1,743.7 
Total (Trading + Non-Trading)  1,357.1   1,956.9   2,289.1   1,776.0   1,790.2 
Interest rate  1,351.0   1,946.0   2,269.7   1,771.8   1,777.6 
Exchange rate  1.6   13.8   31.3   7.5   24.6 
Equity  2.0   8.6   29.2   7.4   11.6 
Commodities price risk  0.0   0.0   0.4   0.0   0.2 

  2020 2019
  Low Average High Period End Period End
  (in millions of R$)
Trading          
Interest rate risk  9.9   23.0   109.5   26.6   16.7 
Exchange rate risk  1.4   9.3   42.4   35.6   7.5 
Equity price risk  1.2   5.8   34.0   2.8   7.4 
Commodity price risk  0.0   0.2   2.5   0.3   0 
Total Trading  12.5   38.3   188.4   65.3   31.6 
Non-trading                    
Interest rate risk  941.9   2,044.2   2,875.6   1,364.7   1,755.1 
Exchange rate risk  N.A.   N.A.   N.A.   N.A.   N.A. 
Equity price risk  N.A.   N.A.   N.A.   N.A.   N.A. 
Commodity price risk  N.A.   N.A.   N.A.   N.A.   N.A. 
Total Non-Trading  941.9   2,044.2   2,875.6   1,430.0   1,755.1 
Total (Trading + Non-Trading)  954.4   2,082.5   3,064.0   1,430.0   1,786.7 
Interest rate risk  951.9   2,067.2   2,985.1   1,391.3   1,771.8 
Exchange rate risk  1.4   9.3   42.4   35.6   7.5 
Equity price risk  1.2   5.8   34.0   2.8   7.4 
Commodity price risk  0.0   0.2   2.5   0.3   0.0 
 

Note:VaR figures for trading and non-trading portfolios were added, thus disregarding the diversification effect.

 

Operational Risk

 

We have adopted the definition of the Basel Committee and Brazilian Central Bank for operational risk, which is defineddefines operational risk as the possibility of losses resulting from inadequate processes, people and systems, failures, or even from external events. This definition includes the legal risk associated with the inadequacy or deficiency in executed agreements, as well as penalties for noncompliance with legal provisions and damages for third parties resulting from our activities. This definition does not include strategic risk. Operational risk losses mayevents might result in financial losses, adversely affectingadverse effects on the continuity of our business, and also negatively affect ournegative effects on public image.image and customer experience.

 

To accomplish our operational risk objectives, we have established a risk model based on three lines of defense, with the objective ofaimed at continuously improving and developing our management and control of operational risks. The three lines of defense are as follows:are:

 

·First line of defense: all business and support areas within Santander Brasil are responsible for identifying, managing, mitigating and reporting operational riskrisks related to its activities;activities.

 

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·Second line of defense: the operational risksrisk and internal control departments areis responsible for monitoring and ensuring control over operational and technological risk management practices throughout the organization. It is also responsible for implementing and communicating our operational risk culture, defining methodologies, policies, tools, training, applicable procedures and requirements for the effective management of operational risk and ensuring there is an adequate business contingency plan in place throughout the organization;risk.

 

·Third line of defense: the Internal Audit Departmentdepartment is responsible for undertaking independent reviews of the risk management undertakenactivities carried out by the first and second lines of defense, and for promoting continuous improvements in both lines.

 

The objectives of ourthe operational risk management model are:

 

·to disseminate a culture of operational risk management and control, to foster the prevention of risk events and operational risks losses, and to mitigate their financial, legal and reputational non-financial

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impacts;

 

·to provide support to decision-makers within Santander Brasil;

 

·to ensure there is sufficient coverage to cover the business continuity in a sustainable manner and to improve internal controls;possible impacts of operational risk on an ongoing basis; and

 

·to maintain control of operational risk in a manner which is consistent with business strategy.

 

The following bodies are involved in the implementation of risk management model in order to ensure we have a structured process of operational risk management and decision maker:

 

·Risk Control Committee (Comitê de Controle de Riscos): Aa committee which aims to perform a holistic and periodic monitoring of the risks to which we areSantander Brasil is exposed and to exercise independent control on the risk management activities;

 

·IntegratedSenior Forum of Internal Control and Operational Risk Operational Committee (Comitê IntegradoFórum Sênior de Riscos OperacionaisControle Interno e Risco Operacional): A committee which aims to ensurea senior forum aimed at ensuring and fosterfostering the adequate monitoring, control and mitigation of operational risks; andrisks.

 

·Operational Risk ForumMeeting (FórumReunião de Riscos Operacionais): Anan independent forum, responsible for implementing and disseminating cultural norms, methodologies, standards, policies, tools, training and procedures applicable and required for the effective and efficient management and control of operational risk.

 

Our risk management model assists managers in achieving their strategic objectives by contributing to the decision-making process and by reducingseeking to reduce operational risk exposure and losses. It is compliant with the applicable regulatory requirements.

 

Social and Environmental Risk

 

Since 2002, we have remained at the forefront of social and environmental risk analysis in Brazil. We consider social and environmental risk when deciding whether to extend credit. Our Social and Environmental Responsibility Policy, (PRSA), whichor “PRSA,” complies with National Monetary Council Resolution 4,327/2014 and the SARB 14 self-regulation issued by Febraban,Febraban. Our PRSA establishes guidelines and consolidates specific policies for social-environmental practices used inapplicable to business and stakeholder relations.relations, such as relations with suppliers. These practices includinginclude social and environmental risk management, impacts and opportunities related themes, such as, adequacyassessment in the concessiongranting or use of credit, supplier management and analysis of the social and environmental risk whichusing credit. This is carried out through the analysis of the socio-environmental practices of wholesale and Empresas Nucleo (Core Companies) SMESSME customers, thatwhich have limits or credit risk greater than R$5 million and are included inbelong to one of the 14 sectors of social and environmental attention,focuses.

We have been signatories of the Equator Principles since 2009. The Equator Principles are a framework used by financial institutions to determine, assess and manage environmental and social risk in orderprojects, and are based on the Performance Standards on Social and Environmental Sustainability of International Finance Corporation (IFC) and the World Bank Group.

In 2016, we started to take into account climate change related matters in the credit rating of wholesale customers. In 2020, we began to use a water stress calculator in our socio-environmental assessments. This tool considers the client’s economic activity, hydrographic basin location and measures adopted to save water. It was developed considering the customer’s vulnerability to climate change in general, including as a result of changes in legislation or consumer preferences.

We believe that assessing the socio-environmental risk in our operations, also enables us to mitigate issues of operational, capital, credit and reputational risk. In 2019,2020, we screened 1,3401,120 wholesale corporate customers, and 6971,108 Empresas Nucleo (Core Companies) customers, as well as 49and 43 major new projects (including both those that are and that are not subject to the Equator Principles and not subject, for these types of risks.Principles). Furthermore, wholesale segment customers are screened for environmental and social concerns by the new customers´customer acceptance area, when

 

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initiatingdepartment, when they begin their commercial relationship with us. Since 2009, we are a signatory of the Equator Principles, whose standards are applied in order to mitigate social and environmental risks when financing large projects.

 

Cyber SecurityCybersecurity Risk

 

We have extensive security measures in place to mitigate the risk of cyber-securitycybersecurity threats affecting our technology platforms and our business. We have taken into consideration the practices set forth in the ISO-27002 security standard to assist us in formulating such security measures. Our security measures, include, but are not limited to access and privilege management, segregation of test and production environments, network security analysis, cyber incident management, baseline configuration of hardware and software, activity log correlation, malware prevention and remediation, and security analysis of third-party operations. We employ a range of security processes, solutions and dissemination of these measures, including regular compliance checks and continuous monitoring of network activity by our Security Operations Center (SOC). We also perform periodic reviews of cyber-securitycybersecurity threats and related controls, including periodic penetration tests performed by independent third parties. In addition, we are constantly investing in technology and security solutions, as well as conducting user training and awareness efforts. Furthermore, we cooperate and exchange information and experience relating to cyber-securitycybersecurity with local and international security communities, such as local telecommunications companies and other financial institutions, and as a member of the Financial Services - Information Sharing and Analysis Center community.

 

Other Information

Volatile market conditions arising from the COVID-19 pandemic may result in significant changes in macroeconomic conditions, foreign exchange rates, interest rates, and the prices of our securities, which may adversely affect us. see “Item 3. Key Information—D. Risk Factors—Risks Relating to the Brazilian Financial Services Industry and Our Business—The current global COVID-19 pandemic has materially impacted our business, and the continuance of this pandemic or any future outbreak of any other highly contagious diseases or other public health emergency, could materially and adversely impact our business, financial condition, liquidity and results of operations,” “Item 4. Information on the Company—A. History and Development of the Company—Important Events—Impact of COVID-19” and “Item 5. Operating and Financial Review and Prospects—A. Operating Results—Principal Factors Affecting Our Financial Condition and Results of Operations—Impact of COVID-19.”

ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

 

12A.Debt Securities

12A. Debt Securities

 

Not applicable.

 

12B.Warrants and Rights

12B. Warrants and Rights

 

Not applicable.

 

12C.Other Securities

12C. Other Securities

 

Not applicable.

 

12D.American Depositary Receipts

12D. American Depositary Receipts

 

Depositary

 

The Bank of New York Mellon, or BNYM, has acted as depositary in relation to our ADR program since October 20, 2015. The principal executive office of BNYM is located at 240 Greenwich Street, New York, New York 10286, United States.

 

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Fees and Expenses

 

BNYM, as depositary, may charge the following fees and expenses to the ADR holders, any party depositing or withdrawing Units or any party surrendering ADRs or to whom ADRs are issued (including, without limitation, issuance pursuant to a stock dividend or stock split declared by us or an exchange of stock regarding the ADRs or the deposited securities or a distribution of ADRs), as applicable:

 

·a fee of U.S.$5.00 or less for each 100 ADRs (or portion thereof) issued, delivered or surrendered, as the case may be;

 

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·a fee of U.S.$0.05 or less per ADR (or portion thereof) for any cash distribution made pursuant to the deposit agreement;

 

·a fee of U.S.$0.05 or less per ADR (or portion thereof) per annum for depositary services;

 

·a fee for the distribution of securities or of rights (where the depositary will not exercise or sell those rights on behalf of the ADR holders), such fee being in an amount equal to the fee for the execution and delivery of ADRs which would have been charged as a result of the deposit of such securities under the deposit agreement entered into with BNYM (for these purposes treating all such securities as if they were Units) but which securities are instead distributed by the depositary to the ADR holders;

 

·such registration fees as may from time to time be in effect for the registration of transfers of Units generally on the registrar’s unit register and applicable to transfers of Units to or from the name of the depositary or its nominee or the name of the custodian for the depositary or its nominee on the making of deposits or withdrawals;

 

·certain other cable and facsimile transmission fees and expenses;

 

·such expenses as are incurred by the depositary in the conversion of foreign currency;

 

·stock transfer or other taxes and other governmental charges; and

 

·any other charges payable by the depositary or the custodian of the depositary, any of the depositary’s or such custodian’s agents or the agents of the depositary’s or such custodian’s agents, in connection with the servicing of Units or other deposited securities (which charges shall be assessed against the ADR holders as of the date or dates set by the depositary in accordance with the deposit agreement which we have entered into with BNYM and shall be payable at the sole discretion of the depositary by billing those ADR holders for those charges or by deducting those charges from one or more cash dividends or other cash distributions).

 

The depositary may collect any of its fees by deduction from any cash distribution payable, or by selling a portion of any securities to be distributed, to ADR holders that are obligated to pay those fees.

 

We will pay all other charges and expenses of the depositary and any agent of the depositary (except the custodian) pursuant to agreements from time to time between us and the depositary. The fees described above may be amended from time to time.

 

Direct and Indirect Payments

 

BNYM has agreed to reimburse us for certain expenses related to the establishment and maintenance of the ADR program including, among others, expenses incurred in connection with investor relations activities and any other ADR program expenses. Under certain circumstances, including the removal of BNYM as depositary, we are required to repay to BNYM amounts reimbursed in prior periods. For the year ended December 31, 2019,2020, such reimbursements amounted to U.S.$3,22.9 million.

 

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PART II

 

ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

 

No matters to report.

 

ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

 

No matters to report.

 

ITEM 15. CONTROLS AND PROCEDURES

 

15A.Disclosure Controls and Procedures

15A. Disclosure Controls and Procedures

 

As of December 31, 2019,2020, with the supervision and participation of our management, including our Chief Executive Officer (CEO) and Chief Financial Officer (CFO), we performed an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act). As described below, there are inherent limitations to the effectiveness of any control system, including disclosure controls and procedures. Accordingly, even effective disclosure controls and procedures can provide only reasonable assurance of achieving their control objectives.

 

Based on such evaluation, our CEO and CFO concluded that our disclosure controls and procedures are effective in ensuring that information we are required to disclose in the reports we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosures.

 

In addition, to this and in accordance withas required by the applicable legal requirements (ResolutionsBrazilian Central Bank through Resolution 2,554/98 and Circular 3,467/09), we are in process of preparing09, the report onrelated to the evaluationquality and adequacy of the Bank's internal control environment. This reportcontrols will be issued within 45 days after the determined period of 45 (forty-five) daysexpected date of publication of the our Brazilian GAAP financial statements, which is scheduled to be March 13, 202019, 2021 (Brazilian Central Bank - GAAP).

 

15B.Management’s Annual Report on Internal Control over Financial Reporting

15B. Management’s Annual Report on Internal Control over Financial Reporting

 

Our management is responsible for establishing and maintaining an adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Exchange Act.

 

Our internal control over financial reporting process is designed by, or under the supervision of, our principal executive and financial officers and also incorporates supervision from effected by our Board of Directors, management and other personnel. The purpose is to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes, in accordance with generally accepted accounting principles. For us, generally accepted accounting principles refer to IFRS as issued by the IASB.

 

Our internal control over financial reporting includes those policies and procedures that:

 

·pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;

 

·provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and officers; and

 

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·provide reasonable assurance of prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the consolidated financial statements.

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projected effectiveness of controls in future periods is subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures deteriorates.

 

We have adapted our internal control over financial reporting to the international standards and comply with the guidelines set by the Committee of Sponsoring Organizations of the Treadway Commission, or “COSO,” in its Internal Control – Integrated Framework 2013. These guidelines have been extended and implemented for the Group, applying a common methodology and standardizing the procedures for identifying processes, risks and controls.

 

Risk Management Integrated Framework

 

The documentation process in our companies has been constantly directed and monitored by a global coordination team, which sets development guidelines and supervises execution at the unit level.

 

The general framework is consistent, as it assigns specific responsibilities to management regarding the structure and effectiveness of the processes related directly and indirectly with the production of consolidated financial statements, as well as the controls needed to mitigate the risks inherent in these processes.

 

With the supervision and participation of management, including our CEO and CFO, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2019,2020, based on the framework set by the COSO Integrated Framework 2013.

 

Based on this assessment, which was carried out through March 6, 2020,February 26, 2021, our management concluded that, as of December 31, 2019,2020, its internal control over financial reporting was effective based on those criteria.

 

PricewaterhouseCoopers Auditores Independentes which has audited theour consolidated financial statements of Santander Brasil for the year ended 31 December 2019,2020, has also audited the effectiveness of Santander Brasil’sour internal controlcontrols over financial reporting under auditing standards of the Public Company Accounting Oversight Board (United States) as stated in their report appearing in our consolidated financial statements included in “Item 18. Financial Statements.”

15C. Audit Report of the Registered Public Accounting Firm

15C.Audit Report of the Registered Public Accounting Firm

 

For the report, dated March 6, 2020February 26, 2021, from PricewaterhouseCoopers Auditores Independentes, our registered public accounting firm, on the effectiveness of our internal control over financial reporting as of December 31, 2019,2020, see “Item 18. Financial Statements.”

 

15D.Changes in Internal Control over Financial Reporting

15D. Changes in Internal Control over Financial Reporting

 

There was no change in our internal control over financial reporting that occurred during the period covered by this annual report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

ITEM 16. [RESERVED]

 

ITEM16A.AUDIT COMMITTEE FINANCIAL EXPERT

ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT

 

The Board of Directors has determined that one of the members of our audit committee, Mr. Luiz Carlos Nannini is an “Audit Committee Financial Expert” and meets the requirements set forth by the SEC and NYSE. He is, as are all other current members of the Audit Committee, deemed independent

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under the applicable Brazilian law and the regulations of the SEC and NYSE.

 

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For more details about the Audit Committee, refer to “Item 6. Directors, Senior Management and Employees—C. Board Practices—Board Advisory Committees—Audit Committee”Committee.”

 

ITEM 16B.SANTANDER BRASIL’S CODE OF ETHICAL CONDUCT

ITEM 16B. SANTANDER BRASIL’S CODE OF ETHICAL CONDUCT

 

The Code of Ethical Conduct, the central element the Governance Compliance, is applicable to the members of the Boards of Directors, Executive Officers and to all employees and trainees (“Persons Subject to the Code of Ethical Conduct”) of Santander Brasil and its subsidiaries. It defines the principles that should guide both the personal and professional behavior of the Persons Subject to the Code of Ethical Conduct. They must know the Code of Ethical Conduct and seek to promote it, by championing and striving for its enforcement, and also have the obligation to attend and participate in all assigned training activities in order to become appropriately acquainted with the Code of Ethical Conduct. The Persons Subject to the Code of Ethical Conduct should be guided by ethical principles and rules of conduct that are consistent with our values.

 

The Code of Ethical Conduct helps us to establish respectful and transparent relationships and aims for the accomplishment of Santander Brasil’s obligations to its customers, employees, shareholders, partners, regulators and society as a whole. The Code of Ethical Conduct should also be a reference for compliance with legal duties and for the maintenance of commercial relationships founded on trust with partners and clients.customers.

 

The full version of the Santander Code of Ethical Conduct, which does not form part of this annual report on Form 20-F, is available on our website atwww.santander.com.br/ri.

 

ITEM 16C.PRINCIPAL ACCOUNTANT FEES AND SERVICES

ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES

 

The balance of “Other general administrative expenses—Technical reports” includes the fees paid by the consolidated companies (detailed in the accompanying Appendix I of the consolidated financial statements included elsewhere in this annual report) to PricewaterhouseCoopers Auditores Independentes for the fiscal years ended December 31, 2020, December 31, 2019 and December 31, 2018, and December 31, 2017, as follows:

 

  For the year ended December 31,
  2019 2018 2017
  (in R$ millions)
Audit of the annual financial statements of the companies audited (constant scope of consolidation)  25.2   19.9   17.5 
Audit related  0.1   0.5   3.9 
Tax  -     -     -   
All other  0.3   0.1   1.3 
Total  25.6   20.5   22.7 

  For the year ended December 31,
  2020 2019 2018
  (in R$ millions)
Audit of the annual financial statements of the companies audited (constant scope of consolidation)  24.0   25.2   19.9 
Audit related  0.4   0.1   0.5 
Tax  -   -   - 
All other  -   0.3   0.1 
Total  24.4   25.6   20.5 

The approximate value of withholding taxes in respect of the audit fees for the year ended December 31, 20192020 according to applicable law totaled R$3.61.5 million.

 

The services commissioned from our auditors meet the independence requirements stipulated by the Brazilian Central Bank and CVM regulation and by the Sarbanes-Oxley Act of 2002, and they did not involve the performance of any work that is incompatible with the audit function.

 

If we are required to engage an auditing firm for audit and audit-related services, those services and any fees paid to the auditing firms must be pre-approved by the audit committee.

 

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Our Audit Committee pre-approves all audit and non-audit services to be performed by our registered public accounting firm.

 

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Table of ContentsITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

ITEM 16D.EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

 

Under NYSE and SEC rules for listed companies, we must comply with Rule 10A-3 under the Securities Exchange Act (Listing Standards Relating to Audit Committees). Rule 10A-3 provides that we should establish an Audit Committee composed of members of the Board of Directors, meet the requirements specified in the listing standards, or appoint and establish a board of auditors or similar body to perform the role of the Audit Committee, in reliance on the general exemption of audit committees of foreign private issuers set forth in Rule 10A-3(c) (3) of the Securities Exchange Act.

 

In accordance with the rules of the Brazilian Central Bank, we constituted a body similar to the Audit Committee of the Board of Directors of an American company, which we refer to as our “Audit Committee.”

 

Our Audit Committee observescomplies with Brazilian legislation, including CMN and Brazilian Central Bank regulations and performs all the functions of an Audit Committee under Rule 10A-3. As provided in Brazilian law, our Board of Directors and the Audit Committee andare distinct statutory entities. Moreover, according to Brazilian law, the function of hiring independent auditors is a power reserved exclusively toby the Board of Directors of the company, under the specific and express recommendation issued from the Audit Committee, as the case may be, for the engagement or replacement of independent auditors, and our Board of Directors acts as our audit committee for the purposes of nominating such independent auditors.

 

Except in these respects, our Audit Committee is comparable to an Audit Committee of the board and performs the same functions of an American company. Our Audit Committee is able to act independently in carrying out the responsibilities of an Audit Committee under the Sarbanes-Oxley Act, meets the exemption requirements of Rule 10A-3(c)(3) and therefore is in compliance with Rule 10A-3 of the Securities Exchange Act.

 

ITEM 16E.PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

 

The following table reflects purchases of our equity securities, including in the form of ADRs, by us or our affiliates in 2019.2020.

 

Santander Brasil – Buyback Program Units

 

Months Total Number of Units Purchased (3) Average Price Paid per Unit in U.S.$ (4) Total Number of Units Purchased as Part of Publicly Announced Plans or Programs (1) (5) Maximum Number of Units that May Yet Be Purchased Under the Plans or Programs (2)
         
November 2018  1,438,400   10.7684   1,438,400   -   
December 2018  818,500   11.0285   818,500   -   
January 2019  683,500   12.9728   683,500   -   
February 2019  1,579,900   12.9271   1,579,900   -   
March 2019  1,098,900   11.4158   1,098,900   -   
April 2019  -     -     -     -   
May 2019  894,000   10.9507   894,000   -   
June 2019  718,400   11.6827   718,400   -   
July 2019  -     -     -     -   
August 2019  632,800   10.3023   632,800   -   
September 2019  -     -     -     -   
October 2019  659,200   11.9678   659,200   -   

Months Total Number of Units Purchased (3) Average Price Paid per Unit in U.S.$ (4) Total Number of Units Purchased as Part of Publicly Announced Plans or Programs (1) (5) Maximum Number of Units that May Yet Be Purchased Under the Plans or Programs (2)
November 2019  199,000   10.6889   199,000   - 
December 2019              - 
January 2020  531,500   9.8979   531,500   - 
February 2020  2,377,300   9.7177   2,377,300   - 
March 2020  2,143,900   6.5997   2,143,900   - 
April 2020  -   -   -   - 
May 2020  -   -   -   - 
June 2020  -   -   -   - 
July 2020  15,710   5   15,710   - 
August 2020  -   -   -   - 
September 2020  -   -   -   - 
October 2020  -   -   -   - 
November 2020  -   -   -   - 
December 2020  -   -   -   - 
Total  5,267,410   42   5,267,410   37,753,760 

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November 2019  199,000   10.6889   199,000   -   
December 2019              -   
Total  8,722,600   115   8,722,600   37,753,760 

(1)The buyback program, as approved by our board of directors on November 3, 2016 for the period from November 4, 2016 to November 3, 2018, and2018; on November 1, 20182019 for the period from November 6, 20182019 to November 5, 2019.2020, and on February 2, 2020 for the period from February 3, 2020 to August 2, 2022. A new buyback program was approved by our board of directors on November 1, 2019February 2, 2021 for the twelve (12)eighteen (18)-month period starting on November 6, 2019.in February 2, 2021.

(2)The number entered in the “Total” row of the column “Maximum Number (or Approximate Dollar Value) of Units that May Yet Be Purchased Under the Plans or Programs” refers to the number of Units which may be repurchased in the period from November 20182019 to November 20192020 as approved by our board of directors. The number of Units that may be repurchased for the period from November 6, 2018February 3, 2020 to November 5, 2019August 2, 2022 as approved by our board of directors is 37,753,760.36,956,402.

(3)The “Total Number of Units Purchased” was 199,0000.00 in November 20192020 and 0.00 in December 2019.2020.

(4)The “Average Price Paid per Unit in U.S.$” was 10,68890.00 in November 20192020 and U.S.$0,000.00 in December 20192020

(5)The “Total Number of Units Purchased as Part of Publicly Announced Plans or Programs” was 199,000 in0.00 November 20192020 and 0.00 in December 2019.2020.

(6)The repurchase plans define an annual maximum of Units to be repurchased but without a monthly limit.

 

For further information on our buyback program, please see “Item 4. Information on the Company—A. History and Development of the Company—Important Events—Buyback Program.”

 

ITEM 16F.CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT

ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT

 

Not applicable.

 

ITEM 16G.CORPORATE GOVERNANCE

ITEM 16G. CORPORATE GOVERNANCE

 

In December 2012, primarily in response to the requirements of the European Banking Authority, Santander Spain adopted a corporate governance framework (Marco de Gobierno Interno del Grupo Santander). The purpose of the framework is to organize and standardize the corporate governance practices of Santander Spain and its most significant subsidiaries, including us, in order to enhance the ability of Santander Spain to manage the risks arising from Santander group operations around the world.

 

The three pillars of the framework are (i) an organizational model based on functions subject to internal governance, (ii) terms of reference according to which Santander Spain exercises control and oversight over its subsidiaries and participates in specific decisions as their controlling shareholder, and (iii) corporate models establishing common guidelines for the management and control of Santander Spain’s subsidiaries, subject to local autonomy considerations. In general, the framework purports to implement organizational and procedural changes rather than mandating particular substantive outcomes. However, in some cases, and subject to the limitations there set forth, the framework states that Santander Spain may require that its subsidiaries make substantive changes or take specific actions. The framework enables Santander Spain to participate in the decision-making processes of its subsidiaries by requiring its approval of certain decisions that may have a significant impact on the Santander Group as a whole due to their significance or potential risk, such as decisions relating to mergers and acquisitions, capital structure, dividends and risk tolerance, among other things. The framework also requires that a single person at each subsidiary be in charge of each function subject to internal governance and gives Santander Spain the authority to participate in the appointment, evaluation and compensation of each such person.

 

By its own terms, the framework as a whole is premised on the legal and financial autonomy of the subsidiaries and does not empower Santander Spain to supplant its subsidiaries’ decision-making processes. Moreover, each of the three pillars of the framework is explicitly made subject to local legal requirements. We approved the adoption of this corporate governance framework in May 2013, and have approved all subsequent amendments since then (the latest one was approved in December 2019), subject to the precedence of applicable Brazilian laws and regulations and the limitations imposed thereby such as banking secrecy laws, and subject also to our corporate governance practices, including our policies for related party transactions and for disclosure of material acts and facts.

 

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As a result of the precedence given to local legal requirements in the framework itself and in our

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adopting resolutions, we do not expect that the adoption of the corporate governance framework will affect our ability to comply with applicable corporate governance regulations, including the rules of the Brazilian Central Bank, CVM and B3, and SEC and NYSE rules applicable to foreign private issuers.

 

Pursuant to Section 303A.11 of the Listed Company Manual of the NYSE, we are required to provide a summary of the significant ways in which our corporate governance practices differ from those required for United States resident companies under the NYSE listing standards. Section 303A of the NYSE Listed Company Manual sets forth certain corporate governance requirements that a company must satisfy to be listed on the NYSE. However, exemptions from many of the requirements are available to foreign private issuers such as us. As a foreign private issuer, we are permitted to and we will, follow home country practice in lieu of the NYSE corporate governance standards, from which we are exempt.

 

A discussion of the significant differences between Brazilian corporate governance standards that govern our practices and the NYSE standards applicable to U.S. companies follows below. It includes only a brief summary description of our corporate governance practices.

 

Principal Differences between Brazilian and U.S. Corporate Governance Practices

 

We are also subject to the NYSE corporate governance listing standards. As a foreign private issuer, the standards applicable to us are considerably different than the standards applied to U.S. listed companies. Under the NYSE rules, we are required only to: (i) have an Audit Committee or audit board, pursuant to an applicable exemption available to foreign private issuers, that meets certain requirements, as discussed below, (ii) provide prompt certification by our Chief Executive Officer of any material noncompliance with any applicable NYSE corporate governance rules, (iii) submit an executed written affirmation annually to the NYSE and submit an interim written affirmation each time a change occurs to the board or any of the committees subject to Section 303A of the NYSE rules, and (iv) provide a brief description of the significant differences between our corporate governance practices and the NYSE, corporate governance practicepractices required to be followed by U.S. listed companies. The discussion of the significant differences between our corporate governance practices and those required of U.S. listed companies follows below, as required for foreign private issuers by NYSE Rule 303A.11.

 

Majority of Independent Directors

 

The NYSE rules require that a majority of the board must consist of independent directors. As a company with a majority of our voting shares being beneficially owned by another entity (Santander Spain), we are not required to comply with this rule. Independence is defined by various criteria, including the absence of a material relationship between the director and the listed company. Currently, our Board of Directors must have at least five members, at least 20.0% of which must be independent, as determined pursuant to Article 14 of our By-Laws. Currently, five members of our Board of Directors are deemed independent (representing 56% of the composition of our Board of Directors). Also, Brazilian Corporate Law, the Brazilian Central Bank and the CVM have established rules that require directors to meet certain qualification requirements and that address the compensation, duties and responsibilities of, as well as the restrictions applicable to, a company’s executive officers and directors. While we believe that these rules provide adequate assurances that our directors are independent and meet the requisite qualification requirements under Brazilian law, we believe that such rules would permit us to have directors that would not otherwise pass the test for director independence established by the NYSE. Brazilian Corporate Law requires that our directors shall be elected by our shareholders at an annual shareholders’ meeting. Currently, all of our directors are elected by our shareholders after recommendation of the Nomination and Governance Committee, for a term of two years.

 

Executive Sessions

 

NYSE rules require that the non-management directors must meet at regularly scheduled executive sessions without management present. Brazilian Corporate Law does not have a similar provision. According to Brazilian Corporate Law, up to one thirdone-third of the members of the Board of Directors can be elected from management members. Our Chief Executive Officer, Mr. Sergio Agapito Lires Rial, is a

 

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a member of our Board of Directors. There is no requirement that our non-management directors meet regularly without management. As a result, the non-management directors on our board do not typically meet in executive session.

 

Committees

 

NYSE rules require that listed companies have a Nominating/Corporate Governance Committee and a Remuneration Committee composed entirely of independent directors and governed by a written charter addressing the committee’s required purpose and detailing its required responsibilities. As a company whose majority of voting shares is held by another group, we are not required to comply with this rule. The responsibilities of the Nominating/Corporate Governance Committee include, among other things, identifying and selecting qualified board member nominees and developing a set of corporate governance principles applicable to the company. The responsibilities of the Remuneration Committee, in turn, include, among other things, reviewing corporate goals relevant to the Chief Executive Officer’s compensation, evaluating the Chief Executive Officer’s performance, approving the Chief Executive Officer’s compensation levels and recommending to the board non-chief executive officer compensation, incentive compensation and equity-based plans.

 

In February 2017, our Board of Directors approved the terms for the establishment of our Nomination and Governance Committee. The Nomination and Governance Committee also oversees corporate governance at Santander Brasil.

 

CMN rules require us to have a compensation committeeCompensation Committee composed of at least three members. We have created the compensation committeeCompensation Committee whose function is to advise our Board of Directors on matters in connection with, but not limited to (i) fixed and variable compensation policies and benefits and (ii) the long-term incentive plan.

 

See “Item 6. Directors, Senior Management and Employees—C. Board Practices” for a complete description of all of our board advisory committees.

 

Pursuant to Brazilian Corporate Law, the aggregate compensation for our directors and executive officers is established by our shareholders.

 

Audit Committee and Audit Committee Additional Requirements

 

NYSE rules require that listed companies have an Audit Committee composed that (i) is composed of a minimum of three independent directors who are all financially literate, (ii) meets the SEC rules regarding Audit Committees for listed companies, (iii) has at least one member who has accounting or financial management expertise and (iv) is governed by a written charter addressing the committee’s required purpose and detailing its required responsibilities.

 

CMN rules require us to have an Audit Committee of at least three independent members. The Audit Committee is elected by the Board of Directors. SEC Rule 10A-3 provides that the listing of securities of foreign private issuers will be exempt from the Audit Committee requirements if the issuer meets certain requirements. Our Audit Committee allows us to meet the requirements set forth by this rule. See “Item 16D. Exemptions from the Listing Standards for Audit Committees.”

 

Shareholder Approval of Equity Compensation Plans

 

NYSE rules require that shareholders be given the opportunity to vote on all equity compensation plans and material revisions thereto, with limited exceptions. Under Brazilian Corporate Law, shareholders must approve all stock option plans. In addition, any issuance of new shares that exceeds our authorized share capital is subject to shareholder approval. Our shareholders do not have the opportunity to vote on all equity compensation plans.

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Corporate Governance Guidelines

 

NYSE rules require that listed companies adopt and disclose corporate governance guidelines. We

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comply with the corporate governance guidelines under applicable Brazilian law. The corporate governance guidelines applicable to us under Brazilian law are consistent with the guidelines established by the NYSE.

 

Pursuant to the practices of corporate governance guidelines, on September 22, 2010, our Board of Directors approved a policy that regulates related party transactions, which was last revised on March 27, 2019. This policy provides rules which aim to ensure that all decisions, in particular those involving related parties and other situations with potential conflict of interests will be aligned with our interests and those of our shareholders. The policy applies to all employees, Directors and Executive Officers of Santander Brasil.

 

Code of Business Conduct and Ethics

 

NYSE rules require that listed companies adopt and disclose a code of conduct and ethics for Directors, Officers and employees, and promptly disclose any waivers of the code for Directors or Executive Officers. Applicable Brazilian law does not have a similar requirement. We adopted a Code of Ethical Conduct on February 27, 2009, last revised on September 28, 2016, which regulates the set of ethical principles that shall guide the conduct of our employees, officers and directors of Santander Brasil, as well as of its affiliates. Our Code of Ethical Conduct complies with the requirements of the Sarbanes-Oxley Act and the NYSE rules.

 

Internal Audit Function

 

NYSE rules require that listed companies maintain an internal audit function to provide management and the Audit Committee with ongoing assessments of the company’s risk management processes and system of internal controls.

 

OurCMN rules also require us to have an internal audit function, and our internal audit department works independently to conduct structured examinations, analyses, surveys and fact-finding to evaluate the integrity, adequacy, effectiveness, efficiency and economy of the information systems processes and internal controls related to our risk management. The internal audit department reports on an ongoing basis to the Audit Committee. In carrying out its duties, the internal audit department has access to all documents, records, systems, locations and professionals involved with the activities under review.

 

Other Corporate Frameworks

 

On the recommendation of our controlling shareholder, our Board of Directors analyzed and approved the adoption of a series of corporate frameworks to matters such as: (i) internal audit; (ii) accounting and disclosure of financial information; (iii) risk control; (iv) communication and branding; (v) human resources; (vi) information technology; and (vii) money-laundering protection. Currently, we have a total of 16 frameworks (Marcos Corporativos) in force. We believe that these frameworks, once all of them have been adopted, will continue to enhance the formalization of our governance and internal controls structures.

 

Website

 

Our corporate governance codes, which do not form part of this annual report, are available to the public on our website in Portuguese and English at www.santander.com.br under the heading “Investor Relations—Corporate Governance.” The information contained on our website, any website mentioned in this annual report, or any website directly or indirectly linked to these websites is not part, of and is not incorporated by reference in, this annual report.

 

ITEM 16H.MINE SAFETY DISCLOSURE

ITEM 16H. MINE SAFETY DISCLOSURE

 

Not applicable.

 

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PART III

 

ITEM 17.FINANCIAL STATEMENTS

ITEM 17. FINANCIAL STATEMENTS

 

We have responded to Item 18 in lieu of this item.

 

ITEM 18.FINANCIAL STATEMENTS

ITEM 18. FINANCIAL STATEMENTS

 

Consolidated Financial Statements are filed as part of this annual report, see pages 1F-1 to 159.F-152.

 

ITEM 19.EXHIBITS

ITEM 19. EXHIBITS

 

(a)       Index to Consolidated Financial Statements

 

 

Page

Report of PricewaterhouseCoopers Auditores IndependentesF-2F-3
Consolidated Balance Sheets for the years ended December 31, 2020, 2019 2018 and 20172018F-7F-4
Consolidated Income Statements for the years ended December 31, 2020, 2019 2018 and 20172018F-9F-6
Consolidated Statements of Comprehensive Income for the years ended December 31, 2020, 2019 2018 and 20172018F-10F-8
Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2020, 2019 2018 and 20172018F-11F-9
Consolidated Cash Flow Statements for the years ended December 31, 2020, 2019 2018 and 20172018F-13F-11
Explanatory Notes to the Consolidated Financial Statements for the years ended December 31, 2020, 2019 2018 and 20172018F-14
F-13

 

(b)       List of Exhibits.

 

We are filing the following documents as part of this annual report on Form 20-F:

 

Exhibit Number

Description

1.1English translation of the By-laws of Santander Brasil, amended and restated on April 26, 2019June 10, 2020 (incorporated by reference to our Form 6-K (file no. 001-34476) filed with the SEC on April 29, 2019)June 11, 2020).
2.1Form of Deposit Agreement among Santander Brasil, The Bank of New York Mellon, as depositary, and the holders from time to time of American depositary shares issued thereunder, including the form of American depositary receipts (incorporated by reference to Exhibit 1 to our Registration Statement on Form F-6 (file no. 333-207353) filed with the SEC on October 9, 2015).
2.2Subordinated Indenture dated as of January 29, 2014, among Santander Brasil and The Bank of New York Mellon, as trustee (incorporated by reference to Exhibit 2.3 to our Annual Report on Form 20-F (file no. 001-34476) filed with the SEC on April 30, 2014).
2.3First Supplemental Indenture dated as of January 29, 2014, among Santander Brasil and The Bank of New York Mellon, as trustee, paying agent, transfer agent and registrar (incorporated by reference to Exhibit 2.4 to our Annual Report on Form 20-F (file no. 001-34476) filed with the SEC on April 30, 2014).
2.4Second Supplemental Indenture dated as of January 29, 2014, among Santander Brasil and The Bank of New York Mellon, as trustee, paying agent, transfer agent and registrar (incorporated by reference to Exhibit 2.5 to our Annual Report on Form 20-F (file no. 001-34476) filed with the SEC on April 30, 2014).
2.5Description of Securities

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4.1Option Plan to Purchase Share depositDeposit Certificate of Santander Brasil (incorporated by reference to Attachment I to our Form 6-K/A filed with the SEC on January 6, 2010).
4.2Long-termLong-Term Incentive Plan – Investment in Deposit Share Certificate (“Units”) of Santander Brasil (incorporated by reference to Exhibit III to our Form 6-K (file no. 001-34476) filed with the SEC on September 27, 2011).
4.3Deferred Bonus Plans related to 2011 (incorporated by reference to Exhibit I to our Form 6-K (file no. 001-34476) filed with the SEC on January 9, 2012).
4.4Deferred Bonus Plans related to 2012 (incorporated by reference to Exhibit I to our Form 6-K (file no. 001-34476) filed with the SEC on January 15, 2013).
4.5Long-termLong-Term Incentive Plan – Investment in Deposit Share Certificates (“Units”) of Santander Brasil (incorporated by reference to Exhibit V to our Form 6-K (file no. 001-34476) filed with the SEC on April 4, 2013).
4.6Deferred Bonus Plans related to 2013 (incorporated by reference to Exhibit II to our Form 6-K (file no. 001-34476) filed with the SEC on May 1, 2013).
4.7Deferred Bonus Plans related to 2014 (incorporated by reference to Exhibit V to our Form 6-K (file no. 001-34476) filed with the SEC on April 1, 2015).
4.8Deferred Bonus Plans related to 2015 (incorporated by reference to Exhibit II to our Form 6-K/A (file no. 001-34476) filed with the SEC on December 3, 2015).
8.1List of Subsidiaries (incorporated by reference to Note 3 to our Consolidated Financial Statements filed with this Form 20-F)..
11.1English translation of the Code of Ethical Conduct of Santander Brasil (incorporated by reference to Exhibit 11.1 to our Annual Report on Form 20-F (file no. 001-34476) filed with the SEC on March 28, 2017).
12.1Section 302 Certification by the principal executive officer.
12.2Section 302 Certification by the principal financial officer.
13.1Section 906 Certification by the Chief Executive Officer.
13.2Section 906 Certification by the Chief Financial Officer.
15.1Consent Letter of PricewaterhouseCoopers

 

SIGNATURES

 

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.

 

 BANCO SANTANDER (Brasil) S.A.
 By:/s/ Sergio Agapito Lires Rial
  Name: Sergio Agapito Lires Rial
  Title: Chief Executive Officer

Date: March 6, 2020February 26, 2021

 

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Banco Santander (Brasil) S.A.

Consolidated Financial Statements

Prepared in accordance with International Financial Reporting

Standards - IFRS

December 31, 2020

 Consolidated Financial Statements | December 31, 2020

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BANCO SANTANDER (BRASIL) S.A.
CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTAL INFORMATION
  
INDEXPg.Page

Report of Independent Registered Public Accounting Firmindependent registered public accounting firmF-2F-3
Consolidated Balance SheetsF-7F-4
Consolidated Income StatementsF-9F-6
Consolidated Statements of Comprehensive IncomeF-10F-7
Consolidated Statements of Changes in Stockholders’Stockholders' EquityF-11F-8
Consolidated Cash Flow StatementsF-13F-11
1.   Introduction, basis of presentation of the consolidated financial statements and other informationF-14F-13
2.   Accounting policies and method of measurementF-25F-18
3.   Basis of consolidationF-39F-40
4.   Cash and balances with the Brazilian Central BankF-42
5.   Loans and amounts due from credit institutionsF-43F-42
6.   Debt instrumentsF-44F-43
7.   Equity instrumentsF-45F-44
8.   Derivative financial instruments and Short positionsF-46F-45
9.   Loans and advances to clientsF-54F-53
10.   Non-current assets held for saleF-59F-58
11.   Investments in associates and joint venturesF-60F-58
12.   Tangible assetsF-64F-62
13.   Intangible assets - GoodwillF-65F-64
14.   Intangible assets - Other intangible assetsF-66F-65
15.   Other assetsF-67F-66
16.   Deposits from the Brazilian Central Bank and Deposits from credit institutionsF-67
17.   Client depositsF-68
18.   Marketable debt securitiesF-69
19.   Subordinated liabilitiesF-70
20.   Debt Instruments Eligible to Compose CapitalF-71F-70
21.20.   Other financial liabilitiesF-72F-71
22.21.   Provisions for pensions and similar obligationsF-72F-71
23.22.   Provisions for judicial and administrative proceedings, commitments and other provisionsF-79F-80
24.23.   Tax assets and liabilitiesF-84
25.24.   Other liabilitiesF-87
26.25.   Other Comprehensive IncomeF-87
27.26.   Non-controlling interestsF-88
28.   Stockholders’27.   Shareholders’ equityF-89F-90
29.28.   Earnings per shareF-92
30.29.   Fair value of financial assets and liabilitiesF-93
31.30.   Operational RatiosF-99F-100
32.31.   Interest and similar incomeF-100
33.32.   Interest expense and similar chargesF-100F-101
34.33.   Income from equity instrumentsF-100F-101
35.34.   Fee and commission incomeF-101
36.35.   Fee and commission expenseF-102
37.36.   Gains or losses on financial assets and liabilitiesF-102F-103
38.37.   Exchange differences (net)F-102F-103
39.38.   Other operating income and expensesF-103
40.39.   Personnel expensesF-103F-104
41.40.   Other general administrative expensesF-105
42.41.   Gains or losses on non financial assets and investments, netF-106
43.42.   Gains (losses) on disposal and expenses of non-current assets held for sale not classified as discontinued operationsF-106
44.43.   Other disclosuresF-106
45.44.   Business segment reportingF-111F-112
46.45.   Related party transactionsF-115F-114
46.   Risk managementF-123
47.   Risk managementF-118
48.   Subsequent EventsF-144F-149

Supplemental information

APPENDIX I -– RECONCILIATION OF STOCKHOLDERS'STOCKHOLDERS’ EQUITY AND NET INCOME - BRGAAP vs IFRS

F-146F-149
APPENDIX II -– STATEMENTS OF VALUE ADDEDF-149F-152

 

 


 

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Report of Independent Registered Public Accounting Firm

 

To the Board of Directors and Stockholders of

Banco Santander (Brasil) S.A.

 

Opinions on the Financial Statements and Internal Control over Financial Reporting

 

We have audited the accompanying consolidated balance sheets of Banco Santander (Brasil) S.A. and its subsidiaries (the “Company”) as of December 31, 2020, 2019 2018 and 2017,2018, and the related consolidated income statements, statements of comprehensive income, statements of changes in stockholders’ equity and cash flow statements for each of the three years in the period ended December 31, 2019,2020, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company’s internal control over financial reporting as of December 31, 2019,2020, based on criteria established inInternal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2020, 2019 2018 and 2017,2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 20192020 in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019,2020, based on criteria established inInternal Control - Integrated Framework (2013) issued by the COSO.

 

Change in Accounting Principle

 

As discussed in Note 1.c.2.1.iii to the consolidated financial statements, the Company changed the manner in which it accounts for financial instruments in 2018.

 

Basis for Opinions

 

The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Item 15B – Management´s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

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Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis,

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evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

 

Supplemental Information

 

The reconciliation of stockholders' equity and net income – BRGAAP vs IFRS as of and for the years ended December 31, 2020, 2019 2018 and 20172018 and the statements of value added for the years ended December 31, 2020, 2019 2018 and 2017,2018, included in APPENDIX I and II respectively, have been subjected to audit procedures performed in conjunction with the audit of the Company’s consolidated financial statements. This supplemental information is the responsibility of the Company’s management. Our audit procedures included determining whether the supplemental information reconciles to the consolidated financial statements or the underlying accounting and other records, as applicable, and performing procedures to test the completeness and accuracy of the information presented in the supplemental information. In forming our opinion on the supplemental information, we evaluated whether the supplemental information, including its form and content, is presented in conformity with Brazilian Corporate Law. In our opinion, the reconciliation of stockholders' equity and net income – BRGAAP vs IFRS as of and for the years ended December 31, 2020, 2019 2018 and 20172018 and the statements of value added for the years ended December 31, 2020, 2019 2018 and 20172018 are fairly stated, in all material respects, in relation to the consolidated financial statements as a whole.

 

Definition and Limitations of Internal Control over Financial Reporting

 

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

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Critical Audit Matters

 

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit

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committee and that (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

 

Measurement of expected credit losses

 

As described in Notes 1.c.2.1.iii, 2.i,1.c.2.1.iv, 2.h, 9, 43.h and 47.b46.b to the consolidated financial statements, management measures the expected credit losses at the probability-weighted estimate of credit losses, that involves management’s judgment, as set forth in IFRS 9 - Financial Instruments. At December 31, 2019,2020, the impairment losses on loans and receivables was BRL 22,625,75024,053,989 thousand on total loans and receivables at amortized cost of BRL 347,256,660417,822,026 thousand. Management calculates expected credit losses (‘ECL’) using three main components: a probability of default (‘PD’), loss given default (‘LGD’) and exposure at default (‘EAD’) including individual and collective models. The ECL measurement is based on management’s estimate of present value expected to be received, including the use of a variety of assumptions such as historical loss experience, credit quality, concentration, economic factors and estimated future cash flows. Additionally, management has assessed the Covid-19 pandemic impact in the estimation of credit losses process. In this assessment, management has considered forward-looking information, including changes in macroeconomic scenarios, impacting the calculation model for provisioning expected credit losses.

 

The principal considerations for our determination that performing procedures relating to the measurement of expected credit losses is a critical audit matter are (i) there was significant judgment used by management in determining the expected credit losses, in particular the assumptions used in determining the PD and LGD, which in turn led to a high degree of auditor judgment, subjectivity and effort in performing procedures and in evaluating audit evidence obtained relating to these assumptions; and (ii) the audit effort involved use of professionals with specialized skill and knowledge to assist in evaluating those assumptions.assumptions; and (iii) the consideration of the Covid-19 pandemic impacts in measuring then expected credit losses with the current scenario of uncertainty.

 

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included understanding and testing the effectiveness of controls relating to management’s measurement of expected credit losses, which included controls over the assumptions used. These procedures also included, among others: (i) the involvement of professionals with specialized skill and knowledge to assist in testing management’s process for determining the expected credit losses, including evaluating the appropriateness of the methodology and models, testing the accuracy and completeness of data used, and evaluating the reasonableness of significant assumptions; (ii) the analysis of management’s accounting policies in comparison with IFRS 9; and (iii) analysis over management’s disclosures in the financial statements.statements; and (iv) understanding of the procedures adopted by management in considering the impacts of Covid-19 in the estimation of additional expected credit loss, evaluating the reasonableness of the estimation considering models, assumptions and data used.

 

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Provisions for judicial and administrative proceedings

 

As described in Notes 1.c.2.1.v,1.c.2.1.vi, 2.r and 2322 to the consolidated financial statements, Provisions for judicial and administrative proceedings are recorded when their risk of loss are considered probable and the amounts can be reliably measured, based on the nature, complexity and history of lawsuits and the opinion of legal counsel. At December 31, 2019,2020, the Company has recorded provisions for judicial and administrative proceedings of BRL 9,226,7358,648,892 thousand. The Company also discloses the contingency in circumstances where management concludes no loss is probable or reasonably estimable, but it is reasonably possible that a loss may be incurred.

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The principal considerations for our determination that performing procedures relating to provisions for judicial and administrative proceedings is a critical audit matter are there was significant judgment by management when assessing the likelihood of a loss being incurred and the potential amount of the judicial and administrative proceedings. This in turn led to a high degree of auditor judgment and effort in evaluating management’s assessment of the provisions for judicial and administrative proceedings, including the involvement of professionals with specialized skills and knowledge.

 

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included the understanding and testing the design and the effectiveness of controls relating to identifying, assessing, monitoring, measuring, recording, and disclosing the provisions for judicial and administrative proceedings, including the completeness and accuracy of the data used. Our procedures also included testing the recognition and measurement of the Company’s provisions for judicial and administrative proceedings and performing external confirmation procedures with law firms responsible for a sample of the judicial and administrative proceedings to evaluate the reasonableness of management’s assessment of the provisions. With the assistance of our professionals with specialized skill and knowledge, we evaluated the reasonableness management’s assessment of a sample of proceedings taking into account the individual progress of similar proceedings.

 

Valuation of Level 3 financial instruments

As described in Notes 1.c.2.1.ii, 2.e and 30 to the consolidated financial statements, if there is low liquidity, the Company uses valuation techniques based on internal models with the use of significant non-observable inputs for which the determination of fair value requires significant management judgment or estimation. At December 31, 2019, the Company has recorded as level 3 fair value measurements certain financial instruments including financial assets of BRL 4,322,668 thousand and financial liabilities of BRL 2,164,757 thousand. The Company determines the fair value of certain Level 3 financial instruments using quantitative models that utilize multiple significant non-observable inputs, including long-dated volatility, estimated future inflation and forward price, as applicable.

The principal considerations for our determination that performing procedures relating to these financial instruments is a critical audit matter due to a high degree of management judgment in the valuation process since the techniques carried out with internal models are based on subjective non-observable inputs. This in turn led to a high degree of auditor judgment and effort in performing procedures, including the involvement of professionals with specialized skill and knowledge to assist in evaluating certain audit evidence.

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Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included the understanding and testing the effectiveness of controls relating to valuation models, significant non-observable inputs, and data. Our procedures also included, the involvement of professionals with specialized skill and knowledge to calculate an independent estimate of fair value for a sample of certain financial instruments and compare management’s estimate with the independently developed estimate of fair value. Developing the independent estimate involved testing the completeness and accuracy of data provided by management and evaluating the reasonableness of management’s assumptions used to develop the significant non-observable inputs.

/s/PricewaterhouseCoopers Auditores Independentes

São Paulo, Brazil

March 6, 2020February 26, 2021

 

We have served as the Company’s auditor since 2016.

 

 

Consolidated Financial Statements | December 31, 2020 | F-3

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* Values expressed in thousands, except when indicated.

 

BANCO SANTANDER (BRASIL) S.A.

CONSOLIDATED BALANCE SHEETS

(Thousand of Brazilian Reais - R$) 

Consolidated Balance Sheets

AssetsNote201920182017 Note 2020 2019 2018
         
Cash and Balances With The Brazilian Central Bank420,127,36419,463,58720,642,321  4   20,148,725   20,127,364   19,463,587 
                 
Financial Assets Held For Trading -86,271,097
Debt instruments6-34,879,681
Equity instruments7-489,770
Trading derivatives8.a-17,070,125
Balances With The Brazilian Central Bank -33,831,521
                
Financial Assets Measured At Fair Value Through Profit Or Loss 32,342,30643,711,800-      60,900,466   32,342,306   43,711,800 
Debt instruments63,735,0763,171,746-  6   3,545,660   3,735,076   3,171,746 
Balances With The Brazilian Central Bank 28,607,23040,540,054-      57,354,806   28,607,230   40,540,054 
                
Financial Assets Measured At Fair Value Through Profit Or Loss Held For Trading 57,020,90368,852,314-      98,466,232   57,020,903   68,852,314 
Debt instruments634,885,63150,066,469-  6   68,520,799   34,885,631   50,066,469 
Equity instruments72,029,470766,333-  7   1,818,276   2,029,470   766,333 
Trading derivatives8.a20,105,80218,019,512-  8.a  28,127,157   20,105,802   18,019,512 
                
Non-Trading Financial Assets Mandatorily Measured At Fair Value Through Profit Or Loss 171,453917,477-      499,720   171,453   917,477 
Equity instruments7171,453298,297-  7   438,912   171,453   298,297 
Loans and advances to customers9-619,180-  9   60,808   -   619,180 
Other Financial Assets At Fair Value Through Profit Or Loss -1,692,057
Debt instruments6-1,658,689
Equity instruments7-33,368
Available-For-Sale Financial Assets -85,823,384
Debt instruments6-84,716,747
Equity instruments7-1,106,637
                
                
Financial Assets Measured At Fair Value Through Other Comprehensive IncomeFinancial Assets Measured At Fair Value Through Other Comprehensive Income96,120,23385,436,677-      109,740,387   96,120,233   85,436,677 
Debt instruments695,962,92785,395,691-  6   109,668,214   95,962,927   85,395,691 
Equity instruments7157,30640,986-  7   72,173   157,306   40,986 
Held to maturity investments6-10,214,454
Loans and Receivables -368,729,006
Loans and amounts due from credit institutions5-78,692,334
Loans and advances to customers9-272,420,157
Debt instruments6-17,616,515
                
                
Financial Assets Measured At Amortized Cost 474,680,904429,731,475-      554,924,796   474,680,904   429,731,475 
Loans and amounts due from credit institutions5109,233,12891,859,759-  5   112,849,776   109,233,128   91,859,759 
Loans and advances to customers9326,699,480301,072,207-  9   393,707,229   326,699,480   301,072,207 
Debt instruments638,748,29636,799,509-  6   48,367,791   38,748,296   36,799,509 
                
Hedging Derivatives8.a339,932343,934192,763  8.a  743,463   339,932   343,934 
                
Non-Current Assets Held For Sale101,325,3351,380,2311,155,456  10   1,092,909   1,325,335   1,380,231 
                
Investments in Associates and Joint Ventures111,070,7621,053,315866,564  11   1,094,985   1,070,762   1,053,315 
                
Tax Assets2433,599,17831,565,76728,825,741      41,063,782   33,599,178   31,565,767 
Current 3,304,1163,885,1894,047,663      3,082,084   3,304,116   3,885,189 
Deferred 30,295,06227,680,57824,778,078  23.d  37,981,698   30,295,062   27,680,578 
                
Other Assets155,061,3374,800,4674,578,270  15   7,222,411   5,061,337   4,800,467 
                
Tangible Assets129,781,9576,588,9756,509,883  12   9,537,111   9,781,957   6,588,975 
                
Intangible Assets 30,595,78830,018,98830,202,043      30,766,498   30,595,788   30,018,988 
Goodwill1328,375,00428,378,28828,364,256  13   28,360,137   28,375,004   28,378,288 
Other intangible assets142,220,7841,640,7001,837,787  14   2,406,361   2,220,784   1,640,700 
                
TOTAL ASSETS 762,237,452723,865,007645,703,039      936,201,485   762,237,452   723,865,007 
                 
The accompanying Notes are an integral part of these consolidated financial statements.

The accompanying Notes are an integral part of these consolidated financial statements,

 

 Consolidated Financial Statements | December 31, 2020 | F-4

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BANCO SANTANDER (BRASIL) S.A.

CONSOLIDATED BALANCE SHEETS

(Thousand of Brazilian Reais - R$) 

* Values expressed in thousands, except when indicated.

Liabilities and Stockholders' EquityNote201920182017 Note 2020 2019 2018
 
Financial Liabilities Held For Trading -49,322,546
Trading derivatives8.a-16,514,154
Short positions8.b-32,808,392
         
Financial Liabilities Measured At Fair Value Through Profit Or Loss Held For Trading 46,064,66950,938,992-      77,643,290   46,064,669   50,938,992 
Trading derivatives8.a22,229,01618,243,315.00-  8.a  31,835,344   22,229,016   18,243,315 
Short positions8.b23,835,65332,695,677.00-  8.b  45,807,946   23,835,653   32,695,677 
                 
Financial Liabilities Measured At Fair Value Through Profit Or Loss 5,319,4161,946,056-      7,038,467   5,319,416   1,946,056 
Deposits from Brazilian Central Bank and deposits from credit institutions215,319,4161,946,056.00-
Other Financial Liabilities  20   7,038,467   5,319,416   1,946,056 
                
                 
Financial Liabilities at Amortized Cost 575,230,401547,295,169478,880,704      707,288,791   575,230,401   547,295,169 
Deposits from Brazilian Central Bank and deposits from credit institutions1699,271,41599,022,80679,374,685  16   131,656,962   99,271,415   99,022,806 
Customer deposits17336,514,597304,197,800276,042,141  17   445,813,972   336,514,597   304,197,800 
Marketable debt securities1873,702,47474,626,23270,247,012  18   56,875,514   73,702,474   74,626,232 
Subordinated debts19-9,885,607519,230      -   -   9,885,607 
Debt Instruments Eligible to Compose Capital2010,175,9619,779,9448,436,901  19   13,119,660   10,175,961   9,779,944 
Other financial liabilities2155,565,95449,782,78044,260,735  20   59,822,683   55,565,954   49,782,780 
                 
Hedging Derivatives8.a200,961223,520163,332  8.a  144,594   200,961   223,520 
                 
Provisions 16,331,82514,695,89813,986,916      13,814,978   16,331,825   14,695,898 
Provisions for pensions funds and similar obligations224,960,6203,357,6543,923,457  21   3,929,265   4,960,620   3,357,654 
Provisions for judicial and administrative proceedings, commitments and other provisions2311,371,20511,338,24410,063,459  22   9,885,713   11,371,205   11,338,244 
                 
Tax Liabilities2410,960,0758,074,7648,248,019      10,130,248   10,960,075   8,074,764 
Current 5,419,2025,043,3755,751,488      5,583,653   5,419,202   5,043,375 
Deferred 5,540,8733,031,3892,496,531  23.d  4,546,595   5,540,873   3,031,389 
                 
Other Liabilities2510,920,9449,095,1488,013,921  24   14,051,245   10,920,944   9,095,148 
                 
Total Liabilities 665,028,291632,269,547558,615,438      830,111,613   665,028,291   632,269,547 
                 
Stockholders' Equity2896,736,29091,944,33387,425,075  27   106,205,067   96,736,290   91,944,333 
Share capital 57,000,000      57,000,000   57,000,000   57,000,000 
Reserves 34,877,49330,440,28828,966,451      40,414,981   34,877,493   30,440,288 
Treasury shares -       681,135(461,432)(148,440)      (791,358)  (681,135)  (461,432)
Option for Acquisition of Equity Instrument -         67,000(1,017,000)      -   (67,000)  (1,017,000)
Profit for the year attributable to the Parent 16,406,93212,582,4778,924,064      13,418,529   16,406,932   12,582,477 
Less: dividends and remuneration -  10,800,000(6,600,000)(6,300,000)      (3,837,085)  (10,800,000)  (6,600,000)
                 
Other Comprehensive Income -         85,710(878,863)(774,368)      (428,080)  (85,710)  (878,863)
                 
Stockholders' Equity Attributable to the Parent 96,650,58091,065,47086,650,707      105,776,987   96,650,580   91,065,470 
                 
Non - Controlling Interests27558,581529,990436,894  26   312,885   558,581   529,990 
                 
Total Stockholders' Equity 97,209,16191,595,46087,087,601      106,089,872   97,209,161   91,595,460 
Total Liabilities and Stockholders' Equity 762,237,452723,865,007645,703,039      936,201,485   762,237,452   723,865,007 

 

The accompanying Notes are an integral part of these consolidated financial statements.

 

 Consolidated Financial Statements | December 31, 2020 | F-5

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* Values expressed in thousands, except when indicated.

Consolidated Income Statements

  Note 2020 2019 2018
         
Interest and similar income  31   62,774,940   72,841,060   70,478,393 
Interest expense and similar charges  32   (18,332,228)  (28,519,953)  (28,557,051)
Net interest income      44,442,712   44,321,107   41,921,342 
Income from equity instruments  33   33,754   18,933   32,623 
Income from companies accounted for by the equity method  11   112,261   149,488   65,958 
Fee and commission income  34   20,606,707   20,392,458   17,728,452 
Fee and commission expense  35   (4,378,493)  (4,679,306)  (3,596,293)
Gains (losses) on financial assets and liabilities (net)  36   12,998,060   2,462,545   (2,782,802)
Financial Assets At Fair Value Through Profit Or Loss      711,949   252,253   (138,673)
Financial Assets Measured At Fair Value Through Profit Or Loss  Held For Trading      12,122,794   2,391,080   (2,764,859)
Non-Trading Financial Assets Mandatorily Measured At Fair Value Through Profit Or Loss      172,828   11,501   61,239 
Financial instruments not measured at fair value through profit or loss      (239,054)  (57,522)  (138,104)
Other      229,543   (134,767)  197,595 
Exchange differences (net)  37   (24,700,962)  (2,788,537)  (2,806,471)
Other operating expense (net)  38   (872,510)  (1,107,719)  (1,055,850)
Total Income      48,241,529   58,768,969   49,506,959 
Administrative expenses      (17,114,960)  (16,941,526)  (16,792,138)
Personnel expenses  39   (8,871,482)  (9,327,714)  (9,206,007)
Other administrative expenses  40   (8,243,478)  (7,613,812)  (7,586,131)
Depreciation and amortization      (2,579,127)  (2,391,857)  (1,739,959)
Tangible assets  12   (2,039,805)  (1,870,836)  (1,216,704)
Intangible assets  14   (539,322)  (521,021)  (523,255)
Provisions (net)      (1,656,547)  (3,681,586)  (1,999,604)
Impairment losses on financial assets (net)      (17,450,188)  (13,369,905)  (12,713,435)
Financial Assets Measured At Amortized Cost and contingent commitments      (17,450,188)  (13,369,905)  (12,713,532)
Gains (losses) due to derecognition of financial assets measured at amortized cost      -   -   97 
Impairment losses on other assets (net)      (84,908)  (131,435)  (508,310)
Other intangible assets  14   (66,269)  (103,924)  (300,865)
Other assets     (18,639)  (27,511)  (207,445)
Gains (losses) on disposal of assets not classified as non-current assets held for sale  41   230,713   10,646   (25,476)
Gains (losses) on non-current assets held for sale not classified as discontinued operations  42   77,463   9,843   181,734 
Operating Income Before Tax      9,663,975   22,273,149   15,909,771 
Income taxes  23   3,786,778   (5,641,699)  (3,109,853)
Consolidated Net income for the period      13,450,753   16,631,450   12,799,918 
Profit attributable to the Parent      13,418,529   16,406,932   12,582,477 
Profit attributable to non-controlling interests  26   32,224   224,518   217,441 
                 
Earnings Per Share (Brazilian Reais)  28             
                 
Basic earnings per 1,000 shares                
Common shares      1,713.45   2,094.83   1,604.34 
Preferred shares      1,884.80   2,304.32   1,764.78 
Diluted earnings per 1,000 shares                
Common shares      1,713.45   2,094.83   1,604.34 
Preferred shares      1,884.80   2,304.32   1,764.78 
Net Profit attributable - Basic                
Common shares      6,511,367   7,965,194   6,108,349 
Preferred shares      6,907,162   8,441,738   6,474,128 
Net Profit attributable - Diluted                
Common shares      6,511,367   7,965,194   6,108,349 
Preferred shares      6,907,162   8,441,738   6,474,128 
                 
Weighted average shares outstanding (in thousands) - Basic                
Common shares      3,800,140   3,802,303   3,807,386 
Preferred shares      3,664,666   3,663,444   3,668,527 
Weighted average shares outstanding (in thousands) - Diluted                
Common shares      3,800,140   3,802,303   3,807,386 
Preferred shares      3,664,666   3,663,444   3,668,527 

The accompanying Notes are an integral part of these consolidated financial statements,

  

BANCO SANTANDER (BRASIL) S.A.

CONSOLIDATED INCOME STATEMENTS

(Thousand of Brazilian Reais - R$) 

Consolidated Financial Statements | December 31, 2020 | F-6

 Note201920182017
     
Interest and similar income3272,841,06070,478,39371,418,349
Interest expense and similar charges33(28,519,953)(28,557,051)(36,471,860)
Net interest income 44,321,10741,921,34234,946,489
Income from equity instruments3418,93332,62383,120
Income from companies accounted for by the equity method11149,48865,95871,551
Fee and commission income3520,392,45817,728,45215,815,543
Fee and commission expense36(4,679,306)(3,596,293)(3,093,675)
Gains (losses) on financial assets and liabilities (net)372,462,545(2,782,802)969,090
Financial assets held for trading --1,174,111
Financial Assets At Fair Value Through Profit Or Loss 252,253(138,673)-
Financial Assets Measured At Fair Value Through Profit Or Loss Held For Trading2,391,080(2,764,859)-
Non-Trading Financial Assets Mandatorily Measured At Fair Value Through Profit Or Loss11,50161,239-
Other financial instruments at fair value through profit or loss --30,694
Financial instruments not measured at fair value through profit or loss (57,522)(138,104)(122,115)
Other (134,767)197,595(113,600)
Exchange differences (net)38(2,788,537)(2,806,471)605,056
Other operating expense (net)39(1,107,719)(1,055,850)(672,013)
Total Income 58,768,96949,506,95948,725,161
Administrative expenses (16,941,526)(16,792,138)(16,120,595)
Personnel expenses40(9,327,714)(9,206,007)(8,937,278)
Other administrative expenses41(7,613,812)(7,586,131)(7,183,317)
Depreciation and amortization (2,391,857)(1,739,959)(1,662,247)
Tangible assets12(1,870,836)(1,216,704)(1,190,967)
Intangible assets14(521,021)(523,255)(471,280)
Provisions (net) (3,681,586)(1,999,604)(3,309,239)
Impairment losses on financial assets (net) (13,369,905)(12,713,435)(12,338,300)
Loans and receivables9.c--(12,338,141)
Financial Assets Measured At Amortized Cost and contingent commitments(13,369,905)(12,713,532)-
Gains (losses) due to derecognition of financial assets measured at amortized cost-97(159)
Impairment losses on other assets (net) (131,435)(508,310)(456,711)
Other intangible assets14(103,924)(300,865)(306,110)
Other assets14(27,511)(207,445)(150,601)
Gains (losses) on disposal of assets not classified as non-current assets held for sale4210,646(25,476)(64,302)
Gains (losses) on non-current assets held for sale not classified as discontinued operations439,843181,734(260,083)
Operating Income Before Tax 22,273,14915,909,77114,513,684
Income taxes24(5,641,699)(3,109,853)(5,375,636)
Consolidated Net income for the period 16,631,45012,799,9189,138,048
Profit attributable to the Parent 16,406,93212,582,4778,924,064
Profit attributable to non-controlling interests27224,518217,441213,984
Earnings Per Share (Brazilian Reais)29   
Basic earnings per 1,000 shares    
Common shares 2,094.831,604.341,133.43
Preferred shares 2,304.321,764.781,246.77
Diluted earnings per 1,000 shares    
Common shares 2,094.831,604.341,132.44
Preferred shares 2,304.321,764.781,245.69
Net Profit attributable - Basic    
Common shares 7,965,1946,108,3494,332,026
Preferred shares 8,441,7386,474,1284,592,038
Net Profit attributable - Diluted    
Common shares 7,965,1946,108,3494,331,955
Preferred shares 8,441,7386,474,1284,592,109
Weighted average shares outstanding (in thousands) - Basic    
Common shares 3,802,3033,807,3863,822,057
Preferred shares 3,663,4443,668,5273,683,145
Weighted average shares outstanding (in thousands) - Diluted    
Common shares 3,802,3033,807,3863,825,313
Preferred shares 3,663,4443,668,5273,686,401

Table of Contents

* Values expressed in thousands, except when indicated.

Consolidated Statements of Comprehensive Income

  2020 2019 2018
       
Consolidated Profit for the Year  13,450,753   16,631,450   12,799,918 
             
Other Comprehensive Income that will be reclassified subsequently to profit or loss when specific conditions are met:  (897,996)  1,468,651   558,967 
Financial Assets Measured At Fair Value Through Other Comprehensive Income  (1,003,155)  1,352,702   475,809 
Financial Assets Measured At Fair Value Through Other Comprehensive Income  (1,976,013)  2,926,285   388,481 
Gains (Losses) on financial assets previously classified as available-for-sale and reclassified to the income statement (net)  -   -   7,982 
Gains (Losses) on financial assets previously classified as available-for-sale and reclassified to reserves (net)  -   -   296,802 
Income taxes  972,858   (1,573,583)  (217,456)
Cash flow hedges  105,159   115,949   83,158 
Valuation adjustments  168,015   270,119   140,811 
Amounts transferred to income statement  -   6,767   (6,767)
Income taxes  (62,856)  (160,937)  (50,886)
             
Other Comprehensive Income that will not be Reclassified to net Income:  555,624   (675,497)  (366,660)
Defined benefits plan  555,624   (675,497)  (366,660)
Defined benefits plan  1,110,034   (1,358,578)  (418,768)
Income taxes  (554,410)  683,081   52,108 
             
Total Comprehensive Income  13,108,383   17,424,604   12,992,225 
             
Attributable to the parent  13,076,159   17,200,086   12,774,784 
Attributable to non-controlling interests  32,224   224,518   217,441 
Total Comprehensive Income  13,108,383   17,424,604   12,992,225 

The accompanying Notes are an integral part of these consolidated financial statements,

 Consolidated Financial Statements | December 31, 2020 | F-7

Table of Contents

* Values expressed in thousands, except when indicated.

Consolidated Statements of Changes in Stockholders' Equity

  Stockholders´ Equity Attributable to the Parent   
 NoteShare
Capital		ReservesTreasury
Shares		Option for Acquisition of Equity InstrumentProfit
Attributed
to the Parent		Dividends and
Remuneration		Total Stockholders´
Equity		 Financial Assets Measured At Fair Value Through Other Comprehensive IncomeDefined Benefits planTranslation adjustments investment abroadGains and losses - Cash flow hedge and InvestmentTotalNon-controlling
Interests		Total
Stockholders'
Equity
Balance at December 31, 2017 57,000,00027,721,428(148,440)(1,017,000)8,924,064(6,300,000)86,180,052 1,516,772(2,704,380)859,370(742,932)85,108,882

436,894

85,545,776

                 
Total comprehensive income----12,582,477-12,582,477 475,809(366,660)-83,15812,774,784217,44112,992,225
Net profit ----12,582,477-12,582,477 ----12,582,477217,44112,799,918
Other comprehensive income------- 475,809(366,660)-83,158192,307-192,307
Financial Assets Measured At Fair Value Through Other Comprehensive Income------- 475,809--- 475,809- 475,809
Pension plans ------- -(366,660)--(366,660)-(366,660)
Gain and loss - Cash flow and investment hedge------- ---83,15883,158-83,158
Appropriation of net income from prior years-8,924,064--(8,924,064)-- -------
Option to Acquire Own Instrument  106,440----106,440 ----106,440(106,440)-
Dividends and interest on capital27.b-(6,300,000)---(300,000)(6,600,000) ----(6,600,000)-(6,600,000)
Share based compensation39.b-(17,854)----(17,854) ----(17,854)-(17,854)
Treasury shares27.d--(312,305)---(312,305) ----(312,305)-(312,305)
Capital restructuring27.d--(687)---(687) ----(687)-(687)
Treasury shares income27.d-(15,868)----(15,868) ----(15,868)-(15,868)
Other -(40,517)----(40,517) ----(40,517)44,6904,173
Balance at December 31, 201857,000,00030,377,693(461,432)(1,017,000)12,582,477(6,600,000)91,881,738 1,992,581(3,071,040)859,370(659,774)91,002,875592,58591,595,460
                    

 Consolidated Financial Statements | December 31, 2020 | F-8

Table of Contents

* Values expressed in thousands, except when indicated.

  Stockholders´ Equity Attributable to the Parent   
 NoteShare
Capital		ReservesTreasury
Shares		Option for Acquisition of Equity InstrumentProfit
Attributed
to the Parent		Dividends and
Remuneration		Total Stockholders´
Equity		 Financial Assets Measured At Fair Value Through Other Comprehensive IncomeDefined Benefits planTranslation adjustments investment abroadGains and losses - Cash flow hedge and InvestmentTotalNon-controlling
Interests		Total
Stockholders'
Equity
Balance at December 31, 201857,000,00030,377,693(461,432)(1,017,000)12,582,477(6,600,000)91,881,738 1,992,581(3,071,040)859,370(659,774)91,002,875592,58591,595,460
                 
Total comprehensive income----16,406,932-16,406,932 1,352,702(675,497)-115,94917,200,086-17,200,086
Net profit ----16,406,932-16,406,932 ----16,406,932-16,406,932
Other comprehensive income------- 1,352,702(675,497)-115,949793,154-793,154
Financial Assets Measured At Fair Value Through Other Comprehensive Income------- 1,352,702---1,352,702-1,352,702
Pension plans ------- -(675,497)--(675,497)-(675,497)
Gain and loss - Cash flow and investment hedge------- ---115,949115,949-115,949
Appropriation of net income from prior years-12,582,477--(12,582,477)-- -------

Option to Acquire Own Instrument		-(1,598,336)-950,000--(648,336) ----(648,336)-(648,336)
Dividends and interest on capital27.b-(6,600,000)---(4,200,000)(10,800,000) ----(10,800,000)-(10,800,000)
Share based compensation39.b-50,886----50,886 ----50,886-50,886
Treasury shares27.d--(219,703)---(219,703) ----(219,703)-(219,703)
Capital restructuring27.d------- -------
Treasury shares income27.d-5,796----5,796 ----5,796-5,796
Other -58,976----58,976  ---58,976(34,004)24,972
Balance at December 31, 2019 57,000,000 34,877,492(681,135)(67,000)16,406,932(10,800,000)96,736,289 3,345,283(3,746,537)859,370(543,825)96,650,580558,58197,209,161
                 
                    

 Consolidated Financial Statements | December 31, 2020 | F-9

Table of Contents

* Values expressed in thousands, except when indicated.

                 
  Stockholders´ Equity Attributable to the Parent   
     Non-controlling
Interests

Total
Stockholders'
Equity

 NoteShare
Capital		ReservesTreasury
Shares		Option for Acquisition of Equity InstrumentProfit
Attributed
to the Parent		Dividends and
Remuneration		Total Stockholders´
Equity		 Financial Assets Measured At Fair Value Through Other Comprehensive IncomeDefined Benefits planTranslation adjustments investment abroadGains and losses - Cash flow hedge and InvestmentTotal
Balance at December 31, 2019 57,000,00034,877,492(681,135)(67,000)16,406,932(10,800,000)96,736,289 3,345,283(3,746,537)859,370(543,825)96,650,580558,58197,209,161
                 
Total comprehensive income----13,418,529-13,418,529 (1,003,154)555,624-105,15913,076,15932,22413,108,383
Net profit ----13,418,529-13,418,529 ----13,418,52932,22413,450,753
Other comprehensive income------- (1,003,154)555,624-105,159(342,371)-(342,371)
Financial Assets Measured At Fair Value Through Other Comprehensive Income------- (1,003,154)---(1,003,154)-(1,003,154)
Pension plans ------- -555,624--555,624-555,624
Gain and loss - Cash flow and investment hedge------- ---105,159105,159-105,159
Appropriation of net income from prior years-16,406,932--(16,406,932)-- -------

Own Instrument Acquisition Option		-(67,000)-67,000--- -------
Dividends and interest on capital from prior years27.b-(10,800,000)---10,800,000- -------
Dividends and interest on capital27.b& 47-----(3,837,085)(3,837,085) ----(3,837,085)-(3,837,085)
Treasury shares27.d--(110,223)---(110,223) ----(110,223)-(110,223)
Other -(2,443)----(2,443) ----(2,443)(277,920)(280,363)
Balance at December 31, 2020 57,000,00040,414,981(791,358)-13,418,529(3,837,085)106,205,067 2,342,129(3,190,913)859,370(438,666)105,776,987312,885106,089,872
                 
                    

The accompanying Notes are an integral part of these consolidated financial statements,

 Consolidated Financial Statements | December 31, 2020 | F-10

Table of Contents

* Values expressed in thousands, except when indicated.

Consolidated Cash Flow Statements

  Note  2020  2019  2018 
1, Cash Flows From Operating Activities            
Consolidated profit for the year      13,450,753   16,631,450   12,799,918 
Adjustments to profit      (31,268,076)  14,654,879   14,765,404 
Depreciation of tangible assets  12   2,039,805   1,870,836   1,216,704 
Amortization of intangible assets  14   539,322   521,021   523,255 
Impairment losses on other assets (net)      84,908   131,435   508,310 
Provisions and Impairment losses on financial assets (net)      19,106,735   17,051,491   14,713,039 
Net Gains (losses) on disposal of tangible assets, investments and non-current assets held for sale  41&42   (308,176)  (20,489)  (156,258)
Income from companies accounted by the equity method  11   (112,261)  (149,488)  (65,958)
Changes in deferred tax assets and liabilities  23,d  (8,232,869)  (2,912,279)  (1,594,440)
Monetary Adjustment of Escrow Deposits      (219,447)  (574,399)  (664,003)
Recoverable Taxes      (120,220)  (182,469)  (222,402)
Effects of Changes in Foreign Exchange Rates on Cash and Cash Equivalents      —     99   —   
Effects of Changes in Foreign Exchange Rates on Assets and Liabilities      (44,250,466)  (2,609,679)  1,173,757 
Other      204,593   1,528,800   (666,600)
Net (increase) decrease in operating assets      (137,901,127)  (42,332,510)  (79,913,313)
Balance with the Brazilian Central Bank      (21,361)  855   16,629,126 
Financial Assets Measured At Fair Value Through Profit Or Loss      (26,198,034)  11,080,730   (8,791,116)
   Other Financial Assets Measured At Fair Value Through Profit Or Loss      —     —     1,692,154 
Financial Assets Measured At Fair Value Through Profit Or Loss Held for Trading      (41,445,329)  11,831,411   (16,412,738)
Non-Trading Financial Assets Mandatorily Measured at Fair Value Through Profit or Loss      (328,267)  746,024   (419,851)
Financial Assets Measured At Fair Value Through Other comprehensive Income      (14,905,798)  (8,835,552)  (4,323,459)
Financial Assets Measured At Amortized Cost      (80,778,996)  (60,462,247)  (75,906,801)
Other assets      25,776,658   3,306,269   7,619,372 
Net increase (decrease) in operating liabilities      199,305,556   41,219,165   64,293,936 
Financial Liabilities Measured At Fair Value Through Profit Or Loss held for trading      31,578,621   (4,874,323)  1,616,446 
Financial Liabilities Measured At Fair Value Through Profit Or Loss      1,516,522   3,373,359   1,946,056 
Financial liabilities at amortized cost      165,920,919   40,961,046   57,833,935 
Other liabilities      289,494   1,759,083   2,897,499 
Tax paid  23,a  (1,269,150)  (5,301,184)  (3,668,571)
Total net cash flows from operating activities (1)      42,317,956   24,871,800   8,277,374 
                 
2, Cash Flows From Investing Activities                
Investments      (2,019,278)  (3,500,499)  (3,157,796)
Capital increase in Investments in associates and Joint Ventures  11   —     —     (36,051)
Acquisition of subsidiary, less net cash in the acquisition      (13,570)  (746)  (111,224)
Tangible assets  12,a  (1,235,923)  (1,924,783)  (1,394,299)
Intangible assets      (769,785)  (1,519,725)  (1,616,222)
Non - current assets held for sale  10   —     (55,245)  —   
Disposal      856,181   987,164   797,716 
Tangible assets  12&41   47,096   29,911   122,009 
Non - current assets held for sale  10   663,067   808,980   563,607 
Dividends and interest on capital received      146,018   148,273   112,100 
Total net cash flows from investing activities (2)      (1,163,097)  (2,513,335)  (2,360,078)
                 
3, Cash Flows From Financing Activities                
Acquisition of own shares  27d  (110,223)  (219,703)  (312,305)
Issuance of Debt Instruments Eligible to Compose Capital  19   —     —     9,347,750 
Issuance of  other long-term financial liabilities  18   60,047,656   53,017,039   73,765,081 
Dividends and interest on capital paid      (10,280,430)  (6,953,718)  (6,076,073)
Payments of other long-term financial liabilities  18   (82,900,914)  (61,914,716)  (78,903,009)
Payments of subordinated liabilities  19   —     (9,885,607)  (544,566)
Payments of interest of Debt Instruments Eligible to Compose Capital  19   (914,645)  (328,892)  (683,783)
Net increase in non-controlling interests  26   6,842   (14,266)  55,869 
Capital Increase in Subsidiaries, by Non-Controlling Interests      —     100,000   48,000 
Total net cash flows from financing activities (3)      (34,151,714)  (26,199,863)  (3,303,036)
Exchange variation on Cash and Cash Equivalents (4)      —     (99)  —   
Net Increase in Cash (1+2+3+4)      7,003,145   (3,841,497)  2,614,258 
Cash and cash equivalents at beginning of year      21,443,663   25,285,160   22,670,902 
Cach and cash equivalentes at end of year      28,446,808   21,443,663   25,285,160 

The accompanying notes are an integral part of these consolidated financial statements.

 Consolidated Financial Statements | December 31, 2020 | F-11

Table of Contents

* Values expressed in thousands, except when indicated.

  


Notes

 2020 2019 2018
Cash components and cash equivalents        
Central Bank cash and reserves  4   20,148,725   20,127,364   19,463,587 
Loans and other amounts  5   8,298,083   1,316,299   5,821,573 
Total cash and cash equivalents      28,446,808   21,443,663   25,285,160 
                 
Non-monetary transactions                
Loan foreclosures and other assets transferred to non-current assets held for sale  10   445,173   735,864   785,139 
Dividends and interest on equity declared but not paid  27.b  665,000   7,800,000   4,800,000 
                 
Additional information                
Interest received      35,405,636   71,777,476   70,831,205 
Interest paid      (13,973,268)  (27,654,965)  (29,796,455)

 

The accompanying Notes are an integral part of these consolidated financial statements.

 

 Consolidated Financial Statements | December 31, 2020 | F-12

F-8

Table of Contents

 

BANCO SANTANDER (BRASIL) S.A.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Thousand of Brazilian Reais - R$) 

  201920182017
     
Consolidated Profit for the Year 16,631,45012,799,9189,138,048
     
Other Comprehensive Income that will be reclassified subsequently to profit or loss when specific conditions are met: 1,468,651558,9671,194,335
Available-for-sale financial assets --1,147,384
Valuation adjustments - Gains (Losses) --1,789,286
Amounts transferred to income statement --30,694
Income taxes --(672,596)
Financial Assets Measured At Fair Value Through Other Comprehensive Income 1,352,702475,809-
Financial Assets Measured At Fair Value Through Other Comprehensive Income 2,926,285388,481-
Gains (Losses) on financial assets previously classified as available-for-sale and reclassified to the income statement (net) -7,982-
Gains (Losses) on financial assets previously classified as available-for-sale and reclassified to reserves (net) -296,802-
Income taxes (1,573,583)(217,456)-
Cash flow hedges 115,94983,15846,951
Valuation adjustments 270,119140,81173,238
Amounts transferred to income statement 6,767(6,767)-
Income taxes (160,937)(50,886)(26,287)
Other Comprehensive Income that will not be Reclassified to net Income: (675,497)(366,660)(620,903)
Defined benefits plan (675,497)(366,660)(620,903)
Defined benefits plan (1,358,578)(418,768)(992,156)
Income taxes 683,08152,108371,253
     
Total Comprehensive Income 17,424,60412,992,2259,711,480
     
Attributable to the parent 17,200,08612,774,7849,497,496
Attributable to non-controlling interests 224,518217,441213,984
Total Comprehensive Income 17,424,60412,992,2259,711,480

The accompanying Notes are an integral part of these consolidated financial statements. 

F-9

Table of Contents

 

BANCO SANTANDER (BRASIL) S.A.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Thousand of Brazilian Reais - R$) 

                 
  Stockholders´ Equity Attributable to the ParentNon-controlling
Interests		Total
Stockholders'
Equity
     
 NoteShare
Capital		ReservesTreasury
Shares		Option for Acquisition of Equity InstrumentProfit
Attributed
to the Parent		Dividends and
Remuneration		Total Stockholders´
Equity		Financial Assets available for saleFinancial Assets Measured At Fair Value Through Other Comprehensive IncomeDefined Benefits planTranslation adjustments investment abroadGains and losses - Cash flow hedge and InvestmentTotal
Balance at December 31, 2016 57,000,00027,881,326(514,034)(1,017,000)7,334,563(5,250,000)85,434,855666,190-(2,083,477)859,370(789,883)84,087,055725,50484,812,559
                 
Total comprehensive income----8,924,064-8,924,0641,147,384-(620,903)-46,9519,497,496213,9849,711,480
Net profit ----8,924,064-8,924,064-----8,924,064213,9849,138,048
Other comprehensive income-------1,147,384-(620,903)-46,951573,432-573,432
Financial Assets Measured At Fair Value Through Other Comprehensive Income-------1,147,384----1,147,384-1,147,384
Pension plans ---------(620,903)--(620,903)-(620,903)
Gain and loss - Cash flow and investment hedge-----------46,95146,951-46,951
Appropriation of net income from prior years-7,334,563--(7,334,563)----------
Dividends and interest on capital28.b-(5,250,000)---(1,050,000)(6,300,000)-----(6,300,000)-(6,300,000)
Share based compensation40.b-37,161----37,161-----37,161-37,161
Treasury shares28.d-(744,419)365,643---(378,776)-----(378,776)-(378,776)
Capital restructuring --(49)---(49)-----(49)-(49)
Treasury shares income28.d-(2,498)----(2,498)-----(2,498)-(2,498)
Other0-(289,682)----(289,682)-----(289,682)(502,594)(792,276)
Balance at December 31, 2017 57,000,00028,966,451(148,440)(1,017,000)8,924,064(6,300,000)87,425,0751,813,574-(2,704,380)859,370(742,932)86,650,707436,89487,087,601

Change in the initial adoption of IFRS 9		 -(1,245,023)----(1,245,023)(1,813,574)1,516,772---(1,541,825)-(1,541,825)

Balances on January 1, 2018		 57,000,00027,721,428(148,440)(1,017,000)8,924,064(6,300,000)86,180,052-1,516,772(2,704,380)859,370(742,932)85,108,882436,89485,545,776
Total comprehensive income----12,582,477-12,582,477-475,809(366,660)-83,15812,774,784217,44112,992,225
Net profit ----12,582,477-12,582,477-----12,582,477217,44112,799,918
Other comprehensive income--------475,809(366,660)-83,158192,307-192,307
Financial Assets Measured At Fair Value Through Other Comprehensive Income--------475,809---475,809-475,809
Pension plans ---------(366,660)--(366,660)-(366,660)
Gain and loss - Cash flow and investment hedge-----------83,15883,158-83,158
Appropriation of net income from prior years-8,924,064--(8,924,064)----------

Option to Acquire Own Instrument		-106,440----106,440-----106,440(106,440)-
Dividends and interest on capital28.b-(6,300,000)---(300,000)(6,600,000)-----(6,600,000)-(6,600,000)
Share based compensation40.b-(17,854)----(17,854)-----(17,854)-(17,854)
Treasury shares28.d--(312,305)---(312,305)-----(312,305)-(312,305)
Capital restructuring --(687)---(687)-----(687)-(687)
Treasury shares income28.d-(15,868)----(15,868)-----(15,868)-(15,868)
Other -(40,517)----(40,517)- ---(40,517)44,6904,173
Balance at December 31, 2018 57,000,00030,377,693(461,432)(1,017,000)12,582,477(6,600,000)91,881,738-1,992,581(3,071,040)859,370(659,774)91,002,875592,58591,595,460

F-10* Values expressed in thousands, except when indicated.

Table of Contents

 

BANCO SANTANDER (BRASIL) S.A.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Thousand of Brazilian Reais - R$) 

                 
                 
  Stockholders´ Equity Attributable to the ParentNon-controlling
Interests		Total
Stockholders'
Equity
     
 NoteShare
Capital		ReservesTreasury
Shares		Option for Acquisition of Equity InstrumentProfit
Attributed
to the Parent		Dividends and
Remuneration		Total Stockholders´
Equity		Financial Assets available for saleFinancial Assets Measured At Fair Value Through Other Comprehensive IncomeDefined Benefits planTranslation adjustments investment abroadGains and losses - Cash flow hedge and InvestmentTotal
Balance at December 31, 2018 57,000,00030,377,693(461,432)(1,017,000)12,582,477(6,600,000)91,881,738-1,992,581(3,071,040)859,370(659,774)91,002,875592,58591,595,460
                 
Total comprehensive income----16,406,932-16,406,932-1,352,702(675,497)-115,94917,200,086-17,200,086
Net profit ----16,406,932-16,406,932-----16,406,932-16,406,932
Other comprehensive income--------1,352,702(675,497)-115,949793,154-793,154
Financial Assets Measured At Fair Value Through Other Comprehensive Income--------1,352,702---1,352,702-1,352,702
Pension plans ---------(675,497)--(675,497)-(675,497)
Gain and loss - Cash flow and investment hedge-----------115,949115,949-115,949
Appropriation of net income from prior years-12,582,477--(12,582,477)----------

Own Instrument Acquisition Option		-(1,598,336)-950,000--(648,336)-----(648,336)-(648,336)
Dividends and interest on capital28.b-(6,600,000)---(4,200,000)(10,800,000)-----(10,800,000)-(10,800,000)
Share based compensation -50,886----50,886-----50,886-50,886
Treasury shares28.d--(219,703)---(219,703)-----(219,703)-(219,703)
Treasury shares income28.d-5,796----5,796-----5,796-5,796
Other -58,976----58,976-----58,976(34,004)24,972
Balance at December 31, 2019 57,000,00034,877,492(681,135)(67,000)16,406,932(10,800,000)96,736,289-3,345,283(3,746,537)859,370(543,825)96,650,580558,58197,209,161

The accompanying Notes are an integral part of these consolidated financial statements.

F-11

Table of Contents

 

BANCO SANTANDER (BRASIL) S.A.

CONSOLIDATED CASH FLOW STATEMENTS

(Thousand of Brazilian Reais - R$) 

 Note201920182017
1. Cash Flows From Operating Activities    
Consolidated profit for the year 16,631,45012,799,9189,138,048
Adjustments to profit 14,654,87714,765,40417,015,113
Depreciation of tangible assets121,870,8361,216,7041,190,967
Amortization of intangible assets14521,021523,255471,280
Impairment losses on other assets (net) 131,435508,310456,711
Provisions and Impairment losses on financial assets (net) 17,051,49114,713,03915,647,539
Net Gains (losses) on disposal of tangible assets, investments and non-current assets held for sale42&43(20,489)(156,258)324,385
Income from companies accounted by the equity method11(149,488)(65,958)(71,551)
Changes in deferred tax assets and liabilities24.d(2,912,281)(1,594,440)(406,395)
Monetary Adjustment of Escrow Deposits (574,399)(664,003)(637,124)
Recoverable Taxes (182,469)(222,402)(210,834)
Effects of Changes in Foreign Exchange Rates on Cash and Cash Equivalents99--
Effects of Changes in Foreign Exchange Rates on Assets and Liabilities(2,609,679)1,173,75733,691
Other 1,528,800(666,600)216,444
Net (increase) decrease in operating assets (42,332,510)(79,913,313)(16,745,263)
Balance with the Brazilian Central Bank 85516,629,126(7,043,255)
Financial assets held for trading --44,950,707
Financial Assets Measured At Fair Value Through Profit Or Loss 11,080,730(8,791,116)-
  Other Financial Assets Measured At Fair Value Through Profit Or Loss-1,692,15418,988
Financial Assets Measured At Fair Value Through Profit Or Loss Held for Trading11,831,411(16,412,738)-
Non-Trading Financial Assets Mandatorily Measured at Fair Value Through Profit or Loss746,024(419,851)-
Available-for-sale financial assets --(27,214,188)
Financial Assets Measured At Fair Value Through Other Comprehensive Income(8,835,552)(4,323,459)-
Loans and receivables --(30,256,590)
Financial Assets Measured At Amortized Cost (60,462,247)(75,906,801)-
Held to maturity investments --(26,266)
Other assets 3,306,2697,619,3722,825,341
Net increase (decrease) in operating liabilities 41,219,16764,293,93444,163,382
Financial liabilities held for trading --(2,297,323)
Financial Liabilities Measured At Fair Value Through Profit Or Loss held for trading(4,874,323)1,616,446-
Financial Liabilities Measured At Fair Value Through Profit Or Loss 3,373,3591,946,056-
Financial liabilities at amortized cost 40,961,04657,833,93543,702,283
Other liabilities 1,759,0852,897,4972,758,422
Tax paid24.a(5,301,184)(3,668,571)(3,280,230)
Total net cash flows from operating activities (1) 24,871,8008,277,37250,291,050
     
2. Cash Flows From Investing Activities    
Investments (3,500,499)(3,157,794)(2,197,918)
Capital increase in Investments in associates and Joint Ventures11-(36,051)(34,154)
Acquisition of subsidiary, less net cash in the acquisition (746)(111,224)(275,091)
Tangible assets12.a(1,924,783)(1,394,299)(1,106,406)
Intangible assets (1,519,725)(1,616,222)(738,554)
Corporate Restructuring10(55,245)2(43,713)
Disposal 987,164797,716744,913
Capital reduction of investee in joint control11.b---
Tangible assets12&4229,911122,00937,467
Non - current assets held for sale10808,980563,607434,553
Dividends and interest on capital received 148,273112,100272,893
Total net cash flows from investing activities (2) (2,513,335)(2,360,078)(1,453,005)
     
3. Cash Flows From Financing Activities    
Acquisition of own shares28.d(219,703)(312,305)(378,776)
Issuance of Debt Instruments Eligible to Compose Capital20-9,347,750-
Issuance of other long-term financial liabilities1853,017,03973,765,08159,663,420
Dividends and interest on capital paid (6,953,718)(6,076,073)(5,652,081)
Payments of other long-term financial liabilities18(61,914,716)(78,903,009)(97,009,957)
Payments of subordinated liabilities19(9,885,607)(544,566)-
Payments of interest of Debt Instruments Eligible to Compose Capital20(328,892)(683,783)(623,146)
Net increase in non-controlling interests27(14,266)55,869(296,184)
Capital Increase in Subsidiaries, by Non-Controlling Interests27100,00048,000-
Total net cash flows from financing activities (3) (26,199,863)(3,303,036)(44,296,724)
Exchange variation on Cash and Cash Equivalents (4) (99)--
Net Increase in Cash (1+2+3+4) (3,841,497)2,614,2584,541,321
Cash and cash equivalents at beginning of year 25,285,16022,670,90218,129,581
Cash and cash equivalents at end of year 21,443,66325,285,16022,670,902
     
Cash and cash equivalents components    
Cash and Balances With The Brazilian Central Bank420,128,21919,463,58720,642,321
Loans and other51,315,4445,821,5732,028,581
Total of cash and cash equivalents 21,443,66325,285,16022,670,902
     
Non-cash transactions    
Foreclosures loans and other assets transferred to non-current assets held for sale10735,864785,139524,497
Dividends and interest on capital declared but not paid28.b4,800,0004,800,0004,455,000
Supplemental information    
Interest received 71,777,47670,831,20573,094,248
Interest paid (27,654,965)(29,796,455)(37,948,828)

The accompanying Notes are an integral part of these consolidated financial statements.

F-12

Table of Contents

 

BANCO SANTANDER (BRASIL) S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Thousand of Brazilian Reais - R$ - unless otherwise stated) 

 

1.Introduction, basis of presentation of the consolidated financial statements and other information

 

a)Introduction

 

Banco Santander (Brasil) S.A. (Banco Santander or Bank), directly and indirectly controlled by Banco Santander, S.A., headquartered in Spain (Banco Santander Spain), is the lead institution of the Financial and Prudential Conglomerates (Conglomerate Santander) before the Central Bank of Brazil (Bacen), established as a joint-stock corporation, with head office at Avenida Presidente Juscelino Kubitschek, 2041 and 2235 – Building A - Vila Olímpia, in the City of São Paulo, State of São Paulo. Banco Santander operates as a multiple service bank, conducting its operations by means of its commercial, investment, loans, mortgage loans, leasing and foreign exchange portfolios. Through its subsidiaries, also operates in the segments of payments,payment institution, consortium management, of shares’ club, securities andbrokerage, insurance brokerage, operations, capitalization plans, consumer finance, payroll loans, digital platforms, benefit management, recovery and non-performing credit management, capitalization and pension markets private, food and food vouchers, managementfood and recovery of non-performing loans and private pension products.other administration. The operations are conducted withinin the context of a group of institutions that operatesoperate in an integrated manner in the financial market on an lintegrated basis.market. The corresponding benefits and costs of providingcorresponding to the services provided are absorbed between them and are conductedrealized in the normal course of business and under commutativecommuting conditions.

 

The Board of Directors authorized the issuance of the Financial Statements for the year ended on December 31, 2019,2020, at the meeting held on March 6, 2020.February 25, 2021.

 

These Financial Statements and the accompanying documents were the subject of an unqualified report of the Independent Auditors and a recommendation for approval issued by the Company's Audit Committee and a favorable opinion of the Company's Fiscal Council.

 

b)Basis of presentation of the condensed consolidated financial statements

 

The consolidated financial statementsConsolidated Financial Statements have been prepared in accordance with the standards of the International Financial Reporting Standards (IFRS) issued by the AccountantInternational Accounting Standards Board (IASB), and interpretations issued by the IFRSIFRSs Interpretations Committee (current name International Financial Reporting Interpretations Committee - IFRIC). All relevant information specifically related to the financial statements of Banco Santander, and only in relation to these, are being evidenced, and correspond to the information used by Banco Santander in its management.

  

c) Other information

 

c.1) Adoption of new standards and interpretations

 

• IFRS 16- as ofThe following changes to standards were first adopted for the year beginning January 1, 2019, the Bank adopted IFRS 16, which replaces IAS 17.2020:

 

I.·Transition

As permitted by the specific transition provisions, Banco Santander opted to apply the regulations in a retrospective modified manner, the effects of which were applied in January 1, 2019.

The changes in accounting practices resulting from the adoption of IFRS 16 were applied to the right of use assets as part of tangible assets and lease liabilities as other liabilities in the balance sheet.

II.Lease Identification

In adopting IFRS 16, the Bank recognized lease liabilities involving leases that had already been classified as "commercial leases" in accordance with the principles of IAS 17 - Leases.

For the initial application of the standard, the Bank used the following permitted practical expedients:

• The exclusion of the initial direct costs for the measurement of the right to use asset at the date of initial application;

• It was decided not to separate the service provision component embedded in lease agreements; and

• The Bank also decided not to apply IFRS 16 to contracts that were not identified as containing a lease under IAS 17 and IFRIC 4 - Determination as to whether a Contract contains a Lease.

In addition, the following recognition exemptions are also used:

• The accounting of operating leases with a remaining term of less than 12 months as of January 1, 2019 as short-term leases;

• The accounting for operating leases whose underlying asset is of immaterial;

• Until January 1, 2019, leases of fixed assets, in which the Bank as the lessee, held substantially all the risks and benefits of the property, were classified as financial leases. The balances presented are immaterial.

The majority of the lease contracts in which the bank is a lessor relates to real estate and equipment at the branches.

Banco Santander does not have rights-of-use assets that fall within the definition of investment properties

III.Lease term

Lease agreements are formalized, analyzed and negotiated individually and contain a wide range of different terms and conditions. The Bank evaluates the term of the contract, as well as the intention to remain in the real estate. Thus, estimates of terms may vary according to contractual conditions, considering extension options, and also according to legal provisions.

The Bank assumes that the fines for contractual termination charged before the maturity date are not significant.

Lease agreements do not contain restrictive clauses, but leased assets can not be used as collateral for loans.

F-13

Table of Contents

 

BANCO SANTANDER (BRASIL) S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(ThousandMaterial definition: amendments to IAS 1 / CPC 26 “Presentation of Brazilian Reais - R$ - unless otherwise stated) 

the Financial Statements” and IAS 8 / CPC 23 “Accounting Policies, Change in Estimates and Error Correction”

 

IV.·Initial Measurement

In their initial recognition, leases are recognized as a right of use asset and a corresponding liability on the date the leased asset becomes available for use by the Group.

The right of useBusiness definition: changes to be recorded is measured at cost against the lease liability, which represents the present value of the lease payments that are not made to date. Lease payments are discounted using the incremental interest rate incremental borrowing interest rate. There is no onerous contract that required an adjustment in usage rights to be recorded as assets on the date of the initial adoption.

The use rights are measured at amortized cost in accordance with the following:

• The value of the initial measurement of the lease liability;

• Any lease payments made before or on the start date of any incentive received;

• any directly attributed initial cost; and

• Restoration costs, if the requirements of IAS 37 are met for the recording of Provisions, Contingent Liabilities and Contingent Assets.

The recognized rights of use assets related to each type of asset are as follows:

 
 12/31/2018

Adoptions Effects -

IFRS 16

01/01/2019
Real Estate and Properties-2,373,9592,373,959
Data processing systems-91,79191,791
Total-2,465,7502,465,750

The Santander Group uses as an incremental rate the rate of interest that a lessee would have to pay to borrow over a similar term, and with a similar security, the funds necessary to obtain an asset of a similar value to the right-of-use asset in a similar economic environment, by term, guarantee and similar economic scenario, represented in Santander Brasil by the funding cost curve of a risk-free asset, applied individually to each contract according to the estimates projected as the lease term.

Lease liabilities include the net present value of the following lease payments:

• Reduced fixed payments of any incentive;

• Variable payments that are based on a rate or indexer;

• Expected amounts to be paid by the lessee based on the residual value of collateral;

• The exercise price of a call option, if the lessee is reasonably certain about the exercise of the option; and

• Payment of penalties for the termination of the lease if the term of the operation reflects the exercise of the option by the lessee.

In the analysis of the Santander Group's contracts, only contracts with fixed and non-incentive payments or residual guarantee values were identified or the purchase option was embedded, thus, the effects on the accounting of liabilities arising from the initial adoption:

Lease Contracts as of December 31, 2018 -
Operating lease contracts discounted by the incremental interest rate2,203,382
(-) Short-term leases as expenses(19,252)
(+)/(-) Adjustments as a result of a different treatment of the termination dates of the contract281,620
Balance as of January 1, 20192,465,750
Liabilities recognized as of January 1, 2019 - Other financial liabilities2,465,750

Effects on accounting for the year ended on December 31, 2019 due to the initial adoption (there were no impacts on the results of the comparative periods generated by the initial adoption):

01/01 to
12/31/2019
Effects on results arising from the adoption of IFRS 16:
Rental Expense - Other administrative expenses693,660
Asset amortization expenses - Tangible Assets(564,132)
Interest expense on liabilities - Interest and similar income(201,601)
Incremental interest tax effect - Income taxes28,836
Total(43,237)

F-14

Table of Contents

 

BANCO SANTANDER (BRASIL) S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Thousand of Brazilian Reais - R$ - unless otherwise stated) 

Effects on the accounting of the financial liability on the period ended December 31, 2019:

Adoption of IFRS 16 in 01/01/20192,465,750
   New contracts origination267,268
Accrued interests198,433
Renew of the existing contracts422,755
Payments(693,704)
Other movements(61,465)
Financial liability measured at amortized cost – Leasing Contracts as of 12/31/20192,599,037

Below is presented the projected inflation (IGP-M) on December 31, 2019:

Projected IGP-M (annualized)
   Up to 3 months3.29%
From 3 to 12 months3.26%
From to 1 to 3 years2.62%
From 3 to 5 years2.94%
More than 5 years3.21%/ CPC 15 “Business Combination”

 

V.·Subsequent measurementIBOR reform: amendments to IFRS 9 / CPC 48, IAS 39 / CPC 38 and IFRS 7 / CPC 40 - "Financial instruments"

·Revised Conceptual Framework for Financial Reporting

·IBOR reform: changes to IFRS9, IAS39 and IFRS 7 - In September 2019, the IASB changed its IFRS 9 and IAS 39 standards as well as the related disclosure standard, IFRS 7, on some requirements for hedge accounting. The amendments are due to be implemented on January 1, 2020. The amendments modify some specific requirements on hedge accounting in order to provide assurance on the potential effects of the uncertainty caused by the IBOR reform project.

  

After the initial measurement, the values of the assets recorded as right of use are being updated using the cost method, so any accumulated depreciation is deducted monthly, according to the criteria of CPC 27 - Property, Plant and Equipment depreciation of the right-of-use asset and any remeasurement of the lease liability, when applicable.The implementations above did not have a significant impact on these Financial Statements.

  

The initially recorded lease liability is updated monthly by increasing the liability amount of the interest portion of each lease and reducing the amount of monthly lease payments and corrected for any remeasurement lease, when applicable. The majority of the lease contracts in which the bank is a lessor relates to real estate and equipment at the branches.

The lease liability is remeasured, in case of changes in the lease term or in the contract value, the amount resulting from the new determination of the lease liability is recorded as a contra entry to the corresponding right of use asset.

The effects of adopting IFRS 16 impacts exclusively the operating segment Commercial Bank.

•IFRIC 23- Published in June 2017 by the IASB, IFRIC 23 - Uncertainty over Income Tax Treatments on Profit has mandatory application as of January 1, 2019 and aims to clarify procedures for the application of recognition and measurement requirements established in the IAS 12 of Taxes on Profit when there is uncertainty about the treatments to be adopted for the Taxes on Profit.

The Bank carried out analyzes on the procedures already adopted for accounting and presentation of Income Taxes in relation to the content of IFRIC 23 and it was possible to conclude that there are no impacts on the disclosures made up to December 31, 2018, as well as from the adoption of the new standard on January 1, 2019.

StandardsRules and interpretations that will come into effectforce after December 31, 20192020

 

AtAs of the date of preparation of these consolidated financial statements, the following standards and interpretationsrules that have an effective adoption date after December 31, 2019January 1, 2021 and have not yet been adopted by the Bank are:

 

• IFRS 17- In May 2017, the IASB issued the IFRS for insurance contracts to replace IFRS 4. IFRS 17 is scheduled to be implemented January 1, 2021. The purpose

 Consolidated Financial Statements | December 31, 2020 | F-13

Table of this standard is to demonstrate greater transparency and useful informationContents

* Values expressed in condensed financial statements, one of the main changes being the recognition of profits as the delivery of insurance services, in order to evaluatethousands, except when indicated.

·Amendments to IFRS 9, IAS 39 and IFRS 7 "Financial Instruments", IFRS 4 "Insurance Contracts"and IFRS 16 “Leases”: the changes provided for in Phase 2 of the IBOR reform address issues that may affect the financial statements during the reform of a reference interest rate, including the effects of changes in contractual cash flows or hedging relationships resulting from the replacement of a rate with an alternative reference rate (substitution issues). The effective date of application of this amendment is 1st. January 2021. The Group's contracts linked to LIBOR are being reviewed between the parties and will be updated by the respective alternative rates disclosed, plus a spread. Management estimates that the updated cash flows will be economically equivalent to the original, and does not expect material impacts related to this replacement.

·Amendment to IAS 16 "Property, plant and equipment": in May 2020, the IASB issued an amendment that prohibits an entity from deducting from the cost of property, plant and equipment the amounts received from the sale of items produced while the asset is being prepared for its intended use. Such revenues and related costs must be recognized in the income for the year. The effective date of application of this amendment is January 1, 2022.

·Amendment to IAS 37 "Provision, Contingent Liabilities and Contingent Assets": in May 2020, the IASB issued this amendment to clarify that, for the purpose of assessing whether a contract is onerous, the cost of complying with the contract includes the incremental costs of compliance of this contract and an allocation of other costs that are directly related to the fulfillment of it. The effective date of application of this amendment is January 1, 2022.

·IFRS 17 - In May 2017, the IASB issued the IFRS for insurance contracts that aims to replace IFRS 4. IFRS 17 has its implementation date of January 1, 2023. This standard aims to demonstrate greater transparency and useful information in the financial statements, one of the main changes being the recognition of profits as the insurance services are delivered, in order to assess the performance of insurers over time. Banco Santander is evaluating the possible impacts when adopting the standard.

·Amendment to IFRS 3 “Business Combination”: issued in May 2020, with the aim of replacing the references from the old version of the conceptual framework to the most recent one. The amendment to IFRS 3 is effective as of January 1, 2022.

·Annual improvements - 2018-2020 cycle: in May 2020, the IASB issued the following changes as part of the annual improvement process, applicable from the 1st. January 2022:

(i)IFRS 9 - "Financial Instruments" - clarifies which rates should be included in the 10% test for the write-off of financial liabilities.

(ii)IFRS 16 - "Leases" - amendment to example 13 in order to exclude the example of lessor payments related to improvements in the leased property.

(iii)IFRS 1 "Initial Adoption of International Financial Reporting Standards" - simplifies the application of said standard by a subsidiary that adopts IFRS for the first time after its parent company, in relation to the measurement of the accumulated amount of exchange variations.

There are no other IFRS standards or IFRIC interpretations that have not yet come into force that could have a significant impact on the Bank's financial statements.

 

•Amendments to IFRS 9, IFRS 7 and IAS 39 - In September 2019, the IASB changed its IFRS 9 and IAS 39 standards as well as the related disclosure standard, IFRS 7, on some requirements for hedge accounting. The changes were implemented on January 1, 2020. The amendments modify some specific requirements on hedge accounting in order to clarify potential effects of the uncertainty caused by the IBOR reform project. In addition, such changes require entities to provide additional information about their hedge relationships that are directly affected by these uncertainties. Banco Santander concluded that there are no significant impacts as from the adoption of the new standards on January 1, 2020.

c.2) Estimates used

 

The consolidated results and the calculation of consolidated equity are impacted by the accounting policies, assumptions, estimates and measurement methods used by the Bank's directors in the preparation of interim consolidated financial statements. The Bank makes estimates and assumptions that affect the reported amounts of assets and liabilities of future periods. All estimates and assumptions required, in accordance with IFRS,IFRSs, are the management's best estimatesestimate in accordance with the applicable standard.

 

In interimthe consolidated financial statements, estimates are made by management of the Bank and consolidated entities in order to quantify certain assets, liabilities, revenues and expenses and disclosures of explanatory notes.

 

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BANCO SANTANDER (BRASIL) S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Thousand of Brazilian Reais - R$ - unless otherwise stated) 

c.2.1) Critical estimates

The main estimates were discussed in detail for the preparation of the consolidated financial statements as of December 31, 2019. In the exercise ended December 31, 2019, there were no significant changes in the estimates made at the end of the year 2018, in addition to those indicated in these statements financial statements, especially arising from the application of IFRS 16.

 

The critical estimates and assumptions that have the most significant impact on the accounting balances of certain assets, liabilities, revenues and expenses and in the disclosure of explanatory notes, are described below:

 

i. Corporate Income Tax (IRPJ) and Social Contribution on Net Income (CSLL), Social Integration Program (PIS) and Contribution for the Financing of Social Security

The income tax expense is obtained by adding the Income Tax, Social Contribution, PIS and Cofins. Current Income Tax and Social Contribution arise from the application of the respective tax rates on the real income, and the rates of PIS and Cofins applied on the respective calculation basis provided for in the specific legislation, together with the changes in deferred tax assets and liabilities recognized in the consolidated statement of income. The CSLL rate, for banks of any kind, was increased from 15% to 20% effective as of March 1, 2020, pursuant to article 32 of Constitutional Amendment 103, published on November 13, 2019.

Deferred tax assets and liabilities include temporary differences, identified as the amounts expected to be paid or recovered on the differences between the carrying amounts of the assets and liabilities and their respective bases of calculation, and accumulated tax credits and tax losses. These amounts are measured at the rates that are expected to be applied in the period in which the asset is realized or the liability is settled. Deferred tax assets are only recognized for temporary differences to the extent that it is considered probable that the consolidated entities will have sufficient future taxable profits against which the deferred tax assets may be used and the deferred tax assets do not result from the initial recognition (except in one combination of business) of other assets and liabilities in an operation that does not affect either the taxable income or the taxable income. Other deferred tax assets (tax credits and accumulated tax losses) are only recognized if it is considered probable that the consolidated entities will have sufficient future taxable income for them to be used.

The deferred tax assets and liabilities recognized are revalued at the balance sheet date, and the appropriate adjustments are made based on the findings of the analyzes carried out. The expected realization of the Bank's deferred tax assets is based on projections of future results and based on a technical study.

Additional details are in notes 2.aa.

ii. Valuation of the fair value of certain financial instruments

 

Financial instruments are initially recognized at fair value and those that are not measured at fair value through profit or loss are adjusted for transaction costs.

 

Financial assets and liabilities are subsequently measured at the end of each period using valuation techniques. This calculation is based on assumptions, which take into account the Management'smanagement's judgment based on information and market conditions existing at the balance sheet date.

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* Values expressed in thousands, except when indicated.

 

Banco Santander classifies the measurements at fair value using the hierarchy of fair value that reflects the model used in the measurement process, segregating the financial instruments between Levels I, II or III.

 

Additional details are in notes 2.e and 47.c846.c8 of the Consolidated Financial Statementsconsolidated financial statements of December 31, 2019,2020, which present the sensitivity analysis for Financial Instruments.

 

ii. Provisions for losses on credits for impairment

The carrying amount of non-recoverable financial assets is adjusted through the recording of a provision for loss due to “Losses on financial assets (net) - Financial assets measured at amortized cost” in the consolidated income statement. The reversal of previously recorded losses is recognized in the consolidated income statement in the period in which the impairment decreases and can be objectively related to a recovery event.

To individually measure the impairment loss on loans assessed for impairment, the Bank considers the conditions of the counterparty, such as its economic and financial situation, level of indebtedness, ability to generate income, cash flow, management, corporate governance and quality of internal controls, payment history, industry experience, contingencies and credit limits, as well as characteristics of assets, such as their nature and purpose, type, sufficiency and guarantees of liquidity level and total credit value , and also based on the historical experience of impairment and other circumstances known at the time of the valuation.

To measure the impairment loss on loans assessed collectively for impairment, the Bank separates financial assets into groups taking into account the characteristics and similarities of credit risk, that is, according to the segment, type of assets, guarantees and other factors associated with the historical experience of impairment and other circumstances known at the time of the valuation.

iii. IFRS 9 - Financial Instruments:issued in its final format in July 2014, the International Accounting Standards Board (IASB) approved IFRS 9, which replaced IAS 39 Financial Instruments, in accordance with the guidelines defined by the G20 by finance ministers of the world's 20 largest economies) in April 2009, establishing requirements for the recognition and measurement of financial instruments. This standard was adopted from January 1, 2018.

 

Provisions for losses on receivablesiv. Impairment

 

The book value of non-recoverableBank recognizes adjustments for expected credit losses with respect to the following financial assets is adjusted by recording a provision for loss of debit from "Losses on financial assets (net) - Financial assetsinstruments that are not measured at amortized cost" in the consolidated statement of income. The reversal of previously recorded losses is recognized in the consolidated statement of income in the period in which the impairment loss decreases and can be objectively related to a recovery event.fair value through profit or loss:

 

To determine the balance of "Provision for impairment", Banco Santander first assesses whether there is objective evidence of impairment individually for- financial assets that are significant, and individual or collective for non-recoverable financial assets.debt instruments;

 

In order to individually measure the- amounts receivable from leasing;

- financial guarantee contracts issued; and

- loan commitments issued.

No impairment loss is recognized in equity instruments.

The Bank measures the adjustments for losses at an amount equal to the expected credit losses during the expected life, except for the instruments below, for which they are recorded as expected credit losses in 12 months:

- debt instruments that present a low credit risk at the closing date; and

- other financial instruments (except lease receivables) in which the credit risk has not increased substantially since its initial recognition.

Adjustments for losses on loans assessed foramounts receivable from leasing are always measured at an amount equal to the expected credit losses during their useful lives.

Measurement of expected credit losses

The expected credit losses are an estimate weighted by the probability of credit losses. They are measured as follows:

- financial assets not subject to impairment at the closing date: as the present value of all cash shortfalls, that is, the difference between the cash flows due to the entity under the contract and the cash flows that the Bank considersexpects to receive;

- financial assets subject to impairment at the conditionsclosing date: as the difference between the gross book value and the present value of estimated future cash flows;

- loan commitments: as the present value of the counterparty, such as its economicdifference between the contractual cash flows due to the Bank if the commitment is used in full and financial situation, level of indebtedness, income generation capacity,the cash flow, management, corporate governanceflows that the Bank expects to receive; and quality of internal controls, payment history, industry experience, contingencies and credit limits, as well as characteristics of assets, such as their nature and purpose, type, sufficiency and guarantees of liquidity and total credit value , and also based on historical experience of impairment and other circumstances known at the time of valuation.

 

In order- financial guarantee contracts: payments expected to measurereimburse the impairment loss on loans assessed collectively for impairment,holder, less any amounts that the Bank separatesexpects to recover.

Modified assets

If the terms of a financial assets into groups taking into account the characteristics and similarities of credit risk, ie, accordingasset are renegotiated or modified or an existing financial asset is replaced by a new asset due to the segment, type of assets, guaranteesdebtor's financial difficulties, it is necessary to assess whether the financial asset should be written off and other factors associated with the historical experience of impairment and other circumstances known at the time of valuation.

Further detailsexpected credit losses are in note 2.i of the Consolidated Financial Statements of December 31, 2019, which present the sensitivity analysis for Financial Instruments.measured as follows:

 

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BANCO SANTANDER (BRASIL) S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Thousand of Brazilian Reais - R$ - unless otherwise stated) 

Transition* Values expressed in thousands, except when indicated.

 

- If the expected restructuring does not result in a decrease in the existing asset, the expected cash flows from and the modified financial asset are included in the calculation of the cash shortfalls of the existing asset.

- If the expected restructuring results in a write-off of the existing asset, the expected fair value of the new asset is treated as the final cash flow of the existing financial asset at the time of its write-off.

This amount is included in the calculation of cash shortfalls arising from the existing financial asset discounted from the estimated write-off date until the closing date, using the original effective interest rate of the existing financial asset.

Transition:As permitted by the transitional provisions of IFRS 9, the Group chose not to restate comparative figures, upon initial adoption in January 1, 2018. Any adjustments in the carrying amounts of financial assets and liabilities at the transition date were recognized in the initial net income and other reserves of the current period. The Group also opted to continue applying the hedge accounting requirements of IAS 39 in adopting IFRS 9.

 

Financial assets and liabilities

Initial Recognition and Measurement

The Bank initially recognizes loans and advances, deposits, debt securities issued and subordinated liabilities at the dateDetermination of origin.

All other financial instruments (including regular purchases and sales of financial assets) are recognized on the trade date, which corresponds to the date on which the Bank becomes part of the contractual provisions of the instrument.

A financial asset or liability is initially measured at fair value, plus,significant increases in the case of an item not designated at fair value through profit or loss, transaction costs directly attributable to its acquisition or issue.

Ranking

Financial assetscredit risk

 

On initial recognition, aeach balance sheet calculation date, the Bank assesses whether financial asset is classified as measuredassets recorded at amortized cost and debt financial instruments recorded at fair value through Other Comprehensive Income or at fair value through profit or loss.are subject to impairment, as well as other financial instruments subject to that assessment.

 

A financial asset is “subject to impairment” when one or more events that have a negative impact on the estimated future cash flows of the financial asset have occurred.

Evidence that a financial asset is subject to impairment includes the following observable data:

- significant financial difficulty for the debtor or issuer;

- delays in contractual obligations;

- breach of contract, such as default or delay;

- the restructuring of a loan or advance by the Bank under conditions that the Bank would not consider interesting to carry out;

- the likelihood that the debtor will enter bankruptcy or other financial reorganization; or

- the disappearance of an active market for a security due to financial difficulties.

A financial instrument that has been renegotiated due to deterioration in the borrower's condition is generally considered to be subject to impairment, unless there is evidence that the risk of not receiving contractual cash flows has been significantly reduced and there is no no other impairment indicator.

Presentation of the provision for impairment losses in the balance sheet

Provisions for impairment losses are presented in the balance sheet as follows:

- financial assets measured at amortized cost: as a deduction from the gross book value of the assets;

- loan commitments and financial guarantee contracts: as a provision; and

- debt instruments measured at fair value through Other Comprehensive Income: no provision for losses is recognized in the balance sheet, as the book value of these assets corresponds to the fair value.

Individual or collective assessment

An individual measurement of impairment was based on management's best estimate of the present value of cash flows expected to be received. In estimating these cash flows, management exercised judgment as to the financial situation of a debtor and the net realizable value of any underlying guarantee. Each asset reduced to recoverable value was evaluated in relation to its merits, while the test strategy and the estimated cash flows considered recoverable, were approved by the Bank's credit risk officers.

When assessing the need for a collective provision for losses, management considered factors such as credit quality, portfolio size, concentrations and economic factors. In order to estimate the necessary provision, premises were established to define how the inherent losses were modeled and to determine the necessary data parameters, based on historical experience and current economic conditions.

Measurement of impairment

Losses on impairment of assets measured at amortized cost if it meetswere calculated as the following conditionsdifference between the carrying amount and is not designated at fairthe present value through profit or loss:

• The asset is maintained within a business model whose objective is to maintain assets to receive contractual cash flows;

• The contractual terms of the financial asset generate, at specific dates,estimated future cash flows, that refer exclusively to payments of principal anddiscounted at the asset's original effective interest rate. Impairment losses on the principal amount outstanding.

A debt instrument isassets measured at fair value through Other Comprehensive Income if it meetswere calculated as the following conditionsdifference between the book value and is not designatedthe fair value.

Reversal of impairment

For assets measured at amortized cost: If an event that occurred after impairment caused the impairment loss to decrease, the impairment loss was reversed through profit or loss.

For debt securities measured at fair value through Other Comprehensive Income: If, in a subsequent period, the fair value of a debt security reduced to recoverable value has increased and this increase could be objectively linked to an event that occurred after recognition from impairment loss, impairment loss was reversed through profit or loss:loss; otherwise, any increase in fair value was recognized through Other Comprehensive Income.

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* Values expressed in thousands, except when indicated.

Any subsequent recovery in the fair value of an equity instrument measured at fair value through Other Comprehensive Income and reduced to recoverable value was recognized at any time in Other Comprehensive Income.

Below is the reconciliation of shareholders' equity resulting from the initial adoption of IFRS 9:

Reconciliation of Shareholders' Equity
Shareholders' equity before IFRS 9 adjustments - 12/31/201787,087,601
Allowance for loan losses(2,149,051)
Provisions for contingent commitments(674,513)
Remeasurement of assets arising from the new categories17,806
Others237,867
Income taxes and deferred social contribution1,026,066
Shareholders' equity after IFRS 9 adjustments - 01/01/201885,545,776

Information, assumptions and techniques used to estimate the impairment

Classification of financial instruments by stages

The portfolio of financial instruments subject to impairment is divided into three levels, based on the stage of each instrument related to its level of credit risk:

- Stage 1: It is understood that a financial instrument at this stage does not have a significant increase in risk since its initial recognition. The provision on this asset represents the expected loss resulting from possible default over the next 12 months;

- Stage 2: If a significant increase in risk is identified since initial recognition, without materializing deterioration, the financial instrument will be classified within this stage. In this case, the amount referring to the provision for expected loss due to default reflects the estimated loss of the residual life of the financial instrument. To assess the significant increase in credit risk, quantitative measurement indicators used in normal credit risk management will be used, as well as other qualitative variables, such as the indication of being a non-deteriorating operation if considered as refinanced or included operations in a special agreement; and

- Stage 3: A financial instrument is recorded within this stage, when it shows signs of deterioration evident as a result of one or more events that have already occurred and which materialize at a loss. In this case, the amount referring to the provision for losses reflects the expected losses due to credit risk over the expected residual life of the financial instrument.

Impairment estimation methodology

The measurement of impairment loss is performed using the following factors:

- Exposure to Default or EAD: is the value of the transaction exposed to credit risk, including the current balance ratio available that could be provided at the time of default. The models developed incorporate assumptions about changes in the payment schedule for operations.

- Probability of Default (PD): is defined as the probability that the counterparty will be able to fulfill its obligations to pay the principal and / or interest. For the purposes of IFRS 9, both will be considered: PD - 12 months (Stage 1), which is the probability that the financial instrument will default in the next 12 months as well as PD - lifetime (Stages 2 and 3), which considers the probability that the counterparty will default between the balance sheet date and the residual maturity date of the operation. The standard requires that future information relevant to the estimation of these parameters must be considered.

- Loss on Default (LGD): is the resulting loss in the event of default, that is, the percentage of exposure that cannot be recovered in the event of default. It mainly depends on the guarantees associated with the transaction, which are considered as risk mitigation factors associated with each financial credit asset and the expected future cash flows to be recovered. As established in the regulations, future information must be taken into account for its estimation.

- Discount rate: is the rate applied to the estimated future cash flows over the expected life of the asset, to bring them to present value.

In order to estimate the aforementioned parameters, the Bank has applied its experience in the development of internal models for the calculation of parameters for both the regulatory environment and internal management purposes.

Definition of default

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* Values expressed in thousands, except when indicated.

The Bank considers that a financial asset is in default when:

- it is likely that the debtor will not fully pay its credit obligations to the Bank; or

- the debtor presents significant credit obligations to the Bank overdue for more than 90 days, as a general rule.

Overdrafts are considered overdue if the customer breaches a recommended limit or has been granted a limit lower than the current open amount.

When assessing whether a debtor is in default, the Bank considers indicators:

- qualitative - for example, violations of covenants;

- quantitative - for example, overdue status and non-payment of another obligation of the same issuer with the Bank; and

- based on data collected internally and obtained from external sources.

v. Provisions for pension funds

Defined benefit plans are recorded based on an actuarial study, carried out annually by a specialized company, at the end of each year, effective for the subsequent period and are recognized in the consolidated income statement in the Interest and similar expenses and Provisions lines (net).

The present value of the defined benefit obligation is the present value without deducting any plan assets, from the expected future payments necessary to settle the obligation resulting from the employee's service in current and past periods.

Additional details are in note 2.x to the Consolidated Financial Statements of December 31, 2020.

vi. Provisions, assets and contingent liabilities

Provisions for judicial and administrative proceedings are constituted when the risk of loss of the judicial or administrative action is assessed as probable and the amounts involved are measurable with sufficient security, based on the nature, complexity and history of the actions and the opinion of the legal advisors internal and external.

Explanatory note 2.r to the Bank's consolidated financial statements for the year ended December 31, 2020, features information on provisions and contingent assets and liabilities. There were no significant changes in provisions and contingent assets and liabilities of the Bank between December 31, 2019 and December 31, 2020, the date of preparation of these consolidated financial statements.

vii. Goodwill

The goodwill recorded is subject to the impairment test, at least once a year or in a shorter period, in the event of any indication of impairment of the asset.

The basis used for the recoverability test is the value in use and, for this purpose, the cash flow is estimated for a period of 5 years. Cash flow was prepared considering several factors, such as: (i) macroeconomic projections of interest rates, inflation, exchange rate and others; (ii) behavior and growth estimates of the national financial system; (iii) increased costs, returns, synergies and investment plan; (iv) customer behavior; and (v) growth rate and adjustments applied to flows in perpetuity. The adoption of these estimates involves the probability of future events occurring and the alteration of any of these factors could have a different result. The cash flow estimate is based on a valuation prepared by an independent expert annually or whenever there is evidence of a reduction in its recoverable amount, which is reviewed and approved by management.

Further details are in note 13.

viii. Expectation of realization of tax credits

Deferred tax assets and liabilities include temporary differences, identified as the amounts expected to be paid or recovered on differences between the book values of assets and liabilities and their respective calculation bases, and accumulated tax credits and losses and the negative CSLL base. These amounts are measured at the rates expected to be applied in the period in which the asset is realized or the liability is settled. Deferred tax assets are only recognized for temporary differences to the extent that it is considered probable that the consolidated entities will have sufficient future taxable profits against which the deferred tax assets can be used, and the deferred tax assets do not result from the initial recognition (except in a business combination) of other assets and liabilities in an operation that affects neither taxable income nor taxable income. Other deferred tax assets (tax credits and accumulated tax losses) are only recognized if it is considered probable that the consolidated entities will have sufficient future taxable profits to be used.

Deferred tax assets and liabilities recognized are revalued on the date of each balance sheet, making appropriate adjustments based on the findings of the analyzes carried out. The expectation of realization of the Bank's deferred tax assets is based on projections of future results and based on a technical study.

For further details, see note 2.aa to the Consolidated Financial Statements of December 31, 2020.

2.Accounting policies and method of measurement

The accounting policies and method of measurement applied in preparing the consolidated financial statements were as follows:

a) Foreign currency transactions

The financial statements are presented in Brazilian Reais, the functional and reporting currency of Banco Santander and its subsidiaries.

The assets and liabilities and foreign subsidiary are converted to Real as follows:

- Assets and liabilities are translated at the exchange rate at the balance sheets date.

- Revenues and expenses are translated at the monthly average exchange rates.

- Gain and losses on translation of net investment are recorded in the statement of comprehensive income, in “exchange rate of investees located abroad”.

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* Values expressed in thousands, except when indicated.

b) Basis of consolidation

i. Subsidiaries

“Subsidiaries” are defined as entities over which the Bank has control. Control is based on whether the Bank has: i) power over the investee; ii) exposure, or rights, to variable returns from its involvement with the investee; and iii) the ability to use its power over the investee to affect the amount of the returns, as set forth in the law, the Bylaws or agreement.

Consolidation of a subsidiary begins when the Bank obtains control over the subsidiary and ceases when the Bank loses control of the subsidiary. Specifically, income and expense of a subsidiary acquired or disposed during the year are included in the consolidated income statement and other comprehensive income from the date the Bank gains controls until the date when the Bank ceases to control the subsidiary.

Profit or loss and each component of Other Comprehensive Income are attributed to the owners of the Bank and to the non-controlling interests even if the effect is attributed to non-controlling interests. Total comprehensive income of subsidiaries is attributed to the owners of the Bank and to the non-controlling interest even if this generates a negative balance for non-controlling interests. All transactions, balances, income and expenses between the companies of the Santander Group are eliminated in the consolidated financial statements.

Changes in the Santander Group’s interest in a subsidiary that do not result in loss of control are registered as equity transactions. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognized directly in equity and attributed to owners of the Company.

When the Bank loses control of a subsidiary, the profit or loss on disposal is calculated as the difference between (i) the aggregate fair value of the consideration received and the fair value of any retained interest and (ii) the previous carrying amount of the assets (including goodwill), and liabilities of the subsidiary and any non-controlling interests. Amounts previously recognized in other comprehensive income in relation to the subsidiary are registered (i.e. reclassified to income statement or transferred directly to retained earnings) in the same manner as it would be required if the relevant assets or liabilities are disposed of. The fair value of any investment retained in the former subsidiary at the date when control got lost is considered as the fair value on initial recognition for subsequent accounting under IFRS 9 Financial Instruments: Recognition and Measurement or, when applicable, the costs on initial recognition of an investment in an associate or jointly controlled entity.

ii. Interests in joint ventures (jointly controlled entities) and associates

Joint ventures mean interests in entities that are not subsidiaries but which are jointly controlled by two or more unrelated entities. This is evidenced by contractual arrangements whereby two or more entities (“ventures”) acquire interests in entities (jointly controlled entities) so that strategic financial and operating decisions affecting the joint venture require the unanimous consent of the ventures.

Associates are entities over which the Bank is in a position to exercise significant influence (significant influence is the power to participate in the financial and operating decisions of the investee) but it does not control or has joint control over the investee.

In the consolidated financial statements, interest in joint ventures and investments in associates are registered using the equity method, i.e. at the Bank’s share of net assets of the investee, after taking into consideration the dividends received from capital reductions and other related transactions. Relevant information regarding companies registered under the equity method by the Bank is provided in note 11.

iii. Business combinations, acquisitions and disposals

A business combination means the union of two or more individual business or economic business into one single entity or group of entities and is registered in accordance with IFRS 3 - “Business Combinations”.

Business combinations are carried out so that the Bank obtains control over an entity and are recognized for accounting purposes as follow:

  

• The asset is maintained within aBank measures the cost of the business model whose objective is achieved throughcombination, defined as the receiptfair value of contractual cash flowsthe assets offered, the liabilities incurred and the sale of financial assets; andequity instruments issued, if any.

 

• The contractual termsfair values of the assets, liabilities and contingent liabilities of the acquired entity or business, including any intangible assets which might not have been recognized by the acquiree, are estimated at the acquisition date and recognized in the consolidated financial asset generate, at specific dates, cash flows that refer exclusively to paymentsstatement.

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Table of principal and interest on the outstanding principal amount.Contents

* Values expressed in thousands, except when indicated.

 

In• The excess of the acquisition cost over the fair value of the identifiable net assets acquired are recognized as goodwill (note 13). The excess of fair value of the identifiable net assets over the acquisition cost is an advantageous purchase gain and it is recorded as income on the date of the acquisition.

The note 3 includes a description of the most significant transactions carried out in 2020, 2019 and 2018.

viii. Investment Funds

These include investment funds in which the Santander Group companies hold a substantial interest or the entirety of the interests and are therefore exposed to, or have rights, to variable returns and have the ability to affect those returns through power over the fund, in accordance with IFRS 10 - Consolidated Financial Statements and are therefore, consolidated in these financial statements.

c) Definitions and classification of financial instruments

i. Definitions

“Financial instrument” is any contract that gives rise to a financial asset of one entity and, simultaneously, to a financial liability or financial interest of another entity.

“Equity instrument” is any agreement that evidences a residual interest in the asset of the issuing entity after deducting all of its liabilities.

“Financial derivative” is a financial instrument whose value changes in response to the change in an observable market variable (such as an interest rate, foreign exchange rate, financial instrument price, market index or credit rating), whose initial investment is zero or very small compared with other financial instruments with a similar response to changes in market factors, and which is settled at a future date.

“Hybrid financial instruments” are contracts that simultaneously include a non-derivative host contract together with a derivative, known as an embedded derivative, that is not separately transferable and has the effect to make part of the cash flow of the hybrid contract vary similar to a stand-alone derivative.

The following transactions are not treated for accounting purposes as financial instruments:

• Investments in subsidiaries, jointly controlled entities and associates (note 3&11).

• Rights and obligations under employee benefit plans (note 21).

ii. Classification of financial assets for measurement purposes

Financial assets are initially classified into the various categories used for management and measurement purposes, unless they have to be presented as Non-current assets held for sale or they relate to Cash, cash balances at Central Banks and other deposits on demand, Changes in the fair value of hedged items in portfolio hedges of interest rate risk (asset side), Hedging derivatives and Investments, which are reported separately.

Upon initial recognition of an equity instrument not held for trading, the Bank may irrevocably electchoose to present subsequent changes in fair value through Other Comprehensive Income. This option is made considering each investment individually and was not used by the Bank.

All other financial assets are classified as measured at fair value through profit or loss.

In addition, atupon initial recognition, the Bank may irrevocably designate at fair value through profit or loss a financial asset that would otherwise meet the measurement requirements at amortized cost or at fair value through Other Comprehensive Income, if such designation eliminate or substantially reduce an accounting mismatch that maycould exist. This option was not used by the Bank.

 

Financial assets are included for measurement purposes in one of the following categories:

• Financial Assets Measured At Fair Value Through Profit Or Loss Held For Trading: this category includes the financial assets acquired to generate short-term profit resulting from the fluctuation of its prices and financial derivatives not classified as hedging instruments, whose primary business model of the Bank is to trade them frequently.

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* Values expressed in thousands, except when indicated.

• Financial Assets Measured At Fair Value Through Profit Or Loss: this category includes the financial assets that did not meet the pre-established criteria when evaluating the SPPI Test (Solely Payment of Principal and Interest).

• Non-Trading Financial Assets Mandatorily Measured At Fair Value Through Profit Or Loss: this category includes the financial assets that at the time of initial designation was made the fair value option.

• Financial Assets Measured At Fair Value Through Profit Or Loss: are stated at fair value. This category does not include debt instruments classified as “Held-to-maturity investments” or “Financial assets at fair value through profit or loss”, and equity instruments issued by entities other than subsidiaries, associates and jointly controlled entities, provided that such instruments have not been classified as “Financial assets held for trading” or as “Other financial assets at fair value through profit or loss”.

The results rising from changes in fair value are recognized at the Financial Assets Measured At Fair Value Through Other Comprehensive Income line in the Shareholders´ equity except for cumulative impairment losses which are recognized in statement of profit or loss. When the investment is sold or has evidences of decreases on the fair value due to impairment, the previously recognized result at the same Shareholders´ Equity line, mentioned above is reclassified to the statement of profit or loss.

• Financial Assets Measured At Amortized Cost: this category includes financing granted to third parties, based on their nature, irrespective of the type of borrower and the form of financing, including finance lease transactions in which the consolidated entities act as lessors. The entities included in the consolidation have, in general, the intention of maintaining the loans and credits they grant until their final maturity, which, therefore, are presented in the consolidated balance sheet at amortized cost (which includes the necessary adjustments to reflect the estimated impairment losses).

A financial asset is measured at amortized cost if it meets the following conditions and is not designated at fair value through profit or loss:

• The asset is maintained within a business model whose objective is to maintain assets in order to receive contractual cash flows;

• The contractual terms of the financial asset generate, on specific dates, cash flows that refer exclusively to payments of the principal and interest on the principal amount outstanding;

• A debt instrument is measured at fair value through Other Comprehensive Income if it meets the following conditions and is not designated at fair value through profit or loss;

• The asset is maintained within a business model whose objective is achieved by receiving contractual cash flows and by selling financial assets; and

• The contractual terms of the financial asset generate, on specific dates, cash flows that refer exclusively to payments of the principal and interest on the principal amount outstanding.

Business model evaluationassessment

 

The Bank evaluatesassesses the objective of a business model in which an asset is maintained at the portfolio level, foras it better reflectingreflects how the business is managed and what information is provided to Management.management. The information considered includes:comprises:

 

- Defined policiesPolicies and objectives defined for the portfolio and the application of these policies in practice. Including, if Management'sthe Administration's strategy is focused on earning contractual interest income, maintaining a specific interest rate profile, aligning the duration of the assets;

 

- How the portfolio's performance of the portfolio is evaluatedassessed and reported to the Bank's Management;management;

 

- The risks that affect the performance of the business model (and the financial assets held within that business model) and how thosethese risks are managed;

 

- How the business managers of the business are remunerated - for example, if the remuneration is based on the fair value of the managed assets or the contractual cash flows received;

 

- The frequency, volume and timing of sales in priorprevious periods, the reasons for such sales and theiryour expectations about future sales. However, information on sales activity information is not considered in isolation, but as part of an overall assessment of the Bank's stated purpose of managingobjective defined by the Bank to manage financial assets.

 

Financial assets held for trading or managed, whose performance is valued atassessed based on fair value, are measured at fair value through profit or loss, sinceas (i) they are not held to receive contractual cash flows (ii) nor maintainedare they held to receive flows contractual cash flowsflow and sell financial assets.

 

 Consolidated Financial Statements | December 31, 2020 | F-21

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BANCO SANTANDER (BRASIL) S.A.

* Values expressed in thousands, except when indicated.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Thousand of Brazilian Reais - R$ - unless otherwise stated) 

 

AssessmentValuation to determine whether contractual cash flows refer exclusively to payments of principal and interest payments

 

For the purposes of this valuation, "principal"assessment, “principal” is defined as the fair value of the financial asset atupon initial recognition. "Interest"“Interest” is defined as the consideration for the value of the currency over time and for the credit risk associated with the value of the principal amount outstanding forduring a specific period and for other underlyingbasic risks and costs of the borrowings (egloans (for example, liquidity risk and administrative costs), as well as the profit margin.

 

InWhen assessing whether contractual cash flows refer exclusively to payments of principal and interest, the Bank considers the contractual terms of the instrument. This includes assessing whether the financial asset contains a contractual term that could change the term or value of the contractual cash flows soin a way that it would not meet this condition. InWhen carrying out the evaluation,assessment, the Bank considers:

 

- contingent events that would alterchange the valueamount and termtiming of the cash flows;

 

- leverage;

 

- terms of advance payment terms and extension;

 

- terms limitingthat limit the Bank's right to cash flows offrom assets; and

 

- resources that modify the consideration of the currency value of the currency inover time, for example, periodic readjustmentadjustment of interest rates.

 

Reclassificationiii. Classification of financial assets for presentation purposes

Financial assets are classified by nature into the following headings in the consolidated financial statements:

• Cash and balances with the Bacen: cash balances and balances receivable on demand relating to deposits with Bacen and credit institutions.

• Financial Assets Measured At Amortized Cost: includes the debit balances of all credit and loans granted by the Bank, other than those represented by securities, as well as finance lease receivables and other debit balances of a financial nature in favor of the Bank, such as checks drawn on credit institutions, balances receivable from clearing houses and settlement agencies for transactions on the stock exchange and organized markets, bonds given in cash, capital calls, fees and commissions receivable for financial guarantees and debit balances arising from transactions not originating in banking transactions and services, such as the collection of rentals and similar items.

• Loans and other amounts with credit institutions: credit of any nature in the name of financial institutions.

• Loans and advances to clients: includes debit balances of all the remaining credit and loans granted by the Bank, including money market operations through centralized counterparties.

• Debt instruments: bonds and other securities that represent a debt for their issuer, that generate an interest return, and that are in the form of certificates or book entries.

• Equity instruments: Financial instruments issued by other entities, such as shares, which have the nature of equity instruments for the issuer, other than investments in subsidiaries, joint ventures or associates. Investment fund units are included in this item.

• Trading derivatives: includes the fair value in favor of the Bank of derivatives which do not form part of hedge accounting.

• Hedging derivatives: includes the fair value in favor of the Bank of derivatives designated as hedging instruments in hedge accounting.

• Investments in associates and jointly controlled companies: includes the investments made in the share capital of associates and jointly controlled companies.

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* Values expressed in thousands, except when indicated.

iv. Classification of financial liabilities for measurement purposes

Financial liabilities are classified for measurement purposes into one of the following categories:

• Financial Assets At Fair Value Through Profit Or Loss Held for Trading: this category includes financial liabilities incurred for the purpose of generating a profit in the near term from fluctuations in their prices, financial derivatives not designated as hedging instruments, and financial liabilities arising from the outright sale of financial assets acquired under reverse repurchase agreements ("reverse repos") or borrowed (short positions).

• Financial Assets At Fair Value Through Profit Or Loss: financial liabilities are included in this category when they provide more relevant information, either because this eliminates or significantly reduces recognition or measurement inconsistencies (accounting mismatches) that would otherwise arise from measuring assets or liabilities or recognizing the gains or losses on them on different bases, or because a group of financial liabilities or financial assets and liabilities is managed and its performance is evaluated on a fair value basis, in accordance with a documented risk management or investment strategy, and information about the group is provided on that basis to the Group's key management personnel.

• Financial liabilities at amortized cost: financial liabilities, irrespective of their instrumentation and maturity, not included in any of the above-mentioned categories which arise from the ordinary borrowing activities carried on by financial institutions.

v. Classification of financial liabilities for presentation purposes

Financial liabilities are classified by nature into the following items in the consolidated financial statements:

• Deposits from Bacen: deposits of any nature received from Bacen.

• Deposits from credit institutions: deposits of any nature, including credit received and money market operations in the name of credit institutions.

• Client deposits: includes deposits of any nature such as demand deposits, saving deposits and time deposits including money market operation received from client.

• Marketable debt securities: includes the amount of bonds and other debt represented by marketable securities, other than subordinated liabilities.

• Trading derivatives: includes the fair value, with a negative balance for the Bank, of derivatives which do not form part of hedge accounting.

• Short positions: includes the amount of financial liabilities arising from the outright sale of financial assets purchased under reverse repurchase agreements or borrowed.

• Subordinated liabilities: amount of financing received which, for the purposes of payment priority, ranks behind ordinary debt. This category also includes the financial instruments issued by the Bank which, although equity for legal purposes, do not meet the requirements for classification as equity.

• Other financial liabilities: includes the amount of payment obligations having the nature of financial liabilities not included in other items, and liabilities under financial guarantee contracts, unless they have been classified as non-performing.

• Hedging derivatives: includes the fair value of the Bank's liability in respect of derivatives, including embedded derivatives separated from hybrid financial instruments, designated as hedging instruments in hedge accounting.

• Debt Instruments Eligible to Compose Capital: financial instruments issued by other entities, such as shares, with the nature of equity instruments for the issuer, except investments in subsidiaries, jointly controlled entities or associates.

d) Funding, debt notes issued and other liabilities

Funding debt rates and other liabilities Instruments are recognized initially at fair value, considered primarily as the transaction price. They are measured at amortized cost and its expenses are recognized as a financial cost.

Among the liabilities initial recognition methods, it is important to emphasize those compound financial instruments which are classified as such due to the fact that the instruments contain both, a debt instrument (liability) and an embedded equity component (derivative).

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* Values expressed in thousands, except when indicated.

The recognition of a compound instrument consists of a combination of (i) a main instrument, which is recognized as an entity’s genuine liability (debt) and (ii) an equity component (derivative convertible into ordinary share).

The issue of "Notes" must be registered in specific heading liabilities and updated according to the agreed rates and adjusted by the effect of exchange rate variations, when denominated in foreign currency. All remuneration related to these instruments, such as interest and Exchange variation (difference between the functional currency and the currency in which the instrument was named) shall be recognized as expenses for the period, according to the accrual basis.

The relevant details of these issued instruments are described in note 19.

e) Measurement of financial assets and liabilities and recognition of fair value changes

In general, financial assets and liabilities are initially recognized at fair value which, in the absence of evidence to the contrary, is deemed to be the transaction price. Financial instruments not measured at fair value through profit or loss, are adjusted by the transaction costs. Financial assets and liabilities are subsequently measured at each period-end as follows:

i. Measurement of financial assets

 

Financial assets are not reclassified subsequentmeasured at fair value, without deduction of estimated costs of transaction that may be incurred on their disposal, except for loans and receivables, held-to-maturity investments, equity instruments whose fair value cannot be determined in a sufficiently objective manner and financial derivatives that have as equity instruments subject and are settled by delivery of those instruments.

The fair value of a financial instrument on a given date is taken to their initial recognition, exceptbe the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. The most objective and common reference for the fair value of a financial instrument is the price that would be paid for it on an active, transparent and deep market (quoted price or market price).

If there is no market price for a given financial instrument, its fair value is estimated on the basis of valuation techniques commonly used by market participants, according to the specific features of the instrument to be measured and, particularly, the various types of risk associated with it.

All derivatives are recognized in the period afterbalance sheets at fair value from the trade date. If the fair value is positive, they are recognized as assets and if the fair value is negative, they are recognized as liabilities. The changes in the fair value of derivatives from the trade date are recognized in “Gains (losses) on financial assets and liabilities” in the consolidated income statement. Specifically, the fair value of standard financial derivatives included in the portfolios of financial assets or liabilities held for trading is deemed to be their daily quoted price and if, for exceptional reasons, the quoted price cannot be determined on a given date, these financial derivatives are measured using methods similar to those used to measure over the counter “OTC” derivatives.

The fair value of OTC derivatives is taken to be the sum of the future cash flows arising from the instrument, discounted to present value at the date of measurement (“present value” or “theoretical close”) using valuation techniques commonly used by market participants: “net present value” (NPV), option pricing models and other methods.

“Financial Assets Measured At Amortized Cost” and “Held-to-maturity investments” are measured at amortized cost using the effective interest method. “Amortized cost” is the acquisition cost of a financial asset or liability plus or minus, as appropriate, the principal repayments and the cumulative amortization (taken to the income statement) between the difference of the initial cost and the maturity amount. In the case of financial assets, amortized cost furthermore includes any reductions for impairment or uncollectibility. In the case of loans and receivables hedged in fair value hedges, the changes in the fair value of these assets related to the risk or risks being hedged are recognized.

The “effective interest rate” is the discount rate that exactly matches the initial amount of a financial instrument to all its estimated cash flows of all kinds over its remaining life. For fixed rate financial instruments, the effective interest rate coincides with the contractual interest rate established on the acquisition date plus, where applicable, the fees and transaction costs that, because of their nature, form part of their financial return. In the case of floating rate financial instruments, the effective interest rate coincides with the rate of return prevailing in all connections until the next benchmark interest reset date.

Equity instruments whose fair value cannot be determined in a sufficiently objective manner are measured at acquisition cost adjusted, where appropriate, by any related impairment loss.

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* Values expressed in thousands, except when indicated.

Equity instruments whose fair value cannot be calculated in a sufficiently objective manner are measured at acquisition cost, adjusted, as the case may be, to the related impairment losses.

The amounts at which the financial assets are recognized represent, in all material respects, the Bank’s maximum exposure to credit risk at each reporting date. Also, the Bank changeshas received collateral and other credit enhancements to mitigate its business modelexposure to manage financial assets.credit risk, which consist mainly of mortgage guarantees, cash collateral, equity instruments and personal security, assets leased out under leasing and renting agreements, assets acquired under repurchase agreements and securities loans and derivatives.

 

ii. Measurement of financial liabilities

In general, financial liabilities are measured at amortized cost, as defined above, except for those included under “Financial Assets Measured At Fair Value Through Profit Or Loss” and financial liabilities designated as hedge items (or hedging instruments) in fair value hedges, which are measured at fair value.

iii. Recognition of fair value changes

As a general rule, changes in the carrying amount of financial assets and liabilities are recognized in the consolidated income statement, distinguishing between those arising from the accrual of interest and similar items -which are recognized under “Interest and similar income” or “Interest expense and similar charges”, as appropriate - and those arising for other reasons, which are recognized at their net amount in the heading “Gains (losses) on financial assets and liabilities (net)”.

Adjustments due to changes in fair value arising from Available-for-sale financial assets are recognized temporarily in equity in then heading “Other Comprehensive Income”. Items charged or credited to this account remain in the Bank’s consolidated equity until the related assets are written-off, whereupon they are charged to the consolidated income statement.

iv. Hedging transactions

The consolidated entities use financial derivatives for the following purposes: i) to provide these instruments to clients who request them in the management of their market and credit risks; ii) to use these derivatives in the management of the risks of the Bank entities' own positions and assets and liabilities (“hedging derivatives”); and iii) to obtain gains from changes in the prices of these derivatives (“financial derivatives”).

Financial derivatives that do not qualify for hedge accounting are treated for accounting purposes as trading derivatives.

A derivative qualifies for hedge accounting if all the following conditions are met:

1. The derivative hedges one of the following three types of exposure:

a. Changes in the fair value of assets and liabilities due to fluctuations, among other, in the interest rate and/or exchange rate to which the position or balance to be hedged is subject (“fair value hedge”);

b. Changes in the estimated cash flows arising from financial assets and liabilities, commitments and highly probable forecast transactions (“cash flow hedge”);

c. The net investment in a foreign operation (hedge of a net investment in a foreign operation).

2. It is effective in offsetting exposure inherent in the hedged item or position throughout the expected term of the hedge, which means that:

a. At the date of arrangement the hedge is expected, under normal conditions, to be highly effective (prospective effectiveness).

b. There is sufficient evidence that the hedge was actually effective during the whole life of the hedged item or position (retrospective effectiveness).

3. There must be adequate documentation evidencing the specific designation of the financial derivative to hedge certain balances or transactions and how this effective hedge was expected to be achieved and measured, provided that this is consistent with the Bank’s management of own risks.

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* Values expressed in thousands, except when indicated.

The changes in value of financial instruments qualifying for hedge accounting are recognized as follows:

a. In fair value hedges, the gains or losses arising on both the hedging instruments and the hedged items (attributable to the type of risk being hedged) are recognized directly in the consolidated income statement.

b. In cash flow hedges, the effective portion of the change in value of the hedging instrument is recognized temporarily in equity under “Other comprehensive Income - Cash flow hedges” until the forecast transactions occur, when it is recognized in the consolidated income statement, unless, if the forecast transactions result in the recognition of non-financial assets or liabilities, it is included in the cost of the non-financial asset or liability. The ineffective portion of the change in value of hedging derivatives is recognized directly in the consolidated income statement.

c. The ineffective portion of the gains and losses on the hedging instruments of cash flow hedges and hedges of a net investment in a foreign operation are recognized directly under “Gains (losses) on financial assets and liabilities (net)” in the consolidated income statement.

If a derivative designated as a hedge instrument no longer meets the requirements described above due to expiration, ineffectiveness or for any other reason, the derivative is classified as a derivative measured at fair value through profit or loss.

When fair value hedge accounting is discontinued (expired, sold our no longer meet hedge accounting criteria) the adjustments previously recognized on the hedged item are transferred to profit or loss at the effective interest rate re-calculated at the date of hedge discontinuation. The adjustments must be fully amortized at maturity.

When cash flow hedges are discontinued, any cumulative gain or loss on the hedging instrument recognized in equity in the heading "Other comprehensive Income” (from the period when the hedge was effective) remains recognized in equity until the forecast transaction occurs at which time it is recognized in profit or loss, unless the transaction is no longer expected to occur, in which case any cumulative gain or loss is recognized immediately in profit or loss.

For the accounting and disclosure of the hedge accounting structures as of December 31, 2019, the bank used the faculty of IFRS 9, to maintain the practices determined by IAS 39.

f) Settlement of financial assets and liabilities

Derecognition of Financial Assets

 

The Bank derecognizes a financial asset when the contractual rights to the cash flows of the asset expire or when it transfers the rights to the receipt of the contractual cash flows in a transaction in which essentially all the risks and benefits of ownership of the financial asset are transferred or in which the Bank does not transfer or retain substantially all the risks and rewards of ownership of the financial asset and does not control the financial asset.

 

The difference between the carrying amount of the asset (or book value allocated to the portion of the asset disposed) and the sum (i) of the consideration received (including any new assets obtained, less any new liabilities assumed) and (ii) any accumulated gains or losses recognized in "Other Comprehensive Income" is recorded in the income statement.

 

As from the date of the adoption of IFRS, mentioned above, any accumulated gains / losses recognized in "Other Comprehensive Income" in relation to equity instruments designated at fair value through Other Comprehensive Income are not recorded in the statement of income through the write-off of these securities.

 

The Bank carries out transactions in which it transfers the assets recognized in its balance sheet, but maintains all or substantially all the risks and benefits of the assets transferred or part thereof. In these cases, the transferred assets are not downloaded.written off. Examples of such operations include assignments of co-sponsored loan portfolios.

 

In operations in which the Bank does not retain or transfer substantially all the risks and rewards of ownership of a financial asset and hold control of the asset, the Bank continues to recognize the asset in the extent of its continued involvement, determined by the extent to which it is exposed to changes in the value of the transferred asset.

 

Derecognition of Financial Liabilities

The Bank derecognizes a financial liability when its contractual obligations are terminated, canceled or when they expire.

Effective interest rate

The effective interest rate is one that exclusively discounts future cash payments or receipts estimated during the expected life of the financial asset or financial liability at the gross carrying amount of a financial asset (i.e. its amortized cost before any provision for reduction recoverable amount) or the amortized cost of a financial liability. The calculation does not consider expected credit losses and includes transaction costs, premiums or discounts and fees paid or received that are an integral part of the effective interest rate, such as origin taxes.

Changes in financial assets and liabilities

Financial assets

If the terms of a financial asset are modified, the Bank assesses whether the cash flows of the modified asset are substantially different. If the cash flows are substantially different, the contractual rights to the cash flows of the original financial asset will be considered as due. In this case, the original financial asset is written off and a new financial asset is recognized at fair value.

If the cash flows of the modified asset measured at amortized cost are not substantially changed, the change does not result in a derecognition of the financial asset. In this case, the Bank recalculates the gross carrying amount of the financial asset and recognizes the amount resulting from the adjustments to the gross carrying amount as gain or loss of change in profit or loss. If such a change is madeAssets due to the financial difficulties of the debtor, gains or losses are presented together with the impairment losses. In other cases, they are presented as interest income.

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BANCO SANTANDER (BRASIL) S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Thousand of Brazilian Reais - R$ - unless otherwise stated) 

Interest Revenue

Interest income is calculated by applying the effective interest rate to the gross carrying amount of the financial assets, except:

(a) Financial assets acquired or originated with credit impairment, for which the original effective interest rate adjusted to the credit is applied to the amortized cost of the financial asset.

(b) Financial assets that are not acquired or originated with credit impairment, but subsequently presented a default event (or "stage 3"), for which interest income is calculated by applying the effective interest rate to its net amortized cost of the provision.

Equity Instruments

Equity instruments are those that meet the definition of stockholders 'equity from the issuer's point of view, that is, instruments that do not contain a contractual obligation to pay and show a residual interest in the issuer's stockholders' equity. Examples are equity instruments that include common shares.

Generally, all equity instruments are measured at fair value through profit or loss, except where the Bank's management has elected, at the time of initial recognition, the irrevocable designation of an equity investment at fair value through Other Comprehensive Income. The Bank's policy is to designate capital investments as measured at fair value against Other Comprehensive Income when these investments are held for other purposes that do not generate investment returns, in which case the fair value gains and losses are recognized in Other Comprehensive Income and are not subsequently reclassified to profit or loss, including the sale of the asset. Impairment losses (and the reversal of impairment losses) are not accounted for separately from other changes in fair value. With respect to dividends, when they represent a return on such investments, they continue to be recognized in income as other income when the Bank has the right to receive payments.

Gains and losses on investments measured at fair value through profit or loss are included under "Financial Assets measured at fair value through profit or loss" in the Statement of Income.

Financial Liabilities

The Bank derecognizes a financial liability when its terms are modified and the cash flows of the modified liability are substantially different. In this case, a new financial liability is recognized at fair value based on the modified terms. The difference between the carrying amount of the extinguished financial liability and the new financial liability with modified terms is recognized in the income statement.

Offsetting

Financial assets and liabilities are offset and the net amount presented in the balance sheet when, and only when, the Bank currently has a legally enforceable right to offset the amounts and the intention to liquidate them on a net basis, or realize the asset and settle the liability simultaneously.

Revenues and expenses are presented on a net basis only when permitted by IFRSs or for gains or losses resulting from a group of similar operations, such as in the Bank's trading activity.

Measurement at fair value

"Fair value" corresponds to the price that would be received on the sale of an asset or paid in the transfer of a liability in an organized transaction between market participants at the measurement date in the main market or, in the absence thereof, the most advantageous market to which the Bank has access on that date.

When one is available, the Bank measures the fair value of an instrument based on the price quoted in that market for that instrument. A market is considered active if the transactions for the asset or liability occur with sufficient regularity and volume to provide price information on an ongoing basis.

If there is no quoted price in an active market, the Bank uses valuation techniques to maximize the use of relevant observable information and minimize the use of unobservable information. The chosen valuation technique incorporates all the factors that would be considered by the participants of the active market in the price of an operation.

The best evidence of the fair value of a financial instrument, at initial recognition, usually corresponds to the price of the transaction, that is, the fair value of the consideration paid or received. If the Bank determines that the fair value at initial recognition differs from the price of the transaction and the fair value is not evidenced by a price quoted in an active market for an identical asset or liability or based on an assessment technique for which any non-observable information is considered to be irrelevant to the measurement, the financial instrument will initially be measured at fair value, adjusted to defer the difference between the fair value at the initial recognition and the transaction price. This difference is subsequently recognized in profit or loss appropriately based on the life of the instrument, but until the valuation is fully supported by observable market data or the transaction is terminated.

If an asset or liability measured at fair value has a purchase price and a sale price, the Bank measures the assets and the positions purchased at a purchase price and the liabilities and the positions sold at a sale price.

The fair value of a financial liability with a cash demand (for example, a cash deposit) is not less than the amount payable on demand, discounted from the first date on which payment of the amount could be required.

Impairment

The Bank recognizes adjustments for expected credit losses in respect of the following financial instruments that are not measured at fair value through profit or loss:

- financial assets that are debt instruments;

- lease receivables;

- financial guarantee contracts issued; and

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BANCO SANTANDER (BRASIL) S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Thousand of Brazilian Reais - R$ - unless otherwise stated) 

- loan commitments issued.

No impairment loss is recognized in equity instruments.

The Bank measures the impairment adjustments equal to the expected credit losses during the maturity, except for the instruments below, for which they are recorded as expected credit losses in 12 months:

- debt instruments with a low credit risk at the closing date; and

- other financial instruments (other than lease receivables) in which credit risk has not increased substantially since its initial recognition.

Adjustments for losses on lease receivables are always measured at an amount equal to the expected credit losses during the maturity.

Measurement of expected credit losses

Expected credit losses are a probability-weighted estimate of credit losses. They are measured as follows:

- financial assets not subject to impairment at the closing date: as the present value of all cash shortages, ie the difference between the cash flows due to the entity under the contract and the cash flows the Bank expects to receive;

- financial assets subject to impairment at the closing date: as the difference between the gross carrying amount and the present value of the estimated future cash flows;

- loan commitments to be released: as the present value of the difference between the contractual cash flows due to the Bank if the commitment is used in full and the cash flows that the Bank expects to receive; and

- financial guarantee contracts: expected payments to reimburse the holder, less any amounts that the Bank expects to recover.

Modified Assets

If the terms of a financial asset are renegotiated or modified or an existing financial asset is replaced by a new asset due to financial difficulties of the debtor, it is necessary to assess whether the financial asset should be written off and the expected credit losses are measured as follows:

- If the expected restructuring does not result in derecognition of the existing asset, the cash flows expected and arising from the modified financial asset are included in the calculation of the cash deficiencies of the existing asset.

- If the expected restructuring results in a derecognition of the existing asset, the expected fair value of the new asset is treated as the final cash flow of the financial asset existing at the time of its derecognition.

This amount is included in the calculation of the cash insufficiencies arising from the existing financial asset discounted from the estimated date of the derecognition until the closing date, using the original effective interest rate of the existing financial asset.

Determination of significant increases in credit risk

At each balance sheet date, the Bank assesses whether the financial assets carried at amortized cost and the financial instruments at fair value through Other Comprehensive Income are subject to impairment, as well as other financial instruments subject to this assessment.

A financial asset is "subject to impairment" when one or more events that have a negative impact on the estimated future cash flows of the financial asset have occurred.

Evidence that a financial asset is subject to impairment includes the following observable data:

- significant financial difficulty of the debtor or issuer;

- delays in contractual obligations;

- breach of contract, such as defaults or delays;

- the restructuring of a loan or advance by the Bank under conditions which the Bank would not consider as interesting to carry out;

- the likelihood of the debtor going bankrupt or making another financial reorganization; or

- the disappearance of an active market for a security due to financial difficulties.

A financial instrument that has been renegotiated due to deterioration in the condition of the borrower is generally considered to be subject to impairment unless there is evidence that the risk of not receiving the contractual cash flows has been significantly reduced and there is no other indicator of impairment.

Provision for expected credit losses in the balance sheet

Provisions for expected credit losses are presented in the balance sheet as follows:

- financial assets measured at amortized cost: as a deduction from the gross book value of the assets;

- loan commitments and financial guarantee contracts: as a provision; and

- debt instruments measured at fair value through Other Comprehensive Income: no provision for losses is recognized in the balance sheet, since the carrying amount of these assets corresponds to the fair value.

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BANCO SANTANDER (BRASIL) S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Thousand of Brazilian Reais - R$ - unless otherwise stated) 

Objective evidence of impairment

At each closing date, the Bank assesses the existence of objective evidence that financial assets not measured at fair value through profit or loss were reduced in their recoverable value. A financial asset or group of financial assets presents a reduction in its recoverable amount when objective evidence shows that a loss event occurred after the initial recognition of the asset (s) and that the loss event had an impact on the cash flows. cash of the asset (s) that could be estimated safely.

Objective evidence that financial assets have had a decline in their recoverable value include:

- significant financial difficulty of a debtor or issuer;

- default or default by a debtor;

- the restructuring of a loan or advance by the Bank under conditions which the Bank would not consider as interesting to carry out;

- indications that a debtor or issuer could go bankrupt;

- the disappearance of an active market for a security; or

- observable data related to a group of assets, such as adverse changes in the payment status of borrowers or issuers in the group, or economic conditions correlated with default in the group.

Loans that have been renegotiated due to deterioration in the debtor's condition are generally considered as reduced to recoverable value unless there is evidence that the risk of not receiving the contractual cash flows has been significantly reduced and there is no other indicator of impairment.

All loans and advances and securities measured at individually significant amortized cost were subject to a specific impairment test. Loans and advances and securities measured at amortized cost not considered as individually significant were collectively tested for impairment by grouping loans and advances and securities at amortized cost with similar credit risk characteristics.

Individual or collective evaluation

An individual measurement of impairment was based on Management's best estimate of the present value of the cash flows expected to be received. In estimating these cash flows, Management has judged the financial position of a debtor and the net realizable value of any underlying collateral. Each asset reduced to its recoverable value was evaluated for its merits, while the test strategy and estimated cash flows considered to be recoverable were approved by the Bank's credit risk managers.

In assessing the need for a collective provision for losses, management considered factors such as credit quality, portfolio size, concentrations and economic factors. To estimate the necessary provision, assumptions were made to define how inherent losses were modeled and to determine the required data parameters, based on historical experience and current economic conditions.

Measurement of impairment

Impairment losses on assets measured at amortized cost were calculated as the difference between the book value and the present value of the estimated future cash flows, discounted at the effective interest rate of the asset. Impairment losses on assets measured at fair value through Other Comprehensive Income were calculated as the difference between book value and fair value.

Reversal of impairment

For assets measured at amortized cost: If an event occurred after the impairment caused a reduction in the value of the impairment loss, the reduction in the impairment loss was reversed through profit or loss.

For debt securities measured at fair value through Other Comprehensive Income: If, in a subsequent period, the fair value of a debt security reduced to recoverable value has increased and this increase could be objectively tied to an event occurring after recognition of the impairment loss, the impairment loss was reversed through profit or loss; otherwise, any increase in fair value was recognized through Other Comprehensive Income.

Any subsequent recovery in the fair value of an equity instrument measured at fair value through Other Comprehensive Income and reduced to recoverable value was recognized at any time in Other Comprehensive Income.

The reconciliation of stockholders' equity resulting from the initial adoption of IFRS 9 is as follows:

Equity reconciliation
Equity before IFRS 9 adjustments - 12/31/201787,087,601
Allowance for loan losses(2,149,051)
Provision for contingent liabilities(674,513)
Re-measurement of assets arising from the new categories17,806
Others237,867
Deferred tax1,026,066
Equity after IFRS 9 adjustments - 01/01/201885,545,776

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BANCO SANTANDER (BRASIL) S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Thousand of Brazilian Reais - R$ - unless otherwise stated) 

Designation at fair value through profit or loss

Financial assets

At initial recognition, the Bank designated certain financial assets at fair value through profit or loss, as this designation eliminates or significantly reduces accounting mismatch that may arise.

Values of expected credit losses

Information, assumptions and techniques used in the estimation of impairment

Classification of financial instruments by stages

The portfolio of financial instruments subject to impairment is divided into three levels, based on the stage of each instrument related to its level of credit risk:

- Stage 1: It is understood that a financial instrument at this stage does not have a significant increase in risk since its initial recognition. The provision on this asset represents the expected loss resulting from possible default during the next 12 months;

- Stage 2: If a significant increase in risk has been identified since the initial recognition, without materializing deterioration, the financial instrument will be framed within this stage. In this case, the amount referring to the provision for expected loss for delinquency reflects the estimated loss of the residual life of the financial instrument. For the assessment of the significant increase in credit risk, the quantitative measurement indicators used in the normal management of credit risk will be used, as well as other qualitative variables, such as the indication of being an undeveloped operation if considered as refinanced or included operations in a special agreement; and

- Stage 3: A financial instrument is recorded within this stage when it shows signs of deterioration evident as a result of one or more events that have already occurred and which materialize at a loss. In this case, the amount relating to the provision for losses reflects the expected losses due to credit risk over the expected residual life of the financial instrument.

Impairment estimation methodology

The measurement of the expected loss is made through the following factors:

- Exposure at Default or EAD: is the transaction value exposed to credit risk, including the current available balance balance that could be provided at the time of default. The models developed incorporate assumptions about the changes in the payment schedule of operations.

- Probability of Default (PD): is defined as the probability that the counterparty can meet its obligations to pay the principal and / or interest. For the purposes of IFRS 9, both will be considered: PD - 12 months (Stage 1), which is the probability that the financial instrument will default during the next 12 months as well as PD - life time (Stage 2 and 3), which considers the probability that the transaction between in default between the balance sheet date and the residual maturity date of the transaction. The standard requires that future information relevant to the estimation of these parameters should be considered.

- Losses given default (LGD): is the resulting loss in the event of default, that is, the percentage of exposure that can not be recovered in the event of default. It depends mainly on the guarantees associated with the operation, which are considered as risk mitigation factors associated with each credit financial asset and the expected future cash flows to be recovered. As established in the regulations, future information should be taken into account for its estimation.

- Discount rate: is the rate applied to estimated future cash flows over the expected life of the asset, to bring them to present value.

In order to estimate the aforementioned parameters, the Bank has applied its experience in the development of internal models for the calculation of parameters both for the purposes of the regulatory environment and for internal management.

Definition of default

The Bank considers that a financial asset is in a default situation when:

- it is likely that the debtor will not fully pay its credit obligations to the Bank; or

- the debtor has significant credit obligations to the Bank overdue for more than 90 days as a general rule.

Overdrafts are considered past due if the customer violates a recommended limit or has been granted a lower limit than the current outstanding amount.

When assessing whether a debtor is in default, the Bank considers indicators:

- qualitative - eg breaches of covenants;

- quantitative - for example, the status of past due and non-payment of another obligation of the same issuer to the Bank; and

- based on data collected internally and obtained from external sources.

Allowance for losses

The following tables present the reconciliations of the opening and closing balances of the provision for losses by category of financial instrument. The terms expected credit losses in 12 months, expected credit losses during the maturity and impairment losses recoverable amounts are explained in the accounting practices note. The values for December 31, 2017 represent a provision for loan losses and reflect the measurement basis in accordance with IAS 39.

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BANCO SANTANDER (BRASIL) S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Thousand of Brazilian Reais - R$ - unless otherwise stated) 

R$ millionsTotal
Allowance for loan losses - Balance 12/31/201718,261,638
Allowance for guarantees - Balance 12/31/2017312,373
IAS 39 Balance at 12/31/201718,574,011
Initial adoption effect of IFRS 9 (Note 1.2i)2,823,564
IFRS 9 Balance at 01/01/201821,397,575

As of January 1, 2018, the Allowance for Loan Losses balance related to IFRS 9 segregated by stages was represented by: Stage 1 – 20%, Stage 2 – 15% and Stage 3 – 65%. The segregation in stages related December 31, 2019, is in note 9.c.

Financial Assets and Liabilities

A. Classification of Financial Assets and Liabilities at the Initial Adoption of IFRS 9

The table below presents the financial assets classified in accordance with IAS 39 and the new measurement categories in accordance with IFRS 9.

IFRS 9 adoption first adoption effects on the Financial Assets and Liabilities (In R$ Millions)Original classification in accordance with IAS 39Balance 12/31/2017 ReclassificationsRemeasurementBalance
01/01/2018		New classification in accordance with IFRS 9
Financial AssetsIAS 39Loans and receivables355,246,574354,317,416-354,317,416Measured at Amortized cost
492,4295,197497,626Measured Mandatorily Measured At Fair Value Through Profit Or Loss
436,729(7,179)429,550Measured at Fair value through other comprehensive income
Available-for-sale85,823,3844,762,2343,7914,766,025Measured at Amortized cost
79,954,513-79,954,513Measured at Fair value through other comprehensive income
1,106,63715,9971,122,634Measured at Fair value through profit and loss
Held to maturity investments10,214,45410,214,454-10,214,454Measured at Amortized cost
Held for trading86,271,09786,271,097-86,271,097Measured at Fair value through profit and loss Held For Trading
Other financial assets measured at fair value through profit and loss1,692,0571,692,057-1,692,057Measured at Fair value through profit and loss
Total (1)539,247,566539,247,56617,806539,265,372 

(1)Does not include Provision for Losses on contingent liabilities and commitments

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BANCO SANTANDER (BRASIL) S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Thousand of Brazilian Reais - R$ - unless otherwise stated) 

IFRS 9 adoption first adoption effects on the Financial Assets and Liabilities (In R$ Millions) Original classification in accordance with IAS 39Balance 12/31/2017ReclassificationsRemeasurement  Balance
  01/01/2018		 New classification in accordance with IFRS 9
Financial liabilitiesIAS 39 Held for trading49,322,546--49,322,546 Measured At Fair Value Through Profit Or Loss Held For Trading
 Amortized cost478,880,704--478,880,704 Measured at Amortized cost
Total 528,203,250--528,203,250  

iv. Provisions for pension funds

Defined benefit plans are recorded based on an actuarial study performed annually by a specialized company at the end of each year, effective for the subsequent period and are recognized in the consolidated statement of income under Interest and similar expenses and Provisions (net).

The present value of the defined benefit obligation is the present value without deduction of any plan assets from the expected future payments required to settle the obligation resulting from the employee's service in current and past periods.

Additional details are in note 2.x of the Consolidated Financial Statements of December 31, 2019.

v. Provisions, assets and contingent liabilities

Provisions for judicial and administrative proceedings are constituted when the risk of loss of the judicial or administrative action is assessed as probable and the amounts involved are measurable with sufficient security, based on the nature, complexity and history of the actions and the opinion of the legal advisors internal and external.

Explanatory note 2.r to the Bank's consolidated financial statements for the year ended December 31, 2019, features information on provisions and contingent assets and liabilities. There were no significant changes in provisions and contingent assets and liabilities of the Bank between December 31, 2018 and December 31, 2019, the date of preparation of these consolidated financial statements.

vi. Goodwill

The goodwill recorded is subject to the impairment test, at least once a year or in a shorter period, in the event of any indication of impairment of the asset.

The basis used for the recoverability test is the value in use and, for this purpose, the cash flow is estimated for a period of 5 years. Cash flow was prepared considering several factors, such as: (i) macroeconomic projections of interest rates, inflation, exchange rate and others; (ii) behavior and growth estimates of the national financial system; (iii) increased costs, returns, synergies and investment plan; (iv) customer behavior; and (v) growth rate and adjustments applied to flows in perpetuity. The adoption of these estimates involves the probability of future events occurring and the alteration of any of these factors could have a different result. The cash flow estimate is based on a valuation prepared by an independent expert annually or whenever there is evidence of a reduction in its recoverable amount, which is reviewed and approved by Management.

Further details are in note 13.

2.Accounting policies and method of measurement

The accounting policies and method of measurement applied in preparing the consolidated financial statements were as follows:

a) Foreign currency transactions

The financial statements are presented in Brazilian Reais, the functional and reporting currency of Banco Santander and its subsidiaries.

The assets and liabilities and foreign subsidiary are converted to Real as follows:

- Assets and liabilities are translated at the exchange rate at the balance sheets date.

- Revenues and expenses are translated at the monthly average exchange rates.

- Gain and losses on translation of net investment are recorded in the statement of comprehensive income, in “exchange rate of investees located abroad”.

b) Basis of consolidation

i. Subsidiaries

“Subsidiaries” are defined as entities over which the Bank has control. Control is based on whether the Bank has: i) power over the investee; ii) exposure, or rights, to variable returns from its involvement with the investee; and iii) the ability to use its power over the investee to affect the amount of the returns, as set forth in the law, the Bylaws or agreement.

Consolidation of a subsidiary begins when the Bank obtains control over the subsidiary and ceases when the Bank loses control of the subsidiary. Specifically, income and expense of a subsidiary acquired or disposed during the year are included in the consolidated income statement and other comprehensive income from the date the Bank gains controls until the date when the Bank ceases to control the

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BANCO SANTANDER (BRASIL) S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Thousand of Brazilian Reais - R$ - unless otherwise stated) 

subsidiary.

Profit or loss and each component of Other Comprehensive Income are attributed to the owners of the Bank and to the non-controlling interests even if the effect is attributed to non-controlling interests. Total comprehensive income of subsidiaries is attributed to the owners of the Bank and to the non-controlling interest even if this generates a negative balance for non-controlling interests. All transactions, balances, income and expenses between the companies of the Santander Group are eliminated in the consolidated financial statements.

Changes in the Santander Group’s interest in a subsidiary that do not result in loss of control are registered as equity transactions. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognized directly in equity and attributed to owners of the Company.

When the Bank loses control of a subsidiary, the profit or loss on disposal is calculated as the difference between (i) the aggregate fair value of the consideration received and the fair value of any retained interest and (ii) the previous carrying amount of the assets (including goodwill), and liabilities of the subsidiary and any non-controlling interests. Amounts previously recognized in other comprehensive income in relation to the subsidiary are registered (i.e. reclassified to income statement or transferred directly to retained earnings) in the same manner as it would be required if the relevant assets or liabilities are disposed of. The fair value of any investment retained in the former subsidiary at the date when control got lost is considered as the fair value on initial recognition for subsequent accounting under IAS 39 Financial Instruments: Recognition and Measurement or, when applicable, the costs on initial recognition of an investment in an associate or jointly controlled entity.

ii. Interests in joint ventures (jointly controlled entities) and associates

Joint ventures mean interests in entities that are not subsidiaries but which are jointly controlled by two or more unrelated entities. This is evidenced by contractual arrangements whereby two or more entities (“ventures”) acquire interests in entities (jointly controlled entities) so that strategic financial and operating decisions affecting the joint venture require the unanimous consent of the ventures.

Associates are entities over which the Bank is in a position to exercise significant influence (significant influence is the power to participate in the financial and operating decisions of the investee) but it does not control or has joint control over the investee.

In the consolidated financial statements, interest in joint ventures and investments in associates are registered using the equity method, i.e. at the Bank’s share of net assets of the investee, after taking into consideration the dividends received from capital reductions and other related transactions. Relevant information regarding companies registered under the equity method by the Bank is provided in note 11.

iii. Business combinations, acquisitions and disposals

A business combination is the combination of two or more separate entities or economic units into one single entity or group of entities and is registered in accordance with IFRS 3 - “Business Combinations”.

Business combinations are carried out so that the Bank obtains control over an entity and are recognized for accounting purposes as follow:

• The Bank measures the cost of the business combination, defined as the fair value of the assets offered, the liabilities incurred and the equity instruments issued, if any.

• The fair values of the assets, liabilities and contingent liabilities of the acquired entity or business, including any intangible assets which might not have been recognized by the acquiree, are estimated at the acquisition date and recognized in the consolidated financial statement.

• The excess of the acquisition cost over the fair value of the identifiable net assets acquired are recognized as goodwill (note 13). The excess of fair value of the identifiable net assets over the acquisition cost is an advantageous purchase gain and it is recorded as income on the date of the acquisition.

The note 3 includes a description of the most significant transaction carried out in 2018, 2017 and 2016.

iv. Investment Funds

These include investment funds in which the Santander Group companies hold a substantial interest or the entirety of the interests and are therefore exposed to, or have rights, to variable returns and have the ability to affect those returns through power over the fund, in accordance with IFRS 10 - Consolidated Financial Statements and are therefore, consolidated in these financial statements.

c) Definitions and classification of financial instruments

i. Definitions

“Financial instrument” is any contract that gives rise to a financial asset of one entity and, simultaneously, to a financial liability or financial interest of another entity.

“Equity instrument” is any agreement that evidences a residual interest in the asset of the issuing entity after deducting all of its liabilities.

“Financial derivative” is a financial instrument whose value changes in response to the change in an observable market variable (such as an interest rate, foreign exchange rate, financial instrument price, market index or credit rating), whose initial investment is zero or very small compared with other financial instruments with a similar response to changes in market factors, and which is settled at a future date.

“Hybrid financial instruments” are contracts that simultaneously include a non-derivative host contract together with a derivative, known as an embedded derivative, that is not separately transferable and has the effect to make part of the cash flow of the hybrid contract vary similar to a stand-alone derivative.

The following transactions are not treated for accounting purposes as financial instruments:

• Investments in subsidiaries, jointly controlled entities and associates (note 3&11).

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BANCO SANTANDER (BRASIL) S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Thousand of Brazilian Reais - R$ - unless otherwise stated) 

• Rights and obligations under employee benefit plans (note 22).

ii. Classification of financial assets for measurement purposes

Financial assets are initially classified into the various categories used for management and measurement purposes, unless they have to be presented as Non-current assets held for sale or they relate to Cash, cash balances at Central Banks and other deposits on demand, Changes in the fair value of hedged items in portfolio hedges of interest rate risk (asset side), Hedging derivatives and Investments, which are reported separately.

Financial assets are included for measurement purposes in one of the following categories:

• Financial Assets Measured At Fair Value Through Profit Or Loss Held For Trading: this category includes the financial assets acquired to generate short-term profit resulting from the fluctuation of its prices and financial derivatives not classified as hedging instruments, whose primary intention of the Bank is to trade them frequently.

• Financial Assets Measured At Fair Value Through Profit Or Loss: this category includes the financial assets that did not meet the pre-established criteria when evaluating the SPPI Test (Solely Payment of Principal and Interest).

• Non-Trading Financial Assets Mandatorily Measured At Fair Value Through Profit Or Loss: this category includes the financial assets that at the time of initial designation was made the fair value option.

• Other Financial Assets At Fair Value Through Profit Or Loss (applicable for comparatives): this category includes hybrid financial assets not held for trading that are measured entirely at fair value and financial assets not held for trading that are included in this category in order to provide more relevant information, either because this eliminates or significantly reduces recognition or measurement inconsistencies (accounting mismatches) that would otherwise arise from measuring assets or liabilities or recognizing the gains or losses on them on different bases, or because a group of financial assets or financial assets and liabilities is managed and its performance is evaluated on a fair value basis, in accordance with a documented risk management or investment strategy, and information about the group is provided on that basis to the Group's key management personnel.

Financial instruments included in this category (and “Other financial liabilities at fair value through profit or loss”) are permanently subject to a consistent system of measurement, manage and control of all risks and returns that enables all the financial instruments involved to be identified and monitored and allows the effective reduction of risk checked. Financial assets may only be included in this category on the date they are acquired or originated.

• Financial Assets Measured At Fair Value Through Profit Or Loss: are stated at fair value. This category does not include debt instruments classified as “Held-to-maturity investments” or “Financial assets at fair value through profit or loss”, and equity instruments issued by entities other than subsidiaries, associates and jointly controlled entities, provided that such instruments have not been classified as “Financial assets held for trading” or as “Other financial assets at fair value through profit or loss”.

The results rising from changes in fair value are recognized at the Financial Assets Measured At Fair Value Through Other Comprehensive Income line in the Shareholders´ equity except for cumulative impairment losses which are recognized in statement of profit or loss. When the investment is sold or has evidences of decreases on the fair value due to impairment, the previously recognized result at the same Shareholders´ Equity line, mentioned above is reclassified to the statement of profit or loss.

• Financial Assets Measured At Amortized Cost: this category includes financing granted to third parties, based on their nature, irrespective of the type of borrower and the form of financing, including finance lease transactions in which the consolidated entities act as lessors. The consolidated entities generally intend to hold the loans and credits granted by them until their final maturity and, therefore, they are presented in the consolidated balance sheets at their amortized cost (which includes the required adjustments to reflect estimated impairment losses).

• Held-to-maturity investments(applicable for comparatives): this category includes debt instruments traded in an active market, with fixed maturity and with fixed or determinable payments, for which the Bank has both the intention and proven ability to hold to maturity. These investments are measured at amortized cost less any impairment, with revenue recognized on an effective yield basis.

iii. Classification of financial assets for presentation purposes

Financial assets are classified by nature into the following headings in the consolidated financial statements:

• Cash and balances with the Bacen: cash balances and balances receivable on demand relating to deposits with Bacen and credit institutions.

• Financial Assets Measured At Amortized Cost: includes the debit balances of all credit and loans granted by the Bank, other than those represented by securities, as well as finance lease receivables and other debit balances of a financial nature in favor of the Bank, such as checks drawn on credit institutions, balances receivable from clearing houses and settlement agencies for transactions on the stock exchange and organized markets, bonds given in cash, capital calls, fees and commissions receivable for financial guarantees and debit balances arising from transactions not originating in banking transactions and services, such as the collection of rentals and similar items

• Loans and other amounts with credit institutions: credit of any nature in the name of financial institutions.

• Loans and advances to clients: includes debit balances of all the remaining credit and loans granted by the Bank, including money market operations through centralized counterparties.

• Debt instruments: bonds and other securities that represent a debt for their issuer, that generate an interest return, and that are in the form of certificates or book entries.

• Equity instruments: Financial instruments issued by other entities, such as shares, which have the nature of equity instruments for the issuer, other than investments in subsidiaries, joint ventures or associates.

• Trading derivatives: includes the fair value in favor of the Bank of derivatives which do not form part of hedge accounting.

• Hedging derivatives: includes the fair value in favor of the Bank of derivatives designated as hedging instruments in hedge accounting.

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BANCO SANTANDER (BRASIL) S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Thousand of Brazilian Reais - R$ - unless otherwise stated) 

• Investments in associates and jointly controlled companies: includes the investments made in the share capital of associates and jointly controlled companies.

iv. Classification of financial liabilities for measurement purposes

Financial liabilities are classified for measurement purposes into one of the following categories:

• Other Financial Assets At Fair Value Through Profit Or Loss: this category includes financial liabilities incurred for the purpose of generating a profit in the near term from fluctuations in their prices, financial derivatives not designated as hedging instruments, and financial liabilities arising from the outright sale of financial assets acquired under reverse repurchase agreements ("reverse repos") or borrowed (short positions).

• Other Financial Assets At Fair Value Through Profit Or Loss: financial liabilities are included in this category when they provide more relevant information, either because this eliminates or significantly reduces recognition or measurement inconsistencies (accounting mismatches) that would otherwise arise from measuring assets or liabilities or recognizing the gains or losses on them on different bases, or because a group of financial liabilities or financial assets and liabilities is managed and its performance is evaluated on a fair value basis, in accordance with a documented risk management or investment strategy, and information about the group is provided on that basis to the Group's key management personnel.

• Financial liabilities at amortized cost: financial liabilities, irrespective of their instrumentation and maturity, not included in any of the above-mentioned categories which arise from the ordinary borrowing activities carried on by financial institutions.

v. Classification of financial liabilities for presentation purposes

Financial liabilities are classified by nature into the following items in the consolidated financial statements:

• Deposits from Bacen: deposits of any nature received from Bacen.

• Deposits from credit institutions: deposits of any nature, including credit received and money market operations in the name of credit institutions.

• Client deposits: includes deposits of any nature such as demand deposits, saving deposits and time deposits including money market operation received from client.

• Marketable debt securities: includes the amount of bonds and other debt represented by marketable securities, other than subordinated liabilities.

• Trading derivatives: includes the fair value, with a negative balance for the Bank, of derivatives which do not form part of hedge accounting.

• Short positions: includes the amount of financial liabilities arising from the outright sale of financial assets purchased under reverse repurchase agreements or borrowed.

• Subordinated liabilities: amount of financing received which, for the purposes of payment priority, ranks behind ordinary debt. This category also includes the financial instruments issued by the Bank which, although equity for legal purposes, do not meet the requirements for classification as equity.

• Other financial liabilities: includes the amount of payment obligations having the nature of financial liabilities not included in other items, and liabilities under financial guarantee contracts, unless they have been classified as non-performing.

• Hedging derivatives: includes the fair value of the Bank's liability in respect of derivatives, including embedded derivatives separated from hybrid financial instruments, designated as hedging instruments in hedge accounting.

d) Funding, debt notes issued and other liabilities

Funding debt rates and other liabilities Instruments are recognized initially at fair value, considered primarily as the transaction price. They are subsequently measured at amortized cost and its expenses are recognized as a financial cost.

Among the liabilities initial recognition methods, it is important to emphasize those compound financial instruments which are classified as such due to the fact that the instruments contain both, a debt instrument (liability) and an embedded equity component (derivative).

The recognition of a compound instrument consists of a combination of (i) a main instrument, which is recognized as an entity’s genuine liability (debt) and (ii) an equity component (derivative convertible into ordinary share).

The issue of "Notes" must be registered in specific heading liabilities and updated according to the agreed rates and adjusted by the effect of exchange rate variations, when denominated in foreign currency. All remuneration related to these instruments, such as interest and Exchange variation (difference between the functional currency and the currency in which the instrument was named) shall be recognized as expenses for the period, according to the accrual basis.

The relevant details of these issued instruments are described in note 20.

e) Measurement of financial assets and liabilities and recognition of fair value changes

In general, financial assets and liabilities are initially recognized at fair value which, in the absence of evidence to the contrary, is deemed to be the transaction price. Financial instruments not measured at fair value through profit or loss, are adjusted by the transaction costs. Financial assets and liabilities are subsequently measured at each period-end as follows:

i. Measurement of financial assets

Financial assets are measured at fair value, without deduction of estimated costs of transaction that may be incurred on their disposal, except for loans and receivables, held-to-maturity investments, equity instruments whose fair value cannot be determined in a sufficiently objective manner and financial derivatives that have as equity instruments subject and are settled by delivery of those instruments.

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BANCO SANTANDER (BRASIL) S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Thousand of Brazilian Reais - R$ - unless otherwise stated) 

The fair value of a financial instrument on a given date is taken to be the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. The most objective and common reference for the fair value of a financial instrument is the price that would be paid for it on an active, transparent and deep market (quoted price or market price).

If there is no market price for a given financial instrument, its fair value is estimated on the basis of valuation techniques commonly used by the international financial community, according to the specific features of the instrument to be measured and, particularly, the various types of risk associated with it.

All derivatives are recognized in the balance sheets at fair value from the trade date. If the fair value is positive, they are recognized as assets and if the fair value is negative, they are recognized as liabilities. The changes in the fair value of derivatives from the trade date are recognized in “Gains (losses) on financial assets and liabilities” in the consolidated income statement. Specifically, the fair value of standard financial derivatives included in the portfolios of financial assets or liabilities held for trading is deemed to be their daily quoted price and if, for exceptional reasons, the quoted price cannot be determined on a given date, these financial derivatives are measured using methods similar to those used to measure over the counter “OTC” derivatives.

The fair value of OTC derivatives is taken to be the sum of the future cash flows arising from the instrument, discounted to present value at the date of measurement (“present value” or “theoretical close”) using valuation techniques commonly used by the financial markets: “net present value” (NPV), option pricing models and other methods.

“Financial Assets Measured At Amortized Cost” and “Held-to-maturity investments” are measured at amortized cost using the effective interest method. “Amortized cost” is the acquisition cost of a financial asset or liability plus or minus, as appropriate, the principal repayments and the cumulative amortization (taken to the income statement) between the difference of the initial cost and the maturity amount. In the case of financial assets, amortized cost furthermore includes any reductions for impairment or uncollectibility. In the case of loans and receivables hedged in fair value hedges, the changes in the fair value of these assets related to the risk or risks being hedged are recognized.

The “effective interest rate” is the discount rate that exactly matches the initial amount of a financial instrument to all its estimated cash flows of all kinds over its remaining life. For fixed rate financial instruments, the effective interest rate coincides with the contractual interest rate established on the acquisition date plus, where applicable, the fees and transaction costs that, because of their nature, form part of their financial return. In the case of floating rate financial instruments, the effective interest rate coincides with the rate of return prevailing in all connections until the next benchmark interest reset date.

Equity instruments whose fair value cannot be determined in a sufficiently objective manner are measured at acquisition cost adjusted, where appropriate, by any related impairment loss.

The amounts at which the financial assets are recognized represent, in all material respects, the Bank’s maximum exposure to credit risk at each reporting date. Also, the Bank has received collateral and other credit enhancements to mitigate its exposure to credit risk, which consist mainly of mortgage guarantees, cash collateral, equity instruments and personal security, assets leased out under leasing and renting agreements, assets acquired under repurchase agreements and securities loans and derivatives.

ii. Measurement of financial liabilities

In general, financial liabilities are measured at amortized cost, as defined above, except for those included under “Financial Assets Measured At Fair Value Through Profit Or Loss” and “Other financial liabilities at fair value through profit or loss” and financial liabilities designated as hedge items (or hedging instruments) in fair value hedges, which are measured at fair value.

iii. Recognition of fair value changes

As a general rule, changes in the carrying amount of financial assets and liabilities are recognized in the consolidated income statement, distinguishing between those arising from the accrual of interest and similar items -which are recognized under “Interest and similar income” or “Interest expense and similar charges”, as appropriate - and those arising for other reasons, which are recognized at their net amount in the heading “Gains (losses) on financial assets and liabilities (net)”.

Adjustments due to changes in fair value arising from Available-for-sale financial assets are recognized temporarily in equity in then heading “Other Comprehensive Income”. Items charged or credited to this account remain in the Bank’s consolidated equity until the related assets are written-off, whereupon they are charged to the consolidated income statement.

iv. Hedging transactions

The consolidated entities use financial derivatives for the following purposes: i) to provide these instruments to clients who request them in the management of their market and credit risks; ii) to use these derivatives in the management of the risks of the Bank entities' own positions and assets and liabilities (“hedging derivatives”); and iii) to obtain gains from changes in the prices of these derivatives (“financial derivatives”).

Financial derivatives that do not qualify for hedge accounting are treated for accounting purposes as trading derivatives.

A derivative qualifies for hedge accounting if all the following conditions are met:

1. The derivative hedges one of the following three types of exposure:

a. Changes in the fair value of assets and liabilities due to fluctuations, among other, in the interest rate and/or exchange rate to which the position or balance to be hedged is subject (“fair value hedge”);

b. Changes in the estimated cash flows arising from financial assets and liabilities, commitments and highly probable forecast transactions (“cash flow hedge”);

c. The net investment in a foreign operation (hedge of a net investment in a foreign operation).

2. It is effective in offsetting exposure inherent in the hedged item or position throughout the expected term of the hedge, which means that:

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BANCO SANTANDER (BRASIL) S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Thousand of Brazilian Reais - R$ - unless otherwise stated) 

a. At the date of arrangement the hedge is expected, under normal conditions, to be highly effective (prospective effectiveness).

b. There is sufficient evidence that the hedge was actually effective during the whole life of the hedged item or position (retrospective effectiveness).

3. There must be adequate documentation evidencing the specific designation of the financial derivative to hedge certain balances or transactions and how this effective hedge was expected to be achieved and measured, provided that this is consistent with the Bank’s management of own risks.

The changes in value of financial instruments qualifying for hedge accounting are recognized as follows:

a. In fair value hedges, the gains or losses arising on both the hedging instruments and the hedged items (attributable to the type of risk being hedged) are recognized directly in the consolidated income statement.

b. In cash flow hedges, the effective portion of the change in value of the hedging instrument is recognized temporarily in equity under “Other comprehensive Income - Cash flow hedges” until the forecast transactions occur, when it is recognized in the consolidated income statement, unless, if the forecast transactions result in the recognition of non-financial assets or liabilities, it is included in the cost of the non-financial asset or liability. The ineffective portion of the change in value of hedging derivatives is recognized directly in the consolidated income statement.

c. The ineffective portion of the gains and losses on the hedging instruments of cash flow hedges and hedges of a net investment in a foreign operation are recognized directly under “Gains (losses) on financial assets and liabilities (net)” in the consolidated income statement.

If a derivative designated as a hedge instrument no longer meets the requirements described above due to expiration, ineffectiveness or for any other reason, the derivative is classified as a derivative measured at fair value through profit or loss.

When fair value hedge accounting is discontinued (expired, sold our no longer meet hedge accounting criteria) the adjustments previously recognized on the hedged item are transferred to profit or loss at the effective interest rate re-calculated at the date of hedge discontinuation. The adjustments must be fully amortized at maturity.

When cash flow hedges are discontinued, any cumulative gain or loss on the hedging instrument recognized in equity in the heading "Other comprehensive Income” (from the period when the hedge was effective) remains recognized in equity until the forecast transaction occurs at which time it is recognized in profit or loss, unless the transaction is no longer expected to occur, in which case any cumulative gain or loss is recognized immediately in profit or loss.

For the accounting and disclosure of the hedge accounting structures as of December 31, 2019, the bank used the faculty of IFRS 9, to maintain the practices determined by IAS 39.

f) Settlement of financial assets and liabilitiesCredit Assignment

  

The accounting treatment of transfers of financial assets depends on the extent to which the risks and rewards associated with the transferred assets are transferred to third parties:

 

1. If the Bank transfers substantially all the risks and rewards to third parties-unconditional sale of financial assets, sale of financial assets under an agreement to repurchase them at their fair value at the date of repurchase, sale of financial assets with a purchased call option or written put option that is deeply out of the money, securitization of assets in which the transferor does not retain a subordinated debt or grant any credit enhancement to the new holders, and other similar cases, the transferred financial asset is derecognized and any rights or obligations retained or created in the transfer are recognized simultaneously.

 

2. If the Bank retains substantially all the risks and rewards associated with the transferred financial asset -sale of financial assets under an agreement to repurchase them at a fixed price or at the sale price plus interest, a securities lending agreement in which the borrower undertakes to return the same or similar assets, and other similar cases, the transferred financial asset is not derecognized and continues to be measured by the same criteria as those used before the transfer. However, the following items are recognized:

 

a. An associated financial liability, for an amount equal to the consideration received; this liability is subsequently measured at amortized cost.

 

b. The income from the transferred financial asset not derecognized and any expense incurred on the new financial liability.

 

3. If the Bank neither transfers or retains substantially all the risks and rewards associated with the transferred financial asset - sale of financial assets with a purchased call option or written put option that is not deeply in or out of the money, securitization of assets in which the transferor retains a subordinated debt or other type of credit enhancement for a portion of the transferred asset, and other similar cases, the following distinction is made:

 

a. If the transferor does not retain control of the transferred financial asset, the asset is derecognized and any rights or obligations retained or created in the transfer are recognized.

 

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* Values expressed in thousands, except when indicated.

b. If the transferor retains control, it continues to recognize the transferred financial asset for an amount equal to its exposure to changes in value and recognizes a financial liability associated with the transferred financial asset. The net carrying amount of the transferred asset and the associated liability is the amortized cost of the rights and obligations retained, if the transferred asset is measured at amortized cost, or the fair value of the rights and obligations retained, if the transferred asset is measured at fair value.

Derecognition of Financial Liabilities

The Bank derecognizes a financial liability when its contractual obligations are terminated, canceled or when they expire.

  

g) Offsetting of financial instruments

 

Financial asset and liability balances are offset (i.e. reported in the consolidated balance sheets at their net amount) only if the Bank and their subsidiaries currently have a legally enforceable right to set off the recognized amounts and intend either to settle on a net basis, or to realize the asset and settle the liability simultaneously.

 

Offsetting Agreements and Obligations Settlement (CMN Resolution 3.263/2005) - The Bank has an agreement for the clearing and settlement of obligations under the National Financial System (SFN), signed with individuals and legal entities, whether or not members

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BANCO SANTANDER (BRASIL) S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Thousand of Brazilian Reais - R$ - unless otherwise stated) 

of the SFN, resulting in higher financial settlement guarantee, with the parties that have this modality of agreement. These agreements establish that payment obligations to Banco Santander arising from credit and derivative operations, in the event of default by the counterparty, will be offset against Banco Santander's payment obligations with the counterparty.

 

The following table provides details of financial assets and liabilities subject to offsetting at December 31, 2020, 2019 2018 and 2017:2018:

 

Thousand of reais     2020
Assets: Financial assets, gross Financial assets
offset in the balance sheet, gross		 Financial assets
offset in the balance sheet, net
Derivatives  29,431,287   (560,666)  28,870,621 
             

Thousand of reais2019
Assets: Financial assets, gross Financial assets
offset in the balance sheet, gross		 Financial assets
offset in the balance sheet, net
Derivatives20,904,663(458,929)20,445,734
Repurchase agreements28,717,976-28,717,976

 

Liabilities: Financial liabilities, gross Financial liabilities
offset in the balance sheet, gross		 Financial liabilities
offset in the balance sheet, net
Derivatives22,888,906(458,929)22,429,977
Repurchase agreements103,124,238-103,124,238

Liabilities: Financial liabilities, gross Financial liabilities
offset in the balance sheet, gross		 Financial liabilities
offset in the balance sheet, net
Derivatives  32,540,604   (560,666)  31,979,938 
             

 

Thousand of reais2018
Assets: Financial assets, gross Financial assets
offset in the balance sheet, gross		 Financial assets
offset in the balance sheet, net
Derivatives18,667,611(304,165)18,363,446
Repurchase agreements44,836,491-44,836,491

Liabilities: Financial liabilities, gross Financial liabilities
offset in the balance sheet, gross		 Financial liabilities
offset in the balance sheet, net
Derivatives18,771,000(304,165)18,466,835
Repurchase agreements101,647,013-101,647,013

Thousand of reais2017
Assets: Financial assets, gross Financial assets
offset in the balance sheet, gross		 Financial assets
offset in the balance sheet, net
Derivatives17,262,888-17,262,888
Repurchase agreements34,505,671-34,505,671

Liabilities: Financial liabilities, gross Financial liabilities
offset in the balance sheet, gross		 Financial liabilities
offset in the balance sheet, net
Derivatives16,677,486-16,677,486
Repurchase agreements97,421,579-97,421,579

Thousand of reais     2019
Assets: Financial assets, gross Financial assets
offset in the balance sheet, gross		 Financial assets
offset in the balance sheet, net
Derivatives  20,904,663   (458,929)  20,445,734 
             

 

h) Regular way of financial assets purchases

Regular way of financial assets purchases are recognized on trade date. The assets are settled when the rights to receive cash flows have expired or the Bank has transferred substantially all the risks and rewards of ownership.

Liabilities: Financial liabilities, gross Financial liabilities
offset in the balance sheet, gross		 Financial liabilities
offset in the balance sheet, net
Derivatives  22,888,906   (458,929)  22,429,977 
             

 

 Consolidated Financial Statements | December 31, 2020 | F-27

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BANCO SANTANDER (BRASIL) S.A.

* Values expressed in thousands, except when indicated.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Thousand of Brazilian Reais - R$ - unless otherwise stated) 

 

i)

Thousand of reais 2018
Assets: Financial assets, gross Financial assets
offset in the balance sheet, gross		 Financial assets
offset in the balance sheet, net
Derivatives  18,667,611   (304,165)  18,363,446 
             

Liabilities: Financial liabilities, gross Financial liabilities
offset in the balance sheet, gross		 Financial liabilities
offset in the balance sheet, net
Derivatives  18,771,000   (304,165)  18,466,835 
             

h) Impairment of financial assets

 

i. Definition

 

A financial asset is considered impaired when there is objective evidence that events have occurred which:

 

• Give rise to an adverse impact on the future cash flows that were estimated at the transaction date, in the case of debt instruments (loans and debt securities);

 

• In the case of equity instruments, mean that their carrying amount may not be fully recovered.

 

• Arising from the violation of terms of loans, and

 

• During the Bankruptcy process.

 

As a general rule, the adjustment of the value of the impaired financial instruments is recognized in the consolidated income statement for the period in which the impairment becomes evident, and the reversal, if any, of previously recognized impairment loss is recognized in the consolidated income statement for the period in which the impairment is reversed or reduced.

 

ii. Debt instruments carried at amortized cost

 

The amount of an impairment loss incurred for determination of the recoverable amount on a debt instrument measured at amortized cost is equal to the difference between its carrying amount and the present value of its estimated future cash flows (excluding future credit losses that have not been incurred) discounted the original effective interest rate of the financial asset (or the effective interest rate computed at initial recognition), and is presented as a reduction of the asset balance and recorded in income statements.

 

In estimating the future cash flows of debt instruments the following factors are taken into account:considered:

 

• All the amounts that are expected to be obtained over the remaining life of the instrument, in this case, the provided guarantees. The impairment loss takes into accountconsiders the likelihood of collecting accrued interest receivable.

 

• The various types of risk to which each instrument is subject; and

 

• The circumstances in which collections will foreseeably be made.

 

These cash flows are subsequently discounted using the instrument's effective interest rate.

 

Specifically, in regards to recoverable amount losses resulting from materialization of the insolvency risk of the obligors (credit risk), a debt instrument is impaired due to insolvency when there is evidence of a deterioration of the obligor's ability to pay, either because it is in arrears or for other reasons.

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* Values expressed in thousands, except when indicated.

 

The Bank has certain policies, methods and procedures for covering its credit risk arising from insolvency allocable to counterparties.

 

These policies, methods and procedures are applied in the granting, in the examination and to document debt instruments, and contingent liabilities and commitments, the identification of their recoverable amount and the calculation of the amounts necessary to cover the related credit risk.

 

The procedures applied in the identification, measurement, control and reduction of the exposure to credit risk, are based on an individual basis or grouped by similarity.

 

• Clients with individual management: Wholesale clients, financial institutions and certain companies. Risk management is performed through an analysis complemented by tools to support the decision-making based in internal risk assessment.

 

• Clients with standardized management: individuals and companies not classified as individual clients. Risk management models based on automated decision-making and risk assessment procedure, complemented, when the model is not comprehensive or accurate enough, by teams of analysts specialized in this type of risk. The credits related to clients standardized, are usually considered not recoverable when they have historical loss experience and delaydelinquency greater than 90 days.

 

Regarding the provision for impairment losses from credit risk, the Bank evaluates all loans. Loans are either individually or collectively evaluated for impairment. Loans accounted as amortized cost, which are not individually evaluated for impairment, are collectively evaluated for impairment, grouping them considering the similarity of risk. Loans individually evaluated for impairment are not included in balances that are collectively evaluated for impairment.

The Bank first assesses whether objective evidence of impairment loss individually for financial assets are individually significant, and individually or collectively for financial assets are not individually significant.

 

To measure the impairment loss on loans individually evaluated for impairment, the Bank considers the conditions of the borrower, such as his economic and financial situation, level of indebtedness, ability to generate income, cash flow , management, corporate governance and quality of internal controls, payment history, industry expertise, contingencies and credit limits, as well as characteristics of assets, such as their nature and purpose, type, sufficiency and liquidity level guarantees and total amount of credit, as well as based on historical experience of impairment and other circumstances known at the moment of evaluation.

 

To measure the impairment loss on loans collectively evaluated for impairment, the Bank segregates financial assets into groups considering the characteristics and similarity of credit risk, in other words, according to segment, the type of assets, guarantees and other factors associated as the historical experience of impairment and other circumstances known at the time of assessment.

 

In some cases, the observable data required to estimate the amount of an impairment loss on a financial asset may be limited or no longer fully relevant to current circumstances.

 

In such cases, an entity uses its experienced judgment to estimate the amount of any impairment loss. Similarly, an entity uses its experienced judgment to adjust observable data for a group of financial assets to reflect current circumstances.

 

The impairment loss is calculated by using statistical models that consider the following factors:

 

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BANCO SANTANDER (BRASIL) S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Thousand of Brazilian Reais - R$ - unless otherwise stated) 

Exposure at default (EAD) is the amount of risk exposure at the date of default by the counterparty. The timing of default is considered in the PD measurement.

 

In accordance with IFRS,IFRSs, the exposure at default used for this calculation is the current exposure, as reported in the balance sheets.

 

• Probability of default, or “PD”, is the probability of the borrower failing to meet its principal and/or interest payment obligations.

 

PD is measured using a time horizon of one year;year when the transaction is at stage one or for the life time of the transaction, when the it is at stages 2 or 3; that is, it quantifies the probability of the borrower default in the coming year.default. A loan will be defaulted if either the principal or interest become past due by ninety days or more or the loan is active but there are doubts about the solvency of the counterparty (subjective doubtful assets).

 

• LossesLoss is given default, or “LGD”, is the loss arising in the event of default.

 

LGD calculation is based on the net charge offs on defaulted loans, taking into accountconsidering the guarantees/collateral associated with the loans, the income and expenses associated with the recovery process and the timing of default.

 

• In addition, prior to loans be written-off (which is only done after the Bank have completed all recovery efforts and after about 360 days late), it is registered fully provision of the loan´s remaining balance so this provision (allowance for loan losses) fully covers the losses. Thus, the Bank concludes that its loan loss allowance methodology has been developed to meet its risk metrics and capture loans that could potentially become impaired.

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* Values expressed in thousands, except when indicated.

 

iii. Debt or equity instruments classified as financial assets measured at fair value through other comprehensive income

 

The difference between the amortized cost and fair value of debt or equity instruments classified as available for sale are recorded in equity under "Other Comprehensive Income."

 

When there is objective evidence that the aforementioned differences are due to a prolonged decline in fair value, they are no longer recognized in equity and are reclassified, at the cumulative amount at that date, to the consolidated income statement. Losses from a prolonged decline in fair value relating to an investment in equity instruments are not reversed in subsequent periods.

 

j)i) Repurchase agreements

 

Purchases (sales) of financial instruments under a non-optional resale (repurchase) agreement at a fixed price (repos) are recognized in the consolidated financial statements as financing granted (received), based on the nature of the debtor (creditor), under Loans and advances with Bacen, Loans and advances to credit institutions or Loans and advances to clients (Deposits from Bacen, Deposits from credit institutions or Client deposits).

 

Differences between the purchase and sale prices are recognized as interest over the duration of the contract.

 

k)j) Accounting for leases

 

i. Financial leases

 

Financial leases, until December 31, 2018, are leases that transfer substantially all the risks and rewards incidental to ownership of the leased asset to the lessee. From January 1, 2019, see note 1.c.1.

 

When the consolidated entities act as the lessors of an asset, the sum of the present value of the lease payments receivable from the lessee, including the exercise price of the lessee’s purchase option at the end of the lease term when such exercise price is sufficiently below fair value at the option date such that it is reasonably certain that the option will be exercised, is recognized as lending to third parties and is therefore included under Financial Assets Measured At Amortized Cost in the consolidated financial statements.

 

The finance income arising from these contracts is credited in the heading “Interest and similar income” in the consolidated income statement in order to achieve a constant rate of return over the deadline of the lease.

 

k) Accounting for Leases - IFRS 16

As of January 1, 2019, the Bank adopted IFRS 16, which replaces IAS 17.

I.Transition

As permitted by the specific transition provisions, Banco Santander has chosen to apply the rules in a modified retrospective manner, the effects of which were applied on January 1, 2019.

The changes in accounting practices resulting from the adoption of IFRS 16 have been applied to assets under right of use as part of tangible assets and lease liabilities as other liabilities in the balance sheet.

II.Lease Identification

In adopting IFRS 16, the Bank recognized lease liabilities involving leases that had already been classified as “commercial leases” in accordance with the principles of IAS 17 - Leases.

For the initial application of the standard, the Bank used the following practical procedures allowed:

• The exclusion of initial direct costs for measuring the right-of-use asset on the initial application date;

• It was decided not to separate the service provision component embedded in leasing contracts; and

• The Bank also decided not to apply IFRS 16 to contracts that were not identified as containing a lease under IAS 17 and IFRIC 4 - Determination of whether a Contract contains a Lease.

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* Values expressed in thousands, except when indicated.

Additionally, the following recognition exemptions are also being used:

• Accounting for operating leases with a remaining term of less than 12 months on January 1, 2019 as short-term leases;

• Accounting for operating leases whose underlying asset is of low value;

• Until January 1, 2019, leases of fixed assets, in which the Bank, as a lessee, held substantially all the risks and benefits of ownership were classified as finance leases. The balances presented are immaterial.

The Bank leases various properties and equipment. Predominantly, the assets subject to the lease agreements are real estate deals referring to the agencies.

Banco Santander does not have any rights of use assets that fall within the definition of investment properties.

III.Lease term

The lease agreements are formalized, analyzed and renegotiated individually and contain a wide range of different terms and conditions. The Bank assesses the term of the contract, as well as the intention to remain in the properties. Thus, the term estimates may vary according to the contractual conditions, considering extension options, and also according to legal provisions.

The Bank assumes that fines for contract termination collected before the due date do not make up a significant portion.

The lease agreements do not contain restrictive clauses, but the leased assets cannot be used as collateral for loans.

IV.Initial Measurement

In their initial registration, leases are recognized as a right-of-use asset and a corresponding liability on the date that the leased asset becomes available for use by the Group.

The use right to be registered is measured at cost against the lease liability, which represents the present value of lease payments that have not been made to date. The lease payments are discounted using the incremental interest rate on the lessee's loan. There is no onerous contract that required an adjustment to the usage rights to be recorded as assets on the date of initial adoption.

Usage rights are measured at amortized cost in accordance with the following:

• The value of the initial measurement of the leasing liability;

• Any lease payments made before or on the reduced start date of any incentive received;

• Any initial cost directly allocated; and

• Restoration costs, if the requirements of IAS 37 are met for the recording of Provisions, Contingent Liabilities and Contingent Assets.

Grupo Santander uses as an incremental rate the interest rate that it would have to pay when borrowing the necessary resource to obtain the asset with a value similar to the asset under the lease, for term, guarantee and similar economic scenarios, represented in Santander Brasil, by the curve of funding cost (funding) of a free asset, applied individually to each contract according to the projected estimates for the lease term.

Lease liabilities include the net present value of the following lease payments:

• Reduced fixed payments for any incentive;

• Variable payments that are based on a rate or index;

• Amounts expected to be paid by the lessee based on the residual value of guarantees;

• The exercise price of a call option, if the lessee is reasonably certain about the exercise of the option; and

• Penalty payments for terminating the lease if the term of the transaction reflects the exercise of the option by the lessee.

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* Values expressed in thousands, except when indicated.

Below is presented the projected inflation (IGP-M) on December 31, 2020:

Projected IGP-M (annualized)
   Up to 3 months26.1%
From 3 to 12 months5.3%
From 1 to 3 years4%
From 3 to 5 years4%
More than 5 years4%

V.Subsequent measurement

After the initial measurement, the values of the assets recorded as rights of use are being updated using the cost method, so any accumulated depreciation is deducted monthly, in accordance with the criteria of IAS 16/ CPC 27 - Property, Plant and Equipment in the depreciation of the right of use asset. use and corrected any remeasurement of the lease liability, when applicable.

The lease liability initially recorded is updated by monthly increasing the liability amount of the interest installment of each lease and reducing the amount of monthly lease payments and adjusted for any lease remeasurements, when applicable.

The lease liability is remeasured, in the event of changes in the lease term or the contract value, the amount resulting from the new determination of the lease liability is recorded against the corresponding asset in use right.

The rights of use are subject of impairment test.

The effects of adopting IFRS 16 have an impact exclusively on the operating segment - Banco Comercial.

l) Non-current assets held for sale

 

“Non-current assets held for sale”Impairment losses” includes the carrying amount of individual items or disposal groups or items forming part of a business unit earmarked for disposal (“Discontinued operations”), whose sale in their present condition is highly probable and is expected to occur within one year, the property or other non-current assets received by the consolidated entities as total or partial settlement of their debtors' payment obligations to them are deemed to be non-current assets held for sale through the completion of actions which normally occurs up to one year.

 

Non-current assets held for sale are measured at the lower of fair value less costs to sell and their carrying amount at the date of classification in this category. These assets held for sale are not depreciated.

 

Impairment losses on an asset or disposal group arising from a reduction in its carrying amount to its fair value (less costs to sell) are recognized in the heading “Gains (losses) on disposal and expenses of non-current assets held for sale not classified as discontinued operations” in the consolidated income statement. The gains on a non-current asset held for sale resulting from subsequent increases in fair value (less costs to sell) increase its carrying amount and are recognized in the consolidated income statement up to an amount equal to the impairment losses previously recognized.

 

m) Residual maturity periods and average interest rates

 

The analysis of the maturities of the balances of certain items in the consolidated financial statements at December 31, 2020, 2019 2018 and 20172018 is provided in note 44-d.43-d.

 

n) Tangible assets

 

“Tangible assets” includes the amount of buildings, land, furniture, vehicles, computer hardware, right-of-use of assets and other fixtures owned by the Bank, including tangible assets received by the Bank in full or partial satisfaction of financial assets representing receivables from third parties which are intended to be held for continuing use and tangible assets acquired under finance leases are presented at acquisition cost, less the related accumulated depreciation and any impairment losses (net carrying amount higher than recoverable

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BANCO SANTANDER (BRASIL) S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Thousand of Brazilian Reais - R$ - unless otherwise stated) 

amount).

 

Depreciation is calculated, using the straight-line method, on the basis of the acquisition cost of the assets less their residual value. The land on which the buildings and other structures are located has an indefinite life and, therefore, it is not depreciated.

 

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* Values expressed in thousands, except when indicated.

The tangible asset depreciation charge is recognized in the consolidated income statement and is calculated basically using the following depreciation rates (based on the average years of estimated maturityuseful life of the various assets):

 

           Annual
Rate
            
Buildings for own use          4%
Furniture          10%
Fixtures          10%
Office and IT equipment          20%
Leasehold improvements      10% or up to contractual maturity

 

The Bank assesses at end of each reporting period, if there is indication that the items of tangible assets carrying amount may be impaired, that is if there is an asset with its carrying amount bigger than its recoverable amount, either for use or sale.

 

Once an impairment loss of tangible assets is identified, it is adjusted to reach its recoverable amount by recognizing an impairment loss recorded in the heading "Impairment loss on other assets (Net)". Additionally the value of depreciation of that asset is recalculated in order to adjust the value of the life of the asset.

 

In case of evidence or indication of a recovery of a tangible asset value, the Bank recognizes the reversal of the impairment loss amount recorded in prior years and should adjust the future depreciation expenses according to the lifetime value of the asset. Under no circumstance, a reversal of impairment loss of an asset will increase its carrying amount higher than the amount that it would have had no impairment loss been recognized in prior years.

 

Upkeep and maintenance expenses relating to property, plant and equipment for own use are recognized as an expense in the period in which they are incurred.

 

o) Intangible assets

 

Intangible assets are identifiable non-monetary assets (separable from other assets) without physical substance which arise as a result of a legal transaction or software development. Only assets whose cost can be estimated reliably and from which the consolidated entities consider it probable that future economic benefits will be generated are recognized.

 

Intangible assets are recognized initially at acquisition or production cost and are subsequently measured deducting any accumulated amortization and any accumulated impairment losses.

 

i. Goodwill

 

In the acquisition and/or merger of investment in subsidiary, any difference between the investment cost and the investor's share in net fair value of assets, liabilities and contingent liabilities of the investee (subsidiary or affiliate) is accounted for in accordance with IFRS 3 "Business Combination ".

 

Goodwill is only recognized when it has been acquired for consideration and represents, therefore, a payment made by the acquirer in anticipation of future economic benefits from assets of the acquired entity that are not capable of being individually identified and separately recognized.

 

At the end of eachOn an annual reporting periodbasis or whenever there is any indication of impairment goodwill is reviewed for impairment (i.e. a reduction in its recoverable amount to below its carrying amount) and, if there is any impairment, the goodwill is written down with a charge to Impairment on non financial assets (net) - Intangible assets in the consolidated income statement.

 

The net fair value adjustments of assets, liabilities and contingent liabilities of the investee in relation to their carrying amount are allocated to individual identifiable assets acquired and liabilities assumed that comprise them based on their respective fair values ​​at the date of purchase.

 

In the case of a business combination made in stages, prior interest in the acquired is measured again at fair value at the acquisition date when control of the acquired is obtained.

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* Values expressed in thousands, except when indicated.

 

ii. Other intangible assets

 

Other intangible assets are non-monetary assets without physical substance. Generally arising from software development and acquisition of rights that can generate benefits for the Bank. They can have characteristics of definite or indefinite period.

 

Other intangible assets can have an indefinite maturityuseful life -when, based on an analysis of all the relevant factors, it is concluded that there is no foreseeable limit to the period over which the asset is expected to generate net cash inflows for the consolidated entities- or a finite maturity,useful life, in all other cases.

 

Intangible assets with indefinite maturityuseful lives are not amortized, but rather atamortized. At the end of each reportingaccounting period or whenever there is any indication of impairment the consolidated entitiesentity review the remaining maturity of theintangible asset classification as with indefinite useful live, in case this classification is maintained these assets in orderare subject to determine whether they continue to be indefinite and, if this is not the case, to take the appropriate steps.annual impairment test (IAS36).

 

Intangible assets with finite maturityuseful lives are amortized over those maturityuseful lives using methods similar to those used to depreciate tangible assets. The amortization expense is recognized under "Depreciation and amortization" in the consolidated income statement.

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BANCO SANTANDER (BRASIL) S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Thousand of Brazilian Reais - R$ - unless otherwise stated) 

 

The Bank assesses at the end of each period, if there is any indication that the items of intangible assets may present an impairment loss, i.e. an asset that presents the carrying amount higher than the net realizable value. After identifying any reduction in impairment loss, it is adjusted to reach its fair value.

 

Measurement of the recoverable amount of other intangible assets - software is made based on the value in use, as well as the analysis of the discontinuity of the asset in relation to the activities of the Bank.

 

Expenditures for acquisition and development of software are amortized over a maximum period of 5 years.

 

p) Other assets

 

Other Assets include the balances of all prepayments and accrued income (excluding accrued interest), acquired client list, the net amount of the difference between pension plan obligations and the fair value of the plan assets with a balance on the entity’s behalf, when this net amount shall be disclosed in the consolidated financial statements, and the amount of any other assets not included in other items.

 

The Bank uses the value in use of client relationship as a basis for measuring the impairment since it is not reasonably possible to determine the net value of sales, because there is no basis for making a reliable estimate of the value to be obtained by selling the asset in a transaction at cumulative basis, between knowledgeable, willing parties. The value in use of client lists acquired related to the purchase of the "payroll" will be determined individually. An analysesanalysis that aims to demonstrate the expectation of generating future economic benefit and the present value of expected cash flows is prepared by the business areas. Quarterly, these analyses are reviewed based on the actual cash flows of each business (value in use), which are compared with the carrying amount, checking whether there is a need to record a loss on non-recoverability.

 

q) Liabilities for insurance contracts

 

The liabilities for insurance contracts are comprised substantially by actuarial provisions for current and future benefits (PMBaC and PMBC). Insurance contracts are contracts under which the Bank accepts a significant risk, other than a financial risk, from a policyholder by agreeing to compensate the beneficiary on the occurrence of an uncertain future event by which the policyholder will be adversely affected.

 

Insurance liabilities are recognized when the contract is entered into and the premiums are charged. Contracts that have been classified as insurance are not reclassified subsequently.reclassified. The liability is derecognized when the contract expires or is cancelled.

 

All valuation methods used by the subsidiaries are based on the general principle that the carrying amount of the net liability must be sufficient to meet any reasonably foreseeable obligation resulting from the insurance contracts. Investment assumptions are either determined by the local regulator and based on management’s future expectations. In the later case, the anticipated future investment yield is set by management, considering the available market information and economic indicators. A significant assumption related to estimated gross profits on variable annuities, is the annual long-term growth rate of the underlying assets.

 

At each financial statement date an assessment is made in order to verify whether the actuarial provisions are adequate.

 

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* Values expressed in thousands, except when indicated.

In the years ended December 31, 2020, 2019 2018 and 2017,2018, as determined by IFRS 4 - Contracts classification and subsequent amendments, the adequacy of the technical provisions constituted were evaluated through Liability Adequacy Test (LAP)(LAT).

 

At December 31, 2019,2020, the LAT indicated the need for the additional constitution of technical provisions amounted to R$215,754285,554 (12/31/2019 - R$357,539 and 12/31/2018 - R$130,307 and 12/31/2017 - R$85,395)215,754) for Indemnity Funds for Benefit (FGB) plans.

 

r) Provisions for legal and administrative proceedings, commitments and other provisions

 

Banco Santander and its subsidiaries are involved in lawsuits and administrative proceedings related to tax, labor and civil, in the normal course of their activities.

 

The provisions include legal obligations, lawsuits and administrative proceedings related to tax and social security obligations, whose object is to challenge their legality or constitutionality, regardless of the assessment that the probability of success, the amounts are fully recognized in the financial statements.

 

Provisions are reviewed at each financial statement date and adjusted to reflect the current best estimate and may be fully or partially reversed or reduced when the outflows of resources and obligations relevant to the process are no longer probable, including decay of legal deadlines, among others.

 

Provisions for the lawsuits and administrative proceedings are recorded when their risk of loss is considered probable and the amounts can be reliably measured, based on the nature, complexity and history of lawsuits, the legal opinion of the internal and external advisors, based on the best available information. For those lawsuits for which the risk of loss is possible, are not recorded and the information is disclosed in the financial statements and for the lawsuits for which the risk of loss is remote, no disclosure is required.

 

Contingent assets are not recognized, except when there are guarantees or favorable lawsuits decisions, about which features no longer fit, characterizing the gain as practically certain. Assets with probable success, if any, are only disclosed in the financial statements.

 

On the favorable decisions to Santander, the counterparty has the right, in the event of specific legal requirements, to file a rescission lawsuit within a period determined by current legislation. Rescission lawsuits are considered as new events and will be evaluated for contingent liability purposes if and when they are filed.

 

s) Other liabilities

 

“Other liabilities” includes the balance of all accrued expenses and deferred income, excluding accrued interest, and the amount of any other liabilities not included in other categories.

 

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BANCO SANTANDER (BRASIL) S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Thousand of Brazilian Reais - R$ - unless otherwise stated) 

t) Share-based compensation

 

The Bank has long-term compensation plans with vesting conditions. The main vesting conditions are: (1) service conditions, since it is necessary that the participant continues to be employed by the Bank during the term of the Plan for his rights to vest; (2) performance conditions, since the number of Units that ultimately vest will be determined according to the result of certain performance parameter of the Bank, such as: total Shareholder Return (TSR) and may be reduced in case of failure to achieve the goals of reducing the Return on Risk Adjusted Capital (RORAC), comparison between actual and budget in each year, as determined by the Board of Directors and (3) market conditions, since some parameters are linked to the market price of the Bank´s shares. The Bank measures the fair value of the services rendered by reference to the fair value of the equity instruments granted at the grant date, taking into accountconsidering the market conditions for each plan when estimating the fair value.

 

Settlement in shares

 

The Bank measures the fair value of the services received by reference to the fair value of the equity instruments granted at the grant date, taking into accountconsidering the market conditions for each grant when estimating the fair value. In order to recognize the personnel expenses against equity reserves throughout the vesting period, as the services are received, the Bank considers the treatment of service conditions and recognize the amount for the services received during the vesting period based on the best available estimate of the number of equity instruments expected to vest. Semi-annually, the Bank reviews the estimate of the number of equity instruments expected to vest.

 

Settlement in cash

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* Values expressed in thousands, except when indicated.

 

For cash-settled share-based compensation (in the form of share appreciation rights), the Bank measures the fair value of services rendered and the corresponding liability incurred, based on the fair value of the share appreciation rights at the grant date and until the liability is settled. The Banks remeasures the fair value of the liability at the end of each reporting period and at the date of settlement, with any changes in fair value recognized in profit or loss for the period. In order to recognize the personnel expenses against a provision in “other liabilities” throughout the vesting period, reflecting the period as the services are received, the Bank bases the total liability on the best estimate of the number of share appreciation rights that will vest at the end of the vesting period and recognizes the amount for the services received during the vesting period based on such best available estimate. Periodically, the Bank reviews such estimate of the number of share appreciation rights that will vest at the end of vesting period.

 

u) Recognition of income and expenses

 

The most significant criteria used by the Bank to recognize its income and expenses are summarized as follows:

 

i. Interest income, interest expenses and similar items

 

Interest income, interest expenses and similar items are generally recognized on an accrual basis using the effective interest method.

 

ii. Commissions, fees and similar items

 

Fees and commission income and expenses are recognized in the income statement using criteria that vary according to their nature (note 35)34). The main criteria are as follows:

 

• Fee and commission income and expenses relating to financial assets and financial liabilities measured at fair value through profit or loss are recognized when paid;

 

• Those arising from transactions or services that are performed over a period of time are recognized over the life of these transactions or services; and

 

• Those relating to services provided in a single act are recognized when the single act has been performed.

 

iii. Non-financial income and expenses

These are recognized for accounting purposes on an accrual basis.

iv. Deferred collections and payments

 

These are recognized for accounting purposes at the amount resulting from discounting the expected cash flows at market rates.

 

v. Loan arrangement fees

 

Loan arrangement fees, mainly loan origination and application fees, are accrued and recognized in the income statement over the term of the loan. In the case of loan origination fees, the portion relating to the associated direct costs incurred in the loan arrangement is recognized immediately in the consolidated income statement.

 

v) Guarantees

 

v.1) Financial guarantees

 

“Financial guarantees” are defined as contracts whereby an entity undertakes to make specific payments for a third party if the latter does not do so, irrespective of the various legal forms they may have, such as guarantees, irrevocable documentary credits issued or confirmed by the entity, among others.

 

The Bank initially recognizes the commission of the financial guarantees as liability in the consolidated financial statements at fair value, which is generally the present value of the fees, commissions and similar interest receivable from these contracts over their term.

 

Financial guarantees, regardless of the guarantor, type of instrument or other circumstances, are reviewed periodically so as to determine the credit risk to which they are exposed and, if appropriate, to consider whether a provision is required. The credit risk is determined by application of criteria similar to those established for quantifying impairment losses on debt instruments measured at amortized cost.

 

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* Values expressed in thousands, except when indicated.

The provisions made for these transactions are recognized in the heading “Provisions - Provisions for contingent liabilities, commitments and other provisions” in the consolidated financial statements (note 23)22).

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BANCO SANTANDER (BRASIL) S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Thousand of Brazilian Reais - R$ - unless otherwise stated) 

 

If a specific provision is required for financial guarantees, the related unearned commissions are recognized in the heading “Financial liabilities at amortized cost – Other financial liabilities” in the consolidated financial statements are reclassified to the appropriate provision.

 

v.2) Guarantees and Credit Risk Mitigation Policy

 

Banco Santander controls the credit risk using the collateral in its operations. Each business unit is responsible for credit risk management and formalizes the use of collateral in its lending policies.

 

Banco Santander uses guarantees in order to increase its ability to recover operations subject to credit risk. The guarantees can be fiduciary, real, legal structures with power mitigation and compensation agreements. Annually the bank reviews its guarantees policies to capture changes in the market, in the caracteristics of the assets given as guarantees and the conditions of the assets, thosethese are examples of technical parameters reviewed.

 

Credit limits are continually monitored and changed in client behavior function. Thus, the potential loss values represent a fraction of the amount available.

 

w) Assets under management and investment and pension funds managed by the Bank

 

Assets owned by third parties and managed by the consolidated entities are not presented in the consolidated financial statements. Management fees are included in “Fee and commission income” in the consolidated income statement. Note 44-b43-b contains information on the third-party assets managed by the Bank.

 

The investment funds and pension funds managed by the consolidated entities are not recorded in the consolidated financial statements since the related assets are owned by third parties. The fees and commissions earned in the year for the services rendered by the Bank entities to these funds (asset management and custody services) are recognized in the heading “Fee and commission income” in the consolidated income statement.

 

x) Post-employment benefits

 

Post-employment benefit plans include the commitments of the Bank: (i) addition to the benefits of public pension plan; and (ii) healthcare in case of retirement, permanent disability or death for those employees, and their direct beneficiaries.

 

Defined contribution plans

 

Defined contribution plans is the post-employment benefit plan which the Bank, and its subsidiaries, as the sponsoring entity pays fixed contributions into a pension fund, not having a legal or constructive obligation to pay further contributions if the fund does not hold sufficient assets to pay all benefits relating to services provided in the current and in previous periods.

 

The contributions made are recognized in the heading "Interest Expense and Similar Charges" in the income statement.

 

Defined benefit plans

 

Defined benefit plan is the post-employment benefit plan which is not a defined contribution plan and is shown in Note 22.21. For this type of plan, the sponsoring entity's obligation is to provide the benefits agreed with the former employees, assuming the potential actuarial risk that benefits will cost more than expected.

 

For defined benefit plan, the amendment of IAS 19 established fundamental changes in the accounting for and disclosure of employee post-employment benefits such as removing the corridor approach in the accounting for the obligation of the plans, as well as changes in the criteria for recognition of conventional interest of plan assets (valuation based on the discount rate actuarial liability).

 

In addition, there is full recognition in liabilities heading of actuarial losses (actuarial deficit) not recognized previously when they occur, which its counterparty is a heading in the stockholders’ equity (Other Comprehensive Income).

 

Main Definitions

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* Values expressed in thousands, except when indicated.

 

- The present value of the defined benefit obligation is the present value without any deduction from the plan assets, of expected future payments required to settle the obligation resulting from employee service in the current and past periods.

 

- Deficit or surplus is: (a) the present value of the defined benefit obligation, less (b) the fair value of plan assets.

 

- The sponsoring entity may recognize the plan assets in the financial statements when they meet the following characteristics: (i) the fund assets are sufficient to meet all employee benefit plan or the sponsor obligations; or (ii) the assets are returned to the sponsoring entity in order to reimburse it for employee benefits already paid.

 

- Actuarial gains and losses correspond to changes in the present value of defined benefit obligation resulting from: (a) adjustments by experience (the effects of differences between the actuarial assumptions adopted and what has actually occurred); and (b) effects of changes in actuarial assumptions.

 

- Current service cost is the increase in the present value of the defined benefit obligation resulting from employee service provided in the current period.

 

- The past service cost is the change in present value of defined benefit obligation for employee service provided in prior periods resulting from a change in the plan or reductions in the number of employees covered.

 

Post-employment benefits are recognized in income in the headings "Interest expense and similar Charges" and "Provisions (net)".

 

The defined benefit plans are recorded based on an actuarial study, conducted annually by an external consulting firm, at the end of each year to be effective for the subsequent period.

 

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BANCO SANTANDER (BRASIL) S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Thousand of Brazilian Reais - R$ - unless otherwise stated) 

y) Other long-term employee benefits

 

“Other long-term employee benefits”, defined as obligations to early retirees considered as those who have ceased to render services at the entity but who, without being legally retired, continue to have economic rights relating to the entity until they acquire the legal status of retiree, long-service bonuses, obligations for death of spouse or disability before retirement that depend on the employee's length of service at the entity and other similar items, are treated for accounting purposes, where applicable, as established above for defined benefit post-employment plans, except that all past service costs and actuarial gains and losses are recognized immediately (note 22)21).

 

z) Termination benefits

 

Termination benefits are recognized when there is a detailed formal plan identifying the basic changes to be made, provided that implementation of the plan has begun, its main features have been publicly announced or objective facts concerning its implementation have been disclosed.

 

aa) Income taxes (IRPJ), Social Contribution (CSLL), Social Integration Program (PIS) and Tax for Social Security Financing (COFINS)

 

Income tax expense is obtained by adding the Income Tax, Social Contribution, PIS and COFINS. Current Income Tax and Social Contribution result from the application of the respective rates on taxable income, and the PIS and COFINS rates applied on the respective calculation basis provided for in the specific legislation, added also with changes in deferred tax assets and liabilities recognized in the consolidated income statement. The CSLL rate, for banks of any kind, was increased from 15% to 20% effective as of March 1, 2020, pursuant to Article 32 of Constitutional Amendment 103, published on November 13, 2019.

Income tax is calculated at the rate of 15% plus a surcharge of 10% levied on the profit, after adjustments determined by tax legislation. The social contribution (CSLL) is calculated at the rate of 15%20% for financial institutions (15% up to August 2015) and 9% for other companies, levied on the profit, after considering the adjustments determined by tax legislation. The CSLL rate, for banks of any kind, was increased from 15% to 20% effective as of March 1, 2020, pursuant to article 32 of Constitutional Amendment 103, published on November 13, 2019.

 

The expense for corporate income tax is recognized in the consolidated income statement, except when it results from a transaction recognized directly in equity, in which case the tax effect is also recognized in equity.

 

The current income tax expense is calculated as the sum of the current tax resulting from application of the appropriate tax rate to the taxable profit for the year (net of any deductions allowable for tax purposes), and of the changes in deferred tax assets and liabilities recognized in the consolidated income statement.

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* Values expressed in thousands, except when indicated.

 

Tax assets classified as "Current" are amounts of tax to be recovered within the next twelve months.

 

Tax liabilities includes the amount of all tax liabilities (except provisions for taxes), which are broken down into “current” amount payable in respect of the income tax on the taxable profit for the year and other taxes in the next twelve months.

 

Deferred tax assets and liabilities include temporary differences, which are identified as the amounts expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities and their related tax bases, and tax loss and tax credit carry forwards. These amounts are measured at the tax rates that are expected to apply in the period when the asset is realized or the liability is settled.

 

Deferred tax assets are only recognized as temporary differences to the extent that it is considered probable that the consolidated entities will have sufficient future taxable profits against which the deferred tax assets can be utilized, and the deferred tax assets do not arise from the initial recognition (except in a business combination) of other assets and liabilities in a transaction that affects neither taxable profit or accounting profit. Other deferred tax assets (tax loss and tax credit carry forwards) are only recognized if it is considered probable that the consolidated entities will have sufficient future taxable profits against which they can be utilized.

 

Due to the change in social contribution tax rate, the group companies made the remeasurement of tax credit assets and deferred liabilities at the rates applicable to the period in which estimates the realization of assets and settlement of liabilities.

 

Income and expenses recognized directly in stockholders equity are accounted as temporary differences.

 

The deferred tax assets and liabilities recognized are reassessed at each financial statementsstatement date in order to ascertain whether they still exist, and the appropriate adjustments are made on the basis of the findings of the analyses performed.

 

Under the current regulation, the expected realization of tax credits is based on the Bank's projections of future results and on technical technical analysis of the realization of the temporary differences, as shown in Note 24.23.

 

PIS (Social Integration Program) and COFINS (Tax for Social Security Financing) have been computed at a combined rate of 4.65% on certain gross revenues and expenses. Financial institutions may deduct financial expenses in determining the PIS/COFINS tax basis. PIS and COFINS are considered a profit-base component (net basis of certain revenues and expenses), therefore and accordingly to IAS 12 it is recorded as income taxes.

 

ab)• IFRIC 23 - Published in June 2017 by the IASB, IFRIC 23 - Uncertainty over Income Tax Treatments on Profit has mandatory application as of January 1, 2019 and aims to clarify procedures for the application of recognition and measurement requirements established in the IAS 12 of Taxes on Profit when there is uncertainty about the treatments to be adopted for the Taxes on Profit.

The Bank carried out analyzes on the procedures already adopted for accounting and presentation of Income Taxes in relation to the content of IFRIC 23 and it was possible to conclude that there are no impacts on related measurements nor disclosures.

bb) Consolidated cash flow statements

 

The following terms are used in the consolidated cash flow statements with the following meanings:

 

• Cash flows: inflows and outflows of cash and cash equivalents, which are short-term, highly liquid investments that are subject to an insignificant risk of changes in value and original maturity of three months or less.

 

• Operating activities: the primary revenue-generating activities of credit institutions and other activities that are not investing or financing activities.

 

• Investing activities: the acquisition and disposal of long-term assets and other investments not included in cash and cash equivalents.

 

• Financing activities: activities that result in changes in the size and composition of the equity and liabilities that are not operating activities.

 

In preparing the consolidated cash flows statement, the high liquidity investments with insignificant risk of changes in their values were classified as "Cash and cash equivalents". The Bank classifies as cash and cash equivalents balances recorded in the headings "Cash and balance with the Brazilian Central Bank" and "Loans and amounts due from credit institutions" in the consolidated financial statements, except restricted resources and long-term transactions.

 

The interest paid and received correspond to operating activities of Banco Santander.

 

 Consolidated Financial Statements | December 31, 2020 | F-39

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BANCO SANTANDER (BRASIL) S.A.

* Values expressed in thousands, except when indicated.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Thousand of Brazilian Reais - R$ - unless otherwise stated) 

 

3.Basis of consolidation

 

Below are highlighted the controlled entities and investment funds included in the consolidated financial statements of Banco Santander. Similar information regarding companies accounted by the equity method by the Bank is provided in Note 11.

 

Participation %
Directly and Indirectly controlled by Banco Santander (Brasil) S.A.ActivityConsolidated
Banco Bandepe S.A. (2) Bank100.00%
Santander Leasing S.A. Arrendamento Mercantil (Santander Leasing)Leasing99.99%
Aymoré Crédito, Financiamento e Investimento S.A. (Aymoré CFI) (3) (19) Financial100.00%
Santander Brasil Administradora de Consórcio Ltda. (Santander Brasil Consórcio) (1) Buying club100.00%
Atual Serviços de Recuperação de Créditos e Meios Digitais S.A. (formerly named as Atual Companhia Securitizadora de Créditos Financeiros) (Atual) (7)(17)Credit recovery services100.00%
Santander Corretora de Câmbio e Valores Mobiliários S.A. (Santander CCVM) (4) Broker100.00%
Santander Corretora de Seguros, Investimentos e Serviços S.A. (Santander Corretora de Seguros) Other activities100.00%
Getnet Adquirência e Serviços para Meios de Pagamento S.A. (Getnet) (5)Payment Institution100.00%
Sancap Investimentos e Participações S.A. (Sancap) (6) Holding100.00%
Santander Brasil Establecimiento Financiero de Crédito S.A. (EFC)Financial100.00%
Santander Holding Imobiliária S.A. (formerly named Webcasas S.A.) (8) Holding100.00%
Santander Brasil Tecnologia S.A.Technology100.00%
Super Pagamentos e Administração de Meios Eletrônicos Ltda. (Super Pagamentos) (19)Payment Institution100.00%
Banco Olé Bonsucesso Consignado S.A. (Olé Consignado) (12) (19)Bank60.00%
Rojo Entretenimento S.A. (9) Other Activities94.60%
BEN Benefícios e Serviços S.A (10) Other Activities100.00%
Esfera Fidelidade S.A. (11) Other Activities100.00%
   Quantity of Shares or Quotas Owned (in Thousands)  
Investments ActivityCommon Shares and QuotasPreferred SharesDirect ParticipationParticipation
Controlled by Banco Santander      
Santander Leasing S.A. Arrendamento Mercantil (Santander Leasing)Leasing84-78.58%100.00%
Santander Brasil Administradora de Consórcio Ltda, (Santander Brasil Consórcio)Buying Club238,886-100.00%100.00%
Banco Bandepe S.A. Bank3,589-100.00%100.00%
Aymoré Crédito, Financiamento e Investimento S.A. (Aymoré CFI)Financial2,877-100.00%100.00%
Santander CCVM Broker14,067,64014.067.64099.99%100.00%
Santander Corretora de Seguros, Investimentos e Serviços S.A. (Santander Corretora de Seguros)Other Activities7,184-100.00%100.00%
Getnet S.A. Payment Institution69,565-100.00%100.00%
Sancap Investimentos e Participações S.A. (Sancap) Holding23,538,159-100.00%100.00%
Santander Brasil EFC Financial75-100.00%100.00%
Atual Serviços de Recuperação de Créditos e Meios Digitais S.A.Recovery of Defaulted Credits1,464,627-100.00%100.00%
Santander Holding Imobiliária S.A. Holding481,196-100.00%100.00%
Santander Brasil Tecnologia S.A. Technology45,371-100.00%100.00%
Rojo Entretenimento S.A. Other Activities7,417-94.60%94.60%
BEN Benefícios e Serviços S.A.  (BEN Benefícios) Other Activities90,000-100.00%100.00%
Esfera Fidelidade S.A. Other Activities10,001-100.00%100.00%
Sanb Promotora de Vendas e Cobrança Ltda, Other Activities6,950-100.00%100.00%
Santander Tecnologia e Inovação Ltda, Other Activities5,045-100.00%100.00%
Toque Fale Serviços de Telemarketing Ltda, (Toque Fale)Other Activities75,050-100.00%100.00%
Controlled by Aymoré CFI      
Banco PSA  Bank105--50.00%
Banco Hyundai Capital Brasil S.A. (Note 2,c,j,1) Bank150,000--50.00%
Controlled by Santander Leasing      
PI Distribuidora de Títulos e Valores Mobiliários S.A. Leasing182--100.00%
Controlled by Sancap      
Santander Capitalização S.A. (Santander Capitalização) Capitalization64,615--100.00%
Evidence Previdência S.A. Private Pension42,819,564--100.00%
Controlled by Atual Serviços de Recuperação de Créditos e Meios Digitais S.A.    
Return Capital Serviços de Recuperação de Créditos S.A.Collection and recover of Credit management200--100.00%
Controlled by Return Capital Serviços de Recuperação de Créditos S.A. (current name of Ipanema Empreendimentos e Participações S.A.)
Return Gestão de Recursos S.A. (atual denominação social da Gestora de Investimentos Ipanema S.A.)Resources Management11--100.00%
Jointly Controlled Companies by Sancap      
Santander Auto S.A. Other Activities22,452--50.00%
Controlled by Getnet S.A.      
Auttar HUT Processamento de Dados Ltda, (Auttar HUT) Other Activities3,865--100.00%

Consolidated Investment Funds

 

Controlled by Atual Serviços de Recuperação de Créditos e Meios Digitais S.A.·
Return Capital Serviços de Recuperação de Créditos e Meios Digitais S.A. (formerly named Ipanema Empreendimentos e Participações S.A.) (16) (17) Credit Management and Recovery Management100.00%

Controlled by Return Capital Serviços de Recuperação de Créditos S.A. ( Previously named as Ipanema Empreendimentos e Participações)
Return Gestão de Recursos S.A. (formerly named Gestora de Investimentos Ipanema S.A.) (16)Resource Manager-100.00%
Controlled by Getnet S.A.
Auttar HUT Processamento de Dados Ltda. (Auttar HUT) Other Activities-100.00%
Toque Fale Serviços de Telemarketing Ltda. (Toque Fale) Other Activities-100.00%
Controlled by Sancap
Santander Capitalização S.A. (Santander Capitalização)Savings and annuities-100.00%
Evidence Previdência S.A. (15)Social Securities-100.00%
Controlled by Aymoré CFI
Banco PSA Finance Brasil S.A.Bank-50.00%
Banco Hyundai Capital Brasil S.A. (13)Bank-50.00%
Controlled by Olé Consignado
Crediperto Promotora de Vendas e Cobrança Ltda. (current name of da BPV Promotora de Vendas e Cobrança Ltda.) Other Activities-100.00%
Olé Tecnologia Ltda. Other Activities-100.00%
Controlled by Santander Leasing
PI Distribuidora de Títulos e Valores Mobiliários S.A. (PI DTVM) (14)Leasing100.00%

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BANCO SANTANDER (BRASIL) S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Thousand of Brazilian Reais - R$ - unless otherwise stated) 

Consolidated Investment FundsActivityParticipation %
Consolidated
Santander Fundo de Investimento UnixAmazonas Multimercado Crédito Privado de Investimento no Exterior (Santander FI Amazonas);

Investment Fund·(a)
Santander Fundo de Investimento Diamantina Multimercado Crédito Privado de Investimento no Exterior (Santander FI Diamantina);

Investment Fund·(a)
Santander Fundo de Investimento Amazonas Multimercado Crédito Privado de Investimento no ExteriorInvestment Fund(a)
Santander Fundo de Investimento SBAC Referenciado DI Crédito PrivadoInvestment Fund(a)
Santander Fundo de Investimento Guarujá Multimercado Crédito Privado de Investimento no Exterior (Santander FI Guarujá);

 Investment FundConsolidated Financial Statements | December 31, 2020 | F-40

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* Values expressed in thousands, except when indicated.

·(a)Santander Fundo de Investimento Unix Multimercado Crédito Privado (Santander FI Unix);

·Santander Fundo de Investimento SBAC Referenciado DI Crédito Privado (Santander FI SBAC);

·Santander Paraty QIF PLC (Santander Paraty) (2);

Investment Fund·Prime 16 – Fundo de Investimento Imobiliário (atual denominação do BRL V - Fundo de Investimento Imobiliário - FII) (1);

(a)·
Santander FI Hedge Strategies Fund (Santander FI Hedge Strategies) (2);

Investment Fund·(a)
Prime 16 – Fundo de Investimento Imobiliário (formerly named BRL V - Fundo de Investimento Imobiliário - FII)Real Estate Investment Fund(a)
Fundo de Investimento em Direitos Creditórios Multisegmentos NPL Ipanema VI - Não Padronizado (Fundo Investimento Ipanema NPL VI) (3);

Investment Fund·(a)
Fundo de Investimento em Direitos Creditórios Multisegmentos NPL Ipanema V - Não Padronizado (Fundo Investimento Ipanema NPL V) (4);

Investment Fund·(a)
Santander Hermes Multimercado Crédito Privado Infraestrutura Fundo de Investimentos (5); e

Investment Fund·(a)
Fundo de InvestimentoInvestimentos em Direitos Creditórios Atacado -– Não Padronizado (FIDC NRA)(6).

Investment Fund·(a)Atual – Fundo de Investimento Multimercado Credito Privado Investimento no Exterior (7).

 

(a) Company over which(1) Banco Santander was a creditor for certain overdue credit operations that had real estate as collateral. The operation for the Bank is exposed, or has rights,recovery of these credits consists of the contribution of real estate as collateral to variable returnsthe capital of the Real Estate Investment Fund and have the abilityconsequent transfer of the Fund's quotas to affect those returnsBanco Santander, by means of a donation in payment of the aforementioned credit operations.

(2) Banco Santander, through its subsidiaries, holds the powerrisks and benefits of decision,Santander Paraty and the Santander FI Hedge Strategies Sub-Fund, residing in accordance with IFRS 10 -Ireland, and both are fully consolidated in their Consolidated Financial Statements. Banco Santander and its subsidiaries holds 100% of the shares of these investment funds.

(1) In the EGM held on April 30, 2019,Irish market, an increase in capital ininvestment fund cannot act directly and, for this reason, it was necessary to create another structure (a sub-fund), Santander FI Hedge Strategies. Santander Paraty does not have an equity position, and all records come from the amountfinancial position of R$79,537 was approved, from R$95,349 to R$174,886 divided into 174,885,602 shares, with a nominal value of R$1.00 (one real) each. In the EGM held on August 15, 2019, a capital increase was approved, based on statutory reserves, in the amount of R$64,000, from R$174,886 to R$238,886 divided into 238,885,602 shares, with a nominal value of R$1.00 (one real) each.

(2) In the EGM held on December 7, 2018, a capital increase in the amount of R$2,000,000 was approved, from R$2,787,689 to R$4,787,689, through the issue of 1,405,667 (one million , four hundred and five thousand, six hundred and sixty-seven) new registered common shares, without par value. The shareholder Banco Santander subscribed all the new shares issued and paid up the shares corresponding to 50% of the capital increase. On September 16, 2019, the remaining 50% was paid.FI Hedge Strategies.

(3) In the EGM held on April 26, 2019,Refers to a capital increase in the amount of R$137,880 was approved, from R$726,561 to R$864,441 without the issue of new shares.

(4) In the EGM held on April 26, 2019, a capital increase in the amount of R$1,689 was approved, from R$296,000 to R$297,689 without the issue of new shares. In the EGM held on August 15, 2019, a capital increase in the amount of R$60,000 was approved, from R$297,689 to R$357,689 without the issue of new shares.

(5) On February 25, 2019,structure where Banco Santander acquired all the shares of Getnet SA's Minority Shareholders, correspondingsold certain credit operations, which had already been transferred to 11.5% of Getnet SA's share capital, pursuantlosses (operations overdue for more than 360 days) to the “Share Purchase and Sale Agreement and Other Covenants of Getnet SA, with approval by Bacen on February 18, 2019.

(6) In the EGM held on April 2, 2019, a capital increase in the amount of R$200,000 was approved, from R$347,135 to R$547,135, represented by 17,114,176,389 (seventeen billion, one hundred and fourteen million, one hundred and seventy-six six thousand three hundred and eighty-nine) registered common shares, without par value. In the EGM held on November 11, 2019, a capital increase in the amount of R$300,000 was approved, from R$547,135 to R$847,135, represented by 23,538,159,258 (twenty-three billion, five hundred and thirty-eight million, one hundred and fifty and nine thousand two hundred and fifty-eight) registered common shares, without par value.

(7) At the AGE held on January 31, 2019, a capital increase in the amount of R$100,000 was approved, through the issue of 92,174,394 (ninety-two million, one hundred and seventy-four thousand, three hundred and ninety-four) new common shares, nominative and without par value, increasing the share capital from R$270,000 to R$370,000. The shares issued due to the capital increase were fully subscribed by the shareholder Banco Santander. In the Extraordinary General Meeting held on June 25, 2019, a capital increase in the amount of R$375,000 was approved, from R$370,000 to R$745,000 through the issue of 335,240,479 (three hundred and thirty-five million, two hundred and forty thousand, four hundred and seventy-nine) new common shares, registered and without par value. In the Extraordinary General Meeting held on July 25, 2019, a capital increase in the amount of R$100,000 was approved, from R$745,000 to R$845,000 through the issue of 89,007,566 (eighty-nine million, seven thousand, five hundred and sixty-six) new common shares, registered and without par value. In the EGM held on September 25, 2019, a capital increase in the amount of R$195,000 was approved, from R$845,000 to R$1,040,000 through the issue of 171,775,899 (one hundred and seventy one million, seven hundred and seventy-five thousand, eight hundred and ninety-nine) new common shares, nominative and without par value. In the EGM held on October 23, 2019, a capital increase in the amount of R$257,000 was approved, from R$1,040,000 to R$1,297,000 through the issue of 225,715,791 (two hundred and twenty-five million, seven hundred and fifteen thousand seven hundred and ninety-one) new common shares, nominative and without par value.

(8) On May 14, 2019, Banco Santander and its wholly-owned subsidiary Santander Holding Imobiliária S.A. entered into a binding document with the partners of Summer Empreendimentos Ltda. establishing the terms of the negotiation of purchase and sale of quotas representing the total share capital of Summer Empreendimentos. The conclusion of the transaction is subject to the implementation of conditions precedent usual for this type of transaction, including prior authorization by Bacen. In the EGM held on April 18, 2019, a capital increase in the amount of R$86,000 was approved, from R$24,500 to R$110,500 through the issue of 108,271,434 (one hundred and eight million, two hundred and seventy-one thousand, four hundred and thirty-four) new common shares, registered and without par value. In the EGM held on May 30, 2019, a capital increase in the amount of R$119,162 was approved, from R$110,500 to R$229,662 through the issuance of 151,009,682 (one hundred and fifty-one million, nine thousand, six hundred and eighty and two) new common shares, nominative and without par value, at the issue price of R$0.7891 per share. In the EGM held on September 20, 2019, a capital increase in the amount of R$45,250 was approved, from R$229,662 to R$274,642 through the issuance of 57,894,063 (fifty-seven million, eight hundred and ninety-four thousand and sixty and three) new common shares, registered and without par value. In the EGM held on November 6, 2019, a capital increase in the amount of R$10,000 was approved, from R$274,642 to R$284,642 through the issue of 12,970,169 (twelve million, nine hundred and seventy thousand, one hundred and sixty-nine ) new common shares, registered and without par value.

(9) Investment transferred from non-current assets held for sale in June 2018.

(10) Company incorporated on June 11, 2018. In the EGM held on March 27, 2019, a capital increase in the amount of R$49,999 was approved, from R$45,001 to R$90,000, through the issue of 44,999,000 (forty-four million, nine hundred and ninety-nine thousand) new registered common shares, without par value. The shareholder Banco Santander subscribed all the new shares issued and paid up the shares corresponding to 100% of the capital increase.

(11) Company incorporated on August 14, 2018 and beginning its activities in November 2018.

(12) In the AGE of February 9, 2018, the shareholders of Banco Olé Consignado, approved the capital increase in the amount of R$120,000, from R$400,000 to R$520,000, through the issuance of 57,089,392 (fifty-seven million, eighty-nine thousand, three hundred and ninety-two) common shares, registered and without par value, fully subscribed and paid up by the shareholders on the date of the EGM, in proportion to their respective interest in the share capital. The capital increase was approved by Bacen on March 15, 2018.

(13) The pre-operating company BHJV Assessoria e Consultoria em Gestão Empresarial Ltda., Was incorporated on April 11, 2018 and transformed into Banco Hyundai Capital Brasil S.A. on December 13, 2018. Aymoré CFI, wholly owned subsidiary of Banco Santander , has effective operational control of the company. At the EGM held on February 19, 2019, a capital increase in the amount of R$200,000 was approved, through the issuance of 200,000,000 (two hundred million) new common shares, nominative and without par value, with the capital of R$100,000 to R$300,000. The shares issued due to the capital increase were fully subscribed by the shareholders Aymoré Financiamentos CFI in the amount of R$100,000 and Hyundai Capital Services Inc. in the amount of R$100,000.

(14) In the EGM held on May 3, 2018, the Company's shareholders approved its transformation into a securities distribution company, and the change of its corporate name to SI Distribuidora de Tulos e Valores Mobiliários S.A. The transformation process was approved by Bacen on November 21, 2018. In the EGM held on December 17, 2018, SI Distribuidora de Tulos e Valores Mobiliários S.A. approved the change of its corporate name to PI Distribuidora de Titulos e Valores Mobiliários S.A..The change process was approved by Bacen on January 22, 2019.

(15) In the EGM held on April 2, 2019, a capital increase in the amount of R$200,000 was approved, from R$250,000 to R$450,000 through the issue of 12,987,012,987 (twelve billion, nine hundred and eighty-seven million, twelve thousand, nine hundred and eighty-seven) new common shares, nominative

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BANCO SANTANDER (BRASIL) S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Thousand of Brazilian Reais - R$ - unless otherwise stated) 

and without par value. In the EGM held on November 11, 2019, a capital increase in the amount of R$300,000 was approved, from R$450,000 to R$750,000 through the issue of 17,241,379,310 (seventeen billion, two hundred and forty-one million, three hundred and seventy-six million nine thousand three hundred and ten) new common shares, nominative and without par value.

(16) The AGE held on July 12, 2018, approved the change of the corporate name of Ipanema Empreendimentos e Participações S.A. to Return Capital Serviços de Recuperação de Crutos S.A. The AGE held on July 12, 2018, approved the amendment to corporate name of Gestora de Investimentos Ipanema S.A. for Return Gestão de Recursos S.A. In an AGE held on November 11, 2019, the Company's capital increase in the amount of R$300,000 was approved by the issue of 17,241,379,310 (seventeen billion, two hundred and forty-one million, three hundred and seventy-nine thousand and three hundred and ten) new common shares, nominative and without par value.

(17) On November 1, 2019,fund. Atual Serviços de Recuperação de Creditos concluded the acquisitione Meios Digitais S.A. (current corporate name of Atual Companhia Securitizadora de Creditos Financeiros), a company controlled by Banco Santander, holds 100% of the shares issuedof this fund.

(4) Indirectly controlled by Return CapitalAtual Serviços ede Recuperação de Creditos e Meios Digitais S.A. for the amount of R$17,000, previously held by minority shareholders, equivalent to 30% of the share capital of the company.

(18) In the EGM held on October 31, 2019, the partial spin-off of Integry Tecnologia e Serviços AHU Ltda. Was approved, with version of the spun-off portion of its equity to Getnet. At the EGM of December 16, 2019, the change of the company's name to Santander Merchant Platform Solutions Brasil Ltda was approved. (“SMPS Brasil”). On December 20, 2019, a purchase and sale agreement was signed for the totality of the company's shares for the amount of R$3 million by Santander Merchant Platform Solutions (Spain).(5) Fund controlled through Banco Bandepe S.A.

(19) On March 14, 2019, the minority shareholder of Banco Olé Bonsucesso Consignado S.A. formalized its interest in exercising the put option provided for in the Investment Agreement, signed on July 30, 2014, for the sale of its 40% stake in the share capital of Olé Consignado to Banco Santander. On December 20, 2019, the parties entered into a binding agreement for the acquisition, by Banco Santander, of all shares issued by Bosan Participações S.A. (holding company whose only asset is shares representing 40% of Banco Olé's share capital), for the amount total of R$1.6 billion,(6) This fund started to be paid on the closing date of the Transaction. The completion of the Transaction willconsolidated in June 2019 and is controlled through Atual Serviços de Recuperação de Creditos e Meios Digitais S.A.

(7) This fund started to be subject to the signing of the definitive instrumentsconsolidated in August 2020 and the implementation of certain suspensive conditions usual in this type of transaction. On October 23, 2019, Aymoré CFI had its share capital reduced, without the cancellation of shares, by transferring the common shares representing its equity interest held in Banco Olé Consignado and Super Payments to Banco Santander. On December 23, 2019, the necessary conditions for the completion of the transaction were fulfilled so that Olé Consignado and Super Payments became directlyis controlled by Banco Santander.through Atual Serviços de Recuperação de Creditos e Meios Digitais S.A.

 

The events decribed aboveCorporate movements were implemented in order to reorganize the entities' operations and activities of entities according toin accordance with the Santander Conglomerate's business plan of the Conglomerate Santander, those movements have not affected the segment reporting once the companies are related to the commercial Banking segment and did not lead to a creation of a new segment.plan.

 

a) Disposal of equity interest held in Super Pagamentos e Administração de Meios Eletrônicos S.A.

On February 28, 2020, the sale to Superdigital Holding Company, SL, a company indirectly controlled by Banco Santander, SA, of the shares representing the entire share capital of Super Pagamentos e Administração de Meios Eletrônico SA (“Superdigital”) for the amount of R$270,000. As a result, the Bank ceased to be a shareholder of Superdigital.

b) Put option of equity interest in Banco Olé Consignado S.A.

 

On March 14, 2019, the minority shareholder of Banco Olé Bonsucesso Consignado S.A. (Olé Consignado) formalized its interest to exercise the put option right provided in the Investment Agreement, executed on July 30, 2014, to sell its 40% equity interest in the capital stock of Olé Consignado to Banco Santander (Brazil) S.A. (“Banco Santander”).

 

On December 20, 2019, the parties entered into a binding agreement for the acquisition, by Banco Santander, of the all the shares issued by Bosan Participações S.A. (holding company whose only asset are shares representing 40% of the capital of Banco Olé),.

On January 31, 2020, the Company and the shareholders of Bosan Participações SA (“Bosan”) concluded the definitive agreement and signed the purchase and sale agreement for 100% of the shares issued by Bosan, through the transfer of Bosan's shares to Company and payment to sellers in the total amount of R $ 1.6 billion (“Operation”), to be paid onR$1,608,772. As a result, Banco Santander became, directly and indirectly, the closing dateholder of the Operation.

b) Incorporation100% of the spun-off portion of Integry Tecnologia e Serviços A.H.U Ltda.Banco Olé's shares.

 

On OctoberAugust 31, 2019,2020, the partial spin-off operationshareholders of Integry Tecnologia eBanco Santander approved the merger by the Bank of Banco Olé Consignado SA and Bosan Participações SA The mergers did not result in an increase in the capital of Santander Brasil and are pending approval by the Central Bank of Brazil.

c) Acquisition of direct equity interest in Toque Fale Serviços AHU Ltda.de Telemarketing LTDA.

On March 24, 2020, Banco Santander, SA acquired the shares representing the total share capital of Toque Fale Serviços de Telemarketing LTDA (“Integry”Toque Fale”), a wholly owned subsidiary for the amount of R$1,099,854, corresponding to the book value of the shares on February 29, 2020, previously held by Getnet Adquirência e Serviços para Meios de Pagamento S.A. (“Getnet”), with version of the spun-off portion of its assets and liabilities, to Getnet was approved. The incorporation of the spun-off portion by Getnet is pending approval by the Central Bank of Brazil.

On December 20, 2019, Getnet and Santander Merchant Platform Solutions, S.L. (“SMPS Global”), company based in Spain and controlled by Banco Santander, S.A. (Santander Spain) executed a Purchase and Sale Agreement of the quotas corresponding to 100% of Integry capital stock.Auttar HUT Processamento de Dados LTDA. As a consequence, SMPS Global has becomeresult, the Bank became a direct shareholder of Toque Fale and holder of 100% of the shares representatives of the capital stock of Integry. On December 23, 2019, Integry had its corporate name changed to Santander Merchant Platform Solutions Brasil Ltda.

c) Acquisition of residual equity interest in Return Capital Serviços e Recuperação de Crédito S.A.

On November 01,2019, Atual Serviços de Recuperação de Créditos e Meios Digitais S.A. (“Atual”), wholly owned subsidiary by Banco Santander and the minority shareholders of Return Capital Serviços e Recuperação de Crédito S.A. (“Return Capital”) executed the Shares’ Sale and Purchase Agreement and Other Covenants of Return Capital, in which Atual committed to acquire all of the minority shareholders’ shares, corresponding to 30% of Return Capital capital stock. The acquisition was closed on November 01, 2019. As a consequence, Atual has become the holder of 100% of the shares representatives of the capital stock of Return Capital.

d) Acquisition of Residual Interest in Getnet S.A.

On December 19, 2018, Banco Santander and the Getnet S.A. Minority shareholders entered into an amendment to the Getnet S.A. Share Purchase and Sale Agreement, in which Banco Santander committed to acquire all the shares of the Minority Shareholders, corresponding to 11.5% of the share capital of Getnet SA, for the amount of R $ 1,431,000. The acquisition was approved by BACEN on February 18, 2019 and concluded on February 25, 2019, so that Banco Santander now holds 100% of the shares representing the share capital of Getnet S.A.

e) Transfer of Control of Banco Olé Bonsucesso Consignado S.A. and Super Pagamentos e Administração de Meios Eletrônicos S.A.

On October, 23 2019, Aymoré Crédito, Financiamento e Investimento S.A. (“Aymoré”) had its capital stock reduced, without cancellation of shares, through the transfer of the common shares representing its equity held in Banco Olé Bonsucesso Consignado S.A. (“Olé”) and Super Pagamentos e Administração de Meios Eletrônicos S.A. (“Super”) to Banco Santander. On December 23, 2019 all the priorcapital.

 

 Consolidated Financial Statements | December 31, 2020 | F-41

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BANCO SANTANDER (BRASIL) S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Thousand of Brazilian Reais - R$ - unless otherwise stated) 

conditions for the capital stock reduction were accomplished: (i) previous authorization by Bacen; and (ii) term of opposition of the company creditors established as per art. 174 of Law 6.404/76; and, thus, Olé and Super become directly controlled by Banco Santander.* Values expressed in thousands, except when indicated.

 

f)d) Acquisition of Summer Empreendimentos Ltda.

 

On May 14, 2019, Banco Santander (Brasil) S.A.SA (“Banco Santander”) and its wholly owned subsidiary Santander Holding Imobiliária S.A. (“SHI”) executed a binding agreement with the partners of Summer Empreendimentos Ltda (“Summer”) defining the negotiation terms for the purchase and sale of shares fully representing the capital of Summer. The acquisition was approved by BACEN on September 16, 2019 and closed on September 20, 2019. As a consequence, SHI has become the holder of 99.999% and Banco Santander 0.001% of the shares representing the capital stock of Summer. Due to the Entity's sale plan in the short term, Summer was initially recorded as Non-Current Assets Held by the Sale, at its cost value. In June 2020, with the failure to execute the established plan, Summer became part of the scope of Banco Santander Consolidated Financial Statements.

 

g) Formatione) Incorporations of Esfera FidelidadeBanco Olé Consignado and Bosan Participações S.A.

 

On August 14, 2018, Esfera Fidelidade S.A. was incorporated, with equity fully owned by Banco Santander. Esfera Fidelidade S.A. act in31, 2020, the development and management of customer loyalty programs.. The company started its operation in November 2018.

h) Investment in Loop Gestão de Pátios S.A.

On June 26, 2018, Webmotors S.A., company with 70% interest indirectly owned by Banco Santander, signed an investment agreement with Allpark Empreendimentos, Participações e Serviços S.A. and Celta LA Participações S.A., in order to acquire an equity interest corresponding to 51% of the capital stock of Loop Gestão de Pátios S.A. (“Loop”), through capital increase and issuance of new shares of Loop to be fully subscribed and paid-in by Webmotors S.A.. Loop operates in the segment of commercialization and physical and virtual auction of motor vehicles. On September 25, 2018, the transaction was completed with increase of the capital stock, in the amount of R$23,900, through issuance of shares representing 51% of equity interest in Loop, which were fully subscribed and paid-in by Webmotors S.A.

i) Formation of BEN Benefícios e Serviços S.A.

On June 11, 2018, BEN Benefícios e Serviços S.A. (“Ben”), with equity fully owned by Banco Santander, was incorporated, to act in the supply and administration of meal, food, transportation, cultural and similar vouchers, via printed or electronic and magnetic cards.

j) Partnership with Hyundai Capital Services, Inc.

On April 28, 2016, Aymoré Crédito, Financiamento e Investimento S.A. (“Aymoré”) and Banco Santander executed with Hyundai Capital Services, Inc. (“Hyundai Capital”) the necessary documents for the formation of Banco Hyundai Capital Brasil S.A. (“Banco Hyundai”) and an insurance brokerage company with the purpose to provide, respectively, auto finance and financial and insurance brokerage services to clients and dealers of Hyundai in Brazil.

k.i) Banco Hyundai Capital Brasil S.A.

On April 11, 2018, the parties incorporated, with an equity interest of 50% held by Aymoré and 50% held by Hyundai Capital, a non-operational entity named BHJV Assessoria e Consultoria em Gestão Empresarial Ltda. On May 8, 2018, Aymoré and Hyundai Capital took resolution on the conversion of BHJV Assessoria into the non-operational joint-stock corporation named Banco Hyundai Capital Brasil S.A. On December 13, 2018, the incorporation procedure of Banco Hyundai was concluded.

On February 21, 2019, the authorization to operate granted by BACEN for the functioning of Banco Hyundai was published in the Federal Official Gazette. Banco Hyundai began operations in April 2019.

k.ii) Hyundai Corretora de Seguros Ltda.

On April 30, 2019, BACEN authorized Banco Santander to hold an indirect interest in a company to be incorporated under the name Hyundai Corretora de Seguros Ltda. (“Hyundai Corretora”). Hyundai Corretora was incorporated on July 22, 2019. On September 10, 2019 the company got the registration of the company as insurance brokerage with SUSEP. Hyundai Corretora began operations in November 2019.

l) Creation of PI Distribuidora de Títulos e Valores Mobiliários S.A.

On May 3, 2018, Santander Finance Arrendamento Mercantil S.A., an indirectly controlled subsidiaryshareholders of Banco Santander was converted into a distribution company(Brasil) SA (“Santander Brasil”) approved the merger, by Santander Brasil, of bondsBanco Olé Consignado SA and securities and had its corporate name changed to SI Distribuidora de Títulos e Valores MobiliáriosBosan Participações S.A. The conversion processmergers (i) did not result in an increase in the Santander Brasil's share capital; and (ii) are subject to approval by the Central Bank of approved by BACEN on November 21, 2018. On December 17, 2018, SI Distribuidora de Títulos e Valores Mobiliários S.A. had its corporate name changed to PI Distribuidora de Títulos e Valores Mobiliários S.A., being the corporate name change process approved by BACEN on January 22, 2019. The company started its operations on March 14, 2019.Brazil.

 

4.Cash and balances with the Brazilian Central Bank

 

Thousand of reais 2019 2018 2017 2020 2019 2018
       
Cash and cash equivalents(1) 20,127,364 19,463,587 20,642,321  20,148,725   20,127,364   19,463,587 
of which:   -         
Cash 4,877,849 4,235,096 4,661,348  4,266,197   4,877,849   4,235,096 
Cash and Foreign currency application abroad 15,249,515 15,228,491 15,980,973  15,882,528   15,249,515   15,228,491 
Total 20,127,364 19,463,587 20,642,321  20,148,725   20,127,364   19,463,587 

(1) Corresponds to assets maturing up to 3 months.

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BANCO SANTANDER (BRASIL) S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Thousand of Brazilian Reais - R$ - unless otherwise stated) 

  

5.Loans and amounts due from credit institutions

 

The breakdown, by classification, type and currency, of the balances of “Loans and amounts due from credit institutions” in the consolidated financial statements is as follows:

 

Thousand of reais 2019 2018 2017 2020 2019 2018
       
Classification:       
Loans and receivables - - 65,209,902
Financial Assets Measured At Amortized Cost 109,233,128 - -  112,849,776   109,233,128   91,859,759 
Of which:             
Loans and amounts due from credit institutions, gross 109,246,671 79,620,562 65,278,917  112,858,840   109,246,671   91,873,320 
Impairment losses (note 9.c) (13,543) (13,561) (69,015)
Impairment losses (note 9,c)  (9,064)  (13,543)  (13,561)
Loans and amounts due from credit institutions, net 109,233,128 79,607,001 65,209,902  112,849,776   109,233,128   91,859,759 
Loans and amounts due from credit institutions, gross 109,247,248 79.620.562 65,278,917  112,858,840   109,247,248   91,873,320 
             
Thousand of reais 2019 2018 2017
 
Type:              
Time deposits (2) 66,908,232 64,547,525 53,128,272
Time deposits  63,673,689   66,908,232   64,547,525 
Reverse repurchase agreements (1) (2) 100,246 3,728,963 270,735  699,034   100,246   3,728,963 
Escrow deposits 11,424,537 10,182,936 10,136,079  10,773,280   11,424,537   10,182,936 
Cash and Foreign currency investments(2)(3) - - -
Other accounts (3) 30,814,233 1,161,138 1,743,831
Other accounts  37,712,838   30,814,233   13,413,896 
Total 109,247,248 79,620,562 65,278,917  112,858,840   109,247,248   91,873,320 

(1) Guaranteed by debt instruments.

(2) Includes R$100,246 of short-term transactions with a low risk of change in value, considered cash equivalents.

(3) In 2019, the balances related to compulsory deposits were reclassified from cash and reserves at the Central Bank of Brazil to the item Loans and other amounts with credit institutions for better presentation and, consequently, the respective comparative balances also have been reclassified.

 

Thousand of reais 2019 2018 2017 2020 2019 2018
       
Currency:        
Brazilian Real 107,693,973 91,419,015 63,397,123  109,287,868   107,693,973   91,419,015 
US dollar 1,401,601 422,247 15,044,088  2,778,911   1,401,601   422,247 
Euro 151,097 32,058 307,633  782,997   151,097   32,058 
Pound sterling - - 3,585
Other currencies - - 8,920
Total 109,246,671 91,873,320 78,761,349  112,849,776   109,246,671   91,873,320 

 Consolidated Financial Statements | December 31, 2020 | F-42

 

Thousand of reais 2019 2018 2017
       
Cash equivalents:      
Short-term transactions and low risk of change in its value 1,216,192 5,821,573 2,028,581

Table of Contents

* Values expressed in thousands, except when indicated.

Thousand of reais 2020 2019 2018
             
Cash equivalents:            
Short-term transactions and low risk of change in its value(1)  8,298,083   1,316,299   5,821,573 

(1) The value refers to investments in the open market (repo transactions) and investments in interbank deposits (CDI) in the short term.

 

Note 44-d43-d contains a detail of the residual maturity periods of financial assets measured at amortized cost.

 

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BANCO SANTANDER (BRASIL) S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Thousand of Brazilian Reais - R$ - unless otherwise stated) 

6.Debt instruments

 

The breakdown, by classification, type and currency, of the balances of “Debt instruments” is as follows:

 

Thousand of reais 2019 2018 2017
       
Classification:      
Financial assets held for trading (1) - - 34,879,681
Financial Assets Measured At Fair Value Through Profit Or Loss 3,735,076 3,171,746 -
Financial Assets Measured At Fair Value Through Profit Or Loss Held For Trading34,885,631 50,066,469 -
Other Financial assets designated at fair value through profit or loss - - 1,658,689
Financial assets - available-for-sale - - 84,716,747
Financial Assets Measured At Fair Value Through Other Comprehensive Income (1)95,962,927 85,395,691 -
Investments Held-to-Maturity - - 10,214,454
Loans and receivables - - 17,616,515
Financial Assets Measured At Amortized Cost 38,748,296 36,799,509 -

 

   Of which:

 

      
Debt Instruments 40,803,323 39,513,460 20,400,082
Impairment losses (2,055,027) (2,713,951) (2,783,567)
Total 173,331,930 175,433,415 149,086,086
       
Type:      
Government securities - Brazil (2) 135,848,053 116,531,146 122,362,389
Debentures and Promissory notes 13,874,883 10,555,952 12,097,230
Other debt securities 23,608,994 48,346,317 14,626,467
Total 173,331,930 175,433,415 149,086,086

Thousand of reais 2020 2019 2018
       
Classification:      
Financial Assets Measured At Fair Value Through Profit Or Loss  3,545,660   3,735,076   3,171,746 
Financial Assets Measured At Fair Value Through Profit Or Loss Held For Trading  68,520,799   34,885,631   50,066,469 
Financial Assets Measured At Fair Value Through Other Comprehensive Income (1)  109,668,214   95,962,927   85,395,691 
Financial Assets Measured At Amortized Cost  48,367,791   38,748,296   36,799,509 
 Of which:            
Debt Instruments  49,945,226   40,803,323   39,513,460 
Provision for impairment losses  (1,577,435)  (2,055,027)  (2,713,951)
Total  230,102,464   173,331,930   175,433,415 
             
Type:            
Government securities - Brazil (2)  191,896,439   135,848,053   116,531,146 
Debentures and Promissory notes  17,071,856   13,874,883   10,555,952 
Other debt securities  21,134,169   23,608,994   48,346,317 
Total  230,102,464   173,331,930   175,433,415 
(1)On December 31, 2018, management decided to change the classification of Financial Treasury Bills – LFT, of the securities portfolio of Getnet Adquirência e Serviços para Meios de Pagamento S.A. (Getnet SA), Banco Bandepe SA and Santander Corretora de Cambio e Valores Mobiliários S.A. (Santander CCVM)., The securities were transferred from the Trading to Available for Sale category, in the amounts of R$739,430, R$14,099 and R$375,488, respectively.respectively, Such transfers did not impact the amounts of Consolidated and also did not generate effect on the result. The change in the category occurred due to the revaluation of the recent trading history of these assets.

(2)Includes, substantially, National Treasury Bills (LTN), Treasury Bills (LFT) e National Treasury Notes (NTN-A, NTN-B, NTN-C e NTN-F).

 

The debt instruments are composed, majority by:

 

Thousand of reais 2019 2018 2017
       
Currency:      
Brazilian Real 164,447,235 166,743,410 137,420,134
US dollar 8,884,695 8,690,005 11,665,952
Euro - - -
Total 173,331,930 175,433,415 149,086,086

Thousand of reais 2020 2019 2018
       
       
Currency:      
Brazilian Real  207,752,590   164,447,235   166,743,410 
US dollar  22,292,647   8,884,695   8,690,005 
Euro  57,227   -   - 
Total  230,102,464   173,331,930   175,433,415 

 

 

Thousand of reais 2019 2018 2017 2020 2019 2018
       
Debt Instruments linked to:       
Repo Operations 102,849,859 90,909,891 77,781,728  101,371,733   102,849,859   90,909,891 
Banco Central Mandatory Deposits - 1,449,207 2,305,158  -   -   1,449,207 
Operations guarantees in B3 S.A. - Brasil, Bolsa, Balcão (B3 S.A.) 6,618,651 17,985,160 6,273,561  12,963,251   6,618,651   17,985,160 
Associated to judiciary deposits and other guarantees 9,573,331 2,078,042 4,743,298  9,665,135   9,573,331   2,078,042 
Total 119,041,841 112,422,300 91,103,745  124,000,119   119,041,841   112,422,300 

 

Note 44-d43-d contains details of the residual maturity periods of financial assets measured at fair value through Other Results Comprehensive and corresponding financial assets measured at amortized cost.

 

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BANCO SANTANDER (BRASIL) S.A.

* Values expressed in thousands, except when indicated.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Thousand of Brazilian Reais - R$ - unless otherwise stated) 

 

7.Equity instruments

 

a) Breakdown

 

The breakdown, by classification and type, of the balances of “Equity instruments” is as follows:

 

Thousand of reais201920182017 2020 2019 2018
       
Classification:       
Financial assets held for trading-489,770
Financial Assets Measured At Fair Value Through Profit or Loss Held For Trading2,029,470766,333-  1,818,276   2,029,470   766,333 
Non-Trading Financial Assets Mandatorily Measured At Fair Value Through Profit or Loss171,453298,297-  438,912   171,453   298,297 
Other Financial assets designated at fair value through profit or loss-33,368
Financial assets available-for-sale-1,106,637
Financial Assets Measured At Fair Value Through Other Comprehensive Income157,30640,986-  72,173   157,306   40,986 
Total2,358,2291,105,6161,629,775  2,329,361   2,358,229   1,105,616 
             
Type:              
Shares of Brazilian companies665,027783,475389,113  1,953,128   665,027   783,475 
Shares of foreign companies-1,9335,347  13,617   -   1,933 
Investment funds (1)1,693,202320,2081,235,315  362,616   1,693,202   320,208 
Total2,358,2291,105,6161,629,775  2,329,361   2,358,229   1,105,616 
(1)Composed mainly by investment on fixed income, public and private securities.securities,

 

b) Changes

 

The changes in the balance of “Equity instruments – Financial assets measured at fair value through profit or loss held for trading” were as follows:

 

Thousand of reais 201920182017 2020 2019 2018
       
Balance at beginning of year 766,333489,770398,461  2,029,470   766,333   489,770 
Net additions (disposals) 1,267,243277,46290,696  (211,194)  1,267,243   277,462 
Valuation adjustments (4,106)(899)613  -   (4,106)  (899)
Balance at end of year 2,029,470766,333489,770  1,818,276   2,029,470   766,333 

 

The changes in the balance of “Equity instruments – Non-Trading Financial Assets Mandatorily Measured At Fair Value Through Profit Or Loss” were as follows:

 

Thousand of reais 201920182017 2020 2019 2018
       
Balance at beginning of year 298,29733,36842,455  171,453   298,297   33,368 
Net additions (disposals) (126,893)143,291(1,586)  19,685   (126,893)  143,291 
Valuation adjustments 49121,638(7,501)  247,774  49   121,638 
Balance at end of year 171,453298,29733,368  438,912   171,453   298,297 

 

The changes in the balance of “Equity instruments – Financial Assets Measured At Fair Value Through Other Comprehensive Income” were as follows:

 

Thousand of reais 201920182017
     
Balance at beginning of year 40,9861,106,6371,985,473
Net additions (disposals) 238,758(1,034,219)(830,395)
Valuation adjustments (122,438)(31,432)(48,441)
Balance at end of year 157,30640,9861,106,637

Thousand of reais 2020 2019 2018
       
Balance at beginning of year  157,306   40,986   1,106,637 
Net additions (disposals)  (85,133)  (6,118)  (1,034,219)
Valuation adjustments  -   122,438  (31,432)
Balance at end of year  72,173   157,306   40,986 

 Consolidated Financial Statements | December 31, 2020 | F-44

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Table of Contents

 

BANCO SANTANDER (BRASIL) S.A.

* Values expressed in thousands, except when indicated.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Thousand of Brazilian Reais - R$ - unless otherwise stated) 

 

8.Derivative financial instruments and Short positions

 

The main risk factors associated to derivatives contracted are related to exchange rates, interest rates and equities.stocks. To manage these and other market risk factors the Bank uses practices which include the measurement and follow up of the limit´s usage previously defined on internal committees, as well as the daily follow up of the portfolios values in risk, sensitivities and changes in the interest rate and exchange exposure, liquidity gaps, among other practices which allow the control and follow up on the main risk metrics that can affect the Bank´s position in the several markets which it acts. Based on this management model the Bank has accomplished its goal, using operations with derivatives, in optimize the relation risk/benefits even in situation with great volatility.

 

The derivatives fair value is determined through quotation of market prices. The swaps contracts fair value is determined using discounted cash flow modeling techniques, reflecting suitable risk factors. The fair value of NDF and Future contracts are also determined based on the quotation of market prices for derivatives traded in specific chamber (i.e..(i.e. stock Exchange for example) or using the same methodology applied for swap contracts. The fair value of options derivatives (call and put) is determined based on the mathematical models, such as Black & Scholes, using yield rates, implied volatilities and the fair value of the corresponding asset. The current market prices are used to price the volatilities. For the derivatives which do not have prices directly disclosed by specific chamber, their fair values are obtained through pricing models which use market information, based on disclosed prices of more liquid assets. Interest rate curves and market volatilities are extracted from theses prices to be used as first input in these models.

 

a) Trading and hedging derivatives

 

a.1) Derivatives Recorded in the Balance Sheet and Compensation Accounts

 

Portfolio Summary of Trading Derivative and Used as HedgeHedging Derivatives

 

   201920182017
      
Assets     
Swap Differentials Receivable  14,634,86314,640,28915,781,207
Option Premiums to Exercise  1,065,753716,936553,217
Forward Contracts and Others  4,745,1013,006,221928,464
Total  20,445,71718,363,44617,262,888
      
Liabilities     
Swap Differentials Payable  16,458,39715,952,28314,643,016
Option Premiums Launched  1,699,729563,787385,183
Forward Contracts and Others  4,271,8521,950,7651,649,287
Total  22,429,97818,466,83516,677,486

  2020 2019 2018
       
Assets      
Swap Differentials Receivable  14,729,642   14,634,863   14,640,289 
Option Premiums to Exercise  4,974,618   1,065,753   716,936 
Forward Contracts and Others  9,166,361   4,745,101   3,006,221 
Total  28,870,621   20,445,717   18,363,446 
             
Liabilities            
Swap Differentials Payable  18,327,611   16,458,397   15,952,283 
Option Premiums Launched  4,926,994   1,699,729   563,787 
Forward Contracts and Others  8,725,333   4,271,852   1,950,765 
Total  31,979,938   22,429,978   18,466,835 

 Consolidated Financial Statements | December 31, 2020 | F-45

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BANCO SANTANDER (BRASIL) S.A.

* Values expressed in thousands, except when indicated.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Thousand of Brazilian Reais - R$ - unless otherwise stated) 

 

Summary by Category
 
Trading 201920182017
        
  Notional (1)Fair Value (4)Notional (1)Fair Value (4)Notional (1)Fair Value (4)
Swap  (1,823,534) (1,431,110) 1,108,760
Assets 282,164,189147,010,930177,233,86944,487,274202,081,21457,294,179
CDI (Interbank Deposit Rates) 40,550,62716,908,79136,135,01524,267,59133,289,52222,409,496
Fixed Interest Rate - Real 47,140,927-47,968,999-95,700,715-
Indexed to Price and Interest Rates 2,388,118-2,581,215-5,592,892-
Foreign Currency 192,084,517130,102,13990,495,24020,219,68367,493,63534,884,683
Others --53,400-4,450-
Liabilities 279,803,610(148,834,464)176,385,349(45,918,384)199,709,355(56,185,419)
CDI (Interbank Deposit Rates) 24,353,405-11,801,600-16,664,176-
Fixed Interest Rate - Real 67,937,624(24,079,732)88,317,044(23,075,374)114,055,076(21,687,884)
Indexed to Price and Interest Rates 125,829,755(123,445,067)24,308,601(21,775,017)40,146,968(34,107,210)
Foreign Currency 60,394,529-50,748,008-28,420,467-
Others 1,288,297(1,309,665)1,210,096(1,067,993)422,668(390,325)
Options 1,446,536,133(1,222,465)335,073,080153,149190,061,609168,034
Purchased Position 678,089,904381,706149,076,796716,93687,503,833553,217
Call Option - US Dollar 171,871(281)14,518,058239,0799,369,821169,542
Put Option - US Dollar 1,456,9754,3558,893,62090,7365,130,39242,389
Call Option - Other 98,154,363818,6643,118,344131,2971,953,48159,220
Interbank Market 98,154,363819,262639,4884,5371,185,310389
Others(2) -(598)2,478,856126,760768,17158,831
Put Option - Other 578,306,695(441,032)122,546,774255,82471,050,139282,066
Interbank Market 578,306,695(440,959)121,782,816217,72670,295,282257,943
Others(2) -(73)763,95838,098754,85724,123
Sold Position 768,446,229(1,604,171)185,996,284(563,787)102,557,776(385,183)
Call Option - US Dollar 254,945(1,472)7,615,856(101,034)5,595,163(117,059)
Put Option - US Dollar 263,994(2,842)12,160,912(169,431)5,919,598(77,145)
Call Option - Other 174,166,802(440,731)31,679,919(66,002)19,880,180(35,961)
Interbank Market 174,166,802(440,959)29,609,298(13,195)19,151,110(515)
Others(2) -2282,070,621(52,807)729,070(35,446)
Put Option - Other 593,760,488(1,159,126)134,539,597(227,320)71,162,835(155,018)
Interbank Market 593,760,488(1,159,038)133,703,672(179,841)70,494,622(126,743)
Others(2) -(88)835,925(47,479)668,213(28,275)
        
Futures Contracts 433,873,180-289,508,200-161,725,596-
Purchased Position 72,912,029-86,203,734-54,806,022-
Exchange Coupon (DDI) 7,394,951-20,590,068-9,616,936-
Interest Rates (DI1 and DIA) 55,430,519-32,690,685-26,456,303-
Foreign Currency 9,978,419-32,456,813-16,733,437-
Indexes(3) --466,168-1,780,311-
Others 108,140---219,035-
Sold Position 360,961,151-203,304,466-106,919,574-
Exchange Coupon (DDI) 146,032,485-146,948,795-55,016,928-
Interest Rates (DI1 and DIA) 196,170,105-54,160,203-51,135,994-
Foreign Currency 17,305,604-1,992,574-745,849-
Indexes(3) 290,254-202,894-20,803-
Treasury Bonds/Notes 1,162,703-----
Forward Contracts and Others 169,401,317473,24990,910,8411,055,45647,823,561(720,823)
Purchased Commitment 79,970,842426,99138,666,2691,303,56123,506,096647,376
Currencies 79,969,759426,98638,095,6251,250,70621,525,220618,007
Others 1,0835570,64452,8551,980,87629,369
Sold Commitment 89,430,47546,25852,244,572(248,105)24,317,465(1,368,199)
Currencies 89,426,69846,17051,958,529(252,160)22,096,104(1,364,617)
Others 3,77788286,0434,0552,221,361(3,582)

Summary by Category

  2020 2019 2018
             
   Notional   Fair Value   Notional (1)   Fair Value   Notional (1)   Fair Value 
Swap  398,925,842   (3,597,969)      (1,823,534)      (1,431,110)
Assets  278,752,387   14,729,642   282,164,189   147,010,930   177,233,869   44,487,274 
CDI (Interbank Deposit Rates)  41,316,315   3,010,880   40,550,627   16,908,791   36,135,015   24,267,591 
Fixed Interest Rate - Real  54,159,848   9,607,342   47,140,927   -   47,968,999   - 
Indexed to Price and Interest Rates  5,124,411   -   2,388,118   -   2,581,215   - 
Foreign Currency  178,076,136   1,039,529   192,084,517   130,102,139   90,495,240   20,219,683 
Others  75,676   1,071,891   -   -   53,400   - 
Liabilities  120,173,455   (18,327,611)  279,803,610   (148,834,464)  176,385,349   (45,918,384)
CDI (Interbank Deposit Rates)  33,239,801   (13,693,733)  24,353,405   -   11,801,600   - 
Fixed Interest Rate - Real  45,088,689   (2,772,479)  67,937,624   (24,079,732)  88,317,044   (23,075,374)
Indexed to Price and Interest Rates  33,026,692   (450,958)  125,829,755   (123,445,067)  24,308,601   (21,775,017)
Foreign Currency  6,636,885   153,695   60,394,529   -   50,748,008   - 
Others  2,181,388   (1,564,135)  1,288,297   (1,309,665)  1,210,096   (1,067,993)
Options  2,043,286,085   47,624   1,446,536,133   (1,222,465)  335,073,080   153,149 
Purchased Position  1,006,266,897   4,974,618   678,089,904   381,706   149,076,796   716,936 
Call Option - US Dollar  1,188,387   39,202   171,871   (281)  14,518,058   239,079 
Put Option - US Dollar  1,948,673   109,075   1,456,975   4,355   8,893,620   90,736 
Call Option - Other  134,761,947   1,093,583   98,154,363   818,664   3,118,344   131,297 
Interbank Market  101,421,659   556,039   98,154,363   819,262   639,488   4,537 
Others (2)  33,340,288   537,544   -   (598)  2,478,856   126,760 
Put Option - Other  868,367,889   3,732,758   578,306,695   (441,032)  122,546,774   255,824 
Interbank Market  864,852,555   3,729,297   578,306,695   (440,959)  121,782,816   217,726 
Others (2)  3,515,334   3,461   -   (73)  763,958   38,098 
Sold Position  1,037,019,188   (4,926,994)  768,446,229   (1,604,171)  185,996,284   (563,787)
Call Option - US Dollar  1,537,670   699,243   254,945   (1,472)  7,615,856   (101,034)
Put Option - US Dollar  2,315,919   (192,335)  263,994   (2,842)  12,160,912   (169,431)
Call Option - Other  130,919,394   (453,919)  174,166,802   (440,731)  31,679,919   (66,002)
Interbank Market  120,156,285   (464,405)  174,166,802   (440,959)  29,609,298   (13,195)
Others (2)  10,763,109   10,486   -   228   2,070,621   (52,807)
Put Option - Other  902,246,206   (4,979,984)  593,760,488   (1,159,126)  134,539,597   (227,320)
Interbank Market  869,328,317   (4,597,427)  593,760,488   (1,159,038)  133,703,672   (179,841)
Others (2)  32,917,888   (382,557)  -   (88)  835,925   (47,479)
                         
Futures Contracts  270,258,566   -   433,873,180   -   289,508,200   - 
Purchased Position  110,275,866   -   72,912,029   -   86,203,734   - 
Exchange Coupon (DDI)  12,438,695   -   7,394,951   -   20,590,068   - 
Interest Rates (DI1 and DIA)  97,837,171   -   55,430,519   -   32,690,685   - 
Foreign Currency  -   -   9,978,419   -   32,456,813   - 
Indexes (3)  -   -   -   -   466,168   - 
Others  -   -   108,140   -   -   - 
Sold Position  159,982,699   -   360,961,151   -   203,304,466   - 
Exchange Coupon (DDI)  73,114,014   -   146,032,485   -   146,948,795   - 
Interest Rates (DI1 and DIA)  67,958,767   -   196,170,105   -   54,160,203   - 
Foreign Currency  18,653,658   -   17,305,604   -   1,992,574   - 
Indexes (3)  256,261   -   290,254   -   202,894   - 
Treasury Bonds/Notes  -   -   1,162,703   -   -   - 
Forward Contracts and Others  163,040,700   441,028   169,401,317   473,249   90,910,841   1,055,456 
Purchased Commitment  96,309,648   9,166,361   79,970,842   426,991   38,666,269   1,303,561 
Currencies  87,254,202   5,026,567   79,969,759   426,986   38,095,625   1,250,706 
Others  9,055,447   4,139,794   1,083   5   570,644   52,855 
Sold Commitment  66,731,052   (8,725,333)  89,430,475   46,258   52,244,572   (248,105)
Currencies  64,986,757   (4,846,929)  89,426,698   46,170   51,958,529   (252,160)
Others  1,744,295   (3,878,404)  3,777   88   286,043   4,055 

(1) Accrued notional.Nominal value of updated contracts.

(2) Includes options of index, mainly being options involving US treasury, shares and stock indexes.

(3) Includes Bovespa and S&P index.

(4) The balances of Swaps are disclosed netting the receivables and payables differentials per indexes. If the net balance is positive it is being disclosed on the asset side and if is negative on the liability side.

 

 Consolidated Financial Statements | December 31, 2020 | F-46

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Table of Contents

 

BANCO SANTANDER (BRASIL) S.A.

* Values expressed in thousands, except when indicated.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Thousand of Brazilian Reais - R$ - unless otherwise stated) 

 

a.2) Derivatives Financial Instruments by Counterparty

 

 Notional    2019
   RelatedFinancial 
  Customers PartiesInstitutions(1) Total
"Swap" 66,976,26238,784,704176,403,223282,164,189
Options 17,041,979154,9031,429,326,0731,446,522,955
Futures Contracts 1,430,470-432,442,712433,873,182
Forward Contracts and Others 47,199,547118,612,6073,589,163169,401,317

(1) Includes trades with B3 S.A. and other securities and commodities exchanges.

Notional       2020
    Related Financial  
  Customers Parties Institutions(1) Total
"Swap"  40,241,232   97,784,443   140,726,712   278,752,387 
Options  23,788,051   922,740   2,018,575,293   2,043,286,085 
Futures Contracts  3,198,239   -   267,060,326   270,258,566 
Forward Contracts and Others  67,837,797   49,447,532   45,755,371   163,040,700 
(1)Includes trades with B3 S.A. and other securities and commodities exchanges.

 

 Notional    2018
   RelatedFinancial 
  Customers PartiesInstitutions(1) Total
"Swap" 34,296,82132,669,900110,267,148177,233,869
Options 14,636,0171,086,323319,350,740335,073,080
Futures Contracts --289,508,200289,508,200
Forward Contracts and Others 39,024,97848,641,8943,243,96990,910,841

(1) Includes trades with B3 S.A. and other securities and commodities exchanges.

Notional  2017       2019 2018
 RelatedFinancial    Related Financial    
 Customers PartiesInstitutions(1) Total Customers Parties Institutions(1) Total Total
"Swap" 32,912,72119,599,395149,569,098202,081,214  66,976,262   38,784,704   176,403,223   282,164,189   177,233,869 
Options 11,263,5131,240,309177,557,787190,061,609  17,041,979   154,903   1,429,326,073   1,446,522,955   335,073,080 
Futures Contracts -161,725,596161,725,596  1,430,470   -   432,442,712   433,873,182   289,508,200 
Forward Contracts and Others 25,470,28718,816,9913,536,28347,823,561  47,199,547   118,612,607   3,589,163   169,401,317   90,910,841 

(1) Includes trades with B3 S.A. and other securities and commodities exchanges.

 

a.3) Derivatives Financial Instruments by Maturity

 

Notional    2019
  Up toFrom 3 toOver 
   3 Months12 Months12 MonthsTotal
"Swap" 58,298,876106,268,113117,597,200282,164,189
Options 681,033,183646,187,139119,302,6401,446,522,962
Futures Contracts 140,882,437179,337,860113,652,884433,873,181
Forward Contracts and Others 91,779,01150,070,36627,551,940169,401,317
      
Notional    2018
  Up toFrom 3 toOver 
   3 Months12 Months12 Months Total
"Swap" 12,347,86470,975,477177,233,869260,557,210
Options 63,376,042220,982,952335,073,080619,432,074
Futures Contracts 67,578,07862,708,213159,221,909289,508,200
Forward Contracts and Others 31,255,38419,469,14740,186,31090,910,841
Notional       2020
  Up to From 3 to Over  
  3 Months 12 Months 12 Months Total
"Swap"  58,388,872   98,073,784   122,289,731   278,752,387 
Options  931,156,902   572,661,800   539,467,382   2,043,286,084 
Futures Contracts  181,521,486   36,328,390   52,408,689   270,258,566 
Forward Contracts and Others  104,098,351   33,788,798   25,153,551   163,040,700 
                 

 

Notional       2019 2018
  Up to From 3 to Over    
  3 Months 12 Months 12 Months Total Total
"Swap"  58,298,876   106,268,113   117,597,200   282,164,189   177,233,869 
Options  681,033,183   646,187,139   119,302,640   1,446,522,962   335,073,080 
Futures Contracts  140,882,437   179,337,860   113,652,884   433,873,181   289,508,200 
Forward Contracts and Others  91,779,011   50,070,366   27,551,940   169,401,317   90,910,841 

 Consolidated Financial Statements | December 31, 2020 | F-47

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Table of Contents

 

BANCO SANTANDER (BRASIL) S.A.

* Values expressed in thousands, except when indicated.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Thousand of Brazilian Reais - R$ - unless otherwise stated) 

Notional    2017
  Up toFrom 3 toOver 
   3 Months12 Months12 Months Total
"Swap" 20,705,24751,021,102130,354,865202,081,214
Options 46,139,54589,403,70054,518,364190,061,609
Futures Contracts 65,489,47655,490,15940,745,961161,725,596
Forward Contracts and Others 25,015,55714,250,4958,557,50947,823,561

 

a.4) Derivatives by Market Trading

  

Notional StockOver the2019   2020
 Exchange(1)Counter Total Stock Exchange (1) Over the Counter Total
"Swap" 150,179,790131,984,399282,164,189  82,122,957   196,629,429   278,752,387 
Options 1,423,788,84522,734,1171,446,522,962  1,940,172,322   103,113,762   2,043,286,084 
Futures Contracts 433,873,181-433,873,181  270,258,566   —     270,258,566 
Forward Contracts and Others 42,651,980126,749,337169,401,317  25,182,494   137,858,206   163,040,700 

(1) Includes trades with B3 S.A.

 

Notional StockOver the2018
  Exchange(1)Counter Total
"Swap" 39,880,578137,353,291177,233,869
Options 307,644,53027,428,550335,073,080
Futures Contracts 289,508,200-289,508,200
Forward Contracts and Others 323,41390,587,42890,910,841

(1) Includes trades with B3 S.A.

Notional StockOver the2017
  Exchange(1)Counter Total
"Swap" 67,112,505134,968,709202,081,214
Options 172,144,70017,916,909190,061,609
Futures Contracts 161,725,596-161,725,596
Forward Contracts and Others 395,21247,428,34947,823,561

(1) Includes trades with B3 S.A.

Notional     2019 2018
  Stock Exchange (1) Over the Counter Total Total
"Swap"  150,179,790   131,984,399   282,164,189   177,233,869 
Options  1,423,788,845   22,734,117   1,446,522,962   335,073,080 
Futures Contracts  433,873,181   -   433,873,181   289,508,200 
Forward Contracts and Others  42,651,980   126,749,337   169,401,317   90,910,841 

 

a.5) Information on Credit Derivatives

 

Banco Santander uses credit derivatives with the objectives of performing counterparty risk management and meeting its customers' demands, performing protection purchase and sale transactions through credit default swaps and total return swaps, primarily related to Brazilian sovereign risk securities.

 

TotalReturn Swaps – TRS

 

Credit derivatives are where the exchange of the return of the reference obligation occurs through a cash flow and where, in the event of a credit event, the protection buyer is usually entitled to receive from the protection seller the equivalent of the difference between the and the fair value (market value) of the reference obligation on the settlement date of the contract.

 

Credit Default Swaps – CDS

 

These are credit derivatives where, in the event of a credit event, the protection buyer is entitled to receive from the protection seller the equivalent of the difference between the face value of the CDS agreement and the fair value (market value) of the reference obligation on the settlement date of the contract. In return, the seller receives compensation for the sale of the protection.

 

Below, the composition of the Credit Derivatives portfolio shown by its reference value and effect in the calculation of Required Stockholders' Equity.

 

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BANCO SANTANDER (BRASIL) S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Thousand of Brazilian Reais - R$ - unless otherwise stated) 

          
     2019   2018
          
          
   Nominal Value Nominal Value Nominal Value Nominal Value
   Retained Risk Transferred Risk - Retained Risk Transferred Risk -
   Total Rate of Return Swap Credit Swap Total Rate of Return Swap Credit Swap
Credit Swaps 2,435,880 - 1,959,128 416,541
Total 2,435,880 - 1,959,128 416,541

(*) In 2017, there was no CDS operations that the Bank was into.

  2020   2019     2018
  

Nominal Value

Retained Risk

Total Rate of Return Swap

 

Nominal Value

Transferred Risk -

Credit Swap

 

Nominal Value

Retained Risk

Total Rate of Return Swap

 

Nominal Value

Transferred Risk -

Credit Swap

 

Nominal Value

Retained Risk

Total Rate of Return Swap

 

Nominal Value

Transferred Risk -

Credit Swap

 

Credit Swaps  3,483,628   519,670   2,435,880   -   1,959,128   416,541 
Total  3,483,628   519,670   2,435,880   -   1,959,128   416,541 

 

Value referring to the premium paid on CDS for use as collateral (transfer of risks) in the amount of R$602.1,506 (12/31/2019 – R$0).

 

The effect in the Required Stockholder’s Equity of the risk received was R$3.286.6,985 (12/31/2019 – R$5,257).

 

During the period, there was no occurrence of credit event related to the events generated by the contracts.

 

       
   2019  2018
   Over   Over   
Maximum Potential for Future Payments – Gross  12 Months Total 12 Months  Total
Per Instrument      
CDS 2,435,8802,435,8801,959,128 1,959,128
Total 2,435,8802,435,8801,959,128 1,959,128
Per Risk Classification      
Below Investment Grade 2,435,8802,435,8801,959,128 1,959,128
Total 2,435,8802,435,8801,959,128 1,959,128
Per Reference Entity      
Brazilian Government 2,435,8802,435,8801,959,128 1,959,128
Total 2,435,8802,435,8801,959,128 1,959,128

 Consolidated Financial Statements | December 31, 2020 | F-48

Table of Contents

* Values expressed in thousands, except when indicated.

             
    2020   2019   

2018

  Over   Over   Over  
Maximum Potential for Future Payments - Gross 12 Months Total 12 Months Total 12 Months 

Total

Per Instrument                        
CDS  4,003,298   4,003,298   2,435,880   2,435,880   1,959,128   1,959,128 
Total  4,003,298   4,003,298   2,435,880   2,435,880   1,959,128   1,959,128 
Per Risk Classification                        
Below Investment Grade  4,003,298   4,003,298   2,435,880   2,435,880   1,959,128   1,959,128 
Total  4,003,298   4,003,298   2,435,880   2,435,880   1,959,128   1,959,128 
Per Reference Entity                        
Brazilian Government  4,003,298   4,003,298   2,435,880   2,435,880   1,959,128   1,959,128 
Total  4,003,298   4,003,298   2,435,880   2,435,880   1,959,128   1,959,128 

 

a.6) Hedge Accounting

 

There are three types of hedge accounting: Fair Value Hedge, Cash Flow Hedge and Foreing Currency Investments Hedge.

 

The derivatives used as hedging instruments are represented as follows:

 

a.6.i) Fair Value Hedge

 

Banco Santander’s fair value hedging strategy consists of hedging the exposure to changes in fair value related to recognized assets and liabilitiesliabilities.

 

The fair value strategy adopted by management segregates transactions by risk factor (e.g. Real/Dollar foreign exchange risk, fixed Reais interest rate risk, Dollar foreign exchange coupon risk, inflation risk, interest rate risk, etc.). The transactions generate exposures that are consolidated by risk factor and compared with internal pre-established limits.

 

In order to hedge the changes of fair value in receivables and interest payments, Santander uses interest rate Swap contracts related to pre-fixed (pre defineddefine interest rate at inception) assets and liabilities.

 

Banco Santander applies fair value hedge as follows:

 

•  Designates Foreign Currency + Coupon versus %CDI and Pre - Real Interest Rate or contracts dollar futures (DOL, DDI/DI) as derivatives instruments in Hedge Accounting structures, with foreign currency loan operations being the object of such transactions.

 

• The Bank has a portfolio of credit assets denominated in US dollars at the fixed rate in the balance sheet of Santander EFC, whose operations are recorded in Euro. As a way of managing this mismatch, the Bank designates each Euro Floating Foreign Currency swap versus Fixed Dollar as the market risk hedge of the corresponding loan.

 

• The Bank has a portfolio of assets indexed to the Euro and traded at offshore branches. In the transaction, the value of the asset in Euro will be converted to the Dollar by the rate of the exchange contract of the transaction. As from the conversion, the principal amount of the funding, already expressed in US dollars, will be adjusted by a floating or fixed rate. The assets will be covered with Swap Cross Currency in order to cross the risk in Euro for LIBOR + Coupon.

F-49

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BANCO SANTANDER (BRASIL) S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Thousand of Brazilian Reais - R$ - unless otherwise stated) 

• The Bank has a pre-fixed interest rate risk generated by government securities (NTN-F and LTN) in the Financial Assets portfolio measured through Other Comprehensive Income. To manage this mismatch, the entity contracts DI futures on the Stock Exchange and designates them as a derivative instrument in a hedge accounting framework.

 

• The Bank has a risk to the IPCA (Broad pricing to consumers index) generated by debentures in the portfolio of securities available for sale. To manage this mismatch, it contracts IPCA (DAP) futures on the Stock Exchange and designates them as a derivative instrument in a Hedge Accounting structure.

 Consolidated Financial Statements | December 31, 2020 | F-49

Table of Contents

* Values expressed in thousands, except when indicated.

 

In order to assess the effectiveness and measure the ineffectiveness of the strategies, the institution complies with international accounting standard IAS 39, which requires that the effectiveness test be performed at the beginning (prospective test) of the hedge structure and be repeated periodically (prospective and retrospective tests) in order to demonstrate that the hedge ratio remains effective.

 

To assess the effectiveness and measure the ineffectiveness of the strategies, the Bank follows IAS 39, which requires that the effectiveness test be performed at the beginning (prospective test) of the hedge structure, and repeated periodically (prospective and retrospective test) to demonstrate that the hedge relationship remains effective.

 

a) Prospective test: according to the standard, the prospective test must be done on the start date (inception) and quarterly to demonstrate that the expectation regarding the effectiveness of the hedge relationship is high.

 

a.1) The initial prospective test (at inception): it is restricted to a qualitative review of the critical terms and conditions of the instrument and the hedged object, to a conclusion that changes in the market value of both instruments are expected to completely cancel each other out.

 

a.2) The prospective periodic test: the sensitivity of the present value of the hedged object and the hedging instrument to a parallel variation of 10 Basis Points in the interest rate curve will be computed periodically. For the purposes of effectiveness, the ratio of the two sensitivities must be between 80% and 125%.

 

b) Retrospective test: the retrospective effectiveness test will be conducted by comparing the market to market (mtm) variation of the hedge instrument from the beginning date with the variation of the hedge object's mtm from the beginning.

 

In fair value hedges, gains or losses, both on hedge instruments and on hedged items (attributable to the type of risk being protected) are recognized directly in the consolidated income statement.

 

    2019   2018   2017
 

Hedge Structure

Accumulated Effective Portion

 

Ineffective Portion

 Accumulated Effective Portion Ineffective Portion Accumulated Effective Portion Ineffective Portion
 Fair Value Hedge           
 Government Bonds (LTN, NTN-F)(2,853,807) - (1,381,156) - (388,446) -
 Eurobonds- - - - - -
 LEA Government Bonds(61,761) - (191,472) - (1,200) -
 Resolution 2,770(94) - 689 - 304 -
 Trade Finance Off(4,015) - (58,020) - (57,386) -
 Total(2,919,677) - (1,629,959) - (446,728) -
  2020 2019 2018
Hedge Structure  Effective Portion Accumulated   Portion Ineffective   Effective Portion Accumulated   Portion Ineffective   Effective Portion Accumulated   Portion Ineffective 
 Fair Value Hedge                        
Brazilian Treasury Bonds (LTN, NTN-F)  (2,183,841)  -   (2,853,807)  -   (1,381,156)  - 
Bonds (LEA)  -   -   (61,761)  -   (191,472)  - 
Resolution 2770  -   -   (94)  -   689   - 
Trade Finance Off  (5,092)  -   (4,015)  -   (58,020)  - 
Total  (2,188,933)  -   (2,919,677)  -   (1,629,959)  - 

            12/31/2020
            
      Hedge Instruments     

Hedge

Objects

  Curve Adjustment to Accounting Curve Adjustment to Accounting
Strategies Value Market Value Value Value Market Value Value
Future Contracts  46,649,331   -   46,649,331   42,529,036   2,802,690   45,331,727 
Hedge of Securities  46,649,331   -   46,649,331   42,529,036   2,802,690   45,331,727 
                         

 

 

        
       12/31/2019
   Hedge Instruments   Hedge Objects
 AccruedAdjustment toAccounting AccruedAdjustment toAccounting

Strategies

CostMarket ValueValue CostMarket ValueValue
Swap Contracts3,249,742101,2643,351,005 3,555,326662,7734,218,099
Credit Operations Hedge1,118,21028,9931,147,202 1,423,80963,2311,487,040
Hedge of Securities2,131,53272,2712,203,802 2,131,517599,5422,731,059
Future Contracts789,631-789,631 45,427,1253,000,49048,427,614
Hedge of Securities789,631-789,631 45,427,1253,000,49048,427,614

      
               12/31/2019
   12/31/2018           
 Hedge Instruments  Hedge Objects     Hedge Instruments     

Hedge

Objects

AccruedAdjustment toAccounting AccruedAdjustment toAccounting Curve Adjustment to Accounting Curve Adjustment to Accounting
StrategiesCostMarket ValueValue CostMarket ValueValue Value Market Value Value Value Market Value Value
Swap Contracts3,908,082140,4474,048,529 3,921,24965,0143,986,263  3,249,742   101,264   3,351,004   3,555,326   662,773   4,218,099 
Credit Operations Hedge1,152,249115,1801,267,429 1,166,38750,6681,217,055  1,118,210   28,993   1,147,202   1,423,809   63,231   1,487,040 
Hedge of Securities2,755,83325,2672,781,100 2,754,86214,3462,769,208  2,131,532   72,271   2,203,802   2,131,517   599,542   2,731,059 
Future Contracts41,286,091-41,286,091 44,130,671(205,941)43,924,730  789,631   -   789,631   45,427,125   3,000,490   48,427,614 
Hedge of Securities41,286,091-41,286,091 44,130,671(205,941)43,924,730  789,631   -   789,631   45,427,125   3,000,490   48,427,614 

 

 Consolidated Financial Statements | December 31, 2020 | F-50

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BANCO SANTANDER (BRASIL) S.A.

* Values expressed in thousands, except when indicated.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Thousand of Brazilian Reais - R$ - unless otherwise stated) 

 

      
               12/31/2018
 12/31/2017           Hedge
 Hedge Instruments  Hedge Objects     Hedge Instruments     Objects
AccruedAdjustment toAccounting AccruedAdjustment toAccounting Curve Adjustment to Accounting Curve Adjustment to Accounting
StrategiesCostMarket ValueValue CostMarket ValueValue Value Market Value Value Value Market Value Value
Swap Contracts 3,027,723 108,626 3,136,349  3,049,206 77,623 3,126,829  3,908,082   140,447   4,048,529   3,921,249   65,014   3,986,263 
Credit Operations Hedge 1,286,522 109,604 1,396,126  1,302,830 79,496 1,382,326  1,152,249   115,180   1,267,429   1,166,387   50,668   1,217,055 
Hedge of Securities 1,741,201 (978) 1,740,223  1,746,376 (1,873) 1,744,503  2,755,833   25,267   2,781,100   2,754,862   14,346   2,769,208 
Future Contracts 22,206,615 - 22,206,615  24,415,397 364,434 24,779,831  41,286,091   -   41,286,091   44,130,671   (205,941)  43,924,730 
Hedge of Securities 22,206,615 - 22,206,615  24,415,397 364,434 24,779,831  41,286,091   -   41,286,091   44,130,671   (205,941)  43,924,730 

 

(*) The Bank has market risk hedge strategies, the objects of which are assets in its portfolio, which is why we demonstrate the passive edge of the respective instruments. For structures whose instruments are futures, we show the balance of the calculated daily adjustment, recorded in a clearing account.

 

a.6.I)a.6.II) Cash Flow Hedge

 

The Bank's cash flow hedge strategies consist of hedging exposure to changes in cash flows, interest payments and exchange rate exposure, which are attributable to changes in interest rates on recognized assets and liabilities and changes exchange rates for unrecognized assets and liabilities.

 

The Bank applies the cash flow hedge as follows:

 

• Enters into fixed-rate asset swaps and foreign currency liabilities and designates them as a hedging instrument in a Cash Flow Hedge structure, with the object of foreign currency loan operations negotiated with third parties through offshore agencies and securities Brazilian foreign debt held to maturity.

 

• It contracts Dollar futures or DDI + DI futures (Synthetic Dollar Futures) and designates them as a protection instrument in a Cash Flow Hedge structure, having as object item the Bank's credit portfolio in Dollars and Promissory Notes in securities portfolio available for sale.

  

• The Bank has a post-fixed interestportfolio of assets indexed to the Euro and traded at offshore branches. In the transaction, the value of the asset in Euro will be converted to the Dollar by the rate risk (varies according to an index) arisingof the exchange contract of the transaction. As from the treasury billsconversion, the principal amount of credit classified as availablethe funding, already expressed in US dollars, will be adjusted by a floating or fixed rate. The assets will be covered with Swap Cross Currency in order to cross the risk in Euro for sale, which present expected cash flows subject to Selic variations over their duration. To manage these fluctuations, the Bank contracts DI futures and designates them as a protection instrument in a Cash Flow Hedge structure.

• Banco RCI Brasil SA has hedge operations whose purpose is to raise funds with bills of exchange (LF), bills of exchange (LC) and certificates of interbank deposits (CDI) indexed to CDI and uses interest rate swaps to make pre-fixed funding and predicting future cash flows.LIBOR + Coupon.

 

To assess the effectiveness and measure the ineffectiveness of these strategies, Banco Santander follows IAS 39, which indicates that the effectiveness test must be carried out in the design / design/start of the hedge structure (prospective test) and repeated periodically (prospective and retrospective test) for demonstrate that the expectation of the hedge relationship remains effective (between 80 and 125%).

 

In this hedge strategy, the effectiveness tests (prospective / (prospective/retrospective) are conducted by comparing two proxies, one for the hedged object and the other for the instrument.

The hedge object proxy is a “conceptual” swap, where the passive “tip” simulates the part of the Stable Portion to be protected and the active pre-fixed “tip” is identical to the set of futures designated as a hedge, being consistent with market rates practiced on the day the hedge is designated. The hedge instrument proxy is a “conceptual” swap, where the active “tip” is made up of the number of futures contracts designated as hedging, and the passive pre-fixed “tip” is the rate negotiated in the acquisition of these contracts. The proxy is stable throughout the strategy since the contracts are maintained until maturity.

Any ineffectiveness is recognized in the income statement.

 

a) Prospective Test: according to the regulations, the prospective test must be performed on the start date and quarterly to demonstrate that the expectation regarding the effectiveness of the hedge relationship is high, however the tests are carried out monthly for proactive monitoring and more efficient projections, in addition to better maintenance of testing-related routines.

 

a.1) Periodic Prospective Test: Market Risk makes the projections of three scenarios for the tests, being: 1st 10bps on the curve; 2nd 50bps on the curve and 3rd 100bps on the curve. Using the validated estimates, prospective tests are performed by valuing the two variable legs of the transaction to market.

 

 Consolidated Financial Statements | December 31, 2020 | F-51

Table of Contents

* Values expressed in thousands, except when indicated.

a.2) Initial Prospective Test: the methodology of the periodic prospective test should also be applied on the start date of each new strategy.

 

b) Retrospective test: it must be performed monthly with historical data to demonstrate cumulatively that the hedge was effective, according to the methodology presented above. Any ineffectiveness is recognized in the income statement.

 

The Ineffective portion is recognized throughmeasured using the prospective hedge test.test and if identified recognized in the income statement in the line Gains (losses) on financial assets and liabilities (net).

 

Effectiveness should be between 80% and 125%.

 

In cash flow hedges, the effective portion of the variation in the value of the hedge instrument is temporarily recognized in equity under the caption “Other comprehensive income - cash flow hedges” (Note 26) until the anticipated transactions occur, when this portion is recognized in the consolidated income statement, except if the anticipated transactions result in the recognition of non-financial assets or liabilities, this portion will be included in the cost of the financial asset or liability. The non-effective portion of the variation in the value of foreign exchange hedge derivatives andis recognized directly in the consolidated income statement. And the ineffective portion of the gains and losses on cash flow hedge instruments in an operation abroad is recognized directly in “Gains (losses) on financial assets and liabilities (net)” in the income statements.consolidated statements of income.

 

F-51

Table of Contents

 

BANCO SANTANDER (BRASIL) S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Thousand of Brazilian Reais - R$ - unless otherwise stated) 

    2019   2018   2017
 

Hedge Structure

Accumulated Effective Portion

 

Ineffective Portion

 Accumulated Effective Portion Ineffective Portion Accumulated Effective Portion Ineffective Portion
 Cash Flow Hedge           
 Eurobonds(6,074) - (8,925) - (25,576) -
 Trade Finance Off139,852 - (16,453) (3,981) (94,896) 9,267
 Government Bonds (LFT)503,665 - 331,922 - 129,995 -
 Bancary Deposit Receipt - CDB- - 1,225 - 129,995 -
 Total637,443 - 307,769 (3,981) 139,518 9,267
  2020 2019 2018
Hedge Structure  Effective Portion Accumulated   Portion Ineffective   Effective Portion Accumulated   Portion Ineffective   Effective Portion Accumulated   Portion Ineffective 
Cash Flow Hedge                        
Eurobonds  14,666   -   (6,074)  -   (8,925)  - 
Trade Finance Off  58,088   -   139,852   -   (16,453)  (3,981)
Government Securities (LFT)  727,437   -   503,665   -   331,922   - 
Bank Deposit Certificate - CDB  -   -   -   -   1,225   - 
Total  800,190   -   637,443   -   307,769   (3,981)

 

    12/31/2019
     
   Hedge InstrumentsHedge Object
 AccruedAdjustment toMarketAccrued
StrategiesCostMarket ValueValueCost
Swap Contracts1,361,65835,1101,396,7681,324,685
Credit Operations Hedge435,872(3,494)432,378399,831
Hedge of Securities925,78638,604964,390924,854
Future Contracts54,460,972-54,460,9727,726,566
Credit Operations Hedge (1)50,975,253-50,975,2534,506,878
Hedge of Securities3,485,719-3,485,7193,219,688

 

 12/31/2018       12/31/2020
          
 Hedge InstrumentsHedge Object     Hedge Instruments Hedge Object
AccruedAdjustment toMarketAccrued Accounting Adjustment to Market Accounting
StrategiesCostMarket ValueValueCost Value - liability Market Value Value Value
Swap Contracts2,227,004(24,206)2,202,7982,423,678  1,428,053   1,428,053   1,302,666   1,302,666 
Credit Operations Hedge1,032,28368,7301,101,0121,198,921
Hedge of Securities1,194,721(92,936)1,101,7861,224,757  1,428,053   1,428,053   1,302,666   1,302,666 
Future Contracts44,541,939-44,541,93917,224,115  19,500,234   19,500,234   23,447,934   23,447,934 
Credit Operations Hedge (1)44,000,952-44,000,95216,910,915
Hedge of Securities540,987-540,987313,200  19,500,234   19,500,234   23,447,934   23,447,934 
                

 

      12/31/2019
         
      Hedge Instruments Hedge Object
  Accounting Adjustment to Market Accounting
Strategies Value - liability Market Value Value Value
Swap Contracts  1,361,658   35,110   1,396,768   1,324,685 
Credit Operations Hedge  435,872   (3,494)  432,378   399,831 
Hedge of Securities  925,786   38,604   964,390   924,854 
Future Contracts  54,460,972   -   54,460,972   7,726,566 
Credit Operations Hedge (1)  50,975,253   -   50,975,253   4,506,878 
Hedge of Securities  3,485,719   -   3,485,719   3,219,688 
                 

              12/31/2018 
            Hedge Instruments    Hedge Object 
    Accounting    Adjustment to    Market    Accounting 
Strategies   Value - liability    Market Value    Value    Value 
Swap Contracts  2,227,004   (24,206)  2,202,798   2,423,678 
Credit Operations Hedge  1,032,283   68,730   1,101,012   1,198,921 
Hedge of Securities  1,194,721   (92,936)  1,101,786   1,224,757 
Future Contracts  44,541,939   -   44,541,939   17,224,115 
Credit Operations Hedge (1)  44,000,952   -   44,000,952   16,910,915 
Hedge of Securities  540,987   -   540,987   313,200 

(*) The Bank has cash flow hedge strategies, the objects of which are assets in its portfolio, which is why we have shown the liability side of the respective instruments. For structures whose instruments are futures, we show the notional's balance, recorded in a memorandumclearing account.


(1) Updated value of the instruments on December 31, 20192020 is R$8,425,3866,972,063 (12/31/20182019 - R$16,738,641)8,425,386).

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* Values expressed in thousands, except when indicated.

 

In Consolidated, the mark-to-market effect of swap and future asset contracts corresponds to a credit in the amount of R$11,06311,169 (12/31/20182019 - R$19,523)11,063) and is recorded in equity, reduced tax effects, of which R$6,3275,026 will be realized against revenue in the next twelve months.

  

a.7) Derivative Financial Instruments - Margins Pledged as Guarantee

 

The margin given in guarantee for transactions traded at B3 S.A. with its own and third party derivative financial instruments is composed of federal public securities.

 

 201920182017
    
Financial Treasury Letters – LFT5,342,9927,552,926708,960
National Treasury Letters – LTN1,086,5563,392,8864,371,286
National Treasury Notes – NTN660,918873,1341,193,315
Total7,090,46611,818,9466,273,561
  2020 2019 2018
Financial Treasury Bills - LFT  4,363,666   5,342,992   7,552,926 
National Treasury Bills - LTN  6,155,276   1,086,556   3,392,886 
National Treasury Notes - NTN  2,814,274   660,918   873,134 
Total  13,333,215   7,090,466   11,818,946 

 

b) Short Positions

 

As of December 31, 2019,2020, the balance of short positions totaled R$23,501,417 (2018 45,807,946 (2019 - R$32,695,677 23,835,653 and 20172018 - R$32,808,392) 32,695,677) which includes the amount of financial liabilities resulting from the direct sale of financial assets purchased under commitments forthrough resale or borrowed.loan commitments.

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BANCO SANTANDER (BRASIL) S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Thousand of Brazilian Reais - R$ - unless otherwise stated) 

 

9.Loans and advances to clients

 

a) Breakdown

 

The breakdown, by classification, of the balances of “Loans and advances to clients” in the consolidated financial statements is as follows:

 

Thousand of reais201920182017
    
Classification:   
Non-Trading Financial Assets Mandatorily Measured At Fair Value Through Profit Or Loss-619,180-
Loans and Receivables--272,420,157
Financial Assets Measured At Amortized Cost326,699,480301,072,207-
 Of which:   
  Loans and receivables at amortized cost347,256,660321,314,010287,829,213
  Impairment losses(20,557,180)(20,241,803)(15,409,056)
Loans and advances to customers, net326,699,480301,691,387272,420,157
Loans and advances to customers, gross347,256,660321,933,190287,829,213

Thousand of reais 2020 2019 2018
      
Classification:      
Non-Trading Financial Assets Mandatorily Measured At Fair Value Through Profit Or Loss  60,808   -   619,180 
Financial Assets Measured At Amortized Cost  393,707,229   326,699,480   301,072,207 
Of which:            
Loans and receivables at amortized cost  417,761,218   347,256,660   321,314,010 
Impairment losses  (24,053,989)  (20,557,180)  (20,241,803)
Loans and advances to customers, net  393,768,037   326,699,480   301,691,387 
Loans and advances to customers, gross  417,822,026   347,256,660   321,933,190 
            
Thousand of reais201920182017  2020   2019   2018 
             
Type:             
Loans operations(1)329,910,319308,364,517272,561,017  390,941,415   329,910,319   308,364,517 
Lease Portfolio2,111,8421,836,5041,888,444  2,096,240   2,111,842   1,836,504 
Repurchase agreements10,500509,147403,415  4,530,041   10,500   509,147 
Other receivables(2)15,223,99911,223,02212,976,337  20,254,330   15,223,999   11,223,022 
Total347,256,660321,933,190287,829,213  417,822,026   347,256,660   321,933,190 

(1) Includes loans and other loans with credit characteristics.

(2) Refers substantially to Foreign Exchange Transactions and Other Receivables with credit granting characteristics.

 

Note 44-d43-d contains a detail of the residual maturity periods of loans and receivables.

 

There are no loans and advances to clients for material amounts without fixed maturity dates.

 

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* Values expressed in thousands, except when indicated.

b) Detail

 

Following is a detail, by loan type and status, borrower sector and interest rate formula, of the loans and advances to clients, which reflect the Bank’s exposure to credit risk in its core business, gross of impairment losses:

 

Thousand of reais201920182017 2020 2019 2018
Loan borrower sector:       
Commercial, and industrial145,387,439146,293,616140,619,110  191,281,653   145,387,439   146,293,616 
Real estate - construction39,720,71336,515,35234,808,681
Real estate-construction  45,791,869   39,720,713   36,515,352 
Installment loans to individuals160,036,668137,287,593110,512,978  178,652,145   160,036,668   137,287,593 
Lease financing2,111,8401,836,6291,888,444  2,096,359   2,111,840   1,836,629 
Total347,256,660321,933,190287,829,213  417,822,026   347,256,660   321,933,190 

 

 

Thousand of reais201920182017 2020 2019 2018
Interest rate formula:       
Fixed interest rate258,760,620240,772,724202,592,491  292,884,352   258,760,620   240,772,724 
Floating rate88,496,04081,160,46685,236,722  124,937,674   88,496,040   81,160,466 
Total347,256,660321,933,190287,829,213  417,822,026   347,256,660   321,933,190 

                 
Debt Sector by Maturity Less than 1 year % of total Between 1 and 5 years % of total More than 5 years % of total Total 

2020

% of total

                 
Commercial and industrial  127,569,542   58.23%  60,190,422   40.94%  3,521,688   6.81%  191,281,652   45.78%
                                 
Real estate  3,419,553   1.56%  8,973,495   6.10%  33,398,822   64.54%  45,791,870   10.96%
Installment loans to individuals  87,174,594   39.79%  76,667,187   52.15%  14,810,364   28.62%  178,652,145   42.76%
                                 
Lease financing  899,055   0.41%  1,182,713   0.80%  14,591   0.03%  2,096,359   0.50%
Loans and advances to customers, gross  219,062,744   100%  147,013,817   100%  51,745,465   100%  417,822,026   100%
                                 
                                 

                 
Debt Sector by Maturity Less than 1 year % of total Between 1 and 5 years % of total More than 5 years % of total Total 

2019

 % of total

                 
Commercial and industrial  102,083,249   54.83%  39,408,727   33.44%  3,895,463   9.01%  145,387,439   41.87%
                                 
Real estate  3,633,231   1.95%  8,145,568   6.91%  27,941,913   64.65%  39,720,713   11.44%
Installment loans to individuals  79,624,744   42.76%  69,034,596   58.58%  11,377,328   26.33%  160,036,668   46.09%
                                 
Lease financing  855,624   0.46%  1,252,673   1.06%  3,543   0.01%  2,111,840   0.61%
Loans and advances to customers, gross  186,196,848   100%  117,841,564   100%  43,218,247   100%  347,256,660   100%
                                 
                                 

                2018
Debt Sector by Maturity Less than 1 year % of total Between 1 and 5 years % of total More than 5 years % of total Total % of total
                 
Commercial and industrial  109,802,828   58.92%  32,538,999   32.77%  3,951,789   10.90%  146,293,616   45.44%
                                 
Real estate  4,298,925   2.31%  7,964,308   8.02%  24,252,119   66.90%  36,515,352   11.34%
Installment loans to individuals  71,433,099   38.33%  57,808,600   58.21%  8,045,894   22.20%  137,287,593   42.64%
                                 
Lease financing  838,659   0.45%  997,644   1.00%  326   0.00%  1,836,629   0.57%
Loans and advances to customers, gross  186,373,511   100%  99,309,551   100%  36,250,128   100%  321,933,190   100%
                                 
                                 

 

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BANCO SANTANDER (BRASIL) S.A.

* Values expressed in thousands, except when indicated.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Thousand of Brazilian Reais - R$ - unless otherwise stated) 

 

2019
Debt Sector by MaturityLess than 1 year     % of totalBetween 1 and 5 years% of totalMore than 5 years% of totalTotal% of total
Commercial and industrial102,083,24954.83%39,408,72733.44%3,895,4639.01%145,387,43941.87%
Real estate3,633,2311.95%8,145,5686.91%27,941,91364.65%39,720,71311.44%
Installment loans to individuals79,624,74442.76%69,034,59658.58%11,377,32826.33%160,036,66846.09%
Lease financing855,6240.46%1,252,6731.06%3,5430.01%2,111,8400.61%
Loans and advances to customers, gross186,196,848100.00%117,841,564100.00%43,218,247100.00%347,256,660100.00%
Thousand of reais 2020 2019 2018
       
Maturity      
Less than 1 year  219,062,744   186,196,849   186,373,511 
Between 1 and 5 years  147,013,817   117,841,564   99,309,551 
More than 5 years  51,745,465   43,218,247   36,250,128 
Loans and advances to customers, gross  417,822,026   347,256,660   321,933,190 
             
Internal risk classification            
Low (1)  347,312,357   257,133,115   240,440,294 
Medium-low (1)  24,277,404   56,549,196   50,485,682 
Medium (2)  26,231,871   11,754,806   11,967,262 
Medium - high (2)  3,896,457   8,512,386   7,722,198 
High (3)  16,100,937   13,307,156   11,317,754 
Loans and advances to customers, gross  417,822,026   347,256,660   321,933,190 

 

(1) Transactions classifieds on Stage 1 

2018
Debt Sector by MaturityLess than 1 year% of totalBetween 1 and 5 years% of totalMore than 5 years% of totalTotal% of total
Commercial and industrial109,802,82858.92%32,538,99932.77%3,951,78910.90%146,293,61645.44%
Real estate4,298,9252.31%7,964,3088.02%24,252,11966.90%36,515,35211.34%
Installment loans to individuals71,433,09938.33%57,808,60058.21%8,045,89422.20%137,287,59342.64%
Lease financing838,6590.45%997,6441.00%3260.00%1,836,6290.57%
Loans and advances to customers, gross186,373,511100.00%99,309,551100.00%36,250,128100.00%321,933,190100.00%

(2) Transactions classifieds on Stage 2 

(3) Transactions classifieds on Stage 3 

2017
Debt Sector by MaturityLess than 1 year% of totalBetween 1 and 5 years% of totalMore than 5 years% of totalTotal% of total
Commercial and industrial103,377,57161.65%31,262,49237.90%5,979,04719.25%140,619,11048.85%
Real estate7,791,7535.35%10,970,00413.29%16,046,92451.65%34,808,68112.09%
Installment loans to individuals62,078,22532.29%39,393,69947.74%9,041,05429.10%110,512,97838.40%
Lease financing1,000,4180.71%886,8331.07%1,1930.00%1,888,4440.66%
Loans and advances to customers, gross174,247,967100.00%82,513,028100.00%31,068,218100.00%287,829,213100.00%

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BANCO SANTANDER (BRASIL) S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Thousand of Brazilian Reais - R$ - unless otherwise stated) 

Thousand of reais201920182017
    

Maturity 

   
Less than 1 year186,196,849 186,373,511174,247,968
Between 1 and 5 years117,841,56499,309,55182,513,030
More than 5 years43,218,24736,250,12831,068,215
Loans and advances to customers, gross347,256,660321,933,190287,829,213
    
Internal risk classification   
Low257,133,115240,440,294226,098,497
Medium-low56,549,19650,485,68233,635,378
Medium11,754,80611,967,26210,423,293
Medium - high 8,512,386 7,722,1988,215,024
High3,307,15611,317,7549,457,021
Loans and advances to customers, gross347,256,660321,933,190287,829,213

 

c) Impairment losses

 

The following tables show the reconciliation of the initial and final balances of the provision for losses by category of financial instrument. The terms of credit losses expected in 12 months, credit losses expected during the maturityuseful life and impairment losses are explained in the note on accounting practices. The comparative values ​​referring to 01/01/2018 represent the provision for losses of credit on 12/31/2017 after the initial adoption adjustments of IFRS 9 (note 1)

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* Values expressed in thousands, except when indicated.

 

The variations in the provisions for losses due to non-recovery in the balances of the item “Financial assets measured at amortized cost” are as follows:

 

Thousand of reais  2019       2020
 Stage 1Stage 2Stage 3  Stage 1 Stage 2 Stage 3  
 Credit losses expected in 12 monthsExpected credit losses over a maturity not subject to impairmentExpected credit losses during the maturity subject to impairmentTotal Credit losses expected in 12 months Expected credit losses over a useful life not subject to impairment Expected credit losses during the useful life subject to impairment Total
         
Balance at beginning of year 3,917,2783,779,11915,272,91822,969,315  4,358,601   3,293,690   14,973,459   22,625,750 
Impairment losses charged to income for the year 1,549,095365,19112,447,09614,361,382  4,968,075   2,881,726   10,462,365   18,312,166 
Transfers between stages (1,386,769)(784,480)9,478,6987,307,449  (3,142,225)  2,850,217   7,081,358   6,789,350 
Movement of the period 2,935,8641,149,6712,968,3987,053,934  8,110,300   31,509   3,380,007   11,522,817 
Of which:                 
Commercial and industrial (463,647)(77,270)2,917,8272,376,910  3,230,168   1,867,504   1,821,724   6,919,396 
Real estate - construction (44,548)29,206110,29994,957
Real estate-construction  (8,544)  (27,803)  117,762   81,415 
Installment loans to individuals 2,060,043415,8959,390,53711,866,475  1,752,883   1,041,818   8,513,988   11,308,689 
Lease financing (2,753)(2,640)28,43323,040  (6,432)  207   8,891   2,666 
Variation by Stage (1,107,772)(850,621)1,958,393-  (3,489,478)  (1,246,810)  4,736,287   - 
Write-off of impaired balances against recorded impairment allowance -(14,704,948)(14,704,948)  -   -   (15,297,428)  (15,297,428)
Of which:                 
Commercial and industrial -(5,713,369)(5,713,369)  -   -   (4,617,446)  (4,617,446)
Real estate - construction -(108,294)(108,294)
Real estate-construction  -   -   (232,262)  (232,262)
Installment loans to individuals -(8,834,391)(8,834,391)  -   -   (10,433,132)  (10,433,132)
Lease financing -(48,893)(48,893)  -   -   (14,588)  (14,588)
                 
Balance at end of year 4,358,6013,293,69014,973,45922,625,750  5,837,199   4,928,606   14,874,684   25,640,488 
Of which:                 
Loans and advances to customers 4,291,7343,282,25212,983,19420,557,180  5,746,000   4,919,000   13,388,989   24,053,989 
Loans and amounts due from credit institutions (Note 5) 13,543-13,543  9,065   -   -   9,065 
Provision for Debt Instruments (Note 6) 53,32411,4381,990,2652,055,027  82,135   9,606   1,485,695   1,577,435 
 -              - 
Recoveries of loans previously charged off -991,476991,476  -   -   861,253   861,253 
Of which:                 
Commercial and industrial -519,594519,594  -   -   422,023   422,023 
Real estate - construction -46,63946,639
Real estate-construction  -   -   55,631   55,631 
Installment loans to individuals -417,477417,477  -   -   370,491   370,491 
Lease financing -7,7677,767  -   -   13,107   13,107 
                 
Thousand of reais      2020   2019   2018 
Balance at beginning of year      22,625,750   22,969,315   20,723,062 
Impairment losses charged to income for the year      18,311,441   14,361,382   13,540,105 
Of which:                
Commercial and industrial      6,918,671   2,376,910   3,620,292 
Real estate-construction      81,415   94,957   192,901 
Installment loans to individuals      11,308,689   11,866,475   9,708,243 
Lease financing      2,666   23,040   18,669 
Write-off of impaired balances against recorded impairment allowance      (15,296,703)  (14,704,948)  (11,293,852)
Of which:                
Commercial and industrial      (4,616,722)  (5,713,369)  (3,981,414)
Real estate-construction      (232,262)  (108,294)  (190,660)
Installment loans to individuals      (10,433,131)  (8,834,391)  (7,099,553)
Lease financing      (14,589)  (48,893)  (22,225)
Balance at end of year      25,640,488   22,625,750   22,969,315 
Of which:                
Loans and advances to customers      24,053,989   20,557,180   20,241,803 
Loans and amounts due from credit institutions (Note 5)      9,065   13,543   13,561 
Provision for Debt Instruments (Note 6)      1,577,435   2,055,027   2,713,951 
                
Recoveries of loans previously charged off      861,253   991,476   826,573 
Of which:                
Commercial and industrial      422,023   519,594   345,085 
Real estate-construction      55,631   46,639   103,433 
Installment loans to individuals      370,491   417,477   369,557 
Lease financing      13,107   7,767   8,498 

  

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BANCO SANTANDER (BRASIL) S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Thousand of Brazilian Reais - R$ - unless otherwise stated) 

Thousand of reais2018
 Stage 1Stage 2 Stage 3  
Credit losses expected in 12 monthsExpected credit losses over a maturity not subject to impairment Expected credit losses during the maturity subject to impairmentTotal
       
Balance at beginning of year3,833,5533,767,490 13,122,019 20,723,062
Impairment losses charged to income for the year83,725389,100 13,067,280 13,540,105
Transfers between stages(1,096,539)(273,048) 4,502,795 3,133,208
Movement of the period1,180,264662,148 8,564,485 10,406,897
Of which:      
Commercial and industrial(311,546)(161,669) 4,093,507 3,620,292
Real estate - construction(10,173)(28,581) 231,655 192,901
Installment loans to individuals406,011581,068 8,721,164 9,708,243
Lease financing(567)(1,718) 20,954 18,669
Write-off of impaired balances against recorded impairment allowance-(377,471) (10,916,381) (11,293,852)
Of which:      
Commercial and industrial-(132,770) (3,848,644) (3,981,414)
Real estate - construction-(877) (189,783) (190,660)
Installment loans to individuals-(243,824) (6,855,729) (7,099,553)
Lease financing-- (22,225) (22,225)
       
Balance at end of year3,917,2783,779,119 15,272,918 22,969,315
Of which:      
Loans and advances to customers3,831,8123,727,264 12,682,727 20,241,803
Loans and amounts due from credit institutions (Note 5)-13,561 - 13,561
Provision for Debt Instruments (Note 6)85,46538,296 2,590,190 2,713,951
      -
Recoveries of loans previously charged off-- 826,573 826,573
Of which:      
Commercial and industrial-- 345,085 345,085
Real estate - construction-- 103,433 103,433
Installment loans to individuals-- 369,557 369,557
Lease financing-- 8,498 8,498

Thousand of reais

2017
Balance at beginning of year18,191,126
Impairment losses charged to income for the year13,492,072
Of which:
Commercial and industrial5,499,018
Real estate - construction471,366
Installment loans to individuals7,460,458
Lease financing61,230
Write-off of impaired balances against recorded impairment allowance(13,421,560)
Of which:
Commercial and industrial(5,715,903)
Real estate - construction(341,804)
Installment loans to individuals(7,312,310)
Lease financing(51,543)
Balance at end of year18,261,638
Of which:
Loans and advances to customers15,409,056
Loans and amounts due from credit institutions (Note 5)69,015
Provision for Debt Instruments (Note 6)2,783,567
Recoveries of loans previously charged off1,153,931
Of which:
Commercial and industrial412,514
Real estate - construction209,940
Installment loans to individuals521,589
Lease financing9,888

Taking into accountConsidering these amounts recognized in “Impairment losses charged to income for the year” and the "Recoveries of loans previously charged off", the "Impairment losses on financial assets - Loans and receivables” amounted on December 31, 2019

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BANCO SANTANDER (BRASIL) S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Thousand of Brazilian Reais2020 R$17,450,188 (2019 - R$ - unless otherwise stated) 

R$13,369,905 (2018and 2018 - R$12,713,532 and 2017 - R$12,338,141).12,713,532),

 

The balances of the provision for losses due to non-recovery by debtor sector are as follows:

 

Thousand of reais201920182017 2020 2019 2018
       
Commercial and industrial7,455,24310,791,70210,338,225  9,757,193   7,455,243   10,791,702 
Real estate - Construction344,782358,119493,422  193,935   344,782   358,119 
Installment loans to individuals14,800,20811,768,1247,373,969  15,675,765   14,800,208   11,768,124 
Lease financing25,51751,37056,022  13,594   25,517   51,370 
Total22,625,75022,969,31518,261,638  25,640,488   22,625,750   22,969,315 

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* Values expressed in thousands, except when indicated.

 

d) Impaired assets

 

The details of the changes in the balance of the financial assets classified as “Loans and receivables – loans and advances to clients” (as defined at Note 1.i) and considered to be impaired due to credit risk are as follows:

 

Thousand of reais201920182017
    
Balance at beginning of year on 01/01/2018 previously to the initial adoption IFRS 9)22,425,80119,144,99518,887,132
IFRS9 initial adoption effects-702,992-
Balance at beginning of year on 01/01/2018 after the initial adoption IFRS 9)22,425,80119,847,98718,887,132
Net additions16,000,73313,871,66613,679,423
Written-off assets(15,000,458)(11,293,852)(13,421,560)
Balance at end of year23,426,07622,425,80119,144,995

Thousand of reais 2020 2019 2018
       
Balance at beginning of year on 01/01/2018 after the initial adoption IFRS 9)  23,426,076   22,425,801   19,847,987 
Net additions  14,757,908   16,000,733   13,871,666 
Written-off assets  (15,007,946)  (15,000,458)  (11,293,852)
Balance at end of year  23,176,039   23,426,076   22,425,801 

 

Following is a detail of the financial assets considered to be impaired classified by age of the oldest past-due amount:

 

Thousand of reais201920182017
    
With no Past-Due Balances or Less than 3 Months Past Due11,729,92012,000,86710,844,831
With Balances Past Due by   
 3 to 6 Months3,961,0423,473,5914,123,796
 6 to 12 Months5,721,7624,929,0993,791,805
 12 to 18 Months985,4761,144,035271,965
 18 to 24 Months523,441325,70120,825
More than 24 Months504,435552,50891,773
Total23,426,07622,425,80119,144,995
    
Debt Sector   
Commercial and industrial10,072,65511,832,30211,993,953
Real estate - Construction826,8631,035,352781,886
Installment loans to individuals12,497,1799,499,1486,304,134
Lease financing29,37958,99965,022
Total23,426,07622,425,80119,144,995

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BANCO SANTANDER (BRASIL) S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Thousand of Brazilian Reais - R$ - unless otherwise stated) 

Thousand of reais 2020 2019 2018
       
With no Past-Due Balances or Less than 3 Months Past Due  12,966,813   11,729,920   12,000,867 
With Balances Past Due by            
 3 to 6 Months  3,049,974   3,961,042   3,473,591 
 6 to 12 Months  4,798,859   5,721,762   4,929,099 
 12 to 18 Months  1,243,809   985,476   1,144,035 
 18 to 24 Months  607,527   523,441   325,701 
More than 24 Months  509,056   504,435   552,508 
Total  23,176,039   23,426,076   22,425,801 
             

Debt Sector

 

      
Commercial and industrial  10,558,213   10,072,655   11,832,302 
Real estate - Construction  456,130   826,863   1,035,352 
Installment loans to individuals  12,144,238   12,497,179   9,499,148 
Lease financing  17,458   29,379   58,999 
Total  23,176,039   23,426,076   22,425,801 

 

e) Loan past due for less than 90 days but not classified as impaired

 

Thousand of reaisThousand of reais2019% of total loans past due for less than 90 days2018% of total loans past due for less than 90 days2017% of total loans past due for less than 90 days 2020 % of total loans past due for less than 90 days 2019 % of total loans past due for less than 90 days 2018 % of total loans past due for less than 90 days
                
Commercial and industrial Commercial and industrial 3,517,08615.42%4,424,14319.77%3,559,34919.90%  5,131,885   25.80%  3.517.086   15.42%  4.424.143   19.77%
Real estate - Construction 5,781,97725.35%4,527,43220.23%4,879,56327.29%  3.085.498   15.51%  5.781.977   25.35%  4.527.432   20.23%
Installment loans to individualsInstallment loans to individuals13,489,51359.13%13,255,64659.24%9,266,36651.82%  11,660,666   58.62%  13.489.513   59.13%  13.255.646   59.24%
Financial LeasingFinancial Leasing 24,3250.11%167,7410.75%176,5280.99%  13.292   0.07%  24.325   0.11%  167.741   0.75%
Total(1) 22,812,900100.00%22,374,962100.00%17,881,806100.00%  19.891.340   100.00%  22.812.900   100.00%  22.374.962   100.00%

 

f) Lease at present value

 

As at December 31, 2020, 2019 2018 and 20172018 there were no leasing agreements or commitments that are considered individually relevantrelevant.

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* Values expressed in thousands, except when indicated.

 

Breakdown by maturity

 

Gross investment in lease transactions

 

Thousand of reaisThousand of reais201920182017 2020 2019 2018
        
Overdue 3,2334,81711,412  2,740   3,233   4,817 
Due to:             
Up to 1 year 978,748975,1831,057,023  952,172   978,748   975,183 
From 1 to 5 years 1,442,2441,160,9861,101,104  1,394,525   1,442,244   1,160,986 
Over 5 years 4,0141,0712,177  20,128   4,014   1,071 
Total 2,428,2392,142,0572,171,716  2,369,565   2,428,239   2,142,057 

 

g) Transfer of financial assets with retention of risks and benefits

 

On December 31, 2019,2020, the amount recorded on “Loans and advances to clients” related to loan portfolio assigned is R$76,028 (201855,284 (2019 - R$122,27176,028 and 20172018 – R$122,271) and R$55,105 (2019 - R$431,397)75,500 and R$75,500 (20182018 - R$126,906 and 2017 - R$428,248)126,906) of “Other financial liabilities - Financial Liabilities Associated with Assets Transfer” (Note 21).

 

The assignment operation was carried out with a co-obligation clause, with compulsory repurchase in the following situations:

 

- defaulted contracts for a period of more than 90 consecutive days;

 

- contracts subject to renegotiation;

 

- contracts subject to portability, pursuant to Resolution 3,401 of the National Monetary Council (CMN);

 

- contracts subject to intervention.

 

10.Non-current assets held for sale

 

At December 31, 2020, 2019 2018 and 2017,2018, the total amount of non-current assets held for sale includes foreclosed assets and other tangible assets. The change in the "Non-current assets held for sale" is as follows:follows:

 

Thousand of reais 201920182017  202020192018
    
Balance at beginning of year 1,598,3671,507,5481,418,308  1,580,4961,598,3671,507,548
Loan repayments - repossession of assets 735,864785,139524,497  445,173735,864785,139
Capital Increase in Companies held for sale (1) 55,245-  -55,245-
Additions / disposals (net) due to change in the scope of consolidation (2)Additions / disposals (net) due to change in the scope of consolidation (2)-(130,713)-Additions / disposals (net) due to change in the scope of consolidation (2)  -(130,713)
Sales (808,980)(563,607)(434,553)   (663,067)(808,980)(563,607)
Others -(704)
Final balance, gross 1,580,4961,598,3671,507,548   1,362,6021,580,4961,598,367
Impairment losses (3) (255,161)(218,136)(352,092)   (269,693)(255,161)(218,136)
Impairment as a percentage of foreclosed assets 16.14%13.65%23.37%   19.79%16.14%13.65%
Balance at end of year 1,325,3351,380,2311,155,456   1,092,9091,325,3351,380,231

(1)On September 20, 2019, Santander Holding Imobiliária completed the acquisition of the company Summer Empreendimentos Ltda.Ltda, (“Summer”), whose main asset is a branch located on Avenida Faria Lima in the city of São Paulo, for the amount of R$45,245. At the conclusion of the transaction, a structured plan for the sale of this company to a third party was formalized in the short term, In December 2019, Santander Holding Imobiliária carried out a capital increase in Summer in the amount of R$ 10,000.

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BANCO SANTANDER (BRASIL) S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Thousand of Brazilian Reais - R$ - unless otherwise stated) 

transaction, a structured plan for the sale of this company to a third party was formalized in the short term. In December 2019, Santander Holding Imobiliária carried out a capital increase in Summer in the amount of R$ 10,000.

(2)On June 30, 2018, Banco Santander management reevaluated its strategy on investing in Real TJK Empreendimento Imobiliário SA (currently called Rojo Entretenimento SA), a company that owns Teatro Santander, and decided to transfer the non-assets item -currents held for sale for investments in associates and controlled companies (Note 11).

(3)In 2019,2020, it includes the amount of R$ 251,945 (201824,751 (2019 – R$159,120, 2017251,945 e 2018 – R$271,670)159,120) of provisions for devaluations on properties and R$ 3,216 (2018122 (2019 – R$59,015)3,216) of provisions for devaluations on vehicles, constituted based on appraisal reports prepared by a specialized external consultancy, recorded as a provision for losses due to non-recovery – Impairment.(Impairment).

 

11.Investments in associates and joint ventures

 

Jointly controlled

 

Banco Santander considers investments classified as jointly controlled when they possess a shareholders' agreement, which sets that the strategic, financial and operating decisions requires the unanimous consent of all investors.

 

Significant Influence

 

Associates are entities over which the Bank is in a position to exercise significant influence (significant influence is the power to participate in the financial and operating decisions of the investee) but it does not control or has joint control over the investee.

 

a) Breakdown

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* Values expressed in thousands, except when indicated.

 

Participation %
Jointly Controlled by Banco SantanderActivityCountry20192018 2017
Banco RCI Brasil S.A. BankBrazil39.89%39.89% 39.89%
Norchem Participações e Consultoria S.A. (1) Other ActivitiesBrazil50.00%50.00% 50.00%
Cibrasec - Companhia Brasileira de Securitização(1)(4) SecuritizationBrazil0.00%9.72% 9.72%
Estruturadora Brasileira de Projetos S.A. - EBP (1)(4)(6) Other ActivitiesBrazil11.11%11.11% 11.11%
Gestora de Inteligência de Crédito (2) Credit BureauBrazil20.00%20.00% 20.00%
Campo Grande Empreendimentos (10) Other ActivitiesBrazil25.32%25.32% 25.32%
Banco Hyundai Capital Brasil S.A. (11) BankBrazil50.00%50.00% 0.00%
Santander Auto S.A. (12) Other ActivitiesBrazil50.00%50.00% 0.00%
Jointly Controlled by Santander Corretora de Seguros (current corporate name of Santander Participações S.A.)      
Webmotors S.A. (7) Other ActivitiesBrazil70.00%70.00% 70.00%
Tecnologia Bancária S.A. - TECBAN (1) Other ActivitiesBrazil18.98%19.81% 19.81%
Hyundai Corretora de Seguros Insurance BrokerBrazil50.00%50.00% 50.00%
PSA Corretora de Seguros e Serviços Ltda. (8)(9) Insurance BrokerBrazil50.00%50.00% 50.00%
       
Significant Influence of Banco Santander      
Norchem Holding e Negócios S.A. (1)Other ActivitiesBrazil21.75%21.75% 21.75%

a) Breakdown

 

      Participation %  
Jointly Controlled by Banco Santander Activity Country 2020 2019 2018
Banco RCI Brasil S.A.  Bank Brazil  39.89%  39.89%  39.89%
Norchem Participações e Consultoria S.A. (1)  Other Activities Brazil  0.00%  50.00%  50.00%
Cibrasec - Companhia Brasileira de Securitização(1)(2)(6)  Securitization Brazil  0.00%  0.00%  9.72%
Estruturadora Brasileira de Projetos S.A. - EBP (1)(2)  Other Activities Brazil  11.11%  11.11%  11.11%
Gestora de Inteligência de Crédito (1)  Credit Bureau Brazil  20.00%  20.00%  20.00%
Campo Grande Empreendimentos (5)  Other Activities Brazil  25.32%  25.32%  25.32%
Santander Auto S.A.  Other Activities Brazil  50.00%  50.00%  50.00%

 

 Investments
 20192018 2017
Jointly Controlled by Banco Santander595,230613,366 495,264
Banco RCI Brasil S.A.509,890458,292 427,801
Norchem Participações e Consultoria S.A.21,07826,105 25,550
Cibrasec - Companhia Brasileira de Securitização-7,298 7,438
Estruturadora Brasileira de Projetos S.A. - EBP3,8893,690 4,707
Gestora de Inteligência de Crédito47,74459,098 29,513
Campo Grande Empreendimentos255255 255
Banco Hyundai Capital Brasil S.A. (anteriormente denomina da BHJV Assessoria e Consultoria Empresarial Ltda.)-51,073 -
Santander Auto S.A.12,3747,555 -
     

Jointly Controlled by Santander Corretora de Seguros (current corporate name of Santander Participações S.A.)

Jointly Controlled by Santander Corretora de Seguros (current corporate name of Santander Participações SA)454,280419,016 350,440
Webmotors S.A.296,216273,721 197,930
Tecnologia Bancária S.A. - TECBAN156,589144,090 151,019
Hyundai Corretora de Seguros934- -
PSA Corretora de Seguros e Serviços Ltda.5411,205 1,491
     
Significant Influence of Banco Santander21,25220,933 20,860
Norchem Holding e Negócios S.A.21,25220,933 20,860
Total1,070,7621,053,315 866,564
Webmotors S.A. (3)  Other Activities Brazil  70.00%  70.00%  70.00%
Tecnologia Bancária S.A. - TECBAN (1)  Other Activities Brazil  18.98%  18.98%  19.81%
Hyundai Corretora de Seguros Insurance Broker Brazil  50.00%  50.00%  0.00%
PSA Corretora de Seguros e Serviços Ltda, (4) Insurance Broker Brazil  50.00%  50.00%  50.00%
                 
Significant Influence of Banco Santander                
Norchem Holding e Negócios S.A. (1) Other Activities Brazil  0.00%  21.75%  21.75%

  Investments    
  2020 2019 2018
Jointly Controlled by Banco Santander  590,219   595,230   613,366 
Banco RCI Brasil S.A.  544,236   509,890   458,292 
Norchem Participações e Consultoria S.A.  -   21,078   26,105 
Cibrasec - Companhia Brasileira de Securitização  -   -   7,298 
Estruturadora Brasileira de Projetos S.A. - EBP  1,273   3,889   3,690 
Gestora de Inteligência de Crédito  28,680   47,744   59,098 
Campo Grande Empreendimentos  255   255   255 
Banco Hyundai Capital Brasil S.A. (anteriormente denomina da BHJV Assessoria e Consultoria Empresarial Ltda,)  -   -   51,073 
Santander Auto S.A.  15,775   12,374   7,555 

Jointly Controlled by Santander Corretora de Seguros (current corporate name of Santander Participações SA)  504,766   454,280   419,016 
Webmotors S.A.  316,597   296,216   273,721 
Tecnologia Bancária S.A. - TECBAN  186,357   156,589   144,090 
Hyundai Corretora de Seguros  1,044   934   - 
PSA Corretora de Seguros e Serviços Ltda,  768   541   1,205 
             
Significant Influence of Banco Santander  -   21,252   20,933 
Norchem Holding e Negócios S.A.  -   21,252   20,933 
Total  1,094,985   1,070,762   1,053,315 

 

 

 

 Consolidated Financial Statements | December 31, 2020 | F-59

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BANCO SANTANDER (BRASIL) S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Thousand of Brazilian Reais - R$ - unless otherwise stated) 

  Results of Investments
 20192018 2017
Jointly Controlled by Banco Santander92,97641,212 39,904
Banco RCI Brasil S.A.105,25046,244 44,384
Norchem Participações e Consultoria S.A.9751,120 1,333
Cibrasec - Companhia Brasileira de Securitização75193 389
Estruturadora Brasileira de Projetos S.A. - EBP199(1,017) (1,560)
Gestora de Inteligência de Crédito(11,354)(6,466) (4,642)
Banco Hyundai Capital Brasil S.A. (anteriormente denomina da BHJV Assessoria e Consultoria Empresarial Ltda.)-1,083 -
Santander Auto S.A.(2,169)55 -
     
Jointly Controlled by Santander Corretora de Seguros (current corporate name of Santander Participações SA)55,93624,161 30,430
Webmotors S.A.42,84830,626 21,290
Tecnologia Bancária S.A. - TECBAN12,498(6,929) 8,307
Hyundai Corretora de Seguros(66)- -
PSA Corretora de Seguros e Serviços Ltda.656464 833
     
Significant Influence of Banco Santander576585 1,217
Norchem Holding e Negócios S.A.576585 1,217
Total149,48865,958 71,551

* Values expressed in thousands, except when indicated.

 

 

    2019
 Total assetsTotal liabilities Total Income(11)
Jointly Controlled by Banco Santander14,121,61812,502,780 206,482
Banco RCI Brasil S.A.13,452,71612,174,504 263,851
Norchem Participações e Consultoria S.A.69,86527,709 1,949
Estruturadora Brasileira de Projetos S.A. - EBP35,314311 1,790
Gestora de Inteligência de Crédito527,362288,643 (56,769)
Santander Auto S.A.36,36111,613 (4,339)
     
Jointly Controlled by Santander Corretora de Seguros (current corporate name of Santander Participações SA)2,873,1401,628,364 125,439
Webmotors S.A.484,45460,734 61,212
Tecnologia Bancária S.A. - TECBAN2,382,9071,564,801 63,046
Hyundai Corretora de Seguros Ltda.1,90941 (132)
PSA Corretora de Seguros e Serviços Ltda.3,8702,788 1,313
     
Significant Influence of Banco Santander126,93729,226 2,650
Norchem Holding e Negócios S.A.126,93729,226 2,650
Total17,121,69514,160,370 334,571

  Results of Investments
  2020 2019 2018
Jointly Controlled by Banco Santander  50,915   92,976   41,212 
Banco RCI Brasil S.A.  72,057   105,250   46,244 
Norchem Participações e Consultoria S.A.  333   975   1,120 
Cibrasec - Companhia Brasileira de Securitização  -   75   193 
Estruturadora Brasileira de Projetos S.A. - EBP  9   199   (1,017)
Gestora de Inteligência de Crédito  (19,064)  (11,354)  (6,466)
Banco Hyundai Capital Brasil S.A. (anteriormente denomina da            
BHJV Assessoria e Consultoria Empresarial Ltda,)  -   -   1,083 
Santander Auto S.A.  (2,421)  (2,169)  55 

 

Jointly Controlled by Santander Corretora de Seguros (current corporate

name of Santander Participações SA)

 

  61,380   55,936   24,161 
Webmotors S.A.  38,823   42,848   30,626 
Tecnologia Bancária S.A. - TECBAN  22,219   12,498   (6,929)
Hyundai Corretora de Seguros  110   (66)  - 
PSA Corretora de Seguros e Serviços Ltda,  226   656   464 
             
Significant Influence of Banco Santander  (33)  576   585 
Norchem Holding e Negócios S.A.  (33)  576   585 
Total  112,261   149,488   65,958 
             
      2020
   Total assets   Total liabilities   

Total 

Income (11) 

 
Jointly Controlled by Banco Santander  12,900,571   11,255,396   51,847 
Banco RCI Brasil S.A.  11,620,304   10,255,995   99,951 
Norchem Participações e Consultoria S.A.  70,475   27,781   534 
Estruturadora Brasileira de Projetos S.A. - EBP  11,562   39   148 
Gestora de Inteligência de Crédito  1,126,424   933,115   (45,410)
Santander Auto S.A.  71,807   38,466   (3,376)
             
Jointly Controlled by Santander Corretora de Seguros (current corporate name of Santander Participações SA)  2,952,308   1,692,770   68,469 
Webmotors S.A.  512,687   78,856   21,529 
Tecnologia Bancária S.A. - TECBAN  2,435,377   1,612,822   46,735 
Hyundai Corretora de Seguros Ltda,  2,076   251   (43)
PSA Corretora de Seguros e Serviços Ltda,  2,168   841   247 
             
Significant Influence of Banco Santander  126,877   29,391   (225)
Norchem Holding e Negócios S.A.  126,877   29,391   (225)
Total  15,979,756   12,977,558   120,091 
             
           2019 
   Total assets   Total liabilities   Total Income (11) 
Jointly Controlled by Banco Santander  14,121,618   12,502,780   206,482 
Banco RCI Brasil S.A.  13,452,716   12,174,504   263,851 
Norchem Participações e Consultoria S.A.  69,865   27,709   1,949 
Estruturadora Brasileira de Projetos S.A. - EBP  35,314   311   1,790 
Gestora de Inteligência de Crédito  527,362   288,643   (56,769)
Santander Auto S.A.  36,361   11,613   (4,339)
             
Jointly Controlled by Santander Corretora de Seguros (current corporate name of Santander Participações SA)  2,873,140   1,628,364   125,439 
Webmotors S.A.  484,454   60,734   61,212 
Tecnologia Bancária S.A. - TECBAN  2,382,907   1,564,801   63,046 
Hyundai Corretora de Seguros Ltda,  1,909   41   (132)
PSA Corretora de Seguros e Serviços Ltda,  3,870   2,788   1,313 
             
Significant Influence of Banco Santander  126,937   29,226   2,650 
Norchem Holding e Negócios S.A.  126,937   29,226   2,650 
Total  17,121,695   14,160,370   334,571 
             

 Consolidated Financial Statements | December 31, 2020 | F-60

F-60

Table of Contents

* Values expressed in thousands, except when indicated.

      2018
   Total assets   Total liabilities   Total Income (11) 
Jointly Controlled by Banco Santander  10,500,055   8,755,688   80,954 
Banco RCI Brasil S.A.  9,849,508   8,679,715   115,928 
Norchem Participações e Consultoria S.A.  79,633   27,423   2,240 
Cibrasec - Companhia Brasileira de Securitização  80,300   3,893   1,989 
Estruturadora Brasileira de Projetos S.A. - EBP  33,389   176   (9,151)
Gestora de Inteligência de Crédito  338,382   42,894   (32,328)
Banco Hyundai Capital Brasil S.A.  103,703   1,557   2,166 
Santander Auto S.A.  15,140   30   110 
             
Jointly Controlled by Santander Corretora de Seguros (current corporate name of Santander Participações SA)  2,463,262   1,573,082   9,703 
Webmotors S.A.  221,313   60,905   43,751 
Tecnologia Bancária S.A. - TECBAN  2,238,156   1,510,794   (34,976)
 PSA Corretora de Seguros e Serviços Ltda,  3,793   1,383   928 
             
Significant Influence of Banco Santander  123,959   27,714   2,690 
Norchem Holding e Negócios S.A.  123,959   27,714   2,690 
Total  13,087,276   10,356,484   93,347 

(1) Companies with a one-month delay for the equity accounting. For accounting of equity in earnings, used on 12/31/2020 the position of 11/30/2020.

(2) Although the participation is less than 20%, the Bank exercises joint control over the entity with the other majority shareholders, through a shareholders agreement where no business decision can be taken by a single shareholder.

(3) Although the participation is greater than 50%, in accordance with the shareholders agreement, control is shared by Santander Corretora de Seguros and Carsales.com Investments PTY LTD. (Carsales).

(4) In accordance with the shareholders agreement, control is shared by Santander Corretora de Seguros and PSA Services LTD.

(5) Participation arising from credit recovery of Banco Comercial e de Investimentos Sudameris S.A., merged in 2009 by Banco ABN AMRO Real S.A., which in the same year was merged by Banco Santander (Brasil) S.A., one of the Company's partners. The partners are conducting procedures for the extinction of the company, which depends on the sale of a property. Once sold, the company will be liquidated and each partner will receive their share of the equity.

(6) On July 24, 2019, Banco Santander sold its entire stake in CIBRASEC - Companhia Brasileira de Securitização (“CIBRASEC”), corresponding to 4,000 common shares and 50 preferred shares, to ISEC Securitizadora SA for the amount of R$9,845,611,54. Due to the closing of the transaction, Banco Santander is no longer a shareholder of CIBRASEC.

(*) The Bank has no guarantees granted to companies with joint control and significant influence.

(**) The Bank does not have contingent liabilities with significant possible risk of loss related to investments for companies with joint control and significant influence.

  

BANCO SANTANDER (BRASIL) S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Thousand of Brazilian Reais - R$ - unless otherwise stated) 

Consolidated Financial Statements | December 31, 2020 | F-61

 

          
         2018
      Total assetsTotal liabilities Total Income(11)
Jointly Controlled by Banco Santander     10,500,0558,755,688 80,954
Banco RCI Brasil S.A. 9,849,5088,679,715 115,928
Norchem Participações e Consultoria S.A. 79,63327,423 2,240
Cibrasec - Companhia Brasileira de Securitização 80,3003,893 1,989
Estruturadora Brasileira de Projetos S.A. - EBP 33,389176 (9,151)
Gestora de Inteligência de Crédito   338,38242,894 (32,328)
Banco Hyundai Capital Brasil S.A. (anteriormente denomina da BHJV Assessoria e Consultoria Empresarial Ltda.)   103,7031,557 2,166
Santander Auto S.A.   15,14030 110
          
Jointly Controlled by Santander Corretora de Seguros (current corporate name of Santander Participações SA) 2,463,2621,573,082 9,703
Webmotors S.A.  221,31360,905 43,751
Tecnologia Bancária S.A. - TECBAN  2,238,1561,510,794 (34,976)
PSA Corretora de Seguros e Serviços Ltda.   3,7931,383 928
          
Significant Influence of Banco Santander     123,95927,714 2,690
Norchem Holding e Negócios S.A.   123,95927,714 2,690
Total     13,087,27610,356,484 93,347
          
         2017
      Total assetsTotal liabilities Total Income(11)
Jointly Controlled by Banco Santander     9,432,7388,043,604 43,866
Banco RCI Brasil S.A. 9,057,2617,985,647 74,452
Norchem Participações e Consultoria S.A.  78,67427,574 2,665
Cibrasec - Companhia Brasileira de Securitização86,3789,884 4,000
Estruturadora Brasileira de Projetos S.A. - EBP42,627264 (14,040)
Gestora de Inteligência de Crédito167,79820,235 (23,211)
          
Jointly Controlled by Santander Corretora de Seguros (current corporate name of Santander Participações SA) 1,967,9891,077,782 74,861
Webmotors S.A.  490,45850,413 31,264
Tecnologia Bancária S.A. - TECBAN  1,472,7741,025,593 41,932
 PSA Corretora de Seguros e Serviços Ltda.   4,7571,776 1,665
          
Significant Influence of Banco Santander     122,17626,267 5,597
Norchem Holding e Negócios S.A.   122,17626,267 5,597
Total     11,522,9039,147,653 124,324

Table of Contents

* Values expressed in thousands, except when indicated.

 

b) Changes

 

The changes in the balance of this item in the years ended December 31, 2020, 2019 2018 and 20172018 were:

 

      20192018 2017
Jointly Controlled by Banco Santander         
Balance at beginning of year   1,032,382845,704 969,097
Additions / disposals (net) due to change in the scope of consolidation  (51,073)- -
Additions /disposals (5)     746119,557 34,154
Capital reduction     -36,051 -
Share of results of entities accounted for using the equity method148,91265,373 70,334
Dividends proposed/received     (69,904)(35,351) (200,620)
Others     (11,553)1,048 (27,261)
Balance at end of year     1,049,5101,032,382 845,704
          
Significant Influence of Banco Santander         
Balance at beginning of year     20,93320,860 20,980
Share of results of entities accounted for using the equity method  576585 1,217
Dividends proposed/received     (257)(512) (1,337)
Balance at end of year     21,25220,933 20,860

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BANCO SANTANDER (BRASIL) S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Thousand of Brazilian Reais - R$ - unless otherwise stated) 

(1) Companies with a delay of one month for the equity calculation. To register the equity income it was used on 12/31/2019 the position of 11/30/2019.

(2) Company incorporated in April 2017 and is in the pre-operational phase. Pursuant to the shareholders' agreement, control is shared between shareholders who hold 20% of their capital share each. At the Extraordinary General Meeting held on July 6, 2017, the capital increase of Gestora de Crédito was approved in the total amount of R$65,822, so that the capital share increased from R$1 to R$65,823, through the issue of 6,582,200 (six million, five hundred and eighty-two thousand and two hundred) new shares, of which 3,291,100 (three million, two hundred and ninety-one thousand and one hundred), 1,316,440 (one million, three hundred and sixteen thousand, four hundred and forty) preferred shares Class A and 1,316,440 (one million, three hundred and sixteen thousand, four hundred and forty) preferred shares Class B and 658,220 (six hundred and fifty eight thousand, two hundred and twenty) class C preferred shares, with no par value, at the issue price of R$10.00, corresponding to the equity value of the shares. The shares issued in the capital increase were fully subscribed on the same date by the shareholders in the proportion of 20% of their capital share each.  

(3) In 2017 refers to the incorporation of Gestora de Inteligência de Crédito - partnership between Banco Santander and other banks from brazilian market (according to note 3).

(4) Although the participations was less than 20%, the Bank exercises jointly-control over the entity together with other major stockholders' through a stockholders' agreement where no business decision can be taken by a single stockholder.

(5) At the EGM held in October 5, 2017, it was approved the share capital increase of the Gestora de Crédito in the amount of R$285,205, that way its share capital increased from R$65,823 to R$351,028, through the issuance of 29,013,700 new shares, being 14,506,850 as ordinary shares, 5,802,740 preferred shares Class A, 5,802,740 preferred shares Class B, and 2,901,370 preferred shares Class C, without par value, at the issuance price of R$ 9,83 per share. It was also approved by unanimous decision the payment timetable of the new shares issuance made by the Management of Gestora de Crédito. That way, the share capital increase was fully subscribed at the same day by the shareholders in the proportion of 20% of each interest which were partially paid.

(6) According to its Bylaws, EBP was formed in order to carry out projects to contribute for the brazilian economic and social development for the period of 10 years. After the conclusion of the timetable set EPB closes its activities this year of 2018. The dissolution of its rights and liquidation were aproved in the EGM held on january 29, 2018.

(7) Although participation exceeds 50%, in accordance with the shareholders' agreement, the control is shared by Santander Corretora de Seguros (Current corporate name of Santander Participações S.A.), and Carsales.com. Investments PTY LTD (Carsales), shareholder based in Australia.

(8) Pursuant to the shareholders' agreement, the control is shared by Santander Corretora de Seguros (current corporate name of Santander Participações SA) and PSA Services LTD.

(9) In December 2017, according to the contractual change, the PSA Corretora de Seguros shareholders decided to increase its share capital in R$401, that way the share capital increased from R$ 500 to R$901, through the issuance of 400,532 new shares, which each new share has the value of R$1. The new shares issued were subscribed and paid at the same date, in local currency, according to the proportion of each shareholder equivalent to 50% to the company´s share capital, that is, 200.266 shares.
(10) Participation resulting from the credit recovery from the Banco Comercial and Investimentos Sudameris S.A. incorporated in 2009 by Banco ABN AMRO Real S.A., which in the same year was incorporated into the Banco Santander (Brasil) S.A., one of the Company partner. The partners are conducting the procedures for extinction of the company, whose depends on the sale of a property. Once it has been sold, the liquidation of the company and each partner will receive its share of the equity.

(11) Company incorporated on December 13, 2018, upon transformation of BHJV Assessoria e Consultoria em Gestão Empresarial Ltda. Aymoré CFI, a wholly-owned subsidiary of Banco Santander, holds the company's operational control. (Note 3).

In 2019, based on the shareholders' agreement, it was concluded that Banco Santander has the control and, therefore, began to consolidate the Company.

(12) Insurance company incorporated on October 9, 2018, through transformation of the corporate vehicle L.G.J.S.P.E. Empreendimentos e Participações S.A., submitted to Susep to obtain authorization to operate. In accordance with the shareholders' agreement, the control is shared by Sancap and HDI Seguros S.A., (Note 3).

(*) The Bank does not have collateral with associates and joint ventures.

(**) The Bank does not have contingent liabilities with significant risk of loss as possible related to investments in affiliates with joint control and significant influence.

(***) As of December 31, 2019, 2018 and 2017, the balances of Assets, Liabilities and Profit refer to 100% of the company balance sheet. There is no balance for the caption "Other Comprehensive Income" in these companies, except for the RCI Bank which recorded R$57,139 (2018- R$30,357 and 2017 - R$40,671).

  2020 2019 2018
Jointly Controlled by Banco Santander      
Balance at beginning of year  1,049,510   1,032,382   845,704 
Additions / disposals (net) due to change in the scope of consolidation  (41,851)  (51,073)  - 
Additions /disposals  13,571   746   119,557 
Capital reduction  -   -   36,051 
Share of results of entities accounted for using the equity method  112,294   148,912   65,373 
Dividends proposed/received  (59,784)  (69,904)  (35,351)
Others  21,246   (11,553)  1,048 
Balance at end of year  1,094,985   1,049,510   1,032,382 
             
Significant Influence of Banco Santander            
Balance at beginning of year  21,252   20,933   20,860 
Share of results of entities accounted for using the equity method  (33)  576   585 
Dividends proposed/received  (239)  (257)  (512)
Disposals  (20,980)  -   - 
Balance at end of year  -   21,252   20,933 

 

c) Impairment losses

 

No impairment losses were recognized on investments in associates and joint ventures in 2020, 2019 2018 and 2017.2018.

 

d) Other information

 

Details of the principal jointly controlled entities:

 

Banco RCI Brasil S.A.: A company incorporated in the form of a joint stock company with headquarters in Paraná, aims to the main practice of investment, leasing, credit, financing and investment operations, with a view to sustain the growth of the automotive brands Renault and Nissan in the Brazilian market, with operations focused on, mainly to financing and leasing to the final consumer. It is a financial institution that is part of the RCI Group Banque and Santander Conglomerate, their operations being conducted in the context of a set of institutions that operate in the financial market. According to the Shareholders'Shareholders Agreement, the main decisions that impact this company is taken jointly between Banco Santander and other controlling shareholders.

 

Webmotors S.A.: A company incorporated in the form of a privately held company with headquarters in São Paulo and has as its object

development, implementation and / or availability of electronic catalogs, space, product, services or means for the sale of products and / or services related to the automobile industry, on the Internet through the "website" www.webmotors.com.br (owned by Webmotors) or other means related to electronic commerce activities and other uses or applications of the Internet, as well as participation in the capital of other companies and the management of related businesses and ventures. It is a member of the Santander Economic-Financial Conglomerate (Conglomerado Santander) and Carsales.com Investments PTY LTD (Carsales), with its operations conducted in the context of a set of institutions that act in an integrated manner. According to the Shareholders'Shareholders Agreement, the main decisions that impact this company are taken jointly between Banco Santander and other controllers.

 

F-62

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BANCO SANTANDER (BRASIL) S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Thousand of Brazilian Reais - R$ - unless otherwise stated) 

            
  2019 2018  2017   2020   2019   2018
 Banco RCI BrasilWebmotorsBanco RCI BrasilWebmotorsBanco RCI Brasil Webmotors Banco RCI Brasil Webmotors Banco RCI Brasil Webmotors Banco RCI Brasil Webmotors
Current assets Current assets 12,052,008241,9199,849,508221,3139,057,261 490,458  11,270,565   276,168   12,052,008   241,919   9,849,508   221,313 
Current liabilitiesCurrent liabilities 10,781,92161,2908,679,71560,9057,985,647 50,413  9,825,654   220,707   10,781,921   61,290   8,679,715   60,905 
Cash and cash equivalentsCash and cash equivalents 489,4001,66737,1151,03447,782 1,989  201,142   1,411   489,400   1,667   37,115   1,034 
Depreciation and amortizationDepreciation and amortization (1,666)(9,234)(977)(7,423)(1,600) 16,353  (1,577)  (14,949)  (1,666)  (9,234)  (977)  (7,423)
RevenueRevenue 661,215165,0491,316,687167,8811,315,695 127,064  732,253   277,270   661,215   165,049   1,316,687   167,881 
Interest incomeInterest income 1,401,1545,0791,290,7034,1341,294,119 7,178  1,354,283   2,283   1,401,154   5,079   1,290,703   4,134 
Interest expenseInterest expense (547,546)-(575,944)-(626,654) -  (483,506)  —     (547,546)  —     (575,944)  —   
Tax Income / (expense)Tax Income / (expense) (83,455)(26,863)(147,266)(16,013)(122,544) (12,568)  (169,957)  (26,314)  (83,455)  (26,863)  (147,266)  (16,013)
Current financial liabilities (excluding trade and other payables and provisions)Current financial liabilities (excluding trade and other payables and provisions) 4,178,76153,8073,130,90849,7093,897,010 33,320  —     —     4,178,761   53,807   3,130,908   49,709 
Non-current financial liabilities (excluding trade and other payables and provisions)Non-current financial liabilities (excluding trade and other payables and provisions) 6,470,0811,0064,813,9095,4584,058,986 3,247  470,081   —     470,081   1,006   4,813,909   5,458 

  

  

12.Tangible assets

 

Tangible assets of the Bank relate to property, plant and equipment for the its own use. The Bank does not have tangible assets held as investment property nor leased out under operating leases. The Bank is also not a part

 Consolidated Financial Statements | December 31, 2020 | F-62

Table of any financial lease contracts as of and during fiscal years ended December 31, 2019, 2018 and 2017.Contents

* Values expressed in thousands, except when indicated.

 

a) Breakdown

 

The detail, by class of asset, of the tangible assets in the consolidated balance sheets is as follows:

 

Thousand of reais           
Cost   Land and buildingsIT equipment and fixturesFurniture and vehiclesRight-of-use of Assets Others Total
Balance at December 31, 2016   2,711,1933,367,0157,858,881- 3,759 13,940,848
Additions   -382,571723,835- - 1,106,406
Write-off   (52,102)(180,036)(31,053)- - (263,191)
Transfers   (9,779)718,666(721,520)- - (12,633)
Balance at December 31, 2017   2,649,3124,288,2167,830,143- 3,759 14,771,430
            
Additions   2,534450,857942,358- 381 1,396,130
Write-off   (18,230)(162,497)(199,877)- - (380,604)
Change in the scope of consolidation   99,75919,51717,749- 1,302 138,327
Transfers   45,66332,232640,758- (3,759) 714,894
Balance at December 31, 2018   2,779,0384,628,3259,231,131- 1,683 16,640,177
            
Initial adoption IFRS 16   ---2,465,750 - -
Additions   85,333826,6851,012,395689,982 370 2,614,765
Cancellation of lease agreements   ---(72,951)   (72,951)
Write-off   (17,041)(122,926)(122,279)- - (262,246)
Transfers   (7,160)13,23651,445- - 57,521
Balance at December 31, 2019   2,840,1705,345,32010,172,6923,082,781 2,053 21,443,016
            
Accumulated depreciation  Land and buildingsIT equipment and fixturesFurniture and vehiclesRight-of-use of Assets Others Total
Balance at December 31, 2016   (594,210)(2,509,099)(4,172,234)- - (7,275,543)
Additions   (81,910)(499,542)(609,515)- - (1,190,967)
Write-off   37,136154,47122,196- - 213,803
Transfers   9,734(437,527)427,506- - (287)
Balance at December 31, 2017   (629,250)(3,291,697)(4,332,047)- - (8,252,994)
            
Additions   (82,714)(485,607)(649,557)- - (1,217,878)
Write-off   8,816140,332109,447- - 258,595
Change in scope of consolidation   (5,602)(1,448)(7,136)- - (14,186)
Transfers   (52,094)(76,292)(631,965)- - (760,351)
Balance at December 31, 2018   (760,844)(3,714,712)(5,511,258)- - (9,986,814)
            
Additions   (93,455)(482,256)(730,993)(564,132) - (1,870,836)
Write-off   10,517148,48665,0168,316 - 232,335
Transfers   15,09110,272(9,183)- - 16,180
Balance at December 31, 2019   (828,691)(4,038,210)(6,186,417)(555,816) - (11,609,134)
            
Losses from non-recovery (impairment)          
Balance at December 31, 2016   (13,031)-(5,841)- - (18,872)
Impacts on results   9,784-1,047- - 10,831
Transfers   --(512)- - (512)
Balance at December 31, 2017   (3,247)-(5,306)- - (8,553)
            
Impacts on results   (10,607)-(49,556)- - (60,163)
Transfers   (5)-4,333- - 4,328
Balance at December 31, 2018   (13,859)-(50,529)- - (64,388)
            
Impacts on results   (587)-13,050- - 12,463
Transfers   ---- - -
Balance at December 31, 2019   (14,446)-(37,479)- - (51,925)
            
Carrying amount           
Balance at December 31, 2017   2,016,815996,5193,492,790- 3,759 6,509,883
Balance at December 31, 2018   2,004,335913,6133,669,344- 1,683 6,588,975
Balance at December 31, 2019   1,997,0331,307,1103,948,7962,526,965 2,053 9,781,957

Thousand of reais            
Cost Land and buildings IT equipment and fixtures Furniture and vehicles Leased Fixed Assets Others Total
Balance at December 31, 2017  2,649,312   4,288,216   7,830,143   -   3,759   14,771,430 
Additions  2,534   449,489   941,895   -   381   1,394,299 
Additions resulting mergers  -   1,368   463       -   1,831 
Write-off  (18,230)  (162,497)  (199,877)  -   -   (380,604)
Change in scope of consolidation  99,759   19,517   17,749       1,302   138,327 
Transfers  45,663   32,232   640,758   -   (3,759)  714,894 
Balance at December 31, 2018  2,779,038   4,628,325   9,231,131   -   1,683   16,640,177 
                         
Initial adoption IFRS 16  -   -   -   2,465,750   -   2,465,750 
Additions  85,333   826,685   1,012,395   -   370   1,924,783 
Additions resulting mergers  -   -   -   689,982   -   689,982 
Cancellation of lease agreements  -   -   -   (72,951)  -   (72,951)
Write-off  (17,041)  (122,926)  (122,279)          (262,246)
Change in scope of consolidation  -   -   -   -   -   - 
Transfers  (7,160)  13,236   51,445   -   -   57,521 
Balance at December 31, 2019  2,840,170   5,345,320   10,172,692   3,082,781   2,053   21,443,016 
                         
Initial adoption IFRS 16  -   -   -   -   -   - 
Additions  8,831   559,388   667,704   -   -   1,235,923 
Additions by Company Acquisition  -   -   -   738,603   -   738,603 
Cancellation of lease agreements  -   -   -   (246,308)      (246,308)
Write-off  (23,771)  (2,241,220)  (416,600)  -   -   (2,681,591)
Change in scope of consolidation  -   -   -   -   -   - 
Transfers  (8,485)  120,158   39,861   -   (806)  150,728 
Balance at December 31, 2020  2,816,745   3,783,646   10,463,657   3,575,076   1,247   20,640,371 
                         
Accumulated depreciation  Land and buildings   IT equipment and fixtures   Furniture and vehicles   Leased Fixed Assets   Others   Total 
Balance at December 31, 2017  (629,250)  (3,291,697)  (4,332,047)  -   -   (8,252,994)
Additions  (82,714)  (484,629)  (649,361)  -   -   (1,216,704)
Additions resulting mergers  -   (978)  (196)  -   -   (1,174)
Write-off  8,816   140,332   109,447   -   -   258,595 
Transfers  (52,094)  (76,292)  (631,965)  -   -   (760,351)
Balance at December 31, 2018  (760,844)  (3,714,712)  (5,511,258)  -   -   (9,986,814)
                         
Additions  (93,455)  (482,256)  (730,993)  (564,132)  -   (1,870,836)
Additions by Company Acquisition  10,517   148,486   65,016   8,316   -   232,335 
Write-off  15,091   10,272   (9,183)  -   -   16,180 
Change in scope of consolidation  -   -   -   -   -   - 
Transfers  -   -   -   -   -   - 
Balance at December 31, 2019  (828,691)  (4,038,210)  (6,186,418)  (555,816)  -   (11,609,135)
                         
Additions  (86,954)  (537,908)  (846,881)  (568,062)  -   (2,039,805)
Write-off  11,020   2,263,857   359,618   -   -   2,634,495 
Transfers  1,765   66,717   (88,612)  -   -   (20,130)
Additions by Company Acquisition  -   -   -   -   -   - 
Change in scope of consolidation  -   -   -   -   -   - 
Balance at December 31, 2020  (902,860)  (2,245,544)  (6,762,293)  (1,123,878)  -   (11,034,575)
                         
Losses from non-recovery (impairment)                        
Balance at December 31, 2017  (3,247)  -   (5,306)  -   -   (8,553)
 Impacts on results  (10,607)  -   (49,556)  -   -   (60,163)
Transfers  (5)  -   4,333   -   -   4,328 
Balance at December 31, 2018  (13,859)  -   (50,529)  -   -   (64,388)
                         
 Impacts on results  (587)  -   13,050   -   -   12,463 
Transfers  -   -   -   -   -   - 
Balance at December 31, 2019  (14,446)  -   (37,479)  -   -   (51,925)
                         
Impacts on results  (11,162)  -   7,789   -   (13,387)  (16,760)
Transfers  -   -   -   -   -   - 
Balance at December 31, 2020  (25,608)  -   (29,690)  -   (13,387)  (68,685)
                         
Carrying amount                        
Balance at December 31, 2018  2,004,335   913,613   3,669,344   -   1,683   6,588,975 
Balance at December 31, 2019  1,997,033   1,307,110   3,948,795   2,526,965   2,053   9,781,956 
Balance at December 31, 2020  1,888,277   1,538,102   3,671,674   2,451,198   (12,140)  9,537,111 

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BANCO SANTANDER (BRASIL) S.A.

* Values expressed in thousands, except when indicated.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Thousand of Brazilian Reais - R$ - unless otherwise stated) 

 

The depreciation expenses has been included in the heading “Depreciation and amortization” in the income statement.

 

b) Tangible asset purchase commitments

 

On December 31, 20192020 the Bank has no contractual commitments for the acquisition of tangible assets (2018(2019 - R$3.2 million0 and 20172018 R$75.03,2 million).

 

13.Intangible assets - Goodwill

 

Goodwill is the difference between the acquisition cost and the Bank's participation in the net fair value of assets, liabilities and contingent liabilities of the acquired company. When the difference is negative (negative goodwill), it is recognized immediately through income statement. In accordance with IFRS 3 Business Combinations,IAS 36 the goodwill is stated at cost and is not amortized but tested annually for impairment or whenever there is an evidence of reduction on the recoverable value of the cash generating unit to which the goodwill was allocated. Goodwill is recognized at cost considering the accumulated impairment losses. Impairment losses related to goodwill are not reversible. Gains and losses related to the sale of an entity include the carrying amount of goodwill relating to the entity sold.

  

The goodwill recorded is subject to impairment test (note 2.o.i) and has been allocated according to the operating segments (note 45)44).

 

Based on the assumptions described bellow, no impairment loss was recognized for goodwill at December 31, 2020, 2019 2018 and 2017.2018.

 

Thousand of reais    201920182017
        
Breakdown       
Banco ABN Amro Real S.A. (Banco Real)    27,217,56527,217,56527,217,565
Olé Consignado (Current Company name of Banco Bonsucesso Consignado)  62,80062,80062,800
Super Pagamentos e Administração de Meios Eletrônicos Ltda. (Super)    13,05013,05013,050
Banco PSA Finance Brasil S.A.    1,5571,5571,557
Getnet Adquirência e Serviços para Meios de Pagamento S.A. (Santander Getnet)    1,039,3041,039,3041,039,304
Return Capital Serviços de Recuperação de Créditos S.A. (Current Company name of Ipanema Empreendimentos e Participações S.A.)  24,34627,63028,120
Santander Brasil Tecnologia S.A.    16,38216,382-
Others    --1,860
Total    28,375,00428,378,28828,364,256

 

 

       
        
     Commercial Banking
     201920182017
Main assumptions:       
Basis of determining recoverable amounts    Value in use: cash flows
Period of the projections of cash flows(1)     5 years 5 years 5 years
Growth rate perpetual (1)    4.8%5.1%8.3%
Discount rate(2)    12.5%13.6%14.6%
Thousand of reais 2020 2019 2018
       
Breakdown      
Banco ABN Amro Real S.A. (Banco Real)  27,215,749   27,217,565   27,217,565 
Olé Consignado (Current Company name of Banco Bonsucesso Consignado)  62,800   62,800   62,800 
Super Pagamentos e Administração de Meios Eletrônicos Ltda, (Super)  -   13,050   13,050 
Banco PSA Finance Brasil S.A.  1,557   1,557   1,557 
Getnet Adquirência e Serviços para Meios de Pagamento S.A. (Santander Getnet)  1,039,304   1,039,304   1,039,304 
Return Capital Serviços de Recuperação de Créditos S.A.  (Current Company name of Ipanema Empreendimentos e Participações S.A.)  24,346   24,346   27,630 
Santander Brasil Tecnologia S.A.  16,381   16,382   16,382 
Total  28,360,137   28,375,004   28,378,288 
             
             
  Commercial Banking
  2020 2019 2018
Main assumptions:      
Basis of determining recoverable amounts Value in use: cash flows
Period of the projections of cash flows (1) 5 years 5 years 5 years
Growth rate perpetual (1)  4.3%  4.8%  5.1%
Discount rate (2)  12.4%  12.5%  13.6%

(1) The projections of cash flow are prepared using Management´management´s growth plans and internal budget, based on historical data, market expectations and conditions such as industry growth, interest rate and inflation.

(2) The discount rate is calculated based on the capital asset pricing model (CAPM)., The discount rate before tax is 17,78% (2018 -19.56% (2019 – 17.88% and 2018 – 19.33% and 2017 - 20.42%).

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* Values expressed in thousands, except when indicated.

 

Thousand of reais 201920182017 2020 2019 2018
       
Balance at beginning of the year 28,378,28828,364,25628,355,039  28,375,004   28,378,288   28,364,256 
Additions (loss):             
BW Guirapá (Note 3.c) -(22,320)
Banco PSA Finance Brasil S.A. -1,557
Super (Note 3)  (13,050)  -   - 
Banco ABN Amro Real S.A. (Banco Real)  (1,817)  -   - 
Return Capital Serviços de Recuperação de Créditos S.A. (current name of Ipanema Empreendimentos e Participações S.A.)Return Capital Serviços de Recuperação de Créditos S.A. (current name of Ipanema Empreendimentos e Participações S.A.)(3,284)(490)28,120  -   (3,284)  (490)
Produban Serviços de Informática S.A. -16,382-  -   -   16,382 
Others -(1,860)1,860  -   -   (1,860)
Balance at end of the year 28,375,00428,378,28828,364,256  28,360,137   28,375,004   28,378,288 

 

GoodwillA quantitative impairment test of goodwill is tested for impairmentcarried out on an annual basis at the second half of the year. At the end of each year, or whenever therea qualitative assessment is anycarried out in order to check the existence of signs of impairment. For the years 2020, 2019 and 2018, no indication of impairment. Overimpairment was identified. During the twelve-month periodyear ended December 31, 2019,2020, and the prior years there was no evidence of impairment that would have led to the need to update the test performed in 2018 before its regular performance.impairment.

  

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Thousand of Brazilian Reais - R$ - unless otherwise stated) 

In the goodwill impairment test, discount rates and perpetuity growth are the most sensitive assumptions for calculating the present value (value in use) of discounted future cash flows. With a variation of +0.25% or -0.25% in these rates, the value of future cash flows discounted to present value continues to indicate the absence of impairment.Right-of-use of Assets

 

14.Intangible assets - Other intangible assets

 

The details, by asset category, of the other intangible assets in the consolidated balance sheets are as follows:

 

Cost IT developments Other assets Total IT developments Other assets Total
Balance at December 31, 2016 5,866,944 405,998 6,272,942
Balance at December 31, 2017  6,570,681   410,974   6,981,655 
Additions 824,411 12,072 836,483  804,782   137   804,919 
Write-off (125,307) (7,096) (132,403)  11,567   -   11,567 
Transfers 4,633 - 4,633  87   -   87 
Balance at December 31, 2017 6,570,681 410,974 6,981,655
 
Additions 804,782 137 804,919
Write-off (477,434) (40) (477,474)
Transfers 11,567 - 11,567
Additions by Acquisitions of Subsidiaries 590 - 590
Corporate Restructuring 87 - 87
Balance at December 31, 2018 6,910,273 411,071 7,321,344  6,910,273   411,071   7,321,344 
             
Additions 1,290,686 15,757 1,306,443  1,290,686   15,757   1,306,443 
Write-off (2,544,403) (130,622) (2,675,025)  (2,544,403)  (130,622)  (2,675,025)
Transfers (26,758) (2,481) (29,239)  (26,758)  (2,481)  (29,239)
Balance at December 31, 2019 5,629,798 293,725 5,923,523  5,629,798   293,725   5,923,523 
             
Additions  990,184   6,969   997,153 
Write-off  (240,626)  (7,803)  (248,429)
Transfers  (25,515)  3,036   (22,479)
Balance at December 31, 2020  6,353,841   295,927   6,649,768 
            
Accumulated amortization            
Balance at December 31, 2017  (3,552,435)  (292,762)  (3,845,197)
Additions  (504,009)  (19,246)  (523,255)
Write-off  (1,000,893)  58   (1,000,835)
Transfers  (15)  -   (15)
Balance at December 31, 2018  (5,032,693)  (311,950)  (5,344,643)
            
Additions  (501,682)  (19,339)  (521,021)
Write-off  2,326,982   79,945   2,406,927 
Transfers  (241,395)  (288)  (241,683)
Balance at December 31, 2019  (3,448,788)  (251,632)  (3,700,420)
            
Additions  (534,000)  (5,322)  (539,322)
Balance at December 31, 2020  (3,982,788)  (256,954)  (4,239,742)

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Accumulated amortization
Balance at December 31, 2016  (3,120,982) (277,155) (3,398,137)
Additions  (449,709) (21,571) (471,280)
Write-off  854 5,500 6,354
Transfers  17,402 464 17,866
Balance at December 31, 2017  (3,552,435) (292,762) (3,845,197)
        
Additions  (504,009) (19,246) (523,255)
Write-off  25,242 - 25,242
Transfers  (1,000,893) 58 (1,000,835)
Additions by Acquisitions of Subsidiaries(583) - (583)
Corporate Restructuring  (15) - (15)
Balance at December 31, 2018  (5,032,693) (311,950) (5,344,643)
        
Additions  (501,682) (19,339) (521,021)
Write-off  2,326,982 79,945 2,406,927
Transfers  (241,395) (288) (241,683)
Balance at December 31, 2019  (3,448,788) (251,632) (3,700,420)
        
Losses from non-recovery (Impairment) – IT  IT developments Other assets Total
Balance at December 31, 2016  (977,711) (15,291) (993,002)
Impact on net profit (1)  (306,110) - (306,110)
Write-off  441 - 441
Balance at December 31, 2017  (1,283,380) (15,291) (1,298,671)
        
Impact on net profit (1)  (300,865)-- (300,865)
Transfers  1,263,535 - 1,263,535
Balance at December 31, 2018  (320,710) (15,291) (336,001)
        
Impact on net profit (1)  (103,924) - (103,924)
Write-off  422,315 15,291 437,606
Balance at December 31, 2019  (2,319) - (2,319)
        
Carrying amount       
Balance at December 31, 2017  1,734,866 102,921 1,837,787
Balance at December 31, 2018  1,556,870 83,830 1,640,700
Balance at December 31, 2019  2,178,691 42,093 2,220,784

* Values expressed in thousands, except when indicated.

 

Losses from non-recovery (Impairment) - IT IT developments Other assets Total
Balance at December 31, 2017  (1,283,380)  (15,291)  (1,298,671)
Impact on net profit (1)  (300,865)  -   (300,865)
Write-off  1,263,535   -   1,263,535 
Balance at December 31, 2018  (320,710)  (15,291)  (336,001)
             
Impact on net profit (1)  110,466   -   110,466 
Transfers  207,925   15,291   223,216 
Balance at December 31, 2019  (2,319)  -   (2,319)
             
Impact on net profit (1)  (66,269)  -   (66,269)
Write-off  (1,346)  -   (1,346)
Balance at December 31, 2020  (69,934)  -   (69,934)
             
Carrying amount            
Balance at December 31, 2018  1,556,870   83,830   1,640,700 
Balance at December 31, 2019  2,178,691   42,093   2,220,784 
Balance at December 31, 2020  2,301,119   105,242   2,406,361 

(1) It refers to impairment loss of assets in the acquisition and development of software. The loss in the acquisition and development of software was recorded due to obsolescence function and disruption of these systems.

(1)Refers to the impairment of assets in the acquisition and development of software. The loss in the acquisition and development of software was recorded due to the obsolescence and discontinuity of the referred systems.

  

The amortization expenses has been included in the heading “Depreciation and amortization” in the income statement.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Thousand of Brazilian Reais - R$ - unless otherwise stated) 

 

15.Other assets

 

The breakdown of the balance of “Other assets” is as follows:

 

Thousand of reais 20192018 2017 2020 2019 2018
       
Contracts costs 1,926,5361,674,187 1,679,305
Customer relationships  1,873,048   1,926,536   1,674,187 
Prepayments and accrued income 1,059,223685,755 784,456  1,007,792   1,059,223   685,755 
Contractual guarantees of former controlling stockholders (Note 23.c.5)102,903605,638 707,130
Contractual guarantees of former controlling stockholders (Note 22.a)  496   103,272   605,638 
Actuarial asset (Note 22) 346,422273,281 198,189  361,149   346,422   273,281 
Other receivables(1) 1,626,2531,561,606 1,209,190
Other receivable (1)  3,979,926   1,625,884   1,561,606 
Total 5,061,3374,800,467 4,578,270  7,222,411   5,061,337   4,800,467 

(1) Corresponds mainly to receivablesamounts receivable from third parties.parties and contractual pre payments related to payroll services.

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* Values expressed in thousands, except when indicated.

 

16.Deposits from the Brazilian Central Bank and Deposits from credit institutions

 

The breakdown, by classification, type and currency, of the balances of these items is as follows:

 

Thousand of reais 20192018 2017 2020 2019 2018
       
Classification:       
Financial liabilities at amortized cost 99,271,41599,022,806 79,374,685  131,656,962   99,271,415   99,022,806 
Total 99,271,41599,022,806 79,374,685  131,656,962   99,271,415   99,022,806 
             
Type:             
Deposits on demand(1) 685,026709,605 306,081  296,340   685,026   709,605 
Time deposits(2) 56,602,47047,227,456 52,739,163  76,489,490   56,602,470   47,227,456 
Repurchase agreements 41,983,91951,085,745 26,329,441  54,871,132   41,983,919   51,085,745 
Of which:             
Backed operations with Private Securities(3) 9,506,2556,977,766 -  13,843,463   9,506,255   6,977,766 
Backed operations with Government Securities 32,477,66344,107,979 26,329,441  41,027,669   32,477,663   44,107,979 
Total 99,271,41599,022,806 79,374,685  131,656,962   99,271,415   99,022,806 

(1) Non-interest bearing accounts.

(2) Includes operations with credit institutions resulting from export and import financing lines, transfers from the country (BNDES and Finame) and abroad, and other credit lines abroad.

(3) Refers primarily to repurchase agreements backed by own-issued debentures.

 

Thousand of reais 20192018 2017
      
Currency:     
Reais 58,282,79374,159,613 56,562,950
Euro 39,522105,119 407,814
US dollar 40,949,10024,758,074 22,156,054
Other currencies -- 247,867
Total 99,271,41599,022,806 79,374,685

Thousand of reais 2020 2019 2018
       
Currency:      
Reais  77,743,482   58,282,793   74,159,613 
Euro  13,156   39,522   105,119 
US dollar  53,900,324   40,949,100   24,758,074 
Total  131,656,962   99,271,415   99,022,806 

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BANCO SANTANDER (BRASIL) S.A.

* Values expressed in thousands, except when indicated.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Thousand of Brazilian Reais - R$ - unless otherwise stated) 

 

17.Client deposits

 

The breakdown, by classification and type, of the balance of “Customer deposits” is as follows:

 

Thousand of reais 2019                    2018    2017 2020 2019 2018
       
Classification:       
Financial liabilities at amortized cost 336,514,597 304,197,800 276,042,141  445,813,972   336,514,597   304,197,800 
Total 336,514,597 304,197,800 276,042,141  445,813,972   336,514,597   304,197,800 
             
Type:             
Demand deposits             
Current accounts(1) 28,231,479 18,853,519 17,559,985  35,550,105   28,231,479   18,853,519 
Savings accounts 49,039,857 46,068,346 40,572,369  62,210,443   49,039,857   46,068,346 
Time deposits 200,739,544 190,982,541 146,817,650  269,929,085   200,739,544   190,982,541 
Repurchase agréments 58,503,717 48,293,394 71,092,137
Repurchase agreements  78,124,340   58,503,717   48,293,394 
Of which:             
Backed operations with Private Securities(2) 9,506,255 6,977,766 33,902,890  14,944,250   9,506,255   6,977,766 
Backed operations with Government Securities 48,997,462 41,315,628 37,189,247  63,180,090   48,997,462   41,315,628 
Total 336,514,597 304,197,800 276,042,141  445,813,972   336,514,597   304,197,800 

(1) Non-interest bearing accounts.

(2) Refers primarily to repurchase agreements backed by own-issued debentures.

 

Note 44-d43-d contains a detail of the residual maturity periods of financial liabilities at amortized cost.

 

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* Values expressed in thousands, except when indicated.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Thousand of Brazilian Reais - R$ - unless otherwise stated) 

 

18.Marketable debt securities

The breakdown, by classification and type, of the balance of “Marketable debt securities” is as follows:

 

Thousand of reais 201920182017
     
Classification:    
Financial liabilities at amortized cost 73,702,47474,626,23270,247,012
Total 73,702,47474,626,23270,247,012
     
Type:    
Real estate credit notes - LCI (1) 21,266,07927,159,98227,713,873
Eurobonds 8,715,3824,516,6471,992,828
Treasury Bills (2) 27,587,34030,721,20631,686,259
Agribusiness credit notes - LCA 14,776,87711,925,0188,854,052
Guaranteed Real Estate Credit Notes (3) 1,356,796303,379-
Total 73,702,47474,626,23270,247,012

Indexers:DomesticAbroad
Treasury Bills 97% to 105.25% of CDI -
 100% of IGPM -
 100% of IPCA -
 Pre fixed: 5.06% to 17.29% -
 100% of SELIC -
Real estate credit notes – LCI 80% to 100% of CDI -
 Pre fixed: 3.9% of 10.33% -
 100% of IPCA -
 100% of TR -
Agribusiness credit notes – LCA 80% to 98.6% of CDI -
Guaranteed Real Estate Credit Notes – LIG 94% to 98% of CDI -
Eurobonds- 0.0% to 10%
- CDI+6.4%

Thousand of reais 2020 2019 2018
       
Classification:      
Financial liabilities at amortized cost  56,875,514   73,702,474   74,626,232 
Total  56,875,514   73,702,474   74,626,232 
             
Type:            
Real estate credit notes - LCI (1)  18,846,138   21,266,079   27,159,982 
Eurobonds  9,399,277   8,715,382   4,516,647 
Treasury Bills (2)  12,749,911   27,587,340   30,721,206 
Agribusiness credit notes - LCA  14,746,831   14,776,877   11,925,018 
Guaranteed Real Estate Credit Notes (3)  1,133,356   1,356,796   303,379 
Total  56,875,514   73,702,474   74,626,232 

(1) Real Estate Credit Notes are fixed income securities pegged by mortgages and mortgage-backed securities or liens on property. On December 31, 2019,2020, have maturities between 2021 and 2027 (2019 – maturities between 2020 and 2026 (2018 - there areand 2018 – maturities between 2019 to 2026 and 2017 - there are maturities between 2018 to 2026).

(2) The main features of the Treasury Bills are the minimum period of two years, minimum notional of R$30050 and permission for early redemption of only 5% of the issued amount.amount, On December 31, 2019,2020, have a maturity between 20202021 to 2025 (2018 - have a maturity(2019 – maturities between 2020 and 2025 and 2018 – maturities between 2019 to 2025 and 2017 - there are maturities between 2018 to 2025).

(3) Guaranteed Real Estate Letters are real estate investment securities guaranteed by the issuer and by a pool of real estate credits separated from the other assets of the issuer.issuer, As of December 31, 20192020, maturity until 20202021 and 2021 (20182023 (12/31/2019 - have a maturity until 2021)between 2021 e 2022).

 

Indexers:DomesticAbroad
Treasury Bills100% to 112% of CDI-
 100% of IGPM-
 100% of IPCA-
 Pre fixed: 3.41% to 16.97%-
 104.75% of SELIC-
Real estate credit notes - LCI 80% to 102.5% of CDI-
 Pre fixed: 2.4% of 10.33%-
 1.5 to 1.7% of IPCA-
 1.65% of TR-
Agribusiness credit notes - LCA 85% to 102,5% of CDI-
Guaranteed Real Estate Credit Notes - LIG 94% to 98% of CDI
Eurobonds- 0.0% to 10%
- CDI+6.4%

The breakdown, by currency, of the balance of this account is as follows:

 

Thousand of reais  
   
Currency: 201920182017
     
Real 64,987,09270,109,58568,335,103
US dollar 8,715,3824,516,6471,911,909
Total 73,702,47474,626,23270,247,012
     
  Average interest (%)
Currency: 201920182017
     
Real 5.0%5.5%5.5%
US dollar 4.1%5.9%6.8%
Total 4.5%5.6%5.7%

Thousand of reais  
Currency: 2020 2019 2018
       
Real  47,490,706   64,987,092   70,109,585 
US dollar  9,384,808   8,715,382   4,516,647 
Total  56,875,514   73,702,474   74,626,232 
             
  Average interest (%)
Currency: 2020 2019 2018
       
Real  2.5%  5.0%  5.5%
US dollar  5.2%  4.1%  5.9%
Total  3.9%  4.5%  5.6%

 Consolidated Financial Statements | December 31, 2020 | F-69

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BANCO SANTANDER (BRASIL) S.A.

* Values expressed in thousands, except when indicated.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Thousand of Brazilian Reais - R$ - unless otherwise stated) 

 

The variations in the balance “Obligations for bonds and securities” were as follows:

 

Thousand of reais 201920182017
     
Balance at beginning of the year 74,626,23270,247,01299,842,955
Issuances     53,017,03973,765,08159,663,420
Payments   (61,914,716)(78,903,009)(97,009,957)
Interest (Note 33) 5,138,3064,606,9497,901,199
Exchange differences and Others       2,835,6134,910,199(150,605)
Balance at end of the year 73,702,47474,626,23270,247,012
Thousand of reais 2020 2019 2018
       
Balance at beginning of year  73,702,474   74,626,232   70,247,012 
Issuances  60,047,656   53,017,039   73,765,081 
Payments  (82,900,914)  (61,914,716)  (78,903,009)
Taxes (note 32)  2,785,942   5,138,306   4,606,949 
Exchange variation and others (1)  3,240,356   2,835,613   4,910,199 
Balance at the end of the year  56,875,514   73,702,474   74,626,232 

(1) In 2020, the Foreign Exchange Variation linked to “Bonds and Securities” is related to Eurobonds.

On December 31, 2020, 2019 2018 and 2017,2018, none of these instruments was convertible into Bank shares or granted privileges or rights which, in certain circumstances, make them convertible into shares. The note 44-d43-d contains a detail of the residual maturity periods of financial liabilities at amortized cost in each year.

 

The breakdown of "Bonds and other securities" is as follows:

 

  

Issuance

 

 

Maturity

 

 

Currency

 

 Interest rate (p,y) 2020 2019 2018
               
Eurobonds  2017   2019   USD  LIBOR 3M + 1.00%  -   -   194,243 
Eurobonds  2017   2021   BRL  4.4%  14,469   63,181   855,035 
Eurobonds  2017   2024   USD  2.4% to 10.0%  853,929   664,996   19,386 
Eurobonds  2018   2019   USD  Zero Coupon to 9%  -   -   197,055 
Eurobonds  2018   2019   USD  LIBOR 3M + 0.95%  -   -   34,776 
Eurobonds  2018   2020   USD  Up to 3.5%  -   37,476   1,211,361 
Eurobonds  2018   2019   USD  LIBOR 1M + 1.5%  -   -   1,287,821 
Eurobonds  2017   2020   BRL  4.4%  -   929,042   639,275 
Eurobonds  2018   2020   USD  Above 3.5%  -   35,438   - 
Eurobonds  2018   2024   USD  6.6% to 6.7%  1,625,192   1,260,099   - 
Eurobonds  2018   2025   USD  Up to 9%  1,720,187   1,427,601   - 
Eurobonds  2019   2020   USD  0% to 4.4%  -   3,556,724   - 
Eurobonds  2019   2027   USD  CDI + 6.4%  1,279,506   727,118   - 
Eurobonds  2020   2021   USD  CDI + 1.9%  170,257   -   - 
Eurobonds  2020   2021   USD  0% to 4%  3,252,482   -   - 
Eurobonds  2020   2022   USD  0% to 4%  16,923   -   - 
Eurobonds  2020   2022   USD  CDI + 1.9%  121,926   -   - 
Eurobonds  2020   2023   USD  0% to 8%  22,888   -   - 
Eurobonds  2020   2023   USD  CDI + 1.9%  223,435   -   - 
Eurobonds  2020   2024   USD  CDI + 1.9%  98,082   -   - 
Other                    13,707   77,695 
Total                9,399,277   8,715,382   4,516,647 

         
 IssuanceMaturity CurrencyInterest rate (p.y)201920182017
         
Eurobonds20152018 USD2.2%--40,333
Eurobonds20172018 USDZero Coupon to 2.4%--1,195,668
Eurobonds20172019 USDLIBOR 3M + 1.00%-194,243165,677
Eurobonds20182021 BRL4.4%63,181855,035-
Eurobonds20182024 USD2.4% a 10.0%664,99619,386-
Eurobonds20182019 USDZero Coupon to 9%-197,055-
Eurobonds20182019 USDLIBOR 3M + 0.95%-34,776-
Eurobonds20182020 USDUp to 3.5%37,4761,211,361-
Eurobonds20182019 USDLIBOR 1M + 1.5%-1,287,821-
Eurobonds20172020 BRL4.4%929,042639,275541,487
Eurobonds20182020 USDAbove 3.5%35,438  
Eurobonds20182024 USD6.6% to 6.7%1,260,099  
Eurobonds20182025 USDUp to 9%1,427,601  
Eurobonds20192020 USD0% to 4.4%3,556,724  
Eurobonds20192027 USDCDI + 6.4%727,118  
Other     13,70777,69549,663
Total     8,715,3824,516,6471,992,828

 

19.Subordinated liabilities

The detail of the balance of “Subordinated liabilities” is as follows:

Thousand of reais           
  Issuance Maturity(1)Amount (millions)Interest rate2019 2018 2017
            
Subordinated Liabilities May-08 May-15 to May-18R$283CDI (2)- - 109,572
Subordinated Liabilities May-08 to June-08 May-15 to June-18R$268IPCA (3)- - 409,658
Notes (4) January-14 PerpetualR$3.0007.375%- 4,906,880 -
Notes (4) January-14 January-24R$3.0006.000%- 4,978,727 -
Total      - 9,885,607 519,230

(1) Subordinated time deposits issued by Banco Santander S.A. with yield paid at the end of the term together with the principal.

(2) Between December 2017 and May 2018, indexed by 100% and 112% of the CDI.

(3) Between December 2017 and June 2018, indexed by the IPCA (extended consumer price index) plus interest of 8.3% p.a. to 8.4% p.a.

(4) On December 18, 2018, the Bank Central of Brazil issued approval for the repurchase of the notes issued on January 29, 2014, this approval led to the reclassification of these instruments from the Debt Instruments Eligible to Compose Capital to Subordinated Debt (Note 20).

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BANCO SANTANDER (BRASIL) S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Thousand of Brazilian Reais - R$ - unless otherwise stated) 

The detail by currency, of the balance of “Subordinated liabilities” is as follows:

   Thousand of reaisAverage Interest Rate (%)
Currency:  20192018201720192018 2017
          
Real  -9,885,607519,2300.0%4.9% 7.5%
Total  -9,885,607519,2300.0%4.9% 7.5%

Changes in the balance of "Subordinated liabilities" in twelve-months period ended December 31, 2019, 2018 and 2017 were as follows:

  2019 2018 2017
       
Balance at beginning of year 9,885,607 519,230 466,246
Payments (9,885,607) (544,566) -
Interest (Note 33) - 25,336 52,984
Transfers (Note 20) - 9,885,607 -
Balance at end of year - 9,885,607 519,230

Note 44-d contains a detail of the residual maturity periods of subordinated liabilities at each year-end.

20.Debt Instruments Eligible to Compose Capital

Details of the balance of "Debt Instruments Eligible to Compose Capital" for the issuance of such instruments to compose the Tier I and Tier II of regulatory capital due to the Regulatory Capital Optimization Plan (Note 28.e), are as follows:

 

      201920182017
  IssuanceMaturityIssuance ValueInterest Rate (p.a.)(3)   
Tier I (1)(5) Jan-14no maturity (perpetual) R$3,0007.375%--4,187,531
Tier II (2) (5) Jan-14jan-24 R$3,0006.000%--4,249,370
Tier I(4) Nov-18no maturity (perpetual) US$1,2507.250%5,092,1534,893,668-
Tier II (4) Nov-18nov/18 US$1,2506.125%5,083,8084,886,276-
Total     10,175,9619,779,9448,436,901

          2020 2019 2018
  Issuance    Maturity Issuance Value Interest Rate (a.a,) (1)      
Tier I (2) nov-18  no maturity (perpetual)  US$1,250  7.250%  6,554,451   5,092,153   4,893,668 
Tier II (2) nov-18    nov/18  US$1,250  6.125%  6,565,209   5,083,808   4,886,276 
Total            13,119,660   10,175,961   9,779,944 
(1)Notes repurchasedThe debt instruments issued in 2019; As authorized by Bacen on December 17, 2018, as of the date of their issuance, Level I and II of RC must be excluded.

(2)Notes repurchased in 2019; As authorized by Bacen on December 17, 2018, as of the date of their issuance, Level I and II of RC must be excluded.

(3)The debts of January 2014 were made by Banco Santander in Brazil, therefore, as Income Tax at source assumed by the issuer, in the form of a corresponding exchange rate, is 8.676% and 7.059% for the instruments Level I and Level II, respectively. The emissions generated from November 2018 were madereleased through the Cayman Agency and, consequently, there is no incidence of Income Tax at Source.withholding tax.

(4)(2)Interest paid semiannually, as of May 8, 2019.

 (5)OnConsolidated Financial Statements | December 18, 2018, the Bank issued the approval for the repurchase of the notes issued on January 29, 2014, this approval led to the reclassification of these instruments from the Debt Instruments Eligible to Compose Capital to Subordinated Debt (Note 19).31, 2020 | F-70

 

     201920182017
Balance at beginning of the year    9,779,9448,436,9018,311,918
Issuance - Tier I-4,673,875-
Issuance - Tier II-4,673,875-
Interest payment Tier I (1)272,947331,677273,123
Interest payment Tier II (1)230,594272,539222,065
Exchange differences / Others    221,3681,960,467252,941
Payments of interest - Tier I    (178,278)(381,008)(344,867)
Payments of interest - Tier II    (150,614)(302,775)(278,279)
Repurchase    -(9,885,607)-
Balance at end of the year    10,175,9619,779,9448,436,901

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* Values expressed in thousands, except when indicated.

  2020 2019 2018
Balance at beginning of the year  10,175,961   9,779,944   8,436,901 
Issuance - Tier I  -   -   4,673,875 
Issuance - Tier II  -   -   4,673,875 
Interest payment Tier I (1)  506,771   272,947   331,677 
Interest payment Tier II (1)  402,622   230,594   272,539 
Exchange differences / Others  2,948,951   221,368   1,960,467 
Payments of interest - Tier I  (495,789)  (178,278)  (381,008)
Payments of interest - Tier II  (418,856)  (150,614)  (302,775)
Repurchase  -   -   (9,885,607)
Balance at end of the year  13,119,660   10,175,961   9,779,944 

(1) The remuneration of interest relating to the Debt Instruments Eligible to Compose Capital Tier I and II was recorded against income for the period as "Interest expense and similar charges" (Note 33)32).

 

On November 5, 2018, the Board of Directors approved the issuance of the equity instruments, which was held on November 8, 2018. Such issuance was in the form of Notes issued in US dollars, US$2.5 billion, for payment in Tier I and Tier II of Reference Equity. The offer of these notes was made outside Brazil and the United States of America, for non-US Persons, based on Regulation S under the Securities Act, and was fully paid in by Santander España, controlling shareholder of Banco Santander Brasil. On the same date, the Board of Directors approved the redemption of the Tier I and Tier II notes issued on January 29, 2014, in the total amount of U$2.5 billion (Note 26.e)26,e).

 

The specific characteristics of Notes issued to make up Tier I are: (a) Principal: US$1.250 billion (b) Interest Rate: 7.25% p.a; (c) no

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BANCO SANTANDER (BRASIL) S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Thousand of Brazilian Reais - R$ - unless otherwise stated) 

maturity (perpetual); (d) Periodicity of payment of interest: semiannually from May 8, 2019.

 

The specific characteristics of Notes issued to make up Tier II are: (a) Principal: US$1.250 billion; (b) Interest Rate: 6.125% p.a.; (c) Maturity Term: on November 8, 2028; and (d) Periodicity of payment of interest: semiannually, as of May 8, 2019.

 

Notes have the following common characteristics:

 

(a) Unit value of at least US$150 thousand and in integral multiples of US$1 thousand in excess of such minimum value;

 

(b) The Notes may be repurchased or redeemed by Banco Santander after the fifth anniversary as of the date of issue of the Notes, at the sole discretion of the Bank or as a result of changes in the tax legislation applicable to the Notes; or at any time, due to the occurrence of certain regulatory events.

 

On December 18, 2018, the Bank issued approval for the Notes to comprise Tier I and Tier II of Banco Santander's Reference Equity as of such date, as well as the repurchase of the notes issued on January 29, 2014. As a result, the balance relating to the notes issued on January 29, 2014 were reclassified from Debt Instruments Eligible to Compose Capital to Subordinated Debts (Note 19).

21.20.Other financial liabilities

The breakdown of the balances of these items is as follows:

 

Thousand of reais 2019 2018 2017 2020 2019 2018
       
Credit card obligations 38,531,519 39,761,739 32,049,712  48,912,963   38,531,519   39,761,739 
Unsettled financial transactions(2) 7,239,785 3,356,871 3,905,236  7,210,396   7,239,785   3,356,871 
Dividends and Interest on Capital payable 7,826,247 4,508,569 4,553,914  1,223,310   7,826,247   4,508,569 
Tax collection accounts - Tax payables 883,768 1,205,746 1,077,860  864,292   883,768   1,205,746 
Liability associated with the transfer of assets (Note 9.g)Liability associated with the transfer of assets (Note 9.g)75,500 126,906 428,248  55,105   75,500   126,906 
Other financial liabilities(1) 6,328,551 2,769,005 2,245,765  8,595,084   6,328,551   2,769,005 
Total 60,885,370 51,728,836 44,260,735  66,861,150   60,885,370   51,728,836 

(1) As ofOn December 31, 2019,2020, it includes the financial liability in the total amount of R$0 million (2019 - R$1,600 million (2018and 2018 - R$519 million and 2017 - R$484 million), related to the commitment of the put option of the shares held by Banco Bonsucesso (Note 3.a3,a ) and R$0 (2018(2019 - R$0 million and 2018 - R$1,427 million and 2017 - R$1,223 million), referringrelated to the put option for the shares issued by Getnet SA, which was authorized by BACEN on February 18, 2019 and settled on February 25, 2019.

 

(2) Includes operations to settle with B3 S.A. (Current Company Name of BM&FBovespa) and payment orders in foreign currency.

 

22.21.Provisions for pensions and similar obligations

On December 31, 20192020 the balance of provisions for pension funds and similar obligations totaled R$4,956,851 (20183,929,265 (2019 - R$3,357,6544,960,620 and 20172018 - R$3,923,457)3,357,654).

 

i.

 Consolidated Financial Statements | December 31, 2020 | F-71

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* Values expressed in thousands, except when indicated.

I. Supplemental Pension Plan

 

Banco Santander and its subsidiaries sponsor the closed pension entities for the purpose of granting pensions and supplementary pensions over those granted by the Social Security, as defined in the basic regulations of each plan.

 

·Banesprev - Fundo Banespa de Seguridade Social (Banesprev)

- Plan I: defined benefit plan fully sponsored by Banco Santander, it covers employees hired after May 22, 1975 called Participants Recipients, and those hired until May 22, 1975 called Participants Aggregates, who are also entitled to death benefits. This plan is closed to new entrants since March 28, 2005.

 

- Plan II: defined benefit plan, constituted from July 27, 1994, effective of the new text of the Statute and Regulations of the Basic Plan II, Plan I participants who chose the new plan began to contribute to the rate of 44.9% stipulated by the actuary for funding each year, introduced in April 2012 extraordinary cost to the sponsor and participants, as agreed with the PREVIC - Superintendence of Pension Funds, due to deficit in the plan. This plan is closed to new entrants since June 3, 2005.

 

- Plan V:III: defined benefit plan fully sponsored by Banco Santander, it covers employees hired until May 22, 1975, closed and paid off.

 

- Supplemental Pension Plan Pré 75: defined benefit plan was created in view of the privatization of Banespa and is managed by Banesprev and offered only to employees hired before May 22, 1975, which its effective date is January 1, 2000. This plan is closed to new entrants since April 28, 2000.

 

- Plan III:I: variable contribution plan, for employees hired after May 22,1975, previously served by the Plans I and II. This plan receives contributions from the sponsor and the participants. The benefits are in the form of defined contribution during the period of contribution and defined benefit during the receipt of benefit, if paid as monthly income for life. Plan is closed to new entrants since September 1, 2005.

 

- Plan IV:II: variable contribution plan, designed for employees hired as of November 27, 2000, in which the sponsor only contributes to the risk benefits and administrative expenses. In this plan the benefit is set in the form of defined contribution during the period of contribution and defined benefit during the receipt of benefits in the form of monthly income for life, in whole or in part of the benefit. The risk benefits of the plan are in defined benefit. This plan is closed to new entrants since July 23, 2010.

 

- Three plans (DCA, DAB and CACIBAN): additional retirement and former employees associated pension, arising from the process of acquisition of the former Banco Meridional, established under the defined benefit plan. The plans were closed to new participants prior to the acquisition of Grupo Bozano Simonsen by Banco Santander in November 1999.

 

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BANCO SANTANDER (BRASIL) S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Thousand of Brazilian Reais - R$ - unless otherwise stated) 

- Plan Sanprev I: defined benefit plan, established on September 27, 1979, covering employees enrolled in the plan sponsor and it is in process of extinction since June 30, 1996.

 

- Plan Sanprev II: plan that provides insurance risk, pension supplement temporary, disability retirement annuity and the supplemental death and sickness allowance and birth, including employees enrolled in the plan sponsor and is funded solely by sponsors through monthly contributions, as indicated by the actuary. This plan is closed to new entrants since March 10, 2010.

 

- Plan Sanprev III: variable contribution plan covering employees of the sponsors who made ​​the choice to contribute, by contribution freely chosen by participants from 2% of their salary. That the benefit plan is a defined contribution during the contribution and defined benefit during the receipt of the benefit, being in the form of monthly income for life, in whole or in part of the benefit. This plan is closed to new entrants since March 10, 2010.

 

·Sanprev – Santander Associação de Previdência (Sanprev)

Closed-End Private Pension Entity (EFPC) that used to manage three benefit plans, 2 in the Defined Benefit modality and 1 in the modality of Variable Contribution, whose process of management transfer of these plans to Banesprev occurred in January 2017. According to Portaria 389 of PREVIC, of May 8, 2018, it was approved the closure of the authorization of operation of Sanprev.

 

·Bandeprev - Bandepe Previdência Social (Bandeprev)

Defined benefit plan, sponsored by Banco Bandepe and Banco Santander, managed by Bandeprev. The plans are divided into basic plan and special retirement supplement plan, with different eligibility requirements, contributions and benefits by subgroups of participants. The plans are closed to new entrants since 1999 for Banco Bandepe’s employees and for others since 2011.

 

 ·Other PlansConsolidated Financial Statements | December 31, 2020 | F-72

 

Table of Contents

* Values expressed in thousands, except when indicated.

·Other Plans

SantanderPrevi - Sociedade de Previdência Privada (SantanderPrevi): it´s a closed-end private pension entity with the purpose of constitution and implementation of social security pension plans, complementary to the social security contribution, in the form of actual legislation.

 

The Retirement Plan of SantanderPrevi is structured as Defined Contribution and closed to new members since July 2018 as approved by PREVIC, with contributions shared between sponsors and plan participants. The appropriate values by the sponsors in the year of 20192020 was R$110,325 (201869,142 (2019 – R$89,959110,325 e 20172018 – R$86,449)89,959).

 

It has 10 cases of lifetime income with benefits arising from the previous plan.

 

SBPREV - Santander Brasil Open Pension Plan:As from January 2, 2018, Santander started to offer this new optional supplementary pension plan for new employees hired and for employees who are not enrolled in any other pension plan managed by the Closed Entities Complementary Pension Plan of the Group. This new program includes the PGBL- Free Benefit Generation Plan and VGBL-Free Benefit Generator Life managed by Icatu Seguros, the Open Entity of Complementary Pension Plan, which are open for new accessions, with similar characteristics to SantanderPrevi's plan.plan, the instituting / stipulating companies and the participants in the plans.Theplans. The appropriated values by the sponsors in the year of 20192020 were R R$8,917 (201814,054 (2019 – R$ $1,597)8,917).

 

ii.II. Health and Dental Care Plan

 

• Cabesp - Caixa Beneficente dos Funcionários do Banco do Estado de São Paulo S.A.:

 

Entity that covers health and dental care expenses of employees hired until Banespa privatization in 2000, as defined in the entity's bylaws.

 

• HolandaPrevi’s Retirees (current corporate name of SantanderPrevi):

 

For the health care plan Retirement has lifetime nature and is a closed group. In his termination the employee should have completed 10 years of employment with Banco Real and 55 years of age. In this case it was offered the continuity of health care plan where the employee pays 70% and the Bank pays 30% of the monthly payment. This rule lasted until December, 2002 and after this period that the employee got terminated with the status Retired Holandaprevi, he pays 100% of the health plan monthly payment.

 

• Former employees of Banco Real S.A. (Retiree by Circulars):

 

It grants entitlement to healthcare to former employees of Banco Real, with lifetime benefit it was granted in the same condition as the active employee, in this case, with the same coverage and plan design.

 

Eligible only for basic plans and premium apartment, if the beneficiary chooses for the apartment plan he pays the difference between the plans plus the co-participation in the basic plan. Not allowed new additions of dependents. It is subsidized in 90% of the plan.

 

• Bandeprev’s retirees:

 

Health care plan granted to Bandeprev’s retirees as a lifetime benefit, for which Banco Santander is responsible for subsidizing 50% of the benefits of employees retired until November 27, 1998. For whom retired after this date, the subsidy is 30%.

 

• Directors with Lifetime Benefits (Lifetime Directors):

 

Lifetime health care benefit granted to a small closed group of former directors coming from Banco Sudameris, being 100% subsidized by the Bank.

 

• Health Directors:

 

Directors, Executive Directors, Vice-President Directors and Chief Executive Officer, may, by choice, choose to remain medical assistance, in case of termination of the link with Banco Santander or companies in its conglomerate without cause; as long as they comply the following requirements: have contributed for at least 3 (three) years to the health plan; having served as a director at Banco Santander or companies its conglomerate for at least 3 (three) years; be 55 years of age. The plan will be maintained in the same way as the DIRECTOR enjoyed at the time of his dismissal, including the payment of his share, which must be paid by bank slip. The

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BANCO SANTANDER (BRASIL) S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Thousand of Brazilian Reais - R$ - unless otherwise stated) 

dependents active at the time of termination will be kept on the same plan as the director, and the inclusion of new dependents in no chance.

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* Values expressed in thousands, except when indicated.

 

• Free Clinic:

 

Health care plan (free clinic) is offered for a lifetime to retirees who have contributed to the Foundation Sudameris for at least 25 years and has difference in default if the user chooses apartment. The plan is only offered in standard infirmary where the cost is 100% of the Foundation Sudameris.

 

• Life insurance for Banco Real’s retirees (Life Insurance):

 

For Retirees from Circulars: indemnity in case of Natural Death, Disease Disability, Accidental Death. The subsidy is 45% of the value. It is a closed group.

 

• Life Insurance Assistance Boxes (Life Insurance):

 

Included in the bulk of the life insurance in December 2018 the insurance of the retirees of the DCA, DAB and CACIBAN plans. This insurance was granted to retirees of the former Southern Bank, coverage was according to the choice of retiree at the time of joining the benefit. The Bank's allowance is 50% of the premium amount for the holder and some retirees have the spouse clause bearing 100% of the cost. The plan is closed for new participants.

 

Additionally, it is assured to retired employees, since they meet to certain legal requirements and fully pay their respective contributions, the right to be maintaining as a beneficiary of the Banco Santander health plan, in the same conditions for healthcare coverage, taken place during their employment contract. Banco Santander provisions related to this retired employees are calculated using actuarial based in the present value of the current cost.

 

iii.III. Actuarial Techniques

 

The amount of the defined benefit obligations was determined by independent actuaries using the following actuarial techniques:

 

• Valuation method:

 

Projected unit credit method, which uses each year of service as giving rise to an additional unit of benefit entitlement and measures each unit separately.

 

• Nominal discount rate for actuarial obligation and calculation of interest on assets:

 

- Banesprev, Sanprev, SantanderPrevi, Bandeprev and Other Plans – 6.8% (2019 – 7.1% (2018and 2018 – 9.1% e 2017 – 9.53%).

 

- Cabesp, Law 9,656 and others obligations – 7.1% (2019 – 7.2% (2018e 2018 – 9.3% e 2017 – 9.65%).

 

• Estimated long-term inflation rate:

 

- Banesprev, Sanprev, SantanderPrevi, Bandeprev and Other Plans – 3.3% (2019 – 3.5% (2018 – 4.0% e 20172018 – 4.0%).

 

• Estimate salary increase rate:

 

- Banesprev, Sanprev, SantanderPrevi, Bandeprev Básico and Other Plans – 3.8% (2019 – 4.0% (2018 – 5.0% e 20172018 – 5.0%).

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* Values expressed in thousands, except when indicated.

 

The funding status of the defined benefit obligations in 20192020 and in the last 2 years are as follows:

 

 201920182017 2020 2019 2018
       
Present value of the obligations - Post-employment plans:Present value of the obligations - Post-employment plans:        
To current employees 687,786716,492796,243  478,837   687,786   716,492 
Vested obligations to retired employees 27,369,69623,296,71521,205,366  28,202,580   27,369,696   23,296,715 
 28,057,48224,013,20722,001,609  28,681,417   28,057,482   24,013,207 
             
Less:             
Fair value of plan assets 25,822,89022,708,99020,689,637  28,634,891   25,822,890   22,708,990 
Unrecognized assets(1) (1,346,547)(1,079,808)(1,090,682)  (2,762,220)  (1,346,547)  (1,079,808)
Provisions – Post-employment plans, netProvisions – Post-employment plans, net3,581,1392,384,0252,402,654  2,808,746   3,581,139   2,384,025 
            
Present value of the obligations - Other similar obligations:Present value of the obligations - Other similar obligations:              
To current employees 204,439184,606228,107  135,902   204,439   184,606 
Vested obligations to retired employees 6,047,3684,604,4664,815,654  5,782,124   6,047,368   4,604,466 
 6,251,8074,789,0725,043,761  5,918,026   6,251,807   4,789,072 
             
Less:             
Fair value of plan assets 5,222,5174,157,2513,721,147  5,398,667   5,222,517   4,157,251 
Unrecognized assets(1) -(68,527)-  (240,010)  -   (68,527)
Provisions – Other similar obligations, netProvisions – Other similar obligations, net1,029,290700,3481,322,614  759,370   1,029,290   700,347 
            
Total provisions for pension plans, net 4,610,4293,084,3733,725,268  3,568,115   4,610,429   3,084,373 
Of which:             
Actuarial provisions 4,960,6203,357,6543,923,457  3,929,265   4,960,620   3,357,654 
Actuarial assets (note 15) 350,191273,281198,189  361,149   350,191   273,281 
(1)Refers to fully funded surplus plans Banesprev I and III, Sanprev I,II and III and Bandeprev (asset ceiling).Bandeprev.

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BANCO SANTANDER (BRASIL) S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Thousand of Brazilian Reais - R$ - unless otherwise stated) 

On the fourth quarter of 2018, the Managementmanagement settled the actuarial deficit of Banesprev V and DAB in 2017 in the amount of R$295,529 and R$1,246, respectively, and the contribution in the estimated amount of R$152,329 to cover the actuarial deficit from 2018 to Banesprev Pré 75.

 

In the first half of 2018, there was an increase in the cost contribution established for a post-employment benefit plan, which is calculated as a percentage of the total monthly compensation of members. The increase in the contribution resulted in a decrease in the past service cost due to changes in the plan. The envisaged changes implied a reduction in the present value of the obligations of the defined benefit plan, which is supported by actuarial valuations.

 

The amounts recognized in the consolidated income statement in relation to the aforementioned defined benefit obligations are as follows:

 

  Post-Employment Plans
  201920182017
     
Staff costs - Current service costs (note 40)2,7743,14214,605
Interest and similar income and expenses - Interest cost (net) (notes 32 and 33)149,232124,75470,429
Interest and similar income and expenses - Interest on unrecognized assets (notes 32 and 33)100,346104,160105,832
Other movements (1) (1,101)12,4325,323
Total 251,251244,488196,189
     
  Other Similar Obligations
  201920182017
     
Staff costs - Current service costs (note 40)8,1425,7975,476
Interest and similar income and expenses - Interest cost (net) (notes 32 and 33)61,84576,12499,575
Interest and similar income and expenses - Interest on unrecognized assets (notes 32 and 33)3,17315,521-
Other movements (1) 22,624(816,230)-
Total 95,784(718,788)105,051
  Post-Employment Plans
  2020 2019 2018
       
Staff costs - Current service costs (note 39)  4,186   2,774   3,142 
Interest and similar income and expenses - Interest cost (net) (notes 31 and 32)  108,268   149,232   124,754 
Interest and similar income and expenses - Interest on unrecognized assets (notes 31 and 32)  97,291   100,346   104,160 
Other movements -
Extraordinary charges		  16,786   (1,101)  12,432 
Total  226,532   251,251   244,488 
             
  Other Similar Obligations
  2020 2019 2018
       
Staff costs - Current service costs (note 40)  5,860   8,142   5,797 
Interest and similar income and expenses - Interest cost (net) (notes 32 and 33)  71,374   61,845   76,124 
Interest and similar income and expenses - Interest on unrecognized assets (notes 32 and 33)  -   3,173   15,521 
Other movements - Extraordinary charges (2)  (142)  22,624   (816,230)
Total  77,092   95,784   (718,788)

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* Values expressed in thousands, except when indicated.

 

The changes in the present value of the accrued defined benefit obligations were as follows:

 

  Post-Employment Plans
  201920182017
     
Present value of the obligations at beginning of year24,013,20722,001,60920,769,126
Current service cost (Note 40) 2,7743,14214,605
Interest cost 2,087,4842,029,0992,170,639
Benefits paid (1,960,103)(1,876,014)(1,834,681)
Actuarial (gains)/losses 3,908,3501,674,908871,308
Others 5,770180,46310,612
Present value of the obligations at end of year28,057,48224,013,20722,001,609
     
  Other Similar Obligations
  201920182017
     
Present value of the obligations at beginning of year4,789,0725,043,7614,246,489
Current service cost (Note 40) 8,1425,7975,476
Interest cost 443,837438,567447,653
Benefits paid (378,782)(346,185)(339,538)
Actuarial (gains)/losses 1,366,837455,193683,681
Other (1) 22,701(808,061)-
Present value of the obligations at end of year6,251,8074,789,0725,043,761
  Post-Employment Plans
  2020 2019 2018
       
Present value of the obligations at beginning of year  28,057,482   24,013,207   22,001,609 
Current service cost (Note 40)  4,186   2,774   3,142 
Interest cost  1,940,515   2,087,484   2,029,099 
Benefits paid  (2,060,960)  (1,960,103)  (1,876,014)
Actuarial (gains)/losses  722,261   3,908,350   1,674,908 
Others  17,933   5,770   180,463 
Present value of the obligations at end of year  28,681,417   28,057,482   24,013,207 
  Other Similar Obligations
  2020 2019 2018
       
Present value of the obligations at beginning of year  6,251,807   4,789,072   5,043,761 
Current service cost (Note 40)  5,860   8,142   5,797 
Interest cost  448,836   443,837   438,567 
Benefits paid  (337,742)  (378,782)  (346,185)
Actuarial (gains)/losses  (450,735)  1,366,837   455,193 
Other (1)  -   22,701   (808,061)
Present value of the obligations at end of year  5,918,026   6,251,807   4,789,072 

(1) In the year ended December 31, 2018 there was an increase in the cost contribution established for a postemployment benefit plan, which is calculated as a percentage of the total monthly compensation of associates. The increase in the contribution resulted in a decrease in the past service cost, due to changes in the plan. The envisaged changes implied a reduction in the present value of the obligations of the defined benefit plan, which is supported by actuarial valuations. In the Consolidated Statements of Income, this amount was recorded under Provision (Net).

 

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BANCO SANTANDER (BRASIL) S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Thousand of Brazilian Reais - R$ - unless otherwise stated) 

The changes in the fair value of the plan assets were as follows:

 

  Post-Employment Plans
  201920182017
     
Fair value of plan assets at beginning of year22,708,99020,689,63720,116,916
Interest (Expense) Income 1,938,2521,904,3452,100,211
Remeasurement - Actual return (loss) on plan assets excluding the amounts included in net
  interest expense		3,087,5441,347,689268,309
Contributions/(surrenders) 51,807481,95938,883
 Of which:    
   By the Bank 44,752472,72327,439
   By plan participants 7,0559,23611,444
Benefits paid (1,960,103)(1,876,014)(1,834,682)
Exchange differences and other items (3,600)161,374-
Fair value of plan assets at end of year 25,822,89022,708,99020,689,637
     
  Other Similar Obligations
  201920182017
     
Fair value of plan assets at beginning of year4,157,2513,721,1473,310,895
Interest (Expense) Income 381,992362,444348,078
Remeasurement - Actual return (loss) on plan assets excluding the amounts included in net interest expense915,626304,632303,504
Contributions/(surrenders) 107,03772,54861,803
 Of which:    
   By the Bank 107,03772,54861,803
Benefits paid (339,389)(310,458)(303,133)
Exchange differences and other items -6,938-
Fair value of plan assets at end of year 5,222,5174,157,2513,721,147
  Post-Employment Plans
  2020 2019 2018
       
Fair value of plan assets at beginning of year  25,822,890   22,708,990   20,689,637 
Interest (Expense) Income  1,832,247   1,938,252   1,904,345 
Remeasurement - Actual return (loss) on plan assets excluding the amounts included in net
   interest expense		  2,994,598   3,087,544   1,347,689 
Contributions/(surrenders)  49,716   51,807   481,959 
 Of which:            
   By the Bank  44,970   44,752   472,723 
   By plan participants  4,746   7,055   9,236 
Benefits paid  (2,060,960)  (1,960,103)  (1,876,014)
Exchange differences and other items  (3,600)  (3,600)  161,374 
Fair value of plan assets at end of year  28,634,891   25,822,890   22,708,990 
  Other Similar Obligations
  2020 2019 2018
       
Fair value of plan assets at beginning of year  5,222,517   4,157,251   3,721,147 
Interest (Expense) Income  377,462   381,992   362,444 
Remeasurement - Actual return (loss) on plan assets excluding the amounts included in net interest expense  (34,409)  915,626   304,632 
Contributions/(surrenders)  132,416   107,037   72,548 
 Of which:            
   By the Bank  132,416   107,037   72,548 
Benefits paid  (299,319)  (339,389)  (310,458)
Exchange differences and other items  -   -   6,938 
Fair value of plan assets at end of year  5,398,667   5,222,517   4,157,251 

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* Values expressed in thousands, except when indicated.

 

Breakdown of gains (losses) actuarial by experience, financial assumptions and demographic hypotheses:

 

     Post-Employment Plans
  201920182017
Experience Plan (446,444)(803,717)686,204
Changes in Financial Assumptions (2,615,119)(871,176)(1,557,689)
Changes in Financial Demographic 1,228-146
Gain (Loss) Actuarial - Obligation (3,060,335)(1,674,893)(871,339)
Return on Investment, Return Unlike Implied Discount Rate2,624,9601,344,089270,158
Gain (Loss) Actuarial - Asset 2,624,9601,344,089270,158
Changes in Surplus / Deficit Uncollectible(164,428)117,320(15,690)
     
     Other Similar Obligations
  201920182017
Experience Plan (209,175)(79,810)(303,396)
Changes in Financial Assumptions (1,157,662)(376,949)(380,285)
Changes in Financial Demographic ---
Gain (Loss) Actuarial - Obligation (1,366,837)(456,759)(683,681)
Return on Investment, Return Unlike Implied Discount Rate915,626307,048303,504
Gain (Loss) Actuarial - Asset 915,626307,048303,504
Changes in Surplus Uncollectible 71,698(52,604)-

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BANCO SANTANDER (BRASIL) S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Thousand of Brazilian Reais - R$ - unless otherwise stated) 

    Post-Employment Plans
  2020 2019 2018
Experience Plan  (807,895)  (446,444)  (803,717)
Changes in Financial Assumptions  85,634   (2,615,119)  (871,176)
Changes in Financial Demographic  -   1,228   - 
Gain (Loss) Actuarial - Obligation  (722,261)  (3,060,335)  (1,674,893)
Return on Investment, Return Unlike Implied Discount Rate  2,994,598   2,624,960   1,344,089 
Gain (Loss) Actuarial - Asset  2,994,598   2,624,960   1,344,089 
Changes in Surplus / Deficit Uncollectible  (1,318,382)  (164,428)  117,320 
    Other Similar Obligations
  2020 2019 2018
Experience Plan  289,237   (209,175)  (79,810)
Changes in Financial Assumptions  182,120   (1,157,662)  (376,949)
Changes in Financial Demographic  (20,621)  -   - 
Gain (Loss) Actuarial - Obligation  450,735   (1,366,837)  (456,759)
Return on Investment, Return Unlike Implied Discount Rate  (34,409)  915,626   307,048 
Gain (Loss) Actuarial - Asset  (34,409)  915,626   307,048 
Changes in Surplus Uncollectible  (240,010)  71,698   (52,604)

The experience adjustments arising from plan assets and liabilities are shown bellow:

 

     Post - Employment Plans
       201920182017
          
Experience in Net Assets Adjustments     3,087,5441,347,689268,309
          
    Other Similar Obligations
       201920182017
         
Experience in Net Assets Adjustments     915,626304,632303,504
  Post - Employment Plans
  2020 2019 2018
             
Experience in Net Assets Adjustments  2,994,598   2,624,960   1,344,089 
  Other Similar Obligations
  2020 2019 2018
             
Experience in Net Assets Adjustments  (34,409)  915,626   307,048 

 

The amounts of actuarial obligation of defined benefit plans not covered and defined benefit plans partially or totally covered are shown below:

 

      201920182017
         
         
      815,929700,347701,551
      33,493,36028,101,93226,343,818
  2020 2019 2018
       
             
   759,370   815,929   700,347 
   33,840,073   33,493,360   28,101,932 

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* Values expressed in thousands, except when indicated.

 

The main categories of plan assets as a percentage of total plan assets are as follows:

 

       201920182017
          
 Equity instruments     0.00%4.81%4.60%
 Debt instruments     92.92%94.59%94.70%
 Properties     0.26%0.28%0.35%
 Other     6.82%0.32%0.35%
       
  2020 2019 2018
       
Equity instruments  0.00%  0.00%  4.81%
Debt instruments  97.41%  92.92%  94.59%
Properties  0.17%  0.26%  0.28%
Other  2.45%  6.82%  0.32%

 

The expected return on plan assets was determined based on the market expectations for returns over the duration of the related obligations.

 

The actual return on plan assets was R$6,301,111 (20184,826,845 (2019 - R$3,823,0046,301,111 e 20172018 - R$3,021,950)3,823,004).

 

The following table shows the estimated benefits payable for the next 10ten years from December 31, 2019:2020:

 

   
   
2020 2,195,627
2021 2,232,813
2022 2,292,622
2023 2,350,054
2024 2,406,310
2025 to 2029 12,762,480
Total 24,239,906

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BANCO SANTANDER (BRASIL) S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Thousand of Brazilian Reais - R$ - unless otherwise stated) 

   
   
2021  2,281,173 
2022  2,334,653 
2023  2,385,827 
2024  2,435,557 
2024  2,482,183 
2026 to 2030  12,981,893 
Total  24,901,286 

Assumptions about the rates related to medical care costs have a significant impact on the amounts recognized in income. The change of one percentage point in the medical care cost rates would have the effects as follows:

 

         Sensitivity
     2019 2018 2017
     Current Service Cost and InterestPresent Value of Obligations Current Service Cost and InterestPresent Value of Obligations Current Service Cost and InterestPresent Value of Obligations
Discount RateDiscount Rate        
 (+)0,5%  (31,672)(440,072)(29,066)(307,980)(28,742)(301,237)
 (-)0,5%  35,572494,25732,403343,34031,876334,085
 Boards of Mortality        
 Applied (+) 2 years  (51,720)(718,632)(45,937)(486,742)(43,310)(453,912)
 Applied (-) 2 years  56,687787,63649,355522,95845,808480,101
 Cost of Medical Care        
 (+)0,5%  38,388533,38035,949380,90631,758332,850
 (-)0,5%  (35,060)(487,146)(32,100)(340,122)(28,501)(298,705)
            Sensitivity
    2020   2019   2018
  Current Service Cost and Interest Present Value of Obligations Current Service Cost and Interest Present Value of Obligations Current Service Cost and Interest Present Value of Obligations
Discount Rate                        
(+)0.5%  (28,711)  (402,547)  (31,672)  (440,072)  (29,066)  (307,980)
(-)0.5%  32,099   450,049   35,572   494,257   32,403   343,340 
Boards of Mortality                        
Applied (+) 2 years  (47,637)  (667,904)  (51,720)  (718,632)  (45,937)  (486,742)
Applied (-) 2 years  54,226   760,289   56,687   787,636   49,355   522,958 
Cost of Medical Care                        
(+)0.5%  34,718   486,769   38,388   533,380   35,949   380,906 
(-)0.5%  (31,637)  (443,569)  (35,060)  (487,146)  (32,100)  (340,122)

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* Values expressed in thousands, except when indicated.

 

The following table shows the duration of the actuarial liabilities of the plans sponsored by Banco Santander:

 

Plans  Post - EmploymentPost-Employment Plans
   
  Duration (in years)
Banesprev Plans I 12.3111,92
Banesprev Plans  II 12.8312,38
Banesprev Plans  III 10.5210,79
Banesprev Plans  IV 15.4714,80
Banesprev Plans  V 9.539,24
Banesprev Pre-75 10.3810,10
Sanprev I 6.816,93
Sanprev II 11.7011,57
Sanprev III 10.5910,46
Bandeprev Basic 10.4810,08
Bandeprev Special I 7.046,80
Bandeprev Special II 6.776,53
SantanderPrevi 7.787,69
CACIBAN / DAB / DCA  7.33/6.03/6.67
6,46/5,88/7,06 
Plans Other Similar Obligations
   
Cabesp 15.4515,03
Bandepe 16.4814,98
Free Clinic 11.9111,47
Lifetime officers 9.179,27
Health officers 27.5325,65
Circulars(1) 12.15 e 11.93 13,47 E 11,92
Life Insurance 8.397,99

(1) The duration 11.1512,15 refers to the plan of Former Employees of Banco ABN Amro and 11.9311,93 to the plan of Former Employees of Banco Real.

 

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BANCO SANTANDER (BRASIL) S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Thousand of Brazilian Reais - R$ - unless otherwise stated) 

Actuarial Assumptions Adopted in Calculations

 

            
    2019 2018 2017   2020   2019   2018
 PensionHealthPensionHealthPensionHealth Pension Health Pension Health Pension Health
Nominal Discount Rate for Actuarial ObligationNominal Discount Rate for Actuarial Obligation 7.1%7.2%9.1%9.3%9.5%9.7%  6.8%  7.1%  7.1%  7.2%  9.1%  9.3%
Rate Calculation of Interest Under Assets to the Next YearRate Calculation of Interest Under Assets to the Next Year 7.1%7.2%9.1%9.3%9.5%9.7%  6.8%  7.1%  7.1%  7.2%  9.1%  9.3%
Estimated Long-term Inflation RateEstimated Long-term Inflation Rate 3.5%4.0%  3.3%  3.3%  3.5%  3.5%  4.0%  4.0%
Estimated Salary Increase RateEstimated Salary Increase Rate 4.0%5.0%  3.8%  N/A   4.0%  4.0%  5.0%  5.0%
Mortality tablesMortality tables AT2000  AT2000   AT2000   AT2000   AT2000   AT2000   AT2000 

(1) Net cost of interest on the defined benefit obligation, interest / (income) on the fair value of the plan's assets and interest on the maximum asset recognition limit

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* Values expressed in thousands, except when indicated.

 

23.22.Provisions for judicial and administrative proceedings, commitments and other provisions

a) Breakdown

 

The breakdown of the balance of “Provisions” is as follows:

 

Thousand of reais      2019 2018 2017
            
Pension fund provisions and similar requirements (2)4,960,620 3,357,654 3,923,457
Provisions for lawsuits and administrative proceedings, commitments and other provisions      11,371,205 11,338,244 10,063,459
 Judicial and administrative proceedings under the responsibility of former controlling stockholders (Note 15)103,272 605,638 707,131
 Judicial and administrative proceedings      9,226,735 9,507,240 8,365,320
        Of which:           
  Civil      3,201,061 3,377,338 2,522,005
  Labor      3,504,296 3,819,107 3,448,388
  Tax and Social Security      2,521,378 2,310,795 2,394,927
Provisions for contingent commitments (Note 23.b)      683,918 626,267 -
    Others provisions(1)      1,357,280 599,099 991,008
Total      16,331,825 14,695,898 13,986,916
(1)In 2019, includes R$700,000 (2018 - R$126.561 and 2017 - R$287,446) relating to the expenses of projects aimed at improving operational productivity and efficiency.
Thousand of reais 2020 2019 2018
       
Pension fund provisions and similar requirements  3,929,265   4,960,620   3,357,654 
Provisions for lawsuits and administrative proceedings, commitments and other provisions  9,885,713   11,371,205   11,338,244 
Judicial and administrative proceedings under the responsibility of former controlling stockholders (Note 15)  496   103,272   605,638 
Judicial and administrative proceedings  8,648,892   9,226,735   9,507,240 
Of which:            
Civil  3,429,155   3,201,061   3,377,338 
Labor  2,886,990   3,504,296   3,819,107 
Tax and Social Security  2,332,747   2,521,378   2,310,795 
Provisions for contingent commitments (Note 22.b)  724,779   683,918   626,267 
   Others provisions  511,546   1,357,280   599,099 
Total  13,814,978   16,331,825   14,695,898 

(2)In the year ended December 31, 2018, there was an increase in the costing contribution established for a certain post-employment benefit plan, which is calculated as a percentage of the total monthly remuneration of members. This increase in contribution resulted in a decrease in the cost of past service, due to the change in the plan. The envisaged changes implied a reduction in the present value of the defined benefit plan obligations, which is supported by an actuarial assessment. In the Consolidated Statements of Income, this amount was recorded in the caption Provisions (Net).

b) Changes

 

The changes in “Provisions” were as follows:

 

Thousand of reais  2019
    
     Pensions (1) Other Provisions Total
Balance at beginning of year  3,357,654 11,338,244 14,695,898
Additions charged to income:       
Interest expense and similar charges 314,596 - 314,596
Personnel Expenses (Note 40) 10,917 - 10,917
Constitutions / Reversals and Adjustment of provisions21,523 2,936,187 2,957,710
Other Comprehensive Income    1,416,815 - 1,416,815
Additions to provisions for contingent commitments    - (57,651) (57,651)
Payments to external funds  (187,667) - (187,667)
Amount paid    - (2,870,703) (2,870,703)
Transfer to other assets - actuarial assets (Note 15)23,014 - 23,014
Transfers, exchange differences and other changes- 19,512 19,512
Balance at end of year    4,956,852 11,365,589 16,322,441

Thousand of reais 2020
   
  Pensions (1) Other Provisions Total
Balance at beginning of year  4,960,620   11,365,589   16,331,825 
Additions charged to income:            
Interest expense and similar charges  276,933   -   276,933 
Personnel Expenses (Note 40)  10,046   -   10,046 
Constitutions / Reversals and Adjustment of provisions  13,044   1,565,402   1,578,446 
Other Comprehensive Income  (1,133,245)  -   (1,133,245)
Additions to provisions for contingent commitments  -   40,861   40,861 
Payments to external funds  (215,829)  -   (215,829) 
Amount paid  -   (3,136,423)  (3,136,423)
Transfer to other assets - actuarial assets (Note 15)  17,695   -   17,695 
Transfers, exchange differences and other changes  -   50,284  50,284 
Balance at end of year  3,929,265   9,885,713   13,814,978 

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BANCO SANTANDER (BRASIL) S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Thousand of Brazilian Reais - R$ - unless otherwise stated) 

Thousand of reais  2018
    
     Pensions (1) Other Provisions Total
Balance at beginning of year  3,923,456 10,063,459 13,986,915
Additions charged to income:       
Interest expense and similar charges 320,559 - 320,559
Personnel Expenses (Note 40) 8,939 - 8,939
Constitutions / Reversals and Adjustment of provisions(801,332) 3,556,512 2,755,180
Other Comprehensive Income    483,058 - 483,058
Additions to provisions for contingent commitments    - (48,246) (48,246)
Payments to external funds  (594,024) - (594,024)
Amount paid    - (2,247,172) (2,247,172)
Transfer to other assets - actuarial assets (Note 15)16,998 - 16,998
Transfers, exchange differences and other changes- 13,691 13,691
Balance at end of year    3,357,654 11,338,244 14,695,898

 

* Values expressed in thousands, except when indicated.

Thousand of reais  2017
    
     Pensions (1) Other Provisions Total
Balance at beginning of year  2,710,626 9,065,864 11,776,490
Additions charged to income:       
Interest expense and similar charges 275,836 - 275,836
Personnel Expenses (Note 40) 20,081 - 20,081
Constitutions / Reversals and Adjustment of provisions    1,723 3,112,684 3,114,407
Other Comprehensive Income    1,028,090 - 1,028,090
Payments to external funds  (127,357) - (127,357)
Amount paid    - (2,123,483) (2,123,483)
Transfer to other assets - actuarial assets (Note 15)14,457 - 14,457
Transfers, exchange differences and other changes- 8,3948,394
Balance at end of year    3,923,456 10,063,459 13,986,915

Thousand of reais 2019
   
  Pensions (1) Other Provisions Total
Balance at beginning of year  3,357,654   11,338,244   14,695,898 
Additions charged to income:            
Interest expense and similar charges  314,596   -   314,596 
Personnel Expenses (Note 40)  10,917   -   10,917 
Constitutions / Reversals and Adjustment of provisions  21,523   2,936,187   2,957,710 
Other Comprehensive Income  1,416,815   -   1,416,815 
Additions to provisions for contingent commitments  -   (57,651)  (57,651)
Payments to external funds  (183,899)  -   (183,899)
Amount paid  -   (2,870,703)  (2,870,703)
Transfer to other assets - actuarial assets (Note 15)  23,014   -   23,014 
Transfers, exchange differences and other changes  -   19,512   19,512 
Balance at end of year  4,960,620   11,365,589   16,331,825 
Thousand of reais 2018
   
  Pensions (1) Other Provisions Total
Balance at beginning of year  3,923,456   10,063,459   13,986,915 
Additions charged to income:            
Interest expense and similar charges  320,559   -   320,559 
Personnel Expenses (Note 40)  8,939   -   8,939 
Constitutions / Reversals and Adjustment of provisions  (801,332)  3,556,512   2,755,180 
Other Comprehensive Income  483,058   -   483,058 
Additions to provisions for contingent commitments  -   (48,246)  (48,246)
Payments to external funds  (594,024)  -   (594,024)
Amount paid  -   (2,247,172)  (2,247,172)
Transfer to other assets - actuarial assets (Note 15)  16,998   -   16,998 
Transfers, exchange differences and other changes  -   13,691   13,691 
Balance at end of year  3,357,654   11,338,244   14,695,898 

(1) For further information, see note 15.22. Provisions for pension funds and similar obligations.

 

b.1) Provisions for contingent payments

 

According to note 2.iii.ix, IFRS 9 requires that the provision for expected credit losses be recorded for contracts of financial guarantees rendered, which have not yet been honored. Provision expense reflecting credit risk should be measured and accounted for when the honor of these guarantees occurs and the client accused does not comply with its contractual obligations. The movement of these provisions in 20192020 and 20182019 is as follows:

 

Thousand of reais 2019 2018 2020 2019 2018
       
Balance at beginning of year (in 1/01/2018 after the initial adoption of the IFRS 9) 626,267 674,513  683,918   626,267   674,513 
Creation of provision for contingent commitments 57,651 (48,246)  40,861   57,651   (48,246)
Balance at end of year 683,918 626,267  724,779   683,918   626,267 

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c) Provisions for Civil, Labor, Tax and Social Security Contingencies* Values expressed in thousands, except when indicated.

 

Banco Santander and its subsidiaries are involved in lawsuits and administrative proceedings related to tax, labor, social security and civil arising in the normal course of its activities.

 

The provisions were constituted based on the nature, complexity, lawsuits historic and company´s assessment of lawsuit losses based on the opinions of internal and external legal advisors. The Santander has the policy to constitute provision of full amount of lawsuits who’s the result of loss assessment is probable. The legal obligation of tax and social security were fully recognized in the financial statements.

 

c.1)b.2) Lawsuits and Administrative Proceedings – related to Tax and Social Security

 

The main legal obligations and administrative proceedings, recorded at the line of “Tax Liabilities – Current”, recorded integrality as an obligation are described as follows:

 

Main lawsuits and administrative proceedings related to legal obligations, tax and social security

 

• PIS and CofinsCOFINS - R$3,755,556 (20183,993,873 (2019 - R$3,632.4673,755,556 and 2017 - R$3,501,464)2018 – 3,632,467): Banco Santander and its subsidiaries filed lawsuits seeking to eliminate the application of Law 9,718/1998, which modified the calculation basis for PIS and CofinsCOFINS to cover all revenues of legal entities and not only those arising from the provision of services and sale of goods. Regarding the Banco Santander Process, on April 23, 2015, a STF decision was issued admitting the Extraordinary Appeal filed by the Federal Government regarding PIS and denying

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BANCO SANTANDER (BRASIL) S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Thousand of Brazilian Reais - R$ - unless otherwise stated) 

the follow-up to the Extraordinary Appeal of the Federal Public Prosecutor regarding Cofins.COFINS. Both appealed this decision, without any success, so that the suit relating to CofinsCOFINS is defined, ruling the judgment of the Federal Regional Court of the 4th Region of August 2007, favorable to Banco Santander. Pursuant to the STF, Banco Santander’s PIS and the PIS and CofinsCOFINS of other subsidiaries are pending final judgment.

 

Main lawsuits and administrative proceedings with probable loss risk

 

Banco Santander and its subsidiaries are parties in lawsuits and administrative proceedings related to tax and social security matters, which their risk of loss are classified as probable, based on the opinion of legal counsel. Those are the main themes ofat the proceedings:

 

• Provisional Contribution on Financial Transactions (CPMF) on Customer Operations - R$906,355 (2018924,457 (2019 - R$729,919906,355 and 2017 -2018 – R$714,604)729,919): in May 2003, the Federal Revenue Service issued a tax assessment against Santander Distribuidora de Títulos e Valores Mobiliários Ltda. (Santander DTVM) and another tax assessment against Banco Santander Brasil S.A. The tax assessments refer to the collection of CPMF tax on transactions conducted by Santander DTVM in the cash management of its customers’ funds and clearing services provided by Banco to Santander DTVM in 2000, 2001 and 2002. Based on the risk assessment of legal counsel, the tax treatment was accurate. Santander DTVM had a favorable decision at the Board of Tax Appeals (CARF). Banco Santander had a unfavorable decision and was considered responsible for the collection of the CPMF tax. Both decisions were appealed by the respective losing party to the highest jurisdiction of CARF. In June 2015, Bank and DTVM had obtained a non favorable decision at CARF. On July 3, 2015, Banco and Santander Brasil Tecnologia S.A. (current name of Produban Serviços de Informática S.A. and Santander DTVM) filed a lawsuit seeking to cancel both tax debts. This lawsuit was ruled groundless and is currently awaiting judgment by the Regional Federal Court (TRF 3). Based on the legal advisors' assessment, a provision was set up to cover the loss considered probable in the lawsuit.

 

• Social Security Contribution (INSS) - R$282,053 (201851,409 (2019 - R$273,233282,053 and 20172018 - R$265.022)273,233): Banco Santander and its subsidiaries are involved in administrative and judicial proceedings regarding the collection of income tax on social security and education allowance contributions over several funds that, according to the evaluation of legal advisors, do not have nature of salary.

 

• Tax on Services (ISS) - Financial Institutions - R$224,631 (2018263,183 (2019 - R$228.403224,631 and 20172018 - R$228.403)228,403):Banco Santander and its subsidiaries discuss administrative and legal requirements, by several municipalities, of the payment of ISS on various revenues arising from operations that are usually not classified as services (Note 23.c.4 – Possible Risk Loss).

 

c.2) Lawsuits and Administrative Proceedings of Labor

These are lawsuits filed by labor Unions, Associations, Public Prosecutors and former employees claiming labor rights they believe are due, especially payment for overtime and other labor rights, including retirement benefit lawsuits.

For claims considered to be similar and usual, provisions are recognized based on the payments and successes historic. Claims that do not fit the previous criteria have their provisions constituted according to individual assessment performed, and provisions being constituted based on the risk of loss as probable, the law and jurisprudence according to the assessment of loss made by legal counsel.

FormerBanespa employees. Action distributed in 1998 by the Banespa Retired Association (AFABESP) requiring the payment of a semiannual bonus provided for in the Banespa regulations, according to which the payment will be made in the event that the Bank makes a profit and the distribution of this profit is approved by the board of directors. management or, alternatively, PLR, to retired employees of the extinct Banco do Estado de São Paulo SA - Banespa, hired until May 22, 1975. The bonus was not paid in 1994 and 1995 because the bank did not make a profit during these years. Partial payments were made between 1996 and 2000 as approved by the board of directors. The aforementioned clause was excluded from the regulation in 2001. The lawsuit was upheld by the Superior Labor Court. The Bank filed the appropriate funds with the STF, which, due to a monocratic decision, rejected the appeal. A rescissory action was brought to dismiss the decision of the main action and suspend execution. There is a preliminary injunction in force that authorizes the execution of necessary enforcement acts to proceed with the execution until the attachment, however, any acts of seizure of assets or blocking of cash are prohibited until the judgment of the rescission action. As of December 31, 2019, the case is classified as a probable loss and the provision was recorded based on the estimated loss.

c.3) Lawsuits and Administrative Proceedings of Civil

These contingencies are generally caused by: (1) Lawsuits with a request for revision of contractual terms and conditions or requests for monetary adjustments, including supposed effects of the implementation of various government economic plans, (2) lawsuits deriving of financing agreements, (3) lawsuits of execution; and (4) lawsuits of indemnity by loss and damage. For civil lawsuits considered common and similar in nature, provisions are recorded based on the average of cases closed. Claims that do not fit the previous criteria are provisioned according to individual assessment performed, and provisions are based on the risk of loss as probable, the law and jurisprudence according to the assessment of loss made by legal counsel.

The main processes with the classification of risk of loss as probable are described below:

• Lawsuits for Indemnity - seeking indemnity for material and emotional damage, regarding the consumer relationship on matters related to credit cards, consumer credit, bank accounts, collection and loans and other operations. In the civil lawsuits considered to be similar and usual, provisions are recorded based on the average of cases closed. Civil lawsuits that do not fit into the previous criteria are provisioned according to the individual assessment made, being the provisions recognized based on the risk of loss as probable, the law and jurisprudence according to the assessment of loss made by legal counsel.

• Economic Plans – they referred to lawsuits filed by savings accountholders, related to supposed inflation purge arising from the Economic Plans (Bresser, Verão, Collor I and II), based on the understanding that such plans violated acquired rights relating to the application of inflation indexes on Saving Accounts, Lawsuits Deposits and Time Deposits (CDB). Provisions arising from such lawsuits are recorded based on the individual evaluation of loss made by external legal consultants.

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BANCO SANTANDER (BRASIL) S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Thousand of Brazilian Reais - R$ - unless otherwise stated) 

The Banco Santander is also party in public class lawsuits on the same matter filed by consumer rights organizations, Public Prosecutor’s Offices and Public Defender’s Offices. The provision is made for the lawsuits with the classification of risk as probable, based on the individual execution orders. The STF is still analyzing the subject and has already ordered the suspension of all the procedures except those that were not already decided in courts or in phase of definitive execution. There are decisions favorable to banks at the STF with regard to the economic phenomenon similar to the savings accounts, as in the case of monetary restatement of time deposits - CDB and agreements (present value table).

However, the Supreme Court´s jurisprudence has not come to a conclusion regarding the constitutionality of the norms that changed Brazil’s monetary standard. On April 14, 2010, the STJ was recently decided that the deadline for the filing of civil lawsuits that argue the government's purge is five years, but this decision has not been handed down on the lawsuits yet. Thus, with this decision, a majority lawsuits, as they were filed after the period of five years is likely to be rejected, reducing the values involved. Still, the STF decided that the deadline for individual savers to become party on the public civil litigations, is also five years, counted from the final unappealable sentence. Banco Santander believes in the success of the arguments defended in these courts based on their content and the legal basis.

At the end of 2017, the General Union Law (AGU), Bacen, Institute of Consumer Protection (Idec), the Brazilian Front of the Money savers (Febrapo), the Brazilian Banks Federation (Febraban) have signed an agreement with the purpose to close all lawsuits related to Economic Plans.

The discussions focused on the definition of the amount that would be paid to each person according to the outstanding balance in the saving account. The total amount of the payments will depend on the number of the additional clients, and also on the number of money savers that approved in the courts the existance of their account and balance in the birthday date of the indexes changes. The term of agreement negotiated between the parties was submitted to the STF, which approved the terms of the agreement.

Recently, the STF ordered the suspension of all economic plan (in the country), for two years considering the judicial homologation.

The Management considers that the accrued provisions are due to charge interest in accordance with the plans, including considering the agreement approved by the STF.

c.4)b.3) Civil, Labor, Tax, and Security Social Liabilities Contingent Classified with Loss Risk as Possible:

 

Refer to lawsuits and administrative proceedings involving tax, labor and civil matters classified by legal counsels with loss risk as possible, which they were not recorded.

 

The tax lawsuits classification with loss risk as possible totaled R$25,38027,447 million, being the main lawsuits as follow:

 

• INSS on Profits or Results (PLR) - Bank and the subsidiaries have several lawsuits and administrative proceedings arising from questioning tax authorities in connection with the taxation for social security purposes of certain items which are not considered to be employee remuneration. As of December 31, 2018,2020, the amounts related to these proceedings totaled approximately R$5,0524,931 million.

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* Values expressed in thousands, except when indicated.

 

• Tax on Services (ISS) - Financial Institutions - Banco Santander and its subsidiaries discuss administrative and legal requirements, by several municipalities, of the payment of ISS on various revenues arising from operations that are usually not classified as services. On December 31, 2019,2020, the amounts related to these proceedings totaled approximately R$3,1393,582 million.

 

• Unapproved Compensation - The Bank and its affiliates discuss administrative and legal proceedings with the Federal Revenue, Office to grant tax relief with credits arising from overpayments. On December 31, 2019,2020, the amounts related to these proceedings totaled approximately R$4,8354,641 million.

 

• Goodwill Amortization of Banco Real - the Federal Tax Office of Brazil issued infraction notices against the Bank to require the income tax and social payments, including late charges, for the period of 2009. The Tax Authorities considered that the goodwill related to acquisition of Banco Real, amortized for accounting purposes prior to the merger, could not be deduced by Banco Santander for tax purposes. The infraction notice was contested. On July 14, 2015, the Police Judging RFB decided favorably to Banco Santander, fully canceling the tax debt. On November 10, 2016, the appeal was filed, prompting the Bank to lodge an appeal with CARF, which is awaiting judgment. On December 31, 2019, the balance was approximately R$1,4191,440 million.

 

• Credit Losses - Bank and its subsidiaries challenged the tax assessments issued by the Federal Revenue Services claiming the deduction for credit losses because they fail to meet the relevant requirements under applicable law. As of December 31, 20192020, the amount related to this claim is approximately R$607581 million.

 

• Use of CSLL Tax and Negative Tax Loss -Tax assessments issued by the Federal Revenue Service in 2009 for alleged undue compensation of tax loss carryforwards and negative basis of CSLL, as a consequence of tax assessments drawn up in previous periods. Judgment is pending at the administrative level. As of December 31, 2019,2020, the amount was R$1,0551,072 million.

 

• Goodwill Amortization of Banco Sudameris – the Tax Authorities have issued infraction notices to require the income tax and social contribution payments, including late charges, relating to tax deduction of amortization of goodwill from the acquisition of Banco Sudameris, related to the period of 2007 to 2012. Banco Santander timely presented its appeals, which are pending. On December 31, 2019,2020, the amounts related to these proceedings totaled approximately R$635646 million.

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BANCO SANTANDER (BRASIL) S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Thousand of Brazilian Reais - R$ - unless otherwise stated) 

 

• IRPJ and CSLL - Capital Gain - the Federal Tax Office of Brazil issued infraction notices against Santander Seguros, successor company of ABN AMRO Brasil Dois Participações S.A. (AAB Dois Par), charging income Tax and Social Contribution to related base year 2005. The Federal Tax Office of Brazil claims that capital gain in sales of shares from Real Seguros S.A and Real Vida Previdência S.A. by AAB Dois Par should be taxed by the rate of 34% instead 15%. The assessment was contested administratively based on understanding that tax treatment adopted at the transaction was in compliance with tax laws and capital gain was taxed properly. The administrative lawsuit is awaiting trial. The Banco Santander is responsible for any adverse outcome in this lawsuit as former Zurich Santander Brasil Seguros e Previdência S.A. stockholder. As of December 31, 2019, the amount related to this lawsuit is approximately R$400488 million.

 

The labor claims with classification of loss risk as possible totaled R$ 134227 million, excluding the lawsuits below:

 

Readjustment of Banesprev retirement complements by the IGPDI- lawsuit filed in 2002 in Federal Court by the Association of Retired Employees of the Banco do Estado de São Paulo S.A. - Banespa, requesting the readjustment of the retirement supplementation by the IGPDI for Banespa retirees who have been admitted until May 22, 1975. The judgment granted the correction but only in the periods in which no other form of adjustment could be applied. The Bank and Banesprev have appealed this decision and although the appeals have not yet been judged, the Bank's success rate in this matter in the High Courts is around 90%. In Provisional Execution, calculations were presented by the Bank and Banesprev with "zero" result due to the exclusion of participants who, among other reasons, are listed as authors in other lawsuits or have already had some type of adjustment. The amount related to this claim is not disclosed due to the current stage of the lawsuit and such disclosure may impact the progress of the claim.

 

The liabilities related to civil lawsuits with classification of loss risk as possible totaled R$2,0581,753 million, being the main lawsuits as follow:

 

Indemnity Lawsuit Arising of the Banco Bandepe - related to mutual agreement on appeal to the Justice Superior Court (STJ - Superior Tribunal de Justiça).

 

Indemnity Lawsuit Related to Custody Services - provided by Banco Santander at an early stage which was not handed down yet.

 

Lawsuit Arising from a Contractual Dispute - the acquisition of Banco Geral do Comércio S.A. on appeal to the Court of the State of São Paulo (TJSP - Tribunal de Justiça do Estado de São Paulo).

 

c.5)

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* Values expressed in thousands, except when indicated.

b.4) Other Lawsuits Under the Responsibility of Former Controlling Stockholders

 

Refer to tax, labor and civil lawsuits in the amounts of R$102.482,0, R$0 and R$496 (2019 - R$102,482, R$213 and R$578 (2018 - R$598,544, R$327 and R$6,767)578), respectively, which the responsible people were the former controlling stockholders of the Bank and acquired companies. Based on the agreement signed, these lawsuits have guaranteed reimbursement from part of the former controllers, whose respective duties were recorded in other receivables – others.

 

In the year ended December 31, 2019, the Bank signed a contract with a former controller, in which the registered obligations became the Bank's responsibility.

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BANCO SANTANDER (BRASIL) S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

(Thousand of Brazilian Reais - R$ - unless otherwise stated) 

24.23.Tax assets and liabilities

a) Income and Social Contribution Taxes

 

The total charge for the year can be reconciled to accounting profit as follows:

 

Thousand of reais201920182017 2020 2019 2018
       
Operating Profit Before Tax22,273,14915,909,77114,513,684  9,663,975   22,273,149   15,909,771 
Interest on capital(1)-(4,080,000)(3,800,000)  -   -   (4,080,000)
Operating Profit Before Tax22,273,14911,829,77110,713,684  9,663,975   22,273,149   11,829,771 
Rates (25% income tax and 15% social contribution tax)(8,909,260)(5,323,397)(4,821,158)
Rates (25% income tax and 20% social contribution tax)  (4,348,789)  (8,909,260)  (5,323,397)
PIS and COFINS (net of income and social contribution taxes) (2) (6)(1,983,839)(1,490,190)(1,427,960)  (1,589,260)  (1,983,839)  (1,490,190)
Non-taxable/Non-deductible:             
Equity in affiliates59,79529,68132,198  85,723   59,795   29,681 
Goodwill(3)(137,175)(101,305)(669,963)  (183,854)  (137,175)  (101,305)
Exchange variation - foreign branches (4)715,4242,792,995440,857  6,831,484   715,424   2,792,995 
Net Indeductible Expenses of Non-Taxable Income (6)214,242384,554194,737  (57,663)  214,242   384,554 
Adjustments:             
Constitution of income and social contribution taxes on temporary differences70,223136,3531,138,005  551,983   70,223   136,353 
Interest on capital(1)1,064,000                       -                         -
Effects of change in rate of social contribution taxes (5)2,796,493(90,013)(1,427,667)      1,604,000     
CSLL Aliquot Differential Effect (5)  353,777   2,796,493   (90,013)
Other adjustments(71,602)551,4691,165,315  665,239   (71,602)  551,469 
Income taxes(5,641,699)(3,109,853)(5,375,636)  3,786,778   (5,641,699)  (3,109,853)
Of which:             
Current tax (6)(6,692,328)(4,704,293)(4,969,241)  (5,111,380)  (6,692,328)  (4,704,293)
Deferred taxes1,050,6291,594,440(406,395)  8,898,158   1,050,629   1,594,440 
Taxes paid in the year(5,301,184)(3,668,571)(3,280,230)  (1,269,150)  (5,301,184)  (3,668,571)

(1) Amount distributed to shareholders as interest attributable to shareholders’ equity. For accounting purposes, although the interest should be reflected in the income statement for tax deduction, the charge is reversed before the calculation of the net income in the financial statements and deducted from the shareholders’ equity since it is considered as dividend.

(2) PIS and COFINS are considered a profit-base component (net basis of certain revenues and expenses), therefore and accordingly to IAS 12 they are recorded as income taxes.

(3) The difference between the tax basis and accounting basis of goodwill on acquisition of Banco ABN Amro Real S.A. is a permanent and definitive difference. Administration in this case the possibility of loss on impairment or disposal is remote and only applies to the entity as a whole and according to the characteristics of the business combination performed, it is not possible to segregate and identify the business originally acquired. Therefore deferred tax liability is not record.

(4) Permanent difference related of foreign currency exchange variation on investments abroad nontaxable/ deductible (see details below).

(5) Effect of the rate differential for other non-financial corporations, with a social contribution rate of 9%, as well as the effect of the additional 5% applicable to financial institutions, valid until the end of 2018.

(6) Includes mainly the tax effect on expenses with donations, revenues from judicial deposit updates and other income and expenses that do not qualify as temporary differences.

 

Exchange Hedge of Grand Cayman, branch in Luxembourg and of Santander Brasil EFC

 

Banco Santander operates an agency in the Cayman Islands, a branch in Luxembourg, and a subsidiary called Santander Brasil Establecimiento Financiero de Credito, EFC, or "Santander Brasil EFC" (an independent subsidiary in Spain), which are used primarily to raise funds in the capital and financial markets to provide the Bank with credit lines that are extended to its clients for foreign trade and working capital financing.

 

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* Values expressed in thousands, except when indicated.

To hedge the exposure to exchange rate variations, the Bank uses derivatives and funding (economic hedge). In accordance with Brazilian tax rules, gains or losses arising from the impact of the appreciation or depreciation of the Real on foreign investments are not taxable or deductible for PIS / CofinsCOFINS / IR / CSLL purposes, while the gains or losses of the derivatives used as hedges are taxable or deductible. The purpose of these derivatives is to protect net income after taxes.

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BANCO SANTANDER (BRASIL) S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Thousand of Brazilian Reais - R$ - unless otherwise stated) 

 

Tax distinct treatment from such exchange rate differences results in volatility in "Operating Income Before Tax" and "Income taxes". The foreign exchange variations recorded as a result of foreign investments in the year ended on December 31, 2020, 2019 2018 and 2017.2018.

 

   201920182017
Exchange differences (net)    
Result generated by the exchange rate variations on the Bank's investment in the Cayman, Luxemburg and EFC Branch 1,512,3226,673,535892,863
Gains (losses) on financial assets and liabilities (net)    
Result generated by derivative contracts used as hedge (2,776,601)(12,540,855)(1,702,557)
Income Taxes    
Tax effect of derivative contracts used as hedge - PIS / COFINS (106,497)255,48180,170
Tax effect of derivative contracts used as hedge - IR / CS 1,370,7765,611,839729,524

  2020 2019 2018
Exchange differences (net)      
Result generated by the exchange rate variations on the Bank's investment in the Cayman, Luxemburg and EFC Branch  16,791,857   1,512,322   6,673,535 
Gains (losses) on financial assets and liabilities (net)            
Result generated by derivative contracts used as hedge  (30,374,869)  (2,776,601)  (12,540,855)
Income Taxes            
Tax effect of derivative contracts used as hedge - PIS / COFINS  311,819   (106,497)  255,481 
Tax effect of derivative contracts used as hedge - IR / CS  13,271,193   1,370,776   5,611,839 
             

b) Effective tax rate calculation

 

The effective tax rate is as follows:

 

Thousand of reais 201920182017
     
Operating Profit Before Tax22,273,14915,909,77114,513,684
Income tax 5,641,6993,109,8535,375,636
Effective tax rate 25.33%19.55%37.04%

Thousand of reais 2020 2019 2018
       
Operating Profit Before Tax  9,663,975   22,273,149   15,909,771 
Income tax  (3,786,778)  5,641,699   3,109,853 
Effective tax rate  (39.18)%  25.33%  19.55%

c) Tax recognized in equity

 

In addition to the income tax recognized in the consolidated income statement, the Bank recognized the following amounts in consolidated equity:

 

Thousand of reais 201920182017 2020 2019 2018
       
Tax credited to equity 3,517,5902,785,3303,373,984  3,008,035   3,517,590   2,785,330 
Measurement of available-for-sale securities -1,016,121
Measurement at fair value through other comprehensive incomeMeasurement at fair value through other comprehensive income416,748369,805-  472,472   416,748   369,805 
Measurement of cash flow hedges 1862,0811,063  1,533   186   2,081 
Measurement of investment hedges 562,353  562,353   562,353   562,353 
Defined benefit plan 2,538,3031,851,0911,794,447  1,971,677   2,538,303   1,851,091 
Tax charged to equity (3,952,457)(2,168,758)(2,541,177)  (3,087,311)  (3,952,457)  (2,168,758)
Measurement of available-for-sale securities -(2,426,459)
Measurement at fair value through other comprehensive incomeMeasurement at fair value through other comprehensive income(3,618,126)(1,997,600)-  (2,700,991)  (3,618,126)  (1,997,600)
Measurement of cash flow hedges (322,080)(163,038)(111,134)  (386,284)  (322,080)  (163,038)
Defined benefit plan (12,251)(8,120)(3,584)  (36)  (12,251)  (8,120)
Total (434,867)616,572832,807  (79,276)  (434,867)  616,572 

Relates to deferred taxes recognized in equity due to temporary differences accounted for in equity.

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* Values expressed in thousands, except when indicated.

 

d) Deferred taxes

 

The detail of the balances of “Tax assets – Deferred” and “Tax liabilities – Deferred” is as follows:

 

Thousand of reais201920182017 2020 2019 2018
       
Tax assets:30,295,06227,680,57824,778,078  37,981,698   30,295,062   27,680,578 
Of which:             
Temporary differences (1)29,565,70226,416,52723,375,600  32,113,436   29,565,702   26,416,527 
Tax loss carry forwards367,120846,587866,579  5,693,104   367,120   846,587 
Social contribution taxes 18%362,240417,464535,899  175,158   362,240   417,464 
Total deferred tax assets30,295,06227,680,57824,778,078  37,981,698   30,295,062   27,680,578 
             
Tax liabilities:5,540,8733,031,3892,496,531  4,546,595   5,540,873   3,031,389 
Of which:             
Excess depreciation of leased assets148,839123,257124,909  166,903   148,839   123,257 
Adjustment to fair value of trading securities and derivatives5,392,0342,908,1322,371,622  4,379,692   5,392,034   2,908,132 
Total deferred tax liabilities5,540,8733,031,3892,496,531  4,546,595   5,540,873   3,031,389 

(1) Temporary differences relate mainly to impairment losses on loans and receivables and provisions for lawsuits and administrative proceedings, and the effect of the fair value of financial instruments.

 

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BANCO SANTANDER (BRASIL) S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Thousand of Brazilian Reais - R$ - unless otherwise stated) 

The changes in the balances of “Tax Assets – Deferred” and “Tax Liabilities – Deferred” in the last three years were as follows:

 

Thousand of reais  Balances at December 31, 2018 Adjustment to
Income		 Valuation adjustments(1) Other(2)Acquisition / MergerBalance at December 31, 2019
            
Tax assets:  27,680,578 3,693,727 471,499 (1,550,742)-30,295,062
   Temporary differences26,416,527 4,240,405 471,499 (1,562,729)-29,565,702
   Tax loss carry forwards846,587 (491,454) - 11,987-367,120
   Social contribution taxes 18%417,464 (55,224) - --362,240
Tax liabilities:  3,031,389 781,448 1,773,065 (45,029)-5,540,873
   Temporary differences3,031,389 781,448 1,773,065 (45,029)-5,540,873
Total  24,649,189 2,912,279 (1,301,566) (1,505,713)-24,754,189
            
Thousand of reais  Balances at December 31, 2017 Adjustment to
Income		 Valuation adjustments(1) Other(2)Acquisition / MergerBalance at December 31, 2018
            
Tax assets:  24,778,078 1,674,317 (186,260) 1,369,93444,50927,680,578
   Temporary differences23,375,600 1,812,744 (186,260) 1,369,93444,50926,416,527
   Tax loss carry forwards866,579 (19,992) - --846,587
   Social contribution taxes 18%535,899 (118,435) - --417,464
Tax liabilities:  2,496,531 79,877 607,773 (153,623)8313,031,389
   Temporary differences2,496,531 79,877 607,773 (153,623)8313,031,389
Total  22,281,547 1,594,440 (794,033) 1,523,55743,67824,649,189
            
Thousand of reais  Balances at December 31, 2016 Adjustment to
Income		 Valuation adjustments(1) Other(2)Acquisition / MergerBalance at December 31, 2017
            
Tax assets:  24,437,112 668,483 254,733 (620,401)38,15124,778,078
   Temporary differences23,398,886 304,231 254,733 (620,401)38,15123,375,600
   Tax loss carry forwards382,867 483,712 - --866,579
   Social contribution taxes 18%655,359 (119,460) - --535,899
   1,268,037 262,088 582,363 378,6935,3502,496,531
   Temporary differences1,268,037 262,088 582,363 378,6935,3502,496,531
Total  23,169,075 406,395 (327,630) (999,094)32,80122,281,547
Thousand of reais Balances at December 31, 2019 Adjustment to
Income		 Valuation adjustments (1) Other (2) Acquisition / Merger Balance at December 31, 2020
             
Tax assets:  30,295,060   8,362,100   (400,583)  (418,784)  161,603   37,999,396 
   Temporary differences  29,565,700   3,223,197   (400,583)  (418,784)  161,603   32,131,133 
   Tax loss carry forwards  367,120   5,325,984   -   -   -   5,693,104 
Social contribution taxes 18%  362,240   (187,081)  -   -   -   175,159 
Tax liabilities:  5,540,873   129,231   (1,063,160)  (60,349)  -   4,546,595 
Temporary differences  5,540,873   129,231   (1,063,160)  (60,349)  -   4,546,595 
Total  24,754,187   8,232,869   662,577   (358,435)  161,603   33,452,801 
                         
Thousand of reais Balances at December 31, 2018 Adjustment to
Income		 Valuation adjustments (1) Other (2) 

Acquisition /

 

Merger

 

 Balance at December 31, 2019
             
Tax assets:  27,680,578   3,693,727   471,499   (1,550,744)  -   30,295,060 
   Temporary differences  26,416,527   4,240,405   471,499   (1,562,731)  -   29,565,700 
   Tax loss carry forwards  846,587   (491,454)  -   11,987   -   367,120 
Social contribution taxes 18%  417,464   (55,224)  -   -   -   362,240 
Tax liabilities:  3,031,389   781,448   1,773,065   (45,029)  -   5,540,873 
Temporary differences  3,031,389   781,448   1,773,065   (45,029)  -   5,540,873 
Total  24,649,189   2,912,279   (1,301,566)  (1,505,715)  -   24,754,187 
                         
Thousand of reais Balances at December 31, 2017 Adjustment to
Income		 Valuation adjustments (1) Other (2) Acquisition / Merger Balance at December 31, 2018
             
Tax assets:  24,778,078   1,674,317   (186,260)  1,369,934   44,509   27,680,578 
   Temporary differences  23,375,600   1,812,744   (186,260)  1,369,934   44,509   26,416,527 
   Tax loss carry forwards  866,579   (19,992)  -   -   -   846,587 
Social contribution taxes 18%  535,899   (118,435)  -   -   -   417,464 
   2,496,531   79,877   607,773   (153,623)  831   3,031,389 
Temporary differences  2,496,531   79,877   607,773   (153,623)  831   3,031,389 
Total  22,281,547   1,594,440   (794,033)  1,523,557   43,678   24,649,189 

(1) It relates to deferred taxes recognized in equity due to temporary differences accounted in equity.

(2) In 2019,2020, it mainly refers to net of deferred taxes amounted to R$1,595,773 (2018(2019 - R$1,216,311 and 20172018 - R$241,708), which have the same counterparty and realization period.

 

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* Values expressed in thousands, except when indicated.

e) Expected realization of deferred tax assets

 

   Tax assets  Tax liabilities
Year  Temporary differences  Tax loss carry forwards Social contribution taxes 18% TotalTemporary differencesTotal
            
2020  8,945,648 74,742 362,240 9,382,6301,838,8741,838,874
2021  8,275,410 43,711 - 8,319,1211,834,7811,834,781
2022  7,562,496 22,820 - 7,585,3161,760,1671,760,167
2023  819,647 23,194 - 842,84115,95415,954
2024  2,682,021 39,116 - 2,721,13715,95415,954
2025 a 2027  662,021 163,172 - 825,19345,30145,301
2028 a 2029  618,459 365 - 618,82429,84229,842
Total  29,565,702 367,120 362,240 30,295,0625,540,8735,540,873

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  Tax assets   Tax liabilities
Year Temporary differences Tax loss carry forwards Social contribution taxes 18% Total Temporary differences Total
             
2021  4,334,901   3,214,512   175,158   7,724,571   2,282,399   2,282,399 
2022  12,412,237   60,066   -   12,472,303   2,123,509   2,123,509 
2023  10,671,466   266,517   -   10,937,983   31,007   31,007 
2024  819,052   2,034,568   -   2,853,620   16,662   16,662 
2025  2,758,198   9,520   -   2,767,718   16,028   16,028 
2026 a 2028  525,852   107,921   -   633,773   46,338   46,338 
2029 a 2030  609,428   -   -   609,428   30,652   30,652 
Total  32,131,134   5,693,104   175,158   37,999,396   4,546,595   4,546,595 
 

BANCO SANTANDER (BRASIL) S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

(Thousand of Brazilian Reais - R$ - unless otherwise stated) 

25.24.Other liabilities

The breakdown of the balance of “Other Liabilities” is as follows:

 

Thousand of reais     2019 2018 2017 2020 2019 2018
       
Accrued expenses and deferred income (1)Accrued expenses and deferred income (1) 5,038,011 3,193,291 3,036,374  5,115,936   5,038,011   3,193,291 
Transactions in transit (3) 785,418 925,336 980,501  674,162   785,418   925,336 
Provision for payment of variable remuneration 317,539 260,739 270,626
Provision for share-based payment  325,930   317,539   260,739 
Liabilities for insurance contractsLiabilities for insurance contracts 1,901,801 1,797,167 1,587,603  1,987,577   1,901,801   1,797,167 
Other(2) 2,878,175 2,918,615 2,138,817  5,947,640   2,878,175   2,918,615 
Total 10,920,944 9,095,148 8,013,921  14,051,245   10,920,944   9,095,148 

(1) Corresponds, mainly, to payments to be made - personnel expenses.

(2) Includes credits for funds to be released, such as Administratives expenses, amounts due to associates and suppliers.

(3) Includes mainly the amounts to transfer to the credit card companies (resources in transit) and amount to release referred to the real estate credits.

 

26.25.Other Comprehensive Income

The balances of Other Comprehensive Income include the amounts, net of the related tax effect, of the adjustments to assets and liabilities recognized temporarily in equity stated in the Consolidated Statement of Changes in Equity and Consolidated Statements of Comprehensive Income until they are extinguished or realized, when they are recognized in the consolidated income statement. The amounts attributable to subsidiaries, investments in associates and joint ventures are presented, on a line by line basis, in the appropriate items based on their nature.

 

It should be noted that the consolidated Statements of Comprehensive Income includes the changes to Other Comprehensive Income as follows:

 

- Revaluation gains (losses): This includes the amount of the gains, net of losses incurred in the year, recognized directly in equity. The amounts recognized in equity in the year remain under this heading, even if in the same year they are transferred to the income statement or to the initial carrying amount of the assets or liabilities or are reclassified to another heading.

 

- Amounts transferred to income statement: This includes the amount of the revaluation gains (losses) previously recognized in equity, even in the same year, which are subsequently recognized in the income statement.

 

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* Values expressed in thousands, except when indicated.

- Amounts transferred to the initial carrying amountnumber of hedged objects: This includes the amount of the revaluation gains (losses) previously recognized in Equity, even in the same year, which are recognized in the initial carrying amount of assets or liabilities as a result of cash flow hedges.

 

- Other transfers: This includes the amount of the transfers made in the year between the various Other Comprehensive Income items.

 

In the Consolidated Statements of Comprehensive Income, the amounts in "Other Comprehensive Income" are recognized gross, including the amount relating to non-controlling interests, and the corresponding tax effect is presented under a separate heading, except in the case of entities accounted for using the equity method, the amounts for which are presented net of the tax effect.

 

a) Financial assets measured at fair value through other comprehensive income

 

a.1) Financial assets measured at fair value through other comprehensive income

 

Other Comprehensive Income – Financial assets measured at fair value through other comprehensive income includes the net amount of unrealized changes in the fair value of assets classified as available-for-sale financial assets (see Notes 6 and 7), net of taxes.

 

The breakdown, by type of instrument and geographical origin of the issuer, of Other Comprehensive Income Financial assets measured at fair value through other comprehensive income (IFRS 9) on December 31, 20192020 is as follows:

 

Thousand of reais    2019
     Revaluation gains Revaluation losses Net revaluation gains (losses) Fair value
Debt Instruments           
Government debt securities  7,251,721 (3,952,558) 3,299,163 95,961,823
Private-sector debt securities 824,294 (778,175) 46,119 1,104
Total    8,076,015 (4,730,733) 3,345,282 95,962,927
            
            
Thousand of reais    2018
     Revaluation gains Revaluation losses Net revaluation gains (losses) Fair value
Debt Instruments           
Government debt securities  3,917,451 (1,608,673) 2,308,778 85,395,136
Private-sector debt securities 1,546,895 (1,863,092) (316,197) 555
Total    5,464,346 (3,471,765) 1,992,581 85,395,691
Thousand of reais 2020
  Revaluation gains Revaluation losses Net revaluation gains (losses) Fair value
Debt Instruments        
Government debt securities  11,061,691   (8,832,504)  2,229,187   109,317,614 
Private-sector debt securities  953,043   (840,101)  112,942   38,131 
Total  12,014,734   (9,672,605)  2,342,129   109,355,745 
                 
Thousand of reais 2019
  Revaluation gains Revaluation losses Net revaluation gains (losses) Fair value
Debt Instruments        
Government debt securities  7,251,721   (3,952,558)  3,299,163   95,961,823 
Private-sector debt securities  824,294   (778,175)  46,119   1,104 
Total  8,076,015   (4,730,733)  3,345,282   95,962,927 
                 
Thousand of reais 2018
  Revaluation gains Revaluation losses Net revaluation gains (losses) Fair value
Debt Instruments        
Government debt securities  3,917,451   (1,608,673)  2,308,778   85,395,136 
Private-sector debt securities  1,546,895   (1,863,092)  (316,197)  555 
Total  5,464,346   (3,471,765)  1,992,581   85,395,691 

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BANCO SANTANDER (BRASIL) S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Thousand of Brazilian Reais - R$ - unless otherwise stated) 

a.2) Financial assets - available-for-sale

Other Comprehensive Income – Financial assets measuredBanco Santander evaluates at fair value through other comprehensive income includeseach disclosure to the net amount of unrealized changes in the fair value of assets classified as available-for-sale financial assets (see Notes 6 and 7), net of taxes.

The breakdown, by type of instrument and geographical origin of the issuer, of Other Comprehensive Income – available-for-sale (IAS 39) on December, 31, 2017 is as follows:

Thousand of reais    2017
     Revaluation gains Revaluation losses Net revaluation gains (losses) Fair value
Debt Instruments           
Government debt securities  1,616,486 (6,942) 1,609,544 79,462,303
Private-sector debt securities 10,694 (2,227) 8,467 5,254,444
            
Equity instruments           
Domestic    230,722 (35,159) 195,563 1,106,637
 Of which:           
Listed    156,236 (5,322) 150,914 965,547
Unlisted    74,486 (29,837) 44,649 141,090
Total    1,857,902 (44,328) 1,813,574 85,823,384
            

At each reporting date, the Bank assessesmarket whether there is any objective evidence indicating that the available-for-sale financial assetsinstruments classified as Financial Assets Measured at Fair Value in Other Comprehensive Income (debt securities and equity instruments) are impaired.securities) have indications of loss due to impairment.

 

b) Cash flow hedges

 

Other Comprehensive Income—Income — Cash flow hedges includes the gains or losses attributable to hedge instruments that qualify as effective hedges. These amounts will remain under this heading until they are recognized in the consolidated income statement in the periods in which the hedged items affect them (see Note 8).

 

c) Hedges of net investments in foreign operations and Translation adjustments foreign investment

 

Other Comprehensive Incomes—Incomes — Hedges of net investments in foreign operations includes the net amount of changes in the value of hedging instruments in hedges of net investments in foreign operations.operations, In 20172019 this hedge was discontinued (Note 8.a5).

 

Other Comprehensive Income—Income — Exchange differences includes the net amount of the differences arising on the translation to Reais of the balances of the consolidated entities whose functional currency is not the Reais (Note 2.a).

 

27.26.Non-controlling interests

"Non-controlling interests" refer to the net equity value attributable to equity instruments that do not belong, directly or indirectly, to the Bank, including the portion of the annual profit attributed to the subsidiaries.

 

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* Values expressed in thousands, except when indicated.

a) Breakdown

 

The detail, by company, of the balance of “Equity - Non-controlling interests” is as follows:

 

Thousand of reais 2019 2018 2017
       
Santander Leasing S.A. Arrendamento Mercantil447 447 395
Getnet S.A. - 249,007 206,105
Olé Consignado S.A.271,078 116,967 82,432
Banco PSA Finance Brasil S.A.131,222 155,399 147,295
Banco Hyundai Capital 7,245 7,015 -
Rojo Entretenimento S.A. 148,589 - -
Return Capital Serviços de Recuperação de Créditos S.A. (Current name of Ipanema Empreendimentos e Participações Ltda.)- 1,155 667
Total 558,581 529,990 436,894
Thousand of reais 2020 2019 2018
       
Financial Position of non-controlling interest  312,885   558,581   529,990 
Santander Leasing S,A, Arrendamento Mercantil  —     447   447 
Getnet S,A.  —     —     249,007 
Olé Consignado S,A.  —     271,078   116,967 
Banco PSA Finance Brasil S,A.  138,644   131,222   155,399 
Rojo Entretenimento S,A.  7,087   7,245   7,015 
Banco Hyundai Capital  167,155   148,589     
Return Capital Serviços de Recuperação de Créditos S.A. (Atual denominação Social da Ipanema Empreendimentos e Participações)  —     —     1,155 
             
Thousand of reais 2020 2019 2018
       
Profit attributable to non-controlling interests  32,224   224,518   217,441 
Of which:            
Santander Leasing S.A. Arrendamento Mercantil  (444)  3   25 
Getnet S.A.  —     3,962   55,518 
Olé Consignado S.A.  —     199,332   138,527 
Banco PSA Finance Brasil S.A.  14,146   15,887   17,914 
Rojo Entretenimento S.A.  (159)  230   166 
Banco Hyundai Capital  18,681   2,520   —   
Return Capital Serviços de Recuperação de Créditos S,A, (Atual denominação Social da Ipanema Empreendimentos e Participações)  —     2,584   1,150 
Others  —     —     4,141 

  

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BANCO SANTANDER (BRASIL) S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Thousand of Brazilian Reais - R$ - unless otherwise stated) 

 

       
Thousand of reais 2019 2018 2017
       
Profit attributable to non-controlling interests224,518 213,300 213,984
Of which:      
      Santander Leasing S.A. Arrendamento Mercantil3 25 48
      Getnet S.A. 3,962 55,518 48,842
      Olé Consignado S.A.199,332 138,527 53,286
      Santander Serviços Técnicos, Administrativos e de Corretagem de Seguros- - 92,365
     BW Guirapá S.A.- - (776)
     Banco PSA Finance Brasil S.A.15,887 17,914 19,884
      Rojo Entretenimento S.A. 230 166 -
      Banco Hyundai Capital 2,520 - -
      Return Capital Serviços de Recuperação de Créditos S.A. (Current name of Ipanema Empreendimentos e Participações Ltda.)2,584 1,150 335

b) Changes

 

The changes in the balance of “Non-controlling interests” are summarized as follows:

 

Thousand of reais 2019 2018 2017 2020 2019 2018
 
Balance at beginning of yearBalance at beginning of year529,990436,894725,504  558,581   529,990   436,894 
Additions / disposals (net) due to change in the scope of consolidation (1) (2)51,073 6,849 (660,230)
Incorporation / Acquisition (4)- - 296,184
Additions / disposals (net) due to change in the scope of consolidation (1)  (271,078)  51,073   6,849 
Dividends paid / Interest on CapitalDividends paid / Interest on Capital(92,734) (60,936) (133,641)  -   (92,734)  (60,936)
Capital increase (3) 100,000 48,000 -
Capital increase (2)  -   100,000   48,000 
Profit attributable to non-controlling interestsProfit attributable to non-controlling interests224,518 213,300 213,984  32,224   224,518   213,300 
Transition Adjustments to the amendments to the IAS 19- - (1,790)

Update PUT Olé Consignado S.A.		 (240,000) (106,440) -  -   (240,000)  (106,440)
Others (14,266) (7,677) (3,117)  (6,842)  (14,266)  (7,677)
Balance at end of year 558,581 529,990 436,894  312,885   558,581   529,990 
(1)In 2017, it mainly refers to the participation of non-controlling shareholders of BW Guirapá. In 2019, it refers mainly to Banco Hyundai Capital, which was consolidated using the equity method. In 2020, it refers the incorporation of Banco Olé Consignado S.A by the Company.

(2)In 2017, it mainly refers to the balance of non-controlling interests of Santander Corretora de Seguros.Increase in the share capital of Olé Consignado.

(3)In 2019 and 2018, it refers to the capital increase of Olé Consignado.

 (4)In 2017, it mainly refers to the balance of non-controlling interests of Santander Corretora de Seguros, before the merger events (Note 3).Consolidated Financial Statements | December 31, 2020 | F-89

 

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* Values expressed in thousands, except when indicated.

28.27.Stockholders’Shareholders’ equity

a) Capital

 

According to the by-laws, Banco Santander's capital stock may be increased up to the limit of its authorized capital, regardless of statutory reform, by resolution of the Board of Directors and through the issuance of up to 9,090,909,090 (nine billion, ninety million, nine hundred and nine thousand and ninety) shares, subject to the established legal limits on the number of preferred shares. Any capital increase that exceeds this limit will require stockholders' approval.

 

The capital stock, fully subscribed and paid, is divided into registered book-entry shares with no par value.

 

  Thousand of shares
  2019 2018
  CommonPreferredTotal Common Preferred Total
Brazilian residents 90,069115,785205,854 82,043 107,699 189,742
Foreign residents 3,728,6263,564,0517,292,677 3,736,652 3,572,137 7,308,789
Total shares 3,818,6953,679,8367,498,531 3,818,695 3,679,836 7,498,531
(-) Treasury shares (16,702)(16,702)(33,404) (13,317) (13,317) (26,634)
Total outstanding 3,801,9933,663,1347,465,127 3,805,378 3,666,519 7,471,897

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BANCO SANTANDER (BRASIL) S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Thousand of Brazilian Reais - R$ - unless otherwise stated) 

           
  Thousand of shares
    2017
      Common Preferred Total
Brazilian residents     66,207 91,779 157,986
Foreign residents     3,752,488 3,588,057 7,340,545
Total shares     3,818,695 3,679,836 7,498,531
(-) Treasury shares     (5,845) (5,845) (11,690)
Total outstanding     3,812,850 3,673,991 7,486,841

  Thousand of shares
  2020 2019
  Common Preferred Total Common Preferred Total
Brazilian residents  109,885   135,438   245,323   90,069   115,785   205,854 
Foreign residents  3,708,810   3,544,398   7,253,208   3,728,626   3,564,051   7,292,677 
Total shares  3,818,695   3,679,836   7,498,531   3,818,695   3,679,836   7,498,531 
(-) Treasury shares  (18,829)  (18,829)  (37,658)  (16,702)  (16,702)  (33,404)
Total outstanding  3,799,866   3,661,007   7,460,873   3,801,993   3,663,134   7,465,127 
  Thousand of shares
  2018
  Common Preferred Total
Brazilian residents  82,043   107,699   189,742 
Foreign residents  3,736,652   3,572,137   7,308,789 
Total shares  3,818,695   3,679,836   7,498,531 
(-) Treasury shares  (13,317)  (13,317)  (26,634)
Total outstanding  3,805,378   3,666,519   7,471,897 

b) Dividends and Interest on Capital

 

According to the Bank’s bylaws, stockholders are entitled to a minimum dividend equivalent to 25% of net income for the year, adjusted according to legislation. Preferred shares are nonvoting and nonconvertible, but have the same rights and advantages granted to common shares, in addition to priority in the payment of dividends at a rate that is 10% higher than those paid on common shares, and in the capital reimbursement, without premium, in the event of liquidation of the Bank.

 

Prior to the Annual Stockholders Meeting, the Board of Directors may resolve on the declaration and payment of dividends on earnings based on: (i) balance sheets or earning reserves showed in the last balance sheet; or (ii) balance sheets issued in the period shorter than 6 months, since the total of dividends paid in each half of the fiscal year shall not exceed the amount of capital reserves. These dividends are fully attributed to the mandatory dividend.

CMN Resolution No. 4,885, of December 23, 2020, prohibits the institutions authorized to operate by the Central Bank of Brazil to remunerate their capital above the highest of: i) 30% of the adjusted net profit under the terms of item I of article 20 of Law No. 6,404/76; or ii) minimum mandatory dividends established by article 202 of Law No. 6,404 / 76, including in the form of Interest on Equity, until December 31, 2020. The standard also prohibits the reduction of capital, except in specific situations, and the increase in the remuneration of its officers, administrators and members of the Board of Directors and the Fiscal Council.

The amount of R $ 7,800,000R$665,000 in dividends and interest on own capital paid in February 2020, is recorded under the caption of other obligations - social and statutory (R $ 4,800,000 in 2018)(2019 – R$7,800,000 and R$2018 – 4,800,00);

 

 2019 2020
 Thousand of reais Real per Thousand Shares / Units Thousand Real per Thousand Shares / Units
 Common Preferred Units of reais Common Preferred Units
                
Interest on Capital (1) (6)(5) 1,000,000 127.5853 140.3438 267.9291  890,000   113,7129   125,0842   238,7971 
Interest on Capital (2) (6)(5) 1,000,000 127.6399 140.4039 268.0438  770,000   98,3793   108,2172   206,5965 
Interest on Capital (3) (6)(5) 1,000,000 127.6610 140.4271 268.0881  1,000,000   127,7636   140,5400   268,3036 
Interest on Capital (4) (6)(5) 1,010,000 128.9673 141.8641 270.8314  665,000   84,9626   93,4589   178,4214 
Interim Dividends (5) (6) 6,790,000 867.0180 953.7197 1,820.7377
Total 10,800,000       3,325,000             

(1) EstablishedDeliberated by the Board of Directors in March 29, 2019, Common Shares - R$108.4475, preferred - R$119.2922 e Units - R$227.7397 net of taxes and wason April 27, 2020, paid in May 28, 2019,on June 24, 2020, without any remuneration for monetary indexation.as restatement.

(2) EstablishedDeliberated by the Board of Directors in Juneon July 28, 2019, Common Shares - R$108.4939, preferred - R$119.3433 e Units - R$227.8373 net of taxes and was2020, paid in July 31, 2019,on September 25, 2020, without any remuneration for monetary indexation.restatement.

(3) Deliberated by the Board of Directors on September 30, 2019, common - R$108.5119, preferred - R$119.3631 and Units - R$227.8749 net of taxes and wereOctober 26, 2020, paid on October 30, 2019,December 23, 2020, without any remuneration monetary indexation.restatement security.

(4) Deliberated by the Board of Directors on December 27, 2019, common - R$109.6222, preferred - R$120.5844 and Units - R$230.2067 net28, 2020, paid as of taxes that will be paid in February 2020,1, 2021, without any remuneration as monetary indexation.restatement.

(5) Deliberated by the Board of Directors on December 27, 2019, that was paid in February 21, 2020, without any monetary indexation. 

(6) The amount of dividends and interest on equity will beThey were fully chargedimputed to the minimum mandatory dividends to be distributed by the Bank for the fiscal year 2019.2020.

 

   2018
   Thousand of reais Real per Thousand Shares / Units
    Common Preferred Units
          
Interest on Capital (1) (6)  600,000 76.3304 83.9634 160.2938
Interim Dividends (2) (6)  600,000 76.4956 84.1451 160.6407
Interest on Capital (3) (6)  600,000 76.4985 84.1484 160.6469
Interest on Capital (4) (6)  2,880,000 367.4149 404.1564 771.5713
Interim Dividends (5) (6)  1,920,000 244.9433 269.4376 514.3809
Total  6,600,000      

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* Values expressed in thousands, except when indicated.

  2019
  Thousand Real per Thousand Shares / Units
  of reais Common Preferred Units
         
Interest on Capital (1) (6)  1,000,000   127,5853   140,3438   267,9291 
Interim Dividends (2) (6)  1,000,000   127,6399   140,4039   268,0438 
Interest on Capital (3) (6)  1,000,000   127,6610   140,4271   268,0881 
Interest on Capital (4) (6)  1,010,000   128,9673   141,8641   270,8314 
Interim Dividends (5) (6)  6,790,000   867,0180   953,7197   1,820,7377 
Total  10,800,000             

(1) EstablishedDeliberated by the Board of Directors inon March 27, 2018, Common Shares - R$ 64.8808, preferred - R$71.3689 and Units - R$ 136.2497 net of taxes, and was29, 2019, paid on April 26, 2018May 28, 2019, without any compensationremuneration as monetary indexation.restatement.

(2) EstablishedDeliberated by the Board of Directors inon June 26, 2018, was28, 2019, paid on July 27, 201831, 2019, without any compensationremuneration as monetary indexation.restatement. 

(3) EstablishedDeliberated by the Board of Directors inon September 28, 2018, common - R$ 65.0237, preferred - R$ 71.5261 and Units - R$ 136.5498 net of taxes and30, 2019, paid on October 26, 2018,30, 2019, without any compensation asremuneration monetary indexation.restatement.

 

(4) EstablishedDeliberated by the Board of Directors inon December 28, 2018, common - R$ 312.3027, preferred - R$ 343.5329 and Units - R$ 655.8356 net of taxes and27, 2019, paid on February 26, 2019,21, 2020, without any compensation asremuneration monetary indexation.restatement 

(5) Deliberated by the Board of Directors on December 28, 2018 and27, 2019, paid as ofon February 26, 2019,21, 2020, without any remuneration monetary indexation.

(6) The amount of dividends and interest on shareholders' equity will be fully charged to the minimum mandatory dividends to be distributed by the Bank for the financial year 2018.restatement.

 

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BANCO SANTANDER (BRASIL) S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Thousand of Brazilian Reais - R$ - unless otherwise stated) 

      2017
      Thousand of reais Reais per Thousand Shares / Units
       Common Preferred Units
             
Interest on Capital (1) (6)     500,000 63.3780 69.7158 133.0938
Interest on Capital (2) (6)     500,000 63.5280 69.8808 133.4088
Interest on Capital (3) (6)     500,000 63.5917 69.9509 133.5426
Interim Dividends (4) (6)     2,500,000 318.2994 350.1293 668.4287
Interest on Capital (3) (5)     2,300,000 292.8354 322.1190 614.9544
Total     6,300,000      
(1) Established by the Board of Directors in April 2017, common - R$ 53.8713, preferred - R$ 59.2584 and Units - R$ 113.1297 net of taxes. They were paid as of May 26, 2017, without any monetary restatement.
(2) Established by the Board of Directors in July 2017, common - R$ 53.9988, preferred - R$ 59.3987 and Units - R$ 113.3975 net of taxes. They were paid as of August 25, 2017, without any monetary restatement.
(3) Established by the Board of Directors in September 2017, common - R$ 54.0530, preferred - R$ 59.4583 and Units - R$ 113.5113 net of taxes. They were paid as of October 26, 2017, without any monetary indexation.
(4) Deliberated by the Board of Directors in December 2017. They were paid on February 26, 2018, without any monetary indexation.
(5) Deliberated by the Board of Directors in December 2017, common - R $ 248.9101, preferred - R$ 273.8011 and Units - R$ 522.7112 net of taxes. They were paid on February 26, 2018, without any monetary indexation.

(6) The amount of interest on own capital and interim dividends will bewere fully chargedimputed to the minimum mandatory dividends distributed by the Bank for the 20172019 financial year.

 

  2018
  Thousand Reais per Thousand Shares / Units
  of reais Common Preferred Units
         
Interest on Capital (1) (6)  600,000   76,3304   83,9634   160,2938 
Interest on Capital (2) (6)  600,000   76,4956   84,1451   160,6407 
Interest on Capital (3) (6)  600,000   76,4985   84,1484   160,6469 
Interim Dividends (4) (6)  2,880,000   367,4149   404,1564   771,5713 
Interest on Capital (5) (6)  1,920,000   244,9433   269,4376   514,3809 
Total  6,600,000             
(1)Established by the Board of Directors in March 27, 2018, Common Shares - R$ 64.8808, preferred - R$71.3689 and Units - R$ 136.2497 net of taxes, and was paid on April 26, 2018 without any compensation as monetary indexation.
(2)Established by the Board of Directors in June 26, 2018, was paid on July 27, 2018 without any compensation as monetary indexation.
(3)Established by the Board of Directors in September 28, 2018, common - R$ 65.0237, preferred - R$ 71.5261 and Units - R$ 136.5498 net of taxes and paid on October 26, 2018, without any compensation as monetary indexation.
(4)Established by the Board of Directors in December 28, 2018, common - R$ 312.3027, preferred - R$ 343.5329 and Units - R$ 655.8356 net of taxes and paid on February 26, 2019, without any compensation as monetary indexation.
(5)Deliberated by the Board of Directors on December 28, 2018 and paid as of February 26, 2019, without any monetary indexation.
(6)The amount of dividends and interest on shareholders' equity will be fully charged to the minimum mandatory dividends to be distributed by the Bank for the financial year 2018.

c) Reserves

 

The reserves are allocated as follows after the deductions and statutory provisions, from the net income:

 

Legal reserve

 

In accordance with Brazilian Corporate Law, 5% is transferred to the legal reserve, until it reaches 20% of the share capital. This reserve is designed to ensure the integrity of the capital and can only be used to offset losses or increase capital.

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* Values expressed in thousands, except when indicated.

 

Capital reserve

 

The Bank´s capital reserve consists of: goodwill reserve for subscription of shares and other capital reserves, and can only be used to absorb losses that exceed retained earnings and profit reserves, redemption, reimbursement or acquisition of shares for the Bank´s own issue; capital increase, or payment of dividends to preferred shares under certain circumstances.

 

Reserve for equalization dividend

 

After the allocation of dividends, the remaining balance if any, may, upon proposal of the Executive Board and approved by the Board of Directors, be allocated to reserve for equalization of dividends, which will be limited to 50% of the capital. This reserve aims to ensure funds for the payment of dividends, including as interest on own capital, or any interim payment to maintain the flow of shareholders remuneration.

 

d) Treasury shares

 

In theAt a meeting held on November 1, 2019,February 2, 2021, the Bank’s Board of Directors approved, in continuation ofcontinuity with the buybackrepurchase program that expired on November 5, 2019, the buyback4, 2020, a new repurchase program of itsfor Units and ADRs issued by the BankBanco Santander, either directly or on its agency inown. Cayman to be heldbranch, for maintenance in treasury or subsequently sold.for subsequent sale.

 

The Buyback Program will covercovers the acquisition of up to 37,256,07236,956,402 Units, representing 37,256,07236,956,402 common shares and 37,256,07236,956,402 preferred shares, which, on December 31, 2019,2020, corresponded to approximately 1% of the Bank’sBank's share capital. OnAs of December 31, 2019, the Bank held 15,843,5872020, Banco Santander had 355,661,814 common shares and 15,843,587383,466,228 preferred shares being traded.outstanding.

 

The Buyback has the purposerepurchase aims to (1) maximize the value creation to stockholders by means of an efficient capital structure management; and (2) enable the payment of officers, management leveladministrators, management-level employees and others Bank’sother employees of the Bank and companies under its control, according tounder the Long Termterms of the Long-Term Incentive Plans. The term of the Buyback Program is 12up to 18 months counted from November 5, 2019, and will expireFebruary 3, 2021, ending on November 4, 2020.August 2, 2022.

 

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  2020 2019 2018
  Quantity Quantity Quantity
  Units Units Units
Treasury shares at beginning of the period  16,702   13,317   1,773 
Shares Acquisitions  5,052   6,465   15,816 
Cancellation of Shares (2)  -   -   - 
Payment - Share-based compensation  (2,925)  (3,080)  (4,272)
Treasury shares at end of the period  18,829   16,702   13,317 
Balance of Treasury Shares in thousand of reais  R$ 789,587   R$ 679,364   R$ 460,550 
Emission Costs in thousands of Reais  R$ 1,771   R$ 1,771   R$ 882 
Balance of Treasury Shares in thousands of reais  R$ 791,358   R$ 681,135   R$ 461,432 
             
Cost/Share Price  Units   Units   Units 
Minimum cost (1)  R$7,55   R$7,55   R$7,55 
Weighted average cost (1)  R$33,24   R$28,59   R$28,59 
Maximum cost (1)  R$49,55   R$43,84   R$43,84 
Share Price  R$44,83   R$42,70   R$42,70 
 

BANCO SANTANDER (BRASIL) S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Thousand of Brazilian Reais - R$ - unless otherwise stated) 

  2019 2018 2017
  Quantity Quantity Quantity
  Units Units Units
Treasury shares at beginning of the period 13,317 1,773 25,786
Shares Acquisitions 6,465 15,816 12,768
Cancellation of Shares (2) - - (32,276)
Payment - Share-based compensation (3,080) (4,272) (4,505)
Treasury shares at end of the period 16,702 13,317 1,773
Balance of Treasury Shares in thousand of reais R$ 679,364 R$ 460,550 R$ 148,246

Emission Costs in thousands of Reais		 R$ 1,771 R$ 882 R$ 194
Balance of Treasury Shares in thousands of reais R$ 681,135 R$ 461,432 R$ 148,440
       
Cost/Share Price Units Units Units
Minimum cost (1) R$7.55 R$7.55 R$7.55
Weighted average cost (1) R$32.10 R$28.59 R$24.41
Maximum cost (1) R$49.55 R$43.84 R$32.29
Share Price R$42.60 R$42.70 R$31.88
(1)Considering since the beginning of operations on the stock exchange.

(2)At the EGM held on September, 18, 2017, it was approved the cancellation of 64,551,366 treasury shares (equivalent to 32,276 thousand Units) with the counterparty headings Capital Reserves and Profit Reserves, which represent the total of treasury shares registered in the book of common shares at that date, without reduction of the capital and consequent change in the clause 5th from the Bylaws in order to reflect the new quantities of common and preferred shares, nominatives and without value which represent the Banco Santander´s capital.

Additionally, in the year ended December 31, 2019,2020, treasury shares were sold, that resulted in a gainloss of R$5,796 (20189,274 (2019 - loss of R$15,8685,796 and 20172018 - loss of R$2.498)15,868) recorded directly in equity in capital reserves.

 

29.28.Earnings per share

a) Basic earnings per share

 

Basic earnings per share is calculated by dividing the net profit attributable to the Parent by the weighted average outstanding shares during the year average number, excluding the average number of own shares held during the year and held in treasury.

 

 2019 2018 2017
      
Profit attributable to the Parent16,406,932 12,582,477 8,924,064
      
Earnings per share (Brazilian Reais)     
Basic earnings per 1,000 shares (Brazilian Reais)     
Common shares2,094.83 1,604.34 1,133.43
Preferred shares2,304.32 1,764.78 1,246.77
Net Profit attributable - Basic (Brazilian Reais)     
Common shares7,965,194 6,108,349 4,332,026
Preferred shares8,441,738 6,474,128 4,592,038
      
Weighted average shares outstanding - Basic     
Common shares3,802,303 3,807,386 3,822,057
Preferred shares3,663,444 3,668,527 3,683,145

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BANCO SANTANDER (BRASIL) S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Thousand of Brazilian Reais - R$ - unless otherwise stated) 

 

* Values expressed in thousands, except when indicated.

  2020 2019 2018
       
Profit attributable to the Parent  13,418,529   16,406,932   12,582,477 
             
Earnings per share (Brazilian Reais)            
Basic earnings per 1,000 shares (Brazilian Reais)            
Common shares  1,713.45   2,094,83   1,604,34 
Preferred shares  1,884.80   2,304,32   1,764,78 
Net Profit attributable - Basic (Brazilian Reais)            
Common shares  6,511,367   7,965,194   6,108,349 
Preferred shares  6,907,162   8,441,738   6,474,128 
             
Weighted average shares outstanding - Basic            
Common shares  3,800,140   3,802,303   3,807,386 
Preferred shares  3,664,666   3,663,444   3,668,527 

b) Diluted earning per share

 

The diluted earnings per share is calculated by dividing the net profit attributable to the Parent by the weighted average outstanding shares during the year average number, excluding the average number of own shares held during the year and held in treasury, including the effect of dilutive potential programs long-term compensation.

 

2019 2018 2017 2020 2019 2018
         
Profit attributable to the Parent16,406,932 12,582,477 8,924,064  13,418,529   16,406,932   12,582,477 
             
Earnings per share (Brazilian Reais)             
Diluted earnings per 1,000 shares (Brazilian Reais)             
Common shares2,094.83 1,604.34 1,132.44  1,713.45   2,094.83   1,604.34 
Preferred shares2,304.32 1,764.78 1,245.69  1,884.80   2,304.32   1,764.78 
Net Profit attributable - Basic (Brazilian Reais) 
Net Profit attributable - Diluted (Brazilian Reais)            
Common shares7,965,194 6,108,349 4,331,955  6,511,367   7,965,194   6,108,349 
Preferred shares8,441,738 6,474,128 4,592,109  6,907,162   8,441,738   6,474,128 
             
Weighted average shares outstanding (in thousand) - Diluted 
Weighted average shares outstanding - Diluted��           
Common shares3,802,303 3,807,386 3,686,401  3,800,140   3,802,303   3,807,386 
Incremental shares from stock options granted under Stock Option Plan - Units (1)- - 3,257
 
Preferred shares3,663,444 3,668,527 3,686,401  3,664,666   3,663,444   3,668,527 
Incremental shares from stock options granted under Stock Option Plan - Units (1)- - 3,257

(1) The exercise period of the SOP 2013 Long Term Incentive Plan purchase option ended in June 2018. The Bank does not have stock-based compensation plans in force (Note 40)39) and consequently has no anti-dilution items.

 

30.29.Fair value of financial assets and liabilities

Under IFRS 13, the fair value measurement uses a fair value hierarchy that reflects the model used in the measurement process which should be in accordance with the following hierarchical levels:

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* Values expressed in thousands, except when indicated.

 

Level 1: Determined on the basis of public (unadjusted) quoted prices in highly active markets for identical assets and liabilities, these include public debt securities, stocks, derivatives listed.

 

Level 2: They are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices).

 

Level 3: They are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs).

 

Trading Financial Assets, Other financial assets at fair value on through income statement, Available-for-sale financial assets and Financial liabilities held for trading.

 

Level 1: The securities with high liquidity and quoted prices in active market are classified as level 1. At this level there were classified most of the Brazilian Government Securities (mainly LTN, LFT, NTN-B, NTN-C and NTN-F), shares in stock exchange and other securities traded in the active market.

 

Level 2: When quoted price cannot be observed, the Management,management, using its own internal models, make its best estimate of the price that would be set by the market. These models use data based on observable market parameters as an important reference. Various techniques are used to make these estimates, including the extrapolation of observable market data and extrapolation techniques. The best evidence of fair value of a financial instrument on initial recognition is the transaction price, unless the fair value of the instrument can be obtained from other market transactions carried out with the same instrument or similar instruments or can be measured using a valuation technique in which the variables used include only data from observable market, especially interest rates. These securities are classified at level 2 of the fair value hierarchy and compound securities hierarchy,are composed mainly byof Government Bonds (mainly NTN-A)Securities (NTN-A), committed andrepo, LCI Cancelable, LCI and in a less liquid market than those classified at level 1.

 

Level 3: When there is information that is not based on observable market data, Banco Santander uses internally developed models, from curves generated according to the internal model. Level 3 comprises mainly unlisted shares.

 

Derivatives

 

Level 1: Derivatives traded on stock exchanges are classified in Level 1 of the hierarchy.

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BANCO SANTANDER (BRASIL) S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Thousand of Brazilian Reais - R$ - unless otherwise stated) 

 

Level 2: For derivatives traded over the counter, the valuation (primarily swaps and options) usually uses observable market data, such as: exchange rates, interest rates, volatility, correlation between indexes and market liquidity.

 

When pricing the financial instruments aforementioned, it is used the Black-Scholes Model (exchange rate options, interest rate options; caps and floors) and the present value method (discount of future values by market curves).

 

Level 3: Derivatives not traded in the stock exchange and that do not have an observable data in an active market were classified as Level 3. These are composed by exotic derivatives.

Below are the valuation carachteristics considered for the main financial instruments classified as Level 3.3:

 

CategoryType Asset/LiabilityValuation techniqueMain unobservable inputs
Linear derivativesCoupon FraBMF Closing PricesCurrency Coupon rate - long term
Inflation SwapDiscounted cash flowIGPM Coupon rate
Interest Rate SwapDiscounted cash flowPre-fixed rates – long term
Non linear derivativesEquities OptionsBlack&ScholesImplicit volatility- long term
Inflation OptionsBlack&ScholesIPCA Implicit volatility- long term
Interest Rate OptionsBlack&ScholesIDI Implicit volatility- long term
Currency OptionsBlack&ScholesUSD/BRL Implicit volatility- long term
CashPension Plan LiabilityActuarial ModelIGPM Coupon rate
Private BondsDiscounted cash flowDiscount rate ("Yields")
Public BondsDiscounted cash flowNTN-C and TDA Discount rate ("Yields")
Put optionsPut OptionsDiscounted cash flowGrowth and Discount rates

The new Banco Santander´s policy related to instrument classification in the fair value hierarchy existing since September/2018, introduced detailed procedures about the instrument classification process. Definitions were included related to instruments, risk factors and deadlines as well as observability degree of market prices and its importance in the fair value measurement model. The application of such definitions since December 2019September 2018 resulted in reclassifications of certain financial instruments, as shown in the section “Changes of Fair Value Level 3”.

 

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* Values expressed in thousands, except when indicated.

The following table shows a summary of the fair values ​​of financial assets and liabilities for the period ended December 31, 2020, 2019 2018 and 2017,2018, classified based on several measurement methods adopted by the Bank to determine their fair value:

 

Thousand of reais   2019
  Level 1 (1) Level 2 Level 3 Total
         
Financial Assets Measured At Fair Value Through Profit Or Loss975,393 28,739,507 2,627,405 32,342,305
Debt instruments 975,393 132,277 2,627,405 3,735,075
Equity instruments - 28,607,230 - 28,607,230
Financial Assets Measured At Fair Value Through Profit Or Loss Held For Trading 35,057,803 21,247,552 715,548 57,020,903
Debt instruments 33,028,333 1,726,441 130,857 34,885,631
Equity instruments 2,029,470 - - 2,029,470
Derivatives - 19,521,111 584,691 20,105,802
Non-Trading Financial Assets Mandatorily Measured At Fair Value Through Profit Or Loss 143,077 627 27,749 171,453
Loans and advances to customers- - - -
Equity instruments 143,077 627 27,749 171,453
Other Financial Assets At Fair Value Through Profit Or Loss- - - -
Debt instruments - - - -
Financial Assets Measured At Fair Value Through Other Comprehensive Income93,555,527 1,612,741 951,966 96,120,234
Debt instruments 93,531,617 1,612,741 818,569 95,962,927
Equity instruments 23,910 - 133,397 157,307
Hedging derivatives (assets)- 339,932 - 339,932
Financial Liabilities Measured At Fair Value Through Profit Or Loss- 45,499,913 564,757 46,064,670
Derivatives - 21,664,260 564,757 22,229,017
Short positions - 23,835,653 - 23,835,653
Financial Liabilities Measured At Fair Value Through Profit Or Loss- 3,719,416 1,600,000 5,319,416
Other Financial Liabilities - 3,719,416 1,600,000 5,319,416
Hedging derivatives (liabilities)- 200,961 - 200,961

        12/31/2020
  Level 1 Level 2 Level 3 Total
Financial Assets Measured At Fair Value Through Profit Or Loss  588,778   57,354,806   2,956,882   60,900,466 
Debt instruments  588,778   -   2,956,882   3,545,660 
Balances With The Brasilian Central Bank  -   57,354,806   -   57,354,806 
Financial Assets Measured At Fair Value Through Profit Or Loss  Held For Trading  70,139,962   27,508,722   817,548   98,466,232 
Debt instruments  68,461,854   11,848   47,097   68,520,799 
Equity instruments  1,678,108   128,251   11,917   1,818,276 
Derivatives  -   27,368,623   758,534   28,127,157 
Non-Trading Financial Assets Mandatorily Measured At Fair Value Through Profit Or Loss  -   217,569   282,151   499,720 
Equity instruments  -   185,790   253,122   438,912 
Loans and advances to customers  -   31,779   29,029   60,808 
Financial Assets Measured At Fair Value Through Other Comprehensive Income  106,456,132   1,987,234   1,297,021   109,740,387 
Debt instruments  106,454,645   1,953,504   1,260,065   109,668,214 
Equity instruments  1,487   33,730   36,956   72,173 
Hedging derivatives (assets)  -   743,463   -   743,463 
Financial Liabilities Measured At Fair Value Through Profit Or Loss  Held For Trading  -   76,890,170   753,121   77,643,291 
Trading derivatives  -   31,082,223   753,121   31,835,344 
Short positions  -   45,807,947   -   45,807,947 
Financial Liabilities Measured At Fair Value Through Profit Or Loss  -   7,038,467   -   7,038,467 
Other financial liabilities  -   7,038,467   -   7,038,467 
Hedging derivatives (liabilities)  -   144,594   -   144,594 
        12/31/2019
  Level 1 Level 2 Level 3 Total
Financial Assets Measured At Fair Value Through Profit Or Loss  975,393   28,739,507   2,627,405   32,342,305 
Debt instruments  975,393   132,277   2,627,405   3,735,075 
Balances With The Brasilian Central Bank  -   28,607,230   -   28,607,230 
Financial Assets Measured At Fair Value Through Profit Or Loss  Held For Trading  35,057,803   21,247,552   715,548   57,020,903 
Debt instruments  33,028,333   1,726,441   130,857   34,885,631 
Equity instruments  2,029,470   -   -   2,029,470 
Derivatives  -   19,521,111   584,691   20,105,802 
Non-Trading Financial Assets Mandatorily Measured At Fair Value Through Profit Or Loss  143,077   627   27,749   171,453 
Equity instruments  143,077   627   27,749   171,453 
Financial Assets Measured At Fair Value Through Other Comprehensive Income  93,555,527   1,612,741   951,966   96,120,234 
Debt instruments  93,531,617   1,612,741   818,569   95,962,927 
Equity instruments  23,910   -   133,397   157,307 
Hedging derivatives (assets)  -   339,932   -   339,932 
Financial Liabilities Measured At Fair Value Through Profit Or Loss  Held For Trading  -   45,499,913   564,757   46,064,670 
Trading derivatives  -   21,664,260   564,757   22,229,017 
Short positions  -   23,835,653   -   23,835,653 
Financial Liabilities Measured At Fair Value Through Profit Or Loss  -   3,719,416   1,600,000   5,319,416 
Hedging derivatives (liabilities)  -   200,961   -   200,961 

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BANCO SANTANDER (BRASIL) S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Thousand of Brazilian Reais - R$ - unless otherwise stated) 

 

Thousand of reais   2018
  
Level 1		 Level 2 Level 3 Total
         
Financial Assets Measured At Fair Value Through Profit Or Loss2,660,859 40,540,054 510,887 43,711,800
Debt instruments 2,660,859 - 510,887 3,171,746
Equity instruments - 40,540,054 - 40,540,054
Financial Assets Measured At Fair Value Through Profit Or Loss Held For Trading 49,855,112 17,626,932 1,370,270 68,852,314
Debt instruments 49,094,924 432,910 538,635 50,066,469
Equity instruments 757,843 8,490 - 766,333
Derivatives 2,345 17,185,532 831,635 18,019,512
Non-Trading Financial Assets Mandatorily Measured At Fair Value Through Profit Or Loss 142,732 619,798 154,947 917,477
Loans and advances to customers- 619,180 - 619,180
Equity instruments 142,732 618 154,947 298,297
Other Financial Assets At Fair Value Through Profit Or Loss- - - -
Debt instruments --- -
Financial Assets Measured At Fair Value Through Other Comprehensive Income83,283,924 1,442,797 709,956 85,436,677
Debt instruments 83,253,117 1,442,797 699,777 85,395,691
Equity instruments 30,807 - 10,179 40,986
Hedging derivatives (assets)- 343,934 - 343,934
Financial Liabilities Measured At Fair Value Through Profit Or Loss32,697,510 17,600,024 641,458 50,938,992
Derivatives 1,833 17,600,024 641,458 18,243,315
Short positions 32,695,677 - - 32,695,677
Hedging derivatives (liabilities)- 223,520 - 223,520
         
         
Thousand of reais   2017
  
Level 1		 Level 2 Level 3 Total
         
Financial assets held for trading34,380,542 18,059,034 - 52,439,576
Debt instruments 33,891,360 988,321 - 34,879,681
Equity instruments 489,182 588 - 489,770
Derivatives - 17,070,125 - 17,070,125
Financial assets designated at fair value through profit or loss1,593,951 64,738 33,368 1,692,057
Debt instruments 1,593,951 64,738 - 1,658,689
Equity instruments - - 33,368 33,368
Financial assets - available-for-sale79,301,016 6,382,225 140,143 85,823,384
Debt instruments 78,335,629 6,381,118 - 84,716,747
Equity instruments 965,387 1,107 140,143 1,106,637
Hedging derivatives (assets)- 192,763 - 192,763
Financial liabilities held for trading32,808,392 16,514,154 - 49,322,546
Derivatives - 16,514,154 - 16,514,154
Short positions 32,808,392 - - 32,808,392
Hedging derivatives (liabilities)- 163,332 - 163,332

* Values expressed in thousands, except when indicated.

 

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BANCO SANTANDER (BRASIL) S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Thousand of Brazilian Reais - R$ - unless otherwise stated) 

          2018
    Level 1 Level 2 Level 3 Total
Financial Assets Measured At Fair Value Through Profit Or Loss      2,660,859   40,540,054   510,887  43,711,800
Debt instruments      2,660,859       510,887  3,171,746
Balances With The Brasilian Central Bank      -   40,540,054   -  40,540,054
Financial Assets Measured at Fair Value in the Income through Trading      49,855,112   17,626,932   1,370,270  68,852,314
Debt instruments      49,094,924   432,910   538,635  50,066,469
Equity instruments      757,843   8,490   -  766,333
Derivatives      2,345   17,185,532   831,635  18,019,512
Financial assets not intended for trading Mandatory measured at fair value in the income statement      142,732   619,798   154,947  917,477
Loans and advances to customers      -   619,180   -  619,180
Equity instruments      142,732   618   154,947  298,297
Financial assets measured at fair value in other comprehensive income      83,283,924   1,442,797   709,956  85,436,677
Debt instruments      83,253,117   1,442,797   699,777  85,395,691
Equity instruments      30,807   -   10,179  40,986
Hedging derivatives (assets)      -   343,934   -  343,934
Financial Liabilities Measured At Fair Value Through Profit Or Loss  Held For Trading      32,697,510   17,600,024   641,458  50,938,992
Trading derivatives      1,833   17,600,024   641,458  18,243,315
Short positions      32,695,677   -   -  32,695,677
Hedging derivatives (liabilities)      -   223,520   -  223,520

Movements in fair value of Level 3

 

The following tables demonstrate the movements during 2020, 2019 2018 and 20172018 for the financial assets and liabilities classified as Level 3 in the fair value hierarchy:

 

Thousand of reais Fair value 2018 Gains/ losses (Realized-Not Realized) Transfers in and/ or out of Level 3 Additions / Settled Impact of IFRS 9 Fair value 2019
             
Financial Assets Measured At Fair Value Through Profit Or Loss510,887 290,773 1,700,499 125,246 - 2,627,405
Financial Assets Measured At Fair Value Through Profit Or Loss Held For Trading 1,370,270 238,632 (1,031,076) 137,722 - 715,548
Non-Trading Financial Assets Mandatorily Measured At Fair Value Through Profit Or Loss 154,947 (101,541) - (25,657) - 27,749
Financial Assets Measured At Fair Value Through Other Comprehensive Income 709,956 253,803 291 (12,084) - 951,966
Financial Liabilities Measured At Fair Value Through Profit Or Loss641,458 190,813 (586,346) 318,832 - 564,757
             
             
Thousand of reais Fair value 2017 Gains/ losses (Realized-Not Realized) Transfers in and/ or out of Level 3 Additions / Settled Impact of IFRS 9 Fair value 2018
             
Financial Assets Measured At Fair Value Through Profit Or Loss33,368 60,887 - 445,991 (29,359) 510,887
Financial Assets Measured At Fair Value Through Profit Or Loss Held For Trading - (181,355) 1,264,576 246,051 40,998 1,370,270
Non-Trading Financial Assets Mandatorily Measured At Fair Value Through Profit Or Loss - (7,280) - - 162,227 154,947
Financial Assets Measured At Fair Value Through Other Comprehensive Income 140,143 47,773 645,708 - (123,668) 709,956
Financial Liabilities Measured At Fair Value Through Profit Or Loss- 115,212 710,219 (183,973) - 641,458
             
Thousand of reais   Fair value 2016 Gains/ losses (Realized-Not Realized) Transfers in and/ or out of Level 3 Additions / Settled Fair value 2017
             
Financial assets designated at fair value through profit or loss  37,509 (2,555) - (1,586) 33,368
Financial assets - available-for-sale  951,612 18,474 - (829,943) 140,143
             
  Fair Value
12/31/2019		 Gains/ losses (Realized/Not Realized) Transfers to Level 3 Additions / Low Fair value 12/31/2020
Financial Assets Measured At Fair Value Through Profit Or Loss  2,627,405   83,832   (239,512)  485,157   2,956,882 
Financial Assets Measured At Fair Value Through Profit Or Loss  Held For Trading  715,548   502,596   (231,468)  (169,128)  817,548 
Non-Trading Financial Assets Mandatorily Measured At Fair Value Through Profit Or Loss  27,749   100,091   125,282   29,029   282,151 
Financial Assets Measured At Fair Value Through Other Comprehensive Income  951,966   (21,677)  (197,098)  563,830   1,297,021 
Financial Liabilities Measured At Fair Value Through Profit Or Loss  564,757   500,159   (406,971)  95,176   753,121 
Financial Liabilities Measured At Fair Value Through Profit Or Loss  Held For Trading  1,600,000   -   -   (1,600,000)  - 
  Fair Value
12/31/2018		 Gains/ losses (Realized/Not Realized) Transfers to Level 3 Additions / Low Fair value 12/31/2019
Financial Assets Measured At Fair Value Through Profit Or Loss  510,887   290,773   1,700,499   125,246   2,627,405 
Financial Assets Measured At Fair Value Through Profit Or Loss  Held For Trading  1,370,270   238,632   (1,031,076)  137,722   715,548 
Non-Trading Financial Assets Mandatorily Measured At Fair Value Through Profit Or Loss  154,947   (101,541)  -   (25,657)  27,749 
Financial Assets Measured At Fair Value Through Other Comprehensive Income  709,956   253,803   291   (12,084)  951,966 
Financial Liabilities Measured At Fair Value Through Profit Or Loss  Held For Trading  641,458   190,813   (586,346)  318,832   564,757 

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* Values expressed in thousands, except when indicated.

  Fair Value
12/31/2017		 Gains/ losses (Realized/Not Realized) Transfers to Level 3 Additions / Low IFRS 9 Impact Fair value 12/31/2018
Financial assets measured at fair value in the result  33,368   60,887   -   445,991   (29,359)  510,887 
 Financial Assets Measured at Fair Value in the Income through Trading  -   (181,355)  1,264,576   246,051   40,998   1,370,270 
 Financial assets not intended for trading Mandatory measured at fair value in the income statement  -   (7,280)  -   -   162,227   154,947 
 Financial assets measured at fair value through other comprehensive income  140,143   47,773   645,708   -   (123,668)  709,956 
 Financial liabilities measured at fair value in the result  -   115,212   710,219   (183,973)  -   641,458 

Fair value movements linked to credit risk

 

Changes in fair value attributable to changes in credit risk are determined on the basis of changes in the prices of credit default swaps compared to similar obligations of the same obligor when such prices are observable, since these credit swaps better reflect the market risk assessment for a specific financial asset. When such prices are not observable, changes in fair value attributable to changes in credit risk are determined as the total value of changes in fair value not attributable to changes in the underlying interest rate or other observed market rates. In the absence of specific observable data, this approach provides a reasonable approximation of changes attributable to

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BANCO SANTANDER (BRASIL) S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Thousand of Brazilian Reais - R$ - unless otherwise stated) 

credit risk, as it estimates the margin change above the reference value that the market may require for the financial asset. In 2018, there were no significant changes between the fair value categories due to changes in credit risk.

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* Values expressed in thousands, except when indicated.

 

Financial assets and liabilities not measured at fair value

 

The financial assets owned by the Bank are measured at fair value in the accompanying consolidated balance sheets, except for loans and receivables.

 

Similarly, the Bank’s financial liabilities except for financial liabilities held for trading and those measured at fair value - are measured at amortized cost in the consolidated balance sheets.

 

i) Financial assets measured at other than fair value

 

Below is a comparison of the carrying amounts of financial assets of the Bank measured by a value other than the fair value and their respective fair values on December 31, 2020, 2019 2018 and 2017:2018:

 

 Thousand of reais     2019
    Carrying Amount Fair Value Level 1 Level 2 Level 3
 Assets      
             
 Money market investments - Brazilian Central Bank (note 4)15,249,515 15,249,515 - 15,249,515 -
 Financial Assets Measured At Amortized Cost:           
 Loans and amounts due from credit institutions (note 5)109,233,128 109,233,128 - 109,233,128 -
 Loans and advances to customers (note 9)326,699,480 327,278,243 - - 327,278,243
 Financial Assets Measured At Amortized Cost - Debt instruments (note 6)38,748,296 39,678,192 5,378,791 7,858,612 26,440,789
 Total  489,930,419 491,439,078 5,378,791 132,341,255 353,719,032

During 2020, The Bank reclassified R$ 53,357,038 of “loans and amounts due from credit institutions” from level 2 to level 3, as there was no active trading market for these instruments.”

 

             
 Thousand of reais     2018
    Carrying Amount Fair Value Level 1 Level 2 Level 3
 Assets      
             
 Money market investments - Brazilian Central Bank (note 4)15,228,491 15,269,809 - 15,269,809 -
 Financial Assets Measured At Amortized Cost:        
 Loans and amounts due from credit institutions (note 5)79,607,001 79,607,197 - 79,607,197 -
 Loans and advances to customers (note 9)301,702,207 303,495,240 - - 303,495,240
 Financial Assets Measured At Amortized Cost - Debt instruments (note 6)36,799,509 38,927,356 9,766,162 29,161,194 -
 Total  433,337,208 437,299,602 9,766,162 124,038,200 303,495,240

   

             
 Thousand of reais     2017
    Carrying Amount Fair Value Level 1 Level 2 Level 3
 Assets      
             
 Money market investments - Brazilian Central Bank (note 4)33,831,521 33,914,021 - 33,914,021 -
 Investments Held-to-Maturity (note 6)10,214,454 10,587,117 7,251,246 3,335,871 -
 Loans and receivables:           
 Loans and amounts due from credit institutions (note 5) 65,209,902 65,209,902 - 65,209,902 -
 Loans and advances to customers (note 9) 272,420,157 275,647,324 - - 275,647,324
 Loans and receivables - Debt instruments (note 6) 17,616,515 17,127,511 - 17,127,511 -
 Total  399,292,549 402,485,875 7,251,246 119,587,305 275,647,324

 

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BANCO SANTANDER (BRASIL) S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Thousand of Brazilian Reais - R$ - unless otherwise stated) 

          12/31/2020
Assets Accounting Value Fair Value Level 1 Level 2 Level 3
Cash and Balances With The Brazilian Central Bank  20,148,725   20,148,725   20,148,725   -   - 
Financial Assets Measured At Amortized Cost                    
Loans and amounts due from credit institutions  112,849,776   112,849,776   -   59,492,738   53,357,038 
Loans and advances to customers  393,707,229   396,878,319   -   4,530,041   392,348,278 
Debt instruments  48,367,791   49,963,947   4,425,723   17,486,057   28,052,167 
Total  575,073,521   579,840,767   24,574,448   81,508,836   473,757,483 

  

          12/31/2019
Assets Accounting Value Fair Value Level 1 Level 2 Level 3
Cash and Balances With The Brazilian Central Bank  15,249,515   15,249,515   -   15,249,515   - 
Financial Assets Measured At Amortized Cost                    
Loans and amounts due from credit institutions  109,233,128   109,233,128   -   109,233,128   - 
Loans and advances to customers  326,699,480   327,278,243   -   -   327,278,243 
Debt instruments  38,748,296   39,678,192   5,378,791   7,858,612   26,440,789 
Total  489,930,419   491,439,078   5,378,791   132,341,255   353,719,032 
           
          2018
Assets Accounting Value Fair Value Level 1 Level 2 Level 3
           
Cash and Balances With The Brazilian Central Bank  15,228,491   15,269,809   -   15,269,809   - 
Financial Assets Measured At Amortized Cost:                    
Loans and other amounts with credit institutions  91,859,759   91,859,759   -   91,859,759   - 
Loans and advances to customers  301,702,207   303,495,240   -   -   303,495,240 
Financial assets measured at amortized cost - Debt instruments  36,799,509   38,927,356   9,766,162   29,161,194   - 
Total  433,337,208   437,299,602   9,766,162   124,038,200   303,495,240 

ii) Financial liabilities measured at other than fair value

 

Following is a comparison of the carrying amounts of Bank´s financial liabilities measured by a value other than fair value and their respective fair values on December 31, ,2020, 2019 2018 and 2017:2018:

 

Thousand of reais     2019
   Carrying Amount Fair Value Level 1 Level 2 Level 3
Liabilities      
            
Financial liabilities at amortized cost:         
Deposits from Bacen and credit institutions (note 16)98,586,389 98,605,373 - 98,605,373 -
Customer deposits (note 17)336,514,597 336,593,455 - 336,593,455 -
Marketable debt securities (note 18)73,702,474 73,889,348 - 10,205,065 63,684,284
Subordinated liabilities (note 19)10,175,961 10,175,961 - 10,175,961 -
Other financial liabilities (note 21)60,885,370 60,885,370 - - 60,885,370
Total  579,864,790 580,149,506 - 455,579,853 124,569,654

During 2020, The Bank reclassified R$ 73,075,341 of “Deposits of Brazil's Central Bank and deposits of credit institutions” and R$ 390,760,088 of “Customer deposits” from level 2 to level 3, as there was no active trading market for these instruments.”

 

            
Thousand of reais     2018
   Carrying Amount Fair Value Level 1 Level 2 Level 3
Liabilities      
            
Financial liabilities at amortized cost:         
Centrals banks (note 16)  98,716,735 98,713,988 - 98,713,988 -
Customers (note 17)  285,344,281 285,417,696 - 285,417,696 -
Marketable debt securities (note 18)74,626,232 74,783,289 - 4,599,204 70,184,085
Subordinated liabilities (note 19)9,885,607 9,853,157 - 9,853,157 -
Debt Instruments Eligible to Compose Capital (note 20)9,779,944 9,782,373 - 9,782,373 -
Other financial liabilities (note 21)49,782,780 49,782,780 - - 49,782,780
Total  528,135,579 528,333,283 - 408,366,418 119,966,865

 Consolidated Financial Statements | December 31, 2020 | F-98

 

            
Thousand of reais     2017
   Carrying Amount Fair Value Level 1 Level 2 Level 3
Liabilities      
            
Financial liabilities at amortized cost:         
Centrals banks (note 16)  79,068,604 79,068,564 - - 79,068,564
Customers (note 17)  258,482,156 258,576,177��- - 258,576,177
Marketable debt securities (note 18)70,247,012 70,245,820 - 2,000,552 68,245,268
Subordinated liabilities (note 19)519,230 528,799 - - 528,799
Debt Instruments Eligible to Compose Capital (note 20)8,436,901 8,436,901 - 8,436,901 -
Other financial liabilities (note 21)44,260,735 43,003,735 - - 43,003,735
Total  461,014,638 459,859,996 - 10,437,453 449,422,543

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* Values expressed in thousands, except when indicated.

          12/31/2020
Liabilities Accounting Value Fair Value Level 1 Level 2 Level 3
Financial Liabilities at Measured Amortized Cost:          
Deposits of Brazil's Central Bank and deposits of credit institutions  131,656,962   131,654,431   -   58,579,090   73,075,341 
Customer deposits  445,813,972   445,856,090   -   55,096,002   390,760,088 
Marketable debt securities  56,875,514   57,265,307   -   -   57,265,307 
Debt instruments Eligible Capital  13,119,660   13,119,660   -   -   13,119,660 
Other financial liabilities  59,822,683   59,822,683   -   -   59,822,683 
Total  707,288,791   707,718,171   -   113,675,092   594,043,080 
          12/31/2019
Liabilities Accounting Value Fair Value Level 1 Level 2 Level 3
Financial Liabilities at Measured Amortized Cost:                    
Deposits of Brazil's Central Bank and deposits of credit institutions  99,271,415   99,271,415   —     99,271,415   —   
Customer deposits  336,514,597   336,593,455   —     336,593,455   —   
Marketable debt securities  73,702,474   73,889,348   —     10,205,065   63,684,284 
Subordinated Debt  10,175,961   10,175,961   —     10,175,961   —   
Other financial liabilities  55,565,954   55,565,954   —     —     55,565,954 
Total  575,230,401   575,496,133   —     456,245,896   119,250,238 
          12/31/2018
Liabilities Accounting Value Fair Value Level 1 Level 2 Level 3
Financial Liabilities at Measured Amortized Cost:                    
Deposits of Brazil's Central Bank and deposits of credit institutions  99,022,806   99,022,806   —     99,022,806   —   
Customer deposits  304,197,800   304,197,800   —     304,197,800   —   
Marketable debt securities  74,626,232   74,626,232   —     4,599,204   70,027,028 
Subordinated Debt  9,885,607   9,885,607   —     9,885,607   —   
Debt Instruments Eligible to Compose Capital  9,779,944   9,779,944       9,779,944   —   
Other financial liabilities  49,782,780   49,782,780   —     —     49,782,780 
Total  547,295,169   547,295,169   —     427,485,361   119,809,808 

The methods and assumptions used to estimate the fair values summarized in the tables above are set forth below:

 

- Loans and amounts due from credit institutions and from clients – Fair value are estimated for groups of loans with similar characteristics. The fair value was measured by discounting estimated cash flow using the average interest rate of new contracts. That is, the future cash flow of the current loan portfolio is estimated using the contractual rates, and then the new loans spread over the risk free interest rate are incorporated to the risk free yield curve in order to calculate the loan portfolio fair value. In terms of behavior assumptions, it is

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BANCO SANTANDER (BRASIL) S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Thousand of Brazilian Reais - R$ - unless otherwise stated) 

important to highlight that a prepayment rate is applied to the loan portfolio, thus a more realistic future cash flow is achieved.

 

- Deposits from Bacen and credit institutions and Client deposits – The fair value of deposits was calculated by discounting the difference between the cash flows on a contractual basis and current market rates for instruments with similar maturities. For variable-rate deposits, the carrying amount was considered to approximates fair value.

 

- Debt and Subordinated Securities and Debt Instruments Eligible to Compose Capital – The fair value of long-term loans were estimated by cash flow discounted at the interest rate offered on the market with similar terms and maturities.

 

The valuation techniques used to estimate each level are defined in note 2.e.

 

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* Values expressed in thousands, except when indicated.

31.30.Operational Ratios

In July 2008 came into force the rules on regulatory capital measurement by the Standardized Approach of Basel II. On 2013 was issued a set of Resolutions and Circulars, aligned with the recommendations of the Basel Committee on Banking Supervision. These rules were repealed by CMN Resolution nº 4,192 and 4,193 which took effect from October 2013, establishing the model for calculating the minimum Regulatory Capital requirements, Tier I and Common Equity Tier I. These Resolutions states that the composition of the Regulatory Capital is done through equity, subordinated debt and hybrid capital instruments.

 

As required by CMN Resolution nº 4,193/2013, the requirement for PR in 20182019 was 11.0%10.5%, composed of 8.625%8.0% of Reference Equity Minimum plus 1.875%2.5% of Capital Conservation Additional. Considering this additional, PR Level I increased to 8.375%8.5% and Minimum Principal Capital to 6.875%7.0%.

 

For the base year 2019,2020, the PR requirement remains at 10.5%10.25%, including 8.0% of Minimum of Reference Equity and a further 2.5%Minimum, plus 1.25% of Capital Conservation Additional. TheAdditional and 1.0% of Systemic Additional, PR Level I reaches 8.5%8.25% and theMinimum Principal Capital Minimum 7.0%6.75%.

 

AsIn face o the pandemic scenario, the Brazilian Central Bank have ben monitoring the Brazilian market and has established a continuationnumber of regulations in order to diminish the adoptionimpacts of the rulespandemic. For banking capitalization purposes, it has established by CMN Resolution nº 4,192/2013, asa reduction in the additional for conservancy of January 2015, came into forceprincipal capital from 2.5% to 1.25%, in order to expand the capacity of credit concessions.

The Basel ratio is calculated in accordance with the Financial Stateents of the Prudential Conglomerate, definedwhich are prepared in accordance to the accounting practices adopted in Brasil, which a applicable to Financial Institutions authorized to operate by CMN Resolution nº 4,280/2013.The index is calculated on a consolidated basis based on the information of Consolidated Prudential,Bacen, as shownpresented below:

 

  Financial Conglomerate
Thousand of reais 2019 (1) 2018 (1) 2017 (1)
Tier I Regulatory Capital 66,481,661 61,476,715 56,386,001
Principal Capital 61,389,509 56,581,518 52,196,893
Supplementary capital 5,092,153 4,895,197 4,189,108
Tier II Regulatory Capital 5,083,808 4,887,175 4,250,447
Regulatory Capital (Tier I and II)71,565,469 66,363,890 60,636,448
Credit Risk (1) 407,786,238 358,955,592 324,696,458
Market Risk (2) 20,235,208 39,231,773 25,857,109
Operational Risk 47,965,481 42,375,554 32,579,126
Total RWA (3) 475,986,927 440,562,919 383,132,693
Basel I Ratio 13.97 13.95 14.72
Basel Principal Capital 12.90 12.84 13.62
Basel Regulatory Capital 15.04 15.06 15.83

   
Thousand of reais 2020 2019 2018
Tier I Regulatory Capital  77,571,525   66,481,661   61,476,715 
Principal Capital  71,006,316   61,389,509   56,581,518 
Supplementary capital  6,565,209   5,092,153   4,895,197 
Tier II Regulatory Capital  6,554,451   5,083,808   4,887,175 
Regulatory Capital (Tier I and II)  84,125,976   71,565,469   66,363,890 
Credit Risk (1)  478,303,523   407,786,238   358,955,592 
Market Risk (2)  15,846,255   20,235,208   39,231,773 
Operational Risk  57,419,401   47,965,481   42,375,554 
Total RWA (3)  551,569,179   475,986,927   440,562,919 
Basel I Ratio  14,06   13,97   13,95 
Basel Principal Capital  12,87   12,90   12,84 
Basel Regulatory Capital  15,25   15,04   15,06 
(1)Exposures to credit risk subject to the calculation of the capital requirement using a standardized approach (RWACPAD) are based on the procedures established by Circular Bacen 3,644, dated March 4, 2013 and its subsequent complements through the wording of Circular Bacen 3,174 of August 20, 2014 and Bacen Circular 3,770 of October 29, 2015.

(2)Includes portions for market risk exposures subject to variations in rates of foreign currency coupons (RWAjur2), price indexes (RWAjur3) and interest rate (RWAjur1/RWAjur4), the price of commodities (RWAcom), the price of shares classified as trading portfolios (RWAacs), and portions for gold exposure and foreign currency transactions subject to foreign exchange (RWAcam).

(3)Risk Weighted Assets.

Banco Santander publishes the Risk Management Report on a quarterly discloses Pillar IIIbasis with information relating toon risk management, Regulatory Capital and Risk Weighted Assets. A report with further detailsa brief description of the structureRecovery Plan, capital management, PR and methodology will be disclosed on the website www.ri.santander.com.br/ri.RWA.

 

Financial institutions are required to maintain investments in permanent assets compatible with adjusted regulatory capital. Funds invested in permanent assets, calculated on a consolidated basis, are limited to 50% of adjusted regulatory capital, as per prevailing regulation. Banco Santander classifies for said index. The Bank is in compliance with the requirements aforementioned.

 

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BANCO SANTANDER (BRASIL) S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Thousand of Brazilian Reais - R$ - unless otherwise stated) 

 

32.31.Interest and similar income

“Interest and similar income”income in the consolidated income statement comprises theconsists of interest accruingaccrued in the year on all financial assets with an implicit or explicit return, calculated by applyingusing the effective interest method, regardless of the fair value measurement;measurement, and the rectifications of incomeresult as a result of hedge accounting. Interest is recognized through itson a gross value,basis, without deducting any taxtaxes withheld at source.

 

The breakdown of the main items of interest and similar charges accrued in 2020, 2019 2018 and 20172018 is as follows:

 

Thousand of reais      2019 2018 2017
            
Cash and balances with the Brazilian Central Bank   3,827,648 5,095,828 5,953,765
Loans and advances - Credit institutions   3,843,798 2,977,670 5,107,355
Loans and advances - Customers   50,406,078 46,471,507 44,507,217
Debt instruments      13,528,096 13,629,167 13,456,802
Pension Plans (Note 22.b)      27,353 - -
Other interest      1,208,087 2,304,221 2,393,210
Total      72,841,060 70,478,393 71,418,349

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* Values expressed in thousands, except when indicated.

Thousand of reais 2020 2019 2018
       
Cash and balances with the Brazilian Central Bank  1,552,121   3,827,648   5,095,828 
Loans and advances - Credit institutions  1,518,557   3,843,798   2,977,670 
Loans and advances - Customers  44,103,997   50,406,078   46,471,507 
Debt instruments  13,556,403   13,528,096   13,629,167 
Pension Plans (Note 22,b)  16,720   27,353   - 
Other interest  2,027,142   1,208,087   2,304,221 
Total  62,774,940   72,841,060   70,478,393 
33.32.Interest expense and similar charges

“"Interest expense and similar charges”expenses" in the consolidated income statement includes theconsist of interest accruingaccrued in the year on all financial liabilities with an implicit or explicit return, including remuneration in kind, calculated by applyingusing the effective interest method, regardless of the measurement of the fair value, measurement; the rectifications of cost adjustments as a result of hedge accounting;accounting and the interest cost attributablecosts attributed to pension funds.

 

The breakdown of the main items of interest expense and similar charges accrued in 2020, 2019 2018 and 20172018 is as follows:

 

Thousand of reais      2019 2018 2017
            
Credit institutions deposits      4,866,357 5,367,471 3,782,781
Customer deposits      14,965,958 13,576,866 19,490,807
Marketable debt securities and subordinated liabilities:      
Marketable debt securities (note 18)   5,138,306 4,606,949 7,901,199
Subordinated liabilities (note 19)   - 25,336 52,984
Debt Instruments Eligible to Compose Capital (note 20) 659,715 604,216 495,188
Pension Plans (note 22.b)      342,068 343,137 292,628
Other interest(1)      2,547,549 4,033,076 4,456,273
Total      28,519,953 28,557,051 36,471,860
(1)It is mainly composed of Expenses with Interest on Repo Agreements
Thousand of reais 2020 2019 2018
       
Credit institutions deposits  4,327,276   4,866,357   5,367,471 
Customer deposits  7,504,276   14,965,958   13,576,866 
Marketable debt securities and subordinated liabilities:            
 Marketable debt securities (note 18)  2,785,942   5,138,306   4,606,949 
 Subordinated liabilities  -   -   25,336 
   Debt Instruments Eligible to Compose Capital (note 19)  909,393   503,541   604,216 
Pension Plans (note 21.b)  301,389   342,068   343,137 
Other interest (1)  2,503,953   2,703,723   4,033,076 
Total  18,332,228   28,519,953   28,557,051 

(1) It is mainly composed of Expenses with Interest on Repo Agreements

 

34.33.Income from equity instruments

“Income from equity instruments” includes the dividends and payments on equity instruments out of profits generated by investees after the acquisition of the equity interest.

 

The breakdown of the balance of this item is as follows:

 

Thousand of reais      2019 2018 2017
            
Equity instruments classified as:        
Financial assets held for trading   - - 18,458
Financial Assets Measured At Fair Value Through Profit Or Loss 13,398 27,047 -
Financial assets - available-for-sale   - - 64,662
Financial Assets Measured At Fair Value Through Other Comprehensive Income5,535 5,576 -
Total      18,933 32,623 83,120

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Thousand of reais 2020 2019 2018
       
Equity instruments classified as:      
Financial Assets Measured At Fair Value Through Profit Or Loss  30,232   13,398   27,047 
Financial Assets Measured At Fair Value Through Other Comprehensive Income  3,522   5,535   5,576 
Total  33,754   18,933   32,623 
 

BANCO SANTANDER (BRASIL) S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

(Thousand of Brazilian Reais - R$ - unless otherwise stated) 

35.34.Fee and commission income

The heading “Fee and commission income” comprises the amount of all fees and commissions accruing in favor of the Bank in the year, except those that form an integral part of the effective interest rate on financial instruments.

 

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* Values expressed in thousands, except when indicated.

The breakdown of the balance of this item is as follows:

 

Thousand of reais   2019 2018 2017 2020 2019 2018
       
Collection and payment services:Collection and payment services:          
Bills 1,143,229 1,070,258 970,293  1,083,262   1,143,229   1,070,258 
Demand accounts 2,554,559 2,311,925 2,156,384  2,425,416   2,554,559   2,311,925 
Cards (Credit and Debit) and Acquiring ServicesCards (Credit and Debit) and Acquiring Services 6,620,708 5,854,503 4,985,306  6,009,780   6,620,708   5,854,503 
Checks and other 188,249 169,872 172,718  138,483   188,249   169,872 
Orders 720,521 622,405 471,763  856,723   720,521   622,405 
Total 11,227,266 10,028,962 8,756,464  10,513,664   11,227,266   10,028,962 
             
Marketing of non-Banking financial products:Marketing of non-Banking financial products:                
Investment funds 725,494 717,924 819,748  450,940   725,494   717,924 
Insurance 3,120,471 2,975,661 2,414,478  3,134,723   3,120,471   2,975,661 
Capitalization plans 829,852 402,859 363,516  634,775   829,852   402,859 
Total 4,675,817 4,096,444 3,597,742  4,220,438   4,675,817   4,096,444 
             
Securities services:                
Securities underwriting and placementSecurities underwriting and placement 721,793 448,914 513,727  695,978   721,793   448,914 
Securities trading 186,847 137,617 114,015  281,686   186,847   137,617 
Administration and custodyAdministration and custody 401,310 41,794 191,987  495,457   401,310   41,794 
Asset management 2,291 2,173 2,353  1,144   2,291   2,173 
Total 1,312,241 630,497 822,082  1,474,265   1,312,241   630,497 
            
Other:            
Foreign exchange  1,450,636   968,270   934,801 
Financial guarantees  728,232   650,241   708,819 
Other fees and commissions  2,219,472   1,558,623   1,328,928 
Total  4,398,340   3,177,134   2,972,549 
            
Total  20,606,707   20,392,458   17,728,452 

  

            
Other:           
Foreign exchange      968,270 934,801 742,676
Financial guarantees      650,241 708,819 672,801
Other fees and commissions    1,558,623 1,328,928 1,223,778
Total      3,177,134 2,972,549 2,639,255
            
Total      20,392,458 17,728,452 15,815,543

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BANCO SANTANDER (BRASIL) S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Thousand of Brazilian Reais - R$ - unless otherwise stated) 

 

36.35.Fee and commission expense

Fee and commission expense” shows the amount of all fees and commissions paid or payable in the year, except those that form an integral part of the effective interest rate on financial instruments.

 

The breakdown of the balance of this item is as follows:

 

Thousand of reais   2019 2018 2017 2020 2019 2018
       
Commissions assigned to third parties(1)Commissions assigned to third parties(1) 3,639,239 2,364,119 1,975,379  2,685,005   3,639,239   2,364,119 
Other fees and commissionsOther fees and commissions 1,040,066 1,232,174 1,118,296  1,693,488   1,040,066   1,232,174 
Total 4,679,306 3,596,293 3,093,675  4,378,493   4,679,306   3,596,293 

(1) Composed, mainly, by credit cards.

 

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* Values expressed in thousands, except when indicated.

37.36.Gains or losses on financial assets and liabilities

Gains (losses) on financial assets and liabilities (net) includes the amount of the valuation adjustments of financial instruments, except those attributable to interest accrued as a result of application of the effective interest method and to allowances, and the gains or losses derived from the sale and purchase thereof.

 

The breakdown of the balance of this item, by type of instrument, is as follows:

 

Thousand of reais   2019 2018 2017 2020 2019 2018
       
Financial Assets Held For Trading (1) - -1,174,111
Financial Assets Measured At Fair Value Through Profit Or LossFinancial Assets Measured At Fair Value Through Profit Or Loss 252,253 (138,673) -  711,949   252,253   (138,673)
Financial Assets Measured At Fair Value Through Profit Or Loss Held For Trading (1)Financial Assets Measured At Fair Value Through Profit Or Loss Held For Trading (1)2,391,080 (2,764,859) -  12,122,794   2,391,080   (2,764,859)
Non-Tranding Financial Assets Mandatorily Measured At Fair Value Through Profit Or LossNon-Tranding Financial Assets Mandatorily Measured At Fair Value Through Profit Or Loss11,501 61,239 -  172,828   11,501   61,239 
Other Financial Assets At Fair Value Through Profit Or Loss (2) - - 30,694
Financial Assets Not Measured At Fair Value Through Profit Or LossFinancial Assets Not Measured At Fair Value Through Profit Or Loss (57,522) (138,104) (122,115)  (239,054)  (57,522)  (138,104)
Financial Assets available-for-saleFinancial Assets available-for-sale             
Debt instruments (46,136) (111,750) (156,802)  (207,011)  (46,136)  (111,750)
Equity instruments (11,386) (26,354) 34,687  (32,043)  (11,386)  (26,354)
Financial Assets Measured At Fair Value Through Other Comprehensive IncomeFinancial Assets Measured At Fair Value Through Other Comprehensive Income             
Gains or losses from hedge accounting, netGains or losses from hedge accounting, net (134,767) 197,595 (113,600)  229,543   (134,767)  197,595 
Total 2,462,545 (2,782,802) 969,090  12,998,060   2,462,545   (2,782,802)

(1) Includes the exchange hedge of the Bank’s interest in Cayman (note 24)23).

(2) Includes the net gain arising from transactions involving debt securities, equity instruments and derivatives included in this portfolio, since the Bank manages its risk in these instruments on a global basis.

 

38.37.Exchange differences (net)

“Exchange differences”differences demonstrate the gains or losses on foreign currency transactions, the differences that arise on translations of monetary items in foreign currencies to the functional currency, and those disclosed on non-monetary assets in foreign currency at the time of their disposal.

 

Thousand of Reais      2019 2018 2017
            
Revenue with Exchange variations   23,622,963 12,752,765 24,008,382
Expenses with Exchange Variations   (26,411,500) (15,559,237) (23,403,326)
Total      (2,788,537) (2,806,471) 605,056

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Thousand of Reais 2020 2019 2018
       
Revenue with Exchange Variations  78,578,786   23,622,963   12,752,765 
Expenses with Exchange Variations  (103,279,748)  (26,411,500)  (15,559,237)
Total  (24,700,962)  (2,788,537)  (2,806,471)
 

BANCO SANTANDER (BRASIL) S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

(Thousand of Brazilian Reais - R$ - unless otherwise stated) 

39.38.Other operating income and expenses

The breakdown of "Other operating income (expense)" is as follows:

 

Thousand of reais   2019 2018 2017 2020 2019 2018
       
Other operating income 591,125 556,715 896,279  792,639   591,125   556,715 
Other operating expense (1,351,568) (1,281,764) (1,259,338)  (1,237,133)  (1,351,568)  (1,281,764)
Contributions to fund guarantee of credit - FGCContributions to fund guarantee of credit - FGC (347,276) (330,801) (308,954)  (428,016)  (347,276)  (330,801)
Total (1,107,719) (1,055,850) (672,013)  (872,510)  (1,107,719)  (1,055,850)

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* Values expressed in thousands, except when indicated.

 

40.39.Personnel expenses

a) Breakdown

 

The breakdown of “Personnel expenses” is as follows:

 

Thousand of reais      2019 2018 2017
Wages and salaries      5,876,328 5,812,688 5,713,702
Social security costs      1,276,620 1,404,537 1,381,229
Benefits      1,491,485 1,387,078 1,309,314
Defined benefit pension plans (note 22)   10,917 8,939 20,081
Contributions to defined contribution pension plans   131,885 131,388 87,099
Share-based compensation    88,248 58,050 87,293
Training      66,215 62,756 58,338
Other personnel expenses      386,016 340,571 280,222
Total      9,327,714 9,206,007 8,937,278

Thousand of reais 2020 2019 2018
Wages and salaries  5,730,779   5,876,328   5,812,688 
Social security costs  1,222,352   1,276,620   1,404,537 
Benefits  1,390,044   1,491,485   1,387,078 
Defined benefit pension plans (note 22)  6,892   10,917   8,939 
Contributions to defined contribution pension plans  117,216   131,885   131,388 
Share-based compensation  19,348   88,248   58,050 
Training  49,037   66,215   62,756 
Other personnel expenses  335,813   386,016   340,571 
Total  8,871,481   9,327,714   9,206,007 

b) Share-Based Compensation

 

Banco Santander has long-terms compensation plans linked to the market price of the shares. The members of the Executive Board of Banco Santander are eligible for these plans, as well as other members selected by the Board of Directors, whose selection will take into account seniority of the group. For the Board of Directors members in order to be eligible, it is necessary to exercise Executive Board functions. These amounts are recorded under Other liabilities (Note 25)24) and personnel expenses (Note 40.a)39.a).

 

b.1) Local and Global Program

 

Those are the compensation long-term programs and their characteristics.

ProgramPlanLiquidity TypeVesting Period PlanVesting PeriodPeriod of Exercise/Settlement
Local Long-Term Incentive Plan - Private Ultra High (1)MoneyApr/2017 to Dec/19In March/2020 and March/2021
GlobalGlobal Long-Term – ILP CRDIV - Granted 2015 (2) (3)Santander Global Group Shares2015 to 2018In 2019/2020
LocalLong-Term Incentive Plan – TechnologySantander Brasil Bank SharesJul/01/2019 to Jun/12/2021
01/2020 to 12/2022
2019 to 2023		03/2022 and 03/2023
03/2023 and 03/2024
2022 and 2023
GlobalSantander Spain Shares and Options01/2020 to 12/2022 In July/202203/2023 and 03/2025
ProgramLiquidity TypeVesting PeriodPeriod of Exercise/Settlement01/01 to 12/31/202001/01 to 12/31/2019
Local Long-Term Incentive Plan – Pi InvestmentsSantander Brasil Bank SharesJan/01/2019 to Dec/12/2021
01/2020 to 12/2022
2019 to 2023		 In March/03/2022 and March/03/2023
Local
03/2023 and 03/2024
2022 and 2023		 Long-Term Incentive Plan – Ben'Santander Brasil Bank SharesJan/2019 to Dec/2021R$ 4,916,667 (*)
R$ 9,440,000 (*)
841,446 SANB11		 In March/2022R$ 4,916,667 (*)
R$ 9,440,000 (*)
841,446 SANB11
Global

Santander Spain Shares and March/Options

01/2020 to 12/202203/2023 and 03/2025318,478 SAN
1,664,983 opções s/ SAN		318,478 SAN
1,664,983 opções s/ SAN
Balance of Plans on December 31, 2020R$ 14,356,667 841,446 SANB11 318,478 SAN 1,664,983 opções s/ SANR$ 14,356,667
841,446 SANB11
318,478 SAN
1,664,983 opções s/ SAN

Our long-term programs are divided into Local and Global plans, with specific performance indicators and conditions for maintaining the participant's employment relationship until the payment date in order to be entitled to the receipt

 

(1) It aims at the growth and profitabilityThe payment of the Private business andplans is calculated based on the recognitionpercentage of the Participant's contribution.

(2) Subject to the achievement of the Santander Group's RTA performance indicator, comparingindicators applied on the Group's evolution in this indicatorreference value (target), with that of the main global competitors.

(3) The Plans do not cause dilution of the Bank's share capital, since they areLocal plans being paid in shares of Banco Santander Spain. In April 2019, the type of settlement ofSANB11 units and the Global grant programs 2015 was changed to cash.

Fair Valueplans in shares and Parameters for Performance for Actuality Plansoptions of Grupo Santander (SAN).

 

Each participant has a target reference value defined in Reaiscash, converted into SANB11 units or into Santander Group (SAN) shares and the exact amount of the bonus will be determined by the measurement of the following performance indicators, with payments made in two installments: the first in March 2020 and the second in March 2021.

Indicators - Phase 1 (Reference Value)

• BAI of 2017.

Indicators - Phase 2 (Calculation of Cash Incentive)

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BANCO SANTANDER (BRASIL) S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Thousand of Brazilian Reais - R$ - unless otherwise stated) 

• BAI - 50% (Benefit Indicator before Private Ultra High Segment Taxes);

• MOL - 25% (Private Ultra High Segment Net Margin Indicator); and

• AUM - 25% (Assets Under Management Indicator of Private Ultra High Segment).

In December 2018, the provision recorded for the local long-term incentive plan - Private Ultra High was reversed due to the probability of non-compliance with the acquisition condition related to the performance target. Management followed the performance parameter of the plan until December 2019. The amount of the expense with the provision related to this plan recorded in 2017 was R $ 2,935.

i.Long-Term Incentive Plan – Technology

This is a retention plan for key positions where the participant must remain active during the term of the plan in order to be entitled to receive it.

Each executive had a target in Reais, which was converted to Santander Brasil shares (SANB11)options, usually at the price of R$ 44,66, which will be delivered in July/2022, with lockupthe last 15 trading sessions of 1 year.

Payment is subjectthe month immediately prior to the applicationgrant of each plan, At the end of the Malus/Clawback clauses, which may reduce or cancelvesting period, the resulting shares to beare delivered in the event of non-compliance with internal regulationsa 1-year restriction, and exposure to excessive risk.

 
 Number of Shares Granted Year Employees Date of Commencement of the PeriodDate of Expiry of Period
ILP Technology123,158 2019 Executives Jul-19Jun-22
Delivered shares- 2019 Executives Jul-19Jun-22
Canceled shares- 2019 Executives Jul-19Jun-22
Balance Plans on December 31, 2019123,158       

ii.Long-Term Incentive Plan – Pi Investments

The agreed values ​​of the ILP for each participant will be obtained based on determination of the achievement of indicators in two moments: 2020 and 2021.

Indicators 2020Indicators 2021
Active Clients - Clients with average monthly balanceActive Clients - Clients with average monthly balance
Clients Base (AuM) - Distributed volume including balance accountClients Base (AuM) - Distributed volume including balance account
Revenue 2020Revenue 2021
BAI (Indicador de Lucro antes do Imposto)

Thisthis payment is a retention plan for key positions where the participant must remain active until the payment date.

Payment will be made in SANB11 shares, 50% in March / 2022 and 50% in March / 2023, with lockup of 1 year after each payment andstill subject to the application of the Malus / Clawback clauses, which may reduce or cancel the shares to be delivered in casecases of non-compliance with internal regulationsrules and exposure to excessive risks.

iii.ILP Ben

The agreed values ​​of the ILP for each participant will be obtained based on determination of the achievement of indicators in two moments: 2020 and 2021.

Indicators
Number of Corporate Clients
Number of Personal Clients
Number of Accredited Establishments
Revenue
BAI (Earnings before Tax indicator)

This is a retention plan for key positions where the participant must remain active until the payment date.

Payment will be made in SANB11 shares, 50% in March / 2022 and 50% in March / 2023, with lockup of 1 year after each payment and subject to the application of the Malus / Clawback clauses, which may reduce or cancel the shares to be delivered in case of non-compliance with internal regulations and exposure to excessive risks.

 

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* Values expressed in thousands, except when indicated.

Impact on Results

The impacts on the result are recorded in the Personnel Expenses item, as follows:

 Program

BANCO SANTANDER (BRASIL) S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Liquidity Type 01/01 to 12/31/2020 

(Thousand of Brazilian Reais - R$ - unless otherwise stated) 

Local		Santander Brasil Bank Shares10,776
GlobalSantander Spain Shares and Options846

b.2) Global Program

In 2019, were not recognized daily pro-rata expenses (2018 - R$5,726 e 2017 – R$4,797), for total plans of the Global Program.

b.3) Variable Remuneration based in sharesReferenced to Shares

 

In the long-term incentive plan (deferral), the requirements for payment of future deferred installments of variable remuneration are determined, considering the long-term sustainable financial bases, including the possibility of applying reductions or cancellations depending on the risks assumed and fluctuations of the cost of capital.

 

The Banco Santander variable remuneration plan with payment referenced in Banco Santander shares is divided into 2 programs: (i) Identified Collective and (ii) Unidentified Collective.Other Employees. The impacts on the result are recorded in the Personnel Expenses item, as follows:

 

a) Collective Identified - Participants of the Executive Committee, Statutory Directors and other executives who take significant risks in the Bank and are responsible for the control areas. The deferral will be half in cash, 50% indexed by 100% of CDI and 50% in shares (SANB11). On the exercise ended on December 31, 2019, was recorded loss amounted to R$98,441 (2018 - R$50,896 and 2016 - R$81,838), regarding the provision of the deferral plan in shares.

b) Collective Unidentified - managerial employees and other employees of the organization that will be benefited from the deferral plan. The deferred amount will be paid 100% cash, indexed by 100% of CDI. On the year ended on December 31, 2019, there were expense of R$104,068 (2018 - R$74,871 and 2016 - R$124,926).

            
              
Program Participant Liquidity Type     01/01 to 12/31/2020 01/01 to 12/31/2019 
Collective Identified Members of the Executive Committee, Statutory Officers and other executives who assume significant and responsible risks of control areas  50% in cash indexed to 100% of CDI and 50% in shares (Units SANB11)     103,696 98,441 
Unidentified Collective Management-level employees and employees who are benefited by the Deferral Plan 50% in cash indexed to 100% of CDI and 50% in shares (Units SANB11)     98,069 104,068 
41.40.Other general administrative expenses

a) Breakdown

 

The detail of other general administrative expenses is as follows:

 

 Thousand of reais 2019 2018 2017
        
 General maintenance expenses748,196 1,330,549 1,284,490
 Technology maintenance expenses2,058,619 1,786,416 1,364,720
 Advertising 712,855 621,645 617,563
 Communications 472,873 457,323 593,272
 Per diems and travel expenses140,016 127,277 106,956
 Taxes other than income tax112,012 88,977 122,570
 Surveillance and cash courier services630,585 617,129 630,466
 Insurance premiums 34,778 29,434 27,289
 Specialized and technical services2,172,566 2,089,614 1,901,056
 Technical reports 360,990 359,468 370,546
 Others specialized and technical services1,811,577 1,730,146 1,530,510
 Other administrative expenses (1)531,312 437,767 534,935
 Total 7,613,812 7,586,131 7,183,317

(1) In December 31, 2019, includes mainly Data Processing Expenses in the balance of R$2.392 (2018 – R$67.724 and 2017 - R$73.664), Service Expenses in the balance of R$2.172 (2018 - revenue of R$26.852 and 2017 - R$87.199), Expenses with Benefit Guarantor Fund - FGB R$53.548 (2018 – R$34.996 and 2017 - R$5.334)
Thousand of reais 2020 2019 2018
Genreal maintenance expenses  743,580   748,196   1,330,549 
Technology maintenance expenses  2,355,310   2,058,619   1,786,416 
Advertising  654,175   712,855   621,645 
Communications  648,856   472,873   457,323 
Per diems and travel expenses  69,922   140,016   127,277 
Taxes other than income tax  280,098   112,012   88,977 
Surveillance and cash courier services  594,953   630,585   617,129 
Insurance premiums  16,620   34,778   29,434 
Specialized and technical services  2,171,460   2,172,567   2,089,614 
Technical reports  319,814   360,990   359,468 
Others specialized and technical services  1,851,646   1,811,577   1,730,146 
Other administrative expenses (1)  709,504   531,311   437,767 
Total  8,243,478   7,613,812   7,586,131 
(1)For the year ended December 31, 2020, includes mainly Data Processing Expenses in the balance of R$176.105 (2019 – R$67.724 and 2017 - R$73.664), Service Expenses in the balance of R$27,751 (2019 - revenue of R$26.852 and 2018 - R$87.199), Expenses with Benefit Guarantor Fund - FGB R$8,478 (2019 – R$34,996 and 2017 - R$5,334), Interest on Own Capital R$0 (2018 – R$38.006 and 2017 - R$20.826) and Recovery of Charges and Expenses R$97.426 (2018 – R$38.006 and 2017 - R$20.826) and Recovery of Charges and Expenses R$212,850 (2019 – R$92.408 and 2017 – R$89.409).

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* Values expressed in thousands, except when indicated.

 

b) Other information

 

The balance of “Technical reports” includes the fees paid by the consolidated companies to their respective auditors, the detail are as follows:

 

Millions of Reais 2019 2018 2017
       
Audit of the annual financial statements of the companies audited by external audit(1)(2) (constant scope of consolidation) 25.2 19.9 17.5
Audit Related 0.1 0.5 3.9
Others 0.3 0.1 1.3
Total 25.6 20.5 22.7

(1) In 2019, it includes R$ 1.9 million and R$ 1.8 million referring to the audit work for the 2017 and 2018 fiscal year. In 2017, includes R$2.3 million, referred to the audit work of 2016 fiscal year.

Millions of Reais 2020 2019 2018
Audit of the annual financial statements of the companies audited by external audit  (constant scope of consolidation)  24,0   25,2   19,9 
Audit Related  0,4   0,1   0,5 
Others  0,0   0,3   0,1 
Total  24,4   25,6   20,5 

The approximate value of taxes according to law 12.741/12,741/2012 totaled R$3.61,5 million (2018(2019 - R$2.93,6 million e 20172018 - R$3.7million).2,9million),

Services provided by other audit firms totaled R$1.2 million (2018 - R$1.3 million e 2017 - R$13.2 million).

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BANCO SANTANDER (BRASIL) S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Thousand of Brazilian Reais - R$ - unless otherwise stated) 

 

42.41.Gains or losses on non financial assets and investments, net

The breakdown of the balance of this item is as follows:

 

Thousand of reais     2019 2018 2017 2020 2019 2018
       
Gains 55,709 11,627 1,798  285,335   55,709   11,627 
Tangible and intangible assetsTangible and intangible assets 55,709 11,627 1,798  36,778   55,709   11,627 
Investments  248,557   —     —   
Losses (45,063) (37,103) (66,100)  (54,622)  (45,063)  (37,103)
Tangible and intangible assetsTangible and intangible assets (45,063) (37,103) (13,719)  (14,517)  (45,063)  (37,103)
Investments (1) - - (52,381)  (40,105)  —     —   
Total 10,646 (25,476) (64,302)  230,713   10,646   (25,476)

(1) In 2017, includes the amount of R$41,999 related to the sale of BW Guirapá I S.A.

 

43.42.Gains (losses) on disposal and expenses of non-current assets held for sale not classified as discontinued operations

OnFor the year ended December 31, 2019,2020, revenue of R$1077 million is mainly comprised of an expense of R$1624 million with the constitution of a provision for losses on other values ​​and assets, net of the reversal of the provision for loss of recoverable value of properties, constitution of a provision for losses on other values ​​and assets and revenue of R$3449 million resulting from the sale of assets received in the credit recovery processes with customers, and onfor the year ended December 31, 2018, mainly2019, the income of R$ 10 millions, includes R$10416 million in revenue from the reversal of provision for loss of recoverable value of properties, constitution of provision for losses on other values ​​and assets and a R$7834 million result on the sale of assets received in the credit recovery processes with customers and onfor the year ended December 31, 20172018 mainly includes R$272104 million of provisions for devaluations on properties, based on appraisal reports prepared by external consultants the specialized.

 

44.43.Other disclosures

a) Guarantees and commitments

 

The Bank provides a variety of guarantees to its clients to improve their credit standing and allow them to compete Thethe following table summarizes at December 31, 2020, 2019 2018 and 20172018 all of the guarantees.

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* Values expressed in thousands, except when indicated.

 

As required, the “maximum potential amount of future payments” represents the notional amounts that could be considered as a loss if there were a total default by the guaranteed parties, without consideration of possible recoveries from collateral held or pledged, or recoveries under recourse provisions. There is no relationship between these amounts and probable losses on these guarantees.guarantees, In fact, "maximum potential amount of future payments" significantly exceeds inherent losses.

 

Thousand of reais     2019 2018 2017 2020 2019 2018
 
Maximum potential amount of future paymentsMaximum potential amount of future payments       
      
Contingent liabilities            
Guarantees and other suretiesGuarantees and other sureties 41,870,332 39,081,803 40,729,544  45,930,486   41,870,332   39,081,803 
Financial guarantees 29,397,344 27,216,418 37,007,057  32,477,336   29,397,344   27,216,418 
Performance guarantees 1,009,367 907,856 486,091  989,979   1,009,367   907,856 
Financial letters of credit 11,387,788 10,860,425 3,110,918  12,407,888   11,387,788   10,860,425 
Other 75,833 97,104 125,478  55,283   75,833   97,104 
Other contingent exposuresOther contingent exposures 2,442,235 3,178,671 1,915,492  2,351,530   2,442,235   3,178,671 
Documentary Credits 2,442,235 3,178,671 1,915,492  2,351,530   2,442,235   3,178,671 
Total Contingent Liabilities 44,312,567 42,260,474 42,645,036  48,282,016   44,312,567   42,260,474 
 
Commitments             
Loan commitments drawable by third parties(1)Loan commitments drawable by third parties(1) 125,876,671 122,652,229 106,913,219  131,706,433   125,876,671   122,652,229 
Total Commitments 125,876,671 122,652,229 106,913,219  131,706,433   125,876,671   122,652,229 
 
Total 170,189,238 164,912,704 149,558,255  179,988,449   170,189,238   164,912,704 

(1) Includes the approved limits and unused overdraft, credit card and others.

 

Financial guarantees are provided to Bank´s clients in respect of their obligations to third parties. The Bank has the right to seek reimbursement from the clients for any amount it shall have to pay under such guarantee. Additionally, the Bank may hold cash or other highly liquid collateral for these guarantees.

 

These guarantees are subject to the same credit evaluation performed on the origination of loans.

 

The Bank´s expectation is that many of these guarantees to expire without the need of cash disbursement in advance. Therefore, in the ordinary course of business, the Bank expects that these guarantees will have virtually no impact on its liquidity.

 

Performance guarantees are issued to guaranteed clients obligations such as to make contractually specified investments, to supply specified products, commodities, or maintenance or warranty services to a third party, completion of projects in accordance with contract

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BANCO SANTANDER (BRASIL) S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Thousand of Brazilian Reais - R$ - unless otherwise stated) 

terms, etc. Financial standby letters of credit include guarantees of payment of loans, credit facilities, promissory notes and trade acceptances. The Bank always requires collateral to grant this kind of financial guarantees. In Documentary Credits, the Bank acts as a payment intermediary between trading companies located in different countries (import-export transactions). Under a documentary credit transaction, the parties involved deal with the documents rather than the commodities to which the documents may relate. Usually the traded commodities are used as collateral to the transaction and the Bank may provide some credit facilities. Loan commitments draw able by third parties include mostly credit card lines and commercial commitments. Credit card lines are unconditionally cancelable by the issuer. Commercial commitments are mostly 1 year facilities subject to information requirements to be provided by Banks´s clients.

 

The risk criteria followed to issue all kinds of guarantees, financial standby letters of credit, documentary credits and any risks of signature are in general the same as those used for other products of credit risk, and therefore subject to the same admission and monitoring standards. The guarantees granted on behalf of Bank´s clients are subject to the same credit quality review process as any other risk product. On a regular basis, at least once a year, the solvency of the mentioned clients is checked as well as the probability of those guarantees to be executed. In case that any doubt on the client’s solvency may arise we create allowances with charge to net income, by the amount of the inherent losses even if there is no claim to us.

 

The provision for losses on the non-recovery guarantees and other securities (Note 9.c) is recorded as "Impairment losses on financial assets (net)” on consolidated income statement and its calculation is described in note 2.i.

 

Additionally, the liability recognized as deferred revenue for the premium received for providing the above guarantees, which is being amortized into income over the life of the related guarantees is R$285,218 (2018356,226 (2019 - R$330,018 e 2017285,218 and 2018 - R$446,143)330,018).

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* Values expressed in thousands, except when indicated.

 

b) Off-balance funds under management

 

Banco Santander has under its management investment funds for which it does not hold any substantial participation interests and does not act as principal over the funds, and it does not own any shares of such funds. Based on the contractual relationship governing the management of such funds, third parties who hold the participation interests in such funds are those who are exposed to, or have rights, to variable returns and have the ability to affect those returns through power over the fund. Moreover, though Santander Brasil acts as fund manager, in analyzing the fund manager’s remuneration regime, the remuneration regime is proportionate to the service rendered, and therefore does not create exposure of such importance to indicate that the fund manager is acting as the principal (Note 2.w).

 

The funds managed by Banco Santander not recorded in the balance sheet are as follows:

 

Thousand of reais      2019 2018 2017
            
Funds under management      2,034,999 1,896,689 1,747,623
Managed Funds      230,199,261 200,366,261 188,728,634
Total      232,234,260 202,262,950 190,476,257

Thousand of reais 2020 2019 2018
Funds under management  2,716,477   2,034,999   1,896,689 
Managed Funds  191,873,169   230,199,261   200,366,261 
Total  194,589,646   232,234,260   202,262,950 

c) Third-party securities held in custody

 

On December 31, 2019,2020, the Bank held in custody debt securities and equity instruments totaling R$27,283,548 (201835,519,498 (2019 - R$34,040,74227,283,548 e 20172018 - R$40,459,429)34,040,742) entrusted to it by third parties.parties which are off-balance instruments.

 

d) Residual maturity

 

The breakdown, by maturity, of the balances of certain items in the consolidated balance sheets is as follows:

 

             2019
             Thousand of reais
 On
Demand		 Up to
3 Months		 3 to
12 Months		 1 to
3 Years		 3 to
5 Years		 After 5
Years		 Total
Assets:             
Cash and balances with the Brazilian Central Bank6,549,535 13,577,829 - - - - 20,127,364
Debt instruments7,747,516 1,174,094 22,926,088 45,058,398 35,118,355 61,307,480 173,331,930
Equity instruments- - - - - 2,358,229 2,358,229
Loans and amounts due from credit institutions69,135,371 1,943,291 21,064,571 14,525,161 2,411,265 153,469 109,233,128
Loans and advances to customer9,451,762 84,839,695 43,180,508 89,624,089 34,092,967 65,510,459 326,699,480
Derivatives6,806,370 1,893,308 2,649,730 3,546,082 1,950,678 3,599,566 20,445,734
Total99,690,554 103,428,217 89,820,897 152,753,730 73,573,265 132,929,202 652,195,865

              2020
              Thousand of reais
  On
Demand		 Up to
3 Months		 3 to
12 Months		 1 to
3 Years		 3 to
5 Years		 After 5
Years		 Total
Assets:              
Cash and balances with the Brazilian Central Bank  7,373,662   12,775,063   -   -   -   -   20,148,725 
Debt instruments  432,579   13,195,527   33,903,698   64,225,680   70,182,705   48,162,275   230,102,464 
Equity instruments  -   -   -   -   -   2,329,361   2,329,361 
Loans and amounts due from credit institutions  57,722,384   2,777,562   36,783,150   15,155,444   363,135   48,101   112,849,776 
Loans and advances to customer  29,385,631   80,281,579   93,750,065   98,550,271   47,160,700   44,639,790   393,768,036 
Derivatives  -   14,558,434   1,994,418   6,726,841   1,869,509   3,721,418   28,870,620 
Total  94,914,256   123,588,165   166,431,331   184,658,236   119,576,049   98,900,945   788,068,982 
                             
Liabilities:                            
Financial liabilities at amortized cost:                            
Deposits from credit institutions(1)  -   83,922,876   43,315,412   3,764,159   -   654,516   131,656,962 
Customer deposits(1)  85,433,287   139,191,140   121,804,752   62,768,886   36,578,335   37,572   445,813,972 
Marketable debt securities (1)  -   8,815,410   18,736,230   28,158,133   747,340   418,401   56,875,514 
Debt Instruments Eligible to Compose Capital  -   220,425   -   12,899,235   -   -   13,119,660 
Other financial liabilities  23,352   21,858,532   20,730,398   17,203,162   4,787   2,452   59,822,683 
Short positions  -   45,807,946   -   -   -   -   45,807,946 
Derivatives  -   2,046,924   1,973,701   8,010,713   7,744,145   12,204,455   31,979,938 
Total  85,456,639   301,863,252   206,560,493   132,804,288   45,074,607   13,317,396   785,076,675 
                             
Difference (assets less liabilities)  9,457,617   (178,275,087)  (40,129,162)  51,853,948   74,501,442   85,583,549   2,992,307 

 Consolidated Financial Statements | December 31, 2020 | F-108

F-106

Table of Contents

* Values expressed in thousands, except when indicated.

              2019
              Thousand of reais
  On
Demand		 Up to
3 Months		 3 to
12 Months		 1 to
3 Years		 3 to
5 Years		 After 5
Years		 Total
Assets:              
Cash and balances with the Brazilian Central Bank  6,549,535   13,577,829   -   -   -   -   20,127,364 
Debt instruments  7,747,516   1,174,094   22,926,088   45,058,398   35,118,355   61,307,478   173,331,930 
Equity instruments  -   -   -   -   -   2,358,229   2,358,229 
Loans and amounts due from credit institutions  69,135,371   1,943,291   21,064,571   14,525,161   2,411,265   153,469   109,233,128 
Loans and advances to customer  9,451,762   84,839,695   43,180,508   89,624,089   34,092,967   65,510,459   326,699,480 
Derivatives  6,806,370   1,893,308   2,649,730   3,546,082   1,950,678   3,599,566   20,445,734 
Total  99,690,554   103,428,217   89,820,897   152,753,730   73,573,264   132,929,201   652,195,865 
                             
Liabilities:                            
Financial liabilities at amortized cost:                            
Deposits from credit institutions(1)  390,626   16,584,181   49,097,816   25,655,631   4,877,076   2,666,086   99,271,415 
Customer deposits(1)  69,048,756   130,872,214   76,244,908   43,395,748   16,923,318   29,654   336,514,597 
Marketable debt securities(1)  -   10,675,356   695,071   37,268,809   3,900,484   21,162,755   73,702,474 
Debt Instruments Eligible to Compose Capital  -   170,939   -   10,005,022   -   -   10,175,961 
Other financial liabilities  10,334   24,360,724   14,509,911   16,678,725   4,717   1,543   55,565,954 
Short positions  -   4,748,545   1,554,274   1,256,416   3,747,700   12,528,718   23,835,653 
Derivatives  6,776,746   4,345,286   406,383   4,696,823   2,502,040   3,702,699   22,429,977 
Total  76,226,462   191,757,244   142,508,362   138,957,174   31,955,334   40,091,454   621,496,030 
Difference (assets less liabilities)  23,464,093   (88,329,028)  (52,687,465)  13,796,556   41,617,931   92,837,747   30,699,835 

  

BANCO SANTANDER (BRASIL) S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Thousand of Brazilian Reais - R$ - unless otherwise stated) 

Consolidated Financial Statements | December 31, 2020 | F-109

 

             2019
             Thousand of reais
 On
Demand		 Up to
3 Months		 3 to
12 Months		 1 to
3 Years		 3 to
5 Years		 After 5
Years		 Total
Liabilities:             
Financial liabilities at amortized cost:             
Deposits from credit institutions(1)390,626 16,584,181 49,097,816 25,655,631 4,877,076 2,666,086 99,271,415
Customer deposits(1)69,048,756 130,872,214 76,244,908 43,395,748 16,923,318 29,654 336,514,597
Marketable debt securities(1)- 10,675,356 695,071 37,268,809 3,900,484 21,162,755 73,702,474
Debt Instruments Eligible to Compose Capital- 170,939 - 10,005,022 - - 10,175,961
Other financial liabilities10,334 24,360,724 14,509,911 16,678,725 4,717 1,542 55,565,954
Short positions- 4,748,545 1,554,274 1,256,416 3,747,700 12,528,718 23,835,653
Derivatives6,776,746 4,345,286 406,383 4,696,823 2,502,040 3,702,699 22,429,977
Total76,226,461 191,757,244 142,508,363 138,957,174 31,955,334 40,091,454 621,496,030
 Difference (assets less liabilities)23,464,093 (88,329,027) (52,687,466) 13,796,556 41,617,931 92,837,748 30,699,835
              
             2018
             Thousand of reais
 On
Demand		 Up to
3 Months		 3 to
12 Months		 1 to
3 Years		 3 to
5 Years		 After 5
Years		 Total
Assets:             
Cash and balances with the Brazilian Central Bank31,323,554 392,791 - - - - 31,716,345
Debt instruments27,402 51,255,820 25,903,428 13,186,253 26,367,903 58,692,609 175,433,415
Equity instruments839,620 34,420 231,576 - - - 1,105,616
Loans and amounts due from credit institutions57,528,022 8,449,138 844,658 12,739,730 11,371 34,082 79,607,001
Loans and advances to customer- 111,595,396 75,100,836 63,043,973 21,397,689 29,934,313 301,072,207
Derivatives- 13,815,791 1,240,161 1,114,446 1,074,875 1,118,173 18,363,446
Total89,718,598 185,543,356 103,320,659 90,084,402 48,851,838 89,779,177 607,298,030
              
Liabilities:             
Financial liabilities at amortized cost:             
Deposits from credit institutions(1)1,139 55,872,675 18,564,342 19,850,530 2,598,172 2,135,948 99,022,806
Customer deposits(1)65,241,618 102,942,180 76,987,570 42,399,934 16,624,469 2,029 304,197,800
Marketable debt securities(1)- 11,104,594 26,741,036 22,479,019 5,854,091 8,447,492 74,626,232
Subordinated liabilities9,885,607 - - - - - 9,885,607
Debt Instruments Eligible to Compose Capital- - - - - 9,779,944 9,779,944
Other financial liabilities66,265 31,566,995 35,648 18,086,272 - 27,600 49,782,780
Financial liabilities held for trading:             
Short positions206,423 - 1,139,847 31,349,407 - - 32,695,677
Derivatives- 7,639,956 7,723,730 1,069,718 604,593 1,428,838 18,466,835
Total75,401,052 209,126,400 131,192,173 135,234,880 25,681,325 21,821,851 598,457,681
Difference (assets less liabilities)14,317,546 (23,583,044) (27,871,514) (45,150,478) 23,170,513 67,957,326 8,840,349
              

F-107

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BANCO SANTANDER (BRASIL) S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Thousand of Brazilian Reais - R$ - unless otherwise stated) 

 

             2017
             Thousand of reais
 On
Demand		 Up to
3 Months		 3 to
12 Months		 1 to
3 Years		 3 to
5 Years		 After 5
Years		 Total
Assets:             
Cash and balances with the Brazilian Central Bank20,642,321 13,482,432 - - - - 34,124,753
Debt instruments609,220 1,887,278 21,978,394 31,669,850 19,379,308 45,731,067 121,255,117
Equity instruments66,187 124,304 305,073 842,090 - 292,121 1,629,775
Loans and amounts due from credit institutions38,137,344 15,235,629 182,721 10,382,061 18,166 1,253,981 65,209,902
Loans and advances to customer31,065,824 70,301,530 61,286,539 63,375,203 17,796,364 28,594,697 272,420,157
Derivatives- 426,577 1,034,248 9,470,073 4,357,636 1,974,354 17,262,888
Total90,520,896 101,457,750 84,786,975 115,739,277 41,551,474 77,846,220 511,902,592
              
Liabilities:             
Financial liabilities at amortized cost:             
Deposits from credit institutions(1)394,396 21,636,392 44,696,680 6,797,838 2,717,941 3,131,438 79,374,685
Customer deposits(1)64,512,105 103,511,031 48,339,761 42,494,421 17,176,009 8,814 276,042,141
Marketable debt securities(1)- 14,315,305 35,636,549 17,923,372 1,491,866 879,920 70,247,012
Subordinated liabilities- - 519,230 - - - 519,230
Debt Instruments Eligible to Compose Capital- 114,104 - - - 8,322,797 8,436,901
Other financial liabilities11,710,943 30,985,465 1,537,689 26,638 - - 44,260,735
Financial liabilities held for trading:             
Short positions- - 466,000 8,960,806 7,476,079 15,905,507 32,808,392
Derivatives- 769,619 975,945 8,244,193 4,239,198 2,448,531 16,677,486
Total76,617,444 171,331,916 132,171,854 84,447,268 33,101,093 30,697,007 528,366,582
Difference (assets less liabilities)13,903,452 (69,874,166) (47,384,879) 31,292,009 8,450,381 47,149,213 (16,463,990)

* Values expressed in thousands, except when indicated.

              2018
              Thousand of reais
  On
Demand		 Up to
3 Months		 3 to
12 Months		 1 to
3 Years		 3 to
5 Years		 After 5
Years		 Total
Assets:              
Cash and balances with the Brazilian Central Bank  19,070,796   392,791   -   -   -   -   19,463,587 
Debt instruments  27,402   51,255,820   25,903,428   13,186,253   26,367,903   58,692,609   175,433,415 
Equity instruments  839,620   34,420   231,576   -   -   -   1,105,616 
Loans and amounts due from credit institutions  69,780,780   8,449,138   844,658   12,739,730   11,371   34,082   91,859,759 
Loans and advances to customer  -   111,595,396   75,720,016   63,043,973   21,397,689   29,934,313   301,691,387 
Derivatives  -   13,815,791   1,240,161   1,114,446   1,074,875   1,118,173   18,363,446 
Total  89,718,598   185,543,356   103,939,839   90,084,402   48,851,838   89,779,177   607,917,210 
                             
Liabilities:                            
Financial liabilities at amortized cost:                            
Deposits from credit institutions(1)  1,139   55,872,675   18,564,342   19,850,530   2,598,172   2,135,948   99,022,806 
Customer deposits(1)  65,241,618   102,942,180   76,987,570   42,399,934   16,624,469   2,029   304,197,800 
Marketable debt securities(1)  -   11,104,594   26,741,036   22,479,019   5,854,091   8,447,492   74,626,232 
Subordinated liabilities  9,885,607   -   -   -   -   -   9,885,607 
Debt Instruments Eligible to Compose Capital  -   -   -   -   -   9,779,944   9,779,944 
Other financial liabilities  66,265   31,566,995   35,648   18,086,272   -   27,600   49,782,780 
Financial liabilities held for trading:                            
Short positions  206,423   -   1,139,847   31,349,407   -   -   32,695,677 
Derivatives  -   7,639,956   7,723,730   1,069,718   604,593   1,428,838   18,466,835 
Total  75,401,052   209,126,400   131,192,173   135,234,880   25,681,325   21,821,851   598,457,681 
Difference (assets less liabilities)  14,317,546   (23,583,044)  (27,252,334)   (45,150,478)  23,170,513   67,957,326   9,459,529 

(1) Includes obligations which may be subject to early payment, being: demand and time deposits, repurchase agreements with clients, LCI and LCA.

 

 Consolidated Financial Statements | December 31, 2020 | F-110

F-108

Table of Contents

 

BANCO SANTANDER (BRASIL) S.A.

* Values expressed in thousands, except when indicated.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Thousand of Brazilian Reais - R$ - unless otherwise stated) 

 

e) Equivalent value in Reais of assets and liabilities

 

The main foreign currency balances in the consolidated financial statements, based on the nature of the related items, are as follows:

 

Equivalent Value in Thousand of Reais2019 2018 2017
  Assets Liabilities Assets Liabilities Assets Liabilities
             
Cash and reserves at the Central Bank of Brazil15,359,225 - 6,947,282 - 126,022 -
Financial asset/liabilities for trading- - - - 626,101 2,982,336
Financial ssets/liabilities measured at fair value through profit or loss held for trading3,349,879 3,210,360 1,211,296 101,833 - -
Available-for-sale financial assets- - - - 11,665,952 -
Financial assets measured at fair value through other comprehensive income20,386,034 - 7,049,727 - - -
Loans and receivables - - - - 18,703,454 -
Financial assets/liabilities measured at amortized cost68,996,884 44,140,284 17,912,203 35,567,194 - 36,306,000
Total 108,092,022 47,350,644 33,120,508 35,669,027 31,121,529 39,288,336

F-109

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BANCO SANTANDER (BRASIL) S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Thousand of Brazilian Reais - R$ - unless otherwise stated) 

Equivalent Value in Thousand of Reais 2020 2019 2018
  Assets Liabilities Assets Liabilities Assets Liabilities
             
Cash and reserves at the Central Bank of Brazil  15,835,124   -   15,359,225   -   6,947,282   - 
Financial ssets/liabilities measured at fair value through profit or loss held for trading  27,012,315   7,867,168   3,349,879   3,210,360   1,211,296   101,833 
Financial assets measured at fair value through other comprehensive income  17,062,156   -   20,386,034   -   7,049,727   - 
Financial assets/liabilities measured at amortized cost  52,002,476   118,142,613   68,996,884   44,140,284   17,912,203   35,567,194 
Total  111,912,071   126,009,781   108,092,022   47,350,644   33,120,508   35,669,027 

f) Other Obligations

 

The Banco Santander rents properties, mainly used for branches, based on a standard contract which may be cancelled at its own criterion and includes the right to opt for renewals and adjustment clauses. The leases are classified as operating leases.

 

The total of the future minimum payments of non-cancellable operating leases is shown below:

 

  2019 2018 2017
       
Up to 1 Year 651.207 670.553 624.424
Between1 to 5 Years 1.492.289 1.435.970 1.545.101
More than 5 Years 147.125 167.868 288.420
  2.290.621 2.274.391 2.457.945

  2020 2019 2018
       
Up to 1 Year  670,619   651,207   670,553 
Between1 to 5 Years  1,607,995   1,492,289   1,435,970 
More than 5 Years  171,420   147,125   167,868 
   2,450,034   2,290,621   2,274,391 

Additionally, Banco Santander has contracts withoutwith no contractual maturity, dates, totaling R$918 (2018 - R$674) monthly rent corresponding to the contracts with this feature. Payment of operating leases recognized as expenses in 2019 fiscal year were R$700,958 (2018 - R$683,011).

 

Monthly rental contracts will be adjusted on an annual basis, as per prevailing legislation, at Índice Geral de Preços do Mercado (IGPM) variation. The lessee is entitled to unilaterally rescind the agreement, at any time, as contractual clauses and legislation.

 

g) Contingent assets

 

On December 31, 2020, 2019 2018 and 20172018 no contingent assets were recorded.

 

h) COVID-19

The Bank monitors the effects of this pandemic that affect its operations and that may adversely affect its results. Since the beginning of the pandemic in Brazil, Committees have been set up to monitor the effects of the spread and its impacts, in addition to government actions to mitigate the effects of COVID-19.

The Bank maintains its operational activities, observing the protocols of the Ministry of Health and other Authorities. Among the actions taken, we highlight (a) the dismissal of employees from the risk group and intensification of work in the home office, (b) the definition of a follow-up protocol, with health professionals, for employees and family members who have the symptoms of COVID19 and (c) increased communication about preventive measures and remote means of care.

The Federal Government through the National Monetary Council and the Central Bank of Brazil has adopted measures to mitigate the impacts caused by COVID-19, specifically on credit operations, fundraising, reduction of reserve requirements and aspects related to capital, such as ( a) measures to facilitate the renegotiation of credit operations without an increase in provisions, (b) a reduction in capital requirements, in order to expand the credit system's ability to grant credit and (c) a reduction in reserve requirements. , to improve liquidity conditions.

The Bank, aware of its responsibilities, made adjustments to its policies in order to respond to the COVID-19 pandemic and adopted measures such as those shown below:

• Extensions for individuals were granted with a 2-month grace period with the possibility of extension for another month.

• In the case of a legal entity, extensions were granted with a grace period of up to 6 months in line with BNDES (National Bank for Economic and Social Development).

The extensions were granted from March to September 2020.

 Consolidated Financial Statements | December 31, 2020 | F-111

Table of Contents

Throughout 2020, the position of extensions in response to the Pandemic COVID-19 reached 1,728,197 customers, R$ 40,592 million in extended credit, equivalent to 9.72% of the total credit portfolio, as shown below:

Thousand of reais    
 

Total

 

Extended Portfolio

 

Of which:

 

expired

 

Total

 

Portfolio

 

% Portfolio

 

Extended

 

Commercial and industrial11,277,4548,876,863191,281,6535.90%
Mortgage loans - construction14,061,44913,569,18645,791,86930.71%
Loans to individuals15,193,90115,062,757178,652,1458.50%
Leasing59,40429,3882,096,3592.83%
Total*40,592,20737,538,194417,822,0279.72%

* The total portfolio excludes exposures not accounted for in the balance sheet

Of the total extensions expired on December 31, 2020 of R$37,538 million, R$28,348 million were in stage 1, R$6,608 million in stage 2 and R$2,567 million in stage 3.

The scenario of uncertainties caused by the Pandemic COVID-19 brought an increase in expected losses, for which continuous monitoring has been maintained.

In response, in 2020, the Bank constituted an additional provision in the amount of R$3,200,000 (R$1,411,000 in stage 1, R$1,120,000 in stage 2 and R$669,000 in stage 3). This provision was calculated based on the analysis of the potential macroeconomic effects and took into account not only quantitative and qualitative indicators, but also the adequate and accurate identification of risks and a collective assessment of exposures.

For the expected losses estimation, prospective information is taken into account. Santander Brazil considers three macroeconomic scenarios, periodically updated. The evolution for a period of five years of the main macroeconomic indicators used to estimate the expected losses in Santander Brazil is as follows (before pandemic impacts):

 Pessimistic Scenarios Base Scenarios Optimistic Scenarios
                  
Variables20202021202220232024 20202021202220232024 20202021202220232024
Interest Rate7.0%9.5%9.0%9.0%9.0% 4.5%5.5%6.0%6.0%6.0% 3.5%3.8%5.0%5.0%5.0%
Unemployment Rate12.8%15.9%17.7%18.2%17.9% 10.8%10.2%9.7%8.8%8.5% 10.1%8.9%7.8%6.8%6.6%
Housing Price Change-2.3%-2.4%-1.2%-0.3%0.0% 0.8%2.1%3.6%3.5%3.5% 2.5%7.2%7.7%7.3%7.3%
GDP Growth-3.0%-3.3%-1.7%-0.9%1.9% 2.3%2.2%2.4%2.5%2.5% 4.4%5.0%4.6%4.5%3.7%
Burden Income21.0%21.5%22.0%22.0%22.0% 20.4%20.4%20.4%20.4%20.4% 19.5%19.0%18.8%18.9%18.9%

Each macroeconomic scenario is associated with a determined likelihood of occurrence. Regarding its assignation, Santander Brazil links the highest weight to the base scenarios whilst links the lowest weights to the most extreme scenarios:

Scenarios Weights202020192018
Pessimistic scenarios10%10%10%
Base scenarios80%80%80%
Optimistic scenarios10%10%10%

Regarding the scenarios considering the pandemic used to calculate the post-model adjustment (used for accounting purposes), the projected evolution of the main macroeconomic indicators for a period of five years is shown below:

4QPessimistic Scenarios Base Scenarios Optimistic Scenarios
                  
Variables20202021202220232024 20202021202220232024 20202021202220232024
Interest Rate2.0%3.5%9.0%9.0%9.0% 2.0%2.8%4.8%6.0%6.0% 2.0%2.8%4.8%6.0%6.0%
Unemployment Rate15.2%19.2%19.0%18.6%18.0% 15.2%12.4%11.4%10.7%9.8% 15.2%12.4%11.4%10.7%9.8%
Housing Price Change-1.9%-2.7%-1.4%-0.2%1.5% -1.9%1.6%3.1%3.3%3.3% -1.9%1.6%3.1%3.3%3.3%
GDP Growth-4.0%-6.0%-1.8%2.4%1.2% -4.0%3.8%2.5%2.4%2.5% -4.0%3.8%2.5%2.4%2.5%
Burden Income21.3%22.3%22.7%23.2%23.0% 21.3%20.9%20.8%20.7%20.7% 21.3%20.9%20.8%20.7%20.7%

The sensitivity analysis of the main portfolios expected loss to variations of +/- 100 bps for the macroeconomic variables used in the construction of the scenarios is as follows:

 Change in Provision
    
 Consumer%Corporate%Rest%
GDP Growth   
-100 bp0.891.660.75
+ 100 bp(0.91)(1.49)(0.41)
Burden Income   
-100 bp(0.82)1.56(0.43)
+ 100 bp1.610.691.49
Interest Rate (Selic)   
-100 bp(1.43)0.55(0.29)
+ 100 bps2.118.421.54

45.44.Business segment reporting

In accordance with IFRS 8, an operating segment is a component of an entity:

 

(a) that engages in business activities from which it may earn revenues and incur expenses (including revenues and expenses relating to transactions with other components of the same entity),

 

(b) whose operating results are regularly reviewed by the entity’s Managementmanagement responsible to make decisions about resources to be allocated to the segment and assess its performance, and

 

(c) For which different financial information are available.

 

Based on these guidelines, the Bank has identified the following reportable operating segments:

 

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* Values expressed in thousands, except when indicated.

• Commercial Banking,Banking.

 

• Global Wholesale Banking,Banking.

 

The Bank has two segments, the commercial (except for the Corporate Banking business managed globally using the Global Relationship Model) and the Global Wholesale Banking segment includes the Investment Banking and Markets operations, including departments cash and stock trades.

 

The Bank operates in Brazil and abroad, through the Cayman branch, Luxembourg branch and its subsidiary in Spain, with Brazilian clients and therefore has no geographical segments.

 

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BANCO SANTANDER (BRASIL) S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Thousand of Brazilian Reais - R$ - unless otherwise stated) 

The income statements and other significant data are as follows:

 

Thousand of reais    2019
      
Income Statement   Commercial Banking Global Wholesale Banking Total
            
NET INTEREST INCOME      42,043,774 2,277,333 44,321,107
Income from equity instruments   4,864 14,069 18,933
Income from companies accounted for by the equity method 149,488 - 149,488
Net fee and commission income   13,923,272 1,789,880 15,713,152
Gains (losses) on financial assets and liabilities (net) and Exchange differences (net)(1) (1,541,343) 1,215,351 (325,992)
Other operating expense (net)   (1,069,052) (38,668) (1,107,720)
TOTAL INCOME      53,511,003 5,257,965 58,768,968
Personnel expenses      (8,554,254) (773,460) (9,327,714)
Other administrative expenses   (7,139,828) (473,984) (7,613,812)
Depreciation and amortization   (2,297,010) (94,847) (2,391,857)
Provisions (net)      (3,668,709) (12,877) (3,681,586)
Impairment losses on financial assets (net)   (13,423,361) 53,455 (13,369,906)
Impairment losses on non-financial assets (net)   (73,216) (58,219) (131,435)
Other non-financial gains (losses)   20,489 - 20,489
OPERATING PROFIT BEFORE TAX(1)   18,375,114 3,898,033 22,273,147

Currency Hedge(1)		      1,264,279 - 1,264,279
ADJUSTED OPERATING INCOME BEFORE TAX(1) 19,639,393 3,898,033 23,537,426
            

Thousand of reais 2020
   
(Condensed) Income Statement  Commercial Banking   Global Wholesale Banking   

Total

 

 
             
NET INTEREST INCOME  41,457,352   2,985,361   44,442,713 
Income from equity instruments  3,617   30,137   33,754 
Income from companies accounted for by the equity method  84,051   28,210   112,261 
Net fee and commission income  14,405,280   1,822,934   16,228,214 
Gains (losses) on financial assets and liabilities (net) and Exchange differences (net) (1)  (13,515,305)  1,812,403   (11,702,902)
Other operating expense (net)  (767,088)  (105,422)  (872,510)
TOTAL INCOME  41,667,906   6,573,623   48,241,529 
Personnel expenses  (8,139,785)  (731,697)  (8,871,482)
Other administrative expenses  (7,634,670)  (608,808)  (8,243,478)
Depreciation and amortization  (2,488,517)  (90,610)  (2,579,127)
Provisions (net)  (1,638,787)  (17,759)  (1,656,546)
Impairment losses on financial assets (net)  (17,379,570)  (70,619)  (17,450,189)
Impairment losses on non-financial assets (net)  (28,403)  (56,504)  (84,907)
Other non-financial gains (losses)  308,176   —     308,176 
OPERATING PROFIT BEFORE TAX (1)  4,666,350   4,997,625   9,663,975 

Currency Hedge(1)		  13,583,011   —     13,583,011 
ADJUSTED OPERATING INCOME BEFORE TAX (1)  18,249,361   4,997,626   23,246,987 

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BANCO SANTANDER (BRASIL) S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Thousand of Brazilian Reais - R$ - unless otherwise stated) 

Thousand of reais    2018
      
Income Statement   Commercial Banking Global Wholesale Banking Total
            
NET INTEREST INCOME      39,390,512 2,530,830 41,921,342
Income from equity instruments   9,974 22,649 32,623
Income from companies accounted for by the equity method 65,958 - 65,958
Net fee and commission income   12,537,112 1,595,047 14,132,159
Gains (losses) on financial assets and liabilities (net) and Exchange differences (net)(1) (6,752,093) 1,162,820 (5,589,273)
Other operating expense (net)   (965,466) (90,384) (1,055,850)
TOTAL INCOME      44,285,998 5,220,961 49,506,959
Personnel expenses      (8,404,198) (801,809) (9,206,007)
Other administrative expenses   (7,186,035) (400,096) (7,586,131)
Depreciation and amortization   (1,637,484) (102,475) (1,739,959)
Provisions (net)      (1,947,578) (52,026) (1,999,604)
Impairment losses on financial assets (net)   (12,419,979) (293,456) (12,713,435)
Impairment losses on non-financial assets (net)   (450,201) (58,109) (508,310)
Other non-financial gains (losses)   156,258 - 156,258
OPERATING PROFIT BEFORE TAX(1)   12,396,779 3,512,992 15,909,771
Currency Hedge(1)      5,867,320 - 5,867,320
ADJUSTED OPERATING INCOME BEFORE TAX(1) 18,264,099 3,512,992 21,777,091
            

 

* Values expressed in thousands, except when indicated.

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BANCO SANTANDER (BRASIL) S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Thousand of Brazilian Reais - R$ - unless otherwise stated) 

 

Thousand of reais 2017 2019
  
Income Statement Commercial Banking Global Wholesale Banking Total
      

(Condensed) Income Statement

  
NET INTEREST INCOME 32,392,239 2,554,250 34,946,489 Commercial Banking Global Wholesale Banking Total
Income from equity instrumentsIncome from equity instruments 83,120 - 83,120      
Income from companies accounted for by the equity methodIncome from companies accounted for by the equity method 71,551 - 71,551  42,043,774   2,277,333   44,321,107 
Net fee and commission incomeNet fee and commission income 11,261,952 1,459,916 12,721,868  4,864   14,069   18,933 
Gains (losses) on financial assets and liabilities (net) and Exchange differences (net)(1)Gains (losses) on financial assets and liabilities (net) and Exchange differences (net)(1) (25,628) 1,599,774 1,574,146  149,488   -   149,488 
Other operating expense (net)Other operating expense (net) (640,522) (31,491) (672,013)  13,923,272   1,789,880   15,713,152 
TOTAL INCOME 43,142,712 5,582,449 48,725,161  (1,541,343)  1,215,351   (325,992)
Personnel expenses (8,166,562) (770,716) (8,937,278)  (1,069,052)  (38,668)  (1,107,720)
Other administrative expensesOther administrative expenses (7,011,740) (171,577) (7,183,317)  53,511,003   5,257,965   58,768,968 
Depreciation and amortizationDepreciation and amortization (1,560,465) (101,782) (1,662,247)  (8,554,254)  (773,460)  (9,327,714)
Provisions (net) (3,190,388) (118,851) (3,309,239)  (7,139,828)  (473,984)  (7,613,812)
Impairment losses on financial assets (net)Impairment losses on financial assets (net) (11,232,902) (1,105,398) (12,338,300)  (2,297,010)  (94,847)  (2,391,857)
Impairment losses on non-financial assets (net)Impairment losses on non-financial assets (net) (435,960) (20,751) (456,711)  (3,668,709)  (12,877)  (3,681,586)
Other non-financial gains (losses)Other non-financial gains (losses) (324,385) - (324,385)  (13,423,361)  53,455   (13,369,906)
OPERATING PROFIT BEFORE TAX(1)OPERATING PROFIT BEFORE TAX(1) 11,220,310 3,293,374 14,513,684  (73,216)  (58,219)  (131,435)

Currency Hedge(1)		 809,694 - 809,694  20,489   -   20,489 
ADJUSTED OPERATING INCOME BEFORE TAX(1)ADJUSTED OPERATING INCOME BEFORE TAX(1) 12,030,004 3,293,374 15,323,378  18,375,114   3,898,033   22,273,147 
NET INTEREST INCOME  1,264,279   -   1,264,279 
Income from equity instruments  19,639,393   3,898,033   23,537,426 

(1) Includes, in the Commercial Bank, the currency hedge of the investment in dollars (a strategy to mitigate the tax effects and the variation of the exchange rate of offshore investments on net income), the result of which is recorded under “on financial assets and liabilities "fully offset in the line of Taxes.

 

     2019
Other aggregates:      Commercial Banking Global Wholesale Banking Total
Total assets      677,139,468 85,097,984 762,237,452
Loans and advances to customers   259,644,994 67,054,486 326,699,480
Customer deposits      253,313,187 83,201,410 336,514,597
            
     2018
Other aggregates:      Commercial Banking Global Wholesale Banking Total
Total assets      646,128,672 77,736,335 723,865,007
Loans and advances to customers   236,792,060 64,280,147 301,072,207
Customer deposits      227,689,079 76,508,721 304,197,800
            
Thousand of reais 2018
   
(Condensed) Income Statement  Commercial Banking   Global Wholesale Banking   Total 
             
NET INTEREST INCOME  39,390,512   2,530,830   41,921,342 
Income from equity instruments  9,974   22,649   32,623 
Income from companies accounted for by the equity method  65,958   —     65,958 
Net fee and commission income  12,537,112   1,595,047   14,132,159 
Gains (losses) on financial assets and liabilities (net) and Exchange differences (net) (1)  (6,752,093)  1,162,820   (5,589,273)
Other operating expense (net)  (965,466)  (90,384)  (1,055,850)
TOTAL INCOME  44,285,998   5,220,961   49,506,959 
Personnel expenses  (8,404,198)  (801,809)  (9,206,007)
Other administrative expenses  (7,186,035)  (400,096)  (7,586,131)
Depreciation and amortization  (1,637,484)  (102,475)  (1,739,959)
Provisions (net)  (1,947,578)  (52,026)  (1,999,604)
Impairment losses on financial assets (net)  (12,419,979)  (293,456)  (12,713,435)
Impairment losses on non-financial assets (net)  (450,201)  (58,109)  (508,310)
Other non-financial gains (losses)  156,258   —     156,258 
OPERATING PROFIT BEFORE TAX (1)  12,396,779   3,512,992   15,909,771 
Currency Hedge(1)  5,867,320   —     5,867,320 
ADJUSTED OPERATING INCOME BEFORE TAX (1)  18,264,099   3,512,992   21,777,091 

(1) Includes, at Banco Comercial, the foreign exchange hedge of the dollar investment (a strategy to mitigate the tax effects and exchange rate variation of offshore investments on net income), the result of which is recorded in “Gains (losses) on financial assets and liabilities ”fully offset in the Tax line.

 

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  2020
Other aggregates: Commercial Banking Global Wholesale Banking Total
Total assets  839,962,420   96,239,065   936,201,485 
Loans and advances to customers  317,553,409   76,214,628   393,768,037 
Customer deposits  322,328,033   123,485,939   445,813,972 
  2019
Other aggregates: Commercial Banking Global Wholesale Banking Total
Total assets  677,139,468   85,097,984   762,237,452 
Loans and advances to customers  259,644,994   67,054,486   326,699,480 
Customer deposits  253,313,187   83,201,410   336,514,597 
  2018
Other aggregates: Commercial Banking Global Wholesale Banking Total
Total assets  646,128,672   77,736,335   723,865,007 
Loans and advances to customers  237,411,240   64,280,147   301,691,387 
Customer deposits  227,689,079   76,508,721   304,197,800 
 

BANCO SANTANDER (BRASIL) S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

(Thousand of Brazilian Reais - R$ - unless otherwise stated) 

     2017
Other aggregates:      Commercial Banking Global Wholesale Banking Total
Total assets      580,090,402 65,612,637 645,703,039
Loans and advances to customers   217,539,344 54,880,813 272,420,157
Customer deposits      225,926,433 50,115,708 276,042,141

46.45.Related party transactions

The parties related to the Bank are deemed to include, in addition to its subsidiaries, associates and jointly controlled entities, the Bank’s key management personnel and the entities over which the key management personnel may exercise significant influence or control.

 

Banco Santander has the Policy on Related Party Transactions approved by the Board of Directors, which aim to ensure that all transactions are made on the policy typified in view the interests of Banco Santander and its stockholders'. The policy defines powers to approve certain transactions by the Board of Directors. The rules laid down are also applied to all employees and directors of Banco Santander and its subsidiaries.

 

The transactions and remuneration of services with related parties are carried out in the ordinary course of business and under commutative conditions, including interest rates, terms and guarantees, and do not involve risks greater than normal collection or present other disadvantages.

 

a) Key-person management compensation

 

The Bank's Board of Directors' meeting,Meeting held on March 27, 201926, 2020 approved, in accordance with the favorable recommendation of the Compensation Committee, the proposal for the maximum global compensation proposal for the directorsDirectors (Board of Directors and Executive Officers) overall amountingBoard) for the year 2020, in the amount up to R$400,000 for the 2019 financial year,400,000,000 (four hundred million reais), covering fixed, remuneration, variable and equity-basedshare-based compensation and other benefits.benefits, The proposal was approved by the extraordinary stockholders' meeting (ESM)subject of a resolution at the Annual General Meeting (AGM) to be held on April 26, 2019.30, 2020.

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* Values expressed in thousands, except when indicated.

 

i) Long-term benefits

 

The Banco Santander as well as Banco Santander Spain, as other subsidiaries of Santander Group, have long-term compensation programs tied to their share's performance, based on the achievement of goals.

 

ii) Short-term benefits

 

The following table shows the Board of Directors’ and Executive Board’s:

 

Thousand of reais       2019 2018 2017
             
Fixed Compensation       89,518 90,580 83,633
Variable Compensation - in cash     70,816 48,526 42,718
Variable Compensation - in shares     80,832 34,155 34,567
Others (1)       46,937 54,494 11,919
Total Short-Term Benefits     288,103 227,755 172,837
Variable Compensation - in cash     92,704 31,797 31,268
Variable Compensation - in shares     102,046 30,060 34,455
Total Long-Term Benefits      194,750 61,857 65,723
Total (2)       482,853 289,612 238,560

(1) In the first half of 2018, the Management of Banco Santander decided to carry out an early initiative, which was practiced by the Bank's liberality.

(2) R$310,688 refers to the amount recognized as an expense for the year ended December 31, 2019 (2018 – R$114,588) and R$172,165 refers to deferred expense from previous years approved on each respective year (2018 – R$175,024), by Banco Santander and its subsidiaries to their Directors for the positions they hold at Banco Santander and other companies of the Santander Conglomerate. The amounts related to the Variable and Share-Based Compensation will be paid in the subsequent periods.

Thousand of reais 2020 2019 2018
       
Fixed Compensation  90,889   89,518   90,580 
Variable Compensation - in cash  83,352   70,816   48,526 
Variable Compensation - in shares  81,306   80,832   34,155 
Others (1)  47,832   46,937   54,494 
Total Short-Term Benefits  303,379   288,103   227,755 
Variable Compensation - in cash  98,407   92,704   31,797 
Variable Compensation - in shares  97,729   102,046   30,060 
Total Long-Term Benefits  196,136   194,750   61,857 
Total (2)  499,515   482,853   289,612 
(1)In the first half of 2018, Banco Santander management decided to provision and settle a certain benefit in advance, which was practiced by the Bank's liberality.
(2)Refers to the amount recognized as an expense for the year ended December 31, 2019 and deferred expense from previous years approved on each respective year, by Banco Santander and its subsidiaries to their Directors for the positions they hold at Banco Santander and other companies of the Santander Conglomerate. The amounts related to the Variable and Share-Based Compensation will be paid in the subsequent periods.

Additionally, in the exercise ended on December 31, 2019,2020, withholding taxes were collected on management compensation in the amount of R$33,912 (201829,162 (2019 - R$36,35633,912 and 20172018 - R$30,713)36,356).

 

iii) Contract termination

 

The termination of the employment relationship for non-fulfillment of obligations or voluntarily does not entitle executives to any financial compensation.

 

b) Lending operations

 

Under current law, it is not granted loans or advances involving:

 

I - directors, members of board of directors and audit committee as well as their spouses and relatives up to the second degree;

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BANCO SANTANDER (BRASIL) S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Thousand of Brazilian Reais - R$ - unless otherwise stated) 

 

II - individuals or legal entities of Banco Santander, which hold more than 10% of the share capital;

 

III - Legal entities which hold more than 10% of the share capital, Banco Santander and its subsidiaries; and

 

IV - legal entities in which any of the officers, members of the Board of Directors and Audit Committee, as well as their spouses or relatives up to the second degree, hold more than 10% of the share capital.

 

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* Values expressed in thousands, except when indicated.

c) Ownership Interest

 

The table below shows the direct interest (common shares and preferred shares) as of December 31, 2020, 2019 2018 and 2017:2018:

 

  2019
  Common   Preferred   Total  
  Shares Common Shares Preferred Shares Total
Stockholders' (thousand) Shares (%) (thousand) Shares (%) (thousand) Shares (%)
Grupo Empresarial Santander, S.L.(1)1,107,673 29.0% 1,019,645 27.7% 2,127,318 28.4%
Sterrebeeck B.V.(1) 1,809,583 47.4% 1,733,644 47.1% 3,543,227 47.3%
Banco Santander, S.A.(1)521,964 13.7% 519,268 14.1% 1,041,232 13.9%
Employees 2,526 0.1% 2,533 0.1% 5,059 0.1%
Directors (*) 4,525 0.1% 4,524 0.1% 9,049 0.1%
Others 355,722 9.3% 383,519 10.4% 739,241 9.9%
Total 3,801,993 99.6% 3,663,133 99.5% 7,465,126 99.6%
Treasury shares 16,702 0.4% 16,702 0.5% 33,404 0.4%
Total 3,818,695 100.0% 3,679,835 100.0% 7,498,530 100.0%
Free Float(2)358,248 9.4% 386,053 10.5% 744,301 9.9%
             
  2018
  Common   Preferred   Total  
  Shares Common Shares Preferred Shares Total
Stockholders' (thousand) Shares (%) (thousand) Shares (%) (thousand) Shares (%)
Grupo Empresarial Santander, S.L.(1)1,107,673 29.0% 1,019,645 27.7% 2,127,318 28.4%
Sterrebeeck B.V.(1) 1,809,583 47.4% 1,733,644 47.1% 3,543,227 47.2%
Banco Santander, S.A.(1) 521,964 13.7% 519,268 14.1% 1,041,232 13.9%
Employees 2,986 0.1% 2,987 0.1% 5,973 0.1%
Directors (*) 3,930 0.1% 3,930 0.1% 7,860 0.1%
Others 359,242 9.4% 387,045 10.5% 746,287 9.9%
Total 3,805,378 99.7% 3,666,519 99.6% 7,471,897 99.6%
Treasury shares 13,317 0.3% 13,317 0.4% 26,634 0.4%
Total 3,818,695 100.0% 3,679,836 100.0% 7,498,531 100.0%
Free Float(2)362,228 9.5% 390,032 10.6% 752,260 10.0%
             
  2017
  Common   Preferred   Total  
  Shares Common Shares Preferred Shares Total
Stockholders' (thousand) Shares (%) (thousand) Shares (%) (thousand) Shares (%)
Grupo Empresarial Santander, S.L.(1)1,107,673 29.0% 1,019,645 27.7% 2,127,318 28.4%
Sterrebeeck B.V.(1) 1,809,583 47.4% 1,733,644 47.1% 3,543,227 47.2%
Banco Santander, S.A.(1)521,964 13.6% 519,268 14.1% 1,041,232 13.9%
Employees 3,551 0.1% 3,556 0.1% 7,107 0.1%
Administrators (*) 4,016 0.1% 4,016 0.1% 8,032 0.1%
Others 366,063 9.6% 393,862 10.7% 759,925 10.1%
Total 3,812,850 99.8% 3,673,991 99.8% 7,486,841 99.8%
Treasury shares 5,845 0.2% 5,845 0.2% 11,690 0.2%
Total 3,818,695 100.0% 3,679,836 100.0% 7,498,531 100.0%
Free Float(2)369,614 9.7% 397,418 10.8% 767,032 10.2%
  2020
  Common   Preferred   Total  
  Shares Common Shares Preferred Shares Total
Stockholders' (thousand) Shares (%) (thousand) Shares (%) (thousand) Shares (%)
Sterrebeeck B,V, (1)  1,809,583   47.4%  1,733,644   47.1%  3,543,227   47.3%
Grupo Empresarial Santander, S,L, (1)  1,627,891   42.6%  1,539,863   41.8%  3,167,755   42.2%
Banco Santander, S.A. (1)  2,696   0.07%  -   0.0%  2,696   0.04%
Employees  2,046   0.05%  2,046   0.06%  4,092   0.05%
Directors (*)  4,034   0.11%  4,034   0.11%  8,067   0.11%
Others  353,616   9.3%  381,420   10.4%  735,036   9.8%
Total  3,799,866   99.5%  3,661,007   99.5%  7,460,873   99.5%
Treasury shares  18,829   0.5%  18,829   0.5%  37,658   0.5%
Total  3,818,695   100%  3,679,836   100%  7,498,531   100%
Free Float (2)  355,662   9.3%  383,466   10.4%  739,128   9.9%
  2019
  Common   Preferred   Total  
  Shares Common Shares Preferred Shares Total
Stockholders' (thousand) Shares (%) (thousand) Shares (%) (thousand) Shares (%)
Grupo Empresarial Santander, S,L, (1)  1,107,673   29.0%  1,019,645   27.7%  2,127,318   28.4%
Sterrebeeck B,V, (1)  1,809,583   47.4%  1,733,644   47.1%  3,543,227   47.3%
Banco Santander, S.A. (1)  521,964   13.7%  519,268   14.1%  1,041,232   13.9%
Employees  2,526   0.1%  2,533   0.1%  5,059   0.1%
Directors (*)  4,525   0.1%  4,524   0.1%  9,049   0.1%
Others  355,722   9.3%  383,519   10.4%  739,241   9.9%
Total  3,801,993   99.6%  3,663,133   99,5%  7,465,126   99,6%
Treasury shares  16,702   0.4%  16,702   0.5%  33,404   0.4%
Total  3,818,695   100%  3,679,835   100%  7,498,530   100%
Free Float (2)  358,248   9.4%  386,053   10.5%  744,301   9.9%

  2018
  Common   Preferred   Total  
  Shares Common Shares Preferred Shares Total
Stockholders' (thousand) Shares (%) (thousand) Shares (%) (thousand) Shares (%)
Grupo Empresarial Santander, S,L, (1)  1,107,673   29.0%  1,019,645   27.7%  2,127,318   28.4%
Sterrebeeck B,V, (1)  1,809,583   47.4%  1,733,644   47.1%  3,543,227   47.2%
Banco Santander, S.A. (1)  521,964   13.7%  519,268   14.1%  1,041,232   13.9%
Employees  2,986   0.1%  2,987   0.1%  5,973   0.1%
Administrators (*)  3,930   0.1%  3,930   0.1%  7,860   0.1%
Others  359,242   9.4%  387,045   10.5%  746,287   9.9%
Total  3,805,378   99.7%  3,666,519   99.6%  7,471,897   99.6%
Treasury shares  13,317   0.3%  13,317   0.4%  26,634   0.4%
Total  3,818,695   100%  3,679,836   100%  7,498,531   100%
Free Float (2)  362,228   9.5%  390,032   10.6%  752,260   10.0%

(1) Companies of the Santander Spain Group.

(2) Composed by Employees, Qatar Holding and other.

 

(*) None of the members of the Board of Directors and the Executive Board holds 1.0% or more of any class of shares.

 

c.1) Qatar Holding LLC's Public Offering

On April 11, 2017, Banco Santander in Brazil informed its shareholders and the market in general, in furtherance of the material facts disclosed on March 28, 2017 and April 6, 2017, the settlement of the secondary public offering for the distribution of 80,000,000 units issued by Banco Santander in Brazil and held by Qatar Holding LLC (Selling Shareholder), including in the form of American Depositary Shares (ADSs), having been allocated 22,000,000 Units for the Brazilian offering and 58,000,000 ADSs for the international offering.

F-115

Table of Contents

 

BANCO SANTANDER (BRASIL) S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Thousand of Brazilian Reais - R$ - unless otherwise stated) 

The price per Unit was set at R$25, resulting on a total amount of R$2 billion. Additionally, the amount of Units of the international offering initially offered was increased by an additional batch of 12,000,000 Units, exclusively in the form of ADSs also held by the Selling Shareholder.

d) Related-Party TransactionsRelated-party transactions

 

Santander has a Policy for Related Party Transactions approved by the Board of Directors, which aims to ensure that all transactions typified by the policy to take effect in view of the interests of Banco Santander and its stockholders. The policy defines the power to approve certain transactions by the Board of Directors. The planned rules also apply to all employees and officers of Banco Santander and its subsidiaries.

 

Operations and charges for services with related parties are carried out in the ordinary course of business and under reciprocal conditions, including interest rates, terms and guarantees, and do not entail greater risk than the normal collection or have other disadvantages.             

 

 Consolidated Financial Statements | December 31, 2020 | F-116

Table of Contents

* Values expressed in thousands, except when indicated.

Beginning in 2018, transactions and balances with key management personnel are shown. The main transactions and balance are as follows:

 

Thousand of reais 2019
  Parent(1) Joint-controlled
companies		 Other Related-Party(2)
    
Assets 5,294,152 4,387,013 874,668
Financial assets for trading(763,547) - (113,931)
Banco Santander, S.A. – Espanha (763,547) - -
Real Fundo de Investimento Multimercado Santillana Credito Privado (2) - - (113,931)
Loans and other values with credit institutions - Cash and overnight operations in foreign currency5,896,120 - 70,261
Banco Santander Espanha (3) (4) 5,896,120 - -
Banco Santander Totta, S.A. (2) - - 7,921
Bank Zachodni (2) - - 94
Santander UK plc - - 16,701
Banco Santander, S.A. – México (2) - - 45,545
Loans and advances to customers912 20,367 884,696
Zurich Santander Brasil Seguros e Previdência S.A. (5) - - 814,320
Zurich Santander Brasil Seguros S.A. (5) - - 58,778
Webmotors S.A. - 20,367 -
Banco Santander Espanha (1) 912 - -
Isban Mexico, S.A. de C.V. - - 122
Gesban Servicios Administrativos Globales, S.L. - - 23
Santander Brasil Gestão de Recursos Ltda - - 169
Key Management Personnel (8)- - 11,284
Loans and other values with credit institutions(1)86,638 4,365,518 192
Banco Santander – Espanha 86,638 - -
Banco RCI Brasil S.A. - 4,365,518 -
Santander Global Technology, S.L., SOCI - - 192
Other Assets 74,029 1,128 28,476
Banco Santander – Espanha 74,029 - -
Banco RCI Brasil S.A. - 1,128 -
Zurich Santander Brasil Seguros e Previdência S.A. - - 28,476
Guarantees and Limits - - 4,974
Key Management Personnel (8)- - 4,974
       
Liabilities (17,105,753) (169,103) (1,529,828)
Deposits of Brazil Central Bank and deposits of credit institutions(42,060) (167,017) (20,571)
Banco Santander, S.A. – Espanha (42,060) - -
Real Fundo de Investimento Multimercado Santillana Credito Privado (2) - - (20,571)
Banco RCI Brasil S.A. - (167,017) -
Securities - - (89,074)
Key Management Personnel- - (89,074)
Customer deposits - (2,086) (1,008,416)
Zurich Santander Brasil Seguros e Previdência S.A. (5) - - (199,934)
Santander Brasil Gestão de Recursos Ltda - - (332,916)
Webmotors S.A. - (2,082) -
Santander Securities Services Brasil DTVM S.A. - - (404,427)
Santander Brasil Asset (2) - - (16,762)
Key Management Personnel- - (36,104)
Others - (4) (18,273)
Other financial liabilities - Dividends and interest on capital Payable(6,874,602) - (12,226)
Banco Santander Espanha (1,067,623) - -
Grupo Empresarial Santander, S.L. (1) (2,177,207) - -
Sterrebeeck B.V. (1) (3,629,772) - -
Banco Madesant - - (1,948)
Key Management Personnel (7) - - (10,278)
Other Payables (13,130) - (399,541)
Banco Santander Espanha (13,130) - -
Santander Brasil Asset (2) - - (7,203)
Santander Securities Services Brasil DTVM S.A. - - (5,066)
Zurich Santander Brasil Seguros e Previdência S.A. (5) - - (21,219)
Key Management Personnel- - (357,249)
Others- - (8,804)
Debt Instruments Eligible to Compose Capital(10,175,961) - -
Banco Santander Espanha(10,175,961) - -

Thousand of reais     2020
  Parent (1) Joint-controlled
companies		 Other Related-Party (2)
Assets  2,966,012   3,589,575   8,962,950 
Financial assets for trading  (1,326,965)  -   (2,527,296)
Banco Santander, S.A. – Espanha (1)  (1,326,965)  -   - 
Super Pagamentos e Administração de Meios Eletrônicos S.A.  -   -   (211,154)
Real Fundo de Investimento Multimercado Santillana Credito Privado (2)  -   -   (2,316,142)
Loans and other values with credit institutions - Cash and overnight operations in foreign currency  4,240,680   3,587,028   10,446,557 
Banco Santander, S.A. – Espanha (3)  4,240,680   -   - 
PSA Corretora de Seguros e Serviços Ltda  -   -   113 
Santander Digital Assets, SL  -   -   8,105 
Santander Bank, National Association  -   -   10,315,450 
Banco Santander Totta, S.A. (2)  -   -   1,250 
Bank Zachodni (2)  -   -   171 
Santander UK plc  -   -   92,703 
Banco Santander, S.A. – México (2)  -   -   27,993 
Banco RCI Brasil S.A.  -   3,587,028   - 
Hyundai Corretora de Seguros Ltda  -   -   3 
Integry Tecnologia e Serviços A,H,U Ltda,  -   -   45 
Super Pagamentos e Administração de Meios Eletrônicos S.A.  -   -   532 
Santander Global Technology, S,L,, SOCI  -   -   192 
Loans and advances to customers  -   -   998,063 
Zurich Santander Brasil Seguros e Previdência S.A. (4)  -   -   823,467 
Zurich Santander Brasil Seguros S.A. (4)  -   -   57,081 
Webmotors S.A.  -   -   18,455 
Banco Santander Espanha (1)  -   -   224 
Isban Mexico, S.A. de C,V,  -   -   122 
Gesban Servicios Administrativos Globales, S,L,  -   -   23 
Santander Brasil Gestão de Recursos Ltda  -   -   169 
Gestora de Inteligência de Crédito  -   -   66,667 
Loop Gestão de Patios S.A.  -   -   11,966 
Key management Personnel (5)  -   -   19,889 
Other Assets  52,297   2,547   34,589 
Banco Santander, S.A. – Espanha (1)  52,297   -   - 
Banco RCI Brasil S.A.  -   2,547   - 
Zurich Santander Brasil Seguros e Previdência S.A. (4)  -   -   34,589 
Guarantees and Limits  -   -   11,038 
Key management Personnel (5)  -   -   11,038 
Liabilities  (24,084,795)  (226,046)  (1,779,587)
Deposits of Brazil Central Bank and deposits of credit institutions  (10,456,623)  (226,046)  (37,214)
Banco Santander, S.A. – Espanha (1)  (10,456,623)  -   - 
Super Pagamentos e Administração de Meios Eletrônicos S.A.  -   -   (36,390)
Loop Gestão de Pátios S.A.  -   -   (824)
Banco RCI Brasil S.A.  -   (226,046)  - 
Securities  -   -   (117,368)
Key management Personnel (5)  -   -   (117,368)
Customer deposits  -   -   (869,888)
Zurich Santander Brasil Seguros e Previdência S.A. (4)  -   -   (64,836)
Santander Brasil Gestão de Recursos Ltda  -   -   (335)
Webmotors S.A.  -   -   (1,411)
Santander Securities Services Brasil DTVM S.A.  -   -   (581,543)
Santander Brasil Asset (2)  -   -   (100)
Gestora de Inteligência de Crédito  -   -   (149,257)
Key management Personnel (5)  -   -   (36,762)
Others  -   -   (35,644)
Other financial liabilities - Dividends and interest on capital Payable  (508,491)  -   - 
Banco Santander Espanha  (195)  -   - 
Grupo Empresarial Santander, S,L, (1)  (239,890)  -   - 
Sterrebeeck B,V, (1)  (268,406)  -   - 
Other Payables  (21)  -   (755,117)
Banco Santander Espanha (1)  (21)  -   - 
Santander Brasil Asset (2)  -   -   (95)
Santander Securities Services Brasil DTVM S.A.  -   -   (9,373)
Zurich Santander Brasil Seguros e Previdência S.A. (4)  -   -   (78,686)
Key management Personnel (5)  -   -   (633,276)
Others  -   -   (33,687)
Debt Instruments Eligible to Compose Capital  (13,119,660)  -   - 
Banco Santander Espanha (1)  (13,119,660)  -   - 

 Consolidated Financial Statements | December 31, 2020 | F-117

F-116

Table of Contents

* Values expressed in thousands, except when indicated.

Thousand of Reais     2019
  Parent (1) Joint-controlled
companies		 Other Related-Party (2)
Assets  5,294,152   4,387,013   874,668 
Financial assets for trading - Derivatives net  (763,547)  -   (113,931)
Banco Santander, S.A. – Espanha (1)  (763,547)  -   - 
Real Fundo de Investimento Multimercado Santillana Credito Privado (2)  -   -   (113,931)
Loans and other values with credit institutions - Cash and overnight operations in foreign currency  5,896,120   -   70,261 
Banco Santander, S.A. – Espanha (3)  5,896,120   -   - 
Banco Santander Totta, S.A. (2)  -   -   7,921 
Bank Zachodni (2)  -   -   94 
Santander UK plc  -   -   16,701 
Banco Santander, S.A. – México (2)  -   -   45,545 
Loans and advances to customers  912   20,367   884,696 
Zurich Santander Brasil Seguros e Previdência S.A.  -   -   814,320 
Zurich Santander Brasil Seguros S.A.  -   -   58,778 
Webmotors S.A.  -   20,367   - 
Banco Santander Espanha (1)  912   -   - 
Isban Mexico, S.A. de C,V,  -   -   122 
Gesban Servicios Administrativos Globales, S,L,  -   -   23 
Santander Brasil Gestão de Recursos Ltda  -   -   169 
Key management Personnel (5)  -   -   11,284 
Loans and other values with credit institutions (1)  86,638   4,365,518   192 
Banco Santander, S.A. – Espanha (1)  86,638   -   - 
Banco RCI Brasil S.A.  -   4,365,518   - 
Santander Global Technology, S,L,, SOCI  -   -   192 
Other Assets  74,029   1,128   28,476 
Banco Santander, S.A. – Espanha (1)  74,029   -   - 
Banco RCI Brasil S.A.  -   1,128   - 
Zurich Santander Brasil Seguros e Previdência S.A. (4)  -   -   28,476 
Guarantees and Limits  -   -   4,974 
Key Management personnel (5)  -   -   4,974 
Liabilities  (17,105,753)  (169,103)  (1,529,828)
Deposits of Brazil Central Bank and deposits of credit institutions  (42,060)  (167,017)  (20,571)
Banco Santander, S.A. – Espanha (1)  (42,060)  -   - 
Real Fundo de Investimento Multimercado Santillana Credito Privado (2)  -   -   (20,571)
Banco RCI Brasil S.A.  -   (167,017)  - 
Securities obligations  -   -   (89,074)
Key management personnel (5)  -   -   (89,074)
Customer deposits  -   (2,086)  (1,008,416)
Zurich Santander Brasil Seguros e Previdência S.A. (4)  -   -   (199,934)
Santander Brasil Gestão de Recursos Ltda  -   -   (332,916)
Webmotors S.A.  -   (2,082)  - 
Santander Securities Services Brasil DTVM S.A.  -   -   (404,427)
Santander Brasil Asset (2)  -   -   (16,762)
Key Management personnel (5)  -   -   (36,104)
Others  -   (4)  (18,273)
Other financial liabilities - Dividends and interest on capital Payable  (6,874,602)  -   (12,226)
Banco Santander, S.A. – Espanha (1)  (1,067,623)  -   - 
Grupo Empresarial Santander, S,L, (1)  (2,177,207)  -   - 
Sterrebeeck B,V, (1)  (3,629,772)  -   - 
Banco Madesant (2)  -   -   (1,948)
Key Management personnel (5)  -   -   (10,278)
Other Payables  (13,130)  -   (399,541)
Banco Santander, S.A. – Espanha (1)  (13,130)  -   - 
Santander Brasil Asset  -   -   (7,203)
Santander Securities Services Brasil DTVM S.A.  -   -   (5,066)
Zurich Santander Brasil Seguros e Previdência S.A. (4)  -   -   (21,219)
Key Management personnel (5)  -   -   (357,249)
Others  -   -   (8,804)
Debt Instruments Eligible to Compose Capital  (10,175,961)  -   - 
Banco Santander, S.A. – Espanha (1)  (10,175,961)  -   - 

  

BANCO SANTANDER (BRASIL) S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Thousand of Brazilian Reais - R$ - unless otherwise stated) 

Consolidated Financial Statements | December 31, 2020 | F-118

 

       
Thousand of Reais 2018
  Parent(1) Joint-controlled
companies		 Other Related-Party(2)
    
Assets 8,169,537 3,112,734 1,381,770
Financial assets for trading - Derivatives net(72,815) 205,337 266,027
Banco Santander, S.A. – Espanha (72,815) - -
Real Fundo de Investimento Multimercado Santillana Credito Privado (2) - - 266,027
Banco RCI Brasil S.A. - 205,337 -
Loans and other values with credit institutions - Cash and overnight operations in foreign currency8,194,590 - 146,988
Banco Santander Espanha (3) (5) 8,194,590 - -
Banco Santander Totta, S.A. (2) - - 7,883
Abbey National Treasury Services Plc (2) - - 87,260
Bank Zachodni (2) - - 193
Santander UK plc - - 46,615
Banco Santander, S.A. – México (2) - - 5,037
Loans and advances to customers347 - 966,462
Zurich Santander Brasil Seguros e Previdência S.A. - - 913,875
Zurich Santander Brasil Seguros S.A. - - 45,851
Banco Santander Espanha (1) 347 - -
Isban Mexico, S.A. de C.V. - - 122
Gesban Servicios Administrativos Globales, S.L. - - 23
Santander Brasil Gestão de Recursos Ltda - - 169
Santander Securities Services Brasil Participações S.A. (2) - - 927
Key Management Personnel- - 5,495
Loans and other values with credit institutions(1)15,143 2,905,947 2,293
Banco Santander – Espanha 15,143 - -
Banco RCI Brasil S.A. - 2,905,947 -
BHJV Assessoria e Consultoria em Gestão Empresarial LTDA - - 10
Produban Brasil Tecnologia - - 2,091
Santander Global Technology, S.L., SOCI - - 192
Other Assets 32,272 1,450 -
Banco Santander Espanha 32,272 - -
Banco RCI Brasil S.A.  - 1,450 -
       
Liabilities (23,166,005) (38,380)-(2,975,342)
Deposits of Brazil Central Bank and deposits of credit institutions(107,084) (36,871) (1,410,619)
Banco Santander Espanha (4) (107,084) - -
Real Fundo de Investimento Multimercado Santillana Credito Privado (2) - - (1,151,399)
Banco Santander Río S.A. (2) - - (259,220)
Banco RCI Brasil S.A. - (36,871) -
Securities obligations - - (96,133)
Key Management Personnel- - (96,133)
Customer deposits - (1,509) (1,134,675)
Santander Securities Services Brasil Participações S.A. (2) - - (58,968)
Zurich Santander Brasil Seguros e Previdência S.A. - - (234,249)
Gestora de Inteligência de Crédito - - (190,674)
Santander Brasil Gestão de Recursos Ltda - - (126,988)
Webmotors S.A. - (1,509) -
Santander Securities Services Brasil DTVM S.A. - - (427,209)
Santander Brasil Asset (2) - - (18,639)
Key Management Personnel- - (37,889)
Others- - (40,059)
Other financial liabilities - Dividends and interest on capital Payable(3,922,473) - (5,544)
Banco Santander Espanha (609,159) - -
Grupo Empresarial Santander, S.L. (1) (2) (1,242,259) - -
Sterrebeeck B.V. (1) (2) (2,071,055) - -
Banco Madesant (2) - - (1,112)
Key Management Personnel- - (4,432)
Other Payables (9,603) - (424,504)
Banco Santander – Espanha (9,603) - -
Santander Brasil Asset - - (14,476)
Santander Securities Services Brasil DTVM S.A. - - (4,291)
Zurich Santander Brasil Seguros e Previdência S.A. - - (16,924)
Key Management Personnel- - (381,292)
Others - - (7,521)
Debt Instruments Eligible to Compose Capital(19,126,845) - -
Banco Santander Espanha(19,126,845) - -

F-117

Table of Contents

 

BANCO SANTANDER (BRASIL) S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Thousand of Brazilian Reais - R$ - unless otherwise stated) 

 

       
Thousand of Reais 2017
  Parent(1) Joint-controlled
companies		 Other Related-Party(2)
    
Assets 8,214,739 1,214,312 926,994
Financial assets for trading - Derivatives net(173,065) - (74,873)
Banco Santander Espanha (173,065) - -
Abbey National Treasury Services Plc (2) - - (71,672)
Real Fundo de Investimento Multimercado Santillana Credito Privado (2) - - (3,201)
Loans and other values with credit institutions - Cash and overnight operations in foreign currency8,363,038 - 76,009
Banco Santander Espanha (3) (5) 8,363,038 - -
Banco Santander Totta, S.A. (2) - - 2,733
Abbey National Treasury Services Plc (2) - - 71,751
Bank Zachodni (2) - - 177
Banco Santander, S.A. – México (2) - - 1,348
Loans and advances to customers132 9,661 925,858
Zurich Santander Brasil Seguros e Previdência S.A. - - 925,835
Abbey National Treasury Services Plc (2) - - 23
Banco Santander Espanha (1) 132 - -
Webmotors S.A. - 9,661 -
Loans and other values with credit institutions(1)23,896 1,203,032 -
Banco Santander Espanha 23,896 - -
Banco RCI Brasil S.A. - 1,203,032 -
Other Assets 738 1,619 -
Banco Santander Espanha 738 - -
Banco RCI Brasil S.A.  - 1,619 -
       
Liabilities (12,360,383) (57,221) (2,107,677)
Deposits of Brazil Central Bank and deposits of credit institutions(387,937) (47,423) (1,862,058)
Banco Santander Espanha (4) (387,937) - -
Santander Securities Services Brasil DTVM S.A. - - (300,074)
Santander Brasil Asset - - (16,766)
Real Fundo de Investimento Multimercado Santillana Credito Privado (2) - - (1,543,752)
Banco Santander, S.A. – Uruguay (2) - - (1,466)
Banco RCI Brasil S.A. - (47,423) -
Customer deposits - (9,798) (222,473)
ISBAN Brasil S.A. (2) - - (20,893)
Santander Securities Services Brasil Participações S.A. (2) - - (71,947)
Santander Brasil Tecnologia S.A. (atual denominação da Produban Serviços de Informática S.A.) (2) - - (34,410)
Zurich Santander Brasil Seguros e Previdência S.A. - - (55,935)
Santander Brasil Gestão de Recursos Ltda - - (32,334)
Webmotors S.A. - (9,798) -
Others - - (6,954)
Other financial liabilities - Dividends and interest on capital Payable(3,992,820) - (1,132)
Banco Santander Espanha (620,264) - -
Grupo Empresarial Santander, S.L. (1) (2) (1,264,470) - -
Sterrebeeck B.V. (1) (2) (2,108,086) - -
Banco Madesant (2) - - (1,132)
Other Payables (2,050) - (22,014)
Banco Santander – Espanha (2,050) - -
Santander Brasil Asset - - (69)
ISBAN Brasil S.A. (2) - - 237
Produban Servicios Informáticos Generales, S.L. (Produban Espanha) (2) - - (905)
Santander Securities Services Brasil DTVM S.A. - - 6,762
Zurich Santander Brasil Seguros e Previdência S.A. - - (27,748)
Others - - (291)
Debt Instruments Eligible to Compose Capital(7,977,576) - -
Banco Santander Espanha (7,977,576) - -

* Values expressed in thousands, except when indicated.

 

Thousand of Reais     2018
  Parent (1) Joint-controlled
companies		 Other Related-Party (2)
Assets  8,169,537   3,112,734   1,381,770 
Financial assets for trading - Derivatives net  (72,815)  205,337   266,027 
Banco Santander, S.A. – Espanha (1)  (72,815)  -   - 
Real Fundo de Investimento Multimercado Santillana Credito Privado (2)  -   -   266,027 
Banco RCI Brasil S.A.  -   205,337   - 
Loans and other values with credit institutions - Cash and overnight operations in foreign currency  8,194,590   -   146,988 
Banco Santander Espanha (3)  8,194,590   -   - 
Banco Santander Totta, S.A. (2)  -   -   7,883 
Abbey National Treasury Services Plc (2)  -   -   87,260 
Bank Zachodni (2)  -   -   193 
Santander UK plc  -   -   46,615 
Banco Santander, S.A. – México (2)  -   -   5,037 
Loans and advances to customers  347   -   966,462 
Zurich Santander Brasil Seguros e Previdência S.A. (4)  -   -   913,875 
Zurich Santander Brasil Seguros S.A. (4)  -   -   45,851 
Banco Santander Espanha (1)  347   -   - 
Isban Mexico, S.A. de C,V,  -   -   122 
Gesban Servicios Administrativos Globales, S,L,  -   -   23 
Santander Brasil Gestão de Recursos Ltda  -   -   169 
Santander Securities Services Brasil Participações S.A. (2)  -   -   927 
Key management personnel (5)  -   -   5,495 
Loans and other values with credit institutions (1)  15,143   2,905,947   2,293 
Banco Santander Espanha  15,143   -   - 
Banco RCI Brasil S.A.  -   2,905,947   - 
BHJV Assessoria e Consultoria em Gestão Empresarial LTDA  -   -   10 
Produban Brasil Tecnologia  -   -   2,091 
Santander Global Technology, S,L,, SOCI  -   -   192 
Other Assets  32,272   1,450   - 
Banco Santander Espanha  32,272   -   - 
Banco RCI Brasil S.A.  -   1,450   - 
Liabilities  (23,166,005)  (38,380)  (2,975,342)
Deposits of Brazil Central Bank and deposits of credit institutions  (107,084)  (36,871)  (1,410,619)
Banco Santander, S.A. – Espanha (1)  (107,084)  -   - 
Real Fundo de Investimento Multimercado Santillana Credito Privado (2)  -   -   (1,151,399)
Banco Santander Río S.A. (2)  -   -   (259,220)
Banco RCI Brasil S.A.  -   (36,871)  - 
Securities obligations  -   -   (96,133)
Key management personnel (5)  -   -   (96,133)
Customer deposits  -   (1,509)  (1,134,675)
Santander Securities Services Brasil Participações S.A. (2)  -   -   (58,968)
Zurich Santander Brasil Seguros e Previdência S.A.  -   -   (234,249)
Gestora de Inteligência de Crédito  -   -   (190,674)
Santander Brasil Gestão de Recursos Ltda  -   -   (126,988)
Webmotors S.A.  -   (1,509)  - 
Santander Securities Services Brasil DTVM S.A.  -   -   (427,209)
Santander Brasil Asset (2)  -   -   (18,639)
Key management personnel (5)  -   -   (37,889)
Others  -   -   (40,059)
Other financial liabilities - Dividends and interest on capital Payable  (3,922,473)  -   (5,544)
Banco Santander, S.A. – Espanha (1)  (609,159)  -   - 
Grupo Empresarial Santander, S,L, (1)  (1,242,259)  -   - 
Sterrebeeck B,V, (1)  (2,071,055)  -   - 
Banco Madesant (2)  -   -   (1,112)
Key management personnel (5)  -   -   (4,432)
Other Payables  (9,603)  -   (424,504)
Banco Santander, S.A. – Espanha (1)  (9,603)  -   - 
Santander Brasil Asset  -   -   (14,476)
Santander Securities Services Brasil DTVM S.A.  -   -   (4,291)
Zurich Santander Brasil Seguros e Previdência S.A. (4)  -   -   (16,924)
Key management personnel (5)  -   -   (381,292)
Others  -   -   (7,521)
Debt Instruments Eligible to Compose Capital  (19,126,845)  -   - 
Banco Santander Espanha  (19,126,845)  -   - 

(*) All loans and other amounts with related parties were made in the ordinarynormal course of business and on a sustainable basis, including interest rates and collateralguarantees and diddo not involve morerisks greater than the normal risk of collectabilitycollection or presenthave other unfavorable features.disadvantages.

(1) Banco Santander (Brasil) S.A. is indirectly controlled by Banco Santander SpainEspanha (note 1-a), through its subsidiarythe subsidiaries Grupo Empresarial Santander, S.L. and Sterrebeeck B.V. 

(2) Refers to the Company'sparent company's subsidiaries (Banco Santander Spain)Espanha).

 

(3) InAs of December 31, 2019,2020, it refers to the cash of R$1,089,578 (2018 - R$1,515,437 e 2017 - R$587,531). 

(4) On December 31, 2019, include foreign currency investments (overnight applications) due on January 2, 2019and cash equivalents in the amount of R$4,111,489 (2018R $ 2,459,371 (2019 - R$6,583,716 e 2017R $ 1,089,578 and 2018 - R$7,384,335) and interest of 1.53% p.a held at Santander Brasil EFC, Banco Santander Brasil and its Grand Cayman Branch.R $ 1,515,437). 

(5)

(4) Significant influence of Banco Santander Espanha.

(6) Of the total dividends resolved in 2019, R$13,553 is allocated to the Key Management Personnel, remaining to pay the provisioned amount. 

(7)(5) The balance with key management personnel refers to operations contracted beforeprior to the term of the mandates.

 

 Consolidated Financial Statements | December 31, 2020 | F-119

F-118

Table of Contents

* Values expressed in thousands, except when indicated.

Thousand of Reais 2020
  Parent (1) Joint-controlled
companies		 Other Related-Party (2)
     
Income  (2,164,484)  204,209   1,442,100 
Interest and similar income - Loans and amounts due from credit institutions  13,934   185,646   1,485 
Banco RCI Brasil S.A.  13,934   —     —   
Pessoal Chave da Administração  —     185,646   —   
Key management personnel  —     —     1,485 
Guarantees and Limits  —     —     61 
Key management personnel  —     —     61 
Interest expense and similar charges - Customer deposits  —     —     (19,215)
Santander Brasil Gestão de Recursos Ltda  —     —     (5.664)
Gestora de Inteligência de Crédito  —     —     (1.039)
Webmotors S.A.  —     —     (2)
Super Pagamentos e Administração de Meios Eletrônicos S.A.  —     —     (7.198)
Pessoal Chave da Administração  —     —     (4.657)
Others  —     —     (655)
Interest expense and similar charges - Deposits from credit institutions  (569,355)  (6,226)  (15,032)
Banco Santander – Espanha  (569,355)  —     —   
Banco RCI Brasil S.A.  —     (6,226)  —   
SAM Brasil Participações  —     —     (3)
Santander Securities Services Brasil DTVM S.A. (2)  —     —     (14,645)
Santander Asset management, S.A. SGIIC,  —     —     (384)
Fee and commission income (expense)  (2,002)  24,789   3,092,951 
Banco Santander – Espanha  (2,002)  —     —   
Banco RCI Brasil S.A.  —     24,789   —   
Banco Santander International  —     —     45,261 
Webmotors S.A.  —     —     223 
Zurich Santander Brasil Seguros  S.A.  —     —     321,008 
Zurich Santander Brasil Seguros e Previdência S.A.  —     —     2,706,398 
Key management personnel  —     —     308 
Others  —     —     19,753 
Gains (losses) on financial assets and liabilities (net) and exchange differences (net)  (541,693)  —     (413,101)
Banco Santander, S.A. – Espanha  (541,693)  —     —   
Real Fundo de Investimento Multimercado Santillana Credito Privado  —     —     (396,689)
Santander Securities Services Brasil DTVM S.A. (2)  —     —     (4,662)
Zurich Santander Brasil Seguros e Previdência S.A.  —     —     (17,344)
Key management personnel  —     —     180 
Others  —     —     5,414 
Administrative expenses and Amortization  (202,787)  —     (1,354,006)
Banco Santander, S.A. – Espanha  (202,787)  —     —   
ISBAN Chile S.A.  —     —     (20)
Aquanima Brasil Ltda,  —     —     (52,431)
TECBAN - Tecnologia Bancaria Brasil  —     —     (364,349)
Santander Securities Services Brasil DTVM S.A. (2)  —     —     (46,813)
Santander Global Technology, S,L,, SOCI  —     —     (358,364)
Key management personnel  —     —     (499,514)
Others  —     —     (32,515)
Others Administrative expenses - Donation  —     —     (19,630)
   Santander Cultural  —     —     (330)
Fundação Santander  —     —     (1,600)
Instituto Escola Brasil  —     —     (700)
Fundação Sudameris  —     —     (17,000)
Result on the sale of assets not classified as non-current assets held for sale  —     —     168,588 
Super Pagamentos e Administração de Meios Eletrônicos S.A.  —     —     168,588 
Debt Instruments Eligible to Compose Capital  (862,581)  —     —   
Banco Santander Espanha  (862,581)  —     —   

  

BANCO SANTANDER (BRASIL) S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Thousand of Brazilian Reais - R$ - unless otherwise stated) 

Consolidated Financial Statements | December 31, 2020 | F-120

 

Thousand of Reais   2019
        Parent(1) Joint-controlled
companies		 Other Related-Party(2)
          
Income       (1,458,386) 226,141 1,254,022
Interest and similar income - Loans and amounts due from credit institutions 109,530 218,661 630
Banco Santander Espanha     109,530 - -
Banco RCI Brasil S.A.       - 218,661 -
Key Management Personnel - - 630
Guarantees and Limits       - - 24
Key Management Personnel - - 24
Interest expense and similar charges - Customer deposits  - (25) (27,433)
Santander Brasil Gestão de Recursos Ltda - - (16,387)
Gestora de Inteligência de Crédito - - (3,275)
Webmotors S.A. - (25) -
Key Management Personnel - - (7,747)
Others - - (24)
Interest expense and similar charges - Deposits from credit institutions (174) (3,375) (96,579)
Banco Santander – Espanha (174) - -
Banco RCI Brasil S.A. (6) - (3,375) -
SAM Brasil Participações - - (37)
Real Fundo de Investimento Multimercado Santillana Credito Privado - - (67,821)
Santander Securities Services Brasil DTVM S.A. (2) - - (27,595)
Santander Asset Management, S.A. SGIIC. - - (1,126)
Fee and commission income (expense)   2,310 10,418 2,635,325
Banco Santander – Espanha 2,310 - -
Banco RCI Brasil S.A. (6) - 10,201 -
Banco Santander International - - 35,294
Webmotors S.A. - 217 -
Zurich Santander Brasil Seguros S.A. - - 231,920
Zurich Santander Brasil Seguros e Previdência S.A. - - 2,356,596
Key Management Personnel - - 343
Others - - 11,172
Gains (losses) on financial assets and liabilities (net) and exchange differences (net) (724,169) 462 44,858
Banco Santander, S.A. – Espanha (724,169) - -
Real Fundo de Investimento Multimercado Santillana Credito Privado - - (598)
Santander Securities Services Brasil DTVM S.A. (2) - - (2,297)
Zurich Santander Brasil Seguros e Previdência S.A. - - 43,858
Key Management Personnel - - 168
Others - 462 3,727
Administrative expenses and Amortization   (153,332) - (1,283,788)
Banco Santander, S.A. – Espanha (153,332) - -
ISBAN Chile S.A. - - (28)
Aquanima Brasil Ltda. - - (32,032)
TECBAN - Tecnologia Bancaria Brasil - - (345,610)
Santander Securities Services Brasil DTVM S.A. (2) - - (49,241)
Santander Global Technology, S.L., SOCI - - (336,952)
Key Management Personnel - - (482,852)
Others - - (37,073)
Others Administrative expenses - Donation   - - (19,015)
Fundação Santander - - (1,615)
Instituto Escola Brasil - - (1,300)
Fundação Sudameris - - (16,100)
Debt Instruments Eligible to Compose Capital   (692,551) - -
Banco Santander Espanha (2)(8) (692,551) - -

F-119

Table of Contents

* Values expressed in thousands, except when indicated.

Thousand of Reais     2019
  Parent (1) Joint-controlled
companies		 Other Related-Party (2)
Income  (1,458,386)  226,141   1,254,022 
Interest and similar income - Loans and advances to customers  219,060   437,322   630 
Interest and similar income - Loans and amounts due from credit institutions  109,530   218,661   630 
Banco Santander Espanha  109,530   -   - 
Banco RCI Brasil S.A.  -   218,661   - 
Key management personnel  -   -   630 
Guarantees and Limits  -   -   24 
Key management personnel  -   -   24 
Interest expense and similar charges - Customer deposits  -   (25)  (27,433)
Santander Brasil Gestão de Recursos Ltda  -   -   (16,387)
Gestora de Inteligência de Crédito  -   -   (3,275)
Webmotors S.A.  -   (25)  - 
Key management personnel  -   -   (7,747)
Others  -   -   (24)
Interest expense and similar charges - Deposits from credit institutions  (174)  (3,375)  (96,579)
Banco Santander – Espanha  (174)  -   - 
Banco RCI Brasil S.A.  -   (3,375)  - 
SAM Brasil Participações  -   -   (37)
Real Fundo de Investimento Multimercado Santillana Credito Privado  -   -   (67,821)
Santander Securities Services Brasil DTVM S.A. (2)  -   -   (27,595)
Santander Asset Management, S.A. SGIIC,  -   -   (1,126)
Fee and commission income (expense)  2,310   10,418   2,635,325 
Banco Santander – Espanha  2,310   -   - 
Banco RCI Brasil S.A.  -   10,201   - 
Banco Santander International  -   -   35,294 
Webmotors S.A.  -   217   - 
Zurich Santander Brasil Seguros  S.A.  -   -   231,920 
Zurich Santander Brasil Seguros e Previdência S.A.  -   -   2,356,596 
Key management personnel  -   -   343 
Others  -   -   11,172 
Gains (losses) on financial assets and liabilities (net) and exchange differences (net)  (724,169)  462   44,858 
Banco Santander, S.A. – Espanha  (724,169)  -   - 
Real Fundo de Investimento Multimercado Santillana Credito Privado  -   -   (598)
Santander Securities Services Brasil DTVM S.A. (2)  -   -   (2,297)
Zurich Santander Brasil Seguros e Previdência S.A.  -   -   43,858 
Key management personnel  -   -   168 
Others  -   462   3,727 
Administrative expenses and Amortization  (153,332)  -   (1,283,788)
Banco Santander, S.A. – Espanha  (153,332)  -   - 
ISBAN Chile S.A.  -   -   (28)
Aquanima Brasil Ltda,  -   -   (32,032)
TECBAN - Tecnologia Bancaria Brasil  -   -   (345,610)
Santander Securities Services Brasil DTVM S.A. (2)  -   -   (49,241)
Santander Global Technology, S,L,, SOCI  -   -   (336,952)
Key management personnel  -   -   (482,852)
Others  -   -   (37,073)
Others Administrative expenses - Donation  -   -   (19,015)
Fundação Santander  -   -   (1,615)
Instituto Escola Brasil          (1,300)
Fundação Sudameris  -   -   (16,100)
Debt Instruments Eligible to Compose Capital  (692,551)  -   - 
Banco Santander Espanha  (692,551)  -   - 

  

BANCO SANTANDER (BRASIL) S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Thousand of Brazilian Reais - R$ - unless otherwise stated) 

Consolidated Financial Statements | December 31, 2020 | F-121

 

             
Thousand of Reais   2018
        Parent(1) Joint-controlled
companies		 Other Related-Party(2)
          
Income       (972,799) 192,889 1,323,622
Interest and similar income - Loans and advances to customers       272,500 273,332 1,541
Key Management Personnel - - 461
Interest and similar income - Loans and amounts due from credit institutions 136,250 136,666 1,080
Banco Santander Espanha 136,250 - -
Banco RCI Brasil S.A. (6) - 136,666 -
Abbey National Treasury Services Plc - - 157
Cibrasec - - 923
Interest expense and similar charges - Customer deposits  - (92) (23,146)
ISBAN Brasil S.A. - - (90)
Santander Brasil Gestão de Recursos Ltda - - (8,329)
Santander Cultural - - (36)
Gestora de Inteligência de Crédito - - (5,743)
Webmotors S.A. - (92) -
Santander Brasil Tecnologia S.A. (atual denominação da Produban Serviços de Informática S.A.) - - (215)
Key Management Personnel - - (8,707)
Others - - (27)
Interest expense and similar charges - Deposits from credit institutions (6,889) (5,871) (134,896)
Banco Santander – Espanha (6,889) - -
Banco RCI Brasil S.A. (6) - (5,871) -
Santander Securities Services Brasil Participações S.A. (2) - - (26,378)
SAM Brasil Participações - - (47)
Real Fundo de Investimento Multimercado Santillana Credito Privado - - (102,928)
Santander Securities Services Brasil DTVM S.A. (2) - - (4,442)
Santander Asset Management, S.A. SGIIC. - - (1,101)
Fee and commission income (expense)   6,213 32,960 2,653,014
Banco Santander – Espanha 6,213 - -
Banco RCI Brasil S.A. (6) - 31,981 -
Banco Santander International - - 30,789
Webmotors S.A. - 979 -
Zurich Santander Brasil Seguros S.A. - - 300,868
Zurich Santander Brasil Seguros e Previdência S.A. - - 2,302,295
Key Management Personnel - - 355
Others - - 18,707
Gains (losses) on financial assets and liabilities (net) and exchange differences (net) (680,903) 29,226 (199,985)
Banco Santander, S.A. – Espanha (680,903) - -
Real Fundo de Investimento Multimercado Santillana Credito Privado - - (210,324)
Abbey National Treasury Services Plc - - (17,726)
Santander Securities Services Brasil DTVM S.A. (2) - - 1,312
Zurich Santander Brasil Seguros e Previdência S.A. - - 40,305
Banco RCI Brasil S.A. (6) - 29,226 -
Key Management Personnel - - 239
Others - - (13,791)
Administrative expenses and Amortization   - - (952,432)
ISBAN Brasil S.A. - - (14,210)
Santander Brasil Tecnologia S.A. (atual denominação da Produban Serviços de Informática S.A.) - - (33,567)
ISBAN Chile S.A. - - (24)
Aquanima Brasil Ltda. - - (30,021)
TECBAN - Tecnologia Bancaria Brasil - - (313,433)
Santander Securities Services Brasil DTVM S.A. (2) - - (46,884)
Santander Global Technology, S.L., SOCI - - (175,466)
Key Management Personnel - - (289,612)
Others - - (49,216)
Others Administrative expenses - Donation   - - (20,013)
Santander Cultural - - (2,748)
Fundação Santander - - (1,330)
Fundação Sudameris - - (15,935)
Debt Instruments Eligible to Compose Capital   (427,470) - -
Banco Santander Espanha (2)(8) (427,470) - -
             

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BANCO SANTANDER (BRASIL) S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Thousand of Brazilian Reais - R$ - unless otherwise stated) 

 

Thousand of Reais   2017
        Parent(1) Joint-controlled
companies		 Other Related-Party(2)
             
Income       389,663 126,781 1,210,444
Interest and similar income - Loans and amounts due from credit institutions 87,217 87,381 1,417
Banco Santander Espanha 87,217 - -
Banco RCI Brasil S.A. (6) - 87,381 -
Abbey National Treasury Services Plc - - 879
Cibrasec - - 538
Interest expense and similar charges - Customer deposits  - (4,486) (41,026)
ISBAN Brasil S.A. - - (2,145)
Santander Securities Services Brasil Participações S.A. - - (6,190)
Santander Brasil Gestão de Recursos Ltda - - (6,636)
Santander Securities Services Brasil DTVM S.A - - (24,344)
Santander Cultural - - (69)
Webmotors S.A. - (4,486) -
Santander Brasil Tecnologia S.A. (current name of Produban Serviços de Informática S.A.) - - (1,547)
Others - - (95)
Interest expense and similar charges - Deposits from credit institutions (13,038) (3,026) (113,569)
Banco Santander – Espanha (13,038) - -
Banco RCI Brasil S.A. (6) - (3,026) -
SAM Brasil Participações - - (95)
Real Fundo de Investimento Multimercado Santillana Credito Privado - - (112,211)
Santander Asset Management, S.A. SGIIC. - - (1,263)
Fee and commission income (expense)   (5,099) 14,999 2,453,179
Banco Santander – Espanha (5,099) - -
Banco RCI Brasil S.A. (6) - 14,996 -
Banco Santander International - - 20,480
Webmotors S.A. - 3 -
Zurich Santander Brasil Seguros S.A. - - 295,508
Zurich Santander Brasil Seguros e Previdência S.A. - - 2,134,755
Others - - 2,436
Gains (losses) on financial assets and liabilities (net) and exchange differences (net) 592,919 31,913 (39,534)
Banco Santander, S.A. – Espanha 592,919 - -
Real Fundo de Investimento Multimercado Santillana Credito Privado - - (79,480)
Abbey National Treasury Services Plc - - 23,843
Banco RCI Brasil S.A. (6) - 31,913 -
Santander Securities Services Brasil DTVM S.A. - - (26,102)
Santander Investment Securities Inc. - - (13,492)
Zurich Santander Brasil Seguros e Previdência S.A. - - 52,981
Zurich Santander Brasil Seguros S.A. - - 1,788
Others - - 928
Administrative expenses and Amortization   (50,271) - (1,028,750)
Banco Santander, S.A. – Espanha (50,271) - -
ISBAN Brasil S.A. - - (337,161)
Santander Brasil Tecnologia S.A. (atual denominação da Produban Serviços de Informática S.A.) - - (242,191)
ISBAN Chile S.A. - - (23)
Aquanima Brasil Ltda. - - (25,638)
TECBAN - Tecnologia Bancaria Brasil - - (262,046)
Produban Servicios Informaticos Generales, S.L. - - (46,494)
Ingeniería de Software Bancario, S.L. - - (70,385)
Santander Securities Services Brasil DTVM S.A. - - (42,603)
Others - - (2,209)
Others Administrative expenses - Donation   - - (21,273)
Santander Cultural - - (3,513)
Fundação Santander - - (1,837)
Instituto Escola Brasil - - (873)
Fundação Sudameris - - (15,050)
Debt Instruments Eligible to Compose Capital   (222,065) - -
Banco Santander Espanha (2)(8) (222,065) - -

* Values expressed in thousands, except when indicated.

 

Thousand of Reais     2018
  Parent (1) Joint-controlled
companies		 Other Related-Party (2)
Income  (972,799)  192,889   1,323,622 
Interest and similar income - Loans and advances to customers    272,500   273,332   1,541 
Key management personnel  -   -   461 
Interest and similar income - Loans and amounts due from credit institutions  136,250   136,666   1,080 
Banco Santander Espanha  136,250   -   - 
Banco RCI Brasil S.A.  -   136,666   - 
Abbey National Treasury Services Plc  -   -   157 
Cibrasec  -   -   923 
Interest expense and similar charges - Customer deposits  -   (92)  (23,146)
ISBAN Brasil S.A.  -   -   (90)
Santander Brasil Gestão de Recursos Ltda  -   -   (8,329)
Santander Cultural  -   -   (36)
Gestora de Inteligência de Crédito  -   -   (5,743)
Webmotors S.A.  -   (92)  - 
Santander Brasil Tecnologia S.A. (current name of Produban Serviços de Informática S.A.)  -   -   (215)
Key management personnel  -   -   (8,707)
Others  -   -   (27)
Interest expense and similar charges - Deposits from credit institutions  (6,889)  (5,871)  (134,896)
Banco Santander – Espanha  (6,889)  -   - 
Banco RCI Brasil S.A.  -   (5,871)  - 
Santander Securities Services Brasil Participações S.A. (2)  -   -   (26,378)
SAM Brasil Participações  -   -   (47)
Real Fundo de Investimento Multimercado Santillana Credito Privado  -   -   (102,928)
Santander Securities Services Brasil DTVM S.A. (2)  -   -   (4,442)
Santander Asset Management, S.A. SGIIC,  -   -   (1,101)
Fee and commission income (expense)  6,213   32,960   2,653,014 
Banco Santander – Espanha  6,213   -   - 
Banco RCI Brasil S.A.  -   31,981   - 
Banco Santander International  -   -   30,789 
Webmotors S.A.  -   979   - 
Zurich Santander Brasil Seguros  S.A.  -   -   300,868 
Zurich Santander Brasil Seguros e Previdência S.A.  -   -   2,302,295 
Key management personnel  -   -   355 
Others  -   -   18,707 
Gains (losses) on financial assets and liabilities (net) and exchange differences (net)  (680,903)  29,226   (199,985)
Banco Santander, S.A. – Espanha  (680,903)  -   - 
Real Fundo de Investimento Multimercado Santillana Credito Privado  -   -   (210,324)
Abbey National Treasury Services Plc  -   -   (17,726)
Banco RCI Brasil S.A.  -   29,226   - 
Santander Securities Services Brasil DTVM S.A.  -   -   1,312 
Zurich Santander Brasil Seguros e Previdência S.A.  -   -   40,305 
Key management personnel  -   -   239 
Others  -   -   (13,791)
Administrative expenses and Amortization  -   -   (952,432)
ISBAN Brasil S.A.  -   -   (14,210)
Santander Brasil Tecnologia S.A. (atual denominação da Produban Serviços de Informática S.A.)  -   -   (33,567)
ISBAN Chile S.A.  -   -   (24)
Aquanima Brasil Ltda,  -   -   (30,021)
TECBAN - Tecnologia Bancaria Brasil  -   -   (313,433)
Santander Securities Services Brasil DTVM S.A.  -   -   (46,884)
Santander Global Technology, S,L,, SOCI  -   -   (175,466)
Key management personnel          (289,612)
Others  -   -   (49,216)
Others Administrative expenses - Donation  -   -   (20,013)
Santander Cultural  -   -   (2,748)
Fundação Santander  -   -   (1,330)
Fundação Sudameris  -   -   (15,935)
Debt Instruments Eligible to Compose Capital  (427,470)  -   - 
Banco Santander Espanha  (427,470)  -   - 

(1) Banco Santander (Brasil) S.A. is indirectly controlled by Banco Santander Spain, through its subsidiary Grupo Empresarial Santander, S.L. and Sterrebeeck B.V.

(2) Refers to the Company's subsidiaries (Banco Santander, S.A .- Spain).

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(3) Refers the profit on disposal of the company MS Participações.

(4) Refers the profit on disposal of the company Santander Brasil Asset Management.

(5) Refers the profit on disposal of the company Santander Securities Services Brasil DTVM S.A.* Values expressed in thousands, except when indicated.

 

47.46.Risk management

Risk management at Banco Santander is based on the following principles:

 

A. Independence of the management activities related to the business;

 

B. Involvement of the Senior Managementsenior management in decision-making;

 

C. Consensus in the decision making on credit operations between the Risk and Business departments;

 

D. Collegiate decision-making, which includes the branch network, aiming to encourage diversity of opinions and avoiding the attribution of individual decisions;

 

E. The use of statistical tools to estimate default, which includes internal rating, credit scoring and behavior scoring, RORAC (Return on Risk Adjusted Capital), VaR (Value at Risk), economic capital, scenario assessment, among others;

 

F. Global approach, which an integrated treatment of risk factors in the business departments and the concept of economic capital as a consistent metric for risk undertaken and for business management;

 

G. Common management tools

 

H. Organizational structure

 

I. Scopes and responsibilities

 

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BANCO SANTANDER (BRASIL) S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Thousand of Brazilian Reais - R$ - unless otherwise stated) 

J. Risk limitation

 

K. Recognition

 

L. Effective information channel

 

M. Maintenance of a medium-low risk profile, and low volatility by:

 

• The portfolio diversification, limiting concentration in clients, groups, sectors, products or geographically speaking; the complexity level of market operations reduction; the analysis of social and environmental risks of businesses and projects financed by the bank; continuous follow up to prevent the portfolios from deteriorating.

 

• Policies and procedures definition that are part of the Regulatory Framework Risk, which regulates the risk activities and processes. They follow the instructions of the Board of Directors, the regulations of the BACEN and the international best practices in order to protect the capital and ensure business' profitability.

 

At Banco Santander, the risk management and control process is structured using as reference the framework defined at corporate level and described according to the following phases:

 

I. Adaptation of corporate management frameworks and policies that reflect Banco Santander’s risk management principles.

 

Within this regulatory framework, the Corporate Risk Management Framework,corporate risk management framework, regulates the principles and standards governing Banco Santander´s risk activities, based on the corporate organization and a management models, meeting the necessary regulatory requirements for credit management.

 

The organizational model comprises the management map, which defines the risk function and governance, and the regulatory framework itself.

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* Values expressed in thousands, except when indicated.

 

II. Identification of risks through the constant review and monitoring of exposures, the assessment of new products, businesses and deals (singular transactions);

 

III. Risks measurement using methods and models periodically tested.

 

IV. Preparation and distribution of a complete set of reports that are reviewed daily by the heads at all levels of Banco Santander management.

 

V. Implementation of a risk control system which checks, on a daily basis, the degree to which the Bank´s risk profile matches the risk policies approved and the risk limits set. The most noteworthy corporate tools and techniques (aforementioned) already in use at Banco Santander are in different stages of maturity regarding the level of implementation and use in the Bank. For wholesale segment, these techniques are in line with the corporate level development. For local segments, internal ratings and scorings based models, VaR and market risk scenario analysis and stress testing were already embedded in risk management routine while Expected loss, Economic Capital and RORAC have been integrated in risk management.

 

VI. Internal ratings- and scorings-based models which, by assessing the various qualitative and quantitative risk components by client and transaction, making it possible to estimate, firstly, the probability of default and, subsequently, the expected loss, based on Loss Given Default (LGD) estimates.

 

VII. Economic capital, as a homogeneous measurement of the assumed risk and the basis for the measurement of the performance management.

 

VIII. RORAC, used both as a transaction pricing tool in the whole sale segment (more precisely in global ranking and markets - bottom-up approach) as for in the analysis of portfolios and units (top-down approach).

 

IX. VaR, which is used for controlling and setting the market risk limits for the various treasury portfolios.

 

X. Scenario analysis and stress testing to supplement the analysis market and credit risk in order to assess the impact of alternative scenarios, even over provisions and capital.

 

a) Corporate Governance of the Risk Function

 

The structure of Banco Santander’s Risk Committee is defined in accordance with the highest standards of prudent management, while respecting local legal and regulatory environment.

 

Its main responsibilities are:

 

A. Integrate and adapt the Bank's risk to local level, further than the risk management strategy, tolerance level and predisposition to the risk, previously approved by the executive committee and board of directors, all matched with corporate standards of Banco Santander Spain;

 

B. Approve the proposals, operations and limits of clients and portfolio;

 

C. Regularly monitor all the risks inherent to the business, proving if your profile is adequate to what was established in the risk appetite.

 

D. Authorize the use of management tools and local risk models and being aware of the result of their internal validation.

 

E. Keeping updated, assessing and monitoring any observations and recommendations periodically formulated by the supervisory authorities regarding their functions.

 

The organizational structure of the executive vice-presidency consists of areas which are responsible for credit risk management, market and structural, model risk management and non-financial risks. The credit risk management structure is composed by directors who actmade up of departments that operate from the point of view of retailportfolio management and wholesale portfolios management.credit analysis and decision nuclei in an individualized way in Individuals, Companies and Wholesale. A specific area has thearea's mission is to consolidate the portfolios and their respective risks, supporting thesubsidizing management, with the integrated risk vision, as well as the Group's headquarters in Spain. There isSpain, with an integrated view of risks.

 

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TableThe credit risk management structure is made up of Contentsdepartments that operate from the point of view of managing the retail and wholesale portfolios. A specific area's mission is to consolidate portfolios and their respective risks, subsidizing management, as well as the Group's headquarters in Spain, with an integrated view of risks.

 

BANCO SANTANDER (BRASIL) S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Thousand of Brazilian Reais - R$ - unless otherwise stated) 

 

an areaA specific structure is responsible for the attendance toserving internal and external regulators, externalsupervisors and internal auditors.

 

It has a departmentcore called ERM-Enterprise Risk Management, which includesrisk management, integrated by a set of transverse functions, oftransversal to all risk factorsrisks, necessary for anits adequate risk management.. This structure includes themanagement. The areas of Methodology & Basel Project (model development(development and parameterization);parameterization of models) are part of this structure; Decision engines;Engines; Credit Risk Control; Risk Control and Performance;Performance covering Risk Culture); Integrated Managementmanagement and Relationship with Supervisors (covering Risk Culture); and Local Provision & IFRS9.

 

Further details

 Consolidated Financial Statements | December 31, 2020 | F-124

Table of the structure, methodologies and control system related to risk management is describedContents

* Values expressed in the report available on the website www.santander.com.br.thousands, except when indicated.

 

b) Credit Risk

 

b.1) Introduction to the treatment of credit risk

 

The Credit Risk Managementcredit risk management provides subsidies to define strategies as risk appetite, to establish limits, including exposure analysis and trends as well as the effectiveness of the credit policy. The goal is to maintain a risk profile and adequate minimum profitability to offset the estimated default, both client and portfolio, as defined by the Executive Committee and Board of Directors. Additionally, it is responsible for the risk management systems applied in the identification, measurement, control and reduction of exposure to risk in individual or clustered by similar operations.

 

The Risk Managementrisk management is specialized according to each clients' characteristics, being segregated between individual clients (with the accompanied of dedicated analysts) and customers with similar characteristics (standardized).

 

• Individualized management: It is performed by a defined risk analyst, which prepares the analysis, and forwards it to the Risk Committee and monitors the client's progress. It covers the Wholesale segment clients (Corporate and GB&M), Retail (Companies 3 and Governments, Institutions and Universities);

 

• Standardized management: Aimed at individuals and companies not classified as individualized clients. Based on automated models of decision-making and internal risk assessment, complemented by commercial heave and analysts specialized teams to handle exceptions.

 

Macroeconomic aspects and market conditions, sectored and geographical concentration, as well as client profiling and economic prospects are also evaluated and considered in the appropriate measuring of credit risk.

 

b.2) Measures and measurement tools

 

Rating tools

 

The Bank uses proprietary internal rating models to measure the credit quality of a given customer or transaction. Each rating relates to a certain probability of default or non-payment, determined on the basis of the customer's historical experience, to predict default. Rating/Scores models are used in the Bank’s loan approval and risk monitoring process.

 

The classification of loans into different categories is made according to the analysis of economic and financial situation of the client and any other registratered information updated frequently. New modes of operation are subject to credit risk evaluation, verification and adaptation to the controls adopted by the Bank.

 

Ratings assigned to customers are reviewed periodically to include any new financial information available and the experience in the Banking relationship. The frequency of the reviews is increased in case of customers that reach certain levels in the automatic warning systems and of customers classified as requiring special monitoring. The own rating tools are monitored and reviewed to qualifications by them awarded are progressively enhanced.

 

Credit risk parameters

 

The estimative of the risk parameters Probability of Default (PD) and Loss Given Default (LGD) are based on internal experience, i.e. on default observations and on the experience in defaulted loan recoveries during a defined credit cycle.

 

For low risk portfolios, such as banks, sovereign risk or global wholesale clients, the parameters are based on CDS market data and with global broadness, using Group Santander´s world presence.

 

For the other portfolios, parameter estimative are based on the Bank’s internal experience.

 

In addition to the Probability of Default (PD), the Bank is managing its credit portfolio, seeking to make loans to borrowers that have higher volumes of guarantees associated with the operations and also works constantly on strengthening its credit recovery department. These and other actions combined, are responsible for ensuring the adequacy of LGD parameters (Loss Given Default, the loss resulting from the borrower's default event to honor the principal and/or interest payments).

 

LGD calculation is based on net losses of non-performing loans, considering the guarantees associated with the transaction, revenues and expenses related to the recovery process and also the timing default.

 

Besides that, the Loss identification period, or “LIP,” is also considered in the estimation of the risk parameters that is represented by the time period between the occurrence of a loss event and the identification of an objective evidence of this loss. In other words, it represents the time horizon from the credit loss occurrence until the effective confirmation of such loss.

 

The Bank use proprietary internal rating models to measure the credit quality of a given client or transaction. Each rating relates to a certain probability of default or non-payment, determined on the basis of the client's history, with the exception of certain portfolios classified as “low default portfolios”. These ratings and models are used in loan approval and risk monitoring processes.

 

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BANCO SANTANDER (BRASIL) S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Thousand of Brazilian Reais - R$ - unless otherwise stated) 

The table shown in note 9.b shows the portfolio by the internal risk rating levels and their probability of default.

 

Thousand of reais     2019 2018 2017
           
By maturity          
Less than 1 Year     186,196,849 186,373,511 174,247,968
Between 1 and 5 years     117,841,564 99,309,551 82,513,030
More than 5 years     43,218,247 36,250,128 31,068,215
Loans and advances to customers, gross     347,256,660 321,933,190 287,829,213
           
By internal classification of risk          
Low     257,133,115 240,440,294 226,098,497
Medium-low     56,549,196 50,485,682 33,635,378
Medium     11,754,806 11,967,262 10,423,293
Medium-High     8,512,386 7,722,198 8,215,024
High     13,307,156 11,317,754 9,457,021
Loans and advances to customers, gross     347,256,660 321,933,190 287,829,213

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To the portfolios which the Bank presents limited historic data, reference external information are used to complement internal available data. * Values expressed in thousands, except when indicated.

Thousand of reais 2020 2019 2018
       
By maturity      
Less than 1 Year  219,062,744   186,196,849   186,373,511 
Between 1 and 5 years  147,013,817   117,841,564   99,309,551 
More than 5 years  51,745,465   43,218,247   36,250,128 
Loans and advances to customers, gross  417,822,026   347,256,660   321,933,190 
             
By internal classification of risk            
Low (1)  347,315,356   257,133,115   240,440,294 
Medium-low (1)  24,277,405   56,549,196   50,485,682 
Medium (2)  26,231,871   11,754,806   11,967,262 
Medium-High (2)  3,896,457   8,512,386   7,722,198 
High (3)  16,100,937   13,307,156   11,317,754 
Loans and advances to customers, gross  417,822,026   347,256,660   321,933,190 
(1)Transactions classifieds on Stage 1
(2)Transactions classifieds on Stage 2
(3)Transactions classifieds on Stage 3

The portfolios for which reference external information represent significant data to measure the expected credit losses, measured using sufficient and available historical data, are presentshown below.

 

      2020
       
  Exposure Probability of default(1) Default loss
Commercial and industrial  191,281,653   5%  41%
Real Estate Credit - construction  45,791,869   3%  7%
Individual loans  178,652,145   9%  52%
Leasing  2,096,359   1%  31%

      2019
       
  Exposure Probability of default Default loss
Commercial and industrial 145,387,439 7% 40%
Real Estate Credit - construction 39,720,713 3% 10%
Individual loans 160,036,668 10% 64%
Leasing 2,111,840 2% 41%

(1) Prior to Post model adjustment impacts.

 

      2019
       
  Exposure Probability of default Default loss
Commercial and industrial  145,387,439   7%  40%
Real Estate Credit - construction  39,720,713   3%  10%
Individual loans  160,036,668   10%  64%
Leasing  2,111,840   2%  41%
      2018
       
  Exposure Probability of default Default loss
Commercial and industrial  141,293,616   8%  42%
Real Estate Credit - construction  36,515,352   4%  12%
Individual loans  137,287,593   8%  64%
Leasing  1,836,629   5%  32%

The exposure above are related to the credit operations.operations, The Bank understands that the exposure related to the avals and sureties and other financial assets at amortized cost have low risk.risk,

 

b.3) Observed loss: measures of credit cost

 

The Bank periodically estimate losses related to credit risk and then we compare those estimates with actual losses of the month. Periodically conduct tests in order to monitor and maintain control over credit risk.

 

To complement the use of admission and rating, the Bank use other measures that supports the prudent and effective management of credit risk, based on the loss observed.

 

The cost of credit is measured by the sum of credit losses and to the average loans portfolio of the same year.

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* Values expressed in thousands, except when indicated.

 

b.4) Credit risk cycle

 

Banco Santander has a global view of its credit portfolio throughout the various phases of the risk cycle, with a level of detail that allows us to evaluate the current situation of risk and any movements. This mapping is followed by the Board of Directors and the Executive Committee of the bank that no only sets policies and risk procedures, limits and delegates responsibilities. It also approves and supervises the activities of the area.

 

The risk management process consists of identifying, measuring, analyzing, controlling, negotiating and deciding on, as appropriate, the risks incurred in the Bank’s operations and companies of the conglomerate. The risk cycle comprises three different phases:

 

• Pre-sale: this phase includes the risk planning and setting targets, determination of the Bank’s risk appetite, approval of new products, risk analysis and credit rating process, and limit setting.

 

• Sale: this is the decision-making phase for both pre-classified and specific transactions.

 

• Post-sale: this phase comprises the risk monitoring, measurement and control processes and the recovery process.

 

Planning and setting risk limits

 

Risk limit setting is a dynamic process conductedthat identifies Banco Santander’s risk appetite by assessing business proposals and its risk profile.attitude. This process is defined through the risk appetite approved by the Bank's Managementmanagement and the units.

 

In the case of individualized risks, the most basic level is the customer, for which individual limits are set.

 

For SCIBGCB clients, a pre-classification model is used based on a system of measurement and monitoring of economic capital. In relation to the Corporate segment, the operational limit model is used in maximum nominal credit amounts.

 

To the risks of customers with standardized management, the limits of the portfolios are planned using credit management programs (SGP) agreed document for the areas of business and risks, and approved by the Executive Committee. This document contains the results expected for the business in terms of risk and return, beyond the limits which govern the activity and risk management. This client group has a more automated treatment in risks.

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BANCO SANTANDER (BRASIL) S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Thousand of Brazilian Reais - R$ - unless otherwise stated) 

 

Risk analysis and rating process

 

Risk analysis is a pre-requisite for the approval of loans to clients by the Bank. This analysis consists of examining the counterparty’s ability on meeting its contractual obligations to the Banco Santander, which involves analyzing the client’s credit quality, its risk transactions, solvency, and sustainability of business and the return to be obtained in view of the risk assumed.

 

The risk analysis is conducted annually, at least, and can be held shortly when client profile indicates (through systems with centralized alerts, managers visits to clients or specific credit analysis), or when operations are not covered by pre-classification.

 

Decision-Making on Operations

 

The process of decision making on operations aims to analyze and adopt adopt in accordance with pre-established policies, taking into account risk appetite and any elements of the operation that are important in assessing risk and return.

 

The Banco Santander uses, among others, the RORAC methodology (profitability on risk-adjusted capital), for risk analysis and pricing in the decision-making process on transactions and deals.

 

Risk monitoring and control

 

TheIn Individual retail, customers are systematically reviewed through a daily credit rating process. This process allows for revaluations in credit exposure, allowing increases in exposure for customers with good credit quality. In case of detection of deterioration in the level of risk, actions are automatically generated to contain credit risk and preventive actions.

In the case of individualized management, the preventive detection of deterioration in the operation’s credit quality of the operation is fromthe responsibility of the commercial manager responsibility in conjunction with the risk analyst. Additionally, the risk monitoring is madecarried out through a permanent observation process in order to anticipate thefor early identification of incidents which canthat may occur in the evolution of the operations, clientscustomers and their environment.

 

This monitoring process may result in the client’s classification in SCAN. This is a system which allows the differentiation of the management level and the action to be taken case-by-case.

 

Risk control function

 

The control function is performed by assessing risks from various complementary perspectives, the main pillars are the control by geographical location, business area, management model, product and process, facilitating thus the detection of specific areas requiring measures for which decisions should be taken. To obtain an overview of the bank's loan portfolio over the various phases of the credit cycle, with a level of detail that allows the assessment of the current risk situation and any movements.

 

Any changes in the Bank’s risk exposure are controlled periodically.on an ongoing and systematic basis. The impacts of these changes in certain future situations, both of an exogenous nature and those arising from strategic decisions, are assessed in order to establish measures that place the profile and amount of the loss portfolio within the parameters set by Executive Commission.

 

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* Values expressed in thousands, except when indicated.

b.5) Credit recovery

 

"Strategies and action channels are defined according to the days of past due loans and the amounts, that result in a Map of Responsibilities and always look as the first alternative, the client's recovery.

 

The Bank uses tools as behavioral scoring to study the collection performance of certain groups, in order to reduce costs and increase recoveries. These models seek to measure the probability of clients becoming overdue adjusting collection efforts so that clients less likely to recover, receive timely actions. In cases the payments is most likely to happen, the focus is given in maintaining a healthy relationship with clients. All clients with severe or rescheduled credits delays values have internal restrictions.

 

Clients with high risk index have a model of recovery, with a commercial follow-up and a recovery specialist.

 

b.6) Credit risk from other perspective

 

Certain areas and specific views of credit risk deserve a specialist’s attention, complementary to global risk management.

 

Concentration risk

 

Concentration risk is an essential factor to be analyzed in the area of credit risk management. The Bank constantly monitors the degree of concentration of its credit risk portfolios, by economic sector, geographical area/country, product and client group.

 

The risk committee establishes the risk policies and reviews the exposure limits required to ensure adequate management of credit risk portfolio concentration.

 

From the sectorial standpoint, the distribution of the corporate portfolio is adequately diversified.

 

The Bank’s Risk AreaExecutive Vice-Presidence of Risks works closely with the Finance AreaExecutive Vice-Presidence of Financial Strategic in the activecredit portfolio management, of credit portfolios, which includes reducing the concentration of exposures through several techniques, such as the arrangement of guarantees to mitigate the companies risk, credit derivatives for hedge purposes or the performance of securitization transactions, in order to optimize the risk/return ratio of the total portfolio.

 

Credit risk from financial market operations

 

This heading includes the credit risk arising in treasury operations with clients, mainly credit institutions. These operations are performed both via money market financing products with different financial institutions and via derivative instruments arranged for the purpose of serving our clients.

 

Risk control is performed using an integrated, real-time system that enables the Bank to know at any time the unused exposure limit with respect to any counterparty, any product and maturity and at any Bank unit.

 

Credit risk is measured at its current market value and its potential value (exposure value considering the future variation in the underlying market factors). Therefore, the equivalent credit risk (CRE) is defined as the sum of net replacement value plus the maximum potential value of the contracts in the future.

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BANCO SANTANDER (BRASIL) S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Thousand of Brazilian Reais - R$ - unless otherwise stated) 

 

Environmental risk

 

The Banco Santander's Social and Environmental Responsibility Policy (PRSA), which follows the guidelines of CMN Resolution 3232/2014 and the SARB Regulation Nº. 14 of Febraban, establishes guidelines and consolidates specific policies for socio-environmental practices in business and in relationships with stakeholders. These practices include the management of socio-environmental risks, impacts and opportunities related to topics such as adequacy in credit granting and use, supplier management and socio-environmental risk analysis, which is carried out through the analysis of clients' socio-environmental practices. and Varejo, of the Corporate segment 3 (one of the Corporate Retail segments of the Bank), which have limits or credit risk above R $R$ 5 million and which are part of the 14 socio-environmental care sectors. In this case, the socio-environmental risk is analyzed in order to mitigate the issues of operational risk, capital risk, credit risk and reputational risk. Since 2009, Santander has been a signatory to the Equator Principles and this set of guidelines is used to mitigate socio-environmental risks in the financing of large projects.

 

The mitigation of socioenvironmental risks in financing large projects is carried out based on analyzes based on the guidelines of the Equator Principles, a set of socioenvironmental criteria referenced in the International Finance Corporation (IFC) Performance Standards on Social and Environmental Sustainability and the Environmental Guidelines, Health and Safety of the World Bank Group.

The commitments assumed in the PRSA are detailed in other Bank policies, such as the Anti-Corruption Policy, Supplier Relationships and Homologation Policies and Social and Environmental Risk Policies, as well as the Private Social Investment Policy, which aims to guide the strategy in this area. and to present guidelines for social programs that strengthen this strategy.

 

b.7) Credit Managementmanagement - Main changes

 

The involvementbusiness trends observed in the year 2020 were consistent with the trends presented 2019, where in a challenging economic scenario. The Bank maintained the good quality of senior managementits business and did not presented major variances in decision making (held collectively at our Committees)its delinquency ratios. In December 2020, this ratio achieved 5.55% compared to 6.75% of December 2019 and 6.98%, besides independence Risks relating to the business, allow more assertive decisions and credit risk reduction.of December, 2018.

 

The analysis

 Consolidated Financial Statements | December 31, 2020 | F-128

Table of credit for projects and companiesContents

* Values expressed in the Wholesale segment, continue to integrate opinions of our area of Environmental Risk.thousands, except when indicated.

 

Below is a table showing the evolution of the main credit indicators.

 

      2019 2018 2017
           
Credit risk exposure - customers (Thousand of Reais)   391,569,227 364,193,664 330,474,249
  Loans and advances to customers, gross (note 9)     347,256,660 321,933,190 287,829,213
  Contingent Liabilities - Guarantees and other sureties (note 44.a) 44,312,567 42,260,474 42,645,036
Non-performing loans ratio (%) - unaudited     6.75% 6.98% 6.65%
Impairment coverage ratio (%) - unaudited     96.58% 102.42% 95.39%
Specific credit loss provisions, net of RAWO (*) (Thousand of Reais) - unaudited22,625,750 22,969,315 18,261,638
Cost of credit (% of risk) - unaudited     3.93% 3.90% 3.98%
Data prepared on the basis of management criteria and the accounting criteria of the controller unit.  
(*) RAWO = Recoveries of Assets Derecognized.          

  2020 2019 2018
       
Credit risk exposure - customers (Thousand of Reais)  466,104,042   391,569,227   364,193,664 
  Loans and advances to customers, gross (note 9)  417,822,026   347,256,660   321,933,190 
  Contingent Liabilities - Guarantees and other sureties (note 43,a)  48,282,016   44,312,567   42,260,474 
Non-performing loans ratio (%) - unaudited  5.55%  6.75%  6.98%
Impairment coverage ratio (%) - unaudited  110.64%  96.58%  102.42%
Specific credit loss provisions, net of RAWO (*) (Thousand of Reais) - unaudited  25,640,488   22,625,750   22,969,315 
Cost of credit (% of risk) - unaudited  4.35%  3.93%  3.90%
Data prepared on the basis of management criteria and the accounting criteria of the controller unit.            
(*) RAWO = Recoveries of Assets Derecognized.            

The Bank incorporates information about the future both in its assessment if the credit risk of an instrument has increased substantially since the initial recognition and in its measurement of the expected credit losses. Based on guidance from its internal committees and economic experts and considering a range of actual and anticipated external information, the Bank develops a base scenario as well as other possible scenarios. This process involves the projection of two or more additional economic scenarios and considers the respective probabilities of each result. External information includes economic data and forecasts published by government agencies and monetary authorities and selected private sector analysts and academics.

 

The base case represents the most likely result and is in line with the information used by the Bank for other purposes, such as strategic planning and budgeting. The other scenarios represent more optimistic and pessimistic results. Periodically, the Bank conducts more extreme stress tests to adjust its determination of these other representative scenarios.

 

Below are the assets with excess or insufficiency of guarantees:

  12/31/2019         12/31/2020
 In Reais Million         In Reais Million
 Over-collateralized assets  Under-collateralized assets     Over-collateralized assets Under-collateralized assets
                       
Carrying value of the assets Fair value of collateral % collateral coverage Carrying value of the assets Fair value of collateral % collateral coverage Carrying value of the assets Fair value of collateral % collateral coverage Carrying value of the assets Fair value of collateral % collateral coverage
Individuals (1)      53,899     150,853 280%         2,762         2,592 94%  57,633   182,430   317%  3,091   2,756   89%
Mortgages      39,016       84,862 218%                3                3 86%  45,746   100,201   219%  46   38   83%
Very small, small and middle-market companies, corporates and foreign loans (2)      34,008     116,236 342%       33,140       26,587 80%  41,428   143,168   346%  56,052   42,728   76%
Total    126,923     351,951 277%       35,905       29,182 81%  144,807   425,799   294%  59,188   45,522   77%

(1) Vehicles and others loans.

 

(2) Cayman and Luxemburgo.

Unsecured loans: 213,824.

          12/31/2019
          In Reais Million
      Over-collateralized assets Under-collateralized assets
                         
   Carrying value of the assets   Fair value of collateral   % collateral coverage   Carrying value of the assets   Fair value of collateral   % collateral coverage 
Individuals (1)  53,899   150,853   280%  2,762   2,592   94%
Mortgages  39,016   84,862   218%  3   3   86%
Very small, small and middle-market companies, corporates and foreign loans (2)  34,008   116,236   342%  33,140   26,587   80%
Total  126,923   351,951   277%  35,905   29,182   81%

(1) Vehicles and others loans.

(2) Cayman and Luxemburgo.

 

Unsecured loans: 195,765.

 

 Consolidated Financial Statements | December 31, 2020 | F-129

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BANCO SANTANDER (BRASIL) S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Thousand of Brazilian Reais - R$ - unless otherwise stated) 

 

The Bank identified and documented the main determinants of credit risk and credit losses for each portfolio of financial instruments and, using a historical data analysis, estimated the relationships between macroeconomic variables and credit risks and credit losses.

2019
Unemployment rates11.9%
Interest Rates4.5%
increase in GDP1.2%

The expected relation between key-indicators and default rates and several financial assets losses were predicted based on the historic analysis data of recent years.* Values expressed in thousands, except when indicated.

 

c) Market Risk

 

Market risk is the exposure to risks such as interest rates, exchange rates, prices of goods, prices in the stock market and others values, according to the type of product, volume of operations, term and conditions of the agreement and underlying volatility.

 

The Bank operates according to global policies, within the Group’s risk tolerance level, aligned with the objectives in Brazil and in the world.

 

With this purpose, it has developed its own Risk Managementmanagement model, according to the following principles:

 

·Functional independence;

·Executive capacity sustained by knowledge and proximity with the client;

·Global reach of the function (different types of risks);

·Collective decision-making, that evaluates a variety of possible scenarios and do not compromise the results with individual decision (including Brazil Executive Risk Committee - Comitê Executivo de Riscos Brasil). This Comitee delimits and approves the operations. The Asset and Liabilities Committee, which responds for the capital management and structural risks, including country-risk, liquidity and interest rates.

·Management and improvement of the equation risk/return; and

·MethodologiesAdvanced methodologies for risk management, such as Value at Risk – VaR (historical simulation of 521 days with a confidence level of 99% and time horizon of one day), scenarios, financial margin sensibility, equity value and contingency plan.

The Market Risks structure is part of the Vice Presidency of Credit and Market Risks, an independent area that applies risk policies taking into consideration the guidelines of the Board of Directors and the Risks Division of Santander in Spain.

 

c.1) Activities subject to market risk

 

The measurement, control and monitoring of the market risk area comprises all operations in which net worth risk is assumed. This risk arises from changes in the risk factors –interest rate, exchange rate, equities, commodity prices and the volatility thereof– and from the solvency and liquidity risk of the various products and markets in which the Bank operates.

 

The activities are segmented by risk type as follows:

 

I.Trading: this item includes financial services for clients, trading operations and positioning mainly in fixed-income, equity , foreign currency products and shares.

II.Balance sheets management: A risk management assessment aims to give stability to interest income from the commercial and economic value of the Bank, maintaining adequate levels of liquidity and solvency. The risk is measured by the balance sheets exposure to movements in interest rates and level of liquidity.

III.Structural risks:

·Structural foreign currency risk/hedges of results: foreign currency risk arising from the currency in which investments in consolidable and non-consolidable companies are made (structural exchange rate). This item also includes the positions taken to hedge the foreign currency risk on future results generated in currencies other than the Real (hedges of results).

·Structural equities risk: this item includes equity investments in non-consolidated financial and non-financial companies that give rise to equities risk.

The Financial Managementmanagement area is responsible for the balance sheet management risk and structural risks through the application of uniform methodologies adapted to the situation of each market in which the Bank operates. Thus, in the convertible currencies area, Financial Managementmanagement directly manages the Parent's risks and coordinates the management of the other units operating in these currencies. Decisions affecting the management of these risks are taken through the ALCO (Asset Liability Control committees) in the respective countries.

 

The Financial Managementmanagement goal is to ensure the stability and recurring nature of both the net interest margin of the commercial activity and the Bank’s economic value, whilst maintaining adequate liquidity and solvency levels.

 

Each of these activities is measured and analyzed using different tools in order to reflect their risk profiles as accurately as possible.

 

Interest rate Risk

 

The following table aggregates by product the cash flows of the operations of our perimeter of companies that have interest income. The transactions are presented by the book balance at the closing date of the years 2020, 2019 2018 and 2017.2018. It is not associated with the risk management of changes in interest rates or indexer mismatches, which is done by monitoring metrics of market.Marketplace. However, it allows to

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BANCO SANTANDER (BRASIL) S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Thousand of Brazilian Reais - R$ - unless otherwise stated) 

evaluate the concentrations of term and possible risks and below it, the balances of the same products are presented at the redemption value at maturity, except for the line dealing with receivables and obligations linked to derivative contracts.

 

           2019
Position of accounts subject to interest rate risk     In millions of Reais
    0 to 30 days  31 to 180 days  181 to 365 days  1 to 5 years  Above 5 years  Total
              
Interest-earning assets:           
              
 Financial assets measured at fair value through profit or loss 3,891 1,091 737 8,444 4,446 18,609
 Debt instruments - 3 140 188 889 1,220
 Equity instruments 171 - - - - 171
 Trading derivatives 3,720 1,088 597 8,256 3,557 17,218
 Other Financial Assets At Fair Value Through Profit Or Loss 4,261 802 3,981 16,737 7,075 32,856
 Debt instruments 2,232 802 3,981 16,737 7,075 30,827
 Equity instruments 2,029 - - - - 2,029
 Investments Held to Maturity 98 96 280 3,679 3,981 8,134
 Reserves from Brazilian Central Bank 69,663 - - - - 69,663
 Financial Assets Measured at Amortized Cost 28,416 75,794 51,603 112,467 54,815 323,095
 Total 106,329 77,783 56,601 141,327 70,317 452,357
              
Interest-bearing liabilities:           
              
 Customer Deposits and Credit Institutions224,610 62,181 69,277 70,882 2,556 429,506
 Subordinated debts- - - 10,077 - 10,077
 Marketable debt securities3,677 25,781 19,125 28,134 3,475 80,192
 Trading derivatives4,597 1,621 1,074 9,119 3,828 20,239
 Short positions23,501 - - - - 23,501
 Total 256,385 89,583 89,476 118,212 9,859 563,515
              
           2018
Position of accounts subject to interest rate risk     In millions of Reais
    0 to 30 days  31 to 180 days  181 to 365 days  1 to 5 years  Above 5 years  Total
              
Interest-earning assets:           
              
 Financial assets measured at fair value through profit or loss 8,193 6,155 12,013 67,606 25,964 119,931
 Debt instruments 5,359 5,192 8,294 58,363 23,460 100,668
 Equity instruments 807 - - - - 807
 Trading derivatives 2,027 963 3,719 9,243 2,504 18,456
 Other Financial Assets At Fair Value Through Profit Or Loss 677 9,091 368 16,702 3,577 30,415
 Debt instruments 379 9,091 368 16,702 3,577 30,117
 Equity instruments 298 - - - - 298
 Investments Held to Maturity 24 521 89 3,603 3,826 8,063
 Reserves from Brazilian Central Bank 70,103 - - - - 70,103
 Financial Assets Measured at Amortized Cost 27,387 101,441 35,900 85,318 60,966 311,012
 Total 106,384 117,208 48,370 173,229 94,333 539,524
              
Interest-bearing liabilities:           
              
 Deposits from credit institutions200,818 47,172 65,606 71,413 5,343 390,352
 Subordinated debts9,857 - - - 9,687 19,544
 Marketable debt securities13,353 20,875 14,612 30,138 9,715 88,693
 Trading derivatives1,104 1,370 3,257 9,673 3,322 18,726
 Short positions32,440 - - - - 32,440
 Total 257,572 69,417 83,475 111,224 28,067 549,755
              

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* Values expressed in thousands, except when indicated.

          2020
          In millions of Reais
Position of Accounts Subject to Interest Rate Risk 0 to 30 days 31 to 180 days 181 to 365 days 1 to 5 days Above 5 years Total
             
Remunerated Assets:            
             
Financial assets measured at fair value in income  -   153   50   250   1,747   2,200 
Equity Instruments  -   153   50   250   1,747   2,200 
Equity Instruments  -   -   -   -   -   - 
Derivatives  -   -   -   -   -   - 
Financial assets measured at fair value in profit or loss for trading  15,635   18,487   4,867   57,091   17,707   113,788 
Debt Instruments  3,480   11,789   3,150   47,287   14,078   79,784 
Equity Instruments  1,164   -   -   -   -   1,164 
Derivatives  10,992   6,698   1,717   9,804   3,629   32,840 
Financial assets not intended for trading Mandatory measured at the fair value of the result  439   -   -   -   -   439 
Equity Instruments  439   -   -   -   -   439 
Loans and Advances to Customers  -   -   -   -   -   - 
Financial assets measured at fair value in other comprehensive income  3,455   3,625   12,177   63,651   22,430   105,339 
 Debt Instruments  3,383   3,625   12,177   63,651   22,430   105,267 
Equity Instruments  72   -   -   -   -   72 
Financial assets measured at amortized cost  50,776   130,066   55,339   152,438   63,844   452,462 
Loans and Other Amounts with Credit Institutions  25,201   39,879   2,765   3,799   -   71,644 
Loans and advances to customers  25,490   88,071   50,829   134,805   61,795   360,990 
Debt Instruments  85   2,117   1,745   13,833   2,049   19,828 
Total  70,305   152,331   72,433   273,429   105,728   674,227 
                         
Remunerated Liabilities:                        
                         
Financial Liabilities Measured at Fair Value in Income Held for Trading  55,313   7,878   2,088   12,629   3,515   81,424 
Derivatives  10,160   7,878   2,088   12,629   3,515   36,270 
Short Positions  45,153                   45,153 
Financial liabilities at amortized cost  174,848   100,497   91,433   131,589   16,667   515,035 
Deposits from the Central Bank of Brazil and deposits from credit institutions  4,007   32,846   22,603   7,891   3,031   70,379 
Customer deposits  163,297   44,035   61,293   98,867   203   367,694 
Bonds and securities  7,544   23,616   7,537   24,832   313   63,841 
Debt Instruments Eligible to Capital  -   -   -   -   13,120   13,120 
Total  230,161   108,376   93,521   144,218   20,182   596,458 

  

BANCO SANTANDER (BRASIL) S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Thousand of Brazilian Reais - R$ - unless otherwise stated) 

Consolidated Financial Statements | December 31, 2020 | F-131

 

           2017
Position of accounts subject to interest rate risk     In millions of Reais
    0 to 30 days  31 to 180 days  181 to 365 days  1 to 5 years  Above 5 years  Total
              
Interest-earning assets:           
              
 Financial Assets Held For Trading5,541 1,779 6,556 29,968 10,194 54,038
 Debt instruments653 890 5,739 16,709 8,148 32,139
 Equity instruments490 - - - - 490
 Trading derivatives4,398 889 818 13,259 2,046 21,410
 Available-For-Sale Financial Assets2,032 1,272 17,092 46,502 23,711 90,609
 Debt instruments925 1,272 17,092 46,502 23,711 89,503
 Equity instruments1,107 - - - - 1,107
 Other Financial Assets At Fair Value Through Profit Or Loss72 13 50 479 1,008 1,622
 Debt instruments38 13 50 479 1,008 1,589
 Equity instruments33 - - - - 33
 Non-Current Assets Held For Sale80 168 222 3,082 7,040 10,593
 Reserves from Brazilian Central Bank59,051 - - - - 59,051
 Loans and Receivables22,033 81,275 34,430 86,645 71,453 295,835
 Total 88,809 84,507 58,351 166,677 113,406 511,750
              
Interest-bearing liabilities:           
              
 Deposits from credit institutions150,719 46,254 62,605 69,778 5,119 334,474
 Subordinated debts- 789 257 7,784 - 8,829
 Marketable debt securities4,436 36,208 12,313 15,544 847 69,348
 Trading derivatives4,618 659 504 12,243 2,285 20,310
 Short positions32,531 - - - - 32,531
 Total 192,304 83,909 75,679 105,349 8,251 465,492

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* Values expressed in thousands, except when indicated.

          2019
Position of accounts subject to interest rate risk         In millions of Reais
  0 to 30 days 31 to 180 days 181 to 365 days 1 to 5 years Above 5 years Total
             
Interest-earning assets:            
             
Financial assets measured at fair value through profit or loss  3,891   1,091   737   8,444   4,446   18,609 
Debt instruments  -   3   140   188   889   1,220 
Equity instruments  171   -   -   -   -   171 
Trading derivatives  3,720   1,088   597   8,256   3,557   17,218 
Other Financial Assets At Fair Value Through Profit Or Loss  4,261   802   3,981   16,737   7,075   32,856 
Debt instruments  2,232   802   3,981   16,737   7,075   30,827 
Equity instruments  2,029   -   -   -   -   2,029 
Investments Held to Maturity  98   96   280   3,679   3,981   8,134 
Reserves  from Brazilian Central Bank  69,663   -   -   -   -   69,663 
Financial Assets Measured at Amortized Cost  28,416   75,794   51,603   112,467   54,815   323,095 
Total  106,329   77,783   56,601   141,327   70,317   452,357 
                         
Interest-bearing liabilities:                        
                         
Deposits from credit institutions  224,610   62,181   69,277   70,882   2,556   429,506 
Subordinated debts  -   -   -   10,077   -   10,077 
Marketable debt securities  3,677   25,781   19,125   28,134   3,475   80,192 
Trading derivatives  4,597   1,621   1,074   9,119   3,828   20,239 
Short positions  23,501   -   -   -   -   23,501 
Total  256,385   89,583   89,476   118,212   9,859   563,515 

  

BANCO SANTANDER (BRASIL) S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Thousand of Brazilian Reais - R$ - unless otherwise stated) 

Consolidated Financial Statements | December 31, 2020 | F-132

 

Currency Risk

          2019
          In millions of Reais
             
             
Asset:     Dollar Euro Others Total
            
Cash/Applications/Debt Instruments    12,406 224 1 12,631
Loans and advances to customers 4,776 1,920 - 6,696
Investments in Foreign Subsidiaries and Dependence    50,193 3,557 - 53,750
Derivatives    150,538 13,053 9,712 173,303
Others    10,521 574 - 11,095
Total    228,434 19,328 9,713 257,475
             
Liabilities:     Dólar Euro Outros Total
            
Funding in foreign currency    59,416 925 49 60,390
Derivatives    169,136 20,184 8,515 197,835
Others    - 60 1,009 1,069
Total    228,552 21,169 9,573 259,294
             
          2018
          In millions of Reais
             
             
Asset:     Dollar Euro Others Total
            
Cash/Applications/Debt Instruments    348,797 - - 348,797
Loans and advances to customers 4,505 155 - 4,660
Investments in Foreign Subsidiaries and Dependence    45,345 3,390 - 48,735
Derivatives    231,240 18,163 2,490 251,893
Others    23,619 1,974 42 25,635
Total    653,506 23,682 2,532 679,720
             
Liabilities:     Dólar Euro Outros Total
            
Funding in foreign currency    390,418 462 145 391,025
Derivatives    262,396 24,809 2,391 289,596
Others    1,007 - - 1,007
Total    653,821 25,271 2,536 681,628

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* Values expressed in thousands, except when indicated.

          2018
Position of accounts subject to interest rate risk         In millions of Reais
  0 to 30 days 31 to 180 days 181 to 365 days 1 to 5 years Above 5 years Total
             
Interest-earning assets:            
             
Financial Assets Held For Trading  8,193   6,155   12,013   67,606   25,964   119,931 
Debt instruments  5,359   5,192   8,294   58,363   23,460   100,668 
Equity instruments  807   -   -   -   -   807 
Trading derivatives  2,027   963   3,719   9,243   2,504   18,456 
Other Financial Assets At Fair Value Through Profit Or Loss  677   9,091   368   16,702   3,577   30,415 
Debt instruments  379   9,091   368   16,702   3,577   30,117 
Equity instruments  298   -   -   -   -   298 
Non-Current Assets Held For Sale  24   521   89   3,603   3,826   8,063 
Reserves  from Brazilian Central Bank  70,103   -   -   -   -   70,103 
Loans and Receivables  27,387   101,441   35,900   85,318   60,966   311,012 
Total  106,387   107,208   48,370   173,229   94,333   539,524 
Interest-bearing liabilities:                        
                         
Deposits from credit institutions  200,818   47,172   65,606   71,413   5,343   390,352 
Subordinated debts  9,857   -   -   -   9,687   19,544 
Marketable debt securities  13,353   20,875   14,612   30,138   9,715   88,693 
Trading derivatives  1,104   1,370   3,257   9,673   3,322   18,726 
Short positions  32,440   -   -   -   -   32,440 
Total  257,572   69,417   83,475   111,224   28,067   549,755 

Currency Risk

      2020
      In millions of Reais
         
         
Asset: Dollar Euro Others Total
         
Cash/Applications/Debt Instruments  42,860   1,870   569   45,299 
Loans and advances to customers  5,803   3,187   1,140   10,130 
Investments in Foreign Subsidiaries and Dependence  57,914   215   -   58,129 
Derivatives  125,495   10,451   2,795   138,741 
Others  25,866   -   -   25,866 
Total  257,937   15,723   4,504   278,164 
                 
Liabilities:  Dollar  Euro  Others  Total
                 
Funding in foreign currency  61,173   384   -   61,557 
Derivatives  147,911   14,449   2,854   165,214 
Others  39,972   219   437   40,629 
Total  249,057   15,052   3,291   267,400 

  

BANCO SANTANDER (BRASIL) S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Thousand of Brazilian Reais - R$ - unless otherwise stated) 

Consolidated Financial Statements | December 31, 2020 | F-133

 

             
          2017
          In millions of Reais
             
             
Asset:     Dollar Euro Others Total
            
Cash/Applications/Debt Instruments    54,380 11,684 10,377 76,442
Loans and advances to customers 3,818 321 - 4,139
Investments in Foreign Subsidiaries and Dependence    36,613 3,010 - 39,623
Derivatives    262,092 45,317 9,640 317,049
Others    46,200 13,028 6,237 65,465
Total    403,102 73,361 26,254 502,717
             
Liabilities:     Dólar Euro Outros Total
            
Funding in foreign currency    32,962 3,047 17 36,025
Derivatives    277,358 54,633 9,294 341,284
Others    93,821 15,975 17,068 126,864
Total    404,140 73,654 26,378 504,173

Table of Contents

 

* Values expressed in thousands, except when indicated.

      2019
      In millions of Reais
         
         
Asset: Dollar Euro Others Total
         
Cash/Applications/Debt Instruments  12,406   224   1   12,631 
Loans and advances to customers  4,776   1,920   -   6,696 
Investments in Foreign Subsidiaries and Dependence  50,193   3,557   -   53,750 
Derivatives  150,538   13,053   9,712   173,303 
Others  10,521   574   -   11,095 
Total  228,434   19,328   9,713   257,475 
                 
Liabilities:  Dollar  Euro  Others   Total
                 
Funding in foreign currency  59,416   925   49   60,390 
Derivatives  169,136   20,184   8,515   197,835 
Others  -   60   1,009   1,069 
Total  228,552   21,169   9,573   259,294 

 Consolidated Financial Statements | December 31, 2020 | F-134

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* Values expressed in thousands, except when indicated.

      2018
      In millions of Reais
         
         
Asset: Dollar Euro Others Total
         
Cash/Applications/Debt Instruments  348,797   -   -   348,797 
Loans and advances to customers  4,505   155   -   4,660 
Investments in Foreign Subsidiaries and Dependence  45,345   3,390   -   48,735 
Derivatives  231,240   18,163   2,490   251,893 
Others  23,619   1,974   42   25,635 
Total  653,506   23,682   2,532   679,720 
                 
Liabilities:  Dollar  Euro  Others  Total
                 
Funding in foreign currency  390,418   462   145   391,025 
Derivatives  262,396   24,809   2,391   289,596 
Others  1,007   -   -   1,007 
Total  653,821   25,271   2,536   681,628 

c.2) Methodologies

 

Trading

 

The BankBanco Santander calculates its market riskminimum capital requirement for market risks using a standardthe internal model providedsince approval by Bacen and the Internal Model.in May 2018.

 

The standard methodology for measuring and controlling market risks applied to tradingfinancial intermediation activities by the Banco Santander in 2020, 2019 and 2018 and 2017 was the valueValue at riskRisk (VaR), which measures the maximum expected loss with a givencertain level of confidence, level and time horizon.in a certain period. This methodology wasis based on a standard historical simulation with a 99% confidence level and a one-day time horizon. Statistical adjustments were made to enable the efficient incorporation ofefficiently incorporate the most recent events that condition the level of risk assumed.

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* Values expressed in thousands, except when indicated.

 

Specifically, the Bank uses a time window of two years or 521 daily data obtained retrospectively from the reference date of the VaR calculation. Two figures are calculated each day, one by applying an exponential decline factor which gives a lesser weighting to more distant observations in time, and another with uniform weightings for all observations. The VaR reported is the higher of these two figures.

 

VaR is not the only measure.measure available to determine the risk to which an institution is exposed. It is used because it is easy to calculate and because it provides afor its ease of understanding calculation, good reference ofto the level of risk incurred by the Bank. However,Bank, but other measuresmetrics and methodologies are simultaneously being implementedalso used to enableallow the Bank to exercise greater risk control in all the markets in which it operates.

 

One ofAmong these measures, is scenario analysis stands out, which consists of defining behavior scenarios for variousseveral financial variables and determining the impact on results ofby applying them to the Bank’sBank's activities. These scenarios can replicate past events (such as crisis)(crises, for example) or conversely,else determine plausible scenarios that are unrelated to past events. A minimum of three types of scenarios are defined (plausible, severe and extreme) which, together with VaR, make it possible to obtain a much more complete viewspectrum of the risk profile.

 

The positions are monitored daily through an exhaustive control of changes inthe variations of the portfolios aimingin order to detect possible incidents and correct them immediately. The

A daily calculation of the resultincome account is also an excellent indicator of the risk, as it allows the Bank to observeobserving and detectdetecting the impact of changes in financial variables in the portfolios.

 

Lastly,Finally, in the control of credit management activities (credits actively traded - trading book) and derivatives, due to their atypical nature, derivatives and credit trading management (actively traded credit – Trading Book) activities are controlled by assessingcharacter, specific measures on a daily basis.are evaluated. In the case of derivatives, these measures are sensitiveassessed for sensitivity to price fluctuations in the price of the underlying (delta and gamma), in volatility (vega) and in time (theta). ForIn the case of credit trading management activities (actively traded) in the trading portfolios, the controlled measures controlled include sensitivity to spread, jump-to-default and position concentrationsconcentration of positions by rating level.

In respect to the credit risk inherent in the trading portfolios (Credit Trading portfolios), and in keeping with the recommendations made by the Basel Committee of Banking Supervision, an additional measure has been introduced, the Incremental Risk Charge (IRC), in order to cover the default risk which is not properly captured in the VaR, through the variation of the related market prices of credit spreads. The instruments affected are basically fixed-income bonds, derivatives on bonds (forwards, options, etc.) and credit derivatives (credit default swaps, asset-backed securities, etc.). The method used to calculate the IRC, is defined globally at Group level.

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BANCO SANTANDER (BRASIL) S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Thousand of Brazilian Reais - R$ - unless otherwise stated) 

 

c.3) Balance-sheet management

 

Interest rate risk

 

The Bank analyses the sensitivity of the net interest margin and market value of equity to changes in interest rates. This sensitivity arises from maturity and interest rate repricing gaps in the various balance sheets items.

 

On the basis of the balance-sheets interest rate position, and considering the market situation and outlook, the necessary financial measures are adopted to align this position with that desired by the Bank. These measures can range from the taking of positions on markets to the definition of the interest rate features of commercial products.

 

The measures used by the Bank to control interest rate risk in these activities are the interest rate gap, the sensitivity of net interest margin (NIM) and market value of equity (MVE) to changes in interest rates, the duration of capital, value at risk (VaR), the EaR (Earning At Risk) and scenario analysis.

 

Interest rate gap of assets and liabilities

 

The interest rate gap analysis focuses on the mismatches between the reevaluation deadlines of on-balance-sheets assets and liabilities and off-balance-sheets items. This analysis facilitates a basic snapshot of the balance sheet structure and enables concentrations of interest rate risk in the various maturities to be detected. Additionally, it is a useful tool for estimating the possible impact of potential changes in interest rates on the entity's net interest margin and market value of equity.

 

The flows of all the on and off-balance sheet headings must be broken down and placed at the point of repricing or maturity. The duration and sensitivity of contracts that do not have a maturity date they are analyzed and estimated using an internal model.

 

Net interest margin (NIM) sensitivity

 

The sensitivity of the net interest margin measures the change in the expected accruals for a specific period (12 months) given a shift in the interest rate curve.

 

The sensitivity of the net interest margin is calculated by simulating the margin both for a scenario of changes in the interest rate curve and for the current scenario. The sensitivity is the difference between the two margins calculated.

 

Market value of equity (MVE) sensitivity

 

The sensitivity of the market value of equity is a complementary measure to the sensitivity of the net interest margin.

 

This sensitivity measures the interest rate risk implicit in the market value of equity based on the effect of changes in interest rates on the present values of financial assets and liabilities.

 

Value at risk (VaR) and Earnings at Risk (EaR)

 

It is defined with 99% base points of the MVE’s loss distribution function, calculated considering the market value of the positions, based on the payback obtained in the last two years and with degree of statistical certainty (level of trust) to a defined time horizon.

 

 Consolidated Financial Statements | December 31, 2020 | F-136

Table of Contents

* Values expressed in thousands, except when indicated.

It is also applied a similar methodology to calculate the maximum loss in NII (EaR), in order to consider the interest rate risk even in economic value impact as in financial margin.

 

The unit sums the return vectors of the VAR with the return vectors of EaR, resulting the total return vector. The composition is made considering in the metric of EaR the losses in financial margin that occur between the initial moment (reference date) and the holding period of the not-trading portfolio. The losses in the economic value takes in consideration the impact of the ending positions after the holding period.

 

c.4) Liquidity risk

 

Liquidity risk is associated with the Bank's ability to finance purchase commitments at reasonable market prices and to carry out its business plans with stable sources of financing.financing,

 

Liquidity Managementmanagement of Santander Bank

 

For the control and liquidity management, the Santander bank uses short and long-term metrics and stress metrics that are capable of measuring the safe liquidity buffer so that the bank comfortably honors its obligations to the market and shareholders.

 

Then, we can cite:

 

Short-term metrics and liquidity stress:

 

a. LCR

 

The Santander Bank uses the Liquidity Coverage Ratio (LCR) in its liquidity risk management. LCR is a short-term index for a 30 days stress scenario, results from the division of high quality assets and net outflows in 30 days.

 

The Total High Liquidity Assets – HQLA is composed mainly of Brazilian federal government bonds and compulsory returns. The net outflows are composed mainly of losses of deposits, offset in part by inflows, mainly loans.

 

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BANCO SANTANDER (BRASIL) S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Thousand of Brazilian Reais - R$ - unless otherwise stated) 

b. Liquidity stress scenarios:

 

The Liquidity management requires the analysis of financial scenarios in which potential problems whit liquidity are assessed, for which is necessary to construct and study scenarios in crisis situations. The model used for this analysis is the Stress TestTest.

 

The stress test evaluate the financial structure of the institution and its capacity to resist and react to more extreme situations.

 

The purpose of the Liquidity Stress Test is to allow the simulation of adverse market conditions, making it possible to evaluate the impacts on the institution´s liquidity and ability to payments, in order to anticipate the solutions or even avoid positions that excessively liquidity in stress scenarios.

 

The scenarios are define from the analysis of market behavior during previous crisis. Four crisis scenarios are develop, with different intensities.

 

From the stress models analysis, the concept of minimum liquidity was define, which is sufficient to support liquidity losses for a determined day horizon in all simulated crisis scenarios.

 

Long-term metrics

 

Its objective is to measure the stability of sources of financing against the assets committed. The NSFR metric developed by BIS and adapted by the local regulator, which objective through determined percentages, to verify if the institution has stable source of funding to sustain its assets. This metrics has different weights by term, client’s segment and product type. It is calculated monthly by the institution.

 

c. Liquidity indicators

 

In order to help management, some liquidity indicators are calculated on a monthly basis, like ratios of concentration by counterparties and concentration by segments.

 

Clients Funding

 

The Bank has different funding sources, both in products and mix of clients, with a healthy distribution between the segments. The total of clients resources is currently in R$ 78,6 billion and presented bellow:an increase comparing with 2019 amount, highlighting the increasing of time deposit funding and the keeping of financial letters inventory.

          In millions of Reais
Customers Funding 2019 2018
   0 a 30 days  Total  %  0 a 30 days  Total  %
Demand deposits 29,524 29,524 100% 18,854 18,854 100%
Savings accounts 49,040 49,040 100% 46,068 46,068 100%
Time deposits 53,321 190,344 28% 49,771 190,971 26%
Interbank deposit 871 4,299 20% 863 4,118 21%
Funds from acceptances and issuance of securities3,921 85,963 5% 3,681 70,110 5%
Borrowings and Onlendings 5,077 54,880 9% 5,181 45,936 11%
Subordinated Debts / Debt Instruments Eligible to Compose Capital - 10,175 2% 9,857 19,666 50%
Total 141,754 424,225 33% 134,275 395,723 34%
             
          In millions of Reais
Customers Funding   2017
         0 a 30 days  Total  %
Demand deposits       15,252 15,252 100%
Savings accounts       40,570 40,570 100%
Time deposits       39,549 170,570 23%
Interbank deposit       622 3,244 19%
Funds from acceptances and issuance of securities      4,436 69,348 6%
Borrowings and Onlendings       5,606 48,304 12%
Subordinated Debts / Debt Instruments Eligible to Compose Capital       - 8,829 0%
Total       106,035 356,117 30%

 

 Consolidated Financial Statements | December 31, 2020 | F-137

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Table of Contents

* Values expressed in thousands, except when indicated.

          In millions of Reais
  2020 2019
  0 a 30 days Total % 0 a 30 days Total %
Demand deposits  35,550   35,550   100%  29,524   29,524   100%
Savings accounts  62,210   62,210   100%  49,040   49,040   100%
Time deposits  77,298   279,778   28%  53,321   190,344   28%
Interbank deposit  818   5,145   16%  871   4,299   20%
Funds from acceptances and issuance of securities  7,544   70,628   11%  3,921   85,963   5%
Borrowings and Onlendings  3,189   67,760   5%  5,077   54,880   9%
Subordinated Debts / Debt Instruments Eligible to Compose Capital  -   13,120   0%  -   10,175   0%
Total  186,609   534,191   100%  141,754   424,225   33%
  In millions of Reais
  2018
  0 a 30 days Total %
Demand deposits  18,854   18,854   100%
Savings accounts  46,068   46,068   100%
Time deposits  49,771   190,971   26%
Interbank deposit  863   4,118   21%
Funds from acceptances and issuance of securities  3,681   70,110   5%
Borrowings and Onlendings  5,181   45,936   11%
Subordinated Debts / Debt Instruments Eligible to Compose Capital  9,857   19,666   50%
Total  134,275   395,723   34%

  

BANCO SANTANDER (BRASIL) S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Thousand of Brazilian Reais - R$ - unless otherwise stated) 

Consolidated Financial Statements | December 31, 2020 | F-138

Table of Contents

* Values expressed in thousands, except when indicated.

 

Assets and liabilities in accordance with the remaining contractual maturities, considering the undiscounted flows are as follows:

 

          2019
Non-Discounted Future Flows Except Derivatives     In millions of Reais
   0 to 30 days  31 to 180 days  181 to 365 days  1 to 5 years  Above 5 years  Total
             
Interest-earning assets:            
             
Financial assets measured at fair value through profit or loss3,766 1,103 802 8,894 6,157 20,722
Debt instruments46 15 205 638 2,600 3,504
Trading derivatives3,720 1,088 597 8,256 3,557 17,218
Other financial assets at fair value through profit or loss2,642 1,160 4,853 23,638 15,502 47,795
Debt instruments2,642 1,160 4,853 23,638 15,502 47,795
Investments Held to Maturity99 111 327 4,066 6,030 10,633
Financial assets at amortized cost32,417 89,335 65,395 159,615 110,607 457,369
Reserves from Brazilian Central Bank69,663         69,663
Financial Assets Measured at Amortized Cost- - - - - -
Total108,587 91,709 71,377 196,213 138,296 606,182
             
Interest-bearing liabilities:            
             
Deposits from credit institutions3,697 26,096 19,829 31,407 4,628 85,657
Subordinated Debts / Debt Instruments Eligible to Compose Capital4,597 1,621 1,074 9,119 3,828 20,239
Marketable debt securities23,501 - - - - 23,501
Trading derivatives250,678 89,178 92,856 132,865 11,116 576,693
Short positions- - - - - -
Total 282,473 116,895 113,759 173,391 19,572 706,090

          2020
          In millions of Reais
Future Cash Flows Except for Derivatives 0 to 30 days 31 to 180 days 181 to 365 days 1 to 5 years Above 5 years Total
             
Remunerated Assets:            
             
Financial assets measured at fair value in income  -   174   98   667   2,900   3,839 
Debt Instruments  -   174   98   667   2,900   3,839 
Financial assets measured at fair value in profit or loss for trading  16,028   19,211   5,763   63,618   25,489   130,108 
Debt Instruments  3,873   12,513   4,046   53,814   21,859   96,104 
Equity Instruments  1,164   -   -   -   -   1,164 
Derivatives  10,992   6,698   1,717   9,804   3,629   32,840 
Financial assets not intended for trading Mandatory measured at the fair value of the result  439   -   -   -   -   439 
Equity Instruments  439   -   -   -   -   439 
Financial assets measured at fair value in other comprehensive income  5,000   3,874   13,850   75,849   35,538   134,110 
Debt Instruments  4,928   3,874   13,850   75,849   35,538   134,038 
Equity Instruments  72   -   -   -   -   72 
Financial assets measured at amortized cost  53,147   145,280   69,004   208,295   135,783   611,509 
Loans and Other Amounts with Credit Institutions  24,638   40,579   2,901   4,205   -   72,324 
Loans and advances to customers  28,424   102,379   64,194   188,430   135,987   519,415 
Debt Instruments  85   2,321   1,909   15,660   (205)  19,771 
Total  74,615   168,538   88,715   348,429   199,709   880,005 
                         
Remunerated Liabilities:                        
                         
Financial Liabilities Measured at Fair Value in Income Held for Trading  55,313   7,878   2,088   12,629   3,515   81,424 
Derivatives  10,160   7,878   2,088   12,629   3,515   36,270 
Short Positions  45,153                   45,153 
Financial liabilities at amortized cost  176,223   101,111   93,103   145,931   16,471   532,838 
Deposits from the Central Bank of Brazil and deposits from credit institutions  3,707   33,039   22,860   8,014   2,802   70,421 
Customer deposits  165,171   44,571   62,606   110,809   215   383,372 
Bonds and securities  7,345   23,502   7,637   27,109   333   65,925 
Debt Instruments Eligible to Capital  -   -   -   -   13,120   13,120 
Total  463,072   217,979   190,382   317,119   39,972   1,228,525 

 Consolidated Financial Statements | December 31, 2020 | F-139

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* Values expressed in thousands, except when indicated.

            2019
Non-Discounted Future Flows Except Derivatives           In millions of Reais
  0 to 30 days 31 to 180 days 181 to 365 days 1 to 5 years Above 5 years Total
             
Interest-earning assets:            
             
Financial assets measured at fair value through profit or loss  3,766   1,103   802   8,894   6,157   20,722 
Debt instruments  46   15   205   638   2,600   3,504 
Trading derivatives  3,720   1,088   597   8,256   3,557   17,218 
Other financial assets at fair value through profit or loss  2,642   1,160   4,853   23,638   15,502   47,795 
Debt instruments  2,642   1,160   4,853   23,638   15,502   47,795 
Investments Held to Maturity  99   111   327   4,066   6,030   10,633 
Reserves  from Brazilian Central Bank  69,663   -   -   -   -   69,663 
Financial Assets Measured at Amortized Cost  32,417   89,335   65,395   159,615   110,607   457,369 
Total  108,587   91,709   71,377   196,213   138,296   606,182 
                         
Interest-bearing liabilities:                        
                         
Deposits from credit institutions  218,883   61,461   71,953   79,666   2,660   434,623 
Subordinated Debts / Debt Instruments Eligible to Compose Capital  -   -   -   12,673   -   12,673 
Marketable debt securities  3,697   26,096   19,829   31,407   4,628   85,657 
Trading derivatives  4,597   1,621   1,074   9,119   3,828   20,239 
Short positions  23,501   -   -   -   -   23,501 
Total  250,678   89,178   92,856   132,865   11,116   576,693 

  

BANCO SANTANDER (BRASIL) S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Thousand of Brazilian Reais - R$ - unless otherwise stated) 

Consolidated Financial Statements | December 31, 2020 | F-140

 

             
             
          2018
Non-Discounted Future Flows Except Derivatives     In millions of Reais
   0 to 30 days  31 to 180 days  181 to 365 days  1 to 5 years  Above 5 years  Total
             
Interest-earning assets:            
             
Financial assets measured at fair value through profit or loss7,388 6,199 12,162 80,590 52,584 158,923
Debt instruments5,361 5,236 8,443 71,347 50,080 140,467
Trading derivatives2,027 963 3,719 9,243 2,504 18,456
Other financial assets at fair value through profit or loss379 9,230 379 18,666 6,037 34,691
Debt instruments379 9,230 379 18,666 6,037 34,691
Investments Held to Maturity24 558 126 3,904 5,119 9,731
Reserves from Brazilian Central Bank70,103 - - - - 70,103
Financial Assets Measured at Amortized Cost29,234 111,216 45,564 116,107 85,637 387,758
Total 107,128 127,203 58,231 219,267 149,377 661,206
             
Interest-bearing liabilities:            
             
Deposits from credit institutions198,259 46,926 67,142 79,161 8,819 400,307
Subordinated Debts / Debt Instruments Eligible to Compose Capital9,857 - - - 9,687 19,544
Marketable debt securities13,395 21,343 15,290 33,627 9,717 93,372
Trading derivatives1,104 1,370 3,257 9,673 3,322 18,726
Short positions32,440 - - - - 32,440
Total 255,055 69,639 85,689 122,461 31,545 564,389
             
             
          2017
Non-Discounted Future Flows Except Derivatives     In millions of Reais
   0 to 30 days  31 to 180 days  181 to 365 days  1 to 5 years  Above 5 years  Total
             
Interest-earning assets:            
             
Financial Assets Held For Trading5,051 1,788 6,737 32,841 18,848 65,265
Debt instruments654 899 5,919 19,582 16,801 43,856
Trading derivatives4,398 889 818 13,259 2,046 21,410
Available-For-Sale Financial Assets925 1,283 12,695 56,167 50,329 121,399
Debt instruments925 1,283 12,695 56,167 50,329 121,399
Other Financial Assets At Fair Value Through Profit Or Loss38 13 51 543 1,994 2,640
Debt instruments38 13 51 543 1,994 2,640
Non-Current Assets Held For Sale81 169 227 3,370 9,573 13,419
Reserves from Brazilian Central Bank59,051 - - - - 59,051
Loans and Receivables74,887 93,587 45,397 117,084 84,560 415,515
Total 140,034 96,840 65,107 210,005 165,304 677,290
             
Interest-bearing liabilities:            
             
Deposits from credit institutions150,979 50,936 66,571 84,274 8,191 360,951
Subordinated Debts / Debt Instruments Eligible to Compose Capital- 807 257 7,784 - 8,848
Marketable debt securities4,445 36,855 12,904 18,421 866 73,491
Trading derivatives4,618 659 504 12,243 2,285 20,310
Short positions32,531 - - - - 32,531
Total 192,573 89,257 80,236 122,722 11,342 496,130

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BANCO SANTANDER (BRASIL) S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Thousand of Brazilian Reais - R$ - unless otherwise stated) 

 

* Values expressed in thousands, except when indicated.

            2018
Non-Discounted Future Flows Except Derivatives           In millions of Reais
  0 to 30 days 31 to 180 days 181 to 365 days 1 to 5 years Above 5 years Total
             
Interest-earning assets:            
             
Financial Assets Held For Trading  7,388   6,199   12,162   80,590   52,584   158,923 
Debt instruments  5,361   5,236   8,443   71,347   50,080   140,467 
Trading derivatives  2,027   963   3,719   9,243   2,504   18,456 
Available-For-Sale Financial Assets  379   9,230   379   18,666   6,037   34,691 
Debt instruments  379   9,230   379   18,666   6,037   34,691 
Non-Current Assets Held For Sale  24   558   126   3,904   5,119   9,731 
Reserves  from Brazilian Central Bank  70,103   -   -   -   -   70,103 
Loans and Receivables  29,234   111,216   45,564   116,107   85,637   387,758 
Total  107,128   127,203   58,231   219,267   149,377   661,206 
                         
Interest-bearing liabilities:                        
                         
Deposits from credit institutions  198,259   46,926   67,142   79,161   8,819   400,307 
Subordinated Debts / Debt Instruments Eligible to Compose Capital  9,857   -   -   -   9,687   19,544 
Marketable debt securities  13,395   21,343   15,290   33,627   9,717   93,372 
Trading derivatives  1,104   1,370   3,257   9,673   3,322   18,726 
Short positions  32,440   -   -   -   -   32,440 
Total  255,055   69,639   85,689   122,461   31,545   564,389 

Scenario analysis / Contingency plan

 

Based on the results obtained in the Stress Test, the bank draws up the Liquidity Contingency Plan, which constitutes a formal set of preventive and corrective actions to be triggered in times of liquidity crisis. The activation of the Plan results from the monitoring of internal parameters related to the conditions of the market and the Bank’s liquidity. These parameters serve identify different levels of crisis severity and, then, determine if there need to start the activation process.

 

After the crisis is identified, a communication is established between the internal areas capable of carrying out the corrective actions and mitigating the problems originated.

 

These corrective actions are measures capable of generating liquidity to solve or mitigate the effects of the crisis and are taken considering their complexities, implementation period and its liquidity impact.

 

The parameters and measures of this Plan are reviewed at any time, when necessary, however its minimum period of review is annual.

 

c.5) Structural foreign currency risk / Hedges of results / Structural equities risk

 

These activities are monitored by measuring positions, VaR and results.

 Consolidated Financial Statements | December 31, 2020 | F-141

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* Values expressed in thousands, except when indicated.

 

c.5.1) Complementary measures

 

Calibration and test measures

 

Back-testing consists of performing a comparative analysis between VaR estimates and daily “clean” results (profit or loss on the portfolios at the end of the preceding day valued at following-day prices) and “dirty” (managerial income taking into account also the costs, intraday results and loading). The aim of these tests is to verify and provide a measure of the accuracy of the models used to calculate VaR.

 

Back-testing analyses performed at Banco Santander comply, at the very least, with the BIS recommendations regarding the verification of the internal systems used to measure and manage financial risks. Additionally, the Santander Bank also conducts hypothesis tests: excess tests, normality tests, Spearman’s rank correlation, average excess measures, etc.

 

The assessment models are regularly calibrated and tested by a specialized unit.

 

c.6) Control system

 

Limit setting

 

The limit setting process is performed together with the budgeting activity and is the tool used to establish the assets and liabilities available to each business activity. Limit setting is a dynamic process that responds to the level of risk considered acceptable by management.

 

The limits structure requires a process to be performed that pursues, among others, the following objectives:

 

1. To identify and delimit, in an efficient and comprehensive manner, the main types of financial risk incurred, so that they are consistent with business management and the defined strategy.

 

2. To quantify and communicate to the business areas the risk levels and profile deemed acceptable by senior management so as to avoid undesired risks.

 

3. To provide flexibility to the business areas for the efficient and timely assumption of financial risks, due to changes in the market and business strategy, and within the risks level considered acceptable by the Bank.

 

4. To allow business makers to assume risks which, although prudent, are sufficient to obtain the budgeted results.

 

5. To delimit the range of products and underlying assets with which each Treasury unit can operate, considering features such as assessment model and systems, liquidity of the instruments involved, etc.

 

c.7) Risks and results in 20192020

 

Financial Intermediation Activities

 

The average VaR from the Bank´s trading portfolio in 20192020 ended in R$30,3 million. The dynamic management of this profile allows the Bank to change its strategy to capitalize the opportunities offered by a uncertain environment.

 

c.7.1) Asset and liability management

 

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Thousand of Brazilian Reais - R$ - unless otherwise stated) 

Interest rate risk

 

Convertible currencies

 

At 20192020 year-end, the sensitivity of the net interest margin at one year to parallel increases of 100 basis points applied to Banco Santander portfolios was concentrated on the BRL interest rate curve was positive by R$334 million.

 

Also at 20192020 year-end, the sensitivity market value of equity to parallel increases of 100 basis points applied to the Banco Santander in the BRL interest rate curve was positive by R$2,063 million.

 

Quantitative risk analysis

 

The interest rate risk in balance sheets management portfolios, measured in terms of sensitivity of the net interest margin (NIM) at one year to a parallel increase of 100 b.p. in the interest rate curve, was at the beginning of 2019 and 2018, reaching a maximum of R$134 million in December 2019. The sensitivity value decreased R$202 million during 2019, reaching a maximum of R$2,342 million in October. The main factors that occurred in 2019 and influenced in sensitivity were the volatility of the exchange rate (convexity effect), portfolio’s decayment update of implicit methodology on cash flow of the Bank’s products and liquidity.

 

Million of Reais            
        2019 2018 2017
Sensibilities            
Net Interest Margin       334 200 378
Market Value of Equity       2,063 1,861 2,066
Value at Risk - Balance            
VaR       1,755 1,744 1,380

 Consolidated Financial Statements | December 31, 2020 | F-142

 

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* Values expressed in thousands, except when indicated.

Million of Reais      
  2020 2019 2018
Sensibilities      
Net Interest Margin  432   334   200 
Market Value of Equity  1,771   2,063   1,861 
Value at Risk - Balance            
VaR  1,365   1,755   1,744 

c.8) Sensitivity analysis

 

The risk management is focused on portfolios and risk factors pursuant to the requirements of regulators.regulators and good international practices.

 

Financial instruments are segregated into trading and Banking portfolios, as in the management of market risk exposure, according to the best market practices and the transaction classification and capital management criteria of the New Standardized Approach of regulators. The trading portfolio consists of all transactions with financial instruments and products, including derivatives, held for trading, and the Banking portfolio consists of core business transactions arising from the different Banco Santander business lines and their possible hedges. Accordingly, based on the nature of Banco Santander’s activities, the sensitivity analysis was presented for trading and Banking portfolios.

 

Banco Santander performs the sensitivity analysis of the financial instruments in accordance with requirements of regulatory bodies and international best practices, considering the market information and scenarios that would adversely affect the positions and the income of the Bank.

 

The table below summarizes the stress amounts generated by Banco Santander’s corporate systems, related to the Banking and trading portfolio, for each one of the portfolio scenarios as of December 31, 2019.2020.

 

Trading portfolio

 

   2019  2020
Risk Factor Description   Scenario 1 Scenario 2 Scenario 3 Description Scenario 1 Scenario 2 Scenario 3
Interest Rate - Reais  Exposures subject to changes in interest fixed rate (21,481) (269,501) (539,003) Exposures subject to changes in interest fixed rate  (24,305)  (275,618)  (551,236)
Coupon Interest Rate  Exposures subject to changes in coupon rate of interest rate (1,940) (8,513) (17,025) Exposures subject to changes in coupon rate of interest rate  (880)  (9,048)  (18,096)
Coupon - US Dollar  Exposures subject to changes in coupon US Dollar rate (5,612) (370) (739) Exposures subject to changes in coupon US Dollar rate  (5,757)  (8,376)  (16,753)
Coupon - Other CurrenciesCoupon - Other CurrenciesExposures subject to changes in coupon foreign currency rate(7,349) (7,472) (14,943) Exposures subject to changes in coupon foreign currency rate  (109)  (5,593)  (11,187)
Foreign currency  Exposures subject to foreign exchange (2,132) (53,297) (106,594) Exposures subject to foreign exchange  (15,859)  (396,473)  (792,947)
Eurobond/Treasury/Global Exposures subject to Interest Rate Variation on Papers Traded on the International Market  (1,653)  (1,359)  (2,718)
Inflation  Exposures subject to change in coupon rates of price indexes (6,527) (13,446) (26,892) Exposures subject to change in coupon rates of price indexes  (37,322)  (267,221)  (534,442)
Shares and Indexes  Exposures subject to change in shares price (1,815) (45,365) (90,731) Exposures subject to change in shares price  (184)  (4,604)  (9,208)
Commodities  Exposures subject to change in commodities' prices (3) (67) (133) Exposures subject to change in commodities' prices  (52)  (1,288)  (2,575)
Total(1) (46,859) (398,031) (796,060)   (86,122)  (969,581)  (1,939,161)

(1) Amounts net of taxes.

 

Scenario 1: a shock of 10+10 and -10 base points on the interest curves and 1% to price changes (currency and stocks);

 

Scenario 2: a shock of +25% and -25% in all risk factors, are considered the greatest losses per risk factor;

 

Scenario 3: a shock of +50% and -50% in all risk factors, are considered the greatest losses per risk factor.

 

Portfolio Banking

    2020
Risk Factor Description Scenario 1 Scenario 2 Scenario 3
Interest Rate - Reais Exposures subject to changes in interest fixed rate  (24,638)  (639,741)  (1,870,133)
TR and Long-Term Interest Rate - (TJLP) Exposures subject to changes in Exchange of TR in TJLP  (49,854)  (576,298)  (903,045)
Inflation Exposures subject to change in coupon rates of price indexes  (42,424)  (286,671)  (585,067)
Coupon - US Dollar Exposures subject to changes in coupon US Dollar rate  (2,803)  (60,177)  (109,050)
Coupon - Other Currencies Exposures subject to changes in coupon foreign currency  rate  (6,615)  (60,266)  (69,259)
Interest Rate Markets International Exposures subject to changes in interest rate negotiated roles in international market  (14,660)  166,540   317,466 
Foreign Currency  Exposures subject to Foreign Exchange  (655)  (16,371)  (32,742)
Total (1)      (141,649)  (1,472,984)  (3,251,830)

(1) Amounts net of taxes,

 Consolidated Financial Statements | December 31, 2020 | F-143

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Thousand of Brazilian Reais - R$ - unless otherwise stated) 

 

Portfolio Banking

       2019
Risk Factor  Description    Scenario 1 Scenario 2 Scenario 3
Interest Rate – Reais  Exposures subject to changes in interest fixed rate  (35,618) (497,773) (992,076)
TR and Long-Term Interest Rate - (TJLP)Exposures subject to changes in Exchange of TR in TJLP (52,084) (644,255) (928,539)
Inflation  Exposures subject to change in coupon rates of price indexes(61,225) (370,602) (734,662)
Coupon - US Dollar  Exposures subject to changes in coupon US Dollar rate  (54,233) (720,883) (1,385,597)
Coupon - Other CurrenciesExposures subject to changes in coupon foreign currency rate(7,108) (93,628) (178,749)

Interest Rate Markets

International

Exposures subject to changes in interest rate negotiated roles in international market (4,716) (80,963) (144,169)
Foreign Currency  Exposures subject to Foreign Exchange(761) (19,022) (38,043)
Total(1)       (215,744) (2,427,126) (4,401,836)

(1) Amounts net of taxes.* Values expressed in thousands, except when indicated.

 

Scenario 1: a shock of +10bps and -10bps in interest rate curves and 1% price variance (currency and stocks); are considered the greatest losses per risk factor;

 

Scenario 2: a shock of +25% and -25% in all risk factors, are considered the greatest losses per risk factor;

 

Scenario 3: a shock of +50% and -50% in all risk factors, are considered the greatest losses per risk factor.factor,

 

d) Bank´s business is highly dependent on the proper functioning of information technology systems.systems,

 

Our business is highly dependent on the ability of our information technology systems to accurately process a large number of transactions across numerous and diverse markets and products in a timely manner, and on our ability to rely on our digital technologies, computer and email services, software and networks, as well as on the secure processing, storage and transmission of confidential data and other information in our computer systems and networks. The proper functioning of our financial control, risk management, accounting, customer service and other data processing systems is critical to our business and our ability to compete effectively.

 

e) Independent Structure

 

The Operational Risk & Internal Control area, subordinated tounder the Executive vice Presidency of Risk operatesVice-Presidency, acts independently as a second line of defense, supporting and challenging the first line of defense. They maintain guidelines,Guidelines, policies and processes to ensure the conduct and to be adequate toadequacy of the Operational Risk Control and Managementmanagement Model.

 

TheOne area adopts the definition of the Basel Committee, the Central Bank of Brazil and the Corporativeother corporate instructions applicable locally tofor Operational Risk such as the possibility of losses resulting from theloss of inadequacy or failure of processes, operational andprocesses, systems or fromby external events. In addition, the Bank´sBanco Santander 's Board of Directors opted for the Alternative Standardized Approach (ASA) for the calculation ofto calculate the portion of the Reference Equity (PR) related to Operational Risk.

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BANCO SANTANDER (BRASIL) S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Thousand of Brazilian Reais - R$ - unless otherwise stated) 

 

e.1) Operational Risks & Internal Control

 

ItsThe Operational Risk & Internal Control area has a mission towith Banco Santander is:Santander: To corroboratesupport the fulfillment of the strategic objectives and the decision-making process, in the adaptationadapting and fulfillment of the obligatorymeeting mandatory requirements, in maintaining the solidity,soundness, reliability, reductionreducing and mitigation ofmitigating losses due to risks operational, risks, besides thein addition to implementation, dissemination of culture of operational risks.the Operational Risk culture.

 

Acts in preventingAdditionally, the operational riskOperational Risk & Internal Control area works to prevent Operational Risks and supports for the continuedcontinuous strengthening of the internal controlInternal Controls system, attendingmeeting the requirements of regulatory agencies, Newthe Regulatory Bodies, Basel Agreement – BIS andAccord, resolutions of the National Monetary Council of Brazil.(CMN) and Applicable Regulators. This modelModel also follows the guidelines established by Banco Santander Spain based on COSO-Committeethe COSO - Committee of Sponsoring Organizations of the Tread way Commission-Internal Control –Treadway Commission –Internal Control– Integrated Framework 2013.

 

The procedures developedControl and adopted are intended to ensure Bank´s continuous presence among the select group of financial institutions recognized as having the best operational risk management practices, thereby helping to continuously improve its reputation, solidity and reliability in the local and international markets.model

 

Defense Line Model

Santander Brasil has implemented a model based on lines of defense that aims to improve and continuously develop the management and control of operational risks, ensuring that structures can assess, monitor, control, mitigate, report and reduce the risks and losses to which they are exposed.

 

The attributions of this model include carrying out activities for the identification, evaluation, monitoring, control, mitigation and reporting of Operational Risk. Thus, different analyzes and follow-ups are carried out and reported. The main instruments that make up the Operational Risk Control and management Model are presented below:

·Definition of the operational risk appetite;
·Capture and evaluation of loss events (internal and external);
·Training, Communication and Culture;
·Evaluation of products and services;
·Self-assessment of operational risks;
·Scenario analysis;
·Risk and Control Indicators;
·Internal controls.

 Consolidated Financial Statements | December 31, 2020 | F-144

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* Values expressed in thousands, except when indicated.

Model Governance

The Model has the approval of the Executive Risk Committee and approval by the Board of Directors, integrating the Organization's corporate governance structure and responsibility. Periodically, the relevant matters of Operational Risks & Internal Control area is the second line of defense in Santander's modelare communicated to senior management for awareness and aims to maintain the fulfillment, alignment and compliance with corporate guidelinesdeliberations.

As part of the Santander group,Risk Governance system, the Basle AccordSenior Forum on Internal Controls and resolutionsOperational Risks (CIRO) is also implemented, whose objective is to deliberate for the Risk Pro Officers (RPO), of the National Monetary Council1st Line of Brazil. Also actsDefense, policies, processes, procedures, strategy and decisions on the topics to be applied in the business units, and has a bimonthly periodicity.

In order to ensure a structured process for disseminating the culture of Operational Risk management and control, the relevant topics are dealt with in specific Committees and challenge of the activities performed by the first line of Defense.Forums.

 

e.2) Responsibilities and duties of the Operational Risks and Internal Controls area

 

• Disseminate the Operational Risk and Internal Controls management-oriented culture and converge towards the prevention and reduction of Operational Risk events and losses, mitigating the financial, legal and reputational impacts.

 

• Improve risk analysis to reduce, consolidate and prioritize mitigation actions.

 

• Maintain the dynamics and control of operational risk exposure in line with risk appetite.

• Establish roles and responsibilities, with follow-up with those responsible in the lines of defense.

 

• Ensure business continuity and strengthen the Internal Controls environment.

 

• Provide adequate level of coverage in business units.

 

• Provide support for the Organization's strategic decisions based on the integrated Operational Risk profile and emerging trends.

 

• Implement the best practices for management and control of operational risks in the 1st and 2nd Lines of Defense.

 

• Identify the Operational Risk profile of the Organization.

 

• Provide continuous improvement of existing methodologies and deepening the culture of responsibility for Operational Risks and Internal Controls.

 

e.3) Differential factor

 

The Operational Risks & Internal Control area invests in the development, training and updating of its professionals so they can keep up

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Thousand of Brazilian Reais - R$ - unless otherwise stated) 

with changes in the business environment, in addition to offering training programs for other professionals through the intranet and on-site courses. Among the personal course, we highlight the achievement of training aimed at increasing culture of RO management, training for the capture of operational losses, among others.

This has made a significant contribution to the Bank consistently achieve its strategic and operational goals, by providing knowledge of the exposure to assumed operational risks and the controlled environment, maintaining the Bank’s low-risk profile and ensuring the sustainable development of its operations.

 

The Bank highlights:

 

• Mandatory training for all Banco Santander employees through e-learnings ("NetCursos"), addressing the issue of operational risks;

 

• The creation, dissemination and maintenance of Instruction Manuals, promoting corporate values and commitment;

 

• Coordination of the annual process for projecting losses caused by operational risks, defining action plans to reduce these losses and for accountability;

 

• Development of key risk indicators, aiming to monitor the main operational risks;

 

• Composition of lines of defense for the role of ORM – Operational Risk Management Networks:risk management networks: "“RPO-Risk Pro Officer” whose function is to report to the executive the follow-up of the topics of Operational Risk at the strategic level of the Executive Board, “RPA-Risk Pro Agent " and "OR Assist" covering the perimeter of RO and "experts" in cases where the operational risk is transverse to the organization.

 

e.4) Communication Policy

 

The Operational Risks & Internal Control area is part of Santander’s governance structure and produces a series of specific monthly reports for management through the Integrated Operational Risk Committee (“CIRO”) and the “Forum RO”, detailing events that occurred, the main activities undertaken, corrective, preventive action plans and follow-up, ensuring transparency and knowledge to the governance forums.

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* Values expressed in thousands, except when indicated.

 

f) Reputation Risk

 

f.1) Reputation Risk

 

The reputation risk is defined as a risk of a negative economic impact, current and potential, due to a perception unfavorable of the Bank by its employees, clients, shareholders/investors and society in general.

 

The reputation risk may arise from multiple sources and, in many cases, is derived from other risk events. In general, these sources might be related to the business and other support activities that are realized by the Bank, the economic context, social or politic, or even by other events arising from other competitors that might affect the Bank.

 

f.2) Compliance

 

It is defined as legal risk, of regulatory sanctions, financial loss or reputation that an institution may suffer as a result of failures in the compliance with laws, rules, ethics and conduct codes and good bank practices. The compliance risk management has the goal of being preventive and includes the monitoring, educative processes, Consulting, risk evaluation and corporative communication related to the rules and legislation applicable to each business department.

 

f.3) Directives

 

a. Compliance principles – Ethics and Conduct in the Securities Markets

 

The Bank’s ethical principles and conduct parameters are established in internal policies which are made available to all employees. Conduct Code in the Securities Markets and its formal acknowledgement is mandatory to all staff working close to securities markets. Proper communication channels are in place to clarify doubts and complaints from employees, the monitoring and controlling of these information are conducted in a way that adherence to the rules established is secured.

 

b. Preventing Money Laundering Preventionand Combating the Financing of Terrorism

 

The Bank’s money Laundering Prevention policies and terrorism financing prevention are based on the knowledge and rigorousness of the acceptance of new clients, complemented by the continuous scrutiny of all transactions where the Bank are involved in. The importance given to the theme is reflected on the direct involvement of management, namely the Operational Money Laundering Prevention and Compliance Committee, which meets each month to deliberate on issues regarding the theme and to be directly involved with new clients acceptance and suspicious transactions reporting.

 

c. New products and services and suitability

 

All new products and services are debated/analyzed internally at various levelsby different technical areas, until their risks have been fully mitigated,completely mapped, and subsequently approvedresolved by the Commercialization Local Marketing Committee (CLC), composed of BankSantander executives. After reviewthe analysis and approval theof new products and services, are monitored tryingfollow-up is carried out to identify them so timely events that may pose reputational risk, which if identified, are reported to the CLC.mitigate any risks of conduct in marketing.

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��

g) Compliance with the new regulatory framework

 

The Banco Santander has assumed a firm commitment to the principles underlying the “Revised Framework of International Convergence of Capital Measurement and Capital Standards” (Basel II). This framework allows entities to make internal estimates of the capital they are required to hold in order to safeguard their solvency against events caused by various types of risk. As a result of this commitment, the Bank has devoted all the human and material resources required to ensure the success of the Basel II implementation plan. For this purpose, a Basel II team was created in the past, consisting of professionals from the Bank’s different departments: mainly Finance, Risks, Technology and Operations, Internal Audit −to verify the whole process, as the last layer of control at the entity−, and Business −particularly as regards the integration of the internal models into management. Additionally, specific work teams have been set up to guarantee the proper management of the most complex aspects of the implementation.

 

Supplementing the efforts of the Basel II operating team, the Bank management has displayed total involvement from the very beginning. Thus, the progress of the project and the implications of the implementation of the New Capital Accord by the Banco Santander have been reported to the management committee and to the board of directors on a regular basis.

 

In the specific case of credit risk, the implementation of Basel II entails the recognition, for regulatory capital purposes, of the internal models that have been used for management purposes.

 

The institution has applied the internal models based ratings methodology (AIRB) of Basel II in part of its portfolios, in compliance with regulatory requirements.

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* Values expressed in thousands, except when indicated.

 

The additional capital requirements derived from the self-assessment process (Pillar II) should be compensated by the risk profile that characterizes the Bank's business activities (low average risk), due to its focus on Commercial Bank (small and medium-sized enterprises and Individuals) and the diversification of the business. The Pillar II which considers the impact of risks not addressed under Pillar I (regulatory capital) and the benefits arising from the diversification among risks, businesses and geographical locations.

 

Regarding the other risks addressed under Pillar I of Basel II, Banco Santander was approved for the use of internal models for market risk and will remain using the standardized method for operational risk, since it considers the premature use of advanced models (AMA) for this purpose . Regarding the Market Risk, Banco Santander was approved to the use of Internal Models in February 2018 and started to disclose the capital by this method from May 2018.

 

Pillar II is another significant line of action under the Basel Corporate Framework. In addition to the methodology supporting the economic capital model review and strengthening, the technology was brought into line with the platform supporting Pillar I, so that all the information on credit risk will come from this source.

 

Besides the Basel II implementations, Banco Santander complies with the new regulations of Basel III, according to the standards issued by Bacen.

 

According to the definition proposed by the Basel Committee (Basel III), Credit Valuation Adjustment (CVA) is an adjustment to the fair value of derivative financial instruments in order to measure the credit risk of a counterparty. Thus, the CVA depends on the credit spread of the counterparty, as well as the market risk factors that drives the values of the derivatives and, therefore, their exposure. In an analytical way, the CVA can be defined by the following expression:

 

CVA = EE * PD * DF * LGD(1)

 

(1) EE=Expected Exposure; PD=Probability of Default; DF=Discount Factor; LGD=Loss Given Default

 

Expected Exposure (EE) is the future exposure of the derivative based on the counterparty's market risk. The probability of default (PD) is calculated based on credit spreads and is also marked to market. The discount factor (DF) is the factor that brings to the present value the projected exposure weighted by its respective probability of default. A Loss Given Default (LGD) is the estimated loss in the event of a credit.

 

g.1) Internal validation of risk models

 

Internal validation is an important stage of model life cycle besides of being a pre-requisite for the supervisory validation process by Basel II implementation. A specialized team of the Entity, with sufficient independence, obtains a technical opinion on the adequacy of the internal models for the intended internal or regulatory purposes, and concludes on their usefulness and effectiveness. This team must also assess whether the risk management and control procedures are adequate for the Entity’s risk strategy and profile.

 

In addition to the regulatory requirement compliance, the internal validation department provides aan essential support to the risk committee and management, since the internal validation area is responsible for providing a qualified and independent opinion so that the responsible authorities decide on the authorization of the use of models (for management purposes as well as regulatory use).

 

Internal model validation at Banco Santander encompasses credit risk models, market risk models, ALM, pricing models, stress test models, the economic capital model and other models related to the exercise of ICAAP. The scope of the validation includes not only the more theoretical or methodological aspects, but also the technology systems and the quality of the data they provide, on which their effective operation relies, and, in general, all the relevant aspects of advanced risk management (controls, reporting, uses, involvement of management, etc.). Therefore, the goal of internal validation is to review quantitative, qualitative, technological and corporate governance related to regulatory and management aspects concerning the model risk control.

 

Among the main functions of the Internal Model Validation department are the following:

 

i.Establish general validation principles, conducting an independent evaluation process including (I) data quality, (II) Methodology aspects (III) technological environment, (IV) performance and (V) use and government;

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ii.Evaluate the methodology and data used in the development of the model and challenge the model and its use, stating the implications and limitations of the model, as well as the associated risks;

iii.Issue a technical opinion on the adequacy of internal models for the intended internal and regulatory effects, concluding on their usefulness and effectiveness; and

iv.Provide essential support to risk committees and management of the Bank, through a qualified and independent opinion for responsible decision-making on the authorization of the use of models (for management purposes as well as regulatory use).

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* Values expressed in thousands, except when indicated.

 

It is important to note that Banco Santander's internal validation function is fully consistent with the independent validation criteria for advanced approach issued by the Basel Committee, the European supervisor 'home regulator' (Banco de España and the European Central Bank) and the Bacen in compliance with the rules Circular 3,648 dated March 4, 2013 (Chapter III), Circular Letter 3,565 of September 6, 2012, Circular 3,547 of July 2011, and Circ. 3648 IRB, 3646 IMA of 4/3/13, and Res. 4.277 of 31/10/13 and 4389 of 18/12/14 fair value, Res. 4557 of 23/02/17 GIR and Circ. 3876 of 31/01/18 IRRBB.

 

In this case, the Bank maintains a Segregation of functions between internal validation and internal audit, which is the last layer of Bank control validation.

 

The Internal Audit is responsible for evaluating and reviewing the internal validation methodology and work and issues opinions with an effective level of autonomy. Internal Audit (third line of defense), as the ultimate control function in the Group, should (i) periodically assess the adequacy of policies, methods and procedures and (ii) confirm that they are effectively implemented in the management .management.

 

g.2) Capital Managementmanagement

 

Capital management considers the regulatory and economic aspects and its objective is to achieve an efficient capital structure in terms of cost and compliance, meeting the requirements of the regulatory authorities and supporting to accomplish the goals of the classification of rating agencies and investors' expectations. Details regarding the capital management process can be found at www.ri.santander.com.br Corporate Governance -> Risk Management -> Risk and Capital Management Structure.

 

h) Economic capital

 

h.1) Main objectives

 

The development of economic capital models in finance aims to solve a fundamental problem of regulatory capital, Sensitivity Risk.

 

In this context, the economic capital models are essentially designed to generate risk-sensitive estimative, allowing greater precision in risk management, as well as better allocation of economic capital by business units of Banco Santander.

 

The Banco Santander has directed efforts to build a model of robust and integrated economic capital to the business management.

 

The main objectives of the structure of economic capital of the Banco Santander are:

 

1 - Consolidate Pillar I and other risks which affect business in a single quantitative model, and determine estimates of capital by establishing correlations between different risks;

 

2 - Quantify and monitor different types of variations in risk;

 

3 - Distribute capital consumption between the different portfolios and manage the efficiency of return on capital (RORAC);

 

4 - Estimating the Economic Value Added for each business unit. Economic profit must exceed the cost of the Bank's capital;

 

5 - Accordance with the regulation in locations where the Bank operates in the review process of Pillar II by supervisors.

 

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Thousand of Brazilian Reais - R$ - unless otherwise stated) 

h.2) The Economic Capital Model

 

In calculating the economic capital, it is the Bank's definition of losses to be covered. Thus, it is used a confidence interval necessary to ensure business continuity..continuity. The risk profile in Brazil is distributed by Credit risk, Market, ALM, Business, Operations and materials assets. However, to successfully anticipate the changes proposed in Basel III, new risks have been incorporated to model: Intangibles, pension funds (defined benefit) and deferred tax assets, which allow the Bank to adopt a position even more conservative and prudent.

 

% Capital     2019 2018 2017
Risk Type     New Methodology New Methodology New Methodology
Credit     72% 72% 70%
Market     2% 2% 4%
ALM     5% 8% 4%
Business     3% 6% 8%
Operational     7% 5% 6%
Fixed Assets     2% 1% 2%
Intangible Assets     1% 0% 1%
Pension Funds     4% 1% 1%
Deferred Tax Assets     5% 5% 4%
TOTAL     100% 100% 100%

% Capital 2020 2019 2018
Risk Type      
Credit  69%  72%  72%
Market  2%  2%  2%
ALM  2%  5%  8%
Business  3%  3%  6%
Operational  6%  7%  5%
Fixed Assets  2%  2%  1%
Intangible Assets  5%  1%  0%
Pension Funds  2%  4%  1%
Deferred Tax Assets  9%  5%  5%
TOTAL  100%  100%  100%

RoRAC

 

Banco Santander has used the RORAC, with the following objectives:

 

1 – Analyze and set a minimum price for operations (admission) and clients (monitoring).

 

2 – Estimate capital consumption of each client, economic groups, portfolio or business segment, in order to optimize the allocation of economic capital, maximizing the efficiency of the Bank.

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* Values expressed in thousands, except when indicated.

 

3 – Measure and monitor business performance.

 

To evaluate the operations of global clients, the calculation of economic capital considers some variables used in the calculation of expected and unexpected losses.

 

Among these variables are:

 

1 – Counterparty rating;

 

2 – Maturity;

 

3 – Guarantees;

 

4 – Type of financing;

 

The economic value added is determined by the cost of capital. To create value for shareholders, the minimum return operation must exceed the cost of capital of Banco Santander.

 

48.47.Subsequent Events

Dividend Resolution

a) Acquisition

The Board of Directors, in a meeting held on February 2, 2021, approved the Executive Board's proposal, ad referendum of the remaining 40%Annual General Meeting, to be held until April 2021, for the distribution of non-controlling interestdividends, in the gross amount of R$512 million. Shareholders who are registered in the Bank's records on February 3, 2021 (inclusive) will be entitled to the Dividends, Accordingly, as of February 16, 2021 (inclusive), the Bank's shares will be traded “Ex-dividends”. The dividend amount will be paid as of March 3, 2021, fully charged to the mandatory dividends to be distributed by the Bank, for the year 2020, without any monetary restatement. The decision was approved by the Fiscal Council, according to the meeting held by Bosan Participaçõeson the same date, and is in Banco Olé Consignadocompliance with the provisions of CMN Resolution No, 4,885/2020.

 

On January 31,Getnet Adquirência e Serviços para Meios de Pagamentos S.A.

Further to the Material Facts disclosed on November 16, 2020 and February 2, 2021, the bank informed its shareholders and the market in general that Santander Brasil’s Board of Directors, in a meeting held on February 25, 2021, their approval of the proposal to segregate Santander Brasil’s equity interest in its wholly-owned subsidiary Getnet Adquirência e Serviços para Meios de Pagamentos S.A. (“Getnet” and, jointly with Santander Brasil, andthe “Companies”), by means of a spin-off from Santander Brasil (“Spin-off”), to be evaluated by the shareholders of Bosan Participações S.A. (holding company whose single asset are the shares representing 40% of the corporate capital of Banco Olé) have entered into the definitive agreements and performed the closing acts related to the purchase and sale of all shares issued by Bosan, upon transferring Bosan’s shares to Santander Brasil and the payment to the sellers of the total price of R$ 1,608,772,783.47. As a result, Santander Brasil became, directly and indirectly, the holder of all shares issued by Banco Olé.in an Extraordinary Shareholders’ Meeting.

 

In addition, on January 30, 2020,February 25, 2021, the nameFiscal Board of Banco Olé was changed from Banco Olé Bonsucesso Consignado S.A. to Banco Olé Cosignado S.A.

b) SaleSantander Brasil opined in favor of equity stake in Super Pagamentos e Administração de Meios Eletrônicos S.A.

On February 28, 2020, the Bank sold to Superdigital Holding Company, S.L., a company indirectly controlled by Santander Spain, its entire equity interest in Super Pagamentos e Administração de Meios Eletrônicos S.A. (“Superdigital”). The Bank received consideration of R$270 million for its interest in Superdigital. As a result, the Bank is no longer a shareholder of Superdigital.Spin-off proposal.

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SUPPLEMENTAL INFORMATION

(Thousand of Brazilian Reais - R$ - unless otherwise stated) 

 

APPENDIX I – RECONCILIATION OF STOCKHOLDERS’ EQUITY AND NET INCOME - BRGAAP vs IFRS

 

The table below presents a conciliation of stockholders' equity and net income attributed to the parent between standards adopted in Brazil (BRGAAP) and IFRS, with the conceptual description of the main adjustments:

 

Thousand of Reais Note 2020 2019 2018
         
Stockholders' equity attributed under to the Parent Brazilian GAAP    78,968,183   69,773,232   65,233,743 
IFRS adjustments, net of taxes, when applicable:              
Reclassification of financial instruments at fair value through profit or loss i  (882)  8,767   8,344 
Reclassification of  fair value through other comprehensive income j  (522,107)  73,431   72,980 
Impairment of financial assets measured at amortized cost a  (635,194)  (23,589)  (1,483,043)
Remensurations, Debt instruments, due to reclassifications IFRS 9    907   -   26,274 
Category transfers - IFRS 9 b  357,972   (206,984)  (619)
Deferral of financial fees, commissions and inherent costs under effective interest rate method c  1,324,853   1,197,325   851,629 
Reversal of goodwill amortization d  27,527,699   26,933,892   26,764,529 
Realization on purchase price adjustments e  615,953   477,366   631,120 
Recognition of fair value in the partial sale in subsidiaries f  -   112,052   112,052 
Option for Acquisition of Equity Instrument g  (1,744,336)  (1,816,799)  (1,323,994)
Goodwill acquisition Santander Services (Santusa) h  (209,285)  (239,182)  (269,158)
Tax Credit with realization over 10 years    -   184,005   322,539 
Others    93,224   177,064   119,074 
Stockholders' equity attributed to the parent under IFRS    105,776,987   96,650,580   91,065,470 
Non-controlling interest under IFRS    312,885   558,581   529,990 
Stockholders' equity (including non-controlling interest) under IFRS    106,089,872   97,209,161   91,595,460 

Thousand of ReaisNote201920182017
     
Stockholders' equity attributed under to the Parent Brazilian GAAP 69,773,23265,233,74359,499,954
IFRS adjustments, net of taxes, when applicable:    
Reclassification of financial instruments at fair value through profit or lossi8,7678,34418,301

Reclassification of available-for-sale financial instruments		j--34,818
Reclassification of fair value through other comprehensive incomek73,43172,980-
Impairment of loans and receivablesa--(71,091)
Impairment of financial assets measured at amortized costa(23,589)(1,483,043)-
Remensurations, Debt instruments, due to reclassifications IFRS 9 -26,274-
Category transfers - IAS 39b--351,132
Category transfers - IFRS 9b(206,984)(619)-
Deferral of financial fees, commissions and inherent costs under effective interest rate methodc1,197,325851,629664,204
Reversal of goodwill amortizationd26,933,89226,764,52926,592,852
Realization on purchase price adjustmentse477,366631,120702,436
Recognition of fair value in the partial sale in subsidiariesf112,052112,052112,052
Option for Acquisition of Equity Instrumentg(1,816,799)(1,323,994)(1,287,240)
Goodwill acquisition Santander Services (Santusa)h(239,182)(269,158)(298,978)
Tax Credit with realization over 10 years 184,005322,53962,539
Others 177,064119,074269,728
Stockholders' equity attributed to the parent under IFRS 96,650,58091,065,47086,650,707
Non-controlling interest under IFRS 558,581529,990436,894
Stockholders' equity (including non-controlling interest) under IFRS 97,209,16191,595,46087,087,601
     
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Thousand of ReaisNote201920182017
     
Net income attributed to the Parent under Brazilian GAAP 14,180,98712,166,1457,996,577
IFRS adjustments, net of taxes, when applicable:    
Reclassification of financial instruments at fair value through profit or lossi422(11,974)18,775

Reclassification of available-for-sale financial instruments		j--(46,160)
Reclassification of fair value through other comprehensive incomek45128,419-
Impairment on loans and receivablesa--(195,878)
Impairment of financial assets measured at amortized costa1,872,553140,557-
Remensurations, Debt instruments, due to reclassifications IFRS 9 (16,659)(5,360)-
Category transfers - IAS 39b--(219,829)
Category transfers - IFRS 9b6,437(16,195)-
Deferral of financial fees, commissions and inherent costs under effective interest rate methodc346,298187,425366,484
Reversal of goodwill amortizationd175,257171,6771,470,279
Realization on purchase price adjustmentse(153,752)(71,316)(76,446)
Option to Acquire Own Equity Instrumentg-(143,194)(270,240)
Goodwill acquisition Santander Services (Santusa)h29,89829,820-
Tax credit with realization over 10 years (75,995)260,00062,539
Others 41,035(153,527)(182,037)
Net income attributed to the parent under IFRS 16,406,93212,582,4778,924,064
Non-controlling interest under IFRS 224,518217,441213,984
Net income (including non-controlling interest) under IFRS 16,631,45012,799,9189,138,048

* Values expressed in thousands, except when indicated.

 

Thousand of Reais Note 2020 2019 2018
         
Net income attributed to the Parent under Brazilian GAAP    13,469,380   14,180,987   12,166,145 
IFRS adjustments, net of taxes, when applicable:              
Reclassification of financial instruments at fair value through profit or loss i  (27,428)  422   (11,974)
Reclassification of fair value through other comprehensive income j  68,960   451   28,419 
Impairment of financial assets measured at amortized cost a  (498,778)  1,872,553   140,557 
Remensurations, Debt instruments, due to reclassifications IFRS 9    907   (16,659)  (5,360)
Category transfers - IFRS 9 b  (78,057)  6,437   (16,195)
Deferral of financial fees, commissions and inherent costs under effective interest rate method c  185,478   346,298   187,425 
Reversal of goodwill amortization d  145,903   175,257   171,677 
Realization on purchase price adjustments e  (5,348)  (153,752)  (71,316)
Option to Acquire Own Equity Instrument g  318,929   -   (143,194)
Goodwill acquisition Santander Services (Santusa) h  29,898   29,898   29,820 
Tax credit with realization over 10 years    (184,005)  (75,995)  260,000 
Others    (7,311)  41,035   (153,527)
Net income attributed to the parent under IFRS    13,418,529   16,406,932   12,582,477 
Non-controlling interest under IFRS    32,224   224,518   217,441 
Net income (including non-controlling interest) under IFRS    13,450,752   16,631,450   12,799,918 

a) Impairment on loans and receivables and financial assets measured at amortized cost:

 

In 2019 and 2018, refersRefers to the adjustment resulting from the estimate of the expected loss and losses on the portfolio of loans and receivablesassets subject to impairment, loan commitments to be released and financial guarantee contracts, which was determinedcalculated based on the criteria described in the accounting practice note and compliance in the history of impairment and other circumstances known at the time of the evaluation, in accordance with the guidance provided for by IAS 39 and IFRS 9 (in 2017 referrefers to the adjustment resulting adjustment offrom the estimate ofestimated loss incurred in accordance with IAS 39, normativethe then effective.) "Financial Instruments: Recognition and Measurement"current norm). TheseSuch criteria differ in certain aspects from the criteriathose adopted byunder BRGAAP, which use certainuses the regulatory limits defined by the Central Bank (Bacen), in addition to the difference in the scope of the calculation ofbasis for these losses, which for theIFRS purposes of IFRS considers assets

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other than those In the Financial Statements under IFRS, this effect considers the impact related to the provisions of certain debt instruments, which for the purposes of BRGAAP are treated as Securities.provided by Bacen.

 

b) Categories of financial assets

 

As detailed in the accounting practices note, IFRS9 provides for the definition of the business models associated with each portfolio, as well as the performance of the SPPI test - if the returns of that asset are exclusively principal and interest, for classification in the categories of financial assets. BRGAAP provides for certain differences in the categorization of these financial assets, as well as establishing as an indicator the Management'smanagement's intention for classification to be made. The criteria for reclassification between categories are also different between the two accounting practices.

 

c) Deferral of financial fees, commissions and other costs under effective interest rate method:

 

Under IFRS, financial fees, commissions and other costs that are integral part of effective interest rate of financial instruments measured at amortized cost are recognized in the income statement over the term of the corresponding contracts. Under BRGAAP these fees and expenses are recognized directly as income when received or paid.

 

d) Reversal of goodwill amortization:

 

Under BRGAAP, goodwill is systematically amortized over a period of up to 10 years, subject to the impairment test at least once a year or in a shorter period, in the event of any additional evidence. Under IFRS, in accordance with IAS 38 “Intangible Assets”, goodwill is not amortized, but instead, is tested for impairment, at least annually, and whenever there is an indication that the goodwill may be impaired. The tax amortization of goodwill of Banco ABN Amro Real SA represents a difference between book and tax basis of a permanent nature and definitive as the possibility of future use of resources to settle a tax liability is considered remote by management, supported by the opinion of expert external advisors. The tax amortization of goodwill is permanent and definitive, and therefore does not apply to the recognition of a deferred tax liability in accordance with IAS 12, on temporary differences.

 

e) Realization on purchase price adjustments:

 

As part of the purchase price allocation in acquisitions of an entity, substantially, in the acquisition of Banco Real, following the requirements of IFRS 3, the Bank has recognized the assets and liabilities of the acquiree to fair value, including identifiable intangible assets with finite lives. Under BRGAAP, in a business combination, the assets and liabilities are kept at their book value. This purchase price adjustment relates substantially to the allocation related to the value of assets in the loan portfolio. The initial recognition of value of the loans at fair value, adjustment to the yield curve of the loan portfolio in comparison to its nominal value, which is recognized by its average realization period.

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* Values expressed in thousands, except when indicated.

 

f) Recognition of fair value in the partial disposal of investments in subsidiaries

 

Under IFRS 10 "Consolidated Financial Statements" on partial disposal of a permanent investment when control is lost, the fair value is recognized over the remaining portion is remeasured at its fair value, the effect of this update being recognized in result (Webmotors). Under BRGAAP, this type of operation, ongoing participation is registered by its book value.

 

g) Option for Acquisition of Equity Instrument

 

Within the context of transaction, Banco Santander has granted to the members of Getnet S.A. and Banco Olé Consignado a put option over all shares of Getnet S.A. and Banco Olé Consignado held by them. The overall out in IAS 32, a financial liability was recognized for this commitment, with a specific charge in a heading in stockholders' equity in the amount of R$950 million and R$67 million, respectively. Subsequently, the options have been updated and their effect is recognized in income. On December 19, 2018, Banco Santander and the Minority shareholders of Getnet SA entered into an addendum to the Purchase and Sale Agreement for Shares and Other Covenants of Getnet SA, in which Banco Santander committed to acquire all the shares of the Minority Shareholders, corresponding to 11.5% of the share capital of Getnet SA, for the amount of R$1,431,000. The acquisition was approved by BACEN on February 18, 2019 and concluded on February 25, 2019, so that Banco Santander now holds 100% of the shares representing Getnet SA's share capital. On March 14, 2019, the shareholder minority stake in Banco Olé Bonsucesso Consignado SA formalized its interest in exercising the put option provided for in the Investment Agreement, entered into on July 30, 2014, to sell its 40% stake in Olé Consignado to Banco Santander (Brazil) SA On December 20, 2019, the parties entered into a binding agreement for the acquisition, by Banco Santander, of all the shares issued by Bosan Participações SA, for the total amount of R$1.6 billion, to be paid on the closing date of the Operation. On January 30, 2020, the name of Banco Olé from Banco Olé Bonsucesso Consignado SA was changed to Banco Olé Cosignado SA On January 31, 2020, the Bank and the shareholders of Bosan Participações SA concluded the final agreement and signed the purchase and sale of 100% of the shares issued by Bosan, through the transfer of Bosan's shares to the Bank and payment to sellers in the total amount of R$1,608,772,783.47. As a result, the Bank became, directly and indirectly, the holder of 100% of Banco Olé's shares.

 

h) Santander Serviços goodwill (Santusa)

 

According to the IFRS 3 "Business Combination", when the owner acquires more shares or other equity instruments of an entity already controlled, it shall consider such amount as an equity reduction. According to the BRGAAP this amount shall be registered in the asset as goodwill or discount on the acquisition f the investment, which is the difference between the acquision cost and the equity amount of the shares.

 

i) Reclassification of financial instruments at fair value through profit or loss

 

Under BRGAAP, all loans, financing and deposits are recorded at amortized cost. In IFRS, in accordance with IFRS 9 "Financial Instruments: Recognition and Measurement", financial assets may be measured at fair value and included in the category "Other financial assets at fair value through profit or loss", in order to eliminate or significantly reduce accounting mismatches (accounting( accounting mismatch) of recognition or measurement derived from the measurement of assets or liabilities or from the recognition of gains or losses on these assets / liabilities on a number of bases, which are managed and their performances valued at fair value. Accordingly, the Bank classified loans, financing and deposits that meet these parameters as "fair value through profit or loss", as well as certain debt instruments classified as "available for sale" in BRGAAP. The Bank opted for this classification base in IFRS, since it eliminates an accounting mismatch in the recognition of revenues and expenses.

 

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BANCO SANTANDER (BRASIL) S.A.

SUPPLEMENTAL INFORMATION

(Thousand of Brazilian Reais - R$ - unless otherwise stated) 

j) Reclassification of available-for-sale financial instruments

Under BRGAAP, the Bank accounts for some investments, for example, debt securities initially measured at amortized cost and equity securities at cost. When preparing the 2017 balance sheet, management revised the management strategy for its investments and, in accordance with the premises of Circular 3,068 of the Central Bank of Brazil, the debt securities were reclassified to “trading” category with their value recorded just through the result. According to IFRS, in 2017, the Bank had classified these Investments as available for sale, measuring them at fair value with the effects of this mark being recognized in the "Consolidated statements of comprehensive income", complying with the provisions of IAS 39 "Financial Instruments : Recognition and Measurement”, which does not allow the reclassification of any financial instrument to the fair value category through profit or loss after initial recognition.

k) Reclassification of financial assets measured at fair value through other comprehensive income

 

According to the BRGAAP, the Bank registers some investments, for example, debt instruments initially measured at amortized cost and equity instruments at cost. At the time of this balance sheet, the management reviewed the managing strategy of its investments and according to Bacen Circular 3.068, the debt instruments were reclassified to "trading" measured at fair value with changes in the income statement. According to the IFRS, the Bank is classifying this investments as financial assets measured at fair value through other comprehensive income them at fair value with changes in "other comprehensive income", in line with IAS 9 "Financial Instruments",Instruments ", which does not allow the reclassification of any financial instrument to fair value with changes in the income statement after the initial recognition.

 

 Consolidated Financial Statements | December 31, 2020 | F-151

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Table of Contents

 

BANCO SANTANDER (BRASIL) S.A.

SUPPLEMENTAL INFORMATION

(Thousand of Brazilian Reais - R$ - unless otherwise stated) 

 

* Values expressed in thousands, except when indicated.

APPENDIX II – STATEMENTS OF VALUE ADDED

 

The following Statements of value added is not required under IFRS but being presented as supplementary information as required by Brazilian Corporate Law for publicly-held companies, and has been derived from the Bank´s consolidated financial statements prepared in accordance with IFRS.

 

 2019 2018 2017 2020 2019 2018
Thousand of Reais                        
Interest and similar incomeInterest and similar income 72,841,060 70,478,393 71,418,349   62,774,940       72,841,060       70,478,393     
Net fee and commission incomeNet fee and commission income 15,713,152 14,132,159 12,721,868   16,228,214       15,713,152       14,132,159     
Impairment losses on financial assets (net)Impairment losses on financial assets (net) (13,369,905) (12,713,435) (12,338,300)   (17,450,188)      (13,369,905)      (12,713,435)    
Other income and expenseOther income and expense (4,025,384) (6,861,406) (3,043,565)   (5,012,403)      (4,025,384)      (6,861,406)    
Interest expense and similar chargesInterest expense and similar charges (28,519,953) (28,557,051) (36,471,860)   (18,332,228)      (28,519,953)      (28,557,051)    
Third-party input (7,544,695) (7,219,152) (6,728,881)   (7,946,539)       (7,544,695)      (7,219,152)    
Materials, energy and othersMaterials, energy and others (659,656) (544,237) (495,913)   (641,831)      (659,656)      (544,237)    
Third-party services (6,047,498) (5,572,127) (5,107,077)   (6,424,755)      (6,047,498)      (5,572,127)    
Impairment of assets (131,435) (508,310) (456,711)   (84,908)      (131,435)      (508,310)    
Other (706,106) (594,478) (669,180)   (795,045)      (706,106)      (594,478)    
Gross added value 35,094,275 29,259,508 25,557,611   30,261,796       35,094,275       29,259,508     
Retention                         
Depreciation and amortizationDepreciation and amortization (2,391,857) (1,739,959) (1,662,247)   (2,579,127)      (2,391,857)      (1,739,959)    
Added value producedAdded value produced 32,702,418 27,519,549 23,895,364   27,682,669       32,702,418       27,519,549     
Added value received from transferAdded value received from transfer                         
Investments in affiliates and subsidiariesInvestments in affiliates and subsidiaries 149,488 65,958 71,551   112,261       149,488       65,958     
Added value to distributeAdded value to distribute 32,851,906 27,585,507 23,966,915   27,794,930       32,851,906       27,585,507     
Added value distributionAdded value distribution                         
Employee 8,457,212 25.7% 8,185,896 29.7% 7,908,746 33.0%  7,943,711   28.6%  8,457,212   25.7%  8,185,896   29.7%
Compensation 5,961,765 5,863,584 5,795,579   5,749,699       5,961,765       5,863,584     
Benefits 1,637,099 1,534,560 1,421,910   1,514,611       1,637,099       1,534,560     
Government severance indemnity funds for employees - FGTSGovernment severance indemnity funds for employees - FGTS502,173 448,699 413,871   448,457       502,173       448,699     
Other 356,175 339,053 277,386   230,974       356,175       339,053     
Taxes 7,674,704 23.4% 5,813,381 21.1% 6,131,544 25.6%  6,298,717   22.7%  7,674,704   23.4%  5,813,381   21.1%
Federal 6,571,450 4,864,176 5,481,969   10,088,318       6,571,450       4,864,176     
State 54 224 1,260   (830,771)      54       224     
Municipal 1,103,200 948,981 648,315   (2,958,830)      1,103,200       948,981     
Compensation of third-party capital - rentalCompensation of third-party capital - rental 88,540 0.3% 786,312 2.9% 788,577 3.3%  101,749   0.4%  88,540   0.3%  786,312   2.9%
Remuneration of interest on capitalRemuneration of interest on capital 16,631,450 50.6% 12,799,918 46.4% 9,138,048 38.1%  13,450,753   48.4%  16,631,450   50.6%  12,799,918   46.4%
Dividends and interest on capitalDividends and interest on capital 10,800,000 6,600,000 6,300,000   3,837,085       10,800,000       6,600,000     
Profit Reinvestment 5,606,932 5,982,477 2,624,064   9,581,444       5,606,932       5,982,477     
Profit (loss) attributable to non-controlling interestsProfit (loss) attributable to non-controlling interests 224,518   217,441 213,984   32,224       224,518       217,441     
Total 32,851,906 100.0% 27,585,507 100.0%-23,966,915 100.0%  27,794,930   100.0%  32,851,906   100.0%  27,585,507   100.0%

 Consolidated Financial Statements | December 31, 2020 | F-152

 

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