Table of ContentsTABLE OF CONTENTS
3 Bradesco
PRESENTATION OF FINANCIAL AND OTHER INFORMATION | |||
Form 20-F | |||
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In this annual report, the terms "Bradesco,"“Bradesco”, the "Company,"“Company”, the "Bank,"“Bank”, the "Bradesco Group," "we,”“Bradesco Group”, “we”, the “Organization,”“Organization”, “our” and "us"“us” refer to Banco Bradesco S.A., asociedade anônima organized under the laws of Brazil and, unless otherwise indicated, its consolidated subsidiaries.
All references herein to "real," "reais"“real”, “reais” or "R$"“R$” refer to the Brazilian Real, the official currency of Brazil. References herein to "U.S. dollars," "dollar"“U.S. dollars”, “dollar” and "US$"“US$” refer to United States dollars, the official currency of the United States of America (USA)(“USA”).
Our audited consolidated financial statements as of and for the years ended December 31, 2017, 20162019 and 20152018 and the corresponding notes, which are included under "Item“Item 18. Financial Statements"Statements” of this annual report, were prepared in accordance with International Financial Reporting Standards (IFRS)(“IFRS”) as issued by the International Accounting Standards Board (IASB)(“IASB”).
We use accounting practices adopted in Brazil for financial institutions authorized to operate by theCentralthe Central Bank of Brazil (Banco(Banco Central do Brasil)Brasil, or the "Central Bank,"“Central Bank”) for certain purposes, such as performance assessment, decision-making, preparation of reports for Brazilian shareholders, filings with the Brazilian Securities and Exchange Commission (CVM)(“CVM”), attendance and observation of limits and requirements of local regulators and determining dividend and federal income tax payments.
Some data related to economic sectors presented in this annual report was obtained from the following sources: B3 (Brasil, Bolsa, Balcão) or (“B3”);Brazilian Association of Credit Card Companies and Services (Associação Brasileira das Empresas de Cartão de Crédito e Serviços), or ("ABECS"(“ABECS”); Brazilian Association of Leasing Companies (Associação Brasileira de Empresas de Leasing), or ("ABEL"(“ABEL”); Brazilian Association of Financial and Capital Markets Entities(Associação Brasileira das Entidades dos Mercados Financeiros e de Capitais), or ("ANBIMA"(“ANBIMA”); Brazilian Health Insurance Authority(Agência Nacional de Saúde Suplementar), or ("ANS"(“ANS”); Central Bank;Brazilian Bank of Economic and Social Development (Banco Nacional de Desenvolvimento Econômico e Social), or ("BNDES"(“BNDES”); National Association of Private Pension Plans and Life (Federação Nacional de Previdência Privada e Vida), or ("FENAPREVI"(“FenaPrevi”);Getulio Vargas Foundation (Fundação Getulio Vargas), or ("(“FGV"FGV”);andPrivateand Private Insurance Superintendence(Superintendência de Seguros Privados), or ("SUSEP"(“SUSEP”).
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.
References in this annual report to the “common shares” and “preferred shares” are to our common shares and preferred shares, respectively, and together our "shares."“shares”. References to “preferred share ADSs”in this annual report aretoare to preferred share American Depositary Shares, each representing one preferred share. The preferred share ADSs are evidenced by preferred share American Depositary Receipts, or preferred share ADRs, issued pursuant to an Amended and Restated Deposit Agreement, dated as of December 11, 2015, by and among us, The Bank of New York Mellon, as depositary, and the holders and beneficial owners of preferred share ADSs evidenced by preferred share ADRs issued thereunder (the“PreferredShareADS(the “Preferred Share ADS Deposit Agreement”).
References to "common shareADSs"“common share ADSs” in this annual reportarereport are related to common share American Depositary Shares,with eachcommoneach common share ADSrepresentingADS representing one common share. The common share ADSs are evidenced by common share American Depositary Receipts, orcommonor common share ADRs, issued pursuant to an Amended and Restated Deposit Agreement dated as of December 11, 2015, by and among us, The Bank fof New York Mellon, as depositary, and the holders and beneficial owners of common share ADSs evidenced by common share ADRs issued thereunder (the "Common ShareADS“Common Share ADS Deposit Agreement"Agreement” and, together with the “Preferred Share ADS Deposit Agreement,”Agreement”, the "Deposit Agreements"“Deposit Agreements”).
References throughout this annual report to "ADSs"“ADSs” are to our preferred share ADSs and common share ADSs, together.
Throughout this annual report, we may indicate that certain information is available at different websites operated by us. None of the information on the websites referred to or mentioned in this annual report is part of or is incorporated by reference herein.
This annual report translates certain real amounts into U.S. dollars solely for the convenience of the reader. Unless otherwise noted in this annual report, all such real amounts have been translated at the rate of R$3.3238 per US$1.00, which was the Central Bank rate published on March 29, 2018. Such conversion
4Bradesco Form 20-F – December 2019
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Form 20-F | ||
should not be construed as a representation that the real amounts correspond to, or have been or could be converted into, U.S. dollars at that rate or any other rate.
This annual report contains forward‑looking statements as defined in Section 27A of the Securities Act of 1933, as amended, or the "Securities Act,"“Securities Act”, and Section 21E of the Securities Exchange Act of 1934, as amended, or the "Exchange Act."“Exchange Act”. These statements are based mainly on our current expectations and projections of future events and financial trends that affect or might affect our business. In addition to the items discussed in other sections of this annual report, there are many significant factors that could cause our financial condition and results of operations to differ materially from those set out in our forward-looking statements, including, but not limited to, the following:
· the current weaknessinstability in Brazilian macroeconomic conditions;
·globalconditions, together with political, economic conditions;
·economic, political and business conditionsuncertainties, as well as instabilities in Brazil andinthe other markets in which we operate;global markets;
· risks of lending, credit, investments and other activities;
· our level of capitalization;
· cost and availability of funds;
· higher levels of delinquency by borrowers, credit delinquency and other delinquency events leading to higher impairment of loans and advances;
· the synergies of the business that we acquired from HSBC Bank Brasil and HSBC Serviços e Participações (“HSBC Brasil”);
·loss of customers or other sources of income;
· our ability to execute our investment strategies, andcapital expenditure plans as well asand to maintain and improve our operating performance;
· our revenues from new products and businesses;
· adverse claims, legal or regulatory disputes or proceedings;
· inflation, fluctuations in the value of thereal and/orinterestor interest rates, which could adversely affect our margins;
· competitive conditions in the banking, financial services, credit card, asset management, insurance sectors and related industries;
· any failures in, or breaches of, our operational, security or technology systems;
·the market value of securities, particularly Brazilian government securities;
·the duration and severity of the novel coronavirus (“Covid-19”) outbreak and its impacts on the global and Brazilian economy and our business; and
· changes by the Central Bank and others in laws and regulations, applicable to us and our activities, including, but not limited to, those affectingtaxaffecting tax matters.
Words such as "believe," "expect," "continue," "understand," "estimate," "will," "may," "anticipate," "should," "intend,"“believe”, “expect”, “continue”, “understand”, “estimate”, “will”, “may”, “anticipate”, “should”, “intend”, and other similar expressions identify forward‑looking statements. These statements refer only to the date on which they were made, and we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information or any other event.
In light of these risks and uncertainties, the forward‑looking statements, events and circumstances discussed in this annual report may not be accurate, and our actual results and performance could differ materially from those anticipated in our forward-looking statements. Investors should not make investment decisions based solely on the forward-looking statements in this annual report.
5Form 20-F – December 2017
5 Bradesco
PART I | |||
Form 20-F | |||
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Not applicable.
Not applicable.
We present below our selected financial data derived from our consolidated financial statements as of and for the years ended December 31, 2019, 2018, 2017, 2016 2015, 2014 and 2013,2015, which have been prepared in accordance with International Financial Reporting Standards (IFRS)IFRS as issued by the IASB and audited by KPMG Auditores Independentes, an independent registered public accounting firm.IASB. The financial data as of December 31, 2019 and 2018 and for the years ended December 31,2019, 2018 and 2017 2016 and 2015 is derived from our consolidated financial statements included in this annual report. The financial data as of December 31, 2017, 2016 and 2015 and for theyearsthe years ended December 31, 2014 and2013 is2016 and 2015 are derived from our consolidated financial statements, which are not included herein.
In 2019, we adopted IFRS 16 – Leases, replacing IAS 17 Leases, IFRIC 4, SIC 15 and SIC 27, establishing that lessees account for all leases according to a single model, similar to the accounting entry for financial leases in IAS 17. The adoption was mandatory starting from January 1, 2019 and as a result, certain tables in this annual report containing financial data which were impacted by the adoption of IFRS 16 and the resultant consolidated amounts for 2019 are not comparable with prior periods. For further information, see Note 41 to our Financial Statements in “Item 18. Financial Statements”.
In 2018, we adopted IFRS 9 – Financial instruments, which replaced IAS 39, which established a new approach for the classification and measurement of financial assets and liabilities, impairment, which replaces incurred losses with expected losses and hedge accounting.This adoption had its effects applied as of January 1, 2018, as a result, in certain tables containing financial data in this annual report, in the cases impacted by the adoption of IFRS 9, the consolidated amounts for 2019 and 2018 are not comparable with previous periods.
The following selected financial data should be read together with the "Presentation“Presentation of Financial and Other Information"Information” and "Item“Item 5. Operating and Financial Review and Prospects."
Selected Financial DataProspects”.
6 Form 20-F – December 2019
Year ended December 31, | US$ in | R$ in thousands | ||||
2017 | 2017 | 2016 | 2015 | 2014 | 2013 | |
Data from the Consolidated Statement of Income |
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Interest and similar income | 37,978,316 | 126,232,328 | 147,700,375 | 127,048,252 | 103,893,096 | 90,682,625 |
Interest and similar expenses | (22,741,866) | (75,589,415) | (91,037,386) | (71,412,210) | (53,847,329) | (41,382,142) |
Net interest income | 15,236,450 | 50,642,913 | 56,662,989 | 55,636,042 | 50,045,767 | 49,300,483 |
Fee and commission income | 6,844,223 | 22,748,828 | 20,341,087 | 17,856,873 | 16,759,980 | 14,535,723 |
Fee and commission expenses | - | - | (36) | (36,203) | (20,724) | (36,041) |
Net fee and commission income | 6,844,223 | 22,748,828 | 20,341,051 | 17,820,670 | 16,739,256 | 14,499,682 |
Net gains/(losses) on financial instruments classified as held for trading | 2,895,213 | 9,623,108 | 16,402,770 | (8,252,055) | (1,933,003) | (5,790,089) |
Net gains/(losses) on financial instruments classified as available for sale | 171,598 | 570,358 | (1,341,400) | (671,810) | (991,894) | (6,100,782) |
Losses on investments held-to-maturity | (16,403) | (54,520) | - | - | - | - |
Net gains/(losses) on foreign currency transactions | 428,111 | 1,422,957 | 150,757 | (3,523,095) | (1,244,680) | (1,093,597) |
Net income from insurance and pension plans | 1,877,366 | 6,239,990 | 4,155,763 | 5,497,505 | 5,411,845 | 6,933,680 |
Impairment of loans and advances | (5,072,759) | (16,860,835) | (15,350,278) | (14,721,152) | (10,291,386) | (9,623,870) |
Personnel expenses | (6,234,811) | (20,723,265) | (17,003,783) | (14,058,047) | (13,667,639) | (12,354,418) |
Other administrative expenses | (5,079,265) | (16,882,461) | (16,149,563) | (13,721,970) | (12,971,521) | (12,151,537) |
Depreciation and amortization | (1,374,501) | (4,568,568) | (3,658,413) | (2,942,003) | (2,932,687) | (2,740,830) |
Other operating income/(expenses) | (3,048,726) | (10,133,357) | (14,004,162) | (12,988,553) | (10,223,083) | (7,622,240) |
Income before income taxes and share of profit of associates and joint ventures | 6,626,496 | 22,025,148 | 30,205,731 | 8,075,532 | 17,940,975 | 13,256,482 |
Share of profit of associates and joint ventures | 517,002 | 1,718,411 | 1,699,725 | 1,528,051 | 1,389,816 | 1,062,687 |
Income before income taxes | 7,143,498 | 23,743,559 | 31,905,456 | 9,603,583 | 19,330,791 | 14,319,169 |
Income tax and social contribution | (1,934,219) | (6,428,956) | (13,912,730) | 8,634,322 | (3,914,313) | (1,833,031) |
Net income for the year | 5,209,279 | 17,314,603 | 17,992,726 | 18,237,905 | 15,416,478 | 12,486,138 |
Attributable to shareholders |
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Controlling shareholders | 5,141,514 | 17,089,364 | 17,894,249 | 18,132,906 | 15,314,943 | 12,395,920 |
Non-controlling interest | 67,766 | 225,239 | 98,477 | 104,999 | 101,535 | 90,218 |
(1) Amounts stated in U.S. dollars have been translated from Brazilianreais at an exchange rate of R$3.3238 per US$1.00, the Central Bank exchange rate on March 29, 2018. Such translations should not be construed as a representation that the Brazilianreal amounts presented were or could be converted into U.S. dollars at that rate. |
Table of Contents | ||
Form 20-F | ||
Year ended December 31, | R$ in thousands | ||||
2019 | 2018 | 2017 | 2016 | 2015 | |
Data from the Consolidated Statement of Income |
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Interest and similar income | 124,417,705 | 122,053,139 | 126,232,328 | 147,700,375 | 127,048,252 |
Interest and similar expenses | (58,617,986) | (55,244,669) | (75,589,415) | (91,037,386) | (71,412,210) |
Net interest income | 65,799,719 | 66,808,470 | 50,642,913 | 56,662,989 | 55,636,042 |
Net fee and commission income | 25,337,676 | 23,831,590 | 22,748,828 | 20,341,051 | 17,820,670 |
Net gains/(losses) on financial instruments at fair value through profit or loss | (1,090,917) | (11,676,573) | - | - | - |
Net gains/(losses) on financial instruments classified as held for trading | - | - | 9,623,108 | 16,402,770 | (8,252,055) |
Net gains/(losses) on financial instruments at fair value through other comprehensive income | 655,832 | 1,073,563 | - | - | - |
Net gains/(losses) on financial instruments classified as available for sale | - | - | 570,358 | (1,341,400) | (671,810) |
Losses on investments held-to-maturity | - | - | (54,520) | - | - |
Net gains/(losses) on foreign currency transactions | 323,774 | 1,096,826 | 1,422,957 | 150,757 | (3,523,095) |
Net income from insurance and pension plans | 8,254,939 | 7,656,872 | 6,239,990 | 4,155,763 | 5,497,505 |
Other operating income | 8,143,628 | (1,849,312) | 17,801,893 | 19,367,890 | (6,949,455) |
Impairment of loans and advances | - | - | (16,860,835) | (15,350,278) | (14,721,152) |
Expected credit losses for loans and advances | (12,532,133) | (15,091,975) | - | - | - |
Expected losses with other financial assets | (1,472,394) | (1,172,860) | - | - | - |
Personnel expenses | (24,526,318) | (18,871,462) | (20,723,265) | (17,003,783) | (14,058,047) |
Other administrative expenses | (16,489,578) | (16,873,962) | (16,882,461) | (16,149,563) | (13,721,970) |
Depreciation and amortization | (5,865,768) | (4,808,255) | (4,568,568) | (3,658,413) | (2,942,003) |
Other operating income/(expenses) | (26,214,836) | (14,210,594) | (10,133,357) | (14,004,162) | (12,988,553) |
Other operating expense | (87,101,027) | (71,029,108) | (69,168,486) | (66,166,199) | (58,431,725) |
Income before income taxes and share of profit of associates and joint ventures | 12,179,996 | 17,761,640 | 22,025,148 | 30,205,731 | 8,075,532 |
Share of profit of associates and joint ventures | 1,201,082 | 1,680,375 | 1,718,411 | 1,699,725 | 1,528,051 |
Income before income taxes | 13,381,078 | 19,442,015 | 23,743,559 | 31,905,456 | 9,603,583 |
Income tax and social contribution | 7,792,129 | (2,693,576) | (6,428,956) | (13,912,730) | 8,634,322 |
Net income for the year | 21,173,207 | 16,748,439 | 17,314,603 | 17,992,726 | 18,237,905 |
Attributable to shareholders |
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Controlling shareholders | 21,023,023 | 16,583,915 | 17,089,364 | 17,894,249 | 18,132,906 |
Non-controlling interest | 150,184 | 164,524 | 225,239 | 98,477 | 104,999 |
Year ended December 31, | R$, except for number of shares | ||||
2019 | 2018 | 2017 | 2016 | 2015 | |
Data on Earnings and Dividends per Share(1) |
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Earnings per share (2) |
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Common | 2.49 | 1.97 | 2.03 | 2.12 | 2.36 |
Preferred | 2.74 | 2.16 | 2.23 | 2.33 | 2.60 |
Dividends/interest on equity per share(3) |
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Common | 1.88 | 0.87 | 0.85 | 0.83 | 0.79 |
Preferred | 2.07 | 0.95 | 0.94 | 0.91 | 0.87 |
Weighted average number of outstanding shares(1) |
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Common | 4,025,988 | 4,025,988 | 4,025,988 | 4,025,988 | 3,660,187 |
Preferred | 4,007,025 | 4,007,025 | 4,007,025 | 4,007,025 | 3,645,500 |
(1) Adjusted for corporate events occurred in the periods. For more information about the company events, see "Item 9.A. Offer and Listing Details;" | |||||
(2) None of our outstanding liabilities are exchangeable for or convertible into equity securities. Therefore, our diluted earnings per share do not differ from our earnings per share. Accordingly, our basic and diluted earnings per share are equal in all periods presented; and | |||||
(3) Holders of preferred shares are entitled to receive dividends per share in an amount 10.0% higher than the dividends per share paid to common shareholders. In 2019, we made an extraordinary dividend payment of R$ 8.0 billion, paid on October 23, 2019. |
Year ended December 31, | In US$ |
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2019 | 2018 | 2017 | 2016 | 2015 | |
Dividends/interest on equity per share(1) |
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Common | 0.47 | 0.22 | 0.26 | 0.25 | 0.20 |
Preferred | 0.51 | 0.25 | 0.28 | 0.28 | 0.22 |
(1) Amounts stated in U.S. dollars have been translated from Brazilianreais at the exchange rate disclosed by the Central Bank at the end of each fiscal year. |
6Bradesco
7 Bradesco
3.A. Selected Financial Data | ||
Form 20-F |
Year ended December 31, | R$, except for number of shares | ||||
2017 | 2016 | 2015 | 2014 | 2013 | |
Data on Earnings and Dividends per Share(1) |
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Earnings per share (2) |
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Common | 2.67 | 2.80 | 2.84 | 2.39 | 1.94 |
Preferred | 2.94 | 3.08 | 3.12 | 2.64 | 2.13 |
Dividends/interest on equity per share(3) |
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Common | 1.13 | 1.09 | 0.95 | 0.79 | 0.65 |
Preferred | 1.24 | 1.20 | 1.04 | 0.86 | 0.70 |
Weighted average number of outstanding shares(1) |
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Common | 3,049,448,563 | 3,049,448,563 | 3,050,040,493 | 3,050,272,329 | 3,050,272,329 |
Preferred | 3,035,625,047 | 3,035,625,047 | 3,035,625,047 | 3,041,434,763 | 3,043,058,970 |
(1) Adjusted for corporate events occurred in the periods. For more information about the company events, see "Item 9.A. Offer and Listing Details;" | |||||
(2) None of our outstanding liabilities are exchangeable for or convertible into equity securities. Therefore, our diluted earnings per share do not differ from our earnings per share. Accordingly, our basic and diluted earnings per share are equal in all periods presented; and | |||||
(3) Holders of preferred shares are entitled to receive dividends per share in an amount 10.0% greater than the dividends per share paid to common shareholders. For purposes of calculating earnings per share according to IFRS, we used the same criteria adopted for dividends per share. For a description of our two classes of shares. see "Item 10.B. Memorandum and Articles of Association." |
Year ended December 31, | In US$ | ||||
2017 | 2016 | 2015 | 2014 | 2013 | |
Dividends/interest on equity per share(1) |
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Common | 0.34 | 0.37 | 0.27 | 0.33 | 0.30 |
Preferred | 0.38 | 0.41 | 0.29 | 0.36 | 0.33 |
(1) Amounts stated in U.S. dollars have been translated from Brazilianreais at the exchange rate disclosed by the Central Bank at the end of each fiscal year. |
7Form 20-F – December 2017
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As of December 31, | R$ in thousands | ||||
2019 | 2018 | 2017 | 2016 | 2015 | |
Data from the Consolidated Statement of Financial Position |
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Assets |
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Cash and balances with banks | 109,610,999 | 107,209,743 | 81,742,951 | 72,554,651 | 72,091,764 |
Financial assets at fair value through profit or loss | 249,759,777 | 246,161,150 | - | - | - |
Financial assets held for trading | - | - | 241,710,041 | 213,139,846 | 159,623,449 |
Financial assets at fair value through other comprehensive income | 192,450,010 | 178,050,536 | - | - | - |
Financial assets available for sale | - | - | 159,412,722 | 113,118,554 | 117,695,450 |
Financial assets at amortized cost | - | - | - | - | - |
Loans and advances to banks, net of impairment | 59,083,791 | 105,248,950 | 32,247,724 | 94,838,136 | 35,620,410 |
Loans and advances to customers, net of impairment | 423,528,716 | 380,387,076 | 346,758,099 | 367,303,034 | 344,868,464 |
Securities, net of impairment | 166,918,360 | 140,604,738 | - | - | - |
Other financial assets | 56,101,781 | 43,893,309 | - | - | - |
Investments held to maturity | - | - | 39,006,118 | 43,002,028 | 40,003,560 |
Financial assets pledged as collateral | - | - | 183,975,173 | 155,286,577 | 144,489,921 |
Non-current assets held for sale | 1,357,026 | 1,353,330 | 1,520,973 | 1,578,966 | 1,247,106 |
Investments in associates and joint ventures | 7,635,612 | 8,125,799 | 8,257,384 | 7,002,778 | 5,815,325 |
Premises and equipment | 14,659,222 | 8,826,836 | 8,432,475 | 8,397,116 | 5,504,435 |
Intangible assets and goodwill, net of accumulated amortization | 14,724,647 | 16,128,548 | 16,179,307 | 15,797,526 | 7,409,635 |
Taxes to be offset | 15,685,801 | 13,498,264 | 10,524,575 | 7,723,211 | 6,817,427 |
Deferred income tax assets | 59,570,055 | 48,682,569 | 43,731,911 | 45,116,863 | 45,397,879 |
Other assets | 7,441,888 | 7,372,866 | 50,853,987 | 47,170,370 | 40,118,697 |
Total assets | 1,378,527,685 | 1,305,543,714 | 1,224,353,440 | 1,192,029,656 | 1,026,703,522 |
Liabilities |
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Liabilities at amortized cost |
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Deposits from banks | 227,819,611 | 247,313,979 | 285,957,468 | 301,662,682 | 293,903,391 |
Deposits from customers | 366,227,540 | 340,748,196 | 262,008,445 | 232,747,929 | 194,510,100 |
Funds from issuance of securities | 170,727,564 | 148,029,018 | 135,174,090 | 151,101,938 | 109,850,047 |
Subordinated debt | 49,313,508 | 53,643,444 | 50,179,401 | 52,611,064 | 50,282,936 |
Other financial liabilities | 79,121,127 | 62,598,235 | - | - | - |
Financial liabilities at fair value through profit or loss | 14,244,083 | 16,152,087 | - | - | - |
Financial liabilities held for trading | - | - | 14,274,999 | 13,435,678 | 19,345,729 |
Provision for expected losses |
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- Loan Commitments | 2,318,404 | 2,551,676 | - | - | - |
- Financial Guarantees | 1,970,321 | 719,216 | - | - | - |
Technical provisions for insurance and pension plans | 268,302,691 | 251,578,287 | 239,089,590 | 215,840,000 | 170,940,940 |
Other reserves | 25,239,929 | 19,802,171 | 18,490,727 | 18,292,409 | 15,364,317 |
Current income tax liabilities | 2,595,277 | 2,373,261 | 2,416,345 | 2,130,286 | 2,781,104 |
Deferred income tax assets | 1,080,603 | 1,200,589 | 1,251,847 | 1,762,948 | 772,138 |
Other liabilities | 34,023,453 | 34,157,435 | 97,816,824 | 96,965,515 | 78,038,058 |
Total liabilities | 1,242,984,111 | 1,180,867,594 | 1,106,659,736 | 1,086,550,449 | 935,788,760 |
Shareholders’ equity |
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Capital | 75,100,000 | 67,100,000 | 59,100,000 | 51,100,000 | 43,100,000 |
Treasury shares | (440,514) | (440,514) | (440,514) | (440,514) | (431,048) |
Capital reserves | 35,973 | 35,973 | 35,973 | 35,973 | 35,973 |
Profit reserves | 51,986,423 | 53,267,584 | 49,481,227 | 50,027,816 | 49,920,020 |
Additional paid-in capital | 70,496 | 70,496 | 70,496 | 70,496 | 70,496 |
Other comprehensive income | 7,871,482 | 2,206,718 | 1,817,659 | (398,708) | (4,002,724) |
Retained earnings | 475,606 | 2,035,198 | 7,338,990 | 4,907,381 | 2,096,710 |
Equity attributable to controlling shareholders | 135,099,466 | 124,275,455 | 117,403,831 | 105,302,444 | 90,789,427 |
Non-controlling interest | 444,108 | 400,665 | 289,873 | 176,763 | 125,335 |
Total equity | 135,543,574 | 124,676,120 | 117,693,704 | 105,479,207 | 90,914,762 |
Total liabilities and equity | 1,378,527,685 | 1,305,543,714 | 1,224,353,440 | 1,192,029,656 | 1,026,703,522 |
As of December 31, | US$ in | R$ in thousands | ||||
2017 | 2017 | 2016 | 2015 | 2014 | 2013 | |
Data from the Consolidated Statement of Financial Position |
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Assets |
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Cash and cash equivalents | 24,593,222 | 81,742,951 | 72,554,651 | 72,091,764 | 65,430,300 | 67,450,363 |
Financial assets held for trading | 72,720,994 | 241,710,041 | 213,139,846 | 159,623,449 | 78,498,311 | 96,092,523 |
Financial assets available for sale | 47,960,985 | 159,412,722 | 113,118,554 | 117,695,450 | 120,961,734 | 67,838,411 |
Investments held to maturity | 11,735,399 | 39,006,118 | 43,002,028 | 40,003,560 | 25,071,031 | 23,069,026 |
Financial assets pledged as collateral | 55,350,855 | 183,975,173 | 155,286,577 | 144,489,921 | 152,612,689 | 117,740,225 |
Loans and advances to banks, net of impairment | 9,702,065 | 32,247,724 | 94,838,136 | 35,620,410 | 72,974,619 | 78,719,723 |
Loans and advances to customers, net of impairment | 104,325,801 | 346,758,099 | 367,303,034 | 344,868,464 | 328,064,004 | 304,121,334 |
Non-current assets held for sale | 457,601 | 1,520,973 | 1,578,966 | 1,247,106 | 1,006,461 | 832,546 |
Investments in associates and joint ventures | 2,484,320 | 8,257,384 | 7,002,778 | 5,815,325 | 3,983,780 | 3,392,847 |
Premises and equipment | 2,536,998 | 8,432,475 | 8,397,116 | 5,504,435 | 4,700,518 | 4,501,967 |
Intangible assets and goodwill, net of accumulated amortization | 4,867,714 | 16,179,307 | 15,797,526 | 7,409,635 | 7,529,915 | 8,220,739 |
Taxes to be offset | 3,166,428 | 10,524,575 | 7,723,211 | 6,817,427 | 6,130,191 | 5,293,116 |
Deferred income tax assets | 13,157,203 | 43,731,911 | 45,116,863 | 45,397,879 | 28,388,183 | 25,661,079 |
Other assets | 15,299,954 | 50,853,987 | 47,170,370 | 40,118,697 | 35,099,280 | 35,367,715 |
Total assets | 368,359,540 | 1,224,353,440 | 1,192,029,656 | 1,026,703,522 | 930,451,016 | 838,301,614 |
Liabilities |
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Deposits from banks | 86,033,296 | 285,957,468 | 301,662,682 | 293,903,391 | 279,940,227 | 243,100,373 |
Deposits from customers | 78,827,982 | 262,008,445 | 232,747,929 | 194,510,100 | 210,031,505 | 216,218,057 |
Financial liabilities held for trading | 4,294,783 | 14,274,999 | 13,435,678 | 19,345,729 | 3,315,573 | 1,826,382 |
Funds from issuance of securities | 40,668,539 | 135,174,090 | 151,101,938 | 109,850,047 | 85,030,399 | 57,883,068 |
Subordinated debt | 15,096,998 | 50,179,401 | 52,611,064 | 50,282,936 | 35,821,666 | 35,885,003 |
Technical provisions for insurance and pension plans | 71,932,604 | 239,089,590 | 215,840,000 | 170,940,940 | 146,559,220 | 130,329,023 |
Other reserves | 5,563,129 | 18,490,727 | 18,292,409 | 15,364,317 | 13,864,401 | 13,752,577 |
Current income tax liabilities | 726,983 | 2,416,345 | 2,130,286 | 2,781,104 | 3,602,333 | 3,082,976 |
Deferred income tax assets | 376,631 | 1,251,847 | 1,762,948 | 772,138 | 808,178 | 799,824 |
Other liabilities | 29,429,215 | 97,816,824 | 96,965,515 | 78,038,058 | 69,185,709 | 63,321,405 |
Total liabilities | 332,950,158 | 1,106,659,736 | 1,086,550,449 | 935,788,760 | 848,159,211 | 766,198,688 |
Shareholders’ equity |
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Capital | 17,780,853 | 59,100,000 | 51,100,000 | 43,100,000 | 38,100,000 | 38,100,000 |
Treasury shares | (132,533) | (440,514) | (440,514) | (431,048) | (298,015) | (269,093) |
Capital reserves | 10,823 | 35,973 | 35,973 | 35,973 | 35,973 | 35,973 |
Profit reserves | 14,886,945 | 49,481,227 | 50,027,816 | 49,920,020 | 43,765,349 | 34,122,503 |
Additional paid-in capital | 21,209 | 70,496 | 70,496 | 70,496 | 70,496 | 70,496 |
Other comprehensive income | 546,862 | 1,817,659 | (398,708) | (4,002,724) | (659,501) | (1,102,887) |
Retained earnings | 2,208,012 | 7,338,990 | 4,907,381 | 2,096,710 | 1,153,439 | 927,314 |
Equity attributable to controlling shareholders | 35,322,171 | 117,403,831 | 105,302,444 | 90,789,427 | 82,167,741 | 71,884,306 |
Non-controlling interest | 87,211 | 289,873 | 176,763 | 125,335 | 124,064 | 218,620 |
Total equity | 35,409,382 | 117,693,704 | 105,479,207 | 90,914,762 | 82,291,805 | 72,102,926 |
Total liabilities and equity | 368,359,540 | 1,224,353,440 | 1,192,029,656 | 1,026,703,522 | 930,451,016 | 838,301,614 |
(1) Amounts stated in U.S. dollars have been translated from Brazilianreais at an exchange rate of R$3.3238 per US$ 1.00, the Central Bank exchange rate on March 29, 2018. Such translations should not be construed as a representation that the Brazilian real amounts presented have been or could be converted into U.S. dollars at that rate. |
Exchange Rate Information
Over the past years, the exchange rate between therealand the U.S. dollar has experienced significant variation:
In 2013, thereal depreciated 14.6% against the U.S. dollar, reaching R$2.3426 as of December 31, 2013.In 2014, thereal depreciated 13.4% against the U.S. dollar, reaching R$2.6562 as of December 31, 2014. In 2015, therealdepreciated 47.0% against the U.S. dollar, reaching R$3.9048 as of December 31, 2015. In 2016, thereal appreciated 16.5% against the U.S. dollar, reaching R$3.2591 as of December 31, 2016. In 2017, thereal depreciated 1.5% against the U.S. dollar, reaching R$3.3080 as of December 31, 2017.
On March 29, 2018, the exchange rate was R$3.3238 per US$1.00, a depreciation of 0.5% of thereal against the U.S. dollar, when compared to December 31, 2017. Under the current floating exchange-rate system, thereal may be subject to fluctuations and depreciation or appreciation against the U.S. dollar and other currencies.
The following table sets forth the period‑end, average and high and low selling rates reported by the Central Bank at closing, for the periods and dates indicated:
8Bradesco
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2017 | ||||
Period | Period-End | Average(1) | High (1) | Low(1) |
2013 | 2.3426 | 2.1641 | 2.3725 | 1.9754 |
2014 | 2.6562 | 2.3586 | 2.6562 | 2.2025 |
2015 | 3.9048 | 3.3314 | 3.9729 | 2.6562 |
2016 | 3.2591 | 3.4849 | 4.0428 | 3.1811 |
2017 |
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October | 3.2769 | 3.1933 | 3.3082 | 3.0993 |
November | 3.2616 | 3.1990 | 3.3082 | 3.0993 |
December | 3.3080 | 3.2074 | 3.3082 | 3.0993 |
2018 |
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January | 3.1624 | 3.2352 | 3.3080 | 3.1624 |
February | 3.2449 | 3.2384 | 3.3080 | 3.1624 |
March | 3.3238 | 3.2598 | 3.3238 | 3.1624 |
(1) Average, high and low month end rates from December of the previous period. | ||||
Source: Central Bank. |
8 Form 20-F – December 2019
Table of Contents | ||
Form 20-F | ||
Not applicable.
Not applicable.
3.D.10Macroeconomic risks
3.D.10.01Domestic Environment
3.D.10.01-01The impact of the COVID-19 pandemic on the global and domestic economy may negatively affect our operations and financial position.
The current weaknessrecent COVID-19 pandemic has generated great challenges and uncertainties around the world. It is the largest health crisis of our time, according to the WHO. In order to mitigate the impacts of this crisis, governments and central banks around the world have intervened in Brazilian macroeconomic conditionsthe economy of their countries and have adopted unconventional measures, like the closing of non-essential economic activity and actions of monetary stimulus, with the practice of zero interest rates in addition to fiscal expansion. However, it is not yet possible to affirm whether these measures will be sufficient to prevent a global recession in 2020.
The scenario being traced for Brazil at the beginning of 2020 was positive, with projections that the country would have a substantial acceleration in GDP growth acceleration with additional advances in the reform agenda and the market perceptionmaintenance of interest rates at historically low levels. However, the Brazilian economy is not immune to a global crisis of such large proportions. Following confirmation of the first case of COVID-19 in Brazil in January, the number of infections have increased rapidly.
The impact of the pandemic has generated certain negative impacts on the Brazilian economy, including: (i) higher risk aversion, with pressures on the exchange rate; (ii) greater difficulties in foreign trade; and (iii) an increase in the uncertainties of economic agents. These impacts have been intensifying over time. As a response to the crisis, regional governments in most parts of Brazil imposed restrictions that largely paralysed economic activity in Brazil. In order to combat some of the economic effects of the pandemic, Committee of the Central Bank (Comitê de Política Monetária – "COPOM") and political risks alongside uncertainties relatingthe Central Bank have also implemented various measures, such as a decrease in the base interest rate from 4.25% to Brazil, including high-profile anti-corruption investigations, may3.75% (a new historic minimum – this reduction occurred in a context of well anchored inflationary expectations, core inflation at levels below the inflation target and high idle capacity in the economy, which had been gradually reducing in the previous quarters).
In addition, the CMN, the Central Bank and the Federal Government have implemented a materialvariety of measures to help the Brazilian economy face the adverse effects caused by the virus by means of:
9 Bradesco
3.D. Risk Factors | ||
Form 20-F | ||
·Resolution No. 4,782/20, which aims to facilitate the renegotiation of loans to companies, allowing for adjustments in the cash flows of companies and not requiring the banks to increase the provisioning;
·Resolution No. 4,783/20, which reduced the minimum capital requirements, in order to enhance the lending capacity of banks;
·Resolution No. 4,784/20, which extends the effects of the 'tax assets arising from tax losses' in the calculation of the 'prudential adjustments' – as originally stipulated in Resolution No. 4,680/18;
·Resolution No. 4,786/20, which aims to ensure the maintenance of adequate levels of liquidity in the National Financial System, allowing the Central Bank to grant loans through the Special Temporary Liquidity Line ("LTEL"), regulated by Circular No. 3,994/20;
·Resolution No. 4,803/20, amendments to the criteria the measurement of provisions for doubtful debtors of the renegotiated operations by financial institutions and others authorized by the Central Bank, due to the COVID-19 pandemic. With this Resolution, the reclassification of the renegotiated operations is permitted between March 1 and September 30, 2020 to the level they were classified into on February 29, 2020;
·Circular No. 3,991/20, which dismissed the advance notification of the amendment of the opening hours and compliance with the mandatory and uninterrupted hours in the case of multiple banks, like ours;
·Circular No. 3,993/20, which reduced the percentage of the compulsory on time deposits and perfects the rules of the Liquidity Coverage Ratio ("LCR"). The practical and joint effect on our financial conditionof these measures is the improvement in the liquidity conditions of the National Financial System; and on
·Provisional Measure No. 930/20, which aims to eliminate the asymmetry of tax treatment between the results of operations.the exchange rate variation on investments of banks abroad and the result of the hedge/overhedge for the foreign exchange hedging of these investment. In moments of higher volatility, like the current one, the exchange rate variations cause the overhedge to increase the consumption of capital of banks and extend the market volatility, with negative effects for its functionality. The proposed measure aims to correct this imbalance, eliminating this negative effect on the foreign exchange market and on banks.
TheLegislative Powers have also tried to approve bills that minimize the repercussion of COVID-19, including proposing the temporary suspension of taxes (such as the relaxation of the IOF on loan and the deferral of payment of PIS/COFINS) and granting tax benefits to the sectors of the economy/workers most affected.
However, projections estimate that Brazil will face an economic downturn in 2020. As the vast majority of our operations are conducted in Brazil, and, accordingly, our results are significantly impacted by macroeconomic conditions in Brazil. The reorientation
We cannot control, and nor can we predict what measures or policies the government may adopt in response to the current or future economic situation in Brazil, nor how the intervention or government policies will affect the Brazilian economy and how they will affect our operations and revenue. Initially, we expect our assets and liabilities to be impacted as a result of the Brazilian economic policy, initiatedCOVID-19, however, considering the current stage of the crisis and the approved date of the financial statements in 2016, enabledIFRS it was not possible to estimate the advancementimpacts of measures aimed at minimizing imbalancesthe COVID-19.
However, our activities are in full operational capability. Since the beginning of the pandemic, our actions have taken into account the guidelines of the Ministry of Health. We have established a crisis committee formed by the Chief Executive Officer, all Vice-Presidents and raising the potential for growth. The anchoring of inflation expectations allowed the Central Bank to reduce the basic interest rateChief Risk Officer (CRO), which meets daily and reports periodically, to the lowestBoard of Directors, evaluations on the evolution of Covid-19 and its effects on operations. In addition, we have a Risk Committee, which plays an important role in verifying the various points and scope of these actions in the Organization. We launched the Business Continuity Plan (PCN), and since the second half of March 2020, we have intensified internal and external actions, in a consistent and timely manner, with the aim of minimizing the impacts involved, of which we highlight:
·giving leave to employees of at-risk groups for an indefinite period of time;
·increasing the number of employees working from home, with approximately 90% of our employees from the headquarters and offices and 50% of the branch employees working from home;
10 Form 20-F – December 2019
Table of Contents | ||
Form 20-F | ||
·defining the protocol, together with our Medical Area, for employees and family members who have symptoms of COVID-19; and
·intensifying the communication with our branches, providing guidance to our customers and employees about the prevention measures and the remote means of customer service.
Below we highlight the main items of our balance sheet which may potentially be impacted:
·Financial instruments: whose fair value may vary significantly given the price volatility of these assets, especially those issued by private companies that have a higher credit risk;
·Loans and advances and other credit exposures: we expect an increase in our level of arrears in history. From the fiscal perspective, despite advancementspayment of loans, to the extent that the economic situation will deteriorate further, as well as facing significant challenges to take possession and realize the collateral resulting from guarantees related to loans in default;
·Deferred tax assets: whose recoverability depends on future taxable profits, which may be affected depending on the consequences of the pandemic event if it extends over a long period of time;
·Intangible assets: may have their recoverable amount impacted on the basis of the changes caused by the crisis to their main assumptions of realization, such as the approvalrates of returns initially expected;
·Funding: volatility, as well as uncertainties in credit and capital markets, generally reduces liquidity, which could result in an increase in the cost of funds for financial institutions, which may impact our ability to replace, appropriately and at reasonable costs, obligations that are maturing and/or the access to new resources to execute our growth strategy;
·Technical provisions of insurance and pension plans: depending on the evolution of the Long Term Index (Taxa de Longo Prazo) or (“TLP”)crisis these may be impacted negatively given the possible increase in the level of claims, mainly in the "life" segment and a higher frequency of claims from "health" policyholders with the recoveryincreased use of hospitals, furthermore, we may experience higher demand for early redemptions by pension plan participants, which would impact our revenues concern regarding sustainabilitythrough a reduction in the management fees we charge; and
·Civil and labor provisions: the number of Brazil’s national debt remained present, especiallylabor lawsuits may increase as a result of third party suppliers that go bankrupt as we may be considered co-responsible in lightthese lawsuits. It is also possible that we could experience a greater volume of civil processes, mainly involving reviews and contract renewals.
One of the lackmain objectives of progress in relationour structure of risk management is monitor the allocation of capital and liquidity, aiming to pension reform.
The executive branchmaintain the levels of the Brazilian government (or Federal Government) sought a vote on pension reform by Congress during the first half of 2018, which could only be achieved through an amendment to the Brazilian Federal Constitution (the "Brazilian Constitution"). However, due to the upcoming presidential, governors, senators and congressman elections in October 2018 and other political matters, the pension reform voting was postponed until after the elections or in 2019.
On February 16, 2018, President Michel Temer, by means of Decree No. 9,288/18 approved by the National Congress, determined a federal intervention in the State of Rio de Janeiro until December 31, 2018. The Brazilian Constitution cannot be amended during a federal intervention, pursuant to article 60, paragraph 1. On this basis, we believe that pension reform can only be voted on in 2019. However, it is important to highlight that,risk in accordance with the Brazilian Constitution,limits established and, in addition, monitor the intervention period may be reduced ifeconomic scenarios actively (national and international), as well as the reasonsevolution of the COVID-19 pandemic and will make every effort to maintain the fullness of our operations, the services to the population, and the stability of the national financial system.
We offer emergency lines of credit to companies, such as funds for the intervention cease.financing of payrolls, as well as the extension of the installments of loan operations to individuals for which the amounts in question, up to the date of this annual report, were immaterial.
If pension reform is not voted byWe will continue to measure the endfuture financial and economic impacts related to the pandemic, although, they possess a certain level of 2018, weuncertainty and depend on the development of pandemic, as its duration or deterioration cannot predict if this willyet be pursued by the next president.
In 2014, the Brazilian Federal Police and the Prosecution Office commenced a series of anti-corruption investigations called "Operation Car Wash" ("Operação Lava Jato") in which, among other
9Form 20-F – December 2017
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matters, certain officers and employees of Petróleo Brasileiro S.A. ("Petrobras"), a Brazilian state-controlled company, were accused of accepting illegal payments in order to wrongly influence commercial decisions of Petrobras. During the course of 2014, 2015 and 2016, these anti-corruption investigations have expanded and have given rise to various criminal proceedings involving not only senior officers and employees of Petrobras but also senior officers of companies in Brazil, notably in the construction sector and some politicians. In the U.S., the SEC and the Department of Justice are also conducting their own investigations into a number of these allegations. The high-profile nature of these investigations may have momentarily harmed the reputation of Brazil,predicted, which could reduce investor confidence, making it more difficultcontinue adversely affecting the global and local economy for companies located in Brazil to obtain funding. We cannot predict how long the anti-corruption investigations will continue, or how significant the effectsan indefinite period of the anti-corruption investigations may be for the Brazilian economy. If uncertainty surrounding the Brazilian economy continues, or if there is a material reduction in investor confidence as a result of these investigations,time, which could negatively affects the results of our operations may be adversely affected.
In addition, our subsidiary Banco Bradesco BBI S.A. (“Bradesco BBI”) is a party to certain legalfinancial institutions and administrative proceedings filed against Petrobras and other defendants, due to its role as underwriter in a note offeringconsequently the performance of Petrobras. An agreement in principle was reached to settle those proceedings in January 2018, though it must be ratified by a judge before coming into effect. We or our subsidiaries may become a party to other legal and/or administrative proceedings against Petrobras or other companies which have not yet been filed. A negative outcome of these ongoing legal proceedings or any new legal proceedings may harm our reputation and may adversely affect our financial condition and our results of operations.
On December 2, 2015, the Brazilian House of Representatives opened impeachment proceedings against the then-President Dilma Rousseff, alleging non-compliance with the fiscal responsibility law. The Brazilian House of Representatives and the Brazilian Senate voted in favor of the admissibility of the impeachment proceedings on April 17, 2016 and on May 12, 2016, respectively. Due to the favorable vote of the Senate, President Rousseff was removed from the presidency for up to 180 days to defend herself in her impeachment trial. During the 180-day trial period, the Vice-President of Brazil acted as President. On August 10, 2016, the Brazilian Senate approved the report of its special impeachment committee which recommended that President Dilma Rousseff should be brought to trial by the upper house of the Brazilian legislature. On August 31, 2016, President Dilma Rousseff was found guilty, losing her mandate, and Vice-President Michel Temer took office for the remainder of the term until January 1, 2019. However, the resolution of the political and economic crisis in Brazil still depends on the outcome of the “Lava Jato” investigation and on the approval of reforms that are being promoted by the new President. Further, the initial mandate by Dilma Rousseff and Michel Temer following the general election in 2014 was under review by the Superior Election Tribunal (Tribunal Superior Eleitoral), but the charges against Michel Temer were dismissed. In May 2017, the Brazilian media revealed new allegations of corruption involving businessmen and certain high-profile political figures, including President Temer, which had a significant effect on the stock market and the value of the real. The Attorney-General presented two accusations against Mr. Temer before the Brazilian Supreme Court (Supremo Tribunal Federal), or ("STF"), on June 26, 2017 and on September 15, 2017, respectively. The Brazilian House of Representatives voted against the admissibility of both charges, on August 2, 2017 and on October 25, 2017, respectively. Approval of the Brazilian House of Representatives is a necessary requirement for the STF to judge a Brazilian President during his term in office. Any further allegations involving the President are yet to be confirmed through judicial and official investigations, however, they could lead to uncertainty regarding the possibility of Michel Temer facing judicial actions and/or an impeachment process.For instance, on February 27, 2018, the STF authorized an extension for 60 days of the investigation into whether Michel Temer accepted bribes to benefit companies in the Port of Santos, and on March 5, 2018 it authorized the disclosure of the President's banking information. The progress of this investigation and the possibility of new accusations may significantly change the Brazilian political climate.
The continuation of any of, or combination of, these factors may lead to a further slowdown in GDP growth, which may have an adverse effect on our financial condition and our results of operations.
3.D.10.01-02The government exercises influence over the Brazilian economy, and Brazilian political and economic conditions have a direct impact on our business.
Our financial condition and results of operations are substantially dependent on Brazil’sBrazil's economy, which in the past has been characterized by frequent and occasionally drastic intervention by the government and volatile economic cycles.
In the past, the Brazilian government has often changed monetary, fiscal, taxation and other policies to influence the course of Brazil’sBrazil's economy. We have no control over, and cannot predict, what measures or
10Bradesco
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policies the government may take in response to the current or future Brazilian economic situation or howgovernmenthow government intervention and government policies will affect the Brazilian economy and our operations and revenues.
Our operations, financial condition and the market price of our shares, preferred share ADSs and common share ADSs may be adversely affected by changes in certain policies related to exchange controls, tax and other matters, as well as factors such as:
· exchange rate fluctuations;
· base interest rate fluctuations;
· domestic economic growth;
· political, social or economic instability;
· monetary policies;
· tax policy and changes in tax regimes;
· exchange controls policies;
· liquidity of domestic financial, capital and credit markets;
· our customers' capacity to meet theirotherobligationstheir other obligations with us;
· decreases in wage and income levels;
· increases in unemployment rates;
· macroprudential measures;
· inflation;
11 Bradesco
3.D. Risk Factors | ||
Form 20-F | ||
· allegations of corruption against political parties, public officials, including allegations made in relation to the "Operation Car Wash" investigation, among others;
·the impact of widespread health developments, such as Covid-19, and the governmental, commercial, consumer and other responses thereto; and
· other political, diplomatic, social and economic developments, natural disasters, public health concerns, epidemics and pandemics within and outside of Brazil that affect the country.
Changes in, or uncertainties regarding, the implementation of the policies listed above could contribute to economic uncertainty in Brazil, thereby increasing the volatility ofin the Brazilian securities marketcapital markets and reducing the value of Brazilian securities traded internally or abroad.
Historically, the country’scountry's political scenariolandscape has influenced the performance of the Brazilian economy and the political crises have affected the confidence of investors and the general public, which has resulted in economic decelerationa slowdown in the economy and heightenedgreater volatility in the securities of Brazilian companies issued abroad by companies basedabroad.
Until the outbreak of Covid-19, the current government had been conducting an economic agenda with actions to reduce government spending, preparing the economy to compete in Brazil.international markets, improving the commercial environment and promoting privatizations and infrastructure concessions. The macroeconomic priorities during the Covid-19 pandemic, however, are focused on mitigating human and economic risks, which will result in temporary changes or interruptions to this economic agenda.
In October 2018, Brazil will have presidential electionsThe uncertainty surrounding the implementation of the government's economic agenda and we cannot guarantee thatwhen this may resume after the successor of President Michel Temer will maintainCovid-19 pandemic, as well as the samedirection economic policies adopted by the previous management. If the Brazilian government decides to make significant changespolicy may take in the economic policy, as from 2019, these changesfuture, influence the perception of risk in Brazil among foreign investors, which in turn may adversely affect the market value of our operatingcommon shares, preferred share ADSs and common share ADSs. For example, the market value of Brazilian companies has become more volatile during the previous presidential elections.
3.D.10.01-03 IfBrazil experiences substantial inflation in the future, our revenues and our ability to access foreign financial markets may be reduced.
Brazil has, in the past, experienced extremely high rates of inflation. Inflation and governmental measures to combat inflation had significant negative effects on the Brazilian economy and contributed to increased economic uncertainty and increased volatility in the Brazilian securities markets, which may have an adverse effect on us.
The memory of, and the potential for inflation, is still present, despite the monetary stability achieved in the mid-1990s, intensified as a result of the adoption of inflation targeting norms, with concerns that inflation levels might rise again. Current economic policy in Brazil is premised on a monetary regime which the Central Bank oversees in order to assure that the effective rate of inflation keeps in line with a predetermined and previously announced target. Brazil's rates of inflation reached 4.3% in 2019 and 3.8% in 2018, as measured by the Extended Consumer Price Index – "IPCA" (Índice Nacional de Preços ao Consumidor Amplo).
Faced with high expectations and high economic inactivity, which had been gradually reducing since 2017, inflation has remained below the middle of the target (4.0% for 2020). Despite recent exchange rate pressure, the more fragile economic activity resulting from the Covid-19 pandemic has brought inflation to levels closer to the target floor (2.5%), which could eventually lead to further decreases in interest rates.
Decreases in the base interest rate ("SELIC") set by theCOPOM may have an adverse effect on us by reducing the interest income we receive from our interest-earning assets and lowering our revenues and margins. Increases in SELIC rate may also have an adverse effect on us by reducing the demand for our credit, and increasing our cost of funds, domestic debt expense and the risk of customer default.
Future government actions, including the imposition of taxes, intervention in the foreign exchange market and actions to adjust or fix the value of thereal, as well as any GDP growth different from expected levels may trigger increases in inflation. If Brazil experiences fluctuations in rates of inflation in the future, our costs and net margins may be affected and, if investor confidence lags, the price of our securities may fall. Inflationary pressures may also affect our ability to access foreign financial and capital markets and may lead to counter-inflationary policies that may have an adverse effect on our business, financial condition, results of operations and the market value of our shares, preferred sharesshare ADSs and common shares ADSs,share ADSs.
12 Form 20-F – December 2019
Table of Contents | ||
Form 20-F | ||
3.D.10.01-04Changes inthebase interest rate by the Central Bank may materially adversely affect our margins and results of operations.
The stabilization of inflation allowed the Central Bank to reduce the basic interest rate to the lowest level in history. The SELIC, which in the first quarter of 2019 remained at 6.5% per annum ("p.a."), was reduced several times in the second quarter, having been progressively reduced and closing the year at 4.5% p.a. In February, the SELIC was reduced to 4.25%, and the Central Bank signaled the interruption of the loosening cycle. However, in March, in light of the intensification of risks due to the Covid-19 pandemic, the monetary authority made a further reduction to 3.75%, a new historical low. However, actions related to the reduction of compulsory fees and increasing liquidity in general were adopted as well asa stimulus in response to the shutdown of the economy.
This process of reducing the SELIC to its lowest historic level was influenced by the high level of inactivity in the goods and labor markets, but it was a credible move by the Central Bank, which has also advanced in its agenda of modernizing and reducing distortions in the Brazilian economyfinancial system. Such modernization includes a reduction in overall.compulsory fees, a reduction in informational asymmetries and increased competition in the banking market. Changes in the base interest rate may affect our results of operations as we have assets and liabilities indexed to the SELIC. At the same time, high base interest rates may increase the likelihood of customer delinquency, due to the deceleration in the economic activity. Similarly, low base interest rates may increase the leverage of borrowers, generating additional risk to financial system.
In addition, uncertainties aboutThe COPOM adjusts the currentSELIC rate in order to keep inflation within the range of targets set by the National Monetary Council ("CMN") to manage the Brazilian economy. We have no control over the SELIC rate or how often such a rate is adjusted.
3.D.10.01-05Developments and future government can influence the perception of risk in Brazil and other countries, especially emerging market countries, may adversely affect the market price of Brazilian securities, including our shares, preferred share ADSs and common share ADSs.
The market value of securities of Brazilian companies is affected to varying degrees by economic and market conditions in other countries, including other Latin American and emerging market countries. Although economic conditions in these countries may differ significantly from economic conditions in Brazil, investors' reactions to developments in these other countries may have an adverse effect on the market value of securities of issuers based in Brazil. Crises in other emerging market countries may diminish investor interest in securities of issuers based in Brazil, including ours, which could adversely affect the market price of our shares, preferred share ADSs and common share ADSs.
3.D.10.01-06Our investments in debts securities issued by the Brazilian government expose us to additional risks associated with Brazil.
We invest in debt securities issued by the Brazilian government. The trading price of these securities is affected by, among other things, market conditions in Brazil, the perception of Brazil among foreign investors,and the related perception of the Brazilian government's ability to repay principal and/or make interest payments. Accordingly, adverse developments or trends in any of these areas could have a knock-on adverse effect on the value of our securities portfolio, thereby affecting our financial condition and results of operations, which can in turn adverselymay affect the market value of our shares, preferred sharesshare ADSs and common sharesshare ADSs. The market value of Brazilian companies became more volatile during the previous presidential elections.
3.D.10.01-07Changes in taxes and other fiscal assessments may adversely affect us.
The government regularly enacts reforms to the tax and other assessment regimes to which we and our customers are subject. Such reforms include changes in the rate of assessments and, occasionally, enactment of temporary taxes, 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 have not been, and cannot be, quantified. There can be no assurance that these reforms will not, once implemented, 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 portfolio of loans and advances.
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3.D. Risk Factors | ||
Form 20-F | ||
3.D.10.02External Environment
3.D.10.02-01Currency exchange variations may have an adverse effect on the Brazilian economy and on our results and financial condition.
Fluctuations in the value of thereal may impact our business.Afterbusiness. After an extended period of appreciation, interrupted only in late 2008 as a result of the global crisis, the Brazilianreal started to weaken in mid-2011. Thismid-2011, a trend accelerated duringwhich continued until mid-2016. After a brief period of stable exchange rates, the following four years and wasinterrupted in 2016.real was once again devalued against the dollar. Weaker currency periods make certain local manufacturers (particularly exporters) more competitive, but also make managing economic policy, particularly inflation, increasingly difficult, even with a slowdown in growth. A weakerreal also adversely impacts companies based in Brazil with U.S. dollar indexed to and/or denominated debt.
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14 Form 20-F – December 20172019
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Form 20-F |
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As of December 31, 2017,2019, the net exposure in relation to our assets and liabilities denominated in, or indexed to, foreign currencies (primarily U.S. dollars) was 4.4%39.7% of our total assets.Ifnet asset. If the Brazilian currency devaluates or depreciates, weriskwe risk losses on our liabilities denominated in, or indexed to, foreign currencies, such as our U.S. dollar denominated long termlong-term debt and foreign currency loans, and experience gains on our monetary assets denominated in or indexed to foreign currencies, as the liabilities and assets are translated intoreais.Accordingly,. Accordingly, if our liabilities denominated in, or indexed to, foreign currencies significantly exceed our monetary assets denominated in, or indexed to, foreign currencies, including any financial instruments entered into for hedging purposes, a large devaluation or depreciation of the Brazilian currency could materially and adversely affect our financial results and the market price of our shares, preferred share ADSs and common share ADSs, even if the value of the liabilities has not changed in their originated currency. In addition, our lending transactions depend significantly on our capacity to match the cost of funds indexed to the U.S. dollar with the rates charged to our customers. A significant devaluation or depreciation of the U.S. dollar may affect our ability to attract customers on such terms or to charge rates indexed to the U.S. dollar.
Conversely, when the Brazilian currency appreciates, we may incur losses on our monetary assets denominated in, or indexed to, foreign currencies, mainly, the U.S. dollar, and we may experience decreases in our liabilities denominated in, or indexed to, foreigncurrencies,foreign currencies, as the liabilities and assets are translatedconverted intoreais. Therefore, if our monetary assets denominated in, or indexed to, foreigncurrenciesforeign currencies significantly exceed our liabilities denominated in, or indexed to, foreigncurrencies,foreign currencies, including any financial instruments entered into for hedging purposes, a large appreciation of the Brazilian currency could materially and adversely affect our financial results even if the value of the monetary assets has not changed in their originated currency.
If Brazil experiences substantial inflation in the future, our revenues and our ability to access foreign financial markets may be reduced.
Brazil has, in the past, experienced extremely high rates of inflation.Inflation and governmental measures to combat inflation had significant negative effects on the Brazilian economy andcontributed to increased economic uncertainty in Brazil and heightened volatility in the Brazilian securities markets, which may have an adverse effect on us.
The memory of and potential for inflation, is still present, despite the monetary stability achieved in the mid-1990s, which intensified after 1999 as a result of the adoption of inflation targeting norms. There are still concerns that inflation levels might rise again in the future. Current economic policy in Brazil is premised on a monetary regime which the Central Bank oversees in order to assure that the effective rate of inflation keeps in line with a predetermined and previously announced target. In 2017, Brazil’s rates of inflation reached 3.0%, 6.3% in 2016 and 10.7% in 2015, as measured by the Extended Consumer Price Index - “IPCA” (Índice Nacional de Preços ao Consumidor Amplo).
The recent government measures to combat inflation include maintaining an expansive monetary policy to reduce the interest rates in order to increase the availability of credit and drive the economic growth. Decreases in the base interest rate (“SELIC”) set by the Central Bank Committee on Monetary Policy (Comitê de Política Monetária – “COPOM”) may have an adverse effect on us by reducing the interest income we receive from our interest-earning assets and lowering our revenues and margins. Increases in SELIC rate may also have an adverse effect on us by reducing the demand for our credit, and increasing our cost of funds, domestic debt expense and the risk of customer default.
Future government actions, includingthe imposition of taxes, intervention in the foreign exchange market and actions to adjust or fix the value of the real, as well as any GDP growth different from expected levels may trigger increases in inflation. If Brazil experiences fluctuations in rates of inflation in the future, our costs and net margins may be affected and, if investor confidence lags, the price of our securities may fall. Inflationary pressures may also affect our ability to access foreign financial and capital markets and may lead to counter-inflationary policies that may have an adverse effect on our business, financial condition, results of operations and the market value of our shares, preferred share ADSs and common share ADSs.
Changes in base interest rate by the Central Bank may materially adversely affect our margins and results of operations.3.D.10.02-02
The stabilization of inflation allowed the Central Bank to reduce the basic interest rate to the lowest level in history.The base interest rate (SELIC) was 7.0%, 13.75% and 14.25%per annum(“p.a.”) as of December 31, 2017, 2016 and 2015, respectively. Changes in the base interest rate may adversely affect our results of operations as we have assets and liabilities indexed to the SELIC. At the same time, high base interest rates may increase the likelihood of customer delinquency, due to the deceleration in the
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economic activity. Similarly, low base interest rates may increase the leverage of borrowers, generating additional risk to financial system.
The COPOM adjusts the SELIC rate in order to keep inflation within the range of targets set by the National Monetary Council (CMN) to manage aspects of the Brazilian economy, including the protection of reserves and capital flows. We have no control over the SELIC rate or how often such a rate is adjusted.
Developments and the perception of risk in Brazil and other countries, especially emerging market countries, may adversely affect the market price of Brazilian securities, including our shares, preferred share ADSs and common share ADSs.
The market value of securities of Brazilian companies is affected to varying degrees by economic and market conditions in other countries, including other Latin American and emerging market countries. Although economic conditions in these countries may differ significantly from economic conditions in Brazil, investors' reactions to developments in these other countries may have an adverse effect on the market value of securities of issuers based in Brazil. Crises in other emerging market countries may diminish investor interest in securities of issuers based in Brazil, including ours, which could adversely affect the market price of our shares, preferred share ADSs and common share ADSs.
The exit of the United Kingdom (the “U.K”"U.K") from the European Union could adversely impact global economic or market conditions.
On June 23, 2016, the U.K.'s electorate voted in a general referendum in favor of the U.K.’s's exit from the European Union (so-called “Brexit”"Brexit"). On March 29, 2017,After a formal notification made by the U.K. gave formal notice underUnited Kingdom pursuant to Article 50 of the Treaty on European Union ("EU"), the United Kingdom left the European Union on January 31, 2020, at 11 pm local time. At the meeting of its intentionthe Special European Council (Article 50) of April 10, 2019, it was agreed that the Brexit would be postponed until October 31, 2019. At that moment, the EU treaties no longer applied to the United Kingdom. However, as part of the withdrawal agreement (the "Withdrawal Agreement"), the United Kingdom now finds itself in a period of implementation (the "Transition Period") during which the EU legislation still applies to the United Kingdom, which continues to be part of the single EU market, until the end of 2020 (with the possibility of extension).
The terms for the United Kingdom to leave the EU, including the future relationship and access to the European Union.Market, are not clear. The announcement of Brexit caused significant volatilityWithdrawal Agreement does not address, in global stock markets and currency exchange rate fluctuations. The ongoing process of negotiationsgeneral, the future relationship between the U.K.EU and the European Union will determineUnited Kingdom that should be the future termsobject of a separate agreement that has not yet been negotiated.
To the U.K.’s relationship withextent that the European Union, including access to European Union markets, either during a transitional period or more permanently. Brexit could lead to potentially divergent laws and regulations as the U.K.United Kingdom determines which European Unionwhat EU laws to replace or replicate. Uncertainty regardingreplicate, the Brexit can lead to diverging national laws and regulations. The uncertainty as to the terms of the Brexit and its eventualtheir possible effects, once implemented, could adverselycan negatively affect the confidence of investors, and the economic conditions ofthe European or the global economic or market conditions and investor confidence.market. This, could, in turn, may adversely affect our business and/or the market value of our shares, preferred share ADSs and common share ADSs.
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3.D. Risk Factors | ||
Form 20-F | ||
Our investments in debts issued by the Brazilian government expose us to additional risks associated with Brazil.
We invest in debt securities issued by the Brazilian government. The trading price of these securities is affected by, among other things, market conditions in Brazil, the perception of Brazil and the related perception of the Brazilian government's ability to repay principal and/or make interest payments. Accordingly, adverse developments or trends in any of these areas could have a knock-on adverse effect on the value of our securities portfolio, thereby affecting our financial condition and results of operations.
We3.D.20.01Market Risk
3.D.20.01-01Losses in our investments in financial assets at fair value through profit or loss and at fair value through other comprehensive income may be subjecthave a significant impact on our results of operations and are not predictable.
The fair value of certain investments in financial assets may decrease significantly and may fluctuate over short periods of time. As of December 31, 2019, the investments classified as "fair value through profit or loss" and as "fair value through other comprehensive income" represented 32.1% of our assets, and realized and unrealized gains and losses originating from these investments have had and may continue to negative consequenceshave a significant impact on the results of our operations. The amounts of these gains and losses, which we record when investments in securities are sold, or in certain limited circumstances when they are recognized at fair value, may fluctuate considerably from period to period.
Despite impacting our investment policies, asset and liability management (“ALM”) and risks, the models adopted may not prevent certain more abrupt oscillations in the movements of the judicial process arising from Operation Zelotes, includingmarket, so that the filing of a class- action lawsuit.
On May 31, 2016, a lawsuit was filed against three members of our Diretoria Executiva, within the so-called "Operação Zelotes” or “Operation Zealots,” which investigates the alleged improper performance of membersprofitability of the Federal Administrative Tax Court (Conselho Administrativo de Recursos Fiscais – "CARF"). On July 28, 2016, the Federal Public Prosecution Office pressed charges against three officers ofoperations is feasible, in certain moments, from effects that negatively affect its contribution in ourDiretoria Executiva income and a former member of our Board of Directors. The charges were received for processing by the Judge of the Tenth Federal District Court of the Federal District of Brazil. The executives have already submitted their respective defenses in the criminal proceeding and moved to dismiss the charges against them. At present, two of the three members of our Organization remain defendants in the proceeding. The process went through discovery phase and the next step is the presentation of closing arguments by the parties. After that, the judge will give a decision on the merits.shareholders’ equity.
Our Management conducted an internal evaluation of the records and documents related to the indictment and found no evidence of any unlawful conduct by our representatives. We provided all informations to the competent authorities and regulators in Brazil and abroad.
Following news reports of the Operation Zealots, a putative class-action lawsuit was filed in the US District Court for the Southern District of New York on June 3, 2016 asserting claims under Sections 10(b) and 20(a) of the U.S. Securities Exchange Act of 1934. On October 21, 2016, the Court-appointed Lead
133.D.20.02Credit RiskForm 20-F – December 2017
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Plaintiff submitted an Amended Class Action Complaint naming us and the three members of ourDiretoria Executivawho were indicted. The lawsuit alleges that investors who purchased our preferred ADSs between April 30, 2012 and July 27, 2016 suffered damages due to a supposed violation of U.S. securities laws.
On September 29, 2017, the Court decided to limit the claim to investors who acquired preferred ADSs between August 8, 2014 and July 27, 2016. The discovery phase has started and, because the lawsuit is in a preliminary stage, it is not possible at present to estimate the exposure and not enough elements are available to conduct a risk assessment.
We were also summoned by the internal affairs committee of the Brazilian Ministry of Finance to follow an Administrative Procedure to Determine Liability (Processo Administrativo de Responsabilização – “PAR”). This procedure carries the possibility of a fine being levied against us and/or inclusion of our name in public lists which may in turn restrict our ability to conduct business with state-owned entities.
Developments in the criminal proceeding may result in negative publicity for us, and we cannot predict what conclusion the Courts and other authorities may come to in connection with it. An adverse conclusion of this proceeding could result in legal exposure and other penalties for us negatively affect our reputation, financial condition and results ofoperations.
We may be subject to negative consequences from the “Operation Greenfield” investigation.3.D.20.02-01
The Federal Police is conducting an investigation called "Operação Greenfield," or "Operation Greenfield," into allegations of fraud involving certain pension funds. Our wholly-owned subsidiaries BEM - Distribuidora de Títulos e Valores Mobiliários Ltda.("BEM") and BRAM - Bradesco Asset Management S.A. Distribuidora de Títulos e Valores Mobiliários ("BRAM"), as well as two of their managers were mentioned by the Federal Police in relation to Operation Greenfield as they were responsible for the administration and management of an Equity Investment Fund, named Fundo de Investimento em Participações FIP Enseada (“FIP Enseada”). In the course of the investigation, the Federal Court authorized the seizing of a number of documents, and blocked the assets of BEM. In order to have its assets unblocked, BEM, together with BRAM signed a commitment, which was approved by the Tenth Federal Court of the Federal District, to release their assets in exchange for the provision of guarantees totaling R$104 million. In December 2017, an agreement between BEM, BRAM, Fundação Petrobras de Seguridade Social – PETROS, Fundação dos Economiários Federais – FUNCEF, Agência de Fomento do Estado do Amazonas S/A – AFEAM (all investors of FIP Enseada), and the Federal Public Prosecution Office was affirmed by the Tenth Federal Court of the Federal District pursuant to which: (i) BEM and BRAM committed to pay R$113 million; (ii) BEM, BRAM and its managers and officers committed to provide any clarifications to the authorities responsible for conducting this investigation, regardless of a formal subpoena; and (iii) BEM and BRAM committed to perform an independent internal investigation, in exchange for having their guarantees released. On December 11, 2017, the payment was made and the guarantees were released. BEM and BRAM did not acknowledge any civil or criminal liability by entering into this commitment. Additionally, internal evaluations indicate that there was no illegal conduct in the activities and the corresponding reports were submitted to the Federal Public Prosecution Office. The ongoing Operation Greenfield investigation may result in negative publicity for us and our subsidiaries, and we cannot predict what conclusion the Federal Police and other competent authorities, especially the Federal Public Prosecution Office may come to in connection with this investigation. A conclusion adverse to BEM and BRAM, or their managers, could negatively affect our reputation, financial condition and results of operations.In March 2018, the Federal Public Prosecution Office commenced proceedings in relation to the Operation Greenfield investigation. These proceedings did not include any of our officers, directors or employees.
We may experience increases in our level of past due loans as our loans and advances portfolio becomes more seasoned.
Historically, our loans and advances to customer portfolios registered an increase.Howeverincrease, interrupted in 2017 due to the recession in the Brazilian economy it experienced a decrease.during the year, and resuming growth in 2018. Any corresponding rise in our level of non-performing loans and advances may lag behind the rate of loan growth, as loans typicallydotypically do not have due payments for a short period oftimeof time after their origination. Levels of past due loans are normally higher among our individual clients than our corporate clients.
As of16 Form 20-F – December 31, 2017, our provision for impairment of loans and advances increased by 9.2% when compared to December 31, 2016, while our portfolio of loans and advances to customers decreased by 4.7% driven by the reduction of corporate customers' outstanding loans (which reduced 9.6%). Outstanding loans for individuals increased 1.8% over that same period.2019
As of December 31, 2016, our provision for the impairment of loans and advances decreased by 2.6% when compared to December 31, 2015,while our portfolio of loans and advances to customers increased by 5.9% over that same period (driven principally by our acquisition of the operations of HSBC Brasil).
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Form 20-F | ||
OurOur delinquency ratios, calculated based on information prepared in accordance with accounting practices adopted in Brazil (“("BR GAAP”GAAP"), which is defined as the totalloansoverdue for over ninety days in relation to the total portfolio of loans and advances decreasedto 4.7% in 2017. In 2016, our delinquency ratio increased to 5.5%,3.3% as of December 31, 2019, compared to 4.1% in 2015.3.5% as of December 31, 2018.
Rapid loan growth may also reduce our ratio of non-performing loans to total loans until growth slows or the portfolio becomes more seasoned. Adverse economic conditions and a slower growth rate for our loans and advances to customers may result in increases in our impairment of loans and advances charge-offs and our ratio of non-performing loans and advances to total loans and advances, which may have an adverse effect on our business, financial condition and results of operations.
3.D.20.02-02We may incur losses associated with counterparty exposures.
Counterparties may default on their obligations due to bankruptcy, lack of liquidity, operational failure or other reasons. This risk may arise, for example, as a result of entering into swap or other derivative contracts under which counterparties have obligations to make payments to us, executing currency or other trades that fail to settle at the required time due to non-delivery by the counterparty or systems failure by clearing agents, exchanges, clearing houses or other financial intermediaries. Such counterparty risk is more acute in complex markets where the risk of default by counterparties is higher.
3.D.20.02-03We may face significant challenges in possessing and realizing value from collateral with respect to loans in default.
If we are unable to recover sums owed to us under secured loans in default through extrajudicial measures 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 either have to enforce such collateral through the courts or through extrajudicial measures. However, even 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. In addition, our secured claims under Brazilian law will in certain cases rank below those of preferred creditors such as 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 of operations.
3.D.20.02-04We may incur losses due to impairments on goodwill from acquired businesses.
We record goodwill from acquisitions of investments whose value is based on estimates of future profitability pertaining to business plans and budgets prepared by us. Annually, we assess the basis and estimates of profitability of the Cash-Generating Units ("Unidades Geradoras de Caixa" or "UGC") in respect of which the premiums are allocated. These evaluations are made through cash flow projections based on growth rates and discount rates, with those projections then being compared to the value of the premiums in order to conclude whether there is a basis to record impairments in relation to these assets. However, given the inherent uncertainty in relation to predictions of future cash flow projections, we cannot provide assurances that our evaluations of premiums will not require impairments to be recorded in future, which may negatively affect, the result of our operations, our financial condition and the market value of our shares, preferred shares ADSs and common shares ADSs.
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3.D. Risk Factors | ||
Form 20-F | ||
3.D.20.03Liquidity Risk
3.D.20.03-01Adverse conditions in the credit and capital markets, just like the value and/or perception of value of Brazilian government securities, may adversely affect our ability to access funding in a cost effective and/or timely manner.
Volatility andas well as uncertainties in the credit and capital markets have generally decreased liquidity, with increased costs of funding for financial institutions and corporations. These conditions may impact our ability to replace, in a cost effective and/or timely manner, maturing liabilities and/or access funding to execute our growth strategy.
Part of our funding originates from repurchase agreements, which are largely guaranteed by Brazilian government securities. These types of transaction 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 Brazilian government securities may be significant for the availability of funds. For example, if the quality of the Brazilian government securities used as collateral is adversely affected, due to the worsening credit risk, the cost of these transactions could increase, making this source of funding inefficient for us. For further information about obligations for repurchase agreements, see “Item 4.B. Business Overview"Item 5.B. Liquidity and Capital Resources – Other funding sources.”5.B.20. Liquidity and funding".
If the market shrinks, which could cause a reduction in volume, or if there is increased collateral credit risk and we are forced to take and/or pay unattractive interest rates, our financial condition and the results of our operations may be adversely affected.
The increasingly competitive environment in the Brazilian bank and insurance industries may negatively affect our business prospects.
The markets for financial, banking and insurance services in Brazil are highly competitive. We face significant competition in all of our principal areas of operation from other large banks and insurance companies, both public and private based in Brazil and internationally.
Competition has increased as a result of consolidations among financial institutions in Brazil and as a result of regulations by the CMN that facilitate customers' ability to switch business between banks.The increased competition may materially and adversely affect usby, among other things,limiting our ability to retain our existing consumer base, increasing our customer base and expanding our operations, reducing our profit margins on bankingand otherservicesand products we offer, andlimiting investment opportunities.
The increased competition may negatively affect our business results and prospects by, among other things:
·limiting our ability to increase our customer base and expand our operations;
·reducing our profit margins in the banking, insurance, leasing and other services and products offered by us; and
·increasing competition for foreign investment opportunities.
Losses on our investments in financial assets held for trading and available for sale3.D.20.03-02may have a significant impact on our results of operations and are not predictable.
The value of certain investments in financial assets may decline significantly due to volatile financial markets and may fluctuate over short periods of time. As of December 31, 2017, the investments in financial assets held for trading and available for sale represented 32.8% of our assets, and realized gains and losses or unrealized gains and losses for financial assets held for trading and available for sale have had and may continue to have a significant impact on the results of our operations. The amounts of such gains and losses, which we record when investments in financial assets are sold, or in certain limited circumstances when they
15Form 20-F – December 2017
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are recognized at fair value, may fluctuate considerably from period to period. The level of fluctuation depends, in part, upon the fair value of the financial assets, which in turn may vary considerably, and our investment policies. We cannot predict the amount of realized gain or loss for any future period, and we believe that variations from period to period have no practical analytical value. Furthermore, any gains on our investment portfolio may not continue to contribute to net income at levels consistent with recent periods, and we may not successfully realize the appreciation in our consolidated investment portfolio or any portion thereof.
We may incur losses associated with counterparty exposures.
We face the possibility that a counterparty will be unable to honor its contractual obligations. These counterparties may default on their obligations due to bankruptcy, lack of liquidity, operational failure or other reasons. This risk may arise, for example, as a result of entering into swap or other derivative contracts under which counterparties have obligations to make payments to us, executing currency or other trades that fail to settle at the required time due to non-delivery by the counterparty or systems failure by clearing agents, exchanges, clearing houses or other financial intermediaries. Such counterparty risk is more acute in complex markets where the risk of failure of counterparties is higher.
Our trading activities and derivatives transactions may produce material losses.
We engage in the trading of securities, buying debt and equity securities principally to sell them in the near term with the objective of generating profits on short-term differences in price. These investments could expose us to the possibility of material financial losses in the future, as securities are subject to fluctuations in value, which may generate losses.value. In addition, we enter into derivatives transactions, mainly, to manage our exposure to interest rate and exchange rate risk. Such derivatives transactions are designed to protect us against increases or decreases in exchange rates or interest rates.
3.D.20.03-03Changes in regulations regarding reserve and compulsory deposit requirements may reduce operating margins.
The Central Bank has periodically changed the level of compulsory deposits that financial institutions in Brazil are required to abide by.
Compulsory deposits generally yield lower returns than our other investments and deposits because:
· | a portion of our compulsory deposits with the Central Bank do not bear interest; and |
· | a portion of our compulsory deposits must finance a federal housing program, the Brazilian rural sector, low income customers and small enterprises under a program referred to as a "microcredit program". |
Rules related to compulsory deposits have been changed from time to time by the Central Bank, as described in "Item 4.B. Business Overview – 4.B.70.02-05 – Compulsory Deposits".
As of December 31, 2019, our compulsory deposits in connection with demand, savings and time deposits and additional compulsory deposits were R$90.6 billion. Reserve requirements have been used by the Central Bank to control liquidity as part of monetary policy in the past, and we have no control over their imposition. Any increase in the compulsory deposit requirements may reduce our ability to lend funds and to make other investments and, as a result, may adversely affect us.
18 Form 20-F – December 2019
Table of Contents | ||
Form 20-F | ||
3.D.20.04Underwriting Risk
3.D.20.04-01Our losses in connection with insurance claims may vary from time to time. Differences between the losses from actual claims, underwriting and reserving assumptions and the related provisions may have an adverse effect on us.
The results of our operations depend significantly upon the extent to which our actual claims are consistent with the assumptions we used to assess our potential future policy and claim liabilities and to price our insurance products. We seek to limit our responsibility and price our insurance products based on the expected payout of benefits, calculated using several factors, such as assumptions for investment returns, mortality and morbidity rates, expenses, persistency, and certain macroeconomic factors, such as inflation and interest rates. These assumptions may deviate from our prior experience, due to factors beyond our control such as natural disasters (floods, explosions and fires), man-made disasters (riots, gang or terrorist attacks) or changes in mortality and morbidity rates as a result of advances in medical technology and longevity orincreases in mortality rates as a result of the covid-19 pandemic,among others. Therefore, we cannot determine precisely the amounts that we will ultimately pay to settle these liabilities, when these payments will need to be made, or whether the assets supporting our policy liabilities, together with future premiums and contributions, will be sufficient for payment of these liabilities. These amounts may vary from the estimated amounts, particularly when those payments do not occur until well in the future, which is the case with certain of our life insurance products. Accordingly, the establishment of the related provisions is inherently uncertain and our actual losses usually deviate, sometimes substantially, from such estimated amounts. To the extent that actual claims are less favorable than the underlying assumptions used in establishing such liabilities, we may be required to increase our provisions, which may have an adverse effect on our financial condition and results of operations.
3.D.20.04-02We are liable for claims of our customers if our reinsurers fail to meet their obligations under the reinsurance contracts.
The purchase of reinsurance does not hold us harmless against our liability towards our clients if the reinsurer fails to meet its obligations under the reinsurance contracts. As a result, reinsurers' insolvency or failure to make timely payments under these contracts could have an adverse effect on us, given that we remain liable to our policyholders.
3.D.20.05Operational Risk
3.D.20.05-01A failure in, or breach of, our operational, security or technology systems could temporarily interrupt our businesses, increasing our costs and causing losses.
We operate to provide security for the proper running of the business and to achieve the objectives established in accordance with applicable laws and regulations, ensuring processes have efficient controls. We constantly invest in the improvement and evolution of safety controls, resilience, continuity andmanagement of our information technology systems and as a result have created an environment with a high capacity to process data for our operating systems and our financial and accounting systems.
Due to the nature of our operations, the wide range of products and services offered and the significant volume of activities and operations performed, as well as the global context, where there is an ever-increasing integration among platforms, dependency on technology and on the internet, our information technology systems are exposed to various types of risks, due to both internal or external factors.
We and other financial institutions, including governmental entities, have already experienced cyber security events in relation to our information technology systems. Due to the controls, we have in place, we
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3.D. Risk Factors | ||
Form 20-F | ||
have not experienced any material loss of data from these attacks to date, neither from hardware nor from a data information loss perspective. However, considering the use of new technologies, the increasing dependency on the internet and the changing and sophisticated nature of cyber security events, it is not possible to predict all the means that will be used by individuals or organizations with harmful intent.
We believe that risk management is essential to ensure the long-term stability of financial institutions, whose processes involves several areas with specific assignments, ensuring an efficient structure. Item 4.B deals with other existing controls to mitigate the risks in more detail.
3.D.20.06Compliance, Conduct and Ethics Risk
3.D.20.06-01We may be subject to negative consequences in the event of an adverse judgment in the judicial proceedings related to Operation Car Wash and Operation Zealots, including the related class-action lawsuits.
Due to the so-called Operation Zealots or "Operação Zelotes", which investigates the alleged improper performance of members of the Administrative Council of Tax Appeals ("CARF"), a criminal proceeding against two former members of ourDiretoria Executiva was opened in 2016 and received by the 10th Federal Court of Judicial Section of the Federal District. The investigation phase of the process was already completed, and we are currently awaiting the decision of the first instance court.
Our Management conducted a careful internal evaluation of records and documents related to the matter and found no evidence of any illegal conduct by its representatives. We have provided all relevant information as requested to the competent authorities and regulatory bodies, both in Brazil and abroad.
As a result of the news about the Operation Zealots, a Class Action was filed against us and members of ourDiretoria Executiva before the District Court of New York ("Court"), on June 3, 2016, based on Section 10 (b) and 20 (a) of the Securities Exchange Act of 1934. On July 1, 2019, we and the Lead Plaintiff entered into an agreement ("Agreement") to terminate the Class Action, with the payment of US$14.5 million by us. The Agreement was finally approved by the Court on November 18, 2019 and the case was closed in relation to us and the former members of ourDiretoria Executiva. The Agreement does not represent the recognition of guilt or admission of liability by us, and we only entered into it to avoid uncertainties, costs and onus related to the progression of the Class Action.
Also as a result of Operation Zealots, the General Internal Affairs of the Ministry of Finance (Corregedoria Geral do Ministério da Fazenda) began an administrative investigation to verify the need to file an Administrative Accountability Process ("PAR"). The filing decision of the related procedure was published in Section 2 of theDiário Oficial da União(Federal Official Gazette) on February 3, 2020. The decision by the Official of the Ministry of Economy accepted in full the Final Report of the Processing Committee, the Opinion of the National Treasury Attorney General's Office and the Joint Order of the General Coordination of Management and Administration, and of the Leadership of the Advisory and Judgment Division, which confirmed, expressly recognizing, the lack of evidence that we had promised, offered or given, directly or indirectly, an unfair advantage to public agents involved in the related operation, in accordance with the provisions laid down in Article 5, section I, of Law No. 12,846/13.
In 2014 our subsidiary Banco Bradesco BBI S.A. (“Bradesco BBI”) was included as a party to legal proceedings filed in the United States against Petrobras and other defendants, due to its role as underwriter in a note offering of Petrobras. The agreement proposed by Petrobras was definitively approved by the American Court and the lawsuit was dropped.
The progress of the “Operation Car Wash” investigation and the unfolding events and the possibility of new accusations may significantly change the Brazilian political and economic climate.
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3.D.20.06-02Financial institutions can be legally involved in lawsuits originating from actions related to anti-corruption and money laundering to terrorism financing ("PLD/FT").
In light of the on-going anti-corruption agenda in Brazil, including the prevention of money laundering and the financing of terrorism ("PLD/FT"), may result in new investigations or legal proceedings in respect of alleged PLD/FT. Financial institutions, including us, could be involved in legal actions resulting from the actions perpetrated by individuals orcorporate entitiesrelated to the inappropriate use of the financial system for various purposes or unlawful acts, despite us being in compliance with our current obligations. Involvement in these actions may result in negative publicity for us, and adverse conclusions may negatively affect our financial condition, our results of operations and the market value of our shares, preferred shares ADSs and common shares ADSs.
For example, in 2019, in the context of the Operation Over and Out, an offshoot of “Operation Car Wash” (“Operação Lava Jato”), two of our former managers were investigated and reported by the Federal Attorney's Office for alleged involvement in the opening and maintenance of current accounts of companies with irregular features. We conducted a thorough internal investigation and adopted the governance measures we deemed necessary, putting ourselves at the disposal of the authorities to contribute to the verification of the facts. We cannot assure you that we will not be subject to further investigations or similar accusations in the future.
3.D.20.06-03The government regulates the operations of Brazilian financial institutions and insurance companies. Changes in existing laws and regulations or the imposition of new laws and regulations may negatively affect our operations and revenues.
Brazilian banks and insurance companies are subject to extensive and continuous regulatory review by the government. We have no control over government regulations, which govern all facets of our operations, including the imposition of:
· minimum capital requirements;
· compulsory deposit/reserve requirements;
· investment limitations in fixed assets investment limitations;assets;
· lending limits and other credit restrictions;
· earmarked credit transactions,loan operations, such as housing loans and rural credit;loans;
· accounting and statistical requirements;
· minimum coverage;
· mandatory provisioning policies;
· limits and other restrictions on rates; and
· limits on the amount of interest that theybanks can charge and the period for which they can capitalize on interest.
The regulatory structure governing banks and insurance companies based in Brazil is continuously evolving. Existing laws and regulations could be amended, the manner in which laws and regulations are enforced or interpreted could change, and new laws or regulations could be adopted. Such changes could materially adversely affect our operations and our revenues.
In particular, the government has historically enacted regulations affecting financial institutions in an effort to implement its economic policies. These regulations are intended to control the availability of credit and reduce or increase consumption in Brazil. These changes may adversely affect us because our returns on compulsory deposits are lower than those we obtain on our other investments. Regulations issued by the Central Bank are not subject to a legislative process. Therefore, those regulations can be enacted and implemented in a very short period of time, thereby affecting our activities in sudden and unexpected ways.
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A majority of our common shares are held, directly and indirectly, by one shareholder and none of our Board members are independent; accordingly, their interests may conflict with those of our other investors.3.D.20.06-04
As of December 31, 2017, Fundação Bradesco directly and indirectly held 57.0% of our common shares. As a result, Fundação Bradesco has the power, among other things, to prevent a change in control of our company, even if a transaction of that nature would be beneficial to our other shareholders, as well as to approve related party transactions or corporate reorganizations. Under the terms of Fundação Bradesco’s by-laws, members of ourDiretoria Executiva, that have been working with us for more than ten years serve as members of the Board of Trustees of Fundação Bradesco. The Board of Trustees has no other members.
Our Board of Directors has 8 members, none of whom are considered independent in accordance with the criteria included in Law No. 6,404/76 (the "Brazilian Corporate Law"), which states that only individuals may be appointed to a company's board of directors. Accordingly, there is no legal or statutory provision requiring us to have independent directors. As a result, the interests of our Board of Directors may not always be in line with the interests of our common shareholders and these holders do not have the same protectionsthey would have if most of the directors were independent. Furthermore, our directors are associated to Fundação Bradesco and circumstances may arise in which the interests of Fundação Bradesco, and its associates, conflict with our other investors’ interests.
Fundação Bradesco and our Board of Directors could make decisions in relation to our policy towards acquisitions, divestitures, financings or other transactions, which may be contrary to the interests of holders of common shares and have a negative impact on the interests of holders of common shares. For more information on our shareholders, see “Item 7.A. Major Shareholders.”
Changes in regulations regarding reserve and compulsory deposit requirements may reduce operating margins.
The Central Bank has periodically changed the level of compulsory deposits that financial institutions in Brazil are required to abide by.
Compulsory deposits generally yield lower returns than our other investments and deposits because:
·a portion of our compulsory deposits with the Central Bank do not bear interest;and
·a portion of our compulsory deposits must finance a federal housing program, the Brazilian rural sector, low income customers and small enterprises under a program referred to as a "microcredit program."
Rules related to compulsory deposits have been changed from time to time by the Central Bank, as described in "Item 4.B. Business Overview - Deposit-taking activities."
As of December 31, 2017, our compulsory deposits in connection with demand, savings and time deposits and additional compulsory deposits were R$66.7 billion. Reserve requirements have been used by the Central Bank to control liquidity as part of monetary policy in the past, and we have no control over their imposition. Any increase in the compulsory deposit requirements may reduce our ability to lend funds and to make other investments and, as a result, may adversely affect us. For further information on compulsory deposits, see "Item 4.B. Business Overview- Deposit - taking activities."
Changes in taxes and other fiscal assessments may adversely affect us.
The government regularly enacts reforms to the tax and other assessment regimes to which we and our customers are subject. Such reforms include changes in the rate of assessments and, occasionally, enactment of temporary taxes, 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 have not been, and cannot be, quantified. There can be no assurance that these reforms will not, once implemented, 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 portfolio of loans and advances.
The Brazilian Constitution used to establish a ceiling on loan interest rates and if the government enacts new legislation with a similar effect in the future, our results of operations may be adversely affected.
Article 192 of the Brazilian Constitution, enacted in 1988, established a 12.0%p.a.ceiling on bank loan interest rates. However, since the enactment of theBrazilianthe Brazilian Constitution, this rate had not been enforced, as the regulation regarding the ceiling was pending. The understanding that this ceiling is not yet in
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force has been confirmed bySúmula Vinculante No. 7, a final binding decision enacted in 2008 by the STF, in accordance with such Court’sCourt's prior understanding on this matter. Since 1988, several attempts were made to regulate the limitation on loan interest, and especially bank loan interest rates, but none of them were implemented nor have been confirmed by Brazilian superior courts.
On May 29, 2003, Constitutional Amendment No. 40 (“("EC 40/03”03") was enacted and revoked all subsections and paragraphs of Article 192 of the Brazilian Constitution. This amendment allows the Brazilian Financial System, to be regulated by specific laws for each sector of the system rather than by a single law relating to the system as a whole.
With the enactment of Law No. 10,406/02 (or the “Civil Code”"Civil Code"),unless the parties to a loan have agreed to use a different rate, in principle the interest rate ceiling has beenpeggedbeen pegged to the base rate charged by the National TreasuryOfficeTreasury Office (Tesouro Nacional). There is currently an uncertainty as to whether such base rate which is referred to in the Civil Code is: (i) the Special Clearing and Settlement System (Sistema Especial de Liquidação e Custódia)SELIC rate, which we call the SELICrate, the base interest rate established by COPOM, which was 7.0%4.5%p.a.as of December 31, 2019 and 6.5%p.a. as of December 31, 2017 and 13.75%p.a. as of December 31, 2016;2018; or (ii) the 12.0%p.a.rate established inArticlein Article 161, paragraph 1, of Law No. 5,172, of October 25, 1966,5,172/66, as amended (“("Brazilian Tax Code”Code"), which is the default interest rate due when taxes are not paid on time.
Any substantial increase or decrease in the interest rate ceiling could have a material effect on the financial condition, results of operations or prospects of financial institutions based in Brazil, including us.
Additionally, certain Brazilian courts have issued decisions in the past limiting interest rates on consumer financing transactions that are considered abusive or excessively onerous in comparison with market practice. Brazilian courts’courts' future decisions as well as changes in legislation and regulations restricting interest rates charged by financial institutions could have an adverse effect on our business.
On November 27, 2019, Resolution No. 4,765/2019 was amended by the CMN that regulates overdraft facilities granted by financial institutions for a demand deposit account, providing, among other matters, the limit for the interest rates on the amount of the overdraft used. For further information, see "Item 4.B. Business Overview – 4.B.70 Regulation and Supervision – 4.B.70.02 Banking Regulations – 4.B.70.02-14 - Use of the overdraft". Since this is a very recent change, it is still unclear if this will affect our operating results positively or negatively.
3.D.20.06-05We may incur penalties in case of non-compliance with data protection laws.
In August 2018, Law No. 13,709/18 – General Data Protection Law ("LGPD", in Portuguese) was enacted, which creates a set of rules for the use, protection and transfer of personal data in Brazil, in the private and public spheres, and establishes responsibilities and penalties in the civil sphere. In addition to including existing rules on the subject, the LGPD followed the global trend of strengthening the protection of personal data, restricting its unjustified use, and guaranteeing a series of rights to holders of data, as well as imposing important obligations on so-called "treatment agents". In particular, the LGPD was inspired by recent European legislation on the subject, reproducing central points of the Directive No. 95/46/EC and of the General Data Protection Regulation ("GDPR").
The impact of the law will be significant as any processing of personal data will be subject to the new rules, whether physical or digital, by any entity established in Brazil, any entity who has collected personal data in Brazil, any individual located in Brazil – even if not residents – or any entity that offers goods and services to Brazilian consumers. In short, the adaptation to the LGPD will require structural changes in virtually all internal areas of Brazilian companies. The LGPD has been in force since December 28, 2018 as regards the creation of the National Data Protection Authority (Our losses in connectionAutoridade Nacional de Proteção de Dados or “ANPD"), the public administrative body responsible for ensuring, implementing and supervising compliance with insurance claims may vary from time to time. Differences between the losses from actual claims, underwriting and reserving assumptionsLGPD and the related provisions may have an adverse effect on us.
National Council for the Protection of Personal Data and Privacy, created by Provisional Measure converted in 2019 into Law No. 13,583/19. The resultsremainder of our operations depend significantly upon the extentlaw was expected to which our actual claims are consistent with the assumptions we used to assess our potential future policy and claim liabilities and to price our insurance products. We seek to limit our responsibility and price our insurance products based on the expected payout of benefits, calculated using several factors, such as assumptions for investment returns, mortality and morbidity rates, expenses, persistency, and certain macroeconomic factors, such as inflation and interest rates. These assumptions may deviatecome fully into force from our prior experience, due to factors beyond our control such as natural disasters (floods, explosions and fires), man-made disasters (riots, gang or terrorist attacks) or changes in mortality and morbidity ratesAugust 2020, however, as a result of advances in medical technologythe COVID-19 pandemic, the National Congress approved Bill No. 1,179/20 postponing the entry into force of Law No. 13,583/19 until January 2021, with fines and longevity, among others. Therefore, we cannot determine preciselysanctions applying from August 1, 2021. It is worth mentioning that this bill was approved with amendments by the amounts that we will ultimately pay to settle these liabilities, when these payments will needFederal Senate, accordingly, it has yet to be made, or whetherpassed by the assets supportingChamber of Deputies and, following approval, needs to be sanctioned by the President of Brazil.
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We operate in a preventive, detective and corrective manner in order to protect our policy liabilities, togetherown and our clients' information. As a result, we have evolved our security framework in light of the new digital environment, with future premiumsa focus on cyber security being key and contributions, will be sufficient for payment of these liabilities. These amounts may vary from the estimated amounts, particularly when those payments do not occur until well in the future, which is the case with certainpillar of our life insurance products. Accordingly, the establishmentprocesses to establish data protection for our clients, resiliency, and structure to identify threats, detection, and response and recovery procedures in cases of the related provisions is inherently uncertaincyber-attacks.
However, possible failures or attacks on our systems and our actual losses usually deviate, sometimes substantially, from such estimated amounts. To the extent that actual claims are less favorable than the underlying assumptions used in establishing such liabilities, weprocesses of prevention and/or detection and/or correction may be requiredlead to increase our provisions,non-compliance with applicable legislation, which may have an adverse effect onin turn negatively affect our reputation, our financial condition, and results of operations.
We are liable for claimsthe result of our customers ifoperations and the market value of our reinsurers fail to meet their obligations under the reinsurance contracts.
The purchase of reinsurance does not hold us harmless against our liability towards our clients if the reinsurer fails to meet its obligations under the reinsurance contracts. As a result, reinsurers' insolvency or failure to make timely payments under these contracts could have an adverse effect on us, given that we remain liable to our policyholders.
Ashares, preferred shares ADSs and common shares ADSs. See item 3.D.20.05-01 "A failure in, or breach of, our operational, security or technology systems could temporarily interrupt our businesses, increasing our costs and causing losses.
We constantly invest in the improvement and evolution of the safety controls, resilience, continuity andmanagement of our information technology systems and as a result have created an environment with a high capacity to process data for our operating systems and our financial and accounting systems.
Our information technology systems could suffer shortages or become unavailable for a given period of time due to external factors, including events which are wholly or partially beyond our control, such as:
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cyber-attacks, protests which could prevent individuals from entering our buildings, changes to the regulatory framework, electrical or telecommunications outages, systems failures, resulting from human error or not, or other events involving third parties and suppliers.
Due to the nature of our operations as well as the global context, where there is an ever-increasing integration among platforms, dependency on technology and on the internet, a higher exposure to viruses, malicious software and cyber-attacks is a business reality, which may unexpectedly impair the operations and integrity of our systems that manage and store sensitive and/or confidential information for our business and operations.
We and other financial institutions, including governmental entities, have already experienced attacks on our information technology systems. Due to the controls we have in place, we have not experienced any material loss of data from these attacks to date, neither from a hardware nor from a data information loss perspective. However, considering the use of new technologies, the increasing dependency on the internet and the changing and sophisticated nature of attacks, it is not possible to predict all the means that will be used by individuals or organizations with harmful intent , which could impact our capacity to effectively foresee and/or avoid all attacks in the future.
As a result, all the risks mentioned above could result in customer attrition, regulatory fines, penalties or intervention, reimbursement or other administrative penalties.
3.D.20.06-06The Brazilian Supreme Court is currently deciding cases relating to the application of inflation adjustments which may increase our costs and cause losses.
The STF, which is the highest court in Brazil and is responsible for judging constitutional matters, is currently deciding whether savings account holders have the right to obtain adjustments for inflation related to their deposits due to the economic plansBresser,part of Verão, Collor I andCollor II, implemented in the 1980s and 1990s, before thePlano Real, in 1994. The trial began in November 2013 but was recently interrupted.interrupted without any pronouncement on the merits of the subject under discussion by its Members. According to the institutions representing the account holders, banks misapplied the monetary adjustments when those economic plans were implemented, and should be required to indemnify the account holders for the non-adjustment of those amounts.
The STF gave a ruling on an individual case, in the sense that the sentences on class actions proposed by associations questioning inflationary purges only benefit consumers who: (i) were associated with the associations at the time of filing of the class action; and (ii) had authorized the filing of the class action. This reduced the number of beneficiaries in class actions because, until then, it was understood that these decisions should benefit all consumers affected by the practices (i.e., all consumers that are current account holders and that had suffered losses related to inflationary purges, irrespective of whether those losses were or were not associated with the association, plaintiff of the class action).
In addition, inconnectionin connection with a related sentence, the BrazilianSupremeBrazilian Supreme Court Justice(“STJ”Justice ("STJ")decided, in May 2014, that the starting date for counting default interest for compensating savings account holders must be the date of summons of the related lawsuit (rather than the date of settlement of the judgment), therefore increasing the amount of possible losses for the affected banks in the event of an unfavorable decision by the STF.
In December 2017, with the mediation of the Executive branch's attorney (Advocacia Geral da União), or ("AGU"), and the intervention of the Central Bank, the representatives of the banks and the savings account holders entered into an agreement related to the economic plans aiming to finalize the claims and established a timeline and conditions for the savings account holders to accede to such agreement. The STF affirmed the agreement on March 1, 2018, but it is still subject2018. This approval determined the suspension of legal actions in progress for the duration of the collective bargaining agreement (24 months). On March 11, 2020,the signatories to appeals.the collective bargaining agreement agreed to an amendment extending the agreement for a further 60 months. The amendment was taken to the Supreme Court for approval, having already been made by Minister Gilmar Mendes in extraordinary appeals No. 631,363 and No. 632,212, leaving the approval to the other Rapporteurs (Ministers Carmem Lucia and Ricardo Lewandowski). As this is a voluntary settlement, Bradesco iswe are unable to predict how many savings account holders will accede to it.It is possible that all major Brazilian banks, may incur material costs as a result.
Our risk management structure may not be fully effective.
We fully incorporate the risk management process into all of our activities, developing and implementing methodologies, models and other tools for the measurement and control of risks, looking to continuously improve them in order to mitigate the risks that we identify. However, there may be limitations to this risk management framework in foreseeing and mitigating all the risks to which we are subject, or may in the future become, subject. If our risk management structure is not completely effective in adequately preventing or mitigating risks, we could suffer material unexpected losses, adversely affecting our financial condition and results of operations. For more information on our risk management structure, see "Item 4.B.
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3.D.20.07Strategy Risk
– Business Overview – Risk management."3.D.20.07-01The increasingly competitive environment in the Brazilian banking and insurance segments may have a negative impact on our business prospects.
The markets for financial, banking and insurance services in Brazil are highly competitive. We face significant competition in all of our main areas of operation from other large banks and insurance companies, both public and private based in Brazil and abroad, in addition to new players, such as fintechs and startups that begin to operate with a differentiated and reduced level of regulation. It should be noted that major technology companies are also strong competitors, seeking to invest in online payment systems and financial transactions tools by means of various types of applications.
This competitive environment combined with the accelerated process of digital innovation in the institutions could result in a lack of specialized labor with an impact on the growth capacity or extraordinary costs for new business models, which may negatively affect our financial condition, the result of our operations and the market value of our shares, preferred share ADSs and common share ADSs.
3.D.20.08Third Party Risk
3.D.20.08-01Eventual dependence on services rendered by outsourced companies and suppliers/partners may negatively impact our business performance.
Due to the complexity of some services, we may become dependent on outsourced companies and suppliers. We may face significant challengesencounter difficulty replacing some outsourced companies or suppliers/partners. We are also subject to operational risks that are beyond our control but that nonetheless may impact negatively on our operations, making the delivery of products and services to our customers more difficult. Possible interruptions in possessingthe provision of our services due to the difficulty of finding replacements for some suppliers or other issues beyond our control arising from outsourced companies, may adversely affect the result of our operations and realizingthe market value of our shares, preferred share ADSs and common share ADSs.
3.D.20.09Cyber Risk
3.D.20.09-01Cyber risk in an environment of third parties/service providers, may cause temporary unavailability, loss or leakage of information of the Organization or disruption in data confidentiality/integrity and/or services.
We treat cyber security at the highest strategic levels – the Board of Directors,Diretoria Executiva, Risk Committee, and the Executive Committee of PLD-FT/Sanctions and Security of Information/Cyber. We have a set of controls, represented by procedures, processes, structures, policies, standards and IT solutions that meet the principles of protection relating to confidentiality, availability and integrity of information. In addition, We believe we have adopted the best market practices and frameworks in processes, methodology in the management of cyber risk, as well as prevention and treatment of information and cybersecurity incidents. Accordingly, the following procedures are carried out: identification of threats, protection against attacks, detection, responses and recovery from collateralattacks. We defined the cyber risk as the possibility of cyber incidents that may compromise the confidentiality, integrity and/or availability of critical business processes, assets and/or critical IT infrastructure of the Organization.
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The structure of cyber risk management aims to ensure governance compatible with our size, risk profile and business model, to ensure that our assets and critical IT infrastructure are capable of withstanding cyber-attacks. Such a structure is adopted corporately and the theme of Cyber Security is managed by the Department of Corporate Security and Department of IT infrastructure, with the involvement of various areas of the Organization, which have specific assignments, ensuring an efficient structure in the control and mitigation of risks, allowing them to be identified, measured, processed and communicated, contributing so that the strategic objectives are achieved.
To mitigate cyber risk with respect to loansrelevant service providers, we include the appropriate contractual clauses, aligned with the requirements of cybersecurity and in default.
Ifaccordance with the requirements of Resolution No. 4,658/18 of the Central Bank. In addition, we are unable to recover sums owedhave policies formalizing the responsibility for disseminating the culture of cybersecurity with training programs and periodic assessment of personnel. The costs to us under secured loansof addressing cyber risk and security vulnerabilities could be significant and remedying the issues may result in defaultinterruptions, delays and may affect clients and partners.
3.D.30 Social and Environmental Risks
The social and environmental risk is represented by the potential damage that an economic activity can cause to society and to the environment. The social and environmental risks associated with financial institutions are mostly indirect and stem from business relationships, including those with the supply chain and with customers, through extrajudicial measuresfinancing and investment activities, observing the principles of relevance and proportionality of our activities.
3.D.30.01Funding for large projects carried out by clients can generate socio-environmental impacts that could affect the results and the reputation of the Organization negatively.
We promote credit and financing operations, acting in several sectors, which may significantly affect an entire ecosystem, involving communities and the local flora and fauna. If a client, in the development of their activities, causes environmental impacts, such as restructurings, our last recourse with respectthe contamination of soil and water pollution above the legally acceptable limit and/or environmental disasters, it has a direct obligation to such loans may be to enforcerepair the collateral secured in our favor by the applicable borrower. Dependingdamage caused financially. Consequently, depending on the typemagnitude of collateral granted, we eitherthe socio-environmental impact, this client can have to enforce such collateral through the courts or through extrajudicial measures. However, even 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,their economic-financial structure compromised, which can delay the realization of value from the collateral. In addition, our secured claims under Brazilian law will in certain cases rank below those of preferred creditors such as 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 potentiallycould adversely affectingaffect our financial conditionresults, the result of our operations and resultsthe market value of operations.our shares, preferred share ADSs and common share ADSs.
3.D.40Risks relating to our shares, preferred share ADSs and common share ADSs.ADSs
3.D.40.01The Deposit Agreements governing the preferred share ADSs and common share ADSs provide that holders of such ADSs will only receive voting instructions if we authorize the depositary bank to contact those holders to obtain voting instructions; and there are also practical limitations on any ability to vote we may give such holders.holders.
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The voting rights of preferred share ADS holders and common share ADS holders are governed by the Deposit Agreements. Those Deposit Agreements provide that the depositary bank shall mail voting instructions to holders only if we authorize and direct the depositary bank to do so. If we do not provide that authorization and direction to the depositary bank, holders of preferred share ADSs and common share ADSs will not be able to vote at our meetings, unless they surrender their preferred share ADSs or common share ADSs and receive the underlying preferred shares or common shares, as applicable, in accordance with the terms of the applicable Deposit Agreement.
In addition, there are practical limits on the ability of preferred share ADS and common share ADS holders to exercise any vote due to the additional procedural steps involved in communicating with such holders. For example, our shareholders will either be notified directly or through notification published in Brazilian newspapers and will be able to exercise their voting rights by either attending the meeting in person or voting by proxy. In contrast, preferred share ADS holders and common share ADS holders will not receive notice directly from us and cannot vote in person at the meeting. Instead, in accordance with the Deposit Agreements, the depositary bank will, if authorized and directed by us, send any notice of meetings of holders received by it from us to holders of preferred share ADSs and common share ADSs, together with a statement as to the manner in which voting instructions may be given by holders. To exercise any such ability to vote, preferred share ADS and common share ADS holders must then instruct the depositary bank how to vote with the shares represented by their preferred share ADSs or common share ADSs. Because of this extra step involving the depositary bank, if and when we authorize and direct the depositary bank to mail voting information to preferred share ADS holders and common share ADS holders, the process for voting will take longer for preferred share ADS and common share ADS holders than for holders of our shares. Preferred share ADSs and common share ADSs for which the depositary bank does not receive voting instructions in good time will not be able to vote at a meeting.
3.D.40.02Under Brazilian Corporate Law, holders of preferred shares have limited voting rights, accordingly, holders of preferred share ADSs will have similar limitations on their ability to vote.
Under the Brazilian Corporate Law (Law No. 6,404/76, as amended by Law No. 9,457/97, as amended, which we refer as "Brazilian Corporate Law") and our Bylaws, holders of our preferred shares are not entitled to vote at our shareholders' meetings, except in limited circumstances (see "Item 10.B. Memorandum and Articles of Association – 10.B.10 Organization – 10.B.10.04 Voting Rights,"Rights", for further information on voting rights of our shares). As such, in contrast to holders of common shares, holders of preferred shares are not entitled to vote on corporate transactions, including any proposed merger or consolidation with other companies, among other things.
As discussed above under "The Deposit Agreements governing the preferred share ADSs and common share ADSs provide that holders of such ADSs will only receive voting instructions if we authorize the depositary bank to contact those holders to obtain voting instructions; and there are also practical limitations on any ability to vote we may give such holders"," preferred share ADS holders will only be able to vote if we authorize and direct the depositary bank accordingly. As a result of the fact that holders of preferred shares have limited voting rights, any ability to vote that we may extend to holders of preferred share ADSs corresponding to preferred shares pursuant to the applicable Deposit Agreement would be
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similarly limited.
3.D.40.03The relative volatility and illiquiditylow liquidity of the Brazilian securities markets may substantially limit your ability to sell shares underlying the preferred share ADSs and common share ADSs at the price and time you desire.
Investing in securities that trade in emerging markets, such as Brazil, often involves greater risk than investing in securities of issuers in more developed countries, and these investments are generally considered more speculative in nature. The Brazilian securities market is substantially smaller and less liquid than major securities markets, such as the United States, and may be more volatile. Although you are entitled to withdraw our shares, underlying the preferred share ADSs and common share ADSs from the depositary bank at any time, your ability to sell our shares underlying the preferred share ADSs and common share ADSs at a price and time acceptable to you may be substantially limited. There is also significantly greater concentration in the Brazilian securities market than in major securities markets such as the United States or other countries. The tenTheten largest companies in terms of market capitalization, according to B3, accounted for 52.2%47.1% of the aggregate market capitalization in December 2017.2019.
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3.D.40.04Our shares, preferred share ADSs and common share ADSs are not entitled to a fixed or minimum dividend.
Holders of our shares and, consequently, our preferred share ADSs and common share ADSs are not entitled to a fixed or minimum dividend.Pursuantdividend. Pursuant to the Deposit Agreements, if the depositary (as holder of the common shares and preferred shares underlying the common share ADSs and preferred share ADSs,)ADSs) receives any cash dividend or distribution from us, it shall distribute a corresponding U.S. dollar amount, net of depositary fees and certain withholding tax adjustments as described in the Deposit Agreements, to holders of our common share ADSs and preferred share ADSs as promptly as practicable. However, if we do not pay dividends to holders of our common shares or preferred shares then there will be no payment of dividends to holders of our common share ADSs or preferred share ADSs.
Pursuant to our Bylaws, our preferred shares are entitled to dividends 10.0% higher than those of our common shares. Although under our current Bylaws we are obligated to pay our shareholders at least 30.0% of our annual adjusted net income, the shareholders attending our annual general shareholders’ meetingAnnual Shareholders' Meeting may decide to suspend this mandatory distribution of dividends if the Board of Directors advises that payment of the dividend is not compatible with our financial condition. Neither our Bylaws nor Brazilian law specify the circumstances in which a distribution would not be compatible with our financial condition, and our controlling shareholders have never suspended the mandatory distribution of dividends. However, Brazilian law provides that a company need not pay dividends if such payment would endanger the existence of the company or harm its normal course of operations.
In March 2013, CMN Resolution No. 4,193/13 was issued in an effort to further implement the Basel III Accord in Brazil. Pursuant to such rule, a restriction of dividend and interest payments on equity may be imposed by the Central Bank in the event of non-compliance with the additional capital requirements established by the Central Bank, as further described in "Item 5.B. Liquidity and Capital Resources – 4.B.70.02-03 Capital adequacy and leverage.”leverage".
In light of the consequences of the COVID-19 pandemic, the Central Bank issued Resolution No. 4,797/20, which, among other measures, established that financial institutions may not declare payment of interest on own capital or dividends above the minimum level required by their respective bylaws.
3.D.40.05As a holder of preferred share ADSs and common share ADSs you will have fewer and less well‑defined shareholders' rights than in the United States and certain other jurisdictions.
Our corporate affairs are governed by our Bylaws and 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, you and the holders of our shares may have fewer and less well‑defined rights to protect your interests relative to actions taken by our Board of Directors or the holders of our common shares than under the laws of other jurisdictions outside Brazil.
Although Brazilian Corporate Law imposes restrictions on insider trading and price manipulation, the Brazilian securities markets are not as highly regulated and supervised as 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 less heavily regulated and what regulations are in place may not be as strictly enforced in Brazil as in the United States, which could potentially disadvantage you as a holder of our shares underlying preferred share ADSs and common share ADSs. For example, compared to Delaware general corporation law, Brazilian Corporate Law and practices have less detailed and well‑established rules and judicial precedents relating to review of managementManagement decisions under duty of care and duty of loyalty standards in the context of corporate restructurings, transactions with related parties, and sale-of-business transactions. In addition, shareholders in Delaware companies must hold 5.0% of the outstanding share capital of a
21Form 20-F – December 2017
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corporation to have valid standing to bring shareholder derivative suits, while shareholders in companies based in Brazil do not normally have valid standing to bring a class action.
27 Bradesco
3.D. Risk Factors | ||
Form 20-F | ||
3.D.40.06It may be difficult to bring civil liability causes against us or our directors and executive officers.
We are organized under the laws of Brazil, and all of our directors and executive officers reside outside the United States. In addition, a substantial portion of our assets and most or all of the assets of our directors and executive officers are located in Brazil. As a result, it may be difficult for investors to effect service of process within the United States or other jurisdictions outside of Brazil on such persons or to enforce judgments against them, including any based on civil liabilities under the U.S. federal securities laws.
3.D.40.07If we issue new shares or our shareholders sell shares in the future, the market price of your preferred share ADSs and common share ADSs may be reduced.
Sales of a substantial number of shares, or the belief that this may occur, could decrease the market price of our shares, preferred share ADSs and common share ADSs, by diluting their value. If we issue new shares or our existing shareholders sell the shares they hold, the market price of our shares and therefore the market price of our preferred share ADSs and common share ADSs, may decrease significantly.
3.D.40.08The payments on thepreferred share ADSs and common share ADSs may be subject to U.S. withholding under theForeign Account Tax Compliance Act (“FATCA” ("FATCA").
The United States has enacted rules, commonly referred to as FATCA, that generally impose a new reporting and withholding regime with respect to certain U.S. source payments (including interest and dividends), 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. The United States has entered into an intergovernmental agreementIntergovernmental Agreement regarding the implementation of FATCA with Brazil (the “IGA”"IGA"). Under the current terms and conditions of the IGA, we do not expect payments made on or with respect to the preferred share ADSs or common share ADSs 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 preferred share ADSs or common share ADSs in the future. Similar to the FATCA, the Common Reporting Standard ("CRS") is the instrument developed by the Convention on Mutual Assistance in Tax Matters of the Organization for Economic Cooperation and Development (“OECD”("OECD") and the Multilateral Competent Authority Agreement, applicable to the countries signatory to the norm. The financial institutions and entities subject to it should ensure the identification, investigation and reporting of information to the competent bodies. Prospective investors should consult their own tax advisors regarding the potential impact of FATCA and CRS. For more information about FATCA and CRS, see "Item 4.B. Business Overview – 4.B.70 Regulation and Supervision."Supervision".
3.D.40.09You may be unable to exercise preemptive rights relating to our shares.
You will not be able to exercise preemptive rights relating to our shares underlying your preferred share ADSs and common share ADSs unlessaunless a registration statement under the Securities ActisAct is effective with respect to those rights or an exemption from the registration requirements of the Securities Act is available. Similarly, we may from time to time distribute rights to our shareholders. The depositary bank will not offer rights to you as a holder of the preferred share ADSs and common share ADSs unless the rights are either registered under the Securities Act or are subject to an exemption from the registration requirements. We are not obligated to file a registration statement with respect to the shares or other securities relating to these rights, and we cannot assure you that we will file any such registration statement. Accordingly, you may receive only the net proceeds from the sale by the depositary bank of the rights received in respect of the shares represented by your preferred share ADSs and common share ADSs or, if the preemptive rights cannot be sold, they will be allowed to lapse. You may also be unable to participate in rights offerings by us, and your holdings may be diluted as a result.
28 Form 20-F – December 2019
Table of Contents | ||
Form 20-F | ||
3.D.40.10If you exchange your preferred share ADSs or common share ADSs for their underlying shares, you risk losing Brazilian tax advantages and the ability to remit foreign currency abroad.
Brazilian law requires that parties obtain registration with the Central Bank in order to remit foreign currencies, including U.S. dollars, abroad. The Brazilian custodian for the shares must obtain the necessary registration with the Central Bank for payment of dividends or other cash distributions relating to the shares or after disposal of the shares. If you exchange your preferred share ADSs or common share ADSs for the underlying shares, 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 Central Bank and the CVM, in order to obtain and remit U.S. dollars abroad after the disposal of the shares
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or the receipt of distributions relating to the shares. 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 shares. 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 shares 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 shares or to the repatriation of the proceeds from disposal may be imposed in the future.
3.D.40.11A majority of our common shares are held, directly and indirectly, by one shareholder and our Board of Directors is composed of 10 members, including two independent members; accordingly, non-independent members may have conflicting interest with our other investors.
In March 2020, Fundação Bradesco directly and indirectly held 58.8% of our common shares. As a result, Fundação Bradesco has the power, among other things, to prevent a change in control of our company, even if a transaction of that nature would be beneficial to our other shareholders, Fundação Bradesco may also elect the majority of the Board of Directors of the Company, as well as to approve related party transactions or corporate reorganizations. Under the terms of Fundação Bradesco's bylaws, members of ourDiretoria Executiva, that have been working with us for more than ten years serve as members of the Board of Trustees of Fundação Bradesco. The Board of Trustees has no other members.
Our Board of Directors has ten members, two of which are independent, in other words they are not associated with Fundação Bradesco, in accordance with the criteria included of Law No. 6,404/76, in the regulation issued by the CVM (Brazilian Corporate Law). The Brazilian Corporate Law states that only individuals may be appointed to a company's Board of Directors. Accordingly, there is no legal or statutory provision requiring us to have independent directors, however, to exercise good corporate governance, our Board of Directors has two independent directors. Since the majority of members are not independent, the interests of our Board of Directors may not always be aligned with the interests of part of our other shareholders and these holders do not have the same protections they would have if most of the directors were independent. Furthermore, our non-independent directors are associated with Fundação Bradesco and circumstances may arise in which the interests of Fundação Bradesco, and its associates, conflict with our other investors' interests.
Fundação Bradesco and our Board of Directors could make decisions in relation to our policy towards acquisitions, divestitures, financings or other transactions, which may be contrary to the interests of our shareholders of common shares and have a negative impact on the interests of those shareholders. For more information on our shareholders, see "Item 7.A. Major Shareholders.
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ITEM 4. INFORMATION ON THE COMPANY | ||
Form 20-F | ||
3.D.50Risk Management
3.D.50.01Our risk management structure may not be fully effective.
We fully incorporate the risk management process into all of our activities, developing and implementing methodologies, models and other tools for the measurement and control of risks, looking to continuously improve them in order to mitigate the risks that we identify. However, there may be limitations to this risk management framework in foreseeing and mitigating all the risks to which we are subject, or may in the future become, subject. If our risk management structure is not completely effective in adequately preventing or mitigating risks, we could suffer material unexpected losses, adversely affecting our financial condition and results of operations. For more information on our risk management structure, see "Item 4.B. – Business Overview – 4.B.20.01 Corporate Process of Risk Management".
We are asociedade anônima organized under the laws of Brazil. Our headquarters are in Cidade de Deus, Vila Yara, 06029‑900, Osasco,São Paulo,, Brazil, and our telephone number is (55-11) 3684-4011. Our investor relations website is located at bradescori.com.br. Our New York Branch is located at 450 Park Avenue, 32nd and 33rd floors, New York 10022.
We were founded in 1943 as a commercial bank under the name "Banco“Banco Brasileiro de Descontos S.A."S.A”. In 1948, we began a period of aggressive expansion, which led to our becoming the largest private‑sector (non‑government‑controlled) commercial bank in Brazil by the end of the 1960s. We expanded our activities nationwide during the 1970s and became well established in both urban and rural markets in Brazil. In 1988, we merged with our real estate finance,housing loan, investment bank and consumer credit subsidiaries to become a multiple service bank and changed our name to “Banco Bradesco S.A.”S.A”.
Since 2009, we operate in all Brazilian municipalities, and our large banking network enables us to be closer to our customers, thereby enabling our managers to develop knowledge as to economically active regions and other important conditions for our business. This knowledge helps us assess and mitigate risks in credit transactions,loan operations, among other risks, as well as to meet the specific needs of our customers.
Currently, we are one of the largest banks in Brazil in terms of total assets. We offer a wide range of banking and financial products and services in Brazil and abroad to individuals, large, mid‑sized, small and micro enterprises and major local and international corporations and institutions. Our products and services comprise of banking operations such as loans and advances and deposit‑taking, credit card issuance, purchasing consortiums, insurance, capitalization, leasing, payment collection and processing, pension plans, asset management and brokerage services.
As of December 31, 2017, we had, on a consolidated basis:
· R$1.2 trillion in total assets;
· R$373.8 billion in total loans and advances to customers;
· R$265.2 billion in total deposits;
· R$117.7 billion in equity, including non-controlling interest;
· R$239.1 billion in technical reserves for our insurance and pension plan business;
· R$51.3 billion in foreign trading financing;
· 47.6 million insurance policyholders;
· 25.8 million checking account holders;
· 63.4 million savings accounts;
· 2.9 million capitalization bonds holders;
· 2.8 million pension plan holders;
· 2,198 Brazilian corporate groups and multinational companies in Brazil as ”Corporate” customers;
2330 Form 20-F – December 20172019
Table of Contents | ||
Form 20-F | ||
4.A.10Acquisitions, divestments and other strategic alliances
4.A.10-01 Recent Acquisitions
ØBAC Florida Bank
In May 2019, we announced to the market, that we entered into a Share Purchase Agreement with the controlling shareholders of BAC Florida Bank ("BAC Florida"), a bank that has offered various financial services in the United States for 45 years, especially to non-resident high net worth Individuals.Once the acquisition is complete,we will assume the operations of BAC Florida, with the main objective of expanding our offering of investments in the United States to our high net worth clients (Prime and Private Bank), in addition to other banking services, such as checking accounts, credit card and mortgages, as well as the opportunity to expand business related to corporate and institutional clients.
In September 2019, the Central Bank authorized us to complete the transaction. The completion of the transaction is subject to approval by the competent U.S. regulatory agencies and compliance with legal formalities.
ØBBC Processadora S.A. (formerly Fidelity Processadora e Serviços S.A.)
In December 2018, we and the Fidelity Group terminated our joint venture in BBC Processadora S.A. (formerly Fidelity Processadora e Serviços S.A.) ("Processing Company"). As a result, we will become the sole shareholder of the Processing Company, whose shareholders' equity is composed exclusively of the assets and liabilities relating to the provision of credit card processing services for us. The operation (a) aims to reduce the costs of processing and increase the efficiency of the credit card business; (b) will not have any impact on our activities and our clients; and (c) did not involve any financial values.Fidelity Serviços S.A. is a company that provides call center services, collection, fraud prevention, support and other related services. Our and Fidelity Group’s association with Fidelity Serviços S.A. was discontinued folowing the sale of Fidelity Serviços S.A. (currently Chain Services and Contact Center S.A.).
4.A.10-02Recent divestments
ØChain Serviços e Contact Center S.A.(formerly Fidelity Serviços S.A)
In September 2019, we signed a contract for the sale of all of the shares held in Chain Serviços e Informática S.A. ("Chain") to Almaviva do Brasil Telemarketing e Informática S.A. Chain has as its object the provision of call center and collection activities. The operation was approved by the competent authorities, and the transaction was closed on January 14, 2020.
ØNCR Brasil – Indústria de Equipamentos
In June 2019, we entered into an agreement to sell the entire minority interest we indirectly held in NCR Corporation. The operation was approved by the competent authorities, and the transaction was completed on October 28, 2019.
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4.A. History and Development of the Company | |||
Form 20-F | |||
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4.A.10-03Other strategic alliances
· an average of 43.8 million daily transactions, including 1.4 million in our 4,749 branches and 42.4 million through Digital Channels, such as Bradesco Celular, Internet, Automatic Teller Machines, or ATMs, and telephone (Fone Fácil);
·ØRCB Investimentos S.A.
In October 2018, we formalized a nationwide network consisting of 4,749 branches and 4,827 service centers and electronic in-company service centers, 35,590 active ATMs of our own network, and 21,259 ATMs available under the Banco24Horas brand for cash withdrawals, account balance information, obtaining statements and, take out loans, perform collections, transfers between Bradesco accounts, DOC/TED (types of bank transfer)strategic partnership with RCB Investimentos S.A. (“RCB”), pre-paid card and “proof of life” to INSS (physical proofone of the existenceprincipal credit management and recovery companies in Brazil, and with its controlling company PRA Group Brazil Investimentos e Participações, a company of the old age pensioner or survivor to maintain the right to the social benefit) and services such as scheduled withdrawals via mobile apps, the purchase of foreign currency and immediate deposit (which makes the funds immediately available);
· 98,808 employees. For more information on our employees, see “Item 6.D. Employees”; and
·PRA Group Inc. (“PRA Group”), a total ofthreebranches and nine subsidiaries locatedglobal leader in New York, London, the Cayman Islands, Buenos Aires, Luxembourg, Hong Kong and Mexico.
With the acquisition, we took over all operations of HSBC in Brazil, including retail, insurance and asset management, as well as all branches and clients. The acquisition allowed us to grow in scale and optimize our platforms, while increasing national coverage, consolidating our leadership in a number of branches in several states, and strengthening our presence in the high-income segment. The acquisition also enabled us to expand our operations, increasing the range of products offered in Brazil, especially in the insurance, credit card and asset management segments.Ø
In July 2017, we announced that Bradesco Seguros S.A. (“("Bradesco Seguros”Seguros") and Swiss Re Corporate Solutions Ltd. (“("Swiss Re Corso”Corso") completed the transaction announced in October 2016, by signing a shareholders' agreement pursuant to which: (i) Swiss Re Corporate Solutions Brasil Seguros S/A (“("Swiss Re Corporate Solutions Brasil”Brasil") assumed part of the insurance operations of Bradesco Seguros, thein respect of property and casualty (P&C) and the transport (together "Large Risk Insurance"), havingproviding them with exclusive access to Bradescoour clients to market Large Risk Insurance solutions; and (ii) Bradesco Seguros became the holder of 40.0% of Swiss Re Corporate Solutions Brasil's sharesand the other 60% remained with its controller Swiss Re Corso. The transaction was approved by the SUSEP, by the CADE and by the Central Bank.
ØCompany to manage credit intelligence
In June 2017, we entered into agreements with Banco do Brasil S.A., Banco Santander (Brasil) S.A., Caixa Econômica Federal and Itaú Unibanco S.A. to create a company to manage credit intelligence (“GIC”). The company will develop a database to add, reconcile and handle the profile and credit information of individuals andcorporate entitieswho authorize their inclusion in the database, as required by the applicable rules. The control of the company will be shared between the banks and each of them will hold 20% of its share capital.
ØIRB Brasil
In May 2017, Bradesco Seguros,we, together with the other shareholders of IRB Brasil RE ("IRB"), authorized IRB to request to the CVM: (i) registration as a publicly-traded company and authorization to conduct thean Initial Public Offer (IPO) of IRB, in accordance with CVM Instructions No. 400/03 and No. 480/09; and (ii) registration to perform a secondary offering of common shares, in accordance with CVM Instruction No. 400/03. In July 2017, we announced that the book buildingdocuments were filed to meet the requirements made by the CVM in relation to the Public Offer of Secondary Distribution of common shares of IRB and the closure of the bookbuilding procedure of the offer ended and Bradesco soldoffer. We, after the sale of part of its shares. Bradesco Segurosour shares in the public offer in July 2017 now holdshold an indirect shareholding of 15.23% stake in the share capital of IRB (stake calculated excluding shares held in treasury).
In June 2017, Bradesco entered into agreements with Banco do Brasil S.A., Banco Santander (Brasil) S.A., Caixa Econômica Federal and Itaú Unibanco S.A. to create a company to manage credit intelligence ("GIC"). The company will develop a database to add, reconcile and handle the profile and credit information of individuals and legal entities who authorize their inclusion in the database, as required by the applicable rules. The control of the company will be shared between the banks and each of them will hold 20% of its share capital.
ØBRAM
Our subsidiary, BRAM has developed important alliances as part of its internationalization strategy, expanding the number of platforms through which its investment funds are offered in the European, Latin American and
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Asian markets.strategy. Through personal management and investment advisory agreements, we offer Brazilian investors the opportunitytheopportunity to investinvest in global equity funds, with a focus on the U.S., Europe and Asia, besides the global funds. In Europe, BRAM offers to overseas investors funds domiciled in LuxemburgLuxembourg with different strategies under the Bradesco Global Funds family, launched in 2009. In Japan, Mitsubishi Kosukai UFJ Asset Management (“MUKAM”), our partner since 2008, offers fixed income funds and equity funds managed by BRAM since 2008 to retail investors wishing to invest in the Brazilian market. In Chile our partner Larrain Vial offers to Chilean investors a variable income fund managed by BRAM since 2008.
Business strategy
The key elements of our strategy are: (i) consolidating and expanding our position as one of the leading financial institutions and insurance providers in Brazil; (ii) maximizing shareholder value; and (iii) maintaining high corporate responsibility and sustainability standards.
We intend to pursue the following strategies to reach these goals:
We believe that our position as one of the leading financial institutions in Brazil, with a presence in all Brazilian regions through a broad network of distribution channels and with exposure to individuals of all income levels as well as large, mid‑sized and small businesses, will allow us to maintain the organic growth strategy. We will also continue to expand the insurance, pension and capitalization bonds business segment, in order to consolidate our leadership in this sector. As part of this strategy, we intend to increase the sales of our traditional banking, insurance, pension and capitalization bonds products through our wide branch network, our internet distribution services and other distribution channels. We are committed to investing significantly in our IT platform to support such growth. In addition, we intend to continue to leverage our relationships with corporate clients and high-income individuals to further develop our investment banking, private banking and asset management operations through Bradesco BBI, Banco Bradesco Europa, Bradesco Securities and other subsidiaries in Brazil and other key financial centers such as London, New York and Hong Kong.
We are focused on sustainable growth to ensure our standards in relation to our asset quality and risk levels. We intend to maintain the quality of our loan portfolio by continuously improving our delinquency risk models, ensuring better results in credit granting and appropriate provisions for incurred losses. Our strategy involves maintaining our existing policy for our insurance business of careful evaluation of risk spreads through robust actuarial analysis, while entering into reinsurance agreements with well-known reinsurers to reduce exposure to large risks.
With respect to risk management, we intend to continue our integrated approach that utilizes a centralized method for identifying, measuring, controlling, monitoring and mitigating credit, market, liquidity and operational risks. We intend to continue to use specialized risk management committees in relation to the adoption of institutional policies, operational guidelines and the establishment of limits for risk exposure in accordance with best international practices, with the aim of maintaining operational risk levels within adequate boundaries.
To complement our organic growth strategy, we constantly seek opportunities for strategic alliances and selective acquisitions to consolidate our position as one of the leading financial institutions in Brazil and to expand our presence in growth markets such as consumer financing, investment banking, broker dealing and insurance. The acquisition of HSBC Brasil was the largest ever in our history and we expect an expansion of our operations, in particular, of profitable businesses and with low capital needs. In addition, we believe our strategic partnership with Banco do Brasil and Caixa in relation to credit, debit and pre-paid cards for checking account holders and non-account holders is an example of such a growth opportunity. Similarly, our merger with Odontoprev S.A. has increased our presence in the segment of dental care plans enabling us to consolidate our leadership position in the insurance market. We will continue to focus on asset quality, potential operating synergies, sale and acquisition of know-how to maximize return for our shareholders.
We believe that corporate responsibility and sustainability are fundamental to our operations and have incorporated the following three principles into our overall strategy: a sustainable financial position,
2532 Form 20-F – December 20172019
responsible management and investments in social and environmental projects. We are always seeking to develop and incorporate sustainable finance concepts into the process of designing and managing our products and services and in our relationships with clients and suppliers. We believe our admission to the sustainability indexes of both the New York Stock Exchange and B3 represents strong recognition of our success in implementing sustainability principles. As part of this strategy, we will continue to apply social-environmental risk analysis in financing and investment activities in accordance with international practices, including the Equator Principles which we signed up to in 2004. Corporate responsibility has always been one of our core principles as evidenced by the significant investments we have made in education since 1956 through Fundação Bradesco, which is present in every state in Brazil and the Federal District, with 40 schools primarily located in regions of high socioeconomic deprivation. Fundação Bradesco offers quality formal education, free of charge, to children and young people from early childhood to high school as well as professional high school education for young people and adults, as well as initial and continuing education for employment and income.
We operate and manage our business through two segments: (i) the banking segment; and (ii) the insurance, pension plans and capitalization bond segment.
4.B.10Business strategy
The strategy and vision for our future are founded on four pillars that guide our trajectory:
·Customer Relationship;
·Sustainable growth with profitability;
·Efficiency and innovation; and
·Human Capital.
Below, we present each one of our pillars and the main strategic objectives of 2019:
ØCustomer Relationship.
We serve all audiences, with the goal of being the first bank and the first insurer of our customers, and strengthen our commitment to each one of them, ensuring the recommendation of products, services or operations in accordance with each profile, considering their needs, interests and goals. For example, we created our Ombudsman in 2005, two years before CMN Resolution No. 3,477/07, which made the establishment of an Ombudsman mandatory, because we understand its important and impartial role in the relationship with the customer.
There are several initiatives that reinforce the importance of customers (individual and legal entity) for the continuity of the business. After creating an area dedicated to customers who are non-account holders in 2018, we launched thePortal Não Correntista (Portal for Non-Account Holders) in 2019, which allows non-account holders to purchase our products and services online even if they do not have a current account. In the segment of corporate entities, Bradesco created the MEI Portal, helping self-employed professional to formalize their business without costs and bureaucracy.
Another highlight is our pending acquisition of BAC Florida Bank, headquartered in Miami (United States), which will allow us to expand financial services and products in the United States to our customers from various segments. The conclusion of the operation is still awaiting regulatory approval.
ØSustainable growth with profitability.
We aim to grow in a diversified and sustainable manner, generating value to all stakeholders through what we believe to be the best balance between risk and return.
Our efforts are aimed at optimizing our processes and technologies in order to accelerate the changes necessary to improve the customer experience, anticipate their needs and offer products and services tailored to their profile.
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4.B. Business Overview | ||
Form 20-F | ||
Our goal is to always seek the best balance between risk and return, essential aspects for the sustainability of the business.
ØEfficiency and innovation.
We emphasize the importance of promoting efficiency and the best experience for clients, encouraging the use of technology and innovation in our business models. We seek to guarantee that different profiles of customers are catered for with appropriate business models.
We offer customer service channels in all the cities of Brazil, adapted to the development potential of the various regions and we periodically review the model that is more appropriate for each location and/or customer profile. Our digital channels evolve in a sustained manner – in 2019, 96% of all transactions made by our customers were via digital channels. A great ally in the digital universe is BIA (Bradesco Artificial Intelligence), which began interacting with our customers in the second half of 2017. We also launched the digital bank Next, at the end of 2017. Next offers a differentiated value proposition, addressed to a hyper-connected audience. In the first quarter of 2020, it will have its own administration and physical structure, gaining agility and flexibility, We also highlight inovabra, innovation ecosystem that fosters innovation through collaborative work with employees, business areas, customers, businesses, startups, technology partners, investors and mentors, with the aim of meeting the needs of our customers and ensuring the sustainability of business in the long term.
We also revitalized Ágora – Investment House, a company 100% owned by us, in order to become our official platform, with 100% digital onboarding, it offers more choices of products and specialized advice for customers to do their investments with convenience and reliability.
ØHuman Capital.
The basis of our strategy is grounded on people. Accordingly, we seek to improve our ability to attract, train and retain appropriate talents for each line of business, with the goal of making our corporate strategy feasible.
We highlight the importance of people management for the implementation of our corporate strategy. As part of this strategy we aim to implement policies aligned to the needs of the current employment market, with the objective of ensuring diversified results, a solid balance sheet and consistent profitability.
Our succession plan maps the critical positions of each area and identifies professionals with the potential to take on strategic positions in the future (leadership positions or key positions of specific knowledge).
Our actions and public commitment in the face of diversity reaffirm our belief in the transformative potential of each person, respecting individuality and plurality. We encourage our professionals to use their full potential, since we believe that good results are a consequence of individual values and goals aligned to the organizational strategy.
We have implemented the following guidelines and practices: performance assessment and mapping of competences for 100% of the staff; structuring of individual development plans (“PDIs”) and training and professional developments supported by Unibrad – our corporate university. We also highlight the actions related to health and well-being, through thePrograma Viva Bem (live well program), and our program that encourages participation in volunteer initiatives,Voluntários Bradesco (Volunteers).
Our strategy is focused on adapting our culture and aligning it with modern people management practices, ensuring we are aligned with the new demands of the labor market, as well as making the human resources department be increasingly perceived as a strategic partner of the different business lines.
34 Form 20-F – December 2019
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Form 20-F | ||
4.B.20 Business management
In order to ensure our operational activities align with our strategies, we have developed management processes that are aligned with best market practices and business models, including:
4.B.20.01 Corporate risk management processes
Risk management is of great strategic importance to us due to the increasing complexity of services and products and the globalization of our business. In August 2017, CMN Resolution No. 4,595/17 was amended to include provision for compliance policies. Under this resolution, financial institutions authorized to operate by the Central Bank should implement and maintain compliance policies compatible with the nature, size, complexity, structure, risk profile and business model of the institution, in order to ensure the effective management of its compliance risk. Compliance risk must be managed in an integrated manner with all other risks incurred by the institution, in accordance with the specific rules. The rule also permits the drafting of a single compliance policy per conglomerate.
We exercise control over risks in an integrated and independent manner, preserving and valuing collective decision-making, devising and implementing methodologies, models and measure and control tools. We also promote the dissemination of our risk culture to all employees at all levels, from the business areas to the Board of Directors.
Our risk management processes ensure that risks are proactively identified, measured, mitigated, monitored and reported, as required for the complexity of our financial products and services and the profile of our activities.
4.B. 20.01-01 Risk and Capital Management Structure
The structure of our risk and capital management function consists of committees, responsible for assisting our Board of Directors and ourDiretoria Executiva in making strategic decisions.
We have an Integrated Risk Management and Capital Allocation Committee (“COGIRAC”), which advises the Board of Directors in relation to the performance of its duties related to management policies and limits of exposure to risks, and to ensure we are compliant with the processes, policies, rules related to and compliance with regulations and legislation applicable to us.
The committee is assisted by the Capital Management Executive Committee and the Executive Committees for Risk Management of: (i) Credit; (ii) Market and Liquidity; (iii) Operational and Socio-environmental; and (iv) Grupo Bradesco Seguros and BSP Empreendimentos Imobiliários. There are also the Executive Products and Services Committee, and executive committees for our business units, whose tasks include suggesting limits for exposure to their related risks and devising mitigation plans to be submitted to COGIRAC and the Board of Directors.
Our governance structure also includes a Risk Committee, whose main objective is to evaluate our risk management framework and, eventually, to propose improvements.
COGIRAC and the Risk Committee assist the Board of Directors in the performance of its duties in the management and control of risks, capital, internal controls and compliance.
4.B. 20.01-02Credit risk
Credit risk is represented by the possible losses associated with the non-fulfilment of the borrower or counterparty’s respective financial obligations under any agreement, as well as the devaluation of the credit contract due to the deterioration in the borrower’s risk classification, the reduction in gains or remuneration, benefits gained in renegotiation, the recovery costs and other amounts related to the non-fulfilment of the counterparty’s financial obligations. In addition, it includes the Country/Transfer Risk, represented by the possibility of losses related to non-compliance with obligations associated with the counterparty or mitigating instrument located outside the country, including sovereign risk and the possibility of losses due to obstacles in the currency conversion of amounts received outside the country associated with the operation subject to credit risk. Counterparty Credit Risk is represented by the possibility of loss due to non-compliance by a given counterparty with settlement obligations related to transactions involving the trading of financial assets, including the settlement of derivative financial instruments or by the deterioration in the credit quality of the counterparty, and Concentration Risk is represented by the possibility of losses due to significant exposures to a counterparty, risk factor, product, economic sector or geographic region.
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Credit risk management is a continuous and evolving process of mapping, developing, assessing and diagnosing through the use of models, instruments and procedures that require a high degree of judgment, discipline and control during the analysis of operations in order to preserve the integrity and independence of the processes.
We seek to control our exposure to credit risk, which mainly relates to loans, credit commitments, financial guarantees provided securities and derivative financial instruments. Credit risk also stems from financial obligations related to loan commitments and financial guarantees.
In order to avoid compromising the quality expected from the portfolio, committees monitor all relevant aspects of the process of lending, concentration, collateral requirements, maturities, and other aspects.
We continually outline all the activities that can potentially generate exposure to credit risk, with the respective classifications regarding probability and size, as well as identifying managers, measurement and mitigation plans for those activities.
4.B. 20.01-02.01Credit Risk Management Process
The credit risk management process is conducted in a centralized manner for us as a whole. This process engages several areas, which ensure an efficient framework to provide for independent and centralized credit risk measurement and control.
Our Credit Risk monitoring area is actively engaged in improving customer risk rating models, following up large risks by periodically monitoring major delinquencies and the provisioning levels due to expected and unexpected losses and level of capital against unexpected losses.
This area continuously reviews internal processes, including the roles and responsibilities, information technology training and requirements and periodic review of risk assessment, in order to incorporate new practices and methodologies.
4.B. 20.01-02.02Control and monitoring
Corporate control and monitoring of our credit risk take place in the credit risk unit of the Integrated Risk Control Department (DCIR). The department assists the Credit Risk Management Executive Committee on discussions and implementation of methodologies to measure credit risk. Relevant issues discussed by this committee are reported to COGIRAC, which reports to the Board of Directors.
In addition to committee meetings, the department holds monthly meetings with officers and heads of products and segments to ensure they are informed about the evolution of the portfolio of loans, delinquency, adequacy of the provision for non-performing loans, credit recovery, gross and net losses, portfolio limits and concentrations, allocation of economic and regulatory capital and other items. This information is also reported monthly to the Executive Committee for Risk Monitoring and the Audit Committee.
The department also tracks each internal or external events that may significantly impact credit risk such as mergers, bankruptcies or crop failures and monitors sectors of economic activity in which we have the most representative exposures.
Both the governance process and limits are validated by COGIRAC, submitted for approval by the Board of Directors, and reviewed at least once a year.
36 Form 20-F – December 2019
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4.B. 20.01-03 Market Risk
Market risk is the possibility of a loss of income due to fluctuations in prices and market interest rate of the financial instruments retained by the Organization resulting from mismatched amounts, currencies and indexes of our asset and liability operations.
This risk is identified, measured, mitigated, controlled and reported. Our exposure profile to market risk is in line with guidelines established by the governance process, with limits that are monitored on a timely and independent basis.
All operations exposing us to market risk are mapped, measured and classified according to probability and magnitude, with the whole process approved by the governance structure.
Our risk management process involves the participation of all levels, from business units to the Board of Directors.
In line with the best practices of corporate governance and in order to preserve and strengthen our management of market and liquidity risks, as well as to meet the requirements of CMN Resolution No. 4,557/17, the Board of Directors approved the Market Risk Management Policy, which is reviewed at least once a year by the relevant committees and the Board of Directors itself, providing the main operational guidelines for accepting, controlling and managing market risk.
In addition to this policy, we have several specific rules that regulate the market risk management process, including:
·classification of operations;
·reclassification of operations;
·trading in government or private securities;
·use of derivatives; and
·hedging.
4.B. 20.01-03.01 Market Risk Management Process
Our market risk management process is managed on a corporate wide basis, ranging from business areas to the Board of Directors. This process involves several areas to ensure an efficient structure, with the measurement and control of market risk being performed centrally and independently. This process allowed us to be the first financial institution in the country authorized by the Central Bank to use, since January 2013, in-house models of market risk to check the regulatory capital requirement. The management process, approved by the Board of Directors, is also reassessed at least annually by the relevant committees and the Board of Directors itself.
4.B. 20.01-03.02Definition of limits
Proposed market risk limits are validated by specific committees for approval by COGIRAC, to be submitted to the Board of Directors depending on the characteristics of the business, which are separated into the following portfolios:
ØTrading portfolio: comprises all operations involving financial instruments, including derivatives, held-for-trading or used to hedge other instruments in our own portfolio, which have no trading restrictions. Held-for-trading operations are those destined for resale, to obtain benefits from actual or expected price variations, or for arbitrage.
The trading portfolio is monitored by limits of:
·Value at Risk (VaR);
·stress (measure of the negative impact of extreme events, based on historical and prospective scenarios);
·results; and
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·financial exposure/concentration.
ØBanking portfolio: comprises transactions not qualifying for our trading portfolio, deriving from our other businesses and their respective hedges.
The banking portfolio is monitored by the variation in economic value due to interest rate variation - ∆EVE (Economic Value of Equity) and variation in net interest income due to interest rate variation - ∆NII (Net Interest Income).
Market risk is controlled and monitored by an independent business unit, the Integrated Risk Control Department, which calculates risk on outstanding positions on a daily basis, consolidates results and reports as required by the existing governance process.
In addition to daily reports, the positions of the trading portfolio are discussed every 15 days by the Treasury Executive Committee and the positions of the banking portfolio and liquidity reports are handled by the Treasury Executive Committee for the Management of Assets and Liabilities. In both forums, the results and the risks are evaluated and the strategies are discussed. Both the governance process and the existing limits are validated by COGIRAC and submitted for approval by the Board of Directors, which are reviewed at least once a year.
In case of any risk limit breach monitored by the Integrated Risk Control Department, the head of the business unit in charge is informed of the limit usage and, in a timely manner, COGIRAC is called in order to make a decision. If the committee chooses to increase the limit and/or change or maintain the positions, the Board of Directors is called to approve a new limit or to review our strategy with regard to this particular risk.
For more information on how we evaluate and monitor market risk, see "Item 11. Quantitative and Qualitative Disclosures about Market Risk."
4.B. 20.01-04 Liquidity risk
Liquidity risk is represented by the possibility of the institution failing to effectively comply with its obligations, without affecting its daily operations and incurring significant losses, as well as the possibility of the institution failing to trade a position at market price, due to its larger size as compared to the volume usually traded or in view of any market interruption.
Understanding and monitoring this risk is crucial, especially for us to be able to settle transactions in a timely and secure manner.
4.B. 20.01-04.01 Liquidity Risk Management Process
We manage our liquidity risk on a group-wide basis. This process involves a number of areas with specific responsibilities, and the liquidity risk is measured and controlled on a centralized and independent basis, with daily monitoring of available funds and compliance with liquidity levels, according to the risk appetite established by the Board of Directors, as well as the contingency and recovery plan for potential high-stress situations.
Our Policy for Liquidity and Risk Management, approved by the Board of Directors, is mainly aimed at ensuring the existence of standards, criteria and procedures to guarantee the development of the Short-Term Liquidity Ratios (LCR – Liquidity Coverage Ratio), in compliance with Resolution No. 4,401/15, and Long-Term Net Stable Funding Ratio(NSFR), in compliance with Resolution No. 4,416/17,as well as the strategy and action plans for liquidity crisis situations. The policy and controls we established fully comply with CMN Resolution No. 4,557/17.
We also have rules for the daily monitoring of liquidity levels through a warning flag system that triggers the submission of reports and the actions to be taken given the risk presented.
Our liquidity risk is managed by the Treasury Department, based on the positions provided by the back-office controls positions, which provides liquidity information to our Management and monitors compliance with established limits. The Integrated Risk Control Department is responsible for the methodology of measurement, control over limits established by type of currency and company (including for non-financial companies), reviewing policies, standards, criteria and procedures, and drafting reports for new recommendations.
38 Form 20-F – December 2019
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Since October 2017 we have used the Short-Term Liquidity Ratio (LCR) as a standard for internal management, as provided in the CMN Resolution No. 4,401/15 and the Central Bank’s Circular No. 3,749/15.
In the third quarter of 2018 we started monitoring structural long-term liquidity risk, through the NSFR, pursuant to CMN Resolution No. 4,616/17 and Central Bank’s Circular No. 3,869/17.
Liquidity risk is monitored daily by business and control areas and at meetings of the Treasury Executive Committee for Asset Liability Management, which controls liquidity levels. Additionally, COGIRAC and by the Board of Directors monitor liquidity levels reports which are shared with the Risk Committee.
4.B. 20.01-05 Operational Risk
Operational risk is represented by the possibility of incurring losses from failures, deficiencies or the inadequacy of internal processes, people, systems and external events. This includes legal risk, associated with the activities we carry out.
4.B. 20.01-05.01 Operational Risk Management Process
The Organization adopts the ‘Three Lines of Defense’ model, which consists of identifying and assigning specific responsibilities to each department so that essential operational risk management tasks are performed in an integrated and coordinated manner. The following activities are carried out for that purpose:
·identify, evaluate and monitor the operational risks inherent to our activities;
·evaluate the operational risks inherent to new products and services in order to adapt them to legislation and procedures and controls;
·mapping and treating operational loss records for the composition of the internal database;
· provide analysis and quality information to departments, aiming the improvement of the operational risk management;
·evaluate scenarios and indicators for the composition of the economic capital and improvement of the risk maps of the Organization;
·evaluate and calculate the need for regulatory and economic capital for operational risk; and
·report on operational risk and its main aspects in order to support the Organization's strategic decisions.
These procedures are supported by a number of internal controls, validated on an independent basis in relation to their effectiveness and operations, to ensure acceptable risk levels in our processes.
Operational risk is controlled and monitored primarily by an independent area, the Integrated Risk Control Department, and is supported by several areas that are part of the process of managing this risk.
In February 2020, Circular No. 3,979/20 was published by the Central Bank, effective as of December 1, 2020, which provides for the constitution of Base of Risks and Operating Losses ("BRPO"), its update and remittance to the Regulator. According to circular, the database must reflect the risk profile and management practices. Among the requirements, we highlight the periodic remittance, historical base formation (between 10 and 5 years), adoption of complete and robust layout, accounting traceability and the standardization of the structure for the collection and processing of information. All information must be kept at the available to the Brazilian Central Bank for at least 10 years, with the first remittance scheduled for 2021 relative to the base date of December 2020.
4.B.20.02Independent Validation of Management and Measurement Models of Risk and Capital
We employ regulatory models as well as internal models based on statistical, economic, financial, and mathematical theories and the expertise of specialists in the management of risks and provisions and in the measurement of capital, aiming to synthesize processes or complex issues and large quantities of information and providing standardization, objectivity and efficiency to the decisions.
All models have inherent risks that can be derived from potential adverse consequences arising from decisions based on incorrect or obsolete estimates, improper calibration of parameters or inappropriate use of the risk models. In order to detect, mitigate and control these risks, there is the process of independent validation, which carefully evaluates various aspects, challenging the development process (which includes the assumptions adopted, the methodology and the results) and the use of models (including the quality of the input data, adherence to the regulatory requirements and the robustness of the environment in which they are implanted). The results are reported to the managers, Internal Audit, Model Evaluation Committee, Risk Control Committee, Executive Committee for Monitoring of Risks, Risk Committee and the Integrated Risk Management and Capital Allocation Committee (“COGIRAC”).
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4.B.20.03Internal controls
The efficacy of our internal controls is supported by trained professionals, well-defined and implemented processes and technology as determined by our business needs, in accordance with CMN Resolution No. 2,554/98.
Internal controls are based on the criteria established in the Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organization of the Treadway Commission ("COSO"), and is also in line with the guidelines established by the Information Systems Audit and Control Association ("ISACA") through the Control Objectives for Information and Related Technology ("COBIT 5"), and with the procedures described by the Public Company Accounting Oversight Board ("PCAOB") for analysis of the Entity Level Controls ("ELC").
The existence, enforcement and efficacy of controls that ensure the levels of risk in our processes are acceptable is certified by the area responsible for the execution of the adherence tests of the controls. The results of the adherence tests are conveyed to the Audit, Risk Monitoring and Risk Management Committees, as well as to the Board of Directors, to provide reasonable assurance that business transactions are carried out appropriately and achieve defined objectives, in accordance with external laws and regulations, internal policies, rules and procedures, as well as applicable codes of conduct and self-regulation.
4.B.20.04 Management and Processes in Cybersecurity
We consider cyber and information security at the highest strategic levels in order to protect our technological infrastructure against attacks, unauthorized access and malicious codes. We operate to prevent, detect and correct in order to protect the information of our Organization and of our clients.
Accordingly, we have developed our security framework, considering the new digital environment, where the focus on cybersecurity is a key aspect and one of the pillars of technology and processes, ensuring data protection for our clients, resilience, and structures to identify and detect threats, and have in place response and recovery procedures in the event of cyber-attacks.
With regards to the technical aspects, preparing for and anticipating IT security and cyber threats, requires continuous investments like the reformulation of the critical updates of servers and workstations, inspection of source codes in the development cycle, establishment of a lab for security tests and use of technology and tools.
We have systems to prevent attacks from external connections and the internet, systems for the analysis of fraudulent behavior, unauthorized access, malicious codes, analysis of network behavior, intrusion detection, firewall, antivirus and antispam systems, all of which provide protection for our IT systems. We continuously upgrade the security of our software and hardware, digital certification in WEB servers and the encryption equipment, in addition to performing frequent resilience tests.
We continuously monitor these measures and we have security operational centers ("SOCs"), focusing on the identification of potential vulnerabilities and establishing an active defense with the use of cognitive intelligence. Additionally, we have a cyber intelligence team working to identify threats and check the necessary corrective measures.
We adopt strict procedures to ensure our client information is secure. The interactions and synergies between management and technical areas aims to create solutions to provide secure access to service channels and to minimize exposure. We have a range of security devices and technologies, including biometrics, chip cards, 2D digital validation/QR code and OTP devices (physical and cell phone token, etc.), which are used to prevent fraud and unauthorized access. Educating clients on cyber risks is a key component of our strategy in this regard. We have developed awareness campaigns through the client channels and on social media. On our website there are several guidelines for the public, including videos of the web series "Protect Yourself" with prevention tips on current key scams/fraud, which aims to improve the security barriers for users. Those contents are not incorporated by reference in the 20F.
40 Form 20-F – December 2019
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In conjunction with technical measure, we ensure that employees and prepared and engaged with the issue of cybersecurity. The culture of security is a fundamental basis for the measures, processes and technologies to be effective. For this reason, we invest in training and awareness for employees, associates and customers so they are aware of the issue and prepared for the inherent risks and threats.
We also have continuous training programs and other awareness campaigns on the aspects of security and an executive committee dedicated to the issue, which develops the strategies and ensures the development and effectiveness of actions, focusing on the protection of technological infrastructure against attacks, unauthorized access, theft of information and insertion of malicious codes.
The CMN amended Resolution No. 4,658/18 and Circular No. 3,909/18, with the aim of enhancing cyber security and data storage, and established principles and guidelines that seek to ensure the confidentiality, integrity and availability of data and information systems, through the implementation of policies for cyber security, in addition to the requirement of hiring processing and data storage services. In essence, the resolution establishes (i) that the contracting of relevant processing anddata storage services must be communicated within 10 days of the contract, as well as communicating any contractual alterations; and (ii) in the event of non-existence of an agreement for the exchange of information between the Central Bank of Brazil and the supervisory authorities of the countries where the services may be provided, authorization must be requested from the Central Bank for the contract and relevant contractual alterations. We currently comply with the provisions of these rules.
In August 2018, Law No. 13,709/18 – General Data Protection Law ("LGPD") – was enacted, which creates a set of rules for the use, protection and transfer of personal data in Brazil, in the private and public spheres, and establishes responsibilities and penalties in the civil sphere. In addition to including existing rules on data protection, the LGPD followed the global trend of strengthening the protection of personal data, restricting its unjustified use, and guaranteeing a series of rights to holders of data, as well as imposing important obligations on so-called "treatment agents".
The impact of the law will be significant as any processing of personal data will be subject to the new rules, whether physical or digital, by any entity established in Brazil, or who has collected personal data in Brazil, or individuals located in Brazil – albeit not residents – or, even, that offer goods and services to Brazilian consumers. In short, the adoption of the LGPD will require structural changes in virtually all internal areas of Brazilian companies. The LGPD has been in force since December 28, 2018 creating the ANPD, the public administrative body responsible for ensuring, implementing and supervising compliance with the LGPD and the National Council for the Protection of Personal Data and Privacy, created by Provisional Measure converted into Law No.13,583/19 in 2019. The remainder of the law was expected to come fully into force from August 2020, however, as a result of the COVID-19 pandemic, the National Congress approved Bill No. 1,179/20 postponing the entry into force of Law No. 13,583/19 until January 2021, with fines and sanctions valid from August 1, 2021. It is worth mentioning that this bill was approved with amendments by the Federal Senate, accordingly, it has yet to be passed by the Chamber of Deputies and, following approval, needs to be sanctioned by the President of Brazil.
4.B.20.05Corporate security
Our Corporate Security Department's mission is to promote security solutions by creating, implementing, and maintaining rules and processes which are aligned with our business.
To achieve our strategic objectives, we focus on Information Security and Cybernetics, Access Management, Prevention of Electronic, Debit Card and documentary frauds. We also systemically implement security procedures in Electronic Channels, Systems and Information to assess and propose improvements. In addition, the department is responsible for Technical Opinions, in connection with strategic security issues, implementation of products, services or processes and PLD/FT.
We highlight the main areas and activities:
·the Information Security Department's purpose is to establish the Information Security Corporate Policy and Rules; identify and evaluate the risks of Information Security; ensure good governance and generate Cryptographic Keys; maintain the Registration Authority ("RA") for theissuance of Digital Certificates related to the Brazilian Public Key Infrastructure ("ICP Brasil"). Establish criteria for the assessment of compliance of Information Security and data protection, maintain the Corporate Program of Awareness and Education in Information Security, giving in-company lectures to employees as well as lectures at external events; maintain the Time Stamp Authority in the context of the ICP Brasil, which will support our digital and digitalization processes of documents;
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·the Governance of Cyber Security and Incidents to develops, monitors and controls the mapping and development of risks to information security in order to be aligned with our strategic guidelines and new business models, risks and cyber threats and regulatory bodies. In addition, it also manages the Operational Model of Information Security (“MOSI”), acts in Preventing Data Leakage via Data Loss Prevention (“DLP”) and Incidents, in order to have a global and integrated overview of our information security;
·the Electronic Fraud-Prevention (Bradesco Celular, Internet Banking, Net Empresa, Fone Fácil and Debit Card Product), Document Fraud Prevention (Opening Accounts, Bradesco App, Next, Consigned Credit, Financing of Vehicles and Consortium) manage security processes and projects to detect and mitigate risks of any financial losses or image crisis. They operate by monitoring the transactions of Electronic Service Channels and carrying out preventive and reactive analysis of documents, in addition to performing strategic and corporate actions. They are supported by the Area of Data Analysis and Modeling with analytical solutions and statistics methodologies, in order to propose solutions to Managers of technical and business areas that aim to balance use and security for Electronic Channels Access and for Debit Card Product;
·Identification Management and Access is responsible for the strategy and operational direction of the identification process and access to corporate applications. This area aims to protect the system resources and information against unwanted access, honoring the principles of segregation of duties and definition of automated controls;
·the Security Devices division assesses the need for systems, service channels, business managers and users, in relation to authentication factors, managing and monitoring projects, assisting in the acquisition and performing the control and logistics of Biometrics, M-Token, Token and TAN Code;
·the Security for Access to Information by Third Parties division develops security rules and principles applied to outsourced services, ensuring the evaluation, centralized and appropriate processes and governance for the protection of our information;
·the PLD/FT division is responsible for policies, standards, procedures and specific systems, which establish guidelines to prevent and detect the misuse of our structure and/or products and services. This Program is supported by the PLD/FT Executive Committee, which evaluates the work according to its effectiveness as well as the need to align procedures and controls with the regulations and with the best national and international practices. Suspicious or atypical cases identified are forwarded to the Commission for the Evaluation of Suspicious Transactions for analysis, which is composed of Segments, Departments and Related Companies, to be able to assess the need to report to the Regulatory Bodies in compliance with the legal requirements.
·Program for the implementation of the General Data Protection Law (LGPD), responsible for the appropriateness of processes and systems for the rights of the holder of the data and compliance with the requirements required by law; and
·The Physical and Property Security division is responsible for maintaining the structure with specialized material and human resources and safety devices for the implementation of Security Standards in accordance with Law No. 7,102, of June 20, 1983, and with the "Security Plan" determined by the Federal Police. Keep on constant evaluation the devices and logistics of vulnerable points, offering a 24-hour call center service, aiming to prevent and guide actions to minimize the effects of any claims.
In addition to the activities developed by the corporate security area, we have a department for fraud prevention, as part of our credit card area, whose mission is to provide security solutions aligned to our business, through the creation, implementation, and maintenance of preventive rules, processes and technologies. This fraud prevention department takes strategic action in respect of the security of the use and service channels, systems and processes of products, assessing and suggesting improvements. The department also issues technical opinions in connection with strategic security issues and the implementation of products, services or processes.
42 Form 20-F – December 2019
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Among the main "Corporate Security Global Vision" responsibilities, we highlight the following:
·the area responsible for preventing credit card fraud has the purpose of identifying and mitigating the risk of financial losses and negative reputational impacts for the Bank. It develops prevention strategies for documental and transactional fraud, monitoring and alerting in real time for all transactions made through the customer service and use channels. The measures are based on behavioral analyses of fraud, supported by statistical methodologies and predictive models of fraud, in order to ensure controls are aligned to the business. The area also works on the diagnosis of losses to identify systemic and operational weaknesses, recommending preventive actions andalignment with the current strategy where necessary;
· the projects and processes area establishes controls to identify risks and is responsible for evaluating the risk of fraud and issuing recommendations for new projects, processes and products. The area proposes to the managers of the business and technical areas solutions that aim to balance the use and the security of the products and access to service channels, as well as corporate and strategic actions, which follow the best practices of the market focused on preventive actions; and
·the portfolio analysis area is responsible for managing and providing information from the fraud prevention area to the other areas of our Organization.
4.B.20.06Data processing
· | We have a state of the art information technology ("IT") environment supported by a Data Center (CTI –Centro de Tecnologia da Informação) located in Cidade de Deus, Osasco, SP, especially built to harbor our IT infrastructure and has protections in place designed to ensure the uninterrupted availability of our services. |
· | Data is continually replicated in a processing center (secondary site) located in Alphaville, in the city of Barueri – SP, which has equipment with enough capacity to take over the main system's activities in the event of a problem at our Technology Center (CTI). All service channels have telecommunications services that work with one of the two processing centers. |
· | We hold annual simulation exercises in which our IT center is rendered out of service in order to test that we have effective contingency structures, processes and procedures in place. All these exercises are monitored by our business managers. In addition to all backup copies of electronic files stored and maintained at our IT center, second copies are saved and maintained in the Alphaville processing center, where all the activities related to the development of systems are located. We regularly test the media and processes in force to ensure compliance with environmental regulations. Data protection aims to ensure the confidentiality, integrity and availability of information in accordance with its level of criticality. |
· | If the public energy supply is interrupted, both centers have sufficient capacity to operate independently for 72 hours non-stop. After this period, the technology centers can operate continuously, depending on the amount of fuel available to operate the generators that supply electricity. |
· | Our infrastructure includes systems to prevent attacks from external connections and the internet, systems for the analysis of fraudulent behavior, unauthorized access, malicious codes, analysis of network behavior, protection against invasion (intrusion detector), firewall, antivirus and antispam systems, all to provide protection to our IT environment. We continuously upgrade the security for our software and hardware, digital certification in WEB servers and the encryption equipment. |
· | We have a Security Operations Center (SOC) in the area of IT Security that treats and responds to security incidents, monitors the environment (24/7) and develops prevention measures through sources of intelligence information. |
· | Our safety tools monitor software, hardware and share information from stations and servers. In addition, we have a system for the prevention of loss of Information Data, the DLP, designed to ensure the protection of company data. Annually, a "Penetration Test" is performed by an independent audit firm and the IT security processes are certified by the ISO 27000 – Information Security. |
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· | Our internet systems have a separate infrastructure, enabling different customer segments (individuals, corporate, staff) to use resources independently in order to provide better services. |
· | The IT structure is also backed by processes implemented in light of the ITIL (IT Infrastructure Library) and COBIT (Control Objectives for Information and related Technology). We apply recognized practices for IT service management and our system is certified by the ISO 20000 – Service Management. |
· | Physical security of the data center is maintained by a baffle gate and a double contention door that isolates the entrance between the doors. Video cameras monitor the entrance and internal areas of the datacenter, and access is restricted and authorized through the authentication of passes and vascular biometrics. |
4.B.20.07 Bradesco Integrity Program
We are committed to maintain integrity and:
·to conduct our business and develop our various relationships based on ethics, integrity and transparency, concepts that permeate our organizational culture, values and principles which are ratified by the Corporate and Sector-based Codes of Ethical Conduct and supported by Senior Management; and
·to prevent and combat all forms of corruption, especially bribery.
These commitments are permanently upheld through the Bradesco Integrity Program, which corresponds to a set of mechanisms and measures made up by the Code of Ethical Conduct, the Corporate Anticorruption Policies and Standards, and other standards, as well as procedures, processes, and control established therein, aimed at preventing, detecting, and remedying any harmful acts of corruption and bribery, including fraud against the Government.
The program, supported by the Integrity and Ethical Conduct Committee and by the Board of Directors, determines the guidelines, responsibilities, procedures, and controls regarding gifts, freebies, entertainment, sponsorship, third parties and due diligence, bids with the Brazilian Government, political contributions, relationships with public agents, denunciations and non-retaliation against whistleblowers acting in good faith, in accordance with laws and regulations applicable in Brazil and in countries where we have business units.
The Integrity Program covers our managers, employees, interns, apprentices, suppliers, service providers, banking correspondents in Brazil and business partners, controlled companies and companies that are members of the Bradesco Organization in its interactions and daily decisions, highlighting our principles of high standards of conduct and ethics. We continuously evaluate the Program to align its governance with the best national and international anti-corruption practices.
We always promote an ethical culture and integrity based on the code of ethical conduct, which has been implemented internally through programs and training events, raising awareness among employees and the service providers. In 2019 the Policies, Rules, Standards, Integrity Program, Manuals, Training and Systems were reinforced.
We also intensified communication with suppliers, service providers, and correspondents in Brazil and with business partners. We gave anti-corruption training to Senior Management, employees in areas with higher exposure to risk, and third parties.
In May 2019, we held a meeting at which focused on the Integrity of departments and associated companies, which included participation fromDiretoria Executiva and an external lecturer. In December 2019, on the International Day against Corruption, we promoted Bradesco Integrity Week, with involvement from the Chairman of the Board of Directors and the Chief Executive Officer, an external lecturer and a panel of our Executive members.
4.B.20.08Treasury activities
The main objective of the Treasury Department is to maximize results with available resources and managing risks, by complying with the limits set by our Senior Management and the guidelines issued by ourintegrated risk control unit.
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The main activities are as follows:
·planning and managing our local and foreign currency cash flows;
·developing and implementing our asset and liability management strategy;
·managing maturity, rate and liquidity gaps arising from our activities;
·calculating operational costs from both the assets and liabilities sides;
·obtaining price estimates and managing our commercial operations that involve risks such as: market, interest rate, foreign exchange, commodities and price index risks;
·performing proprietary trading operations aimed at taking opportunities found in the range of our prospective scenario and market prices; and
·taking part in analysis and decisions regarding directed credit and capital management.
4.B.20.09Inovabra
Inovabra is the innovation ecosystem designed to support our corporate strategy, fostering innovation through collaborative work with companies, startups, technology partners, investors and mentors. The platform facilitates sharing future visions for business, accelerating the search for new solutions and materializing innovation in our Organization, with the aim of meeting the needs of our customers and ensuring the sustainability of our business in the long term. Inovabra is composed of eight complementary programs:
·inovabra centers:an internal innovation program which encourages our employees to practice creativity and entrepreneurship, spreading the culture of innovation inside our Organization;
·inovabra startups:this program is an open innovation program, intended to enable strategic partnerships between us and startups that have applicable solutions or with the possibility of adaptation for financial and non-financial services that may be offered or used by us or partner companies;
·inovabra ventures:is a proprietary capital fund, currently with R$400 million of capital. It is managed by the Private Equity area and intends to invest in startups with technology and/or innovative business models;
·inovabra pesquisa (research):a multidisciplinary team, with analysts and researchers who conduct an in depth study of new technologies and business models to be on the frontier of knowledge. The team constantly interacts with partners, universities and research institutes in Brazil and abroad and supports inovabra in conducting the innovation process. Responsible for conducting research on emerging technologies such as Artificial Intelligence, blockchain, IoT (internet of things) and quantum computing and their impacts on financial services and products;
·inovabra lab:is an environment which centralizes 16 laboratories in the areas of technology, designed to operate in a model of collaborative work with large technology partners, residents in this environment. This model allows for operating efficiencies and accelerates the processes of evaluation and certification of new technologies (hardware and software), prototyping, testing, proof of concept, launches and solutions to new challenges;
·inovabra international:the program is structured in an environment of innovation based in New York and with connections in London, monitoring the global ecosystem of innovation and entrepreneurship; and
·inovabra habitat and digital hub platform:a building with more than 22 thousand square meters, located in the large economic innovation and cultural center of São Paulo, between Avenida Angélica and Rua da Consolação, close to Avenida Paulista, where large companies, startups, investors and mentors work collaboratively to innovate and generate business. In addition to fostering entrepreneurship in Brazil and a culture of innovation in organizations. In addition, through the digital hub platform, it is possible to select startups without geographical barriers. The entrepreneurs who are registered on the platform have access to business opportunities with us and our major partner companies.
45 Bradesco
4.B. Business Overview | ||
Form 20-F | ||
4.B.30Business segment
The data for these segments was compiled from reports prepared for Management to assess performance and make decisions on allocating funds for investments and other purposes. Our Management uses various data, including financial data in conformity with BR GAAP and non-financial metrics compiled on different bases. For further information on differences between the results on a consolidated basis and by segment, see "Item“Item 5.A. Operating Results -– 5.A.20.01 Results of operations for the year ended December 31, 20172019 compared with the year ended December 31, 2016” and "Item 5.A. Operating Results - Results of operations2018”.
The following table summarizes our main gross revenues by segment for the year ended December 31, 2016 compared with the year ended December 31, 2015.”periods indicated:
Years Ended December 31, | R$ in thousands | ||
2019 | 2018 | 2017 | |
Banking |
|
|
|
Interest and similar income from loans and advances(1) | 66,973,129 | 61,418,259 | 64,083,962 |
Fees and commissions | 31,135,507 | 30,022,769 | 28,566,371 |
Insurance and pension plans |
|
|
|
Premiums retained from insurance and pension plans | 77,599,270 | 72,476,844 | 76,098,164 |
Fees and commissions | 2,028,371 | 2,169,807 | 2,063,187 |
(1) Includes industrial loans, financing under credit cards, overdraft loans, trade financing and foreign loans. |
For further details of our segments, see Note 5 to our consolidated financial statements in “Item 18. Financial Statements”.
We do not break down our revenues by geographic regions within Brazil, and less than 4.0% of our revenues come from international operations. For more information on our international operations, see “4.B.30.01-02.10 International banking services”.
As of December 31, 2017,2019, according to the sources cited in parentheses below, we were:
· one of the leading banks in terms of savings deposits, with R$103.3billion,114.2 billion, accounting for 18.3%13.2% of Brazil'sBrazil’s total savings deposits (Central(according to the Central Bank);
· one of the leadersleader in BNDES onlendings, with R$5.95.0 billion in disbursements (BNDES)(according to BNDES);
· one of the leaders in automobile financing loans, with a market share of 13.8% (Central14.2% (according to the Central Bank);
· the leading bank in benefit payments from the INSS, withfor over 10.711.4 million benefits to INSS retirees beneficiaries and other pensioners,beneficiaries, accounting for 30.9%32.1% of the total number of INSS beneficiaries (INSS);payments made by the INSS;
· one of the leaders in leasing transactions in Brazil, with an outstanding amount of R$2.22.7 billion; through our subsidiary Bradesco Leasing S.A. Arrendamento Mercantil, or “Bradesco Leasing” (ABEL)(according to ABEL);
· one of Brazil’s largest private fund and investment manager,managers, through our subsidiary BRAM, with R$666.6627.9 billion in assets under management (ANBIMA)(according to ANBIMA), taking into account managed portfolios;
· one of theleadersinthethe leaders in the third-party asset managementbusiness,management business, with R$591.5 billion in managed assets, in addition to R$222.2 billion1.0 trillion in assets, of which R$399.3 billion are managed thoughthrough our subsidiary and BEM specialized in trust, custody and controllership of asset management services (ANBIMA)DTVM (according to ANBIMA);
· the leader in number of outstanding purchasing consortium quotas, through our subsidiary Bradesco Administradora de Consórcios Ltda., or “Bradesco Consórcios,”rcios”, with 1,410,7361,616,675 quotas in three segments, including: (i) automobiles and motorcycles, with 1,113,8601,279,755 quotas; (ii) real estate, with 249,893266,265 quotas; and (iii) trucks/tractors/machinerytrucks, with 70,655 quotas (according to the Central Bank);
·the leader in imports and equipment, with 46,983 quotas (Centralexports and one of the leaders in the consolidated primary market ranking (according to the Central Bank), additionally, leader in "foreign trade – trade finance"; and
· the largest company operating in the Brazilian insurance market, operating in all lines of this segment, with a 25.9%24.0% market share (SUSEP/(according to SUSEP/ANS), through Grupo Bradesco Seguros, which mainly comprises: Bradesco Seguros S.A., or “Bradesco Seguros” and its subsidiaries: (i) Bradesco Vida e Previdência S.A., or “Bradesco Vida e Previdência;”ncia”; (ii) Bradesco CapitalizaçBradescoCapitalização S.A., or “Bradesco Capitalização;”o”; (iii) Bradesco Auto/RE Companhia de Seguros S.A., or “Bradesco Auto/RE;”RE”; and (iv) Bradesco Saúde S.A., or “Bradesco Saúde.” The Group’s
26Bradesco
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de”. Our total revenues in 2017 were R$76.377.7 billion in insurance premiums, pension plan contributions and capitalization bond income.
The main awards and acknowledgments that we received in 2017 are as follows:
·the most valuable brand in the Brazilian financial market, according to the ranking published by IstoÉ Dinheiro magazine in partnership with consultancy firm Kantar Vermeer, a division of the British WPP group;
·was ranked in the first position in the "Financial Sector" category and mentioned among the "10 most innovative companies in Brazil", in the third yearbookValor Inovação Brasil (Valor Econômico Newspaper and Consultoria Network PwC);
·Bradesco BBI was awarded the title of best investment bank of Brazil in 2017 in the 17thedition of "Best Investment Banks of the world" (Global Finance magazine);
·BRAM led the ranking Best Funds for Institutional Investors (Investidor Institucional magazine);
·chosen as the best manager in wholesale and multimarket funds in the country (Exame magazine, based on the survey byFundação Getúlio Vargas);
·Bradesco BBI was recognized as the "best investment bank in Brazil" (Euromoney magazine);
·received the "efinance 2017" award, in the categories "CIO of the Year, Back Office, Project Management, IT Governance, Foreign Exchange in ATM and Credit App" (Executivos Financeiros magazine);
·received the "Estadão Empresas Mais" award, in the category "Banks" (O Estado de S. Paulonewspaper in partnership withFundação Instituto de Administração – FIA and Austin Ratings);
·received the IT Leaders 2017 award, in the categories of Banks and Insurers and for the second consecutive year, achieved the first position in the ranking of Top 100 IT Leaders 2017 (17th edition of Computerworld);
· for the first time, was selected to integrate the "Best Emerging Markets Performers Ranking" (Vigeo EIRIS Agency);
·elected as the most innovative company in the use of IT, as winner of the award “The 100+ Innovative in the Use of IT” with the next case (IT Media in partnership with PricewaterhouseCoopers PwC);
·largest private group in the "Valor Grandes Grupos” ranking (Valor Econômico newspaper);
·Bradesco Seguros received the "Notable Companies" award, in the Insurance, Health, Pension and Capitalization segment (Standard Intelligence Center – CIP, in partnership with theConsumidor Moderno magazine); and
·highlight of the “Folha Top of Mind’ survey, as the private financial institution most present in the mind of Brazilians (Datafolha).
Revenues per business segment
The following table summarizes our main gross revenues by segment for the periods indicated:
2746 Form 20-F – December 20172019
Table of Contents | ||
| ||
Form 20-F |
| |
Years Ended December 31, | R$ in thousands | ||
2017 | 2016 | 2015 | |
Banking |
|
|
|
Interest and similar income from loans and advances(1) | 69,157,397 | 77,141,672 | 69,877,296 |
Fees and commissions | 24,143,561 | 20,696,785 | 19,195,003 |
Insurance and pension plans |
|
|
|
Premiums retained from insurance and pension plans | 70,046,635 | 65,027,122 | 58,760,780 |
(1) Includes industrial loans, financing under credit cards, overdraft loans, trade financing and foreign loans. |
For further details of our segments, seeNote5 ofour consolidated financial statements in "Item 18. Financial Statements."
We do not break down our revenues by geographic regions within Brazil, and less than 3.0% of our revenues come from international operations. For more information on our international operations, see "International banking services."
4.B.30.01Banking
In our banking segment, we offer a range of banking products and services to our clients including deposit-taking, granting of loans and advance payments, debit and credit card services and capital market solutions, through our extensive distribution network.
We have a diverse customer base that includes individuals and small, midsizedmid-sized and large companiescorporates in Brazil. Historically, we have cultivated a strong presence among the broadest segment of the Brazilian market, middle- and low-income individuals.
The following table shows the bank income statement and other selected financial data for our banking segment for the periods indicated.
Year ended December 31, | Banking - R$ in thousands | ||
2019 | 2018 | 2017 | |
Revenue from financial intermediation | 113,402,430 | 110,639,034 | 130,015,483 |
Expenses from financial intermediation | (49,683,456) | (52,958,441) | (67,744,701) |
Financial margin | 63,718,974 | 57,680,593 | 62,270,782 |
Allowance for loan losses | (18,891,493) | (18,319,973) | (25,210,020) |
Gross income from financial intermediation | 44,827,481 | 39,360,620 | 37,060,762 |
Fee and commission income | 31,135,507 | 30,022,769 | 28,566,371 |
Personnel expenses | (23,072,600) | (18,102,452) | (19,919,896) |
Other administrative expenses | (20,327,502) | (19,126,128) | (18,845,656) |
Tax expenses | (6,203,188) | (5,660,519) | (5,440,571) |
Share of profit (loss) of unconsolidated and jointly controlled companies | 12,921 | 6,620 | (22,657) |
Other operating income / expenses | (21,082,041) | (11,943,485) | (9,910,746) |
Operating profit | 5,290,578 | 14,557,425 | 11,487,607 |
Non-operating income | (537,428) | (929,396) | (729,584) |
IT/SC (Income Tax/Soc. Contrib.) and non-controlling interests | 10,431,415 | (1,134,166) | (1,836,636) |
Net Income | 15,184,565 | 12,493,863 | 8,921,387 |
Total assets | 1,264,627,391 | 1,251,749,713 | 1,146,536,514 |
Loans | 457,392,375 | 411,492,655 | 373,813,665 |
Deposits from customers | 366,227,540 | 340,748,196 | 262,008,445 |
Investment Funds and Managed Portfolios | 1,000,818 | 940,538 | 870,702 |
Other funding sources(1) | 606,477,819 | 586,990,407 | 602,362,784 |
(1) Includes securities sold under agreements to repurchase, borrowing and on-lending obligations, funds from issuance of securities and subordinated debt. For more information about our funding sources, see “Item 5.B.20 Liquidity and funding”. |
4.B.30.01-01 Segmentation of Clients
28Our client base included 72.0 million clients at the end of 2019. We have a segmented structure, for both individuals andBradescocorporate entities, in order to offer flexibility and convenience in all areas in which we operate, ensuring we meet each client's needs. To meet the needs of the biggest number of people we have democratized access to products and services, encouraging the process of financial inclusion, access banking services, social mobility and entrepreneurship
We do not make distinctions, we supply every client with the same level of excellence and we continuously improve the way we provide services. We are aware of each client's profile and we havecontinuously improved the scale and diversification of our current model. These values extend to clients who are non-account holders, due to their significance and the potential of growth.
47 Bradesco
4.B. Business Overview | ||
Form 20-F | ||
|
ØBradesco Corporate
The Corporate segment is responsible for serving business groups and focused on both large and medium-sized companies. Its offices are located in the main financial centers and with a value proposal based on physical proximity and relationship with clients, offers customized services with a global reach and counts on a highly skilled team to fulfill customers' needs through a wide portfolio of products, structured solutions and financial services.
To anticipate the solutions, it is important to strengthen the relationship with clients and to deliver a robust value proposal, Corporate is highly segmented by sectors, markets, sizes, nature of the companies, among other criteria, and these segments are combined into three large areas:
·Large Corporate:a highly qualified team offer customized consultancy to serve clients in Brazil and worldwide;
·Corporate:a specialized service for large companies, organized by market sector and physical structure in various cities in Brazil and abroad; and
·Corporate One:focused mainly on the middle market it also has a team focused on providing services to large companies. This area has a national presence in Brazil and a regionalized structure, composed of 70 Units located in the main cities and capitals distributed in 15 regional sectors and another 98 Corporate Spaces throughout Brazil.
ØInstitutional
The Institutional Segment is responsible for serving the Resource Managers, Pension Funds and Stock Brokers, offering Prime Brokerage services, which is centered on a team of professionals specialized in providing secure and efficient access to financial products and solutions to meet the needs of institutional customers.
48 Form 20-F – December 2019
Year ended December 31, | Banking - R$ in thousands | ||
2017 | 2016 | 2015 | |
Statement of Income data |
|
|
|
Net interest income | 46,997,327 | 49,156,109 | 46,934,849 |
Impairment of loans and advances | (17,895,929) | (18,829,460) | (16,479,985) |
Other income/(expenses)(1) | (18,939,329) | (13,034,164) | (31,200,150) |
Income before income taxes | 10,162,069 | 17,292,485 | (745,286) |
Income tax and social contribution | (887,289) | (7,995,420) | 12,621,169 |
Net income for the year | 9,274,780 | 9,297,065 | 11,875,883 |
Net income attributable to controlling shareholders | 9,272,962 | 9,293,766 | 11,874,609 |
Net income attributable to non-controlling interest | 1,818 | 3,299 | 1,274 |
Statement of Financial Position data |
|
|
|
Total assets | 988,063,541 | 921,916,290 | 894,579,942 |
Selected results of operations data |
|
|
|
Interest and similar income |
|
| |
Loans and advances to banks | 5,073,435 | 8,689,347 | 8,031,038 |
Loans and advances to customers | 64,083,962 | 68,452,325 | 61,846,258 |
Financial assets | 34,194,879 | 35,709,708 | 32,283,414 |
Compulsory deposits with the Central Bank | 4,881,319 | 5,667,516 | 4,587,412 |
Other financial interest income | 68,553 | 66,210 | 58,905 |
Interest and similar expenses |
|
| |
Deposits from banks | (29,397,587) | (30,542,950) | (31,212,421) |
Deposits from customers | (13,279,231) | (15,462,989) | (12,392,644) |
Funds from securities issued | (13,527,986) | (17,124,503) | (11,597,283) |
Subordinated debt | (5,100,017) | (6,298,555) | (4,669,830) |
Net interest income | 46,997,327 | 49,156,109 | 46,934,849 |
Net fee and commission income | 24,143,561 | 20,696,785 | 19,195,003 |
Note: Inter segment transactions have not been eliminated. | |||
(1) For additional information, see "Item 5.A. Operational Results". |
Table of Contents | ||
Form 20-F | ||
ØBradesco Private Bank
Bradesco Private Bank offers exclusivity and works side by side with clients to maintain and manage family wealth across generations.
Designing innovative solutions to meet the ambitions and individual needs of each of our clients, we have a complete structure of Wealth Management involving liquid and illiquid assets, the best tools and investment structures to ensure the longevity of the family’s estate.
Clients have access to a complete platform, open and varied investments, local and international, exclusive funds, always counting on an experienced team of managers, economists and advisors, in addition to all of our business solutions including, among others, Banco de Investimentos BBI, Credit, Insurance, Broker, and Pension Plans.
Bradesco Private Bank currently has 14 offices located in: São Paulo, Rio de Janeiro, Belo Horizonte, Blumenau, Campinas, Cuiabá, Curitiba, Fortaleza, Goiânia, Manaus, Porto Alegre, Recife, Ribeirão Preto and Salvador, thus ensuring a nation-wide presence, in addition to the support of the units abroad located in Cayman, New York, Luxembourg, London and Miami.
ØBradesco Varejo
The Bradesco Varejo service network includes 4,185 branches, 3,997 service centers, 884 electronic service centers and 39,100 Bradesco Expresso banking correspondent units, in addition to thousands of ATMs.
Bradesco Varejo has a prominent role in the use of banking services by Brazilians. By being present in all municipalities, including some municipalities which are difficult to access, we are frequently the first interaction a client has with a financial institution. In this way we contribute to the development of individuals and the communities where they live.
ØBradesco Prime
Bradesco Prime operates in the segment of high-income individuals and is present in all Brazilian capitals. It has a service network of 254 exclusive branches and 1,007 “Bradesco Prime Spaces”. The clients count on a full relationship model that fits the profile and needs of each client, providing effective financial planning, with customized solutions, evaluated by qualified professionals, to assist our clients with their asset management.
Using Bradesco Prime the clients have the following benefits:
·Program of benefits: exemption of up to 100% on the value of the Tariff Basket and exemption on annuity of our credit cards, in accordance with the volume of investments and/or concentration of the client’s spending, plus up to 12 days without interest in the Special Overdraft in accordance with the volume of investments;
·Viva|Prime program: provides Bradesco Prime clients with unique experiences in the form of benefits and discounts in stores, restaurants and partner brands;
·Recommended investment portfolios: recommended based on the analysis of the investor’s profile (API) that seeks to diversify the best ratio between risk and return;
·Capillarity: wide network of branches and Bradesco Prime Spaces throughout the country;
·Relationship manager: qualified professionals who support the client in managing their resources, considering their needs and moment of life;
·Exclusive Spaces in whole country: network of exclusive branches and “Bradesco Prime Spaces” offering convenience and total privacy so clients can tend to their business affairs; and
·PIC - Prime International Center:remote service for foreign clients in Brazil.
Bradesco Prime has been, throughout its existence, investing in technology, in the improvement of therelationship with clients and in the training of its professionals and one of its main assets is to provide the best experience to its clients. It established a prominent position in the Brazilian market of banking services for high-income clients and has consolidated its position as one of the largest banks in the segment.
49 Bradesco
4.B. Business Overview | ||
Form 20-F | ||
ØNon-Account Holders
In 2018, we created an area dedicated to strengthening the relationship with individual and legal entity clients who used at least one of our products. By recognizing the client's profile and portfolio combination, we seek to provide financial products with personalized offers through both physical and digital channels.
The purpose of the area is to coordinate offers and approaches, as well as facilitate the access to financial products, creating new channels and experiences supported by innovation in processes and technology.
In 2019, we focused on the adequacy of proprietary channels of the bank to sell digital products to non-account holders, and we launched the sales portal in November 2019.
4B.30.01-02Products and banking services
In order to meet the needs of each client, we offer the following range of banking products and services:
·deposit-taking with clients, including checking accounts, savings accounts and time deposits;
·loans and advances (individuals and companies, housing loans, microcredit, onlending BNDES/Finame, rural credit, leasing, among others);
·credit cards, debit cards and pre-paid cards;
·cash management solutions;
·public authority solutions;
·asset management;
·services related to capital markets and investment banking activities;
·intermediation and trading services;
·capital markets solutions;
·international banking services;
29Form 20-F – December 2017
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·import and export financing; and
·consortiums.
Deposit-taking with clients4.B.30.01-02.01 Deposit accounts
We offer a variety of deposit products and servicesaccounts to our customers, mainly through our branches, including:
· Non-interest-bearing checking accounts, such as:
-Easy Account (Conta Fácil) – Target market: Individuals and companies that have a checking account and a savings account under the same bank account number, using the same card for both accounts;
Conta Fácil(Easy Account) – a checking account and a savings account under the same bank account number using the same card, for individuals andcorporate entities; Click Conta(Click Account)– checking accounts for children and young people from 0 to 17 years of age, with an exclusive website, Conta Universitária(Academic Account) – low fee checking account for college students, with subsidized credit conditions, student loans, exclusive website, free online courses and exclusive partnerships, among other benefits. · traditional savings accounts, which currently earn interest at the Brazilian reference rate, ortaxa referencial, known as the · time deposits, which are represented by Bank Deposit Certificates (certificados de depósito bancário – or As of December 31, The following table shows a breakdown of our deposits from customers by type of product on the dates indicated: 50 Form 20-F – December 2019-Click Account (Click Conta)– Target market: checking accounts for young people from 11 and debit card, automatic pocket money service and free online courses, among other benefits; and-Academic Account (Conta Universitária) – Target market: low fee checking account for college students, with subsidized credit conditions, exclusive website and free online courses and exclusive partnerships, among other benefits; and"TR,"“TR”, plus 6.2% annual interest in the case the SELIC rate is higher than 8.5%p.a.or TR plus 70.0% of the SELIC rate if the SELIC rate is lower than 8.5%p.a.; and"CDBs"“CDBs”), and earn interest at a fixed or floating rate.2017,2019, we had 25.830.1 million checking account holders, 24.328.4 million of which were individual account holdersof individuals and 1.51.7 million of which were ofcorporate account holders.entities. As of the same date, we had 63.463.9 million savings accounts.
December 31, | R$ in thousands, except % | |||||
2017 | 2016 | 2015 | ||||
Deposits from customers |
|
|
|
|
|
|
Demand deposits | 33,058,324 | 12.6% | 32,521,234 | 14.0% | 23,012,068 | 11.8% |
Reais | 30,392,388 | 11.6% | 30,936,451 | 13.3% | 21,122,202 | 10.9% |
Foreign currency | 2,665,936 | 1.0% | 1,584,783 | 0.7% | 1,889,866 | 1.0% |
Savings deposits | 103,332,697 | 39.4% | 97,088,828 | 41.7% | 91,878,765 | 47.2% |
Reais | 103,332,697 | 39.4% | 97,088,828 | 41.7% | 91,878,765 | 47.2% |
Time deposits | 125,617,424 | 47.9% | 103,137,867 | 44.3% | 79,619,267 | 40.9% |
Reais | 115,684,855 | 44.2% | 87,286,295 | 37.5% | 53,932,917 | 27.7% |
Foreign currency | 9,932,569 | 3.8% | 15,851,572 | 6.8% | 25,686,350 | 13.2% |
Total | 262,008,445 | 100.0% | 232,747,929 | 100.0% | 194,510,100 | 100.0% |
Table of Contents | ||
Form 20-F | ||
December 31, | R$ in thousands, except % | |||||
2019 | 2018 | 2017 | ||||
Deposits from customers |
|
|
|
|
|
|
Demand deposits | 37,283,988 | 10.2% | 34,178,563 | 10.0% | 33,058,324 | 12.6% |
Reais | 35,982,521 | 9.8% | 32,605,941 | 9.6% | 30,392,388 | 11.6% |
Foreign currency | 1,301,467 | 0.4% | 1,572,622 | 0.5% | 2,665,936 | 1.0% |
Savings deposits | 114,177,799 | 31.2% | 111,170,912 | 32.6% | 103,332,697 | 39.4% |
Reais | 114,177,799 | 31.2% | 111,170,912 | 32.6% | 103,332,697 | 39.4% |
Time deposits | 214,765,753 | 58.6% | 195,398,721 | 57.3% | 125,617,424 | 47.9% |
Reais | 198,077,456 | 54.1% | 181,698,519 | 53.3% | 115,684,855 | 44.2% |
Foreign currency | 16,688,297 | 4.6% | 13,700,202 | 4.0% | 9,932,569 | 3.8% |
Total | 366,227,540 | 100.0% | 340,748,196 | 100.0% | 262,008,445 | 100.0% |
4.B.30.01-02.02Loans and advances to customers
The following table shows loans and advances to customers broken down by type of product on the indicated dates:
30Bradesco
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dates indicated:
December 31, | R$ in thousands | ||
2017 | 2016 | 2015 | |
Loans and advances to individuals outstanding by type of operation |
|
|
|
Other loans and advances to individuals | 88,893,464 | 84,165,325 | 80,070,794 |
Housing loans | 59,963,375 | 60,458,038 | 48,114,515 |
Onlending BNDES/Finame | 30,655,666 | 35,816,560 | 38,158,108 |
Other corporate loans and advances | 97,248,815 | 107,951,154 | 107,047,136 |
Rural loans | 13,642,478 | 14,422,799 | 13,710,274 |
Leasing | 2,249,859 | 2,738,611 | 3,072,777 |
Credit cards | 37,568,984 | 37,407,733 | 30,943,428 |
Import and export financings | 43,591,024 | 49,123,653 | 49,206,636 |
Total | 373,813,665 | 392,083,873 | 370,323,668 |
December 31, | % of total portfolio | R$ in thousands | ||
2019 | 2019 | 2018 | 2017 | |
Companies | 49.6% | 226,976,385 | 218,944,963 | 199,940,296 |
Financing and On-lending | 22.8% | 104,138,378 | 105,672,794 | 101,449,452 |
Financing and export | 10.4% | 47,484,556 | 47,626,728 | 38,272,982 |
Housing loans | 3.7% | 16,822,185 | 22,415,363 | 26,539,317 |
Onlending BNDES/Finame | 3.6% | 16,643,236 | 18,947,583 | 24,263,448 |
Vehicle loans | 2.6% | 12,040,355 | 7,828,417 | 4,901,102 |
Import | 1.8% | 8,398,252 | 6,850,465 | 5,318,043 |
Leases | 0.6% | 2,749,794 | 2,004,238 | 2,154,560 |
Borrowings | 24.3% | 111,327,898 | 102,614,435 | 87,873,248 |
Working capital | 12.7% | 57,887,358 | 55,739,546 | 52,409,785 |
Rural loans | 1.2% | 5,525,886 | 5,459,694 | 5,683,215 |
Other | 10.5% | 47,914,654 | 41,415,195 | 29,780,248 |
Operations with limits(1) | 2.5% | 11,510,109 | 10,657,734 | 10,617,596 |
Credit card | 0.9% | 4,000,712 | 3,105,494 | 2,708,517 |
Overdraft for corporates/ Overdraft for individuals | 1.6% | 7,509,397 | 7,552,240 | 7,909,079 |
Individuals | 50.4% | 230,415,990 | 192,547,692 | 173,873,369 |
Financing and On-lending | 17.2% | 78,615,264 | 67,861,394 | 60,302,622 |
Housing loans | 9.7% | 44,175,642 | 38,179,023 | 33,338,566 |
Vehicle loans | 6.2% | 28,350,727 | 23,246,610 | 20,354,966 |
Onlending BNDES/Finame | 1.3% | 5,872,331 | 6,222,532 | 6,392,218 |
Other | 0.0% | 216,564 | 213,229 | 216,872 |
Borrowings | 23.0% | 105,427,418 | 83,968,350 | 74,382,441 |
Payroll-deductible loans | 13.8% | 63,144,951 | 51,284,334 | 43,968,511 |
Personal credit | 5.3% | 24,338,888 | 16,858,123 | 14,184,488 |
Rural loans | 1.9% | 8,543,433 | 7,894,249 | 7,838,314 |
Other | 2.1% | 9,400,146 | 7,931,644 | 8,391,128 |
Operations with limits(1) | 10.1% | 46,373,308 | 40,717,948 | 39,188,306 |
Credit card | 9.0% | 41,353,388 | 36,447,880 | 34,860,468 |
Overdraft for corporates/ Overdraft for individuals | 1.1% | 5,019,920 | 4,270,068 | 4,327,838 |
Total portfolio | 100.0% | 457,392,375 | 411,492,655 | 373,813,665 |
(1) It refers to outstanding operations with pre-established limits linked to current account and credit card, whose limits are automatically recomposed as the amounts used are paid. |
The following table summarizes concentration for our outstanding loans and advances to customers by borrower on the dates shown:
December 31, | 2017 | 2016 | 2015 |
Borrower size |
|
|
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Largest borrower | 2.5% | 2.3% | 2.8% |
10 largest borrowers | 8.2% | 8.5% | 9.2% |
20 largest borrowers | 12.2% | 12.6% | 13.3% |
50 largest borrowers | 17.8% | 18.5% | 19.5% |
100 largest borrowers | 22.2% | 23.0% | 23.8% |
51 Bradesco
4.B. Business Overview | ||
Form 20-F | ||
December 31, | 2019 | 2018 | 2017 |
Borrower size |
|
|
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Largest borrower | 1.9% | 2.2% | 2.5% |
10 largest borrowers | 7.7% | 9.1% | 8.2% |
20 largest borrowers | 11.3% | 12.9% | 12.2% |
50 largest borrowers | 16.7% | 18.6% | 17.8% |
100 largest borrowers | 20.1% | 22.9% | 22.2% |
ØFinancing and On-lending
Other loans and advancesto individuals
Our significant volume of individual loans enables us toavoid concentration on any individual loans on the performance of our portfolio and helps build customer loyalty. They consist primarily of:
· personal loansImport and export financing
Our Brazilian foreign-trade related business consists of providing financial services to our clients in their export and import activities.
In import financing/refinancing, we directly transfer funds in foreign currency to foreign exporters, fixing the payment in local currency for Brazilian importers. In export finance, exporters obtain advances in reais on closing an export forex contract for future receipt of foreign currency on the contract due date. Export finance arrangements prior to shipment of goods/performance of services are known locally as Advances on Exchange Contracts or "ACCs", and the sums advanced are used to manufacture goods or provide services for export. If advances are paid after goods/performance of services have been delivered, they are referred to as Advances on Export Contracts, or "ACEs".
There are other forms of export financing, such as Export Prepayments, onlendings from BNDES-EXIM funds, Export Credit Notes and Bills (referred to locally as "NCEs" and "CCEs"), and Export Financing Program with pre-approved overdraft facilities to be obtained throughrate equalization – "PROEX".
Our foreign trade portfolio is funded primarily by credit lines from correspondent banks. We maintain relations with various American, European, Asian and Latin American financial institutions for this purpose, using our branches, ATM network call center, mobile and internet banking, with average repayment terms in six months with an average interest rate of 8.6% per monthapproximately 1,176 correspondent banks abroad, 43 of which extended credit/guarantee lines as of December 31, 2017. It also includes payroll-deductible loans to INSS pension plan beneficiaries and retirees and public servants and private sector employees;2019.
· vehicle financings with average repayment terms of 14 months with an average interest rate of 1.4% per month as of December 31, 2017; and
·overdraft loans on checking accounts - "cheque especial," with average repayment terms of one month, at interest rates varying from 3.0% to 13.3% per month as of December 31, 2017.
As of December 31, 2017, we had outstanding personal loans, vehicle financings, and overdraft loans totaling R$88.9 billion, or 23.8% of our portfolio of loans and advances to customers.
Banco Bradesco Financiamentos ("Bradesco Financiamentos") offers (i) lines of loans and leasing for the acquisition of vehicles and (ii) payroll-deductible loans to INSS retirees and pensioners and public-sector employees (federal, state and municipal) through our extensive network of correspondents in Brazil, which includes retailers and dealers of light and heavy vehicles and motorcycles and companies specialized in payroll-deductible loans.
Housing loans
As of December 31, 2017,2019, we had 170.2219.3 thousand active financing contracts under mortgage or fiduciary disposal of real estate. The aggregate outstanding amount of our housing loans amounted to R$59.9 billion, representing 16.0% of our portfolio of loans and advances to customers.units.
Housing loans are carried out forprovided for: (i) the purpose of: (i) acquisition of residential and commercial real estate, and urban plots; and (ii) construction of residential and commercial developments.
FinancingFinancings for the acquisition of residential real estate hashave a maximum term of up to 30 years and annual interest rates of 9.3%7.3% to 12.0%per annum p.a., plus TR, while commercial real estate hasfinancings have a maximum term of up to ten years and annual interest rates of 9.7%13.0% to 15.0%p.a. plus TR.
FinancingFinancings for construction, also known as the Businessman Plan, hashave a construction term of up to 36
31Form 20-F – December 2017
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months and interest rate of 12.0% to 16.0%per annum, plus TR, and a six-month grace period for the realization of transfers to borrowers. However, if the debt is not paid in full through the transfer of loans to the buyers of the units once construction is finished, the remaining balance must be paid by the builder within 36 months and at TR plus 16.0% to 18.0%per annum.
Central Bank regulations require us to provide at least 65.0% of the balance of savings accounts in the form of housing loans; 24.5%loans. The remaining funds are to be used for financings and other operations permitted under the terms of the legislation in compulsory deposit requirement and theremaining resources, in financialand other transactions according to the law and regulations in force.
·Onlending BNDES onlending/FINAME/Finame
The governmentBNDES is the main instrument of the Federal Government to support entrepreneurs of all sizes, including individuals, in carrying out their plans for modernization, expansion and implementation of new business, with the potential of generating jobs, income and social inclusion in Brazil. Its portfolio has certain productscertainproducts and programs to provide government-funded long-term loans with below-market or subsidizeddifferent interest rates, focusing on economic development.
52 Form 20-F – December 2019
Table of Contents | ||
Form 20-F | ||
We are one of the structuring agents of BNDES funds, which is the development bank of the Brazilian government. We then on-lend these funds, to borrowers in several sectors of the economy. We determine the spreadmargin of return on some of the loans based on the borrowers' credit. Although we bear the risk for these BNDES and FINAMEFiname onlending transactions, these transactions are always secured.
According to BNDES, in 2017,2019, we disbursed R$5.95.0 billion, 72.6%90.0% of which waswere loaned to micro, small and medium-sized companies. Our BNDES onlending portfolio totaled R$30.7 billion as
·Vehicle loans
We acting through partnerships, in the consumer financing for the purchase of December 31, 2017,new and accountedused vehicles for 8.2%individuals and corporations in the chain, which comprises assembler, dealers and consumers. In addition to offering theses services through our extensive network of our portfolio ofbranches, Bradesco Financiamentos also offers loans and advances to customers at that date. This amount does not include BNDES onlending related to rural credit and import and export financing.
Other corporate loans and advances
We provide traditional loansleasing for the ongoing needsacquisition of our corporate customers. light vehicles, motorcycles, trucks, buses, machinery and equipment.
·Leases
As of December 31, 2017,2019, we had R$97.2 billion of other6,494 outstanding loans to corporate clients, accounting for 26.0% of our portfolio of loans and advances to customers. We offer a range of loans to our corporate customers based in Brazil, including:
·short-term loans of 29 days or less;
·working capital loans to cover our customers' cash needs;
·guaranteed checking accounts and corporate overdraft loans;
·discounting trade receivables, promissory notes, checks, credit card and supplier receivables, etc.;
·financing for purchase and sale of goods and services; and
·investment lines for acquisition of assets and machinery.
These lending products generally bear interest at a rate of 1.1% to 13.4% per month.
In addition to these loans, we also offer guarantees,which are a contractual commitment, in which we guarantee the fulfilment of the obligations of our customers (debtors) before third parties (beneficiaries).
Rural credit
We extend loans to the agricultural sector financed by compulsory deposits, or the Amount Subject to Compulsory Deposit Requirement (“VSR”), BNDES onlendings and our own funds, in accordance with Central Bank regulations. As of December 31, 2017, we had R$13.6 billion in outstanding rural credit, representing 3.6% of our portfolio of loans and advances to customers. In accordance with Central Bank regulations, loans arising from compulsory deposits are paid a fixed rate. The annual fixed rate was 8.5%, on average, as of December 31, 2017. Repayment of these loans generally coincides with agricultural harvest and principal is due when a crop is sold. For BNDES onlending for rural investment the term is no more than ten years with repayments on a semi-annual or annual basis. As security for such loans, we generally obtain a mortgage on the land where the agricultural activities being financed are conducted.
Since July 2012, Central Bank regulations require us to use at least 34.0% of the annual average (from June through May) of our VSR to provide loans to the agricultural sector.
Leasing
leasing agreements. According to ABEL, as of December 31, 2017, our leasing companies were among the sector leaders, with a 18.2%23.0% market share. According to this source, the aggregate discounted present value of the leasing portfoliosshare in Brazil, as of December 31, 2017 wasan available market of R$12.2 billion.
32Bradesco
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As of December 31, 2017, we had 12,243 outstanding leasing agreements totaling R$2.212.4 billion representing 0.6% of our portfolio of loans and advances to customers.
The Brazilian leasing market is dominated by financial institutions, including companies affiliated with Brazilian and foreign manufacturers. Brazilian lease contracts generally relate to motor vehicles, computers, industrial machinery and other equipment.on the same date.
Most of our leasing transactions are financial, (as opposed to operational). Our leasing transactions primarily involveinvolving the leasing of trucks, cranes, aircraft, ships and heavy machinery. As of December 31, 2017, 44.4%2019, 36.6% of our outstanding leasing transactions were for vehicles.
vehicles (car, bus, micro-buses, trucks). We conduct our leasing transactions through our primary leasing subsidiary, Bradesco Leasing and also through Bradesco Financiamentos.
We obtain funding for our leasing transactions primarily by issuing debentures and other securities
ØBorrowings
Line of credit destined to companies with the aim of covering expenses or investments inherent in the domestic market.company's working capital, such as: payment of 13th salary, stock renewal, training and other.
As
·Personal Loans / Payroll-Deductible Loans
They are loan operations with a pre-approved limit to meet needs without a specific purpose. It also includes payroll-deductible loans to Social Security National Service (INSS) pension plan beneficiaries and retirees, to public servants and to private the private sector.
The average term of these operations is 52 months and interest rates range from 1.6% to 3.2%p.a., as of December 31, 2017, Bradesco Leasing had R$63.6 billion of debentures outstanding in the domestic market. These debentures will mature in 2032 and bear monthly interests at the interbank interest rate (“CDI rate”).2019.
Terms·Rural loans
The provision of leasing agreementsloans and financing to the agribusiness sector is carried out with resources:
Financial leases representoFrom the demand deposit, where there is a sourcerequirement bytheCentral Bank for the investment of medium and long-term financing for Brazilian customers. Under Brazilian law,30%of the minimum termValue Subject to Collection (“VSR”), which is called RO – Obligatory Resources, with a portfolio of financial leasing contracts is 24 months for transactions relating to products whose average useful life of five years or less, and 36 months for transactions for those with an average useful life of five years or more. There is no legal maximum term for leasing contracts. As ofR$8.9 billion on December 31, 2017,2019, with maximum rates from 3.0%p.a. to 8.0%p.a. as the remainingrule of investment of the MCR (Manual of Rural Credit), whereby the average maturityrate of contracts in our leasethe portfolio was approximately 61 months.is 6.9%p.a.;
53 Bradesco
4.B. Business Overview | ||
Form 20-F | ||
Targeted Production Microcredito
We offerFrom the Bank’s Treasury for the operations, with a product named “targeted production microcredit” to formal and informal entrepreneurs, in accordance with Central Bank regulations requiring banks to use 2.0%portfolio of their cash deposits to provide microcredit loans. As ofR$5.2 billion on December 31, 2017, we had 34,508 microcredit loans outstanding, totaling R$110.1 million.
In accordance with Central Bank regulations, consumer microcredit transactions are charged up to a maximum effective interest2019 and the average rate of 2.0% per month. However, microcredit loansthe portfolio of 8.6%p.a.;
oBNDES onlending, through lines directed to the sector of Agribusiness, destined for certain typesinvestments in equipment, machinery, infrastructure, recovery of business or specific products (“microcrédito produtivo orientado”) havepasture, etc., with a maximum effective interest rateterm of up to 4.0% per month.The CMN requiresby Resolution No. 4,000/1210 years and other rulesthat the maximum amount loanedan average rate of 7.6%p.a.
The majority of loans have half-yearly or annual payments with payment terms matched to a borrower be limited to (i) R$2,000 for low income individuals in general (consumer microcredit); (ii)R$5,000 for individuals or legal entities engaged in a productive activity of professional, commercial or industrial nature, provided that the sumperiods of the value ofharvest cycle. The guarantees are usually aligned with the transactionproperty/mortgage and machines, the balance of other credit transactions does not exceed R$40,000; and (iii) R$15,000 for ourmicrocrédito produtivo orientado transactions.In addition, microcredit loans may not be for less than 120 days, and the origination fee must be up to 2.0% of the loan value for individuals and up to 3.0% for micro entrepreneurs. In 2017, the Federal Government updated some rules of the National Program of Targeted Productive Microcredit (PNMPO) through Provisional Measure No. 802/17, providing special conditionslatter being valid for the grantfinancing of credit to individuals and legal entities that are entrepreneurs of urban and rural productive activities and have income and annual gross revenues under R$200,000.00.goods.
ØOperations with limits
·Credit cardscard
We offer a range of credit cards to our clients including Elo, American Express, Visa, MasterCard brands and private label cards, whichstandwhich stand out due to theextentthe extent of benefits andconvenienceand convenience offered to associates.
We earn revenues from our credit card operationsthrough:
o |
We offer our customers a complete line of credit cards and related services, including:
We hold 50.01% of the shares of Elopar, an investment holding company which investments include Alelo (benefit cards, We also have a card business unit abroad, Bradescard Mexico, one of the highlights of which
As of December 31,
The following table shows our volume of transactions and total number of transactions of credit cards for the years indicated:
· Overdraft for individuals The overdraft limit is a line of credit available on current accounts with automatic renewal for emergency situations when there is no available balance in the The interest rates vary from 2.8% to 14.2% per month, as of December 31, 2019. ·Overdraft for companies The overdraft for companies is a revolving credit ·Emergency Employment Maintenance Program In April 2020 the president of As a result of the ØCreditpolicy Our credit policy is focused on: oensuring the safety, quality, liquidity and diversification of asset allocation;
55 Bradesco
ominimizing risks inherent to loans and advances. Our credit policy defines criteria for lending and setting operational limits. Credit decisions are made at the branch level and, if necessary, higher levels of authority including our Board of Directors depending on the rules in our internal policy. In reviewing loan applications, ourDiretoria Executiva also approves the models of Our transactions are diversified and target individuals and companies that show ability to pay and stay in
credit risk rating for our clients/economic groups is based on a range of 18 levels, of which 14 represent accrual loans. This ensures greater adherence to the requirements set forth in the Basel Accords. For more information, The lending limits set for our branches reflect size and ois rated less than “acceptable” under our internal credit risk classification system (score and rating); ohas an outdated record; and ohas any relevant credit restrictions. We have credit limits for each type of loan and we pre-approve credit limits for our individual andcorporate entities and presently extend credits to the public sector only under very limited circumstances. In all cases, funds are only granted once the appropriate body has approved the credit line. We review the credit limits of our large corporate customers every 180 days. Credits extended to other customers, including individuals, small and mid-sized corporations, are reviewed every 90 days. Our maximum exposure per client (e.g. individuals, companies or other economic groups) is determined by client rating and the aggregate maximum exposure is limited to 15.0% of ourReference Equity. Any cases in which the maximum level of exposure per client exceeds the thresholds as set out in the table below or in which the total exposure equals or exceeds R$3.0 billion are required to be submitted to the Board of Directors for approval.
Our credit policy is continuously developing and as part of our risk management process, we continue to improve our credit granting procedures, including procedures to gather data on borrowers, calculate potential losses and assess applicable classifications. Additionally, we assess our institutional credit risk management in view of the recommendations by the Basel Accords, including: 56 Form 20-F – December 2019
orestructuring our methodology to calculate possible losses; oidentifying and implementing changes in our reporting processes to improve our loan portfolio management; orestructuring our information control structure; and oassessing the organizational structure of our loan assessment practices, including analyzing the demand for technology and addressing new issues.
We use a specialized Credit Scoring evaluation system to analyze these loans, allowing us to build a level of flexibility and accountability, besides standardizing the procedures in the process of analyzing and deferring loans. All models are constantly monitored and revised whenever necessary. Our Credit Department has a dedicated team developing models and working on the continuous improvement of these tools. We provide our branches with tools that allow them to analyze loans and advances for individual clients in a rapid, efficient and standardized manner and to produce the corresponding loan contracts automatically. With these tools, our branches can respond quickly to clients, keep costs low, and control the risks inherent to consumer credit in the Brazilian market. The following table shows limits established for approval of loans to individuals outside the discretion of our branches:
57 Bradesco
·Loans and advances to corporations For corporate customers, depending on the collateral proposed, the size of the branch and suitability in terms of credit parameters, loans of up to R$400,000.00 may be approved at the branch level. If value and type of collateral are not within the limits established for approval at the branch level, an application is submitted to the Credit Department and, if necessary, higher levels of authority. The following table shows limits within which branch managers may approve business loans, depending on the amount and type of credit support offered:
The following table shows limits established for approval of loans to corporate customers outside the discretion of our branches:
In order to
58 Form 20-F – December 2019
·Collection and Loan Recovery We have a department that focuses on the collection and recovery of loans, seeking to reduce the rates of delinquency and losses, as well as to maintain our Collection occurs sequentially through our network of branches,
4.B.30.01-02.03CashManagement Solutions
As an example, the franchising niche has a team of franchising specialists that, through their relationship with franchising companies, identify opportunities for financing and providing services to all franchisees and their employees. The partnership with the franchise networks occurs throughstructured commercial activities in synergy with the managing departments, commercial segments, and affiliated companies. The focus on the peculiarities of this sector creates a competitive and sustainable position by structuring appropriate solutions and, in particular, through the strategy of providing differentiated and specialized service. We have approximately 485 agreements in place with franchising companies, generating numerous opportunities to open new current accounts and leveraging business with the respective franchisees.
59 Bradesco Another important feature in this area is the support we provide towards the development of Local Production Arrangements (“APLs”), by providing service to businesses and assistance to these clients. Participating in an APL strengthens the companies, because together they can form an articulated and important group for local development, allowing for greater competitive and sustainable advantages for micro and small businesses. Currently, we service 423 APLs throughout the country. Micro-entrepreneurs use the MEI Portal in addition to products and services that fit their business, including free services provided by partners to meet their day to day needs. In 2019, the Portal received a global award from the Gartner Eye on Innovation as an Open Banking Project 4.B.30.01-02.04 Public authority solutions We have a specific area dedicated to serving public administration, which offers specialized services aimed at identifying business opportunities and structuring customized solutions to entities and bodies of the Executive, Legislative and Judiciary branches at federal, state and municipal levels, in addition to independent governmental agencies, public foundations, state-owned and mixed companies, the armed forces (army, navy and air force) and the auxiliary forces (federal and state police forces). Our exclusive website developed for our customers offers corporate solutions for federal, state and municipal governments for payments, receipts, human resources and treasury services. In addition, the website also features exclusive facilities for public employees and the military, showing all of our products and services for our customers. Our commercial relationships with such public authorities are developed by specialized business managers located in distribution platforms throughout the country, which can be identified on our website. We have nine specialized platforms to assist governments, capitals, courts, class councils, chambers, prosecutors, public defenders and 100 largest municipalities according to the Brazilian GDP, in addition to 34 Platforms that operate in the Retail sector providing services to the City Halls and other Authorities. In 2019, we took part and were successful in payroll bidding processes sponsored by the Brazilian government. Furthermore, according to INSS, we continue to be leaders in payments of INSS benefits, with more than 11.4 million retirees and pensioners. 4.B.30.01-02.05Management and administration of third-party funds BRAM manages third-party funds through: ·mutual funds; ·managed portfolios; ·exclusive funds; and ·receivable funds (FIDCs –Fundos de Investimento em Direitos Creditórios), FIIs (Real Estate Investment Funds)and ETFs (Exchange Traded Funds).
60 Form 20-F – December 2019
The following tables show the equity of funds and portfolios, which are under our management, the number of investors and the number of investment funds and managed portfolios for each period:
61 Bradesco
4.B.30.01-02.06Services related to capital markets and investment banking activities As our investment bank, "Bradesco BBI" is responsible for (i) originating and executing project financing operations; (ii) originating and executing mergers and acquisitions; (iii) originating, structuring, syndicating and distributing fixed income transactions of securities in Brazil and abroad; and (iv) originating, structuring, syndicating and distributing issuances of securities of equity in Brazil and abroad. In 2019, Bradesco BBI received awards in the following categories: "Best Investment Bank in Brazil" by Global Finance, "Most Innovative Investment Bank from Latin America" by The Banker and "LatAm M&A Firm of the Year and Brazil M&A Firm of the Year" by Global M&A Network. In 2019, Bradesco BBI advised customers in a total of 223 operations across a range of investment banking products, totaling approximately R$236.6 billion.
4.B.30.01-02.07 Complete Investment Platform We operate a complete investment platform with a value proposition supported by three pillars: broad portfolio of products, investment portfolios and specialized consultancy, whose role is to generate value to the 62 Form 20-F – December 2019
client through a complete offer of products and investment solutions, as well as meet the needs of our investor clients, account holders and non-account holders, according to their age, equity and profile, through different service channels. The investment management platform, in addition to using the services of the branch network managers, has a specialist team providing advice on the demands of banking products, investment funds, capital market products, broker and private pension. The clients also benefit from suggested portfolios, that combine a diversity of financial products and are established monthly, based on national and international market perspectives. For more information on pension products, see “Item 4.B. Business Overview – 4.B.30.02 Insurance, pension plans and capitalization bonds”. 4.B.30.01-02.08 Intermediation and trading services ØÁgora Investimentos Bradesco’s Investment House Ágora CTVM S/A or “Ágora Investimentos” offers a broad portfolio of products, with investments selected for each investor’s profile and stage of life. With a specialized board of trustees who assist with the selection of the best products and investments from a list of more than 200 products, including variable income, futures markets, Direct Treasury (
In 2019, Ágora Investimentos took over the retail operations for individual and non-institutional legal entity clients, with R$43.5 billion in assets under custody and was classified as the third in the ranking of custody of individuals of B3. Through modern trading platforms, either directly through the Website or the Ágora App, via Bradesco Internet Banking or Bradesco Mobile, the investor has a complete list of products available, in which the client can negotiate, obtain information and check their position anywhere. If they still need advice, they can count on a team of specialists who will find the most appropriate investment according to the profile and purpose of each client. Ágora Investimentos was awarded by B3, within the Operational Qualifying Program (“PQO”), three excellence seals (Carrying Broker, Execution Broker and Retail Broker), indicating the high quality of the operational services rendered the market and customers investors. Ágora Investimentos also has the seal Certifies propitiating safety and transparency in the investments registered in B3. ØBradesco Corretora With the centralization of retail operations in Ágora Investimentos, Bradesco S.A. CTVM, or “Bradesco Corretora” now provides services exclusively to the institutional segment, offering a full service of investment analysis which covers the main industries and companies in the Brazilian market, with a team composed of Bradesco 63 Bradesco
In 2019, Bradesco Corretora traded R$490.4 billion in the B3 equities market and ranked sixthin Brazil in terms of total trading volume. In addition, in the same period, Bradesco Corretora traded 56.7 million futures, forwards, swaps and options totaling R$6.7 trillion on the B3. In 2019, Bradesco Corretora ranked sixteenth in the Brazilian market, in relation to the number of futures contracts, terms, swaps and options executed. Bradesco Corretora offered its clients the ability to trade securities on the Internet through its “Home Broker” service. In 2019, “Home Broker” trading totaled R$19 billion. Bradesco Corretora was awarded by B3, within the Operational Qualifying Program (“PQO”), five excellence seals (Agro Broker, Carrying Broker, Execution Broker, Retail Broker and Nonresident Investor Broker), indicating the high quality of its future market transactions. Bradesco Corretora is also certified by CETIP (Clearing House for the Custody and Financial Settlement of Securities, currently “B3”). 4.B.30.01-02.09Capital In Among the main services we offer in this segment, we highlight: qualified custody of securities for investors and issuers, administrators of investment funds, clubs and managed portfolios; bookkeeping of securities (shares, BDRs
custody of shares backed by DR We have As of December 31,
· R$ · R$ · R$
· R$ ØSecurities bookkeeping: ·
· · · 64 Form 20-F – December 2019
ØDepositary (Escrow Account – Trustee): ·
4B.30.01-02.10International banking services As a private commercial bank, we offer a wide range of international services, such as foreign trade finance and foreign currency loans, foreign exchange operations and international sureties, lines of credit and banking. As of December 31,
2019, we had 3 foreign Branches, 9 Subsidiaries and 2
Our International and Exchange
ØForeign branches and subsidiaries Our foreign branches and subsidiaries principally provide financing in foreign currency (particularly foreign trade finance operations) to Brazilian and non-Brazilian customers. Total assets of the foreign branches, Funding required The following is a brief description of our subsidiaries abroad:
65 Bradesco
ØRevenues from Brazilian and foreign operations The table below breaks down revenues (interest and similar income, and fee and commission income) from our Brazilian and foreign operations for the periods shown:
ØBanking operations in the United States In January 2004, the United States Federal Reserve Bank authorized us to operate as a financial holding company in the United States. As a result, we may do business in the United States directly or through a subsidiary and, among other activities, may sell insurance products and certificates of deposit, provide underwriting services, act as advisors on private placements, provide portfolio management and merchant banking services and manage mutual fund portfolios. ØImport and export financing See information in “Financing and Onlending Operations - Financing for import and export”, item “4.B.30.01-02.02 Loans and advances to customers”.
66 Form 20-F – December 2019
ØForeign exchange products In addition to import and export financing, our customers have access to a range of services and foreign exchange products such as: ·foreign loans to customers (Decree-Law No. 4,131/62); ·working capital abroad; ·WEB exchange contracts; ·collecting import and export receivables; ·cross border money transfers; ·advance payment for exports; ·accounts abroad in foreign currency; ·domestic currency account for foreign domiciled customers; ·cash holding in other countries; ·structured foreign currency transactions: through our overseas units; ·service agreements – receiving funds from individuals abroad via money orders; ·prepaid cards with foreign currency (individual andcorporate entities); ·purchasing and selling of foreign currency paper Money; ·cashing checks denominated in foreign currency; and ·clearance certificate (international financial capacity certificate). 4.B.30.01-02.11Consortia In Brazil, persons or entities that wish to acquire certain goods may set up a group known as a “consortium”. Consortia in Brazil are made up of pooled funds for the purpose of financing an acquisition. Consortia that are formed for the purchase of real estate, vehicles, motorcycles and trucks have a fixed term and quota, both previously determined by its members and are run by an administrator. Bradesco Administradora de Consórcios manages groups of consortia and, as of December 31, 2019, registered total sales of 1,616,675 outstanding quotas; net income of R$1.4 billion; and fees from consortiums of R$1.9 billion. The company also administers a total volume of transactions of over R$81.1 billion. 4.B.30.02 Insurance, pension plans and capitalization bonds activities We offer insurance products, pension plans and capitalization bonds through severalcorporate entities, which we refer to collectively as “Grupo Bradesco Seguros”, is a leader in the Brazilian insurance market. The following table shows selected financial data for our insurance, pension plans and capitalization bonds segment for the periods indicated: 67 Bradesco
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Retail property/casualty insurance is for individuals, particularly those with residential and/or equipment related risks and small- and medium-sized companies whose assets are covered by multi-risk business insurance. Of the various property/casualty lines for individuals, our residential policy (Bilhete Residencial) is a relatively affordable and highly profitable product. Forcorporate customers,entities, Bradesco Auto/RE offers Bradesco Seguro Empresarial (business insurance), which is adapted to meet our customers'customers’ and business needs, according to their industry sector.sector, and “Bradesco Seguro Condomínio” customized according to the reality of each undertaking.
As of December 31, 2017,2019, Bradesco Auto/RE had 1.5 million insured automobiles and 1.51.4 million property/casualty policies and notes, making it one of Brazil’s main insurers.
Reinsurance
Insurance companies must operate with reinsurers registered with SUSEP.In 2007, Brazil's Congress enacted Supplementary Law No. 126/07, which abolished IRB-Brasil Re's monopoly and allowed three types of reinsurers referred to as "local," "admitted" and "occasional," thus opening up Brazil's reinsurance market for competition.Reinsurers classified as admitted and eventual, with their head office abroad, must meet specific minimum requirements, as provided for in legislation in force.
Under the same supplementary law, IRB-Brasil RE was recognized as a local reinsurer and authorized to continue its operations and make any required adjustments in due course.
As of the end of 2007,National Council of Private Insurance (CNSP -Conselho Nacional de Seguros Privados) and SUSEP issued a number of normative instructions containing rules for reinsurance, retrocession and intermediation business, based mainly on CNSP Resolution No. 168/07.
Through Decree No. 6,499/08, the President of Brazil set maximum limits forthecedingof premiumsto reinsurancecompanies in each calendar year. For local insurers, such maximum limit was 10.0% of premiums, and for local reinsurers, 50.0%of premiums. In the case of local insurers, CNSP Resolution No. 203/09 raised the limitfor local insurersfrom 10.0%to 25.0%in the case of guarantees for public obligations and oil risks andCNSP Resolution No.194/08, to up to 100%, in the case of nuclear risks.
CNSP Resolution No. 241/11 was introduced to enable the transfer of certain risks associated with reinsurance or retrocession operations to reinsurers not authorized by SUSEP when the lack of capacity of the local, permitted and eventual reinsurers is proved, regardless of the price and conditions offered by these reinsurers.
CNSP Resolution No. 322/15 amended Article 14 of CNSP Resolution No. 168/07, such that the maximum currently allowed limit for which an insurer or reinsurance company based in Brazil may transfer risks to related companies or to companies headquartered abroad, belonging to the same financial conglomerate is 20.0%. An annual increase of this percentage is expected, gradually, up to 75.0% beginning in January 2020. In addition, Article 15, which provides for minimum compulsory contracting of 40.0%, of the transfer of reinsurance, with local reinsurers, was amended so as to provide an annual and gradual reduction of up to 15.0%, beginning in January 2020.
In December 2017, CNSP Resolution No. 353/17 modified CNSP Resolution No. 168/07 to eliminate the minimum requirement of contracting local reinsurers. However, Article 15 of CNSP Resolution No. 168/07 requires the insurance company to give preference to local reinsurers in at least 40% of its reinsurance assignments related to automatic or optional contracts. CNSP Resolution No. 353/17 also eliminated the limitation on the transfer of risks from insurers to companies associated to their economic conglomerate, establishing that suchtransactionsshall "ensure the effective transfer of risk between the parties" and "be conducted at arm's length conditions".
On December 31, 2017 there were 121 reinsurers authorized to operate in the Brazilian market, including IRB-Brasil RE and Lloyd's of London, and 23 reinsurance brokerage firms had the required authorization to intermediate reinsurance and retrocession operations.
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In 2017, the Bradesco Auto/RE paid R$191.1 million in reinsurance premiums. Almost all property and casualty lines, except for the automobile line, have reinsurance protection and the majority of them feature proportional and non-proportional plans per risk and/or event.
Senior Management is responsible for the reinsurance purchase policy and the approval of reinsurers with whom agreements are entered into. In addition to minimum legal and regulatory requirements, Senior Management considers certain other key parameters when choosing such partners, thus minimizing the credit risks inherent in the operation, such as: minimum rating A- (or equivalent)from rating agencies, except forlocal reinsurers and shareholders’ equity consistent with the amounts ceded. Accordingly, our reinsurance purchase policy is designed to operate within its automatic contractual capabilities, therefore preventing the frequent purchases of optional agreements and higher exposures to the credit risk.
A significant portion of automatic andoptionalagreements (proportional and non-proportional)is transferredto IRB - Brasil RE. Certain admitted reinsurers participate with a lower individual percentage, but all of them hold capital and a rating higher than those minimum set forth by applicable Brazilian legislation.
4B.30.02-01.04 Supplementary Pension plans
We have managed individual and corporate pension plans since 1981 through our wholly-owned subsidiary Bradesco Vida e Previdência, which is now one of the leading pension planplans manager in Brazil, as measured by investment portfolio and technical provision criteria, based on information published by FenapreviFenaPrevi and SUSEP.
Bradesco Vida e Previdência offers and manages a range of individual and group pension plans. Our largest individual plans in terms of contributions known as VGBL and PGBL are exempted from withholdingpaying taxes on income generated by the fund portfolio.
As of December 31, 2017,2019, Bradesco Vida e Previdência accounted for 27.9%22.8% of the pension plan and VGBL market in terms of contributions, according to SUSEP. On December 31, 2017,2019, Bradesco Vida e Previdência accounted for 27.7%25.1% of all supplementary pension plan assets under management,27.3%management: 23.7% of VGBL,25.3%VGBL, 23.0% of PGBL and47.9%and 49.7% of traditional pension plans, according to Fenaprevi.FenaPrevi.
Brazilian law currently permits the existence of both "open"“open” and "closed"“closed” private pension entities. "Open"“Open” private pension entities are those available to all individuals and legalcorporate entitieswishing to join a benefit plan by making regular contributions. "Closed" private“Closed” supplementary pension plan entities are those available to discrete groups of people such as employees of a specific company or a group of companies in the same sector, professionals in the same field, or members of a union. Private pension entities grant benefits on the basis of periodic contributions from their members, or their employers, or both.
We manage pension and VGBL plans covering 2.9 million participants, 67.4%60.8% of whom have individual plans, and the remainder of whom are covered by company plans. The company’scompany plans account for 24.8%15.6% of technical reserves.
Under VGBL and PGBL plans, participants are allowed to make contributions either in installments or in lump-sum payments. Participants in pension plans may deduct the amounts contributed to PGBL up to 12.0% of the participant'sparticipant’s taxable income when making their annual tax declaration. Under current legislation, redemptions and benefits are subject to withholding tax. VGBL plan participants may not deduct their contributions when declaring income tax. At the time of redemption, or when benefits are paid out, tax will be levied on these benefits,the income accrued, pursuant to current legislation.
VGBL and PGBL plans may be acquired by companies in Brazil for the benefit of their employees. In 2017,December 2019, Bradesco Vida e Previdência managed R$150.3176.7 billion in VGBL and R$30.838.4 billion in PGBL plans. Bradesco Vida e Previdência also managed R$24.527.8 billion in traditional pension plans.
Bradesco Vida e Previdência also offers pension plans for corporate customers that are in most cases negotiated and adapted to the specific needs for this type of customer.
Bradesco Vida e Previdência earns revenues primarily from:
· pensionTraditional, PGBL and PGBLVGBL plan contributions, life insurance and personal accidents premiums and VGBL premiums;
· revenues from management fees charged to pension plan participants in accordance with mathematical provisions; and
· interest income.
45Form 20-F – December 201769 Bradesco
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4.B.30.02-01.05Capitalization bonds
Bradesco Capitalização is the leader among private sectorcapitalization bondcompanies,sector capitalization bond companies, according to SUSEP and offers its customers capitalization bonds with the option of a lump-sum or monthly contributions. Plans vary in value (from R$20 to R$50,000), form of payment, contribution period, and periodicity of draws for cash prizes of up to R$1.4 million (net premiums).Plans. Plans are adjusted based on the Reference Rate (TR) plus interest over the value of the mathematical provision, which may be redeemed by the shareholder at the end of the grace period. As of December 31, 2017,2019, we had around 7.37.5 million "traditional"“traditional” capitalization bonds and around 15.914.7 million incentive capitalization bonds. Given that the purpose of the incentive capitalization bonds is to add value to the products of a partner company or even to provide an incentive for its customer to avoid delinquency, the plans are for short termsshort-terms and grace periods with low unit sales value. At the end of 2017,2019, Bradesco Capitalização had approximately 23.322.2 million capitalization bonds and 2.92.7 million customers.
The investment grade rating of Bradesco Capitalização on a domestic scale is "brAA-“brAA-/Stable/--”," assigned by S&P Global rating agency.
4.B.40Distribution channels
4.B.40.01Banking
The following table shows our main distribution channels as of insurance products,the dates indicated below:
Distribution Channels(1)-Units | 2019 | 2018 | 2017 |
Service Stations | 80,222 | 76,122 | 73,411 |
- Branches | 4,478 | 4,617 | 4,749 |
- PAs - Service Points | 3,997 | 3,816 | 3,899 |
- PAEs - ATMs located on a company´s premises | 874 | 907 | 928 |
- Banco24Horas Network (2) | 14,763 | 12,697 | 11,050 |
- Bradesco Expresso (Banking Correspondents) | 39,100 | 39,100 | 38,708 |
- Bradesco Financiamentos | 16,938 | 14,912 | 14,002 |
- Losango Customer Service Points | 58 | 60 | 63 |
- Branches, Subsidiaries and Representation Office, Abroad | 14 | 13 | 12 |
ATMs | 57,720 | 58,099 | 56,849 |
- Bradesco Network | 33,900 | 34,997 | 35,590 |
- Banco24horas Network | 23,820 | 23,102 | 21,259 |
(1) We offer products and services also through digital channels such as: (i) contact center; (ii) mobile app; and (iii) internet banking; | |||
(2) Including overlapping ATMs within Bradesco´s own network and Banco24Horas network; and |
4B.40.02Insurance, pension plans and capitalization bonds activities
We sell our insurance, products, pension plansplan and capitalization bondsproducts through our website, through exclusive brokers based in our network of bank branches, and non-exclusive brokers throughout Brazil, all of whom are compensated on a commission basis. Our capitalization bonds are offered through our branches, the Internet, our call center, ATMs and external distribution channels.
The following table shows the distribution of sales of these products through our branches and outside our branches:
| % of total sales, per product | ||
2017 | 2016 | 2015 | |
Insurance products |
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Sales through the branches | 38.5% | 38.3% | 38.0% |
Sales outside the branches | 61.5% | 61.7% | 62.0% |
Pension plans products |
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Sales through the branches | 88.1% | 89.2% | 87.9% |
Sales outside the branches | 11.9% | 10.8% | 12.1% |
Capitalization bonds |
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Sales through the branches | 86.1% | 92.7% | 87.0% |
Sales outside the branches | 13.9% | 7.3% | 13.0% |
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| % of total sales, per product | ||
2019 | 2018 | 2017 | |
Insurance products |
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Sales through the branches | 38.1% | 38.0% | 38.5% |
Sales outside the branches | 61.9% | 62.0% | 61.5% |
Pension plans products |
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Sales through the branches | 86.0% | 87.1% | 88.1% |
Sales outside the branches | 14.0% | 12.9% | 11.9% |
Capitalization bonds |
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Sales through the branches | 86.4% | 85.7% | 86.1% |
Sales outside the branches | 13.6% | 14.3% | 13.9% |
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The following table shows our main distribution channels as of the dates indicated below:
Distribution Channels(1)-Units | 2017 | 2016 | 2015 |
Service Stations | 73,474 | 72,604 | 76,800 |
Branches | 4,749 | 5,314 | 4,507 |
PAs - Service Points(2) | 3,899 | 3,821 | 3,511 |
PAEs - ATMs located on a company´s premises | 928 | 1,013 | 736 |
External ATM Network - Bradesco(3) (4) | 63 | 186 | 627 |
Banco24Horas Network (3) | 11,050 | 10,972 | 11,721 |
Bradesco Expresso (Banking Correspondents) | 38,708 | 38,430 | 43,560 |
Bradesco Financiamentos | 14,002 | 12,791 | 12,124 |
Losango Customer Service Points | 63 | 63 | 0 |
Branches/Subsidiaries abroad | 12 | 14 | 14 |
ATMs | 56,849 | 56,110 | 50,467 |
Bradesco Network | 35,590 | 36,119 | 31,527 |
Banco24horas Network | 21,259 | 19,991 | 18,940 |
(1) We offer products and services also through digital channels such as: (i) contact center; (ii) mobile app; and (iii) internet banking; | |||
(2) PA (Service Points): a result of the consolidation of PAB (Banking Service Branch), PAA (Advanced Service Branch) and Exchange Branches, according to CMN Resolution No. 4,072/12; | |||
(3) Including overlapping ATMs within Bradesco´s own network and Banco24Horas network; | |||
(4) This decrease is related to the sharing of external network ATMs by the Banco24Horas network ATMs; and | |||
(5)As from 2017, we started to consider service posts for payroll-deductible loans and dealers/resellers for vehicle financing.For better comparability, the previous periods were adjusted. |
“Bradesco Expresso” enables us to expand our share of the correspondent bank segment through partnerships with supermarkets, drugstores, grocery stores, department stores and other retail chains. These companies provide basic banking services like the receipt ofutilityof utility bills, payment vouchers, withdrawals from current and savings accounts and social security benefits, and deposits, among others. The services are provided by employees at the relevant establishments, while decisions regarding granting of credit or opening of accounts are made by us.
The main services we offer through Bradesco Expresso are:
· receipt and submission of account application form;
· receipt and submission of loans, financing and credit card application form;
· withdrawals from checking accountsaccount and savings accounts;account;
· Social Security National Service (INSS) benefit payments;
· checking accounts,account, savings accountsaccount and INSS balance statements;statement;
· receipt of utility bills, bank charges and taxes; and
· prepaid mobile recharge.
As of December 31, 2017,2019, the Bradesco Expresso network totaled 38,70839,100 service stations, of which 7,189 were8,415 are new service stations implemented during 2019, with an average of 40.942.1 million monthly transactions or 2.0 million transactions per business day.
4.B.40.04Digital Channels
The Digital Channels offer mobility and autonomy to customers so that they mayusemay use the Bank from wherever they are andexpandand expand their businesses with us.
Mobile phones and tablets have become part of people’s day-to-day lives, which reinforces our role of creating new features adapted to the user and, thus, engage our clients to make easier and more secure transactions.
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In addition to traditional and consolidated service channels, such as Automatic Teller Machines (ATMs)(“ATMs”), telephone service, and Internet Banking, clients have access to an extensive portfolio of products and services through the Bradesco Celular,App, available from the most simplesimplest to the most sophisticated devices.
Below is a brief description of our digital channels:
Ø | Bradesco Celular–Our presence on mobile phones has been growing exponentially.Through apps for individuals and corporate entities, we make payment transactions, transfers, balance inquiries, loans, and many other conveniences available. Clients that access their accounts through their mobile phone are not charged by their data package due to an agreement made with Brazil’s major mobile network operators. |
Among the products and services available through Bradesco Celular, we highlight: |
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· | Opening Accounts:available in the Bradesco Applications (Classic), it allows new clients to open an account through their mobile phone, without going to the branch,including the sending of documents by mobile phone. In 2019, 341.0 thousand individual accounts were opened, an increase of 339% in comparison to the 78 thousand individual accounts and 21.1 thousand legal entity accounts in 2018; |
· | Housing Loan Simulator:the client can request a quote for a real estate financing through the application andapproved it within one hour; |
· | Bradesco Net Empresa Celular (Bradesco Net Company Mobile Banking):allows corporate entities to manage their corporate banking at any time and from anywhere; |
· | Consortium: simulation and purchase of real estate, automotive and heavy vehicle consortium; |
· | Purchase of Foreign Currency: purchases up to 10 thousand dollars or the equivalent in Euro can be done directly via the App; and |
· | Insurance:contracting of life, home, dental and travel insurance. |
ØSocial NetworksBIA - Since 2004, we have had a strong presence on Social Networks, monitoring our brand and our products and services, providing service to clients and non-clients 24 hours a day, seven days a week, with a 5-minute response time and a dedicated team, specialized in social media.
We maintain relationship with digital content creators in Brazil, such as bloggers, vloggers, and other publishers 2.0. The goal of this activity is to open a direct dialogue with them and their audiences, significantly expanding the dissemination of products, services, and channels, and above all, to encourage the production of digital content in Brazil, strengthening this ecosystem and enhancing our profile in these networks.
Bradesco Celular - Our presences on mobile phones has been growing exponentially. Through apps for individuals and legal entities, we make payment transactions, transfers, balance inquiries, loans, and many other conveniences available. Clients that access their accounts through their mobile phone are not charged by their data package due to an agreement made with Brazil’s major mobile network operators.
Products and services available through Bradesco Celular include:
·BIA – Bradesco Artificial Intelligence (Bradesco Inteligência Artificial): BIA is an artificial intelligence tool, based on IBM's cognitive platform Watson Artificial Intelligence that interacts with the user, answeringanswers questions about the Bank's products and services and assists with transactions. In 2019, BIA recorded 268.6 million interactions, of which 93.9 million were via WhatsApp, where we offer transactional services, such as balance check, balance transfer and payment operations through a chatour own channels and partner channels, such as Facebook Messenger, Google Assistant, Amazon Alexa and Apple Business Chat. BIA already answers questions on more than 89 of our products and services. It is available for desktop and mobile. The Bank's Branch Network also uses the tool, providing faster services, convenience for the employees and autonomy for the managers. Since August 2017, BIA is available to the clients, and provides faster, practical and autonomous services. We were a pioneer in Brazil in the application Bradesco Celular assisting in the relationship with them by voice or text.We have already counted more than 7 million BIA interactions, with a positive feedback rate above 82%;use of IBM's cognitive computing platform, Watson.
·ØOpening Accounts:Internetavailable in the Bradesco Applications (Classic), it allows new clients to open an account through their mobile phone, without going to the branch. The opening of the account is confirmed via e-mail, push and SMS within three days from its validation;–
·Sharing Proof of Payment:the client is able to share the proof of payment by e-mail or instant message applications, to save and even print it, in a practical manner through the client's smartphone;
·Real Estate Credit Simulator:the client can request a quote for a real state financing through the application and receive it within one hour;
·Check Deposit via Mobile:revolutionary in Brazil, this service allows customers to deposit checks in a simpleShowing pioneering and innovative manner, through the capture of images by their smartphone cameras;
·Security Key (M-Token) integrated with the mobile device:is a security device store inside the phone that generates random combinations for the validation of transactions made through our digital channels;
·Payment with a barcode reader: to pay a bill,the client points the camera at the barcode, automatically accessing relevant payment information;
·Touch ID and Fingerprint: this allows the client to associate their digital finger-print to the four-digit password and to the security key, enabling faster and more practical access to the account using these apps;
·Bradesco Net Empresa Celular (Bradesco Net Company Mobile Banking):allows legal entities to manage their corporate banking at anytime and anywhere;
·DDA Authorization via SMS:service that enables paying or scheduling payments registered in the DDA by simply replying to an SMS;
·SMS Pay Bradesco:clients can pay or schedule utility bills of affiliated networks by replying via SMS;
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·InfoCelular:sending alerts via SMS with information on current and savings accounts, as chosen by the client; and
·SMS Banking:through interactive messages, enables the client to make balance enquiries, check latest entries, credit limits, and refill prepaid mobile phones.
Internet -Wespirit, we were the first financial institution in Brazil to have an electronic address on the internet and provide financial services to our clients through this channel transforming our websites into business tools and important sources of information for clients and non-clients.in 1996.
This structure hasWe can divide this communication platform into two main areas of access and dissemination of content:
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· | Bradesco Internet Banking for Financial Services:
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ØSelf-service -– Our self-service channel provides convenience to clients, giving access to transactions outside the branch’s internal environment and enabling the marketing of our products with the challenge of consolidation as a business channel.
Our Self-service Network has 33,900 machines, of which 4,439 are machines with immediate deposit and the recycling of bank notes and a further 159 allow for withdrawals in U.S. dollar and Euro. In addition, our clients have access to 23,820 ATMs under the Banco24Horas network to make withdrawals, check balances, obtain statements, contract loans, pay bills, make transfers between Bradesco accounts and use DOC/TED (types of bank transfers), Prepaid Card, and "proof of life" for INSS (physical proof of pensioner status or survivor status to maintain the right to social benefits
Our ATMs have highly advanced security technology: biometric reading that identifies customers and authenticates ATM transactions works through a sensor/invisible light beam that captures the imageof the vascular pattern of the palm of the hand.The biometric reading enables our customers to, for example, carry out transactions without a card, by simply using the palm of their hand and their six-digit password, providing convenience and speed without compromising security.
Our Service Network has 35,590 ATMs strategically located across the country; including machines that offer an immediate deposit feature (the cash deposited is also used for withdrawals, reducing the cost of supply). The Service Network also includes 21,259 machines of Banco24Horas allowing our customer to make withdrawals, check balances, obtain statements, contract loans, pay bills, make transfers between Bradesco accounts and utilize DOC/TED, Prepaid Card, and Proof of Life INSS (Prova de Vida).
Our ATMs have highly advanced security technology: biometric readingthat identifies customers and authenticates ATM transactions works through a sensor/invisible light beam that captures the image of the vascular pattern of the palm of the hand.
The biometric reading enables our customers to, for example, carry out transactions without a card, by simply using the palm of their hand and their six-digit password, providing convenience and speed without compromising the security. In our own network it is possible to carry out all transactions without a card, while the Banco24Horas network currently only allows making withdrawals and checking balances without a card.
This security and speed resulted in a partnership with the INSS, allowing our retirees and pensioners to carry out the “Proof of Life” (Prova de Vida) automatically through the use of biometrics on ATM machines belonging to our network and to the Banco24Horas network, without the need to present a document to a teller, thus speeding up the process. Biometrics is available in 100% of ATM machines belonging to our own network and those of the Banco24Horas network.
Telephone services - Fone Fácil (Contact Center) - Fone Fácil Bradesco allows clients to bank by telephone, which can be accessed by choosing electronic service or personalized service.
In the electronic service, we provide a sophisticated service system powered by voice command, which provides clients the experience of doing what they want to do through simple voice commands, without the need for listening to various service options and having to choose them by typing the option on the telephone. The client can request the desired service directly.
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72 Form 20-F – December 2019
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ØTelephone services –Fone Fácil (Contact Center) –Fone Fácil Bradesco allows clients to bank by telephone, which can be accessed by choosing electronic service or personalized service. In the electronic service, we provide a sophisticated service system powered by voice command, which provides clients the experience of doing what they want to do through simple voice commands, without the need for listening to various service options and having to choose them by typing the option on the telephone. The client can request the desired service directly. Through this channel we offer our main financial services, such as payments, transfers between Bradesco accounts, DOC/TED, investments, credit contracting, support and registration of the security device in the mobile phone, among others. By callingFone Fácil, clients can access other relationship centers, such as for credit cards, private pensions, capitalization, credit, private and internet banking, among others. ØSocial Networks –Since 2004, our pioneering and innovative use of social networks has become a market benchmark focusing on relationships, content co-creation and monitoring of our brand. We are a reference bank in content for the entire community and we have our own team of social media specialists working shifts to cater for demand from customers and non-customers on a 24/7 basis. In 2019, 96.3% of our banking transactions were performed through digital channels. The tables below show the number of transactions carried out through digital channels, the credit authorized through these channels and the quantity of current account holders:
In 2019, the volume of loans authorized though digital channels represented 23.6% of the total originated loan (considering the same products as are available via digital channels), an increase of 47% for individuals and 40% for companies. It is worth highlighting the important developments of loans authorized through mobile channels, which represents 61% of the total authorized for individuals and 12% for companies as part of our Digital Channels.
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4.B.40.05Next On October 30, 2017, we officially launched Next to complement the ecosystem of solutions of the Bradesco Organization. It was developed as a 100% digital platform and is accessed by the client through an app for iOS and Android. Our goal is for Next to cater to a new range of clients, the “hyper-connected generation”, thus complementing our existing ecosystem of solutions. Next interacts with users on a predictive basis depending on his or her behavior and using interactive and innovative tools, to offer the best user experience and relationship with the client, with the aim of providing intelligent solutions to achieve goals and day-to-day practicalities. Next uses the most modern Technology solutions, User Experience, Analytics and Artificial Intelligence. By the end of 2019, we surpassed 1.8 million accounts, with Next reaching clients in 100% of the municipalities in Brazil. Over the course of 2019, clients executed more than 376 million transactions, a volume 317% higher than the previous quarter, which shows that, in addition to opening accounts in a consistent way, clients are becoming more and more engaged with Next. 4.B.50 Seasonality We generally have some seasonality in certain parts of our business. There is certain seasonality in our consumer financing business (including our credit card business, financing of goods and others), with increased levels of credit card transactions and financing of goods at the end of the year and a subsequent decrease of these levels at the beginning of the year. We also have certain seasonality in our fee collections at the beginning of the year, which is when taxes and other fiscal contributions are generally paid in Brazil. For our PGBL and VGBL business, seasonality happens at the end of the year, when the Christmas bonuses and profit sharing distributions are usually paid. 4.B.60 Competition We face significant competition in all of our principal areas of operation, since the Brazilian financial and banking services markets are highly competitive and have undergone an intensive consolidation process in the past few years. The following table presents the market share of our main products and services in the periods indicated: 74 Form 20-F – December 2019
As of December 31, 2019, state-owned financial institutions held 39.9% of the National Financial System’s (“SFN”) assets, followed by domestic private financial institutions (taking into consideration financial conglomerates) with a 43.8% share and foreign-controlled financial institutions, with a 16.3% share. Public-sector financial institutions play an important role in the banking sector in Brazil. Essentially, they operate within the same legal and regulatory framework as private-sector financial institutions, except that certain banking transactions involving public entities must be made exclusively through public-sector financial institutions (including, but not limited to, depositing federal government funds or judicial deposits). By means of the Circular No. 3,590/12, the operations for transfer of corporate control, acquisitions, mergers, transfer of business and other acts of concentration should be analyzed by the Central Bank with respect to their effects on competition and to the stability of the financial system. Through Resolution No. 4,122/12, the CMN set out new requirements and procedures for incorporation, authorization for operations, cancellation of authorization, changes of control, corporate restructurings and conditions for exercising positions in statutory or contractual bodies of financial institutions and other entities authorized by the Central Bank of Brazil. In April 2018, the CMN regulated the credit fintechs through Resolution No. 4,656/18, which providesthat on the establishment and operation of the Direct Loan Companies (“SCD”) and Interpersonal Loan Companies (“SEP”), regulating loan operations and financing between people using electronic platforms. In summary, SCD and SEP have to be constituted in the form of joint stock companies and may meet less stringent criteria than those of other financial institutions to obtain authorization. However, the SCD can only perform loan operations and financing using their own resources, while the SEP cannot make use of operations with its own resources, acting as an intermediary between creditors and debtors, and providing other services established in the Resolution. 75 Bradesco
In 2019, the CMN created new rules for the Credit Society for Microentrepreneurs and Small Business (“SCMEPP”), through Resolution No. 4,721/19 which provides for the constitution, authorization for operation, corporate restructuring and cancellation of authorization for operation. The SCMEPP has the role of granting funding to individuals, micro companies and small businesses based on the viability of their projects. The SCMEPP cannot raise money from the public, nor can it issue bonds and securities to place bids and public offerings. In these circumstances, the fintechs that are already expanding in the Brazilian market may act in a regulated manner and independently from a financial institution already constituted, as an SCD or SEP. The process of obtaining authorization for operation of the SCD, SEP and SCMEPP has fewer requirements than those of a multiple bank; in contrast, these entities have a more limited scope of action. Despite this, these new rules and types of financial institutions will stimulate competition between financial institutions and thus, in particular in the credit market, will adversely affect the Bank. In 2020, the CMN, through Resolution No. 4,792/20, amended Resolution No. 4,656/18 which relates to SCD and SEP, and the new provisions shall enter into force on May 4, 2020. In relation to the SCD, the possibility of issuing the payment instrument post-payment and financing their activities with resources from the BNDES is included and was expanded to types of investment funds that can finance the operations of the SCD and SEP. Open banking is also seen as one of the ways of fostering innovation. The movement, which started in the United Kingdom, is being developed in Brazil, with participation from the Central Bank in partnership with the Febraban and its associates. The premise of open banking is that is the customer’s right to decide which institutions can use their data, in other words, it may authorize other companies to access their balance and bank statements, or vice the customer may authorize other companies to share information with us. Since 2017, we have followed the regulatory movements and new business in relation to open banking. Working groups have already been created in conjunction with the technical, control and business areas with the goal of establishing new business models and to be in compliance with the regulation of the Central Bank, which should enter into force in the second half of 2020. 4.B.60.01Deposits The deposit market is highly concentrated, with our main competitors being are Itaú Unibanco, Caixa Econômica Federal, Banco do Brasil and Santander. The five largest institutions hold 77.8% of deposits in the Brazilian market, according totheCentral Bank. 4.B.60.02Loans and advances Competition in loans and advances has been increasing in recent years. Our main competitors are Itaú Unibanco, Banco do Brasil and Santander Brasil. 4.B.60.03Credit cards The credit card market in Brazil is highly competitive. Our primary competitors in the market are Banco do Brasil, Itaú Unibanco, and Santander Brasil. Management believes that the primary competitive factors in this area are card distribution network, the services and benefits offered. 76 Form 20-F – December 2019
4.B.60.04Consortia In December 2019, according to Central Bank, the consortia market included 146 administrators, divided between the bank, manufacturer and independent administrators. Our main competitors are Porto Seguro and Caixa Econômica Federal in the real estate segment; Banco do Brasil and Itaú in the automobile segment; and Randon and Conseg in the trucks segment. One of our competitive advantages is the credibility of the Bradesco brand and our extensive distribution network, with the largest service network in the entire whole of Brazil. 4.B.60.05 Investment Bank The investment bank market in Brazil is very competitive, involving the participation of national and international financial institutions. Among the main players are Itaú BBA, BTG Pactual, Santander and other international institutions. Bradesco BBI has nonetheless achieved significant success in this market, obtaining recognition from renowned international agencies that follow the sector globally. 4.B.60.06 Leasing In general, our main competitors in the Brazilian leasing marketare Santander Leasing, Banco IBM, HP Financial Service and Daycoval Leasing. Our belief is that we currently enjoy certain competitive advantages, as we have a larger service network than any of our private sector competitors. 4.B.60.07 Fund management On December 31, 2019, the fund management industry in Brazil managed funds worth R$5.4 trillion in shareholders’ equity according to ANBIMA’s investment funds management ranking. BRAM held a portion of R$560.4 billion or 10.3% of market share. We are one of the leading institutions as measured by the number of investment fund quotaholders with 3.1 million. Our main competitors are BB DTVM and Itaú Unibanco. 4.B.60.08 Insurance According to SUSEP, in 2019, we were the leader of the Brazilian insurance market. Grupo Bradesco Seguros faces growing competition from several domestic and multinational companies in all branches of this sector, which has changed in Brazil in recent years, as foreign companies have begun to form associations with national insurers. In this respect, the main competitive factors are price, financial stability, and recognition of the name and services provided by companies. With respect to services, competition primarily involves the ability to serve the branches that market such services, including the level of claims handling automation, and development of long-term relationships with customers. Our principal competitors are BB Seguridade, Itaú Unibanco Seguros S.A., SulAmérica Seguros, Porto Seguro, Caixa Seguros and Zurich/Santander, which account for a combined total of approximately 51.4% of all premiums generated in the market, as reported by SUSEP, in 2019. We believe that the penetration of our service network, present in all municipalities in Brazil, gives Grupo Bradesco Seguros a significant competitive edge over most insurance companies, thereby promoting cost savings and marketing synergies. Regarding the healthcare sector, although most insurance activities are carried out by companies with nationwide operations, there is also competition from companies that operate locally or regionally. 77 Bradesco
4.B.60.09 Pension plans sector The Brazilian government’s monetary stabilization policies stimulated the pension plan sector and attracted new international players. Bradesco Vida e Previdência’s main competitive advantages are the “Bradesco” brand, our extensive branch network, our strategy and our record of being in the forefront of product innovation. Our main competitors are BB Seguridade, Itaú Unibanco Seguros, Caixa Seguros and Zurich/Santander. 4.B.60.10 Capitalization bonds sector Our competitive strengths in this sector include our offering of low-cost products with a higher number of prize drawings, security, financial stability, and brand recognition. Our main competitors are BB Seguridade, Itaú Unibanco Seguros, Santander, Caixa Seguros and Icatu, which together represent approximately 57.6% of the total capitalization revenue generated in the market, according to information provided by SUSEP in 2019. 4.B.70Regulation and Supervision The basic institutional framework of the Brazilian Financial System was established in 1964 by Law No. 4,595/64, known as the “Banking Reform Law”. The Banking Reform Law dealt with monetary, banking and credit policies and institutions, and created the CMN. 4.B.70.01Principal regulatory agencies 4.B.70.01-01 CMN CMN is responsible for overall supervision of monetary, credit, budgetary, fiscal and public debt policies. CMN has the following functions: ·regulating loans and advances granted by Brazilian financial institutions; ·regulating Brazilian currency issue; ·supervising Brazil’s reserves of gold and foreign exchange; ·determining saving, foreign exchange and investment policies in Brazil; and ·regulating capital markets in Brazil. In December 2006, CMN asked the CVM to adopt a Risk-Based Supervision System (“SBR”), as a general guideline for the CVM’s activities, through Resolution No. 3,427/06. This model is also regulated by CVM Resolution No. 757/16, which established the objectives of the SRB to: (i) identify risks to which the market is exposed; (ii) rank these risks in order of severity and the probability of the risks occurring; (iii) establish mechanisms for mitigating these risks and the losses they might cause; and (iv) control and monitor the occurrence of risk events. Among other effects, this system allows for a fast-track reviewing process for the issuance of securities. 4.B.70.01-02 Central Bank The Central Bank was created by Law No. 4,595/64 and is the primary executor of the guidelines ofthe CMN, responsible for ensuring the purchasing power of the national currency, including responsibility for: 78 Form 20-F – December 2019
The Central Bank’s chairperson is appointed by the President of Brazil for an indefinite term of office, subject to approval by the Brazilian senate. The Central Bank supervises financial institutions by:
4.B.70.01-03 CVM The CVM is a local entity, linked to the Ministry of Finance, with its own legal personality and its own equity, independent administrative authority, absence of hierarchical subordination, fixed mandate, stability of its managers, and financial and budgetary autonomy. It was created on December 7, 1976 by Law No. 6,385/76 with the objective of overseeing, standardizing, regulating and developing the Brazilian securities markets in accordance with securities and capital-market policies established by CMN. The CVM has power:
Thus, the main objectives of the CVM are:
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·
· may not invest in the equity of any other company beyond regulatory limits; · may not conduct credit and leasing transactions or provide guarantees of more than 25.0% of their PR to a single person or group; · may not own real estate, except for its own use; and · according to Law No. 4,595/64 and CMN Resolution No. 4,693/18, financial institutions are prohibited from conducting loan operations with related parties. Exempted from the prohibition are loan operations with related parties that comply with all of the following conditions:
·The following loan operations are also exempt from the prohibition provisioned in Law No. 4,595/64, respecting the limits and conditions established in the regulations:
80 Form 20-F – December 2019
·For the purposes of CMN Resolution No. 4,693/18, the following are considered as related parties:
a) with qualified equity interest; b) in which capital, directly or indirectly, is qualified equity interest; c) in which there is effective operational control or relevance in the deliberations, regardless of equity interest; and d) that have an officer or member of the Board of Directors in common.
4.B.70.02-02 Punitive instruments applicable to Financial Institutions Law No. 13,506/17, which regulates the administrative sanctioning process in the sphere of activity of the Central Bank and CVM and, significantly amended the punitive instruments in the context of banking supervision, of the capital market, of the Brazilian Payment System, Payment Institutions and Consortium, in combination with the Central Bank’s Circular No. 3,857/17. We can highlight, among other things: (i) the caps of the fines provisioned by the Central Bank and CVM has maximum levels established, respectively, at R$2 billion (or 0.5% of revenues from services and financial products calculated in the year preceding the violation, whichever is higher) and R$50 million; (ii) forecast for the imposition of coercive or precautionary measures, with the possibility of applying a punitive fine capped at R$100 thousand per day (or 1/1000 of the revenue from financial services and products of the receiving institution, whichever is higher), limited to a maximum period of 60 days; (iii) the legal provision was re-established for purposes of typification of the violation involving prohibited operations, added to two pieces of news henceforth: (a) list, in an unprecedented manner, exceptions, or caveats regarding their characterization; and (b) restrict the range of crimes White Collar Law, to prohibit operations where the parties are under common control; (iv) prediction of the possibility for the proposition and conclusion of the Term of Commitment for those administrative violations related to the prevention of money laundering in the context of the Central Bank; (v) the non-necessity of confession of guilt for the conclusion of the Term of Commitment was re-established, both in the context of the Central Bank and CVM; (vi) adaptation was made to the original forecast of expiry of leniency to the possibility of concluding the “Agreement In the Process of Administrative Supervision”, without, however, making provision for any exemption from prosecution; (vii) have changed the caps on fines to be applied to any infractions on FX operations; and (viii) the types of criminal conduct involving the practice of insider trading and market manipulation were also changed. 81 Bradesco
4.B.70.02-03 Capital adequacy and leverage Financial institutions based in Brazil are subject to capital measurement and standards based on a weighted risk-asset ratio, according to CMN Resolutions No. 4,192/13 and No. 4,193/13. The parameters of this methodology resemble the international framework for minimum capital measurements adopted for the Basel Accord. For further information on Basel III, see “Item 5.B – Liquidity and Capital Resources – 5.B.40 Capital Compliance – Basel III”. In accordance with Basel III recommendations, Resolution No. 4,615/17, supplemented by Circular No. 3,748/15, provides for the minimum requirement for the Leverage Ratio ("LR") as a supplementary capital measure. It is a ratio that acts to limit the level of exposure to risk assumed by financial institutions and evaluates the leverage through its relation between Tier I Capital and the Total Exposure, calculated through the sum of assets registered in accounting values, added to off-balance exposures (limits, endorsements, guarantees and derivatives), as detailed in the circular. The relevant institutions classified in Segment 1 (S1) and Segment 2 (S2), must comply with the minimum requirement for LR of 3%. In order to establish minimum quantitative requirements for the liquidity of financial institutions and limit excessive liquidity risk taking, Basel III introduced two liquidity indices: the Liquidity Coverage Ratio (“LCR”) and the Net Stable Funding Ratio (“NSFR”). The LCR corresponds to the ratio between the stock of high quality liquid assets (“HQLA”) and the total expected net cash outflows for a period of 30 days, and is intended to show that financial institutions maintain highly liquid resources to withstand a scenario of acute financial stress lasting one month. The NSFR, corresponding to the ratio between the amount of available stable funding (“ASF”) and the amount of stable required stable funding (“RSF”), and seeks to encourage institutions to finance their activities with more stable sources of funding, promoting and ensuring the alignment of the maturities of global assets and liabilities, both on and off balance sheet, reducing the dependencies of financial institutions in relation to funding in the money and short-term markets. Thus, the LCR measures liquidity risk over the next 30 days, while the NSFR limits excessive liquidity risk taking over a longer time horizon, requiring banks to finance their activities with stable sources of funds, i.e. funds that have a low probability of redemption. According to CMN Resolution No. 4,280/13, amended by Resolution No. 4,517/16, financial institutions, except for credit cooperatives, must keep consolidated accounting records (for calculating their capital requirements) of their investments in companies whenever they hold, directly or indirectly, individually or together with partners, a controlling interest in the investee companies. If their interest does not result in control of a company, financial institutions may choose to recognize the interest as equity in the earnings of unconsolidated companies instead of consolidating such interests. Under certain conditions and within certain limits, financial institutions may include eligible instruments when determining their capital requirements in order to calculate their operational limits, provided that this instrument complies with the requirements of regulation in force. Since January 2015, financial institutions based in Brazil are required to calculate their capital requirements on a consolidated basis with institutions that are part of their prudential conglomerate. The CMN Resolution No. 4,280/13 defines that the following entities located in Brazil or abroad shall be considered in the prudential conglomerate of its direct or indirect controllers: (i) financial institutions and other institutions authorized to operate by the Central Bank; (ii) consortium administrators; (iii) payment institutions; (iv) organizations that acquire loan operations, including real estate and credit rights; and (v) othercorporate entitiesheadquartered in Brazil that are solely engaged in holding interests in the entities set out above. In December 2014, the CMN changed the scope of the rules for the management of credit, market, operational and liquidity risks and capital management in order to apply such rules at the prudential conglomerate level which is now required as the basis for calculation of the capital requirements of financial institutions. The CMN Resolution No. 4,388/14 sets forth that risk management may be carried out by a single unit responsible for the prudential conglomerate and its respective affiliates(this applies only to market risk management). Further, this resolution also updates the application of the relevant thresholds for any calculations subject to foreign exchanges. It is worth pointing out that, as a result of the spread of the COVID-19, the CMN, by means of Resolution No. 4,783/20, amended the percentages of application of the RWA for calculating the value of the Additional Conservation of Common Equity (“ACP Conservation”) in the following way: (i) 1.25% during the period from April 1, 2020 to March 31, 2021; (ii) 1.625% in the period from April 1, 2021 to September 30, 2021; (iii) 2.00% during the period from October 1, 2021 to March 31, 2022; and (iv) 2.5% from April 1, 2022. This measure aims to increase the lending capacity, to increase the capital surplus and give more room and security to banks to maintain their plans of lending, and gradually reestablish the ACP Conservation until March 31, 2022. 82 Form 20-F – December 2019
In addition, as a result of the COVID-19 pandemic, the CMN, by means of Resolution No. 4,797/20, indefinitely prohibited the payment of dividends or interest on own capital above the minimum level (as specified in our Bylaws), as described in item 3.D.10.01-01 above. The prohibition of the payment of dividends or interest on own capital above the minimum level (as specified in our Bylaws) applies to all payments, including anticipated payments, (i) based on the results on the base dates between April 7, 2020 and September 30, 2020; or (ii) to be made from April 7, 2020 to September 30, 2020. 4.B.70.02-04 Risk Weighting Pursuant to Circular No. 3,644/13, the Central Bank consolidated the risk-weighted assets ("RWA") applied to different exposures in order to calculate capital requirement through a standardized approach ("RWAcpad"). According to such rule, as amended, the risk weight factors vary from 0.0% to 1,250.0% and should be applied to credit risks, depending on the nature and characteristics of the exposure. Risk-weight factors applicable to different exposures are often changed by the Central Bank. Subsequently, mitigation instruments were provided for the portion RWA related to the exposure to credit risk subject to the calculation of capital requirements through a RWAcpad, through Circular No. 3,809/16, and new criterion for application of the Fact of Risk Weighting ("FPR"), by Circular No. 3,921/18. In addition, there are specific standards of the Central Bank to determine procedures to calculate the portion of risk-weighted assets related to other exposures. The calculating the RWA, in connection with the calculation of the capital required for the operational risk by way of RWAopad, provided for by Central Bank Resolution No. 4,193/13, is calculated based on the risk of financial institutions and its direct and indirect controlled entities, based on the gross revenue for the past three years. The procedures for these calculations were established by Central Bank's Circular No. 3,640/13, as amended. The total consolidated exposure of a financial institution in foreign currencies and gold, and in assets subject to exchange variation calculated through a standardized approach ("RWAcam"), according to the calculation procedures established by the Central Bank's Circular No. 3,641/13, may not exceed 30.0% of its Reference Equity, pursuant to Resolution No. 3,488/07. In addition, if its exposure is greater than 5.0% of its Reference Equity, the financial institution must hold additional capital at least equivalent to 100% of its exposure. Since July 2007, the amount internationally offset in opposite exposures (purchases and sales) in Brazil and abroad by institutions of the same conglomerate is required to be added to the respective conglomerate's net consolidated exposure. For more information on our capital ratios, see “Item 5.B – Liquidity and Capital Resources –5.B.40Capital Compliance – Basel III”. 4.B.70.02-05 Compulsory Deposits The Central Bank periodically sets compulsory deposit and related requirements for financial institutions based in Brazil. The Central Bank uses reserve requirements as a mechanism to control liquidity in the SFN. According to the Central Bank's rules, we must place a percentage of the savings deposits and time deposits we receive from our customers with the Central Bank: ØTime deposits:in accordance with Central Bank Circular No. 3,993/20 for the calculation period beginning on March 16, 2020 and ending on March 20, 2020 we are required to deposit 17.0% of the average amounts recorded under time deposits and others operations, as described in the regulations, deducting R$30.0 million as per Central Bank's Circular No. 3,916/18. The amount required is deposited with the Central Bank in cash and we earn remuneration on the amount deposited at the SELIC rate. For the year ended December 31, 2019, this percentage was 25% and it was reduced to 17.0% as a result of the Covid-19 pandemic.From November 2020 onwards this percentage will revert again to 25%. 83 Bradesco
In addition, for the calculation period from April 6 to April 9, 2020, where the adjustment will occur on April 20, 2020, Central Bank Circular No. 3,997/20 provides that the charges calculated in accordance with the rules in force and deducted from the balance blocked from the compulsory payment on time deposits, there will be a deduction of 15% of the debit balance restated, checked on the last business day of the period of calculation of the loans granted within the framework of the Emergency Employment Support Program. Time deposits are represented by bank deposit certificates – CDBs and pay either a fixed or a floating rate, which is typically a percentage of the interbank interest rate. The breakdown between CDBs at pre-fixed rates and floating rates varies from time to time, depending on the market’s interest rate expectations. ØDemand deposits – we are required to deposit 21.0% of the average daily balance of demand deposits, collection of receivables, payment of taxes, third party funds in transit and obligations for the provision of payment services, deducting R$500 million, pursuant the provisions of Circular No. 3,917/18. ØSavings deposits – each week we are required to deposit in an account with the Central Bank an amount equivalent to 20.0%of the arithmetic average of the sum of the balances entered under the headings of Savings Deposits and Resources of Associated Savers, according to Circular No. 3,975/20. The balance of the account is remunerated by the “TR” plus interest, as detailed in the same circular. In February 2013, the Central Bank defined rules for financial cost collection on non-compliance with compulsory deposit, reserve or compulsory assignment requirements. The financial cost charged to institutions that failed to comply with these requirements was adjusted to the SELIC rate plus 4.0%p.a. Additionally, present Central Bank regulations require that we:
Standards on compulsory deposits and additional reserve requirements are periodically altered by the Central Bank.
4.B.70.02-06 Asset composition requirements According to the Resolution No. 4,677/18, as amended, financial institutions headquartered in Brazil must limit their exposure to a single client to a maximum amount of 25.0% of Tier 1 of its RE, or 15% of Tier 1 of its RE if the institution is listed as systemically important in the global scope by the Financial Stability Board. From October 2017, with the enactment of Resolution No. 4,607/17, the following transactions are excluded from the calculation of the limits mentioned above: (i) loan and leasing operations of responsibility of the Government; (ii) credits arising from transactions with derivatives of responsibility of the Government; and (iii) installments of loan operations guaranteed by the government. Under the terms of Resolution No. 4,589/17, the amount of loan operations with organizations and entities of the public sector is limited to 45% of the Reference Equity, according to the regulations in force. 4.B.70.02-07 Repurchase transactions Repurchase transactions are subject to operational capital limits based on the financial institution’s equity, as adjusted in accordance with Central Bank regulations. A financial institution may only hold repurchase transactions in an amount up to 30 times its Reference Equity. Within that limit, repurchase transactions involving private securities may not exceed five times the amount of the financial institution’sCapital. Limits on repurchase transactions involving securities issued by Brazilian governmental authorities vary in accordance with the type of security involved in the transaction and the perceived risk of the issuer as established by the Central Bank.
84 Form 20-F – December 2019
In September 2016, the Central Bank prohibited the execution, extension or renewal of repurchase transactions with securities issued or accepted from associated institutions, or institutions that are members of the same prudential conglomerate. However, the execution, extension or renewal of repurchase transactions based on securities issued or accepted up until September 29, 2016 will be accepted until December 31, 2017, provided that the following are observed: (i) the maximum term of twelve months; and (ii) the maintenance of the accounting balance related to the total of transactions in an amount equal to or less than 110.0% of the total accounting balance calculated on the base date of August 31, 2016, whereby from May 1, 2017, the amount will be 50.0% of the total accounting balance calculated for the same base date. In March 2020, the Central Bank issued Circular No. 3,990/20 establishing the criteria and conditions for the practice of repo operations in foreign currencies by the Central Bank, through the sale of sovereign bonds (Global Bonds) by a financial institution, with the seller simultaneously committing to repurchase securities with the same characteristics at a future date. 4.B.70.02-08 Onlending of funds borrowed abroad Financial institutions and leasing companies are permitted to borrow foreign currency-denominated funds in the international markets (through direct loans or the issuance of debt securities) in order to on-lend such funds in Brazil. These onlendings take the form of loans denominated inreais but indexed to the U.S. dollar. The terms of the onlending transaction must reflect the terms of the original transaction. The interest rate charged on the underlying foreign loan must also conform to international market practices. In addition to the original cost of the transaction, the financial institution may charge onlending commission only. Furthermore, the amount of any loan in foreign currency should be limited to the sum of foreign transactions undertaken by the financial institution to which loan funds are to be directed. Lastly, pursuant to the Central Bank’s Circular No. 3,434/09, the total of loans and advances made against these funds must be delivered to the Central Bank as collateral, as a condition for the release of the amount to the financial institution. 4.B.70.02-09 Foreign currency position Operations in Brazil involving the sale and purchase of foreign currency may be conducted only by institutions authorized by the Central Bank to operate in the foreign exchange market. Beginning in 1999, the Central Bank adopted a foreign exchange free float system, which gave rise to increased volatility. Since mid-2011 the Brazilianreal has depreciated against the U.S. dollar and the Central Bank has intervened in the foreign exchange market to control the foreign rate volatility. The Central Bank does not impose limits on long positions in foreign exchange operations (i.e., in which the aggregate amount of foreign currency purchases exceeds sales) and short positions in foreign exchange operations (i.e., in which the aggregate amount of foreign currency purchases is less than sales) for banks authorized to operate in the foreign exchange market. Standards that address foreign exchange markets are frequently changed by CMN and the Central Bank.In 2019, the Central Bank presented a draft bill to modernize the legislation for operations with foreign currencies in the country. The New Foreign Exchange Law, proposing, among other measures, the reduction of bureaucracies for contracting foreign exchange and the possibility of individuals and companies holding accounts in foreign currencies. The New Foreign Exchange Law aims to consolidate the foreign exchange legislation and simplify operations. The Central Bank foresees that the New Foreign Exchange Law will enable efficiency gains in accessing the market, the elimination of asymmetries of treatment and definition of proportionate requirements. 85 Bradesco
4.B.70.02-10 Registration of cross-border derivatives and hedging transactions and information on derivatives In December 2009, the Central Bank issued specific rules that became effective in February 2010, requiring Brazilian financial institutions to register their cross-border derivative transactions with a clearing house regulated by the Central Bank and by the CVM. Specifically, cross-border derivative transactions must (i) be registered within two business days; and (ii) cover details of underlying assets, values, currencies involved, terms, counterparties, means of settlement and parameters used. In January 2010, registration rules were extended to cover hedging transactions in foreign OTC markets or exchanges. In November 2010, to facilitate management of derivatives-related risk incurred by financial institutions, the CVM stipulated that market participants should create mechanisms in order to share information on derivatives contracts traded or registered in their systems, subject to banking confidentiality rules. 4.B.70.02-11 Treatment of loans and advances Financial institutions are required to classify their loans and advances into nine categories, ranging from AA to H, based on their risk. These credit risk classifications are determined in accordance with Central Bank criteria relating to: ·the conditions of the debtor and the guarantor, such as their economic and financial situation, level of indebtedness, capacity for generating profits, cash flow, delay in payments, contingencies and credit limits; and ·the conditions of the transaction, such as its nature and purpose, the type, the level of liquidity, the sufficiency of the collateral and the total amount of the credit. In the case of corporate borrowers, the nine categories that we use are as follows:
A loan and advance operation may be upgraded if it has credit support or downgraded if in default. Doubtful loan operations are classified according to the loss perspective, as per E-H ratings as follows:
A similar nine-category ranking system exists for transactions with individuals. We grade credit based on data including the individual’s income, net worth and credit history, as well as other personal data. For regulatory purposes, financial institutions are required to classify the level of risk of their loan operations according to Central Bank criteria, taking into consideration both the borrower and guarantors’ characteristics and the nature and value of the transaction, among others, in order to identify potential credit losses. For more information, see “Expected losses of loans and advances”, Item 4.B.100.06 Loans andadvances to customers. 86 Form 20-F – December 2019
This risk evaluation must be reviewed at least every six months for loans extended to a single customer or economic group whose aggregate loan amount exceeds 5.0% of the financial institution’s Capital, and once every twelve months for all loan operations, with certain exceptions. Past due loans and advances must be reviewed monthly. For this type of loan, regulatory provisions set the following minimum risk classifications:
Financial institutions are required to determine, whether any loans must be reclassified as a result of these minimum classifications. If so, they must adjust their regulated accounting provisions accordingly. The regulations specify a minimum provision for each category of loan (local GAAP), which is measured as a percentage of the total amount of the loan and advance operation, as follows:
Loans and advances of up to R$50,000 may be classified by the method used by the financial institution itself or the arrears criteria, described above. Classifications should be at least level A, according to the Central Bank. Financial institutions must make their lending and loan classification policies available to the Central Bank and to their independent accountants. They are also required to submit information relating to their loan portfolio to the Central Bank, together with their financial statements. This information must include: · ·maturities of their loans; and ·amounts of rescheduled, written-off and recovered loans. The Central Bank requires authorized financial institutions to compile and submit their loans and advances portfolio data.
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4.B.70.02-12 Exclusivity in loans and advances to customers In January 2011, the Central Bank’s Circular No. 3,522/11 prohibited financial institutions that provide services and loan operations from entering into agreements, contracts or other arrangements that prevent or restrict the ability of their customers to access loans and advances offered by other institutions, including payroll-deductible loans. The purpose of this rule is to increase competition among credit providers and prevent exclusivity agreements between state-owned banks and government bodies with respect to payroll-deductible loans. While there is some uncertainty as to whether the new rules affect existing contracts, all new contracts are covered by the new regulations, allowing market competition and enabling employees in the public and private sectors to obtain payroll-deductible loans from any authorized financial institution. 4.B.70.02-13 Debit balance of the credit card bill Through CMN Resolution No. 4,549/17, which came into force in April 2017, the Central Bank started regulating the financing of the debit balance of the credit card invoice and other post-paid instruments, not settled in full at maturity. According to the new standard, the credit card companies will no longer be able to finance the balance due from customers through the revolving credit for more than a month. Therefore, after the maturity of the bill in the following month, if there is still a debit balance due on the amount that is the object of the revolving credit, this can be financed by a line of credit in installments, to be offered by the financial institution, with better conditions or settled in full by the client. In April 2018, the CMN issued Resolution No. 4,655/18 through which the charges that may be levied if there is a delay in payment or settlement of obligations related to invoices of cards were listed, which are: (i) compensatory interest, per day of delinquency, on the instalment in arrears; (ii) fines; and (iii) interest on arrears. In addition, it establishes that the form of levying such charges shall be included in the contract signed with the client. 4.B.70.02-14 Overdraft In April 2018, the Self-Regulation Council of the FEBRABAN –Federação Brasileira de Bancos (Brazilian Federation of Banks), published the Regulatory Standard No. 19/18 (Regulatory Standard on the Conscious Use of Overdraft), with new guidelines to promote and stimulate the proper use of overdraft facilities. Among the Regulatory Standard No. 19/18 main guidelines, we highlight that: (i) financial institutions which have signed the regulatory standard shall, at any time, provide more advantageous conditions to the consumer to settle his overdraft balance, including the possibility of instalment payments; (ii) if the consumer uses more than 15% of the overdraft limit available during 30 consecutive days, and as long as the value is above R$200.00, the financial institution shall proactively offer to the consumer alternatives for the settlement of the balance; and (iii) financial institutions shall promote financial guidance related to the overdraft, especially with respect to its use in emergency situations and on a temporary basis. In November 2019, the CMN published Resolution No. 4,765/19, which provides for overdrafts granted by financial institutions for cash deposit accounts. This Resolution allows the collection of a fee for offering special overdraft facilities to the customer, noting that, for limits up to R$500.00, the charge is 0%, and 0.25% for credit limits above R$500.00 calculated on the amount exceeding the limit. On the other hand, the interest rates charged on the amount used are limited to 8% per month. This regulation came into force on January 6, 2020. To complement that resolution, the Central Bank's Circular No. 3,981/20 was published in February 2020 to provide adequate conditions for customers of financial institutions to monitor the use of the overdraft and for evaluation of the impact of interest charges and fees incurred by financial institutions. Accordingly, financial institutions are obliged to highlight in the account statement for deposit accounts, information regarding the overdraft,including the threshold, the debit balance of the overdraft, the values of the overdraft used daily, the value and the form of calculating the compensatory interest rate and the value of accrued interest. This Circular is expected to come in to force on June 1, 2020. 88 Form 20-F – December 2019
4.B.70.02-15 Brazilian Clearing System (Sistema de PagamentosBrasileiro, or “SPB”) The SPB was regulated and restructured under Law No. 12,865/13. These regulations are intended to streamline the system by adopting multilateral clearing and boost security and solidity by reducing systemic default risk and financial institutions’ credit and liquidity risks. SPB comprises the entities, systems and procedures related to the processing and settlement of transactions of transfers of funds, operations with foreign currency or with financial assets and securities. The subsystems in the SPB are responsible for maintaining security mechanisms and rules for controlling risks and contingencies, loss sharing among market participants and direct execution of custody positions of contracts and collateral by participants. In addition, clearing houses and settlement service providers, as important components to the system, set aside a portion of their assets as an additional guarantee for settlement of operations. Currently, responsibility for settlement of a Financial institutions and other institutions authorized by the Central Bank are also required under the rules to create mechanisms to identify and avoid liquidity risks, in accordance with certain procedures established by the Central Bank. Under these rules, institutions are required to maintain, at least:
Payments are processed in real time, and since March 2013, the amounts over R$1,000 are being processed by electronic transfers between institutions with immediately available funds. If a transaction is made using checks, an additional bank fee will be charged. The Central Bank and CVM have the power to regulate and supervise the SPB. The only members of the SPB are institutions of payments and payment arrangements that have high financial volumes. These volumes accumulated in the last 12 months are equivalent to R$500,000,000.00 in total value of transactions, 25,000,000 transactions, in the case of payment arrangements, and R$50,000,000.00 in resources kept in a pre-payment account payable in the case of a payment institution as issuer of electronic money. To achieve these volumes, the payment institution or of payment arrangement shall be subject to the requirements and procedures to authorize the operation, change the control, for corporate restructuring, cancellation of authorization and conditions to hold management positions, as established by Circular No. 3,885/18, and therefore subject to the regulation and supervision by the Central Bank. The regulation to govern the provision of payment services in the ambit of payment arrangements is governed by Circular No. 3,682/13, as amended. In March 2020, the Central Bank, by means of Circular No. 3,989/20, instituted the BR Code, a rapid response code standard (QR Code) to be used by the payment arrangements, which must be offered in a standardized manner, in order to facilitate the interoperability, the internationalization and increased efficiency of retail payments.
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In recent years, the Central Bank has led the process of implementation of the system for instant payments in Brazil, which includes the open arrangement established by the Central Bank, the PIX, the payment service providers participating in the arrangement (financial institutions and payment institutions), the unique platform that will settle transactions carried out between different participating institutions ("SPI") and the identifiers' directory of transactional accounts that will store the information of the tokens or nicknames that are used to identify the accounts of recipient users ("DICT"). Both the SPI and the DICT will be developed, operated and managed by the Central Bank. By means of Circular No. 3,985/20, the Central Bank established the criteria and modalities for participation in the PIX, in the SPI and in the DICT. This arrangement is established by the Central Bank and disciplines the provision of payment services related to instant payment transactions, of which we are obliged to participate. The arrangement of instant payment is composed by the payment service provider that maintains the transaction account (account maintained by an end-user in a payment service provider and used for purposes of payment or receipt of an instant payment, which may be a checking account, a savings deposit account or a prepaid payment account) and governmental entity that participates solely to make or receive their own payments. The PIX will be available to the public from November 2020. 4.B.70.02-16 Special Temporary Administrative, Intervention and Extrajudicial Liquidation Regimes – Under Law No. 6,024/74 ØIntervention The Central Bank will intervene in the operations and management of any financial institution not controlled by the Federal Government if the institution: ·suffers losses due to mismanagement, putting creditors at risk; ·repeatedly violates banking regulations; or ·is insolvent. Intervention may also be ordered upon the request of a financial institution’s management and may not exceed 12 months. During the intervention period, the institution’s liabilities are suspended in relation to overdue obligations, maturity dates for pending obligations contracted prior to intervention, and liabilities for deposits in the institution existing on the date intervention was ordered. ØAdministrative liquidation The Central Bank will liquidate a financial institution if: ·the institution’s economic or financial situation is at risk, particularly when the institution ceases to meet its obligations as they fall due, or upon the occurrence of an event that could indicate a state of bankruptcy; ·management commits a material violation of banking laws, regulations or rulings; ·the institution suffers a loss which subjects its unsecured creditors to severe risk; or ·upon revocation of the authorization to operate, the institution does not initiate ordinary liquidation proceedings within 90 days, or, if initiated, the Central Bank determines that the pace of the liquidation may impair the institution’s creditors. As a consequence of administrative liquidation: ·lawsuits pleading claims on the assets of the institution are suspended; ·the institution’s obligations are accelerated; ·the institution may not comply with any liquidated damage clause contained in unilateral contracts; ·interest does not accrue against the institution until its liabilities are paid in full; and ·the limitation period of the institution’s obligations is suspended. The Central Bank may end the extrajudicial settlement of a financial institution, in the following cases: 90 Form 20-F – December 2019
·full payment of unsecured creditors; ·change of the institution’s scope to an economic activity that is not part of the SFN; ·transfer of the institution’s control; ·conversion into ordinary settlement; and ·sale/loss of the institution’s assets, upon its completion and the distribution of the proceeds among the creditors, even if the debts are not fully paid; or ·absence of liquidity or difficult completion of the institution’s remaining assets, as recognized by the Central Bank. ØTemporary Special Administration Regime The Temporary Special Administration Regime, known as “RAET”, is a less severe form of Central Bank intervention in financial institutions, which allows institutions to continue to operate normally. RAET may be ordered in the case of an institution that: ·repeatedly makes transactions contravening economic or financial policies under federal law; ·faces a shortage of assets; ·fails to comply with compulsory deposit rules; ·has reckless or fraudulent management; or ·has operations or circumstances requiring an intervention. 4.B.70.02-17 Payment of creditors in liquidation In the case of liquidation of a financial institution, employees’ wages, indemnities and tax claims have the highest priority among claims against the bankrupt institution. In November 1995, the Central Bank created theFundo Garantidor de Créditos –FGC to guarantee the payment of funds deposited with financial institutions in case of intervention, administrative liquidation, bankruptcy, or other state of insolvency. Members of the FGC are financial institutions that accept demand, time and savings deposits as well as savings and loans associations. The FGC is funded principally by mandatory contributions from all financial institutions based in Brazil accepting deposits from customers. The FGC is a deposit insurance system that guarantees a certain maximum amount of deposits and certain credit instruments held by the same customer against a financial institution (or against member financial institutions of the same financial group). The liability of the participating institutions is limited to the amount of their contributions to the FGC, with the exception that in limited circumstances, if FGC payments are insufficient to cover insured losses, the participating institutions may be asked for extraordinary contributions and advances. The payment of unsecured credit and customer deposits not payable under the FGC is subject to the prior payment of all secured credits and other credits to which specific laws may grant special privileges. CMN increased the maximum amount of the guarantee provided by the FGC in some circumstances. The last maximum amount was R$250,000, maintained until the present date. The extraordinary monthly contribution has also changed, as altered by CMN Resolution No. 4,653/18, and is currently applied to the equivalent of 0.01%. CMN Resolution No. 4,653/18 was also responsible for instituting an additional monthly contribution to be collected when the Reference Value is 4 times higher than the Adjusted Shareholders’ Equity. On November 27, 2019, the CMN amended Resolution No. 4,764/19, increasing the amount of the additional contribution and stating that such contribution shall be collected as from July 2020. Central Bank amended Circular No. 3,915/18 establishing the obligation of providing information to the FGC by financial institutions and other institutions authorized to operate by the Central Bank, whereby these institutions should have systems and controls that can produce and supply such information in up to two working days in an electronic file with various data listed in the Circular. 91 Bradesco
According to CMN rules, the maximum value of the balance of such deposits is limited (with a maximum aggregate of R$3.0 billion) to: (i) for the balance of the deposits originally made without fiduciary assignment, the highest of the following amounts: (a) the equivalent of twice the regulatory Tier I capital, calculated yearly on the base date June earning interest monthly at the SELIC rate; (b) the equivalent of twice the regulatory Tier I capital, calculated as of December 2008, earning interest monthly at the SELIC rate as of May 2009; and (c) the equivalent of the sum of balances in time deposits plus balances of bills of exchange held in the bank in June 2008, earning interest monthly at the SELIC rate as of May 2009; and (ii) for the balance of the deposits made with fiduciary assignment, the following factors over the regulatory Tier I capital, calculated as of December of the previous year, adjusted by the SELIC rate: (a) 1.6 as of June 2013; and (b) 2.0 as of January 2014. Furthermore, the limit on taking time deposits with special FGC guarantees without fiduciary assignment has been reduced, in accordance with the following schedule: · 40.0% from January 1, 2013; ·60.0% from January 1, 2014; ·80.0% from January 1, 2015; and ·100.0% from January 1, 2016. The rules relating to the FGC were subject to several changes, which are (i) an increase in the maximum amount of the guarantee provided by the FGC to R$250,000; (ii) the inclusion of agribusiness notes (“LCA”) in credits guaranteed by FGC;(iii) the changes in the limits of the operations of assistance and financial support and operations of liquidity with related institutions, in addition to sending information by the FGC to the Central Bank on these operations; (iv) the establishment of new parameters to qualify the institutions associated with the FGC; (v) the inclusion of assumptions on which the Board of Directors may exclude the entity from the members associated with the FGC; (vi) the inclusion of the duty of provision of information to the FGC; (vii) the inclusion of additional requirements for candidates for membership of the Board of Directors and Board of Executive Officers; (viii) the changes in the percentage of contribution for the formation of the Resolution Fund (“FR”) in the case of the FGC reaching the maximum limit established; and (ix) estimate that the revenues of any kind arising out of the investment of its equity constitute the resources of the FR. In February 2019, Central Bank issued Circular No. 3,929/19, determining the calculation basis and collection of contributions from institutions associated with the FGC. The obligation to send information necessary to calculate due contributions and the application of a fine in the event of delay in the collection of the contributions. Circular No. 3,929/19 will come into force on July 1, 2020. In March 2020, the CMN issued Resolution No. 4,785/20, which adjusted the special contribution to 0.03% per month of the amount of the balances of Time Deposits with Special Guarantee ("DPGE"), which may be 0.02% per month for the DPGE in which the FGC accepts conditional assignment of receivables in loan operations and leasing operations. This resolution also authorized the possibility of collection of these deposits without conditional assignment. The resolution adjusted the additional contribution to the FGC and altered the beginning of its recollection from July 2020 to begin as from July 1, 2021. In April 2020, the CMN edited Resolution No. 4,799/20, changing the maximum value of the total credits relating to the DGPE for each individual or corporate entity against the same institution associated with the FGC, or against all member institutions of the same financial conglomerate from R$20,000,000.00 to R$40,000,000.00. 4.B.70.02-18 Internal compliance procedures All financial institutions must have in place internal policies and procedures to control: ·their activities; ·their financial, operational and management information systems; and ·their compliance with all applicable regulations. The board of executive officers of a financial institution is responsible for implementing an effective structure for internal controls by defining responsibilities and control procedures and establishing corresponding goals and procedures at all levels of the institution. The board of executive officers is also responsible for verifying compliance with all internal procedures. 92 Form 20-F – December 2019
In 2014, the CVM issued Instruction No. 553/14 which, among other issues, (i) firmly states that any business relationship may only be initiated or kept after the arrangements related to the registration process and the “Conheça seu Cliente” (know your customer) policy are adhered to; and (ii) requires a statement on the purpose and nature of the business relationship with the institution. In the same year, the Central Bank changed the procedures related to the Regulation of Anti-Money Laundering and Counter-Terrorism Financing ("AML/CTF") to be adhered to by the payment institutions, in order to meet international requirements set forth under the scope of the Financial Action Task Force ("FATF"), which is the body responsible for establishing AML/CTF standards to be adhered to by the countries of the G20. Accordingly, in addition to the AML/CTF procedures already required, payment institutions must also adopt procedures and controls to confirm the customer's identification and implement AML/CTF risk management systems. In December 2019, the CVM issued Normative Instruction No. 617/19, updating the standards of AML/TF, enhancement of the functions of the director responsible, definition of the stages linked to conducting the policy of getting to know your customer and greater details on the warning signs to be monitored, and the points that must integrate the analysis of the operation or atypical situation detected. In addition, in November 2014, SUSEP established the Permanent Committee on Anti-Money Laundering and Counter-Terrorism Financing in the Insurance, Reinsurance, Capitalization and Private Pension Plan Markets ("CPLD"). The CPLD is a permanent governing body acting to prevent money laundering and curtail the financing of terrorism, both in connection with SUSEP and the insurance, reinsurance, capitalization and private pension plan markets. In March 2019, Law No. 13,810/19 was enacted, which deals with the enforcement of sanctions imposed by the resolutions of the United Nations Security Council ("CSNU"), regulated by Central Bank's Circular No. 3,942/19. In January 2020, the Central Bank issued Circular No. 3,978/20 which will come into force on July 1, 2020. The circular revokes Circular No. 3,461/09, enhancing the policy, procedures and internal controls to be adopted to give greater efficiency to the procedures practiced in the prevention of money laundering and terrorist financing. Among the main guidelines introduced by Circular No. 3,978/20, we highlight:
94 Form 20-F – December 2019
4.B. 70.02-21 Anticorruption Law In August 2013, Law No. 12,846/13 was enacted to regulate civil and administrative liability ofcorporate entities for performing acts against public management, either domestic or foreign. Based on this legal provision,corporate entitiesshall be strictly liable, in both the administrative and civil spheres, for the practice of harmful acts in their exclusive or non-exclusive interest or benefit. TheDecree No. 8,420/15 regulates the application of Law No. 12,846/13. Among others, it establishes the guidelines with respect to the calculation of the fines to be imposed in cases involving corruption scandals. The calculation base of the fine will be the company’s revenues, which may have “minimum” 0.1% and “maximum” 20%. Articles 17, 18, 19 and 20 of the Decree concern the “mid-term” of the fine, predicting “mitigating factors” and “aggravating factors”. In the first case, there are provisions on the non-consummation of the infraction, compensation for damages, level of cooperation, spontaneous communication, preparation of the program of governance and internal structure of compliance; in the second, as “aggravating factors”, it provides for the continuity of the conduct during the relevant period, any tolerance by the Board of the company, suspension of construction or public service and positive economic situation. If it is not possible to use the revenue as a parameter for the calculation of the fine, the values to be applied may be between R$6 thousand, minimum, and R$60 million, maximum. An additional 5% fine will be levied if within five years of the “corrupt” conduct such “corrupt” conduct is repeated. 4.B.70.02-22 Corporate Sustainability Sustainability is one of the drivers of the way we do business and manage the Organization. In this sense, the management of environmental, social and governance ("ESG") issues has become key to our survival and growth in an environment that is increasingly dynamic and challenging. As we seek to generate shared and long-term value for investors, employees, suppliers, customers and society, we also contribute to the sustainable development of the country. In line with this vision, we have a set of policies and standards that guide our actions in relation to ESG issues. This normative framework is also in compliance with CMN Resolution No. 4,327/14, which introduces guidelines for the Social and Environmental Responsibility Policy ("PRSA") for financial institutions. Our commitment to sustainability is reinforced in the establishment of dialogs with various stakeholders and through the incorporation of initiatives and voluntary commitments, such as: Global Compact Initiatives, Goals of Sustainable Development ("ODS"), Equator Principles, Principles for Responsible Investment ("PRI"), Principles for Sustainable Insurance ("PSI"), Principles for Banking Responsibility ("PRB"), Businesses for the Climate ("EPC"), Women's Empowerment Principles ("WEPs"), Task force on Climate-related Financial Disclosures ("TCFD"), among others. We became a signatory of the Principles for Banking Responsibility ("PRB") of the United Nations ("UN") in 2019. A guide for the banking sector to respond, boost and benefit from an economy that is focused on sustainable development. In addition to being one of the first signatories, we were the only Brazilian Bankin the group of 30 financial institutions that since March 2018 have dedicated themselves to the construction of this project in alliance with the United Nations Environment Programme Finance Initiative – UNEP FI. 95 Bradesco
Our sustainability strategy was revised in 2019 and is based on the Principles for Responsible Banking. Six pillars of operation were developed: Sustainable Business; Climate Change; Customer Relationship; Diversity; Innovation; and Private Social Investment. The main decisions and monitoring of the sustainability strategy are conducted by the Sustainability and Diversity Committee which meets quarterly and is made up of members of the Board of Directors and of the Diretoria Executiva, including the Chief Executive Officer. The Committee’s decisions are advised by the Sustainability Committee, an executive body composed of officers and managers from several areas, that guarantee the integrated application of the strategy to the businesses and operations, and help with the execution of plans and monitoring of projects. We finished 2019 with advances in the ASG performance of the organization, being recognized by stock exchange indices and specialized rating agencies. For the 14th time, we are present in the Dow Jones Sustainability Indices (DJSI), in the World and Emerging Market portfolios, with performance above the world average. We were the best performing Brazilian private bank in 2019. We also integrated the Corporate Sustainability Index (“ISE”), of the B3, for the 15th consecutive edition. In addition, our performance was evaluated and classified by: VigeoEires – Best EM Performers, FTSE4Good, Bloomberg Gender-Equality Index, ISS ESG Corporate Rating (Prime), MSCI ESG Index, Sustainalytics’ ESG Ratings, among others. As a result of the COVID-19 pandemic, we made donations, together with other major Brazilian banks, of: (i) 5 million rapid tests; (ii) 15 million masks; (iii) 30 CT scanners and other equipment, in addition to supporting Brazilian micro and small enterprises to expand the production of ventilators and equipment that will be sent to the Ministry of Health. Together with other companies, Bradesco Seguros is supporting the construction of a campaign hospital in Rio de Janeiro, with capacity for 200 beds, 100 of which are ICU beds. 4.B.70.02-23 Audit partner rotation requirements Under Brazilian regulations, all financial institutions must: ·be audited by an independent accounting firm; and ·have the specialist in charge, officer, manager or audit team supervisor periodically replaced without the need to change the independent auditor firm itself. Rotation must take place after five fiscal years at most and replaced professionals may be reintegrated three years later. Terms of responsible specialists, officers, managers or audit team supervisors begin on the day the team begins work on the audit. Each independent accounting firm must immediately inform the Central Bank of any event that may materially adversely affect the relevant financial institution’s status. For the entities regulated by SUSEP, the applicable standards determine the replacement of the members responsible for the independent accounting audit, every five fiscal years. According to article 121, X, of CNSP Resolution No. 321/15, the member responsible for the independent accounting audit is the technical responsible, officer, manager, supervisor or any other member in a management function that is a member of the team responsible for independent accounting audit work. According to the applicable standards, the first mandatory replacement is expected to take place after the fiscal year ended December 31, 2019. A member responsible for the independent accounting audit can only return 3 years after being replaced. For the entities regulated by ANS, the applicable standards in effect since 2016 determine that the professional responsible for signing the opinion should change at least every five fiscal years, requiring a minimum interval of three years from its replacement. The members of the Board of Directors, elected in the form of article 141, paragraph 4 of the Brazilian Corporate Law, will have veto rights, provided that it is in a substantiated manner, the appointment or removal of our independent accounting firm. For additional information on the auditors of the consolidated financial statements included in this annual report see “Item 16.C. Principal Accountant Fees and Services”. 96 Form 20-F – December 2019
4.B.70.02-24 Auditing requirements Because we are a financial institution and registered with the local stock exchange, we are required to have our financial statements audited every six months in accordance with BR GAAP, applicable to institutions authorized to operate by the Central Bank. Quarterly financial information filed with the CVM is also subject to review by independent auditors. Additionally, as required by CMN Resolution No. 4,776/20, which came into force on January 29, 2020, we are required to publish annual consolidated financial statements prepared in accordance with IFRS, accompanied by the independent auditors' report and the management report on social business and the main administrative facts for the period. The financial statements should also be disclosed in the Financial Statements of the Central Bank. Financial institutions and other institutions authorized to operate by the Central Bank, which, on the date of entry into force of Resolution No. 4,776/20, were not obliged to produce and disseminate financial statements in accordance with the above, will have to adhere fully to the terms of this resolution by January 1, 2022. In January 2003, the CVM enacted regulations requiring audited entities to disclose information relating to their independent accounting firm’s non-auditing services provided to the entity whenever such services accounted for more than 5.0% of the amount paid to the external auditors. The independent auditors must also declare to the audited company’s management that their provision of these services does not affect the independence and objectivity required for external auditing services. In May 2004, the CMN enacted new regulations providing that we are required to appoint a member of our Management to be responsible for monitoring and supervising compliance with the accounting and auditing requirements set forth in the legislation. Pursuant to this regulation, financial institutions having Reference Equity of more than R$1.0 billion, managing third party assets of at least R$1.0 billion or having an aggregate amount of third-party deposits of over R$5.0 billion are also required to create an Audit Committee consisting of independent members. According to the regulation, the number of members, their appointment and removal criteria, their term of office and their responsibilities must be specified in the institutions’ Bylaws. The Audit Committee is responsible for recommending to the Board of Directors which independent accounting firm to engage, reviewing the company’s financial statements, including the notes thereto, and the auditors’ opinion prior to public release, evaluating the effectiveness of the auditing services provided and internal compliance procedures, assessing Management’s compliance with the recommendations made by the independent accounting firm, among other matters. Our Bylaws were revised in December 2003 to stipulate the existence of an Audit Committee. In May 2004, our Board of Directors approved the internal regulations for the Audit Committee and appointed its first members. Our Audit Committee has been fully operational since July 2004. In October 2006, the CMN amended the Resolution No. 3,198/04, changing the minimum requirements to be observed by the financial institutions when electing members for the Audit Committee. In April 2014, the CMN changed certain rules related to audit committees in order to improve the composition and operational of such Committee. These rules provided that up to one third of its members may exercise another single consecutive term of office, granting more independence to the Audit Committees of privately-held institutions. See “Item 16.D. Exemptions from the listing standards for Audit Committees”. We are required to publish a semi-annual summary of the Audit Committee report together with our financial statements. 4.B.70.02-25 Operations in other jurisdictions We have branches and subsidiaries in several other jurisdictions, such as New York, London, Buenos Aires, the Cayman Islands, Hong Kong, Mexico and Luxembourg. The Central Bank supervises Brazilian financial institutions’ foreign branches, subsidiaries and corporate properties, and prior approval from the Central Bank is necessary to establish any new branch, subsidiary or representative office or to acquire or increase any interest in any company abroad. In any case, the subsidiaries activities should be complementary or related to our own principal activities. In most cases, we have had to obtain governmental approvals from local central banks and monetary authorities in foreign jurisdictions before commencing business. In each jurisdiction in which we operate, we are subject to supervision by local authorities. 97 Bradesco
4.B.70.02-26 Asset management Asset management is regulated by the CMN and the CVM. In August 2004, the CVM issued Instruction No. 409/04, consolidating all previous regulations applicable to fixed-income asset funds and equity mutual funds. Prior to this ruling, fixed-income asset funds were regulated by the Central Bank, and equity mutual funds were regulated by the CVM. In December 2014, the CVM enacted Instruction No. 555/14, which replaced Instruction No. 409/04, in order to improve electronic communications, rationalize the volume, content and manner of disclosing information, and to make investment limits less rigid for certain financial assets, particularly foreign financial assets. Additionally, CVM Instruction No. 555/14 addresses the following issues: (i) the framework for setting up funds without the need for executing an adhesion contract and the checking of the adequacy for investment in the fund to the customer’s profile in connection with funds investing over 95.0% of its shareholders’ equity in federal public debt bonds or equivalent risky securities; (ii) barring interest-bearing compensation that would jeopardize the independence of the asset management; (iii) providing more transparency to the distribution policy; (iv) improving performance fee regulation; and (v) providing safer rules for investments in foreign assets. Pursuant to CVM limits and our Bylaws, our investment funds must keep their assets invested in securities and types of trades available in the financial and capital markets. Securities, as well as other financial assets which are an integral part of the investment fund portfolio, should be duly registered in the registration system with a custodian or central depository, authorized by the Central Bank or the CVM to carry out such activities. In addition to the limitations specified in each financial investment fund’s bylaws, they may not: ·invest more than 10.0% of their shareholders’ equity in securities of a single issuer, if that issuer is: (i) a publicly-held institution; or (ii) another investment fund; ·invest more than 20.0% of their shareholders’ equity in securities issued by the same financial institution authorized to operate by the Central Bank (including the fund administrator); ·invest more than 5.0% of their shareholders’ equity if the issuer is an individual or corporate entity that is not a publicly-held company or financial institution authorized to operate by the Central Bank; and ·be directly exposed to crypto assets. The CVM recommends avoiding also indirect exposure until the regulator issues a final rule on the matter. There are no limits when the issuer is the government. For the purposes of these limits, the same issuer means the parent company, companies directly or indirectly controlled by the parent and its affiliates, or companies under common control with the issuer. Under the previous regulation (CVM Instruction No. 409/04), the qualified investor funds required a minimum investment of R$1.0 million per investor and were subject to concentration limitations per issuer or per type of asset as long as this is stated in their bylaws. Under the current regulation (CVM Instruction No. 555/14), this privilege is eligible only for funds for professional investors. CVM Instruction No. 555/14 states the limits to funds hold financial assets traded abroad in their portfolios, as follows: (i) no limits, for funds classified as “Fixed Income – Foreign Debt”, funds exclusively intended for professional investors that include in their denomination the suffix “Foreign Investment”, and certain funds exclusively intended for qualified investors; (ii) up to 40.0% of its shareholders’ equity for funds exclusively intended for qualified investors that do not follow certain provisions set forth in this Instruction; and (iii) up to 20.0% of its shareholders’ equity for general public funds. Also in December 2014, the CVM established a new concept for qualified and professional investors.Corporate entitiesand individuals are to be deemed professional investors if they hold financial investments above R$10.0 million, and are deemed to be qualified investors if they hold financial investments above R$1.0 million. These definitions became effective in October 2015. 4.B.70.02-27 Brokers and dealers Broker and dealer firms are part of the SFN and are subject to CMN, Central Bank and CVM regulation and supervision. Brokerage and distribution firms must be authorized by the Central Bank and are the onlyinstitutions in Brazil authorized to trade on Brazil’s stock exchanges and commodities and futures exchanges. Both brokers and dealers may act as underwriters for public placement of securities and engage in the brokerage of foreign currency in any exchange market. 98 Form 20-F – December 2019
Brokers must observe B3 rules of conduct previously approved by the CVM, and must designate an executive officer responsible for observance of these rules. Broker and dealer firms may not: ·with few exceptions, execute transactions that may be characterized as the granting loans to their customers, including the assignment of rights; ·collect commissions from their customers related to transactions of securities during the primary distribution; or ·acquire assets, including real estate properties, which are not for their own utilization, with certain exceptions. Broker and dealer firms’ employees, managers, partners, controlling and controlled entities may trade securities on their own account only through the broker they are related to. On August 29, 2019, the CMN amended Resolution No. 4,750/19, changing the rules applicable to brokers and distributors. The new rule provides that these societies can make loans of assets of its equity to its clients to exclusively use the goods in the provision of guarantees for operations, provided that the requirements of said Resolution are met. ØInternet brokerage services The CVM approved regulations on Internet brokerage activities, which may be carried out only by registered companies. Brokers’ web pages must contain details of their systems, fees, security and procedures for executing orders. They must also contain information about how the market functions generally and the risks involved with each type of investment offered. Brokers that carry out transactions over the Internet must guarantee the security and operability of their systems, which must be audited at least twice a year. 4.B.70.02-28 Leasing The basic legal framework governing leasing transactions is established by Law No. 6,099/74, as amended (the “Leasing Law”) and related regulations issued periodically by the CMN. The Leasing Law provides general guidelines for the incorporation of leasing companies and the business activities they may undertake. The CMN, as regulator of the Financial System, is responsible for issuing Leasing Law related regulations and overseeing transactions made by leasing companies. Laws and regulations issued by the Central Bank for financial institutions in general, such as reporting requirements, capital adequacy and leverage regulations asset composition limits and treatment of doubtful loans, are also applicable to leasing companies. 4.B.70.03Insurance, health and pension plans regulation 4.B.70.03-01.01National Private Insurance Council The CNSP is the agency responsible for establishing the guidelines and standards of private insurance policy. The agency is composed of representatives of the Ministry of Finance, the Ministry of Justice, the Ministry of Social Security and Social Assistance of the Superintendence of Private Insurance, the Central Bank and the CVM. In addition to laying down the guidelines and standards of private insurance policy, it is theresponsibility of the CNSP: 99 Bradesco
4.B.70.03-01.02Private Insurance Superintendence SUSEP is responsible for implementing and overseeing CNSP's policies and ensuring compliance with such policies by insurance companies, insurance brokers and insured individuals. SUSEP is linked to the Ministry of Finance and was created by Decree-Law No. 73 of November 1966. Thus, for insurers to operate, they need government approval, as well as specific approval from the SUSEP to commercialize each of their products, where they may underwrite policies either directly to consumers or through qualified brokers (art. 13 and paragraph 2 of Law No. 4,594/64). SUSEP is responsible for:
4.B.70.03-01.03National Supplemental Health Agency The ANS is a municipality linked to the Ministry of Health, with operations throughout Brazil, as an agency of regulation, standardization, control and supervision of activities that ensure the qualification of health care in the supplemental health sector. The main initiatives of ANS are to stimulate the quality of the supplemental health sector and encourage programs to promote and prevent diseases in the sector in which it operates. To fulfill its objectives the following are incumbent upon the ANS:
100 Form 20-F – December 2019
4.B.100.01Average balance sheet and interest rate data The following tables present the average balances of our interest-earning assets and liabilities, other assets and liabilities accounts, related interest income and expenses, and the average real yield/rate for each period. We calculate the average balances using the end-of-month account balances, which include related accrued interest. ØInterest-earning and non-interest earning assets
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ØInterest-bearing and non-interest-bearing liabilities
108 Form 20-F – December 2019
4.B.100.02Changes in interest and similar income and interest and similar expense – volume and rate analysis In 2018, we adopted IFRS 9, which replaces the guidelines contained in IAS 39 – Financial Instruments, with a new treatment for the classification and measurement of assets, in which the entity should focus on the business model that reflects the asset management of the Organization. The following table shows the effects of changes in our interest income and expense arising from changes in average volumes and average yield/rates for the periods presented. Data related to the average balance of our interest-earning assets, interest-bearing liabilities and other assets and liabilities have been calculated based upon the average of the month-end balances during the relevant period. Likewise, information related to the interest income and expenses generated from our assets and liabilities and the average return rate for each of the periods indicated have been calculated based on income and expenses for the period, divided by the average balances calculated as indicated above. We allocated the net change from the combined effects of volume and rate proportionately to the average volume and rate, in absolute terms, without considering positive and negative effects.
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4.B.100.03Net interest margin and spread The following table shows the average balance of our interest-earning assets, interest-bearing liabilities, and net interest and similar income, and compares net interest margin with net interest spread for the periods indicated:
4.B.100.04 Return on equity and assets The following table shows selected financial indices for the periods indicated:
110 Form 20-F – December 2019
4.B.100.05 Financial assets at fair value through income, at fair value through other comprehensive income and assets at amortized cost. For theyears beginning after January 1, 2018, the following table sets our financial assets according to IFRS 9, which replaces the guidelines contained in IAS 39 – Financial Instruments. For the year ended December 31, 2017, we applied IAS 39. For more information about the treatment of our assets, see Notes 21, 24 and 25 to our consolidated financial statements included in “Item 18. Financial Statements”.
111 Bradesco
ØFinancial assets pledged as collateral The following table shows the balances in 2017 of the financial assets pledged as collateral, which as per January 1, 2018, with the application of IFRS 9, the financial assets in this financial statement caption were included in the other financial statement captions according to the new classification and arepresented in the previous table. For additional information, seeNote 30, page 116 of our consolidatedfinancial statements as of December 31, 2018, available on the SEC website.
112 Form 20-F – December 2019
Øfair value through profit or loss, at fair value through other comprehensive income and at amortized cost by currency as of the dates indicated, according to IFRS 9
Øfair value through profit or loss, at fair value through other comprehensive income and at amortized cost by currency as of the dates indicated, according to IAS 39:
Øfinancial assets pledged as collateral by currency as of the dates indicated, according to IAS 39
114 Form 20-F – December 2019
For previous periods, loans and advances were charged-off against the impairment when the loan is considered uncollectible or is considered permanently impaired. Loans and advances were charged off usually when they were between 180 and 360 days overdue. However, longer-term loans and advances, that had original terms greater than 36 months, were charged off when they were between 360 and 540 days overdue. For more information on our categorization of loans, see “4.B.70 Regulation and Supervision – 4.B.70.02 Bank regulations – 4.B.70.02-11 Treatment of Loans and Advances”. ØIndexation The majority of our portfolio of loans and advances is denominated inreais. However, a portion of our portfolio of loans and advances is indexed or denominated in foreign currencies, predominantly the U.S. dollar. Our loans and advances indexed to and denominated in foreign currency consist of onlending of Eurobonds and export and import financing, and represented 6.3% in 2019, 8.1% in 2018 and 8.1% in 2017 of our portfolio of loans and advances. In many cases, our customers hold derivative instruments to minimize exchange rate variation risk. 116 Form 20-F – December 2019
ØMaturities and interest rates of loans and advances to customers The following tables show the distribution of maturities of our loans and advances to customers by type, as well as the composition of our loans and advances to customers’ portfolio by interest rate and maturity, as of the dates indicated:
117 Bradesco
118 Form 20-F – December 2019
ØOutstanding foreign loans The majority of our outstanding cross-border commercial loans that are denominated in foreign currencies are denominated in U.S. dollars and made to subsidiaries of Brazilian companies through our Cayman branch. These loans represented, on average, 2.4% of our total assets over the last three years (this percentage is calculated as the average of the year-end balances for the last three years of cross-border loans and advances to customers, divided by the average of the last three years of the total assets). We believe that there are no significant cross-border risks on these transactions, since a substantial part of the related credit risk is guaranteedby the borrower’s parent companyin Brazil. The remainder of our outstanding cross-border transactions mainly includes investments in securities, which represented, on average, 1.4% of our total assets over the last three years (this percentage is calculated as the average of the year-end balances for the last three years of cross-border investments in securities, divided by the average of the last three years of the total assets). ØLoans and advances to customers by economic activity The following table summarizes our loans and advances to customers by borrowers’ economic activity, as of the dates indicated:
119 Bradesco
ØNon-performing loans and advances and expected losses of loans and advances The following table summarizes our non-performing loans and advances (loans and advances overdue for over 60 days), as well as the total of loans and advances to clients and the respective expected loss, foreclosed assets, and certain asset quality indicators for the dates shown. We use some of these indicators for monitoring purposes and to support decision-making when granting loans and advances. For further information regarding the performance of some of these ratios, see “Item 5.A. Operating Results”:
120 Form 20-F – December 2019
ØLosses of loans and advances The following table shows the impairment losses of our loans and advances by type for the periods indicated (for 2019 and 2018 impairment was calculated according to IFRS 9, for all other periods it was calculated according to IAS 39).
121 Bradesco
Based on information available regarding our borrowers, we believe the loss of loans and advances recognized is sufficient to cover expected losses on our loans and advances. 122 Form 20-F – December 2019
ØReconciliation of the loans and advances and of expected losses in stages The following tables show a reconciliation of the accounting value of the loans and advances to clients and of expected losses according to IFRS 9.
For more information about our loans and advances and expected credit losses, as well as details of each stages, see Note 23 to our consolidated financial statements in “Item 18. Financial Statements”. 123 Bradesco
ØExpected losses of loans and advances by category The following tables set forth the expected losses of our loans and advances by category. The expected losses amount and the loans and advances category are stated as a percentage of total loans and advances. Due to the implementation of IFRS 9, which occurred in 2018, we present the tables of the previous periods based on incurred losses: ·IFRS 9 – Expected Losses:
124 Form 20-F – December 2019
·IAS 39 – Incurred Losses:
125 Bradesco
The following table shows maturity of our outstanding time deposits with balances of over US$100,000 (or its equivalent), by maturity, as of the date indicated:
128 Form 20-F – December 2019
4.C. Organizational StructureWe are a publicly-held company controlled by Cidade de Deus Participações, a holding company owned by the Aguiar Family, Fundação Bradesco and another holding company, Nova Cidade de Deus Participações S.A., or “Nova Cidade de Deus”.Nova Cidade de Deus is owned by Fundação Bradesco and by BBD Participações.For further information about our shareholding structure, see “Item 7.A. Major Shareholders”.." For further information about our significant subsidiaries as of December 31, 2019, see Exhibit 8.1 to this annual report. The following is a simplified chart of our principal material subsidiaries in the financial and insurance services businesses and our voting and ownership interest in each of them as of December 31, 2019. With the exception of Bradesco Argentina, Bradesco Europa, Bradesco Grand Cayman Branch, Bradesco New York Branch and Bradescard Mexico, the other significant subsidiaries are Brazilian entities. For more information in relation to the consolidation of our significant subsidiaries, see Note 2.a to our consolidated financial statements in “Item 18. Financial Statements”. 129 Bradesco
4.D. Property, Plants and EquipmentAs of December 31, 2019, we owned 893 properties and leased 6,635 properties throughout Brazil which are largely branches and banking service points (“PAs”) and six leased properties abroad, all of which we used for the operation of our network of branches and our business. We own the buildings where our headquarters are located in Cidade de Deus, Osasco, São Paulo metropolitan region, State of São Paulo. Rental agreements have an average duration of five years.
None. This discussion should be read in conjunction with our audited consolidated financial statements, the notes thereto and other financial information included elsewhere in this annual report. 5.A.10Overview Our results of operations are affected by, among others, the following factors: 5.A.10.01 Brazilian Economic Conditions Our results of operations are directly affected by economic conditions in Brazil. Such economic conditions directly impact our customers’ ability to pay their financial obligations on time, which affects our impairment of loans and advances and our balance of outstanding loans and advances. In addition, the impact of economic conditions on the exchange rate affects our net interest income, since part of our financial assets and liabilities are denominated in or indexed to foreign currencies, primarily U.S. dollars. The following table shows Brazilian inflation measured by IPCA, the appreciation/(depreciation) of therealagainst the U.S. dollar, the exchange rate at the end of each year and the average exchange rate for the periods indicated:
The following table shows GDP variation inreal terms and average interbank interest rates for the periods indicated: 130 Form 20-F – December 2019
5.A.10.02Effects of the global financial markets on our financial condition and results of operations The global economic environment in 2019 was marked by a high level of financial uncertainty, with negative impacts on economic activity. Trade tensions involving the two largest world economies had a prominent role in this, in addition to concerns related to Brexit, institutional instability in developed and emerging nations and geopolitical issues. In this context, the confidence of economic agents was affected, leading to the deceleration of global GDP which was already impacted by the reduction in trade between the countries. As a consequence, the main central banks generated or expanded the level of monetary stimulus, minimizing an even greater impact on economic activity. In some markets, especially in Europe, long-term interest rates have edged towards the negative terrain. At the end of 2019, progress in the negotiations between the U.S. and China contributed to reducing the risks for the subsequent year. However, the global scenario has changed considerably due to the Covid-19 pandemic, which has led several countries to paralyze their economic activities, in an environment of strong financial volatility and increased uncertainties. For more information see Item 3.D.10.01-01 - Our financial and operating performance may be adversely affected by epidemics, natural disasters and other catastrophes which impact economic growth, including the Covid-19 pandemic. The Chinese economy showed clear signs of the trade restrictions imposed in 2018 and 2019, but began to show signs of stabilization, with GDP at a level below 6.0%. This scenario, however, is expected to deteriorate in 2020 due to the impact of Covid-19. In the U.S., the Federal Reserve Bank interrupted the cycle of monetary loosening conducted in 2019 and once again adopted measures of relaxation at the beginning of 2020, because of the global pandemic. In Europe, the trend for this year is also strong deceleration or even recession, because of Covid-19 and its impacts, especially in Italy. 5.A.10.03Effects of interest rates and devaluation/appreciation on net interest income During periods of high interest rates, our interest income increases due to increasing interest rates on our interest-earning assets. At the same time, our interest expense increases as interest rates on our interest-bearing liabilities also increase. Changes in the volumes of our interest-earning assets and interest-bearing liabilities also affect our interest income and interest expense. For example, an increase in our interest income attributable to an increase in interest rates may be offset by a decrease in the volume of our outstanding loans. In addition, when thereal depreciates, we incur: (i) losses on our liabilities denominated in, or indexed to, foreign currencies, such as our U.S. dollar-denominated long-term debt and foreign currency loans, as the cost inreais of the related interest expense increases; and (ii) gains in our assets denominated in, or indexed to, foreign currencies, such as our dollar-indexed securities and loans and advances, as the income from such assets as measured inreais increases. Conversely, when thereal appreciates, as was the case, for example, in 2010 and 2016, we incurred: (i) losses on our assets denominated in, or indexed to, foreign currencies; and (ii) gains in our liabilities denominated in, or indexed to, foreign currencies. In 2019, our net interest income decreased by 1.5% compared to 2018, as R$65,800 mil in 2019 as compared to R$66,808 million in 2018. This reduction was due to the reduction in the average net interest rate, which decreased to 5.8% in 2019 from 6.2% in 2018, impacting our result negatively by R$8,229 million, reflecting the changes in active interest rates. In 2018, our net interest income increased by 31.9% in relation to 2017, as R$66,808 million in 2018as compared to R$50,643 million in 2017. This increase was mainly due to changes in average net interest rates, to 6.2% in 2018 from 4.9% in 2017, mainly due to the decrease in the average interest rate paid on our interest-bearing liabilities, increasing our result by R$11,087 million. In addition, it is important to highlight that the increase in the average business volume, which contributed with R$5,078 million to the income. 131 Bradesco
The following tables show our foreign-currency denominated or indexed assets and liabilities as of the dates indicated:
132 Form 20-F – December 2019
We use swaps, futures contracts and other hedging instruments in order to minimize the potential impact of currency changes on our operations. For more information on our use of derivatives for hedging purposes, see Notes 2.d (iii) and 20 to our consolidated financial statements in “Item 18. Financial Statements”. Our net exposure in relation to our net assets amounted to 39.7% as of December 31, 2019, 38.6% as of December 31, 2018 and 39.8% as of December 31, 2017. 5.A.10.04Taxes Our income tax expenses comprise two federal taxes affecting adjusted net profit: IRPJ, which is levied at a rate of 15.0% plus an additional 10.0% on the taxable profits that exceed R$240 thousand in a year and the Social Contribution Tax, which currently is levied at a rate of 20.0% for banks of any kind and development agencies and at 15.0% for the majority of other financial institutions (e.g. capitalization and private insurance, credit companies and security brokers, among others). Corporations based in Brazil may pay shareholders interest on equity as an alternative form of making a portion of dividend distributions, which are deductible from taxable income. We intend to maximize the amount of dividends we pay in the form of interest on equity. For further information on our tax expenses, see "Item 4.B. Business Overview – 4.B.70 Regulation and Supervision – 4.B.80 Taxes related to our activities – 4.B.80.02 Income Tax and social contribution on profits"; "Item 10.B. Memorandum and Articles of Association – 10.B.10 Organization – 10.B.10.02 Allocation of net income and distribution of dividends"; and "Item 10.E. Taxation – 10.E.10 Brazilian tax considerations – 10.E.10.03 Interest on equity(“JCP”)". 5.A.10.05 Impact of material acquisitions and strategic alliances on our future financial performance We believe that the acquisitions and strategic alliances conducted in the last years will contribute to increase our future results. The amount of these increases is uncertain, and we therefore cannot estimate their impact on our future financial performance. For more information, see “Item 4.A. History and Development of the Company – 4.A.10 Acquisitions, divestments and other strategic alliances”. 5.A.10.06Critical accounting policies Our significant accounting policies are described in Note 2 to our audited consolidated financial statements in “Item 18. Financial Statements”. The following section describes the areas that require the most judgment or involve a higher degree of complexity in the application of the accounting policies that currently affect our financial condition and results of operations. The accounting estimates we make in these contexts involve making assumptions about highly uncertain matters. In each case, other estimates or changes in the estimates between periods could cause a material impact on our financial condition and results of operations, as shown in our financial statements. We consider the following items as critical accounting policies: ·Expected credit losses– see note 2.d) Financial assets and liabilities – viii Expected credit losses; ·Impairment of goodwill– see note 2.i)Impairment losses on non-financial assets (except for deferred tax assets); ·Contingencies–see note 2.j) Provisions, contingent assets and liabilities and legal obligations; ·Insurance and pension plan technical provisions– see note 2.l) Insurance and pension plan technical provisions; and ·Income tax–see note 2.t) Income tax and social contribution. 133 Bradesco
5.A.20 Results by operational segment We operate and manage our business through two segments: (i) the banking segment; and (ii) the insurance, pension plans and capitalization bonds segment. The following data about different segments were prepared based on reports made for Management to assess performance and make decisions on allocating funds for investments and other purposes. Our Management uses various data, including financial data prepared under accounting practices (BR GAAP) adopted in Brazil and non-financial metrics compiled on different bases. Our consolidated financial statements and consolidated financial data included in this analysis are prepared in accordance with IFRS, when results by segments significantly differ to results derived from our consolidated financial statements, such differences will be explained in conjunction with the explanations of the results that precede them. See Note 5 to our consolidated financial statements in “Item 18. Financial Statements”. For a description of our operational segment’s operations, see “Item 4.B. Business Overview”. 5.A.20.01Results of operations for the year ended December 31, 2019 compared with the year ended December 31, 2018 The following tables set forth the principal components of our net income for 2019 and 2018, on a consolidated basis and by segment. Our result, composed of net interest income on a consolidated basis in accordance with IFRS, and financial margin in the segmentation information, composed of the result of financial intermediation in accordance with BR GAAP. In both cases, the results are derived mainly from revenues from loan operations, result of financial assets and operations yielding interest, before the expense with expected losses on loans and advances/Allowances for loan losses.
134 Form 20-F – December 2019
5.A.20.01-01 Net interest income The following table shows, by segment, how much of the increase in our net interest income was attributable to changes in the average volume of interest-earning assets; how much was attributable to changes in average interest rates and how much was attributable to variations in the effects of the appreciation/(depreciation) of the real against the U.S. dollar, in each case comparing 2019 and 2018:
ØBanking The growth of 10.5% in our net interest income is related to the increase in the average volume of our business, which contributed positively to our result with R$7,175 million, highlighting the revenues derived from our loan operations, which amount to R$70,870 million, a 9.4% increase compared to 2018, with emphasis on (a) the growth of the portfolio of (i) the funding for consumption (payroll-deductible loans, personal loans, credit card and vehicle financing) and (ii) real estate financing, in addition to the higher revenues with investments held to maturity, offsetting the reduction due to changes in average interest rates and Brazilian real appreciation / depreciation, which impacted our result with R$1,623 million and is related to the decrease in interest rates charged in Brazil, mainly the SELIC rate, which decreased to 4.5% on December 31, 2019 from 6.5% on December 31, 2018. ØInsurance, pension plans and capitalization bonds The growth of 14.5% in our net interest income is related to the increase in the average rates of interest, which decreased to 7.7% in 2019 from 6.5% in 2018, largely due to (i) the results obtained with multi-market funds and variable income, in addition to the operations indexed to the IPCA, which increased by 14.9%, to 4.3% in 2019 from 3.8% in 2018, benefiting our result with R$736 million and (iii) the average volume of our business, which contributed positively to our result with R$357 million. 135 Bradesco
5.A.20.01-02Revenue from financial intermediation The following tables show, on a consolidated basis and by segment, the average balance of the principal components of our interest-earning assets and the average interest rates earned in 2019 and 2018:
For further information about average interest rates by type of assets, see "Item 4.B. Business Overview – 4.B.100 Selected Statistical Information – 4.B.100.01 Average balance sheet and interest rate data." The following table shows, by segment, how much of the increase in our financial intermediation income was attributable to changes in the average volume of interest-earning assets; how much was attributable to changes in average interest rates and how much was attributable to variation to the effects of the appreciation/(depreciation) of the real against the U.S. dollar, in each case comparing 2019 and 2018:
ØBanking The increase of 2.5% in revenue from financial intermediation is related to the increase in the average volume of our business, which contributed positively to our result with R$8,599 million, largely due to the increase in our portfolio of loan and advance operations to clients and investments held to maturity. This growth was partially offset by changes due to the changed in average interest rates and the Brazilian real appreciation / depreciation that decrease our revenue by R$6,322 million, as a result of a decrease in interest rates in Brazil, mainly the SELIC rate, which decreased to 4.5% as of December 31, 2019 from 6.5% as of December 31, 2018. 136 Form 20-F – December 2019
The revenue from loans and advances to customers totaled R$70,870 million, an increase of 9.4% compared to 2018.This increase is related to the increase of 10.2% in the average volume of these assets, contributing to our revenue with R$6,542 million. Among the products of loans and advances to individual customers, which increased in volume by 19.7% in comparison to 2018, we highlight: personal loans (+44.4%), payroll-deductible loans (+23.1%), credit card (+13.5%), real estate financing (+15.7%) and vehicle financing (+22.0%). In addition, our loans and advances to companies also increased by 3.7% compared to 2018. This increase was partially impacted by the reduction in the average rates of interest, which slightly decreased to 18.8% in 2019 from 18.9% in 2018, reducing our revenue by R$440 million. The revenue from investments held to maturity totaled R$9,387 million, an increase of 120.7% compared to 2018. This increase is related to the increase of 97.5% of the average volume of these assets, benefiting our revenue with R$4,582 million, in addition to the increase in average rates to 14.0% in 2019 compared to 12.6% in 2018, increasing our revenue by R$551 million. The revenue from compulsory deposits with the Central Bank totaled R$4,305 million, an increase of 9.9% compared to 2018. This increase is related to the increase of 16.2% in the average volume of these assets, which contributed positively with R$609 million, being partially offset by the reduction in the average interest rates to 5.4% in 2019 from 5.7% in 2018, reducing our revenue by R$221 million. The revenue from loans and advances to financial institutions totaled R$6,830 million, a decrease of 26.2% compared to 2018. This decrease is related to (i) the reduction of 17.1% in the average volume of these assets, reducing our revenue by R$1,474 million, in addition to (ii) the reduction in the average interest rates to 7.1% in 2019 compared to 8.0% in 2018, which reduced our revenue by R$947 million. The revenue from available-for-sale financial assets totaled R$8,928 million, a decrease of 41.5% compared to 2018. This decrease is related to (i) the reduction in the average interest rate to 5.2% in 2019 compared to 8.2% in 2018, which reduced our revenues by R$5,212 million, in addition to (iii) the reduction of 7.9% in the average volume of these assets, which reduced our revenue by R$1,131 million. The revenue from financial assets for trading totaled R$5,542 million, a decrease of 9.0% compared to 2018. This decrease is related, mainly to the reduction of 8.5% in the average volume of these assets, reducing our revenue by R$517 million. The variation in non-interest gains/losses is related to the results obtained from derivative financial instruments, reflecting the result from future contracts (including the respective adjustment to the market value of the hedge for protection of assets, liabilities, denominated and/or indexed in foreign currency, mainly those derived from investments abroad). ØInsurance, pension plans and capitalization bonds The increase in our revenue largely reflects higher returns with variable income, multi-market funds and the investments indexed to the IPCA, which include more income from pension funds, whose allocation in 2019 presented a greater allocation towards assets, seeking greater profitability, mainly multi-market funds and variable income. In addition, the increase of 5.5% in the average volume of assets that yield interest benefited our revenue with R$1,057 million. The reduction of non-interest gains/losses is related to lower gains on financial assets available for sale. 5.A.20.01-03Expenses from financial intermediation The tables below show, on a consolidated basis and by segment, the average balance of the main components of our interest-bearing liabilities and the average interest rates paid on them in 2019 and 2018: 137 Bradesco
For further information about average interest rates by type of assets, see "Item 4.B. Business Overview – 4.B.100 Selected Statistical Information – 4.B.100.01 Average balance sheet and interest rate data." The following table shows, by segment, how much of the increase in our financial intermediation expenses was attributable to changes in the average volume of interest-bearing liabilities, how much was attributable to changes in average interest rates and how much was attributable to variation in the effects of the appreciation/(depreciation) of the real against the U.S. dollar rate, in each case comparing 2019 to 2018:
ØBanking The decrease of 6.2% in the expenses from financial intermediation is related to changes in average rates and appreciation / depreciationin the Brazilian real on the interest-bearing liabilities, which were 6.0% in 2019 compared to 6.7% in 2018, reducing our expenses in R$4,699 million, with emphasis on lower expenses with: (i) obligations with borrowings and onlendings, in the amount of R$1,378 million; (ii) securities sold under agreements to repurchase, in the amount of R$1,848 million; and (iii) funds from issuance of securities, in the amount of R$1,172 million. These reductions were partially offset by growth in the average volume of operations, increasing our expenses by R$1,424 million. ØInsurance, pension plans and capitalization bonds The increase in expenses from financial intermediation is largely related to the provisions of pension plans, which influenced the increase in the average rate of interest paid, which increased to 6.4% in 2019 from 5.3% in 2018, reflecting the higher income from pension funds, whose allocation in 2019 was mainly directed to assets, seeking greater profitability, mainly multi-market funds and variable income. The increase of 5.0% in the average volume of such operations increased our expenses by R$700 million. 138 Form 20-F – December 2019
5.A.20.01-04Expected losses on loans and advances to customers In view of differences between the accounting for net impairment losses on loans and advances to customers under BR GAAP and IFRS, we present below a reconciliation of those accounting practice differences, as well as the related analysis of the variations of the expenses under IFRS:
ØDifference between accounting practices for impairment of loans and advances Under BR GAAP, the measurement of credit risk is based on expected losses according to CMN Resolution No. 2,682/99, which includes a minimum provision for each loan category. For further information, see “Item 4.B. Business Overview – 4.B.70 – Regulation and Supervision – 4.B.70.02 Banking Regulations – 4.B.70.02-11 Treatment of loans and advances” and Note 3.1 to our consolidated financial statements in "Item 18. Financial Statements." The following table shows changes in our expected losses on loans and advances, expenses with losses of loans and advances, operations recovered and charge-offs for the years ended 2019 and 2018, as well as our ratio of expenses with losses related to the average balances of loans and advances to customers (shown as a percentage of the average balance of our loans and advances to customers), in all cases based on consolidated financial information prepared in accordance with IFRS:
In 2019, our expected losses on loans and advances decreased by 8.1%, due to the improvement in the quality of our operations, showing our improvement in the process of lending, which can be observed by our level of loan losses/write-offs, net of recoveries, which reached 2.1% compared to the average balance of loans and advances to customers in 2019 compared to 3.1% in 2018. In addition, in 2019, of the total loan loss provision expense, 92.6% (2018 – 73.0%) refers to the origination of new loans, of which in this total 49.3% (2018 – 33.9%) relate to provisions for loans classified at stage 1, i.e., loans with the obligations up to date or delinquent in up to 30 days and whose classification of the client's credit risk is of low risk. We believe that our expected losses on loans and advances are sufficient to cover futures losses for our portfolio, which can be evidenced, among other indicators, by our coverage ratio, measured by the total expected credit loss in relation to the total of overdue loans for more than 60 days, which at the end of 2019 was of 200.7% compared to 197.5% in 2018. Our portfolio of loans and advances to customers increased by 11.2% from R$411,493 million in 2018 to R$457,392 million in 2019, driven mainly by operations with individuals, showing a growth of 19.7% compared to 2018, largely due to increases of: (i) 44.4% in personal loans; (ii) 23.1% in payroll-deductible loans; (iii) 22.0% in vehicle financing; (iv) 15.7% in real estate financing; (v) 13.5% in credit card. It is important to highlight that operations withcorporate entitiesincreased by 3.7%, driven mainly by the increase of 53.8% in vehicle financings, which offset the performance of other products, which had a similar performance to that of 2018. 139 Bradesco
5.A.20.01-05 Non-interest income The following tables show, on a consolidated basis and by segment, the principal components of our non-interest income for 2019 and 2018:
ØBanking The increase in our non-interest income was mainly due to the increase in fee and commission income, driven by the increase of: (i) 7.5% in checking account revenues due to our increased customer base, with emphasis on the strengthening the management of the portfolio of services; (ii) increase 6.4% in income from cards, due to the increase of 7.5% in the number of transactions and 8.9% in the financial volume traded; (iii) increase 14.1% in revenues from consortium management, due to the actions aimed at optimizing results, where we highlight the continuous review of the portfolio for a more customized offer for each segment; (iv) increase 24.5% in revenue from underwriting / financial advisory services, due to the increased activity in the capital markets, especially in structured and fixed income operations; and (v) increase 23.9% in revenue from services of custody and brokerage, mainly due to the larger volume of negotiations conducted on B3. Our revenue from our asset management operations increased by 3.8%, as a result of us continuing to match our portfolio of products to our clients, aligned with market dynamics and the scenario of lower interest rates and revenues from loan operations, which include the revenue from financial guarantees provided, which decreased by 14.1% in 2019, justified by the effects of review of the rates practiced by the market in operations with guarantees provided. ØInsurance, pension plans and capitalization bonds The growth of our non-financial revenues was due to the increase in the result of insurance, pension plans and capitalization, reflecting the performance of the premiums issued (billing) of the products: (i) life and pension, mainly in the "life" insurance, due to the growth of the portfolio of products; (ii) health, reflecting the improvement in the level of client retention as well as the offer of new products, with a consequent increase in the number of policyholders of business plans, in addition to the expense ratio maintenance; (iii) Bradesco Auto/P&C, due to improvement and automation in the process of acceptance of risk and loss adjustment, reflecting in an increase in the amount of Auto/Optional Third-Party Liability policyholders; and (iv) capitalization, resulting from the change in the mix of products, with an emphasis on the greater duration, and the advancement of the marketing of products by means of digital channels, which has evolved over 80% compared to the 2018. The growth in expenses with retained claims and sales is related to the growth in turnover / billing.There was an improvement in the claims ratio to 72.4% in 2019 (72.9% in 2018) and the combined ratio to 83.3% in 2019 (83.7% in 2018). The performance of our non-financial revenues is partially impacted by lower revenues from services, as they reflect the movement of the management fees of some pension plans, given the competitive dynamics of the market and the new scenario of interest rates and the reduction in other non-interest income. 140 Form 20-F – December 2019
ØMain difference between balances by segment and consolidated balances In addition to the above explanations, we highlight below the main difference between our non-interest income by segment (according to BR GAAP) and our consolidated non-interest income (according to IFRS) for the year ended December 31, 2019: ·Fee and Commission Income:the difference of R$7,826 million mainly refers to: (i) the adjustment due to differences in accounting standards used in our managerial reports and financial statements that were prepared in IFRS, in the amount of R$1,614 million, due to the effective interest rate method; and (ii) the consolidation adjustments arising from proportionately consolidated companies and the "non-consolidation" of exclusive funds, in the amount of R$6,383 million. For more information on the differences of balance of the segments and the consolidated, see Note 5 of our Consolidated Financial Statements in “Item 18. Financial Statements.” 5.A.20.01-06 Non-interest expense The following tables show, on a consolidated basis and by segment, the principal components of our non-interest expense for 2019 and 2018:
ØBanking The increase in our non-financial expenses was mainly due to an increase in: (i) personnel expenses, impacted: (a) by the Voluntary Severance Program (“PDV”), which occurred in 2019, which had 3.2 thousand participant employees, with an expense of R$1.8 billion; (b) by refinements in the calculation methodology for provisions for labor claims, which resulted in an additional provision of R$1,686 million; and (c) by the increase in variable expenditure (profit sharing) in the amount of R$101 million, with emphasis on the variable remuneration program directed to employees of the branch network, implemented in 2019; (ii) administrative expenses, impacted by the increase: (a) of the volume of our business, which impacted our portion of variable expenses; and (b) of our fixed costs, with emphasis on outsourced services, financial system services, advertising, promotions and advertising and depreciation and amortization; and (iii) other non-financial expenditure, impacted by: (a) impairment losses in: acquisition of rights for the provision of financial services, to the amount of R$520 million; software/hardware, in the amount of R$222 million; investment goodwill impairment, to the amount of R$983 million; (b) higher expenses with provision for financial guarantees, in the amount of R$1,253 million, of which R$1,100 million are due to the refinements of internal models for the constitution of this provision; (c) with expenses with provision for contingencies related to the FCVS, in the amount of R$342 million; and (d) improvement of the methodology of calculation of provisions for civil claims, with addition of provision, in the amount of R$2,965 million. ØInsurance, pension plans and capitalization bonds The decrease in our non-financial expenses occurred mainly due to lower administrative expenses, due to a reduction of R$155 million in expenses with depreciation and amortization, partially offset by an increase of R$14 million in expenses with advertising and publicity. It is important to note that the increase in personnel costs was impacted: (a) by the Voluntary Severance Program (“PDV”) occurring in 2019, which had the participation of 178 employees, with a program cost of R$49 million; and (b) refinements in the calculation methodology for provisions for labor claims, which resulted in an additional provision of R$62 million. 141 Bradesco
5.A.20.01-07 Income tax and social contribution We prepare the information about segments so that Management can assess the performance and make decisions regarding the allocation of resources for investments and other purposes. The calculation of the income tax and social contribution, as required by the current Brazilian laws and regulations, is performed for each legal entity and disclosed on a consolidated basis. Consequently, there is no direct relationship with the presentation per segment. Management’s decisions for tax purposes are based on analysis by individualcorporate entitiesand on a consolidated basis; consequently, Management includes consolidated data, which were discussed and analyzed, as a relevant disclosure in relation to the decision-making process. The following table shows, on a consolidated basis, the breakdown of our income tax and social contribution charges:
The decrease of our income tax and social contribution is largely related to the effects of the increase in the rate of the social contribution on net income of banks, to the amount of R$6,403 million and to the exchange rate variation on assets and liabilities, derived from investments abroad, which is not taxable/deductible, a result of the devaluation of 4.0% of the Brazilian real against the dollar. For more information on Income tax and social contribution, see Note 16 of our Consolidated Financial Statements in “Item 18. Financial Statements.” 5.A.20.01-08 Net Income As a result of the above our net income attributed to the shareholders of the parent company, increased by 26.8%, from R$16,584 million in 2018 to R$21,023 million in 2019. See item 5.A of our annual report for the year ended December 31, 2018 for a comparative discussion of our operating results for the years ended December 31, 2018 and 2017.FORM 20-F 2018 – Item 5.A. Operating Results – Results by operational segment. 5.B.10 Asset and liability management Our general policy on asset and liability management is to manage interest rate, liquidity, foreign exchange and maturity risks in order to maximize our net interest income and our return on assets and equity, in light of our internal risk management policies, and maintain adequate levels of liquidity and capital. 142 Form 20-F – December 2019
As part of our asset and liability management, we seek to avoid material mismatches between assets and liabilities by matching, to the extent possible, the maturity, currency and interest rate structure of loans we make with terms of the transactions under which we fund these loans. Subject to our policy constraints and the limits established by our Board of Directors, we occasionally take mismatched positions in relation to interest rates, maturities and, in more limited circumstances, foreign currencies, when we believe such positions are justified in view of market conditions and prospects. We monitor our asset and liability positions in accordance with Central Bank requirements and guidelines. Our Treasury Executive Committee for Asset and Liability Management meets on a weekly basis to:
In making such decisions, we evaluate not only our exposure limits for each market segment and product, but also market volatility levels and the extent to which we are exposed to market risk through interest, maturity, liquidity and currency mismatches. We also consider other potential risks, as well as market liquidity, our institutional needs and perceived opportunities for gains. Our Treasury Executive Committee for Asset and Liability Management holds extraordinary meetings as required in response to unexpected macroeconomic changes. In addition, we receive daily reports on our mismatched and open positions, while our Treasury Executive Committee for the Asset and Liability Management assesses our risk position every two weeks. 5.B.20Liquidity and funding We have policies, procedures, metrics and limits in place aimed at controlling liquidity risks. We believe that the components of our Short-Term and our Long-Term Liquidity Ratios (“LCR” and “NSFR”) are in line with best market practices as well as Basel III requirements.On December 31, 2019, the LCR and NSFR indicators were 143.8% and 115.2%, respectively. For further information on Basel III, see “Item 5.B.40 Capital Compliance – Basel III”. Our Treasury Department acts as a support center for our different business segments by managing our funding and liquidity positions and executing our investment objectives in accordance with our asset and liability management policies. We are also responsible for setting rates for our different products, including exchange and interbank transactions. Our Treasury Department covers any funding shortfall by borrowing in the interbank market. It seeks to maximize efficient use of our deposit base by investing any surpluses in liquid instruments in the interbank market. We have used our excess liquidity to invest in Brazilian government securities and expect to continue doing so, subject to regulatory requirements and investment considerations. Our principal sources of funding are:
Our capital markets operations act as a source of funding to us through our transactions with financial institutions, mutual funds, fixed income and equity investment funds and foreign investment funds. 143 Bradesco
The following table shows the average balance and average real interest rates of our liabilities (interest-bearing, as well as non-interest-bearing) for the periods indicated measured using month-end balances:
The following table shows, as of the dates indicated, the balances of our liabilities (interest-bearing, as well as non-interest-bearing):
5.B.20.01 Deposits Our principal source of funding is deposits from Brazilian individuals and businesses. As of December 31, 2019, our deposits totaled R$368.2 billion, representing 29.6% of our total liabilities. We provide the following types of deposit and registration accounts: ·demand deposits; ·savings accounts; ·time deposits; ·interbank deposits from financial institutions; and ·accounts for salary purposes. For additional information regarding our deposits, see “Item 4.B. Business Overview – 4.B.100 Selected Statistical Information – 4.B.100.01 Average deposit balances and interest rates”. 144 Form 20-F – December 2019
5.B.20.02Obligations for repurchase agreements Obligations for repurchase agreements consist mainly of funding we obtained from banks in the market by selling securities with agreements to repurchase. The majority of these financial assets subject to repurchase agreements are guaranteed by Brazilian government securities. This type of transactions is generally short-term (normally intraday or overnight) and are volatile in terms of volume once directly impacted by market liquidity. We believe that the risks associated with these transactions are low, given the quality of the collateral assets. In addition, repurchase transactions are subject to operating limits of capital based on the equity of the financial institution, adjusted in accordance with Central Bank regulations. A financial institution may only make repurchase transactions at a value of up to 30 times its RE, a limit we always comply with. The limits on repurchase transactions involve securities issued by Brazilian government authorities and vary according to the type of security involved in the transaction, and the perceived risk of the issuer as established by the Central Bank. The following table summarizes our funding in the open market for the periods indicated:
5.B.20.03 Borrowings and onlendings Borrowings consist primarily of funding from lines obtained from banking correspondents for import and export financings. Our access to this source of resources has been continuous, and funding occurs with rates and terms according to market conditions. Onlendings consist of funds borrowed for local onlending, in which we borrow from Brazilian governmental agencies and entities to make loans to Brazilian entities for investments in facilities, equipment and farming, among others. We conduct onlending transactions where we act as the transfer agent for development agency funds, granting credits to third parties, which are in turn funded by development organizations (BNDES, the International Bank for Reconstruction and Development or IBRD and the Inter-American Development Bank or IDB) which are the principal providers of these funds. The lending criteria, the decision to lend and the credit risk are our responsibility and subject to certain limitations set by the bodies supplying the funds. For more information on our onlending transactions, see “Item 4.B Business Overview – 4.B.30.01-02.02 Loans and advances to customers”. 5.B.20.04 Funds from securities issued Funds obtained from our securities issued originate mainly from the following operations: ØFinancial notes: fixed income securities issued by us with the purpose of raising funds, from individuals and corporate entities, in the long-term, given that they have a maturity exceeding two years. On the other hand, they offer investors better profitability than other financial investments with daily liquidity or with shorter period of maturity, which are divided into two modalities: ·Simple: consists in the promise of payment in nominative, transferable cash and in this way, it can be negotiated on the secondary market; and ·Subordinated: with initial investment and longer deadlines than the simple modality, it is used to reinforce our capital, in which, in the event of dissolution of the institution, the payment to investors shall be conditional upon the settlement of other commitments and obligations of payment, and is therefore recommended for Qualified investors. 145 Bradesco
ØReal estate credit notes: securities for individuals that are backed by real estate credits guaranteed by mortgages or by chattel, giving their borrowers the right of credit at nominal value, interest or monetary restatement; ØAgrobusiness credit notes: security issued by us, intended for individuals,which are tied to credit rights of business conducted with rural producers or their cooperatives; and ØLetter of credit property guaranteed: we have performed these operations since 2018, by issuing transferable nominative bonds, and of freely negotiable title, guaranteed by the portfolio of assets subject to the fiduciary system, in order to inject resources into the real estate market. The following table presents a summary of our resources regarding the issuing of securities concerning the periods indicated: 5.B.20.05 Sources of additional liquidity From the implementation of the New Brazilian Payment System in April 2002, the Central Bank has offered a credit line from the portfolio of government securities issued by the National Treasury to provide liquidity to financial institutions, which is defined as re-discount (or “Redesconto”). This line can be used in the “intra-day” condition, or for a longer term negotiated with the Central Bank, which discloses the differentiated prices for the acceptance of these securities as collateral. There is also a traditional re-discount line, where financial institutions offer assets represented by loan operations or illiquid securities. In this case, the institution will open formal proceedings with the Central Bank, presenting the reasons for the request, projected cash flow, liquidity recovery plan, as well as detailing the assets to be re-discounted and the proposed payment flow to the Central Bank. The Central Bank, upon analysis, will decide whether or not to release the liquidity line, costs, and other measures deemed necessary. We have never used these liquidity resources. As a result of the COVID-19 pandemic, the CMN amended Resolution No. 4,786/20, which authorizes the Central Bank to temporarily grant loans to financial institutions through the LTEL, regulated by Circular No. 3,994/20 and Circular Letter No. 4,019/20. With the LTEL, the Central Bank seeks to provide liquidity to the secondary market for corporate debt affected by the turmoil in the financial markets. According to Resolution No. 4,786/20, and Circular No. 3,994/20, loans through the LTEL will be available until April 30, 2020 and can be purchased for a period of up to 125 business days, allowing, at the discretion of the Central Bank, an extension of up to 125 business days, observing the total maximum of 359 consecutive days. These loans are subject to daily charges corresponding to the application, on the debtor balance, of 0.10% p.a. of the percentage of increase of the Selic Rate. Additionally, the standards establish the assets that can be used as collateral for the loan through the LTEL, which are: (i) debentures acquired in the secondary market, which should integrate the asset of the purchasing financial institution, observing the characteristics and limits of the debentures, in accordance with the standards; (ii) compulsory reserves maintained in bank reserve accounts, in the minimum amount of the total of the transactions. Moreover, Circular No. 3,994/20 also provides for the guarantee to be recomposed and the use of resources from financial events of assets that guarantee the payment of the loans. 146 Form 20-F – December 2019
Finally, lending under the LTEL is dependent upon authorization of the Director of Monetary Policy of the Central Bank.
5.B.30 Cash flow In 2019, 2018 and 2017, our cash flow was affected by our business strategy and alterations in the Brazilian economic environment. The following table shows the principal variations in cash flows during the periods indicated:
Ø2019 The higher reduction in cash and cash equivalents observed during the period is related: ·To the higher investment inoperational activities, which had as its main factors, the increase in availability of resources for loans and advances to customers and financial institutions, in addition to the decrease of resources from customers and our result before charges and taxes on profit; and ·To the higher volume of cash used infinancing activities, mainly due to the payment of interest on own capital and dividends, including the payment of extraordinary dividends, made on October 23, 2019, in the amount of R$8,000 million. These factors were partially offset by: ·A decrease in investment as part ofinvestment activities, reflected in lower volumes of purchases of financial assets, partially offset by lower interest received. Ø2018 In 2018, we had a net decrease of R$46,581 million in cash and cash equivalents due to net cash used in investing activities, in the amount of R$34,485 million, in operating activities, in the amount of R$6,497 million and in financing activities, in the amount of R$5,598 million. In 2018, cash used in our operating activities, in the amount of R$6,497 million, is related: (i) to our income before tax, in the amount of R$19,442 million; and (ii) toadjustments of reconciliation, in the amount of R$52,627 million, which were fully offset by: the net negative variations in assets and liabilities, in the amount of R$78,566 million, among which we highlight: (a) the increase of loans and advances to clients, in the amount of R$112,862 million; (b) the growth of R$30,302 million of other assets; (c) the increase of R$20,883 million in Central Bank compulsory deposits, which were partially offset by: (d) a net increase of R$88,660 million in the deposits from customers; and (e) by the amount of R$33,847 million, related to collected interest, net of the paid interest. In 2018, cash used in our investing activities, resulted from (i) the acquisition, net of maturities, of financial assets at amortized cost, in the amount of R$48,960 million; and (ii)the acquisition, net of disposals, of property, equipment and intangible assets, in the amount of R$5,081 million, which were partially offset: (i) bythe receipt of interest and dividends, in the amount of R$18,897 million and (ii) by the receipts from disposal, net of the acquisitions, of financial assets at fair value through other comprehensive income, in the amount of R$465 million. In 2018, cash used in our financing activities is a result of interest paid and interest on capital and dividends payment, in the amount of R$23,526 million, which were partially offset: (i) by the issuance ofsecurities, net of security issuance payments, in the amount of R$16,216 million; and (ii) by the issuance of subordinated debt net of payments of subordinated debt, in the amount of R$1,709 million. 147 Bradesco
Ø2017 In 2017, we had a net decrease of R$25,982 million in cash and cash equivalents due to net cash used in financing activities, in the amount of R$43,304 million; and investing activities, in the amount of R$18,230 million. These decreases were partially offset by the net increase in cash provided by our operating activities, in the amount of R$35,552 million. In 2017, cash provided by our operating activities, in the amount of R$35,552 million, is related to: (i) our income before tax, in the amount of R$23,744 million andadjustments of reconciliation, in the amount of R$56,901 million, totaling R$80,645 million, partially offset; and (ii) variations in asset and liability, in the amount of R$45,093 million, highlighting: (a) the increase, in the amount of R$59,579 million, of loans and advances to clients; (b) growth of financial assets for trading, in the amount of R$23,089 million; (c) the decrease, in the amount of R$11,556 million, in technical reserves from insurance and pension plans; (d) an increase in Central Bank compulsory deposits, in the amount of R$8,678 million; and (e) income tax and social contribution paid, in the amount of R$8,575 million; partially offset byinterest received/paid, in the amount of R$34,489 million and increase of deposits from clients, in the amount of R$36,854 million. In 2017, cash used in our investing activities, resulted from (i) the net acquisition/disposal of financial assets available for sale, in the amount of R$31,427 million; (ii) acquisition/disposal of property, equipment and intangible assets, in the amount of R$5,197 million, partially offset by: (iii)cash resulting from the maturity, and investments held to maturity, in the amount of R$4,219 million; and (vi)the receipt of interest and dividends, in the amount of R$12,819 million. In 2017, cash used in our financing activities is a result of: (i) interest paid and interest on capital and dividends payment, in the amount of R$30,978 million; (ii)costs associated with the issuance of securities, net of payment, in the amount of R$10,257 million; and (iii) the payment of subordinated debt, in the amount of R$8,666 million, partially offset by the issuance of subordinated debt, in the amount of R$6,595 million. 5.B.40 Capital compliance – Basel III As a regulatory response to the 2008 global economic crisis, in December 2010, the Basel Committee on Banking Supervision ("BCBS") issued a set of documents ("Basel III") aiming to improve the prudential framework applicable to financial institutions, enhancing the capacity of financial institutions absorbing impacts of shocks and reducing the risk of transfer from financial crises to the real economy. Basel III recommendations stipulate altered capital requirements for counterparty credit risk, both for the standard approach and for internal risk rating based approaches (“IRBs”) in order to ensure inclusion of material risks in capital structure. The Basel III Accord recommends implementation of a leverage ratio as a supplementary capital measure, which, together with the Basel Ratio, aims to limit a financial institutions’ risk exposure. It also assesses leverage through the ratio between Tier I Capital and book value assets plus off-balance exposure (overdraft facilities, sureties, guarantees and derivatives). In order to determine minimum requirements for quantitative liquidity of financial institutions, Basel III proposes two liquidity ratios: a short-term (“LCR”) and a long-term one (“NSFR”). The purpose of the Liquidity Coverage Ratio (“LCR”) is to show that institutions maintain sufficient high-liquidity funds to withstand a one-month financial stress scenario. The purpose of the Net Stable Funding Ratio (“NSFR”) is to encourage institutions to finance their activities from more stable sources of funding, setting forth the requirement of a ratio of more than 100% for the LCR and NSFR from January 2019 and 2018, respectively. In 2011, BCBS extended Basel III rules with additional requirements applicable to unusual instruments of Tier I and Tier II Capital by means of the "January 13 Annex". This review seeks to enhance the quality and quantity of capital of financial institutions, in order to make the financial system more resilient and reduce risks and costs, resulting in an improvement of the prudential framework applicable to financial institutions, defining the regulatory capital and the amount of capital allocated as primary elements. Accordingly, to be included as part of Tier I and Tier II Capital, the instrument should provision for it to be canceled or converted into common shares, at the discretion of the competent regulatory authority, upon the occurrence of an "activator event". In Brazil, Basel III is being implemented through a set of rules issued by the CMN and Central Bank, following the international schedule to gradually adopt the definitions and requirements of capital since 2013. In accordance with the rules set forth by the CMN Resolution No. 4,192/13, the RE of a financial institution consists of Tier I Capital plus Tier II Capital and is used when setting its operating limits. 148 Form 20-F – December 2019
Tier I Capital is aimed at helping the bank remain solvent that is, remaining a going concern. Tier II Capital is contingent capital, subject to conversion into equity in case of insolvency. Tier I Capital consists of Common Equity, comprising by shares and reserves; and Additional Equity, comprising instruments that are analogous to hybrid capital and debt instruments. In normal market conditions, financial institutions must hold excess capital in relation to the minimum requirements in an amount greater than Additional Common Equity, corresponding to the sum of the Additional of the Capital Conservation Buffer, the Countercyclical Capital Buffer and of Systemic Importance. Non-compliance with the rules of Additional Common Equity causes restrictions on the payment of dividends and interest on own capital, net surplus, share buybacks, reduction of capital stock, and variable compensation to its Managers. In relation to liquidity risk, in 2015 the National Monetary Council (“CMN”) issued the Resolution No. 4,401/15 addressing the definition and minimum limits of the LCR, which is defined as the ratio of the reserve of high liquidity assets to the total cash outflows foreseen for a 30-day period, under stress conditions. The main purpose of the LCR is to ensure the existence of a minimum number of net assets in normal market conditions to be used in periods of higher shortage or necessary liquidity in order to maintain the business ongoing and insure the stability of the financial system.In 2017, CMN issued the Resolution No. 4,557/17, which established a series of rules on the subject and that details the structure operation of capital risk management and disclosure policy. In addition, in the same year, the CMN and the Central Bank published the Resolution No. 4,616/17 and the Circular No. 3,869/17 about the indicator NSFR which establish, respectively, the minimum limit/compliance conditions and the methodology for calculation and disclosure of information to the market. On January 1, 2020, Central Bank’s Circular No. 3,930/19, addressing the Pilar 3 Report, revoked part of the Circular No. 3,869/17, concerning the dissemination of information on the NSFR. As of December 31, 2019, our LCR and NSFR indicators were 143.8% and 115.2%, respectively. For further information about the calculation, see Note 3.3 to our Consolidated Financial Statements in “Item 18. Financial Statements.” In 2017, the BCBS approved the final reforms of Basel III. The reforms had two stages, the first one contemplated: (i) improving the quality of the regulatory capital; (ii) raise levels of capital; (iii) improvement of the measurement and weight of risks, including global standards of market risk, counterparty credit risk and securitization; (iv) aggregation of macro-prudential elements, such as capital buffers in the regulatory framework; (v) restriction for the excessive leverage of banks; and (vi) introduction of the indicators of control of liquidity risk. The second step complemented the overall regulatory improvements, aiming to restore credibility in the calculation of risk-weighted assets (“RWA”) and allow greater comparability between financial institutions by means of: (i) increase of the robustness and sensitivity to the risk of standardized approaches for credit risk, credit valuation adjustment (“CVA”) and operational risk; (ii) restriction for the use of the internal model, with limits on certain parameters used to calculate the capital requirements for credit risk and removal of the use of approaches of the internal model for the risk of CVA and operational risk; (iii) introduction of a leverage ratio buffer for important global banks (“G-SIBs”); and (iv) replacement of the existing standard in Basel II with standard more sensitive to risk. According to Basel III, banks need to maintain minimum capital requirements, with (i) a minimum common equity (formed mainly by shares, capital reserves and accumulated profits, after the regulated deductions) of 4.5%; (ii) minimum of Tier I Capital (common equity plus the additional equity) of 6% and (iii) an index of total capital of at least 8%. Under the rule currently in effect, CMN Resolution No. 4,193/13, Brazilian financial institutions must hold a capital base (Reference Equity – “RE”) of 8% or more of total assets weighted by risk - RWA (Basel ratio) calculated using specific criteria determined by the CMN and Central Bank. The calculation of the RE is subject to various deductions, including weighting factors that vary according to the nature of the asset. On December 31, 2019, our Basel ratio was 16.5% of the total assets weighted by risk, higher than the level of 11.5% required by the Central Bank. It is worth noting that the regulation about the list of instruments that are part or are reduced from the Common Equity, of the Additional Equity or of Tier II Capital are constantly changed by the Central Bank. Note that, as a result of the developments of Covid-19, the CMN, by means of Resolution No. 4,783/20, changed the percentages of application of the RWA for calculating the value of the Additional Conservation of Common Equity ("ACP Conservation") in the following way: (i) 1.25% during the period from April 1, 2020 to March 31, 2021; (ii) 1.625% in the period from April 1, 2021 to September 30, 2021; (iii) 2.00%, in the period from October 1, 2021 to March 31, 2022; and (iv) 2.5% from April 1, 2022. This measure aims to enlarge the lending capacity, to widen the gap of capital, giving more space and security for banks to maintain their lending plans, and to gradually reestablish the ACP Conservation until March 31, 2022. The following table shows our capital positions as a percentage of total risk weighted assets: 149 Bradesco
5.B.50 Capital Management The Capital Management structure aims to provide conditions to the follow-up and control of our capital, in meeting the best management practices, aiming to improve the governance and to meet CMN Resolution No. 4,557/17, thus contributing to the achievement of the strategic goals established, through the accurate planning of the capital sufficiency. In addition to the Executive Committees and a Non-Statutory Committee, which support our Board of Directors and ourDiretoria Executiva in the decision-making process, we have an area responsible for Capital Management reporting to the Controllership Department, and which operates together with the Integrated Risk Control Department, affiliated companies, business areas and our various support areas. The Capital Plan must comprehend at least three years and predictprovisions targets and projections of growth of the Organization and its main sources of capital, considering threats and opportunities relating to the economic and business environment; profit allocation policy and the terms of the Declaration of Risk Appetite, being prepared on an annual basis, and is approved by ourDiretoria Executiva and our Board of Directors, continually monitored and controlled by the Capital Management area. In addition, it is responsible in coordinating the internal capital adequacy assessment process (“ICAAP”), which provides conditions for the assessment of sufficiency of capital, taking into account different scenarios (baseline and stress) and allows for the anticipation of capital and contingency activities to be adopted for the respective scenarios. In March 2020, the CMN approved Resolution No. 4,782/20, as amended by Resolution No. 4,791/20, as a result of the unfolding of the COVID-19, in order to facilitate the renegotiation of loans of businesses and families who have good financial capacity and maintain regular loans, with no delinquency. This measure exempts the banks from increasing the provision in the case of rescheduling loan operations and changing the credit risk management until September 30, 2020. Therefore, they are exempted from observing for credit restructuring up to that date, characterizing exposure as a problem asset. Indications that an obligation will not be fully honored for the purposes of managing credit risk: (i) the institution considers that the counterparty has no more financial capacity to honor its obligation under the agreed conditions; (ii) the institution recognizes in the accounts the significant deterioration in the credit quality of the borrower; (iii) the operation on the exposure being restructured in a renegotiation involving the granting of benefits to the counterparty as a result of the deterioration of their credit quality or of the credit quality of the intervener or mitigating instrument; (iv) the filing of bankruptcy or similar providence of the counterparty; and (v) the request by the counterparty of any judicial measure that limits, delays or prevents the fulfillment of their obligations under the agreed conditions. The measure allows the immediate reversal of the characterization of exposure as a problem asset that has been carried out only when the institution considers that the counterparty has no more financial capacity to honor the obligation under agreed conditions. 5.B.60 Recovery Plan for Systematically Relevant Financial Institutions In the context of the ongoing process of adoption in Brazil of the international regulatory best practices, on June 30, 2016, CMN Resolution No. 4,502/16 was published, as amended by CMN Resolution No. 4,704/18, establishing the minimum requirements to be observed in the preparation and execution of recovery plans by financial institutions and other institutions authorized to operate by the Central Bank. The main objective of CMN Resolution No. 4,502/16 is to restore adequate levels of capital and liquidity and preservethe feasibility of such institutions, thereby ensuring the robustness, stability and smooth operation of the National Financial System. 150 Form 20-F – December 2019
Form 20-F 5.B.70 Interest rate sensitivity Management of interest rate sensitivity is a key component of our asset and liability policy. Interest rate sensitivity is the relationship between market interest rates and net interest income due to the maturity or repricing characteristics of interest-earning assets and interest-bearing liabilities. For any given period, the pricing structure is considered balanced when an equal amount of these assets or liabilities matures or reprices in that period. Any mismatch of interest-earning assets and interest-bearing liabilities is known as a gap position. A negative gap denotes loss sensitivity and normally means that a decline in interest rates would have a negative effect on net interest income. Conversely, a positive gap denotes gain sensitivity and normally means that a decline in interest rates would have a positive effect on net interest income. These relationships can change significantly from day to day as a result of both market forces and Management decisions. Our interest rate sensitivity strategy takes into account:
We monitor our maturity mismatches and positions and manage them within established limits. The positions are analyzed and reconsidered every second and fourth Friday of each month in our Treasury Executive Committee for Asset and Liability Management. The following table shows the maturities of our interest-earning assets and interest-bearing liabilities as of December 31, 2019 and may not reflect interest rate positions at other times. In addition, variations in interest rate sensitivity may exist within the repricing periods presented due to differing repricing dates. Variations may also arise among the different currencies in which interest rate positions are held.
5.B.80 Exchange rate sensitivity Most of our operations are denominated inreais. Our policy is to avoid material exchange rate mismatches. However, at any given time, we generally have outstanding long-term debt denominated in and indexed to foreign currencies, principally the U.S. dollar. As of December 31, 2019, our net foreign currency liability exposure, considering derivative financial instruments, was R$53,796 million, or 39.7% ofshareholders’ equity. Consolidated net foreign currency exposure is the difference between total foreign currency-indexed or -denominated assets and total foreign currency-indexed or -denominated liabilities, including derivative financial instruments. 151 Bradesco
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In addition to our foreign currency long term debt, our foreign currency position arises mainly through our purchases and sales of foreign currencies (mainly U.S. dollars) from Brazilian exporters and importers, from other financial institutions on the interbank market, and on the spot and forward currency markets. The Central Bank regulates our maximum outstanding long and short foreign currency positions. As of December 31, 2019, the composition of our assets, liabilities and equity by currency and term was as set out in the table below. Our foreign currency assets are largely denominated inreais but are indexed to foreign currencies, principally the U.S. dollar. Most of our foreign currency liabilities are denominated in foreign currencies, principally the U.S. dollar.
152 Form 20-F – December 2019 |
As of December 31, 2017, the composition of our assets, liabilities and equity by currency and term was as set out in the table below. Our foreign currency assets are largely denominated inreais but are indexed to foreign currencies, principally the U.S. dollar. Most of our foreign currency liabilities are denominated in foreign currencies, principally the U.S. dollar.
December 31, 2017 | R$ in thousands, except % | |||
R$ | Foreign currency | Total | Foreign currency as % of total | |
Assets |
|
|
|
|
Cash and balances with banks | 79,490,208 | 2,252,743 | 81,742,951 | 2.8% |
Financial assets held for trading |
|
| ||
Less than one year | 31,205,016 | 382,172 | 31,587,188 | 1.2% |
From one to five years | 145,888,178 | 639,188 | 146,527,366 | 0.4% |
More than five years | 56,172,357 | 927 | 56,173,284 | 0.0% |
Indefinite | 7,176,506 | 245,697 | 7,422,203 | 3.3% |
Financial assets available for sale |
|
|
|
|
Less than one year | 31,156,662 | 10,405 | 31,167,067 | 0.0% |
From one to five years | 80,299,138 | 3,516,948 | 83,816,086 | 4.2% |
More than five years | 31,886,240 | 1,505,522 | 33,391,762 | 4.5% |
Indefinite | 11,037,807 | - | 11,037,807 | - |
Investments held to maturity |
|
| ||
Less than one year | 21,798 | 7,614 | 29,412 | 25.9% |
From one to five years | 10,284,940 | - | 10,284,940 | - |
More than five years | 28,691,766 | - | 28,691,766 | - |
Financial assets pledged as collateral | 177,532,261 | 6,442,912 | 183,975,173 | 3.5% |
Loans and advances to banks | 29,929,809 | 2,317,915 | 32,247,724 | 7.2% |
Loans and advances to customers |
|
| ||
Less than one year | 172,520,716 | 14,749,448 | 187,270,164 | 7.9% |
From one to five years | 102,109,388 | 12,874,271 | 114,983,659 | 11.2% |
More than five years | 41,921,656 | 2,582,620 | 44,504,276 | 5.8% |
Non-current assets available for sale | 1,520,968 | 5 | 1,520,973 | 0.0% |
Investments in associates and joint ventures | 8,257,384 | - | 8,257,384 | - |
Property and equipment, net of accumulated depreciation | 8,410,174 | 22,301 | 8,432,475 | 0.3% |
Intangible assets and goodwill, net of accumulated amortization | 16,164,952 | 14,355 | 16,179,307 | 0.1% |
Taxes to be offset | 10,483,831 | 40,744 | 10,524,575 | 0.4% |
Deferred income tax assets | 43,730,672 | 1,239 | 43,731,911 | 0.0% |
Other assets |
|
| ||
Less than one year | 20,988,342 | 14,138,571 | 35,126,913 | 40.2% |
From one to five years | 12,401,862 | 64,100 | 12,465,962 | 0.5% |
More than five years | 3,064,865 | 196,247 | 3,261,112 | 6.0% |
Total | 1,162,347,496 | 62,005,944 | 1,224,353,440 | 5.1% |
Percentage of total assets | 94.9% | 5.1% | 100.0% |
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142Form 20-F – December 2017
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December 31, 2019 | R$ in thousands, except % | |||
R$ | Foreign currency | Total | Foreign currency as % of total | |
Liabilities and Shareholders' Equity |
|
|
|
|
Deposits from banks(1) | 196,189,330 | 31,630,281 | 227,819,611 | 13.9% |
Less than one year | 181,526,683 | 26,771,668 | 208,298,351 | 12.9% |
From one to five years | 10,570,881 | 3,851,888 | 14,422,769 | 26.7% |
More than five years | 4,091,766 | 1,006,725 | 5,098,491 | 19.7% |
Deposits from customers | 348,418,894 | 17,808,646 | 366,227,540 | 4.9% |
Less than one year | 207,782,604 | 17,657,782 | 225,440,386 | 7.8% |
From one to five years | 140,630,609 | 148,087 | 140,778,696 | 0.1% |
More than five years | 5,681 | 2,777 | 8,458 | 32.8% |
Financial liabilities at fair value through profit or loss | 12,786,941 | 1,457,142 | 14,244,083 | 10.2% |
Less than one year | 3,377,467 | 829,708 | 4,207,175 | 19.7% |
From one to five years | 9,409,474 | 627,434 | 10,036,908 | 6.3% |
More than five years | - | - | - | - |
Funds from securities issued | 167,351,930 | 3,375,634 | 170,727,564 | 2.0% |
Less than one year | 84,787,964 | 1,448,382 | 86,236,346 | 1.7% |
From one to five years | 78,828,942 | 1,916,987 | 80,745,929 | 2.4% |
More than five years | 3,735,024 | 10,265 | 3,745,289 | 0.3% |
Subordinated debt | 38,185,713 | 11,127,795 | 49,313,508 | 22.6% |
Less than one year | 67,912 | 253,405 | 321,317 | 78.9% |
From one to five years | 28,557,834 | 10,874,390 | 39,432,224 | 27.6% |
More than five years | - | - | - | - |
Indefinite | 9,559,967 | - | 9,559,967 | - |
Insurance technical provisions and pension plans | 268,288,002 | 14,689 | 268,302,691 | 0.0% |
Other provisions | 29,528,654 | - | 29,528,654 | - |
Current income tax liabilities | 2,590,792 | 4,485 | 2,595,277 | 0.2% |
Deferred income tax liabilities | 922,852 | 157,751 | 1,080,603 | 14.6% |
Other liabilities(2) | 103,975,039 | 9,169,541 | 113,144,580 | 8.1% |
Less than one year | 95,296,106 | 9,126,895 | 104,423,001 | 8.7% |
From one to five years | 5,963,873 | 11,484 | 5,975,357 | 0.2% |
More than five years | 2,715,060 | 31,162 | 2,746,222 | 1.1% |
Shareholders' Equity | 135,543,574 | - | 135,543,574 | - |
Total | 1,303,781,721 | 74,745,964 | 1,378,527,685 | 5.4% |
Percentage of total liabilities and shareholder's equity | 94.6% | 5.4% | 100.0% |
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(1) including: obligations for repurchase agreements, borrowings, onlendings and interbank deposits; and | ||||
(2) Other liabilities, whose primary components provision for contingent liabilities, are not a source of funding. |
Derivative financial instruments are presented in the table below on the same basis as presented in the consolidated financial statements in “Item 18. Financial Statements”.
Our cash and cash equivalents in foreign currency are represented principally by U.S. dollars. Amounts denominated in other currencies, which include Euros and Yen, are indexed to the U.S. dollar through currency swaps, effectively limiting our foreign currency exposure to U.S. dollars only.
We enter into short-term derivative contracts with selected counterparties to manage our overall exposure, as well as to assist customers in managing their exposures. These transactions involve a variety of derivatives, including interest rate swaps, currency swaps, futures and options. For more information regarding these derivative contracts, see Note 20 to our consolidated financial statements in “Item 18. Financial Statements”. As of December 31, 2019, the composition of notional reference and/or contracted values and fair values of trading derivatives held by us is presented below:
143 Bradesco
153 Bradesco
5.B.90 Capital expenditures |
December 31, 2017 | R$ in thousands | ||
Reference amounts | |||
R$ | Foreign currency | Total | |
Derivatives |
|
|
|
Interest rate futures contracts |
|
|
|
Purchases | 96,081,180 | - | 96,081,180 |
Sales | 132,837,699 | - | 132,837,699 |
Foreign currency futures contracts |
|
| |
Purchases | - | 48,376,597 | 48,376,597 |
Sales | - | 67,238,635 | 67,238,635 |
Futures contracts - other |
|
|
|
Purchases | 163,224 | - | 163,224 |
Sales | 113,772 | - | 113,772 |
Interest rate option contracts |
|
| |
Purchases | 10,663,668 | - | 10,663,668 |
Sales | 9,616,129 | - | 9,616,129 |
Foreign currency option contracts |
|
|
|
Purchases | - | 7,335,027 | 7,335,027 |
Sales | - | 10,274,094 | 10,274,094 |
Option contracts - other |
|
| |
Purchases | 443,443 | - | 443,443 |
Sales | 228,141 | - | 228,141 |
Foreign currency forward contracts |
|
|
|
Purchases | - | 10,372,477 | 10,372,477 |
Sales | - | 14,947,271 | 14,947,271 |
Forward contracts - other |
|
| |
Purchases | 114,020 | - | 114,020 |
Sales | 635,522 | - | 635,522 |
Swap contracts |
|
|
|
Asset position |
|
| |
Interest rate swaps | 56,636,856 | - | 56,636,856 |
Currency swaps | - | 6,161,641 | 6,161,641 |
Liability position |
|
|
|
Interest rate swaps | 31,454,647 | - | 31,454,647 |
Currency swaps | - | 14,288,568 | 14,288,568 |
In the past three years, we have made, and expect to continue to make moving forward, significant capital expenditures related to improvements and innovations in technology and the Internet designed to maintain and expand our technology infrastructure in order to increase our productivity, accessibility, cost efficiency and our reputation as a leader in technological innovation in the financial services sector. We have made significant capital expenditures for systems development, data processing equipment and other technology designed to further these goals. These expenditures are for systems and technology for use both in our own operations and by customers.
The following table shows our capital expenditures accounted for as fixed assets in the periods shown:
144Form 20-F – December 2017
154 Form 20-F – December 2019
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The following table shows our capital expenditures accounted for as fixed assets in the periods shown:
| R$ in thousands | ||
2019 | 2018 | 2017 | |
Infrastructure |
|
|
|
Land and buildings | 361,790 | 426,911 | 140,356 |
Installations, properties and equipment for use | 2,298,617 | 1,311,526 | 680,829 |
Security and communications systems | 48,268 | 39,006 | 31,874 |
Transportation systems | 78,884 | 2,799 | 4,228 |
SubTotal | 2,787,559 | 1,780,242 | 857,287 |
Information Technology |
|
| |
Data processing systems | 1,794,019 | 1,791,316 | 1,936,656 |
Financial leasing of data processing systems | 695,499 | 607,177 | 655,407 |
SubTotal | 2,489,518 | 2,398,493 | 2,592,063 |
Total | 5,277,077 | 4,178,735 | 3,449,350 |
We believe that capital expenditures in 2020 and 2021 will not be substantially greater than historical expenditure levels and anticipate that in accordance with our practice during recent years, our capital expenditures in 2020 and 2021 will be funded from our own resources. No assurance can be given, however, that the capital expenditures will be made and, if made, that such expenditures will be made in the amounts currently expected.
Not applicable.
For more information, see "Forward-looking Statements" and "Item 3.D. Risk Factors," where we present the risks we face in our business that may affect our commercial activities, operating results or liquidity.
Not applicable.
For more information, see “Forward-looking Statements” and “Item 3.D. Risk Factors”, where we present the risks, we face in our business that may affect our commercial activities, operating results or liquidity.
155 Bradesco
5.E. Off-balance sheet arrangements | ||
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|
We are managed by our Board of Directors and our Board of Executive Officers. The Board of Directors establishes our corporate strategy and policies and supervises and monitors the Board of Executive Officers. In turn, the Board of Executive Officers implements the strategy and policies set by the Board of Directors and is responsible for our day-to-day management.
Our Board of Executive Officers currently comprises (i) theDiretoria Executiva and (ii) our Officers, Department Officers and Regional Officers. TheDiretoria Executiva consists of one Chief Executive Officer, six Vice-Presidents, four Managing Officers and eight Deputy Officers.
Our eight-member Board of Directors meets six times during the year and on an extraordinary
145 Bradesco
In addition to our loans and advances, we have credit-related transactions with our customers for attending to their financing needs. In accordance with IFRS, these transactions are not recorded on ourstatement of financial position. The following table summarizes these transactions as of December 31, 2019:
Contractual Obligations | R$ in thousands | ||||
Payments due as of December 31, 2018 | |||||
Less than 1 year | 1 to 3 years | 3 to 5 years | More than 5 years | Total | |
Financial guarantees | 22,810,805 | 19,519,348 | 6,054,372 | 29,846,620 | 78,231,145 |
Letters of credit | 562,996 | 848,201 | - | - | 1,411,197 |
Total | 23,373,801 | 20,367,549 | 6,054,372 | 29,846,620 | 79,642,342 |
We guarantee our customers’ performance in obligations with third parties. We have the right to seek reimbursement from our customers for any amounts paid under these guarantees. Additionally, we may hold cash or other collateral with high liquidity to guarantee these obligations. These agreements are subject to the same credit evaluation as other loans granted.
Letters of credit are conditional commitments issued by us to guarantee the performance of a customer’s obligations with third parties. We issue commercial letters of credit to facilitate foreign trade transactions and to support public and private borrowing agreements, including commercial papers, bond financing and similar transactions. These instruments are short-term commitments to pay a third-party beneficiary under certain contractual conditions, for the shipment of products. Contracts are subject to the same credit evaluations as other loans granted.
We expect many of these guarantees to expire without the need to advance any cash. Therefore, in the ordinary course of business, we expect that these transactions will have virtually no impact on our liquidity.
We have contractual obligations to make certain payments to third parties, in accordance with the amounts presented in the following table:
Contractual Obligations | R$ in thousands | ||||
Payments due as of December 31, 2018 | |||||
Less than 1 year(1) | 1 to 3 years | 3 to 5 years | More than 5 years | Total | |
Time deposits | 73,978,598 | 140,660,429 | 118,267 | 8,459 | 214,765,753 |
Obligations for repurchase agreements | 172,225,341 | 263,481 | 589,639 | 1,021,562 | 174,100,023 |
Borrowings | 27,397,653 | 1,874,530 | - | - | 29,272,183 |
Onlendings | 6,706,384 | 7,846,541 | 3,841,490 | 4,076,929 | 22,471,344 |
Funds from securities issued | 86,236,345 | 71,585,471 | 9,160,458 | 3,745,290 | 170,727,564 |
Subordinated debt | 321,317 | 17,484,070 | 6,139,397 | 25,368,724 | 49,313,508 |
Insurance technical provisions and pension plans | 231,640,066 | 36,662,625 | - | - | 268,302,691 |
Other obligations(2) | 98,685,603 | 4,608,639 | 7,104,118 | 2,746,220 | 113,144,580 |
Total | 697,191,307 | 280,985,786 | 26,953,369 | 36,967,184 | 1,042,097,646 |
(1) Based on our historical experience, we expect that most of our obligations that are contractually due within one year will be rolled over. | |||||
(2) Includes leasses operations, in the amount of R$5.7 billion. |
Not applicable.
156 Form 20-F – December 2019
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We are managed by our Board of Directors and our Board of Executive Officers. The Board of Directors establishes our corporate strategy and policies and supervises and monitors the Board of Executive Officers. In turn, the Board of Executive Officers implements the strategy and policies set by the Board of Directors and is responsible for our day-to-day management.
Currently, our Board of Directors is composed of ten members, two of them are independent members. At our Annual Shareholders’ Meeting held on March 10, 2020:
·Mr. Luiz Carlos Trabuco Cappi – Chairman; Mr. Carlos Alberto Rodrigues Guilherme – Vice-Chairman; Mrs. Denise Aguiar Alvarez; Mr. João Aguiar Alvarez; Mr. Milton Matsumoto; Mr. Alexandre da Silva Glüher; Mr. Josué Augusto Pancini; and Mr. Mauricio Machado de Minas were re-elected; and
·Mr. Samuel Monteiro dos Santos Junior and Mr. Walter Luis Bernardes Albertoni, were elected as independent members.
According to our bylaws, our Board of Directors meets six times during the year and whenever necessary. In addition to the Rules of Procedure itself, the Board has a manual of meetings and a specific timetable set annually by its Chairman. It is responsible for:
· establishing our corporate strategy;
· reviewing our business plans and policies; and
· supervising and monitoring the activities of our Board of Executive Officers.
Our Audit Committee, among other designations, is in charge of approving the engagement of our independent auditors for audit and non-audit services provided to our subsidiaries or to us.
TheDiretoria Executiva meets weekly and is responsible for:
· implementing the strategy and policies established by our Board of Directors; and
· managing our day-to-day business.
Several members of our Board of Directors and theDiretoria Executiva also perform senior management functions at our subsidiaries, including BRAM, Bradesco Financiamentos, Bradesco Consórcios, Bradesco BBI, Bradesco Leasing, BEM DTVM, Bradesco Cartões, Bradesco Seguros and subsidiaries. Each of these subsidiaries has an independent management structure.
Pursuant to Brazilian law, the election of all members of our Board of Directors and Board of Executive Officers are subject to approval by the Central Bank.
We present below biographies of the current members of our Board of Directors andDiretoria Executiva:
ØMembers of the Board of Directors:
·Luiz Carlos Trabuco Cappi, ChairmanChairman:
:
Birth date:October 6, 1951.
Summary of Professional Experience:He began his career 48 years ago,at Banco Bradesco S.A. in 1969, devoting his entire professional life to the Bradesco Group.Organization. He was the Investor Relations Officer and the Executive Vice-President of Banco Bradesco from 1999 to 2009 accumulating such position with, the Presidency of GrupoofGrupo Bradesco Seguros during six years. He was the Chairman of Banco Bradesco'sBradesco’s Board of Executive Officers from March 2009 to March 2018, accumulating with the position of Vice-Chairman of the Board of Directors until October 2017, when he was promoted to Chairman of the Board of Directors.
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Current positions:Chairman of the Board of Directors of Banco Bradesco S.A.
Previous positions: and Chairman of the Board of Directors of Odontoprev S.A.,
Previous positions:Member of the Board of Directors of ArcelorMittal Brasil,Brasil; Member of the Strategic Committee of Vale S.A.,; Chief Executive Officer of the Marketing and Funding Committee of theAssociação Brasileira das Entidades de Crédito Imobiliário e Poupança -– ABECIP; ofAssociação Nacional da Previdência Privada -– ANAPP; of theFederação Nacional de Saúde Suplementar –- FENASAÚDE; Chairman of the Board of Representatives ofDiretoria Executiva da Confederação Nacional das Instituições Financeiras – CNF,CNF; Member of the Superior Board and Vice-President of theConfederação Nacional das Empresas de Seguros Gerais, Previdência Privada e Vida, Saúde Suplementar e Capitalização – CNSeg,CNSeg; Member of the Board of DirectorDirectors and of the Advisory Board of FEBRABAN –Federação Brasileira de Bancos (Brazilian Federation of Banks); and Full Member of theAssociation Internationale pour I’Etude de I’Economie de I’Assurance -– Association de Genève, Geneva, Switzerland.
Graduation:Degree in Philosophy fromFaculdade de Filosofia, Ciências e Letras de São Paulo.
Other Qualifications:GraduatePostgraduate degree in Social Psychology atFundação Escola de Sociologia e Política de São Paulo.
·Carlos Alberto Rodrigues Guilherme, Vice-Chairman of the Board of DirectorsVice-Chairman::
Birth date: December 21, 1943.
Summary of Professional Experience: He began his career in December 1957. He was elected Department Officer in March 1986, Deputy Officer in March 1998, Managing Officer in March 1999, Member
146Form 20-F – December 2017
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of the Board of Directors in March 2009 and Vice-Chairman of the Board of Directors in October 2017, the position he currently holds.
Graduation: Law degree fromFundação Pinhalense Education Foundation.de Ensino.
Current positions: Vice-Chairman of the Board of Directors ofBradesco Leasing S.A. - – Arrendamento Mercantil; MemberVice-Chairman of the Managing Board of Trustees and Managing OfficerVice-President ofFundação Bradesco.MemberBradesco; Vice-Chairman of the Board of Directors and OfficerVice-President ofCidade de Deus -– Companhia Comercial de Participações; Memberes; Vice-Chairman of the Board of DirectorDirectors ofNCF Participações S.A.; OfficerVice-President ofNova Cidade de Deus Participações S.A.; Vice-Chairman of the Board of Directors and Member of the Strategic Committee ofBSP Empreendimentos Imobiliários S.A.; Vice-Chairman of the Board of Directors ofBSP Park Estacionamento e Participações S.A.; OfficerVice-President ofTopClube Bradesco, Segurança, Educação e Assistência Social; MemberVice-Chairman of the Board of Directors ofBradespar S.A.S.A.; CEOVice-Chairman of Bancothe Board of Directors of Bradesco BERJSaúde S.A.; and Vice-Chairman of the Board of Directors of Bradesco Saúde S.A..Bradseg Participações S.A.
Previous positions: General Officer ofCompanhia Securitizadora de Créditos Financeiros Rubi;Chief Executive Officer ofBanco Bradesco BERJ S.A.; Officer ofBanco de Crédito Real de Minas Gerais S.A.S.A. and of Credireal Leasing S.A. -– Arrendamento Mercantil.Mercantil.
·Denise Aguiar Alvarez, DirectorDirector:
:
Birth date:January 24, 1958.
Summary of Professional Experience: In April 1986, she was appointed to the Board of Directors ofCidade de Deus -– Companhia Comercial de Participações, one of the holding companies of Banco Bradesco S.A., and sincein July 1988, she has also served as an Officer.InOfficer. In February 1990, she was also elected as Member of the Board of Directors of Banco Bradesco S.A., the position she currently holds.
Graduation:Degree in Education from PUC- SP -– Pontifícia Universidade Católica de São Paulo.
Other Qualifications:MastersMaster’s in Education from New York University, USA
Current positions:Member of the Board of Directors of Bradespar S.A.; Member of the Board of Trustees and Deputy Officer ofFundação Bradesco; CEOChief Executive Officer of ADC Bradesco – Sports Association; Member of the Board of Directors of BBD Participações S.A; Member of the Board of Directors ofBradespar S.A.; Member of the Board of Directors ofBradseg Participações S.A.; Member of the Consulting Board of theAssociação Pinacoteca Arte e Cultura -– APAC; She is also a Member of the Deliberative Board ofMuseu de Arte Moderna de São Paulo(MAM); Member of the Board of Trustees ofFundação Roberto Marinho;and Member of the Consulting Board ofCanal Futura;Futura.
Previous positions:Chairman of the Board of Governance of GIFE – the Group of Institutes, Foundations and Enterprises; and Member of the Consulting Committee of Fundação Dorina Nowill para Cegos; Member of the General Board ofComunitas: Parcerias para o Desenvolvimento Solidário; and Effective Member ofAssociação de Apoio ao Programa Alfabetização Solidária- AAPAS; and.Chairman of the Board of Governance ofTodos pela Educação (All for Education).
Previous positions:She was Member of the Deliberative Board ofFundo Social de Solidariedade do Estado de São Paulo- FUSSESP; and Chairman of the Board of Governance of GIFE - the Group of Institutes, Foundations and Enterprises.
She is João Aguiar Alvarez’s sister, who is also a Director.
158 Form 20-F – December 2019
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·João Aguiar Alvarez, DirectorDirector:
:
Birth date:August 11, 1960.
Summary of Professional Experience: In April 1986, he was elected to the Board of Directors ofCidade de Deus -– Companhia Comercial de Participações, one of the holding companies of Banco Bradesco S.A., and since April 1988, he has served as an Officer and, in February 1990, Member of the Board of Directors, the position he currently holds.
Graduation:Degree in Agronomy from theFundação Pinhalense Education Foundation –de Ensino - Faculdade de Agronomia e Zootecnia Manuel Carlos Gonçalves College of Agronomy and Animal Husbandry.alves.
Current positions:Member of the Board of Directors of Bradespar S.A.; and Member of the Board of Trustees and Deputy Officer ofFundação Bradesco; Member of the Board of Directors ofBradespar S.A.; Member of the Board of Directors ofBBD Participações S.A. and Bradseg Participações S.A.; Member of the Board of Directors and Officer of Cidade de Deus - Companhia Comercial de Participações; and Deputy Officer of NCD Participações Ltda.
He is Denise Aguiar Alvarez’s brother, who is also a Director.
·Milton Matsumoto, DirectorDirector::
147 Bradesco
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Birth date:April 24, 1945.
Summary of Professional Experience: He has been with Bradesco since September 1957. He was elected Department Officer in March 1985, Deputy Officer in March 1998, a Managing Officer in March 1999 and Member of the Board of Directors in March 2011, the position he currently holds.
Graduation:Degree in Business Administration from UNIFIEO - University Center FIEO.Centro Universitário FIEO.
Current positions: Member of the Board of Directors of Bradesco Leasing S.A. -–Arrendamento Mercantil; Member of the Board of Directors ofBradespar S.A.; Member of the Board of Directors ofBradsegParticipações S.A.; Member of the Board of Directors and Strategy Committee ofBSP Empreendimentos Imobiliários S.A.; Member of the Board of Directors and Officer ofCidade de Deus -– Companhia Comercial de Participações; Member of the Board of Directors ofNCF Participações S.A.; Officer ofNova Cidade de Deus Participações S.A.S.A.; Member of the Board of Trustees and Managing Officer ofFundação Bradesco.
Previous positions: General Officer ofAlvorada Administradora de Cartões Ltda.; Vice-Chairman of the Board of Directors ofBBC Processadora S.A. (formerlyFidelity Processadora e Serviços S.A.); Member of the Board of Directors of Banco Bradesco BERJ S.A. and an Officer ofBradesco S.A.Corretora de Títulos e Valores Mobiliários;rios; the first Secretary Officer of the Bank Union in the States of São Paulo, Paraná, Mato Grosso, Mato Grosso do Sul, Acre, Amazonas, Pará, Amapá, Rondônia and Roraima; Alternate Member of the Board of Directors ofCPM Holdings Ltd.Braxis S.A.; Alternate Member of the Board of Directors ofCPM Holdings Ltd.Limited; Secretary Officer of the Union of the Credit, Financing and Investing Companies of the State of São Paulo; and Secretary Officer of the Interstate Federation of FENACREFI Loan, Financing and Investment Institutions.
·Alexandre da Silva Glüher – DirectorDirector::
Birth date:August 14, 1960.
Summary of Professional Experience:He joined Banco Bradesco S.A. in March 1976. He was elected Regional Officer in August 2001, Department Officer in March 2005, Deputy Officer in December 2010, Managing Officer in January 2012, and Executive Vice-President in January 2014. In March 2018, he was elected Member of the Board of Directors, the position he currently holds.
Graduation:Degree inAccounting from Universidade Federal do Rio Grande do Sul, and in Business Administration from ULBRA -– Universidade Luterana do Brasil.
Other Qualifications:International Executive Program at the Wharton School -– Advanced Management Program -– University of Pennsylvania, USA;Administration of Financial Institutions (Banking),Retail for Low-income Segments, and Credit Risk Management -– Vision of Portfolio by theFundação Getúlio Vargas- –School of Business Administration of São PauloPaulo; Certified Member of the Board of Directors of the Brazilian Institute of Corporate Governance – IBGC.
Current positions: Member of the Board of Trustees and Managing Officer ofFundação Bradesco;Vice-President of IBCB -–Instituto Brasileiro de Ciência Bancária;Effective Member of the Board of Directors ofAquarius Participações S.A.,Fidelity Processadora S.A., and also of Fidelity Serviços e Contact Center S.A;Chairman and Effective Member of the Consulting Board of Credit Guarantee Fund – FGC; andFull Member of the Board of Directors ofCâmara Interbancária de Pagamentos – CIP.
Previous positions:Investor Relations Officer of Bradesco; Alternate Member of the Deliberative Council of Brazilian Association of Real Estate Credit and Savings Entities -– ABECIP; Member of the Board of Directors ofInstituto BRAiN -– Brasil Investimentos & Negócios;cios; Member of the Banking Self-Regulatory Council of FEBRABANofFEBRABAN –Federação Brasileira de Bancos; Vice-President of FEBRABAN –Federação Brasileira de Bancos;Vice-President and Alternate Delegate at CONSIF at FENABAN -– Federação Nacional dos Bancos;Treasury Officer of the Association of Banks of the States of São Paulo, Paraná, Mato Grosso, Mato Grosso do Sul, Acre, Amazonas, Pará, Amapá, Rondônia and Roraima; Officer of Brasilia Cayman Investments II Limited and of Brasilia Cayman Investments III Limited; Vice-Chairman of the Board of Directors ofCentral de Exposição a Derivativos – CED; and Representative of Bradesco Group at ANBIMA -– Brazilian Association of Financial and Capital Markets Entities.Association;Effective member of the Board of Directors of Aquarius Participações S.A., BBC Processadora S.A. (formerlyFidelity Processadora e Serviços S.A.) and also of Chain Serviços e Contact Center S.A. (formerlyFidelity Serviços e Contact Center S.A.)
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·Josué Augusto Pancini – DirectorDirector:
:
Birth date:April 14, 1960.
Summary of Professional Experience: He joinedBanco Bradesco S.A.S.A. in July 1976. He was elected Regional Officer in July 1997, Department Officer in July 2003, Deputy Officer in December 2010, andManagingand Managing Officer in January 2012. He was elected Executive Vice-President in January 2014, and since2014. From March 2018 to January 2019,has been accumulatingaccumulated the position ofMember of the Board of Directors.Directors and of Executive Vice-President. As of January 2019, he was appointed only the role of Director of the Management.
148Form 20-F – December 2017
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Graduation:Degree in Mathematics fromCentro Universitário da Fundação de Ensino Octávio Bastos – Feob (UNIFEOB).
Other Qualifications: “Lato Sensu” postgraduate degree in Business Economics -– Finance fromPontifícia Universidade Católica de Campinas -– PUC - Campinas;– Campinas; and AMP -– Advanced Management Program, taught at the IESE Business School -– University of Navarra, São Paulo.
Current positions: Member of the Board of Trustees and Managing Officer ofFundação Bradesco; Member of the Board of Directors and Managing OfficerVice-President of Kirton BankBradesco Leasing S.A. – Banco Múltiplo.Arrendamento Mercantil; Member of the Board of Directors ofCidade de Deus – Companhia Comercial de Participações; Member of the Board of Directors and Vice-President ofNCF Participações S.A.; Member of the Board of Directors ofBSP Empreendimentos Imobiliários S.A. andBSP Park Estacionamentos e Participações S.A.; and Chairman of the Board of Directors ofMPO – Processadora de Pagamentos Móveis S.A.
Previous positions: Alternate Member of the Deliberative Board of ABECIP -– Brazilian Association of Real Estate Credit and Savings Entities.Entities; and Managing Officer of Kirton Bank S.A. –Banco Múltiplo.
·Maurício Machado de Minas – DirectorDirector:
:
Birth date:July 1, 1959.
Summary of Professional Experience:He joined Banco Bradesco S.A. in July 2009 as Managing Officer. In January 2014 he was elected Executive Vice-President and sinceVice-President. From March 2018 to January 2019,has been accumulated the position ofMember of the Board of Directors.Directors and of Vice-President. As of January 2019, he was appointed only the role of Director of the Management.
Graduation:Degree in Electrical Engineering fromEscola Politécnica da Universidade de São Paulo (Poli/USP).
Other Qualifications:Specialization in Data Communications and Software Development at Wharton Business School, in the United States; university extension course in Finance at Wharton Business School, in the United States; and Executive Development Program at Columbia University in New York, United States.
Current positions:Member of the Board of Trustees and Managing Officer ofFundação Bradesco; EffectiveMember of the Consulting Committee of IBM Corporation.
Previous positions: Vice-Chairman of the Board of Directors ofBBC Processadora S.A. (formerlyFidelity Processadora e Serviços S.A.); Alternate Member of the Board of Directors ofAquarius Participações S.A., Fidelity Processadora S.A. andFidelity Serviços e Contact Center S.A.; Member of the Consulting Committee of IBM Corporation; and Member of the Board of Directors ofNCR Brasil - Indústria de Equipamentos para Automação S.A.
Previous positions: Executive Vice-President, COO (Chief Operations Officer) and an Alternate Member of the Board of Directors of CPM Braxis S.A.S.A.; Senior Analyst with Banco Itaú S.A.; Officer of Support Services of a group of Brazilian IT companies (Eletrodigi, Flexidisk and Polymax) and President of Scopus; and Member of the Board of Directors of MPO -–Processadora de Pagamentos Móveis S.A.; and Member of the Board of Directors ofNCR Brasil – Indústria de Equipamentos para Automação S.A.
·Walter Luis Bernardes Albertoni - Independent Director:
Birth date:September 29, 1968.
Summary of Professional Experience:A military lawyer for over 25 years, he has worked for several years as a third-party legal advisor to the Association of Investors in the Capital Markets - AMEC, issuing opinionsand preparing institutional statements in defense of the rights and interests of minority shareholders. In March 2017, he was elected an Effective Member of the Fiscal Council of Banco Bradesco S.A., a position he currently holds.
160 Form 20-F – December 2019
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Graduation:Degree in law fromFaculdade Paulista de Direito da Pontifícia Universidade Católica de São Paulo.
Other Qualifications:Post-Graduate degree in Civil Procedural Law from PUCSP-COGEAE; and Post-Graduate degree in Corporate Law and Tax Law from Insper.
Current positions:Legal Consultant to the Association of Investors in the Capital Market - AMEC; Full Member of the Fiscal Council of Indústrias Romi S.A.; Full Member of the Audit Committee of DATAPREV S.A.; Alternate Member of the Fiscal Council of Ser Educacional, Rumo S.A. and SANEPAR S.A.; Alternate Member of the Board of Directors of Mahle Metal Leve S.A.; Member of the Board of Directors and Coordinator of the Audit Committee of Companhia Energética de Brasília S.A.
Previous positions:Member of the Fiscal Council of Petróleo Brasileiro S.A.; Member of the Board of Directors of Paranapanema S.A.; Effective Member of the Fiscal Council of Bradespar S.A.; Alternate Member of the National Financial System Resources Council; and Alternate Member of the Fiscal Council of Mills S.A.
·Samuel Monteiro dos Santos Junior - Independent Director:
Birth date:February 5, 1946.
Summary of Professional Experience: With extensive experience in the insurance market, he began his career in 1969 at SulAmérica Seguros. In December 1999, he joined Bradesco Seguros S.A. as Vice-President, where he remained until March 2011. From November 2011 to April 2014, he served as Chief Executive Officer at BSP Empreendimentos Imobiliários S.A., where he is currently a Member of the Board of Directors. At the same time, in 2007 he was elected as an Officer at Bradesco Dental S.A., and he was elected a Member of the Board of Directors of Odontoprev S.A. in 2014, a position he currently holds.
Graduation:Degree in Accounting Sciences fromUniversidade Federal do Rio de Janeiro - UFRJ; Administration degree fromUniversidade Federal do Rio de Janeiro - UFRJ; Law degree from Universidade Candido Mendes - UCAM.
Current positions:Member of the Board of Directors of Bradesco Saúde S.A.; Member of the Board of Directors of Bradseg Participações S.A.; Member of the Board of Directors of BSP Empreendimentos Imobiliários S.A.; Member of the Board of Directors of BSP Park Estacionamentos e Participações S.A.; Member of the Board of Directors of Fleury S.A.; Alternate Member of the Board of Directors of Odontoprev S.A. and Member of the Board of Directors of Swiss RE Solutions Brasil Seguros S.A.
Previous positions:Vice-President of Bradesco Argentina de Seguros S.A.; Executive Vice-President of Bradesco Capitalização S.A.; Executive Vice-President ofBradesco SegPrev Investimentos Ltda.; Executive Vice-President of Bradesco Seguros S.A.; Executive Vice-President of Bradseg Participações Ltda.; Executive Vice-President of Bradesco Vida e Previdência S.A.; Executive Vice-President of Bradesco Auto/RE Companhia de Seguros; Executive Vice-President ofAtlântica Companhia de Seguros; Member of the Board of Directors ofEABS Serviços de Assistência e Participações S.A.; Member of the Board of Directors ofEurop Assistance Brasil Serviços de Assistência S.A.; Member of the Board of Directors of Integritas Participações S.A.; Member of the Board of Directors of IRB Brasil Resseguros S.A.; Member of the Board of Directors ofBrasildental Operadora de Planos Odontológicos.
ØMembers of the Board of Diretoria Executiva:
·Octavio de Lazari Junior, CEOChief Executive Officer:
:
Birth date:July 18, 1963.
Summary of Professional Experience:He joined Banco Bradesco S.A. in September 1978. He was promoted to the position of Executive Deputy Officer, in January 2012 and Managing Officer in February 2015 andExecutiveand Executive Vice-President in May 2017. In March 2018, he was promoted to CEO,Chief Executive Officer, the position he currently holds.
Graduation:Degree inEconomics fromFaculdade de Ciências Econômicas e Administrativas de Osasco.Osasco/SP.
Other Qualifications: Specialization courses in:in Financial and Marketing Strategies atFundação Instituto de Administração (FEA/USP),; Financial Management fromFundação Getúlio Vargas – FGV and Strategies in Finance fromFundação Dom Cabral; andAdvanced Management Program fromFundação Dom Cabral; the Advanced Management Program (AMP) taught at the IESE Business School -– University of Navarra, São Paulo.
Current positions:Member of the Board of Trustees and Managing Officer ofFundação Bradesco; ManagingMemberof the Board of Directors of BBD Participações S.A., Member of the Board of Directors of Cidade de Deus - Companhia Comercial de Participações; Chief Executive Officer of Kirton Bank NCF Participações S.A., Member of the Board of Directors and Member of the Strategic Committee of BSP Empreendimentos Imobiliários S.A. – Banco Múltiplo and, Alternate Member of the Board of Directors of Fleury S.A.; Member ofNúcleo de Altos Temas(NAT); and Member of Managing Board and Consulting Committee of FEBRABAN –Federação Brasileira de Bancos; andChief Executive Officer ofBradesco Leasing S.A. – Arrendamento Mercantil.
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Previous positions:Chief Executive Officer of Banco Bradesco BBI S.A.; Chairman of the Managing Board of ABECIP-ABECIP –Associação Brasileira das Entidades de Crédito Imobiliário e Poupança; Alternate Member of Board of Directors of CIP -– Câmara Interbancária de Pagamentos;Full Member of the Board of Directors of CIBRASEC -–Companhia Brasileira de Securitização; Member of the Council of Representatives of the CNF -–Confederação Nacional das Instituições Financeiras; Deputy Sectorial Officer of Real Estate Credit and Savings Commission and Vice-Chairman of the Committee on Governance of Portability
149 Bradesco
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of CreditLoan Operations of FEBRABAN -–Federação Brasileira de Bancos; Member of Consulting Committee of FIABCI/BRASIL - –Capítulo Nacional Brasileiro da Federação Internacional das Profissões Imobiliárias; andAlternaterias; Alternate Officer ofUniapravi -– Unión InteramerianaInteramericana para la ViviendaVivienda;and Managing Officer of Kirton Bank S.A. –Banco Múltiplo.
Josué Augusto Pancini, Vice-President:·
Mr. Pancinialso holds the position ofMember of the Board of Directors.His experience is described in “– Members of Board of Directors.”
Maurício Machado de Minas, Vice-President:
Mr. Minasalso holds the position ofMember of the Board of Directors. His experience is described in “– Members of Board of Directors.”
Marcelo de Araújo Noronha, Vice-PresidentVice-President:
:
Birth date:August 10, 1965.
Summary of Professional Experience:Mr. Noronha started his career in 1985 at Banco Banorte, where he worked until 1996 when he started to work as Commercial Officer with Banco Bilbao Vizcaya Argentaria Brasil S.A, currentlylater named Banco Alvorada S.A. and was promoted to Vice-President for products, trade finance, middle market and retail. In February 2004, heincorporated by Kirton Bank S.A. – Banco Múltiplo, where is Vice-President. He was elected Department Officer of Banco Bradesco S.A. He was electedin February 2004; Deputy Officer in December 2010 and Managing Officer in January 2012. In February 2015, he was elected Executive Vice-President, the position he currently holds, where he is responsible for credit and debit cards payments, marketing and CRM.holds.
Graduation:Business Degree inAdministration fromUniversidade Federal de Pernambuco (UFPE).
Other Qualifications:Specialization in Finance from IBMEC -–Instituto Brasileiro de Mercado de Capitais; AMP -– Advanced Management Program at IESE - –Instituto de Estudios Empresariales, Universidad de Navarra in Barcelona and Certified Member of the Board of DirectrorsDirectors of the Brazilian Institute of Corporate Governance -– IBGC.
Current positions: Member of the Board of Trustees ofFundação Bradesco; ChairmanVice-Chairman of the Board of Directors of Alelo -Companhia Brasileira de Soluções e ServiçosS.A.; Vice-ChairmanChairman of the Board of Directors of Cielo S.A. (leader accreditation entity in Brazil); Member of the Board of Directors of Elo Participações S.A.; and of Banco CBSS S.A.; Vice-President of Banco Bradescard S.A.; General Officer of Banco Bradesco BBI.; Member of the Board of Directors of BBD Participações S.A.; Vice-President of Bradesco Leasing S.A. - Arrendamento Mercantil; General Officer of BRAM - Bradesco Asset Management S.A. Distribuidora de Títulos e Valores Mobiliários and Member of the Board of Directors of Cidade de Deus - Companhia Comercial de Participações.
Previous positions:CEOChief Executive Officer of ABECS -–Associação Brasileira das Empresas de Cartões de Crédito e Serviços; and Member of the Council of Representatives (representing ABECS) of CNF -–Confederação Nacional das Instituições Financeiras.
·André Rodrigues Cano, Vice-PresidentVice-President:
:
Birth date:July 22, 1958.
Summary of Professional Experience:Mr. Cano joined Bradesco Organization in April 1977 and was elected Department Officer in December 2001. He was elected Officer of Banco Bradesco Financiamentos S.A. in September 2008, remaining in this position until his return to Bradesco as Department Officer in December 2009. He was elected Deputy Officer in December 2010, Managing Officer in January 2012 and Executive Vice-President in January 2017, the position he currently holds.2017.
Graduation:Degree inBusiness Administration from FMU -–Faculdades Metropolitanas Unidas.
Other Qualifications: MBA -– Controller fromFIPECAFI -Institutefrom FIPECAFI – Institute of Accounting, Finance and Actuarial Research -– FEA-USP; and the Advanced Management Program (AMP) -– Harvard Business School in Boston, USA.
Current positions:Member of the Board of Trustees and Managing Officer ofFundação Bradesco; Managing DirectorOfficer of Kirton Bank S.A.; –Banco Múltiplo;ltiplo; Effective Officer of the National Confederation of the Financial System – CONSIF; Vice-President of FEBRABAN -Federação Brasileira de Bancos;Vice-President and Alternate Delegate at CONSIF at FENABAN -–Federação Nacional dos Bancos; Treasury Officer of the Association of Banks of the States of São Paulo, Paraná, Mato Grosso, Mato Grosso do Sul, Acre, Amazonas, Pará,
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Amapá, Rondônia and Roraima;andRepresentative of Bradesco Group at ANBIMA -– Brazilian Association of Financial and Capital Markets Entities.Association; Vice-President of FEBRABAN –Federação Brasileira de Bancos; Member of the Board of Directors ofBBD Participações S.A.; Member of the Board of Directors ofCidade de Deus – Companhia Comercial de Participações; Member of the Board of Directors (Representing the Bradesco Organization) of CPM Holdings Limited; Member of the Board of Directors of IT Partners Limited; Vice-President ofBradesco Leasing S.A. – Arrendamento Mercantil; Vice-President ofNCF Participações S.A.; Managing Officer ofBradescard Elo Participações S.A.; and Managing Officer ofBradesco Administradora de Consórcios Ltda.
162 Form 20-F – December 2019
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Previous positions: Alternate Vice-Chairman of the Board of Directors of Chain Serviços e Contact Center S.A. (formerlyFidelity ProcessadoraServiços e ServiçosContact Center S.A.); Officer and Effective Member and Officer of the Board of Directors of TECBAN -–Tecnologia Bancária S.A.; Effective Member of the Fiscal Council of Tele Celular Sul Participações S.A.; Alternate Member of the Fiscal Council ofTele Nordeste Celular Participações S.A.S.A.; Executive Officer ofACREFI -of ACREFI –Associação Nacional das Instituições de Crédito, Financiamento e Investimento; and Vice-Chairman of the Curator Council of the National Quality Foundation – FNQ.
·Cassiano Ricardo Scarpelli - Vice-President– Vice-President:
:
Birth date:July 28, 1968.
Summary of Professional Experience:He joinedtheBradesco Organization in June 1984. In February 2001 he was promoted to Executive Superintendent. In March 2007, he was elected Department Officer, in February 2015, Deputy Officer, and in January 2017, Managing Officer. In March 2018, he was elected Executive Officer, the position he currently holds.Vice-President.
Graduation: Degree in Economics fromFaculdade de Ciências Econômicas e Administrativas de Osasco.
Other Qualifications: International Executive Program atQueen´sQueen’s School of Business - Queen´s– Queen’s Executive Program, inOntario, Canada.
Current positions: Member of the Board of Trustees and Managing Officer ofFundação Bradesco; Member of the Board of Directors ofCidade de Deus - Companhia Comercial de Participações; Member of the Board of Directors and of the Financial Risks Committee of B3 S.A. – Brasil, Bolsa, Balcão; Chairman of the Board of Regulation and Best Practices for the Capital MarketTrading Financial Instruments of ANBIMA -– Brazilian Association of Financial and Capital Markets Entities, having previously held the following positions:Association; Vice-President of the Regulation and Best Practices Board for Qualified Services to the Capital Market, and Alternate Member of the Qualified Services to the Capital Market Commission; Member of the Comittee of Products and Pricing of B3Banco Bradescard S.A., Banco Bradesco BBI S.A., Banco Losango S.A - Brasil, Bolsa, Balcão; and DeputyBanco Múltiplo, BEM - Distribuidora de Títulos e Valores Mobiliários Ltda., Bradesco Administradora de Consórcios Ltda., Bradesco Leasing S.A - Arrendamento Mercantil, Bradesco - Kirton Corretora de Câmbio S.A., NCF Participações S.A.; General Officer of Banco Bradesco BERJ S.A. andKirton Bank S.A. - Banco Múltiplo.ltiplo; Managing Officer of Banco Bradesco Financiamentos S.A., Bradescard Elo Participações S.A.andNCD Participações Ltda.; and Officer ofNova Cidade de Deus Participações S.A.
Previous positions: Member of theCâmara Consultiva de Renda Fixa, Câmbio e Derivativos of B3 S.A. - –Brasil, Bolsa, Balcão;Member of the Product and Pricing Committee of B3 S.A. –Brasil, Bolsa, Balcão; Member of the Board of Directors of Bica de Pedra Industrial S.A., CP Cimento e Participações S.A. and Latasa S.A.; Officer of Bradesco Saúde - Operadora de Planos S.A.; Effective Member of the Board of Directors ofBica de Pedra Industrial S.A.; CP Cimento e Participações S.A. Iochpe-Maxion S.A and Latasa S.A., Effective Member of the Board of Directors of Iochpe-Maxion S.A.. andTecnologia Bancária S.A.; Full Member of the Board of Directors ofTigre S.A. -– Tubos e Conexões; Effective Member of the Fiscal Council of Bradespar S.A.S.A., First Alternate Member of the Fiscal Council of Boavista Prev -– Fundo de Pensão Multipatrocinado, Alternate Member of the Board of Directors ofSão Paulo Alpargatas S.A.S.A., and Officer of BEM -Distribuidora de Títulos e Valores Mobiliários Ltda., BMC Asset Management - –Distribuidora de Títulos e Valores Mobiliários Ltda. and ofUGB Participações S.A.
·Eurico Ramos Fabri – Vice-PresidentVice-President:
:
Birth date:September29, 1972.
Summary of Professional Experience:In February 2008, he joined as Officer in Banco Finasa S.A., a financial institution acquired by Banco Finasa BMC S.A. (currently Banco Bradesco Financiamentos S.A.), as an Officer, remaining until December 2009. From July 2008 to April 2011, he held the position of Officer ofFinasa Promotora de Vendas Ltda.Ltda. In December 2010, he was elected Officer of Banco Bradesco S.A., in January 2012, Department Officer, in February 2015, Deputy Officer and, in January 2017, Managing Officer. In March 2018, he was electedpromoted to Executive Vice-President, the position he currently holds.Vice-President.
Graduation: Degree in Economic Sciences from UNICAMP -–Universidade Estadual de Campinas.
Other Qualifications: Executive MBA in Finance from Insper -–Instituto de Ensino e Pesquisa; STC Executive fromFundação Dom Cabral in partnership with Kellogg Graduate School of Management;and Advanced Management Program from Harvard Business School, Boston, EUA.USA.
Current positions:He is a Member of the Board of Trustees and Managing Officer ofFundação Bradesco; Member of the Board of Directors ofFundação Instituto Cidade de Moléstias do Aparelho Digestivo e da Nutrição; andDeus - Companhia Comercial de Participações; Chairman of theBoard of Credit Intelligence Manager.Directors of Gestora de Inteligência de Crédito S.A. andRCB Investimentos S.A.; Vice-PresidentofBanco Bradesco BBI S.A., Banco Bradesco BERJ S.A., Bradesco Leasing S.A - Arrendamento Mercantil, Bradesco - Kirton Corretora de Câmbio S.A., Kirton Bank S.A. - Banco Múltiplo and NCF Participações S.A.; General Officer ofBanco Bradescard S.A., Banco Bradesco Financiamentos S.A., Banco Losango S.A - Banco Múltiplo, BEM - Distribuidora de Títulos e Valores Mobiliários Ltda., Bradesco Administradora de Consórcios Ltda. and Bradescard Elo Participações S.A.; Managing Officer of NCD Participações Ltda.; Officer of Nova Cidade de Deus Participações S.A.
163 Bradesco
6.A. Board of Directors and Board of Executive Officers | ||
Form 20-F | ||
Previous positions: Member of the Board of Directors of CieloCielo S.A., Alelo S.A. (formerlyCompanhia Brasileira de Soluções e Serviços) andElo Participações S.A.; and Alternate Member of the Board of Directors ofAquarius Participações S.A.,FidelityBBC Processadora S.A. (formerlyFidelity Processadora e Serviços S.A.)and Chain Serviços e Contact Center S.A. (formerlyFidelity Serviços e Contact Center S.A.).; Deputy Officer of Kirton Bank S.A. -Banco Múltiplo.
151· Bradesco
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Denise Pauli Pavarina, Managing Officer:
Birth date:April 14, 1963.
Summary of Professional Experience:She started her career in March 1985, with Banco Bradesco de Investimento S.A., a financial institution that was absorbed by Banco Bradesco S.A. in November 1992. At Bradesco, she held the positions of Underwriting Manager and Department Manager of Portfolio Management. She was promoted to the position of Executive Superintendent in September 1996, and elected Department Officer in January 2001. She was elected Officer of Banco Bradesco BBI S.A. in June 2006, and Managing Officer in January 2007, remaining until December 2009, when she returned to Bradesco, and was elected Department Officer. She was elected Deputy Officer in January 2012 and Managing Officer in February 2015, the position she currently holds. In March 2018, she began to exercise, cumulatively, the role of Director of Investor Relations.
Graduation:Degree in Economics fromFaculdade Armando Alvares Penteado (FAAP); and Law from Universidade Paulista(UNIP).
Other Qualifications: Executive MBA in Finance fromInstituto de Ensino e Pesquisa (Insper) and AMP - Advanced Management Program by IESE Business School.
Current positions:Managing Officer of BRAM -Bradesco Asset Management S.A. Distribuidora de Títulos e Valores Mobiliários; Member of the Board of Trustees ofFundação Bradesco; Vice-Chairman of the Board of Directors of 2bCapital S.A.; Member of the Board of Directors, Member of the Advisory Committee for the Intermediation Sector and Member ofCommittee to Monitor the Integration of B3 S.A. - Brasil, Bolsa, Balcão;Member of the Market Advisory Board of BSM - BM&FBOVESPA SUPERVISÃO DE MERCADOS, as a representative of the Board of Directors of B3 S.A. - Brasil, Bolsa, Balcão; Member ofBoard of Directors and of the Sustainability Committee of Vale S.A.; and Vice-President of Task Force on Climate-related Financial Disclosures (TCFD).
Previous positions:President of ANBIMA - Brazilian Association of Financial and Capital Markets Entities; Member of the Board of Representatives of the CNF (Confederação Nacional das Instituições Financeiras); Member of the Board of Directors ofCielo S.A.; Member of National Committee for Financial Education (representing ANBIMA) - CONEF; Member of Board of Directors ofBica de Pedra Industrial S.A.; Member of Board of Directors ofCompanhia Siderúrgica Belgo-Mineira; Deputy Member of the Board of Directors of CPM Braxis S.A.; Member of the Board of Directors of Latasa S.A.; Effective Member of the Board of Directors of São Paulo Alpargatas S.A.; Alternate Member of the Managing Board of ABRASCA - Associação Brasileira das Companhias Abertas; Member of the Consulting Board of the Brazilian Association of Brokers and Dealers in Securities, Foreign Exchange and Commodities - ANCORD; Officer ofUGB Participações S.A.; and Officer for Institutional Relations and Director of the Association of Capital Market Investment Analysts - APIMEC São Paulo;Member of IT Committee of B3 S.A. - Brasil, Bolsa, Balcão;Member ofInvestment Committee of NEO Capital Mezanino Fundo de Investimento em Participações;Member of Board of Directors of Instituto BRAiN - Brasil Investimentos & Negócios; Effective Member of the Board of Directors of Valepar S.A.
Moacir Nachbar Junior, Managing OfficerOfficer:
:
Birth date:April 5, 1965.
Summary of Professional Experience:He began his career with Banco Bradesco S.A. in June 1979. In March 2005, he was elected Department Officer. He was elected Deputy Officer in January 2012 and Managing Officer in February 2015, the position he currently holds.Inholds. In March 2018, he became responsible for risk management -Risk Management of Organization, being elected as Chief Risk Officer (CRO)(“CRO”).
Graduation:Degree in Accounting fromFaculdade Campos Salles.
Other Qualifications: “Latu“Lato Sensu” postgraduate degree in Financial Management fromFaculdade de Administração e Ciências Contábeis Campos Salles; MBA-Controller from FIPECAFI -– Institute of Accounting, Finance and Actuarial Research (FEA-USP); and Tuck Executive Program from Tuck School of Business at Dartmouth, in Hanover, New Hampshire – USA;
Current positions:Member of the Board of Trustees ofFundação Bradesco; Alternate Member ofAdvisory Board of the Fundo Garantidor de Créditos (Credit Guarantor Fund) – FGC; Member of Self-regulation Council of the Brazilian Federation of Banks – FEBRABAN; Managing Director of Kirton Bank S.A. - Banco Múltiplo; Alternate Member of the Board of Directors and Member of the Controlling and of Compliance and
152Form 20-F – December 2017
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Risk Committees of Vale S.A.; and Member of the Managing Board, and Member of the Audit and Accounting Standards Committee and Member of the Capital Market Committee of ABRASCA -–Associação Brasileira das Companhias Abertas; Member of the Board of Directors of CPM Holdings Limited and of T Partners Limited; Alternate Member of Advisory Board of theFundo Garantidor de Créditos – FGC; Vice-Chairman of the Board of Directors of2bCapital S.A.; Managing Officer ofÁgora Corretora de Seguros S.A., Banco Bradescard S.A., Banco Bradesco BBI S.A., Banco Losango S.A. - Banco Múltiplo, Bankpar Brasil Ltda., BBC Processadora S.A. (formerlyFidelity Processadora e Serviços S.A.), Bradesco Administradora de Consórcios Ltda., Bradesco-Kirton Corretora de Câmbio S.A., Bradesco Leasing S.A. - Arrendamento Mercantil, Kirton Bank S.A. -Banco Múltiplo, Nova Marília Administração de Bens Móveis e Imóveis Ltda. and Tempo Serviços Ltda.; and Member of the Board of Directors of Banco Bradesco Europa.
Previous positions:He was an Officer and Effective Member of the Fiscal Council ofBoavistaPrev -–Fundo de Pensão Multipatrocinado, a multi-sponsor pension fund,fund; Member of Self-regulation Banking Council of FEBRABAN – Federação Brasileira de Bancos; an Alternate Member of the Board of Directors ofBBC Processadora S.A. (formerlyFidelity Processadora S.A.,e Serviços S.A.), and Alternate Member of the Fiscal Council ofTop Clube Bradesco, Segurança, Educação e Assistência Social;and FullMember Full Member of the Board of Directors of Valepar S.A.; and Alternate Member of the Board of Directors and Member of the Compliance and Risk Committee of Vale S.A.
·Renato Ejnisman, Managing OfficerOfficer::
Birth date:February 12, 1970.
Summary of Professional Experience:In April 1999, he began his career in the financial market at Bank of America, where he worked until February 2007, with a short spell at Bank Boston during this period. In February 2007, he joined Banco Bradesco BBI S.A., as an Executive Superintendent. In April 2008, he was elected Officer and, in February 2011, Managing Officer and General Officer in February 2015. At Banco Bradesco S.A., he was elected Deputy Officer in February 2015 and, in January 2017, Managing Officer, a position he holds simultaneously with the position of General Director of Banco Bradesco BBI S.A.currently holds.
Graduation:Degree inPhysics from USP -–Universidade São Paulo.
Other Qualifications:Master’s degree in Nuclear Physics fromUniversidade São Paulo (USP) and a Doctoral degree in Physics from the University of Rochester, New York, USA.
Current positions:Member of the Board of Trustees of Fundação Bradesco;Chairman of the Board of Regulation and Best Practices for the Capital MarketMarket; Vice-President of ANBIMA -– Brazilian Association of Financial and Capital Markets Entities;Association; and Vice-Chairman of the Board of Directors of Banco Bradesco Europa; Vice-Chairman of the Board of Directors of Bradesco Securities Hong Kong Limited,Limited; Managing Officer of Banco Bradesco Securities, Inc.BBI, Bradesco-Kirton Corretora de Câmbio S.A., Bradesco Leasing S.A. – Arrendamento Mercantil and Bradesco Securities UK Limited.; and Member of the Board of Trustees ofFundaçãoBRAM - Bradesco Asset Management S.A. Distribuidora de Títulos e Valores Mobiliário.s, Officer of Brasilia Cayman Investments II Limited and Brasilia Cayman Investments III Limited.
164 Form 20-F – December 2019
Table of Contents | ||
Form 20-F | ||
Previous positions:Chief Executive Officer ofBradesco S.A. Corretora de Títulos e Valores Mobiliários,Ágora Corretora de Títulos e Valores Mobiliários S.A. andÁgora Educacional Ltda.; Effective Member ofCâmara Consultiva de Listagem of BM&FBovespaB3 S.A. –Brasil, Bolsa, de Valores, Mercadorias e Futuros; andBalcão; Alternate Member of the Managing Board of ABRASCA - –Associação Brasileira das Companhias Abertas.Abertas; and Vice-Chairman of the Board of Directors of Bradesco Securities, Inc. and Bradesco Securities UK Limited.
·Walkiria Schirrmeister Marchetti, Managing OfficerOfficer::
Birth date:November 1, 1960.
Summary of Professional Experience:She joined Banco Bradesco S.A. in May 1981. In September 1998, she was promoted to the position of Executive Superintendent. In March 2007, she was elected Department Officer, in February 2015, Deputy Officer, and in January 2017, Managing Officer, the position she currently holds.
Graduation:Degree inMathematics fromFaculdade de Ciências e Letras Teresa Martin.
Other Qualifications:Specialization in System Analysis fromInstituto Presbiteriano Mackenzie; “Latu“Lato Sensu” postgraduate degree -– MBA Banking fromFundação Instituto de Administração -– FIA; and International Executive Programs at the Wharton School -– Strategic Thinking and Management for Competitive Advantage Program -– Pennsylvania -– USA; Columbia Business School -– Columbia Senior Executive Program -– New York -– USA; and Harvard Business School -– Negotiation and Competitive Decision Making -– Boston -– USA.
Current positions:Member of the Board of Trustees ofFundação Bradesco; and Alternate Member of the Board of Directors ofAquarius Participações S.A.,ofFidelity Processadora S.A. and ofFidelity Serviços e Contact Center S.A.Bradesco.
Aurélio Guido Pagani, Deputy Officer:·
Birth date: March 7, 1960.
Summary of Professional Experience: He joined Banco Bradesco S.A. in February 1979. In November 1991, he was promoted to the position of Branch Manager. In August 2001, he was elected Officer, in August 2010, Department Officer and, in January 2017, Deputy Officer, position he currently holds.
Graduation:Business Administration fromUniversidade São Francisco.
153 Bradesco
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Other Qualifications: “Lato Sensu” Postgraduate degree (MBA) in Financial Management and Corporative Strategies fromFundação Getulio Vargas; andAMP -Advanced Management Program from IESE Business School - University of Navarra, São Paulo, SP.
Current positions: Member of the Board of Trustees ofFundação Bradesco; Full Representative of Permanent Forum of Micro and Small Enterprises; Sitting Vice-President of the Managing Board and Effective Member of the Deliberative Board of the Brazilian Association of Real Estate Credit and Savings Entities - ABECIP; Full Member of the Regional Board in Osasco at the Board of the São Paulo Industrial Employers Association – CIESP (CIESP Castelo); and Member of Consulting Board of the Brazilian National Chapter of the International Real Estate Federation - FIABCI/BRASIL.
Previous positions: Vice-Chairman of Union of Banks in the State of Rio Grande do Sul and Santa Catarina and Alternate Delegate of the Board of Brazilian Federation of Banks (FENABAN); Second Vice-President of Association of Banks in the State of Rio Grande do Sul; and Effective Director of Association of Banks in the States of Pará, Amapá, Amazonas and Acre.
Guilherme Muller Leal, DeputyManaging Officer:
Birth date: November 12, 1967.
Summary of Professional Experience: He joined, in August 1999, Banco Bilbao Vizcaya Argentaria Brasil S.A., currently denominated Banco Alvorada S.A., reaching the position of Corporate Deputy Officer. In September 2003, was transferred to Banco Bradesco S.A., and in June 2007, he was promoted to the position of Executive Superintendent, in February 2011, he was elected Officer, in January 2012, Department Officer, and in January 2017, Deputy Officer the position he currently holds.and in January 2019, promoted to Executive Managing Officer.
Graduation: Degree in Economics fromUniversidade Santa Úrsula -– USU.
Other Qualifications: “Lato Sensu” Postgraduatepostgraduate degree with specialization in Corporate Finance fromPontifícia Universidade Católica do Rio de Janeiro -– PUC-Rio; and Executive Development Program (Programa de Desenvolvimento de Executivos – PDE) fromFundação Dom Cabral, and the following international executive programs: Authentic Leadership Development and Behavioral Economics: Designing Strategic Solutions For Your Customer and Your Organization from Harvard Business School -– Boston, Massachusetts - EUA,– USA, Executive Education Program from New York Trend Consulting -– NYTC -– New York -– USA, Wharton Advanced Management Program and Executive Negotiation Workshop: Bargaining for Advantage by University of Pennsylvania -– The Wharton School -– Philadelphia -– Pennsylvania -– USA, and Leadership at the Peak Program from Center for Creative Leadership Staff and Leadership at the Peak Participants -– Colorado Springs -– USA.
Current position: Member of the Board of Trustees ofFundação Bradesco.
Luiz Carlos Brandão Cavalcanti Junior, Deputy Officer:
Birth date: March 2, 1962.
Summary of Professional Experience: He joined Banco Econômico S.A. in September 1983, an entity initially acquired by Banco Excel Econômico and later on by BBVA (Banco Bilbao Vizcaya Argentaria Brasil S.A.). In September 2003, he was transferred to Banco Bradesco S.A. in the position of Executive Superintendent, inMarch 2005, he was elected Department Officer of the Department of Marketing and Digital Channels and, in January 2017, Deputy Officer responsible for the area of research, innovation, Digital Channels and Next, position he currently holds.
Graduation: Economics fromFaculdade Católica de Ciências Econômicas da Bahia.
Other Qualifications: MBA in Advanced Management Program from Amana-Key; Strategic Planning and Implementation from Universidade of Michigan Business-SP; Business negotiation Course from FGV; Management Model Course, Culture and Values from University of NAVARRA - IESE - Spain and from FGV; Making Strategy Work: Leading Effective Execution - Wharton Executive Education from University of Pennsylvania - Philadelphia, USA; Advanced Executive Program - Kellogg School of Management from Northwestern University - Chicago, USA; Program Executive Education Communication - New York Trend Consulting - NYTC- New York, USA; Strategic Cost Analysis For Managers - Massachusetts Institute of Technology - MIT - Boston, USA; Implementing Improvement Strategies: Practical Tools and Methods -
154Form 20-F – December 2017
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Massachusetts Institute of Technology - MIT - Boston, USA; Authentic Leadership Program - Harvard Business School - Boston, Massachusetts, USA; and The Leadership at the Peak Program - Center for Creative Leadership Staff and Leadership at the Peak Participants, USA.
Current positions: Member of the Board of Trustees ofFundação Bradesco; and Effective MemberManaging Officer of the Board of Directors of TecBanBanco Bradesco BERJ S.A. and Bradesco Leasing S.A. - Tecnologia Bancária S.A.Arrendamento Mercantil.
Previous positions:positions Chairman: Managing Officer of the Fiscal Council of Associação Escola Superior de Propaganda e Marketing.Banco Bradesco Cartões S.A.
·Rogério Pedro Câmara, DeputyManaging Officer:
Birth date: October 5, 1963.
Summary of Professional Experience: He joined Banco Bradesco S.A. in June 1983. In December 2008, he was promoted to the position of Executive Superintendent, inSuperintendent. In June 2011, he was elected OfficerOfficer; in January 2012, Department Officer andOfficer; in January 2017, Deputy Officer, the position he currently holds.and in January 2019, Executive Managing Officer.
Graduation: BusinessDegree in Administration fromUniversidade Paulista -– UNIP.
Other Qualifications: MBA in Controller fromFundação Instituto de Pesquisas Contábeis, Atuariais e Financeiras da Universidade de São Paulo -– FIPECAFI/USP; “Latu“Lato Sensu” postgraduate degree and MBA with specialization in Knowledge, Innovation and Technology fromFundação Instituto de Administração – FIA (FEA/USP); International Module -– MBA in Knowledge, Innovation and Technology from Bentley College -– Waltham Massachusetts – USA; Advanced Management Program fromFundação Dom Cabral; Advanced Management Program -– IESE Business School from University of Navarra, São Paulo, SP; International Executive Programs: Changing the Game: Negotiation and Competitive Decision Making from Harvard Business School -– Boston, USA; Customer -– Focused Innovation Program and Leading Change and OrganizationalandOrganizational Renewal Program from Stanford University Graduate School of Business -– California, USA; Making Strategy Work: Leading Effective Execution and Strategic Thinking and Management for Competitive Advantage Program from The Wharton School -– Philadelphia, USA; The Leadership at the Peak programProgram from Center for Creative Leadership -– Colorado Springs, USA; and The Advanced Strategy Program: Building and Implementing Growth Strategies, High Performance Leadership and in The Executive Development Program from The University of Chicago Booth School of Business -– Chicago, USA.
165 Bradesco
6.A. Board of Directors and Board of Executive Officers | ||
Form 20-F | ||
Current positions: Managing Officer of Banco Bradescard S.A.,Bradesco-Kirton Corretora de Câmbio S.A.,BBC Processadora S.A. (formerlyFidelity Processadora S.A.) andKirton Bank S.A. – Banco Múltiplo; Member of the Board of Trustees ofFundação BradescoBradesc; and Officer of Kirton Bank S.A. – Banco Múltiplo; and Alternativeo; Alternate Member of the Board of Directors of the Interbank Payment Chamber - CIP; Officer ofCâmara InterbancáriaScopus Desenvolvimento de PagamentosSistemas Ltda., Scopus Soluções em TI Ltda – CIP.. andShopFácil Soluções em Comércio Eletrônico S.A.
Previous positions: Alternate Member of the Fiscal Council of theTop Clube Bradesco,Segurança, Educação e Assistência Social.; and Officer of Scopus Industrial S.A.
·João Carlos Gomes da Silva, DeputyManaging Officer:
Birth date:January 20, 1961.
Summary of Professional Experience:He joined Banco Bradesco S.A. in June 1981, and was promoted to the position of Branch Manager in May 1992, and Regional Manager in April 2004. In December 2009, he was elected Regional Officer,Officer; in January 2012, Departmental Officer andOfficer; in February 2017, Deputy Officer the position he currently holds.and in January 2019, Executive Managing Officer.
Graduation:Degree in Accounting Sciences fromFaculdade de Administração e Economia (FAE)(“FAE”).
Other Qualifications:Postgraduate MBA in Business Management and Executive MBA in Distance-learning Business Administration -– Emphasis on Banking by FGV;theFundação Getúlio Vargas (“FGV”); and AMP -– Advanced Management Program from IESE Business School -– University of Navarra, São Paulo.
Current Positions:Member of the Board of Trustees ofFundação Bradesco; Managing Officer of Banco Losango S.A. - Banco Múltiplo; and Managing Officer of Bradesco Administradora de Consórcio Ltda.
Previous positions: Member of the Management Committee for the Portability of CreditLoan Operations of FEBRABAN – Brazilian Federation of Banks.
Previous Positions:Federação Brasileira de Bancos; Member of the Consulting Committee of the Commerce Association of São Paulo; Sitting Vice-President of the Managing Board and Effective Member of the Deliberative Board of ABECIP -– Brazilian Association of Real Estate Credit and Savings Entities; Alternate Member of the Board of Directors of CIP - –Câmara Interbancária de Pagamentos;Pagamentos; Vice-President and SittingFull Member of Board of Directors of CIBRASEC - –Companhia Brasileira de Securitização;o; Full Member of the Board of the São Paulo Industrial Employers Association (Centro das Indústrias do Estado de São Paulo, CIESPCastelo); Alternate Member
155 Bradesco
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of Managerial Council of Housing Guarantee Fund – CGFGH; Member of the Consulting Board of FIABCI/BRASIL -– Brazilian National Chapter of the International Real Estate Federation; Secretary Officer of ABEL -– Brazilian Leasing Companies Association; Vice-Chairman of the Managing Board of ACREFI;Associação Nacional das Instituições de Créditos, Financiamentos e Investimento; Sector Officer of the Banking Services Committee; Sector Officer of the Credit Products PJ (for Legal Entities); Associatecorporate entities)Deputy Officer of the Executive Committee of Banking Products PF (for Individuals) of FEBRABAN – Brazilian Federation of Banks;Federação Brasileira de Bancos; and Chief Secretary Officer of theSindicato Nacional das Empresas de Arrendamento Mercantil (Leasing).
·Bruno D’Avila Melo Boetger, Diretor Adjunto:Managing Officer:
Birth date:June 17, 1967.
Summary of Professional Experience:He began his career in 1994 at Citicorp Securities Inc., in New York (USA), where he worked until 1996. From 1997 to March 2007 he worked at the Salomon Brothers Inc. companies and Citigroup Global Markets Inc. (USA), andSalomon Smith Barney Representações Ltda.Ltda. In April 2007, he joined Banco Bradesco BBI S.A. as Executive Superintendent and, in April 2008, he was elected Officer, and remained in the position until March 2012. In August 2011, he also began to work in Banco Bradesco S.A. as General Manager in the branch of New York (USA), remaining in the position until January 2014, so than was elected Department Officer. In December 2017, he was elected Executive Deputy Officer, positionOfficer. In January 2019 he currently holds.was promoted to Executive Managing Officer.
Graduation: BusinessDegree in Administration byEscola de Administração de Empresas de São Paulo da Fundação GetulioGetúlio Vargas -– FGV/EAESP.
Other Qualifications: Master’s degree in Business Administration -– Concentration in Finance from Cornell University -– Johnson Graduate School of Management -– Ithaca, New York; and Senior Executive Program -– Strategy, Leadership and Transformation by London Business School -– Education of Executives – - London, England.
166 Form 20-F – December 2019
Table of Contents | ||
Form 20-F | ||
Current Positions: Member of the Managing Board of Trustees ofFundação Bradesco; MemberManaging Officer of Banco Losango S.A. - Banco Múltiplo and Bradesco-Kirton Corretora de Câmbio S.A.; Vice-Chairman of the Board of Directors of Bradesco Securities, Inc. and Bradesco Securities UK Limited.
Previous Positions: Managing Officer of Banco Bradesco EuropaCartões S.A.; Chief Executive Officer of Bradesco North America LLC and Bram US LLC (USA); Vice-President of Salomon Brothers Inc. - New York, USA; Member of the International Business Sector Committee of FEBRABAN -Federação Brasileira de Bancos; Manager of Bradesco Overseas Funchal - Consulting Services,Sociedade Unipessoal Lda.; and Officer of Banco Bradesco Argentina S.A., Citigroup Global Markets Inc. - New York, USA, andSalomon Smith Barney Representações Ltda. - São Paulo, Brazil.
Previous Positions: CEO of Bradesco North America LLC and of Bram US LLC (USA); and Manager of Bradesco Overseas Funchal - Consulting Services, Sociedade Unipessoal Lda.
·Glaucimar Peticov – DeputyManaging Officer:
Birth Date:March 18, 1963.
Summary of Professional Experience:She began his career in August 1984, withBanco Econômico S.A.S.A., then withBanco Excel Econômico S.A.S.A., and then withBanco Bilbao Vizcaya Argentaria Brasil S.A.S.A., currentlylater named Banco Alvorada S.A. and incorporated by Kirton Bank S.A. -Banco Múltiplo. In September 2003, she was transferred to Banco Bradesco S.A., and in December 2009, promoted to the position of Executive Superintendent and, in June 2011, she was elected Department Officer, reporting to the Human Resource Department and to UNIBRAD -–Universidade Corporativa Bradesco and, in March 2018, she was elected Deputy Officer position she currently holds.and in February 2020, was promoted to Managing Officer.
Graduation: Degree in Psychology by fromUniversidade São Marcos.Marcos.
Other Qualifications: “Lato Sensu” Postgraduate degree in Human Resource Management byfromFundação Armando Alvares Penteado – CENAP; Specialization in Marketing -– FGV (2006);Advanced Management, administered byFundação Dom Cabral; International Executive Programs: Strategic Human Resource Planning, by University of Michigan Business School -– Ann Arbor, Michigan, EUA;USA; Senior Executive Program, by Columbia Business School – New York, EUA;USA; Negotiation and Competitive Decision-Making, by Harvard Business School -– Boston, EUA;USA; and Leadership at the Peak Program, by the Center for Creative Leadership -– Colorado, EUA.USA.
Current Positions: Member of Managing Board of Trustees ofFundação Bradesco; Officer of ADC Bradesco - Sports Association; Chief Executive Officer of ARFAB -–Associação Recreativa dos Funcionários da Atlântica-Bradescoand of Clube Bradesco de Seguros; Member of Consulting Board of Global Council of Corporate Universities (GlobalCCU); and Secretary Officer of SINDICREFI -– Union of the Credit, Financing and Investing Companies of the State of São Paulo;Paulo.
Previous Positions: Officer ofADC Bradesco – Associação Desportista Classista; Secretary Officer of FENACREFI –Federação Interestadual das Instituições de Crédito, Financiamento e Investimento; Officer of Generation and AlternateManagement of Knowledge and Content Officer of ABRH – Brazil –Associação Brasileira de Recursos Humanos; Member of the Deliberative Council of FEBRACORP Live University; and Deputy Member of the Fiscal Council ofTop Clube Bradesco, Segurança, Educação e Assistência Social.
Previous Positions: Generation and Management of Knowledge and Content Officer of ABRH - Brazil -
156·Form 20-F – December 2017
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Associação Brasileira de Recursos Humanos; Secretary Officer of FENACREFI - Federação Interestadual das Instituições de Crédito, Financiamento e Investimento; and Member of the Deliberative Council of FEBRACORP Live University.
José Ramos Rocha Neto – DeputyManaging Officer:
Birth date: December 8, 1968.
Summary of Professional Experience: HeIn May 2000, he joined Banco Bilbao Vizcaya Argentaria Brasil S.A. in May 2000 as Corporate Branch Officer, currently, later named Banco Alvorada S.A., and incorporated by Kirton Bank S.A. - Banco Múltiplo, where he also held the position of Executive Superintendent responsible for Trade Finance and Business Development. In September 2003, he was transferred to Banco Bradesco S.A., and in December 2009, he was elected Officer and in June 2011, Department Officer. In March 2018, he was elected Deputy Officer, positionand in February, 2020, he currently holds.was elected Managing Officer.
Graduation: Accounting Sciences byDegree in Economics from UFPE -–Universidade Federal de Pernambuco.
Other Qualifications: “Lato Sensu” postgraduate degree in Business Administration byfrom CEAG -–Fundação Getúlio Vargas –- FGV – EAESP; and International Executive Programs at Wharton Business School, Harvard Business School, IESE Business School and Center for Creative Leadership and Executive Development Program atFundação Dom Cabral, Stanford University School of Business and at Amana Key.
Current Positions: Member of the Board of Trustees ofFundação Bradesco; Sitting Vice-President of the Managing Board and Effective Member of the Deliberative Body of ABECIP - Brazilian Association of Real Estate Credit and Savings Entities; Chairman of the Distribution Forum of ANBIMA - Brazilian Financial and Capital Market Association;Officer ofBEM – Distribuidora de Títulos e Valores Mobiliários Ltda.; Superintendent Officer ofBradesco Administradora de Consórcios Ltda.;and Deputy Director of Bradesco Leasing S.A. – Arrendamento Mercantil.
Previous Positions: President and Full Member ofComitê de Distribuição de Produtos no Varejo (Committee of Distribution of Products in Retail) of ANBIMA – Brazilian Financial and Capital Markets Association;Superintendent Officer of BEC - Distribuidora de Títulos e Valores Mobiliários Ltda; Officer ofBRAM -– Bradesco Asset Management S.A.Distribuidora de Títulos e Valores Mobiliários; Member of the Managing BoardOfficer ofFundaçãKirton Gestão Bradescode Recursos Ltda.; and President and Sitting Member of Comitê de Distribuição de Produtos no Varejo (Committee of Distribution of Products in Retail) of ANBIMA - Brazilian Association of Financial and Capital Markets Entities.
Previous Positions: Member of the Plenary Board and Member of the Consulting Committee of the Commerce Association of São Paulo – ACSP; Alternate Member of the Board of Directors of CIBRASEC -–Companhia Brasileira de Securitização; and Member of the Management Committee for the Portability of CreditLoan Operations of FEBRABAN –Federação Brasileira de Bancos.
167 Bradesco
6.A. Board of Directors and Board of Executive Officers | ||
Form 20-F | ||
·Antonio José da Barbara, Deputy Officer:
Birth date: December 21, 1968
Summary of Professional Experience: He began his career at Banco Bradesco S.A. in June 1984. In May 2009, was elected Officer, responsible for the General Secretariat and, in December of the same year, became Department Officer. In January 2019, was promoted to Executive Deputy Officer.
Graduation: Degree in Administration fromCentro Universitário Anhanguera de São Paulo (Ibero-Americano).
Other Qualifications: “Lato Sensu” postgraduate degree in Financial Administration fromFundação Escola de Comércio Álvares Penteado (FECAP).
Current Positions: Member of the Board of Trustees ofFundação Bradesco; Officer of Banco Bradesco BBI S.A.; Deputy Officer of Bradesco Leasing S.A. – Arrendamento Mercantil; and Effective Member of the Fiscal Council ofTop Clube Bradesco, Segurança, Educação e Assistência Social.
Previous Positions: Effective Member of the Fiscal Council of Bradespar S.A.; Deputy Member of the Fiscal Council ofBoavista Prev – Fundo de Pensão Multipatrocinado, of Vale S.A. and of Cielo S.A.; and Officer ofNCD Participações Ltda.
·Edson Marcelo Moreto, Deputy Officer:
Birth date: January 16, 1970
Summary of Professional Experience: He joinedBanco Excel Econômico S.A. in October 1996, an entity initially acquired byBanco Bilbao Vizcaya Argentaria Brasil S.A., later named Banco Alvorada S.A. and incorporated by Kirton Bank S.A. - Banco Múltiplo. In September 2003 was transferred to Banco Bradesco S.A. as Loan Manager and, in August 2010, was promoted to Executive Superintendent. In March 2014 was elected Officer, in February 2015, Department Officer and, in January 2019, Executive Deputy Officer.
Graduation: Degree in Art Education fromFaculdades Integradas Teresa D’Ávila (FATEA); and Electrical Engineering degree from theUniversidade Santa Cecília (UNISANTA).
Current Positions: Member of the Board of Trustees ofFundação Bradesco; Member of the Board of Managers ofBradescard Mexico, Sociedad de Responsabilidad Limitada; Member of the Loan Committee ofElo Serviços S.A.; Full Member of the Executive Committee of the Credit Environment of theFEBRABAN –Federação Brasileira de Bancos; Deputy Member of the Board of Executive Officers ofGestora de Inteligência de Crédito S.A. -QUOD; and Member of the Board of Directors of RCB Investimentos S.A.
Previous Positions: Commercial Manager ofBanco Safra S.A., from March to August 1996, and ofBanco Nacional S.A., from 1985 to 1996,and Deputy Officer of Banco Bradesco Cartões S.A.
·José Sergio Bordin, Deputy Officer:
Birth date:February 26, 1968
Summary of Professional Experience: He joinedBanco Excel Econômico S.A. in September 1996, an entity initially acquired byBanco Bilbao Vizcaya Argentaria Brasil S.A., currently denominatedBanco Alvorada S.A. In September 2003, was transferred to Banco Bradesco S.A., and in December 2009, he was elected Regional Officer, remained in the position until January 2014, so then he was elected Managing Officer ofBradesco Capitalização S.A., remaining in this position until January 2015, when he was elected General Officer ofBradesco Auto/RE Companhia de Seguros, the company he worked for until October 2017. From March to December 2017, held the position of General Officer ofBradesco Administradora de Consórcios Ltda., returning to Banco Bradesco in December 2017, as Department Officer. In January 2019, was promoted to Executive Deputy Officer.
Graduation: Degree in Accounting fromFaculdade de Ciências Contábeis e Atuariais da Alta Noroeste.
Other Qualifications: In Company MBA “Banking Affairs” by theFundação Getúlio Vargas – Escola de Administração de Empresas de São Paulo (FGV/EAESP); and the Advanced Management Program from the University of Navarra (IESE), São Paulo.
168 Form 20-F – December 2019
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Form 20-F | ||
Current Positions: Member of the Board of Trustees of Fundação Bradesco.
Previous Positions: General Officer ofAtlântica Companhia de Seguros, Bradesco Administradora de Consórcios Ltda.,Bradesco Seguros S.A.,Bradseg Participações S.A.,Bradseg Promotora de Vendas S.A., BSP Affinity Ltda., Ipê Holdings Ltda.,Kirton Participações e Investimentos Ltda. andKirton Seguros S.A.; Member of the Business Council of Insurance and Reinsurance of the Commercial Association of Rio de Janeiro - ACRJ; Member of the National Council (representing Bradesco Administradora de Consórcios Ltda.) in ABAC - Brazilian FederationAssociation of Banks.Consortium Administrators and SINAC - National Union of Consortium Administrators; Vice-President of theFederação Nacional de Seguros Gerais (FenSeg.); and Officer of theAssociação de Bancos no Estado do Rio de Janeiro (ABERJ), of theSindicato dos Bancos do Estado do Rio de Janeiro (SBERJ) and of theFederação Nacional de Capitalização (FenaCap).
·Leandro de Miranda Araujo, Deputy Officer:
Birth date: December 11,1971.
Summary of Professional Experience: In July 2011 was hired inBanco Bradesco BBI S.A. as Executive Superintendent. In February 2015 was elected Managing Officer. In January 2019, joined Banco Bradesco S.A., being elected Deputy Executive Director and taking the role of Investor Relations Officer.
Graduation: Degree in Law fromUniversidade do Estado do Rio de Janeiro (UERJ).
Other Qualifications: Executive MBA fromInstituto Brasileiro de Mercado de Capitais (IBMEC); and MBA from the University of Michigan Business School (UMBS), USA.
Current Position:Member of the Board of Directors and Chief Executive Officer of 2bCapital; Deputy Officer and Investor Relations Officer of Bradesco Leasing - Arrendamento Mercantil; Deputy Officer and Investor Relations Officer of NCF Participações S.A.
Previous Positions: Managing Officer of Banco Bradesco BBI S.A.; Alternative Investments Manager at Credit Suisse Asset Management S.A.; Manager, Partner of Fixed Income atBTG Invest Ltda./Banco BTG Pactual S.A.; President at Principal Partners Ltda.; Capital Markets Executive Officer atBanco Santos S.A.; Debt Capital Markets Manager atBanco Santander S.A.; International Debt Capital Markets ManagerBanco Bozano, Simonsen S.A.; Corporate Finance Manager atBanco Liberal S.A. and Legal Intern atBanco BBM S.A.
·Roberto de Jesus Paris, Deputy Officer:
Birth date: September 15, 1972.
Summary of Professional Experience: He began at Bradesco S.A. in January 1987. He was promoted to the position of Executive Superintendent in May 2007. In June 2011, he was elected Officer. In February 2015, Department Officer and in January 2019, Deputy Officer.
Graduation: Degree in Administration fromUniversidade Paulista – UNIP.
Other Qualifications: “Lato Sensu” Postgraduate Degree –Executive MBA in Finance, with focus on Market Finance, fromInstituto de Ensino e Pesquisa (Insper); Executive Education Program from the Graduate School of Business – Columbia University, New York, USA.; and Chartered Financial Analyst Certification (CFA) by the CFA Institute, Virginia, USA.
Current Positions: Sectoral Director of the Executive Committee of Treasury Operations of FEBRABAN –Federação Brasileira de Bancos;Member of the Board of Trustees – Fundação Bradesco; Bradesco Representative in the ANBIMA - Brazilian Financial and Capital Markets Association; and External Member of Products and Pricing Committee ofB3 S.A. - Brasil, Bolsa, Balcão.
Previous Positions: Vice-President of the Treasury Affairs Committee of ANBIMA - Brazilian Financial and Capital Markets Association; and Member of the Board of Directors and of the Pricing Committee ofCETIP S.A. – Mercados Organizados.
The maximum global compensation of our members of the Board of Directors and Board of Executive Officers are established at the Annual Shareholders' Meetings,Shareholders’ Meetings. These bodies comprise our Executive Officers, Department Officers, Officers, Regional Officers and Officers of our subsidiaries.subsidiaries for the ensuing year. In 2017,2019, our shareholders set the global compensation for our Board of Directors and our Board of Executive Officers and our subsidiaries at R$468.7 million.866.4 million, and part of this refers to the social security contribution to the INSS.
169 Bradesco
6.C. Board Practices | ||
Form 20-F | ||
In 2017,2019, our Directors, our Board of Executive Officers and Officers of our subsidiaries received aggregate compensation of R$456.3852.9 million for their services. Partservices, and part of this refers to the Management´ssocial security contribution to the INSS. Regarding the Management’s compensation, is variable.part of it was paid as variable compensation. The current compensation policy mandates that 50.0% of the net variable compensation amount is meantintended for the acquisition of BBD Participações S.A. preferred shares (PNB shares)(“PNB BBD shares”) and/or of our preferred shares issued by Bradesco (“PN Bradesco shares”), which are saved and are unavailable (restricted shares) to be paid in three annual sequential installments. The first installment is due a year after the payment date. This policy complies with CMN Resolution No. 3,921/10, which regulates compensation policies for senior management of financial institutions.
Our Directors, our Board of Executive Officers and Officers of our subsidiaries have the right to participate in the same pension plans available to all our employees. In 2017,addition, Managers are entitled to a Pension Plan that aims to ensure that their performance is in line with the sustainability of the business and the creation of long-term values for us. The composition of compensation and the post-employment benefit are based on management's alignment with our short-, medium- and long-term results and risks, as well as them being justified as a means to retain knowledgeable and high quality Managers among our staff members. In 2019, we contributed R$473.7468.1 million to pension plans on behalf of our Directors, members of our Board of Executive Officers and officers of our subsidiaries.
As a result of the COVID-19 pandemic, the CMN, by means of the Resolution No. 4,797/20, vetoed the increase in fixed or variable compensation of our officers and directors until September 30, 2020.
Our shareholders elect the members of our Board of Directors at the annual shareholders’ meetingAnnual Shareholders’ Meeting for one-yeartwo-year terms and membersthe directors may be re-elected for consecutive terms. The Board of Directors appoints the members of our Board of Executive Officers for one-yeartwo-year terms, which can also be extended for consecutive terms.
In addition to this requirement, another condition, included in our Bylaws, remains in force to become a member of ourDiretoria Executiva, a person must have worked for us or our affiliates for a minimum of 10 consecutive years. The Board of Executive Officers, besides the Executive Officers, consists of 2830 Department Officers, 2124 Officers and 2120 Regional Officers. Department Officers, Officers and Regional Officers direct the business of each of our various divisions and branches and report to theDiretoria
157 Bradesco
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Executiva. To become a Department Officer, Officer or Regional Officer, a person must be an employee or manager at our staff or one of the affiliates. Our Board of Directors may, waive the fulfillment of certain requirements for their appointment for up to 25.0% of the members of our Board of Executive Officers, waive the fulfillment of certain requirements for their appointment, as follows:
· Executive Officers – the Board of Directors can waive the requirement pursuant to which the person should be an employee of our staff or any of the affiliates for at least 10 years. Notwithstanding the above, such requirement cannot be waived for persons to be appointed as Chief Executive Officers or Vice-Presidents; and
· Department Officers, Officers and Regional Officers – the Board of Directors can waive the requirement pursuant to which the person should be an employee or member of the management of our staff or any of the affiliates.
The members of our Board of Directors are required to work exclusively for us, unless an exception is granted by the Board of Directors. Notwithstanding the above, the members of our Board of Directors are not required to be or to have been our employees, and service as a member of our Board of Directors does not constitute employment with us.
6.C.10Fiscal Council
Under Brazilian law, corporations may have a "“Conselho Fiscal”," or Fiscal Council, an independent corporate body with general monitoring and supervision powers and shall have from three to five effective members and the same number for alternates. As from the Special Shareholders’ Meeting held in March 2015, our Bylaws require our Fiscal Council to be a permanent corporate body.
Our Fiscal Council has five full members (Domingos(Ariovaldo Pereira, Domingos Aparecido Maia, José Maria SoaresMariaSoares Nunes, AriovaldoCristiana Pereira João Carlosand Ivanyra Maura de Oliveira and Walter Luis Bernardes Albertoni)Medeiros Correia) and five alternates (Nilsonmembers (João Batista de Moraes, Nilson Pinhal, Renaud Roberto Teixeira, Jorge Tadeu Pinto de Figueiredo, José Luiz Rodrigues Bueno and Reginaldo Ferreira Alexandre)Alexandre and Genival Francisco da Silva), all of whom were elected inon March 12, 2018, for a one-year10, 2020 and will take office after approval by the Central Bank. The period of mandate is one year term thatand will expire in March 2019.2021. In accordance with Brazilian Corporate Law, our Fiscal Council has the right and obligation to, among other things:
170 Form 20-F – December 2019
Table of Contents | ||
Form 20-F | ||
· supervise, through any of its members, the actions of our managers and to verify their fulfillmentfulfilment of their duties;
· review and issue opinions regarding our financial statements prior to their disclosure, including the Notes to the financial statements, the independent auditor'sauditor’s report and any Management reports;
· opine on any management proposals to be submitted to the shareholders’ meeting related to:
·o changes in our social capital;
·o issuance of subscription warrants;
·o investment plans and capital expenditure budgets;
·o distributions of dividends; and
·o transformation of our corporate form and corporate restructuring, such as takeovers, mergers and spin-offs.
· inform our Management of any error, fraud, or misdemeanormisdemeanour detected and suggest measures management should take in order to protect our main interests. If our Management fails to take the measures required to protect the company'scompany’s interests, they are required to inform the shareholders’ meeting of these facts; and
· call general shareholders'shareholders’ meetings if Management delays the general shareholders'shareholders’ meeting for more than one month and call special shareholders'shareholders’ meetings in case of material or important matters.
6.C.20Board Advisory Committees
Our shareholders approved, at the Special Shareholders'Shareholders’ Meeting held in December 2003, the creation of the Audit Committee, the Compliance and Internal Control Committee (extinct on March 11, 2019) and the Compensation
158Form 20-F – December 2017
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Committee. At the special shareholders' meetingSpecial Shareholders’ Meeting held in March 2006, our shareholders approved the transformation of the Ethical Conduct Committee into a statutory committee. At the special shareholders' meetingSpecial Shareholders’ Meeting held in March 2008, our shareholders approved the creation of the COGIRAC. At the Special Shareholders’ Meeting held in March 2013, the shareholders resolved to exclude from the Bylaws Articles 22, 24 and 25, which dealt, respectively, with organizational components of the Internal Controls and Compliance Committee, the Ethical Conduct Committee and COGIRAC, reflecting the proposal presented by the Executive Committee of Corporate Governance, assessed by the Board of Directors, to maintain in the Bylaws only those committees whose characterization as statutory is required by legal norms, giving greater speed to the process of managing the committees subordinated to the Board of Directors. Thus, only the Audit Committee and the Compensation Committee remain as statutory roles, which should not be construed as a weakening of the corporate governance structure, as the Board of Directors will maintain these committees under its structure, which removal from the Bylaws was approved.
6.C.30 Statutory Committees
6.C.30.01Audit Committee –
Pursuant to our Bylaws and to Central Bank regulations since April 2004, we established the Audit Committee, comprisedcomposed of three to five members, one of which is appointed coordinator, all of them appointed and subject to replacement by the Board of Directors. Appointments to our Audit Committee are for a term of fivetwo years. The former members of the Audit Committee may only rejoin the body, after at least three years haveyearshave passed since the last permitted reappointment. Up to one third of the Audit Committee’s members may be re-elected for a single consecutive term, waiving this period.
171 Bradesco
6.C. Board Practices | ||
Form 20-F | ||
The current members of the committeeAudit Committee are Milton Matsumoto the committee’s coordinator, Wilson Antonio Salmeron Gutierrez, a member with no specific designation, and(coordinator), Paulo Roberto Simões da Cunha the Audit Committee financial expert.(financial expert), Wilson Antonio Salmeron Gutierrez, Paulo Ricardo Satyro Bianchini and José Luis Elias, members with no specific designation. Milton Matsumoto is also a member of the Board of Directors.
In addition, under Brazilian law, the function of hiring independent auditors is reserved for the Board of Directors of a company following recommendation by its Audit Committee. As a result, as specified in Section 3(a)(58) of the Exchange Act, our Board of Directors functions as our Audit Committee for purposes of approving the engagement of our independent auditors for audit services. Except in these respects, our Audit Committee is comparable to and performs the functions of audit committees of U.S. companies. Since our Audit Committee cannot be compared to the audit committees of American companies in terms of engagement of our independent auditors in audit and non-audit services, we have relied on the exemption set forth in Exchange Act Rule 10A - 3(c)(3) in this regard. For more information see "Item 16.D. Exemptions from the listing standards for Audit Committees."
The responsibilities of the Audit Committee include:
· |
Compensation Committee The Compensation Committee has three to seven members, all of whom are members of our Board of Directors with terms of office of
The Integrity and
172 Form 20-F – December 2019
6.C.40.02Integrated Risk Management and Capital Allocation Committee The Integrated Risk Management and Capital Allocation Committee is composed of at least five members, all formally nominated and may be replaced by the Board of Directors, including its Coordinator. This 6.C.40.03Sustainability and Diversity Committee
6.C.40.04Succession Made up of at least five members, all formally appointed and dismissible by the Board of Directors, including its 6.C.40.05Risks Committee Composed by at least three and at most five members, all formally appointed and dismissed by the Board of Directors, including its 6.C.50Ombudsman At the Special The Ombudsman is responsible for:
173 Bradesco
According to our Bylaws and in order to comply with the rules of the Central Bank, in March 2018, Nairo José Martinelli Vidal Júnior was appointed by the Board of Directors as an
6.C.60Legal Advice In
The Department has as duties the provision of legal advice to the Board of Directors and to theDiretoria Executiva in issues of strategic interest, in the 6.C.70Internal Audit Our internal audit area is directly subordinated to the Board of Directors and independently assesses business and information technology processes, contributing to the mitigation of risks, the sufficiency and effectiveness of internal controls, and compliance with internal and external policies, rules, standards, procedures, and regulations. The methodology and execution of the work are certified by the Brazilian Institute of Independent Auditors, which takes into account the technical recommendations of the Institute of Internal Auditors (“IIA”) in its assumptions.
As of December 31, The following table sets forth the number of our employees and a breakdown of employees by main category of activity and geographic location as of the dates indicated:
174 Form 20-F – December 2019
Our part-time employees work six hours a day, while our full-time employees work eight hours a day, both in a five-day workweek. We generally hire our employees at the entry level, and encourage them to remain with us throughout their careers. All employees are entitled, through internal hiring process, to fill new positions, including those in Middle Management, senior and managerial positions. We have a framework that represents the heterogeneity of the Brazilian population, an indispensable tool for excellence in service and innovation characteristic of the Bradesco Organization. At the end of the period, throughout Brazil and at any hierarchical level, 50.4% of our workforce was made up of women, 26.4% were of African descent. All employees have union representation, are covered by collective bargaining agreements and have freedom of association. As of December 31, We offer our employees benefits which include our health and dental plans enabling beneficiaries to choose their doctors, hospitals and dentists anywhere in Brazil, retirement and pension plans, and life and accident insurance with varying coverages. In accordance with ThroughUniversidade Corporativa Bradesco On 175 Bradesco
6.E. Share OwnershipAs of
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
As of For information on The following chart illustrates our capital ownership structure as of
176 Form 20-F – December 2019
The following table shows the direct ownership of our outstanding common and preferred shares as
The following is a description of our principal beneficial ØCidade de Deus Companhia Comercial de Participações Cidade de Deus Companhia Comercial de Participações is a holding company, which we refer to as ØNova Cidade de Deus Participações Nova Cidade de Deus Participações is a holding company which we refer to as “Nova Cidade de The capital stock of Nova Cidade de Deus is divided 177 Bradesco
Ownership of the class B common shares is limited to: · members of ourDiretoria Executiva;
· members of our Board of · commercial or civil associations in which the majority of the voting interest is owned by the individuals above. Ownership ofNova Cidade de Ø As of
Under the terms of Fundação Fundação Bradesco is one of the largest private socio-educational programs in Brazil, it is an innovative social investment initiative which reaches every state in Brazil and the Federal District, and its 40 schools are primarily located in regions of accentuated educational deprivation. In Our The IT for the Visually Handicapped Program has Fundação ØBBD BBD indirectly owned 6.1% of our common shares and 3.1% of our total shares as of 178 Form 20-F – December 2019
ØNCF NCF is a holding company controlled by Cidade de Deus Participações and by Fundação Bradesco. As of
MarketDirect market holdings represented As of Transactions with controllers, joint control and related parties, and key management personnel are conducted on
Under this resolution, the · its controllers (individuals or · officers · individuals with qualified equity interest; and ·corporate entitieswith qualified equity interest (equivalent to 15% of the Capital) (i) in which they have a direct or indirect
179 Bradesco
7.B.10 Conditions for the execution of loan operations with related parties The institutions can only perform loan operations with related parties under conditions compatible with the market, using the parameters adopted in loan operations of the same type for borrowers with the same profile and credit risk.
The loan operations with related parties must not be higher than 10% The limits referred to in this article shall be established on the date of concession of the 7.B.30 Registration Log
Financial institutions must keep specific and updated records of the names of For further information on related party transactions, see Note Not applicable.
8.A.10 Consolidated Statements See 180 Form 20-F – December 2019
8.A.20Legal proceedings We are a party to civil, tax and labor administrative proceedings and lawsuits that have arisen during the normal course of our
As of December 31, ·35.6% in civil matters; ·34.4% for risks related
·and 30.0% for labor claims. Among the remaining litigation, where the probability of loss is considered as possible,
Policy on dividend distributionsOur Bylaws require our Board of Directors to recommend, at each annual · 5.0% for the legal reserve, not exceeding 20.0% of the paid-up capital in each fiscal year. This requirement shall not be applicable in fiscal years when the legal reserve, added to our other capital reserves, exceeds 30.0% of our paid-up capital; · an amount (to be determined by our shareholders based on probable potential losses) to a contingency reserve against future losses; · at least 30.0% (after the deductions for the legal reserves and contingencies) for mandatory distribution to our shareholders; and · any outstanding balance to a statutory profit reserve for the maintenance of an operating margin that is compatible with our credit businesses, up to a limit of 95.0% of our paid-up capital. Our Bylaws also authorize our shareholders to allocate an amount to a reserve for realizable revenue. Our shareholders have never allocated amounts to such reserve. A minimum of 30.0% of our net income must be distributed as annual dividends and must be paid out within 60 days following the Preferred shareholders are entitled to receive dividends per share in an amount 10.0% greater than the dividends per share paid to common shareholders. OurDiretoria Executiva, subject to approval by the Board of Directors, may distribute dividends based on the profits reported in interim financial statements. The amount of distributed interim dividends shall not exceed the amount of the additional paid-in capital. OurDiretoria Executiva bases the amount of the interim dividends to be distributed on previously accumulated profits or retained earnings. Since 1970, we have been distributing Consistent with Brazilian law, our Bylaws allow ourDiretoria Executiva, upon approval by the Board of Directors, to make distributions in the form of interest on equity instead of dividends. Payments of interest on equity may be included as part of any mandatory dividends. Since July 1997, we have made monthly payments of interest on equity at an amount approved by our Board of Directors before the statement of dividends at the end of each fiscal year. The amounts paid as interest on equity, net of income tax, are
discounted from the amount of dividends declared. Pursuant to Brazilian law, a shareholder who does not receive a dividend payment may start a proceeding for the collection of these payments within three years following the dividends statement date. After this period, unclaimed dividends return to the company. Our policy relating to dividend distributions and/or interest on equity is to maximize the amount of distributions, in accordance with our tax management strategy. For additional information, see Due to the advancement of the COVID-19 pandemic and the uncertainty for the Brazilian economy, the CMN, by means of Resolution No. 4.797/20, vetoed dividend payments above the minimum requirement of 30% as established in our Bylaws, in addition to the payment of interest on own capital above the minimum required until September 30, 2020. This prohibition will be applied to the payments relating to the base dates between April 7 and September 30, 2020 and the payments to be made from April 7 until September 30, 2020. 182 Form 20-F – December 2019
See
Our ADSs are traded on the New York Stock Exchange (“NYSE”), under the symbols “BBD” (preferred share ADSs) and “BBDO” (common share ADSs). Our preferred share ADSs were first listed on the NYSE in 2001. Each preferred share ADS corresponds to one preferred share. An increase to our capital stock by R$ Our shares are listed in Brazil’s main stock indexes, including the indexes that measure the total return of a theoretical portfolio composed of 50 and 100 shares, IBrX-50 and IBrX-100, respectively, selected from among the most traded shares on B3; the IBrA (Broad Brazil Index); the IFNC (Financial Index, composed of banks, insurance companies and financial institutions); the ISE (Corporate Sustainability Index); the IGCX (Special Corporate Governance Stock Index); the IGCT (Corporate Governance Trade Index); the ITAG (Special Tag-Along Stock Index), the index composed of shares of companies listed in the IBrX-50 index and that accepted taking part in this initiative by adopting transparent greenhouse gas emission practices (ICO2); and the Mid-Large Cap Index – MLCX (which measures the return of a portfolio composed of the highest capitalization companies listed). Abroad, our shares are listed on the Dow Jones Sustainability World Index, in the Dow Jones Sustainability Emerging Markets portfolio of the NYSE, and on the FTSE Latibex Brazil Index of the Madrid Stock Exchange. In January 2012, the Central Bank authorized our creation of an ADR program for our common shares in the USA market. As part of this authorization, and after government had affirmed it as being in its interest, the Central Bank increased the limit of foreign interest in our capital stock from 14.0% to 30.0%. The increase in the limit of foreign interest in our common shares did not alter our ownership or control structure. In March 2012, our common share ADSs became listed on the NYSE under the symbol
Our shares are registered in book-entry form and we perform all the services of safe-keeping and transfer of shares. Our shareholders may choose to hold their shares registered at the Stock Exchange of B3 183 Bradesco
Our preferred shareADSs and common share ADSs are represented by preferred shareADRs and common share ADRs. Our preferred shareADSs and common share ADSs may be held in registered form
with the depository – The Bank of New York Mellon – or in book entry form through financial institutions that are members of the · reimburse the depositary bank for any taxes, governmental charges or fees the depositary bank has paid; · pay any transfer fees as required by the deposit agreements; · produce satisfactory proof of identity and genuineness of their signatures or any other documents required by the deposit agreements; · comply with any United States, Brazilian or other applicable laws or governmental regulations; and · comply with such reasonable regulations, if any, as we and the depositary bank may establish consistent with the deposit agreements. All of our outstanding shares are fully paid and non-assessable. The rights of holders of our preferred shares are limited in comparison with those of the holders of common shares in several material ways: · each common share entitles the holder to one vote at · the nature of preferred The holders of the preferred shareADSs and common share ADSs have the rights corresponding to the underlying shares, subject to the Deposit Agreements. Owners of the preferred shareADSs and common share ADSs are parties to the Deposit Agreements and therefore are bound to its terms and to the terms of the preferred shareADRs and common share ADRs that represent the preferred shareADSs and common share ADSs. Not applicable. 9.C.10Trading on B3 is a publicly traded corporation. Beginning in April 2000, the Brazilian stock exchanges were reorganized through the execution of protocols of intention by the Brazilian stock exchanges. Until April 2004, all shares underlying securities were traded only on the B3, with the exception of privatization auctions, 184 Form 20-F – December 2019
If you were to trade in our shares on the B3, your trade would settle in three business days after the trade date. The seller is ordinarily required to deliver the shares to the exchange on the third business day following the trade date. Delivery of and payment for shares are made through the facilities of the Central Depository of B3.
the remainder being held by a small group of controlling persons, by governmental entities or by one principal shareholder. As of December 31, Trading on Brazilian stock exchanges by a holder not deemed to be domiciled in Brazil for Brazilian tax and regulatory purposes (a In September 2014, the CMN issued Resolution No. 4,373/14, See ØCorporate governance practices of B3 In 2000, B3 introduced three special listing segments known as “Levels 1 and 2 of Differentiated Corporate Governance Practices andNovo Mercado To become a To become a
shareholder decides on the delisting from the 185 Bradesco
To join In June 2001, we executed an agreement with B3 to list our shares in the Not applicable. Not applicable. Not applicable. 186 Form 20-F – December 2019
ITEM 10.ADDITIONAL INFORMATION
For more information on our capital stock, see Note We are a publicly traded company duly registered with the CVM under No. 00090-6. Article 5 of our Bylaws establishes our purpose as carrying out banking transactions in general, including foreign exchange activities. 10.B.10Organization 10.B.10.01Qualification of directors Since the promulgation of Law No. 12,431/11, which amended Law No. 6,404/76, members of the Board of Directors are no longer required to be shareholders of the companies in which they occupy these positions. Neither do they have to meet residency requirements to be eligible for Board member positions. 10.B.10.02Allocation of net income and distribution of dividends Our Bylaws, in conformity with the Brazilian Corporate Law, require the Board of Directors to recommend, at each Annual
Our Bylaws also authorize our shareholders to allocate an amount to a reserve for realizable
revenue. Historically, our shareholders have not allocated amounts to such reserve. The minimum of 30.0% of our 187 Bradesco
Preferred shareholders are entitled to receive dividends per share in an amount 10.0% greater than the dividends per share paid to the common shareholders. Under Brazilian law, we must prepare financial statements according to BR GAAP on a quarterly and annual basis and according to IFRS on an annual basis. OurDiretoria Executiva, with approval of the Board of Directors, may distribute dividends based on the profits reported in interim financial statements. Our Bylaws provide for the payment of interim dividends, which cannot exceed the amount of our retained earnings or our profit reserves contained in our last, annual or bi-annual financial statements. OurDiretoria Executiva bases the amount of the interim dividends on previously accrued or retained earnings. Between March and October 2013, the Central Bank issued several rules related to the implementation of the Basel III Accord requirements in Brazilian banks. Pursuant to 10.B.10.03Shareholders’ meetings Our shareholders have the power to decide any matters related to our corporate purpose and to approve any resolutions they deem necessary for our protection and development, through voting at a As from the Annual Shareholders’ Meeting of 2013, shareholders resolved that our meetings shall be convened by the publication of call notices in theDiário Oficial do Estado de São Paulo (Official Gazette of the State of São Paulo) and theValor Econômico newspaper, all in the State of São Paulo. The notice must be published three times, beginning at least 30 calendar days prior to the scheduled meeting date. The notice must contain the meeting’s agenda and, in the case of a proposed amendment to our Bylaws, an indication of the subject matter. The Board of Directors or, in some specific situations set forth in the Brazilian Corporate Law, the shareholders, may call our In order for a In March 2017, we adopted a remote voting system at our Shareholder’s Meetings, in accordance with Article 21-A of CVM Instruction No. 481/09, as amended.
188 Form 20-F – December 2019
10.B.10.04Voting rights Each common share entitles its holder to the right of one vote at our In March 2002, the Brazilian Corporate Law was amended to, among other issues, grant more protection to minority shareholders and ensure them the right to appoint one member and an alternate to our Board of Directors. To qualify for the exercise of such right, the minority shareholder must have held, for at least the prior three months either: (i) preferred shares representing the minimum of 10.0% of our capital stock; or (ii) common shares representing at least 15.0% of our voting shares. If no shareholders meet the thresholds, shareholders representing at least 10.0% of our capital stock may be able to combine their holdings to appoint one member and an alternate member to our Board of Directors. We highlight that, in our case, we have no alternate members for the Board of Directors. The Brazilian Corporate Law provides that non-voting preferred shares acquire voting rights when a company has failed for the term provided for in its bylaws (for more than three fiscal years) to pay any fixed or minimum dividend to which such shares are entitled. Such voting rights remain effective until payment of the cumulative dividends is made. 10.B.10.05Transfer of control Our Bylaws do not contain any provision that would have the effect of delaying, deferring or preventing a change in our control or that would operate only with respect to a merger, acquisition or corporate restructuring involving ourselves or any of our subsidiaries. However, Brazilian banking regulations require that any transfer of control of a financial institution be previously approved by the Central Bank. Additionally, Brazilian law stipulates that acquisition of control of a publicly held company is contingent on tender offers for all outstanding common shares at a price equivalent to at least 80.0% of the price per share paid for the controlling group. In December 2003, we amended our Bylaws to ensure that in the event of a change in our control, the acquirer will be required to pay our shareholders an amount equal to: (a) for our non-controlling common shareholders, 100% of the price per share paid to our controlling shareholders; and (b) for our preferred shareholders, 80.0% of the price per share paid for our controlling shareholders. In the event of our liquidation, our preferred shareholders would have priority over our common shareholders when returning capital. See “10.B. Memorandum and Articles of Association – 10.B.20 Shareholders – 10.B.20.03 – Liquidation” for more information. In addition, in the event of a transfer of control, our shareholders have the right of withdrawal under certain circumstances. See “10.B. Memorandum and Articles of Association - 10.B.20 Shareholders – 10.B.20.02 – Right of withdrawal” for more information. Brazilian law also obliges our controlling shareholder to make a tender offer for our shares if it increases its interest in our share capital to a level that materially and negatively affects the liquidity of our shares. 10.B.10.06B3’s differentiated corporate governance practices In 2001, we voluntarily adhered to B3’s Level 1 Corporate Governance which establishes special requirements for the Company’s listing and rules for its managers and shareholders, including its controlling shareholders. Companies listed on Level 1 must adopt practices favoring transparency and the disclosure, in addition to legal requirements, of more comprehensive financial reporting data, details of trading by officers, executives and controlling shareholders and related party transactions, among others – in all cases focusing on providing access to information for shareholders, investors and other stakeholders. Note that companies listed in this segment must also maintain a minimum free float of 25.0%. 189 Bradesco
10.B.20Shareholders Pursuant to Brazilian law, the approval of the holders of a majority of the outstanding adversely affected preferred shares as well as shareholders representing at least one-half of the issued and outstanding common shares is required for the following actions: · creating or increasing an existing class of preferred shares without preserving the proportions of any other class of the existing shares; · changing a preference, privilege or condition of redemption or amortization of any class of preferred shares; and · creating a new class of preferred shares that has preference, privilege or condition of redemption or amortization superior to the existing classes of preferred shares. These actions are put to the vote of the holders of the adversely affected preferred shares at a special meeting, where each preferred share entitles the shareholder to one vote. Preferred shareholders have the right to vote on any change to our legal form and obtain the right to vote if we enter into a liquidation process. The approval of holders of at least one-half of the issued common shares is required for the following actions: ·reducing the mandatory distribution of dividends; ·approving a takeover, merger or spin-off; ·approving our participation in a ·changing our corporate purpose; ·ceasing our state of liquidation; and ·approving our dissolution. Pursuant to Brazilian Corporate Law, holders of common shares, voting at a Shareholders’ Meeting, have the exclusive power to: · amend our Bylaws, including changes to the rights of the holders of the common shares; · elect or dismiss members of our Board of Directors; · receive the yearly accounts prepared by our Management and accept or reject · suspend the rights of a shareholder who has not fulfilled the obligations imposed by law or by our Bylaws;
· accept or reject the valuation of assets contributed by a shareholder in consideration for issuance of capital stock; and · approve corporate restructurings, such as takeovers, mergers and spin-offs; dissolve or liquidate, elect or dismiss our liquidators or examine their accounts. 10.B.20.01Preemptive rights Each of our shareholders has a general preemptive right to subscribe for shares or convertible securities in any capital increase in proportion to its holding. Shareholders must be granted at least a 30‑day period following the publication of notice of the issuance of shares or convertible securities to exercise their preemptive rights. As described under 190 Form 20-F – December 2019
In the event of a capital increase maintaining the existing proportion between common and preferred shares, each shareholder shall have the right to subscribe to newly issued shares of the same class it currently holds. If the capital increase changes the proportion between common and preferred shares, shareholders shall have the right to subscribe newly issued shares of the same class they currently hold, only extending to shares of a different class so as to maintain the same proportion in the capital stock as held prior to such increase. In any case, all new increases are subject to the foreign interest limit set forth by the Central Bank, which means that holders of common shares could be prevented from exercising their preemptive rights in relation to newly issued common shares if the 30.0% limit is reached. Under Brazilian Corporate Law, shareholders are permitted to transfer or sell their preemptive rights. You may not be able to exercise the preemptive rights relating to the shares underlying your ADSs unless a registration statement under the Securities Act of 1933 is effective with respect to those rights or an exemption from the registration requirements of the Securities Act is available. The contractual arrangements governing the ADSs provide that the custodian of the shares underlying the ADSs may, if possible, transfer or dispose of the preemptive rights. Such contractual arrangements related to the ADSs, provide for the custodian to remit the consideration received to the depositary bank that holds the ADSs. Its distribution by the depositary bank to holders of preferred or common share ADSs is net of any fees due to the custodian and the depositary bank. For more details, see 10.B.20.02Right of withdrawal Brazilian Law provides that under certain circumstances a shareholder has the right to withdraw his or her equity interest from a company and to receive a payment for the portion of equity attributable to his or her equity interest. This right of withdrawal may be exercised: · by the dissenting or non-voting holders of the adversely affected class of shares (including any holder of preferred shares) in the event that a
· by the dissenting or non-voting shareholders (including any holder of preferred shares) in the event that a general
· by the dissenting or non-voting holder of common shares, in the event that a
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Our dissenting or non-voting shareholders also have a right of withdrawal in the event that the entity resulting from our merger, merger of our shares or spin-off does not become a listed company within 120 days of the shareholders’ meeting at which the relevant decision was taken. The dissenting or non-voting shareholders only have a withdrawal right if they owned the shares, which have been adversely affected at the time of the first call for the shareholders’ meeting in which the relevant decision was made. If a public announcement of the action taken or to be taken was made prior to the call for the shareholders’ meeting, the The right of withdrawal lapses 30 days after publication of the minutes of the shareholders’ meeting at which the action is taken, except when the resolution is subject to confirmation by the preferred shareholders (which must be made at a special meeting to be held within one year). In that case, the 30-day term is counted from the date the minutes of the special meeting are published. We would be entitled to reconsider any action giving rise to redemption rights within ten days following the maturity of such rights if the redemption of shares of dissenting shareholders would jeopardize our financial stability. In all the situations described above, our shares would be redeemable at their book value, determined on the basis of the last balance sheet approved by our shareholders. If the shareholders’ meeting giving rise to withdrawal rights occurs 60 days after the date of the last approved balance sheet, a shareholder may demand that its shares be valued on the basis of a new balance sheet of a date within 60 days preceding such shareholders’ meeting. 10.B.20.03Liquidation In the event of our liquidation, our preferred shareholders would be entitled to priority over common shareholders in the return of capital. The amount to which they would be entitled is based on the portion of the Capital Stock represented by the preferred shares, adjusted from time to time to reflect any capital increases or reductions. After all our creditors had been paid, our residual assets would be used to return the amount of capital represented by the preferred shares to the preferred shareholders. Once the preferred shareholders had been fully reimbursed, the common shareholders would be reimbursed on the portion of the Capital Stock represented by the common shares. All our shareholders would participate equally and ratably in any remaining residual assets. 10.B.20.04Redemption Our Bylaws provide that our shares are not redeemable. However, Brazilian Law authorizes us to redeem minority 10.B.20.05Conversion rights Our Bylaws provide that our common shares cannot be converted into preferred shares or our preferred shares into common shares. 10.B.20.06Liability of our shareholders for further capital calls Neither Brazilian law nor our Bylaws provide for capital calls. Our
10.B.20.07Form and transferOur shares are registered in book-entry form and we perform all the services of safekeeping and transfer of shares. To make the transfer we make an entry in the register, debit the share account of the transferor and credit the share account of the transferee. Transfers of shares by a foreign investor are made in the same way and executed by the Our shareholders may opt to hold their shares through B3. Shares are added to the B3 system through Brazilian institutions, which have clearing accounts with B3. Our shareholder registry indicates which shares are listed on the B3 system. Each participating shareholder is in turn registered in a register of beneficial shareholders maintained by the B3 and is treated in the same manner as our registered shareholders. 10.B.30Brazilian rules related to information disclosure In January 2002, through CVM Instruction No. 358/02, as amended, the CVM issued regulations
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In February 2014, the CVM provided publicly-held companies with the option of disclosing material facts by way of a news portal on the internet, in addition to the disclosure carried out through large circulation newspapers (as previously made). Under CVM rules, we are also required to disclose a series of additional details to the market if a On April 27, 2017, the CMN issued the Resolution In accordance with the existing regulations, the Central Bank considers the following situations to compromise the reputation of such people: (i) criminal investigations or criminal proceedings against the person or any company controlled or managed by this person at the time of occurrence; (ii) administrative or judicial proceedings related to the SFN; and/or (iii) other similar situations that the Central Bank may consider relevant. According to such rule, the Brazilian financial institution has 10 working days from the date it 10.B.30.01Disclosure of periodic information In December 2009, the CVM issued Instruction No. 480/09 that addresses, among other topics, the issuance of securities and periodic disclosure of information by companies that have their securities traded on the Brazilian market. As a result of this rule, Brazilian issuers must file a “Reference Form” with the CVM every year, a document similar to a “Form
increased considerably, reinforcing 194 Form 20-F – December 2019
In May 2019, the CMN amended Resolution No. 4,720/19, to improve and simplify the current rules for financial institutions in the preparation and disclosure of financial statements, subject to certain guidelines to be observed in the preparation of the financial statements. 10.B.30.02Disclosure of operating information to the public CMN rules determine that financial institutions should establish a formal policy approved by its 10.B.30.03Disclosure of shareholder ownership Brazilian regulations require that any person or group of persons representing the same interest that has directly or indirectly acquired an interest corresponding to 5.0% of any type or class of shares of a publicly traded company must disclose its share ownership to the 10.B.40Regulations and restrictions on non-Brazilian holders The Brazilian Constitution bars any increase in foreign interest in the share capital of financial institutions headquartered in Brazil. However, because we are a publicly-traded financial institution, non-Brazilian holders of our preferred shares benefit from an exception to this provision. Accordingly, foreign holders face no legal restrictions on the ownership of our preferred shares or of preferred share ADSs, and are entitled to all the rights and preferences of such preferred shares. Furthermore, in accordance with the Central Bank authorization for the ADR program for common shares in the U.S. market, foreigners can hold up to 30.0% of our total common shares. The ability to convert dividend payments and proceeds from the sale of our shares or preemptive rights into foreign currency and to remit such amounts abroad from Brazil is subject to restrictions under foreign investment legislation which generally requires, among other things, that the relevant investment be registered with the Central Bank. Nonetheless, any non-Brazilian holder who registers with the CVM in accordance with CMN Resolution No. 4,373/14 may buy and sell securities on Brazilian stock exchanges without obtaining a separate certificate of registration for each transaction. These rules are applicable both to common and preferred shares. Our ADR program is duly registered with the Central Bank. Our Bylaws do not restrict the rights of Brazilian residents or non-residents to hold our shares and exercise related rights. 10.B.40.01Rights of the holders of our ADSs Holders of our ADSs are not treated as our shareholders and do not have the same rights that our shareholders have. The depositary bank will hold the preferred shares and common shares that underlie the preferred share ADSs and common 195 Bradesco
Holders of our ADSs will receive notifications and voting instructions in relation to any meetings only if we authorize and direct the depositary bank to distribute such information to the holders. If we do not provide that authorization and direction to the depositary bank, holders of ADSs will not be able to vote at our meetings, or otherwise, unless they surrender their preferred share ADSs or common share ADSs and receive the underlying preferred shares or common shares, as applicable, in accordance with the terms of the applicable Deposit Agreement. If we authorize and direct the depositary bank to distribute voting instructions to our ADS holders, such holders may guide the depositary bank to vote in accordance with the number of shares represented by their ADSs. See
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shareholders and (b) for our preferred shareholders, 80.0% of the price per share paid for our controlling shareholders.
In the event of our liquidation, our preferred shareholders would have priority over our common shareholders when returning capital. See "Organization – Liquidation" for more information. In addition, in the event of a transfer of control, our shareholders have the right of withdrawal under certain circumstances. See "Organization – Right of withdrawal" for more information.
Brazilian law also obliges our controlling shareholder to make a tender offer for our shares if it increases its interest in our share capital to a level that materially and negatively affects the liquidity of our shares.
Brazilian regulations require that any person or group of persons representing the same interest that has directly or indirectly acquired an interest corresponding to 5.0% of any type or class of shares of a publicly traded company must disclose its share ownership to the CVM and to Brazilian stock exchanges. In addition, a statement containing the required information must be published in the newspapers. Any subsequent increase or decrease of 5.0% or more in ownership of any type or class of shares must be similarly disclosed.
In 2001, we voluntarily adhered to B3’s Level 1 Corporate Governance which establishes special requirements for the Company’s listing and rules for its directors and shareholders, including its controlling shareholders. Companies listed on Level 1 must adopt practices favoring transparency and the disclosure, in addition to legal requirements, of more comprehensive financial reporting data, details of trading by directors, officers, executives and controlling shareholders and related party transactions, among others – in all cases focusing on providing access to information for shareholders, investors and other stakeholders. Note that companies listed in this segment must also maintain a minimum free float of 25.0%holders”.
In July 2016, we announced to the market the acquisition of 100% of the share capital of HSBC Brasil.
In July 2015, we entered into a share purchase agreement with HSBC Latin America Holdings (UK) Limited, pursuant to which the Bank agreed to acquire 100% of the share capital of HSBC Brasil.The acquisition was approved by the Central Bank in December 2015 and by the CADE in June 2016, subject to an Agreement on Concentration Control, and therefore approved by all relevant regulatory bodies. The purchase was completed in July 2016, for R$16 billion. In October 2016, HSBC Brasil's spin-off was approved by our shareholders, enabling the integration of people and technological platforms and the replacement of the brand in the service network, providing greater synergy in the transaction. With the acquisition, we took over all operations of HSBC in Brazil, including retail, insurance and asset management, as well as all branches and clients. The acquisition allowed us to grow in scale and optimize our platforms, while increasing national coverage, consolidating our leadership in a number of branches in several states, and strengthening our presence in the high-income segment. The acquisition also enabled us to expand our operations, increasing the range of products offered in Brazil, especially in the insurance, credit card and asset management segments.
For more information, see “Item 4.A History and Development of the Company – Recent acquisitions.”Not applicable.
The Central Bank may place temporary restrictions on the remittance of foreign capital abroad, including payments of principal, interests or dividends, and on the repatriation of capital if there is a significant imbalance in Brazil'sBrazil’s balance of payments, or one is expected. The last occurrence of restrictions on the remittance of foreign capital was in 1989, when for approximately six months in 1989 and early 1990, the government suspended all remittances abroad of dividends and invested capital. The Central Bank subsequently released these amounts for remittance abroad in accordance with specific guidelines. The government may take similar measures in the future.
Under Brazilian tax laws, non-Brazilian holders of securities enjoy favorable tax treatment if they are qualified in terms of CMN Resolution No. 4,373/14. To qualify under this Resolution, a non-Brazilian holder must:
182Form 20-F – December 2017
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· appoint a representative in Brazil with power to undertake acts relating to the investment;
· register as a foreign investor with the CVM; and
· register its investment with the Central Bank.
See "Item“Item 10.E. Taxation – 10.E.10 Brazilian tax considerations – 10.E.10.02 Taxation of gains"gains” for a description of tax benefits extended to non-Brazilian holders of securities who qualify under CMN Resolution No. 4,373/14.
Under CMN Resolution No. 4,373/14, securities held by non-Brazilian holders must be maintained under the custody of, or in deposit accounts held in, financial institutions duly authorized by the Central Bank and the CVM. In addition, under this resolution the securities trading areis restricted under CMN Resolution No. 4,373/14 to transactions on Brazilian stock exchanges or qualified over-the-counter markets.
Registered non-Brazilian holders are allowed to invest in any type of investment available to Brazilian citizens in the financial and securities markets, with the exception that the Brazilian Constitution limits the ability of non-Brazilian holders to acquire capital of financial institutions, as mentioned above under "Regulation“Regulation of and Restrictions on Non-Brazilian holders."holders”. Registration allows investors to remit foreign currency abroad when the funds are distributions on registered shares or proceeds from the disposition of such shares. The funds are converted into foreign currency at the forex market rate.
The registered capital for each share purchased in Brazil and deposited with the custodian is equal to its purchase price (informed in U.S. dollars). If ADS holder chooses to cancel ADSs in exchange for the underlying shares, the investment in the shares may be registered with the Central Bank. This registration is necessary for the holder to receive dividends or proceeds from the sale of the shares outside of Brazil.
When a holder of ADSs exchanges ADSs for the underlying shares, the holder is entitled to either:
· sell the shares on the stock exchange and remit the proceeds abroad within five business days; or
196 Form 20-F – December 2019
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· freely convert the investment in the underlying shares to either an investment under CMN Resolution No. 4,373/14 (subject to satisfaction of the legal requirements described above) or a direct foreign investment in Brazil (in accordance with applicable rules).
Holders that do not comply with the rules previously described may still register their investment, but the registration process will be subject to detailed procedures established by the Central Bank. Holders that do not comply with these rules may also be subject to monetary penalties.
The following summary contains a description of the principal Brazilian and U.S. federal income tax consequences of the acquisition, ownership and disposition of our shares and ADSs. However, it does not purport to be a comprehensive description of all the tax considerations that may be relevant to a decision to purchase our shares and/or ADSs. Accordingly, prospective purchasers of our shares or ADSs should consult their own tax advisors as to the tax consequences of the acquisition, ownership and disposition of our shares and/or ADSs.
This summary is based upon the tax laws of Brazil and the United States in effect on the date hereof, which are subject to change.
Currently, there is no income tax treaty for double taxation between Brazil and the United States. However, due to the reciprocity of treatment in the United States, the Brazilian tax authority assures to residents in Brazil the right to deduct, from the income tax due, the amount of tax levied on income that has already been paid in the United States. Although the tax authorities of the two countries have had discussions that may culminate in such a treaty, no assurance can be provided regarding the possibility of a treaty of this kind or how it will affect the U.S. holders of our shares or ADSs. Accordingly, prospective holders of our shares or ADSs should consult their own tax advisors as to the tax consequences of the acquisition, ownership and disposition of shares or ADSs in their particular circumstances.
10.E.10Brazilian tax considerations
The following discussion summarizes the principal Brazilian tax consequences of the acquisition, ownership and disposition of our shares or ADSs by a holder not residing in Brazil.
10.E.10.01Taxation of dividends
Dividends paid to the holders of ADSs or to investor non-resident in Brazil related to our shares are not subject to Brazilian withholding income tax, provided that these dividends are paid from the profits generated as of January 1, 1996. Dividends paid from profits before January 1, 1996 may be withheld at the
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variable rates, according to the legislation applicable at the time.
In this context, Law No. 11,638/07 significantly changed the Brazilian Corporate Law, with the objective of more closely aligning BR GAAP with IFRS. The changes promoted by Law No. 11,638/07 producedIFRS, producing effects from January 1, 2008, already predicting that the new accounting rules could conflict with the provisions of the tax law, Law No. 11,941/09, the Transition Tax System ("RTT"(“RTT”) was instituted. In general, under the implementation of the RTT, the changes promoted by the IFRS to modify the criterion of recognition of revenues, costs and expenses, would have no tax effects.
In this sense, profits recorded in line with the rules laid down by Law No. 11,638/07 ("(“IFRS Profits"Profits”) may be different for profits calculated following the accounting methods and criteria in force on December 31, 2007 ("(“2007 Profits"Profits”).
Although market practice is for the distribution of dividends calculated using the IFRS Profits to be exempt from taxes, the Brazilian tax authorities, through Normative Instruction No. 1,397/13, understand that companies should consider the 2007 Profits as the basis for determining the amount of profit exempt from taxes that could be distributed to the beneficiaries.
Surplus paid on 2007 Profits ("(“Surplus Dividends"Dividends”) should, in the opinion of the tax authorities and in theinthe specific case of non-resident beneficiaries in Brazil, be subject to taxation as follows: (i) Withholding Income Tax at Source ("IRRF"(“IRRF”) at a rate of 15.0% in the case of non-resident beneficiaries in Brazil, but which were not domiciled in a tax haven;haven (as defined in the wording of same name in this item); or (ii) IRRF at a rate of 25.0% in the case of non-residents in Brazil, domiciled in the tax haven.
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As way to mitigate that issue, Law No. 12,973/14, in addition to revoking the RTT, made significant changes to federal tax law, including with relation to Excess Dividends. Following the changes introduced by Law No. 12,973/14, it was confirmed that Excess Dividends would be exempt with respect to profits made between 2008 and 2013. After 2015, this discussion is no longer relevant, as the differences relating to the previous accounting treatment have become irrelevant. Potential discussions remain, however, with regard to dividends paid from profits ascertained in the calendar year 2014, unless the company has voluntarily opted for the application of the provisions laid down in Law No. 12,973/14, since January 1, 2014.
10.E.10.02Taxation of gains
In accordance with Law No. 10,833/03, the gains earned as a result of the divestiture of assets located in Brazil with investor non-resident in Brazil are subject to taxation in Brazil, regardless of the fact that the divestiture is performed to another non-resident or to a resident in Brazil.
In this sense, in the case of divestiture of our shares, which are regarded as Brazilian assets, the investor non-resident in Brazil shall be subject to the income tax on the capital gain ascertained in accordance with the rules described in the following paragraphs, regardless of the operation being, or not, carried out in Brazil or abroad, or with a resident or non-resident in Brazil.
In relation to the ADSs, despite the theme not being pacified in Brazil, it is possible to argue that gains recorded by an investor non-resident in Brazil in the divestiture of these assets to another non-resident, should not be subject to taxation in Brazil. Such arguments would be based on the understanding that the ADSs do not represent Brazilian assets for purposes of the application of Law No. 10,833/03, because they represent securities issued and traded on stock exchanges abroad.
It is important to emphasize that, for purposes of the Brazilian legislation, the rules applicable to gains earned as a result of the divestiture of shares or ADSs may vary according to the domicile of the investor non-resident in Brazil, in accordance with the form through which he has recorded his investment before the Central Bank and/or in accordance with the way that the divestiture is structured and performed.
The deposit of our shares in exchange for ADSs may necessitate taxation by income tax, atin the event of any capital gain ascertained by an investor who is a ratenon-resident in Brazil. There may be a capital gain if the cost of 15.0% or 25.0%,acquisition of our shares is less than the average price.
The deposit of our shares in exchange for ADSs may necessitate taxation by income tax, in the event of any capital gain ascertained by an investor non-resident in Brazil located inBrazil. There may be a tax haven,capital gain if the cost of acquisition of our shares is less than: (i)than the average price per share, quoted on the Brazilian stock exchange in which the highest number of these shares has been sold on the day of deposit; or (ii) if no share is sold on that day, the average price quoted on the Brazilian stock exchange in which the highest number of shares has been sold in the last 15 trading sessions immediately prior to the deposit.price. In this case, the difference between the average price of our shares as calculated above, and the corresponding acquisition cost, can be considered as capital gain. The withdrawal of ADSs in exchange for shares, should not, in principle, be understood as an operation liable to result in capital gain subject to income tax, provided that the regulatory rules in relation to the registration of the investment before the Central Bank are appropriately observed.
184Form 20-F – December 2017
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The gains earned in the divestiture of shares on the Brazilian stock exchange (that include the transactions carried out in the OTC market) are:
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exempt from income tax when earned by an investor non-resident in Brazil that: (i) is an Investor 4,373; and (ii) is not resident in a location considered as a tax haven; or |
· | subject to income tax at a rate of 15.0% in the case of the gains earned by a foreign investor that: is not an Investor 4,373 and is not resident or domiciled in a location considered as a tax haven; or is an Investor 4,373 resident or domiciled in a location considered as a tax haven; or |
· | subject to a rate of 25% if the foreign investor is not an investor 4,373 resident or domiciled in a location considered as a tax haven. |
In the case in which the non-resident investor is subject to the payment of the IR (Income Tax) on the capital gain earned with the sale on the stock exchange, the income tax withheld at source at the rate of 0.005%, on the value of the divestiture, will be applicable and may subsequently be compensated, with possible income tax on the capital gain.
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Form 20-F | ||
Other gains earned in the divestiture of shares that are not carried out in Brazilian stock exchanges are subject to income tax at progressive rates that varies from 15.0% to 22.5% as detailed below, except for residents in locations considered as a tax haven, which, in this case, are subject to taxation by income tax at a rate of 25.0%. If the gains arising out of transactions carried out in the non-organized Brazilian over-the-counter market with mediation, the withholding of 0.005% on the value of the sale will be applicable and can be compensated with possible income tax due on the capital gain.
In September 2015, the government issued Provisional Measure No. 692/15, converted into Law No. 13,259/16, which introduced a regime based on the application of progressive tax rates for income tax on capital gains recognized by Brazilian individuals in the disposal of assets in general. In accordance with Law No. 13,259/16, in force as of January 1, 2017, the income tax rates on capital gains recognized by Brazilian individuals, which are also applicable to foreign investors, would be: (i) 15.0% for the part of the gain that does not exceed R$5 million, (ii) 17.5% for the part of the gain that exceeds R$5 million, but does not exceed R$10 million, (iii) 20.0% for the part of the gain that exceeds R$10 million but does not exceed R$30 million, and (iv) 22.5% for the part of the gain that exceeds R$30 million.
In the event of redemption of shares or reduction of capital by a Brazilian company, the positive difference between the amount actually received by an investor non-resident in Brazil and the acquisition cost of the shares redeemed will be considered as capital gain resulting from an operation not made on the stock exchange, therefore, it will be subject to taxation by income tax at progressive rates varying between 15.0% and 22.5%, except for residents of locations considered as JTF, which, in this case, are subject to taxation by income tax at a rate of 25.0%.
As a general rule, the regime of increased tax on capital gains should apply to transactions made outside the Brazilian stock exchange or organized over-the-counter market. Also, as a general rule, a foreign investor that is resident or domiciled in a location considered as a tax haven would be subject to income tax at a rate of 25.0%, as mentioned above. In addition, as a rule, gains recognized by a foreign investor in transactions made on the Brazilian stock exchange are not subject to increased taxation on capital gains, in accordance with Law No. 13,259/16.
As a general rule, the gains recorded as a result of the divestiture of shares or ADSs are equivalent to the positive difference between the sale value of the shares or ADSs and the respective costs.
The exercise of any preemptive right related to shares or ADSs will not be subject to taxation on income in accordance with the Brazilian legislation currently in force. Any gain on the sale or exercise of rights of preference related to shares or ADSs by an investor non-resident in Brazil will be subject to taxation in accordance with the same rules applied in the case of divestiture of those shares.
10.E.10.03Interest on equity (“JCP”)
The Brazilian legislation allows a Brazilian company, instead of distributing dividends, to perform a distribution of interest on equity to its own shareholders, treating such values as deductible in calculating the actual profit and in the calculation base of the Social Contribution. For taxation purposes, the interest on equity is limited to the daily variation pro rata of the Long-term Interest Rate ("TJLP"(“TJLP”), as the subsequent determinations of the Central Bank and may not exceed the value equivalent to:
· 50% of the net income (after deduction of the Social Contribution, however before considering the provision related to the Corporate Income Tax and the amount attributable to the shareholders as JCP) established in the period in which the payment is carried out; and
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· 50% of accumulated profits and profit reserves established on the date of commencement of the period in which the payment is made.
Specifically, in relation to the payment of JCP for non-resident shareholders, such consignments are subject to IRRF at a rate of 15.0%, or 25.0%, where the recipient of the income is domiciled in a tax haven.
The values paid as JCP are subject to deduction in the calculation of the IRPJ and CSLL, which taxes are due on the profit, observing the limits detailed above.
199 Bradesco
10.E. Taxation | ||
Form 20-F | ||
10.E.10.04Tax haven (“JTF”)
According to Law No. 9,430/96 and subsequent amendments, a tax haven is a country or location that (i) does not tax income; (ii) taxes income at an effective rate lower than 20.0% (or 17.0% in specific cases as detailed below); or (iii) imposes restrictions on the disclosure of the corporate structure of legalcorporate entitiesor their ownership.
The Brazilian tax authorities published NI No. 1,037/10, listing: (i) countries or jurisdictions considered as tax haven or whose internal legislation opposes confidentiality related to the corporate composition of legalcorporate entities or their ownership; and (ii) tax schemes considered as privileged, whose definition is brought by Law No.11,727/08.
In December 2014, the Brazilian Federal Revenue Office (“RFB”) published the Decree No. 488/14, reducing the tax haven concept to localities that tax income at a maximum rate of less than 17.0% for countries or regimes in line with international fiscal transparency standards as established by Brazilian tax authorities. However, note that Decree No. 488/14 is not applicable to foreign investors whose investments in Brazil are in agreement with CMN Resolution No. 4,373/14.
Despite our understanding that a better interpretation of the legislation currently in force, leads to the conclusion that the concept of the privileged tax scheme, mentioned above, would be applicable only for purposes of Brazilian rules of transfer and undercapitalized pricing, we cannot ensure that further legislation, or even interpretations of the tax authorities determine the application of the concept of the privileged tax scheme, established in Law No. 11,727/08 will also apply to investor non-resident in Brazil in the payment of JCP.
This way, it is recommended that private tax advisors are consulted regarding the consequences of the rules laid down in Law No. 11,727/08, NI No. 1,037/10 and Decree No. 488/14, if the tax authorities determine the application of the concept of the privileged tax regime.
10.E.10.05Tax on Foreign Exchange Transactions
In accordance with Decree No. 6,306/07, the conversion of foreign currency into Brazilian currency orvice-versa, shall be subject to tax on foreign exchange operations. The rate of the current tax on foreign exchange operations, applicable to most of the foreign exchange operations, is 0.38%. However, foreign exchange operations carried out for inflows of resources in Brazil by an Investor 4,373 are subject to tax on foreign exchange operations at a rate of 0%: (i) in the case of variable income operations carried out on the Brazilian stock exchange, as well as acquisitions of shares of publicly held Brazilian companies or subscription of shares related to capital contributions, provided that the issuing company has registered its shares to be traded on the stock exchange; and (ii) for the transfer of resources from Brazil, related to this type of investment, including payments of dividends and JCP and the repatriation of resources invested in the Brazilian market. Additionally, the tax on foreign exchange operationsoperations is currently charged at a rate of 0% on the cancellation of ADSs in the exchange for shares.
In any case, the tax rate on foreign exchange operations can be increased at any time by an act of the Federal Executive Branch, up to the percentage of 25.0%, in relation to the transactions that occurred after this possible amendment.
10.E.10.06Tax on the transaction with securities
In accordance with Decree No. 6,306/07, the tax on the transaction with securities may be charged on all transactions involving securities, even though the transactions are conducted on Brazilian stock exchanges. The tax rate on transactions with securities applicable to transactions involving our shares is currently 0%. In particular, the tax on the transaction with securities is also of 0% due on the deposit of shares traded on Brazilian stock exchanges with the purpose of issuing certificates of deposit to be marketed abroad. The government can increase the tax rate on transactions with securities at any moment by up to 1.5% per day, but only with respect to future transactions.
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200 Form 20-F – December 20172019
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10.E.10.07Other federal Brazilian taxes
There are no federal Brazilian taxes on inheritance, gift or succession applicable to the ownership, transfer or disposition of preferred shares or ADSs by an investor non-resident in Brazil. Gift and inheritance taxes, however, can be levied by some states in Brazil on inheritances bestowed or gifts made by investor non-resident in Brazil l to individuals or entities residing or domiciled within such states in Brazil. There are no Brazilian taxes on stamps, issue, registration or similar by investors holding our shares or ADSs.
10.E.10.08Registered capital
Amounts invested in securities by a holder not residing in Brazil who: (i) qualifies for benefits under CMN Resolution No. 4,373/14 and who registers with the CVM; or (ii) holds ADSs and is represented by the depositary bank'sbank’s registration, are eligible for registration with the Central Bank. In the case of ADSs, since the shareholder of record is the depositary bank, the depositary bank is responsible for obtaining the registration. The registration allows the remittance outside Brazil of foreign currency, converted at the Exchange Market rate, acquired with the proceeds of distributions on, or dispositions of, underlying shares.
10.E.10.09U.S. federal income tax considerations
The statements regarding U.S. tax law set forth below are based on U.S. law as in force on the date of this annual report and changes to such law subsequent to the date of this annual report may affect the tax consequences described herein. This summary describes the principal tax consequences of the ownership and disposition of the shares and ADSs, but it does not purport to be a comprehensive description of all of the tax consequences that may be relevant to a decision to hold or dispose of the shares and ADSs. This summary applies only to purchasers of the shares and ADSs who will hold the shares and ADSs as capital assets and does not apply to special classes of holders such as dealers in securities or currencies, holders whose functional currency is not the U.S. dollar, holders of 10.0% or more of our shares (taking into account shares held directly, through depositary arrangements or through attribution), tax-exempt organizations, financial institutions, holders liable for the alternative minimum tax, securities traders who elect to account for their investment in the shares or ADSs on a mark-to-market basis, and persons holding the shares or ADSs in a hedging transaction or as part of a straddle or conversion transaction. Accordingly, each holder should consult such holder'sholder’s own tax advisor concerning the overall tax consequences to it, including the consequences under laws other than U.S. federal income tax laws, of an investment in the shares or ADSs.
In this discussion, references to a "U.S. holder"“U.S. holder” are to a holder of a share or ADS that: (i) is a citizen or resident of the United States; (ii) is a corporation organized under the laws of the United States of America or any state thereof; or (iii) is otherwise subject to U.S. federal income taxation on a net basis with respect to the shares and ADSs.
The shares will be treated as equity for U.S. federal income tax purposes. For purposes of the U.S. Internal Revenue Code of 1986, as amended, or the "Code,"“Code”, holders of ADSs generally will be treated as owners of the shares represented by such ADSs.
10.E.10.09-01Taxation of distributions
A U.S. holder will recognize dividend income for U.S. federal income tax purposes in an amount equal to the amount of any cash and the value of any property distributed by us as a dividend to the extent that such distribution is paid out of our current or accumulated earnings and profits, as determined for U.S. federal income tax purposes, when such distribution is received by the custodian (or by the U.S. holder in the case of a holder of preferred shares). The amount of any distribution will include the amount of Brazilian tax withheld on the amount distributed, and the amount of a distribution paid inreais will be measured by reference to the exchange rate for convertingreais into U.S. dollars in effect on the date the distribution is received by the custodian (or by a U.S. holder in the case of a holder of preferred shares). If this custodian (or U.S. holder in the case of a holder of preferred shares) does not convert suchreais into U.S. dollars on the date it receives them, it is possible that the U.S. holder will recognize foreign currency loss or gain, which would be ordinary lossordinaryloss or gain, when thereais are converted into U.S. dollars. Dividends paid by us will not be eligible for the dividends received deduction allowed to corporations under the Code.
201 Bradesco
10.E. Taxation | ||
Form 20-F | ||
Subject to certain exceptions for short-term and hedged positions, the U.S. dollar amount of dividends received by an individual with respect to the ADSs will be subject to taxation at reduced rates if the dividends are "qualified dividends."“qualified dividends”. Dividends paid on the ADSs will be treated as qualified dividends if: (i) the ADSs are readily tradable on an established securities market in the United States; and (ii) we were not, in the year prior to the year in which the dividend was paid, and are not, in the year in which the dividend is paid, a passive foreign investment company ("PFIC"(“PFIC”). The ADSs are listed on the New York Stock Exchange, and will qualify as readily tradable on an established securities market in the United States so long as they are so listed. Based on existing guidance, it is not clear whether dividends received with respect to the shares will be treated as qualified dividends, because the shares themselves are not listed on a U.S.
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exchange. In addition, the U.S. Treasury has announced its intention to promulgate rules pursuant to which holders of the shares or ADSs, and intermediaries through whom such securities are held will be permitted to rely on certifications from issuers to treat dividends as qualified for tax reporting purposes. Because such procedures have not yet been issued, it is not clear whether we will be able to comply with them. Holders of ADSs and the shares should consult their own tax advisers regarding the availability of the reduced dividend tax rate in light of the considerations discussed above and their own particular circumstances.
Based on our audited financial statements and relevant market data, we believe that we were not treated as a PFIC for U.S. federal income tax purposes with respect to our 2009 to 2016 taxable years. In addition, based on our audited financial statements and our current expectations regarding the value and nature of our assets, the sources and nature of our income, and relevant market and shareholder data, we do not anticipate becoming a PFIC for the 2017 taxable year. Our belief that we are not, and will not in the future be, a PFIC is based on certain Proposed Treasury Regulations dealing with non-U.S. banks. Such regulations are not final and are subject to modification, in which case our determination regarding PFIC status may be different.
Distributions out of earnings and profits with respect to the shares and ADSs generally will be treated as dividend income from sources outside of the United States and generally will be treated separately with other items of "passive"“passive” (or, in the case of certain U.S. holders, "financial services"“financial services”) income for the purposes of determining the credit for foreign income taxes allowed under the Code. Subject to certain limitations, Brazilian income tax withheld in connection with any distribution with respect to the shares or ADSs may be claimed as a credit against the U.S. federal income tax liability of a U.S. holder if such holder elects for that year to credit all foreign income taxes. Alternatively, such Brazilian withholding tax may be taken as a deduction against taxable income. Foreign tax credits will not be allowed for withholding taxes imposed in respect of certain short-term or hedged positions in securities and may not be allowed in respect of arrangements in which a U.S. holder'sholder’s expected economic profit is not substantial. U.S. holders should consult their own tax advisors concerning the implications of these rules in light of their particular circumstances.
Distributions of additional shares to holders with respect to their shares or ADSs that are made as part of apro rata distribution to all our shareholders generally will not be subject to U.S. federal income tax.
Holders of shares or ADSs that are foreign corporations or non-resident alien individuals, or "non-U.S. holders,"“non-U.S. holders”, generally will not be subject to U.S. federal income tax or withholding tax on distributions with respect to shares or ADSs that are treated as dividend income for U.S. federal income tax purposes unless such dividends are effectively connected with the conduct by the holder of a trade or business in the United States.
10.E.10.09-02Taxation of capital gains
Upon the sale or other disposition of a share or ADS, a U.S. holder generally will recognize gain or loss for U.S. federal income tax purposes. The amount of the gain or loss will be equal to the difference between the amount realized in consideration for the disposition of the shares or ADSs and the U.S. holder'sholder’s tax basis in the shares or ADSs. Such gain or loss generally will be subject to U.S. federal income tax as capital gain or loss and will be long-term capital gain or loss if held for more than one year. Capital losses may be deducted from taxable income, subject to certain limitations. Gain realized by a U.S. holder on a sale or disposition of shares or ADSs generally will be treated as U.S. source income. Consequently, if Brazilian tax is imposed on such gain, the U.S. holder will not be able to use the corresponding foreign tax credit, unless the holder has other foreign source income of the appropriate type in respect of which the credit may be used.
A non-U.S. holder will not be subject to U.S. federal income tax or withholding tax on gain realized on the sale or other disposition of a share or ADS unless: (i) such gain is effectively connected with the conduct byconductby the holder of a trade or business in the United States; or (ii) such holder is an individual who is present in the United States for 183 days or more in the taxable year of the sale and certain other conditions are met.
202 Form 20-F – December 2019
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Form 20-F | ||
10.E.10.09-03Backup withholding and information reporting
Dividends paid on income for the year, and proceeds from the sale or other disposition of theADSs or the shares to a U.S. holder, generally may be subject to the information reporting requirements of the Code and to backup withholding unless the U.S. holder: (i) establishes, if required to do so, it is an exempt recipient; or (ii) in the case of backup withholding, provides an accurate taxpayer identification number and certifies that no loss of exemption from backup withholding has occurred. The amount of any backup withholding collected from a payment to a U.S. holder will be allowed as a credit against the holder's U.S.federalholder’s U.S. federal income tax liability and may entitle the U.S. holder to a refund, provided that certain required information is furnished to the U.S. Internal Revenue Service.
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A non-U.S. holder generally will be exempt from these information reporting requirements and backup withholding tax, but may be required to comply with certain certification and identification procedures in order to establish its eligibility for such exemption.
Certain U.S. holders may be subject to additional reporting requirements. The penalty for failing to comply with these reporting requirements can be significant. U.S. holders should consult their own tax advisors concerning any U.S. reporting requirements that may arise out of the ownership or disposition of the shares or ADSs in light of their particular circumstances.
Not applicable.
Not applicable.
We file reports, including annual reports on Form 20‑F,20-F, and other information with the SEC pursuant to the rules and regulations of the SEC that apply to foreign private issuers. You may read and copy any materials filed with the SEC at its Public Reference Room at 450100 Fifth Street, N.W.N.E., Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. AnyYou may also inspect our reports and other information at the offices of the NYSE, 11 Wall Street, New York, New York 10005, on which our ADSs are listed. Our SEC filings we make electronically will beare also available to the public overfrom the InternetSEC’s website at http://www.sec.gov. For further information about obtaining copies of our public filings at the SEC's website.New York Stock Exchange, call (212) 656-5060.
We also file financial statements and other periodic reports with the CVM.
203 Bradesco
10.I. Subsidiary Information | ||
Form 20-F | ||
For information on subsidiaries, see "Item 4.B. Business Overview – Main Subsidiaries"“Item 4.C. Organizational Structure” and Note 2(b) of2.a to our consolidated financial statements in "Item“Item 18. Financial Statements.”Statements”.
Market risk
Market risk is represented by the possibility of financial losses due to the variation of prices and interest rates of our financial assets, since its active and liability portfolios may have mismatches of amounts, periods, currencies and indexes. We are exposed to market risk, both in our trading and banking portfolios. The main market risks of our portfolios are interest rate risk and foreign exchange risk.
We use stress methodologies such as sensitivity analysis Economic Value of Equity (EVE),Net Interest Income (NII) and Value at Risk (VaR), among others, for evaluating our market risk.
ØInterest rate risk
Interest rate risk arises as a result of timing differences on the re-pricingrepricing of assets and liabilities, unexpected changes in the slope and shape of yield curves, base risk and changes in correlation of interest rates between different financial instruments/indexes. We are exposed to the risk of interest rate movements when there is a mismatch between fixed rates and market interest rates. For a discussion of our management of interest rate sensitivity, see "Item“Item 5.B. Liquidity and Capital Resource – 5.B.80 Interest rate sensitivity."sensitivity”.
ØExchange risk
Exchange risk arises as a result of our having assets, liabilities and off-balance sheet items that are denominated in, or indexed to, currencies other thanreais, either as a result of trading or in the normal course of banking activities. We control exposure to exchange rate movements by ensuring that mismatches are managed and monitored, and our policy is to avoid material exchange rate mismatches. For a discussion of our management of exchange rate sensitivity, see "Item“Item 5.B. Liquidity and Capital Resource – 5.B.80 Exchange rate sensitivity."sensitivity”.
ØMarket risk of trading activities
We enter into derivatives transactions to manage our exposure to interest rate and exchange rate risk. As a result, our exposure to the potential losses described below is generally reduced by these transactions. These derivatives do not qualify as hedges under IFRS. Accordingly, we classify derivatives as
189 Bradesco financial assets at fair value through profit or loss.
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financial assets held for trading.
Sensitivity analysis
Below, a sensitivity analysis for our financial exposure in trading and banking portfolios, based on three scenarios applied to market rates and prices. We considered 25.0% and 50.0% shocks in prices and rates that would adversely affect our positions, and a scenario reflecting an impact of 1 basis point on rates and 1.0% on market prices. These scenarios comply with CVM Instruction No. 475/08.
These figures represent the impact for each scenario in a static portfolio position. Due to the market and portfolios dynamism these positions change continuously and do not necessarily reflect the position shown here. In addition, the Bank has a process of ongoing management of the market risk, which seeks constantly, through the dynamism of the market, manners to mitigate the associated risks, according to the strategy defined by the Senior Management. Thus, in cases where there is evidence of deterioration of a certain position, proactive actions are taken to minimize the possible negative impacts, in order to maximize the risk/return ratio.
Risk Factor | Market as of December 31, 2017 | Scenarios | ||
1 base point shock for interest rate and 1% variation for prices | 25% shock for prices and rates | 50% shock for prices and rates | ||
Foreign exchange rate R$/USD | 3.14 | 3.17 | 3.93 | 4.72 |
1-year fixed rate in reais | 6.90% | 6.91% | 8.62% | 10.35% |
Shocks were also applied to other risk factors and terms of the interest curves. It is important to note that, in the fourth quarter of 2017, the maximum deppreciation of the real against the U.S. dollar was 6.79% (from R$.1269 as of October, 4, 2017 to R$3.3391 as of December 14, 2017 per U.S. dollar), which is below the 25.0% and 50.0% shock scenarios. |
204 Form 20-F – December 2019
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Form 20-F | ||
Risk Factor | Market as of December 31, 2019 | Scenarios | ||
1 base point shock for interest rate and 1% variation for prices | 25% shock for prices and rates | 50% shock for prices and rates | ||
Foreign exchange rate R$/USD | 4.02 | 4.06 | 5.02 | 6.03 |
1-year fixed rate in reais | 4.56% | 4.57% | 5.70% | 6.84% |
Shocks were also applied to other risk factors and terms of the interest curves. It is important to note that, in the fourth quarter of 2018, the maximum deppreciation of the real against the U.S. dollar was 6.71% (from R$3,986 as of Novmber, 5, 2019 to R$4.253 as of November, 27, 2019 per U.S. dollar), which is below the 25% and 50% shock scenarios. |
The impacts of these scenarios on our positions would be as follows:
Trading and banking portfolios | On December 31, 2017 | R$ in thousands | ||
Risk Factors | Definition | Scenarios(1) | ||
1 | 2 | 3 | ||
Interest rate in reais | Exposure subject to the variation of fixed interest rates and interest rate coupon | (12,579) | (2,339,939) | (4,560,181) |
Price Index | Exposure subject to the variation of price index coupon rates | (512) | (56,130) | (107,716) |
Exchange coupon | Exposure subject to the variation of foreign exchange coupon rates | (1,575) | (80,110) | (158,548) |
Foreign currency | Exposure subject to foreign exchange variation | (600) | (15,004) | (30,008) |
Variable income | Exposure subject to the variation of share prices | (16,289) | (407,237) | (814,475) |
Sovereigns/Eurobonds and Treasuries | Exposure subject to the variation of interest rates of securities traded abroad | (4,978) | (205,764) | (406,054) |
Other | Exposure not eligible in the previous definitions | (12) | (307) | (613) |
Total not correlated |
| (36,545) | (3,104,491) | (6,077,595) |
Total correlated |
| (26,956) | (2,678,101) | (5,232,466) |
(1) Amounts net of tax effects. |
Trading and banking portfolios | On December 31, 2019 | R$ in thousands | ||||||
Risk Factors | Definition | Scenarios(1) | ||||||
1 | 2 | 3 | ||||||
Interest rate in reais | Exposure subject to the variation of fixed interest rates and interest rate coupon | (14,670) | (1,895,973) | (3,775,039) | ||||
Price Index | Exposure subject to the variation of price index coupon rates | (16,840) | (1,312,832) | (2,397,962) | ||||
Exchange coupon | Exposure subject to the variation of foreign exchange coupon rates | (1,035) | (71,631) | (139,560) | ||||
Foreign currency | Exposure subject to foreign exchange variation | (3,136) | (71,103) | (142,206) | ||||
Variable income | Exposure subject to the variation of share prices | (28,808) | (720,192) | (1,440,384) | ||||
Sovereigns/Eurobonds and Treasuries | Exposure subject to the variation of interest rates of securities traded abroad | (1,399) | (52,962) | (104,190) | ||||
Other | Exposure not eligible in the previous definitions | (66) | (1,660) | (3,320) | ||||
Total not correlated |
| (65,954) | (4,126,353) | (8,002,661) | ||||
Total correlated |
| (42,209) | (3,038,149) | (5,919,579) | ||||
(1) Amounts net of tax effects. | ||||||||
Banking portfolio | On December 31, 2017 | R$ in thousands | On December 31, 2019 | R$ in thousands | ||||
Risk Factors | Definition | Scenarios(1) | Definition | Scenarios(1) | ||||
1 | 2 | 3 | 1 | 2 | 3 | |||
Interest rate in reais | Exposure subject to the variation of fixed interest rates and interest rate coupon | (12,226) | (2,279,661) | (4,442,044) | Exposure subject to the variation of fixed interest rates and interest rate coupon | (14,635) | (1,890,506) | (3,764,552) |
Price index | Exposure subject to the variation of price index coupon rates | (368) | (38,791) | (74,890) | Exposure subject to the variation of price index coupon rates | (16,268) | (1,289,311) | (2,354,349) |
Exchange coupon | Exposure subject to the variation of foreign exchange coupon rates | (1,567) | (79,720) | (157,768) | Exposure subject to the variation of foreign exchange coupon rates | (1,036) | (71,711) | (139,714) |
Foreign currency | Exposure subject to foreign exchange variation | (1,253) | (31,322) | (62,644) | Exposure subject to foreign exchange variation | (1,779) | (40,132) | (80,264) |
Variable income | Exposure subject to the variation share prices | (16,150) | (403,762) | (807,524) | Exposure subject to the variation share prices | (28,620) | (715,500) | (1,431,000) |
Sovereigns/Eurobonds and Treasuries | Exposure subject to the variation of interest rates of securities traded abroad | (2,684) | (150,051) | (294,541) | Exposure subject to the variation of interest rates of securities traded abroad | (1,019) | (41,202) | (81,455) |
Other | Exposure not eligible in the previous definitions | (12) | (307) | (613) | Exposure not eligible in the previous definitions | (66) | (1,659) | (3,319) |
Total not correlated |
| (34,260) | (2,983,614) | (5,840,024) |
| (63,423) | (4,050,021) | (7,854,653) |
Total correlated |
| (25,050) | (2,567,670) | (5,015,679) |
| (43,595) | (3,078,614) | (5,999,988) |
(1) Amounts net of tax effects. | (1) Amounts net of tax effects. | |||||||
Trading Portfolio | On December 31, 2019 | R$ in thousands | ||||||
Risk Factors | Definition | Scenarios(1) | ||||||
1 | 2 | 3 | ||||||
Interest rate in reais | Exposure subject to the variation of fixed interest rates and interest rate coupon | (97) | (14,128) | (27,256) | ||||
Price index | Exposure subject to the variation of price index coupon rates | (904) | (29,440) | (56,245) | ||||
Exchange coupon | Exposure subject to the variation of foreign exchange coupon rates | (10) | (689) | (1,373) | ||||
Foreign currency | Exposure subject to foreign exchange variation | (2,772) | (74,695) | (149,390) | ||||
Variable income | Exposure subject to the variation share prices | (228) | (5,710) | (11,420) | ||||
Sovereigns/Eurobonds and Treasuries | Exposure subject to the variation of interest rates of securities traded abroad | (699) | (29,099) | (56,736) | ||||
Other |
| - | (26) | (52) | ||||
Total not correlated |
| (4,710) | (153,787) | (302,472) | ||||
Total correlated |
| (2,617) | (72,476) | (145,411) |
190ØForm 20-F – December 2017
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Trading Portfolio | On December 31, 2017 | R$ in thousands | ||
Risk Factors | Definition | Scenarios(1) | ||
1 | 2 | 3 | ||
Interest rate in reais | Exposure subject to the variation of fixed interest rates and interest rate coupon | (359) | (61,497) | (120,385) |
Price index | Exposure subject to the variation of price index coupon rates | (147) | (17,576) | (33,298) |
Exchange coupon | Exposure subject to the variation of foreign exchange coupon rates | (9) | (420) | (839) |
Foreign currency | Exposure subject to foreign exchange variation | (1,629) | (40,736) | (81,473) |
Variable income | Exposure subject to the variation share prices | (1,215) | (30,378) | (60,757) |
Sovereigns/Eurobonds and Treasuries | Exposure subject to the variation of interest rates of securities traded abroad | (2,469) | (61,730) | (123,461) |
Total not correlated |
| (5,828) | (212,337) | (420,213) |
Total correlated |
| (3,448) | (131,662) | (259,684) |
(1) Amounts net of tax effects. |
The Trading portfolio'sportfolio’s risk is measured using the Delta-Normal VaR methodology with a 99.0% confidence level, and the time horizon applied includes the number of days required to undo the existing exposures. Additionally, for the measurement of all risk factors of the options portfolio, the historic simulation models and Delta-Gama-VegaDelta-Gamma-Vega are applied, whichever is the most conservative of the two, whereby this risk of options is added to theVaR of the portfolio.
For the calculation of volatilities, correlations, and historic returns, a minimum window of 252 business days is adopted. The methodology applied and the existing statistical models are assessed on a permanent basis using backtesting techniques, which compare the VaR with holding periods of one day and hypothetical results, obtained with the same positions used in the VaR calculation, and effectively considering also the transactions of the day for which the VaR was estimated.
The main purpose is to monitor, validate and evaluate the VaR model'smodel’s adherence and the number of breaks occurred should be in line with the number of breaks accepted by the statistical tests carried out for the requiredtherequired level of confidence (99.0%). Another purpose is to improve the models used by us, by way of analyses carried out for different VaR observation periods and confidence levels, both for Total VaR and by risk factors.
205 Bradesco
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | ||
Form 20-F | ||
In 20172019, the daily results, both hypothetical and effective point of view, exceeded the respective VaR with a confidence level of 99.0% only once.one time. In accordance with the paper published by the Basel Committee on Banking Supervision (Supervisory Framework for the use “Backtesting” in Conjunction with the Internal Models Approach to Market Risk Capital Requirements of January 1996), any deviationsthe deviation would be classified as “either bad luck or the markets moved in a fashion unanticipated by the model,”model”, that is, the volatility was significantly higher than expected and/or the correlations differed from those forecast by the model.
In 2017,2019, VaR of the trading portfolio, at one-day horizon and net of tax effects, presented maximum and minimum values of R$100.629.6 million and R$5.7 million, respectively, both in the 2Q17 and R$5.5 million in the 3Q17, respectively.Thefirst quarter. The tables below show the value at risk, according to the methodology of theVaR. VaR.
| 2017 - R$ in thousands | |||
1st Quarter | At March 31 | |||
Average | Minimum | Maximum | ||
Risk Factors |
|
|
|
|
Reais (fixed and floating rate) | 17,223 | 8,364 | 27,106 | 13,168 |
Foreign exchange coupon | 751 | 64 | 1,883 | 1,007 |
Foreign currency | 1,871 | 17 | 6,203 | 977 |
Variable income | 418 | - | 1,677 | 572 |
Sovereign risk | 4,557 | 3,154 | 6,989 | 4,072 |
Other | 2 | 1 | 4 | 2 |
Total VaR | 20,552 | 11,145 | 29,972 | 15,261 |
191 Bradesco
| 2019 - R$ in thousands | |||
1st Quarter | At March 31 | |||
Average | Minimum | Maximum | ||
Risk Factors |
|
|
|
|
Reais (fixed and floating rate) | 10,092 | 847 | 23,566 | 9,021 |
Foreign exchange coupon | 1,368 | 151 | 6,066 | 194 |
Foreign currency | 1,364 | 459 | 3,668 | 3,668 |
Variable income | 1,478 | 544 | 2,879 | 1,274 |
Sovereign risk | 4,502 | 3,179 | 6,019 | 3,850 |
Other | 2 | 0 | 3 | 3 |
Total VaR | 15,526 | 5,686 | 29,566 | 12,891 |
| 2019 - R$ in thousands | |||
2nd Quarter | At June 30 | |||
Average | Minimum | Maximum | ||
Risk Factors |
|
|
|
|
Reais (fixed and floating rate) | 10,060 | 5,338 | 17,631 | 10,611 |
Foreign exchange coupon | 469 | 101 | 1,537 | 122 |
Foreign currency | 3,497 | 490 | 5,056 | 5,056 |
Variable income | 1,279 | 632 | 2,446 | 1,381 |
Sovereign risk | 3,093 | 1,864 | 3,886 | 2,060 |
Other | 1 | 0 | 2 | 0 |
Total VaR | 15,384 | 10,487 | 21,396 | 17,890 |
| 2019 - R$ in thousands | |||
3rd Quarter | At September 30 | |||
Average | Minimum | Maximum | ||
Risk Factors |
|
|
|
|
Reais (fixed and floating rate) | 11,517 | 5,549 | 20,404 | 9,257 |
Foreign exchange coupon | 643 | 69 | 5,433 | 616 |
Foreign currency | 2,549 | 34 | 6,215 | 4,595 |
Variable Income | 2,358 | 1,222 | 4,100 | 1,400 |
Sovereign risk | 1,871 | 1,292 | 2,507 | 1,594 |
Other | 2 | 0 | 8 | 3 |
Total VaR | 16,241 | 9,959 | 24,314 | 10,672 |
206 Form 20-F – December 2019
| ||
Form 20-F | ||
| 2017 - R$ in thousands | |||
2nd Quarter | At June 30 | |||
Average | Minimum | Maximum | ||
Risk Factors |
|
|
|
|
Reais (fixed and floating rate) | 36,091 | 13,060 | 94,515 | 22,758 |
Foreign exchange coupon | 556 | 62 | 1,908 | 139 |
Foreign currency | 1,399 | 129 | 7,743 | 245 |
Variable income | 601 | 8 | 2,851 | 94 |
Sovereign risk | 2,599 | 1,922 | 3,949 | 2,363 |
Other | 1 | - | 2 | 2 |
Total VaR | 39,043 | 15,301 | 100,640 | 25,133 |
| 2017 - R$ in thousands | |||
3rd Quarter | At September 30 | |||
Average | Minimum | Maximum | ||
Risk Factors |
|
|
|
|
Reais (fixed and floating rate) | 16,688 | 4,493 | 25,965 | 19,883 |
Foreign exchange coupon | 353 | 5 | 2,947 | 131 |
Foreign currency | 809 | 157 | 2,052 | 1,640 |
Variable Income | 385 | 60 | 1,975 | 270 |
Sovereign risk | 1,739 | 702 | 3,082 | 2,388 |
Other | 1 | - | 3 | 2 |
Total VaR | 18,542 | 5,499 | 27,900 | 23,262 |
| 2017 - R$ in thousands | 2019 - R$ in thousands | ||||||
4th Quarter | At December 31 | 4th Quarter | At December 31 | |||||
Average | Minimum | Maximum | Average | Minimum | Maximum | |||
Risk Factors |
|
|
|
|
|
| ||
Reais (fixed and floating rate) | 15,648 | 10,636 | 34,044 | 11,233 | 5,057 | 2,835 | 8,934 | 3,408 |
Foreign exchange coupon | 357 | 12 | 1,802 | 48 | 334 | 63 | 1,658 | 415 |
Foreign currency | 2,058 | 358 | 4,920 | 2,925 | 4,109 | 491 | 10,736 | 5,327 |
Variable Income | 311 | 118 | 871 | 289 | 1,160 | 303 | 2,144 | 707 |
Sovereign risk | 1,214 | 455 | 2,325 | 826 | 2,160 | 1,041 | 3,834 | 3,834 |
Other | 2 | - | 4 | 1 | 6 | 3 | 17 | 4 |
Total VaR | 18,150 | 13,026 | 37,485 | 14,417 | 10,263 | 6,469 | 15,309 | 9,973 |
The following table shows trading portfolio VaR concentration in frequency terms in the year ended December 31, 2017:2019:
Value at Risk (R$ in millions) | First Quarter | Second Quarter | Third Quarter | Fourth Quarter | Annual Average | First Quarter | Second Quarter | Third Quarter | Fourth Quarter | Annual Average |
Up to R$20 | 43.1% | 15.6% | 56.9% | 79.7% | 48.8% | 73.4% | 76.1% | 71.3% | 100.0% | 78.3% |
Over R$20 up to R$30 | 56.9% | 45.3% | 43.1% | 17.2% | 40.3% | 26.6% | 23.9% | 28.7% | 0.0% | 21.7% |
Over R$30 up to R$40 | 0.0% | 12.5% | 0.0% | 3.1% | 4.3% | 0.0% | 0.0% | |||
Over R$40 up to R$50 | 0.0% | 3.1% | 0.0% | 0.0% | 0.8% | 0.0% | 0.0% | |||
Over R$50 | 0.0% | 23.4% | 0.0% | 0.0% | 5.8% | 0.0% | 0.0% |
Not applicable.
Not applicable.
192Form 20-F – December 2017
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Not applicable.
207 Bradesco
12.D. American Depositary Shares | ||
Form 20-F | ||
The table below describes the services and the respective rates and fees that the direct or indirect holders of our ADRs (preferred and common) may be subject to pay to our depositary bank, The Bank of New York Mellon (“BNYM”).
RATES AND FEES | SERVICE |
US$0.05 (or less) for ADSs or common share ADSs. | · Issuance of ADSs or common share ADSs, including issuances from share distribution, rights or other assets. |
· ADS or common share ADS cancellation due to withdrawal, including in the event the deposit agreement is terminated. | |
US$0.02 (or less) per ADSs or common share ADSs. | · Any cash distribution to registered ADS or common share ADS holders. |
A fee equivalent to the one that should be paid if the distributed bonds were equivalent to shares and shares were deposited for the issuance of ADSs or common share ADSs. | · Distribution of bonds to deposit holders, which are distributed by the depositary to registered ADS or common share ADS holders. |
US$0.02 (or less) per ADSs or common share ADSs per year. | · Depositary services. |
Registration or transfer fees. | · Transfer and registration of shares in custodian's books on behalf of the depositary or his/her agent, when shares are deposited or withdrawn. |
Depositary's expenses. | · Expenses related to telegram, telephone and fax (when expressly indicated in the deposit agreement). |
· Converting foreign currency into U.S. dollars. | |
Taxes and other governmental fees the depositary or the custodian must pay on any ADS or common share ADSs, or share backed by any ADS or common share ADSs, for example: taxes for transfer of shares, stamp tax or withholding taxes. | · As necessary. |
Any costs incurred by the depositary or the agent for services provided relating to deposited bonds. | · As necessary. |
From January 1 to December 31, 2017,2019, we received from our depositary bank the amount of US$15.419.1 million, as reimbursement or payment made in our favor.
Not applicable.
Not applicable.
Financial responsibility, disclosure controls and procedures, and report on internal control over financial reporting.
208 Form 20-F – December 2019
Table of Contents | ||
Form 20-F | ||
Ø(a)Disclosure controls and procedures
As of December 31, 2017,2019, evaluations of the effectiveness of our disclosure controls and procedures (as defined in Articles 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 of the SEC) were carried out under the supervision of our Management, including our Chief Executive Officer and Chief Financial Officer. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, and it disclosure controls and proceduresmay not prevent or identify deficiencies. Accordingly, even effective disclosuremisstatements.Also, projections of any evaluation of effectiveness for future periods are subject to the risk that controls andmay become inadequate because of changes in conditions, or that the degree of compliance with policies or procedures can only provide reasonable assurance of achieving their control objectives.may deteriorate.
Based upon the evaluation referred to above, our Chief Executive Officer and Chief Financial Officer concluded, subject to the limitations noted above, that for the period covered by this annual report, our disclosure controls and procedures were adequate and effective to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act of the
193 Bradesco
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SEC is recorded, processed, summarized and disclosed within the time periods specified in the applicable rules and forms, and that it is accumulated and communicated to our Management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Ø(b)Management'sManagement’s annual report on internal control over financial reporting
Our Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Articles 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934 of the SEC. Our internal control was 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 pratices.IFRS as issued by the IASB.
Our Management made an assessment of the effectiveness of our internal controlcontrols over consolidated financial reporting as of December 31, 20172019 based upon the 2013 framework "IntegratedIntegrated Internal Control Structure"Structure established by the Committee“Committee of Sponsoring Organizations of the Treadway Commission (“– COSO”) and has concluded that our internal control overcontrols related to the financial reporting was effective.statements were effective and do not present weaknesses.
The effectiveness of our internal control over financial reporting, as of December 31, 2017,2019, has been audited by KPMG Auditores Independentes, a PCAOB – registered independent accounting firm, as stated in their report beginning on page F-3 of "Item“Item 18. Financial Statements."Statements”.
Ø(c)Attestation report of the independent registered public accounting firm
For the report of KPMG Auditores Independentes, our PCAOB – registered independent accounting firm, dated April30, 2018, 29, 2020, on the effectiveness of the internal control over financial reporting as of December 31, 2017,2019, see "Item“Item 18. Financial Statements."Statements”.
Ø(d)Changes in internal control over financial reporting
Following the adoption of IFRS9 in 2018, in 2019 we continued to make revisions and improvements to certain controls over financial reporting related to the process for calculating the expected credit losses on financial assets measured at amortized cost, specifically these included establishing parameters for which certain controls operate and adding incremental control procedures related to the underlying assumptions supporting the expected credit loss models and the final expected credit loss calculations.
Except for the implementation of certain new processes and internal controls related to the classification and measurement of financial instruments and impairment of loans and advances, in which includes: (i) new models for the classification and measurement of financial instruments; (ii) measurement of expected credit losses for financial assets; and (iii) new requirements on hedge accounting, in order to estimate the impacts on shareholders' equity in relation to the adoption of IFRS 9 and prospective application,those improvements, there have been no changes in our internal control over financial reporting (as such term is defined in Articles 13a-15(f) and 15d-15(f) under the "Securities Exchange Act of 1934" of the SEC), that occurred during the fiscal year ended December 31, 2017 that havehas materially affected, or areis reasonably likely to materially affect, our internal control over financial reporting.reporting that occurred during the fiscal year ended December 31, 2019.
209 Bradesco
ITEM 16. [RESERVED] | ||
Form 20-F | ||
Our Board of Directors has reviewed the qualifications and backgrounds of the members of the Audit Committee and designated Paulo Roberto Simões da Cunha as "Audit“Audit Committee financial expert,"expert”, within the meaning of Item 16.A, and as independent member. For more information regarding our Audit Committee, see "Item“Item 6.C. Board Practices – 6.C.20 Board Advisory Committees – Audit Committee."Committee”.
We have adopted a Code of EthicsEthical Conduct and Sectorial Codes of EthicsEthical Conduct under the Securities Exchange Act of 1934, as amended. Our Codes of EthicsEthical Conduct apply to our Chief Executive Officer, Chief Financial Officer, Chief Accounting Officer and persons performing similar functions, to our directors, officers and other executives, employees, business partners, suppliers and service providers. Our Codes of Ethical Conduct are available on our website at www.bradesco.com.br/ir.investor relations website.
If we amend the provisions of our Codes of Ethical Conduct, or if we grant any waiver of such provisions, we will disclose such amendment or waiver on our website at the same address.
16.C.10Audit and non-audit fees
The following table sets forth the fees billed to us by our independent accounting firm during the fiscal years ended as of December 31, 20172019 and 2016:
194Form 20-F – December 20172018:
Year ended December 31, | R$ in thousands | |
2019 | 2018 | |
Audit fees | 42,040 | 39,695 |
Audit-related fees | 1,060 | 737 |
Other fees | 2,309 | 4,083 |
Total fees | 45,409 | 44,515 |
| |
|
Year ended December 31, | R$ in thousands | |
2017 | 2016 | |
Audit fees | 40,604 | 38,504 |
Audit-related fees | 775 | 2,008 |
Other fees | 2,321 | 3,213 |
Total fees | 43,700 | 43,725 |
The fees for the years 20172019 and 20162018 correspond to those paid to our auditor for those years (KPMG Auditores Independentes).
Our independent accounting firm audits our annual financial statements in accordance with IFRS and BR GAAP, the annual financial statements of our investee companies, as well as the quarterly review of our interim financial statements.
Audit-related fees in the above table are the aggregate fees billed by the independent auditors for accounting attestation reports requested by our Management and the issue of comfort letters for placement of bonds abroad.
OtherOther fees in the above table are fees billed by the independent auditors primarily related to agreed upon procedures for issuance of due diligence, for assurance, technical consultancy and reviews of, substantially, financial, fiscal and actuarial information.previously agreed procedures reports.
210 Form 20-F – December 2019
Table of Contents | ||
Form 20-F | ||
16.C.20Audit Committee pre-approval policies and procedures
The Audit Committee recommends to the Board of Directors for approval, the entity to be hired to provide us and our subsidiaries independent audit services, and their compensation, as well as its replacement. The engagement of an independent auditor for non-audit services is not subject to the Board of Directors. However, it must be previously reviewed by the Audit Committee in respect to compliance with independence rules. For more information regarding our Board of Directors and Audit Committee, see "Item“Item 6.C. Board of Directors Practices."Practices”.
Under the NYSE and the SEC listed-company audit committee rules effective July 31, 2006, we must comply with Exchange Act Rule 10A-3, which requires us to either establish an Audit Committee composed of members of the Board of Directors that meets specified requirements or designate and empower a Fiscal Council or similar body to perform the role of an Audit Committee based on the exemption in Exchange Act Rule 10A-3(c)(3).
Pursuant to Central Bank regulations, we have established a body denominated Audit Committee, which performs nearly all of the functions of an Audit Committee of a U.S. company. Of the three members of our Audit Committee, one member is also a member of our Board of Directors. Under Brazilian law, the function of hiring independent auditors is a power reserved for the Board of Directors. As a result, our Board of Directors acts as our Audit Committee, as specified in Section 3(a)(58) of the Exchange Act, for purposes of approving the engagement of our independent auditors for audit. Except in these respects, our Audit Committee is comparable to and performs the functions of an audit committee of the Board of Directors of a U.S. company. Since our Audit Committee is not a committee of our Board of Directors, but a separate body, as required under Brazilian law, we believe that our Audit Committee satisfies the requirements of Exchange Act Rule 10(a)(3). However, based on the exemption set forth in Exchange Act Rule 10A-3(c)(3) the Audit Committee is a separate body from our Board of Directors and in accordance with Central Bank regulations, we believe that our Audit Committee is able to act independently in performing the responsibilities of an Audit Committee under the Sarbanes-Oxley Act and to satisfy the other requirements of Exchange Act Rule 10A-3.
The purpose of the program of acquisition of shares to be held in treasury and to be subsequently disposed of or canceled, without capital reduction, is the application of funds available for investments from the "Earnings“Earnings Reserve – Statutory Reserve"Reserve” account. This program authorizes the acquisition of up to 15,000,000 nominative book-keeping shares, with no par value, whereby 7,500,000 are common shares and 7,500,000 are preferred shares; and it is effective from June 27, 20172019 until June 26, 2018.December 27, 2020.
In 2017, any2019, no class of shares were acquired to be held in treasury.
195 Bradesco
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Not applicable.
211 Bradesco
16.G. Corporate Governance | ||
Form 20-F | ||
In May 2006, our Board of Directors approved our Corporate Governance Policy. This policy is available on our website at www.bradesco.com.br/ri.investor relations website.
16.G.10Comparison of our corporate governance practices with NYSE rules applicable to North American companies
Under the NYSE’s corporate governance rules approved by the SEC, foreign private issuers are subject to a more limited set of corporate governance requirements than U.S. domestic issuers. As a foreign private issuer, we must comply with three rules imposed by the NYSE:
· SEC requirements concerning audit committees;
· our CEOChief Executive Officer must promptly notify the SEC in writing as soon as an executive officer becomes aware of any non-compliance with any of the applicable NYSE corporate governance rules; and
· we must provide a brief description disclosing any significant ways in which our corporate governance practices differ from those followed by U.S. companies under NYSE listing standards.
The chart below provides a brief description of the significant differences between our corporate governance practices and those followed by U.S. companies under NYSE listing standards.
Article | NYSE corporate governance rules for US issuers | Our corporate governance practices |
303A.01 | Independent directors must comprise a majority of the members of the Board of Directors of a listed company on NYSE. | Brazilian law provides that only individuals may be appointed to a |
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|
|
303A.04 | Listed companies must have a nomination/ corporate governance committee composed entirely of independent directors, with a written charter that addresses specific minimum requirements. | We have an Executive Committee of Corporate Governance subordinate to theDiretoria Executiva, and the Succession Planning and Nomination Committee, which reports to the Board of Directors. Both committees are composed of members of our Management, and have a charter that addresses its minimum requirements. |
303A.05 | Listed companies must have a compensation committee composed entirely of independent directors, with a written charter that addresses specific minimum requirements. | We have a Compensation Committee of three to seven members chosen among the members of the Board of Directors, except for one who is not a senior manager, each with a |
196212 Form 20-F – December 20172019
Table of Contents | ||
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Form 20-F |
| |
303A.06 303A.07 | Listed companies must have an | Pursuant to our Bylaws and to Central Bank regulations since December 2003, we have appointed an Audit Committee. Our Audit Committee comprises three to five members, each of whom serves for a term of We also have a Fiscal Council, which currently has five members and five alternates. The Fiscal Council is an independent corporate body. For more information about the rights and obligations of our Fiscal Council, see |
303A.08 | Shareholders must be given the opportunity to vote on equity-compensation plans and material revisions thereto, with limited exemptions set forth in the NYSE rules. | Under the Brazilian Corporate Law, shareholder approval is required for the adoption of any stock option compensation |
303A.09 | Listed companies must adopt and disclose corporate governance guidelines addressing specific minimum requirements. | Our corporate governance guidelines and practices are available |
213 Bradesco
PART III | ||
Form 20-F | ||
303A.10 | Listed companies must adopt and disclose a Code of Ethical Conduct for directors, officers and employees, and promptly disclose any waivers of the code for directors or executive officers. | We have adopted a Code of Ethical Conduct, which applies to our Senior Management, employees, business partners, suppliers and service providers, parent companies, subsidiaries and companies under common control, directly or indirectly and, when applicable, to non-profit entities managed by members of Senior Management or employees appointed or transferred by our member companies. We have an Integrity and Ethical Conduct Committee, appointed by the Board of Directors, which is responsible for dissemination and fulfillment of the Codes of Ethical Conduct, as well as ensuring its effectiveness. We will post any modifications or waivers to either Codes of Ethical Conduct on our website. |
303A.12 |
| Our |
197 Bradesco
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See "Item“Item 18. Financial Statements."Statements”.
See our financial statements on pages F-2F-3 through F-153.F-155.
Documents filed as exhibits to this annual report:
1.1 -– Our Amended and Restated Bylaws.
2.1 -– Deposit Agreement, amended and restated, dated as of December 11, 2015, by and among us, The Bank of New York Mellon, as depositary, and the holders and beneficial owners of preferred share ADSs evidenced by preferred share ADRs issued thereunder (incorporated by reference to the Registration Statement on Form F-6 relating to the ADSs filed on December 1, 2015 (File No.333-208281)).
214 Form 20-F – December 2019
Table of Contents | ||
Form 20-F | ||
2.2 – Common share Deposit Agreement, amended and restated, dated as of December 11, 2015, by and among us, The Bank of New York Mellon, as depositary, and the holders and beneficial owners of common share ADSs evidenced by common share ADRs issued thereunder (incorporated by reference to the Registration Statement on Form F-6 relating to the common share ADSs filed on December 1, 2015 (File No.333-179623) 333-179623)).
2.3 -–The total amount of our long-term debt securities and our subsidiaries’ long-term debt securities under any one instrument does not exceed 10.0% of our total assets and our subsidiaries’ total assets on a consolidated basis. We agree to furnish copies of any or all such instruments to the SEC upon request.
4.1+2.4 – Share Purchase Agreement dated July 31, 2015 between HSBC Latin America Holdings (UK) and us(incorporated by reference to the Annual Report on Form 20-F/A filed on August 29, 2016 – File No. 001-15250)Description of Securities.
7.1 - Calculation of dividends/interest on equity per share data.
12.1 -– Certification of the Chief Executive Officer, pursuant to Rules 13a-14 and 15d-14 under the Securities Exchange Act of 1934.
198Form 20-F – December 2017
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12.2 -– Certification of the Chief Financial Officer, pursuant to Rules 13a-14 and 15d-14 under the Securities Exchange Act of 1934.
13.1 -– Certification of the Chief Executive Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
13.2 -– Certification of the Chief Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
+ Registrant has omitted portions of the referenced exhibit pursuant to a request for confidential treatment pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.
198Form 20-F – December 2017
215 Bradesco
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SIGNATURES | |||
Form 20-F | |||
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Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the Registrant certifies that it meets all the requirements for filing on Form 20-F and has duly caused this annual report to be signed on its behalf by the undersigned, thereunto duly authorized.
Banco Bradesco S.A.
/s/ Octavio de Lazari Junior |
Octavio de Lazari Junior Chief Executive Officer |
/s/ Octavio de Lazari Junior Octavio de Lazari JuniorChief Executive OfficerDate: April 30, 2020.
/s/ André Rodrigues Cano |
André Rodrigues Cano Chief Financial Officer |
/s/ André Rodrigues Cano André Rodrigues Cano
Vice-President
Date: April 30, 2018.
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Summary
Independent Auditors’ Report | F-3 | |||||
Consolidated Income Statements | F-6 | |||||
Consolidated Statements of Comprehensive Income | F-7 | |||||
Consolidated Statements of Financial Position | F-8 | |||||
Consolidated Statements of Changes in Equity | F-9-10 | |||||
Consolidated Statements of Cash Flows | F-11-12 | |||||
Notes to the Consolidated Financial Statements | ||||||
Net gains/(losses) on financial assets and liabilities at fair value through profit or loss | ||||||
Net gains/(losses) on financial assets at fair value through other comprehensive income | ||||||
Provisions, Contingents Assets and Liabilities and Legal Obligations – Tax and Social Security | ||||||
Financial assets and liabilities at fair value through profit or loss | ||||||
New standards and amendments and interpretations of existing standards | ||||||
Financial assets at fair value through other comprehensive income | ||||||
1) | General information | F-12 | 28) | Property and equipment | F-121 | |
2) | Significant accounting practices | F-12 | 29) | Intangible assets and goodwill | F-123 | |
3) | Risk Management | F-40 | 30) | Other assets | F-124 | |
| 3.1. | Credit risk | F-42 | 31) | Deposits from banks | F-125 |
| 3.2. | Market risk | F-55 | 32) | Deposits from customers | F-125 |
| 3.3. | Liquidity risk | F-66 | 33) | Funds from securities issued | F-125 |
| 3.4. | Fair value of financial assets and liabilities | F-76 | 34) | Subordinated debt | F-127 |
| 3.5. | Capital management | F-82 | 35) | Insurance technical provisions and pension plans | F-128 |
| 3.6. | Insurance risk/subscription risk | F-87 | 36) | Supplemental pension plans | F-136 |
4) | Estimates and judgments | F-93 | 37) | Provisions, contingent liabilities and contingent assets | F-138 | |
5) | Operating segments | F-96 | 38) | Other liabilities | F-142 | |
6) | Net interest income | F-100 | 39) | Equity | F-143 | |
7) | Net fee and commission income | F-101 | 40) | Transactions with related parties | F-145 | |
8) | Net gains/(losses) on financial instruments classified as held for trading | F-101 | 41) | Off-balance sheet commitments | F-147 | |
9) | Net gains/(losses) on financial instruments classified as available for sale | F-101 | 42) | New standards and amendments and interpretations of existing standards | F-148 | |
10) | Net gains/(losses) on foreign currency transactions | F-101 | 43) | Other information | F-151 | |
11) | Net income from insurance and pension plans | F-102 | 44) | Subsequent events | F-153 | |
12) | Impairment of loans and advances | F-102 |
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13) | Personnel expenses | F-103 |
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14) | Other administrative expenses | F-103 |
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15) | Depreciation and amortization | F-103 |
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16) | Other operating income/(expenses) | F-104 |
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17) | Income tax and social contribution | F-104 |
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18) | Earnings per share | F-107 |
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19) | Cash and cash equivalents | F-108 |
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20) | Financial assets and liabilities held for trading | F-108 |
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| |
21) | Financial assets available for sale | F-113 |
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| |
22) | Investments held to maturity | F-114 |
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| |
23) | Financial assets pledged as collateral | F-115 |
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| |
24) | Loans and advances to banks | F-115 |
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| |
25) | Loans and advances to customers | F-116 |
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| |
26) | Non-current assets held for sale | F-117 |
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| |
27) | Investments in associates and joint ventures | F-118 |
|
|
|
F-2 IFRS – International Financial Reporting Standards – 20172019
Consolidated Financial Statements in compliance with International Financial Recording Standards (IFRS)
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Independent Auditors’ Report
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors and Stockholdersof
Banco Bradesco S.A.
Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting
We have audited the accompanying consolidated statement of financial position of Banco Bradesco S.A. and subsidiaries (“Bradesco”(the “Bank”) as of December 31, 20172019 and 2016,2018, the related consolidated income statements and statements of income, comprehensive income, changes in equity and cash flows for each of the years in the three-year period ended December 31, 20172019, and the related notes.notes (collectively, the consolidated financial statements). We also have audited Bradesco’sthe Bank’s internal control over financial reporting as of December 31, 2017,2019, based on criteria established inInternal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).Commission.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Banco Bradesco S.A. and subsidiariesthe Bank as of December 31, 20172019 and 2016,2018, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2017,2019, in conformity with International Financial Reporting Standards (IFRS), as issued by the International Accounting Standards Board (IASB). Also, in our opinion, Bradescothe Bank maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017,2019 based on criteria established inInternal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Change in Accounting Principle
As discussed in Note 2.d) i. to the consolidated financial statements, the Bank changed its method of accounting for financial instruments in 2018 due to the adoption of IFRS 9 “Financial instruments”.
Basis for Opinions
Bradesco’sThe Bank’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 the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on Bradesco’sthe Bank’s consolidated financial statements and an opinion on Bradesco’sthe Bank’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 BradescoBank 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.
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, 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.
Bradesco F-3
Consolidated Financial Statements in compliance with International Financial Recording Standards (IFRS)
Independent Auditors’ Report
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 (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) 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 (3) 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.
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 committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) 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.
KPMG Auditores IndependentesBradesco F-3
We have served as the Company’s auditor since 2011.
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Osasco, BrazilIndependent Auditors’ Report
April 30, 2018
Assessment of the expected credit losses
As discussed in Notes 2d viii, 3.1, 4, 21d, 23, 24 and 40 to the consolidated financial statements, the Bank’s expected credit losses related to loans and advances to customers, loan commitments, financial guarantees, financial assets at fair value through other comprehensive income and securities at amortized cost (ECL) was R$ 42,984,323 thousand as of December 31, 2019.
We identified the assessment of the ECL as a critical audit matter because it involved significant measurement uncertainty, primarily as a result of the complexity of the models and the subjectivity of the assumptions, requiring complex auditor judgment as well as knowledge and experience in the industry. In addition, auditor judgment was required to evaluate the sufficiency of audit evidence obtained. The assessment of the ECL encompassed the evaluation of the overall ECL methodology, inclusive of the methodologies and assumptions used to estimate the probability of default (PD), exposure at default (EAD) and loss given default (LGD), as well as the future macroeconomic scenarios. It also included an assessment of the ECL calculated on an individual basis, including the expected cash flows and the related collateral valuation, and an evaluation of the mathematical accuracy of the ECL calculations.
The primary procedures we performed to address the critical audit matter included the following. We tested certain internal controls over the Bank’s process for calculating the ECL, including controls related to: (i) the development and approval of the ECL methodology; (ii) the determination of the methodologies and assumptions used to estimate PD, EAD, LGD, and future macroeconomic scenarios; (iii) the validation of models used to calculate the ECL; (iv) the calculation of the ECL estimate; and (v) the projection of expected cash flows, including related collateral values, for ECL calculated on an individual basis. We evaluated the Bank’s process to develop the ECL estimate. Specifically, we tested the sources of data, factors, and assumptions that the Bank used by considering whether they are relevant and reliable. We involved credit risk professionals with specialized skills, industry knowledge and experience who assisted in: (i) reviewing the Bank’s ECL methodology for compliance with International Financial Reporting Standards as issued by the International Accounting Standards Board; (ii) testing the models used to calculate the ECL; (iii) testing the methodologies and assumptions used in calculating PD, EAD and LGD; and (iv) testing the calculation of the ECL. Additionally, on a sample basis, we evaluated ECL calculated on an individual basis, including assessing the expected cash flows and related collateral valuation.
We evaluated the collective results of the procedures performed to assess the sufficiency of the audit evidence obtained related to the Bank’s ECL
Evaluation of the impairment testing of goodwill and associates and joint ventures
As discussed in notes 2g, 4, 26 and 28 to the consolidated financial statements, as of December 31, 2019, the Bank recognized goodwill on the acquisition of subsidiaries of R$ 5,327,901 thousand and as part of its investments in associates and joint ventures, in the amount of R$ 985,628 thousand. The Bank performs goodwill impairment testing at least annually and, for investments in associates and joint ventures, whenever there is objective evidence of impairment. As part of its impairment testing of these assets, the Bank estimated recoverable amounts of the relevant cash generating units and investments based on the present value of future cash flows. The future cash flow projections consider business plans and budgets and require a number of economic and business assumptions.
We identified the evaluation of the impairment testing of goodwill and associates and joint ventures as a critical audit matter. There is a high degree of subjectivity in the auditor judgment involved in evaluating the significant assumptions including the growth rates for different businesses, income streams and expenses. In addition, the discount rates were challenging to audit and the calculation was voluminous and involved several complicated steps. Evaluating the impairment testing required significant auditor attention and complex auditor judgment, involving our corporate finance professionals, as well as knowledge and experience in the industry.
The primary procedures we performed to address this critical audit matter included the following. We tested certain internal controls over the Bank’s impairment analysis, including controls related to the development, review and approval of the growth rates and discount rates. We involved corporate finance professionals with industry knowledge and experience who assisted in: (i) evaluating the growth rates used for different businesses, income streams and expenses by comparing them to information obtained from internal and external sources; (ii) evaluating the discount rates used in the impairment testing, by comparing them to ranges of discount rates that were independently developed using publicly available market data for comparable entities; (iii) assessing the Bank’s ability to project cash flows by comparing the prior year’s projections for the year ended December 31, 2019 with actual cash flows in this year; and (iv) testing the mathematical accuracy of certain steps of the present value calculations.
Evaluation of the recoverability of the deferred tax assets arising from carry-forward tax losses
As discussed in notes 2t, 4 and 16 to the consolidated financial statements, the balance of deferred tax assets arising from carry-forward tax losses as of December 31, 2019 was R$ 68,515,007 thousand, which is substantially related to a single subsidiary. The Bank assessed the recoverability of deferred tax assets arising from carry-forward tax losses in this subsidiary by projecting its future taxable profits. These projections are based on the Bank’s business plans and budgets which require the Bank to make a number of assumptions related to future events and conditions. Changes in certain assumptions about the future, such as interest rates, foreign exchange rates and applicable tax rates could have a significant impact on the projections and, consequently, on the recoverability of the deferred tax assets arising from carry-forward tax losses.
F-4 IFRS – International Financial Reporting Standards – 20172019
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Independent Auditors’ Report
We identified the evaluation of the recoverability of the deferred tax assets arising from carry forward tax losses as a critical audit matter due to a high degree of auditor judgment required in assessing the projections of future taxable profits and the underlying key assumptions.
The primary procedures we performed to address this critical audit matter included the following. We tested certain internal controls over the Bank’s process to assess the recoverability of deferred tax assets arising from carry forward tax losses, including controls related to the development and approval of the key assumption and the final projections of taxable profits by the Bank. We involved corporate finance professionals with industry knowledge and experience who assisted in evaluating the assumptions including the future interest rates, foreign exchange rates and applicable tax rates underlying the Bank’s projections of future taxable profits. We evaluated the Bank’s ability to accurately project taxable profits by comparing the estimated taxable profits for the year ended December 31, 2019 made in the prior year with actual taxable profits in 2019.
Evaluation of provisions and disclosures for certain specific lawsuits
As discussed in notes 2j, 4 and 36 to the consolidated financial statements, in the normal course of its activities the Bank is a defendant in tax, civil and labor lawsuits. As of December 31, 2019, it had provisions for these lawsuits in the amounts of R$ 8,390,085 thousand, R$ 8,685,793 thousand and R$ 7,346,067 thousand, respectively. For certain tax and civil lawsuits, such as those related to the legality and constitutionality of certain taxes, adjustments for inflation on savings account balances due to the implementation of economic plans by the government and some other specific civil claims, significant judgment was required by the Bank to determine the likelihood of loss and estimate the loss amount. For labor lawsuits, the Bank used a model, based on historical data, to estimate the amount of the provision and made refinements to this model, including the segregations used, in 2019.
We identified the evaluation of provisions and disclosures for certain specific lawsuits as a critical audit matter. It required challenging auditor judgment due to the subjective nature of the estimates, judgments and assumptions made by the Bank, including, in the case of the tax and civil lawsuits, those involved in assessing the likelihood of a loss and in estimating such loss, and, in the case of labor lawsuits, those relating to the refinements made to the model.
The primary procedures we performed to address this critical audit matter included the following. We tested certain internal controls over the Bank’s process for evaluation of tax and civil lawsuits including controls related to the assessment of information received from external and internal legal counsel. We also tested internal controls related to the development and approval of the model for calculating the provision for labor lawsuits. We assessed the recognized provisions and disclosed amounts for certain tax and legal lawsuits by considering the assessment of the internal and external legal advisors, as well as historical data and information related to the lawsuits in question as well as to other similar lawsuits. We involved legal and tax professionals with industry knowledge and experience who assisted in: (i) evaluating the likelihood of loss based on the technical merits of the civil and tax lawsuits; and (ii) examining the documentation and support for the Bank’s assessment of the likelihood of loss and estimate of such loss for certain tax lawsuits. We obtained and evaluated the letters received directly from the Bank’s external legal counsels for certain tax lawsuits, that included an assessment of the likelihood of loss and the estimate of the loss amount. We compared these assessments and estimates to those used by the Bank and evaluated the sufficiency of the Bank’s legal contingency disclosures in relation to these matters. For the labor lawsuits, we evaluated the Bank’s revised model, including the nature of segregations used. We also tested the mathematical accuracy of the computations made by the Company to determine the labor lawsuit provision based on the historical data.
Evaluation of the insurance and pension plan technical provisions
As discussed in notes 2l and 34 to the consolidated financial statements, the Bank has technical provisions of R$ 268,302,691 thousand as of December 31, 2019 for its obligations under its written insurance and pension plan business. The Bank estimates the technical provisions using a variety of actuarial techniques and methods, some of which require subjective judgments and assumptions. Key assumptions include those related to expected claim amounts, longevity, persistency, medical cost inflation and discount rates.
We identified the evaluation of the insurance and pension plan technical provisions as a critical audit matter because subjective auditor judgment was required to evaluate the key assumptions underlying the Bank’s actuarial estimates. Specialized actuarial expertise was required to assess the key assumptions as well as the actuarial methodologies used. Additionally, minor adjustments to certain assumptions can result in significant changes in the measurement of these liabilities.
The primary procedures we performed to address the critical audit matter included the following. We tested certain internal controls over the process of estimating the technical provisions, including those related to the development and approval of the actuarial methodologies and the key assumptions and the approval of the final calculations. We involved actuarial professionals with specialized skills and knowledge who assisted in: (i) assessing the methodologies and assumptions used to measure the technical provisions by comparing them to industry practice and the Bank’s historic experience, as applicable; (ii) on a sample basis, through the use of a specialized software tool, testing the mathematical accuracy of certain technical provisions; (iii) on a sample basis, through the use of a specialized software tool and generally accepted actuarial techniques, using independent assumptions to develop an independent estimate of certain technical provisions; and (iv) assessing the Bank’s ability to accurately project claims by comparing historical estimates of the last three years with subsequent claims payments made.
KPMG Auditores Independentes
We have served as the Bank’s auditor since 2011.
Osasco, São Paulo
April 29, 2020
BradescoF-5
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Consolidated Income Statements of Income
| R$ thousand | R$ thousand | ||||||
Note | Years ended December 31 | Note | Years ended December 31 | |||||
2017 | 2016 | 2015 | 2019 | 2018 | 2017 | |||
Interest and similar income |
| 126,232,328 | 147,700,375 | 127,048,252 |
| 124,417,705 | 122,053,139 | 126,232,328 |
Interest and similar expenses |
| (75,589,415) | (91,037,386) | (71,412,210) |
| (58,617,986) | (55,244,669) | (75,589,415) |
Net interest income | 6 | 50,642,913 | 56,662,989 | 55,636,042 | 6 | 65,799,719 | 66,808,470 | 50,642,913 |
Fee and commission income |
| 22,748,828 | 20,341,087 | 17,856,873 | 7 | 25,337,676 | 23,831,590 | 22,748,828 |
Fee and commission expenses |
| - | (36) | (36,203) | ||||
Net fee and commission income | 7 | 22,748,828 | 20,341,051 | 17,820,670 | ||||
Net gains/(losses) on financial assets and liabilities at fair value through profit or loss | 8 | (1,090,917) | (11,676,573) | - | ||||
Net gains/(losses) on financial instruments classified as held for trading | 8 | 9,623,108 | 16,402,770 | (8,252,055) |
| - | - | 9,623,108 |
Net gains/(losses) on financial assets at fair value through other comprehensive income | 9 | 655,832 | 1,073,563 | - | ||||
Net gains/(losses) on financial instruments classified as available for sale | 9 | 570,358 | (1,341,400) | (671,810) |
| - | - | 570,358 |
Losses on investments held-to-maturity | 22 | (54,520) | - | - |
| - | - | (54,520) |
Net gains/(losses) on foreign currency transactions | 10 | 1,422,957 | 150,757 | (3,523,095) | 10 | 323,774 | 1,096,826 | 1,422,957 |
Net income from insurance and pension plans | 11 | 6,239,990 | 4,155,763 | 5,497,505 | ||||
Gross profit from insurance and pension plans | 11 | 8,254,939 | 7,656,872 | 6,239,990 | ||||
Other operating income |
| 17,801,893 | 19,367,890 | (6,949,455) |
| 8,143,628 | (1,849,312) | 17,801,893 |
Impairment of loans and advances | 12 | (16,860,835) | (15,350,278) | (14,721,152) |
| - | - | (16,860,835) |
Expected loss on loans and advances | 23 | (12,532,133) | (15,091,975) | - | ||||
Expected loss on other financial assets | 21 e 24 | (1,472,394) | (1,172,860) | - | ||||
Personnel expenses | 13 | (20,723,265) | (17,003,783) | (14,058,047) | 12 | (24,526,318) | (18,871,462) | (20,723,265) |
Other administrative expenses | 14 | (16,882,461) | (16,149,563) | (13,721,970) | 13 | (16,489,578) | (16,873,962) | (16,882,461) |
Depreciation and amortization | 15 | (4,568,568) | (3,658,413) | (2,942,003) | 14 | (5,865,768) | (4,808,255) | (4,568,568) |
Other operating income/(expenses) | 16 | (10,133,357) | (14,004,162) | (12,988,553) | 15 | (26,214,836) | (14,210,594) | (10,133,357) |
Other operating expense |
| (69,168,486) | (66,166,199) | (58,431,725) |
| (87,101,027) | (71,029,108) | (69,168,486) |
Income before income taxes and share of profit of associates and joint ventures |
| 22,025,148 | 30,205,731 | 8,075,532 |
| 12,179,996 | 17,761,640 | 22,025,148 |
Share of profit of associates and joint ventures | 27 | 1,718,411 | 1,699,725 | 1,528,051 | 26 | 1,201,082 | 1,680,375 | 1,718,411 |
Income before income taxes |
| 23,743,559 | 31,905,456 | 9,603,583 |
| 13,381,078 | 19,442,015 | 23,743,559 |
Income tax and social contribution | 17 | (6,428,956) | (13,912,730) | 8,634,322 | 16 | 7,792,129 | (2,693,576) | (6,428,956) |
Net income for the year |
| 17,314,603 | 17,992,726 | 18,237,905 |
| 21,173,207 | 16,748,439 | 17,314,603 |
|
|
|
|
|
|
|
|
|
Attributable to shareholders: |
|
|
|
|
|
|
|
|
Controlling shareholders |
| 17,089,364 | 17,894,249 | 18,132,906 | ||||
Shareholders of the parent |
| 21,023,023 | 16,583,915 | 17,089,364 | ||||
Non-controlling interest |
| 225,239 | 98,477 | 104,999 |
| 150,184 | 164,524 | 225,239 |
|
|
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Basic and diluted income per share based on the weighted average number of shares attributable to shareholders (expressed in R$ per share): |
|
|
|
| ||||
Basic and diluted earnings per share based on the weighted average number of shares (expressed in R$ per share): |
|
|
|
| ||||
– Earnings per common share | 18 | 2.67 | 2.80 | 2.84 | 17 | 2.49 | 1.97 | 2.03 |
– Earnings per preferred share | 18 | 2.94 | 3.08 | 3.12 | 17 | 2.74 | 2.16 | 2.23 |
The Notes are an integral part of the Consolidated Financial Statements.
Bradesco F-F-56 IFRS – International Financial Reporting Standards – 2019
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Consolidated Statements of Comprehensive Income
| R$ thousand | Note | R$ thousand | ||||
Years ended December 31 | Years ended December 31 | ||||||
2017 | 2016 | 2015 | 2019 | 2018 | 2017 | ||
Net income for the year | 17,314,603 | 17,992,726 | 18,237,905 |
| 21,173,207 | 16,748,439 | 17,314,603 |
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Items that are or may be reclassified to the Consolidated Statement of Income |
|
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|
Financial assets available for sale |
|
|
|
|
|
|
|
Unrealized gains/(losses) on financial assets available for sale | 2,931,550 | 7,757,475 | (4,754,469) | ||||
Realized gains/(losses) on financial assets available for sale | 487,017 | (1,459,372) | (923,433) | ||||
Unrealized gains/(losses) |
| - | - | 3,005,067 | |||
Gains/(losses) transferred to income |
| - | - | 487,017 | |||
Tax effect |
| - | - | (1,260,609) | |||
|
|
|
|
| |||
Financial assets at fair value through other comprehensive income |
|
|
|
| |||
Unrealized gains/(losses) |
| 7,752,853 | (473,594) | - | |||
Gains/(losses) transferred to income | 9 | 651,428 | 1,023,299 | - | |||
Tax effect |
| (3,609,375) | (209,359) | - | |||
|
|
|
|
| |||
Unrealized gains/(losses) on hedge | 20 |
|
|
| |||
Cash flow hedge |
| 260,397 | (96,760) | (13,778) | |||
Hedge of investment abroad |
| (119,635) | (209,300) | (59,739) | |||
Tax effect | (1,231,202) | (2,587,076) | 2,273,982 |
| (42,854) | 122,424 | 29,407 |
|
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Exchange differences on translations of foreign operations |
|
|
|
|
|
|
|
Foreign exchange on translations of foreign operations | 23,010 | (194,566) | 118,485 |
| 73,867 | 113,198 | 29,002 |
|
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|
|
| |||
Items that can not be reclassified to the Consolidated Statement of Income |
|
|
|
| |||
Gains/(losses) on equity instruments at fair value through other comprehensive income |
| 1,482,384 | (756,042) | - | |||
Tax effect | 5,992 | 87,555 | (57,788) |
| (579,763) | 302,417 | - |
Total adjustments not included in the net income | 2,216,367 | 3,604,016 | (3,343,223) | ||||
|
|
|
|
| |||
Other |
| (204,538) | (92,764) | - | |||
|
|
|
|
| |||
Total other comprehensive income |
| 5,664,764 | (276,481) | 2,216,367 | |||
Total comprehensive income for the year | 19,530,970 | 21,596,742 | 14,894,682 |
| 26,837,971 | 16,471,958 | 19,530,970 |
|
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|
|
|
|
|
Attributable to shareholders: |
|
|
|
|
|
|
|
Controlling shareholders | 19,305,731 | 21,498,265 | 14,789,683 | ||||
Shareholders of the parent |
| 26,687,787 | 16,307,434 | 19,305,731 | |||
Non-controlling interest | 225,239 | 98,477 | 104,999 |
| 150,184 | 164,524 | 225,239 |
The Notes are an integral part of the Consolidated Financial Statements.
Bradesco F-6F-7 IFRS – International Financial Reporting Standards – 2017
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Consolidated Statements of Financial Position
| R$ thousand | R$ thousand | ||||
Note | On December 31 | Note | On December 31 | |||
2017 | 2016 | 2019 | 2018 | |||
Assets |
|
|
|
|
|
|
Cash and cash equivalents | 19 | 81,742,951 | 72,554,651 | |||
Financial assets held for trading | 20a | 241,710,041 | 213,139,846 | |||
Financial assets available for sale | 21 | 159,412,722 | 113,118,554 | |||
Investments held to maturity | 22 | 39,006,118 | 43,002,028 | |||
Financial assets pledged as collateral | 23 | 183,975,173 | 155,286,577 | |||
Loans and advances to banks, net of impairment | 24 | 32,247,724 | 94,838,136 | |||
Loans and advances to customers, net of impairment | 25 | 346,758,099 | 367,303,034 | |||
Cash and balances with banks | 18 | 109,610,999 | 107,209,743 | |||
Financial assets at fair value through profit or loss | 19a | 249,759,777 | 246,161,150 | |||
Financial assets at fair value through other comprehensive income | 21 | 192,450,010 | 178,050,536 | |||
Financial assets at amortized cost |
|
|
| |||
- Loans and advances to financial institutions, net of provision for losses | 22 | 59,083,791 | 105,248,950 | |||
- Loans and advances to customers, net of provision for losses | 23 | 423,528,716 | 380,387,076 | |||
- Securities, net of provision for losses | 24 | 166,918,360 | 140,604,738 | |||
- Other financial assets | 29 | 56,101,781 | 43,893,309 | |||
Non-current assets held for sale | 26 | 1,520,973 | 1,578,966 | 25 | 1,357,026 | 1,353,330 |
Investments in associates and joint ventures | 27 | 8,257,384 | 7,002,778 | 26 | 7,635,612 | 8,125,799 |
Premises and equipment | 28 | 8,432,475 | 8,397,116 | |||
Property and equipment | 27 | 14,659,222 | 8,826,836 | |||
Intangible assets and goodwill, net of accumulated amortization | 29 | 16,179,307 | 15,797,526 | 28 | 14,724,647 | 16,128,548 |
Taxes to be offset | 17g | 10,524,575 | 7,723,211 | 16 | 15,685,801 | 13,498,264 |
Deferred income tax assets | 17c | 43,731,911 | 45,116,863 | 16c | 59,570,055 | 48,682,569 |
Other assets | 30 | 50,853,987 | 47,170,370 | 29 | 7,441,888 | 7,372,866 |
Total assets |
| 1,224,353,440 | 1,192,029,656 |
| 1,378,527,685 | 1,305,543,714 |
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Liabilities |
|
|
|
|
|
|
Deposits from banks | 31 | 285,957,468 | 301,662,682 | |||
Deposits from customers | 32 | 262,008,445 | 232,747,929 | |||
Financial liabilities held for trading | 20b | 14,274,999 | 13,435,678 | |||
Funds from issuance of securities | 33 | 135,174,090 | 151,101,938 | |||
Subordinated debt | 34 | 50,179,401 | 52,611,064 | |||
Technical provisions for insurance and pension plans | 35 | 239,089,590 | 215,840,000 | |||
Liabilities at amortized cost |
|
|
| |||
- Deposits from banks | 30 | 227,819,611 | 247,313,979 | |||
- Deposits from customers | 31 | 366,227,540 | 340,748,196 | |||
- Funds from issuance of securities | 32 | 170,727,564 | 148,029,018 | |||
- Subordinated debts | 33 | 49,313,508 | 53,643,444 | |||
- Other financial liabilities | 37 | 79,121,127 | 62,598,235 | |||
Financial liabilities at fair value through profit or loss | 19c | 14,244,083 | 16,152,087 | |||
Provision for Expected Credit Loss |
|
|
| |||
- Loan Commitments | 23 | 2,318,404 | 2,551,676 | |||
- Financial guarantees | 23 | 1,970,321 | 719,216 | |||
Insurance technical provisions and pension plans | 34 | 268,302,691 | 251,578,287 | |||
Other reserves | 37 | 18,490,727 | 18,292,409 | 36 | 25,239,929 | 19,802,171 |
Current income tax liabilities |
| 2,416,345 | 2,130,286 |
| 2,595,277 | 2,373,261 |
Deferred income tax assets | 17c | 1,251,847 | 1,762,948 | |||
Deferred income tax liabilities | 16c | 1,080,603 | 1,200,589 | |||
Other liabilities | 38 | 97,816,824 | 96,965,515 | 37 | 34,023,453 | 34,157,435 |
Total liabilities |
| 1,106,659,736 | 1,086,550,449 |
| 1,242,984,111 | 1,180,867,594 |
|
|
|
|
|
|
|
Shareholders’ equity | 39 |
|
| 38 |
|
|
Capital |
| 59,100,000 | 51,100,000 |
| 75,100,000 | 67,100,000 |
Treasury shares |
| (440,514) | (440,514) |
| (440,514) | (440,514) |
Capital reserves |
| 35,973 | 35,973 |
| 35,973 | 35,973 |
Profit reserves |
| 49,481,227 | 50,027,816 |
| 51,986,423 | 53,267,584 |
Additional paid-in capital |
| 70,496 | 70,496 |
| 70,496 | 70,496 |
Other comprehensive income |
| 1,817,659 | (398,708) |
| 7,871,482 | 2,206,718 |
Retained earnings |
| 7,338,990 | 4,907,381 |
| 475,606 | 2,035,198 |
Equity attributable to controlling shareholders |
| 117,403,831 | 105,302,444 | |||
Equity attributable to shareholders of the parent |
| 135,099,466 | 124,275,455 | |||
Non-controlling interest |
| 289,873 | 176,763 |
| 444,108 | 400,665 |
Total equity |
| 117,693,704 | 105,479,207 |
| 135,543,574 | 124,676,120 |
Total liabilities |
| 1,224,353,440 | 1,192,029,656 | |||
Total equity and liabilities |
| 1,378,527,685 | 1,305,543,714 |
The Notes are an integral part of the Consolidated Financial Statements.
Bradesco F-F-78 IFRS – International Financial Reporting Standards – 2019
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Consolidated Statements of Changes in Equity
| R$ thousand | ||||||||||
Capital | Treasury shares | Capital reserves | Profit reserves | Additional paid-in capital | Other comprehensive income (1) | Retained earnings | Equity attributable to controlling shareholders | Non-controlling interest | Total | ||
Legal | Statutory | ||||||||||
Balance on December 31, 2014 | 38,100,000 | (298,015) | 35,973 | 5,193,467 | 38,571,882 | 70,496 | (659,501) | 1,153,439 | 82,167,741 | 124,064 | 82,291,805 |
Net income | - | - | - | - | - | - | - | 18,132,906 | 18,132,906 | 104,999 | 18,237,905 |
Financial assets available for sale | - | - | - | - | - | - | (3,403,920) | - | (3,403,920) | - | (3,403,920) |
Foreign currency translation adjustment | - | - | - | - | - | - | 60,697 | - | 60,697 | - | 60,697 |
Comprehensive income | - | - | - | - | - | - | - | - | 14,789,683 | 104,999 | 14,894,682 |
Increase of non-controlling shareholders’ interest | - | - | - | - | - | - | - | - | - | 28,446 | 28,446 |
Purchase of treasury shares | - | (133,033) | - | - | - | - | - | - | (133,033) | - | (133,033) |
Capital increase of with reserves (2) | 5,000,000 | - | - | - | (5,000,000) | - | - | - | - | - | - |
Transfers to reserves | - | - | - | 859,482 | 10,295,189 | - | - | (11,154,671) | - | - | - |
Interest on equity and dividends | - | - | - | - | - | - | - | (6,034,964) | (6,034,964) | (132,174) | (6,167,138) |
Balance on December 31, 2015 | 43,100,000 | (431,048) | 35,973 | 6,052,949 | 43,867,071 | 70,496 | (4,002,724) | 2,096,710 | 90,789,427 | 125,335 | 90,914,762 |
Net income | - | - | - | - | - | - | - | 17,894,249 | 17,894,249 | 98,477 | 17,992,726 |
Financial assets available for sale | - | - | - | - | - | - | 3,711,027 | - | 3,711,027 | - | 3,711,027 |
Foreign currency translation adjustment | - | - | - | - | - | - | (107,011) | - | (107,011) | - | (107,011) |
Comprehensive income | - | - | - | - | - | - | - | - | 21,498,265 | 98,477 | 21,596,742 |
Increase of non-controlling shareholders’ interest | - | - | - | - | - | - | - | - | - | 3,265 | 3,265 |
Purchase of treasury shares | - | (9,466) | - | - | - | - | - | - | (9,466) | - | (9,466) |
Capital increase of with reserves (3) | 8,000,000 | - | - | - | (8,000,000) | - | - | - | - | - | - |
Transfers to reserves | - | - | - | 754,179 | 7,353,617 | - | - | (8,107,796) | - | - | - |
Interest on equity and dividends | - | - | - | - | - | - | - | (6,975,782) | (6,975,782) | (50,314) | (7,026,096) |
Balance on December 31, 2016 | 51,100,000 | (440,514) | 35,973 | 6,807,128 | 43,220,688 | 70,496 | (398,708) | 4,907,381 | 105,302,444 | 176,763 | 105,479,207 |
F-8 IFRS – International Financial Reporting Standards – 2017
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Consolidated Statements of Changes in Equity
| R$ thousand | ||||||||||
Capital | Treasury shares | Capital reserves | Profit reserves | Additional paid-in capital | Other comprehensive income (1) | Retained earnings | Equity attributable to shareholders of the parent | Non-controlling interest | Total | ||
Legal | Statutory | ||||||||||
Balance on December 31, 2016 | 51,100,000 | (440,514) | 35,973 | 6,807,128 | 43,220,688 | 70,496 | (398,708) | 4,907,381 | 105,302,444 | 176,763 | 105,479,207 |
Net income | - | - | - | - | - | - | - | 17,089,364 | 17,089,364 | 225,239 | 17,314,603 |
Financial assets available for sale | - | - | - | - | - | - | 2,187,365 | - | 2,187,365 | - | 2,187,365 |
Foreign currency translation adjustment | - | - | - | - | - | - | 29,002 | - | 29,002 | - | 29,002 |
Comprehensive income | - | - | - | - | - | - | 2,216,367 | 17,089,364 | 19,305,731 | 225,239 | 19,530,970 |
Increase of non-controlling shareholders’ interest | - | - | - | - | - | - | - | - | - | 2,099 | 2,099 |
Purchase of treasury shares | - | - | - | - | - | - | - | - | - | - | - |
Capital increase of with reserves | 8,000,000 | - | - | - | (8,000,000) | - | - | - | - | - | - |
Transfers to reserves | - | - | - | 732,888 | 6,720,523 | - | - | (7,453,411) | - | - | - |
Interest on equity and dividends | - | - | - | - | - | - | - | (7,204,344) | (7,204,344) | (114,228) | (7,318,572) |
Balance on December 31, 2017 | 59,100,000 | (440,514) | 35,973 | 7,540,016 | 41,941,211 | 70,496 | 1,817,659 | 7,338,990 | 117,403,831 | 289,873 | 117,693,704 |
IFRS 9 adoption | - | - | - | - | - | - | 665,540 | (2,802,754) | (2,137,214) | - | (2,137,214) |
Balance on January 1, 2018 | 59,100,000 | (440,514) | 35,973 | 7,540,016 | 41,941,211 | 70,496 | 2,483,199 | 4,536,236 | 115,266,617 | 289,873 | 115,556,490 |
Net income | - | - | - | - | - | - | - | 16,583,915 | 16,583,915 | 164,524 | 16,748,439 |
Financial assets at fair value through other comprehensive income | - | - | - | - | - | - | (296,915) | - | (296,915) | - | (296,915) |
Foreign currency translation adjustment | - | - | - | - | - | - | 113,198 | - | 113,198 | - | 113,198 |
Other | - | - | - | - | - | - | (92,764) | - | (92,764) | - | (92,764) |
Comprehensive income | - | - | - | - | - | - | (276,481) | 16,583,915 | 16,307,434 | 164,524 | 16,471,958 |
Increase of non-controlling shareholders’ interest | - | - | - | - | - | - | - | - | - | 2,265 | 2,265 |
Capital increase with reserves | 8,000,000 | - | - | - | (8,000,000) | - | - | - | - | - | - |
Transfers to reserves | - | - | - | 954,247 | 10,832,110 | - | - | (11,786,357) | - | - | - |
Interest on equity and dividends | - | - | - | - | - | - | - | (7,298,596) | (7,298,596) | (55,997) | (7,354,593) |
The Notes are an integral part of the Consolidated Financial Statements.
BradescoF-9
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Consolidated Statements of Changes in Equity (continued)
| R$ thousand | R$ thousand | ||||||||||||||||||||
Capital | Treasury shares | Capital reserves | Profit reserves | Additional paid-in capital | Other comprehensive income (1) | Retained earnings | Equity attributable to controlling shareholders | Non-controlling interest | Total | Capital | Treasury shares | Capital reserves | Profit reserves | Additional paid-in capital | Other comprehensive income (1) | Retained earnings | Equity attributable to shareholders of the parent | Non-controlling interest | Total | |||
Legal | Statutory | Legal | Statutory | |||||||||||||||||||
Balance on December 31, 2016 | 51,100,000 | (440,514) | 35,973 | 6,807,128 | 43,220,688 | 70,496 | (398,708) | 4,907,381 | 105,302,444 | 176,763 | 105,479,207 | |||||||||||
Balance on December 31, 2018 | 67,100,000 | (440,514) | 35,973 | 8,494,263 | 44,773,321 | 70,496 | 2,206,718 | 2,035,198 | 124,275,455 | 400,665 | 124,676,120 | |||||||||||
Net income | - | - | - | 17,089,364 | 17,089,364 | 225,239 | 17,314,603 | - | - | - |
| 21,023,023 | 21,023,023 | 150,184 | 21,173,207 | |||||||
Financial assets available for sale | - | - | - | 2,187,365 | - | 2,187,365 | - | 2,187,365 | ||||||||||||||
Financial assets at fair value through other comprehensive income | - | - | - | 5,795,435 |
| 5,795,435 | - | 5,795,435 | ||||||||||||||
Foreign currency translation adjustment | - | - | - | 29,002 | - | 29,002 | - | 29,002 | - | - | - | 73,867 |
| 73,867 | - | 73,867 | ||||||
Other | - | - | - | (204,538) |
| (204,538) | - | (204,538) | ||||||||||||||
Comprehensive income |
|
|
| 19,305,731 | 225,239 | 19,530,970 | - | - | - | 5,664,764 | 21,023,023 | 26,687,787 | 150,184 | 26,837,971 | ||||||||
Increase of non-controlling shareholders’ interest | - | - | - | - | 2,099 | 2,099 | - | - | - | - | 8,750 | 8,750 | ||||||||||
Capital increase with reserves (4) | 8,000,000 | - | (8,000,000) | - | - | - | - | |||||||||||||||
Capital increase with reserves | 8,000,000 |
| (8,000,000) | - | - | - | - | |||||||||||||||
Transfers to reserves | - | 732,888 | 6,720,523 | - | (7,453,411) | - | - | - | - | 1,129,131 | 13,589,708 | - | (14,718,839) | - | - | - | ||||||
Interest on shareholders’ equity | - | - | - | (7,204,344) | (7,204,344) | (114,228) | (7,318,572) | |||||||||||||||
Balance on December 31, 2017 | 59,100,000 | (440,514) | 35,973 | 7,540,016 | 41,941,211 | 70,496 | 1,817,659 | 7,338,990 | 117,403,831 | 289,873 | 117,693,704 | |||||||||||
Interest on equity and dividends | - | (8,000,000) | - | (7,863,776) | (15,863,776) | (115,491) | (15,979,267) | |||||||||||||||
Balance on December 31, 2019 | 75,100,000 | (440,514) | 35,973 | 9,623,394 | 42,363,029 | 70,496 | 7,871,482 | 475,606 | 135,099,466 | 444,108 | 135,543,574 |
(1)In 2017, consists, basically Mainly composed of unrealized net gains/financial assets at fair value through other comprehensive income and gains and losses of marketable securities, classified as available for sale (Notes 21with cash flow hedge and 23), whose accumulated effect net of taxes amounts to R$ (1,070,252) thousand (December 2016 – R$ 154,958 thousand);foreign investment.
(2)At Special Shareholders’ Meeting held on March 10, 2015, the shareholders deliberated the increase of Capital stock by R$ 5,000,000 thousand, from R$ 38,100,000 thousand to R$ 43,100,000 thousand, through capitalization of
The Notes are an integral part of the balanceConsolidated Financial Statements.
F-10 IFRS – International Financial Reporting Standards – 2019
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Consolidated Statements of the caption “Profit reserves - Statutory Reserve”, in conformity with Article 169Cash Flows
| R$ thousand | ||
Years ended December 31 | |||
2019 | 2018 | 2017 | |
Operating activities |
|
|
|
Income before income taxes | 13,381,078 | 19,442,015 | 23,743,559 |
Adjustments to reconcile income before income tax to net cash flow from operating activities: |
|
|
|
Expected loss on loans and advances | 12,532,133 | 15,091,975 | - |
Impairment of loans and advances | - | - | 16,860,835 |
Changes in the insurance technical provisions and pension plans | 32,036,527 | 29,409,222 | 34,805,771 |
Net (gains)/losses from disposals of assets available for sale | - | - | (2,299,397) |
(Gains)/Net realized losses on financial assets at fair value through other comprehensive income | (655,832) | (1,073,563) | - |
Expenses with provisions and contingent liabilities | 9,244,967 | 4,306,043 | 2,471,288 |
Deferred acquisition cost (insurance) | (58,115) | 144,224 | 680,136 |
Impairment of assets | 3,196,683 | 1,757,981 | 1,925,304 |
Depreciation | 2,737,383 | 1,460,013 | 1,237,328 |
Amortization of intangible assets | 3,128,385 | 3,348,242 | 3,331,240 |
Share of profit of associates and joint ventures | (1,201,082) | (1,680,375) | (1,718,411) |
Losses on disposal of non-current assets held for sale | 277,763 | 516,713 | 577,212 |
Net losses from disposal of property and equipment | 17,937 | 98,182 | 106,722 |
(Gains) on sale of investments in associates | 48,927 | - | (270,977) |
Effect of changes in exchange rates in cash and cash equivalents | (752,829) | (751,769) | (806,312) |
Changes in assets and liabilities: |
|
|
|
(Increase)/Decrease in reserve requirement - Central Bank | (3,025,422) | (20,882,690) | (8,677,695) |
(Increase)/decrease in loans and advances to banks | (2,099,605) | 33,357 | (2,493,535) |
(Increase)/decrease in loans and advances to customers | (123,571,123) | (112,861,770) | (59,578,512) |
(Increase)/decrease in financial assets held for trading | - | - | (23,089,236) |
(Increase)/Reduction in financial assets at fair value through profit or loss | (3,598,627) | (3,625,822) | - |
(Increase)/decrease in other assets | (31,687,179) | (30,301,912) | (23,384,107) |
Increase/(decrease) in deposits from banks | (3,555,713) | (20,749,542) | 3,955,797 |
Increase/(decrease) in deposits from customers | 36,787,089 | 88,659,514 | 36,853,866 |
Increase/(decrease) in financial liabilities held for trading | - | - | 839,321 |
Increase/(Decrease) in financial liabilities at fair value through profit or loss | (1,908,004) | 1,877,088 | - |
Increase/(decrease) in insurance technical provisions and pension plans | (15,312,123) | (16,920,525) | (11,556,181) |
Increase/(decrease) in other provisions | (3,807,209) | (2,994,599) | (2,272,970) |
Increase/(decrease) in other liabilities | 27,344,659 | 14,364,262 | 19,117,355 |
Interest received | 67,523,213 | 61,660,260 | 61,743,368 |
Interest paid | (27,246,400) | (27,813,710) | (27,254,361) |
Income tax and social contribution paid | (8,433,279) | (7,086,237) | (8,575,438) |
Other changes in taxes | (798,171) | (1,923,895) | (720,182) |
Net cash provided by/(used in) operating activities | (19,453,969) | (6,497,318) | 35,551,788 |
|
|
|
|
Investing activities |
|
|
|
(Acquisitions) of subsidiaries, net of cash and cash equivalents paid | - | (442,122) | - |
(Acquisitions) of financial assets available for sale | - | - | (114,186,612) |
(Acquisition) of financial assets at fair value through other comprehensive income | (96,192,725) | (103,432,365) | - |
Proceeds from sale of financial assets available for sale | - | - | 82,760,146 |
Disposal of financial assets at fair value through other comprehensive income | 99,911,819 | 103,897,609 | - |
Maturity of investments held to maturity | - | - | 4,219,351 |
Maturity of financial assets at amortized cost | 17,458,880 | 21,759,857 | - |
(Acquisitions) of investments held to maturity | - | - | (204,557) |
(Acquisition) of financial assets at amortized cost | (41,401,367) | (70,719,797) | - |
Disposal of non-current assets held for sale | 613,246 | 688,885 | 796,869 |
(Acquisitions) of investments in associates | - | (52,844) | (83,172) |
Disposal of investments in affiliates | 17,961 | - | - |
Dividends and interest on equity received | 716,581 | 1,463,448 | 845,134 |
BradescoF-11
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Consolidated Statements of Law No. 6.404/76, with bonus of 20% in shares, with issuance of 841,454,808 new registered shares, without par value, of which 420,727,426 are common and 420,727,382 are preferred shares. These shares are granted to the shareholders, free of charge, as bonus, at the proportion of two (2) new share to each ten (10) shares of the same type held by them, which benefits the shareholders enrolled in the records of Bradesco on March 26, 2015;Cash Flows (continued)
(3)At Special Shareholders’ Meeting held on March 10, 2016, the shareholders approved the Board of Directors’ proposal to increase the capital by R$ 8,000,000 thousand, from R$ 43,100,000 thousand to R$ 51,100,000 thousand, with bonus in shares, through capitalization of part of the balance of the caption “Profit reserves - Statutory Reserve”, in conformity with Article 169 of Law No. 6.404/76, with issuance of 504,872,885 new registered shares, without par value, of which 252,436,456 are common and 252,436,429 are preferred shares, which will be granted to the shareholders, free of charge, as bonus, at the proportion of 1 new share to each 10 shares of the same type held by them on the base date; and
(4)At Special Shareholders’ Meeting held on March 10, 2017, the shareholders approved the Board of Directors’ proposal to increase the capital by R$ 8,000,000 thousand, from R$ 51,100,000 thousand to R$ 59,100,000 thousand, with bonus in shares, through capitalization of part of the balance of the caption “Profit reserves - Statutory Reserve”, in conformity with Article 169 of Law No. 6.404/76, with issuance of 555,360,173 new registered shares, without par value, of which 277,680,101 are common and 277,680,072 are preferred, which were granted to the shareholders, free of charge, as bonus, at the proportion of 1 new share to each 10 shares of the same type held by them on the base date.
| R$ thousand | ||
Years ended December 31 | |||
2019 | 2018 | 2017 | |
(Acquisition) of property and equipment | (2,629,435) | (2,389,433) | (1,897,645) |
Sale of premises and equipment | 816,907 | 361,240 | 445,347 |
(Acquisition) of intangible assets | (2,696,067) | (3,053,156) | (3,743,704) |
Dividends received | 4,404 | 50,264 | 83,341 |
Interest received | 8,053,047 | 17,383,392 | 12,735,539 |
Net cash provided by/(used in) investing activities | (15,326,749) | (34,485,022) | (18,229,963) |
|
|
|
|
Financing activities |
|
|
|
Funds from securities issued | 84,982,152 | 85,963,195 | 62,237,380 |
Payments on securities issued | (60,215,940) | (69,747,110) | (72,494,509) |
Issuance of subordinated debt | - | 10,890,606 | 6,594,610 |
Payments on subordinated debts | (3,207,429) | (9,181,501) | (8,666,038) |
Lease payment | (1,067,573) | - | - |
Increase/(decrease) of non-controlling interest | (106,741) | 2,265 | 2,099 |
Interest paid | (16,951,569) | (16,986,503) | (24,465,562) |
Interest on equity and dividends paid | (17,751,148) | (6,539,193) | (6,512,102) |
Net cash provided by/(used in) financing activities | (14,318,248) | (5,598,241) | (43,304,122) |
|
|
|
|
(Decrease)/Increase in cash and cash equivalents | (49,098,966) | (46,580,581) | (25,982,297) |
|
|
|
|
Cash and cash equivalents |
|
|
|
At the beginning of the year | 110,225,630 | 156,054,442 | 181,230,427 |
Effect of changes in exchange rates in cash and cash equivalents | 752,829 | 751,769 | 806,312 |
At the end of the year | 61,879,493 | 110,225,630 | 156,054,442 |
|
|
|
|
(Decrease)/Increase in cash and cash equivalents | (49,098,966) | (46,580,581) | (25,982,297) |
|
|
|
|
Non-cash transactions |
|
|
|
Credit operations transferred to non-current assets held for sale | 1,934,762 | 1,947,924 | 1,953,996 |
Dividends and interest on equity declared but not yet paid | 126,755 | 4,876,458 | 4,295,314 |
Unrealized (gains)/losses on securities available for sale | - | - | (2,187,365) |
(Gains)/losses on financial assets at fair value through other comprehensive income | (5,795,435) | 296,915 | - |
The Notes are an integral part of the Consolidated Financial Statements.
Bradesco F-F-912
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Consolidated Statements of Cash Flows
| R$ thousand | ||
Years ended December 31 | |||
2017 | 2016 | 2015 | |
Operating activities |
|
|
|
Income before income taxes | 23,743,559 | 31,905,456 | 9,603,583 |
Adjustments to reconcile income before income tax to net cash flow from operating activities: |
|
|
|
Impairment of loans and advances | 16,860,835 | 15,350,278 | 14,721,152 |
Changes in the technical provisions for insurance and pension plans | 34,805,771 | 32,781,918 | 28,286,039 |
Net (gains)/losses from disposals of assets available for sale | (2,299,397) | (764,707) | 247,288 |
Expenses with provisions and contingent liabilities | 2,471,288 | 2,518,761 | 3,510,916 |
Deferred acquisition cost (insurance) | 680,136 | 194,994 | (95,110) |
Impairment of assets | 1,925,304 | 2,388,580 | 650,588 |
Depreciation | 1,237,328 | 1,140,369 | 1,057,722 |
Amortization of intangible assets | 3,331,240 | 2,516,777 | 1,884,281 |
Share of profit of associates and joint ventures | (1,718,411) | (1,699,725) | (1,528,051) |
Losses on disposal of non-current assets held for sale | 577,212 | 442,251 | 180,602 |
Net losses from disposal of property and equipment | 106,722 | 24,791 | 96,630 |
(Gains) on sale of investments in associates | (270,977) | - | - |
Effect of Changes in Exchange Rates in Cash and Cash equivalents | (806,312) | 5,617,747 | (2,911,155) |
Changes in assets and liabilities: |
|
|
|
(Increase)/Decrease in reserve requirement - Central Bank | (8,677,695) | 11,651,121 | (3,866,979) |
(Increase)/decrease in loans and advances to banks | (2,493,535) | 10,368,220 | 2,045,985 |
(Increase)/decrease in loans and advances to customers | (59,578,512) | (49,649,090) | (95,025,702) |
(Increase)/decrease in financial assets held for trading | (23,089,236) | (40,248,319) | (80,159,223) |
(Increase)/decrease in other assets | (23,384,107) | (8,296,942) | (32,926,622) |
Increase/(decrease) in deposits from banks | 3,955,797 | 33,269,744 | 40,729,421 |
Increase/(decrease) in deposits from customers | 36,853,866 | (6,707,994) | (3,463,924) |
Increase/(decrease) in financial liabilities held for trading | 839,321 | (9,700,099) | 16,030,156 |
Increase/(decrease) in technical provisions for insurance and pension plans | (11,556,181) | (2,042,897) | (3,904,319) |
Increase/(decrease) in other provisions | (2,272,970) | (3,019,960) | (2,011,000) |
Increase/(decrease) in other liabilities | 19,117,355 | 10,312,756 | 29,295,296 |
Interest received | 61,743,368 | 70,917,068 | 62,725,684 |
Interest paid | (27,254,361) | (45,140,018) | (38,823,738) |
Income tax and social contribution paid | (8,575,438) | (9,771,075) | (7,419,802) |
Other changes in taxes | (720,182) | (400,787) | (283,883) |
Net cash provided by/(used in) operating activities | 35,551,788 | 53,959,218 | (61,354,165) |
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Investing activities |
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(Acquisitions)/disposal of subsidiaries, net of cash and cash equivalents paid/received | - | (7,188,659) | - |
(Acquisitions) of financial assets available for sale | (114,186,612) | (108,296,179) | (61,153,632) |
Proceeds from sale of financial assets available for sale | 82,760,146 | 115,724,092 | 39,147,316 |
Maturity of investments held to maturity | 4,219,351 | - | 269,063 |
(Acquisitions) of investments held to maturity | (204,557) | - | - |
Disposal of non-current assets held for sale | 796,869 | 629,768 | 742,732 |
(Acquisitions) of investments in associates | (83,172) | (376,434) | (971,672) |
Dividends and interest on capital received | 845,134 | 510,285 | 668,178 |
(Acquisition) of property and equipment | (1,897,645) | (2,779,321) | (2,181,549) |
Sale of premises and equipment | 445,347 | 486,303 | 205,094 |
(Acquisition) of intangible assets | (3,743,704) | (2,343,497) | (1,971,881) |
Dividends received | 83,341 | 117,972 | 251,623 |
Interest received | 12,735,539 | 12,668,011 | 13,033,426 |
Net cash provided by/(used in) investing activities | (18,229,963) | 9,152,341 | (11,961,302) |
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Financing activities |
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Funds from securities issued | 62,237,380 | 47,253,373 | 68,385,187 |
Payments on securities issued | (72,494,509) | (47,861,607) | (49,217,829) |
Issuance of subordinated debts | 6,594,610 | 3,787,207 | 11,304,318 |
F-10 IFRS – International Financial Reporting Standards – 20172019
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Consolidated Statements of Cash Flows
| R$ thousand | ||
Years ended December 31 | |||
2017 | 2016 | 2015 | |
Payments on subordinated debts | (8,666,038) | (581,713) | (1,271,261) |
Acquisition of treasury shares | - | (9,466) | (133,033) |
Increase/(decrease) of non-controlling interest | 2,099 | 3,265 | 28,446 |
Interest paid | (24,465,562) | (20,504,528) | (11,093,967) |
Interest on equity and dividends paid | (6,512,102) | (5,611,350) | (5,007,596) |
Net cash provided by/(used in) financing activities | (43,304,122) | (23,524,819) | 12,994,265 |
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(Decrease)/Increase in cash and cash equivalents | (25,982,297) | 39,586,740 | (60,321,202) |
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Cash and cash equivalents |
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At the beginning of the year | 181,230,427 | 147,261,434 | 204,671,481 |
Effect of Changes in Exchange Rates in Cash and Cash equivalents | 806,312 | (5,617,747) | 2,911,155 |
At the end of the year | 156,054,442 | 181,230,427 | 147,261,434 |
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(Decrease)/Increase in cash and cash equivalents | (25,982,297) | 39,586,740 | (60,321,202) |
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Non-cash transactions |
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Credit operations transferred to non-current assets held for sale | 1,953,996 | 2,122,871 | 1,591,998 |
Dividends and interest on equity declared but not yet paid | 4,295,314 | 4,482,718 | 3,622,958 |
Unrealized (gains)/losses on securities available for sale | (2,187,365) | (3,711,027) | 3,403,920 |
The Notes are an integral part of the Consolidated Financial Statements.
Bradesco F-11
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
Banco Bradesco S.A. and subsidiaries (“Bradesco”, the “Bank”, the “Company” or the “Organization”) is a publicly-traded company established according to the laws of the Federative Republic of Brazil with headquarters in the city of Osasco, state of São Paulo, Brazil.
Bradesco is a bank that provides multiple services within two segments: banking and insurance. The Bank complies with Brazilian banking regulations and operates throughout all of Brazil. The banking segment includes a range of banking activities, serving individual and corporate customers in the following operations: investment banking, national and international banking operations, asset management operations and consortium administration. The insurance segment covers auto, health, life, accident and property insurance and pension plans, as well asreal estate ventures and capitalization bonds.
The retail banking products include demand deposits, savings deposits, time deposits, mutual funds, foreign exchange services and a range of loans and advances, , including overdrafts, credit cards and loans with repayments in installments. The services provided to corporate entities include fund management and treasury services, foreign exchange operations, corporate finance and investment banking services, hedge and finance operations including working capital financing, lease and loans with repayments in installments. These services are provided, mainly, in domestic markets, but also include international services on a smaller scale.
The Organization was originally listed on the São Paulo Stock Exchange (“B3”) and then subsequently on the New York Stock Exchange (“NYSE”).
The consolidated financial statements, in accordance with the IFRS, were approved by the Board of Directors on March 07, 2018.April 29, 2020.
These consolidated financial statements of the Organization were prepared in accordance with the International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). The consolidated financial statements include the consolidated statements of financial position, consolidated statements of income, consolidated statements of comprehensive income, consolidated statements of changes in equity and consolidated statements of cash flows as well as the notes to the consolidated financial statements.
These consolidated financial statements have been prepared based on historical cost, except for the following material items in the balance sheet: available for sale measured at fair value, assets and liabilities held for trading measured at fair value and financial instruments designated at fair value through profit or loss, and defined-benefit liabilities that are recognized at the present value of the defined benefit obligation less the net total of the plan assets, plus unrecognized actuarial gains less the cost of past services not recognized.
The Organization has classified its expenses according to their nature.
The consolidated statement of cash flows shows the changes in cash and cash equivalents during the year arising from operating, investing and financing activities. Cash and cash equivalents include highly liquid investments. Note 1918 details the accounts of the consolidated statement of financial position that comprise cash and cash equivalents. The consolidated statement of cash flows is prepared using the indirect method. Accordingly, the income before taxes was adjusted by non-cash items such as provisions, depreciation, amortization and Impairment losses on loans and advances. The interest and dividend received and paid are classified as operating, financing or investment cash flows according to thenature of the corresponding assets and liabilities.
F-12 IFRS – International Financial Reporting Standards – 2017
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Notes to the Consolidated Financial Statements
The preparation of the consolidated financial statements requires the use of estimates and assumptions which affect the reported amounts of assets and liabilities, as well as the disclosure of contingent assets and liabilities at the date of the financial statements, and the profit and loss amounts for the year. The consolidated financial statements also reflect various estimates and assumptions, including, but not limited to: adjustments to the impairment provision for expected losses of loansassets and advances;financial liabilities; estimates of the fair value of financial instruments; depreciation and amortization rates;rates; impairment losses on assets; the useful life of intangible assets; evaluation of the realization of tax assets; assumptions for the calculation of technical provisions for insurance, supplemental pension plans and capitalization bonds; provisions for contingencies and provisions for potential losses arising from fiscal and tax uncertainties. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in Note 4.
BradescoF-13
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
The accounting policies listed below were used in all the periods presented and by all the companies of the Organization.
In August, 2015, Bradesco signed the Purchase and Sale of Shares Agreement with HSBC Latin America Holdings Limited for the acquisition of 100% ofOrganization including the equity of HSBC Bank Brasil S.A. (“HSBC Bank”) and HSBC Serviços e Participações Ltda. (“HSBC Serviços”). In June 2016, the final approval of regulatory agencies was given in compliance with legal formalities. With the conclusion of the acquisition, on July 1, 2016, Bradesco assumed all operations of HSBC in Brazil, including retail, insurance and asset management, as well as all the branches and clients, reinforcing its presence and competitiveness throughout the national territory.method investees.
In July 2016, there was a total division of the equity of HSBC Serviços, where portions of this equity were transferred to HSBC Bank and to Credival Participações, Administração e Assessoria Ltda. (Credival), that is a wholly owned subsidiary of HSBC Bank.
In October 2016, approval was granted in an Extraordinary General Meeting for the partial spin-off of HSBC Brasil, through the absorption of portions of its equity by companies of the Organization, enabling progress with the integration of operational and technological platforms, resulting in the replacement of the HSBC brand in its service network, becoming Bradesco. Thus, Bradesco began to operate with a unified platform (branches, ATMs, and systems), to which all clients have access to. Bradesco adds, from now on the products and services already offered to HSBC Brasil clients, a nationwide service network, a state-of-the-art technology platform, and an even more extensive portfolio of products and services.
Bradesco F-13
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Notes to the Consolidated Financial Statements
See below the summarized balance sheet for the acquisition with HSBC Bank and HSBC Serviços (HSBC Brasil) at the date of acquisition:
| R$ thousand | ||
| Accounting | Adjustments | Fair Value (1) |
Cash and cash equivalents | 8,476,708 | - | 8,476,708 |
Desposits with the central banks | 14,895,767 | - | 14,895,767 |
Loans and advances | 69,364,585 | (1,650,016) | 67,714,569 |
Financial assets held for trading | 20,881,824 | - | 20,881,824 |
Financial assets available for sale | 23,745,717 | - | 23,745,717 |
Investments held to maturity | 13,450 | 22,411 | 35,861 |
Property and equipment, net of accumulated depreciation | 1,175,554 | 622,246 | 1,797,800 |
Intangible assets | 558,015 | 3,993,743 | 4,551,758 |
Other assets | 25,808,692 | 848,699 | 26,657,391 |
Deposits from banks | (7,808,801) | - | (7,808,801) |
Deposits from customers | (56,766,587) | - | (56,766,587) |
Financial liabilities held for trading | (3,790,048) | - | (3,790,048) |
Funds from securities issued | (40,187,105) | (64,701) | (40,251,806) |
Subordinated debt | (1,401,348) | - | (1,401,348) |
Provisions | (3,429,291) | - | (3,429,291) |
Other liabilities | (42,242,831) | - | (42,242,831) |
Sub-total | 9,294,301 |
| 13,066,683 |
Goodwill | - | 4,221,787 | 4,221,787 |
Total amount of shareholders’ equity acquired | 9,294,301 |
| 17,288,470 |
(1)Based on an assessment made on July 01,2016, were identificable the fair values of the assets adquired and liabilities assumed in the acquisition.
The fair value of the consideration transferred was composed as follows:
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(1) Includes the IOF collection, and withholding Income Tax; and
(2) Includes the results from changes to the fair valueof the firm commitment attributable to the hedged risk that was recognized in the statement in the financial position hired with the objective of protecting the effects of exchange rate variation of the firm commitment, though the use of a hedging instrument derivative.
In December 2016, Bradesco, based on a study report on purchase price allocation ("PPA"), prepared by a contracted specialized and independent company, made the allocation of the fair value of assets acquired and liabilities assumed by HSBC Brasil, as follows:
F-14 IFRS – International Financial Reporting Standards – 2017
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Notes to the Consolidated Financial Statements
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These acquisitions were recorded on the business combination method and the companies were consolidated from the date that the majority control was acquired.
The goodwill on acquisition, in the amount of R$ 4,221,787 thousand, recorded by Bradesco, is not amortized and is subject to annual impairment test. Goodwill is attributed to the expected future profitability of the respective businesses acquired and to the strengthening of Bradesco's strategy to strengthen its presence throughout the national territory, giving a greater degree of competition in a highly competitive market, so as to take advantage of the synergies generated by the products and base of HSBC Brasil customers, which are complementary.
The consolidated financial statements include the financial statements of Bradesco and those of its direct and indirect subsidiaries, including exclusive mutual funds and special purpose entities.
The main subsidiaries included in the consolidated financial statements are as follows:
| Activity | Country | Shareholding interest | |
December31 | ||||
2017 | 2016 | |||
Banco Alvorada S.A. | Banking | Brazil | 99.99% | 99.99% |
Banco Bradesco Financiamentos S.A. | Banking | Brazil | 100.00% | 100.00% |
Banco Boavista Interatlântico S.A. (1) | Banking | Brazil | - | 100.00% |
Banco Bradesco Argentina S.A. | Banking | Argentina | 99.99% | 99.99% |
Banco Bradesco Europa S.A. | Banking | Luxembourg | 100.00% | 100.00% |
Banco Bradesco BERJ S.A. | Banking | Brazil | 100.00% | 100.00% |
Banco Bradescard S.A. | Cards | Brazil | 100.00% | 100.00% |
Banco Bradesco BBI S.A. (1) | Investment bank | Brazil | 99.85% | 99.81% |
Banco Bradesco Cartões S.A. | Cards | Brazil | 100.00% | 100.00% |
Bradesco Administradora de Consórcios Ltda.(2) | Consortium Management | Brazil | 100.00% | 100.00% |
Bradseg Participações S.A. | Holding | Brazil | 100.00% | 100.00% |
Bradesco Auto/RE Cia. de Seguros | Insurance | Brazil | 100.00% | 100.00% |
Bradesco Capitalização S.A. | Capitalization bonds | Brazil | 100.00% | 100.00% |
Odontoprev S.A. | Dental care | Brazil | 50.01% | 50.01% |
Bradesco Leasing S.A. Arrendamento Mercantil | Leasing | Brazil | 100.00% | 100.00% |
Ágora Corretora de Títulos e Valores Mobiliários S.A. | Brokerage | Brazil | 100.00% | 100.00% |
Bradesco S.A. Corretora de Títulos e Valores Mobiliários | Brokerage | Brazil | 100.00% | 100.00% |
Bradesco Saúde S.A. | Insurance / Health | Brazil | 100.00% | 100.00% |
Bradesco Seguros S.A. | Insurance | Brazil | 100.00% | 100.00% |
Bradesco Vida e Previdência S.A. | Pension plan/Insurer | Brazil | 100.00% | 100.00% |
Bradesplan Participações Ltda. | Holding | Brazil | 100.00% | 100.00% |
BRAM – Bradesco Asset Management S.A. DTVM | Asset Management | Brazil | 100.00% | 100.00% |
Tempo Serviços Ltda. | Services | Brazil | 100.00% | 100.00% |
União Participações Ltda. | Holding | Brazil | 100.00% | 100.00% |
Banco Losango S.A. | Banking | Brazil | 100.00% | 100.00% |
Kirton Administradora de Consórcios Ltda (2) | Consortium management | Brazil | - | 100.00% |
Kirton Bank Brasil S.A. | Banking | Brazil | 100.00% | 100.00% |
Bradesco Kirton Corretora de Títulos e Valores Mobiliários S.A. | Brokerage | Brazil | 99.97% | 99.97% |
Kirton Capitalização S.A. (3) | Capitalization bonds | Brazil | 100.00% | 99.97% |
Kirton Seguros S.A. (4) (5) | Insurance | Brazil | 98.54% | 98.08% |
Kirton Vida e Previdência S.A. | Pension plan/Insurer | Brazil | 100.00% | 100.00% |
Kirton Participações e Investimentos Ltda (5) | Holding | Brazil | - | 100.00% |
| Activity | Shareholding interest | |
December 31 | |||
2019 | 2018 | ||
Financial Sector – Brazil |
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Ágora Corretora de Títulos e Valores Mobiliários S.A. | Brokerage | 100.00% | 100.00% |
Banco Alvorada S.A. (1) | Banking | - | 100.00% |
Banco Bradescard S.A. | Cards | 100.00% | 100.00% |
Banco Bradesco BBI S.A. | Investment bank | 99.96% | 99.96% |
Banco Bradesco BERJ S.A. | Banking | 100.00% | 100.00% |
Banco Bradesco Cartões S.A. (2) | Cards | - | 100.00% |
Banco Bradesco Financiamentos S.A. | Banking | 100.00% | 100.00% |
Banco Losango S.A. | Banking | 100.00% | 100.00% |
Bradesco Administradora de Consórcios Ltda. | Consortium management | 100.00% | 100.00% |
Bradesco Leasing S.A. Arrendamento Mercantil | Leases | 100.00% | 100.00% |
Bradesco-Kirton Corretora de Câmbio S.A. (3) | Exchange Broker | 99.97% | 99.97% |
Bradesco S.A. Corretora de Títulos e Valores Mobiliários | Brokerage | 100.00% | 100.00% |
BRAM - Bradesco Asset Management S.A. DTVM | Asset management | 100.00% | 100.00% |
Kirton Bank Brasil S.A. | Banking | 100.00% | 100.00% |
Tempo Serviços Ltda. | Services | 100.00% | 100.00% |
Financial Sector – Overseas |
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Banco Bradesco Argentina S.A.U (3) | Banking | 100.00% | 100.00% |
Banco Bradesco Europa S.A. (3) | Banking | 100.00% | 100.00% |
Banco Bradesco S.A. Grand Cayman Branch (3) (4) | Banking | 100.00% | 100.00% |
Banco Bradesco S.A. New York Branch (3) | Banking | 100.00% | 100.00% |
Bradesco Securities, Inc. (3) | Brokerage | 100.00% | 100.00% |
Bradesco Securities, UK. Limited (3) | Brokerage | 100.00% | 100.00% |
Bradesco Securities, Hong Kong Limited (3) | Brokerage | 100.00% | 100.00% |
Cidade Capital Markets Ltd (3) | Banking | 100.00% | 100.00% |
Bradescard México, sociedad de Responsabilidad Limitada (5) | Cards | 100.00% | 100.00% |
Insurance, Pension Plan and Capitalization Bond Sector - In Brazil |
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Atlântica Companhia de Seguros | Insurance | 100.00% | 100.00% |
Bradesco Auto/RE Companhia de Seguros | Insurance | 100.00% | 100.00% |
Bradesco Capitalização S.A. | Capitalization bonds | 100.00% | 100.00% |
Bradesco Saúde S.A. | Insurance/health | 100.00% | 100.00% |
Bradesco Seguros S.A. (8) | Insurance | 99.96% | 99.96% |
Bradesco Vida e Previdência S.A. | Pension plan/Insurance | 100.00% | 100.00% |
Odontoprev S.A. (6) | Dental care | 50.01% | 50.01% |
Insurance - Overseas |
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Bradesco Argentina de Seguros S.A. (3) (6) | Insurance | 100.00% | 99.98% |
Other Activities - Brazil |
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Andorra Holdings S.A. | Holding | 100.00% | 100.00% |
Bradseg Participações S.A. | Holding | 100.00% | 100.00% |
Bradescor Corretora de Seguros Ltda. | Insurance Brokerage | 100.00% | 100.00% |
BSP Empreendimentos Imobiliários S.A. | Real estate | 100.00% | 100.00% |
Bradesco F-15 F-14 IFRS – International Financial Reporting Standards – 2019
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
| Activity | Shareholding interest | |
December 31 | |||
2019 | 2018 | ||
Cia. Securitizadora de Créditos Financeiros Rubi | Credit acquisition | 100.00% | 100.00% |
Columbus Holdings S.A. | Holding | 100.00% | 100.00% |
Nova Paiol Participações Ltda. | Holding | 100.00% | 100.00% |
Other Activities - Overseas |
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Bradesco North America LLC (3) | Services | 100.00% | 100.00% |
Investment Funds (7) |
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Bradesco F.I.R.F. Master II Previdência | Investment Fund | 100.00% | 100.00% |
Bradesco F.I. Referenciado DI Performance | Investment Fund | 100.00% | 100.00% |
Bradesco F.I.C.F.I. R.F. VGBL F10 | Investment Fund | 100.00% | 100.00% |
Bradesco F.I.R.F. Master IV Previdência | Investment Fund | 100.00% | 100.00% |
Bradesco F.I.R.F. Master Previdência | Investment Fund | 100.00% | 100.00% |
Bradesco Private F.I.C.F.I. RF PGBL/VGBL Ativo | Investment Fund | 100.00% | 100.00% |
Bradesco FI Referenciado DI União | Investment Fund | 99.99% | 99.90% |
Bradesco Private F.I.C.F.I. R.F. PGBL/VGBL Ativo - F 08 C | Investment Fund | 100.00% | 100.00% |
Bradesco F.I.C.R.F. VGBL FIX | Investment Fund | 100.00% | 100.00% |
Bradesco F.I.C.F.I. Renda Fixa V-A | Investment Fund | 100.00% | 100.00% |
(1)In November, 2017, Banco Boavista Interatlântico Company merged into Kirton Bank S.A. wasin April 2019;
(2) Company merged into Banco Bradesco BBI S.A. with an increase in subscription for shares;August 2019.
(2)(3) The functional currency of these companies abroad is theIn May 2017, Kirton Administradora de Consórcios Ltda. was merged into Bradesco Administradora de Consórcios Ltda.Real;
(3)Increase(4) The special purpose entity International Diversified Payment Rights Company is being consolidated. The company is part of a structure set up for the securitization of the future flow of payment orders received overseas;
(5) The functional currency of this company is the Mexican Peso;
(6) Accounting information used with date lag of up to 60 days; and
(7) The investment funds in interest, by means of acquisition of shares held by minority shareholders;
(4)Increase in interest by means of subscription of shares in July 2017;which Bradesco assumes or substantially retains the risks and
(5)Company merged into Kirton Seguros S.A., in July 2017. benefits were consolidated.
i.Subsidiaries
Subsidiaries are all of the companies over which the Organization, has control. The Organization has control over an investee if it is exposed to, or has rights to, variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. The subsidiaries are fully consolidated from the date at which the Organization obtains control over its activities until the date this control ceases.
For acquisitions meeting the definition of a business combination, the acquisition method of accounting is used. The cost of an acquisition is measured as the fair value of the consideration, including assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any non-controlling interest. The excess of the consideration given over the fair value of the Organization’s share of the identifiable net assets and non-controlling interest acquired is recorded as goodwill. Any goodwill arising from business combinations is tested for impairment at least once a year and whenever events or changes in circumstances may indicate the need for an impairment write-down. If the cost of acquisition is less than the fair value of the Organization’s share of the net assets acquired, the difference is recognized directly in the consolidated statement of income.
For acquisitions not meeting the definition of a business combination, the Organization allocates the cost between the individual identifiable assets and liabilities. The cost of acquired assets and liabilities is determined by (a) recognizing financial assets and liabilities at their fair value at the acquisition date; and (b) allocating the remaining balance of the cost of purchasing assets and assuming liabilities to individual assets and liabilities, other thanfinancial instruments, based on their relative fair valuesof these instruments at the acquisition date.
Bradesco
F-16F-15 IFRS – International Financial Reporting Standards – 2017
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
ii.Associates
Companies are classified as associates if the Organization has significant influence, but not control, over the operating and financial management policy decisions. Normally significant influence is presumed when the Organization holds in excess of 20%, but no more than 50%, of the voting rights. Even if less than 20% of the voting rights are held, the Organization could still have significant influence through its participation in the management of the investee or representations on its Board of Directors, providing it has executive power; i.e. voting power.
Investments in associates are recorded in the Organization's consolidated financial statements using the equity method and are initially recognized at cost. The investments in associates include goodwill (net of any impairment losses) identified at the time of acquisition.
iii.Joint ventures
The Organization has contractual agreements in which two or more parties undertake activities subject to joint control. Joint control is the contractual sharing of control over an activity and it exists only if strategic, financial and operating decisions are made on a unanimous basis by the parties. A joint venture is an arrangement in which the Group has joint control, whereby the Group has rights to the arrangement, rather than rights to its assets and obligations for its liabilities. Investments in joint ventures are recorded in the consolidated financial statements of the Organization using the equity method.
iv.Structured entities
A structured entity is an entity that has been designed such that voting or similar rights are not the dominant factor in deciding who controls the entity, such as when any voting rights relate to administrative tasks only and the relevant activities are directed by means of contractual arrangements.
Structured entities normally have some or all of the following features or characteristics:
• restricted activities;
• a narrow and well-defined objective, such as, to effect a specific structure like a tax efficient lease, to perform research and development activities, or to provide a source of capital or funding to an entity or to provide investment opportunities for investors by passing risks and rewards associated with the assets of the structured entity to investors;
• thin capitalisation,capitalization, that is, the proportion of ‘real’ equity is too small to support the structured entity’s overall activities without subordinated financial support; and
• financing in the form of multiple contractually linked instruments to investors that create concentrations of credit risk or other risks (tranches).
Bradesco F-17
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Notes to the Consolidated Financial Statements
v.Transactions with and interests of non-controlling shareholders
The Organization applies a policy of treating transactions with non-controlling interests as transactions with equity owners of the Bank. For purchases of equity from non-controlling interests, the difference between any consideration paid and the share of the carrying value of net assets of the subsidiary acquired is recorded in equity. Gains or losses on sales to non-controlling shareholders are also recorded in equity.
Profits or losses attributable to non-controlling interests are presented in the consolidated statements of income under this title.
vi.Balances and transactions eliminated in the consolidation
Intra-group transactions and balances (except for foreign currency transaction gains andlosses) are eliminated in the consolidation process, including any unrealized profits or losses resulting from operations between the companies except when unrealized losses indicate an impairment loss of the asset transferred which should be recognized in the consolidated financial statements. Consistent accounting policies as well as similar valuation methods for similar transactions, events and circumstances are used throughout the Organization for the purposes of consolidation.
c)F-16 IFRS – International Financial Reporting Standards – 2019
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
b) Foreign currency translation
i. Functional and presentation currency
Items included in the financial statements of each of the Organization’s entities are measured using the currency of the primary economic environment in which the entity operates (the functional currency). The consolidated financial statements are presented in BrazilianReais (R$), which is the Organization’s presentation currency. The domestic and foreign subsidiaries use theRealas their functional currency, with the exception of the subsidiary in Mexico, which uses the Mexican Peso as its functional currency.
ii. Transactions and balances
Foreign currency transactions, which are denominated or settled in a foreign currency, are translated into the functional currency using the exchange rates prevailing on the dates of the transactions.
Monetary items denominated in foreign currency are translated at the closing exchange rate as at the reporting date. Non-monetary items measured at historical cost denominated in a foreign currency are translated at the exchange rate on the date of initial recognition; non-monetary items in a foreign currency that are measured at fair value are translated using the exchange rates on the date when the fair value was determined.
Foreign exchange gains and losses resulting from the settlement of foreign currency transactions and from the translation at each period exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in the consolidated statement of income as “Net gains/(losses) of foreign currency transactions”.
In the case of changes in the fair value of monetary assets denominated in foreign currency classified as available for sale,financial assets at fair value through other comprehensive income, a distinction is made between translation differences resulting from changes in amortized cost of the security and other changes in the carrying amount of the security. Translation differences related to changes in the amortized cost are recognized inthe consolidated statement of income, and other changes in the carrying amount, except impairment, are recognized in equity.
F-18 IFRS – International Financial Reporting Standards – 2017
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Notes to the Consolidated Financial Statements
iii. Foreign operations
The results and financial position of all foreign operations (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows:
· Assets and liabilities for each consolidated statement of financial position presented are translated at the closing rate at the reporting date;
· Income and expenses for each consolidated statement of income are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rate prevailing on the transaction dates, in which case income and expenses are translated at the rates in effect on the dates of the transactions); and
· All resulting exchange differences are recognized in other comprehensive income.
Exchange differences arising from the above process are reported in equity as “Foreigncurrency translation adjustment”.
BradescoF-17
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
On consolidation, exchange differences arising from the translation of the net investment in foreign entities are taken to ‘Other“Other comprehensive income’income”. If the operation is a non-wholly owned subsidiary, then the relevant proportion of the transaction difference is allocated to the non-controlling interest. When a foreign operation is partially sold or disposed, such exchange differences, which were recognized in equity, are recognized in the consolidated statement of income as part of the gain or loss on sale.
d)c) Cash and cash equivalents
Cash and cash equivalents include: cash, bank deposits, unrestricted balances held with the Central Bank of Brazil and other highly liquid short–termshort-term investments, with original maturities of three months or less and which are subject to insignificant risk of changes in fair value, used by the Organization to manage its short-term commitments. See Note 19(b)18 (b) – “Cash and cash equivalents”.
e)Sale and repurchase agreements
Securities sold subject to repurchase agreements are presented in the consolidated financial statements in “Financial assets pledged as collateral”. The counterparty liability is included in “Deposits from Banks”. Securities purchased under agreements to resell are recorded in “Loans and advances to banks” or “Loans and advances to customers”, as appropriate. The difference between sale and repurchase price is treated as interest in the consolidated statement of income and recognized over the life of the agreements using the effective interest rate method.
Accounting Practices adopted as of January 1, 2018.
i.Financial assets
The Organization classifiesIn 2018, we began to apply IFRS 9, which contains a new approach for classification and measurement of financial assets, where the entity is based on the business model for the management of financial assets, as well as the characteristics of contractual cash flow of the financial asset.This new approach replaced the financial assets categories foreseen in the following four categories:IAS 39: (i) measured at fair value through profit or loss; (ii) investments held to maturity; (iii) loans and receivables; and (iv) available for sale; heldsale.
IFRS 9 classifies financial assets into three categories: (i) measured at amortized cost; (ii) measured at fair value through other comprehensive income (FVOCI – Shareholders’ Equity); and (iii) measured at fair value through profit or loss (FVTPL).
- Business model: it relates to maturitythe way in which the entity manages its financial assets to generate cash flows. The objective of the Management for a particular business model, is: (i) to maintain the assets to receive contractual cash flows; (ii) to maintain the assets to receive the contractual cash flows and loans and receivables. Theclassification depends on the purpose for whichsales; or (iii) any other model. When the financial assets were acquired. Management determinesconform to the classificationbusiness models (i) and (ii) the SPPI test (Solely Payment of financial assets upon initial recognition.
Principal and Interest) should be applied.
Bradesco F-19- SPPI Test:
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Notes the purpose of this test is to assess the contractual terms of the financial instruments to determine if they give rise to cash flows at specific dates that conform only to the Consolidatedpayment of the principal and interest on the principal amount.
In this sense, the principal refers to the fair value of the financial asset at the initial recognition and interest refers to the consideration for the time value of money, the credit risk associated with the principal amount outstanding for a specific period of time and other risks and borrowing costs. Financial Statementsinstruments that do not fall under the aforementioned concept are measured at FVTPL, such as derivatives.
• Measured at fair value through profit or loss
All financial assets that do not meet the criteria of measurement at amortized cost or at FVOCI are classified as measured at FVTPL, in addition to those assets that in the initial recognition are irrevocably designated at FVTPL, if this eliminates or significantly reduces asset-liability mismatches.
Financial assets measured at FVTPL are initially recorded at fair value with subsequentchanges to the fair value recognized immediately in profit or loss. These assets can be subdivided into two distinct classifications at the time of initial recognition: financial assets designatedat fair value through profit or loss and financial assets held for trading.
-Financial assets designated at fair value through profit or loss
The Organization does not have any financial assets designated at fair value through profit or loss.
-Financial assets held for trading (non-derivatives)
A financial asset is classified asThey are held for trading if it is acquired by ManagementOrganization for the purpose of selling it in the short termshort-term or if it is part of a portfolio of identified financial instruments that are managed together for short-term profit or position taking.taking, or, eventually, assets that do not meet the SPPI test. Derivative financial instruments are also categorized as held for trading.FVTPL.
F-18 IFRS – International Financial Reporting Standards – 2019
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
Financial assets held for trading are initially recognized in the consolidated statement of financial position at fair value and the transaction costs are recorded directly in the consolidated statement of income.
RealizedInterest income is recognized in the consolidated statement of income using the effective interest method, the realized and unrealized gains and losses arising from changes in fair value of non derivativenon-derivative assets are recognized directly in the consolidated statement of income under “Net gainsgains/(losses) on financial assets and losses from financial instruments held for trading.”liabilities at fair value through profit or loss”. Interest income on financial assets held for trading aremeasured at FVTPL is included in “Net interest“Interest and similar income”. For the treatment of derivative assets see Note 2(f)2(d)(iii).
· FinancialMeasured at fair value through other comprehensive income
They are financial assets availablethat meet the criterion of the SPPI test, which are held in a business model whose objective is both to maintain the assets to receive the contractual cash flows as well as for salesale.
Financial assets available-for-sale are non-derivative financial assets that are intended to be held for an undefined period of time, which may be sold in response to needs for liquidity or changes in interest rates, exchange rates, equity prices or that are not classified as loans and receivables, held-to-maturity investments or financial assets at fair value through profit or loss.
Financial assets available-for-sale are initially recognized at fair value, which is the cash consideration includingplus any transaction costs that are directly attributable to their acquisition or their issuance and are, subsequently, are measured at fair value with gains and losses being recognized in the consolidated statement of other comprehensive income, except for impairment losses and foreign exchange gains and losses on debt securities, until the financial asset is derecognized. If a financial asset available-for-sale is determined to be impaired, the cumulative gain or loss previously recognized in other comprehensive income is recognizedThe expected credit losses are recorded in the consolidated statement of income.income in contrast to "Other comprehensive income", having no impact on the gross carrying amount of the asset.
Interest income is recognized in the consolidated statement of income using the effective interest method. Dividends on available-for-sale equity instruments are recognized in the consolidated statement of income in ‘Dividend income’, within “Net Gains/(losses) on financial assets at fair value through other comprehensive income” when the Organization’s right to receive payment is established. Exchange gains andGains or losses arising out of exchange variation on investments in debt securities classified as available for saleFVOCI are recognized in the consolidated statement of income. See Note 2(f)2(d)(viii)for more details of the treatment of impairmentthe expected credit losses.
F-20 IFRS – International Financial Reporting Standards – 2017
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Notes to the Consolidated Financial Statements
· Investments held to maturityMeasured at amortized cost
Investments held to maturity are non-derivative financialFinancial assets with fixed or determinable payments and fixed term maturities, which the Organization has the positive intention and ability to hold to maturity, and are not designated as at fair value through profit or loss or available for sale and do notthat meet the definitioncriterion of loans and receivables.the SPPI test, which are held in a business model whose objective is to maintain the assets to receive the contractual cash flows.
Investments held to maturityFinancial assets measured at amortized cost are recognized initially at fair value including direct and incremental costs, and are subsequently recorded at amortized cost, using the effective interest rate method.
Interest on investments held-to-maturity is includedare recognized in the consolidated statement of income and reported as ‘Interest“Interest and similar income’income”. In the case of impairment, the impairmentexpected credit loss, it is reported as a deduction from the carrying value of the investmentfinancial asset and is recognized in the consolidated statement of income.
·Loans and receivables
Loans and receivables are non-derivative financial assets having fixed or determinable payments that are not quoted in an active market, that have not been designated as “available for sale” or “at fair value through profit or loss” and that the Organization has no intention of selling, either immediately or in the near term.
Loans and receivables are initially measured at their fair value plus direct transaction costs and are subsequently valued at amortized cost using the effective interest rate method.
Loans and receivables are reported in the consolidated statement of financial position as loans and advances to banks or customers. Interest on loans is included in the consolidated statement of income and is reported as “Interest and similar income”. In the case of impairment, the impairment loss is reported as a deduction in carrying amount of loans and advances, and is recognized in the consolidated statement of income as “Impairment of loans and advances”.
ii.Financial liabilities
The Organization classifies its financial liabilities underas subsequently measured at amortized cost, using the effective interest rate method, except for the following categories: measured at fair value through profit and loss and amortized cost.financial instruments.
· Measured at fair value through profit and loss
These financial liabilities are recorded and measured at fair value and the respective changes in fair value are immediately recognized in the income statement. These liabilities can be subdivided into two different classifications upon initial recognition: financial liabilities designated at fair value through profit and loss and financial liabilities held for trading.
BradescoF-19
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
- Financial liabilities designated at fair value through profit and lossFVTPL on initial recognition
These are liabilities that on initial recognition are irrevocably designated at FVTPL, if this eliminates or significantly reduces asset-liability mismatches.
The Organization does not have any financial liability classifieddesignated at fair value through profit and loss in income.
- Financial liabilities held for trading
Bradesco F-21
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Notes to the Consolidated Financial Statements
Financial liabilities held for trading recognized by the Organization are derivative financial instruments. For the treatment of derivatives see Note 2(f)2(d)(iii).
· Financial liabilities at amortized costguarantee contracts and loan commitments
TheseFinancial guarantees are contracts that require the Organization to make specific payments under the guarantee for a loss incurred when a specific debtor fails to make a payment when due in accordance with the terms of the debt instrument.
Financial guarantees are initially recognized in the financial liabilities that are not classified asstatements at fair value through profit or loss. Initially theyon the date the guarantee was given. Subsequent to initial recognition, the Organization’s obligations under such guarantees are measured by the higher value between (i) the value of the provision for expected losses and (ii) the value initially recognized, minus, if appropriate, the accumulated value of the revenue from the service fee. The fee income earned is recognized on a straight-line basis over the life of the guarantee. Any increase in the liability relating to guarantees is reported in the consolidated statement of income within “Other operating income/ (expenses)”.
The expected credit losses, referring to loan commitments, are recognized at fair valuein liabilities and subsequently, are measured at amortized cost. They include deposits from banks and customers, securities issued and subordinated debt securities, among others.calculated, as described in note 3.1.
iii.Derivative financial instruments and hedge transactions
Derivatives are initially recognized at fair value on the date the derivativerespective contract is signed and are, subsequently, re-measured at their fair values with the changes recognized in the income statement under “Net gains andor losses fromon financial instruments for trading.”assets at fair value through profit or loss”.
Fair values are obtained from quoted market prices in active markets (for example, for exchange-traded options), including recent market transactions, and valuation techniques (for example for swaps and foreign currency transactions), such as discounted cash-flow models and options-pricing models, as appropriate. The calculation of fair value, the counterparty's and the entity's own credit risk are considered.
Certain derivatives embedded in other financial instruments are treated as separate derivatives when their economic characteristics and risks are not closely related to those of the host contract and the host contract is not recorded at fair value through profit or loss. These embedded derivatives are separately accounted for at fair value, with changes in fair value recognized in the consolidated statement of income.
The Organization has structures of cash flow hedges, whose objective is to protect the exposure to variability in cash flows attributable to a specific risk associated with all the assetsor liabilities recognized, or a component of it. The details of these structures have been presented in Note 3.2 – Market risk.
iv.Recognition
Initially, the Organization recognizes loans and advances, deposits, securities issued and subordinated debts and other financial assets and liabilities on the trade date, in accordance with the contractual provisions of the instrument.
F-20 IFRS – International Financial Reporting Standards – 2019
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
v.Derecognition
Financial assets are derecognized when there is no reasonable expectation of recovery, when the contractual rights to receive the cash flows from these assets have ceased to exist or the assets have been transferred and substantially all the risks and rewards of ownership of the assets are also transferred. Financial liabilities are derecognized when they have been discharged, paid, redeemed, cancelled or expired. If a renegotiation or modification of terms of an existing financial asset is such that the cash flows of the modified asset are substantially different from those of the original unmodified asset, then the original financial asset is derecognisedderecognized and the modified financial asset is recognisedrecognized as a new financial asset and initially measured at fair value.
vi.Offsetting financial instruments
Financial assets and liabilities are offset and the net amount reported in the consolidated statement of financial position when, the Organization has the intention and the legal enforceable right to offset the recognized amounts on a net basis or realize the asset and settle the liability simultaneously.
F-22 IFRS – International Financial Reporting Standards – 2017
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Notes to the Consolidated Financial Statements
vii.Determination of fair value
The determination of the fair values for the majority of financial assets and liabilities is based on the market price or quotes of security dealers for financial instruments traded in an active market. The fair value for other instruments is determined using valuation techniques. The valuation techniques which include use of recent market transactions, discounted cash flow method, comparison with other instruments similar to those for which there are observable market prices and valuation models.
For more common other instruments the Organization uses widely accepted valuation models that consider observable market data in order to determine the fair value of financial instruments.
For more complex instruments, the Organization uses its own models that are usually developed from standard valuation models. Some of the information included in the models may not be observable in the market and is derived from market prices or rates or may be estimated on the basis of assumptions.
The value produced by a model or by a valuation technique is adjusted to reflect various factors, since the valuation techniques do not necessarily reflect all of the factors that market participants take into account during a transaction.
The valuations are adjusted to consider the risks of the models, differences between the buy and sell price, credit and liquidity risks, as well as other factors. Management believes that such valuation adjustments are necessary and appropriate for the correct evaluation of the fair value of the financial instruments recorded in the consolidated statement of financial position.
viii.ImpairmentMore details on the calculation of the fair value of financial assetsinstruments are available in Note 3.4.
viii.Expected credit losses
(a)Financial assets recognizedThe Organization calculates the expected credit losses in prospective bases for financial instruments measured at amortized cost, at FVOCI (with the exception of investments in equity instruments), financial guarantees and loan commitments.
On each reporting date,Expected credit losses on financial instruments are measured as follows:
Financial assets: it is the Organization assesses whether there is objective evidence that financial assets are impaired. The impairment losses are recognized only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognitionpresent value of the asset (a ‘loss event’) and that loss event (or events) has an impact on the estimated futuredifference between contractual cash flows ofand the financial asset or group of financial assets that can be reliably estimated.
The criteriacash flows that the Organization useshopes to determine that there is objective evidence of an impairment include:
·significant financial difficultyrecover discounted at the effective interest rate of the issuer or obligor;operation;
·a breach of contract, such as a default or delinquency in interest or principal payments;
·the granting to the borrower of a concession that the lender would not otherwise consider for economic or legal reasons relating to the borrower’s financial difficulty;
·when it becomes probable that the borrower will enter bankruptcy or other financial reorganization;
·the disappearance of an active market for that financial asset because of financial difficulties; or
·observable data indicating that there is a measurable decrease in the estimated future cash flows from a portfolio of financial assets since the initial recognition of thoseassets, although the loss event cannot yet be identified at the level of the individual financial assets in the portfolio, including:
BradescoF-23 F-21
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
Financial guarantees: it is the present value of the difference between the expected payments to reimburse the holder of the guarantee and the values that the Organization expects to recoverdiscounted at a rate that reflects the market conditions; and
(i)adverse changes inLoan commitments: is the payment statuspresent value of group assessed borrowers;the difference between the contractual cash flows that would be due if the commitment was used and the cash flows that the Organization expects to recoverdiscounted at a rate that reflects the market conditions.
(ii)national or local economic conditions
Expected losses will be measured on one of the following basis:
− Credit losses expected for 12 months, i.e., credit losses as a result of possible events of delinquency within 12 months after the reporting date; and
− Credit Losses expected for the whole of lifecycle, i.e., credit losses that correlate with defaults inresult from all possible events of delinquency throughout the assets.expected lifecycle of a financial instrument.
The measurement of expected losses for the whole lifecycle is applied when a financial asset, on the date of the report, has a significantly increased of the credit risk since its initial recognition and the measurement of credit loss of 12 months is applied when the credit risk has not increased significantly since its initial recognition. The Organization takes into consideration evidencemay determine that the credit risk of impairmenta financial asset has not increased significantly when the asset has a low credit risk on the date of the report.
With respect to Brazilian government bonds, the Organization has internally developed a study to assess the credit risk of these securities, which does not expect any loss for both individually significant assets and groups of assets. All significant financial assets are evaluated to detect specific losses.
All significant assets for which the assessment indicatesnext 12 months, that there is, no specific impairment are assessed as a group to detect any impairment loss that may have occurred, although not yet identified. The financial assets which are not individually significant are assessed as a group to detect any collective impairment loss (recorded at the amortized cost) based on similar risk features. Assets that are individually assessedprovision is required for impairment and for which an impairment loss is recognized are not included in a collective assessment of impairment.credit losses.
The amount of loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate. The asset’s carrying amount of the asset is reduced through provisions and the amount of the loss is recognized in the consolidated statement of income.
The calculation of the present value of the estimated future cash flows of a collateralized financial asset reflects the cash flows that may result from foreclosure less costs for obtaining and selling the collateral.
For the purposes of a collective evaluation of impairment, financial assets are grouped on the basis of similar credit-risk characteristics (that is, on the basis of the Organization’s rating process that considers product type, market segment, geographical location, collateral type, past-due status and other related factors). Those characteristics are relevant to the estimation of future cash flows for groups of such assets by being indicative of the debtors’ ability to pay all amounts due according to the contractual terms of the assets being evaluated.
Future cash flows in a group of financial assets that are collectively evaluated for impairment are estimated on the basis of the contractual cash flows of the assets in the group and historical loss experience for assets with credit-risk characteristics similar to those in the group. Historical loss experience is adjusted on the basis of current observable data to reflect the effects of current conditions that did not affect the period on which the historical loss experience is based and to remove the effects of conditions in the historical period that do not currently exist.
The methodology and assumptions used for estimating future cash flows are reviewed regularly to mitigate any differences between loss estimates and actual loss experience.
Following impairment losses,the recognition of expected credit loss, interest income is recognized using the effective rate of interest which was used to discount the future cash flows, on the accounting value gross of provision, except for assets with problem of credit recovery, in which, the purposerate stated is applied at the net book value of measuring the impairment loss.provision.
WhenThe whole or part of a loan is uncollectible, itfinancial asset is written off against the related allowance for loan impairment.credit loss expected when there is no reasonable expectation of recovery. Such loans are written off after all the relevant collection procedures have been completed and the amount of the loss has been determined. Subsequent recoveries of amounts previously written off are credited to the consolidated statement of income.
The criteria used to calculate the expected credit loss and to determine the significantly increased of the credit risk are detailed in Note 3.1.
Accounting Practices adopted until December 31, 2017.
The Organization opted for the exemption provided by the Standard not to restate comparative information from prior periods arising from the changes arising from IFRS 9, therefore we present below the accounting policies applied to Financial Instruments up to December 31, 2017:
F-2F-242 IFRS – International Financial Reporting Standards – 20172019
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
i.Sale and repurchase agreements
Securities sold subject to repurchase agreements are presented in the consolidated financial statements in “Financial assets pledged as collateral”. The counterparty liability is included in “Deposits from Banks”. Securities purchased under agreements to resell are recorded in “Loans and advances to banks” or “Loans and advances to customers”, as appropriate. The difference between sale and repurchase price is treated as interest in the consolidated statement of income and recognized over the life of the agreements using the effective interest rate method.
ii.Financial assets
The Organization classifies its financial assets into the following categories: measured at fair value through profit or loss, available-for-sale, held-to-maturity and loans and receivables. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets on initial recognition.
·Measured at fair value through profit or loss
Financial assets are recorded and initially measured at fair value, with subsequent subsequent changes in fair value recognized immediately in profit or loss. These assets can be subdivided into two distinct classifications: financial assets designated at fair value through profit or loss; and financial assets for trading (upon initial recognition).
- Financial assets designated at fair value through profit or loss
The Organization does not have any financial assets designated at fair value through profit or loss.
- Financial assets for trading (except Derivatives)
Financial assets for trading are assets held by the Organization for the purpose of trading them in the short term or maintaining them as part of a managed portfolio in order to obtain short-term profit or to take positions. Derivative financial instruments are also classified as held for trading.
Financial assets held for trading are initially recognized and measured at fair value on the balance sheet, and transaction costs are recorded directly in the statement of income for the period.
Realized and unrealized gains and losses arising from changes in the fair value of non-derivative financial assets are recognized directly in the income statement under "Gains and losses net of financial assets for trading". Interest income on financial assets held for trading is recognized in "Net interest income".
·Available-for-sale financial assets
Available-for-sale financial assets are non-derivative financial assets, for which it is intended to be held for an indefinite period of time, and which may be sold in response to changes in interest rates, foreign exchange rates, prices of equity securities or liquidityneeds or that are not classified as held-to-maturity, loans and receivables or at fair value through profit or loss.
They are initially recognized at fair value, which corresponds to the amount paid including transaction costs and is subsequently measured at fair value with gains and losses recognized in equity, other comprehensive income, except for impairment losses recoverable from exchange gains and losses until the financial asset is no longer recognized. If an available-for-sale financial asset presents a loss due to impairment, the accumulated loss recorded in other comprehensive income is recognized in the statement of income.
BradescoF-23
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
Interest income is recognized in the income statement using the effective interest rate method. Dividend income is recognized in the consolidated statement of income when the Organization becomes entitled to the dividend. Foreign exchange gains and losses on investments in debt securities classified as available for sale are recognized in the consolidated statement of income.
·Held-to-maturity investments
Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturity that the Organization has the intention and ability to hold to maturity and which are not designated at the initial recognition as at fair value through profit or loss, or as available for sale and that do not meet the definition of loans and receivables.
They are initially recognized at fair value including direct and incremental costs and are subsequently accounted for at amortized cost using the effective interest rate method.
Interest on investments held to maturity is included in the consolidated statement of income as "Interest and similar income". In the event of impairment, the impairment loss is recognized as a deduction from the carrying amount of the investment and is recognized in the consolidated statement of income.
·Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market that have not been designated as "available for sale" or "at fair value through profit or loss" and that the Organization does not intends to sell immediately or in the short term.
They are initially measured at fair value plus direct transaction costs and subsequently measured at amortized cost using the effective interest rate method.
Loans and receivables are recognized in the balance sheet as loans and advances to financial institutions or to customers. Interest on loans is included in the income statement as "Interest and similar income". In the event of impairment, the impairment loss is reported as a reduction in the book value of loans and advances and is recognized in the statement of income as "Impairment losses on loans and advances".
iii.Financial liabilities
The Organization classifies its financial liabilities in the following categories: measured at fair value through profit or loss and at amortized cost.
·Measured at fair value through profit or loss
They are recorded and valued at fair value, and the respective changes in fair value are recognized immediately in profit or loss. These liabilities can be subdivided into two distinct classifications: financial liabilities designated at fair value through profit or loss and financial liabilities for trading.
- Financial liabilities at fair value through profit or loss
The Organization does not have any financial liabilities designated at fair value through profit or loss.
- Financial liabilities for trading
The financial liabilities for trading recognized by the Organization are derivative financial instruments.
F-24 IFRS – International Financial Reporting Standards – 2019
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
·Financial liabilities at amortized cost
These are financial liabilities that are not measured at fair value through profit or loss. They are initially recorded at fair value and subsequently measured at amortized cost. They include, among others, resources from financial and client institutions, debt securities issuance and subordinated debt securities.
iv.Deposits, securities issued and subordinated liabilities
Deposits, securities issued and subordinated liabilities are the main funding sources used by the Organization to finance its operations.
They are initially measured at fair value plus transaction costs and subsequently measured at amortized cost using the effective interest rate method.
v.Derivative financial instruments and hedge operations
Derivatives are initially recognized at fair value on the date a derivative contract is entered into and are subsequently remeasured to their fair values with the changes being recognized in the statement of income under "Gains and losses on financial assets held for trading".
Fair values are derived from quoted market prices in active markets (for example, exchange traded options), including recent market transactions and valuation techniques (eg, swaps and currency transactions), discounted cash and option pricing models, as appropriate. In determining the fair value, the credit risk of the counterparty and the entity itself is considered.
Certain derivatives embedded in other financial instruments are treated as separate derivatives when their economic characteristics and risks are not closely related to those in the main contract and the contract is not accounted for at fair value through profit or loss. These embedded derivatives are recorded separately at fair values, with changes in fair values being included in the consolidated income statement.
vi.Impairment of financial assets
a)Financial assets recognized at amortized cost
At each balance sheet date, the Organization assesses whether there is objective evidence that the carrying amount of the financial assets is impaired. Impairment losses are only recognized if there is objective evidence that a loss occurs after the initial recognition of the financial asset and that the loss has an impact on the future cash flows of the financial asset or group of financial assets , which can be estimated reliably.
The criteria that the Organization uses to determine whether there is objective evidence of a impairment loss include:
- Relevant financial difficulty of the issuer or borrower;
- A breach of contract, such as default or delays in the payment of interest or principal;
- Economic or legal reasons related to the financial difficulty of the borrower, guarantees to the borrower a concession that the creditor would not consider;
- When it becomes probable that the policyholder declares bankruptcy or other financialreorganization;
- The disappearance of an active market for that financial asset due to financial difficulties; or
- Observable data indicating that there is a measurable reduction in estimated future cash flows from a portfolio of financial assets since the initial recognition of those assets, although the loss event can not yet be identified at the level of the individual financial assets in the portfolio, including:
(i) adverse changes in the payment situation of the borrowers of the assessed group; and
(ii) national or local economic conditions that correlate with default on assets.
BradescoF-25
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
The Organization considers evidence of impairment for both individually significant assets and for assets at the collective level. All significant financial assets are valued for specific losses.
All significant assets that the evaluation indicates are not specifically impaired are evaluated collectively to detect any impairment losses incurred but not yet identified. Financial assets, accounted for at amortized cost, which are not individually significant, are evaluated collectively to detect impairment losses, grouping them according to similar risk characteristics. Financial assets, which are individually assessed for impairment and a loss is recognized, are not included in the collective assessment of impairment.
The amount of the loss is measured as the difference between the book value of the assets and the present value of the estimated future cash flows (excluding future credit losses that were not incurred) discounted at the original interest rate of the financial assets. The book value of the asset is reduced through provisions and the amount of the loss is recognized in the statement of income.
The calculation of the present value of the estimated future cash flows of a guaranteed financial asset reflects the cash flows, which may result from the asset's execution, less the costs of obtaining and selling the guarantee.
For the purposes of a collective assessment of impairment, financial assets are grouped based on similar credit risk characteristics (ie, based on the process, the Organization classifies the type of product, business segments, location geographical, type of guarantee, maturity and other related factors). These characteristics are relevant for estimating future cash flows for groups of such assets as they are indicative of the borrower's ability to pay all amounts owed in accordance with the contractual terms of the assets to be valued.
Future cash flows in a group of financial assets, tested together to determine if there is any impairment, are estimated based on the contracted cash flows of a group of assets and the history of losses for assets with risk characteristics similar to those of the group of assets. Loss history is adjusted according to current observable data to reflect the effects of current conditions that did not affect the period in which the loss history is based and to disregard the effects of the conditions existing in the historical period that do not currently exist.
The methodology and assumptions used to estimate future cash flows are reviewed regularly to reduce any differences between the loss estimates and the actual loss.
After the impairment loss, financial income is recognized using the effective interest rate, which was used to discount future cash flows in order to measure the impairment loss.
When it is not possible to receive a credit, it is written off against the respective provision for impairment. These credits are written off after the completion of all necessary recovery procedures for the determination of the loss amount. Subsequent recoveries of amounts previously written off are credited to the consolidated statement of income.income statement.
(b)b) Financial assets classified as available for sale
The Organization assesses,shall assess, at the end of each reporting date,period, whether there is objective evidence that a financial asset or group of financial assets is impaired.deteriorating. For debt securitiesinstruments, the Organization adoptsuses the assessment describedcriteria mentioned in item (a) above in order to identify an impairmenta loss event.
In the case of equity investmentsinstruments classified as available for sale, a significantmaterial or prolonged decline in the fair value of the security below its cost is considered objectiveas evidence ofthat impairment resulting in the recognition of an impairment loss.losses have been incurred.
If any such evidence exists for available-for-available for sale financial assets, the cumulative loss –- measured as the difference between the acquisition cost and the current fair value less any impairment loss on thatthe previously recognized financial asset previously recognized in profit or loss –- is removed from equity andwritten off recognized in the income statement.statement of income.
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Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
If, in a subsequent period, the fair value increases, forof a debt instrument classified as available for sale increases and the increase can be objectively related to an event occurringthat occurred after the impairment loss was recognized, in profit or loss, the impairment lossreduction is reversed throughfrom the consolidated statement of income.income statement. Impairment losses on capital instruments recognized in the consolidated statement of income on equity instruments are not reversed through the consolidated statement of income. Increasesreversed. Increase in the fair value of equity instruments after impairment areis recognized directly in equity in other comprehensive income.
g)e) Non-current assets held for sale
Under certain circumstances, property is repossessed following foreclosure of loans that are in default. Repossessed properties are measured at the lower of their carrying amount andor fair value less the costs to sell – whichever is the lowest – and are included within “Non-current assets held for sale.”sale”.
h)f) Property and equipment
i. Recognition and valuation
Property and equipment are measured at cost less accumulated depreciation and accumulated impairment losses (see Note 2(k)2(i) below), if any.
The cost includes expenses directly attributable to the acquisition of an asset.
The cost of assets internally produced includes the cost of materials and direct labor, as well as any other costs that can be directly allocated and that are necessary for them to function. Software acquired for the operation of the related equipment is recorded as part of the equipment.
When different parts of an item have different useful lives, and separate control is practical, they are recorded as separate items (main components) comprising the property and equipment.
Useful lives and residual values are reassessed at each reporting date and adjusted, if appropriate.
Gains and losses from the sale ofproperty and equipment are determined by comparing
Bradesco F-25
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Notes to the Consolidated Financial Statements
proceeds received with the carrying amount of the asset and are recorded in the consolidated income statement under the heading “Other operating income/(expenses)”.”
ii. Subsequent costs
Expenditure on maintenance and repairs of property and equipment items is recognized as an asset when it is probable that future economic benefits associated with the items will flow to the Organization for more than one year and the cost can be measured reliably. The carrying amount of the replaced part is derecognized. All other repairs and maintenance costs are charged to the consolidated statement of income during the reporting period in which they are incurred.
iii.Depreciation
Depreciation is recognized in the consolidated statement of income using the straight-line basisand taking into consideration the estimated useful economic life of the assets. The depreciable amount is the gross-carrying amount, less the estimated residual value at the end of the useful economic life. Land is not depreciated. Useful lives and residual values are reassessed at each reporting date and adjusted, if appropriate.
i)g) Intangible assets
Intangible assets comprise separately identifiable non-monetary items, without physical substance due to business combinations, such as goodwill and other purchasepurchased intangible assets, computer software and other such intangible assets. Intangible assets are recognized at cost. The cost of an intangible asset, acquired in a business combination, is its fair value at the date of acquisition. Intangible assets with a definite useful life are amortized over their estimated useful economic life. Intangible assets with an indefinite useful life are not amortized.
BradescoF-27
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
Generally, the identified intangible assets of the Organization have a definite useful life. At each reporting date, intangible assets are reviewed for indications of impairment or changes in estimated future economic benefits – see Note 2(k)2(i) below.
i. Goodwill
Goodwill (or bargain purchase gain) arises on the acquisition of subsidiaries, associates and joint ventures.
Goodwill reflects the excess of the cost of acquisition in relation to the Organization’s share of the fair value of net identifiable assets or liabilities of an acquired subsidiary, associate or joint venture on the date of acquisition. Goodwill originated from the acquisition of subsidiaries is recognized as “Intangible Assets”, and the goodwill from acquisition of associates and joint ventures is included in the carrying amount of the investment, (see Note 2(b)(ii)).investment. When the difference between the cost of acquisition and the Organization’s share of the fair value of net identifiable assets or liabilities is negative (bargain purchase gain), it is immediately recognized in the consolidated statement of income as a gain on the acquisition date.
Goodwill is tested annually as well asor whenever a trigger event has been observed, for impairment (see Note 2(k)2(i) below). Gains and losses realized in the sale of an entity include consideration of the carrying amount of goodwill relating to the entity sold.
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Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Notes to the Consolidated Financial Statements
ii. Software
Software acquired by the Organization is recorded at cost, less accumulated amortization and accumulated impairment losses, if any.
Internal software-development expenses are recognized as assets when the Organization can demonstrate its intention and ability to complete the development, and use the software in order to generate future economic benefits. The capitalized costs of internally developed software include all costs directly attributable to development and are amortized over their useful lives. Internally developed software is recorded at its capitalized cost less amortization and impairment losses (see Note 2(k)2(i) below).
Subsequent software expenses are capitalized only when they increase the future economic benefits incorporated in the specific asset to which it relates. All other expenses are recorded as expenses as incurred.
Amortization is recognized in the consolidated statement of income using the straight-line method over the estimated useful life of the software, beginning on the date that it becomes available for use. The estimated useful life of software is from two to five years. Useful liveslife and residual values are reviewed at each reporting date and adjusted, if necessary.
iii.Other intangible assets
Other intangible assets refer basically to the customer portfolio and acquisition of bankingservice rights. They are recorded at cost less amortization and impairment losses, if any, and are amortized for the period in which the asset is expected to contribute, directly or indirectly, to the future cash flows.
These intangible assets are reviewed annually, or whenever events or changes in circumstances occur which could indicate that the carrying amount of the assets cannot be recovered. If necessary, the write-off or impairment (see Note 2(k)2(i) below) is immediately recognized in the consolidated statement of income.
j)h) Leasing
Until December 31, 2018, the Organization adopted IAS 17 as accounting practice for recording its leasing transactions, as described below. IFRS 16 is mandatory for the fiscal years beginning after January 1, 2019.
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Notes to the Consolidated Financial Statements
Accounting Policy applicable until December 31, 2018
The Organization has both operating and finance leases and operates as a lessee and a lessor.
Leases in which a significant part of the risks and benefits of the asset is borne by the lessor are classified as operating leases. For leases in which a significant part of the risks and benefits of the asset is borne by the lessee, the leases are classified as financial lease.
Leases under the terms of which the Organization assumes substantially all the risks and rewards of ownership are classified as finance leases. Upon initial recognition, the leased asset is measured at an amount equal to the lower of its fair value and the present value of the minimum lease payments. Subsequent to initial recognition, the asset is accounted for in accordance with the accounting policy applicable to that asset.
As a lessee, the Organization classifies its leasing operations mainly as operating leases, and the monthly payments are recognized in the financial statements using the straight-line method over the term of the lease. Lease incentives received are recognized as an integral part of the total lease expense, over the term of the lease.
Bradesco F-27
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Notes to the Consolidated Financial Statements
When an operating lease is terminated before the contract expires, any payment that may be made to the lessor in the form of a penalty is recognized as an expense for the period.
Minimum lease payments made under finance leases are apportioned between the finance expense and the reduction of the outstanding liability. The finance expense is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability.
Contingent lease payments are accounted for by revising the minimum lease payments over the remaining term of the lease when the lease adjustment is confirmed.
As a lessor, the Organization has substantial finance lease contracts, both in value and total number of contracts.
i.Finance Leases
Finance lease assets in the consolidated statement of financial position are initially recognized in the “loans and advances”advances to customers” account at an amount equal to the net investment in the lease.
The initial direct costs generally incurred by the Organization are included in the initial measurement of the lease receivable and recognized as part of the effective interest rate of the contract, decreasing the amount of income recognized over the lease term. These initial costs include amounts for commissions, legal fees and internal costs. The costs incurred in relation tothe negotiation, structuring and sales of leases are excluded from the definition of initial direct costs and therefore are recognized as expenses at the beginning of the lease term.
Recognition of financial revenue reflects a constant rate of return on the net investment made by the Organization.
The estimated non-guaranteed residual values used in the calculation of the gross investment of the lessor in the lease are reviewed at least annually. If there is a decrease in the estimated non-guaranteed residual value, the income allocated over the period of the lease is also reviewed periodically and any decrease in relation to the accumulated values is immediately recognized in the consolidated statement of income.
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Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
The lease receivables are subject to the requirements of Write-off and credit Losses expected, described in the topic above, financial assets and liabilities, items v and viii, respectively.
ii.Operating leases
The assetsleased under operating leases, where the Organization acts as lessor, are recognized in the consolidated statement of financial position as property and equipment according to the nature of the item leased.
The initial direct costs incurred by the Organization are added to the carrying amount of the leased asset and are recognized as expenses over the period of the lease and on the same basis as the income recognition.
Revenue from lease is recognized using the straight-line method over the term of the lease, even if the payments are not made on the same basis. Costs, including depreciation and maintenance, incurred in the generation of income are recognized as expenses.
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Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Notes to the Consolidated Financial Statements
The depreciation policy for leased assets is the same as the depreciation policy used by the Organization for similar assets.
k)Accounting Policy adopted from January 01, 2019
The Organization assesses at contract inception whether a contract is, or contains, a lease. That is, if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.
Bradesco applies a single recognition and measurement approach for all leases, except for short-term leases and leases of low-value assets. The Organization recognizes lease liabilities to make lease payments and right-of-use assets representing the right to use the underlying assets.
At the beginning of a lease, the Organization recognizes a lease liability and a right of use asset. The expenses with interest on the lease liability and expenses of depreciation of the right of use asset are recognized separately.
The right of use asset is measured initially at cost value and is subsequently reduced by the accumulated depreciation and any accumulated impairment losses, when applicable. The right of use will also be adjusted in case of re-measurement of the lease liability. The depreciation is calculated in a linear fashion by the term of the leases.
The lease term is defined as the non-cancellable term of the lease, together with (i) periods covered by the option to extend the lease, if the lessee is reasonably certain to exercise that option; and (ii) periods covered by the option to terminate the lease, if the lessee is reasonably certain that it will not exercise that option. The Organization has a descriptive policy for the property lease terms, which considers the business plan and management expectations, extension options and local laws and regulations.
The lease liability is measured initially at the present value of the future lease payments, discounted by the incremental rate applied to each contract in accordance with the leasing term.
The lease payments include fixed payments, less any lease incentives receivable, and variable lease payments that depend on an index or a rate. Variable lease payments that do not depend on an index or a rate are recognised as expenses in the period in which the event or condition that triggers the payment occurs.
The incremental rate applied by the Organization takes into account the funding rate free of risk adjusted by the credit spread.
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Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
Subsequently, the lease liability is adjusted to reflect the interest levied on the payment flows, re-measured to reflect any revaluation or modifications of leasing and reduced to reflect the payments made.
Financial charges are recognized as a “Interest and similar expenses” and are adjusted in accordance with the term of the contracts, considering the incremental rate.
The contracts and leases of properties with an indefinite period were not considered in the scope of IFRS 16 because they are leases in which the contract can be terminated at any time without a significant penalty. In this way, the rental contract was not considered as executable.
Short-term leases and leases of low-value assets
The Organization applies the short-term lease recognition exemption to its short-term leases (leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase option). It also applies the lease of low-value assets recognition exemption to leases that are considered to be low value. Lease payments on short-term leases and leases of low-value assets are recognized as expense over the lease term.
i) Impairment losses on non-financial assets (except for deferred tax assets)
Assets that have an indefinite useful life such as goodwill are not subject to amortization and are tested, at least, annually at the same date to verify the existence of impairment.
Assets, which are subject to amortization or depreciation, are reviewed to verify impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized based on the excess the carrying amount of the asset or the cash generating unit (CGU) over its estimated recoverable amount. The recoverable amount of an asset or CGU is the greater of its fair value, less costs to sell, and its value in use.
For the purpose of impairment testing, the assets that cannot be tested individually are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or CGUs. Subject to a ceiling of the operating segments, for the purpose of goodwill impairment testing, CGUs to which goodwill has been allocated are aggregated so that the level at which impairment testing is performed reflects the lowest level at which goodwill is monitored for internal reporting purposes. Goodwill acquired in a business combination is allocated to CGU or groups of CGU’sCGUs that are expected to benefit from the synergies of the combination.
The recoverable amount is the higher of an asset/CGU’s fair value less costs to sell and its value in use. When assessing the value in use, future profitability based on business plans and budgets are used, and the estimated future cash flows are discounted to their present value using a discount rate that reflects the current market conditions of the time value of money and the specific risks of the asset or CGU.
The Organization’s corporate assets do not generate separate cash inflows and are utilized by more than one CGU. Corporate assets are allocated to CGU’sCGUs on a reasonable and consistent basis and tested for impairment as part of the testing of the CGU to which the corporate asset is allocated.
Impairment losses are recognized in the consolidated Statement of Income. Impairment losses recognized in respect of CGU’sCGUs are allocated first to reduce the carrying amount of any goodwill allocated to the CGU (group(or group of CGU’s)CGUs) and then to reduce the carrying amount of the other assets in the CGU (group(or group of CGU’s)CGUs) on a pro rata basis.
An impairment of goodwill cannot be reversed. With regard to other assets, an impairment loss recognized in previous periods is reassessed at each reporting date for any indications that the impairment has decreased or no longer exists. An impairment loss will be reversed if there has been a change in the estimates used to determine the recoverable amount or to the extent that the carrying amount of the asset does not exceed the carrying amount that would have been determined, net of depreciation and amortization, if no impairment had been recognized.
Deposits, debt securities issued and subordinated liabilities are the main sources of funding used by the Organization to finance its operations.
They are initially recorded at fair value plus transaction costs and are subsequently measured at amortized cost using the effective interest method.
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Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
m)j) Provisions, contingent assets and liabilities and contingent assetslegal obligations
A provision is recognized when, as a result of a past event, the Organization has a present legal or constructive obligation that can be reliably estimated and it is probable that an outflow of resources will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability.
Provisions were established by Management whenever it considers that there is a probable loss taking into account the opinion of their legal advisors; the nature of the actions; the similarity to previous suits; the complexity and the positioning of the Courts.
Contingent Liabilitiesliabilities are not recognized, since their existence will only be confirmed by the occurrence or not of one or more future and uncertain events that are not totally under the control of the Management. Contingent liabilities do not meet the criteria for recognition, since they are considered as possible losses and should only be disclosed in explanatory notes, when relevant. Obligations classified as remote are neither provisioned nor disclosed.
Contingent assets are recordedrecognized only when there are realactual guarantees or definitive favorable and non-appealable court decisions, and whenrulings, over which there are no more resources, characterizing the gain is considered to be virtuallyas practically certain. Contingent assets, for which thewhose expectation of success is the outcome will be favorableprobable, are only disclosed in the financial statements, when material.relevant.
Legal obligations arise from legal proceedings, the object of which is its legality or constitutionality, which, independently of the assessment of the likelihood of success, have their amounts fully recognized in the financial statements.
An insurance contract is a contract in which the Organization accepts a significant insurance risk from the policy holder by agreeing to compensate the policyholder if a specific, uncertain, future event adversely affects the policy holder. Reinsurance contracts are also treated as insurance contracts because they transfer significant insurance risk. Contracts in the Insurance segment classified as investment contracts are related to our capitalization bonds, which do not transfer significant insurance risk and are accounted for as financial instrumentsliabilities in accordance with IAS 39IFRS 9 – Financial Instruments.
o)l) Insurance and pension plan technical provisions
i.Property damageNon life insurance
The Provision for Unearned Premiums (PPNG) is calculated on a daily pro-rata basis using premiums net of coinsurance premiums, including amounts ceded through reinsurance operations, and the value registered in the consolidated statement of financial position corresponds to the unexpired risk period of the insurance contracts less initial contracting costs.contracts.The portion of these reserves corresponding to the estimatefor risksin effect on contracts that have been issued but are not yet fully binding issuedis designated ‘PPNG-RVNE’PPNG-RVNE.
TheIn Automobile insurance, the Provision for Claims Incurred But Not Reported(IBNR) is constituted based on the claims incurred and not yet paid (IBNP), subtracting the balance of the Provision for Claims to be settled (PSL) at the base date of calculation. To calculate the IBNP, the final estimate of claims that have not yet been paid based on semiannual run-off triangles, which consider the historical development of the claims paid in the last 10 semesters for the branches of damages and the last 11 quarters for the extended guarantee business, in order to establish a future projection by period of occurrence of occurrence and also considers the estimate of claims
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Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Notes to the Consolidated Financial Statements
Claims Incurred But Not Enough Reported (IBNER), reflecting the expectation of alteration of the provisioned amount throughout the regulation process. Until the base date of December 2016, only IBNR was constituted, without IBNER segregation. This change in methodology was made in January 2017Now in the automobile portfolioother property damage insurance, the IBNR is calculated with triangles also of 10 semesters, however projecting only the new reports, i.e., there is no estimate of IBNER in order to allow better allocation of capital among the loss provisions, and had no impact on the results of the Organization.this insurance.
The reserveProvision for unsettled claimsClaims to be Settled (PSL) is determined based on the indemnity payment estimates, considering all administrative and judicial claims existing at the reporting date, restated monetarily, net of salvage and payments expected to be received.
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Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
The reserveProvision for related expensesRelated Expenses (PDR) is recorded on a monthly basis to cover expenses related to estimated claims and benefits.It covers both costs that can be individually allocated to each claim as well as claims costs not discriminated, meaning those incurred at the portfolio level.
The Complementary ReserveProvision for Coverage (PCC)shall be established when there is insufficiency of the technical provisions required under the legislation, as determined in the Liability Adequacy Test (see Note 2(o)(vi)2(vi) below). At the reporting date management did not identify the need for PCC on property damage contracts.
Other technical provisionsTechnical Provisions (OPT) correspond to the Provision for Administrative Expenses (PDA) arising on the Mandatory Insurance For Personal Injury Caused by Motor Vehicles (DPVAT) insurance operations.
ii.Life insurance excluding life insurance with survival coverage (VGBL product)
The Provision for Unearned Premiums (PPNG) is calculated on a daily pro-rata basis using premiums net of coinsurance premiums, butand including amounts ceded through reinsurance operations, and the value registered in the consolidated statement of financial position corresponds to the unexpired risk period of the insurance contracts and includes ancontracts. The portion of these reserves corresponding to the estimate for risksin effect on contracts that have been issued but are not yet fully binding issuedis designated ‘PPNG-RVNE’.PPNG-RVNE.
The Mathematical Provision for Benefits to be Granted (PMBaC) is calculated by the difference between the present value of the future benefits and the present value of the future contributions to be received for these benefits.
The Provision for Redemptions and other Amounts to be Settled (PVR)comprises amounts related to redemptions to settle, premium refunds owed and portability (transfer-outs) requested but not yet transferred to the recipient insurer.
TheThe reserveProvision for IBNRClaims Incurred But Not Reported (IBNR) is calculated based on semiannual run-off triangles, which consider the historical development of claims paid and outstanding in the last 10 semesters, to establish a future projection per period of occurrence. A residual causetail study is carried out to forecast the claims reported after 10 semesters of the date of occurrence.The change in the calculation methodology of IBNP, which considered 16 semesters of claims development, to reflect a higher level of precison in the estimate within the current portfolio of the Organization . The change generated a reduction of approximately R$ 180 million in the provision of IBNR, net of reinsurance.
The reserveProvision for unsettled claimsClaims to be Settled (PSL) considers the expected amounts to be settled from all claim notifications received up to the end of the reporting period. The reserve is adjusted forprovision covers administrative and judicial claims indexed to inflation and includes all claimswith interest in litigation.the event of judicial claims.
The Complementary ReserveProvision for Coverage (PCC) refers to the amount necessary tocomplementto complement technical reserves, as calculated through the Liability Adequacy Test.liability adequacy test (LAT). LATLAT is calculatedprepared using statistical and actuarial methods based on realistic considerations, taking intoaccount the biometric table BR-EMS of both genders, adjusted by longevity development criteria compatible with the latest published versions (improvement),claims, administrative and improvementoperating expenses and using a risk free forward interest rate structures (ETTJ)which was prepared by Fenaprevi and approved by SUSEP to discount the future cash flows.SUSEP. The improvement rate is calculated from automatic updates of the biometric table, considering the expected increase in future life expectancy.
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Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Notes to the Consolidated Financial Statements
The Technical Surplus Provision (PET) corresponds to the difference between the value of the expected cost and the actual cost of claims that occurred during the period for contracts of individual life insurance with rights to participate in technical surplus.
The Provision of Related Expenses (PDR) is recorded to cover expenses related to estimated claims and benefits. For products structured in self-funding and partially regimes, the reserve covers claims incurred. For products structured under a capitalization regime, the reserve covers the expected expenses related to incurred claims and also claims expected to be incurred in the future.
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Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
iii.Health and Dental Insurance
The reserve for claims incurred but not reported (IBNR)Unearned Premium/Payments Reserve (PPCNG) is calculated fromon the final estimate of claims already incurred and still not reported,currently effective contracts on a daily pro-rata basis based on monthly run-off triangles that consider the historical developmentportion of claims reported in the last 12 months for health insurance and 18 months for dental insurance,premiums corresponding to establish a future projection perthe remaining period of occurrencecoverage.
The provisionMathematical Provision for unsettled claims (PSL)Benefits to be Granted (PMBaC) is based on claims received upcalculated by the difference between the present value of the future benefits and the present value of the future contributions, corresponding to the reporting date, including judicial claims and related costs adjusted for inflation.assumed obligations.
The mathematical reserveFor health insurance, the Mathematical Provision for unvested benefits (PMBAC) relatesBenefits to the individual health care plan portfolio and accounts for the risk related to the cover of the holder’s dependents for five years following the death of the holder. Itbe Granted (PMBaC) is calculated using:accounting for a 4.5%3.9% annualdiscount rate(5.1% in 2016)4% on December 31, 2018);, the period over which holders are expected to remain in the plan up to their death;death, and the projected costs of the five-year-period cover in which no premiums will be received.
The mathematical reserve of benefits grantedFor health insurance, the Mathematical Provision for Benefits Granted (PMBC) is constituted by the obligations arising from the contractual clauses of remission of installments in cash, regarding the coverage of health assistance and by the premiums through payment of insured persons participating in the Bradesco Saúde insurance -– "GBS Plan", and considering a discount rate of 4.5% 3.9%perannum(5.1% in 2016)4% on December 31, 2018).
The unearned premium or contribution reserve (PPCNG)Provision for Claims Incurred but Not Reported (IBNR) is calculated onfrom the currently effective contracts on a daily pro-rata basisfinal estimate of claims already incurred and still not reported, based on monthly run-off triangles that consider the portionhistorical development of claims reported in the last 12 months for health insurance premiums correspondingand the last 18 months for dental insurance, to establish a future projection per period of occurrence. The methodology used also provides for aggravating factors to capture the development of claims that occur over a period of more than 12 months.
The Provision for Claims to be Settled (PSL)for health insurance, considers allclaims received up to the remaining period of coverage.reporting date, including all judicial claims and related costs adjusted for inflation.
The other technical provisions (OTP) for heath and dental insurance refers to the Provision for Insufficient Premiums (PIP), regarding the individual health portfolio, arewhich is constituted to cover differences between the expected present value of claims and related future costs and the expected present value of future premiums, considering a discount rate of 4.5% 3.9%per yearannum(5.1% in 2016)4% on December 31, 2018).
iv.Operations with DPVATMandatory Insurance For Personal Injury Caused by Motor Vehicles (DPVAT) Insurance
Revenues from DPVAT premiums and the related technical reserves are recorded gross, based on reports received from Seguradora Lider dos Consórcios do Seguro DPVATS.A. which acts as the “lead insurer” of the Consortium of Insurance DPVAT S.A.(Seguradora Líder) in proportion to the percentage of Bradesco’s stake in the
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Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Notes to the Consolidated Financial Statements
consortium. It is the function ofthe lead insurerSeguradora Líder to collect the premiums, coordinate policy issuance, settle claims and manage the administrative costs within the consortium, in accordance with the CNSP Normative Resolution nºNo. 332/15. As defined in the regulations of the consortium, 50% of the monthly net income is distributed to the consortium’s members in the following month. The remaining 50% of the monthly income is retained by the lead insurer over the year and transferred to the members of the consortium at the start of the following year.
v.Open pension plans and life insurance with survival coverage (VGBL product)
The unearned premium reserveProvision for Unearned Premiums (PPNG) is calculated on a daily pro-rata basis, using net premiums and is comprised of the portion corresponding to the remaining period of coverage and includes ancoverage. The portion of these reserves corresponding to the estimate for risks coveredin effect but not yet issued (RVNE)is designated PPNG-RVNE.
The mathematical reserveMathematicalProvision for unvested benefits Benefits to be Granted(PMBaC) is constituted to the participants who have not yet received any benefit. In defined benefit pension plans, the reserveprovision represents the difference between the present value of future benefits and the present value of future contributions, corresponding to obligations assumed in the form of retirement, disability, pension and annuity plans. The reserveprovision is calculated using methodologies and assumptions set forth in the actuarial technical notes.
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Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
The mathematical reserveMathematicalProvision for unvested benefits Benefits to be Granted(PMBaC) related to pension plans and life insurance with survival coverage and unrestricted benefit pension plans (VGBL and PGBL), and defined contribution plans includes the contributions received from participants, net of costs and other contractual charges, plus the financial return generated through the investment of these amounts in units of specially constituted investment funds (FIE).
The Provision for Redemptions and other Amounts to be Settled (PVR) comprises amounts related to redemptions to settle, premium refunds owed and portability (transfer-outs) requested but not yet transferred to the recipient insurer.
The mathematical reserveMathematicalProvision for vested benefits Benefits Granted(PMBC) is recognized for participants already receiving benefits and corresponds to the present value of future obligations related to the payment of those on-going benefits.
The Complementary ReserveProvision for Coverage (PCC) refers to the amount necessary to complement technical reserves, as calculated through the Liability Adequacy Test (see Note 2(n)(vi)2(vi)). LATTAP is prepared using statistical and actuarial methods based on realistic assumptions,considerations, taking into account the biometric table BR-EMS of both genders,adjusted by longevity development criteria compatible with the latest published versions disclosed improvement(improvement), claims, administrative and operating expenses andusing a risk free forward interest rate curves structures(ETTJ) free from risk as authorizedwhich was prepared by Fenaprevi and approved by SUSEP. The improvement rate is calculated from automatic updates of the biometric table, considering the expected increase in future life expectancy.
The Provision of Related Expenses (PDR) is recorded to cover expenses related to estimated claims and benefits. For products structured in self-funding and partially regimes, the reserveprovision covers claims incurred. For plans structured under a capitalization regime, the reserveprovision is made to cover the expected expenses related to incurred claims and also claims expected to be incurred in the future. The projections are performed through the passive adequacy test (LAT)(PAT).
The Reserve for Financial Surplus Provision (PEF) corresponds to the financial result which exceeds the guaranteed minimum profitability oftransferred to contracts with a financial surplus participation clause.
Bradesco F-33The
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Notes to the Consolidated Financial Statements
The Provision for IBNRClaims Incurred but Not Reported(IBNR) is calculated based on semiannual run-off triangles, which consider the historical development of claims paid and outstanding in the last 1016 semesters (16 semesters in 2016) to establish a future projection by period of occurrence.
The reserveProvision for unsettled claimsClaims to be Settled (PSL) considers the expected amounts to be settled from all claim notifications received up to the end of the reporting period. The reserve is adjusted for inflation.provision coversadministrative and judicial claims indexed to inflation and with interest in the event of judicial claims.
The provision "Other technical provisions (OPT)" comprises part of the mathematical provisions of benefits to be granted and benefits granted transferred to this accounting line, as required by SUSEP. This amount refers to the difference between the calculation of mathematical provisions, carried out with realistic premises at the time, approved by the autarchy in 2004, and the calculation with the technical bases defined in the technical notes of the product.
The financial charges credited to technical provisions, and the recording and/or reversal of the financial surplus, are classified as financial expenses, and are presented under “Net income from insurance and pension plans”.
vi.Liability Adequacy Test (LAT)
The Organization conducted the liability adequacy test for all the contracts that meet the definition of an insurance contract according to IFRS 4 and which are in force on the date of execution of the test. This test is conducted every six months and the liability of insurance contracts, gross of reinsurance, is calculated as the sum of the carrying amount, deducting the deferred acquisition costs and the related intangibles. This is compared to the expected cash flows arising from the obligations under commercialized contracts and certificates.
BradescoF-35
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
The test considerers projections of claims and benefits that have occurred and are to occur, administrative expenses, allocable expenses related to the claims, intrinsic options and financial surpluses, salvage and recoveriesand other income and expense directly related to the insurance contracts.
To calculate the present value of projected cash flows, the Organizationused the risk free forward (ETTJ) rate which was prepared by SUSEP (Danos) and Fenaprevi (Vida e Previdência) both approved by SUSEP.
According to SUSEP Circular no 517/2015and subsequent changes, theThe test was segmented between life insurance and pension products, non life and property coverage,health and liabilitiesdental insurance. Liabilities related to DPVAT insurance were not included in the adequacy test.
For private pension products and Life Insurance with Coverage for Survival,the contracts are grouped based on similar risks or when the insurance risk is managed jointly by the Administration.
The cash flows related to future premiums not recorded in the PPNG were only included in the projections when the result of the LAT without these values was negative.
The projected average loss ratio was 42% for individual and collective individuals, obtained from analysis based on triangles for the development of Company claims generated with information from January 2007.
The calculation of LAT made for the base date December 2017, considered the update of the assumption of Rate of Conversion into Income (TCR) of PGBL and VGBL pension plans.
The result of the liability adequacy test for life insurance was fully recognized in the income statement, as set out in SUSEP Circular No. 517/15 (note 35a).
• Property CoverageHealth and dental Insurance
The expected present value of cash flows relating to claims incurred - primarily claims costs and salvage recoveries - was compared to the technical provisions for claims incurred - PSL(outstanding claims and IBNR.IBNR).
F-34 IFRS – International Financial Reporting Standards – 2017
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Notes to the Consolidated Financial Statements
The expected present value of cash flows relating to claims to be incurred on the policies in force, plus any administrative expenses and other expenses relating to products in run-off, was compared to the sum of the related technical provisions - PPNG(as UPR and PPNG-RVNE.PIP).
The contracts are grouped based on similar risks or when the insurance risk is managed jointly by the Management.
The result of the liability adequacy test, for health insurance contracts, did not present insufficiency and, consequently, no additional provisions were recorded.
•Life Insurance and Pension Plans
For private pension products and Life Insurance with Coverage for Survival, the contracts are grouped based on similar risks or when the insurance risk is managed jointly by the Management.
The projected average loss ratio was 15.19%39.4% for individual and collective individuals segments, obtained from analysis based on triangles for the development of Company claims generated with information from January 2009.
The result of the liability adequacy test (LAT)presented a total insufficiency andwas fully recognized in the Complementary Provision for Coverage (PCC), see note 34.
•Non Life Insurance
The expected present value of cash flows relating to claims incurred – primarily claims costs and salvage recoveries – was compared to the technical provisions for claims incurred – PSL and IBNR.
The expected present value of cash flows relating to claims to be incurred on the policies in force, plus any administrative expenses and other expenses relating to products in run-off, was compared to the sum of the related technical provisions – PPNG and PPNG-RVNE.
The projected average loss ratio was 23.8% for the Extended Guarantee segment and 50.21%57.12% for the elementary lines, which were strongly influenced byincluding in this calculation the estimate of the future premium of the housing insurance portfolio, which is characterized by low loss ratio and long terms, , since itaccompanies the period of financing of the property.
The average reinsurance projected in the study, calculated on the basis of reported claims was 2.05%7.14%.
The result of the liability adequacy test, for property coverage,non life insurance contracts, did not present insufficiency and, consequently, no additional PCC provisions were recorded.
p)m) Reinsurance contracts
Reinsurance contracts are used in the normal course of operations with the purpose of limiting potential losses, by spreading risks. Liabilities relating to contracts that have been reinsured are presented gross of their respective recoveries, which are booked as assets since the existence of the reinsurance contract does not nullify the Organization’s obligations with the insured parties.
As required by the regulators, reinsurance companies with headquarters abroad must have a minimum rating, fromassessed by a risk classificationcredit rating agency, to reinsure risksoperate in the country, whereby all other reinsurance operations must be performed with national missinglocal reinsurers. This is how Management understands that the impairment risks are reduced. If there are indications that the amounts recorded will not be realized by its carrying amount, these assets will be adjusted for impairment.
F-36 IFRS – International Financial Reporting Standards – 2019
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
q)n) Deferred acquisition costs
These comprise deferred acquisition costs including commissions and brokers’ fees related to the sale of insurance policies. Deferred commissions are recognized in the consolidated statement of income over the life of the respective policies and pension plan contracts or over an average period of twelve12 months. Expenses relating to insurance agency operations relating to the sale of health plans are amortized over a twenty-four24 month period and life assurance expenses are appropriated in the twelve-month period.
Financial guarantees are contracts that requireIt also includes the Organizationdeferred acquisition costs relating to make specific payments under the guarantee for a loss incurred when a specific debtor fails to make a payment when due in accordanceexclusivity agreement with the termsretail network, for the marketing of extended warranty insurance for the debt instrument.initial period of 12 years, with the extension of more than 4 years of contract, totaling 16 years.
Financial guarantees are initially recognized in the financial statements at fair value on the date the guarantee was given. Subsequent to initial recognition, the Organization’s obligations under such guarantees are measured as the higher of the initial amount, less the accumulated amortization, and the best estimate of the amount required to settle the guarantee if management deems such expenditure to be probable. These estimates are determined based on experience of similar transactions and history of past losses, supplemented by the judgment of Management. The fee income earned is recognized on a straight-line basis over the life of the guarantee. Any increase in the liability relating to guarantees is reported in the consolidated statement of income within “Other operating income/ (expenses)”.
o) Employee benefits
Bradesco F-35
Consolidated Financial Statements prepared inrecognizes (in accordance with International Financial Reporting Standards (IFRS)
Notes to the Consolidated Financial Statements
IAS 19 establishes that the employer must recognize19), prospectively the surplus or deficit of its defined benefit plans and post-retirement plans as an asset or an obligation in its consolidated statement of financial position, and must recognize the changes in the financial condition during the year in which the changes occurred, in profit or loss.
i.Defined contribution plan
Bradesco and its subsidiaries sponsor pension plans for their employees and Management of the “Free Benefit Generator Plan (PGBL)” type. The PGBL is a pension plan with defined contributions which allows financial resources to be accumulated throughout the professional career of the participants based on contributions paid by them and the sponsoring company, the funds of which are invested in an Exclusive Mutual Fund (FIE). The actuarial obligations of PGBL are fully covered by the corresponding FIE. The PGBL is managed by the subsidiaries Bradesco Vida e Previdência S.A..
Management. Contribution obligations for defined contribution pension plans are recognized as expenses in profit or loss as incurred. Once the contributions are paid, Bradesco, in the capacity of employer, has no obligation to make any additional payment.
In addition to the PGBL previously presented, the participants transferred from the defined benefit plan are assured a deferred proportional benefit until the date of migration. For participants in the defined benefit plan, whether or not transferred to the PGBL, retired participants and pensioners, the present value of the actuarial liabilities of the plan is fully covered by guarantee assets applied in the FIEs.
ii.Defined benefit plans
The Organization’s net obligation, in relation to the defined benefit plans, refers exclusively to institutions acquired areand is calculated separately for each plan, estimating the future defined benefit that the employees have earnedwill be entitled to after leaving the Organization or at the time of retirement.
Bradesco’s net obligation for defined benefit plans is calculated on the basis of an estimate of the value of future benefits that employees receive in return for their service duringservices rendered in the current and prior periods. The benefit This value is discounted to determineat its presentcurrent valueand deducted byis presented net of thefair value of any plan assets.
The discount rate is the yield at the reporting date on “AA” credit rated bonds, which have maturity dates approximating the terms calculationof the Organization’s obligations. The calculationobligation of the defined benefit plan is madeperformed annually by ana qualified actuary, using the projected unit credit method. method, as required by accounting rule.
Remeasurement of the net obligation, which include: actuarial gains and losses, the return of the assets of the plan other than the expectation (excluding interest) and the effect of the asset ceiling (if any, excluding interest), are recognized immediately in other comprehensive income.
Net interest and other expenses related to defined benefit plans are recognized in the income statement.
iii.Termination benefits
Severance benefits are required to be paid when the employment relationship is terminated by the Organization before the employee’s normal date of retirement or whenever the employee accepts voluntary redundancy in return for such benefits.
Benefits which are payable twelve12 months or more after the reporting date are discounted to their present value.
Bradesco F-3637 IFRS – International Financial Reporting Standards – 2017
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
iv.Short-term benefits
Benefits such as wages, salaries, social security contributions, paid annual leave and paid sick leave, profit sharing and bonuses (if payable within twelve12 months of the reporting date) and non-monetary benefits such as health care, etc. are recorded as expenses in the consolidated statement of income, without any discount to present value, if the Organization has a present legal or constructive obligation to pay the amount as a result of past service provided by the employee and the obligation can be reliably estimated.
t)p) Capitalization bonds
The liability for capitalization bonds is registered in the line ‘Other liabilities’“Other liabilities”.Financial liabilities and revenues from capitalization bonds are accruedrecognized at the time bonds are issued.
BondsThe bonds are issued according to the types of payments, monthly or in a single payment. Each bond bearshas a nominal value, and the deposit portion of each payment is remunerated at the referential rate (TR) plus 0.5% per month, which is used to determinecapitalized monthly by the liability.Referential Rate index - TR and by interest rates defined in the plan until the redemption or cancellation of the bond. Amounts payable are recognized in the item “Other Liabilities – Capitalizations Bonds".
Capitalization bond beneficiaries are eligible for a prize draw. At the end of a certain period that is determined at the time the capitalization bond is issued, a beneficiary may redeem the nominal value paid plus the referential rate (TR) +0.5% of interest,, even if they have not won in the draw. These products are regulated by the insurance regulator in Brazil; however, they do not meet the definition of an insurance contract in accordance with IFRS 4 and, therefore, are classified as financial liabilities in accordance with IAS 39.
Unclaimed amounts from “capitalization plans” are derecognized when the obligation legally expires, in accordance with IAS 39 as it relates to the derecognition of a financial liability.
Expenses for placement of “capitalization plans”, are recognized as they are incurred.
u)q) Interest
Interest incomeIncome from financial assets measured at amortized cost and expensesat FVOCI,except instruments of equity and interest costs from liabilities classified at amortized cost are recognized on an accrual basis in the consolidated statement of income using the effective interest rate method. The effective interest rate is the rate that discounts estimated future cash payments and receipts throughout the expected life of the financial asset or liability (or, when appropriate, a shorter period) to the carrying amount of the financial asset or liability. When calculating the effective rate, the Organization estimates future cash flows considering all contractual terms of the financialinstrument, but not future credit losses.
The calculation of the effective interest rate includes all commissions, transaction costs, discounts or bonuses which are an integral part of such rate. Transaction costs are incremental costs directly attributable to the acquisition, issuance or disposal of a financial asset or liability.
v)r) Fees and commissions
Fees and commission income and expense which are part of and are directly allocable to the effective interest rate on a financial asset or liability are included in the calculation of the effective interest rate.
Other fee and commission income, includingsubstantially composed by account service fees, asset management fees, credit card annual charges, and collection and consortium fees are recognized, asaccording to the related servicesrequirements of IFRS 15, to the extent that the obligations of performance are rendered. fulfilled. The price is allocated to the provision of the monthly service, and the revenue is recognized in the result in the same manner.When a loan commitment is not expected to result in the drawdown of a loan, the relatedcommitmentrelated commitment fees are recognized on a straight-line basis over the commitment period. Other fees and commissions expense relate mainly to transaction as the services are received.
Bradesco F-F-3738 IFRS – International Financial Reporting Standards – 2019
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
Insurance and coinsurance premiums, net of premiums transferred through coinsurance and reinsurance and related commissions are recognized as income upon issuance of the respective policies / certificates / policies/certificates/endorsements and invoices or at the beginning of the risk period for cases in which the cover begins before issue date, and accounted for on a straight-line basis, over the duration of the policies, through the upfront recognition and subsequent reversal of the provision for unearned premiums and the deferred acquisition costs.
Income from premiums and the acquisition costs related to risks already assumed whose respective policies have not yet been issued are recognized in the consolidated statement of income at the start of the risk coverage period on an estimated basis.
The health insurance premiums are recorded in the premium account (result) or unearned premiumUnearned Premium or contribution reserveContribution Provision (PPCNG), according to the coverage period of the contracts in effect at the balance sheet date.
Revenues and expenses related to DPVAT“DPVAT” insurance operations are recorded on the basis of information received from the Seguradora Líder dos Consórcios do Seguro DPVAT S.A.
Accepted co-insurance contracts and retrocession operations are recorded on the basis of information received from the lead co-insurer and IRB -– Brasil Resseguros S.A. (IRB), respectively.
Reinsurance operations are recorded based on the provision of accounts, which are subject to review by reinsurers. The deferral of reinsurance premiums granted under proportional contractsthese operations is carried out in a manner consistent with the related insurance premium while the deferral of premiums for non-proportionaland/or reinsurance contracts is carried out accordingcontract.
The acquisition costs relating to the periodcommission of validityinsurance are deferred and adapted to the result in proportion to the recognition of the respective reinsurance contracts.earned premium.
The receipts from insurance agency operations are deferred and recognized in income linearly, for a period of twenty-four24 months in health insurance operations and by the term of twelve12 months in the other operations.
Contributions to pension plans and life insurance premiums with survivor coverage are recognized in income upon their effective receipt.
The management fee income is appropriated to the income on an accrual basis, according to contractually established rates.
Financial revenues include interest income on assets of the funds invested (including financial assets available for sale), income from dividends, gains from the disposal of financial assets available for sale, changes in the fair value of financial assets measured at fair value through profit or loss, accrued income in the calculation of the cost value of securities held to maturity and reclassifications of gains previously recognized in other comprehensive income. The income from interest is recognized in the results through the effective interest method.
Financial expenses cover losses in the disposal of assets available for sale, changes in the fair value of financial assets measured at fair value through profit or loss, losses by impairment recognized in the financial assets (except receivables).
x)t) Income tax and social contribution
Income taxes in Brazil consist of Company Income Tax (IRPJ) and Social Contribution on Profit (CSLL).
Income tax and social contribution deferred tax assets, calculated on carry-forward income tax losses, carry-forward social contribution losses and temporary differences, are recorded in “Other Receivables - Sundry”“Assets – Deferred Taxes” and the deferred tax liabilities on tax differences in lease depreciation (applicable only for income tax),mark-to-market fair value adjustments on securities, restatement of judicial deposits, among others, are recorded in “Other Liabilities - Tax and Social Security”“Liabilities – Deferred Taxes”.
BradescoF-39
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
Deferred tax assets on temporary differences are realized when the difference between the accounting treatment and the income tax treatment reverses. Deferred tax assets on carry-forward income tax and social contribution losses are realizable when taxable income is generated, up to the 30% limit of the taxable profit for the period. Deferred tax assets are recorded based on current expectations of realization considering technical studies and analyses carried out by Management.
F-38 IFRS – International Financial Reporting Standards – 2017
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Notes to the Consolidated Financial Statements
The provision for income tax is calculated at 15% of taxable income plus a 10% surcharge. For financial companies, financial company equivalent and of the insurance industry, the social contribution on the profit was calculated until August 2015, considering the rate of 15%. For the period between September 2015 and December 2018, the rate was changed to 20%, according to Law noNo. 13,169/15, returningand returned to the rate of 15% as from January 2019. In November 2019 the Constitutional Amendment No. 103 was promulgated, which establishes in article 32, the increase in the rate of the social contribution on profit of "Banks" from 15% to 20%, with effect from March 2020. For the other companies, the social contribution is calculated considering the rate of 9%.
By virtue of the amendment of the rate, the Organization Bradesco constituted, in September 2015, a supplement to the deferredIncome tax asset ofand social contribution considering the annual expectations of realization and the respective rates in force in each period, according to the technical study conducted.
Tax expense comprises current and deferred tax. Current and deferred tax are recorded in the consolidated statement of income except when the result of a transaction is recognized directly in equity, in which case the related tax effect is also recorded in equity or in other comprehensive income.
Current tax assets are amounts of taxes to be recovered through restitution or offset with taxes due from excess of taxes paid in relation to the current and / and/or previous period.
Current tax expenses are the expected amounts payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years. Current tax payable also includes any tax liability arising from the declaration of dividends.
Deferred tax is recognized in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and amount used for taxation purposes. Deferred tax is not recognized for:
· temporary differences on the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss;
· temporary differences related to investments in subsidiaries, associates and jointly controlled entities to the extent that it is probable that they will not reverse in the foreseeable future; and
· taxable temporary differences arising on the initial recognition of goodwill.
Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date.
InAs of January 1, 2019, IFRIC 23 became mandatory in determining the amount of current and deferred taxincome tax. The Organization has carried out a study on the Organizationeffects produced by this standard, which takes into account the impact of uncertain tax positions and whether additional taxes and interest may be due. The Organization believes that its accruals for tax liabilities are adequate for all open tax years based on its assessment of various factors, including interpretations of tax law and prior experience. This assessment relies on estimates and assumptions and may involve judgments about future events. New information may become available that causes the Organization to change its judgment regarding the adequacy of existing tax liabilities; such changes to tax liabilities will impact the tax expense in the period that such a determination is made.made.
Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities against current tax assets, and they relate to taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realized simultaneously.
Bradesco F-39
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Notes to the Consolidated Financial Statements
Additional taxes that arise from the distribution of dividends by the Bank are recognized at the same time as the liability to pay the related dividend is recognized.
A deferred tax asset is recognized for unusedcarry-forward tax losses, tax credits and deductible temporary differences to the extent that it is probable that future taxable profits will be available against which they can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.
y)F-40 IFRS – International Financial Reporting Standards – 2019
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
u) Segment reporting
Information for operating segments is consistent with the internal reports provided to the Executive Officers (being the Chief Operating Decision Makers), which are comprised by the Chief Executive Officer, Executive Vice-Presidents, Managing DirectorsOfficers and Deputy Directors.Officers. The Organization operates mainly in the banking and insurance segments. The banking operations include operations in retail, middle market and corporate activities, lease, international bank operations, investment banking and private banking. The Organization’s banking activities are performed through its own branches located throughout the country, in branches abroad and through subsidiaries, as well as by means of our shareholding interest in other companies. The insurance segment consists of insurance operations, supplementary pension plans and capitalization plans which are undertaken through a subsidiary, Bradesco Seguros S.A., and its subsidiaries.
z)v) Shareholders’ Equity
Preferred shares have no voting rights, but have priority over common shares in reimbursement of capital, in the event of liquidation, up to the amount of the capital represented by such preferred shares, and the right to receive a minimum dividend per share that is ten percent (10%) higher than the dividend distributed per share to the holders of common shares.
i.
Incremental costs directly attributable to the issuance of shares are shown net of taxes in shareholders’ equity, thus reducing the initial share value.
(ii)ii.Earnings per share
The Organization presents basic and diluted earnings per share data. Basic earnings per share is calculated by dividingallocating the net income attributable to shareholders of the Organizationbetween that attributable to common shareholders and that attributable to preferred shareholders and dividing this by the weighted average number of common and preferred shares, respectively, outstanding during the year, excluding the average number of shares purchased by the Organization and held as treasury shares. Diluted earnings per share are the same as basic earnings per share, as there are no potentially dilutive instruments.
(iii)iii.Dividends payable
Dividends on shares are paid and provisioned during the year. In the Shareholders’ Meeting of Shareholders are destined atleast the equivalent of 30% of the annual adjusted net income, in accordance with thethe Company’s Bylaws.Dividends approved and declared after the reporting date of the financial statements, are disclosed in the notes as subsequent events.
(iv)iv.Capital transactions
F-40 IFRS – International Financial Reporting Standards – 2017
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Notes to the Consolidated Financial Statements
Capital transactions are transactions between partners qualified as investment owners.shareholders. These transactions modify the equity held by the controlling shareholder in a subsidiary. SinceIf there is no loss of control, the difference between the amount paid and the fair value of the transaction is recognized directly in the shareholders’ equity.
BradescoF-41
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
Risk-management structureRisk and capital management structures
The risk and capital management structure isactivities structures are made up of several committees, commissions and departments which assist the Board of Directors, the CEOChief Executive Officer, the Chief Risk Officer (CRO) and the Board of Executive Officers of the Organization in their strategic decision-making process.
The Organization has a committee known as the Integrated Risk Management and Capital Allocation Management Committee (COGIRAC),– COGIRAC, whose duty is to advise the Board of Directors in performing its duties, inrelated to the management policy and to the risk management, capitalexposure limits policy, and control.assure, within the scope of the Organization, the fulfillment of the processes, policies, related rules, and regulations and laws applicable to the Organizations.
This committee is assisted by the Capital Management Executive Committee, andCommittees for: a) Risk Monitoring, b) Risk Management, Executive Committees in managing a) Credit risk, b) Marketc) Anti-money Laundering and Liquidity risk, c) OperationalFinancing of Terrorism (AML-FT)/Sanctions and Social and Environmental riskInformation Security/Cyber, and d) Bradesco’s Insurance GroupGrupo Bradesco Seguros and BSP Empreendimentos Imobiliários. In addition, it also has the support of the Products and Services Executive Committee and the Executive Committees in business areas, which, among other duties, suggest exposure thresholds to their respective risks and prepare mitigation plans to be submitted to the Integrated Risk Management and Capital Allocation Management Committee and the Board of Directors.
To comply with Resolution 4.557/17 of
In the National Monetary Council (CMN),governance structure it is also notable the Risk Committee, was implemented in orderwhose main purpose is to also assistassess the structure of risk management of the Organization and occasionally propose improvements.
COGIRAC and the Risk Committee advise the Board of Directors in the performance of its assignments related to risk and capitalthe management and the positioncontrol of Chief Risk Officer (CRO) was formalized, which, among other responsibilities, exercises the supervision of the development, implementationrisks, capital, internal controls and performance of the risk management structure, including its improvement, on independent basis and reporting to the Risk Committee, CEO and Board of Directors.compliance.
The Integrated Risk Control Department (DCIR), whose mission is to promote and to implementing risk control and capital allocation through robust practices and certification of existence, execution and effectiveness of controls which assure acceptable risk levels in the Organization’s processes, independently, consistently, on a transparent and integrated manner. This Department is also responsible for complying with the Brazilian Central Bank of Brazil rules for risk management activities.
Risk appetite
The risk appetite refers to the types and levels of risks that the Organization is willing to accept in the conduct of its business and purposes. The Risk Appetite Statement – RAS is an important instrument that summarizes the risk culture of the Organization, and guides the strategic and business plans, driving the budget planning and allowing Senior Management to optimize the allocation of capital at acceptable risk levels and types.Organization.
At the same time, RAS emphasizes the existence of an efficient process of assignments in the operational risk management and in the performance of control functions, as well as for mitigation and disciplinary actions and processes of scheduling and reporting to Senior Management upon breach of the risk limits or control processes established.
Bradesco F-41
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Notes to the Consolidated Financial Statements
The Risk Appetite Statement is reviewed on annual basis, or whenever necessary, by the Board of Directors and permanently monitored by forums of the Senior Management and business and control areas.
RAS reinforces the dissemination of the risk culture by disclosing the main aspects of risk appetite of the Organization to all its members.
For the many types of risks, whether measurable or not, the Organization established control approaches, observing the main global dimensions :dimensions:
·CapitalSolvency : the Organization seeks to maintain, permanently, a propersolid capital level, even on prospective basis,base to cover unexpectedsupport the development of activities and cope with the risks incurred (in normal situations or of stress), as well as to support any losses situations of stressarising from non-measurable risks and business opportunities, in compliance with regulatory requirements, thus ensuring the soundnessmake possible strategic acquisitions. To meet this goal, capital buffers were established, which are part of the Organization;framework of risk appetite, which are defined and approved by the Board of Directors.
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Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
·Profitability: to remunerate its capital on sustainable basis, seeking to cover the remuneration expectation of its shareholders in relationNotes to the risks assumedConsolidated Financial Statements
The Organization has established that the Indexes of Basel, Level I, of Common Equity and Leverage Ratio should correspond at least to the regulatory cap, plus the currentEquitybuffer. In the same sense, Grupo Bradesco Seguros (GBS) must maintain the minimum Solvency Index above the regulatory framework, in their business;the consolidated view, according to the buffers defined.
·LiquidityLiquidity:: the Organization aims to maintaineffectively comply with its obligations through diversified and low cost sources of funding through interconnected network and dynamic and proper segmentation to provide a cash structure compatible with the size of its obligations; thus, ensuring survival even in adverse scenarios;scenarios without affecting its daily operations and incurring significant losses.
For this dimension, indicators were established for short- and long-term monitoring. The Short-Term Liquidity Coverage Ratio (LCR) corresponds to the ratio between the stock of High-Quality Liquidity Assets (HQLA) and the total number of outflows of cash, calculated according to the standardized stress by the Central Bank of Brazil. Now the Indicator of Long-Term Liquidity – NSFR (Net Stable Funding Ratio) corresponds to the ratio between the stable funding available and the stable funding necessary. For Grupo Bradesco Seguros, the control of liquidity risk consists in the sizing of the Minimum Reserve of Liquidity (RML), represented by the amount of resources needed to settle the obligations in situations of stress during the period of turbulence (30 days) and their relation with the Cash Available, which is composed predominantly by high-quality net assets.
·Profitability:Loan:the Organization prioritizes diligence for the sustainable growth of its business and results and for the adequate remuneration of its equity, seeking to cover the remuneration expectation of its shareholders in relation to the risks assumed in their business.
The Organization periodically monitors key performance indicators of the results by line of business, segments and products. On the basis of these monitoring, analyses, projections and studies are made in order to inform the business areas and Senior Management about the individual and consolidated results, thus allowing conscious decision making and strategic reviews.
Loan: the Organization focus on domestic public,clients, on diversified and dispersed manner, in terms of products and segments, aiming at the security and quality of the portfolio, with guarantees consistent with the risks assumed, considering the amounts, purposes and terms of loans granted, and maintaining proper levels of provisions and concentrations;concentrations.
The monitoring of credit risk is accomplished through continuous monitoring of portfolios and exhibitions, with assessment of the evolution of their volumes, delinquency, provisioning, studies of harvests, and equity, among others. Additionally, the Organization has a structured process of governance of limits of liability for approval of credit operations and recovery.
In relation to the risk appetite, metrics were defined to monitor the concentration limits of operations for the Economic Group, Sector and Transfer (concentration per country). In addition to the indicators of concentration, a specific indicator was established for the level of delinquencies above 90 days for Individuals (PF) and an indicator of Margin of Economic Capital of Credit Risk, in order to monitor and track the capital in the economic and regulatory visions.
·MarketMarket:: the Organization aims to align the exposures to the strategic guidelines, with specific limits established on independent basis and with risks mapped, measured and classified as to the probability and magnitude;magnitude.
The Organization monitors and controls the possibility of financial losses due to fluctuating prices and interest rates of the financial instruments, as its asset and liability portfolios may have mismatched maturities, currencies and indexes. Considering the dynamics of this type of risk and the characteristics of each investment portfolio, various limits of risks and results were established.
For the Trading portfolio the indicators of Value at Risk (VaR), Stress Scenarios for a month, of Monthly and Quarterly Result and Financial Exposure / Concentration are part of the risk appetite. For the Bankingportfolio, theDEVE Internal Model,DEVE Outlier Test,DNII Internal Model andthe Evolution of the Positions Evaluated at Market Value are monitored. Now for Grupo Bradesco Seguros, the indicators are the VaR for variable income and the interest rate risk (EVE).
BradescoF-43
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
Operational: the Organization aims to provide assurance with regard to appropriately carrying out its business in accordance with laws regulations and policies, ensuring that processes are covered by efficient controls.
In view of the wide range of products and services offered, as well as the significant volume of activities and operations made, the Organization can incur operating losses resulting from flaws, deficiency or inadequacy of internal processes, people and systems, or from external events.
In this sense, in the context of the Prudential Conglomerate (according to the Central Bank of Brazil, as of January 2015, the calculation of the Reference Equity and the amount of RWA must be prepared in accordance with the financial statements of the Prudential Conglomerate, which are different to IFRS, including in relation to the requirements for and methods of consolidation), the Organization established limits of appetite and tolerance for operating losses, which are monitored on a monthly basis. Additionally, an indicator for monitoring the availability of the main channels of customer service and systems has been defined, aiming to provide continuous readiness in the service to customers.
Reputation: the Organization monitors its reputation as perceived by clients, employees, regulatory authority, investors and the market in general, aiming to ensure the timely identification and assessment of potential sources of this risk and act preventively to mitigate them.
·Operational:The control of reputation risk aims to ensure that the Organization evaluates and monitors the perception of various stakeholders in order to identify potential sources of risk in reputation and act in a timely manner to mitigate operating risks relatedit.
The control of this risk is performed by means of a Consolidated Index of Reputation, which is subdivided into dimensions under which it is possible to frauds, corruption, intentional violationsdetermine the reputation of legislative orthe Organization as perceived by clients, employees, regulatory requirements, as well asauthority, investors and the market in general.
Model: the Organization uses models to mitigate human or procedural errorssupport the decision-making, preparation of financial reports and regulations, and to provide predictive information in several areas of the performancebusiness. In this context, the Organization recognizes the existence of supportingthe risk associated with the use of the models and business activities.importance of its management process.
More detailed information aboutThe Organization carries out the Risk Appetite Statement is available inmanagement and control of the Risk Management Report - Pillar 3 published at http://www.bradescori.com.br.model risk by means of assessment, inventory and classification of relevance and model risk, backed by processes of governance.
Stress Test Program
The risk management structure has a stress test program defined as a coordinated set of processes and routines, containing own methodologies, documentation and governance, whose principal purpose is to identify potential vulnerabilities of the institution. Stress tests are exercises of prospective evaluation of the potential impacts of adverse events and circumstances on capital, on liquidity or on the value of a portfolio of the Organization.
The BoardIn the Program of Executive OfficersStress Tests, the scenarios are designed by the Department of Research and Economic Studies – DEPEC and discussed with the Business areas, Integrated Risk Control Department – DCIR, Department of Controllership, among other areas. Both scenarios and results are discussed and approved by a specific Collegiate Body. Subsequently, they are submitted to the COGIRAC and Board of Directors, that, in addition to the scenarios and results of stress tests are also responsible for the approval of the program and guidelines to be followed and for the approval of the scenarios and results of stress tests.followed.
Stress tests are used as a tool for the management of risks,managing risks: in its identification, measurement, evaluation, monitoring, control and mitigation of risks of the institution. The results of stress tests are used forevaluation of capital and liquidity levels of the institution, for preparation of the respective contingency plans, for evaluation of the capital adequacy and for the recovery plan. Similarly, the results are considered in the decisions related to strategic guidelines, definition of the levels and limits of risk appetite applied to the management of risks and capital, as well as in the definition of governance actions aimed at mitigation of risks identified as inconsistent withby aligning them to the risk appetite of the Organization.
F-4F-424 IFRS – International Financial Reporting Standards – 20172019
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
3.1. Credit risk
Credit risk refers to the possibility of losses associated with the borrower’s or counterparty’s failure to comply with their financial obligations under the terms agreed, as well as the fall in value of loan agreements resulting from deterioration in the borrower’s risk rating, the reduction in gains or remunerations, benefits granted to borrowers in renegotiations, recovery costs and other costs related to the counterparty’s noncompliance with the financial obligations. Additionally, it includes the concentration risk and the country/transfer risk.
Credit risk management in the Organization is a continuous and evolving process of mapping, development, assessment and diagnosis through the use of models, instruments and procedures that require a high degree of discipline and control during the analysis of transactions in order to preserve the integrity and autonomy of the processes.
The Organization controls the exposure to credit risk which comprises mainly loans and advances, loan commitments, financial guarantees provided, securities and derivatives. There is also the credit risk in financial obligations relating to commitments on loan or financial guarantees.
With the objective of not compromising the quality of the portfolio, all aspects inherent to credit concession, concentration, guarantee requirements and terms, among others, are observed.
The Organization continuously maps all the activities that could possibly generate exposure to credit risk, classifying them by their probability and magnitude, identifying their managers and mitigation plans.
Counterparty Credit Risk
The counterparty credit risk to which the Organization is exposed includes the possibility of losses due to the non-compliance by counterparties with their obligations relating to the settlement of financial asset trades, including the settlement of derivative financial instruments. Counterparty credit risk also includes the risk related to a downgrade in the counterparty’s credit standing.
The Organization exercises complete control over its net position (the difference between purchase and sale agreements) and potential future exposures from operations where there is counterparty risk. Each counterparty’s exposure to risk is treated in the same way and is part of general credit limits granted by the Organization’s to its customers. Usually,
In short, the Counterparty Credit Risk management covers the modeling and monitoring (i) of the consumption of the credit limit of the counterparties, (ii) of the portion of the adjustment at fair value of the portfolio of credit derivatives (CTF – Credit Value Adjustment) and (iii) of the respective regulatory and economic capital. The methodology adopted by the Organization establishes that the credit exposure of the portfolio to certain counterparty can be calculated based on the Replacement Cost (RC) of its operations in different scenarios of the financial market, which is possible through the Monte Carlo simulation process.
Regarding the forms of mitigating the counterparty credit risk that the Organization is exposed to, the most usual is the composition of guarantees associated with this typeasmargin depositsand disposal of operation include margin deposits,public securities, which are made by the counterparty with the Organization or with other trustees, whose counterparty’s risks are also appropriately evaluated.
Credit-Risk Management Process
The credit risk management process is conducted in a corporation-wide manner. This process involves several areas with specific duties, ensuring an efficient structure. Credit risk measurement and control are conducted in a centralized and independent manner.
The credit risk monitoring area actively participates in improving the customer risk rating models, following up large risks by periodically monitoring major delinquencies and the provisioning levels for expected and unexpected losses.
BradescoF-45
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
This area continuously reviews the internal processes, including the roles and responsibilities and it training and requirements, as well as conducts periodical reviews of risk evaluation processes to incorporate new practices and methodologies.
Credit Concession
Under the responsibility of the Credit Department, lending procedures are based on the Organization's credit policy emphasizing the security, quality and liquidity of the lending. The process is guided by the risk-managementrisk management governance and complies with the rules of the Central Bank of Brazil.
The methodologies adopted value business agility and profitability, with targeted and appropriate
Bradesco F-43
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Notes to the Consolidated Financial Statements
procedures oriented to the granting of credit transactions and establishment of operating limits.
In the evaluation and classification of customers or economic groups, the quantitative (economic and financial indicators) and qualitative (personal data and behaviors) aspects associated with the customers capacity to honor their obligations are considered.
All business proposals are subject to operational limits, which are included in the Loan Guidelines and Procedures. At branches, the delegation of power to grant a loan depends on its size, the total exposure to the Organization, the guarantees offered, the level of restriction and their credit risk score/rating. Business proposals with risks beyond these limits are subject to technical analysis and approval of by the Credit Department.
In its turn, the Executive Credit Committee was created to decide, within its authority, on queries about the granting of limits or loans proposed by business areas, previously analyzed and with opinion from the Credit Department. According to the size of the operations/limits proposed, this Committee, may then submit the proposal for approval by the Board of Directors,depending on the amountsvalues involved.
Loan proposals pass through an automated system with parameters set to provide important information for the analysis, granting and subsequent monitoring of loans, minimizing the risks inherent in the operations.
There are exclusive Credit and Behavior Scoring systems for the assignment of high volume, low principal loans in the Retail segment, meant to provide speed and reliability, while standardizing the procedures for loan analysis and approval.
Business is diversified wide-spread and aimed at individuals and companies with a proven payment capacity and solvency, seeking to support them with guarantees that are adequate to the risk assumed, considering the amounts, objectives and the maturities of loan granted.
Credit Risk Rating
The credit risk assessment methodology, in addition to providing data to establish the minimum parameters for lending and risk management, also enables the definition of Special Credit Rules and Procedures according to customer characteristics and size. Thus, the methodology provides the basis not only for the correct pricing of operations, but also for defining the appropriate guarantees.
The methodology used also follows the requirements established by (CMN)the Resolution 4,327/14No. 4,327 of the National Monetary Council and includes analysis of social and environmental risk in projects, aimed at evaluating customers’ compliance with related laws and the Equator Principles, a set of rules that establish the minimum social and environmental criteria which must be met for lending.
In accordance with its commitment to the continuous improvement of methodologies, the credit riskrating ofoperations contracted by the Organization’s economic groups/customers uses an eighteen-level(Rating Operacional Final – ROF) is distributed on a graduation scale in which fourteen levels represent performing loan operations, ensuringlevels. This ensures greater compliance withadherence to the requirements ofset forth in the Basel Capital Accord.Accord and preserves the criteria established by Resolution No. 2,682 of the National Monetary Council for the constitution of the applicable provisions.
F-46 IFRS – International Financial Reporting Standards – 2019
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
In a simplified manner, the risk classifications of the operations are determined on the basis of the credit quality of economic groups/clients defined by the Customer Rating, warranties relating to the contract, modality of the credit product, behavior of delinquencies in the payment and value of credit contracted.
Risk ratingsClient Rating for economic groups (legal entities) are based on standardized statistical and judgmental procedures, and on quantitative and qualitative information. Classifications are carried out in a corporate manner by economic groupand periodically monitored in order to preserve the quality of the creditloan portfolio.
For individuals, in general, credit ratingsClient Rating are based on personal data variables, such as income, assets, restrictions and indebtedness, in addition to the history of their relationship with theOrganization,the Organization, and statistical credit evaluation models.
F-44 IFRS – International Financial Reporting Standards – 2017
Consolidated Financial Statements preparedClient rating is used in accordance with International Financial Reporting Standards (IFRS)
Notes to the Consolidated Financial Statements
The risk classification adopted on the basis of the customers' capacity of honoring their commitments is shown below:
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Theanalysis for granting and/or renewing operations and credit risk management process is conducted in a corporation-wide manner. This process involves several areas with specific duties, ensuring an efficient structure. Credit risk measurement and control are conducted in a centralized and independent manner.
The credit risk monitoring area actively participates in improving the customer risk rating models, following up large risks by periodically monitoring major delinquencies and the provisioning levels for expected and unexpected losses.
This area continuously reviews the internal processes, including the roles and responsibilities and it training and requirements,limits, as well as conducts periodical reviewsfor the monitoring of risk evaluation processesthe economic-financial situation of a company and its capacity to incorporate new practices and methodologies.repay the loans contracted.
Control and Monitoring
The credit risk of the Organization has its control and corporate follow-up doneperformed in the credit riskCredit Risk area of theIntegrated Risk Control Department –DCIR. The Department advises the Executive Committee on Credit Risk Management, where methodologies for measuring credit risk are discussed and formalized. Significant issues discussed in this committeeCommittee are reported to the COGIRAC,Integrated Risk Management and Capital Allocation Committee, which is subordinate to the Board of Directors.
In addition to committee meetings, the area holds monthly meetings with all product and segment executives and officers, with a view to inform them about the evolution of the loan portfolio, deliquency,delinquency, credit recoveries, gross and net losses, limits and concentrations of portfolios,allocation of economic and regulatory capital, among others. This information is also reported to the Audit Committee on a monthly basis.
The area also monitors any internal or external event that may cause a significant impact on the Organization’s credit risk, such as spin-offs, bankruptcies and crop failures, in addition to monitoring economic activity in the sectors to which the company has significant risk exposures.
Both the governance process and existing limits are sanctioned by the Integrated Risk Management and Capital Allocation Committee, which are submitted for the approval of the BoardofBoard of Directors, being reviewed at least once a year.
Bradesco F-45
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Notes to the Consolidated Financial Statements
Credit risk is monitored on a daily basis in order to maintain the risk levels within the limits established by the Organization. Managerial reports on risk control are provided to all levels of business, from branches to Senior Management.
With the objective of highlighting the risk situations that could result in the customers' inability to honor its obligations as contracted, the credit risk monitoring area provides daily reports, to the branches, business segments, as well as the lending and loan recovery areas. This system provides timely information about the loan portfolios and credit bureau information of customers, in addition to enabling comparison of past and current information, highlighting points requiring a more in-depth analysis by managers.
The Organization also has an electronic corporate system of credit risk indicators to provide thelending and loan recovery areas, business areas, regional managers and branches with information on assets by segment, product, region, risk classification, delinquency and expected and unexpected losses, among others. This electronic system provides both a macro-level and detailed view of the information, and also enables a specific loan operation to be viewed.
The information is viewed and delivered via dashboards, allowing queries at several levels such as business segment, divisions, managers, regions, products, employees and customers, and under several aspects (asset, delinquency, provision, write-off, restriction levels, guarantees, portfolio quality by rating, among others).
Bradesco
F-46F-47 IFRS – International Financial Reporting Standards – 2017
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
Measurement of credit risk
Periodically, the Organization evaluates the expected credit losses from financial assets by means of quantitative models, considering the historical experience of credit losses of the different types of portfolio (which can vary from 3 to 8 years), the current quality and characteristics of clients, operations, and mitigating factors, according to processes and internal governance.
The actual loss experience has been adjusted to reflect the differences between the economic conditions during the period in which the historical data was collected, current conditions and the vision of the Organization about future economic conditions, which are incorporated into the measurement by means of econometric models that capture the current and future effects of estimates of expected losses. The main macroeconomic variables used in this process are the Brazilian interest rates, unemployment rates, inflation rates and economic activity indexes.
The estimate of expected loss of financial assets is divided into three categories (stages):
• Stage 1: Financial assets with no significant increase in credit risks;
• Stage 2: Financial assets with significant increase in credit risks; and
• Stage 3: Financial assets that are credit impaired.
The Organization uses different indicators for categorization in stages, according to the profile of the client and the operation, as described below:
Retail Portfolio:
·Stage 1:Financial assets whose obligations are current or less than 30 days past due and which have a low internal credit risk rating;
·Stage 2(Significant increase in credit risk): Financial assets that are overdue obligations between 31 and 90 days,except for residential real estate financing that is between 31 and 180 days orwhose internal credit risk rating migrated from low risk to medium or high risk;
·Stage 3(Non-compliant or "impaired"): Financial assets whose obligations are overdue for more than 90 days, except for residential real estate financing that is above 180 days;
·Re-categorization from stage 3 to stage 2: Financial assets that regularize the values overdue and whose internal ratings migrated to medium risk; and
·Re-categorization from stage 2 to stage 1: Financial assets that regularize the values overdue and whose internal ratings migrated to low risk.
Wholesale Portfolio:
·Stage 1:Financial assets whose obligations are current or less than 30 days past due and which have a low internal credit risk rating;
·Stage 2(Significant increase in credit risk): Financial assets whose obligations are overdue between 31 and 90 days, except for residential real estate financing that is between 31 and 180 days orwhose internal rating of clients migrated from low risk to medium or high risk;
·Stage 3(Non-compliant or"impaired"): Financial assets whose relevant obligations are overdue by up to 90 days, except for residential real estate financing that is above 180 daysor that presentbankruptcy events, judicial recovery, restructuring of debt or need for execution of guarantees;
·Re-categorization from stage 3 to stage 2: Financial assets that no longer have any of the stage 3 criteria and whose internalratings migrated to medium risk; and
·Re-categorization from stage 2 to stage 1: Financial assets that regularize the values overdue and whose internalratings migrated to low risk.
The expected losses are based on the multiplication of credit risk parameters: Probability of default (PD), Loss due to default (LGD) and Exposure at default (EAD).
F-48 IFRS – International Financial Reporting Standards – 2019
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
The PD parameter refers to the probability of default perceived by the Organization regarding the client, according to the internal models of evaluation, which, in retail, use statistical methodologies based on the characteristics of the client, such as the internal rating and business segment, and the operation, such as product and guarantee and, in the case of wholesale, they use specialist models based on financial information and qualitative analyses.
The LGD refers to the percentage of loss in relation to exposure in case of default, considering all the efforts of recovery, according to the internal model of evaluation that uses statistical methodologies based on the characteristics of the operation, such as product and guarantee. Clients with significant exposure have estimates based on individual analyses, which are based on the structure of the operation and expert knowledge, aiming to capture the complexity and the specifics of each operation.
EAD is the exposure (gross book value) of the client in relation to the Organization at the time of estimation of the expected loss. In the case of commitments or financial guarantees provided, the EAD will have the addition of the expected value of the commitments or financial guarantees provided that they will be converted into credit in case of default of the loan or credit rather than the client.
Credit Risk Exposure
We present below the credit risk exposure of the financial instruments.instruments:
| R$ thousand | |
On December 31 | ||
2017 | 2016 | |
Cash and balances with banks | 81,742,951 | 72,554,651 |
Derivative financial instruments | 13,866,885 | 16,755,442 |
Loans and advances to banks | 32,253,205 | 94,845,534 |
Loans and advances to customers | 373,813,665 | 392,083,873 |
Other financial assets | 599,199,362 | 497,974,002 |
Total items recorded in the balance sheet (1) | 1,100,876,068 | 1,074,213,502 |
Total items not recorded in the balance sheet (Note 41) | 283,089,393 | 316,298,033 |
Total risk exposure | 1,383,965,461 | 1,390,511,535 |
| R$ thousand | |||
On December 31, 2019 | On December 31, 2018 | |||
| Gross value | Expected credit loss | Gross value | Expected credit loss |
Financial assets |
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Cash and balances with banks (Note 18) | 109,610,999 | - | 107,209,743 | - |
Financial assets at fair value through profit or loss (Note 19) | 249,759,777 | - | 246,161,150 | - |
Financial assets at fair value through other comprehensive income (Note 21) (1) | 192,450,010 | - | 178,050,536 | - |
Loans and advances to banks (Note 22) | 59,083,791 | (44,465) | 105,250,928 | (1,978) |
Loans and advances to customers (Note 23) | 457,392,375 | (33,863,659) | 411,492,655 | (31,105,579) |
Securities at amortized cost (Note 24) | 171,551,837 | (4,633,477) | 143,626,776 | (3,022,038) |
Other financial assets (Note 29) | 56,101,781 | - | 43,893,309 | - |
Provision for Expected Credit Loss |
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Loan Commitments (Note 23 and 40) | 249,866,767 | (2,318,404) | 228,474,660 | (2,551,676) |
Financial guarantees (Note 23 and 40) | 78,231,145 | (1,970,321) | 72,870,964 | (719,216) |
Total risk exposure | 1,624,048,482 | (42,830,326) | 1,537,030,721 | (37,400,487) |
(1)Collaterals Financial assets measured at fair value through other comprehensive income are mainly represented by: securities, properties, financial investments, sureties and guarantees.not reduced by the allowance for losses.
The Organization's maximum credit risk exposure was R$ 1,383,965,4611,624,048,482 thousand in 2017,2019, which was an reductionincrease of 0.5%8.3% compared to 2016.2018.
Of this exposure, R$ 81,742,951109,610,999 thousand, or 5.9%6.7% is related to cash and bank deposits composed mainly of funds deposited with the Central Bank of Brazil that are assessed to have low credit risk.
Operations classified as “OtherFinancial assets at fair value through profit or loss (15.4% of total exposure) are mostly low credit risk, composed mainly of Brazilian government securities at fair value and also include derivative financial assets” item totalinginstruments.
Financial assets at fair value through other comprehensive income amounted to R$ 599,199,362192,450,010 thousand (43.3%(11.9% of total exposure), are recorded at market value with changes in ECL recognized in profit or loss and are represented mostly by Brazilian government securities, for details of theseassets, see note 21.
Loans and advances to financial institutions, which are 3.6% of the total, exposure),consist basically of reverse repurchase agreements which have a low credit risks as it primarily consists of Brazilian government bonds which, are recorded at their market value, represented by “Financial assets held for trading” R$ 241,710,041 thousand (2016 – R$ 213,139,846 thousand), “Financial assets available for sale” R$ 159,412,722 thousand (2016 – R$ 113,118,554 thousand) and “Investments held to maturity” recognized as amortized cost in the amount of R$ 39,006,118 thousand (2016 – R$ 43,002,028 thousand).risk.
In 2017, items not recorded in the consolidated statement of financial position (recorded in off-balance sheet accounts) amountedLoans and advances to R$ 283,089,393 thousand (2016 - R$ 316,298,033 thousand), reaching a level of 20.5% (2016 – 22.6%) of total exposure.
The following provides a detailed analysis of other exposures subject to credit risk totaling R$ 419,933,755 thousand, representing 30.3%customers represent 28.2% of the total exposure, including derivativesfor details of R$ 13,866,885 thousand, loansthese assets and advances to banks of R$ 32,253,205 thousand and loans and advances to clients of R$ 373,813,665 thousand.the expected loss, see note 23 for details.
Derivative Financial Instruments
| R$ thousand | |
On December 31 | ||
2017 | 2016 | |
Traded in the stock exchange | 88,120 | 1,068,418 |
OTC contract | 13,778,765 | 15,687,024 |
Total | 13,866,885 | 16,755,442 |
Inrelation to derivatives, 99.4%assets at amortized cost represent 10.6% of the total, refers basically to over-the-counter contracts, stock exchange depositories.Of the totalfor details of the Derivative financial instruments, 93.0% is assessed to have "low credit risk"by the Organization's internal procedures.these assets, see note 24.
BradescoF-47
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Notes to the Consolidated Financial Statements
We present below the portfolio of loans and advances to banks as rated internally by the Organization:
| R$ thousand | |
On December 31 | ||
2017 | 2016 | |
Low risk | 32,253,205 | 94,845,534 |
Medium risk | - | - |
High risk | - | - |
Total | 32,253,205 | 94,845,534 |
Ratings as assigned by the Organization: Low risk: Ratings AA1 – C3;Medium risk: Rating C4 - D; andHigh risk: Ratings E – H.
None of the loans and advances to banks are classified as past-due or impaired. In addition, the portfolio has no debt-restructuring history.
The loans and advances to customers are classified as:
·Neither past due nor impaired.
·Past due but not impaired.
·Impaired, including loans and advances classified as impaired and loans and advances that are analyzed individually for loss classified as impaired.
The Organization’s loans and advances to customers are classified as “impaired” when they fall in at least one of the following situations: (a) are delinquent more than 90 days, except for housing loan operations secured by residential property (overdue more than 180 days) and/or; (b) have incurred a loss and/or; (c) have been renegotiated and/or; (d) have been reclassified as a higher risk level; and/or (e) have been subject to bankruptcy events. The internal models used by the Organization are based on client or product.
| R$ thousand | |
On December 31 | ||
2017 | 2016 | |
Neither past due nor impaired (i) | 321,595,918 | 337,337,152 |
Past due but not impaired (ii) | 10,684,314 | 12,612,906 |
Impaired (iii) | 41,533,433 | 42,133,815 |
Total loans and advances to customers | 373,813,665 | 392,083,873 |
Impairment of loans and advances | (27,055,566) | (24,780,839) |
Net amount | 346,758,099 | 367,303,034 |
The portfolio of loans and advances to customers presented a reduction of 4.7% from 2017 to December 2016.
F-48F-49 IFRS – International Financial Reporting Standards – 2017
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Notes to the Consolidated Financial Statements
| R$ thousand | |
On December 31 | ||
2017 | 2016 | |
Low risk | 309,535,667 | 325,170,838 |
Medium risk | 9,895,319 | 10,269,218 |
High risk | 2,164,932 | 1,897,096 |
Total | 321,595,918 | 337,337,152 |
Ratings as assigned by the Organization: Low risk: Ratings AA1 – C3;Medium risk: Rating D; andHigh risk: Ratings E – H.
The loans and advances to customers assessed to be neither past due nor impaired totaled R$ 321,595,918 thousand in2017.
Of the total transactions,96.2% were classified as low risk.
We present below the analysis by number of days past due of the contracts for loans and advances which were not classified as being impaired in the collective analysis and those which are not impaired based on the individual analysis.
For the purpose of this analysis, an asset is considered past due and included in the following table when payment is late or is not received strictly in accordance with the contractual terms. The amount included in this category comprises the total financial asset, i.e. not only the overdue installment amount but the full contractual amount plus accrued interest.
The loans and advances to customers which are not individually material, which have not been classified as impaired are presented in this category.
The individually material loans and advances may be presented in this category when, based on the individual analysis, it is not necessary to record an individual impairment loss and, accordingly, the asset is then subject to a collective loss analysis.
| R$ thousand | |
On December 31 | ||
2017 | 2016 | |
Past due up to 60 days | 8,177,461 | 9,737,697 |
Past due between 61 and 90 days | 2,302,186 | 2,608,305 |
Past due for more than 90 days | 204,667 | 266,904 |
Total | 10,684,314 | 12,612,906 |
The above table shows loans and advances, which despite being past due, do not provide indications of possible impairment. This amount represented 2.9% of the portfolio in 2017 (2016 – 3.2%).
Bradesco F-49
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Notes to the Consolidated Financial Statements
| R$ thousand | |
On December 31 | ||
2017 | 2016 | |
Portfolio not yet due | 20,342,024 | 17,567,703 |
Past due up to 60 days | 2,915,081 | 4,067,322 |
Past due between 61 and 90 days | 1,279,795 | 1,284,035 |
Past due for more than 90 days | 16,996,533 | 19,214,755 |
Total | 41,533,433 | 42,133,815 |
Loans and advances to customers impaired reached R$ 41,533,433 thousand and accounted for 11.1% of the total portfolio in 2017 (2016 - 10.7%).
The following table presents the loans and advances impaired by category:
| R$ thousand | |
On December 31 | ||
2017 | 2016 | |
Credit card | 6,158,265 | 5,962,131 |
Working capital | 6,052,758 | 5,940,498 |
Personal credit | 4,632,789 | 4,951,949 |
Housing loans | 4,071,447 | 2,553,802 |
Financing and export | 2,770,221 | 2,456,658 |
Vehicles – CDC (Direct consumer credit) | 1,333,748 | 1,651,852 |
Rural loans | 982,699 | 946,282 |
Onlending BNDES/Finame | 780,985 | 1,052,671 |
Overdraft for individuals | 638,506 | 882,992 |
Acquisition of assets | 295,944 | 459,574 |
Overdraft for corporates | 256,271 | 406,296 |
Other | 13,559,800 | 14,869,110 |
Total | 41,533,433 | 42,133,815 |
The total balance of “Loans and advances to customers impaired” includes renegotiated loans and advances to customers. Such loans contemplate extension of loan payment terms, grace periods, reductions in interest rates, and/or, in some cases, the forgiveness (write-off) of part of the loan principal amount.
Renegotiations may occur after debts are past due or when the Company has information about a significant deterioration in the client’s creditworthiness. The purpose of such renegotiations is to adapt the loan to reflect the client’s actual payment capacity.
F-50 IFRS – International Financial Reporting Standards – 2017
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
The following table shows changes madeOperations classified as "Other financial assets" represent 3.5% of the total and our analysisare basically comprised of our portfolioforeign exchange operations and escrow deposits.
In 2019, items not recorded in the consolidated balance sheet regarding loan commitments and financial guarantees (recorded in memorandum accounts) totaled R$328,097,912 thousand, representing 20.2% of renegotiated loanstotal exposure.
Loans and advances to customers:
| R$ thousand | |
On December 31 | ||
2017 | 2016 | |
Opening balance | 17,501,423 | 12,728,723 |
Additional renegotiated amounts, including interest | 16,185,863 | 18,777,814 |
Payments received | (10,108,040) | (8,997,802) |
Write-offs | (6,395,377) | (5,007,312) |
Closing balance | 17,183,869 | 17,501,423 |
Impairment of loans and advances | (10,853,777) | (10,346,397) |
Total renegotiated loans and advances to customers, net of impairment at the end of the year | 6,330,092 | 7,155,026 |
|
|
|
Impairment on renegotiated loans and advances as a percentage of the renegotiated portfolio | 63.2% | 59.1% |
Total renegotiated loans and advances as a percentage of the total loan portfolio | 4.6% | 4.5% |
Total renegotiated loans and advances as a percentage of the total loan portfolio, net of impairment | 1.8% | 1.9% |
At the time a loan is modified, Management considers the new loan's conditions and renegotiated maturity and it is no longer considered past due. From the date of modification, renegotiated interest begins to accrue, using the effective interest rate method, taking into consideration the customer’s capacity to pay the loan based on the analysis made by Management. If the customer fails to maintain the new negotiated terms, management considers ceasing accrual from that point.customers
Additionally, any balances related to renegotiated loans and advances to customers that have already been written off and recorded in off-balance sheet accounts, as well as any gains from renegotiations, are recognized only when received.
| On December 31 | On December 31 | ||
2017 | 2016 | 2019 | 2018 | |
Largest borrower | 2.5% | 2.3% | 1.9% | 2.2% |
10 largest borrowers | 8.2% | 8.5% | 7.7% | 9.1% |
20 largest borrowers | 12.2% | 12.6% | 11.3% | 12.9% |
50 largest borrowers | 17.8% | 18.5% | 16.7% | 18.6% |
100 largest borrowers | 22.2% | 23.0% | 20.1% | 22.9% |
Bradesco F-51
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Notes to the Consolidated Financial Statements
The credit-risk concentration analysis presented below is based on the economic activity sector in which the counterpartcounterparty operates.
| On December 31 - R$ thousand | On December 31 - R$ thousand | ||||||
2017 | % | 2016 | % | 2019 | % | 2018 | % | |
Public sector | 9,676,927 | 2.6 | 8,813,581 | 2.2 | 8,899,863 | 1.9 | 9,259,368 | 2.3 |
Oil, derivatives and aggregate activities | 9,410,382 | 2.5 | 8,813,581 | 2.2 | 8,870,762 | 1.9 | 9,092,151 | 2.2 |
Production and distribution of electricity | 1,322 | - | - | - | 3,032 | - | 1,829 | - |
Other industries | 265,223 | 0.1 | - | - | 26,069 | - | 165,388 | - |
Private sector | 364,136,738 | 97.4 | 383,270,292 | 97.8 | 448,492,512 | 98.1 | 402,233,287 | 97.7 |
Companies | 190,148,345 | 50.9 | 212,344,421 | 54.2 | 218,076,522 | 47.7 | 209,365,567 | 50.9 |
Real estate and construction activities | 29,383,442 | 7.9 | 33,888,418 | 8.6 | 21,695,592 | 4.7 | 25,267,761 | 6.1 |
Retail | 23,935,638 | 6.4 | 25,346,471 | 6.5 | 35,521,621 | 7.8 | 32,472,286 | 7.9 |
Services | 17,996,533 | 4.8 | 18,172,147 | 4.6 | 20,136,089 | 4.4 | 19,086,508 | 4.6 |
Transportation and concession | 14,190,284 | 3.8 | 17,044,780 | 4.3 | 20,807,687 | 4.5 | 17,261,369 | 4.2 |
Automotive | 10,014,454 | 2.7 | 13,148,526 | 3.4 | 12,723,830 | 2.8 | 11,284,972 | 2.7 |
Food products | 8,866,028 | 2.4 | 10,870,635 | 2.8 | 11,067,069 | 2.4 | 12,040,631 | 2.9 |
Wholesale | 9,045,916 | 2.4 | 10,704,646 | 2.7 | 14,327,816 | 3.1 | 11,467,168 | 2.8 |
Production and distribution of electricity | 7,360,804 | 2.0 | 8,255,265 | 2.1 | 2,868,563 | 0.6 | 4,784,015 | 1.2 |
Siderurgy and metallurgy | 7,001,290 | 1.9 | 7,800,237 | 2.0 | 9,022,956 | 2.0 | 7,698,444 | 1.9 |
Sugar and alcohol | 7,042,811 | 1.9 | 7,514,693 | 1.9 | 6,191,961 | 1.4 | 6,907,858 | 1.7 |
Other industries | 55,311,145 | 14.8 | 59,598,603 | 15.2 | 63,713,338 | 13.9 | 61,094,555 | 14.8 |
Individuals | 173,988,393 | 46.5 | 170,925,871 | 43.6 | 230,415,990 | 50.4 | 192,867,720 | 46.9 |
Total portfolio | 373,813,665 | 100.0 | 392,083,873 | 100.0 | 457,392,375 | 100.0 | 411,492,655 | 100.0 |
Impairment of loans and advances | (27,055,566) |
| (24,780,839) |
| (33,863,659) |
| (31,105,579) |
|
Total of net loans and advances to customers | 346,758,099 |
| 367,303,034 |
| 423,528,716 |
| 380,387,076 |
|
Measurement of Credit Risk
Periodically, the Organization evaluates the existence of objective evidence of loss in the loans and advances portfolio, taking into account its historical experience of impairment losses and employing other methodologies to consider the customer' quality as well as the nature of the transaction including its guarantees for estimating the expected cash flows, which are reviewed regularly in order to constantly improve the models and to ensure that the provision is sufficient.
Initially, clients are classified as individually significant and individually non-significant. Following that initial classification, clients are evaluated on the basis of the existence of evidence of one or more objective loss events. As sometimes it may not be possible to identify a specific event that has caused a loss in the recoverable amount, the combined effects of several events are evaluated. In addition, loss events may be specific, that is, refer to only a particular client, such as payment defaults, renegotiation or bankruptcy event, or be collective and affect a group of assets as a result, for example, interest or exchange rate variations or a reduction in the activity level of one or more economic sectors.
For individually significant clients with specific objective evidences of impairment, the impairment loss is estimated by individual analysis, taking into account the future cash flows expected from each client, including the realization of guarantees associated with operations.
For individually non-significant clients with specific objective evidence of impairment, the, impairment loss is estimated using proprietary historic loss experience models which are based on observable information on the calculation date.
F-52 IFRS – International Financial Reporting Standards – 2017
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Notes to the Consolidated Financial Statements
Clients showing no specific objective evidence of impairment losses, both individually significant and individually non-significant clients, are evaluated collectively using the Organization’s internal models based on collective parameters of loss identified and macroeconomic parameters of economic activity and default.
For collective evaluation, Probability of Default and Loss Given Default models, as well as the Loss Identification Period factor, are used.
Probability of Default (PD): determines the probability of default perceived by the Organization with respect to the customer, according to its internal evaluation model. This risk parameter is determined differently for each segment: retail models are quantitative, while wholesale models are both quantitative and qualitative (subjective).
Loss Given Default (LGD): refers to the percentage effectively lost after recovery efforts given the default of the contract, which is expressed as a percentage of exposure.
Loss Identification Period (LIP): interim period between the occurrence of the loss event in groups of collectively evaluated financial assets, significant and non significant, and its identification by the institution as being impaired.
Write-offs
Credits are written off in the consolidated statement of financial position against impairment of loans and advances when they are considered uncollectible or a permanent loss. Loans and advances to banks are normally written off when they are overdue for 180 to 360 days. Loans and advances to banks with remaining maturities of at least 36 months are normally written off when they are overdue for 360 to 540 days.
Credit Risk Mitigation
Potential credit losses are mitigated by the use of a variety of types of collateral formally stipulated through legal instruments, such as conditional sales, liens and mortgages, by guarantees such as third-party sureties or guarantees, and also by financial instrumentssuch as credit derivatives. The efficiency of these instruments is evaluated considering the time to recover and realize an asset given as collateral, its market value, the guarantors’ counterparty risk and the legal safety of the agreements. The main types of collateralscollateral include: term deposits; financial investments and securities; residential and commercial properties; movable properties such as vehicles, aircraft. Additionally, collateral may include commercial bonds such as invoices, checks and credit card bills. Sureties and guarantees may also include bank guarantees.
Credit derivatives are bilateral contracts in which one of the counterparties buys protection against a credit risk of a particular financial instrument and its risk is transferred to the counterparty that sells the protection. Normally, it receives a remuneration over the life of the operation. In the event of default by the borrower, the counterparty who purchased the protection will receive a payment, the purpose of which is to compensate for the loss of value in the financial instrument. In this case, the selling counterparty receives the underlying asset in exchange for said payment.
On December 31, 2017, Bradesco had credit default swaps (CDS) with the following characteristics: the risk received in credit swaps whose underlying assets are “debtsecurities issued by companies" in the amount of R$ 468,214 thousand (R$ 114,069 thousand in 2016) and “bonds of the Brazilian public debt” in the amount of R$ 116,773 thousand (R$ 668,115 thousand in 2016) and in 2016 the risk transferred in credit swaps whose underlying assets are “securitiesthe Brazilian public debt” was R$ (16,296) thousand, amounting to a total net credit risk value of negative R$ 584,987 thousand (R$ 765,888 thousand in 2016), with an effect on the calculation of required shareholders’ equity of negative R$ 49,162 thousand (R$ 11,977 thousand in 2016). The contracts related to credit derivatives transactions described above are due in 2022. The mark-to-market of the protection rates that remunerates the counterparty that received the risk totaled R$ 195 thousand (R$ (1,067) thousand in 2016). There were no credit events, as defined in the agreements, during the period.
Bradesco F-5F-530 IFRS – International Financial Reporting Standards – 2019
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
Offsetting of financial assets and liabilities
In accordance with IFRS 7, Bradesco must present the amounts related to financial instruments subject to master clearing agreements or similar agreements. In accordance with IAS 32,Credit derivatives are bilateral contracts in which one counterparty hedges credit risk on a financial asset andinstrument – its risk is transferred to the counterparty selling the hedge. In the case default by the borrower, the buying party will receive a financial liability are offset and their net value presentedpayment intended to compensate for the loss in the Consolidated Balance Sheet when, and only when, there is a legally enforceable right to offsetfinancial instrument. In this case, the amounts recognized andseller receives the Bank intends to settle themunderlying asset in a liquid basis, or to realize the asset and settle the liability simultaneously.exchange for said payment.
The table below presents financial assetsshows the fair value of guarantees of loans and liabilities subjectadvances to compensation.customers.
| R$ thousand | ||
On December 31, 2017 | |||
Amount of financial assets, gross | Related amount offset in the Balance Sheet | Net amount | |
Interbank investments | 123,691,195 | - | 123,691,195 |
Derivative financial instruments | 13,866,885 | - | 13,866,885 |
| R$ thousand | ||
On December 31, 2017 | |||
Amount of financial liabilities, gross | Related amount offset in the Balance Sheet | Net amount | |
Securities sold under agreements to repurchase | 233,467,544 | - | 233,467,544 |
Derivative financial instruments | 14,274,999 | - | 14,274,999 |
| R$ thousand | ||
On December 31, 2016 | |||
Amount of financial assets, gross | Related amount not cleared in the Balance Sheet | Net amount | |
Interbank investments | 84,728,590 | - | 84,728,590 |
Derivative financial instruments | 16,755,442 | - | 16,755,442 |
| R$ thousand | |||
2019 | 2018 | |||
Book value (1) | Fair Value Guarantees | Book value (1) | Fair Value Guarantees | |
Individuals | 230,415,990 | 139,878,361 | 192,867,720 | 121,318,093 |
Stage 1 | 199,384,194 | 127,231,341 | 165,031,788 | 109,456,403 |
Stage 2 | 19,594,716 | 10,277,550 | 15,354,577 | 8,925,277 |
Stage 3 | 11,437,080 | 2,369,470 | 12,481,355 | 2,936,413 |
|
|
|
|
|
Companies | 226,976,385 | 90,693,689 | 218,624,935 | 77,161,470 |
Stage 1 | 195,924,808 | 77,930,093 | 177,191,748 | 61,244,814 |
Stage 2 | 13,106,024 | 6,546,880 | 21,750,673 | 7,374,186 |
Stage 3 | 17,945,553 | 6,216,716 | 19,682,514 | 8,542,470 |
Total | 457,392,375 | 230,572,050 | 411,492,655 | 198,479,563 |
(1) Of the total balance of loan operations, R$311,522,000 (2018 – R$284,373,526 thousand) refers to operations without guarantees.
F-54 IFRS – International Financial Reporting Standards – 2017
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Notes to the Consolidated Financial Statements
| R$ thousand | ||
On December 31, 2016 | |||
Amount of financial liabilities, gross | Related amount not cleared in the Balance Sheet | Net amount | |
Securities sold under agreements to repurchase | 241,978,931 | - | 241,978,931 |
Derivative financial instruments | 13,435,678 | - | 13,435,678 |
On December 31, 2017 and 2016, Bradesco does not have financial instruments in its balance sheet as a result of failing to meet the IAS 32 compensation criteria, or because it has no intention to liquidate them on a net basis, or to realize the assets and settle the liabilities simultaneously.
Market risk is represented by the possibility of financial loss due to fluctuating prices and interest rates of the Organization’s financial instruments, such as its asset and liability transactions that may have mismatched maturities, currencies and indexes.
Market risk is identified, measured, mitigated, controlled and reported. The Organization’s exposure to market risk profile is in line with the guidelines established by the governance process, with limits independently monitored on a timely basis.basis independently of the business areas.
All transactions that expose the Organization to market risk are mapped, measured and classified according to probability and magnitude, and the whole process is approved by the governance structure.
The risk management process relies on the participation of all levels of the Organization, from the business areas to the Board of Directors.
In compliance with the best Corporate Governance practices, to preserve and strengthen the management of market risk in the Organization, as well as to meet the requirements of ResolutionnNo.o 4,557/17, of (CMN),the National Monetary Council, the Board of Directors approved the Market and Liquidity Risk Management Policy, which is reviewed at least annually by the relevant Committees and by the Board of Directors itself, and provides the main guidelines for acceptance, control and management of market risk.
In addition to the policy, the Organization has specific rules to regulate the market risk management process, as follows:
· Classification of Operations;
· Reclassification of Operations;
· Trading of Public or Private Securities;
· Use of Derivatives; and
· Hedging.
Market Risk Management Process
The market risk management process is a corporation wide process, comprising from business areas to the Board of Directors; it involves various areas, each with specific duties in the process, thereby ensuring an efficient structure. The measurement and control of market risk is conducted in a centralized and independent manner. This process permits that the Organization be the first financial institution in the country authorized by the Central Bank of Brazil to use its internal market risk models to calculate regulatory capital requirements since January 2013. This process, is also revised at least once a year by the Committees and approved the Board of Directors itself.
BradescoF-55 F-51
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
Determination of Limits
Proposed market-risk limits are validated by specific Committees and submitted for approval by the Integrated Risk Management and Capital Allocation Committee, and then for approval by the Board of Directors. Based on the business’ characteristics, they are segregated into the following Portfolios:
Trading Portfolio: it comprises all operations involving financial instruments, held-for-trading, including derivatives, or used to hedge other instruments in the Trading Portfolio, which have no trading restrictions. Held-for-trading operations are those intended for resale, to obtain benefits from actual or expected price variations, or for arbitrage.
The Trading Portfolio is monitored with the following limits:
· Value at Risk (VaR);
· Stress;Stress Analysis (measurement of negative impact of extreme events, based on historical and prospective scenarios);
· Income; and
· Financial Exposure / Concentration.Concentration.
Banking Portfolio: it comprises operations not classified in the Trading Portfolio, arising from Organization’s other businesses and their respective hedges.
The Banking Portfolio is monitored with the following limits:
· Variation of economic value due to the variation in the interest rate – ∆EVE (Economic Value of Equity) - calculated by Internal Model, Disclosure Model (Outlier Test) and for Market Valued Positions; and
·Variation of the net revenue of interest due to the variation in the rate of interest – ∆NII (Net Interest rate risk limit.Income).
Market-Risk Measurement Models
Market risk is measured and controlled using Stress, Value at Risk (VaR), Economic Value Equity (EVE), Net Interest Income (NII) and Sensitivity Analysis methodologies, as well as limits for the Management of Results and Financial Exposure. Using several methodologies to measure and evaluate risks is of great importance, because they can complement each other and their combination allows for analysis of different scenarios and situations.
Trading and Regulatory Portfolio
Trading Portfolio risks are controlled by the Stress and VaR methodologies. The Stress methodology quantifies the negative impact of extreme economic shocks and events that are financially unfavorable to the Organization’s positions. The analysis uses stress scenarios prepared by the Market Risk area and the Organization’s economists based on historical and prospective data for the risk factors in which the Organization portfolio.
The methodology adopted to calculate VaR is the Delta-Normal, with a confidence level of 99% and considering the number of days necessary to unwind the existing exposures. The methodologyis applied to the Trading and Regulatory Portfolio (Trading Portfolio positions plus Banking Portfolio foreign currency and commodities exposures). It should be noted that for the measurement of all the risk factors of the portfolio of options are applied the historical simulation models and Delta-Gama-Vega,Delta-Gamma-Vega, prevailing the most conservative between the two.A minimum 252-business-day period is adopted to calculate volatilities, correlations and historical returns.
For regulatory purposes, the capital requirements relating to shares held in the Banking Portfolio of Prudential Conglomerate (includes, in its consolidation basis, entities located in the country andabroad, financial institutions, similar to financial institutions over which the institution has direct or indirect control, in addition to investment funds pursuant to Resolution No. 4,280/13 of CMN) are determined on a credit risk basis, as per Central Bank of Brazil resolution,ie,i.e., are not included in the market risk calculation.
F-5F-562 IFRS – International Financial Reporting Standards – 20172019
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
Risk of Interest Rate in the Banking Portfolio
The measurement and control of the interest-rate risk in the Banking Portfolio area is mainly based on the Economic Value of Equity (EVE) methodology,and Net Interest Income (NII) methodologies, which measuresmeasure the economic impact on the positions and the impact in the Organization's income, respectively, according to scenarios prepared by the Organization’s economists. These scenarios determine the positive and negative movements of interest rate curves that may affect Organization’s investments and capital-raising.
The EVE methodology consists of repricing the portfolio exposed to interest rate risk, taking into account the scenarios of increases or decreases of rates, by calculating the impact on present value and total term of assets and liabilities. The economic value of the portfolio is estimated on the basis of market interest rates on the analysis date and of scenarios projected. TheTherefore, the difference between the values obtained for the portfolio will be EVE,the Delta EVE.
In the case of the NII – Interest Earning Portion, the methodology intends to calculate the Organization's variation in the net revenue interest (gross margin) due to eventual variations in the interest rate level through the same scenarios mentioned above, that is, the interest-rate risk applicable todifference between the Banking Portfolio.calculated NII in the base scenario and the calculated NII in the scenarios of increase or decrease of the interest rate will be Delta NII.
To measureFor the measurement of interest rate risk in the Banking Portfolio, interest rate risk,behavioral premises of the premise of prepayment of loan is not used. For demand and savings deposits with undetermined maturity, their historical behaviors and the possibility of maintaining themclients are studied. After all the deductions related to demand and savings deposits, for example, the required compulsory deposits held at Brazilian Central Bank, the remaining balance (free funds) is allocated in accordance with the maturity flows of fixed-rate lending operations, andused whenever necessary. As a reference, in the case of deposits and savings, which have no maturity defined, studies for the risk factor considered for its mapping isverification of historical behaviors are carried out as well as the TR coupon.possibility of their maintenance. Through these studies, the stable amount (core portion) as well as the criterion of allocation over the years are calculated.
Financial Instrument Pricing
To adopt the best market prices related to the assessment of financial instruments’ market value, the Market and Liquidity Risk Management Executive Committee (CEGRIMEL) established the Mark-to-Market Commission (CMM), which is responsible for approving or submitting mark-to-market models to GEGRIMEL.the Market and Liquidity Risk Commission was established. CMM is composed of business, back-office and risk representatives. The risk area is responsible for the coordination of the Commission and for the submission the matters to the CEGRIMELExecutive Committee for Risk Management for reporting or approval, whichever is the case.
Whenever possible, the Bank uses prices and quotes from by the Securities, Commoditiessecurities, commodities and Futures Exchangefutures exchange and the Secondary Markets.secondary markets. Failing to find such market references, prices made available by other sources (such as Bloomberg, Reuters and Brokerage Firms) are used. As a last resort, proprietary models are used to price the instruments, which also follow the same CMM approval procedure and are submitted to the Organization’s validation and assessment processes.
Mark-to-market criteria are periodically reviewed, according to the governance process, and may vary due to changes in market conditions, creation of new classes of instruments, establishment of new sources of data or development of models considered more appropriate.
The financial instruments to be included in the Trading Portfolio must be approved by the Treasury Executive Committee or the Product and Service Executive Committee and their pricing criteria must be defined by the CMM.
The following principles for the mark-to-marketfair value process are adopted by the Organization:
Bradesco F-57
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Notes to the Consolidated Financial Statements
· Commitment: the Organization is committed to ensuring that the prices used reflect the market value of the operations. Should information not be found, the Organization uses its best efforts to estimate the market value of the financial instruments;
· Frequency: the formalized mark-to-market criteria are applied on a daily basis;
· Formality: the CMM is responsible for ensuring the methodological quality and the formalization of the mark-to-market criteria;
· Consistency: the process to gather and apply prices should be carried out consistently, to guarantee equal prices for the same instrument within the Organization; and
· Transparency: the methodology must be accessible by the Internal and External Audit, Independent Model Validation Areas -– AVIM and by Regulatory Agencies.
BradescoF-53
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
In December 2014, the (CMN)National Monetary Council published Resolution No. 4,389/14, which amended Resolution 4,277/13.No. 4,277. These resolutions set forth the basic procedures that entities must follow in pricing financial instruments valued at market value and guidelines for the application of prudential adjustments for such instruments. The organizationOrganization aligned with these resolutions’ guidelines, including applying due prudential adjustments required by the regulation.
Independent Risk Model Validation
The Organization uses models to manage and measure risks and capital, which are developed based on specialist knowledge or on statistical, economic, financial or mathematical theories, which support and facilitate the structuring of critical issues and enable standardization and fast decision-making.
To identify, mitigate and control the risks independent of the use of the models in the decision-making process, there is the AVIM, whose main purpose is to evaluate if the models work according to the intended objectives, as well as if their results are suitable for the uses for which they are intended.
Independent Validation of Models adopts a methodology that encompasses quantitative and qualitative dimensions, evaluating the adequacy of processes, governance, the construction of models and their premises, the use and monitoring of models:
Qualitative
·Scope of the model: scope or coverage of the model, which includes its goal, the type of risk addressed, companies exposed to this type of risk, portfolios, products, segments, channels, and etc;
·Application of the Model:aspects of the use of the model, which includes the definition of model, the reasonability in the use of the model's factors, the flow and the timeliness of the information for the decision-making process; and
·Technological Environment and Data Consistency: structure of systems and controls involved in the calculations performed by the model and the process in which the model is inserted. It also includes data consistency, taking into consideration the functionalities of version and access controls, backup, traceability, changes in parameters, data quality, system contingency and automated controls.
Quantitative
·Measurement System: challenge to the risk measurement procedures, both base and stress, including the definition, implementation and internal validation of the method, whichconsists of methodology, assumptions, parameters, calculation routine, input data and results; and
F-58 IFRS – International Financial Reporting Standards – 2017
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Notes to the Consolidated Financial Statements
·Backtesting: statistic procedure used to assess the model by comparing the amounts estimated by the model and the amounts observed within a previously defined period. It includes methodological, formalization and utilization aspects for model improvement.
The responsibility for executing the independent validation process, that includes the analysis and the assessment of models, it’s from AVIM, which uses structures that are already implemented and settled in the Organization to avoid overlapping tasks. Its results are reported to the managers and to the Committee of Integrated Risk Management and Capital Allocation.
Control and Follow-Up
Market risk is controlled and monitored by an independent area, the DCIR, which, on a daily basis, measures the risk of outstanding positions, consolidates results and prepares reports required by the existing governance process.
In addition to daily reports, Trading Portfolio positions are discussed once a weekevery fifteen days by the Treasury Executive Committee, while Banking Portfolio positions and liquidity reports are examined every fifteen days by the Asset and Liability Management Treasury Executive Committee.
At both meetings, results and risks are assessed and strategies are discussed. Both the governance process and the existing thresholds are ratified by the Integrated Risk Management and Capital Allocation Management Committee and submitted to approval of the Board of Directors, and they are revised at least once a year.
Should any threshold controlled by theIntegrated Risk Control Department –DCIR be exceeded, the head of the business area responsible for the position is informed that threshold was reached, and the Integrated Risk Management and Capital Allocation Management Committee is called in timely fashion to make a decision. If the Committee decides to raise the threshold and/or maintain the positions, the Board of Directors is called to approve the new threshold or revise the position strategy.
Internal Communication
The market risk department provides daily managerial control reports on the positions to the business areas and Senior Management, in addition to weekly reports and periodic presentations to the Board of Directors.
Reporting is conducted through an alert system, which determines the addressees of risk reports as previously determined risk threshold percentage is reached; therefore, the higher the risk threshold consumption, more Senior Management members receive the reports.
Hedging and Use of Derivatives
In order to standardize the use of financial instruments as hedges of transactions and the use of derivatives by the Treasury Department, the Organization created specific rulesprocedures that were approved by the competent Committees.
The hedge transactions executed by Bradesco’s Treasury Department must necessarily cancel or mitigate risks related to unmatched quantities, terms, currencies or indexes of the positions in the Treasury books, and must use assets and derivatives authorized to be traded in each of their books to:
Bradesco F-59
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Notes to the Consolidated Financial Statements
· control and classify thetransactions,, respecting the exposure and risk limits in effect;
· alter, modify or revert positions due to changes in the market and to operational strategies; and
· reduce or mitigate exposures to transactions in inactive markets, in conditions of stress or of low liquidity.
For derivatives classified in the "hedge accounting" category, there is a monitoring of their effectiveness, as well as their accounting implications.
F-54 IFRS – International Financial Reporting Standards – 2019
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
Cash flow Hedge
On December 31, 2017,2019, Bradesco maintained the following cash flow hedges: (i) with the objective of protecting the cash flow of interest income from securities investments, related to the risk of DI interest rates, using DI Futures contracts at B3, amounting to R$16,030,487 thousand (2016 - R$21,502,218 thousand), to hedge DI securities, amounting to R$14,708,544 thousand (2016 - R$21,476,571 thousand), with the maturity between 2018 and 2019, making the cash flows fixed. The adjustment to the market, registeredhedges. See more details in the shareholders' equity, of R$40,060 thousand (2016 - R$43,190 thousand), net of tax effects was R$ 24,036 thousand (2016 - R$25,914 thousand); (ii) with the objective of protecting cash flow from interest payments on capitalizations, referring to the risk of DI interest rates by using DI Futuro contracts in B3, totaling R$6,769,979 thousand, with the object of hedge as funds referenced to the DI, amounting to R$6,671,048 thousand in terms of maturities between 2018 and 2020, making the cash flows fixed. The adjustment to market, recorded in shareholders' equity, of R$(84,044) thousand, net of tax effects was R$(50,426) thousand; and (iii)aiming at hedging the exchange variation on future cash flows, whose functional currency is other than Reais, using Forward contracts, in the amount of R$1,110,888 thousand, with the purpose of hedging the investment abroad denominated in MXN (Mexican Peso), in the amount of R$582,567 thousand. The mark-to-market adjustment these operations, recorded in shareholders' equity was R$ (59,739) thousand, net of tax effects was R$(35,843) thousand. The effectiveness of the hedge portfolio was assessed in accordance with Bacen Circular Letter No. 3,082/02.Note 20.
Standardized and “Continuous Use” Derivatives
Organization’s Treasury Department may use standardized (traded on an exchange) and “continuous use” (traded over-the-counter) derivatives for the purpose of obtaining income or as hedges. The derivatives classified as “continuous use” are those habitually traded over-the-counter, such as vanilla swaps (interest rates, currencies, CDS – Credit Default Swap, among others), forward operations (currencies, for example) and vanilla options (currency, Bovespa Index), among others. Non-standardized derivatives that are not classified as “continuous use” or structured operations cannot be traded without the authorization of the applicable Committee.
Evolution of Exposures
In this section are presented the evolution of financial exposure, the VaR calculated using the internal model and its backtesting and the Stress Analysis.
Financial Exposure – Trading Portfolio (Fair value)
Risk factors | R$ thousand | R$ thousand | ||||||
On December 31 | On December 31 | |||||||
2017 | 2016 | 2019 | 2018 | |||||
Assets | Liabilities | Assets | Liabilities | Assets | Liabilities | Assets | Liabilities | |
Fixed rates | 11,614,849 | 6,184,099 | 33,026,609 | 13,806,553 | 15,619,889 | 12,954,739 | 8,131,939 | 6,081,794 |
IGP-M (General Index of market pricing) / IPCA (Consumer price index) | 1,053,893 | 532,957 | 330,819 | 404,612 | 889,026 | 1,476,167 | 249,922 | 191,486 |
Exchange coupon | 1,808,598 | 1,658,084 | 997,507 | 878,284 | 221,069 | 1,135,449 | 1,090,277 | 785,578 |
Foreign Currency | 1,808,598 | 2,103,715 | 1,005,349 | 1,024,526 | 759,320 | 1,437,774 | 1,471,956 | 1,611,049 |
Equities | 461,957 | 468,911 | - | - | 461,860 | 427,778 | 776,376 | 776,735 |
Sovereign/Eurobonds and Treasuries | 560,619 | 360,252 | 2,301,628 | 906,361 | 3,783,134 | 5,007,199 | 3,805,259 | 1,099,612 |
Other | 257,537 | 98,517 | 218,421 | - | 384,269 | 25,793 | 685,724 | 31,729 |
Total | 17,566,051 | 11,406,535 | 37,880,333 | 17,020,336 | 22,118,567 | 22,464,899 | 16,211,453 | 10,577,983 |
F-60 IFRS – International Financial Reporting Standards – 2017
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Notes to the Consolidated Financial Statements
VaR Internal Model –Trading– Trading Portfolio
The 1-day VaR of Trading Portfolio net of tax effects was R$9,973 thousand in the end of 2017 was R$ 14,417 thousand,2019, with the interest rate riskForeign Currency as the largest risk factor participation of the portfolio.
Risk factors | R$ thousand | R$ thousand | ||
On December 31 | On December 31 | |||
2017 | 2016 | 2019 | 2018 | |
Fixed rates | 8,956 | 20,704 | 1,614 | 850 |
IGP-M (General Index of market pricing) / IPCA (Consumer price index) | 2,751 | 416 | ||
IGPM/IPCA | 2,774 | 264 | ||
Exchange coupon | 48 | 64 | 415 | 142 |
Foreign Currency | 2,925 | 224 | 5,327 | 712 |
Sovereign/Eurobonds and Treasuries | 826 | 3,230 | 3,834 | 3,770 |
Equities | 289 | - | 707 | 655 |
Other | 1 | 2 | 2,122 | 1,597 |
Correlation/diversification effect | (1,379) | (1,892) | (6,820) | (2,214) |
VaR at the end of the year | 14,417 | 22,748 | 9,973 | 5,776 |
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| - |
Average VaR in the year | 24,024 | 19,910 | 10,263 | 21,624 |
Minimum VaR in the year | 5,499 | 9,408 | 6,469 | 4,316 |
Maximum VaR in the year | 100,640 | 36,726 | 15,309 | 76,935 |
BradescoF-55
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
VaR Internal Model – Regulatory Portfolio
The capital is calculated by the normal delta VaR model based in Regulatory Portfolio, composed by Trading Portfolio and the Foreign Exchange Exposures and the Commodities Exposure of the Banking Portfolio. In addition, the historical simulation and the Delta–Gama–Gamma–Vega models of risk are applied to measure all risk factors to an options portfolio, whichever is the most conservative.conservative, whereby this risk of options is added to the VaR of the portfolio. In this model, risk value is extrapolated to the regulatory horizon(1) (at least ten days)(the highest between 10 days and the horizon of the portfolio)by the ‘square root of time’ method. VaR and Stressed VaR shown below refer to a ten-day horizon and are net of tax effects.
Risk factors | R$ thousand | R$ thousand | ||||||
On December 31 | On December 31 | |||||||
2017 | 2016 | 2019 | 2018 | |||||
VaR | Stressed | VaR | Stressed | VaR | Stressed | VaR | Stressed | |
Interest rate | 37,659 | 48,400 | 70,231 | 149,043 | 14,662 | 58,629 | 8,131 | 47,851 |
Exchange rate | 7,715 | 17,300 | 12,966 | 27,713 | 34,638 | 104,429 | 5,666 | 20,959 |
Commodity price (Commodities) | 1,110 | 200 | 12 | 29 | 465 | 1,637 | 8,194 | 14,704 |
Equities | 2,065 | 7,400 | - | - | 2,766 | 3,772 | 3,355 | 4,844 |
Correlation/diversification effect | 36,429 | 240 | (1,872) | (8,296) | (9,959) | (29,875) | (7,569) | 33,180 |
VaR at the end of the year | 84,978 | 73,540 | 81,337 | 168,489 | 42,572 | 138,592 | 17,777 | 121,538 |
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Average VaR in the year | 87,358 | 107,059 | 70,249 | 179,169 | 43,294 | 106,636 | 69,852 | 117,946 |
Minimum VaR in the year | 24,945 | 26,803 | 38,810 | 83,230 | 16,606 | 34,838 | 17,777 | 57,523 |
Maximum VaR in the year | 369,342 | 236,895 | 131,105 | 247,814 | 122,507 | 298,703 | 252,797 | 231,080 |
Note: Ten-day horizon VaR net of tax effects.
To calculate regulatory capital requirement according to the internal model, it is necessary to take into consideration the rules described by Brazilian Central Bank Circular Lettersno No. 3,646/13 and No. 3,674/13, such as the use of VaR and Stressed VaR net of tax effects, the average in the last 60 days and its multiplier.
(1)The maximum amount between the book’s holding period and ten days, which is the minimum regulatory horizon required by Brazilian Central Bank, is adopted.
Bradesco F-61
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Notes to the Consolidated Financial Statements
VaR Internal Model – Backtesting
The risk methodology applied is continuously assessed using backtesting techniques, which compare the one-day period VaR with the hypothetichypothetical P&L, obtained from the same positions used in the VaR calculation, and with the effective P&L, also considering the intraday operations for which VaR was estimated.
The main purpose of backtesting is to monitor, validate and assess the adherence of the VaR model, and the number of exceptions that occurred must be compatible with the number of exception accepted by the statistical tests conducted and the confidence level established. Anotherobjective is to improve the models used by the Organization, through analyses carried out with different observation periods and confidence levels, both for Total VaR and for each risk factor.
Daily hypothetical and effective P&L over the last 250 business days surpassed their respective VaR, only once, with a confidence level of 99%.
According to the document published by the Basel Committee on Banking Supervision(2)(2), exceptions are classified as being due to “either bad luck or the markets did not behave as expected by the model”, i.e. volatility was significantly higher than expected and, in certain situations, the correlations differed from those forecast by the model.
(1) The maximum amount between the book’s holding period and ten days, which is the minimum regulatory horizon required by Central Bank of Brazil, is adopted.
(2) The Basel Committee on Banking Supervision is an organization that brings together banking supervisory authorities in order to strengthen the soundness of financial systems.
F-56 IFRS – International Financial Reporting Standards – 2019
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
Stress Analysis – Trading Portfolio
The Organization also assesses on a daily basis, the possible impacts on positions in stress scenarios for the next 20 business days, with limits established in the governance process. Thus, considering the effect of diversification between the risk factors and the tax effects, the average of the possible loss estimates in a stress situation would be R$ 168,751160,661 thousand in 20172019(20162018 – R$ 198,274185,192thousand), and the maximum estimated loss in the year of 20172019 would be R$ 387,884286,273thousand(20162018 – R$ 371,395419,677thousand).
| R$ thousand | R$ thousand | ||
On December 31 | On December 31 | |||
2017 | 2016 | 2019 | 2018 | |
At the end of the year | 103,949 | 338,004 | 103,444 | 59,489 |
Average in the year | 168,751 | 198,274 | 160,661 | 185,192 |
Minimum in the year | 53,426 | 87,152 | 67,675 | 52,716 |
Maximum in the year | 387,884 | 371,395 | 286,273 | 419,677 |
Note: Values net of tax effects.
Sensitivity Analysis
The Trading Portfolio is also monitored daily by sensitivity analyses that measure the effect of movements of market and price curves on our positions. Furthermore, a sensitivity analysis of the Organization’s financial exposures (Trading and Banking Portfolio)Portfolios) is performed on a quarterly basis, in compliance with CVM Rule noNo. 475/08.
The sensitivity analyses were carried out based on the scenarios prepared for the respective dates, always taking into consideration market inputs available at the time and scenarios that would adversely impact our positions, in accordance with the scenarios below:
(2)Supervisory Framework for the use “Backtesting” in Conjunction with the Internal Models Approach to Market Risk Capital Requirements(January 1996).
F-62 IFRS – International Financial Reporting Standards – 2017
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Notes to the Consolidated Financial Statements
Scenario 1:Based on market information (B3, Anbima, etc.), stresses were applied for 1 basis point on the interest rate and 1 base point for interest rates and 1.0% variation on prices. For example: for a Real/US dollar exchange rate of R$ 3.144.02 a scenario of R$ 3.174.06 was used, while for a 1-year fixed interest rate of 6.90%4.56%, a scenario of 6.91%4.57% was applied;
Scenario 2:25.0% stresses were determined based on market information. For example: for a Real/US dollar exchange rate of R$ 3.144.02 a scenario of R$ 3.935.02 was used, while for a 1-year fixed interest rate of 6.90%4.56%, a 8.62%5.70% scenario was applied. The scenarios for other risk factors also accounted for 25% stresses in the respective curves or prices; and
Scenario 3:50.0% stresses were determined based on market information. For example: for a Real/US dollar quote of R$ 3.144.02 a scenario of R$ 4.726.03 was used, while for a 1-year fixed interest rate of 6.90%4.56%, a 10.35%6.84% scenario was applied;applied. The scenarios for other risk factors also account for 50.0% stresses in the respective curves or prices.
The results show the impact for each scenario on a static portfolio position. The dynamism of the market and portfolios means that these positions change continuously and do not necessarilyreflect the position demonstrated here. In addition, the Organization has a continuous market risk management process, which is always searching for ways to mitigate the associated risks, according to the strategy determined by ManagementManagement. Therefore, in cases of deterioration indicators in a certain position, proactive measures are taken to minimize any potential negative impact, aimed at maximizing the risk/return ratio for the Organization.
BradescoF-63F-57
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
Sensitivity Analysis – Trading Portfolio
|
| R$ thousand |
| R$ thousand | ||||||||||
Trading Portfolio (1) | Trading Portfolio (1) | |||||||||||||
On December 31 | On December 31 | |||||||||||||
2017 | 2016 | 2019 | 2018 | |||||||||||
Scenarios | Scenarios | Scenarios | Scenarios | |||||||||||
1 | 2 | 3 | 1 | 2 | 3 | 1 | 2 | 3 | 1 | 2 | 3 | |||
Interest rate | Exposure subject to variations in fixed interest rates and interest rate coupons | (359) | (61,497) | (120,385) | (1,074) | (293,350) | (568,367) | |||||||
Interest rate in Reais | Exposure subject to variations in fixed interest rates and interest rate coupons | (97) | (14,128) | (27,256) | (67) | (11,474) | (22,374) | |||||||
Price indexes | Exposure subject to variations in price index coupon rates | (147) | (17,576) | (33,298) | (26) | (3,723) | (7,174) | Exposure subject to variations in price index coupon rates | (904) | (29,440) | (56,245) | (22) | (2,462) | (4,706) |
Exchange coupon | Exposure subject to variations in foreign currency coupon rates | (9) | (420) | (839) | (2) | (224) | (437) | Exposure subject to variations in foreign currency coupon rates | (10) | (689) | (1,373) | (3) | (236) | (460) |
Foreign currency | Exposure subject to exchange rate variations | (1,629) | (40,736) | (81,473) | (106) | (2,649) | (5,297) | Exposure subject to exchange rate variations | (2,772) | (74,695) | (149,390) | (331) | (8,265) | (16,529) |
Equities | Exposure subject to variation in stock prices | (1,215) | (30,378) | (60,757) | - | - | Exposure subject to variation in stock prices | (228) | (5,710) | (11,420) | (88) | (2,195) | (4,389) | |
Sovereign/Eurobonds and Treasuries | Exposure subject to variations in the interest rate of securities traded on the international market | (2,469) | (61,730) | (123,461) | (1,464) | (11,649) | (24,751) | Exposure subject to variations in the interest rate of securities traded on the international market | (699) | (29,099) | (56,736) | (315) | (93,073) | (129,865) |
Other | Exposure not classified in other definitions | - | - | - | - | (19) | (39) | Exposure not classified in other definitions | - | (26) | (52) | - | (37) | (73) |
Total excluding correlation of risk factors | Total excluding correlation of risk factors | (5,828) | (212,337) | (420,213) | (2,672) | (311,614) | (606,065) | Total excluding correlation of risk factors | (4,710) | (153,787) | (302,472) | (826) | (117,742) | (178,396) |
Total including correlation of risk factors | Total including correlation of risk factors | (3,448) | (131,662) | (259,684) | (2,058) | (295,900) | (574,058) | Total including correlation of risk factors | (2,617) | (72,476) | (145,411) | (429) | (93,092) | (130,432) |
(1)Values net of taxes.
F-F-6458 IFRS – International Financial Reporting Standards – 20172019
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
Presented below, the Sensitivity Analysis – Trading and Banking Portfolio.Portfolios.
Sensitivity Analysis – Trading and Banking PortfolioPortfolios
|
| R$ thousand |
| R$ thousand | ||||||||||
Trading and Banking Portfolios (1) | Trading and Banking Portfolios (1) | |||||||||||||
On December 31 | On December 31 | |||||||||||||
2017 | 2016 | 2019 | 2018 | |||||||||||
Scenarios | Scenarios | Scenarios | Scenarios | |||||||||||
1 | 2 | 3 | 1 | 2 | 3 | 1 | 2 | 3 | 1 | 2 | 3 | |||
Interest rate | Exposure subject to variations in fixed interest rates and interest rate coupons | (12,579) | (2,339,939) | (4,560,181) | (8,994) | (2,466,388) | (4,786,687) | |||||||
Interest rate in Reais | Exposure subject to variations in fixed interest rates and interest rate coupons | (14,670) | (1,895,973) | (3,775,039) | (16,141) | (2,973,012) | (5,760,223) | |||||||
Price indexes | Exposure subject to variations in price index coupon rates | (512) | (56,130) | (107,716) | (9,255) | (1,224,208) | (2,264,187) | Exposure subject to variations in price index coupon rates | (16,840) | (1,312,832) | (2,397,962) | (8,410) | (913,671) | (1,630,441) |
Exchange coupon | Exposure subject to variations in foreign currency coupon rates | (1,575) | (80,110) | (158,548) | (455) | (49,446) | (93,726) | Exposure subject to variations in foreign currency coupon rates | (1,035) | (71,631) | (139,560) | (1,368) | (119,441) | (229,387) |
Foreign currency | Exposure subject to exchange rate variations | (600) | (15,004) | (30,008) | (867) | (21,663) | (43,327) | Exposure subject to exchange rate variations | (3,136) | (71,103) | (142,206) | (407) | (10,119) | (20,238) |
Equities | Exposure subject to variation in stock prices | (16,289) | (407,237) | (814,475) | (14,817) | (370,420) | (740,841) | Exposure subject to variation in stock prices | (28,808) | (720,192) | (1,440,384) | (21,229) | (530,729) | (1,061,459) |
Sovereign/Eurobonds and Treasuries | Exposure subject to variations in the interest rate of securities traded on the international market | (4,978) | (205,764) | (406,054) | (1,786) | (15,940) | (32,801) | Exposure subject to variations in the interest rate of securities traded on the international market | (1,399) | (52,962) | (104,190) | (1,762) | (92,193) | (184,758) |
Other | Exposure not classified in other definitions | (12) | (307) | (613) | (1) | (28) | (55) | Exposure not classified in other definitions | (66) | (1,660) | (3,320) | (412) | (10,298) | (20,596) |
Total excluding correlation of risk factors | Total excluding correlation of risk factors | (36,545) | (3,104,491) | (6,077,595) | (36,175) | (4,148,093) | (7,961,624) | Total excluding correlation of risk factors | (65,954) | (4,126,353) | (8,002,661) | (49,729) | (4,649,463) | (8,907,102) |
Total including correlation of risk factors | Total including correlation of risk factors | (26,956) | (2,678,101) | (5,232,466) | (26,893) | (3,691,157) | (7,090,253) | Total including correlation of risk factors | (42,209) | (3,038,149) | (5,919,579) | (37,535) | (3,905,602) | (7,499,908) |
(1)Values net of taxes.
BradescoF-65 F-59
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
3.3. Liquidity risk
The Liquidity Risk is represented by the possibility of the institution not being able to efficiently meet its obligations, without affecting its daily operations and incurring significant losses.losses, as well as the possibility of the institution to fail to trade a position at market price, due to its larger size as compared to the volume usually traded or in view of any market interruption.
The understanding and monitoring of this risk are crucial to enable the Organization to settle operations in a timely manner.
Management Process for Liquidity Risk
The management of liquidity risk is a group-wide process. This process involves several areas with specific responsibilities. The measurement and control of liquidity risk are conducted in a centralized and independent manner, including the daily monitoring of available funds, the compliance with the liquidity level according to the risk appetite defined by the board,Board of Directors,as well asthe contingency plan and recovery for possible stress situations.
The Organization has a Liquidity Risk Management Policy approved by the Board of Directors, which has as one of its objectives to ensure the existence of norms, criteria and procedures for the correct monitoring of this type of risk, as well as the existence of a strategy and of action plans for liquidity crisis situations. The policy and controls established fully comply with the provisions of CMN Resolution 4,557/17.
Control and Monitoring
Liquidity risk management is carried out by the Treasury Department, based on the positions available, by independent area. The DCIR is responsible for the measurement methodology, control of the limits established by type of currency and company (including non-financial), review of policies, standards, criteria and procedures and studies for new recommendations.
Liquidity risk is monitored daily by the business and control areas and at the meetings of the Treasury Asset and Liability Management Treasury Executive Committee, which manages liquidity reserves, with term and currency mismatches. Monitoring is also handled by the Risk Committee and the Integrated Risk Management and Capital Allocation Management Committee and the Board of Directors.
Since October 2017, the Organization adopted as its main metric also for internal management, Short-Term Liquidity indicator (LCR)LCR (liquidity coverage ratio), as provided by CMN Resolution No. 4,401/15 of CBBCentral Bank Circular Letter No. 3,749/16.15.
In the third quarter of 2018, the Organization started using, in its internal management, the Long-Term Net Stable Funding Ratio (NSFR), in compliance with CMN Resolution No. 4,616/2017, as well as Circular Letter of Central Bank of Brazil No. 3,869/2017.
F-60 IFRS – International Financial Reporting Standards – 2019
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
LCR -– Liquidity Coverage Ratio
The Liquidity Coverage Ratio (LCR) is designed to ensure that the Organization maintains a sufficient level of liquid assets to cover liquidity needs in an eventual stress scenario. The LCR is the ratio between the stock of High Quality Liquid Assets (HQLA) and total net cash outflow, calculated based on a generic stress scenario. The formula below shows the main components of the indicator:indicator as follows:
F-66 IFRS – International Financial Reporting Standards – 2017
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Notes to the Consolidated Financial Statements
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In accordance with the LCR implantation schedule, the level of the ratio between HQLA and total net cash outflows must comply with the following schedule:
Year | 2016 | 2017 | 2018 | As of 2019 |
% Required | 70% | 80% | 90% | 100% |
The stress scenarios parameterization was conducted by the Brazilian Central BankRegulator to capture idiosyncratic and market shocks, considering the period of thirty30 days. The items below show some of the shocks included in the methodology:
• ·the partial loss of retail and uncollateralized wholesale funding, as well as short-term funding capacity;
• ·the additional outflow of funds, contractually foreseen, due to the downgrading of the institution’s credit rating by up to three levels, including eventual additional collateral requirements;
• ·an increase in the volatility of factors that impact collateral quality or the potential future exposure of derivative positions, resulting in the application of larger collateral discounts or a call for additional collateral or in other liquidity requirements;
• ·withdrawals of higher than expected amounts from credit/liquidity lines granted; and
• ·the potential need to repurchase debt or honor non-contractual obligations in order to mitigate reputational risk.
High Quality Liquid Assets (HQLA)
HQLA are assets that maintain their market liquidity in periods of stress and that meet the minimum requirements established by the Brazilian Central Bank of Brazil, such as, among others, being free of any legal impediment or restriction; suffering little or no loss in market value when converted into cash; having a low credit risk; easy and accurate pricing; and being traded in an active and important market, with little difference between the purchase and sale price, high traded volume and a large number of participants. These assets are subject to weighting factors which may reduce their value, for example, in accordance with the risk rating of their issuer or the historic variation in their market price, among other requirements.
Cash Outflows and Inflows
Cash outflows are the result of a reduction in deposits and funding; the maturity of securities issued; scheduled contractual obligations for the next 30 days; margin adjustments and calls in derivative operations; the utilization/withdrawal of credit and liquidity lines granted by the Bank; and contingent cash outflows.
Cash inflows for the next thirty30 days correspond to the expected receipt of loans and financings; deposits; securities; and margin adjustments and easing in derivative operations.
BradescoF-67 F-61
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
The table below shows the average LCR Prudential Conglomerate:
R$ thousand | R$ thousand | R$ thousand | ||||||||
Information on the Liquidity Coverage Ratio (LCR) | Information on the Liquidity Coverage Ratio (LCR) | Information on the Liquidity Coverage Ratio (LCR) | ||||||||
|
| On December 31 (1) | On December 31 (2) |
| On December 31 (1) | On December 31 (2) | ||||
2017 | 2016 | 2019 | 2018 | |||||||
Average Amount (3) | Weighted Average Amount (4) | Average Amount (3) | Weighted Average Amount (4) | Average Amount (3) | Weighted Average Amount (4) | Average Amount (3) | Weighted Average Amount (4) | |||
Number of Line | High Quality Liquid Assets (HQLA) |
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| High Quality Liquid Assets (HQLA) |
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1 | Total High Quality Liquid Assets (HQLA) |
| 125,596,242 |
| 146,652,484 | Total High Quality Liquid Assets (HQLA) |
| 112,872,809 |
| 140,377,669 |
Number of Line | Cash Outlows |
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| Cash Outlows |
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2 | Retail funding: | 210,005,411 | 17,749,477 | 227,352,566 | 16,702,571 | Ratail funding: | 239,379,478 | 21,636,196 | 235,539,799 | 21,919,302 |
3 | Stable funding | 135,661,528 | 6,783,076 | 140,847,861 | 4,225,436 | Stable funding | 129,085,762 | 6,454,288 | 119,809,242 | 5,990,462 |
4 | Less stable funding | 74,343,883 | 10,966,401 | 86,504,705 | 12,477,135 | Less stable funding | 110,293,716 | 15,181,908 | 115,730,557 | 15,928,840 |
5 | Non-collateralized wholesale funding: | 112,474,083 | 50,716,519 | 102,652,197 | 49,853,687 | Non-collateralized wholesale funding: | 132,504,666 | 53,070,146 | 125,136,835 | 50,927,871 |
6 | Operating deposits (all counterparties) and affiliated cooperative deposits | 8,152,936 | 407,647 | 6,226,398 | 192,711 | Operating deposits (all counterparties) and affiliated cooperative deposits | 9,638,912 | 481,946 | 8,648,728 | 432,436 |
7 | Non-operating deposits (all counterparties) | 103,275,838 | 49,263,563 | 95,809,211 | 49,044,388 | Non-operating deposits (all counterparties) | 121,673,837 | 51,396,283 | 115,864,088 | 49,871,416 |
8 | Other non-collateralized wholesale funding | 1,045,309 | 1,045,309 | 616,588 | 616,588 | Other non-collateralized wholesale funding | 1,191,917 | 1,191,917 | 624,019 | 624,019 |
9 | Collateralized wholesale funding | - | 6,656,909 | - | 5,808,725 | Collateralized wholesale funding | - | 3,828,662 | - | 5,361,781 |
10 | Additional requirements: | 97,751,894 | 13,746,422 | 99,952,624 | 15,328,908 | Additional requirements: | 113,180,204 | 14,729,075 | 104,341,246 | 14,181,343 |
11 | Related to exposure to derivatives and other collateral requirements | 15,192,265 | 7,089,564 | 16,283,688 | 9,017,294 | Related to exposure to derivatives and other collateral requirements | 14,457,167 | 6,617,026 | 14,419,270 | 6,741,269 |
12 | Related to funding losses through the issue of debt instruments | 345,574 | 345,574 | 33,682 | 6,332 | Related to funding losses through the issue of debt instruments | 765,093 | 765,093 | 554,811 | 554,811 |
13 | Related to lines of credit and liquidity | 82,214,055 | 6,311,284 | 83,635,254 | 6,305,282 | Related to lines of credit and liquidity | 97,957,944 | 7,346,956 | 89,367,165 | 6,885,263 |
14 | Other contractual obligations | 30,492,461 | 28,811,462 | 29,749,147 | 29,749,147 | Other contractual obligations | 37,020,644 | 35,080,897 | 33,875,647 | 31,857,396 |
15 | Other contingent obligations | 131,133,680 | 5,160,312 | 156,190,246 | 5,581,011 | Other contingent obligations | 132,713,942 | 5,420,129 | 122,319,336 | 4,915,397 |
16 | Total cash outflows | - | 122,841,100 | - | 123,024,048 | Total cash outflows | - | 133,765,105 | - | 129,163,091 |
Number of Line | Cash Inflows |
|
|
|
| Cash Inflows |
|
|
|
|
17 | Collateralized loans | 161,500,640 | - | 189,610,077 | 937,935 | Collateralized loans | 65,979,377 | 896,126 | 95,238,798 | - |
18 | Outstanding loans whose payments are fully up-to-date | 32,424,050 | 21,009,387 | 37,529,539 | 24,090,950 | Outstanding loans whose payments are fully up-to-date | 32,730,607 | 20,645,466 | 30,039,902 | 16,950,831 |
19 | Other cash inflows | 24,624,328 | 21,429,233 | 21,079,562 | 17,347,511 | Other cash inflows | 41,453,133 | 33,730,321 | 37,235,944 | 30,511,989 |
20 | Total cash inflows | 218,549,018 | 42,438,620 | 248,219,178 | 42,376,396 | Total cash inflows | 140,163,117 | 55,271,913 | 162,514,644 | 47,462,820 |
|
|
| Total Adjusted Amount (5) |
| Total Adjusted Amount (5) |
|
| Total Adjusted Amount (5) |
| Total Adjusted Amount (5) |
21 | Total HQLA |
| 125,596,242 |
| 146,652,484 | Total HQLA |
| 112,872,809 |
| 140,377,669 |
22 | Total net cash outflow |
| 80,402,480 |
| 80,647,652 | Total net cash outflow |
| 78,493,191 |
| 81,700,271 |
23 | LCR (%) (5) |
| 156.2% |
| 181.8% | LCR (%) (5) |
| 143.8% |
| 171.8% |
1)(1) Calculated based on the simple daily average of the months that compose the fourth quarter (61(64 observations);
2)(2) Calculated based on the simple daily average of the closing of the months that compose the fourth quarter (3(62 observations);
3)(3) Corresponds to the total balance related to the item of cash inflows or outflows;
4)(4) Corresponds to the value after application of the weighting factors; and
5)(5) Corresponds to the calculated value after the application of weighting factors and limits.
The amount of net assets (HQLA) consists, in addition to the compulsory returns and reserves at the Brazilian Central Bank of Brazil, mainly of federal government securities. These net assets resulted in R$125,596,242112,872,809 thousand, the average of the yearfourth quarter of 2017.2019.
Related to the cash outflows, based on the regulatory stress scenario (line 16), about 54.0%55.8% are redemptions and non-renewals of retail and wholesale funding without collateral (unsecured), as shown on the lines 2 and 5 of the table.
Another relevant group refers tois the item "Other contractual obligations" (line 14), which mainly includes the output streams of onlending operations, credit cards and trade finance.
Regarding cash inflows, corresponding to R$ 42,438,62055,271,914 thousand in the average of the year,stand outfourth quarter of 2019, most significant are the receipts of loans operations (partial renewal), the inflows of Trade Finance operations, cash and cash equivalents and redemptions of securities in addition to the inflow of transfer and credit card operations.
F-6F-682 IFRS – International Financial Reporting Standards – 20172019
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
Net Stable Funding Ratio
The Net Stable Funding Ratio (NSFR) aims to assess if the Organization is financing its activities (assets) from more stable sources of funding(liabilities). The NSFR corresponds to the ratio between the Available Stable Funding (ASF) and the Required Stable Funding (RSF), which are defined according to the structures of assets and liabilities of the institution that are weighted according to the definitions of the Regulator.
The following figure shows the main components of the indicator:
Available Stable Funding (ASF)
The available stable funding is represented by the Liabilities and Shareholders’ Equity, which are weighted according to their stability, in which the resources considered as more stable are determined mainly by behavioral aspects of the clients, also considering their relationship with the institution, legal aspects and other variables implied.
Required Stable Funding (RSF)
The required stable funding is determined according to the assets in the balance sheet and other financial instruments, for example, credit limits provided and guarantees given, which are weighted by aspects related to the type of operation, maturity, and counterparty, among others.
The following table shows the NSFR at December 31, 2019 of the Prudential Conglomerate:
R$ thousand | ||||||
Information on the Long-term Indicator (NSFR) | ||||||
|
| On December 31, 2019 (1) | Weighted Average (2) | |||
Amount per effective term of residual maturity | ||||||
Without expiration | Less than 6 months | Greater than or equal to 6 months and less than one year | Greater than or equal to one year | |||
Number of Line | Available stable funding (ASF) |
|
|
|
| |
1 | Capital | 164,713,771 | - | - | 17,470,233 | 182,184,004 |
2 | Reference Equity, gross of regulatory deductions | 164,713,771 | - | - | - | 164,713,771 |
3 | Other instruments not included in line 2 | - | - | - | 17,470,233 | 17,470,233 |
4 | Ratail funding: | 129,074,811 | 125,089,118 | 754,368 | 2,945,468 | 239,166,745 |
5 | Stable funding | 82,488,995 | 53,407,198 | - | - | 129,101,383 |
6 | Less stable funding | 46,585,816 | 71,681,920 | 754,368 | 2,945,468 | 110,065,362 |
7 | Wholesale Funding, of which: | 26,437,635 | 386,140,576 | 37,228,191 | 111,749,390 | 209,696,927 |
8 | Operating deposits and deposits of affiliated cooperatives | 10,314,521 | - | - | - | 4,511,764 |
9 | Other wholesale fundings | 16,123,114 | 386,140,576 | 37,228,191 | 111,749,390 | 205,185,163 |
10 | Operations in which the institution acts exclusively as an intermediary, assuming no rights or obligations, even if contingent | - | 30,383,414 | 2,173 | 152,583 | - |
11 | Other liabilities, of which: | 62,506,583 | 24,950,621 | - | - | 4,576,256 |
12 | Derivatives whose replacement value is less than zero | - | 41,608 | - | - | - |
13 | Other liabilities or shareholders' equity not included in the previous items | 62,506,583 | 24,909,013 | - | - | 4,576,256 |
14 | Total of Available Stable Funding (ASF) | - | - | - | - | 635,623,931 |
15 | Total High Quality Liquid Assets (HQLA) | - | - | - | - | 14,866,127 |
16 | Operating deposits held in other financial institutions | - | - | - | - | - |
17 | Securities, securities and transactions with financial institutions, non-financial institutions and central banks, of which: | 5,981,349 | 205,884,884 | 75,927,002 | 268,859,486 | 344,672,984 |
BradescoF-63
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
R$ thousand | ||||||
Information on the Long-term Indicator (NSFR) | ||||||
|
| On December 31, 2019 (1) | Weighted Average (2) | |||
Amount per effective term of residual maturity | ||||||
Without expiration | Less than 6 months | Greater than or equal to 6 months and less than one year | Greater than or equal to one year | |||
18 | Transactions with financial institutions collateralized by Level 1 HQLA | - | 15,293,610 | - | - | 1,529,361 |
19 | Transactions with financial institutions collateralized by HQLA Level 2A, Level 2B or without collateral | - | 43,860,573 | 3,874,055 | 2,465,669 | 6,274,154 |
20 | Loans and financing granted to wholesale, retail, central government and central bank operations, of which: | - | 127,338,475 | 61,937,442 | 159,986,927 | 234,947,530 |
21 | Operations with a Risk Weighting Factor (FPR) of less than or equal to 35%, pursuant to Circular No. 3644, of 2013 | - | - | - | 266,821 | 174,162 |
22 | Residential real estate financing, of which: | - | 2,671,136 | 2,402,256 | 33,290,208 | 24,175,331 |
23 | Operations that comply with the provisions of Circular No. 3644, of 2013, art. 22 | - | 2,671,136 | 2,402,256 | 33,290,208 | 24,175,331 |
24 | Securities not eligible for HQLA, including shares traded on the stock exchange | 5,981,349 | 16,721,090 | 7,713,249 | 72,849,861 | 77,572,446 |
25 | Operations in which the institution acts exclusively as an intermediary, assuming no rights or obligations, even if contingent | - | 29,846,713 | 2,437,311 | 57,664 | - |
26 | Other assets, of which: | 189,213,031 | 23,574,415 | 255,784 | 14,064,500 | 180,400,296 |
27 | Operations with gold and commodities, including those with a forecast of physical settlement | - | - | - | - | - |
28 | Assets provided as a result of the deposit of initial guarantee margin in operation with derivatives and participation in | - | - | - | 12,305,556 | 10,459,722 |
mutualized guarantee funds of clearing houses and clearing and settlement service providers that are interposed as central counterparty | ||||||
29 | Derivatives whose replacement value is greater than or equal to zero | - | 1,704,628 | - | - | - |
30 | Derivatives whose replacement value is less than zero, gross of the deduction of any guarantee provided as a result of the margin deposit | - | - | - | - | 1,577,581 |
31 | Other assets not included in the previous lines | 189,213,031 | 21,869,787 | 255,784 | 1,758,944 | 168,362,993 |
32 | Transactions not recorded in the balance sheet | - | 328,019,623 | - | - | 11,792,062 |
33 | Total Required Stable Funding (RSF) | - | - | - | - | 551,731,471 |
34 | NSFR (%) |
|
|
|
| 115.2% |
(1) Corresponds to the total balance sheet, position on December 31, 2019; and
(2) Corresponds to the value after applying the weighting factors.
The NSFR long-term indicator presented a volume weighted for available stable funding resources much higher to that of required stable funding resources, with a surplus weighted balance of approximately R$84 billion, resulting in an indicator of 115.2%.
The amount of available stable funding (ASF) is formed largely by the funding of clients considering the level of stability as the main factor for the contribution of the ASF. The calculation of December 2019 for the ASF presented a participation of 38% from the funding of Retail and 33% from the funding of Wholesale.
The values of required stable funding (RSF) are constituted by the Asset items and by items not recognized on the statement of financial position. These statement of financial position items are weighted according to their respective liquidity profile, therefore, the items related to loans and other assets, with low or no liquidity, feature prominently in the RSF (high weighting factors), while highly liquid assets, such as, for example unpledged federal public securities, receive low weighting factors. On December 31, 2019, the loan operations (item 20) accounted for 43% of the total RSF, while other assets (item 31) participated in 31% of the RSF.
F-64 IFRS – International Financial Reporting Standards – 2019
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
Internal Communication
In the process of liquidity risk management, reports are distributed daily to the areas involved in management and control, as well as to Management. This process includes the use of several analysis instruments to monitor liquidity, such as:
· Daily distributionof liquidity control instruments;instruments;
· Automaticintra-dayintraday update of the liquidity reports for appropriate management by the Treasury Department;
· Preparation of reports with past behavior and future simulations based on scenarios;
· Daily verification of compliance with minimumliquidity levels;
· Elaboration of complementary reports where the concentrations of funding by type of product, term and counterpartycounterparty are presented; and
· Weekly reports to the Board of ExecutiveOfficers,Senior Management, showing the behavior and expectations related to the liquidity situation.
The liquidity risk management process also has an alert system that selects the appropriate reporting level according to the percentage of the established limit utilized. Thus, the lower the liquidity ratios, the higher the number and echelon of Senior Management members who receive the reports.
Undiscounted cash flows of financial liabilities
The table below presents the cash flows payable for non-derivative financial liabilities, covering the remaining contractual period to maturity as from the date of the consolidated statement of financial position. The values disclosed in this table represent the undiscounted contractual cash flows.
| R$ thousand | ||||||
On December 31, 2017 | |||||||
Up to 1 month | From 1 to 3 months | From 3 months to 1 year | From 1 to 5 years | More than 5 years | Total | ||
Deposits from banks | 197,275,471 | 17,199,209 | 47,240,285 | 25,251,295 | 6,593,477 | 293,559,737 | |
Deposits from customers | 141,846,015 | 7,519,939 | 16,476,264 | 106,861,185 | 117,268 | 272,820,671 | |
Funds from issuance of securities | 3,346,915 | 13,222,173 | 69,548,689 | 77,143,455 | 1,503,901 | 164,765,133 | |
Subordinated debt | 896,349 | 3,705,136 | 6,942,643 | 27,064,409 | 33,166,577 | 71,775,114 | |
Other financial liabilities (1) | 43,606,124 | 8,785,744 | 2,290,146 | 3,711,492 | 4,046,006 | 62,439,512 | |
Total liabilities | 386,970,874 | 50,432,201 | 142,498,027 | 240,031,836 | 45,427,229 | 865,360,167 |
Bradesco F-69
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
| R$ thousand | |||||
On December 31, 2019 | ||||||
Up to 1 month | From 1 to 3 months | From 3 months to 1 year | From 1 to 5 years | More than 5 years | Total | |
Deposits from banks | 211,933,285 | 7,951,703 | 17,687,715 | 16,148,899 | 5,095,470 | 258,817,072 |
Deposits from customers | 155,375,679 | 5,905,668 | 50,655,420 | 152,739,946 | 12,720 | 364,689,433 |
Funds from issuance of securities | 5,525,148 | 15,106,936 | 64,755,163 | 105,451,340 | 7,777,040 | 198,615,627 |
Subordinated debt | 756 | 34,732 | 33,848 | 15,617,690 | 33,705,500 | 49,392,526 |
Other financial liabilities (1) | 49,689,795 | 13,312,723 | 4,436,523 | 9,071,260 | 2,610,826 | 79,121,127 |
Total liabilities | 422,524,663 | 42,311,762 | 137,568,669 | 299,029,135 | 49,201,556 | 950,635,785 |
Notes to the Consolidated Financial Statements
| R$ thousand | R$ thousand | |||||||||||
On December 31, 2016 | On December 31, 2018 | ||||||||||||
Up to 1 month | From 1 to 3 months | From 3 months to 1 year | From 1 to 5 years | More than 5 years | Total | Up to 1 month | From 1 to 3 months | From 3 months to 1 year | From 1 to 5 years | More than 5 years | Total | ||
Deposits from banks | 166,104,038 | 18,369,626 | 67,893,343 | 57,316,125 | 6,602,647 | 316,285,779 | 187,971,161 | 11,043,189 | 31,568,186 | 18,339,106 | 6,278,070 | 255,199,712 | |
Deposits from customers | 137,186,325 | 9,655,017 | 16,460,997 | 87,377,222 | 103,507 | 250,783,068 | 154,751,012 | 8,321,457 | 51,709,653 | 142,724,058 | 86,171 | 357,592,351 | |
Funds from issuance of securities | 10,239,074 | 11,971,886 | 78,896,618 | 91,190,406 | 1,850,999 | 194,148,983 | 2,715,463 | 7,704,113 | 57,416,558 | 110,993,400 | 2,819,759 | 181,649,293 | |
Subordinated debt | 439,974 | 2,268,618 | 11,958,373 | 24,756,298 | 32,110,903 | 71,534,166 | 303,419 | 83,095 | 6,290,777 | 25,122,764 | 43,080,703 | 74,880,758 | |
Other financial liabilities (1) | 41,547,649 | 9,025,726 | 2,516,140 | 3,837,647 | 4,663,580 | 61,590,742 | 38,764,438 | 11,790,526 | 4,717,811 | 3,672,499 | 3,652,961 | 62,598,235 | |
Total liabilities | 355,517,060 | 51,290,873 | 177,725,471 | 264,477,698 | 45,331,636 | 894,342,738 | 384,505,493 | 38,942,380 | 151,702,985 | 300,851,827 | 55,917,664 | 931,920,349 |
(1) Include, mainly, credit card transactions, foreign exchange transactions, negotiation and intermediation of securities, finance leaseleases and capitalization bonds. For more information on leases, in the amount of R$5,724,960 thousand, see note 37a.
The assets available to meet all the obligations and cover the outstanding commitments include cash and cash equivalents, financial assets, loans and advances. Management may also cover unexpected cash outflows by selling securities and by having access to sources of additional funds, such as asset-backed-markets.
The previous table shows the undiscounted contractual cash flows of the financial liabilities of the Organization. The cash flows that the Organization estimates for these instruments may vary significantly from those presented. For example, it is expected that demand deposits of customers will maintain a stable or increasing balance, and it is not expected that these deposits will bewithdrawn immediately.
BradescoF-65
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
The gross cash outflows presented in the previous table refer to the undiscounted contractual cash flow related to the financial liability.
In the Organization, liquidity-risk management involves a series of controls, mainly related to the establishment of technical limits, with the ongoing evaluation of the positions assumed and the financial instruments used.
Undiscounted cash flows for derivatives
All the derivatives of the Organization are settled at net value, and include:
· Foreign currency derivatives – over-the-counter currency options, currency futures, and currency options traded on an exchange; and
· Interest rate derivatives – interest rate swaps, fowardforward rate contracts, interest rate options, other interest rate contracts, interest rate futures traded on an exchange and interest rate options traded on an exchange.
The table below analyzes the derivative financial liabilities that will be settled at net value, grouped based on the period remaining from the reporting date to the respective maturity date. The values disclosed in the table are undiscounted cash flows.
| R$ thousand | ||||||
On December 31, 2019 | |||||||
Up to 1 month | From 1 to 3 months | From 3 months to 1 year | From 1 to 5 years | More than 5 years | Total | ||
Differential of swaps payable | 2,464,064 | 385,676 | 510,465 | 7,826,017 | 730,510 | 11,916,732 | |
Non-deliverable forwards | 90,835 | 115,400 | 151,731 | 67,247 | - | 425,213 | |
• Purchased | 79,986 | 80,476 | 129,615 | 66,498 | - | 356,575 | |
• Sold | 10,849 | 34,924 | 22,116 | 749 | - | 68,638 | |
Premiums of options | 361,740 | 33,437 | 114,228 | 956,353 | 66,493 | 1,532,251 | |
Other | 153,047 | 115,947 | 150,988 | 62,388 | - | 482,370 | |
Adjustment payables - future | 23,676 | - | - | - | - | 23,676 | |
Total of derivative liabilities | 3,093,362 | 650,460 | 927,412 | 8,912,005 | 797,003 | 14,380,242 |
| R$ thousand | ||||||
On December 31, 2018 | |||||||
Up to 1 month | From 1 to 3 months | From 3 months to 1 year | From 1 to 5 years | More than 5 years | Total | ||
Differential of swaps payable | 1,302,578 | 464,191 | 6,428,914 | 6,266,955 | 350,374 | 14,813,012 | |
Non-deliverable forwards | 96,680 | 141,438 | 250,176 | 25,676 | 637 | 514,607 | |
• Purchased | 14,062 | 17,695 | 101,869 | 18,090 | 637 | 152,353 | |
• Sold | 82,618 | 123,743 | 148,307 | 7,586 | - | 362,254 | |
Premiums of options | 1,001,464 | 20,355 | 127,983 | 123,491 | 372,057 | 1,645,350 | |
Adjustment payables - future | 21,283 | - | - | - | - | 21,283 | |
Total of derivative liabilities | 2,422,005 | 625,984 | 6,807,073 | 6,416,122 | 723,068 | 16,994,252 |
F-F-7066 IFRS – International Financial Reporting Standards – 20172019
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Notes to the Consolidated Financial Statements
| R$ thousand | ||||||
On December 31, 2017 | |||||||
Up to 1 month | From 1 to 3 months | From 3 months to 1 year | From 1 to 5 years | More than 5 years | Total | ||
Differential of swaps payable | 279,134 | 125,468 | 536,406 | 12,169,717 | 166,038 | 13,276,763 | |
Non-deliverable forwards | 201,115 | 95,761 | 147,710 | 66,682 | 737 | 512,005 | |
• Purchased | 73,599 | 53,513 | 90,914 | 65,640 | 737 | 284,403 | |
• Sold | 127,516 | 42,248 | 56,796 | 1,042 | - | 227,602 | |
Premiums of options | 551,220 | 13,510 | 34,443 | 63,052 | 303,200 | 965,425 | |
Adjustment payables - future | 155,305 | - | - | - | - | 155,305 | |
Total of derivative liabilities | 1,186,774 | 234,739 | 718,559 | 12,299,451 | 469,975 | 14,909,498 |
| R$ thousand | ||||||
On December 31, 2016 | |||||||
Up to 1 month | From 1 to 3 months | From 3 months to 1 year | From 1 to 5 years | More than 5 years | Total | ||
Differential of swaps payable | 1,426,666 | 183,769 | 546,569 | 8,695,486 | 169,285 | 11,021,775 | |
Non-deliverable forwards | 1,772,919 | 264,887 | 542,923 | 158,670 | 547 | 2,739,946 | |
• Purchased | 212,953 | 256,669 | 534,800 | 150,289 | 547 | 1,155,258 | |
• Sold | 1,559,966 | 8,218 | 8,123 | 8,381 | - | 1,584,688 | |
Premiums of options | 150,945 | 28,342 | 40,154 | 43,217 | - | 262,658 | |
Adjustment payables - future | 19,164 | - | - | - | - | 19,164 | |
Total of derivative liabilities | 3,369,694 | 476,998 | 1,129,646 | 8,897,373 | 169,832 | 14,043,543 |
Bradesco F-71
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
Statement of financial position by maturities
The tables below show the financial assets and liabilities of the Organization segregated by maturities used for the management of liquidity risks, in accordance with the remaining contractual maturities on the reporting date:
| R$ thousand | R$ thousand | ||||||||||||
On December 31, 2017 | On December 31, 2019 | |||||||||||||
Current | Non-current | Total | Current | Non-current | Total | |||||||||
1 to 30 days | 31 to 180 days | 181 to 360 days | 1 to 5 years | More than 5 years | No stated maturity | 1 to 30 days | 31 to 180 days | 181 to 360 days | 1 to 5 years | More than 5 years | No stated maturity | |||
Assets |
|
|
|
|
|
|
|
|
|
| ||||
Cash and balances with banks | 81,742,951 | - | - | - | - | 81,742,951 | 109,610,999 | - | - | - | - | 109,610,999 | ||
Financial assets held for trading | 15,181,714 | 10,934,575 | 5,501,249 | 146,527,365 | 56,173,284 | 7,391,854 | 241,710,041 | |||||||
Financial assets available for sale | 2,422,266 | 9,392,915 | 19,351,886 | 83,816,085 | 33,391,763 | 11,037,807 | 159,412,722 | |||||||
Investments held to maturity | 7,753 | 2,454 | 19,205 | 10,284,940 | 28,691,766 | - | 39,006,118 | |||||||
Financial assets pledged as collateral | 25,977,537 | 111,922,357 | 2,543,922 | 40,965,417 | 2,565,940 | - | 183,975,173 | |||||||
Loans and advances to banks | 23,136,673 | 3,544,426 | 3,387,187 | 1,754,483 | 424,955 | - | 32,247,724 | |||||||
Loans and advances to customers | 55,830,036 | 80,715,548 | 51,526,092 | 114,151,120 | 44,535,303 | - | 346,758,099 | |||||||
Financial assets at fair value through profit or loss | 238,533,342 | 1,656,694 | 697,750 | 6,739,576 | 2,132,415 | - | 249,759,777 | |||||||
Financial assets at fair value through other comprehensive income | 10,143,306 | 21,137,632 | 9,604,834 | 100,201,043 | 41,411,881 | 9,951,314 | 192,450,010 | |||||||
Loans and advances to customers, net of impairment | 58,050,113 | 106,578,634 | 66,089,533 | 149,779,180 | 43,031,256 | - | 423,528,716 | |||||||
Loans and advances to banks, net of impairment | 48,010,255 | 5,636,401 | 3,219,405 | 2,217,730 | - | - | 59,083,791 | |||||||
Securities, net of provision for losses | 34,408,860 | 21,261,680 | 16,049,734 | 46,629,975 | 48,568,111 | - | 166,918,360 | |||||||
Other financial assets (1) | 25,375,820 | 1,340,567 | 1,807,856 | 11,322,882 | 1,872,358 | - | 41,719,483 | 42,308,091 | 115,534 | 500,348 | 10,564,411 | 2,613,397 | - | 56,101,781 |
Total financial assets | 229,674,750 | 217,852,842 | 84,137,397 | 408,822,292 | 167,655,369 | 18,429,661 | 1,126,572,311 | 541,064,966 | 156,386,575 | 96,161,604 | 316,131,915 | 137,757,060 | 9,951,314 | 1,257,453,434 |
|
|
|
|
|
|
|
|
|
|
| ||||
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
| ||
Financial liabilities at amortized cost |
|
|
|
|
| |||||||||
Deposits from banks | 197,177,061 | 29,640,587 | 31,589,994 | 22,221,075 | 5,328,751 | - | 285,957,468 | 174,921,285 | 21,892,194 | 11,484,874 | 19,521,258 | - | - | 227,819,611 |
Deposits from customers (2) | 142,525,722 | 11,400,607 | 10,531,633 | 97,523,112 | 27,371 | - | 262,008,445 | 163,312,671 | 20,878,485 | 41,249,228 | 140,787,156 | - | - | 366,227,540 |
Financial liabilities held for trading | 13,552,386 | 201,643 | 81,073 | 134,649 | 305,248 | - | 14,274,999 | |||||||
Funds from issuance of securities | 3,422,727 | 31,299,770 | 48,540,240 | 51,142,979 | 768,374 | - | 135,174,090 | 5,533,584 | 37,545,964 | 43,156,796 | 84,491,220 | - | - | 170,727,564 |
Subordinated debt | 738,929 | 9,428,997 | 640,536 | 20,767,242 | 18,603,697 | - | 50,179,401 | 2,079 | 38,097 | 281,141 | 39,432,224 | - | 9,559,967 | 49,313,508 |
Other financial liabilities (3) | 49,689,795 | 13,312,723 | 4,436,523 | 9,071,260 | 2,610,826 | - | 79,121,127 | |||||||
Financial liabilities at fair value through profit or loss | 2,940,618 | 794,723 | 471,835 | 10,036,907 | - | - | 14,244,083 | |||||||
Provision for Expected Credit Loss |
|
|
|
| - | |||||||||
Loan Commitments | - | - | 2,318,404 | - | - | 2,318,404 | ||||||||
Financial guarantees | - | - | 1,970,321 | - | - | 1,970,321 | ||||||||
Insurance technical provisions and pension plans (2) | 207,499,559 | 2,411,996 | 939,034 | 28,239,001 | - | - | 239,089,590 | 228,230,978 | 2,373,787 | 1,035,302 | 36,662,624 | - | - | 268,302,691 |
Other financial liabilities (3) | 43,606,124 | 8,785,744 | 2,290,146 | 3,711,492 | 4,046,006 | - | 62,439,512 | |||||||
Total financial liabilities | 608,522,508 | 93,169,344 | 94,612,656 | 223,739,550 | 29,079,447 | - | 1,049,123,505 | 624,631,010 | 96,835,973 | 102,115,699 | 344,291,374 | 2,610,826 | 9,559,967 | 1,180,044,849 |
| R$ thousand | ||||||
On December 31, 2016 | |||||||
Current | Non-current | Total | |||||
1 to 30 days | 31 to 180 days | 181 to 360 days | 1 to 5 years | More than 5 years | No stated maturity | ||
Assets |
|
|
|
|
|
|
|
Cash and balances with banks | 72,554,651 | - | - | - | - | - | 72,554,651 |
Financial assets held for trading | 18,475,080 | 6,768,610 | 9,759,221 | 134,589,655 | 35,837,056 | 7,710,224 | 213,139,846 |
Financial assets available for sale | 5,629,209 | 2,127,660 | 4,149,003 | 60,251,675 | 31,143,446 | 9,817,561 | 113,118,554 |
Investments held to maturity | - | - | - | 12,932,440 | 30,069,588 | - | 43,002,028 |
Financial assets pledged as collateral | 83,646,950 | 3,394,834 | 1,904,827 | 48,753,065 | 17,586,901 | - | 155,286,577 |
Loans and advances to banks | 88,759,292 | 2,545,217 | 2,120,712 | 1,398,574 | 14,341 | - | 94,838,136 |
Loans and advances to customers | 58,151,213 | 87,409,338 | 54,879,049 | 125,744,273 | 41,119,161 | - | 367,303,034 |
Other financial assets (1) | 25,657,932 | 633,472 | 287,442 | 10,384,379 | 2,207,966 | - | 39,171,191 |
Total financial assets | 352,874,327 | 102,879,131 | 73,100,254 | 394,054,061 | 157,978,459 | 17,527,785 | 1,098,414,017 |
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
Deposits from banks | 162,977,360 | 63,417,792 | 19,850,717 | 50,045,413 | 5,371,400 | - | 301,662,682 |
Deposits from customers (2) | 137,252,829 | 15,331,311 | 9,457,530 | 70,641,804 | 64,455 | - | 232,747,929 |
Financial liabilities held for trading | 12,428,599 | 534,525 | 279,662 | 192,649 | 243 | - | 13,435,678 |
Funds from issuance of securities | 7,295,059 | 45,280,096 | 40,140,968 | 57,237,747 | 1,148,068 | - | 151,101,938 |
Subordinated debt | 426,665 | 3,904,856 | 7,068,023 | 21,554,158 | 19,657,362 | - | 52,611,064 |
Bradesco
F-72F-67 IFRS – International Financial Reporting Standards – 2017
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
| R$ thousand | ||||||
On December 31, 2016 | |||||||
Current | Non-current | Total | |||||
1 to 30 days | 31 to 180 days | 181 to 360 days | 1 to 5 years | More than 5 years | No stated maturity | ||
Insurance technical provisions and pension plans (2) | 182,739,608 | 3,342,339 | 1,306,760 | 28,451,293 | - | - | 215,840,000 |
Other financial liabilities (3) | 41,547,649 | 9,025,726 | 2,516,140 | 3,837,647 | 4,663,580 | - | 61,590,742 |
Total financial liabilities | 544,667,769 | 140,836,645 | 80,619,800 | 231,960,711 | 30,905,108 | - | 1,028,990,033 |
| R$ thousand | ||||||
On December 31, 2018 | |||||||
Current | Non-current | Total | |||||
1 to 30 days | 31 to 180 days | 181 to 360 days | 1 to 5 years | More than 5 years | No stated maturity | ||
Assets |
|
|
|
|
|
|
|
Cash and balances with banks | 107,209,743 | - | - | - | - | - | 107,209,743 |
Financial assets at fair value through profit or loss | 3,129,166 | 3,917,446 | 5,425,013 | 164,553,949 | 61,990,603 | 7,144,973 | 246,161,150 |
Financial assets at fair value through other comprehensive income | 17,262,976 | 44,288,649 | 14,212,201 | 67,290,177 | 24,067,050 | 10,929,483 | 178,050,536 |
Loans and advances to customers, net of impairment | 62,060,766 | 92,247,120 | 52,642,217 | 124,423,414 | 49,013,559 | - | 380,387,076 |
Loans and advances to banks, net of impairment | 32,770,492 | 68,354,830 | 1,831,146 | 2,292,482 | - | - | 105,248,950 |
Securities, net of provision for losses | 1,040,454 | 2,361,956 | 855,476 | 91,922,854 | 44,423,998 | - | 140,604,738 |
Other financial assets (1) | 29,524,094 | 134,393 | 131,233 | 11,910,297 | 2,193,292 | - | 43,893,309 |
Total financial assets | 252,997,691 | 211,304,394 | 75,097,286 | 462,393,173 | 181,688,502 | 18,074,456 | 1,201,555,502 |
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
Financial liabilities at amortized cost |
|
|
|
|
|
|
|
Deposits from banks | 193,135,637 | 20,377,472 | 13,489,852 | 15,646,679 | 4,664,339 | - | 247,313,979 |
Deposits from customers (2) | 154,046,665 | 15,639,175 | 42,076,109 | 128,959,777 | 26,470 | - | 340,748,196 |
Funds from issuance of securities | 2,598,083 | 29,410,415 | 34,192,057 | 81,108,678 | 719,785 | - | 148,029,018 |
Subordinated debt | 7,059 | 149,894 | 6,305,187 | 22,492,556 | 15,434,005 | 9,254,743 | 53,643,444 |
Other financial liabilities (3) | 38,764,438 | 11,790,526 | 4,717,811 | 3,672,499 | 3,652,961 | - | 62,598,235 |
Financial liabilities at fair value through profit or loss | 15,066,551 | 373,896 | 162,153 | 177,029 | 372,458 | - | 16,152,087 |
Provision for Expected Credit Loss |
|
|
|
|
|
|
|
Loan Commitments | - | - | - | 2,551,676 | - | - | 2,551,676 |
Financial guarantees | - | - | - | 719,216 | - | - | 719,216 |
Insurance technical provisions and pension plans (2) | 216,282,259 | 2,347,327 | 939,034 | 32,009,667 | - | - | 251,578,287 |
Total financial liabilities | 619,900,692 | 80,088,705 | 101,882,203 | 287,337,777 | 24,870,018 | 9,254,743 | 1,123,334,138 |
(1) Includes mainly foreign exchange transactions, debtors for guarantee deposits and negotiation and intermediation of securities;
(2) Demand and savings deposits and Technicaltechnical provisions for insurance and pension plans comprising VGBL and PGBL products are classified as up to 30 days, without considering average historical turnover; and
(3) Includes mainly credit card transactions, foreign exchange transactions, negotiation and intermediation of securities, finance lease and capitalization bonds.
Bradesco F-F-7368 IFRS – International Financial Reporting Standards – 2019
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
The tables below show the assets and liabilities of the Organization segregated by current and non-current, in accordance with the remaining contractual maturities on the reporting date:
| R$ thousand | R$ thousand | ||||
On December 31, 2017 | On December 31, 2019 | |||||
Current | Non-current | Total | Current | Non-current | Total | |
Assets |
|
|
|
|
|
|
Total financial assets | 531,664,989 | 594,907,322 | 1,126,572,311 | 793,613,145 | 463,840,289 | 1,257,453,434 |
Non-current assets held for sale | 1,520,973 | - | 1,520,973 | 1,357,026 | - | 1,357,026 |
Investments in associated companies | - | 8,257,384 | 8,257,384 | - | 7,635,612 | 7,635,612 |
Premises and equipment | - | 8,432,475 | 8,432,475 | - | 14,659,222 | 14,659,222 |
Intangible assets and goodwill, net of accumulated amortization | - | 16,179,307 | 16,179,307 | - | 14,724,647 | 14,724,647 |
Taxes to be offset | 4,589,981 | 5,934,594 | 10,524,575 | 11,569,545 | 4,116,256 | 15,685,801 |
Deferred income tax assets | - | 43,731,911 | 43,731,911 | - | 59,570,055 | 59,570,055 |
Other assets | 6,602,669 | 2,531,835 | 9,134,504 | 7,042,105 | 399,783 | 7,441,888 |
Total non-financial assets | 12,713,623 | 85,067,506 | 97,781,129 | 19,968,676 | 101,105,575 | 121,074,251 |
Total assets | 544,378,612 | 679,974,828 | 1,224,353,440 | 813,581,821 | 564,945,864 | 1,378,527,685 |
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
Total financial liabilities | 796,304,508 | 252,818,997 | 1,049,123,505 | 823,582,682 | 356,462,167 | 1,180,044,849 |
Other reserves | 1,349,366 | 17,141,361 | 18,490,727 | 5,525,041 | 19,714,888 | 25,239,929 |
Current income tax liabilities | 2,416,345 | - | 2,416,345 | 2,595,277 | - | 2,595,277 |
Deferred income tax assets | 36,344 | 1,215,503 | 1,251,847 | - | 1,080,603 | 1,080,603 |
Other liabilities | 33,460,225 | 1,917,087 | 35,377,312 | 31,246,562 | 2,776,891 | 34,023,453 |
Total non-financial liabilities | 37,262,280 | 20,273,951 | 57,536,231 | 39,366,880 | 23,572,382 | 62,939,262 |
Total equity | - | 117,693,704 | 117,693,704 | - | 135,543,574 | 135,543,574 |
Total liabilities | 833,566,788 | 390,786,652 | 1,224,353,440 | |||
Total equity and liabilities | 862,949,562 | 515,578,123 | 1,378,527,685 |
| R$ thousand | ||
On December 31, 2018 | |||
Current | Non-current | Total | |
Assets |
|
|
|
Total financial assets | 539,399,371 | 662,156,131 | 1,201,555,502 |
Non-current assets held for sale | 1,353,330 | - | 1,353,330 |
Investments in associated companies | - | 8,125,799 | 8,125,799 |
Premises and equipment | - | 8,826,836 | 8,826,836 |
Intangible assets and goodwill, net of accumulated amortization | - | 16,128,548 | 16,128,548 |
Taxes to be offset | 3,683,210 | 9,815,054 | 13,498,264 |
Deferred income tax assets | - | 48,682,569 | 48,682,569 |
Other assets | 5,443,840 | 1,929,026 | 7,372,866 |
Total non-financial assets | 10,480,380 | 93,507,832 | 103,988,212 |
Total assets | 549,879,751 | 755,663,963 | 1,305,543,714 |
|
|
|
|
Liabilities |
|
|
|
Total financial liabilities | 801,871,600 | 321,462,538 | 1,123,334,138 |
Other reserves | 1,846,682 | 17,955,489 | 19,802,171 |
Current income tax liabilities | 2,373,261 | - | 2,373,261 |
Deferred income tax assets | 48,925 | 1,151,664 | 1,200,589 |
Other liabilities | 32,630,277 | 1,527,158 | 34,157,435 |
Total non-financial liabilities | 36,899,145 | 20,634,311 | 57,533,456 |
Total equity | - | 124,676,120 | 124,676,120 |
Total equity and liabilities | 838,770,745 | 466,772,969 | 1,305,543,714 |
Bradesco F-74F-69 IFRS – International Financial Reporting Standards – 2017
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
| R$ thousand | ||
On December 31, 2016 | |||
Current | Non-current | Total | |
Assets |
|
|
|
Total financial assets | 528,853,712 | 569,560,305 | 1,098,414,017 |
Non-current assets held for sale | 1,578,966 | - | 1,578,966 |
Investments in associated companies | - | 7,002,778 | 7,002,778 |
Premises and equipment | - | 8,397,116 | 8,397,116 |
Intangible assets and goodwill, net of accumulated amortization | - | 15,797,526 | 15,797,526 |
Taxes to be offset | 3,114,609 | 4,608,602 | 7,723,211 |
Deferred income tax assets | - | 45,116,863 | 45,116,863 |
Other assets | 5,278,675 | 2,720,504 | 7,999,179 |
Total non-financial assets | 9,972,250 | 83,643,389 | 93,615,639 |
Total assets | 538,825,962 | 653,203,694 | 1,192,029,656 |
|
|
|
|
Liabilities |
|
|
|
Total financial liabilities | 766,124,214 | 262,865,819 | 1,028,990,033 |
Other reserves | 4,293,374 | 13,999,035 | 18,292,409 |
Current income tax liabilities | 2,130,286 | - | 2,130,286 |
Deferred income tax assets | 36,943 | 1,726,005 | 1,762,948 |
Other liabilities | 34,917,264 | 457,509 | 35,374,773 |
Total non-financial liabilities | 41,377,867 | 16,182,549 | 57,560,416 |
Total equity | - | 105,479,207 | 105,479,207 |
Total liabilities | 807,502,081 | 384,527,575 | 1,192,029,656 |
Bradesco F-75
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Notes to the Consolidated Financial Statements
The Organization applies IFRS 13 for financial instruments measured in the consolidated statement of financial position at fair value, which requires disclosure of fair-value measurements according to the following fair-value hierarchy of fair value measurement:
· Level 1
Quoted prices in active markets for identical assets or liabilities. Level 1 assets and liabilities include debt and equity securities and derivative contracts that are traded in an active market, as well as Brazilian government securities that are highly liquid and are actively traded in over-the-counter markets.
· Level 2
Valuation uses observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 2 assets and liabilities include derivative contracts whose value is determined using a pricing model with inputs that are observable in the market or can be derived principally from or corroborated by observable market data, including but not limited to yield curves, interest rates, volatilities, equity or debt prices and foreign exchange rates.
· Level 3
Valuation uses unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities normally include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant Management judgment or estimation. This category generally includes certain corporate and bank debt securities and certain derivative contracts.
To fair value securities which have no consistent, regulatory updated, public price source, Bradesco uses models defined by the mark-to-market Commission and documented in the mark-to-mark manual for each security type. Through the use of methods and both mathematical and financial models which capture the effects and variations in the prices of marked-to-market assets, or similar instruments, Bradesco is able to ascertain in a clear and consistent manner the determination of fair value of its levelLevel 3 assets and liabilities.
F-7F-760 IFRS – International Financial Reporting Standards – 20172019
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
The tables below present the composition of the financial assets and liabilities measured at fair value, classified using the hierarchical levels:
| R$ thousand | |||
On December 31, 2017 | ||||
Level 1 | Level 2 | Level 3 | Fair Value | |
Brazilian government securities | 198,273,452 | 3,975,816 | 4 | 202,249,272 |
Corporate debt and marketable equity securities | 3,716,053 | 8,271,295 | 352,442 | 12,339,790 |
Bank debt securities | 1,952,015 | 6,396,254 | - | 8,348,269 |
Mutual funds | 4,377,508 | - | - | 4,377,508 |
Foreign governments securities | 528,010 | - | - | 528,010 |
Brazilian sovereign bonds | 307 | - | - | 307 |
Trading securities | 208,847,345 | 18,643,365 | 352,446 | 227,843,156 |
Derivative financial instruments (assets) | 46,601 | 13,814,312 | 5,972 | 13,866,885 |
Derivative financial instruments (liabilities) | - | (14,264,124) | (10,875) | (14,274,999) |
Derivatives | 46,601 | (449,812) | (4,903) | (408,114) |
Brazilian government securities | 103,237,635 | - | 44,123 | 103,281,758 |
Corporate debt securities | 4,786,078 | 31,740,856 | 3,451,696 | 39,978,630 |
Bank debt securities | 1,086,454 | 97,399 | - | 1,183,853 |
Brazilian sovereign bonds | 728,127 | - | - | 728,127 |
Foreign governments securities | 3,202,547 | - | - | 3,202,547 |
Marketable equity securities and other stocks | 4,380,606 | 3,261,732 | 3,395,469 | 11,037,807 |
Available-for-sale securities | 117,421,447 | 35,099,987 | 6,891,288 | 159,412,722 |
Brazilian government securities | 53,841,066 | - | - | 53,841,066 |
Corporate debt securities | 825,287 | - | - | 825,287 |
Bank debt securities | 4,904,070 | - | - | 4,904,070 |
Brazilian sovereign bonds | 713,555 | - | - | 713,555 |
Financial assets pledged as collateral | 60,283,978 | - | - | 60,283,978 |
Total | 386,599,371 | 53,293,540 | 7,238,831 | 447,131,742 |
| R$ thousand | R$ thousand | ||||||
On December 31, 2016 | On December 31, 2019 | |||||||
Level 1 | Level 2 | Level 3 | Fair Value | Level 1 | Level 2 | Level 3 | Fair Value | |
Brazilian government securities | 157,346,640 | 3,756,680 | 79 | 161,103,399 | 195,987,017 | 4,848,858 | 3 | 200,835,878 |
Corporate debt and marketable equity securities | 3,740,235 | 6,356,302 | 287,145 | 10,383,682 | 7,911,149 | 4,772,477 | 707,392 | 13,391,018 |
Bank debt securities | 470,676 | 18,129,451 | - | 18,600,127 | 1,466,695 | 13,517,702 | - | 14,984,397 |
Mutual funds | 4,295,403 | 8,378 | - | 4,303,781 | 5,518,833 | - | - | 5,518,833 |
Foreign governments securities | 635,390 | - | - | 635,390 | 471,153 | - | - | 471,153 |
Brazilian sovereign bonds | 1,358,025 | - | - | 1,358,025 | 47,308 | - | - | 47,308 |
Trading securities | 167,846,369 | 28,250,811 | 287,224 | 196,384,404 | ||||
Financial assets at fair value through profit or loss | 211,402,155 | 23,139,037 | 707,395 | 235,248,587 | ||||
Derivative financial instruments (assets) | 26,632 | 16,728,802 | 8 | 16,755,442 | 107,388 | 14,392,323 | 11,479 | 14,511,190 |
Derivative financial instruments (liabilities) | - | (13,427,053) | (8,625) | (13,435,678) | (52,334) | (14,152,623) | (39,126) | (14,244,083) |
Derivatives | 26,632 | 3,301,749 | (8,617) | 3,319,764 | 55,054 | 239,700 | (27,647) | 267,107 |
Brazilian government securities | 59,149,326 | - | 48,702 | 59,198,028 | 161,031,769 | - | 35,132 | 161,066,901 |
Corporate debt securities | 2,470,652 | 38,431,230 | 1,240,826 | 42,142,708 | 2,344,002 | 2,541,288 | 600,387 | 5,485,677 |
Bank debt securities | 1,063,157 | 495,886 | - | 1,559,043 | 5,098,002 | 414,477 | - | 5,512,479 |
Brazilian sovereign bonds | 401,214 | - | - | 401,214 | 1,746,932 | - | - | 1,746,932 |
Foreign governments securities | 6,454,894 | - | - | 6,454,894 | ||||
Mutual funds | 2,231,810 | - | - | 2,231,810 | ||||
Marketable equity securities and other stocks | 3,387,158 | 2,706,578 | 3,723,825 | 9,817,561 | 7,192,221 | 2,638,655 | 120,441 | 9,951,317 |
Available-for-sale securities | 66,471,507 | 41,633,694 | 5,013,353 | 113,118,554 | ||||
Brazilian government securities | 61,812,995 | - | - | 61,812,995 | ||||
Corporate debt securities | 3,899,878 | - | - | 3,899,878 | ||||
Bank debt securities | 4,742,273 | - | - | 4,742,273 | ||||
Brazilian sovereign bonds | 102,841 | - | - | 102,841 | ||||
Financial assets pledged as collateral | 70,557,987 | - | - | 70,557,987 | ||||
Financial assets at fair value through other comprehensive income | 186,099,630 | 5,594,420 | 755,960 | 192,450,010 | ||||
Total | 304,902,495 | 73,186,254 | 5,291,960 | 383,380,709 | 397,556,839 | 28,973,157 | 1,435,708 | 427,965,704 |
| R$ thousand | |||
On December 31, 2018 | ||||
Level 1 | Level 2 | Level 3 | Fair Value | |
Brazilian government securities | 202,199,216 | 4,556,831 | 3 | 206,756,050 |
Corporate debt and marketable equity securities | 3,678,532 | 5,206,852 | 418,558 | 9,303,942 |
Bank debt securities | 1,554,257 | 8,610,197 | - | 10,164,454 |
Mutual funds | 3,657,393 | - | - | 3,657,393 |
Foreign governments securities | 849,114 | - | - | 849,114 |
Brazilian sovereign bonds | 659,603 | - | - | 659,603 |
Financial assets at fair value through profit or loss | 212,598,115 | 18,373,880 | 418,561 | 231,390,556 |
Derivative financial instruments (assets) | 34,752 | 14,699,247 | 36,595 | 14,770,594 |
Derivative financial instruments (liabilities) | (32,434) | (16,095,752) | (23,901) | (16,152,087) |
Derivatives | 2,318 | (1,396,505) | 12,694 | (1,381,493) |
Brazilian government securities | 150,778,773 | - | 39,982 | 150,818,755 |
Corporate debt securities | 3,761,191 | 1,664,892 | 549,111 | 5,975,194 |
Bank debt securities | 5,715,372 | 205,704 | - | 5,921,076 |
Brazilian sovereign bonds | 1,564,667 | - | - | 1,564,667 |
Mutual funds | 2,841,361 | - | - | 2,841,361 |
Marketable equity securities and other stocks | 5,266,028 | 2,649,350 | 3,014,105 | 10,929,483 |
Financial assets at fair value through other comprehensive income | 169,927,392 | 4,519,946 | 3,603,198 | 178,050,536 |
Total | 382,527,825 | 21,497,321 | 4,034,453 | 408,059,599 |
Bradesco F-77
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Notes to the Consolidated Financial Statements
Derivative Assets and Liabilities
The Organization´sOrganization’s derivative positions are determined using quantitative models that require the use of multiple inputs including interest rates, prices and indices to generate continuous yield or pricing curves and volatility factors. The majority of market inputs are observable and can be obtained, from B3 (principal source) and the secondary market. Exchange traded derivatives valued using quoted prices are classified within Level 1 of the valuation hierarchy. However, few classes of derivative contracts are listed on an exchange; those that are not are classified as Level 2 or Level3.
BradescoF-71
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
The yield curves are used to determine the fair value by the method of discounted cash flow, for currency swaps and swaps based on other risk factors. The fair value of futures and forward contracts is also determined based on quoted markets prices on the exchanges for exchanges-traded derivatives or using similar methodologies to those described for swaps. The fair value of options is determined using external quoted prices or mathematical models, such as Black-Scholes, using yield curves, implied volatilities and the fair value of the underlying asset. Current market prices are used to determine the implied volatilities. The fair values of derivative assets and liabilities also include adjustments for market liquidity, counterparty credit quality and other specific factors, where appropriate.
The majority of these models do not contain a high level of subjectivity as the methodologies used in the models do not require significant judgment and inputs to the model are readily observable from active quoted markets. Such instruments are generally classified within Level 2 of the valuation hierarchy. The fair values of derivative assets and liabilities also include adjustments for market liquidity, counterparty credit quality and other specific factors, where appropriate.
Derivatives that are valued based on mainly unobservable market parameters and that are not actively traded are classified within Level 3 of the valuation hierarchy. Level 3 derivatives include credit default swaps which have corporate debt securities as underlyings.
The table below presents a reconciliation of all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the years 20172019 and 2016:2018:
| R$ thousand | R$ thousand | ||||||||
Financial assets held for trading | Financial assets available for sale | Derivatives | Total | Financial assets at fair value through profit or loss | Financial assets at fair value through other comprehensive income | Derivatives | Total | |||
Balance on December 31, 2015 | 209,210 | 6,085,190 | (20,382) | 6,274,018 | ||||||
Balance on December 31, 2017 | 352,446 | 6,891,288 | (4,903) | 7,238,831 | ||||||
Included in the statement of income and other comprehensive income | 13,155 | (1,174,225) | - | (1,161,070) | 24,142 | (374,664) | - | (350,522) | ||
Acquisitions | 3,833 | 2,178,445 | 11,793 | 2,194,071 | 150,950 | 91,668 | 17,597 | 260,215 | ||
Write-offs | (7,633) | (445,173) | (28) | (452,834) | (22,262) | (939) | - | (23,201) | ||
Transfer with categories | 274,001 | (274,001) | - | - | - | (3,419,149) | - | (3,419,149) | ||
Transfer levels | (205,342) | (1,356,883) | - | (1,562,225) | (86,715) | 320,342 | - | 233,627 | ||
Balance on December 31, 2016 | 287,224 | 5,013,353 | (8,617) | 5,291,960 | ||||||
Balance on December 31, 2018 | 418,561 | 3,508,546 | 12,694 | 3,939,801 | ||||||
Included in the statement of income and other comprehensive income | 15,868 | (735,002) | - | (719,134) | (31,773) | (293,123) | - | (324,896) | ||
Acquisitions | 74,908 | 4,019,844 | 3,714 | 4,098,466 | 132,408 | 318,623 | - | 451,031 | ||
Write-offs | (25,554) | (1,406,907) | - | (1,432,461) | (396,260) | (2,891,422) | (40,341) | (3,328,023) | ||
Balance on December 31, 2017 | 352,446 | 6,891,288 | (4,903) | 7,238,831 | ||||||
Transfer levels (2) | 584,459 | 113,336 | - | 697,795 | ||||||
Balance on December 31, 2019 | 707,395 | 755,960 | (27,647) | 1,435,708 |
(1)With the adoption of IFRS 9, a significant portion of the debentures that were in the category of available for sale are now measured at amortized cost; and
In 2016,(2) These papers were reclassified between levels 2 and 3, as there was an increase in credit risk and the spread curve has unobservable parameters.When there is a transfer of securitiesreduction in this credit risk, the papers are transferred from Levellevel 3 to other levels of classification, mainly for level 2 in the amount R$ 1,562,225 thousand. The transfer refers, basically, to Corporate debt securities, which were based on the fair value obtained from internal pricing models, mainly customer internal rating, began to be calculated based on observable market data (Anbima’s credit curve).
F-78 IFRS – International Financial Reporting Standards – 20172.
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Notes to the Consolidated Financial Statements
The tables below show the gains/(losses) due to changes in fair value, including the realized and unrealized gains and losses, recorded in the consolidated statement of income for Level 3 assets and liabilities during the years 2017, 20162019, 2018 and 2015:2017:
| R$ thousand | R$ thousand | |||||||
Year ended December 31, 2017 | Year ended December 31, 2019 | ||||||||
Financial assets held for trading | Financial assets available for sale | Financial assets pledged as collateral | Total | Financial assets at fair value through profit or loss | Financial assets at fair value through other comprehensive income | Total | |||
Interest and similar income | 25,967 | 182,269 | - | 208,236 | 54,132 | 18,114 | 72,246 | ||
Net trading gains/(losses) realized and unrealized | (10,099) | (917,271) | - | (927,370) | (85,905) | (311,237) | (397,142) | ||
Total | 15,868 | (735,002) | - | (719,134) | (31,773) | (293,123) | (324,896) |
| R$ thousand | ||||
Year ended December 31, 2016 | |||||
Financial assets held for trading | Financial assets available for sale | Financial assets pledged as collateral | Total | ||
Interest and similar income | 16,518 | 207,164 | - | 223,682 | |
Net trading gains/(losses) realized and unrealized | (3,363) | (1,381,389) | - | (1,384,752) | |
Total | 13,155 | (1,174,225) | - | (1,161,070) |
| R$ thousand | ||||
Year ended December 31, 2015 | |||||
Financial assets held for trading | Financial assets available for sale | Financial assets pledged as collateral | Total | ||
Interest and similar income | 440,791 | 1,399,443 | - | 1,840,234 | |
Net trading gains/(losses) realized and unrealized | 10,496 | 1,094,894 | - | 1,105,390 | |
Total | 451,287 | 2,494,337 | - | 2,945,624 |
The tables below show the gains/(losses) due to the changes in fair value, including the realized and unrealized gains and losses, recorded in the statement of income for Level 3 assets and liabilities, which were not settled during the years 2017, 2016 and 2015:
| R$ thousand | |||
Year ended December 31, 2017 | ||||
Financial assets held for trading | Financial assets pledged as collateral | Total | ||
Net gains/(losses) due to changes in fair value | (10,099) | - | (10,099) | |
Total | (10,099) | - | (10,099) |
Bradesco F-7F-792 IFRS – International Financial Reporting Standards – 2019
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
| R$ thousand | ||
Year ended December 31, 2016 | |||
Financial assets held for trading | Financial assets pledged as collateral | Total | |
Net gains/(losses) due to changes in fair value | (3,363) | - | (3,363) |
Total | (3,363) | - | (3,363) |
| R$ thousand | |||
Year ended December 31, 2018 | ||||
Financial assets at fair value through profit or loss | Financial assets at fair value through other comprehensive income | Total | ||
Interest and similar income | 8,415 | 79,579 | 87,994 | |
Net trading gains/(losses) realized and unrealized | 15,727 | (454,243) | (438,516) | |
Total | 24,142 | (374,664) | (350,522) |
| R$ thousand | R$ thousand | |||||
Year ended December 31, 2015 | Year ended December 31, 2017 | ||||||
Financial assets held for trading | Financial assets pledged as collateral | Total | Financial assets held for trading | Financial assets available for sale | Total | ||
Net gains/(losses) due to changes in fair value | 9,420 | - | 9,420 | ||||
Interest and similar income | 25,967 | 182,269 | 208,236 | ||||
Net trading gains/(losses) realized and unrealized | (10,099) | (917,271) | (927,370) | ||||
Total | 9,420 | - | 9,420 | 15,868 | (735,002) | (719,134) |
Sensitivity analysis for financial assets classified as Level 3
| R$ thousand | R$ thousand | ||||||||||
On December 31, 2017 | On December 31, 2019 | |||||||||||
Impact on income (1) | Impact on shareholders’ equity (1) | Impact on income (1) | Impact on shareholders’ equity (1) | |||||||||
1 | 2 | 3 | 1 | 2 | 3 | 1 | 2 | 3 | 1 | 2 | 3 | |
Interest rate | (8) | (1,931) | (3,482) | (63) | (14,873) | (26,345) | ||||||
Interest rate in Reais | (44) | (6,489) | (12,504) | (12) | (1,798) | (3,436) | ||||||
Price indexes | - | - | - | (10) | (1,269) | (2,394) | (10) | (383) | (761) | (0) | (0) | |
Equities | (1,351) | (33,783) | (67,567) | (17,825) | (445,615) | (891,231) | (2,019) | (50,472) | (100,944) | (978) | (24,456) | (48,913) |
| R$ thousand | |||||
On December 31, 2018 | ||||||
Impact on income (1) | Impact on shareholders’ equity (1) | |||||
1 | 2 | 3 | 1 | 2 | 3 | |
Interest rate in Reais | (7) | (1,491) | (2,669) | (102) | (20,473) | (36,901) |
Price indexes | - | - | - | (16) | (1,750) | (3,296) |
Equities | (1,748) | (43,705) | (87,410) | (15,987) | (399,669) | (799,338) |
(1)Values net of taxes.
| R$ thousand | |||||
On December 31, 2016 | ||||||
Impact on income (1) | Impact on shareholders’ equity (1) | |||||
1 | 2 | 3 | 1 | 2 | 3 | |
Interest rate | (1) | (271) | (476) | (26) | (6,205) | (11,088) |
Price indexes | - | - | - | (8) | (1,047) | (1,953) |
Equities | - | - | - | (19,481) | (487,018) | (974,037) |
(1)Values net of taxes.
The sensitivity analyses were carried out based on the scenarios prepared for the dates shown, always taking into consideration market inputs available at the time and scenarios that would adversely impact our positions, in accordance with the scenarios below:
Scenario 1:Based on market information (B3, Anbima, etc.), stresses were applied for 1 basis point on the interest rate and 1 base point for interest rates and 1.0% variation on prices. For example: for a Real/US dollar exchange rate of R$ 3.144.02 a scenario of R$ 3.174.06 was used, while for a 1-year fixed interest rate of 6.90%4.56%, a 6.91%4.57% scenario was applied;
Scenario 2:25.0% stresses were determined based on market information. For example: for a Real/US dollar exchange rate of R$ 3.144.02 a scenario of R$ 3.935.02 was used, while for a 1-year fixed interest rate of 6.90%4.56%, a 8.62%5.70% scenario was applied. The scenarios for other risk factors also had 25.0% stresses in the respective curves or prices; and
Scenario 3:50.0% stresses were determined based on market information. For example: for a Real/US dollar quote of R$ 3.144.02 a scenario of R$ 4.726.03 was used, while for a 1-year fixed interest rate of 6.90%4.56%, a 10.35%6.84% scenario was applied;applied. The scenarios for other risk factors also had 50%50.0% stresses in the respective curves or prices.
Bradesco
F-80F-73 IFRS – International Financial Reporting Standards – 2017
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
Financial instruments not measured at fair value
The table below summarizes the carrying amounts and the fair values of the financial assets and liabilities that were not presented in the consolidated statements of financial position at their fair value, classified using the hierarchical levels:
| R$ thousand | R$ thousand | ||||||||
On December 31, 2017 | On December 31, 2019 | |||||||||
Fair Value | Book value | Fair Value | Book value | |||||||
Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | Total | |||
Financial assets |
|
|
|
|
|
|
|
| ||
Financial assets pledged as collateral |
|
|
|
| ||||||
· securities purchased under agreements to resell | - | 123,691,195 | - | 123,691,195 | 123,691,195 | |||||
Held to maturity | 29,182,489 | 11,963,782 | - | 41,146,271 | 39,006,118 | |||||
Loans and receivables |
|
|
|
|
|
|
|
| ||
· Banks (1) | - | 32,247,724 | - | 32,247,724 | 32,247,724 | |||||
· Customers (1) | - | - | 346,633,592 | 346,633,592 | 346,758,099 | |||||
· Banks | - | 59,091,251 | - | 59,091,251 | 59,083,791 | |||||
· Customers | - | - | 428,641,947 | 428,641,947 | 423,523,411 | |||||
Securities at amortized cost | 102,851,594 | 64,025,403 | 11,638,647 | 178,515,644 | 166,918,360 | |||||
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities |
|
|
|
|
|
|
|
| ||
Deposits from banks | - | - | 285,716,505 | 285,716,505 | 285,957,468 | - | - | 227,880,098 | 227,880,098 | 227,819,611 |
Deposits from customers | - | - | 261,760,442 | 261,760,442 | 262,008,445 | - | - | 366,023,072 | 366,023,072 | 366,227,540 |
Funds from issuance of securities | - | - | 134,890,631 | 134,890,631 | 135,174,090 | - | - | 169,488,130 | 169,488,130 | 170,727,564 |
Subordinated debt | - | - | 51,012,436 | 51,012,436 | 50,179,401 | - | - | 50,108,020 | 50,108,020 | 49,313,508 |
| R$ thousand | R$ thousand | ||||||||
On December 31, 2016 | On December 31, 2018 | |||||||||
Fair Value | Book value | Fair Value | Book value | |||||||
Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | Total | |||
Financial assets |
|
|
|
|
|
|
|
| ||
Financial assets pledged as collateral |
|
|
|
| ||||||
· securities purchased under agreements to resell | - | 84,728,590 | - | 84,728,590 | 84,728,590 | |||||
Held to maturity | 32,875,426 | 11,379,323 | - | 44,254,749 | 43,002,028 | |||||
Loans and receivables |
|
|
|
|
|
|
|
| ||
· Banks (1) | - | 94,838,136 | - | 94,838,136 | 94,838,136 | |||||
· Customers (1) | - | - | 362,156,027 | 362,156,027 | 367,303,034 | |||||
· Banks | - | 105,248,950 | - | 105,248,950 | 105,248,950 | |||||
· Customers | - | - | 381,797,390 | 381,797,390 | 380,387,076 | |||||
Securities at amortized cost | 90,337,827 | 50,758,010 | 5,827,822 | 146,923,659 | 140,604,738 | |||||
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities |
|
|
|
|
|
|
|
| ||
Deposits from banks | - | - | 301,497,406 | 301,497,406 | 301,662,682 | - | - | 248,216,967 | 248,216,967 | 247,313,979 |
Deposits from customers | - | - | 232,224,796 | 232,224,796 | 232,747,929 | - | - | 340,512,921 | 340,512,921 | 340,748,196 |
Funds from issuance of securities | - | - | 151,622,981 | 151,622,981 | 151,101,938 | - | - | 147,572,438 | 147,572,438 | 148,029,018 |
Subordinated debt | - | - | 53,436,792 | 53,436,792 | 52,611,064 | - | - | 54,081,544 | 54,081,544 | 53,643,444 |
(1) Amounts of loans and receivables are presented net of the provision for impairment losses.
Bradesco F-81
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Notes to the Consolidated Financial Statements
Below we list the methodologies used to determine the fair values presented above:
Loans and receivables
Fair values were estimated for groups of similar loans based upon type of loan, credit quality and maturity.Fair value for fixed-rate transactions was determined by discounted cash flow estimates using interest rates approximately equivalent to our rates for new transactions based on similar contracts. Where credit deterioration has occurred, estimated cash flows for fixed and floating-rate loans have been reduced to reflect estimated losses.
The fair values for performing loans are calculated by discounting scheduled principal and interest cash flows through maturity using market discount rates and yield curves that reflect the credit and interest rate risk inherent to the loan type at each reporting date. The fair values for impaired loans are based on discounting cash flows or the value of underlying collateral.
The non-performing loans were allocated into each loan category for purposes of calculating the fair-value disclosure. Assumptions regarding cash flows and discount rates are based on available market information and specific borrower information.
F-74 IFRS – International Financial Reporting Standards – 2019
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
Held to maturityBonds and securities at amortized cost
Investments held to maturityFinancial assets are carried at amortized cost. Fair values are estimated according to the assumptions described onin Note 2(f)2(d). See Note 2224 for further details regarding the amortized cost and fair values of held-to-maturity securities.cost.
Deposits from banks and customers
The fair value of fixed-rate deposits with stated maturities was calculated using the contractual cash flows discounted with current market rates for instruments with similar maturities and terms. For floating-rate deposits, the carrying amount was considered to approximate fair value.
Funds from securities issued
The carrying values of funds from securities issued approximate the fair values of these instruments.
Subordinated debt
Fair values for subordinated debts were estimated using a discounted cash flow calculation that applies interest rates available in the market for similar maturities and terms.
3.5.Independent Model Validation
The main purpose of the Independent Model Validation Area – AVIM is to verify if the models operate according to the objectives envisaged, as well as if its results are suitable for the uses for which they are intended.
The Independent Model Validation Area adopts a methodology that includes quantitative and qualitative dimensions, assessing the adequacy of processes of governance, construction of models and their assumptions, and use and monitoring of the models.
3.6. Capital management
Capital Management Corporate Process
The Capital Management provides the conditions required to meet the Organization's strategic goals to support the risks inherent to its activities. It includesIn this way, it adopts a forward-looking stance when elaborating its capital plan,anticipating the preparation ofneed for capital for the capital plan, identifying thenext three (3) years, as well as establishing proceduresand contingency actions to be considered in stressadverse scenarios.
InThe Organization manages capital in line with the strategic guidelines, the Organization manages capital, involving the control and business areas, in accordance with the guidelines of the Board of Executive Officers and Board of Directors.
F-82 IFRS – International Financial Reporting Standards – 2017
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Notes to the Consolidated Financial Statements
The governance structure for the capital management and the of Capital Management Governance,Internal Capital Adequacy Assessment Process (ICAAP) andRecovery Plan is composed by Commissions, Committees and its highest level body is the Board of Directors.The most important isControllership Department ensures compliance with the Planning, Budget and Control Department, whose mission is to provide the efficient and effective managementstipulations of the business through strategicCentral Bank of Brazil pertaining to capital management activities and planning, supportingassistance to the TopSenior Management by providing analyses and projections of capital requirements and availability, identifying threats and opportunities that help plan the sufficiency and optimization of capital levels. The Department is responsible for complying with the provisions ofBrazilian Central Bank regarding capital management activities.
The Organization also has a Recovery Plan, delivered to the Central Bank of Brazil in December of each year and approved by the Board of Directors in accordance with Resolution No. 4,502, of June 30, 2016 from the CMN, establishing procedures for the preparation of recovery plans, in order to maintain adequate levels of capital and liquidity in situations of severe stress in financial institutions considered systemically important.
BradescoF-75
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
Capital Adequacy
This processThe Reference Equity (RE) adequacy is followed upverified daily to ensure that the Organization maintains a solid capital base in normal situations or in extreme market conditions and complying with regulatory requirements.
The determinationobjective of the Central Bank of Brazil is that the financial institutions permanently maintain capital and additional Common Equity Tier I (Conservation, CountercyclicalSystemic and Systemic)Countercyclical) compatible with the risks from their activities. The risks are represented by Risk-Weighted AssetAssets (RWA), which is calculated based on, at least, the sum of Credit, market and operational risk installments.components.
Additionally, the Organization must maintain enough capital to meet the interest rate risk from operations not included in the trading portfolio (BankingPortfolio’s interest rate risk), calculated using the EVE(Economic Value Equity) method..
Bradesco F-83
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Notes to the Consolidated Financial Statements
Analysis of Reference Equity (PR)
Following is the detailed information on the Organization's Capital, in compliance with thePrudential Conglomerate:
Calculation basis – Capital Adequacy Ratio | R$ thousand | |
Basel III | ||
On December 31 | ||
2017 | 2016 | |
Prudential | ||
Tier I capital | 80,084,744 | 78,762,886 |
Common equity | 75,079,777 | 73,747,016 |
Shareholders’ equity | 110,457,476 | 100,442,413 |
Minority / Other | 68,072 | 60,615 |
Prudential adjustments (1) | (35,445,771) | (26,756,012) |
Additional Capital | 5,004,967 | 5,015,870 |
Tier II capital | 24,588,090 | 22,363,950 |
Subordinated debts (Resolution No. 4.192/13) | 16,947,024 | 9,803,498 |
Subordinated debts (prior to Resolution No. 4.192/13) | 7,641,066 | 12,560,452 |
Reference Equity (a) | 104,672,834 | 101,126,836 |
|
| |
- Credit risk | 554,928,771 | 589,977,243 |
- Market risk | 8,908,205 | 15,767,767 |
- Operational risk | 47,605,162 | 50,443,507 |
Risk-weighted assets – RWA (b) | 611,442,138 | 656,188,517 |
Banking Book's Interest Rate Risk | 3,527,467 | 4,142,339 |
Margin (Capital Buffer) (2) | 34,226,583 | 28,084,702 |
Basel ratio (a/b) | 17.1% | 15.4% |
Tier I capital | 13.1% | 12.0% |
- Principal capital | 12.3% | 11.2% |
- Additional capital | 0.8% | 0.8% |
(1)As per January 2017, the factor applied to prudential adjustments went from 60% to 80%, according to the timeline for application of deductions of prudential adjustments, defined in Article11 ofCMN Resolution no 4,192/13; and
(2)Margin = Minimum (PR – PRE; PR Level I - RWA * 6%; PR Principal - RWA * 4.5%) - Additional Principal Capital.
F-84 IFRS – International Financial Reporting Standards – 2017
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Notes to the Consolidated Financial Statements
Breakdown of Risk-Weighted Assets (RWA)
Below is the detailed comparison of the risk-weighted assets (RWA) of the Prudential Conglomerate, regulatory approach:
RWA | R$ thousand | |
On December 31 | ||
2017 | 2016 | |
Prudential | ||
Credit risk | 554,928,771 | 589,977,243 |
Risk Weight of 0% | - | - |
Risk Weight of 2% | 314,012 | 271,970 |
Risk Weight of 20% | 2,224,147 | 10,725,736 |
Risk Weight of 35% | 10,208,602 | 9,114,590 |
Risk Weight of 50% | 25,635,506 | 32,434,787 |
Risk Weight of 75% | 114,553,059 | 117,017,519 |
Risk Weight of 85% | 105,938,759 | 144,006,730 |
Risk Weight of 100% | 261,909,360 | 239,369,280 |
Risk Weight of 250% | 28,139,531 | 27,655,131 |
Risk Weight of 300% | 2,920,531 | 6,825,567 |
Risk Weight up to 1,250% | 3,085,264 | 2,555,933 |
Market Risk (1) | 8,908,205 | 15,767,767 |
Fixed-rate in Reais | 5,696,584 | 10,537,134 |
Foreign Currency Coupon | 838,259 | 7,028,051 |
Price Index Coupon | 1,756,973 | 342,400 |
Interest Rate Coupon | - | 13,499 |
Equities | 637,924 | 67,392 |
Commodities | 449,546 | 32,466 |
Exposure to Gold, Foreign Currencies and Exchange | 3,657,957 | 4,194,380 |
Operational Risk | 47,605,162 | 50,443,507 |
Corporate Finance | 1,369,491 | 1,380,459 |
Trading and Sales | 1,667,449 | 2,866,659 |
Retail | 9,308,681 | 8,349,268 |
Commercial | 21,518,843 | 20,699,277 |
Payment and Settlement | 6,132,749 | 10,143,694 |
Financial Agent Services | 3,628,257 | 3,465,556 |
Asset Management | 3,827,848 | 3,392,327 |
Retail Brokerage | 151,844 | 146,266 |
Total Risk Weighted Assets | 611,442,138 | 656,188,517 |
Total Capital Requirement | 56,558,398 | 64,798,616 |
Banking Book's Interest Rate Risk | 3,527,467 | 4,142,339 |
|
|
|
Addicional Common equity (ACPS) (2) | 9,171,632 | 4,101,178 |
ACP Conservation | 7,643,027 | 4,101,178 |
ACP Systemic | 1,528,605 | - |
(1)For purposes of calculation of the market risk, the capital requirement will be the lower between the internal model and 80% of the standard model, pursuant to Circular Letter No. 3.646/13 of Central Bank of Brazil; and
(2)In 2017, the value of ACP Conservation represents 1.25% of the amount of RWA. The Systemic ACP represents 0.25% of the amount of RWA (Systemic Relevance Factor determined according to Circular Letter No. 3.768 of the CBB - Total Exposure and GDP of the year before last in relation to the base date: R$ 988.5 billion and R$ 6 trillion, respectively. The contracyclical ACP represents 0% of the amount of RWA, pursuant to Communication No. 31.478 of the CBB with disclosure and effectiveness in December/17, where the RWA of the loan risk to the non-banking private sector (RWACPrNB) is R$ 496.2 billion in Brazil.
Bradesco F-85
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Notes to the Consolidated Financial Statements
Capital Sufficiency
The capital management of capitalprocess is aligned with the strategic planning and is forward looking, anticipating any changes in the economic and commercial environment conditions in which we operate.the Organization operates.
The Organization’s capital management aims to ensure, inat permanently ensuring a permanently solidsound capital composition to support the development inof its activities and to ensure appropriateadequate coverage of all risks involved.incurred. The Organization maintains a managerial capital margin (buffer), which is added to the minimum regulatory requirements.
The management buffer is defined according to the leading practices and regulatory requirements, observing aspects such as additional impacts generated by stress scenarios, qualitative risks and risks not captured by the regulatory model.
The Organization considers it comfortable to maintain a Tier I Capital margin of at least 25% in relation to the minimum capital requirements in the medium and long term, pursuant to the schedule established by the Brazilian Central Bank for the full adoption of Basel III guidelines.
The Organization’s regulatory capital sufficiency can be seen by periodically calculating the capital adequacy ratio which in this period was 17.1%, of which 13.1% and 12.3% wasBasel Ratio, Tier I Ratio and Common Equity Tier I respectively. In terms of margin, the amount totaled R$ 34,226,583 thousand, which would allow for an increase of up to R$ 672,758,390 thousand in loan operations (considering the current composition of the portfolio).
Since January 2015, according to theCMN Resolution nº 4,192/13 which deals with the methodology for calculating the ratios of Common Equity Tier 1, Tier 1 and Total Capital, the regulatory scope became the Prudential Conglomerate.Ratio.
Capital Forecast
The capital management area (ICAAP) and Recovery Plan of DPOC is responsible for making simulations and projections of the Organization’s capital, in accordance with the strategic guidelines, the impacts arising from variations and trends of the economic and business environment as well as regulatory changes. The results from the projections are submitted to the TopSenior Management, pursuant to the governance established.
The projections for the next three years present adequate levels of Capital indices, considering the incorporation of net profits and the prudential adjustments due to the increase of the factors established in Article 11 ofCMN Resolution 4,192/13 for subsequent periods.
Simulation - Basel III
Based on Basel III rules published by Brazilian Central Bank in March and October 2013, which include the definition of capital and the expansion of risk scope and are being gradually implemented up to 2019, below is the simulation based in strategic assumptions for the PrudentialConglomerate, taking into consideration the full compliance with the rules on the reference date of December 2017, i.e., anticipating all the impacts expected throughout the implementation schedule, not considering later events (example: incorporation of results), according toCMN Resolution nº 4,192/13.
F-F-8676 IFRS – International Financial Reporting Standards – 20172019
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements prepared
Analysis of Reference Equity (RE) and Capital Indexes
Following is the detailed information on the Organization's Capital, in accordancecompliance with International Financial Reporting Standards (IFRS)thePrudential Conglomerate:
Calculation basis - Basel Ratio | R$ thousand | |
Basel III | ||
On December 31 | ||
2019 | 2018 | |
Prudential | ||
Tier I capital | 100,831,668 | 90,322,147 |
Common equity | 91,271,701 | 81,090,060 |
Shareholders’ equity | 133,723,221 | 121,120,869 |
Minority / Other | 106,302 | 169,606 |
Prudential adjustments (1) | (42,557,822) | (40,200,415) |
Additional Capital (3) | 9,559,967 | 9,232,087 |
Tier II capital | 24,443,737 | 27,618,026 |
Subordinated debts (Resolution No. 4.192/13) | 21,324,281 | 22,416,933 |
Subordinated debts (prior to Resolution No. 4.192/13) | 3,119,456 | 5,201,093 |
Reference Equity (a) | 125,275,405 | 117,940,173 |
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| |
- Credit risk | 680,907,697 | 598,057,619 |
- Market risk | 13,571,488 | 10,407,258 |
- Operational risk | 64,572,141 | 53,150,786 |
Risk-weighted assets – RWA (b) | 759,051,326 | 661,615,663 |
Banking Book's Interest Rate Risk | 3,535,922 | 5,180,343 |
Margin (Capital Buffer) (2) | 32,022,015 | 34,911,835 |
Basel ratio (a/b) | 16.5% | 17.8% |
Tier I capital | 13.3% | 13.7% |
- Principal capital | 12.0% | 12.3% |
- Additional capital | 1.3% | 1.4% |
Tier II capital | 3.2% | 4.1% |
(1) According to CMN Resolution No. 4,192/13, as from January 2018, the factor applied to prudential adjustments is 100%;
(2) Margin: Minimum (PR – PRE – IRRBB; PR Level I – RWA*6%; PR – RWA*4.5%) – Additional Common Equity; and
(3) Authorization of subordinated debts to compose Tier I in the amount of R$4,179 thousand (R$1,737 thousand in December 2018 and R$2,442 thousand in January 2019).
Breakdown of Risk-Weighted Assets (RWA)
Below is the detailed comparison of the risk-weighted assets (RWA) of the Prudential Conglomerate:
RWA | R$ thousand | |
On December 31 | ||
2019 | 2018 | |
Prudential | ||
Credit risk | 680,907,697 | 598,057,619 |
Risk Weight of 0% | - | - |
Risk Weight of 2% | - | 83,052 |
Risk Weight of 20% | 2,013,917 | 3,229,634 |
Risk Weight of 35% | 13,636,518 | 11,393,716 |
Risk Weight of 50% | 34,584,945 | 32,072,200 |
Risk Weight of 70% | 78,147 | - |
Risk Weight of 75% | 152,407,502 | 130,208,551 |
Risk Weight of 85% | 136,879,718 | 115,191,858 |
Risk Weight of 100% | 274,131,256 | 265,578,016 |
Risk Weight of 150% | 21,512 | - |
Risk Weight of 250% | 34,226,888 | 30,408,772 |
BradescoF-77
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
RWA | R$ thousand | |
On December 31 | ||
2019 | 2018 | |
Prudential | ||
Risk Weight of 300% | 7,119,182 | 6,634,117 |
FORMULA (3) | 21,818,346 | 3,250,205 |
Risk Weight up to 1,250% | 3,989,766 | 7,498 |
Market Risk (4) | 13,571,488 | 10,407,258 |
Fixed-rate in Reais | 2,137,575 | 3,621,542 |
Foreign Currency Coupon | 3,229,863 | 6,949,809 |
Price Index Coupon | 2,349,025 | 1,399,478 |
Equities | 694,263 | 1,087,814 |
Commodities | 1,015,513 | 757,438 |
Exposure to Gold, Foreign Currencies and Exchange | 11,147,550 | 4,424,487 |
Operational Risk | 64,572,141 | 53,150,786 |
Corporate Finance | 1,879,143 | 1,655,552 |
Trading and Sales | 7,427,004 | 2,443,551 |
Retail | 11,413,989 | 10,032,258 |
Commercial | 26,451,579 | 23,508,471 |
Payment and Settlement | 7,661,071 | 6,834,660 |
Financial Agent Services | 4,265,433 | 4,055,903 |
Asset Management | 5,311,463 | 4,465,702 |
Retail Brokerage | 162,459 | 154,689 |
Total Risk Weighted Assets | 759,051,326 | 661,615,663 |
Total Capital Requirement | 60,724,106 | 57,064,351 |
Banking Book's Interest Rate Risk | 3,535,922 | 5,180,343 |
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|
|
Additional Common equity (ACPS) (3) | 26,566,796 | 15,713,372 |
ACP Conservation | 18,976,283 | 12,405,294 |
ACP Systemic | 7,590,513 | 3,308,078 |
(1) Published (Schedule 80%);Risk weighting factors defined according to Articles 23-A and 23-B of Circular Letter of Central Bank of Brazil No. 3,644/13, as amended by Circular Letter No. 3,949 of June 25, 2019;
(2) EffectRisk weighting factor defined according to Article 26-A of the full impact. Including the reserveCircular Letter of Goodwill / Intangible paid for the purchaseCentral Bank of HSBC Brasil, netBrazil No. 3,644/13, as amended by Circular Letter No. 3,921 of amortization and the reallocation of resources, through the payment of dividends by the Insurance Group (Grupo Segurador);December 5, 2018;
(3) Considers the anticipation of the multiplier of installments of market and operational risks, from 9.250% to 8%, in 2019; and
(4)Refers to the minimum required, in accordance with CMN Resolution nº 4,193/13, in addition to the additional capital installmentsAs established by Circular Nos. 3,768/15Letters of Central Bank of Brazil No. 3,848 and 3,769/15.No. 3,849;
(4) For purposes of calculation of the market risk, the capital requirement will be the maximum between the internal model and 80% of the standard model, pursuant to Circular Letters No. 3,646 and 3,674 of the Central Bank of Brazil; and
(5) In 2019, the value of the conservation ACP represents 2.5% of the amount of RWA. The systemic ACP represents 1.0% of the amount of RWA Systemic Relevance Factor determined according to Circular Letter No. 3,768 of the Central Bank of Brazil – Total Exposure and GDP of the year before last in relation to the base date: R$1.1 trillion and R$6.6 trillion, respectively. The contracyclical ACP remained at 0% of the amount of RWA, pursuant to Communication No. 34,724/19 of Central Bank of Brazil, where the RWA of the loan risk to the non-banking private sector (RWACPrNB) is R$601 billion in Brazil.
Insurance risk is the risk related to a possible loss event that may occur in the future and for which there is uncertainty over the amount of damages that result from it. A component of insurance risk is underwriting risk, which arises from an adverse economic situation not matching the Organization's expectations at the time of drafting its underwriting policy, with regard to the uncertainties existing in the definition of actuarial assumptions as well as in the constitution of technical provisions as well as for pricing and calculating insurance premiums.premiums and contributions. In short, it refers to the risk of the frequency or severity of loss events or benefits exceeding the Organization's estimates.
Underwriting risk is managed by our technical areas.the Technical Department. Underwriting and risk acceptance policies are periodically evaluated by working groups. In addition, one of the main tasks of our technical areas is the Board for Risk Management, Internal Controls and Compliance an integral part of the Risk Management Structure, has as one of its main duties, the structuring of internal models for underwriting risks and calculation of regulatory capital for these businesses and certifies studies on the pricing ofstudies for new products.
The management process seeks to diversify insurance operations, aiming to excel at balancing the portfolio, and is based on the grouping of risks with similar characteristics in order to reduce the impact of individual risks.
F-78 IFRS – International Financial Reporting Standards – 2019
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
Uncertainties over estimated future claim payments
Claims are due as they occur.The organizationOrganization must indemnify all covered events that occurred during the policy period, even if a loss is discovered after coverage ends. As a result, claims are reported over a period and a significant portion are accounted for in the provisionsProvisions for incurred andClaims Incurred but not reported claimsNot Reported (IBNR). The estimated cost of claims includes direct expenses to be incurred when settling them.
Giving the uncertainties inherent to the process for estimating claims provisions, the final settlement may be different than the original provision.
Bradesco F-87
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Notes to the Consolidated Financial Statements
Asset and liability management (ALM)
The organizationOrganization periodically analyzes future cash flows on assets and liabilities held in portfolio (ALM -– Asset Liability Management). The method used for ALM analysis is to observe the sufficiency or insufficiency of the present value of the stream of assets in relation to the present value of the stream of liabilities, and the duration of assets in relation to that of liabilities. The aim is to verify that the situation of the portfolio of assets and liabilities is balanced in order to honor the Organization's future commitments to its participants and insured persons.
The actuarial assumptions used to generate the flow of liabilities are in line with actuarial practices and also with the characteristics of the Organization's product portfolio.
Risk management by product
Monitoring the insurance contract portfolio enables us to track and adjust premiums practiced, as well as assess the need for alterations. Other monitoring tools in use include: (i) sensitivity analysis, and (ii) algorithmic checks and corporate system notifications (underwriting, issuance and claims).
The main risks associated with propertynon-life insurance
· Oscillations in the incidence, frequency and severity of the claims and the indemnifications of claims in relation to the expectations;
· Unpredictable claims arising from an isolated risk;
· Inaccurate pricing or inadequate underwriting of risks;
· Inadequate reinsurance policies or risk transfer techniques; and
· Insufficient or excessive technical provisions.
Generally the property insurance underwritten is of short duration.
The underwriting strategies and goals are adjusted by management and informed through internal guidelines and practice and procedure manuals.
The risks inherent to the main property insurance business lines are summarized as follows:
· Auto insurance includes, among other things, physical damage to the vehicle, loss of the insured vehicle, and third-party liability insurance for vehicles;vehicles and personal accident for passengers; and
· Business, home and miscellaneous insurance includes, among other things, fire risks (ex:(e.g. fire, explosion and business interruption), natural desastersdisasters (earthquakes, storms and floods), engineering lines (explosion of boilers, breakdown of machinery and construction) and marine (cargo and hull) as well as liability insurance.
PropertyNon-life insurance risk management
The Organization monitors and evaluates risk exposure and undertakes the development, implementation and revision of guidelines related to underwriting, treatment of claims, reinsurance and constitution of technical provisions. The implementation of these guidelines and the management of these risks are supported by the technical departments of each risk area.
BradescoF-79
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
The Technical DepartmentDepartments has developed mechanisms, e.g. risk grouping by CPF, CNPJ (Individual and Corporate Taxpayer’s ID) and risky addresses, that identify, quantify and manage accumulated exposures in order to keep them within the limits defined in the internal guidelines.
F-88 IFRS – International Financial Reporting Standards – 2017
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Notes to the Consolidated Financial Statements
The main risks associated with life-insurancelife insurance and private-pensionprivate pension plans
Life-insuranceLife insurance and private-pensionprivate pension plans are generally long-term in nature and, accordingly, various actuarial assumptions are used to manage and estimate the risks involved, such as: assumptions about returns on investments, longevity, mortality and persistence rates in relation to each business unit. Estimates are based on historical experience and on actuarial expectations.
The risks associated with life insurance and private pension plans include:
· Biometric risks, which includes mortality experience, adverse morbidity, longevity and disability. The mortality risk may refer to policyholders living longer than expected (longevity) or passing away before expected. This is because some products pay a lump sum if the person dies, and others pay regular amounts while the policyholder is alive;
· Policyholder’s behavior risks, which includes persistence rate experience. Low persistence rates for certain products may result in less policies/private pension plan agreements remaining contracted to help cover fixed expenses and may reduce future positive cash flows of the underwritten business. A low persistence rate may affect liquidity of products which carry a redemption benefit;
· Group life-insurance risk results from exposure to mortality and morbidity rates and to operational experience worse than expected on factors such as persistence levels and administrative expenses; and
· Some Life and Pension Plan products have pre-defined yield guarantees, and thereby face risk from changes in financial markets, returns on investments and interest rates that are managed as a part of market risk.
Life-insuranceLife insurance and private-pension-planprivate pension plan risk management
· The Organization monitors and assesses risk exposure and is responsible for developing, implementing and reviewing policies relating to underwriting, processing claims, and technical reserves for insurance purposes. Implementation of these policies and management of these risks are supported by our technical areas;the Technical Department;
· The technical areas haveTechnical Department has developed mechanisms, such asstatistical analysis of possible risk accumulations based on monthly reports, and performance by typethat identify, quantify and manage accumulated exposures to keep them within limits defined by internal policies;
· Longevity risks are carefully monitored in relation to the most recent data and to the trends in the environments in which the Organization and its subsidiaries and associated companies operate.operates. Management monitors exposure to this risk and the capital implications of it in order to manage the possible impacts, as well as to ensure that business has the capital that it may require. The adminstrationManagement adopts improvement assumptions in its calculation of technical provisions in order to predict and thus be covered for possible impacts generated by the improvement in life expectancy of the insured/assisted population;
· Mortality and morbidity risks are partially mitigated through reinsurance contracts for catastrophes;
· Persistency risk is managed through frequent monitoring of the Organization’s experience. Management has also defined rules on the management and monitoring of persistence and the implementation of specific initiatives to improve, when appropriate, the renewal of policies that expire; and
· The risk of a high level of expenses is primarily monitored through the evaluation of the profitability of the business units and the frequent monitoring of expense levels.
Bradesco F-8F-890
Consolidated Financial Statements prepared in accordance with IFRS – International Financial Reporting Standards (IFRS)– 2019
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
The main risks associated with health and dental insurance
· Variations in cause, frequency and severity of indemnities of claims compared to expectations;
· Unforeseen claims resulting from isolated risk;
· Incorrect pricing or inadequate subscription of risks; and
· Insufficient or overvalued technical provisions.
For individual health insurance, for which certain provisions are calculated based on expected future cash flows (difference between expected future claims and expected future premiums), there are a number of risks, in addition to those cited above, such as biometric risk, including mortality and longevity experience and the insured's behavioral risk, which covers persistency experience, as well as interest-rate risk that is managed as a part of market risk.
Management of health-insurancehealth and dental insurance risk
· The Organization monitors and evaluates risk exposure and is responsible for the development, implementation and review of policies that cover subscription, treatment of claims and technical insurance provisions. The implementation of these policies and management of risks are supported by the technical areas;Superintendent of Actuary and Statistics;
· The technical areas haveSuperintendent of Actuary and Statistics has developed mechanisms, such asstatistical reports and performance by typethat identify, quantify and manage accumulated exposure in order to keep it within the limits defined by internal policies;
· Longevity risk is carefully monitored using the most recent data and tendencies of the environment in which the Organization operates. Management monitors exposure to this risk and its capital implications in order to manage possible impacts, as well as the funding that the future business needs;
· Persistency risk is managed through the frequent management of the Organization’s experience. Management has also established guidelines for the management of persistency in order to monitor and implement specific initiatives, when necessary, to improve retention of policies; and
· The risk of elevated expenses is primarily monitored through the evaluation of the profitability of business units and the frequent monitoring of expense levels.
Results of sensitivity analysis - Damages,– Life, Non life and health insuranceHealth and Life with Survival and Welfare Coverage and Individual LifeDental Insurance
Some test results are shown below. For each sensibility scenario the impact is shown in the income and shareholders' equity after taxes and contributions, in a reasonable and possible change in just a single factor. We emphasize that the insurance operations are not exposed to significant currency risk.
Sensitivity factor | Description of sensitivity factor applied |
Interest rate | Effect of lowering the risk free forward yield curve rate |
Loss events | Impact on the business of increased loss events and claims |
Longevity (improvement) | Impact of an improved survival estimates on annuity contracts |
Conversion to income | Impact on annuity contracts of a higher rate of conversion to income |
Sensitivity tests for pension plan products, including Life Insurance with Survival Coverage (VGBL), and for Individual Life Insurance (which is a Life product), were made considering the same bases of the TAP test with variation in the assumptions listed below:
| R$ thousand | |||
On December 31, 2019 | ||||
Interest rate | Longevity (improvement) | Conversion to income | ||
Percentage adjustment to each assumption: | Variation of -5% | 0.2% | + 5 b.p. | |
Traditional plans (contributing period) | (74,077) | (12,415) | (29,520) | |
PGBL and VGBL (contributing period) | (9,217) | (1,819) | (38,797) | |
All plans(retirement benefit period) | (123,647) | (63,917) | - | |
Total | (206,941) | (78,151) | (68,317) |
Bradesco F-90F-81 IFRS – International Financial Reporting Standards – 2017
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
The sensitivity test for Life Insurance withSurvival, Welfare Coverage andIndividual Life Insurance was made considering the same bases of the LAT test with variation in the assumptions listed below:
| R$ thousand | ||
On December 31, 2017 | |||
Interest rate | Longevity | Conversion to income | |
Percentage adjustment to each assumption: | Variation of-5% | +0.2 p.p. | + 5 p.p. |
Tradicional plans (contributing period) | (60,733) | (5,057) | (21,691) |
PGBL and VGBL (contributing period) | (5,446) | (504) | (18,409) |
All plans(retirement benefit period) | (112,782) | (35,507) | - |
Total | (178,961) | (41,068) | (40,100) |
For damages,non life, life (except individual life) and health insurance, except individual life, the table below shows increase in the events/claims were to rise 1 percentage point over the 12 months from the calculation base date.
| R$ thousand | R$ thousand | ||||||
Gross of reinsurance | Net of reinsurance | Gross of reinsurance | Net of reinsurance | |||||
On December 31 | On December 31 | On December 31 | On December 31 | |||||
2017 | 2016 | 2017 | 2016 | 2019 | 2018 | 2019 | 2018 | |
Auto | (22,347) | (21,205) | (22,347) | (21,205) | (24,258) | (21,721) | (24,258) | (21,721) |
RE (Elementary branch) | (9,940) | (10,809) | (8,893) | (9,333) | (9,953) | (8,366) | (9,664) | (7,980) |
Life | (28,146) | (28,358) | (28,050) | (28,277) | (31,701) | (29,633) | (31,549) | (29,541) |
Dental | (4,984) | (3,941) | (4,984) | (3,941) | ||||
Health | (97,923) | (89,907) | (97,923) | (89,907) | (123,571) | (104,574) | (123,571) | (104,574) |
Limitations of sensitivity analysis
Sensitivity analyses show the effect of a change in an important premise while other premises remain unchanged. In real situations, premises and other factors may be correlated. It should also be noted that these sensitivities are not linear and therefore greater or lesser impacts should not be interpolated or extrapolated from these results.
Sensitivity analyses do not take account of the fact that assets and liabilities are managed and controlled. Additionally, theOrganization’s financial position may vary with any movement occurring in the market. For example, the risk management strategy aims to manage exposure to fluctuations in the market. As investment markets move through various levels, management initiatives may include sales of investments, altered portfolio allocations, and other protective measures.
Other limitations of the sensitivity analyses include the use of hypothetical market movements to show the potential risk, which only represents Management’s view of possible market changes in the near future, which cannot be foreseen with certainty, and they also assume that all interest rates move in the same manner.
Bradesco F-91
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Notes to the Consolidated Financial Statements
Risk concentration
Potential exposures are monitored, analyzing certain concentrations in some type of insurance. The table below shows risk concentration by type of insurance (except health and dental), based on net premiums, net of reinsurance:
Net premiums written by type of insurance, net of reinsurance | R$ thousand | |||
On December 31 | ||||
2017 | 2016 | |||
Premium issued by branch, net of cancellation | R$ thousand | |||
On December 31 | ||||
2019 | 2018 | |||
Auto | 4,086,705 | 3,924,444 | 4,115,426 | 3,987,645 |
RE (Elementary branch) | 1,525,848 | 1,593,662 | 1,600,632 | 1,485,537 |
Tradicional plans | 1,788,420 | 1,499,401 | ||
Traditional plans | 1,184,755 | 1,892,855 | ||
Life insurance | 6,904,576 | 6,354,034 | 8,588,654 | 7,041,906 |
VGBL | 28,650,153 | 28,377,786 | 25,563,864 | 23,492,119 |
PGBL | 3,301,623 | 2,386,631 | 2,770,148 | 2,461,808 |
Credit risk of insurance
Credit risk consists of the possible incurrence of losses associated with non-performance, by the borrower or counterparty, of its financial obligations according to agreed terms, as well as the fall invalue of any credit agreement as a result of deterioration in the risk classification of the borrower, and other losses related to any non-performance of financial obligations by the counterparty.
Credit risk management
Credit risk management in the Organization is a continuous and evolving process including the mapping, development, evaluation and diagnosis of existing models, instruments and procedures that requires a high level of discipline and control in the analysis of operations to preserve the integrity and independence of processes.
F-82 IFRS – International Financial Reporting Standards – 2019
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
As noted above, credit risk is managed at the corporate level using structured, independent internal procedures based on proprietary documentation and reports, duly assessed by the risk management structures of Organization, and based on the gradual deployment of internal models for the determination, measurement and calculation of capital.
Reinsurance policy
Credit risk is involved in purchasing reinsurance and insurance companies must beNo matter how conservative and selective when choosinginsurers are in the choice of their partners, Reinsurers arethe purchase of reinsurance presents, naturally embedded in its operation, a credit risk. However, in Brazil this risk has relatively decreased due to current legal laws and regulations, once insurers should operate with reinsurers registered with SUSEP, andthat are classified as local, admitted or occasional. Reinsurers classified as admitted and occasional, headquartered abroad, must meet specific minimum requirements set forth in current legislation.
The Bradesco Organization’s policy for purchasing reinsurance and approval of reinsurers are the responsibility of the executive board,Board of Executive Officers, observing to the minimum legal requirements and regulations, some of them aimed at minimizing the credit risk intrinsic to the operation, and considering the shareholders' equity consistent with amounts transferred.
Another important aspect of managing reinsurance operations is the fact that the Organization aims to work within its contractual capacity, thereby avoiding highthe frequent purchases of coverages in optional agreements and higher exposures to the credit risk.
Practically, the value of premiums transferred in reinsurance is relatively small in relation to total premiums written. However, almost all property damage portfolios, except automotive, are hedged by reinsurance which, in most cases, is a combination of proportional and non-proportional plans by risk and/or by event.
Currently, part of the reinsurance contracts (proportional and non-proportional) are transferred to IRB Brasil Resseguros S.A. Some admitted reinsurers participate with lower individual percentages, but all have minimum capital and rating higher than the minimum established by the Brazilian legislation, which, in management'sManagement's judgment, reduces the credit risk.
Managing credit risk
Credit-risk management in the Organization is a continuous and evolving process including the mapping, development, evaluation and diagnosis of existing models, instruments and procedures that requires a high level of discipline and control in the analysi of operations to preserve the integrity and independence of processes.
F-92 IFRS – International Financial Reporting Standards – 2017
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Notes to the Consolidated Financial Statements
As noted above, credit risk is managed at the corporate level using structured, independent internal procedures based on proprietary documentation and reports, duly assessed by the risk management structures of Organization, and based on the gradual deployment of internal models for the determination, measurement and calculation of capital.
Exposure to insurance credit risk
Management believes that maximum exposure to credit risk arising from premiums to be paid by insured parties is low, since, in some cases, coverage of claims may be canceled (under Brazilian regulations), if premiums are not paid by the due date. Exposure to credit risk for premium receivables differs between risks yet to be incurred and risks incurred, since there is higher exposure on incurred-risk lines for which coverage is provided in advance of payment of the insurance premium.
The Organization is exposed to concentrations of risk with individual reinsurance companies, due to the nature of the reinsurance market and strict layer of reinsurance companies with acceptable loan ratings. The Organization manages the exposures of its reinsurance counterparties, limiting the reinsurance companies that may be used, and regularly assessing the default impact of the reinsurance companies.
4)3.8. Operational Risk
Operational risk is represented by the possibility of incurring losses arising from failures, deficiencies or the inadequacy of internal processes, people, systems and external events. This includes legal risk, associated with the activities we carry out.
Operational Risk Management Process
We have adopted the Three Lines of Defense model, which consists of identifying and assigning specific responsibilities to the Departments so that essential operational risk management tasks are performed in an integrated and coordinated manner. Accordingly, the following procedures are carried out:
BradescoF-83
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
·Identifying, assessing, and monitoring the operational risks inherent in our activities;
·Assessing the operational risks inherent in new products and services, in order to promote their adequacy to the legislation, procedures and controls;
·Mapping and addressing records of operational losses to make up an internal data base;
·Provide analyses that offer quality information to Departments, aimed at improving operational risk management;
·Evaluating the scenarios and indicators for the purposes of economic capital composition and improvement of the Organization's risk maps;
·Assessing and calculating regulatory and economic capital needs in connection with the operational risk; and
·Preparing reports on the operational risk and its main aspects in order to support the strategic decisions of the Organization.
These procedures are supported by a number of internal controls, validated on an independent basis in relation to their effectiveness and operations, in order to meet the risk appetite limits established by the Organization.
Operational risk is primarily controlled and followed up by an independent area, the Integrated Risk Control Department, and is supported by a number of areas that integrate the management process of this risk.
The Organization makes estimates and judgments that can affect the reported amount of assets and liabilities within the next financial year including the assets and liabilities arising from the acquisition of HSBC Brasil.year. All estimates and judgments required in conformity with IFRS are best estimates undertaken in accordance with the applicable standard. Such estimates and judgments are continually evaluated and based in our historical experience and a number of other factors including future event expectations, regarded as reasonable, under the current circumstances. In 2019, refinements were made to the assumptions used for certain provisions, whose effects are shown in the notes 26, 28 e 36.
The estimates and judgments that have a significant risk and might have a relevant impact on the amounts of assets and liabilities within the next financial year are disclosed below. The actual results may be different from those established by these estimates and premises.judgments.
Fair value of financial instruments
Financial instruments recognized at fair value in our consolidated financial statements consist primarily of financial assets held for trading,measured at fair value through profit or loss, including derivatives and financial assets classified as available for sale.measured at fair value through other comprehensive income. The fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participant at the management date.reporting.
These financial instruments are categorized within a hierarchy based on the lowest level of input that is significant to the fair value measurement. For instruments classified as level 3, we have to apply a significant amount of our own judgment in arriving at the fair value measurement. We base our judgment decisions on our knowledge and observations of the markets relevant to the individual assets and liabilities, and those judgments may vary based on market conditions. In applying our judgment, welook at a range of third-party prices and transaction volumes to understand and assess the extent of market benchmarks available and the judgments or modeling required in third-party processes. Based on these factors, we determine whether the fair values are observable in active markets or whether the markets are inactive.
Imprecision in estimating unobservable market inputs can impact the amount of revenue or loss recorded for a particular position. Furthermore, while we believe our valuation methods are appropriate and consistent with those of other market participants, the use of different methodologiesor assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value on the reporting date. For a detailed discussion of the determination of fair value of financial instruments, see Note 3.4.
Bradesco F-8F-934
Consolidated Financial Statements prepared in accordance with IFRS – International Financial Reporting Standards (IFRS)– 2019
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
Impairment of financial assets available for sale
Periodically, the existence of a reduction in the recoverable value of available-for-sale financial assets is evaluated (see Note 2(f)(viii)(b)). This determination of what is significant or prolonged requires judgment. In making this judgment, the Organization evaluates, among other factors, the volatility in share price, where such variations involve equity securities.
In addition, valuations are obtained through market prices or valuation models that require the use of certain assumptions or judgments to estimate fair value.
Allowance for impairment on loans and advancesExpected credit loss
Periodically,The measurement of the Organization reviews its portfolioprovision for expected credit losses on loans for financial assets measured at amortized cost andFVOCI requires the use of loanscomplex quantitative models and advances evaluatingassumptions about future economic conditions and loan behavior.
Several significant judgments are also required to apply the estimated lossaccounting requirements for the impairment of its operations.
The determinationmeasurement of the amount of the allowance for impairment, by its nature, requires judgments and uses assumptions regarding the loan portfolio, both on a portfolio basis and on an individual basis. When we review our loan portfolio as a whole, several factors can affect our estimate of the likely range of losses, including which methodology we use in measuring historical delinquency rates and what historical period we consider in making those measurements.
Additional factors that can affect our determination of the allowance for impairment include:expected credit loss, such as:
· General economic conditions and conditionsDetermine the criteria in order to establish the relevant industry;significant increase of credit risk;
· Past experience withSelect quantitative models and assumptions suitable for the relevant debtor or industry, including recent loss experience;measurement of the expected credit loss;
· Credit quality trends;Establish several prospective scenarios and assumptions;
· AmountsGroup similar financial assets for purposes of loan collateral;
·The volume, composition and growth of our loan portfolio;
·The Brazilian government's monetary policy;measuring the expected credit loss; and
· Any delays inDefine the receiptexpected time frame of information neededexposure to evaluate loans or to confirm existing credit deterioration.
The Organization uses models to assist analysis ofrisk for instruments without the loan portfolio and in determining what impairment should be made. It applies statistical loss factors and other risk indicators to loan pools with similar risk characteristics to arrive at an estimate of incurred losses in the portfolio. Although the models are frequently revised and improved, they are by nature dependent on judgment in relation to the information and estimates. In addition, the volatility of the Brazilian economy is one of the factors that may lead to greater uncertainty in our models than would be expected in more stable macroeconomic environments. Accordingly, our allowance for impairment may not be indicative of future charge-offs.
For a sensitivity analysis, we assess the impact of an increase in the probability of default (PD) on the allowance. In this assessment an increase in 10% of the PD on December 31, 2017, would have increased the allowance for impairment by R$ 503,667 thousand. This sensitivity analysis is hypothetical, and is only meant to illustrate the impact that the expectation of defaults have on determining the allowance for loan losses.contractual maturity defined.
The process to determine the level of provision for losses from impairmentexpected credit loss requires estimates and the use of judgment; it is possible that actual losses presented in subsequent periods will differ from those
F-94 IFRS – International Financial Reporting Standards – 2017
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Notes to the Consolidated Financial Statements
calculated according to current estimates and assumptions.
The explanation of assumptions and estimation techniques used in the measurement of expected credit loss is further detailed in Note 3.1.
Impairment of intangible assets and goodwill
The Organization has to consideranalyzes, at least annually, whether the current carrying value of intangible assets and goodwill is(includes goodwill identified in the acquisition of associates) was impaired. The first step of the process requires the identification of independent Cash-Generating Units and the allocation of goodwill to these units. The carrying amount of the CGU, including the allocated goodwill, is compared to its recoverable amount to determine whether any impairment exists. If the value in use of a cash-generating unit is less than its carrying value, goodwill will be impaired. Detailed calculations may need to be carried out taking into consideration changes in the market in which a business operates (e.g. competitive activity, regulatory change). The value in use is based upon discounting expected pre-tax cash flows at a risk-adjusted interest rate appropriate to the operating unit, the determination of both requires one to exercise one’s judgment. While forecasts are compared with actual performance and external economic data, expected cash flows naturally reflect the Organization’s view of future performance.
Income tax
The determination of the amount of our income tax liability is complex, and our assessment is related to our analysis of our deferred tax assets and liabilities and income tax payable. In general, our evaluation requires that we estimate future amounts of current and deferred taxes. Our assessment of the possibility that deferred tax assets are realized is subjective and involves assessments and assumptions that are inherently uncertain in nature. The realization of deferred tax assets is subject to changes in future tax rates and developments in our strategies. The underlying support for our assessments and assumptions could change over time as a result of unforeseen events or circumstances, affecting our determination of the amount of our tax liability.
Significant judgment is required in determining whether it is more likely than not that an income tax position will be sustained upon examination, even after the outcome of any related administrative or judicial proceedings based on technical merits. Further judgment is then required to determine the amount of benefit eligible for recognition in our consolidated financial statements.
In addition, we have monitored the interpretation of tax laws by, and decisions of, the tax authorities and Courts so that we can adjust any prior judgment of accrued income taxes. These adjustments may also result from our own income tax planning or resolution of income tax controversies, and may be material to our operating results for any given period. For additional information about income tax, see Note 17.16.
BradescoF-85
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
Technical insurance provisions
Insurance technical provisions (reserves) are liabilities representing estimates of the amounts that will become due at a future date, to or on behalf of our policyholders – see Note 2(o)2(l). Expectations of loss ratio, mortality, longevity, length of stay and interest rate are used. These assumptions are based on our experience and are periodically reviewed against industry standards to ensure actuarial credibility.
Contingent liabilities
The Provisions are regularly reviewed and constituted, where the loss is deemed probable, based on the opinion of the legal counsel, the nature of the lawsuit, similarity to previous lawsuits, complexity and the courts standing. Contingencies classified as Probable Loss are recorded in the Consolidated Statements of Financial Position under "Other Provisions".
Bradesco F-95
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Notes to the Consolidated Financial Statements
The Organization operates mainly in the banking and insurance segments. Our banking operations include operations in the retail, middle-market and corporate sectors, lease, international bank operations, investment bank operations and as a private bank. The Organization also conducts banking segment operations through its branches located throughout the country, in branches abroad and through subsidiaries as well as by means of shareholding interests in other companies. Additionally we are engaged in insurance, supplemental pension plans and capitalization bonds through our subsidiary, Bradesco Seguros S.A. and its subsidiaries.
The followingsegmentinformation was prepared based on reports made availabeavailable toManagement Management to evaluate performance and make decisionsregardingto the allocation of resources for investments and other purposes. Our Management uses a variety of accounting information, which includes the proportional consolidation of affiliatesassociates and joint ventures. Accordingly, the information of the segments shown in the following tables was prepared in accordance with the specific procedures and other provisions of the Financial Institutions Accounting Plan and the total amounts, which correspond to the consolidated information, were prepared in accordance with IFRS, issued by the IASB.
The main assumptions for the segmentation of income and expenses include (i) surplus cash invested by the entities operating in insurance, supplemental pension and capitalization bonds are included in this segment, resulting in an increase in net interest income; (ii) salaries and benefits and administrative costs included in the insurance, supplemental pension and capitalization bonds segment consist only of cost directly related to these operations, and (iii) costs incurred in the banking operations segment related to the infrastructure of the branch network and other general indirect expenses have not been allocated between segments.
In 2019, wereviewed the presentation of results by segment, to align with that used by management for decision making and other information provided to the market. For the purposes of comparability, the previous periods have been reclassified.
F-F-9686 IFRS – International Financial Reporting Standards – 20172019
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
Information by operating segment, reviewed by
| For the year ended December 31, 2019 - R$ thousand | ||||||||
| Banking | Insurance, pension and capitalization bonds | Other Activities | Eliminations | Managerial Income Statement | Proportionately consolidated (1) | Adjustments of | Adjustments (3) | Consolidated in accordance with IFRS |
| |||||||||
| |||||||||
Revenue from financial intermediation | 113,402,430 | 22,936,178 | 228,386 | (2,651,701) | 133,915,293 | (818,428) | 125,364 | (8,915,835) | 124,306,394 |
Expenses from financial intermediation (4) | (49,683,456) | (16,930,146) | - | 2,651,701 | (63,961,901) | 104,508 | 2,404,402 | 2,835,005 | (58,617,986) |
Financial margin | 63,718,974 | 6,006,032 | 228,386 | - | 69,953,392 | (713,920) | 2,529,766 | (6,080,830) | 65,688,408 |
Allowance for loan losses | (18,891,493) | - | - | - | (18,891,493) | 170,961 | - | 4,716,005 | (14,004,527) |
Gross income from financial intermediation | 44,827,481 | 6,006,032 | 228,386 | - | 51,061,899 | (542,959) | 2,529,766 | (1,364,825) | 51,683,881 |
Income from insurance, pension plans and capitalization bonds | - | 8,935,610 | - | 33,355 | 8,968,965 | (6,840) | - | 13,680 | 8,975,805 |
Fee and commission income | 31,135,507 | 2,028,371 | 306,865 | (136,176) | 33,334,567 | (4,128,937) | (2,254,425) | (1,613,529) | 25,337,676 |
Personnel expenses | (23,072,600) | (2,030,224) | (390,706) | - | (25,493,530) | 710,807 | - | 256,405 | (24,526,318) |
Other administrative expenses (5) | (20,327,502) | (1,495,894) | (194,265) | 611,500 | (21,406,161) | 1,419,119 | (249,173) | (2,119,131) | (22,355,346) |
Tax expenses | (6,203,188) | (1,110,470) | (72,662) | - | (7,386,320) | 528,090 | - | - | (6,858,230) |
Share of profit (loss) of unconsolidated and jointly controlled companies | 12,921 | 276,165 | 8,046 | - | 297,132 | 906,399 | - | (2,449) | 1,201,082 |
Other operating income / expenses | (21,082,041) | (734,635) | 99,071 | (508,679) | (22,226,284) | 663,471 | (26,168) | 2,012,421 | (19,576,560) |
Operating profit | 5,290,578 | 11,874,955 | (15,265) | - | 17,150,268 | (450,850) | - | (2,817,428) | 13,881,990 |
Non-operating income | (537,428) | 26,800 | 133 | - | (510,495) | (9,583) | - | 19,166 | (500,912) |
IT/SC (Income Tax/Soc. Contrib.) and non-controlling interests | 10,431,415 | (4,490,945) | 2,372 | - | 5,942,842 | 460,433 | - | 1,388,854 | 7,792,129 |
Net Income in 2019 | 15,184,565 | 7,410,810 | (12,760) | - | 22,582,615 | - | - | (1,409,408) | 21,173,207 |
Total assets | 1,264,627,391 | 325,767,085 | 5,014,369 | (186,104,068) | 1,409,304,777 | (8,436,501) | (41,729,208) | 19,388,617 | 1,378,527,685 |
Investments in associates and joint ventures | 106,628,723 | 2,261,867 | 6,603 | (106,710,041) | 2,187,152 | 5,103,609 | - | 344,851 | 7,635,612 |
Total liabilities | 1,064,606,520 | 287,062,911 | 1,167,684 | (79,394,027) | 1,273,443,088 | (7,333,871) | (41,729,208) | 18,604,102 | 1,242,984,111 |
(1) They refer to: adjustments of consolidation, originating from proportionally consolidated companies (Grupo Cielo, Grupo Alelo, Crediare, etc.) for management purposes;
(2) Adjustments of consolidation originating from the "non-consolidation" of exclusive funds;
(3) Adjustments due to the differences of the accounting standards used in the management reports and in the financial statements of the Organization and correspondingthat were prepared in the IFRS. The main adjustments refer to the years 2017, 2016loss expected from financial assets, business models, effective interest rate and 2015, is shown below:business combinations;
| R$ thousand | |||
| Year ended December 31, 2017 | |||
| Banking | Insurance, pension and capitalization bonds | Other operations (1), adjustments and eliminations | Total |
| ||||
Net interest income | 46,997,327 | 1,857,926 | 1,787,660 | 50,642,913 |
Net fee and commission income | 24,143,561 | 787,014 | (2,181,747) | 22,748,828 |
Net gains/(losses) on financial instruments classified as held for trading | 6,011,351 | 3,641,626 | (29,869) | 9,623,108 |
Net gains/(losses) on financial instruments classified as available for sale | (685,560) | 713,425 | 542,493 | 570,358 |
Net gain / (loss) on held-to-maturity investments | (54,520) | - | - | (54,520) |
Net gains/(losses) on foreign currency transactions | 1,422,957 | - | - | 1,422,957 |
Net income from insurance and pension plans | - | 6,239,990 | - | 6,239,990 |
Other operating income/(loss) | 6,694,228 | 10,595,041 | 512,624 | 17,801,893 |
Impairment of loans and advances | (17,895,929) | - | 1,035,094 | (16,860,835) |
Personnel expenses | (19,261,590) | (1,589,077) | 127,402 | (20,723,265) |
Other administrative expenses | (17,175,352) | (1,391,439) | 1,684,330 | (16,882,461) |
Depreciation and amortization | (5,555,033) | (393,618) | 1,380,083 | (4,568,568) |
Other operating income/(expenses) | (9,282,411) | (889,065) | 38,119 | (10,133,357) |
Other operating expense | (69,170,315) | (4,263,199) | 4,265,028 | (69,168,486) |
Income before income taxes and share of profit of associates and joint ventures | 8,664,801 | 8,976,782 | 4,383,565 | 22,025,148 |
Share of profit of associates and joint ventures | 1,497,268 | 217,035 | 4,108 | 1,718,411 |
Income before income taxes | 10,162,069 | 9,193,817 | 4,387,673 | 23,743,559 |
Income tax and social contribution | (887,289) | (4,156,153) | (1,385,514) | (6,428,956) |
Net income for the year | 9,274,780 | 5,037,664 | 3,002,159 | 17,314,603 |
Attributable to controlling shareholders | 9,272,962 | 4,812,425 | 3,003,977 | 17,089,364 |
Attributable to non-controlling interest | 1,818 | 225,239 | (1,818) | 225,239 |
Total assets | 988,063,541 | 295,699,951 | (59,410,052) | 1,224,353,440 |
Investments in associates and joint ventures | 6,364,246 | 1,847,099 | 46,039 | 8,257,384 |
Total liabilities | 875,887,257 | 257,329,282 | (26,556,803) | 1,106,659,736 |
(4) Includes, in the Consolidated IFRS, the balances referring to “Net gains / (losses) on financial assets and liabilities at fair value through profit or loss”, “Net gains / (losses) on financial assets at fair value through other comprehensive income ”and“ Net gains / (losses) from operations in foreign currency ”; and
(5) Includes, in the Consolidated IFRS, the balances referring to depreciation and amortization.
BradescoF-97 F-87
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
| R$ thousand | |||
| Year ended December 31, 2016 | |||
| Banking | Insurance, pension and capitalization bonds | Other operations (1), adjustments and eliminations | Total |
Net interest income | 49,156,109 | 5,374,229 | 2,132,651 | 56,662,989 |
Net fee and commission income | 20,696,785 | 651,482 | (1,007,216) | 20,341,051 |
Net gains/(losses) on financial instruments classified as held for trading | 14,918,934 | 1,250,639 | 233,197 | 16,402,770 |
Net gains/(losses) on financial instruments classified as available for sale | (1,417,647) | 805,051 | (728,804) | (1,341,400) |
Net gains/(losses) on foreign currency transactions | 150,757 | - | - | 150,757 |
Net income from insurance and pension plans | - | 4,155,763 | - | 4,155,763 |
Other operating income/(loss) | 13,652,044 | 6,211,453 | (495,607) | 19,367,890 |
Impairment of loans and advances | (18,829,460) | - | 3,479,182 | (15,350,278) |
Personnel expenses | (15,733,611) | (1,387,935) | 117,763 | (17,003,783) |
Other administrative expenses | (14,979,689) | (1,331,349) | 161,475 | (16,149,563) |
Depreciation and amortization | (3,786,599) | (365,656) | 493,842 | (3,658,413) |
Other operating income/(expenses) | (14,421,152) | 243,631 | 173,359 | (14,004,162) |
Other operating expense | (67,750,511) | (2,841,309) | 4,425,621 | (66,166,199) |
Income before income taxes and Share of profit of associates and joint ventures | 15,754,427 | 9,395,855 | 5,055,449 | 30,205,731 |
Share of profit of associates and joint ventures | 1,538,058 | 168,691 | (7,024) | 1,699,725 |
Income before income taxes | 17,292,485 | 9,564,546 | 5,048,425 | 31,905,456 |
Income tax and social contribution | (7,995,420) | (3,915,822) | (2,001,488) | (13,912,730) |
Net income for the year | 9,297,065 | 5,648,724 | 3,046,937 | 17,992,726 |
Attributable to controlling shareholders | 9,293,766 | 5,550,662 | 3,049,821 | 17,894,249 |
Attributable to non-controlling interest | 3,299 | 98,062 | (2,884) | 98,477 |
Total assets | 921,916,290 | 266,642,197 | 3,471,169 | 1,192,029,656 |
Investments in associates and joint ventures | 5,512,372 | 1,416,617 | 73,789 | 7,002,778 |
Total liabilities | 821,182,152 | 266,143,979 | (775,682) | 1,086,550,449 |
| For the year ended December 31, 2018 - R$ thousand | ||||||||
| Banking | Insurance, pension and capitalization bonds | Other Activities | Eliminations | Managerial Income Statement | Proportionately consolidated (1) | Adjustments of | Adjustments (3) | Consolidated in accordance with IFRS |
| |||||||||
| |||||||||
Revenue from financial intermediation | 110,639,034 | 18,612,108 | 256,364 | (1,727,080) | 127,780,426 | (1,084,631) | (1,084,034) | (13,064,806) | 112,546,955 |
Expenses from financial intermediation (4) | (52,958,441) | (13,365,526) | - | 1,727,080 | (64,596,887) | 88,764 | 3,729,581 | 5,533,873 | (55,244,669) |
Financial margin | 57,680,593 | 5,246,582 | 256,364 | - | 63,183,539 | (995,867) | 2,645,547 | (7,530,933) | 57,302,286 |
Allowance for loan losses | (18,319,973) | - | - | - | (18,319,973) | 94,494 | - | 1,960,644 | (16,264,835) |
Gross income from financial intermediation | 39,360,620 | 5,246,582 | 256,364 | - | 44,863,566 | (901,373) | 2,645,547 | (5,570,289) | 41,037,451 |
Income from insurance, pension plans and capitalization bonds | - | 8,320,676 | - | 39,858 | 8,360,534 | - | - | - | 8,360,534 |
Fee and commission income | 30,022,769 | 2,169,807 | 354,734 | (221,722) | 32,325,588 | (4,578,360) | (2,527,231) | (1,388,407) | 23,831,590 |
Personnel expenses | (18,102,452) | (1,643,734) | (239,461) | - | (19,985,647) | 854,580 | - | 259,605 | (18,871,462) |
Other administrative expenses (5) | (19,126,128) | (1,609,750) | (204,736) | 649,851 | (20,290,763) | 971,706 | (119,519) | (2,243,641) | (21,682,217) |
Tax expenses | (5,660,519) | (960,453) | (73,649) | - | (6,694,621) | 597,722 | - | - | (6,096,899) |
Share of profit (loss) of unconsolidated and jointly controlled companies | 6,620 | 206,272 | (14,879) | - | 198,013 | 1,420,804 | - | 61,558 | 1,680,375 |
Other operating income / expenses | (11,943,485) | (998,070) | 193,794 | (467,967) | (13,215,728) | 891,788 | 1,203 | 4,376,193 | (7,946,544) |
Operating profit | 14,557,425 | 10,731,330 | 272,167 | 20 | 25,560,942 | (743,133) | - | (4,504,981) | 20,312,828 |
Non-operating income | (929,396) | 32,145 | 2,406 | (20) | (894,865) | 24,052 | - | - | (870,813) |
IT/SC (Income Tax/Soc. Contrib.) and non-controlling interests | (1,134,166) | (4,374,553) | (72,405) | - | (5,581,124) | 719,081 | - | 2,168,467 | (2,693,576) |
Net Income in 2018 | 12,493,863 | 6,388,922 | 202,168 | - | 19,084,953 | - | - | (2,336,514) | 16,748,439 |
Total assets | 1,251,749,713 | 304,004,114 | 5,966,071 | (175,709,936) | 1,386,009,962 | (8,731,352) | (89,986,505) | 18,251,609 | 1,305,543,714 |
Investments in associates and joint ventures | 97,416,676 | 2,617,258 | 60,894 | (97,903,242) | 2,191,586 | 5,619,603 | - | 314,610 | 8,125,799 |
Total liabilities | 1,068,861,135 | 270,540,773 | 1,148,139 | (77,806,694) | 1,262,743,353 | (7,630,632) | (89,986,505) | 15,741,378 | 1,180,867,594 |
(1) They refer to: adjustments of consolidation, originating from proportionally consolidated companies (Grupo Cielo, Grupo Alelo, Crediare, etc.) for management purposes;
(2) Adjustments of consolidation originating from the "non-consolidation" of exclusive funds;
(3) Adjustments due to the differences of the accounting standards used in the management reports and in the financial statements of the Organization that were prepared in the IFRS. The main adjustments refer to the loss expected from financial assets, business models, effective interest rate and business combinations;
(4) Includes, in the Consolidated IFRS, the balances referring to “Net gains / (losses) on financial assets and liabilities at fair value through profit or loss”, “Net gains / (losses) on financial assets at fair value through other comprehensive income ”and“ Net gains / (losses) from operations in foreign currency ”; and
(5) Includes, in the Consolidated IFRS, the balances referring to depreciation and amortization.
F-F-9888 IFRS – International Financial Reporting Standards – 20172019
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
| R$ thousand | |||
| Year ended December 31, 2015 | |||
| Banking | Insurance, pension and capitalization bonds | Other operations (1), adjustments and eliminations | Total |
Net interest income | 46,934,849 | 5,973,694 | 2,727,499 | 55,636,042 |
Net fee and commission income | 19,195,003 | 1,497,890 | (2,872,223) | 17,820,670 |
Net gains/(losses) on financial instruments classified as held for trading | (7,199,397) | (627,343) | (425,315) | (8,252,055) |
Net gains/(losses) on financial instruments classified as available for sale | (370,947) | (353,679) | 52,816 | (671,810) |
Net gains/(losses) on foreign currency transactions | (3,523,095) | - | - | (3,523,095) |
Net income from insurance and pension plans | - | 5,496,147 | 1,358 | 5,497,505 |
Other operating income/(loss) | (11,093,439) | 4,515,125 | (371,141) | (6,949,455) |
Impairment of loans and advances | (16,479,985) | - | 1,758,833 | (14,721,152) |
Personnel expenses | (13,103,515) | (1,217,211) | 262,679 | (14,058,047) |
Other administrative expenses | (13,076,913) | (1,137,706) | 492,649 | (13,721,970) |
Depreciation and amortization | (2,752,946) | (321,462) | 132,405 | (2,942,003) |
Other operating income/(expenses) | (11,726,387) | (963,525) | (298,641) | (12,988,553) |
Other operating expense | (57,139,746) | (3,639,904) | 2,347,925 | (58,431,725) |
Income before income taxes and Share of profit of associates and joint ventures | (2,103,333) | 8,346,805 | 1,832,060 | 8,075,532 |
Share of profit of associates and joint ventures | 1,358,047 | 166,865 | 3,139 | 1,528,051 |
Income before income taxes | (745,286) | 8,513,670 | 1,835,199 | 9,603,583 |
Income tax and social contribution | 12,621,169 | (3,192,918) | (793,929) | 8,634,322 |
Net income for the year | 11,875,883 | 5,320,752 | 1,041,270 | 18,237,905 |
Attributable to controlling shareholders | 11,874,609 | 5,215,765 | 1,042,532 | 18,132,906 |
Attributable to non-controlling interest | 1,274 | 104,987 | (1,262) | 104,999 |
Total assets | 894,579,942 | 209,789,872 | (77,666,292) | 1,026,703,522 |
Investments in associates and joint ventures | 4,479,642 | 1,255,326 | 80,357 | 5,815,325 |
Total liabilities | 804,576,173 | 188,809,573 | (57,596,986) | 935,788,760 |
| For the year ended December 31, 2017 - R$ thousand | ||||||||
| Banking | Insurance, pension and capitalization bonds | Other Activities | Eliminations | Managerial Income Statement | Proportionately consolidated (1) | Adjustments of | Adjustments (3) | Consolidated in accordance with IFRS |
| |||||||||
| |||||||||
Revenue from financial intermediation | 130,015,483 | 23,564,395 | 262,868 | (1,331,236) | 152,511,510 | (1,321,024) | (2,928,359) | (10,467,896) | 137,794,231 |
Expenses from financial intermediation (4) | (67,744,701) | (18,174,550) | - | 1,331,236 | (84,588,015) | 66,672 | 5,464,307 | 3,467,621 | (75,589,415) |
Financial margin | 62,270,782 | 5,389,845 | 262,868 | - | 67,923,495 | (1,254,352) | 2,535,948 | (7,000,275) | 62,204,816 |
Allowance for loan losses | (25,210,020) | - | - | - | (25,210,020) | 125,761 | - | 8,223,424 | (16,860,835) |
Gross income from financial intermediation | 37,060,762 | 5,389,845 | 262,868 | - | 42,713,475 | (1,128,591) | 2,535,948 | 1,223,149 | 45,343,981 |
Income from insurance, pension plans and capitalization bonds | - | 6,791,337 | - | 738 | 6,792,075 | - | - | - | 6,792,075 |
Fee and commission income | 28,566,371 | 2,063,187 | 366,446 | (133,813) | 30,862,191 | (4,443,914) | (2,390,311) | (1,279,138) | 22,748,828 |
Personnel expenses | (19,919,896) | (1,591,949) | (295,618) | - | (21,807,463) | 797,306 | - | 286,892 | (20,723,265) |
Other administrative expenses (5) | (18,845,656) | (1,702,816) | (186,780) | 602,760 | (20,132,492) | 917,548 | (60,812) | (2,175,273) | (21,451,029) |
Tax expenses | (5,440,571) | (973,477) | (80,715) | - | (6,494,763) | 534,145 | - | - | (5,960,618) |
Share of profit (loss) of unconsolidated and jointly controlled companies | (22,657) | 205,278 | 9,675 | - | 192,296 | 1,312,974 | - | 213,141 | 1,718,411 |
Other operating income / expenses | (9,910,746) | (513,611) | 215,681 | (469,685) | (10,678,361) | 1,067,313 | (84,825) | 5,445,764 | (4,250,109) |
Operating profit | 11,487,607 | 9,667,794 | 291,557 | - | 21,446,958 | (943,219) | - | 3,714,535 | 24,218,274 |
Non-operating income | (729,584) | 251,368 | (583) | - | (478,799) | 4,084 | - | - | (474,715) |
IT/SC (Income Tax/Soc. Contrib.) and non-controlling interests | (1,836,636) | (4,384,760) | (89,008) | - | (6,310,404) | 939,135 | - | (1,057,687) | (6,428,956) |
Net Income in 2018 | 8,921,387 | 5,534,402 | 201,966 | - | 14,657,755 | - | - | 2,656,848 | 17,314,603 |
Total assets | 1,146,536,514 | 289,461,412 | 5,615,832 | (143,285,480) | 1,298,328,278 | (8,877,954) | (78,178,606) | 13,081,722 | 1,224,353,440 |
Investments in associates and joint ventures | 87,010,313 | 2,602,781 | 52,223 | (87,483,681) | 2,181,636 | 5,840,951 | - | 234,797 | 8,257,384 |
Total liabilities | 984,405,043 | 256,094,800 | 1,065,836 | (55,801,799) | 1,185,763,880 | (7,744,166) | (78,178,606) | 6,818,628 | 1,106,659,736 |
(1) They refer to: adjustments of consolidation, originating from proportionally consolidated companies (Grupo Cielo, Grupo Alelo, Crediare, etc.) for management purposes;
(1)Other operation represents less than 1%(2) Adjustments of total assets/liabilitiesconsolidation originating from the "non-consolidation" of exclusive funds;
(3) Adjustments due to the differences of the accounting standards used in the management reports and in the net income forfinancial statements of the year.Organization that were prepared in the IFRS. The main adjustments fromrefer to the information disclosedimpairment of loans and advances, effective interest rate and business combinations;
(4) Includes, in segments columns arethe Consolidated IFRS, the balances related to “Net gains/(losses) on financial assets and liabilities at fair value through income”, “Net gains/(losses) on financial assets at fair value through other comprehensive income” and “Net gains/(losses) on foreign currency transactions”; and
(5) Includes, in the difference betweenConsolidated IFRS, the IFRSbalances referring to depreciation and the Segment Report Information as impairment for loans and advance and effective interest rate.amortization.
BradescoF-89
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
Our operations are substantially conducted in Brazil. Additionally, as of December 31, 2017,2019, we have aone branch in New York, one branch in Grand Cayman, and one branch in London, mainly to complement our banking services and assist in import and export operations for Brazilian customers. Moreover we also have subsidiaries abroad, namely: Banco Bradesco Argentina S.A.S.A.U. (Buenos Aires), Banco Bradesco Europe S.A. (Luxembourg), Bradesco North America LLC (New York), Bradesco Securities, Inc. (New York), Bradesco Securities UK Limited (London), Cidade Capital Markets Ltd. (Grand Cayman), Bradesco Securities Hong Kong Limited (Hong Kong), Bradesco Trade Services Limited (Hong Kong) and Bradescard Mexico, Sociedad de Responsabilidad Limitada (Mexico).
No income from transactions with a single customer or counterparty abroad represented 10% of the Organization’s income in the period of 2017, 20162019, 2018 and 2015.2017.
All transactions between operating segments are conducted on an arm's length basis, with intra-segment revenue and costs being eliminated in "Other operations, adjustments and eliminations". Income and expenses directly associated with each segment are included in determining business-segment performance.
| R$ thousand | ||
Years ended December 31 | |||
2019 | 2018 | 2017 | |
Interest and similar income |
|
|
|
Loans and advances to banks | 6,874,429 | 9,546,878 | 5,073,435 |
Loans and advances to customers: |
|
|
|
- Loans | 67,807,238 | 61,949,949 | 64,767,081 |
- Leases | 256,455 | 250,791 | 254,009 |
Financial assets: |
|
|
|
- At fair value through profit or loss | 19,436,407 | 17,538,227 | - |
- Fair value through other comprehensive income | 12,567,751 | 16,666,298 | - |
- At amortized cost | 13,139,371 | 12,120,868 | - |
- For trading | - | - | 13,684,574 |
- Available for sale | - | - | 11,351,320 |
- Held to maturity | - | - | 4,883,103 |
Pledged as collateral | - | - | 21,268,934 |
Compulsory deposits with the Central Bank | 4,304,875 | 3,916,299 | 4,881,319 |
Other financial interest income | 31,179 | 63,829 | 68,553 |
Total | 124,417,705 | 122,053,139 | 126,232,328 |
|
|
|
|
Interest and similar expenses |
|
|
|
Deposits from banks: |
|
|
|
- Interbank deposits | (267,636) | (137,154) | (152,550) |
- Funding in the open market | (11,784,845) | (15,094,786) | (22,564,515) |
- Borrowings and onlending | (4,400,636) | (3,176,469) | (3,068,552) |
Deposits from customers: |
|
|
|
- Savings accounts | (4,568,663) | (4,646,528) | (5,730,457) |
- Time deposits | (7,707,131) | (6,252,440) | (7,536,161) |
Funds from issuance of securities | (9,250,005) | (9,054,699) | (13,262,613) |
Subordinated debt | (3,708,924) | (3,517,067) | (5,100,017) |
Technical provisions for insurance, pension plans and capitalization bonds | (16,930,146) | (13,365,526) | (18,174,550) |
Total | (58,617,986) | (55,244,669) | (75,589,415) |
|
|
|
|
Net interest income | 65,799,719 | 66,808,470 | 50,642,913 |
Bradesco F-9F-990 IFRS – International Financial Reporting Standards – 2019
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
| R$ thousand | ||
Years ended December 31 | |||
2017 | 2016 | 2015 | |
Interest and similar income |
|
|
|
Loans and advances to banks | 5,073,435 | 8,689,348 | 8,349,194 |
Loans and advances to customers: |
|
|
|
- Loans | 64,767,081 | 69,530,396 | 62,472,012 |
- Leasing transactions | 254,009 | 343,626 | 444,502 |
Financial assets: |
|
|
|
- For trading | 13,684,574 | 23,576,526 | 13,982,927 |
- Available for sale | 11,351,320 | 11,572,618 | 11,629,493 |
- Held to maturity | 4,883,103 | 6,514,933 | 5,253,616 |
Pledged as collateral | 21,268,934 | 21,739,202 | 20,270,191 |
Compulsory deposits with the Central Bank | 4,881,319 | 5,667,516 | 4,587,412 |
Other financial interest income | 68,553 | 66,210 | 58,905 |
Total | 126,232,328 | 147,700,375 | 127,048,252 |
|
|
|
|
Interest and similar expenses |
|
|
|
Deposits from banks: |
|
|
|
- Interbank deposits | (152,550) | (127,617) | (74,814) |
- Funding in the open market | (22,564,515) | (26,767,039) | (23,509,785) |
- Borrowings and onlending | (3,068,552) | (3,865,411) | (3,092,184) |
Deposits from customers: |
|
|
|
- Savings accounts | (5,730,457) | (6,712,509) | (6,450,258) |
- Time deposits | (7,536,161) | (8,746,203) | (5,942,386) |
Funds from issuance of securities | (13,262,613) | (17,124,502) | (11,570,606) |
Subordinated debt | (5,100,017) | (6,298,555) | (4,669,830) |
Insurance technical provisions and pension plans | (18,174,550) | (21,395,550) | (16,102,347) |
Total | (75,589,415) | (91,037,386) | (71,412,210) |
|
|
|
|
Net interest income | 50,642,913 | 56,662,989 | 55,636,042 |
F-100 IFRS – International Financial Reporting Standards – 2017
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Notes to the Consolidated Financial Statements
| R$ thousand | R$ thousand | ||||
Years ended December 31 | Years ended December 31 | |||||
2017 | 2016 | 2015 | 2019 | 2018 | 2017 | |
Fee and commission income |
|
|
|
|
|
|
Credit cards | 6,848,855 | 6,251,963 | 5,875,029 | |||
Credit card income | 7,397,305 | 6,951,609 | 6,848,855 | |||
Current accounts | 6,652,711 | 6,030,640 | 4,941,947 | 7,702,319 | 7,165,667 | 6,652,711 |
Collections | 1,965,601 | 1,777,515 | 1,573,818 | 1,935,353 | 1,982,037 | 1,965,601 |
Guarantees | 1,570,522 | 1,438,409 | 1,265,356 | 1,257,771 | 1,463,423 | 1,570,522 |
Asset management | 1,463,469 | 1,079,653 | 1,054,424 | 1,582,733 | 1,525,280 | 1,463,469 |
Consortium management | 1,526,660 | 1,278,753 | 1,040,109 | 1,921,082 | 1,683,942 | 1,526,660 |
Custody and brokerage services | 754,966 | 618,750 | 556,701 | 1,134,630 | 916,083 | 754,966 |
Underwriting | 801,219 | 733,530 | 540,879 | |||
Underwriting/ Financial Advisory Services | 1,014,607 | 815,242 | 801,219 | |||
Payments | 409,267 | 373,639 | 382,427 | 475,393 | 448,416 | 409,267 |
Other | 755,558 | 758,235 | 626,183 | 916,483 | 879,891 | 755,558 |
Total | 22,748,828 | 20,341,087 | 17,856,873 | 25,337,676 | 23,831,590 | 22,748,828 |
|
|
|
| |||
Fee and commission expenses |
|
|
| |||
Financial system services | - | (36) | (36,203) | |||
Total | - | (36) | (36,203) | |||
|
|
|
| |||
Net fee and commission income | 22,748,828 | 20,341,051 | 17,820,670 |
| R$ thousand | R$ thousand | |||
Years ended December 31 | Year ended December 31 | ||||
2017 | 2016 | 2015 | 2019 | 2018 | |
Fixed income securities | 9,862,617 | 4,654,959 | (5,174,739) | 544,554 | (1,360,349) |
Derivative financial instruments | (1,426,160) | 10,887,800 | (4,267,748) | (1,197,059) | (10,543,169) |
Equity securities | 1,186,651 | 860,011 | 1,190,432 | (438,412) | 226,945 |
Total | 9,623,108 | 16,402,770 | (8,252,055) | (1,090,917) | (11,676,573) |
| R$ thousand | ||
Years ended December 31 | |||
2017 | 2016 | 2015 | |
Fixed income securities (1) | 49,963 | (1,918,595) | (346,032) |
Equity securities (1) | 437,054 | 459,223 | (577,401) |
Dividends received | 83,341 | 117,972 | 251,623 |
Total | 570,358 | (1,341,400) | (671,810) |
(1)Includes impairment losses of R$ 1,729,039 thousand (2016 - R$ 2,106,107 thousand and 2015 - R$ 424,552 thousand).
| R$ thousand | |
Year ended December 31 | ||
2019 | 2018 | |
Fixed income securities | 78,455 | 345,987 |
Equity securities | 572,973 | 677,312 |
Dividends received | 4,404 | 50,264 |
Total | 655,832 | 1,073,563 |
Net gains and losses on foreign currency transactions primarily consists of gains or losses from currency trading and translation of monetary items from a foreign currency into the functional currency.
BradescoF-101 F-91
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
| R$ thousand | ||
Years ended December 31 | |||
2017 | 2016 | 2015 | |
Written premiums | 65,864,591 | 62,470,571 | 55,920,681 |
Supplemental pension plan contributions | 5,090,043 | 3,679,922 | 3,795,219 |
Granted coinsurance premiums | (49,715) | (70,862) | (88,612) |
Refunded premiums | (667,196) | (746,244) | (522,309) |
Net written premiums earned | 70,237,723 | 65,333,387 | 59,104,979 |
Reinsurance premiums paid | (191,088) | (306,265) | (344,199) |
Premiums retained from insurance and pension plans | 70,046,635 | 65,027,122 | 58,760,780 |
|
|
|
|
Changes in the provision for insurance | (30,435,868) | (29,729,884) | (25,528,076) |
Changes in the provision for private pension plans | (4,369,903) | (3,052,034) | (2,757,963) |
Changes in the technical provisions for insurance and pension plans | (34,805,771) | (32,781,918) | (28,286,039) |
|
|
|
|
Reported indemnities | (25,924,687) | (24,877,804) | (21,658,594) |
Claims expenses | (36,068) | (119,201) | (69,599) |
Recovery of ceded coinsurance | 35,332 | 65,285 | 87,053 |
Recovery of reinsurance | 116,913 | 141,711 | 407,195 |
Salvage recoveries | 488,057 | 451,930 | 402,718 |
Changes in the IBNR provision | (274,509) | (204,354) | (892,816) |
Retained claims | (25,594,962) | (24,542,433) | (21,724,043) |
|
|
|
|
Commissions on premiums | (2,700,131) | (2,696,002) | (1,985,426) |
Recovery of commissions | 19,334 | 29,927 | 21,700 |
Fees | (403,835) | (489,279) | (1,201,216) |
Brokerage expenses - private pension plans | (153,552) | (167,654) | (188,037) |
Changes in deferred commissions | (167,728) | (224,000) | 99,786 |
Selling expenses for insurance and pension plans | (3,405,912) | (3,547,008) | (3,253,193) |
|
|
|
|
Net income from insurance and pension plans | 6,239,990 | 4,155,763 | 5,497,505 |
| R$ thousand | ||
Years ended December 31 | |||
2017 | 2016 | 2015 | |
Loans and receivables: |
|
|
|
Impairment losses | (25,780,383) | (22,357,042) | (19,527,976) |
Recovery of credits charged-off as losses | 7,034,857 | 5,507,507 | 4,144,879 |
Reversal of impairment | 1,884,691 | 1,499,257 | 661,945 |
Total | (16,860,835) | (15,350,278) | (14,721,152) |
| R$ thousand | ||
Years ended December 31 | |||
2019 | 2018 | 2017 | |
Written premiums | 67,835,874 | 62,736,288 | 65,864,591 |
Supplemental pension plan contributions | 3,954,904 | 4,441,813 | 5,090,043 |
Granted coinsurance premiums | (62,903) | (47,232) | (49,715) |
Refunded premiums | (467,546) | (769,311) | (667,196) |
Net written premiums earned | 71,260,329 | 66,361,558 | 70,237,723 |
Reinsurance premiums paid | (68,919) | (91,463) | (191,088) |
Premiums retained from insurance and pension plans | 71,191,410 | 66,270,095 | 70,046,635 |
|
|
|
|
Changes in the provision for insurance | (29,047,959) | (25,837,488) | (30,435,868) |
Changes in the provision for private pension plans | (2,988,568) | (3,571,734) | (4,369,903) |
Changes in the insurance technical provisions and pension plans | (32,036,527) | (29,409,222) | (34,805,771) |
�� |
|
|
|
Reported indemnities | (28,009,648) | (26,463,800) | (25,924,687) |
Claims expenses | (117,705) | (67,298) | (36,068) |
Recovery of ceded coinsurance | 160,443 | 117,703 | 35,332 |
Recovery of reinsurance | 50,237 | 18,786 | 116,913 |
Salvage recoveries | 589,906 | 491,559 | 488,057 |
Changes in the IBNR provision | (324,069) | (121,320) | (274,509) |
Retained claims | (27,650,836) | (26,024,370) | (25,594,962) |
|
|
|
|
Commissions on premiums | (2,728,176) | (2,655,101) | (2,700,131) |
Recovery of commissions | 5,855 | 12,411 | 19,334 |
Fees | (422,952) | (353,139) | (403,835) |
Brokerage expenses - private pension plans | (101,626) | (125,770) | (153,552) |
Changes in deferred commissions | (2,209) | (58,032) | (167,728) |
Selling expenses for insurance and pension plans | (3,249,108) | (3,179,631) | (3,405,912) |
|
|
|
|
Gross profit from insurance and pension plans | 8,254,939 | 7,656,872 | 6,239,990 |
12) Personnel expenses
| R$ thousand | ||
Years ended December 31 | |||
2019 (1) | 2018 | 2017 | |
Salaries | (9,768,305) | (8,350,461) | (9,170,556) |
Benefits | (5,911,496) | (4,383,644) | (5,385,133) |
Social security charges | (3,470,191) | (2,997,889) | (3,505,290) |
Employee profit sharing | (1,803,545) | (1,682,868) | (1,572,472) |
Provision for labor claims (2) | (3,382,750) | (1,289,664) | (927,136) |
Training | (190,031) | (166,936) | (162,678) |
Total (1) | (24,526,318) | (18,871,462) | (20,723,265) |
(1) In 2019, it includes R$1,819,232 thousand related to the Voluntary Severance Program (PDV); and
(2) Includes the effect of the calculation methodology refinements. For further information, see Note 36.
F-9F-1022 IFRS – International Financial Reporting Standards – 20172019
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
| R$ thousand | ||
Years ended December 31 | |||
2017 | 2016 | 2015 | |
Salaries | (9,170,556) | (8,236,617) | (6,369,727) |
Benefits | (5,385,133) | (3,625,796) | (2,994,155) |
Social security charges | (3,505,290) | (2,862,067) | (2,402,112) |
Employee profit sharing | (1,572,472) | (1,451,310) | (1,304,958) |
Provision for labor claims | (927,136) | (663,124) | (853,660) |
Training | (162,678) | (164,869) | (133,435) |
Total(1) | (20,723,265) | (17,003,783) | (14,058,047) |
(1)Includes the effects of the Special Voluntary Termination Plan (Note 43).
| R$ thousand | R$ thousand | ||||
Years ended December 31 | Years ended December 31 | |||||
2017 | 2016 | 2015 | 2019 | 2018 | 2017 | |
Outsourced services | (4,748,308) | (4,871,194) | (4,139,058) | (4,808,331) | (4,598,748) | (4,748,308) |
Communication | (1,684,153) | (1,653,055) | (1,427,685) | (1,570,224) | (1,541,742) | (1,684,153) |
Data processing | (2,117,085) | (1,612,454) | (1,222,433) | (2,145,226) | (2,398,676) | (2,117,085) |
Advertising and marketing | (942,851) | (1,124,659) | (963,308) | (1,300,468) | (1,136,062) | (942,851) |
Asset maintenance | (1,158,840) | (1,060,856) | (926,001) | (1,231,596) | (1,112,508) | (1,158,840) |
Financial system | (1,033,017) | (1,047,618) | (830,199) | (1,135,964) | (1,009,209) | (1,033,017) |
Rental | (1,142,166) | (1,027,561) | (887,412) | (180,648) | (1,142,408) | (1,142,166) |
Security and surveillance | (818,221) | (736,547) | (606,292) | (744,036) | (748,577) | (818,221) |
Transport | (782,444) | (719,842) | (631,085) | (773,208) | (749,685) | (782,444) |
Water, electricity and gas | (405,515) | (384,069) | (339,267) | (440,613) | (412,789) | (405,515) |
Advances to FGC (Deposit Guarantee Association) | (418,670) | (355,540) | (303,094) | (433,369) | (408,335) | (418,670) |
Supplies | (263,527) | (321,509) | (315,135) | (191,362) | (216,768) | (263,527) |
Travel | (261,911) | (174,772) | (157,723) | (302,170) | (286,731) | (261,911) |
Other | (1,105,753) | (1,059,887) | (973,278) | (1,232,363) | (1,111,724) | (1,105,753) |
Total | (16,882,461) | (16,149,563) | (13,721,970) | (16,489,578) | (16,873,962) | (16,882,461) |
(1) The IFRS 16 standard changed the accounting for leases, eliminating rental expenses and instead requiring the recognition of depreciation of the right-of-use asset (underlying assets) and interest expense on the leases (Notes 2h, 27 and 37).
| R$ thousand | R$ thousand | ||||
Years ended December 31 | Years ended December 31 | |||||
2017 | 2016 | 2015 | 2019 | 2018 | 2017 | |
Amortization expenses | (3,331,240) | (2,516,777) | (1,884,281) | (3,128,385) | (3,348,242) | (3,331,240) |
Depreciation expenses | (1,237,328) | (1,141,636) | (1,057,722) | (2,737,383) | (1,460,013) | (1,237,328) |
Total | (4,568,568) | (3,658,413) | (2,942,003) | (5,865,768) | (4,808,255) | (4,568,568) |
(1) The increase in depreciation expense in 2019 refers to the adoption of IFRS 16.
| R$ thousand | ||
Years ended December 31 | |||
2019 | 2018 | 2017 | |
Tax expenses | (6,858,230) | (6,096,899) | (5,960,618) |
Legal provision | (4,435,942) | (1,836,429) | (1,238,057) |
Assets/liabilities monetary variation | 112,799 | (147,642) | 31,710 |
Income from sales of non-current assets, investments, and property and equipment, net | (344,627) | (614,895) | (412,957) |
Card marketing expenses | (3,207,559) | (3,381,586) | (3,345,927) |
Other (1) | (11,481,277) | (2,133,143) | 792,492 |
Total | (26,214,836) | (14,210,594) | (10,133,357) |
(1) On December 31, 2019, it includes: (i) impairment losses: in the acquisition of the right to provide financial services, in the amount of R$519,749 thousand; software/hardware, in the amount of R$222,024 thousand; and investment goodwill, in the amount of R$982,536 thousand; (ii) expenses with provision for financial guarantees, in the amount of R$1,252,791 thousand; (iii) expenses with provision for contingencies, related to FCVS, in the amount of R$342,155 thousand and other provisions, in the amount of R$696,469 thousand; and (iv) operating expenses related to insurance operations in 2019 - R$2,774,936 thousand (R$1,976,347 thousand in 2018 and R$1,354,719 thousand in 2017).
BradescoF-103 F-93
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
| R$ thousand | ||
Years ended December 31 | |||
2017 | 2016 | 2015 | |
Tax expenses | (5,960,618) | (6,331,651) | (4,791,754) |
Legal provision | (1,238,057) | (2,927,734) | (1,439,460) |
Variation in monetary liabilities | 31,710 | (699,719) | (597,240) |
Income from sales of non-current assets, investments, and property and equipment, net | (412,957) | (467,042) | (277,232) |
Other (1) | (2,553,435) | (3,578,016) | (5,882,867) |
Total | (10,133,357) | (14,004,162) | (12,988,553) |
(1)Includes: (i) the effect of the (additions)/reversal of provision for tax contingency in 2017 – R$ 487,269 thousand (2016 - R$ (484,227) thousand and 2015 – R$ 570,835 thousand); (ii) impairment losses in the amount of 2017 – R$ 185,188 thousand (2016 – R$ 31,256 thousand and 2015 – R$ 207,880 thousand); and (iii) operating expense related of insurance operation in 2017 – R$ 1,354,719 thousand (2016 - R$ 1,388,645 thousand and 2015 – R$ 1,281,381 thousand).
a) Calculation of income tax and social contribution charges
| R$ thousand | R$ thousand | ||||
Years ended December 31 | Years ended December 31 | |||||
2017 | 2016 | 2015 | 2019 | 2018 | 2017 | |
Income before income tax and social contribution | 23,743,559 | 31,905,456 | 9,603,583 | 13,381,078 | 19,442,015 | 23,743,559 |
Total burden of income tax and social contribution at the current rates (1) | (10,684,602) | (14,357,455) | (4,321,612) | |||
Total income tax and social contribution at the current rates (Note 2t) | (5,352,431) | (8,748,907) | (10,684,602) | |||
Effect of additions and exclusions in the tax calculation: |
|
|
|
|
|
|
Earnings (losses) of associates and joint ventures | 773,285 | 764,876 | 687,623 | 480,433 | 756,169 | 773,285 |
Interest on shareholders’ equity (paid and payable) | 3,241,955 | 3,139,102 | 2,305,695 | |||
Net tax credit of deferred liabilities (2) |
|
| 2,341,220 | |||
Other amounts (3) | 240,406 | (3,459,253) | 7,621,396 | |||
Interest on equity | 2,949,143 | 3,284,368 | 3,241,955 | |||
Other amounts (1) | 9,714,984 | 2,014,794 | 240,406 | |||
Income tax and social contribution for the period | (6,428,956) | (13,912,730) | 8,634,322 | 7,792,129 | (2,693,576) | (6,428,956) |
Effective rate | 27.1% | 43.6% | -89.9% | 58.2% | 13.9% | 27.1% |
(1)Current rates: (i) 25% for income tax; (ii) of 15% for the social contribution to financial and equated companies, and of the insurance industry, and of 20%, from September 2015 to December 2018, in accordance with Law nº 13,169/15; and (iii) of 9% for the other companies (Note 2w);
(2)In 2015, refers to, constitution of deferred tax assets, net of deferred liabilities, related to the increase in the social contribution tax rate, according to Law no13,169/15; and
(3)Basically, includes, Primarily, includes: (i) the exchange rate variation of assets and liabilities, derived from investments abroad; (ii) the effect of R$6,403,185 thousand, referring to the increase in the social contribution rate on banks' net income from 15% to 20% on temporary differences and negative basis, as established in Constitutional Amendment No. 103 promulgated in November 2019; (iii) incentive deductions; and (iv) equalization of the effective rate of social contributionnon-financial companies in relation to the rate of 45% shown; and (iii) the deduction incentives.that shown.
F-104 IFRS – International Financial Reporting Standards – 2017
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Notes to the Consolidated Financial Statements
b) Composition of income tax and social contribution in the consolidated statement of income
| R$ thousand | R$ thousand | ||||
Years ended December 31 | Years ended December 31 | |||||
2017 | 2016 | 2015 | 2019 | 2018 | 2017 | |
Current taxes: |
|
|
|
|
|
|
Income tax and social contribution payable | (8,788,060) | (8,852,947) | (6,075,948) | (7,441,945) | (5,657,841) | (8,788,060) |
Deferred taxes: |
|
|
|
|
|
|
Net Addition/(realization) of temporary differences | 2,950,961 | (4,106,008) | 11,424,595 | 14,030,748 | 1,288,642 | 2,950,961 |
Use of opening balances of: |
|
|
|
|
|
|
Social contribution loss | (430,584) | (647,282) | (127,214) | (107,984) | (313,223) | (430,584) |
Income tax loss | (331,512) | (879,276) | (65,224) | (186,773) | (343,791) | (331,512) |
Addition on: |
|
|
|
|
|
|
Social contribution loss | 150,371 | 234,730 | 272,793 | 1,174,988 | 870,717 | 150,371 |
Income tax loss | 19,868 | 338,053 | 731,419 | 323,095 | 1,461,920 | 19,868 |
Activation of the tax credit – Law No. 13,169/15: |
|
|
| |||
Social contribution loss | - | - | 422,853 | |||
Temporary additions | - | - | 2,051,048 | |||
Total deferred tax expense | 2,359,104 | (5,059,783) | 14,710,270 | 15,234,074 | 2,964,265 | 2,359,104 |
Income tax and social contribution | (6,428,956) | (13,912,730) | 8,634,322 | 7,792,129 | (2,693,576) | (6,428,956) |
c) Deferred income tax and social contribution presented in the consolidated statement of financial position
| R$ thousand | |||
Balance on December 31, 2016 | Amount recorded | Realized / Decrease (4) | Balance on December 31, 2017 | |
Provisions of impairment of loans and advances | 23,011,653 | 12,264,028 | 8,771,818 | 26,503,863 |
Provision for contingencies | 7,351,234 | 1,782,500 | 1,907,251 | 7,226,483 |
Adjustment to market value of securities | 5,488,482 | 1,724,016 | 3,268,623 | 3,943,875 |
Other | 4,681,457 | 4,773,082 | 3,644,973 | 5,809,566 |
Total tax assets on temporary differences (3) | 40,532,826 | 20,543,626 | 17,592,665 | 43,483,787 |
Income tax and social contribution losses in Brazil and abroad (3) | 5,595,729 | 170,239 | 762,096 | 5,003,872 |
Adjustment to market value of available for sale (3) | 493,168 | 576,732 | 1,069,900 | - |
Total deferred tax assets (2) | 46,621,723 | 21,290,597 | 19,424,661 | 48,487,659 |
Deferred tax liabilities (2) | 3,267,808 | 3,557,618 | 817,831 | 6,007,595 |
Net deferred taxes (2) | 43,353,915 | 17,732,979 | 18,606,830 | 42,480,064 |
| R$ thousand | |||
Balance on December 31, 2018 | Amount recorded (2) | Realized/ Decrease | Balance on December 31, 2019 | |
Provisions for credit losses | 31,642,800 | 14,212,786 | (6,199,140) | 39,656,446 |
Provision for contingencies | 7,534,723 | 4,790,532 | (1,862,405) | 10,462,850 |
Impairment of securities and investments | 1,889,028 | 1,967,811 | (1,067,523) | 2,789,316 |
Adjustment to fair value of securities | 2,198,742 | 1,339,401 | (2,191,475) | 1,346,668 |
Other | 3,336,145 | 5,025,820 | (1,985,059) | 6,376,906 |
Total deductible taxes on temporary differences | 46,601,438 | 27,336,350 | (13,305,602) | 60,632,186 |
Income tax and social contribution losses in Brazil and abroad | 6,679,495 | 1,498,083 | (294,757) | 7,882,821 |
Total deferred tax assets (1) | 53,280,933 | 28,834,433 | (13,600,359) | 68,515,007 |
Deferred tax liabilities (1) | 5,798,953 | 5,011,070 | (784,468) | 10,025,555 |
Net deferred taxes (1) | 47,481,980 | 23,823,363 | (12,815,891) | 58,489,452 |
Bradesco F-91054 IFRS – International Financial Reporting Standards – 2019
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
| R$ thousand | ||||
Balance on December 31, 2015 | Balance originating from an acquired institution (1) | Amount recorded | Realized / Decrease | Balance on December 31, 2016 | |
Provisions of impairment of loans and advances | 22,617,097 | 3,938,976 | 12,948,736 | 16,493,156 | 23,011,653 |
Provision for contingencies | 5,720,598 | 1,209,685 | 2,498,218 | 2,077,267 | 7,351,234 |
Adjustment to market value of securities | 7,090,939 | 109,501 | 282,741 | 1,994,699 | 5,488,482 |
Other | 3,511,581 | 440,457 | 3,135,635 | 2,406,216 | 4,681,457 |
Total tax assets on temporary differences (3) | 38,940,215 | 5,698,619 | 18,865,330 | 22,971,338 | 40,532,826 |
Income tax and social contribution losses in Brazil and abroad (3) | 5,761,626 | 787,878 | 572,783 | 1,526,558 | 5,595,729 |
Adjustment to market value of available for sale (3) | 2,704,484 | 32,120 | 393,369 | 2,636,805 | 493,168 |
Social contribution - MP 2,158-35 (change in tax law) | 113,783 | - | - | 113,783 | - |
Total deferred tax assets (2) | 47,520,108 | 6,518,617 | 19,831,482 | 27,248,484 | 46,621,723 |
Deferred tax liabilities (2) | 2,894,367 | 3,592 | 1,920,479 | 1,550,630 | 3,267,808 |
Net deferred taxes (2) | 44,625,741 | 6,515,025 | 17,911,003 | 25,697,854 | 43,353,915 |
| R$ thousand | |||
Balance on December 31, 2017 | Amount recorded | Realized / Decrease | Balance on December 31, 2018 | |
Provisions for credit losses | 26,503,863 | 11,554,370 | (6,415,433) | 31,642,800 |
Provision for contingencies | 7,226,482 | 1,835,386 | (1,527,145) | 7,534,723 |
Impairment of securities and investments | 1,778,282 | 572,468 | (461,722) | 1,889,028 |
Adjustment to fair value of securities | 3,704,393 | 955,712 | (2,461,363) | 2,198,742 |
Other | 4,270,767 | 2,313,692 | (3,248,314) | 3,336,145 |
Total tax assets on temporary differences (2) | 43,483,787 | 17,231,628 | (14,113,977) | 46,601,438 |
Income tax and social contribution losses in Brazil and abroad (2) | 5,003,872 | 2,332,637 | (657,014) | 6,679,495 |
Total deferred tax assets (1) | 48,487,659 | 19,564,265 | (14,770,991) | 53,280,933 |
Deferred tax liabilities (1) | 6,007,595 | 2,231,551 | (2,440,193) | 5,798,953 |
Net deferred taxes (1) | 42,480,064 | 17,332,714 | (12,330,798) | 47,481,980 |
(1)HSBC Brasil (Note 2a);
(2)Deferred income and social contribution tax assets and liabilities are offset in the balance sheetstatement of financial position by taxable entity, and were R$ 4,755,7488,944,952 thousand in 20172019 and R$ 1,504,8604,598,364 thousand in 2016;2018; and
(3)Deferred tax assets(2) Includes the effect of financial and similar companies and insurance industry were established consideringR$6,403,185 thousand, referring to the increase ofin the social contribution rate determined by Law 11.727/08on banks' net income from 15% to 20% on temporary differences and Law 13.169/15 (Note 2 x); and
(4)Includes a write-offnegative basis, as established in Constitutional Amendment No. 103 promulgated in November of tax credits, in the amount of R$ 150,040 thousand.2019.
d) Expected realization of deferred tax assets on temporary differences, tax loss and negative basis of social contribution
| R$ thousand | R$ thousand | |||||||||
Temporary differences | Income tax and social contribution losses | Total | Temporary differences | Carry-forward tax losses | Total | ||||||
Income tax | Social contribution | Income tax | Social contribution | Income tax | Social contribution | Income tax | Social contribution | ||||
2018 | 6,189,592 | 4,778,522 | 157,668 | 303,794 | 11,429,576 | ||||||
2019 | 6,106,611 | 3,500,573 | 143,705 | 80,058 | 9,830,947 | ||||||
2020 | 5,444,841 | 3,163,487 | 139,825 | 78,361 | 8,826,514 | 10,196,257 | 8,030,746 | 229,659 | 185,685 | 18,642,347 | |
2021 | 4,408,140 | 2,609,808 | 620,279 | 367,041 | 8,005,268 | 8,517,189 | 6,721,091 | 278,169 | 222,356 | 15,738,805 | |
2022 | 2,534,237 | 1,470,379 | 732,490 | 478,318 | 5,215,424 | 7,745,964 | 6,122,730 | 334,474 | 266,691 | 14,469,859 | |
After 2022 | 2,100,881 | 1,176,716 | 824,042 | 1,078,291 | 5,179,930 | ||||||
2023 | 6,319,696 | 4,991,692 | 1,127,995 | 904,025 | 13,343,408 | ||||||
2024 | 813,924 | 498,520 | 1,869,069 | 2,188,807 | 5,370,320 | ||||||
After 2023 | 374,575 | 299,802 | 33,093 | 242,798 | 950,268 | ||||||
Total | 26,784,302 | 16,699,485 | 2,618,009 | 2,385,863 | 48,487,659 | 33,967,605 | 26,664,581 | 3,872,459 | 4,010,362 | 68,515,007 |
e)Deferred tax liabilities
| R$ thousand | |
On December 31 | ||
2019 | 2018 | |
Timing differences of depreciation – finance leasing | 237,400 | 242,571 |
Adjustment to fair value of securities | 5,054,596 | 1,200,453 |
Judicial deposit and others | 4,733,559 | 4,355,929 |
Total | 10,025,555 | 5,798,953 |
Bradesco F-106F-95 IFRS – International Financial Reporting Standards – 2017
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
e)Deferred tax liabilities
| R$ thousand | |
On December 31 | ||
2017 | 2016 | |
Timing differences of depreciation – finance leasing | 283,232 | 381,119 |
Adjustment to market value of securities | 1,215,588 | 213,404 |
Judicial deposit and others | 4,508,775 | 2,673,285 |
Total | 6,007,595 | 3,267,808 |
The deferred tax liabilities of companies in the financial and insurance sectors were established considering the increased social contribution rate, established by Law no 11,727/08 and Law no 13,169/15 (Note 2x).
f) Income tax and social contribution on adjustments recognized directly in equityother comprehensive income
| R$ thousand | R$ thousand | ||||||||||||||||
On December 31, 2017 | On December 31, 2016 | On December 31, 2015 | On December 31, 2019 | On December 31, 2018 | On December 31, 2017 | |||||||||||||
Before tax | Tax (expense)/ benefit | Net of tax | Before tax | Tax (expense)/ benefit | Net of tax | Before tax | Tax (expense)/ benefit | Net of tax | Before tax | Tax (expense)/ benefit | Net of tax | Before tax | Tax (expense)/ benefit | Net of tax | Before tax | Tax (expense)/ benefit | Net of tax | |
Financial assets at fair value through other comprehensive income | 10,027,427 | (4,231,992) | 5,795,435 | (512,397) | 215,482 | (296,915) | - | - | - | |||||||||
Financial assets recorded as available for sale | 3,418,567 | (1,231,202) | 2,187,365 | 6,298,103 | (2,587,076) | 3,711,027 | (5,677,902) | 2,273,982 | (3,403,920) | - | - | - | - | 3,418,567 | (1,231,202) | 2,187,365 | ||
Exchange differences on translations of foreign operations | 23,010 | 5,992 | 29,002 | (194,566) | 87,555 | (107,011) | 118,485 | (57,788) | 60,697 | 73,867 | - | 73,867 | 113,198 | - | 113,198 | 23,010 | 5,992 | 29,002 |
Other | (371,887) | 167,349 | (204,538) | (154,607) | 61,843 | (92,764) | - | - | - | |||||||||
Total | 3,441,577 | (1,225,210) | 2,216,367 | 6,103,537 | (2,499,521) | 3,604,016 | (5,559,417) | 2,216,194 | (3,343,223) | 9,729,407 | (4,064,643) | 5,664,764 | (553,806) | 277,325 | (276,481) | 3,441,577 | (1,225,210) | 2,216,367 |
F-g96)Taxes to be offset IFRS – International Financial Reporting Standards – 2019
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Refers basicallyNotes to amount of income tax and social contribution to be offset.the Consolidated Financial Statements
1.a) Basic earnings per share
The calculation of basic earnings per share was calculated based on the weighted average number of common and preferred shares outstanding, as shown in the calculations below:
| Years ended December 31 | Years ended December 31 | ||||
2017 | 2016 (1) | 2015 (1) | 2019 | 2018 (1) | 2017 (1) | |
Net earnings attributable to the Organization’s common shareholders (R$ thousand) | 8,157,920 | 8,542,147 | 8,652,905 | 10,035,723 | 7,916,635 | 8,157,920 |
Net earnings attributable to the Organization’s preferred shareholders (R$ thousand) | 8,931,444 | 9,352,102 | 9,480,001 | 10,987,300 | 8,667,280 | 8,931,444 |
Weighted average number of common shares outstanding (thousands) | 3,049,991 | 3,049,991 | 3,050,156 | 4,025,988 | 4,025,988 | 4,025,988 |
Weighted average number of preferred shares outstanding (thousands) | 3,035,625 | 3,035,625 | 3,037,917 | 4,007,025 | 4,007,025 | 4,007,025 |
Basic earnings per share attributable to common shareholders of the Organization (in Reais) | 2.67 | 2.80 | 2.84 | 2.49 | 1.97 | 2.03 |
Basic earnings per share attributable to preferred shareholders of the Organization (in Reais) | 2.94 | 3.08 | 3.12 | 2.74 | 2.16 | 2.23 |
(1)All share amounts presented for prior periods have been adjusted to reflect the stock splitbonus share issue approved at the Board of Directors’Special Shareholders’ Meeting ofheld on March 10, 2017,11, 2019, in the proportion of onetwo new shareshares for every 10 shares held.
2.b) Diluted earnings per share
Diluted earnings per share are the same as basic earnings per share since there are no potentially dilutive instruments.
Bradesco F-107
Consolidated Financial Statements prepared in accordance18) Cash, balances with International Financial Reporting Standards (IFRS)
Notes to the Consolidated Financial Statements
a) Cash and balances with banks
| R$ thousand | R$ thousand | ||
On December 31 | On December 31 | |||
2017 | 2016 | 2019 | 2018 | |
Cash and due from banks in domestic currency | 12,939,852 | 12,432,290 | 14,802,308 | 14,734,228 |
Cash and due from banks in foreign currency | 2,088,498 | 2,085,650 | 4,185,462 | 4,877,776 |
Compulsory deposits with the Central Bank (1) | 66,714,226 | 58,036,531 | 90,622,337 | 87,596,916 |
Other | 375 | 180 | ||
Investments in gold | 892 | 823 | ||
Total | 81,742,951 | 72,554,651 | 109,610,999 | 107,209,743 |
(1)Compulsory deposits with the Brazilian Central Bank of Brazil refer to a minimum balance that financial institutions must maintain at the Brazilian Central Bank of Brazil based on a percentage of deposits received from third parties.
b) Cash and cash equivalents
| R$ thousand | R$ thousand | ||
On December 31 | On December 31 | |||
2017 | 2016 | 2019 | 2018 | |
Cash and due from banks in domestic currency | 12,939,852 | 12,432,290 | 14,802,308 | 14,734,228 |
Cash and due from banks in foreign currency | 2,088,498 | 2,085,650 | 4,185,462 | 4,877,776 |
Interbank investments (1) | 141,025,717 | 166,712,307 | 42,890,831 | 90,612,803 |
Other | 375 | 180 | ||
Investments in gold | 892 | 823 | ||
Total | 156,054,442 | 181,230,427 | 61,879,493 | 110,225,630 |
(1)Refers to operations with maturity date on the effective date of investment equal to or less than 90 days and insignificant risk of change in the fair value. Of this amount, R$ 123,691,19538,451,100 thousand (2016(2018 – R$ 84,728,59060,443,537 thousand) refers to reverse repurchase agreements registered as Financialfinancial assets pledged as collateral (Note 23) and R$ 17,334,522 thousand (2016 – R$ 81,983,717 thousand) as Loans and advances to banks.collateral.
a) Financial assets held for trading
| R$ thousand | |
On December 31 | ||
2017 | 2016 | |
Financial assets |
|
|
Brazilian government securities | 202,249,272 | 161,103,399 |
Bank debt securities | 8,348,269 | 18,600,127 |
Corporate debt and marketable equity securities | 12,339,790 | 10,383,682 |
Mutual funds | 4,377,508 | 4,303,781 |
Brazilian sovereign bonds | 307 | 1,358,025 |
Foreign governments securities | 528,010 | 635,390 |
Derivative financial instruments | 13,866,885 | 16,755,442 |
Total | 241,710,041 | 213,139,846 |
Maturity
| R$ thousand | |
On December 31 | ||
2017 | 2016 | |
Maturity of up to one year | 31,617,538 | 35,002,911 |
Maturity of one to five years | 146,527,365 | 134,589,655 |
Maturity of five to 10 years | 53,763,561 | 29,299,698 |
Maturity of over 10 years | 2,409,723 | 6,537,358 |
Maturity not stated | 7,391,854 | 7,710,224 |
Total | 241,710,041 | 213,139,846 |
Bradesco F-108F-97 IFRS – International Financial Reporting Standards – 2017
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
a)Financial assets at fair value through profit or loss
| R$ thousand | |
On December 31 | ||
2019 | 2018 | |
Financial assets (1) |
|
|
Brazilian government securities | 200,835,878 | 206,756,050 |
Bank debt securities | 14,984,397 | 10,164,454 |
Corporate debt and marketable equity securities | 13,391,018 | 9,303,942 |
Mutual funds | 5,518,833 | 3,657,393 |
Brazilian sovereign bonds | 47,308 | 659,603 |
Foreign governments securities | 471,153 | 849,114 |
Derivative financial instruments | 14,511,190 | 14,770,594 |
Total | 249,759,777 | 246,161,150 |
(1) In 2019 and 2018, no reclassifications were made of Financial Assets at fair value through profit or loss for trading”, totaled R$ 801,182 thousand and R$ 6,282,141 thousand in 2017 and December 2016, respectively, as disclosed in Note 23 "Financial assets pledged as collateral”.other categories of financial assets.
b)Maturity
| R$ thousand | |
On December 31 | ||
2019 | 2018 | |
Maturity of up to one year | 22,695,708 | 12,471,625 |
Maturity of one to five years | 162,184,205 | 164,553,949 |
Maturity of five to 10 years | 44,090,948 | 56,868,688 |
Maturity of over 10 years | 8,537,678 | 5,121,915 |
No stated maturity | 12,251,238 | 7,144,973 |
Total | 249,759,777 | 246,161,150 |
The total assets held for tradingfinancial instruments pledged as a guarantee of liabilities wascollateral classified as “Financial assets at fair value through profit or loss”, totaled R$ 5,874,6208,040,216 thousand (December 2016on December 31, 2019 (2018 – R$6,481,098 thousand),5,846,093being composed primarily of Brazilian government bonds.
The Organization maintained a total of R$6,252,632 thousand on December 31, 2019 (2018 – R$6,220,609 thousand). pledged as collateral for liabilities.
Unrealized net gains/(losses) onincluded in securities and trading securities totaled R$ (4,745,888)1,386,484 thousand in 2017 (2016on December 31, 2019 (2018 – R$ (9,404,052) thousand and 2015 – R$ R$ 7,425,562(1,066,594) thousand). Net variation in unrealized gains/(losses) from securities and trading securitiesat fair value through profit or loss totaled R$ (4,658,164)2,453,078 thousand in 2017 (2016 -2019 (2018 – R$ (1,978,490) thousand and 2015 - R$ (8,303,360) thousand)3,679,294).
b) Financial liabilities held for tradingc)Liabilities at fair value through profit or loss
| R$ thousand | R$ thousand | ||
On December 31 | On December 31 | |||
2017 | 2016 | 2019 | 2018 | |
Derivative financial instruments | 14,274,999 | 13,435,678 | 14,244,083 | 16,152,087 |
Total | 14,274,999 | 13,435,678 | 14,244,083 | 16,152,087 |
c)F-98 IFRS – International Financial Reporting Standards – 2019
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
The Organization enters into transactions involving derivative financial instruments with a number of customers for the purpose of mitigating their overall risk exposure as well as managing risk exposure. The derivative financial instruments most often used are highly-liquid instruments traded on the futures market (B3).
(i) Swap contracts
Foreign currency and interest rate swaps are agreements to exchange one set of cash flows for another and result in an economic exchange of foreign currencies or interest rates (for example fixed or variable) or in combinations (i.e. foreign currency and interest rate swaps). There is no exchange of the principal except in certain foreign currency swaps. The Organization’s foreign currency risk reflects the potential cost of replacing swap contracts and whether the counterparties fail to comply with their obligations. This risk is continually monitored in relation to the current fair value, the proportion of the notional value of the contracts and the market liquidity. The Organization, to control the level of credit risk assumed, evaluates the counterparties of the contracts using the same techniques used in its loan operations.
(ii) Foreign exchange options
Foreign exchange options are contracts according to which the seller (option issuer) gives to the buyer (option holder) the right, but not the obligation, to buy (call option) or sell (put option) on a certain date or during a certain period, a specific value in foreign currency. The seller receives from the buyer a premium for assuming the exchange or interest-rate risk. The options can be arranged between the Organization and a customer. The Organization is exposed to credit risk only on purchased options and only for the carrying amount, which is the fair market value.
(iii) Foreign currency and interest rate futures
Foreign currency and interest rate futures are contractual obligations for the payment or receipt of a net amount based on changes in foreign exchange and interest rates or the purchase or sale of afinancial instrument on a future date at a specific price, established by an organized financial market. The credit risk is minimal, since the future contracts are guaranteed in cash or securities and changes in the value of the contracts are settled on a daily basis. Contracts with a forward rate are interest-rate futures operations traded individually which require settlement of the difference between the contracted rate and the current market rate over the value of the principal to be paid in cash at a future date.
BradescoF-109 F-99
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
(iv) Forwardtransactions
A forward operation is a contract of purchase or sale, at a fixed price, for settlement on a certain date. Because it is a futures market, in which the purchase of the share will only be made on the date of maturity, a margin deposit is necessary to guarantee the contract. This margin can be in cash or in securities. The value of the margin varies during the contract according to the variation of the share involved in the operation, to the changes of volatility and liquidity, besides the possible additional margins that the broker could request.
F-110 IFRS – International Financial Reporting Standards – 2017
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Notes to the Consolidated Financial Statements
The breakdown of the notional and/or contractual values and the fair value of derivatives held for trading by the Organization is as follows:
| R$ thousand | |||
Notional amounts | Asset/(liability) | |||
On December 31 | On December 31 | |||
2017 | 2016 | 2017 | 2016 | |
Futures contracts |
|
|
|
|
• Interest rate futures |
|
|
|
|
Purchases | 96,081,180 | 111,026,397 | 3,586 | 9,022 |
Sales | 132,837,699 | 94,677,587 | (154,188) | (19,163) |
• In foreign currency |
|
|
|
|
Purchases | 48,376,597 | 27,399,904 | 1,243 | - |
Sales | 67,238,635 | 58,690,018 | (1,003) | - |
• Other |
|
|
|
|
Purchases | 163,224 | 48,291 | 162 | - |
Sales | 113,772 | 967 | (114) | - |
|
|
|
|
|
Options |
|
|
|
|
• Interest rates |
|
|
|
|
Purchases | 10,663,668 | 5,467,042 | 101,214 | 260,565 |
Sales | 9,616,129 | 4,755,788 | (535,748) | (193,768) |
• In foreign currency |
|
|
|
|
Purchases | 7,335,027 | 7,567,515 | 605,028 | 57,533 |
Sales | 10,274,094 | 2,836,294 | (409,587) | (62,356) |
• Other |
|
|
|
|
Purchases | 443,443 | 27,500 | 34,013 | 2,708 |
Sales | 228,141 | - | (20,188) | (6,533) |
|
|
|
|
|
Forward operations |
|
|
|
|
• In foreign currency |
|
|
|
|
Purchases | 10,372,477 | 16,633,033 | 218,019 | 1,599,401 |
Sales | 14,947,271 | 18,036,706 | (358,995) | (1,088,041) |
• Other |
|
|
|
|
Purchases | 114,020 | 48,911 | 497,987 | 1,586,061 |
Sales | 635,522 | 1,588,245 | (147,138) | (1,581,169) |
|
|
|
|
|
Swap contracts |
|
|
|
|
• Asset position |
|
|
|
|
Interest rate swaps | 56,636,856 | 72,297,999 | 11,065,095 | 9,799,949 |
Currency swaps | 6,161,641 | 7,276,143 | 1,340,538 | 3,645,707 |
• Liability position |
|
|
|
|
Interest rate swaps | 31,454,647 | 36,746,464 | (11,030,003) | (3,718,282) |
Currency swaps | 14,288,568 | 14,201,872 | (1,618,035) | (6,766,366) |
| On December 31 - R$ thousand | |||||||||
2019 | 2018 | |||||||||
Nominal value | Net amount value (3) | Original amortized cost | Mark-to-market adjustment | Fair value | Nominal value | Net amount value (3) | Original amortized cost | Mark-to-market adjustment | Fair value | |
Futures contracts |
|
|
|
|
|
|
|
| ||
Purchase commitments: | 140,426,077 | - | 20,290 | - | 20,290 | 237,744,206 |
| 12,333 | - | 12,333 |
- Interbank market | 108,149,874 | - | 12,659 | - | 12,659 | 183,952,954 | 54,745,811 | 8,902 | - | 8,902 |
- Foreign currency | 30,351,663 | - | 5,560 | - | 5,560 | 53,491,092 | - | 3,174 | - | 3,174 |
- Other | 1,924,540 | 777,414 | 2,071 | - | 2,071 | 300,160 | 11,359 | 257 | - | 257 |
Sale commitments: | 231,911,105 |
| (23,676) | - | (23,676) | 195,027,332 |
| (21,283) | - | (21,283) |
- Interbank market (1) | 153,544,202 | 45,394,328 | (18,640) | - | (18,640) | 129,207,143 | - | (19,133) | - | (19,133) |
- Foreign currency (2) | 77,219,777 | 46,868,114 | (1,840) | - | (1,840) | 65,531,388 | 12,040,296 | (1,911) | - | (1,911) |
- Other | 1,147,126 | - | (3,196) | - | (3,196) | 288,801 | - | (239) | - | (239) |
|
|
|
|
|
|
|
|
|
|
|
Option contracts |
|
|
|
|
|
|
|
| ||
Purchase commitments: | 145,317,995 |
| 1,489,325 | 310,565 | 1,799,890 | 53,476,567 |
| 1,402,844 | 108,423 | 1,511,267 |
- Interbank market | 130,179,263 | - | 617,942 | 153,980 | 771,922 | 37,543,735 | 510,899 | 530,930 | 29,882 | 560,812 |
- Foreign currency | 14,233,062 | 1,019,989 | 808,235 | 131,756 | 939,991 | 15,102,480 | 3,464,719 | 825,937 | 72,814 | 898,751 |
- Other | 905,670 | - | 63,148 | 24,829 | 87,977 | 830,352 | 106,623 | 45,977 | 5,727 | 51,704 |
Sale commitments: | 253,288,998 |
| (1,519,642) | (12,609) | (1,532,251) | 49,394,326 |
| (1,659,204) | 13,854 | (1,645,350) |
- Interbank market | 238,999,513 | 108,820,250 | (891,953) | (130,183) | (1,022,136) | 37,032,836 | - | (1,001,378) | (29,965) | (1,031,343) |
- Foreign currency | 13,213,073 | - | (545,433) | 124,936 | (420,497) | 11,637,761 | - | (603,380) | 31,513 | (571,867) |
- Other | 1,076,412 | 170,742 | (82,256) | (7,362) | (89,618) | 723,729 | - | (54,446) | 12,306 | (42,140) |
|
|
|
|
|
|
|
|
|
|
|
Forward contracts |
|
|
|
|
|
|
|
| ||
Purchase commitments: | 16,258,721 |
| 1,428,434 | 1,328 | 1,429,762 | 13,597,633 |
| 731,145 | - | 731,145 |
- Interbank market | 232,706 | 232,706 | 1,859 | 1,328 | 3,187 | 213,196 | 213,196 | 15,577 | - | 15,577 |
- Foreign currency | 13,794,259 | - | (251,175) | - | (251,175) | 12,488,149 | - | 135,002 | - | 135,002 |
F-100 IFRS – International Financial Reporting Standards – 2019
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
| On December 31 - R$ thousand | |||||||||
2019 | 2018 | |||||||||
Nominal value | Net amount value (3) | Original amortized cost | Mark-to-market adjustment | Fair value | Nominal value | Net amount value (3) | Original amortized cost | Mark-to-market adjustment | Fair value | |
- Other | 2,231,756 | 1,563,753 | 1,677,750 | - | 1,677,750 | 896,288 | 292,398 | 580,566 | - | 580,566 |
Sale commitments: | 15,834,563 |
| 125,532 | (2,167) | 123,365 | 19,213,840 |
| (164,382) | - | (164,382) |
- Foreign currency (2) | 15,166,560 | 1,372,301 | 107,747 | - | 107,747 | 18,609,950 | 6,121,801 | (188,372) | - | (188,372) |
- Other | 668,003 | - | 17,785 | (2,167) | 15,618 | 603,890 | - | 23,990 | - | 23,990 |
|
|
|
|
|
|
|
| |||
Swap contracts |
|
|
|
|
|
|
|
|
|
|
Assets (long position): | 70,032,236 |
| 9,668,531 | 987,011 | 10,655,542 | 73,302,987 | 13,411,473 | (1,240,227) | 12,171,246 | |
- Interbank market | 7,703,103 | 3,424,228 | 118,969 | 85,416 | 204,385 | 4,439,901 | 2,835,083 | 319,859 | 89,857 | 409,716 |
- Fixed rate | 38,714,923 | 19,364,909 | 8,253,671 | (515,320) | 7,738,351 | 51,759,240 | 23,444,731 | 11,671,421 | (1,910,637) | 9,760,784 |
- Foreign currency | 19,746,372 | - | 1,032,687 | 1,066,491 | 2,099,178 | 15,551,428 | - | 1,296,270 | 461,908 | 1,758,178 |
- IGPM | 670,554 | - | 124,132 | 118,554 | 242,686 | 753,483 | 7,483 | 55,729 | 54,100 | 109,829 |
- Other | 3,197,284 | - | 139,072 | 231,870 | 370,942 | 798,935 | - | 68,194 | 64,545 | 132,739 |
Liabilities (unrestricted position): | 52,232,961 |
| (9,044,701) | (3,161,114) | (12,205,815) | 56,105,194 | (10,325,457) | (3,651,012) | (13,976,469) | |
- Interbank market | 4,278,875 | - | (179,169) | 76,722 | (102,447) | 1,604,818 | - | (18,891) | (27,358) | (46,249) |
- Fixed rate | 19,350,014 | - | (5,547,009) | (2,015,586) | (7,562,595) | 28,314,509 | - | (6,187,482) | (3,397,316) | (9,584,798) |
- Foreign currency | 21,483,368 | 1,736,996 | (2,750,465) | (605,694) | (3,356,159) | 23,368,049 | 7,816,621 | (3,751,368) | 25,542 | (3,725,826) |
- IGPM | 893,000 | 222,446 | (167,300) | (170,755) | (338,055) | 746,000 | - | (117,080) | (75,723) | (192,803) |
- Other | 6,227,704 | 3,030,420 | (400,758) | (445,801) | (846,559) | 2,071,818 | 1,272,883 | (250,636) | (176,157) | (426,793) |
Total | 925,302,656 |
| 2,144,093 | (1,876,986) | 267,107 | 697,862,085 |
| 3,387,469 | (4,768,962) | (1,381,493) |
Derivatives include operations maturing in D+1.
(1) It includes: (i) accounting cash flow hedges to protect DI-indexed funding totaling R$76,405,734 thousand (2018 – R$8,285,152 thousand); and (ii) accounting cash flow hedges to protect DI-indexed investments totaling R$21,015,183 thousand (2018 – R$9,784,183 thousand);
(2) Includes specific hedges to protect assets and liabilities, arising from foreign investments. Investments abroad totaling the amount of R$64,376,717 thousand (2018 – R$59,884,730 thousand); and
(3) Reflects the net balance between the Asset and Liability position.
Swaps are contracts of interest rates, foreign currency and cross currency and interest rates in which payments of interest or the principal or in one or two different currencies are exchanged for a contractual period. The risks of swap contracts refer to the potential inability or unwillingness of the counterparties to comply with the contractual terms and the risk associated with changes in market conditions due to changes in the interest rates and the currency exchange rates.
The interest rate and currency futures and the forward contracts of interest rates call for subsequent delivery of an instrument at a specific price or specific profitability. The reference values constitute a nominal value of the respective instrument whose variations in price are settled daily. The credit risk
Bradesco F-111
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Notes to the Consolidated Financial Statements
associated with futures contracts is minimized due to these daily settlements. Futures contracts are also subject to risk of changes in interest rates or in the value of the respective instruments.
BradescoF-101
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
Credit Default Swap – CDS
In general, these represent a bilateral contract in which one of the counterparties buys protection against a credit risk of a particular financial instrument (its risk is transferred). The counterparty that sells the protection receives a remuneration that is usually paid linearly over the life of the operation.
In the event of a default, the counterparty who purchased the protection will receive a payment, the purpose of which is to compensate for the loss of value in the financial instrument. In this case, the counterparty that sells the protection normally will receive theunderlying asset in exchange for said payment.
| On December 31 - R$ thousand | |
2019 | 2018 | |
Risk received in credit Swaps: | 3,894,982 | 3,330,639 |
- Debt securities issued by companies | 791,045 | 749,735 |
- Bonds of the Brazilian public debt | 3,056,778 | 2,574,317 |
- Bonds of foreign public debt | 47,159 | 6,587 |
Risk transferred in credit Swaps: | (1,108,443) | (271,236) |
- Brazilian public debt derivatives | (181,382) | (96,870) |
- Foreign public debt derivatives | (927,061) | (174,366) |
Total net credit risk value | 2,786,539 | 3,059,403 |
Effect on Shareholders' Equity | 84,382 | 61,551 |
Remuneration on the counterparty receiving the risk | (11,945) | (7,372) |
The contracts related to credit derivatives transactions described above are due in 2025. There were no credit events, as defined in the agreements, during the period.
The Organization has the following economic hedgingtransactions:hedge accounting transactions:
Fair-value hedge of interest-rate riskCash Flow Hedge
The Organization uses interest-rate swaps to protect its exposure to changes in the fair value of its fixed income issuances and certain loans and advances. The interest rate swaps are matched with specific issuances or fixed-income loans.
Cash-flow hedge of debt securities issued in foreign currency
The Organization uses interest-rate swaps in foreign currencies to protect itself against exchange and interest-rate risks arising from the issuance of floating rate debt securities denominated in foreign currencies. The cash flows of foreign-currency interest-rate swaps are compatible with the cash flows of the floating rate debt securities.
Market risk hedge
The gains and losses, realized or not, of the financial instruments classified in this category, areaims to reduce exposure to future changes in interest rates, which impact the operating results of the Organization. The effective portion of the valuations or devaluations of these instruments is recognized in a separate account of shareholders' equity, net of tax effects and is only transferred to income in two situations: (i) in case of ineffectiveness of the hedge; or (ii) the realization of the hedge object. The ineffective portion of the respective hedge is recognized directly in the income statement.
Strategy | On December 31 - R$ thousand | |||
Hedge instrument nominal value | Hedge object accounting value | Fair Value Accumulated Adjustments in shareholders' equity (gross of tax effects) | Fair Value Accumulated Adjustments in shareholders' equity (net of tax effects) | |
Hedge of interest receipts from investments in securities (1) | 21,015,183 | 21,127,503 | 216,845 | 119,265 |
Hedge of interest payments on funding (1) | 76,405,734 | 75,942,005 | (97,192) | (53,456) |
Total in 2019 | 97,420,917 | 97,069,508 | 119,653 | 65,809 |
* |
|
|
|
|
Hedge of interest receipts from investments in securities (2) | 9,784,183 | 8,048,943 | - | - |
Hedge of interest payments on funding (1) | 8,285,152 | 8,054,345 | (140,745) | (84,447) |
Total in 2018 | 18,069,335 | 16,103,288 | (140,745) | (84,447) |
(1) Referring to the DI interest rate risk, using DI Futures contracts in B3, with the maturity dates until 2021, making the cash flow fixed; and
(2) Referring to the DI interest rate risk, using DI Futures contracts in B3, with maturity dates in 2019, making the cash flow fixed.
The effectiveness of the hedge portfolio is in accordance with accounting standards.
For the next 12 months, the gains/(losses) related to the inefficiency of the cash flow hedge, which we expect to recognize in the income statement, amount to R$(28,413) thousand.
There were no gains/(losses) related to the inefficiency of the cash flow hedge recorded in the Statement of Income.income statements in the year ended on December 31, 2019 (R$22,970 thousand in 2018).
F-102 IFRS – International Financial Reporting Standards – 2019
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
Hedge of net foreign investments abroad
The Organization usesfinancial instruments classified in this category, have the objective of reducing the exposure to foreign exchange variation of investments abroad, whose functional currency is different from the national currency, which impacts the result of the Organization. The effective portion of the valuations or devaluations of these instruments is recognized in a combinationseparate account of forward exchangeshareholders' equity, net of tax effects and is only transferred to income in two situations: (i) hedge ineffectiveness; or (ii) in the disposal or partial sale of the foreign operation. The ineffective portion of the respective hedge is recognized directly in the income statement.
Strategy | On December 31 - R$ thousand | |||
Hedge instrument nominal value | Hedge object accounting value | Fair Value Accumulated Adjustments in shareholders' equity (gross of tax effects) | Fair Value Accumulated Adjustments in shareholders' equity (net of tax effects) | |
Hedge of exchange variation on future cash flows (1) | 1,919,177 | 925,820 | (388,674) | (213,771) |
Total in 2019 | 1,919,177 | 925,820 | (388,674) | (213,771) |
* |
|
|
| |
Hedge of exchange variation on future cash flows (1) | 1,375,232 | 755,611 | (269,039) | (161,423) |
Total in 2018 | 1,375,232 | 755,611 | (269,039) | (161,423) |
(1) Whose functional currency is different from theReal, using Forward contracts, andwith the object of hedging the foreign currency denominated debtinvestment referenced to mitigateMXN (Mexican Peso).
The effectiveness of the exchange-rate riskhedge portfolio is in accordance with accounting standards .
For the next 12 months, the gains/(losses) related to the inefficiency of its netthe hedge of investments abroad, which we expect to recognize in subsidiaries abroad.the result, amount to R$(4,172) thousand.
The fair valuegains/(losses) related to the inefficiency of forward contracts used to protect the nethedge of investments abroad, recorded in foreign subsidiaries is shownincome accounts, in the previous table. Foreign currency denominated debts used to protect net investments of the Organizationyear ended on December 31, 2019 was R$(15,750) thousand (R$(7,943) thousand in subsidiaries abroad act as a natural hedge of the foreign currency risk and are included in funds from securities issuances (Note 33)2018).
Other derivatives designated as hedges
The Organization uses this category of instruments to manage its exposure to currency, interest rate, equity market and credit risks. Instruments used include interest-rate swaps, interest-rate swaps in foreign currency, forward contracts, futures, options, credit swaps and stock swaps. The fair value of these derivatives are presented in the previous table.
Unobservable gains on initial recognition
When the valuation depends on unobservable data any initial gain or loss on financial instruments is deferred over the life of the contract or until the instrument is redeemed, transferred, sold or the fair value becomes observable. All derivatives which are part of the hedge relationships are valued on the basis of observable market data.
The nominal values do not reflect the actual risk assumed by the Organization, since the net position of these financial instruments arises from compensation and/or combination thereof. The net position is used by the Organization especially to protect interest rates, the price of
F-112 IFRS – International Financial Reporting Standards – 2017
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Notes to the Consolidated Financial Statements
the underlying assets or exchange risk. The result of these financial instruments are recognized in “Net gains and losses of financial assets held for trading”, in the consolidated statement of income.
Offsetting of financial assets and liabilities
In accordance with IFRS 7, Bradesco must present the amounts related to financial instruments subject to master clearing agreements or similar agreements. In accordance with IAS 32, a financial asset and a financial liability are offset and their net value presented in the Consolidated Balance Sheet when, and only when, there is a legally enforceable right to offset the amounts recognized and the Bank intends to settle them in a liquid basis, or to realize the asset and settle the liability simultaneously.
BradescoF-103
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
The table below presents financial assets and liabilities subject to compensation:
| R$ thousand | |||||
On December 31, 2019 | On December 31, 2018 | |||||
Gross amount | Related amount offset in the statement of financial position | Net amount | Gross amount | Related amount offset in the statement of financial position | Net amount | |
Financial assets |
|
|
|
|
|
|
Interbank investments | 48,278,561 | - | 48,278,561 | 60,443,537 | - | 60,443,537 |
Derivative financial instruments | 14,511,191 | - | 14,511,191 | 14,770,594 | - | 14,770,594 |
|
|
|
|
|
|
|
Financial liabilities |
|
|
|
|
|
|
Securities sold under agreements to repurchase | 174,100,023 | - | 174,100,023 | 190,911,877 | - | 190,911,877 |
Derivative financial instruments | 14,244,083 | - | 14,244,083 | 16,152,087 | - | 16,152,087 |
On December 31, 2019 and 2018, Bradesco does not have financial instruments in its balance sheet as a result of failing to meet the IAS 32 compensation criteria, or because it has no intention to liquidate them on a net basis, or to realize the assets and settle the liabilities simultaneously.
a) Financial assets available for saleat fair value through other comprehensive income
| R$ thousand | R$ thousand | ||||||
Amortized cost | Gross unrealized gains | Gross unrealized losses | Fair value | Amortized cost | Gross unrealized gains | Gross unrealized losses | Fair value | |
Brazilian government securities | 101,822,760 | 1,881,077 | (422,079) | 103,281,758 | 149,536,012 | 11,531,621 | (732) | 161,066,901 |
Corporate debt securities | 40,875,928 | 836,715 | (1,734,013) | 39,978,630 | 5,293,589 | 318,798 | (126,710) | 5,485,677 |
Bank debt securities | 1,251,066 | 169,142 | (236,355) | 1,183,853 | 5,606,859 | 534,907 | (629,287) | 5,512,479 |
Brazilian sovereign bonds | 719,494 | 27,326 | (18,693) | 728,127 | 1,696,120 | 69,616 | (18,804) | 1,746,932 |
Foreign governments securities | 3,210,554 | 175 | (8,182) | 3,202,547 | 6,449,559 | 5,335 | - | 6,454,894 |
Mutual funds | 2,236,877 | 10,049 | (15,116) | 2,231,810 | ||||
Marketable equity securities and other stocks | 11,302,834 | 620,896 | (885,923) | 11,037,807 | 8,938,066 | 1,069,846 | (56,595) | 9,951,317 |
Balance on December 31, 2017 | 159,182,636 | 3,535,331 | (3,305,245) | 159,412,722 | ||||
Balance on December 31, 2019 | 179,757,082 | 13,540,172 | (847,244) | 192,450,010 | ||||
|
|
|
|
| ||||
Brazilian government securities | 58,484,065 | 1,323,156 | (609,193) | 59,198,028 | 146,656,888 | 4,251,206 | (89,339) | 150,818,755 |
Corporate debt securities | 43,821,686 | 1,011,275 | (2,690,253) | 42,142,708 | 5,932,857 | 187,874 | (145,537) | 5,975,194 |
Bank debt securities | 1,626,211 | 121,745 | (188,913) | 1,559,043 | 6,371,576 | 117,435 | (567,935) | 5,921,076 |
Brazilian sovereign bonds | 395,626 | 7,319 | (1,731) | 401,214 | 1,573,965 | 28,832 | (38,130) | 1,564,667 |
Mutual funds | 2,856,590 | 1,742 | (16,971) | 2,841,361 | ||||
Marketable equity securities and other stocks | 9,966,872 | 389,291 | (538,602) | 9,817,561 | 11,685,525 | 682,783 | (1,438,825) | 10,929,483 |
Balance on December 31, 2016 | 114,294,460 | 2,852,786 | (4,028,692) | 113,118,554 | ||||
Balance on December 31, 2018 (1) | 175,077,401 | 5,269,872 | (2,296,737) | 178,050,536 |
(1) In June 2018, Management decided to reclassify the Securities measured at fair value through other comprehensive income to be measured at amortized cost, in the amount of R$17,022,922 thousand. This reclassification was the result of the alignment of risk and capital management. Without considering this reclassification of the securities it would have been recognized in other comprehensive income fair value changes in the amount of R$(297,343) thousand.
b)Maturity
| R$ thousand | R$ thousand | ||||||
On December 31, 2017 | On December 31, 2016 | On December 31, 2019 | On December 31, 2018 | |||||
Amortized cost | Fair value | Amortized cost | Fair value | Amortized cost | Fair value | Amortized cost | Fair value | |
Due within one year | 31,635,369 | 31,167,067 | 12,690,168 | 11,905,872 | 33,240,423 | 33,247,822 | 75,814,113 | 75,763,826 |
From 1 to 5 years | 83,579,399 | 83,816,085 | 60,071,806 | 60,251,675 | 97,066,063 | 101,397,630 | 65,896,910 | 67,290,177 |
From 5 to 10 years | 16,004,079 | 16,363,350 | 19,677,065 | 18,994,970 | 21,003,150 | 22,423,476 | 6,189,446 | 6,441,750 |
Over 10 years | 16,660,955 | 17,028,413 | 11,888,549 | 12,148,476 | 17,272,504 | 23,197,955 | 15,491,407 | 17,625,300 |
No stated maturity | 11,302,834 | 11,037,807 | 9,966,872 | 9,817,561 | 11,174,942 | 12,183,127 | 11,685,525 | 10,929,483 |
Total | 159,182,636 | 159,412,722 | 114,294,460 | 113,118,554 | 179,757,082 | 192,450,010 | 175,077,401 | 178,050,536 |
F-104 IFRS – International Financial Reporting Standards – 2019
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
The financial instruments pledged as collateral, and classified as available for sale, totaledFinancial assets at fair value through other comprehensive income, totalled R$ 59,482,79671,964,109 thousand andon December 31, 2019 (2018 – R$64,275,415thousand in 2017 and 2016, respectively, as disclosed in Note 23 "Financial Assets Pledged as Collateral".88,969,378 thousand), being composed mostly of Brazilian government bonds.
In 2017, theThe Organization maintained a total of R$ 4,391,25911,459,436 thousand (2016 – R$5,517,516thousand) financial assets available for sale pledged as a guarantee for liabilities.
We have applied our policy for impairment testing described in Note 2(f)(viii)(b) and in 2017 there was objective evidence of loss registered in financial assets availableat fair value through other comprehensive income pledged as collateral for sale liabilities on December 31, 2019 (2018 – R$2,099,991 thousand)
c)Investments in equity instruments designated at fair value through other comprehensive income
| R$ thousand | ||
Cost | Adjustments to Fair Value | Fair Value | |
Marketable equity securities and other stocks | 8,938,066 | 1,013,251 | 9,951,317 |
Total in December 31, 2019 | 8,938,066 | 1,013,251 | 9,951,317 |
The Organization adopted the option of designating equity instruments at fair value through other comprehensive income due to the particularities of a given market.
d)Reconciliation of expected losses of financial assets atFVOCI:
| R$ thousand | |||
Stage 1 | Stage 2 | Stage 3 | Total | |
Expected loss of financial assets at FVOCI on January 1, 2018 | 21,370 | 44,482 | 55,714 | 121,566 |
Transferred to Stage 3 | (748) | - | - | (748) |
Transferred to Stage 1 | - | - | 748 | 748 |
Assets purchased/Assets settled/Reversal | (5,910) | 117,579 | 104,271 | 215,940 |
Expected loss of financial assets at FVOCI on December 31, 2018 | 14,712 | 162,061 | 160,733 | 337,506 |
New assets originated or purchased/Assets settled or paid | 25,128 | (149,362) | (14,810) | (139,044) |
Expected loss of financial assets at FVOCI on December 31, 2019 | 39,840 | 12,699 | 145,923 | 198,462 |
| R$ thousand | |
On December 31 | ||
2019 | 2018 | |
Repurchase agreements (1) | 48,278,561 | 96,304,582 |
Loans to financial institutions | 10,849,695 | 8,946,346 |
Expected Credit Loss | (44,465) | (1,978) |
Total | 59,083,791 | 105,248,950 |
(1) In 2019, it included investments in repo operations given in guarantee,in the amount of R$ 1,729,03938,451,100 thousand (R$60,443,537 thousand in 2017 (2016 - R$ 2,106,107 thousand and 2015 - R$ 424,522 thousand), included in Note 9.2018).
BradescoF-113 F-105
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
| R$ thousand | |||
Amortized cost | Gross unrealized gains | Gross unrealized losses | Fair value | |
Securities: |
|
|
| |
Brazilian government securities | 26,738,940 | 2,442,844 | (6,489) | 29,175,295 |
Corporate debt securities | 12,259,564 | 126,092 | (421,874) | 11,963,782 |
Brazilian sovereign bonds | 7,614 | - | (420) | 7,194 |
Balance on December 31, 2017 | 39,006,118 | 2,568,936 | (428,783) | 41,146,271 |
|
|
|
|
|
Securities: |
|
|
| |
Brazilian government securities | 30,241,947 | 2,918,273 | (306,566) | 32,853,654 |
Corporate debt securities | 12,739,187 | 28,750 | (1,388,614) | 11,379,323 |
Brazilian sovereign bonds | 20,894 | 878 | - | 21,772 |
Balance on December 31, 2016 | 43,002,028 | 2,947,901 | (1,695,180) | 44,254,749 |
| R$ thousand | |
On December 31 | ||
2019 | 2018 | |
Companies | 226,976,385 | 218,944,963 |
Financing and On-lending | 104,138,378 | 105,672,794 |
Financing and export | 47,484,556 | 47,626,728 |
Housing loans | 16,822,185 | 22,415,363 |
Onlending BNDES/Finame | 16,643,236 | 18,947,583 |
Vehicle loans | 12,040,355 | 7,828,417 |
Import | 8,398,252 | 6,850,465 |
Leases | 2,749,794 | 2,004,238 |
Borrowings | 111,327,898 | 102,614,435 |
Working capital | 57,887,358 | 55,739,546 |
Rural loans | 5,525,886 | 5,459,694 |
Other | 47,914,654 | 41,415,195 |
Operations with limits (1) | 11,510,109 | 10,657,734 |
Credit card | 4,000,712 | 3,105,494 |
Overdraft for corporates/Overdraft for individuals | 7,509,397 | 7,552,240 |
|
|
|
Individuals | 230,415,990 | 192,547,692 |
Financing and On-lending | 78,615,264 | 67,861,394 |
Housing loans | 44,175,642 | 38,179,023 |
Vehicle loans | 28,350,727 | 23,246,610 |
Onlending BNDES/Finame | 5,872,331 | 6,222,532 |
Other | 216,564 | 213,229 |
Borrowings | 105,427,418 | 83,968,350 |
Payroll-deductible loans | 63,144,951 | 51,284,334 |
Personal credit | 24,338,888 | 16,858,123 |
Rural loans | 8,543,433 | 7,894,249 |
Other | 9,400,146 | 7,931,644 |
Operations with limits (1) | 46,373,308 | 40,717,948 |
Credit card | 41,353,388 | 36,447,880 |
Overdraft for corporates/Overdraft for individuals | 5,019,920 | 4,270,068 |
Total portfolio | 457,392,375 | 411,492,655 |
(1) It refers to outstanding operations with pre-established limits linked to current account and credit card, whose limits are automatically recomposed as the amounts used are paid.
Financial Leases Receivables
Loans and advances to customers include the following financial lease receivables.
| R$ thousand | |
On December 31 | ||
2019 | 2018 | |
Gross investments in financial leases receivable: |
|
|
Up to one year | 1,076,955 | 929,858 |
From one to five years | 1,658,449 | 1,128,477 |
Over five years | 122,111 | 31,527 |
Impairment loss on finance leases | (160,382) | (128,564) |
Net investment | 2,697,133 | 1,961,298 |
|
|
|
Net investments in finance leases: |
|
|
Up to one year | 1,012,714 | 884,853 |
From one to five years | 1,563,529 | 1,045,773 |
Over five years | 120,890 | 30,672 |
Total | 2,697,133 | 1,961,298 |
F-106 IFRS – International Financial Reporting Standards – 2019
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
Reconciliation of the gross book value of loans and advances to clients
Stage 1 | R$ thousand | ||||||||||
Balance on 12.31.2018 | Transfer to Stage 2 | Transfer to Stage 3 | Transfer from Stage 2 | Transfer from Stage 3 | Amortization | Originated | Constitution/ (Reversion) (1) | (Write off) | Balance on 12.31.2019 | ||
Companies | 174,823,333 | (3,530,473) | (1,047,643) | 1,740,309 | 99,605 | (14,129,128) | 126,296,922 | (91,016,561) | - | 193,236,364 | |
Financing and on-lendings | 87,491,428 | (2,665,550) | (216,644) | 793,644 | 56,979 | (6,599,164) | 48,322,133 | (35,550,497) | - | 91,632,329 | |
Borrowings | 77,801,046 | (788,067) | (771,301) | 932,838 | 34,874 | (7,529,964) | 70,778,365 | (49,009,228) | - | 91,448,563 | |
Operations with limits | 9,530,859 | (76,856) | (59,698) | 13,827 | 7,752 | - | 7,196,424 | (6,456,836) | - | 10,155,472 | |
Individuals | 164,711,763 | (3,830,157) | (2,331,304) | 1,939,655 | 323,117 | (15,271,291) | 126,773,073 | (72,930,660) | - | 199,384,196 | |
Financing and on-lendings | 62,636,298 | (2,196,138) | (567,081) | 843,573 | 62,471 | (8,742,813) | 31,123,133 | (10,161,286) | - | 72,998,157 | |
Borrowings | 69,241,572 | (1,524,297) | (1,697,183) | 1,027,710 | 154,480 | (6,528,478) | 62,155,926 | (34,653,409) | - | 88,176,321 | |
Operations with limits | 32,833,893 | (109,722) | (67,040) | 68,372 | 106,166 | - | 33,494,014 | (28,115,965) | - | 38,209,718 | |
Total | 339,535,096 | (7,360,630) | (3,378,947) | 3,679,964 | 422,722 | (29,400,419) | 253,069,995 | (163,947,221) | - | 392,620,560 |
Stage 2 | R$ thousand | ||||||||||
Balance on 12.31.2018 | Transfer to Stage 1 | Transfer to Stage 3 | Transfer from Stage 1 | Transfer from Stage 3 | Amortization | Originated | Constitution/ (Reversion) (1) | (Write off) | Balance on 12.31.2019 | ||
Companies | 21,750,671 | (1,740,309) | (4,150,902) | 3,530,473 | 604,824 | (1,537,738) | 5,702,723 | (11,053,718) | - | 13,106,024 | |
Financing and on-lendings | 11,855,797 | (793,644) | (3,637,599) | 2,665,550 | 183,776 | (640,153) | 768,132 | (4,669,507) | - | 5,732,352 | |
Borrowings | 9,449,412 | (932,838) | (510,021) | 788,067 | 415,621 | (897,585) | 4,445,528 | (6,000,032) | - | 6,758,152 | |
Operations with limits | 445,462 | (13,827) | (3,282) | 76,856 | 5,427 | - | 489,063 | (384,179) | - | 615,520 | |
Individuals | 15,354,577 | (1,939,655) | (1,100,985) | 3,830,157 | 622,122 | (1,616,061) | 11,754,505 | (7,309,945) | - | 19,594,715 | |
Financing and on-lendings | 4,130,401 | (843,573) | (292,952) | 2,196,138 | 70,757 | (550,578) | 693,061 | (835,952) | - | 4,567,302 | |
Borrowings | 9,122,134 | (1,027,710) | (691,602) | 1,524,297 | 479,625 | (1,065,483) | 8,288,437 | (4,610,119) | - | 12,019,579 | |
Operations with limits | 2,102,042 | (68,372) | (116,431) | 109,722 | 71,740 | - | 2,773,007 | (1,863,874) | - | 3,007,834 | |
Total | 37,105,248 | (3,679,964) | (5,251,887) | 7,360,630 | 1,226,946 | (3,153,799) | 17,457,228 | (18,363,663) | - | 32,700,739 |
BradescoF-107
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
Stage 3 | R$ thousand | ||||||||||
Balance on 12.31.2018 | Transfer to Stage 1 | Transfer to Stage 2 | Transfer from Stage 1 | Transfer from Stage 2 | Amortization | Originated | Constitution/ (Reversion) (1) | (Write off) | Balance on 12.31.2019 | ||
Companies | 22,370,956 | (99,605) | (604,824) | 1,047,643 | 4,150,902 | (552,471) | 4,249,360 | (3,941,465) | (5,986,498) | 20,633,998 | |
Financing and on-lendings | 6,325,568 | (56,979) | (183,776) | 216,644 | 3,637,599 | (237,542) | 422,843 | (1,756,639) | (1,594,018) | 6,773,700 | |
Borrowings | 15,363,975 | (34,874) | (415,621) | 771,301 | 510,021 | (314,929) | 3,175,691 | (1,928,627) | (4,005,755) | 13,121,182 | |
Operations with limits | 681,413 | (7,752) | (5,427) | 59,698 | 3,282 | - | 650,826 | (256,199) | (386,725) | 739,116 | |
Individuals | 12,481,355 | (323,117) | (622,122) | 2,331,304 | 1,100,985 | (1,010,738) | 6,655,466 | 1,502,563 | (10,678,618) | 11,437,078 | |
Financing and on-lendings | 1,094,697 | (62,471) | (70,757) | 567,081 | 292,952 | (372,611) | 215,265 | (117,483) | (496,868) | 1,049,805 | |
Borrowings | 5,604,645 | (154,480) | (479,625) | 1,697,183 | 691,602 | (638,127) | 2,679,383 | 1,146,472 | (5,315,534) | 5,231,519 | |
Operations with limits | 5,782,013 | (106,166) | (71,740) | 67,040 | 116,431 | - | 3,760,818 | 473,574 | (4,866,216) | 5,155,754 | |
Total | 34,852,311 | (422,722) | (1,226,946) | 3,378,947 | 5,251,887 | (1,563,209) | 10,904,826 | (2,438,902) | (16,665,116) | 32,071,076 |
Consolidated - 3 stages | R$ thousand | ||||||
Balance on 12.31.2018 | Amortization | Originated | Constitution/ (Reversion) (1) | (Write off) | Balance on 12.31.2019 | ||
Companies | 218,944,960 | (16,219,337) | 136,249,005 | (106,011,744) | (5,986,498) | 226,976,386 | |
Financing and on-lendings | 105,672,793 | (7,476,859) | 49,513,108 | (41,976,643) | (1,594,018) | 104,138,381 | |
Borrowings | 102,614,433 | (8,742,478) | 78,399,584 | (56,937,887) | (4,005,755) | 111,327,897 | |
Operations with limits | 10,657,734 | - | 8,336,313 | (7,097,214) | (386,725) | 11,510,108 | |
Individuals | 192,547,695 | (17,898,090) | 145,183,044 | (78,738,042) | (10,678,618) | 230,415,989 | |
Financing and on-lendings | 67,861,396 | (9,666,002) | 32,031,459 | (11,114,721) | (496,868) | 78,615,264 | |
Borrowings | 83,968,351 | (8,232,088) | 73,123,746 | (38,117,056) | (5,315,534) | 105,427,419 | |
Operations with limits | 40,717,948 | - | 40,027,839 | (29,506,265) | (4,866,216) | 46,373,306 | |
Total | 411,492,655 | (34,117,427) | 281,432,049 | (184,749,786) | (16,665,116) | 457,392,375 |
(1) Composed of advanced settlements, maturities and changes.
F-108 IFRS – International Financial Reporting Standards – 2019
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
Stage 1 | R$ thousand | ||||||||||
Balance on 12.31.2017 | Transfer to Stage 2 | Transfer to Stage 3 | Transfer from Stage 2 | Transfer from Stage 3 | Amortization | Originated | Constitution/ (Reversion) (1) | (Write off) | Balance on 12.31.2018 | ||
Companies | 157,300,055 | (5,081,387) | (1,185,431) | 490,136 | 36,890 | (13,690,363) | 30,124,524 | 6,828,911 | - | 174,823,335 | |
Financing and on-lendings | 82,604,674 | (3,890,289) | (339,463) | 246,449 | 24,535 | (7,504,779) | 7,192,088 | 9,158,213 | - | 87,491,428 | |
Borrowings | 65,403,658 | (1,080,522) | (727,142) | 205,209 | 9,480 | (6,185,584) | 20,069,753 | 106,196 | - | 77,801,048 | |
Operations with limits | 9,291,723 | (110,576) | (118,826) | 38,478 | 2,875 | - | 2,862,683 | (2,435,498) | - | 9,530,859 | |
Individuals | 144,261,447 | (3,466,413) | (3,021,364) | 2,609,492 | 116,247 | (14,445,656) | 167,239,590 | (128,581,582) | - | 164,711,761 | |
Financing and on-lendings | 54,890,629 | (1,920,408) | (615,709) | 768,496 | 38,055 | (8,033,056) | 67,693,458 | (50,185,168) | - | 62,636,297 | |
Borrowings | 58,814,657 | (1,260,962) | (1,654,147) | 1,371,131 | 31,393 | (6,412,600) | 83,800,332 | (65,448,232) | - | 69,241,572 | |
Operations with limits | 30,556,161 | (285,043) | (751,508) | 469,865 | 46,799 | - | 15,745,800 | (12,948,182) | - | 32,833,892 | |
Total | 301,561,502 | (8,547,800) | (4,206,795) | 3,099,628 | 153,137 | (28,136,019) | 197,364,114 | (121,752,671) | - | 339,535,096 |
Stage 2 | R$ thousand | ||||||||||
Balance on 12.31.2017 | Transfer to Stage 1 | Transfer to Stage 3 | Transfer from Stage 1 | Transfer from Stage 3 | Amortization | Originated | Constitution/ (Reversion) (1) | (Write off) | Balance on 12.31.2018 | ||
Companies | 23,735,835 | (490,136) | (3,784,644) | 5,081,387 | 72,111 | (1,297,150) | 2,345,978 | (3,912,708) | - | 21,750,673 | |
Financing and on-lendings | 13,146,736 | (246,449) | (1,616,645) | 3,890,289 | 24,009 | (565,769) | 102,265 | (2,878,638) | - | 11,855,798 | |
Borrowings | 9,993,363 | (205,209) | (2,091,066) | 1,080,522 | 46,346 | (731,381) | 2,059,549 | (702,712) | - | 9,449,412 | |
Operations with limits | 595,736 | (38,478) | (76,933) | 110,576 | 1,756 | - | 184,164 | (331,358) | - | 445,463 | |
Individuals | 18,799,389 | (2,609,492) | (2,293,514) | 3,466,413 | 97,740 | (1,624,519) | 13,514,503 | (13,995,945) | - | 15,354,575 | |
Financing and on-lendings | 4,275,595 | (768,496) | (378,028) | 1,920,408 | 43,127 | (548,043) | 1,404,662 | (1,818,823) | - | 4,130,402 | |
Borrowings | 11,194,778 | (1,371,131) | (1,217,096) | 1,260,962 | 32,521 | (1,076,476) | 10,676,902 | (10,378,328) | - | 9,122,132 | |
Operations with limits | 3,329,016 | (469,865) | (698,390) | 285,043 | 22,092 | - | 1,432,939 | (1,798,794) | - | 2,102,041 | |
Total | 42,535,224 | (3,099,628) | (6,078,158) | 8,547,800 | 169,851 | (2,921,669) | 15,860,481 | (17,908,653) | - | 37,105,248 |
BradescoF-109
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
Stage 3 | R$ thousand | ||||||||||
Balance on 12.31.2017 | Transfer to Stage 1 | Transfer to Stage 2 | Transfer from Stage 1 | Transfer from Stage 2 | Amortization | Originated | Constitution/ (Reversion) (1) | (Write off) | Balance on 12.31.2018 | ||
Companies | 18,904,406 | (36,890) | (72,111) | 1,185,431 | 3,784,644 | (364,685) | 1,814,270 | 3,397,327 | (6,241,440) | 22,370,952 | |
Financing and on-lendings | 5,698,042 | (24,535) | (24,009) | 339,463 | 1,616,645 | (267,885) | 86,572 | 481,672 | (1,580,397) | 6,325,568 | |
Borrowings | 12,476,227 | (9,480) | (46,346) | 727,142 | 2,091,066 | (96,800) | 1,509,773 | 2,879,832 | (4,167,441) | 15,363,973 | |
Operations with limits | 730,137 | (2,875) | (1,756) | 118,826 | 76,933 | - | 217,925 | 35,823 | (493,602) | 681,411 | |
Individuals | 10,812,533 | (116,247) | (97,740) | 3,021,364 | 2,293,514 | (1,579,027) | 11,532,786 | (879,623) | (12,506,201) | 12,481,359 | |
Financing and on-lendings | 1,136,398 | (38,055) | (43,127) | 615,709 | 378,028 | (505,434) | 2,194,487 | (1,454,891) | (1,188,417) | 1,094,698 | |
Borrowings | 4,373,006 | (31,393) | (32,521) | 1,654,147 | 1,217,096 | (1,073,593) | 7,976,047 | (2,830,578) | (5,647,564) | 5,604,647 | |
Operations with limits | 5,303,129 | (46,799) | (22,092) | 751,508 | 698,390 | - | 1,362,252 | 3,405,846 | (5,670,220) | 5,782,014 | |
Total | 29,716,939 | (153,137) | (169,851) | 4,206,795 | 6,078,158 | (1,943,712) | 13,347,056 | 2,517,704 | (18,747,641) | 34,852,311 |
Consolidated - 3 stages | R$ thousand | ||||||
Balance on 12.31.2017 | Amortization | Originated | Constitution/ (Reversion) (1) | (Write off) | Balance on 12.31.2018 | ||
Companies | 199,940,296 | (15,352,198) | 34,284,772 | 6,313,530 | (6,241,440) | 218,944,960 | |
Financing and on-lendings | 101,449,452 | (8,338,433) | 7,380,925 | 6,761,247 | (1,580,397) | 105,672,794 | |
Borrowings | 87,873,248 | (7,013,765) | 23,639,075 | 2,283,316 | (4,167,441) | 102,614,433 | |
Operations with limits | 10,617,596 | - | 3,264,772 | (2,731,033) | (493,602) | 10,657,733 | |
Individuals | 173,873,369 | (17,649,202) | 192,286,879 | (143,457,150) | (12,506,201) | 192,547,695 | |
Financing and on-lendings | 60,302,622 | (9,086,533) | 71,292,607 | (53,458,882) | (1,188,417) | 67,861,397 | |
Borrowings | 74,382,441 | (8,562,669) | 102,453,281 | (78,657,138) | (5,647,564) | 83,968,351 | |
Operations with limits | 39,188,306 | - | 18,540,991 | (11,341,130) | (5,670,220) | 40,717,947 | |
Total | 373,813,665 | (33,001,400) | 226,571,651 | (137,143,620) | (18,747,641) | 411,492,655 |
(1) Composed of advanced settlements, maturities and changes.
F-110 IFRS – International Financial Reporting Standards – 2019
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
Reconciliation of expected losses from loans and advances to clients
Stage 1 | R$ thousand | ||||||||||
Expected loss on 12.31.2018 | Transfer to Stage 2 | Transfer to Stage 3 | Transfer from Stage 2 | Transfer from Stage 3 | Remeasurement | Originated | Constitution/ (Reversion) | (Write off) | Expected loss on 12.31.2019 | ||
Companies | 3,443,204 | (94,861) | (67,862) | 160,068 | 67,150 | (699,827) | 3,512,364 | (1,072,173) | - | 5,248,063 | |
Financing and on-lendings | 1,122,680 | (37,774) | (8,497) | 41,914 | 34,652 | 4,017 | 775,161 | (227,085) | - | 1,705,068 | |
Borrowings | 1,945,637 | (52,890) | (57,437) | 116,806 | 23,010 | (703,844) | 2,515,926 | (610,639) | - | 3,176,569 | |
Operations with limits | 374,887 | (4,197) | (1,928) | 1,348 | 9,488 | - | 221,277 | (234,449) | - | 366,426 | |
Individuals | 7,273,362 | (164,394) | (157,138) | 177,609 | 251,008 | (750,372) | 5,812,053 | (4,623,554) | - | 7,818,574 | |
Financing and on-lendings | 901,119 | (66,512) | (34,051) | 78,516 | 28,735 | (257,642) | 476,691 | (187,466) | - | 939,390 | |
Borrowings | 2,053,854 | (79,136) | (107,024) | 84,208 | 94,472 | (492,730) | 1,716,160 | (1,016,759) | - | 2,253,045 | |
Operations with limits | 4,318,389 | (18,746) | (16,063) | 14,885 | 127,801 | - | 3,619,202 | (3,419,329) | - | 4,626,139 | |
Total | 10,716,566 | (259,255) | (225,000) | 337,677 | 318,158 | (1,450,199) | 9,324,417 | (5,695,727) | - | 13,066,637 |
Stage 2 | R$ thousand | ||||||||||
Expected loss on 12.31.2018 | Transfer to Stage 1 | Transfer to Stage 3 | Transfer from Stage 1 | Transfer from Stage 3 | Remeasurement | Originated | Constitution/ (Reversion) | (Write off) | Expected loss on 12.31.2019 | ||
Companies | 2,547,908 | (160,068) | (953,343) | 94,861 | 212,921 | (355,917) | 1,218,315 | (714,572) | - | 1,890,105 | |
Financing and on-lendings | 1,445,950 | (41,914) | (835,870) | 37,774 | 29,175 | (205,170) | 51,560 | (264,569) | - | 216,936 | |
Borrowings | 1,047,715 | (116,806) | (117,292) | 52,890 | 178,660 | (150,747) | 1,117,295 | (401,471) | - | 1,610,244 | |
Operations with limits | 54,243 | (1,348) | (181) | 4,197 | 5,086 | - | 49,460 | (48,532) | - | 62,925 | |
Individuals | 1,831,813 | (177,609) | (173,561) | 164,394 | 384,088 | (100,890) | 1,672,251 | (855,304) | - | 2,745,182 | |
Financing and on-lendings | 405,730 | (78,516) | (38,370) | 66,512 | 30,577 | 209,080 | 94,304 | (85,905) | - | 603,412 | |
Borrowings | 1,097,633 | (84,208) | (116,067) | 79,136 | 271,118 | (309,970) | 1,195,503 | (485,172) | - | 1,647,973 | |
Operations with limits | 328,450 | (14,885) | (19,124) | 18,746 | 82,393 | - | 382,444 | (284,227) | - | 493,797 | |
Total | 4,379,721 | (337,677) | (1,126,904) | 259,255 | 597,009 | (456,807) | 2,890,566 | (1,569,876) | - | 4,635,287 |
BradescoF-111
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
Stage 3 | R$ thousand | ||||||||||
Expected loss on 12.31.2018 | Transfer to Stage 1 | Transfer to Stage 2 | Transfer from Stage 1 | Transfer from Stage 2 | Remeasurement | Originated | Constitution/ (Reversion) | (Write off) | Expected loss on 12.31.2019 | ||
Companies | 10,860,724 | (67,150) | (212,921) | 67,862 | 953,343 | 2,832,030 | 1,938,037 | 1,863,497 | (5,986,498) | 12,248,924 | |
Financing and on-lendings | 2,681,912 | (34,652) | (29,175) | 8,497 | 835,870 | 727,234 | 242,132 | 158,908 | (1,594,018) | 2,996,708 | |
Borrowings | 7,635,874 | (23,010) | (178,660) | 57,437 | 117,292 | 2,104,796 | 1,162,299 | 1,829,964 | (4,005,755) | 8,700,237 | |
Operations with limits | 542,938 | (9,488) | (5,086) | 1,928 | 181 | - | 533,606 | (125,375) | (386,725) | 551,979 | |
Individuals | 8,419,460 | (251,008) | (384,088) | 157,138 | 173,561 | 1,339,621 | 4,773,024 | 4,652,446 | (10,678,618) | 8,201,536 | |
Financing and on-lendings | 619,474 | (28,735) | (30,577) | 34,051 | 38,370 | 154,279 | 107,267 | 132,861 | (496,868) | 530,122 | |
Borrowings | 3,411,114 | (94,472) | (271,118) | 107,024 | 116,067 | 1,185,342 | 1,818,298 | 2,776,829 | (5,315,534) | 3,733,550 | |
Operations with limits | 4,388,872 | (127,801) | (82,393) | 16,063 | 19,124 | - | 2,847,459 | 1,742,756 | (4,866,216) | 3,937,864 | |
Total | 19,280,184 | (318,158) | (597,009) | 225,000 | 1,126,904 | 4,171,651 | 6,711,061 | 6,515,943 | (16,665,116) | 20,450,460 |
Consolidated - 3 stages | R$ thousand | ||||||
Expected loss on 12.31.2018 | Remeasurement | Originated | Constitution/ (Reversion) | (Write off) | Expected loss on 12.31.2019 | ||
Companies | 16,851,836 | 1,776,286 | 6,668,716 | 76,752 | (5,986,498) | 19,387,092 | |
Financing and on-lendings | 5,250,542 | 526,081 | 1,068,853 | (332,746) | (1,594,018) | 4,918,712 | |
Borrowings | 10,629,226 | 1,250,205 | 4,795,520 | 817,854 | (4,005,755) | 13,487,050 | |
Operations with limits | 972,068 | - | 804,343 | (408,356) | (386,725) | 981,330 | |
Individuals | 17,524,635 | 488,359 | 12,257,328 | (826,412) | (10,678,618) | 18,765,292 | |
Financing and on-lendings | 1,926,323 | 105,717 | 678,262 | (140,510) | (496,868) | 2,072,924 | |
Borrowings | 6,562,601 | 382,642 | 4,729,961 | 1,274,898 | (5,315,534) | 7,634,568 | |
Operations with limits | 9,035,711 | - | 6,849,105 | (1,960,800) | (4,866,216) | 9,057,800 | |
Total (1) | 34,376,471 | 2,264,645 | 18,926,044 | (749,660) | (16,665,116) | 38,152,384 |
(1) Consider expected losses on loans, commitments to be released and financial guarantees provided.
F-112 IFRS – International Financial Reporting Standards – 2019
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
Stage 1 | R$ thousand | ||||||||||
Expected loss on 12.31.2017 | Transfer to Stage 2 | Transfer to Stage 3 | Transfer from Stage 2 | Transfer from Stage 3 | Remeasurement | Originated | Constitution/ (Reversion) | (Write off) | Expected loss on 12.31.2018 | ||
Companies | 3,335,713 | (118,504) | (57,096) | 85,724 | 29,002 | 62,763 | 1,362,210 | (1,256,607) | - | 3,443,205 | |
Financing and on-lendings | 364,676 | (43,734) | (5,602) | 53,074 | 13,257 | (58,043) | 263,013 | 46,746 | - | 633,387 | |
Borrowings | 2,649,815 | (68,431) | (44,934) | 27,805 | 5,415 | 120,806 | 945,891 | (1,201,435) | - | 2,434,932 | |
Operations with limits | 321,222 | (6,339) | (6,560) | 4,845 | 10,330 | - | 153,306 | (101,918) | - | 374,886 | |
Individuals | 5,574,664 | (156,761) | (244,073) | 377,145 | 90,823 | (397,813) | 4,144,755 | (2,115,379) | - | 7,273,361 | |
Financing and on-lendings | 666,623 | (50,642) | (26,489) | 87,473 | 17,688 | (184,889) | 657,921 | (266,566) | - | 901,119 | |
Borrowings | 1,422,715 | (62,664) | (111,543) | 141,207 | 17,569 | (212,924) | 1,647,363 | (787,870) | - | 2,053,853 | |
Operations with limits | 3,485,326 | (43,455) | (106,041) | 148,465 | 55,566 | - | 1,839,471 | (1,060,943) | - | 4,318,389 | |
Total | 8,910,377 | (275,265) | (301,169) | 462,869 | 119,825 | (335,050) | 5,506,965 | (3,371,986) | - | 10,716,566 |
Stage 2 | R$ thousand | ||||||||||
Expected loss on 12.31.207 | Transfer to Stage 1 | Transfer to Stage 3 | Transfer from Stage 1 | Transfer from Stage 3 | Remeasurement | Originated | Constitution/ (Reversion) | (Write off) | Expected loss on 12.31.2018 | ||
Companies | 3,937,935 | (85,724) | (728,373) | 118,504 | 49,339 | (358,705) | 531,426 | (916,494) | - | 2,547,908 | |
Financing and on-lendings | 1,975,122 | (53,074) | (258,798) | 43,734 | 13,485 | (37,080) | 21,195 | (258,635) | - | 1,445,949 | |
Borrowings | 1,887,882 | (27,805) | (451,535) | 68,431 | 33,131 | (321,625) | 484,288 | (625,052) | - | 1,047,715 | |
Operations with limits | 74,931 | (4,845) | (18,040) | 6,339 | 2,723 | - | 25,943 | (32,807) | - | 54,244 | |
Individuals | 2,960,448 | (377,145) | (483,620) | 156,761 | 51,081 | (328,818) | 1,257,897 | (1,404,791) | - | 1,831,813 | |
Financing and on-lendings | 502,267 | (87,473) | (58,886) | 50,642 | 16,658 | 26,754 | 99,782 | (144,015) | - | 405,729 | |
Borrowings | 1,931,255 | (141,207) | (319,807) | 62,664 | 16,155 | (355,572) | 953,036 | (1,048,890) | - | 1,097,634 | |
Operations with limits | 526,926 | (148,465) | (104,927) | 43,455 | 18,268 | - | 205,079 | (211,886) | - | 328,450 | |
Total | 6,898,383 | (462,869) | (1,211,993) | 275,265 | 100,420 | (687,523) | 1,789,323 | (2,321,285) | - | 4,379,721 |
BradescoF-113
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
Stage 3 | R$ thousand | ||||||||||
Expected loss on 12.31.2017 | Transfer to Stage 1 | Transfer to Stage 2 | Transfer from Stage 1 | Transfer from Stage 2 | Remeasurement | Originated | Constitution/ (Reversion) | (Write off) | Expected loss on 12.31.2018 | ||
Companies | 8,005,494 | (29,002) | (49,339) | 57,096 | 728,373 | 1,675,279 | 1,377,202 | 5,337,060 | (6,241,440) | 10,860,723 | |
Financing and on-lendings | 2,503,143 | (13,257) | (13,485) | 5,602 | 258,798 | 601,704 | 39,820 | 879,984 | (1,580,397) | 2,681,912 | |
Borrowings | 5,011,637 | (5,415) | (33,131) | 44,934 | 451,535 | 1,073,575 | 1,002,606 | 4,257,574 | (4,167,441) | 7,635,874 | |
Operations with limits | 490,714 | (10,330) | (2,723) | 6,560 | 18,040 | - | 334,776 | 199,502 | (493,602) | 542,937 | |
Individuals | 7,070,788 | (90,823) | (51,081) | 244,073 | 483,620 | 804,541 | 7,563,277 | 4,901,267 | (12,506,201) | 8,419,461 | |
Financing and on-lendings | 653,180 | (17,688) | (16,658) | 26,489 | 58,886 | 171,496 | 999,182 | (66,995) | (1,188,417) | 619,475 | |
Borrowings | 2,624,958 | (17,569) | (16,155) | 111,543 | 319,807 | 633,045 | 4,604,374 | 798,675 | (5,647,564) | 3,411,114 | |
Operations with limits | 3,792,650 | (55,566) | (18,268) | 106,041 | 104,927 | - | 1,959,721 | 4,169,587 | (5,670,220) | 4,388,872 | |
Total | 15,076,282 | (119,825) | (100,420) | 301,169 | 1,211,993 | 2,479,820 | 8,940,479 | 10,238,327 | (18,747,641) | 19,280,184 |
Consolidated - 3 stages | R$ thousand | ||||||
Expected loss on 12.31.2017 | Remeasurement | Originated | Constitution/ (Reversion) | (Write off) | Expected loss on 12.31.2018 | ||
Companies | 15,279,142 | 1,379,337 | 3,270,838 | 3,163,959 | (6,241,440) | 16,851,836 | |
Financing and on-lendings | 4,842,941 | 506,581 | 324,028 | 668,095 | (1,580,397) | 4,761,248 | |
Borrowings | 9,549,334 | 872,756 | 2,432,785 | 2,431,087 | (4,167,441) | 11,118,521 | |
Operations with limits | 886,867 | - | 514,025 | 64,777 | (493,602) | 972,067 | |
Individuals | 15,605,900 | 77,910 | 12,965,929 | 1,381,097 | (12,506,201) | 17,524,635 | |
Financing and on-lendings | 1,822,070 | 13,361 | 1,756,885 | (477,576) | (1,188,417) | 1,926,323 | |
Borrowings | 5,978,928 | 64,549 | 7,204,773 | (1,038,085) | (5,647,564) | 6,562,601 | |
Operations with limits | 7,804,902 | - | 4,004,271 | 2,896,758 | (5,670,220) | 9,035,711 | |
Total (1) | 30,885,042 | 1,457,247 | 16,236,767 | 4,545,056 | (18,747,641) | 34,376,471 |
(1) Consider expected losses on loans, commitments to be released and financial guarantees provided.
F-114 IFRS – International Financial Reporting Standards – 2019
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
Sensitivity analysis
The measurement of the expected credit loss incorporates prospective information from projections of economic scenarios that are developed by a team of experts and approved according to the risk governance of the Organization. The projections are reviewed at least annually, being more timely in cases of relevant events that may materially change the future prospects.
In order to determine possible oscillations of expected loss arising from the economic projections, simulations were made by changing the weighting of the scenarios used in the calculation of the expected loss. In the table below we show the probabilities assigned to each scenario and the impacts:
| On December 31, 2019 - R$ thousand | ||||
Weighting | Constitution/ (Reversion) | ||||
Base Scenario | Optimistic Scenario* | Pessimistic Scenario** | |||
Simulation 1 | 100% | - | - | (18,365) | |
Simulation 2 | - | 100% | - | (209,044) | |
Simulation 3 | - | - | 100% | 294,754 |
* Scenario in which the economy grows more than expected.
** Scenario in which the economy grows less than expected.
Expected loss on loans and advances
| Years ended December 31 - R$ thousand | |
2019 | 2018 | |
Amount recorded | 20,441,029 | 22,239,070 |
Amount recovered | (7,908,896) | (7,147,095) |
Expected loss on loans and advances | 12,532,133 | 15,091,975 |
Loans and advances to customers renegotiated
The total balance of “Loans and advances to customers renegotiated” includes renegotiated loans and advances to customers. Such loans contemplate extension of loan payment terms, grace periods, reductions in interest rates, and/or, in some cases, the forgiveness (write-off) of part of the loan principal amount.
Renegotiations may occur after debts are past due or when the Company has information about a significant deterioration in the client’s creditworthiness. The purpose of such renegotiations is to adapt the loan to reflect the client’s actual payment capacity.
The following table shows changes made and our analysis of our portfolio of renegotiated loans and advances to customers:
| R$ thousand | |
On December 31 | ||
2019 | 2018 | |
Opening balance | 17,143,212 | 17,183,869 |
Additional renegotiated amounts, including interest | 20,283,735 | 15,193,567 |
Payments received | (13,363,684) | (9,472,888) |
Write-offs | (5,032,606) | (5,761,336) |
Closing balance | 19,030,657 | 17,143,212 |
Expected loss on loans and advances | (8,021,445) | (7,015,820) |
Total renegotiated loans and advances to customers, net of impairment at the end of the year | 11,009,212 | 10,127,392 |
|
|
|
Impairment on renegotiated loans and advances as a percentage of the renegotiated portfolio | 42.2% | 40.9% |
Total renegotiated loans and advances as a percentage of the total loan portfolio | 4.2% | 4.2% |
Total renegotiated loans and advances as a percentage of the total loan portfolio, net of impairment | 2.6% | 2.7% |
At the time a loan is modified, Management considers the new loan's conditions and renegotiated maturity and it is no longer considered past due. From the date of modification, renegotiated interest begins to accrue, using the effective interest rate method, taking into consideration the customer’s capacity to pay the loan based on the analysis made by Management. If the customer fails to maintain the new negotiated terms, management considers ceasing accrual from that point.
BradescoF-115
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
Additionally, any balances related to renegotiated loans and advances to customers that have already been written off and recorded in memorandum accounts, as well as any gains from renegotiations, are recognized only when received.
| R$ thousand | |||
Amortized cost | Gross unrealized gains (2) | Gross unrealized losses (2) | Fair value | |
Securities: |
|
|
|
|
Brazilian government securities | 82,661,682 | 7,677,826 | (1,681) | 90,337,827 |
Corporate debt securities | 57,943,056 | 598,676 | (1,955,900) | 56,585,832 |
Balance on December 31, 2018 (1) | 140,604,738 | 8,276,502 | (1,957,581) | 146,923,659 |
Securities: |
|
|
|
|
Brazilian government securities | 89,114,107 | 11,814,621 | (538,480) | 100,390,248 |
Corporate debt securities | 77,804,253 | 970,671 | (649,528) | 78,125,396 |
Balance on December 31, 2019 (1) | 166,918,360 | 12,785,292 | (1,188,008) | 178,515,644 |
(1) In 2019 and 2018, no reclassifications were made of Financial Assets at amortized cost – Bonds and securities for other categories of financial assets; and
(2) Unrealized gains and losses on amortized costs assets have not been recognized in comprehensive income.
Maturity
| R$ thousand | R$ thousand | ||||||
On December 31, 2017 | On December 31, 2016 | On December 31, 2019 | On December 31, 2018 | |||||
Amortized cost | Fair value | Amortized cost | Fair value | Amortized cost | Fair value | Amortized cost | Fair value | |
Due within one year | 29,412 | 28,998 | - | - | 51,513,100 | 52,049,525 | 4,257,886 | 4,213,891 |
From 1 to 5 years | 10,284,940 | 11,070,179 | 12,932,440 | 13,133,746 | 53,600,975 | 56,134,668 | 91,922,854 | 94,608,001 |
From 5 to 10 years | 1,933,866 | 1,840,428 | 3,068,980 | 2,905,497 | 31,572,806 | 31,489,480 | 16,437,110 | 16,307,290 |
Over 10 years | 26,757,900 | 28,206,666 | 27,000,608 | 28,215,506 | 30,231,479 | 38,841,971 | 27,986,888 | 31,794,477 |
Total | 39,006,118 | 41,146,271 | 43,002,028 | 44,254,749 | 166,918,360 | 178,515,644 | 140,604,738 | 146,923,659 |
FinancialThe financial instruments pledged as collateral, and classified as held to maturity, totaledfinancial assets at amortized cost, totalled R$43147,129,734 thousand in 2016, as disclosed in Note 23 - "Assets Pledged as Collateral".at December 31, 2019 (2018 – R$22,475,483 thousand), being composed mostly of Brazilian government bonds.
In 2017,Reconciliation of expected losses of financial assets at amortized cost:
| R$ thousand | |||
Stage 1 | Stage 2 | Stage 3 | Total (1) | |
Expected loss of financial assets at amortized cost on January 1, 2018 | 91,223 | 505,955 | 1,467,942 | 2,065,120 |
Transferred to Stage 1 | - | (1,372) | (49,146) | (50,518) |
Transferred to Stage 2 | (39,578) | - | (114,523) | (154,101) |
Transferred to Stage 3 | - | (30,374) | - | (30,374) |
Transferred from Stage 1 | - | 39,578 | - | 39,578 |
Transferred from Stage 2 | 1,372 | - | 30,374 | 31,746 |
Transferred from Stage 3 | 49,146 | 114,523 | - | 163,669 |
Assets originated or purchased/Assets settled/Reversal | 76,044 | 160,711 | 720,164 | 956,919 |
Expected loss of financial assets at amortized cost on December 31, 2018 | 178,207 | 789,021 | 2,054,811 | 3,022,039 |
Transferred to Stage 1 | - | (12,246) | - | (12,246) |
Transferred to Stage 2 | (42,073) | - | (67,004) | (109,077) |
Transferred to Stage 3 | - | (474,161) | - | (474,161) |
Transferred from Stage 1 | - | 42,073 | - | 42,073 |
Transferred from Stage 2 | 12,246 | - | 474,161 | 486,407 |
Transferred from Stage 3 | - | 67,004 | - | 67,004 |
New assets originated or purchased/Assets settled or paid | 150,962 | 280,647 | 1,179,829 | 1,611,438 |
Expected loss of financial assets at amortized cost on December 31, 2019 | 299,342 | 692,338 | 3,641,797 | 4,633,477 |
(1) The expected loss expense is recorded as "Expected Loss on Other Financial Assets" in the Organization maintained a totalConsolidated Statement of R$2,005 thousand (R$1,825 thousand in 2016) as investments held to maturity pledged as a guarantee for liabilities.Income.
We applied our Impairment policy, described in Note 2(f)(viii)(b), and in 2017 there was objective evidence of loss in our investments held to maturity in the amount of R$ 54,520 thousand.
F-1F-11416 IFRS – International Financial Reporting Standards – 20172019
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
| R$ thousand | |
On December 31 | ||
2017 | 2016 | |
Held for trading | 801,182 | 6,282,141 |
Brazilian government securities | 801,182 | 6,282,141 |
Available for sale (1) | 59,482,796 | 64,275,415 |
Brazilian government securities | 53,039,884 | 55,530,423 |
Corporate debt securities | 825,287 | 3,899,878 |
Bank debt securities | 4,904,070 | 4,742,273 |
Brazilian sovereign bonds | 713,555 | 102,841 |
Held to maturity | - | 431 |
Brazilian government securities | - | 431 |
Loans and advances to banks | 123,691,195 | 84,728,590 |
Interbank investments (2) | 123,691,195 | 84,728,590 |
Total | 183,975,173 | 155,286,577 |
(1)In 2017, includes unrealized gains of R$ 3,246,351 thousand (2016 - R$ 2,052,366 thousand) and unrealized losses of R$ 557,974 thousand (2016 - R$ 1,443,642 thousand); and
(2)Refers to reverse repurchase agreements in which the underlying security has subsequently been sold in a separate repurchase agreement.
Collateral is a conditional commitment to ensure that the contractual clauses of a repurchase agreements are complied with. In these agreements, the amount of R$ 178,964,158 thousand (2016 – R$ 147,673,043 thousand) may be repledged and R$ 5,011,015 thousand (2016 – R$ 7,613,534 thousand), sold or repledged.
| R$ thousand | |
On December 31 | ||
2017 | 2016 | |
Repurchase agreements | 21,045,591 | 85,178,146 |
Loans to financial institutions | 11,207,614 | 9,667,388 |
Impairment of loans and advances | (5,481) | (7,398) |
Total | 32,247,724 | 94,838,136 |
Bradesco F-115
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Notes to the Consolidated Financial Statements
| R$ thousand | |
On December 31 | ||
2017 | 2016 | |
Working capital | 52,700,584 | 60,390,890 |
Personal credit (1) | 60,570,146 | 56,255,740 |
Housing loans | 59,963,375 | 60,458,038 |
Financing and export | 38,272,982 | 41,983,307 |
Onlending BNDES/Finame | 30,655,666 | 35,816,560 |
Credit card | 37,568,984 | 37,407,733 |
Vehicle loans | 24,741,298 | 23,699,948 |
Rural loans | 13,642,478 | 14,422,799 |
Import | 5,318,042 | 7,140,346 |
Overdraft for corporates | 6,587,239 | 8,583,285 |
Receivable insurance premiums | 4,301,472 | 5,517,932 |
Overdraft for individuals | 3,582,020 | 4,209,637 |
Leasing | 2,249,859 | 2,738,611 |
Other | 33,659,520 | 33,459,047 |
Total portfolio | 373,813,665 | 392,083,873 |
Impairment of loans and advances | (27,055,566) | (24,780,839) |
Total of net loans and advances to customers | 346,758,099 | 367,303,034 |
(1)Includes in 2017 R$ 43,968,511 thousand related to payroll loans (2016 – R$ 38,804,196 thousand).
Allowance for loans and advances to customers
| R$ thousand | |
2017 | 2016 | |
At the beginning of the year | 24,780,839 | 25,455,204 |
Impairment of loans and advances | 16,860,835 | 15,350,278 |
Recovery of credits charged-off as losses | 7,034,857 | 5,507,507 |
Write-offs | (21,620,965) | (21,532,150) |
At the end of the year | 27,055,566 | 24,780,839 |
Finance lease receivables
Loans and advances to customers include the following finance lease receivables.
| R$ thousand | |
On December 31 | ||
2017 | 2016 | |
Gross investments in financial leases receivable: |
|
|
Up to one year | 1,118,286 | 1,418,546 |
From one to five years | 1,082,149 | 1,279,347 |
Over five years | 49,424 | 40,718 |
Impairment loss on finance leases | (146,812) | (186,594) |
Net investment | 2,103,047 | 2,552,017 |
|
|
|
Net investments in finance leases: |
|
|
Up to one year | 1,034,188 | 1,300,659 |
From one to five years | 1,021,089 | 1,212,322 |
Over five years | 47,770 | 39,036 |
Total | 2,103,047 | 2,552,017 |
F-116 IFRS – International Financial Reporting Standards – 2017
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Notes to the Consolidated Financial Statements
| R$ thousand | R$ thousand | ||
On December 31 | On December 31 | |||
2017 | 2016 | 2019 | 2018 | |
Assets not for own use |
|
|
|
|
Real estate | 1,250,380 | 1,262,126 | 1,133,572 | 1,120,434 |
Vehicles and similar | 262,774 | 308,357 | 223,051 | 231,105 |
Machinery and equipment | 2,037 | 5,529 | 362 | 585 |
Other | 5,782 | 2,954 | 41 | 1,206 |
Total | 1,520,973 | 1,578,966 | 1,357,026 | 1,353,330 |
The properties or other non-current assets received in total or partial settlement of the payment obligations of debtors are considered as non-operating assets held for sale in auctions, which normally occur in up to one year. Therefore, non-currentNon-current assets held for sale include the book value of the items the Organization intends to sell,are those for which selling expectation, in their current condition, is highly probable and expected to occur within a year.
BradescoF-117 F-117
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
a.a) Breakdown of investments in associates and joint ventures
Companies | R$ thousand | R$ thousand | ||||||||||||||||||
Equity interest | Shareholding interest with voting rights | Investment book value | Equity in net income (loss) | Associates and joint ventures current assets | Associates and joint ventures non - current assets | Associates and joint ventures current liabilities | Associates and joint ventures non - current liabilities | Revenue (1) | Associates and joint ventures net income (loss) for the year | Equity interest | Shareholding interest with voting rights | Investment book value (11) | Equity in net income (loss) | Associates and joint ventures current assets | Associates and joint ventures non - current assets | Associates and joint ventures current liabilities | Associates and joint ventures non - current liabilities | Revenue (1) | Associates and joint ventures net income (loss) for the year | |
Cielo S.A. (2) | 30.06% | 4,832,660 | 1,219,202 | 76,403,596 | 13,151,540 | 71,020,292 | 6,833,491 | 2,561,394 | 4,056,077 | 30.06% | 30.06% | 4,012,423 | 475,194 | 80,584,265 | 13,924,371 | 74,467,296 | 8,648,722 | 5,300,681 | 1,583,827 | |
IRB - Brasil Resseguros S.A. (3) (4) | 15.23% | 543,025 | 182,432 | 8,512,491 | 6,124,173 | 10,138,711 | 947,514 | 3,550,438 | 1,197,846 | 15.23% | 15.23% | 668,833 | 225,137 | 10,900,366 | 6,029,558 | 11,222,870 | 1,334,052 | 7,842,177 | 1,472,003 | |
Fleury S.A. (3) | 16.28% | 692,380 | 46,791 | 1,389,026 | 2,224,500 | 615,510 | 1,263,331 | 2,609,717 | 287,414 | 16.28% | 16.28% | 703,401 | 37,312 | 990,578 | 3,707,962 | 685,626 | 2,210,530 | 3,047,851 | 327,279 | |
Aquarius Participações S.A. (7) | 49.00% | 263,630 | 116,070 | 242,617 | 532,707 | 237,305 | - | 38 | 236,878 | |||||||||||
Aquarius Participações S.A. (6) | 49.00% | 49.00% | 44,535 | 12,155 | 914 | 90,013 | 39 | - | 24,805 | |||||||||||
Haitong Banco de Investimento do Brasil S.A. | 20.00% | 105,649 | (22,637) | 3,588,848 | 1,283,453 | 3,565,394 | 726,468 | 5,432,770 | (113,185) | 20.00% | 20.00% | 104,420 | 3,824 | 2,769,583 | 1,501,644 | 3,018,405 | 732,665 | 3,933,691 | 16,642 | |
Cia. Brasileira de Gestão e Serviços S.A. | 41.85% | 118,781 | 16,530 | 285,871 | 118,394 | 33,305 | 8,320 | 61,185 | 39,498 | 41.85% | 41.85% | 135,005 | 9,328 | 245,624 | 106,351 | 25,873 | 3,491 | 188,407 | 22,550 | |
NCR Brasil Indústria de Equipamentos para Automação S.A. (3) (9) | 49.00% | 46,039 | 4,108 | 221,809 | 28,788 | 141,520 | - | 1,270 | 8,384 | |||||||||||
Tecnologia Bancária S.A. (3) | 24.32% | 108,752 | 10,209 | 242,480 | 75,702 | 590,872 | 496,090 | 2,534,235 | 41,973 | |||||||||||
Swiss Re Corporate Solutions Brasil (Nota 43-5) (3) | 40.00% | 463,400 | (26,437) | 2,178,209 | 1,511,924 | 2,411,600 | 437,278 | 490,079 | (66,093) | |||||||||||
Gestora de Inteligência de Crédito S.A. (Nota 43-1) (3) | 20.00% | 29,513 | (4,642) | 118,961 | 43,253 | 18,594 | - | - | (23,210) | |||||||||||
Other (3) | - | 7,129 | 2,361 | - | - | - | - | |||||||||||||
Tecnologia Bancária S.A. (3) | 24.32% | 24.32% | 130,759 | 15,327 | 561,182 | 1,646,932 | 448,857 | 1,256,342 | 2,478,999 | 44,698 | ||||||||||
Swiss Re Corporate Solutions Brasil (3) | 40.00% | 40.00% | 345,825 | 9,056 | 2,206,395 | 1,487,009 | 2,522,673 | 317,259 | 1,167,924 | 22,641 | ||||||||||
Gestora de Inteligência de Crédito S.A. (3) | 20.00% | 20.00% | 47,744 | (11,354) | 202,904 | 323,845 | 38,512 | 249,519 | 17 | (73,143) | ||||||||||
Other (3) | - | - | 54,021 | 98,959 | - | - | ||||||||||||||
Total investments in associates |
| 7,210,958 | 1,543,987 | 93,183,908 | 25,094,434 | 88,773,103 | 10,712,492 | 17,241,126 | 5,665,582 |
|
| 6,246,966 | 874,938 | 98,461,811 | 28,817,685 | 92,430,151 | 14,752,580 | 23,959,747 | 3,441,302 | |
|
|
|
|
|
|
|
|
|
| |||||||||||
Elo Participações S.A. (10) | 50.01% | 978,195 | 162,070 | 420,804 | 1,776,837 | 96,763 | 3,967 | 18,708 | 324,075 | |||||||||||
Elo Participações Ltda. (8) | 50.01% | 50.01% | 1,338,973 | 314,644 | 1,385,306 | 1,835,595 | 199,891 | 29,192 | 38,605 | 627,367 | ||||||||||
Crediare S.A. – Crédito, Financiamento e Investimento | 50.00% | 68,231 | 12,393 | 339,236 | 119,406 | 324,764 | - | 161,107 | 24,786 | 50.00% | 50.00% | 49,673 | 11,482 | 448,568 | 4,738 | 353,962 | - | 135,746 | 23,498 | |
MPO - Processadora de Pagamentos Móveis S.A. | 50.00% | - | (39) | 2,198 | 1,612 | 2 | 3,881 | 227 | (78) | |||||||||||
MPO - Processadora de Pagamentos Móveis S.A. (10) | 100.00% | 100.00% | - | 18 | 2,676 | 1,423 | 4,187 | - | 150 | 44 | ||||||||||
Total investments in joint ventures |
| 1,046,426 | 174,424 | 762,238 | 1,897,855 | 421,529 | 7,848 | 180,042 | 348,783 |
|
| 1,388,646 | 326,144 | 1,836,550 | 1,841,756 | 558,040 | 29,192 | 147,501 | 650,909 | |
Total on December 31, 2017 |
| 8,257,384 | 1,718,411 | 93,946,146 | 26,992,289 | 89,194,631 | 10,720,340 | 17,421,168 | 6,014,365 | |||||||||||
Total on December 31, 2019 (7) |
|
| 7,635,612 | 1,201,082 | 100,298,361 | 30,659,441 | 92,988,191 | 14,781,772 | 24,134,248 | 4,092,211 |
F-1F-11818 IFRS – International Financial Reporting Standards – 20172019
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
Companies | R$ thousand | R$ thousand | |||||||||||||||||||
Equity interest | Shareholding interest with voting rights | Investment book value | Equity in net income (loss) | Associates and joint ventures current assets | Associates and joint ventures non - current assets | Associates and joint ventures current liabilities | Associates and joint ventures non - current liabilities | Revenue (1) | Associates and joint ventures net income (loss) for the year | Equity interest | Shareholding interest with voting rights | Investment book value | Equity in net income (loss) | Associates and joint ventures current assets | Associates and joint ventures non - current assets | Associates and joint ventures current liabilities | Associates and joint ventures non - current liabilities | Revenue (1) | Associates and joint ventures net income (loss) for the year | ||
Cielo S.A. | 30.06% | 30.06% | 4,108,743 | 1,204,520 | 13,699,378 | 10,654,621 | 15,004,712 | - | 392,167 | 4,007,233 | |||||||||||
IRB - Brasil Resseguros S.A. (3) (4) | 20.51% | 20.51% | 662,460 | 132,668 | 8,484,793 | 5,828,133 | 10,238,221 | 844,876 | 3,185 | 646,823 | |||||||||||
Fleury S.A. (3) (6) | 16.39% | 16.39% | 651,906 | 17,506 | 1,343,162 | 2,021,981 | 429,411 | 1,166,607 | 2,045,898 | 106,829 | |||||||||||
Aquarius Participações S.A. (7) | 49.00% | 49.00% | 263,632 | 73,640 | 150,233 | 538,267 | 150,474 | - | - | 150,286 | |||||||||||
Equity interest | Shareholding interest with voting rights | Investment book value | Equity in net income (loss) | Associates and joint ventures current assets | Associates and joint ventures non - current assets | Associates and joint ventures current liabilities | Associates and joint ventures non - current liabilities | Revenue (1) | Associates and joint ventures net income (loss) for the year | ||||||||||||
15.23% | 15.23% | 606,161 | 174,277 | 10,265,219 | 5,417,377 | 10,845,420 | 873,938 | 7,036,160 | 1,139,542 | ||||||||||||
Fleury S.A. (3) (5) | 16.28% | 16.28% | 699,927 | 38,805 | 1,510,304 | 2,482,580 | 640,899 | 1,570,942 | 2,642,751 | 238,558 | |||||||||||
Aquarius Participações S.A. (6) | 49.00% | 49.00% | 43,030 | 130,769 | 19,096 | 86,626 | 17,907 | - | 266,876 | ||||||||||||
Haitong Banco de Investimento do Brasil S.A. | 20.00% | 20.00% | 127,922 | 1,596 | 8,187,596 | 493,325 | 8,041,309 | - | 4,243,442 | 7,980 | 20.00% | 20.00% | 100,597 | 602 | 2,587,712 | 1,503,374 | 2,210,690 | 1,880,396 | 6,362,896 | 3,010 | |
Cia. Brasileira de Gestão e Serviços S.A. | 41.85% | 41.85% | 102,251 | 18,517 | 247,475 | 109,390 | 44,890 | - | 22,642 | 44,246 | 41.85% | 41.85% | 127,677 | 8,895 | 230,503 | 100,052 | 22,207 | 3,258 | 174,816 | 21,254 | |
Tecnologia Bancária S.A. (3) | 24.32% | 24.32% | 98,543 | 71,232 | 193,546 | 1,117,398 | 499,341 | 406,459 | 686,800 | 292,862 | |||||||||||
NCR Brasil Indústria de Equipamentos para Automação S.A. (3) | 49.00% | 49.00% | 73,789 | (7,024) | 171,823 | 27,780 | 111,755 | - | 330,985 | (14,335) | 49.00% | 49.00% | 52,571 | 6,689 | 305,278 | 30,249 | 207,894 | - | 9,601 | 13,651 | |
Empresa Brasileira de Solda Elétrica S.A. (3) (9) | - | - | - | 3,168 | - | - | - | - | |||||||||||||
Tecnologia Bancária S.A. (3) | 24.32% | 24.32% | 115,433 | (8,492) | 471,119 | 1,488,542 | 511,883 | 1,035,574 | 2,225,362 | (34,918) | |||||||||||
Swiss Re Corporate Solutions Brasil (3) | 40.00% | 40.00% | 345,036 | (10,998) | 2,110,050 | 1,479,827 | 2,509,280 | 246,060 | 973,422 | (27,494) | |||||||||||
Gestora de Inteligência de Crédito S.A. (3) | 20.00% | 20.00% | 59,098 | (6,466) | 165,299 | 173,083 | 42,894 | - | 13,726 | (32,330) | |||||||||||
Other (3) |
|
| 35,083 | 33,788 | - | - | |||||||||||||||
Total investments in associates |
|
| 6,089,246 | 1,515,823 | 32,478,006 | 20,790,895 | 34,520,113 | 2,417,942 | 7,725,119 | 5,241,924 |
|
| 6,864,202 | 1,378,994 | 83,631,880 | 29,357,501 | 73,811,912 | 16,500,325 | 21,321,767 | 4,930,058 | |
|
|
|
|
|
|
|
|
|
|
| |||||||||||
Elo Participações S.A. | 50.01% | 50.01% | 849,355 | 198,457 | 352,179 | 1,596,527 | 107,627 | - | 18,879 | 396,835 | |||||||||||
Elo Participações S.A. (8) | 50.01% | 50.01% | 1,191,343 | 288,938 | 718,623 | 1,981,596 | 170,683 | 8,220 | 28,938 | 573,968 | |||||||||||
Crediare S.A. – Crédito, Financiamento e Investimento | 50.00% | 50.00% | 64,174 | 8,721 | 443,978 | 3,883 | 317,298 | - | 164,026 | 17,442 | 50.00% | 50.00% | 70,254 | 12,473 | 330,042 | 66,980 | 161,458 | - | 136,193 | 24,946 | |
MPO - Processadora de Pagamentos Móveis S.A. | 50.00% | 50.00% | 3 | (49) | 3,538 | - | 3,532 | - | 256 | (98) | 50.00% | 50.00% | - | (30) | 2,284 | 1,696 | 4,112 | - | 154 | (60) | |
Leader S.A. Adm. de Cartões de Crédito (3) (8) | - | - | - | (23,227) | - |
| - | - | - | ||||||||||||
Total investments in joint ventures |
|
| 913,532 | 183,902 | 799,695 | 1,600,410 | 428,457 | - | 183,161 | 414,179 |
|
| 1,261,597 | 301,381 | 1,050,949 | 2,050,272 | 336,253 | 8,220 | 165,285 | 598,854 | |
Total on December 31, 2016 |
|
| 7,002,778 | 1,699,725 | 33,277,701 | 22,391,305 | 34,948,570 | 2,417,942 | 7,908,280 | 5,656,103 | |||||||||||
Total on December 31, 2018 (7) |
|
| 8,125,799 | 1,680,375 | 84,682,829 | 31,407,773 | 74,148,165 | 16,508,545 | 21,487,052 | 5,528,912 |
BradescoF-119 F-119
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
Companies | R$ thousand | R$ thousand | ||||||||||||||||||
Equity interest | Shareholding interest with voting rights | Investment book value | Equity in net income (loss) | Associates and joint ventures current assets | Associates and joint ventures non - current assets | Associates and joint ventures current liabilities | Associates and joint ventures non - current liabilities | Revenue (1) | Associates and joint ventures net income (loss) for the year | Equity interest | Shareholding interest with voting rights | Investment book value | Equity in net income (loss) | Associates and joint ventures current assets | Associates and joint ventures non - current assets | Associates and joint ventures current liabilities | Associates and joint ventures non - current liabilities | Revenue (1) | Associates and joint ventures net income (loss) for the year | |
Cielo S.A. | 30.06% | 30.06% | 3,302,071 | 1,043,743 | 13,755,540 | 10,806,140 | 8,199,287 | 9,696,767 | 239,386 | 3,472,355 | 30.06% | 30.06% | 4,832,660 | 1,219,202 | 76,403,596 | 13,151,540 | 71,020,292 | 6,833,491 | 2,561,394 | 4,056,077 |
IRB - Brasil Resseguros S.A. (3) (4) | 20.51% | 20.51% | 658,949 | 138,165 | 8,922 | 5,768 | 10,639 | 785 | 3,144 | 673,650 | ||||||||||
Fleury S.A. (6) | 16.39% | 16.39% | 512,642 | 6,262 | 1,124,788 | 268,829 | 299,033 | 1,408,157 | 1,845 | 38,206 | ||||||||||
Fidelity Processadora S.A. (7) | 49.00% | 49.00% | 254,785 | 68,312 | 450,267 | 402,702 | 332,997 | - | 19,546 | 139,412 | ||||||||||
IRB - Brasil Resseguros S.A. (3) (4) | 15.23% | 15.23% | 543,025 | 182,432 | 8,512,491 | 6,124,173 | 10,138,711 | 947,514 | 3,550,438 | 1,197,846 | ||||||||||
Fleury S.A. (3) (5) | 16.28% | 16.28% | 692,380 | 46,791 | 1,389,026 | 2,224,500 | 615,510 | 1,263,331 | 2,609,717 | 287,414 | ||||||||||
Aquarius Participações S.A. | 49.00% | 49.00% | 263,630 | 116,070 | 242,617 | 532,707 | 237,305 | - | 38 | 236,878 | ||||||||||
Haitong Banco de Investimento do Brasil S.A. | 20.00% | 20.00% | 130,248 | (5,377) | 7,227,947 | 563,950 | 7,140,656 | - | 13,834,551 | (26,886) | 20.00% | 20.00% | 105,649 | (22,637) | 3,588,848 | 1,283,453 | 3,565,394 | 726,468 | 5,432,770 | (113,185) |
Cia. Brasileira de Gestão e Serviços S.A. | 41.85% | 41.85% | 83,735 | 17,660 | 203,030 | 93,487 | 35,986 | 1,590 | 13,247 | 42,197 | 41.85% | 41.85% | 118,781 | 16,530 | 285,871 | 118,394 | 33,305 | 8,320 | 61,185 | 39,498 |
NCR Brasil S.A. (3) | 49.00% | 49.00% | 80,357 | 7,101 | 206,315 | 27,146 | 134,533 | - | 71,177 | 14,492 | ||||||||||
Empresa Brasileira de Solda Elétrica S.A. (3) | 49.00% | 49.00% | 33,954 | (5,769) | 101,151 | 48,161 | 47,519 | 32,499 | 115,874 | (11,774) | ||||||||||
Integritas Participações S.A. (3) (5) | - | - | - | 4,778 | 10,647 | 741,803 | 2,534 | 4,066 | 828 | 18,983 | ||||||||||
NCR Brasil Indústria de Equipamentos para Automação S.A. (3) | 49.00% | 49.00% | 46,039 | 4,108 | 221,809 | 28,788 | 141,520 | - | 1,270 | 8,384 | ||||||||||
Tecnologia Bancária S.A. (3) | 24.32% | 24.32% | 108,752 | 10,209 | 242,480 | 75,702 | 590,872 | 496,090 | 2,534,235 | 41,973 | ||||||||||
Swiss Re Corporate Solutions Brasil (3) | 40.00% | 40.00% | 463,400 | (26,437) | 2,178,209 | 1,511,924 | 2,411,600 | 437,278 | 490,079 | (66,093) | ||||||||||
Gestora de Inteligência de Crédito S.A. (3) | 20.00% | 20.00% | 29,513 | (4,642) | 118,961 | 43,253 | 18,594 | - | (23,210) | |||||||||||
Other (3) | - | - | 7,129 | 2,361 | - | - | - | |||||||||||||
Total investments in associates |
|
| 5,056,741 | 1,274,875 | 23,088,607 | 12,957,986 | 16,203,184 | 11,143,864 | 14,299,598 | 4,360,635 |
|
| 7,210,958 | 1,543,987 | 93,183,908 | 25,094,434 | 88,773,103 | 10,712,492 | 17,241,126 | 5,665,582 |
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Elo Participações S.A. | 50.01% | 50.01% | 686,951 | 243,073 | 223,332 | 1,438,988 | 144,169 | 15 | 14,669 | 486,049 | 50.01% | 50.01% | 978,195 | 162,070 | 420,804 | 1,776,837 | 96,763 | 3,967 | 18,708 | 324,075 |
Crediare S.A. – Crédito, Financiamento e Investimento | 50.00% | 50.00% | 65,030 | 10,400 | 439,594 | 4,301 | 312,036 | - | 158,124 | 20,800 | 50.00% | 50.00% | 68,231 | 12,393 | 339,236 | 119,406 | 324,764 | - | 161,107 | 24,786 |
MPO - Processadora de Pagamentos Móveis S.A. | 50.00% | 50.00% | 6,551 | 716 | 380,801 | 11,362 | 379,061 | - | 313,065 | 1,432 | 50.00% | 50.00% | - | (39) | 2,198 | 1,612 | 2 | 3,881 | 227 | (78) |
Leader S.A. Adm. de Cartões de Crédito (3) (8) | 50.00% | 50.00% | 52 | (1,013) | 2,920 | 278 | 3,095 | - | 1,790 | (2,026) | ||||||||||
Total investments in joint ventures |
|
| 758,584 | 253,176 | 1,046,647 | 1,454,929 | 838,361 | 15 | 487,648 | 506,255 |
|
| 1,046,426 | 174,424 | 762,238 | 1,897,855 | 421,529 | 7,848 | 180,042 | 348,783 |
Total on December 31, 2015 |
|
| 5,815,325 | 1,528,051 | 24,135,254 | 14,412,915 | 17,041,545 | 11,143,879 | 14,787,246 | 4,866,890 | ||||||||||
Total on December 31, 2017 (7) |
|
| 8,257,384 | 1,718,411 | 93,946,146 | 26,992,289 | 89,194,631 | 10,720,340 | 17,421,168 | 6,014,365 |
(1)Revenues from financial intermediation or services;
(2)Brazilian company, services provider related to credit and debit cards and other means of payment. In 2017,2019, the Organization received R$ 582,483448,291 thousand of dividends and interest on capitalequity of this investment. In its financial statements, Cielo S.A. presented R$ 8,81445,693 thousand of other comprehensive income;
(3)(3) Companies for which the equity accounting adjustments are calculated using statements of financial position and statements of income with lag in relation to the reporting date of these consolidated financial statements;
(4)(4) Bradesco has a board member at IRB-Brasil with voting rights, which results in significant influence;
(5)Partial spin-off in October, 2015;
(6)Participation in Fleury S.A. (i) due to the partial spin-off of Integritas Participações S.A. and, (ii) recordedcompany considered using equity method as Bradesco has significant influence due its paticipationparticipation on the Board of the Directors and other committes;Committees;
(7)(6) In January 2016,2018, occurred the partial spin-off and consolidation of Fidelity Processadora S.A., controlled by Aquarius Participações S.A. was endowed with the contribution of the investment of Fidelity Processadora e Serviços S.A.;
(8)(7) In April 2016, it was consolidated after acquisition of 50% of the company;
(9)In 2017,2019, impairment losses were recognizedrecorded in associates"associates and joint control companies,jointly controlled entities" in the amount of R$727,235 thousand. In 2018, impairment losses were recorded in "associates and jointly controlled entities" in the amount of R$107,000 thousand. In 2017, it was recorded in the amount of R$31,868 thousand on the investment in NCR Brasil S.A. (In 2016, R$ 37,122 on the investment in EBSE – Empresa Brasileira Indústria de Solda Elétrica S.A.)Equipamentos para Automação S.A; and
(10)(8) Brazilian company, holding company that consolidates joint business related to electronic means of payment. In 2017,2019, the Organization received R$ 46,82072,215 thousand of dividends from this investment. In its financial statements, Elo Participações S.A. presented R$ 8,10922 thousand of other comprehensive incomeincome;
(9) In 2019, there was the divestiture of the company NCR Brasil Indústria de Equipamentos para Automação S.A.;
(10) In December 2019, we began to consolidate the company MPO – Processadora de Pagamentos Móveis S.A., after the shareholding acquisition; and
(11) Of this amount, R$985,628 thousand refers to the acquisition of shares in associated and jointly controlled companies, which are recorded in the Balance Sheet under the caption Investments in associates and joint ventures (Cielo/Fleury/Swiss Re).
F-12F-1200 IFRS – International Financial Reporting Standards – 20172019
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
In 2017,2019, with the exception of Cielo S.A., IRB –- Brasil Resseguros S.A. (IRB) and Fleury S.A,S.A., the other investments mentioned in the previous table above were not regularly traded regularly on any stock exchange. The marketfair value of investments totaled R$22,340,66014,815,109 thousand (2016 - R$ 18,980,026 thousand)(R$12,240,547 thousand in 2018). The Organization does not have any contingent liabilityliabilities for investments in Associates, inassociates, which it is responsible for, in part or in full.whole.
b.b) Changes in associates
| R$ thousand | R$ thousand | ||
2017 | 2016 | 2019 | 2018 | |
Initial balances | 7,002,778 | 5,815,325 | 8,125,799 | 8,257,384 |
Acquisitions | 524,155 | 376,434 | - | 54,019 |
Spin-off of associates (2) | (170,006) | - | ||
Transfer (3) | 5,953 | (166,294) | ||
Write-offs (1) | (66,889) | (1,175) | ||
Equity in net income of associates | 1,718,411 | 1,699,725 | 1,201,082 | 1,680,375 |
Dividends/Interest on capital | (802,662) | (655,920) | ||
Impairment (4) | (31,868) | (37,122) | ||
Dividends/Interest on equity | (729,654) | (1,385,537) | ||
Impairment | (727,235) | (107,000) | ||
Other | 10,623 | (29,370) | (167,491) | (372,267) |
At the end of the year | 8,257,384 | 7,002,778 | 7,635,612 | 8,125,799 |
(1)In 2017, it includes the acquisition of interest in (i) Swiss Re Corporate Solutions Brasil; and in (ii) GIC - Gestora de Inteligência de Crédito (In 2016, 2019,there was capital increase in Cia. Leader S.A. Administradora de Cartões de Crédito);
(2)Disposal partial salethe disposal of the IRB (Note 43-6);
(3)In 2016, the investment of Cia. Leader S.A. Administradoracompanies Cibrasec – Cia.Brasileira de CartõesSecuritização and NCR Brasil Indústria de Crédito began to be consolidated after acquisition of 50% of the company; and
(4)In 2017, there were losses on impairment in affiliates and joint ventures, in the amount of R$ 31,868 thousand (R$ 37,122 thousand - 2016).Equipamentos para Automação S.A..
a) Composition ofproperty and equipment by class
| R$ thousand | R$ thousand | ||||||
Annual rate | Cost | Accumulated depreciation | Net | Annual depreciation rate | Cost | Accumulated depreciation | Net | |
Buildings | 4% | 2,153,407 | (483,266) | 1,670,141 | 4% | 7,847,887 | (1,365,046) | 6,482,841 |
Land | - | 982,720 | - | 982,720 | - | 967,928 | - | 967,928 |
Installations, properties and equipment for use | 10% | 5,450,939 | (2,667,455) | 2,783,484 | 10% | 6,690,473 | (2,965,884) | 3,724,589 |
Security and communication systems | 10% | 349,228 | (213,879) | 135,349 | 10% | 375,712 | (221,860) | 153,852 |
Data processing systems | 20% | 3,950,625 | (2,329,028) | 1,621,597 | 20% | 9,167,330 | (5,977,994) | 3,189,336 |
Transportation systems | 20% | 86,705 | (48,246) | 38,459 | 20% | 211,510 | (70,834) | 140,676 |
Financial leasing of data processing systems | 20% | 3,431,868 | (2,231,143) | 1,200,725 | ||||
Balance on December 31, 2017 |
| 16,405,492 | (7,973,017) | 8,432,475 | ||||
Balance on December 31, 2019 (1) |
| 25,260,840 | (10,601,618) | 14,659,222 | ||||
|
|
|
|
|
|
|
|
|
Buildings | 4% | 2,153,351 | (454,426) | 1,698,925 | 4% | 2,611,299 | (480,093) | 2,131,206 |
Land | - | 1,027,535 | - | 1,027,535 | - | 976,869 | - | 976,869 |
Installations, properties and equipment for use | 10% | 5,187,160 | (2,314,715) | 2,872,445 | 10% | 6,324,483 | (3,161,651) | 3,162,832 |
Security and communication systems | 10% | 325,835 | (192,974) | 132,861 | 10% | 379,099 | (236,293) | 142,806 |
Data processing systems | 20% | 3,504,229 | (2,067,981) | 1,436,248 | 20% | 4,231,789 | (2,677,882) | 1,553,907 |
Transportation systems | 20% | 86,639 | (40,034) | 46,605 | 20% | 92,403 | (60,760) | 31,643 |
Financial leasing of data processing systems | 20% | 3,229,513 | (2,047,016) | 1,182,497 | ||||
Balance on December 31, 2016 |
| 15,514,262 | (7,117,146) | 8,397,116 | ||||
Financial leases of data processing systems | 20% | 3,474,958 | (2,647,385) | 827,573 | ||||
Balance on December 31, 2018 |
| 18,090,900 | (9,264,064) | 8,826,836 |
(1) Includes underlying assets identified in lease contracts recognized under the scope of IFRS 16. Depreciation for these assets is calculated linearly by the lease term.
Depreciation charges in 20172019 amounted to R$ 1,237,3282,737,383 thousand (2016 -(2018 – R$ 1,141,6361,460,013 thousand).
We enter into finance lease agreements as a lessee for data processing equipment and properties, which are recorded as buildings and equipment leased equipment in property, plant and equipment. According to this accounting method, both the asset and the obligation are recognized in the consolidated financial statements and the depreciation of the asset is calculated based on the same depreciation policy as for similar assets. See Note 3837 for disclosure of the obligation.
BradescoF-121 F-121
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
b)Change inproperty and equipment by class
| R$ thousand | R$ thousand | ||||||||||||
Buildings | Land | Installations, properties and equipment for use | Security and communications systems | Data processing systems (1) | Transportation systems | Total | Buildings | Land | Installations, properties and equipment for use | Security and communications systems | Data processing systems | Transportation systems | Total | |
Balance on December 31, 2016 | 1,698,925 | 1,027,535 | 2,872,445 | 132,861 | 2,618,745 | 46,605 | 8,397,116 | |||||||
Balance on December 31, 2017 | 1,670,141 | 982,720 | 2,783,484 | 135,349 | 2,822,322 | 38,459 | 8,432,475 | |||||||
Additions | 117,888 | 41,777 | 754,606 | 31,134 | 947,314 | 4,926 | 1,897,645 | 766,074 | 143,103 | 1,045,155 | 39,005 | 390,398 | 5,698 | 2,389,433 |
Write-offs | (53,151) | (86,592) | (323,217) | (2,540) | (86,469) | (100) | (552,069) | (12,168) | (278,602) | (160,587) | (6,141) | (1,924) | - | (459,422) |
Impairment | (73,568) | - | (502) | (1,836) | (3,288) | - | (79,194) | (60,371) | - | (653) | (30,670) | - | (91,694) | |
Depreciation | (28,840) | - | (521,663) | (24,270) | (649,583) | (12,972) | (1,237,328) | (111,274) | - | (512,825) | (24,754) | (798,646) | (12,514) | (1,460,013) |
Transfer | 8,887 | - | 1,815 | - | (4,397) | - | 6,305 | (121,196) | 129,648 | - | - | - | 8,452 | |
Balance on December 31, 2017 | 1,670,141 | 982,720 | 2,783,484 | 135,349 | 2,822,322 | 38,459 | 8,432,475 | |||||||
|
|
|
|
| ||||||||||
Balance on December 31, 2015 | 582,602 | 448,020 | 2,788,330 | 59,086 | 1,556,160 | 70,237 | 5,504,435 | |||||||
Balance originating from an acquired institution (2) | 752,619 | 586,971 | 320,949 | 77,196 | 60,065 | - | 1,797,800 | |||||||
Balance from an acquired institution | - | 7,605 | - | - | 7,605 | |||||||||
Balance on December 31, 2018 | 2,131,206 | 976,869 | 3,162,832 | 142,806 | 2,381,480 | 31,643 | 8,826,836 | |||||||
Initial adoption - IFRS 16 | 4,136,603 | - | 31,215 | - | - | 8,793 | 4,176,611 | |||||||
Adjusted balance on January 1, 2019 | 6,267,809 | 976,869 | 3,194,047 | 142,806 | 2,381,480 | 40,436 | 13,003,447 | |||||||
Additions | 81,809 | 897 | 974,089 | 22,721 | 1,696,318 | 3,487 | 2,779,321 | 1,321,052 | 18,380 | 1,898,293 | 43,111 | 1,913,392 | 113,816 | 5,308,044 |
Write-offs | (30,341) | (8,353) | (402,316) | (4,804) | (62,386) | (1,627) | (509,827) | (59,792) | (27,321) | (786,791) | (6,291) | (8,359) | (861) | (889,415) |
Impairment | - | - | (20,543) | (12,434) | (32,977) | - | (2,123) | (1,806) | (21,499) | (43) | (25,471) | |||
Depreciation | (30,179) | - | (466,192) | (21,338) | (610,869) | (13,058) | (1,141,636) | (1,046,228) | - | (578,837) | (23,968) | (1,075,678) | (12,672) | (2,737,383) |
Transfer | 342,415 | - | (342,415) | - | - | - | ||||||||
Balance on December 31, 2016 | 1,698,925 | 1,027,535 | 2,872,445 | 132,861 | 2,618,745 | 46,605 | 8,397,116 | |||||||
Balance on December 31, 2019 (1) | 6,482,841 | 967,928 | 3,724,589 | 153,852 | 3,189,336 | 140,676 | 14,659,222 |
(1) Includes financialunderlying assets identified in lease contracts recognized under the scope of data processing systems; and
(2) HSBC Brasil.IFRS 16.
F-12F-1222 IFRS – International Financial Reporting Standards – 20172019
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
a)Change in intangible assets and goodwill by class
| R$ thousand | R$ thousand | ||||||||||
Goodwill | Intangible Assets | Goodwill | Intangible Assets | |||||||||
Acquisition of financial service rights (1) | Software (1) | Customer portfolio (1) | Other (1) | Total | Acquisition of financial service rights (1) | Software (1) | Customer portfolio (1) | Other (1) | Total | |||
Balance on December 31, 2016 | 4,945,313 | 2,503,457 | 3,945,244 | 4,358,923 | 44,589 | 15,797,526 | ||||||
Balance on December 31, 2017 | 4,945,313 | 4,051,898 | 3,790,418 | 3,358,689 | 32,989 | 16,179,307 | ||||||
Additions/(reductions) | - | 2,549,335 | 1,203,313 | - | (8,944) | 3,743,704 | 630,755 | 1,859,905 | 1,198,396 | - | (5,146) | 3,683,910 |
Impairment (3) | - | - | (30,683) | - | (30,683) | |||||||
Impairment (2) | - | (162) | (386,265) | - | (386,427) | |||||||
Amortization | - | (1,000,894) | (1,327,456) | (1,000,234) | (2,656) | (3,331,240) | - | (1,116,505) | (1,361,269) | (864,686) | (5,782) | (3,348,242) |
Balance on December 31, 2017 | 4,945,313 | 4,051,898 | 3,790,418 | 3,358,689 | 32,989 | 16,179,307 | ||||||
|
|
|
| |||||||||
Balance on December 31, 2015 | 723,526 | 2,260,033 | 3,639,825 | 709,463 | 76,788 | 7,409,635 | ||||||
Balance originating from an acquired institution (2) | 4,221,787 | 264,349 | 288,826 | 3,993,743 | 4,840 | 8,773,545 | ||||||
Balance on December 31, 2018 | 5,576,068 | 4,795,136 | 3,241,280 | 2,494,003 | 22,061 | 16,128,548 | ||||||
Additions/(reductions) | - | 930,190 | 1,284,041 | - | 129,266 | 2,343,497 | 7,134 | 1,525,833 | 1,195,049 | (43,589) | 11,640 | 2,696,067 |
Impairment (3) | - | - | (212,374) | - | (212,374) | |||||||
Impairment (2) | (255,301) | (519,749) | (196,533) | - | (971,583) | |||||||
Amortization | - | (951,115) | (1,055,074) | (344,283) | (166,305) | (2,516,777) | - | (1,313,322) | (1,112,408) | (697,655) | (5,000) | (3,128,385) |
Balance on December 31, 2016 | 4,945,313 | 2,503,457 | 3,945,244 | 4,358,923 | 44,589 | 15,797,526 | ||||||
Balance on December 31, 2019 | 5,327,901 | 4,487,898 | 3,127,388 | 1,752,759 | 28,701 | 14,724,647 |
(1)Rate of amortization: acquisition of banking rights -– in accordance with contract agreement; software – 20%; Customer portfolio – up to 20%; and others – 20%; and
(2)HSBC Brasil; and
(3)Impairment losses were recognized in the consolidated statement of income, within “Other operating income/(expenses)”.
BradescoF-123F-123
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
b) Composition of goodwill by segment
| R$ thousand | R$ thousand | ||
On December 31 | On December 31 | |||
2017 | 2016 | 2019 | 2018 | |
Banking | 4,651,347 | 4,651,347 | 4,835,518 | 5,083,686 |
Insurance, pension and capitalization bonds | 293,966 | 293,966 | ||
Insurance | 492,382 | 492,382 | ||
Total | 4,945,313 | 4,945,313 | 5,327,900 | 5,576,068 |
The Cash Generation Units allocated to the banking segment and the insurance, pension and capitalization bonds segment are tested annually for impairment of goodwill. We did not incur any goodwill impairment losses in 2017,20162019, 2018 and 2015.2017.
The recoverable amount from the Banking Segment has been determined based on a value-in-use calculation. The calculation uses cash-flow predictionsprojections based on financial budgets approved by management,Management, with a terminal growth rate of 7.1%6.6% p.a. (7.6%(2018 – 6.9% p.a. in 2016)). The forecast cash flows have been discounted at a rate of 13.6%11.5% p.a. (12.9%(2018 – 12.0% p.a. in 2016)).
The key assumptions described above may change as economic and market conditions change. The Organization estimates that reasonably possible changes in these assumptions within the current economic environment are not expected to cause the recoverable amount of either unit to decline below the carrying amount.
| R$ thousand | |
On December 31 | ||
2017 | 2016 | |
Foreign exchange transactions (1)(4) | 17,279,327 | 17,455,821 |
Debtors for guarantee deposits (2)(4) | 17,840,698 | 16,372,044 |
Negotiation and intermediation of securities (4) | 1,741,524 | 1,954,484 |
Trade and credit receivables (4) | 3,016,225 | 1,813,144 |
Deferred acquisition cost (insurance) – Note 35f | 1,070,108 | 1,750,244 |
Other debtors | 3,736,743 | 2,781,206 |
Prepaid expenses | 1,244,602 | 1,324,362 |
Income receivable (4) | 1,841,709 | 1,575,698 |
Interbank and interdepartmental accounts | 1,480,291 | 949,730 |
Other (3) | 1,602,760 | 1,193,637 |
Total | 50,853,987 | 47,170,370 |
| R$ thousand | |
On December 31 | ||
2019 | 2018 | |
Financial assets (4) (5) | 56,101,781 | 43,893,309 |
Foreign exchange transactions (1) | 30,952,382 | 20,179,828 |
Debtors for guarantee deposits (2) | 18,695,102 | 18,729,321 |
Securities trading | 4,659,791 | 2,582,663 |
Trade and credit receivables | 164,467 | 664,274 |
Receivables | 1,630,039 | 1,737,223 |
Other assets | 7,441,888 | 7,372,866 |
Deferred acquisition cost (insurance) – Note 34e | 983,999 | 925,884 |
Other debtors | 3,218,639 | 2,728,746 |
Prepaid expenses | 847,197 | 741,087 |
Interbank and interdepartmental accounts | 467,540 | 1,427,359 |
Other (3) | 1,924,513 | 1,549,790 |
Total | 63,543,669 | 51,266,175 |
(1)Mainly refers to purchases in foreign currency made by the institution on behalf of customers and rights in the institution’s domestic currency, resulting from exchange sale operations;
(2)Refers to deposits resulting from legal or contractual requirements, including guarantees provided in cash, such as those made for the filing of appeals in departments or courts and those made to guarantee services of any nature;
(3)Includes basically trade and credit receivables, material supplies, other advances and payments to be reimbursed; and
(4)Financial assets are recorded at amortized cost.cost; and
(5) In 2019, there were no losses for impairment of other financial assets.
F-12F-1244 IFRS – International Financial Reporting Standards – 20172019
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
Financial liabilities called “Deposits from banks” are initially measured at fair value and, subsequently, at amortized cost, using the effective interest rate method.
Composition by nature
| R$ thousand | R$ thousand | ||
On December 31 | On December 31 | |||
2017 | 2016 | 2019 | 2018 | |
Demand deposits | 1,030,292 | 898,877 | 1,606,079 | 1,139,729 |
Interbank deposits | 2,168,625 | 588,872 | 369,982 | 410,975 |
Securities sold under agreements to repurchase | 233,467,544 | 241,978,931 | 174,100,023 | 190,911,877 |
Borrowings | 18,521,713 | 22,165,415 | 29,272,183 | 29,681,340 |
Onlending | 30,769,294 | 36,030,587 | 22,471,344 | 25,170,058 |
Total | 285,957,468 | 301,662,682 | 227,819,611 | 247,313,979 |
Financial liabilities called “Deposits from customers” are initially measured at fair value and subsequently at amortized cost, using the effective interest rate method.
Composition by nature
| R$ thousand | R$ thousand | ||
On December 31 | On December 31 | |||
2017 | 2016 | 2019 | 2018 | |
Demand deposits | 33,058,324 | 32,521,234 | 37,283,988 | 34,178,563 |
Savings deposits | 103,332,697 | 97,088,828 | 114,177,799 | 111,170,912 |
Time deposits | 125,617,424 | 103,137,867 | 214,765,753 | 195,398,721 |
Total | 262,008,445 | 232,747,929 | 366,227,540 | 340,748,196 |
a) Composition by type of security issued and location
| R$ thousand | R$ thousand | ||
On December 31 | On December 31 | |||
2017 | 2016 | 2019 | 2018 | |
Instruments Issued – Brazil: |
|
|
|
|
Real estate credit notes | 27,020,911 | 26,955,574 | 27,019,439 | 25,381,719 |
Agribusiness notes | 10,973,682 | 9,116,292 | 13,149,546 | 13,108,595 |
Financial bills | 93,570,141 | 108,512,908 | 120,518,300 | 104,005,236 |
Letters of credit property guaranteed | 5,540,086 | 476,332 | ||
Subtotal | 131,564,734 | 144,584,774 | 166,227,371 | 142,971,882 |
Securities – Overseas: |
|
|
|
|
Euronotes (1) | 634,549 | 2,785,654 | ||
Euronotes | 1,407,888 | 1,270,409 | ||
Securities issued through securitization – (item (b)) | 2,606,322 | 3,286,342 | 1,967,746 | 3,130,111 |
Subtotal | 3,240,871 | 6,071,996 | 3,375,634 | 4,400,520 |
Structured Operations Certificates | 368,485 | 445,168 | 1,124,559 | 656,616 |
Total | 135,174,090 | 151,101,938 | 170,727,564 | 148,029,018 |
(1) Issuance of securities in the foreign market to fund customers’ foreign exchange operations, export pre-financing, import financing and working capital financing, substantially in the medium and long terms.
BradescoF-125F-125
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
b) Securities issued through securitization
Since 2003, the Organization uses certain arrangements to optimize its activities of funding and liquidity management by means of ana Specific Purpose Entity (SPE). This SPE, which is called International Diversified Payment Rights Company, is financed with long-term bonds which are settled with the future cash flow of the corresponding assets, basically comprising current and future flow of payment orders sent by individuals and legal entities abroad to beneficiaries in Brazil for whom Bradesco acts as payor.payer.
The long-term instruments issued by the SPE and sold to investors will be settled with funds from the payment orders flows. The Organization is required to redeem the instruments in specific cases of default or upon closing of the operations of the SPE.
The funds deriving from the sale of current and future payment orders flows, received by the SPE, must be maintained in a specific bank account until they reach a given minimum level.
We show below the amounts of the securities issued by the SPE, which appear
c)Net financial activity in the “Funding from issuance of securities” line item:securities
| R$ thousand | |
2019 | 2018 | |
Opening balance on December 31 | 148,029,018 | 135,174,090 |
Issuance | 84,982,152 | 85,963,195 |
Interest | 9,233,505 | 9,054,699 |
Settlement and interest payments | (71,781,695) | (82,973,990) |
Exchange variation and others | 264,584 | 811,024 |
Closing balance on December 31 | 170,727,564 | 148,029,018 |
| R$ thousand | ||||
| Date of Issue | Nominal amount | Maturity | On December 31 | |
| 2017 | 2016 | |||
Securitization of the future flow of payment orders received from abroad | 06,3,2008 | 836,000 | 22,5,2017 | - | 87,183 |
19,12,2008 | 1,168,500 | 20,2,2019 | 348,524 | 698,551 | |
17,12,2009 | 89,115 | 20,2,2020 | 49,594 | 74,487 | |
20,8,2010 | 307,948 | 21,8,2017 | - | 60,938 | |
29,9,2010 | 170,530 | 21,8,2017 | - | 34,810 | |
16,11,2011 | 88,860 | 20,11,2018 | 26,068 | 60,989 | |
16,11,2011 | 133,290 | 22,11,2021 | 139,678 | 177,095 | |
23,12,2015 | 390,480 | 21,11,2022 | 330,311 | 348,110 | |
23,12,2015 | 390,480 | 20,11,2020 | 318,934 | 348,662 | |
02,2,2016 | 889,725 | 22,2,2021 | 871,260 | 872,710 | |
30,3,2016 | 533,835 | 22,2,2021 | 521,953 | 522,807 | |
Total |
| 4,998,763 |
| 2,606,322 | 3,286,342 |
(1)Prepaid.
F-1F-12626 IFRS – International Financial Reporting Standards – 20172019
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Notes to the Consolidated Financial Statements
a)Composition of subordinated debt
| On December 31 - R$ thousand | |||
Original term in years | Nominal amount | 2017 | 2016 | |
In Brazil: |
|
| ||
Subordinated CDB: |
|
|
|
|
2019 | 10 | 20,000 | 62,303 | 56,200 |
Financial bills: |
|
|
|
|
2017 (1) | 6 | 8,630,999 | - | 11,075,463 |
2018 | 6 | 8,262,799 | 10,130,108 | 9,875,551 |
2019 | 6 | 21,858 | 36,139 | 33,402 |
2017 (1) | 7 | 40,100 | - | 95,872 |
2018 | 7 | 141,050 | 316,757 | 293,357 |
2019 | 7 | 3,172,835 | 3,436,734 | 3,423,463 |
2020 | 7 | 1,700 | 2,801 | 2,612 |
2022 | 7 | 4,305,011 | 5,597,559 | 5,050,633 |
2023 | 7 | 1,359,452 | 1,699,872 | 1,522,243 |
2024 (2) | 7 | 67,450 | 73,861 | - |
2018 | 8 | 50,000 | 119,417 | 112,038 |
2019 | 8 | 12,735 | 28,184 | 25,212 |
2020 | 8 | 28,556 | 54,383 | 49,498 |
2021 | 8 | 1,236 | 2,027 | 1,896 |
2023 | 8 | 1,706,846 | 2,265,488 | 2,015,625 |
2024 | 8 | 136,695 | 159,205 | 143,415 |
2025 (2) | 8 | 6,193,653 | 6,624,611 | - |
2021 | 9 | 7,000 | 13,125 | 11,813 |
2024 | 9 | 4,924 | 6,611 | 5,806 |
2025 | 9 | 400,944 | 457,679 | 417,641 |
2021 | 10 | 19,200 | 40,429 | 37,191 |
2022 | 10 | 54,143 | 99,338 | 91,314 |
2023 | 10 | 688,064 | 1,070,085 | 1,011,423 |
2025 | 10 | 284,137 | 392,376 | 342,886 |
2026 | 10 | 361,196 | 438,776 | 392,886 |
2027 (2) | 10 | 258,743 | 273,498 | - |
2026 | 11 | 3,400 | 4,271 | 4,001 |
2027 | 11 | 47,046 | 53,996 | 48,566 |
2028 (2) | 11 | 74,764 | 77,079 | - |
Perpetual | - | 5,000,000 | 5,004,967 | 5,015,870 |
Subtotal in Brazil |
|
| 38,541,679 | 41,155,877 |
Overseas: |
|
|
|
|
2019 | 10 | 1,333,575 | 2,520,963 | 2,482,631 |
2022 | 10 | 1,886,720 | 3,697,115 | 5,333,373 |
2021 | 11 | 2,766,650 | 5,419,644 | 3,639,183 |
Subtotal overseas |
|
| 11,637,722 | 11,455,187 |
Total (3) |
|
| 50,179,401 | 52,611,064 |
(1)Subordinated debt transactions that matured in 2017; and
(2)New issuances of financial bills in 2017, referring to subordinated debt.
b)Net movement of subordinated debt
| R$ thousand | |
2017 | 2016 | |
Initial balances | 52,611,064 | 50,282,936 |
Balance originating from an acquired institution | - | 1,401,348 |
Issuances | 6,594,610 | 3,787,207 |
Interest | 5,100,017 | 6,298,555 |
Payments and other | (14,126,290) | (9,158,982) |
At the end of the year | 50,179,401 | 52,611,064 |
Bradesco F-127
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
a) Composition of subordinated debt
Maturity | On December 31 - R$ thousand | |||
Original term in years | Nominal amount | 2019 | 2018 | |
In Brazil: |
|
| ||
Subordinated CDB: |
|
|
|
|
2019 (1) |
| 10 | - | 69,851 |
Financial bills: |
|
|
|
|
2019 (1) | 6 | - | 39,261 | |
2019 (1) | 7 |
| - | 3,490,180 |
2020 | 7 | 1,700 | 3,288 | 3,038 |
2022 | 7 | 4,305,011 | 6,426,671 | 6,010,103 |
2023 | 7 | 1,359,452 | 1,958,936 | 1,829,083 |
2024 | 7 | 67,450 | 87,316 | 80,479 |
2025 | 7 | 5,425,906 | 5,943,283 | 5,578,707 |
2019 (1) | 8 | - | - | 31,742 |
2020 | 8 | 28,556 | 64,624 | 59,398 |
2021 | 8 | 1,236 | 2,364 | 2,192 |
2023 | 8 | 1,706,846 | 2,671,282 | 2,464,978 |
2024 | 8 | 136,695 | 186,376 | 172,590 |
2025 | 8 | 6,193,653 | 6,424,128 | 6,427,806 |
2026 | 8 | 870,300 | 952,807 | 894,417 |
2021 | 9 | 7,000 | 14,999 | 14,064 |
2024 | 9 | 4,924 | 8,375 | 7,444 |
2025 | 9 | 400,944 | 525,232 | 491,031 |
2027 | 9 | 144,900 | 159,920 | 149,211 |
2021 | 10 | 19,200 | 49,621 | 44,962 |
2022 | 10 | 54,143 | 118,117 | 108,467 |
2023 | 10 | 688,064 | 1,225,020 | 1,146,189 |
2025 | 10 | 284,137 | 518,242 | 451,136 |
2026 | 10 | 361,196 | 523,687 | 480,443 |
2027 | 10 | 258,743 | 319,582 | 295,946 |
2028 | 10 | 248,300 | 282,192 | 257,524 |
2026 | 11 | 3,400 | 5,009 | 4,622 |
2027 | 11 | 47,046 | 62,776 | 58,346 |
2028 | 11 | 74,764 | 91,899 | 84,304 |
Perpetual |
| 9,201,200 | 9,559,967 | 9,254,743 |
Subtotal in Brazil (2) |
|
| 38,185,713 | 40,002,257 |
Overseas: |
|
|
|
|
2019 (1) | 10 | - | - | 2,953,103 |
2021 | 11 | 6,449,120 | 6,619,620 | 6,355,614 |
2022 | 11 | 4,433,770 | 4,508,175 | 4,332,470 |
Subtotal overseas |
|
| 11,127,795 | 13,641,187 |
Total |
|
| 49,313,508 | 53,643,444 |
(1) Subordinated debt transactions that matured in 2019; and
(2) It includes the amount of R$36,707,680 thousand (2018 – R$34,992,913 thousand), referring to subordinated debts recognized in “Eligible Debt Capital Instruments”.
BradescoF-127
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
b) Net movement of subordinated debt
| R$ thousand | |
2019 | 2018 | |
Opening balance on December 31 | 53,643,444 | 50,179,401 |
Issuance | - | 10,890,606 |
Interest | 3,708,924 | 3,517,067 |
Settlement and interest payments | (8,593,243) | (12,941,124) |
Exchange variation | 554,383 | 1,997,494 |
Closing balance on December 31 | 49,313,508 | 53,643,444 |
F-128 IFRS – International Financial Reporting Standards – 2019
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
a)Technical provisions by account
| R$ thousand | R$ thousand | ||||||||||
Insurance | Life and Pension (2)(3) | Total | Insurance | Life and Pension (2)(3)(4) | Total | |||||||
On December 31 | On December 31 | On December 31 | On December 31 | On December 31 | On December 31 | |||||||
2017 | 2016 | 2017 | 2016 | 2017 | 2016 | 2019 | 2018 | 2019 | 2018 | 2019 | 2018 | |
Current and long-term liabilities |
|
|
|
|
|
| ||||||
Mathematical reserve for unvested benefits | 1,051,507 | 912,764 | 207,818,859 | 184,594,055 | 208,870,366 | 185,506,819 | ||||||
Mathematical reserve for vested benefits | 265,727 | 210,855 | 9,367,712 | 8,989,482 | 9,633,439 | 9,200,337 | ||||||
Mathematical reserve for unvested benefits (PMBAC) | 1,462,699 | 1,218,860 | 230,996,998 | 217,884,791 | 232,459,697 | 219,103,651 | ||||||
Mathematical reserve for vested benefits (PMBC) | 410,410 | 343,852 | 8,895,571 | 8,489,312 | 9,305,981 | 8,833,164 | ||||||
Reserve for claims incurred but not reported (IBNR) | 3,159,967 | 2,770,507 | 1,030,107 | 1,264,115 | 4,190,074 | 4,034,622 | 3,655,551 | 3,401,781 | 938,466 | 931,154 | 4,594,017 | 4,332,935 |
Unearned premium reserve | 4,068,716 | 4,265,155 | 567,369 | 574,544 | 4,636,085 | 4,839,699 | 4,454,214 | 4,283,281 | 1,042,959 | 647,709 | 5,497,173 | 4,930,990 |
Reserve for unsettled claims | 4,291,432 | 4,645,468 | 1,588,489 | 1,682,147 | 5,879,921 | 6,327,615 | ||||||
Reserve for financial surplus | - | - | 514,199 | 554,505 | 514,199 | 554,505 | ||||||
Reserve for unsettled claims (PSL) | 4,432,487 | 4,472,929 | 1,533,696 | 1,345,596 | 5,966,184 | 5,818,525 | ||||||
Reserve for financial surplus (PET) | - | - | 622,703 | 549,135 | 622,703 | 549,135 | ||||||
Other technical provisions | 1,996,206 | 2,048,355 | 3,369,300 | 3,328,048 | 5,365,506 | 5,376,403 | 2,028,532 | 2,186,799 | 7,828,405 | 5,823,088 | 9,856,936 | 8,009,887 |
Total reserves | 14,833,555 | 14,853,104 | 224,256,035 | 200,986,896 | 239,089,590 | 215,840,000 | 16,443,893 | 15,907,502 | 251,858,798 | 235,670,785 | 268,302,691 | 251,578,287 |
(1) “Other technical provisions” -– Insurance basically refers toincludes the technical provisionsProvision for Insufficient Premiums (PIP) of R$1,925,656 thousand and the “personal health” portfolio;Provision for Related Expenses of R$105,781 thousand;
(2) Includes personal insurance and pension plans; and
(3) “OtherThe "Other technical provisions” -provisions" line of Life and Pension Plan mainly includes the “Reserve"Provision for redemptionredemptions and other amounts to be settled”, “Reservesettled" in the amount of R$3,120,662 thousand, "Provision of related expenses" in the amount of R$638,216 thousand, “Complementary Provision for related expenses”.Coverage (PCC)” in the amount of R$2,375,585 thousand and" Other provisions" in the amount of R$1,647,054 thousand;
(3) Includes the Provision for unearned Provision for unearned premiums for risks not yet issued (PPNG-RVNE) in the amount of R$164,597 thousand; and
(4) In Insurance are included non life products, health and dental; and in Life and pension are included all life products, including life insurance with survival risk, and pension plans.
Bradesco
F-128F-129 IFRS – International Financial Reporting Standards – 2017
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Notes to the Consolidated Financial Statements
b)Technical provisions by product
| R$ thousand | |||||
Insurance | Life and Pension (1) | Total | ||||
On December 31 | On December 31 | On December 31 | ||||
2017 | 2016 | 2017 | 2016 | 2017 | 2016 | |
Health | 9,754,024 | 8,559,137 | - | - | 9,754,024 | 8,559,137 |
Auto / Liability Insurance | 3,156,847 | 3,126,232 | - | - | 3,156,847 | 3,126,232 |
DPVAT (Personal Injury Caused by Automotive Vehicles) | 506,161 | 471,288 | 3,100 | 2,944 | 509,261 | 474,232 |
Life | - | - | 10,018,884 | 9,336,759 | 10,018,884 | 9,336,759 |
RE (Elementary branch) | 1,416,523 | 2,696,447 | - | - | 1,416,523 | 2,696,447 |
Free Benefits Generating Plan - PGBL | - | - | 35,087,618 | 32,605,459 | 35,087,618 | 32,605,459 |
Free Benefits Generating Life - VGBL | - | - | 158,746,205 | 138,670,739 | 158,746,205 | 138,670,739 |
Tradicional plans | - | - | 20,400,228 | 20,370,995 | 20,400,228 | 20,370,995 |
Total technical provisions | 14,833,555 | 14,853,104 | 224,256,035 | 200,986,896 | 239,089,590 | 215,840,000 |
(1) Includes personal and pension insurance operations.
c)Technical provisions by aggregated products
| R$ thousand | |
On December 31 | ||
2017 | 2016 | |
Insurance – Vehicle, Elementary Lines, Life and Health | 24,855,539 | 24,192,807 |
Insurance – Life with Survival Coverage (VGBL) | 158,746,205 | 138,670,739 |
Pensions – PGBL and Traditional Plans | 47,623,322 | 45,557,528 |
Pensions – Risk Traditional Plans | 7,864,524 | 7,418,926 |
Total | 239,089,590 | 215,840,000 |
Bradesco F-129
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
d)b) Technical provisions by product
| R$ thousand | |||||
Insurance | Life and pension plans (1) | Total | ||||
On December 31 | On December 31 | On December 31 | ||||
2019 | 2018 | 2019 | 2018 | 2019 | 2018 | |
Health (Health and Dental) | 11,132,262 | 10,391,680 | - | - | 11,132,262 | 10,391,680 |
Auto / Personal Liability (Non life – Auto) | 3,364,644 | 3,209,143 | - | - | 3,364,644 | 3,209,143 |
DPVAT (Personal Injury Caused by Automotive Vehicles) | 558,432 | 601,114 | 1,823 | 2,756 | 560,255 | 603,870 |
Life | - | 310,829 | 13,537,345 | 10,964,900 | 13,537,345 | 11,275,729 |
RE (Non life - Property) | 1,388,555 | 1,394,736 | - | - | 1,388,555 | 1,394,736 |
PGBL (Pension) | - | - | 37,380,354 | 36,188,888 | 37,380,354 | 36,188,888 |
VGBL (Pension) | - | - | 176,496,784 | 166,104,340 | 176,496,784 | 166,104,340 |
Defined Benefits Plans - Traditional Plans (Pension) | - | - | 24,442,492 | 22,409,901 | 24,442,492 | 22,409,901 |
Total technical provisions | 16,443,893 | 15,907,502 | 251,858,798 | 235,670,785 | 268,302,691 | 251,578,287 |
(1) Includes life insurance and pension plans.
F-130 IFRS – International Financial Reporting Standards – 2019
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
c) Changes in the insurance and pension technical provisions
(i) Insurance – Vehicle, General,Non-life, Life, Health and Pension (Risk on Traditional Plans)
| R$ thousand | R$ thousand | ||
Years ended December 31 | Years ended December 31 | |||
2017 | 2016 | 2019 | 2018 | |
At the beginning of the year | 31,611,733 | 27,844,231 | 35,946,000 | 32,720,063 |
(-) DPVAT insurance | (473,579) | (333,699) | (602,842) | (508,098) |
Subtotal at beginning of the year | 31,138,154 | 27,510,532 | 35,343,158 | 32,211,965 |
Additions, net of reversals | 28,542,623 | 28,700,765 | 32,769,175 | 30,230,289 |
Payment of claims, benefits and redemptions | (27,156,197) | (26,449,844) | (30,603,012) | (28,735,539) |
Adjustment for inflation and interest | 648,898 | 1,376,701 | 1,497,802 | 1,636,443 |
Partial spin-off of large risk portfolio | (961,513) | - | ||
Constitution of judicial provision | 3,535 | - | ||
Subtotal at end of the period | 32,211,965 | 31,138,154 | 39,010,658 | 35,343,158 |
(+) DPVAT insurance | 508,098 | 473,579 | 559,843 | 602,842 |
At the end of the year | 32,720,063 | 31,611,733 | 39,570,501 | 35,946,000 |
(ii) Insurance –Pension Plans - Life with Survival Coverage (VGBL)
| R$ thousand | R$ thousand | ||
Years ended December 31 | Years ended December 31 | |||
2017 | 2016 | 2019 | 2018 | |
At the beginning of the year | 138,670,739 | 106,248,597 | 166,104,340 | 158,746,205 |
Receipt of premiums net of fees | 28,577,437 | 35,824,651 | 25,561,500 | 23,715,609 |
Payment of benefits | (28,758) | (47,379) | (38,364) | (30,563) |
Payment of redemptions | (18,985,242) | (16,674,828) | (20,446,664) | (21,008,985) |
Adjustment for inflation and interest | 13,468,401 | 14,660,738 | 10,996,312 | 8,017,088 |
Others | (2,956,372) | (1,341,040) | (5,680,340) | (3,335,014) |
At the end of the year | 158,746,205 | 138,670,739 | 176,496,784 | 166,104,340 |
(iii) Pensions Plans – PGBL and Traditional Plans
| R$ thousand | R$ thousand | ||
Years ended December 31 | Years ended December 31 | |||
2017 | 2016 | 2019 | 2018 | |
At the beginning of the year | 45,557,528 | 36,848,112 | 49,527,947 | 47,623,322 |
Receipt of premiums net of fees | 3,446,148 | 7,412,759 | 2,882,617 | 2,683,007 |
Payment of benefits | (759,949) | (696,056) | (869,372) | (858,454) |
Payment of redemptions | (2,962,505) | (2,438,351) | (2,697,073) | (2,615,186) |
Adjustment for inflation and interest | 3,656,452 | 4,808,394 | 3,832,265 | 3,232,938 |
Others | (1,314,352) | (377,330) | (440,979) | (537,680) |
At the end of the year | 47,623,322 | 45,557,528 | 52,235,405 | 49,527,947 |
Bradesco
F-130F-131 IFRS – International Financial Reporting Standards – 2017
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Notes to the Consolidated Financial Statements
e)Guarantees for the technical provisions
| R$ thousand | |||||
Insurance | Life and pension plans | Total | ||||
On December 31 | On December 31 | On December 31 | ||||
2017 | 2016 | 2017 | 2016 | 2017 | 2016 | |
Total technical provisions | 14,833,555 | 14,853,104 | 224,256,035 | 200,986,896 | 239,089,590 | 215,840,000 |
(-) Deferred acquisition cost PPNG reducers | (138,780) | (237,104) | - | - | (138,780) | (237,104) |
(-) Portion corresponding to contracted reinsurance | (153,137) | (947,159) | (14,123) | (41,191) | (167,260) | (988,350) |
(-) Deposits retained at IRB and court deposits | - | (16) | - | - | - | (16) |
(-) Receivables | (925,999) | (1,068,329) | - | - | (925,999) | (1,068,329) |
(-) Unearned premium reserve – Health and dental insurance (1) | (1,268,243) | (1,182,152) | - | - | (1,268,243) | (1,182,152) |
(-) Reserves from DPVAT agreements | (502,491) | (465,568) | - | - | (502,491) | (465,568) |
To be insured | 11,844,905 | 10,952,776 | 224,241,912 | 200,945,705 | 236,086,817 | 211,898,481 |
|
|
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Investment fund quotas (VGBL and PGBL) (2) | - | - | 190,639,798 | 168,337,785 | 190,639,798 | 168,337,785 |
Investment fund quotas (excluding VGBL and PGBL) | 5,076,006 | 7,164,637 | 21,639,087 | 23,273,027 | 26,715,093 | 30,437,664 |
Government securities | 9,011,657 | 5,882,012 | 18,608,194 | 14,187,009 | 27,619,851 | 20,069,021 |
Private securities | 18,203 | 93,287 | 164,338 | 169,440 | 182,541 | 262,727 |
Shares | 3,227 | 2,325 | 1,716,401 | 1,728,856 | 1,719,628 | 1,731,181 |
Total technical provision guarantees | 14,109,093 | 13,142,261 | 232,767,818 | 207,696,117 | 246,876,911 | 220,838,378 |
(1)Deduction provided for in article 4 of Normative Resolution ANS no. 392/15; and
(2)The investment funds "VGBL" and "PGBL" were consolidated in the financial statements.
Bradesco F-131
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
f)d) Guarantees for the technical provisions
| R$ thousand | |||||
Insurance | Life and pension plans | Total | ||||
On December 31 | On December 31 | On December 31 | ||||
2019 | 2018 | 2019 | 2018 | 2019 | 2018 | |
Total technical provisions | 16,443,893 | 15,907,502 | 251,858,798 | 235,670,785 | 268,302,691 | 251,578,287 |
(-) Premiums receivables | (1,166,691) | (1,043,400) | - | - | (1,166,691) | (1,043,400) |
(-) Unearned premium provision – Health and dental insurance (1) | (1,527,337) | (1,381,574) | - | - | (1,527,337) | (1,381,574) |
(-) Provisions from DPVAT agreements | (558,021) | (597,398) | - | - | (558,021) | (597,398) |
(-) Others | (120,810) | (179,215) | (11,713) | (9,859) | (132,523) | (189,074) |
Technical provisions to be covered | 13,071,034 | 12,705,915 | 251,847,085 | 235,660,926 | 264,918,119 | 248,366,841 |
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|
Investment fund quotas (VGBL and PGBL) (2) | - | - | 210,044,616 | 198,748,039 | 210,044,616 | 198,748,039 |
Investment fund quotas (excluding VGBL and PGBL) | 4,477,721 | 5,155,446 | 27,689,439 | 23,230,004 | 32,167,160 | 28,385,450 |
Government securities | 11,326,945 | 10,164,283 | 24,422,182 | 19,534,894 | 35,749,127 | 29,699,177 |
Private securities | 34,403 | 15,378 | 138,043 | 151,681 | 172,446 | 167,059 |
Shares | - | 2,935 | - | 1,238,716 | - | 1,241,651 |
Total assets held in guarantee portfolio (3) | 15,839,069 | 15,338,042 | 262,294,280 | 242,903,334 | 278,133,349 | 258,241,376 |
(1) Deduction provided for in Article 4 of ANS Normative Resolution No. 392/15;
(2) The investment funds "VGBL" and "PGBL" were consolidated in the financial statements; and
(3) These guarantor assets may be settled only to cover the liabilities to which they are related.
F-132 IFRS – International Financial Reporting Standards – 2019
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
e) Changes in deferred acquisition cost (insurance assets)
| R$ thousand | R$ thousand | ||
Years ended December 31 | Years ended December 31 | |||
2017 | 2016 | 2019 | 2018 | |
At the beginning of the year | 1,750,244 | 1,945,238 | 925,884 | 1,070,108 |
Additions | 1,586,888 | 1,940,226 | 1,542,179 | 1,324,815 |
Reversals | (2,250,844) | (2,135,220) | ||
Amortizations | (1,484,064) | (1,469,039) | ||
At the end of the year | 1,070,108 | 1,750,244 | 983,999 | 925,884 |
g)f) Changes in reinsurance assets
| R$ thousand | R$ thousand | ||
Years ended December 31 | Years ended December 31 | |||
2017 | 2016 | 2019 | 2018 | |
At the beginning of the year | 1,186,194 | 1,144,506 | 176,324 | 219,214 |
Additions | 186,867 | 667,908 | 124,337 | 245,957 |
Reversals | (139,641) | (485,724) | ||
Amortization and Reversals | (85,777) | (239,049) | ||
Recovered insurance losses | (259,433) | (173,908) | (24,969) | (37,369) |
Adjustment for inflation and interest | (411) | 43,790 | ||
Partial spin-off of large risk portfolio | (721,428) | - | ||
Other (1) | (754,362) | (10,378) | ||
Reversal/Monetary update | 3,658 | (4,892) | ||
Other | (25,348) | (7,537) | ||
At the end of the year | 219,214 | 1,186,194 | 168,225 | 176,324 |
(1)Includes the transfer of part of the operation of the large risk portfolio (Note 43).
h)g) Claim information
The purpose of the table below is to show the inherent insurance risk, comparing the insurance claims paid with their provisions. Starting from the year in which the claim was reported, the upper part of the table shows the changes in the provision over the years. The provision varies as more precise information concerning the frequency and severity of the claims is obtained. The lower part of the table shows the reconciliation of the amounts with the amounts presented in the financial statements.
Bradesco F-132 IFRS – International Financial Reporting Standards – 2017
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Notes to the Consolidated Financial Statements
Insurance, Vehicle/RCF and Elementary Lines – Claims, gross reinsurance(1)
| R$ thousand | |||||||||||
Year claims were notified | ||||||||||||
Up to 2007 | 2008 | 2009 | 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | Total | |
Amount estimated for the claims: |
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|
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|
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|
|
· In the year after notification | 4,482,979 | 1,152,371 | 2,058,559 | 2,414,674 | 2,647,298 | 3,134,409 | 3,020,829 | 3,708,479 | 4,160,984 | 3,821,255 | 3,481,275 | - |
· One year after notification | 4,679,108 | 1,108,270 | 2,037,365 | 2,394,609 | 2,626,356 | 3,035,716 | 2,848,361 | 3,456,642 | 4,028,967 | 3,640,897 | - | - |
· Two years after notification | 4,711,861 | 1,088,069 | 2,018,329 | 2,387,075 | 2,604,738 | 3,021,698 | 2,809,942 | 3,464,389 | 3,989,904 | - | - | - |
· Three years after notification | 4,783,290 | 1,094,795 | 2,015,921 | 2,403,020 | 2,604,061 | 3,041,626 | 2,839,210 | 3,436,234 | - | - | - | - |
· Four years after notification | 4,845,834 | 1,102,364 | 2,046,000 | 2,418,649 | 2,600,194 | 3,071,989 | 2,813,496 | - | - | - | - | - |
· Five years after notification | 4,902,275 | 1,102,595 | 2,044,644 | 2,428,252 | 2,625,442 | 2,888,296 | - | - | - | - | - | - |
· Six years after notification | 4,956,618 | 1,127,609 | 2,056,612 | 2,431,363 | 2,621,044 | - | - | - | - | - | - | - |
· Seven years after notification | 4,982,993 | 1,140,708 | 2,072,169 | 2,419,614 | - | - | - | - | - | - | - | - |
· Eight years after notification | 5,028,742 | 1,158,436 | 2,057,911 | - | - | - | - | - | - | - | - | - |
· Nine years after notification | 5,074,360 | 1,149,106 | - | - | - | - | - | - | - | - | - | - |
· Ten years after notification | 5,086,824 | - | - | - | - | - | - | - | - | - | - | - |
Estimate of claims on the reporting date (2017) | 5,086,824 | 1,149,106 | 2,057,911 | 2,419,614 | 2,621,044 | 2,888,296 | 2,813,496 | 3,436,234 | 3,989,904 | 3,640,897 | 3,481,275 | 33,584,601 |
Payments of claims | (5,064,293) | (1,022,199) | (2,042,673) | (2,390,739) | (2,586,371) | (2,835,738) | (2,753,035) | (3,355,681) | (3,879,707) | (3,491,476) | (2,766,457) | (32,188,369) |
Outstanding Claims | 22,531 | 126,907 | 15,238 | 28,875 | 34,673 | 52,558 | 60,461 | 80,553 | 110,197 | 149,421 | 714,818 | 1,396,232 |
Bradesco F-133F-133
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
Non Life - Insurance Vehicle/RCF and Elementary Lines – Claims, gross reinsurance(1)
| R$ thousand | |||||||||||
Year claims were notified | ||||||||||||
Up to 2009 | 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | Total | |
Amount estimated for the claims: |
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|
|
· In the year after notification | 2,219,991 | 2,592,573 | 2,859,480 | 3,348,274 | 3,224,788 | 3,937,126 | 4,428,926 | 4,109,825 | 3,749,457 | 3,448,593 | 3,300,264 | - |
· One year after notification | 2,193,645 | 2,562,789 | 2,824,610 | 3,240,688 | 3,041,662 | 3,663,951 | 4,277,245 | 3,912,436 | 3,740,543 | 3,422,386 | - | - |
· Two years after notification | 2,179,949 | 2,561,264 | 2,809,879 | 3,233,150 | 3,009,371 | 3,671,822 | 4,232,474 | 3,923,389 | 3,754,077 | - | - | - |
· Three years after notification | 2,179,419 | 2,577,663 | 2,812,812 | 3,256,062 | 3,044,232 | 3,655,382 | 4,260,118 | 3,932,335 | - | - | - | - |
· Four years after notification | 2,210,909 | 2,595,369 | 2,811,587 | 3,292,376 | 3,034,096 | 3,669,868 | 4,275,952 | - | - | - | - | - |
· Five years after notification | 2,209,826 | 2,607,212 | 2,840,368 | 3,113,580 | 3,049,171 | 3,679,657 | - | - | - | - | - | - |
· Six years after notification | 2,222,800 | 2,611,105 | 2,837,693 | 3,128,386 | 3,058,018 | - | - | - | - | - | - | - |
· Seven years after notification | 2,240,171 | 2,599,521 | 2,850,912 | 3,133,871 | - | - | - | - | - | - | - | - |
· Eight years after notification | 2,228,954 | 2,608,176 | 2,852,787 | - | - | - | - | - | - | - | - | - |
· Nine years after notification | 2,234,024 | 2,607,504 | - | - | - | - | - | - | - | - | - | - |
· Ten years after notification | 2,334,101 | - | - | - | - | - | - | - | - | - | - | - |
Estimate of claims on the reporting date (2019) | 2,334,101 | 2,607,504 | 2,852,787 | 3,133,871 | 3,058,018 | 3,679,657 | 4,275,952 | 3,932,335 | 3,754,077 | 3,422,386 | 3,300,264 | 36,350,952 |
Payments of claims | (2,226,319) | (2,589,805) | (2,827,479) | (3,103,209) | (3,024,891) | (3,631,431) | (4,201,838) | (3,848,680) | (3,657,661) | (3,294,437) | (2,619,618) | (35,025,368) |
Outstanding Claims | 107,782 | 17,699 | 25,308 | 30,662 | 33,127 | 48,226 | 74,114 | 83,655 | 96,416 | 127,949 | 680,646 | 1,325,584 |
F-134 IFRS – International Financial Reporting Standards – 2019
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
Non Life – Insurance Claims, net reinsurance(1)
| R$ thousand | R$ thousand | ||||||||||||||||||||||
Year claims were notified | Year claims were notified | |||||||||||||||||||||||
Up to 2007 | 2008 | 2009 | 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | Total | Up to 2009 | 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | Total | |
Amount estimated for net claims for reinsurance: |
|
|
|
|
|
|
|
| ||||||||||||||||
· In the year after notification | 4,049,408 | 859,651 | 1,791,249 | 2,260,194 | 2,440,426 | 2,804,706 | 2,815,311 | 3,523,133 | 3,805,260 | 3,661,006 | 3,443,486 | - | 1,954,928 | 2,439,011 | 2,653,641 | 3,022,457 | 3,021,084 | 3,761,029 | 4,074,519 | 3,960,519 | 3,710,845 | 3,410,760 | 3,281,789 | - |
· One year after notification | 4,107,420 | 846,124 | 1,773,092 | 2,235,404 | 2,417,095 | 2,695,513 | 2,648,135 | 3,306,665 | 3,695,713 | 3,541,988 | - | - | 1,933,104 | 2,404,646 | 2,617,957 | 2,908,173 | 2,849,909 | 3,527,585 | 3,954,939 | 3,796,535 | 3,702,199 | 3,386,329 | - | - |
· Two years after notification | 4,157,532 | 835,214 | 1,766,152 | 2,232,926 | 2,401,407 | 2,696,091 | 2,622,005 | 3,317,745 | 3,671,224 | - | - | 1,931,327 | 2,406,805 | 2,609,034 | 2,915,173 | 2,832,016 | 3,539,989 | 3,900,981 | 3,803,980 | 3,715,400 | - | - | ||
· Three years after notification | 4,225,589 | 844,636 | 1,769,942 | 2,251,003 | 2,418,057 | 2,705,326 | 2,658,925 | 3,323,339 | - | - | 1,936,905 | 2,426,310 | 2,629,288 | 2,927,529 | 2,874,862 | 3,526,769 | 3,921,156 | 3,813,890 | - | - | ||||
· Four years after notification | 4,285,309 | 850,115 | 1,791,739 | 2,268,293 | 2,425,973 | 2,729,230 | 2,659,375 | - | - | - | 1,960,500 | 2,445,507 | 2,639,629 | 2,957,403 | 2,868,888 | 3,539,721 | 3,933,030 | - | - | - | ||||
· Five years after notification | 4,338,449 | 857,121 | 1,797,090 | 2,281,206 | 2,452,938 | 2,746,804 | - | - | - | - | 1,966,313 | 2,460,692 | 2,670,472 | 2,963,901 | 2,884,539 | 3,550,811 | - | - | - | - | ||||
· Six years after notification | 4,390,840 | 868,958 | 1,810,770 | 2,291,650 | 2,459,251 | - | - | - | - | 1,980,991 | 2,472,476 | 2,673,132 | 2,978,029 | 2,893,423 | - | - | - | - | ||||||
· Seven years after notification | 4,426,256 | 873,978 | 1,822,466 | 2,292,651 | - | - | - | - | 1,994,592 | 2,471,407 | 2,686,379 | 2,983,500 | - | - | - | - | ||||||||
· Eight years after notification | 4,466,917 | 884,796 | 1,824,085 | - | - | - | - | 1,990,902 | 2,479,351 | 2,688,317 | - | - | - | - | ||||||||||
· Nine years after notification | 4,510,383 | 890,132 | - | - | - | - | 1,994,494 | 2,478,498 | - | - | - | - | ||||||||||||
· Ten years after notification | 4,527,764 | - | - | - | - | 2,030,027 | - | - | - | - | ||||||||||||||
Estimate of claims on the reporting date (2017) | 4,527,764 | 890,132 | 1,824,085 | 2,292,651 | 2,459,251 | 2,746,804 | 2,659,375 | 3,323,339 | 3,671,224 | 3,541,988 | 3,443,486 | 31,380,099 | ||||||||||||
Estimate of claims on the reporting date (2019) | 2,030,027 | 2,478,498 | 2,688,317 | 2,983,500 | 2,893,423 | 3,550,811 | 3,933,030 | 3,813,890 | 3,715,400 | 3,386,329 | 3,281,789 | 34,755,014 | ||||||||||||
Payments of claims | (4,505,614) | (880,207) | (1,809,102) | (2,265,943) | (2,424,679) | (2,694,553) | (2,599,885) | (3,243,342) | (3,563,269) | (3,393,389) | (2,736,036) | (30,116,019) | (1,988,462) | (2,463,852) | (2,663,155) | (2,953,900) | (2,860,508) | (3,503,523) | (3,860,945) | (3,733,656) | (3,620,073) | (3,268,836) | (2,603,961) | (33,520,871) |
Liquid outstanding claims for reinsurance | 22,150 | 9,925 | 14,983 | 26,708 | 34,572 | 52,251 | 59,490 | 79,997 | 107,955 | 148,599 | 707,450 | 1,264,080 | ||||||||||||
Outstanding claims, net of reinsurance | 41,565 | 14,646 | 25,162 | 29,600 | 32,915 | 47,288 | 72,085 | 80,234 | 95,327 | 117,493 | 677,828 | 1,234,143 |
Bradesco
F-134F-135
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
Life – Insurance claims (including life insurance with survival coverage – VGBL product), net reinsurance(1)
| R$ thousand | |||||||||||
Year claims were notified | ||||||||||||
Up to 2009 | 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | Total | |
Amount estimated for net claims for reinsurance: |
|
|
|
|
|
|
| |||||
· In the year after notification | 901,321 | 1,007,851 | 1,191,045 | 1,235,104 | 1,305,822 | 1,330,460 | 1,415,524 | 1,493,336 | 1,537,474 | 1,438,027 | 1,486,498 | - |
· One year after notification | 926,499 | 1,015,094 | 1,188,264 | 1,226,271 | 1,298,610 | 1,373,160 | 1,425,789 | 1,491,439 | 1,487,961 | 1,416,097 | - | - |
· Two years after notification | 943,781 | 1,021,283 | 1,188,774 | 1,236,289 | 1,326,512 | 1,368,575 | 1,403,515 | 1,468,731 | 1,503,531 | - | - | - |
· Three years after notification | 937,472 | 1,011,228 | 1,197,625 | 1,236,075 | 1,309,876 | 1,277,276 | 1,323,436 | 1,449,190 | - | - | - | - |
· Four years after notification | 944,170 | 1,022,136 | 1,195,079 | 1,234,363 | 1,296,147 | 1,242,937 | 1,310,005 | - | - | - | - | - |
· Five years after notification | 954,487 | 1,019,647 | 1,201,083 | 1,233,898 | 1,304,644 | 1,224,932 | - | - | - | - | - | - |
· Six years after notification | 951,993 | 1,017,766 | 1,200,703 | 1,239,976 | 1,299,984 | - | - | - | - | - | - | - |
· Seven years after notification | 944,581 | 1,009,936 | 1,209,690 | 1,240,781 | - | - | - | - | - | - | - | - |
· Eight years after notification | 944,664 | 1,017,016 | 1,198,625 | - | - | - | - | - | - | - | - | - |
· Nine years after notification | 950,290 | 1,018,947 | - | - | - | - | - | - | - | - | - | - |
· Ten years after notification | 1,016,054 | - | - | - | - | - | - | - | - | - | - | - |
Estimate of claims on the reporting date (2019) | 1,016,054 | 1,018,947 | 1,198,625 | 1,240,781 | 1,299,984 | 1,224,932 | 1,310,005 | 1,449,190 | 1,503,531 | 1,416,097 | 1,486,498 | 14,164,644 |
Payments of claims | (943,374) | (991,437) | (1,166,640) | (1,197,605) | (1,247,133) | (1,140,216) | (1,171,848) | (1,321,771) | (1,319,587) | (1,215,233) | (1,069,914) | (12,784,758) |
Outstanding claims, net of reinsurance | 72,680 | 27,510 | 31,985 | 43,176 | 52,851 | 84,716 | 138,157 | 127,419 | 183,944 | 200,864 | 416,584 | 1,379,886 |
(1) The “DPVAT” insurances were not considered in the claims development in the amount of R$63,616 thousand, as well as, "Retrocession" R$12,680 thousand, "Health and Dental" R$3,096,243 thousand, estimate of salvages and reparations in the amount of R$(88,172) thousand and incurred but not enough reported (IBNER) claims in the amount of R$211,406 thousand.
F-136 IFRS – International Financial Reporting Standards – 20172019
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Notes to the Consolidated Financial Statements
Life – Insurance claims, gross reinsurance(1)
| R$ thousand | |||||||||||
Year claims were notified | ||||||||||||
Up 2007 | 2008 | 2009 | 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | Total | |
Amount estimated for net claims for reinsurance: |
|
|
|
|
|
|
| |||||
· In the year after notification | 1,987,288 | 987,998 | 1,062,753 | 1,185,750 | 1,403,227 | 1,448,969 | 1,509,781 | 1,536,697 | 1,653,008 | 1,741,563 | 1,771,294 | - |
· One year after notification | 2,004,988 | 1,000,730 | 1,082,779 | 1,183,274 | 1,386,518 | 1,431,243 | 1,491,911 | 1,568,941 | 1,648,842 | 1,755,802 | - | - |
· Two years after notification | 2,038,732 | 1,020,530 | 1,105,401 | 1,195,472 | 1,393,915 | 1,447,741 | 1,525,941 | 1,570,227 | 1,644,051 | - | - | - |
· Three years after notification | 2,075,972 | 1,018,008 | 1,100,970 | 1,185,871 | 1,406,376 | 1,450,511 | 1,514,898 | 1,495,266 | - | - | - | - |
· Four years after notification | 2,079,897 | 1,017,316 | 1,109,079 | 1,198,856 | 1,406,472 | 1,454,750 | 1,516,747 | - | - | - | - | - |
· Five years after notification | 2,081,301 | 1,015,902 | 1,119,669 | 1,198,607 | 1,416,009 | 1,459,181 | - | - | - | - | - | - |
· Six years after notification | 2,086,778 | 1,017,807 | 1,118,181 | 1,197,508 | 1,417,352 | - | - | - | - | - | - | - |
· Seven years after notification | 2,068,574 | 1,021,908 | 1,112,583 | 1,189,843 | - | - | - | - | - | - | - | - |
· Eight years after notification | 2,076,228 | 1,024,349 | 1,115,707 | - | - | - | - | - | - | - | - | - |
· Nine years after notification | 2,094,047 | 1,020,756 | - | - | - | - | - | - | - | - | - | - |
· Ten years after notification | 2,140,849 | - | - | - | - | - | - | - | - | - | - | - |
Estimate of claims on the reporting date (2017) | 2,140,849 | 1,020,756 | 1,115,707 | 1,189,843 | 1,417,352 | 1,459,181 | 1,516,747 | 1,495,266 | 1,644,051 | 1,755,802 | 1,771,294 | 16,526,848 |
Payments of claims | (2,074,102) | (1,003,673) | (1,098,409) | (1,151,732) | (1,361,271) | (1,398,760) | (1,428,669) | (1,307,155) | (1,337,199) | (1,499,651) | (1,280,837) | (14,941,458) |
Liquid outstanding claims for reinsurance | 66,747 | 17,083 | 17,298 | 38,111 | 56,081 | 60,421 | 88,078 | 188,111 | 306,852 | 256,151 | 490,457 | 1,585,390 |
(1)The claims table does not include the productsHealth and Dentalinsurance – R$2,906,361 thousand, DPVAT insurance – R$ 86,592 thousand, Retrocession – R$21,722 thousand and salvage and reimbursement estimates - R$(163,923) thousand.
Bradesco F-135
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
Bradesco and its subsidiaries sponsor a private defined contribution pension for employees and directors,managers, that allows financial resources to be accumulated by participants throughout their careers by means of employee and employer contributions and invested in an Exclusive Investment Fund (FIE). The Planplan is managed by Bradesco Vida e Previdência S.A. and BRAM – Bradesco Asset ManagementS.A. DTVM is responsible for the financial management of the FIEs funds.
The Supplementary Pension Plansupplementary pension plan counts on contributions from employees and directorsmanagers of Bradesco and its subsidiaries equivalent to at least 4% of theirthe salary by employees and, from the company, 5% of the salary, plus the percentage allocated to covers of risk benefits (invalidity and death). by the company. Actuarial obligations of the defined contribution plan are fully covered by the plan assets of the corresponding FIE. In addition to the plan, in 2001, participants who chose to migrate from the defined benefit plan are guaranteed a proportional deferred benefit, corresponding to their accumulated rights in that plan. For the active participants, retirees and pensioners of the defined benefit plan, now closed to new members, in run-off, the present value of the actuarial obligations of the plan is completelyfully covered by collateralguarantee assets.
Following the merger of Banco Alvorada S.A. (successor from the spin-off of Banco Baneb S.A.) into Kirton Bank S.A. Banco Múltiplo, on April 30, 2019, Kirton Bank S.A. Banco Múltiplo maintains definedvariable contribution and defined benefit retirement plans, to the former employees of Baneb, through Fundação Baneb de Seguridade Social – Bases.Bases related to the former employees of Baneb.
Banco Bradesco S.A. sponsors both definedvariable benefit and defined contribution retirement plans, throughCaixa de Assistência e Aposentadoria dos Funcionários do Banco do Estado do Maranhão (Capof), to employees originating from Banco BEM S.A.
Banco Bradesco S.A. sponsors a defined benefit plan throughCaixa de Previdência Privada Bec – Cabec for former employees of Banco do Estado do Ceará S.A.
With the acquisition of HSBC Bank Brasil S.A. (current Kirton Bank S.A. – Banco Múltiplo), the open pension plan, which was offered to employees of that institution, in the modality of defined contribution, has been discontinued. From October 2016, the employees transferred can adhere to the Supplementary Pension Plan offered to the employees of Bradesco.
Kirton Bank S.A. – Banco Múltiplo, KirtonBradesco Capitalização S.A., Kirton Corretora de Seguros S.A., Bradesco KirtonBradesco-Kirton Corretora de Títulos e Valores MobiliáriosCâmbio S.A. and KirtonBradesco Seguros S.A. sponsor a defined benefit plan called APABA tofor employees originating from Banco Bamerindus do Brasil S.A., and Kirton Administração de Serviços para Fundos de Pensão Ltda. sponsors tofor its employees a defined contribution plan, known as the Kirton Prev Benefits Plan (Plano de Benefícios Kirton Prev)Prev), both managed by MultiBRA – Pension Fund.
Banco Losango S.A., Banco Múltiplo, Kirton Bank S.A. – Banco Múltiplo and Credival – Participações, Administração e Assessoria Ltda. sponsor three pension plans for its employees, which areare: Losango I Benefits Plan – Basic Part, (modality ofin the defined contribution),benefit mode, Losango I – Supplementary Part and PREVMAIS Losango Plan, (modalitythe last two in the form of contribution variable, contribution), all managed by MultiBRA – Settlor – Multiple Fund.
Banco Bradesco S.A. also took on the obligations of Kirton Bank S.A. – Banco Múltiplo with regard to Life Insurance, Health Insurance Plans, and Retirement Compensation for employees coming from Banco Bamerindus do Brasil S.A.,as well as complementing Retirement and Health Plan of employees from Lloyds.
Bradesco, in its overseas facilities, provides for its employees and administrators a pension plan, according to the norms established by the local authorities, that allows to accumulate financial resources throughout the professional career of the participant.
Expenses related to contributions made in the year ending December 31, 2017, totaled R$ 988,905 thousand (2016 - R$ 584,438 thousand).
In addition to this benefit, Bradesco and its subsidiaries offer other benefits to their employees and administrators, including health insurance, dental care, life and personal accident insurance, and professional training. These expenses, including the aforementioned contributions, totaled the amount of R$ 5,594,368 thousand in the year ending December 31, 2017 (2016 - R$ 3,826,715 thousand).
Risk factors | On December 31 | |
2019 | 2018 | |
Nominal discount rate | 6.45% - 7.45% a.a. | 8.8% - 9.31% a.a. |
Nominal rate of future salary increases | 3.8% a.a. | 4.0% a.a. |
Nominal growth rate of social security benefits and plans | 3.8% a.a. | 4.0% a.a. |
Initial rate of growth of medical costs | 7.95% - 8.99% a.a. | 8.16% - 9.72% a.a. |
Inflation rate | 3.8% a.a. | 4.0% a.a. |
Biometric table of overall mortality | AT 2000 and BR-SEM | AT 2000 and BR-SEM |
Biometric table of entering disability | Per plan | Per plan |
Expected turnover rate | - | - |
Probability of entering retirement | 100% in the 1ª eligibility to a benefit by the plan | 100% in the 1ª eligibility to a benefit by the plan |
BradescoF-136F-137 IFRS – International Financial Reporting Standards – 2017
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
Considering the above assumptions, the present value of the actuarial obligations of the benefit plans and of its assets to cover these obligations, is represented below:
| R$ thousand | Years ended December 31 - R$ thousand | ||||
Years ended December 31 | Retirement Benefits | Other post-employment benefits | ||||
2017 | 2016 | 2019 | 2018 | 2019 | 2018 | |
(i) Projected benefit obligations: |
|
|
|
| ||
At the beginning of the year | 2,141,393 | 1,162,005 | 2,530,590 | 2,323,338 | 669,093 | 563,079 |
Balance from an acquired institution | - | 761,119 | ||||
Cost of current service | 186 | (1,077) | 179 | 151 | - | - |
Interest cost | 227,980 | 181,595 | 224,508 | 219,239 | 60,185 | 54,654 |
Participant’s contribution | 1,197 | 2,831 | 819 | 881 | - | - |
Actuarial gain/(loss) | 144,624 | 182,762 | ||||
Actuarial gain/(loss) (1) | 516,333 | 179,851 | 224,683 | 87,962 | ||
Past service cost - plan changes | (3,920) | - | - | - | ||
Early elimination of obligations | - | - | (1,613) | - | ||
Benefit paid | (192,042) | (147,842) | (203,363) | (192,870) | (34,478) | (36,602) |
At the end of the year | 2,323,338 | 2,141,393 | 3,065,146 | 2,530,590 | 917,870 | 669,093 |
|
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|
| ||
(ii) Plan assets comprise: |
| |||||
(ii) Plan assets at fair value: |
|
|
|
| ||
At the beginning of the year | 2,127,872 | 1,047,782 | 2,363,009 | 2,375,529 | - | - |
Balance from an acquired institution | - | 883,858 | ||||
Expected earnings | 423,546 | 307,728 | 209,252 | 225,060 | - | - |
Actuarial gain/(loss) (1) | 332,368 | (61,063) | - | - | ||
Contributions received: |
|
|
|
|
| |
Employer | 14,957 | 33,515 | 14,763 | 15,472 | - | - |
Employees | 1,197 | 2,831 | 819 | 881 | - | - |
Benefit paid | (192,043) | (147,842) | (203,346) | (192,870) | - | - |
At the end of the year | 2,375,529 | 2,127,872 | 2,716,865 | 2,363,009 | - | - |
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|
|
| ||
(iii) Financial position: |
| |||||
(iii) Changes in the unrecoverable surplus: |
|
|
|
| ||
At the beginning of the year | 54,025 | 206,752 | - | - | ||
Interest on the irrecoverable surplus | 4,981 | 20,327 | - | - | ||
Change in irrecoverable surplus (1) | (22,851) | (173,054) | - | - | ||
At the end of the year | 36,155 | 54,025 | - | - | ||
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| |||
(iv) Financed position: |
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|
|
| ||
Plans in deficit | (149,571) | (130,293) | 384,436 | 221,606 | 917,870 | 669,093 |
Plans in surplus | 201,762 | 116,772 | ||||
Net balance | 52,191 | (13,521) | 384,436 | 221,606 | 917,870 | 669,093 |
(1) In the year ended December 31, 2019, the remeasurement effects recognized in Equity Valuation Adjustments totaled R$212,188thousand (R$93,494 thousand in 2018), net of tax effects. | (1) In the year ended December 31, 2019, the remeasurement effects recognized in Equity Valuation Adjustments totaled R$212,188thousand (R$93,494 thousand in 2018), net of tax effects. |
The net cost/(benefit) of the pension plans recognized in the consolidated statement of income includes the following components:
| R$ thousand | R$ thousand | ||||
Years ended December 31 | Years ended December 31 | |||||
2017 | 2016 | 2015 | 2019 | 2018 | 2017 | |
Projected benefit obligations: |
|
|
|
|
|
|
Cost of service | 186 | (1,077) | (579) | (2,689) | 151 | 401 |
Cost of interest on actuarial obligations | 227,980 | 181,595 | 133,385 | 282,997 | 273,893 | 282,210 |
Expected earnings from the assets of the plan | (227,360) | (174,937) | (120,960) | (208,122) | (225,060) | (227,360) |
Interest on recoverable surplus | 4,981 | 20,327 | 13,730 | |||
Net cost/(benefit) of the pension plans | 806 | 5,581 | 11,846 | 77,167 | 69,311 | 68,981 |
The accumulated
F-138 IFRS – International Financial Reporting Standards – 2019
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
Maturity profile of the present value of the obligations of the pensionbenefit plans defined for the next years:
| On December 31, 2019 - R$ thousand | |
Retirement Benefits | Other post-employment benefits | |
Weighted average duration (years) | 11.05 | 13.45 |
2020 | 210,932 | 39,752 |
2021 | 216,848 | 41,258 |
2022 | 222,420 | 44,650 |
2023 | 227,727 | 48,128 |
2024 | 232,967 | 51,921 |
After 2025 | 1,227,661 | 314,796 |
In 2020, contributions to defined-benefit plans are included in “Other Liabilities”, in our consolidated statement of financial position.
Benefit obligations and net periodic benefit cost for the years 2017 and 2016 for our subsidiaries, were determined using the following assumptions:
| On December 31 | |
2017 | 2016 | |
Discount rate (1) | 8.5% - 10% p.a. | 11.1% p.a. |
Expected long-term rate of return on the assets | 8.5% - 10% p.a. | 11.1% p.a. |
Increase in salary levels | 4.3% p.a. | 4.8% p.a. |
(1)In 2017, considering an inflation rate of 4.3% p.a. and a real discount rate of 4.0% - 5.5% p.a. (2016 – 4.8% and 6.0% p.a., respectively).expected to total R$16,500 thousand.
The long-term rate of return on plan assets is based on the following:
Bradesco F-137
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Notes to the Consolidated Financial Statements
·- Medium- to long-term expectations of the asset managers; and
·- Public and private securities, with short to long-term maturities which represent a significant portion of the investment portfolios of our subsidiaries, the return on which is higher than inflation plus interest.
The assets of pension plans are invested in compliance with the applicable legislation (government securities and private securities, listed company shares and real estate properties) and the weighted-average allocation of the pension plan's assets by category is as follows:
| Assets of the Alvorada Plan | Assets of the Bradesco Plan | Assets of the Kirton Plan | Assets of the Losango Plan | On December 31 | |||||||||||
On December 31 | On December 31 | On December 31 | Assets of the Alvorada Plan | Assets of the Bradesco Plan | Assets of the Kirton Plan | Assets of the Losango Plan | ||||||||||
2017 | 2016 | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | 2019 | 2018 | 2019 | 2018 | 2019 | 2018 | 2019 | 2018 | |
Asset categories |
|
|
|
|
|
|
|
|
|
|
| |||||
Equities | - | - | 4.7% | 3.9% | - | - | 17.3% | 18.8% | - | 9.6% | 7.9% | - | - | 18.5% | 17.7% | |
Fixed income | 92.7% | 93.1% | 90.6% | 91.3% | 100.0% | 100.0% | 82.7% | 81.2% | 93.5% | 93.3% | 86.6% | 87.5% | 100.0% | 100.0% | 78.9% | 82.3% |
Real estate | 5.7% | 5.3% | 2.6% | 2.7% | - | - | - | - | 5.3% | 5.4% | 1.9% | 2.5% | - | - | - | - |
Other | 1.6% | 1.6% | 2.1% | - | - | - | - | 1.2% | 1.3% | 1.9% | 2.1% | - | - | 2.6% | - | |
Total | 100.0% | 100.0% | 100.0% | 100.0% | 100.0% | 100.0% | 100.0% | 100.0% | 100.0% | 100.0% | 100.0% | 100.0% | 100.0% |
Below is the sensitivity analysis of the benefitbenefits plan obligations, showing the impact on the actuarial exposure (8.5(8.5% – 10.0% p.a.) assuming a 1 b.p.p.p. change in the discount rate:
Rate | Discount rate/Medical inflation rate | Sensitivity Analysis | Effect on actuarial liabilities | Effect on the present value of the obligations |
| 7.45% - | Increase of 1 p.p. | reduction |
|
| 5.45% - | Decrease of 1 | increase |
|
Medical Inflation | 8.95% - 9.99% | Increase of 1 p.p. | increase | 112,355 |
Medical Inflation | 6.95% - 7.99% | Decrease of 1 p.p. | reduction | (93,231) |
Total expenses related to contributions made during the year ended on December 31, 2019 totalled R$997,446 thousand (R$942,427 thousand in 2018).
In addition to this benefit, Bradesco and its subsidiaries offer other benefits to their employees and Management, including health insurance, dental care, life and personal accident insurance, and professional training. These expenses, including the aforementioned contributions, totaled, in December 31, 2019, R$6,101,527 thousand (2018 – R$4,550,580 thousand).
Bradesco37)F-139
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
a) Contingent assets
Contingent assets are not recognized in the financial statements. However, thereThere are ongoing proceedings where the chance of success is considered probable,but of immaterial values,such as: a) Social Integration Program (PIS), Bradesco has made a claim to offset PIS against Gross Operating Income, paid under Decree-Laws noNo. 2,445/88 and noNo. 2,449/88, regarding the payment that exceeded the amount due under Supplementary Law noNo. 07/70 (PIS Repique); and b) other taxes, the legality and/or constitutionality of which is being challenged, where the decision may lead to reimbursement of amounts paid.and such amounts are recorded as receivable only when collection is considered certain.
b) Contingent liabilitiesProvisions classified as probable losses and legal obligations – tax and social security obligations
The Organization is a party to a number of labor, civil and tax lawsuits, arising from the normal course of business.
Management recordedrecognized provisions where, based on their opinion and that of their legal counsel, the nature of the lawsuit, similarity to previous lawsuits, complexity and the courts standing, where the loss is deemed probable.
Management considers that the provision is sufficient to cover the future losses generated by the respective lawsuits.
LiabilityProvisions related to litigation is heldlegal obligations are maintained until the conclusion toof the lawsuit, represented by judicial decisions with no further appeals or due to the statute of limitation.
F-138 IFRS – International Financial Reporting Standards – 2017
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Notes to the Consolidated Financial Statements
I - Labor claims
These are claims brought by former employees and outsourced employees seeking indemnifications, most significantly for unpaid “overtime”, pursuant to Article 224 of the Consolidation of Labor Laws (CLT). InConsidering that the proceedings in which a judicial depositdatabase is used to guarantee the execution of the judgment, the labor provision is made considering the estimated loss of these deposits. Forbasically composed by proceedings with similar characteristics and for which there has been no official court decision, the provision is recorded based onrecognized considering the following factors, among others: date of receipt of the proceedings (before or after the labor reform of November 2017), the average calculated value of payments made for labor complaints settled in the past 12 months before and for proceedings originating from acquired banks, with unique characteristics,after the calculationlabor reform, and assessment of the required balance is conducted periodically, basedinflation adjustment on the updated recent loss history.average calculated values.
Overtime is monitored by using electronic time cards and paid regularly during the employment contract, and, accordingly,so that the claims filed by Bradesco’s former employees do not represent significantindividually relevant amounts.
In 2019, we refined the assumptions, as described in Note 4, which resulted in an addition provision of R$1,913,594 thousand.
II - Civil proceedingsclaims
These are claims for pain and suffering and property damages, mainly relatingrelated to protests, returned checks,banking products and services, the inclusion of information about debtors in the credit restriction registry and the replacement of inflation adjustments excluded as a result of government economic plans. These lawsuits are individually controlled using a computer-based system and provisioned whenever the loss is deemed as probable, considering the opinion of Management and theirthe legal counsel,advisors, the nature of the lawsuits, similarity with previous lawsuits, complexity and positioning of the courts.
Most of these lawsuits are brought toinvolve the Special Civil Court (JEC), in which the claims are limited to 40 timesminimum wages.
In relation to the minimum wage and do not have a significant impact on the Organization’s financial position.
There are a significant number of legal claims that are pleading alleged differences in the adjustment forof inflation on savings account balances and due to the implementation of economic plans that were part of the federal government’s economic policy to reduce inflation in the ‘80s80s and ‘90s.
Although90s, Bradesco, complieddespite complying with the law and regulation in force at the time, these lawsuits have been recorded in provisions,has provisioned certain proceedings, taking into consideration the claims where the Bradesco is the defendantin which they were mentioned and the perspective of loss which is considered after the analysis of each demand, based onin view of the current decision ofdecisions and subjects still under analysis in the Superior Court of Justice (STJ)., such as, for example, the application of default interest in executions arising from Public Civil Actions, interest payments and succession.
F-140 IFRS – International Financial Reporting Standards – 2019
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
In December 2017, with the mediation of the Attorney’s General Office (AGU), the entities representing the bank and the savings accounts, entered into an agreement related to litigation of economic plans, with the purpose of closing these claims, in which conditions and schedule were established for savings accounts holders may to accede to the agreement. This agreement was approved by the Federal Supreme Court (STF) on March 1, 2018, pending final decisionthe period of the approval decision.adhesion for interested parties is for two (02) years from this date. As this is a voluntary agreement, Bradesco is unable to predict how many savings account holders will choose to accept the settlement offer. It is important to note that Bradesco understands that the provisioning was made to cover the eligible proceedings to the related agreement. The proceedings that are not in the scope of the agreement, including those related to merged banks are individually revaluated based on the procedural stage they are in.
Note that, regarding disputes relating to economic plans, the Federal Supreme Court (STF) suspended the prosecution of all lawsuits onat the cognizance stage, until the Court issues a final decision on the right under litigation.
As described in Note 4, Bradesco adjusted the assumptions and criteria for constitution of labor claims, including proceedings related to economic plans of merged banks, resulting in an addition provision of R$3,112,986 thousand in December 2019. For this review, we considered the trends of court decisions, the information related to the progress of such proceedings (contracts, exposure calculation, expert reports, etc.) and the opinion of the legal advisors.
c)III - Tax and social security obligationsProvision for tax risks
The Organization is disputing the legality and constitutionality of certain taxes and contributions in court, for which provisions have been recorded in full, although there is good chance of a favorable outcome, based on the opinion of Management and theirthe legal counsel. The processing of these legal obligations and the provisions for cases for which the risk of loss is deemed as probable is regularly monitored in the legal court.monitored. During or after the conclusion of
Bradesco F-139
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Notes to the Consolidated Financial Statements
each case, a favorable outcome may arise for the Organization, resulting in the reversal of the related provisions.
The main cases are:
- PIS and COFINS – R$ 2,489,2472,632,829 thousand (R$ 2,320,2612,562,453 thousand in 2016)2018): a request for authorization to calculate and pay PIS and COFINS based on effective billing, as set forth in Article 2 of Supplementary Law noNo. 70/91, removing from the calculation base the unconstitutional inclusion of other revenues other than those billed;
- Pension Contributions – R$1,799,047 thousand (R$1,729,211 thousand in 2018): official notifications related to the pension contributions made to private pension plans, considered by the authorities to be employee compensation subject to the incidence of mandatory pension contributions and to an isolated fine for not withholding IRRF on such financial contributions;
-IRPJ/CSLL on losses of credits – R$ 1,614,6631,264,448 thousand (R$ 1,913,2081,461,621 thousand in 2016)2018): we are requesting to deduct from income tax and social contributions payable (IRPJ and CSLL, respectively) amounts of actual and definite loan losses related to unconditional discounts granted during collections, regardless of compliance with the terms and conditions provided for in Articles 9 to 14 of Law noNo. 9,430/96 that only apply to temporary losses;
- Pension Contributions –IRPJ/CSLL on MTM - R$ 1,466,469626,341 thousand (R$ 1,385,456607,258 thousand in 2016)2018): official notifications related toassessment received in December 2018 challenging the pension contributions on financial contributionsdeduction of certain mark-to-market gains from securities in private pension plans, considered by the authorities to be compensatory sums subject to the incidencecalculation of pension contributionsIRPJ and to an isolated fine for not withholding IRRF on the financial contributions;CSLL in 2007;
BradescoF-141
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
- INSS Autonomous Brokers – R$ 643,655490,651 thousand (R$ 901,171470,237 thousand in 2016)2018): The Bradesco Organization is questioning the charging of social security contribution on remunerations paid to third-party service providers, established by Supplementary Law No. 84/96 and subsequent regulations/amendments, at 20.0% with an additional of 2.5%, on the grounds that services are not provided to insurance companies but to policyholders, thus being outside the scope of such a contribution as provided for in item I, Article 22 of Law noNo. 8,212/91, as new wording in Law noNo. 9,876/99; and
- INSS – Contribution to SAT – R$ 401,018432,873 thousand (R$ 374,620417,442 thousand in 2016)2018): thousand: in an ordinary lawsuit filed by the Brazilian Federation of Banks – Febraban, since April 2007, on behalf of its members, is questioningquestioned the classification of banks at the highest level of risk, with respect to Work Accident Risk – RAT, which eventually raised the rate of the respective contribution from 1% to 3%, in accordance with Decree noNo. 6,042/07; and07.
In general, the provisions relating to lawsuits are classified as non-current,long-term, due to the unpredictability of the duration of the proceedings in the Brazilian justice system. For this reason, the estimate has not been disclosed with relation to the specific year in which these lawsuits will be closed.
In 2017, the Organization adhered to the Special Tax Regularization Program (PERT), established by Provisional Measure (MP) No. 783/17, which provides for the settlement by means of payment and installment payment of its tax and social security obligations with the Brazilian Federal Revenue Service and the National Treasury Attorney-General’s Office (PGFN) of debts due up to April 30, 2017, resulting in a negative net effect of R$241,141 thousand in the Consolidated statement of income. On October 24, 2017, the MP No. 783/17 was converted into Law No. 1396/17 and was amended; however, no relevant impacts on the Organization.
In addition to this, Bradesco also adhered to the Incentivized Installment Payment Program (PPI-SP), Law No. 16,680/17 in order to promote the settlement of debts regarding such law as to taxable events occurred up to December 31,2016, resulting in the net negative effect of R$61,814 thousand.
F-140 IFRS – International Financial Reporting Standards – 2017
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Notes to the Consolidated Financial Statements
d)IV -Changes in other provision
| R$ thousand | ||
Labor | Civil | Tax and Social Security (1) (2) | |
Balance onDecember 31, 2016 | 5,101,732 | 5,003,440 | 8,187,237 |
Indexation charges | 637,263 | 484,447 | 500,719 |
Additions, net of reversals | 1,002,559 | 830,642 | (984,342) |
Payments | (1,186,758) | (971,966) | (114,246) |
Balance onDecember 31, 2017 | 5,554,796 | 5,346,563 | 7,589,368 |
|
|
|
|
Balance onDecember 31, 2015 | 3,048,442 | 4,202,950 | 8,112,925 |
Indexation charges | 454,045 | 409,236 | 705,036 |
Additions, net of reversals | 876,816 | 1,310,333 | (1,236,705) |
Balance originating from an acquired institution(3) | 1,684,370 | 544,997 | 703,967 |
Payments | (961,941) | (1,464,076) | (97,986) |
Balance onDecember 31, 2016 | 5,101,732 | 5,003,440 | 8,187,237 |
| R$ thousand | ||
Labor | Civil | Tax (1) | |
Balance on December 31, 2017 | 5,554,796 | 5,346,563 | 7,589,368 |
Adjustment for inflation | 677,970 | 508,399 | 386,671 |
Provisions, net of (reversals and write-offs) | 1,289,664 | 912,287 | 531,052 |
Payments | (1,538,827) | (1,152,887) | (302,885) |
Balance on December 31, 2018 | 5,983,603 | 5,614,362 | 8,204,206 |
Adjustment for inflation | 682,600 | 645,001 | 431,394 |
Provisions, net of (reversals and write-offs) (1) | 3,382,750 | 4,330,466 | (227,244) |
Payments | (2,702,886) | (1,904,036) | (18,271) |
Balance on December 31, 2019 | 7,346,067 | 8,685,793 | 8,390,085 |
(1)Mainly include legal liabilities;
(2)In 2017, there were reversals2019, includes reversal of provisions related to: (i) the PIS process, related to the remuneration of amounts unduly paid,income tax and social contribution on losses on credit receivable in the amount of R$ 268,729 thousand; (ii) IRPJ / CSLL on credit losses, in the amount of R$ 408,730 thousand; and (iii) Favorable decision in the process of social security contribution on the remuneration paid to accredited dentists (INSS of Self-employed), in the amount of R$ 348,820 thousand and in 2016, there were reversals of a provisions relating to: i) the process of INSS of the self-employed of the Bradesco Saúde subsidiary, in the amount of R$ 1,081,528 thousand; ii) to the Pis process – EC 17, in the amount of R$ 242,242 thousand; and iii) offset by the provision for social security contributions on transfers to private pension plans, in the amount of R$ 215,668 thousand; and
(3)HSBC Brasil.R $ 230,852 thousand.
e)c) Contingent liabilities classified as possible losses
The Organization maintains a system to monitor all administrative and judicial proceedings in which the institution is plaintiff or defendant and, based on the opinion of legal counsel, classifies the lawsuits according to the expectation of loss. Case law trends are periodically analyzed and, if necessary, the related risk is reclassified. In this respect, contingent lawsuits deemed to have a possible risk of loss are not recordedrecognized as a liability in the financial statements. statementsand totaled, on December 31, 2019, R$6,272,466 thousand (R$8,681,263 thousand in 2018) for civil claims and R$33,474,303 thousand (R$24,754,158 thousand in 2018) for tax proceedings.
The main tax proceedings with this classification are:
-IRPJ and CSLL deficiency note – 2013 to 2015 – R$9,216,012 thousand (R$1,689,160 thousand in this category are2018): due to the following: a)disallowance of interest expenses (CDI), related to certain investments and deposits between the companies of the Organization;
-IRPJ and CSLL – 2006 to 2013 income tax and social contribution,2016 – R$7,169,765 thousand (R$6,980,631 thousand in 2018), relating to goodwill amortization being disallowed on the acquisition of investments, for the amount ofinvestments;
-COFINS – 2011 and 2012 – R$ 6,264,7415,172,183 thousand (R$ 5,894,5045,070,337 thousand in 2016); b)2018): Fines and disallowances of Cofins loan compensations, released after a favorable decision in ajudicial proceeding, where the unconstitutionality of the expansion of the intended calculation base was discussed for revenues other than those from billing (Law noNo. 9,718/98), in the amount of R$ 4,902,151 thousand (R$ 3,999,185 thousand in 2016); c) Leases
-Leasing companies’ Tax on Services of any Nature (ISSQN), total lawsuits correspond to R$ 2,394,0872,537,997 thousand (R$ 2,398,1852,478,296 thousand in 2016)2018) which relates to the municipal tax demands from municipalities other than those in which the company is located and where, under law, tax is collected; d)
F-142 IFRS – International Financial Reporting Standards – 2019
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
-PIS and COFINS notifications and disallowances of compensations – R$1,490,269 thousand (R$1,445,126 thousand in 2018): related to the unconstitutional extension of the basis of calculation intended for other income other than the billing (Law No. 9,718/98), from acquired companies;
-Social Security Contribution Taxes – 2014 and 2015 – R$1,268,227 thousand: related to food and meal allowance made available to employees, according to the Worker's Food Program – PAT, through card and not "in natura";
-IRPJ and CSLL deficiency note – 2000 to 2014 – R$1,187,411 thousand (R$1,784,832 thousand in 2018): relating to disallowance of exclusions of revenues from the mark-to-market of securities from 2007 to 2013,and expenses, differences in depreciation expenses, insufficient depreciation expenses, expenses with depreciation of leased assets, operating expenses and income and disallowance of tax loss compensation, in the amount ofcompensation;
-IRPJ and CSLL deficiency note – 2005 to 2013 – R$ 2,431,844925,806 thousand (R$ 1,653,942859,049 thousand in 2016); e) Notifications2018): relating to disallowance of expenses with credit losses; and disallowances of compensations of PIS
-IRPJ and Cofins relatedCSLL deficiency note – 2008 to the unconstitutional extension of the basis of calculation intended for other income other than the billing (Law no 9,718/98), from acquired companies, amounting to2013 – R$ 1,399,506608,860 thousand (R$ 1,317,238508,180 thousand in 2016); f) IRPJ and2018): relating to profit of subsidiaries based overseas.
BradescoF-141F-143
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
CSLL deficiency notice relating to the disallowance of loan loss deductions, for the amount of R$ 969,713 thousand (R$ 760,436 thousand in 2016); and g) IRPJ and CSLL deficiency note, amounting to R$ 489,687 thousand (R$ 459,962 thousand in 2016) relating to profit of subsidiaries based overseas, for the calendar years of 2008 and 2009.
| R$ thousand | R$ thousand | ||
On December 31 | On December 31 | |||
2017 | 2016 | 2019 | 2018 | |
Financial liabilities |
|
| 79,121,127 | 62,598,235 |
Credit card transactions (1) | 26,163,066 | 23,717,936 | 21,595,677 | 22,887,885 |
Foreign exchange transactions (2) | 17,085,029 | 17,975,291 | 31,546,034 | 19,801,468 |
Loan assignment obligations | 8,454,076 | 8,761,827 | 6,594,471 | 8,058,619 |
Capitalization bonds | 7,562,974 | 7,502,158 | 8,837,770 | 8,186,955 |
Securities trading | 2,317,155 | 2,569,881 | 4,822,215 | 3,321,219 |
Liabilities for acquisition of assets – financial leasing (Note 38 a) | 857,212 | 1,063,649 | ||
Lease liabilities (Note 37a) | 5,724,960 | 342,089 | ||
|
|
|
|
|
Other liabilities |
| 34,023,453 | 34,157,435 | |
Third party funds in transit (3) | 7,211,038 | 7,068,452 | 7,296,234 | 7,135,635 |
Provision for payments | 8,743,428 | 6,997,168 | 9,172,457 | 8,266,532 |
Sundry creditors | 3,205,800 | 8,843,035 | 3,778,494 | 3,137,923 |
Social and statutory | 4,524,457 | 4,631,237 | 933,003 | 4,966,975 |
Other taxes payable | 1,466,306 | 1,528,980 | 2,176,673 | 1,757,283 |
Liabilities for acquisition of assets and rights | 1,480,777 | 1,452,568 | 1,493,329 | 1,206,376 |
Other | 8,745,506 | 4,853,333 | 9,173,263 | 7,686,711 |
Total | 97,816,824 | 96,965,515 | 113,144,580 | 96,755,670 |
(1)Refers to amounts payable to merchants;
(2)Mainly Primarily refers to the institution’sBradesco’s sales in foreign currency to customers and its right’srights in domestic currency, resulting from exchange sale operations; and
(3)Mainly Primarily refers to payment orders issued domestically and the amount of payment orders in foreign currency coming from overseas.
a) Composition by maturity of financial leases and details of operating leasesLease liabilities
The opening balance corresponds to the financial leasing – IAS 17 and, according to IFRS 16, the commercial financial leasing prior to 2019 should be incorporated in the balance of the lease payable, whereby the transactions of the year are all recorded in accordance with IFRS 16.
| R$ thousand | |
On December 31 | ||
2017 | 2016 | |
Due within one year | 564,337 | 578,965 |
From 1 to 2 years | 256,327 | 375,073 |
From 2 to 3 years | 36,548 | 109,611 |
Total | 857,212 | 1,063,649 |
R$ thousand | ||
Opening Balance on December 31, 2018 - IAS 17 | 827,574 | |
Initial adoption - IFRS 16 | 4,176,611 | |
Adjusted balance on January 1, 2019 | 5,004,185 | |
Remeasurement and new contracts | 1,362,692 | |
Payments | (1,067,573) | |
Appropriation of financial charges | 410,195 | |
Exchange variation | 15,461 | |
Closing balance on December 31, 2019 | 5,724,960 |
Total non-cancellable minimum future payments due on operatingMaturity of the leases
The maturity of these financial liabilities in 2017 are2019 is divided as follows: R$ 7,923,6491,037,679 thousand of which R$ 832,991 thousand is due within 1up to one year, R$ 3,325,4013,007,071 thousand between 1-5one to five years and R$ 3,765,2571,680,210 thousand withfor more than 5five years.
Impacts on the statement of income
According to IFRS 16, lease payments that were previously recorded as expenditure on rent in the line of "Other Administrative Expenses" in the statement of income, began to be recorded as “Expenses of depreciation” and “Interest and similar expenses”.
The impact on the income for the fiscal year 2019 was: “Expenses of depreciation” – R$854,620 thousand, “Interest and similar expenses” – R$393,879 thousand and “Expenses of the foreign exchange variation” – R$15,461 thousand, totaling R$1,263,960 thousand in expenses.
Expenses for the fiscal year 2019 with short-term contracts were R$11,732 thousand.
F-142F-144 IFRS – International Financial Reporting Standards – 20172019
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
Other information
In accordance with IFRS 16 paragraph 27-b for the calculation of the leases a real cash flow should be used and the Conclusion Base of the IASB – IFRS 16 Standard items 161 and 162 which refers to this cash flow should be discounted at a nominal rate, this was the method that the Organization adopted for the accounting records of the financial statements.
Additionally, to meet CVM Circular Letter No. 02/19, which says that the cash flow must be updated with inflationary expectations and discounted for a nominal fee, the calculations of the lease were made with this approach and the Organization estimated that the real modelvs. nominal when compared to the nominal modelvs. nominal has no material differences.
a) Capital and shareholders’ rights
i.Composition of share capital in number of shares
The share capital, which is fully subscribed and paid, is divided into registered shares with no par value.
| On December 31 | On December 31 | ||
2017 | 2016 (1) | 2019 | 2018 | |
Common | 3,054,481,112 | 3,054,481,112 | 4,031,915,068 | 3,359,929,223 |
Preferred | 3,054,480,793 | 3,054,480,793 | 4,031,914,646 | 3,359,928,872 |
Subtotal | 6,108,961,905 | 6,108,961,905 | 8,063,829,714 | 6,719,858,095 |
Treasury (common shares) | (5,032,549) | (5,032,549) | (6,642,963) | (5,535,803) |
Treasury (preferred shares) | (18,855,746) | (18,855,746) | (24,889,584) | (20,741,320) |
Total outstanding shares | 6,085,073,610 | 6,085,073,610 | 8,032,297,167 | 6,693,580,972 |
ii.Changes in capital stock, in number of shares
| Common | Preferred | Total |
Number of shares outstanding on December 31, 2015 (1) | 3,050,040,493 | 3,035,625,047 | 6,085,665,540 |
Shares acquired and not canceled | (591,930) |
| (591,930) |
Number of shares outstanding on December 31, 2016 (1) | 3,049,448,563 | 3,035,625,047 | 6,085,073,610 |
Number of shares outstanding on December 31, 2017 | 3,049,448,563 | 3,035,625,047 | 6,085,073,610 |
| Common | Preferred | Total |
Number of outstanding shares as at December 31, 2018 | 3,354,393,420 | 3,339,187,552 | 6,693,580,972 |
Increase of capital stock with issuing of shares – bonus of 20% (1) | 671,985,845 | 671,985,774 | 1,343,971,619 |
Increase of shares in treasury – bonus of 20% | (1,107,160) | (4,148,264) | (5,255,424) |
Number of outstanding shares as at December 31, 2019 | 4,025,272,105 | 4,007,025,062 | 8,032,297,167 |
(1) All share amounts presented for prior periods have been adjusted to reflect1) It benefited the stock split approved atshareholders registered in the records of Bradesco on March 29, 2019.
In the Special Shareholders’ Meeting held on March 10, 2017, the Board of Directors’ MeetingDirectors' proposal to increase the share capital by R$8,000,000 thousand was approved, increasing it from R$51,100,000 thousand to R$59,100,000 thousand, with bonus shares, through the capitalization of March 10, 2017part of the balance of the “Profit Reserves - Statutory Reserve” account, in accordance with the provisions of Article 169 of Law No. 6,404/76, with the issuance of 555,360,173 new registered-book-entry shares, with no par value, being 277,680,101 common and 277,680,072 preferred, which were attributed free of charge to shareholders in the proportion of one1 new share for every 10 shares held.of the same type that they held on the base date.
In the Extraordinary GeneralSpecial Shareholders’ Meeting ofheld on March 10, 2016,12, 2018, the approval was proposed by the Board of Directors to increase the capital stock by R$8,000,000 thousand, increasing it from R$ 43,100,00059,100,000 thousand to R$ 51,100,00067,100,000 thousand, with a bonus in shares, through the capitalization of part of the balance of the account “Profit Reserves -– Statutory Reserve”, incompliance with the provisions in Article 169 of Lawno No. 6,404/76, by issuing 504,872,885610,896,190 new nominative-book entry shares, with no nominal value, whereby 252,436,456305,448,111 are common shares and 252,436,429305,448,079 are preferred shares, attributed free-of-charge to the shareholders as bonus, to the ratio of 1 new share for every 10 shares of the same type that they own on the base date.
BradescoF-145
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
In the Extraordinary GeneralSpecial Shareholders’ Meeting ofheld on March 10, 2017,11, 2019, the approval was proposed by the Board of Directors to increase the capital stock by R$8,000,000 thousand, increasing it from R$51,100,00067,100,000 thousand to R$59,100,00075,100,000 thousand, with a bonus in shares, through the capitalization of part of the balance of the account “Profit Reserves -– Statutory Reserve”, in compliance with the provisions in Article 169 of Law No. 6,404/76, by issuing 555,360,1731,343,971,619 new nominative-book entry shares, with no nominal value, whereby 277,680,101671,985,845 are common shares and 277,680,072671,985,774 are preferred shares, attributed free-of-charge to the shareholders as bonus, to the ratio of 12 new shareshares for every 10 shares of the same type that they own on the base date, and was approved by the Bacen on April 18, 2017.March 19, 2019.
All of the shareholders are entitled to receive, in total, a mandatory dividend of at least 30% of Bradesco’s annual net income, as shown in the statutory accounting records, adjusted by transfers to reserves. The Organization has no obligation that is exchangeable for or convertible into shares of capital.shares. As a result, its diluted earnings per share is the same as the basic earnings per share.
In occurring any operation that changes the number of shares, simultaneously with the transaction in the Brazilian Market, and with the same timeframes, an identical procedure is adopted in the International Market, for the ADRs/GDRs traded in New York, USA, and Madrid, Spain.
Treasury shares are recorded at cost, which is approximately equivalent to the market prices on the date they are acquired. Cancellation of treasury shares is recorded as a reduction of unappropriated retained earnings. Treasury shares are acquired for subsequent sale or cancellation.
Bradesco F-143
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Notes to the Consolidated Financial Statements
b) Reserves
Capital reservereserves
The capital reserve consists mainly of premiums paid by the shareholders upon subscription of shares. The capital reserve is used for (i) absorption of any losses in excess of accumulated losses and revenue reserves, (ii) redemption, reimbursement of purchase of shares, (iii) redemption of founders´founders’ shares, (iv) transfer to share capital, and (v) payment of dividends to preferred shares, when this privilege is granted to them.
Revenue reserves
In accordance with Corporate Legislation, Bradesco and its Brazilian subsidiaries must allocate 5% of their annual statutory net income, after absorption of accumulated losses, to a legal reserve, the distribution of which is subject to certain limitations. The reserve can be used to increase capital or to absorb losses, but cannot be distributed in the form of dividends.
The Statutory Reserve aims to maintain an operating margin that is compatible with the development of the Organization’s active operations and may be formed by up to 100% of net income remaining after statutory allocations if proposed by the Board of Executive Officers, approved by the Board of Directors and ratified at the Shareholders’ Meeting, with the accumulated value limited to 95% of the Organization’s paid-in capital share amount.
c) Interest on shareholders’ equity / equity/Dividends
Interest on shareholders' equity are calculated on the net income as determined in the financial statements prepared in accordance with Brazilian generally accepted accounting principles (BR GAAP)applicable to financial institutions authorized to operate by the Central Bank of Brazil. The dividends are paid inReais and can be converted into US dollars and remitted to shareholders abroad, provided that the equity participation of the non-resident shareholder is registered with the Central Bank of Brazil,Brazil. Brazilian companies may pay interest on equity to shareholders based on the netshareholders’ equity and treat these payments as deductible expenses in the Brazilian income tax and social contribution calculations. The interest cost is treated for accounting purposes as a deduction from shareholders’ equity in a manner similar to dividends. Withholding income tax is levied and paid at the time that the interest on equity is paid to the shareholders.
In 2017 the Organization distributed interest onshareholders'equity of R$ 7,204,344 thousand, being attributed to the shareholders, the gross amount per share of R$ 1.13 for common shares and R$ 1.25 for preferred shares (2016 - R$ 6,975,782 thousand, R$ 1.09 for common shares and R$ 1.20 for preferred shares).
F-144F-146 IFRS – International Financial Reporting Standards – 20172019
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
Ina meeting of the Board of Directors on June 28, 2019, the Board of Directors proposal was approved for the payment to shareholders of intermediary interest on equity, related to the first half of 2019, amounting to R$1,455,000 thousand, which equates to R$0.172536471 per common share and R$0.189790118 per preferred share, payment of which was made on July 15, 2019.
In a meeting held on October 17, 2019, the Board of Directors approved the payment, on October 23, 2019, of extraordinary dividends from profit reserves, in the amount of R$ 8,000,000 thousand, which represents R$0.948654134 per common share and R$1.043519547 per preferred share.
In a meeting of the Board of Directors on December 19, 2019, the Board of Executive Officers 'proposal for payment of complementary interest on equity for the year of 2019 was approved, in the amount of R$4,245,000 thousand, of which R$0.503379600 per common share and R$0.553717560 per preferred share, payment of which was made on December 30, 2019.
BradescoF-147
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
Related partyRelated-party transactions (direct and indirect) are disclosed according to IAS 24, the Organization has a Transaction Policy with related parties. The transactions are carried out under conditions and at rates consistent with those entered into with third parties when applicable, and effective on the dates of the operations.
at that time. The main transactions with related parties are presented as follows:
| R$ thousand | R$ thousand | ||||||||||||||
Controllers (1) | Associates and Jointly controlled companies (2) | Key Management Personnel (3) | Total | Controllers (1) | Associates and Jointly controlled companies (2) | Key Management Personnel (3) | Total | |||||||||
On December 31 | On December 31 | |||||||||||||||
2017 | 2016 | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | 2019 | 2018 | 2019 | 2018 | 2019 | 2018 | 2019 | 2018 | |
Assets |
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Loans and advances to banks | - | - | 724,369 | 1,033,479 | - | - | 724,369 | 1,033,479 | - | - | 577,906 | 585,191 | - | - | 577,906 | 585,191 |
Securities and derivative financial instruments | 20,721 | 16,015 | 287,849 | 19,267 | - | - | 308,570 | 35,282 | ||||||||
Other assets | - | - | 3,572 | 6,128 | - | - | 3,572 | 6,128 | 9 | 9 | 109,766 | 326,762 | 88,750 | 49,244 | 198,525 | 376,015 |
Liabilities |
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Deposits from customers | 931,141 | 1,374,940 | 103,734 | 62,928 | 87,213 | 86,594 | 1,122,088 | 1,524,462 | ||||||||
Funds from issuance of securities | 6,632,932 | 5,755,615 | 244,082 | 398,549 | 1,405,203 | 823,527 | 8,282,217 | 6,977,691 | ||||||||
Social and statutory | 2,275,419 | 1,770,149 | - | - | - | 2,275,419 | 1,770,149 | |||||||||
Customer and financial institution resources | 2,137,714 | 2,899,619 | 3,181,766 | 1,098,865 | 393,475 | 120,586 | 5,712,955 | 4,119,070 | ||||||||
Securities and subordinated debt securities | 13,697,802 | 8,569,271 | - | 891,211 | 797,182 | 14,589,013 | 9,366,453 | |||||||||
Other liabilities | - | - | 8,827,877 | 13,704 | - | - | 8,827,877 | 13,704 | 217,765 | 1,541,011 | 11,672,903 | 10,101,886 | 6,735 | 5,484 | 11,897,403 | 11,648,381 |
| R$ thousand | R$ thousand | ||||||||||||||||||||||
Controllers (1) | Associates and Jointly controlled companies (2) | Key Management Personnel (3) | Total | Controllers (1) | Associates and Jointly controlled companies (2) | Key Management Personnel (3) | Total | |||||||||||||||||
Years ended December 31 | Years ended December 31 | |||||||||||||||||||||||
2017 | 2016 | 2015 | 2017 | 2016 | 2015 | 2017 | 2016 | 2015 | 2017 | 2016 | 2015 | 2019 | 2018 | 2017 | 2019 | 2018 | 2017 | 2019 | 2018 | 2017 | 2019 | 2018 | 2017 | |
Revenues and expenses |
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Net interest income | (887,059) | (1,129,931) | (78,813) | 40,671 | (41,814) | (426) | (84,818) | (108,333) | (88,344) | (931,206) | (1,280,078) | (167,583) | (857,937) | (778,829) | (887,059) | (6,508) | (11,814) | 40,671 | (58,353) | (55,045) | (84,818) | (922,798) | (845,688) | (931,206) |
Other revenues | - | - | 441,381 | 360,286 | 337,070 | - | - | 441,381 | 360,286 | 337,070 | 105 | 334 | - | 342,793 | 315,832 | 441,381 | 359 | 247 | - | 343,257 | 316,413 | 441,381 | ||
Other expenses | (2,652) | (2,391) | (2,160) | (289,100) | (224,444) | (246,504) | - | - | (291,752) | (226,835) | (248,664) | 54,471 | 50,745 | (2,652) | (1,899,818) | (2,635,494) | (289,100) | 288,187 | 323,130 | - | (1,557,160) | (2,261,619) | (291,752) |
(1) Cidade de Deus Cia. Cial.Coml. de Participações, Fundação Bradesco, NCF Participações S.A., Titanium Holdings S.A., BBD Participações S.A. and Nova Cidade de Deus Participações S.A.;
(2) Companies listed in Note 2; and26;
(3) Members of the Board of Directors and the Board of Executive Officers.Officers; and
(4) Includes interest on equity and dividends payable.
Bradesco F-1F-14548 IFRS – International Financial Reporting Standards – 2019
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
a) Remuneration of key management personnel
The following is established each year at the Annual Shareholders’ Meeting:
· The annual grand total amount of management compensation, set forth at the Board of Directors Meetings,Directors’ Meeting, to be paid to boardBoard members and members of the Board of Executive Officers, as determined by the Company’s Bylaws; and
· The amount allocated to finance Management pension plans, within the Employee and Management pension plan of the Bradesco.Bradesco Organization.
For 2017,2019, the maximum amount of R$468,700866,448 thousand was setdetermined for Management compensationthe remuneration of the Directors, and part of this refers to the social security contribution to the INSS, which is an obligation of the Organization, and R$ 487,700484,895 thousand to financecover supplementary pension plan defined contribution pension plans.contributions.
The current policy on Management compensation sets forth that 50% of net variable compensation, if any, must be allocated to the acquisition of PNB shares issued by BBD Participações S.A. and / and/or issued PN shares ofissued by Banco Bradesco Bank S.A., which vest in three equal, annual and successive installments, the first of which is in the year following the payment date. This procedure complies with CMN Resolutionno 3921/ No. 3,921/10, which sets forth a managementManagement compensation policy for financial institutions.
Short-term benefits for managementManagement
| R$ thousand | R$ thousand | ||||
Years ended December 31 | Years ended December 31 | |||||
2017 | 2016 | 2015 | 2019 | 2018 | 2017 | |
Salaries | 456,262 | 441,592 | 309,864 | 852,862 | 485,949 | 456,262 |
Total | 456,262 | 441,592 | 309,864 | 852,862 | 485,949 | 456,262 |
Post-employment benefits
| R$ thousand | R$ thousand | ||||
Years ended December 31 | Years ended December 31 | |||||
2017 | 2016 | 2015 | 2019 | 2018 | 2017 | |
Defined contribution supplementary pension plans | 473,663 | 251,250 | 311,670 | 468,079 | 474,378 | 473,663 |
Total | 473,663 | 251,250 | 311,670 | 468,079 | 474,378 | 473,663 |
The Organization has no long-term benefits or for the termination of employment contracts or for remuneration based on shares for its key managementManagement personnel.
Other information
a) Under current law, financial institutions are not allowed to grant loans or advances to:
(i) Officers and members of the advisory, administrative, fiscal or similar councils, as well as to their respective spouses and family members up to thesecond degree;
(ii) Individuals or corporations that own more than 10% of their capital; and
(iii) Corporations in which the financial institution itself, any officers or administratorsManagement of the institution, as well as their spouses and respective family members up to the second degree own more than 10% of equity.
F-146 IFRS – International Financial Reporting Standards – 2017
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Notes to the Consolidated Financial Statements
Therefore, no loans or advances are granted by the financial institutions to any subsidiary, members of the Board of Directors or the Board of Executive Officers and their relatives.
BradescoF-149
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
b)Equity participation
Together directly, members of the Board of Directors and the Board of the Executive Officers had the following shareholding in Bradesco:
| On December 31 | On December 31 | ||
2017 | 2016 | 2019 | 2018 | |
Common shares | 0.5% | 0.7% | 0.55% | 0.55% |
Preferred shares | 1.0% | 1.1% | 1.04% | 1.07% |
Total shares (1) | 0.8% | 0.9% | 0.79% | 0.81% |
(1)In On December 31, 2017,2019, direct and indirect shareholding of the members of the Board of Directors and the Board of Executive Officers in Bradesco totaled 2.3%2.48% of common shares, 1.1%1.07% of preferred shares and 1.7%1.78% of all shares (2016(2018 – 2.8%2.60% of common shares, 1.2%1.11% of preferred shares and 2.0%1.85% of all shares).
The table below summarizes the total risk represented by off-balance sheet commitments:
| R$ thousand | R$ thousand | ||
On December 31 | On December 31 | |||
2017 | 2016 | 2019 | 2018 | |
Commitments to extend credit (1) | 203,927,816 | 237,019,535 | 248,455,570 | 228,113,067 |
Financial guarantees (2) | 78,867,348 | 78,949,483 | 78,231,145 | 72,870,964 |
Letters of credit for imports | 294,229 | 329,015 | 1,411,197 | 361,593 |
Total | 283,089,393 | 316,298,033 | 328,097,912 | 301,345,624 |
(1)Includes available lines of credit, limits for credit cards, personal loans, housing loans and overdrafts; and
(2)Refers to guarantees mostly provided for Corporate customers.
Financial guarantees are conditional commitments for loans issued to ensure the performance of a customer in an obligation to a third party. There is usually the right of recourse against the customer to recover any amount paid under these guarantees. Moreover, we can retain cash or other highly-liquid funds to counter-guarantee these commitments.
The contracts are subject to the same credit evaluations as otherloans and advances. Standby letters of credit are issued mainly to endorse public and private debt issue agreements including commercial paper, securities financing and similar transactions. The standby letters of credit are subject to customer credit evaluation by the management.Management.
We issue letters of credit in connection with foreign trade transactions to guarantee the performance of a customer with a third party. These instruments are short-term commitments to pay the third-party beneficiary under certain contractual terms for the shipment of products. The contracts are subject to the same credit evaluation as otherloans and advances.
advances.
Bradesco F-1F-14750 IFRS – International Financial Reporting Standards – 2019
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) |
Notes to the Consolidated Financial Statements
Standards, amendments and interpretations of existingnew standards in future periods
·IFRS 9 replaces the guidance in IAS 39 - Financial Instruments: Recognition and Measurement. IFRS 9 is applied for financial instruments and will be adopted retrospectively on the effective date of the standard on January 1, 2018. IFRS 9 includes: (i) new models for the classification and measurement of financial instruments; (ii) measurement of expected credit losses for financial assets; and (iii) new requirements on hedge accounting. The new standard maintains the principal existing guidance on the recognition and derecognition of financial instruments in IAS 39.
Pursuant to analysis made by the Organization, the estimated impacts from the adoption of IFRS 9 will represent, according to the best estimates, a reduction of approximately 2% (R$ 2,2 billion) of shareholders’ equity, net of tax effects.
(i) Classification - Financial assets
IFRS 9 contains a new approach of classification and measurement of financial assets, where the entity considers not only the business model for the management of financial assets but also the features of contractual cash flow of the financial asset.
IFRS 9 eliminates the categories existing in IAS 39 and classifies the financial assets into three categories: (i) measured at amortized cost; (ii) measured at fair value through other comprehensive income (FVTOCI); and (iii) measured at fair value through profit or loss (FVTPL).
Pursuant to IFRS 9, derivatives embedded in agreements where the host asset is in the scope of the standard are never separated. Instead, the hybrid financial instrument as a whole is assessed for classification and usually classified asFVTPL.
Based on the evaluation, the Organization does not believe that the new classification requirements, when applied from January 1, 2018, will have material impact on the recording of accounts receivable, loans and advances, investments in debt securities and investments in equity securities measured at fair value.
Onyear ended December 31, 2017, the Organization had equity investments classified as available for sale with fair value of R$ 11,038 millions which are held for long-term strategic purposes. Pursuant to IFRS 9, the Organization, on current best estimates, could designate these instruments as VJORA. Thus, all fair value gains and losses should be recorded in other comprehensive income, with no impairment losses recognized in the income (loss) and no gain or loss is recycled to the income (loss) upon realization.
(ii) Impairment –Financial instruments2019
IFRS 9 replaces the model of “incurred losses” of IAS 39 with a prospective model of “expected losses”. This will require relevant judgment as to how changes in economic factors affect expected credit losses, which will be determined based on weighted probabilities.
The new model of expected losses will apply to the financial instruments measured at amortized cost or VJORA (except for investments in equity instruments).
Pursuant to IFRS 9, the provisions for expected losses will be measured on one of the following bases:
− Expected loan losses for 12 months, that is, loan losses resulting from all possible events of default within 12 months from the report date; and
− Expected loan losses for the entire life, that is, loan losses resulting from all possible events of default over the expected life of a financial instrument.
F-148 IFRS – International Financial Reporting Standards – 2017
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Notes to the Consolidated Financial Statements
The measurement of expected losses for the entire life is applied when the credit risk of a financial asset, on the report date, has significantly increased since its first recognition, and the measurement of loan loss for 12 months is applied when the loan risk has not significantly increased since its first recognition. An entity may determine that the loan risk of a financial asset did not significantly increase when the asset has low credit risk on the date of the report.
The Organization believes that impairment losses will increase and become more volatile than the current ones, for the assets assessed in the model of IFRS 9. Based on the methodology of allowance for loan losses adopted, the Organization estimated, on current best estimates, that the application of the impairment requirements of IFRS 9 on January 1, 2018 would result in additional allowance for loan losses, as described in the table below:
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(1) includes commitments and financial guarantees provided
The following analysis provides additional details on the methodology adopted and on the impact
estimated on January 1, 2018.
Impairment of financial instruments
Expected loan losses were calculated based on experience of actual loan losses in the past years. The Organization calculated the rates of expected loan losses based on the features of each portfolio, that is, it used quantitative models for loans assessed in a group and a combination of quantitative and qualitative models for large companies.
The experience of actual loan losses was adjusted to reflect the differences between economic conditions during the period in which the historical data were collected, current conditions and the Organization’s view of future economic conditions.
The table below, on current best estimates, provides information on the estimated exposure to loan risk and expected loan losses and advances, commitments, financial collaterals provided and Private Debt Securities, on January 1, 2018.
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| Estimated Exposure to Credit Risk | Expected Loss | Expected Loss on Estimated Exposure to Credit Risk | ||
Stage 1 | 432,416 | 7,688 | 2% | ||
Stage 2 | 51,853 | 7,581 | 15% | ||
Stage 3 | 37,277 | 17,779 | 48% | ||
Total | 521,546 | 33,048 | 6% |
Stage 1: Financial instruments that do not present significant deterioration in credit quality;
Stage 2: Financial instruments that present significant deterioration in credit quality; and
Stage 3: Financial instruments that indicate that the obligation will not be fully honored.
With respect to Government Bonds, the Organization internally developed a study for loan risk evaluation of these bonds, which is not expected to be lost for the next 12 months, that is, there is no need of allowance for loan losses.
Bradesco F-149
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Notes to the Consolidated Financial Statements
(iii) Classification – Financial liabilities
IFRS 9 maintains most part of the requirements of IAS 39 regarding the classification of financial liabilities.
But, pursuant to IAS 39, the fair value variations of liabilities designated as FVTPL are recognized in the income (loss), whereas pursuant to IFRS 9, these changes of fair value should be presented as follows:
• the fair value variation that is attributable to changes in the loan risk of financial liabilities
should be presented in Other comprehensive income (OCI); and
• the remaining value of the fair value variation should be presented in the income (loss).
The Organization does not intend, in its best current estimates, to assign financial liabilities to the VJR. The evaluation conducted by the Organization did not indicate any material impact if the requirements of IFRS 9, regarding the classification of financial liabilities, were applied on January 1, 2018.
(iv) Hedge Accounting
Upon the first adoption the Organization opted to continue to apply the requirements of IAS 39 for hedge accounting, as permitted by IFRS 9 until the conclusion by the IASB of the macro-hedge project and the finalization of the hedge accounting section.
IFRS 9 requires that the Organization ensures that the hedge accounting relations are aligned with its risk management purposes and strategies and that the Organization adopt a more qualitative and prospective approach to assess hedge effectiveness. IFRS 9 also introduces new requirements for re-balance of hedge relations and prohibits the voluntary discontinuance of the hedge accounting if inconsistent with the risk management strategies of the entity.
(v) Disclosures
IFRS 9 will demand new disclosures, mainly related to expected loan losses, credit risk and hedge accounting. The Organization’s evaluation includes an analysis to identify the disclosure detail levels of the deficiencies in relation to the information required and current processes, and also implementations and improvements of controls in order to meet the new requirements.
(vi) Transition
Changes in accounting policies resulting from the adoption of IFRS 9 will be applied retrospectively on the date of initial application.
− The Organization opted for the exemption under the Standard of not restating comparative information from prior periods derived from changes in the classification and measurement of financial instruments (including expected loan). The differences in the accounting balances of financial assets and liabilities resulting from the adoption of IFRS 9 will be recognized in Retained Earnings on January 1, 2018.
− Based on the facts and circumstances existing on the date of first adoption the Organization is performing the following evaluations:
· determination of the business model in which a financial asset is held.
· designation of certain investments in equity instruments not held for trading as VJORA.
·IFRS 15 – Revenue from Contracts with Customers – requires that revenue is recognized so as to reflect the transfer of goods or services to the client for an amount that represents the
F-150 IFRS – International Financial Reporting Standards – 2017
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS)
Notes to the Consolidated Financial Statements
company’s expectation of having rights to these goods or services by way of consideration. IFRS 15 replaces IAS 18, IAS 11, and related interpretations (IFRICs 13, 15 and 18), and shall be applicable from January, 2018. We conducted a study on the recognition of revenue from customer contracts and concluded that there would be no significant impact on the Organization.
· IFRS 16, – Leases. The main changesissued in relationJanuary 2016 in replacement to the standards IAS 17 Leasing Operations, IFRIC 4, SIC 15 and SIC 27 Complementary Aspects of Leasing Operations, establishes that the lessees account for lessees are: (i) there is no longer classification in operating and financial leases; and (ii) all leasing operations are accounted in liabilities, and interest and liabilities must be recognized in depreciation / amortization, using the current financial lease procedure. There are optional exemptions for short-term leases and leases of low-value items. Lessor accounting remainsaccording to a single model, similar to the current standard,accounting entry for finance leases in IAS 17. IFRS 16 is mandatory for the fiscal years as lessors continue to classify leases as finance or operating leases. IFRS16 replaces IAS17 and will be applicable as ofper January 1, 2019.
Within the Organization there are leases of properties and equipment, and the possibleproperties represent approximately 98% of the balances.
Transition
Banco Bradesco adopted IFRS 16 on January 1, 2019, using the simplified and modified retrospective approach, which does not require the disclosure of comparative information.
The new standard was adopted for contracts that had been previously identified as leases that used IAS 17 and IFRIC 4 – Complementary Aspects of Leasing Operations. Therefore, the Organization did not apply the standard to contracts that have not previously been identified as contracts containing a lease under the terms of IAS 17 and IFRIC 4.
On January 1, 2019, assets and liabilities in the amount of R$4,176,611 were recorded. The amounts were restated at their present value by a discount rate between 6.59% and 9.97% depending on the term of the lease of each contract.
For further details on impacts arising fromof the adoption of IFRS 16, see notes 2-h, 27 and 37.
·IFRIC 23 - Applies to any situation where there is uncertainty as to whether an income tax treatment of income taxes is acceptable to the Tax Authority, in accordance with tax legislation. In this amendment aresense, the Tax Authority is considered the final decision of the higher courts on the matter. The scope of the Interpretation includes all taxes covered by IAS 12, that is, both current tax and deferred tax. However, it does not apply to the uncertainty regarding taxes covered by other rules. IFRIC 23 became operational for financial periods beginning on or after January 1, 2019. A study was carried out on the effects produced by that standard and it was concluded that there were no material impacts on the Organization.
Standards, amendments and interpretations of standards applicable to future periods
·Conceptual Framework – The Conceptual Framework for Financial Reporting describes the purpose and concepts of general purpose financial reporting. Among the changes in definitions contained in this document, the new definition of assets and liabilities stands out, being evaluated, and will be concludedactive, "a present economic resource controlled by the dateentity as a result of entry into forcepast events" and a liability, a present obligation of the standard.entity to transfer an economic resource as a result of past events. The new Conceptual Framework comes into effect for annual periods beginning on or after January 1, 2020. An analysis of the new Conceptual Framework has been carried out and no material impacts have been identified on the Organization.
· IFRS 17 -– Insurance Contracts. Establishes the principles for the recognition, measurement, presentation and disclosure of insurance contracts within the scope of the Standard. The purpose of IFRS 17 is to ensure that an entity provides relevant information that faithfully represents those contracts. The general model of IFRS 17 requires insurers and reinsurers to measure their insurance contracts at the initial time by the estimated total cash flow, adjusted for the time value of money and the explicit risk related to non-financial risk, in addition to of the contractual margin of the service. This estimated value is then remeasured at each base date. The unrealized profit (corresponding to "the contractual margin of the service) is recognized over the term of the contracted coverage. Apart from this general model, IFRS 17 provides, as a way of simplifying the process, the award allocation approach. This simplified model is applicable to certain insurance contracts, including those with coverage of up to one yearThis information provides a basis for accounting firm users of financial statements to evaluateassess the effect that insurance contracts have on the Company's financial position, financial performance and cash flows. IFRS 17 is effective for annual periods beginning on or after January 1, 2021.
·IFRIC 23 - Appliesexpected to, any situation where there is uncertainty as to whether an income tax treatment is acceptable under tax law. The scopeamong other things, alter the timing of IFRS profit recognition, and the implementation of the Interpretation includes all taxes covered by IAS 12, thatstandard is both currentlikely to require changes to the Company’s IT, actuarial and deferred tax. However, it does not apply to uncertainty regarding taxes covered by other standards. IFRIC 23 becomes operative for financial periods beginning on or after January 1, 2019.finance systems. The possible impacts arising fromCompany is in the adoptionprocess of this amendment are being evaluated and will be concluded byassessing the date of entry into forceimpact of the new standard.
2.Unconsolidated structured entities are unconsolidated entities that the Organization does not control, but which have a contractual and non-contractual involvement, and provide variability of returns arising from the performance. The organization has an involvement with structured entities through management of investment funds and portfolios making management fees and consortium management.
The main unconsolidated structured entities are, (i) the investment funds managed by Organization, whose nature and involvement, generating management fees and investment in units for funds, the assets of managed funds and non consolidated in 2017 were R$ 338,846,142 thousand (2016 - R$ 426,390,575 thousand) and revenues earned in 2017 were R$ 1,463,469 thousand (2016 - R$ 1,079,653 thousand) and (ii) the consortium which nature and involvement is related to generation management fees of consortium quotas, represented by groups of quotaholders formed to aquire specific goods, whose assets in 2017 were R$ 74,323,031 thousand (2016 – R$ 71,075,119 thousand) and the revenues were in 2017 R$ 1,526,660 thousand (2016 – R$ 1,278,753 thousand).
3.In May, 2016, occurred theindictment of three members of its Bradesco’s Executive Board of Directors by the Federal Police, in the scope of the so-called "Operation Zealots". On July, 2016, the Federal Public Prosecution filed an accusation against all three members of the Board of Executive Officers and a former member of its Board of Directors, which was received by the Judge of the 10th Federal Court of Judicial Section of the Federal District. The Management conducted a thorough internal evaluation of the records and documents related to the indictment and found no evidence of
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1.Subsequent event: Since March 11, 2020 the World Health Organization (WHO) declared COVID-19, which originated in China at the end of 2019 and spread throughout the world, a pandemic resulting in a significant increase in the restrictions of national and international travel, downtime for many businesses and services in virtually all countries, government orders of social isolation to slow the spread of the virus, among other restrictions, generating an environment of strong financial volatility and increasing uncertainties, in addition to social, economic and employment instability. The executives of Bradesco have already submitted their respectiveanswersCOVID-19 pandemic has brought great challenges and uncertainties to the prosecution, pointing outwhole world, being considered the facts and evidence demonstrating their innocence.largest pandemic ever seen, according to the WHO. The process has already had its investigation phase closed, now await the final allegations and sentencecrisis caused as a result of the first degree trial.pandemic can be observed from the beginning of March 2020 generating certain negative impacts on the Brazilian economy, such as (i) higher risk aversion, with pressures on the exchange rate; (ii) greater difficulties in foreign trade; and (iii) increase in the uncertainties of economic agents.
In parallelorder to his defense,mitigate the Chairmanimpacts of this crisis, governments and central banks around the Board of Executive Officers of Bradesco, Mr. Luiz Carlos Trabuco Cappi, presented a petition for habeas corpus to the Regional Federal Court (Tribunal Federal Regional) – 1st Region. After processing the motion for habeas corpus, the 4th Panel of the aforementioned Court, by unanimous decision, excluded him from criminal proceedings, due to lack of just cause. This procedure is under appeal to STJ (Superior Court of Justice). The same habeas corpus was extended to the former member of the Board of Directors, previously indicted.
Bradesco provided all the information requested to the competent regulatory bodies, in Brazil and abroad. Moreover, Bradesco was summoned by the General´s Office of the Ministry of Finance on the filing of an Administrative Proceeding ("PAR"). This process, which isworld have intervened in the pre-trial phase, may entaileconomy of their countries and have adopted unconventional measures, like the possibilityclosing of applicationnon-essential economic activity and actions of a fine and/or mention on public lists, which may eventually lead to restrictions on business with public agencies.
On account of the news published in the media, on the indictment in the "Operation Zealots", a class action was filed in the District Court of New York, on June 3, 2016. On September 1, 2016, Bradesco spontaneously attended the proceedings of the Class Action and agreedmonetary stimulus, with the plaintiff a term for the submissionpractice of the revocation of the suit until December 23, 2016. On October 21, 2016, the Plaintiff Leader presented the addendum of the Initial Petition, appointing as defendants Bradesco and three members of its Board of Executive Officers. Accordingzero interest, in addition to the demand, investors who purchased preferred American Depositary Shares (“ADS”) of Bradesco between April 30, 2012 and July 27, 2016 would have suffered losses provoked by Bradesco due to a supposed violation regarding the American law of capital markets, according to communication to the Market on May 31, June 8 and July 28, 2016. On December 23, 2016, Bradesco filed a motion to dismiss the process, which – following a reply from the Lead Plaintiff and a rejoinder from Bradesco, and on September 29, 2017, the Judge decided the following: (i) the Court partially upheld and rejected the termination request, limiting the proposed class to investors who purchased American Depositary Shares ("ADS") Bradesco between August 8, 2014 and July 27, 2016; and (ii) the Court granted to the Lead Plaintiff a 30-day term to present an addendum to the initial request. After said term, on October 30, 2017, the Lead Plaintiff informed the Judge that it will not present any amendments. Thus, the demand will lead to the discovery phase, so the limitation of the aforementioned class would be maintained. Given the current phase of the demand,fiscal expansion. However, it is not yet possible to performaffirm whether these measures will be sufficient to prevent a risk analysis and, besides, there are no elements to support the assessment of the amount of said risk.global recession in 2020.
In Brazil, various measures have been adopted, including some directly impacting the liquidity of the financial markets, the credit markets, monetary and fiscal policy and exchange rates. In this context, in addition to the various measures taken by the Monetary Policy Committee (COPOM) and the Central Bank of Brazil, such as reducing the interest rate from 4.25% p.a. to 3.75% p.a., the National Monetary Council and the Federal Government approved, in extraordinary meetings, measures to help the Brazilian economy tackle the adverse effects caused by the virus, especially by means of:
·4.March 16, 2020 Resolution No. 4,782/20, which aims to facilitate the renegotiation of loan operations of companies, allowing for adjustments to the cash flows of companies;
·March 16, 2020The wholly-owned subsidiariesResolution No. 4,783/20, which reduced the minimum capital requirements, in order to enhance the lending capacity of Bradesco, BEM - Distribuidora de Títulos e Valores Mobiliários Ltda.banks;
·March 18, 2020 Resolution No. 4,784/20, which exempts banks from deducting from their capital, the tax effects of transactions to hedge foreign currency for their participation in investments abroad, one of the mechanisms used by banks to protect themselves against exchange rate variations;
·March 19, 2020 Circular No. 3,991/20, which temporarily removed the requirement for advance notification of the amendment of the opening hours and BRAM - Bradesco Asset Management S.A. Distribuidora de Títulos e Valores Mobiliários, as well as two of its Managers, were mentionedcompliance with the mandatory and uninterrupted hours in the scopecase of multiple banks, like ours;
·March 23, 2020 Circular No. 3,993/20, which reduced the rate of compulsory deposits with the Central Bank on time deposits, from 25% to 17%, and enhanced the rules for the Short-term Liquidity Indicator (Liquidity Coverage Ratio – "LCR"). The aim of these measures is an improvement of the so-called "Greenfield operation"liquidity conditions of the Federal Police, because they were responsible forNational Financial System;
·March 23, 2020 Resolution No. 4,786/20, which aims to ensure the administration and managementmaintenance of the Fund in Equity - FIP (Equity Investment Fund), respectively. Besides providing the documents, the Federal Court has ruled,adequate levels of liquidity in the courseNational Financial System, allowing the Central Bank of this Operation, the blocking of these companies’ values. As a result of this, a Commitment was signed, approved by the 10th Federal Court of the Federal District,Brazil to release the values through the provision of guarantees of up to R$104 million, without the recognition of any civil or criminal liability on the part of companies or administrators of the Organization. In the scope of this commitment, managers and officers of the Organization committed to provide any clarifications to the authorities responsible for conducting this investigation, regardless of a formal subpoena.
5.In July 2017, Bradesco Seguros SA ("Bradesco Seguros") and Swiss Re Corporate Solutions Ltd. ("Swiss Re Corso") concluded the transaction,grant loans by means of a shareholder agreement, whereby: (i) Swiss Re Corporate Solutions Brasil Seguros S/Athe Special Temporary Liquidity Line ("Swiss Re Corporate Solutions Brazil"LTEL") took over part, regulated by Circular No. 3,994/20;
·March 30, 2020 Provisional Measure No. 930/20, which aims to eliminate the asymmetry of tax treatment between the results of the P&C (Propertyexchange rate variation of the investment of banks abroad and Casualty) insurance operations,the result of the hedge/overhedge for hedging the exchange rate of such investment. In moments of greater volatility, such as Aeronautical, Marine, Civilthe current one, the exchange rate variations make the overhedge increase the consumption of capital for banks and increase the market volatility, with negative effects on the market. The Provisional Measure aims to correct this imbalance, eliminating this negative effect on the foreign exchange market and on banks; and
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Notes to the Consolidated Financial Statements
·April 9, 2020
LiabilityResolution No. 4,803/20, which adjusts the criteria for the measurement of the provision for credit losses on loans renegotiated due to the COVID-19 pandemic. With this Resolution, the risk rating of loans renegotiated between March 1 and shipments from Bradesco Seguros ("Large Risks Insurance"), with exclusive accessSeptember 30, 2020 is permitted to Bradesco customersbe maintained at the same level as they were classified on February 29, 2020. It is important to explorehighlight that this measure affects only the commercialization of Large Risks Insurance; and (ii) Bradesco Seguros held a 40% interest in Swiss Re Corporate Solutions Brasil representedfinancial statements under BR GAAP applicable to financial institutions authorized to operate by a total of 172,560,054 book entry shares, common and nominative in the amount of R$363,103 thousand, and 60% remained with Swiss Re Corso. The transaction was approved by the Private Insurance Superintendence (Susep), the Administrative Council for Economic Defense (Cade) and the Central Bank (Bacen). The association includes exclusiveof Brazil.
In addition to the measures mentioned above, the Executive and Legislative Powers have tried to approve bills that minimize the repercussion of COVID-19, including proposing the temporary suspension of taxes (such as the relaxation of the IOF on loans and the deferral of payment of PIS/COFINS) and granting tax benefits to the sectors of the economy/workers most affected.
However, projections estimate that Brazil will face an economic downturn in 2020 with all the ramifications in terms of business. Most of our operations occur in the domestic market and, consequently, our result is significantly impacted by the local macroeconomic conditions.
We cannot control, and nor can we predict what measures or policies the government may adopt in response to the current or future economic situation in Brazil, nor how the intervention or government policies will affect the Brazilian economy and how they will affect our operations. Initially, we expect that our assets and liabilities will be impacted due to COVID-19, however, considering the current stage of the crisis and the date of approval of these consolidated financial statements in IFRS, it is not possible to reasonably estimate what COVID-19's impacts would be in IFRS. Below we highlight the main items of our balance sheet which may potentially be impacted:
·financial instruments: whose fair value may vary significantly given the price volatility of these assets, especially those issued by private companies that have a higher credit risk;
·loans and advances and other credit exposures: we expect an increase in our level of arrears in the payment of loans, to the extent that the economic situation will deteriorate further, as well as facing significant challenges to take possession and realize the collateral resulting from guarantees related to loans in default;
·deferred tax assets: whose recoverability depends on future taxable profits, which may be affected depending on the consequences of the pandemic event if it extends over a long period of time;
·intangible assets: may have their recoverable amount impacted on the basis of the changes caused by the crisis to their main assumptions of realization, such as the rates of returns initially expected;
·funding: volatility, as well as uncertainties in credit and capital markets, generally reduces liquidity, which could result in an increase in the cost of funds for financial institutions, which may impact our ability to replace, appropriately and at reasonable costs, obligations that are maturing and/or the access to new resources to execute our growth strategy;
·technical provisions of insurance and pension plans: depending on the distribution networkevolution of the crisis these may be impacted negatively given the possible increase in the level of claims, mainly in the "life" segment and a higher frequency of claims from "health" policyholders with the increased use of hospitals, furthermore, we may experience higher demand for early redemptions by pension plan participants, which would impact our revenues through a reduction in the management fees we charge; and
·civil and labor provisions: the number of labor lawsuits may increase as a result of third party suppliers that go bankrupt as Bradesco Seguros, comprisedmay be considered co-responsible in these lawsuits. It is also possible that we could experience a greater volume of more than 140civil processes, mainly involving reviews and contract renewals.
Our activities are operating at full capacity, since the beginning of the pandemic, and our actions have taken into account the guidelines of the Ministry of Health. We have established a crisis committee which is formed by the CEO, all the Vice-presidents and by the CRO (Chief Risk Officer), which meets daily and reports periodically, to the Board of Directors, evaluations on the evolution of COVID-19 and their reflections on the operations. In addition, we have a Risk Committee, which plays an important role in verifying the various points and scope of these actions in the Organization. We launched the Business Continuity Plan ("BCP") was activated and since the second half of March 2020 we intensified the internal/external actions, in a consistent and timely manner, with the objective of minimizing the impacts involved, which we highlight include:
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·giving leave to employees at-risk groups for an indefinite period of time;
·increasing the number of employees working from home, with approximately 90% of our employees from the headquarters and offices and 50% of the branch employees working from home;
·definition of the accompanying protocol, together with health professionals, for employees and family members who have symptoms of COVID-19; and
·intensification of the communication with our branches, more than 4,700 branchesproviding guidance to our customers and employees about the prevention measures and the remote means of customer service.
One of the main objectives of our risk management structure is to monitor the allocation of capital and liquidity, aiming to maintain the levels of risk in accordance with the limits established and, in addition, monitor the economic scenarios actively (national and international), as well as the evolution of the COVID-19 pandemic and will make every effort to maintain the fullness of our operations, the services to the population, and the stability of the national financial system.
We offer emergency lines of credit to companies, such as funds for financing of payrolls, as well as the extension of the installments of loan operations to individuals for which the amounts in question, up to the date of approval of these financial statements, were immaterial.
The measurements of the future financial and economic impacts related to the pandemic will continue to be assessed, although, they possess a certain level of uncertainty and depend on the development of the pandemic, since its duration or deterioration cannot yet be predicted, which could continue adversely affecting the global and local economy for an indefinite period of time, which negatively affects the results of financial institutions and, consequently, the performance of our operations.
2.On May 6, 2019, Bradesco announced to the market, that it has entered into a Share Purchase Agreement (“Agreement”) with the controlling shareholders of BAC Florida Bank (“BAC Florida”), the bank that has offered various financial services in the United States for 45 years, especially to non-resident high net worth Individuals. Bradesco will assume the operations of BAC Florida, with the main objective of expanding the offering of investments in the United States to its high net worth clients (Prime and Private Bank), in addition to other banking services, such as checking accounts, credit card and real estate financing, as well as the opportunity to expand business related to corporate and institutional clients.
On September 10, 2019, the Central Bank authorized Bradesco to: (i) to hold up to 100% of the capital of BAC Florida Bank and its subsidiaries - the securities brokerage firm BAC Florida Investments Corp. and the non-financial corporations BAC Global Advisors Inc., 5551 Luckett Road, Inc. and Representaciones Administrativas Internacionales S.A., the latter located in Guatemala and the others located in the U.S.; and (ii) to participate temporarily in the capital of a holding company to be incorporated in the U.S., which should be extinguished in the corporate reorganization (merger) to be conducted to enable Banco Bradesco and approximately 40,000 registered brokers and insurance agents. As partS.A. to hold 100% of the shares representing the capital of BAC Florida Bank. The completion of the transaction approximately 120 large risk experts from Bradesco Seguros, in São Paulois subject to approval by the competent U.S. regulatory agencies and Rio de Janeiro, joined Swiss Re Corporate Solutions Brasil Seguros S/A. The investment totals R$490,000 thousand, recorded by Bradesco Seguros S.A., includes goodwill on the acquisition of shares in the amount of R$126,897 thousand.to compliance with legal formalities.
6.3.In May 2017, Bradesco – as an indirect holder of equity interest in IRB - announced to shareholders that had authorized IRB to submit: (i) application for registration as a publicly-held company and for authorization of initial public offering of IRB, pursuant to CVM Instructions 400/03 and 480/09; and (ii) application for registration of secondary public distribution of common shares issued by IRB, pursuant to CVM Instruction 400/03. In July 2017,On August 29, 2019, Bradesco announced that the documents were filed in compliance withlaunch the requirements formulated by CVM in the context of the Secondary Public Offering of IRB’s common shares and the closing of the bookbuilding procedure of the Offering, which defined the price per share at R$27.24. 14,040,000 shares were sold in the Base Offering and then the entire supplementary lot totaling 16,206,387 shares. Bradesco indirectly holds 47,520,213 shares and a 15.23% interest in the capital stock of IRB.
7.In July 2017, Bradesco launched a Special Voluntary Severance Program Scheme (PDVE)(PDV 2019), in whichwith the Organization'sobjective of contemplating employees who fulfilledcontributed significantly to the Organization throughout their career, offering a set of benefits to help them outside the Organization, in addition to optimizing and making the team structure more flexible in the best market standards, in order to obtain improvements in productivity indicators. The deadline for participation to the program was October 31, 2019, and employees who met the requirements established in the regulations may join freely and spontaneously. On December 31, 2019, the total costs were R$1,819,232 thousand, with 3,418 members. It should be noted that dismissals are taking place on a scheduled basis, comprising in some cases a period of up to six months from the respective plan may join. The deadline for joiningdate of participation.
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4.On January 15, 2020, Banco Bradesco announced that it sold the entire shareholding held in late August 2017, with the adhesion of 7.4 thousand employees, and a total cost of R$2.3 billion. The estimated annual effect on personnel expenses is a reduction of R$1.5 billion.Chain Serviços e Contact Center S.A. (“Chain”) to Almaviva do Brasil Telemarketing e Informática S.A..
1.InOn January 2018,27, 2020, Bradesco carried out credit assigned loans, already written off to loss, without retentionissued US$1.6 billion of riskssenior notes in the international market, composed of two tranches of US$800 million, maturing in January 2023 and benefits,January 2025, with a face value of R$ 5,323,120 thousand, whose sale value was R$ 110,189 thousand.remuneration at fixed interest rates 2.85% and 3.20% p.a., respectively.
6.Due to the so-called “Operação Zelotes” (“Zealots Operation”), which investigates the alleged improper performance of members of CARF – Administrative Council of Tax Appeals, a criminal proceeding against two former members of Bradesco’s Board of Executive Officers was opened in 2016 and received by the 10th Federal Court of Judicial Section of the Federal District. The investigation phase of the process was already completed, and is currently waiting for the decision of the first-degree court.
The Company's Management conducted an internal evaluation of records and documents related to the matter and found no evidence of any illegal conduct practiced by its former representatives. Bradesco provided all of the information to the authorities and competent regulatory bodies, both in Brazil and abroad.
As a result of the news about theOperação Zelotes, a Class Action was filed against Bradesco and members of its Board of Executive Officers before the District Court of New York (“Court”), on June 3, 2016, based on Sections 10 (b) and 20 (a) of the Securities Exchange Act of 1934. On July 1, 2019, Bradesco and the Lead Plaintiff made an agreement (“Agreement”) to terminate the Class Action, with the payment of US$14.5 million by Bradesco. The Agreement was finally approved by the Court on November 18, 2019 and the case was closed in relation to Bradesco and to the members of its Executive Board of Directors. The Agreement made does not represent the recognition of guilt or admission of liability by Bradesco, but its intent is to avoid uncertainties, costs and onus related to the progression of the Class Action.
Also as a result ofOperação Zelotes, theCorregedoria Geral do Ministério da Fazenda (General Internal Affairs of the Ministry of Finance) began an investigative administrative procedure to verify the need for the establishment of an Administrative Accountability Process ("PAR"). The filing decision of the related procedure was published in Section 2 of theDiário Oficial da União(Federal Official Gazette) on February 3, 2020. The decision given by the Official of the Ministry of Economy accepted in full the Final Report of the Processing Committee, the Opinion of the National Treasury Attorney General's Office and the Joint Order of the General Coordination of Management and Administration, and of the Leadership of the Advisory and Judgment Division, which confirmed, expressly recognizing, the lack of evidence that Bradesco had promised, offered or given, directly or indirectly, an unfair advantage to public agents involved in the related operation, in accordance with the provisions laid down in Article 5, section I, of Law No. 12,846/13.
Bradesco
Bradesco F-153F-155
Forfurther information,please contact:
Board ofExecutiveOfficers
Denise Pauli PavarinaLeandro Miranda
Chief Executive Managing Officer and InvestorRelations Officer
Phone:(11)3684-4011
Fax:(11) 3684-4630
diretoria.executiva@bradesco.com.br
MarketRelationsDepartment
CarlosWagner Firetti
Market Relations Officer
Phone:(11)2194-0922
investidores@bradesco.com.br
CidadedeDeus,s/nº- –PrédioVermelho- –3ºandar
Osasco –SP
Brazil
banco.bradesco/ri