UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
☐ | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 |
OR
☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 20182019
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
OR
☐ | SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission FileNumber 001-15276
ITAÚ UNIBANCO HOLDINGItaú Unibanco Holding S.A.
(Exact Name of Registrant as Specified in its Charter)
ITAÚ UNIBANCO HOLDINGItaú Unibanco Holding S.A.
(Translation of Registrant’s name into English)
THE FEDERATIVE REPUBLIC OF BRAZIL
(Jurisdiction of incorporation or organization)
Praça Alfredo Egydio de Souza Aranha, 100
04344-902 São Paulo, SP, Brazil
(Address of principal executive offices)
Alexsandro Broedel
Group Executive Finance Director and Investor Relations Officer
Itaú Unibanco Holding S.A.
Praça Alfredo Egydio de Souza Aranha, 100
04344-902 São Paulo, SP, Brazil
+55 11 2794 3547
drinvest@itau-unibanco.com.br
(Name, Telephone,E-mail and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act.
Title of each class | Trading | Name of each exchange on which registered | ||
Preferred Shares, without par value | ITUB | New York Stock Exchange* | ||
American Depositary Shares (as evidenced by American Depositary Receipts), each representing one Preferred Share | New York Stock Exchange |
*Not for trading purposes, but only in connection with the listing on the New York Stock Exchange of American Depositary Shares representing those Preferred Shares.
Securities registered or to be registered pursuant to Section 12(g) of the Act:
None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the period covered by the annual report:
4,958,290,359 Common Shares, no par value per share
4,762,230,5634,787,311,404 Preferred Shares, no par value per share
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act
☒ Yes ☐ No
If this annual report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
☐ Yes ☒ No
Note—Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 ofRegulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated non accelerated filer, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” and “emerging growth company” inRule 12b-2 of the Exchange Act.
☒Large Accelerated filer ☐ Accelerated filer ☐Non-accelerated filer ☐ Emerging growth company ☐
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards†standards† provided pursuant to Section 13(a) of the Exchange Act. ☐,☐
† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP ☐ | International Financial Reporting Standards as issued by the International Accounting Standards Board ☒ | Other ☐ |
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow:
Item 17 ☐ Item 18 ☐
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined inRule 12b-2 of the Exchange Act).
☐ Yes ☒ No
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ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS | 3 | |||
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ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | ||||
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES | ||||
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS | ||||
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All references in this annual report to (i) “Itaú Unibanco Holding,” “Itaú Unibanco Group,” “we,” “us” or “our” are references to Itaú Unibanco Holding S.A. and its consolidated subsidiaries and affiliates, except where specified or differently required by the context; (ii) the “Brazilian government” are references to the federal government of the Federative Republic of Brazil, or Brazil; (iii) “preferred shares” are references to our authorized and outstanding preferred shares with no par value; and (iv) “common shares” are references to our authorized and outstanding common shares with no par value. All references to “ADSs” are to American Depositary Shares, each representing one preferred share, without par value. The ADSs are evidenced by American Depositary Receipts, or “ADRs,” issued by The Bank of New York Mellon, or BNY Mellon. All references herein to the “real,” “reais” or “R$” are to the Brazilianreal, the official currency of Brazil. All references to “US$,” “dollars” or “U.S. dollars” are to United States dollars.
Additionally, unless specified or the context indicates otherwise, the following definitions apply throughout this annual report:
“Itaú Unibanco” means Itaú Unibanco S.A., together with its consolidated subsidiaries;
“Itaú BBA” means Banco Itaú BBA S.A., together with its consolidated subsidiaries;
“Central Bank” means the Central Bank of Brazil;
• | “CLP”means the Chileanpeso, the official currency of Chile; |
“CMN” means the Brazilian National Monetary Council; and
“CVM” means the Securities and Exchange Commission of Brazil.
Additionally, acronyms used repeatedly, defined and technical terms, specific market expressions and the full names of our main subsidiaries and other entities referenced in this annual report are explained or detailed in the section entitled “Glossary”.
This annual report contains statements that are or may constitute forward-looking statements within the meaning of Section 27A of the United States Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the U.S. Securities Exchange Act of 1934, as amended, or Exchange Act. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends affecting our business. These forward-looking statements are subject to risks, uncertainties and assumptions including, among other risks:
General economic, political, and business conditions in Brazil and variations in inflation indexes, interest rates, foreign exchange rates, and the performance of financial markets;
General economic and political conditions, in particular in the countries where we operate;
Government regulations and tax laws and amendments to such regulations and laws;
Developments in high-profile investigations currently in progress and their impact on customers or on our tax exposures;
Disruptions and volatility in the global financial markets;
Increases in compulsory deposits and reserve requirements;
Regulation and liquidation of our business on a consolidated basis;
Obstacles for holders of our shares and ADSs to receive dividends;
Failure or hacking of our security and operational infrastructure or systems;
Our ability to protect personal or other data;
Strengthening of competition and industry consolidation;
Changes in our loan portfolio and changes in the value of our securities and derivatives;
Losses associated with counterparty exposure;
Our exposure to the Brazilian public debt;
Incorrect pricing methodologies for insurance, pension plan and premium bond products and inadequate reserves;
The effectiveness of our risk management policy;
Damage to our reputation;
The capacity of our controlling stockholder to conduct our business;
Difficulties during the integration of acquired or merged businesses;
Effects from socio-environmental issues;
The economic effects of the 2019 novel coronavirus(“COVID-19”) pandemic or pandemics of other or similar diseases could adversely affect our future results of operations and may continue to impact the market price of our securities; and
Other risk factors as set forth under “Item 3D. Risk Factors.”
The words “believe”, “may”, “will”, “estimate”, “continue”, “anticipate”, “intend”, “expect” and similar words are intended to identify forward-looking statements, but are not the exclusive means of identifying such statements. We undertake no obligation to update publicly or revise any forward-looking statements because of new information, future events or otherwise. In light of these risks and uncertainties, the forward-looking information, events and circumstances discussed in this annual report might not occur. Our actual results and performance could differ substantially from those anticipated in such forward-looking statements.
Presentation of Financial and Other Information
The information found in this annual report is accurate only as of the date of such information or as of the date of this annual report, as applicable. Our activities, our financial position and assets, the results of transactions and our prospects may have changed since that date.
Information contained in or accessible through our website or any other websites referenced herein does not form part of this annual report unless we specifically state that it is incorporated by reference and forms part of this annual report. All references in this annual report to websites are inactive textual references and are for information only.
Certain amounts and percentages included in this annual report, including in the section of this annual report entitled “Item 5. Operating and Financial Review and Prospects” have been rounded for ease of presentation. Percentage figures included in this annual report have not been calculated in all cases on the basis of the rounded figures but on the basis of the original amounts prior to rounding. For this reason, certain percentage amounts in this annual report may vary from those obtained by performing the same calculations using the figures in the audited consolidated financial statements. Certain other amounts that appear in this annual report may not sum due to rounding.
This annual report contains information, including statistical data, about certain markets and our competitive position. Except as otherwise indicated, this information is taken or derived from external sources. We indicate the name of the external source in each case where industry data is presented in this annual report. We cannot guarantee and we have not independently verified the accuracy of information taken from external sources, or that, in respect of internal estimates, a third party using different methods would obtain the same estimates as the estimates we present in this annual report.
About our Financial Information
The reference date for the quantitative information for balances found in this annual report is as of December 31, 20182019 and the reference date for results is the year ended December 31, 2018,2019, except where otherwise indicated.
Our fiscal year ends on December 31 and, in this annual report, any reference to any specific fiscal year is to the twelve-month period ended on December 31 of that year.
Our audited consolidated financial statements, included elsewhere in this annual report, are prepared in accordance with IFRS, as issued by the IASB. Unless otherwise stated all audited consolidated financial information related to the years ended December 31, 2019, 2018 2017 and 20162017 included in this annual report was prepared in accordance with IFRS. The consolidated financial information as of and for the years ended December 31, 2015 and 2014 has been derived from our historical financial statements, which are not included in this annual report, but was not restated for the retrospective application of IFRS 9 as our management cannot provide this financial information without unreasonable effort or expense.
We use accounting practices adopted in Brazil applicable to institutions authorized to operate by the Central Bank, or Brazilian GAAP, for our reports to Brazilian stockholders, filings with the CVM, and calculation of payments of dividends and tax liabilities.
The CMN establishes that financial institutions meeting certain criteria, such as us, are required to present audited consolidated financial statements in accordance with IFRS as issued by the IASB, in addition to financial statements under Brazilian GAAP.
Please see “Note 30 – Segment Information” to our audited consolidated financial statements for further details about the main differences between our management reporting systems and the audited consolidated financial statements prepared in accordance with IFRS.
Our audited consolidated financial statements as of December 31, 20182019 and 20172018 and for each of the years ended December 31, 2019, 2018 2017 and 20162017 were audited by PricewaterhouseCoopers Auditores Independentes, or PwC, independent auditors, as stated in its audit report contained in this Form20-F.
Please see “Note 2 – Significant Accounting Policies” to our audited consolidated financial statements for further details about the significant accounting policies applied in the preparation of our audited consolidated financial statements in accordance with IFRS.
ITEM 1. | IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS |
Not applicable.
ITEM 2. | OFFER STATISTICS AND EXPECTED TIMETABLE |
Not applicable.
ITEM 3. | KEY INFORMATION |
3A. | Selected Financial Data |
We present below our selected financial data derived from our audited consolidated financial statements as of December 31, 2019 and 2018 and for each of the three years in the period then ended December 31, 2018, 2017 and 2016 which have been prepared in accordance with IFRS as issued by IASB. The audited consolidated financial data as of and for the yearsyear ended December 31, 20152016 and 20142015 has been derived from our accounting records. The historical financial statements, which are not included herein, butinformation as of and for the year ended December 31, 2015 was not restated for the retrospective application of IFRS 9 as our management cannot provide this financial information without unreasonable effort or expense.
The following selected financial data should be read together with “Presentation of Financial and Other Information,” “Item 4B. Business Overview—Selected Statistical Information” and “Item 5. Operating and Financial Review and Prospects”.
Assets | As of December 31, | Variation | As of December 31, | Variation | ||||||||||||||||||||||||||||||||||||||||||||||||
2018 | 2017(1) | 2016(1) | 2018-2017 | % | 2017-2016 | % | ||||||||||||||||||||||||||||||||||||||||||||||
2019 | 2018 | 2017(1) | 2016(1) | 2019-2018 | % | |||||||||||||||||||||||||||||||||||||||||||||||
(In millions of R$, except percentages) | (In millions of R$, except percentages) | |||||||||||||||||||||||||||||||||||||||||||||||||||
Cash | 37,159 | 18,749 | 18,542 | 18,410 | 98.2 | 207 | 1.1 | 30,367 | 37,159 | 18,749 | 18,542 | (6,792 | ) | (18.3 | ) | |||||||||||||||||||||||||||||||||||||
Financial Assets | 1,424,876 | 1,330,251 | 1,246,833 | 94,625 | 7.1 | 83,418 | 6.7 | 1,501,481 | 1,424,876 | 1,330,251 | 1,246,833 | 76,605 | 5.4 | |||||||||||||||||||||||||||||||||||||||
Compulsory deposits in the Central Bank of Brazil | 94,148 | 98,837 | 85,700 | (4,689 | ) | (4.7 | ) | 13,137 | 15.3 | 91,248 | 94,148 | 98,837 | 85,700 | (2,900 | ) | (3.1 | ) | |||||||||||||||||||||||||||||||||||
At Amortized Cost | 994,759 | 905,729 | 902,289 | 89,030 | 9.8 | 3,440 | 0.4 | 1,010,644 | 994,759 | 905,729 | 902,289 | 15,885 | 1.6 | |||||||||||||||||||||||||||||||||||||||
Interbank deposits | 26,420 | 29,048 | 22,688 | (2,628 | ) | (9.0 | ) | 6,360 | 28.0 | 34,583 | 26,420 | 29,048 | 22,688 | 8,163 | 30.9 | |||||||||||||||||||||||||||||||||||||
Securities purchased under agreements to resell | 280,136 | 244,707 | 265,050 | 35,429 | 14.5 | (20,343 | ) | (7.7 | ) | 198,428 | 280,136 | 244,707 | 265,050 | (81,708 | ) | (29.2 | ) | |||||||||||||||||||||||||||||||||||
Securities | 110,395 | 111,424 | 102,568 | (1,029 | ) | (0.9 | ) | 8,856 | 8.6 | 133,119 | 110,395 | 111,424 | 102,568 | 22,724 | 20.6 | |||||||||||||||||||||||||||||||||||||
Loan operations and lease operations portfolio | 536,091 | 497,719 | 494,851 | 38,372 | 7.7 | 2,868 | 0.6 | 585,791 | 536,091 | 497,719 | 494,851 | 49,700 | 9.3 | |||||||||||||||||||||||||||||||||||||||
Other financial assets | 75,090 | 59,568 | 53,895 | 15,522 | 26.1 | 5,673 | 10.5 | 94,752 | 75,090 | 59,568 | 53,895 | 19,662 | 26.2 | |||||||||||||||||||||||||||||||||||||||
(-) Provision for Expected Loss | (33,373 | ) | (36,737 | ) | (36,763 | ) | 3,364 | (9.2 | ) | 26 | (0.1 | ) | (36,029 | ) | (33,373 | ) | (36,737 | ) | (36,763 | ) | (2,656 | ) | 8.0 | |||||||||||||||||||||||||||||
At Fair Value Through Other Comprehensive Income | 49,323 | 52,149 | 40,039 | (2,826 | ) | (5.4 | ) | 12,110 | 30.2 | 76,660 | 49,323 | 52,149 | 40,039 | 27,337 | 55.4 | |||||||||||||||||||||||||||||||||||||
Securities | 49,323 | 52,149 | 40,039 | (2,826 | ) | (5.4 | ) | 12,110 | 30.2 | 76,660 | 49,323 | 52,149 | 40,039 | 27,337 | 55.4 | |||||||||||||||||||||||||||||||||||||
At Fair Value Through Profit or Loss | 286,646 | 273,536 | 218,805 | 13,110 | 4.8 | 54,731 | 25.0 | 322,929 | 286,646 | 273,536 | 218,805 | 36,283 | 12.7 | |||||||||||||||||||||||||||||||||||||||
Securities | 263,180 | 250,693 | 194,574 | 12,487 | 5.0 | 56,119 | 28.8 | 281,075 | 263,180 | 250,693 | 194,574 | 17,895 | 6.8 | |||||||||||||||||||||||||||||||||||||||
Derivatives | 23,466 | 22,843 | 24,231 | 623 | 2.7 | (1,388 | ) | (5.7 | ) | 41,854 | 23,466 | 22,843 | 24,231 | 18,388 | 78.4 | |||||||||||||||||||||||||||||||||||||
Investments in associates and joint ventures | 12,019 | 5,055 | 5,073 | 6,964 | 137.8 | (18 | ) | (0.4 | ) | 15,097 | 12,019 | 5,055 | 5,073 | 3,078 | 25.6 | |||||||||||||||||||||||||||||||||||||
Fixed assets, net | 7,302 | 7,359 | 8,042 | (57 | ) | (0.8 | ) | (683 | ) | (8.5 | ) | 7,166 | 7,302 | 7,359 | 8,042 | (136 | ) | (1.9 | ) | |||||||||||||||||||||||||||||||||
Goodwill and Intangible assets, net | 19,329 | 19,383 | 17,056 | (54 | ) | (0.3 | ) | 2,327 | 13.6 | 19,719 | 19,329 | 19,383 | 17,056 | 390 | 2.0 | |||||||||||||||||||||||||||||||||||||
Tax assets | 42,830 | 44,249 | 45,081 | (1,419 | ) | (3.2 | ) | (832 | ) | (1.8 | ) | 48,960 | 42,830 | 44,249 | 45,081 | 6,130 | 14.3 | |||||||||||||||||||||||||||||||||||
Income tax and social contribution - current | 2,831 | 2,336 | 2,703 | 495 | 21.2 | (367 | ) | (13.6 | ) | |||||||||||||||||||||||||||||||||||||||||||
Income tax and social contribution - deferred | 32,781 | 35,869 | 38,202 | (3,088 | ) | (8.6 | ) | (2,333 | ) | (6.1 | ) | |||||||||||||||||||||||||||||||||||||||||
Income tax and social contribution—current | 1,644 | 2,831 | 2,336 | 2,703 | (1,187 | ) | (41.9 | ) | ||||||||||||||||||||||||||||||||||||||||||||
Income tax and social contribution—deferred | 38,914 | 32,781 | 35,869 | 38,202 | 6,133 | 18.7 | ||||||||||||||||||||||||||||||||||||||||||||||
Other | 7,218 | 6,044 | 4,176 | 1,174 | 19.4 | 1,868 | 44.7 | 8,402 | 7,218 | 6,044 | 4,176 | 1,184 | 16.4 | |||||||||||||||||||||||||||||||||||||||
Other assets | 9,282 | 11,193 | 10,687 | (1,911 | ) | (17.1 | ) | 506 | 4.7 | 14,691 | 9,282 | 11,193 | 10,687 | 5,409 | 58.3 | |||||||||||||||||||||||||||||||||||||
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Total assets | 1,552,797 | 1,436,239 | 1,351,314 | 116,558 | 8.1 | 84,925 | 6.3 | 1,637,481 | 1,552,797 | 1,436,239 | 1,351,314 | 84,684 | 5.5 | |||||||||||||||||||||||||||||||||||||||
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(1) | Restated to take into account the effect of IFRS 9, which we retroactively adopted as of January 1, 2016. |
Assets(1) Cash and deposits on demand Central Bank compulsory deposits Interbank deposits Securities purchased under agreements to resell Financial assets held for trading Financial assets designated at fair value through profit or loss Derivatives Available-for-sale financial assets Held-to-maturity financial assets Loan operations and lease operations portfolio, net Loan operations and lease operations portfolio (-) Allowance for loan and lease losses Other financial assets Investments in associates and joint ventures Goodwill Fixed assets, net Intangible assets, net Tax assets Assets held for sale Other assets Total assets As of December 31, Variation 2015 2014 2015-2014 % (In millions of R$, except percentages) 18,544 17,527 1,017 5.8 66,556 63,106 3,450 5.5 30,525 23,081 7,444 32.3 254,404 208,918 45,486 21.8 164,311 132,944 31,367 23.6 642 733 (91 ) (12.4 ) 26,755 14,156 12,599 89.0 86,045 78,360 7,685 9.8 42,185 34,434 7,751 22.5 447,404 430,039 17,365 4.0 474,248 452,431 21,817 4.8 (26,844 ) (22,392 ) (4,452 ) 19.9 53,506 53,649 (143 ) (0.3 ) 4,399 4,090 309 7.6 2,057 1,961 96 4.9 8,541 8,711 (170 ) (2.0 ) 6,295 6,134 161 2.6 52,149 35,243 16,906 48.0 486 196 290 148.0 11,611 13,921 (2,310 ) (16.6 ) 1,276,415 1,127,203 149,212 13.2
As of December 31, | ||||
Assets | 2015(1) | |||
Cash and deposits on demand | 18,544 | |||
Central Bank compulsory deposits | 66,556 | |||
Interbank deposits | 30,525 | |||
Securities purchased under agreements to resell | 254,404 | |||
Financial assets held for trading | 164,311 | |||
Financial assets designated at fair value through profit or loss | 642 | |||
Derivatives | 26,755 | |||
Available-for-sale financial assets | 86,045 | |||
Held-to-maturity financial assets | 42,185 | |||
Loan operations and lease operations portfolio, net | 447,404 | |||
Loan operations and lease operations portfolio | 474,248 | |||
(-) Allowance for loan and lease losses | (26,844 | ) | ||
Other financial assets | 53,506 | |||
Investments in associates and joint ventures | 4,399 | |||
Goodwill | 2,057 | |||
Fixed assets, net | 8,541 | |||
Intangible assets, net | 6,295 | |||
Tax assets | 52,149 | |||
Assets held for sale | 486 | |||
Other assets | 11,611 | |||
Total assets | 1,276,415 | |||
(1) | The consolidated financial information as of and for the |
Liabilities and stockholders’ equity | As of December 31, | Variation | As of December 31, | Variation | ||||||||||||||||||||||||||||||||||||||||||||||||
2018 | 2017(1) | 2016(1) | 2018-2017 | % | 2017-2016 | % | 2019 | 2018 | 2017(1) | 2016(1) | 2019-2018 | % | ||||||||||||||||||||||||||||||||||||||||
(In millions of R$, except percentages) | (In millions of R$, except percentages) | |||||||||||||||||||||||||||||||||||||||||||||||||||
Financial Liabilities | 1,151,237 | 1,056,717 | 1,012,075 | 94,520 | 8.9 | 44,642 | 4.4 | 1,211,999 | 1,151,237 | 1,056,717 | 1,012,075 | 60,762 | 5.3 | |||||||||||||||||||||||||||||||||||||||
At Amortized Cost | 1,119,734 | 1,024,584 | 982,116 | 95,150 | 9.3 | 42,468 | 4.3 | 1,159,830 | 1,119,734 | 1,024,584 | 982,116 | 40,096 | 3.6 | |||||||||||||||||||||||||||||||||||||||
Deposits | 463,424 | 402,938 | 329,414 | 60,486 | 15.0 | 73,524 | 22.3 | 507,060 | 463,424 | 402,938 | 329,414 | 43,636 | 9.4 | |||||||||||||||||||||||||||||||||||||||
Securities sold under repurchase agreements | 330,237 | 312,634 | 349,164 | 17,603 | 5.6 | (36,530 | ) | (10.5 | ) | 256,583 | 330,237 | 312,634 | 349,164 | (73,654 | ) | (22.3 | ) | |||||||||||||||||||||||||||||||||||
Interbank market debt | 134,670 | 124,587 | 129,648 | 10,083 | 8.1 | (5,061 | ) | (3.9 | ) | |||||||||||||||||||||||||||||||||||||||||||
Institutional market debt | 93,974 | 98,482 | 96,239 | (4,508 | ) | (4.6 | ) | 2,243 | 2.3 | |||||||||||||||||||||||||||||||||||||||||||
Interbank market funds | 174,862 | 134,670 | 124,587 | 129,648 | 40,192 | 29.8 | ||||||||||||||||||||||||||||||||||||||||||||||
Institutional market funds | 104,244 | 93,974 | 98,482 | 96,239 | 10,270 | 10.9 | ||||||||||||||||||||||||||||||||||||||||||||||
Other financial liabilities | 97,429 | 85,943 | 77,651 | 11,486 | 13.4 | 8,292 | 10.7 | 117,081 | 97,429 | 85,943 | 77,651 | 19,652 | 20.2 | |||||||||||||||||||||||||||||||||||||||
At Fair Value Through Profit or Loss | 27,711 | 27,211 | 25,217 | 500 | 1.8 | 1,994 | 7.9 | 48,029 | 27,711 | 27,211 | 25,217 | 20,318 | 73.3 | |||||||||||||||||||||||||||||||||||||||
Derivatives | 27,519 | 26,746 | 24,698 | 773 | 2.9 | 2,048 | 8.3 | 47,828 | 27,519 | 26,746 | 24,698 | 20,309 | 73.8 | |||||||||||||||||||||||||||||||||||||||
Structured notes | 192 | 465 | 519 | (273 | ) | (58.7 | ) | (54 | ) | (10.4 | ) | 201 | 192 | 465 | 519 | 9 | 4.7 | |||||||||||||||||||||||||||||||||||
Provision for Expected Loss | 3,792 | 4,922 | 4,742 | (1,130 | ) | (23.0 | ) | 180 | 3.8 | 4,140 | 3,792 | 4,922 | 4,742 | 348 | 9.2 | |||||||||||||||||||||||||||||||||||||
Loan Commitments | 2,601 | 3,015 | 2,761 | (414 | ) | (13.7 | ) | 254 | 9.2 | 3,303 | 2,601 | 3,015 | 2,761 | 702 | 27.0 | |||||||||||||||||||||||||||||||||||||
Financial Guarantees | 1,191 | 1,907 | 1,981 | (716 | ) | (37.5 | ) | (74 | ) | (3.7 | ) | 837 | 1,191 | 1,907 | 1,981 | (354 | ) | (29.7 | ) | |||||||||||||||||||||||||||||||||
Reserves for insurance and private pension | 201,187 | 181,232 | 154,076 | 19,955 | 11.0 | 27,156 | 17.6 | |||||||||||||||||||||||||||||||||||||||||||||
Provision for insurance and private pension | 218,334 | 201,187 | 181,232 | 154,076 | 17,147 | 8.5 | ||||||||||||||||||||||||||||||||||||||||||||||
Provisions | 18,613 | 19,736 | 20,909 | (1,123 | ) | (5.7 | ) | (1,173 | ) | (5.6 | ) | 21,454 | 18,613 | 19,736 | 20,909 | 2,841 | 15.3 | |||||||||||||||||||||||||||||||||||
Tax liabilities | 5,284 | 7,836 | 4,950 | (2,552 | ) | (32.6 | ) | 2,886 | 58.3 | 7,891 | 5,284 | 7,836 | 4,950 | 2,607 | 49.3 | |||||||||||||||||||||||||||||||||||||
Income tax and social contribution - current | 2,058 | 3,175 | 1,741 | (1,117 | ) | (35.2 | ) | 1,434 | 82.4 | |||||||||||||||||||||||||||||||||||||||||||
Income tax and social contribution - deferred | 447 | 391 | (289 | ) | 56 | 14.3 | 680 | (235.3 | ) | |||||||||||||||||||||||||||||||||||||||||||
Income tax and social contribution—current | 3,997 | 2,058 | 3,175 | 1,741 | 1,939 | 94.2 | ||||||||||||||||||||||||||||||||||||||||||||||
Income tax and social contribution—deferred | 1,058 | 447 | 391 | (289 | ) | 611 | 136.7 | |||||||||||||||||||||||||||||||||||||||||||||
Other | 2,779 | 4,270 | 3,498 | (1,491 | ) | (34.9 | ) | 772 | 22.1 | 2,836 | 2,779 | 4,270 | 3,498 | 57 | 2.1 | |||||||||||||||||||||||||||||||||||||
Other liabilities | 26,010 | 26,362 | 26,920 | (352 | ) | (1.3 | ) | (558 | ) | (2.1 | ) | 28,338 | 26,010 | 26,362 | 26,920 | 2,328 | 9.0 | |||||||||||||||||||||||||||||||||||
Total liabilities | 1,402,331 | 1,291,883 | 1,218,930 | 110,448 | 8.5 | 72,953 | 6.0 | 1,488,016 | 1,402,331 | 1,291,883 | 1,218,930 | 85,685 | 6.1 | |||||||||||||||||||||||||||||||||||||||
Capital | 97,148 | 97,148 | 97,148 | 0 | 0.0 | 0 | 0.0 | 97,148 | 97,148 | 97,148 | 97,148 | 0 | 0.0 | |||||||||||||||||||||||||||||||||||||||
Treasury shares | (1,820 | ) | (2,743 | ) | (1,882 | ) | 923 | (33.6 | ) | (861 | ) | 45.7 | (1,274 | ) | (1,820 | ) | (2,743 | ) | (1,882 | ) | 546 | (30.0 | ) | |||||||||||||||||||||||||||||
Additional paid-in capital | 2,120 | 1,930 | 1,785 | 190 | 9.8 | 145 | 8.1 | 2,175 | 2,120 | 1,930 | 1,785 | 55 | 2.6 | |||||||||||||||||||||||||||||||||||||||
Appropriated reserves | 13,480 | 12,499 | 3,443 | 981 | 7.8 | 9,056 | 263.0 | 12,948 | 13,480 | 12,499 | 3,443 | (532 | ) | (3.9 | ) | |||||||||||||||||||||||||||||||||||||
Unappropriated reserves | 29,666 | 26,030 | 23,740 | 3,636 | 14.0 | 2,290 | 9.6 | 29,878 | 29,666 | 26,030 | 23,740 | 212 | 0.7 | |||||||||||||||||||||||||||||||||||||||
Cumulative other comprehensive income | (3,812 | ) | (3,486 | ) | (4,139 | ) | (326 | ) | 9.4 | 653 | (15.8 | ) | (3,950 | ) | (3,812 | ) | (3,486 | ) | (4,139 | ) | (138 | ) | 3.6 | |||||||||||||||||||||||||||||
Total stockholders’ equity attributed to the owners of the parent company | 136,782 | 131,378 | 120,095 | 5,404 | 4.1 | 11,283 | 9.4 | 136,925 | 136,782 | 131,378 | 120,095 | 143 | 0.1 | |||||||||||||||||||||||||||||||||||||||
Non-controlling interests | 13,684 | 12,978 | 12,289 | 706 | 5.4 | 689 | 5.6 | 12,540 | 13,684 | 12,978 | 12,289 | (1,144 | ) | (8.4 | ) | |||||||||||||||||||||||||||||||||||||
Total stockholders’ equity | 150,466 | 144,356 | 132,384 | 6,110 | 4.2 | 11,972 | 9.0 | 149,465 | 150,466 | 144,356 | 132,384 | (1,001 | ) | (0.7 | ) | |||||||||||||||||||||||||||||||||||||
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Total liabilities and stockholders’ equity | 1,552,797 | 1,436,239 | 1,351,314 | 116,558 | 8.1 | 84,925 | 6.3 | 1,637,481 | 1,552,797 | 1,436,239 | 1,351,314 | 84,684 | 5.5 | |||||||||||||||||||||||||||||||||||||||
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(1) | Restated to take into account the effect of IFRS 9, which we retroactively adopted as of January 1, 2016. |
Liabilities(1) Deposits Securities sold under repurchase agreements Financial liabilities held for trading Derivatives Interbank market debt Institutional market debt Other financial liabilities Reserves for insurance and private pension Liabilities for capitalization plans Provisions Tax liabilities Other liabilities Total liabilities Capital Treasury shares Additional paid-in capital Appropriated reserves Unappropriated reserves Cumulative other comprehensive income Total stockholders’ equity attributed to the owners of the parent company Non-controlling interests Total stockholders’ equity Total liabilities and stockholders’ equity As of December 31, Variation 2015 2014 2015-2014 % (In millions of R$, except percentages) 292,610 294,773 (2,163 ) (0.7 ) 336,643 288,683 47,960 16.6 412 520 (108 ) (20.8 ) 31,071 17,350 13,721 79.1 156,886 122,586 34,300 28.0 93,918 73,242 20,676 28.2 68,715 71,492 (2,777 ) (3.9 ) 129,305 109,778 19,527 17.8 3,044 3,010 34 1.1 18,994 17,027 1,967 11.6 4,971 4,465 506 11.3 25,787 23,660 2,127 9.0 1,162,356 1,026,586 135,770 13.2 85,148 75,000 10,148 13.5 (4,353 ) (1,328 ) (3,025 ) 227.8 1,733 1,508 225 14.9 10,067 8,210 1,857 22.6 20,947 16,301 4,646 28.5 (1,290 ) (431 ) (859 ) 199.3 112,252 99,260 12,992 13.1 1,807 1,357 450 33.2 114,059 100,617 13,442 13.4 1,276,415 1,127,203 149,212 13.2
As of December 31, | ||||
Liabilities | 2015(1) | |||
Deposits | 292,610 | |||
Securities sold under repurchase agreements | 336,643 | |||
Financial liabilities held for trading | 412 | |||
Derivatives | 31,071 | |||
Interbank market debt | 156,886 | |||
Institutional market debt | 93,918 | |||
Other financial liabilities | 68,715 | |||
Reserves for insurance and private pension | 129,305 | |||
Liabilities for capitalization plans | 3,044 | |||
Provisions | 18,994 | |||
Tax liabilities | 4,971 | |||
Other liabilities | 25,787 | |||
Total liabilities | 1,162,356 | |||
Capital | 85,148 | |||
Treasury shares | (4,353 | ) | ||
Additionalpaid-in capital | 1,733 | |||
Appropriated reserves | 10,067 | |||
Unappropriated reserves | 20,947 | |||
Cumulative other comprehensive income | (1,290 | ) | ||
Total stockholders’ equity attributed to the owners of the parent company | 112,252 | |||
Non-controlling interests | 1,807 | |||
Total stockholders’ equity | 114,059 | |||
Total liabilities and stockholders’ equity | 1,276,415 | |||
(1) | The consolidated financial information as of and for the |
For the Year Ended December 31, | Variation | For the Year Ended December 31, | Variation | |||||||||||||||||||||||||||||||||||||||||||||||||
Statement of Income | 2018 | 2017(*) | 2016(*) | 2018-2017 | % | 2017-2016 | % | 2019 | 2018 | 2017(1) | 2016(1) | 2019-2018 | % | |||||||||||||||||||||||||||||||||||||||
(In millions of R$, except percentages) | (In millions of R$, except percentages) | |||||||||||||||||||||||||||||||||||||||||||||||||||
Banking Product | 104,200 | 111,523 | 118,422 | (7,323 | ) | (6.6 | ) | (6,899 | ) | (5.8 | ) | |||||||||||||||||||||||||||||||||||||||||
Operating Revenues | 117,079 | 104,200 | 111,523 | 118,422 | 12,879 | 12.4 | ||||||||||||||||||||||||||||||||||||||||||||||
Expected Loss from Financial Assets and Claims | (10,182 | ) | (20,966 | ) | (24,355 | ) | 10,784 | (51.4 | ) | 3,389 | (13.9 | ) | (18,567 | ) | (10,182 | ) | (20,966 | ) | (24,355 | ) | (8,385 | ) | 82.4 | |||||||||||||||||||||||||||||
Net Banking Product of Expected Losses from Financial Assets and Claims | 94,018 | 90,557 | 94,067 | 3,461 | 3.8 | (3,510 | ) | (3.7 | ) | |||||||||||||||||||||||||||||||||||||||||||
Operating Revenues Net of Expected Losses from Financial Assets and Claims | 98,512 | 94,018 | 90,557 | 94,067 | 4,494 | 4.8 | ||||||||||||||||||||||||||||||||||||||||||||||
General and Administrative Expenses | (57,538 | ) | (53,494 | ) | (50,905 | ) | (4,044 | ) | 7.6 | (2,589 | ) | 5.1 | (61,012 | ) | (57,538 | ) | (53,494 | ) | (50,905 | ) | (3,474 | ) | 6.0 | |||||||||||||||||||||||||||||
Tax Expenses | (6,619 | ) | (7,031 | ) | (8,011 | ) | 412 | (5.9 | ) | 980 | (12.2 | ) | (7,572 | ) | (6,619 | ) | (7,031 | ) | (8,011 | ) | (953 | ) | 14.4 | |||||||||||||||||||||||||||||
Share of profit or (loss) in associates and joint ventures | 747 | 550 | 528 | 197 | 35.8 | 22 | 4.2 | |||||||||||||||||||||||||||||||||||||||||||||
Share or profit or (loss) in associates and joint ventures | 1,315 | 747 | 550 | 528 | 568 | 76.0 | ||||||||||||||||||||||||||||||||||||||||||||||
Current Income Tax and Social Contribution | (2,564 | ) | (4,539 | ) | (3,898 | ) | 1,975 | (43.5 | ) | (641 | ) | 16.4 | (9,092 | ) | (2,564 | ) | (4,539 | ) | (3,898 | ) | (6,528 | ) | 254.6 | |||||||||||||||||||||||||||||
Deferred Income Tax and Social Contribution | (2,405 | ) | (2,818 | ) | (9,765 | ) | 413 | (14.7 | ) | 6,947 | (71.1 | ) | 5,662 | (2,405 | ) | (2,818 | ) | (9,765 | ) | 8,067 | (335.4 | ) | ||||||||||||||||||||||||||||||
Net Income | 25,639 | 23,225 | 22,016 | 2,414 | 10.4 | 1,209 | 5.5 | 27,813 | 25,639 | 23,225 | 22,016 | 2,174 | 8.5 | |||||||||||||||||||||||||||||||||||||||
Net Income Attributable to Owners of the Parent Company | 24,907 | 23,193 | 21,627 | 1,714 | 7.4 | 1,566 | 7.2 | 27,113 | 24,907 | 23,193 | 21,627 | 2,206 | 8.9 | |||||||||||||||||||||||||||||||||||||||
Net Income Attributable to Non-Controlling Interests | 732 | 32 | 389 | 700 | 2,187.5 | (357 | ) | (91.8 | ) | 700 | 732 | 32 | 389 | (32 | ) | (4.4 | ) | |||||||||||||||||||||||||||||||||||
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Restated to take into account the effect of IFRS 9, which we retroactively adopted as of January |
Statement of Income | For the Year Ended December 31, | |||
2015(1) | ||||
Banking Product | 92,011 | |||
Losses on Loans and Claims | (21,335 | ) | ||
Banking Product Net of Losses on Loans and Claims | 70,676 | |||
General and Administrative Expenses | (47,626 | ) | ||
Tax Expenses | (5,405 | ) | ||
Share of profit or (loss) in associates and joint ventures | 620 | |||
Current Income Tax and Social Contribution | (8,965 | ) | ||
Deferred Income Tax and Social Contribution | 16,856 | |||
Net Income | 26,156 | |||
Net Income Attributable to Owners of the Parent Company | 25,740 | |||
Net Income Attributable to Non-Controlling Interests | 416 | |||
Statement of Income(*) Banking Product Losses on Loans and Claims Banking Product Net of Losses on Loans and Claims General and Administrative Expenses Tax Expenses Share of profit or (loss) in associates and joint ventures Current Income Tax and Social Contribution Deferred Income Tax and Social Contribution Net Income Net Income Attributable to Owners of the Parent Company Net Income Attributable to Non-Controlling Interests For the Year Ended December 31, Variation 2015 2014 2015-2014 % (In millions of R$, except percentages) 92,011 91,657 354 0.4 (21,335 ) (15,801 ) (5,534 ) 35.0 70,676 75,856 (5,180 ) (6.8 ) (47,626 ) (42,550 ) (5,076 ) 11.9 (5,405 ) (5,063 ) (342 ) 6.8 620 565 55 9.7 (8,965 ) (7,209 ) (1,756 ) 24.4 16,856 262 16,594 6,333.6 26,156 21,861 4,295 19.6 25,740 21,555 4,185 19.4 416 306 110 35.9
The consolidated financial information as of and for the |
As of the Year Ended December 31, | ||||||||||||||||||||||||||||||||||||||||
Liquidity and Capital | 2018 | 2017(3) | 2016(3) | 2015(4) | 2014(4) | As of the Year Ended December 31, | ||||||||||||||||||||||||||||||||||
2019 | 2018 | 2017(3) | 2016(3) | 2015(4) | ||||||||||||||||||||||||||||||||||||
(%) | (%) | |||||||||||||||||||||||||||||||||||||||
Loans and leases as a percentage of total deposits(1) | 115.7 | 123.5 | 150.2 | 162.1 | 153.5 | 115.5 | 115.7 | 123.5 | 150.2 | 162.1 | ||||||||||||||||||||||||||||||
Total stockholders’ equity as a percentage of total assets(2) | 9.7 | 10.1 | 9.8 | 8.9 | 8.9 | 9.1 | 9.7 | 10.1 | 9.8 | 8.9 | ||||||||||||||||||||||||||||||
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(1) | Loans and leases operations as of year-end divided by total deposits as of year-end. |
(2) | Total stockholders’ equity as of year-end divided by total assets as of year-end. |
(3) | Restated to take into account the effect of IFRS 9, which we retroactively adopted as of January 1, 2016. |
(4) | The consolidated financial information as of and for the |
For the Year Ended December 31, | ||||||||||||||||||||||||||||||||||||||||
Earnings and Dividends per Share | 2018 | 2017(3) | 2016(3) | 2015(4) | 2014(4) | For the Year Ended December 31, | ||||||||||||||||||||||||||||||||||
(In R$, except number of shares) | 2019 | 2018 | 2017(3) | 2016(3) | 2015(4) | |||||||||||||||||||||||||||||||||||
Earnings per share - basic(1)(2) | ||||||||||||||||||||||||||||||||||||||||
(In R$, except number of shares) | ||||||||||||||||||||||||||||||||||||||||
Earnings per share—basic(1)(2) | ||||||||||||||||||||||||||||||||||||||||
Common | 2.56 | 2.38 | 2.21 | 3.91 | 3.26 | 2.78 | 2.56 | 2.38 | 2.21 | 3.91 | ||||||||||||||||||||||||||||||
Preferred | 2.56 | 2.38 | 2.21 | 3.91 | 3.26 | 2.78 | 2.56 | 2.38 | 2.21 | 3.91 | ||||||||||||||||||||||||||||||
Earnings per share - diluted(1)(2) | ||||||||||||||||||||||||||||||||||||||||
Common | 2.55 | 2.36 | 2.20 | 3.89 | 3.24 | 2.77 | 2.55 | 2.36 | 2.20 | 3.89 | ||||||||||||||||||||||||||||||
Preferred | 2.55 | 2.36 | 2.20 | 3.89 | 3.24 | 2.77 | 2.55 | 2.36 | 2.20 | 3.89 | ||||||||||||||||||||||||||||||
Dividends and interest on stockholders’ equity per share | ||||||||||||||||||||||||||||||||||||||||
Common | 2.61 | 2.71 | 1.58 | 1.24 | 1.22 | 1.93 | 2.61 | 2.71 | 1.58 | 1.24 | ||||||||||||||||||||||||||||||
Preferred | 2.61 | 2.71 | 1.58 | 1.24 | 1.22 | 1.93 | 2.61 | 2.71 | 1.58 | 1.24 | ||||||||||||||||||||||||||||||
Weighted average number of shares outstanding -basic(1) | ||||||||||||||||||||||||||||||||||||||||
Weighted average number of shares outstanding—basic(1) | ||||||||||||||||||||||||||||||||||||||||
Common | 4,958,290,359 | 5,021,834,934 | 5,027,611,714 | 3,351,741,143 | 3,351,741,143 | 4,958,290,359 | 4,958,290,359 | 5,021,834,934 | 5,027,611,714 | 3,351,741,143 | ||||||||||||||||||||||||||||||
Preferred | 4,759,872,085 | 4,734,030,111 | 4,756,823,490 | 3,228,881,081 | 3,266,347,063 | 4,781,855,588 | 4,759,872,085 | 4,734,030,111 | 4,756,823,490 | 3,228,881,081 | ||||||||||||||||||||||||||||||
Weighted average number of shares outstanding - diluted(1) | ||||||||||||||||||||||||||||||||||||||||
Weighted average number of shares outstanding—diluted | ||||||||||||||||||||||||||||||||||||||||
Common | 4,958,290,359 | 5,021,834,934 | 5,027,611,714 | 3,351,741,143 | 3,351,741,143 | 4,958,290,359 | 4,958,290,359 | 5,021,834,934 | 5,027,611,714 | 3,351,741,143 | ||||||||||||||||||||||||||||||
Preferred | 4,815,473,777 | 4,796,645,028 | 4,821,864,280 | 3,270,734,307 | 3,305,545,129 | 4,826,925,107 | 4,815,473,777 | 4,796,645,028 | 4,821,864,280 | 3,270,734,307 | ||||||||||||||||||||||||||||||
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(1) | The Extraordinary Stockholders’ Meeting |
(2) | Earnings per share have been computed following the “two class method” set forth by IAS 33 Earnings Per Share. Please refer to “Item 8A Consolidated Statements and Other Financial Information—Stockholders’ Payment”.for further details of our two classes of stock. Please refer “Note 25 - Earnings per Share” to our audited consolidated financial statements for further details of calculation of earnings per |
(3) | Restated to take into account the effect of IFRS 9, which we retroactively adopted as of January 1, 2016. |
(4) | The consolidated financial information as of and for the |
For the Year Ended December 31, | For the Year Ended December 31, | |||||||||||||||||||||||||||||||||||||||
Earnings and Dividends per Share | 2018 | 2017(3) | 2016(3) | 2015(4) | 2014(4) | 2019 | 2018 | 2017(3) | 2016(3) | 2015(4) | ||||||||||||||||||||||||||||||
(In US$) | (In US$) | |||||||||||||||||||||||||||||||||||||||
Dividends and interest on stockholders’ equity per share(1)(2) | ||||||||||||||||||||||||||||||||||||||||
Common | 0.67 | 0.82 | 0.48 | 0.32 | 0.46 | 0.48 | 0.67 | 0.82 | 0.48 | 0.32 | ||||||||||||||||||||||||||||||
Preferred | 0.67 | 0.82 | 0.48 | 0.32 | 0.46 | 0.48 | 0.67 | 0.82 | 0.48 | 0.32 | ||||||||||||||||||||||||||||||
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(1) | Under Brazilian Corporate Law, we are allowed to pay interest on stockholders’ equity as an alternative to paying dividends to our stockholders. Please refer to “Item 8A. Consolidated Statements and Other Financial Information – Stockholders’ Payment” and “Item 4B. Business Overview - |
(2) | Converted into US$ fromreais at the selling rate established by the Central Bank at the end of the year in which dividends or interest on stockholders’ equity were paid or declared, as the case may be. |
(3) | Restated to take into account the effect of IFRS 9, which we retroactively adopted as of January 1, 2016. |
(4) | The consolidated financial information as of and for the |
3B. | Capitalization and Indebtedness |
Not applicable.
3C. | Reasons for the Offer and Use of Proceeds |
Not applicable.
3D. | Risk Factors |
This section addresses the risks we consider material to our business and an investment in our securities. Should any of the following risks actually occur, our business and financial condition, as well as the value of any investments made in our securities, will be adversely affected. Accordingly, investors should carefully assess the risk factors described below and the information disclosed in this annual report before making an investment decision. The risks described below are those that we currently believe may adversely affect us. Other risks that we currently deem immaterial or that are currently not known to us may also adversely affect us.
Macroeconomic Risks
International Scenario
Changes in economic conditions may adversely affect us.
Our operations are dependent upon the performance of the economies of the countries in which we do business, and Latin American countries in particular. Crises and volatility in the financial markets of countries other than Brazil may affect the global financial markets and the Brazilian economy and may have a negative impact on our operations.
The demand for credit and financial services, as well as our clients’ ability to pay,repay, is directly impacted by macroeconomic variables, such as economic growth, income, unemployment rate, inflation, and fluctuations in interest and foreign exchange rates. Therefore, any significant change in the economies of countries in which we do business, Latin American countries in particular, may affect our operations.
The disruptionsDisruptions and volatility in the global financial markets may have significant consequences in the countries in which we operate, such as volatility in the prices of equity securities, interest rates and foreign exchange rates. Higher uncertainty and volatility may result in a slowdown in the credit market and the economy, which, in turn, could lead to higher unemployment rates and a reduction in the purchasing power of consumers. In addition, such events may significantly impair our clients’ ability to perform their obligations and increase overdue ornon-performing loan operations,loans, resulting in an increase in the risk associated with our lending activity.
The economic and market conditions of other countries, including the United States, countries of the European Union, and emerging markets, may affect the credit availability and the volume of foreign investments in Brazil and in the countries in which we do business, to varying degrees. PoliticalThe newCOVID-19 pandemic added a new source of uncertainty continues to pose a significant risk to the global economic scenario, particularlyactivity. The number of cases has accelerated significantly in early 2020, and authorities around the possibilityworld have taken measures to try to contain the spread of a trade war between the U.S.disease, since the virus has spread globally. Restrictions will likely remain in place, suppressing activity, if the contagion does not subside. The materialization of these risks has affected global growth and China. In the Eurozone, the United Kingdom’s Brexit negotiations and Italy’s fiscal sustainability are risks to financial stability. Crises in these countries may decrease investors’ interest in assets from Brazil and other countries in which we do business, which may materially andhas adversely affectaffected the market price of our securities, possibly making it more difficult for us to access capital markets and, as a result, to finance our operations in the future.
We are exposed to certain risks that are particular to emerging and other markets
In conducting our businessesbusiness in Brazil, as well as other emerging markets, we are subject to political, economic, legal, operational and other risks that are inherent to operating in these countries. Banks that operate in countries considered to be emerging markets, including ours,us, may be particularly susceptible to disruptions and reductions in the availability of credit or increases in financing costs, which may have a material adverse impact on theirour operations. In particular, the availability of credit to financial institutions operating in emerging markets is significantly influenced by an aversion to global risk. In addition, any factor impacting investors’ confidence, such as a downgrade in sovereign in credit ratings since(since the ratings of financial institutions, including ours, tendsuch as us, tends to be subjectcapped to a ceiling based on the sovereign credit rating,sovereign’s rating) or an intervention by a government or monetary authority in one of such markets, may affect the price or availability of resources for financial institutions in any of these markets, which may affect us.
Thus, crisesIn Argentina, the new government that took office in December 2019 announced fiscal austerity measures (focusing mostly on higher taxes), while capital controls were reinforced, payments on foreign currency debt under local law were suspended and the outcome of the sovereign debt renegotiation remains uncertain. We expect Argentina’s GDP to decrease by 6.4% this year. In Chile, protests led political actors to agree on a referendum process to decide on a new constitution. Recently protest activity was halted due to theCOVID-19 pandemic and the referendum was postponed. However, uncertainty over the constitutional process and other reforms will likely continue to curb business confidence and economic growth, despite expansionary fiscal and monetary policies. In Colombia theoil-price shock adds to theCOVID-19 pandemic and social unrest, reducing the prospects for fiscal consolidation and risking the country´s investment grade status.
Crises in these countries may decrease investors’ interest in Brazilian assets, which may materially and adversely affect the market price of our securities, making it more difficult for us to access capital markets and, as a result, to finance our operations in the future. Global financial crises, in addition to the Brazilian macroeconomic environment, may also affect in a material and adverse way the market price of securities of Brazilian issuers or lead to other negative effects in Brazil and in the countries in which we operate and have a material adverse effect on us.
Please see “Item 5A. Operating Results—Factors Affecting Our Results of Operations—Brazilian Context” for further details about data and economic indicators.
Domestic Scenario
Brazilian authorities exercise influence over the Brazilian economy. Changes in fiscal, monetary and foreign exchange policies as well as a deterioration of government fiscal accounts, may adversely affect us.
Our operations are highly dependent upon the performance of the Brazilian economy. The demand for credit and financial services, as well as our clients’ ability to make payments when due, is directly impacted by macroeconomic variables, such as economic growth, income, unemployment, inflation, and fluctuations in interest and foreign exchange rates.
After aFrom 2004 to 2013, we benefited from Brazil’s generally stable economic environment, with average annual GDP growth of approximately 4.0% during that period, of accelerated economic expansion, Brazil’swhich led to increased bank lending and deposits. The following years were less favorable, as GDP growth rates beganslowed to slow down0.5% in 2011 and by 2015 the country was in recession. In 2016, gross domestic product, or GDP,2014 then decreased by 3.5% in 2015 and 3.3% and improved to 1.1% in 2017. In the year ended December 31, 2018,2016. From 2017, growth has been improving gradually, as GDP expanded by1.3% in both 2017 and 2018. In 2019, GDP expanded 1.1%. Growth was impacted by high interest rates, low commodities prices, and high corporate leverage. In the long term, growth may be limited by a number of factors, including structural factors, such as inadequate infrastructure, which entail risks of potential energy shortages and deficiencies in the transportation sector, among others, and lack of qualified professionals, which can reduce the country’s productivity and efficiency levels. Low levels of national savings require relatively large financial flows from abroad, which may falter if political and fiscal instability is perceived by foreign investors. Depending on their intensity, these factors could lead to decreasing employment rates and to lower income and consumption levels, which could result in increased default rates on loans we grant for individuals andnon-financial corporations and, therefore, have a material adverse effect on us.
Brazilian authorities intervene from time to time in the Brazilian economy, through changes in fiscal, monetary, and foreign exchange policies, which may adversely affect us. These changes may impact variables that are crucial for our growth strategy (such as foreign exchange and interest rates, liquidity in the currency market, tax burden, and economic growth), thus limiting our operations in certain markets, affecting our liquidity and our client’s ability to pay and, consequently, affecting us.
On October 28, 2018, Jair Bolsonaro was elected as the new President in the Brazilian national elections. A new Congress was also elected in October 2018. The new President took office on January 1, 2019 and the new members of Congress took office in February 2019. The new government’s main challenge is to approve the pivotal reforms to the economy. In Brazil, unlike other countries, many issues demand changing the Constitution, hence, a support of 3/5 of deputies and senators. This is the case, for example, for setting a minimum age for retirement, the main measure in the social security reform. The new government has not formed a formal coalition of parties that achieve this majority and may have a learning curve when dealing with Congress. If the social security reform is not approved, the deterioration of the Brazilian government fiscal accounts would continue and it could generate a loss of confidence by local and foreign investors.
Fiscal
The Brazilian primary public budget result has been in deficitaccounts have deteriorated since 2014. IfTo address the deterioration ofstructural fiscal imbalance, the Brazilian government fiscal accounts continues, it could generate a loss of confidence by local and foreign investors. Regional governments are also facing fiscal concerns due to their high debt burden, declining revenues and inflexible expenditures. The Brazilian Congress approved a ceiling on government spending that will limit primary public expenditure growth to the prior year’s inflation for a period of at least 10ten years, (beginning in 2017). In the short term, the spotlight will remain on fiscal reforms that are critical for achieving future compliance with the spending limit. A pivotaleffective as of 2017. Further, Congress approved a comprehensive social security reform proposal was presented forand government started an asset sale program, creating conditions to a cyclical decrease of the vote ofpublic debt, while the primary result gradually improves. In order to guarantee that the spending ceiling remains feasible in the years ahead, government has proposed further reforms to Congress, in February 2019including constitutional amendments to limit public spending and the newyet to be presented Administrative Reform. However, these discussions were temporarily put aside because of theCOVID-19 pandemic. We expect temporarily larger deficits to pay for measures to mitigate the impacts of coronavirus. Since we do not expect theCOVID-19 measures to create permanent expenses, the gradual fiscal adjustment provided by the spending cap can be resumed from 2021 onward. If the government affirmed that it will tryfails to approve such proposal in 2019. Diminished confidence inpersist on the Brazilian government’s fiscal circumstances could lead to the downgrading of the Brazilian sovereign debt by credit rating agencies, and negatively impactadjustment agenda, the local economy causingwould be negatively impacted, with a depreciation of the Brazilian real, an increase in inflation and interest rates and a deceleration of economic growth, thus adversely affecting our business, results of operations and financial condition.
Monetary
Sudden increases in prices and long periods of high inflation may cause, among other effects, loss of purchasing power and distortions in the allocation of resources in the economy. Measures to combat high inflation rates include a tightening of monetary policy, with an increase in the short-term interest or SELIC, rate (SELIC), resulting in restrictions on credit and short-term liquidity, which may have a material adverse effect on us. Changes in interest rates may have a material effect on our net margins, since they impact our funding and credit granting costs. In addition, increases in the SELIC interest rate could reduce demand for credit and increase the costs of our reserves and the risk of default by our clients. Conversely, decreases in the SELIC interest rate could reduce our gains from interest-bearing assets, as well as our net margins.
The Central Bank’s Monetary Policy Committee or COPOM,(the “COPOM”) was created on June 20, 1996 and is responsible for setting the SELIC interest rate. The COPOM meets eight times a year, every 45 days. The aim in creating the COPOM was to enhance monetary policy transparency and confer adequate regularity to the monetary policy decision-making process. Currently, many central banks around the world follow similar procedures, facilitating the decision-making process, monetary policy transparency and communication with the public.
After reaching 14.25% per annum at the end of 2015, the Central Bank began to cut interest rates in October 2016. In March 2018, theThe SELIC rate reached 6.50% where it currently remains, despite foreign exchange shocks4.50% in December 2019 and the truck drivers stoppage that temporarily affected inflation.3.75% in March 2020. The widespread decline in inflation, due to the high level of idle capacity in the Brazilian economy, as well as anchored inflation expectations have resulted in the current stability of the SELIC atreaching historically low levels.
Foreign Exchange
Brazil has a floating foreign exchange rate system, pursuant to whichCOVID-19 or any other pandemic disease and health events could affect the market establishes the valueeconomies of the Brazilian realcountries in relationwhich we operate, our business operations or our financial condition and results of operations.
Public health crises, or the public perception of the risks of public health crises, such as the outbreak of theCOVID-19 pandemic, may negatively impact economic activity in Brazil and in other countries in which we operate. Accordingly, our results of operations or financial condition may be adversely affected.
The outbreak ofCOVID-19 was first reported on December 31, 2019 in Wuhan, Hubei Province, China. From Wuhan, the disease spread rapidly to foreign currencies. However,other parts of China, as well as other countries, including the Central Bankcountries in which we operate, growing into a global pandemic, as declared by the World Health Organization. Since the outbreak began, countries have responded by taking various measures including imposing mass quarantines, restricting travel, limiting public gatherings and suspending certain economic activities. In addition, concerns related toCOVID-19 have lowered equity market valuations, decreased liquidity in fixed income markets and created significant volatility and disruption in global financial markets, resulting in increased volatility of stock prices (including the price of our stock), a trend which may intervenecontinue. Also, there are other broad and continuing concerns related to the potential effects ofCOVID-19 on international trade (including supply chain disruptions and export levels), travel, employee productivity, employee illness, increased unemployment levels, securities markets, and other economic activities that may have a destabilizing effect on financial markets and economic activity, including companies in the purchase or sale of foreign currencies forfinancial sector. Furthermore, any actions taken by governmental authorities and other third parties in response to the purpose of easing variations and reducing volatility of the foreign exchange rate. In spite of those interventions, the foreign exchange ratepandemic may significantly fluctuate. In addition, in some cases, interventions made with the purpose of avoiding sharp fluctuations in the value of the Brazilian real in relation to other currencies may have the opposite effect, leading to an increase in the volatility of the applicable foreign exchange rate. Instability in foreign exchange rates could negatively impact our business. A potential depreciationbusiness, results of operations and financial condition.
The first case ofCOVID-19 in Brazil was detected on February 25, 2020. As of the date of this Annual Report on Form20-F, the Brazilian realFederal and State governments have taken various measures in order to prepare the country for mass contagion, including partial lockdown for some regions. Further government actions may be imposed according to when and how the peak of contagion will occur.
From a macroeconomic point of view, the impact ofCOVID-19 in Brazil is uncertain. Our estimates indicate thatCOVID-19 could result in a decline of 2.5% in Brazilian GDP in 2020, from our prior estimate of an increase of 1.8%. However, it is worth noting that there is a considerable degree of uncertainty about GDP growth forecasts for this year, which stems from uncertainty about (i) lossesthe duration of the lockdown / isolation measures and (ii) the pace of recovery in the second half of 2020. It is reasonable to believe that, the longer the duration of the isolation measures, the slower the recovery will be in the second half of this year, since the consequences on our liabilities denominated in or indexedthe financial condition of corporates and households tend to foreign currencies; (ii) a decrease in our ability to pay for obligations denominated in or indexed to foreign currencies, as it would be more costly for us to obtainintense, delaying the foreign currency required to meet such obligations; (iii) a decrease innormalization. Economic stagnation, contraction and increased unemployment levels may affect our cost of funding, the abilityrecoverability and value of our Brazilian borrowers to pay us for debts denominatedassets and could result in or indexed to foreign currencies; and (iv) negative effects onhigherpast-due loans, given the market pricedeteriorated financial condition of our securities portfolio. Oncustomers and, therefore, higher provisions for loans losses, resulting in lower net income.
TheCOVID-19 pandemic has also resulted in increased volatility in both the other hand, an appreciation oflocal and the Brazilian real could cause us to incur losses on assets denominated in or indexed to foreign currencies.
All these changes may impact variables that are crucial for our growth strategy (suchinternational financial markets and economic indicators, such as foreign exchange andrates, interest rates and credit spreads. Any shocks or unexpected movements in these market factors could result in financial losses associated with our trading portfolio or financial assets, which could deteriorate our financial condition. Furthermore, market concerns could translate into liquidity constraints and reduced access to funding in both the currency market, tax burden,local and economic growth), thus limiting our operations in certainthe international markets, negatively affecting our liquiditybusiness.
As theCOVID-19 pandemic continues to impact economic activity globally, we, our employees, contractors, suppliers, customers and other business partners may be prevented from conducting certain business activities for an indefinite period of time. In addition, preventive measures — either imposed by governments or voluntarily adopted by companies — may lead to our clients’ abilitycustomers being unable to pay. Uncertainty regarding future economic policies may, intransact business and meet their obligations with us. Consequently, the future, contribute to an increase in the volatility of the Brazilian capital markets, which, in turn,COVID-19 pandemic may have an adverse effect on our operations. Further, given the uncertainty regarding the extent and timing of contagion, as well as the imposition (or relaxation) of protective measures, we cannot reasonably estimate the impact on us. Other political, diplomatic, social and economic developments in Brazil and abroad that affect Brazil may also affect us. To summarize, any significant change inour future results of operations, cash flows or financial condition as of the Brazilian economy may affect our operations.date of this Annual Report on Form20-F.
Ongoing high profile anti-corruption investigations in Brazil may affect the perception of Brazil and domestic growth prospects.
Certain relevant Brazilian companies in the energy, infrastructure and oil and gas sectors are facing investigations by the CVM, the SEC, the U.S. Department of Justice or DOJ,(DOJ), the Brazilian Federal Police and other Brazilian public entities who are responsible for corruption and cartel investigations, in connection with corruption allegations (so called Lava Jato investigations) and, depending on the outcome of such investigations and the time it takes to conclude them, they may face (as some of them already faced) downgrades from credit rating agencies, experience (as some of them already experienced) funding restrictions and have (as some of them already had) a reduction in revenues, among other negative effects. Such negative effects may hinder the ability of those companies to timely honor their financial obligations bringing loses to us as a number of them are our clients. The companies involved in the Lava Jato investigations, a number of which are our clients, may also be (as some of them already have been) prosecuted by investors on the grounds that they were misled by the information released to them, including their financial statements. Moreover, the current corruption investigations have contributed to reduce the value of the securities of several companies. The investment banks (including Itau BBA Securities in NY) that acted as underwriters on public distributions of securities of such investigated companies, and Banco Itau International, private banking vehicle of Itau in Miami, were in the recent past also parties to certain related lawsuits in the U.S., that were either settled or dismissed, and may be parties to other legal proceedings yet to be filed. We cannot predict how long the corruption investigations may continue, or how significant the effects of the corruption investigations may be for the Brazilian economy and for the financial sector that may be investigated for the commercial relationships it may have held with companies and persons involved in Lava Jato investigations. Another high profile investigation, besides Lava Jato, ongoing in Brazil is theso-called Zelotes operation. If the allegations of such investigations are confirmed they may also affect some of our clients and their credit trustworthiness. In March 2016, the Brazilian Internal Revenue Services, or Brazilian IRS, summoned us to account for certain tax proceedings related to BankBoston Brazil which came under investigation in relation to the Zelotes operations. We acquired BankBoston Brazil’s operation from Bank of America in 2006. On December 1, 2016, the Brazilian Federal Police conducted searches at Itaú Unibanco’s premises, to look for documents related to those proceedings, and documents related to payments made to lawyers and consultants that acted on those proceedings. We clarify that the agreement with Bank of America for the acquisition of BankBoston Brazil’s operations included a provision whereby the seller would remain liable and responsible for the conduct of BankBoston’s tax proceedings, including with regard to the retention of lawyers and consultants. Therefore, according to such agreement, any and all payments made by Itaú Unibanco to lawyers and consultants were made strictly on behalf of Bank of America. On July 2017, the Brazilian Federal Public Prosecutor indicted some lawyers and public agents regarding this case, based on their potential participation on the scheme. None of them was Itau´s employees or executives. We remain fully available and will cooperate with the authorities should any further clarification be needed. After reviewing our control procedures and our monitoring systems, we believe we are in compliance with the existing standards, especially related to anti-money laundering standards; notwithstanding, due to the size and breadth of our operations and our commercial relationship with investigated companies or persons, and due to the several banks, both publicly and privately owned, that Itaú Unibanco acquired throughout the last fifteen years, we may also come within the scope of investigations, which may ultimately result in reputational damage, civil or criminal liability. Negative effects on a number of companies may also impact the level of investments in infrastructure in Brazil, which may also lead to lower economic growth.
It was recently reported by the press that Antonio Palocci Filho and Eike Fuhrken Baptista da Silva, upon entering into plea bargain agreements in connection with investigations conducted by Brazilian criminal prosecution bodies, have mentioned alleged irregularities in election donations and market manipulation, respectively, performed by some Brazilian banks, including Itaú Unibanco and Itaú BBA. It is important to reinforce that neither Itaú Unibanco nor Itaú BBA have had access to the content of such plea bargains nor have they been served with notice of process from any official bodies. Come what may, Itaú Unibanco and Itaú BBA strongly deny the alleged reported facts, reinforcing that they have never made election donations aimed to meet private interests and that all their operations carried out in the capital and credit markets are in accordance with applicable legislation and are overseen by proper authorities.
Legal and Regulatory Risks
Bank Regulations
We are subject to regulation on a consolidated basis and may be subject to liquidation or intervention on a consolidated basis.
We operate in a number of credit and financial services related sectors through entities under our control. For purposes of regulation and supervision, the Central Bank treats us and our subsidiaries and affiliates as a single financial institution. While our consolidated capital base provides financial strength and flexibility to our subsidiaries and affiliates, their individual activities could indirectly put our capital base at risk. Any investigation or intervention by the Central Bank, particularly in the activities carried out by any of our subsidiaries and affiliates, could have a material adverse impact on our other subsidiaries and affiliates and, ultimately, on us. If we or any of our financial subsidiaries become insolvent, the Central Bank may carry out an intervention or liquidation process on a consolidated basis rather than conduct such procedures for each individual entity. In the event of an intervention or a liquidation process on a consolidated basis, our creditors would have claims on our assets and the assets of our consolidated financial subsidiaries. In this case, claims of creditors of the same nature held against us and our consolidated financial subsidiaries would rank equally in respect of payment. If the Central Bank carries out a liquidation or intervention process with respect to us or any of our financial subsidiaries on an individual basis, our creditors would not have a direct claim on the assets of such financial subsidiaries, and the creditors of such financial subsidiaries would have priority in relation to our creditors in connection with such financial subsidiaries’ assets. The Central Bank also has the authority to carry out other corporate reorganizations or transfers of control under an intervention or liquidation process.
Changes in applicable law or regulations may have a material adverse effect on our business.
Changes in the law or regulations applicable to financial institutions in Brazil may affect our ability to grant loans and collect debts in arrears, which may have an adverse effect on us. Our operations could also be adversely affected by other changes, including with respect to restrictions on remittances abroad and other exchange controls as well as by interpretations of the law by courts and agencies in a manner that differs from our legal advisors’ opinions.
In the context of economic or financial crises, the Brazilian government may also decide to implement changes to the legal framework applicable to the operation of Brazilian financial institutions. For example, in response to the global financial crisis which began in late 2007, Brazilian national and intergovernmental regulatory entities, such as the BCBS, proposed regulatory reforms aiming to prevent the recurrence of similar crises, which included a new requirement to increase the minimum regulatory capital (Basel III). Please see “Item 4B. Business Overview—Regulatory Environment—Supervision and Regulation—Basel III Framework—Implementation of Basel III in Brazil” for further details about regulatory capital requirements.
Moreover, the Brazilian Congress is considering enacting new legislation that, if signed into law as currently drafted, could have an adverse effect on us. For example,our activities. In 2019, multiple bills sought to limit interest rates, particularly for credit cards’ facilities (rotativo do cartão) and overdrafts facilities (cheque especial) – the latter, with limits that are more restrictive than those recently imposed by the Central Bank (which are described in more detail under “Item 4B. Business Overview – Supervision and Regulation—Rules for Overdraft Facilities in Checking Accounts”). Further caps on interest rates may be adopted. Furthermore, a proposed law to amend the Brazilian consumer protection code would allow courts to modify terms and conditions of credit agreements in certain circumstances, imposing certain difficulties for the collection of amounts from final consumers. Another example is the proposed Private Security Statute that may prohibit foreign capital and participation of financial institutions in cash in transit companies and, as such, limit the number of possible suppliers (security is a relevant part of operating costs). Congress is also discussing a comprehensive tax reform that would unify multiple indirect taxes into asingle rate Value Added Tax (VAT). If the VAT were to be applied on interest rates, the amount of indirect taxes paid by borrowers would increase significantly, which could affect the size of the credit market. In 2020, Congress is also expected to put to a vote a bill that will allow the execution of convictions after condemnation in the second instance court, both in the criminal and in the civil spheres, before the exhaustion of all available appeals. If signed into law, the bill may have an impact on the execution of tax debts proceedings of which the bank is part.
In addition, local or state legislatures may from time to time consider bills intending to impose security measures and standards for customer services, such as setting branch opening hours, requiring 24 hour armed guard personnel and specifications on ATM functioning, among others, that, if signed into law, could affect our operations. More recently, certain bills have passed (and others were proposed) in certain Brazilian states or municipalities that affect our ability to evaluate credit risk and collect outstanding debts. For example, legislators often impose, or aim to impose, restrictions on the ability of creditors to include the information about insolvent debtors in the records of credit protection bureaus. These types of restrictions could also adversely affect our ability to collect outstanding credit.
We also have operations outside of Brazil, including, but not limited to, Argentina, the Bahamas, the Cayman Islands, Chile, Colombia, Paraguay, Portugal, Switzerland, the United Kingdom, the United States and Uruguay. Changes in the laws or regulations applicable to our business in the countries where we operate, or the adoption of new laws, and related regulations, may have an adverse effect on us.
Increases in compulsory deposit requirements may have a material adverse effect on us.
Compulsory deposits are reserves that financial institutions are required to maintain with the Central Bank. Compulsory deposits generally do not provide the same returns as other investments and deposits because a portion of these compulsory deposits does not bear interest; instead, these funds must be held in Brazilian federal government securities and used to finance government programs, including a federal housing program and rural sector subsidies.interest. The Central Bank has periodically changed the minimum level of compulsory deposits reserves that financial institutions are required to maintain with the Central Bank.
Insurance Regulations
Our insurance operation is subject to regulatory agencies, such as SUSEP and ANS. Therefore, we may be affected negatively by the penalties applied by such regulators.
Insurance companies are subject to SUSEP intervention and/or liquidation. In case of insufficient resources, technical reserves, or poor economic health with respect to a regulated entity, SUSEP may appoint an inspector to act within the relevant company. If such intervention does not remedy the issue, SUSEP will forward to CNSP a proposal to withdraw the applicable insurance license. In additional,addition, insurance companies are subject to pecuniary penalties, warnings, suspension of authorization of activities and disqualification to engage in business activities as set in Law.
Health insurance companies are subject to ANS regulations. With respect to companies that are deemed to have financial imbalances or serious economic, financial or administrative irregularities, ANS may order the disposal of the applicable health insurance company’s portfolio, or take other measures, such as fiscal or technical direction regime for a period not exceeding 365 days, or extrajudicial liquidation. The penalties established for violations committed by health insurance companies and their directors and officers are: (i) warnings; (ii) pecuniary penalties; (iii) suspension of company’s activities; (iv) temporary disqualification for the exercise of management positions in health insurance companies; (v) permanent disqualification for the exercise of management positions in health insurance companies as well as in open private pension funds, insurance companies, insurance brokers and financial institutions; and (vi) the cancellation of the company’s authorization to operate and sale of its portfolio.
In this sense, our insurance operation may be affected negatively by the penalties applied by SUSEP or ANS, as described above.
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 insured policyholders.
Capital Market and Tax Regulations
Holders of our shares and ADSs may not receive any dividends.
Corporations in Brazil are legally required to pay their stockholders a minimum mandatory dividend at least on a yearly basis (except in specific cases provided for in applicable law). Our Bylaws determine that we must pay our stockholders at least 25% of our annual net income calculated and adjusted pursuant to Brazilian Corporate Law. Applicable Brazilian legislation also allows corporations to consider the amount of interest on shareholders’ equity distributed to their stockholders for purposes of calculating the minimum mandatory dividends. The calculation of net income pursuant to the Brazilian Corporate Law may significantly differ from our net income calculated under IFRS.
Brazilian Corporate Law also allows the suspension of the payment of the mandatory dividends in any particular year if our Board of Directors informs our general stockholders’ meeting that such payment would be incompatible with our financial condition. To suspend the dividend payments, our Fiscal Council is required to furnish to the CVM an opinion on the matter along with a statement by our executives. Therefore, upon the occurrence of such event, the holders of our shares and ADSs may not receive any dividends. If this happens, the dividends that were not paid in the particular fiscal year shall be registered as a special reserve and, if not used to cover any losses of subsequent years, the amounts of unpaid dividends still available under such reserve shall be distributed when the financial condition of the corporation allows for such payment.
Furthermore, pursuant to its regulatory powers provided under Brazilian law and banking regulations, the Central Bank may at its sole discretion reduce the dividends or determine that no dividends will be paid by a financial institution if such restriction is necessary to mitigate relevant risks to the Brazilian financial system or the financial institution.
Please see “Item 8A. Consolidated Statements and Other Financial Information—Stockholders’ Payment” and “Item 4B. Business Overview—Regulatory Environment—Supervision and Regulation—Basel III Framework—Implementation of Basel III in Brazil.” For further details about CMN’s capital requirements and dividends and interest on capital see “Note 2.4 – Summary of Main Accounting Practices, q) Dividends and Interest on Capital” and “Note 19 – Stockholders’ Equity” to our audited consolidated financial statements.
Tax reforms may adversely affect our operations and profitability.
The Brazilian government regularly amends tax laws and regulations, including by creating new taxes, which can be temporary, and changing tax rates, the basis on which taxes are assessed or the manner in whichway taxes are calculated, including in respect of tax rates applicable solely to the banking industry. Tax reforms
Currently, the Brazilian Congress is discussing a broad tax reform and there is no clarity as to when such reform may reduce the volume ofultimately be enacted. If adopted, any such tax reform may affect our transactions, increasebusiness by increasing our costs, limiting our profitability or limit our profitability.having other impacts.
Risks Associated with our Business
Market Risk
The value of our securities and derivatives is subject to market fluctuations due to changes in Brazilian or international economic conditions and, as a result, may subject us to material losses.
Market risk is the risk of losses due to movements in financial market prices.
The securities and derivative financial instruments in our portfolio may cause us to record gains and losses, when sold or marked to market (in the case of trading securities), and may fluctuate considerably from period to period due to domestic and international economic conditions. In addition, we may incur losses from fluctuations in the market value of positions held, including risks associated with transactions subject to variations in foreign exchange rates, interest rates, price indexes, equity and commodity prices.
We cannot predict the amount of realized or unrealized gains or losses for any future period. Gains or losses on our investment portfolio may not contribute to our net revenue in the future or may cease to contribute to our net revenue at levels consistent with more recent periods. We may not successfully realize the appreciation or depreciation now existing in our consolidated investment portfolio or in any assets of such portfolio.
Credit Risks
Past performance of our loan portfolio may not be indicative of future performance, changes in the profile of our business may adversely affect our loan portfolio. In addition, the value of any collateral securing our loans may not be sufficient, and we may be unable to realize the full value of the collateral securing our loan portfolio.
Our historical loan loss experience may not be indicative of our future loan losses. While the quality of our loan portfolio is associated with the default risk in the sectors in which we operate, changes in our business profile may occur due, among other factors, to our organic growth, merger and acquisition activity, changes in local economic and political conditions, a slowdown in customer demand, an increase in market competition, changes in regulation and in the tax regimes applicable to the sectors in which we operate and, to a lesser extent, other related changes in countries in which we operate and in the international economic environment. In addition, the market value of any collateral related to our loan portfolio may fluctuate, from the time we evaluate it at the beginning of the trade to the time such collateral can be executed upon, due to the factors related to changes in economic, political or sectorial factors beyond our control.
For example, in the early part of this decade,when Brazilian banks increased their loan portfolio to consumers, particularly in the automotive sector. However, this increased demand for vehicle loans has been followed by a significant rise in the level of consumer indebtedness, leading to high nonperforming loan rates. As a result, many financial institutions recorded higher loan losses due to an increased volume of provisions and a decrease in loans for vehicle acquisition.
Any changes affecting any of the sectors to which we have significant lending exposure, and changes in the value of the collateral securing our loans, may result in a reduction in the value we realize from collateral and in our loan portfolio. Consequentially, it may have an adverse impact on our results of operations and financial condition and it could also adversely affect the growth rate and the mix of our loan portfolio.
In addition, 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.
We may incur losses associated with counterparty exposure risks, including the Brazilian federal government.
We routinely conduct transactions with counterparties in the financial services industry, including brokers and dealers, commercial banks, investment banks, mutual and hedge funds and other institutional clients. Like most Brazilian banks, we also invest in debt securities issued by the Brazilian government. As of December 31, 2018,2019, approximately 19.3%20% of all our assets and 71.6%67.1% of our securities portfolio were comprised of these public debt securities.
We may incur losses if any of our counterparties fail to meet their contractual obligations, due to bankruptcy, lack of liquidity, operational failure or other reasons that are exclusively attributable to our counterparties. As an example, an eventualfailure by the Brazilian government to make timely payments under the terms of these securities, or a significant decrease in their market value could negatively affect our results in two ways: directly, through portfolio losses, and indirectly, through instabilities that a default in public debt could cause to the banking system as a whole, particularly since commercial banks’ exposure to government debt is high in countries in which we operate. This counterparty risk may also arise from our entering into reinsurance agreements or credit agreements pursuant to which counterparties have obligations to make payments to us and are unable to do so, or from our carrying out transactions in the foreign currency market (or other markets) that fail to be settled at the specified time due tonon-delivery by the counterparty, clearing house or other financial intermediary. Their failure to meet their contractual obligations may adversely affect our financial performance.
A downgrade of our ratings may adversely affect our funding cost, our access to capital and debt markets, our liquidity and, as a result, our competitive position.
Credit ratings represent the opinions of independent rating agencies regarding our ability to repay oursour indebtedness, and affect the cost and other terms upon which we are able to obtain funding. Each of the rating agencies reviews its ratings and rating methodologies on a periodic basis and may decide on a grade change at any time, based on factors that affect our financial strength, such as liquidity, capitalization, asset quality and profitability.
Under the criteria utilized by the rating agencies, ratings assigned to Brazilian financial institutions, including Itaú Unibanco are constrained by the grades assigned to the Brazilian sovereign. Events that are not subject to our control, such as economic or political crises, may lead to a downgrade of the Brazilian sovereign rating and a corresponding downgrade of the ratings assigned to Itaú Unibanco.
Credit ratings are essential to our capability to raise capital and funding through the issuance of debt and to the cost of such financing. A downgrade or a potential downgrade in our credit ratings could have an adverse impact on our operations, income and risk weighting. This may affect net earnings, capital requirements and return on capital levels, causing a negative impact on our competitive position. Additionally, if our credit ratings were to be downgraded, rating trigger clauses in our financing agreements with other institutions could result in an immediate need to deliver additional collateral to counterparties or taking other actions under some of our derivative contracts, adversely affecting our interest margins and results of operations. Thus, a failure to maintain favorable ratings and outlooks can affect the cost and availability of our financing through the capital markets and other sources of financing, affecting our interest margins and capacity to operate.
Changes or uncertainty in base interest rates could adversely affect us.
A significant portion of our business is conducted in Brazil, where the Central Bank’s Monetary Policy Committee (Comitê de Política Monetária), or the COPOM, establishes the target base interest rate for the Brazilian banking system,economy (the “SELIC Rate”), and uses changes in this rate as an instrument of monetary policy. The base interest rateSELIC Rate is the benchmark interest rate payable to holders of certain securities issued by the Brazilian government and traded inon the SELIC.SELIC System operated by the Central Bank. In recent years, the SELIC rate,Rate, has fluctuated significantly reflecting the corresponding volatility in the macroeconomic scenario and inflationary environment. During 2014,2015 and 2016, as a result of increased prospects of inflation and macroeconomic instability, the COPOM increased the SELIC rate,Rate, reaching 11.75% as of December 31, 2014. The continued political instability in Brazil coupled with the sustained inflationary environment continued to be reflected in the SELIC rate, corresponding to an increased rate of 14.25% and 13.75% as of December 31, 2015 and December 31, 2016, respectively. In the following years, as a result of the widespread decline in inflation, due to the high level of idle capacity in the Brazilian economy and anchored inflation expectations, the Central Bank started a monetary easing cycle and the COPOM has reduced the SELIC Rate. As of December 31, 2017, and September 30,December 31, 2018, the SELIC rateRate was 7.00% and 6.50%, respectively,respectively. As of December 31, 2019, the SELIC Rate was 4.5%, reflecting a historical low. As of the date of the filing of this annual report,Annual Report on Form20-F, the SELIC rate was 6.50%3.75%.
We may face challenges associated with IBOR transition.
A significant portion of our income, expenses and liabilities is directly tied to interest rates. Therefore, our results of operations and financial condition are significantly affected by inflation, interest rate fluctuations and related government monetary policies. In addition, various interestinterbank offered rates and other indices which are deemed to be “benchmarks” (including(the “IBORs”, including LIBOR and EURIBOR) are the subject of recent national, international and other regulatory guidance and proposals for reform. Some of these reforms are already effective whilstwhile others are still to be implemented, including the majority of the provisions of the EU Benchmark Regulation (Regulation (EU) 2016/1011), or the (“Benchmarks Regulation.Regulation”).
In particular, in 2017, the Chief Executive of the U.K. Financial Conduct Authority or FCA(“FCA”) announced that the FCA will no longer persuade or compeloblige banks to submit rates forcontribute to the calculation of LIBOR after the end of 2021. This announcement indicates that the continuation of LIBOR on the current basis cannot and will not be guaranteed after 2021, and it appears likely that LIBOR will be discontinued or modifiedbe declared unrepresentative of the underlying market by 2021. This and other reforms may cause benchmarksIBORs to perform differently than in the past, or to disappear entirely, or have other consequences, which cannot be fully anticipated, which introduce a number of risks for us including legal risks arising from potential changes required to documentation for new and existing transactions, financial risks arising from any changes in the valuation of financial instruments linked to benchmark rates, pricing risks arising from how changes to benchmark indices could impact pricing mechanisms on some instruments, operational risks arising from the potential requirement to adapt information technology systems, trade reporting infrastructure and operational processes, and conductcommercial risks arising from the potential impact of communication with customers and engagement during the transition period. The replacement benchmarks, and the timing of and mechanisms for implementation have not yet been confirmed by central banks. Accordingly, it is not currently possible to determine whether, or to what extent, any such changes would affect us. However, the implementation of alternative benchmark rates may have a material adverse effect on our business, results of operations, financial condition and prospects.
Our approach to the replacement of the IBOR rates is described in more detail in “LIBOR Transition” on item 5A.
Liquidity Risk
We face risks relating to liquidity of our capital resources.
Liquidity risk, as we understand it, is the risk that we will not have sufficient financial resources to meet our obligations by the respective maturity dates or that we will honor such obligations but at an excessive cost. This risk is inherent in the activities of any commercial or retail bank.
Our capacity and cost of funding may be impacted by a number of factors, such as changes in market conditions (e.g., in interest rates), credit supply, regulatory changes, systemic shocks in the banking sector, and changes in the market’s perception of us, among others.
In scenarios where access to funding is scarce and/or becomes too expensive, and the access to capital markets is either not possible or is limited, we may find ourselves obliged to increase the return rate paid to deposits made to attract more clients and/or to settle assets not compromised and/or potentially devalued so that we will be able to meet our obligations. If the market liquidity is reduced, the demand pressure may have a negative impact on prices, since natural buyers may not be immediately available. Should this happen, we may have a significant negative goodwill on assets, which will impact the bank’s results and financial position. The persistence or worsening of such adverse market conditions or rises in basic interest rates may have a material adverse impact on our capacity to access capital markets and on our cost of funding.
Concentration Risk
We face risks related to market concentration.
Concentration risk is the risk associated with potential high financial losses triggered by significant exposure to particular component of risk, whether it be related to a particular counterparty, industry or geographic concentration. Examples of such risks include significant exposure to a single counterparty, to counterparties operating in the same economic sector or geographical region, or to financial instruments that depend on the same index or currency.
We believe that an excessive concentration with respect to a particular risk factor could generate a relevant financial loss for us, especially if the risk is one described in this annual report. We recognize the importance of this risk and the potential impacts that may affect our portfolio and results of operations.
Hedge Risk
Our hedge strategy may not be able to prevent losseslosses.
We use diverse instruments and strategies to hedge our exposures to a number of risks associated with our business, but we may incur losses if such hedges are not effective.
We may not be able to hedge our positions, or do so only partially, or we may not have the desired effectiveness to mitigate our exposure to the diverse risks and market in which we are involved. Any of these scenarios may adversely affect our business and financial results.
Operational Risks
We face risks relating to our operations.
Operational risks, which may arise from errors in the performance of our processes, the conduct of our employees, instability, malfunction or outage of our IT system and infrastructure, or loss of business continuity, or comparable issues with respect to our vendors, may disrupt our businesses and lead to material losses. We face operational risk arising from errors, accidental or premeditated, made in the execution, confirmation or settlement of transactions or from transactions not being properly recorded, evaluated or accounted for. The occurrence of any of these risks may adversely affect our business, financial results and reputations.
We are exposed to failures, deficiency or inadequacy of our internal processes, human error or misconductsmisconduct and cyberattacks. Additionally, we rely on third-party services. All these factors may adversely affect us.
Due to the high volume of daily processing, we are dependent on technology and management of information, which exposes us to eventual unavailability of systems and infrastructure such as power outages, interruption of telecommunication services, and generalized system failures, as well as internal and external events that may affect third parties with which we do business or that are crucial to our business activities (including stock exchanges, clearing houses, financial dealers or service providers) and events resulting from wider political or social issues, such as cyberattacks or unauthorized disclosures of personal information in our possession. We manage and store certain proprietary information and sensitive or confidential data relating to our clients and to our operations. We may be subject to breaches of the information technology systems we use for these purposes.purposes, as well as the theft of technology and intellectual property. Additionally, we operate in many geographic locations and are frequently subject to the occurrence of events outside of our control. Despite the contingency plans we have in place, our ability to conduct business in any of these locations may be adversely impacted by a disruption to the infrastructure that supports our business. We are strongly dependent on technology and thus are vulnerable to viruses, worms and other malicious software, including “bugs” and other problems that could unexpectedly interfere with the operation of our systems.systems and result in data leakage.
Operating failures, including those that result from human error or fraud, not only increase our costs and cause losses, but may also give rise to conflicts with our clients, lawsuits, regulatory fines, sanctions, interventions, reimbursements and other indemnity costs. Ethical misconduct and non compliancenoncompliance – ethical misconduct or breaches of applicable laws by our businesses or our employees could be damaging to our reputation too, and could result in litigation, regulatory action and penalties. All of which may have a material adverse effect on our business, reputation and results of operations. Operational risk also includes legal risk associated with inadequacy or deficiency in contracts signed by us, as well as penalties due to non compliancenoncompliance with laws and punitive damages to third parties arising from the activities undertaken by us. Additionally, we have essential other services for the proper functioning of our business and technology infrastructure, such as call centers, networks, internet and systems, among others, provided by external or outsourced companies. Impacts on the provision of these services, caused by these companies due to the lack of supply or the poor quality of the contracted services, can affect the conduct of our business as well as our clients. We also rely in certain limited capacities on third-party data management providers whose possible security problems and security vulnerabilities.vulnerabilities may have similar effects on us.
As a result of theCOVID-19 pandemic, we have rapidly increased the number of employees working remotely. This may cause increases in the unavailability of our systems and infrastructure, interruption of telecommunication services, generalized system failures and heightened vulnerability to cyberattacks. Accordingly, our ability to conduct our business may be adversely impacted.
Failure to protect personal information could adversely affect us.
We manage and hold confidential personal information of clients in the ordinary course of our business. Although we have procedures and controls to safeguard personal information in our possession, unauthorized disclosures or security breaches could subject us to legal action and administrative sanctions as well as damage that could materially and adversely affect our operating results, financial condition and prospects. Further, our business is exposed to risk from potential non compliancenon-compliance with policies, employee misconduct or negligence and fraud, which could result in regulatory sanctions and reputational or financial harm. In addition, we may be required to report events related to cybersecurity issues, events where client information may be compromised, unauthorized access and other security breaches, to the relevant regulatory authority. Any material disruption or slowdown of our systems could cause information, including data related to client requests, to be lost or to be delivered to our clients with delays or errors, which could reduce demand for our services and products and could materially and adversely affect us.
Failure to adequately protect ourselves against risks relating to cybersecurity could materially and adversely affect us.
We face various cybersecurity risks, including but not limited to: penetration of our information technology systems and platforms, byill-intentioned third parties, infiltration of malware (such as computer viruses) into our systems, contamination (whether intentional or accidental) of our networks and systems by third parties with whom we exchange data, unauthorized access to confidential client and/or proprietary data by persons inside or outside of our organization, and cyberattackscyber-attacks causing systems degradation or service unavailability that may result in business losses.
Although we have procedures and controls to safeguard our information technology systems and platforms, we are subject to cybersecurity risks. We have seen in recent years computer systems of companies and organizations being targeted, not only by cyber criminals, but also by activists and rogue states. We define cyberattack as any type of offensive maneuver employed by states, nations, individuals, groups or organizations that targets computer information systems, infrastructure, networks and/or personal devices, using varied means, such as denial of service, malware and phishing, for the purpose of stealing, altering or destroying a specific target by hacking into a technological susceptible system. Cyberattacks can range from the installation of viruses on a personal computer to attempts to destroy the infrastructure of entire nations. We are exposed to this risk over the entire lifecycle of information, from the moment it is collected to its processing, transmission, storage, analysis and destruction.
A successful cyberattack may result in unavailability of our services, leak or compromise of the integrity of information and could give rise to the loss of significant amounts of client data and other sensitive information, as well as significant levels of liquid assets (including cash) as well as damage to our image, directly affecting our customers and partners. In addition, cyberattacks could give rise to the disabling of our information technology systems used to service our clients. As attempted attacks continue to evolve in scope and sophistication, we may incur significant costs in our attempt to modify or enhance our protective measures against such attacks, or to investigate or remediate any vulnerability or resulting breach.
If we fail to effectively manage our cybersecurity risk, for example, by failing to update our systems and processes in response to new threats, this could harm our reputation and adversely affect our operating results, financial condition and prospects through the payment of client compensation, regulatory penalties and fines and/or through the loss of assets. In addition, we may also be subject to cyberattackscyber-attacks against critical infrastructures of Brazil or of the other countries where we operate. Our information technology systems are dependent on such critical infrastructure and any cyberattackcyber-attack against such critical infrastructure could negatively affect our ability to service our clients.
In addition, according
According to the CMN Resolution No. 4,658, dated April 26, 2018, financial institutions must now followcomply with new cyber risk management and cloud outsourcing requirements. Policies and action plansWe are required to prevent and respond to cybersecurity incidents must be in place by May 6, 2019, and fully compliant by December 31, 2021.
In addition, according to regulation CVM Resolution No. 612, dated August 2019, securities market institutions must be fully compliant by September 2020.
Failure to comply with any of these new regulatory requirements could have an adverse effect on us.
The loss of senior management, or our ability to attract and maintain key personnel, could have a material adverse effect on us.
Our ability to maintain our competitive position and implement our strategy depends on our senior management. The loss of some of the members of our senior management, or our inability to maintain and attract additional personnel, could have a material adverse effect on our operations and our ability to implement our strategy.
Our performance and success are largely dependent on the talents and efforts of highly skilled individuals. Talent attraction and retention is one of the key pillars for supporting the results of our organization, which is focused on client satisfaction and sustainable performance. Our ability to attract, develop, motivate and retain the right number of appropriately qualified people is critical to our performance and ability to thrive globally. Concurrently, we face the challenge to provide a new experience to employees, so that we are able to attract and retain highly-qualified professionals who value environments offering equal opportunities and who wish to build up their careers in dynamic, cooperative workplaces, which encourage diversity and meritocracy and are up to date with new work models. Also, our current business scenario demands not only a careful look at traditional careers, but also at new career paths that are indispensable for our future.
Our performance could be adversely affected if it werewe are unable to attract, retain and motivate key talent. As we are highly dependent on the technical skills of our personnel, including successors to crucial leadership positions, as well as their relationships with clients, the loss of key components of our workforce (particularly to emerging competitors, such asstart-ups and fintechs), could make it difficult to compete, grow and manage the business. A loss of such expertise could adversely affect our financial performance, future prospects and competitive position.
Misconduct of our employees or representatives may adversely affect us.
Our business is based on institutional principles (“Our Way”), among which are “it’s only good for us if it’s good for the client” and “ethics arenon-negotiable”. However, part of the customer relationship depends on direct interaction with our employees or representatives. We cannot assure you that our individual employees will always comply with our internal policies and that our internal procedures will effectively monitor and identify misbehavior. Deviations in behavior such as inappropriate sales practices and improper use of information may occur. These risks can give rise to customer attrition, need of compensation or reimbursements, litigation and, according to its extension, may expose the institution to reputation risk, financial and credibility losses with the market and regulators.
We may not be able to prevent our officers, employees or third parties acting on our behalf from engaging in situations that qualify as corruption in Brazil or in any other jurisdiction, which could expose us to administrative and judicial sanctions, as well as have an adverse effect to us.
We are subject to Brazilian anticorruption legislation, and similarly-focused legislation of the other countries where we have branches and operations, as well as other anticorruption laws and regulatory regimes with a transnational scope. These laws require the adoption of integrity procedures to mitigate the risk that any person acting on our behalf may offer an improper advantage to a public agent in order to obtain benefits of any kind. Applicable transnational legislation, such as the U.S. Foreign Corrupt Practices Act and U.K. Bribery Act, as well as the applicable Brazilian legislation (mainly Brazilian Law No. 12,846/2013 – Lei Anticorrupção Brasileira), require us, among other things, the maintenance of policies and procedures aimed at preventing any illegal or improper activities related to corruption involving government entities and officials in order to secure any business advantage, and require us to maintain accurate books and a system of internal controls to ensure the accuracy of our books and prevent illegal activities. We have policies and procedures designed to prevent bribery and other corrupt practices. See “Item 4B. Business Overview—Regulatory Environment”Supervision and Regulation” for further details. Unauthorized actions by our officers, employees or third parties acting on our behalf in breach of our internal policies may qualify as corruption in Brazil or in other jurisdiction and we could be exposed to administrative and judicial sanctions, accounting errors or adjustments, monetary losses and reputational damages or other adverse effects. The perception or allegations that we, our employees, our affiliates or other persons or entities associated with us have engaged in any such improper conduct, even if unsubstantiated, may cause significant reputational harm and other adverse effects.
We operate in international markets which subject us to risks associated with the legislative, judicial, accounting, regulatory, political and economic risks and conditions specific to such markets, which could adversely affect us or our foreign units.
We operate in various jurisdictions outside of Brazil through branches, subsidiaries and affiliates, and we expect to continue to expand our international presence. We face, and expect to continue to face, additional risks in the case of our existing and future international operations, including:
political instability, adverse changes in diplomatic relations and unfavorable economic and business conditions in the markets in which we currently have international operations or into which we may expand;
more restrictive or inconsistent government regulation of financial services, which could result in increased compliance costs and/or otherwise restrict the manner in which we provide our services;
difficulties in managing operations and adapting to cultural differences, including issues associated with (i) business practices and customs that are common in certain foreign countries but might be prohibited by Brazilian law and our internal policies and procedures and (ii) management and operational systems and infrastructures, including internal financial control and reporting systems and functions, staffing and managing of foreign operations, which we might not be able to do effectively or cost-efficiently.
As we expand into these and additional markets these risks could be more significant and have the potential to have an adverse impact on us.
Strategy Risk
Our business strategy may not provide us the results we expect.
Our strategy and challenges are determined by management based on related assumptions, such as the future economic environment, and the regulatory, political and social scenarios in the regions in which we operate. These assumptions are subject to inaccuracies and risks that might not be identified or anticipated.
Accordingly, the results and consequences arising from any possible inaccurate assumptions may compromise our capacity to fully or partially implement strategies, as well as to achieve the results and benefits expected therefrom, which might give rise to financial losses and reduce the value creation to our stockholders.
Additionally, factors beyond our control, such as, but not limited to, economic and market conditions, changes in laws and regulations, including regulations limiting fees or interest rates and fostering an increasingly competitive scenario, and other risk factors stated in this annual report may make it difficult or impossible to implement fully or partially our business model and also our achieving the results and benefits expected from our business plan.
Adverse changes to the political and economic scenario in Latin America may affect some of the challenges we have taken on, such as the internationalization of our business, since our strategy to strengthen our position in other countries is also dependent on the respective economic performance of these countries.
The integration of acquired or merged businesses involves certain risks that may have a material adverse effect on us.
As part of our growth strategy in the Brazilian and Latin American financial sector, we have engaged in a number of mergers, acquisitions and partnerships with other companies and financial institutions in the past and may pursue further such transactions in the future. Until we have signed a definitive agreement, we usually do not comment publicly on possible acquisitions. When we do announce, our stock price may fall depending on the size of the acquisition. Even though we review the companies we plan to acquire, it is generally not viable for these reviews to be complete in all respects. Any such transactions involve risks, such as the possible incurrence of unanticipated costs as a result of difficulties in integrating systems, finance, accounting and personnel platforms, failure in diligence or the occurrence of unanticipated contingencies, as well as the breach of the transaction agreements by counterparties. In addition, we may not achieve the operating and financial synergies and other benefits that we expected from such transactions in a timely manner, on a cost-effective basis or at all. There is also the risk that antitrust and other regulatory authorities may impose restrictions or limitations on the transactions or on the businesses that arise from certain combinations or impose fines or sanctions due to the interpretation by the authorities of irregularities with respect to a corporate merger, consolidation or acquisition.
If we are unable to take advantage of business growth opportunities, cost savings, operating efficiencies, revenue synergies and other benefits we anticipate from mergers and acquisitions, or if we incur greater integration costs than we have estimated, then we may be adversely affected.
Our controlling stockholder has the ability to direct our business.
As of December 31, 2018,2019, IUPAR, our controlling stockholder, directly owned 51.71%51.7% of our common shares and 26.15%26.1% of our total share capital, giving it the power to appoint and remove our directors and officers and determine the outcome of any action requiring stockholder approval, including transactions with related parties, corporate reorganizations and the timing and payment of dividends.dividend payments.
In addition, IUPAR is jointly controlled by Itaúsa, which, in turn, is controlled by the Egydio de Souza Aranha family, and by Cia. E. Johnston, which in turn is controlled by the Moreira Salles family. The interests of IUPAR, Itaúsa and the Egydio de Souza Aranha and Moreira Salles families may be different from the interests of our other stockholders.
In addition, someCertain of our directors are affiliated with IUPAR and circumstances may arise in which the interests of IUPAR and its affiliates conflict with the interests of our other stockholders. To the extent that these and other conflicting interests exist, our stockholders will depend on our directors duly exercising their fiduciary duties as members of our Board of Directors. Notwithstanding, according to Brazilian Corporation Law the controlling stockholders should always vote in the interest of the Company.company. In addition, they are prohibited from voting in cases of conflict of interest in the matter to be decided.
Litigation Risk
Unfavorable court decisions involving material amounts for which we have no or partial provisions or in the event that the losses estimated turn out to be significantly higher than the provisions made, may adversely affect our results and financial condition.
As part of the ordinary course of our business, we are subject to, and party to various civil, tax and labor lawsuits, which involve financial risks. Our audited consolidated financial statements only include reserves for probable losses that can be reasonably estimated and eventual expenses that we incur in connection with litigation or administrative proceedings, or as otherwise required by Brazilian law. It is currently not possible to estimate the amount of all potential costs that we may incur or penalties that may be imposed on us other than those amounts for which we have reserves. In the event of unfavorable court decisions involving material amounts for which we have no or partial provisions, or in the event that the losses estimated turn out to be significantly higher than the provisions made, the aggregate cost of unfavorable decisions, may adversely affect our results and financial condition.
Decisions on lawsuits due to government monetary stabilization plans may have a material adverse effect on us.
We are a defendant in lawsuits for the collection of understated inflation adjustment for savings resulting from the economic plans implemented in the 1980s and 1990s by the Brazilian government as a measure to combat inflation.
Itaú Unibanco Holding is a defendant in lawsuits filed by individuals, as well as class actions filed by (i) consumer protection associations; and (ii) the public attorneys’ office (Ministério Público) on behalf of holders of savings accounts. In connection with these class actions, we established provisions upon service of the individual claim requiring the enforcement of a judgment handed down by the judiciary, using the same criteria used to determine the provisions of individual actions.
The STF has issued a number of decisions in favor of the holders of savings accounts, but has not ruled regarding the constitutionality of economic plans and their applicability to savings accounts. Currently, the appeals on this issue are suspended by order of the STF, until there is a definitive decision by the STF regarding the constitutional issue.
In December 2017, under the mediation of theAdvocacia-Geral da União (or AGU), the representative entities of banks and the representative entities of holders of savings accounts entered into an agreement with the objective of ending the litigation related to economic plans against the Brazilian banks. The agreement establishes the conditions for the voluntary adhesion of the holders of savings accounts for the receiving of amounts and closure of processes.
The agreement was ratified at a plenary session of the STF on March 1, 2018. The accession2018 and the holders of savings accounts were able to adhere to its terms for a period of 24 months.
Due to the end of this period, in March 2020, the parties signed an addendum to the agreement instrument to extend the period of adhesion for another 60 months to include a greater number of the holders of savings accounts beganand consequently increase the closure of processes. For the validity and effects of this additive, the approval of the STF will be necessary, and is expected to occur in May 2018. However, it is not clear how many individuals will actually adhere to the agreement.second quarter of 2020.
As such, in the scenario of low adherence to the agreement and an eventual unfavorable judgment by the STF themay result in Brazilian banks may incurincurring relevant costs, which could have an adverse effect on our financial position. We are currently concentrating efforts for adherence togetherworking with the judicial courts.courts to encourage adherence.
Tax assessments may adversely affect us.
As part of the normal course of business, we are subject to inspections by federal, municipal and state tax authorities. These inspections, arising from the divergence in the understanding of the application of tax laws may generate tax assessments which, depending on their results, may have an adverse effect on our financial results. Also due to such proceedings and for other reasons we may be thwarted by a court decision to pay dividends and other distributions to our shareholders.
Please see “Item 8A. Consolidated Statements and Other Financial Information—Legal Proceedings” for further details.
Management Risk Factor
Our policies, procedures and models related to risk control may be ineffective and our results may be adversely affected by unexpected losses.
Our risk management methods, procedures and policies, including our statistical models and tools for risk measurement, such as value at risk, or VaR, for market risk default probability estimation models for credit risk or customer unusual behavior models for fraud detection or money-laundering risk identification, may not be fully effective in mitigating our risk exposure in all economic environments or against all types of risks, including those that we fail to identify or anticipate. Some of our qualitative tools and metrics for managing risk are based on our observations of the historical market behavior. In addition, due to limitations on information available in Brazil, to assess clients’ creditworthiness, we rely largely on credit information available from our own databases, on certain publicly available consumer credit information and other sources. We apply statistical and other tools to these observations and data to quantify our risk exposure. These tools and metrics may fail to predict all types of future risk exposures. These risk exposures, for example, could arise from factors we did not anticipate or correctly evaluate in our statistical models. This would limit our ability to manage our risks. Our losses, therefore, could be significantly greater than indicated by historical measures. In addition, our quantified modeling may not take all risks into account. Our qualitative approach to managing those risks could prove insufficient, exposing us to material unexpected losses.
Our results of operations and financial position depend on our ability to evaluate losses associated with risks to which we are exposed and on our ability to build these risks into our pricing policies. We recognize an allowance for loan losses aiming at ensuring an allowance level compatible with the expected loss, according to internal models credit risk measurement. The calculation also involves significant judgment on the part of our management. Those judgments may prove to be incorrect or change in the future depending on information as it becomes available. These factors may adversely affect us.
Financial Reporting Risks
We make estimates and assumptions in connection with the preparation of our financial statements, and any changes to those estimates and assumptions could have a material adverse effect on our operating results.
In connection with the preparation of our financial statements, we use certain estimates and assumptions based on historical experience and other factors. While we believe that these estimates and assumptions are reasonable under the circumstances, they are subject to significant uncertainties, some of which are beyond our control. Should any of these estimates and assumptions change or prove to have been incorrect, our reported operating results could be materially adversely affected.
As a result of the inherent limitations in our disclosure and accounting controls, misstatements due to error or fraud may occur and not be detected.
Our disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed by us in reports we file with or submit to the SEC under the Exchange Act is accumulated and communicated to management, recorded, processed summarized and reported within the time periods specified in SEC rules and forms. We believe that any disclosure controls and procedures or internal controls and procedures, including related accounting controls, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. In addition, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by an unauthorized override of the controls.
Any failure by us to maintain effective internal control over financial reporting may adversely affect investor confidence in our company and, as a result, the value of investments in our securities.
We are required under the Sarbanes-Oxley Act of 2002 to furnish a report by our management on the effectiveness of our internal control over financial reporting and to include a report by our independent auditors attesting to such effectiveness. Any failure by us to maintain effective internal control over financial reporting could adversely affect our ability to report accurately our financial condition or results of operations. If we are unable to conclude that our internal control over financial reporting is effective, or if our independent auditors determine that we have a material weakness or significant deficiency in our internal control over financial reporting, we could lose investor confidence in the accuracy and completeness of our financial reports, the market prices of our shares and ADSs could decline, and we could be subject to sanctions or investigations by the SEC or other regulatory authorities. Failure to remedy any material weakness in our internal control over financial reporting, or to implement or maintain other effective control systems required of public companies subject to SEC regulation, also could restrict our future access to the capital markets.
We adopt Brazilian accounting standards and managerial disclosures that differ from foreign standards, including from the U.S., with which U.S. stockholders are familiar.
For regulatory purposes, we prepare and make available consolidated financial statements under IFRS issued by IASB and under the Brazilian GAAP, which may differ from US GAAP in a number of ways. We use Brazilian generally accepted accounting practices applicable to institutions authorized to operate by the Central Bank (“Brazilian GAAP”) for filing with the Brazilian Securities and Exchange Commission (“CVM”) and for calculation of payment of dividends and tax liabilities. Furthermore, we disclose quarterly reports on managerial financial information not required in other countries. U.S. investors may be unfamiliar with these different accounting standards and managerial disclosures adopted by us.
Underwriting Risk
Inadequate pricing methodologies for insurance, pension plan and premium bond products may adversely affect us.
Our insurance and pension plan subsidiaries establish prices and calculations for our insurance and pension products based on actuarial or statistical estimates. The pricing of our insurance and pension plan products is based on models that include a number of assumptions and projections that may prove to be incorrect, since these assumptions and projections involve the exercise of judgment with respect to the levels and timing of receipt or payment of premiums, contributions, provisions, benefits, claims, expenses, interest, investment results, retirement, mortality, morbidity, and persistence. We could suffer losses due to events that are contrary to our expectations directly or indirectly based on incorrect biometric and economic assumptions or faulty actuarial bases used for contribution and provision calculations.
Although the pricing of our insurance and pension plan products and the adequacy of the associated reserves are reassessed on a yearly basis, we cannot accurately determine whether our assets supporting our policy liabilities, together with future premiums and contributions, will be sufficient for the payment of benefits, claims, and expenses. Accordingly, the occurrence of significant deviations from our pricing assumptions could have an adverse effect on the profitability of our insurance and pension products. In addition, if we conclude that our reserves and future premiums are insufficient to cover future policy benefits and claims, we will be required to increase our reserves and record these effects in our financial statements, which may have a material adverse effect on us.
Competition Risk
We face risks associated with the increasingly competitive environment, and recent consolidations in the Brazilian banking industry, as well as competition based on technological alternatives to traditional banking services.
The Brazilian market for financial and banking services is highly competitive. We face significant competition from other Brazilian and international banks, in addition to othernon-financial companies competing in certain segments of the banking industry in which we operate. These latter competitors may not be subject to the same regulatory and capital requirements that we are and, therefore, may be able to operate with less stringent regulatory requirements.
Competition has increased as a result of recent consolidations among financial institutions in Brazil and of regulations that (i) increase the ability of clients to switch business between financial institutions.institutions, (ii) with the client’s permission, grant access to financial and personal information in such institutions, and (iii) establish rules for an instant payment arrangement. Furthermore, digital technologies are changing the ways customers access banking services and the competitive environment with respect to such services. The use of digital channels has risen steadily over the past few years. In this context, new competitors are seeking to disrupt existing business models through technological alternatives to traditional banking services. If we are not successfully able to compete with these disruptive business models and markets, we may lose market share and, consequently, lower our margins and profitability. Such increased competition may also adversely affect us by, among other things, limiting our ability to retain or increase our current client base and to expand our operations, or by impacting the fees and rates we adopt, which could reduce our profit margins on banking and other services and products we offer.
Please see “Item 4B. Business Overview—Regulatory Environment—Supervision and Regulation—Antitrust Regulation” for further details about the competition on the Brazilian markets.
We are subject to Brazilian antitrust legislation and, if any, that of other countries in which we operate or will possibly operate.
We are subject to the Brazilian antitrust laws including No. 12,529/11, which address, particularly, infraction of the economic order. Accordingly, we are subject to penalties from Brazilian antitrust authorities (such as CADE), especially administrative fines and divestiture of assets. Additionally, we are subject to the antitrust legislation in the jurisdictions where we operate, such as the antitrust laws of the U.S. (Sherman Act and Clayton Antitrust Act) and of the European Union (Articles 101 and 102 of the Treaty on the Functioning of the European Union) or, if any, where we will possibly operate. In addition, according to CADE regulations and current understanding, we are given a dominant position in some banking services markets in Brazil by the said body. Consequently, we cannot assure that Brazilian and foreign antitrust regulations will not affect our business in the future.
Reputational Risk
Damage to our reputation could harm our business and outlook.
We are highly dependent on our image and credibility to generate business. A number of factors may tarnish our reputation and generate a negative perception of the institution by our clients, counterparties, stockholders, investors, supervisors, commercial partners and other stakeholders, such as non compliancenoncompliance with legal obligations, making irregular sales to clients, dealing with suppliers with questionable ethics, unauthorized disclosure of client data, inappropriate behavior by our employees, and third-party failures in risk management, among others. In addition, certain significant actions taken by third parties, such as competitors or other market participants, may indirectly damage our reputation with clients, investors and the market in general. If we are unable, or are perceived unable, to properly address these issues we may be subject to penalties, fines, class actions, and regulatory investigations, among others. Damages to our reputation among clients, investors and other stakeholders may have a material adverse effect on our business, financial performance and prospects.
SocialEnvironmental and EnvironmentalSocial Risk
We may incur financial losses and damages to our reputation from environmental and social risks.
Environmental and social factors arerisk is considered one of the most relevant topicsa material issue for theour business, since theyit can affect the creation of shared value in the short, medium and long terms, from the standpoint of theour organization and itsour main stakeholders. In additionFurther, we also understand socialenvironmental and environmentalsocial risk as the riskpossibility of potential losses due to exposure to socialenvironmental and environmentalsocial events arising from the performance of our activities. For more information about our socialenvironmental and environmentalsocial risk management please see “Item 11. Quantitative and Qualitative Disclosures about Market Risk—Environmental and Social and Environmental Risk.”Risk”.
Financial institutions are subject to specific guidelines about the management of social and environmental risks, due to CMN Resolution No. 4,327, as of April 25, 4,327/2014, that providedprovides minimum requirements for the implementation by financial institutions of social and environmental responsibility policies containing certain minimum requirements. These rules also provide an obligation for registering environmental and social losses, analysis of theresponsibility policies for financial institutions. Accordingly, we are required to assess environmental risk in the approval of products and services, among other dispositions. Braziliansocial risks and evaluate data from environmental and social related financial losses. The Central Bank is responsible for the inspection of the corresponding filings and information and forsupervising the implementation of the provisions of such regulation.
We understand that environmentalEnvironmental and social issues may affect our activities and the revenue of our clients, causing delays in paymentsdelinquency or default, especially in the case of significantrelevant environmental and social incidents.events.
Environmental and socialThese risks becomeare more evidentpronounced when we financeprovide financial support for clients and projects, where should there be environmental damage caused by projects in which we were involved with respect to the financing thereof,as we could be deemed to beheld indirectly responsible for such damage and could consequently be held liable for certain damages.supporting such activity in case of environmental or social damage. To mitigate these risks, we conduct diligence procedures prior to the approval of new financial support.
We also recognize thatclimate risk as an emerging environmental and social risk, given climate change is one of the major challengesoffers relevant risks and opportunities for us, because climate events may affect our activitiesbusiness, and consider it in our due diligence processes. Climate change is a risk as it affects our clients, suppliers and our operations, including in administrative buildings, our network of branches and data processing centers and are taken into consideration for all geographical regions in which we operate in Brazil.centers.
Finally, weour reputation could suffer damage to our image and brandbe affected if we do not fully comply with voluntary commitments, such as in applying the Equator Principles, Principles for Responsible Investment and National Pact for the Eradication of Slave Labor.Labor among others.
Risk Factors for ADS Holders
The relative price volatility and limited liquidity of the Brazilian capital markets may significantly limit the ability of our investors to sell the preferred shares underlying our ADSs, at the price and time they desire
The investment in securities traded in emerging markets frequently involves a risk higher than an investment in securities of issuers from the U.S. or other developed countries, and these investments are generally considered more speculative. The Brazilian securities market is smaller, less liquid, more concentrated and can be more volatile than markets in the U.S. and other countries. Thus, an investor’s ability to sell preferred shares underlying ADSs at the price and time the investor desires may be substantially limited.
The preferred shares underlying our ADSs do not have voting rights, except in specific circumstances.
Pursuant to our Bylaws, the holders of preferred shares and therefore of our ADSs are not entitled to vote in our general stockholders’ meetings, except in specific circumstances. Even in such circumstances, ADS holders may be subject to practical restrictions on their ability to exercise their voting rights due to additional operational steps involved in communicating with these stockholders, as mentioned below.
According to the provisions of the ADSs deposit agreement, in the event of a general stockholders’ meeting, we will provide notice to the depositary bank, which will, to the extent practicable, send such notice to ADS holders and instructions on how such holders can participate in such general stockholders’ meeting, and ADS holders should instruct the depositary bank on how to vote in order to exercise their voting rights. This additional step of instructing the ADS depositary bank may make the process for exercising voting rights longer for ADS holders.
Holders of ADSs may be unable to exercise preemptive rights with respect to our preferred shares
We may not be able to offer the U.S. holders of our ADSs preemptive rights granted to holders of our preferred shares in the event of an increase of our share capital by issuing preferred shares unless a registration statement relating to such preemptive rights and our preferred shares is effective or an exemption from such registration requirements of the Securities Act is available. As we are not obligated to file a registration statement relating to preemptive rights with respect to our preferred shares, we cannot assure that preemptive rights will be offered to you. In the event such registration statement is not filed (or in case filed, not declared effective) or if the exemption from registration is not available, the U.S. holders of our ADSs may not receive any value from the granting of such preemptive rights and have their interests in us diluted.
The surrender of ADSs may cause the loss of the ability to remit foreign currency abroad and of certain Brazilian tax advantages
While ADS holders benefit from the electronic certificate of foreign capital registration obtained in Brazil by the custodian for our preferred shares underlying the ADSs, which permits the depositary bank to convert dividends and other distributions with respect to the preferred shares underlying the ADSs into foreign currency and remit the proceeds abroad, the availability and requirements of such electronic certificate may be adversely affected by future legislative changes.
If an ADS holder surrenders the ADSs and, consequently, receives preferred shares underlying the ADSs, such holder will have to register its investment in the preferred shares with the Central Bank of Brazil either as (i) a Foreign Direct Investment, subject to Law No. 4131/4,131/62, which will require an electronic certificate of foreign capital registration, the Electronic Declaratory Registration of Foreign Direct Investment(RDE-IED), or (ii) as a Foreign Investment in Portfolio, subject to Resolution CMN No. 4373/4,373/14, which among other requirements, requires the appointment of a financial institution in Brazil as the custodian of the preferred shares and legal representative of the foreign investor in the Electronic Declaratory Registration of Portfolio (RDE – Portfolio). The failure to register the investment in the preferred shares as foreign investment under one of the regimes mentioned above (E.g. RDE – IED or RDE – Portfolio) will impact the ability of the holder to dispose of the preferred shares and to receive dividends. Moreover, upon receipt of the preferred shares underlying the ADSs, Brazilian regulations require the investor to enter into corresponding exchange rate transactions and pay taxes on these exchange rate transactions, as applicable.
The tax treatment for the remittance of dividends and distributions on, and the proceeds from any sale of, our preferred shares is less favorable in case a holder of preferred shares obtains theRDE-IED instead of theRDE-Portfolio. In addition, if a holder of preferred shares attempts to obtain an electronic certificate of foreign capital registration, such holder may incur expenses or suffer delays in the application process, which could impact the investor’s ability to receive dividends or distributions relating to our preferred shares or the return of capital on a timely manner.
The holders of ADSs have rights that differ from those of stockholders of companies organized under the laws of the U.S. or other countries
Our corporate affairs are governed by our Bylaws and Brazilian Corporate Law, which may have legal principles that differ from those that would apply if we were incorporated in the U.S. or in another country. Under Brazilian Corporate Law, the holders of ADSs and the holders of our preferred shares may have different rights with respect to the protection of investor interests, including remedies available to investors in relation to any actions taken by our Board of Directors or the holders of our common shares, which may be different from what is provided in U.S. law or the law of another country.
ITEM 4. | INFORMATION ON THE COMPANY |
4A. | History and Development of the Company |
Our legal and commercial name is Itaú Unibanco Holding S.A. We were incorporated on September 27, 1924. We are organized as a publicly held corporation for an unlimited period of time under the laws of Brazil. Our head offices are located at Praça Alfredo Egydio de Souza Aranha, 100,04344-902, São Paulo, SP, Brazil and our telephone number is+55-11-5019-1267.
Investor information can be found on our website at www.itau-unibanco.com/ir. Information contained on our website is not incorporated by reference in, and shall not be considered a part of, this annual report. Our agent for service of process in the United States is the general manager of our New York branch, which is located at 767 Fifth Avenue, 50th floor, New York, NY 10153.
Our History
In 2018, we celebrated the 10th anniversary ofWe were formed in 2008 by the merger betweenof Banco Itaú S.A. and Unibanco, adding a new chapter to our94-year history, and which has hoisted us toUnibanco. Banco Itaú’s predecessor was founded in 1943 as the position of Latin America’s largest private bank. Before their paths crossed, both institutions already enjoyed solid track records dating from the first half of the 20th century.
Our story begins in 1924, when the banking section of Casa Moreira Salles started its operations in Minas Gerais, later becoming União dos Bancos Brasileiros and widely known as Unibanco.
The other pillar of our history began with the creation of Banco Central de Crédito S.A. in 1943 in the city of São Paulo. DuringUnibanco’s predecessor was founded in 1924 as the early decadesSeção Bancária da Casa Moreira Salles in Minas Gerais.
In 2008, Itaú and Unibanco merged to become the largest Brazilian bank and one of the bank’s life,twenty largest banks worldwide in terms of assets. The merger was not limited to only a merger resultedof two businesses, but was also the blending of two institutional cultures that complement one another and share common characteristics, such as growth on the basis of mergers and acquisitions, ethics and transparency, respect of the law, close relationships with clients and collaborators, and expansion on the basis of adequate financing.
Historically, we have always been responsive to transformations that take place in society. In 2019, we have taken a stronger position in digital transformation and client satisfaction with the opening of virtual branches, the creation of Banco Itaú Américaapps for smart phones and tablets with new functionalities, and the resulting consolidationacquisition of firms that offer solutions in technology, as in our recent acquisition of Zup IT Serviços em Tecnologia e Inovação Ltda. We are likewise reinforcing our aim to provide positive changes in the lives of people and in society as a whole, establishing commitments with sustainability and diversity.
Recent Acquisitions
Zup
On October 31, 2019, we entered into an agreement with ZUP LLC, Bruno Cesar Pierobon, Gustavo Henrique Cunha Debs, Felipe Liguabue Almeida, Flavio Henrique Zago, among others, for the acquisition of 100% of the Itaú brand. Since 1973,total and voting share capital of Zup I.T. Serviços em Tecnologia e Inovação Ltda (“Zup”) for approximately R$575 million, subject to purchase price adjustments.
Such acquisition shall be implemented in three tranches over four years. In the first tranche, we have operated through Banco Itaú S.A., now Itaú Unibanco.
The volatilityacquired 51% of the contexttotal and voting share capital of Zup for approximately R$293 million and became its controller.
On the third anniversary of the first closing, we will acquire an additional 19.6% stake in Zup, and on the fourth anniversary of the first closing, we will acquire the remaining share capital of Zup. As a result, by 2024, we expect to hold all the share capital and voting shares of Zup. The management of the business affairs of Zup will continue to be independent and autonomous from us, therefore, preserving its current principles and values.
The first closing was consummated on March 31, 2020, after the applicable regulatory approvals were obtained.
XP Inc.
In December 2019, XP Inc., in which we currently find ourselves, especially with respectheld a 49.9% interest, completed its initial public offering (IPO) and listing on NASDAQ. We did not sell any of our shares of XP Inc. in this offering and, immediately after the IPO, our interest was adjusted to the Brazilian economy, has contributed to increasing our ability to manage risks, get used to scenarios46.05% of uncertainty and adapt rapidly to changes.
The 2008 merger between Itaú and Unibanco merger was considered the largest deal in the country’s history. We believe this is especially noteworthy given the difficult moment we experienced in 2008, when the world witnessed a serious financial crisis on the international market.
In spite of this context, we learned from our customers, evolved and created an organization capable of expanding its operations overseas. The result was a new bank with the vocation and ability to foster people’s power of transformation. Ten years later, our market value at December 31, 2018 was R$342.0 billion, three times greater than the total sumshare capital of the two organizations in 2008.
This transaction is not the end of the history of two great banks. Rather it is the starting point of an endeavor especially focused on our customers, employees and on the use of the best digital tools to make it easier to use our products.
As part of the merger consolidation process and the construction of Itaú Unibanco, in 2012 we adopted a business model focused on value creation, which takes into account not only our operational and financial expenses, but also the cost of capital allocated to each business line in an effort to achieve proper remuneration. This has meant that our operations are now dedicated to businesses that effectively create shareholder value, stipulating the minimum return required for our operations.
Recent Acquisitions
XP Investimentos S.A.Inc.
On May 11, 2017, we entered into a Share Purchase Agreement with XP Controle Participações S.A., G.A. Brasil IV Fundo de Investimento em Participações, and Dyna III Fundo de Investimento em Participações, among others, as sellers, to acquire 49.9% of the capital stock (30.1%(corresponding to 30.1% of the common shares) of XP Investimentos S.A., a holding company that consolidates all the investments of the XP group, including XP Investimentos Corretora de Câmbio, Títulos e Valores Mobiliários S.A., in In the first tranche, or the First Tranche, by means ofwe contributed to a capital increase of R$600 million and the acquisitionacquired of XP Investimentos S.A.’s shares from the Sellers for R$5.7 billion, provided that such amounts are subject to contractual adjustments. The value attributed to 100% of the total capital stock of XP Investimentos S.A. (before the First Tranche)first tranche) was approximately R$12 billion.
The First Tranchefirst tranche was approved (i) in March 2018, by CADE, and (ii) in August 2018, by the Central Bank. As a condition, we entered into Concentration Control Agreementsconcentration control agreements (i) with CADE, whereby we undertook, among other obligations (a) if requested, to distribute proprietary investment products through open platforms competing with XP Investimentos S.A. platforms in anon-discriminatory manner; and (b) to not promote the targeting of its customers to XP Investimentos S.A. platforms; and (ii) with the Central Bank, whereby we undertook: (a) not to acquire control of XP Investimentos S.A. for 8 years counted from the execution of the CCA;concentration control agreement; and (b) to cancel our call options and XP Controle’s put options.
In August 2018, we closed the First Tranche and, together with some of the Sellers, entered into a shareholders’ agreement which contains, among others, provisions with respect to our rights as a minority shareholder, including our right to appoint two out of the seven members of the Board of Directors of XP Investimentos S.A.
On November 29, 2019, the shareholders of XP Investimentos S.A., including us, exchanged their shares of XP Investimentos S.A., incorporated in Brazil, for Class A common shares and Class B common shares of XP Inc., incorporated in the Cayman Islands. Each Class A common share entitles its holder to one vote and each Class B common share entitles its holder to ten votes in all shareholders’ resolutions of XP Inc. As a result of the contribution mentioned above, XP Inc. issued to us 792,861,320 Class A common shares and 223,595,962 Class B common shares, which represent 49.9% of the total capital of XP Inc. and 30.06% of its voting rights. XP Inc. became the sole shareholder of XP Investimentos S.A., owning 100% of its total and voting capital.
Further, the shareholders of XP Inc. entered into a shareholders’ agreement which is substantially similar to the existing shareholders’ agreement of XP Investimentos S.A. XP Inc. will have a board of directors comprised of thirteen members, out of which XP Controle Participações S.A. will nominate seven, we will nominate two, General Atlantic (XP) Bermuda, LP (successor of G.A. Brasil IV Fundo de Investimento em Participações) will nominate one, and the remaining three members will be independent directors. Such independent directors will also be members of the audit committee of XP Inc., which shall be comprised of three members who will be nominated as follows: we will nominate two members, and XP Controle Participações S.A. will nominate one member of the audit committee.
Subsequently, on November 30, 2019, XP Inc. carried out a reverse stock split of one share for each four shares and, as a result, the number of shares held by us was adjusted to 198,215,329 Class A common shares and 55,898,991 Class B common shares.
Subject to the Central Bank’s approval, in 2022, we willexpect to acquire an additional percentage of 12.5%stake corresponding to 11.53% of the capital stock of XP Investimentos S.A., increasingInc. This transaction will increase our ownershipinterest in XP Inc. to 62.4%57.58% of XP Investimentos S.A.’sits capital stock (40%and 41.63% of the common shares), or the Second Tranche.its voting rights.
The management and conduct of business of all companies within XP group, including XP Investimentos S.A.Inc., remains independent, segregated and autonomous, preserving the same principles and values that are currently in force. XP Controle’s partners will maintain control of the XP group, and the current directors, officers and executives of XP Investimentos S.A. and other subsidiaries will remain at the forefront of their respective businesses, in order to ensure that XP Investimentos S.A. will continue to act as an open and independent platform, offering a diversified range of proprietary and third party products to its clients, competing freely with other brokers and capital market distributors, including those controlled by us, without any restrictions or barriers.
4B. | Business Overview |
Our principal operations are: (i) commercial banking (including insurance, pension plan and capitalization products, credit cards, asset management and a variety of credit products and services for individuals, small and middle-market companies); (ii) corporate and investment banking (Itaú BBA); (iii) consumer credit (financial products and services to ournon-accountholders); and (iv) operations with the market and corporations.
Business Strategy
Our strategic objectives fall within two groups: Transformational (which we believe requires the actual transformation of the Itaú Unibanco Group) and Continuous Improvement (which includes issues widely disseminated within the Itaú Unibanco Group, but which require effort for further enhancement). Within the Transformational group, our strategic objectives are customer satisfaction, digital transformation and people management. Within the Continuous Improvement group, our strategic objectives are risk management, sustainable profitability and internationalization.
Customer Satisfaction
Our customers’ demands are constantly evolving. This presents us with the challenge of serving them well, respecting their characteristics and preferences. We aim to be the benchmark in customer satisfaction for both business and individual customers. To do this, we focus on the project rather than the product, noting how we provide solutions and how we relate to customers on a continuous basis.
To transform our customers’ experience, we seek inspiration from companies that are leaders in customer satisfaction, regardless of their geographic reach, aiming to “change leagues” and raise our customer satisfaction levels. We undertake to “change leagues” as we are already a leader in customer satisfaction among our Brazilian peers, ending 2018 and 2017 in sixth place for the lowest number of complaints, according to the Central Bank.
Digital Transformation
We use the Itaú Unibanco Group’s intellectual capacity to help people “live the power of digital” by saving time and generating value. Digital products are developed with the customer in mind. We believe that technology is more valuable when used to satisfy our customers. We provide a simple and convenientend-to-end process to meet customers’ expectations, from contact with the customer, to transaction processing, customer service and after sales.
As evidence of our digital transformation, in 2018 we had more than 11 million individual customers using our digital channels, we saw overall growth of 35% and 26% in the number of individual and business customers, respectively, accessing or digital channels on a daily basis. In addition, in 2018 we added over 40 new functionalities in our mobile channels and we had 318 upgrades in our applications (with an average of two updates per month per application).
People Management
In order to “change leagues” in terms of customer satisfaction, we depend on our employees. To this end, we have taken several steps to transform and improve our employees’ experience through their careers within the Itaú Unibanco Group. We believe it is our role to value people as they are, their experiences, characteristics and mindsets, eliminating barriers so that all employees can develop their potential. To afford greater autonomy and comfort in the work space, in addition to encouraging diversity of styles within the Itaú Unibanco Group, we have developed a campaign entitled “Go as I Am,” based on a flexible dress code, while still highlighting the importance of common sense and respect for the context and the day’s business engagements. We also strive to propose new ways of working, such as the home office model, in order to offer greater convenience and flexibility, enhancing efficiency and improving our employees’ quality of life.
In recognition of our efforts, we are the only bank listed in GPTW/Época magazine’s 2018 edition of the “20 Best Companies to Work For.” In addition, for the tenth consecutive year, in 2018, we were listed as one of young people’s “dream companies,” according to the Dream Career survey. Furthermore, in 2018, we were listed in LinkedIn’s “TOP Companies” ranking.
Risk Management
Managing risks is the essence of our business and a responsibility of all employees. We understand that risk management has to incorporate more than its traditional concepts (market risk, credit risk and operational risk), which we closely monitor. Transformations in our business environment demand that we monitor and take apro-active approach to other types of risk, such as new technologies with disruptive potential, obsolescence of legacy systems, data and models, new entrants and traditional competition, changes in customers’ habits, new business models, changes in laws and rules, fostering competition and innovation, new regulations, attracting and retaining talent and new work methods.
Sustainable Profitability
We strive to continuously enhance the efficiency of our operations, identifying opportunities for reducing costs, managing our investments to make us more agile and increased efficiency in the management of capital allocations using the appropriate cost of capital. We have undertaken initiatives ranging from the reduction of waste and structural reviews, to projects for enhancing productivity and digitalization. In this way, we hope to expand economies of scale while ensuring synergies for the business.
Internationalization
As of December 31, 2018, we operate in 19 countries, with 512 branches and 13.5 thousand employees. Internationalization allows us to access new markets and increase in scale. Our internationalization strategy involves two distinct models:
In the Northern Hemisphere, the service units are seeking to strengthen our operations and expand the range of products, optimize and simplify structures and processes and innovate the technology platform.
In the Southern Cone and at Itaú Corpbanca, we have adopted the universal bank model, operating predominately in Latin America. The aim is to accelerate development and optimize our investments. Our strategy in the Latin American countries provides for attaining the same management standard that we enjoy in Brazil by standardizing practices and creating conditions for us to assume additional positions of leadership.
Capital Expenditures
For information on our capital expenditures, see “Item 5B. Liquidity and Capital Resources.”
Operations Overview
We report the following segments: (i) Retail Banking, (ii) Wholesale Banking, and (iii) Activities with the Market and Corporation. Through these operational segments, we provide a broad range of banking services to a diverse client base that includes individuals and corporate clients, on an integrated basis as follows:
TheRetail Bankingsegment offers services to a diversified base of account holders andnon-account holders, individuals and companies in Brazil. The segment includes retail customers, mass affluent clients (Itaú Uniclass and Personnalité) and very small and small companies. Our offering of products and services in this segment includes: personal loans, credit cards, payroll loans, vehicle financing, mortgage loans, insurance, pension plan and premium bond products, and acquiring services, among others. The Retail Banking segment represents an important funding source for our operations and generates significant financial income and banking fees.
TheWholesale Banking segment is responsible for our private banking clients, the activities of our Latin America units, our middle-market banking business, asset management, capital market solutions, corporate and investment banking activities. Our wholesale banking management model is based on building close relationships with our clients by obtaining anin-depth understanding of our clients’ needs and offering customized solutions. Corporate activities include providing banking services to large corporations and investment banking activities include offering funding resources to the corporate sector, including fixed and variable income instruments.
TheActivities with the Market and Corporationsegment manages interest income associated with our capital surplus, subordinated debt surplus and the net balance of tax credits and debits. This segment also manages net interest income from the trading of financial instruments through proprietary positions, currency interest rate gaps and other risk factors, arbitrage opportunities in the foreign and Brazilian domestic markets, andmark-to-market of financial instruments. It also includes our interest in Porto Seguro S.A. For more information on our interest in Porto Seguro S.A., see “ —Insurance.”
We carry out a wide range of operations outside of Brazil with units strategically located in the Americas, Europe and Asia. Our international presence creates significant synergies in foreign trade finance, in the placement of Eurobonds and in the offering of more sophisticated financial transactions to our clients.
Please see “Note 30 – Segment Information” to our audited consolidated financial statements for further details.
The diversification of our business is reflected in the changing composition of our loan portfolio over the last few years, focusing on origination in lower risk segments with enhanced guarantees. We continuously seek to implement and focus on offering new products and services that add value to our clients and diversify our income sources. This allows for the growth of ournon-financial income arising mainly from banking service fees, income from bank charges and from insurance, pension plan and capitalization operations.
Retail Banking
We have a large and diverse portfolio of products, such as credit and investments, and services to address our clients’ needs. Our retail banking business is segmented according to customer profiles, which allows us to connect with and understand our customers’ needs, better enabling us to offer suitable products to meet their demands. Our main activities under the retail banking segment are the following:
Itaú Retail Banking (individuals)
Our core business is retail banking and through our retail operation we offer a dedicated service structure to consumer clients throughout Brazil. Our customer service structure is targeted to offering the best solutions for each client profile. We classify our retail clients as individuals with a monthly income of up to R$4,000.
Our Itaú Uniclass services are available at every branch for clients who earn more than R$4,000 and less than R$10,000 per month. We offer exclusive services to our Itaú Uniclass clients, including investment advisory services, exclusive cashiers a special telephone service and higher credit limits and a large team of dedicated relationship managers. For clients who prefer remote services, our Itaú Uniclass provides a “digital bank platform” where relationship managers service clients through telephone,e-mail, SMS, videoconference and online chat from 8 a.m. to 108 p.m. on business days, at no additional cost.
FocusingOur focus on our clients’ needs, in 2017 we launched our application Light, which is a smaller versiondigital transformation led to an increase of the share of our full banking app made for our clients that do not have enough capacity on their smartphones to supportdigital operations, which are sales, account openings and accesses through the fullinternet and mobile app. We wereFor instance, the first large retail bank in Brazil to offer an online account opening process via mobile app.app, launched in 2016, already represents 39% of the individual accounts opened on a monthly basis (excluding salary accounts), as of December 31, 2019.
Our retail network isWe have also focused on building long term relationships with our clients.developing initiatives to improve customer satisfaction, according to the NPS System. The satisfaction ratings (NPS score) of the retail bank improved 8 percentage points between August 2018 and December 2019
Itaú Personnalité (banking for high-income individuals)
We began providing customized services to high-income individuals in 1996 with the creation of the Itaú Personnalité segment, which currently serves individuals who earn more than R$10,00015,000 per month or have investments in excess of R$100,000.250,000.
Itaú Personnalité is focused on providing (i) financial advisory services by managers who understand the specific needs of our higher-income clients, (ii) a large portfolio of exclusive products and services and (iii) special benefits based on the type and length of relationship with the client, including discounts on various products and services. Itaú Personnalité services its clients through a dedicated network of 270236 branches, located in the main Brazilian cities. Itaú Personnalité clients also have access to our retail banking network of branches and ATMs throughout the country and can also access our internet, telephone and mobile banking.
For clients who prefer remote services, Itaú Personnalité provides a “digital bank platform” where relationship managers service clients through telephone, email, SMS and videoconference from 8 a.m. to 10 p.m. on business days. We also developed apps for smartphones and tablets that enable our clients to make investments, buy products such as credit and insurance, make check deposits, transfers and payments, check account balances and find nearby branches and ATMs using GPS features.
The table below shows our market position and information about competitors for our retail banking (including Itaú Personnalité) business:
Product/Service | Market Position | Additional Information and Main Competitors | ||
Retail Banking (Including Itaú Personnalité) | In December | Itaú Unibanco Holding has a leading position in many sectors of the Brazilian domestic financial market. Based on Central Bank data and publicly available financial information, our main competitors are Banco Bradesco, Banco Santander (Brazil), Banco do Brasil and Caixa Econômica Federal. |
Source: Itaú Unibanco Holding and the Central Bank.
Itaú Empresas (very small and small companies)
To meet and fulfill the needs of our corporate customers, we specialize in offering customized solutions and detailed advice on all products and services for:
Microenterprises: customer base consisting of companies with annual revenues of up to R$1.2 million, served by 3,2582,686 bank branches and 2,0772,098 relationship managers at December 31, 2018;2019; and
Small businesses: customer base consisting of companies with annual revenues between R$1.2 million and R$ 30 million, served by 359411 bank branches and 1,6391,628 relationship managers at December 31, 2018.2019.
ANBIMA certifies all of our relationship managers, who are trained and skilled to offer the appropriate banking solutions for each client, guided by all the variables that can affect the companies that we serve and their owners.
Our customers rely on our main strategy of capturing market opportunities and meeting their needs, particularly regarding cash flow management, credit facilities, investments and banking services.
To honor our commitment to customer centrality in 2019, we created experience improvement fronts in our product hiring journey. In addition, in order to increase satisfaction, we established the end of the prepayment rate on credit card transactions without installments for eligible clients.
In order to improve our creditloan portfolio and reduce the volume of delinquent loans, we have maintained our 2018 targets focusedfocus on sustainable performance.loan portfolio growth. We have improved credit review processes, policies and credit tools, as well as intensified our credit collection and recovery efforts.
To service our customers’ needs, we have redesignedWe maintained our service model for micro-enterprises, offering a targeted service according to the client’s profile,in digital branches, aiming at greater proximity and profitability of our portfolio.
We created digital agencies to support this new format, aiming for greater efficiency in business generation and service readiness.prompt service. In addition, we have also prospectively increased our commercial sales force aimed at attractingteam focused on acquiring new customers.
We aim at maintainingstrive to maintain high levels of customer satisfaction by always having a customer centricplacing them at the center of our business approach. To achieve this goal, we implementedfollow-ups of customer satisfaction through periodic and detailed indicators for transactions and interactions with our managers and other service channels.
We continue our strategy forto develop digital products and services, as well as the development and enhancement of the tools used by our sales and relationship teams and intend to continue to capture and expand the benefits of such investments, measured by increased business productivity and greater proximity to our customers.
Credit Cards and Commercial Agreements
We are the marketa leader in the Brazilian credit cards, based oncard market in terms of purchase volume, of purchases, according to ABECS.
Through our proprietary and partnership operations with major retailers, telephone carriers,operators, automakers and airline companiesairlines established in Brazil, as of December 31, 2018 we offeredoffer a wide range of credit and debit cards to more than 60.5 million account holders andnon-account holders.
We work
Our purpose is to provide the best customer experience and pursue client satisfaction. Our aim is to continuallycontinuously grow our credit card portfolio, enhance itsto increase profitability and to manage the quality of our asset quality.assets. Accordingly, our credit card division focuses onis dedicated to developing new products and new digital services while controlling our portfolio credit quality, increasing the ability of our customers ability to obtain financing and assessing our partnerships,partnerships.
At the beginning of 2019 we defined the “Customer First” as one of our priorities.
Our global net promoter score, a measure of customer satisfaction, indicates that our score improved 5bps compared to 2018.
Our strategies focus in three main customer segmentation businesses: Account Holders,Non-Account Holders and controlling our portfolio’s credit quality.Retail Partnerships.
In June 2017,2019 the Account Holders businesses—Itaú Agências, Itaú Uniclass and Personnalité—achieved the record on activated and total accounts, growing by more than 7% and 6% compared to 2018, respectively. We reached purchase volume growth of 18% compared to 2018. At the end of 2018 and throughout 2019 we launched fast growing sales products: Itaú Uniclass Mastercard Black, Itau Uniclass Visa Infinite and Itaú Personnalité Visa Infinite.
In theNon-Account Holders division, we launched the PassaíItaucard “Click” credit card in partnershipOctober 2019. The value proposition is to offer a simple, digital product with Assai,financial solutions for the customer. We launched it as a wholesalespending based fee waiver product in which customers who make more than R$100 in purchases per month will be exempt from the annual fee. After the launch we got a 12bps leverage on the portfolio’s NPS.
In the same month, the LATAM Pass program was launched. It unified the customer base of Multiplus Itaucard and Latam Itaucard. The new product offers several benefits such as VIP lounge access, international class upgrade vouchers and the possibility of free annual fee.
We also advanced with Credicard, following the brand relaunch in December 2017. In January 2019 Credicard moved into its own office, extending the brand’s and business thatautonomy.
Credicard for the second consecutive year earned the “Reclame Aqui” award in the Credit Cards category. We are seeking to deliver more benefits to our customers, so we launched 26 new partnerships in the Credicard app benefits store, increasing customer satisfaction.
The Retail Partnerships business is partone of our fastest growing businesses in the credit card division. We have partnerships with the main national retail brands, such as Magazine Luiza, Ponto Frio, Pão de Açúcar group, one of the largest retailers in Brazil and the owner of other important brands with which we also have partnerships, such as Pão de Açúcar, Ponto Frio and Extra. Assai has shownIn 2019, we delivered a double-digit revenue growth in revenues for the past three years. with these portfolios.
In 2018,partnership with Magazine Luiza we continue to reinforce our strategy of growing customer base. In 2019, we had points of sales in all of Assai’s physical stores and we expect to establish a point of sale in every new Assai store. In 2018 we grew card sales bypurchase volume growth records- more than three times compared to 2017, reaching14% year over year and more than 501 thousand accounts in33% year over year, respectively.
Finally, we increased functionality andin-store service capabilities, allowing customers to solve their requests at time and increasing the portfolio.NPS by 5 bps.
In December 2017, we relaunched our creditthe Sam’s Club card, brand Credicard, which was acquired by us in 2013. The occasion was marked withaddition to the launch of the new Credicard ZERO.discount program, we have improved the points program, where now for every R$ 2,500 spent in the year in any Big Group store, the customer has a cashback of R$ 75 on the bill, which is the amount paid to be a member of the Club.
At Marisa the milestone of the year was the launch of the International variant, meeting the main desire of Marisa Itaucard card customers. The product has no annual fee, offers various benefits such as discounts with partners like Uber, Decolar.com,Marisa Internacional card already represents 37% of the portfolio, significantly boosting business revenues and Netshoes. Customer experience is 100% digital through the Credicard mobile application. In December 2018 we had more than 456 thousand accounts in our portfolio of Credicard ZERO.purchase volume.
In March 2018,
At Ipiranga we launched the Personnalité Visa Infinite creditPlatinum variant. The card in partnershipwas the first product at Itaucard with Multiplus, a leadercashback, for any transaction, the customer has 1% cashback. When the transaction is made in the loyalty market. The product was developed specifically for high-income customers and offers a variety of benefits such as free access to more than 850 VIP lounges at airports aroundAbastece Aí app, the world. In December 2018, we surpassed 17 thousand customers.
In May 2018, Credicard ZERO evolved to an international credit card. The product is now accepted worldwide in all Mastercard enabled terminals. In June 2018, we launched the Credicard Mastercard Black. This credit card offers a unique digital experience in the premium segment, giving customers real benefits and simple rules to waive annual fees. On the digital frontier, our Credicard mobile app evolved and nowcustomer has a Benefit Store where customers can enjoy discounts with more than 10 merchants. We have also completely redesigned our Credicard credit cards giving them3.5% cashback, in addition to having a new modern look.
With regards to customer service, we provide 24 hour per day access to our app. The Itaucard app, directed towards personal card and business card clients, continually adds new functionalities, such as5% discount at the acquisitiontime of personal loans, unblocking new credit cards, balance checks, product redemption from our loyalty program and purchase dispute for the Credicard portfolio. In October 2018, we also launched Luiza Card App in partnership with Magazine Luiza, a major retailer in Brazil.
As of December 31, 2018 we had more than 4.9 million active users of the Itaucard app and increased our digital clients by almost 56% since 2017. As a percentage of our total credit card sales, this digital channel has grown from 11.4% in 2017 to 18.2% in 2018.fuel supply.
In April 2018, we launched our digital wallets and became pioneerthe first bank in Brazil withto have all portfolios available for Apple, Samsung and Google Pay, both for credit and then with Samsung Pay.debit cards. By December 2018,2019, we reachedhad more than 1.02.5 million customers and a market share of 65% in digital wallets purchase volume.
In 2018, we grew our portfolio while maintaining strict credit criteria. The indicators of default and risk of our credit card business continued below the credit card market average. We managed to maintain the default indicator above 90 days substantially at the same level as 2017, 5.70% as of December 31, 2017 compared to 5.35% as of December 31, 2018.users.
The table below shows the market position and information about competitors for our credit card business:
Product/Service | Market Position | Additional Information and Main Competitors | ||
Credit Cards | We are theleaders in terms of transaction purchase volume of cards in Brazil, with | Our traditional competitors in this business are Banco Bradesco, Banco Santander (Brazil), Banco do Brasil and Caixa Econômica Federal. In addition to these main competitors, in recent years an increasing number of small and new digital competitors has entered this market, including Nubank and Banco Original. |
Source: Itaú Unibanco Holding and ABECS.
Payroll Deducted Loans
In Brazil, a payroll deducted loan is a specific type of loan entered into by salaried employees or pensioners of the Brazilian social security system, as borrowers, and banks, as lenders, in which fixed monthly installments are deducted directly from the borrower’s payroll or pension, as the case may be, for the payment of the amount owed to the lender.
Our strategy is directed mainly to the pensioners of the Brazilian social security system and employees of public and private companies.
We offer payroll deducted loans in Brazil mainly through two sales channels: (i) our branch network and our remote service channels, focusing on retail account holders, and (ii) the network of acquisition partners, focusing onnon-account holders. This strategy allows us to expand our business activities with historically lower credit risk, achieving a competitive position in the offer, distribution and sale of payroll deducted loans in Brazil and improving the risk profile of our loans portfolio to individuals.
The table below shows our market position and information about competitors for the business listed below:
Product/Service | Market Position | Additional Information and Main Competitors | ||
Payroll Deducted Loans | In December | Our main competitors in this business are Banco do Brasil, Caixa Econômica Federal, Banco Bradesco and Banco Santander (Brazil). |
Source: Itaú Unibanco Holding and the Central Bank.
Mortgage
We assist our clients with their financial development, as we help them with their personal assets. Mortgage financing products allow us to create long-lasting relationships with our clients, as mortgage financing products are of a long-term nature.
Since 2008, we have been the market leaders among Brazilian private banks in mortgage loans to individuals in terms of the total size of our portfolio. This is a result of our business focus, which is in line with our strategy to migrate to lower-risk portfolios.
We have a number ofseveral sales channels that are utilized for purposes of mortgage financing products: (i) branch network, (ii) construction and development companies, (iii) mortgage agencies, and (iv) partnerships with REMAX, a realtor company, and CrediPronto, a mortgage financing company.
We prioritize customer satisfaction by providing our clients with a specialized mortgage financing advisor to support them during the mortgage process. Our process is expeditious and efficient, and it takes us less than one hourtwo hours to get back to the client for loans up to R$800 thousand.1 million. This financing process can be fully digital.
In line with our strategic focus on digital processes, our simulator is included on the websites of partner development companies and real estate agencies, placing our brand closer to clients when they are looking to acquire real property. Our services are customized for every moment of the client’s digital journey, from internet banking services to social networks, providing us with increasing client exposure levels. In 2019 and 2018 we receivedwere awarded the “Best Digital Mortgage Bank Brazil” award from the British magazineby Global Finance.
The number of mortgages we provided directly to individuals in 20182019 was 3340 thousand, for an aggregate value of R$9.112.9 billion during the year. In 2018,2019, our portfolio had an average Loan to Value (LTV) of 38.7%38.6%, compared to 40.2%38.7% in 2017.2018. In commercial loans, we financed 6495 new real estate units during 2018,2019, with an aggregate value of R$2.33.6 billion.
Another positive feature of the Brazilian market is the constant amortization system pursuant to which decreasing installments provide faster amortization of a contract, reducing ourloan-to-value indicator at a faster rate than other amortization systems.
The table below shows our market position and information about competitors for the business listed below:
Product/Service | Market Position | Additional Information and Main Competitors | ||
Real Estate Financing and Mortgages | In the period from January to December | Our main |
Source: Itaú Unibanco Holding and ABECIP.
Merchant Acquirer
Rede is one of the leading companies in the electronic payment solutions industry in Brazil, according to ABECS.Brazil. It is a multi-brand merchant acquirer of credit, debit and benefit cards. Rede’s activities include merchant acquiring, capturing, transmission, processing and settlement of credit and debit card transactions, prepayment of receivables to merchants (resulting from credit card transactions made in installments)transactions), rental of point of sale or POS,(POS) terminals,e-commerce solutions,e-wallet and check verification through POS terminals.
In 2018,2019, we implemented a businesskept on restructuring plan, intended to reposition our business relevancemodel, which has as its priorities: 1) integration of our banking operations; 2) strengthening of direct sales channels; and growing our market share by adjusting profitability to lower market levels set by the industry. One initiative we implemented to achieve this was the launch of POP Credicard, a new product aimed at micro-entrepreneur clients.3) digital transformation.
We received R$437.1 487.8 billion in transactions with respect to credit and debit cards as of December 31, 2018,in 2019 an increase of 11.6% compared to December 31, 2017.the same period in 2018. The following table sets forth the financial volume of transactions of credit and debit cards processed by us in 2019, 2018 2017 and 2016:2017:
Financial Volume | Financial Volume | |||||||||||||||||||||||
(In billions of R$) | (In billions of R$) | |||||||||||||||||||||||
Fiscal Year 2018 | Fiscal Year 2017 | Fiscal Year 2016 | 2019 | 2018 | 2017 | |||||||||||||||||||
Credit cards | 280.8 | 255.9 | 251.9 | 314.1 | 280.8 | 255.9 | ||||||||||||||||||
Debit cards | 156.3 | 135.8 | 135.4 | 173.7 | 156.3 | 135.8 | ||||||||||||||||||
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Total | 437.1 | 391.7 | 387.3 | 487.8 | 437.1 | 391.7 | ||||||||||||||||||
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The table below shows our market position and information about competitors for the business listed below:
Product/Service | Market Position | Additional Information and Main Competitors | ||
Merchant Acquirer | In the period from January to | Our main competitors in this business are Cielo and Santander GetNet. In recent years, changes in legislation made by the Central Bank combined with the growing number of |
Source: Itaú Unibanco Holding and ABECS.
Private Pension Plans
We offer private pension plans to our clients as an option for wealth, inheritance planning and income tax purposes (these products aretax-deferred). We provide our clients with a solution to ensure the maintenance of their quality of life through long-term investments, as a supplement to government general social security system plans.
Product innovation has been important for the sustainable growth of our private sector pension operations. For legal entities, we offer specialized advice and develop customized solutions for each company. We establish long-term partnerships with our corporate clients, maintaining a close relationship with their human resources departments and adopting a communication strategy focused on our employees’ financial education.
According to the National Federation of Private Pension and Life (Federação Nacional de Previdência Privada e Vida),or FENAPREVI, contributions to Itaú Private Pension Plans reached R$26.921.6 billion in 2018,2019, mainly due to the increase in our VGBL (Redeemable Life Insurance) product.
The table below shows our market position and information about competitors for the business listed below:
Product/Service | Market Position | Additional Information and Main Competitors | ||
Private pension plans | In December, | Our main competitors in private pension plan products are controlled by large commercial banks, such as Banco Bradesco and Banco do Brasil, which, like us, take advantage of their branch network to gain access to the retail market. |
Source: FENAPREVI (Balance of provisions—Pension Plans for Individuals and Companies).
Vehicle Financing
We have developed and launched a series of new products and services during 2018,2019, some of which are described below:
Digital Retail – the evolution in our digital retail platform has had an important impact in our journey. We have launched a feature that enables the customer to give the next step in his or her financing process. Now, our clients are able to upload the documents and complete all the information needed to book a transaction.
iCarros Products– this classified ads portal offers manyOur solutions help dealers make their sales process more efficient. The Lead Manager is now fully integrated with Linx Auto solution to optimize dealers’help dealers on sales such asand billing process, ensuring a unique journey experience; “Garagem do Conhecimento” is a new educational platform with distant education classes to prepare professionals of the automotive sector. We are the first Brazilian automotive marketplace integrated with several banks, who offer personalized credit that match customer’s profiles;Check-up iCarros Club,is a businesscar management app for end consumers, focused on services to businesstrade-in platform for used vehicles; Leads Manager, adrivers and also supplying detailed data from clients’ cars to the service that integrates leads from different websites in an single interface for the dealer and has WhatsApp communication; Call Qualifier, which records calls and identifies if customers have apre-approved vehicle financing credit with us; and Stock Integration that automatically synchronizes dealers’ car inventory in different classified websites.providers.
New Credline – a newour credit application platform has significantly evolved along the year. We launched the corporate buyer experience, which is also availableincreased significantly our market visibility. Further, in order to ensure safety in our transactions, we have deployed a mobile version, that offers a simple and full experience for dealers, helping them to easily calculate, contract and manage all the financing workflow.facial biometrics solution.
Digital RetailVehicle Website– online calculatorwe created the Itaú website for our vehicle solutions. In this webpage, we advertise all of our solutions for this segment, including the auto loan digital process, our products shelf, and credit application feature that allows customersour benefit shelf. The number of page views on our website increased from 100,000 to quote a vehicle financing anywhere they want to. Due1,000,000. This solution offers experience to our open banking system we were able to plug this tool not only in iCarros, but also in many partners’ website, like Jaguar, Land Rover, Fiat Chrysler Automobile, Mitsubishi Motors, and OLX. In July 2018, we became the financial partner of Jaguar and Land Rover in Brazil.
Protected Purchase and Sale (Compra e Venda Protegida) – an escrow account that mediates the payment between the parties involved in customer to customer car sales transactions, making these transactions safer for both buyers and sellers.either individual or corporate buyers.
As of December 31, 2018,2019, our individual and corporate vehicle financing portfolio (ex Finame) totaled R$15.928 billion, an 12.9%39% increase from the previous year. The average loan to value ratio of our individual vehicle portfolio (the ratio of a loan to the value of an asset purchased) was 60.5% as of59.6% in December 31, 2018, following2019, a downward trend,2% increase compared to 66.5% as of December 31, 2017.2018. Since 2012, we have reduced our risk exposure in the sector and focused on clients with better risk profiles, which has allowed us to improve the credit quality of our vehicle loan portfolio.
In 2018,2019, our new individual and corporate vehicle financing operations reached R$ 14.9620.5 billion, a 42%32% growth compared to 2017.2018. The average vehicle loan term was 4243 months, with 39%37% of the transactions carried out with terms up to 36 months.
The table below shows our market position and information about competitors for the business listed below:
Product/Service | Market Position | Additional Information and Main Competitors | ||
Vehicles | In December | Our main bank competitors in this business are Banco Santander (Brazil), Banco do Brasil and Banco Bradesco. |
Source: Itaú Unibanco Holding and the Central Bank.
Insurance
Our insurance business provides a wide range of life and personal accident products, automobile and property insurance, credit insurance and travel insurance. Our insurance core activities, which include our 30% stake in Porto Seguro S.A, consist of mass-market insurance products related to life, property and credit. These products are offered in synergy with retail channels – our branch network, partnerships with retailers, credit card clients, real estate and vehicle financing, personal and payroll loans – and the wholesale channel. These products have characteristics such as a low combined ratio, low volatility in results and less use of capital, making them strategic and increasingly relevant in the diversification of the Itaú Unibanco Group’s revenues. Other insurance activities encompass extended warranty, health insurance, our 11.1%11.2% stake in IRB – Brasil Resseguros S.A. and other operations.
Our insurance products have been receiving updates on coverage and assistance, bringing more value to these customers. In order to expand our insurance products portfolio, we are concentrating on our own existing distribution channels as well as expanding our insurance brokerage activities and providing third-party insurance policies from partner insurers to our clients through an open platform.
The table below shows the market position and information about competitors for the business listed below:
Product/Service | Market Position | Additional Information and Main Competitors | ||
Insurance | Giving effect to our 30% ownership interest in Porto Seguro S.A., we reached | Our main competitors are controlled by or are in partnership with large commercial banks, such as Banco Bradesco, Banco Santander (Brazil) and Banco do Brasil which, like us, take advantage of their branch network to gain access to the retail market. Despite the high concentration of Brazilian banks, in this market, the growing number of Insurtechs (startup companies focused on insurance) has facilitated customer access to insurance companies, making this market even more competitive. |
Source: SUSEP. Recurring insurance activities include: Personal Insurance (Life, Personal Accidents, Credit Insurance, Travel, Unemployment, Funeral Allowance, Serious Diseases, Random Events), Housing, Multiple Peril and Homeowners. Health Insurance and VGBL—Redeemable Life Insurance products are not included.
Premium Bonds (títulos de capitalização, or capitalization plans)
Premium bonds are fixed deposit products pursuant to which a client makes aone-time deposit or monthly deposits of a fixed sum that will be returned at the end of a designated term. Ownership of premium bonds automatically qualifies a customer to participate in periodic raffles, each time with the opportunity to win a significant cash prize. In 2018, we distributed R$ 47.0 million in raffle prizes for 1935 clients.
We currently market our premium bonds products portfolio through our branch network, electronic channels and ATMs, and we are currently developing new technologies for channel diversification. The net collection, taking into account the deduction of redemptions, from capitalization plans decreased 20.0%20.6% in 20182019 when compared to 2017.2018.
The table below shows our market position and information about competitors for the business listed below:
Product/Service | Market Position | Additional Information and Main Competitors | ||
Premium Bonds | In the period from January to December, | Our main competitors in premium bonds are controlled by or are in partnership with large commercial banks, such as Banco Bradesco, Banco do Brasil and Banco Santander (Brazil) which, like us, take advantage of their branch network to gain access to the retail market. |
Source: SUSEP.
Consortia
ConsortiumA consortium is a pool of people and/or legal persons in a group with the purpose of allowing their members, on an equal basis, to acquire assets, such as vehicles, properties, or services, through self-financing. The payments made by the group participants are applied to a common fund, used by one or more members of the consortium at a time, to acquire the assets elected by the members when the product was contracted. The participants receive the assets during the validity of the contract through the following methods: (i) random drawing; (ii) bid offer with own resources; (iii) part of the letter of credit; and (iv) FGTS tax (only for properties consortium), with the exception of the random drawing, the other options may be combined.
As consortia are regarded as a provision of services under Brazilian law, the management of consortia does not give rise to default risk or regulatory capital requirements for us.
Consortia do not charge interest rates and our revenues come mainly from the administration fee charged to clients.
Given these characteristics, this business is strategic to us, contributing to revenue diversification and to a more complete product portfolio offering to our clients. As of December 31, 2018,2019, we achieved the following results:
385361 thousand in active contracts, a decrease of 2%6.4% compared to December 31, 2017;2018;
R$11.812.6 billion in balance of installments receivables, an increase of 7%6.9% compared to December 31, 2017;2018; and
R$681700 million in administration fees from January 31, 20182019 to December 31, 2018,2019, an increase of 8%2.8% compared to the same period of 2017.2018.
The table below shows the market position and information about competitors for the business listed below:
Product/Service | Market Position | Additional Information and Main Competitors | ||
Consortia Services Fees | In the period from January to December | Considering only banks, our main competitors in the Brazilian consortia market are Bradesco Adm. Consortia and BB Consortia. |
Source: Central Bank.
Microcredit
Our microcredit unit offers tolow-income entrepreneurs who do not have the necessary attributes to participate in the traditional financial system the chance to expand and develop their businesses. Itaú Microcrédito’s loan officers solicit new and existing clients, offering loans. Loan officers are also responsible for disseminating information regarding financial concepts related to the responsible use of money.
A major benefit arising from this initiative is that micro-entrepreneurs start to develop a relationship with the formal financial system.
As a tool to stimulate entrepreneurship, ItauItaú Microcrédito has specific rules to credit application. Some of them are: includes working capital loans, or loans for upgrades and fixed assets provided to formal and informal business people engaged in small business activities. Any grant of loans requires the presence of aLoans are granted by specifically trained microcredit loan officer.officers who discuss the client’s financial situation and understand their business, needs, as well as providing information regarding the responsible use of money.
As a result of this initiative, micro-entrepreneurs develop a relationship with the formal financial system, generating more opportunities to develop their business, contributing to the growth of their communities.
Our investment in microcredit consolidates our strategy to act as an agent of transformation in society. Microcredit is also important as it reinforces our vision of sustainability and increases our ability to spread our knowledge in financial education. The end goal is to create a virtuous cycle in which our bank stimulatesencourages the social and economic development of Brazil’slow-income population. In view of this, we have expanded our microcredit operations to six Brazilian states, operating in the cities and metropolitan areas of São Paulo, in the state of São Paulo, Rio de Janeiro, in the state of Rio de Janeiro, Montes Claros, in the state of Minas Gerais, Campina Grande, in the state of Paraíba, Fortaleza in the state of Ceará and Teresina, in the state of Piauí. This expansion has brought positive results, increasing the number of customers and communities impacted. In 2020 we expect to expand our business channels, increasing product capillarity and impacting more customers.
Public Sector
Our public sector business operates in all divisions of the public sector, including the federal, state and municipal governments (in the executive, legislative and judicial branches).
To service public sector clients, we use platforms that are separate from our retail banking branches, with teams of specially trained managers who offer customized solutions in tax collection, foreign exchange services, administration of public assets, payments to suppliers, payroll for civil and military servants and retirement. Based on these platforms, we have a significant amount of business with public sector clients, particularly in those Brazilian states where we acquired previously state-owned financial institutions. As of December 31, 2018,2019, we had 5,8046,033 public sector clients and 13 offices where such services were offered in Brazil.
Wholesale Banking
Wholesale Banking is the segment responsible for banking operations of middle-market, corporate, large and ultra companies (those with annual revenues from R$30 million) and investment banking services. The breakdown of revenue among these segments is set out in the section “Item 4B. – Business Overview – Operations Overview” above. Our Wholesale Banking segment offers a wide range of products and services to the largest economic groups of Brazil.
Our activities in this business range from typical operations of a commercial bank to capital markets operations and advisory services for mergers and acquisitions. These activities are fully integrated, which enables us to achieve a performance tailored to our clients’ needs.
One of the most important features of our strategy for our Wholesale Banking segment is the set of initiatives linked to improving efficiency in our operations. These ongoing actions, which are expected to continue to grow in the coming years, are designed to increase revenues, improve processes and reduce costs.
Investment Banking
Our investment banking business carried out through Itaú BBA, assists companies raising capital through fixed income and equity instruments in public and private capital markets, and provides advisory services in mergers and acquisitions. We advise companies, private equity funds and investors in the structuring of variable income products and in mergers and acquisitions. We believe we offer a wide portfolio of investment banking services ranging from research to Brazilian and other Latin American companies.
Our fixed income department acts as bookrunner or manager in the issuance of debentures, promissory notes and securitization transactions at the investment banking segment.
The table below shows our market position and information about competitors for the business listed below:
Product/Service | Market Position | Additional Information and Main Competitors | ||
Investment Banking | At | In investment banking, Itaú BBA’s main competitors include Santander, |
Source: (1) Dealogic. (2) ANBIMA ranking in terms of volume.
Asset Management
With more than 60 years of experience in investment management, Itaú Asset Management has R$ 680.6770.8 billion in assets under management (including Itaú Unibanco and Intrag) according to ANBIMA (Ranking(Ranking de Gestão – December 2018)2019) and recorded 11.6%13.3% growth during 2018.2019. Itaú Asset Management ranked as the largestnon-government owned asset manager in Brazil, with a 14.7%14.2% market share as of December 31, 2018,2019, according to ANBIMA.
In 20182019 Itaú Asset Management was awarded for the 10th11th time the title of best asset manager in Brazil byRevista Exame.Exame.
Kinea Investimentos LTDA., an alternative investments management company controlled by us, held R$50.868.5 billion in managed assets as of December 31, 2018,2019, compared to R$28.250.8 billion as of December 31, 2017,2018, according to ANBIMA.
The table below shows the market position and information about competitors for the business listed below:
Product/Service | Market Position | Additional Information and Main Competitors | ||
Asset Management | In December | According to ANBIMA, the asset management industry in Brazil held assets totaling R$ The competition is concentrated among large andwell-established retail banks. Our main competitors are Banco do Brasil, Banco Bradesco and Caixa Econômica Federal. |
Source: ANBIMA.
SecuritiesInvestment Services
Itaú SecuritiesInvestment Services business units provide
(i) | local custody and fiduciary services, |
(ii) | international custody services, and |
(iii) | corporate solutions that act as transfer agent and stockholder servicer for Brazilian companies issuing equity, corporate bonds, promissory and bank credit notes. We also work as guarantor in transactions for project finance, escrow accounts and loan and financing contracts. |
OurWe provide the technological tools to perform daily activities of each service and rely on compliance and contingency procedures. Thus, our clients can direct the focus is to be a full service provider with specialized professionals and with technology as a foundation.on their business management.
Pension funds, insurance companies, asset managers, international institutional investors and equity and debt issuers are our primary clients in these businesses, representing approximately 2,8502,237 clients, in 21 countries, that reached R$3.053.7 trillion of assets under service as of December 31, 2018,2019, which includes investment funds, underwriting, pension funds, trustee and brokerage services.
In 2018,2019, Global Finance named Itaú SecuritiesInvestment Services as the bestsub-custodian in Brazil Uruguay and Paraguay.Uruguay. We are currently updating our technological platform with respect toregarding securities services.
The following table below shows the market position and information about competitors for the businesses listed below:
Product/Service | Market Position | Additional Information and Main Competitors | ||
Local Custody | In December | According to ANBIMA, the local custody in Brazil held assets totaling R$
Our main competitors are Banco Bradesco S.A. and Banco do Brasil S.A. | ||
International Custody | Our market share in December | Based on ANBIMA, the international custody service in Brazil totaled R$
Our main competitors are Banco Citibank S.A., JP Morgan’s Securities Services and Banco Bradesco S.A. | ||
Corporate Solutions | In December
Moreover, we were the second largest transfer agent with | Our main competitors in the equities market are Banco Bradesco S.A. and Banco do Brasil S.A.
Our main competitor in debentures is Banco Bradesco S.A. |
Source: Itaú Unibanco Holding, ANBIMA and B3.
Itaú Private Bank
With a full global wealth management platform, we are one of the private bank market leaders in Brazil and one of the main private bank players in Latin America. Our multidisciplinary team, which is supported by a team of investment advisers and product experts, provides comprehensive financial services to clients, understanding and addressing their needs from our eight offices in Brazil and in our offices located in Zurich, Miami, New York, Santiago Asunción and Nassau.
Our clients have access to a complete portfolio of products and services, ranging from investment management to wealth planning, as well as credit and banking solutions. In addition to ourin-house customized products and services, we offer our clients access to an open architecture of alternative products from third-party providers.
Aligned with our vision to be the leading bank in sustainable performance and customer satisfaction, we decided to focus our strategic priorities on the following Itaú Private Bank initiatives. We intend to continue this focus in 2019.initiatives:
Being the leading private bank in terms of client satisfaction;
Adding value to clients and stockholders with a complete offering of long-term proactive advisory services;
Continuing to invest in our international platforms to enhance Brazilian clients’ experience and expand our operations in Latin America;experience;
Increasing theImproving our operational efficiency of our platform through continuous investments in our IT platforms; andtechnology;
Maintaining a focus on risk management and regulatory considerations.
The table below shows our market position for the business:
Product/Service | Market Position | |
Itaú Private Bank | In December |
Source: ANBIMA.
Itaú Corretora (Brokerage)
Itaú Corretora has been providing brokerage services since 1965. We provide retail brokerage services in Brazil to over 172207 thousand clients with positions in the equity and fixed income markets, accounting for approximately R$4159.4 billion in trading volume in 2018.2019. The brokerage services are also provided to international clients through our broker-dealer in New York.
The following table shows our market position and information about competitors for the businesses listed below:
Product/Service | Market Position | Additional Information and Main Competitors | ||
Retail Brokerage Services(1) | Ranked | Main competitors: XP Investimentos, Ágora Corretora de Títulos e Valores Mobiliários S.A., Rico Corretora de Títulos e Valores Mobiliários S.A., Easynvest Título Corretora de Valores S.A., BTG Pactual Corretora de Títulos e Valores Mobiliários S.A., Bradesco S.A. Corretora de Títulos e Valores Mobiliários and Santander Corretora de Câmbio e Valores Mobiliários S.A. | ||
Cash Equities (2) | Ranked | Main competitors: UBS Brasil Corretora, XP Investimentos, Morgan Stanley Corretora de Títulos e Valores Mobiliários S.A., Credit Suisse Hedging-Griffo Corretora de Valores S.A., JP Morgan Corretora de Câmbio e Valores Mobiliários S.A., Bradesco S.A. Corretora de Títulos e Valores Mobiliários and Merrill Lynch S.A. | ||
Futures and Derivatives (2) | Ranked | Main competitors: UBS Brasil Corretora, BTG Pactual Corretora de Títulos e Valores Mobiliários S.A., XP Investimentos, Clear Corretora de Títulos e Valores Mobiliários LTDA, Modal Distribuidora de Títulos e Valores Mobiliários LTDA. | ||
Source: (1) CBLCnet,CBLCnet; (2) Bloomberg, (3) Institutional Investor Magazine.Bloomberg.
International Operations—Global footprint
We want to achieve, in the countries where we operate, the same management quality and level of results we have in Brazil. Through our internationalization strategy, we seek to understand different markets, business, products and services, identifying opportunities to integrate our units and to expand our operations to new countries.
International Operations
The table below shows some of our operations in Latin America, excluding Brazil:
Countries | Branches & CSBs | ATMs | Employees | |||
Argentina | 87 | 176 | 1,613 | |||
Chile | 194 | 424 | 5,755 | |||
Colombia(1) | 128 | 147 | 3,326 | |||
Paraguay | 44 | 298 | 869 | |||
Uruguay(2) | 26 | 62 | 1,101 |
(1) | Includes employees in Panama. |
(2) | Does not include the 35 OCA points of service. |
Overview
Latin America is a priority in our international expansion due to the geographic and cultural proximity to Brazil. Our goal is to be recognized as the “Latin American Bank”, becoming a reference in the region for all financial services provided to individuals and companies.
Over the past years, we consolidated our presence in Argentina, Chile, Paraguay and Uruguay. In these countries, we operate in the retail, companies, corporate and treasury segments, with commercial banking as our main focus. With the recent merger between Banco Itaú Chile and CorpBanca, which assured our presence in Colombia and Panama, we expanded our operations in the region even further. In Mexico, we are present through an office dedicated to equity research activities.
As of December 31, 20182019 we had a network of 512479 branches, including 6 digital branches, and client service branches in Latin America (excluding Brazil). In Paraguay, we had 5957non-bank correspondent locations, which are points of service with a simplified structure, strategically located in supermarkets to provide services to our clients in that country. As of December 31, 2018,2019, we also had 35 points of service through OCA S.A., our credit card operator in Uruguay. Please see “Distribution Channels”, for further details about our distribution network in Latin America.
Banco Itaú Argentina
We have operated in Argentina since 1979, where we began with a focus on large companies with business ties to Brazil. In 1995, we began our retail operations in Buenos Aires. In 1998, we increased our presence through the acquisition of Buen Ayre Bank, subsequently renamed Banco Itaú Argentina.
Through Banco Itaú Argentina we offer products and services in corporate banking, small and middle-market companies and retail banking. Our corporate banking business focuses on large and institutional clients, providing lending, structured finance, investment and cash management services. Our small and middle-market operations provide credit for working capital and investments in production capacity increases. Our retail banking business focuses on middle and upper-income clients, and our services offerings include current and savings accounts, personal loans and credit cards. In 2019 Banco Itaú Argentina opened two digital branches enhancing its presence in Argentina’s financial market.
The table below shows our market position and information about competitors for the business listed below:
Product/Service | Market Position | Additional Information and Main Competitors | ||
Total Loan Portfolio (includesprivately-owned banks only) | In December | Our main competitors are Banco Santander Río, |
Source: Central Bank of Argentina.
Itaú Corpbanca
In April 2016, we closed the merger of Banco Itaú Chile with and into Corpbanca and, as a result, acquired control of the resulting entity – Itaú Corpbanca. On that same date, we entered into the Shareholders’ Agreement of Itaú Corpbanca, or Itaú Corpbanca’s Shareholders’ Agreement, which entitles us to appoint, together with Corp Group, the former controlling shareholder of Corpbanca, the majority of the members of Itaú Corpbanca’s Board of Directors. Such members are appointed according to the ownership interest of each party, and we have the right to elect the majority of the members elected by this block. In addition, on that same date, we consolidated Itaú Corpbanca in our financial statements, adding approximately R$114 billion of assets to our balance sheet.
These steps were implemented as a result of the obligations we undertook in the transaction agreement, which we entered into together with Corpbanca and its controlling shareholders in January 2014 and amended in June 2015.
In January 2017, we executed a new amendment to the transaction agreement, which provided for (i) the postponement of the date of acquisition of the shares held by Corp Group in Banco Corpbanca Colombia S.A., or Corpbanca Colombia, from January 29, 2017 to January 28, 2022, subject to receipt of applicable regulatory approvals; (ii) the modification of the previously defined structure for the combination of the operations of Itaú Unibanco and Itaú Corpbanca in Colombia to a sale and purchase of assets and liabilities, which was concluded in April 2017; and (iii) the replacement of the obligation to consummate an initial public offering of Corpbanca Colombia for the obligation to register Corpbanca Colombia as a public company and list its shares on the Colombian stock exchange.
Pursuant to the exercise of put options by Corp Group, as set forth in Itaú Corpbanca’s Shareholders’ Agreement, we acquired (i) in October 2016, 10.9 billion shares of Itaú Corpbanca for approximately R$288.1 million, increasing our equity stake from 33.58%33.6% to 35.71%35.7%; (ii) in September 2017, 1.8 billion shares of Itaú Corpbanca for approximately R$55.6 million, increasing our equity stake from 35.71%35.7% to 36.06%36.1%; and (iii) in October 2018, 10.6 billion shares of Itaú Corpbanca for approximately R$363 million, increasing our equity stake from 36.06%36.1% to 38.14%38.1%. In all cases the governance of Itaú Corpbanca remained the same.
Helm Group
OnIn December 20, 2016, Helm LLC (“Helm”) initiated an arbitration proceeding (the “Arbitration”) before the ICC International Court of Arbitration (the “ICC”) against Corp Group Holding Inversiones Ltda. (“Corp Group”) and Itaú Corpbanca (collectively, “Respondents”). Helm alleged that the Respondents had breached (i) the Amended and Restated Shareholders Agreement of HB Acquisition S.A.S., dated July 31, 2013, which governs Itaú Corpbanca’s subsidiary Itaú Corpbanca Colombia (formerly Banco Santander Colombia S.A.), and (ii) the Transaction Agreement, dated January 29, 2014, as amended and restated, which governs the merger between Itaú Chile S.A. and Corpbanca, by which Itaú Corpbanca was formed, and the potential acquisition by Itaú Corpbanca of certain shares of Itaú Corpbanca Colombia from Corp Group.
During the course of the proceedings, Helm demanded that Itaú Corpbanca and Corp Group effect the acquisition of its shares of Itaú Corpbanca Colombia at a price in excess of the price agreed with Corp Group in the Transaction Agreement, which would have totaled approximately US$850 million (with interest at 9% per year from January 29, 2014 onwards). On February 28, 2019, athree-member Tribunal of the ICC rejected Helm’s demand and ordered Helm to sell its shares of Itaú Corpbanca Colombia, which represent 19.44% of the equity in Itaú Corpbanca Colombia, to Respondents at approximately US$299 million (including interest at LIBOR plus 2.7% per year from April 1, 2016 onwards).
On December 3, 2019, following receipt of regulatory approvals from the banking supervisors in Chile, Colombia and Brazil, Itaú Corpbanca intends to purchasecompleted the announced acquisition of shares of Itaú Corpbanca Colombia from Helm. Helm LLC and Kresge Stock Holding Company. In connection with the transactions, Itaú Corpbanca acquired shares representing approximately 20.82% of Itaú Corpbanca Colombia’s outstanding equity for aggregate consideration of approximately US$334 million. As a result of the transactions, Itaú Corpbanca owns approximately 87.10% of the equity of Itaú Corpbanca Colombia. Following the transactions, the Amended and Restated Shareholders Agreement of HB Acquisition S.A.S., dated as of July 31, 2013, which governs Itaú Corpbanca Colombia was terminated.
This priceconsideration of US$299334 million implies a valuation multiple of 1.361.37 times the book value of Itaú Corpbanca Colombia as of DecemberOctober 31, 20182019 and is consistent with the valuations of Itaú Corpbanca Colombia in Itaú Corpbanca’s financial statements. The acquisition when completed, will resultresulted in an estimated impact of 0.82%0.94% on Itaú Corpbanca’s Common Equity Tier 1 capital, as if we were applying the new regulatory capital requirements on a fully loaded basis, under the Basel III standards (using exchange rates as of February 28,November 30, 2019).
The purchase of shares of Itaú Corpbanca Colombia by Itaú Corpbanca will be subject to regulatory approvals in Colombia, Chile and Brazil. Itaú Corpbanca has also sought regulatory approval to purchase the shares held by Kresge Stock Holding Company Inc. (“Kresge”) in Itaú Corpbanca Colombia, which represent 1.38% of the capital stock of Itaú Corpbanca Colombia. When the purchase of shares is complete, Itaú Corpbanca and Corp Group intend to terminate the existing Shareholders Agreement. Itaú Corpbanca can offer no assurances as to when the regulatory approvals—which are not perfunctory—will be received. The acquisition of thenon-controlling interest of Kresge and corresponding obligation is to be reflected in Itaú Corpbanca’s consolidated financial statements once the approval process is completed. Consequently, there are no effects to be recognized in Itaú Corpbanca’s consolidated financial statements and in our audited consolidated financial statements.
The table below shows the market position and information about competitors for the business listed below:
Product/Service | Market Position | Additional Information and Main Competitors | ||
Total Loan Portfolio (includesprivately-owned banks only) | In December | Our main competitors are Banco Santander-Chile, Banco de Chile, Scotiabank Chile and Banco de Crédito e Inversiones. |
Source: Superintendency of Banks andCommission for the Financial Institutions.Market.
Banco Itaú Paraguay
Our operations in Paraguay began in 1978 and comprise retail and wholesale banking, through Interbanco, which was acquired in 1995 by Unibanco. In 2010, the Itaú brand was introduced and our bank’s name was changed to Banco Itaú Paraguay. Banco Itaú Paraguay distributes products and services to small and middle market companies, agribusiness, large companies, institutional clients and consumer clients. The retail segment also focuses on payroll clients. Under corporate banking, Banco Itaú Paraguay has a well-established presence in the agribusiness sector. Banco Itaú Paraguay’s qualification is based on its strong positioning, with leadership in several segments, reflecting high returns.
In 2019 Banco Itaú Paraguay opened its first digital branch enhancing its presence in Paraguay’s financial market.
The table below shows our market position and information about our competitors for the Banco Itaú Paraguay business:
Product/Service | Market Position | Additional Information and Main Competitors | ||
Total Loan Portfolio (includesprivately-owned banks only) | In December | Our main competitors are Banco Continental, |
Source: Central Bank of Paraguay.
Banco Itaú Uruguay
Our banking operations in Uruguay include Banco Itaú Uruguay, OCA (the largest credit card issuer in Uruguay, in accordance with data from Uruguay’s central bank) and the pension fund management company Unión Capital. Our strategy in Uruguay is to serve a broad range of clients through customized banking solutions.
Our retail banking business is focused on individuals and small business clients. Retail products and services focus on the middle and upper-income segments, and also include current and savings accounts, payroll payment, self-service areas and ATMs in all branches, and phone and internet banking. The wholesale banking division is focused on multinational companies, financial institutions, large and middle market companies and the public sector, providing lending, cash management, treasury, trade and investment services.
In 2019 Banco Itaú Uruguay opened its first digital branch enhancing its presence in Uruguay’s financial market.
The table below shows our market position and information about our competitors for the Banco Itaú Uruguay business:
Product/Service | Market Position | Additional Information and Main Competitors | ||
Total Loan Portfolio (includesprivately-owned banks only) | In December | Our main competitors are Banco Santander Uruguay, |
Source: Central Bank of Uruguay.
Itau BBA International
Our banking activities carried out under the corporate structure of Itau BBA International are mainly focused on two business lines:
Corporate and Investment Banking: headquartered in the United Kingdom, but with business platforms in severalother cities in Europe, this segment supports the financial needs of companies with international presence and operations, focusing on transactions related to financing and investment relationships between companies in Latin America and the Northern Hemisphere. The services offered include the origination of structured financing, hedging, trade financing and advisory to Latin American, European and U.S. companies undertaking business in the Northern Hemisphere and large economic groups investing into Latin America.
Private Banking: under the corporate structure of Itau BBA International, we manage private banking activities in Miami and Zurich, offering specialized financial and asset management services for Latin American clients with high net worth by providing a diversified and specialized basis of investment funds, trading and managing on their account securities and other financial instruments, as well as by managing trusts and investment companies on behalf of customers..customers.
On October 8, 2019, following authorization from the European Central Bank, Itau BBA International established a fully licensed banking subsidiary – Itau BBA Europe, S.A. (“Itau Europe”) – in Portugal, where the Group has had a banking presence since 1994. Itau Europe’s initial operation date was February 3, 2020.
By setting up Itau Europe, Itau Group aims to be able to continue serving European Union (“EU”) clients in accordance with their preference, business needs and/or regulatory requirement regardless of the final shape of the future relationship between the EU and the United Kingdom (“UK”) after the end of the ongoing transitional period.
Other International Operations
Our other international operations have the following objectives:
Support our clients in cross-border financial transactions and services, our international units are active in providing our clients with a variety of financial products, such as trade financing, loans from multilateral credit agencies,off-shore loans, international cash management services, foreign exchange, letters of credit, guarantees required in international bidding processes, derivatives for hedging or proprietary trading purposes, structured transactions and international capital markets offerings. Our international units offer a variety of financial products through their branches.
Manage proprietary portfolios and raise funds through the issuance of securities in the international market. Fundraising through the issuance of securities, certificates of deposit, commercial paper and trade notes can be conducted by our branches located in the Cayman Islands, the Bahamas and New York, as well as through Itaú Bank Ltd., a banking subsidiary incorporated in the Cayman Islands. Our proprietary portfolios are mainly held by Itaú Bank and our Nassau and Cayman Islands branches. These offices also enhance our ability to manage our international liquidity.
Through our international operations, we establish and monitor trade-related lines of credit from foreign banks, maintain correspondent banking relationships with money centers and regional banks throughout the world and oversee our other foreign currency-raising activities.
Additionally, Itaú BBA participates in the international capital markets as a dealer, as it has equity and fixed income sales and trading teams in São Paulo, New York, Santiago, London. We provide extensive research coverage of over 234 listed companies in Brazil, Mexico, Chile, Colombia, Peru, Panama and Argentina. Our international fixed income and equity teams both act in offerings and trading of Brazilian and Latin American securities to institutional investors.
Revenues from Operations in Brazil and Abroad
We conduct most of our business activities in Brazil, but we do not break down our revenues by geographic markets within Brazil. Our interest income from loans and leases, banking service fees and income from insurance, private pension plans and premium bonds transactions are divided between revenues earned in Brazil and outside of Brazil. The following information is presented in IFRS, after eliminations on consolidation.
The following table sets forth the consolidated statement of income with respect to our revenues from operations in Brazil and abroad for the years ended December 31, 2019, 2018 2017 and 2016:2017:
Revenues from operations in Brazil and abroad | For the Year Ended December 31, | Variation | For the Year Ended | Variation | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Revenues from operations in Brazil and abroad | 2019 | 2018 | 2017 | 2019-2018 | 2018-2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||
2018 | 2017 | 2016 | 2018-2017 | 2017-2016 | (In millions of R$, except percentages) | |||||||||||||||||||||||||||||||||||||||||||||||||||
(In millions of R$, except percentages) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income Related to Financial Operations (1) (2) | 131,317 | 149,572 | 174,984 | (18,255 | ) | (12.2 | )% | (25,412 | ) | (14.5 | )% | |||||||||||||||||||||||||||||||||||||||||||||
Income related to financial operations(1)(2) | 145,308 | 131,317 | 149,572 | 13,991 | 10.7% | (18,255 | ) | (12.2)% | ||||||||||||||||||||||||||||||||||||||||||||||||
Brazil | 108,362 | 131,689 | 155,030 | (23,327 | ) | (17.7 | )% | (23,341 | ) | (15.1 | )% | 117,541 | 108,362 | 131,689 | 9,179 | 8.5% | (23,327 | ) | (17.7)% | |||||||||||||||||||||||||||||||||||||
Abroad | 22,955 | 17,883 | 19,954 | 5,072 | 28.4 | % | (2,071 | ) | (10.4 | )% | 27,767 | 22,955 | 17,883 | 4,812 | 21.0% | 5,072 | 28.4% | |||||||||||||||||||||||||||||||||||||||
Banking Service Fees | 36,809 | 34,448 | 31,918 | 2,361 | 6.9 | % | 2,530 | 7.9 | % | |||||||||||||||||||||||||||||||||||||||||||||||
Revenues from banking Services | 39,032 | 36,809 | 34,448 | 2,223 | 6.0% | 2,361 | 6.9% | |||||||||||||||||||||||||||||||||||||||||||||||||
Brazil | 33,211 | 31,296 | 29,061 | 1,915 | 6.1 | % | 2,235 | 7.7 | % | 35,283 | 33,211 | 31,296 | 2,072 | 6.2% | 1,915 | 6.1% | ||||||||||||||||||||||||||||||||||||||||
Abroad | 3,598 | 3,152 | 2,857 | 446 | 14.1 | % | 295 | 10.3 | % | 3,749 | 3,598 | 3,152 | 151 | 4.2% | 446 | 14.1% | ||||||||||||||||||||||||||||||||||||||||
Income related to insurance and private pension operations before claim and selling expenses, net of reinsurrance | 3,961 | 4,699 | 5,265 | (738 | ) | (15.7 | )% | (566 | ) | (10.8 | )% | |||||||||||||||||||||||||||||||||||||||||||||
Income from insurance and private pension operations before claim and selling expenses | 4,553 | 3,961 | 4,699 | 592 | 14.9% | (738 | ) | (15.7)% | ||||||||||||||||||||||||||||||||||||||||||||||||
Brazil | 3,812 | 4,551 | 5,133 | (739 | ) | (16.2 | )% | (582 | ) | (11.3 | )% | 4,423 | 3,812 | 4,551 | 611 | 16.0% | (739 | ) | (16.2)% | |||||||||||||||||||||||||||||||||||||
Abroad | 149 | 148 | 132 | 1 | 0.7 | % | 16 | 12.1 | % | 130 | 149 | 148 | (19 | ) | (12.8)% | 1 | 0.7% | |||||||||||||||||||||||||||||||||||||||
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(1) | Includes interest and similar income, dividend income, net gain (loss) on investment securities and derivatives, foreign exchange results, and exchange variation on |
(2) | ITAÚ UNIBANCO HOLDING does not have clients representing 10% or |
Competition
The last several years have been characterized by increased competition and consolidation in the financial services industry in Brazil. As of December 31, 2018,2019, there were 135137 conglomerates, commercial banks and multiple-service banks, development banks and Caixa Econômica Federal, among a total of 1,3481,290 institutions in Brazil.
We, together with Banco Bradesco S.A. and Banco Santander Brasil S.A., are the leaders in the privately-owned multiple-services banking sector. As at December 31, 2018,2019, these banks accounted for 38.9%39% of the Brazilian banking sector’s total assets. We also face competition from state-owned banks. As at December 31, 2018,2019, Banco do Brasil S.A., Caixa Econômica Federal, and BNDESBanco Nacional de Desenvolvimento Econômico e Social (BNDES) accounted for 39.7%38.3% of the banking system’s total assets.
The following table sets for the total assets of the 10 main banks in Brazil, classified according to their interest in the total assets of the Brazilian banking sectorsector:
Position | Banks by total assets(1) | Control Type | As of December 31 | Banks by total assets(1) | Control Type | As of December 31 | ||||||||||||||
2018 | % of Total | |||||||||||||||||||
2019 | % of Total | |||||||||||||||||||
(In billions of R$) | (%) | (In billions of R$) | (%) | |||||||||||||||||
1st | Itaú Unibanco Holding S.A. | privately-owned | 1,492.8 | 17.0 | Itaú Unibanco Holding S.A. | privately-owned | 1,567.0 | 17.1 | ||||||||||||
2nd | Banco do Brasil S.A.(2) | state-owned | 1,418.2 | 16.1 | Banco do Brasil S.A.(2) | state-owned | 1,473.3 | 16.1 | ||||||||||||
3rd | Caixa Economica Federal | state-owned | 1,264.6 | 14.4 | Caixa Econômica Federal | state-owned | 1,293.5 | 14.1 | ||||||||||||
4th | Banco Bradesco S.A. | privately-owned | 1,132.9 | 12.9 | Banco Bradesco S.A. | privately-owned | 1,145.3 | 12.5 | ||||||||||||
5th | Banco Nacional de Desenvolvimento Economico e Social | state-owned | 806.6 | 9.2 | Banco Santander Brasil S.A. | privately-owned | 850.3 | 9.3 | ||||||||||||
6th | Banco Santander Brasil S.A. | privately-owned | 787.6 | 9.0 | Banco Nacional de Desenvolvimento Econômico e Social | state-owned | 739.8 | 8.1 | ||||||||||||
7th | Banco Safra S.A. | privately-owned | 167.4 | 1.9 | Banco BTG Pactual S.A. | privately-owned | 185.0 | 2.0 | ||||||||||||
8th | Banco BTG Pactual S.A. | privately-owned | 165.5 | 1.9 | Banco Safra S.A. | privately-owned | 172.8 | 1.9 | ||||||||||||
9th | Banco do Estado do Rio Grande do Sul S.A. (Banrisul) | state-owned | 77.0 | 0.9 | Banco Citibank S.A. | privately-owned | 92.3 | 1.0 | ||||||||||||
10th | Banco Citibank S.A. | privately-owned | 74.7 | 0.8 | Banco do Estado do Rio Grande do Sul S.A. (Banrisul) | state-owned | 81.0 | 0.9 | ||||||||||||
n.a. | Others | n.a. | 1,401.1 | 15.9 | Others | n.a. | 1,546.0 | 16.9 | ||||||||||||
Total(3) | 8,788.4 | 100.0 | Total(3) | 9,146.2 | 100.0 | |||||||||||||||
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(1) | Based on banking services, except insurance and pension funds. |
(2) | Includes the consolidation of 50.0% do Banco Votorantim S.A. based on Banco do Brasil’s shareholding stake and excludes these 50.0% of National Financial System. |
(3) | Excludes Payments Institutions |
Source: Central Bank.Bank (IF.data).
Along with our traditional competitors, there are also new technology-driven financial institutions such as fintechs, Asset Management firms and Acquiring Services which are disrupting the Brazilian financial industry. In general, these competitors act in specific business lines such as Credit Cards (e.g. Nubank), Investment Services (e.g. XP Investimentos), Acquiring Services (e.g. StoneCo, PagSeguro), Banking Services (e.g. Banco Inter) and others. Although there is an increasing number of competitors, many are still preoperational or in early stages of development.
Distribution Channels
WeAs a universal bank, we provide integrateda wide range of financial services and products to our clients, from commercial banking to asset management and investment banking. Those products are distributed through a varietytwo main channels: traditional and digital.
The traditional channels are composed of distribution channels. In addition to our traditional portfolio of banking products, we offer products such as insurance, investments, foreign exchangebrick & mortar branches – which could be either full-service branches or in-house corporate service centers – and brokerage.ATMs. The digital channels are operated remotely, via the internet or mobile phones.
Our distribution network is divided into (i) standard channels:of 3,158 branches Customer Site Branches –CSB (banking service centers located at certain corporate clients), Automatic Teller Machines—ATMs, and telephones; and (ii) digital channels: internet, mobile and SMS banking.
Standard Channels (branches, CSBs and ATMs)
Our branch network serves as a distribution network for(*) (as of December 31, 2019) distributes all of the products and services we offer toin Brazil.
ATMs, both our clients. Asown proprietary network of 22,491 machines and additional 23,780 via partnership with Tecban, (as of December 31, 20182019) are a very convenient and efficient way of serving clients, due to its low operating costs, 24/7 availability and very complete services offering.
Clients who prefer to use digital channels, such as internet and mobile banking, are served remotely by our standard branch network included 3,514 physicalrelationship managers based on one of our 196 digital branches in Brazil. Of those, 93 branches were especially refurbished for shopping malls, with a new visual identity and service proposition. The spaces present a new concept of client service, with a differentiated layout inspired by the design of a retail store. Focusing on the relationship with the client as a way to strengthen contact with the public, these branches function during different hours compared to regular branches (which are usually open from 10 a.m. to 4 p.m.). Furthermore,In Latin America, we had 195launched six digital branches as of December 31, 2018, which is consistent with our digital transformation strategy.
Similarly, we also implemented changes in service hours for certain branches located2019: two in commercial hubs, which now open at 8 a.m. or 9 a.m.Argentina, two in Chile, one in Paraguay and close at 6 p.m. or 8 p.m. This initiative was designed to adapt our services to the routines of our clients.
The range of services provided at CSBs can be the same as those provided at a full service branch, or more limited according to the size of a particular corporate client and its needs. CSBs represent alow-cost alternative to opening full service branches. In addition, we believe CSBs provide us with an opportunity to target new retail clients while servicing corporate clients and their personnel.
ATMs arelow-cost alternatives to employee-based services and give us points of service at significantly lower costs than branches. Our clients can conduct almost all account-related transactions through ATMs.one in Uruguay.
(*) | Includes IBBA representative offices abroad. |
In addition to all our standard channels for serving clients (branches, CSBs and ATMs), we also have a partnership with the “TecBan” ATM network, comprising of more than 23,049 ATMs in Brazil and which provide our clients with limited services – primarily cash withdrawal services.
Since 2012, we have made differentiated services available to certain registered clients. In addition to services available to our clients in general, these registered clients are able to withdraw funds and check current account balances and statements just by using biometric technology. Biometrics enables these registered clients to carry out transactions with fingerprint identification, without typing a password or using a card, providing more security and convenience for our clients. To be able to use biometrics, clients must register at any Itaú Unibanco branch.
Digital Channels (internet and mobile banking)
InWe invest a world permeated by ongoingsubstantial amount of effort to give our customers the best possible experience through digital transformation, our challenge is to keep up with changes and meet the needs of our clients. An essential part of this transformation is the increasing usage of mobile devices with access to the internet. This is reflectedchannels. Recent developments in the regulatory and competitive scenario reinforced that commitments we made to our customers and other stakeholders a couple of years ago were of utter importance and resulted in a 6 p.p. increase in our Digital NPS – net promoter score for experience in digital channels – during 2019. The relevant year over year growth of our mobile banking operations, which grew 23%in monthly active users, 14% for individuals and 21%7% for small and medium businesses, exemplifies the importance of this operation, which keeps bringing sustainable profit at a growing rate of 29% between 2018 and 2019.
New solutions, such as investment recommendations according to the clients objectives, buying foreign currency in the mobile app, which is now responsible for more than 30% of all purchases and made us market leaders, and integrating thesingle-use credit cards on our keyboard Teclado Itaú, which simplifies mobilee-commerce transactions, are the result of our initiatives to bring customers closer to our development process. This pillar of innovation also led us to understand and empathize with a significant difficulty that small and medium companies have: keeping track of their business performance and financial health. With that in 2018, when compared to 2017.
Considering this scenario,mind, in 2018August we significantly improved our technological platforms, including by redesigning them to deliver a more intuitive client experience and to offer a wider range of products and services. In June 2018 we launched “Teclado Itaú,”released an innovative platformfinancial management solution to transfer money using the smartphone’s own keyboard, which was adopted by over 200 thousand users in its first month after launchsimplify how more than half a million customers control their revenues and was highly commended at the Financial World Innovation Awardsexpenses. We give them insights and content on how to grow their companies, and provide a fully digital experience for all types of debt financing.
We also understand that some transactions happen majorly in the innovation in product or service design – payments category. In addition, in November 2018,physical space, like buying a car, and our clients requested us to be there with them. So, we launched, as partconnected our clients with an auto financing specialist through our mobile app, giving them a digital experience when answering any questions and checking rates and conditions. By combining the physical and digital channels experience, we reinforce our belief that our client needs to be served appropriately regardless of the channel used. To fully satisfy our main app, “Minhas Finanças,” Itaú Unibanco’s personal finance manager, a new featurecustomer’s needs, we went the extra mile: delivering an insurance marketplace with products from partners that helpsoffered solutions that we historically did not have, like health and dental insurance. With those partnerships, we reinforce our individual clients manage and improve their financial life through the categorization of their expenses and by providing intuitive dashboards of their financial life. Our “Minhas Finanças” platform had over 5 million accesses in the first two weeks after its releasecommitment to the public. Further,client as being theone-stop-shop for financial services and products. Also, we created a secure method to reset credit and debit cards passwords directly from the mobile app, removing the prior need to go after the call center or a branch. These solutions exemplify our commitment to an omnichannel experience, in April 2018 we wereorder to always be the first Brazilian bank to offer Apple Pay, and two months later, we started offering Samsung Pay as well.
In addition to improving our technological platforms and renewing the experience of our clients in 2018want to partner with.
We are constantly recognized for being close to the customer and always delivering innovation. As examples, we earned the IF Design Award 2019 for the keyboard Teclado Itaú, a solution we launched in our internet2018 to make transactions frictionless outside of the banking a new credit dashboardapp, and Folha Top of Mind 2019 at the Best Banking Mobile App category. 2019 also brought an excellent achievement for our corporate clients that bringsdigital channels operation: almost 1 million new personal checking and savings accounts opened digitally in 2019, a consolidated position of contracts60% increase year over year.
Due to theCOVID-19 pandemic, we are encouraging our customers to use our digital channels, such as our apps and limits available for hiring in order to provide a better experience. Inonline banking, and our app, our corporate clients can review their financial statements, through graphs that makes it simpler to better understand the evolution of their financial status.digital products, such as virtual cards, contactless payments (using near field communication technology) and digital invoicing.
Standard channels | Branches | CSBs | ATMs | Branches | CSBs | ATMs | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2018 | 2017 | 2016 | 2018 | 2017 | 2016 | 2018 | 2017 | 2016 | 2019 | 2018 | 2017 | 2019 | 2018 | 2017 | 2019 | 2018 | 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Brazil | 3,717 | 3,743 | 3,780 | 703 | 703 | 766 | 24,252 | 24,745 | 25,079 | 3,348 | 3,717 | 3,743 | 671 | 703 | 703 | 21,384 | 24,252 | 24,745 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Abroad | 483 | 497 | 531 | 37 | 38 | 26 | 1,175 | 1,196 | 1,228 | 449 | 483 | 497 | 37 | 37 | 38 | 1,107 | 1,175 | 1,196 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Argentina | 72 | 72 | 72 | 13 | 15 | 15 | 176 | 178 | 178 | 74 | 72 | 72 | 13 | 13 | 15 | 176 | 176 | 178 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Chile | 199 | 201 | 223 | - | - | 2 | 464 | 469 | 502 | 194 | 199 | 201 | — | — | — | 424 | 464 | 469 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Colombia | 148 | 161 | 174 | 13 | 13 | - | 174 | 176 | 178 | 117 | 148 | 161 | 11 | 13 | 13 | 147 | 174 | 176 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Paraguay | 31 | 31 | 31 | 9 | 8 | 8 | 300 | 312 | 311 | 32 | 31 | 31 | 12 | 9 | 8 | 298 | 300 | 312 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Uruguay | 25 | 24 | 23 | 2 | 2 | 1 | 61 | 61 | 59 | 26 | 25 | 24 | 1 | 2 | 2 | 62 | 61 | 61 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other | 8 | 8 | 8 | - | - | - | - | - | - | 6 | 8 | 8 | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total in Brazil and abroad | 4,200 | 4,240 | 4,311 | 740 | 741 | 792 | 25,427 | 25,941 | 26,307 | 3,797 | 4,200 | 4,240 | 708 | 740 | 741 | 1,107 | 25,427 | 25,941 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Our Brand and Marketing Channels
Our brand aimsWe strive to promote positive changesprovide complete solutions in the livesterms of people and in society. We deliver products and services, – focused on our clients’ needs – that reflectthrough financial intelligence and an ecosystem of partnerships. This echoes in our continuous effortseffort to fully attend the needs of each customer, from individuals and micro companies to large organizations, and provide the best experience for everyone who interacts with us on a daily basis.both digitally and physically, which is reflected in our brand positioning.
Our effortsbrand is committed to foster financial education permeate our entire organization and encourage our clientsencouraging people to have a more balancedan easier and closer relationship with their money by choosing the best type of credit and by planning their investments more efficiently. Our responsibility for the development of society in the locations where we operate is at the very heart of our brand, which is why, in addition to the transformation that is inherent in our core business, we also invest in projects related to education, culture, sports and urban mobility.
The #issomudaomundo (#thischangestheworld) platform, which guides our causes and our investments in various projects illustrate our institutional campaigns. Our urban mobility platform is present in six cities throughout Brazil and has more than 690 bike stations. According to the operator TemBici, in 2018 more than 1 million trips were made each month using bicycles from our urban mobility platform.
In education, our programs are equally powerful: since the “Leia para uma criança” (Read to a child) program was created, more than 51 million printed books were distributed to people and 12 thousand braile books were offered to visually impaired children. Three million books have already been sent to public libraries, civil society organizations and schools. All of this shows that we continue to mobilize clients andnon-clients to make a difference in children’s lives.
Our capacity to inspire and engage people can also be seen on social media. We publish a series of articles and videos that express our point of view and tell stories that encourage people to implement positive changesfinances in their lives,daily lives. We are active in social media with constant publications about the economic environment and in 2018tutorials. In December 2019, we reached over 579281.5 million views inon our brandYouTube channel on YouTube.
Social media is increasingly important to our strategy. On December 31, 2018, we reachedand over 99.2 million followers on Facebook. OurIn the same period, our Twitter profile hasand Instagram profiles had over 616630 thousand and 365 thousand followers, and we also have 266 thousand followers on Instagram.respectively.
We continue to monitor all of our social media profiles 24 hours a day, seven days a week. We have a specific structure with 110180 employees to interact with the public on all matters related to ItaúUnibanco Group in Brazil, including questions, suggestions, comments, and complaints. We received more than 715900 thousand mentions on social media in 2018,2019, according to Gauge and Mutato, consulting agenciesagency that assist us in the analysis of social media data.
Social media is a pillar in engaging people in our role beyond banking. Itaú Unibanco invests in several projects, with a focus in education, culture, mobility, and sport. Our urban mobility platform has more than 1,400 bike stations and is present in five cities in Brazil as well as in Santiago (Chile) and Buenos Aires (Argentina). According to the operator TemBici, in 2019 more than 1 million trips were made each month using bikes from our urban mobility platform. This is due to the amount of bikes we offer people: there are over 6,500laranjinhas (orange bikes) circulating all over Brazil.
In education, our programs are equally powerful: since the “Leia para uma criança” (Read to a child) program was created, more than 56 million printed books were distributed to people and 14 thousand braille books were offered to visually impaired children. Three million books have already been sent to public libraries, civil society organizations, and schools. This shows our commitment to mobilize clients andnon-clients to make a difference in our country.
As a result, in 20182019 we were ranked for the 1516th consecutive year at the top of the Interbrand ranking of most valuable Brazilian brands with an estimated value of R$ 29.8 billion.33,541 million. The analysis is based on our brand’s ability to generate financial results, influence the clientclients’ selection process, and ensure long-term demand.
Our Vision, Our Culture
We believe that our strongOur culture supports us in attracting and retaining talent, directing our business path and, promoting a competitive advantage.
Our culture translatesIt is translated into the seven attitudes listed below, which we call “Our Way”, that keep usup-to-date with the context, demands and transformations of our business and organizational culture. “Our Way”Our Way directs how we intend to achieve our vision to be a leader in sustainable performance and in client satisfaction. For more information, see “Item 4B. Business Overview—Business Strategy.”
“
Our Way”:way:
1. | It’s only good for us if it’s good for the client; |
2. | We are passionate about performance; |
3. | People mean everything to us; |
4. | The best argument is the only one that matters; |
5. | Simple. Always; |
6. | We think and act like owners; and |
7. | Ethics is not negotiable. |
Ownership Structure
The following chart shows a simplified overview of our share ownership and our direct and indirect subsidiaries as of March 31, 2019:2020:
Sustainability
Sustainability is embedded in our corporate strategy through a consolidated governance structure thatand it is integrated into our business, which allows us to incorporate environmental and social issues into daily activities and processes across the entire Itaú Unibanco Group. Long-term strategic decisions on sustainability are discussed on an annual basis by our Board of Directors, at anthe annual meeting of the Strategy Committee (composed of members of the Board of Directors members)Directors), and twice a year at the meetings of our Executive Committee.
In 2019 we signed, the Principles for Responsible Banking, by the United Nations Environment Programme Finance Initiative (UNEP FI), which encourages the global financial sector to comply with the Sustainable Development Goals and the Paris Agreement.
We are revisingIn the same year, we disclosed our strategicSustainable Finance Drivers and this processnew sustainability strategy, which is divided into three main phases:
Evolution of the concept of “Corporate Sustainability”;
Internal Diagnosis, based on the opinion of our stakeholders and executives regarding our activities; and
Strategy construction, which consists in developing a new strategic and positioning model, more connected totargeted at the positive impact we striveseek to cause.
This process has already resultedcreate through our businesses and in our actions. The sustainability strategy presents eight Positive Impact Commitments, which were announced at an event for investors in September 2019. With clear goals, KPIs and sponsors in the implementationbusiness and institutional areas, the commitments we made will make us incorporate best sustainability practices throughout the organization, and they are divided into three pillars:
Conduct and behavior,to foster the creation of certain changesa fair and ethical financial ecosystem; improve the employees’ experience and promote a diverse, inclusive and healthy workplace with a purpose; increase the environmental performance of our operations and promote sustainable practices in our supply chain.
Positive impact,to increase the financial inclusion of micro, small and medium entrepreneurs; increase the access to financial services and offer tools and content that support healthier financial decisions; foster the increase of financing for positive impact sectors and increase the inclusion of environmental, social and governance issues in investment decisions, and increase the offer of our products and services.
Accountability, to strengthen the transparency of our business in addition to our sustainability department’s structure in orderfinancial results, showing value to promote and develop specific workstreams.
In addition, we revised our materiality themes, based on our strategic fronts, on the sustainable financial drivers and on the resultsall of our consultationsstakeholders in a fair way and in line with stakeholders. Our 10 new materiality themes are: Integrity and ethics; Digital transformation; Customer satisfaction; Value creation; Risk management; Diversity; Environmental management; Financial inclusion and orientation; Corporate citizenship and Employee experience. Further details on this matter, including our mapping on SDGs goals, our materiality and our strategy, are available on our Sustainability Report, which is disclosed based on the Global Reporting Initiative criteria, since 2004.best market practices.
In 2017,2019, we also launched a revised version of Itaú’s Human Rights Commitment, which aims to reinforce our commitment toof respect for human rights in its relations with respect to employees, client,clients, suppliers, stockholders, partners and society. ItThis commitment guides our actions related to critical topics, mitigation practices, remedyremediation and monitoring measures and work with vulnerable groups (such as children,(children, adolescents, indigenous people, women, migrants, women, black people, people with disabilities, amongLGBT+ and others).
We also start acting on With this in mind, we conducted action plans to address the resultsdiscuss case studies of 2017 human rights risk assessmentviolations reported by clients through our channels and alsothe training of service teams to institutionally address diversity issues. To do this,these cases. Further, we conducted, actions plans, such as:started a broad education process including the organization of twofour “diversity weeks” for employees, focused on discussions ofabout race, LGBT+ people, gender and LGBT+ publics and the divulgation ofPWD. In order to establish communications that are relevant to topics related to human rights in the organization, we also organized a mental health and diversity recommendations for suppliers,financial education week, with lectures on those topics.
For the aimpurpose of encouraging the entire value chain to consider suchtake these relevant issues into consideration in its operations. Other approaches thattheir operations, we had indisclosed recommendations on human rights and diversity to suppliers.
Since 2018, to promote a more equal environment were to develop a support program and to update the policy of evaluating the performance of womenwe have been working on maternity leave, to ensure that their performance evaluation was based on the work performed and not on the time of their performance, thus preserving their evaluations, which affect the eligibility for career acceleration programs, educational sponsorships and promotions. We also defined that profit sharing will be paid in full, and not more proportionally as it was done before.
In 2018, a multidisciplinary working groupbasis involving the areas of Sustainability, Social-environmentalEnvironmental and Social Risk, Finances,Finance, Asset Management and Investor Relations was createddepartments to develop thea Climate Finance agenda. We participate in the main national and international forums and initiatives in order to anticipate tendenciestrends and help us guide the way we do business in the short and long terms. As an example,Together with 15 other banks, we participated inare part of a working group to address the Task Force on Climate Financial Disclosure (TCFD) working group of the United Nations Environment Programme Finance(UNEP-FI). In this group, we and another 15 financial institutions gathered efforts to developfor the purpose of developing indicators and tools to strengthenimprove the assessment and disclosure of risks and opportunities related to climate change in such institutions. Besides that,change. In 2019, we are also implementingundertook to implement the TCFD recommendations made by 2022, with actions determined and periodically monitored to ensure the Financial Stability Board.
Additionally, as a resultachievement of the notice published for our Emissions Offsetting “Commitment to Climate Program,” in partnership with Natura and the Brazilian Ekos Institute, we received more than 100 projects, from 25 Brazilian states, totaling a volume of more than 5 million tCO2. Seven projects were selected to offset the emissions from Itaú and Natura, which had the goal of compensating 500 thousand tCO2. We have selected three projects totaling 86,000 tCO2e to offset our emissions from 2016 and 2017.this target.
In August 2018, we launched the platform of the Commitment to Climate Compromise Program, platform, whose main objective is to promote the carbon market and invite other organizations to participate in this initiative. In 2019, B3 and Lojas Renner joined the Commitment to Climate Program, together with Natura and Itaú. Over the years of the Program, it has received more than 120 projects from 25 Brazilian states, totaling a volume higher than 9 million metric tons of CO2. In 2019, two projects were selected for the offset of companies’ emissions and the target was to offset 60,000 metric tons of CO2.
OtherAnother initiative onregarding sustainability was to researchthe survey on trends and new business, thatwhich could benefit us,bring benefits to Itaú, society and the environment. During the process, an expandedinterdisciplinary group, of people from various internal departments, including Risks, UXClient’s Experience and Products teams, was formedestablished to develop Minimum Viable Product, or MVP, projects aimed at creating business with positive impact. As an outcomea result of this working group, 40 ideas were generatedselected and 10 product projects were started, coping with the transition ofcounting on a greener and more responsible economy. Based on this initiative, in 2019, some products, such as electric vehicle financing and consortium and FINAME Renewable Energy, were launched and are already available to our clients.
Our sustainable management contributed to our access to funding through development agencies and to our presence in sustainability indexes. We are the only Latin American bank to be includedparticipate in the Dow Jones Sustainability Index since theits inception of the index in 1999, and we also integrateparticipate in the BusinessCorporate Sustainability Index (ISE) and the Carbon Efficient Index (ICO2), both of B3.
Intellectual PropertyDependence on Patents, Licenses, Contracts and Processes
We own, in Brazil and abroad, a number of patents and patent applications related to methods for security code checking and for a method, user device and system to submit financial transaction information. We and our affiliates are not dependent on any intellectual property, including, but not limitedsuch patents to patents and licenses, industrial, commercial or financial contracts (including contracts with customers or suppliers).perform our activities.
Risk Management
Undertaking and managing risks is essential to our business and a responsibility of all of our employees. For this reason, we must havewell-established objectives and rules with respect to risk management.
In this context, risk appetite determines the nature and the level of the risks that are acceptable to us and our culture of risks guides the necessary attitudes to manage them:
Our Risk Culture is intended to be an umbrella for different risk-management related initiatives.
Both our risk appetite and the initiatives included in the strategic risk management frontline are aimed at designing tools to enable implementation of our Risk Culture principles , namely: “We are all risk managers”, “We assume risks on an informed basis”, “We discuss our risks”, and “We act on our risks”.
Our risk appetite establishes the types and levels of risk acceptable to us.
In 2018, through the priority strategic management of risk management, we expanded our approach to risks, classifying them into traditional and strategic.
We have a consolidated structure and governance to manage traditional risks: credit, market and liquidity, operational, compliance and information security risks. Our aim is to continue improving our management of traditional risks, in addition to expanding the coverage so that we are able to manage risks, of a more strategic nature, which may threaten our future profitability: business, regulatory, technology, and people risks. Strategic risks include risks derived from new players entering into the market or a more proactive attitude by regulators and they are as relevant to us as traditional credit or market risks.
Governance and organizational structure
Our risk management organizational structure complies with Brazilian and applicable international regulations currently in place and is aligned with best market practices. There is a structure in place for coordination and consolidation of information and related processes, which are all subject to verification by independent validation, internal controls and audit areas. The following committees are part of our risk and capital management governance structure:
Risk & Capital Management Committee (CGRC): supports our Board of Directors in performing its duties related to our risk and capital management by meeting, at least, four times annually, and submitting reports and recommendations to assist the Board of Directors in its decision-making with respect to:
◾ | Decisions regarding our risk appetite, in terms of capital, liquidity, results, operational risk and reputation, ensuring these aspects are in alignment with our strategy, and including acceptable capital and liquidity levels and types of risks to which we may be exposed, as well as overall limits for each type of risk, tolerance for volatility of results and risk concentration, and general guidelines about tolerance for risks that may impact our brand (e.g., brand risk). |
◾ | Supervision of our risk management and control activities in order to ensure their suitability to the risk levels assumed and to the complexity of the operations as well as compliance with regulatory requirements; |
◾ | Review and approval of policies and strategies for capital management, to establish mechanisms and procedures aimed at keeping capital consistent with the risks we incur; |
◾ | Establishing our minimum expected return on capital as a whole and for our lines of business, as well as monitoring performance; |
◾ | Supervision of our incentive structures, including compensation, aimed at ensuring its alignment with risk control and value creation goals; and |
◾ | Fostering improvement in our Risk Culture. |
Superior Market Risk and Liquidity Committee (CSRML): meets on a monthly basis and is responsible for setting guidelines and governance for investments and market and liquidity risks regarding our consolidated positions and business lines.
Superior Operational Risk Committee (CSRO): meets on a bimonthly basis and is responsible for understanding the risks of our processes and business, defining guidelines for operational risks management and assessing the results achieved by our Internal Controls and Compliance System. The CSRO is our main decision-making committee for all operational risk management matters. It is responsible for defining our operational risk framework and structure and related policies for identification, measurement, assessment, reporting and monitoring of operational risk.
Superior Products Committee (CSP): meets on a weekly basis and is responsible for evaluating products, operations, services and processes that are beyond the authority of our Products Committees that report to it or that involve image risk to us.
Superior Credit Committee (CSC): meets on a weekly basis and is responsible for analyzing and deciding on credit proposals that are beyond the authority of the credit committees that report to the CSC. It is also responsible for analyzing decisions which may have not been taken due to a lack of consensus at the committee immediately subordinate to it or cases where, due to the relevance or characteristics of the topic or other features, such Credit Committees decide to submit to the CSC’s review.
Superior Retail Credit and Collection Committee (CSCCV): meets on a monthly basis and is responsible for approving credit policies and assessing the performance of Retail Credit and Collection portfolios and strategies.
Superior Wholesale Credit and Collection Committee (CSCCA): meets on a monthly basis and is responsible for approving credit policies and assessing the performance of Wholesale Credit and Collection portfolios and strategies.
Additionally, we havesub-committees, chaired by our chief risk officer and CFO, which are also responsible for risk and capital management. Any suchsub-committee may report directly to the Risk and Capital Management Committee or to thesub-committees mentioned above.
To support this structure, we have the Risks & Finance Control and Management Area, structured with specialized departments and subordinated to our chief risk officer and CFO, intending to independently and in a centralized manner to ensure that the institution’s risks and capital are managed in accordance with established policies and procedures.
Risk governance at foreign subsidiaries
Among our medium and long-term strategic goals, is our internationalization process that aims to reach, in the countries in which we do business, at least the same governance quality and level of results we observe in Brazil.
Therefore, we have been continuously improving our risk monitoring and management processes, not only in operations carried out abroad, but also for the supervision, proximity and robust governance of our holding company.
The continuous improvement of control processes allow us to better understand the particularities of each country and region in which we do business, and quickly adapt to changes in the different regulatory, social and economic market environments.
Risk management at our foreign subsidiaries is undertaken by teams dedicated to control and monitor risks, with direct communication channels that allow the information to flow at a timely manner as well as the alignment in the whole group.
Finally, promoting the Risk Culture in Brazil and abroad strengthens the individual and collective responsibility of all of our employees, so they can do the right thing, at the right time and in the right way, respecting the ethical and sustainable way of doing business.
Regulatory EnvironmentSupervision and Regulation
We are subject to regulation by, and supervision of, several entities, in the countries and for the segments in which we operate. The supervisory activities of these entities are essential to the structure of our business, and they directly impact our growth strategies. Below we describe the main entities that regulate and supervise our activities in Brazil:
CMN | the highest authority of the Brazilian National Financial System (SFN) responsible for the currency and credit policy in Brazil to guarantee stability and social and economic development. Its major purpose is to disclose the general rules for the operation of the entire financial market. | |
Central Bank | federal authority responsible for regulating and overseeing the entire National Financial System (SFN), ensuring the stability of the purchasing power of the currency and a solid and efficient financial system and for implementing the policies established by the CMN, authorizing the establishment of financial institutions and supervising them. | |
CVM | a government agency subordinated to the to the Ministry of the Economy with purpose of regulating, supervising and developing the securities market. | |
CNSP | responsible for establishing the guidelines and directives for insurance and premium bond companies and open private pension entities. | |
SUSEP | responsible for regulating and supervising the insurance, open private pension funds and capitalization markets in Brazil and their participants. | |
ANS | responsible for regulating and supervising the health insurance market in Brazil and its participants. |
CMN: the highest authority responsible for establishing monetary and financial policies in Brazil, overall supervision of Brazilian monetary, credit, budgetary, fiscal and public debt policies, for regulating the conditions for organization, operation and inspection of financial institutions, as well as supervising the liquidity and solvency of these institutions. The CMN is also responsible for the general guidelines to be followed in the organization and operation of the securities market and the regulation of foreign investments in Brazil;
Central Bank: responsible for implementing the policies established by the CMN, authorizing the establishment of financial institutions and supervising financial institutions in Brazil. It establishes minimum capital requirements, limits for permanent assets, credit limits and requirements for compulsory deposits, in accordance with the policies established by the CMN;
CVM: responsible for regulating, sanctioning and inspecting the Brazilian securities market (which in Brazil includes derivatives) and its participants, as well as overseeing exchange and organizedover-the-counter markets;
CNSP: responsible for establishing the guidelines and directives for insurance and premium bond companies and open private pension entities;
SUSEP: responsible for regulating and supervising the insurance, open private pension funds and capitalization markets in Brazil and their participants; and
ANS: responsible for regulating and supervising the health insurance market in Brazil and its participants.
OutsideOur main operations outside of Brazil we have main operationsare subject to oversight by local regulatory authorities in the following jurisdictions: South America, in particular Argentina, Colombia, Chile, Uruguay and Paraguay; Europe, in particular, the United Kingdom and Switzerland; Central America in particular Panamá, and the Caribbean, in particular Bahamas and Cayman Islands; and the United States of America.
Financial institutions are subject to a number of regulatory requirements and restrictions, among which the following are noteworthy:
Noteworthy Brazilian regulatory requirements and restrictions on financial institutions: | • prohibition against operating in Brazil without prior approval of the Central Bank; • prohibition against acquiring real estate that is not for the financial institution’s own use, except those received for settlement of loan losses or as expressly authorized by the Central Bank, pursuant to CMN regulation; • prohibition against acquiring interests in companies without prior approval of the Central Bank, except for ownership interest typical of investment portfolios held by investment banks; • prohibition against granting loans that represent more than 25% of the financial institution’s regulatory capital to only one person or group; • restrictions on credit transactions to certain related individuals and legal entities; • obligation to deposit a portion of the deposits received from clients with the Central Bank (compulsory deposit); • obligation to maintain enough capital reserves to absorb unexpected losses, pursuant to the rules proposed by the Basel Committee and implemented by the Central Bank; • obligation to prepare and submit, by December 31, annual recovery plans that aim tore-establish adequate levels of capital and liquidity and to preserve the viability of the institution under stress scenarios; • obligation to create, in respect to financial guarantees, specific accounting procedures for the assessment and registration of passive provisions (provisão passiva); • prohibition against holding, on a consolidated basis, permanent assets, including investments in unconsolidated subsidiaries, real estate, equipment and intangible assets, exceeding 50.0% of the adjusted regulatory capital; • prohibition against granting loans or advances, and guarantees, including derivative transactions, underwriting or holding in their investment portfolio securities of any clients or group of affiliated clients that, in the aggregate, give rise to exposure to such client or group of affiliated clients that exceeds the threshold determined by the Central Bank. |
prohibition against operating in Brazil without the prior approval of the Central Bank;
prohibition against acquiring real estate that are not for the financial institution’s own use, except real estate received for settlement of loan losses or as expressly authorized by the Central Bank, pursuant to CMN regulation;
prohibition against acquiring interests in companies without the prior approval of the Central Bank, except for ownership interest typical of investment portfolios held by investment banks or universal banks with investment portfolios;
prohibition against granting loans that represent more than 25% of the financial institution’s regulatory capital to only one person or group;
restrictions on credit transactions to certain related individuals and legal entities.
obligation to deposit a portion of the deposits received from clients with the Central Bank (compulsory deposit); and
obligation to maintain sufficient capital reserves to absorb unexpected losses, pursuant to the rules proposed by the Basel Committee and implemented by the Central Bank.
Basel III Framework
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. On December 16, 2010, the Basel Committee issued its Basel III framework, which was revised and republished on June 1, 2011. The Basel III framework increases minimum capital requirements, creates new conservation and countercyclical buffers, changes risk-based capital measures, and introduces a new leverage limit and new liquidity standards in comparison to the former framework. The rules were phased in gradually and were fully implemented byon January 1, 2019.
The Basel III framework requires banks to maintain minimum capital levels corresponding to the following percentages of risk-weighted assets: (i) a minimum common equity capital ratio of 4.5% composed of common shares; (ii) a minimum Tier 1 Capital ratio of 6.0%; and (iii) a minimum total capital ratio of 8.0%. In addition to the minimum capital requirements, Basel III requires a “capital conservation buffer” of 2.5% and each national regulator is given discretion to institute a “countercyclical buffer” if it perceives a greater system-wide risk to the banking system as the result of abuild-up of excess credit growth in its jurisdiction. Further, Basel III also introduces a new leverage ratio, defined as Tier 1 Capital divided by the bank’s total exposure.
Basel III implemented a liquidity coverage ratio, or LCR, and a net stable funding ratio, or NSFR. The LCRwhich requires affected banks to maintain sufficient high-quality liquid assets to cover the net cash outflows that could occur under a potential liquidity disruption scenario over athirty-day period. The NFSRperiod; and implemented a net stable funding ratio, or NSFR, which establishes a minimum amount of stable sources of funding that banks will be required to maintain based on the liquidity profile of the banks’ assets, as well as the potential for contingent liquidity needs arising fromoff-balance sheet commitments over aone-year period.
Additional requirements apply tonon-common equity Tier 1 Capital or Tier 2 Capital instruments issued by internationally active banks. To be included in Additional Tier 1 Capital or Tier 2 Capital, an instrument must contain a provision that requires that, at the discretion of the relevant authority, such instrument be eitherwritten-off or converted into common shares upon a “trigger event.”event”. A “trigger event” is the decision of a competent authority pursuant to which, for a bank to remain a feasibleviable financial institution, it is necessary (i) towrite-off an instrument, or (ii) to inject government funds, or equivalent support, into such bank, whichever occurs first. The requirements are applicable to all instruments issued after January 1,st, 2013. The 2013 and those instruments qualified as capital issued before that date that do not comply with these requirements will be phased out of banks’ capital over aten-year period, beginning on January 1,st, 2013.
Additional regulatory capital requirements apply to systemically important financial institutions, orG-SIFIs. The Basel Committee’s assessment methodology to determine which financial institutions areG-SIFIs is based on indicators that reflect the following aspects ofG-SIFIs: (i) size; (ii) interconnectedness; (iii) lack of readily available substitute or financial institution infrastructure for the services provided; (iv) global or cross-jurisdictional activity; and (v) complexity. Each of these factors receives an equal weight of 20.0% in the assessment.
The Basel Committee has also issued a framework for the regulation of domestic systemically important banks, orD-SIBs, which supplements theG-SIFI framework by focusing on the impact that the distress or failure of systemically important banks would have on the domestic economy of each country.
In addition to the minimum capital requirements, Basel III requires a “capital conservation buffer” of 2.5% and each national regulator is given discretion to institute a “countercyclical buffer” if it perceives a greater system-wide risk to the banking system as the result of abuild-up of excess credit growth in its jurisdiction.
Implementation of Basel III in Brazil
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. Brazilian banks’ minimum total capital ratio is calculated as the sum of two components: Regulatory Capital (Patrimônio de Referência); and Additional Core Capital (Adicional de Capital Principal)., both aligned to the guidelines of the Basel III framework.
Brazilian banks’ Regulatory Capital is comprised of Tier 1 Capital and Tier 2 Capital. Tier 1 Capital is further divided into two elements: Common Equity Tier 1 Capital (common equity capital and profit reserves, orCapital Principal) and Additional Tier 1 Capital (hybrid debt and equity instruments authorized by the Central Bank, orCapital Complementar).
In order to qualify as Additional Tier 1 Capital or Tier 2 Capital, according to CMN Resolution No. 4,192/13, all instruments issued after October 1, 2013 by a Brazilian bank must contain loss-absorbency provisions, including a requirement that such instruments be automatically written off or converted into equity upon a “trigger event”. A “trigger event” is the earlier of: (i) Common Equity Tier 1 Capital being less than 5.125% of the risk-weighted assets for Additional Tier 1 Capital instruments and 4.5% for Tier 2 Capital instruments; (ii) the execution of a firm irrevocable written agreement for the government to inject capital in the financial institution; (iii) the Central Bank declaring the beginning of a special administration regime (Regime de Administração Especial Temporária, or RAET) or intervention in the financial institution; or (iv) a decision by the Central Bank, according to criteria established by the CMN, that thewrite-off or conversion of the instrument is necessary to maintain the bank as a viable financial institution and to mitigate relevant risks to the Brazilian financial system. Specific procedures and criteria for the conversion of shares and thewrite-off of outstanding debt related to funding instruments eligible to qualify as regulatory capital are established by CMN regulation. The legal framework applicable to financial bills (letras financeiras) was adapted to allow Brazilian financial institutions to issue BaselIII-compliant debt instruments in the Brazilian market.
Existing hybrid instruments and subordinated debt previously approved by the Central Bank as eligible capital instruments may continue to qualify as Additional Tier 1 Capital or Tier 2 Capital, as the case may be, provided that they comply with the above requirements and a new authorization from the Central Bank is obtained. Instruments that do not comply with these requirements will be phased out as eligible capital instruments by deducting 10.0% of their book value per year from the amount that qualifies as Additional Tier 1 Capital or Tier 2 Capital. The first deduction occurred on October 1, 2013, and subsequent deductions will take place annually starting January 1, 2014 until January 1, 2022.
The Additional Core Capital requirement is subdivided into three elements: the capital conservation buffer (Adicional de Capital Principal Conservação), the countercyclical capital buffer (Adicional de Capital Principal Contracíclico) and the higher loss absorbency requirement for domestic systemically important banks (Adicional de Capital Principal Sistêmico). The capital conservation buffer is aimed at increasing the loss absorption ability of financial institutions. The countercyclical capital buffer can be imposed within a range by the Central Bank if it judges that credit growth is increasing systematic risk. The higher loss absorbency requirement for domestic systemically important banks seeks to address the impact that the distress or failure of Brazilian banks may have on the local economy. In the event of non compliancenon-compliance with the Additional Core Capital requirement, certain restrictions will apply, including the inability of the financial institution to: (i) pay officers and directors their share of variable compensation; (ii) distribute dividends and interest on equity to stockholders; and (iii) repurchase its own shares and effect reductions in its share capital. We are considered domestic systemically important financial institution, hence having to fulfill the 1% Additional Core Capital for higher loss absorbency (Adicional de Capital Principal Sistêmico).
Since October 1, 2018, a minimum LCR in a standardized liquidity stress scenario requirement applies to banks with total assets that are equal or superior to 10% of the Brazilian GDP or to banks with relevant international activity (in such case, regardless of total assets). The calculation of the LCR follows the methodology set forth by the Central Bank which is aligned with the international guidelines. During periods of increased need for liquidity, banks may report a lower LCR than the minimum required ratio, provided that they also report to the Central Bank the causes for not meeting the minimum requirement, the contingent sources of liquidity it has available, and the measures it plans to adopt to be in compliance with the LCR requirement. Since April 1, 2016, banks must also publicly disclose their LCR on a quarterly basis.
The following table presentssets forth the schedule forphased-in implementation by the Central Bank of the capital adequacy and liquidity coverage ratio requirements under Basel III, as applicable to Itaú Unibanco Holding. The figures presented below refer to the percentage of our risk-weighted assets.
Basel III—Implementation Schedule
From January 1st | 2018 | 2019(2) | ||||||||||||||||||
Basel III - Implementation Schedule | 2017 | 2018 | 2019(2) | |||||||||||||||||
Common Equity Tier I | 4.5% | 4.5% | 4.5% | 4.5% | 4.5% | |||||||||||||||
Tier I | 6.0% | 6.0% | 6.0% | 6.0% | 6.0% | |||||||||||||||
Total Capital | 9.25% | 8.625% | 8.0% | 8.625% | 8.0% | |||||||||||||||
Additional Capital Buffers (ACP) | 1.50% | 2.375% | 3.5% | 2.375% | 3.5% | |||||||||||||||
conservation | 1.25% | 1.875% | 2.5% | 1.875% | 2.5% | |||||||||||||||
countercyclical(1) | 0% | 0% | 0% | 0% | 0% | |||||||||||||||
systemic | 0.25% | 0.5% | 1.0% | 0.5% | 1.0% | |||||||||||||||
Common Equity Tier I + ACP | 6.0% | 6.875% | 8.0% | 6.875% | 8.0% | |||||||||||||||
Total Capital + ACP | 10.75% | 11.0% | 11.5% | 11.0% | 11.5% | |||||||||||||||
Prudential adjustments deductions | 80% | 100% | 100% | 100% | 100% | |||||||||||||||
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(1) | The countercyclical capital buffer is fixed by the Financial Stability Committee (Comef) based on discussions about the pace of credit expansion |
(2) | Minimum requirements valid from 1 January, |
Schedule for limits to be observed
From January 1st | ||||||||||||
Schedule for limits to be observed | 2017 | 2018 | 2019 | |||||||||
Liquidity Coverage Ratio (LCR) | 80% | 90% | 100% |
2018 | 2019(1) | |||||||
Liquidity Coverage Ratio (LCR) | 90% | 100% | �� |
(1) | Mininum requirement valid from 1 January, 2019 onwards. |
Since October 1, 2015, banks are required to prepare public disclosures of their leverage ratios (Razão de Alavancagem, or RA) on a quarterly basis. In November 2017, the CMN established the minimum limit for the Net Stable Funding Ratio (Índice de Liquidez de Longo Prazo, or NSFR) and the Leverage Ratio (Razão de Alavancagem, or RA) to be observed by certain Brazilian Financial institutions, including those classified as Segment 1 pursuant to CMN regulation (such as us – us—please refer to item “Segmentation for the proportional application of the prudential regulation” for more information), and the terms for compliance with such requirements.
The NSFR corresponds to the ratio between the Available Stable Funds (Recursos Estáveis Disponíveis, or ASF) and the Required Stable Funds (Recursos Estáveis Requeridos, or RSF) of the financial institution. This new rule for NSFR, which became effectivecame into effect on October 1,st, 2018, determines that the minimum limit for the NSFR for Segment 1 financial institutions is 100%. The RA, which calculation methodology was established by the Central Bank in 2015, consists of the ratio between the sum of the Common Equity Tier 1 Capital and the Additional Tier 1 Capital and the total exposure of the financial institution ascertained as established by the applicable regulation. The RA rule enacted in November 2017 became effective as ofcame into effect on January 1, 2018 and determined the threshold of 3% as the minimum requirement for the RA for Segment 1 financial institutions (which is our case).
CMN regulation also defines the entities that compose the consolidated enterprise level (conglomerado prudencial) of Brazilian financial institutions and establishes the requirement that a financial institution prepare and file with the Central Bank monthly consolidated financial statements at the consolidated enterprise level (conglomerado prudencial) pursuant to the parameters defined therein. Such financial statements should also be audited by external auditors on a semi-annual basis. Since January 1, 2015, minimum capital and ratio requirements apply at the consolidated enterprise level (conglomerado prudencial).
Please see “Item 5A. Operating Results—Recent Developments—Reduction of Capital Buffer” for changes in regulations adopted by the Central Bank.”
Brazilian financial institutions are also required to implement a capital management structure compatible with the nature of their transactions, the complexity of the products and services it offers, as well as with the extent of its exposure to risks. In February 2017, the CMN enacted a rule that unified and expanded Brazilian regulation on risk and capital management. Such regulation provides that risk management must be conducted through an integrated effort by the relevant entity and sets out different structures for risk and capital management, which are applicable for different risk profiles.
According to such regulation, capital management is defined as a process that includes: (i) monitoring and controlling the financial institution’s capital; (ii) assessing capital needs in light of the risks to which the financial institution is subject; and (iii) setting goals and conducting capital planning in order to meet capital needs due to changes in market conditions. Financial institutions should publish a report describing the structure of their capital management at least on an annual basis. Disclosure and reporting of risk management matters, risk-weighted asset calculation, and adequate compliance with regulatory capital requirements are regulated by the Central Bank and reflect the so-called “Pillar 3” of regulatory capital recommended under Basel III, aimed at improving governance and disclosure.
Pillar 3 Report
In February 2019 the Central Bank enacted regulation requiring certain financial institutions to furnish a Pillar 3 Report. We are required to publish this report on a consolidated basis covering the following topics:
• prudential indicators and risk management; | • comparison between accounting and prudential information; | |
• capital composition; | • macroprudential indicators; | |
• leverage ratio (RA); | • liquidity indicators; | |
• credit risk; | • counterparty credit risk (CCR); | |
• securitization exposures; | • market risk; | |
• risk of interest rate fluctuation in instruments classified in the banking book (IRRBB); and | • remuneration of administrators. |
The Pillar 3 Report must be furnished on a quarterly, biannual or annual basis, according to the type of information being disclosed. The new rule came into effect on January 1, 2020.
In addition to the rules issued in accordance with the criteria set forth in Basel III, in July, 2013, Law No. 12,838 was issued, allowing the determination of deemed credit based on deferred tax assets arising from temporary differences resulting from allowances for loan losses, which, in practice, exempts financial institutions from deducting this type of credit from its core capital. The law also changes the rules for the issue of subordinated debt, requiring the inclusion of clauses for the suspension of the stipulated compensation and the extinction of the credit right or its conversion into shares, and conditions stockholders’ remuneration to compliance with the prudential requirements established by the CMN.
Brazilian financial institutions are also required to implement a capital management structure compatible with the nature of its transactions, the complexity of the products and services it offers, as well as with the extent of its exposure to risks. In February 2017, the CMN enacted a new rule which unifies and expands Brazilian regulation on risk and capital management. Such rule provides that risk management must be conducted through an integrated effort by the relevant entity and sets out different structures for risk and capital management, which are applicable for different risk profiles.
According to such new rule, capital management is defined as a process that includes: (i) monitoring and controlling the financial institution’s capital; (ii) assessing capital needs in light of the risks to which the financial institution is subject; and (iii) setting goals and conducting capital planning in order to meet capital needs due to changes in market conditions. Financial institutions should publish a report describing the structure of their capital management at least on an annual basis. Disclosure and reporting of risk management matters, risk-weighted asset calculation, and adequate compliance with regulatory capital requirements are regulated by the Central Bank and reflect theso-called “Pillar 3” of regulatory capital recommended under Basel III, aimed at improving governance and disclosure.
Global Systemically Important Financial Institutions(G-SIFI) Assessment in Brazil
The Central Bank has adopted the same indicators set out by the Basel Committee to determine if Brazilian financial institutions qualify asG-SIFIs. Please see “Basel III Framework,” for further details. This assessment is required of banks with total exposure – the denominator for the leverage ratio – in excess of EUR200 billion, individually. However, no additional loss absorbency requirements for BrazilianG-SIFIs have been established. We were not included on the latest list ofG-SIFIs issued on November 16, 2018.22, 2019, by the Financial Stability Board. The next update is expected in November 2019.2020.
Recovery Plans for Systematically Important Financial Institutions
On June 30, 2016, the CMN enactedissued a rule providing stricter guidelines for recovery plans (Planos de Recuperação) for Brazil’s systemically important financial institutions. The rule which incorporated recommendations from the Financial Stability Board, requires financial institutions to prepare recovery plans that aim tore-establish adequate levels of capital and liquidity and to preserve the viability of such institutions under stress scenarios.
The guidelines require, among other things, that subject financial institutions must identify their critical functions for the National Financial System (Sistema Financeiro Nacional) and their core business lines, monitor indicators and their critical levels, adopt stress-testing scenarios, predict recovery strategies, assess possible risks and barriers related to the strategies and define clear and transparent governance procedures, as well as effective communication plans with key stakeholders. The rule provides for the submission of such recovery plans by December 31st, annually.
Segmentation for the Proportional Application of the Prudential Regulation
On January 30, 2017, the CMN enactedissued a resolution establishing segmentation for financial institutions, financial institution groups and other institutions authorized to operate by the Central Bank for proportional application of the prudential regulation, considering the size, international activity and risk profile of members of each segment. According to such resolution, out of the five possible segments, we are classified as Segment 1, which is composed of universal banks, commercial banks, investment banks, foreign exchange banks and federal saving banks that (a) have a size equivalent or superior to 10% of the Brazilian GDP; or that (b) perform relevant international activities, independently from the magnitude of the institution.
Brazilian Covered Bond (“Letra Imobiliária Garantida” – LIG)“LIG”)
In 2015, Law No. 13,097 was enacted to create13,097/2015 created the Brazilian covered bond (Letra Imobiliária Garantida, or LIG)LIG), a new debt instrument for funding Brazilian financial institutions that follows the covered bonds structure. The law provides thatSince the law’s adoption, both the CMN shall regulate its provisions , including regarding the terms and conditions, financial institutions authorized to issue Brazilian covered bonds, conditions of redemption and early maturity of Brazilian covered bonds, eligibility requirements, composition, sufficiency, maturity and liquidity of the related portfolio of assets, conditions of replacement and reinforcement of such assets, requirements for financial institutions to act as fiduciary agent and the assumptions, conditions and manner of their removal or replacement and its attributions.
On August 29 2017, the CMN issued a rule regulating the provisions of Law No. 13,097. In December 2017, the Central Bank enacted two rules applicablehave regulated its provisions and established procedures relating to the issuance of Brazilian covered bonds. The first rule establishes the procedures for accounting and disclosure of information by the issuers
Since then, Itaú Unibanco completed two bullet issuances of Brazilian covered bonds, as portfolio managers of assets subject to the fiduciary regime provided in Law No. 13,097. The second rule establishes the minimum information in respect of the Brazilian covered bonds to be provided by the issuers to investors.
On May 4, 2018, the Central Bank issued a rule establishing the procedures and the information necessary for the deposit of the Brazilian covered bonds and for the registration or deposit of the assets that compose the underlying portfolio of the instrument. On May 9, 2018 it issued a rule establishing the procedures for accounting and disclosure of information about the assets that compose the underlying portfolios and the obligations, by issuance of Brazilian covered bonds, of the issuing institution and of the fiduciary agent, in the event of an intervention decree, extrajudicial liquidation, bankruptcy or the recognition (by the Central Bank) of the insolvency status of the issuing institution. Following these rules,first on December 14, 2018 Itaú Unibanco S.A. completed its first issuance of Brazilian covered bonds in the total amount of R$1.224 billion.1.2 billion and the second on April 24, 2019, in the total amount of R$350 million.
On July 24, 2019, Itaú Unibanco established its first Brazilian covered bond program. The first issuance under the covered bond program took place on July 29, 2019, in the total amount of R$1 million. As of December 31, 2018,2019, the accrued value of the outstanding Brazilian covered bonds issued by Itaú Unibanco, which includes the bullet issuances as well as the issuances under the program (as reflected in Itaú Unibanco Holding’sour financial statements), amounted to R$1.2274.3 billion.
Passive provision for financial guarantees
On July 28, 2016 the CMN enacted a new rule, establishing specific accounting procedures for the assessment and registration of passive provisions (provisão passiva) that financial institutions must create in respect of financial guarantees. The accounting procedures established by this regulation seek to align the Brazilian standards with IFRS. Such resolution is effective since January 1, 2017.
Foreign Currency Transactions and Exposure
Transactions involving the sale and purchase of foreign currency in Brazil may only be conducted by institutions authorized to do so by the Central Bank. There are no limits for long or short positions in foreign currency for banks authorized to carry out transactions on the foreign exchange market. Currently there is no compulsory deposit requirement rate on the foreign currency short position held by financial institutions.
In accordance with CMN regulation, financial institutions in Brazil may raise funds abroad, either through direct loans or through the issuance of debt securities. Funds raised accordingly may be freely invested in Brazil, including but not limited toon-lending to Brazilian companies and financial institutions. Brazilian banks authorized to operate in foreign currency markets which hold regulatory capital higher than R$5 billion may also use these funds to grant loans abroad to Brazilian companies, their offshore subsidiaries and to foreign companies controlled by Brazilians or to acquire securities issued or guaranteed by such companies in the primary market. Cross-border loans, in which one party is in Brazil and the other party is abroad, require previous registration with the Central Bank, which may establish limits on the conditions of such foreign currency loan transactions. Please see “Item 10E. Taxation” for further details about tax on foreign exchange transactions.
Financial institutions may also grant loans in or indexed to a foreign currency to their clients’ trade-related activities, such as by granting advances on foreign exchange contracts (Adiantamento sobre Contrato de Câmbio), advances on delivered export register (Adiantamento sobre Cambiais Entregues) or export or import prepayment agreements (Pré-Pagamento de Exportação e Financiamento à Importação), all in accordance with Brazilian regulations on foreign exchange markets and international capital flows.
The Central Bank and the Brazilian government frequently change rules and regulations applicable to foreign currency borrowing and loans in accordance with the economic scenario and Brazilian monetary policy.
In addition, the legislation sets forth that the total exposure in gold and other assets and liabilities indexed or linked to the foreign exchange rate variation undertaken by financial institutions (including their offshore branches), and their direct and indirect subsidiaries, on a consolidated basis, may not exceed 30.0% of their regulatory capital.
Liquidity and Fixed Assets Investment Regime
In accordance with CMN regulation, financial institutions may not hold, on a consolidated basis, permanent assets, including investments in unconsolidated subsidiaries, real estate, equipment and intangible assets, exceeding 50.0%By initiative of the adjustedCentral Bank, the President of Brazil has presented to the Congress a draft bill to reformulate the Brazilian foreign exchange market (“New Foreign Exchange Bill”). The draft also includes provision regarding the Brazilian capital held abroad and foreign capital held in Brazil. The initiative intends to modernize, simplify and increase legal certainty associated with the current regulatory capital.framework for Brazilian foreign exchange legislation.
The main aspects of the New Foreign Exchange Bill are: (i) the confirmation, at the legal level, that foreign exchange transactions may be carried out freely (provided that through entities authorized to operate in this market and subject to applicable rules); (ii) the granting of broad powers to the CMN and the Central Bank to regulate the foreign exchange market and its operations; (iii) the expansion of the international correspondence activity of Brazilian banks; (iv) the possibility of Brazilian banking institutions to invest and lend abroad funds raised in Brazil or abroad; (v) the exclusion of foreign currency purchase and sale operations of up to US$1,000 carried out between individuals on an occasional andnon-professional basis, from its scope; and (vi) the granting of powers to the monetary authorities to establish situations in which the prohibition of private offsetting of credits between residents and nonresidents, as well as the payment in foreign currency in Brazil, would not apply. As of this date, the Brazilian Congress is still reviewing the proposal and it is not possible to estimate if and when it will be approved, or what changes will be proposed.
Large Exposure Limits
We are legally prevented from granting loans or advances, and guarantees, including derivative transactions, underwriting or holding in our investment portfolio securities of any clients or group of affiliated clients that, in the aggregate, give rise to exposure to such client or group of affiliated clients that exceeds the threshold determined by the Central Bank. In this respect, onOn July 31, 2018 the Central BankCMN released a new resolution in order to comply with the Basel III reforms. The main differences between the former rule and thereforms, introducing a new rule in force since January 1, 2019 are changes in the basis for calculation ofcalculating the exposure limits applicable to financial institutions classified as Segment 1 to their Tier 1 Regulatory Capital and an augmentation ofincreasing the scope of transactions that increase exposure to clients subject to the limit, including exposure from securities and derivatives holdingheld in our investment portfolio. According to the new rule, theThe maximum exposure to any one individual counterparty or to a group of connected counterparties of a Segment 1 financial institution is 25% of its Tier 1 Regulatory Capital, and the maximum exposure to concentrated individual clients or group of connected clients of such Segment 1 financial institution is 600% of its Tier 1 Regulatory Capital (a concentrated individual client would mean,means, for the purpose of the proposed rule, as any one client to which exposure is equal to or higher than 10% of its Tier 1 Regulatory Capital. Please refer to “Item 4B. Business Overview – Segmentation for the proportional application of the prudential regulation” for more information regarding Segment 1 financial institutions, which is our case.Capital).
For the purpose ofUnder this limit,exposure limits, the following public sector entities are considered to be considered as separate customers: (i) the Brazilian government; (ii) an entity controlled directly or indirectly by the Brazilian government which is not financially dependent on another entity controlled directly or indirectly by the Brazilian government; (iii) entities controlled directly or indirectly by the Brazilian government which are financially dependent among themselves; (iv) a State or the Federal District, jointly with all entities directly or indirectly controlled by it; and (v) a municipal district, jointly with all entities directly or indirectly controlled by it. Such definition is also subject to change under the new resolution published by the Central Bank on July 31, 2018 mentioned above. The new rule establishes additional criteria for the identification of separate customers:different clients: (i) the Brazilian government, including the Central Bank; (ii) an entity which 50% or more of its voting capital is held directly by the Brazilian Government, jointly with its controlled entities; (iii) a State of the Federative Republic of Brazil or the Federal District, jointly with its controlled entities and with entities which are financially dependent on a State, the Federal District or their controlled entities; (iv) each Brazilian municipal district, jointly with its controlled entities and with entities which are financially dependent on a municipality or its controlled entities; (v) each central government of a foreign jurisdiction; (vi) each central bank of a foreign jurisdiction, if this entity is not included in the central government; (vii) each entity which 50% or more of its voting capital is held directly by a central government of a foreign jurisdiction, jointly with its controlled entities and with entities that are financially dependent on it; (viii) a governmental body of a foreign jurisdiction, jointly with its controlled entities and with entities that are financially dependent on it or its controlled entities; and (ix) any other entity, public or private, which share the credit risk calculated by the financial institution according to CMN regulations.
At last,The rule provides that, for certain financial institutions (including those classified as Segment 1, such as ourselves), individual exposures to the Brazilian Federal Union (including the Brazilian Central Bank) as well as to central governments or to central banks of foreign jurisdictions are not subject to the observance of the large exposure limits.
Banks must identify possible connectedrelated counterparties, on the basis ofconsidering its economic interdependence in all cases where the sum of all exposures to one individualspecific counterparty exceeds 5% of the eligible capital base. Two or more counterparties sustain a relation ofhave an economic interdependence ifrelationship whenever one of the counterparties were to experienceexperiences financial difficulties thenand the other, as a result, would also be likely to encounter financial difficulties, which includeincluding those related to funding, payment of obligations and insolvency. Counterparties identified as economically interdependent must be treated as a single counterparty that is subject to the requirements specified above.aforementioned requirements.
Risk Weighted Asset Calculation
The calculation of risk exposure is based on several factors set forth by the Central Bank regulations and impacts the capital requirements. The components take into consideration the type of risk and include the parameters and procedures for calculation of the risk weighted asset, or RWA, to determine the capital requirements resulting from each risk exposure. The Central Bank has been frequently changing and updating the rules and regulations for the RWA calculation.
Financial Bills (Letras Financeiras)(“Letras Financeiras”)
According to Law No. 12,838 of July 9, 2013, adapted financial bills (letras financeiras) to the Basel III framework and granted the Central Bank power to limit the payment of dividends and interest on capital by financial institutions that do not comply with the CMN capital requirements. With the changes enacted by Law No. 12,838,as amended, Brazilian financial institutions will likelycan issue BaselIII-compliant hybrid or subordinated debt instruments under the regulatory framework of financial bills.bills (letras financeiras), a bank funding instrument aimed at larger volumes and longer terms. The main characteristics of the BaselIII-compliantfinancial bills changed by Law No. 12,838 are:
PossibilityThe possibility of issuance of financial bills convertible into equity. The conversion may not be requested by the investor or the issuer financial institution;
SuspensionThe suspension of payment of interestinterests in case of non compliancenon-compliance with capital requirement rules in case the financial bills are part of the regulatory capital of the financial institution.rules. Additionally, in order to preserve the regular functioning of the Brazilian financial system, the Central Bank may determine that financial bills be converted into equity or bewritten-off. These determinations will not be considered a default by the financial institution and will not accelerate the maturity of its other debts; and
FinancialThe possibility of issuance of perpetual financial bills, may include, as early maturity events,which mature only in case of default on the payment of the interest of the financial bill or the dissolution of the financial institution.
The creation of the possibility of regulation, by the Central Bank, of a general authorization for the use of funds raised through the issuance of financial bills with subordination clauses in the composition of the issuers’ Regulatory Capital;
The institution of due diligence obligations to be observed by intermediary institutions involved in the distribution, placement and trading of the financial bills, in order to ensure the provision of information regarding the investment and its adequacy to the investor profile;
The flexibilization of the rates that can be used in the remuneration of financial bills, allowing the use of floating rates regardless of a combination with a fixed rate or any other rate (fixed or floating) that is publicly known and regularly calculated.
On September 24, 2019, the Central Bank issued a rule systematizing the requirements for the registration of financial bills in authorized central depositary entities, which were previously dispersed in different documents. The new rule included in its annexes the content of the subordination clauses that must be included in financial bills issued with the aim to compose the issuer’s Regulatory Capital.
Establishment of a Succession Policy
Financial institutions and other institutions authorized to operate by the Central Bank are required to maintain a succession policy for its management. The Board of Directors of the institutions are required by law to approve, supervise and control the process of planning such policy,management, which must expressly assign the positions subject to the succession policy, taking into consideration the institution’s structure, risk profile and business model. The succession policy shall cover recruiting, promotion, election and retention processes, based on rules that regulate the identification, evaluation and training of senior management positions considering the following aspects: (i) conditions required by Brazilian law to exercise such position; (ii) technical capacity; (iii) managing capacity; (iv) interpersonal skills; (v) knowledge of legislation and regulation regarding liability for their actions; and (vi) experience.positions.
Our Board of Director’sDirectors approved our Manager’s Succession Policy in accordance with CMN’s resolution. Our succession policy aims to consolidate the internal procedures and practices of the Itaú Unibanco Group regarding the succession of our management team.
Code of Corporate Governance
The Brazilian Corporate Governance Code for publicly-held companies (Código Brasileiro de Governança Corporativa – Companhias Abertas) sets forth corporate governance-related principles, guidelines and actions applicable to publicly-held companies and determines that companies adopt the “apply or explain” model in respect of its principles, guidelines and actions. As a result of the edition ofPursuant to this Code,code, companies must submitfurnish to CVM a report regarding their adherence to the Brazilian Corporate Governance Code within seven months of the closing date of the fiscal year. The implementation of the Corporate Governance Code was integrated in the local regulatory framework in 2017 by means of the CVM Ruling No. 586/17.
In addition, the CMN has included the principles and criteria of corporate governance of financial institutions established by the Basel Committee into the Brazilian regulatory framework, through the “Core Principles for Effective Banking Supervision.”
CMN rules establish the terms for the remittance of information on the management of financial institutions to the Central Bank, controlling group and relevant shareholders, including the obligation to communicate to the regulator any information that may affect the reputation of any person classified in one of such categories. For this purpose, financial institutions must provide a communication channel which allows employees, contributors, clients, users, associates, or services providers to anonymously report situations indicating illegal acts of any nature related to the institution. The financial institutions must also determine the internal body responsible for receiving the information and complying with the reporting obligations.
Anti-Corruption Law
In January 2014, a newThe Brazilian anti-corruption law came into force. The new law establishes that legal entities will have strict liability (regardless of fault or willful misconduct) if they are involved in any form of bribery. Although known as an anti-corruptionThe law it also encompasses other injurious acts contrary to the Brazilian or foreign public administration, including bid rigging and obstruction of justice. The law provides for heavy penalties, both through administrative and judicial proceedings including determination of dissolution of a company, prohibition against undertaking to finance with public entities and prohibition against participating in public biddings.
In addition, the law authorizes the public administrative authorities responsible for the investigation to enter into leniency agreements. The self-disclosure of violations and cooperation by legal entities may result in the reduction of fines and other sanctions as determined by the new federal regulation issued in March 2015.sanctions.
The new regulation also provides parameters for the application of the anti-corruption law, including with respect to penalties and compliance programs. Please refer:
(i) | To our Investor Relations website > Menu > Itaú Unibanco > Corporate Governance > Rules and Policies > Policies > Anti-corruption Corporate Policy from which you can electronically access further details about our Anti-corruption Corporate Policy. |
(ii) | To our Investor Relations website > Menu > Itaú Unibanco > Corporate Governance > Rules and Policies > Policies > Corporate Conduct, Integrity and Ethics Policy from which you can electronically access further details about our Integrity and Ethics Program and guidelines for situations of conflicts of interests. |
(iii) | To our Investor Relations website > Menu > Itaú Unibanco > Integrity and Ethics from which you can electronically access further details about our Integrity and Ethics Program. |
Compensation of Directors and Officers of Financial Institutions
According to rules set forth by the CMN, Brazilian financial institutions are required to have a compensation policy. If variable compensation is to be paid to management, at least 50% of the total compensation should be paid in shares or share-based instruments and at least 40% of the total compensation should be deferred for future payment for at least three years. If the institution records a significant decrease in the realized recurring profit or a negative result during the deferral period, the deferred and unpaid portions of the compensation should be reversed proportionally to the decrease in result, in order to minimize the loss incurred by the financial institutions and their stockholders.
Our compensation policy, applicable to directors and officers in Brazil (constituting the major part of the management population of the Itaú Unibanco Group), complies with CMN’s regulatory requirements. Our compensation principles and practices worldwide comply with each local regulation and seek to increase alignment between the interests of our stockholders and our management.
For further information, see Item 6B, Compensation.“Item 6B—Compensation” and “Item 5A. Operating Results—Recent Developments—Reduction of Capital Buffer” for changes in regulations adopted by the Central Bank.”
Antitrust Regulation
The Brazilian Antitrust Law requires that transactions resulting in economic concentration should be submitted for prior approval to CADE, the Brazilian antitrust regulator, ifauthority, for prior approval in the event these transactions meet the following criteria: (i) the economic group of any of the parties to a transaction recorded, in the fiscal year prior to that of the transaction, minimum gross revenues of R$750 million; and (ii) at least one of the other economic groups involved in the transaction recorded, for the same time period, minimum gross revenues of R$75 million.
The closing of a transaction prior to CADE’s approval subjects the parties to fines ranging from R$60,000 to R$60 million, the nullity of the relevant agreement, and potential administrative proceedings.
In addition to submitting such transactions to CADE’s approval, financial institutions are required by Circular No. 3,590/2012 of the Central Bank (updated by Circular No. 3,800/2016) to submit to the Central Bank’s antitrust approval any concentration acts involving two or more financial institutions authorized to operate by the Central Bank in the following cases: (i) acquisition of corporate control, (ii) a merger, (iii) transfer of the business to another financial institution, and (iv) other transactions which result in increased market share in the market segments they operate.
With respect to the conflict of jurisdiction to review and approve concentration acts involving financial institutions, in December 2018, the Central Bank and CADE approved a joint normative act establishing the procedures that improve the efficiency of their respective actions in antitrust matters in the National Financial System. Pursuant to the joint normative act, the authorities will be authorized to share information for the purposes of their respective activities and carry out meetings to discuss matters that require actions from such authorities. Such joint normative act also provides that transactions involving financial institutions must be submitted to independent analyses by each of the authorities. In cases involving risk to the financial system, the Central Bank shall approve the transaction; CADE will be bound by this approval and must adopt the decision of the Central Bank as grounds for approval. CADE and the Central Bank shall also cooperate in CADE’s administrative procedures regarding anticompetitive practices of financial institutions.
It is worth mentioning that legislations in force in other jurisdictions may require that concentration acts be submitted to the relevant antitrust authority.
The Brazilian antitrust law provides for penalties in the event of violations of the economic order. Accordingly, an undertaking in a dominant position (as the law assumes of one holding over 20% of market share) in a certain market in which it operates, which, irrespective thereof, carries out an illegal interaction with competitors, including through professional associations, may be subject to an administrative fine of 0.1% to 20% of the gross revenues of the group operating in the industry affected by such violation and to the divestiture of assets, among other penalties. Additionally, the antitrust legislation of other jurisdictions, such as the U.S. (Sherman Act and Clayton Antitrust Act) and the European (Articles 101 and 102 of the Treaty on the Functioning of the European Union), may also be applicable to companies whenever these carry out alleged anticompetitive practices. Other violations of the economic order, such as unilateral conduct, are also punishable by Brazilian and foreign antitrust authorities.
Our Antitrust Corporate Policy is available on theInvestors Relations website of Itaú Unibanco > Menu > Itaú Unibanco > Corporate Governance > Rules and Policies > Policies >Antitrust Corporate Policy.
Treatment of Past Due Debts
Brazilian financial institutions are required to classify their credit transactions (including leasing transactions and other transactions characterized as credit advances) at different levels and recognize provisions according to the level attributed to each such transaction. The classification is based on the financial condition of the clients the terms and conditions of the transaction and the period of time during which the transaction is past due, if any. For purposes of Central Bank requirements, transactions are classified as level AA, A, B, C, D, E, F, G or H, with AA being the highest classification. Credit classifications must be reviewed on a monthly basis and, apart from additional provisions required by the Central Bank which are deemed necessary by the management of financial institutions, each level has a specific allowance percentage that is applied to it and which we use to calculate our allowance for loan losses, as specified in more detail in the table below:
Classification(1) | AA | A | B | C | D | E | F | G | H | AA | A | B | C | D | E | F | G | H | ||||||||||||||||||||||||||||||||||||
Allowance (%) | 0 | 0.5 | 1 | 3 | 10 | 30 | 50 | 70 | 100 | 0 | 0.5 | 1 | 3 | 10 | 30 | 50 | 70 | 100 | ||||||||||||||||||||||||||||||||||||
Past due (in days) | - | - | 15 to 30 | 31 to 60 | 61 to 90 | 91 to 120 | 121 to 150 | 151 to 180 | Over 180 | — | — | 15 to 30 | 31 to 60 | 61 to 90 | 91 to 120 | 121 to 150 | 151 to 180 | Over 180 |
(1) | Our credit classification also takes into account the client’s credit profile, which may negatively impact the past due classification. |
Under IFRS, the allowance for loan losses is based on our internally developed incurred loss models, which calculate the allowance for loan losses by multiplying the probability of default by the clients or counterparty, or PD, by the potential for recovery on defaulted credits (LGD) for each transaction, as described in “NoteNote 2.4(d) I – Classification and Measurement of Financial Assets”Assets and “NoteNote 32 Risk and Capital Management” ofManagement, our audited consolidated financial statements. The risk levels are categorized as:
Lower risk: PD lower or equal than 4.44%
Satisfactory: PD from 4.44% up to 25.95%
Higher risk: PD higher than 25.95%
Credit-Impaired: loans classified in Stage 3
Bank insolvency
The insolvency of financial institutions is handled pursuant to applicable laws and regulations by the Central Bank, which initiates and monitors all applicable administrative proceedings. There are three types of special regimes that may be imposed to either privately-held financial institutions or state-owned (other than federal government-owned) financial institutions or similar institutions: (i) temporary special administration regime or RAET, (ii) intervention, and (iii) extrajudicial liquidation.
(i) Temporary special administration regime or RAET: | a less severe special regime with limited duration which allows financial institutions to continue to operate – the whole management loses its offices and is replaced by a steering committee appointed by the Central Bank with broad management powers, which will adopt of measures aimed at the resumption of the financial institution’s regular activities. If resumption is not possible, this regime may be turned into an extrajudicial liquidation. | |
(ii) Intervention: | a time-limited regime in which the Central Bank appoints an intervenor that takes charge of the financial institution’s management, suspending its regular activities and dismissing the financial institution’s management, with the main purpose of preventing the continuation of certain irregularities and the aggravation of the financial situation of the financial institution, which can put assets at risk and harm the financial institution’s creditors – it suspends all actions related to payment obligations of the financial institution, prevents the early settlement or maturity of its obligations and freezespre-existing deposits. | |
(iii) Extrajudicial liquidation: | process of dissolution of the company in cases of unrecoverable insolvency or severe violations of the rules that regulate a financial institution’s activities. The extrajudicial liquidation aims at promoting the liquidation of the existing assets for the payment of creditors, with the return of any amounts left to stockholders. Controlling stockholders may be held responsible for remaining liabilities. |
Financial institutions may also be subject to the bankruptcy regime.
In the course of the special regimes described below,above, the steering committee, the intervenor, and the liquidator may, when authorized by the Central Bank: (i) dispose of assets and rights of the financial institution to third parties and (ii) proceed with corporate restructuring processes in the financial institution or its subsidiaries, among other possible measures of similar effect.
RAET
The RAET is a less severe special regime which allows financial institutions to continue to operate. Its main effect is that the whole management loses its offices and is replaced by a steering committee appointed by the Central Bank with broad management powers. Its duration is limited and its main objective is the adoption of measures aimed at the resumption of the financial institution’s regular activities. If resumption is not possible, this regime may be turned into an extrajudicial liquidation.
Intervention
Under this regime, the Central Bank appoints an intervenor that takes charge of the financial institution’s management, suspending its regular activities and dismissing the financial institution’s management. In general, the intervention is aimed at preventing the continuation of certain irregularities and the aggravation of the financial situation of the financial institution, which can put assets at risk and harm the financial institution’s creditors. The intervention is also time-limited and may be followed by the resumption of the financial institution’s regular activities or the declaration of extrajudicial liquidation or bankruptcy.
The intervention suspends all actions related to payment obligations of the financial institution, prevents the early settlement or maturity of its obligations and freezespre-existing deposits.
Extrajudicial Liquidation
Extrajudicial liquidation generally corresponds to the process of dissolution of the company in cases of unrecoverable insolvency or severe violations of the rules that regulate a financial institution’s activities. The extrajudicial liquidation aims at promoting the liquidation of the existing assets for the payment of creditors, with the return of any amounts left to stockholders. Controlling stockholders may be held responsible for remaining liabilities.
The extrajudicial liquidation (i) suspends actions and executions against the financial institution, (ii) accelerates the maturity of the financial institution’s obligations; and (iii) interrupts the statute of limitations of the financial institution’s obligations. In addition, the debt of the estate under liquidation will no longer accrue interest until all obligations to third parties are settled.
Deposit Insurance
In the event of intervention, extrajudicial liquidation or liquidation of a financial institution in a bankruptcy proceeding, the Credit Insurance Fund, or FGC, a deposit insurance system, guarantees the maximum amount of R$250,000 for certain deposits and credit instruments held by an individual, a company or another legal entity with a financial institution (or financial institutions of the same economic group). Such deposits and credit instruments contracted as of December 22, 2017, are subject to an additional limit: the total coverage of the referred guarantee is R$1,000,000 per investor regardless of the number of accounts held in different financial groups and such limit is valid for a period of 4four years. The resources of the FGC come primarily from mandatory contributions from all Brazilian financial institutions that receive deposits from clients, currently at a monthly rate of 0.01% of the amount of the balances of accounts corresponding to the financial instruments that are the subject matter of the ordinary guarantee, even if the related credits are not fully covered by FGC, and certain special contributions. Deposits and funds raised abroad are not guaranteed by the FGC. As from February 2016, creditsCredits of financial institutions and other institutions authorized to operate by the Central Bank, complementary welfare entities, insurance companies, capitalization companies, investment clubs and investment funds, as well as those representing any interest in or financial instrument held by such entities, are not protected by the ordinary guarantee of FGC.
Payment of Creditors in Liquidation
In the event of extrajudicial liquidation of a financial institution or liquidation of a financial institution in a bankruptcy proceeding, the salaries of employees and the related labor claims up to a certain amount, secured credits and tax charges have priority in any claims against the entity in liquidation. The payment of unsecured credits, including deposits from regular retail clients that are not guaranteed by the FGC, is subject to the prior payment of preferred credits. Additionally, upon the payment of the deposits guaranteed by the FGC, the FGC becomes an unsecured creditor of the estate in liquidation.
Resolution Bill for the Banking, Insurance and Capital MarketsOn December 23, 2019, the Central Bank submitted to the Brazilian Congress a bill of supplementary law that aims at regulating new resolution regimes for financial institutions, insurance companies and other entities that are subject to the supervision of the Central Bank, SUSEP and the CVM. The bill is consistent with international standards provided by the Financial Stability Board (“FSB”) following the 2008 financial crisis.
In replacement of the current regimes (i.e., intervention, extrajudicial liquidation and temporary special administration regime – RAET), the bill proposes two new resolution regimes: (i) the compulsory liquidation regime, in which anon-systemic institution would be withdrawn from the National Financial System through a more efficient and faster process than the current regimes; (ii) the stabilization regime, which would mitigate the risk of systemic crisis involving a relevant institution or activity of the National Financial System while allowing for essential activities of the bank to continue by means of, among others, the conversion of certain creditors’ rights into capital(bail-in).
According to the Central Bank, the goal is to create more effective and modern solutions for problematic institutions, while still protecting the performance of the economy and giving stability to the financial system. If approved, the law is expected to come into effect 180 days from its publication.
Insurance Regulation
With governmental approval, insurance companies in Brazil may offer all types of insurance except(except for workers’ compensation insurance,insurance) directly to clients or through qualified brokers.
Insurance companies must set aside reserves to be invested in specific types of securities. As a result, insurance companies are among the main investors in the Brazilian securities market and subject to CMN regulations regarding the investment of technical reserves.
In the event an insurance company is declared bankrupt, the insurance company will be subject to a special procedure administered by SUSEP or by ANS. If an insurance company is declared bankrupt and (i) its assets are not sufficient to guarantee at least half of the unsecured credits or (ii) procedures relating to acts that may be considered bankruptcy-related crimes are in place, the insurance company will be subject to ordinary bankruptcy procedures.
There is currently no restriction on foreign investments in insurance companies in Brazil.
Brazilian legislation establishes that insurance companies must buy reinsurance to the extent their liabilities exceed their technical limits under the rules of the regulatory bodies (CNSP and SUSEP), and reinsurance contracts may be entered into through a direct negotiation between the insurance and reinsurance companies or through a reinsurance broker authorized to operate in Brazil.
Insurance companies, from January 1, 2017, when transferring their risks in reinsurance, must transfer 30.0% of each facultative or automatic contract to local reinsurers (companies domiciled in Brazil).
From January 1, 2018, this percentage reduced to 25%, and will reduce annually until it reaches 15% on January 1, 2020.
In addition, from January 1, 2017, risk assignment between insurers and reinsurers belonging to the same economic group based abroad is limited to 30.0% of the premiums pertaining to each facultative or automatic contract.
From January 1, 2018, this percentage increased to 45%, and annually will increase until it reaches 75% on January 1, 2020.
Anti-Money Laundering Regulation
The Brazilian anti-money laundering law (Law No. 9,613, as amended) establishes the basic framework to prevent and punish money laundering as a crime. It prohibits the concealment or dissimulation of origin, location, availability, handling or ownership of assets, rights or financial resources directly or indirectly originated from crimes, subjecting the agents of these illegal practices to imprisonment, temporary disqualification from managing enterprises for up to ten years and monetary fines.
The Brazilian anti-money laundering law also created COAF,the Council for Financial Activities Control (COAF), which is subordinated to the Brazilian financial intelligence unit that operates under the jurisdiction of the Ministry of Justice. COAFCentral Bank and performs a key role in the Brazilian anti-moneysystem of preventing and combating money laundering, financing of terrorism and counter-terrorism financing system, and its legal responsibility is to coordinate the mechanisms for international cooperation and information exchange.proliferation of weapons of mass destruction.
In compliance with the Brazilian anti-money laundering law and related regulations enacted by the Central Bank, including the rules applicable to procedures that must be adopted by financial institutions to prevent and combat money laundering and terrorism financing, as well as in response to the recommendation of FATF and United Nations Security Council, financial institutions in Brazil must establish internal control and procedures aiming at:
identifying and knowing their clients, which includes determining if they are PEPs, and also identifying UBOs. These records should be keptup-to-date;
checking the origin of funds of a client, as well as the compatibility between the movement of its funds of a client and such client’sits economic and financial capacity;
checking the origin of funds;
carrying out a prior analysis of new products and services, under the perspective of money laundering prevention;
keeping records of all transactions carried out or financial services provided on behalf of a certain client or for that client;
reporting to COAF, within one business day, any transaction deemed to be suspicious by the financial institution, as well as all transactions in cash equivalent to or higher than R$50,000, without informing the involved person or any third party;
applying special attention to (i) unusual transactions or proposed transactions with no apparent economic or legal bases; (ii) transactions involving PEPs, (iii) indication of evading client identification and transaction registering procedures; (iv) clientclients and transactions for which the UBO cannot be identified; (v) transactions originated from or destined to countries that do not fully comply with the recommendations of the FATF; and (vi) situations in which it is not possible to keep the clients’ identification records duly updated;
determining criteria for hiring personnel and offering anti-money laundering training for employees;
establishing procedures to be complied with by all branches and subsidiaries of a Brazilian financial institutions located abroad with respect to anti-money laundering;
establishing that any institutions authorized to operate in the Brazilian foreign exchange market with financial institutions located abroad, must verify whether the foreign financial institution is physically located in the jurisdiction where it was organizedincorporated and licensed, and that it is subject to effective supervision;
monitoring transactions and situations which could be considered suspicious for anti-money laundering purposes;
reporting to COAF the occurrence of suspicious transactions, as required under applicable regulations, and also, at least once a year, whether or not suspicious transactions are verified, in order to certify thenon-occurrence of transactions subject to reporting to COAF (negative report);
requiring clients to inform the financial institution, at least three business days in advance, of their intention to withdraw amounts equal to or exceeding R$50,000;
maintaining specific records of transactions in cash (deposit, withdrawal, withdrawal by means of a prepaid card, request of provision for withdrawal or Electronic Available Transfer—TED) by financial institutions in an amount equal to or greater than R$50,000 per transaction;
ensuring that policies, procedures and internal controls are commensurate with theits size and volume of transactions; and
unavailability, without delay, of goods, values and rights of possession or ownership and all other rights, real or personal, owned, directly or indirectly, of natural or legal persons subject to sanctions by the resolutions of the United Nations Security United Council.
Non compliance
Non-compliance with any of the obligations above subjects the financial institution and its officers to penalties ranging from: (i) formal notice, (ii) fines (from 1.0% to 200.0% of the amount of the transaction, 200.0% of the profit generated thereby, or a fine of up to R$20,000,000), (iii) rendering executive officers ineligible for holding any management position in financial institutions, to (iv) the cancellation of the financial institution’s license to operate.
In August 2013, the FEBRABAN enacted an anti-money laundering and terrorism financing self-regulation. The purpose of the document is to improve the contribution of the Brazilian financial system to the prevention of money laundering and make consistent the practices adopted by all banks, encouraging them to reinforce their preventive procedures.
On July 28, 2017, the Central Bank enacted a new rule including additional requirements with respect to anti-money laundering, that it cameCircular No. 3,978/2020, which will come into force on December 27, 2017. The recent changes to the regulation include the obligation to maintain specific records of transactions in cash (deposit, withdrawal, withdrawal by means of a prepaid card, request of provision for withdrawal or Electronic Available Transfer—TED) byOctober 1, 2020, also requires that financial institutions in an amount equal to or greater than R$50,000 per transaction. The rule also includes provision establishing that, among others, all commercial banks, multiple banksmaintain Anti-Money Laundering Program (in compliance with regulatory standards) and credit cooperatives must require form their clients a minimum of three business days prior communication for withdrawals and cash payments of an amount equal to or greater than R$50,000 per withdrawal.conduct periodic Internal Risk Assessments.
On May 28, 2018, the Central Bank enacted a new rule that prohibits financial institutions from receiving a payment receipt equal to or greater than R$10,000 in cash.
Politically Exposed Persons (PEPs)
According to the Central Bank, PEPs are public agents who hold or have held a relevant public position, as well as their representatives, family members or other close associates, over the past five years, in Brazil or other countries, territories and foreign jurisdictions. It also includes their legal entities. Financial institutions must develop and implement internal procedures to identify PEPs and obtain specialhigher level of approval, from a more senior staff member, such as an officer, than otherwise would be required to approve relationships prior to establishing any relationship with those individuals. They should also adopt reinforced and continuous surveillance actions regarding transactions with PEPs and report all suspicious transactions to COAF.
Leasing Regulation
Although leasing transactions are not classified as credit transactions under Brazilian legislation, the Central Bank regulates and oversees leasing transactions. The parties involved in a leasing transaction are the “lessor” (the bank) and “lessee” (our client). The leased asset, owned by the lessor, is delivered to be used by the lessee until the end of the contract, when the lessee may opt to either acquire it or return it to the lessor or renew the contract for a new period.
Brazilian legislation establishes a specific methodology to account for the profits or losses in leasing transactions and all information that should be included in a lease agreement. The guaranteed residual amount paid by a lessee should correspond to a minimum return required for the transaction to be viable for the lessor, whether the purchase option is exercised or not. The laws and regulations applicable to financial institutions, such as those related to reporting requirements, capital adequacy and leverage, assets composition limits and allowance for losses, are also generally applicable to leasing companies.
Correspondent Agents
We may engage other entities to provide certain services to our clients, including customer service. These entities are generally called correspondents, and our relationship with correspondents is regulated by the Central Bank. Among other requirements, the Central Bank establishes that employees of all correspondent agents must hold a technical certification authorizing them to serve customers involved in credit and leasing operations.
Regulation of the Brazilian Securities Market
According to the Brazilian Corporate Law, a company is considered publicly-traded or closely-held depending on whether the securities issued by it are accepted for trading in the securities market or not. All publicly-held companies, such as our company, are registered with the CVM, are subject to specific regulations and are also subject to information disclosure and reporting requirements.
Disclosure Requirements
Under CVM rules, publicly-traded companies are subject to disclosure requirements and rules governing the use of material information. Any decision that may reasonably influence the price of the securities issued by a publicly-held company or the decision of investors to buy, sell, or hold these securities, is considered material.
The CVM improved the quality of the information that must be presented in periodic filings by securities issuers by requiring such issuers to file a “Reference Form” with the CVM. This form was modeled after IOSCO’s shelf registration system in gathering all of the issuer’s information in a single document.
InSince 2018, somethe publicly-held companies, like us, filedhave to present a form about a “Brazilian Corporate Governance Code” in the “apply or explain” format.
Asset Management Regulation
The Brazilian asset management regulation requires a previous registration with the CVM to perform the services of portfolio management and fund administration.
Itaú Unibanco Group provides several services in the capital markets and, in particular, performs activities related to fund administration and portfolio management under CVM registration and in accordance with CVM regulation.
By providing these services, our entities engaged in the asset management business can be held civilly and administratively liable for losses arising from either intentional acts or negligence in conducting their activities.
The CVM has regulatory powers to oversee these activities, including powers to impose fines and other sanctions on registered asset managers.
FundsInvestments of Foreign Investors
Individuals or legal entities domiciled outside Brazil may invest in companies or other assets in Brazilian financial and capital markets, according to the restrictions and requirements set forth in the local regulation. All foreign investments in Brazil shall be registered with the Central Bank and/or CVM, depending on the type of the investment.
The foreign direct investment (RDE – IED)(RDE-IED) enables thenon-resident investors to hold stock of companies in Brazil, whereas the portfolio investment (RDE – Portfolio) entitles the investment in almost all financial assets and transactions available in the Brazilian financial and capital markets, being subject to some restrictions of Brazilian regulation.
In March 2015 a new regulatory framework regarding RDE – Portfolio became effective. The most significant changes in the rules applicableorder to foreign investmentinvest in the Brazilian financial and capital markets, introduced by the new regulation were: (i)foreign investors must engage a requirement that only financial institutionsinstitution authorized to operate in Brazil may act as legal representativesrepresentative and custodian ofnon-resident foreign investors. Such investments are regulated by CMN Resolution 4,373 and CVM Ruling No. 560. The transactions performed by foreign investors must be carried out in Brazilthe markets organized by entities authorized by the CVM (such as B3, for purposesexample) and securities must be held in custody with depositary and registration systems authorized by the CVM and/or Central Bank (such as SELIC and CETIP). The rules establish certain exceptions which allow transactions outside of any investments made within the purviewmarkets such as subscription of such rule; (ii) clarificationsecurities in initial public offerings, tender offerings of requirements regarding simultaneous foreign exchange transactions (without the effective transfersecurities and payment of money) related to foreign investments; and (iii) clarification about the types of investments that can be made through a foreign investor account (conta de domiciliado no exterior) maintained at a bankdividends in Brazil.kind.
The new regulationBrazilian rules also amended the rules applicable to depositary receipts, by allowingallow for the issuance abroad of depositary receipts based on (i) any security issued by Brazilian companies registered with the CVM (companhias abertas), in contrast to the previous rules which limited the issuance of depository receipts to equity securities, and (ii) credit instruments issued by financial institutions and other types of institutions registered with the CVM and authorized by the Central Bank, and eligible to be included in the financial institution’s regulatory capital (Patrimônio de Referência).
SomeRegulatory Sandbox
On November 28, 2019, the Central Bank published Public Consultation No. 72/2019, regarding the Controlled Testing Environment for Financial Innovations (“Sandbox”) which is intended to enable institutions, which includes institutions that are not yet authorized to operate by the Central Bank, to test innovative projects related to matters under the competence of the changes implementedNational Monetary Council or the Central Bank.
The draft resolution released by the CVMCentral Bank establishes the applicable conditions for the implementation of the Sandbox, among which are the specific rules for the first cycle of tests, such as duration and number of participants, required documentation, criteria for the classification of institutions and the schedule for registration, selection and authorization processes of such entities, as well as initiatives that are strategic priorities of the Central Bank. The Public Consultation is set to end on registry, operationsJanuary 31, 2019, and disclosureas of this date, the Central Bank is yet to receive contributions from market agents, which may result in alterations on the proposed draft.
Open Banking
The Brazilian Central Bank announced the initial guidelines for open banking regulation in Brazil through Notice No. 33,455 on April 25, 2019. Open Banking consists in the sharing of data and payment initiation services by financial institutions and other authorized entities, upon customer’s authorization and via integration of information related to foreign investmentsystems. Central Bank has looked at open banking as an important tool for innovation in the Brazilian financial market, making the banking industry more efficient and capital markets were made to detail the activities of legal representatives, to enlarge the scope ofnon-resident investor’s private transactions and to determine the exceptions of transfer betweennon-resident investors prohibited by CMN.
Internet andE-Commerce Regulation
Certain aspects of electronic commerce are regulated, including the validity of electronic documents in Brazil and electronic commerce transactions from the consumer protection standpoint. Current regulation on electronic commerce is intended to: (i) clearly identify the supplier and the product sold on the Internet; (ii) provide an electronic service channel to clients; and (iii) guarantee cancellation and return of Internet orders.
In addition, computer hacking offenses were criminalized in Brazil in 2012.competitive.
In light of the increased use of electronic channels in theThe Brazilian open banking industry, the CMN has enacted a number of resolutions over the past few years in order to provide or establish:
that Brazilian residents may open deposit bank accounts by electronic means, which includes the Internet, ATMs, telephonemodel will comprise financial institutions, payment institutions and other communication channels, provided that transfers of amounts from such accounts are allowed only between accounts of the same account holder orCentral Bank-licensed entities by making it possible to share, in the event of liquidation of investment products and funds of an account, of the same account holders who own the investment products or funds;
the requirements related to the verification of a client’s identity;
that all financial institutions that offerphased-in approach, data on products and services, through electronic means must guaranteecustomer record data and customer transaction data. Open banking will eventually cover the security, secrecyprovision of initiation payment services.
On November 28, 2019, the Brazilian Central Bank launched Public Consultation No. 73/2019, which disclosed the draft resolution to implement open banking in Brazil to the public. Among other topics, the draft resolution sets forth in detail the participating institutions (mandatory and reliability of all electronic transactionsvoluntary), the data and disclose,services covered, the requirements for sharing, the responsibilities for sharing, the implementation schedule and the convention to be concluded between the participating institutions. The period for commenting the Public Consultation ended on January 31, 2020 and the Brazilian Central Bank received contributions form market agents, which may result in clear and precise terms, the risks and responsibilities involving the product or service acquired through these channels; and
the opening of deposit bank and savings accounts that can be used exclusively through electronic means.
On April 25, 2016, the CMN enacted a regulationalterations on the opening and closing of banking accounts by electronic means, withoutproposed draft. The Brazilian Central Bank is yet to issue the restrictions described above. The banks must adopt procedures and controls to confirm and guaranteeresolution about the client’s identity and the authenticity of the information required to open an account. The regulation permits the use of digital signatures and the collection of signatures through electronic devices. The procedures and technologies used in the opening and closing of electronically deposit accounts must observe:subject.
I—integrity, authenticity and confidentiality of the information and electronic documents used;
II—protection against access, use, modification, reproduction and unauthorized destruction of information and electronic documents;
III—backup production of information and electronic documents; and
IV—tracking and auditing procedures and technologies used in the process.
Under the new regulation, clients must be afforded the option of closing banking accounts electronically.
Federal Law No. 12,965/2014 and Federal No. Decree 8,771/2016 establish the regulatory framework for internet services in Brazil and set forth principles and rules to be observed by internet providers and users, including the protection of privacy and personal data and the preservation and safeguard of net neutrality
FEBRABAN, has issued a regulation on extending credit through remote channels (such as ATM’s, call centers and internet banking), setting out minimum guidelines and procedures to ensure reliability, quality, transparency and efficiency.
Regulation on Payment Agents and Payment Arrangements
A Brazilian law enacted in October 2013 establishes the legal framework for “payment arrangements” (i.e. the set of rules governing a payment scheme, such as a credit or debit card transaction), and “payment agents” (i.e., any agent that issues a payment instrument or acquires a merchant for payment acceptance), which became part of the Brazilian Payments System and subject to oversight by the Central Bank. Payment agents, in spite of being regulated by the Central Bank, are not deemed to be financial institutions and are prohibited from engaging in activities that are exclusive of financial institutions.
The CMN and the Central Bank published rules in November 2013 regulating payment arrangements and payment agents. This regulation establishes, among other matters: (i) consumer protection and anti-money laundering compliance and loss prevention rules that should be followed by all entities supervised by the Central Bank when acting as payment agents and payment arrangers; (ii) the procedures for the incorporation, organization, authorization and operation of payment agents, as well for the transfer of control, subject to the Central Bank’s prior approval; (iii) capital requirements; (iv) definition of arrangements excluded from the Brazilian Payments System; (v) payment accounts, which are divided into prepaid and post-paid accounts; and (vi) a liquidity requirement for prepaid accounts that demands the allocation of their balance to a special account at the Central Bank or to be invested in government bonds, starting at 20% in 2014 and raisingrising gradually up to the totality of the total account balance in 2019.
In October 2015, a regulation was published by the Central Bank regulating limitations on closed payment arrangements, the concept of domicile institution, the obligation of centralized clearing and settlement for the payment arrangements, and transparency of interoperability rules within an arrangement and between arrangements.
On March 26, 2018, the Central Bank enacted Circular No. 3,887 establishing limitations to the interchange fee for debit transactions, which is the remuneration of the issuer paid by the merchant for each transaction. The average fee for the interchange is 0.5% and the maximum fee is 0.8%. These limitations are not applicable tonon-face-to-face transactions and to corporate cards.
On November 28, 2018, the Central Bank enacted Circular No. 3,918, which modified Circular No. 3,691, regarding the international use of credit cards. Effective as of March 1, 2020, credit cards issuers offer customers the option to pay credit card invoices in Reais, converting the amounts due on the date that such expenses were incurred. This option must be adopted for all credit cards issued, unless the customer waives converting foreign amounts on the day that the expense was incurred and chooses to have all amounts converted on the invoice due date.
On June 27, 2019, the CMN and the Central Bank published Resolution No. 4,734 and Circular No. 3,952, which will come into effect on August 3, 2020, and impose new regulations regarding (i) the discount and prepayment operations of receivables from credit and debit payment instruments issued under the Brazilian Payment System; (ii) credit operations guaranteed by such receivables; and (iii) the constitution of liens and encumbrances on these. With the new regulation, the Central Bank intends to provide greater efficiency and security to the discount, prepayment and credit operations linked to receivables from payment arrangements by merchants, increasing competition and thus reducing the cost of credit.
Instant Payments
The Central Bank intends to regulate instant payment services in 2020, which will enable users to conduct payment transactions in real time – 24 hours a day, 365 days a year – with or without a bank account and at low costs. Initially, the working group formed by the Central Bank is conceiving a model that allows a wide range of payment transactions – individual to individual; individual to business; business to individual, business to business, business to government and government to individual – among other combinations that the new regulation may contemplate.
On February 18, 2020, the Central Bank published Circular No. 3,985, which sets out implementation procedures and participation criteria for the Brazilian Instant Payments System (Sistema de Pagamentos Instantâneos or “SPI”) and the Central Bank´s instant payments arrangement. The rule determines that all financial and payment institutions with a license to operate granted by the Central Bank and which have more than 500,000 active client accounts (including checking, savings and payment accounts) will mandatorily participate in the SPI and in the Central Banks instant payments arrangement.
Circular No. 3,985 came into effect on March 2, 2020.
New regulation regarding the opening, maintenance and closing of deposit accounts
On September 26, 2019, the CMN enacted CMN Resolution 4,753/19, providing criteria for the opening, maintenance and closing of deposit accounts. CMN Resolution 4,753/19 replaced CMN Resolution 2,025/93 and other related resolutions, as well as well as amending CMN Resolution 3,972/11.
The new regulation no longer requires filling account holders information and colleting documents. Otherwise, determines that financial institutions must adopt procedures and controls that allow the verification and validation of the identity and qualification of the account holders and, if applicable, their representatives, as well as the authenticity of the information provided by the client. This information must be kept updated by the financial institution.
CMN Resolution 4,753/19 also sets forth requirements for the execution of deposit account service agreements, which include: (i) the procedures for identification and qualification of the account holders; (ii) the characteristics of the account and the basic rules of its operation, including available forms of transaction, procedures for charging fees and deadlines for providing receipts and other documents; (iii) security measures for account transaction purposes; (iv) the rights and obligations of account holders; (v) any limits to the balance kept in the account and to the contribution of resources; (vi) the procedures for updating the information of the holders; (vii) the possibility of inclusion of the holder’s name in thenon-sufficient funds check registry, in accordance with the regulations in force, in case ofnon-sufficient fund check, with the return of the checks held by the holder if the account can be moved by check; and (viii) the assumptions, conditions and procedures for account closure.
In addition, CMN Resolution 4,753/19 defines the minimum requirements for the closing of deposits account, which include: (i) communication between the parties of the intention to terminate the contract, stating the reasons for the termination; (ii) indication by the client of the allocation of any creditor balance in the account, which should include the transfer of funds to a miscellaneous account at his own or another institution or the placing of funds at his disposal for later withdrawal in kind; (iii) return by the customer of unused check sheets or the cancellation by the institution; (iv) provision of information by the institution to the account holder about the period for the adoption of the measures related to the termination of the contract (limited to thirty calendar days, counting from the initial communication date), the procedures for payment of commitments assumed with the institution or arising from legal provisions, and the products and services which the holder may contract with the institution that remain active or which are terminated with the deposit account; and (v) communication to the account holder about the account closing date or the reasons that make it impossible for the account to be closed, after the deadline mentioned under item (iv), above.
The rule also requires financial institutions to ensure, through the procedures and technology used for the opening, maintaining and closing of deposit accounts, the integrity authenticity and confidentiality, as well as the protection against unauthorized access, use, alteration, reproduction and destruction, of the information and the electronic documents used by them during the process.
CMN Resolution 4,753/19 came into effect on January 1, 2020.
Inclusion of exceptions to the banks’ obligation to providein-person customer services
On August 29, 2019, the CMN Resolution 4,746/19 was published, amending provisions of CMN Resolution 3,694/09.
According to the new rule, financial institutions and other institutions authorized to operate by the Central Bank are forbidden to prevent access, refuse, hinder or impose restrictions onface-to-face customer service in their facilities, except for: (i) the collection or collection services such as receipt of taxes and bills, social security payments, services to other financial institutions and complementary or subsidiary activities, and other services, when linked to the collection and payment of public interest, when (a) there is no contract or agreement for its provision between the financial institution and the beneficiary entity, or (b) the respective contract or agreement is not compatible with the counters of the institution’s premises; (ii) the receipt of payment slips referred to in Circular No. 3,598, of June 6, 2012, issued in noncompliance with the standard, specifications or requirements in force for the instrument; (iii) the receipt of documents upon payment by check; (iv) institutions that do not have physical agencies or agencies of institutions without cash counters; (v) the service stations installed in the premises of a public administration body or entity or a private company with cash counters, in which services are provided in the exclusive interest of the respective body or entity and its servants or the respective company and its employees and managers; and (vi) the exceptional situations provided for in the legislation or specific regulation.
The rule also prohibits the imposition of restrictions by financial institutions on the number of documents, transactions per person, as well as on the maximum or minimum amounts to be paid or received, or on the ability of the customer or user to opt for payments in kind, except as provided for in specific legislation or regulations.
CMN Resolution 4,746/19 came into effect on August 29, 2019 the date of its publication.
Provision of Financial Services through Electronic Channels
On April 25, 2016, the CMN enacted a new regulation altering the exceptions to the general ruleestablishes that obligates financial institutions are not required to provide clientclients access to traditional banking services channels establishing that it is not required for collection and receipt services based on agreements that demand exclusively electronic channels.
Credit Performance Information
CMN regulates a database known as Credit Information System (Sistema de Informações de Crédito,or SCR), which comprises information regarding credit operations sent to the Central Bank. SCR’s purpose is to provide information for the Central Bank to monitor and supervise credit in the financial system, and also to enable information exchange among financial institutions.
Consumer Protection Code
The Brazilian Consumer Protection Code, or CDC, which is applicable to financial institutions according to Brazilian higher courts, sets forth consumer defense and protection rules applicable to consumers’ relationships with suppliers of products or services. Brazilian higher courts understand that the CDC is also applicable to financial institutions.
The basic consumer rights dealing with financial institutions are as follows:
Reverse burden of proof in court;
Basic consumer rights dealing with financial institutions: |
• Reverse burden of proof in court; • Proper and clear information provided with respect to the products and services offered (e.g.; quantity, characteristics, composition, quality, price and risks such products pose); • Proportional reduction of interest charged in connection with personal credit and consumer directed credit transactions in case of early payment of debts; • In limited circumstances, amounts charged improperly may have to be returned in an amount equal to twice what was paid in excess of due amounts, except in cases of justifiable mistakes (e.g.; systemic failure or operational error); • Collection of credits cannot expose the client to embarrassment or be performed in a threatening manner; • Prohibition on the release of misleading or abusive publicity or information about contracts or services, as well as on the promoting of overbearing or disloyal commercial practices; and • Liability for any damages caused to consumers by misrepresentations in their publicity or information provided. |
In addition, there are some localLate payment and state bills and laws governing banking activities, by imposing security measures, standards for customer service and accessibility requirements (such as limits with respect to queues, folding screens, security guards, braille statements, receipt notice in debt collection and strict charging schedule). However, due to illegality or lack of reasonability in the provisions, some of those laws are judicially questioned.default
Late Payment and Default
On February 23, 2017, the CMN enacted a new regulation (ResolutionResolution No. 4,558) providing4,558 provides that in case of delay ornon-payment of credit operations, the financial institutions may only charge customers the following: (i) the interest rate established in the agreement; (ii) default interest and late payment finefines in accordance with the law. This regulation entered
Authorized debit of banking accounts
On March 26, 2020, CMN issued Resolution No. 4,790, which sets forth new rules for the automatic debit payments from checking account and accounts designated for the payment of an individual’s wages.
In order to foster the transparency on the relationship between the financial institutions and their clients, the new rule sets forth that financial institutions should only process authorized debit payments upon prior and express authorization of the client. Resolution No. 4,790 provides for the procedures for the authorization and cancellation of authorized debit payments.
The new rule will come into force on September 1, 2017.November 3, 2020.
Data ProtectionRules for Overdraft Facilities in Checking Accounts
On November 27, 2019, the CMN issued Resolution No. 4,765 (“Resolution No. 4,765/2019”), providing for new rules on the overdraft granted by financial institutions in checking accounts held by individuals and individual micro entrepreneurs (MEI).
Resolution No. 4,765/2019 limits interest rates for checking accounts overdraft facilities up to 8% per month, to which must be added a discount of the credit facility fees already charged on a monthly basis by the financial institution. According to the new rule, if the interest is less than or equal to the overdraft fees, such interest rates must be equal to zero.
The Brazilian General Data Protection Act, ornew rule allows, however, the GDPA, was published incharging of fees on overdraft-secured checks to: (i) 0% for the Federal Official Gazetteopening credit facilities of up to R$ 500.00; and (ii) 0.25% for the opening of credit facilities above R$500.00, calculated with the amount of the facility that exceeds R$500.00.
In addition, Resolution No. 4,765/2019 establishes that the overdraft-secured check must be compatible with the customer’s risk profile. Resolution No. 4,765/2019 came into force on August 15, 2018 and was amended by Provisional Measure No. 869, issued byJanuary 6, 2020, for agreements executed after the President of Brazil in December 2018, or the MP 869/2018. The GDPA will take effect in August 2020 (the original effective date, was February 2020, but MP 869/2018 postponed it for 6 months).
Before GDPA comesand will come into force Brazil lacks a data privacy specific regulation and a data protection authority. Privacyon June 1, 2020, for agreements executed prior to such date. Nevertheless, the 8% limitation on interests mentioned above is generally protected through the Federal Constitution, the Brazilian Civil Code (Law No. 10,406in effect as of January 10, 2002),6, 2020, regardless of the Brazilian Consumer Protection Code (Law No. 8,078execution dates of September 11, 1990)contracts between financial institutions and clients.
Real estate financings indexed to prices indexes
On July 31, 2018, the Civil Rights FrameworkCMN issued a new regulation in respect to the rules for the Internet (Law No. 12,965destination of April 23, 2014 andfunds in savings accounts. This regulation aims to improve the Decree 8,771 of May 11, 2016, also known as the Internet Law).
The GDPA brings about major changes in the conditions for personal data processing, with a set of rules to be observed in activities such as collection, processing, storage, use, transfer, sharing and erasure of information concerning identified or identifiable natural persons. The applicationeffectiveness of the GDPA will apply irrespective of industry or business when dealing with personal data.
The MP 869/2018 created the Brazilian.National Data Protection Authority, or the ANPD, which will have equivalent activities to the European data protection authorities, exercising the triple role of (i) investigation, being able to issue norms and procedures, deliberate on the interpretationdestination of the Actfunds and request information to controllers and processors; (ii) enforcement, in cases of nonsimplify compliance with the law, through an administrative process;rules, making the use of funds for real-property financings more flexible, efficient and (iii) education, disseminating knowledge aboutcomprehensive, while also encouraging the Act and security measures, stimulating standards for services and products that facilitate controldevelopment of data subjects, and elaborating studies onnew funding structures.
On August 19, 2019, the CMN issued Resolution No. 4,739, which broadens conditions of the national and international practices forreal estate financing system (Sistema Financeiro de Habitação), allowing interest to be tied to inflation indexes, such as the protection of personal data and privacy, amongst others.IPCA.
The ANPD has been assured technical independence, although subordinatedchange promoted by the CMN is a step towards a more flexible real estate financing market. As a result, it is expected that securities, such as certificates of real estate receivables (Certificado de Recebíveis Imobiliários or “CRI”) and the secured real estate bills (Letras Imobiliárias Garantidas) should be adopted to fund the Presidency ofreal estate financing market in the Republic.long term.
Regulation of Independent Auditors
In accordance with CMN regulations establishing the rules that govern external audit services provided to financial institutions, the financial statements and financial information of financial institutions must be audited by independent auditors who are (i) duly registered with the CVM; (ii) qualified as specialists in audit of banks by the CFC and the IBRACON; and (iii) meet the requirements that ensure auditor independence.
After issuing audit reports for five consecutive fiscal years, the responsible audit partner and audit team members with management responsibilities mustrotate-off and cannot be part of the audit team of such institution for three consecutive fiscal years.
CMN regulations also prohibitsprohibit the engagement and maintenance of independent auditors by financial institutions in the event that: (i) any of the circumstances of impediment or incompatibility for the provision of audit services provided for in the rules and regulations of the CVM, CFC or IBRACON arise; (ii) ownership of shares of or entering into financial transactions (either asset or liability) with the audited financial institution by the audit firm or members of the audit team involved in the audit work of the financial institution; and (iii) fees payable by the institution represent 25% or more of the total annual fees of the audit firm. Additionally, the audited financial institution is prohibited from hiring partners and members of the audit team with managerial responsibilities who were involved in the audit work at the financial institution during the preceding 12 months.
In addition to the audit report, the independent auditor must prepare the following reports, as required by CMN regulation.
An assessment of the internal controls and risk management procedures of the financial institution, including its electronic data processing system;
A description of non compliancenon-compliance with legal and regulatory provisions that have, or may have, a significant impact on the audited financial statements or operations of the audited financial institution; and
Others reports required by Central Bank.
These reports, as well as working papers, correspondence, service agreements and other documents related to the audit work must be retained and made available to the Central Bank for at least five years.
Under Brazilian law, our financial statements must be prepared in accordance with the accounting practices adopted in Brazil applicable to institutions authorized to operate by the Central Bank. We also prepare financial statements in accordance with the IFRS as issued by IASB. Please see “Presentation of Financial and Other Information—About our Financial Information” for further details. Financial institutions must have their financial statements audited every six months. Quarterly financial statements filed with the CVM must be reviewed by independent auditors of the financial institutions. CVM rules require publicly-held companies, including financial institutions, to disclose information related tonon-audit services provided by independent auditors when they represent more than 5% of the fees for audit services. Such information should include the type of service, the amount paid and the percentage that they represent of the fees for the audit of financial statements. Please see “Item 16C. Principal Accountant Fees and Services” for further details about fees and services of the principal auditors.auditors
Self-Regulators
We are signatories of self-regulation codes that establish principles, rules and recommendations of best corporate governance practices and determined activities, as applicable. Some of the self-regulatory entities that we are subject to are the ABRASCA, ABECS, ANBIMA, and FEBRABAN, among others.
Portability of Credit Transactions
The portability of credit transactions has been regulatedRegulated by the Central Bank since 2013. Portability2013, portability of credit transactions consists of the transfer of a credit transaction from the original creditor to another institution, at the request of the debtor, maintaining the same outstanding balance and payment conditions. The regulation establishes standard procedures and deadlines for the exchange of information and the mandatory use of an electronic system authorized by the Central Bank for the transfer of funds between financial institutions, prohibiting the use of any alternative procedure to produce the same effects of the portability, includingso-called “debt purchases”.
Rules Governing the Charging of Fees on Banking and Credit Card Operations
Banking fees and credit card operations are extensively regulated by the CMN and the Central Bank. According to Brazilian legislation, we must classify the services we provide to individuals underpre-determined categories and are subject to limitations on the collection of fees for such services.
Brazilian financial institutions are generally not authorized to charge fees from individuals for providing services classified as “essential” with respect to checking and savings accounts, such as supplying debit cards, check books, withdrawals, statements and transfers, among others.
Brazilian legislation also authorizes financial institutions to charge fees related to “priority services”, a standard set of services defined by Central Bank regulation. Financial institutions must offer to their individual clients “standard packages” of priority services. Clients may also choose between these or other packages offered by the financial institution, or to use and pay for services individually instead of selecting a package.
Current rules also authorize financial institutions to charge fees for specific services called “additional services” (serviços diferenciados), provided that the account holder or user is informed of the use and payment conditions relating to such services, or that fees and collection methods are defined in the contract.
The CMN also establishes rules applicable to credit cards, determining the events that allow for the collection of fees by issuers, as well as the information that must be disclosed in credit card statements and in the credit card agreement. There is also a list of priority services. The rules define two types of credit cards: (i) basic credit cards, with simpler services, without rewards programs and (ii) “special credit cards”, with benefits and reward programs.
A minimum of30-days’ prior notice to the public must precede the creation or increase of a fee. In addition, fees related to priority services may only be increased 180 days after the date of a previous increase (the reduction of a fee can take place at any time). With respect to credit cards, a45-days’ prior notice to the public is required for any increase or creation of fees and such fees may only be increased 365 days after the previous increase. The period of 365 days is also subject to changes in the rules applicable to benefit or reward programs.
At the end of 2016 and the beginning of 2017, two major changes occurred in the Brazilian payment market. In December 2016 a provisional measure was published authorizing the surcharge by payment instrument as a way to stimulate retail sales, allowing retailers to charge different prices depending on the payment method. In January 2017 the CMN published a new resolution establishing that revolving credit for the financing of credit card bills may only be extended to clients until the due date of the following credit card bill. After such term, the credit provider must offer the client another type of financing with conditions more favorable than the ones that are provided in the credit card market. In addition, the credit provider shall no longer offer this type of credit to clients that already contracted revolving credit for the financing of credit card bills which were not repaid on time.
In 2018, the CMN enactedissued a new resolution establishing that the following fees may be collected in the event of late payment or settlement of obligations related to credit card bills and other postpaid payment instruments: (i) compensatory interest, per day of delay, on overdue installments or on unpaid debtor balances; (ii) a fine and (iii) interest for late payment.
The same resolution also established that the change in credit limits, if not carried out at the request of the customer, should, in the case of: (i) reduction, be preceded by at least30-days’ advancedadvance notice to the client, except if there is a deterioration of the customer’s credit risk profile, according to the criteria defined in the credit risk management policy, in which case notice may be made at any time prior to the reduction; and (ii) increase, be conditioned upon the customer’s prior acquiescence.
In 2019, the CMN issued a standard setting rules for the collection of interest and tariff on overdraft for individuals and Individual Microentrepreneurs (entrepreneurs with annual revenues of R$81,000 and subject to specific legislation). According to the new regulation, a client can only be charged for use of overdraft limit exceeding R$500.00.
Data Protection
The Brazilian General Data Protection Act, or the GDPA, will become effective in August 2020 (although the Brazilian Congress is currently discussing a delay in its initial effective date). The GDPA brings a set of rules to be observed in activities such as collection, processing, storage, use, transfer, sharing and erasure of information concerning identified or identifiable natural persons. The application of the GDPA will apply irrespective of industry or business when dealing with personal data.
GDPA created the Brazilian National Data Protection Authority, or the ANPD, which will exercise the triple role of investigation, enforcement and education. More importantly, it will be able to issue norms and procedures, deliberate on the interpretation of the act, request information to controllers and processors and, in cases of noncompliance with the law, enforce the law through an administrative process. The ANPD has been assured technical independence, though it is subordinated to the Presidency of the Republic.
Banking Secrecy
Brazilian financial institutions must maintain the secrecy of banking transactions and services provided to their clients. Except as permitted under Brazilian legislation or by judicial order, a breach of bank secrecy is a criminal offense. The only circumstances in which information about clients, services or transactions by Brazilian financial institutions or credit card companies may be disclosed to third parties are the following:
the disclosure of information with the express consent of the interested parties; | the exchange of information between financial institutions for record purposes; | |
the disclosure of information to credit reference agencies based on data from the records of subscribers of checks drawn on accounts without sufficient funds and defaulting debtors; | the disclosure of information to the competent authorities relating to the actual or suspected occurrence of criminal acts or administrative wrongdoings, including the disclosure of information on transactions involving funds related to any unlawful activities; | |
the disclosure of some information established by law to tax authorities; and | the disclosure of information in compliance with a judicial order. |
the disclosure of information with the express consent of the interested parties;
the exchange of information between financial institutions for record purposes;
the disclosure of information to credit reference agencies based on data from the records of subscribers of checks drawn on accounts without sufficient funds and defaulting debtors;
the disclosure of information to the competent authorities relating to the actual or suspected occurrence of criminal acts or administrative wrongdoings, including the disclosure of information on transactions involving funds related to any unlawful activities;
the disclosure of some information established by law to tax authority; and
the disclosure of information in compliance with a judicial order.
Except as permitted under Brazilian legislation or by judicial order, a breach of bank secrecy is a criminal offense.
Digitalization of Documents and Record Keeping
On March 31, 2016, the CMN enacted a newAccording to CMN’s resolution regulatingon the digitalization of documents with respect to transactions carried out by financial institutions and other institutions authorized to operate by the Central Bank. The regulation authorizes thoseBank, these institutions are authorized to maintain digital documents, instead of paper documents, for recordkeeping purposes, if certain requirements to ensure the documents authenticity, validity and protection are met. ItThe resolution also permits the disposal of original paper documents provided that this measure will not prejudice the institution’s ability to exercise any rights or to commence any proceeding or exercise any protective remedy related to the relevant document.
Cybersecurity
In April 2018,The regulatory scenario in Brazil regarding cyber security is becoming more mature. Besides the CMN issued a regulation on cyber risks and storage and processing in external environments and public clouds applicable to financial services following the public consultation heldissued by CMN (the National Monetary Council) in 2017. AccordingApril 2018, CVM (The Securities and Exchange Commission of Brazil) has also issued a regulation in August 2019, to this new rule, financialrequire securities market institutions must now followto implement cyber risk managementsecurity and cloud outsourcingdata protection controls.
The CMN requirements on how these entities must design or adapt their internal controls. Policiesregarding policies and action plans to prevent and respond to cybersecuritycyber security incidents must be in place beforehad implementation date on May 2019, and the other requirements must be fully compliant by December 2021. Data location and processing may take place inside or outside
For the CVM regulation, the final date is September 2020.
Law Amending the Proceedings for Administrative Sanctions in the Brazilian territory, but access to data stored abroad must be granted at all times toNational Financial System, the SPB and Capital Markets
Law No. 13,506 provides for administrative sanctioning procedures by the Central Bank for inspection purposes.and the CVM. Some of the key aspects of Law No. 13,506 are: (i) it increases the maximum fine applicable by the Central Bank from R$250 thousand to R$2 billion or 0.5% of the revenues of the company arising from services and financial products in the year prior to the violation; (ii) it increases the maximum fine applicable by the CVM from R$500 thousand to R$50 million; (iii) it sets forth new types of violations and subject to penalties; (iv) it increases the maximum penalty with respect to disqualification to a period of twenty years; (v) it provides that the Central Bank may enter intocease-and-desist commitments; and (vi) it provides that the Central Bank and the CVM may enter into administrative agreements similar to leniency agreements.
Centralized Registration and Deposit of Financial Assets and Securities
On August 28, 2017, the Brazilian Congress converted Provisional Measure No. 775, issued by the President of Brazil in April 2017, into Law No. 13,476. The new law consolidates13,476/2017 consolidated the provisions on the creation of liens over financial assets and securities. Onsecurities requiring that the same day,constitution of liens on financial assets and securities subject to registration or centralized deposit be carried out exclusively at the registering entities or at the central depositories where such financial assets or securities are registered or deposited, regardless of the nature of the legal transaction to which they relate to, including for purposes of publicity and effectiveness with third parties.
The CMN issued a new rule to regulate the provisions of Law No. 13,47613,476/2017 and to consolidate the regulation on centralized deposit and the registry of financial assets and securities issued or owned by financial institutions and other institutions authorized to operate by the Central Bank. TheBank, requiring, amongst other provisions, that such institutions be generally, subject to limited exceptions, obligated to: (i) register and deposit, in registration and/or centralized deposit systems authorized to operate by the Central Bank or the CVM, all financial assets and securities they are obligated orco-obligated to pay; and (ii) only keep in their asset portfolio securities that are registered and/or deposited in the terms of the CMN established a term of 180 days for this rule to become effective.rule.
On September 5, 2018, the Central Bank issued a new rule amending the existing procedural rule on centralized registration and deposit of financial assets and securities and the creation of liens on deposited financial assets and established the terms for the creation of liens over financial assets registered with registering entities. The referred rule established, amongst other changes, that such liens are effective in the moment that the central depositary accepts the command from its participant, pursuant to its internal regulations.
Labor Law Overhaul
Law No. 13,467/2017 (known as the Labor Law Overhaul), became effective on November 11, 2017. It amends several articles of Brazilian Consolidated Labor Statutes (known as “CLT”). Among the changes, the Law permits employers and unions to contract around certain provisions of the CLT, for purposes of preserving certain constitutional labor rights. This should give businesses the ability to better organize work shifts, overtime, vacation schedules, among other things. It also regulates telecommuting and intermittent jobs (which refers to a work schedule that is less than fulltime and does not have a prescheduled hour of duty). In addition, it authorizes that certain high-level employees can utilize arbitration as a dispute resolution method instead of taking their issues to the courts. Certain labor judges and scholars have raised legal and constitutional issues regarding the new law. Notwithstanding these discussions, the Labor Law Overhaul is an important reform of labor relations in Brazil.
Law Amending the Proceedings for Administrative Sanctions in the Brazilian National Financial System, the SPB and Capital Markets
In June 2017, the Provisional Measure No. 784, or “MPV 784” was enacted amending the administrative proceedings in the Brazilian National Financial System, the Brazilian Payment System and capital markets. After numerous discussions, on October 19, 2017, Provisional Measure No. 784 ceased to be effective as no further legislative action was taken with respect to the provisional measure. Proposed modifications to the subject matter of Provisional Measure No. 784 related to administrative sanctioning procedures applicable to the Brazilian national financial system the Brazilian payment system and capital markets transactions in the Brazilian capital markets were then reissued under Bill of Law No. 8,843, which was approved by the Chamber of Deputies on October 18, 2017 and converted into Bill of Law No. 129 that was subsequently approved by the Brazilian senate on October 25, 2017. The result of the process was Law No. 13,506 which was published on November 14, 2017.
Law No. 13,506 provides for administrative sanctioning procedures by the Central Bank and the CVM. Some of the key aspects of Law No. 13, 506 are: (i) it increases the maximum fine applicable by the Central Bank from R$250 thousand to R$2 billion or 0.5% of the revenues of the company arising from services and financial products in the year prior to the violation; (ii) it increases the maximum fine applicable by the CVM from R$500 thousand to R$50 million; (iii) it makes additional types of violations and redefines some types of violations within the scope of the Central Bank’s regulatory authority; (iv) it provides for a penalty of “public admonition” in place of “warning”, applicable by the Central Bank; (v) it defines “serious violations” that fall within the scope of the Central Bank’s regulatory authority; (vi) it increases the maximum penalty with respect to disqualification to a period of twenty years; (vii) it provides that the Central Bank may enter intocease-and-desist commitments; (viii) it provides that the Central Bank and the CVM may enter into administrative agreements similar to leniency agreements; and (ix) it redefines certain conditions deemed forbidden in credit operations between related parties.
Compliance Risk
On August 28, 2017, the CMN enacted a new rule providing that Brazilian financial institutions and other institutions authorized to operate by the Central Bank must implement and maintain a compliance policy commensurate with the nature, size, complexity, structure, risk profile and business model of the institution. Such compliance policies are intended to ensure effective compliance risk management by an institution and may be established at the consolidated enterprise level (conglomerado prudencial). Among others, a compliance policy must establish the scope and purpose of the compliance function in the institution, set forth the organizational structure of the compliance policies, specify which personnel are allocated to the compliance function, and establish a segregation of roles among personnel in order to avoid conflicts of interest.
Internal Audit
On June 29, 2017, the CMN published Resolution No. 4,588, which establishes the rules applicable for internal audits at financial institutions and other institutions authorized to operate by the Central Bank. It determines that financial institutions and other institutions authorized to operate by the Central Bank must implement and maintain internal audit functions compatible with the nature, size, complexity, structure, risk profile and business model of the respective institution. Such activity must be undertaken by a specific unit in the institution directly subordinated to the Board of Directors or an independent auditor (provided that such auditor is not in charge of the audit of the financial statements of the institution or any other activity that may imply a conflict of interest).
Taxation of closed investment funds
MP 806/17 issued on October 30, 2017, which intended to extinguish the tax deferral regime applicable to closely held investment funds and subject them to taxation, was not converted into law. As a consequence, it was repealed.
Taxes on Transactions entered into by the Itaú Unibanco Group
We summarize below the main taxes levied on the transactions entered into by entities in the Itaú Unibanco Group in Brazil. This description does not represent a comprehensive analysis of all tax considerations applicable to the Itaú Unibanco Group. For a morein-depth analysis, we recommend that potential investors consult their own tax advisors. The main taxes we are subject to, with itstheir respective rates, are as follows:
Tax | Rate | Tax calculation basis | ||
IRPJ | 15.0% plus a 10.0% surtax | Net income with adjustments (exclusions, additions, and deductions) | ||
CSLL | 20.0% (financial institutions, insurance companies and capitalization entities) or 9.0% (other Itaú Unibanco Group companies)
From January 1, 2019 to February 2020, the CSLL tax rate, as defined below, applicable to financial institutions, insurance companies, capitalization and similar entities was reduced to 15.0% | Net income with adjustments (exclusions, additions, and deductions) | ||
COFINS | 4.0% (financial institutions, insurance companies, capitalization and similar entities) or 7.6% (other Itaú Unibanco Group companies) | Gross revenue minus specific deductions | ||
PIS | 0.65% (financial institutions, insurance companies, capitalization and similar entities) or 1.65% (other Itaú Unibanco Group companies) | Gross revenue minus specific deductions | ||
ISS | 2.0% to 5.0% | Price of service rendered | ||
IOF | Depends on the type of the transaction, as described below. | Transaction nominal value |
Corporate Income Tax and Social Contribution on Net Income
In accordance with applicable legislation, corporate income tax (Imposto de Renda da Pessoa Jurídica, or IRPJ), and social contribution on profits (Contribuição Social Sobre o Lucro Líquido, or CSLL) are determined by the taxable income regime. Under this regime, our taxable income, on which IRPJ and CSLL will be levied, must be adjusted by additions, deductions, and exclusions, such as nondeductible expenses, operating costs and equity accounting, respectively.
The IRPJ is levied at a basic 15.0% rate, and a 10.0% surtax is applicable when the total amount of profit for the fiscal period exceeds R$20,000 per month or R$240,000 per year. In other words, any portion of our profit exceeding this limit is taxed at an effective 25.0% rate.
Until December 31, 2018, theThe CSLL wasis levied on our taxable income at a 20.0% rate, which is specific for financial institutions, insurance, and similar companies. As ofFrom January 1, 2019 to February 2020, the CSLL rate for financial institutions is 15.0%. Note that this tax is generally levied at a 9.0% fornon-financial legal entities.
As other Brazilian legal entities, our companies may offset the historical nominal amount of tax losses determined in prior years against results of subsequent years at any time (i.e., with no limitations with respect to time periods), provided that such offsetting does not exceed 30.0% of the annual taxable income of such future year. For purposes of IRPJ and CSLL taxation, companies should consider their income abroad as well rather than income solely from Brazilian operations. Therefore, profits, capital gains and other income earned abroad by Itaú Unibanco Group entities in Brazil, their branches, representations, affiliates or subsidiaries, will also be computed for determination of the entities nettaxable income. However, Brazilian legislation provides the possibility of deducting the amounts paid as corporate income tax abroad against the IRPJ and CSLL due in Brazil, and CSLL, provided certain limits are observed.
Contribution on Social Integration Program and Social Security Financing Contribution
In addition to IRPJ and CSLL, Brazilian legal entities are subject to the following taxes on revenue: PIS and COFINS.
In accordance withAccording to applicable legislation, financial institutions are subject to the cumulative regime for calculation of these taxes. Under the cumulative regime, financial institutions are required to pay PIS at a 0.65% rate and COFINS at a 4.0% rate. The cumulative regime provides for rates lower than those levied under thenon-cumulative regime, which is explained below, but it prevents the use of tax credits.
Some additional deductions are legally permitted to financial institutions.
Mostnon-financial companies, on the other hand, are authorized to pay PIS and COFINS contributions according to thenon-cumulative regime. Under thenon-cumulative regime, PIS is levied at a 1.65% rate and COFINS is levied at a 7.6% rate. The calculation basis of these taxes is the gross revenue earned by the entity; however, the taxpayer may offset credits calculated through the application of the same rates on the value paid on the purchase of certain inputs used in the entity’s production process. Currently, under suchnon-cumulative regime, the financial income ofnon-financial companies is subject to PIS and COFINS at the rate of 0.65% and 4%, respectively, except for income from interest on capital, which is subjected to PIS and COFINS at the rate of 1.65% and 7.6%, respectively.
Service Tax
The ISS is generally levied on the price of services rendered (e.g., banking services) and is charged by the municipality where our branch or office rendering the service is located. The tax rates vary from 2.0% up to the maximum rate of 5.0%, depending on the municipality in which the service is provided and its respective nature.
A new tax law enacted on December 30, 2016, effectedcaused a number of changes with respect to Brazilian Tax on Service, or ISS. Among a series ofthese modifications, to the ISS, the new law introduced a minimum tax rate of 2%.
The original proposed legislation approved by the Brazilian Congress provided changes related to ISS assessment on new activities such as credit card and leasing operations but former President Temer vetoed these changes. However, on May 30, 2017, the Brazilian Congress overturned the presidential veto. As a result, beginning on January 1, 2018, ISS levied on the services of leasing, cards administration, funds administration and consortium administration would be charged by the municipality where the client is located. AsDue to this change, brought some relevant impacts, in November 2017, a lawsuit was filed by CONSIF and CNSEG in the Federal Supreme Court. OnCourt, and, on March, 23, 2018, the required preliminary injunction was granted, in order to suspend the amendment introduced by the new law and to resume the previous treatment of ISS collection in the Municipality where the establishment is located. However, it is important to mention that this is not a final decision, as it is still pending the final pronouncement by the Federal Supreme Court.
Tax on Financial Transactions
The tax on financial transactions is levied at specific rates according to the transaction in question, and may be changed by a decree from the Executive Branch (which may become effective as of its publication date), rather than by a law enacted by the Brazilian Congress.
The table below summarizes the main IOF rates levied on our transactions. Notwithstanding, we note that IOF is a very comprehensive tax. Therefore, for a morein-depth analysis, we recommend that tax advisors be consulted accordingly.
Type of transaction | Applicable Rates (Rates may be changed by a decree enacted by the Brazilian government up to a maximum rate, as described below, which may become effective as of its publication date) | |
Foreign exchange transactions | IOF/FX: zero to 6.38% (depending on the transaction) Maximum rate: 25% | |
Insurance transactions | IOF/Insurance: zero to 7.38% Maximum rate: 25% | |
Loans and credit transactions | IOF/Credit: 0.0082% (individual) or 0.0041% (legal entities) per day, until it reaches 365 days, plus a flat 0.38% rate Maximum rate: 1.5% per day | |
Securities | IOF/Securities: zero to 1.5% as a general rule Maximum rate: 1.5% per day | |
Securities – Derivatives | IOF/Securities—Derivatives: zero Maximum rate: 25% |
U.S. Foreign Account Tax Compliance Act (FATCA)
FATCA attempts to minimize tax avoidance by U.S. persons investing in foreign assets both through their own accounts and through their investments in foreign entities. FATCA requires U.S. withholding agents such as Itaú to provide information to the IRS regarding their U.S. account holders including substantial U.S. owners of certainnon-financial foreign entities, or NFFEs, and specified U.S. persons having an interest in certain professionally managed investment vehicles and trusts known as owner-documented foreign financial institutions, or FFIs.
To the extent a U.S. withholding agent is not able to properly document an account, it generally will be required to deduct 30% FATCA withholding on certain payments of U.S. source income.
U.S. federal income tax law has detailed rules for determining the source of income. Different rules apply for each type of income. Interest and dividends, two of the most common types of income for investors, are generally sourced by reference to the residence of the obligor. Specifically, dividends are generally treated as U.S. source income when paid by a U.S. corporation with respect to its stock, and interest is generally treated as U.S. source income when paid by a U.S. borrower of money.
The United States collaborated with other governments to develop Intergovernmental Agreements, or IGAs, to implement FATCA. IGAs with partner jurisdictions facilitate the effective and efficient implementation of FATCA. The purpose of these agreements is essentially to remove domestic legal impediments to compliance with FATCA and sharing of information and to reduce burdens on FFIs located in partner jurisdictions.
More than 70 jurisdictions have signed an IGA, including Brazil, the Cayman Islands, Switzerland and United Kingdom. In addition, approximately 30 other jurisdictions are deemed as having an IGA in effect. Some countries signed a reciprocal agreement, meaning that the country (such as Brazil) and the U.S. will automatically exchange annually, on a reciprocal basis, specific account holder information.
There are two types of IGAs – Model 1 IGA, where local FFIs are required to implement account opening and due diligence procedures to identify U.S. accounts and report them to the local tax authority for exchange with the IRS (examples of Model 1 IGA countries are Brazil, Cayman Islands, The Bahamas, Peru and Colombia), and Model 2 IGA, where local FFIs are required to implement account opening and due diligence procedures to identify U.S. accounts, but report such information directly to the IRS (examples of Model 2 IGA countries are Switzerland, Chile, Paraguay and Japan).
The governments of Brazil and the United States entered into a Model 1 IGA on September 23, 2014, which became effectivecame into effect in Brazil on August 24, 2015, after the approval by the Brazilian Congress, ratification by the President and enactment of Decree 8,506(IGA-BR).
Under theIGA-BR, Brazilian financial institutions and other entities subject to FATCA disclosure requirements are generally required to provide certain information on their U.S. account holders to the Brazilian tax authorities, which will share this information with the U.S. Internal Revenue Service.IRS.
Furthermore, Normative Ruling No. 1,680, dated December 28, 2016, was enacted to introduce theso-called Common Reporting Standard, or CRS, in Brazil, which seeks to implement a system of reporting financial accounts in a manner similar to FATCA. CRS is the result of discussions on the necessity of exchanging information between tax authorities of many countries in the context of the Base Erosion and Profit Shifting, or BEPS Project, coordinated by the Organization for EconomicCo-operation and Development, or OECD. In connection therewith, an ancillary obligation called“e-financeira” provided by Normative Ruling No. 1,571, dated July 2, 2016, was created to be the mandatory report filed by financial institutions in order to fulfill FATCA and CRS obligations.
Moreover, on May 6, 2016, Brazilian tax authorities issued the Normative Ruling No. 1,634, effective as of January 1, 2017, that amended the regulation applicable to the National Registry of Legal Entities, or CNPJ. This regulation introduced a new rule providing an ancillary obligation by which certain entities have to indicate the “Final Beneficiary” in each CNPJ, which is defined as the natural person who ultimately, directly or indirectly, owns, controls or significantly influences a particular entity or on whose behalf a transaction is conducted. Currently, this subject is regulated by Normative Ruling No. 1,863, dated December 27, 2018.
In addition, Normative Ruling No. 1,681 was enacted inon December 28, 2016 providing the obligation to annually deliver theso-calledCountry-by-Country Statement, an ancillary obligation also arising from the discussions under the BEPS Project, before the Brazilian Federal Revenue Service (RFB), which in its turn is also expected to exchange such information with other countries’ tax authorities.
Pursuant to FATCA, the issuer, any other financial institution or other entities subject to FATCA disclosure requirements to or through which any payment with respect to the preferred shares or ADSs is made may be required, pursuant to theIGA-BR or under applicable law, to (i) request certain information from holders or beneficial owners of our preferred shares or ADSs, which information may be provided to the U.S. Internal Revenue Service;IRS; and (ii) withhold U.S. federal tax at a 30.0% rate on some portion or all of the payments considered “pass-thru payments” made after December 31, 2018, with respect to the preferred shares or ADSs if such information is not duly provided by such a holder or beneficial owner (referred to under FATCA as a “recalcitrant account holder”). If the issuer or any other person is required to withhold amounts under or in connection with FATCA from any payments made in respect of the preferred shares or ADSs, holders and beneficial owners of the preferred shares or ADSs will not be entitled to receive any gross up or other additional amounts to compensate them for such withholding.
The above description is based on guidance issued to date by the U.S. Treasury Department, including the final U.S. Treasury regulations andIGA-BR. Future guidance may affect the application of FATCA to the preferred shares or ADSs.
Selected Statistical Information
The following information is included for analytical purposes and should be read in together with our audited consolidated financial statements and “Item 5. Operating and Financial Review and Prospects”.
The data included or referenced in this section are presented in accordance with IFRS, unless otherwise indicated.
Average Balance Sheet and Interest Rate Data
The following tables present the average balances of our interest-earning assets and interest-bearing liabilities, other assets and liabilities accounts, the related interest income and expense amounts and the average real yield/rate for each period.
The following methodologies were used when calculating the average balances of our assets and liabilities presented in the following tables. For the 2019 and 2018 average balances, we used the monthly balances prepared in accordance with IFRS, reflecting the adoption of IFRS 9. For the 2017 and 2016 monthly average balances, we used the monthly average balances reported under BRGAAP,Brazilian GAAP, which were adjusted to reflect management’s best estimate of the impact of the retrospective adoption of IFRS 9.IFRS9.
The majority of our business is comprised of operations with individuals and corporate entities without significant fluctuations over short periods.Non-accrual loans and leases are disclosed as anon-interest earning asset in the table below:
Assets | 2018 | 2017 | 2016 | 2019 | 2018 | 2017 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Average balance | Interest | Average yield/rate | Average balance | Interest | Average yield/ rate | Average balance | Interest | Average yield/ rate | Average balance | Interest | Average yield/rate | Average balance | Interest | Average yield/rate | Average balance | Interest | Average yield/rate | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
(In millions of R$, except percentages) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Interest-earning assets(1) | 1,335,686 | 133,177 | 10.0 | 1,239,882 | 145,641 | 11.7 | 1,175,966 | 162,405 | 13.8 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Assets | (In millions of R$, except percentages) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
1,428,272 | 140,283 | 9.8 | 1,343,713 | 133,177 | 9.9 | 1,249,574 | 145,641 | 11.7 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
26,174 | 1,080 | 4.1 | 29,638 | 744 | 2.5 | 26,907 | 674 | 2.5 | 30,728 | 1,173 | 3.8 | 26,174 | 1,080 | 4.1 | 29,638 | 744 | 2.5 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Securities purchased under agreements to resell | 265,218 | 17,365 | 6.5 | 262,238 | 25,711 | 9.8 | 252,627 | 34,162 | 13.5 | 258,763 | 16,197 | 6.3 | 265,218 | 17,365 | 6.5 | 262,238 | 25,711 | 9.8 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Central Bank compulsory deposits | 91,421 | 5,063 | 5.5 | 90,189 | 7,201 | 8.0 | 72,031 | 6,920 | 9.6 | 90,190 | 4,734 | 5.2 | 91,421 | 5,063 | 5.5 | 90,189 | 7,201 | 8.0 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Financial Assets | 402,846 | 34,661 | 8.6 | 356,227 | 34,841 | 9.8 | 304,625 | 38,623 | 12.7 | 432,618 | 36,100 | 8.3 | 402,846 | 34,661 | 8.6 | 356,227 | 34,841 | 9.8 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Financial assets at fair value through profit or loss | 248,274 | 22,853 | 9.2 | 210,865 | 22,938 | 10.9 | 165,479 | 23,641 | 14.3 | 259,318 | 22,760 | 8.8 | 248,274 | 22,853 | 9.2 | 210,865 | 22,938 | 10.9 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Financial assets at fair value through other comprehensive income | 53,948 | 9,194 | 17.0 | 43,288 | 8,886 | 20.5 | 39,504 | 11,160 | 28.3 | 56,415 | 10,758 | 19.1 | 53,948 | 9,194 | 17.0 | 43,288 | 8,886 | 20.5 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Financial assets at amortized cost | 100,624 | 2,614 | 2.6 | 102,075 | 3,017 | 3.0 | 99,643 | 3,822 | 3.8 | 116,885 | 2,582 | 2.2 | 100,624 | 2,614 | 2.6 | 102,075 | 3,017 | 3.0 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other Financial Assets | 64,618 | 1,368 | 2.1 | 49,611 | 1,576 | 3.2 | 61,946 | 1,902 | 3.1 | 80,600 | 1,033 | 1.3 | 64,618 | 1,368 | 2.1 | 49,611 | 1,576 | 3.2 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Loans and leases | 485,409 | 73,640 | 15.2 | 451,979 | 75,568 | 16.7 | 457,830 | 80,124 | 17.5 | 535,374 | 81,046 | 15.1 | 493,436 | 73,640 | 14.9 | 461,672 | 75,568 | 16.4 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Non-interest-earning assets | 142,750 | 130,877 | 139,973 | 156,953 | 134,723 | 121,185 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cash and due from banks | 26,611 | 19,027 | 21,204 | 31,964 | 26,616 | 19,027 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Central Bank compulsory deposits | 4,981 | 3,806 | 3,782 | 5,380 | 5,132 | 3,806 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Derivatives | 25,242 | 21,820 | 28,801 | 33,351 | 25,242 | 21,820 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Non-accrual loans | 22,419 | 21,834 | 23,926 | 22,777 | 22,419 | 21,834 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Provisions for Expected Loss | (35,381 | ) | (33,248 | ) | (33,948 | ) | (35,152 | ) | (36,042 | ) | (33,248 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Premises and equipment, net | 7,202 | 7,611 | 8,036 | 7,238 | 7,202 | 7,611 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Investments in unconsolidated companies | 7,730 | 5,002 | 4,792 | 12,544 | 7,730 | 5,002 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Goodwill | 11,109 | 9,912 | 6,475 | 10,970 | 11,109 | 9,912 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Intangible assets, net | 8,545 | 7,757 | 8,689 | 12,473 | 8,545 | 7,757 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Tax assets | 43,741 | 43,590 | 45,032 | 43,143 | 43,741 | 43,590 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Assets held for sale | 767 | 685 | 570 | 718 | 767 | 685 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other assets | 19,785 | 23,081 | 22,615 | 11,547 | 12,263 | 13,389 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Total | 1,478,435 | 1,370,759 | 1,315,940 | 1,585,225 | 1,478,435 | 1,370,759 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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(1) | For the net yield on total average interest-earning assets, see “Net Interest Margin and Spread”. |
Liabilities | 2018 | 2017 | 2016 | 2019 | 2018 | 2017 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Average balance | Interest | Average yield/rate | Average balance | Interest | Average yield/rate | Average balance | Interest | Average yield/rate | Average balance | Interest | Average yield/rate | Average balance | Interest | Average yield/rate | Average balance | Interest | Average yield/rate | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
(In millions of R$, except percentages) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Liabilities | (In millions of R$, except percentages) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
1,176,795 | 70,612 | 6.0 | 1,151,960 | 78,330 | 6.8 | 1,042,406 | 95,129 | 9.1 | 1,259,993 | 75,958 | 6.0 | 1,176,795 | 70,612 | 6.0 | 1,151,960 | 78,330 | 6.8 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
357,684 | 17,484 | 4.9 | 287,398 | 13,340 | 4.6 | 244,121 | 14,701 | 6.0 | 394,787 | 18,559 | 4.7 | 357,684 | 17,484 | 4.9 | 287,398 | 13,340 | 4.6 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Savings deposits | 126,987 | 6,809 | 5.4 | 110,411 | 6,393 | 5.8 | 106,838 | 7,501 | 7.0 | 138,034 | 7,186 | 5.2 | 126,987 | 6,809 | 5.4 | 110,411 | 6,393 | 5.8 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Deposits from banks and time deposits | 230,697 | 10,675 | 4.6 | 176,987 | 6,946 | 3.9 | 137,283 | 7,200 | 5.2 | 256,752 | 11,373 | 4.4 | 230,697 | 10,675 | 4.6 | 176,987 | 6,946 | 3.9 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Securities sold under repurchase agreements | 308,306 | 20,889 | 6.8 | 345,218 | 33,087 | 9.6 | 336,962 | 45,935 | 13.6 | 299,225 | 20,473 | 6.8 | 308,306 | 20,889 | 6.8 | 345,218 | 33,087 | 9.6 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Interbank market debt and Institutional market debt | 232,802 | 20,359 | 8.7 | 229,269 | 16,911 | 7.4 | 240,608 | 16,596 | 6.9 | 256,057 | 20,068 | 7.8 | 232,802 | 20,359 | 8.7 | 229,269 | 16,911 | 7.4 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Interbank market debt | 135,357 | 13,587 | 10.0 | 133,984 | 10,059 | 7.5 | 145,013 | 8,347 | 5.8 | 155,977 | 13,231 | 8.5 | 135,357 | 13,587 | 10.0 | 133,984 | 10,059 | 7.5 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Institutional market debt | 97,445 | 6,773 | 7.0 | 95,285 | 6,852 | 7.2 | 95,595 | 8,249 | 8.6 | 100,080 | 6,837 | 6.8 | 97,445 | 6,773 | 7.0 | 95,285 | 6,852 | 7.2 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Reserves for insurance and private pension and Liabilities for capitalization plans | 193,908 | 11,815 | 6.1 | 170,561 | 14,918 | 8.7 | 144,481 | 17,790 | 12.3 | 212,972 | 16,720 | 7.9 | 193,908 | 11,815 | 6.1 | 170,561 | 14,918 | 8.7 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other interest-bearing liabilities | 84,095 | 64 | 0.1 | 119,515 | 74 | 0.1 | 76,234 | 107 | 0.1 | 96,953 | 138 | 0.1 | 84,095 | 64 | 0.1 | 119,515 | 74 | 0.1 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Non-interest bearing liabilities | 158,960 | 87,378 | 147,515 | 180,954 | 158,960 | 87,378 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Non-interest bearing deposits | 70,205 | 61,844 | 61,895 | 76,865 | 70,205 | 61,844 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other Comprehensive Income | 4,038 | 5,485 | 6,008 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other non-interest-bearing liabilities | 84,718 | 20,049 | 79,613 | 104,089 | 88,755 | 25,534 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total stockholders’ equity attributed to the owners of the parent company | 128,851 | 119,809 | 115,687 | 130,500 | 128,851 | 119,809 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Non-controlling interests | 13,829 | 11,613 | 10,331 | 13,779 | 13,829 | 11,613 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total | 1,478,435 | 1,370,759 | 1,315,940 | 1,585,225 | 1,478,435 | 1,370,759 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Changes in Interest Income and Expenses – Volume and Rate Analysis
The following table sets forth the allocation of the changes in our interest income and expense in terms of average volume and changes in the average yields/rates for the periods indicated below. Volume balance and rate variations have been calculated based on variations of average balances over the period and changes in average interest yield/rates on interest earning assets and interest-bearing liabilities from one period to the other.
Increase/(decrease) due to changes in: | Increase/(decrease) due to changes in: | Increase/(decrease) due to changes in: | Increase/(decrease) due to changes in: | |||||||||||||||||||||||||||||||||||||||||||||
2018-2017 | 2017 -2016 | 2019-2018 | 2018-2017 | |||||||||||||||||||||||||||||||||||||||||||||
Volume (1) | Yield/ rate (2) | Net change (3) | Volume (1) | Yield/ rate (2) | Net change (3) | Volume(1) | Yield/rate(2) | Netchange(3) | Volume(1) | Yield/rate(2) | Netchange(3) | |||||||||||||||||||||||||||||||||||||
(In millions of R$, except percentages) | (In millions of R$, except percentages) | |||||||||||||||||||||||||||||||||||||||||||||||
Interest-earning assets | 10,297 | (22,761 | ) | (12,464 | ) | (3,210 | ) | 13,554 | 16,764 | 8,639 | (1,533 | ) | 7,106 | 9,479 | (21,943 | ) | (12,464 | ) | ||||||||||||||||||||||||||||||
Interest-bearing deposits in other banks | (75 | ) | 411 | 336 | 69 | 1 | 70 | 163 | (70 | ) | 93 | (75 | ) | 410 | 336 | |||||||||||||||||||||||||||||||||
Securities purchased under agreements to resell | 296 | (8,642 | ) | (8,346 | ) | 1,357 | (9,808 | ) | (8,451 | ) | (416 | ) | (752 | ) | (1,168 | ) | 296 | (8,642 | ) | (8,346 | ) | |||||||||||||||||||||||||||
Central Bank compulsory deposits | 100 | (2,238 | ) | (2,138 | ) | 852 | (571 | ) | 281 | (67 | ) | (262 | ) | (329 | ) | 100 | (2,238 | ) | (2,138 | ) | ||||||||||||||||||||||||||||
Financial Assets | 310 | (490 | ) | (180 | ) | (4,079 | ) | 297 | (3,782 | ) | 2,061 | (622 | ) | 1,439 | 310 | (490 | ) | (180 | ) | |||||||||||||||||||||||||||||
Financial assets at fair value through profit or loss | (639 | ) | 554 | (85 | ) | (5,401 | ) | 4,698 | (703 | ) | 2,059 | (2,153 | ) | (93 | ) | (639 | ) | 554 | (85 | ) | ||||||||||||||||||||||||||||
Financial assets at fair value through other comprehensive income | 992 | (684 | ) | 308 | 1,227 | (3,501 | ) | (2,274 | ) | 434 | 1,130 | 1,564 | 992 | (683 | ) | 308 | ||||||||||||||||||||||||||||||||
Financial assets at amortized cost | (42 | ) | (361 | ) | (403 | ) | 96 | (901 | ) | (805 | ) | (433 | ) | 401 | (32 | ) | (42 | ) | (361 | ) | (403 | ) | ||||||||||||||||||||||||||
Other Financial Assets | 2,025 | (2,233 | ) | (208 | ) | (395 | ) | 69 | (326 | ) | 563 | (898 | ) | (335 | ) | 2,025 | (2,233 | ) | (208 | ) | ||||||||||||||||||||||||||||
Loans and leases | 7,641 | (9,569 | ) | (1,928 | ) | (1,014 | ) | (3,542 | ) | (4,556 | ) | 6,336 | 1,070 | 7,406 | 6,823 | (8,751 | ) | (1,928 | ) | |||||||||||||||||||||||||||||
Interest-bearing liabilities | 2,653 | (10,372 | ) | (7,718 | ) | 4,864 | (21,663 | ) | (16,799 | ) | 23,544 | (18,198 | ) | 5,346 | �� | 2,684 | (10,402 | ) | (7,718 | ) | ||||||||||||||||||||||||||||
Interest-bearing deposits | 3,134 | 1,010 | 4,144 | 1,271 | (2,632 | ) | (1,362 | ) | 1,689 | (614 | ) | 1,075 | 3,165 | 979 | 4,144 | |||||||||||||||||||||||||||||||||
Saving deposits | 820 | (404 | ) | 416 | 261 | (1,369 | ) | (1,108 | ) | 566 | (190 | ) | 377 | 820 | (404 | ) | 416 | |||||||||||||||||||||||||||||||
Deposits from Banks | (17 | ) | 85 | 68 | (602 | ) | (773 | ) | (1,375 | ) | ||||||||||||||||||||||||||||||||||||||
Time Deposits | 2,332 | 1,329 | 3,661 | 1,611 | (490 | ) | 1,121 | |||||||||||||||||||||||||||||||||||||||||
Deposits from Banks and Time Deposits | 1,123 | (425 | ) | 698 | 2,345 | 1,383 | 3,729 | |||||||||||||||||||||||||||||||||||||||||
Securities sold under repurchase agreements | (3,261 | ) | (8,937 | ) | (12,198 | ) | (1,155 | ) | (14,003 | ) | (12,848 | ) | (624 | ) | 208 | (416 | ) | (3,261 | ) | (8,937 | ) | (12,198 | ) | |||||||||||||||||||||||||
Interbank market debt and Institutional market debt | 270 | 3,178 | 3,448 | (597 | ) | 912 | 315 | 21,221 | (21,512 | ) | (291 | ) | 270 | 3,178 | 3,448 | |||||||||||||||||||||||||||||||||
Interbank market debt | 104 | 3,424 | 3,528 | (570 | ) | 2,282 | 1,712 | 21,047 | (21,402 | ) | (356 | ) | 104 | 3,424 | 3,528 | |||||||||||||||||||||||||||||||||
Institutional market debt | 166 | (246 | ) | (80 | ) | (27 | ) | (1,370 | ) | (1,397 | ) | 175 | (110 | ) | 64 | 166 | (246 | ) | (80 | ) | ||||||||||||||||||||||||||||
Reserves for insurance and private pension and Liabilities for capitalization plans | 2,551 | (5,654 | ) | (3,103 | ) | 4,750 | (7,621 | ) | (2,872 | ) | ||||||||||||||||||||||||||||||||||||||
Reserves for Insurance and private pension and Liabilities for capitalization plans | 1,247 | 3,658 | 4,905 | 2,551 | (5,654 | ) | (3,103 | ) | ||||||||||||||||||||||||||||||||||||||||
Other Interest-bearing liabilities | (42 | ) | 32 | (10 | ) | (1,715 | ) | 1,682 | (33 | ) | 11 | 63 | 74 | (42 | ) | 32 | (10 | ) | ||||||||||||||||||||||||||||||
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(1) | Volume change has been computed as the change in the average interest-earning assets or interest-bearing liabilities from one period to the other multiplied by the average yield/rate in the earlier period. |
(2) | Yield/rate change has been computed as the change in the yield/rate in the period multiplied by the average interest-earning assets or interest-bearing liabilities in the earlier period. |
(3) | We allocated the net change from the combined effects of volume and yield/rate proportionately to volume change and yield/rate change, in absolute |
Net Interest Margin and Spread
The following table sets forth our average interest-earning assets, total average interest bearing liabilities, net interest income and the comparative net interest margin and net interest spread for the periods indicated below.
2018 | 2017(6) | 2016(6) | 2019 | 2018 | 2017 | |||||||||||||||||||
(In millions of R$, except percentages) | (In millions of R$, except percentages) | |||||||||||||||||||||||
Total average interest-earning assets | 1,335,686 | 1,239,882 | 1,175,966 | 1,428,272 | 1,343,713 | 1,249,574 | ||||||||||||||||||
Total average interest-bearing liabilities | 1,176,795 | 1,151,960 | 1,042,406 | 1,259,993 | 1,176,795 | 1,151,960 | ||||||||||||||||||
Net interest income(1) | 62,565 | 67,311 | 67,276 | 64,325 | 62,565 | 67,311 | ||||||||||||||||||
Average yield on average interest-earning assets(2) | 10.0% | 11.7% | 13.8% | 9.8% | 9.9% | 11.7% | ||||||||||||||||||
Average rate on average interest-bearing liabilities(3) | 6.0% | 6.8% | 9.1% | 6.0% | 6.0% | 6.8% | ||||||||||||||||||
Net interest spread(4) | 4.0% | 4.9% | 4.7% | 3.8% | 3.9% | 4.9% | ||||||||||||||||||
Net interest margin(5) | 4.7% | 5.4% | 5.7% | 4.5% | 4.7% | 5.4% | ||||||||||||||||||
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(1) |
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(2) | Total interest, similar income and dividends divided by total average interest-earning assets. |
(3) | Total interest and similar expenses divided by total average interest-bearing liabilities. |
(4) | Difference between the average yield on interest-earning assets and the average rate on interest-bearing liabilities. |
(5) | Net interest income divided by total average interest-earning assets. |
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Return on Equity and Assets
The following table sets forth certain data with respect to return on equity and assets for the periods indicated below.
2018 | 2017(3) | 2016(3) | 2019 | 2018 | 2017 | |||||||||||||||||||
(In millions of R$, except percentages) | (In millions of R$, except percentages) | |||||||||||||||||||||||
Net income attributable to owners of the parent company | 24,907 | 23,193 | 21,627 | 27,113 | 24,907 | 23,193 | ||||||||||||||||||
Average total assets | 1,478,435 | 1,370,759 | 1,315,940 | 1,585,225 | 1,478,435 | 1,370,759 | ||||||||||||||||||
Average stockholders’ equity | 128,851 | 119,809 | 115,687 | 130,500 | 128,851 | 119,809 | ||||||||||||||||||
Net income as a percentage of average total assets | 1.7% | 1.7% | 1.6% | 1.7% | 1.7% | 1.7% | ||||||||||||||||||
Net income as a percentage of average stockholder’s equity(1) | 20.4% | 19.6% | 19.0% | 21.6% | 20.4% | 19.6% | ||||||||||||||||||
Average stockholder’s equity as a percentage of average total assets | 8.7% | 8.7% | 8.8% | 8.2% | 8.7% | 8.7% | ||||||||||||||||||
Dividend payout ratio per share(2) | 87.2% | 70.6% | 45.0% | 66.2% | 87.2% | 70.6% | ||||||||||||||||||
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(1) | Attributable to owners of the parent company. |
(2) | Dividend and interest on stockholders’ equity per share divided by earnings per share. Please refer to |
Note: | Payout calculated considering the recurring net income based on BRGAAP figures. |
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Assets
Portfolio of Securities and Derivative Financial Instruments
General information
We present below our portfolio of Financial Assetsassets at fair value through profit or loss – Securities, Financial Assets at Fair Value Through Other Comprehensive Income, Financial Assets at Amortized Cost and Derivative Financial Instruments as of December 31, 2019, 2018 2017 and 2016.2017.
The amounts exclude our investments in securities of unconsolidated companies. For further information on our investments in unconsolidated companies, see “Note 2.4(e) – Investments in Associates and Joint Ventures” to our audited consolidated financial statements. Financial assets at fair value through profit or lossheld for trading and designated at fair value through profit or loss and Financial Assets at Fair Value Through Other Comprehensive Income are stated at fair value and Financial assets at amortized cost—Securities are stated at amortized cost. Please see “Note 2 – Significant Accounting Policies” to our audited consolidated financial statements for further details.
As of December 31, 2019, we held securities issued by the Brazilian federal government classified as “Government Securities – Domestic” with an aggregate book value and an aggregate market value of R$324,637 million and R$327,681 million, respectively, which represented 219.24% of our consolidated stockholders’ equity as of that date. As of December 31, 2018, we held securities issued by the Brazilian federal government classified as “Government Securities – Domestic” with an aggregate book value and an aggregate market value of R$298,352 million and R$300,172 million, respectively, which represented 199.49% of our consolidated stockholders’ equity as of that date. As of December 31, 2017, we held securities issued by the Brazilian federal government classified as “Government Securities – Domestic” with an aggregate book value and an aggregate market value of R$295,932 million and R$297,325 million, respectively, which represented 205.97% of our consolidated stockholders’ equity as of that date. As of December 31, 2016, we held securities issued by the Brazilian federal government classified as “Government Securities – Domestic” with an aggregate book value and an aggregate market value of R$223,240 million and R$223,387 million, respectively, which represented 168.74% of our consolidated stockholders’ equity as of that date. As of December 31, 2018,2019, we did not hold securities of any other issuer the book value of which in the aggregate represented more than 10.0% of our consolidated stockholders’ equity. This is due to our conservative asset and liabilities management and our liquidity in local currency maintained in securities issued by the Brazilian federal government. Additionally, securities issued by the Brazilian federal government are accepted as deposits in our operations in the market on B3.
Financial Assets at Fair Value Through Profit or Loss and Designated at Fair Value Through Profit or Loss – Loss—Securities
Listed below are the assets acquired and accrued which are either available for sale in the short term or are part of a portfolio of financial instruments that are managed as a whole and for which there is a recent history of sales in the short term. Please see “Note 5 – Financial Assets at Fair Value Through Profit or Loss and Designated at Fair Value Through Profit or Loss”Loss - Securities” to our audited consolidated financial statements for further details.
12/31/2018 | 12/31/2017(2) | 12/31/2016(2) | 12/31/2019 | 12/31/2018 | 12/31/2017(2) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Gross Carrying Amount | Adjustments to Fair Value (in Income) | Fair Value | Gross Carrying Amount | Adjustments to Fair Value (in Income) | Fair value | Gross Carrying Amount | Adjustments to Fair Value (in Income) | Fair value | Cost | Adjustments to Fair Value (in Income) | Fair value | Cost | Adjustments to Fair Value (in Income) | Fair value | Cost | Adjustments to Fair Value (in Income) | Fair value | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
(In millions of R$) | (In millions of R$) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Investment funds | 5,253 | (927 | ) | 4,326 | 4,135 | (622 | ) | 3,513 | 1,992 | (778 | ) | 1,214 | 9,277 | (1,010 | ) | 8,267 | 5,253 | (927 | ) | 4,326 | 4,135 | (622 | ) | 3,513 | ||||||||||||||||||||||||||||||||||||||||||||||||
Brazilian government securities(1a) | 217,188 | 1,139 | 218,327 | 209,088 | 502 | 209,590 | 150,014 | 479 | 150,493 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Government securities - abroad(1b) | 2,070 | 9 | 2,079 | 3,917 | 32 | 3,949 | 2,428 | 8 | 2,436 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Brazilian government securities(la) | 219,564 | 1,082 | 220,646 | 217,188 | 1,139 | 218,327 | 209,088 | 502 | 209,590 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Government securities-abroad(1b) | 1,541 | (21 | ) | 1,520 | 2,070 | 9 | 2,079 | 3,917 | 32 | 3,949 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Argentina | 1,121 | 8 | 1,129 | 1,446 | 20 | 1,466 | 634 | 17 | 651 | 349 | (31 | ) | 318 | 1,121 | 8 | 1,129 | 1,446 | 20 | 1,466 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Chile | 301 | 1 | 302 | 57 | - | 57 | 119 | 1 | 120 | 487 | 1 | 488 | 301 | 1 | 302 | 57 | — | 57 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Colombia | 207 | - | 207 | 2,080 | 12 | 2,092 | 1,588 | (10 | ) | 1,578 | 399 | 10 | 409 | 207 | — | 207 | 2,080 | 12 | 2,092 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
United States | 117 | - | 117 | 100 | - | 100 | - | - | - | 141 | — | 141 | 117 | — | 117 | 100 | — | 100 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Mexico | 120 | - | 120 | 5 | - | 5 | 3 | - | 3 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
México | 57 | — | 57 | 120 | — | 120 | 5 | — | 5 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Paraguay | 1 | - | 1 | 3 | - | 3 | - | - | - | 2 | — | 2 | 1 | — | 1 | 3 | — | 3 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Peru | 8 | — | 8 | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Uruguay | 84 | - | 84 | 193 | - | 193 | 1 | - | 1 | 98 | (1 | ) | 97 | 84 | — | 84 | 193 | — | 193 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Italy | 115 | - | 115 | - | - | - | - | - | - | — | — | — | 115 | — | 115 | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other | 4 | - | 4 | 33 | - | 33 | 83 | - | 83 | — | — | — | 4 | — | 4 | 33 | — | 33 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Corporate securities(1c) | 38,953 | (505 | ) | 38,448 | 33,816 | (175 | ) | 33,641 | 40,896 | (465 | ) | 40,431 | 51,744 | (1,102 | ) | 50,642 | 38,953 | (505 | ) | 38,448 | 33,816 | (175 | ) | 33,641 | ||||||||||||||||||||||||||||||||||||||||||||||||
Shares | 9,778 | (332 | ) | 9,446 | 6,080 | (121 | ) | 5,959 | 4,385 | (467 | ) | 3,918 | 15,459 | (822 | ) | 14,637 | 9,778 | (332 | ) | 9,446 | 6,080 | (121 | ) | 5,959 | ||||||||||||||||||||||||||||||||||||||||||||||||
Bank deposit certificates | 969 | - | 969 | 335 | - | 335 | 1,811 | - | 1,811 | 792 | — | 792 | 969 | — | 969 | 335 | — | 335 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Securitized real estate loans | 1,391 | 20 | 1,411 | 1,779 | 16 | 1,795 | 2,153 | (61 | ) | 2,092 | 1,414 | 30 | 1,444 | 1,391 | 20 | 1,411 | 1,779 | 16 | 1,795 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Debentures | 5,147 | (187 | ) | 4,960 | 3,290 | (74 | ) | 3,216 | 3,083 | 54 | 3,137 | 12,958 | (303 | ) | 12,655 | 5,147 | (187 | ) | 4,960 | 3,290 | (74 | ) | 3,216 | |||||||||||||||||||||||||||||||||||||||||||||||||
Eurobonds and other | 1,403 | (7 | ) | 1,396 | 684 | 4 | 688 | 673 | 16 | 689 | 2,178 | (5 | ) | 2,173 | 1,403 | (7 | ) | 1,396 | 684 | 4 | 688 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Financial credit bills | 19,724 | - | 19,724 | 21,170 | - | 21,170 | 28,497 | (6 | ) | 28,491 | 18,517 | (3 | ) | 18,514 | 19,724 | — | 19,724 | 21,170 | — | 21,170 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Promissory notes | 435 | - | 435 | 391 | - | 391 | - | - | - | 313 | — | 313 | 435 | — | 435 | 391 | — | 391 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other | 106 | 1 | 107 | 87 | - | 87 | 294 | (1 | ) | 293 | 113 | 1 | 114 | 106 | 1 | 107 | 87 | — | 87 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
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Total | 263,464 | (284 | ) | 263,180 | 250,956 | (263 | ) | 250,693 | 195,330 | (756 | ) | 194,574 | 282,126 | (1,051 | ) | 281,075 | 263,464 | (284 | ) | 263,180 | 250,956 | (263 | ) | 250,693 | ||||||||||||||||||||||||||||||||||||||||||||||||
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(1) | Financial assets at fair value through profit or |
(2) | Restated to take into account the effect of IFRS 9, which we retroactively adopted as of January 1, 2016. |
We note that Brazilian government securities represented over 83.0%78.5% of our portfolio of financial assets at fair value through profit or loss in 2018.2019. Brazilian government securities classified at fair value through profit or loss represented 14.1%13.5% of our total assets in the same period. Please see “Item 3D. Risk Factors—Risks Associated with our Business—Credit Risks—We may incur losses associated with counterparty exposure risks, including the Brazilian federal government” for further details.
Assets at Fair Value Through Other Comprehensive Income
Listed below are financial assets that, according to our management’s understanding, may be sold in response to, or before changes in, market conditions and are not classified as financial assets at fair value through profit or loss, loans and receivables or held to maturity. Please see “Note 8 – Financial Assets at Fair Value Through Other Comprehensive Income – Securities” to our audited consolidated financial statements for further details.
12/31/2018 | 12/31/2017(2) | 12/31/2016(2) | 12/31/2019 | 12/31/2018 | 12/31/2017(2) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Gross Carrving Amount | Fair Value adjustments (in stockholders’ equity) | Expected loss | Fair value | Gross Carrving Amount | Fair Value adjustments (in stockholders’ equity) | Expected loss | Fair value | Gross Carrving Amount | Fair Value adjustments (in stockholders’ equity) | Expected loss | Fair value | Cost | Fair value adjustments (in stockholders’ equity) | Expected loss | Fair value | Cost | Fair value adjustments (in stockholders’ equity) | Expected loss | Fair value | Cost | Fair value adjustments (in stockholders’ equity) | Expected loss | Fair value | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(In millions of R$) | (In millions of R$) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Brazilian government securities(1a) | 27,100 | 775 | (36 | ) | 27,839 | 31,969 | 993 | (36 | ) | 32,926 | 27,493 | (260 | ) | - | 27,233 | 48,754 | 2,014 | (36 | ) | 50,732 | 27,100 | 775 | (36 | ) | 27,839 | 31,969 | 993 | (36 | ) | 32,926 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Government securities - abroad(1b) | 18,844 | (70 | ) | (2 | ) | 18,772 | 16,583 | (41 | ) | - | 16,542 | 9,258 | (67 | ) | - | 9,191 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Government securities-abroad(1b) | 20,638 | (64 | ) | (3 | ) | 20,571 | 18,844 | (70 | ) | (2 | ) | 18,772 | 16,583 | (41 | ) | — | 16,542 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Germany | 22 | - | - | 22 | - | - | - | - | - | - | - | - | 23 | — | — | 23 | 22 | — | — | 22 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Colombia | 5,491 | 14 | - | 5,505 | 2,928 | 92 | - | 3,020 | 703 | (1 | ) | - | 702 | 3,851 | 27 | — | 3,878 | 5,491 | 14 | — | 5,505 | 2,928 | 92 | — | 3,020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Chile | 7,647 | 7 | (1 | ) | 7,653 | 9,554 | (4 | ) | - | 9,550 | 5,238 | 12 | - | 5,250 | 11,119 | 89 | — | 11,208 | 7,647 | 7 | (1 | ) | 7,653 | 9,554 | (4 | ) | — | 9,550 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
United States | 2,634 | (16 | ) | - | 2,618 | 1,568 | (18 | ) | - | 1,550 | 1,508 | (19 | ) | - | 1,489 | 2,758 | (2 | ) | — | 2,756 | 2,634 | (16 | ) | — | 2,618 | 1,568 | (18 | ) | — | 1,550 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
France | 891 | - | - | 891 | - | - | - | - | - | - | - | - | — | — | — | — | 891 | — | — | 891 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Italy | 328 | 1 | — | 329 | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Paraguay | 1,601 | (71 | ) | (1 | ) | 1,529 | 1,915 | (115 | ) | - | 1,800 | 1,255 | (56 | ) | - | 1,199 | 1,957 | (174 | ) | (3 | ) | 1,780 | 1,601 | (71 | ) | (1 | ) | 1,529 | 1,915 | (115 | ) | — | 1,800 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Uruguay | 557 | (4 | ) | - | 553 | 618 | 4 | - | 622 | 444 | (2 | ) | - | 442 | 602 | (5 | ) | — | 597 | 557 | (4 | ) | — | 553 | 618 | 4 | — | 622 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Netherlands | - | - | - | - | - | - | - | - | 101 | - | - | 101 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other | 1 | - | - | 1 | - | - | - | - | 9 | (1 | ) | - | 8 | — | — | — | — | 1 | — | — | 1 | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Corporate securities(1c) | 2,719 | 40 | (47 | ) | 2,712 | 2,656 | 73 | (48 | ) | 2,681 | 3,606 | 20 | (11 | ) | 3,615 | 5,308 | 96 | (47 | ) | 5,357 | 2,719 | 40 | (47 | ) | 2,712 | 2,656 | 73 | (48 | ) | 2,681 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Shares | 77 | 84 | - | 161 | 73 | 75 | - | 148 | 91 | 4 | - | 95 | 83 | 66 | — | 149 | 77 | 84 | — | 161 | 73 | 75 | — | 148 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Bank deposit certificates | 1,053 | - | - | 1,053 | 685 | - | - | 685 | 2,158 | 1 | - | 2,159 | 2,371 | — | — | 2,371 | 1,053 | — | — | 1,053 | 685 | — | — | 685 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Securitized real estate loans | 25 | 1 | — | 26 | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Debentures | 44 | - | (42 | ) | 2 | 44 | - | (43 | ) | 1 | 1 | - | - | 1 | 387 | (10 | ) | (43 | ) | 334 | 44 | — | (42 | ) | 2 | 44 | — | (43 | ) | 1 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Eurobonds and others | 1,542 | (44 | ) | (2 | ) | 1,496 | 1,851 | (2 | ) | (2 | ) | 1,847 | 1,356 | 15 | (11 | ) | 1,360 | 2,439 | 39 | (1 | ) | 2,477 | 1,542 | (44 | ) | (2 | ) | 1,496 | 1,851 | (2 | ) | (2 | ) | 1,847 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other | 3 | - | (3 | ) | - | 3 | - | (3 | ) | - | - | - | - | - | 3 | — | (3 | ) | — | 3 | — | (3 | ) | — | 3 | — | (3 | ) | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Total | 48,663 | 745 | (85 | ) | 49,323 | 51,208 | 1,025 | (84 | ) | 52,149 | 40,357 | (307 | ) | (11 | ) | 40,039 | 74,700 | 2,046 | (86 | ) | 76,660 | 48,663 | 745 | (85 | ) | 49,323 | 51,208 | 1,025 | (84 | ) | 52,149 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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(1) | Financial assets at fair value through other comprehensive income |
(2) | Restated to take into account the effect of IFRS 9, which we retroactively adopted as of January 1, 2016. |
Brazilian government securities and corporate securities represented 56%66.2% and 5.5%7.0%, respectively, of our portfolio of assets at Fair Value Through Other Comprehensive Income in 2018.2019. Brazilian government securities and corporate securities classified as assets at Fair Value Through Other Comprehensive Income, which are used as a hedge for our subordinated debt portfolio, represented 1.8%3.1% and 0.2%0.3%, respectively, of our total assets in the same period.
Financial Assets at Amortized Cost
Listed below arenon-derivative financial assets that we have the intention and financial ability to holdheld to maturity. Please see “Note 9– Financial assets at amortized cost – Securities” to our audited consolidated financial statements for further details.
12/31/2018 | 12/31/2017(2) | 12/31/2016(2) | 12/31/2019 | 12/31/2018 | 12/31/2017(2) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Amortized cost | Expected loss* | Fair Value | Amortized cost | Expected loss* | Fair Value | Amortized cost | Expected loss* | Fair Value | Amortized cost | Expected loss * | Fair Value | Amortized cost | Expected loss * | Fair Value | Amortized cost | Expected loss * | Fair Value | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
(In millions of R$) | (In millions of R$) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Brazilian government securities(1a) | 54,064 | (58 | ) | 54,006 | 54,875 | (66 | ) | 54,809 | 45,733 | (72 | ) | 45,661 | 56,355 | (52 | ) | 56,303 | 54,064 | (58 | ) | 54,006 | 54,875 | (66 | ) | 54,809 | ||||||||||||||||||||||||||||||||||||||||||||||||
Government securities - abroad(1b) | 6,700 | (3 | ) | 6,697 | 8,414 | (3 | ) | 8,411 | 7,055 | (3 | ) | 7,052 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Government securities- abroad(1b) | 17,226 | — | 17,226 | 6,700 | (3 | ) | 6,697 | 8,414 | (3 | ) | 8,411 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Colombia | 356 | (3 | ) | 353 | 836 | (3 | ) | 833 | 2,007 | (3 | ) | 2,004 | 335 | — | 335 | 356 | (3 | ) | 353 | 836 | (3 | ) | 833 | |||||||||||||||||||||||||||||||||||||||||||||||||
Chile | 256 | - | 256 | 154 | - | 154 | 601 | - | 601 | 621 | — | 621 | 256 | — | 256 | 154 | — | 154 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Korea | 1,385 | - | 1,385 | 1,944 | - | 1,944 | 2,673 | - | 2,673 | 3,427 | — | 3,427 | 1,385 | — | 1,385 | 1,944 | — | 1,944 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Denmark | - | - | - | 1,951 | - | 1,951 | 819 | - | 819 | — | — | — | — | — | — | 1,951 | — | 1,951 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Spain | 2,411 | - | 2,411 | 2,937 | - | 2,937 | 923 | - | 923 | 4,984 | — | 4,984 | 2,411 | — | 2,411 | 2,937 | — | 2,937 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
United States | 19 | - | 19 | 16 | - | 16 | 16 | - | 16 | 80 | — | 80 | 19 | — | 19 | 16 | — | 16 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Mexico | 2,258 | - | 2,258 | 559 | - | 559 | 3 | - | 3 | 7,763 | — | 7,763 | 2,258 | — | 2,258 | 559 | — | 559 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Paraguay | - | - | - | 4 | - | 4 | - | - | — | — | — | — | — | — | 4 | — | 4 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Uruguay | 15 | - | 15 | 13 | - | 13 | 13 | - | 13 | 16 | — | 16 | 15 | — | 15 | 13 | — | 13 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Corporate securities(1c) | 49,631 | (3,585 | ) | 46,046 | 48,135 | (5,113 | ) | 43,022 | 49,780 | (3,741 | ) | 46,039 | 59,538 | (2,601 | ) | 56,937 | 49,631 | (3,585 | ) | 46,046 | 48,135 | (5,113 | ) | 43,022 | ||||||||||||||||||||||||||||||||||||||||||||||||
Rural product note | 4,181 | (178 | ) | 4,003 | 2,899 | (160 | ) | 2,739 | 1,477 | (89 | ) | 1,388 | 5,388 | (47 | ) | 5,341 | 4,181 | (178 | ) | 4,003 | 2,899 | (160 | ) | 2,739 | ||||||||||||||||||||||||||||||||||||||||||||||||
Bank deposit certificates | 123 | - | 123 | 130 | - | 130 | 493 | (1 | ) | 492 | 54 | — | 54 | 123 | — | 123 | 130 | — | 130 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Securitized real estate loans | 9,876 | (361 | ) | 9,515 | 13,839 | (2,056 | ) | 11,783 | 15,230 | (1,716 | ) | 13,514 | 5,844 | (2 | ) | 5,842 | 9,876 | (361 | ) | 9,515 | 13,839 | (2,056 | ) | 11,783 | ||||||||||||||||||||||||||||||||||||||||||||||||
Debentures | 29,001 | (3,013 | ) | 25,988 | 23,397 | (2,857 | ) | 20,540 | 23,053 | (1,804 | ) | 21,249 | 41,053 | (2,532 | ) | 38,521 | 29,001 | (3,013 | ) | 25,988 | 23,397 | (2,857 | ) | 20,540 | ||||||||||||||||||||||||||||||||||||||||||||||||
Eurobonds and others | 4,005 | (2 | ) | 4,003 | 3,660 | (3 | ) | 3,657 | 6,280 | (106 | ) | 6,174 | 1,083 | (1 | ) | 1,082 | 4,005 | (2 | ) | 4,003 | 3,660 | (3 | ) | 3,657 | ||||||||||||||||||||||||||||||||||||||||||||||||
Financial bills | - | - | - | 60 | - | 60 | 218 | - | 218 | — | — | — | — | — | — | 60 | — | 60 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Promissory notes | 1,069 | (14 | ) | 1,055 | 3,246 | (23 | ) | 3,223 | 2,193 | (23 | ) | 2,170 | 5,001 | (3 | ) | 4,998 | 1,069 | (14 | ) | 1,055 | 3,246 | (23 | ) | 3,223 | ||||||||||||||||||||||||||||||||||||||||||||||||
Other | 1,376 | (17 | ) | 1,359 | 904 | (14 | ) | 890 | 836 | (2 | ) | 834 | 1,115 | (16 | ) | 1,099 | 1,376 | (17 | ) | 1,359 | 904 | (14 | ) | 890 | ||||||||||||||||||||||||||||||||||||||||||||||||
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Total | 110,395 | (3,646 | ) | 106,749 | 111,424 | (5,182 | ) | 106,242 | 102,568 | (3,816 | ) | 98,752 | 133,119 | (2,653 | ) | 130,466 | 110,395 | (3,646 | ) | 106,749 | 111,424 | (5,182 | ) | 106,242 | ||||||||||||||||||||||||||||||||||||||||||||||||
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(1) | Financial Assets at Amortized Cost – Securities Pledged as Collateral of Funding Transactions of Financial Institutions and Clients were: a) R$9,583 (R$24,988 |
(2) | Restated to take into account the effect of IFRS 9, which we retroactively adopted as of January 1, |
The interest income related to Financial assets at amortized cost - Securities assets was R$ 2,614 million. See “Note 21 - Interest and similar income and expense and net gain (loss) on investment securities and derivatives” to our audited consolidated financial statements.
The fair value of Financial assets at amortized cost - Securities assets see “Note 28 -– Fair Value of Financial Instruments” to our audited consolidated financial statements.
* According to IFR9 Financial assets at amortized cost - Securities is not measured at fair value.
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Derivatives
Derivatives are classified on the date of their acquisition in accordance with our management’s intention to use them as a hedging instrument, as determined by Brazilian regulations. Please see “NoteNote 6 – Derivatives”“Derivatives” of our audited consolidated financial statements for further details. Our derivatives portfolio (assets and liabilities) is composed of futures, forward, swaps, options and credit derivatives, as stated in the table below:
As of December 31, | As of December 31, | |||||||||||||||||||||||||||||||||||||||||||||||
Derivative Financial Instruments | 2018 | % of total | 2017 | % of total | 2016 | % of total | 2019 | % of total | 2018 | % of total | 2017 | % of total | ||||||||||||||||||||||||||||||||||||
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(In millions of R$, except percentages) | (In millions of R$, except percentages) | |||||||||||||||||||||||||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||||||||||||||||||||||
Futures Contracts | - | - | 158 | 0.7 | 127 | 0.5 | — | — | — | — | 158 | 0.7 | ||||||||||||||||||||||||||||||||||||
Options premiums | 4,215 | 18.0 | 3,337 | 14.6 | 4,792 | 19.8 | 8,456 | 20.2 | 4,215 | 18.0 | 3,337 | 14.6 | ||||||||||||||||||||||||||||||||||||
Forwards (onshore) | 1,835 | 7.8 | 6,911 | 30.3 | 4,971 | 20.5 | 2,162 | 5.2 | 1,835 | 7.8 | 6,911 | 30.3 | ||||||||||||||||||||||||||||||||||||
Swaps - difference receivable | 13,049 | 55.6 | 9,190 | 40.2 | 10,542 | 43.5 | ||||||||||||||||||||||||||||||||||||||||||
Credit derivatives - financial Institutions | 120 | 0.5 | 137 | 0.6 | 181 | 0.7 | ||||||||||||||||||||||||||||||||||||||||||
NDF - Non Deliverable Foward | 3,711 | 15.8 | 2,950 | 12.9 | 3,459 | 14.3 | ||||||||||||||||||||||||||||||||||||||||||
Check of Swap - companies | 44 | 0.2 | 68 | 0.3 | 88 | 0.4 | ||||||||||||||||||||||||||||||||||||||||||
Swaps—difference receivable | 26,458 | 63.2 | 13,093 | 55.8 | 9,258 | 40.5 | ||||||||||||||||||||||||||||||||||||||||||
Credit derivatives—financial Institutions | 167 | 0.4 | 120 | 0.5 | 137 | 0.6 | ||||||||||||||||||||||||||||||||||||||||||
NDF—Non Deliverable Foward | 4,446 | 10.6 | 3,711 | 15.8 | 2,950 | 12.9 | ||||||||||||||||||||||||||||||||||||||||||
Check of Swap—companies | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
Others | 492 | 2.1 | 92 | 0.4 | 71 | 0.3 | 165 | 0.4 | 492 | 2.1 | 92 | 0.4 | ||||||||||||||||||||||||||||||||||||
Total derivative financial instruments assets | 23,466 | 100.0 | 22,843 | 100.0 | 24,231 | 100.0 | 41,854 | 100.0 | 23,466 | 100.0 | 22,843 | 100.0 | ||||||||||||||||||||||||||||||||||||
Derivative financial instruments as percentage of total assets | 1.5% | 1.6% | 1.8% | 2.6% | — | 1.5% | — | 1.6% | — | |||||||||||||||||||||||||||||||||||||||
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Liabilities | ||||||||||||||||||||||||||||||||||||||||||||||||
Futures Contracts | - | - | - | - | - | - | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
Options premiums | (3,929 | ) | 14.3 | (2,793 | ) | 10.4 | (4,552 | ) | 18.4 | (9,061 | ) | 18.9 | (3,929 | ) | 14.3 | (2,793 | ) | 10.4 | ||||||||||||||||||||||||||||||
Forwards (onshore) | (470 | ) | 1.7 | (6,272 | ) | 23.5 | (3,530 | ) | 14.3 | (754 | ) | 1.6 | (470 | ) | 1.7 | (6,272 | ) | 23.5 | ||||||||||||||||||||||||||||||
Swaps - difference payable | (19,354 | ) | 70.3 | (13,692 | ) | 51.2 | (13,221 | ) | 53.5 | |||||||||||||||||||||||||||||||||||||||
Credit derivatives - financial Institutions | (140 | ) | 0.5 | (58 | ) | 0.2 | (147 | ) | 0.6 | |||||||||||||||||||||||||||||||||||||||
NDF - Non Deliverable Foward | (3,384 | ) | 12.3 | (3,745 | ) | 14.0 | (2,825 | ) | 11.5 | |||||||||||||||||||||||||||||||||||||||
Check of swap - Companies | (162 | ) | 0.6 | (122 | ) | 0.5 | (353 | ) | 1.4 | |||||||||||||||||||||||||||||||||||||||
Other - Companies | (80 | ) | 0.3 | (64 | ) | 0.2 | (70 | ) | 0.3 | |||||||||||||||||||||||||||||||||||||||
Swaps—difference payable | (32,927 | ) | 68.8 | (19,516 | ) | 70.9 | (13,814 | ) | 51.7 | |||||||||||||||||||||||||||||||||||||||
Credit derivatives—financial Institutions | (40 | ) | 0.1 | (140 | ) | 0.5 | (58 | ) | 0.2 | |||||||||||||||||||||||||||||||||||||||
NDF—Non Deliverable Foward | (4,971 | ) | 10.4 | (3,384 | ) | 12.3 | (3,745 | ) | 14.0 | |||||||||||||||||||||||||||||||||||||||
Check of swap—Companies | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
Other—Companies | (75 | ) | 0.2 | (80 | ) | 0.3 | (64 | ) | 0.2 | |||||||||||||||||||||||||||||||||||||||
Total derivative financial instruments liabilities | (27,519 | ) | 100.0 | (26,746 | ) | 100.0 | (24,698 | ) | 100.0 | (47,828 | ) | 100.0 | (27,519 | ) | 100.0 | (26,746 | ) | 100.0 | ||||||||||||||||||||||||||||||
Derivative financial instruments as percentage of total liabilities and stockholder’s equity | 1.8% | 1.9% | 1.8% | 2.9% | — | 1.8% | — | 1.9% | — | |||||||||||||||||||||||||||||||||||||||
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As of December 31, 2018 | No stated maturity | Due in 1 year or less | Due after 1 year to 5 years | Due after 5 years to 10 years | Due after 10 years | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Distribution of our financial assets by maturity | No stated maturity | Due in 1 year or less | Due after 1 year to 5 years | Due after 5 years to 10 years | Due after 10 years | Total | R$ | Average yield (%) | R$ | Average yield (%) | R$ | Average yield (%) | R$ | Average yield (%) | R$ | Average yield (%) | R$ | Average yield (%) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
R$ | Average yield (%) | R$ | Average yield (%) | R$ | Average yield (%) | R$ | Average yield (%) | R$ | Average yield (%) | R$ | Average yield (%) | (In millions of R$, except percentages) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(In millions of R$, except percentages) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
At Fair Value Through Profit or Loss | 13,772 | 39,123 | 154,171 | 44,620 | 11,494 | 263,180 | 22,904 | — | 58,077 | — | 137,612 | — | 41,759 | — | 20,723 | — | 281,075 | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Investment funds | 4,326 | - | - | - | - | - | - | - | - | - | 4,326 | - | 8,267 | — | — | 0.0 | — | — | — | — | — | — | 8,267 | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Government securities - domestic | - | 28,545 | 137,176 | 43,079 | 9,527 | 218,327 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Government securities - abroad | - | 1,604 | - | 412 | 59 | 4 | 2,079 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Government securities—domestic | — | — | 43,895 | — | 123,154 | — | 38,070 | — | 14,492 | — | 219,611 | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Government securities—abroad | — | — | 890 | — | 550 | — | 41 | — | 39 | — | 1,520 | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Argentina | - | - | 1,048 | 1.3 | 45 | 8.1 | 36 | 0.0 | - | 3.7 | 1,129 | 1.6 | — | — | 296 | 5.2 | 22 | 0.1 | — | — | — | 3.3 | 318 | 4.8 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
United States | - | - | 117 | 0.4 | - | - | - | - | - | - | 117 | 0.4 | — | — | 141 | — | — | — | — | — | — | — | 141 | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Mexico | - | - | - | 5.7 | 115 | 0.8 | 2 | - | 3 | 1.5 | 120 | 0.8 | — | — | — | — | 26 | 6.1 | 24 | 7.5 | 7 | 14.6 | 57 | 7.8 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Chile | - | - | 91 | 0.1 | 207 | 0.0 | 4 | - | - | 2.6 | 302 | 0.0 | — | — | 133 | — | 355 | 0.0 | — | — | 0 | 10.3 | 488 | 0.0 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Paraguay | - | - | - | - | - | 4.3 | 1 | 5.5 | - | - | 1 | 6.2 | — | — | — | — | — | 3.6 | 2 | 5.0 | — | — | 2 | 5.0 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Uruguay | - | - | 83 | 3.5 | - | - | 1 | 14.7 | - | 18.3 | 84 | 3.7 | — | — | 19 | — | 68 | — | 4 | 10.6 | 6 | 12.3 | 97 | 1.2 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Colombia | - | - | 147 | 1.9 | 45 | 0.5 | 14 | 1.3 | 1 | 24.4 | 207 | 1.7 | — | — | 301 | 0.1 | 79 | 2.0 | 8 | 0.2 | 21 | 15.4 | 409 | 1.2 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Italy | - | - | 115 | 1.4 | - | - | - | - | - | - | 115 | 1.4 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Peru | — | — | — | — | — | — | 3 | 20.2 | 5 | 28.3 | 8 | 25.3 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other | - | - | 3 | 2.8 | - | - | 1 | 7.1 | - | 21.3 | 4 | 7.1 | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Corporate securities | 9,446 | 8,974 | 16,583 | 1,482 | 1,963 | 38,448 | 14,637 | — | 12,683 | — | 13,482 | — | 3,648 | — | 6,192 | — | 50,642 | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Shares | 9,446 | - | - | - | - | - | - | - | - | - | 9,446 | - | 14,637 | 0.2 | — | 0.0 | — | — | — | — | — | — | 14,637 | 0.2 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Securitized real estate loans | - | - | - | - | 8 | 0.2 | - | 9.9 | 1,403 | 1.3 | 1,411 | 1.3 | — | — | 2 | — | 37 | 0.0 | 33 | — | 1,372 | 1.0 | 1,444 | 0.9 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Bank deposit certificates | - | - | 779 | 0.4 | 190 | - | - | - | - | - | 969 | 0.3 | — | — | 752 | 1.7 | 40 | — | — | — | — | — | 792 | 1.6 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Debentures | - | - | 526 | 0.2 | 4,007 | 0.4 | 196 | 0.8 | 231 | 3.6 | 4,960 | 0.5 | — | — | 472 | 0.9 | 5,787 | 0.3 | 2,305 | 2.1 | 4,091 | 0.5 | 12,655 | 0.7 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Eurobonds and other | - | - | 747 | 1.0 | 490 | 4.1 | 135 | 1.3 | 24 | 2.1 | 1,396 | 2.2 | — | — | 681 | 3.4 | 727 | 6.4 | 326 | 7.6 | 439 | 9.0 | 2,173 | 6.2 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Financial credit bills | - | - | 6,566 | 1.8 | 11,707 | 0.4 | 1,146 | - | 305 | - | 19,724 | 0.8 | — | — | 10,607 | 1.0 | 6,670 | 0.4 | 947 | — | 290 | — | 18,514 | 0.7 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Promissory notes | - | - | 306 | - | 129 | - | - | - | - | - | 435 | - | — | — | 162 | — | 151 | — | — | — | — | — | 313 | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other | - | - | 50 | 14.0 | 52 | 1.1 | 5 | 0.9 | - | - | 107 | 7.0 | — | — | 7 | — | 70 | 0.0 | 37 | — | — | — | 114 | 0.0 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Derivatives | - | 10,371 | 4,069 | 9,026 | 23,466 | — | — | 609 | — | 426 | — | — | — | — | — | 1,035 | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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At Fair Value Through Other Comprehensive Income | 161 | 10,523 | 21,650 | 12,030 | 4,959 | 49,323 | 149 | — | 10,123 | — | 46,456 | — | 11,650 | — | 8,282 | — | 76,660 | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Government securities - domestic | - | 1,026 | 11,303 | 10,701 | 4,809 | 27,839 | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Government securities - abroad | - | 7,622 | 9,799 | 1,228 | 123 | 18,772 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Government securities—domestic | — | — | 2,124 | — | 30,397 | — | 10,686 | — | 7,525 | — | 50,732 | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Government securities—abroad | — | — | 5,107 | — | 14,414 | — | 345 | — | 705 | — | 20,571 | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
United States | - | - | 2,166 | 0.4 | 452 | 0.5 | - | - | - | - | 2,618 | 0.4 | — | — | 1,583 | 0.0 | 1,173 | 0.3 | — | — | — | — | 2,756 | 0.1 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Chile | - | - | 80 | 0.4 | 6,807 | 0.4 | 706 | 0.7 | 60 | 0.5 | 7,653 | 0.4 | — | — | 1,638 | 1.4 | 8,722 | 0.5 | 292 | 0.5 | 556 | 0.5 | 11,208 | 0.6 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Paraguay | - | - | 1,340 | 5.2 | 177 | 0.8 | - | - | 12 | 1.9 | 1,529 | 4.7 | — | — | 1,100 | 4.2 | 531 | 1.4 | — | 0.4 | 149 | 3.5 | 1,780 | 3.3 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Uruguay | - | - | 347 | 4.7 | 164 | 3.4 | 42 | 2.8 | 0 | 0.6 | 553 | 4.1 | — | — | 247 | — | 297 | — | 53 | — | — | — | 597 | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Colombia | - | - | 2,798 | 2.1 | 2,176 | 2.1 | 480 | 26.3 | 51 | 1.5 | 5,505 | 4.2 | — | — | 516 | 1.4 | 3,362 | 1.8 | — | — | — | — | 3,878 | 1.8 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
France | - | - | 891 | 0.4 | - | - | - | - | - | - | 891 | 0.4 | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Italy | — | — | — | — | 329 | 0.7 | — | — | — | — | 329 | 0.7 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Germany | - | - | - | - | 22 | - | - | - | - | - | 22 | - | — | — | 23 | — | — | — | — | — | — | — | 23 | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other | - | - | - | - | 1 | 1.2 | 0 | - | - | - | 1 | 1.2 | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Corporate securities | 161 | 1,875 | 548 | 101 | 27 | 2,712 | 149 | — | 2,892 | — | 1,645 | — | 619 | — | 52 | — | 5,357 | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Shares | 161 | - | - | - | - | - | - | - | - | - | 161 | - | 149 | — | — | — | — | — | — | — | — | — | 149 | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Securitized real estate loans | — | — | — | — | — | — | — | — | 26 | — | 26 | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Bank deposit certificates | - | - | 1,053 | 0.1 | - | - | - | - | - | - | 1,053 | 0.1 | — | — | 2,327 | 0.1 | 44 | 0.1 | — | — | — | — | 2,371 | 0.1 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Debentures | - | - | - | - | 2 | - | - | - | - | - | 2 | - | — | — | 1 | — | — | 0.1 | 333 | — | — | — | 334 | 1.5 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Eurobonds and others | - | - | 822 | 0.5 | 546 | 2.7 | 101 | 1.5 | 27 | 7.2 | 1,496 | 1.5 | — | — | 564 | 1.0 | 1,601 | 1.2 | 286 | 5.7 | 26 | 6.1 | 2,477 | 1.8 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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At Amortized Cost | - | 14,119 | 50,971 | 29,801 | 11,858 | 106,749 | — | — | 29,766 | — | 56,178 | — | 33,512 | — | 11,010 | — | 130,466 | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Government securities - domestic | - | 1,625 | 29,226 | 15,316 | 7,839 | 54,006 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Government securities - abroad | - | 4,066 | 2,616 | - | 15 | 6,697 | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Government securities—domestic | — | — | 4,946 | — | 29,507 | — | 12,815 | — | 9,035 | — | 56,303 | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Government securities—abroad | — | — | 12,525 | — | 4,478 | — | 207 | — | 16 | — | 17,226 | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Colombia | - | - | 353 | 0.4 | - | - | - | - | - | - | 353 | 0.4 | — | — | 335 | 0.4 | — | — | — | — | — | — | 335 | 0.4 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Chile | - | - | 101 | 0.3 | 155 | 0.1 | - | - | - | - | 256 | 0.2 | — | — | 128 | 2.3 | 286 | 1.2 | 207 | 4.5 | — | — | 621 | 2.5 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Korea | - | - | - | - | 1,385 | 0.7 | - | - | - | - | 1,385 | 0.7 | — | — | 2,487 | 0.4 | 940 | — | — | — | — | — | 3,427 | 0.3 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Spain | - | - | 1,335 | 0.8 | 1,076 | 1.5 | - | - | - | - | 2,411 | 1.1 | — | — | 1,732 | 0.4 | 3,252 | 0.5 | — | — | — | — | 4,984 | 0.5 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
United States | - | - | 19 | - | - | - | - | - | - | - | 19 | - | — | — | 80 | — | — | — | — | — | — | — | 80 | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Mexico | - | - | 2,258 | 6.9 | - | - | - | - | - | - | 2,258 | 6.9 | — | — | 7,763 | 4.8 | — | — | — | — | — | — | 7,763 | 4.8 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Uruguay | - | - | - | - | - | - | - | - | 15 | - | 15 | - | — | — | — | — | — | — | — | — | 16 | — | 16 | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Corporate securities | - | 8,428 | 19,129 | 14,485 | 4,004 | 46,046 | — | — | 12,295 | — | 22,193 | — | 20,490 | — | 1,959 | — | 56,937 | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Rural product note | - | - | 944 | 3.3 | 2,706 | 2.1 | 352 | 2.7 | 1 | - | 4,003 | 2.4 | — | — | 1,605 | 2.5 | 2,813 | 1.9 | 923 | 1.0 | — | — | 5,341 | 1.9 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Bank deposit certificates | - | - | 123 | - | - | - | - | - | - | - | 123 | - | — | — | 54 | — | — | — | — | — | — | — | 54 | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Securitized real estate loans | - | - | 445 | 1.4 | 1,289 | 0.1 | 4,748 | 2.5 | 3,033 | 0.4 | 9,515 | 1.5 | — | — | 35 | 0.1 | 1,437 | 3.3 | 3,738 | 0.2 | 632 | 0.1 | 5,842 | 1.0 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Debentures | - | - | 3,292 | 4.4 | 12,377 | 2.2 | 9,349 | 2.5 | 970 | 5.6 | 25,988 | 2.7 | — | — | 6,718 | 1.6 | 14,674 | 2.0 | 15,802 | 2.1 | 1,327 | 6.4 | 38,521 | 2.2 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Eurobonds and other | - | - | 2,283 | 0.9 | 1,718 | 0.6 | 2 | 46.1 | - | - | 4,003 | 0.8 | — | — | 574 | 0.6 | 508 | 0.7 | — | — | — | — | 1,082 | 0.6 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Promissory notes | - | - | 654 | 7.8 | 401 | 4.1 | - | - | - | - | 1,055 | 6.4 | — | — | 3,143 | 0.1 | 1,828 | 0.3 | 27 | — | — | — | 4,998 | 0.2 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other | - | - | 687 | - | 638 | - | 34 | - | - | - | 1,359 | - | — | — | 166 | — | 933 | — | — | — | — | — | 1,099 | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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(1) Average yields are not shown for these securities, as such yields are not meaningful because future yields are not quantifiable. These securities have been excluded from the calculation of the total yield. |
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(1) | Average yields are not shown for these securities, as such yields are not meaningful because future yields are not quantifiable. These securities have been excluded from the calculation of the total yield. |
Securities | Derivatives | Securities | Derivatives | |||||||||||||||||||||||||||||||||||||
Distribution of our financial assets by currency | Amortized Cost | Fair ValueThrough Profit or Loss | Fair Value Through other Comprehensive Income | Fair Value Through Profit or Loss | Total | Amortized Cost | Fair Value Through Profit or Loss | Fair Value Through other Comprehensive Income | Fair Value Through Profit or Loss | Total | ||||||||||||||||||||||||||||||
(In millions of R$) | (In millions of R$) | |||||||||||||||||||||||||||||||||||||||
As of December 31, 2019 | 130,466 | 281,075 | 76,660 | 41,854 | 530,055 | |||||||||||||||||||||||||||||||||||
Denominated in Brazilian currency | 109,555 | 267,612 | 38,139 | 7,974 | 423,280 | |||||||||||||||||||||||||||||||||||
Denominated in Brazilian currency and indexed by foreign currency(1) | — | 3,444 | 853 | 2,231 | 6,528 | |||||||||||||||||||||||||||||||||||
Denominated in foreign currency(1) | 20,911 | 10,019 | 37,668 | 31,649 | 100,247 | |||||||||||||||||||||||||||||||||||
As of December 31, 2018 | 106,749 | 263,180 | 49,323 | 23,466 | 442,718 | 106,749 | 263,180 | 49,323 | 23,466 | 442,718 | ||||||||||||||||||||||||||||||
Denominated in Brazilian currency | 82,l9l | 248,921 | l4,055 | 9,32l | 354,488 | 82,191 | 248,921 | 14,055 | 9,321 | 354,488 | ||||||||||||||||||||||||||||||
Denominated in Brazilian currency and indexed by foreign currency(1) | - | 3,242 | 80l | 2,526 | 6,569 | — | 3,242 | 801 | 2,526 | 6,569 | ||||||||||||||||||||||||||||||
Denominated in foreign currency(l) | 24,558 | ll,0l7 | 34,467 | ll,6l9 | 8l,66l | |||||||||||||||||||||||||||||||||||
Denominated in foreign currency(1) | 24,558 | 11,017 | 34,467 | 11,619 | 81,661 | |||||||||||||||||||||||||||||||||||
As of December 31, 2017(2) | 106,242 | 250,693 | 52,149 | 22,843 | 431,927 | 106,242 | 250,693 | 52,149 | 22,843 | 431,927 | ||||||||||||||||||||||||||||||
Denominated in Brazilian currency | 9l,86l | 59,869 | l9,43l | l2,024 | l83,l85 | 91,861 | 59,869 | 19,431 | 12,024 | 183,185 | ||||||||||||||||||||||||||||||
Denominated in Brazilian currency and indexed by foreign currency(l) | - | 2,8l7 | 707 | l,5l6 | 5,040 | |||||||||||||||||||||||||||||||||||
Denominated in foreign currency(l) | l4,38l | l88,007 | 32,0ll | 9,303 | 243,702 | |||||||||||||||||||||||||||||||||||
As of December 31, 2016(2) | 98,752 | 194,574 | 40,039 | 24,231 | 357,596 | |||||||||||||||||||||||||||||||||||
Denominated in Brazilian currency | 76,920 | l80,993 | l2,499 | l0,7l0 | 28l,l22 | |||||||||||||||||||||||||||||||||||
Denominated in Brazilian currency and indexed by foreign currency(l) | - | 2,653 | 670 | 4,634 | 7,957 | |||||||||||||||||||||||||||||||||||
Denominated in Brazilian currency and indexed by foreign currency(1) | — | 2,817 | 707 | 1,516 | 5,040 | |||||||||||||||||||||||||||||||||||
Denominated in foreign currency(1) | 2l,832 | 10,928 | 26,870 | 8,887 | 68,5l7 | 14,381 | 188,007 | 32,011 | 9,303 | 243,702 | ||||||||||||||||||||||||||||||
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(1) | Predominantly U.S. dollars. |
(2) | Restated to take into account the effect of |
For the purpose of analyzing the exposure of variations in foreign exchange rates, the table below presents the composition of our derivative financial instruments as of December 3l, 201831, 2019 inreais and in foreign currency, including the instruments denominated in foreign currencies. For the notional amount of derivative financial instruments, please see “Note 6 – Derivatives” to our audited consolidated financial statements.
As of December 31, 2018 | ||||||||||||
Derivative financial instruments (notional amounts) | Brazilian Currency | Denominated in or linked to Foreign Currency | Total | |||||||||
(In millions of R$) | ||||||||||||
Swap contracts | ||||||||||||
Buy (Sale) commitments, net | 10,946 | (10,946 | ) | - | ||||||||
Forward contracts | ||||||||||||
Buy (Sale) commitments, net | 1,746 | 18,992 | 20,738 | |||||||||
Future contracts | ||||||||||||
Buy (Sale) commitments, net | (22,100 | ) | (27,477 | ) | (49,577 | ) | ||||||
Option contracts | ||||||||||||
Buy (Sale) commitments, net | 24,537 | 6,181 | 30,718 | |||||||||
Others | ||||||||||||
Buy (Sale) commitments, net | 1,513 | (3 | ) | 1,510 |
As of December 31, 2019 | ||||||||||||
Derivative financial instruments (notional amounts) | Brazilian Currency | Denominated in or linked to Foreign Currency | Total | |||||||||
(In millions of R$) | ||||||||||||
Swap contracts Buy (Sale) commitments, net | 6,544 | (6,544 | ) | — | ||||||||
Forward contracts | 1,096 | (19,966 | ) | (18,870 | ) | |||||||
Future contracts | (7,978 | ) | (5,970 | ) | (13,948 | ) | ||||||
Option contracts | 11,619 | 12,198 | 23,817 | |||||||||
Others | 11,171 | 121 | 11,292 | |||||||||
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Compulsory Reserve Depositsrequirements
Brazilian financial institutions are required to place reserves with the Central Bank
The Central Bank requires reserves for deposits from Brazilian financial institutions.Bank. The reserve requirements are tools utilized by the Central Bank to control the liquidity of the Brazilian financial system, for both monetary policy and risk mitigation purposes. These requirements are applied to balances on demand deposits, saving account deposits and time deposits. The below table sets forth the required reserve for each type of deposit:
Required reserve deposits | Regulation(1) | Yield | 2018 | 2017 | 2016 | 2015 | Regulation(1) | Yield | 2019 | 2018 | 2017 | 2016 | ||||||||||||||||||||||||||||||||
Demand Deposits | Demand Deposits | |||||||||||||||||||||||||||||||||||||||||||
Compulsory | Circular No. 3,917 | Zero | 21% | 40% | 45% | 45% | Circular No. 3,917 | Zero | 21% | 21% | 40% | 45% | ||||||||||||||||||||||||||||||||
Additional Compulsory | Circular No. 3,655 | SELIC | 0% | 0% | 0% | 0% | Circular No. 3,655 | SELIC | 0% | 0% | 0% | 0% | ||||||||||||||||||||||||||||||||
Rural(2) | Resolution No. 4,669 | Zero | 30% | 34% | 34% | 34% | Resolution No. 4,669 | Zero | 30% | 30% | 34% | 34% | ||||||||||||||||||||||||||||||||
Microcredit(2) | Resolution No. 4,000 | Zero | 2% | 2% | 2% | 2% | Resolution No. 4,713 | Zero | 2% | 2% | 2% | 2% | ||||||||||||||||||||||||||||||||
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Savings Accounts(3) | Savings Accounts(3) |
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Compulsory | Circular No. 3,093 | TR + 6.17% p.a. | 20.0% | 24.5% | 24.5% | 24.5% | Circular No. 3,093 | TR + 6.17% p.a. | 20.0% | 20.0% | 24.5% | 24.5% | ||||||||||||||||||||||||||||||||
Additional Compulsory | Circular No. 3,655 | SELIC | 0.0% | 0.0% | 5.5% | 5.5% | Circular No. 3,655 | SELIC | 0.0% | 0.0% | 0.0% | 5.5% | ||||||||||||||||||||||||||||||||
Real estate financing(2) | Resolution No. 3,932 | 80% (TR + 6.17% p.a.) | 65% | 65% | 65% | 65% | Resolution No. 4,676 | 80% (TR + 6.17% p.a.) | 65% | 65% | 65% | 65% | ||||||||||||||||||||||||||||||||
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Time and Interbank Deposits Received from Leasing Companies | ||||||||||||||||||||||||||||||||||||||||||||
Compulsory | Circular No. 3,916 | SELIC | 33% | 36% | 25% | 25% | Circular No. 3,916 | SELIC | 31% | 33% | 36% | 25% | ||||||||||||||||||||||||||||||||
Additional Compulsory | Circular No. 3,655 | SELIC | 0% | 0% | 11% | 11% | Circular No. 3,655 | SELIC | 0% | 0% | 0% | 11% | ||||||||||||||||||||||||||||||||
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(1) | Most recent regulation on the matter. |
(2) | This is a compulsory investment of resources that is made in eligible transactions, that is, the funds are granted to other economic entities. |
(3) | Remuneration on funds in savings deposits: |
For deposits made until March 5, 2012, inclusive: TR + 6.17% per annum.annum;
For deposits made after March 5, 2012: (a) If the target of the Selic rate is higher than 8.5% per annum: TR + 6.17% per annum;annum, (b) If the target of the Selic rate is lower than 8.5% per annum:annum TR + 70% of the target of the Selic rate per annum.
The Central Bank, in accordance with economic scenario and its monetary policy objectives, may change the rules governing the required deposit requirements with which Brazilian financial institutions must comply, as a mechanism to control the liquidity of the Brazilian financial system.
Thus, inIn the second half of 2018,2019 and in the beginning of 2020, the Central Bank made changes to the rules on compulsory deposits that did not changechanged the volume of money in circulation in the economy, butremoving the Time and Interbank Deposits Received from Leasing Companies of deposit requirements and simplified the operational processes to reduce banks administrative costs, aiming at reducing the cost of medium and long-term credit in Brazil. The rates of compulsory deposits are currently as follow: (i) time deposits: 33.0%17.0% (in effect as of March 30, 2020, as an emergency measure due to theCOVID-19 crisis, which will remain into effect until November 2020, upon which the 25% rate set in February 2020 will be restored), (ii) demand deposits: 21.0% and (iii) savings deposits: 20% and 30% for rural credits.
As of December 31, 2018,2019, we recorded R$ 94,14891,248 million in compulsory deposits in cash compared to R$ 98,83794,148 million as of December 31, 20172018 and R$ 88,54886,836 million in interest-bearing deposits compared to R$ 94,04788,548 million as of December 31, 2016.2018.
2018 | 2017 | 2016 | 2019 | 2018 | ||||||||||||||||||||||||||||
Required reserve deposits | R$ | % of total required reserve deposits | R$ | % of total required reserve deposits | R$ | % of total required reserve deposits | R$ | % of total required | R$ | % of total required | ||||||||||||||||||||||
(In millions of R$, except percentages) | (In millions of R$, except percentages) | |||||||||||||||||||||||||||||||
Non-interest bearing deposits(1) | 5,600 | 5.9 | 4,790 | 4.8 | 3,002 | 3.5 | 4,412 | 4.8 | 5,600 | 5.9 | ||||||||||||||||||||||
Interest-bearing deposits(2) | 88,548 | 94.1 | 94,047 | 95.2 | 82,698 | 96.5 | 86,836 | 95.2 | 88,548 | 94.1 | ||||||||||||||||||||||
Total | 94,148 | 100.0 | 98,837 | 100.0 | 85,700 | 100.0 | 91,248 | 100.0 | 94,148 | 100.0 | ||||||||||||||||||||||
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(1) | Mainly related to demand deposits. |
(2) | Mainly related to time and savings deposits. |
Loan and lease operations
Most of our loans are granted to clients domiciled in Brazil and are denominated in Brazilianreais. Additionally, 46.4%49.0% of our credit portfolio consists of transactions with fixed interest rates and 53.6%51.0% of our credit portfolio consists of transactions with variable interest rates.
Indexation
Most of our portfolio is denominated in Brazilianreais. However, a portion of our portfolio is indexed to foreign currencies, primarily the U.S. dollar. The foreign currency portion of our portfolio consists of loans and financing for foreign trade and onlending operations. Our loans abroad represented 35.6%34.1%, 34.2%35.6% and 32.8%34.2% of our loan portfolio as of December 31, 2019, 2018 2017 and 2016,2017, respectively, see “Note 32 – Risk and Capital Management, 1.4. Maximum Exposure of Financial Assets to Credit Risk” to our audited consolidated financial statements for further details.
Loan and lease operations by type
The following table sets outforth the distribution of our credit portfolio according to the type of loan and lease operations, as follows:
The Individuals portfolio consists primarily of credit cards, personal loans (primarily including consumer finance and overdrafts), payroll loans, vehicle financing and residential mortgage loans;
The Corporate portfolio consists primarily of loans made to large corporate clients;
The Small and Medium Businesses portfolio consists primarily of loans to small andmedium-sized companies; and
The Foreign Loans – Latin America portfolio consists of loans granted to individuals and companies by our operations in Argentina, Chile, Colombia, Paraguay and Uruguay.
Loan and Lease Operations, by type(1) | 2018 | 2017(3) | 2016(3) | |||||||||||||||||||||||||||||||||||||||||||||
2019 | 2018 | 2017(3) | ||||||||||||||||||||||||||||||||||||||||||||||
Loan and Lease Operations, by type(1) | Loan | Allowance(2) | Loan | Allowance(2) | Loan | Allowance(2) | Loan | Allowance(2) | Loan | Allowance(2) | Loan | Allowance(2) | ||||||||||||||||||||||||||||||||||||
(In millions of R$) | (In millions of R$) | |||||||||||||||||||||||||||||||||||||||||||||||
Individuals | 212,564 | 14,425 | 193,385 | 14,830 | 186,467 | 14,790 | 240,490 | 19,453 | 212,564 | 14,425 | 193,385 | 14,830 | ||||||||||||||||||||||||||||||||||||
Credit card | 78,255 | 6,077 | 67,413 | 6,684 | 59,863 | 5,693 | ||||||||||||||||||||||||||||||||||||||||||
Personal loans | 29,543 | 5,447 | 27,295 | 5,138 | 27,930 | 6,038 | ||||||||||||||||||||||||||||||||||||||||||
Payroll Loans | 46,878 | 2,279 | 44,716 | 2,368 | 44,860 | 2,284 | ||||||||||||||||||||||||||||||||||||||||||
Vehicles | 15,920 | 523 | 14,165 | 547 | 15,566 | 675 | ||||||||||||||||||||||||||||||||||||||||||
Mortgage loans | 41,968 | 99 | 39,796 | 93 | 38,248 | 100 | ||||||||||||||||||||||||||||||||||||||||||
Corporate | 102,643 | 9,367 | 107,647 | 11,452 | 121,761 | 11,089 | 105,302 | 6,991 | 102,643 | 9,367 | 107,647 | 11,452 | ||||||||||||||||||||||||||||||||||||
Small and Medium Businesses | 68,812 | 4,532 | 60,290 | 5,404 | 59,847 | 6,366 | 86,220 | 4,443 | 68,812 | 4,532 | 60,290 | 5,404 | ||||||||||||||||||||||||||||||||||||
Foreign Loans Latin America(4) | 152,072 | 5,185 | 136,397 | 4,783 | 126,776 | 2,280 | 153,779 | 6,621 | 152,072 | 5,185 | 136,397 | 4,783 | ||||||||||||||||||||||||||||||||||||
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Total Loan operations and lease operations portfolio | 536,091 | 33,509 | 497,719 | 36,469 | 494,851 | 34,525 | 585,791 | 37,508 | 536,091 | 33,509 | 497,719 | 36,469 | ||||||||||||||||||||||||||||||||||||
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(1) | We classify all loans and leases more than 60 days overdue asnon-accrual loans and we discontinue accruing financial income related to them. The contractual amount of non-accrual loans were R$ |
(2) | Comprises Provision for Expected Loss for Financial Guarantees Pledged R$ |
(3) | Restated to take into account the effect of |
(4) | As of December 31, |
Loan and lease operations by maturity
The following table sets outforth the distribution of our credit portfolio by maturity, includingnon-overdue and overdue installments, according to the type of loan and lease:
Non-Overdue Installments | 12/31/2018 | 12/31/2019 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Type of loan and lease | Due in 30 days or less | Due in 31-90 days | Due in 91-180 days | Due in 181-360 days | Due in one year to five years | Due after five years | Total Non- Overdue Installments | Due in 30 days or less | Due in 31-90 days | Due in 91-180 days | Due in 181-360 days | Due in one year to five years | Due after five years | Total Non-Overdue Installments | ||||||||||||||||||||||||||||||||||||||||||
(In millions of R$) | (In millions of R$) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Individuals | 36,728 | 28,842 | 22,681 | 23,435 | 57,329 | 32,529 | 201,544 | 41,009 | 34,884 | 27,907 | 30,161 | 68,822 | 24,283 | 227,066 | ||||||||||||||||||||||||||||||||||||||||||
Credit card | 28,896 | 21,831 | 13,358 | 7,175 | 799 | - | 72,059 | |||||||||||||||||||||||||||||||||||||||||||||||||
Personal loans | 5,254 | 1,960 | 2,416 | 4,079 | 11,846 | 186 | 25,741 | |||||||||||||||||||||||||||||||||||||||||||||||||
Payroll loans | 1,648 | 3,264 | 4,468 | 7,792 | 27,490 | 1,611 | 46,273 | |||||||||||||||||||||||||||||||||||||||||||||||||
Vehicles | 695 | 1,425 | 1,945 | 3,386 | 8,167 | - | 15,618 | |||||||||||||||||||||||||||||||||||||||||||||||||
Mortgage loans | 235 | 362 | 494 | 1,003 | 9,027 | 30,732 | 41,853 | |||||||||||||||||||||||||||||||||||||||||||||||||
Corporate | 10,224 | 11,813 | 14,912 | 14,748 | 36,995 | 12,056 | 100,748 | 13,076 | 13,332 | 17,318 | 16,630 | 36,848 | 7,239 | 104,443 | ||||||||||||||||||||||||||||||||||||||||||
Small and Medium Businesses | 12,143 | 14,567 | 8,346 | 11,047 | 20,188 | 165 | 66,456 | 15,843 | 17,224 | 10,200 | 14,633 | 25,360 | 584 | 83,844 | ||||||||||||||||||||||||||||||||||||||||||
Foreign Loans Latin America | 14,862 | 15,779 | 15,716 | 17,301 | 49,848 | 34,274 | 147,780 | 13,097 | 16,683 | 15,212 | 17,419 | 52,173 | 34,591 | 149,175 | ||||||||||||||||||||||||||||||||||||||||||
Total(1) | 73,957 | 71,001 | 61,655 | 66,531 | 164,360 | 79,024 | 516,528 | 83,025 | 82,123 | 70,637 | 78,843 | 183,203 | 66,697 | 564,528 | ||||||||||||||||||||||||||||||||||||||||||
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(1) | Includes R$8,454 million related to non-overdue installments of the non-accrual loans. |
Non-Overdue Installments Type of loan and lease Individuals Corporate Small and Medium Businesses Foreign Loans Latin America Total(1) 12/31/2018 Due in
30 days or less Due in
31-90 days Due In
91-180 days Due in
181-360 days Due in
one year to
five years Due after
five years Total
Non-Overdue
Installments (In millions of R$) 36,728 28,842 22,681 23,435 57,329 32,529 201,544 10,224 11,813 14,912 14,748 36,995 12,056 100,748 12,143 14,567 8,346 11,047 20,188 165 66,456 14,862 15,779 15,716 17,301 49,848 34,274 147,780 73,957 71,001 61,655 66,531 164,360 79,024 516,528
(1) | Includes R$8,786 million related to non-overdue installments of the non-accrual loans. |
Non-Overdue Installments | 12/31/2017(2) | 12/31/2017(2) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Type of loan and lease | Due in 30 days or less | Due in 31-90 days | Due in 91-180 days | Due in 181-360 days | Due in one year to five years | Due after five years | Total Non- Overdue Installments | Due in 30 days or less | Due in 31-90 days | Due In 91-180 days | Due in 181-360 days | Due in one year to five years | Due after five years | Total Non-Overdue Installments | ||||||||||||||||||||||||||||||||||||||||||
(In millions of R$) | (In millions of R$) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Individuals | 32,995 | 24,388 | 18,431 | 19,079 | 55,171 | 31,447 | 181,511 | 32,995 | 24,388 | 18,431 | 19,079 | 55,171 | 31,447 | 181,511 | ||||||||||||||||||||||||||||||||||||||||||
Credit card | 26,278 | 18,809 | 10,909 | 5,418 | 390 | - | 61,804 | |||||||||||||||||||||||||||||||||||||||||||||||||
Personal loans | 4,298 | 1,627 | 2,007 | 3,392 | 11,056 | 165 | 22,545 | |||||||||||||||||||||||||||||||||||||||||||||||||
Payroll loans | 1,527 | 2,518 | 3,525 | 6,408 | 27,745 | 2,206 | 43,929 | |||||||||||||||||||||||||||||||||||||||||||||||||
Vehicles | 599 | 1,050 | 1,466 | 2,733 | 7,945 | - | 13,793 | |||||||||||||||||||||||||||||||||||||||||||||||||
Mortgage loans | 293 | 384 | 524 | 1,128 | 8,035 | 29,076 | 39,440 | |||||||||||||||||||||||||||||||||||||||||||||||||
Corporate | 9,870 | 11,257 | 14,103 | 18,400 | 41,039 | 10,457 | 105,126 | 9,870 | 11,257 | 14,103 | 18,400 | 41,039 | 10,457 | 105,126 | ||||||||||||||||||||||||||||||||||||||||||
Small and Medium Businesses | 10,680 | 11,536 | 6,867 | 9,456 | 18,691 | 218 | 57,448 | 10,680 | 11,536 | 6,867 | 9,456 | 18,691 | 218 | 57,448 | ||||||||||||||||||||||||||||||||||||||||||
Foreign Loans Latin America | 14,146 | 12,530 | 13,407 | 16,346 | 43,756 | 31,475 | 131,660 | 14,146 | 12,530 | 13,407 | 16,346 | 43,756 | 31,475 | 131,660 | ||||||||||||||||||||||||||||||||||||||||||
Total(1) | 67,691 | 59,711 | 52,808 | 63,281 | 158,657 | 73,597 | 475,745 | 67,691 | 59,711 | 52,808 | 63,281 | 158,657 | 73,597 | 475,745 | ||||||||||||||||||||||||||||||||||||||||||
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(1) | Includes R$8,653 million related to non-overdue installments of |
(2) | Restated to take into account the effect of |
Non-Overdue Installments Type of loan and lease Individuals Credit card Personal loans Payroll loans Vehicles Mortgage loans Corporate Small and Medium Businesses Foreign Loans Latin America Total(1) Overdue Installments(1) Type of loan and lease Individuals Corporate Small and Medium Businesses Foreign Loans Latin America Total(2) 12/31/2016(2) Due in
30 days
or less Due in
31-90
days Due in
91-180
days Due in
181-360
days Due in
one year to
five years Due after
five years Total Non-
Overdue
Installments (In millions of R$) 29,843 22,919 16,934 18,330 54,966 30,044 173,036 23,093 16,972 9,186 4,165 27 - 53,443 4,353 1,788 1,985 3,414 10,770 64 22,374 1,388 2,551 3,571 6,553 28,237 1,836 44,136 705 1,236 1,693 3,113 8,190 2 14,939 304 372 499 1,085 7,742 28,142 38,144 12,970 13,645 15,232 20,627 48,148 9,452 120,074 10,388 11,661 6,619 9,566 17,811 234 56,279 14,144 14,743 11,903 13,641 40,620 27,855 122,906 67,345 62,968 50,688 62,164 161,545 67,585 472,295 12/31/2019 01-30
days 31-60
days 61-90
days 91-180
days 181-360
days One year
or more Total overdue
installments Total
gross loans Allowance
for loan losses Total net (In millions of R$) 1,908 1,102 1,191 3,186 4,181 1,856 13,424 240,490 (19,453 ) 221,037 369 41 141 182 122 4 859 105,302 (6,991 ) 98,311 581 228 189 498 493 387 2,376 86,220 (4,443 ) 81,777 2,146 646 344 643 673 152 4,604 153,779 (6,621 ) 147,158 5,004 2,017 1,865 4,509 5,469 2,399 21,263 585,791 (37,508 ) 548,283
(1) | Defined as loans and leases contractually past due as to payment of interest or principal. |
(2) | Includes R$ |
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Overdue Installments(1) | 12/31/2018 | 12/31/2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Type of loan and lease | 01-30 days | 31-60 days | 61-90 days | 91-180 days | 181-360 days | One year or more | Total overdue installments | Total gross loans | Allowance for loan losses | Total net | 01-30 days | 31-60 days | 61-90 days | 91-180 days | 181-360 days | One year or more | Total overdue installments | Total gross loans | Allowance for loan losses | Total net | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(In millions of R$) | (In millions of R$) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Individuals | 1,596 | 886 | 941 | 2,347 | 3,116 | 2,134 | 11,020 | 212,564 | (14,425 | ) | 198,139 | 1,596 | 886 | 941 | 2,347 | 3,116 | 2,134 | 11,020 | 212,564 | (14,425 | ) | 198,139 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Credit card | 862 | 377 | 531 | 1,399 | 2,206 | 821 | 6,196 | 78,255 | (6,077 | ) | 72,178 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Personal loans | 511 | 391 | 326 | 764 | 734 | 1,076 | 3,802 | 29,543 | (5,447 | ) | 24,096 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Payroll loans | 75 | 56 | 51 | 125 | 126 | 172 | 605 | 46,878 | (2,279 | ) | 44,599 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Vehicles | 108 | 43 | 24 | 46 | 37 | 44 | 302 | 15,920 | (523 | ) | 15,397 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Mortgage loans | 40 | 19 | 9 | 13 | 13 | 21 | 115 | 41,968 | (99 | ) | 41,869 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Corporate | 568 | 281 | 631 | 176 | 236 | 3 | 1,895 | 102,643 | (9,367 | ) | 93,276 | 568 | 281 | 631 | 176 | 236 | 3 | 1,895 | 102,643 | (9,367 | ) | 93,276 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Small and Medium Businesses | 478 | 207 | 155 | 390 | 466 | 660 | 2,356 | 68,812 | (4,532 | ) | 64,280 | 478 | 207 | 155 | 390 | 466 | 660 | 2,356 | 68,812 | (4,532 | ) | 64,280 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign Loans Latin America | 2,110 | 598 | 324 | 465 | 443 | 352 | 4,292 | 152,072 | (5,185 | ) | 146,887 | 2,110 | 598 | 324 | 465 | 443 | 352 | 4,292 | 152,072 | (5,185 | ) | 146,887 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total(2) | 4,752 | 1,972 | 2,051 | 3,378 | 4,261 | 3,149 | 19,563 | 536,091 | (33,509 | ) | 502,582 | 4,752 | 1,972 | 2,051 | 3,378 | 4,261 | 3,149 | 19,563 | 536,091 | (33,509 | ) | 502,582 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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(1) | Defined as loans and leases contractually past due as to payment of interest or principal. |
(2) | Includes R$13,583 million related to overdue installments of the non-accrual loans. |
Overdue Installments(1) | 12/31/2017(3) | |||||||||||||||||||||||||||||||||||||||
Type of loan and lease | 01-30 days | 31-60 days | 61-90 days | 91-180 days | 181-360 days | One year or more | Total overdue installments | Total gross loans | Allowance for loan losses | Total net | ||||||||||||||||||||||||||||||
(In millions of R$) | ||||||||||||||||||||||||||||||||||||||||
Individuals | 1,963 | 815 | 841 | 2,090 | 3,083 | 3,082 | 11,874 | 193,385 | (14,830 | ) | 178,555 | |||||||||||||||||||||||||||||
Corporate | 314 | 737 | 748 | 303 | 135 | 284 | 2,521 | 107,647 | (11,452 | ) | 96,195 | |||||||||||||||||||||||||||||
Small and Medium Businesses | 707 | 185 | 163 | 410 | 518 | 859 | 2,842 | 60,290 | (5,404 | ) | 54,886 | |||||||||||||||||||||||||||||
Foreign Loans Latin America | 2,564 | 605 | 345 | 461 | 434 | 328 | 4,737 | 136,397 | (4,783 | ) | 131,614 | |||||||||||||||||||||||||||||
Total(2) | 5,548 | 2,342 | 2,097 | 3,264 | 4,170 | 4,553 | 21,974 | 497,719 | (36,469 | ) | 461,250 | |||||||||||||||||||||||||||||
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(1) | Defined as loans and leases contractually past due as to payment of interest or principal. |
(2) | Includes R$14,687 million related to overdue installments of thenon-accrual loans. |
(3) | Restated to take into account the effect of IFRS9, which we retroactively adopted as of January 1, 2016. |
Overdue Installments(1) Type of loan and lease Individuals Credit card Personal loans Payroll loans Vehicles Mortgage loans Corporate Small and Medium Businesses Foreign Loans Latin America Total(2) 12/31/2017(3) 01-30
days 31-60
days 61-90
days 91-180
days 181-360
days One year
or more Total
overdue
installments Total
gross
loans Allowance
for loan
losses Total net (In millions of R$) 1,963 815 841 2,090 3,083 3,082 11,874 193,385 (14,830 ) 178,555 841 383 454 1,246 2,174 511 5,609 67,413 (6,684 ) 60,729 595 313 303 673 738 2,128 4,750 27,295 (5,138 ) 22,157 85 54 48 121 130 349 787 44,716 (2,368 ) 42,348 123 44 25 45 41 94 372 14,165 (547 ) 13,618 319 21 11 5 - - 356 39,796 (93 ) 39,703 314 737 748 303 135 284 2,521 107,647 (11,452 ) 96,195 707 185 163 410 518 859 2,842 60,290 (5,404 ) 54,886 2,564 605 345 461 434 328 4,737 136,397 (4,783 ) 131,614 5,548 2,342 2,097 3,264 4,170 4,553 21,974 497,719 (36,469 ) 461,250
Loan and Lease Operations by interest rate
The following table sets forth the classification of our credit portfolio into fixed and variable rates, includingnon-overdue and overdue installments:
12/31/2019 | ||||||||||||||||||||||||||||
Non-Overdue Installments | Due in 30 days or less | Due in 31-90 days | Due in 91-180 days | Due in 181-360 days | Due in one year to five years | Due after five years | TotalNon- Overdue Installments | |||||||||||||||||||||
(In millions of R$) | ||||||||||||||||||||||||||||
Interest rate of loans to customers by maturity | ||||||||||||||||||||||||||||
Variable rates | 21,113 | 34,706 | 29,566 | 34,968 | 108,615 | 64,412 | 293,380 | |||||||||||||||||||||
Fixed rates | 61,912 | 47,417 | 41,071 | 43,875 | 74,588 | 2,285 | 271,148 | |||||||||||||||||||||
Total(1) | 83,025 | 82,123 | 70,637 | 78,843 | 183,203 | 66,697 | 564,528 | |||||||||||||||||||||
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(1) | Includes R$8,454 million related tonon-overdue installments of thenon-accrual loans. |
12/31/2018 | ||||||||||||||||||||||||||||
Non-Overdue Installments | Due in 30 days or less | Due in 31-90 days | Due in 91-180 days | Due in 181-360 days | Due in one year to five years | Due after five years | TotalNon- Overdue Installments | |||||||||||||||||||||
(In millions of R$) | ||||||||||||||||||||||||||||
Interest rate of loans to customers by maturity | ||||||||||||||||||||||||||||
Variable rates | 21,129 | 30,729 | 26,210 | 29,854 | 96,461 | 76,828 | 281,211 | |||||||||||||||||||||
Fixed rates | 52,828 | 40,272 | 35,445 | 36,677 | 67,899 | 2,196 | 235,317 | |||||||||||||||||||||
Total(1) | 73,957 | 71,001 | 61,655 | 66,531 | 164,360 | 79,024 | 516,528 | |||||||||||||||||||||
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(1) | Includes R$8,786 million related tonon-overdue installments of thenon-accrual loans. |
12/31/2017(2) | ||||||||||||||||||||||||||||
Non-Overdue Installments | Due in 30 days or less | Due in 31-90 days | Due in 91-180 days | Due in 181-360 days | Due in one year to five years | Due after five years | TotalNon- Overdue Installments | |||||||||||||||||||||
(In millions of R$) | ||||||||||||||||||||||||||||
Interest rate of loans to customers by maturity | ||||||||||||||||||||||||||||
Variable rates | 19,158 | 25,848 | 23,020 | 30,863 | 91,251 | 70,414 | 260,554 | |||||||||||||||||||||
Fixed rates | 48,533 | 33,863 | 29,788 | 32,418 | 67,406 | 3,183 | 215,191 | |||||||||||||||||||||
Total(1) | 67,691 | 59,711 | 52,808 | 63,281 | 158,657 | 73,597 | 475,745 | |||||||||||||||||||||
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(1) | Includes R$8,653 million related tonon-overdue installments of thenon-accrual loans. |
(2) | Restated to take into account the effect of IFRS9, which we retroactively adopted as of January 1, 2016. |
12/31/2019 | ||||||||||||||||||||||
Overdue Installments(1) | 01-30 days | 31-60 | 61-90 | 91-180 days | 181-360 days | One | Total | Total | ||||||||||||||
(In millions of R$) | ||||||||||||||||||||||
Interest rate of loans to customers by maturity | ||||||||||||||||||||||
Variable rates | 2,547 | 699 | 491 | 753 | 762 | 163 | 5,415 | 298,795 | ||||||||||||||
Fixed rates | 2,457 | 1,318 | 1,374 | 3,756 | 4,707 | 2,236 | 15,848 | 286,996 | ||||||||||||||
Total(2) | 5,004 | 2,017 | 1,865 | 4,509 | 5,469 | 2,399 | 21,263 | 585,791 | ||||||||||||||
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(1) | Defined as loans and leases contractually past due as to payment of interest or principal. |
(2) | Includes R$15,101 million related to overdue installments of thenon-accrual loans. |
Overdue Installments(1) Interest rate of loans to customers by maturity Variable rates Fixed rates Total(2) 12/31/2018 01-30
days 31-60
days 61-90
days 91-180
days 181-360
days One
year
or
more Total
overdue
installments Total
gross
loans (In millions of R$) 2,484 792 962 617 702 387 5,944 287,155 2,268 1,180 1,089 2,761 3,559 2,762 13,619 248,936 4,752 1,972 2,051 3,378 4,261 3,149 19,563 536,091
(1) | Defined as loans and leases contractually past due as to payment of interest or principal. |
(2) | Includes R$13,583 million related to overdue installments of the non-accrual loans. |
Overdue Installments(1) | 12/31/2017(3) | |||||||||||||||||||||||||||||||
01-30 days | 31-60 days | 61-90 days | 91-180 days | 181-360 days | One year or more | Total overdue installments | Total gross loans | |||||||||||||||||||||||||
(In millions of R$) | ||||||||||||||||||||||||||||||||
Interest rate of loans to customers by maturity | ||||||||||||||||||||||||||||||||
Variable rates | 3,139 | 1,359 | 1,076 | 599 | 531 | 2,813 | 9,517 | 270,071 | ||||||||||||||||||||||||
Fixed rates | 2,409 | 983 | 1,021 | 2,665 | 3,639 | 1,740 | 12,457 | 227,648 | ||||||||||||||||||||||||
Total(2) | 5,548 | 2,342 | 2,097 | 3,264 | 4,170 | 4,553 | 21,974 | 497,719 | ||||||||||||||||||||||||
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(1) | Defined as loans and leases contractually past due as to payment of interest or principal. |
(2) | Includes R$14,687 million related to overdue installments of the non-accrual loans. |
(3) | Restated to take into account the effect of |
Overdue Installments (1) | 12/31/2016(3) | |||||||||||||||||||||||||||||||||||||||
Type of loan and lease | 01-30 days | 31-60 days | 61-90 days | 91-180 days | 181-360 days | One year or more | Total overdue installments | Total gross loans | Allowance for loan losses | Total net | ||||||||||||||||||||||||||||||
(In millions of R$) | ||||||||||||||||||||||||||||||||||||||||
Individuals | 1,704 | 931 | 859 | 2,318 | 3,231 | 4,388 | 13,431 | 186,467 | (14,790 | ) | 171,677 | |||||||||||||||||||||||||||||
Credit card | 937 | 443 | 446 | 1,273 | 2,236 | 1,085 | 6,420 | 59,863 | (5,693 | ) | 54,170 | |||||||||||||||||||||||||||||
Personal loans | 514 | 352 | 319 | 846 | 800 | 2,725 | 5,556 | 27,930 | (6,038 | ) | 21,892 | |||||||||||||||||||||||||||||
Payroll loans | 71 | 53 | 47 | 116 | 123 | 314 | 724 | 44,860 | (2,284 | ) | 42,576 | |||||||||||||||||||||||||||||
Vehicles | 145 | 64 | 38 | 69 | 60 | 251 | 627 | 15,566 | (675 | ) | 14,891 | |||||||||||||||||||||||||||||
Mortgage loans | 37 | 19 | 9 | 14 | 12 | 13 | 104 | 38,248 | (100 | ) | 38,148 | |||||||||||||||||||||||||||||
Corporate | 484 | 237 | 201 | 161 | 315 | 289 | 1,687 | 121,761 | (11,089 | ) | 110,672 | |||||||||||||||||||||||||||||
Small and Medium Businesses | 481 | 301 | 223 | 619 | 799 | 1,145 | 3,568 | 59,847 | (6,366 | ) | 53,481 | |||||||||||||||||||||||||||||
Foreign Loans Latin America | 2,170 | 523 | 329 | 386 | 414 | 48 | 3,870 | 126,776 | (2,280 | ) | 124,496 | |||||||||||||||||||||||||||||
Total(2) | 4,839 | 1,992 | 1,612 | 3,484 | 4,759 | 5,870 | 22,556 | 494,851 | (34,525 | ) | 460,326 | |||||||||||||||||||||||||||||
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Loan and Lease Operations by interest rate
The following table sets forth the classification of our credit portfolio into fixed and variable rates, includingnon-overdue and overdue installments:
12/31/2018 | ||||||||||||||||||||||||||||
Non-Overdue Installments | Due in 30 days or less | Due in 31-90 days | Due in 91-180 days | Due in 181-360 days | Due in one year to five years | Due after five years | Total Non-Overdue Installments | |||||||||||||||||||||
(In millions of R$) | ||||||||||||||||||||||||||||
Interest rate of loans to customers by maturity | ||||||||||||||||||||||||||||
Variable rates | 21,129 | 30,729 | 26,210 | 29,854 | 96,461 | 76,828 | 281,211 | |||||||||||||||||||||
Fixed rates | 52,828 | 40,272 | 35,445 | 36,677 | 67,899 | 2,196 | 235,317 | |||||||||||||||||||||
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| |||||||||||||||
Total(1) | 73,957 | 71,001 | 61,655 | 66,531 | 164,360 | 79,024 | 516,528 | |||||||||||||||||||||
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12/31/2017(2) | ||||||||||||||||||||||||||||
Non-Overdue Installments | Due in 30 days or less | Due in 31-90 days | Due in 91-180 days | Due in 181-360 days | Due in one year to five years | Due after five years | Total Non-Overdue Installments | |||||||||||||||||||||
(In millions of R$) | ||||||||||||||||||||||||||||
Interest rate of loans to customers by maturity | ||||||||||||||||||||||||||||
Variable rates | 19,158 | 25,848 | 23,020 | 30,863 | 91,251 | 70,414 | 260,554 | |||||||||||||||||||||
Fixed rates | 48,533 | 33,863 | 29,788 | 32,418 | 67,406 | 3,183 | 215,191 | |||||||||||||||||||||
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| |||||||||||||||
Total(1) | 67,691 | 59,711 | 52,808 | 63,281 | 158,657 | 73,597 | 475,745 | |||||||||||||||||||||
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12/31/2016(2) | ||||||||||||||||||||||||||||
Non-Overdue Installments | Due in 30 days or less | Due in 31-90 days | Due in 91-180 days | Due in 181-360 days | Due in one year to five years | Due after five years | Total Non-Overdue Installments | |||||||||||||||||||||
(In millions of R$) | ||||||||||||||||||||||||||||
Interest rate of loans to customers by maturity | ||||||||||||||||||||||||||||
Variable rates | 21,082 | 28,062 | 22,294 | 28,492 | 89,274 | 64,034 | 253,238 | |||||||||||||||||||||
Fixed rates | 46,263 | 34,906 | 28,394 | 33,672 | 72,271 | 3,551 | 219,057 | |||||||||||||||||||||
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| |||||||||||||||
Total(1) | 67,345 | 62,968 | 50,688 | 62,164 | 161,545 | 67,585 | 472,295 | |||||||||||||||||||||
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12/31/2018 | ||||||||||||||||||||||||||||||||
Overdue Installments(1) | 01-30 days | 31-60 days | 61-90 days | 91-180 days | 181-360 days | One year or more | Total overdue installments | Total gross loans | ||||||||||||||||||||||||
(In millions of R$) | ||||||||||||||||||||||||||||||||
Interest rate of loans to customers by maturity | ||||||||||||||||||||||||||||||||
Variable rates | 2,484 | 792 | 962 | 617 | 702 | 387 | 5,944 | 287,155 | ||||||||||||||||||||||||
Fixed rates | 2,268 | 1,180 | 1,089 | 2,761 | 3,559 | 2,762 | 13,619 | 248,936 | ||||||||||||||||||||||||
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| |||||||||||||||||
Total(2) | 4,752 | 1,972 | 2,051 | 3,378 | 4,261 | 3,149 | 19,563 | 536,091 | ||||||||||||||||||||||||
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Overdue Installments(1) Interest rate of loans to customers by maturity Variable rates Fixed rates Total(2) 12/31/2017(3) 01-30
days 31-60
days 61-90
days 91-180
days 181-360
days One year
or more Total
overdue
installments Total
gross
loans (In millions of R$) 3,139 1,359 1,076 599 531 2,813 9,517 270,071 2,409 983 1,021 2,665 3,639 1,740 12,457 227,648 5,548 2,342 2,097 3,264 4,170 4,553 21,974 497,719
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|
12/31/2016(3) | ||||||||||||||||||||||||||||||||
Overdue Installments(1) | 01-30 days | 31-60 days | 61-90 days | 91-180 days | 181-360 days | One year or more | Total overdue installments | Total gross loans | ||||||||||||||||||||||||
(In millions of R$) | ||||||||||||||||||||||||||||||||
Interest rate of loans to customers by maturity | ||||||||||||||||||||||||||||||||
Variable rates | 2,513 | 795 | 512 | 506 | 686 | 2,874 | 7,886 | 261,124 | ||||||||||||||||||||||||
Fixed rates | 2,326 | 1,197 | 1,100 | 2,978 | 4,073 | 2,996 | 14,670 | 233,727 | ||||||||||||||||||||||||
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| |||||||||||||||||
Total(2) | 4,839 | 1,992 | 1,612 | 3,484 | 4,759 | 5,870 | 22,556 | 494,851 | ||||||||||||||||||||||||
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Loan and Lease Operations by economic activity
The following table sets outforth the composition of our credit portfolio, includingnon-accrual loan operations, by economic activity of the borrower:
On December 31, 2018,2019, there was no concentration of loan and lease operations exceeding 10% of the total portfolio that had not been disclosed in a category of loan and losses.
Economic Activities | 12/31/2018 | 12/31/2017(1) | 12/31/2016(1) | |||||||||||||||||||||||||||||||||||||||||||||
12/31/2019 | 12/31/2018 | 12/31/2017(1) | ||||||||||||||||||||||||||||||||||||||||||||||
Economic Activities | Loan portfolio | % of Loan portfolio | Loan portfolio | % of Loan portfolio | Loan portfolio | % of Loan portfolio | Loan portfolio | % of Loan portfolio | Loan portfolio | % of Loan portfolio | Loan portfolio | % of Loan portfolio | ||||||||||||||||||||||||||||||||||||
(In millions of R$, except percentages) | (In millions of R$, except percentages) | |||||||||||||||||||||||||||||||||||||||||||||||
Industry and commerce | 115,225 | 21.5 | 107,201 | 21.5 | 112,948 | 22.8 | 129,998 | 22.2 | 115,225 | 21.5 | 107,201 | 21.5 | ||||||||||||||||||||||||||||||||||||
Services | 118,435 | 22.1 | 114,332 | 23.0 | 118,680 | 24.0 | 126,718 | 21.6 | 119,487 | 22.3 | 114,332 | 23.0 | ||||||||||||||||||||||||||||||||||||
Individuals | 271,991 | 50.7 | 247,139 | 49.7 | 232,911 | 47.1 | 302,382 | 51.6 | 271,991 | 50.7 | 247,139 | 49.7 | ||||||||||||||||||||||||||||||||||||
Other sectors | 30,440 | 5.7 | 29,047 | 5.8 | 30,312 | 6.1 | 26,693 | 4.6 | 29,388 | 5.5 | 29,047 | 5.8 | ||||||||||||||||||||||||||||||||||||
Total | 585,791 | 100.0 | 536,091 | 100.0 | 497,719 | 100.0 | ||||||||||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||
Total | 536,091 | 100.0 | 497,719 | 100.0 | 494,851 | 100.0 |
(1) | Restated to take into account the effect of |
Loan and Lease Operations by concentration
The following table presentssets forth the composition of our credit portfolio by concentration with respect to the amounts owed by the debtors:
12/31/2018 | 12/31/2017(1) | 12/31/2016(1) | ||||||||||||||||||||||
Concentration | Loan portfolio | % of Loan portfolio | Loan portfolio | % of Loan portfolio | Loan portfolio | % of Loan portfolio | ||||||||||||||||||
(In millions of R$, except percentages) | ||||||||||||||||||||||||
Largest debtor | 5,193 | 1.0 | 4,079 | 0.8 | 3,543 | 0.7 | ||||||||||||||||||
10 largest debtors | 31,564 | 5.9 | 28,958 | 5.8 | 21,609 | 4.4 | ||||||||||||||||||
20 largest debtors | 47,433 | 8.8 | 46,313 | 9.3 | 32,720 | 6.6 | ||||||||||||||||||
50 largest debtors | 73,358 | 13.7 | 74,772 | 15.0 | 52,992 | 10.7 | ||||||||||||||||||
100 largest debtors | 98,675 | 18.4 | 101,149 | 20.3 | 72,443 | 14.6 | ||||||||||||||||||
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| |||||||||||||
Total | 536,091 | 497,719 | 494,851 | |||||||||||||||||||||
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Rating of the Loan and Lease Portfolio
The following table presents the rating of our loan and lease portfolio based on the probability of default for the periods indicated below.
Internal Rating | 12/31/2018 | |||||||||||||||
Stage 1 | Stage 2 | Stage 3 | Total loans | |||||||||||||
(In millions of R$, except percentages) | ||||||||||||||||
Lower Risk | 378,389 | 4,536 | — | 382,925 | ||||||||||||
Satisfactory | 72,921 | 19,723 | — | 92,644 | ||||||||||||
Higher Risk | 8,316 | 12,635 | — | 20,951 | ||||||||||||
Credit-Impaired | — | — | 39,571 | 39,571 | ||||||||||||
Total | 459,626 | 36,894 | 39,571 | 536,091 | ||||||||||||
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| |||||||||
% | 85.7 | 6.9 | 7.4 | 100.0 | ||||||||||||
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|
Internal Rating(1) | 12/31/2017 | |||||||||||||||
Stage 1 | Stage 2 | Stage 3 | Total loans | |||||||||||||
(In millions of R$, except percentages) | ||||||||||||||||
Lower Risk | 349,354 | 5,274 | — | 354,628 | ||||||||||||
Satisfactory | 60,707 | 17,798 | — | 78,505 | ||||||||||||
Higher Risk | 7,325 | 12,822 | — | 20,147 | ||||||||||||
Credit-Impaired | — | — | 44,439 | 44,439 | ||||||||||||
Total | 417,386 | 35,894 | 44,439 | 497,719 | ||||||||||||
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| |||||||||
% | 83.9 | 7.2 | 8.9 | 100.0 | ||||||||||||
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|
12/31/2019 | 12/31/2018 | 12/31/2017(1) | ||||||||||
Concentration | Loan | % of Loan | Loan | % of Loan | Loan | % of Loan | ||||||
(In millions of R$, except percentages) | ||||||||||||
Largest debtor | 5,389 | 0.9 | 5,193 | 1.0 | 4,079 | 0.8 | ||||||
10 largest debtors | 29,340 | 5.0 | 31,564 | 5.9 | 28,958 | 5.8 | ||||||
20 largest debtors | 44,712 | 7.6 | 47,433 | 8.8 | 46,313 | 9.3 | ||||||
50 largest debtors | 71,965 | 12.3 | 73,358 | 13.7 | 74,772 | 15.0 | ||||||
100 largest debtors | 97,695 | 16.7 | 98,675 | 18.4 | 101,149 | 20.3 | ||||||
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|
(1) | Restated to take into account the effect of IFRS9, which we retroactively adopted as of January 1, 2016. |
Rating of the Loan and Lease Portfolio
Internal Rating(1) | 12/31/2016 | |||||||||||||||
Stage 1 | Stage 2 | Stage 3 | Total loans | |||||||||||||
(In millions of R$, except percentages) | ||||||||||||||||
Lower Risk | 349,402 | 10,320 | — | 359,722 | ||||||||||||
Satisfactory | 56,063 | 16,515 | — | 72,578 | ||||||||||||
Higher Risk | 7,027 | 10,069 | — | 17,096 | ||||||||||||
Credit-Impaired | — | — | 45,455 | 45,455 | ||||||||||||
Total | 412,492 | 36,904 | 45,455 | 494,851 | ||||||||||||
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| |||||||||
% | 83.4 | 7.4 | 9.2 | 100.0 | ||||||||||||
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|
The following table sets forth the rating of our loan and lease portfolio based on the probability of default for the periods indicated below.
12/31/2019(1) | ||||||||
Internal Rating | Stage 1 | Stage 2 | Stage 3 | Total loans | ||||
(In millions of R$, except percentages) | ||||||||
Lower Risk | 420,936 | 4,204 | — | 425,140 | ||||
Satisfactory | 80,106 | 17,871 | — | 97,977 | ||||
Higher Risk | 847 | 19,845 | — | 20,692 | ||||
Credit-Impaired | — | — | 41,982 | 41,982 | ||||
Total | 501,889 | 41,920 | 41,982 | 585,791 | ||||
|
|
|
| |||||
% | 85.6 | 7.2 | 7.2 | 100.0 | ||||
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|
|
12/31/2018(1) | ||||||||
Internal Rating | Stage 1 | Stage 2 | Stage 3 | Total loans | ||||
(In millions of R$, except percentages) | ||||||||
Lower Risk | 385,846 | 4,536 | — | 390,382 | ||||
Satisfactory | 72,921 | 19,723 | — | 92,644 | ||||
Higher Risk | 859 | 12,635 | — | 13,494 | ||||
Credit-Impaired | — | — | 39,571 | 39,571 | ||||
Total | 459,626 | 36,894 | 39,571 | 536,091 | ||||
|
|
|
| |||||
% | 85.7 | 6.9 | 7.4 | 100.0 | ||||
|
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|
|
12/31/2017(1) | ||||||||
Internal Rating(1) | Stage 1 | Stage 2 | Stage 3 | Total loans | ||||
(In millions of R$, except percentages) | ||||||||
Lower Risk | 354,506 | 4,310 | — | 358,816 | ||||
Satisfactory | 61,430 | 18,698 | — | 80,128 | ||||
Higher Risk | 1,431 | 12,905 | — | 14,336 | ||||
Credit-Impaired | — | — | 44,439 | 44,439 | ||||
Total | 417,367 | 35,913 | 44,439 | 497,719 | ||||
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|
| |||||
% | 83.9 | 7.2 | 8.9 | 100.0 | ||||
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| |||||
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|
(1) | Restated to take into account the effect of IFRS9, which we retroactively adopted as of January 1, 2016. |
For individual, small and middle-market companies, the credit rating is attributed based on application of statistical models (in the early phases of the client relationship) and behavior score (used for clients with which we already have a relationship).
For large companies, the credit rating is based on information such as the counterparty’s economic and financial condition, their cash-generating capability, the economic group to which they belong, and the current and prospective situation of the economic sector in which they operate. The credit proposals are analyzed on acase-by-case basis, through an approval-level mechanism.
We strictly control the credit exposure of clients and counterparties, taking action to address situations in which the actual exposure exceeds the desired one. For this purpose, contractually provided actions can be taken, such as early settlement or the requirement of additional collateral.
The risk ratings are grouped into the following four categories:
(i) | Lower risk: probability of default (PD) lower or equal than 4.44% |
(ii) | Satisfactory: PD from 4.44% up to 25.95% |
(iii) | Higher risk: PD higher than 25.95%; and |
(iv) | Credit-Impaired: loans classified in Stage 3 |
Non-accrual Loans
We consider a loan to be anon-accrual loan if the payment of principal or interest is in default for 60 days or more. When this occurs, accrual of interest is no longer recognized.
Write-offs
When there is no reasonable expectation of recovery of a financial asset, considering historical curves, we carry out a total or partialwrite-off concurrently with the use of the related allowance for expected credit loss, with no effect on our Consolidated Statement of Income. Subsequent recoveries of amounts previously written off are accounted for as income in our Consolidated Statement of Income.
Information on the Quality of Loans and Leases
The table below shows ournon-accrual loans together with certain asset quality ratios.
12/31/2018 | 12/31/2017(2) | 12/31/2016(2) | 12/31/2015(3) | 12/31/2014(3) | 12/31/2019 | 12/31/2018 | 12/31/2017(2) | 12/31/2016(2) | 12/31/2015(3) | |||||||||||||||||||||||||||||||
(In millions of R$, except percentages) | (In millions of R$, except percentages) | |||||||||||||||||||||||||||||||||||||||
Non-accrual loans | 22,369 | 23,340 | 24,284 | 19,458 | 16,514 | 23,555 | 22,369 | 23,340 | 24,284 | 19,458 | ||||||||||||||||||||||||||||||
Allowance for loan losses(1) | 33,509 | 36,469 | 34,525 | 26,844 | 22,392 | 37,508 | 33,509 | 36,469 | 34,525 | 26,844 | ||||||||||||||||||||||||||||||
Total loans and leases operations portfolio | 536,091 | 497,719 | 494,851 | 474,248 | 452,431 | 585,791 | 536,091 | 497,719 | 494,851 | 474,248 | ||||||||||||||||||||||||||||||
Non-accrual loans as a percentage of total loans (%) | 4.2 | 4.7 | 4.9 | 4.1 | 3.7 | 4.0 | 4.2 | 4.7 | 4.9 | 4.1 | ||||||||||||||||||||||||||||||
Allowance for loan losses as a percentage of total loans (%) | 6.3 | 7.3 | 7.0 | 5.7 | 4.9 | 6.4 | 6.3 | 7.3 | 7.0 | 5.7 | ||||||||||||||||||||||||||||||
Allowance for loan losses as a percentage of non-accrual loans (%) | 149.8 | 156.3 | 142.2 | 138.0 | 135.6 | 159.2 | 149.8 | 156.3 | 142.2 | 138.0 | ||||||||||||||||||||||||||||||
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(1) | Comprises Provision for Expected Loss for Financial Guarantees Pledged R$ |
(2) | Restated to take into account the effect of |
(3) | The consolidated financial information as of and for the |
Impairment
The requirements for assessing the impairment of financial assets are based on an expected credit loss model.
The expected credit loss model includes the use of prospective information and classification of financial assets in three stages:
Stage 1 –12-month expected credit loss: represents default events possible within 12 months. Applicable to financial assets originated or purchased without credit recovery issues;
Stage 2 – Lifetime expected credit loss of financial instrument: considers all possible default events. Applicable to financial assets originated or purchased without credit recovery issues and which credit risk has increased significantly; and
Stage 3 – Credit loss expected for credit-impaired assets: considers all possible default events. Applicable to financial assets originated or purchased with credit recovery issues. The measurement of assets classified in this stage is different from Stage 2 due to the recognition of interest income by applying the effective interest rate at amortized cost (net of provision) rather than at the gross carrying amount.
An asset will migrate from one stage to another as its credit risk increases or decreases. Therefore, a financial asset that began in Stage 1 and migrated to Stage 2 and 3 may return to Stage 1, unless it was originated or purchased with credit recovery issues.
Allowance for Loan and Leases Losses(3) | 12/31/2018 | 12/31/2017(1) | 12/31/2016(1) | 12/31/2015(2) | 12/31/2014(2) | 12/31/2019 | 12/31/2018 | 12/31/2017(1) | 12/31/2016(1) | 12/31/2015(2) | ||||||||||||||||||||||||||||||
(In millions of R$, except percentages) | (In millions of R$, except percentages) | |||||||||||||||||||||||||||||||||||||||
Amount Recognized in the Balance Sheet at the beginning of period | 36,469 | 34,525 | 32,033 | 22,392 | 22,235 | 33,509 | 36,469 | 34,525 | 32,033 | 22,392 | ||||||||||||||||||||||||||||||
Write-offs | (13,547 | ) | (16,437 | ) | (19,974 | ) | (20,065 | ) | (18,675 | ) | (14,299 | ) | (13,547 | ) | (16,437 | ) | (19,974 | ) | (20,065 | ) | ||||||||||||||||||||
Individuals | (8,520 | ) | (10,728 | ) | (12,103 | ) | (11,235 | ) | (12,668 | ) | (9,710 | ) | (8,520 | ) | (10,728 | ) | (12,103 | ) | (11,235 | ) | ||||||||||||||||||||
Credit card | (3,155 | ) | (3,891 | ) | (4,641 | ) | (4,055 | ) | (3,784 | ) | ||||||||||||||||||||||||||||||
Personal loans | (3,724 | ) | (5,190 | ) | (5,592 | ) | (5,221 | ) | (5,150 | ) | ||||||||||||||||||||||||||||||
Payroll loans | (1,336 | ) | (1,177 | ) | (1,151 | ) | (622 | ) | (429 | ) | ||||||||||||||||||||||||||||||
Vehicles | (283 | ) | (433 | ) | (671 | ) | (1,294 | ) | (3,254 | ) | ||||||||||||||||||||||||||||||
Mortgage loans | (22 | ) | (37 | ) | (48 | ) | (43 | ) | (51 | ) | ||||||||||||||||||||||||||||||
Corporate | (1,172 | ) | (956 | ) | (2,995 | ) | (4,321 | ) | (672 | ) | (884 | ) | (1,172 | ) | (956 | ) | (2,995 | ) | (4,321 | ) | ||||||||||||||||||||
Small and Medium Businesses | (2,471 | ) | (3,648 | ) | (3,862 | ) | (3,981 | ) | (4,992 | ) | (1,995 | ) | (2,471 | ) | (3,648 | ) | (3,862 | ) | (3,981 | ) | ||||||||||||||||||||
Foreign Loans Latin America | (1,384 | ) | (1,105 | ) | (1,014 | ) | (528 | ) | (343 | ) | (1,710 | ) | (1,384 | ) | (1,105 | ) | (1,014 | ) | (528 | ) | ||||||||||||||||||||
Expense Recognized in the Income Statement | 10,587 | 18,381 | 22,466 | 24,517 | 18,832 | |||||||||||||||||||||||||||||||||||
Expected Loss with Loan Operations and Lease Operations | 18,298 | 10,587 | 18,381 | 22,466 | 24,517 | |||||||||||||||||||||||||||||||||||
Amount Recognized in the Balance Sheet at the end of period | 33,509 | 36,469 | 34,525 | 26,844 | 22,392 | 37,508 | 33,509 | 36,469 | 34,525 | 26,844 | ||||||||||||||||||||||||||||||
Effect of the initial adoption of IFRS 9 | — | — | — | 5,189 | — | |||||||||||||||||||||||||||||||||||
Amount Recognized in the Balance Sheet at the end of period with effect of the initial adoption of IFRS 9 | — | — | — | 32,033 | — | |||||||||||||||||||||||||||||||||||
Effect of the initial adoption of IFRS9 | — | — | — | — | 5,189 | |||||||||||||||||||||||||||||||||||
Amount Recognized in the Balance Sheet at the end of period with effect of the initial adoption of IFRS9 | — | — | — | — | 32,033 | |||||||||||||||||||||||||||||||||||
Net Write-offs | (13,547 | ) | (16,437 | ) | (19,974 | ) | (20,065 | ) | (18,675 | ) | (14,299 | ) | (13,547 | ) | (16,437 | ) | (19,974 | ) | (20,065 | ) | ||||||||||||||||||||
Ratio of Write-offs during the period to average loans outstanding during the period (%) | 2.6 | 3.4 | 4.1 | 4.3 | 4.4 | 2.5 | 2.6 | 3.4 | 4.1 | 4.3 | ||||||||||||||||||||||||||||||
Ratio of allowance for loan losses to total loans and leases (%) | 6.3 | 7.3 | 7.0 | 5.7 | 4.9 | 6.4 | 6.3 | 7.3 | 7.0 | 5.7 | ||||||||||||||||||||||||||||||
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(1) | Restated to take into account the effect of |
(2) | The consolidated financial information as of and for the |
(3) | Receivables are partially written off based on an estimate of recovery on a portfolio level. The recovery of receivables partially written off is the recovery on a contract level adjusted by the reduction in the estimate of remaining receivables of the portfolio. As of December 31, |
During the year ended December 31, 2019, we wrote off a total amount of R$14,299 million from our loan portfolio and our ratio of the allowance for loan and lease losses to total loans and leases was 6.4%.
During the year ended December 31, 2018, we wrote off a total amount of R$13,547 million from our loan portfolio and our ratio of the allowance for loan and lease losses to total loans and leases was 6.3%. The decrease in loans written off the previous year, is a result of the adoption of a policy of stricter selectivity in origination of credits.
During the year ended December 31, 2017, we wrote off a total amount of R$16,437 million from our loan portfolio and our ratio of the allowance for loan and lease losses to total loans and leases was 7.3%.
During the year ended December 31, 2016, we wrote off a total amount of R$19,974 million from our loan portfolio and our ratio of the allowance for loan and lease losses to total loans and leases was 7.0%.
During the year ended December 31, 2015, we wrote off a total amount of R$20,065 million from our loan portfolio and our ratio of the allowance for loan and lease losses to total loans and leases was 5.7%. The increase in loans written off from the prior year is due to the worsening macroeconomic scenario, mainly in Brazil.
During the year ended December 31, 2014, we wrote off a total amount of R$18,675 million from our loan portfolio and our ratio of the allowance for loan and lease losses to total loans and leases was 4.9%. The decrease in loans written off from the previous year from the prior year is a result of the adoption of a policy of stricter selectivity in origination, which gave rise to lower default levels compared to the previous year.
Allocation of the Allowance for Loan and Lease Losses
The table below presents the details, by segment and class, as defined in the segmentation of our portfolio, of the allowance for loan and lease losses, of this allowance as a percentage of the total loan and lease losses for the corresponding segment or class, and the percentage of the total loan and leases in each segment and class in relation to the total loans and leases.
12/31/2018 | 12/31/2017(2) | 12/31/2016(2) | 12/31/2015(3) | 12/31/2014(3) | 12/31/2019 | 12/31/2018 | 12/31/2017(2) | 12/31/2016(2) | 12/31/2015(3) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Allocated allowance(1) | Allocated allowance as a % of total loans and leases | Loans category as a % of total loans | Allocated allowance(1) | Allocated allowance as a % of total loans and leases | Loans category as a% of total loans | Allocated allowance | Allocated allowance as a % of total loans and leases | Loans category as a % of total loans | Allocated allowance | Allocated allowance as a % of total loans and leases | Loans category as a% of total loans | Allocated allowance | Allocated allowance as a % of total loans and leases | Loans category as a% of total loans | Allocated allowance(1) | Allocated allowance as a % of total loans and leases | Loans category as a % of total loans | Allocated allowance(1) | Allocated allowance as a % of total loans and leases | Loans category as a % of total loans | Allocated allowance(1) | Allocated allowance as a % of total loans and leases | Loans category as a % of total loans | Allocated allowance | Allocated allowance as a % of total loans and leases | Loans category as a % of total loans | Allocated allowance | Allocated allowance as a % of total loans and leases | Loans category as a % of total loans | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(In millions of R$, except percentages) | (In millions of R$, except percentages) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Individuals | 14,425 | 2.7 | 39.7 | 14,830 | 2.9 | 38.9 | 14,790 | 3.0 | 37.7 | 14,717 | 3.1 | 39.5 | 13,385 | 3.0 | 41.1 | 19,453 | 3.3 | 41.0 | 14,425 | 2.7 | 39.7 | 14,830 | 2.9 | 38.9 | 14,790 | 3.0 | 37.7 | 14,717 | 3.1 | 39.5 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Credit card | 6,077 | 1.1 | 14.6 | 6,684 | 1.3 | 13.5 | 5,693 | 1.2 | 12.1 | 4,141 | 0.9 | 12.4 | 3,740 | 0.8 | 13.1 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Personal loans | 5,447 | 1.0 | 5.5 | 5,138 | 1.0 | 5.5 | 6,038 | 1.2 | 5.6 | 8,330 | 1.7 | 6.0 | 7,024 | 1.6 | 6.2 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Payroll loans | 2,279 | 0.5 | 8.8 | 2,368 | 0.5 | 9.0 | 2,284 | 0.5 | 9.1 | 1,319 | 0.3 | 9.6 | 1,107 | 0.2 | 9.0 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Vehicles | 523 | 0.1 | 3.0 | 547 | 0.1 | 2.9 | 675 | 0.1 | 3.2 | 874 | 0.2 | 4.2 | 1,469 | 0.3 | 6.4 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Mortgage loans | 99 | - | 7.8 | 93 | - | 8.0 | 100 | - | 7.7 | 53 | - | 7.3 | 45 | - | 6.4 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Corporate | 9,367 | 1.7 | 19.1 | 11,452 | 2.3 | 21.6 | 11,089 | 2.2 | 24.6 | 6,459 | 1.4 | 32.2 | 3,114 | 0.7 | 32.5 | 6,991 | 1.2 | 18.0 | 9,367 | 1.7 | 19.1 | 11,452 | 2.3 | 21.6 | 11,089 | 2.2 | 24.6 | 6,459 | 1.4 | 32.2 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Small and Medium Businesses | 4,532 | 0.8 | 12.8 | 5,404 | 1.1 | 12.1 | 6,366 | 1.3 | 12.1 | 4,809 | 1.0 | 13.9 | 5,158 | 1.1 | 15.2 | 4,443 | 0.8 | 14.7 | 4,532 | 0.8 | 12.8 | 5,404 | 1.1 | 12.1 | 6,366 | 1.3 | 12.1 | 4,809 | 1.0 | 13.9 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign Loans Latin America | 5,185 | 1.0 | 28.4 | 4,783 | 1.0 | 27.4 | 2,280 | 0.5 | 25.6 | 859 | 0.2 | 14.4 | 735 | 0.2 | 11.2 | 6,621 | 1.1 | 26.3 | 5,185 | 1.0 | 28.4 | 4,783 | 1.0 | 27.4 | 2,280 | 0.5 | 25.6 | 859 | 0.2 | 14.4 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Total | 33,509 | 6.2 | 100.0 | 36,469 | 7.3 | 100.0 | 34,525 | 7.0 | 100.0 | 26,844 | 5.7 | 100.0 | 22,392 | 4.9 | 100.0 | 37,508 | 6.4 | 100.0 | 33,509 | 6.2 | 100.0 | 36,469 | 7.3 | 100.0 | 34,525 | 7.0 | 100.0 | 26,844 | 5.7 | 100.0 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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(1) | Comprises Provision for Expected Loan for Financial Guarantees Pledged R$ |
(2) | Restated to take into account the effect of |
(3) | The consolidated financial information as of and for the |
Renegotiated loans include both loans for which the corresponding credit agreement’s original terms were amended (amendments) and new loans originated in order to settle past due contracts or transactions with the same client (restructured loans). Amendments and restructured loans usually reflect changes in contract terms, rates or payment conditions.
Renegotiated loans return tonon-performing andnon-accrual status when they are 60 days past due under the renegotiated terms, which typically corresponds to the borrower missing two or more payments.
The fact that a loan or lease has been renegotiated is also taken into consideration when determining the allowance for loan and lease losses after the renegotiation. The past performance and the payment history of the client and the transaction, including the probability of another default for renegotiated transactions, are considered in our risk models in order to determine the probability of default. This probability of default is generally higher than the probability assigned to similar transactions that have never been renegotiated. Another factor considered in determining the appropriate level of the allowance for loan and lease losses is the additional collateral to be offered by the debtor. The resulting allowance levels are compatible with the risk profile of each transaction.
Our renegotiated loan portfolio decreased to 3.0% of our total loan portfolio as of December 31, 2019, compared to 3.3% as of December 31, 2018. At the end of 2019, the ratio of the renegotiated portfolio to the allowance for loan and lease losses was 34.1% compared to 36.2% as of December 31, 2018.
Our renegotiated loan portfolio decreased to 3.3% of our total loan portfolio as of December 31, 2018, compared to 3.8% as of December 31, 2017. At the end of 2018, the ratio of the renegotiated portfolio to the allowance for loan and lease losses was 36.2% compared to 36.0% as of December 31, 2017.
Our renegotiated loan portfolio increased to 3.8% of our total loan portfolio as of December 31, 2017, compared to 3.6% as of December 31, 2016. At the end of 2017, the ratio of the renegotiated portfolio to the allowance for loan and lease losses was 36.0% compared to 35.2% as of December 31, 2016.
Our renegotiated loan portfolio increased to 3.6% of our total loan portfolio as of December 31, 2016, compared to 3.1% as of December 31, 2015. At the end of 2016, the ratio of the renegotiated portfolio to the allowance for loan and lease losses was 35.2% compared to 46.8% as of December 31, 2015. This portfolio increased in 2016 due to the deteriorating macroeconomic scenario, mainly in Brazil, specifically in the corporate segment, and small and medium business segment as shown below in the table “Renegotiated loan and lease operations”.
Our renegotiated loan portfolio increased to 3.1% of our total loan portfolio as of December 31, 2015, compared to 2.6% as of December 31, 2014. At the end of 2015, the ratio of the renegotiated portfolio to the allowance for loan and lease losses was 46.8% compared to 47.2% as of December 31, 2014. This portfolio increased in 2015 due to the deteriorating macroeconomic scenario, mainly in Brazil, specifically in the corporate segment, as shown below in the table “Renegotiated loan and lease operations”.
Since 2013, we maintain our policy for the recovery of overdue loans, including loans already written off as losses, and to reduce losses, we enhanced our collection and recovery initiatives. We also adopted a policy of stricter selectivity in origination of loans, which led to lower levels of delinquency and a decreased volume of renegotiated loans.
The tables below present an additional breakdown of renegotiated loans by portfolio, in segments and types, based on the type of modification, as of December 31, 2019, 2018 2017 and 2016:2017:
As of December 31, 2018 | ||||||||||||||||
Renegotiated loan and lease operations | Stage 1 | Stage 2 | Stage 3 | Total | ||||||||||||
(In millions of R$) | ||||||||||||||||
Individuals | 259 | 545 | 6,495 | 7,299 | ||||||||||||
Credit card | 114 | 155 | 9 | 278 | ||||||||||||
Personal loans | 18 | 272 | 6,356 | 6,646 | ||||||||||||
Payroll loans | 65 | 43 | 82 | 190 | ||||||||||||
Vehicles | 59 | 6 | 12 | 77 | ||||||||||||
Mortgage loans | 3 | 69 | 36 | 108 | ||||||||||||
Corporate | 43 | 767 | 3,906 | 4,716 | ||||||||||||
Small and medium businesses | 91 | 417 | 3,240 | 3,748 | ||||||||||||
Foreign loans - Latin America | 139 | 697 | 1,116 | 1,952 | ||||||||||||
Total renegotiated loan and lease operations | 532 | 2,426 | 14,757 | 17,715 | ||||||||||||
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As of December 31, 2017(1) | ||||||||||||||||
Renegotiated loan and lease operations | Stage 1 | Stage 2 | Stage 3 | Total | ||||||||||||
(In millions of R$) | ||||||||||||||||
Individuals | 303 | 565 | 7,309 | 8,177 | ||||||||||||
Credit card | 188 | 221 | 25 | 434 | ||||||||||||
Personal loans | 16 | 241 | 7,105 | 7,362 | ||||||||||||
Payroll loans | 35 | 42 | 120 | 197 | ||||||||||||
Vehicles | 63 | 6 | 24 | 93 | ||||||||||||
Mortgage loans | 1 | 55 | 35 | 91 | ||||||||||||
Corporate | 57 | 386 | 3,741 | 4,184 | ||||||||||||
Small and medium businesses | 65 | 461 | 4,031 | 4,557 | ||||||||||||
Foreign loans - Latin America | 82 | 550 | 1,234 | 1,866 | ||||||||||||
Total renegotiated loan and lease operations | 507 | 1,962 | 16,315 | 18,784 | ||||||||||||
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Renegotiated loan and lease operations | As of December 31, 2019 | |||||||
Stage 1 | Stage 2 | Stage 3 | Total | |||||
(In millions of R$) | ||||||||
Individuals | 220 | 683 | 7,267 | 8,170 | ||||
Corporate | 60 | 182 | 3,661 | 3,903 | ||||
Small and medium businesses | 87 | 469 | 2,913 | 3,469 | ||||
Foreign loans—Latin America | 223 | 643 | 1,263 | 2,129 | ||||
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Total renegotiated loan and lease operations | 590 | 1,977 | 15,104 | 17,671 | ||||
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Renegotiated loan and lease operations | As of December 31, 2018 | |||||||
Stage 1 | Stage 2 | Stage 3 | Total | |||||
(In millions of R$) | ||||||||
Individuals | 259 | 545 | 6,495 | 7,299 | ||||
Corporate | 43 | 767 | 3,906 | 4,716 | ||||
Small and medium businesses | 90 | 417 | 3,240 | 3,747 | ||||
Foreign loans—Latin America | 140 | 697 | 1,116 | 1,953 | ||||
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Total renegotiated loan and lease operations | 532 | 2,426 | 14,757 | 17,715 | ||||
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As of December 31, 2017(1) | ||||||||
Renegotiated loan and lease operations | Stage 1 | Stage 2 | Stage 3 | Total | ||||
(In millions of R$) | ||||||||
Individuals | 303 | 566 | 7,310 | 8,179 | ||||
Corporate | 57 | 386 | 3,740 | 4,183 | ||||
Small and medium businesses | 65 | 461 | 4,031 | 4,557 | ||||
Foreign loans—Latin America | 82 | 549 | 1,234 | 1,865 | ||||
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Total renegotiated loan and lease operations | 507 | 1,962 | 16,315 | 18,784 | ||||
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(1) | Restated to take into account the effect of |
As of December 31, 2016(1) | ||||||||||||||||
Renegotiated loan and lease operations | Stage 1 | Stage 2 | Stage 3 | Total | ||||||||||||
(In millions of R$) | ||||||||||||||||
Individuals | 140 | 683 | 8,190 | 9,013 | ||||||||||||
Credit card | 60 | 272 | 2 | 334 | ||||||||||||
Personal loans | 9 | 311 | 8,004 | 8,324 | ||||||||||||
Payroll loans | 37 | 48 | 95 | 180 | ||||||||||||
Vehicles | 33 | 10 | 61 | 104 | ||||||||||||
Mortgage loans | 1 | 42 | 28 | 71 | ||||||||||||
Corporate | 55 | 136 | 2,717 | 2,908 | ||||||||||||
Small and medium businesses | 23 | 254 | 4,336 | 4,613 | ||||||||||||
Foreign loans - Latin America | 41 | 451 | 934 | 1,426 | ||||||||||||
Total renegotiated loan and lease operations | 259 | 1,524 | 16,177 | 17,960 | ||||||||||||
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Renegotiated Loans
The following tables present an additional breakdown of renegotiated loans and leases by segment and class, as of December 31, 2019, 2018 2017 and 2016:2017:
As of December 31, 2018 | ||||||||||||||||||||
Renegotiated loan and lease operations | Impaired performing | Non-impaired performing | Impaired non-performing | Non-impaired non-performing | Total | |||||||||||||||
(In millions of R$) | ||||||||||||||||||||
Individuals | 3,367 | 672 | 3,129 | 131 | 7,299 | |||||||||||||||
Credit card | 7 | 267 | 2 | 2 | 278 | |||||||||||||||
Personal loans | 3,329 | 244 | 3,027 | 46 | 6,646 | |||||||||||||||
Payroll loans | 28 | 99 | 55 | 8 | 190 | |||||||||||||||
Vehicles | - | 57 | 12 | 8 | 77 | |||||||||||||||
Mortgage loans | 3 | 5 | 33 | 67 | 108 | |||||||||||||||
Corporate | 2,459 | 748 | 1,447 | 62 | 4,716 | |||||||||||||||
Small and medium businesses | 1,312 | 372 | 1,927 | 136 | 3,747 | |||||||||||||||
Foreign loans - Latin America | 619 | 711 | 497 | 126 | 1,953 | |||||||||||||||
Total renegotiated loan and lease operations | 7,757 | 2,503 | 7,000 | 455 | 17,715 | |||||||||||||||
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As of December 31, 2017(1) | ||||||||||||||||||||
Renegotiated loan and lease operations | Impaired performing | Non-impaired performing | Impaired non-performing | Non-impaired non-performing | Total | |||||||||||||||
(In millions of R$) | ||||||||||||||||||||
Individuals | 3,408 | 736 | 3,902 | 133 | 8,179 | |||||||||||||||
Credit card | 22 | 401 | 4 | 8 | 435 | |||||||||||||||
Personal loans | 3,325 | 207 | 3,780 | 51 | 7,363 | |||||||||||||||
Payroll loans | 60 | 66 | 60 | 11 | 197 | |||||||||||||||
Vehicles | - | 60 | 24 | 9 | 93 | |||||||||||||||
Mortgage loans | 1 | 2 | 34 | 54 | 91 | |||||||||||||||
Corporate | 2,639 | 329 | 1,101 | 114 | 4,183 | |||||||||||||||
Small and medium businesses | 1,445 | 365 | 2,586 | 161 | 4,557 | |||||||||||||||
Foreign loans - Latin America | 637 | 551 | 597 | 80 | 1,865 | |||||||||||||||
Total renegotiated loan and lease operations | 8,129 | 1,981 | 8,186 | 488 | 18,784 | |||||||||||||||
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Renegotiated loan and lease operations | As of December 31, 2019 | |||||||||||||||||||
Impaired performing | Non-impaired performig | Impaired non-performing | Non-impaired non-performing | Total | ||||||||||||||||
(In millions of R$) | ||||||||||||||||||||
Individuals | 3,659 | 749 | 3,608 | 154 | 8,170 | |||||||||||||||
Corporate | 2,619 | 195 | 1,042 | 47 | 3,903 | |||||||||||||||
Small and medium businesses | 1,352 | 410 | 1,561 | 146 | 3,469 | |||||||||||||||
Foreign loans—Latin America | 652 | 738 | 612 | 127 | 2,129 | |||||||||||||||
Total renegotiated loan and lease operations | 8,282 | 2,092 | 6,823 | 474 | 17,671 | |||||||||||||||
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Renegotiated loan and lease operations | As of December 31, 2018 | |||||||||||||||||||
Impaired performing | Non-impaired performing | Impaired non-performing | Non-impaired non-performing | Total | ||||||||||||||||
(In millions of R$) | ||||||||||||||||||||
Individuals | 3,367 | 672 | 3,129 | 131 | 7,299 | |||||||||||||||
Corporate | 2,459 | 748 | 1,447 | 62 | 4,716 | |||||||||||||||
Small and medium businesses | 1,312 | 372 | 1,927 | 136 | 3,747 | |||||||||||||||
Foreign loans—Latin America | 619 | 711 | 497 | 126 | 1,953 | |||||||||||||||
Total renegotiated loan and lease operations | 7,757 | 2,503 | 7,000 | 455 | 17,715 | |||||||||||||||
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As of December 31, 2017(1) | ||||||||||||||||||||
Renegotiated loan and lease operations | Impaired performing | Non-impaired performing | Impaired non-performing | Non-impaired non-performing | Total | |||||||||||||||
(In millions of R$) | ||||||||||||||||||||
Individuals | 3,408 | 736 | 3,902 | 133 | 8,179 | |||||||||||||||
Corporate | 2,639 | 329 | 1,101 | 114 | 4,183 | |||||||||||||||
Small and medium businesses | 1,445 | 365 | 2,586 | 161 | 4,557 | |||||||||||||||
Foreign loans—Latin America | 637 | 551 | 597 | 80 | 1,865 | |||||||||||||||
Total renegotiated loan and lease operations | 8,129 | 1,981 | 8,186 | 488 | 18,784 | |||||||||||||||
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(1) | Restated to take into account the effect of |
As of December 31, 2016(1) | ||||||||||||||||||||
Renegotiated loan and lease operations | Impaired performing | Non-impaired performing | Impaired non-performing | Non-impaired non-performing | Total | |||||||||||||||
(In millions of R$) | ||||||||||||||||||||
Individuals | 3,491 | 676 | 4,699 | 146 | 9,012 | |||||||||||||||
Credit card | 2 | 332 | - | - | 334 | |||||||||||||||
Personal loans | 3,456 | 237 | 4,548 | 83 | 8,324 | |||||||||||||||
Payroll loans | 32 | 72 | 63 | 12 | 179 | |||||||||||||||
Vehicles | - | 32 | 61 | 11 | 104 | |||||||||||||||
Mortgage loans | 1 | 3 | 27 | 40 | 71 | |||||||||||||||
Corporate | 2,085 | 163 | 632 | 29 | 2,909 | |||||||||||||||
Small and medium businesses | 1,866 | 198 | 2,470 | 79 | 4,613 | |||||||||||||||
Foreign loans - Latin America | 422 | 380 | 512 | 112 | 1,426 | |||||||||||||||
Total renegotiated loan and lease operations | 7,864 | 1,417 | 8,313 | 366 | 17,960 | |||||||||||||||
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Year Ended December 31, | Year Ended December 31, | |||||||||||||||||||||||||||||||||||||||
2018 | 2017(3) | 2016(3) | 2015(4) | 2014(4) | 2019 | 2018 | 2017(3) | 2016(3) | 2015(4) | |||||||||||||||||||||||||||||||
(In millions of R$, except percentages) | (In millions of R$, except percentages) | |||||||||||||||||||||||||||||||||||||||
Renegotiated loans(1)(2) | 17,715 | 18,784 | 17,960 | 14,932 | 11,572 | |||||||||||||||||||||||||||||||||||
Renegotiated loans(1) (2) | 17,671 | 17,715 | 18,784 | 17,960 | 14,932 | |||||||||||||||||||||||||||||||||||
Allowance for loan and lease losses | 6,414 | 6,756 | 6,315 | 6,991 | 5,459 | 6,027 | 6,414 | 6,756 | 6,315 | 6,991 | ||||||||||||||||||||||||||||||
Allowance for loan and lease losses/renegotiated loans (%) | 36.2 | 36.0 | 35.2 | 46.8 | 47.2 | 34.1 | 36.2 | 36.0 | 35.2 | 46.8 | ||||||||||||||||||||||||||||||
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(1) | Includes debt consolidation, deferment or any other arrangement that modifies the periods or conditions, of operations originally overdue. |
(2) | Renegotiated Loans Overdue over 30 days. |
(3) | Restated to take into account the effect of |
(4) | The consolidated financial information as of and for the |
Type of Loan Restructured Loans Agreements Total As of December 31, 2019 Total Renegotiated
Loans Total Allowance for
Loan Losses Allowance for Loan
Losses/Renegotiated
Loans (%) Total Redefaulted
Renegotiated
Loans(1) Redefaulted
Renegotiated
Loans (%) (In millions of R$, except percentages) 13,957 4,452 31.9 3,198 22.9 3,714 1,575 42.4 894 24.1 17,671 6,027 34.1 4,092 23.2
As of December 31, 2018 | ||||||||||||||||||||
Type of Loan | Total Renegotiated Loans | Total Allowance for Loan Losses | Allowance for Loan Losses/ Renegotiated Loans (%) | Total Redefaulted Renegotiated Loans(1) | Redefaulted Renegotiated Loans (%) | |||||||||||||||
(In millions of R$, except percentages) | ||||||||||||||||||||
Restructured Loans | 13,096 | 4,173 | 31.9 | 3,681 | 28.1 | |||||||||||||||
Agreements | 4,619 | 2,241 | 48.5 | 1,292 | 28.0 | |||||||||||||||
Total | 17,715 | 6,414 | 36.2 | 4,973 | 28.1 | |||||||||||||||
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(1) | Our redefaulted renegotiated loans are renegotiatedtransactions 60 days or more overdue. |
As of December 31, 2018 | ||||||||||||||||||||
Type of Loan | Total Renegotiated Loans | Total Allowance for Loan Losses | Allowance for Loan Losses/Renegotiated Loans (%) | Total Redefaulted Renegotiated Loans(1) | Redefaulted Renegotiated Loans (%) | |||||||||||||||
(In millions of R$, except percentages) | ||||||||||||||||||||
Restructured Loans | 13,096 | 4,173 | 31.9 | 3,681 | 28.1 | |||||||||||||||
Agreements | 4,619 | 2,241 | 48.5 | 1,292 | 28.0 | |||||||||||||||
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Total | 17,715 | 6,414 | 36.2 | 4,973 | 28.1 | |||||||||||||||
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(1) | Our redefaulted renegotiated loans are renegotiated transactions 60 days or more overdue. |
As of December 31, 2017(2) | ||||||||||||||||||||||||||||||||||||||||
Type of Loan | Total Renegotiated Loans | Total Allowance for Loan Losses | Allowance for Loan Losses/ Renegotiated Loans (%) | Total Redefaulted Renegotiated Loans(1) | Redefaulted Renegotiated Loans (%) | As of December 31, 2017(2) | ||||||||||||||||||||||||||||||||||
(In millions of R$, except percentages) | Total Renegotiated Loans | Total Allowance for Loan Losses | Allowance for Loan Losses/Renegotiated Loans (%) | Total Redefaulted Renegotiated Loans(1) | Redefaulted Renegotiated Loans (%) | |||||||||||||||||||||||||||||||||||
(In millions of R$, except percentages) | ||||||||||||||||||||||||||||||||||||||||
Restructured Loans | 15,011 | 5,102 | 34.0 | 4,740 | 31.6 | 15,011 | 5,102 | 34.0 | 4,740 | 31.6 | ||||||||||||||||||||||||||||||
Agreements | 3,773 | 1,654 | 43.8 | 693 | 18.4 | 3,773 | 1,654 | 43.8 | 693 | 18.4 | ||||||||||||||||||||||||||||||
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Total | 18,784 | 6,756 | 36.0 | 5,433 | 28.9 | 18,784 | 6,756 | 36.0 | 5,433 | 28.9 | ||||||||||||||||||||||||||||||
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(1) | Our redefaulted renegotiated loans are |
(2) | Restated to take into account the effect of |
As of December 31, 2016(2) | ||||||||||||||||||||
Type of Loan | Total Renegotiated Loans | Total Allowance for Loan Losses | Allowance for Loan Losses/ Renegotiated Loans (%) | Total Redefaulted Renegotiated Loans(1) | Redefaulted Renegotiated Loans (%) | |||||||||||||||
(In millions of R$, except percentages) | ||||||||||||||||||||
Restructured Loans | 15,887 | 5,605 | 35.3 | 5,348 | 33.7 | |||||||||||||||
Agreements | 2,073 | 710 | 34.2 | 372 | 17.9 | |||||||||||||||
Total | 17,960 | 6,315 | 35.2 | 5,720 | 31.8 | |||||||||||||||
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The table below presents the changes in our loan and lease portfolio with loss event, including the changes of the renegotiated loans and leases with loss event related to each year as of December 31, 2019, 2018 2017 and 2016:2017:
Impaired loans | 2018 | 2017(1) | 2016(1) | 2019 | 2018 | 2017(1) | ||||||||||||||||||
(In millions of R$) | (In millions of R$) | |||||||||||||||||||||||
Balance at the beginning of the period | 44,439 | 45,455 | 35,338 | 39,571 | 44,439 | 45,455 | ||||||||||||||||||
(+) Loan operations added | 27,215 | 30,861 | 42,168 | 32,958 | 27,215 | 30,861 | ||||||||||||||||||
(-) Loans removed due to write-off | (13,547 | ) | (16,437 | ) | (19,974 | ) | (14,299 | ) | (13,547 | ) | (16,437 | ) | ||||||||||||
(-) Loans removed due to total or partial pay-off | (18,536 | ) | (15,440 | ) | (12,077 | ) | (16,248 | ) | (18,536 | ) | (15,440 | ) | ||||||||||||
Balance at the end of the period | 39,571 | 44,439 | 45,455 | 41,982 | 39,571 | 44,439 | ||||||||||||||||||
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(1) | Restated to take into account the effect of |
Please see “Note 10 – Loan Operations and Lease Operations Portfolio”lease operations portfolio” to our audited consolidated financial statements for further details.
Cross border outstanding
Cross border outstanding are monetary assets which are denominated innon-local currency and exceeded 1% of our total assets in the case of transactions with foreign clients entered into by our subsidiaries in the United Kingdom, the Cayman Islands, the Bahamas and Chile. The aggregate cross border outstanding breakdown of these subsidiaries for the periods indicated below is as follows:
Cross border outstanding | 12/31/2018 | % | 12/31/2017 | % | 12/31/2016 | % | 12/31/2019 | % | 12/31/2018 | % | 12/31/2017 | % | ||||||||||||||||||||||||||||||||||||
(In millions of R$, except percentages) | (In millions of R$, except percentages) | |||||||||||||||||||||||||||||||||||||||||||||||
Cash and deposits on demand | 32,104 | 2.1 | 42,570 | 3.0 | 41,234 | 3.1 | 57,735 | 3.5 | 32,104 | 2.1 | 42,570 | 3.0 | ||||||||||||||||||||||||||||||||||||
Interbank deposits | 97,069 | 6.3 | 115,396 | 8.0 | 97,934 | 7.2 | 98,175 | 6.0 | 97,069 | 6.3 | 115,396 | 8.0 | ||||||||||||||||||||||||||||||||||||
Securities purchased under agreements to resell | 17,453 | 1.1 | 17,954 | 1.3 | 22,267 | 1.6 | 16,777 | 1.0 | 17,453 | 1.1 | 17,954 | 1.3 | ||||||||||||||||||||||||||||||||||||
Central Bank compulsory deposits | 2 | 0.0 | 1,966 | 0.1 | 266 | 0.0 | 87 | 0.0 | 2 | 0.0 | 1,966 | 0.1 | ||||||||||||||||||||||||||||||||||||
Financial assets held for trading and designated at fair value through profit or loss | 28,691 | 1.8 | 9,844 | 0.7 | 12,121 | 0.9 | 28,051 | 1.7 | 28,691 | 1.8 | 9,844 | 0.7 | ||||||||||||||||||||||||||||||||||||
Derivatives | 27,638 | 1.8 | 14,897 | 1.0 | 10,153 | 0.8 | 41,666 | 2.6 | 27,638 | 1.8 | 14,897 | 1.0 | ||||||||||||||||||||||||||||||||||||
Financial assets at Fair Value Through Other Comprehensive Income | 66,985 | 4.3 | 59,387 | 4.1 | 47,002 | 3.5 | 40,423 | 2.5 | 66,985 | 4.3 | 59,387 | 4.1 | ||||||||||||||||||||||||||||||||||||
Financial assets at amortized cost | 19,760 | 1.3 | 9,633 | 0.7 | 12,595 | 0.9 | 19,236 | 1.2 | 19,760 | 1.3 | 9,633 | 0.7 | ||||||||||||||||||||||||||||||||||||
Loan and lease operations | 63,460 | 4.1 | 51,275 | 3.6 | 59,667 | 4.4 | 68,370 | 4.2 | 63,460 | 4.1 | 51,275 | 3.6 | ||||||||||||||||||||||||||||||||||||
Total outstanding | 353,162 | 22.8 | 322,922 | 22.5 | 303,239 | 22.4 | 370,520 | 22.7 | 353,162 | 22.8 | 322,922 | 22.5 | ||||||||||||||||||||||||||||||||||||
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The aggregate cross border outstanding breakdown by country of these subsidiaries for the periods indicated below is as follows:
Cross border outstanding by country* | 12/31/2018 | % | 12/31/2017 | % | 12/31/2016 | % | 12/31/2019 | % | 12/31/2018 | % | 12/31/2017 | % | ||||||||||||||||||||||||||||||||||||
(In millions of R$, except percentages) | (In millions of R$, except percentages) | |||||||||||||||||||||||||||||||||||||||||||||||
Bahamas | 185,931 | 12.0 | 164,441 | 11.5 | 165,341 | 12.2 | 227,561 | 13.9 | 185,931 | 12.0 | 164,441 | 11.5 | ||||||||||||||||||||||||||||||||||||
Cayman | 113,555 | 7.3 | 119,484 | 8.3 | 106,581 | 7.9 | 91,226 | 5.6 | 113,555 | 7.3 | 119,484 | 8.3 | ||||||||||||||||||||||||||||||||||||
United Kingdom | 30,842 | 2.0 | 21,319 | 1.5 | 16,557 | 1.2 | 28,445 | 1.8 | 30,842 | 2.0 | 21,319 | 1.5 | ||||||||||||||||||||||||||||||||||||
Chile | 22,834 | 1.5 | 17,678 | 1.2 | 14,760 | 1.1 | 23,288 | 1.4 | 22,834 | 1.5 | 17,678 | 1.2 | ||||||||||||||||||||||||||||||||||||
Total outstanding | 353,162 | 22.8 | 322,922 | 22.5 | 303,239 | 22.4 | 370,520 | 22.7 | 353,162 | 22.8 | 322,922 | 22.5 | ||||||||||||||||||||||||||||||||||||
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(*) Uruguay is the only country whose outstandings are between 0.75% and 1% of our total assets.The aggregate amounts of this country for each period are disclosed as follows:
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Uruguay | 13,932 | 0.9 | 11,355 | 0.79 | 11,634 | 0.86 |
(*) | Uruguay is the only country whose outstandings are between 0.75% and 1% of our total assets. The aggregate amounts of this country for each period are disclosed as follows: |
Uruguay | 15,455 | 0.9 | 13,932 | 0.9 | 11,355 | 0.79 |
Liabilities
Funding
Main sources
Our current funding strategy is to continue to use all of our sources of funds in accordance with their costs and availability and our general asset and liability management strategy. In order to fund our operations, we intensified the use of the liquidity generated by savings deposits, interbank deposits, debt in the interbank market and debt in the institutional market during 2019, 2018 2017 and 2016.2017.
We also used Brazilian debentures subject to repurchase as a source of funding, reported as deposits received under securities repurchase agreements and offered to institutional clients as well as private banking, corporate banking and retail clients. This funding is designed to provide increased profitability through higher spreads in our savings deposits and higher fees earned on market funds.
Our ability to obtain funding depends on several factors, including credit ratings, general economic conditions and investors’ perception of emerging markets in general and of Brazil (particularly, current political and economic conditions in Brazil and government regulations for foreign currency funding).
Part of our long-term debt provides for the advance payment of the outstanding principal balance upon the occurrence of certain facts, as is customary for long-term financing agreements. As of December 31, 2018,2019, none of these events, including default events and non compliancenon-compliance with any financial covenant, had occurred, and we have no reason to believe that any of these events are likely to occur in 2019.2020.
Our main sources of funding are our deposits, which are split into demand deposits, savings deposits, time deposits and interbank deposits. As of December 31, 2018,2019, total deposits were R$463,424507,060 million, which represented 45.3%48.7% of total funding. As of December 31, 2018, total deposits amounted to R$463,424 million, representing 45.4% of total funding. As of December 31, 2017, total deposits amounted to R$402,938 million, representing 42.9% of total funding. As of December 31, 2016, total deposits amounted to R$329,414 million, representing 36.4% of our total funding. Our time deposits represent one of our major sources of funding which, as of December 31, 2019, 2018 2017 and 20162017 accounted for 24.6%26.6%, 22.6%24.6% and 17.3%22.6% of total funding, respectively.
The table below shows the breakdown of our main sources of funds as of December 31, 2019, 2018 2017 and 2016:2017:
Breakdown of the main sources of funds | 2018 | % of total funding | 2017(*) | % of total funding | 2016(*) | % of total funding | 2019 | % of total funding | 2018 | % of total funding | 2017(*) | % of total funding | ||||||||||||||||||||||||||||||||||||
(In millions of R$, except percentages) | (In millions of R$, except percentages) | |||||||||||||||||||||||||||||||||||||||||||||||
Deposits | 463,424 | 45.4 | 402,938 | 42.9 | 329,414 | 36.5 | 507,060 | 48.7 | 463,424 | 45.4 | 402,938 | 42.9 | ||||||||||||||||||||||||||||||||||||
Demand deposits | 72,581 | 7.1 | 68,973 | 7.3 | 61,133 | 6.8 | 82,306 | 7.9 | 72,581 | 7.1 | 68,973 | 7.3 | ||||||||||||||||||||||||||||||||||||
Savings accounts | 136,865 | 13.4 | 119,980 | 12.8 | 108,250 | 12.0 | 144,558 | 13.9 | 136,865 | 13.4 | 119,980 | 12.8 | ||||||||||||||||||||||||||||||||||||
Time deposits | 251,300 | 24.6 | 211,800 | 22.6 | 156,274 | 17.3 | 277,166 | 26.6 | 251,300 | 24.6 | 211,800 | 22.6 | ||||||||||||||||||||||||||||||||||||
Interbank | 2,675 | 0.3 | 2,182 | 0.2 | 3,757 | 0.4 | 3,021 | 0.3 | 2,675 | 0.3 | 2,182 | 0.2 | ||||||||||||||||||||||||||||||||||||
Other deposits | 3 | 0,0 | 3 | 0,0 | - | 0,0 | 9 | 0.0 | 3 | 0.0 | 3 | 0.0 | ||||||||||||||||||||||||||||||||||||
Securities sold under repurchase agreements | 330,237 | 32.3 | 312,634 | 33.3 | 349,164 | 38.6 | 256,583 | 24.6 | 330,237 | 32.3 | 312,634 | 33.3 | ||||||||||||||||||||||||||||||||||||
Interbank market debt | 134,670 | 13.2 | 124,587 | 13.4 | 129,648 | 14.3 | ||||||||||||||||||||||||||||||||||||||||||
Interbank market funds | 174,862 | 16.7 | 134,670 | 13.2 | 124,587 | 13.4 | ||||||||||||||||||||||||||||||||||||||||||
Real estate credit bills | 9,546 | 0.9 | 18,525 | 2.0 | 19,179 | 2.1 | 7,635 | 0.7 | 9,546 | 0.9 | 18,525 | 2.0 | ||||||||||||||||||||||||||||||||||||
Agribusiness credit bills | 18,013 | 1.8 | 15,101 | 1.6 | 15,442 | 1.7 | 21,204 | 2.0 | 18,013 | 1.8 | 15,101 | 1.6 | ||||||||||||||||||||||||||||||||||||
Financial credit bills | 37,928 | 3.7 | 27,691 | 3.0 | 19,566 | 2.2 | 65,433 | 6.3 | 37,928 | 3.7 | 27,691 | 3.0 | ||||||||||||||||||||||||||||||||||||
Guaranteed real state notes | 1,227 | 0.1 | - | 0,0 | - | 0,0 | ||||||||||||||||||||||||||||||||||||||||||
Guaranteed real State notes | 4,320 | 0.4 | 1,227 | 0.1 | — | 0.0 | ||||||||||||||||||||||||||||||||||||||||||
Import and export Financing | 50,050 | 4.9 | 39,089 | 4.2 | 45,633 | 5.0 | 64,622 | 6.2 | 50,050 | 4.9 | 39,089 | 4.2 | ||||||||||||||||||||||||||||||||||||
Onlending-domestic | 17,906 | 1.8 | 24,181 | 2.6 | 29,828 | 3.3 | 11,648 | 1.1 | 17,906 | 1.8 | 24,181 | 2.6 | ||||||||||||||||||||||||||||||||||||
Institutional market debt | 93,974 | 9.1 | 98,482 | 10.4 | 96,239 | 10.6 | ||||||||||||||||||||||||||||||||||||||||||
Institutional market funds | 104,244 | 10.0 | 93,974 | 9.1 | 98,482 | 10.4 | ||||||||||||||||||||||||||||||||||||||||||
Subordinated debt | 49,313 | 4.8 | 52,696 | 5.5 | 57,420 | 6.3 | 59,462 | 5.7 | 49,313 | 4.8 | 52,696 | 5.5 | ||||||||||||||||||||||||||||||||||||
Foreign borrowings through securities | 41,863 | 4.0 | 41,400 | 4.4 | 33,583 | 3.7 | ||||||||||||||||||||||||||||||||||||||||||
Structured Operations Certificates | 2,798 | 0.3 | 4,386 | 0.5 | 5,236 | 0.6 | ||||||||||||||||||||||||||||||||||||||||||
Obligations on securities abroad | 43,672 | 4.2 | 41,863 | 4.0 | 41,400 | 4.4 | ||||||||||||||||||||||||||||||||||||||||||
Raisings through Structured Operations Certificates | 1,110 | 0.1 | 2,798 | 0.3 | 4,386 | 0.5 | ||||||||||||||||||||||||||||||||||||||||||
Total | 1,022,305 | 100.0 | 938,641 | 100.0 | 904,465 | 100.0 | 1,042,749 | 100.0 | 1,022,305 | 100.0 | 938,641 | 100.0 | ||||||||||||||||||||||||||||||||||||
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(*) | Restated to take into account the effect of |
Deposits by maturity
The table below shows the maturity profile of our deposits as of December 31, 2019, 2018 2017 and 2016:2017:
Deposits by maturity | 2018 | 2019 | ||||||||||||||||||||||||||||||||||||||
0-30 days | 31-180 days | 181-365 days | Over 365 days | Total | ||||||||||||||||||||||||||||||||||||
0-30 days | 31-180 days | 181-365 days | Over 365 days | Total | ||||||||||||||||||||||||||||||||||||
(In millions of R$) | (In millions of R$) | |||||||||||||||||||||||||||||||||||||||
Non-interest bearing deposits | 72,584 | - | - | - | 72,584 | 82,315 | — | — | — | 82,315 | ||||||||||||||||||||||||||||||
Demand deposits | 72,581 | 72,581 | 82,306 | — | — | — | 82,306 | |||||||||||||||||||||||||||||||||
Other deposits | 3 | 3 | 9 | — | — | — | 9 | |||||||||||||||||||||||||||||||||
Interest bearing deposits | 176,329 | 36,857 | 22,062 | 155,592 | 390,840 | 190,131 | 38,873 | 22,878 | 172,863 | 424,745 | ||||||||||||||||||||||||||||||
Savings accounts | 136,865 | - | - | - | 136,865 | 144,558 | — | — | — | 144,558 | ||||||||||||||||||||||||||||||
Time deposits | 37,784 | 36,211 | 21,919 | 155,386 | 251,300 | 44,855 | 36,928 | 22,675 | 172,708 | 277,166 | ||||||||||||||||||||||||||||||
Interbanks | 1,680 | 646 | 143 | 206 | 2,675 | 718 | 1,945 | 203 | 155 | 3,021 | ||||||||||||||||||||||||||||||
Total | 248,913 | 36,857 | 22,062 | 155,592 | 463,424 | 272,446 | 38,873 | 22,878 | 172,863 | 507,060 | ||||||||||||||||||||||||||||||
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Deposits by maturity | 2017 | 2018 | ||||||||||||||||||||||||||||||||||||||
0-30 days | 31-180 days | 181-365 days | Over 365 days | Total | ||||||||||||||||||||||||||||||||||||
0-30 days | 31-180 days | 181-365 days | Over 365 days | Total | ||||||||||||||||||||||||||||||||||||
(In millions of R$) | (In millions of R$) | |||||||||||||||||||||||||||||||||||||||
Non-interest bearing deposits | 68,976 | - | - | - | 68,976 | 72,584 | — | — | — | 72,584 | ||||||||||||||||||||||||||||||
Demand deposits | 68,973 | 68,973 | 72,581 | — | — | — | 72,581 | |||||||||||||||||||||||||||||||||
Other deposits | 3 | 3 | 3 | — | — | — | 3 | |||||||||||||||||||||||||||||||||
Interest bearing deposits | 147,867 | 33,258 | 23,238 | 129,599 | 333,962 | 176,329 | 36,857 | 22,062 | 155,592 | 390,840 | ||||||||||||||||||||||||||||||
Savings accounts | 119,980 | - | - | - | 119,980 | 136,865 | — | — | — | 136,865 | ||||||||||||||||||||||||||||||
Time deposits | 27,799 | 32,350 | 22,569 | 129,082 | 211,800 | 37,784 | 36,211 | 21,919 | 155,386 | 251,300 | ||||||||||||||||||||||||||||||
Interbanks | 88 | 908 | 669 | 517 | 2,182 | 1,680 | 646 | 143 | 206 | 2,675 | ||||||||||||||||||||||||||||||
Total | 216,843 | 33,258 | 23,238 | 129,599 | 402,938 | 248,913 | 36,857 | 22,062 | 155,592 | 463,424 | ||||||||||||||||||||||||||||||
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Deposits by maturity | 2016 | 2017 | ||||||||||||||||||||||||||||||||||||||
0-30 days | 31-180 days | 181-365 days | Over 365 days | Total | ||||||||||||||||||||||||||||||||||||
(In millions of R$) | 0-30 days | 31-180 days | 181-365 days | Over 365 days | Total | |||||||||||||||||||||||||||||||||||
(In millions of R$) | ||||||||||||||||||||||||||||||||||||||||
Non-interest bearing deposits | 61,133 | - | - | - | 61,133 | 68,976 | — | — | — | 68,976 | ||||||||||||||||||||||||||||||
Demand deposits | 61,133 | - | - | - | 61,133 | 68,973 | — | — | — | 68,973 | ||||||||||||||||||||||||||||||
Other deposits | 3 | — | — | — | 3 | |||||||||||||||||||||||||||||||||||
Interest bearing deposits | 139,982 | 30,166 | 17,734 | 80,399 | 268,281 | 147,867 | 33,258 | 23,238 | 129,599 | 333,962 | ||||||||||||||||||||||||||||||
Savings accounts | 108,250 | - | - | - | 108,250 | 119,980 | — | — | — | 119,980 | ||||||||||||||||||||||||||||||
Time deposits | 30,555 | 28,248 | 17,109 | 80,362 | 156,274 | 27,799 | 32,350 | 22,569 | 129,082 | 211,800 | ||||||||||||||||||||||||||||||
Interbanks | 1,177 | 1,918 | 625 | 37 | 3,757 | 88 | 908 | 669 | 517 | 2,182 | ||||||||||||||||||||||||||||||
Total | 201,115 | 30,166 | 17,734 | 80,399 | 329,414 | 216,843 | 33,258 | 23,238 | 129,599 | 402,938 | ||||||||||||||||||||||||||||||
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The table below sets forth the maturity of outstanding time deposits with balances in excess of US$100,000 (or its equivalent) issued by us as of December 31, 2019, 2018 2017 and 2016:2017:
(In millions of R$) | 2018 | 2017 | 2016 | 2019 | 2018 | 2017 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Domestic | Foreign | Total | Domestic | Foreign | Total | Domestic | Foreign | Total | Domestic | Foreign | Total | Domestic | Foreign | Total | Domestic | Foreign | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Maturity within three months | 2,415 | 46,757 | 49,172 | 37,622 | 37,622 | 30,560 | 30,560 | 2,826 | 45,663 | 48,489 | 2,415 | 46,757 | 49,172 | – | 37,622 | 37,622 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Maturity after three months to six months | 1,750 | 18,810 | 20,560 | 13,541 | 13,541 | 11,124 | 11,124 | 1,716 | 32,547 | 34,263 | 1,750 | 18,810 | 20,560 | – | 13,541 | 13,541 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Maturity after six months to twelve months | 5,045 | 24,830 | 29,875 | 15,484 | 15,484 | 12,509 | 12,509 | 5,782 | 16,493 | 22,275 | 5,045 | 24,830 | 29,875 | – | 15,484 | 15,484 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Maturity after twelve months | 82,072 | 9,259 | 91,331 | 58,561 | 8,657 | 67,218 | 23,085 | 12,082 | 35,167 | 89,529 | 8,446 | 97,975 | 82,072 | 9,259 | 91,331 | 58,561 | 8,657 | 67,218 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total time deposits in excess of US$100,000 | 91,282 | 99,656 | 190,938 | 58,561 | 75,304 | 133,865 | 23,085 | 66,275 | 89,360 | 99,853 | 103,149 | 203,002 | 91,282 | 99,656 | 190,938 | 58,561 | 75,304 | 133,865 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
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The following table sets forth the mix of the individual and corporate time deposits divided among our retail, Itaú Personnalité, middle market and corporate markets (each expressed as a percentage of total time deposits) as of December 31, 2019, 2018 2017 and 2016:2017:
2018 | 2017 | 2016 | 2019 | 2018 | 2017 | |||||||||||||||||||
(%) | (%) | |||||||||||||||||||||||
Retail | 10.5 | 11.6 | 8.1 | 11.3 | 10.5 | 11.6 | ||||||||||||||||||
Itaú Personnalité | 28.8 | 23.4 | 14.3 | 27.3 | 28.8 | 23.4 | ||||||||||||||||||
Middle market | 27.9 | 24.5 | 39.7 | 29.2 | 27.9 | 24.5 | ||||||||||||||||||
Corporate | 31.0 | 38.2 | 32.5 | 31.4 | 31.0 | 38.2 | ||||||||||||||||||
Institutional | 1.8 | 2.3 | 5.4 | 0.8 | 1.8 | 2.3 | ||||||||||||||||||
Total | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | ||||||||||||||||||
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Other sources
We also act as a financial agent in borrowing funds from BNDES and FINAME, and lending such funds at a spread determined by the Brazilian government to targeted sectors of the economy. We obtain U.S. dollar-denominated lines of credit from our affiliates, including Itaú Unibanco Holding – Grand Cayman branch, Banco Itaú Chile and Itaú BBA S.A. – Nassau branch to provide trade finance funding for Brazilian companies. For further details on domestic lending and import and export financing, please see “Note 17 – Securities Sold under Repurchase Agreements and Interbank and Institutional Market Debts”Funds” to our audited consolidated financial statements.
Short-term borrowings
Short-term borrowings are included in our balance sheet under the “Securities sold under repurchase agreement” line item. The main category for short-term borrowings is “Deposits Received under Securities Repurchase Agreements with Own and Third-Party Financial Assets”. The table below shows our short-term borrowings as of December 31, 2019, 2018 2017 and 2016:2017:
As of December 31, | As of December 31, | |||||||||||||||||||||||
Securities sold under repurchase agreements | 2018 | 2017 | 2016 | 2019 | 2018 | 2017 | ||||||||||||||||||
(In millions of R$, except percentages) | (In millions of R$, except percentages) | |||||||||||||||||||||||
Amount outstanding | 330,237 | 312,634 | 349,164 | 256,583 | 330,237 | 312,634 | ||||||||||||||||||
Maximum amount outstanding during the period | 332,297 | 346,518 | 358,781 | 330,237 | 332,297 | 346,518 | ||||||||||||||||||
Weighted average interest rate at period-end (%) | 6.7 | 9.4 | 12.1 | 5.3 | 6.7 | 9.4 | ||||||||||||||||||
Average amount outstanding during period | 308,306 | 328,721 | 339,416 | 299,225 | 308,306 | 328,721 | ||||||||||||||||||
Weighted average interest rate (%) | 6.5 | 7.0 | 11.9 | 4.0 | 6.5 | 7.0 | ||||||||||||||||||
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4C. | Organizational Structure |
We are a financial holding company controlled by IUPAR, a holding company jointly controlled by Itaúsa and E. Johnston. Itaúsa and Cia. E. Johnston. Itaúsa is controlled by members of the Egydio de Souza Aranha family, and Cia. E. Johnston is controlled by members of the Moreira Salles family. See “Item 7A. Major Stockholders” for further information. For further information about our significant subsidiaries as of December 31, 2018,2019, see Exhibit 8.1 to this annual report.
4D. | Property, Plant and Equipment |
As of December 31, 2018,31.2019, we owned and leased our principal administrative offices, which include office buildings in 10 different addresses, comprising a total area of 446,050443.165 square meters, located primarily in São Paulo, Brazil. Such offices include our head office, and a number of other administrative buildings, where administrative functions are performed, such as commercial departments, back offices, wholesale and investment bank activities, and also our data processing center.
We also lease part of our administrative offices and most of our bank branches at competitive market prices through renewable leases with terms endingthat expire from the firstsecond half of 20182019 (currently undergoingunder renewal under similar terms and conditions) tountil the first half of 2037.
2048. As of December 31, 2018,2019, we owned approximately 32%31% of our administrative offices and branches (including electronic service points, banking sites and parking lots) and leased approximately 68%69%.
ITEM 4A. | UNRESOLVED STAFF COMMENTS |
None.
ITEM 5. | OPERATING AND FINANCIAL REVIEW AND PROSPECTS |
The following discussion should be read in conjunction with our consolidated audited consolidated financial statements and accompanying notes and other financial information included elsewhere in this annual report, and in conjunction with the information included under “Item 3A. Selected Financial Data” and “Item 4B. Business Overview – Selected Statistical Information.” The following discussion contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from these discussed in forward-looking statements as a result of various factors, including those set in forth in “Forward-Looking Statements” and “Item 3D. Risk Factors.”
5A. | Operating Results |
Factors Affecting Our Results of Operations
Our results of operations are affected by, among others, the following factors:
Macroeconomic Context
Global Context
Global economic activity has slowed somewhat, but continuedis expected to perform well. U.S. realenter a broad recession in 2020 as a result of theCOVID-19 pandemic and the measures taken to contain the pandemic. We have revised our GDP has acceleratedgrowth forecasts to 2.9%-1.1%, from the previous-0.4%, at the global level; to 2.5% from 3.3% in China; to-3.2% from-2.2% in Europe; to-1.5% from 0.1% in the year ended December 31, 2018, after expanding atU.S.; and to-3.5% from-2.2% in Latin America.
Governments and central banks around the world announced a rateseries of 2.2% in 2017. However,stimulus measures to provide support against the GDP growth of the Eurozone, Japan, China and other emerging markets has been gradually slowing.
In the Eurozone, real GDP growth decelerated to 1.8% in 2018, after expanding at a rate of 2.4% in 2017. Political uncertainty in the region remains high with government instability in the major economies and Brexit negotiations. Immigration continues to be a longer-term issue for the region.
crisis. The U.S. Federal Reserve has raisedcut the target range for the Federal Funds Rate nine times sinceback to zero, resumed the Federal Open Market Committee meetingasset purchase program and reintroduced a series of facilities adopted in December 2015. In addition, the Federal Open Market Committee has been reducing its balance sheet by allowing its portfolio of U.S. treasury securities and U.S government agency debt securities to mature without replacing them. The U.S. economic outlook remains positive, but tighter monetary and financial conditions suggest that U.S. GDP growth may decelerate in 2019. As such, the Federal Open Market Committee has stated that it will be patient before deciding to make further adjustments to its monetary policy stance.
International capital flows have become more available to emerging markets sincemid-2016 with better balance of the risksresponse to the world economic outlook, as some emerging markets improved their economic fundamentals2008 financial crisis. The European Central Bank announced an additional asset purchases program and commodity prices stabilized. However, U.S.-China trade negotiations could lead to a sharper slowdown in China’s growth, European political uncertainty could lead to a recession in Europe, and Turkey and Argentina still need reforms amid fragile political environments.
Supported by solid domestic demand,eased the economic expansion in the U.S. is expected to continue at a moderate pace, according to the Surveycriteria of Professional Forecasters issued by the Federal Reserve Bank of Philadelphia, given the (i) accommodative monetary andits refinancing operations. Further, various countries have announced substantial fiscal policies; (ii) optimistic sentiment among consumers and businesses, according to the January 2019 survey data published by the Conference Board and the Institute for Supply Management, respectively; and (iii) a healthy labor market, with net job increases averaging 234,000 per month in the twelve months ended January 31, 2019 and the U.S. unemployment rate of 4.0% in January 2019.
China’s real GDP grew by 6.6% in 2018, down 0.2 percentage points compared to 6.8% in 2017. A trade deal with the U.S. (if implemented) and fiscal and monetary stimuli are expected to stabilizestimulus packages that should foster growth in the second quarterhalf of 2019.the year.
TheCOVID-19 pandemic and, to a lesser extent, lower oil prices are driving a sharp deterioration in asset prices in emerging markets, which should lead to a sharp tightening of international capital flows.
In 2019, China’s real GDP growth decreased to 6.1%, down from 6.7% in 2018. We forecast China’s real GDP growth rate at 2.5% in 2020, due to the COVID-19 pandemic.
Latin America Context
TheCOVID-19 pandemic and, to a lesser extent, lower oil prices are still driving a sharp deterioration in asset prices in Latin America. Economic growth remains fragileactivity in the region with Chile and Peru performing better than the other economies of the region. Still, given the trade openness of both economies, it is unlikely that the decoupling from the rest of the globe will be sustained. Mexico’s economy is also losing momentum due to weaker growth in the U.S. In Argentina, the recession remains deep,likely decrease by 3.5% this year, as a result of lower real wages, tight macro policies and weak agriculture production.
Below-potential growth combined with a looser monetary policy stance by the US Fedsocial distancing measures are expected to lead central bankscause GDP to decrease sharply in the regionsecond quarter. High public debt levels should limit fiscal responses, but countries seem resigned to postpone interestlive with higher debt levels for some time and further monetary policy loosening is underway. Even though theCOVID-19 pandemic initially represents a supply shock, monetary policy is being used to increase the probability that demand normalizes once the worst has passed. However, the sharp depreciation of currencies in Latin America bars an even more aggressive and rapid response. Even so, further rate hikes and we do not expect interest rates to change during the first half of 2019.cuts are expected.
The table below shows the real GDP growth rates in seven Latin American countries as of and for the yearstwelve months ended December 31, 2019, 2018, 2017, 2016, 2015 and 2014,2015, except as otherwise indicated.
Real GDP Growth | As of and for the Year Ended December 31, | As of and for the Year Ended December 31, | ||||||||||||||||||||||||||||||||||||||
2018 | 2017 | 2016 | 2015 | 2014 | 2019 | 2018 | 2017 | 2016 | 2015 | |||||||||||||||||||||||||||||||
(%) | (%) | |||||||||||||||||||||||||||||||||||||||
Argentina(1) | (0.1 | )* | 2.9 | (1.8 | ) | 2.7 | (2.5 | ) | (3.4 | )* | (2.5 | ) | 2.7 | (2.1 | ) | 2.7 | ||||||||||||||||||||||||
Chile(2) | 4.0 | 1.5 | 1.3 | 2.3 | 1.8 | 1.1 | 3.9 | 1.2 | 1.7 | 2.3 | ||||||||||||||||||||||||||||||
Colombia(3) | 2.7 | 1.4 | 2.1 | 3.0 | 4.7 | 3.3 | 2.5 | 1.4 | 2.1 | 3.0 | ||||||||||||||||||||||||||||||
Mexico(4) | 2.0 | 2.0 | 2.9 | 3.3 | 2.8 | -0.1 | 2.1 | 2.1 | 2.9 | 3.3 | ||||||||||||||||||||||||||||||
Paraguay(5) | 4.6 | * | 4.8 | 4.3 | 3.1 | 4.9 | 0.0 | 3.4 | 5.0 | 4.3 | 3.1 | |||||||||||||||||||||||||||||
Peru(6) | 4.0 | 2.5 | 4.0 | 3.3 | 2.4 | 2.2 | 4.0 | 2.5 | 4.0 | 3.3 | ||||||||||||||||||||||||||||||
Uruguay(7) | 2.2 | * | 2.7 | 1.7 | 0.4 | 3.2 | 0.2 | 1.6 | 2.6 | 1.7 | 0.4 | |||||||||||||||||||||||||||||
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* As of and for the twelve months ended September 30, 2018.2019
(1) | Source:Instituto Nacional de Estadística y Censos. |
(2) | Source:Banco Central de Chile. |
(3) | Source:Banco de la República. |
(4) | Source:Instituto Nacional de Estadística y Geografía. |
(5) | Source:Banco Central del Paraguay.GDP |
(6) | Source:Banco Central de Reserva del Perú. |
(7) | Source:Banco Central de Uruguay. |
Brazilian Context
As a Brazilian bank with most of our operations in Brazil, we are significantly affected by the economic, political and social conditions in the country. From 2004 to 2013, we benefited from Brazil’s generally stable economic environment, with average annual GDP growth of approximately 4.0% during that period, which led to increased bank lending and deposits. The following years were less favorable, as GDP growth slowed to 0.5% in 2014 then decreased by 3.5% in 2015 and 3.3% in 2016. The Brazilian economy showed signs of a recovery inFrom 2017, growth has been improving gradually, as GDP increased byexpanded 1.3% in both 2017 and 2018 and 1.1%. In the year ended December 31, 2018, GDP expanded 1.1%. in 2019.
The widespread decline in inflation, due to the high level of idle capacity in the Brazilian economy and anchored inflation expectations, created an opportunity for the Central Bank to start a monetary easing cycle. After reaching 14.25% per annum at the end of 2015, the Central Bank began to cut interest rates in October 2016. In March 2018, theThe SELIC rate reached 6.5% where it currently remains.4.50% in December 2019 and 3.75% in March 2020. Bank lending as a proportion of GDP increased to 48.0% in December 2019 from 47.4% in December 2018 from 47.2% in December 2017.2018.
Source: Itaú Unibanco Holding and Central Bank.Bank
Inflation reached 4.3% in the year ended December 31, 2019, up from 3.7% in the year ended December 31, 2018, up from 2.9% in the year ended December 31, 2017. 2018.Government-regulated prices (such as gasoline, health insurance, medicines, electricity, urban bus and others) increased by 5.5% in 2019 (from 6.2% in 2018 (from 8.0% in 2017)2018), whilemarket-set prices increased by 2.9%3.9% in the same period (from 1.3%2.9% in 2017)2018).
The Brazilian primary public budget result has been in deficit since 2014. Cuts in discretionary spending and tax hikes proved insufficient to offset the drop in tax revenues and growth in mandatory expenditures. The twelve-month Brazilian primary public budget balance deficit ended 2018 at 1.6% of GDP, after closing with a deficit of 1.7% of GDP in 2017, 2.5% of GDP in 2016, 1.9% of GDP in 2015 and 0.6% of GDP in 2014. To tackle the structural fiscal imbalance, the Brazilian Congress approved a ceiling on government spending that will limit primary public expenditure growth to the prior year’s inflation for a period of at least 10 years, representingstarting in 2017. In 2019, Congress approved a structural reform for the Brazilian economy.comprehensive Social security reform, and other reforms are essentialthe government started an asset sale program, creating conditions to ensurea cyclical decrease of the public debt, while the primary result gradually improves. The twelve-month Brazilian primary public budget balance deficit ended January 2020 at 0.7% of GDP, after deficits of 0.9% of GDP in 2019, 1.6% of GDP in 2018 and 1.7% of GDP in 2017. In order to guarantee that the spending ceiling remains feasible in the years ahead, but their approvalgovernment has proposed further reforms to Congress, including constitutional amendments to limit public spending and the yet to be presented Administrative Reform. However, these discussions were temporarily put aside because of theCOVID-19 pandemic. We expect temporarily larger deficits to pay for measures to mitigate the impacts of coronavirus. Since we do not expect theCOVID-19 measures to create permanent expenses, the gradual fiscal adjustment provided by the Brazilian Congress is uncertain. These reforms are important steps towards returning to primary surpluses and stabilizing public debt in the medium-term.spending cap can be resumed from 2021 onward.
In addition, Brazil has implemented a large number of regulatory changes, such as changes in reserve and capital requirements for financial institutions, as well as other macro-prudential policies. Please refer to the section “Item 4B. Business Overview—Regulatory Environment—Supervision and Regulation—Basel III Framework—Implementation of Basel III in Brazil” and to the section “Item 4B. Business Overview—Selected Statistical Information—Securities Portfolio—Compulsory Reserve Deposits with the Central Bank” for further details.
Total outstanding loans provided by Brazilian financial institutions increased in year-over-year real terms in December 2018,2019, by 1.6%2.1%, after a decreasean increase of 3.3%1.3% in December 2017.2018. Total new loans increased by 7.7%9.1% as of December 31, 2018,2019, when compared to a decreasean increase of 0.2%7.3% as of December 31, 2017,2018, both on an annualized basis. The rate ofnon-performing household loans decreasedincreased by 0.2 percentage points to 3.5% as of December 31, 20182019 when compared with the same month in 2017.2018. The rate ofnon-performing loans tonon-financial corporations reached 2.4%2.1% in December 2018,2019, below the level observed in December 2017 (2.9%2018 (2.4%).
The Brazilian real depreciated against the U.S. dollar, with the exchange rate reaching R$4.03 per US$1.00 as of December 31, 2019, and R$5.21 as of March 31, 2020, compared to R$3.88 per US$1.00 as of December 31, 2018, compared to R$3.31 per US$1.00 as of December 29, 2017. Both international and domestic economic conditions were more volatile in 2018 when compared to 2017.2018.
Source: Itaú Unibanco Holding and Central Bank.Bank
Brazil’s current account deficit (comprised of the net balance from the trade of goods and services and international transfers) totaled 0.8%2.7% of GDP as of December 31, 2018.2019. Brazil has maintained its external solvency, with US$375357 billion in international reserves and US$316324 billion in external debt as of December 31, 2017.
2019. The table below shows real GDP growth, the inflation rate, exchange rate variation and interest rates in Brazil as of and for the twelve-month period ended December 31, 2019, 2018, 2017, 2016 2015 and 2014,2015, except as otherwise indicated.
As of and for the Year Ended December 31, | As of and for the Year Ended December 31, | |||||||||||||||||||||||||||||||||||||||
2018 | 2017 | 2016 | 2015 | 2014 | 2019 | 2018 | 2017 | 2016 | 2015 | |||||||||||||||||||||||||||||||
(%) | (%) | |||||||||||||||||||||||||||||||||||||||
Real GDP growth(1) | 1.1 | 1.1 | (3.3 | ) | (3.5 | ) | 0.5 | 1.1 | 1.3 | 1.3 | -3.3 | -3.5 | ||||||||||||||||||||||||||||
Inflationrate—IGP-DI(2) | 7.1 | (0.4 | ) | 7.2 | 10.7 | 3.8 | 7.7 | 7.1 | -0.4 | 7.2 | 10.7 | |||||||||||||||||||||||||||||
Inflation rate—IPCA(3) | 3.7 | 2.9 | 6.3 | 10.7 | 6.4 | 4.3 | 3.7 | 2.9 | 6.3 | 10.7 | ||||||||||||||||||||||||||||||
Exchange rate variation (R$/US$)(4) | 13.5 | 1.5 | (16.5 | ) | 47.0 | 13.4 | 4.0 | 17.1 | 1.5 | -16.5 | 47.0 | |||||||||||||||||||||||||||||
TR (reference interest rate)(5) | 0.00 | 0.00 | 1.98 | 2.07 | 1.01 | 0.00 | 0.00 | 0.00 | 1.98 | 2.07 | ||||||||||||||||||||||||||||||
CDI (interbank interest rate)(6) | 6.40 | 6.99 | 13.63 | 14.14 | 11.51 | 4.59 | 6.40 | 6.99 | 13.63 | 14.14 | ||||||||||||||||||||||||||||||
SELIC (overnight interest rate)(6) | 6.40 | 7.00 | 13.65 | 14.15 | 11.58 | |||||||||||||||||||||||||||||||||||
Selic (overnight interest rate) (6) | 4.59 | 6.40 | 7.00 | 13.65 | 14.15 | |||||||||||||||||||||||||||||||||||
Sovereign5-year CDS(7) | 207.9 | 162.0 | 280.8 | 494.9 | 200.8 | 107.7 | 207.9 | 162.0 | 280.8 | 494.9 |
(1) | Source:Instituto Brasileiro de Geografia e Estatística, or IBGE. |
(2) | Source: General Price Index – Internal Supply (Índice Geral de Preços – Disponibilidade Interna,orIGP-DI) published by theFundação Getulio Vargas. |
(3) | Source: Extended National Consumer Price Index (Índice de Preços ao Consumidor Amplo, or IPCA) published by IBGE. |
(4) | Source: Bloomberg (cumulative rates for the period); positive numbers mean depreciation of the Brazilian real. |
(5) | Source: Mortgage reference rate (Taxa Referencial, or TR) published by the Central Bank. Data presented in percentage per year. |
(6) | Source: Central Bank. Data presented in percentage per year. |
(7) | Source: Bloomberg(period-end). Sovereign credit default swaps or CDS is a measure of country risk (and is measured using basis points). |
Significant Accounting Policies
General Information
The preparation of our audited consolidated financial statements involves certain assumptions that are based on our historical experience and other factors that we deem reasonable and material. Although we review these estimates and assumptions in the ordinary course of business, the presentation of our financial condition and results of operations often requires our management to make judgments regarding the effects of matters that are uncertain by nature on our financial condition and results of operations. The following section describes those aspects that require significant 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 and actual results may differ from those estimated based on different variables, assumptions or conditions.
Use of Estimates and Assumptions
The preparation of the audited consolidated financial statements in accordance with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the audited consolidated financial statements, as well as the reported amounts of revenue, expenses and gains and losses during the reporting period because the actual results may differ from those determined based on such estimates and assumptions.
All estimates and assumptions made by management are in accordance with IFRS and represent our best estimates made in conformity with applicable standards. Estimates and judgments are evaluated on an ongoing basis and are based on past experience and other factors.
Please see “Note 2.3 – Critical Accounting Estimates and Judgments” to our audited consolidated financial statements for further details.
Transition to IFRS 916
We adopted the requirements of IFRS 9 Financial Instruments, which became effective16 Leases under the retrospective transition method modified on January 1 2018 and appliedst, 2019, using the new standard retrospectively from January 1, 2016, resulting in the restatements of our audited consolidated financial statements for the years ended December 31, 2016, 2017 and 2018. We continue to apply the requirements of IAS 39 for hedge accounting.
The main changes identified by us due to the adoption of IFRS 9 are related to the classification, measurement and impairment of financial assets. The impact of transitioning to IFRS 9 at January 1, 2016 on our audited consolidated financial statements was a decrease in net assets of R$ 2.6 billion, arising from:following criteria:
A decreaseUnified discount rate, considering a portfolio of R$ 4.6 billion from additional impairment allowance.similar agreements;
A decreaseCalculation of R$ 0.7 billion from the remeasurementlease liabilities andRight-of-Use Assets at present value of financial assets due to classification changes resulting from the new categories introduced by IFRS 9.remaining payments; and
An increase in net deferred tax assetsReview of R$ 2.5 billion.lease agreements and terms.
An increase of R$ 0.2 billion on the interest ofnon-controlling stockholders.
Further information on new classification requirements and accounting policies adopted is detailed in “Note 2.4 – Summary of main accounting practices” to our audited consolidatedNew financial statements.subleases have not been recorded.
Derivative Instruments that Qualify for Hedge Accounting
Hedging transactions may be classified into three categories: Fair value hedge, Cash flow hedge, and Hedge of net investment in foreign operations:
Fair value hedge: is aimed at protecting us against changes in market risk due to changes in the fair value of interest subject to variable rates.
Cash flow hedge: is aimed at protecting us against future cash flows of payments of interest.
Hedge of net investment of foreign operations: it is aimed at protecting us against changes in future cash flows of foreign exchange variations in net investments of foreign operations.
Please see “Item 11. Quantitative and Qualitative Disclosures about Market Risk—Market and Liquidity Risk” for further details about hedge accounting.
Please see “Note 7 – 7—Hedge Accounting” to our audited consolidated financial statements for further details. With respect to the hedge accounting policy, please see “Note 2.4 – Summary of Main Accounting Practices—d) Financial Assets and Liabilities—IV – Derivatives” to our audited consolidated financial statements.
Fair Value of Financial Instruments
Financial instruments recorded at fair value on our balance sheet include securities classified as Fair Value Through Other Comprehensive Income and Fair Value Through Profit or Loss, including derivatives. Other financial instruments are classified at historical amortized cost on our balance sheet, and their corresponding fair values are shown in the notes to our audited consolidated financial statements. We present information on the fair value of our financial instruments in the table below as of December 31, 2019, 2018 and 2017.
As of December 31, | ||||||||||||||||||||
Financial instruments recorded at fair value | As of December 31, | 2019 | 2018 | 2017(*) | ||||||||||||||||
2018 | 2017(*) | |||||||||||||||||||
(In millions of R$) | (In millions of R$) | |||||||||||||||||||
Assets | Assets |
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Financial assets at fair value through profit or loss | 263,180 | 250,693 | 281,075 | 263,180 | 250,693 | |||||||||||||||
Derivatives | 23,466 | 22,843 | 41,854 | 23,466 | 22,843 | |||||||||||||||
Financial assets at fair value through other comprehensive income | 49,323 | 52,149 | 76,660 | 49,323 | 52,149 | |||||||||||||||
Total | 335,969 | 325,685 | 399,589 | 335,969 | 325,685 | |||||||||||||||
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Liabilities | Liabilities |
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Financial liabilities designated at fair value through profit or loss | 192 | 465 | ||||||||||||||||||
Structured notes | 201 | 192 | 465 | |||||||||||||||||
Derivatives | 27,519 | 26,746 | 47,828 | 27,519 | 26,746 | |||||||||||||||
Total | 27,711 | 27,211 | 48,029 | 27,711 | 27,211 | |||||||||||||||
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(*) | Restated to take into account the effect of IFRS 9, which we retroactively adopted as of January 1, 2016. |
We determine the fair value of our financial instruments based on IFRS 13, which defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
According to IFRS 13, there are different levels of inputs that may be used to measure the fair value of financial instruments classified as levels 1, 2 and 3.
Level 1: observable inputs reflect the quoted prices (unadjusted) of identical assets or liabilities in active markets;
Level 2: observable inputs reflect the information on assets and liabilities that are either directly (such as prices) or indirectly (derived from prices) observable, except for the quoted prices included in Level 1; and
Level 3: information on assets and liabilities that are not based on observable market data due to little market activity on the measurement date. We present information on our level 3 financial instruments in the table below as of December 31, 20182019, and 2017.2018.
Level 3 | As of December 31, | |||||||
2018 | 2017 (*) | |||||||
(In millions of R$) | ||||||||
Financial assets at fair value through profit or loss | 2,833 | 3,947 | ||||||
Net position of derivatives | 116 | 333 | ||||||
Total | 2,949 | 4,280 | ||||||
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Level 3 | 2019 | 2018 | ||||||
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Financial assets at fair value through profit or loss | 1,719 | 2,833 | ||||||
Net position of derivatives | 18 | 116 | ||||||
Total | 1,771 | 2,949 | ||||||
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Please refer to “Note 28 – Fair Value of Financial Instruments” to our audited consolidated financial statements for further details.
Contingent Liabilities
Contingent liabilities arise mainly from judicial and administrative proceedings inherent to the ordinary course of our business and that are filed by third parties, including former employees and public bodies related to civil, labor, tax and social security claims.
These contingencies are assessed based on the best estimates of our management, taking into consideration the opinion of legal advisors when there is a probability that financial resources will be required to settle obligations and the amount of such obligations can be reliably measured.
Contingencies are classified as follows, based on the likelihood of loss:
Probable: liabilities are recognized as “provisions” on our consolidated balance sheet;
Possible: liabilities are disclosed in our audited consolidated financial statements but no provisions are recorded; and
Remote: liabilities that do not require provision or disclosure.
Contingent liabilities for which provisions are recorded and those classified as having a “possible” likelihood of loss are evaluated based on our best estimates, using models and criteria that allow for their proper evaluation despite the uncertainty that is inherent to their terms and amounts.
Significant Changes in Accounting Standards
Please see “Note 2.2 – New Accounting Standardsaccounting standards changes and New Accounting Standards Changes and Interpretations”interpretations of existing standards” to our audited consolidated financial statements for further details about information on significant changes in accounting standards.
Accounting Practices Adopted in Brazil
Our books and records are maintained in Brazilianreais, the official currency in Brazil, and our audited consolidated financial statements, for statutory and regulatory purposes, are prepared in accordance with Brazilian GAAP. The accounting principles and standards generally applicable under Brazilian GAAP include those established under Brazilian Corporate Law, by the Accounting Pronouncements Committee, or CPC, which started issuing standards in 2007, and by the Federal Accounting Council. In the case of companies subject to regulation by the Central Bank, such as us, the effectiveness of the accounting pronouncements issued by entities such as the CPC depends on approval of the pronouncement by the CMN, which also establishes the date of effectiveness of any pronouncements with respect to financial institutions. Additionally, the CVM and other regulatory bodies, such as SUSEP and the Central Bank, provide additional industry-specific guidelines.
Regulation Applicable to the Presentation of the Audited Consolidated Financial Statements
Brazilian regulations establish specific rules for the consolidation of audited consolidated financial statements by financial institutions. Under current Central Bank regulations, financial institutions, except for credit cooperatives, are required to prepare consolidated financial statements including investments directly or indirectly held in other companies, individually or jointly controlled, and with respect to which such financial institutions have (i) the right to appoint or designate the majority of the company’s board of directors; (ii) the right to appoint or remove the majority of the company’s executives and directors; and/or (iii) operational or shareholding control. These regulations apply to the entire group to which a financial institution belongs.
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
Financial results reviewResults of Operations
The following table sets forth our summarized consolidated statement of income for the years ended December 31, 2019, 2018 and 2017. The interest rates cited are expressed in Brazilianreais and include the effect of the variation inof thereal against foreign currencies. For more information on the products and services we offer, see “Item 4. Information on the Company”.
Please see “Item 3D. Risk Factors, Macroeconomic Risks – Domestic Scenario – Brazilian authorities exercise influence over the Brazilian economy. Changes in fiscal, monetary and foreign exchange policies as well as a deterioration of government fiscal accounts, may adversely affect us” and “Item 3D. Risk Factors –Risks Associated with our Business – Market Risk”audited consolidated financial statements for further details.details about our Consolidated Statement of Income.
For the Year Ended December 31, | Variation | For the Year ended December 31, | Variation 2019-2018 | Variation 2018-2017 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Summarized Consolidated Statement of Income | 2018 | 2017(1) | 2016(1) | 2018-2017 | 2017-2016 | 2019 | 2018 | 2017 | R$ million | % | R$ million | % | ||||||||||||||||||||||||||||||||||||||||||||
(In millions of R$, except percentages) | (In millions of R$, except percentages) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Banking product | 104,200 | 111,523 | 118,422 | (7,323) | (6.6)% | (6,899) | (5.8)% | |||||||||||||||||||||||||||||||||||||||||||||||||
Operating revenues | 117,079 | 104,200 | 111,523 | 12,879 | 12.4 | (7,323 | ) | (6.6 | ) | |||||||||||||||||||||||||||||||||||||||||||||||
Net interest income | 62,565 | 67,311 | 67,276 | (4,746) | (7.1)% | 35 | 0.1% | 69,350 | 60,705 | 71,242 | 8,645 | 14.2 | (10,537 | ) | (14.8 | ) | ||||||||||||||||||||||||||||||||||||||||
Adjustments to Fair Value of Financial Assets and Liabilities | (4,834) | 4,181 | 7,066 | (9,015) | (215.6)% | (2,885) | (40.8)% | |||||||||||||||||||||||||||||||||||||||||||||||||
Foreign exchange results and exchange variations on transactions | 2,974 | (250) | 5,513 | 3,224 | (1,289.6)% | (5,763) | (104.5)% | |||||||||||||||||||||||||||||||||||||||||||||||||
Non-interest income(3) | 43,495 | 40,281 | 38,567 | 3,214 | 8.0% | 1,714 | 4.4% | |||||||||||||||||||||||||||||||||||||||||||||||||
Expected Loss from Financial Assets and Claims | (10,182) | (20,966) | (24,355) | 10,784 | (51.4)% | 3,389 | (13.9)% | |||||||||||||||||||||||||||||||||||||||||||||||||
Non-interest income(2) | 47,729 | 43,495 | 40,281 | 4,234 | 9.7 | 3,214 | 8.0 | |||||||||||||||||||||||||||||||||||||||||||||||||
Expected loss from financial assets and claims | (18,567 | ) | (10,182 | ) | (20,966 | ) | (8,385 | ) | 82.4 | 10,784 | (51.4 | ) | ||||||||||||||||||||||||||||||||||||||||||||
Other operating income (expenses) | (63,410) | (59,975) | (58,388) | (3,435) | 5.7% | (1,587) | 2.7% | (67,269 | ) | (63,410 | ) | (59,975 | ) | (3,859 | ) | 6.1 | (3,435 | ) | 5.7 | |||||||||||||||||||||||||||||||||||||
Income before current and deferred income tax and social contribution | 30,608 | 30,582 | 35,679 | 26 | 0.1% | (5,097) | (14.3)% | |||||||||||||||||||||||||||||||||||||||||||||||||
Net income before income tax and social contribution | 31,243 | 30,608 | 30,582 | 635 | 2.1 | 26 | 0.1 | |||||||||||||||||||||||||||||||||||||||||||||||||
Current and deferred income and social contribution taxes | (4,969) | (7,357) | (13,663) | 2,388 | (32.5)% | 6,306 | (46.2)% | (3,430 | ) | (4,969 | ) | (7,357 | ) | 1,539 | (31.0 | ) | 2,388 | (32.5 | ) | |||||||||||||||||||||||||||||||||||||
Net income | 25,639 | 23,225 | 22,016 | 2,414 | 10.4% | 1,209 | 5.5% | 27,813 | 25,639 | 23,225 | 2,174 | 8.5 | 2,414 | 10.4 | ||||||||||||||||||||||||||||||||||||||||||
Net income attributable to owners of the parent company | 24,907 | 23,193 | 21,627 | 1,714 | 7.4% | 1,566 | 7.2% | 27,113 | 24,907 | 23,193 | 2,206 | 8.9 | 1,714 | 7.4 | ||||||||||||||||||||||||||||||||||||||||||
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(ii) | interest, similar income and |
(iii) | interest and similar expenses (R$(75,958) million, R$(70,612) million and R$(78,330) million in the year ended December 31, 2019, 2018 and 2017, respectively); |
(iv) | adjustments to fair value of financial assets and liabilities (R$4,098 million, R$(4,834) million and R$4,181 million in year ended December 31, 2019, 2018 and 2017, respectively); and |
(v) | foreign exchange results and exchange variations in foreign transactions (R$927 million, R$2,974 million and R$(250) million in the year ended December 31, 2019, 2018 and 2017, respectively). |
(2) | Includes banking services fees, income related to insurance and private pension operations before claim and selling expenses and other income. |
Please see our audited consolidated financial statements for further details about our Consolidated Statement of Income.2019 compared to 2018
Ournet income (attributableattributable to the owners of the parent company)company increased by 7.4%8.9%, amounting to R$27,113 million in 2019 from R$24,907 million in 2018. Our operating revenues increased by 12.4% as a result of a 14.2% increase in net interest income and a 9.7% increase innon-interest income. This result was partially offset by an increase of 82.4% in expected loss from financial assets and claims. These line items are further described below:
Net interest incomeincreased by 14.2%, mainly due to the adjustment to the fair value of financial assets and liabilities.
The result of exchange rate variations on our investments abroad isnon-taxable, whereas revenue from our hedging instruments is taxable. Accordingly, the depreciation of the Brazilian real against foreign currencies, especially the U.S. dollar, generates gains on our hedging instruments abroad. Conversely, the appreciation of thereal against foreign currencies, generates losses on our hedging instruments abroad. This affects our tax expenses allocated in the line items “current and deferred income and social contribution taxes” and “other operating income (expenses).” In 2019, the nominal depreciation of thereal against the U.S. dollar was 4.0% in 2018, the nominal depreciation of thereal against the U.S. dollar was 17.1%.
The fiscal effect on the hedging instruments for our investments abroad decreased by R$5,513 million resulting in a gain of R$2,499 million in 2019, compared to a gain of R$8,012 million in 2018.
As a result, disregarding the fiscal effect on the hedging instruments for our investments abroad mentioned above, net interest income increased by R$3,132 million.
Interest and similar income of financial assets at amortized cost and at fair value through other comprehensive income increased by 6.5%, mainly due to the growth of our loan portfolio for individuals (13.1%) and for micro/small and medium businesses (25.3%) in Brazil and was partially offset by the reduction in interest charged on several credit products and reduced yields of Brazilian treasury bonds.
There was an increase of 7.6% in interest and similar expenses, mainly due to a change in our funding mix resulting from the migration from securities sold under repurchase agreement to financial credit bills and time deposits, as discussed under “—Balance sheet (liabilities)”. The balance of securities sold under repurchase agreements decreased by R$73,654 million.
Further, financial expense from technical provisions for insurance and private pension plans amounted to an expense of R$16,720 million in 2019 from an expense of R$11,815 million in 2018, mainly affected by the change in interest rate expectations from April to June 2018, due to specific events that increased volatility in the Brazilian economy, resulting in smaller financial expenses in 2018 compared to 2017, whereas it increased 7.2%2019, and the increase of R$17,147 million in 2017, comparedthe balance of technical provisions in the period. However, these expenses were more than offset by financial income related to 2016. These results are detailed as follows:insurance, pension plan and capitalization operations, which amounted to R$17,326 million in 2019 and R$12,346 million in 2018.
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Please see “Note 21 – Interest and Similar Income and Expense and Net Gain (Loss) on Investment Securities and Derivatives” to our audited consolidated financial statements for further details on Net interest, similar income and dividend.
Adjustments to Fair Value of Financial Assets and Liabilitiesdecreased by 215.6% in 2018, when compared to 2017, having decreased by 40.8% in 2017, compared to 2016. These decreases were mainly due to the effect of exchange rate variation on our hedge strategy for our foreign investments (approximately R$72,413 million at the end of 2016, R$78,064 million at the end of 2017 and R$68,052 million at the end of 2018).This effect was offset by the reduction in tax expenses, as further detailed in “Current and deferred income and social contribution taxes”.
Please see “Note 21 – Interest and Similar Income and Expense and Net Gain (Loss) on Investment Securities and Derivatives” to our audited consolidated financial statements for further details on Adjustments to Fair Value of Financial Assets and Liabilities.
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Non-Interest Incomeincreased by 8.0% in 2018, compared to 2017 and 4.4% in 2017, compared to 2016. The main drivers of this result for the referred periods were: 9.7%, mainly due to:
(i) revenues from asset management fees (which grewincreased by 21.1% in 2018 and 17.8% in 2017),R$1,319 million, as a result of a higher volumean increase of 22.6% of assets under administration, which comprise assets managed by us and third parties. We highlight the 46.9% growth in 2019 in the balance of funds under management (16.6%distributed through our open investment platform initiative;
(ii) income from current account services, which includes advisory services, increased by R$713 million, mainly due to an increase of current-account holders and 19.1%, respectively, in 2018 and in 2017) and higher revenues from performance fees; (ii)increased capital markets activities;
(iii) income from credit and debit card service fees (which increased by 4.0%R$31 million in 2018 and 5.7% in 2017),2019, mainly driven by higherdue to increased interchange revenuesfees¹ resulting from an increase in theincreased transaction volume of transactions and revenues from credit and debit card annuity fees, (iii) incomefees. These results were partially offset by lower revenues from current account services (which increased by 4.5% in 2018 and 8.3% in 2017), mainly dueacquiring business. As of May 2019, we no longer charge clients whose annual revenues are up to R$30 million for the higher numberprepayment rate on credit card transactions without installments²;
(iv) R$1,991 million gain from the initial public offering of current-account holders; and (iv) higher income from fees from both credit and debit card services and current account services was also related to the incorporation of Citibank’s retail operations.XP Inc (“XP Investimentos”).
(1) | A portion of the fee charged by acquiring banks to merchants that is passed through to credit and debit card issuers. |
(2) | In Brazil, purchases can be paid in installments using credit cards. |
The following chart shows the main components of our banking service fees for the years ended December 31, 2019, 2018 2017 and 2016:
In R$ million2017:
Please see “Note 22 – Banking Service Fees” to our audited consolidated financial statements for further details on banking service fees.
For more details on our main products and market position, see “Item 4B. Business Overview – Operations Overview.”
Expected Loss from Financial Assets and Claims decreased 51.4% in 2018 compared to 2017. From 2016 to 2017, this decreasedincreased by 13.9%. These consecutive decreases were82.4%, mainly due to lower expenses withan increase in provisions for expected loss withlosses, resulting from: (i) an increase of 13.1% in our loan portfolio to individuals; (ii) an increase of 25.3% in our micro/small and lease operations with individualsmedium businesses loan portfolio in Brazil; and legal entities (R$10,587 million(iii) the deterioration of the risk profile of certain Latin America corporate clients. This result was partially offset by a decrease in 2018, R$18,381provisions for expected losses for our corporate loans portfolio in 2017 and R$22,466 in 2016),Brazil, as a result of the improvement in the credit quality of our total loan portfolio. From 2015 to 2017, we made greater provisions of our expected loss from financial assets and claims due to the Brazilian economic context with deteriorating credit quality, mainly in the wholesale banking segment. More recently, we have noticed an improvement in the credit ratingrisk profile of our large corporate clients which has reduced our expected loss with other financial assets.in this segment.
Please see “Note 10—Loan operations and lease operations portfolio” to our audited consolidated financial statements for further details on our loan and lease operations portfolio.
o | Non-performing loans: We calculate our90-daynon-performing loans ratio as the value of our90-daysnon-performing loans to our loan portfolio. As of December 31, 2019, our90-day NPL ratio was 3.4%, a slight decrease of 6 basis points compared to December 30, 2018, mainly due to a 46 basis points decrease of the90-day NPL ratio for our loans to companies portfolio, driven by an improvement in the risk profile of our clients in the corporate segment. This result was partially offset by a 26 basis points increase of the90-day NPL ratio for our individuals loan portfolio due to the growth of portfolios such as vehicle, personal and credit card loans. |
We calculate our 15 to 90 daysnon-performing loans ratio as the value of our 15 to 90 daysnon-performing loans to our loan portfolio. The 15 to 90 daysnon-performing loans ratio is an indicator of early delinquency. As of December 31, 2019, our 15 to 90 days NPL ratio was 2.3% which is consistent with this indicator for December 31, 2018. Our 15 to90-day NPL ratio of our companies loan portfolio decreased 9 basis points, which was partially offset by an increase of 7 basis points in the 15 to90-day NPL ratio of our individuals loan portfolio.
The chart below shows a comparison of both NPL ratios for each quarter as of December 31, 2017 through to December 31, 2019:
o | Coverage ratio (90 days): We calculate our coverage ratio as provisions for expected losses to90-daynon-performing loans. As of December 31, 2019, our coverage ratio was 192.2% compared to a ratio of 179.4% as of December 31, 2018. This increase was mainly due to greater provisions for expected losses from loans to individuals, driven by an increase in our loan portfolio in this segment. |
The chart below shows a comparison in the coverage ratios for each quarter as of December 31, 2017 through December 31, 2019:
Other Operating Income (Expenses)increased by 5.7%6.1% to an expense of R$67,269 million in 2018, compared2019 from an expense of R$63,410 million in 2018. The main driver was general and administrative expenses, which increased 6.0%, mainly due to:
(i) expenses relating to 2017. Personnelour voluntary severance program, which amounted to R$2,385 million, including provision for labor claims and dismissals and expenses with welfare benefits. Disregarding thisnon-recurring effect, general and administrative expenses increased 1.9%, which was below the 4.3% inflation rate for the period, as recorded by 6.7%, following the executionIPCA for 2019.
Our total number of employees in Brazil decreased to 81,691 on December 31, 2019 from 86,801 on December 31, 2018, mainly as a result of:
◾ | our voluntary severance program, which 3.5 thousand employees adhered to; and |
◾ | the reduction of physical branches Brazil, which decreased to 3,158 on December 31, 2019 from 3,530 on December 31, 2018; |
(ii) the 2019 collective bargaining agreement (which resultedentered into on September 1, 2019, resulting in a 5%4.3% wage increase for bank employees) and theemployees.
(iii) higher headcountcredit card marketing expenses due to the hiringan increased number of new insurance consultants, REDE sales representativesclients using Rede bankcard machines and technology department personnel to speed up our digital transformation process. We had more than 100,000 employees at the enda greater volume of 2018,debit and credit card transactions.
This result was partially offset by an increase in share of 1.0% compared to 2017. In addition, our administrative expenses increased by 6.0%profit (or loss) in 2018,associates and joint ventures of R$568 million, mainly due to the higher cost of third-party services (increase of 7.7%); data processing and telecommunications (increase of 2.9%); and advertising, promotion and publication (increase of 21.6%).
In 2017, our other operating income (expenses) increased by 2.7%, compared to 2016. Personnel expenses grew by 4.1%, mainly due to the new employees hired for the Retail Banking operational structure related to the branch network and the acquisition of Citibank’s retail operationsequity in Brazil, which took place on October 31, 2017. Additionally, REDE increased its commercial team to extend the reach of the sales force and to improve the quality of its services. In the case of administrative expenses, which increased by 2.1% in 2017 compared to 2016, we experienced increases in costs related to data processing and telecommunications (increase of 4.7%) and advertising, promotions and publications (increase of 12.6%).earnings from XP Investimentos.
Please see “Note 23—General and administrative expenses” to our audited consolidated financial statements for further details.
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Current and deferredincome and social contributiontaxesamounted to an expense of R$3,430 million in 2019, from an expense of R$4,969 million in 2018. This was mainly due to the fiscal effect on the hedging instruments for our investments abroad, as mentioned in “ —Net interest income”, which amounted to expenses of R$2,281 million in 2019 and R$7,305 million in 2018. Disregarding such fiscal effect, current and deferred income and social contribution taxes decreased 53.5% in 2019, mainly as a result of the decrease in recognition of deferred tax assets rate. In 2018, the legislation temporarily increased the recognition rate for income and social contribution taxes to 45%. In 2019, it was reduced to 40% and as of March 1, 2020, the recognition rate will be 45%.
Please see “Note 24 – Taxes” to our audited consolidated financial statements for further details.
Basis for PresentationsPresentation of Segment Information
OurWe maintain segment information is based on reports used by senior management to assess the financial performance of our businesses and to make decisions regarding the allocation of funds for investment and other purposes.
Segment information is not prepared in accordance with IFRS but according to thebased on accounting practices adopted in Brazil as established by the Central Bank. It includes the following adjustments: (i) the recognition of the impact of capital allocation using a proprietary model; (ii) the use of funding and cost of capital at market prices, using certain managerial criteria; (iii) the exclusion or inclusion ofnon-recurring* events from our results; and (iv) the reclassification of the tax effects from hedging transactions we enter into for our investments abroad.
*Non-recurring events correspond to relevant events (with a positive or negative effect) identified in our results of operations for each relevant period by applying a methodology that has been approved pursuant to our governance procedures which relevant events are either not related to our core operations or are related to previous fiscal years.
For more information on our segments, see “Item 4. Information on the Company” and “Note 30 – Segment information” to our audited consolidated financial statements.
We present below the summarized results from our operating segments from January 1, 2019 to December 31, 2019:
Summarized Consolidated Statement of Income from | Retail Banking (a) | Wholesale Banking (b) | Trading + Institutional (c) | Total (a)+(b)+(c) | Adjustments | IFRS Consolidated | ||||||||||||||||||
(In millions of R$) | ||||||||||||||||||||||||
Operating revenues | 79,227 | 30,650 | 9,913 | 119,790 | (2,711 | ) | 117,079 | |||||||||||||||||
Cost of Credit | (16,072 | ) | (2,082 | ) | – | (18,154 | ) | 882 | (17,272 | ) | ||||||||||||||
Claims | (1,206 | ) | (59 | ) | – | (1,265 | ) | (30 | ) | (1,295 | ) | |||||||||||||
Other operating income (expenses) | (41,430 | ) | (15,403 | ) | (986 | ) | (57,819 | ) | (9,450 | ) | (67,269 | ) | ||||||||||||
Income tax and social contribution | (7,095 | ) | (3,856 | ) | (2,545 | ) | (13,496 | ) | 10,066 | (3,430 | ) | |||||||||||||
Non-controlling interest in subsidiaries | (198 | ) | (444 | ) | (51 | ) | (693 | ) | (7 | ) | (700 | ) | ||||||||||||
Net income | 13,226 | 8,806 | 6,331 | 28,363 | (1,250 | ) | 27,113 | |||||||||||||||||
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(*) | The first three columns are our business segments. Additional information about each of our business segments can be found below under the headings “(a) Retail Banking”, “(b) Wholesale Banking” and “(c) Trading + Institutional”. |
The adjustments column includes the following pro forma adjustments: (i) the recognition of the impact of capital allocation using a proprietary model;model: (ii) the use of funding and cost of capital at market prices, using certain managerial criteria; (iii) the exclusion ofnon-recurring events from our results; and (iv) the reclassification of the tax effects from hedging transactions we enter into for our investments abroad.
We present belowThe IFRS consolidated column is the summarized results fromtotal result of our operatingthree segments for the year ended December 31, 2018:plus adjustments.
Summarized Consolidated Statement of Income from January 1 to | Retail Banking (a) | Wholesale Banking (b) | Activities with the Market + Corporation (c) | ITAÚ UNIBANCO (a)+(b)+(c) | Adjustments | IFRS consolidated | ||||||||||||||||||
(In millions of R$) | ||||||||||||||||||||||||
Banking product | 72,182 | 29,389 | 10,246 | 111,817 | (7,617 | ) | 104,200 | |||||||||||||||||
Cost of Credit | (12,526 | ) | (1,540 | ) | - | (14,066 | ) | 5,112 | (8,954 | ) | ||||||||||||||
Claims | (1,160 | ) | (68 | ) | - | (1,228 | ) | - | (1,228 | ) | ||||||||||||||
Other operating income (expenses) | (40,002 | ) | (15,217 | ) | (1,070 | ) | (56,289 | ) | (7,121 | ) | (63,410 | ) | ||||||||||||
Income tax and social contribution | (6,939 | ) | (3,829 | ) | (2,964 | ) | (13,732 | ) | 8,763 | (4,969 | ) | |||||||||||||
Non-controlling interest in subsidiaries | (184 | ) | (550 | ) | (35 | ) | (769 | ) | 37 | (732 | ) | |||||||||||||
Net income | 11,371 | 8,185 | 6,177 | 25,733 | (826 | ) | 24,907 | |||||||||||||||||
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The following discussion should be read in conjunction with our audited consolidated financial statements, especially “Note 30 – Segment information.” The adjustments column shown in this note shows the effects of the differences between the segmented results (substantially in accordance with the accounting practices adopted in Brazil) and those calculated according to the principles adopted in our audited consolidated financial statements in IFRS.
For more details on our segments, see “Item 4B. Business Overview – Operations Overview.”2019 compared to 2018
(a) | Retail Banking |
The result from this segment is derived from the banking products and services provided to a diversified customer base ofcomprises retail customers, account holders andnon-account holders, individuals and companies in Brazil. It includes retail customers, high-income customerslegal entities, high income clients (Itaú Uniclass and Personnalité), and very smallthe companies segment (microenterprises and small companies.companies). It also consists ofincludes financing and lending activities at units other thancredit offers made outside the branch network, and credit cards, in addition to transactionscredit cards and payroll loans.
The following table sets forth our summarized consolidated statement of income with Bancorespect to our Retail Banking segment for the years ended December 31, 2019 and 2018:
Summarized Consolidated Statement of Income—Retail banking | Year ended December 31, | Variation 2019 X 2018 | ||||||||||||||
2019 | 2018 | R$ million | % | |||||||||||||
(In millions of R$) | ||||||||||||||||
Operating revenues | 79,227 | 72,182 | 7,045 | 9.8 | ||||||||||||
Cost of credit and claims | (17,278 | ) | (13,686 | ) | (3,593 | ) | 26.3 | |||||||||
Other operating income (expenses) | (41,430 | ) | (40,002 | ) | (1,428 | ) | 3.6 | |||||||||
Income tax and social contribution | (7,095 | ) | (6,939 | ) | (156 | ) | 2.2 | |||||||||
Non-controlling interest in subsidiaries | (198 | ) | (184 | ) | (15 | ) | 7.9 | |||||||||
Net income | 13,226 | 11,371 | 1,854 | 16.3 | ||||||||||||
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Our net incomefrom retail bankingincreased by 16.3%, to R$13,226 million in 2019 from R$11,371 million to 2018. These results are explained as follows:
Operating revenues: increased by 9.8%, mainly due to the growth of 25.6% in credit origination in all segments in Brazil, mainly driven by increased client demand. This increased client demand resulted in an increase in our loan portfolio to individuals by 13.1% and 25.3% for micro/small and medium businesses in Brazil. In 2019, our loan portfolio in this segment increased 16.2%. The increase in operating revenues was offset by the reduction in interest charged on several credit products.
Cost of credit and claims increased by R$3,593 million in the 2019, mainly due to the growth in our retail loan portfolio concentrated in Brazil, as mentioned above.
Other operating income (expenses)increased 3.6% in 2019, compared to the same period in 2018, mainly due to:
(i) expenses relating to our voluntary severance program, which amounted to R$2,385 million, including provision for labor claims and dismissals and expenses with welfare benefits. Disregarding thisnon-recurring effect, general and administrative expenses increased 1.9%, which was below the 4.3% inflation rate for the period, as recorded by the IPCA for 2019.
Our total number of employees in Brazil decreased to 81,691 as of December 31, 2019 from 86,801 as of December 31, 2018, mostly as a result of:
◾ | our voluntary severance program, which 3.5 thousand employees adhered to; and |
◾ | the reduction of physical branches Brazil, which decreased to 3,158 as of December 31, 2019 from 3,530 as of December 31, 2018; |
(ii) the 2019 collective bargaining agreement entered into on September 1, 2019, resulting in a 4.3% wage increase for bank employees;
(iii) higher credit card marketing expenses due to an increased number of clients using Rede bankcard machines and a greater volume of debit and credit card transactions.
Income tax and social contribution for this segment, as well as for the Wholesale Banking and Trading & Institutional (previously, “Activities with the Market and Corporation”) segments, is calculated by adopting the full income tax rate, net of the tax effect of any payment of interest on capital. The difference between the income tax amount determined for each segment and the effective income tax amount, as stated in our audited consolidated financial statements, is allocated to the Trading & Institutional segment. As discussed above, our current and deferred income and social contribution taxes decreased mainly as a result of the decrease in recognition of deferred tax assets rate. In 2018, the legislation temporarily increased the recognition rate for income and social contribution taxes to 45%. In 2019, it was reduced to 40% and as of March 1, 2020, the recognition rate will be 45%.
(b) | Wholesale Banking |
It comprises products and services offered to middle-market companies, high net worth clients (Private Banking), and the operation of Latin American units and Itaú Consignado S.A.;BBA, which is the unit responsible for business with large companies and investment banking operations.
The following table showssets forth our summarized consolidated statement of income with respect to our Wholesale Banking segment for the year ended December 31, 2019 and 2018:
Summarized Consolidated Statement of Income—Wholesale banking | Year ended December 31, | Variation 2019 x 2018 | ||||||||||||||
2019 | 2018 | R$ million | % | |||||||||||||
(In millions of R$) | ||||||||||||||||
Operating revenues | 30,650 | 29,389 | 1,261 | 4.3 | ||||||||||||
Cost of credit and claims | (2,141 | ) | (1,608 | ) | (533 | ) | 33.1 | |||||||||
Other operating income (expenses) | (15,403 | ) | (15,217 | ) | (185 | ) | 1.2 | |||||||||
Income tax and social contribution | (3,856 | ) | (3,829 | ) | (27 | ) | 0.7 | |||||||||
Non-controlling interest in subsidiaries | (444 | ) | (550 | ) | 106 | (19.3 | ) | |||||||||
Net income | 8,806 | 8,185 | 621 | 7.6 | ||||||||||||
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Our net incomefrom wholesale bankingincreased 7.6% to R$8,806 million for 2019 from R$8,185 million in 2018. These results are explained as follows:
Operating revenues: increased by 4.3%, mainly due to a 26.3% increase in revenues from asset management fees as a result of a 22.6% increase in assets under administration. We highlight the 46.9% growth in the balance of funds distributed through our open investment platform initiative. There was also an increase in revenues from brokerage commission during the same period.
Cost of credit and claimsincreased by 33.1% mainly due to the deterioration in the risk profile of specific corporate clients in Latin America. This result was partially offset by reversals in provisions for loan losses, as a result of an improvement in the risk profile of our clients in this segment in Brazil.
Income tax and social contribution for this segment, as well as for the Retail Banking and Trading & Institutional segments, is calculated by adopting the full income tax rate, net of the tax effect of any payment of interest on capital. The difference between the income tax amount determined for each segment and the effective income tax amount, as stated in our audited consolidated financial statements, is allocated to the Trading & Institutional segment. As discussed above, our current and deferred income and social contribution taxes decreased mainly as a result of the decrease in recognition of deferred tax assets rate. In 2018, the legislation temporarily increased the recognition rate for income and social contribution taxes to 45%. In 2019, it was reduced to 40% and as of March 1, 2020, the recognition rate will be 45%.
(c) | Trading & Institutional |
It corresponds to the result arising from capital surplus, subordinated debt surplus and the net balance of tax credits and debits. It also includes the financial margin on market trading, treasury operating costs, and equity in earnings of companies not included in either of the other segments.
The following table sets forth our summarized consolidated statement of income with respect to our Trading & Institutional segment for the years ended December 31, 2019 and 2018:
Year ended December 31, | Variation 2019x2018 | |||||||||||||||
Summarized Consolidated Statement of Income—Trading & Institutional | 2019 | 2018 | R$ million | % | ||||||||||||
(In millions of R$) | ||||||||||||||||
Operating revenues | 9,913 | 10,246 | (333 | ) | (3.3 | ) | ||||||||||
Cost of credit and claims | — | — | — | — | ||||||||||||
Other operating income (expenses) | (986 | ) | (1,070 | ) | 84 | (7.8 | ) | |||||||||
Income tax and social contribution | (2,545 | ) | (2,964 | ) | 418 | (14.1 | ) | |||||||||
Non-controlling interest in subsidiaries | (51 | ) | (35 | ) | (16 | ) | 45.9 | |||||||||
Net income | 6,331 | 6,177 | 154 | 2.5 | ||||||||||||
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Operating revenuesdecreased by 3.3%, mainly due to lower result from trading activities, impacted by the decrease in the SELIC rate to 4.5% as of December 31, 2019 from 6.5% as of December 31, 2018.
Income tax and social contribution for this segment, as well as for the Retail Banking and Wholesale Banking segments, is calculated by adopting the full income tax rate, net of the tax effect of any payment of interest on capital. The difference between the income tax amount determined for each segment and the effective income tax amount, as stated in our audited consolidated financial statements, is allocated to the Trading & Institutional segment. As discussed above, our current and deferred income and social contribution taxes decreased mainly as a result of the decrease in recognition of deferred tax assets rate. In 2018, the legislation temporarily increased the recognition rate for income and social contribution taxes to 45%. In 2019, it was reduced to 40% and as of March 1, 2020, the recognition rate will be 45%.
Results of Operations – 2018 compared to 2017
Ournet income attributable to the owners of the parent company increased by 7.4% to R$24,907 million in 2018 from R$23,193 million in 2017. Our operating revenues decreased by 6.6% in this period. This result was more than offset by a decrease of 51.4% in expenses with expected loss from financial assets and claims and a decrease of 32.5% in expenses with current and deferred income and social contribution taxes.
Net interest income decreased by 14.8%, mainly due to the adjustment to the fair value of financial assets and liabilities. In 2018, the nominal depreciation of the real against U.S. dollar was 17.1%, in 2017 the nominal depreciation of the real against U.S. dollar was 1.5%.
The fiscal effect on the hedging instruments for our investments abroad increased R$6,269 million in 2018 resulting in a gain of R$8,012 million, compared to a gain of R$1,743 million in 2017.
As a result, disregarding the fiscal effect on the hedging instruments for our investments abroad mentioned above, net interest income in reduced R$4,268 million in 2018 compared to the same period in 2017, mainly due to a decrease in the SELIC rate to 6.5% in 2018 from 7.0% in 2017.
Non-Interest Income increased by 8.0%, mainly due to:
(i) a 21.1% increase in revenues from asset management fees, as a result of an increase of 16.6% in assets under administration;
(ii) a 4.0% increase in income from credit and debit card service fees, as a result of increased transaction volume and increased revenue from credit and debit card annuity fees; and
(iii) a 4.5% increase in income from current account services, which includes advisory services, as a result of higher number of current-account holders and increased capital markets activities.
Expected Loss from Financial Assets and Claims decreased by 51.4%, mainly due to lower expenses with expected loss with loan and lease operations, as a result of the improvement in the credit quality of our total loan portfolio. From 2015 to 2017, we made greater provisions of our expected loss from financial assets and claims due to the Brazilian economic context with deteriorating credit quality, mainly in the wholesale banking segment.
Non-performing loans: Our90-daynon-performing loan ratio decreased by 42 basis points to 3.5% as of December 31, 2018 from 3.9% as of December 31, 2017, mainly due to an 83 basis points decrease of in the90-day NPL ratio of our individuals loan portfolio, driven by the reduction ofnon-performing loans and the growth of the balance in individuals loan portfolio.
Our 15 to 90 days NPL ratio decreased by 41 basis points to 2.3% as of December 31, 2018 from 2.7% as of December 31, 2017, mainly due to a: (i) 50 basis points decrease in the 15 to90-day NPL ratio of our companies loan portfolio and (ii) 36 basis points decrease in the 15 to90-day NPL ratio of our individuals loan portfolio. Both decreases were driven by the growth of the balance in our loan portfolio and the reduction ofnon-performing loans.
Coverage ratio (90 days): Our coverage ratio decreased to 179.4% as of December 31, 2018 from 187.6% as of December 31, 2017, mainly due to reduced provisions for expected losses from loans to companies, driven by an improvement in our corporate clients’ risk profile.
Other Operating Income (Expenses) increased by 5.7% to an expense of R$63,410 million in 2018 from an expense of R$59,975 million in 2017, mainly due to:
(i) an increase of 6.7% in personnel expenses, resulting from the collective bargaining agreement, which resulted in a 5% wage increase for our employees;
(ii) an increase of 1.0% in headcount due to the hiring of new insurance consultants, REDE sales representatives and technology department personnel to accelerate our digital transformation process; and
(iii) an increase of 6.0% in administrative expenses due to the higher cost of third-party services (increase of 7.7%); data processing and telecommunications (increase of 2.9%); and advertising, promotion and publication (increase of 21.6%).
Please see “Note 23—General and administrative expenses” to our audited consolidated financial statements for further details.
Current and deferred income and social contribution taxes amounted to an expense of R$4,969 million from an expense of R$7,357 million, mainly due to the fiscal effect on the hedging instruments for our investments abroad, as mentioned in “ —Net interest income.” Disregarding the fiscal effect on the hedging instruments for our investments abroad, which amounted to an expense of R$7,305 million in 2018 and an expense of R$1,615 million in 2017, current and deferred income and social contribution taxes increased 26.9% in 2018, mainly as a result of the increase in recognition of deferred tax assets rate. In 2017, the recognition rate for income and social contribution taxes was 40%. In 2018, the legislation temporarily increased this rate to 45%.
Please see “Note 24 – Taxes” to our audited consolidated financial statements for further details.
Presentation of Segment Information — 2018 compared to 2017
(a) | Retail Banking |
The following table sets forth our summarized consolidated statement of income with respect to our Retail Banking segment for the years ended December 31, 2018 2017 and 2016:2017:
For the Year Ended December 31, | Variation | |||||||||||||||||||||||||||
Summarized Consolidated Statement of Income - Retail banking | 2018 | 2017 | 2016 | 2018-2017 | 2017-2016 | |||||||||||||||||||||||
(In millions of R$, except percentages) | ||||||||||||||||||||||||||||
Banking product | 72,182 | 69,921 | 70,496 | 2,261 | 3.2% | (575 | ) | -0.8% | ||||||||||||||||||||
Cost of Credit and Claims | (13,686 | ) | (13,388 | ) | (15,820 | ) | (298 | ) | 2.2% | 2,432 | -15.4% | |||||||||||||||||
Other operating income (expenses) | (40,002 | ) | (37,601 | ) | (37,202 | ) | (2,401 | ) | 6.4% | (399 | ) | 1.1% | ||||||||||||||||
Income tax and social contribution | (6,939 | ) | (7,107 | ) | (6,328 | ) | 168 | -2.4% | (779 | ) | 12.3% | |||||||||||||||||
Non-controlling interest in subsidiaries | (184 | ) | (166 | ) | (223 | ) | (18 | ) | 10.8% | 57 | -25.6% | |||||||||||||||||
Net income | 11,371 | 11,659 | 10,923 | (288 | ) | -2.5% | 736 | 6.7% | ||||||||||||||||||||
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Year ended December 31, | Variation 2018 x 2017 | |||||||||||||||
Summarized Consolidated Statement of Income—Retail banking | 2018 | 2017 | R$ million | % | ||||||||||||
(In millions of R$) | ||||||||||||||||
Operating revenues | 72,182 | 69,921 | 2,260 | 3.2 | ||||||||||||
Cost of credit and claims | (13,686 | ) | (13,388 | ) | (297 | ) | 2.2 | |||||||||
Other operating income (expenses) | (40,002 | ) | (37,601 | ) | (2,401 | ) | 6.4 | |||||||||
Income tax and social contribution | (6,939 | ) | (7,107 | ) | 168 | (2.4 | ) | |||||||||
Non-controlling interest in subsidiaries | (184 | ) | (166 | ) | (18 | ) | 11.0 | |||||||||
Net income | 11,371 | 11,659 | (288 | ) | (2.5 | ) | ||||||||||
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Our netNet income from retail banking decreased by 2.5% to R$11,371 million in retail bankingincreased by6.7%2018 from 2016 to 2017, and decreased 2.5%R$11,659 million in 2018.2017. These results are explained as follows:
Banking productOperating revenues: increased by 3.2% from 2017, mainly due to 2018. This growth derived from: (i) an increase of 4.3% in interest margin on account of higher volumes of credit originated with individuals and small and medium business, reflecting a 10.3% increase in retail loan operations in 2018; and (ii) an increase of 4.3% in banking service fees, mainly driven by revenues from current account services, given the increased number of current-account holders, and by credit and debit card fees, given the higher number of clients and transaction volume. of:
(i) | 4.3% in interest margin on account of increase in credit origination with individuals and small and medium business, reflecting a 10.3% increase in retail loan operations in 2018; and |
(ii) | 4.3% in banking service fees, mainly driven by revenues from current account services, as a result of higher number of current-account holders and by credit and debit card fees, given the higher number of clients and transaction volume. |
This result was partially offset by a decrease in the results from insurance and private pension operations.
From 2016 to 2017, banking product decreased by 0.8%. The main drivers of this result were: (i) a decrease in interest margin of 3.8% due to the new regulatory framework for credit cards and the adverse impact of the lower interbank deposit rate on the liabilities margin and on the remuneration of the allocated capital; and (ii) a decrease of 6.6% in income from insurance, private pension and capitalization operations before claim and selling expenses. These effects were partially offset by an increase of 6.3% in banking service fees due to higher revenues from current account services, the increased number of current-account holders and a differentiated products and services offering.
Cost of credit and claims increased by 2.2% in 2018 when compared to 2017, in lineconsistent with the previously mentioneddiscussed loan portfolio growth in the segment in Brazil.
In 2017, we experienced a decrease of 15.4% compared to 2016, mainly because of improvement in our credit quality and therefore lower provisions for loan losses.
Other operating income (expenses)increased by 6.4% in 2018 compared to 2017,, mainly due to the intensification of investments in acquiring business (REDE) and insurance operations and by the incorporation of the retail operations acquired from Citibank. Additionally, these expenses were impacted by thean increase in the number of employees and the collective bargaining agreement. From 2016 to 2017, other operating income (expenses) increased by 1.1%, mainly reflecting new hires for the branch network and the REDE commercial team, as well as the acquisition of Citibank’s retail operations in Brazil.of:
Wholesale Banking
(i) | 6.7% in personnel expenses, resulting from the collective bargaining agreement, which resulted in a 5% wage increase for bank employees; and |
(ii) | 1.0% in headcount due to the hiring of new insurance consultants, REDE sales representatives and technology department personnel to accelerate our digital transformation process. |
The result of this segment is derived from the products and services offered to middle-market companies, private banking clients, the activities of the Latin American units (excluding Brazil), including those of CorpBanca as of the second quarter of 2016 following the merger between Banco Itaú Chile and CorpBanca, and the activities of Itaú BBA, the unit in charge of commercial operations with large companies, in addition to operating as an investment banking unit.
(b) | Wholesale Banking |
The following table sets out theforth our summarized consolidated statement of income with respect to our Wholesale Banking segment for the years ended December 31, 2018 2017 and 2016:2017:
Summarized Consolidated Statement of Income - Wholesale banking | For the Year Ended December 31, | Variation | ||||||||||||||||||||||||||||||||||||||||||
2018 | 2017 | 2016 | 2018-2017 | 2017-2016 | ||||||||||||||||||||||||||||||||||||||||
(In millions of R$, except percentages) | Year ended December 31 | Variation 2018 x 2017 | ||||||||||||||||||||||||||||||||||||||||||
Banking product | 29,389 | 28,748 | 30,498 | 641 | 2.2% | (1,750 | ) | -5.7% | ||||||||||||||||||||||||||||||||||||
Cost of Credit and Claims | (1,608 | ) | (5,882 | ) | (10,645 | ) | 4,274 | -72.7% | 4,763 | -44.7% | ||||||||||||||||||||||||||||||||||
Summarized Consolidated Statement of Income—Wholesale banking | 2018 | 2017 | R$ million | % | ||||||||||||||||||||||||||||||||||||||||
(In millions of R$) | ||||||||||||||||||||||||||||||||||||||||||||
Operating revenues | 29,389 | 28,748 | 642 | 2.2 | ||||||||||||||||||||||||||||||||||||||||
Cost of credit and claims | (1,608 | ) | (5,882 | ) | 4,274 | (72.7 | ) | |||||||||||||||||||||||||||||||||||||
Other operating income (expenses) | (15,217 | ) | (14,523 | ) | (13,410 | ) | (694 | ) | 4.8% | (1,113 | ) | 8.3% | (15,217 | ) | (14,523 | ) | (694 | ) | 4.8 | |||||||||||||||||||||||||
Income tax and social contribution | (3,829 | ) | (2,412 | ) | (1,081 | ) | (1,417 | ) | 58.7% | (1,331 | ) | 123.1% | (3,829 | ) | (2,412 | ) | (1,416 | ) | 58.7 | |||||||||||||||||||||||||
Non-controlling interest in subsidiaries | (550 | ) | 117 | 79 | (667 | ) | -570.1% | 38 | 48.1% | (550 | ) | 117 | (668 | ) | (568.8 | ) | ||||||||||||||||||||||||||||
Net income | 8,185 | 6,048 | 5,441 | 2,137 | 35.3% | 607 | 11.2% | 8,185 | 6,048 | 2,138 | 35.3 | |||||||||||||||||||||||||||||||||
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Our netNet income from wholesale banking increased by 35.3% to R$8,185 million in wholesale bankingincreased by35.3%2018 from 2017 to 2018, and by 11.2% from 2016 toR$6,048 million in 2017. These results are explained as follows:
Banking product:Operating revenues: increased by 2.2% from 2017, mainly due to 2018, mainly because of the increase ofa R$934 million in banking service fees, partially offset by the R$496 million decline in interest margin. The increase in banking service fees, was due to higher revenuesresulting from asset management services, related to higher balances and the performance fee of managed portfolios and investment funds.
In 2017, banking product for this segment decreased by 5.7% compared to 2016. This is explained by the decrease ofincrease was partially offset a R$2,503496 million decline in interest margin in this period, as a consequence of lower basic interest rates and a reduction in loan and lease operations in this segment, partially offset by an increase of R$804 million in banking service fees, mainly due to the reasons presented above.margin.
Cost of credit and claimsdecreased by 72.7% in 2018 compared to 2017, and by 44.7% in 2017, compared to 2016,, mainly due to the improvement inimproved credit ratings in this segment, leading toresulting in a lower volume of provisions and reversals in the periods.
Non-controlling interest in subsidiariesamounted to a loss of R$550 million in 2018, mainly reflecting the better results of our operations in Chile. From 2016 to 2017, the variation in this result was not material.
Activities with the Market and Corporation
This segment includes the results from investing our surplus capital, the costs of our surplus subordinated debt and the net balance of tax assets and liabilities. It also includes the financial margin on market transactions, the costs of treasury operations and equitypick-up from companies not linked to any segments, as well as adjustments related to minority shareholdings in subsidiaries and our equity interest in Porto Seguro S.A.
(c) | Trading & Institutional |
The following table shows thesets forth our summarized consolidated statement of income with respect to our Activities with the Market and CorporationTrading & Institutional segment for the years ended December 31, 2018 2017 and 2016:2017:
Summarized Consolidated Statement of Income - Activities with the Market | For the Year Ended December 31, | Variation | ||||||||||||||||||||||||||
2018 | 2017 | 2016 | 2018-2017 | 2017-2016 | ||||||||||||||||||||||||
(In millions of R$, except percentages) | ||||||||||||||||||||||||||||
Banking product | 10,246 | 10,623 | 9,412 | (377 | ) | -3.5% | 1,211 | 12.9% | ||||||||||||||||||||
Cost of Credit and Claims | - | (6 | ) | 71 | 6 | -100.0% | (77 | ) | -108.5% | |||||||||||||||||||
Other operating income (expenses) | (1,070 | ) | (1,647 | ) | (2,387 | ) | 577 | -35.0% | 740 | -31.0% | ||||||||||||||||||
Income tax and social contribution | (2,964 | ) | (1,775 | ) | (1,237 | ) | (1,189 | ) | 67.0% | (538 | ) | 43.5% | ||||||||||||||||
Non-controlling interest in subsidiaries | (35 | ) | (23 | ) | (1 | ) | (12 | ) | 52.2% | (22 | ) | 2,200% | ||||||||||||||||
Net income | 6,177 | 7,172 | 5,858 | (995 | ) | -13.9% | 1,314 | 22.4% | ||||||||||||||||||||
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Year ended December 31, | Variation 2018 x 2017 | |||||||||||||||
Summarized Consolidated Statement of Income—Trading & Institutional | 2018 | 2017 | R$ million | % | ||||||||||||
(In millions of R$) | ||||||||||||||||
Operating revenues | 10,246 | 10,623 | (376 | ) | (3.5 | ) | ||||||||||
Cost of credit and claims | — | (6 | ) | — | — | |||||||||||
Other operating income (expenses) | (1,070 | ) | (1,647 | ) | 577 | (35.0 | ) | |||||||||
Income tax and social contribution | (2,964 | ) | (1,775 | ) | (1,189 | ) | 67.0 | |||||||||
Non-controlling interest in subsidiaries | (35 | ) | (23 | ) | (12 | ) | 51.4 | |||||||||
Net income | 6,177 | 7,172 | (996 | ) | (13.9 | ) | ||||||||||
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Banking productOperating revenuesdecreased by 3.5% from 2017 to 2018 as a consequence of lowerreduced interest margins with market¹. From 2016 to 2017, banking product increased by 12.9%, mainly due to an increase of 13.5% in interest margin, as consequence of better results on asset and liability management transactions.market.
Net incomein thissegment decline by 13.9% in 2018, compared to 2017. This decrease was mainly due to the increase of R$1,189 million in income and social contribution taxes from the recognition of deferred tax assets at a rate of 40% and, as our effective tax rate in 2018 was temporarily increased (due to the current legislation), tax payments at a rate of 45%.
In 2017, net income in this segment increased 22.4% when compared to 2016, mostly driven by the increase in banking product mentioned above.
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Balance Sheet
We present below our summarized balance sheet for the years 2017as of December 31, 2019 and 2018. Please see our audited consolidated financial statements for further details about our Consolidated Balance Sheet.
As of December 31, | Annual variation | As of December 31, | Variation | |||||||||||||||||||||||||||||
Summarized Balance Sheet - Assets | 2018 | 2017(1) | R$ millions | % | ||||||||||||||||||||||||||||
Summarized Balance Sheet—Assets | 2019 | 2018 | R$ million | % | ||||||||||||||||||||||||||||
(In millions of R$) | (In millions of R$) | |||||||||||||||||||||||||||||||
Cash and compulsory deposits in the Central Bank of Brazil | 131,307 | 117,586 | 13,721 | 11.7 | 121,615 | 131,307 | (9,692 | ) | (7.4 | ) | ||||||||||||||||||||||
Financial assets at amortized cost | 994,759 | 905,729 | 89,030 | 9.8 | 1,010,644 | 994,759 | 15,885 | 1.6 | ||||||||||||||||||||||||
Loan operations and lease operations portfolio | 536,091 | 497,719 | 38,372 | 7.7 | 585,791 | 536,091 | 49,700 | 9.3 | ||||||||||||||||||||||||
(-) Provision for Expected Loss | (33,373 | ) | (36,737 | ) | 3,364 | (9.2 | ) | (36,029 | ) | (33,373 | ) | (2,656 | ) | 8.0 | ||||||||||||||||||
Other financial assets | 492,041 | 444,747 | 47,294 | 10.6 | 460,882 | 492,041 | (31,159 | ) | (6.3 | ) | ||||||||||||||||||||||
Financial assets at fair value through other comprehensive inc | 49,323 | 52,149 | (2,826 | ) | (5.4 | ) | ||||||||||||||||||||||||||
Financial assets at fair value through other comprehensive income | 76,660 | 49,323 | 27,337 | 55.4 | ||||||||||||||||||||||||||||
Financial assets at fair value through profit or loss | 286,646 | 273,536 | 13,110 | 4.8 | 322,929 | 286,646 | 36,283 | 12.7 | ||||||||||||||||||||||||
Investments in associates and joint ventures, Fixed assets, Goodwill and Intangible assets and other assets | 47,932 | 42,990 | 4,942 | 11.5 | ||||||||||||||||||||||||||||
Investments in associates and join ventures, Fixed assets, Goodwill and Intangible assets, assets held for sale and other assets | 56,673 | 47,932 | 8,741 | 18.2 | ||||||||||||||||||||||||||||
Tax assets | 42,830 | 44,249 | (1,419 | ) | (3.2 | ) | 48,960 | 42,830 | 6,130 | 14.3 | ||||||||||||||||||||||
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Total assets | 1,552,797 | 1,436,239 | 116,558 | 8.1 | 1,637,481 | 1,552,797 | 84,684 | 5.5 | ||||||||||||||||||||||||
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(1) |
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Includes Interbank deposits; Securities purchased under agreements to resell; Securities; and Other financial assets. |
OurTotal assetsincreased by 8.1% from 2017 to 2018,5.5% in 2019, mainly due to the largeran increase in our loan operations and lease operations portfolio andportfolio. This result was partially offset by other financial assets at amortized cost. These results are detailed as follows:further described below:
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Cash and compulsory deposits in the Central Bank of Brazildecreased by 7.4% mainly due to: (i) an increase of R$5,895 million in dividends and interest on capital paid compared to 2018 and (ii) a decrease of R$2,900 million in the Central Bank’s compulsory rates for time deposits from 33.0% as of December 31, 2018 to 31.0% as of December 31, 2019.
Loan and Lease Operations, by asset type | 2018 | 2017(1) | Annual variation | |||||||||||||
(In millions of R$) | R$ millions | % | ||||||||||||||
Individuals | 212,564 | 193,385 | 19,179 | 9.9 | ||||||||||||
Credit card | 78,255 | 67,413 | 10,842 | 16.1 | ||||||||||||
Personal loans | 29,543 | 27,295 | 2,248 | 8.2 | ||||||||||||
Payroll Loans | 46,878 | 44,716 | 2,162 | 4.8 | ||||||||||||
Vehicles | 15,920 | 14,165 | 1,755 | 12.4 | ||||||||||||
Mortgage loans | 41,968 | 39,796 | 2,172 | 5.5 | ||||||||||||
Corporate | 102,643 | 107,647 | (5,004 | ) | (4.6 | ) | ||||||||||
Small and Medium Businesses | 68,812 | 60,290 | 8,522 | 14.1 | ||||||||||||
Foreign Loans Latin America | 152,072 | 136,397 | 15,675 | 11.5 | ||||||||||||
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Total Loan operations and lease operations portfolio | 536,091 | 497,719 | 38,372 | 7.7 | ||||||||||||
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Loan and lease operations portfolio increased by 9.3%, mainly due to: (i) an increase of 13.1% in our individuals loan portfolio (credit origination increased by 23.4%) and (ii) an increase of 25.3% in our micro/small and medium businesses portfolio (credit origination increased by 31.3%). These increases were mainly driven by increased client demand, such as an increase of 17.2% for credit cards. We also note that our corporate loan portfolio increased by 2.6%. Credit origination in this segment increased by 23.2%.
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As of December 31 | Variation | |||||||||||||||
Loan and Lease Operations, by asset type | 2019 | 2018 | R$ million | % | ||||||||||||
(In millions of R$) | ||||||||||||||||
Individuals | 240,490 | 212,564 | 27,926 | 13.1 | ||||||||||||
Credit card | 91,676 | 78,255 | 13,421 | 17.2 | ||||||||||||
Personal loans | 34,892 | 29,543 | 5,349 | 18.1 | ||||||||||||
Payroll Loans | 49,608 | 46,878 | 2,730 | 5.8 | ||||||||||||
Vehicles | 18,968 | 15,920 | 3,048 | 19.1 | ||||||||||||
Mortgage loans | 45,346 | 41,968 | 3,378 | 8.0 | ||||||||||||
Corporate | 105,302 | 102,643 | 2,659 | 2.6 | ||||||||||||
Micro/Small and Medium Businesses | 86,220 | 68,812 | 17,408 | 25.3 | ||||||||||||
Foreign Loans Latin America | 153,779 | 152,072 | 1,707 | 1.1 | ||||||||||||
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Total Loan operations and lease operations portfolio | 585,791 | 536,091 | 49,700 | 9.3 | ||||||||||||
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Please see “Note 10—Loan operations and lease operations portfolio” to our audited consolidated financial statements for further details.
Other financial assets at amortized costincreaseddecreased by 10.6% in 2018 compared to 20176.3% mainly due to the higher volumedecrease of R$81,710 million in funding from securities under agreement to resell in the same period. This result was partially offset by the following increases: (i) R$8,167 million in interbank deposits, (ii) R$22,724 million the balance of in Brazilian government securities, government securities abroad and corporate debt securities, especially debentures and (iii) in other financial assets, an increase in receivables from credit card issuers amounted to R$5,904 million and trading and intermediation of securities increased R$11,096 million.
Please see “Note 4—Interbank deposits and securities purchased under agreements to resell (increase of 14.5%) as part of our assetresell”, “Note 9—Financial assets at amortized cost – Securities” and liability management strategy.
Please see “Note 18—18 – Other assets and liabilities” to our audited consolidated financial statements for further details.
Financial assets at fair value through profit or lossother comprehensive incomeincreased by 4.8% in 2018, compared to 2017,55.4% mainly due to higher allocationsan increase of collateral for technical provisions related to pension plans (increaseR$22,893 million in the balance of 11%).Brazilian government securities and government securities abroad as part of our asset and liability management strategy. Further, our corporate debt securities, particularly bank deposits certificates, increased by R$2,645 million.
Please see “Note 58 – Financial assets held for trading and designated at fair value through profit or loss—Securities” and “Note 27other comprehensive income – Insurance contracts and private pension”Securities” to our audited consolidated financial statements for further details.
Investments in associates and joint ventures, FixedFinancial assets Goodwill and Intangible assets and other assetsat fair value through profit or lossincreased by 11.5%, mainly because of our acquisition of anon-controlling interest in XP Investimentos (49.9% of the total share capital).
For more details regarding our investment in XP Investimentos, see “Item 4A. History and Development of the Company.”
As of December 31, | Annual variation | |||||||||||||||
Summarized Balance Sheet - Liabilities and stockholders’ equity | 2018 | 2017(1) | R$ millions | % | ||||||||||||
(In millions of R$) | ||||||||||||||||
Financial Liabilities | 1,151,237 | 1,056,717 | 94,520 | 8.9 | ||||||||||||
At Amortized Cost | 1,119,734 | 1,024,584 | 95,150 | 9.3 | ||||||||||||
Deposits | 463,424 | 402,938 | 60,486 | 15.0 | ||||||||||||
Securities sold under repurchase agreements | 330,237 | 312,634 | 17,603 | 5.6 | ||||||||||||
Interbank market debt, Institutional market debt and Other financial liabilities | 326,073 | 309,012 | 17,061 | 5.5 | ||||||||||||
At Fair Value Through Profit or Loss | 27,711 | 27,211 | 500 | 1.8 | ||||||||||||
Provision for Expected Loss | 3,792 | 4,922 | (1,130 | ) | (23.0 | ) | ||||||||||
Reserves for insurance and private pension | 201,187 | 181,232 | 19,955 | 11.0 | ||||||||||||
Provisions | 18,613 | 19,736 | (1,123 | ) | (5.7 | ) | ||||||||||
Tax liabilities | 5,284 | 7,836 | (2,552 | ) | (32.6 | ) | ||||||||||
Other liabilities | 26,010 | 26,362 | (352 | ) | (1.3 | ) | ||||||||||
Total liabilities | 1,402,331 | 1,291,883 | 110,448 | 8.5 | ||||||||||||
Total stockholders’ equity attributed to the owners of the parent company | 136,782 | 131,378 | 5,404 | 4.1 | ||||||||||||
Non-controlling interests | 13,684 | 12,978 | 706 | 5.4 | ||||||||||||
Total stockholders’ equity | 150,466 | 144,356 | 6,110 | 4.2 | ||||||||||||
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Total liabilities andstockholders’ equity | 1,552,797 | 1,436,239 | 116,558 | 8.1 | ||||||||||||
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Total liabilities increased 8.5% in 2018 compared to 2017,12.7% mainly due to higherthe increase of R$18,388 million in derivatives and R$12,194 million in corporate debt securities, especially debentures and negotiable shares.
Please see “Note 5 – Financial assets at fair value through profit or loss and designated at fair value through profit or loss —Securities” to our audited consolidated financial statements for further details.
We present below our summarized balance sheet – liabilities and stockholders’ equity as of December 31, 2019 and December 31, 2018. Please see our audited consolidated financial statements for further details about our Consolidated Balance Sheet.
As of December 31 | Variation | |||||||||||||||
Summarized Balance Sheet—Liabilities and stockholders’ equity | 2019 | 2018 | R$ million | % | ||||||||||||
(In millions of R$) | ||||||||||||||||
Financial Liabilities | 1,211,999 | 1,151,237 | 60,762 | 5.3 | ||||||||||||
At Amortized Cost | 1,159,830 | 1,119,734 | 40,096 | 3.6 | ||||||||||||
Deposits | 507,060 | 463,424 | 43,636 | 9.4 | ||||||||||||
Securities sold under repurchase agreements | 256,583 | 330,237 | (73,654 | ) | (22.3 | ) | ||||||||||
Interbank market debt, Institutional market debt and other financial liabilities | 396,187 | 326,073 | 70,114 | 21.5 | ||||||||||||
At FairValue Through Profit or Loss | 48,029 | 27,711 | 20,318 | 73.3 | ||||||||||||
Provision for Expected Loss | 4,140 | 3,792 | 348 | 9.2 | ||||||||||||
Reserves for insurance and private pension | 218,334 | 201,187 | 17,147 | 8.5 | ||||||||||||
Provisions | 21,454 | 18,613 | 2,841 | 15.3 | ||||||||||||
Tax liabilities | 7,891 | 5,284 | 2,607 | 49.3 | ||||||||||||
Other liabilities | 28,338 | 26,010 | 2,328 | 9.0 | ||||||||||||
Total liabilities | 1,488,016 | 1,402,331 | 85,685 | 6.1 | ||||||||||||
Total stockholders’ equity attributed to the owners of the parent company | 136,925 | 136,782 | 143 | 0.1 | ||||||||||||
Non-controlling interests | 12,540 | 13,684 | (1,144 | ) | (8.4 | ) | ||||||||||
Total stockholders’ equity | 149,465 | 150,466 | (1,001 | ) | (0.7 | ) | ||||||||||
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Total liabilities and stockholders’ equity | 1,637,481 | 1,552,797 | 84,684 | 5.5 | ||||||||||||
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Total liabilities and stockholders’ equity increased by 5.5%, mainly due to an increase in deposits, securities sold under repurchase agreementsinterbank and reserves for insuranceinstitutional market debt and private pension.other financial liabilities. These results are detailed as follows:
Depositsincreased by 15.0% in 2018, compared to 2017, primarily time deposits (increase of 18.6%)9.4%, mainly due to thean increase of R$25,866 million in time deposits, partially as a result of a migration of resources from repurchase transactions involving collateralized debentures booked as securities sold under agreements to resell.repurchase agreement. Further, demands deposits also increased by R$9,725 million and savings deposits increased by R$7,693 million.
Please see “Note 15 – Deposits” to our audited consolidated financial statements for further details.
Securities sold under repurchase agreementsincreaseddecreased by 5.6% in 2018, compared to 2017,22.3%, mainly due to higher proceeds from repurchasethe decrease of (i) R$32,815 million in assets with right to sell or repledge the collateral; (ii) R$32,949 million in assets received as collateral and (iii) R$16,159 million in securities sold under resale agreements on collateralized third-partyof own issue.
Interbank and Institutional market debt and other financial liabilitiesincreased by 21.5%, mainly due to an increase of R$27,505 million in financial credit bills, and an increase of R$14,572 million in import and export financing, as a result of a change in our funding mix. Further, subordinated debt increased by 20.6%, mainly due to fund-raising of R$8,548 million in the balance of these debts. The volume of other liabilities for credit card operations increased by R$8,558 million in 2019 and trading and intermediation of securities (third-party portfolio grew 17.8%). As described above, this increase was partially offsetincreased by the migration of funds from repurchase agreements on collateralized debentures.R$8,788 million in 2019.
Please see “Note 17 – Securities sold under repurchase agreements and interbank and institutional market debts”funds” to our audited consolidated financial statements for further details.
Provision for insurance and private pension increased by 8.5%, mainly due to the following increases: (i) R$19,642 million in additions arising from premiums/contributions, mainly due to pension plans and (ii) R$16,517 million in adjustments of reserves and financial surplus, mainly due to inflation monetary restatement. These increases were partly offset by a decrease of R$15,623 million in redemptions in 2019.
Please see “Note 27 – Insurance contracts and private pension” to our audited consolidated financial statements for further details.
Interbank and Institutional market debt and other financial liabilitiesincreased by 5.5% in 2018 compared to 2017, due to a higher volume of financial credit bills (increase of 37.0%) and import and export financing (increase of 28.0%).
For more details, see “Item 4B – Business Overview – Selected Statistical Information – Liabilities – Funding – Main Sources”.
Stockholders’ equity (attributable to the owners of the parent company)increased by 4.1%0.1% to R$136,925 million in 2018 compared to 2017, due primarily to2019 from R$136,782 million in 2018. This result was impacted by R$27,113 million from net income. We remunerate our stockholders by means of monthlyincome and supplementary payments ofR$27,286 million paid as dividends and interest on own capital. In 2018, we paid or provisionedcapital in our stockholders’ equity R$23,667 million before taxes, R$22,437 million net of taxes (R$17,558 million in 2017). Under the buyback, in 2018 we acquired 19.7 million* of our ownnon-voting shares (56.9 million* of in 2017), totaling R$510 million.2019.
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The image below shows our payout and dividend distribution in 2018:
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For further details, see “Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers.” and “Item 5A. Operating Results – Capital Management”.
Capital-to-risk-weighted assets ratio
The Basel Ratio reached 18% on December 31, 2018, a decrease of 0.8 percentage points compared to December 31, 2017, mainly due to the payment of additional dividends related to the 2017 net income. Our Tier I (Common Equity Tier I + Additional Tier I Capital) was 16.0% and our Tier II was 1.9% on December 31, 2018.
Considering the applicable Basel III rules,In 2019, our Tier I Capital ratio decreased by 90 basis points as a result of an increase of R$73,228 million in our Risk-Weighted Assets (RWA), mainly due to higher exposure of Credit Risk-Weighted Assets (RWACPAD) as a result of the increase in credit origination.
These results were partially offset by 300 basis points resulting from the increase in net income and other equity changes in 2019.
As of December 31, 2019, our Tier I capital ratio was 15.9% at the end14.4% and our Common Equity Tier I ratio reached 13.2%. As of 2018. Due toDecember 31, 2019, Additional Tier I Capital represented 130 basis points of our Stockholder Remuneration Policy, and taking into account theTier I capital.
Growth of our credit portfolio requires higher capital requirements (Risk-Adjusted Assets). The combined effect of 2.4 percentage points after additional payment ofon our profitability in 2019 resulted in dividends and net interest on own capital our Tier I capital achieved the 13.5% target at the end of 2018. By the same measure, our Common Equity ratio stood at 12.5% at the end of 2018, compared to 12.9% at the end of 2017.
R$18.8 billion.
Please see “Note 32 – Risk and Capital Management” for further details on our capital risk management.
Cash FlowsLiquidity Ratios
The following table sets forthBasel III Framework introduced global liquidity standards, providing for minimum liquidity requirements and aims to ensure that banks can rely on their own sources of liquidity, leaving central banks as a lender of last resort. Basel III provides for two liquidity ratios to ensure that financial institutions have sufficient liquidity to meet their short-term and long-term obligations: (i) the main variations in ourliquidity coverage ratio, or LCR, and (ii) the net stable funding ratio, or NSFR. The Basel Committee on Banking Supervision requires a minimum of 100% for both the LCR and the NSFR.
We believe that the LCR and NSFR provide more relevant information than an analysis of summarized cash flowsflows. Our independent auditors review our LCR and NSFR and we are required to report these figured to the Central Bank on a quarterly basis.
We present below a discussion of our LCR and NSFR for the yearsyear ended December 31, 2018, 2017 and 2016:2019.
For the Year Ended December 31, | ||||||||||||
Summarized Cash Flows | 2018 | 2017(1) | 2016(1) | |||||||||
(In millions of R$) | ||||||||||||
Net cash from (used in) operating activities | 22,709 | 10,392 | 36,072 | |||||||||
Net cash from (used in) investing activities | 20,129 | (865 | ) | (16,727 | ) | |||||||
Net cash from (used in) financing activities | (31,584 | ) | (21,690 | ) | (10,070 | ) | ||||||
Net increase (decrease) in cash and cash equivalents | 11,254 | (12,163 | ) | 9,275 | ||||||||
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Liquidity Coverage Ratio
The LCR measures the short-term resistance of a bank’s liquidity risk profile. It is the ratio of the stock of high quality liquid assets to expected net cash outflows over the next 30 days, assuming a scenario of idiosyncratic or systemic liquidity stress.
We calculate our LCR according to the methodology established in Central Bank Circular 3,749/2015. We measure our total high liquidity assets for the end of each period to cash outflows and inflows as the daily average value for each period. Pursuant to Central Bank regulations, effective as of January 1, 2019, the minimum LCR is 100%.
As of December 31, | ||||||||
2019 | 2018 | |||||||
Liquidity Coverage Ratio | Total Weighted Value (average) | |||||||
(In millions of R$) | ||||||||
Total High Liquidity Assets (HQLA)(1) | 170.0 | 179.9 | ||||||
Cash Outflows(2) | 225.3 | 200.4 | ||||||
Cash Inflows(3) | 111.3 | 95.7 | ||||||
Total Net Cash Outflows | 114.0 | 104.7 | ||||||
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LCR% | 149.1% | 171.7% | ||||||
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Please see our audited consolidated financial statements for further details about our Consolidated Statement of Cash Flows.
Operating Activities: In 2018, net cash provided by operating activities was R$22,709 million due to increases in deposits and deposits received under securities repurchase agreements partially offset by the increase in loan operations (as a result of growth in our credit portfolio).
In 2017, net cash provided by operating activities was R$10,392 million as a result of the increase in deposits partially offset by changes in financial assets designated at fair value through profit or loss.
In 2016, net cash from operating activities was R$36,072 million as a result of increases in deposits, deposits received under securities repurchase agreements and funds from institutional markets, partially offset by an increase in loan operations and a decrease in funds from interbank markets.
Our management believes cash flows from operations, available cash balances and funds from interbank markets will be sufficient to fund our operating liquidity needs for the coming years.
Investing Activities: Investing activities include assets at fair value through other comprehensive income, at amortized cost, other receivables and investment securities.
In 2018, the increase in net cash provided by investing activities totaled R$20,129 million, mainly related to (i) cash flows received from financial assets at fair value through other comprehensive income in the amount of R$16,622 million and (ii) cash flows received from the redemption of financial assets at amortized cost in the amount of R$14,991 million.
In 2017, net cash used in investing activities totaled R$865 million, mainly related to the purchase of financial assets at fair value through other comprehensive income in the amount of R$21,647 million and the purchase of intangible assets in the amount of R$2,553 million.
In 2016, the decrease in net cash used in investing activities totaled R$16,727 million related to the purchase of financial assets at fair value through other comprehensive income and to the purchase of intangible assets.
Financing Activities: In 2018, net cash used in financing activities was R$31,584 million, mainly related to dividends and interest on capital paid in the amount of R$20,093 million and redemptions in institutional markets in the amount of R$15,048 million.
In 2017 net cash used in financing activities was R$21,690 million, mainly related to redemptions of our subordinated debt in institutional markets in the amount of R$13,573 million, dividends and interest on own capital paid in the amount of R$10,800 million and also the purchase of treasury shares in the amount of R$3,089 million. These effects were partially offset by funding from institutional markets.
In 2016 net cash used in financing activities was R$10,070 million, mainly related to an increase in redemption of our subordinated debt in institutional markets in the amount of R$14,170 million and dividends and interest on own capital paid in the amount of R$10,769 million.
Highlights of our business in 2018:
Acquisition of Citibank retail business in Brazil
On October 31, 2017, after approval from the regulatory bodies, we acquired Citibank’s retail business in Brazil.
Citibank’s retail operations in Brazil (which included 71 branches) had, as of the date of execution of the Equity Interest Purchase Agreement, approximately 315,000 retail bank clients, approximately 1.1 million credit cards, a credit portfolio of approximately R$6 billion and approximately R$35 billion in deposits and assets under management. The retail operations of Citibank in Brazil were consolidated on October 31, 2017, affecting our result from November 2017.
Perpetual Subordinated Notes
In March 2018, we accessed the international debt market by issuing an aggregate principal amount of US$750 million in perpetual subordinated notes/AT1. We had already issued an aggregate principal amount of US$1.25 billion of these notes in December 2017. The Central Bank approved the inclusion of this debt, as from the issuance date, in our Reference Equity as Additional Tier I Capital for our Tier I Capital ratio. The total increase was approximately 90 basis points on the Tier I Capital capitalization ratio, seeking to maintain our CET1 at 13.5% and distributing any surplus.
Apple Pay and Samsung Pay
As of the first quarter of 2018, we made Apple Pay and Samsung Pay available to our clients. Both tools are new mechanisms for clients to make payments in the retail ande-commerce segments, enabling them to purchase with their iPhone, Apple Watch, iPad and MacBook (Apple Pay) or Samsung Smartphones and Smartwatch Gear (Samsung Pay).
POP Credicard
In July 2018, we announced the entry of the Credicard brand into the merchant acquiring segment, with a POS machine family (POP Credicard and Mega POP Credicard), which can be purchased through its website. In addition to selling POS machines, our strategy is to have a simpler commercial proposal, based on shorter payment terms to retailers and competitive rates for debit and credit card transactions. This operation seeks to target self-employed individuals, microentrepreneurs and small companies. This initiative is an addition to our product offering in the acquiring market.
XP Investimentos S.A. – Minority interest
In August 2018, we concluded the acquisition of a 49.9% minority interest in XP Investimentos through a capital injection of R$600 million, and the acquisition of R$5.7 billion¹ in shares. The contract also provides for aone-off additional transaction in 2022, subject to future approval by the Central Bank and which, if approved, will enable us to hold 62.4% of the total equity of XP Investimentos (equal to 40.0% of the common shares) based on an income multiple (19 times) of XP Investimentos, with control of the XP group remaining unchanged.
The acquisition of XP Investimentos did not have a significant impact on our results. For further information see “Item 4.A. History and Development of the Company – History – Recent Acquisitions”.
No fees charged for Treasury Direct bonds, Pension funds and Fixed Income products
In September 2018, we zeroed out our custody fees forTesouro Direto(direct retail purchases of treasury direct bonds) offered by Itaú Corretora and for fixed income products (bank deposit certificates (CDBs) from other managers, financial credit bills, debentures, real estate receivables certificates (CRIs) and agribusiness receivables certificates (CRAs)). Additionally, we also zeroed out the initial and final contribution fees for Private Pension plans (VGBL and PGBL) for all bank customers. This initiative provides them with more investment options in a scenario of low interest rates.
Ticket – Minority interest
On September 4, 2018, we entered into a strategic partnership with Edenred Participações S.A. in the employee benefits market, mainly regulated by thePrograma de Alimentação do Trabalhador (Worker’s Meal Program). Under this agreement, Itaú will make a minority investment of 11% in Ticket, by means of a capital increase paid in (i) cash, equivalent to the book value of such equity interest, and (ii) with the contribution of distribution exclusivity rights regardingTicket Restaurante,Ticket Alimentação,Ticket Cultura andTicket Transporte to Itaú’s corporate client base during the term of the partnership. Ticket will continue to distribute its products by means of other commercial agreements and shall remain under Edenred’s control and management. The completion of this transaction is conditioned upon the necessary regulatory approvals.
Zero cost on advances against single-installment credit card sales
Clients of Rede with annual sales of up to R$ 30 million2 who use Rede equipment and receive their payments with Itaú Unibanco, will have the amounts – related to their single-installment credit card sales done after on May 2, 2019 – deposited in two days, without the advancement charge. This initiative applies to both current and new customers and aims to benefit small and medium companies, as well as the self-employed and micro entrepreneurs, and users of any model of the Rede device are eligible.
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(3) | Inflows — total potential cash inflows for a30-day horizon, calculated for a standard stress scenario as defíned by BACEN Circular 3,749. |
Our average LCR as of December 31, 2019 was 149.1% and, accordingly, above Central Bank requirements.
Net Stable Funding Ratio
The NSFR measures long-term liquidity risk. It is the ratio of available stable funding to required stable funding over aone-year time horizon, assuming a stressed scenario.
We calculate our NSFR according to the methodology established in Central Bank Circular 3,869/2017. The NSFR corresponds to the ratio of our available stable funds for the end of each period (recursos estáveis disponíveis, or ASF) to our required stable funds for the end of each period (recursos estáveis requeridos, or RSF).
Pursuant to Central Bank regulations, effective as of October 1, 2018, the minimum NSFR is 100%.
As of December 31, | ||||||||
2019 | 2018 | |||||||
Net Stable Funding Ratio | Total Ajusted Value | |||||||
(In millions of R$) | ||||||||
Total Available Stable Funding (ASF)(1) | 733.2 | 691.6 | ||||||
Total Required Stable Funding (RSF)(2) | 600.0 | 541.6 | ||||||
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NSFR (%) | 122.2% | 127.7% | ||||||
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(1) | ASF—Available Stable Funding—refers to liabilities and equity weighted by a discount factor according to their stability, pursuant to Central Bank Circular 3,869/2017. |
(2) | RSF—Required Stable Funding—refers to assets andoff-balance exposures weighted by a discount factor to their necessity, pursuant to Central Bank Circular 3,869/2017. |
As of December 31, 2019, our ASF totaled R$733.2 million, mainly due to capital and retail and wholesale funding, and our RSF totaled R$600.0 million, particularly due to loans and financing with wholesale and retail customers, central governments and transactions with central Banks.
As of December 31, 2019, our NSFR was 122.2% and, accordingly, above Central Bank requirements.
Recent Developments
This section presents a summary of certain measures adopted by the CMN and the Central Bank to address the consequences of theCOVID-19 pandemic on the Brazilian financial system. This section should be read in conjunction with “Item 4B. Business Overview—Supervision and Regulation.”
(a) | Temporary Suspension of Dividend Distributions and Increases in Compensation of Directors and Officers |
Pursuant to CMN Resolution No. 4,797/2020 Brazilian financial institutions may not: (i) distribute dividends in excess of the minimum amount provided for in Brazilian Corporate Law and in each institutions’ bylaws; (ii) engage in share repurchases (except for certain limited exceptions); (iii) reduce their capital and (iv) increase compensation of directors and officers. These restrictions are effective from April 6 through September 20, 2020.
For further information, see “Item 8A—Consolidated Statements and Other Financial Information—Stockholders’ Payment” and “Item 6B—Compensation.”
(b) | Reduction of Capital Conservation Buffer |
CMN Resolution No. 4,783, of March 16, 2020 (“Resolution No. 4,783/20”) modified some of the capital requirements applicable to financial institutions in order to increase the ability of banks to renegotiate credit transactions and maintain the flow of engaging in new transactions. This measure temporarily reduces the Capital Conservation Buffer (where all rates relate to the total amount of risk weighted assets) required from financial institutions, from 2.5% to 1.25%. The rate of 1.25% will remain in effect through March 31, 2021. From April 1, 2021 through April 1, 2022 the Capital Conservation Buffer requirement will gradually be restored to 2.5%. For more information on capital requirements and buffers applicable to Brazilian financial institutions, see “Item 4B. Business Overview—Supervision and Regulation—Basel III.”
(c) | Repos on Sovereign Securities Denominated in U.S. Dollars |
On March 18, 2020, the Central Bank issued Circular No. 3,990 establishing conditions for repurchase transactions of U.S. Dollar denominated federal securities between Brazilian financial institutions and the Central Bank. These securities will be purchased by the Central Bank with a 10% discount in relation to market prices and simultaneously, the financial institution assumes the obligation to purchase the securities in a future date. The rules determine also a margin transfer during the term of the transaction whenever the exposure is equal or greater than US$500,000. The purpose of this measure is to provide liquidity to the Brazilian sovereign securities market, by means of (i) offering liquidity in U.S. Dollars to Brazilian banks; and (ii) reducing trading volatility of these bonds.
(d) | Changes to Provision Requirements |
CMN Resolution No. 4,782/20 exempts financial institutions from considering certain restructuring of contracts as an indicative that would indicate that a counterparty may default, therefore allowing loans to be granted without requiring additional provisions. CMN Resolution No. 4,782/20 is effective through September 30, 2020.
(e) | New Time Deposits with Special Collateral |
The CMN has regulated funding through new Time Deposits with Special Collateral (Novo Depósito a Prazo com Garantias Especiais or “DPGEs”), which are deposits taken by financial institutions and guaranteed by the FGC, subject to a cap of R$40 million. For more information on the FGC, please refer to “Item 4B. Business Overview—Supervision and Regulation—Deposit Insurance.”
(f) | Temporary Special Liquidity Credit Facility |
The CMN enacted Resolution No. 4,786 and Resolution No. 4,795 providing for two types of a Temporary Special Liquidity Credit Facility offering financial institution more liquidity in their transactions.
The Resolution No. 4,786, authorized the Central Bank to grant loans to certain financial institutions, secured by debentures held by such institutions and acquired on the secondary market, subject to certain conditions. The rule provides that these loans will also be secured by mandatory deposits in Bank Reserve Accounts, in an amount equivalent to, at least, the total amount of the transactions, as well as by the debenture collateral.
The loans established in Resolution No. 4,786/20 will be available to financial institutions through April 30, 2020 and may be engaged for a 125 business day term, which may be extended, at the Central Bank’s discretion, for a further 125 business days, subject to a cap of 359 calendar days.
The Resolution No. 4,795, authorized the Central Bank to grant loans to financial institutions under specific conditions, by means of the direct acquisition by the Central Bank, in the primary market, of Financial Bills secured by financial assets or certain types of securities. The facility established by Resolution No. 4,795 will be available to financial institution through December 31, 2020 and the Financial Bills issued thereunder will have a term between 30 and 359 calendar days. For more information on financial bills, please refer to “Item 4B. Business Overview—Supervision and Regulation—Financial Bills (“Letras Financeiras”)”.
(g) | Flexibilization of Funding Requirements Through Agribusiness Credit Notes (Letras de Crédito do Agronegócio or “LCAs”) |
On March 23, 2020, the CMN issued Resolution No. 4,787, which adjusted the assessment base of the mandatory reserve requirements of funds raised through LCAs with the purpose of increasing their liquidity. As a result, the rules for applying funds originated from agribusiness activities were flexibilized. LCAs are credit notes issued exclusively by financial institutions and related to credit rights originated from transactions conducted between rural producers and their cooperatives and agents of the agribusiness production chain.
(h) | Employment Support Program providing emergency payroll financing for small andmedium-sized businesses |
On April 6, 2020, the CMN enacted Resolution No. 4,800, which regulates the granting of loans under the Emergency Employment Support Program (Programa Emergencial de Suporte a Empregos or “PESE Program”), created by Provisional Measure No. 944/2020. In order to preserve jobs, PESE sets forth the offering of an emergency credit line of R$ 40 billion to finance, for two months, the payroll of small andmedium-sized companies that adhere to the program. This credit line will be funded with funds from the National Treasury (85%) and participating financial institutions (15%), such as us. Businesses who borrow through the PESE Program may not dismiss employees between the date the loan is taken out and the 60th day after receiving the last installment of the credit line. Disbursements to businesses are capped to two minimum wages per employee. Banks will ensure that, based on processes and information provided by companies, funds will be used exclusively for the processing of payrolls. The PESE Program came into effect on April 7, 2020.
(i) | Foreign Exchange overhedge of equity interests held abroad |
On March 18, 2020, the CMN enacted CMN Resolution No. 4,784, which extended the original deadline and conditions under which financial institutions may choose not to deduct from their regulatory capital (patrimônio de referência) certain tax credits arising from losses on short foreign exchange positions aimed at hedging of investments held abroad by financial institutions. The measure aims to provide further capital relief and accordingly encourage financial institutions to maintain and extend credit.
(j) | Increased cap for repurchase of financial bills (letras financeiras) by financial institutions |
On March 23, 2020, the CMN enacted CMN Resolution No. 4,788, pursuant to which Segment 1 financial institutions, such as us, may repurchase up to 20% of unsubordinated financial bills of their own issuance. The increase is effective from March 23 through April 30, 2020.
5B. | Liquidity and Capital Resources |
Our Board of Directors determines our policy regarding liquidity risk management, and establishes broad quantitative liquidity risk management limits in line with our risk appetite. The CSRML, composed of members of senior management, is responsible for strategic liquidity risk management in line with the board-approved liquidity risk framework and risk appetite. In establishing our guidelines, CSRML considers the liquidity implications of each market segment and product. The institutional treasury unit of Itaú Unibanco Holding is responsible forday-to-day management of the Itaú Unibanco Group’s liquidity profile, within the parameters set by the Board of Directors and the CSRML. This includes an oversight responsibility with respect to all business units operating outside of Brazil.
We maintain separate liquidity pools at our Brazilian operations and at each of our subsidiaries in Latin America and Europe.subsidiaries. Our Brazilian operations include the financial institutions in Brazil and the entities used by the Brazilian operations for funding and serving their clients abroad. Each subsidiary in Latin America (e.g., in Chile, Argentina, Uruguay, Colombia and Paraguay) and in Europe has its own treasury function with appropriate autonomy to manage liquidity according to local needs and regulations, while remaining in compliance with the liquidity limits established by Itaú Unibanco Holding senior management. In general, there are rarely liquidity transfers between subsidiaries or between the head office and a subsidiary, except under very specific circumstances (e.g., targeted capital increases). Brazil, Argentina, United Kingdom and Colombia are the only countries in which we operate where local regulators have established minimum liquidity levels.
CMN regulations also establish capital conservation and countercyclical buffers for Brazilian financial institutions, and determines their minimum percentages as well as which sanctions and limitations will apply in case of non compliancenon-compliance with such additional requirements.
We define our consolidated group operational liquidity reserve as the total amount of assets that can be rapidly turned into cash, based on local market practices and legal restrictions. The operational liquidity reserve generally includes: cash and deposits on demand, funded positions of securities purchased under agreements to resell and unencumbered government securities.
The following table presents our operational liquidity reserve as of December 31, 2019, 2018 2017 and 2016:2017:
Cash in Cash Flows | As of December 31, | 2018 Average Balance(1) | As of December 31, | 2019 Average Balance(1) | ||||||||||||||||||||||||||||
2018 | 2017 | 2016 | 2019 | 2018 | 2017 | |||||||||||||||||||||||||||
(In millions of R$) | (In millions of R$) | |||||||||||||||||||||||||||||||
Cash | 37,159 | 18,749 | 18,542 | 27,244 | 30,367 | 37,159 | 18,749 | 30,427 | ||||||||||||||||||||||||
Securities purchased under agreements to resell - Funded position(2) | 45,335 | 38,833 | 77,452 | 45,936 | ||||||||||||||||||||||||||||
Securities purchased under agreements to resell—Funded position(2) | 26,797 | 45,335 | 38,833 | 27,648 | ||||||||||||||||||||||||||||
Unencumbered government securities | 74,760 | 106,681 | 78,633 | 86,575 | 115,774 | 74,760 | 106,681 | 101,356 | ||||||||||||||||||||||||
Operational reserve | 157,254 | 164,263 | 174,627 | 159,755 | 172,938 | 157,254 | 164,263 | 159,431 | ||||||||||||||||||||||||
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(1) | Average calculated based on interim financial statements. |
(2) | Net of R$ 8,544 (R$5,120 |
(3) | Present values are included as a result of the change in the reporting of future flows of assets that are now reported as future value as of September 2016. |
Our management controls our liquidity reserves by projecting the resources that will be available for investment by our treasury department. The technique we employ involves the statistical projection of scenarios for our assets and liabilities, considering the liquidity profiles of our counterparties.
Short-term minimum liquidity limits are defined according to guidelines set by the CSRML. These limits aim to ensure that the Itaú Unibanco Group always has sufficient liquidity available to cover unforeseen market events. These limits are revised periodically, based on the projection of cash needs in atypical market situations (i.e., stress scenarios).
Management of liquidity makes it possible for us to simultaneously meet our operating requirements, protect our capital and exploit market opportunities. Our strategy is to maintain adequate liquidity to meet our present and future financial obligations and to capitalize on business opportunities as they arise.
We are exposed to effects of the disruptions and volatility in the global financial markets and the economies in those countries where we do business, especially Brazil. However, due to our stable sources of funding, which include a large deposit base, the large number of correspondent banks with which we have long-standing relationships, as well as facilities in place which enable us to access further funding when required, we have not historically experienced liquidity challenges, even during periods of disruption in the international financial markets.
Average deposits and borrowings Interest-bearing liabilities Interest-bearing deposits Savings deposits Interbank deposits Time deposits Securities sold under repurchase agreements Interbank market debt and Institutional market debt Interbank market debt Institutional market debt Reserves for insurance private pension and liabilities for capitalization plans Other Interest-bearing liabilities Non-interest-bearing liabilities Non-interest bearing deposits Other Comprehensive Income Other non-interest bearing liabilities Total For the Year Ended December 31, 2018 2017 2016 Average
balance % of
total Average
balance % of
total Average
balance % of
total (In millions of R$, except percentages) 1,176,795 88.1% 1,151,960 92.9% 1,042,406 87.6% 357,684 26.8% 287,398 23.2% 244,121 20.5% 126,987 9.5% 110,411 8.9% 106,838 9.0% 2,970 0.2% 3,282 0.3% 7,304 0.6% 227,727 17.0% 173,705 14.0% 129,979 10.9% 308,306 23.1% 345,218 27.9% 336,962 28.3% 232,802 17.4% 229,269 18.5% 240,608 20.2% 135,357 10.1% 133,984 10.8% 145,013 12.2% 97,445 7.3% 95,285 7.7% 95,595 8.0% 193,908 14.5% 170,561 13.8% 144,481 12.1% 84,095 6.3% 119,515 9.6% 76,234 6.4% 158,960 11.9% 87,378 7.1% 147,515 12.4% 70,205 5.3% 61,844 5.0% 61,895 5.2% 4,038 0.3% 5,485 0.4% 6,008 0.5% 84,718 6.3% 20,049 1.6% 79,613 6.7% 1,335,755 100% 1,239,338 100% 1,189,921 100%
Our main sources of funding are interest-bearing deposits, deposits received under repurchase agreements,on-lending from government financial institutions, lines of credit with foreign banks and the issuance of securities abroad. Please see “Note 15 – Deposits” to our audited consolidated financial statements for further details about funding.
We may from time to time seek to retire or purchase our outstanding debt, including our subordinated notes (subject to the approval of the Central Bank), and senior notes, through cash purchases in the open market purchases, privately negotiated transactions or otherwise. Such repurchases, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. Notes repurchased may be held, cancelled or resold and any resale thereof will only be in compliance with applicable requirements or exemptions under the relevant securities laws.
Some of our long-term debt provides for acceleration of the outstanding principal balance upon the occurrence of specified events, which are events ordinarily found in long-term financing agreements. Up to December 31, 2018,2019, none of these events, including any events of default or failure to satisfy financial covenants, have occurred.
Under Brazilian law, cash dividends may only be paid if the subsidiary paying such dividends has reported a profit in its financial statements. In addition, subsidiaries that are financial institutions are prohibited from making loans to Itaú Unibanco Holding, but they are allowed to make deposits in Itaú Unibanco Holding, which represent interbank certificates of deposit (Certificado de Depósito Interbancário). These restrictions have not had, and are not expected to have, a material impact on our ability to meet our cash obligations. For more information on our dividend policy, see “Item 8A. Consolidated Statements and Other Financial Information – Stockholders’ Payment”.
Changes in Cash Flows
Please refer to “Item 5A. Operating Results”.
Capital Expenditures
In accordance with our practice in the last few years, our capital expenditures in the year ended December 31, 20182019 were funded with internal resources. We cannot provide assurance that we will make capital expenditures in the future and, if made, that the amounts will correspond to the current estimates. The table below shows our capital expenditures as of December 31, 2019, 2018 2017 and 2016:2017:
Capital Expenditures | For the Year Ended December 31, | Variation | For the Year Ended December 31, | Variation | ||||||||||||||||||||||||||||||||||||||||||||||||||||
2018 | 2017 | 2016 | 2018-2017 | 2017-2016 | 2019 | 2018 | 2017 | 2019-2018 | 2018-2017 | |||||||||||||||||||||||||||||||||||||||||||||||
(In millions of R$, except percentages) | (In millions of R$, except percentages) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fixed Assets | 1,483 | 943 | 1,430 | 540 | 57.3 | % | (487 | ) | (34.1 | )% | 1,621 | 1,483 | 943 | 138 | 9.3 | % | 540 | 57.3 | % | |||||||||||||||||||||||||||||||||||||
Fixed assets under construction | 474 | 302 | 341 | 172 | 57.0 | % | (39 | ) | (11.4 | )% | 473 | 474 | 302 | (1 | ) | (0.2 | )% | 172 | 57.0 | % | ||||||||||||||||||||||||||||||||||||
Land and buildings | - | - | 127 | - | 0.0 | % | (127 | ) | (100.0 | )% | 52 | — | — | 52 | (100.0 | )% | — | 0.0 | % | |||||||||||||||||||||||||||||||||||||
Leasehold improvements | 35 | 147 | 137 | (112 | ) | (76.2 | )% | 10 | 7.3 | % | 60 | 35 | 147 | 25 | 71.4 | % | (112 | ) | (76.2 | )% | ||||||||||||||||||||||||||||||||||||
Furniture and data processing equipment | 845 | 412 | 602 | 433 | 105.1 | % | (190 | ) | (31.6 | )% | 946 | 845 | 412 | 101 | 12.0 | % | 433 | 105.1 | % | |||||||||||||||||||||||||||||||||||||
Other | 129 | 82 | 223 | 47 | 57.3 | % | (141 | ) | (63.2 | )% | 90 | 129 | 82 | (39 | ) | (30.2 | )% | 47 | 57.3 | % | ||||||||||||||||||||||||||||||||||||
Intangible Assets | 1,373 | 1,919 | 2,846 | (546 | ) | (28.5 | )% | (927 | ) | (32.6 | )% | 2,691 | 1,373 | 1,919 | 1,318 | 96.0 | % | (546 | ) | (28.5 | )% | |||||||||||||||||||||||||||||||||||
Association for the promotion and offer of financial products and services | 1 | 18 | 719 | (17 | ) | (94.4 | )% | (701 | ) | (97.5 | )% | — | 1 | 18 | (1 | ) | (100.0 | )% | (17 | ) | (94.4 | )% | ||||||||||||||||||||||||||||||||||
Software developed or obtained for internal use | 964 | 1,556 | 1,508 | (592 | ) | (38.0 | )% | 48 | 3.2 | % | 1,976 | 964 | 1,556 | 1,012 | 105.0 | % | (592 | ) | (38.0 | )% | ||||||||||||||||||||||||||||||||||||
Other intangibles | 408 | 345 | 619 | 63 | 18.3 | % | (274 | ) | (44.3 | )% | 715 | 408 | 345 | 307 | 75.2 | % | 63 | 18.3 | % | |||||||||||||||||||||||||||||||||||||
Total | 2,856 | 2,862 | 4,276 | (6 | ) | (0.2 | )% | (1,414 | ) | (33.1 | )% | 4,312 | 2,856 | 2,862 | 1,456 | 51.0 | % | (6 | ) | (0.2 | )% | |||||||||||||||||||||||||||||||||||
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See “Note 13 – Fixed Assets” and “Note 14 – Goodwill and Intangible Assets” to our audited consolidated financial statements for further details.
Capitalization
The table below presents our capitalization as of December 31, 2018.2019. The information described is derived from our audited consolidated financial statements as of and for the year ended December 31, 2018.2019. As of the date of the filing of this annual report,Annual Report on Form20-F, there has been no material change in our capitalization since December 31, 2018.2019.
You should read the table below in conjunction with the information included inunder “Item 4B. Business Overview – Selected Statistical Information” for further details.
Capitalization | As of December 31, 2018 | As of December 31, 2019 | ||||||||||||||
R$ | US$(1) | R$ | US$(1) | |||||||||||||
(In millions of R$, except percentages) | (In millions, except percentages) | |||||||||||||||
Current liabilities | ||||||||||||||||
Deposits | 307,832 | 79,445 | 334,197 | 82,913 | ||||||||||||
Securities sold under repurchase agreements | 271,521 | 70,074 | 223,876 | 55,543 | ||||||||||||
Financial liabilities designated at fair value through profit or loss | 37 | 10 | ||||||||||||||
Structured notes | 49 | 12 | ||||||||||||||
Derivatives | 10,053 | 2,594 | 18,849 | 4,676 | ||||||||||||
Interbank market debt | 73,176 | 18,885 | ||||||||||||||
Institutional market debt | 8,524 | 2,200 | ||||||||||||||
Interbank market funds | 110,017 | 27,295 | ||||||||||||||
Institutional market funds | 13,835 | 3,432 | ||||||||||||||
Other financial liabilities | 95,639 | 24,682 | 113,024 | 28,041 | ||||||||||||
Reserves for insurance and private pension | 3,702 | 955 | ||||||||||||||
Provision for insurance and private pension | 3,686 | 914 | ||||||||||||||
Provisions | 4,940 | 1,275 | 5,172 | 1,283 | ||||||||||||
Tax liabilities | 2,058 | 531 | 3,997 | 992 | ||||||||||||
Other liabilities | 24,931 | 6,434 | ||||||||||||||
OtherNon-financial liabilities | 26,275 | 6,519 | ||||||||||||||
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Total | 802,413 | 207,085 | 852,977 | 211,620 | ||||||||||||
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Long-term liabilities | ||||||||||||||||
Deposits | 155,592 | 40,155 | 172,863 | 42,887 | ||||||||||||
Securities sold under repurchase agreements | 58,716 | 15,153 | 32,707 | 8,114 | ||||||||||||
Financial liabilities designated at fair value through profit or loss | 155 | 40 | ||||||||||||||
Structured notes | 152 | 38 | ||||||||||||||
Derivatives | 17,466 | 4,508 | 28,979 | 7,190 | ||||||||||||
Interbank market debt | 61,494 | 15,870 | ||||||||||||||
Institutional market debt | 85,450 | 22,053 | ||||||||||||||
Interbank market funds | 64,845 | 16,088 | ||||||||||||||
Institutional market fimds | 90,409 | 22,430 | ||||||||||||||
Other financial liabilities | 1,790 | 462 | 4,057 | 1,007 | ||||||||||||
Reserves for insurance and private pension | 197,485 | 50,967 | ||||||||||||||
Provision for insurance and private pension | 214,648 | 53,253 | ||||||||||||||
Provision for Expected Loss | 3,792 | 979 | 4,140 | 1,027 | ||||||||||||
Provisions | 13,673 | 3,529 | 16,282 | 4,039 | ||||||||||||
Tax liabilities | 2,779 | 717 | 2,836 | 704 | ||||||||||||
Other liabilities | 1,079 | 278 | ||||||||||||||
OtherNon-financial liabilities | 2,063 | 512 | ||||||||||||||
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Total | 599,471 | 154,710 | 633,981 | 157,288 | ||||||||||||
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Income tax and social contribution - deferred | 447 | 115 | ||||||||||||||
Income tax and social contribution—deferred | 1,058 | 262 | ||||||||||||||
Non-controlling interests | 13,684 | 3,532 | 12,540 | 3,111 | ||||||||||||
Stockholders’ equity attributed to the owners of the parent company(2) | 136,782 | 35,300 | 136,925 | 33,971 | ||||||||||||
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Total capitalization(3) | 1,552,797 | 400,742 | 1,637,481 | 406,252 | ||||||||||||
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BIS ratio(4) | 18.0% | 15.8% | ||||||||||||||
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(1) | Convenience translation at |
(2) | Itaú Unibanco Holding’s authorized and outstanding share capital consists of 4,958,290,359 common shares and |
(3) | Total capitalization corresponds to the sum of total current liabilities, long-term liabilities, deferred income, minority interest in subsidiaries and stockholders’ equity. |
(4) | Calculated by dividing total |
Capital Management
Key Indicators
Our Board of Directors is the main body responsible for our capital management, and for approving our capital management policies and guidelines regarding our capitalization level. It is also responsible for approving the ICAAP report, a process which is intended to assess our capital adequacy. At the executive level, corporate bodies are responsible for approving risk assessment and capital calculation methodologies, as well as reviewing, monitoring and recommending capital-related documents and topics to the Board of Directors.
In compliance with CMN and Central Bank regulations, we have implemented a capital management structure and ICAAP, taking a prospective stance in relation to capital management.
Requirements and Capital Composition
Our minimum capital requirements are expressed as ratios of the capital available, or the Total Capital, and the risk-weighted assets, or RWA. These ratios follow the set of resolutions and circulars disclosed by the Central Bank that implemented, in Brazil, the global capital requirement standards known as Basel III.
The Total Capital is the sum of three items, as shown below:
For purposes of calculating these minimum capital requirements, the total RWA is determined as the sum of the risk-weighted asset amounts for credit, market, and operational risks.
From January 1, 2018 to December 31, 2018, the minimum required Total Capital ratio was 8.675%, and in accordance with the scheduled gradual reduction, it will beis 8% onas of January 1, 2019.
The Central Bank rules call for Additional Capital Buffers, or ACP, corresponding to the sum of the components ACPConservation, ACPCountercyclicaland ACPSystemic, which, in conjunction with the requirements mentioned, increase capital requirements over time, as provided for CMN Resolution 4,193. Under the applicable CMN regulation, the values of the components ACPConservation, ACPSystemic and ACPCountercyclical will increase gradually from 2.375%, as from January 1, 2018, to 3.5% as from January 1, 2019. The amount of each component and the minimum regulatory requirements are provided for in CMN Resolution 4,193, as amended.
According to CMN Resolution 4,193, as amended, for assessing the minimum capital requirements, the RWA must be calculated by adding the following portions:
• | RWACPAD – Credit Risk: calculated using standardized approach; |
• | RWAMINT – Market Risk: made up of the maximum between the internal model and 80% of the standardized model; |
• | RWAOPAD – Operational Risk: calculated using standardized approach. |
The table below presents the evolution of RWA composition for Itaú Unibanco.
As of December 31, | ||||||||
Composition of risk-weighted assets (Prudential Conglomerate) | 2018 | 2017 | ||||||
(R$ million) | ||||||||
Credit Risk (RWAcpad) | 714,969 | 660,516 | ||||||
Market Risk (RWAmint) | 30,270 | 32,915 | ||||||
Operational Risk (RWAopad) | 72,833 | 63,277 | ||||||
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Total risk-weighted assets | 818,072 | 756,708 | ||||||
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Composition of risk-weighted assets (Prudential Conglomerate) | As of December 31, | |||||||
2019 | 2018 | |||||||
(R$ million) | ||||||||
Credit Risk (RWACPAD) | 784,730 | 714,969 | ||||||
Market Risk (RWAMINT) | 25,002 | 30,270 | ||||||
Operational Risk (RWAOPAD) | 81,568 | 72,833 | ||||||
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Total risk-weighted assets | 891,300 | 818,072 | ||||||
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Capital Adequacy
Through our ICAAP, we assess the adequacy of our capital to face the incurred risks. For ICAAP, capital is composed by regulatory capital for credit, market and operational risks, and by the necessary capital to face other risks.
In order to ensure our capital soundness and availability to support business growth, we maintain capital levels above the minimum requirements, according to the Common Equity Tier I, Additional Tier I Capital, and Tier II minimum ratios. As of December 31, 2018,2019, our Total Capital (PR) reached R$ 147,028140,596 million, an increasea decrease of R$ 4,7766,432 million compared to December 31, 2017,2018, mainly impacted bydue to the approval of perpetual subordinated notes / Additional Tier I Capital (AT1), issuedprovision for interest on December 12, 2017own capital and March 19, 2018dividends, and the net income of the year. Our current working capital is sufficient for present requirements.increase in risk-weighted assets.
Our BIS ratioBasel Ratio (calculated as the ratio between our Regulatory Capital and the total amount of RWA) reached 18.0%15.8%, as of December 31, 2018,2019, a decrease of 0.8%2.2% compared to 18.8%18.0% as of December 31, 2017. Such decrease is2018, mainly explained due to an increasethe provision of Risk Weighted Assets.interest on own capital and dividends.
Additionally, the Fixed Assets Ratio (Índice de Imobilização) indicates the level of total capital committed to adjusted permanent assets. Itaú Unibanco Holding is within the maximum limit of 50% of the adjusted total capital, as established by the Central Bank. On December 31, 2018,2019, our Fixed Assets Ratio reached 25.9%27.9%, which presents a buffer of R$ 35,44731,104 million.
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Capital Adequacy (Prudential Conglomerate) | December 31, 2018 | December 31, 2017 | December 31, 2019 | December 31, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Required Amount | Current Amount | Required Ratio | Current Ratio | Required Amount | Current Amount | Required Ratio | Current Ratio | Required Amount | Current Amount | Required Ratio | Current Ratio | Required Amount | Current Amount | Required Ratio | Current Ratio | |||||||||||||||||||||||||||||||||||||||||||||||||
Common Equity Tier I | 36,813 | 123,358 | 4.5% | 15.1% | 34,052 | 122,396 | 4.5% | 16.2% | 40,108 | 117,328 | 4.5% | 13.2% | 36,813 | 123,358 | 4.5% | 15.1% | ||||||||||||||||||||||||||||||||||||||||||||||||
Additional Tier I Capital | - | 7,796 | - | - | - | 57 | - | - | — | 11,368 | — | — | — | 7,796 | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||
Tier I | 49,084 | 131,154 | 6.0% | 16.0% | 45,402 | 122,453 | 6.0% | 16.2% | 53,478 | 128,696 | 6.0% | 14.4% | 49,084 | 131,154 | 6.0% | 16.0% | ||||||||||||||||||||||||||||||||||||||||||||||||
Tier II | - | 15,874 | - | - | 19,799 | - | - | — | 11,900 | — | — | — | 15,874 | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
Referential Equity (Tier I + Tier II) | 70,559 | 147,028 | 8.625% | 18.0% | 69,995 | 142,252 | 9.250% | 18.8% | 71,304 | 140,596 | 8.0% | 15.8% | 70,559 | 147,028 | 8.625% | 18.0% | ||||||||||||||||||||||||||||||||||||||||||||||||
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Additional Capital Buffers | 19,429 | 2.375% | 11,351 | 1.5% | 31,195 | 3.5% | 19,429 | 2.375% | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Our Total Capital, Tier 1 Capital and Common Equity Tier 1 Capital ratios are calculated on a consolidated basis, applied to institutions included in our Prudential Conglomerate which comprises not only financial institutions but also collective financing plansconsortia (consórcios), payment entities, factoring companies or companies that directly or indirectly assume credit risk, and investment funds in which our Itaú Unibanco Group retains substantially all risks and rewards.
Please see “Item 4B. Business Overview – Regulatory EnvironmentSupervision and Regulation – Basel III Framework – Implementation of Basel III in Brazil” for further details about minimum capital ratios.
Please see “Item 5A. Operating Results—Recent Developments—Reduction of Capital Buffer” for changes in regulations adopted by the Central Bank.
Please see “Note 32 – Risk and Capital Management” of our audited consolidated financial statements in IFRS for further details about regulatory capital.
Sensitivity Analyses (Trading and Banking Portfolios)
As required by Brazilian regulation, we conduct sensitivity analyses for market risk factors considered important. The highest resulting losses are presented below, with impact on result, by risk factor, in each such scenario and are calculated net of tax effects, providing a view of our exposure under different circumstances.
The sensitivity analyses of the Trading Portfolio and Banking Portfolio presented here are based on a static assessment of the portfolio exposure. Therefore, such analyses do not consider the dynamic response capacity of management (e.g., treasury and market risk control unit) to initiate mitigating measures, whenever a situation of high loss or risk is identified, minimizing the possibility of significant losses. In addition, the analysis is intended to assess risk exposure and the respective protective actions, taking into account the fair value of financial instruments, regardless of whether or not financial instruments are accounted for on an accrual basis.
Exposures | Trading Portfolio(1) December 31, 2018 | Trading and Banking Portfolios(1) December 31, 2018 | Trading Portfolio(1) December 31, 2019 | Trading and Banking Portfolios(1) December 31, 2019 | ||||||||||||||||||||||||||||||||||||||||||||||||
Risk Factors | Risk of varitions in: | Scenario I | Scenario II | Scenario III | Scenario I | Scenario II | Scenario III | Risk of varitions in: | Scenario I | Scenario II | Scenario III | Scenario I | Scenario II | Scenario III | ||||||||||||||||||||||||||||||||||||||
(In thousands of R$) | (In thousands of R$) | |||||||||||||||||||||||||||||||||||||||||||||||||||
Interest Rate | Fixed Income Interest Rates in reais | (193 | ) | (18,277 | ) | (56,547 | ) | (7,935 | ) | (1,305,886 | ) | (2,582,531 | ) | Fixed Income Interest Rates in reais | (658) | (86,432) | (214,996) | (11,579) | (1,383,839) | (2,776,926) | ||||||||||||||||||||||||||||||||
Foreign Exchange Linked | Foreign Exchange Linked Interest Rates | 30 | (8,951 | ) | (31,199 | ) | (1,595 | ) | (245,172 | ) | (477,888 | ) | Foreign Exchange Linked Interest Rates | (304) | (21,886) | (42,336) | (2,925) | (196,449) | (377,441) | |||||||||||||||||||||||||||||||||
Foreign Exchange Rates | Prices of Foreign Currencies | (5,015 | ) | (185,640 | ) | (451,796 | ) | (5,308 | ) | (198,514 | ) | (476,063 | ) | Prices of Foreign Currencies | (282) | 80,050 | 427,563 | 2,230 | 47,173 | 322,325 | ||||||||||||||||||||||||||||||||
Price Index Linked | Interest of Inflation coupon | (494 | ) | (19,537 | ) | (41,174 | ) | (606 | ) | (58,746 | ) | (124,841 | ) | Interest of Inflation coupon | (163) | (2,993) | (4,457) | (6,527) | (460,666) | (868,806) | ||||||||||||||||||||||||||||||||
TR | TR Linked Interest Rates | - | - | (1 | ) | 446 | (96,086 | ) | (227,634 | ) | TR Linked Interest Rates | (1) | (1) | 493 | (65,875) | (159,057) | ||||||||||||||||||||||||||||||||||||
Equities | Prices of Equities | 540 | (23,026 | ) | 45,451 | 4,388 | (117,695 | ) | (143,886 | ) | Prices of Equities | 2,069 | 2,612 | 185,005 | 6,016 | (94,531) | (9,281) | |||||||||||||||||||||||||||||||||||
Other | Exposures that do not fall under the definitions above | (1 | ) | (2,542 | ) | (8,098 | ) | 63 | 6,282 | 11,175 | Exposures that do not fall under the definitions above | (15) | (2,184) | (6,869) | (45) | (8,555) | (26,163) | |||||||||||||||||||||||||||||||||||
Total | (5,133 | ) | (257,973 | ) | (543,364 | ) | (10,547 | ) | (2,015,817 | ) | (4,021,668 | ) | 647 | (30,834) | 343,909 | (12,337) | (2,162,742) | (3,895,349) | ||||||||||||||||||||||||||||||||||
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(1) | Amounts net of tax effects. |
Scenario I: Addition of one basis point to fixed interest rates, currency coupon, inflation and interest rate indexes and one percentage point to currency and equity prices;
Scenario II: Shocks of 25% in fixed interest rates, currency coupon, inflation, interest rate indexes and currency and share prices, both for growth and fall, considering the largest resulting losses per risk factor; and
Scenario III: Shocks of 50% in fixed interest rates, currency coupon, inflation, interest rate indexes and currency and share prices, both for growth and fall, considering the largest resulting losses per risk factor.
Interest Rate Sensitivity
Interest rate sensitivity is the relationship between market interest rates and net interest income arising from the maturity or the renegotiation of prices of interest-bearing assets and liabilities.
Our strategy for interest rate sensitivity considers the return rates, the underlying risk level and the liquidity requirements, including our minimum regulatory cash reserves, mandatory liquidity ratios, withdrawals and maturity of deposits, capital costs and additional demand for funds.
The pricing structure is matched when equal amounts of these assets or liabilities mature or are renegotiated. Any mismatch of interest-bearing assets and liabilities is known as a gap position. The interest rate sensitivity may vary in the renegotiation periods presented due to the different renegotiation dates within the period. Also, variations among the different currencies in which the interest rate positions are denominated may arise.
These relationships are material for a particular date, and significant fluctuations may occur on a daily basis as a result of both market forces and management decisions. Our “CSRML” analyzes Itaú Unibanco Group’s gap position on a monthly basis and establishes limits for market risk exposure, interest rate positions and foreign currency positions.
Please see “Note 32 – Risk and Capital Management, 2. Market Risk” of our audited consolidated financial statements for further details about the position of our interest-bearing assets and liabilities as of December 31, 2018.2019. This note provides a snapshot view, and accordingly, does not reflect the interest rate gaps that may exist at other times, due to changing asset and liability positions, and management’s actions to manage risk in these changing positions.
LIBOR Transition
In 2018 we assembled a working group to follow up on the international financial markets discussions regarding the replacement of the IBOR rates by new reference rates. The main goal of this working group was, and still is, to support our senior executives in the decision-making process relating to this subject. In order to achieve that, this group is comprised of several areas of the bank, including representatives from Treasury, Risk, Accounting, Legal, Compliance, External Units, etc., and is being led by the Products team at the head office in Brazil.
Among its actions over the past two years, we can highlight the following: (i) assessment of the bank’s exposure to IBORs; (ii) the amendment of fallback clauses present in the contracts of assets, liabilities and derivatives transactions indexed to IBORs; (iii) monitoring and active participation in market consultations held by ISDA and the Fed with regards to new replacement rates and its methodologies; (iv) follow up reports for the Senior Management in several committees (Products, Accounting, Audit and Market Risk Committees); (v) analysis of accounting impacts and new procedures to be applied to the transactions in our portfolios, as well as monitoring any announcements of the main global accounting bodies (IASB and FASB) and participation in discussions held in specific international forums; (vi) mapping the operational impact of the transition to the new rates; (vii) communications to clients regarding the discontinuity of IBOR rates, in addition to discussions with foreign banks that are members of the Alternative Reference Rate Committee to further monitor the subject.
Throughout 2020, the working group will continue to follow market guidelines and will act in the implementation of previously defined action plans, including systems changes to the new rate methodologies for both new transactions and for the current portfolio as well. The Group will further analyze the bank’s adherence to ISDA protocols and the amendment of clauses for assets and liabilities. In that same sense, the Group will keep up with the periodic reports to Senior Management and clients whenever it deems necessary.
Exchange Rate Sensitivity
Most of our banking operations are denominated in or indexed to Brazilianreais. We also have assets and liabilities denominated in foreign currency, mainly in U.S. dollars, as well as assets and liabilities that, although denominated in Brazilianreais, are indexed to U.S. dollars and, therefore, expose us to exchange rate risk. The Central Bank regulates our foreign currency positions. Please see “Note 32 – Risk and Capital Management, 2. Market Risk” of our audited consolidated financial statements for further details.
The gap management adopted by the CSRML takes into consideration the tax effects with respect to our foreign exchange positions. Since the gains from the foreign exchange rate variation on investments abroad are not taxed, we set up a hedge (a liability in foreign currency derivative instruments) in an amount sufficient so that our total foreign exchange exposure, net of tax effects, is consistent with our low risk exposure strategy.
Our foreign exchange position on the liability side is composed of various elements, including the issuance of securities in international capital markets, credit from foreign banks used to finance import and export transactions, dollar-linked onlendings from government financial institutions and deposits in currencies of Latin America countries. The proceeds of these financial operations are usually invested in loans and in the purchase of dollar-linked securities.
The information set forth in the table below was prepared on a consolidated basis, eliminating transactions between related parties. Our investments abroad, which are eliminated when we consolidate the accounting information, represented R$69.778.4 billion as of December 31, 2018,2019, under the gap management policy adopted, as mentioned above. We apply either economic hedges or hedge accounting to those net investments abroad.
As of December 31, 2018 | As of December 31, 2019 | |||||||||||||||||||||||||||||||||||||||
Exchange Rate Sensitivity | Brazilian currency | Denominated in foreign currency(1) | Indexed to foreign currency (1) | Total | % of amounts denominated in and indexed to foreign currency of total | Brazilian currency | Denominated in foreign currency(1) | Indexed to foreign currency(1) | Total | % of amounts denominated in and indexed to foreign currency of total | ||||||||||||||||||||||||||||||
(In millions of R$, except percentages) | (In millions of R$, except percentages) | |||||||||||||||||||||||||||||||||||||||
Assets | 1,175,796 | 341,981 | 35,020 | 1,552,797 | 24.3 | 1,062,202 | 454,334 | 120,946 | 1,637,482 | 35.1 | ||||||||||||||||||||||||||||||
Cash | 8,168 | 26,851 | 2,140 | 37,159 | 78.0 | 7,267 | 19,902 | 3,198 | 30,367 | 76.1 | ||||||||||||||||||||||||||||||
Compulsory deposits in the Central Bank of Brazil | 94,148 | - | - | 94,148 | - | 91,248 | — | — | 91,248 | — | ||||||||||||||||||||||||||||||
At Amortized Cost | 726,116 | 242,699 | 25,944 | 994,759 | 27.0 | 556,042 | 342,219 | 112,384 | 1,010,645 | 45.0 | ||||||||||||||||||||||||||||||
Interbank deposits | 6,234 | 20,186 | - | 26,420 | 76.4 | 10,620 | 23,963 | — | 34,583 | 69.3 | ||||||||||||||||||||||||||||||
Securities purchased under agreements to resell | 279,353 | 783 | - | 280,136 | 0.3 | 197,156 | 1,272 | — | 198,428 | 0.6 | ||||||||||||||||||||||||||||||
Securities | 85,833 | 24,562 | - | 110,395 | 22.2 | 112,208 | 20,911 | — | 133,119 | 15.7 | ||||||||||||||||||||||||||||||
Loan operations and lease operations portfolio | 330,705 | 190,755 | 14,631 | 536,091 | 38.3 | 368,438 | 199,702 | 17,651 | 585,791 | 37.1 | ||||||||||||||||||||||||||||||
Other financial assets | 50,341 | 13,215 | 11,534 | 75,090 | 33.0 | (104,635 | ) | 104,539 | 94,848 | 94,752 | 210.4 | |||||||||||||||||||||||||||||
(-) Provision for Expected Loss | (26,350 | ) | (6,802 | ) | (221 | ) | (33,373 | ) | 21.0 | (27,745 | ) | (8,168 | ) | (115 | ) | (36,028 | ) | 23.0 | ||||||||||||||||||||||
At Fair Value Through Other Comprehensive Income | 14,055 | 34,467 | 801 | 49,323 | 71.5 | 38,139 | 37,668 | 853 | 76,660 | 50.2 | ||||||||||||||||||||||||||||||
Securities | 14,055 | 34,467 | 801 | 49,323 | 71.5 | 38,139 | 37,668 | 853 | 76,660 | 50.2 | ||||||||||||||||||||||||||||||
At Fair Value Through Profit or Loss | 258,242 | 22,636 | 5,768 | 286,646 | 9.9 | 275,586 | 41,668 | 5,675 | 322,929 | 14.7 | ||||||||||||||||||||||||||||||
Securities | 248,921 | 11,017 | 3,242 | 263,180 | 5.4 | 267,612 | 10,019 | 3,444 | 281,075 | 4.8 | ||||||||||||||||||||||||||||||
Derivatives | 9,321 | 11,619 | 2,526 | 23,466 | 60.3 | 7,974 | 31,649 | 2,231 | 41,854 | 80.9 | ||||||||||||||||||||||||||||||
Investments in associates and joint ventures | 12,016 | 3 | - | 12,019 | 0.0 | 15,093 | 4 | — | 15,097 | — | ||||||||||||||||||||||||||||||
Fixed assets, net | 6,339 | 963 | - | 7,302 | 13.2 | 6,484 | 682 | — | 7,166 | 9.5 | ||||||||||||||||||||||||||||||
Goodwill and Intangible assets, net | 9,097 | 10,232 | - | 19,329 | 52.9 | 15,509 | 6,728 | (2,518 | ) | 19,719 | 21.3 | |||||||||||||||||||||||||||||
Tax assets | 40,390 | 2,440 | - | 42,830 | 5.7 | 45,808 | 3,152 | — | 48,960 | 6.4 | ||||||||||||||||||||||||||||||
Other assets | 7,225 | 1,690 | 367 | 9,282 | 22.2 | 11,026 | 2,311 | 1,354 | 14,691 | 24.9 | ||||||||||||||||||||||||||||||
Percentage of total assets | 75.7 | 22.0 | 2.3 | 100.0 | - | 64.9 | 27.7 | 7.4 | 100.0 | |||||||||||||||||||||||||||||||
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Liabilities and Stockholders’ Equity | 1,197,151 | 337,900 | 17,746 | 1,552,797 | 22.9 | 1,093,326 | 482,466 | 61,689 | 1,637,481 | 33.2 | ||||||||||||||||||||||||||||||
At Amortized Cost | 786,610 | 321,178 | 11,946 | 1,119,734 | 29.8 | 666,503 | 437,118 | 56,209 | 1,159,830 | 42.5 | ||||||||||||||||||||||||||||||
Deposits | 306,696 | 156,267 | 461 | 463,424 | 33.8 | 338,898 | 167,699 | 463 | 507,060 | 33.2 | ||||||||||||||||||||||||||||||
Securities sold under repurchase agreements | 299,253 | 30,984 | 0 | 330,237 | 9.4 | 229,797 | 26,786 | — | 256,583 | 10.4 | ||||||||||||||||||||||||||||||
Interbank market debt | 87,235 | 46,503 | 932 | 134,670 | 35.2 | 112,315 | 61,123 | 1,424 | 174,862 | 35.8 | ||||||||||||||||||||||||||||||
Institutional market debt | 7,700 | 81,282 | 4,992 | 93,974 | 91.8 | 11,804 | 87,250 | 5,190 | 104,244 | 88.7 | ||||||||||||||||||||||||||||||
Other financial liabilities | 85,727 | 6,142 | 5,560 | 97,429 | 12.0 | (26,311 | ) | 94,260 | 49,132 | 117,081 | 122.5 | |||||||||||||||||||||||||||||
At Fair Value Through Profit or Loss | 16,747 | 9,763 | 1,201 | 27,711 | 39.6 | 10,403 | 36,312 | 1,314 | 48,029 | 78.3 | ||||||||||||||||||||||||||||||
Derivatives | 16,747 | 9,571 | 1,201 | 27,519 | 39.1 | 10,403 | 36,111 | 1,314 | 47,828 | 78.2 | ||||||||||||||||||||||||||||||
Structured notes | - | 192 | - | 192 | 100.0 | — | 201 | — | 201 | 100.0 | ||||||||||||||||||||||||||||||
Provision for Expected Loss | 3,237 | 436 | 119 | 3,792 | 14.6 | 3,526 | 559 | 55 | 4,140 | 14.8 | ||||||||||||||||||||||||||||||
Loan Commitments | 2,285 | 311 | 5 | 2,601 | 12.1 | 2,908 | 394 | 1 | 3,303 | 12.0 | ||||||||||||||||||||||||||||||
Financial Guarantees | 952 | 125 | 114 | 1,191 | 20.1 | 618 | 165 | 54 | 837 | 26.2 | ||||||||||||||||||||||||||||||
Reserves for insurance and private pension | 200,966 | 221 | 201,187 | 0.1 | 218,113 | 221 | — | 218,334 | 0.1 | |||||||||||||||||||||||||||||||
Provisions | 18,405 | 208 | - | 18,613 | 1.1 | 21,325 | 129 | — | 21,454 | 0.6 | ||||||||||||||||||||||||||||||
Tax liabilities | 4,042 | 1,242 | - | 5,284 | 23.5 | 5,922 | 1,969 | — | 7,891 | 25.0 | ||||||||||||||||||||||||||||||
Other liabilities | 16,678 | 4,852 | 4,480 | 26,010 | 35.9 | 18,069 | 6,158 | 4,111 | 28,338 | 36.2 | ||||||||||||||||||||||||||||||
Non-controlling interests | 13,684 | - | - | 13,684 | - | 12,540 | — | — | 12,540 | — | ||||||||||||||||||||||||||||||
Total stockholders’ equity attributed to the owners of the parent company | 136,782 | - | - | 136,782 | - | 136,925 | — | — | 136,925 | — | ||||||||||||||||||||||||||||||
Percentage of total liabilities and stockholders’ equity | 77.1 | 21.8 | 1.1 | 100.0 | - | 66.7 | 29.5 | 3.8 | 100.0 | |||||||||||||||||||||||||||||||
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(1) | Predominantly U.S. dollar. |
Backtesting
The effectiveness of the VaR model is validated by the use of backtesting techniques that compare hypothetical and effective daily results with the estimated daily VaR. The number of exceptions to the VaRpre-established limits should be consistent, within an acceptable margin, with the hypothesis of 99% confidence level considering a period of 250 business days. Confidence levels of 97.5% and 95%, and periods of 500 and 750 business days are also considered. The backtesting analysis presented below considers the ranges suggested by the Basel Committee on Banking Supervision. The ranges are divided into:
Green (0 to 4 exceptions): corresponds to backtesting results that do not suggest any problems with the quality or accuracy of the adopted models;
Yellow (5 to 9 exceptions): refers to an intermediate range group, which indicates an early warning and/or monitoring and may indicate the need to review the model; and
Red (10 or more exceptions): demonstrates the need for improvement action.
According to Central Bank Circular No. 3,646, hypothetical testing consists of applying market price variations for a specific day to the portfolio balance at the end of the preceding business day. The effective test is the variation in the portfolio value up to the end of the day, including intraday transactions and excluding amounts not related to market price variations, such as fees, brokerage fees and commissions.
The regulatory VaR model had one backtesting exception in the 250 business days ended December 31, 2018.2019.
5C. | Research and Development, Patents and Licenses, Etc. |
We doFor the past three years, we have not havehad any significant research and development activities.policies in effect.
5D. | Trend Information |
We expect many factors to affect our future results of operations, liquidity and capital resources, including:
the Brazilian economic environment (please see “Item 5A. Operating Results — Factors Affecting Our Results of Operations — Brazilian Context” and “Item 3D. Risk Factors — Macroeconomic Risks —Domestic Scenario” for further details);
legal and regulatory developments (please see “Item 4B. Business Overview — Regulatory Environment,Supervision and Regulation,” “Item 5A. Operating Results — Factors Affecting Our Results of Operations — Brazilian Context” and “Item 3D. Risk Factors — Legal and Regulatory Risks” for further details);
the effects of any ongoing international financial turmoil, including on the liquidity and capital requirement (please see “Item 4B. Business Overview — Regulatory Environment,Supervision and Regulation,” “Item 5A. Operating Results — Factors Affecting Our Results of Operations — Global Context”and “Item 3D. Risk Factors — Macroeconomic Risks — Domestic Scenario” for further details);
the inflation effects on the results of our operations (please see “Item 5A. Operating Results — Factors Affecting Our Results of Operations — Brazilian Context” and “Item 3D. Risk Factors — Macroeconomic Risks — Domestic Scenario” for further details);
• | the effects of the variations in the value of the Brazilianreal, foreign exchange rates and interest rates on our net interest income (please see “Item 5A. Operating Results” and “Item 3D. Risk Factors— Macroeconomic Risks—Domestic Scenario” for further details); |
any acquisitions we may make in the future (please see “Item 3D. Risk Factors—Risks Associated with our Business—The integration of acquired or merged businesses involves certain risks that may have a material adverse effect on us” for further details).; and
the uncertainties relating to the extent and duration of theCOVID-19 pandemic and the related disruption to regional and global economic activity (please see “Item 5A. Operating Results — Factors Affecting Our Results of Operations — Brazilian Context” and “Item 3D. Risk Factors — Macroeconomic Risks — Domestic Scenario” for further details and “Item 3D. Risk Factors —COVID-19 or any other pandemic disease and health events could affect the economies of the countries in which we operate, our business operations or our financial condition and results of operations.”)
As part of our strategy, we continue to review growth opportunities, both in Brazil and outside of Brazil. Additionally, please see “Item 3D. Risk Factors” for comments on the risks faced in our operations and that could affect our business, results of operations or financial condition.
5E. | Off-Balance Sheet Arrangements |
We do not have anyoff-balance sheet arrangements, other than the guarantees we granted that are described in “Note 32 – Risk and Capital Management, 1.1 – Collateral and policies for mitigating credit risk” and “1.4 – Maximum Exposure of Financial Assets to Credit Risk” of our audited consolidated financial statements and Item 4B. Business Overview – Selected Statistical Information – Assets – Portfolio of Securities and Derivative Financial Instruments”. Please see “Item 5B. Liquidity and Capital Resources ––, Exchange Rate Sensitivity” for further details.
5F. | Tabular Disclosure of Contractual Obligations |
The table below summarizes the maturity profile of our consolidated long-term debt, operating leases and other contractual commitments as of December 31, 2018:2019:
Payments due by period | Payments due by period | |||||||||||||||||||||||||||||||||||||||
Contractual Obligations | Total | Less than 1 year | 1-3 years | 3-5 years | More than 5 years | Total | Less than 1 year | 1-3 years | 3-5 years | More than 5 years | ||||||||||||||||||||||||||||||
(In millions of R$) | (In millions of R$) | |||||||||||||||||||||||||||||||||||||||
Interbank market debt(1)(3) | 134,670 | 73,176 | 53,664 | 4,712 | 3,118 | 192,837 | 114,827 | 69,424 | 5,552 | 3,034 | ||||||||||||||||||||||||||||||
Institutional market debt(2)(3) | 93,974 | 8,524 | 28,363 | 30,150 | 26,937 | 123,789 | 15,600 | 47,288 | 19,180 | 41,721 | ||||||||||||||||||||||||||||||
Time Deposits(3) | 305,266 | 97,635 | 41,540 | 152,030 | 14,061 | 338,224 | 106,327 | 50,534 | 155,051 | 26,312 | ||||||||||||||||||||||||||||||
Operating and capital (finance) lease obligations | 5,437 | 774 | 2,975 | 919 | 769 | 4,131 | 879 | 1,583 | 915 | 754 | ||||||||||||||||||||||||||||||
Financial Guarantees | 66,105 | 18,619 | 8,316 | 1,335 | 37,835 | 66,720 | 20,733 | 10,785 | 922 | 34,280 | ||||||||||||||||||||||||||||||
Commitments to be released | 272,843 | 136,887 | 9,875 | 31,052 | 95,029 | 305,422 | 148,482 | 16,402 | 46,769 | 93,769 | ||||||||||||||||||||||||||||||
Letters of credit to be released | 10,747 | 10,747 | - | - | - | 15,013 | 15,013 | — | — | — | ||||||||||||||||||||||||||||||
Pension Obligations | 415 | 40 | 80 | 83 | 212 | 833 | 87 | 173 | 170 | 403 | ||||||||||||||||||||||||||||||
Health Benefits | 282 | 21 | 47 | 53 | 161 | 968 | 152 | 292 | 280 | 244 | ||||||||||||||||||||||||||||||
Total | 889,739 | 346,423 | 144,860 | 220,334 | 178,122 | 1,047,937 | 422,100 | 196,481 | 228,839 | 200,517 | ||||||||||||||||||||||||||||||
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(1) | Includes mortgage notes, real estate credit bills, agribusiness credit bills, financial credit bills, import and export financing and on-lending - domestic. |
(2) | Includes subordinated debt, debentures and foreign borrowings through securities. |
(3) | Includes total estimated interest payments (including for derivatives). These estimated interest payments were calculated substantially based on the interbank forward rates at the specific periods. |
5G. | Safe Harbor |
See “Forward-Looking Statements” of this annual report.
ITEM 6. | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES |
6A. | Directors and Senior Management |
Executive Committee
Our Executive Committee is responsible for conducting strategies for business and products developed by us and implementing guidelines proposed by the Board of Directors.
Our Executive Committee has a term of office of one year, which continues to be effective until the investiture of the members elected by the Board of Directors held immediately after the Annual Shareholders’ Meeting Executive Committee may be reelected.Meeting.
The table below presents the structure of our executive committee, composed of the CEO, two general directors and three vice presidents:
Changes in the Executive Committee – Board of Directors’ Meeting of September 27, 2018
In September 2018, we announced certain changes to our Executive Committee, as our Wholesale General Director Eduardo Vassimon reached the age limit imposed by our Bylaws, 60 years old on the date of the election, for exercising the duties of his position. In January 2019, Mr. Vassimon was succeeded by another current member of our Executive Committee, Caio Ibrahim David, who was previously the Executive Vice President of the Risks and Finance Area, Chief Financial Officer and Chief Risk Officer. Milton Maluhy Filho, who ended his term of office as CEO of Itaú Corpbanca in January 2019, replaced Mr. David as Vice President of Risks and Finance, Chief Financial Officer and Chief Risk Officer and joined our Executive Committee. These changes were approved by our Nomination and Corporate Governance Committee and our Board of Directors. As of the date of this Annual Report on Form 20-F, we did not have changes on our Executive Committee.
Our Board of Directors includes certain members with family relationships, as follows: Alfredo Egydio Setubal and Roberto Egydio Setubal are siblings, Pedro Moreira Salles is the father of João Moreira Salles, and Ana Lúcia de Mattos Baretto Villela and Ricardo Villela Marino are cousins.
Change in the Board of Directors
On April 16, 2019, the resignation of Mr. Amos Genish was registered withas a member of the Board of Directors. As of the date of this Annual Report on Form 20-F, we did not have changes on our Board of Directors.
Annual Shareholder’s Meeting
On April 24, 2019 at our annual shareholders’ meeting Pedro Moreira Salles, Roberto Egydio Setubal, Alfredo Egydio Setubal, Ana Lúcia de Mattos Barretto Villela, Fábio Colletti Barbosa, Gustavo Jorge Laboissiére Loyola, João Moreira Salles, José Galló, Marco Ambrogio Crespi Bonomi, Pedro Luiz Bodin de Moraes and Ricardo Villela Marino were reelected as members of our Board of Directors, each for a term of one year. We deemed the directors Fábio Colletti Barbosa, Gustavo Jorge Laboissière Loyola, José Galló, Marco Ambrogio Crespi Bonomi and Pedro Luiz Bodin de Moraes to be independent members representing 45% of our Board of Directors. With respect to our Fiscal CouncilCommittee on the same date, Alkimar Ribeiro Moura was reelected as an effective member and João Costa was reelected as his alternate; José Caruso Cruz Henriques was reelected as an effective member and Reinaldo Guerreiro, was reelected as his alternate. Eduardo Azevedo do Valle was reelected as an effective member andwith Débora Santille was elected as his alternate. The reelections of the members are subject to approval by the Central Bank.
Our Board of Directors includes certain members with family relationships, as follows: Alfredo Egydio Setubal and Roberto Egydio Setubal are siblings, Pedro Moreira Salles is the father of João Moreira Salles, and Ana Lúcia de Mattos Barretto Villela and Ricardo Villela Marino are cousins.
Board of Officers and Members of our Audit Committeean alternate member.
On April 25, 201928, 2020 at the Meeting of the Board of Directors, the members of our Board of Officers and the members of our Audit Committee werewill be elected or reelected for a term of office of one year. The reelections of the members are subjectsubjective to approval by the Central Bank.
Board of Officers and Members of our Audit Committee
On April 28, 2020 at the Meeting of the Board of Directors, the members of our Board of Officers and members of our Audit Committee will be elected or reelected for a term of office of one year. The reelections of the members are subjective to approval by the Central Bank.
Board of Directors
Members of our Board of Directors have a term of office of one year, which will continue to be effective until the investiture of the members elected by our annual general stockholders’ meeting. Members of our Board of Directors may be reelected.
Pedro Moreira Salles(Co-Chairman)(non-executiveCo-Chairman) has held several positions within the Itaú Unibanco Group including Member of the Board of Directorsbeen aCo-Chairman since February 2009,2017, and he was also the Chairman of the Board of Directors (August 2009(2009 to April 2017) and Executive Vice President (November 2008(2008 to August 2009) of. He has held several positions within the Itaú Unibanco Holding S.A.
He has also served as Vice Chairman of the Board of Directors (February 2010Group including CEO (2004 to April 2012) of Banco Itaú BBA S.A.; Member of the Board of Directors (December 1989 to July 1990), Vice Chairman of the Board of Directors (July 1990 to December 2008), CEO (September 2004 to November 2008) and Director Vice President (November 2008 to October 2009) of Unibanco – União de Bancos Brasileiros S.A.; Vice Chairman of the Board of Directors (March 2008 to November 2008) and CEO (March 2007 to November 2008) of Unibanco Holdings S.A.; and Chairman of the Board of Directors (December 1995 to February 2009) of Unibanco Seguros S.A..
Mr. Salles has also been a Chairman of the Board of Directors and CEO of Companhia E. Johnston de Participações since 2008.
He has also been a Chairman since June 2018; was a Member of the Board of Directors (November 2008(2008 to June 2015) and has been CEO (June 2015(2015 to June 2018) at IUPAR – Itaú Unibanco Participações S.A., having previously served as Chairman (November 2008(2008 to April 2012); Member of the Board of Directors of Totvs S.A. (March 2010 to September 2017).
He has served as Vice Chairman of the Board of Directors of Porto Seguro S.A. (November 2009(2009 to March 2012) and, as Chairman of the Board of Directors of E. Johnston Representação e Participações S.A. (2001 to February 2009) and as Member of the Board of Directors of Totvs S.A. (2010 to 2017).
Mr. Salles has also been the Chairman of the Steering Committee of the Brazilian Federation of Bank AssociationsFederação Brasileira de Bancos (FEBRABAN) since March 2017.
He hasholds a Bachelor’s degree, magna cum laude, in Economics and History from the University of California, Los Angeles. He also attended the international relations master’s program at Yale University and the OPM – Owner/President Management Program at Harvard University, both in the United States.
Roberto Egydio Setubal(Co-Chairman)(non-executiveCo-Chairman)has been aCo-Chairman since 2017, and he was also the Vice Chairman of the Board of Directors (2003 to 2017) and CEO (1994 to 2017). He has held several positions within the Itaú Unibanco Group including CEO (November 1995Senior Vice President (“Diretor Geral”)(1990 to April 2017), Vice Chairman of the Board of Directors (March 2003 to April 2017) and Chairman of the International Advisory Board (March 2003 to April 2009) at Itaú Unibanco Holding S.A.1994).
Mr. Setubal has been a Member of the Board of Directors and of the Audit Committee of Royal Dutch Shell (Netherlands) since October 2017.
He has also served as CEO (April 1994 to March 2015), General Director (July 1990 to April 1994) and Member of the Board of Directors (May 1991 to March 2003) at Itaú Unibanco S.A.
Mr. Setubal was also Chairman of the Board of Directors (November 2004 to April 2015) at Banco Itaú BBA S.A.; CEO (November 2008 to April 2011) at Unibanco – União de Bancos Brasileiros S.A.; and Chairman of the Board of Directors (July 2005 to April 2013) and CEO (March 2005 to July 2008) at Itauseg Participações S.A.
He has served as Director Vice President since May 1994 at Itaúsa – Investimentos Itaú S.A. and Chairman of the Accounting Policies Committee from August 2008(2008 to April 2011.2011).
Since 1994 he has been a Member of the Board of the International Monetary Conference. He was President of the National Federation of Banks – FENABANFederação Nacional dos Bancos (FENABAN) and of the Brazilian Federation of Bank Associations – FEBRABAN (April 1997Federação Brasileira de Bancos (FEBRABAN) (1997 to March 2001) and President of the Advisory Board of FEBRABAN (October 2008the Federação Brasileira de Bancos (FEBRABAN) (2008 to March 2017). In April 2000, Mr. Setubal became a Member of the Trilateral Commission and the International Board of the NYSE and in 2002 he became a Member of the International Advisory Committee of the Federal Reserve Bank of New York. In 2010, he became a Member of the China Development Forum and, since 2015, he has been aCo-Chairman of the WEF (World Economic Forum) 2015.. He has also been a member of the Economic and Social Development Board of the Presidency of the Republic of Brazil (CDES) since November 2016.
He hasholds a Bachelor’s degree in Production Engineering from the Polytechnic School of the University ofEscola Politécnica da Universidade de São Paulo (USP), Brazil (1977) and a Master’s degree in Science Engineering from Stanford University, United States (1979).States.
Alfredo Egydio Setubal (Member)(non-executive Member)has been a Member of the Board of Directors since 2007. He has held several positions within the Itaú Unibanco Group including Director Vice President (March 2003(1996 to March 2015) and Investor Relations Officer (March 2003 to February 2015) at Itaú Unibanco Holding S.A.
He was Chairman of the Board of Directors (April 2008 to April 2013) of Investimentos Bemge S.A.; and Vice President (April 1996 to March 2015), Investor Relations Officer (1995 to 2003),2015); Executive Officer (May 1993(1993 to June 1996) and Managing Officer (1988 and 1993) at Itaú Unibanco S.A..
Mr. Setubal has also served as CEO and InvestorInvestment Relations Officer since May 2015,2015; Vice Chairman of the Board of Directors since September 2008, Coordinator since May 2015 and2008; Member of the Ethics, Disclosure and Trading CommitteesCommittee since May 2009 and Coordinator since 2015; Member of the Investment Policies Committee from August 2008(2008 to April 20112011); Coordinator of the Investments Committee and Member of the Finance, the Personnel and Ethics, and the Sustainability and Risks committees since 2017 at Itaúsa – Investimentos Itaú S.A.
He was Vice President (1994 to August 2003) and President (August 2003 to August 2008) of the National Association of Investment Banks (ANBID), and Member of the Board of Directors (1999 to 2009) of the Brazilian Institute of Investors Relations (IBRI) and has been the Chairman of its Superior Guidance, Nomination and Ethics Committee since 2009.
Mr. Setubal has also served as Member of the Advisory Board of theDirectors at Associação Brasileira das Companhias Abertas (ABRASCA) (Brazilian Association of Broker-Dealers (ADEVAL)Listed Capital Companies) (1999 to 2017); and has been Financial Officer of Museu de Arte Moderna de São Paulo (MAM) (São Paulo Museum of Modern Art) since 1993; Member1992; Vice Chairman of the Board of Directors at Brazilian Association of Listed Capital Companies (ABRASCA) (1999 to 2017); and Financial Officer ofFundação Bienal de São Paulo Museum(São Paulo Art Biennial Foundation) since 2017 (and Member since 2009); and Chairman of Modernthe Decision-Making Council at Museu de Arte de São Paulo (MASP) (São Paulo Art – MAMMuseum) since 1992.2018.
He hasholds a Bachelor’s and postgraduate degrees in Business Administration from the Fundação Getulio Vargas Foundation (FGV), São Paulo, Brazil, with a specialization course at INSEAD (France).
Ana Lúcia de Mattos Barretto Villela (Member)(non-executive Member)has held several positions withinbeen a Member of the Itaú Unibanco Group. WasBoard of Directors since 2018. She was Member of the Board of Directors at the Itaú Unibanco S.A. from June 1996Group (1996 to July 2001 and Member of the Board of Trustees since 1995 and Member of the Executive Board since February 2017 at Itaú Cultural and Member of the Guiding Group since February 2017 at Itaú Social.2001).
Ms. Villela has also been aan Alternate Member of the Board of Directors since June 2018 of IUPAR – Itaú Unibanco Participações S.A.; since 2018; Vice Chairman of the Board of Directors(Non-Executivenon-executive Member) since April 2017 of Itaúsa – Investimentos Itaú S.A.; since 2017; Member of the Sustainability Committee since April 2015(2015 to 2018) of Duratex S.A.;Co-Founder since September 2014 of AlanaLab (Maria Farinha Filmes, Flow, JungleBee);Jungle Bee) since 2014; Founding President since April 2012 of Alana Foundation;Foundation since 2012; CEO of Instituto Alana since April 2002; Member of the Advisory Board at Instituto Brincante since 2001 and Fellow Ashoka since 2010.
She washas been a Member of the Innovation Board of XPRIZE since August 2018. First representative from Latin America on the Innovation Board of XPRIZE, anon-profit organization created by Peter Diamandis, who idealizesdesigns and manages global competitions to encourage the development of new technologies that may help solve some of mankind’s major challenges.
She was a Member of the Advisory Board at Instituto Akatu (June 2013(2013 to December 2017); Member of the Advisory Board at Commercial Free Childhood (CCFC) (December 2015(2015 to December 2017); and Member of the Advisory Board at Conectas (2003 to January 2018).
She hasholds a Bachelor’s degree in Teaching with a minor in School Management (1996)Administration from Pontifíciathe Pontificia Universidade Católica de São Paulo(PUC-SP); a Master’s degree in Educational Psychology (2003) from Pontifical Catholic University ofthe Pontificia Universidade Católica de São Paulo(PUC-SP); GraduationGraduate studies in Business administrationAdministration from FAAPFundação Armando Álvares Penteado (FAAP), São Paulo, Brazil (incomplete) and Post-graduationpostgraduate studies in Administration in the Third Sector from the Fundação GetúlioGetulio Vargas (FGV), São Paulo, Brazil (incomplete).
Fábio Colletti Barbosa (Independent Member)has been a Member of the Board of Directors since 2015.
He has been a Member of the Board of Directors of Natura Cosméticos S.A. since May 2017 and a2017; Member of the Board of Directors of Cia. Hering since May 2017.2017; and Member of the Board of Directors of CBMM since 2015.
He was CEO (September 2011(2011 to March 2014) at Abril Comunicações S.A.; Chairman of the Board of Directors (January 2011(2011 to September 2011) at Banco Santander (Brasil)(Brazil) S.A.; Chairman of the Board of Directors (August 2008CEO (2008 to December 2010) at Banco Santander S.A.; and CEO (1998 to 2008) at Banco Real S.A.
Mr. Barbosa has also served as Chairman of the Board of Directors at Fundação OSESP since 2012; Member of the Governing Council at Insper—Instituto de Ensino e Pesquisa since 2010;(São Paulo Orchestra) (2012 to 2019), and is presently a Board Member at UN Foundation (USA) since 2011; Member of the Board of Directors at Instituto Empreender Endeavor since 2008;2008 (Chairman since 2015); Member of the Board of Directors at Almar Participações S.A. since 2013; and Member of the Investment Committee at Gávea InvestmentsInvestimentos since September 2015.
He hasholds a Bachelor’s degree in Economics from the School of Economics of theFundação Getulio Vargas Foundation (FGV), São Paulo, Brazil and a Master’s degree in Business Administration from the Institute for Management Development, Lausanne, Switzerland.
Gustavo Jorge Laboissière Loyola (Independent Member) has been a Member of the Board of Directors since 2006 and President of the Audit Committee since 2017. He was aalso Member of the Fiscal Council (March 2003(2003 to April 2006) of Itaú Unibanco Holding S.A..
He has been a partner at Tendências Consultoria Integrada S/S Ltda. since November 2002 and at Tendências Conhecimento Assessoria Econômica Ltda. since July 2003, and a Managing Partner at Gustavo Loyola Consultoria S/C since February 1998.
Mr. Loyola was Governor (November 1992(1992 to March 1993)1993 and (June 1995 to November 1997) of the Banco Central Bank of Brazildo Brasil and Governor of the National Financial System Regulation and Organization (March 1990(1990 to November 1992).
He hasholds a Bachelor’s degree in Economics from the University ofUniversidade de Brasília (1979) and a PhD in Economics from the Fundação Getulio Vargas Foundation,(FGV), Rio de Janeiro, Brazil (1983).Brazil.
João Moreira Salles (Member)(non-executive Member) has held several positions within the Itaú Unibanco Group includingbeen a Member of the Board of Directors of IUPAR—since 2017.
He is an Officer at IUPAR – Itaú Unibanco Participações S.A. (June 2015since 2018 and held the position of Member of the Board of Directors (2015 to June 2018) and Officer. He has also been on the Board of XP Investimentos S.A. since June 2018. He also served as Economist of Banco Itaú BBA Creditanstalt S.A. (2002 to 2003).
HeMr. Moreira Salles is currently an Officer of Brasil Warrant Administração de Bens e Empresas S.A,S.A. (BWSA), where, since 2013, he has beenco-responsible for overseeing the management of BW Gestão de Investimentos (BWGI) and Member ofthrough his role in the Investment,(CO-CIO), Risk and Operational Committees; MemberCommittees of the Advisory Board of Cambuhy Agrícolafirm, and has been responsible for the monitoring of other BWSA subsidiaries.
He has been a Partner of Cambuhy Investimentos since 2013;and a Member of the Investment Committee of Cambuhy Investimentos Ltda. since 2013;2013, and was a Member of the Board of Directors of investee Parnaíba Gás Natural (2014 to 2017).
He Before joining BWSA and Cambuhy, he was an Investment Banker ofat J. P. Morgan Chase, NY, U.S.in New York (2011 to 2013), and the Chief Economist of ForeSee Asset Management, SP, Brazil (2003 to 2005).
He hasholds a Bachelor’s degree in Economics from INSPER,(IBMEC-SP) (2003); a Master’s degreesdegree in Economics from Columbia University, GSAS, NY, U.S. (2007), and a Master’s degree in Finance from Columbia University, GSB, NY, U.S. (2009). He also hasand a PhD degree in Economic Theory from University ofthe Universidade de São Paulo (USP) (FEA) (2012)(FEA-USP).
José Galló (Independent Member)has been a Member of the Board of Directors since 2016.
Mr. Galló is currently Chairman of the Board of Directors at Lojas Renner; Member of the Board of Directors since 1998, having held the position of Chairman of this Board between 1999 and 2005, and is currently Chairman of the Strategic Committee and member of the Sustainability Committee. He was Superintendent of Lojas Renner S.A. since 1998 and CEO since March 1999 and(1991 to 1999), when he was also the Chairmanelected Chief Executive Officer, a position he held until 2019.
He has over 30 years of experience in retailing, having been a member of the Board (1999of Directors of Instituto para Desenvolvimento do Varejo (IDV). He has been a member of the Board of Directors of Localiza Rent a Car S.A. since 2010, having been elected Vice Chairman of this Board in 2019; Member of the Board of Directors of Ultrapar Participações S.A. since 2019. He was a member of the Board of Directors of SLC Agrícola S.A. (2007 to 2005) and Superintendent Director (September 1991 to March 1999)2016).
Mr. Galló has also served asHe was an Officer at Renner Administradora de Cartões de Crédito Ltda. since September 2005; Officer at, Dromegon Participações Ltda. since September 2005; Officer at LR Investimentos Ltda. since August 2008 and Officer at, Realize Participações S.A. since December 2015.
He also was CEO (December 2016 to August 2017) atand Realize Crédito, Financiamento e Investimento S.A. and Member, all of which are related to Lojas Renner S.A.
He was also a member of the BoardDecision-Making Council of Directors (April 2007 to May 2016) at SLC Agrícola S.A.
Mr. Galló has served as a Member of the Governing Council at Instituto Lojas Renner since June 2008;(2008 to 2019). He is currently an ambassador of Endeavor Brazil in Rio Grande do Sul and Officer at Rumos Consultoria Empresarial Ltda. since March 1987; Member of the Board of Directors at Localiza Rent a Car S.A. since October 2010; and Member of the Board of Directors at the Institute for the Development of the Retail Segment (IDV) since July 2004.1987.
He has also been Vice Chairman of the Retail Managers Chamber of the State of Porto Alegre since June 2004.
He hasholds a Bachelor’s degree in Business Administration from the São Paulo School of Business Administration of the State ofFundação Getulio Vargas (FGV), São Paulo, of the Getulio Vargas Foundation (FGV), Brazil (1974).Brazil.
Marco Ambrogio Crespi Bonomi (Member)(Independent Member)has been a Member of the Board of Directors since 2017. He has held several positions within the Itaú Unibanco Group since 1998 including General Director (July 2015Senior Vice President (“Diretor Geral”) (2015 to April 2017) of Itaú Unibanco Holding S.A..
He has also served as General Director (April 2015 to April 2017), Directorwas a Vice President (April 2007(2004 to March 2015), Executive Officer (April 2004 to April 2007), Senior Managing Officer (October 2000 to April 2004), Managing Officer (August 1998 to October 2000) at Itaú Unibanco S.A.
Mr. Bonomi was also Executive Officer (November 2008 to June 2014) at Unibanco – União de Bancos Brasileiros S.A. and Vice President (April 2004 to April 2011) of the Brazilian Association of Credit, Financing and Investment InstitutionsAssociação Nacional das Instituições de Crédito, Financiamento e Investimento (ACREFI).
He hasholds a Bachelor’s degree in Economics from FAAP—Fundação Armando Álvares Penteado Foundation,(FAAP), São Paulo, Brazil (1978) and attended a Financial Executive Advanced course at the Fundação Getulio Vargas Foundation (FGV), São Paulo, Brazil (1982) and a course on Capital Markets at New York University (1984).University.
Pedro Luiz Bodin de Moraes (Independent Member)has been a Member of the Board of Directors since 2009. He was Member of the Board of Directors (2003 to 2008) at the Itaú Unibanco Group.
He has been a partner at Cambuhy Investimentos Ltda. since 2011 and at Ventor Investimentos Ltda. since 2009.
He was a Member of the Board of Directors (July 2003 to December 2008) of Unibanco – União de Banco Brasileiros S.A.;an Officer (2002 to 2003) and a Partner (2005 to 2014) at Icatu Holding S.A.; and an Officer and a Partner (1993 to 2002) at Banco Icatu S.A.
Mr. Bodin de Moraes has also served as Monetary Policy DirectorOfficer (1991 to 1992) at the Banco Central Bank of Brazildo Brasil (1990 to 1991) and as Officer (1990 to 1991) at the Brazilian Bank forBanco Nacional de Desenvolvimento Econômico e Social and Economic Development (BNDES).
He hasholds Bachelor’s and Master’s degrees in Economics from the Pontifical Catholic University ofPontificia Universidade Católica do Rio de Janeiro –PUC-RJ(PUC-RJ) and a PhD in Economics from the Massachusetts Institute of Technology (MIT).
Ricardo Villela Marino (Member)(non-executive Member)has been a Member of the Board of Directors since 2008 and Chairman of the bank’s Latin America Strategic Council since 2018. He has held several positions within the Itaú Unibanco Group since 2004 including Executive Vice President at Itaú Unibanco S.A. (August 2010(2010 to April 2018) and also was Executive Officer (September 2006 to August 2010), Senior Managing Officer (August 2005 to September 2006) and Managing Officer (December 2004 to August 2005).
He has also been an Alternate Member of the Board of Directors of Itaúsa – Investimentos Itaú S.A. since April 2011,2011; Alternate Member of the Board of Directors of Duratex S.A. since April 2009,2009; Alternate Member of the Board of Directors of Itautec S.A. since April 2009(2009 to 2019) and Alternate Member of the Board of Directors of Elekeiroz S.A. (April 2009(2009 to June 2018).
He hasholds a Bachelor’s degree in Mechanical Engineering from the Polytechnic School of the University ofEscola Politécnica da Universidade de São Paulo (USP) (1996) and a Master’s degree in Business Administration from MIT Sloan School of Management, Cambridge, U.S. (2000).
Board of Officers
Members of our Board of Officers have a term of office of one year, which will continue to be effective until the investiture of the members elected by the meeting of the Board of Directors to be held immediately after our annual general stockholders’ meeting. Members of our Board of Officers may be reelected.
Candido Botelho Bracher (CEO)has been a partner under our Partnership Program for Officers and Employees since 2010 and CEO of the Itaú Unibanco Group since 2017. He has held several positions within the Itaú Unibanco Group including Wholesale Banking General Manager (July 2015 to May 2017),(Senior Vice President (August 2005(“Diretor Geral”) (2015 to June 2015) and Member of the Board of Directors (February 2009 to April 2017) at Itaú Unibanco Holding S.A.
He has also served as Vice Chairman of the Board of Directors (March 2013 to April 2015), Member of the Board of Directors (November 2004 to March 2013), CEO (August 2005 to January 2017), and Vice President (November 2005 to August 2005) at Banco Itaú BBA S.A.(2004 a 2015).
Mr. Bracher was also a Member of the Board of Directors (April 2009(2009 to June 2014) of the BM&FBOVESPA S.A. – Bolsa de Valores, Mercadorias e Futuros (currently B3 S.A. – Brasil, Bolsa, Balcão), an Alternate Member of the Board of Directors (September 1999(1999 to June 2005); a Member of the Board of Directors (June 2005(2005 to March 2013) of Pão de Açúcar—car – Companhia Brasileira de Distribuição; Officer and Partner (1988 to 2003), Member of the Board of Directors (May 2003 to April 2005), Vice President (May 2003 to April 2005) and Officer (December 1988 to May 2003) at Banco Itaú BBA Creditanstalt S.A.o.
He hasholds a Bachelor’s degree in Business Administration from the School of Business Administration of theFundação Getulio Vargas Foundation (FGV), Brazil (1980).São Paulo, Brazil.
Caio Ibrahim David (General Manager)(Senior Vice President (“Diretor Geral”))has been a partner under our Partnership Program for Officers and Employees since 2010 and a Head of Wholesale Bank at the Itaú Unibanco Group since 2019. Currently, he is responsible for Institutional Treasury and also for Planning of the Wholesale Bank. He has held several positions within the Itaú Unibanco Group including Vice President (January 2017(2013 to December 2018) and Executive Officer (June 2010 to April 2015) at Itaú Unibanco Holding S.A.
He has served as General Manager since February 2019 at Itaú Unibanco S.A. and Director Vice President (May 2013 to January 2019) and was also an Executive Officer (May 2010 to April 2013). He joined the Group in 1987 as a trainee, working in the controllership, and hasmarket and liquidity risk control departments and was elected Officer in 2003.
He worked in the Controller’s, Marketareas of Risk, Finance and LiquidityOperations. In 1998, he was a Summer Associate in the Global Risk Control and Treasury departments. Management department at Bankers Trust Co. in New York.
He has been a Member of theparticipated as Board of Directors of Itaú Corpbanca S.A. since January 2019.
Mr. David is CEO since January 2019 and was Executive Officer (May 2008 to April 2010), Officer (November 2004 to April 2008)member at Banco Itaú BBA S.A. He hasand Porto Seguro S.A. (2013 to 2015). At Rede, Itaú Unibanco´s investee, he worked in the Finance, Risks, Market Intelligence, Products and Operations departments.
He has been a Member of the Board of Directors of Investimentos Bemge S.A. (April 2012 to April 2018) and was its Director Vice President (October 2010 to April 2013) and Officer at Banco Itaú BBA Creditanstalt S.A. (July 2003 to April 2005).
He has also been a Member of the Board of Directors at Dibens Leasing S.A. – Arrendamento Mercantil (July 2010 to April 2018) and was an Executive Officer (April 2010 to April 2013) and CEO (May 2013 to March 2015) at Itauseg Participações S.A.
Mr. David has served as Vice Chairman of the Board of Directors (June 2010(2010 to December 2012) and Member. Mr. David also served as Chairman of the Advisory Board of Directors (May 2010the Fundo Garantidor de Crédito (FGC) (2013 to December 2012) of Redecard S.A.2015).
He hasholds a Bachelor’s degree in Mechanical Engineering fromat Universidade Mackenzie, University (1986 to 1990) and a postgraduate degree in Economics and Finance fromat the University ofUniversidade de São Paulo (USP) (1992 to 1993). He also has a, Master’s degree in Controllership from the University ofalso at Universidade de São Paulo (USP) (1994 to 1997) and an MBA fromat New York University (1997 to 1999) with specializationmajor in Finance, Accounting and International Business.
Márcio de Andrade Schettini (General Manager)(Senior Vice President (“Diretor Geral”))has been a partner under our Partnership Program for Officers and Employees since 2007 and a Head of Retail Bank at the Itaú Unibanco Group since 2015. He has held several positions within the Itaú Unibanco Group including General Director at Itaú Unibanco S.A. since April 2015 and DirectorExecutive Vice President (November 2008(2004 to March 2015).
He was also an Director Vice President (April 2004 to April 2009) at Unibanco – União de Bancos Brasileiros S.A.
He hasholds a Bachelor’s degree in Electric Engineering and a Master’sMaster´s degree from the Pontifical Catholic University ofPontificia Universidade Católica do Rio de Janeiro(PUC-RJ), where he also attended a specialization course on mathematical systems and modeling. He also has Master’sa Master of Science degree in Finance from the University of London – SOAS and attended the OPM – Owners/President Management Program at Harvard University.
André Sapoznik (Vice President)has held several positions withinbeen a partner under our Partnership Program for Officers and Employees since 2007 and a Vice President at the Itaú Unibanco Group including Director Vice Presidentsince 2016. He started his career at the Itaú Unibanco S.A. since December 2016, ExecutiveGroup in 1998 and was elected Officer (December 2011 to December 2016) and Officer (April 2009 to December 2011).in 2009.
He joined Unibanco in 1998.
He hasholds a Bachelor’s degree in Production Engineering from the Polytechnic School of the University ofEscola Politécnica da Universidade de São Paulo (USP) and an MBA from Stanford University Graduate School of Business.
Claudia Politanski (Vice President)has been a partner under our Partnership Program for Officers and Employees since 2007 and a Vice President at the Itaú Unibanco Group since 2013 and currently leads the Human Resources, Legal, Governmental and Institutional Relations, Corporate Communication and Marketing departments. She is a member of the Executive Committee and she was the secretary of the Board of Directors between 2012 and 2018. She started her career at the Itaú Unibanco Group in 1991 and was elected Officer in 2003.
Ms. Politanski has been Vice President of the Executive Board of the Federação Brasileira de Bancos (FEBRABAN) since 2013 and member of the Board of Directors of Hospital Israelita Albert Einstein since 2016.
She holds a Bachelor’s Degree in Law from the Universidade de São Paulo (USP), a LL.M. Degree from the University of Virginia and MBA from the Fundação Dom Cabral.
Milton Maluhy (Vice President)has been a partner under our Partnership Program for Officers and Employees since 2011 and a Vice President at the Itaú Unibanco Group since 2019. He is currently acting as Chief Financial Officer and Chief Risk Officer. He has held several positions within the Itaú Unibanco Group including Executive Officer (November 2008CEO of Itaú CorpBanca (Chile) (2016 to March 2015)2018) in charge of the merger of two banks, CorpBanca and Banco Itaú Chile.
He started his career at Itaú Unibanco Holding S.A.
She has been Director Vice President at Itaú Unibanco S.A. since July 2013 and was also an Executive Officer (February 2010 to July 2013).
Ms. Politanski was also an Executive Officer (August 2007 to July 2014), an Officer (February 2006 to August 2007) and a Deputy Officer (July 2003 to February 2006) at Unibanco – União de Bancos Brasileiros S.A.
She has a Bachelor’s degree in Law from the University of São Paulo (USP) (1992) and a Master’s degree in Law from the University of Virginia.
Milton Maluhy Filho (Vice President)has held several positions within the Itaú Unibanco Group including Director Vice President at Itaú Unibanco S.A. since February 2019in 2003 and Member of the Board of Directors since January 2019 at Itaú Corpbanca S.A. and CEO of Itaú CorpBanca (April 2016 to December 2018). He is currently CFO and CRO of the Itaú Unibanco Group.was elected Officer in 2007.
He has been Executive Officer (August 2013 to March 2016), an Officer (April to August 2013); Foreign Trade Analyst (June 1995 to June 1996) and Foreign Trade Desk Manager (January 2002 to March 2003) at Itaú Unibanco S.A. He served as CEO at Redecard S.A. (October 2012 to March 2016).
Mr. Maluhy Filho was also Executive Officer (March 2010 to April 2012) at Banco Itaú BBA S.A. as responsible for the Products and Clients Desks area. He was an Officer from July 2007 and responsible for the Campinas Branch to March 2009 and as responsible for the Financial Institutions and Funding Area (April 2009 to February 2010). Mr. Maluhy Filho joined Itaú BBA in March 2003, and held the positions of Foreign Trade Senior Officer and Financial Institutions Senior Officer. Mr. Maluhy Filho was responsible for the relationship and trading of operations with Financial Institutions (December 2004 to July 2007).
He hasholds a Bachelor’s degree in Business Administration from Fundação Armando Álvares Penteado (FAAP)., São Paulo, Brazil.
Alexsandro Broedel (Executive Officer)has been a partner under our Partnership Program for Officers and Employees since 2017, an Executive Officer at the Itaú Unibanco Group since 2015 and Investor Relations Officer since 2017. He has held several positions within the Itaú Unibanco Group including Group Chief Accounting Officer and Group Controller from August 2012(2012 to March 2015 and Finance Executive Officer since 2015 and Investor Relations Officer at Itaú Unibanco Holding S.A. since October 2017.
At Itaú Unibanco S.A., he has been an Executive Officer since March 2015 and was also an Officer (May 2012 to March 2015).
He has also served as Chairman of the Board of Directors since April 2018 and CEO at Investimentos Bemge S.A. since February 2018, has been a Officer (June 2012 to February 2018) and Investor Relations Officer since October 2017; Officer at Itauseg Participações S.A. since June 2012; Chairman of the Board of Directors since April 2018 and Officer at Dibens Leasing S.A. – Arrendamento Mercantil since August 2012 and Investor Relations Officer since October 2017.
Mr. Broedel has been Full Professor of Accounting and Finance at Universidade de São Paulo (USP) since 2002, teaching in graduate, master and postgraduate programs, and was a Commissioner (2010 to 2012) at the Brazilian Securities CommissionComissão de Valores Mobiliários (CVM).
He was a Consultant (2008 to 2009) at Mattos Filho, Veiga Filho, Marrey Jr. e Quiroga Advogados and a Member of the Audit Committee (2012) of B3.BM&FBOVESPA S.A. – Bolsa de Valores, Mercadorias e Futuros (currently B3 S.A. – Brasil, Bolsa, Balcão).
Mr. Broedel has also beenwas a Member of the Board of Directors of CETIP S.A.— – Mercados Organizados (CETIP S.A. – The OrganizedOver-the-counter Market in Assets and Derivatives) (May 2013 Markets) (2013 to March 2017); aMember of International Integrated Reporting Committee (IIRC) (2014 to 2019); Member of the International Accounting Standards Board (IASB) since 2010; a Member of the Board of Directors of IRB Brasil Resseguros since 2015; and a Member of International Integrated Reporting Committee – IIRC since 2014.2015.
He is also Full Professor atFEA-USP and was Professor (2001 to 2002) atEAESP-FGV; Professor (2005) at Manchester Business School; and Visiting professor at London School of Economics.
He hasholds a Bachelor’s degree in Accounting from the Universidade de São Paulo (USP), PhD in Controllership and Accounting from the Universidade de São Paulo (USP), PhD in Accounting and Finance from Manchester Business School (2008); a PhD in Controllership and Accounting from the University of São Paulo (USP) (2001); a Bachelor’s degree in Accounting (1997) from the University of São Paulo (USP); and a Bachelor’s degree in Law from the University ofUniversidade de São Paulo—USP (2012)Paulo (USP).
Fernando Barçante Tostes Malta (Executive Officer)has been a partner under our Partnership Program for Officers and Employees since 2007 and an Executive Officer at the Itaú Unibanco Group since 2015. He has held several positions within the Itaú Unibanco Group including Executive Officer at Itaú Unibanco S.A. since March 2015, working for the Executive Boards of Office of Internal Controls and Compliance Officer from March 2016 up to this date;date, responsible for thenon-financial risks of the group, starting with Operational Risks and Compliance and, since 2017,Information Security, Anti-Money Laundering and Fraud Prevention, as well as for the coordination of Operational and Underwriting Risk Control of international units; Cards Operations, Rede (Redecard), Mortgage Loans, Vehicle Financing, Consortia, Collection, Legal Operations, and all active customer services of Itaú Unibanco (February 2015(2015 to February 2016).
Also at Itaú Unibanco S.A., Mr. Malta also was an Officer in Customer Service, Operations and Card Services, Mortgage Loans, Vehicle Financing, Consortia, Insurance and Capitalization Operations (March 2013(2013 to January 2015); a Customer Service, Operations and Services Officer of Consumer Credit (cards and financing companies) (May 2011(2011 to February 2013); Customer Service Officer of the Consumer Credit department (cards and financing companies) (February 2009(2009 to April 2011); and a Channel and CRM Officer (Unibanco, prior to the merger) (December 2004(2004 to January 2009).
He started his career in 1988, working in many different positions.
Mr. Malta has also He worked in the management of the Channels, Branches and Institutional Portfolio departments and participated in a number of projects/initiatives (1995 to 2008) at Unibanco – União de Bancos Brasileiros S.A..
He has also served as Alternate Member of the Board of Directors of Tecnologia Bancária S.A.; Deputy Member of the Board of Directors of Luizacred S.A. Sociedade de Crédito, Financiamento e Investimento; and as Alternate Member of the Board of Directors of Financeira Itaú CBD Crédito, Financiamento e Investimento and Banco Carrefour S.A.
He hasholds a Bachelor’s degree in Information Technology from the Pontifical Catholic University ofPontificia Universidade Católica do Rio de Janeiro –PUC-RJ(PUC-RJ), (1989) and an MBA from the Fundação Dom Cabral Foundation (1998).Cabral. Mr. Malta also attended an extension course in Strategy from the Kellogg School of Management (FDC) (2003) and an extension course in Banking Management from the Swiss Finance Institute (2011).Institute.
Leila Cristiane Barboza Braga de Melo (Executive Officer)has been a partner under our Partnership Program for Officers and Employees since 2007 and an Executive Officer at the Itaú Unibanco Group since 2015. She is currently responsible for the entire Legal Department, Government Relations, Corporate Communication and, since 2014, she has also been designated as the Ombudsman Officer. She has held several positions within the Itaú Unibanco Group including Executive Officer (2010 to 2015).
She started her career at the Itaú Unibanco S.A. (since April 2015) and Officer (February 2010 to March 2015). She has been working at the conglomerate for over 20 years and is currently responsible for the entire Legal Department, which encompasses Legal—Litigation, Legal—Retail Business, Legal—Wholesale Business and Legal—Institutional and International. Since 2014, she has also been working as the Ombudsman Officer.
Ms. Melo has also served as Deputy Officer (October 2008 to October 2009) at Unibanco – União de Bancos Brasileiros S.A. She joined Unibanco in 1997,Group in1997, working in the Legal Advisory Department of Unibanco in operations involving banking products, credit card, and real estate and vehicle financing, and in projects related to mergers and acquisitions, corporate restructuring processes and capital markets, among others.others and was elected Deputy Officer in 2008.
She is also a Member of the International Women’s Forum (IWF) and a Member of W.I.L.L. – Women in Leadership in Latin America (organization(nongovernmental organization with international coverage focused on improving the individual and collective value of women in leadership positions in Latin America).
Ms. Melo has also worked in the Project Finance and Securities Departments of the Debevoise & Plimpton firm in New York and on the Women Up Program – Building a Global Leadership Community promoted by McKinsey & Company, Inc.York.
She hasholds a Bachelor’s degree in Law from the University ofUniversidade de São Paulo (USP) and attended a Specialization course on Financial Law and Capital Markets from the Brazilian Institute of Capital Markets and on Fundamentals of Business Law from New York University (NYU). and Fellows Program – IWF Leadership Foundation.
Paulo Sergio Miron (Executive Officer)has been a partner under our Partnership Program for Officers and Employees since 2019 and an Executive Officer at the Itaú Unibanco Group since 2015.
He is aalso Member of the Audit Committee of Porto Seguro S.A.; Member of the Fiscal Council of the Maria Cecilia Souto Vidigal Foundation; and an Executive Officer of the Unibanco Institute.Instituto Unibanco.
He was a Partner at PricewaterhouseCoopers, São Paulo, Brazil (1996 to 2015) and the partner responsible for the audit work at large Brazilian financial conglomerates, including Unibanco – União de Bancos Brasileiros (1997 to 2000), Banco do Brasil (2001 to 2005) and Itaú Unibanco S.A. (2009 to 2013).
At PricewaterhouseCoopers, Brasília, Federal District (DF), Brazil, Mr. Miron was a Partner (2001 to 2008) and he also was the partner responsible for PwC Brazil’s department for the provision of services to the government (2004 to 2008) and the partner responsible for PwC Brazil’s banking department (1997 to 2008).
He washas also been the coordinator of PwC Brazil’s department of training at financial institutions for over 10 years, and worked as a college professor for a number of years teaching courses related to the financial market.
He is a member of the Brazilian Institute of Accountants and a speaker at many seminars related to financial instruments and auditing.
He hasholds a Bachelor’s degree in Accounting from the Universidade São Judas Tadeu, University, São Paulo, Brazil, and in Economics from Universidade Mackenzie, University, São Paulo, Brazil.
Adriano Cabral Volpini (Officer)has held several positions withinbeen a partner under our Partnership Program for Officers and Employees since 2017 and an Officer at the Itaú Unibanco Group including Corporate Security Officer at Itaú Unibanco S.A. since July 2012.
Also at Itaú Unibanco S.A., Mr. Volpini has served He worked as Superintendent of Prevention of Unlawful Acts (August 2005(2005 to March 2012), Manager of Prevention of Unlawful Acts (January 2004(2004 to July 2005), Inspection Manager (June 2003(2003 to December 2003), Inspector (January 1998(1998 to March 2003) and Auditor (May 1996(1996 to December 1997) and worked in the Branch Operation Department (March 1991(1991 to April 1996). He also holds a management positionpositions in many companies of the Itaú Unibanco Group.
He has also been an Officer at Banco Itaú BBA S.A. (April 2016 to November 2018) and an Officer at Dibens Leasing S.A. – Arrendamento Mercantil (January 2014 to November 2018) where he also worked as Executive Officer (June 2012 to January 2014).
He hasholds a Bachelor’s degree in Social Communication from the Fundação Armando Álvares Penteado Foundation – FAAP (1991 to 1995)(FAAP), aSão Paulo, Brazil, postgraduate degree in Accounting and Financial Administration from the Fundação Armando Álvares Penteado Foundation – FAAP (1998 to 2000)(FAAP), São Paulo, Brazil and an MBA in Finance from the Brazilian Institute of Capital Markets—IBMEC (2000 to 2002)Instituto Brasileiro de Mercado de Capitais (IBMEC).
Álvaro Felipe Rizzi Rodrigues (Officer)has held several positions withinbeen a partner under our Partnership Program for Officers and Employees since 2017 and an Officer at the Itaú Unibanco Group including Officer at Itaú Unibanco S.A. since October 2014; Legal Superintendent (July 2008 to August 2014) and Legal Manager (March 2006 to July 2008).
Also at Itaú Unibanco S.A., Mr. Rodrigues worked as Coordinator and Supervisor of2014, being responsible for the following departments: Legal M&A (Mergers and Acquisitions) Department, Domestic, Antitrust, Corporate and Corporate Governance, Corporate Paralegal, Contracts and Intellectual Property, as well as for the International Legal Department and Corporate Governance, Paralegal Corporate Affairs Department, Legal Department – Contracts, Equity, Marketing and Third Sector, and International Legal Department (responsible for the matrix management of the legal teams of the Itaú Unibanco Group’s foreign units and for the monitoring and assessment of the main legal issues regarding these units), and Legal Retail BusinessBanking Department (responsible for the legal issues related to products and services of the retail banking, insurance and insurance company)pension plan businesses). He started his career at the Itaú Unibanco Group in 2005 previously served as a Manager and a Supervisor (2005 to 2014).
He has also served in the Corporate Law and Contracts Law departments (August 1998(1998 to February 2005) of Tozzini Freire Advogados.
He hasholds a Bachelor’s degree in Law from the Law School of the University ofUniversdade de São Paulo (USP) (1999). He also attended a Specialization course in BusinessCorporate Law fromat the Pontifical Catholic University ofPontifícia Universidade Católica de São Paulo –PUC-SP(PUC-SP) (2001) and hasholds a Master’s degree (“Master atof Laws” – L.L.M.) from Columbia University Law School in New York, U.S. (2004).
Andre Balestrin Cestare (Officer)has held several positions withinbeen an Officer at the Itaú Unibanco Group including Officer of Itaú Unibanco S.A. since August 2017, where he2017. He was the Finance Superintendent responsible for the financial planning of the Retail Banking, the analysis and disclosure of results and changes from budget; budgeting and monitoring the performance of products under Retail management (April 2016(2016 to July 2017); he was also responsible for the Accounting Management of Loan Operations and contact to regulatory bodies, including sending regulatory information on loan portfolio, and calculating and controlling the allowance for loan losses (June 2015(2015 to April 2016); responsible for preparing, analyzing and disclosing the managerial budget, calculating managerial result by product, sales channel and operation, and costing model calculations (June 2014(2014 to June 2015); responsible for preparing, analyzing and disclosing the managerial budget (June 2012(2012 to June 2014),; and responsible for calculating the Treasury managerial result, providing support to management of structural and proprietary positions, and supporting the Treasury result budget (June 2010(2010 to June 2012).
He has also been an Officer of Investimentos Bemge S.A. since August 2017.
He hasholds a Bachelor’s degree in Mechanical Engineering from Polytechnic School of the University ofEscola Politécnica da Universidade de São Paulo (USP) (2000), a Postgraduatepostgraduate degree in Business Administration from Fundação Getulio Vargas Foundation (FGV), São Paulo, Brazil (2002), and a Professional Master’s degree in Finance and Economics from Fundação Getulio Vargas Foundation (FGV), São Paulo, Brazil (2007).Brazil. He also attended the Executive Qualification Program from Fundação Dom Cabral Foundation (2016).Cabral.
Emerson Macedo Bortoloto (Officer)joinedhas been an Officer at the Itaú Unibanco S.A.Group since 2011. He joined the Itaú Unibanco Group in July 2003, assumingtaking over a number of positions in the Internal Audit Department. Since November 2008, he has beendepartment. He is currently the Internal Audit Officer, responsible for assessingmanaging the Audit department, whose mission is to plan, carry out and report on audits in Itaú Unibanco Group Retail processes related to market, credit and operational risks, in addition to project auditing and continuous auditing.business, as well as its Wealth Management Services unit. He wasis also currently responsible for auditingmanaging the information technologyplanning, control and retail credit analysis and granting processes.reporting of Itaú Unibanco’s Audit Committee’s activities.
He hasholds a Bachelor’s degree in Data Processing Technology, from Faculdades Integradas Tibiriça, a postgraduate degree in Audit and Consulting in Information Security from Faculdades Associadas de São Paulo (FASP) and, in 2004, he obtained the CISA certification issued by the Information Systems Audit and Control Association (ISACA). He also has a MBA in Internal Auditing from Institute of Accounting, Actuarial and Financial Research FoundationsFundação Instituto de Pesquisas Contábeis, Atuariais e Financeiras (FIPECAFI).
Gilberto Frussa (Officer)has been a partner under our Partnership Program for Officers and Employees since 2010 and an Officer at the Itaú Unibanco Group since 2006, being the Chief Compliance Officer since 2017. He has held several positions within the Itaú Unibanco Group including Corporate Compliance OfficerMember of the Decision-Making Council at EFPC – Fundação Itaú Unibanco S.A.Complementary Pension Plan since March 2017. He has been an Officer since April 2014 and he worked as Retail Products and Business Legal Officer (April 2016 to March 2017).
Mr. Frussa has also been an Officer at Dibens Leasing S.A. since June 2017 and Officer at Banco Itaú BBA S.A. since June 2017. At Itaú BBA S.A., he was also an Officer (June 2006 to February 2016) and an Attorney (April 1995 to June 2006).
He was also a partner (October 1993(1993 to April 1995) at Carvalho Pinto, Monteiro Dede Barros, Frussa & Bohlsen – Advogados, responsible for the banking law department, an Attorney (October 1989department; a Lawyer (1989 to October 1993) at BancoBBA-Creditanstalt S.A.; and a Law trainee and legal assistant in the Contracts and Intellectual Property departments (September 1986(1986 to May 1989) at Pinheiro Neto – Advogados.
Mr. Frussa was also Chairman of the Legal Affairs Committee (2012 to 2015) of the Brazilian Association of Financial and Capital Markets Entities – ANBIMAAssociação Brasileira das Entidades dos Mercados Financeiro e de Capitais (ANBIMA) and an Effective Member of the Appeals Board of the National Financial System – CRSFNConselho de Recursos do Sistema Financeiro Nacional (CRSFN) in the capacity of representative of the National Association of Investment Banks – ANBIDAssociação Nacional dos Bancos de Investimento (ANBID) (2000 to 2003) and in the capacity of representative of Brazilian Association of Financial and Capital Markets Entities – ANBIMAAssociação Brasileira das Entidades dos Mercados Financeiro e de Capitais (ANBIMA) (2011 to 2013).
He hasholds a Bachelor’s degree in Law from the University ofUniversidade de São Paulo (USP) (1989).
José Virgilio Vita Neto (Officer)has held several positions withinbeen a partner under our Partnership Program for Officers and Employees since 2008 and an Officer at the Itaú Unibanco Group including Officersince 2011. He started his career at the Itaú Unibanco S.A. since October 2011.
He joined Unibanco—União de Bancos Brasileiros S.A.Group in February 2000 and worked as a lawyer until June 2003. He was responsible for the wholesale banking’s legal consulting department, particularly, structured operations and real estate loans. Mr. Vita worked as Legal Manager (June 2003(2003 to June 2008), being responsible for the wholesale banking’s legal department, including, particularly, structured operations, real estate loans, foreign exchange, derivatives and project financing; retail legal consulting and administrative and investigative proceedings, including those related to consumer protection bodies. He also worked as Legal Superintendent (June 2008(2008 to October 2009), responsible for retail legal consulting, administrative and investigative proceedings, litigation for major cases and public-interest civil actions. At the Itaú Unibanco’s structure, heHe served as Legal Superintendent (December 2009(2009 to March 2011), being responsible for the Retail Legal Consulting, litigation for major cases and public-interest civil actions, management of appeals in higher courts, administrative and investigative proceedings tax administrative proceedings and criminal cases.
He hasholds a Bachelor’s degree in Law from the University ofUniversidade de São Paulo (USP) (2000), a Master’s degree in Civil Law – Contracts from the University de Salamanca, Spain, (2006), and a PhD in Civil Law – Contracts from the University ofUniversidade de São Paulo (USP) (2007).and Authentic Leadership Development from Harvard.
Renato Barbosa do Nascimento (Officer)has been an Officer at the Itaú Unibanco Group since 2017.
He held several positions within PricewaterhouseCoopers Auditores Independentes (São Paulo, Brazil), including Audit Partner from July 2009 to July 2017. He took part in a three-year professional exchange program (July 2014(2014 to July 2017) and worked at PricewaterhouseCoopers in Mexico City, in Mexico, as audit officer to leadleading external audits in subsidiaries of international entities of the financial industry in Mexico. His main responsibility as Audit Partner was to lead external audits in entities of the financial industry in São Paulo (July 2009(2009 to July 2017). In this period, Mr. Nascimento was also responsible for following upmonitoring external audits carried out by the PricewaterhouseCoopers teams of the United States, United Kingdom, Switzerland, Portugal, Chile, Argentina, Paraguay and Uruguay in favor of subsidiaries of Brazilian financial institutions in these countries.
Also at PricewaterhouseCoopers Auditores Independentes (São Paulo, Brazil) he has beenwas Audit Senior Manager of the financial industry (March 2008(2008 to July 2009), and his main responsibility was to manage teams in charge of carrying out audits of entities of the financial industry, regulated by the Central Bank of Brazil.Bank. Mr. Nascimento served as Audit Senior Manager of the financial industry (February 2006(2006 to March 2008), and took part in atwo-year professional exchange program working at PricewaterhouseCoopers in London, United Kingdom, as audit senior manager, and his main responsibilities were managing external audits of British financial institutions in England, managing external audits of subsidiaries of international banks, as well as the resulting development of knowledge on the application of the International Financial Reporting Standards (IFRS), Sarbanes Oxley (SOx) rules and policies issued by the Public Company Accounting Oversight Board (PCAOB).
He hasholds a Bachelor’s degree in Accounting from Paulista University (1998) and a Bachelor’s degree in Business Administration from Paulista University (1999).Universidade Paulista. He also hasholds a Master’s degree in Business Administration (MBA) from Fundação Getulio Vargas Foundation (FGV), São Paulo, Brazil (2003).Brazil.
Rodrigo Luís Rosa Couto (Officer)has been an Officer at the Itaú Unibanco Group since 2011. He has held several positions within the Itaú Unibanco Group including Corporate Risk Superintendent (February 2008(2008 to December 2011) at Itaú Unibanco Holding S.A. and has been an Officer at Banco Itaú BBA S.A. Officer since June 2015.
He has also been an Officer at Dibens Leasing S.A. – Arrendamento Mercantil since January 2014 and an Officer at Itaú Unibanco S.A. since December 2011..
Mr. Couto was an Associate (September 2005(2005 to February 2008) at McKinsey & Company and Inspector (1998 to 2003) at the Banco Central Bank of Brazil.do Brasil.
He participated in an internship program at Financial Stability Institute of the BIS where he worked on the development and was a member of the teaching staff of a training course for bank supervisors of regulatory authorities worldwide (April to June 2003)(2003).
He hasholds a Bachelor’s degree in Business Administration, Finance major, from the Universidade Federal University ofdo Rio Grande do Sul, (1993 to 1997), and a Master’s degree in Business Administration, Finance major, from The Wharton School, University of Pennsylvania (2003 to 2005).Pennsylvania.
Sergio Mychkis Goldstein (Officer)has held several positions withinbeen a partner under our Partnership Program for Officers and Employees since 2017 and an Officer at the Itaú Unibanco Group including Officer at Itaú Unibanco S.A. since December 2015 and Officer at Banco Itaú BBA S.A. since December 2015.
At Banco Itaú BBA S.A., Mr. Goldstein was responsible for the Wholesale Legal and Tax departments, carrying out legal services in the following business lines: (i) Investment Banking: coordinating the performance of services in fixed income, variable income, M&A and structured operations; (ii) Treasury: coordinating the performance of services in treasury operations, mainly fund raising with the retail segment, private segment, and institutional investors; (iii) Wealth Management Services: coordinating the performance of the service in asset management operations of the Itaú Unibanco Group, Private Banking, and custody, management and own and third parties’ fund management activities; (iv) Allocated Funds and Onlending: coordinating the performance of services to meet corporate banking demands with respect to allocated fund operations (rural and real estate) and onlending operations of funds from BNDES and other external lines; (v) Debt Restructuring: coordinating the performance of the services to meet the demands of the Debt Restructuring Department, both in the corporate and the largest companies in the middle-market segments, basically working on the restructuring of contracts – out of court; (vi) Cross Border Loans/F/X:FX: coordinating the performance of services to meet the demands for granting foreign and cross border loans; (vii) High Volumes: coordinating the performance of services to meet the demands for banking products, such as working capital, selling, buying, assignment and discount operations.operations; (viii) Tax Advisory and Litigation issues.
He hasholds a Bachelor’s degree in Law from Pontifical Catholic University ofPontificia Universidade Católica de São Paulo –PUC-SP(PUC-SP) (2000), and a Master’s degree in Banking and Finance from the Boston University School of Law, Boston (MA, U.S.) (2004).
Tatiana Grecco (Officer)has been an Officer at the Itaú Unibanco Group since 2017. She has held several positions within the Itaú Unibanco Group including Officer of Itaú Unibanco S.A. since July 2017. She has been a Superintendent of Investment Funds since June 2014 in the Itaú Asset Management Department – Superintendency of Portfolio Solutions, being responsible for the portfolio solutions management desk of Itaú Asset Management, comprising the systematic, structured and smart beta funds, as well as the exclusive funds and portfolios of Itaú’s Private, Corporate and Institutional clients; Superintendent of Investment Funds since January 2009 in the Itaú Asset Management Department – Superintendency of Indexed Funds, being responsible for the indexed fund management desk of Itaú Asset Management, comprising both Fixed Income and Variable Income funds – funds and ETF’s based on both local and international indexes; Superintendent of Technical Reserves and Manager of Senior Portfolios (October 2001 to December 2008) in the Itaú Asset Management Department – Superintendency of Technical Reserves, responsible for the technical reserves management desk of insurance and capitalization companies and open and closed pension entities of the Itaú conglomerate.
Ms. Tatiana has also been a Member of the Board of Directors since April 2018 of Dibens Leasing S.A. – Arrendamento Mercantil and Member of the Board of Directors of Investimentos Bemge S.A. since April 2018.
She has been working in the financial and capital markets since 1994, when she joined Itaú Asset Management. She has built a consistent and ascending career throughout the years within the firm, starting as a back-office analyst of institutional and private banking investors’ portfolios. In 1998, she became a portfolio manager of fund of funds. After that, she spent 5 years as senior portfolio manager of fixed income and technical provision and later became the head of technical provision portfolio management.
In 2009, Ms. Grecco initiated the indexed business at Itaú Asset Management, through mutual funds and ETFs. In 2014, she also became head of portfolio solutions Brazil.
She has coordinated the ETF Committee and the ESG Workgroup at ANBIMA for several years. She was also Vice President of Fixed Income and Multimarket Funds Committee at the same Association, contributing to the development of Brazilian Mutual Funds.
Since 2017, she is responsible for the market and liquidity risk control at Itaú Unibanco—bank, asset management and broker dealer units.
She holds a Bachelor’s degree in Civil Construction Technologycivil construction from Julio de Mesquita Filhothe Universidade Estadual Paulista State University (UNESP) (1995); a Postgraduate, post-graduate degree in Business Administrationfinance from Ibirapuera University (1997); Executive MBA in Finance from IBMEC Business School—SP (2001).IBMEC-SP. She also hasholds a Professional Master’s degree in Business Administrationon business administration from Fundação Getulio Vargas Foundation (FGV), São Paulo, Brazil (2012).
Tom Gouvêand completed an executive education program of Risk and Asset Management from Yale University. She is also a Gerth (Officer) has been Officer of Itaú Unibanco Holding S.A.Certified Financial Planner (CPF) since November 2017 and Officer of the Controller’s Department for Latin America (June 2015 to June 2017) and Member of the Executive Committee for Latin America of PayPal do Brasil Serviços de Pagamentos Ltda.2009.
He has also been Controller of Metropolitan Life Seguros e Previdência S.A. (MetLife) (August 2013 to May 2015), responsible for financial reports, treasury, internal controls and taxes.
Mr. Gerth started his career at PricewaterhouseCoopers (April 1998) as Senior Manager and remained until July 2013. He worked in the Capital Markets & Accounting Advisory Services area focused on advising clients on issues involving US GAAP, IFRS and requirements from the Securities and Exchange Commission – SEC. He worked in the New York office (2007 to 2009).
He has a Bachelor’s degree in Accounting from Álvares Penteado School of Commerce Foundation (FECAP) (2000), and in Business Administration from Mackenzie University (1997). He also attended the International Executive MBA from Foundation Institute of Administration – FIA (completed in 2011), and continuing education courses from Dom Cabral Foundation and The University of Chicago Booth School of Business.
Mr. Gerth is a US Certified Public Accountant (CPA) and member of the American Institute of Certified Public Accountants (AICPA).
Audit Committee
The resume of Mr. Gustavo Jorge Laboissière Loyola (Member of the Board) is detaileddescribed in detail above, in the Board of Directors item.
Antonio Carlos Barbosa de Oliveira (Independent Member) has been an Independent Member of the Audit Committee since 2018. He has held several positions within Itaú Unibanco Group since 1981 including as Executive Officer (May 2008Vice President (2003 to May 2010); Member of the Disclosure and Trading Committee (May 2005 to April 2010); and Member of the Accounting Policies Committee (May 2008 to May 2009).
At Banco Itaú BBA S.A.He was a Member of the Board of Directors (June 2010(1994 to April 2015); Director Vice President (February 2003 to April 2010); Member of the Board of Directors (February 2003 to February 2009).
Mr. Oliveira worked as Director Vice President (April 2008 to April 2010); Vice President between 2002 and 2003; Executive Officer (March 1994 to July 2002); Managing Director (December 1991 to August 1994) at Itaú Unibanco S.A. and was Member of the Board of Directors (April 1994 to April 2018) and Executive Officer (2001 to April 2018) at Instituto Itaú Cultural.
He also worked as Director Vice President (November 2008 to April 2010) at Unibanco – União de Bancos Brasileiros S.A.; Managing Director (December 1994 to September 2003) at Banco Itauleasing S.A.; Executive General Director of Banco Itaú Argentina S.A. between 1995 and 2001. At Itautec Informática S.A. worked as Officer, Banking and Commercial Automation Division (1983 to 1991). He was General Manager of Microelectronic Projects at Itaú Tecnologia S.A. (1981 to 1983).
He wasis a Member of the Board of the Instituto Fernand Braudel Institute of World Economicsde Economia Mundial since 2016;2016 and was Vice Chairman of the Board of Fundo Patrimonial Amigos da Poli in 2012; Officer at Visa Argentina (1997 to 2001); Officer atABA-Associacion Associacion de Bancos de la Argentina (ABA) (1994 to 2001); Member of the Steering Committee of the Instituto de Estudos Avançados, Universidade de São Paulo (Institute of Advanced Studies of the University of São Paulo) since 1994.
He hasholds a Bachelor’s degree in production engineeringProduction Engineering from the Polytechnic School of the University ofEscola Politécnica da Universidade de São Paulo (USP) in 1974, a Master of Science degree in Management from the Massachusetts Institute of Technology (MIT) in 1977 and a Master of Astronomy degree from James Cook University in 2012.
Antonio Francisco de Lima Neto (Independent Member)has held several positions within Itaú Unibanco Group including asbeen an Independent Member of the Audit Committee since 2015. He has been a Member of the Audit Committee of Itaú Corpbanca (Chile) since April 2018.
He was President of Banco Fibra S.A. (August 2009(2009 to October 2013) and has held several positions in Banco do Brasil S.A. including President (December 2006(2006 to April 2009); Vice President of Retail and Distribution (July 2005(2005 to December 2006); Vice President of International Business and Wholesale (November 2004(2004 to July 2005); Commercial Director (September 2001Officer (2001 to November 2004); Executive Superintendent of the Commercial Board (July 2000(2000 to September 2001); Tocantins State Superintendent (May 1999(1999 to May 2000); and Regional Superintendent of Belo Horizonte (from January 1997(1997 to May 1999).
Mr. Lima has served as a Member of the Board of Directors (2007 to 2009) of Brasilprev Seguros e Previdência S.A.; a Member of the Board of Directors (2006 to 2009) of the Brazilian Federation of Banks – FEBRABAN;Federação Brasileira de Bancos (FEBRABAN); a Member of the Board of Directors (2004 to 2005) of BB Securities Limited; a Member of the Board of Directors (2003 to 2005) of Brasilsaúde Companhia de Seguros; a Member of the Board of Directors (2001 to 2009) of Companhia de Seguros Aliança do Brasil; and a Member of the Board of Directors (2000 to 2007) of BB Previdência – Fundo de Pensão do Banco do Brasil.
He hasholds a Master’s degree in Economics from the Fundação Getulio Vargas Foundation (FGV), São Paulo, Brazil (January 2017) and attended a Course for Board Members at the Brazilian Institute of Corporate Governance (2014).Instituto Brasileiro de Governança Corporativa. Mr. Lima also hasholds a postgraduate degree, Lato Sensu, in Marketing from the Pontifical Catholic University ofPontificia Universidade Católica do Rio de Janeiro –PUC-RJ(PUC-RJ) (2001) and an MBA in Training for Executives from the Fundação Dom Cabral Foundation (1997).Cabral. He also hasholds a Bachelor’s degree in Economics from the Universidade Federal University of Pernambuco (1996).de Pernambuco.
Diego Fresco Gutierrez (Independent Member and Financial Expert)has been an Independent Member of the Audit Committee since 2014. He has been a Member of the Audit Committee of Itaú Corpbanca (Chile) since May 2016 and an Alternate DirectorMember of the Board of Directors of Itaú CorpBanca (Chile) since March 2018 as well as a member of the Audit Committee of Itaú Corpbanca (Colombia) since April 2018.
He has been anis also a member of the Audit Committee of Votorantim Cimentos S.A. since 2013 and Independent Advisor since 2013 in complex financial reporting mainly for publicly-held companies registered in Brazil and in the United States, and in compliance internal and external audit issues.
Mr. Gutierrez was a partner in charge of accounting advisory and regulatory requirements for the issue of securities abroad at PricewaterhouseCoopers (1990 to 2013) (Brazil, Uruguay, and the United States) and also worked in the audit of financial statements.
He hasholds a Bachelor’s degree in Accounting from Universidad de la RepublicaRepública Oriental del Uruguay (1994).Uruguay. Mr. Gutierrez has been a Certified Public Accountant in the United States for the State of Virginia since 2002 and he also is a Public Accountant registered in the Conselho Regional Accounting Board of the State ofde Contabilidade do Estado de São Paulo. He also attended the Course for Members of Boards of Directors from the Brazilian Institute of Corporate Governance (2013).Instituto Brasileiro de Governança Corporativa.
Maria Helena dos Santos Fernandes de Santana (Independent Member)has been an Independent Member of the Audit Committee since 2014.
She has been serving as a Member of the Board of Directors of BME – Bolsas y Mercados Españoles (BME) since 2016;2016, a Member of the Board of Directors and Coordinator of the Personnel, Nomination and Corporate Governance Committee of Oi S.A. since April 2018, and a Member of the Board of Directors and Chairwoman of the Audit Committee of XP Inc. since 2019. She also worked as Chairwoman of the Audit Committee of XP Investimentos S.A. from 2018 to 2019.
Ms. Santana was a Member of the Board of Trustees of IFRS Foundation since January 2014; Member of the Board of Directors and coordinator of the Committee on People, Appointment and Governance of Oi S.A. since 2018 and President of the Audit Committee of XP Investimentos S.A. since 2018.
Ms. Santana was a(2014 to 2019); Member of the Board of Directors and Chairman of the Corporate Governance Committee of Companhia Brasileira de Distribuição S.A. (2013 to 2017); Member of the Board of Directors and Coordinator of the Audit Committee of Totvs S.A. (2013 to 2017); Member of the Board of Directors of CPFL Energia S.A. (April 2013(2013 to 2015); and Chairman (July 2007(2007 to July 2012); and Director (July 2006Officer (2006 to July 2007) of the Brazilian Securities and Exchange CommissionComissão de Valores Mobiliários (CVM).
She worked for the BM&FBOVESPA S.A. – Bolsa de Valores, Mercadorias e Futuros (currently B3 S.A. – Brasil, Bolsa, Balcão) (1994 to 2006) initially in the Special Projects department and then as Executive Superintendent of Relationships with Companies (2000 to 2006). In this position, she was responsible for the supervision of listed companies and for attracting new companies to the stock exchange. She was involved in the creation of the New Market and was responsible for its implementation.
Ms. Santana was Vice President of the Brazilian Institute of Corporate Governance – IBGCInstituto Brasileiro de Governança Corporativa (IBGC) (2004 to 2006); Chairman of the Executive Committee of International Organization of Securities Commissions – IOSCOOrganização Internacional das Comissões de Valores (IOSCO) (2010 to 2012); and a Member of the Latin-American Roundtable on Corporate Governance (OECD / WB Group) (2000 to 2015).since 2000.
She hasholds a Bachelor’s degree in Economics (1990) from the School of Economics and Business Administration (FEA) of the University ofUniversidade de São Paulo (USP).
Rogério Paulo Calderón Peres (Independent Member)has been an Independent Member of the Audit Committee since 2016. He has held several positions within the Itaú Unibanco Group including Executive Officer (2007 to 2009) and at Itaú Unibanco Holding S.A. (April 2011Officer (2009 to April 2014),.
He is also a Member of the DisclosureAudit Committee of B3 S.A. – Brasil, Bolsa, Balcão and Trading Committee from June 2009 to April 2014 and Officer at Itaú Unibanco S.A. (April 2009 to April 2014).
Mr. Peres has also served as Director Vice President (June 2012 to April 2013), Chairmana Member of the BoardBoards of Directors of Alupar S.A., Via Varejo S.A. and CEO (April 2013 to April 2014) of Investimentos BemgeQualicorp S.A.
He also was an Officer (April 2013 to April 2014) at Dibens Leasing S.A. – Arrendamento Mercantil, an Executive Officer (2007 to 2009) at Unibanco – União de Bancos Brasileiros S.A. anda CFO for Latin America, a Member of the Financial Management Council and a Member of the Administrative Committee for Latin America at the HSBC Group (July 2014(2014 to October 2016).
Mr. Peres was an Executive Vice President (2003 to 2006) at the Bunge Group – Bunge Brasil S.A., a; Member of the Boards of Directors of Fosfertil, Ultrafertil and FertifosFertifos; and also a Member of the Audit Committees of the Bunge Foundation, Bungeprev and Fosfertil.
He was also an Active Partner in the divisions of Audit, Tax and Consultancy for Agribusiness and Consumer and Retail Products (1981 to 2003) at PricewaterhouseCoopers.
He hasholds a Bachelor’s degree in Business Administration from the Fundação Getulio Vargas Foundation (FGV), São Paulo, Brazil, and in Accounting from the Paulo Eiró Foundation, São Paulo. He also hasholds postgraduate degrees and attended special professional courses inE-Business Education Series from the University of Virginia Darden School of Business. Mr. Peres also has an Executive MBA from the University of Western Ontario, Canada, Case Studies in consumer and retail companies. Center for Executive Development Faculty at Princeton University, Business Strategy and Organization. Continuing Education Management and Professional Training, Arundel, England. Executive Business Development – Finance and Investment Decision Course – Analyzes and Measures at the Fundação Getulio Vargas Foundation (FGV), São Paulo, Brazil. Continuing Education Course at Harvard Business School, Making Corporate Boards More Effective – United States.
Fiscal Council
Alkimar Ribeiro Moura (Independent Member)(Member)has been an Member of the Fiscal Council since 2016. He has held several positions within the Itaú Unibanco Group including Member of the Audit Committee (May 2010(2010 to July 2015).
Mr. Moura is a Retired Economics Professor at the São Paulo School of Business Administration of Sãthe Fundação Paulo of the Getulio Vargas Foundation (FGV), São Paulo, Brazil.
He was an Independent Member of the Board of Directors (May 2012(2012 to March 2017), and a Coordinating Member of the Audit Committee (November 2013(2013 to March 2017) of Cetip S.A. Mercados Organizados (CETIP(Cetip S.A. – The OrganizedOver-the-Counter Market in Assets and Derivatives) Markets).
Mr. Moura was an Independent Member of the Supervisory Board of B3:BM&FBOVESPA S.A. – Bolsa de Valores, Mercadorias e Futuros (currently B3 S.A. – Brasil, Bolsa, Balcão): Market Supervision (October 2007(2007 to September 2010).
He was Chairman of Investment Banking (April 2001(2001 to January 2003) and Vice Chairman of Finance and Capital Markets (April 2001(2001 to January 2003) at Banco do Brasil S.A.
Mr. Moura has held several positions within the Banco Central Bank of Brazil,do Brasil, including Standards and Financial System Organization Officer (February 1996(1996 to September 1997); Monetary Policy Officer (February 1994(1994 to February 1996); Public Debt and Open Market Transactions Officer (January 1987(1987 to January 1988).
He was an Officer at Banco Pirelli-Fintec (March 1988(1988 to March 1993).
He hasholds a Bachelor’s degree in Economics from the Universidade Federal University de Minas Gerais, Belo Horizonte, Brazil, (1963); a Master’s degree from the University of California, Berkeley, (1966), and a PhD in Applied Economics from Stanford University, California, (1978).California.
Carlos Roberto de Albuquerque Sá (Independent Member)Eduardo Azevedo do Valle (Member) has been a Alternatean Member of the Fiscal Council (April 2015 to April 2016) at Itaú Unibanco Holding S.A.
He has been Coordinator of the Audit Committee of Lojas Marisa S.A. since 2012 and Coordinator of the Audit Committee of Moinhos Paulista S.A. since 2016.
Mr. Albuquerque SáHe is the Chairman of the Board of Directors of Cabo Frio Airport, in charge of its strategy committee since 2018, and he has been the Managing Partner at Valens Brasil Ltda. ME, since 2015.
He was an Effective Member (2016 to 2017) and an Alternate Member (March 2011 to October 2012) of the Fiscal Council of Marfrig S.A.; anExecutive Officer at KPMG Auditores Independentes (March 2003Oil & Gas at BSM Engenharia S.A. (2014 to December 2010)2015); RiskChief Executive Officer at Net Serviços de ComunicaçãoAsco Participações do Brasil (2012 to 2014) and Apolo Tubulars S.A. (March 1999(2010 to December 2002)2012); AdministrativeCEO at Brasco Logística Offshore (2007 to 2010); Vice President at Praxair Distribution, Inc. for the U.S. and FinancialCanada (1999 to 2003); Marketing Officer at Sobremetal (March 1995White Martins Gases Industriais S.A. (2003 to December2005); Logistics Officer (2005 to 2006); Gas Distribution and Production Manager (1995 to 1998); Financial Officer of Castrol do Brasil Ltda. (March 1991Administration Manager (1991 to December 1994); Controller at Schlumberger Serviços de Petróleo Ltda. (March 1986 to December 1988); and Financial Manager at Det Norske Veritas (March 1979 to December 1981).
He has a Bachelor’s degree in Economics from Candido Mendes University (1973), and in Accounting from Faculdade Moraes Júnior (1981), and a postgraduate degree in Finance from the Pontifical Catholic University of Rio de Janeiro –PUC-RJ (1995).
José Caruso Cruz Henriques (Independent Member) has been an Alternate Member of the Fiscal Council of Itaú Unibanco Holding S.A. since August 2011, an Effective Member since May 3, 2016 and Chairman since June 2017.
Mr. Henriques was Managing Officer at Itaú Unibanco S.A. (December 1988 to August 2003); Officer at BFB Leasing S.A. – Arrendamento Mercantil (June 1997 to July 2003)1992); Member of the Board of Directors of Banco Itauleasing S.A. (December 1994Porto do Forno RJ (2008 to September 2003); Officer at Banco Itaucard S.A. (March 2000 to April 2003); Managing Officer at Intrag Distribuidora de Títulos e Valores Mobiliários Ltda. (April 1994 to July 2003); Managing Officer at Banco Itaú Cartões S.A. (July to October 2000)2010); and Officer at Itautec Componentesthe Brazilian Metal Tubes and Accessories Industry Association (Associação Brasileira da Amazônia S.A. – Itaucam (April 1993Indústria de Tubos e Acessórios de Metal (ABITAM) (2010 to April2012).
He was the Global Leader of the Praxair, Inc. Distribution Team (1987 to 2002).
He holds a Bachelor’s degree in Business Administration from Universidade Federal do Rio de Janeiro (UERJ); a Bachelor’s degree in Electrical Engineering from IME; an MBA in Global Leaders Program from Praxair, Inc.; a postgraduate degree in Business Management of Oil and Gas Exploration and Production from the Brazilian Petroleum, Gas and Biofuel Institute (IBP); IBGC (Brazilian Institute of Corporate Governance): IBGC Certification for Board Members; NACD (National Association of Corporate Directors), U.S.: NACD Governance Fellow.
José Caruso Cruz Henriques (Member)has been an Member of the Fiscal Council since 2011, and Chairman of this Board since 2017. He has held several positions within the Itaú Unibanco Group including Officer (1988 to 2003).
He has been Executive President of Corhen Serviços Ltda. since 2003.
He hasholds a Bachelor’s degree in Law from the University ofUniversidade de São Paulo (USP) (1971) and a postgraduate degree in Business Administration from the Fundação Getulio Vargas Foundation,(FGV), São Paulo, Brazil (1979).
6B. | Compensation |
Please see “Item 5A. Operating Results—Recent Developments—Temporary Suspension of Dividend Distributions and Increases in Compensation of Directors and Officers” for a summary of temporary restrictions to the compensation of members of our Board of Directors and Board of Officers.
Performance Evaluation of the Board of Directors and Board of Officers
Board of Directors
Our Board of Directors, its members andco-chairmen, as well as the Board of Directors committees, are evaluated annually for their performance as management members and bodies, in compliance with best corporate governance practices. The reelection of members of the Board of Directors and Board of Directors committees takes into account each director’s positive performance, regular attendance at meetings over the previous term and experience and independence level.
This evaluation consists of each director’s own self-evaluation, a cross-evaluation of the members of the Board of Directors (where members of our Board of Directors evaluate each other), the evaluation of the Board of Directors by its members, the evaluation of theco-chairmen by directors and evaluation of the Board of Directors committees by their members. This process is structured based on specific characteristics and responsibilities of the Board of Directors, its members,Co-chairmen, and each of its committees, seeking to achieve a high expertise level. Furthermore, this process is carried out by a third party responsible for distributing specific questionnaires to the Board of Directors and every Board of Directors committee, as well as for interviewing individual members of the Board of Directors and its committees. This person is also responsible for analyzing responses and comparing them to the responses from previous years in order to identify and address any Board of Directors and the Board of Director committee gaps.
Additionally, the Nomination and Corporate Governance Committee provides methodological and procedural support to the evaluation process, in addition to discussing the outcomes of the evaluation, the composition and the succession plan to the Board of Directors. In addition to the support provided by this committee, an independent person is responsible for carrying out the evaluation.
Ultimately, our Board of Directors is composed of outstanding knowledgeable professionals with expertise in different areas of operation.
Pre-established Rules of our Board of Directors:
The members of our Board of Directors must act fairly, in accordance withpre-established rules to avoid conflicts of interest. These rules include:
Refraining from taking part in resolutions related to matters in which the director’s interests conflict with ours. The director must inform the Board of Directors of any possible conflict of interest as soon as the matter giving rise to such conflict is included in the agenda or proposed by the Board of Director’sco-chairmen, and, in any event, before the beginning of any discussion on such matter.
In the event the director or a company controlled or managed by this director carries out a transaction with any company in the Itaú Unibanco Group: (a) the transaction must be carried out at arm’s length; (b) if it is not a customary transaction or a provision of services, an appraisal report must be issued by recognized financial advisors evidencing that the transaction was carried out at arm’s length; and (c) the transaction must be disclosed to and conducted under the supervision of the Related Parties Committee, the Ethics and Ombudsman Office or of channels within the Itaú Unibanco Group that are competent in the specific area, subject to the rules and conditions set forth in our Transactions with Related Parties Policy.
Serving on no more than four boards of directors of companies that do not belong to the same group.
Our directors have no service contracts with us or any of our subsidiaries providing for benefits upon termination of employment.
Please see “Item 6A. Directors and Senior Management – Board of Directors” for further information on the members of our Board of Directors.
Officers
The performance evaluation of our officers consists of a behavior assessment and results assessment, as shown below:
Compensation and Benefits
Governance of compensation
Our compensation strategy adopts clear and transparent processes, aimed at complying with applicable regulation and the best national and international practices, as well as at ensuring consistency with our risk management policy.
Compensation Committee
We have a statutory compensation committee, or Compensation Committee, that reports to the Board of Directors, which duties include:
Preparing a policy for the compensation of management members, proposing to the Board of Directors the many forms of fixed and variable compensation, in addition to special benefits and recruitment and termination programs. | Discussing, analyzing and supervising the implementation and operation of existing compensation models, by discussing general principles of the employee compensation policy and recommending improvements to the Board of Directors based on the policy principles. | |
Proposing to the Board of Directors the aggregate compensation amount for management members to be submitted to the Annual Stockholders’ Meeting. | Preparing the “Compensation Committee Report” on an annual basis. |
Compensation policy
Our compensation policy aims to consolidate our compensation principles and practices so as to attract, reward, retain and motivate management members and employees in the sustainable running of business, subject to proper risk limits and always in line with stockholders’ interests.
Compensation strategy
Our compensation and benefit strategies vary according to the area of activity and market parameters. We periodically verify these parameters by:
commissioning salary surveys conducted by specialized consultants, who are independent of management;
participating in surveys conducted by other banks; and
participating in specialized compensation and benefit forums.
Compensation of employees
EmployeeEmployees compensation is composed of:
Monthly fixed compensation: Determined in accordance with the complexity of an individual’s work duties and such individual’s performance with respect with such duties. Employees’ fixed compensation changes according to our promotion and merit policy, which takes into account the employees’ seniority, responsibilities and personal performance when carrying out duties over the period under evaluation. In addition, employees are entitled to salary adjustments, in accordance with applicable collective bargaining agreements. |
Variable compensation: It acknowledges the level of dedication, results achieved and the short, medium and long-term sustainability of these results. Additionally, employees are entitled to receive additional amounts if provided in applicable collective bargaining agreements. |
Benefits: We provide several benefits agreed with labor unions representing our employees’ many professional categories, which are established in the respective collective bargaining agreements, such as: food allowance, day care/baby sitter, transportation etc. |
In addition to those benefits set forth in collective bargaining agreements, we offer the following benefits to our employees:
medical and dental care plans;
private pension plans;
group life insurance;
annual healthcheck-up; and
parking lot space.
These benefits may be granted according to each employee’s category or regulation applicable to each jurisdiction.
Moreover, we present below the benefits that are available to all employees:
differentiated banking products and services;
Itaú Unibanco Club Foundation (Fundação Itaú Unibanco Clube);
discounts for health or sports related activities with several fitness centers;
discount partnership with several companies of goods and services;
pharmacy discounts and payment facilities; and
psychosocial and personal care services.
Stock-based Profit Sharing to Employees
We have a stock-based profit-sharing program for a specific group of employees, acknowledging those who had outstanding performance during the relevant year.
(1) | The eligibility for superintendents might overcome the 30% mentioned above, as there is no limit to recognize performances which exceeded expectation. |
Compensation of Management Members
Composition of compensation of management members
Member | Year | Monthly fixed compensation | Annual fixed compensation | Annual variable compensation | Benefits | Year | Monthly fixed compensation | Annual fixed compensation | Annual variable compensation | Benefits | ||||||||||||||||||||||||||||||
2018 | 24% | 29% | 45% | 2% | ||||||||||||||||||||||||||||||||||||
Board of Directors | 2017 | 23% | 31% | 44% | 2% | 2019 | 22% | 23% | 53% | 2% | ||||||||||||||||||||||||||||||
2016 | 21% | 40% | 37% | 2% | ||||||||||||||||||||||||||||||||||||
2018 | 9% | 0% | 90% | 1% | ||||||||||||||||||||||||||||||||||||
Board of Directors | 2018 | 24% | 29% | 45% | 2% | |||||||||||||||||||||||||||||||||||
2017 | 23% | 31% | 44% | 2% | ||||||||||||||||||||||||||||||||||||
2017 | 8% | 0% | 91% | 1% | 2019 | 8% | 0% | 91% | 1% | |||||||||||||||||||||||||||||||
2016 | 7% | 0% | 92% | 1% | ||||||||||||||||||||||||||||||||||||
2018 | 100% | 0% | 0% | 0% | ||||||||||||||||||||||||||||||||||||
Board of Officers | 2018 | 9% | 0% | 90% | 1% | |||||||||||||||||||||||||||||||||||
2017 | 8% | 0% | 91% | 1% | ||||||||||||||||||||||||||||||||||||
2017 | 100% | 0% | 0% | 0% | 2019 | 100% | 0% | 0% | 0% | |||||||||||||||||||||||||||||||
2016 | 100% | 0% | 0% | 0% | ||||||||||||||||||||||||||||||||||||
2018 | 100% | 0% | 0% | 0% | ||||||||||||||||||||||||||||||||||||
Fiscal Council | 2018 | 100% | 0% | 0% | 0% | |||||||||||||||||||||||||||||||||||
2017 | 100% | 0% | 0% | 0% | ||||||||||||||||||||||||||||||||||||
2017 | 100% | 0% | 0% | 0% | 2019 | 100% | 0% | 0% | 0% | |||||||||||||||||||||||||||||||
2016 | 100% | 0% | 0% | 0% | ||||||||||||||||||||||||||||||||||||
Audit Committee | 2018 | 100% | 0% | 0% | 0% | |||||||||||||||||||||||||||||||||||
2017 | 100% | 0% | 0% | 0% |
Year ended December 31, 2018 | ||||||||||||
a Body | Board of Directors | Executive Board | Fiscal Council | |||||||||
b number of members | 11.25 | 20.83 | 6.00 | |||||||||
c number of members who receive compensation | 11.25 | 20.83 | 6.00 | |||||||||
d Amount of the highest individual compensation | 12,941,000 | 46,880,000 | 220,500 | |||||||||
e Amount of the lowest individual compensation | 2,652,000 | 2,604,000 | 88,200 | |||||||||
f Average amount of individual compensation (total compensation divided by the number of compensated members) | 5,218,146 | 13,316,714 | 154,500 |
Year ended in December 31, 2019 | ||||||||||||
a Body | Board of Directors | Executive Board | Fiscal Council | |||||||||
b Number of members | 11.75 | 21.00 | 6.00 | |||||||||
c Number of members who receive compensation | 11.75 | 21.00 | 6.00 | |||||||||
d Amount of the highest individual compensation(in R$) | 14,560,000 | 52,060,000 | 220,500 | |||||||||
e Amount of the lowest individual compensation(in R$) | 2,643,000 | 2,953,000 | 88,200 | |||||||||
f Average amount of individual compensation (total compensation divided by the number of compensated members)(in R$) | 5,236,316 | 16,930,128 | 154,350 |
For the annual amount of the lowest individual compensation, members who have not performed their duties for the full 12 months of the relevant year were disregarded. Members who received the amount of the highest compensation in each body performed their duties during the 12 months of the relevant year.
Year ended December 31, 2017 | ||||||||||||
a Body | Board of Directors | Executive Board | Fiscal Council | |||||||||
b number of members | 10.18 | 21.67 | 5.58 | |||||||||
c number of members who receive compensation | 10.18 | 21.67 | 5.58 | |||||||||
d Amount of the highest individual compensation | 12,228,000 | 40,918,000 | 220,500 | |||||||||
e Amount of the lowest individual compensation | 2,567,000 | 2,309,000 | 88,200 | |||||||||
f Average amount of individual compensation (total compensation divided by the number of compensated members) | 4,822,777 | 13,505,633 | 155,642 |
Year ended in December 31, 2018 | ||||||||||||
a Body | Board of Directors | Executive Board | Fiscal Council | |||||||||
b Number of members | 11.25 | 20.83 | 6.00 | |||||||||
c Number of members who receive compensation | 11.25 | 20.83 | 6.00 | |||||||||
d Amount of the highest individual compensation(in R$) | 12,941,000 | 46,880,000 | 220,500 | |||||||||
e Amount of the lowest individual compensation(in R$) | 2,652,000 | 2,604,000 | 88,200 | |||||||||
f Average amount of individual compensation (total compensation divided by the number of compensated members)(in R$) | 5,218,146 | 13,316,714 | 154,500 |
For the annual amount of the lowest individual compensation, members who have not performed their duties for the full 12 months of the relevant year were disregarded. Members who received the amount of the highest compensation in each body performed their duties during the 12 months of the relevant year.
Year ended December 31, 2016 | ||||||||||||
a Body | Board of Directors | Executive Board | Fiscal Council | |||||||||
b number of members | 8.67 | 21.33 | 4.33 | |||||||||
c number of members who receive compensation | 8.67 | 21.33 | 4.33 | |||||||||
d Amount of the highest individual compensation | 11,709,000 | 72,935,000 | 220,500 | |||||||||
e Amount of the lowest individual compensation | 2,109,000 | 1,903,000 | 88,200 | |||||||||
f Average amount of individual compensation (total compensation divided by the number of compensated members) | 3,369,550 | 13,341,960 | 159,584 |
Year ended in December 31, 2017 | ||||||||||||
a Body | Board of Directors | Executive Board | Fiscal Council | |||||||||
b Number of members | 10.18 | 21.67 | 5.58 | |||||||||
c Number of members who receive compensation | 10.18 | 21.67 | 5.58 | |||||||||
d Amount of the highest individual compensation(in R$) | 12,228,000 | 40,918,000 | 220,500 | |||||||||
e Amount of the lowest individual compensation(in R$) | 2,567,000 | 2,309,000 | 88,200 | |||||||||
f Average amount of individual compensation (total compensation divided by the number of compensated members)(in R$) | 4,822,777 | 13,505,633 | 155,642 |
For the annual amount of the lowest individual compensation, members who have not performed their duties for the full 12 months of the relevant year were disregarded. Members who received the amount of the highest compensation in each body performed their duties during the 12 months of the relevant year.
In 2016, structural changes were carried out in the Company’s Executive Board. Accordingly, the amount of the highest individual compensation of the Statutory Executive Board includes a non-recurring special termination bonus for significant contribution to the Company, in shares of the Company and a three year deferral period. The amount recorded as non-recurring was R$37,611 thousand.
Criteria for defining monthly and annual fixed compensation of management members:
Fixed compensation of members of the Board of Directors and Board of Officers, as well as the benefit plan granted to officers, is not impacted by performance indicators, as discussed below:
Fiscal Council | Within the limits established by legislation, member of the Fiscal Council are paid monthly fixed compensation amount only and are not eligible for the benefit plan. Additionally, in accordance with applicable legislation, compensation members of the Fiscal Council may not be lower, for each acting member, than 10% of the fixed compensation assigned to each officer (i.e., not including benefits, representation allowances and profit sharing). | |
Board of Directors | The monthly fixed compensation is consistent with market practices and periodically revised to attract qualified professionals. Additionally, history and résumé, among other factors, are taken into account. | |
Audit Committee | The members of the Audit Committee are paid monthly fixed compensation amount only are not eligible for the benefit plan. For those members of the Audit Committee who are also part of the Board of Directors, the compensation policy of the Board of Directors is applied. | |
Board of Officers | The monthly fixed compensation is established in accordance with the position held and is based on the internal equality principle, since all officers holding the same position earn the same monthly fixed compensation amount, also enabling their mobility in our different businesses. Fixed compensation amounts are determined taking into account market competition. |
Criteria for definingDefining the annual variable compensationAnnual Variable Compensation of the Board of Officers(1):
The annual variable compensation takes into account three main factors:
Performance of the officer;
The result of the applicable business area; and
Financial results of the company.
(1) | Within the limits established by legislation, the compensation of Officers in charge of internal control and risk departments is determined irrespective of the performance of the business areas they control and assess so as not to give rise to any conflicts of interest. However, even though compensation is not impacted by the results from business areas, it is still subject to any impacts arising from our results. |
Distribution of the Annual Variable Compensation of the Board of Officers(2):
Regarding the annual variable compensation of the Board of Officers(1):Directors:
50% is paid in cash on demand;
50% is paid through the delivery of our preferred shares, deferred for payment within three years, in the proportion of 1/3 of the amount due per year.
In accordance with CMN Resolution No. 3,921, a portion of the variable compensation must be deferred. |
Delivery of preferred shares relatedPreferred Shares Related to the annual variable compensationAnnual Variable Compensation of the Board of Officers:
Partnership Program for Officers and Employees
Aimed at aligning the interests of our officers and employees to those of our stockholders, this program offers participants the opportunity to invest in our preferred shares, traded under ticker symbol “ITUB4”, sharing short, medium and long-term risks.
The program is aimed at officers and employees approved by the Personnel Committee due to their history of contribution, relevant work and outstanding performance. It has two types of appointments: partners and associates, and the person must join the program first as an associate. Main differences in the two types of appointments are as follows:
Stock Grant Plan and Stock Ownership Requirements
In order to consolidate the rules of our long-term stock-based incentive programs, described inunder items above, under the terms of CVM InstructionRuling No. 567/15, we approved the Stock Grant Plan at the 2017 Extraordinary General Stockholders’ Meeting.
In addition, in 2019 the Compensation Committee determined that members of the Executive Committee must comply with a stock ownership requirement of a minimum equivalent (i) to 10 times the annual salary for the CEO and (ii) to 5 times of the annual salary for other Executive Committee members, which must be complied within a five-year period of after their position’s start date. Currently, all Executive Committee members comply with the minimum requirement.
With the Stock Grant Plan and the share ownership requirements, we reinforce the alignment of interests of management members and employees of our company and its direct and indirect subsidiaries with our interests and stockholders’ interests.
Stock Option Plan to Officers and Employees
We have a Stock Option Plan through which our officers and employees with outstanding performance are entitled to receive stock options. These options enable them to share the risk of price fluctuations of our preferred shares with other stockholders and are intended to integrate the participants of this program into the Itaú Holding Group’s development process in the medium and long term. Our Personnel Committee manages the Stock Option Plan, including matters such as strike prices, vesting periods and effectiveness of options, in compliance with the rules set forth in the Stock Option Plan.
Options may be granted only to participants if there is net income sufficient to be distributed as mandatory dividends. Also, to avoid the dilution of stockholders, the sum of shares to be used in the programs described in the Stock Grant Plan and Stock Option Plan every year will not exceed the limit of 0.5% of total outstanding shares. In the event the number of shares delivered and options granted is below the 0.5% limit, the difference may be added for purposes of stock-based compensation or granting of options in any one of the seven subsequent fiscal years.
Since 2012, no simple option has been granted within the scope of our Stock Option Plan. For further information on changes in the plan, see “Financial Performance”, and “Note 22 – “Banking Service Fees” to our audited consolidated financial statements.
6C. | Board Practices |
Board of Directors Committees
The organizational chart below presents our eight committees, reporting directly to our Board of Directors, the body responsible for electing these committee members for aone-year term of office, conditioned on their having proven knowledge in the respective areas of work and technical qualification compatible with their duties.
The committees may hire outside experts but must always maintain the integrity and the confidentiality of their work.
This year we continued with our regular agenda, following up the performance of the internal audit, the corporate departments responsible for risk management and the independent auditor. The topics of focus by the Committee throughout 2018 included receiving reports from the different control areas regarding information security risks, as well as the performance of the 2nd and 3rd lines of defense in the subsidiaries outside Brazil and their relationship with the respective headquarters’ departments in Brazil. The Committee also focused on the actions by management with respect to consumer matters and risk management in digital platforms, in addition to monitoring of the internal control systems and management of traditional risks.
Diego Fresco Gutierrez – Financial Expert of the Audit Committee.
“In 2018, in addition to exercising its mandate to oversee the risk and capital management activities through a continuous agenda of updating and monitoring the Group’s Risk Appetite, the Committee further focused its approach on emerging risks in the areas of technology, models, business and strategy, as well as in the regulatory environment.”
Pedro Luiz Bodin de Moraes – Independent member of the Board of Directors and Chairman of the Risk and Capital Management Committee.
In 2018, the Committee worked effectively on the analysis of transactions between related parties, in accordance with the governance defined in the Policy for Transactions with Related Parties in order to ensure stockholders and other stakeholders that Itaú Unibanco is in compliance with the best Corporate Governance Practices, avoiding any conflict of interest or favoritism towards related parties. Over the year, more than 20 cases were analyzed involving issues such as the contracting of a consulting firm, trading of investment fund units, sponsorships and donations, three of which are disclosed to the market, in compliance with CVM Instruction No. 480/09.”
Fábio Colletti Barbosa–Independent Member and Chairman of the Related Parties Committee.
“The purpose of the Strategy Committee is to address relevant matters that have a major impact on the bank. During 2018, it discussed the achieved results and the actions planned with respect to the strategic fronts of Digital Transformation and Customer Satisfaction, it addressed the internationalization process that allows the bank to have access to new markets and to increase its scale, it revised the Policy For Sustainability And Social Environmental Responsibility and it also focused on competition in the digital environment.”
Roberto Setubal –Co-chairman of the Board of Directors and member of the Strategy Committee.
“In 2018, the Compensation Committee discussed its ordinary agenda, which included the approval of the pool of the global bonus to be distributed to employees and management members. It also approved the target contracts for the members of the Executive Committee and assessed, for comparison purposes, the target contracts adopted by the market. Additionally, the Committee met with representatives of the Central Bank to present the workings of the bank’s governance process for issues related to compensation, to the work dynamics of the Committee itself and, also, to the alignment of the compensation policy with the risk policy.”
Gustavo Jorge Laboissière Loyola – Member of the Board of Directors and member of the Compensation Committee.
“During 2018, the Committee maintained its discussion agenda with regards to the structure and composition of the Board of Directors and its Committees. In this context, the establishment of the Social Responsibility Committee, subordinated to the Board of Directors, was approved. Another highlight was the discussion related to the change in the composition of the Company’s Executive Committee, as announced to the market in September. The Committee also proceeded with the analysis of practices recommended by local and foreign sustainability indexes and governance codes aiming at the continual improvement of our Corporate Governance practices. One of the measures arising from this analysis was the formalization of an internal charter for the Executive Board.”
Alfredo Egydio Setubal – Member of the Board of Directors and Member of the Nomination and Corporate Governance Committee.
“Over the course of 2018, we have made progress on relevant issues concerning People that will help us strengthen our ability to attract and retain the best talents and increase our ability to innovate and the connection with our clients. In order to support digital transformation, we proceeded with the agenda of communities in technology and business, making our teams more multidisciplinary, in agile cells, with more autonomy and cooperation. We created and developed new careers, such as Data Scientist, and trained thousands of employees in topics such as Lean, Agile, Design Thinking and User Experience (UX), which are appropriate for the new environment of relationship with clients and information speed. Additionally, we implemented initiatives to improve the experience of our employees, seeking to value their individualities, and to reduce bureaucracy as much as possible in the work environment. Lastly, in line with the priority agendas we have been developing, we approved important changes in the incentives models, increasingly stimulating cooperation and team work, but always recognizing those who make the difference.”
Pedro Moreira Salles –Co-Chairman of the Board of Directors and Chairman of the Personnel Committee.
Originated on January 31, 2019, the Social Responsibility Committee will define, within the Board of Directors, the strategies to strengthen our corporate social responsibility and to monitor the performance of social institutions related thereto, as well as the initiatives directly executed by us, thus expanding the activities that were already being exercised by the executive body.
It is incumbent upon the organ (i) to define strategies to strengthen our corporate social responsibility in all its elements, including a voluntary strategy; (ii) to analyze the performance of social institutions related to us and the initiatives directly executed by us; (iii) to ensure the appropriate degree of autonomy among social institutions and us; (iv) to foster the search for synergies and opportunities to increase efficiency between institutions and us as well as the institutions themselves; (v) to approve multi-annual budget for initiatives that depend on the Company’s resources; (vi) to monitor the quality of governance of each institution; (vii) to define the allocation process of the Rouanet Law as well as the other existing incentive laws and approve the contributions to be made by the Company or other companies of the Itaú Unibanco Conglomerate.
Audit Committee
Since 2014 | • Oversees the quality and integrity of the financial statements • Oversees compliance with legal and regulatory requirements • Supervision of internal controls and risk management • Supervision of performance, independence and quality of internal audit activities and of the work of the independent accountant | |
100% of the members are independent | ||
53 meetings | ||
Compensation Committee
| • Promote discussions on • Develops compensation policies for management members and employees • Establishes Goals | |
100% of the members arenon-executive | ||
5 meetings | ||
Personnel Committee Since 2009 | • Establishes policies for attracting and retaining talented professionals • Proposes guidelines for recruiting and training employees • Presents long-term incentive programs and monitors the culture of meritocracy | |
100% of the members arenon-executive | ||
4 meetings | ||
Strategy Committee Since 2009 | • Proposes budgetary guidelines • Provides inputs for decision-making processes • Recommends strategic guidelines and investments opportunities (Mergers and Acquisitions) • Internationalizes and creates new business areas | |
100% of the members arenon-executive | ||
5 meetings | ||
Related Parties Committee Since 2013 | • Manages transactions between related • Ensures equality and transparency for these transactions | |
100% of the members are | ||
10 meetings |
Risk and Capital Management Committee Since 2009 | • Supports the Board of Directors • Establishes the • Evaluates the cost of • Allocates capital • Oversees management activities and • Improve risk culture • Complies with regulatory requirements | |
100% of the | ||
12 meetings | ||
Nomination and Corporate Governance Committee Since 2013 | • Periodically reviews the criteria for • Provides methodological support for the
• Nominates members of the • Analyzes potential conflicts of | |
100% of the members arenon-executive | ||
3 meetings | ||
Corporate Social Responsibility Committee Since 2019 | • Defines strategies to strengthen the corporate social responsibility of the Company in all its elements, including a voluntary strategy; • Analyzes the performance of social institutions related to the
• Approves multi-annual budget for initiatives that depend on the Company’s resources; • Monitors the quality of governance of each institution; • Defines the allocation process of the Rouanet Law as well as the other existing incentive laws and approve the contributions to be made by the
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Executive and
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4 meetings |
Two of these committees are statutory bodies:
Audit Committee
We have an Audit Committee, which complies with the rules issued by the National Monetary Council for audit committees of financial institutions. The Audit Committee is responsible for overseeing the quality and integrity of the financial statements, the compliance with legal and regulatory requirements, the performance, independence and quality of the services provided by independent auditors and by our internal auditors, and the quality and effectiveness of the internal control and risk management systems. Set up in April 2004 by the Annual General Stockholders’ Meeting, it is the only audit committee for institutions authorized to operate by the Central Bank and for companies overseen by SUSEP that are part of the Conglomerate.
The members of the Audit Committee are annually elected by the Board of Directors from among its members or professionals with renowned competence and outstanding knowledge, taking into account that at least member of this Committee will be designated Financial Expert and must have proven knowledge in the accounting and auditing areas.
All members of the Audit Committee are independent, in accordance with CMN regulation, and the Board of Directors will terminate the term of office of any member of the Audit Committee if their independence is affected by any conflict of interest or potential conflict of interest. The evaluations of the Audit Committee are based on information received from management, external auditors, internal auditors, departments responsible for risk management and internal controls, and on analyses made by the members of the Committee as a result of direct observation.
Compensation Committee
It is incumbent upon the Compensation Committee to promote discussions on matters related to our management compensation. Its duties include, but are not limited to: developing a policy for the compensation of our management, proposing to the Board of Directors the many forms of fixed and variable compensation, in addition to special benefits and programs for recruitment and termination; discussing, examining and overseeing the implementation and operation of existing compensation models, discussing general principles of the compensation policy for our employees and recommending adjustments or improvements to the Board of Directors.
Internal Audit
Under the Audit Committee’s technical supervision, our Internal Audit function provides the Board of Directors and senior management with independent, unbiased and timely evaluations of the effectiveness of risk management, adequacy of controls and compliance with relevant rules and regulations related to the Conglomerate’s operations. These evaluations occur periodically, and follow a methodology in compliance with The Institute of Internal Auditors (IIA) standards.
The Internal Audit requires the area being audited to establish action plans for any deficiencies identified, based on deadlines that vary according to risk rating criteria.
Ombudsman
The Itaú Unibanco Ombudsman consists of three pillars:
The last resource resolving clients demands;
Improving every internal process and products; and
Compliance with regulatory obligations.
The main duties of the Ombudsman’s Office are to attend to unsolved clients’ complaints and act as a last resource within the institution to solve them. To contact us, clients may use the phone number disclosed on our website, credit cards and bank receipts or directly bye-mail, as required by Central Bank regulation.
The Ombudsman’s Office also gets involved in every step the resolution of clients’ demands. These processes are subject to regulatory oversight, by the Central Bank and SUSEP, and consumer rights defense institutions, such as Procon. It helps ensure better solutions for our clients’ demands.
Furthermore, there is a strong partnership with business, products, operations, quality and customer service departments with the aim to reduce the number of complaints through case studies. Our goal is to improve processes and services and guarantee principles of ethics and transparency.
The Ombudsman’s Office is constantly monitoring performance through quality metrics and performance indicators that are closely tracked by our executives in strategic management committees.
Since July 2018, additional changes introduced to the regulatory framework applicable to the ombudsman activity became effective. Among such changes are the requirements to implement a direct client evaluation tool of the Ombudsman Office’s quality of service and to give full disclosure of the existence of the Ombudsman’s Office through its communication channels.
As part of our strategy to be a benchmark to the market and improve our services, we established a schedule of meetings with the National System of Consumer Defense, Normative Regulation Institutes and civil entities. This agenda is an instrument to ensure the internal regulatory practices and contribute to the market evolution as well as to increase the satisfaction of our clients.
Every semester, the Ombudsman’s Office prepares a report regarding the most critical complaints received, which includes case studies and action plans to improve customer experience. This report is submitted to our management and audit committee, as well as to the Central Bank.
The Ombudsman’s Office also participates in the validation process for the creation of new products and services using a General Risk Assessment System, which is required by our governance model for crisis management. It is a suitable tool for Consumer Defense Code which guarantees customer vision throughout the process and consequently higher levels of customer satisfaction.
On January 17, 2019, the Ombudsman’s Office began reporting directly to the Itaú Unibanco’s CEO.
6D. | Employees |
We had 94,881 employees on December 31, 2019 compared to 100,335 employees on December 31, 2018.
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We had 100,335 employees on December 31, 2018 compared to 99,332 on December 31, 2017.
The following tables show the total number of employees for the years ended December 31, 2018, 2017 and 2016, segmented by region (Brazil and abroad) and operating unit:
Employees (Brazil and abroad) | As of December 31, | Variation | ||||||||||||||||||||||||||
2018 | 2017 | 2016 | 2018-2017 | 2017-2016 | ||||||||||||||||||||||||
In Brazil | 86,801 | 85,537 | 80,871 | 1,264 | 1.5% | 4,666 | 5.8% | |||||||||||||||||||||
Abroad | 13,534 | 13,795 | 13,908 | (261 | ) | (1.9)% | (113 | ) | (0.8)% | |||||||||||||||||||
Argentina | 1,692 | 1,700 | 1,647 | (8 | ) | (0.5)% | 53 | 3.2% | ||||||||||||||||||||
Chile | 5,820 | 5,922 | 5,919 | (102 | ) | (1.7)% | 3 | 0.1% | ||||||||||||||||||||
Colombia | 3,495 | 3,650 | 3,754 | (155 | ) | (4.2)% | (104 | ) | (2.8)% | |||||||||||||||||||
Uruguay | 1,117 | 1,122 | 1,134 | (5 | ) | (0.4)% | (12 | ) | (1.1)% | |||||||||||||||||||
Paraguay | 844 | 829 | 806 | 15 | 1.8% | 23 | 2.9% | |||||||||||||||||||||
Europe | 213 | 203 | 200 | 10 | 4.9% | 3 | 1.5% | |||||||||||||||||||||
Other | 353 | 369 | 448 | (16 | ) | (4.3)% | (79 | ) | (17.6)% | |||||||||||||||||||
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Total | 100,335 | 99,332 | 94,779 | 1,003 | 1.0% | 4,553 | 4.8% | |||||||||||||||||||||
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Employees (by operating unit) | As of December 31, | Variation | ||||||||||||||||||||||||||
2018 | 2017 | 2016 | 2018-2017 | 2017-2016 | ||||||||||||||||||||||||
Retail banking | 77,862 | 75,768 | 71,159 | 2,094 | 2.8% | 4,609 | 6.5% | |||||||||||||||||||||
Wholesale banking | 21,698 | 22,630 | 22,909 | (932 | ) | (4.1)% | (279 | ) | (1.2)% | |||||||||||||||||||
Activities with the market and corporation | 775 | 934 | 711 | (159 | ) | (17.0)% | 223 | 31.4% | ||||||||||||||||||||
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Total | 100,335 | 99,332 | 94,779 | 1,003 | 1.0% | 4,553 | 4.8% | |||||||||||||||||||||
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Labor Relations
Itaú Unibanco has a permanent channel for dialog throughout the year with the labor unions representing the employees in their various professional categories. Meetings between the company and the labor unions are constantly held to discuss themes for furthering a good organizational climate and to discuss matters relating to the organization and workplace safety. We meet to discuss specific collective bargaining agreements, such as Profits or Results Sharing, Time Clock Registration and Working Day Compensation (hours bank) schemes, among others.
From the point of view of labor relations, we recognize the labor unions as legitimate representatives of our employees. We guarantee our employees rights to freedom of association as well as the absolute freedom for employees to take part in labor union activities, always recognizing the rights and prerogatives of those elected to executive positions in the unions pursuant to the current Brazilian legislation and the collective agreements for each professional category to which we are a party. The company has 1,438 active employees with roles in the various boards of directors of the representative labor unions. As set forth in the collective labor agreement for bank employees, 890 work full time for these union entities. In addition, we allow the unions to hold membership campaigns and, when requested, to hold meetings between the union entities, our managers and employees, with a view to seeking negotiated solutions in a respectful manner and in line with ethical principles.
We note that all activities within the scope of relations with union entities are conducted with a focus on innovation and negotiated solutions with a view to minimizing possible differences and conflicts involving our employees.
At Itaú Unibanco, all employees are covered by collective bargaining agreements which guarantee rights, not only those granted under the labor legislation but also other benefits which may be granted to our employees on aone-off basis in accordance with our internal human resources policies. Collective labor agreement rules, as well as other alterations and adjustments to internal norms that impact the routine of employees or modify their rights are widely disclosed by the company’s various means of communication. Among such means aree-mail, videos, electronic media, advertising totems, our internal magazine and our corporative portal (where human resources policies are detailed in our personnel regulations). In addition, employees have a call center at their disposal, to which they may have recourse in the event of questions.
We are a party to annual collective round table negotiations involving the labor unions representing bank, insurance and finance house employees for the joint preparation with employers’ and professional associations the collective bargaining agreements which spell out employee rights and benefits. The banking sector has historically experienced annual strikes. Below is a brief record of labor stoppages:
Year | Stoppage (working days)(1) | Branches closed (%) | ||
2015 | 14 working days | 37.7 | ||
2016(2) | 22 working days | 37.7 |
Employees (Brazil and abroad) | As of December 31, | Variation | ||||||||||||||||||||||||||
2019 | 2018 | 2017 | 2019-2018 | 2018-2017 | ||||||||||||||||||||||||
In Brazil | 81,691 | 86,801 | 85,537 | (5,110 | ) | (5.9 | )% | 1,264 | 1.5 | % | ||||||||||||||||||
Abroad | 13,190 | 13,534 | 13,795 | (344 | ) | (2.5 | )% | (261 | ) | (1.9 | )% | |||||||||||||||||
Argentina | 1,613 | 1,692 | 1,700 | (79 | ) | (4.7 | )% | (8 | ) | (0.5 | )% | |||||||||||||||||
Chile | 5,755 | 5,820 | 5,922 | (65 | ) | (1.1 | )% | (102 | ) | (1.7 | )% | |||||||||||||||||
Colombia | 3,326 | 3,495 | 3,650 | (169 | ) | (4.8 | )% | (155 | ) | (4.2 | )% | |||||||||||||||||
Uruguay | 1,101 | 1,117 | 1,122 | (16 | ) | (1.4 | )% | (5 | ) | (0.4 | )% | |||||||||||||||||
Paraguay | 869 | 844 | 829 | 25 | 3.0 | % | 15 | 1.8 | % | |||||||||||||||||||
Europe | 212 | 213 | 203 | (1 | ) | (0.5 | )% | 10 | 4.9 | % | ||||||||||||||||||
Other | 314 | 353 | 369 | (39 | ) | (11.0 | )% | (16 | ) | (4.3 | )% | |||||||||||||||||
Total | 94,881 | 100,335 | 99,332 | (5,454 | ) | (5.4 | )% | 1,003 | 1.0 | % | ||||||||||||||||||
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Employees (by operating unit) | 2019 | 2018 | 2017 | 2019-2018 | 2018-2017 | |||||||||||||||||||||||
Retail banking | 73,296 | 77,862 | 75,768 | (4,566 | ) | (5.9 | )% | 2,094 | 2.8 | % | ||||||||||||||||||
Wholesale banking | 20,845 | 21,698 | 22,630 | (853 | ) | (3.9 | )% | (932 | ) | (4.1 | )% | |||||||||||||||||
Activities with the market and Corporation | 740 | 775 | 934 | (35 | ) | (4.5 | )% | (159 | ) | (17.0 | )% | |||||||||||||||||
Total | 94,881 | 100,335 | 99,332 | (5,454 | ) | (5.4 | )% | 1,003 | 1.0 | % | ||||||||||||||||||
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Labor Relations
Itaú Unibanco has a permanent channel for dialog throughout the year with the labor unions representing the employees in their various professional categories. Meetings between the company and the labor unions are constantly held to discuss themes for furthering a good organizational climate and to discuss matters relating to the organization and workplace safety. We meet to discuss specific collective bargaining agreements, such as Profits or Results Sharing, Time Clock Registration and Working Day Compensation (work-hour tracking) schemes, among others.
From the point of view of labor relations, we recognize the labor unions as legitimate representatives of our employees. We guarantee our employees’ rights to freedom of association as well as the absolute freedom for employees to take part in labor union activities, always recognizing the rights and prerogatives of those elected to executive positions in the unions pursuant to the current Brazilian legislation and the collective agreements for each professional category to which we are a party. The company has 770 active employees with roles in the various boards of directories of the representative labor unions. As set forth in the collective labor agreement for bank employees, 466 work full time for these union entities. In addition, we allow the unions to hold membership campaigns and, when requested, to hold meetings between the union entities, our managers and employees, with a view to seeking negotiated solutions in a respectful manner and in line with ethical principles.
We note that all activities within the scope of relations with union entities are conducted with a focus on innovation and negotiated solutions with a view to minimizing possible differences and conflicts involving our employees.
At Itaú Unibanco, all employees are covered by collective labor agreements which guarantee rights, not only those granted under the labor legislation but also other benefits which may be granted to our employees on aone-off basis in accordance with our internal human resources policies. Collective labor agreement rules, as well as other alterations and adjustments to internal norms that affect the routine of employees or modify their rights are widely disclosed by the company’s various means of communication. Among such means aree-mail, videos, electronic media, advertising totems, our internal magazine and our corporative portal (where human resources policies are detailed in our personnel regulations). In addition, employees have a call center at their disposal, to which they may have recourse in the event of questions.
We are a party to an annual round table consisting of labor unions representing bank, insurance and finance employees professional associations, and employer associations for the collective drafting of agreements that define employee rights and benefits. The banking sector has historically experienced annual strikes. Below is a brief record of labor stoppages:
Year | Stoppage (working days)(1) | Branches closed (%) | ||||||
2015 | 14 working days | 37.7 | ||||||
2016 | 22 working days | 37.7 | ||||||
2017(2) | — | — | ||||||
2018(2) | — | — | ||||||
2019 | — | — |
(1) | These stoppages did not result in losses for Itaú Unibanco since the movement took place across the entire Brazilian financial system. |
(2) | The collective labor agreements process in 2016 |
All these movements and strike action at our branches had a partial impact only. Some branches were able to open during the course of the day and the operations of the branch network were never brought to a complete halt. However, in the past few years we have noticed a growing volume of transactions executed through our digital channels. This has made a significant contribution to offsetting the effects of strike action on our operations.
The collective labor agreements process in 2018 established agreements valid for a period of two years, valid from September 1st, 20181, 2016 to August 31st, 2020.31, 2018. We had did not have any kind of strikestrikes or significant interruptions in banking operations in 2017 and 2018.
Notwithstanding the foregoing, Itaú Unibanco believes
All these movements and strike action at our branches had a partial impact only. Some branches were able to open during the course of the day and the operations of the branch network were never brought to a complete halt. However, in the past few years, we have noticed a growing volume of transactions executed through our digital channels. This has made a significant contribution to offsetting the effects of strike action on our operations.
The collective labor agreements process in 2018 established agreements valid for a period of two years, valid from September 1, 2018 through to August 31, 2020. We did not have any strikes or significant interruptions in banking operations in 2019.
Notwithstanding the foregoing, we believe that the way to solve labor disputes is through direct negotiation, avoiding litigating issues which can be resolved through an exhaustive process of dialog and transparency in relations with labor union entities.
6E. | Share Ownership |
As of December 31, 2019, our Board of Directors and our Board of Officers directly owned an aggregate amount of 0.5602% common shares and 0.7438% preferred shares. Except for the shares indirectly owned by our controlling stockholders (through their participation in IUPAR and Itaúsa), the members of our Board of Directors and our Board of Officers, on an individual basis and as a group, beneficially owned less than 1% of our common shares and less than 1% of our preferred shares as of December 31, 2019.
ITEM 7. | MAJOR STOCKHOLDERS AND RELATED PARTY TRANSACTIONS |
7A. | Major Stockholders |
Main Stockholders
We are controlled by IUPAR, which is jointly controlled by Itaúsa and Cia. E. Johnston. Itaúsa is controlled by members of the Egydio de Souza Aranha family, and Cia. E. Johnston is controlled by members of the Moreira Salles family.
Except for the shares indirectly owned by our controlling stockholders (through their participation in IUPAR and Itaúsa), the members of our Board of Directors and our Board of Officers, on an individual basis and as a group, beneficially owned less than 1% of our common shares and less than 1% of our preferred shares as of December 31, 2019.
According to Brazilian regulation and as approved by the Central Bank, foreign investors may have a maximum of 30% of our common shares.
The table below presents information on the persons that, to our knowledge, beneficially own over 5% of our common or preferred shares as of March 31, 2020:
(1) |
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Date: 2020, 03.31
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ADSs Held in Host Country
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Main Stockholders
We are controlled by IUPAR, which is jointly controlled by Itaúsa and Cia. E. Johnston. Itaúsa is controlled by members of the Egydio de Souza Aranha family, and Cia. E. Johnston is controlled by members of the Moreira Salles family.
Except for the shares indirectly owned by our controlling stockholders (through their participation in IUPAR and Itaúsa), the members
As of December 31, 2019, 1,325,066,657 ADSs (27.7% of the total outstanding shares of our preferred shares) were outstanding and held of record by 66 institutional depositary receipts. We are aware that many ADSs are held of record by brokers and other nominees, and accordingly the above numbers are not necessarily representative of the actual number of U.S. persons who are beneficial holders of ADSs or the number of ADSs beneficially held by such persons.
IUPAR stockholders’ agreement
Itaúsa and Cia. E. Johnston have a stockholders’ agreement that governs their relationship as controlling stockholders of IUPAR and, indirectly, as our controlling stockholders and as controlling stockholders of our subsidiaries. For further information, please, access our website > MENU > Itaú Unibanco > Corporate Governance > Rules and Policies > Others > Shareholders Agreement – IUPAR.
Transfer of control and increase of interest in the share capital
Subject to the provisions of the IUPAR stockholders’ agreement, our Bylaws do not contain any provision that is intended to delay, defer or prevent a change in our shareholding control or that would operate only with respect to a merger, acquisition or corporate restructuring of our Company or its subsidiaries. However, according to Brazilian regulation all such transactions must be carried out in accordance with procedures established by CMN and be previously approved by the Central Bank.
Brazilian legislation provides that acquisition of control of a publicly held company triggers the requirement for the acquiring party to make a tender offer for all outstanding common shares, at a price equivalent to at least 80% of the price per share paid to the controlling stockholders. Additionally, our Bylaws establish the same price rule for the holders of our preferred shares. This legislation also requires our controlling stockholders to make a tender offer for all of our shares if they increase their interest in our share capital to a level that materially and negatively affects the liquidity of our Board of Directors and our Board of Officers, on an individual basis and as a group, beneficially owned less than 1% of our common shares and less than 1% of our preferred shares as of December 31, 2018.
According to Brazilian regulation and as approved by the Central Bank, foreign investors may have a maximum of 30% of our common shares.
The table below presents information on the persons that, to our knowledge, beneficially own over 5% of our common or preferred shares as of March 31, 2019:
Stockholders | Common Shares | Preferred Shares | Total | |||||||||||||||||||||
Total Number of Shares | % of Total | Total Number of Shares | % of Total | Total Number of Shares | % of Total | |||||||||||||||||||
IUPAR – Itau Unibanco Participacões S.A. | 2,564,084,404 | 51.71% | - | 0.00% | 2,564,084,404 | 26.15% | ||||||||||||||||||
Itausa – Investimentos Itaú S.A. | 1,943,906,577 | 39.21% | 169,323 | 0.00% | 1,944,075,900 | 19.83% | ||||||||||||||||||
BlackRock(1) | - | 0.00% | 349,925,097 | 7.22% | 349,925,097 | 3.57% | ||||||||||||||||||
Others | 450,299,378 | 9.08% | 4,434,445,892 | 91.51% | 4,884,745,270 | 49.82% | ||||||||||||||||||
Subtotal | 4,958,290,359 | 100.00% | 4,784,540,312 | 98.73% | 9,742,830,671 | 99.37% | ||||||||||||||||||
Treasury stock | - | 0.00% | 61,304,677 | 1.27% | 61,304,677 | 0.63% | ||||||||||||||||||
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Total | 4,958,290,359 | 100.00% | 4,845,844,989 | 100.00% | 9,804,135,348 | 100.00% | ||||||||||||||||||
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7B. | Related Party Transactions
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Transactions with controllers, joint control and related parties, and key management personnel are required to be conducted on arms’ length terms.
Under the Laws No. 4,595/64, No. 7,492/86 and CMN Resolution No. 4,693/18, financial institutions must observe specific terms and conditions when granting credit to:
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Transactions with controllers, joint control and related parties, and key management personnel are required to be conducted on arms’ length terms.
Under the Laws No. 4,595/64, No. 7,492/86 and CMN Resolution No. 4,693/18, financial institutions must observe specific terms and conditions when granting credit to:
its controllers (individuals or legal entities), pursuant to Article 116 of Law No. 6,404/76, as well as their spouses, partners and their direct relatives, in the collateral line or affinity, up to the second degree;
its officers, managers, and members of statutory or contractual bodies, as well as their spouses, partners and their direct relatives, in the collateral line or by affinity, up to the second degree;
individuals with qualified equity interest; and
legal entities: (i) with qualified equity interest; (ii) in which capital, directly or indirectly, there is qualified equity interest; (iii) in which there is effective operational control or relevance in the deliberations, regardless of equity interest; and (iv) that have an officer or member of the board of directors in common.
CMN Resolution No. 4,693/18 established the definition of “qualified equity interest” as a holder that owns 15% or more of the capital of the legal entity for purposes of credit transactions by financial institutions with its related parties.
For further details on restrictions on the operations of financial institutions, see “Item 4B. Business Overview – Regulatory Environment.
its controllers (individuals or legal entities), pursuant to Article 116 of Law No. 6,404/76, as well as their spouses, partners and their direct relatives, in the collateral line or affinity, up to the second degree;
its officers, managers, and members of statutory or contractual bodies, as well as their spouses, partners and their direct relatives, in the collateral line or by affinity, up to the second degree;
individuals with qualified equity interest; and
legal entities: (i) with qualified equity interest; (ii) in which capital, directly or indirectly, there is qualified equity interest; (iii) in which there is effective operational control or relevance in the deliberations, regardless of equity interest; and (iv) that have an officer or member of the board of directors in common.
CMN Resolution No. 4,693/18 established the definition of “qualified equity interest” as a holder that owns 15% or more of the capital of the legal entity for purposes of credit transactions by financial institutions with its related parties.
For further details on restrictions on the operations of financial institutions, see “Item 4B. Business Overview �� Supervision and Regulation.”
On October 22, 2012, our Board of Directors approved a Transactions with Related Parties Policy, which is reviewed annually. The definition of related party for the purpose of disclosures in financial statements is provided in this Transactions with Related Parties Policy, and includes controlling shareholders of, and entities controlled by or under common control with, us, as well as the directors and officers of these entities, certain family members of such individuals and any entities controlled directly or indirectly by them. Our Transactions with Related Parties Policy provides that any transaction involving related parties must be carried out at arm’s length, comply with all practices put in place by our management (such as the guidelines provided in our Code of Ethics), be executed in writing, and be clearly disclosed in our financial statements according to the materiality criteria provided by accounting standards.
Any related party transaction or series of transactions within aone-year period that exceeds R$1 million, defined as a “Significant Amount” (except those exclusively involving entities controlled, directly or indirectly, by us), is analyzed by the Related Parties Committee and reported to our Board of Directors on a quarterly basis.
Transactions between companies included in the consolidation were eliminated in our Code of Ethics), be executed in writing, and be clearly disclosed in our financial statements according to the materiality criteria provided by accounting standards.
Any related party transaction or series of transactions within aone-year period that exceeds R$1 million, defined as a “Significant Amount” (except those exclusively involving entities controlled, directly or indirectly, by us), is analyzed by the Related Parties Committee and reported to our Board of Directors on a quarterly basis.
Transactions between companies included in the consolidation were eliminated in the audited consolidated financial statements and take into consideration the absence of risk. See “Note 31 – Related parties” to our audited consolidated financial statements for more information.
7C. | Interests of Experts and Counsel |
Not applicable.
ITEM 8. | FINANCIAL INFORMATION |
8A. | Consolidated Statements |
The information included in Item 18 of this annual report is referred to and incorporated by reference into this Item 8A.
Legal Proceedings
Overview
We are not defendants in any significant administrative proceeding before the CVM, SUSEP, the Central Bank or any municipalities. As part of the ordinary course of our business, we are party to various legal and administrative proceedings (including consumer complaints) filed against us with SUSEP, certain municipalities or the Central Bank.
Our audited consolidated financial statements only include reserves for probable losses that can be reasonably estimated and expenses that we may incur in connection with pending litigation or administrative proceedings, or as otherwise required by Brazilian law. Our management believes that our provisions, including interest, for legal proceedings in which we are defendants are sufficient to cover probable losses that can be reasonably estimated in the event of unfavorable court decisions. It is currently not possible to estimate the amount of all potential costs that we may incur or penalties that may be imposed on us other than those amounts for which we have reserves. We believe that any potential liabilities related to these lawsuits and administrative proceedings will not have a material adverse effect on our business, financial condition or results. There are no material proceedings in which any of our directors, any member of our senior management or any of our affiliates is either a party adverse to us or to our subsidiaries or has a material interest adverse to us or our subsidiaries.
Please see “Note 2.3 – Critical Accounting Estimates and Judgments, j) Provisions, Contingencies and Other Commitments” to our audited consolidated financial statements for further information and details about the changes in the provisions and respective escrow deposits for tax and social security lawsuits and main types of tax disputes. The following table sets forth our provisions for such contingencies as of December 31, 2018, 2017 and 2016.Financial Information
Provision | 12/31/2018 | 12/31/2017 | 12/31/2016 | |||||||||
(In millions of R$) | ||||||||||||
Civil | 4,426 | 5,300 | 5,172 | |||||||||
Labor | 6,821 | 7,283 | 7,232 | |||||||||
Tax proceedings and legal obligations | 6,793 | 7,003 | 8,246 | |||||||||
Other | 573 | 150 | 259 | |||||||||
Total | 18,613 | 19,736 | 20,909 | |||||||||
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The information included under Item 18 of this annual report is referred to and incorporated by reference into this Item 8A.
Legal Proceedings
Overview
We are not defendants in any significant administrative proceeding before the CVM, SUSEP, the Central Bank or any municipalities. As part of the ordinary course of our business, we are party to various legal and administrative proceedings (including consumer complaints) filed against us with SUSEP, certain municipalities or the Central Bank.
Our audited consolidated financial statements only include reserves for probable losses that can be reasonably estimated and expenses that we may incur in connection with pending litigation or administrative proceedings, or as otherwise required by Brazilian law. Our management believes that our provisions, including interest, for legal proceedings in which we are defendants are sufficient to cover probable losses that can be reasonably estimated in the event of unfavorable court decisions. It is currently not possible to estimate the amount of all potential costs that we may incur or penalties that may be imposed on us other than those amounts for which we have reserves. We believe that any potential liabilities related to these lawsuits and administrative proceedings will not have a material adverse effect on our business, financial condition or results. There are no material proceedings in which any of our directors, any member of our senior management or any of our affiliates is either a party adverse to us or to our subsidiaries or has a material interest adverse to us or our subsidiaries.
Please see “Note 2.3 – Critical Accounting Estimates and Judgments, j) Provisions, contingencies and legal liabilities” to our audited consolidated financial statements for further information and details about the changes in the provisions and respective escrow deposits for tax and social security lawsuits and main types of tax disputes. The following table sets forth our provisions for such contingencies as of December 31, 2019, 2018 and 2017.
Provision Civil Labor Tax proceedings and legal obligations Other Total 12/31/2019 12/31/2018 12/31/2017 (In millions of R$) 3,633 4,426 5,300 8,579 6,821 7,283 8,266 6,793 7,003 976 573 150 21,454 18,613 19,736
Civil Litigation
Litigation Arising from Government Monetary Stabilization Plans
We are a defendant in lawsuits for the collection of understated inflation adjustment for savings resulting from the economic plans implemented in the 1980s and 1990s by the Brazilian Federal Government as a measure to combat inflation. Please see “Item 3D. Risk Factors – Legal and Regulatory Risks, Decision on lawsuits due to government monetary stabilization plans may have a material adverse effect on us” for further information.
Other Civil Litigation
In addition to litigation arising from government monetary stabilization plans, we are defendants in numerous civil lawsuits arising in the normal course of our business. Additionally, we and our subsidiaries carry out corporate operations that may be contested in court by minority shareholders, who disagree especially with the amount paid for their actions. We are not able to currently predict the total amounts involved in these claims, due to the nature of the matters disputed. However, we believe that any potential liabilities related to these lawsuits will not have a material adverse effect on our financial condition or results.
Labor Litigation
In 2018,2019, we and our subsidiaries were not exposed to any labor liabilities or labor contingencies which individually significantly impacted our results. The pool of labor claims for our subsidiaries in such period comprisedis composed of labor claims filed by employees, former employees and outsourced service providers.
Labor unions and former employees have filed labor claims against us, seeking compensation for alleged breaches of employment agreements or rights under the applicable labor laws. As of December 31, 2018,2019, there were 68,08662,768 labor claims filed against us.
The main requests in the labor claims filed by our current and former employees include:
Salary differences arising from the application of the 30 working hours per week limit, provided for in Art.art. 224 of the CLT, which is applicable to bank employees whose function does not require special trust from the employer;
Salary differences arising from overtime not duly registered in the internal systems;
Claims with respect to the method used to establish overtime pay; and
Salary parity.
Labor class actions filed against us mainly relate to the continuation of health care plans, safety rules and strikes. We are also defendants in connection with labor claims filed by the labor prosecution office regarding union classification, outsourcing, occupational diseases, health and safety and compliance with the minimum quotas for disabled personnel. In the fiscal year ended December 31, 2018,2019, we paid approximately R$ 2,9112,449 million in direct labor expenses, mainly in settlements and convictions involving former employees, in accordance to the agreements signed and to the rulings imposed by labor courts.
Regarding labor claims filed by outsourced service providers, they generally involve allegations of subsidiary liability of the companies within our group.
Please see “Note 2.3 – Critical Accounting Estimates and Judgments, j) Provisions, Contingenciescontingencies and Other Commitments” oflegal liabilities” to our audited consolidated financial statements for further information about labor claims.
Tax Litigation
We have certain tax disputes that arise in our ordinary business activities, mainly relating to the constitutionality or legality of certain taxes imposed on us.
We classify tax due as legal liability when the legality and / or unconstitutionality of the legislation in force is challenged. Legal liability taxes are provisioned regardless of the likelihood of loss.
Tax contingencies correspond to the principal amount of taxes involved in tax, administrative or judicial challenges, subject to tax assessment notices, plus interest and, when applicable, fines and charges. A provision is recognized whenever the chance of prevailing is probable.
On June 25, 2013, we received a notice of deficiency from the Brazilian tax authorities alleging that we failed to pay approximately R$11,844.7 million of IRPJ,corporate income tax (IRPJ), plus accrued penalties and interest, and approximately R$6,867.0 million of CSLL, plus accrued penalties and interest, in fiscal year 2008, as a result of the corporate transaction that led to the association of Itaú Holding and Unibanco Holdings S.A. The Brazilian tax authorities allege that corporate transactions of a different kind should have been used. However, the transaction suggested by the Brazilian tax authorities is not supported in the rules applicable to financial institutions. We defend that the transactions conducted were appropriate and legitimate, having been approved by the involved companies’ management bodies and their respective stockholders, and subsequently sanctioned as well by the relevant regulatory authorities, including the CVM, the Central Bank and CADE. We and our external counsel assess the risk of loss in this tax proceeding as remote. On April, 10, 2017, the Administrative Board of Tax Appeals (CARF), by the Ordinary Instance, issued a favorable decision to us, canceling the tax assessment notice. The Brazilian federal government appealed to the Superior Chamber of CARF. We understand that the CARF decision is final, and there is no possibility of a review. As such, we presented a writ of security to have the final judgment of the administrative proceeding judicially recognized. Our injunction and sentence were favorable. Currently, the writ of security awaits judgment of the Brazilian federal government’s appeal and request for suspension of judgment.
Additionally, relating to the same transaction on November 14, 2013, we received a notice of tax assessment issued on behalf of Itaú Unibanco, S.A., charging R$1,439.9 million of Income Taxcorporate income tax (IRPJ) and R$502.6 million of (CSLL),CSLL, plus accrued penalties and interest. We also assess the chance of in prevailing in this litigation as remote. We filed a voluntary appeal that was dismissed by CARF and by the Superior Administrative Court of Federal Tax Appeals (CSRF). Currently, the company is discussing the case in court.
In November 2019, we received tax assessments from the Municipality of São Paulo, in the approximate amount of R$4 billion, for the allegednon-payment of municipal tax on services (ISS) in connection with leasing and credit card operations. In our defense, we state that such tax was duly paid to the Municipality of Poá, State of São Paulo, where we have had operations for about 30 years, with a structure comprising staff, physical space and technology consistent with the operations carried out in that location.
Please see “Note 2.3 – Critical Accounting Estimates and Judgments, j) Provisions, Contingenciescontingencies and Other Commitments”legal liabilities” to our audited consolidated financial statements for further details about the changes in the provisions and respective escrow deposits for tax and social security lawsuits and main types of tax disputes.
Stockholders’ Payment
Our Bylaws establish the distribution to stockholders of mandatory dividends equivalent to 25% of our net income calculated for each fiscal year, adjusted by the decrease or increase of amounts related to legal reserve, to reserve for contingencies and to its reversal related to prior years.
The mandatory dividend may be paid as dividends or interest on capital. The main difference between these forms of payment istax-related. The payment of dividends istax-free for stockholders.
The payment of interest on capital is subject to withholding income tax at a 15% rate, or 25% if the stockholder is a resident of or domiciled in a tax haven jurisdiction or a privileged tax regime.
The amount paid to stockholders as interest on capital, net of any withholding tax, may be included as part of the mandatory dividend. In such case, we are required to distribute to stockholders an amount sufficient to ensure that the net amount received by stockholders, after the payment by us of applicable withholding taxes in respect of the distribution of interest on capital, is at least equal to the mandatory dividend. For further information, please see “Item 10E. Taxation”.
Our Stockholder Remuneration Policy, which was approved by our the Board of Directors, establishes the monthly payment of R$0.015 per share as an advance mandatory dividend. The date used as a reference to determine which stockholders are entitled to receive such dividend in Brazil is determined based on the stockholding position registered on the last day of the preceding month. With respect to our ADSs, however, the date used to determine which stockholders are entitled to receive the monthly dividend is three days after the Brazilian reference date. In both cases, monthly dividends for a given month are paid on the first business day of the following month.
Stockholders may claim the payment of any dividend for a period of three years counted from the dividend payment date. After this period we have no responsibility whatsoever for such payment. Stockholders not residing in Brazil must register with the Central Bank so that dividends, interest on capital and other share-related amounts can be remitted abroad in foreign currency.
Currently, we pay dividends and interest on capital equivalent to or higher than the mandatory dividends, but this may not continue to happen if our stockholders decide that such distribution is not advisable in view of our financial condition. In this case, if our Fiscal Council is constituted, it must issue an opinion about that decision, and management must present a report to the CVM detailing the reasons for the suspension of the dividend payment. Profits not distributed due to a suspension of the dividend payment must be allocated to a special reserve and, if it is not absorbed by losses in subsequent years, it must be paid as dividends as soon as our financial position so permits.
For information regarding recent amounts paid or provisioned and reserved in stockholder’s equity, dividends and interest on own capital, see “Item 5A. Operating Results—Results—Highlights.Results.”
Please see “Note 21 – Interest and Similar Income and Expense and Net Gain (Loss) on Investment Securities and Derivatives, b) Interest and Similar Expense,” to our audited consolidated financial statements and “Item 4B. Business Overview—Regulatory Environment—Supervision and Regulation—Basel III Framework—Implementation of Basel III in Brazil.”
Please see “Item 12D. American Depositary Shares—ADS Holders’ Payment of Dividends” for details on the payment of dividends to our ADS holders.
Please see “Item 5A. Operating Results—Recent Developments—Temporary Suspension of Dividend Distributions and Increases in Compensation of Directors and Officers.”
8B. | Significant Changes |
None.
ITEM 9. | THE OFFER AND LISTING |
9A. | Offer and Listing Details |
Our Sharesshares and ADSs
Beginning in 1996, we have held meetings with institutional investors in Brazil, the United States and Europe to present our governance practices, financial performance and value creation strategy, among other significant issues. Since 2002, in line with the commitment to strengthening our position in the Brazilian capital market and forge closer ties with stockholders and investors, we have held a number of presentations every year in different Brazilian regions where APIMEC operates.
Stock Split
At the extraordinary general stockholders’ meeting held on July 27, 2018, our stockholders approved a 50% split of the then outstanding 6,536,090,232 shares, with no par value, consisting of 3,305,526,906 common shares and 3,230,563,326 preferred shares. At the same meeting, our stockholders also approved a proportional increase in our authorized share capital in order to allow for the 50% stock split.
In order to give effect to the stock split, we issued 3,268,045,116 new shares, consisting of 1,652,763,453 common shares and 1,615,281,663 preferred shares. In connection with the share split, treasury shares and ADSs were also split by 50%, therefore, ADS holders received one new ADS for every two ADSs they held. The ADSs continue to be traded at a ratio of one preferred share to one ADS.
Monthly dividends were maintained at R$0.015 per share so that the total amounts paid monthly by us to stockholders increased by 50% as from January 2, 2019. The annual minimum dividend assured to preferred shares was also maintained at R$0.022 per share. There were no changes in our Stockholder Remuneration Policy.
Brazil | United States | |||
B3—Bolsa, Balcão | NYSE | |||
Level 1 ITUB3 Common Shares | Level 1 ITUB4 Preferred Shares | Level 2 ITUB Preferred Shares | ||
Shareholders’ rights | �� | Shareholders’ rights | ADS holder rights | |
Common shares – Entitle the holder to one vote at our general stockholders’ meetings (one share has one voting right)—the voting rights of our controlling stockholders do not differ from the voting rights of other holders of common shares; – 80%tag-along; and – Preemptive right in the subscription of new shares in any capital increase. | Preferred shares – Priority to receive mandatory dividends, in the amount of R$0.022 per share; – 80%tag-along; – Voting right when the company fails to pay fixed, or minimum, dividends, for the period provided in the company’s Bylaws, which may never exceed three consecutive fiscal years, until the dividends are paid; and – The creation of a new class of shares with priority over preferred shares, as well as any change in preference or in right associated with preferred shares. must be approved by at least 50% of common shares and also approved by stockholders representing the majority of preferred shares in a special general meeting. | ADSs – Preemptive right in the subscription of new shares in any capital increase. |
9B. | Plan of Distribution |
Not applicable.
9C. | Markets |
Our preferred shares and common shares have traded on the São Paulo Stock Exchange (currently B3) since 1944. Our preferred shares have been traded on the NYSE in the form of ADSs (one ADS represents one preferred share) since February 21, 2002, in compliance with NYSE and SEC requirements. ADS holders have no stockholder rights, which are governed by Brazilian Corporate Law. The depositary is the holder of the preferred shares underlying the ADSs. Holders of ADSs have ADS holder rights.
Regulation of the Brazilian Securities Market
According to the Brazilian Corporate Law, a company is considered publicly-traded or closely-held depending on whether the securities issued by it are accepted for trading in the securities market or not. All publicly-held companies, such as our company, are registered with the CVM, are subject to specific regulations and are also subject to information disclosure and reporting requirements.
Disclosure Requirements
See “Item 4B. Business Overview – Regulatory Environment”Supervision and Regulation” for more details regarding disclosure requirements.
Trading on the B3
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, which occurred on the Rio de Janeiro Stock Exchange. In May 2004, the Rio de Janeiro Stock Exchange reopened for the trading of certain Brazilian government securities.
IfUntil May, 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 iswas ordinarily required to deliver the shares to the exchange on the third business day following the trade date. As of May 27, 2019, the trade is settled in two business days after the trade date. Delivery of and payment for shares are made through the facilities of the Central Depository of B3.
In September 2014, the CMN issued Resolution No. 4,373/14, amending and improving the provisions for (i) foreign investments through a depositary receipt mechanism; and (ii) investments made bynon-resident investors in the financial and capital markets in Brazil. The main changes were: (a) increasing the number of instruments that may be issued through depositary receipts; (b) making it possible fornon-resident investors to invest in financial and capital markets without having previously entered into foreign exchange operations; (c) clarifying the criteria for simultaneous foreign exchange operations; and (d) increasing the responsibility of thenon-resident investor’s representative. CMN Resolution No. 4,373/14 became effective in March 2015.
See “Item 10E. Taxation – Brazilian Tax Considerations—Taxation of Gains” for a description of certain tax benefits extended tonon-Brazilian holders who qualify under CMN Resolution No. 4,373/14.
Corporate 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” with the purpose of stimulating the secondary market of securities issued by Brazilian companies listed on B3, encouraging these companies to follow good corporate governance practices. B3 subsequently introduced two new segments called “Bovespa Mais” and “Bovespa Mais Nível 2”,” specifically for small- and medium-scale companies. The listing segments were designed for the trading of shares issued by companies that voluntarily commit themselves to follow corporate governance practices and disclosure requirements beyond those required by Brazilian legislation. These rules generally increase shareholders’ rights and increase the quality of the information made available to shareholders. Newly amended rules for Levels 1 and 2 of Differentiated Corporate Governance Practices came into effect in May 2011 and newly amended rules for “Novo Mercado” came into effect in May 2018.
To become a “Level 1” company, like us, the issuer must agree to the following requirements, in addition to those imposed by applicable law: (i) ensure that the shares that represent at least 25.0% of its total capital are actually available for trading; (ii) adopt offering procedures that favor the widespread ownership of the shares whenever a public offer is made; (iii) comply with minimum standards for quarterly disclosure; (iv) follow stricter disclosure policies for transactions done by its controlling shareholders, members of its Board of Directors and executives that involve securities issued by the issuer; (v) submit any existing shareholders’ agreement and stock option plans to B3; and (vi) prepare a schedule of corporate events and make it available to the shareholders.
To become a “Level 2” company, the issuer must agree to the following requirements, in addition to those imposed by applicable law: (i) comply with all Level 1 listing requirements; (ii) granttag-along rights to all shareholders in case the company’s control is transferred, offering to common shareholders the same price paid per share for the controlling block of common and preferred shares; (iii) give holders of preferred shares voting rights for decisions on certain corporate restructurings and related-party transactions, such as: (a) conversions, acquisitions, mergers or splits; (b) approval of any transactions between the company and its controlling shareholder, if such decisions are within the competence of the general meeting; (c) valuation of assets to be used for payment of a share capital increase; (d) selecting an institution or specialized company to determine the economic value of the company; and (e) any alterations to these voting rights that will prevail as long as the agreement to adhere to the B3’s “Level 2” segment is in force; (iv) the Board of Directors must be made up of at least five members, of which at least a minimum of 20.0% shall be independent members with a term of office limited to two years, and reelection is permitted; (v) prepare financial statements in English, including the statement of cash flows, according to international accounting standards such as U.S. GAAP or IFRS; (vi) effect a tender offer by the company’s controlling shareholder (the minimum price of the shares to be offered shall be determined by an assessment process), if the controlling shareholder decides on the delisting from the “Level 2” segment; and (vii) exclusively adopt the B3 “Arbitration Board” rules for resolving any conflicts between the company and its investors.
To join B3’s “Novo Mercado” segment, an issuer must meet all requirements described in “Levels 1 and 2,” including the issuance of common shares only (with voting rights) and grantingtag-along rights to all shareholders in case the company’s control is transferred, offering the same price paid per share for the controlling block of shares.
In 2001, we executed an agreement with B3 to list our shares in the Level 1 segment, effective immediately after the disclosure of the offer’s opening date in Brazil. We agreed to comply with and continue to comply with all of the Level 1 listing requirements.
9D. | Selling Shareholders |
Not applicable.
9E. | Dilution |
Not applicable.
9F. | Expenses of the Issue |
Not applicable.
ITEM 10. | ADDITIONAL INFORMATION |
10A. | Share Capital |
Not applicable.
10B. | Memorandum and Articles of Association |
Set forth below is certain information concerning our capital stock and a brief summary of certain significant provisions of our Bylaws and Brazilian Corporate Law. This description does not purport to be complete and is qualified by reference to our Bylaws and to Brazilian Corporate Law.
Corporate Purpose
We are organized as a publicly held corporation for an unlimited period of time under the laws of Brazil. Our head offices are located at Praça Alfredo Egydio de Souza Aranha, 100,04344-902, São Paulo, SP, Brazil and our telephone number is +55 (11) 2794-3547. We are primarily governed by Brazilian Corporate Law and our Bylaws. Our Tax Payer’s Registry (CNPJ) is60.872.504/0001-23, and we are registered with the São Paulo Commercial Registry (Junta Comercial do Estado de São Paulo) under NIRE 35300010230.
Our corporate purpose, as set forth in Article 2 of our Bylaws, is to perform banking activity in all its authorized forms, including foreign exchange transactions. Our agent for service of process in the United States is the general manager of our New York branch, which is located at 767 Fifth Avenue, 50th floor, New York, NY 10153.
Adoption of Cumulative Voting
Under Brazilian Corporate Law and CVM’s regulation, stockholders that represent at least 5% of share capital with voting rights may demand a cumulative voting process up to 48 hours before a general stockholders’ meeting. Each share will be entitled to as many votes as the members of the board being elected, and the stockholder has the right to concentrate votes in one candidate or distribute them among several candidates. The presiding officer must inform the stockholders in advance about the number of votes required for the election of each member of the Board of Directors.
Whenever the election of the Board of Directors is held under the cumulative vote process and the common or preferred stockholders exercise their right of electing one director, the controlling stockholder will have the right to elect directors in the same number as those elected by the other stockholders plus one, regardless of the number of directors that, according to our Bylaws, compose the board.
Preemptive right, capital increase and payment for subscribed shares
Each stockholder has the preemptive right to subscribe for shares in any capital increase, in proportion to his equity interest, except in specific cases, in compliance with Brazilian Corporate Law.
Our Bylaws authorize the Board of Directors to increase our capital stock up to a limit of 13,176,900,000 shares, of which 6,588,450,000 must be common shares and 6,588,450,000 preferred shares (authorized capital). Up to the limit of our authorized capital, shares may be issued without considering our stockholders preemptive rights if it is made: (i) for sale on a stock exchange; (ii) by public subscription; and (iii) in exchange for our shares at a public offering for acquisition of our control. Regardless of this provision, all increases in capital stock must be ratified by stockholders and approved by the Central Bank.
After the approval of the capital increase by the Central Bank, stockholders must pay the amount corresponding to subscribed shares under the terms established in the subscription documentation in connection with that capital increase. A stockholder that fails to make payments under the terms of the subscription documentation will be deemed to be in default in accordance with Brazilian Corporate Law.
Brazilian legislation does not provide for liability in capital calls, therefore the ownership interest of our stockholders may be diluted if they decide not to exercise their preemptive rights to subscribe shares in cases of capital increase.
Form and Transfer
Our shares are book-entry and Itaú Corretora de Valores S.A. is our bookkeeping service provider. Therefore, the shares issued by us are to be kept in deposit accounts, under the investor’s name.
As an alternative, the investor may also deposit shares in the B3 via a custodian institution authorized by the CVM. In such case, the B3, as central depositary, holds the shares under its name but controls the ownership of the securities through a structure of deposit accounts kept under the investors’ name. There is no distinction in the rights and obligations of stockholders, regardless of whether their shares are deposited with a broker-dealer or with B3.
Redemption and withdrawal rights
Our common shares and our preferred shares are not redeemable, except upon delisting. Pursuant to Brazilian Corporate Law, however, the approval of certain matters entitles a dissenting stockholder to withdraw from the company, such right expiring thirty days after publication of the minutes of the applicable stockholders’ meeting. This withdrawal may occur under certain conditions upon reimbursement of the value of such holder’s shares, calculated based on criteria set forth under Brazilian Corporate Law. Also, in accordance with Brazilian Corporate Law, we are entitled to reconsider any resolution that gives rise to a withdrawal within ten days following the expiration of the withdrawal period, if such exercise of withdrawal rights jeopardizes our financial stability.
Withdrawal rights are not available to stockholders whose shares have liquidity and are actively traded in the stock market in cases of merger or takeover or in case the company elects to take part in a group of companies.
Common and preferred shares should be reimbursed upon cancellation of their registration at their value, calculated based on the criteria set forth under Brazilian Corporate Law. If the resolution that gave rise to withdrawal rights was approved more than 60 days after the date when the last balance sheet was approved, the stockholder may demand that his shares be redeemed at a value based on a new balance sheet, dated up to 60 days after the date of the general meeting.
Threshold above which shareholder ownership must be disclosed
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. Any subsequent increase or decrease of 5.0% or more in ownership of any type or class of shares must be similarly disclosed.
Our Governance
Our governance structure
The main goal of our corporate governance is to create an efficient set of incentive and monitoring mechanisms to ensure that management members are always aligned with our stockholders’ best interests in a sustainable way. In order to achieve this goal, we have set up decision-making bodies and institutionalized procedures to align management with our meritocratic, performance-focused and long-term value-creation culture.
The three main pillars of our corporate governance structure are:
IUPAR (Itaú Unibanco Participações) | - Alignment and union among shareholders; - Group’s vision, mission and values; - Significant mergers and acquisitions; - Performance evaluation and admission of family members; and - Discussion and approval of the long-term strategy. | Family Control With a long-term strategic vision | ||
Itaú Unibanco Board of Directors | - Definition and monitoring of the company’s strategy; - Mergers and acquisitions; - Monitor the Executive Committee’s performance - Nomination of officers (meritocracy); - Budget approval; - Definition and monitoring of incentive and compensation models and goal settings; - Supervision of the technologies strategy; - Definition of the meritocracy policies; and - Business operation supervision. | Value Creation Strategy definition | ||
Executive Committee | - Implementation of Board of Director’s guidelines and goals; - Business operation and strategies for products and segments; - Ensure better allocation and management of financial, operational and human resources; - Monitoring of market, credit and operational risks; and - Operate the Bank in purpose of value creation | Professional management Implementation of strategy andday-to-day management |
Our Policies
We adopt policies in order to formalize and consolidate existing structures to protect the interests of our employees, management members and stockholders, as well as promote our culture and values, always seeking to run business in an ethical and transparent manner, preventing and fighting fraud and illegal acts and ensuring our business sustainability.
The following illustration presentsBelow we present the main documents related to our corporate governance, including our Bylaws, as approved by our Board of Directors.
Bylaws: establish our principles and rules of operations, such as the definition of our corporate purpose, composition of capital stock, responsibilities of statutory bodies, appropriation of net income, and our listing segment in stock exchanges, among others.
Internal Charters: we have internal charters that regulate the operation of our Board of Directors, Board of Directors Committees, Board of Officers and Fiscal Council, in conformity with applicable legislation and best corporate governance practices.
Policy for the Nomination of Members of the Board of Directors, Committees Reporting to the Board of Directors and the Executive Board: this policy establishes minimum requirements for the nomination of members to the Board of Directors, Board of Directors committees and our Board of Officers.
Code of Ethics: applies to all of our employees, members of the Board of Directors and officers and is based on principles that support an organizational culture focused on the enhancement of people, strict compliance with rules and regulations and continuous development.
Policy for Trading Itaú Unibanco S.A. Securities:the purpose of this policy is to establish guidelines and procedures to be followed by us and bound persons, to ensure transparency in the trading of our securities by all interested parties, without privileging some to the detriment of others.
Transactions with Related Parties: the purpose of this policy is to establish rules and consolidate procedures to be followed in related party transactions, ensuring equality and transparency and as such, ensuring stockholders, investors and other stakeholders that we are in compliance with best corporate governance policies.
Corporate Policy and Procedure Disclosure of Material Information: this policy address the public disclosure of material information and the requirement to keep such information confidential until disclosed in accordance with applicable rules.
Relationship Policy with Public Officials and Contracting with Bodies, Entities and Companies of Public Administration:this policy guides the relationship with public officials and public entities with respect to our institutional interests and the financial system in general, in an organized manner.
Corporate Governance Policy: this policy consolidates the Corporate Governance principles and practices adopted by us so that they can be disseminated throughout our company.
Anti-Corruption Corporate Policy: the purpose of this policy is to establish rules for avoiding conflicts of interests in processes related to donations and sponsorship and in relationships with clients, suppliers and partners, in the public and private sectors, and also to establish guidelines and procedures to prevent and combat corruption, such as training, communication, consultation and complaint channels.
Our Practices
Given that our shares have traded on the São Paulo Stock Exchange (currently B3) since 1944 and our ADSs have traded on the NYSE since 2002, we are required to comply with the rules of the CVM, the B3, the SEC and the NYSE.
The following timeline illustrates the main Corporate Governance practices adopted over recent years:
Management structure
Our management is structured to ensure that matters are extensively discussed and decisions are made on a collective basis. The information below concerns our management bodies, their main duties and composition:
Duties | Composition | |||
General Stockholder’s Meeting | The company’s supreme body that brings stockholders together, either on an ordinary or extraordinary basis, through a convening notice as set forth by law. Annual Stockholders’ Meeting:It is held in the first four-month period of each year, to review, discuss and vote the financial statements submitted by management, resolve on the allocation of net income for the year, payout of dividends and election of members to the Board of Directors and the Fiscal Council. Extraordinary Stockholders’ Meeting:It is held when convened to resolve on key matters that are not the exclusive responsibility of the Annual General Stockholders’ Meeting. | The Annual Stockholders’ Meeting is open on first call with the attendance of stockholders representing at least 25% of voting capital. Any amendments to the Bylaws should be resolved on at an Extraordinary Stockholders’ Meeting, which will be open on first call with the attendance of stockholders representing at least two thirds (2/3) of the voting capital. Our meetings are held with a quorum representing approximately 90% of our voting capital. | ||
Fiscal Council | An independent body operating independently from Management, our external auditors and Audit Committee. It supervises the activities of our Management, examines and opines on our financial statements for the year ended, among other duties established by Brazilian law. | It is composed of 3 to 5 members elected annually by our stockholders, including one member elected by the minority holders of our preferred shares. | ||
Board of Directors | It is responsible for establishing our general business guidelines, including for our subsidiaries, and holds ordinary meetings eight times per year and extraordinary meetings when necessary. | It is composed of 11 members, allnon-executive, and of whom 5 are deemed independent (45%). The turnover of the Board members is carried out in accordance with our bylaws, which provide for the ineligibility of persons who have reached the age of 70. Members are elected annually by our stockholders. | ||
Board of Officers | It implements the guidelines proposed by the Board of Directors. Officers manage our daily business activities, ensuring the best allocation and management funds to accomplish the goals we have set. | It is composed of 5 to 30 members, including Chief Executive Officer, General Director, Director Vice President, Executive Officer and Officer, in conformity with the guidelines established by the Board of Directors for filling these positions. Members are elected annually by the Board of Directors. Each member elected to our Board of Officers must be approved by the Central Bank. According to Brazilian law, an acting officer retains their position until they are reelected or a successor takes office. | ||
Disclosure and Trading Committee | This Committee is responsible for: Managing the Policy for the Disclosure of Material information and the Policy for Trading Itaú Unibanco Holding S.A. Securities. Carrying out internal actions intendent to improve the information flow. Promoting the ethical conduct of our management members and employees. Ensuring transparency, quality, equality and security of the information provided to our stockholders, investors and other capital market players. | It is composed of: Members of the Board of Directors. Members of the Board of Officers of Itaú Unibanco Holding or any other Itaú Unibanco Conglomerate company. Professionals of proven knowledge in the capital markets area. Investors Relations Officer (a permanent member of the Committee). |
10C. | Material Contracts |
None.
10D. | Exchange controls |
Individuals or legal entities domiciled outside Brazil may own our stock through ADSs negotiated in a U.S. Exchange or through direct investments in the Brazilian Market.
However, the right to convert dividend payments and proceeds from the sale of our shares in the Brazilian Market, into foreign currency and to remit such amounts abroad is subject to compliance with requirements of Brazilian foreign investment and foreign currency legislation. This legislation generally requires, among other things, documentary evidence that establishes the legality, the legitimacy and the economic validity of the exchange operation and that the relevant investment haswas registered with the Central Bank and the CVM, as applicable.
In case the investment in our stock is made through ADS, the ADS holders benefit from the electronic certificate of foreign capital registration obtained in Brazil by the custodian of the preferred shares underlying the ADSs, which permits the depositary bank to convert dividends and other distributions with respect to the preferred shares underlying the ADSs into foreign currency and remit the proceeds abroad.
In case the investment in our stock is made directly in the Brazilian Market, such investment needs to be registered with the Central Bank either as (i) a foreign direct investment, the Electronic Declaratory Registration of Foreign Direct Investment(RDE-IED), or (ii) a portfolio investment, the Electronic Declaratory Registration of Portfolio (RDE – Portfolio).
The registration as foreign direct investment(RDE-IED) enablesnon-resident investors to hold stock of companies, although it, limits the ability of the investor to negotiate such stocks in the Brazilian Capital Markets. On the other hand, the registration as portfolio investment (RDE – Portfolio) entitles certain foreign investors to invest not only in stocks, but also in other financial assets and securities, and to engage in a variety of transactions available in the Brazilian financial and capital markets, provided that certain requirements of the regulation are fulfilled.
Registration under RDE – Portfolio affords favorable tax treatment tonon-resident investors who are not residents or domiciled in tax haven jurisdictions, as defined by Brazilian tax laws.laws
10E. | Taxation |
Taxation Considerations for ADS Holders
This summary is based upon tax laws of Brazil and the United States in effect as of the date hereof, and contains a description of the main Brazilian and U.S. federal income tax considerations regarding the acquisition, ownership and disposition of our preferred shares or ADSs, but it does not purport to be a comprehensive description of all the tax considerations that may be relevant to these matters, considering that laws are subject to change and to differing interpretations (possibly with retroactive effect). Although there is no income tax treaty between Brazil and the United States in place, the tax authorities of the two countries have agreed in applicable provisions of reciprocal tax treatment as to compensation of tax withheld at the source country in the residence country. No assurance can be given, however, as to whether or when a treaty will enter into force or how it will affect a U.S. Holder (as defined below) of our preferred shares or ADSs.
Prospective purchasers of our preferred shares or ADSs should consult their own tax advisors as to the tax consequences of the acquisition, ownership and disposition of our preferred shares and ADSs, including, in particular, the effect of anynon-U.S.,non-resident, state or local tax laws.
INVESTORS ARE STRONGLY ADVISED TO CONSULT THEIR OWN TAX ADVISORS AS TO BRAZILIAN TAX CONSIDERATIONS RELATING TO THE PURCHASE, OWNERSHIP AND DISPOSITION OF OUR PREFERRED SHARES OR ADSs CONSIDERING THEIR PARTICULAR FACTS AND CIRCUMSTANCES, AS WELL AS THE EFFECT OF ANYNON-BRAZILIAN TAX LAWS.
Brazilian Tax Considerations
The following discussion summarizes the main Brazilian tax consequences related to the acquisition, ownership and disposition byNon-Resident Holders of our preferred shares or ADSs.
Non-Resident Holders Resident or Domiciled in Tax Haven Jurisdictions
Under Brazilian tax laws, as regulated by Article 1 of Normative InstructionRuling No. 1,037 of June 4, 2010, as amended, a “tax haven” is defined as a country or location (a) that does not impose any income tax or where the maximum income tax rate is 20%, or 17% as further detailed below (b) where the local legislation imposes restrictions on disclosure regarding shareholder composition or investment ownership. A list of current tax haven jurisdictions has been published per such Normative Instruction.Ruling.Non-Resident Holders resident or domiciled in tax haven jurisdictions may be subject to withholding tax in Brazil at higher rates thanNon-Resident Holders not resident or domiciled in tax havens, as described below.
Additionally, on June 24, 2008, Law No. 11,727 introduced the concept of “privileged tax regime,” which is defined as a tax regime that (i) does not tax income or taxes it at a maximum rate lower than 20%; (ii) grants tax benefits tonon-resident entities or individuals (a) without the requirement to carry out substantial economic activity in the country or dependency or (b) contingent to thenon-exercise of substantial economic activity in the country or dependency; (iii) does not tax or that taxes income generated abroad at a maximum rate of lower than 20%; or (iv) does not provide access to information related to shareholding composition, ownership of assets and rights or economic transactions carried out. A list of current privileged tax jurisdictions has been published on Normative Ruling 1,037 and, currently, withholding rates forNon-Resident Holders resident or domiciled in privileged tax regimes are the same applicable forNon-Resident Holders non domiciled in tax haven jurisdictions.
On November 28, 2014, the Brazilian tax authorities issued Ordinance No. 488, which decreased these minimum thresholds from 20% to 17% in certain cases. Under Ordinance No. 488, the 17% threshold applies only to countries and regimes aligned with international standards of fiscal transparency, in accordance with rules to be established by the Brazilian tax authorities.
Notwithstanding the above, we recommend that you consult your own tax advisors regarding the consequences of the implementation of Law No. 11,727, Normative Ruling No. 1,037 and of any related Brazilian tax law or regulation concerning tax havens and privileged tax regimes.
Income Tax for Individuals and Foreign InvestorsNon-Resident Holders
Law No. 13,259 enacted on March 16, 2016 increased the flat 15% rate of the income tax levied on capital gains derived by individuals, certain corporations and foreign investors (individuals and corporations) as a result of the disposal of assets and rights in general exceeding R$5 million, by adopting a system of progressive rates that may reach a 22.5% tax rate (for positive results exceeding R$30 million). Since capital gains arising from transactions executed through a securities exchange are subject to specific tax rules, which are not included under the scope of Law No. 13,259, it is possible to sustain the position that the provisions of this rule should not apply to such transactions. This rule applies since January 1, 2017. If the stockholder is a resident of or domiciled in a tax haven jurisdiction, the capital gains are still subject to the withholding income tax at a 25% rate.rate, while gains arising from transactions executed through a securities exchange are subject to a 15% withholding income tax.
Taxation of Dividends
Payment of dividends derived from profits generated after January 1, 1996, including dividends paid in kind, are not subject to withholding tax in Brazil. Payment of dividends derived from profits generated before January 1st, 1996 may be subject to Brazilian withholding tax at varying rates, according to the year when the profits have been generated.
Taxation of Interest on Net Equity
Law No. 9,249, dated December 26, 1995, as amended, allows a Brazilian corporation, such as ourselves, to also make payments of interest on net equity in addition to dividend distributions. Currently, payments of interest on net equity are subject to withholding tax at a rate of 15%, or 25% in the case of aNon-Resident Holder that is resident or domiciled in a tax haven jurisdiction, as set forth in Article 14 from the Normative Instruction No. 1,455, dated March 6, 2014.jurisdiction.
Taxation of Gains
Sales or Other Dispositions of ADSs
Gains realized outside Brazil by aNon-Resident Holder from the sale or other dispositiondisposal of ADSs to anotherNon-Resident Holder should not be subject to Brazilian taxation. However, according to Law No. 10,833, dated December 29, 2003, as amended, the disposition of assets located in Brazil by aNon-Resident Holder may be tax exempt, if carried in the stock exchange, or subject to Brazilian withholding tax at a 15% flat rate or a progressive rate varying from 15%to 22.5% depending on the kind of investment made into Brazil and the location where theNon-Resident Holder is resident or domiciled (also, a 25% rate may apply if the foreign beneficiary is resident or domiciled in a jurisdiction deemed to be a tax haven for Brazilian tax purposes).
Although the referred Law does not clarify what is considered to be an asset located in Brazil, ADSs generally should not be considered to be assets located in Brazil for purposes of such Law, because they represent securities issued and negotiated in an offshore exchange market. It is important to note that even if ADSs were considered to be assets located in Brazil,Non-Resident Holders not resident or domiciled in tax haven jurisdictions may still apply for exemption from capital gains tax according to Article 81 of Law No. 8,981, dated January 20, 1995, as amended.
Conversion of Our Preferred Shares into ADSs
The deposit by aNon-Resident Holder of our preferred shares with the depositary for conversion into ADSs may be subject to Brazilian capital gains tax, if suchNon-Resident Holder is resident or domiciled in a tax haven jurisdiction or if such preferred shares have not been registered under the Central Bank according to CMN Resolution No. 4,373, dated September 29, 2014, effective as of March 30, 2015 (former CMN Resolution No. 2,689, dated January 26, 2000, and CMN Resolution No. 1,927, dated May 18, 1992), as amended. In those cases, the positive difference between the acquisition cost of such preferred shares or the amount otherwise previously registered under the Central Bank and the average price of such preferred shares, according to the mentioned CMN Resolution No. 4,373/14), may be considered taxable capital gain, and may be subject to income tax. Please refer to “Funds“Investments of foreign investors”Foreign Investors”, for further details.
Non-Resident Holders that are resident or domiciled in tax haven jurisdictions may be subject to capital gain tax at a 25% rate on sale or transfer of shares outside of the financial and capital markets upon such a conversion.conversion or 15% if the sale or transfer of shares is carried on the financial and capital markets. On the other hand, whenNon-Resident Holders that are not resident or domiciled in tax haven jurisdictions deposit preferred shares registered according to CMN Resolution No. 4,373/14 in exchange for ADSs, such deposit should not be subject to capital gain tax.
Sales or Other Dispositions of Our Preferred Shares
Non-Resident Holders not resident or domiciled in tax haven jurisdictions that register their portfolio according to CMN Resolution No. 4,373/14 may benefit from a special capital gains tax exemption available for the sale of securities in the Brazilian stock exchange. On the other hand, sale of shares not registered according to CMN Resolution No. 4,373/14 or made outside of Brazilian stock exchanges is generally subject to 15% capital gain tax.
Such special treatment is not applicable toNon-Resident Holders resident or domiciled in tax haven jurisdictions, who are subject to general taxation rules applicable to Brazilian residents on the sale of their investments in the financial markets, including stock exchanges andover-the-counter markets. In these cases, the tax rate is generally 15%. If suchNon-Resident Holders sell shares outside of the financial and capital markets, the income taxation rate will instead be of 25%. Any exercise of preemptive rights related to our preferred shares (and in connection with the ADS program) will not be subject to Brazilian taxation. The gains from the sale or assignment of preemptive rights will be subject to the Brazilian income tax according to the same rules applicable to disposition of shares or ADSs.
Tax on Financial Transactions IOF/Exchange (IOF/FX) and IOF/Securities
According to the Decree No. 6,306/2007, and further amendments, Tax on Financial Transactions may levy on some foreign exchange transactions.
The acquisition of ADSs isand preferred shares currently are not subject to IOF tax. IOF/Exchange. We stress that IOF/Exchange may change via Presidential Decree, with immediate effects.
As of December 24, 2013, pursuant to Decree No. 8,165, the IOF/Securities tax levied on the assignment of shares traded in the Brazilian stock exchange market in order to permit the issuance of depositary receipts to be negotiated overseas has been reduced to 0% rate.
Other Brazilian Taxes
There are no Brazilian inheritance, gift or succession taxes applicable to the transfer of ownership or title (ownership without beneficial interest) of our preferred shares or ADSs or the vesting of free beneficial interest of such shares or ADSs outside Brazil by aNon-Resident Holder, except for gift, inheritance and legacy taxes that are levied by some states of Brazil if bestowed in such states of Brazil or abroad when the receiver is resident or domiciled in these states of Brazil. There are no Brazilian stamp, issue, registration, or similar taxes or duties payable toNon-Resident Holders of our preferred shares or ADSs.
INVESTORS ARE STRONGLY ADVISED TO CONSULT THEIR OWN TAX ADVISORS AS TO BRAZILIAN TAX CONSIDERATIONS RELATING TO THE PURCHASE, OWNERSHIP AND DISPOSITION OF OUR PREFERRED SHARES OR ADSs CONSIDERING THEIR PARTICULAR FACTS AND CIRCUMSTANCES, AS WELL AS THE EFFECT OF ANYNON-BRAZILIAN TAX LAWS.
U.S. Federal Income Tax Considerations
The following is a general discussion of certain U.S. federal income tax considerations relating to the purchase, ownership and disposition of our preferred shares or ADSs by U.S. Holders (as defined below) who hold such preferred shares or ADSs as capital assets within the meaning of section 1221 of the U.S. Internal Revenue Code of 1986, as amended, or the Code. This discussion does not address all of the U.S. federal income tax considerations that may be relevant to specific U.S. Holders in light of their particular circumstances or to U.S. Holders subject to special treatment under U.S. federal income tax law, such as banks, insurance companies, retirement plans, regulated investment companies, real estate investment trusts, dealers in securities, brokers,tax-exempt entities, certain former citizens or residents of the United States, U.S. Holders that hold our preferred shares or ADSs as part of a “straddle,” “hedging,” “conversion” or other integrated transaction, U.S. Holders that mark their securities to market for U.S. federal income tax purposes, U.S. Holders that have a functional currency other than the U.S. dollar, U.S. Holders that own (or are deemed to own) 10% or more (by voting power or value) of our shares or U.S. Holders that receive our preferred shares or ADSs as compensation. In addition, this discussion does not address the effect of any U.S. state, local ornon-U.S. tax considerations or any U.S. estate, gift or alternative minimum tax considerations.
This discussion is based on the Code, U.S. Treasury regulations promulgated or proposed thereunder and administrative and judicial interpretations thereof, all as in effect on the date hereof, and all of which are subject to change, possibly with retroactive effect, or subject to differing interpretations. This discussion also assumes that each obligation in the deposit agreement and any related agreement will be performed in accordance with its terms.
For purposes of this discussion, the term “U.S. Holder” means a beneficial owner of our preferred shares or ADSs that is, for U.S. federal income tax purposes, (i) an individual who is a citizen or resident of the United States, (ii) a corporation (or entity treated as a corporation) created or organized in or under the laws of the United States, any state thereof, or the District of Columbia, (iii) an estate the income of which is subject to U.S. federal income tax regardless of its source, or (iv) a trust (x) with respect to which a court within the United States is able to exercise primary supervision over its administration and one or more U.S. persons have the authority to control all of its substantial decisions or (y) that has in effect a valid election under applicable U.S. Treasury regulations to be treated as a U.S. person.
If an entity or arrangement treated as a partnership for U.S. federal income tax purposes invests in our preferred shares or ADSs, the U.S. federal income tax treatment of a partner will depend in part upon the status and activities of such entity or arrangement and the particular partner. Any such entity and partners in such entity or arrangement should consult their own tax advisors regarding the U.S. federal income tax considerations applicable to them relating to the purchase, ownership and disposition of such preferred shares or ADSs, especially in light of recent changes to U.S. tax law.
INVESTORS ARE STRONGLY ADVISED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE U.S. FEDERAL, STATE AND LOCAL TAX CONSIDERATIONS RELATING TO THE PURCHASE, OWNERSHIP AND DISPOSITION OF OUR PREFERRED SHARES OR ADSs IN LIGHT OF THEIR PARTICULAR CIRCUMSTANCES, AS WELL AS THE EFFECT OF ANYNON-U.S. TAX LAWS.
Except where specifically described below, this discussion assumes that we are not and will not be a passive foreign investment company, or a PFIC, for U.S. federal income tax purposes. Please see the discussion under “Passive Foreign Investment Company Considerations” below.
Treatment of ADSs
A U.S. Holder of ADSs generally will be treated for U.S. federal income tax purposes as the owner of such U.S. Holder’s proportionate interest in our preferred shares held by the depositary (or its custodian) that are represented and evidenced by such ADSs. Accordingly, any deposit or withdrawal of our preferred shares in exchange for ADSs generally will not result in the realization of gain or loss to such U.S. Holder for U.S. federal income tax purposes.
Distributions
A U.S. Holder that receives a distribution with respect to our preferred shares (whether held through ADSs or directly), including payments of interest on net equity as described above under “Brazilian Tax Considerations – Taxation of Interest on Net Equity,” generally will be required to include the amount of such distribution (without reduction for any Brazilian withholding tax with respect thereto) in gross income as a dividend to the extent of our current or accumulated earnings and profits (as determined for U.S. federal income tax purposes) on the date such U.S. Holder (or the depositary, in the case of ADSs) actually or constructively receives such distribution, and will not be eligible for the dividends received deduction allowed to corporations. A distribution on our preferred shares (whether held through ADSs or directly) in excess of current and accumulated earnings and profits generally will be treated first as anon-taxable return of capital to the extent of such U.S. Holder’s basis in such preferred shares or ADSs, as the case may be, and thereafter as gain from the sale or exchange of such preferred shares or ADSs (which will be treated in the same manner described below under “Sale, Exchange or Other Disposition of Preferred Shares or ADSs”). We have not maintained and do not plan to maintain calculations of earnings and profits for U.S. federal income tax purposes. As a result, a U.S. Holder may need to include the entire amount of any such distribution in income as a dividend.
The U.S. dollar value of any distribution on our preferred shares (whether held through ADSs or directly) made in Brazilian reais generally should be calculated by reference to the exchange rate between the U.S. dollar and the Brazilian real in effect on the date of receipt of such distribution by the U.S. Holder (or the depositary, in the case of ADSs), regardless of whether the reais so received are in fact converted into U.S. dollars. Such U.S. Holder generally will have a basis in such reais equal to the U.S. dollar value of such reais on the date of receipt. Any gain or loss on a subsequent conversion or other disposition of such reais by such U.S. Holder generally will be treated as ordinary income or loss and generally will be income or loss from sources within the United States.
Distributions treated as dividends that are received by certainnon-corporate U.S. persons (including individuals) in respect of shares of anon-U.S. corporation (other than a corporation that is, in the taxable year during which the distributions are made or the preceding taxable year, a PFIC) that is readily tradable on an established securities market in the United States generally qualify for a 20% reduced maximum tax rate (and potentially additional tax discussed below under “Medicare Tax”) so long as certain holding period and other requirements are met. Since the ADSs will beare listed on the NYSE, unless we are treated as a PFIC with respect to a U.S. Holder, dividends received by such a U.S. Holder in respect of the ADSs should qualify for the reduced rate. Based on existing guidance, it is not entirely clear whether dividends received by such a U.S. Holder of our preferred shares in respect of such shares will qualify for the reduced rate, because our preferred shares are not themselves listed on a United States exchange. Special rules apply for purposes of determining the recipient’s investment income (which may limit deductions for investment interest) and foreign income (which may affect the amount of U.S. foreign tax credit) and to certain extraordinary dividends. Each U.S. Holder that is anon-corporate taxpayer should consult its own tax advisor regarding the possible applicability of the reduced tax rate and the related restrictions and special rules.
Sale, Exchange or Other Disposition of Preferred Shares or ADSs
Upon a sale, exchange or other taxable disposition of our preferred shares or ADSs, a U.S. Holder generally will recognize gain or loss for U.S. federal income tax purposes in an amount equal to the difference, if any, between the amount realized on such sale, exchange or other taxable disposition and such U.S. Holder’s adjusted tax basis in such preferred shares or ADSs. A U.S. Holder’s adjusted tax basis in such preferred shares or ADSs generally will be its U.S. dollar cost. Any gain or loss so recognized generally will be long-term capital gain or loss if such U.S. Holder has held such preferred shares or ADSs for more than one year at the time of such sale, exchange or other taxable disposition. Certainnon-corporate U.S. Holders are entitled to preferential treatment for net long-term capital gains. The ability of a U.S. Holder to offset capital losses against ordinary income is limited.
A U.S. Holder that receives Brazilian reais from the sale, exchange or other disposition of our preferred shares (whether held through ADSs or directly) generally will realize an amount equal to the U.S. dollar value of such reais on the settlement date of such sale, exchange or other taxable disposition if (i) such U.S. Holder is a cash basis or electing accrual basis taxpayer and our preferred shares are treated as being “traded on an established securities market” or (ii) such settlement date is also the date of such sale, exchange or other taxable disposition. Such U.S. Holder generally will have a basis in such reais equal to the U.S. dollar value of such reais on the settlement date. Any gain or loss on a subsequent conversion or other taxable disposition of such reais by such U.S. Holder generally will be treated as ordinary income or loss and generally will be income or loss from sources within the United States. Each U.S. Holder should consult its own tax advisor regarding the U.S. federal income tax consequences of receiving reais from the sale, exchange or other taxable disposition of our preferred shares in cases not described in the first sentence of this paragraph.
Foreign Tax Credit Considerations
Distributions on our preferred shares (whether held through ADSs or directly), including payments of interest on net equity as described above under “Brazilian Tax Considerations – Taxation of Interest on Net Equity,” that are treated as dividends, before reduction for any Brazilian withholding taxes with respect thereto, generally will be included in the gross income of a U.S. Holder. Thus, such U.S. Holder may be required to report income for such purposes in an amount greater than the actual amount such U.S. Holder receives in cash. Distributions treated as dividends generally will constitute income from sources outside the United States and generally will be categorized for U.S. foreign tax credit purposes as “passive category income” or, in the case of some U.S. Holders, as “general category income.” Subject to applicable limitations and holding period requirements, a U.S. Holder may be eligible to elect to claim a U.S. foreign tax credit against its U.S. federal income tax liability for any such Brazilian withholding taxes. Under current law, gaingains resulting from a sale or other disposal of our preferred shares or ADSs may be subject to Brazilian income or withholding taxes. A U.S. Holder’s use of a foreign tax credit with respect to any such Brazilian income or withholding taxes could be limited, as such gain generally will constitute income from sources within the United States. A U.S. Holder that does not claim a U.S. foreign tax credit generally may instead claim a deduction for any such Brazilian taxes, but only for a taxable year in which such U.S. Holder elects to do so with respect to allnon-U.S. income taxes paid or accrued by such U.S. Holder in such taxable year. Foreign currency exchange gain or loss generally will constitute income from sources within the United States. The rules relating to foreign tax credits are complex, and each U.S. Holder should consult its own tax advisor regarding the application of such rules.
Passive Foreign Investment Company Considerations
Special U.S. federal income tax rules apply to U.S. persons owning shares of a PFIC. Anon-U.S. corporation generally will be classified as a PFIC for U.S. federal income tax purposes in any taxable year in which, after applying relevant look-through rules with respect to the income and assets of certain subsidiaries, either: at least 75% of its gross income is “passive income”, or on average at least 50% of the gross value of its assets is attributable to assets that produce passive income or are held for the production of passive income.
For this purpose, passive income generally includes, among other things, dividends, interest, rents, royalties, gains from the disposition of passive assets and gains from commodities transactions.
The application of the PFIC rules to banks is unclear under present U.S. federal income tax law. Banks generally derive a substantial part of their income from assets that are interest bearing or that otherwise could be considered passive under the PFIC rules. The IRS, has issued a notice, and has proposed regulations, that exclude from passive income any income derived in the active conduct of a banking business by a qualifying foreign bank, also known as the Active Bank Exception. The IRS notice and proposed regulations have different requirements for qualifying as a foreign bank, and for determining the banking income that may be excluded from passive income under the Active Bank Exception. Moreover, the proposed regulations have been outstanding since 1994 and will not be effective unless finalized.
Based on estimates of our current and projected gross income and gross assets, we do not believe that we will be classified as a PFIC for our current or future taxable years. The determination of whether we are a PFIC, however, is made annually and is based upon the composition of our income and assets (including income and assets of entities in which we hold at least a 25% interest), and the nature of our activities (including our ability to qualify for the Active Bank Exception).
Because final regulations have not been issued and because the notice and the proposed regulations are inconsistent, our status under the PFIC rules is subject to considerable uncertainty. While we conduct, and intend to continue to conduct, a significant banking business, there can be no assurance that we will satisfy the specific requirements for the Active Bank Exception under either the IRS notice or the proposed regulations. Accordingly, U.S. Holders could be subject to U.S. federal income tax under the rules described below.
If we are treated as a PFIC for any taxable year during which a U.S. Holder owns our preferred shares or ADSs, any gain realized on a sale or other taxable disposition of such preferred shares or ADSs and certain “excess distributions” (generally distributions in excess of 125% of the average distribution over the prior three-year period, or if shorter, the holding period for such preferred shares or ADSs) will be treated as ordinary income and will be subject to tax as if (i) the excess distribution or gain had been realized ratably over the U.S. Holder’s holding period for such preferred shares or ADSs, (ii) the amount deemed realized in each year had been subject to tax in each such year at the highest marginal rate for such year (other than income allocated to the current period or any taxable period before we became a PFIC, which would be subject to tax at such U.S. Holder’s regular ordinary income rate for the current year and would not be subject to the interest charge discussed below), and (iii) the interest charge generally applicable to underpayments of tax had been imposed on the taxes deemed to have been payable in those years.
We do not expect to provide information that would allow U.S. Holders to avoid the foregoing consequences by making a “qualified electing fund” election.
If we are treated as a PFIC and, at any time, we invest innon-U.S. corporations that are classified as PFICs, or Subsidiary PFICs, U.S. Holders generally will be deemed to own, and also would be subject to the PFIC rules with respect to, their indirect ownership interest in any such Subsidiary PFIC. If we are treated as a PFIC, a U.S. Holder could incur liability for the deferred tax and interest charge described above if either (i) we receive a distribution from, or dispose of all or part of our interest in, any such Subsidiary PFIC or (ii) such U.S. Holder disposes of all or part of our preferred shares or ADSs.
We do not expect to provide information that would allow U.S. Holders to avoid the foregoing consequences by making a “qualified electing fund” election.
A U.S. holderHolder of shares in a PFIC (but possibly not a Subsidiary PFIC, as discussed below) may make a“mark-to-market” election, provided the PFIC shares are “marketable stock” as defined under applicable Treasury regulations (i.e., “regularly traded” on a “qualified exchange or other market”). Under applicable Treasury regulations, a “qualified exchange or other market” includes (i) a national securities exchange that is registered with the U.S. Securities and Exchange Commission or the national market system established under the Exchange Act or (ii) a foreign securities exchange that is regulated or supervised by a governmental authority of the country in which the market is located and meets certain trading, listing, financial disclosure and other requirements set forth in applicable Treasury regulations. The ADSs are traded on the NYSE and the preferred shares are traded on the B3. The NYSE constitutes a qualified exchange or other market. Although the IRS has not addressed whether the B3 meets the requirements to be treated as a qualified exchange or other market, we believe that the B3 should be so treated. PFIC shares traded on a qualified exchange or other market are regularly traded on such exchange or other market for any calendar year during which such shares are traded, other than in de minimis quantities, on at least 15 days during each calendar quarter. We cannot assure U.S. Holders that our preferred shares or ADSs will be treated as “marketable stock” for any taxable year.
The tax consequences that would apply if we were a PFIC would be different from those described above if a“mark-to-market” election is available and a U.S. Holder validly makes such an election as of the beginning of such U.S. Holder’s holding period. If such an election were made, such U.S. Holder generally would (i) include in gross income, entirely as ordinary income, an amount equal to the excess, if any, of the fair market value of our preferred shares or ADSs as of the close of each taxable year and such U.S. Holder’s adjusted tax basis in such preferred shares or ADSs, and (ii) deduct as an ordinary loss the excess, if any, of such U.S. Holder’s adjusted tax basis in such preferred shares or ADSs over the fair market value of such preferred shares or ADSs at the end of the taxable year, but only to the extent of the net amount previously included in gross income as a result of themark-to-market election. Any gain from a sale, exchange or other disposition of our preferred shares or ADSs in a taxable year in which we were a PFIC would be treated as ordinary income, and any loss from such sale, exchange or other disposition would be treated first as ordinary loss (to the extent of any netmark-to-market gains previously included in income) and thereafter as capital loss. A U.S. Holder’s adjusted tax basis in such preferred shares or ADSs would increase or decrease by the amount of the gain or loss taken into account under themark-to-market regime. Even if a U.S. Holder is eligible to make amark-to-market election with respect to our preferred shares or ADSs, however, it is not clear whether or how such election would apply with respect to the shares of any Subsidiary PFIC that such U.S. Holder is treated as owning, because such Subsidiary PFIC shares might not be marketable stock. Themark-to-market election is made with respect to marketable stock in a PFIC on ashareholder-by-shareholder basis and, once made, can only be revoked with the consent of the IRS. Special rules would apply if themark-to-market election is not made for the first taxable year in which a U.S. Holder owns any equity interest in us while we are a PFIC.
A U.S. Holder who owns our preferred shares or ADSs during any taxable year that we are treated as a PFIC generally would be required to file an information return with respect to us and any Subsidiary PFIC in which the U.S. Holder holds a direct or indirect interest. U.S. Holders should consult their own tax advisors regarding the application of the PFIC rules to our preferred shares or ADSs and the availability and advisability of making amark-to-market election should we be considered a PFIC for any taxable year.
Medicare Tax
In addition to regular U.S. federal income tax, certain U.S. Holders that are individuals, estates or trusts are subject to a 3.8% tax on all or a portion of their “net investment income,” which may include all or a portion of their income arising from a distribution with respect to a preferred share or ADS and net gain from the sale, exchange or other disposition of a preferred share or ADS.
Backup Withholding and Information Reporting
Backup withholding at a rate of 24% and information reporting requirements generally apply to certain U.S. Holders with respect to payments made on or proceeds from the sale, exchange or other disposition of our preferred shares or ADSs. A U.S. Holder not otherwise exempt from backup withholding generally can avoid backup withholding by providing a properly executed IRS FormW-9. Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules generally will be allowed as a refund or a credit against the U.S. Holder’s U.S. federal income tax liability, provided the required information is timely furnished by the U.S. Holder to the IRS.
Disclosure Requirements for Specified Foreign Financial Assets
Individual U.S. Holders (and certain U.S. entities specified in U.S. Treasury Department guidance) who, during any taxable year, hold any interest in any “specified foreign financial asset” generally will be required to file with their U.S. federal income tax returns certain information on IRS Form 8938 if the aggregate value of all such assets exceeds certain specified amounts. “SpecifiedA “specified foreign financial asset” generally includes any financial account maintained with anon-U.S. financial institution and may also include our preferred shares or ADSs if they are not held in an account maintained with a financial institution. Substantial penalties may be imposed, and the period of limitations on assessment and collection of U.S. federal income taxes may be extended, in the event of a failure to comply. U.S. Holders should consult their own tax advisors as to the possible application to them of this filing requirement.
Disclosure Requirements for Certain U.S. Holders Recognizing Significant Losses
A U.S. Holder that claims significant losses in respect of our preferred shares or ADSs for U.S. federal income tax purposes (generally (i) US$10 million or more in a taxable year or US$20 million or more in any combination of taxable years for corporations or partnerships all of whose partners are corporations, (ii) US$2 million or more in a taxable year or US$4 million or more in any combination of taxable years for all other taxpayers, or (iii) US$50,000 or more in a taxable year for individuals or truststrusts) with respect to a foreign currency transaction)transaction, may be required to file Form 8886 for “reportable transactions.” U.S. Holders should consult their own tax advisors concerning any possible disclosure obligation with respect to our preferred shares or ADSs.U.S.ADSs.
U.S. Foreign Account Tax Compliance Act (FATCA).
Please see “Item 4B, Business Overview – Taxes on Transactions Entered Into by Itaú Unibanco Group – U.S. Foreign Account Tax Compliance Act (FATCA)” for more clarification on FATCA.
10F. | Dividends and Paying Agents |
Not applicable.
10G. | Statement by Experts |
Not applicable.
10H. | Documents on Display |
We are subject to the reporting requirements under the Exchange Act, for foreign private issuers. Accordingly, we are required to file reports and other information with the SEC, including annual reports on Form20-F and current reports on Form6-K. You may inspect and copy reports and other information filed with the SEC at the public reference facilities maintained by the SEC at 100 F Street, N.E., Washington D.C. 20549. Copies of the materials may be obtained by mail from the Public Reference Room of the SEC at 100 F Street, N.E., Washington, D.C. 20549 at prescribed rates. The public may obtain information on the operation of the SEC’s Public Reference Room by calling the SEC in the United States at1-800-SEC-0330. In addition, the SEC maintains an Internet website atwww.sec.gov,, from which you can electronically access those materials, including this annual report and the accompanying exhibits. The information contained on this website does not form part of this annual report on Form20-F. We also file financial statements and other periodic reports with the CVM located at Rua Sete de Setembro, 111, Rio de Janeiro, Rio de Janeiro20050-901, Brazil. The CVM maintains an Internet website atwww.cvm.gov.br. www.cvm.gov.br. The information contained on this website does not form part of this annual report on Form20-F.
Copies of our Form20-F will be available for inspection upon request to the Investor Relations department at our office at Avenida Engenheiro Armando de Arruda Pereira, 707, Torre Eudoro Villela, Piso Térreo – São Paulo – SP –04309-010 – Brazil.
Investors may receive a hard copy of this annual report, including our audited consolidated financial statements for the last fiscal year, free of charge, by requesting a copy from our Investor Relations department, bye-mail, atinvestor.relations@itau-unibanco.com.br,, indicating their contact information and their complete mailing address.
10I. | Subsidiary Information |
Not required.
ITEM 11. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Credit Risk
Overview
We define credit risk as the risk of loss associated with: failure by a borrower, issuer or counterparty to fulfill their respective financial obligations as defined in the contracts; value loss of a credit agreement resulting from a deterioration of the borrower’s, issuer’s or counterparty’s credit rating; reduction of profits or income; benefits granted upon subsequent renegotiation; or debt recovery costs.
Our credit risk management is intended to preserve the quality of the loan portfolio at levels compatible with our risk appetite, for each market segment in which we operate.
Governance
Our credit risk governance is managed through corporate bodies, which report to the Board of Directors or to our executive structure. Such corporate bodies act primarily by assessing the competitive market conditions, setting our credit limits, reviewing control practices and policies, and approving these actions at the respective authority levels. The risk communication and reporting processes, including disclosure of institutional and supplementary policies on credit risk management, are the responsibility of our structure. We manage the credit risk to which it is exposed during the entire credit cycle, from before approval, during the monitoring process and up to the collection or recovery phase.
Our credit risk management and control structure is centralized and independent of the business units and defines operational limits, risk mitigation mechanisms and processes, and instruments to measure, monitor and control credit risk inherent to all products, portfolio concentrations and impacts to potential changes in the economic environment. Our credit’s portfolio, policies and strategies are continuously monitored so as to ensure compliance with the rules and laws in effect in each country.
Procedures and key indicatorsKey Indicators
The key assignments of the business units are (i) monitoring the portfolios under their responsibility, (ii) granting credit, taking into account approval levels, market conditions, macroeconomic prospects, changes in markets and products, and (iii) credit risk management aimed at making the business sustainable.
Our credit policy is based on internal factors, such as: client rating criteria, performance and evolution of our portfolio, default levels, return rates and allocated economic capital, among others; and also taketakes into account external factors such as: interest rates, market default indicators, inflation and changes in consumption, among others.
With respect to our individuals, small and medium companies, credit ratings are assigned based on statistical models (in the early stages of our relationship with a customer) and behavior score models (used for customers with whom we already have a relationship). For large companies, classification is based on information such as the counterparty’s economic and financial situation, its cash-generating capacity, and the business group to which it belongs, the current and prospective situation of the economic sector in which it operates. Credit proposals are analyzed on acase-by-case basis through the approval governance.
The concentrations are continuously monitored continuously for economic sectors, and largest debtors, allowing preventive measures to be taken to avoid the violation of the established limits.
We also strictly control our credit exposure to clients and counterparties, acting to reverse occasional limit breaches. We may use contractual covenants for these purposes, such as the right to demand early payment or require additional collateral.
To measure credit risk, we take into account the probability of default by the borrower, issuer or counterparty, the estimated amount of exposure in the event of default, past losses from default and concentration of borrowers. Quantifying these risk components is part of the lending process, portfolio management and definition of limits.
The models used by us are independently validated, to ensure that the databases used in constructing the models are complete and accurate, and that the method of estimating parameters is adequate, so as to reduce the modeling risk and keep the models calibrated, toso that they reflect risk parameters more accurately.
In compliance with the principles of the CMN Resolution 3,721,4,557, our credit risk management structure and institutional policy are approved by our Board of Directors and are applicable to all companies and subsidiaries in Brazil and abroad.
Please see “Note 32 – Risk and Capital Management” ofto our audited consolidated financial statements for further details about credit risk.
Loan approval processApproval Process
Extensions of credit are approved based on policies at the business unit level, determined in accordance with the assumptionscriteria of each department and our bank’s risk appetite. The decision to extend credit may be granted by means of apre-approval process or the traditional approval mechanism, which is applied on a client by client basis. In both cases, decisions are made based on principles of credit quality such as credit rating supported by statistical models, percentage of income committed by/leverage of the client and credit restrictions determined by us and the market.
The business units prepare and maintain the policies and procedures of the credit cycle.
The credit granting process contemplates the use of credit protection services with the purpose of checking whether a client’s credit history includes information that could be considered an obstacle to granting a loan, such as assets blocked by court orders, invalid tax payer identification numbers, prior or pending debt restructuring or renegotiation processes and checks not honored due to insufficient funds.
The policy assessment process allows for the identification of potential risks and is intended to ensure that credit decisions make sense from both an economic and a risk perspective.
Please see “Note 32 – Risk and Capital Management”Management, 1.1 Collateral and policies for mitigating credit risk”, to our audited consolidated financial statements for further details about our risk mitigating instruments.
Operational Risk
Overview
Operational risk is defined as the possibility of losses arising from failure, deficiency or inadequacy of internal processes, people or systems or from external events that affect the achievement of strategic, tactical or operational objectives. It includes legal risk associated with inadequacy or deficiency in contracts signed by us, as well as penalties due to non compliancenoncompliance with applicable laws and damages to third parties arising from the activities undertaken by us.
Internally, we classify these exposures to risk within the risks events as:following categories:
Internal fraud;
External fraud;
Labor claims and deficient security in the workplace;
Inadequate practices related to clients, products and services;
Damage to our own physical assets or assets in use;
Interruption of our activities;
Failures in information technology systems; and
Failures in the performance, compliance with deadlines and management of our activities.
Operational risk management includes conduct risk, which is subject to mitigating procedures to assess product design (suitability) and incentive models. The inspection area is responsible for fraud prevention. Irrespective of their origin, specific cases may be handled by risk committees and integrity and ethics committees.
Governance
We have a governance process that is structured through forums and corporate bodies composed of senior management, which report to the Board of Directors, with well-defined roles and responsibilities in order to segregate the business and management and control activities, ensuring independence between the areas and, consequently, well-balanced decisions with respect to risks. This is reflected in the risk management process carried out on a decentralized basis under the responsibility of the business areas and by a centralized control carried out by the internal control compliance and operational risk department, by means of methodologies, training courses, certification and monitoring of the control environment in an independent way.
The managers of the executive areas use corporate methods constructed and made available by the internal control, compliance and operational risk area. Among the methodologies and tools used are the self-evaluation and the map of our prioritized risks, the approval of processes, products, and system development products and projects, the monitoring of key risk indicators and the database of operational losses, guaranteeing a single conceptual basis for managing processes, systems, projects and new products and services.
Within the governance of the risk management process, the consolidated reports on risk monitoring, controls, action plans and operational losses are regularly presented to the business area executives.
Procedures and key indicatorsKey Indicators
Crisis Management and Business Continuity
The purpose of our Business Continuity Program is to protect our employees, ensure the continuity of the critical functions of our business lines, safeguard revenue and sustain both a stable financial market in which we operate and the trust of our clients and strategic partners in providing our services and products.
Our Business Continuity Program is composed of procedures for relocating and/or recovering operations in response to a variety of interruption levels and can be divided into twofour key elements:
Disaster Recovery Plan: focused on the recovery of our primary data center, ensuring the continuity of the processing of critical systems within minimumpre-established periods;
Workplace Contingency Plan: employees responsible for carrying out critical business functions have alternative facilities from which to perform their activities in the event the buildings in which they usually work become unavailable. There are approximately 2,000 contingency dedicated seats that are fully equipped to meet the needs of critical business units in emergency situations;
Emergency Plan: procedures aimed at minimizing the effects of emergency situations that may impact our facilities, with a preventive focus; and
Processes Contingency Plan: alternatives (Plan B) to carry out the critical processes identified in the business areas.
In order to keep the continuity solutions aligned with the business requirements the program applies the following tools to understand the institution:
Business Impact Analysis (BIA): evaluates the criticality and resumption requirement of the processes that support the delivery of products and services. Through this analysis the businesses’ resumption priorities are defined; and
Threats and Vulnerabilities Analysis (AVA): identification of threats to the locations where our buildings are located.
In addition, we have a corporate-wide Crisis Management Program, which is aimed at managing business interruption events, natural disasters, impacts of an environmental, social, and infrastructural/operational (including information technology) nature or of any other nature that jeopardize the image and reputation and/or viability of Itaú Unibanco’s processes with its employees, clients, strategic partners and regulators, with timely and integrated responses.
Our Corporate Business Continuity Policy is available on our website.
MarketLiquidity Risk
Overview
Liquidity risk is defined as the likelihood that an institution will not be able to effectively honor its expected and unexpected obligations, current and future, including those from guarantees commitment, without affecting its daily operations or incurring significant losses.
Governance
Our liquidity risk control is managed by an independent area and is responsible for determining the composition of our reserve, estimating cash flow and exposure to liquidity risk over several time horizons, and monitoring the minimum limits of the risk appetite in countries in which we operate. All activities are subject to assessment by an independent validation, internal controls and audit departments.
Procedures and Key Indicators
In accordance with the requirements of Central Bank regulations, we report monthly our Liquidity Risk Statements (DLR and DLP). Besides, the following items are periodically produced and submitted to the senior management for monitoring and decision support:
Different scenarios for liquidity projections to decision support, also using stressed macroeconomics scenarios and reversed stress according to risk appetite;
Contingency plans for potential crisis, which contains procedures ordered by levels of execution, considering each countries’ characteristics;
Reports of risk indicators; and
Tracking, and monitoring of funding sources considering counterparty type, maturity and other aspects, considering the risk appetite.
Market Risk
Overview
Market risk is the possibility of losses resulting from fluctuations in the market value of positions held by a financial institution, including the risk of operations subject to variations in foreign exchange rates, interest rates, price indexes, equity and commodity prices.
Liquidity risk is defined as the likelihood that an institution will not being able to effectively honor its expected and unexpected obligations, current and future, including those from guarantees commitment, without affecting its daily operations or incurring significant losses.
Governance
Our policies and general market risk management framework are in line with the principles of CMN Resolution No. 4,557, and its subsequent amendments. These principles guide our approach to market risk control across our Itaú Unibanco Group.
Our market risk management strategy is aimed at balancing corporate business goals, taking into account, among other factors:
Political, economic and market conditions;
The profile of our portfolio; and
Capacity to act in specific markets.
The key principles underlying our market risk control structure are as follows:
Provide visibility and comfort for all senior management levels that market risks assumed must be in line with our risk-return objectives;
Provide disciplined and informed dialogue on the overall market risk profile and its evolution over time;
Increase transparency as to how the business works to optimize results;
Provide early warning mechanisms to facilitate effective risk management, without obstructing the business objectives; and
Monitor and avoid risk concentration.
Market risk is controlled by an area independent of the business units, which is responsible for the daily activities: (i) measuring and assessing risk; (ii) monitoring stress scenarios, limits and alerts; (iii) applying, analyzing and stress testing scenarios; (iv) reporting risk to the individuals responsible in the business units, in compliance with our governance procedures; (v) monitoring the measures needed to adjust positions and/or risk levels to make them viable; and (vi) supporting the secure launch of new financial products.
The CMN has regulations establishing the segregation of market risk exposure at a minimum into risk factors, such as: interest rates, exchange rates, stocks and commodities. Brazilian inflation indexes are also treated as a group of risk factors and follow the same structure.
Our structure of limits and alerts follows the Board of Directors guidelines, which are reviewed and approved by our Board of Directors on an annual basis. This structure extends to specific limits and is aimed at improving the process of risk monitoring and understanding as well as preventing risk concentration. Limits and alerts are calibrated based on projections of future balance sheets, stockholders’ equity, liquidity, complexity and market volatility, as well as our risk appetite.
Our liquidity risk control is carried out by an area that is independent of our business areas, and which is responsible for defining the composition of our reserve, estimating cash flow and exposure to liquidity risk over different time horizons, and monitoring the minimum limits for absorbing losses in stress scenarios in the countries where we operate. All activities are subject to assessment by our independent validation, internal controls and audit departments.
Additionally, and pursuant to the requirements of CMN and the Central Bank regulations, we deliver our Liquidity Risk Statements (DLR) to the Central Bank monthly and the following items are regularly prepared and submitted to the senior management for monitoring and decision support:
Different scenarios for liquidity projections;
Contingency plans for crisis situations;
Reports and charts to enable monitoring risk positions;
Assessment of funding costs and alternatives; and
Tracking, and monitoring of funding sources considering counterparty type, maturity and other aspects.
Procedures and key indicators
In an attempt to fit the transactions into the defined limits, we hedge transactions with clients and proprietary positions, including investments overseas. Derivatives are the most commonly used instruments for carrying out these hedging activities, and can be characterized as either accounting or economic hedge, both of which are governed by our institutional regulations.
Our market risk framework categorizes transactions as part of either part of our trading book, orTrading Book,‘Trading Book’ or our banking book, our Banking Book,‘Banking Book’, in accordance with general criteria established by specific regulation.
Our Trading Book is composed of all trades with financial and commodity instruments (including derivatives) undertaken with the intention of trading.
Our Banking Book is predominantly characterized by portfolios originated from the banking business and operations related to balance sheet management, and intended to be either held to maturity, or sold in the medium or long term.
Market risk management is based on the following key metrics:
Value at Risk (VaR): a statistical metric that quantifies the maximum potential economic loss expected in normal market conditions, considering a defined holding period and confidence interval;
Losses in Stress Scenarios (Stress Testing): a simulation technique to evaluate the impact, in the assets, liabilities and derivatives of the portfolio, of various risk factors in extreme market situations (based on prospective and historic scenarios);
Stop Loss: metrics that trigger a management review of positions, if the accumulated losses in a given period reach specified levels;
Concentration: cumulative exposure of certain financial instruments or risk factors calculated at market value (mark to market); and
Stressed VaR: a statistical metric derived from VaR calculation, aimed at capturing the biggest risk in simulations of the current portfolio, taking into consideration the observable returns in historical scenarios of extreme volatility.
In addition to the risk metrics described above, sensitivity and loss control measures are also analyzed. They include:
Gap Analysis: accumulated exposure of cash flows by risk factor, which aremarked-to-market and positioned by settlement dates;
Sensitivity (DV01 – Delta Variation Risk): impact on the market value of cash flows when a one basis point change is applied to current interest rates or on the index rates; and
Sensitivities to Various Risk Factors (Greek): partial derivatives of a portfolio of options on the prices of the underlying assets, implied volatilities, interest rates and time.
Please see “Note 32 – Risk and Capital Management” to our audited consolidated financial statements for further details about market risk.
VaR – Consolidated Itaú Unibanco Holding
Our consolidated VaR is calculated through the Historical Simulation. The assumption underlying Historical Simulation is that the expected distribution for the possible gains and losses (P&Ls—Profit and Loss Statement) for a portfolio over a desired time horizon can be estimated based on the historical behavior of the returns of the market risk factors to which this portfolio is exposed. For the VaR calculation ofnon-linear instruments, a fullre-pricing is carried out (full valuation), without any potential simplifications in the calculation.
The VaR is calculated with a confidence interval of 99%, a historical period of 4 years (1000 working days) and a holding period that varies in accordance with the portfolio’s market liquidity, considering a minimum horizon of 10 working days. Also, under a conservative approach, the VaR is calculated on a daily basis with and without volatility weighting, with the final VaR being the most restrictive value between the two methodologies.
As from the third quarter of 2016, we have been calculating VaR for the regulatory portfolio (exposure of the trading portfolio and exposure to foreign currency and commodities of the banking portfolio) according to internal models approved by the Central Bank. The Consolidated Total VaR table provides an analysis of our portfolio exposure to market risk.
Consolidaded VaR (Historical Simulation approach)(1) | Average | Minimum | Maximum | December 31, 2018 | Average | Minimum | Maximum | December 31, 2017 | Average | Minimum | Maximum | December 31, 2019 | Average | Minimum | Maximum | December 31, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||
(In millions of R$) | (In millions of R$) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Group of Risk Factor | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Interest rate | 851.4 | 720.0 | 1,042.9 | 898.4 | 721.0 | 583.6 | 1,311.9 | 764.7 | 815.7 | 651.6 | 959.7 | 813.1 | 851.4 | 720.0 | 1,042.9 | 898.4 | ||||||||||||||||||||||||||||||||||||||||||||||||
Currencies | 24.7 | 12.7 | 45.2 | 37.3 | 20.4 | 6.5 | 50.2 | 11.9 | 27.6 | 10.9 | 59.2 | 10.9 | 24.7 | 12.7 | 45.2 | 37.3 | ||||||||||||||||||||||||||||||||||||||||||||||||
Equities | 39.2 | 23.6 | 58.5 | 50.1 | 45.4 | 38.5 | 54.9 | 46.4 | 30.2 | 13.5 | 57.4 | 29.4 | 39.2 | 23.6 | 58.5 | 50.1 | ||||||||||||||||||||||||||||||||||||||||||||||||
Commodities | 1.6 | 0.6 | 3.1 | 1.0 | 1.5 | 0.7 | 4.0 | 0.8 | 1.8 | 0.5 | 4.7 | 1.0 | 1.6 | 0.6 | 3.1 | 1.0 | ||||||||||||||||||||||||||||||||||||||||||||||||
Diversification effect(2) | (605.3 | ) | (451.5 | ) | (576.1 | ) | (605.3 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Total | 399.3 | 294.7 | 603.6 | 381.5 | 409.9 | 304.8 | 874.0 | 372.3 | 333.7 | 208.7 | 471.9 | 278.3 | 399.3 | 294.7 | 603.6 | 381.5 | ||||||||||||||||||||||||||||||||||||||||||||||||
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(1) | Determined in local currency and converted into Brazilianreais at the closing price on the reporting date. |
(2) | Reduction of risk due to the combination of all risk factors. |
As of December 31, 2018,2019, our average global VaR (Historical Simulation) was R$333.7 million, or 0.24% of our consolidated stockholders’ equity as of December 31, 2019, compared to our average global VaR (Historical Simulation) of R$399.3 million as of December 31, 2018 or 0.26% of our consolidated stockholders’ equity as of December 31, 2018, compared to our average global VaR (Historical Simulation) of R$409.9 million as of December 31, 2017 or 0.28% of our consolidated stockholders’ equity as of December 31, 2017.2018.
VaR – Trading Book
The table below presents risks arising from all positions with the intention of trading, following the criteria defined above for our Trading Book. Our total average Trading Book VaR was R$44.0 million as of December 31, 2019, compared to R$48.4 million as of December 31, 2018 comparedand to R$52.0 million as of December 31, 2017 and to R$38.6 million as of December 31, 2016.2017.
Trading Book VaR(1) | Average | Minimum | Maximum | December 31, 2018 | Average | Minimum | Maximum | December 31, 2017 | Average | Minimum | Maximum | December 31, 2019 | Average | Minimum | Maximum | December 31, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||
(In millions of R$) | (In millions of R$) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Group of Risk Factor | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Interest rate | 38.2 | 13.8 | 130.0 | 20.0 | 52.8 | 13.8 | 100.4 | 58.3 | 25.1 | 11.6 | 43.8 | 34.5 | 38.2 | 13.8 | 130.0 | 20.0 | ||||||||||||||||||||||||||||||||||||||||||||||||
Currencies | 19.9 | 9.0 | 41.0 | 33.1 | 14.6 | 3.9 | 43.6 | 8.8 | 21.1 | 6.4 | 48.4 | 6.4 | 19.9 | 9.0 | 41.0 | 33.1 | ||||||||||||||||||||||||||||||||||||||||||||||||
Equities | 21.8 | 8.4 | 42.8 | 39.2 | 11.7 | 3.5 | 22.0 | �� | 13.6 | 21.8 | 6.0 | 47.0 | 14.4 | 21.8 | 8.4 | 42.8 | 39.2 | |||||||||||||||||||||||||||||||||||||||||||||||
Commodities | 1.6 | 0.8 | 3.1 | 1.0 | 1.3 | 0.3 | 4.0 | 0.8 | 1.9 | 0.5 | 6.1 | 1.0 | 1.6 | 0.8 | 3.1 | 1.0 | ||||||||||||||||||||||||||||||||||||||||||||||||
Diversification effect(2) | (40.2 | ) | (34.2 | ) | (12.9 | ) | (40.2 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Total | 48.4 | 21.9 | 115.7 | 53.1 | 52.0 | 15.3 | 102.8 | 47.3 | 44.0 | 25.2 | 84.9 | 43.4 | 48.4 | 21.9 | 115.7 | 53.1 | ||||||||||||||||||||||||||||||||||||||||||||||||
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(1) | Determined in local currency and converted into Brazilianreais at the closing price on the reporting date. |
(2) | Reduction of risk due to the combination of all risk factors. |
Other risksCybersecurity Management and Processes
SocialWe consider cybersecurity and information security at the highest strategic level. We also manage this subject in order to protect our technological infrastructure against external and internal threats, unauthorized access, malicious code and regulatory needs. In order to protect our customers’ and organization’s information we operate in a preventive, detective and corrective manner.
The information security strategy has been developed considering the global scenario, regulations and best market practices and standards, in order to focus on establishing data protection for our customers. The strategy takes into account a resilient and appropriate structure to identify, detect and respond to threats and establish recovery procedures for situations that require our defense against cyberattacks. Our organization also maintains an effective security governance through executive committees and a set of information security policies.
Our infrastructure defenses are structured to protect our organization against external and internal attacks, with tools such as network behavioral analysis, intrusion prevention systems (IPS), firewalls, antiviruses and antispam systems.
We focus on the protection of the expanded perimeter, which comprehend the protection of Bank data’s inside our boundaries, in an International Unit or in a service provider.
We have a specialized monitoring team, capable of identifying potential threats and establishing an active and effective defense (SOC—Security Operational Centers).
Additionally, we have a cyber-intelligence team working to identify threats and manage any necessary corrective measures.
In order to be successful in our information security defense strategy, we consider the culture of security as the basis to improve our information security program as well as the investment in awareness campaigns for employees and customers so they remain prepared to identify and address inherent risks and threats.
Other Risks
Environmental and Social Risk
We understand socialenvironmental and environmentalsocial risk as the riskpossibility of potential losses due to exposure to socialenvironmental and environmentalsocial events arising from the performance of our activities.
Mitigation actions of social and environmental To mitigate the risk, are carried out throughwe map our processes, mappings,adopt internal controls, monitoringmonitor new regulations on the subject, and recordingrecord occurrences in our internal databases.
In addition, risks identified, prioritized and actions taken are reported to our management of environmental and social and environmental risk.
Please see our Investors Relations website > Menu > Itaú Unibanco > Corporate Governance > Rules and Policies > Policies > Policy For Sustainability And Social Environmental Responsibility, for further details about our Sustainability and Social Environmental Responsibility Policy.
TheEnvironmental and social and environmental risk management is carried out by theour first line of defense in its daily operations, supplemented by aactivities, with technical support of our legal and risk control area,teams, both of which hashave a team specialized in environmental and social and environmentalrisk management. Business units also have their governance for the approval of new products, including assessing the socialenvironmental and environmentalsocial risks, which ensures compliance in all new products and processes employed by the institution. GovernanceOur governance also includes thean Environmental and Social and Environmental Risk Committee, which is primarily responsible for guideguiding institutional views of socialenvironmental and environmentalsocial risk exposure related to our activities and operations.
Given the growing importance of an integrated approach for environmental and social risk management, in 2019, we increased our governance creating a new structure under the Compliance department: the Corporate Environmental and Social Risk Management unit. Such area has the mandate to strengthen the environmental and social risk governance, counsel on related dilemmas, and to lead integrated reports to the high administration.
We consistently seekpursue to evolve in theenvironmental and social risk management, of social and environmental risk, always attentive to the challenges so as to monitor the changes inincluding those arising from regulations and demands of society. Therefore, among other actions, wefrom a changing stakeholders’ expectations. We have assumed and incorporated into our internal processes a number ofseveral national and international voluntary commitments and pacts aimedinto our governance several aiming at integrating social,continuously improving our integrated environmental and governance aspects into our business. The main ones are thesocial risk management. We have committed with Principles for Responsible Investment (PRI), Principles for Responsible Banking (PRB), the Charter for Human Rights – Ethos, the Equator Principles (EP), the Global Impact, the Carbon Disclosure Project (CDP), the Brazilian GHG Protocol Program, the National Pact for Eradicating Slave Labor (Pacto Nacional para Erradicação do Trabalho Escravo), among others. Our efforts to increase the knowledge and governance of the assessment of theenvironmental and social and environmental criteriarisk have been recognized as models in Brazil and abroad, as shown by theour recurring presence of the institution in the major sustainability indexes, abroad, such as the Dow Jones Sustainability Index, and recently, in Sustainability Index, Euronext Vigeo – Emerging 70, and in Brazil, for example in theB3’s Corporate Sustainability Index, as well as the numerous prizes and recognitions which we have been awarded.
Business and Strategy Risk
We define the business and strategy risk as the risk of a negative impact on our financial results or capital as a consequence of a faulty strategic planning, making adverse strategic decisions, and our inability to implement the proper strategic plans and/or changes in its business environment. We have implemented many mechanisms thatto ensure that both the business and the strategic decision makingdecision-making processes follow proper governance standards, have the active participation of executives and the Board of Directors, are based on market, macroeconomic and risk information and are aimed at optimizing the risk-return ratio. Decision-making and the establishment of business and strategy guidelines, count on the full engagement of the Board of Directors, primarily through the Strategy Committee, and of the executives, through the Executive Committee. In order to handle risk adequately, we have governance and processes that involve the Risks & Finance Control and Management Area in business and strategy decisions, so as to ensure that risk is managed and decisions are sustainable in the long term. They are: (i) the qualifications and incentives of board members and executives; (ii) the budgetary process; (iii) product assessment; (iv) the evaluation and prospecting of proprietary mergers and acquisitions; and (v) a risk appetite framework which, for example, restricts the concentration of credit and exposure to specific and material risks.
Regulatory Risk
We consider regulatory risk as the risk of incurring losses due to fines, sanctions and other penalties applied by regulatory agencies resulting from lack of compliance with regulatory requirements. The regulatory risk is managed through a structured process aimed at identifying changes in the regulatory environment, analyzing their impacts on the institution and monitoring the implementation of actions directed at adherence to the regulatory requirements.
We have a structured process for addressing rules, covering the stages of recognition, distribution, monitoring and compliance, and all of these processes are established in internal policies. The process for handling regulatory risk involves various areas of the institution, and consists of: (i) structure of lines of defense; (ii) monitoring draft legislation, public notices and public hearings; (iii) monitoring new rules and definition of action plans; (iv) relationship with regulators and professional organizations; (v) monitoring action plans; (vi) control over compliance with legal decisions and TAC (conduct adjustment agreements), executed in public civil actions. In addition, the institution’s risks are classified and prioritized according to our internal control methodology.
Insurance Products, Pension Plan and Premium Bonds Risks
Products that compose portfolios of our insurance companies are related to life and elementary insurance, as well as pension plans and premium bonds. Accordingly, we understand that the main risks inherent to these products are:
Underwriting risk: the possibility of losses arising from insurance products, pension plans and premium bonds that go against our expectations, directly or indirectly associated with technical and actuarial bases used for calculating premiums, contributions and technical provisions;
Market risk;
Credit risk;
Operational risk; and
Liquidity risk.
In line with domestic and international practices, we have a risk management structure which ensures that risks resulting from insurance, pension and special savings products are properly assessed and reported to the relevant forums.
The process of risk management for insurance, pensions and premium bond plans is independent and focusfocuses on the special nature of each risk.
As part of the risk management process, there is a governance structure where decisions may be escalated tosub-committees, thus ensuring compliance with several regulatory and internal requirements, as well as balanced decisions relative to risks.
Our objective is to ensure that assets serving as collateral for long-term products, with guaranteed minimum returns, are managed according to the characteristics of the liabilities, so that they are actuarially balanced and solvent over the long term.
Model Risk
Model risk is the risk that arises from the models used by us not reflecting, on a consistent basis, the relationships of variables of interest, creating results that systematically differ from those observed. This risk may materialize due to the use in different situations from those modeled.
The best practices that mark the model risk control at the institution include: (i) certification of the quality of the database used; (ii) application of a check-list of essential steps to be taken during the development of the model in question’s development;question; (iii) the use of conservative estimates in judgmental models; (iv) use of external benchmarks; (v) approval of results generated in model implementation; (vi) independent technical validation of models; (vii) validation of use of models; (viii) assessments of the impact in the use of models; (ix) monitoring of performance of models; and (x) monitoring of the distribution of the explanatory variables and final score.
Country Risk
Country risk is the risk of losses arising from non compliancenoncompliance with obligations in connection with borrowers, issuers, counterparties or guarantors as a result of actions taken by the government of the country where the borrower, issuer, counterparty or guarantor is located.
We have a specific structure for the management and control of country risk, consisting of corporate bodies and dedicated teams, with responsibilities defined in policies. The institution has a structured and consistent procedure for managing and controlling country risk, including: (i) the establishment of country ratings; (ii) the determination of limits for countries; and (iii) the monitoring of limits.
Reputational Risk
We understand reputational risk to be the risk arising from internal practices, risk events and external factors that may generate a negative perception of us among clients, counterparties, stockholders, investors, supervisors and commercial partners, among others, which could affect the value of our brand and financial losses, in addition to adversely affecting our capability to maintain our existing commercial relations, start new businesses and continue to have access to financing sources.
We believe that our reputation is extremely important for achieving our long-term goals. As a result, we strive to align our speech with ethical and transparent practices and work, which is essential to raise the confidence of our stakeholders. Our reputation depends on our strategy (vision, culture and skills) and derives from direct and indirect relationship between us and our stakeholders.
Since reputational risk directly or indirectly permeates all of our operations and processes, we have governance procedures that are structured in a way to ensure that potential reputational risks be identified, analyzed and managed in the initial phases of our operations and the analysis of new products.
The treatment given to reputational risk is structured by means of many processes and internal initiatives, which, in turn, are supported by our internal policies. Their main purpose is to provide mechanisms for the monitoring, management, control and mitigation of the main reputational risks. Among those processes and internal initiatives are (i) risk appetite statement; (ii) processes to prevent and combat the use of Itaú Unibanco in unlawful acts; (iii) crisis management processes and business continuity procedures; (iv) processes and guidelines with respect to governmental and institutional relations; (v) corporate communication processes; (vi) brand management processes; (vii) ombudsman offices initiatives and commitment to customer satisfaction; and (vii)(viii) ethics and corruption prevention guidelines.
Money Laundering Prevention
Financial institutions play a key role in preventing and fighting illicit acts, which includes money laundering, terrorism financing and fraud.
The challenge is to identify and prevent increasingly sophisticated operations that seek to conceal the source, ownership and transfer of goods and assets, derived from illegal activities.
We have established a corporate policy to prevent our involvement in illicit activities, protecting our reputation and image among employees, customers, strategic partners, suppliers, service providers, regulators and the society. Our policy is based on a governance structure focused on transparency, strict compliance with the rules and regulations and cooperation with enforcement and judicial authorities. We also strive to conduct our business in accordance with the local and international best practices to prevent and fight illicit acts, through investments and training our employees on an ongoing basis.
In order to comply with our corporate policy, we have established a program to prevent and fight illicit acts, which includes the following pillars:
Customer Identification Process;
KYC;
KYP;
KYS;
KYE;
Risk Assessment on New Products and Services;
Transaction Monitoring;
Reporting Suspicious Transactions to Regulators and Authorities; and
Training.
This program is applicable to us and our controlled entities in Brazil and abroad. The oversight of prevention and detection of illegal activities is carried out by the Board of Directors, the Audit Committee, Compliance and Operational Risk Committees, and the Anti-Money Laundering Committee.
Please refer to Item“Item 4B. Business Overview – Regulatory EnvironmentSupervision and Regulation – Anti-Money Laundering RegulationsRegulations” for further details about money laundering regulation. Our Illicit Acts Prevention and Combat Corporate Policy is posted on our Investors Relation website at Itaú Unibanco > Corporate Governance > Rules and Policies > Policies > Corporate Policy for Prevention and Fight Against Illegal Acts.
Politically Exposed Persons (PEPs)
Our commitment to compliance with applicable law and to the adoption of the best practices for prevention and detection of money laundering activity is also reflected in the identification, assessment and monitoring of PEPs, whether as individuals or entities.
As per our policies, we conduct enhanced due diligence with respect to PEPs. We require a higher level of approval prior to establishing any relationship with a PEP.
Please refer to “Item 4B. Business Overview – Regulatory EnvironmentSupervision and Regulation – Politically Exposed Persons (PEPs)” for further details about politically exposed persons.
Cybersecurity Management and ProcessesCOVID-19
We consider cybersecurityDuring this unprecedented health crisis, we are engaged in reducing the transmission ofCOVID-19 not only within our facilities but also across Brazil and information security atin the highest strategic level. We also manage this subjectcountries in order to protect our technological infrastructure against external and internal threats, unauthorized access, malicious code and regulatory needs. In order to protect our customers’ and organization informationwhich we operate, as we are aware of the importance of avoiding the collapse of public and private healthcare systems.
Since March 2020, our senior management and Executive Committee have held daily meetings to continuously monitor the crisis and to implement the measures necessary to support our workforce, our clients, and the society in a preventive, detective and corrective manner.facing theCOVID-19 pandemic.
The information security strategy has been developed consideringPlease find below some initiatives that we have adopted in hopes of minimizing the global scenario, regulations and best market practices and standards, in order to focus on establishing data protection for our customers. The strategy takes into account a resilient and appropriate structure to identify, detect and respond to threats and establish recovery procedures for situations that require our defense against cyberattacks. Our organization also maintains an effective security governance through executive committees and a seteffect of information security policies.theCOVID-19 pandemic.
Our infrastructure defenses are structured to protect our organization against external and internal attacks, with tools such as network behavioral analysis, intrusion prevention systems (IPS), firewalls, antiviruses and antispam systems.For the society:
We have a highly specialized monitoring team, capableannounced the donation of identify potential threatsR$250 million through Fundação Itaú and establishing an activeInstituto Unibanco for the building of hospitals, the purchase of respiratory equipment, masks, basic needs and effective defense (SOC—Security Operational Centers).
Additionally,hygiene kits. Our goal is to support vulnerable communities and to assist in the prevention and treatment ofCOVID-19. In trying to achieve this goal, we have, a cyber-intelligence team working to identify threatsalong with Bradesco and manage any necessary corrective measures.Santander, donated 5 million quickCOVID-19 tests and medical equipment, such as tomography devices and respiratory equipment.
In order to provide support to parents with young children, we have launched the ‘read at home’ campaign, a special edition of our ‘read for a child’ program suitable for social distancing.
We launched theTodos pela Saúde (“All for Health”) initiative that will be successfulfunded by a R$1 billion donation. The purpose of this initiative is to fund and coordinate relief efforts aimed to address the effects of the COVID-19 pandemic on Brazilian society. Seven renowned experts will lead the initiative and will be responsible for selecting initiatives to be funded.Todos pela Saúde will operate through four axes of action:
Informing: educating the population, such as promoting the use of face masks;
Protecting: testing the population and health professionals;
Caring: supporting officials of states and large municipalities in our information security defense strategy, we considerestablishing crisis response committees; training and supporting health professionals; adopting telemedicine; expanding the culturecapacity and efficiency of security as the basis to improve our information security programhospitals; acquiring and distributing strategic inputs, as well as procuring equipment and human resources.
Resuming: cooperating for the investment in awareness campaignsdevelopment of strategies to a safely resume social activities, and monitoring programs for employeesvulnerable communities.
For our clients:
Since March 24, 2020, opening hours of Itaú and customers so they remain preparedItaú Uniclass branches were shortened:
o | from 9:00 am to 10:00 am to the special public (retirees, INSS beneficiaries, the elderly, and pregnant women); and |
o | from 10:00 am to 2:00 pm to the general public, on a contingency basis. |
Itaú Personnalité digital branches have also shortened their opening hours, now from Mondays to identify and address inherent risks and threats.Fridays, from 9:00 am to 6:00 pm.
Our reward programs will not expire until June 30, 2020.
We are encouraging the use of our digital channels, such as apps and bankline, and digital products, such as virtual cards, contactless payment, and digital bank statements.
We have added content to our website to assist clients in the use of digital channels, along with information relating to opening hours, branches, and other frequently asked questions (www.itau.com.br/coronavirus).
We will ramp up communication through digital channels, both for our usual customer service and for providing financial guidance during this period of market instability.
We have increased the transaction limits in our digital channels, so that our clients are able to make transactions and payments without having to leave their homes.
We offered an emergency credit line for SME payroll loans and granted a60-days grace period for individuals loans.
We have suspended the minimum billing requirement for Rede’s clients until May 31, 2020, thus ensuring fee rates remain unchanged regardless of the billing volume reached.
Since March 26, users may block cards in the event of loss or theft at the customer service IVR. This enables our clients to block cards by themselves very quickly, without having to wait for the help of one of our employees.
In partnership with Ifood, Rede has given more liquidity to the restaurants affiliated to the platform: from April 2, 2020 on, these restaurants will receive their sales revenues in 7 days rather than the usual30-day period.
• | Clients with vehicle financing who wish to request a60-day postponement for repaying installments may do so on a fully digital basis, by accessing option “Carência 60 dias” (60-day grace period). |
Small businesses may have their employees’ salaries guaranteed for two months. This is eligible for businesses which: (i) have annual revenues from R$360 thousand through R$10 million; (ii) have engaged our payroll loan services; and, (iii) are current with payments in the latest quarter. These eligible companies may start repaying this benefit in six months, with installment payments of up to 30 months, and an interest rate equivalent to the CDI rate, which is currently at 3.75% p.a. This measure is a part of the PESE Program, which is a partnership with the Brazilian National Treasury, the Central Bank, and Bradesco and Santander. For more information, please refer to “Item 5A. Recent Developments—Employment Support Program providing emergency payroll financing for small andmedium-sized businesses.”
For our employees:
We have taken preventive measures, to ensure the wellbeing of our workforce that were only possible due to our continuous investments in people development and technology.
Several channels to provide our employees with intense communication aboutCOVID-19 and our role during this crisis.
Daily report distributed to all our employees.
CEO posts weekly videos with updates on the actions taken to fight this crisis.
Currently we have around 40 thousand collaborators working remotely.
Risk group employees were kept away from theirin-person activities on a preventive basis, and were instructed to work remotely or have their absence waived.
Allin-person events and meetings that could not be done through digital channels were canceled.
The number of clients in branches at the same time has been limited to 10 people at the most.
Branch employees are working under a weekly rotation system, with the physical presence of up to 50% employees, as we seek to keep minimum staff numbers in client service.
Branches hit withCOVID-19 cases will be closed for the public and only reopen when all outlined prevention measures are completed.
We have readjusted our call center operations and intensified hygiene protocols.
Early payment of the 13th salary on April’s payroll.
Temporary suspension of employment contract terminations without cause.
We have entered into new partnerships offering benefits that promote physical and mental health with activities that may be performed at home (Totalpass and GympassW).
• | The Be Ok (Fique OK) channel is available for all employees and family members who wish to talk about their health. A multidisciplinary team of professionals, such as psychologists, psychiatrists, and nutritionists, provides advice by telephone, email or WhatsApp. |
ITEM 12. | DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES |
12A. | Debt Securities |
Not applicable.
12B. | Warrants and Rights |
Not applicable.
12C. | Other Securities |
Not applicable.
12D. | American Depositary Shares |
Our preferred shares have been traded on the NYSE in the form of ADSs (one ADS represents one preferred share) since February 21, 2002, in compliance with NYSE and SEC requirements. These requirements include disclosure of financial statements in IFRS since 2011 and compliance with U.S. legal requirements, including the Exchange Act and the Sarbanes-Oxley Act of 2002.
Our ADSs are issued by BNY Mellon, as depositary, under a Deposit Agreement, dated as of May 31, 2001, as amended and restated as of February 20, 2002 and as of March 30,April 3, 2009, and as of August 17, 2018, effective as of August 27, 2018 and post-effective as of January 6, 2020, among us, the depositary and the owners and beneficial owners of ADSs from time to time. The depositary’s principal executive office is located at 225 Liberty240 Greenwich Street, New York, New York 10281.10286.
ADS holders have no stockholder rights, which are governed by Brazilian Corporate Law. The depositary is the holder of the preferred shares underlying the ADSs. Holders of ADSs have ADS holder rights.
An investor may hold the ADSs directly, registered under his or her name, or indirectly, through a broker or another financial institution. The holders of our ADSs do not have the same rights as our stockholders and the depositary and holders of corresponding shares in Brazil. The deposit agreement determines the rights and obligations of the ADS holders and is governed by New York law.
Please refer to Exhibit 2(c) to this annual report for further information relating to our American Depositary Shares.
In the event of a capital increase that maintains or increases the proportion of our capital represented by preferred shares, the holders of ADSs, except as described above, have preemptive rights to subscribe only to newly issued preferred shares. In the event of a capital increase that reduces the proportion of capital represented by preferred shares, the holders of ADSs, except as described above, have preemptive rights to preferred shares in proportion to their interests and to common shares only to the extent necessary to prevent dilution of their interests.
Please seerefer to “Item 10E. Taxation” for further information.
Fees and Expenses
The following table summarizes the fees and expenses payable by holders of ADSs to the depositary:
Event | Fees | |
Issuance(1) or cancellation for the purpose of withdrawal(2) of ADSs | US$5.00 (or less) per 100 ADSs (or portion thereof) plus any additional fees charged by any governmental authorities or other institutions for the execution and delivery or surrender of ADSs. | |
Any cash distribution | US$0.05 (or less) per ADS (or portion thereof). | |
Depositary services | US$0.05 (or less) per ADS (or portion thereof) per calendar year (in addition to cash distribution fee of US$0.05 per ADS during the year). |
(1) | Including issuances resulting from a distribution of preferred shares or rights or other property, substitution of underlying shares and transferring, splitting or grouping of receipts. |
(2) | Including if the deposit agreement terminates. |
In addition, set below are other fees and expenses payable by holders of ADSs:
Registration fees: registration of transfers of preferred shares on our preferred share register to or from the name of the depositary or its agent when the holder deposit or withdraws preferred shares.
Distribution of securities by the depositary to ADS holders fee: equivalent to the fee that would be payable if securities distributed to the holder thereof had been preferred shares and the shares had been deposited for issuance of ADSs.
Foreign currency conversion expenses: expenses of the depositary in converting foreign currency to U.S. dollars.
Depositary expenses: cable, telex and facsimile transmissions (when expressly provided in the Deposit Agreement).
Moreover, taxes and other governmental charges which the depositary or the custodian has to pay on any ADR or preferred share underlying an ADS (for example, stock transfer taxes, stamp duty or withholding taxes) would be payable by holders of ADSs. Any other charges incurred by the depositary or its agents for servicing the deposited securities are not currently assessed in the Brazilian market.
Payment of Taxes
The depositary may deduct the amount of any taxes owed from any payments to investors. It may also sell deposited securities, by public or private sale, to pay any taxes owed. Investors will remain liable if the proceeds of the sale are not sufficient to pay the taxes. If the depositary sells deposited securities, it will, if appropriate, reduce the number of ADSs to reflect the sale and pay to investors any proceeds or send to investors any property remaining after it has paid the taxes.
Reimbursement of Fees
BNY Mellon, as depositary, has agreed to reimburse us for expenses we incur that are related to establishment and maintenance of the ADS program. The depositary has agreed to reimburse us for our continuing annual stock exchange listing fees. The depositary has also agreed to pay the standardout-of-pocket maintenance costs for the ADSs, which consist of the expenses of postage and envelopes for mailing annual and interim financial reports, printing and distributing dividend checks, electronic filing of United States federal tax information, mailing required tax forms, stationery, facsimile, and telephone calls, as well as to reimburse us annually for certain investor relationship programs or special investor relations promotional activities. In certain instances, the depositary has agreed to provide additional payments to us based on applicable performance indicators relating to the ADS facility. There are limits on the amount of expenses for which the depositary will reimburse us, but the amount of reimbursement available to us is not necessarily tied to the amount of fees the depositary collects from investors.
The depositary collects its fees for delivery and surrender of ADSs directly from investors, depositing shares or surrendering ADSs in case of exercise of withdrawal rights or from intermediaries acting for them. The depositary collects fees for making distributions to investors by deducting those fees from the amounts distributed or by selling a portion of distributable property to pay the fees. The depositary may collect its annual fee for depositary services by deducting from cash distributions, by directly billing investors or by charging the book-entry system accounts of participants acting for them. The depositary may generally refuse to provide services subject to fees until its fees for those services have been paid.
In 2018,2019, we received from the depositary US$26.439 million for promoting and encouraging the ADR program in the market,out-of-pocket maintenance costs for the ADSs (as described above), any applicable performance indicators relating to the ADS facility, underwriting fees and legal fees.
ADS holders’ Payment of Dividends
Preferred shares underlying ADSs are kept in Brazil by the custodian, Itaú Unibanco, which is the owner recorded in the register service of our preferred shares. The depositary of our ADS program is BNY Mellon. The payments of dividends and distributions in cash for our preferred shares underlying the ADSs are made directly to the depositary bank abroad, which is responsible for passing them on to the stockholders within an average period of 10 days after payment is made in Brazil. The amount received by the ADS holder may be reduced if we, the custodian or the depositary are required to retain an amount related to taxes and other government charges.
Please see “Item 8A. Consolidated Statements and Other Financial Information—Stockholders’ Payment” for details on our dividend policy.
Please see “Item 5A. Operating Results—Recent Developments—Temporary Suspension of Dividend Distributions and Increases in Compensation of Directors and Officers.”
ITEM 13. | DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES |
None.
ITEM 14. | MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS |
None.
ITEM 15. | CONTROLS AND PROCEDURES |
Disclosure Controls and Procedures
We carried out an evaluation, under the supervision and with the participation of our management, including our CEO, and our CFO, of the effectiveness of our “disclosure controls and procedures” (as defined in the Exchange Act Rules13a-15(e) and15d-15(e)) as required by paragraph (b) of the Exchange Act Rules13a-15 or15d-15, as of December 31, 2018.A2019.A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Therefore, our management does not expect that the controls will prevent all errors and all fraud.Basedfraud.
Based upon the evaluation performed, our CEO and CFO have concluded that as of December 31, 2018,2019, our disclosure controls and procedures were effective to provide reasonable assurance that material information relating to us and our consolidated subsidiaries is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to our management, including our principal executive officers and principal financial officers, to allow timely decisions regarding required disclosure.
Management’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 Rules13a-15(f) and15d-15(f) under the Exchange Act. Our internal control was designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes, in accordance with the IFRS issued by the IASB.
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to risk that controls may become inadequate because of changes in conditions, or a decline in the level of compliance with policies or procedures may occur.
Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2018.2019. In making this assessment, our management used the criteria set forth in “Internal Control – Integrated Framework (2013)” issued by the COSO. Based on its evaluation and those criteria, our management has concluded that our internal control over financial reporting was effective as of December 31, 2018.2019.
The effectiveness of our internal control over financial reporting as of December 31, 2018,2019, has been audited by PricewaterhouseCoopers Auditores Independentes, an independent registered public accounting firm.
Attestation Report of the Independent Registered Public Accounting Firm
The report of PricewaterhouseCoopers Auditores Independentes, our independent registered public accounting firm, dated April 30, 2019,27, 2020, on the effectiveness of our internal control over financial reporting as of December 31, 20182019 is presented with our audited consolidated financial statements.Pleasestatements.
Please refer to our audited consolidated financial statements for further details about our independent auditor’s report.
Changes in Internal Control Over Financial Reporting
In connection with the evaluation required by the Exchange Act Rule13a-15(d), our management, including our CEO and CFO, concluded that the changes that occurred during the year ended December 31, 20182019 have not materially affected, and are not reasonably likely to materially affect, our internal control over financial reporting.
ITEM 16. | [RESERVED] |
16A. | Audit Committee Financial Expert |
Our Board of Directors has designated Mr. Diego Fresco Gutierrez as our audit committee financial expert that meets the requirements set forth by the SEC, the NYSE and the Central Bank. Our audit committee financial expert along with the other members of our audit committee are independent pursuant to CMN Resolution No. 3,198, which requires that the members not be, or have been in the last year, an officer or employee of the company or its affiliates or an employee with managerial responsibilities in the internal audit division of the financial institution. Other members of our audit committee are financially literate and we believe the skills, experience and education of our audit committee members qualify them to carry out all of their duties as members of the audit committee, including overseeing the preparation of our IFRS financial statements. In addition, our audit committee has the ability to retain independent accountants, financial advisors or other consultants, advisors and experts whenever it deems appropriate. For more information on our Audit Committee, see “Item 6A. Board Practices—Audit Committee.”
16B. | Code of Ethics |
We consider ethics to be an essential value for our reputation and longevity. We.,We, including all of our employees, are subject to our Code of Ethics. We report each year under this Item 16B of our annual report on Form20-F any waivers of the Code of Ethics, in favor of our principal executive officer, chief financial officer, principal accounting officer and persons performing similar functions. The Code of Ethics governs all relations between companies in our corporate group and their stakeholders (shareholders, clients, employees, suppliers, service providers, governments, communities and society).
A copy of the Code of Ethics is available on our Investors Relations website at Itaú Unibanco > Corporate Governance > Rules and Policies > Code of Ethics and Conduct.Conduct > Itaú Unibanco’s Code of Ethics. An update of our Code of Ethics is scheduled to occurwas launched in the second half ofDecember 2019.
16C. | Principal Accountant Fees and Services |
Pre-approval of Policies and Procedures
The Audit Committee’s responsibilities include establishing policies and procedures for services that can be provided by our external auditors. On an annual basis, the Audit Committee issues (i) the list of services that cannot be provided by our external auditors, due to the fact that such services could, eventually, affect their independence, (ii) the list ofpre-approved services, and (iii) those services that need to bepre-approved by the Audit Committee.
Fees and Services of the Principal Auditor
The following table presentssets forth the total amount charged by PwC by category for services provided in the years ended December 31, 20182019 and 2017:2018:
Fees | 2018 | % Approved by the Audit Committee | 2017 | % Approved by the Audit Committee | 2019 | % Approved by the Audit Committee | 2018 | % Approved by the Audit Committee | ||||||||||||||||||||||||
(In thousands of R$) | (In thousands of R$) | |||||||||||||||||||||||||||||||
Audit Fees | 64,960 | 99.4 | 61,835 | 100.0 | 62,125 | 100.0 | 64,960 | 99.4 | ||||||||||||||||||||||||
Audit-Related Fees | 4,727 | 100.0 | 6,478 | 100.0 | 3,751 | 100.0 | 4,727 | 100.0 | ||||||||||||||||||||||||
Tax Fees | 581 | 100.0 | 416 | 100.0 | 635 | 100.0 | 581 | 100.0 | ||||||||||||||||||||||||
All Other Fees | 466 | 100.0 | 89 | 100.0 | 169 | 100.0 | 466 | 100.0 | ||||||||||||||||||||||||
Total | 70,735 | 68,819 | 66,680 | 70,735 | ||||||||||||||||||||||||||||
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Audit fees: For the audit of our consolidated financial statements, the review of our quarterly financial statements, as well as the audit and review of financial statements of our subsidiaries, services relating to issuing comfort letters in securities offerings, issuance of reports required by regulatory bodies and audit of internal control over financial reporting in connection with the Sarbanes-Oxley Act requirements; | Audit-related fees: For services provided in assistance to review of documents to be filed with local and foreign regulatory bodies, including documents on compliance with legislation and regulations, audit of specific financial statements, compliance with greenhouse gas emissions controls and policies, and audit of special purpose reports; | |
Tax fees: For tax consulting and advising on cross-border transactions and review of Brazilian income tax; and | Other fees: For training, use of surveys and technical materials, reasonable assurance of engagement terms signed with the governmental authority and review on the impact study of new accounting standard. |
16D. | Exemptions from the Listing Standards for Audit Committees |
Under the audit committee rules of the NYSE and the SEC, listed companies must comply with Rule10A-3 of the Exchange Act (Listing Standards Relating to Audit Committees). Rule10A-3 requires that listed companies establish an audit committee composed of members of the Board of Directors that meets specified requirements, or designate and empower a board of auditors or similar body to perform the role of the audit committee in reliance on the general exemption for audit committees of foreign private issuers set forth in Rule10A-3(c)(3) of the Exchange Act.
In accordance with Central Bank regulations, we have established a body similar to the audit committee of the board of directors of a U.S. company, which we are required to call an “audit committee.” All the members of our Audit Committee are independent in accordance with the criteria established by the Central Bank. For more information, see “Item 6A. Board Practices — Director and Senior Management – Statutory Bodies — Audit Committee.”
Our Audit Committee, to the extent permitted under Brazilian law, performs all the functions required of an audit committee under Rule10A-3. As required by Brazilian law, our Board of Directors and Audit Committee are separate corporate bodies. Only one of the six members of our Audit Committee is also member of our Board of Directors. In addition, under Brazilian law, the function of hiring independent auditors is a power reserved exclusively for a company’s Board of Directors. Therefore, our Board of Directors acts as our audit committee, as permitted under Rule10A-3(c)(3)(v) of the Exchange Act for the purpose of the appointment of our independent auditors.
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. We believe that our Audit Committee is able to act independently in performing the responsibilities of an audit committee under Sarbanes-Oxley, satisfies the other requirements of the exemption of Rule10A-3(c)(3) and therefore is in compliance with Rule10A-3 of the Exchange Act.
16E. | Purchases of Equity Securities by the Issuer and Affiliated Purchasers |
In conformity with best corporate governance practices, on November 18, 2004, we started to voluntarily disclose our Policy for Trading Itaú Unibanco Holding S.A. Securities. Please refer to our Investors Relation website at Itaú Unibanco > Corporate Governance > Rules and Policies > Others > Operating Rules for the Trading of Own Shares as Treasury Stock for further details. We disclose to the market the transactions carried out with our own shares by our Treasury department through “Announcements to the Market” on a monthly basis, as well as the other disclosure requirements imposed by the Brazilian securities regulation and the SEC.
The current share repurchase program initially effective in 2019 was approved by our Board of Directors on December 15, 2017 is effective from January 1, 2018 through June 19, 2019,with limits of 28.7 million common shares and authorizes the acquisition of up to 50.0 million of our preferred shares, and 28.62 million of our common shares, issued by us, without reducing our capital stock.
On May 30, 2019 our Board of Directors approved the renewal of our share repurchase program through November 30, 2020, authorizing the purchase of up to 15.0 million common shares and 75.0 million preferred shares.
The share repurchase program has the following potential objectives: (i) to maximize the allocation of capital through the efficient application of available funds; (ii) to provide for the delivery of shares to the employees and management of our company and those of its subsidiaries within the scope of the compensation models and the long term incentive plans; and (iii) to use the repurchased shares in the event of business opportunities arising in the future. All repurchases shall be made on the open market through stock exchanges.
Period(1) | (a) Total number of preferred shares purchased(2) | (b) Average price paid per preferred share(2)(3) | (c) Total number of preferred shares purchased as part of publicly announced plans or programs(2) | (d) Maximum number of preferred shares that may yet be purchased under the plans or programs | (e) Total number of common shares purchased | (f) Average price paid per common share | (g) Total number of common shares purchased as part of publicly announced plans or programs | (h) Maximum number of common shares that may yet be purchased under the plans or programs | ||||||||||||||||||||||||
01/02 to 01/31/2018 | - | - | - | 50,000,000 | - | - | - | 14,195,517 | ||||||||||||||||||||||||
02/01 to 02/28/2018 | - | - | - | 50,000,000 | - | - | - | 14,195,517 | ||||||||||||||||||||||||
03/01 to 03/29/2018 | - | - | - | 50,000,000 | - | - | - | 14,195,517 | ||||||||||||||||||||||||
04/02 to 04/30/2018 | - | - | - | 50,000,000 | - | - | - | 14,195,517 | ||||||||||||||||||||||||
05/02 to 05/30/2018 | - | - | - | 50,000,000 | - | - | - | 14,195,517 | ||||||||||||||||||||||||
06/01 to 06/29/2018 | 13,100,000 | 38.95 | 13,100,000 | 36,900,000 | - | - | - | 14,195,517 | ||||||||||||||||||||||||
07/02 to 07/31/2018 | - | - | - | 36,900,000 | - | - | - | 14,195,517 | ||||||||||||||||||||||||
08/01 to 08/31/2018 | - | - | - | 36,900,000 | - | - | - | 14,195,517 | ||||||||||||||||||||||||
09/03 to 09/28/2018 | - | - | - | 36,900,000 | - | - | - | 14,195,517 | ||||||||||||||||||||||||
10/01 to 10/31/2018 | - | - | - | 36,900,000 | - | - | - | 14,195,517 | ||||||||||||||||||||||||
11/01 to 11/30/2018 | - | - | - | 36,900,000 | - | - | - | 14,195,517 | ||||||||||||||||||||||||
12/03 to 12/31/2018 | - | - | - | 36,900,000 | - | - | - | 14,195,517 | ||||||||||||||||||||||||
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Period(l) | (a) | (b) | (c) Total | (d) Maximum number of preferred shares that may yet be purchased under the plans or programs | (e) | (f) | (g) Total | (h) Maximum number of common shares that may yet be purchased under the plans or programs | ||||||||||||
01/02 to 01/31/2019 | — | — | — | 36,900,000 | — | — | — | 14,195,517 | ||||||||||||
02/01 to 02/28/2019 | — | — | — | 36,900,000 | — | — | — | 14,195,517 | ||||||||||||
03/01 to 03/29/2019 | — | — | — | 36,900,000 | — | — | — | 14,195,517 | ||||||||||||
04/01 to 04/30/2019 | — | — | — | 36,900,000 | — | — | — | 14,195,517 | ||||||||||||
05/02 to 05/30/2019 | — | — | — | 36,900,000 | — | — | — | 14,195,517 | ||||||||||||
05/31 to 05/31/2019 | — | — | — | 75,000,000 | — | — | — | 15,000,000 | ||||||||||||
06/03 to 06/28/2019 | — | — | — | 75,000,000 | — | — | — | 15,000,000 | ||||||||||||
07/01 to 07/31/2019 | — | — | — | 75,000,000 | — | — | — | 15,000,000 | ||||||||||||
08/01 to 08/30/2019 | — | — | — | 75,000,000 | — | — | — | 15,000,000 | ||||||||||||
09/02 to 09/30/2019 | — | — | — | 75,000,000 | — | — | — | 15,000,000 | ||||||||||||
10/01 to 10/31/2019 | — | — | — | 75,000,000 | — | — | — | 15,000,000 | ||||||||||||
11/01 to 11/29/2019 | — | — | — | 75,000,000 | — | — | — | 15,000,000 | ||||||||||||
12/02 to 12/31/2019 | — | — | — | 75,000,000 | — | — | — | 15,000,000 |
(1) | On December 15, 2017 our Board of Directors approved the purchase of up to |
(2) |
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Includes brokerage costs. |
16F. | Change in Registrant’s Certifying Accountant |
Not applicable.
16G. | Corporate Governance |
Our ADSs are registered on the NYSE in the US as a foreign private issuer. As a result, NYSE allows us to comply with certain corporate governance requirements established by applicable Brazilian legislation, rather than those set forth in the NYSE corporate governance listing rules applicable to US companies with securities traded on that exchange.
The following is a description of the main differences between our corporate governance practices and those required for US publicly traded companies.
NYSE REQUIREMENTS | OUR PRACTICES | |
Independent members of the Board of Directors | ||
Companies listed on the NYSE must have a majority of independent members on their Board of Directors (as defined in applicable rules). However, controlled listed companies (companies with more than 50% of capital held by an individual, group or another company), do not need to comply with this requirement and are exempt from the rule. | Even though we fall under the exception to the NYSE’s rule and there is no similar requirement under Brazilian law, our Board of Directors has five directors considered independent pursuant to the criteria established in our Corporate Governance Policy. The criteria we use to determine independence are also different from those adopted by the NYSE. | |
Executive Sessions | ||
Non-executive members of the Board of Directors should meet at regularly scheduled executive sessions without the presence of directors who are also officers of the company | All members of our Board of Directors are currentlynon-executive. |
NYSE REQUIREMENTS | OUR PRACTICES | |
Nomination and Corporate Governance Committee | ||
Companies listed on the NYSE should have a nomination and corporate governance committee entirely comprised of independent directors and governed by charters on the purposes and responsibilities of such committee. However, controlled listed companies of which more than 50% of the voting power is held by an individual, a group or another company, such as in our case, are not required to comply with such requirement. | We have a Nomination and Corporate Governance Committee responsible for encouraging and overseeing the discussion of the company’s governance-related matters. All members of our Nomination and Corporate Governance Committee arenon-executive, and two of them are independent, in accordance with our Corporate Governance Policy. | |
Compensation Committee | ||
Companies listed on the NYSE have a compensation committee composed of independent directors and governed by charters on the purposes and responsibilities of such committee. However, controlled listed companies of which more than 50% of voting capital is held by an individual, a group or another company, such as in our case, are not required to comply with such requirements. | CVM rules do not require publicly-listed companies to have a compensation committee. Nonetheless, Brazilian banking regulation requires that we have a compensation committee. In compliance with this regulation, our Compensation Committee reports to the Board of Directors and the members of this committee are not required to be independent. However, currently two out of five members of our Compensation Committee are considered independent under our Corporate Governance Policy, and one is not a member of management. | |
Audit Committee | ||
Companies listed on the NYSE are required to have an audit committee that: (i) is composed of at least three independent members who are financially literate; (ii) complies with SEC rules on audit committees of companies registered with the NYSE; (iii) has at least one member who has accounting of financial management expertise; and (iv) is governed by a charter that expressly sets out the purpose and responsibilities of the committee and establishes annual performance evaluations. | CMN regulates independent audit services rendered to financial institutions and requires the establishment of an audit committee composed of at least three independent members, in accordance with the independence criteria set forth in these rules. Our Audit Committee, that was established on April 28, 2004, meets the applicable Brazilian legal requirements, is elected annually by the Board of Directors and composed of professionals with proven technical qualifications compatible with this Committee’s responsibilities. Under SEC rules, we are not required to have an Audit Committee established or operating in accordance with NYSE rules if we meet some specified SEC requirements. We believe that our Audit Committee meets the requirements of Rule10A-3(c)(3) under the Exchange Act and is able to act independently when performing its duties. To the extent permitted by Brazilian legislation, our Audit Committee performs all functions required to be performed by an audit committee by Rule10A-3 under the Exchange Act. | |
Stockholders’ approval of management members’ compensation and stock options plans | ||
Stockholders have the opportunity to vote on all stock-based compensation plans and significant amendments thereto, as well as on significant increases in the number of shares available to the plan, with a few exceptions | Brazilian legislation sets forth a similar requirement, as it establishes the need for approval to the aggregate annual compensation of management members (including shares) at the General Stockholders’ Meeting. |
NYSE REQUIREMENTS | OUR PRACTICES | |
Corporate Governance Code | ||
Companies listed on NYSE are required to adopt and disclose their corporate governance guidance. | We have a Corporate Governance Policy that consolidates the corporate governance principles and practices we adopt. We believe these principles and practices, consistent with Brazilian legislation, are compatible with the guidelines established by the NYSE. We have adopted stricter rules than those required by Brazilian legislation, as we have voluntarily adhered to B3’s Level 1 of Corporate Governance and have grantedtag-along rights to all stockholders, regardless of their voting rights. In 2018, we disclosed the Brazilian Corporate Governance Code, in accordance with CVM Ruling No. 480/09, and we have complied or partially complied with 95.83% of the 54 practices recommended. | |
Code of Ethics | ||
NYSE rules require that listed companies adopt and disclose a code of business conduct and ethics for their directors, officers and employees. NYSE also requires that listed companies promptly disclose any waiver of the provisions of the code of ethics for directors or executive officers. | Brazilian legislation has no similar requirement. However, we have a Code of Ethics that, among other matters, governs the conduct of all members of the Board of Directors, officers and employees of the Itaú Unibanco Conglomerate, detailing the principles that guide our attitudes and practices. | |
Internal Audit | ||
NYSE rules require that listed companies have an internal audit function to provide management and the Audit Committee with ongoing assessments of the company’s risk management processes and internal control systems. | Brazilian banking legislation establishes a similar requirement, since it requires that financial institution have an internal audit function compatible with the nature, size, complexity, structure, risk profile and business model of the financial institution, that it is undertaken by a specific unit directly reporting to the Board of Directors or by an independent auditor (provided that such auditor is not responsible for auditing the financial statements of the institution or any other activity that may imply a conflict of interest). Our internal audit function is responsible for assessing the sufficiency and effectiveness of our operating and management controls, as well as the adequacy of our risk identification and management process. In addition, our internal audit function is independent from management in carrying out its activities and has access to all places, executives and information necessary to carry out its duties. The internal audit function administratively reports to the Chairman of the Board of Directors, and its activities are supervised by the Audit Committee. |
16H. | Mine Safety Disclosure |
Not applicable.
ITEM 17. | FINANCIAL STATEMENTS |
We have responded to Item 18 in lieu of responding to this item.
ITEM 18. | FINANCIAL STATEMENTS |
Our audited consolidated financial statements, together with the Report of Independent Registered Public Accounting Firm, are filed as part of this annual report.
A
ABECS – Associação Brasileira de Empresas de Cartões de Crédito e Serviços (Brazilian( Brazilian Association of Credit Cards and Services Companies)
ABRASCA – Associação Brasileira de Companhias Abertas (Brazilian Association of Public Companies)
ADS – American Depositary Shares
ANBIMA – Associação Brasileira das Entidades dos Mercados Financeiro e de Capitais (Brazilian Financial and Capital Markets Association)
ANS – Agência Nacional de Saúde Suplementar (National Regulatory Agency for Private Health Insurance and Plans)
APIMEC – Associação dos Analistas e Profissionais de Investimento do Mercado de Capitais (Association of Capital Markets Analysts and Investment Professionals)
ATM – AutomaticAutomated Teller MachineMachines
B
B3 S.A. – Brasil, Bolsa, Balcão (Brazilian Exchange and OTC, formerly BM&FBovespa – Bolsa de Valores, Mercadorias e Futuros S.A.)
Banco Itaú Argentina – Banco Itaú Argentina S.A
Banco Itaú Chile – Banco Itaú Chile S.A.
Banco Itaú Paraguay – Banco Itaú Paraguay S.A
Banco Itaú Uruguay – Banco Itaú Uruguay S.A
BCBS – Basel Committee on Banking Supervision
BIS – Bank for International Settlements
BNDES – Banco Nacional de Desenvolvimento Econômico e Social(Brazilian Development Bank)
BNY Mellon – The Bank of New York Mellon
Brazilian Corporate Law – Law No. 6,404, of December 15, 1976, as amended (including by Law No. 11,638)
Brazilian Payment System – encompasses the institutions, the systems and the procedures related to the transfer of funds and other financial assets, among the diverse economic agents of the Brazilian market, or that involve the processing, clearing and settlement of payments in any of its forms.
C
CADE – Conselho Administrativo de Defesa Econômica(Administrative Council for Economic Defense)
CCR – Counterparty Credit Risk
CDC – Código de Defesa do Consumidor(Consumer Protection Code)
CDI – Certificado de Depósito Interbancário (Interbank Deposit Certificate)
CEDEAR – Argentine Certificates of Deposits
Central Bank – Banco Central do Brasil(Brazilian Central Bank)
CFC – Conselho Federal de Contabilidade(Federal Accounting Council)
CGRC – Risk and Capital Management Committee
Cia E. Johnston – Companhia E. Johnston de Participações
CMN – Conselho Monetário Nacional (National Monetary Council)
CNSEG – Confederação Nacional das Empresas de Seguros Gerais, Previdência Privada e Vida, Saúde Suplementar e Capitalização (National Council of General Insurance, Private Pension and Life, Supplementary Health and Capitalization Companies)
CNSP – Conselho Nacional de Seguros Privados (National Council of Private Insurance)
COAF – Conselho de Controle de Atividades Financeiras (Financial Activities Control Council)
COSO – Committee of Sponsoring Organizations of the Treadway Commission
COFINS – Contribuição Para o Financiamento da Seguridade Social(Social Security Financing Contribution)
CONSIF – Confederação Nacional do Sistema Financeiro (National Association of the Financial System)
CSB – Corporate Site BranchClient Service Branches
CSC – Superior Credit Committee
CSCCA – Superior Wholesale Credit and Collection Committee
CSCCV – Superior Retail Credit and Collection Committee
CSLL – Contribuição Social Sobre o Lucro Líquido (Social Contribution on Profits)
CSP – Superior Products Committee
CSRML – Superior Market Risk and Liquidity Committee
CSRO – Superior Operational Risk Management Committee
CTAM – Model Assessment Technical Committee
CVM – Comissão de Valores Mobiliários (Brazilian Securities and Exchange Comission)Commission)
D
DJSI – Dow Jones Sustainability Index
F
FATF – Financial Action Task Force
FEBRABAN – Federação Brasileira de Bancos (Brazilian Federation of Banks)
Fed – U.S. Federal Reserve System
FGC – Fundo Garantidor de Crédito (Credit Insurance Fund)
I
IASB – International Accounting Standards Board
IBRACON – Instituto de Auditores Independentes do Brasil(Institute of Independent Auditors of Brazil)
IBRI – Instituto Brasileiro de Relações com Investidores (Brazilian Investor Relations Institute)
ICAAP – Internal Capital Adequacy Assessment Process
IFRS – International Financial Reporting Standards
IOF – Imposto Sobre Operações Financeiras (Tax on Financial Transactions)
IRPJ – Imposto de Renda da Pessoa Jurídica(Corporate Income Tax)
IRS – U.S. Internal Revenue Service
ISE – Índice de Sustentabilidade Empresarial(Corporate Sustainability Index)
ISS – Imposto sobre Serviços(Service Tax)
Itaú BBA Colombia – Itaú BBA Colombia S.A. Corporación Financiera
Itau BBA International – Itau BBA International plc
Itaucard – Banco Itaucard S.A.
Itaú Holding Financeira – Itaú Holding Financeira S.A.
Itaú Unibanco Group – Itaú Unibanco Holding S.A. and all its subsidiaries and affiliates
Itaúsa – Itaú Investimentos S.A.
IUPAR – Itaú Unibanco Participações S.A.
K
KYC – Know Your Customer
KYP – Know Your Partner
KYS – Know Your Supplier
KYE – Know Your Employee
L
LCR – Liquidity Coverage Ratio
N
NSFR – Net Stable Funding Ratio
NYSE – New York Stock Exchange
P
PEP – Politically Exposed Person
PFIC – Passive Foreign Investment Company
PIS – Programa de Integração Social (Social Integration Program)
PwC – PricewaterhouseCoopers Auditores Independentes
R
RAET – Regime Especial de Administração Temporária (Temporary Special Administration Regime)
S
SEC – U.S. Securities and Exchange Commission
SELIC – Sistema Especial de Liquidação e Custódia (Special Clearing and Settlement System)
SOX – The Sarbanes-Oxley Act of 2002
STF – Superior Tribunal Federal (Brazilian Federal Supreme Court)
STJ – Superior Tribunal de Justiça (Brazilian Superior Court of Justice)
SUSEP – Superintendência de Seguros Privados (Superintendency of Private Insurance)
T
TR – Taxa Referencial (Brazilian Reference Interest Rate)
U
Unibanco – União de Bancos Brasileiros S.A.
V
VaR – Value at Risk
ITEM 19. | EXHIBITS |
No. | Description | |
1 |
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2(a) |
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2(b)(i) | The total amount of long-term debt securities of Itaú Unibanco Holding S.A. and our subsidiaries under any one instrument does not exceed 10.0% of our total assets on a consolidated basis. We agree to furnish copies of instruments defining the rights of certain holders of long-term debt to the SEC upon request.
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2(c) | Description of Securities Registered Under Section 12 of the Exchange Act. | |
4 (a) |
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4(b) |
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4(c) |
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8.1 |
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11.1 |
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12.1 | Chief Executive Officer Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
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12.2 | Chief Financial Officer Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
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13 |
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101.INS | XBRL Instance
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101.SCH | XBRL Taxonomy Extension Schema
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101.CAL | XBRL Taxonomy Extension Calculation Linkbase
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101.DEF | XBRL Taxonomy Extension Definition Linkbase
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101.LAB | XBRL Taxonomy Extension Label Linkbase
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101.PRE | XBRL Taxonomy Extension
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SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
ITAÚ UNIBANCO HOLDING S.A. | ||||||||
By: | /s/ Candido Botelho Bracher | |||||||
Name: | Candido Botelho Bracher | |||||||
Title: | Chief Executive Officer | |||||||
By: | /s/ Milton Maluhy Filho | |||||||
Name: | Milton Maluhy Filho | |||||||
Title: | Chief Financial Officer |
Date: April 30, 2019.27, 2020.
F-1 | ||||
F-2 | ||||
Consolidated Balance Sheet | F-4 | |||
Consolidated Statement of Income | F-6 | |||
Consolidated Statement of Comprehensive Income | F-7 | |||
Consolidated Statement of Changes in Stockholder’s Equity | F-8 | |||
Consolidated Statement of Cash Flows | F-9 | |||
Notes to the Consolidated Financial Statements | F-10 |
Management’s Annual Report on Internal Control over Financial Reporting
The management of Itaú Unibanco Holding S.A is responsible for establishing and maintaining adequate internal control over financial reporting for the company.
The 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 International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). The company’s internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and disposals of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to allow for the preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those controls determined to be effective may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to risk that controls may become inadequate because of changes in conditions, or a decline in the level of compliance with policies or procedures may occur.
Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2018. In making this assessment, our management used the criteria set forth in “Internal Control – Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
Based on its evaluation and those criteria, our management has concluded that our internal control over financial reporting was effective as of December 31, 2018. In connection with the evaluation required by the Exchange Act Rule 13a-15(d), our management concluded that the changes that occurred during the year ended December 31, 2018 have not materially affected, or are not reasonably likely to materially affect, our internal control over financial reporting.
The effectiveness of the Company’s internal control over financial reporting as of December 31, 2018 has been audited by PricewaterhouseCoopers Auditores Independentes, an independent registered public accounting firm, as stated in their report which appears herein.
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A signed original copy of this report has been provided to the registrant and will be retained by the registrant and furnished to the Securities and Exchange Commission or its staff upon request.
Date: April 30, 2019
Report of independent registered
public accounting firm
To the Board of Directors and Stockholders
Itaú Unibanco Holding S.A.
Opinions on the financial statementsFinancial Statements and internal controlInternal Control over financial reportingFinancial Reporting
We have audited the accompanying consolidated balance sheetsheets of Itaú Unibanco Holding S.A. and its subsidiaries (the Company)“Company”) as of December 31, 20182019 and 2017,2018, and the related consolidated statements of income, comprehensive income, changes in stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2018,2019, including the related notes (collectively referred to as the “consolidatedconsolidated financial statements”)statements). We also have audited the Company’s internal control over financial reporting as of December 31, 2018,2019, based on criteria established inInternal Control—Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 20182019 and 2017,2018, and the results of theirits operations and theirits cash flows for each of the three years in the period ended December 31, 20182019 in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018,2019, based on criteria established inInternal Control—Control - Integrated Framework (2013)issued by the COSO.
Change in Accounting Principle
As discussed in Note 2.2 to the consolidated financial statements, the Company changed the manner in which it accounts for financial instruments in 2018.
Basis for opinionsOpinions
The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”)(PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
PricewaterhouseCoopers, Av. Francisco Matarazzo 1400, Torre Torino, São Paulo, SP, Brasil,05001-903, Caixa Postal 61005,
T: +55 (11) 3674 2000, www.pwc.com/br
Itaú Unibanco Holding S.A.
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.
F-1 |
Definition and limitationsLimitations of internal controlInternal Control over financial reportingFinancial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
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 (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Measurement of the provision for expectedcreditlossof loan and lease operations
As described in Notes 2.3(f) and 10 to the consolidated financial statements, the measurement of the provision for expected credit loss of loan and lease operations involves management’s judgment in the application of methodologies and assumptions, including term to maturity, prospective information and probability weighted loss scenarios. At December 31, 2019, the provision for expected credit loss of loan and lease operations was BRL 37,508 million on a total loan and lease operations portfolio of BRL 585,791 million.
The principal considerations for our determination that performing procedures relating to the measurement of the provision for expected credit loss of loan and lease operations is a critical audit matter are (i) there was significant judgment used by management in determining the appropriate methodologies and assumptions used as described above which in turn led to a high degree of auditor judgment, subjectivity and effort in performing procedures and in evaluating audit evidence obtained relating to the methodologies and assumptions; and (ii) the audit effort involved the use of professionals with specialized skills and knowledge to assist in our tests of the assumptions used by management to estimate credit losses.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included: i) testing the effectiveness of controls related to management’s measurement of the provision for expected credit loss of loan and lease operations, which included controls over the methodologies and assumptions used; ii) testing of the assumptions and data inputs used in the calculation of the provision for expected loss, including management´s approval and validation process; and iii) evaluating the disclosures in the financial statements in relation to the measurement of the provision for expected credit loss.
Valuation of financialassetsnot actively traded in the market
As described in Notes 2.3(b), and 28 to the consolidated financial statements, the valuation of financial assets not actively traded in the market is calculated using pricing techniques that use assumptions such as historical data, information on similar transactions and pricing techniques derived from market information or internally developed models when no pricing information in active market is available. At December 31, 2019, the Company had total financial assets measured at fair value of BRL 357,735 million, of which BRL 38,269 million is represented by corporate debt securities not actively traded in the market.
F-2 |
The principal considerations for our determination that performing procedures relating to these financial assets not actively traded in the market is a critical audit matter due to the significant judgments applied by management in choosing the pricing techniques and the assumptions to determine the fair value of not actively traded financial assets. This in turn led to a high degree of auditor judgment and effort in performing procedures, including the involvement of professionals with specialized skill and knowledge to assist in evaluating certain audit evidence.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included: i) evaluating the appropriateness of the valuation techniques used for these financial assets at fair value not actively traded in the market and the assumptions used by management, by comparing them with independent methodologies and assumptions; ii) testing the effectiveness of controls in relation to valuation techniques, including the relevant inputs and data to these controls; iii) calculating with the assistance of professionals with specialized skills and knowledge, an independent estimate of fair value for a sample of certain financial instruments and comparing management’s estimate with the independently developed estimate of fair value; iv) evaluating disclosures in the financial statements in relation to the valuation of financial assets.
Provision for contingent liabilities
As described in Notes 2.3(j), 2.4.(n) and 29 to the consolidated financial statements, the Company recognizes liabilities in the consolidated financial statements for the resolution of pending litigation when management determines that a loss is probable, and the amount of the loss can be reasonably estimated. The Company’s consolidated provision for contingent liabilities was BRL 21,454 million at December 31, 2019. No liability for an estimated loss is accrued in the consolidated financial statements for unfavorable outcomes when, after assessing the information available, (i) management concludes that it is not probable that a loss has been incurred in any of the pending litigation; or (ii) management is unable to estimate the loss or range of loss for any of the pending matters. Civil and labor proceedings are segregated on a collective basis and on an individualized basis. Proceedings considered under a collective basis are quantified based on internal models and are revalued considering the judicial decisions and deposits as guarantees on the related matters. Regarding the civil, labor and tax individualized proceedings, the calculation is made periodically based on the determination of the amount of the request and the likelihood of a loss, which is estimated according to the characteristics of each sentence.
The principal consideration for our determination that performing procedures relating to the provision for contingent liabilities is a critical audit matter is there was significant judgment by management when assessing the likelihood of a loss being incurred and when determining whether a reasonable estimate of the loss or range of loss for each claim can be made, which in turn led to a high degree of auditor judgment and effort in evaluating management’s assessment of the loss contingencies associated with litigation claims.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the design and the effectiveness of controls relating to identifying, assessing, monitoring, measuring, recording, and disclosing the provision for contingent liabilities, including the completeness and the accuracy of the data used. Our procedures also included testing the models used to quantify judicial proceedings of civil and labor natures considered on a collective basis and performing, on a sample basis, external confirmation procedures with both internal and external lawyers responsible for the proceedings.
PricewaterhouseCoopers Auditores Independentes
São Paulo, Brazil
April 30, 2019
/s/ PricewaterhouseCoopers
Auditores Independentes27, 2020
We have served as the Company’s auditor since 2001.
PricewaterhouseCoopers, Av. Francisco Matarazzo 1400, Torre Torino, São Paulo, SP, Brasil, 05001-903, Caixa Postal 61005, T: +55 (11) 3674 2000, www.pwc.com/br
F-3 |
(In millions of Reais)
Assets | Note | 12/31/2018 | 12/31/2017 | 1/1/2017 | Note | 12/31/2019 | 12/31/2018 | |||||||||||||||||
Cash | 37,159 | 18,749 | 18,542 | 30,367 | 37,159 | |||||||||||||||||||
Financial Assets | 1,424,876 | 1,330,251 | 1,246,833 | 1,501,481 | 1,424,876 | |||||||||||||||||||
Compulsory deposits in the Central Bank of Brazil | 94,148 | 98,837 | 85,700 | 91,248 | 94,148 | |||||||||||||||||||
At Amortized Cost | 994,759 | 905,729 | 902,289 | 1,010,644 | 994,759 | |||||||||||||||||||
Interbank deposits | 4 | 26,420 | 29,048 | 22,688 | 4 | 34,583 | 26,420 | |||||||||||||||||
Securities purchased under agreements to resell | 4 | 280,136 | 244,707 | 265,050 | 4 | 198,428 | 280,136 | |||||||||||||||||
Securities | 9 | 110,395 | 111,424 | 102,568 | 9 | 133,119 | 110,395 | |||||||||||||||||
Loan operations and lease operations portfolio | 10 | 536,091 | 497,719 | 494,851 | ||||||||||||||||||||
Loan and lease operations | 10 | 585,791 | 536,091 | |||||||||||||||||||||
Other financial assets | 18a | 75,090 | 59,568 | 53,895 | 18a | 94,752 | 75,090 | |||||||||||||||||
(-) Provision for Expected Loss | (33,373 | ) | (36,737 | ) | (36,763 | ) | 4, 9 and 10 | (36,029 | ) | (33,373 | ) | |||||||||||||
At Fair Value Through Other Comprehensive Income | 49,323 | 52,149 | 40,039 | 76,660 | 49,323 | |||||||||||||||||||
Securities | 8 | 49,323 | 52,149 | 40,039 | 8 | 76,660 | 49,323 | |||||||||||||||||
At Fair Value Through Profit or Loss | 286,646 | 273,536 | 218,805 | 322,929 | 286,646 | |||||||||||||||||||
Securities | 5 | 263,180 | 250,693 | 194,574 | 5 | 281,075 | 263,180 | |||||||||||||||||
Derivatives | 6 and 7 | 23,466 | 22,843 | 24,231 | 6 and 7 | 41,854 | 23,466 | |||||||||||||||||
Investments in associates and joint ventures | 11 | 12,019 | 5,055 | 5,073 | 11 | 15,097 | 12,019 | |||||||||||||||||
Fixed assets, net | 13 | 7,302 | 7,359 | 8,042 | 13 | 7,166 | 7,302 | |||||||||||||||||
Goodwill and Intangible assets, net | 14 | 19,329 | 19,383 | 17,056 | 14 | 19,719 | 19,329 | |||||||||||||||||
Tax assets | 42,830 | 44,249 | 45,081 | 48,960 | 42,830 | |||||||||||||||||||
Income tax and social contribution - current | 2,831 | 2,336 | 2,703 | 1,644 | 2,831 | |||||||||||||||||||
Income tax and social contribution - deferred | 24b | 32,781 | 35,869 | 38,202 | 24b | 38,914 | 32,781 | |||||||||||||||||
Other | 7,218 | 6,044 | 4,176 | 8,402 | 7,218 | |||||||||||||||||||
Other assets | 18a | 9,282 | 11,193 | 10,687 | 18a | 14,691 | 9,282 | |||||||||||||||||
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Total assets | 1,552,797 | 1,436,239 | 1,351,314 | Total assets | 1,637,481 | 1,552,797 | ||||||||||||||||||
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The accompanying notes are an integral part of these consolidated financial statements.statements
Itaú Unibanco Holding S.A. – Complete Financial Statements in IFRS – December 31, 2019 | F-4 |
ITAÚ UNIBANCO HOLDING S.A.
Consolidated Balance Sheet
(In millions of Reais)
Liabilities and stockholders’ equity | Note | 12/31/2018 | 12/31/2017 | 1/1/2017 | Note | 12/31/2019 | 12/31/2018 | |||||||||||||||||||||
Financial Liabilities | 1,151,237 | 1,056,717 | 1,012,075 | 1,211,999 | 1,151,237 | |||||||||||||||||||||||
At Amortized Cost | 1,119,734 | 1,024,584 | 982,116 | 1,159,830 | 1,119,734 | |||||||||||||||||||||||
Deposits | 15 | 463,424 | 402,938 | 329,414 | 15 | 507,060 | 463,424 | |||||||||||||||||||||
Securities sold under repurchase agreements | 17a | 330,237 | 312,634 | 349,164 | 17a | 256,583 | 330,237 | |||||||||||||||||||||
Interbank market debt | 17b | 134,670 | 124,587 | 129,648 | ||||||||||||||||||||||||
Institutional market debt | 17c | 93,974 | 98,482 | 96,239 | ||||||||||||||||||||||||
Interbank market funds | 17b | 174,862 | 134,670 | |||||||||||||||||||||||||
Institutional market funds | 17c | 104,244 | 93,974 | |||||||||||||||||||||||||
Other financial liabilities | 18b | 97,429 | 85,943 | 77,651 | 18b | 117,081 | 97,429 | |||||||||||||||||||||
At Fair Value Through Profit or Loss | 27,711 | 27,211 | 25,217 | 48,029 | 27,711 | |||||||||||||||||||||||
Derivatives | 6 and 7 | 27,519 | 26,746 | 24,698 | 6 and 7 | 47,828 | 27,519 | |||||||||||||||||||||
Structured notes | 16 | 192 | 465 | 519 | 16 | 201 | 192 | |||||||||||||||||||||
Provision for Expected Loss | 10 | 3,792 | 4,922 | 4,742 | 10 | 4,140 | 3,792 | |||||||||||||||||||||
Loan Commitments | 2,601 | 3,015 | 2,761 | 3,303 | 2,601 | |||||||||||||||||||||||
Financial Guarantees | 1,191 | 1,907 | 1,981 | 837 | 1,191 | |||||||||||||||||||||||
Reserves for insurance and private pension | 27c | 201,187 | 181,232 | 154,076 | ||||||||||||||||||||||||
Provision for insurance and private pensions | 27c | 218,334 | 201,187 | |||||||||||||||||||||||||
Provisions | 29 | 18,613 | 19,736 | 20,909 | 29 | 21,454 | 18,613 | |||||||||||||||||||||
Tax liabilities | 24c | 5,284 | 7,836 | 4,950 | 24c | 7,891 | 5,284 | |||||||||||||||||||||
Income tax and social contribution - current | 2,058 | 3,175 | 1,741 | 3,997 | 2,058 | |||||||||||||||||||||||
Income tax and social contribution - deferred | 24b | 447 | 391 | (289 | ) | 24b | 1,058 | 447 | ||||||||||||||||||||
Other | 2,779 | 4,270 | 3,498 | 2,836 | 2,779 | |||||||||||||||||||||||
Other liabilities | 18b | 26,010 | 26,362 | 26,920 | 18b | 28,338 | 26,010 | |||||||||||||||||||||
Total liabilities | 1,402,331 | 1,291,883 | 1,218,930 | 1,488,016 | 1,402,331 | |||||||||||||||||||||||
Capital | 19a | 97,148 | 97,148 | 97,148 | 19a | 97,148 | 97,148 | |||||||||||||||||||||
Treasury shares | 19a | (1,820 | ) | (2,743 | ) | (1,882 | ) | 19a | (1,274 | ) | (1,820 | ) | ||||||||||||||||
Additionalpaid-in capital | 19c | 2,120 | 1,930 | 1,785 | 19c | 2,175 | 2,120 | |||||||||||||||||||||
Appropriated reserves | 19c | 13,480 | 12,499 | 3,443 | 19c | 12,948 | 13,480 | |||||||||||||||||||||
Unappropriated reserves | 19c | 29,666 | 26,030 | 23,740 | 19c | 29,878 | 29,666 | |||||||||||||||||||||
Cumulative other comprehensive income | (3,812 | ) | (3,486 | ) | (4,139 | ) | (3,950 | ) | (3,812 | ) | ||||||||||||||||||
Total stockholders’ equity attributed to the owners of the parent company | 136,782 | 131,378 | 120,095 | 136,925 | 136,782 | |||||||||||||||||||||||
Non-controlling interests | 19d | 13,684 | 12,978 | 12,289 | 19d | 12,540 | 13,684 | |||||||||||||||||||||
Total stockholders’ equity | 150,466 | 144,356 | 132,384 | 149,465 | 150,466 | |||||||||||||||||||||||
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Total liabilities and stockholders’ equity | 1,552,797 | 1,436,239 | 1,351,314 | 1,637,481 | 1,552,797 | |||||||||||||||||||||||
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The accompanying notes are an integral part of these consolidated financial statements.statements
Itaú Unibanco Holding S.A. – Complete Financial Statements in IFRS – December 31, 2019 | F-5 |
Consolidated Statement of Income
(In millions of Reais, except for number of shares and earnings per share information)
Note | 01/01 to 12/31/2018 | 01/01 to 12/31/2017 | 01/01 to 12/31/2016 | Note | 01/01 to 12/31/2019 | 01/01 to 12/31/2018 | 01/01 to 12/31/2017 | |||||||||||||||||||||||||
Banking product | 104,200 | 111,523 | 118,422 | |||||||||||||||||||||||||||||
Operating Revenues | 117,079 | 104,200 | 111,523 | |||||||||||||||||||||||||||||
Interest and similar income of financial assets at amortized cost and at fair value through other comprehensive income | 21a | 110,324 | 122,703 | 138,764 | 21a | 117,523 | 110,324 | 122,703 | ||||||||||||||||||||||||
Interest, similar income and dividend of financial assets at fair value through profit or loss | 22,853 | 22,938 | 23,641 | 22,760 | 22,853 | 22,938 | ||||||||||||||||||||||||||
Interest and similar expenses | 21b | (70,612 | ) | (78,330 | ) | (95,129 | ) | 21b | (75,958 | ) | (70,612 | ) | (78,330 | ) | ||||||||||||||||||
Adjustments to Fair Value of Financial Assets and Liabilities | 21c | (4,834 | ) | 4,181 | 7,066 | 21c | 4,098 | (4,834 | ) | 4,181 | ||||||||||||||||||||||
Foreign exchange results and exchange variations on transactions | 2,974 | (250 | ) | 5,513 | ||||||||||||||||||||||||||||
Banking service fees | 22 | 36,809 | 34,448 | 31,918 | ||||||||||||||||||||||||||||
Income related to insurance and private pension operations before claim and selling expenses | 3,961 | 4,699 | 5,265 | |||||||||||||||||||||||||||||
Income related to insurance and private pension | 24,097 | 26,876 | 24,755 | |||||||||||||||||||||||||||||
Change in reserves for insurance and private pension | (20,136 | ) | (22,177 | ) | (19,490 | ) | ||||||||||||||||||||||||||
Foreign exchange results and exchange variations in foreign transactions | 927 | 2,974 | (250 | ) | ||||||||||||||||||||||||||||
Revenues from banking services | 22 | 39,032 | 36,809 | 34,448 | ||||||||||||||||||||||||||||
Income from insurance and private pension operations before claim and selling expenses | 4,553 | 3,961 | 4,699 | |||||||||||||||||||||||||||||
Revenues from insurance premiuns and private pensions | 19,624 | 24,097 | 26,876 | |||||||||||||||||||||||||||||
Change in provision for insurance and private pension | (15,071 | ) | (20,136 | ) | (22,177 | ) | ||||||||||||||||||||||||||
Other income | 2,725 | 1,134 | 1,384 | 3 | 4,144 | 2,725 | 1,134 | |||||||||||||||||||||||||
Expected Loss from Financial Assets and Claims | (10,182 | ) | (20,966 | ) | (24,355 | ) | (18,567 | ) | (10,182 | ) | (20,966 | ) | ||||||||||||||||||||
Expected Loss with Loan Operations and Lease Operations | 10c | (10,587 | ) | (18,381 | ) | (22,466 | ) | 10c | (18,298 | ) | (10,587 | ) | (18,381 | ) | ||||||||||||||||||
Expected Loss with Other Financial Assets | 1,633 | (1,393 | ) | (404 | ) | |||||||||||||||||||||||||||
Expected Loss with Other Financial Assets (Net) | 1,026 | 1,633 | (1,393 | ) | ||||||||||||||||||||||||||||
(Expenses) Recovery of claims | (1,228 | ) | (1,192 | ) | (1,485 | ) | (1,295 | ) | (1,228 | ) | (1,192 | ) | ||||||||||||||||||||
Net Banking Product of Expected Losses from Financial Assets and Claims | 94,018 | 90,557 | 94,067 | |||||||||||||||||||||||||||||
Operating Revenues Net of Expected Losses from Financial Assets and Claims | 98,512 | 94,018 | 90,557 | |||||||||||||||||||||||||||||
Other operating income (expenses) | (63,410 | ) | (59,975 | ) | (58,388 | ) | (67,269 | ) | (63,410 | ) | (59,975 | ) | ||||||||||||||||||||
General and administrative expenses | 23 | (57,538 | ) | (53,494 | ) | (50,905 | ) | 23 | (61,012 | ) | (57,538 | ) | (53,494 | ) | ||||||||||||||||||
Tax expenses | (6,619 | ) | (7,031 | ) | (8,011 | ) | (7,572 | ) | (6,619 | ) | (7,031 | ) | ||||||||||||||||||||
Share of profit or (loss) in associates and joint ventures | 11 | 747 | 550 | 528 | 11 | 1,315 | 747 | 550 | ||||||||||||||||||||||||
Income before income tax and social contribution | 30,608 | 30,582 | 35,679 | |||||||||||||||||||||||||||||
Net income before income tax and social contribution | 31,243 | 30,608 | 30,582 | |||||||||||||||||||||||||||||
Current income tax and social contribution | 24a | (2,564 | ) | (4,539 | ) | (3,898 | ) | 24a | (9,092 | ) | (2,564 | ) | (4,539 | ) | ||||||||||||||||||
Deferred income tax and social contribution | 24a | (2,405 | ) | (2,818 | ) | (9,765 | ) | 24a | 5,662 | (2,405 | ) | (2,818 | ) | |||||||||||||||||||
Net income | 25,639 | 23,225 | 22,016 | 27,813 | 25,639 | 23,225 | ||||||||||||||||||||||||||
Net income attributable to owners of the parent company | 25 | 24,907 | 23,193 | 21,627 | 25 | 27,113 | 24,907 | 23,193 | ||||||||||||||||||||||||
Net income attributable tonon-controlling interests | 19d | 732 | 32 | 389 | 19d | 700 | 732 | 32 | ||||||||||||||||||||||||
Earnings per share - basic | 25 | 25 | ||||||||||||||||||||||||||||||
Common | 2.56 | 2.38 | 2.21 | 2.78 | 2.56 | 2.38 | ||||||||||||||||||||||||||
Preferred | 2.56 | 2.38 | 2.21 | 2.78 | 2.56 | 2.38 | ||||||||||||||||||||||||||
Earnings per share - diluted | 25 | 25 | ||||||||||||||||||||||||||||||
Common | 2.55 | 2.36 | 2.20 | 2.77 | 2.55 | 2.36 | ||||||||||||||||||||||||||
Preferred | 2.55 | 2.36 | 2.20 | 2.77 | 2.55 | 2.36 | ||||||||||||||||||||||||||
Weighted average number of shares outstanding - basic | 25 | 25 | ||||||||||||||||||||||||||||||
Common | 4,958,290,359 | 5,021,834,934 | 5,027,611,714 | 4,958,290,359 | 4,958,290,359 | 5,021,834,934 | ||||||||||||||||||||||||||
Preferred | 4,759,872,085 | 4,734,030,111 | 4,756,823,490 | 4,781,855,588 | 4,759,872,085 | 4,734,030,111 | ||||||||||||||||||||||||||
Weighted average number of shares outstanding - diluted | 25 | 25 | ||||||||||||||||||||||||||||||
Common | 4,958,290,359 | 5,021,834,934 | 5,027,611,714 | 4,958,290,359 | 4,958,290,359 | 5,021,834,934 | ||||||||||||||||||||||||||
Preferred | 4,815,473,777 | 4,796,645,028 | 4,821,864,280 | 4,826,925,107 | 4,815,473,777 | 4,796,645,028 |
The accompanying notes are an integral part of these consolidated financial statements.statements
Itaú Unibanco Holding S.A. – Complete Financial Statements in IFRS – December 31, 2019 | F-6 |
Consolidated Statement of Comprehensive Income
(In millions of Reais)
Note | 01/01 to 12/31/2018 | 01/01 to 12/31/2017 | 01/01 to 12/31/2016 | Note | 01/01 to 12/31/2019 | 01/01 to 12/31/2018 | 01/01 to 12/31/2017 | |||||||||||||||||||||||||
Net income | 25,639 | 23,225 | 22,016 | 27,813 | 25,639 | 23,225 | ||||||||||||||||||||||||||
Financial assets at fair value through other comprehensive income | (166 | ) | 652 | 1,557 | 1,810 | (166 | ) | 652 | ||||||||||||||||||||||||
Change in fair value | (576 | ) | 997 | 2,239 | 2,883 | (576 | ) | 997 | ||||||||||||||||||||||||
Income tax effect | 270 | (415 | ) | (1,193 | ) | |||||||||||||||||||||||||||
Tax effect | (696 | ) | 270 | (415 | ) | |||||||||||||||||||||||||||
(Gains) / losses transferred to income statement | 21c | 254 | 128 | 851 | 21c | (628 | ) | 254 | 128 | |||||||||||||||||||||||
Income tax effect | (114 | ) | (58 | ) | (340 | ) | ||||||||||||||||||||||||||
Tax effect | 251 | (114 | ) | (58 | ) | |||||||||||||||||||||||||||
Hedge | (1,135 | ) | (571 | ) | (697 | ) | (16 | ) | (1,135 | ) | (571 | ) | ||||||||||||||||||||
Cash flowhedge | 7 | (81 | ) | (29 | ) | (2,815 | ) | |||||||||||||||||||||||||
Cash flowhedge | 7 | (56 | ) | (81 | ) | (29 | ) | |||||||||||||||||||||||||
Change in fair value | (256 | ) | (86 | ) | (5,041 | ) | (191 | ) | (256 | ) | (86 | ) | ||||||||||||||||||||
Income tax effect | 175 | 57 | 2,226 | |||||||||||||||||||||||||||||
Tax effect | 135 | 175 | 57 | |||||||||||||||||||||||||||||
Hedge of net investment in foreign operation | 7 | (1,054 | ) | (542 | ) | 2,118 | 7 | 40 | (1,054 | ) | (542 | ) | ||||||||||||||||||||
Change in fair value | (1,793 | ) | (1,055 | ) | 3,760 | 83 | (1,793 | ) | (1,055 | ) | ||||||||||||||||||||||
Income tax effect | 739 | 513 | (1,642 | ) | ||||||||||||||||||||||||||||
Tax effect | (43 | ) | 739 | 513 | ||||||||||||||||||||||||||||
Remeasurements of liabilities for post-employment benefits(*) | (164 | ) | (10 | ) | (590 | ) | (350 | ) | (164 | ) | (10 | ) | ||||||||||||||||||||
Remeasurements | 26 | (267 | ) | 33 | (1,048 | ) | 26 | (648 | ) | (267 | ) | 33 | ||||||||||||||||||||
Income tax effect | 103 | (43 | ) | 458 | ||||||||||||||||||||||||||||
Foreign exchange differences on foreign investments | 1,139 | 582 | (2,737 | ) | ||||||||||||||||||||||||||||
Tax effect | 298 | 103 | (43 | ) | ||||||||||||||||||||||||||||
Foreign exchange variation in foreign investments | (1,582 | ) | 1,139 | 582 | ||||||||||||||||||||||||||||
Total other comprehensive income | (326 | ) | 653 | (2,467 | ) | (138 | ) | (326 | ) | 653 | ||||||||||||||||||||||
Total comprehensive income | 25,313 | 23,878 | 19,549 | 27,675 | 25,313 | 23,878 | ||||||||||||||||||||||||||
Comprehensive income attributable tonon-controlling interests | 732 | 32 | 389 | 700 | 732 | 32 | ||||||||||||||||||||||||||
Comprehensive income attributable to the owners of the parent company | 24,581 | 23,846 | 19,160 | 26,975 | 24,581 | 23,846 |
(*) | Amounts that will not be subsequently reclassified to income. |
The accompanying notes are an integral part of these consolidated financial statements.statements
Itaú Unibanco Holding S.A. – Complete Financial Statements in IFRS – December 31, 2019 | F-7 |
Consolidated Statement of Changes in Stockholders’ Equity (Notes 19 and 20)
Periods ended December 31, 2019, 2018 2017 and 20162017
(In millions of Reais)
Attributed to owners of the parent company | Total stockholders’ equity – owners of the parent company | Total stockholders’ equity – non-controlling interests | Total | Attributed to owners of the parent company | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Capital | Treasury shares | Additional paid-in capital | Appropriated reserves | Unappropriated reserves | Retained earnings | Other comprehensive income | Other comprehensive income | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Financial Assets at Fair Value Through Other Comprehensive Income(1) | Remeasurements of liabilities of post- employment benefits | Cumulative translation adjustments abroad | Gains and losses – hedge (2) | Capital | Treasury shares | Additional paid-in capital | Appropriated reserves | Unappropriated reserves | Retained earnings | Financial Assets at Fair Value Through Other Comprehensive Income(1) | Remeasurements of liabilities of post- employment benefits | Cumulative translation adjustments abroad | Gains and losses – hedge(2) | Total stockholders’ equity - owners of the parent company | Total stockholders’ equity – non- controlling interests | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at 01/01/2016 - In accordance with IAS 39 | 85,148 | (4,353 | ) | 1,733 | 10,067 | 20,947 | — | (2,771 | ) | (225 | ) | 4,822 | (3,116 | ) | 112,252 | 1,807 | 114,059 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Adjustments (Note 2.2) | — | — | — | — | 107 | — | (382 | ) | — | — | — | (275 | ) | (187 | ) | (462 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at 01/01/2016 | 85,148 | (4,353 | ) | 1,733 | 10,067 | 21,054 | — | (3,153 | ) | (225 | ) | 4,822 | (3,116 | ) | 111,977 | 1,620 | 113,597 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at 01/01/2017 | 97,148 | (1,882 | ) | 1,785 | 3,443 | 23,740 | — | (1,596 | ) | (815 | ) | 2,085 | (3,813 | ) | 120,095 | 12,289 | 132,384 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Transactions with owners | 12,000 | 2,471 | 52 | (9,620 | ) | — | (11,574 | ) | — | — | — | — | (6,671 | ) | 10,280 | 3,609 | — | (861 | ) | 145 | 12,480 | — | (19,201 | ) | — | — | — | — | (7,437 | ) | 657 | (6,780 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Capital increase - Statutory Reserve - ESM of September 14, 2016 | 12,000 | — | — | (12,000 | ) | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Treasury shares | — | 2,471 | (17 | ) | (2,670 | ) | — | — | — | — | — | — | (216 | ) | — | (216 | ) | — | (861 | ) | 64 | (1,178 | ) | — | — | — | — | — | — | (1,975 | ) | — | (1,975 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Acquisition of treasury shares (Note 19a) | — | (947 | ) | — | — | — | — | — | — | — | — | (947 | ) | — | (947 | ) | — | (3,089 | ) | — | — | — | — | — | — | — | — | (3,089 | ) | — | (3,089 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cancellation of shares - ESM of April 27, 2016 – Approved on June 7, 2016 | — | 2,670 | — | (2,670 | ) | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cancellation of treasury shares – Meeting of the Board of Directors 12/15/2017 | — | 1,178 | — | (1,178 | ) | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Result of delivery of treasury shares | — | 748 | (17 | ) | — | — | — | — | — | — | — | 731 | — | 731 | — | 1,050 | 64 | — | — | — | — | — | — | — | 1,114 | — | 1,114 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Recognition of stock-based payment plans | — | — | 69 | — | — | — | — | — | — | — | 69 | — | 69 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(Increase) / Reduction of interest of controlling stockholders (Note 2.4a I and 3) | — | — | — | — | — | — | — | — | — | — | — | 10,373 | 10,373 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Dividends / interest on capital – Special profit reserve (Note 19b) | — | — | — | 5,050 | — | (11,574 | ) | — | — | — | — | (6,524 | ) | (93 | ) | (6,617 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Dividends / Interest on capital paid in 2016 - Year 2015 - Special profit reserve | — | — | — | (2,697 | ) | — | — | — | — | — | — | (2,697 | ) | — | (2,697 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Corporate reorganizations (Note 2.4 a III) | — | — | — | (1,586 | ) | — | — | — | — | — | — | (1,586 | ) | — | (1,586 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other | — | — | — | — | (88 | ) | — | — | — | — | — | (88 | ) | — | (88 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total comprehensive income | — | — | — | — | — | 21,627 | 1,557 | (590 | ) | (2,737 | ) | (697 | ) | 19,160 | 389 | 19,549 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net income | — | — | — | — | — | 21,627 | — | — | — | — | 21,627 | 389 | 22,016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income for the period | — | — | — | — | — | — | 1,557 | (590 | ) | (2,737 | ) | (697 | ) | (2,467 | ) | — | (2,467 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Appropriations: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Legal reserve | — | — | — | 943 | — | (943 | ) | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Statutory reserve | — | — | — | 6,336 | 2,774 | (9,110 | ) | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at 12/31/2016 | 97,148 | (1,882 | ) | 1,785 | 3,443 | 23,740 | — | (1,596 | ) | (815 | ) | 2,085 | (3,813 | ) | 120,095 | 12,289 | 132,384 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Change in the period | 12,000 | 2,471 | 52 | (6,624 | ) | 2,686 | — | 1,557 | (590 | ) | (2,737 | ) | (697 | ) | 8,118 | 10,669 | 18,787 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Balance at 01/01/2017 | 97,148 | (1,882 | ) | 1,785 | 3,443 | 23,740 | (1,596 | ) | (815 | ) | 2,085 | (3,813 | ) | 120,095 | 12,289 | 132,384 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Transactions with owners | — | (861 | ) | 145 | 12,480 | — | (19,201 | ) | — | — | — | — | (7,437 | ) | 657 | (6,780 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Treasury shares - granting of stock options | — | (861 | ) | 64 | (1,178 | ) | — | — | — | — | — | — | (1,975 | ) | — | (1,975 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cancellation of Shares – Meeting of the Board of Directors 12/15/2017 | — | 1,178 | — | (1,178 | ) | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Acquisition of treasury shares (Note 18a) | — | (3,089 | ) | — | — | — | — | — | — | — | — | (3,089 | ) | — | (3,089 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Result of delivery of treasury shares | — | 1,050 | 64 | — | — | — | — | — | — | — | 1,114 | — | 1,114 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Share-based payment – variable compensation | — | — | 81 | — | — | — | — | — | — | — | 81 | — | 81 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Recognition of share-based payment plans | — | — | 81 | — | — | — | — | — | — | — | 81 | — | 81 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(Increase) / Reduction of interest of controlling stockholders (Note 2.4a I and 3) | — | — | — | — | — | — | — | — | — | — | — | 1,002 | 1,002 | — | — | — | — | — | — | — | — | — | — | — | 1,002 | 1,002 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Dividends / interest on capital – Special profit reserve (Note 19b) | — | — | — | 13,658 | — | (19,201 | ) | — | — | — | — | (5,543 | ) | (345 | ) | (5,888 | ) | — | — | — | 13,658 | — | (19,201 | ) | — | — | — | — | (5,543 | ) | (345 | ) | (5,888 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Dividends / Interest on capital paid in 2017 - Year 2016 - Special profit reserve | — | — | — | (5,048 | ) | — | — | — | — | — | — | (5,048 | ) | — | (5,048 | ) | — | — | — | (5,048 | ) | — | — | — | — | — | — | (5,048 | ) | — | (5,048 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Corporate reorganizations (Note 2.4 a III) | — | — | — | (63 | ) | — | — | — | — | — | — | (63 | ) | — | (63 | ) | — | — | — | (63 | ) | — | — | — | — | — | — | (63 | ) | — | (63 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other | — | — | — | (15 | ) | — | — | — | — | — | (15 | ) | — | (15 | ) | — | — | — | — | (15 | ) | — | — | — | — | — | (15 | ) | — | (15 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total comprehensive income | — | — | — | — | — | 23,193 | 652 | (10 | ) | 582 | (571 | ) | 23,846 | 32 | 23,878 | — | — | — | — | — | 23,193 | 652 | (10 | ) | 582 | (571 | ) | 23,846 | 32 | 23,878 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net income | — | — | — | — | — | 23,193 | — | — | — | — | 23,193 | 32 | 23,225 | — | — | — | — | — | 23,193 | — | — | — | — | 23,193 | 32 | 23,225 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income for the period | — | — | — | — | — | — | 652 | (10 | ) | 582 | (571 | ) | 653 | — | 653 | — | — | — | — | — | — | 652 | (10 | ) | 582 | (571 | ) | 653 | — | 653 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Appropriations: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Legal reserve | — | — | — | 1,055 | (1,055 | ) | — | — | — | — | — | — | — | — | — | — | 1,055 | — | (1,055 | ) | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Statutory reserve | — | — | — | 632 | 2,305 | (2,937 | ) | — | — | — | — | — | — | — | — | — | — | 632 | 2,305 | (2,937 | ) | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at 12/31/2017 | 97,148 | (2,743 | ) | 1,930 | 12,499 | 26,030 | — | (944 | ) | (825 | ) | 2,667 | (4,384 | ) | 131,378 | 12,978 | 144,356 | 97,148 | (2,743 | ) | 1,930 | 12,499 | 26,030 | — | (944 | ) | (825 | ) | 2,667 | (4,384 | ) | 131,378 | 12,978 | 144,356 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Change in the period | — | (861 | ) | 145 | 9,056 | 2,290 | — | 652 | (10 | ) | 582 | (571 | ) | 11,283 | 689 | 11,972 | — | (861 | ) | 145 | 9,056 | 2,290 | — | 652 | (10 | ) | 582 | (571 | ) | 11,283 | 689 | 11,972 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Balance at 01/01/2018 | 97,148 | (2,743 | ) | 1,930 | 12,499 | 26,030 | 0 | (944 | ) | (825 | ) | 2,667 | (4,384 | ) | 131,378 | 12,978 | 144,356 | 97,148 | (2,743 | ) | 1,930 | 12,499 | 26,030 | — | (944 | ) | (825 | ) | 2,667 | (4,384 | ) | 131,378 | 12,978 | 144,356 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Transactions with owners | 0 | 923 | 190 | 14,145 | 0 | (20,848 | ) | 0 | 0 | 0 | 0 | (5,590 | ) | (26 | ) | (5,616 | ) | — | 923 | 190 | 14,145 | — | (20,848 | ) | — | — | — | — | (5,590 | ) | (26 | ) | (5,616 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Treasury shares | 0 | 923 | 422 | (534 | ) | 0 | 0 | 0 | 0 | 0 | 0 | 811 | 0 | 811 | — | 923 | 422 | (534 | ) | — | — | — | — | — | — | 811 | — | 811 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Acquisition of treasury shares (Note 19a) | 0 | (510 | ) | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | (510 | ) | 0 | (510 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cancellation of Shares – Meeting of the Board of Directors 02/22/2018 | 0 | 534 | 0 | (534 | ) | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cancellation of treasury shares – Meeting of the Board of Directors 02/22/2018 | — | 534 | — | (534 | ) | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Acquisition of treasury shares | — | (510 | ) | — | — | — | — | — | — | — | — | (510 | ) | — | (510 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Result of delivery of treasury shares | 0 | 899 | 422 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 1,321 | 0 | 1,321 | — | 899 | 422 | — | — | — | — | — | — | — | 1,321 | — | 1,321 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Recognition of stock-based payment plans | 0 | 0 | (232 | ) | 0 | 0 | 0 | 0 | 0 | 0 | 0 | (232 | ) | 0 | (232 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Recognition of share-based payment plans | — | — | (232 | ) | — | — | — | — | — | — | — | (232 | ) | — | (232 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(Increase) / Reduction of interest of controlling stockholders (Note 2.4a I and 3) | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 131 | 131 | — | — | — | — | — | — | — | — | — | — | — | 131 | 131 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Dividends / interest on capital | 0 | 0 | 0 | 14,679 | 0 | (20,848 | ) | 0 | 0 | 0 | 0 | (6,169 | ) | (157 | ) | (6,326 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Dividends / Interest on capital paid in 2018 - Year 2017 - Special profit reserve | 0 | 0 | 0 | (13,673 | ) | 0 | 0 | 0 | 0 | 0 | 0 | (13,673 | ) | 0 | (13,673 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Corporate reorganizations (Note 2.4 a III) | 0 | 0 | 0 | (592 | ) | 0 | 0 | 0 | 0 | 0 | 0 | (592 | ) | 0 | (592 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Dividends / interest on capital – Special profit reserve | — | — | — | 14,679 | — | (20,848 | ) | — | — | — | — | (6,169 | ) | (157 | ) | (6,326 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Dividends / Interest on capital paid in 2018 – declared after 12/31/2017 | — | — | — | (13,673 | ) | — | — | — | — | — | — | (13,673 | ) | — | (13,673 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Unclaimed dividends | 0 | 0 | 0 | 0 | 0 | 4 | 0 | 0 | 0 | 0 | 4 | 0 | 4 | — | — | — | — | — | 4 | — | — | — | — | 4 | — | 4 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other(3) | 0 | 0 | 0 | 0 | 674 | 0 | 0 | 0 | 0 | 0 | 674 | 0 | 674 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Corporate reorganizations | — | — | — | (592 | ) | — | — | — | — | — | — | (592 | ) | — | (592 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other | — | — | — | — | 674 | — | — | — | — | — | 674 | — | 674 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total comprehensive income | 0 | 0 | 0 | 0 | 0 | 24,907 | (166 | ) | (164 | ) | 1,139 | (1,135 | ) | 24,581 | 732 | 25,313 | — | — | — | — | — | 24,907 | (166 | ) | (164 | ) | 1,139 | (1,135 | ) | 24,581 | 732 | 25,313 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net income | 0 | 0 | 0 | 0 | 0 | 24,907 | 0 | 0 | 0 | 0 | 24,907 | 732 | 25,639 | — | — | — | — | — | 24,907 | — | — | — | — | 24,907 | 732 | 25,639 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income for the period | 0 | 0 | 0 | 0 | 0 | 0 | (166 | ) | (164 | ) | 1,139 | (1,135 | ) | (326 | ) | 0 | (326 | ) | — | — | — | — | — | — | (166 | ) | (164 | ) | 1,139 | (1,135 | ) | (326 | ) | — | (326 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Appropriations: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Legal reserve | 0 | 0 | 0 | 1,097 | 0 | (1,097 | ) | 0 | 0 | 0 | 0 | 0 | 0 | 0 | — | — | — | 1,097 | — | (1,097 | ) | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Statutory reserve | 0 | 0 | 0 | 4 | 2,962 | (2,966 | ) | 0 | 0 | 0 | 0 | 0 | 0 | 0 | — | — | — | 4 | 2,962 | (2,966 | ) | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at 12/31/2018 | 97,148 | (1,820 | ) | 2,120 | 13,480 | 29,666 | 0 | (1,110 | ) | (989 | ) | 3,806 | (5,519 | ) | 136,782 | 13,684 | 150,466 | 97,148 | (1,820 | ) | 2,120 | 13,480 | 29,666 | — | (1,110 | ) | (989 | ) | 3,806 | (5,519 | ) | 136,782 | 13,684 | 150,466 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Change in the period | 0 | (923 | ) | (190 | ) | (981 | ) | (3,636 | ) | 0 | 166 | 164 | (1,139 | ) | 1,135 | (5,404 | ) | (706 | ) | (6,110 | ) | — | 923 | 190 | 981 | 3,636 | — | (166 | ) | (164 | ) | 1,139 | (1,135 | ) | 5,404 | 706 | 6,110 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Balance at 01/01/2019 | 97,148 | (1,820 | ) | 2,120 | 13,480 | 29,666 | — | (1,110 | ) | (989 | ) | 3,806 | (5,519 | ) | 136,782 | 13,684 | 150,466 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Transactions with owners | — | 546 | 55 | 9,811 | — | (19,597 | ) | — | — | — | — | (9,185 | ) | (1,844 | ) | (11,029 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Treasury shares | — | 546 | 351 | — | — | — | — | — | — | — | 897 | — | 897 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Result of delivery of treasury shares | — | 546 | 351 | — | — | — | — | — | — | — | 897 | — | 897 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Recognition of share-based payment plans | — | — | (296 | ) | — | — | — | — | — | — | — | (296 | ) | — | (296 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(Increase) / Reduction of interest of controlling stockholders (Note 2.4a I and 3) | — | — | — | — | — | — | — | — | — | — | — | (1,567 | ) | (1,567 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Dividends / interest on capital – Special profit reserve | — | — | — | 9,811 | — | (19,597 | ) | — | — | — | — | (9,786 | ) | (277 | ) | (10,063 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Dividends / Interest on capital paid in 2019 – declared after 12/31/2018 | — | — | — | (17,500 | ) | — | — | — | — | — | — | (17,500 | ) | — | (17,500 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Unclaimed dividends and Interest on capital | — | — | — | — | — | 42 | — | — | — | — | 42 | — | 42 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other(3) | — | — | — | — | (189 | ) | — | — | — | — | — | (189 | ) | — | (189 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total comprehensive income | — | — | — | — | — | 27,113 | 1,810 | (350 | ) | (1,582 | ) | (16 | ) | 26,975 | 700 | 27,675 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net income | — | — | — | — | — | 27,113 | — | — | — | — | 27,113 | 700 | 27,813 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income for the period | — | — | — | — | — | — | 1,810 | (350 | ) | (1,582 | ) | (16 | ) | (138 | ) | — | (138 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Appropriations: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Legal reserve | — | — | — | 1,336 | — | (1,336 | ) | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Statutory reserve | — | — | — | 5,821 | 401 | (6,222 | ) | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at 12/31/2019 | 97,148 | (1,274 | ) | 2,175 | 12,948 | 29,878 | — | 700 | (1,339 | ) | 2,224 | (5,535 | ) | 136,925 | 12,540 | 149,465 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Change in the period | — | 546 | 55 | (532 | ) | 212 | — | 1,810 | (350 | ) | (1,582 | ) | (16 | ) | 143 | (1,144 | ) | (1,001 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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(1) | Includes |
(2) | Includes Cash flow hedge and hedge of net investment in foreign operation. |
(3) | Includes Argentina´s hyperinflation adjustment. |
The accompanying notes are an integral part of these consolidated financial statements.statements
Itaú Unibanco Holding S.A. – Complete Financial Statements in IFRS – December 31, 2019 | F-8 |
Consolidated Statement of Cash Flows
(In millions of Reais)
Note | 01/01 to 12/31/2018 | 01/01 to 12/31/2017 | 01/01 to 12/31/2016 | Note | 01/01 to 12/31/2019 | 01/01 to 12/31/2018 | 01/01 to 12/31/2017 | |||||||||||||||||||||||
Adjusted net income | 55,841 | 60,431 | 70,570 | 61,198 | 62,890 | 73,222 | ||||||||||||||||||||||||
Net income | 25,639 | 23,225 | 22,016 | 27,813 | 25,639 | 23,225 | ||||||||||||||||||||||||
Adjustments to net income: | 30,202 | 37,206 | 48,554 | 33,385 | 37,251 | 49,997 | ||||||||||||||||||||||||
Share-based payment | (98 | ) | 215 | 127 | (141 | ) | (98 | ) | 215 | |||||||||||||||||||||
Financial assets through Profit or Loss and Derivatives | 551 | 452 | 163 | |||||||||||||||||||||||||||
Adjustments to fair value of financial assets through Profit or Loss and Derivatives | 310 | 551 | 452 | |||||||||||||||||||||||||||
Effects of changes in exchange rates on cash and cash equivalents | (990 | ) | 642 | 17,941 | (54 | ) | (990 | ) | 642 | |||||||||||||||||||||
Expected Loss from Financial Assets and Claims | 10b | 10,182 | 20,966 | 24,355 | 18,567 | 10,182 | 20,966 | |||||||||||||||||||||||
Interest and foreign exchange expense from operations with subordinated debt | 8,759 | 4,714 | 942 | |||||||||||||||||||||||||||
Change in reserves for insurance and private pension | 20,136 | 22,177 | 19,490 | |||||||||||||||||||||||||||
Income from interest and foreign exchange variation from operations with subordinated debt | 4,433 | 8,759 | 4,714 | |||||||||||||||||||||||||||
Provision for insurance and private pension | 15,071 | 20,136 | 22,177 | |||||||||||||||||||||||||||
Depreciation and amortization | 13 and 14 | 3,567 | 3,169 | 3,249 | 13 and 14 | 3,561 | 3,567 | 3,169 | ||||||||||||||||||||||
Update/charge expense provision for Civil, labor, fiscal and legal obligations | 1,037 | 1,325 | 1,609 | |||||||||||||||||||||||||||
Interest expense from provision for contingent and legal liabilities | 2,465 | 3,641 | 4,247 | |||||||||||||||||||||||||||
Provision for contingent and legal liabilities | (199 | ) | (345 | ) | (383 | ) | ||||||||||||||||||||||||
Expense from update / charges on the provision for civil, labor, tax and legal obligations | 1,925 | 1,037 | 1,325 | |||||||||||||||||||||||||||
Provision for civil, labor, tax and legal obligations | 5,132 | 2,465 | 3,641 | |||||||||||||||||||||||||||
Revenue from update / charges on deposits in escrow | (519 | ) | (199 | ) | (345 | ) | ||||||||||||||||||||||||
Deferred taxes (excluding hedge tax effects) | 24b | 10,287 | 3,972 | 886 | 24b | 2,499 | 10,287 | 3,972 | ||||||||||||||||||||||
Share of profit or (loss) in associates and joint ventures | (747 | ) | (550 | ) | (528 | ) | ||||||||||||||||||||||||
(Gain) loss on Financial assets - At fair value through other comprehensive income | 254 | 128 | 851 | |||||||||||||||||||||||||||
Interest and foreign exchange income of financial assets at fair value through other comprehensive income | 21c | (12,808 | ) | (9,073 | ) | (2,570 | ) | |||||||||||||||||||||||
Interest and foreign exchange of financial assets at amortized cost | (11,402 | ) | (12,502 | ) | (17,332 | ) | ||||||||||||||||||||||||
Income from share in the net income of associates and joint ventures and other investments | (1,315 | ) | (747 | ) | (550 | ) | ||||||||||||||||||||||||
Income from Financial assets - At fair value through other comprehensive income | 21c | (628 | ) | 254 | 128 | |||||||||||||||||||||||||
Income from interest and foreign exchange variation of financial assets at fair value through other comprehensive income | (8,420 | ) | (12,808 | ) | (9,073 | ) | ||||||||||||||||||||||||
Income from Interest and foreign exchange variation of financial assets at amortized cost | (3,332 | ) | (4,353 | ) | 289 | |||||||||||||||||||||||||
(Gain) loss on sale of investments and fixed assets | 23 | (297 | ) | (283 | ) | (21 | ) | (168 | ) | (297 | ) | (283 | ) | |||||||||||||||||
Impairment losses of fixed assets and intangible assets | 13 and 14 | 167 | 14 | (5 | ) | |||||||||||||||||||||||||
Impairment losses | 23 | 233 | 167 | 14 | ||||||||||||||||||||||||||
Other | (662 | ) | (1,456 | ) | (4,467 | ) | 3 | (3,769 | ) | (662 | ) | (1,456 | ) | |||||||||||||||||
Change in assets and liabilities | (33,132 | ) | (50,039 | ) | (34,498 | ) | (25,974 | ) | (33,132 | ) | (50,039 | ) | ||||||||||||||||||
(Increase) decrease in assets | (123,522 | ) | (97,420 | ) | (78,196 | ) | (50,165 | ) | (123,522 | ) | (97,420 | ) | ||||||||||||||||||
Interbank deposits | (9,404 | ) | (4,391 | ) | (827 | ) | (6,897 | ) | (9,404 | ) | (4,391 | ) | ||||||||||||||||||
Securities purchased under agreements to resell | (29,561 | ) | 5,368 | (10,646 | ) | 62,487 | (29,561 | ) | 5,368 | |||||||||||||||||||||
Compulsory deposits with the Central Bank of Brazil | 4,689 | (13,137 | ) | (19,144 | ) | 2,900 | 4,689 | (13,137 | ) | |||||||||||||||||||||
Loan operations | (51,919 | ) | (22,467 | ) | (29,455 | ) | (63,999 | ) | (51,919 | ) | (22,467 | ) | ||||||||||||||||||
Derivatives (assets / liabilities) | 217 | 3,396 | (3,858 | ) | 1,918 | 217 | 3,396 | |||||||||||||||||||||||
Financial assets designated at fair value through profit or loss | (13,105 | ) | (56,531 | ) | (17,743 | ) | (18,202 | ) | (13,105 | ) | (56,531 | ) | ||||||||||||||||||
Other financial assets | (15,323 | ) | (5,328 | ) | (6 | ) | (19,143 | ) | (15,323 | ) | (5,328 | ) | ||||||||||||||||||
Other tax assets | (1,669 | ) | (1,501 | ) | (2,183 | ) | 3 | (1,669 | ) | (1,501 | ) | |||||||||||||||||||
Other assets | (7,447 | ) | (2,829 | ) | 5,666 | (9,232 | ) | (7,447 | ) | (2,829 | ) | |||||||||||||||||||
(Decrease) increase in liabilities | 90,390 | 47,381 | 43,698 | 24,191 | 90,390 | 47,381 | ||||||||||||||||||||||||
Deposits | 60,486 | 73,524 | 36,804 | 43,636 | 60,486 | 73,524 | ||||||||||||||||||||||||
Deposits received under securities repurchase agreements | 17,603 | (36,530 | ) | 12,521 | (73,654 | ) | 17,603 | (36,530 | ) | |||||||||||||||||||||
Funds from interbank markets | 10,083 | (5,061 | ) | (27,238 | ) | 40,192 | 10,083 | (5,061 | ) | |||||||||||||||||||||
Funds from institutional markets | (1,125 | ) | 6,967 | 10,686 | 121 | (1,125 | ) | 6,967 | ||||||||||||||||||||||
Other financial liabilities | 11,486 | 8,292 | 5,892 | 19,652 | 11,486 | 8,292 | ||||||||||||||||||||||||
Financial liabilities at fair value throught profit or loss | (273 | ) | (54 | ) | 107 | 9 | (273 | ) | (54 | ) | ||||||||||||||||||||
Technical reserve for insurance and private pension | (1,409 | ) | 3,787 | 3,796 | ||||||||||||||||||||||||||
Provision for insurance and private pension | 781 | (1,409 | ) | 3,787 | ||||||||||||||||||||||||||
Provisions | (495 | ) | (1,412 | ) | 4,030 | 673 | (495 | ) | (1,412 | ) | ||||||||||||||||||||
Tax liabilities | (1,739 | ) | 2,944 | 2,391 | (3,526 | ) | (1,739 | ) | 2,944 | |||||||||||||||||||||
Other liabilities | (348 | ) | (558 | ) | 1,132 | 2,568 | (348 | ) | (558 | ) | ||||||||||||||||||||
Payment of income tax and social contribution | (3,879 | ) | (4,518 | ) | (6,423 | ) | (6,261 | ) | (3,879 | ) | (4,518 | ) | ||||||||||||||||||
Net cash from (used in) operating activities | 22,709 | 10,392 | 36,072 | 35,224 | 29,758 | 23,183 | ||||||||||||||||||||||||
Dividends / Interest on capital received from investments in associates and joint ventures | 671 | 489 | 287 | 838 | 671 | 489 | ||||||||||||||||||||||||
Cash received on financial assets - At fair value through other comprehensive income | 16,622 | 19,695 | 19,127 | |||||||||||||||||||||||||||
Cash from the sale of financial assets - At fair value through other comprehensive income | 9,074 | 16,622 | 19,695 | |||||||||||||||||||||||||||
Cash received from redemption of financial assets at amortized cost | 14,991 | 4,025 | 3,473 | 8,085 | 14,991 | 4,025 | ||||||||||||||||||||||||
Cash upon sale of investments in associates and joint ventures | 266 | 314 | 19 | 68 | 266 | 314 | ||||||||||||||||||||||||
Cash upon sale of fixed assets | 13 | 180 | 204 | 102 | 13 | 175 | 215 | 230 | ||||||||||||||||||||||
Cash upon sale of intangible assets | 14 | 35 | 26 | 46 | ||||||||||||||||||||||||||
Purchase of financial assets at fair value through other comprehensive income | (591 | ) | (21,647 | ) | (25,845 | ) | (24,820 | ) | (591 | ) | (21,647 | ) | ||||||||||||||||||
Purchase of financial assets at amortized cost | (2,463 | ) | (406 | ) | (1,599 | ) | (27,444 | ) | (9,512 | ) | (13,197 | ) | ||||||||||||||||||
Purchase of investments in associates and joint ventures | (6,718 | ) | (69 | ) | (421 | ) | (387 | ) | (6,718 | ) | (69 | ) | ||||||||||||||||||
Purchase of fixed assets | 13 | (1,483 | ) | (943 | ) | (1,364 | ) | 13 | (1,621 | ) | (1,483 | ) | (943 | ) | ||||||||||||||||
Purchase of intangible assets | 14 | (1,381 | ) | (2,553 | ) | (10,552 | ) | 14 | (2,691 | ) | (1,381 | ) | (2,553 | ) | ||||||||||||||||
Net cash from (used in) investing activities | 20,129 | (865 | ) | (16,727 | ) | |||||||||||||||||||||||||
Net cash from (used in) investment activities | (38,723 | ) | 13,080 | (13,656 | ) | |||||||||||||||||||||||||
Funding from institutional markets | 2,906 | 4,135 | 4,863 | 8,548 | 2,906 | 4,135 | ||||||||||||||||||||||||
Redemptions in institutional markets | (15,048 | ) | (13,573 | ) | (14,170 | ) | (2,833 | ) | (15,048 | ) | (13,573 | ) | ||||||||||||||||||
Change innon-controlling interests stockholders | 128 | 1,003 | 10,373 | (1,617 | ) | 128 | 1,003 | |||||||||||||||||||||||
Result of delivery of treasury shares | 1,187 | 980 | 673 | 742 | 1,187 | 980 | ||||||||||||||||||||||||
Purchase of treasury shares | (510 | ) | (3,089 | ) | (947 | ) | — | (510 | ) | (3,089 | ) | |||||||||||||||||||
Dividends and interest on capital paid tonon-controlling interests | (154 | ) | (346 | ) | (93 | ) | (227 | ) | (154 | ) | (346 | ) | ||||||||||||||||||
Dividends and interest on capital paid | (20,093 | ) | (10,800 | ) | (10,769 | ) | (25,915 | ) | (20,093 | ) | (10,800 | ) | ||||||||||||||||||
Net cash from (used in) financing activities | (31,584 | ) | (21,690 | ) | (10,070 | ) | (21,302 | ) | (31,584 | ) | (21,690 | ) | ||||||||||||||||||
Net increase (decrease) in cash and cash equivalents | 2.4c | 11,254 | (12,163 | ) | 9,275 | 2.4c | (24,801 | ) | 11,254 | (12,163 | ) | |||||||||||||||||||
Cash and cash equivalents at the beginning of the period | 83,314 | 96,119 | 104,785 | 95,558 | 83,314 | 96,119 | ||||||||||||||||||||||||
Effects of changes in exchange rates on cash and cash equivalents | 990 | (642 | ) | (17,941 | ) | 54 | 990 | (642 | ) | |||||||||||||||||||||
Cash and cash equivalents at the end of the period | 95,558 | 83,314 | 96,119 | 70,811 | 95,558 | 83,314 | ||||||||||||||||||||||||
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Cash | 37,159 | 18,749 | 18,542 | 30,367 | 37,159 | 18,749 | ||||||||||||||||||||||||
Interbank deposits | 3,295 | 15,327 | 13,358 | 4,561 | 3,295 | 15,327 | ||||||||||||||||||||||||
Securities purchased under agreements to resell | 55,104 | 49,238 | 64,219 | |||||||||||||||||||||||||||
Securities purchased under agreements to resell - Collateral held | 35,883 | 55,104 | 49,238 | |||||||||||||||||||||||||||
Additional information on cash flow (Mainly Operating activities) | ||||||||||||||||||||||||||||||
Interest received | 122,405 | 139,895 | 169,618 | 134,225 | 122,405 | 139,895 | ||||||||||||||||||||||||
Interest paid | 84,668 | 71,456 | 79,227 | 77,315 | 84,668 | 71,456 | ||||||||||||||||||||||||
Non-cash transactions | ||||||||||||||||||||||||||||||
Loans transferred to assets held for sale | — | — | — | |||||||||||||||||||||||||||
Dividends and interest on capital declared and not yet paid | 515 | 1,876 | 2,869 | 838 | 515 | 1,876 |
The accompanying notes are an integral part of these consolidated financial statements.statements
Itaú Unibanco Holding S.A. – Complete Financial Statements in IFRS – December 31, 2019 | F-9 |
Notes to the Consolidated Financial Statements
At 12/31/2018,2019 and 12/31/2017 and 01/01/20172018 for balance sheet accounts and
From 01/01 to 12/31 of 2019, 2018 2017 and 20162017 for income statement accounts
(In millions of Reais, except information per share)
Note 1 - Overview
Itaú Unibanco Holding S.A. (ITAÚ UNIBANCO HOLDING) is a publicly-held company, organized and existing under the Lawslaws of Brazil. The head office is located at Praça Alfredo Egydio de Souza Aranha, n° 100, in the city of São Paulo, state of São Paulo, Brazil.
ITAÚ UNIBANCO HOLDING is presenthas a presence in 1918 countries and territories and offers a wide variety of financial products and services to individualpersonal and corporate customers in Brazil and abroad, not necessarily related to Brazil, through its branches, subsidiaries and international associates.affiliates. It operates in all modalitiesoffers a full range of banking activities, by means ofservices, through its different portfolios: commercial; investment; mortgage loans;commercial banking; investment banking; real estate lending; loans, financing and investment; leaseleasing and foreign exchange transactions.business. Its operations are divided into three segments: Retail Bank,Banking, Wholesale Bank,Banking, and Activities with the Market + Corporation. Further detailed segment information is presented in Note 30.
ITAÚ UNIBANCO HOLDING is a financial holding company controlled by Itaú Unibanco Participações S.A. (“IUPAR”), a holding company which owns 51.71% of our common shares, and which is jointly controlled by (i) Itaúsa Investimentos Itaú S.A. (“Itaúsa”ITAÚSA”), a holding company controlled by members of the Egydio de Souza Aranha family, and (ii) Companhia E. Johnston de Participações (“E. Johnston”JOHNSTON”), a holding company controlled by the Moreira Salles family. Itaúsa also directly holds 39.21% of ITAÚ UNIBANCO HOLDINGHOLDING’s common shares.
These consolidated financial statements were approved by the Executive Board of Directors on February 04, 2019.April 24, 2020.
Itaú Unibanco Holding S.A. – Complete Financial Statements in IFRS – December 31, 2019 | F-10 |
ITAÚ UNIBANCO HOLDING S.A.
Notes to the Consolidated Financial Statements
At 12/31/2019 and 12/31/2018 for balance sheet accounts and
From 01/01 to 12/31 of 2019, 2018 and 2017 for income statement accounts
(In millions of Reais, except information per share)
Note 2 – Significant accounting policies
2.1. Basis of preparation
2.1. | Basis of preparation |
The Consolidated Financial Statements of ITAÚ UNIBANCO HOLDING were prepared taking into accountin accordance with the requirements and guidelines set out byof the National Monetary Council (CMN), which establishedrequire that as from December 31, 2010 annual Consolidated Financial Statements are to be prepared in accordance with the International Financial Reporting Standards (IFRS), as issued by the International Accounting Standards Board (IASB).
In the preparation of these Consolidated Financial Statements, ITAÚ UNIBANCO HOLDING adopted the criteria for recognition, measurement and disclosure established in the IFRS and in the interpretations of the International Financial Reporting Interpretation Committee (IFRIC).
Management believes that the information included in these Consolidated Financial Statements is relevant and a faithful representation of the information used in the management of the ITAÚ UNIBANCO HOLDING.
2.2. New accounting standards and new accounting standards changes and interpretations
2.2. | New accounting standards changes and interpretations of existing standards |
a) | Accounting standards applicable for period ended December 31, |
IFRS 9 – Financial Instruments: The pronouncement replaces lAS 39 – Financial Instruments: Recognition and Measurement. IFRS 9 is applicable to all financial assets and liabilities and was retrospectively adopted on the date the standard becomes effective, on January 1st, 2018. The new rule is structured to contemplate the pillars (I) Classification and measurement of financial assets, (II) Impairment and (III) Hedge accounting.
Transition for IFRS 9
The main changes identified by ITAÚ UNIBANCO HOLDING due to the adoption of IFRS 9 are related to the classification, measurement and impairment of financial assets. ITAÚ UNIBANCO HOLDING will continue applying the hedge accounting requirements set forth in IAS 39 and retrospectively applied the other criteria of IFRS 9 as from January 1st, 2016.
ITAÚ UNIBANCO HOLDING S.A.
Notes to the Consolidated Financial Statements
At 12/31/2018, 12/31/2017 and 01/01/2017 for balance sheet accounts and
From 01/01 to 12/31 of 2018, 2017 and 2016 for income statement accounts
(In millions of Reais, except information per share)
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IFRS 9 introduces the concept of business model and assessment of characteristics of contractual cash flows (Solely Payment of Principal and Interest Test – SPPI Test) for classification of financial assets.
Business Model: represents the way the entity manages its financial assets;
SPPI Test: assessment of cash flows generated by the financial instrument aiming at checking whether they represent solely payments of principal and interest.
ITAÚ UNIBANCO HOLDING conducted a detailed analysis of its business models and characteristics of its cash flows of financial assets, and the main changes resulting from the adoption of IFRS 9 are:
The classification categories of financial assets Held to maturity, Available for sale, Held for trading and Loans and receivables have ceased to exist.
Three measurement categories of financial assets were introduced:
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In the initial adoption, there were designations of equity instruments at fair value through other comprehensive income.
The existing designations of financial assets/liabilities at fair value through profit or loss were maintained and there were no new designations.
Financial assets which cash flows were modified (without derecognition) had their gross carrying amount recalculated, according to IFRS 9 requirements, and the effects of this change were recognized in profit or loss after the initial date. There were no adjustments recognized at January 01, 2016.
ITAÚ UNIBANCO HOLDING maintained the classification of financial liabilities unchanged, which continue being measured at amortized cost or fair value through profit or loss, in the event they had been previously designated.
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The requirements for assessment of impairment of financial assets are based on an expected credit loss model. The main changes in the accounting policy of ITAÚ UNIBANCO HOLDING for impairment are listed below.
The expected credit loss model includes the use of forward looking information and classification of financial assets in three stages:
Stage 1 –12-month expected credit loss: represents default events possible within 12 months. Applicable to financial assets purchased or originated credit impaired financial assets;
Stage 2 – Lifetime expected credit loss of financial instrument: considers all possible default events. Applicable to financial assets purchased or originated credit impaired financial assets and which credit risk has increased significantly; and
Stage 3 – Credit loss expected for credit-impaired assets: considers all possible default events. Applicable to financial assets purchased or originated credit impaired financial assets. The measurement of assets classified in this stage is different from Stage 2 due to the recognition of interest income by applying the effective interest rate at amortized cost (net of provision) rather than at the gross carrying amount.
ITAÚ UNIBANCO HOLDING S.A.
Notes to the Consolidated Financial Statements
At 12/31/2018, 12/31/2017 and 01/01/2017 for balance sheet accounts and
From 01/01 to 12/31 of 2018, 2017 and 2016 for income statement accounts
(In millions of Reais, except information per share)
An asset will migrate from a phase as its credit risk increases or decreases. Therefore, a financial asset that migrated to phases 2 and 3 may return to phase 1, unless it was purchased or originated credit impaired financial assets.
The change in the calculation model of expected credit loss gave rise to an increase in the provision recorded in the consolidated financial statements of ITAÚ UNIBANCO HOLDING due to the change in measurement of financial assets, and loss revaluation considering forward looking criteria.
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The hedge accounting requirements are closed aligned with risk management and should be applied on a prospective basis. ITAÚ UNIBANCO HOLDING will continue applying all requirements for hedge accounting set forth in IAS 39, as permitted by IFRS 9.
Reconciliation of Stockholders’ Equity and Net Income between IAS 39 and IFRS 9
Reference | 12/31/2017 | 12/31/2016 | 1/1/2016 | |||||||||||||||||||||
Stockholders’ Equity | Net Income | Stockholders’ Equity | Net Income | Stockholders’ Equity | ||||||||||||||||||||
In accordance with IAS 39 (excludingnon-controlling interests) | 134,840 | 23,903 | 122,582 | 23,263 | 112,252 | |||||||||||||||||||
Adjustments arising from changes in the financial asset derecognition policy, net of tax effects | a | 2,402 | (78 | ) | 2,462 | 201 | 2,280 | |||||||||||||||||
In accordance with IAS 39 (excludingnon-controlling interests) | 137,242 | 23,825 | 125,044 | 23,464 | 114,532 | |||||||||||||||||||
Expected loss | b | (9,858 | ) | (1,948 | ) | (7,915 | ) | (3,438 | ) | (4,615 | ) | |||||||||||||
Loan operations and Finance leases | (8,574 | ) | (1,192 | ) | (7,385 | ) | (2,259 | ) | (5,189 | ) | ||||||||||||||
Other financial assets | (1,284 | ) | (756 | ) | (530 | ) | (1,179 | ) | 574 | |||||||||||||||
Change in financial assets | c | 138 | 101 | 36 | 36 | — | ||||||||||||||||||
Adjustment to fair value of financial assets | d | (540 | ) | 359 | (787 | ) | 514 | (661 | ) | |||||||||||||||
Effect of adoption of investments in Associates / Joint ventures | (116 | ) | — | — | — | — | ||||||||||||||||||
Deferred taxes on the above adjustments | 4,324 | 522 | 3,774 | 1,164 | 2,534 | |||||||||||||||||||
Interest ofnon-controlling stockholders | 188 | 334 | (57 | ) | (113 | ) | 187 | |||||||||||||||||
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Total adjustments | (5,864 | ) | (632 | ) | (4,949 | ) | (1,837 | ) | (2,555 | ) | ||||||||||||||
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In accordance with IFRS 9 - attributable to controlling stockholders | 131,378 | 23,193 | 120,095 | 21,627 | 111,977 | |||||||||||||||||||
In accordance with IFRS 9 - attributable tonon-controlling stockholders | 12,978 | 32 | 12,289 | 389 | 1,620 | |||||||||||||||||||
In accordance with IFRS 9 - attributable to controlling andnon-controlling stockholders | 144,356 | 23,225 | 132,384 | 22,016 | 113,597 |
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ITAÚ UNIBANCO HOLDING S.A.
Notes to the Consolidated Financial Statements
At 12/31/2018, 12/31/2017 and 01/01/2017 for balance sheet accounts and
From 01/01 to 12/31 of 2018, 2017 and 2016 for income statement accounts
(In millions of Reais, except information per share)
Consolidated Balance Sheet at 01/01/2016
(In million Reais)
IAS 39 01/01/2016 | IFRS 9 01/01/2016 | |||||||||||||||||||
Assets | Categories | Balance | Reclassifications (a) | Remeasurements / Changes (b) | Categories | Balance | ||||||||||||||
Cash and deposits on demand | 18,544 | — | — | |||||||||||||||||
Central Bank compulsory deposits to Brazil | 66,556 | (66,556 | ) | — | — | |||||||||||||||
Interbank deposits | 30,525 | (30,525 | ) | — | — | |||||||||||||||
Securities purchased under agreements to resell | 254,404 | (254,404 | ) | — | — | |||||||||||||||
Financial assets held for trading | Held for trading | 164,311 | (164,311 | ) | — | — | ||||||||||||||
Pledged as collateral | 11,008 | (11,008 | ) | — | — | |||||||||||||||
Other Financial assets held for trading | 153,303 | (153,303 | ) | — | — | |||||||||||||||
Financial assets designated at fair value through profit or loss | Available for sale | 642 | (642 | ) | — | — | ||||||||||||||
Derivatives | 26,755 | (26,755 | ) | — | — | |||||||||||||||
Available-for-sale financial assets | Available for sale | 86,045 | (86,045 | ) | — | — | ||||||||||||||
Pledged as collateral | 16,706 | (16,706 | ) | — | — | |||||||||||||||
Other Available-for-sale financial assets | 69,339 | (69,339 | ) | — | — | |||||||||||||||
Held-to-maturity financial assets | Held to maturity | 42,185 | (42,185 | ) | — | — | ||||||||||||||
Pledged as collateral | 9,460 | (9,460 | ) | — | — | |||||||||||||||
Other Held-to-maturity financial assets | 32,725 | (32,725 | ) | — | — | |||||||||||||||
Loan operations and lease operations portfolio, net | Loans and receivables | 447,404 | (447,404 | ) | — | — | ||||||||||||||
Loan operations and lease operations portfolio | 474,248 | (474,248 | ) | — | — | |||||||||||||||
(-) Allowance for loan and lease losses | (26,844 | ) | 26,844 | — | — | |||||||||||||||
Other financial assets | 53,506 | (53,506 | ) | — | — | |||||||||||||||
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Cash and deposits on demand | 18,544 | — | — | 18,544 | ||||||||||||||||
Financial assets | — | 1,172,333 | 2,513 | 1,174,846 | ||||||||||||||||
Central Bank compulsory deposits to Brazil | — | 66,556 | — | 66,556 | ||||||||||||||||
At amortized cost | — | 874,360 | 1,589 | amortized cost | 875,949 | |||||||||||||||
Interbank deposits | — | 30,525 | — | 30,525 | ||||||||||||||||
Securities purchased under agreements to resell | — | 254,404 | — | 254,404 | ||||||||||||||||
Securities | — | 88,521 | (1,007 | ) | 87,514 | |||||||||||||||
Loan operations and lease operations portfolio | — | 474,248 | 4,142 | 478,390 | ||||||||||||||||
Other financial assets | — | 53,506 | — | 53,506 | ||||||||||||||||
(-) Provision for expected loss | — | (26,844 | ) | (1,546 | ) | (28,390 | ) | |||||||||||||
At fair value through other comprehensive income | — | 26,069 | 2,532 | fair value through other comprehensive income | 28,601 | |||||||||||||||
Securities | — | 26,069 | 2,532 | 28,601 | ||||||||||||||||
At fair value through profit or loss | — | 205,348 | (1,608 | ) | fair value through profit or loss | 203,740 | ||||||||||||||
Securities | — | 178,593 | (1,608 | ) | 176,985 | |||||||||||||||
Derivatives | — | 26,755 | — | 26,755 | ||||||||||||||||
Investments in subsidiaries and joint ventures | 4,399 | — | — | 4,399 | ||||||||||||||||
Fixed assets, net | 8,541 | — | — | 8,541 | ||||||||||||||||
Goodwill and Intangible assets, net | 8,352 | — | — | 8,352 | ||||||||||||||||
Tax assets | 52,149 | — | 3,193 | 55,342 | ||||||||||||||||
Other assets | 12,097 | — | 82 | 12,179 | ||||||||||||||||
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Total assets | 1,276,415 | — | 5,788 | 1,282,203 | ||||||||||||||||
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ITAÚ UNIBANCO HOLDING S.A.
Notes to the Consolidated Financial Statements
At 12/31/2018, 12/31/2017 and 01/01/2017 for balance sheet accounts and
From 01/01 to 12/31 of 2018, 2017 and 2016 for income statement accounts
(In millions of Reais, except information per share)
IAS 39 01/01/2016 | IFRS 9 01/01/2016 | |||||||||||||||||||
Liabilities and stockholders’ equity | Categories | Balance | Reclassifications (a) | Remeasurements / Changes (b) | Categories | Balance | ||||||||||||||
Deposits | 292,610 | (292,610 | ) | — | — | — | ||||||||||||||
Securities sold under repurchase agreements | 336,643 | (336,643 | ) | — | — | — | ||||||||||||||
Financial liabilities held for trading | 412 | (412 | ) | — | — | — | ||||||||||||||
Derivatives | 31,071 | (31,071 | ) | — | — | — | ||||||||||||||
Interbank market debt | 156,886 | (156,886 | ) | — | — | — | ||||||||||||||
Institutional market debt | 93,918 | (93,918 | ) | — | — | — | ||||||||||||||
Other financial liabilities | 68,715 | (68,715 | ) | — | — | — | ||||||||||||||
Reserves for insurance and private pension | 129,305 | — | — | — | — | |||||||||||||||
Liabilities for capitalization plans | 3,044 | (3,044 | ) | — | — | — | ||||||||||||||
Provisions | 18,994 | — | — | — | — | |||||||||||||||
Tax liabilities | 4,971 | — | — | — | — | |||||||||||||||
Other liabilities | 25,787 | — | — | — | — | |||||||||||||||
Total liabilities | 1,162,356 | — | — | — | — | |||||||||||||||
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Financial liabilities | — | 983,299 | 3,643 | 986,942 | ||||||||||||||||
At amortized cost | — | 951,816 | — | 951,816 | ||||||||||||||||
Deposits | — | 292,610 | — | 292,610 | ||||||||||||||||
Securities sold under repurchase agreements | — | 336,643 | — | 336,643 | ||||||||||||||||
Interbank market debt | — | 156,886 | — | 156,886 | ||||||||||||||||
Institutional market debt | — | 93,918 | — | 93,918 | ||||||||||||||||
Other financial liabilities | — | 71,759 | 71,759 | |||||||||||||||||
At fair value through profit or loss | — | 31,483 | — | Financial Liabilities Designated at Fair Value Through Profit or Loss | 31,483 | |||||||||||||||
Derivatives | — | 31,071 | — | 31,071 | ||||||||||||||||
Others | — | 412 | — | 412 | ||||||||||||||||
Provision for expected loss | — | — | 3,643 | 3,643 | ||||||||||||||||
Loan commitments | — | — | 2,820 | 2,820 | ||||||||||||||||
Financial guarantees | — | — | 823 | 823 | ||||||||||||||||
Reserves for insurance and private pension | 129,305 | — | — | 129,305 | ||||||||||||||||
Provisions | 18,994 | — | — | 18,994 | ||||||||||||||||
Tax liabilities | 4,971 | — | 2,606 | 7,577 | ||||||||||||||||
Other liabilities | 25,787 | — | 1 | 25,788 | ||||||||||||||||
Total liabilities | 179,057 | 983,299 | 6,250 | 1,168,606 | ||||||||||||||||
Total stockholders’ equity attributed to the owners of the parent company | 112,252 | — | (275 | ) | 111,977 | |||||||||||||||
Non-controlling interests | 1,807 | — | (187 | ) | 1,620 | |||||||||||||||
Total stockholders’ equity | 114,059 | — | (462 | ) | 113,597 | |||||||||||||||
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Total liabilities and stockholders’ equity | 1,276,415 | — | 5,788 | 1,282,203 | ||||||||||||||||
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ITAÚ UNIBANCO HOLDING S.A.
Notes to the Consolidated Financial Statements
At 12/31/2018, 12/31/2017 and 01/01/2017 for balance sheet accounts and
From 01/01 to 12/31 of 2018, 2017 and 2016 for income statement accounts
(In millions of Reais, except information per share)
Consolidated Balance Sheet at 12/31/2017
(In million Reais)
IAS 39 12/31/2017 | IFRS 9 12/31/2017 | |||||||||||||||||||||
Assets | Categories | Balance | Reclassifications (a) | Remeasurements / Changes(b) | Categories | Balance | ||||||||||||||||
Cash and deposits on demand | 18,749 | — | — | — | ||||||||||||||||||
Central Bank compulsory deposits to Brazil | 98,837 | (98,837 | ) | — | — | |||||||||||||||||
Interbank deposits | 29,053 | (29,053 | ) | — | — | |||||||||||||||||
Securities purchased under agreements to resell | 244,707 | (244,707 | ) | — | — | |||||||||||||||||
Financial assets held for trading | Held for trading | 270,121 | (270,121 | ) | — | — | ||||||||||||||||
Pledged as collateral | 30,585 | (30,585 | ) | — | — | |||||||||||||||||
Other Financial assets held for trading | 239,536 | (239,536 | ) | — | — | |||||||||||||||||
Financial assets designated at fair value through profit or loss | Available for sale | 1,746 | (1,746 | ) | — | — | ||||||||||||||||
Derivatives | 22,843 | (22,843 | ) | — | — | |||||||||||||||||
Available-for-sale financial assets | Available for sale | 102,284 | (102,284 | ) | — | — | ||||||||||||||||
Pledged as collateral | 33,671 | (33,671 | ) | — | — | |||||||||||||||||
OtherAvailable-for-sale financial assets | 68,613 | (68,613 | ) | — | — | |||||||||||||||||
Held-to-maturity financial assets | Held to maturity | 36,560 | (36,560 | ) | — | — | ||||||||||||||||
Pledged as collateral | 974 | (974 | ) | — | — | |||||||||||||||||
OtherHeld-to-maturity financial assets | 35,586 | (35,586 | ) | — | — | |||||||||||||||||
Loan operations and lease operations portfolio, net | Loans and receivables | 465,472 | (465,472 | ) | — | — | ||||||||||||||||
Loan operations and lease operations portfolio | 493,367 | (493,367 | ) | — | — | |||||||||||||||||
(-) Allowance for loan and lease losses | (27,895 | ) | 27,895 | — | — | |||||||||||||||||
Other financial assets | 59,568 | (59,568 | ) | — | — | |||||||||||||||||
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| |||||||||||||||
Cash and deposits on demand | 18,749 | — | — | 18,749 | ||||||||||||||||||
Financial assets | — | 1,331,191 | (940 | ) | 1,330,251 | |||||||||||||||||
Central Bank compulsory deposits to Brazil | — | 98,837 | — | 98,837 | ||||||||||||||||||
At amortized cost | — | 909,104 | (3,375 | ) | Amortized cost | 905,729 | ||||||||||||||||
Interbank deposits | — | 29,053 | (5 | ) | 29,048 | |||||||||||||||||
Securities purchased under agreements to resell | — | 244,707 | — | 244,707 | ||||||||||||||||||
Securities | — | 110,304 | 1,120 | 111,424 | ||||||||||||||||||
Loan operations and lease operations portfolio | — | 493,367 | 4,352 | 497,719 | ||||||||||||||||||
Other financial assets | — | 59,568 | — | 59,568 | ||||||||||||||||||
(-) Provision for expected loss | — | (27,895 | ) | (8,842 | ) | (36,737 | ) | |||||||||||||||
At fair value through other comprehensive income | — | 49,029 | 3,120 | Fair value through other comprhensive income | 52,149 | |||||||||||||||||
Securities | — | 49,029 | 3,120 | 52,149 | ||||||||||||||||||
At fair value through profit or loss | — | 274,221 | (685 | ) | Fair value through profit or loss | 273,536 | ||||||||||||||||
Securities | — | 251,378 | (685 | ) | 250,693 | |||||||||||||||||
Derivatives | — | 22,843 | — | 22,843 | ||||||||||||||||||
Investments in subsidiaries and joint ventures | 5,171 | — | (116 | ) | 5,055 | |||||||||||||||||
Fixed assets, net | 7,359 | — | — | 7,359 | ||||||||||||||||||
Goodwill and Intangible assets, net | 19,383 | — | — | 19,383 | ||||||||||||||||||
Tax assets | 41,927 | — | 2,322 | 44,249 | ||||||||||||||||||
Other assets | 11,189 | — | 4 | 11,193 | ||||||||||||||||||
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Total assets | 1,434,969 | — | 1,270 | 1,436,239 | ||||||||||||||||||
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ITAÚ UNIBANCO HOLDING S.A.
Notes to the Consolidated Financial Statements
At 12/31/2018, 12/31/2017 and 01/01/2017 for balance sheet accounts and
From 01/01 to 12/31 of 2018, 2017 and 2016 for income statement accounts
(In millions of Reais, except information per share)
IAS 39 12/31/2017 | IFRS 9 12/31/2017 | |||||||||||||||||||||
Liabilities and stockholders’ equity | Categories | Balance | Reclassifications (a) | Remeasurements / Changes(b) | Categories | Balance | ||||||||||||||||
Deposits | 402,938 | (402,938 | ) | — | — | |||||||||||||||||
Securities sold under repurchase agreements | 312,634 | (312,634 | ) | — | — | |||||||||||||||||
Financial liabilities held for trading | 465 | (465 | ) | — | — | |||||||||||||||||
Derivatives | 26,746 | (26,746 | ) | — | — | |||||||||||||||||
Interbank market debt | 129,616 | (129,616 | ) | — | — | |||||||||||||||||
Institutional market debt | 98,482 | (98,482 | ) | — | — | |||||||||||||||||
Other financial liabilities | 77,613 | (77,613 | ) | — | — | |||||||||||||||||
Reserves for insurance and private pension | 181,232 | — | — | — | ||||||||||||||||||
Liabilities for capitalization plans | 3,301 | (3,301 | ) | — | — | |||||||||||||||||
Provisions | 19,736 | — | — | — | ||||||||||||||||||
Tax liabilities | 7,839 | — | — | — | ||||||||||||||||||
Other liabilities | 26,361 | — | — | — | ||||||||||||||||||
Total liabilities | 1,286,963 | — | — | — | ||||||||||||||||||
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|
| |||||||||||||||
Financial liabilities | — | 1,051,795 | 4,922 | 1,056,717 | ||||||||||||||||||
At amortized cost | — | 1,024,584 | — | 1,024,584 | ||||||||||||||||||
Deposits | — | 402,938 | — | 402,938 | ||||||||||||||||||
Securities sold under repurchase agreements | — | 312,634 | — | 312,634 | ||||||||||||||||||
Interbank market debt | — | 124,587 | — | 124,587 | ||||||||||||||||||
Institutional market debt | — | 98,482 | — | 98,482 | ||||||||||||||||||
Other financial liabilities | — | 85,943 | — | 85,943 | ||||||||||||||||||
At fair value through profit or loss | — | 27,211 | — | Financial Liabilities Designated at Fair Value Through Profit or Loss | 27,211 | |||||||||||||||||
Derivatives | — | 26,746 | — | 26,746 | ||||||||||||||||||
Others | — | 465 | — | 465 | ||||||||||||||||||
Provision for expected loss | — | — | 4,922 | 4,922 | ||||||||||||||||||
Loan commitments | — | — | 3,015 | 3,015 | ||||||||||||||||||
Financial guarantees | — | — | 1,907 | 1,907 | ||||||||||||||||||
Reserves for insurance and private pension | 181,232 | — | — | 181,232 | ||||||||||||||||||
Provisions | 19,736 | — | — | 19,736 | ||||||||||||||||||
Tax liabilities | 7,839 | — | (3 | ) | 7,836 | |||||||||||||||||
Other liabilities | 26,361 | — | 1 | 26,362 | ||||||||||||||||||
Total liabilities | 235,168 | 1,051,795 | 4,920 | 1,291,883 | ||||||||||||||||||
Total stockholders’ equity attributed to the owners of the parent company | 134,840 | — | (3,462 | ) | 131,378 | |||||||||||||||||
Non-controlling interests | 13,166 | — | (188 | ) | 12,978 | |||||||||||||||||
Total stockholders’ equity | 148,006 | — | (3,650 | ) | 144,356 | |||||||||||||||||
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|
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| |||||||||||||||
Total liabilities and stockholders’ equity | 1,434,969 | — | 1,270 | 1,436,239 | ||||||||||||||||||
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• |
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Amendment to IFRS 4 – Insurance Contracts – Joint application of IFRS 9: The amendment enables entities that are issuers of insurance contracts to mitigate possible impacts of the adoption of IFRS 9 – Financial Instruments before the effectiveness of IFRS 17 – Insurance Contracts, through two options:
Temporary exemption: adoption of IFRS 9 together with IFRS 17, as from January 2021. This option is applicable only to entities with significant insurance activities (over 80% of total liabilities) and that have not applied IFRS 9 in advance;
Overlay approach: adoption of IFRS 9, however, for assets reclassified to the category Fair Value through Profit or Loss, transferring the effects of the adoption of IFRS 9 from Income for the Period to Other Comprehensive Income until the effectiveness of IFRS 17.
Liabilities related to insurance contracts are not representative as compared to total liabilities of ITAÚ UNIBANCO HOLDING.
ITAÚ UNIBANCO HOLDING S.A.
Notes to the Consolidated Financial Statements
At 12/31/2018, 12/31/2017 and 01/01/2017 for balance sheet accounts and
From 01/01 to 12/31 of 2018, 2017 and 2016 for income statement accounts
(In millions of Reais, except information per share)
In 2018, ITAÚ UNIBANCO HOLDING adopted IFRS 9 for all financial assets of insurance entities, and, therefore, will not use the aforementioned options.
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IFRIC 23 – Uncertainty Over Income Tax Treatments on income tax clarifies how to apply the requirements for recognition and measurement of IAS 12 – Income Taxes when there is uncertainty about the acceptance of income tax treatment by tax authorities. This interpretation is effective for the years beginning January 1, 2019 and there will be no relevant impacts for the consolidated financial statements of ITAÚ UNIBANCO HOLDING.
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IFRS 16 – Leases – The pronouncement replaces IAS 17 - Leases, and related interpretations (IFRIC 4, SIC 15 and SIC 27). It eliminates the accounting for operating lease agreements for the lessee, presenting only one lease model, that consists of: (a) initially recognizing all lease in assets(Right-of-UseRight-of- Use Asset) and liabilities (Other liabilities) at present value; and (b) recognizing depreciation ofRight-of-Use Asset and interest from lease separately in the result. This standard is effective for annual periods beginning on January 1st, 2019. Theincome statement.
Transition to IFRS 16
ITAÚ UNIBANCO HOLDING adopted IFRS 16 under the modified retrospective transition method will be applied, which does not requireon January 1st, 2019, using the presentationfollowing criteria:
unified discount rate, considering a portfolio of comparative information, andsimilar agreements;
calculation of lease liabilities and theRight-of-Use Asset are statedAssets at present value of remaining installments. Transitionpayments; and
review of lease agreements and terms.
New financial subleases have not been recorded.
b) | Accounting standards recently issued and applicable in future periods |
• | Amendment in Conceptual Framework – In March, 2018, IASB issued a review of the Conceptual Framework and the main changes refer to: definitions of assets and liabilities, recognition criteria, derecognition, measurement, presentation and disclosure for equity and results elements. These changes are effective for the years started on January 1st, 2020 and there are no impacts on the Consolidated Financial Statements of ITAÚ UNIBANCO HOLDING. |
Amendments to IFRS 169 – Financial Instruments, IAS 39 – Financial Instruments: Recognition and Measurement and IFRS 7 – Financial Instruments: Disclosures – Due to the changes in the interest rates used as market references – IBOR (Interbank Offered Rate), that will cause a variation not exceeding 0.5%be terminated in future periods, there may be uncertainties in the evaluation of Total Assets, with no impacthedge accounting structures. Regulatory changes aim at minimizing possible impacts in these structures in the current scenario ofpre-replacement of rates. These changes are effective for the years beginning January 1, 2020. No significant impacts have been identified on Stockholders’ Equity.the Consolidated Financial Statements of ITAÚ UNIBANCO HOLDING.
Itaú Unibanco Holding S.A. – Complete Financial Statements in IFRS – December 31, 2019 | F-11 |
ITAÚ UNIBANCO HOLDING S.A.
Notes to the Consolidated Financial Statements
At 12/31/2019 and 12/31/2018 for balance sheet accounts and
From 01/01 to 12/31 of 2019, 2018 and 2017 for income statement accounts
(In millions of Reais, except information per share)
IFRS 17 – Insurance Contracts: The pronouncement replaces IFRS 4 – Insurance Contracts and presents three approaches for assessment:valuation:
General Model: applicable to all contracts without direct participation features;
Premium Allocation Approach (PAA): applicable to contracts whichwith term is up to 12 months and with modestly complex cash flows. It is simpler than the standard model; and it can be used onlyor when it produces results similar to those that would be obtained itif the standardgeneral model was used;used. It is more simplified than the general model;
Variable Fee Approach: applicable to insurance contracts with direct participation features. Thefeatures, the insurance contracts which are substantially investment related service contracts under which an entity promises an investment return based on underlying items.
Insurance contracts shouldmust be recognized based on thean analysis of four components:
Expected Future Cash Flows: estimate of all components of cash flow of the contract, considering inflows and outflows;
Risk Adjustment: estimate of offset required by deviationsfor differences that may occur between cash flows;
Contractual Margin: difference between any amounts received before the beginning of the contract coverage and present value of cash flows estimated inat the beginning of the contract;
Discount: projected cash flows shouldmust be discounted atto present value, to reflect the time value of money, at rates that reflect the characteristics of the respective flows.
This standard is effective for annual periods beginning on January 1st, 2021. Possible impacts are being assessed and the assessment will be completed by the date this standard is effective.comes into force.
2.3. Critical accounting estimates and judgments
2.3. | Critical accounting estimates and judgments |
The preparation of Consolidated Financial Statements in accordance with the IFRS requires Management to make estimates and assumptions that affect the reported amounts of assets, liabilities, and contingent assets and liabilities at the date of the Consolidated Financial Statements, due to uncertainties and the high level of subjectivity involved in the recognition and measurement of certain items.
Estimates and judgments considered more relevant by ITAÚ UNIBANCO HOLDING are detailed below:related to the following topics:
ITAÚ UNIBANCO HOLDING S.A.
Notes to the Consolidated Financial Statements
At 12/31/2018, 12/31/2017 and 01/01/2017 for balance sheet accounts and
From 01/01 to 12/31 of 2018, 2017 and 2016 for income statement accounts
(In millions of Reais, except information per share)
Topic | Notes | |
Consolidation | Note 2.3 (a) and Note 3 | |
Fair Value of Financial Instruments | Note 2.3 (b) and Note 28 | |
Effective Interest Rate | Note 2.3 (c), Notes 5, 8, 9 and 10 | |
Change to Financial Assets | Note 2.3 (d), Notes 5, 8, 9 and 10 | |
Transfer andWrite-off of Financial Assets | Note 2.3 (e), Notes 5, 8, 9 and 10 | |
Expected Credit Loss | Note 2.3 (f), Notes 8, 9 and 10 | |
Goodwill Impairment | Note 2.3 (g) and Note 14 | |
Deferred Income Tax and Social Contribution | Note 2.3 (h) and Note 24 | |
Defined Benefit Pension Plan | Note 2.3 (i) and Note 26 | |
Provisions, Contingencies and Legal Liabilities | Note 2.3 (j) and Note 29 | |
Technical Provisions for Insurance and Pension Plan | Note 2.3 (k) and Note 27 |
a) | Consolidation |
Controlled entities are all entities tothose in which ITAÚ UNIBANCO HOLDING is exposed,HOLDING’s involvement exposes it or is entitledentitles it to variable returns of involvement with the entity and that can affect these returns through its powerinfluence on the entity. Control assessmentThe existence of control is conducted on a continuous basis.assessed continuously. Controlled entities are consolidated from the date control is established to the date on which controlit ceases to exist.
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Itaú Unibanco Holding S.A. – Complete Financial Statements in IFRS – December 31, 2019 | F-12 |
The review of goodwill due to impairment reflects the Management’s best estimate for future cash flows of Cash Generating Units (CGU). These flows are subject to market conditions and uncertain factors, such as:
Cash flows projected for periods of available forecasts and long-term assumptions for these flows;
Discount rates, since they generally reflect financial and economic variables, such as risk-free interest rate and a risk premium.
|
The measurement of expected credit loss requires the application of significant assumptions, such as:
Maturity term: ITAÚ UNIBANCO HOLDING considers the maximum contractual period on which it will be exposed to financial instrument’s credit risk. However, the estimated useful life of assets that do not have a determined maturity is based on the period of exposure to credit risk. Additionally, all contractual terms are considered when determining the expected life, including prepayment and rollover options.
Prospective information: IFRS 9 requires a balanced and impartial estimate of credit loss that comprises forecasts of future economic conditions. ITAÚ UNIBANCO HOLDING uses prospective macroeconomic information and public information with projections prepared internally to determine the impact of these estimates on the calculation of expected credit loss.
Probability-weighted loss scenarios: ITAÚ UNIBANCO HOLDING uses weighted scenarios to determine credit loss expected in a proper observation horizon.
Determining criteria for significant increase or decrease in credit risk: in each period of the consolidated financial statements, ITAÚ UNIBANCO HOLDING assesses whether the credit risk on a financial asset has increased significantly using relative and absolute triggers (indicators) by product and by country.
Brazilian and foreign government securities are considered with low credit risk, and therefore they remain in stage 1, in accordance with a study conducted by ITAÚ UNIBANCO HOLDING.
Significant increase in credit risk:ITAÚ UNIBANCO HOLDING assesses several factors to determine a significant increase in credit risk, such as: the counterparty, type and characteristics of the product and region in which it was taken out, considering the following objective criteria as minimum factors:
Phase 1 to phase 2: default exceeding 30 days, except for payroll loans for public bodies, which recognition is made after 45 days in arrears;
Phase 2 to phase 3: default exceeding 90 days, except for the mortgage loan portfolio, which uses 180 days in arrears as a parameter for phase migration.
ITAÚ UNIBANCO HOLDING assesses whether the credit risk has significantly increased on an individual or collective basis. For collective assessment purposes, financial assets are grouped based on characteristics of shared credit risk, considering the type of instrument, credit risk classifications, initial recognition date, remaining term, industry, geographical location of the counterparty, among other significant factors.S.A.
Macroeconomic scenarios:This information involves inherent risks, market uncertainties and other factors that may give rise to results different from expected, including changes in market conditions and economic policy, recessions or fluctuations in indicators different from expected.
ITAÚ UNIBANCO HOLDING S.A.
Notes to the Consolidated Financial Statements
At 12/31/2018,2019 and 12/31/2017 and 01/01/20172018 for balance sheet accounts and
From 01/01 to 12/31 of 2019, 2018 2017 and 20162017 for income statement accounts
(In millions of Reais, except information per share)
|
The factors used to determine whether there was substantial change to a contract are: change to contractual cash flows and significant extensions in the operation term due to the debtor’s financial constraints, significant changes to interest rate and changes to the currency in which the operation is denominated.
|
Financial assets are written off when all their risks and benefits are transferred. In this assessment, ITAÚ UNIBANCO HOLDING considers if: there is no obligation to make payments unless the due amounts are received (assets); there is no prohibition to sell these assets or pledge them as guarantee; and there is no obligation to send all proceedings received from assets without a significant delay.
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When there are no reasonable expectations of recovery of a financial asset, considering historical curves, its total or partial derecognition is carried out concurrently with the use of the related allowance for expected credit loss, with no effect on the Consolidated Statement of Income of ITAÚ UNIBANCOHOLDING. Subsequent recoveries of amounts previously written off are accounted for as income in the Consolidated Statement of Income.
|
As explained in Note 2.4j, deferred tax assets are recognized only in relation to temporary differences and tax assets and loss for offset to the extent it is probable that ITAÚ UNIBANCO HOLDING will generate future taxable profit for its use. The expected realization of deferred tax assets is based on the projection of future taxable profits and technical studies, as disclosed in Note 24.
Fair value of financial instruments are not traded in active markets, including derivatives |
The fair value of financial instruments, including Derivativesderivatives that are not traded in active markets is calculated by using valuation techniques based on assumptions that consider market information and conditions. The main assumptions are: historical data, information on similar transactions and pricing techniques. For more complex or illiquid instruments, significant judgment is necessary to determine the model used with the selection of specific inputs and, in certain cases, evaluation adjustments are applied to the model amount our price quoted for financial instruments that are not actively traded.
The methodologies used to estimate the fair value of certain financial instruments are described in Note 28.
Effective Interest Rate |
To calculate the effective interest rate, ITAÚ UNIBANCO HOLDING estimates cash flows taking into account all the contractual terms of the financial instrument, but without including future credit losses. The calculation includes all commissions paid or received between parties to the contract, transaction costs, and all other premiums or discounts.
Interest revenue is calculated by applying the effective interest rate to the gross carrying amount of a financial asset. In the case of purchased or originated credit impaired financial assets, the adjusted effective interest rate is applied (taking into account the expected credit loss) to the amortized cost of the financial asset.
d) | Modification of Financial Assets |
The factors used to determine whether has been substantial modification of a contract are: evaluation if there is a renegotiation that is not part of the original contractual terms, change to contractual cash flows and significant extensions of the term of the transaction due to the debtor’s financial constraints, significant changes to the interest rate and changes to the currency in which the transaction is denominated.
e) | Transfer andwrite-off of Financial Assets |
When there are no reasonable expectations of recovery of a financial asset, considering historical curves, its total or partialwrite-off is carried out concurrently with the use of the related allowance for expected credit loss, with no effect on the Consolidated Statement of Income of ITAÚ UNIBANCO HOLDING. Subsequent recoveries of amounts previously written off are accounted for as income in the Consolidated Statement of Income.
Thus, financial assets are written off, either totally or partially, when there is no reasonable expectation of recovering a financial asset or when ITAÚ UNIBANCO HOLDING substantially transfers all risks and benefits of ownership and said transfer is qualified to be written off.
f) | Expected Credit Loss |
The measurement of expected credit loss requires the application of significant assumptions, such as:
Term to maturity: ITAÚ UNIBANCO HOLDING considers the maximum contractual period on which it will be exposed a financial instrument’s credit risk. However, the estimated useful life of assets that do not have fixed maturity date is based on the period of exposure to credit risk. Additionally, all contractual terms are taken into account when determining the expected life, including prepayment and rollover options.
Prospective information: IFRS 9 requires a balanced and impartial estimate of credit loss that includes forecasts of future economic conditions. ITAÚ UNIBANCO HOLDING uses prospective macroeconomic information and public information with projections prepared internally to determine the impact of these estimates on the calculation of expected credit loss.
Probability-weighted loss scenarios: ITAÚ UNIBANCO HOLDING uses weighted scenarios to determine credit loss expected over a suitable observation horizon adequate to classification in phases, considering the projection based on economic variables.
Macroeconomic scenarios:This information involves inherent risks, market uncertainties and other factors that may give rise to results different from expected.
Itaú Unibanco Holding S.A. – Complete Financial Statements in IFRS – December 31, 2019 | F-13 |
ITAÚ UNIBANCO HOLDING S.A.
Notes to the Consolidated Financial Statements
At 12/31/2019 and 12/31/2018 for balance sheet accounts and
From 01/01 to 12/31 of 2019, 2018 and 2017 for income statement accounts
(In millions of Reais, except information per share)
Determining criteria for significant increase or decrease in credit risk: in each period of the consolidated financial statements, ITAÚ UNIBANCO HOLDING assesses whether the credit risk on a financial asset has increased significantly since the initial recognition using relative and absolute triggers (indicators), which consider delay and the probability of default (PD) by product and by country.
Brazilian and foreign government securities are considered to have low credit risk, in accordance with a study conducted by ITAÚ UNIBANCO HOLDING and therefore they remain in stage 1.
Significant increase in credit risk:ITAÚ UNIBANCO HOLDING assesses several factors to determine a significant increase in credit risk, such as: the counterparty, type and characteristics of the product and region in which it was contracted, considering the following objective criteria as minimum factors:
Stage 1 to stage 2: default exceeding 30 days, except for payroll loans for government agency, which are recognized is made after 45 days in arrears;
Stage 2 to stage 3: default exceeding 90 days, except for the mortgage loan portfolio, for which arrears of 180 days is a parameter for stage migration.
ITAÚ UNIBANCO HOLDING assesses whether the credit risk has significantly increased on an individual or collective basis. For collective assessment purposes, financial assets are grouped based on characteristics of shared credit risk, considering the type of instrument, credit risk classifications, initial recognition date, remaining term, industry, geographical location of the counterparty, among other significant factors.
Details on the expected credit loss are in Note 32.
g) | Goodwill Impairment |
The review of goodwill due to impairment reflects the Management’s best estimate for future cash flows of Cash Generating Units (CGU), with the identification of the CGU and estimate of their fair value less costs to sell and/or value in use. These flows are subject to market conditions and uncertain factors, as follows:
Cash flows projected for periods of available forecasts and long-term assumptions for these flows;
Discount rates, since they generally reflect financial and economic variables, such as the risk-free interest rate and a risk premium.
Cash-Generating Units or CGU groups are identified at the lowest level at which goodwill is monitored for internal management purposes. Goodwill is allocated to cash flow generating units for purposes of testing for impairment.
h) | Deferred income tax and social contribution |
As explained in Note 2.4j, deferred tax assets are recognized only in relation to deductible temporary differences, tax losses and social contribution loss carryforwards for offset only to the extent that it is probable that ITAÚ UNIBANCO HOLDING will generate future taxable profit for its use. The expected realization of deferred tax assets is based on the projection of future taxable profits and technical studies, as disclosed in Note 24.
i) | Defined benefit pension plan |
The current amount of pension plans is obtained from actuarial calculations, which use assumptions such as discount rate, which is appropriated at the end of each year and used to determine the present value of estimated future cash outflows. To determine the appropriate discount rate, ITAÚ UNIBANCO HOLDING considers the interest rates of National Treasury Notes that have maturity terms approximatingsimilar to the terms of the respective liabilities.
The main assumptions onfor Pension plan obligations are partly based on in part, current market conditions. Additional information is disclosed in Note 26.
Itaú Unibanco Holding S.A. – Complete Financial Statements in IFRS – December 31, 2019 | F-14 |
ITAÚ UNIBANCO HOLDING S.A.
Notes to the Consolidated Financial Statements
At 12/31/2018,2019 and 12/31/2017 and 01/01/20172018 for balance sheet accounts and
From 01/01 to 12/31 of 2019, 2018 2017 and 20162017 for income statement accounts
(In millions of Reais, except information per share)
j) | Provisions, contingencies and legal liabilities |
ITAÚ UNIBANCO HOLDING periodically reviews its contingencies. These contingencies are evaluated based on Management´sManagement’s best estimates, taking into account the opinion of legal counsel when there is a likelihood that financial resources will be required to settle the obligations and the amounts may be reasonably estimated.
Contingencies classified as probable losses are recognized in the Balance Sheet under Provisions.
Contingent amounts are measured using appropriate models and criteria, despite the uncertainty surrounding the ultimate timing and amounts. Provisions, contingencies and other commitments are detailed in Note 29.
k) | Technical provisions for insurance and private pension |
Technical provisions are liabilities arising from obligations of ITAÚ UNIBANCO HOLDING to its policyholders and participants. These obligations may be short term liabilities (property and casualty insurance) or medium and long term liabilities (life insurance and pension plans).
The determination of the actuarial liability is subject to several uncertainties inherent in the coverage of insurance and pension contracts, such as assumptions of persistence, mortality, disability, life expectancy, morbidity, expenses, frequency and severity of claims, conversion of benefits into annuities, redemptions and return on assets.
The estimates for these assumptions are based on the historical experience of ITAÚ UNIBANCO HOLDING, benchmarks and the experience of the actuary, in order to comply with best market practices and the continuousconstantly review of the actuarial liability. The adjustments resulting from these continuous improvements, when necessary, are recognized in the statement of income for the corresponding period.
Additional information is described in Note 27.
2.4.
2.4. | Summary of main accounting practices
In accordance with IFRS 10 - Consolidated Financial Statements, subsidiaries are all entities in which ITAÚ UNIBANCO HOLDING holds control. Consolidated financial statements are prepared using consistent accounting policies.
ITAÚ UNIBANCO HOLDING S.A. Notes to the Consolidated Financial Statements At 12/31/ From 01/01 to 12/31 of 2019, 2018 (In millions of Reais, except information per share)
The following table shows the main consolidated companies, which together represent over 95% of total consolidated assets, as well as the interests of ITAÚ UNIBANCO HOLDING in their voting
ITAÚ UNIBANCO HOLDING S.A. Notes to the Consolidated Financial Statements At 12/31/ From 01/01 to 12/31 of 2019, 2018 (In millions of Reais, except information per share)
In general, a business consists of an integrated set of activities and assets that may be conducted and managed so as to provide a The acquisition method is used to account for business combinations, except for those classified as under common control.
Goodwill is not amortized, but its recoverable
The units or
IFRS 10 – Consolidated Financial Statements establishes that, changes in an ownership interest in a subsidiary, which do not result in a loss of control, are accounted for as capital transactions and any difference between the amount paid and the carrying amount ofnon-controlling stockholders is recognized directly in consolidated stockholders’ equity.
The Consolidated Financial Statements of ITAÚ UNIBANCO HOLDING are presented in Brazilian Reais,
Foreign currency operations are translated into the functional currency using the exchange rates prevailing
ITAÚ UNIBANCO HOLDING S.A. Notes to the Consolidated Financial Statements At 12/31/2019 and 12/31/2018 for balance sheet accounts and From 01/01 to 12/31 of (In millions of Reais, except information per share)
Financial assets and liabilities are initially recognized at fair value and subsequently measured at amortized cost or fair value. I - Classification and Measurement of Financial Assets
As from January
Amortized
Fair Value Through Other Comprehensive
Fair Value Through Profit or The classification and subsequent measurement of financial assets depend on:
The business model under which they are
The characteristics of Business model:represents how financial assets are managed to generate cash flows and does not depend on the Management’s intention regarding an individual instrument. Financial assets may be managed with the purpose of: i) obtaining contractual cash flows; ii) obtaining contractual cash flows and sale; or iii) others. To assess business models, ITAÚ UNIBANCO HOLDING considers risks that affect the performance of the business model; how the managers of the business When SPPI Test:assessment of cash flows generated by a financial instrument Amortized Cost
Fair Value Fair value is the price that would be received for the sale of an asset or that would be paid for the transfer of a liability in ITAÚ UNIBANCO HOLDING classifies the fair value hierarchy according to the relevance of data observed in the measurement process. Details of the fair value of financial instruments, including Derivatives,
ITAÚ UNIBANCO HOLDING S.A. Notes to the Consolidated Financial Statements At 12/31/2019 and 12/31/2018 for balance sheet accounts and From 01/01 to 12/31 of 2019, 2018 and 2017 for income statement accounts (In millions of Reais, except information per share) Average cost is used to determine the gains and losses realized on disposal of financial assets at fair value, which are recorded in the Consolidated Statement of Income as Adjustments to Fair Value of Financial Assets and Liabilities. Dividends on assets at fair value through other comprehensive income are recognized in the Consolidated Statement of Income as Dividend income when it is probable that ITAÚ UNIBANCO HOLDING’s right to receive such dividends is Regular purchases and sales of financial assets are recognized and derecognized, respectively, on the
Financial assets and liabilities are offset against each other and the net amount is reported in the Balance Sheet only solely when there is a legally enforceable right to offset them and the Equity Instruments An equity instrument is any contract that evidences a residual interest in an entity’s assets, after the deduction of all its liabilities, such as Shares and Units. ITAÚ UNIBANCO HOLDING subsequently measures all its equity instruments at fair value through profit or loss, except when Management opts, Gains and losses on equity instruments measured at fair value through profit or loss are accounted Expected Credit Loss ITAÚ UNIBANCO HOLDING
Financial assets:loss is measured at present value of the difference between contractual cash flows and the cash flows that ITAÚ UNIBANCO HOLDING expects to receive;
Loan commitments:expected loss is measured at present value of the difference between contractual cash flows that would be due if the commitment was drawn down and the cash flows that ITAÚ UNIBANCO HOLDING expects to receive;
Financial guarantees:the loss is measured at the difference between the payments expected for refunding the counterparty and the amounts that ITAÚ UNIBANCO HOLDING expects to recover. ITAÚ UNIBANCO HOLDING applies Stage 1 –12-month expected credit loss: represents default events possible within 12 months. Applicable to financial assets which are not credit impaired when purchased or originated; Stage 2 – Lifetime expected credit loss of financial instrument: considers all possible default events. Applicable to financial assets originated which are not credit impaired when originated or purchased but for which credit risk has increased significantly; and Stage 3 – Credit loss expected for credit-impaired assets: considers all possible default events. Applicable to financial assets which are credit impaired when purchased or originated. The measurement of assets classified in this stage is different from Stage 2 due to the recognition of interest income by applying the effective interest rate to amortized cost (net of provision) rather than to the gross carrying amount.
ITAÚ UNIBANCO HOLDING S.A. Notes to the Consolidated Financial Statements At 12/31/2019 and 12/31/2018 for balance sheet accounts and From 01/01 to 12/31 of 2019, 2018 and 2017 for income statement accounts (In millions of Reais, except information per share) An asset will migrate between stages as its credit risk increases or decreases. Therefore, a financial asset that migrated to stages 2 and 3 may return to stage 1, unless it was purchased or originated credit impaired financial asset. Macroeconomic Scenarios
Modification of Contractual Cash Flows When contractual cash flows of a financial asset are renegotiated or otherwise modified and this does not substantially change its terms and conditions, ITAÚ UNIBANCO HOLDING does not derecognize it. However, the gross carrying amount of this financial asset is recalculated as the present value of the renegotiated or changed contractual cash flows, If, on the other hand, the renegotiation or change substantially modifies the terms and conditions of the financial asset, ITAÚ UNIBANCO HOLDING derecognises the original asset and recognizes a new one. Accordingly, the renegotiation date is ITAÚ UNIBANCO HOLDING also assesses if the new financial asset may be considered as purchased or originated credit impaired financial The effects of changes
Financial assets are written off when ITAÚ UNIBANCO HOLDING If there is a retention of
II – Classification and Measurement of
Financial liabilities are initially recognized at fair value and subsequently
Financial Liabilities at Fair Value Through Profit or Loss:this classification applied to derivatives and other financial liabilities designated at fair value through profit or loss to reduce “accounting mismatches”. ITAÚ UNIBANCO HOLDING irrevocably designates financial liabilities at fair value through profit or loss in the initial recognition (fair value option), when the option eliminates or significantly reduces measurement or recognition inconsistencies.
Loan Commitments and Financial
ITAÚ UNIBANCO HOLDING S.A. Notes to the Consolidated Financial Statements At 12/31/ From 01/01 to 12/31 of 2019, 2018 (In millions of Reais, except information per share)
Derecognition and ITAÚ UNIBANCO HOLDING A debt instrument change or substantial terms modification of a financial liability is accounted as a derecognition of the original financial liability and a new one is recognized. A substantial change to contractual terms occurs when the discounted present value of cash III – Securities purchased under agreements to resell
ITAÚ UNIBANCO HOLDING The difference between the sale and repurchase prices is treated as interest and recognized over the life of the agreements using the effective interest rate method. The financial assets IV - Derivatives
All derivatives are accounted for as financial assets when the fair value is positive and as financial liabilities when the fair value is negative. The When a contract has a
These embedded derivatives are accounted for separately at fair value, with variations recognized in the Consolidated Statement of Income as Adjustments to Fair Value of Financial Assets and Liabilities. ITAÚ UNIBANCO HOLDING will continue applying all the hedge accounting At the beginning of a hedging transaction, ITAÚ UNIBANCO HOLDING documents IAS 39
ITAÚ UNIBANCO HOLDING S.A. Notes to the Consolidated Financial Statements At 12/31/ From 01/01 to 12/31 of 2019, 2018 (In millions of Reais, except information per share)
Fair value hedge The following practices are adopted for these operations:
When Cash flow hedge For derivatives that are designated and qualify as hedging instruments in a cash flow hedge, the effective portion of When Hedge of net investments in foreign operations The hedge of a net investment in a foreign operation, including the hedge of a monetary item that is
Gains or losses on the hedging instrument related to the effective portion of the hedge which V - Loan operations ITAÚ UNIBANCO HOLDING classifies a loan VI - Capitalization plans In Brazil they are regulated by the insurance regulator. These plans do not meet the definition of an insurance contract under IFRS 4, and therefore they are classified as a financial liability at amortized cost under IFRS 9. Revenue from capitalization plans is recognized during the period of the contract and measured as the difference between the amount deposited by the
ITAÚ UNIBANCO HOLDING S.A. Notes to the Consolidated Financial Statements At 12/31/ From 01/01 to 12/31 of 2019, 2018 (In millions of Reais, except information per share)
VII – Loan Commitments and Financial Guarantees ITAÚ UNIBANCO HOLDING recognizes as an obligation in the Consolidated Balance Sheet, After
I – Associates Associates are companies in which the investor has a significant influence but does not hold control. Investments in these companies are initially recognized at cost of acquisition and subsequently accounted for using the equity method. Investments in associates and joint ventures include the goodwill identified upon acquisition, net of any cumulative impairment loss. II – Joint arrangements ITAÚ UNIBANCO HOLDING ITAÚ UNIBANCO HOLDING’s share in profits or losses of its associates and joint ventures after acquisition is recognized in the Consolidated statement of income. Its share of the changes in the share in Unrealized profits on transactions between ITAÚ UNIBANCO HOLDING and its associates and joint ventures are eliminated to the extent of the interest of ITAÚ UNIBANCO HOLDING. Unrealized losses are also eliminated, unless the transaction provides evidence of impairment of the transferred asset. The accounting policies on associates and joint ventures entities are If
ITAÚ UNIBANCO HOLDING leases
The financial
Income.
Fixed assets are recognized at cost of acquisition less accumulated depreciation, and adjusted for impairment, if applicable. Depreciation is calculated using the straight-line method and rates based on the estimated useful lives of these assets. These rates and other information are
ITAÚ UNIBANCO HOLDING S.A. Notes to the Consolidated Financial Statements At 12/31/2019 and 12/31/2018 for balance sheet accounts and From 01/01 to 12/31 of 2019, 2018 and 2017 for income statement accounts (In millions of Reais, except information per share) The residual values and useful lives of assets are reviewed and adjusted, if appropriate, at the end of each period. ITAÚ UNIBANCO HOLDING reviews its assets in order to identify whether any indications of impairment exist. The recoverable amount of an asset is defined as the higher of its fair value less costs to sell and its value in use. For the purposes of assessing impairment, assets are grouped at the lowest level for which independent cash flows can be identified (cash-generating units). The assessment may be made at an individual asset level when the fair value less the cost to sell Gains and losses on disposals of fixed assets are recognized in the Consolidated statement of income under Other income or General and administrative expenses.
Intangible assets arenon-physical assets, including software and other assets, and are initially recognized at cost. Intangible assets are recognized when they arise from legal or contractual rights, their costs can be reliably measured, and in the case of intangible assets not arising from separate acquisitions or business combinations, it is probable that future economic benefits may arise from their use. The balance of intangible assets refers to acquired assets or those internally generated. Intangible assets may have finite or indefinite useful lives. Intangible assets with finite useful lives are amortized using the straight-line method over their estimated useful lives. Intangible assets with indefinite useful lives are not amortized, but periodically tested in order to identify any impairment. ITAÚ UNIBANCO HOLDING semi-annually assesses its intangible assets in order to identify whether any indications of impairment exist, as well as possible reversal of previous impairment losses. If such indications are found, intangible assets are tested for impairment. The recoverable amount of an asset is defined as the higher of its fair value less costs to sell and its value in use. For the purposes of assessing impairment, assets are grouped at the lowest level for which independent cash flows can be identified (cash-generating units). The assessment may be made at an individual asset level when the fair value less the cost to sell ITAÚ UNIBANCO HOLDING
Assets held for sale are recognized in the consolidated balance sheet under the line Other assets when they are actually repossessed or there is intention to sell. These assets are initially recorded at the lower of: (i) the fair value of the asset less the estimated selling expenses, or (ii) the carrying amount of the related asset held for sale.
There are two components of the
Deferred income tax and social contribution, represented by deferred tax assets and liabilities,
Income tax and social contribution expense is recognized in the Consolidated statement of income under Income tax and social contribution, except when it refers to items directly recognized in Other comprehensive income, such as: tax on fair value of financial assets measured at fair value through other comprehensive income, post-employment benefits and tax on cash flow hedges and hedge of net investment in foreign operations. Subsequently, these items are recognized in income
ITAÚ UNIBANCO HOLDING S.A. Notes to the Consolidated Financial Statements At 12/31/2019 and 12/31/2018 for balance sheet accounts and From 01/01 to 12/31 of (In millions of Reais, except information per share) Changes in tax legislation and rates are recognized in the Consolidated statement of income in the period in which they are enacted. Interest and fines are recognized in the Consolidated statement of income under General and administrative expenses. To determine the proper level of provisions for taxes to be maintained for uncertain tax positions,
Insurance contracts are contracts under which ITAÚ UNIBANCO HOLDING accepts a significant insurance risk of the counterparty, by agreeing to compensate it if a specified uncertain future event adversely affects it. An insurance risk is significant only if the insurance event could cause ITAÚ UNIBANCO HOLDING to pay significant additional benefits in any scenario,
Although investment agreements with discretionary participation characteristics are financial instruments, they are treated as insurance contracts, as established by IFRS 4, as well as those transferring a significant financial risk. Once Note 27 Private pension plans Contracts that Insurance premiums Insurance premiums are recognized If there is evidence of impairment losses with respect to receivables for insurance premiums, ITAÚ UNIBANCO HOLDING recognizes a provision, sufficient to cover this loss, based on
Reinsurance In the ordinary course of business, ITAÚ UNIBANCO HOLDING reinsures a portion of the risks underwritten, particularly property and casualty risks that exceed the maximum limits of responsibility that
ITAÚ UNIBANCO HOLDING S.A. Notes to At 12/31/2019 and 12/31/2018 for balance sheet accounts and From 01/01 to 12/31 of 2019, 2018 and 2017 for income statement accounts (In millions of Reais, except information per share) If there is any evidence of impairment loss, ITAÚ UNIBANCO HOLDING recognizes a provision when the default period exceeds 180 days Acquisition costs Acquisition costs include direct and indirect costs related to the origination of insurance. These costs Insurance Contract Liabilities Reserves for claims are established based on Liability Adequacy Test ITAÚ UNIBANCO HOLDING Should the analysis show insufficiency, any The assumptions used to conduct the liability adequacy test are detailed in Note 27.
ITAÚ UNIBANCO HOLDING sponsors Defined Benefit Plans and Defined Contribution Plans, which are accounted for in accordance with IAS 19 – Benefits to Employees. ITAÚ UNIBANCO HOLDING is required to make contributions to government social security and labor indemnity plans, in Brazil and in other countries where it operates. Pension plans - Defined benefit plans The liability or asset, as the case may be, is recognized in the Consolidated Balance Sheet with respect to
Pension plans - For defined contribution plans, contributions to plans made by ITAÚ UNIBANCO HOLDING, through pension plan funds, are recognized as liabilities, with a Other post-employment benefit obligations
Share-based payments are
ITAÚ UNIBANCO HOLDING S.A. Notes to the Consolidated Financial Statements At 12/31/2019 and 12/31/2018 for balance sheet accounts and From 01/01 to 12/31 of 2019, 2018 and 2017 for income statement accounts (In millions of Reais, except information per share) The total amount to be expensed is determined by reference to the fair value of the equity instruments excluding the impact of any service andnon-market performance vesting conditions
Contingent assets and liabilities are Contingent assets are not recognized in the Consolidated Financial Statements, except when the Management of ITAÚ UNIBANCO HOLDING These contingencies are evaluated based on
Probable:
Possible:
Remote: The amount of court
Common and preferred shares, which for accounting purposes are equivalent to common shares but without voting rights are classified in Stockholders’ equity. The additional costs directly attributable to the issue of new shares are included in Stockholders’ equity as a deduction from the proceeds, net of taxes.
Common and preferred shares repurchased are recorded in Stockholders’ equity under Treasury shares at their average purchase price. Shares that are subsequently sold, such as those sold to grantees under our share-based payment scheme, are recorded as a reduction in treasury shares, measured at the average price of treasury stock held at The difference between the sale price and the average price of the treasury shares is recorded as a reduction or increase in Additionalpaid-in capital. The cancellation of treasury shares is recorded as a reduction in Treasury shares against Appropriated reserves, at the average price of treasury shares at the cancellation date.
Minimum dividend amounts established in the bylaws are recorded as liabilities at the end of each year. Any other amount above the mandatory minimum dividend is accounted for as a liability when approved by Interest on capital is treated for accounting purposes as a dividend, and it is presented as a reduction of stockholders’ equity in the consolidated financial statements. Dividends have been and continue to be calculated and paid Dividends and interest on capital are presented in Note 19.
ITAÚ UNIBANCO HOLDING S.A. Notes to the Consolidated Financial Statements At 12/31/2019 and 12/31/2018 for balance sheet accounts and From 01/01 to 12/31 of 2019, 2018 and 2017 for income statement accounts (In millions of Reais, except information per share)
ITAÚ UNIBANCO HOLDING grants Earnings per share are presented in Note 25.
Segment information disclosed is ITAÚ UNIBANCO HOLDING has three reportable segments: (i) Retail Banking (ii) Wholesale Banking and (iii) Segment information is presented in Note 30.
Revenue from contracts with customers is recognized when ITAÚ UNIBANCO HOLDING provides or Services related to credit, debit and current account cards are offered to clients individually or in packages and their revenues are recognized when said services are provided. Revenue from certain services such as fees from funds management, performance, collection and custody are recognized when services are provided over the life of the respective agreements.
ITAÚ UNIBANCO HOLDING S.A. Notes to the Consolidated Financial Statements At 12/31/2019 and 12/31/2018 for balance sheet accounts and From 01/01 to 12/31 of 2019, 2018 and 2017 for income statement accounts (In millions of Reais, except information per share) Note 3 – Business development Acquisition ofnon-controlling interest in Pravaler S.A. On December 27, 2019, ITAÚ UNIBANCO HOLDING, through its subsidiary Itaú PRAVALER is classified as an associate measured under the equity method. Effective acquisitions and financial settlements occurred on the same date, after obtaining the regulatory authorizations required. Acquisition ofnon-controlling interest in Ticket Serviços S.A. On September 4, 2018, ITAÚ UNIBANCO HOLDING, through its subsidiary ITAÚ UNIBANCO, entered into a strategic partnership with Edenred Participações S.A. (EDENRED) in the benefits market for workers covered mainly by PAT, the Workers’ Meals Program. EDENRED is the parent company of Ticket Serviços S.A. (TICKET) in Brazil. The strategic partnership enables ITAÚ In addition, ITAÚ UNIBANCO made a minority investment of 11% in TICKET, through a capital increase with contribution of (i) cash, equivalent to said interest in the company’s equity value, and (ii) right to exclusive distribution of Ticket Restaurante, Ticket Alimentação, Ticket Cultura and Ticket Transporte products to the ITAÚ UNIBANCO legal entities base during the partnership term. TICKET will continue distributing its products through other commercial agreements and will continue under EDENRED’s control and management. Effective acquisitions and financial settlements occurred on August 30, 2019. After the obtainment of regulatory and government authorizations required. Itaú CorpBanca The Itaú Corpbanca (ITAÚ CORPBANCA) is controlled as of April On October 12, 2018, ITAÚ UNIBANCO HOLDING, through its subsidiary ITB Holding Brasil Participações Ltda., indirectly acquired
ITAÚ UNIBANCO HOLDING S.A. Notes to the Consolidated Financial Statements At 12/31/2019 and 12/31/2018 for balance sheet accounts and From 01/01 to 12/31 of 2019, 2018 and 2017 for income statement accounts (In millions of Reais, except information per share) Acquisition of On May 11, 2017, ITAÚ UNIBANCO HOLDING, through its subsidiary ITAÚ UNIBANCO, entered into an agreement for purchase and sale of shares with XP Controle Participações S.A. (XP CONTROLE), G.A. Brasil IV Fundo de Investimento em Participações, Dyna III Fundo de Investimento em Participações, among other parties (SELLERS), for acquisition of 49.9% of total capital (of which 30.1% of common shares) of XP Investimentos S.A. (XP HOLDING), through capital contribution in the amount of R$ 600 and acquisition of shares issued by XP HOLDING held by the SELLERS in the amount of R$ 5,700, and such amounts were restated pursuant to contractual provision, totaling R$ 6,650 (FIRST ACQUISITION). A portion of this amount In addition to the FIRST ACQUISITION, the agreement sets forth only one additional acquisition in 2022, subject to future BACEN’s approval. Should it be approved, it will enable ITAÚ UNIBANCO to hold up to 62.4% of XP HOLDING’s total capital (equivalent to 40.0% of common shares) based on a multiple of Effective acquisitions and financial settlements occurred on August 31, 2018, after the satisfaction of certain contractual conditions and obtainment of regulatory and government authorizations required. On November 29, 2019, there was a corporate reorganization of XP HOLDING, in which its shareholders subscribed their respective shares of XP Inc. (“XP INC”), and the same percentages were kept in total capital. After the initial public offering, held on December 11, 2019, the ownership interest of ITAÚ UNIBANCO HOLDING
Note 4 - Interbank deposits and securities purchased under agreements to resell
ITAÚ UNIBANCO HOLDING S.A. Notes to the Consolidated Financial Statements At 12/31/ From 01/01 to 12/31 of 2019, 2018 (In millions of Reais, except information per share)
Note 5 – Financial assets at fair value through profit or loss and designated at fair value through profit or loss - Securities a)Financial assets at fair value through profit or loss - Securities are presented in the following table:
ITAÚ UNIBANCO HOLDING S.A. Notes to the Consolidated Financial Statements At 12/31/2019 and 12/31/2018 for balance sheet accounts and From 01/01 to 12/31 of 2019, 2018 and 2017 for income statement accounts (In millions of Reais, except information per share) The cost and fair value per maturity of Financial Assets at Fair Value Through Profit or Loss - Securities are as follows:
Financial Assets at Fair Value Through Profit or Loss - Securities include assets with a fair value of R$
The cost and fair value by maturity of financial assets designated as fair value through profit or loss - Securities were as follows:
ITAÚ UNIBANCO HOLDING S.A. Notes to the Consolidated Financial Statements At 12/31/2019 and 12/31/2018 for balance sheet accounts and From 01/01 to 12/31 of 2019, 2018 and 2017 for income statement accounts (In millions of Reais, except information per share) Note 6 – Derivatives ITAÚ UNIBANCO HOLDING Futures– Interest rate and foreign currency futures contracts are commitments to buy or sell a financial instrument at a future date, at Forwards– Interest rate forward contracts are agreements to exchange payments on a specified future date, based on Swaps– Interest rate and foreign exchange swap contracts are commitments to settle in cash Options– Option contracts give the purchaser, for a fee, the right, but not the obligation, to buy or sell a financial instrument within a limited time,
Credit Derivatives– Credit derivatives are financial instruments with value The total value of margins pledged in guarantee by ITAÚ UNIBANCO HOLDING was R$ Further information on internal controls and parameters used to management risks, may be accessed in Note 32 – Risk and Capital Management.
ITAÚ UNIBANCO HOLDING S.A. Notes to the Consolidated Financial Statements At 12/31/2019 and 12/31/2018 for balance sheet accounts and From 01/01 to 12/31 of 2019, 2018 and 2017 for income statement accounts (In millions of Reais, except information per share) I - Derivatives Summary See below the composition of the Derivative financial instruments portfolio (assets and liabilities) by type of instrument, stated fair value, and by maturity.
ITAÚ UNIBANCO HOLDING S.A. Notes to the Consolidated Financial Statements At 12/31/ From 01/01 to 12/31 of 2019, 2018 (In millions of Reais, except information per share)
See below the composition of the Derivative financial instruments portfolio (assets and liabilities) by type of instrument, stated fair value, and by maturity.
ITAÚ UNIBANCO HOLDING S.A. Notes to the Consolidated Financial Statements At 12/31/ From 01/01 to 12/31 of 2019, 2018 (In millions of Reais, except information per share)
II - Derivatives by index and Risk Fator The following table shows the composition of derivatives by index:
ITAÚ UNIBANCO HOLDING S.A. Notes to the Consolidated Financial Statements At 12/31/ From 01/01 to 12/31 of 2019, 2018 (In millions of Reais, except information per share)
The following table shows the composition of derivatives by index:
ITAÚ UNIBANCO HOLDING S.A. Notes to the Consolidated Financial Statements At 12/31/ From 01/01 to 12/31 of 2019, 2018 (In millions of Reais, except information per share)
III - Derivatives by notional amount See below the composition of the Derivative Financial Instruments portfolio by type of instrument, stated at their notional amounts, per trading location (organized orover-the-counter market) and counterparties.
ITAÚ UNIBANCO HOLDING
Notes to the Consolidated Financial Statements At 12/31/ From 01/01 to 12/31 of 2019, 2018 (In millions of Reais, except information per share)
IV - Credit derivatives
CDS TRS (total return swap) is a transaction in which a party swaps the total return of an asset or of a basket of assets for regular cash flows, usually interest and a guarantee against capital loss. In a TRS contract, the parties do not transfer the ownership of the assets.
ITAÚ UNIBANCO HOLDING S.A. Notes to the Consolidated Financial Statements At 12/31/2019 and 12/31/2018 for balance sheet accounts and From 01/01 to 12/31 of 2019, 2018 and 2017 for income statement accounts (In millions of Reais, except information per share) ITAÚ UNIBANCO HOLDING assesses the risk of a credit derivative based on the credit ratings attributed to the reference entity by independent credit rating agencies. Investment grade entities are those
The following table presents the notional amount of
V - Financial instruments subject to offsetting, enforceable master netting arrangements and similar agreements The following tables set forth the financial assets and liabilities that are subject to offsetting, enforceable master netting arrangements, and similar agreements, as well as how these financial assets and liabilities have been presented in ITAÚ UNIBANCO HOLDING’s consolidated financial statements. These tables also reflect the amounts of collateral pledged or received in relation to financial assets and liabilities subject to enforceable arrangements that have not been presented on a net basis in accordance with IAS 32.
Financial assets subject to offsetting, enforceable master netting arrangements and similar agreements:
ITAÚ UNIBANCO HOLDING S.A. Notes to the Consolidated Financial Statements At 12/31/2019 and 12/31/2018 for balance sheet accounts and From 01/01 to 12/31 of 2019, 2018 and 2017 for income statement accounts (In millions of Reais, except information per share) Financial liabilities subject to offsetting, enforceable master netting arrangements and similar agreements:
Financial assets and financial liabilities are offset in the balance sheet only when there is a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis, or realize the asset and settle the liability simultaneously. Derivatives and
ITAÚ UNIBANCO HOLDING S.A. Notes to the Consolidated Financial Statements At 12/31/ From 01/01 to 12/31 of 2019, 2018 (In millions of Reais, except information per share)
Note 7 – Hedge accounting There are three types of hedge relations: Fair value hedge, Cash flow hedge, and Hedge of net investment in foreign operations. In hedge accounting, the groups of risk factors measured by ITAÚ UNIBANCO HOLDING are:
Interest Rate: Risk of loss in transactions subject to interest rate variations;
Currency: Risk of loss in transactions subject to foreign exchange variation. The structure of risk limits is extended to the risk factor level, The structures designed for The other risk factors hedged by the institution are To protect cash flows and fair value of instruments designated as hedged items, ITAÚ UNIBANCO HOLDING uses derivative financial instruments and financial assets. Currently, Futures Contracts, Options, NDF(non-deliverable ITAÚ UNIBANCO HOLDING manages risks through the economic relationship between The designated coverage ratio is always 100% of the risk factor eligible for coverage. a) Cash flow hedge
The cash flow hedge strategies of ITAÚ UNIBANCO HOLDING consist of ITAÚ UNIBANCO HOLDING Interest rate risks
Hedge of time deposits and repurchase agreements: to hedge
Hedge of
Hedge of assets denominated in UF*:to hedge
Hedge of Funding: to hedge
ITAÚ UNIBANCO HOLDING S.A. Notes to the Consolidated Financial Statements At 12/31/2019 and 12/31/2018 for balance sheet accounts and From 01/01 to 12/31 of 2019, 2018 and 2017 for income statement accounts (In millions of Reais, except information per share) Hedge of loan operations: to hedge
Hedge of Hedging of expected highly probable transactions: hedging the risk of variation in the amount of the commitments assumed when resulting from variation in the exchange rates.
ITAÚ UNIBANCO HOLDING does not use the qualitative method to evaluate the effectiveness
ITAÚ UNIBANCO HOLDING S.A. Notes to the Consolidated Financial Statements At 12/31/ From 01/01 to 12/31 of 2019, 2018 (In millions of Reais, except information per share)
For strategies of deposits and repurchase agreements to resell, asset transactions and asset-backed securities under repurchase agreements, the entity frequently reestablishes the coverage relationship, since both the hedged item and instruments change over time. This is so because they are portfolio strategies, reflecting guidelines for risk management strategy approved in the proper approval level. The amount of R$
ITAÚ UNIBANCO The risk hedged in this type of strategy is the ITAÚ UNIBANCO HOLDING does not use the qualitative method to
ITAÚ UNIBANCO HOLDING S.A. Notes to the At 12/31/2019 and 12/31/2018 for balance sheet accounts and From 01/01 to (In millions of Reais, except information per share) Instead, ITAÚ UNIBANCO HOLDING uses the Dollar Offset
ITAÚ UNIBANCO HOLDING S.A. Notes to the Consolidated Financial Statements At 12/31/ From 01/01 to 12/31 of 2019, 2018 (In millions of Reais, except information per share)
The fair value ITAÚ UNIBANCO HOLDING Interest rate risk:
To protect the risk of variation in the fair value of receipt and payment of interest resulting from variations in the fair value of the variable rates involved, by contracting swaps and futures.
ITAÚ UNIBANCO HOLDING does not use the qualitative method to
The percentage approach is based on the calculation of change in the fair value of the
The dollar offset method is The effects of hedge accounting on the financial position and performance of ITAÚ UNIBANCO HOLDING are presented below:
For loan operations strategies, the entity reestablishes the coverage ratio, since both the hedged item and the instruments change over time. This occurs because they are portfolio strategies that reflect the risk management strategy guidelines approved in the proper authority level.
ITAÚ UNIBANCO HOLDING S.A. Notes to the Consolidated Financial Statements At 12/31/ From 01/01 to 12/31 of 2019, 2018 (In millions of Reais, except information per share)
The tables below
ITAÚ UNIBANCO HOLDING S.A. Notes to the Consolidated Financial Statements At 12/31/ From 01/01 to 12/31 of 2019, 2018 (In millions of Reais, except information per share)
The table below shows the breakdown by maturity of the hedging strategies:
ITAÚ UNIBANCO HOLDING S.A. Notes to the Consolidated Financial Statements At 12/31/ From 01/01 to 12/31 of 2019, 2018 (In millions of Reais, except information per share)
Note 8 – Financial Assets at Fair Value Through Other Comprehensive Income - Securities The fair value and corresponding gross carrying amount of Financial Assets at Fair Value Through Other Comprehensive Income - Securities assets are as follows:
The gross carrying amount and the fair value of financial assets through other comprehensive income - securities by maturity are as follows:
ITAÚ UNIBANCO HOLDING S.A. Notes to the Consolidated Financial Statements At 12/31/ From 01/01 to 12/31 of 2019, 2018 (In millions of Reais, except information per share)
Equity instruments at fair value through other comprehensive income - securities are presented in the table below:
In the period there was no receipt of dividends and there was no reclassification in ITAÚ UNIBANCO HOLDING adopted the option of designating equity instruments at fair value through other comprehensive income due to the particularities of a certain market.
Reconciliation of expected loss for
ITAÚ UNIBANCO HOLDING S.A. Notes to the Consolidated Financial Statements At 12/31/ From 01/01 to 12/31 of 2019, 2018 (In millions of Reais, except information per share)
Note 9 - Financial assets at amortized cost - Securities The Financial assets at amortized cost - Securities
The amortized cost of Financial assets at amortized cost - Securities by maturity is as follows:
ITAÚ UNIBANCO HOLDING S.A. Notes to the Consolidated Financial Statements At 12/31/ From 01/01 to 12/31 of 2019, 2018 (In millions of Reais, except information per share)
Reconciliation of expected loss to financial assets at amortized cost - securities, segregated by stages:
ITAÚ UNIBANCO HOLDING S.A. Notes to the Consolidated Financial Statements At 12/31/ From 01/01 to 12/31 of 2019, 2018 (In millions of Reais, except information per share)
Note 10 - Loan
Below is the composition of the carrying amount of loan operations and lease operations by type, sector of debtor, maturity and concentration:
ITAÚ UNIBANCO HOLDING S.A. Notes to the Consolidated Financial Statements At 12/31/2019 and 12/31/2018 for balance sheet accounts and From 01/01 to 12/31 of 2019, 2018 and 2017 for income statement accounts (In millions of Reais, except information per share)
The breakdown of the loans and finance lease portfolio by debtor’s industry is described in Note 32, item 1.4.1 - By business sector.
Reconciliation of gross portfolio of loans and finance lease operations, segregated by stages:
ITAÚ UNIBANCO HOLDING S.A. Notes to the Consolidated Financial Statements At 12/31/2019 and 12/31/2018 for balance sheet accounts and From 01/01 to 12/31 of 2019, 2018 and 2017 for income statement accounts (In millions of Reais, except information per share) Reconciliation of gross portfolio of loan and Lease Operations, segregated by stages:
ITAÚ UNIBANCO HOLDING S.A. Notes to the Consolidated Financial Statements At 12/31/2019 and 12/31/2018 for balance sheet accounts and From 01/01 to 12/31 of 2019, 2018 and 2017 for income statement accounts (In millions of Reais, except information per share)
Reconciliation of expected credit loss of loans and finance lease operations, segregated by stages:
ITAÚ UNIBANCO HOLDING S.A. Notes to the Consolidated Financial Statements At 12/31/2019 and 12/31/2018 for balance sheet accounts and From 01/01 to 12/31 of 2019, 2018 and 2017 for income statement accounts (In millions of Reais, except information per share) Reconciliation of expected credit loss of loans and finance lease operations, segregated by stages:
ITAÚ UNIBANCO HOLDING S.A. Notes to the Consolidated Financial Statements At 12/31/ From 01/01 to 12/31 of 2019, 2018 (In millions of Reais, except information per share)
ITAÚ UNIBANCO HOLDING carried out operations of securitization or transfer of financial assets in which there was retention of credit risks of financial assets transferred
Operations of transfers of financial assets with no retention of risks and benefits generated impact on the result of R$
ITAÚ UNIBANCO HOLDING S.A. Notes to the Consolidated Financial Statements At 12/31/ From 01/01 to 12/31 of 2019, 2018 (In millions of Reais, except information per share)
Note 11 - Investments in associates and joint ventures
Note 12 – Lease
ITAÚ UNIBANCO HOLDING is the lessee
Total lease
ITAÚ UNIBANCO HOLDING S.A. Notes to the Consolidated Financial Statements At 12/31/ From 01/01 to 12/31 of 2019, 2018 (In millions of Reais, except information per share)
Lease amounts recognized in the Consolidated Statement of Income:
In the period from January 1 to
Note 13 - Fixed assets
ITAÚ UNIBANCO HOLDING S.A. Notes to the Consolidated Financial Statements At 12/31/2019 and 12/31/2018 for balance sheet accounts and From 01/01 to 12/31 of 2019, 2018 and 2017 for income statement accounts (In millions of Reais, except information per share)
ITAÚ UNIBANCO HOLDING S.A. Notes to the Consolidated Financial Statements At 12/31/ From 01/01 to 12/31 of 2019, 2018 (In millions of Reais, except information per share)
Note 14 - Goodwill and Intangible assets
ITAÚ UNIBANCO HOLDING S.A. Notes to the Consolidated Financial Statements At 12/31/ From 01/01 to 12/31 of 2019, 2018 (In millions of Reais, except information per share)
Note 15 - Deposits
Note 16 – Financial liabilities designated at fair value through profit or loss
The effect of credit risk of these instruments is not significant at 12/31/ Shares and debt securities do not have a defined amount on maturity, since they vary according to stock market quotation and an exchange variation component, respectively. Note 17 – Securities sold under repurchase agreements and interbank and institutional market
The table below shows the breakdown of funds:
ITAÚ UNIBANCO HOLDING S.A. Notes to the Consolidated Financial Statements At 12/31/ From 01/01 to 12/31 of 2019, 2018 (In millions of Reais, except information per share)
Funding for import and export financing represents credit facilities available for financing of imports and exports of Brazilian companies, in general denominated in foreign currency.
Note 18 - Other assets and liabilities
ITAÚ UNIBANCO HOLDING S.A. Notes to the Consolidated Financial Statements At 12/31/ From 01/01 to 12/31 of 2019, 2018 (In millions of Reais, except information per share)
Note 19 – Stockholders’ equity
Capital is represented by 9,804,135,348 book-entry shares with no par value, of which 4,958,290,359 are common shares and 4,845,844,989 are preferred shares with no voting rights, but withtag-along rights, in the event of
The Extraordinary Stockholders’ Meeting
ITAÚ UNIBANCO HOLDING S.A. Notes to the Consolidated Financial Statements At 12/31/ From 01/01 to 12/31 of 2019, 2018 (In millions of Reais, except information per share)
ITAÚ UNIBANCO HOLDING S.A. Notes to the Consolidated Financial Statements At 12/31/ From 01/01 to 12/31 of 2019, 2018 (In millions of Reais, except information per share)
Shareholders are entitled to a mandatory minimum The calculation of the monthly advance of the mandatory minimum dividend is based on the share position on the last day of the l - Calculation of dividends and interest on capital
ll - Stockholders’ compensation
ITAÚ UNIBANCO HOLDING S.A. Notes to the Consolidated Financial Statements At 12/31/ From 01/01 to 12/31 of 2019, 2018 (In millions of Reais, except information per share)
l - Additionalpaid-in capital
Additionalpaid-in capital corresponds to: (i) the difference between the ll - Appropriated reserves
lll - Unappropriated reserves
Refers to balance of
Note 20 – Share-based payment
ITAÚ UNIBANCO HOLDING and its subsidiaries have share-based payment plans aimed at involving The grant of these benefits
ITAÚ UNIBANCO HOLDING S.A. Notes to the Consolidated Financial Statements At 12/31/2019 and 12/31/2018 From 01/01 to 12/31 of (In millions of Expenses on stock-based payment plans are presented in the table below:
l – Partner Plan
The program enables employees and The acquisition The fair value of the consideration in shares Changes in the Partner Program
II – Variable compensation
In this plan, 50% of variable compensation of Management members become eligible for the receipt of these benefits according to individual performance, business performance or both. The benefit amount is established according to the activities of each management member The fair value of the share is the market price at its grant date.
ITAÚ UNIBANCO HOLDING S.A. Notes to the Consolidated Financial Statements At 12/31/ From 01/01 to 12/31 of 2019, 2018 (In millions of Reais, except information per share)
Change in share-based variable compensation
ITAÚ UNIBANCO HOLDING has a Stock Option Plan (“Simple Options”), which Simple options have the following characteristics:
Summary of changes in the Simple options plan
ITAÚ UNIBANCO HOLDING S.A. Notes to the Consolidated Financial Statements At 12/31/ From 01/01 to 12/31 of 2019, 2018 (In millions of Reais, except information per share)
Note 21 – Interest and similar income and expense and net gain (loss) on investment securities and derivatives
b) Interest and similar expense
During the period ended 12/31/ Note 22 – Banking service fees
ITAÚ UNIBANCO HOLDING S.A. Notes to the Consolidated Financial Statements At 12/31/ From 01/01 to 12/31 of 2019, 2018 (In millions of Reais, except information per share)
Note 23 – General and administrative expenses
ITAÚ UNIBANCO HOLDING S.A. Notes to the Consolidated Financial Statements At 12/31/ From 01/01 to 12/31 of 2019, 2018 (In millions of Reais, except information per share)
Note 24 – Taxes
ITAÚ UNIBANCO HOLDING and each one of its subsidiaries calculate separately, in each fiscal year, Income Tax and Social Contribution on Net Income. Taxes are calculated at the rates shown below and consider, for effects of respective calculation bases, the legislation in force applicable to each charge.
a) Expenses for taxes and contributions Breakdown of income tax and social contribution expense calculation:
ITAÚ UNIBANCO HOLDING S.A. Notes to the Consolidated Financial Statements At 12/31/ From 01/01 to 12/31 of 2019, 2018 (In millions of Reais, except information per share)
b) Deferred taxes
ITAÚ UNIBANCO HOLDING S.A. Notes to the Consolidated Financial Statements At 12/31/ From 01/01 to 12/31 of 2019, 2018 (In millions of Reais, except information per share)
II – The provision for deferred tax and contributions and respective changes are as follows:
ITAÚ UNIBANCO HOLDING S.A. Notes to the Consolidated Financial Statements At 12/31/2019 and 12/31/2018 for balance sheet accounts and From 01/01 to 12/31 of 2019, 2018 and 2017 for income statement accounts (In millions of Reais, except information per share)
Net income in the financial statements is not directly related to the taxable income, due to differences between
ITAÚ UNIBANCO HOLDING S.A. Notes to the Consolidated Financial Statements At 12/31/ From 01/01 to 12/31 of 2019, 2018 (In millions of Reais, except information per share)
c) Tax liabilities
Net income attributable to ITAÚ UNIBANCO HOLDING’s shareholders is divided by the average number of outstanding shares in the period, excluding treasury shares.
ITAÚ UNIBANCO HOLDING S.A. Notes to the Consolidated Financial Statements At 12/31/2019 and 12/31/2018 for balance sheet accounts and From 01/01 to 12/31 of 2019, 2018 and 2017 for income statement accounts (In millions of Reais, except information per share) b) Diluted earnings per share Calculated similarly to the basic earnings per share; however, it includes the conversion of all preferred shares potentially dilutable in the denominator.
Potential anti-dilution effects of shares under our share-based payment, excluded from the calculation of diluted earnings per share, totaled 538,312 preferred shares at 12/31/ Note 26 – Post-employment benefits
ITAÚ UNIBANCO HOLDING, through its subsidiaries, sponsors retirement plans Retirement plans are managed byClosed-end Private Pension Entities (EFPC) and are closed to new There are three types of retirement
Defined Benefit Plans (BD): plans under which scheduled benefits
Defined Contribution Plans (CD):
Variable Contribution Plans (CV): in this type of plan, scheduled benefits
ITAÚ UNIBANCO HOLDING S.A. Notes to the Consolidated Financial Statements At 12/31/2019 and 12/31/2018 for balance sheet accounts and From 01/01 to 12/31 of 2019, 2018 and 2017 for income statement accounts (In millions of Reais, except information per share) Below is a list of benefit plans and their modalities:
a) Main Actuarial Assumptions
Actuarial assumptions of demographic and financial nature should reflect the best
ITAÚ UNIBANCO HOLDING S.A. Notes to the Consolidated Financial Statements At 12/31/2019 and 12/31/2018 for balance sheet accounts and From 01/01 to 12/31 of 2019, 2018 and 2017 for income statement accounts (In millions of Reais, except information per share)
The main demographic assumptions comprise: mortality table and turnover of active participants,
Retired plans sponsored by foreign subsidiaries b) Risk Management
The EFPCs sponsored by ITAÚ UNIBANCO HOLDING are regulated by the National Council for Complementary Pension (CNPC) and PREVIC, has an Executive Board, Advisory and Tax Councils. Benefits offered havelong-tem characteristics and the main factors involved in the management and measurement of their risks are financial risk, inflation risk and - Financial Risk –the actuarial liability is calculated by adopting a discount rate different from rates earned in investments. If real income from plan investments is lower than yield expected, this may give rise to a deficit. To mitigate this risk and assure the capacity to pay long-term benefits, the plans have a significant percentage of fixed-income securities pegged to the plan commitments, aiming at minimizing volatility and risk of mismatch between assets and liabilities. Additionally, adherence tests are carried out in financial assumptions to ensure their adequacy to obligations of respective plans. - Inflation risk– a large part of liabilities is pegged to inflation risk, making actuarial liabilities sensitive to increase in rates. To mitigate this risk, the same financial risks mitigation strategies are used. - Demographic Risk– plans that have any obligation actuarially assessed are exposed to For purposes of registering in the balance sheet the EFPCs that manage them, actuarial liabilities of plans use discount rate adherent to its asset portfolio and income and expense flows, according to a study
ITAÚ UNIBANCO HOLDING S.A. Notes to the Consolidated Financial Statements At 12/31/ From 01/01 to 12/31 of 2019, 2018 (In millions of Reais, except information per share)
c) Asset management
The purpose of the management of the funds is the long-term balance between pension assets and liabilities with payment of benefits by exceeding actuarial goals (discount rate plus benefit adjustment index, established in the plan regulations). Below is a table with the allocation of assets by category, segmented into Quoted in an Active Market and Not Quoted in an Active Market:
The defined benefit plan assets include shares of ITAÚ UNIBANCO HOLDING, its main parent company (ITAÚSA) and of subsidiaries of the latter, with a fair value of R$ 11 (R$ d) Other post-employment benefits
ITAÚ UNIBANCO HOLDING and its subsidiaries do not have additional liabilities related to post-employment benefits, except in cases arising from maintenance commitments assumed in acquisition agreements occurred over the years, as well as those benefits originated from Assumptions for discount rate, inflation, mortality table and actuarial method are the same used for retirement plans. In the last 3 years, ITAÚ UNIBANCO HOLDING used the percentage of 8.16% p.a. for medical inflation and the percentage of 3% p.a. for aging factor. Particularly in other post-employment benefits, there is medical inflation risk associated to increase in medical costs above expectation. To mitigate this risk, the same financial risks mitigation strategies are used.
ITAÚ UNIBANCO HOLDING S.A. Notes to the Consolidated Financial Statements At 12/31/ From 01/01 to 12/31 of 2019, 2018 (In millions of Reais, except information per share)
f) Change in the net amount recognized in the balance sheet
ITAÚ UNIBANCO HOLDING S.A. Notes to the Consolidated Financial Statements At 12/31/ From 01/01 to 12/31 of 2019, 2018 (In millions of Reais, except information per share)
ITAÚ UNIBANCO HOLDING S.A. Notes to the Consolidated Financial Statements At 12/31/2019 and 12/31/2018 for balance sheet accounts and From 01/01 to 12/31 of 2019, 2018 and 2017 for income statement accounts (In millions of Reais, except information per share) i) Sensitivity analysis To measure the effects of changes in the key assumptions, sensitivity tests were conducted in actuarial liabilities. The sensitivity analysis considers a vision of the impacts caused by changes in assumptions, which could affect the income for the period and stockholders’ equity at the balance sheet date. This type of analysis is usually carried out under theceteris paribuscondition, in which the sensitivity of a system is measured when only one variable of interest is changed and all the others remain unchanged. The results obtained are shown in the table below:
ITAÚ UNIBANCO HOLDING, through its subsidiaries, offers to the market insurance and private pension products, with the purpose of assuming risks and restoring the economic balance of the insured’s I – Insurance
The insurance risks sold by II – Private pension
PGBL
VGBL
FGB
ITAÚ UNIBANCO HOLDING S.A. Notes to the Consolidated Financial Statements At 12/31/2019 and 12/31/2018 for balance sheet accounts and From 01/01 to 12/31 of 2019, 2018 and 2017 for income statement accounts (In millions of Reais, except information per share) III – Technical provision for insurance and private pensions The technical provisions
Provision for unearned premiums (PPNG) –this provision is recognized, based on insurance premiums, to cover amounts payable for future claims and expenses. In the calculation, the term to maturity of risks assumed and issued and risks in effect but not issued (PPNG-RVNE) in the policies or endorsements of contracts in force is taken pro rata on a daily basis;
Provision for unsettled claims (PSL)
Provision for claims incurred and not reported (IBNR)
Mathematical provisions for benefits to be granted (PMBAC)
Mathematical provisions for benefits granted
Provision for financial surplus (PEF)
Supplemental Coverage Reserve (PCC)
Provision for redemptions and other amounts to be
Provision for related expenses (PDR)
ITAÚ UNIBANCO HOLDING S.A. Notes to the Consolidated Financial Statements At 12/31/ From 01/01 to 12/31 of 2019, 2018 (In millions of Reais, except information per share) IV - Main information related to Insurance and Private Pension operations a) Indexes
b) Revenues from insurance premiuns and private pension
ITAÚ UNIBANCO HOLDING S.A. Notes to the Consolidated Financial Statements At 12/31/ From 01/01 to 12/31 of 2019, 2018 (In millions of Reais, except information per share)
c) Technical provisions balances
d) Change in technical provisions
Through actuarial models based mainly on the portfolio historical experience and on macroeconomic projections, ITAÚ UNIBANCO HOLDING establishes the assumptions that influence the assessment of technical provisions. The assumptions are reassessed annually by experts of the actuarial and risk area, and are subsequently submitted to the executive’s approval. The effects on assumptions are recognized in income for the period in which they occurred. V They are recorded in assets and charges are shown in the table below:
ITAÚ UNIBANCO HOLDING S.A. Notes to the Consolidated Financial Statements At 12/31/2019 and 12/31/2018 for balance sheet accounts and From 01/01 to 12/31 of 2019, 2018 and 2017 for income statement accounts (In millions of Reais, except information per share) VI - Table of Claims Development The amounts shown in the tables express the position at 12/31/
a) Administratives claims
b) Judicial claims
The breakdown of the claims development table
ITAÚ UNIBANCO HOLDING S.A. Notes to the Consolidated Financial Statements At 12/31/2019 and 12/31/2018 for balance sheet accounts and From 01/01 to 12/31 of 2019, 2018 and 2017 for income statement accounts (In millions of Reais, except information per share) VII – Liability Adequacy Test
The Liability Adequacy Test did not indicate significant insufficiency in the reporting periods The assumptions used in the test are periodically reviewed and are based on Methodology and test grouping Specifically for insurance products, cash flows were projected using the method known as therun-off triangle The risk grouping Demographic tables
For death and survival estimates, the latest Brazilian Market Insurer Experience tables(BR-EMS) Risk-free interest rate The relevant risk-free forward interest-rate structure (ETTJ) is an indicator of the pure time value of money used to price the set of projected cash flows. The
The Other assumptions Related expenses, cancellations and partial redemptions, future Note 28 – Fair value of financial instruments In cases where market prices are not available, fair values are based on estimates using discounted cash flows or other valuation techniques. These techniques are significantly affected by the assumptions adopted, including the discount rate and estimate of future cash flows. The estimated fair value
ITAÚ UNIBANCO HOLDING S.A. Notes to the Consolidated Financial Statements At 12/31/ From 01/01 to 12/31 of 2019, 2018 (In millions of Reais, except information per share)
The following table summarizes the carrying values and estimated fair values for financial instruments:
Financial instruments not included in the Balance Sheet (Note 32) are represented by Standby letters of credit and financial guarantees provided, which amount to R$ The methods and assumptions
ITAÚ UNIBANCO HOLDING S.A. Notes to the Consolidated Financial Statements At 12/31/ From 01/01 to 12/31 of 2019, 2018 (In millions of Reais, except information per share)
Swaps:The cash flows are discounted to present value based on yield curves that reflect the appropriate risk factors,
Futures and forwards:Quotations on exchanges or using criteria identical to those applied to swaps.
Options:determined through mathematical models, such as Black-Scholes, using data, in general from Bloomberg, for implicit volatility, interest rate yield curve and fair value of the underlying asset. Current market prices of options are used to compute the implicit volatilities.
Loans:They are inversely related to the probability of default (PD) in a financial instrument subject to credit risk. The process of adjusting the market price of these spreads is based on the differences between the yield curves with and without credit risk.
Level 1:Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets. An active market is a market in which transactions for the asset or liability being measured occur often enough and with sufficient volume to provide pricing information on an ongoing basis. Level 2:
ITAÚ UNIBANCO HOLDING S.A. Notes to the Consolidated Financial Statements At 12/31/2019 and 12/31/2018 for balance sheet accounts and From 01/01 to 12/31 of 2019, 2018 and 2017 for income statement accounts (In millions of Reais, except information per share) Financial assets at fair value through profit or loss, including Derivatives, and at fair value through other comprehensive income: Level 1:Highly-liquid securities with prices available in an active market and derivatives traded on stock exchanges. This classification level includes most of the Brazilian government securities, other foreign government securities, shares and debentures traded on stock exchanges and other securities traded in an active market. Level 2:When Derivatives included in Level 2 are credit default swaps, cross-currency swaps, interest rate swaps, simple options and ITAÚ UNIBANCO HOLDING does not hold positions in alternative investment funds or private equity funds. Level 3:When there is no pricing information in an active market, ITAÚ UNIBANCO HOLDING uses internally developed models, from curves generated according to Derivatives with fair values classified All
ITAÚ UNIBANCO HOLDING S.A. Notes to the Consolidated Financial Statements At 12/31/ From 01/01 to 12/31 of 2019, 2018 (In millions of Reais, except information per share)
Distribution by level The following table presents the breakdown of fair value hierarchy levels.
ITAÚ UNIBANCO HOLDING S.A. Notes to the Consolidated Financial Statements At 12/31/ From 01/01 to 12/31 of 2019, 2018 (In millions of Reais, except information per share)
The following table presents the breakdown of fair value hierarchy levels for
There were no significant transfer between Level 1 and Level 2 during the period Measurement of Level 2 fair value To Prices provided by pricing services that meet the following requirements are considered Level 2: input is immediately available, regularly distributed, provided by sources actively involved in significant markets and it is not proprietary. Of the total of R$
Debentures:When available, we use price information for transactions recorded in the Brazilian Debenture System (SND), an electronic platform operated by B3, which provides multiple services for transactions involving debentures in the secondary market. Alternatively, prices of debentures provided by ANBIMA are used. Its methodology includes obtaining, on a daily basis,
Global and corporate securities:The pricing process for these securities consists
Level 3 recurring fair value measurements The departments in charge of defining and applying the pricing models are segregated from the business areas. The models are documented, submitted to validation by an independent area and approved by a specific committee. The daily process of price capture, calculation and disclosure
ITAÚ UNIBANCO HOLDING S.A. Notes to the Consolidated Financial Statements At 12/31/2019 and 12/31/2018 for balance sheet accounts and From 01/01 to 12/31 of 2019, 2018 and 2017 for income statement accounts (In millions of Reais, except information per share) The most Level 3 recurring fair value changes The tables below show
ITAÚ UNIBANCO HOLDING S.A. Notes to the Consolidated Financial Statements At 12/31/ From 01/01 to 12/31 of 2019, 2018 (In millions of Reais, except information per share)
Sensitivity analyses The fair value of financial instruments classified in Level 3 is measured through Significant
ITAÚ UNIBANCO HOLDING S.A. Notes to the Consolidated Financial Statements At 12/31/2019 and 12/31/2018 for balance sheet accounts and From 01/01 to 12/31 of 2019, 2018 and 2017 for income statement accounts (In millions of Reais, except information per share) The table below shows the sensitivity of these fair values in scenarios of changes of interest rates or, asset prices, or in scenarios
The following scenarios are used to measure Interest rate Based on reasonably possible changes in assumptions Shares Based on reasonably possible changes in assumptions Non linear Scenario I:Based on reasonably possible changes in assumptions Scenario II:Based on reasonably possible changes in assumptions
Note
a) Contingent Assets:There are no contingent assets recorded. b)Provisions and contingencies:The criteria to quantify of provisions for contingencies are adequate in relation to the specific characteristics of civil, labor and tax lawsuits portfolios, as well as other risks, taking into consideration the opinion of its legal advisors, the nature of the lawsuits, the similarity with previous lawsuits and the prevailing previous court decisions. A provision is recognized whenever the loss is classified as probable. Legal liabilities arise from lawsuits filed to discuss the legality and unconstitutionality of the legislation in force, being subject to an accounting provision.
ITAÚ UNIBANCO HOLDING S.A. Notes to the Consolidated Financial Statements At 12/31/2019 and 12/31/2018 for balance sheet accounts and From 01/01 to 12/31 of 2019, 2018 and 2017 for income statement accounts (In millions of Reais, except information per share) I- Civil lawsuits In general, provisions and contingencies arise from claims related to the revision of contracts and compensation for Collective lawsuits:Related to claims of a similar nature and with individual amounts that are not considered significant. Provisions are Individual lawsuits:Related to claims with unusual characteristics or involving significant ITAÚ UNIBANCO HOLDING, despite having complied with the rules in force at the time, is a defendant in lawsuits filed by individuals referring to The Federal Supreme Court (STF) has issued some decisions favorable to savings account holders, but it has not established its understanding with respect to the constitutionality of the economic plans and their applicability to savings accounts. Currently, the appeals involving these matters are suspended, In December 2017, through mediation of the Federal Attorney’s Office (AGU) and supervision of the BACEN, savers (represented by two civil associations, FEBRAPO and IDEC) and FEBRABAN entered into an instrument of agreement aiming at resolving lawsuits related II- Labor claims
Provisions Collective lawsuits:related to claims considered similar and with individual amounts that are not considered
Individual lawsuits:related to claims with unusual characteristics or involving significant amounts. These are periodically calculated based on the III- Other Risks
These are quantified and accrued
ITAÚ UNIBANCO HOLDING S.A. Notes to the Consolidated Financial Statements At 12/31/2019 and 12/31/2018 for balance sheet accounts and From 01/01 to 12/31 of 2019, 2018 and 2017 for income statement accounts (In millions of Reais, except information per share) Below are the changes in civil, labor and other risks provisions:
ITAÚ UNIBANCO HOLDING S.A. Notes to the Consolidated Financial Statements At 12/31/ From 01/01 to 12/31 of 2019, 2018 (In millions of Reais, except information per share)
IV- Tax proceedings and legal obligations Provisions correspond to the principal amount of taxes involved in The table below shows the changes in the provisions:
The main discussions related to Tax and Tax Lawsuits and Legal Obligations are described below:
INSS –Non-compensatory Amounts – R$ 1,913: thenon-levy of social security contribution on amounts paid as profit sharing is defended. The balance of the court deposit is R$ 671; CSLL – Isonomy – R$
PIS and COFINS – Calculation basis – R$ c) Contingencies not provided for in the Balance Sheet
In Civil Lawsuits with possible loss, total estimated risk is R$ For Labor Claims with possible loss, estimated risk is R$
ITAÚ UNIBANCO HOLDING S.A. Notes to the Consolidated Financial Statements At 12/31/2019 and 12/31/2018 for balance sheet accounts and From 01/01 to 12/31 of 2019, 2018 and 2017 for income statement accounts (In millions of Reais, except information per share) II - Tax proceedings The tax proceedings of possible loss totaled R$
INSS –Non-compensatory
IRPJ, CSLL, PIS and COFINS – Funding Expenses – R$
IRPJ and CSLL – Goodwill – Deduction – R$ ISS – Banking Institutions – R$ 3,239: the levy and/or payment place of ISS for certain banking revenues are discussed; PIS and COFINS – Reversal of Revenues from Depreciation in Excess – R$ 2,199: discussing the accounting and tax treatment of PIS and COFINS upon settlement of leasing operations;
IRPJ, CSLL, PIS and COFINS – Requests for offsetting dismissed
IRPJ and CSLL – Disallowance of Losses – R$
IRPJ and CSLL – Deductibility of Losses in Credit Operations – R$
The receivables balance arising from reimbursements of contingencies totals R$ e) Guarantees of contingencies, provisions and legal obligations
The guarantees related to legal proceedings involving ITAÚ UNIBANCO HOLDING and basically consist of:
ITAÚ UNIBANCO HOLDING’s provisions for judicial and administrative challenges are long-term, considering the time required for their questioning, and this prevents the disclosure of a deadline for their conclusion. The legal advisors believe that ITAÚ UNIBANCO HOLDING is not a party to this or any other administrative proceedings or lawsuits that could significantly affect the results of its operations.
ITAÚ UNIBANCO HOLDING S.A. Notes to the Consolidated Financial Statements At 12/31/ From 01/01 to 12/31 of 2019, 2018 (In millions of Reais, except information per share)
Note 30 – Segment Information The current operational and reporting segments of ITAÚ UNIBANCO HOLDING are described below:
Retail Banking The segment comprises retail
Wholesale Banking It comprises products and services offered to middle-market companies, high net worth clients
Activities with the Market + Corporation
Segment information is These reports use a variety of information for management purposes, including financial andnon-financial information supported by bases different from information prepared according to accounting practices adopted in Brazil. The main Information by segment has been prepared in accordance with accounting practices adopted in Brazil and Allocated capital:The statements Income tax rate:We
ITAÚ UNIBANCO HOLDING S.A. Notes to the Consolidated Financial Statements At 12/31/ From 01/01 to 12/31 of 2019, 2018 (In millions of Reais, except information per share)
Reclassification and application of managerial criteria The managerial statement of income was used to prepare information per segment. These statements were obtained based on the statement of income adjusted by the impact ofnon-recurring events and the managerial reclassifications in income. The main reclassifications between the accounting and managerial results are:
Insurance:The main reclassifications of revenues refer to the financial margins obtained Other reclassifications:Other Income, Share of Income of Associates and joint ventures, The adjustments and reclassifications column shows the effects of the differences between the accounting principles followed for the presentation of segment information, which are substantially in line with the accounting practices adopted for financial institutions in Brazil, except as described above, and the policies used in the preparation of these consolidated financial statements according to IFRS.
Requirements for
Adjustment to fair value due to reclassifications of financial assets
Financial assets modified and notwritten-off,
Effective interest rate of financial assets and liabilities Goodwill generated in a business combination is not amortized, whereas in the standards adopted in Brazil, it is amortized.
ITAÚ UNIBANCO HOLDING S.A. Notes to the Consolidated Financial Statements At 12/31/ From 01/01 to 12/31 of 2019, 2018 (In millions of Reais, except information per share)
b) Consolidated Statement of Managerial Result
ITAÚ UNIBANCO HOLDING S.A. From January 1 to December 31,
ITAÚ UNIBANCO HOLDING S.A. Notes to the Consolidated Financial Statements At 12/31/2019 and 12/31/2018 for balance sheet accounts and From 01/01 to 12/31 of 2019, 2018 and 2017 for income statement accounts (In millions of Reais, except information per share) ITAÚ UNIBANCO HOLDING S.A. From January 1 to December 31, 2018
ITAÚ UNIBANCO HOLDING S.A. Notes to the Consolidated Financial Statements At 12/31/ From 01/01 to 12/31 of 2019, 2018 (In millions of Reais, except information per share)
ITAÚ UNIBANCO HOLDING S.A. From January 1 to December 31, 2017
ITAÚ UNIBANCO HOLDING S.A. Notes to the Consolidated Financial Statements At 12/31/ From 01/01 to 12/31 of 2019, 2018 (In millions of Reais, except information per share)
c) Result of
Note 31 – Related parties Transactions between related Transactions between companies and investment funds, included in consolidation (note The
Itaú Unibanco Participações S.A. (IUPAR), Companhia E.Johnston de Participações S.A. (shareholder of IUPAR) and ITAÚSA, direct and indirect shareholders of ITAÚ UNIBANCO HOLDING;
Investments in associates and joint ventures,
ITAÚ UNIBANCO HOLDING S.A. Notes to the Consolidated Financial Statements At 12/31/2019 and 12/31/2018 for balance sheet accounts and From 01/01 to 12/31 of 2019, 2018 and 2017 for income statement accounts (In millions of Reais, except information per share) Foundations and Institutes maintained by donations from ITAÚ UNIBANCO
ITAÚ UNIBANCO HOLDING S.A. Notes to the Consolidated Financial Statements At 12/31/ From 01/01 to 12/31 of 2019, 2018 (In millions of Reais, except information per share) a) Transactions with related parties:
Operations with Key Management Personnel of ITAÚ UNIBANCO HOLDING, present the amounts of Assets R$ 48 and Revenues R$ 7; and Liabilities R$ (5,757) and Expenses R$ (35) (R$ 31, R$ 2, R$ (4,391), R$ (16) from 01/01 to 12/31/2018, respectively).
ITAÚ UNIBANCO HOLDING S.A. Notes to the Consolidated Financial Statements At 12/31/2019 and 12/31/2018 for balance sheet accounts and From 01/01 to 12/31 of 2019, 2018 and 2017 for income statement accounts (In millions of Reais, except information per share) b) Compensation and Benefits of Key Management Personnel Compensation and benefits attributed to
Total amounts related to stock-based compensation Note 32 – Risk and Capital Management a) Corporate Governance
ITAÚ UNIBANCO HOLDING invests in sound processes for risk and capital management that permeates the whole institution and are the basis of all strategic decisions to ensure business sustainability. These processes are aligned with the guidelines of the Board of Directors and The Board of Directors is the main body responsible for establishing guidelines, policies and approval levels for risk and capital management. The Capital and Risk Management Committee (CGRC), in turn, is responsible for supporting the Board of Directors in Additionally, b) Risk Management
Risk Appetite The risk appetite of ITAÚ UNIBANCO HOLDING is based on the Board of Director’s statement: “We are a universal bank, operating mainly in Latin America. Supported by our risk culture, we Based on this statement, five dimensions have been The Board of Directors is responsible for approving guidelines and limits for risk appetite,
Officer). The limits for risk appetite are
ITAÚ UNIBANCO HOLDING S.A. Notes to the Consolidated Financial Statements At 12/31/2019 and 12/31/2018 for balance sheet accounts and From 01/01 to 12/31 of 2019, 2018 and 2017 for income statement accounts (In millions of Reais, except information per share) The five dimensions of risk appetite are:
Capitalization:establishes that ITAÚ UNIBANCO HOLDING must have capital sufficient to face any serious recession period or a stress event without the need to adjust its capital structure under unfavorable circumstances. It is monitored
Liquidity:establishes that the liquidity of ITAÚ UNIBANCO HOLDING must withstand long
Composition of results:defines that business will be focused primarily
Operational risk:focuses on the control of
Reputation:addresses risks that may impact the institution’s brand value and reputation with
Sustainability and
Risk Culture:ITAÚ UNIBANCO HOLDING’s risk culture goes beyond policies, procedures or processes,
Risk pricing:ITAÚ UNIBANCO HOLDING’s acts and assumes risks in business which it knows and understands, avoiding
Diversification:ITAÚ UNIBANCO HOLDING has
Operational excellence:It is the wish of ITAÚ UNIBANCO HOLDING to be an agile bank, with a robust and stable infrastructure enabling us to offer top quality services;
Ethics and respect for ITAÚ UNIBANCO HOLDING These principles
ITAÚ UNIBANCO HOLDING S.A. Notes to the Consolidated Financial Statements At 12/31/ From 01/01 to 12/31 of 2019, 2018 (In millions of Reais, except information per share)
1. Credit risk
There is a credit risk control and management structure, centralized and independent from the business units, that provides for The credit policy of ITAÚ UNIBANCO HOLDING is based on internal criteria such as: classification of For For large companies, the rating is based on information such as economic and financial condition of the counterparty, their cash-generating capability, the economic group to which they belong, and the current and prospective situation of the economic sector in which they operate.
ITAÚ UNIBANCO HOLDING strictly controls the credit exposure of 1.1 Collateral and policies for mitigating credit risk
ITAÚ UNIBANCO HOLDING uses guarantees to increase its capacity for recovery in operations exposed to credit risk. The guarantees may be personal, secured, legal structures with mitigating power and offset agreements. For collateral to be considered instruments that mitigate credit risk, they must comply with the requirements and standards that regulate them, ITAÚ UNIBANCO HOLDING also uses credit derivatives, to mitigate credit risk of its portfolios of loans and securities. These instruments are priced based on models that use the fair value of market inputs, such as credit spreads, recovery rates, correlations and interest rates.
Both the credit risk and the finance areas are responsible for defining the These areas monitor the trends observed in provisions for expected credit Once the trends have been identified and an initial assessment of the variables has been made at the corporate level, the business areas are responsible for further analyzing these
ITAÚ UNIBANCO HOLDING S.A. Notes to the Consolidated Financial Statements At 12/31/2019 and 12/31/2018 for balance sheet accounts and From 01/01 to 12/31 of 2019, 2018 and 2017 for income statement accounts (In millions of Reais, except information per share) Additionally, information on economic scenarios and public 1.3 Classification of Stages of Credit Impairment
ITAÚ UNIBANCO HOLDING Rules for For For the Wholesale business portfolio, information on Default parameters are: 90 days with no
1.4 Maximum Exposure of Financial Assets to Credit Risk
ITAÚ UNIBANCO HOLDING S.A. Notes to the Consolidated Financial Statements At 12/31/ From 01/01 to 12/31 of 2019, 2018 (In millions of Reais, except information per share)
Amounts The contractual amounts of financial As a result, the total contractual amount does not represent our 1.4.1. By business sector
Other financial assets(*)
The exposure of Off Balance financial instruments (Financial Collaterals and Loan Commitments)
ITAÚ UNIBANCO HOLDING S.A. Notes to the Consolidated Financial Statements At 12/31/ From 01/01 to 12/31 of 2019, 2018 (In millions of Reais, except information per share) 1.4.2 By type and classification of credit risk Operations and lease operations
ITAÚ UNIBANCO HOLDING S.A. Notes to the Consolidated Financial Statements At 12/31/ From 01/01 to 12/31 of 2019, 2018 (In millions of Reais, except information per share)
Other financial assets
ITAÚ UNIBANCO HOLDING S.A. Notes to the Consolidated Financial Statements At 12/31/2019 and 12/31/2018 for balance sheet accounts and From 01/01 to 12/31 of 2019, 2018 and 2017 for income statement accounts (In millions of Reais, except information per share)
Other Financial
ITAÚ UNIBANCO HOLDING S.A. Notes to the Consolidated Financial Statements At 12/31/2019 and 12/31/2018 for balance sheet accounts and From 01/01 to 12/31 of 2019, 2018 and 2017 for income statement accounts (In millions of Reais, except information per share)
1.4.3 Collateral for loans and financial lease operations
Of total
ITAÚ UNIBANCO HOLDING S.A. Notes to the Consolidated Financial Statements At 12/31/ From 01/01 to 12/31 of 2019, 2018 (In millions of Reais, except information per share)
1.4.4 Repossessed assets Assets received from the foreclosure of loans, including real estate, are initially recorded at the lower of: (i) the fair value of the asset less the estimated selling expenses, or (ii) the carrying amount of the loan. Further impairment of assets is recorded as a provision, with a corresponding charge to income. The maintenance costs of these assets are expensed as incurred. The policy for sales of these assets Total assets repossessed in the period 2. Market risk
ITAÚ UNIBANCO HOLDING’s market risk management strategy is aimed at balancing corporate business goals, taking into account, among other
The National Monetary Council (CMN) has regulations The structure of limits and In order to The market risk structure categorizes transactions as part of either the banking portfolio or the trading portfolio, in accordance with general criteria established by CMN Resolution
term. Market risk management is
Value at risk (VaR): a statistical measure that estimates the expected maximum potential economic loss under normal market conditions, considering a certain time horizon and confidence level;
ITAÚ UNIBANCO HOLDING S.A. Notes to the Consolidated Financial Statements At 12/31/2019 and 12/31/2018 for balance sheet accounts and From 01/01 to 12/31 of 2019, 2018 and 2017 for income statement accounts (In millions of Reais, except information per share) Losses in stress
Stop loss: metrics
Concentration: cumulative exposure of a certain financial instrument or risk factor, calculated at market value
Stressed VaR: statistical metric Management of interest rate risk in the Banking Book (IRRBB) is
DEVE: difference between the present value of the sum of repricing flows of instruments subject to IRRBB in a base scenario and the present value of the sum of repricing flows of these instruments in a scenario of
DNII: difference between the result of financial intermediation of instruments subject to IRRBB in a base scenario and the result of financial intermediation of these instruments in a scenario of shock in interest rates. In addition,
Mismatching analysis (GAPS): accumulated exposure by risk factor of cash flows expressed at market value, allocated at the maturity dates;
Sensitivity (DV01- Delta Variation): impact on the market value of cash flows, when submitted to an one annual basis point increase in the current interest rates or index rate;
Sensitivity to ITAÚ UNIBANCO HOLDING uses proprietary systems to measure the consolidated market risk. The processing of these systems
2.1 VaR - Consolidated ITAÚ UNIBANCO HOLDING Is calculated by Historical Simulation, i.e. From January 1 to December 31,
ITAÚ UNIBANCO HOLDING S.A. Notes to the Consolidated Financial Statements At 12/31/ From 01/01 to 12/31 of 2019, 2018 (In millions of Reais, except information per share)
2.1.1 Interest rate risk The table below shows the accounting position of financial assets and liabilities exposed to interest rate risk, distributed by maturity (remaining contractual terms). This table is not used directly to manage interest rate risks; it is mostly used to permit the assessment of mismatching between accounts and products associated thereto and to identify possible risk concentration.
ITAÚ UNIBANCO HOLDING S.A. Notes to the Consolidated Financial Statements At 12/31/ From 01/01 to 12/31 of 2019, 2018 (In millions of Reais, except information per share)
2.1.2 Currency risk The The currency (or foreign exchange) risk arises from positions that are sensitive to oscillations in foreign exchange rates. These positions may be originated by financial instruments that are denominated in a currency other than the functional currency in which the balance sheet is measured or through positions in derivative instruments (for negotiation or hedge). Sensitivity to currency risk
2.1.3 Share Price Risk The exposure to share price risk is disclosed in Note 5, related to Financial Assets Through Profit or 3. Liquidity risk The
ITAÚ UNIBANCO HOLDING Additionally the following items for monitoring and supporting decisions are periodically prepared and submitted to
Different scenarios projected for changes in liquidity;
Contingency plans for crisis situations;
Reports and charts that describe the risk positions;
Assessment of funding costs and alternative sources of funding;
Monitoring of changes in funding through a constant control 3.1 Primary sources of funding ITAÚ UNIBANCO HOLDING has different sources of funding, of which a significant portion is from the retail segment. Of total
ITAÚ UNIBANCO HOLDING S.A. Notes to the Consolidated Financial Statements At 12/31/2019 and 12/31/2018 for balance sheet accounts and From 01/01 to 12/31 of 2019, 2018 and 2017 for income statement accounts (In millions of Reais, except information per share)
3.2 Control over liquidity ITAÚ UNIBANCO HOLDING manages its liquidity reserves based on estimates of funds that will be available for investment, During the period of The table below shows the indicators used by ITAÚ UNIBANCO HOLDING in the management of liquidity risk:
ITAÚ UNIBANCO HOLDING S.A. Notes to the Consolidated Financial Statements At 12/31/ From 01/01 to 12/31 of 2019, 2018 (In millions of Reais, except information per share)
Assets and liabilities according to their remaining contractual maturities, considering their undiscounted flows, are presented below:
ITAÚ UNIBANCO HOLDING S.A. Notes to the Consolidated Financial Statements At 12/31/ From 01/01 to 12/31 of 2019, 2018 (In millions of Reais, except information per share)
ITAÚ UNIBANCO HOLDING S.A. Notes to the Consolidated Financial Statements At 12/31/ From 01/01 to 12/31 of 2019, 2018 (In millions of Reais, except information per share)
c) Capital Management Governance
ITAÚ UNIBANCO HOLDING is subject to the The capital statements were prepared in accordance with BACEN’s regulatory requirements and with internationally accepted minimum requirements according to the Bank for International Settlements (BIS). I – Composition of capital
The Referential Equity (PR) used to monitor the compliance with the
Common Equity Tier I: the sum of capital, reserves and retained earnings, less deductions and prudential adjustments.
Additional Tier I Capital: consists of instruments of a perpetual nature, which meet eligibility requirements. Together with Common Equity Tier I it makes up Tier I.
Tier Composition of
ITAÚ UNIBANCO HOLDING S.A. Notes to the Consolidated Financial Statements At 12/31/2019 and 12/31/2018 for balance sheet accounts and From 01/01 to 12/31 of 2019, 2018 and 2017 for income statement accounts (In millions of Reais, except information per share) Funds from the issuance of subordinated debt securities are considered Tier II capital for
In November 2019, ITAÚ UNIBANCO HOLDING issued in the international market US$ 750 million in Subordinated Notes, equivalent to R$ 3,023 at December 31, 2019, and in the
II - Capital Requirements in Place and In Progress
ITAÚ UNIBANCO HOLDING’s minimum capital requirements are expressed as ratios obtained from the ratio between available capital and the Risk-Weighted Assets (RWA). Schedule for Basel III implementation
ITAÚ UNIBANCO HOLDING S.A. Notes to the Consolidated Financial Statements At 12/31/ From 01/01 to 12/31 of 2019, 2018 (In millions of Reais, except information per share)
III - Risk-Weighted Assets (RWA)
For RWA = RWACPAD + RWAMINT + RWAOPAD
The tables below present the breakdown of credit, market and operational risk weighted assets, respectively. a) Credit Risk
b) Market Risk
ITAÚ UNIBANCO HOLDING S.A. Notes to the Consolidated Financial Statements At 12/31/ From 01/01 to 12/31 of 2019, 2018 (In millions of Reais, except information per share)
At c) Operational Risk
The Board of Directors is the body responsible for approving the institutional capital management The result of the last ICAAP – In order to ensure The Basel Ratio reached Additionally, ITAÚ UNIBANCO HOLDING has a surplus
The fixed assets ratio shows the commitment percentage of adjusted Referential Equity with adjusted permanent assets. ITAÚ UNIBANCO HOLDING falls within the maximum limit of 50% of adjusted RE, established by BACEN. At 12/31/
ITAÚ UNIBANCO HOLDING S.A. Notes to the Consolidated Financial Statements At 12/31/2019 and 12/31/2018 for balance sheet accounts and From 01/01 to 12/31 of 2019, 2018 and 2017 for income statement accounts (In millions of Reais, except information per share) Further details on Risk and Capital Management of ITAÚ UNIBANCO HOLDING and indicators of the Global Systemic Importance Index, which are not included in the financial statements, may be viewed onwww.itau.com.br/relacoes-com-investidores “Reports”/ Pillar 3 and Global Systemically Important Banks. V – Recovery Plan
The stress test is a process of simulation of extreme economic and market conditions in the institution’s results and capital. The institution has conducted this test since 2010 To perform the test, macroeconomic variables for each stress scenario are estimated by the economic research department. The scenarios are Projections of macroeconomic variables These projections affect the budgeted result and balance sheet, The stress test is also an integral part of ICAAP, with the main purpose of assessing whether, even in severe adverse conditions, the institution would have appropriate capital levels This information allows potential risk factors to
The Leverage Ratio is defined as the
I – Management Structure, roles and responsibilities In line with good
ITAÚ UNIBANCO HOLDING S.A. Notes to the Consolidated Financial Statements At 12/31/2019 and 12/31/2018 for balance sheet accounts and From 01/01 to 12/31 of 2019, 2018 and 2017 for income statement accounts (In millions of Reais, except information per share) ITAÚ UNIBANCO HOLDING has
II – Risks of Insurance and Private ITAÚ UNIBANCO HOLDING offers its products to Life insurance and pension plans are, in general, medium or
Financial risk: is inherent in the underwriting risk of products that offer a contractual financial guarantee,
Behavioral risk relates to a
To measure the effects of changes in the key actuarial assumptions, sensitivity tests were conducted in the amounts of current estimates of future liability cash flows. The sensitivity analysis considers a vision of the impacts caused by changes in assumptions, which could affect the income for the period and stockholders’ equity at the balance sheet date. This type of analysis is usually conducted under theceteris paribuscondition, in which the sensitivity of a system is measured when one variable of interest is changed and all the others remain unchanged. The results obtained are shown in the table below:
ITAÚ UNIBANCO HOLDING S.A. Notes to the Consolidated Financial Statements At 12/31/ From 01/01 to 12/31 of 2019, 2018 (In millions of Reais, except information per share)
b) Risk concentration
For ITAÚ UNIBANCO HOLDING, there is no product concentration in relation to insurance premiums, reducing the risk of product concentration and distribution channels. At December 31, 2017, the production of
III) Market, credit and liquidity risk
Market risk is analyzed, in relation to insurance operations,
b) Liquidity Risk
Liquidity risk is
ITAÚ UNIBANCO HOLDING S.A. Notes to the Consolidated Financial Statements At 12/31/2019 and 12/31/2018 for balance sheet accounts and From 01/01 to 12/31 of 2019, 2018 and 2017 for income statement accounts (In millions of Reais, except information per share) Financial assets are managed in order to optimize the risk-return ratio of investments, considering, on a careful basis, the characteristics of their liabilities. The risk integrated control considers the concentration limits by issuer and credit risk, sensitivities and market risk limits and control over asset liquidity risk. Thus, investments are concentrated in government and private securities with good credit quality in active and liquid markets, keeping a considerable amount invested in short-term assets, available on demand, to cover regular needs and any liquidity contingencies. Additionally, ITAÚ UNIBANCO HOLDING constantly monitors the solvency conditions of its insurance operations.
ITAÚ UNIBANCO HOLDING S.A. Notes to the Consolidated Financial Statements At 12/31/ From 01/01 to 12/31 of 2019, 2018 (In millions of Reais, except information per share)
c) Credit Risk
Reinsurance operations are controlled through an internal policy, in compliance with the provisions of the regulatory authority We present below a breakdown of the
Insurance Operations:reinsurance premiums operations are basically represented by: IRB Brasil Resseguros with 86.02% (78.13% at 12/31/2018).
ITAÚ UNIBANCO HOLDING considers the credit risk arising frompast-due premiums immaterial, since cases with coverage payment in default may be canceled, pursuant to Brazilian III - Risk level of financial assets
The table below shows insurance financial assets, individually evaluated, classified by rating:
ITAÚ UNIBANCO HOLDING S.A. Notes to the Consolidated Financial Statements At 12/31/ From 01/01 to 12/31 of 2019, 2018 (In millions of Reais, except information per share)
Note 33 – Supplementary information Constitutional Amendment (EC) nº 103/2019
The
Note 34 – Subsequent
In January The Issue is neither subject to registration rules with the Securities Exchange Commission (SEC), in the United States, nor to registration with the Brazilian Securities Commission (CVM), in Brazil, in compliance with applicable law and regulations. The Notes were offered only to qualified institutional investors and to non-American investors outside the territory of the United States of America. ITAÚ UNIBANCO HOLDING will use the funds raised by the Notes for general corporate purposes. Issue of Perpetual Subordinate Notes In February 2020, ITAÚ UNIBANCO HOLDING priced the issue of perpetual subordinate notes/AT1 in the amount of US$ 700 million at the fixed rate of 4.625%, effective until the 5th anniversary of the issue date. As from this date, inclusive, the interest rate will be recalculated every 5 years based on the interest rate of securities issued ITAÚ UNIBANCO HOLDING will be able to repurchase the notes on the 5th anniversary of the issue date or on any other subsequent date of payment of interest, being subject to the approval of Brazilian entities, including BACEN. The notes approved by BACEN in The Issue is neither subject to Acquisition of Zup I.T. Serviços em Tecnologia e Inovação Ltda. On October 31, 2019, ITAÚ UNIBANCO HOLDING entered into a purchase and sale agreement of 100% of the capital of Zup I.T. Serviços em Tecnologia e Inovação Ltda. (ZUP). The purchase will be carried out in three phases over four years. In the first phase, ITAÚ UNIBANCO HOLDING acquired 52.96% of ZUP’s total voting capital for approximately R$ 293 million, then holding the company’s control. In the third year, after the operation is closed, ITAÚ UNIBANCO HOLDING will acquire an additional 19.6% interest; in the fourth year, the remaining interest, so as to achieve 100% of ZUP’s capital. Effective acquisitions and financial settlements occurred on March 31, 2020, after obtaining the regulatory authorizations required.
ITAÚ UNIBANCO HOLDING S.A. Notes to the Consolidated Financial Statements At 12/31/2019 and 12/31/2018 for balance sheet accounts and From 01/01 to 12/31 of 2019, 2018 and 2017 for income statement accounts (In millions of Reais, except information per share) “Coronavirus” COVID 19 relief efforts On April 06, 2020, ITAÚ UNIBANCO HOLDING held a conference call with its stockholders and the market in general to give an update on the measures implemented by the bank in the management of its operations and to support its employees, clients and society in view of the new COVID-19 pandemic. ITAÚ UNIBANCO HOLDING is monitoring the economic effects of this pandemic in Brazil and the other countries where it operates, which may adversely affect its results. At the beginning of the COVID-19 outbreak, the Institutional Crisis Management Committee was set up, which monitors, on a daily basis, the effects of the spread of the pandemic and its impacts on our operations, in addition to the government actions to mitigate the effects of this pandemic. The Brazilian Government, by means of the National Monetary Council and the Central Bank of ITAÚ UNIBANCO HOLDING maintains its operational activities and continues to monitor and assess the impacts of this pandemic on its results, as well as its effects on critical estimates and judgments including allowance for loan losses and impairments, considering that this event does not impact its financial results for the year ended December 31, 2019 and its financial position as of December 31, 2019. A R$ 1 billion donation for the novel Coronavirus relief efforts in Brazil In April 2020, ITAÚ UNIBANCO HOLDING set up the “Todos pela Saúde” initiative to be funded by the donation of R$ 1 billion for the purpose of fighting against its effects on Brazilian society. “Todos pela Saúde” will operate by way of four action approaches: Informing, Protecting, Caring and Resuming. ITAÚ UNIBANCO HOLDING has added the “Todos pela Saúde” initiative to other initiatives such as the donation of around R$ 250 million that has been allocated to different projects for improving Brazil’s hospital infrastructure, in addition to the production and purchase of test kits, protection masks, health equipment, hygiene kits, and food.
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