| Risk and Capital Management | 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 Executive which, through collegiate bodies, define the global objectives expressed as targets and limits for the business units that manage risk. Control and capital management units, in turn, support ITAÚ UNIBANCO HOLDING’s management by monitoring and analyzing risk and capital. 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 managing capital and risk. At the executive level, collegiate bodies, presided over by the Chief Executive Officer (CEO) of ITAÚ UNIBANCO HOLDING, are responsible for capital and risk management, and their decisions are monitored by the CGRC. Additionally, ITAÚ UNIBANCO HOLDING has collegiate bodies with capital and risk management responsibilities delegated to them, chaired by the Executive Vice-President of the Risk and Finance Department (ARF). To support this structure, ARF has departments to ensure, on an independent and centralized basis, that the institution’s risks and capital are managed in compliance with defined policies and procedures. 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 insist on with strict ethical standards and regulatory compliance, seeking high and increasing returns, with low volatility, through lasting relationships with our customers, accurate risk pricing, widespread funding and proper use of capital.” Based on this statement, five dimensions have been defined, each dimension consists of a set of metrics associated with the main risks involved, combining supplementary measurement methods, to give a comprehensive vision of our exposure. The Board of Directors is responsible for approving guidelines and limits for risk appetite, with the support of CGRC and the CRO (Chief Risk Officer). The limits for risk appetite are monitored regularly and reported to risk committees and to the Board of Directors, which will oversee the preventive measures to be taken to ensure that exposure is aligned with the strategies of ITAÚ UNIBANCO HOLDING. The five dimensions of risk appetite are: • Capitalization: • Liquidity: • Composition of results: • Operational risk: • Reputation: Risk appetite, risk management and guidelines for employees of ITAÚ UNIBANCO HOLDING for routine decision-making purposes are based on: • Sustainability and customer satisfaction: • Risk Culture: • Risk pricing: • Diversification: • Operational excellence: • Ethics and respect for regulations: non-negotiable, ITAÚ UNIBANCO HOLDING has various ways of disseminating risk culture, based on four principles: conscious risk-taking, discussion of the risks the institution faces, the corresponding action taken, and the responsibility of everyone for managing risk. These principles serve as a basis for ITAÚ UNIBANCO HOLDING guidelines, helping employees to conscientiously understand, identify, measure, manage and mitigate risks. 1. Credit risk The possibility of losses arising from failure by a borrower, issuer or counterparty to meet their financial obligations, the impairment of a loan due to downgrading of the risk rating of the borrower, the issuer or the counterparty, a decrease in earnings or remuneration, advantages conceded on renegotiation or the costs of recovery. There is a credit risk control and management structure, centralized and independent from the business units, that provides for operating limits and risk mitigation mechanisms, and also establishes processes and tools to measure, monitor and control the credit risk inherent in all products, portfolio concentrations and impacts of potential changes in the economic environment. The credit policy of ITAÚ UNIBANCO HOLDING is based on internal criteria such as: classification of customers, portfolio performance and changes, default levels, rate of return and economic capital allocated, and external factors such as interest rates, market default indicators, inflation, changes in consumption, and so on. For personal customers and small and middle-market companies, credit rating is based on statistical application models (at the early stages of the relationship with a customer) and behavior score (used for customers with which ITAÚ UNIBANCO HOLDING already has a relationship). 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. Credit proposals are analyzed on a case by case basis, through an approval-level mechanism. ITAÚ UNIBANCO HOLDING strictly controls the credit exposure of customers and counterparties, taking action to address situations in which the current exposure exceeds what is desirable. For this purpose, measures provided for in loan agreements are available, such as accelerated maturity or a requirement for additional collateral. 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, both internal and external ones, and they must be legally valid (effective), enforceable, and assessed on a regular basis. 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. 1.2 Policy for Provisioning and Economic Scenarios Both the credit risk and the finance areas are responsible for defining the methods used to measure expected loan losses and for periodically assessing changes in the provision amounts. These areas monitor the trends observed in provisions for expected credit losses by segment, in addition to establishing an initial understanding of the variables that may trigger changes in the allowance for loan losses, the probability of default (PD) or the loss given default (LGD). 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 trends in more detail and for each segment, in order to understand the underlying reasons for the trends and to decide whether changes are required in credit policies. Provisions for expected losses take into account the expected risk linked to contracts with similar characteristics and in anticipation of signs of deterioration, over a loss horizon suitable for the remaining period of the contract to maturity. For contracts of products with no determined termination date, average results of deterioration and default are used to determine the loss horizon. Additionally, information on economic scenarios and public data with internal projections are used to determine and adjust the expected credit loss in line with expected macroeconomic realities. 1.3 Classification of Stages of Credit Impairment ITAÚ UNIBANCO HOLDING uses customers’ internal information, statistic models, days of default and quantitative analysis in order to determine the credit status of portfolio agreements. Rules for changing stages take into account lower and higher internal limits (quantitative criteria), in addition to the relative variation in the rating since the initial recognition. Information on days of delay, used on an absolute basis, is an important factor for the classification of stages, and after a certain credit status has been defined for an agreement, it is classified in one of the three stages of credit deterioration. Based on this classification, rules for measuring expected credit loss in each stage are used, as described in Note 2.4d. For retail and middle market portfolios, ITAÚ UNIBANCO HOLDING classifies loan agreements which are over 30 days overdue in stage 2, except payroll loans for government agency, for which the figure is 45 days, due to the payment dynamics for onlending. For the Wholesale business portfolio, information on arrears is taken into account when allocating a rating. Default parameters are: 90 days with no payments made (*) (*) For the real estate loans portfolio, the figure is 180 days with no payments made. 1.4 Maximum Exposure of Financial Assets to Credit Risk 12/31/2019 12/31/2018 Brazil Abroad Total Brazil Abroad Total Financial Assets 1,073,430 336,803 1,410,233 1,027,193 303,535 1,330,728 At Amortized Cost 755,773 254,871 1,010,644 756,993 237,766 994,759 Interbank deposits 10,620 23,963 34,583 6,239 20,181 26,420 Securities purchased under agreements to resell 197,157 1,271 198,428 279,353 783 280,136 Securities 114,046 19,073 133,119 90,234 20,161 110,395 Loan operations and lease operations 386,206 199,585 585,791 345,501 190,590 536,091 Other financial assets 75,968 18,784 94,752 61,875 13,215 75,090 (-) Provision for Expected Loss (28,224 ) (7,805 ) (36,029 ) (26,209 ) (7,164 ) (33,373 ) At Fair Value Through Other Comprehensive Income 35,990 40,670 76,660 9,089 40,234 49,323 Securities 35,990 40,670 76,660 9,089 40,234 49,323 At Fair Value Through Profit or Loss 281,667 41,262 322,929 261,111 25,535 286,646 Securities 271,470 9,605 281,075 252,819 10,361 263,180 Derivatives 10,197 31,657 41,854 8,292 15,174 23,466 Financial liabilities - provision for expected loss 3,581 559 4,140 3,355 437 3,792 Loan Commitments 2,909 394 3,303 2,289 312 2,601 Financial Guarantees 672 165 837 1,066 125 1,191 Off balance sheet 338,262 48,893 387,155 300,522 49,173 349,695 Financial Guarantees 52,663 14,057 66,720 53,443 12,662 66,105 Letters of credit to be released 15,013 0 15,013 10,747 — 10,747 Loan commitments 270,586 34,836 305,422 236,332 36,511 272,843 Mortgage loans 5,536 0 5,536 3,403 — 3,403 Overdraft accounts 124,449 0 124,449 110,454 — 110,454 Credit cards 138,014 2,823 140,837 120,862 2,961 123,823 Other pre-approved limits 2,587 32,013 34,600 1,613 33,550 35,163 Total 1,408,111 385,137 1,793,248 1,324,360 352,271 1,676,631 Amounts shown for credit risk exposure are based on gross book value and do not take into account any collateral received or other added credit improvements. The contractual amounts of financial guarantees and letters of credit cards represent the maximum potential of credit risk in the event that a counterparty does not meet the terms of the agreement. The vast majority of loan commitments (mortgage loans, overdraft accounts and other pre-approved As a result, the total contractual amount does not represent our real future exposure to credit risk or the liquidity needs arising from such commitments. 1.4.1. By business sector Loans and Financial Lease Operations 12/31/2019 % 12/31/2018 % Industry and commerce 129,998 22.2 115,225 21.5 Services 126,718 21.6 119,487 22.3 Other sectors 26,693 4.6 29,388 5.5 Individuals 302,382 51.6 271,991 50.7 Total 585,791 100.0 536,091 100.0 Other financial assets (*) 12/31/2019 % 12/31/2018 % Public sector 562,485 73.5 580,392 77.1 Services 59,193 7.7 62,383 8.3 Other sectors 45,744 6.0 28,649 3.8 Financial 98,297 12.8 81,496 10.8 Total 765,719 100.0 752,920 100.0 (*) Includes Financial Assets at Fair Value through Profit and Loss, Financial Assets at Fair Value through Other Comprehensive Income and Financial Assets at Amortized Cost, except for Loan Operations and Lease Operations Portfolio and Other Financial Assets. The exposure of Off Balance financial instruments (Financial Collaterals and Loan Commitments) is neither categorized nor managed by business sector. 1.4.2 By type and classification of credit risk Operations and lease operations 12/31/2019 Stage 1 Stage 2 Stage 3 Total Consolidated of 3 stages Loans Loan Financial Total Loans Loan Financial Total Loans Loan Financial Total Loans Loan Financial Total Individuals 199,907 197,717 861 398,485 19,070 6,437 0 25,507 21,513 763 0 22,276 240,490 204,917 861 446,268 Corporate 95,823 17,233 45,866 158,922 956 16 200 1,172 8,523 102 3,422 12,047 105,302 17,351 49,488 172,141 Micro/Small and medium companies 73,347 49,485 3,671 126,503 7,180 2,384 38 9,602 5,693 190 44 5,927 86,220 52,059 3,753 142,032 Foreign loans - Latin America 132,812 29,842 12,087 174,741 14,714 1,166 424 16,304 6,253 87 107 6,447 153,779 31,095 12,618 197,492 Total 501,889 294,277 62,485 858,651 41,920 10,003 662 52,585 41,982 1,142 3,573 46,697 585,791 305,422 66,720 957,933 % 58.5 % 34.3 % 7.2 % 100.0 % 79.7 % 19.0 % 1.3 % 100.0 % 89.9 % 2.4 % 7.7 % 100.0 % 61.1 % 31.9 % 7.0 % 100.0 % 12/31/2018 Stage 1 Stage 2 Stage 3 Total Consolidated of 3 stages Loans Loan Financial Total Loans Loan Financial Total Loans Loan Financial Total Loans Loan Financial Total Individuals 177,488 174,666 1,014 353,168 17,029 6,784 — 23,813 18,047 687 — 18,734 212,564 182,137 1,014 395,715 Corporate 90,716 16,054 45,361 152,131 2,222 83 1,681 3,986 9,705 143 4,148 13,996 102,643 16,280 51,190 170,113 Micro/Small and medium companies 57,099 40,105 2,472 99,676 5,875 1,834 69 7,778 5,838 185 94 6,117 68,812 42,124 2,635 113,571 Foreign loans - Latin America 134,323 29,090 10,842 174,255 11,768 2,969 395 15,132 5,981 243 29 6,253 152,072 32,302 11,266 195,640 Total 459,626 259,915 59,689 779,230 36,894 11,670 2,145 50,709 39,571 1,258 4,271 45,100 536,091 272,843 66,105 875,039 % 59.0 % 33.3 % 7.7 % 100.0 % 72.8 % 23.0 % 4.2 % 100.0 % 87.7 % 2.8 % 9.5 % 100.0 % 61.3 % 31.1 % 7.6 % 100.0 % Internal Rating 12/31/2019 12/31/2018 Stage 1 Stage 2 Stage 3 Total loans Stage 1 Stage 2 Stage 3 Total loans Lower Risk 420,936 4,204 0 425,140 385,846 4,536 — 390,382 Satisfactory 80,106 17,871 0 97,977 72,921 19,723 — 92,644 Higher Risk 847 19,845 0 20,692 859 12,635 — 13,494 Credit-Impaired 0 0 41,982 41,982 — — 39,571 39,571 Total 501,889 41,920 41,982 585,791 459,626 36,894 39,571 536,091 % 85.6 7.2 7.2 100.0 85.7 6.9 7.4 100.0 Other financial assets 12/31/2019 Stage 1 Stage 2 Stage 3 Fair Value Cost Fair Value Cost Fair Value Cost Fair Value Investment funds 8,267 8,322 8,062 0 0 955 205 Government securities 366,998 364,078 366,998 0 0 0 0 Brazilian government 327,681 324,637 327,681 0 0 0 0 Other countries 39,317 39,405 39,317 0 0 0 0 Argentina 318 349 318 0 0 0 0 United States 2,977 2,979 2,977 0 0 0 0 Mexico 7,820 7,820 7,820 0 0 0 0 Italy 329 328 329 0 0 0 0 Spain 4,984 4,984 4,984 0 0 0 0 Korea 3,427 3,427 3,427 0 0 0 0 Chile 12,317 12,227 12,317 0 0 0 0 Paraguay 1,782 1,959 1,782 0 0 0 0 Uruguay 710 716 710 0 0 0 0 Colombia 4,622 4,585 4,622 0 0 0 0 Peru 8 8 8 0 0 0 0 Germany 23 23 23 0 0 0 0 Corporate debt securities 112,936 109,169 108,685 637 402 6,784 3,849 Rural product note 5,341 5,122 5,114 62 58 204 169 Real estate receivables certificates 7,312 7,253 7,280 10 11 20 21 Bank deposit certificate 3,217 3,217 3,217 0 0 0 0 Debentures 51,510 47,751 47,607 336 283 6,311 3,620 Eurobonds and other 5,732 5,671 5,704 29 28 0 0 Financial bills 18,514 18,517 18,514 0 0 0 0 Promissory notes 5,311 5,314 5,311 0 0 0 0 Other 15,999 16,324 15,938 200 22 249 39 Total 488,201 481,569 483,745 637 402 7,739 4,054 12/31/2018 Stage 1 Stage 2 Stage 3 Fair Value Cost Fair Value Cost Fair Value Cost Fair Value Investment funds 4,326 4,335 4,129 — — 918 197 Government securities 327,720 325,734 327,546 232 174 — — Brazilian government 300,172 298,120 299,998 232 174 — — Other countries 27,548 27,614 27,548 — — — — Argentina 1,129 1,121 1,129 — — — — United States 2,754 2,770 2,754 — — — — Mexico 2,378 2,378 2,378 — — — — Italy 115 115 115 — — — — Spain 2,411 2,411 2,411 — — — — Korea 1,385 1,385 1,385 — — — — Chile 8,211 8,204 8,211 — — — — Paraguay 1,530 1,602 1,530 — — — — Uruguay 652 656 652 — — — — Colombia 6,065 6,054 6,065 — — — — France 891 891 891 — — — — Germany 22 22 22 — — — — Other 5 5 5 — — — — Corporate debt securities 87,206 82,438 82,301 3,908 2,937 4,957 1,968 Rural product note 4,003 3,855 3,848 — — 326 155 Real estate receivables certificates 10,926 10,419 10,436 55 55 793 435 Bank deposit certificate 2,145 2,145 2,145 0 — — — Debentures 30,950 27,306 27,068 3,323 2,557 3,563 1,325 Eurobonds and other 6,895 6,950 6,895 0 — — — Financial bills 19,724 19,724 19,724 0 — — — Promissory notes 1,490 1,465 1,463 15 15 24 12 Other 11,073 10,574 10,722 515 310 251 41 Total 419,252 412,507 413,976 4,140 3,111 5,875 2,165 Other Financial Assets—Internal Classification by Level of Risk 12/31/2019 Financial Assets - At Amortized Cost Internal rating Interbank deposits and Securities Financial assets at fair value Financial Assets Fair Value Comprehensive Income Total Low 233,011 127,251 321,595 76,660 758,517 Medium 0 3,721 952 0 4,673 High 0 2,147 382 0 2,529 Total 233,011 133,119 322,929 76,660 765,719 % 30.4 17.4 42.2 10.0 100.0 (*) Includes Derivatives in the amount of R$ 41,854 at 12/31/2019. 12/31/2018 Financial Assets - At Amortized Cost Internal rating Interbank deposits and Securities Financial assets at fair value Financial Assets Fair Value Total Low 306,556 103,157 284,896 49,323 743,932 Medium — 3,645 1,340 — 4,985 High — 3,593 410 — 4,003 Total 306,556 110,395 286,646 49,323 752,920 % 40.6 14.7 38.1 6.6 100.0 (*) Includes Derivatives in the amount of R$ 23,466 at 12/31/2018. 1.4.3 Collateral for loans and financial lease operations 12/31/2019 12/31/2018 Over-collateralized assets Under-collateralized assets Over-collateralized assets Under-collateralized assets Carrying value of the Fair value of Carrying value of the Fair value of Carrying value of the Fair value of Carrying value of the Fair value of Individuals 65,921 170,045 1,997 1,867 57,842 145,775 1,054 993 Personal (1) 978 2,982 857 819 643 1,949 753 711 Vehicles (2) 17,720 37,355 1,102 1,020 15,173 35,266 298 280 Mortgage loans (3) 47,223 129,708 38 28 42,026 108,560 3 2 Very small, small and middle-market companies and corporates (4) 115,608 311,043 11,097 6,142 112,508 293,724 13,870 10,267 Foreign loans - Latin America (4) 123,367 222,300 7,348 2,841 117,094 246,462 11,242 3,758 Total 304,896 703,388 20,442 10,850 287,444 685,961 26,166 15,018 (1) In general requires financial collaterals. (2) Vehicles themselves are pledged as collateral, as well as assets leased in lease operations. (3) Properties themselves are pledged as collateral. (4) Any collateral set forth in the credit policy of ITAÚ UNIBANCO HOLDING (chattel mortgage, surety/joint debtor, mortgage and others). Of total loans and financial lease operations R$ 260,453 (R$ 222,481 at 12/31/2018) represented unsecured loans. 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 includes periodic auctions that are announced to the market in advance, and provides that the assets cannot be held for more than one year, as stipulated by BACEN. Total assets repossessed in the period were R$ 390 (R$ 657 from 01/01 to 12/31/2018), mainly composed of real estate. 2. Market risk The possibility of incurring financial losses from changes in the market value of positions held by a financial institution, including the risks of transactions subject to fluctuations in currency rates, interest rates, share prices, price indexes and commodity prices. ITAÚ UNIBANCO HOLDING’s market risk management strategy is aimed at balancing corporate business goals, taking into account, among other things, political, economic and market conditions, the portfolio profile and the ability to operate in specific markets. Market risk is controlled by an area independent from the business areas, which is responsible for the daily activities of (i) risk measurement and assessment, (ii) monitoring of stress scenarios, limits and alerts, (iii) application, analysis and testing of stress scenarios, (iv) risk reporting to those responsible within the business areas, in compliance with the governance of ITAÚ UNIBANCO HOLDING, (v) monitoring of actions required to adjust positions and risk levels to make them realistic, and (vi) providing support for the safe launch of new financial products. The National Monetary Council (CMN) has regulations governing the segregation of exposure to market risk into risk factors, such as: interest rate, exchange rate, equities and commodities. Brazilian inflation indexes are treated as a group of risk indicators and limits are managed in the same way as for the other indicators. The structure of limits and alerts obeys the Board of Directors’ guidelines, and it is reviewed and approved on an annual basis. This structure has specific limits aimed at improving the process of monitoring and understanding risk, and at avoiding concentration. These limits are quantified by assessing the forecast balance sheet results, the size of stockholders’ equity, market liquidity, complexity and volatility, and ITAU UNIBANCO HOLDING’s appetite for risk. In order to operate within the defined limits, ITAÚ UNIBANCO HOLDING hedges transactions with customers and proprietary positions, including its foreign investments. Derivatives are commonly used for these hedging activities, which can be either accounting or economic hedges, both governed by the institutional polices of ITAÚ UNIBANCO HOLDING. 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 4,557, of February 23, 2017, and BACEN Circular 3,354, of June 27, 2007. The trading portfolio consists of all transactions involving financial instruments and commodities, including derivatives, which are held for trading. The banking portfolio is basically characterized by transactions for the banking business, and transactions related to the management of the balance sheet of the institution, where there is no intention of sale and time horizons are medium and long term. Market risk management is based on the following metrics: • 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; • Losses in stress scenarios (Stress Testing): simulation technique to assess the behavior of assets, liabilities and derivatives of a portfolio when several risk factors are taken to extreme market situations (based on prospective and historical scenarios); • Stop loss: metrics used to revise positions, should losses accumulated in a fixed period reach a certain level; • Concentration: cumulative exposure of a certain financial instrument or risk factor, calculated at market value (MtM – Marked to Market); and • Stressed VaR: statistical metric derived from the VaR calculation, with the purpose is of simulating higher risk in the trading portfolio, taking returns that can be seen in past scenarios of extreme volatility. Management of interest rate risk in the Banking Book (IRRBB) is based on the following metrics: • D • D In addition, sensitivity and loss control measures are also analyzed. They include: • 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 Sundry Risk Factors (Greeks): partial derivatives of an option portfolio in relation to the prices of underlying assets, implied volatilities, interest rates and time. ITAÚ UNIBANCO HOLDING uses proprietary systems to measure the consolidated market risk. The processing of these systems occurs in a high-availability access-controlled environment, which has data storage and recovery processes and an infrastructure that ensures business continuity in contingency (disaster recovery) situations. 2.1 VaR - Consolidated ITAÚ UNIBANCO HOLDING Is calculated by Historical Simulation, i.e. the expected distribution for profits and losses (P&L) of a portfolio over time can be estimated from past behavior of returns of market risk factors for this portfolio. VaR is calculated at a confidence level of 99%, historical period of 4 years (1000 business days) and a holding period of one day. In addition, in a conservative approach, VaR is calculated daily, with and without volatility weighting, and the final VaR is the more restrictive of the values given by the two methods. From January 1 to December 31, 2019, the average total VaR in Historical Simulation was R$ 333.7 or 0.24% of total stockholders’ equity (R$ 399.3 or 0.29% of total stockholders’ equity from 01/01 to 12/31/2018). VaR Total (Historical Simulation) (Reais million) 12/31/2019 (*) 12/31/2018 (*) Average Minimum Maximum Var Total Average Minimum Maximum Var Total VaR by risk factor group Interest rates 815.7 651.6 959.7 813.1 851.4 720.0 1,042.9 898.4 Currencies 27.6 10.9 59.2 10.9 24.7 12.7 45.2 37.3 Shares 30.2 13.5 57.4 29.4 39.2 23.6 58.5 50.1 Commodities 1.8 0.5 4.7 1.0 1.6 0.6 3.1 1.0 Effect of diversification 0 0 0 (576.1 ) — — — (605.3 ) Total risk 333.7 208.7 471.9 278.3 399.3 294.7 603.6 381.5 (*) VaR by Group of Risk Factors considers information from foreign units. 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. 12/31/2019 12/31/2018 0-30 days 31-180 days 181-365 days 1-5 years Over 5 Total 0-30 days 31-180 days 181-365 days 1-5 years Over 5 Total Financial assets 264,750 382,751 141,277 443,579 203,328 1,435,685 277,165 394,168 100,598 404,069 197,904 1,373,904 Compulsory deposits in the Central Bank of Brazil 86,836 0 0 0 0 86,836 88,549 — — — — 88,549 At amortized cost 135,190 354,893 102,649 244,862 111,666 949,260 163,574 367,544 78,314 219,186 120,768 949,386 Interbank deposits 23,337 4,448 3,290 3,474 32 34,581 19,181 4,815 1,730 688 — 26,414 Securities purchased under agreements to resell 22,617 175,643 0 0 162 198,422 64,677 215,352 — 12 91 280,132 Securities 1,290 13,659 14,817 56,178 44,522 130,466 1,007 7,320 5,792 50,969 41,661 106,749 Loan and lease operations 87,946 161,143 84,542 185,210 66,950 585,791 78,709 140,057 70,792 167,517 79,016 536,091 At fair value through other comprehensive income 2,464 4,524 3,284 46,456 19,932 76,660 1,915 4,743 4,026 21,649 16,990 49,323 At fair value through profit and loss 40,260 23,334 35,344 152,261 71,730 322,929 23,127 21,881 18,258 163,234 60,146 286,646 Securities 33,262 15,420 32,299 137,612 62,482 281,075 19,140 17,810 15,945 154,171 56,114 263,180 Derivatives 6,998 7,914 3,045 14,649 9,248 41,854 3,987 4,071 2,313 9,063 4,032 23,466 Financial liabilities 517,305 113,511 72,484 305,933 84,995 1,094,228 514,263 89,354 70,062 319,392 60,367 1,053,438 At amortized cost 510,642 104,398 69,362 284,946 76,851 1,046,199 511,091 85,271 67,227 304,939 57,199 1,025,727 Deposits 272,447 38,873 22,877 154,032 18,831 507,060 248,913 36,856 22,063 146,288 9,304 463,424 Securities sold under repurchase agreements 218,055 4,121 1,700 13,309 19,398 256,583 254,052 9,713 7,756 40,877 17,839 330,237 Interbank market funds 19,086 51,776 39,155 63,180 1,665 174,862 7,438 33,869 31,869 58,375 3,119 134,670 Institutional market funds 600 8,472 4,763 53,452 36,957 104,244 314 3,631 4,579 58,513 26,937 93,974 Capitalization plans 454 1,156 867 973 0 3,450 374 1,202 960 886 — 3,422 At fair value through profit and loss 6,663 9,113 3,122 20,987 8,144 48,029 3,172 4,083 2,835 14,453 3,168 27,711 Derivatives 6,653 9,100 3,096 20,906 8,073 47,828 3,168 4,070 2,815 14,360 3,106 27,519 Structured notes Difference (*) 10 (252,555 ) 13 269,240 26 68,793 81 137,646 71 118,333 201 341,457 4 (237,098 ) 13 304,814 20 30,536 93 84,677 62 137,537 192 320,466 Cumulative difference (252,555 ) 16,685 85,478 223,124 341,457 (237,098 ) 67,716 98,252 182,929 320,466 Ratio of cumulative difference to total interest-bearing assets (17.6 %) 1.2 % 6.0 % 15.5 % 23.8 % (17.3 %) 4.9 % 7.2 % 13.3 % 23.3 % (*) The difference arises from the mismatch between the maturities of all remunerated assets and liabilities, at the respective period-end 2.1.2 Currency risk The purpose of ITAÚ UNIBANCO HOLDING’s management of foreign exchange exposure is to mitigate the effects arising from variation in foreign exchange rates, which may present high- volatility periods. 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 is disclosed in the table VaR Total (Historical Simulation) described in item 2.1 – VaR Consolidated – ITAÚ UNIBANCO HOLDING. 2.1.3 Share Price Risk The exposure to share price risk is disclosed in Note 5, related to Financial Assets Through Profit or Loss—Securities, and Note 8, related to Financial Assets at Fair Value Through Other Comprehensive Income—Securities. 3. Liquidity risk The possibility that the institution may be unable to efficiently meet its expected and unexpected obligations, both current and future, including those arising from guarantees issued, without affecting its daily operations and without incurring significant losses. Liquidity risk is controlled by an area independent from the business area and responsible for establishing the reserve composition, estimating the cash flow and exposure to liquidity risk in different time horizons, and for monitoring the minimum limits to absorb losses in stress scenarios for each country where ITAÚ UNIBANCO HOLDING operates. All activities are subject to verification by independent validation, internal control and audit areas. Liquidity management policies and limits are based on prospective scenarios and senior management’s guidelines. These scenarios are reviewed on a periodic basis, by analyzing the need for cash due to atypical market conditions or strategic decisions by ITAÚ UNIBANCO HOLDING. ITAÚ UNIBANCO HOLDING manages and controls liquidity risk on a daily basis, using procedures approved in superior committees, including the adoption of liquidity minimum limits, sufficient to absorb possible cash losses in stress scenarios, measured with the use of internal and regulatory methods. Additionally the following items for monitoring and supporting decisions are periodically prepared and submitted to senior management: • 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 of sources of funding, considering the type of investor, maturities and other factors. 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 customers’ funds, 38.7% or R$ 277.0 billion, are immediately available to customers. However, the historical behavior of the accumulated balance of the two largest items in this group – demand and savings deposits—is relatively consistent with the balances increasing over tim |
