2003 annual report - santander brasilsul. in december 2003, santander banespa had 21,976 employees....
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2003 Annual Report
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On this page: Altino Arantes Building | Santo Amaro Administrative Center 1 (House 1) – São Paulo, SP Next page: Branch – Macedônia, SP | Corporate Environment (House 2) – São Paulo, SP |
Central Administration – Porto Alegre, RS | Santo Amaro Administrative Center 2 (House 2) – São Paulo, SP | Corporate Environment (House 2) – São Paulo, SP
Annual Report 2003
Committed to Brazil
Flexible and Close to Customers
Table of Contents
4 Corporate Profile
5 Mission and Values
6 Letter from the CEO
8 Leading Performance Indicators
12 Awards Received in 2003
14 Executive Commissions and Committees
17 Shareholder Structure
18 A Bank Committed to Brazil
26 A Flexible Bank Close to its Customers
50 The Santander Group – Our business
53 The Santander Group – Our Geographic Presence
56 Financial Management
60 Risk Management
71 Analysis of Results
79 Pro Forma Financial Statements
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4 Corporate ProfileAnnualReport
SantanderBanespa
Santander Banespa is one of the largestprivate banks operating in Brazil, acting in allsegments of the Brazilian financial market,offering customers a full range of productsand services.
The Santander Group is the largest financialinstitution in Spain and controls approximately98% of Santander Banespa’s capital. This is agroup with a history of more than 100 years:founded in 1857 with the aim of financingtrade between Spain and Latin America.Growth is a vocation at Santander. In 1986, itwas the 6th largest financial conglomerate inSpain. It is currently first in Spain, the secondlargest in the Euro zone in terms of marketcapitalization and one of the largest financialgroups in the world. It is present in 40countries, managing assets of some US$ 444billion, with 41 million customers, over 9,000branches and 103,000 employees. It operatesin 10 countries in Latin America.
Santander Banespa currently accounts for27% of the Santander Group’s net profit and4% of its assets throughout the world. Itended 2003 with total assets of approximatelyR$ 58.9 billion, shareholder equity of R$ 8billion and a Basel Capital Adequacy Ratio(Index) of 17.4%. In 2003, net profit reachedR$ 1.7 billion, which represented an averagereturn on shareholder equity of 24.7% – oneof the highest in Spain.
Santander Banespa operates in Brazil with1,854 sales outlets, divided between branchesand Banking Services Centers (PABs), and7,382 automated teller machines (ATMs),located in 629 cities throughout the country. Itconcentrates its activities in the south andsoutheast regions and has a leading presencein the States of São Paulo and Rio Grande doSul. In December 2003, Santander Banespahad 21,976 employees.
Performance at Santander Banespa is based onthe segmentation of its customer base, whichmakes it possible to attend them usingspecialized and dedicated structures. In theRetail segment, Santander Banespa has 6.2million customers, of which 4.7 million arecurrent account holders.
Santander Banespa also operates a WholesaleBank. It is a complete and independentstructure, comprised of specializedprofessionals with both proven capacity andflexibility. As such, we are able to provideservices to a select group of 1,500corporations in a totally dedicated manner,meeting all their requirements: frominternational coverage of liabilities to theprocessing of their billing throughout Brazil.
Next Page: Daily movement of the Santander Banespa Team in House 2
Mission
Values
TO DEVELOP AND CONSOLIDATE THE FOREMOST FINANCIAL
FRANCHISE IN THE SOUTH AND SOUTHEAST OF BRAZIL, CREATING
VALUE FOR SHAREHOLDERS, CUSTOMERS, EMPLOYEES AND THE
COMMUNITIES IN WHICH WE OPERATE.
FOCUS ON THE CUSTOMER | COMMITMENT | TEAMWORK |
EFFICIENCY | QUALITY | INNOVATION | TRANSPARENCY | SOLIDITY |
COMMITMENT TO THE COMMUNITIES IN WHICH THE GROUP OPERATES
Santander Banespa has been present inBrazil since 1982. As of 1997, it began toexpand its retail activities. In just a few yearsit became one of the largest financial groupsin Brazil, increasing its total assets from R$ 13.2 billion in 1999, to R$ 58.9 billion inDecember 2003. Thus, it went from being abank concentrated in retail activities to auniversal bank, one of the leaders in allsegments of the Brazilian financial market.Five important financial institutions werepurchased in a process that culminated withthe acquisition of Banespa in November2000 at a privatization auction.
Santander Banespa is thus the result of thehistorical accumulation, presence andcomplementary experience of these fiveinstitutions, which results in an in-depthknowledge of the markets in which itoperates. It is a leader in these markets. Thecorrect use of such knowledge and itsaccumulated experience, added to animportant investment program on itstechnological platform, and coupled with thesearch for and training of new talents, fosterthe necessary balance for the construction ofa solid and progressive bank. A bank builtwith a culture based on teamwork,transparency and meritocracy. A bankstructured to place the best products andservices at the disposal of its customers.
6 Letter from the CEOAnnualReport
SantanderBanespa
At Santander Banespa, we believe that theprospect of an economy with low interestrates and spreads is good for Brazil and forthe financial industry. In Spain and Chile,countries in which interest rates are below2% per year, returns on the SantanderGroup’s assets are sound and we are leadersin both markets.
In order to compensate for the drop ininterest rates and consequently, in spreads,the answer is to increase the volume ofloans. In 2003, we were able to shuffle thisequation, meaning that we increased ourvolume of loans to individuals at levels abovethose of our competitors and in a virtuallystagnant economy.
During the year, Santander Banespaimplemented major internal transformations.
The Retail (Network) and Corporate(Wholesale) areas were revitalized, in line withthe Santander Group’s worldwide businessmodel: Customer satisfaction with HighService and Attendance Quality, CommercialAggressiveness, Low Average Risk Profile witha Competitive Value Offer for each segment,with high levels of efficiency.
In the branch network, we dedicated 5,400professionals (1,700 of whom were hired fromthe market) to customer relations. We startedthe A+ quality service program and reachedthe mark of 10,500 employees participating invariable compensation programs.
The results of this new organizationalstructure have already begun to bear fruit: in2003, loans to individuals increased 24.4%while funding levels rose 20.7%. Vehiclefinancing was especially important, due tothe fact that we increased our market sharefrom 4.4% to 5.8%. In retail fund raisingoperations, our investment funds alsoshowed gains, with market share increasingfrom 7.3% to 8.0%.
In the Corporate Banking area, we set upoffices in eight regions, with teams ofprofessionals working to increase anddevelop business. In 2003, 242 newCorporate customers began their relationshipwith Santander Banespa.
The technological modernization programthat was put into effect in 2002 continues asplanned and we are certain that in 2005 wewill have the most advanced integratedtechnology on the continent, with the totalrenovation of all systems based around thekey Altair Platform.
The central and operations areas wereredesigned, with new processes for thewholesale business. In wholesale as well as inretail, new “units” specialized by segmentsand products are in an advanced state ofimplementation, in a coordinated manner andwith front line technological modernization.These changes will offer major benefits interms of new and distinctive services andenhanced quality for our customers.
Letter from the CEO 7AnnualReport
SantanderBanespa
“MANY OVERSEAS BANKS REDUCED OPERATIONS AND EVEN
ABANDONED BRAZIL IN 2003. SANTANDER BANESPA, TO THE CONTRARY,
EXPANDED ITS PRESENCE AND CONSOLIDATED ITS COMMITMENT TO THE
COUNTRY AND THE COMMUNITY IN WHICH IT OPERATES.”
The Bank’s employees play an integral role inSantander Banespa’s transformation process,which they carry out with enthusiasm andgreat personal effort, in a transparent andparticipative environment. Since Banespa’smerger, 3,000 employees have beenpromoted to commercial and supervisionactivities, such as Administrative Managers,General Branch Managers and RegionalManagers, among others.
In the area of Social Responsibility, which is allimportant to society as a whole, we reaffirmedour intention of contributing to the Country’senvironmental, social and economicdevelopment. Our focus in this area isuniversity education, to which we havecontributed with significant investment. Equallyremarkable was our performance in programsaimed at generating income, complementingelementary school and voluntary work.Santander Banespa received the “CitizenCompany” award from São Paulo’s CityCouncil for its decisive involvement with thewell-being of the city’s poor.
Many foreign banks downsized theiroperations or abandoned Brazil in 2003. Onthe contrary, Santander Banespa, increasedits presence and consolidated its commitmentto the country and the communities wherewe have a presence.
Therefore, I would like to thank to all ourcustomers for the privilege of providing theirbanking requirements; to our employees fortheir efforts and commitment; and to ourshareholders, for the trust they have shownin both Santander Banespa and Brazil.
Gabriel Jaramillo
Chief Executive Officer
8
2003 2002 2001
Income and Balance Sheet – R$ Million
Net Profit 1,706 2,736 1,298
Assets 58,940 55,462 57,577
Credit, Leasing and Other Credit Operations 16,339 15,090 13,507
Customer Deposits 18,049 19,158 15,640
Managed Investment Funds and Portfolios 23,017 14,852 15,356
Shareholder Equity 7,816 5,997 5,426
Financial Indices
Yield on Average Net Equity 24.7% 47.9% 26.9%
Yield on Average Total Assets 3.0% 4.8% 2.3%
Recurrence Index (1) 48.0% 44.8% 32.1%
Efficiency Index (2) 53.2% 42.5% 67.1%
Credit Portfolio Quality Index (3) 92.3% 89.4% 88.4%
Solvency Coefficient (Basel Index) 18.1% 15.1% 14.7%
TIER I 18.1% 15.1% 14.7%
Relevant Data
Sales Outlets 1,854 1,807 1,936
Number of ATMs (Automated Teller Machines) 7,382 7,553 7,506
(1) Service Performance Revenues / (Personnel Expenses – Profit Sharing + Other Administrative expenses)
(2) (Personnel Expenses – Profit Sharing + Other Administrative Expenses) / (Results from Financial Intermediation + Provision for Doubtful Debt +
Service Performance Revenues + Results from Insurance and Private Pension + Other Revenues (Operating Expenses)
(3) AA-C classified credit in the portfolio total.
Legal Entity Global Scale National Scale
Local Currency Foreign Currency
Long-Term Short-Term Long-Term Short-Term Long-Term Short-Term
Banco do Estado de São Paulo S.A. BB B B+ B brAA- brA-1
Banco Santander Brasil S.A. BB B B+ B brAA- brA-1
Banco Santander Meridional S.A. BB B B+ B brAA- brA-1
Standard & Poor's
AnnualReport
SantanderBanespa Leading Performance Indicators
Ratings
1 Guided visits to the
Santander Banespa
Museum: Rediscovering
Downtown São Paulo
2 Corporate Environment
Central Administration –
Porto Alegre, RS
3 Corporate Environment
(House 2)
4 Niagara Farm, Catapani
Family – Araraquara, SP
5 Branch – Macedônia, SP
6 Visit to the Banespa
tower by children of the
Rediscovering Downtown
São Paulo
5 6
1 2 3 4
BRAZ IL IANISM
“GENERATE RESULTS FOR SHAREHOLDERS, CUSTOMERS AND EMPLOYEES AND FOR
SANTANDER BANESPA’S INVESTMENT IN CITIZENS. THE BANK RUNS PROJECTS IN THE AREAS
OF EDUCATION, HEALTH, LABOR, CULTURE AND SPORTS, FOCUSED ON CREATING VALUE FOR
PEOPLE AND COMMUNITIES WHERE IT IS OPERATIONAL.”
SANTANDER BANESPA.
12 RelatórioAnual
SantanderBanespa Awards Received in 2003
BRAZIL
Asset Management Santander Banespa
Top Manager
Recognition of the following funds:
• Santander FIF DI
• Santander MAX DI
• Santander Premium DI
• Santander Premium Renda Fixa
• Santander Premium
• Banespa FBI CAM
Valor Econômico
A+ Internal Newsletter
Aberje de São Paulo 2003
Conexão
Prêmio Aberje Brasil 2003
Conexão – Best In-House Newspaper
Daniela Bretthauer
Investor Prize 2003
Best Analyst in the Textile Sector
Institutional Investor Magazine
Best Latin American Retail Analyst
Institutional Investor Magazine
Santander Banespa
Corporate Citizen 2003
São Paulo Municipal Chamber of Commerce
Technology
Availability of Service OrientedManagement
Customer Service Solution
Executivos Financeiros Magazine
Santander Meridional
39th Largest Company in the SouthernRegion
15th Largest Company in Rio Grande do Sul
1st Company in Private Working Capital
Amanhã Magazine
Santander Seguros
Best Insurer
Notable performance in the Bank’s lifeinsurance portfolio performance
National Insurance and Pensions Agency (ANSP)
INTERNACIONAIS
Banco Rio – Argentina, SantanderChile, Santander Porto Rico eSantander Venezuela
Melhores da Internet
Global Finance
Chile – Banco Santiago
Vencedor do concurso de páginas da web – do site Investor Relations
Espanha
Ana Patrícia Botín
Prêmio da Fundação Européia
Educação e Liberdade
Grupo Santander
Banco Mais Eficiente da Europa
15º Maior em Operações de Crédito do Mundo
Melhor Banco da América Latina 2003
Revista The Banker
Entidade Geradora de Mercado de Futuros
Banco Life
Entidade Colaboradora em Igualdade deOportunidades Entre Mulheres e Homens
Instituto da Mulher – Ministério do Trabalhoe Assuntos Sociais da Comissão Européia
Destaque pela Transparência e Qualidadeda Informação para Analistas e Investidores
PricewaterHouseCoopers e InstitucionalResearch Group – Grupo Reuters
Melhor Banco no Chile
Revista Global Finance – Inglaterra
Melhor Banco na América Latina
Revista América Latina
Deal of the Year na América Latina
Revista Project Finance
Melhor Banco Ibero-americano
Revista Euromoney
Melhor Banco da América Latina
Latin Finance
Melhor Relatório de Gestão
Actualidad Econômica
Destaque Entre os Quatro Melhores naInformação a seus Investidores
Value Reporting Review
13AnnualReport
SantanderBanespaAwards Received in 2003
INTERNATIONAL
Banco Rio – Argentina, SantanderChile, Santander Puerto Rico andSantander Venezuela
Best on the Internet
Global Finance
Chile – Banco Santiago
Winner of the best site competition –held by Investor Relations
Spain
Ana Patrícia Botín
European Foundation Award
Education and Freedom
The Santander Group
Most Efficient Bank in Europe
15th Largest Bank in the World in Credit Operations
Best Bank in Latin America-2003
The Banker Magazine
Futures Market Generating Entity
Banco Life
Equal Opportunity for Men and Women
Woman’s Institute – European Commissionfor Labor and Social Affairs
Highlight in Transparency and Quality ofInformation for Analysts and Investors
PricewaterHouseCoopers and InstitutionalResearch Group – Reuters Group
Best Bank in Chile
Global Finance Magazine – England
Best Bank in Latin America
América Latina Magazine
Deal of the Year in Latin America
Project Finance Magazine
Best Spanish-American Bank
Euromoney Magazine
Best Bank in Latin America
Latin Finance
Best Management Report
Actualidad Econômica
Of note among the Four Best Banks in terms of Information provided forInvestors
Value Reporting Review
14 Executive Commission andCommittees
AnnualReport
SantanderBanespa
Exec
uti
ve C
om
mis
sio
n
Exec
uti
ve R
isk
Co
mm
itee
ALC
O C
om
mit
ee
Au
dit
Co
mm
itee
CA
R a
nd
Co
mp
lian
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om
mit
ees
Gabriel Jaramillo
Ana Isabel Perez
Aurélio Velo
Gustavo Murgel
Henry Gonzalez
José Paiva
Luiz Cantidio Jr.
Mário Torós
Miguel Jorge
Pedro Coutinho
Ramon Camino (1)
(1) Held the position until November 2003 and was succeeded by Lorenzo Alonso.
15AnnualReport
SantanderBanespaExecutive Commission and Committees
EXECUTIVE COMMISSION
The Executive Commission is responsible for thepolitical decisions related to businessmanagement, the allocation of capital and themajor technological infrastructure and servicesprojects. All of the Group’s activities in Brazil areorganized under a single board of directors.
EXECUTIVE RISK COMMITTEE
The Executive Risk Committee is responsiblefor establishing the risk policies regarding theconcession of loans, follow-up and billingprocesses and, furthermore, counterparty andmarket risks.
The extension and monitoring of the majorcredit facilities are based on the Group’s ownrisk models, adapted to the specificrequirements of the Brazilian market.
ALCO (ASSETS AND LIABILITIESCOMMITTEE)
ALCO is responsible for the management ofthe structural risks involved in SantanderBanespa’s balance sheet, including interestrates, liquidity and foreign exchange rates aswell as exposure to country risk. The ALCO isalso the body responsible for managing theGroup’s capital.
AUDITING COMMITTEE
One of the jobs of the Auditing Committee isto revise Santander Banespa’s financialstatements and its established accountingpolicies, and to ensure the suitability andintegrity of the group’s internal controlsystems. The Committee also evaluates theresults of each audit carried out and overseesthe development and implementation of anyrecommendations made.
Executive Commission and Committees16 AnnualReport
SantanderBanespa
CAR COMMITTEE
The CAR (Analysis and Resolutions)Committee, run by the Unit for the Preventionof Money Laundering, is responsible forimplementing, observing and enforcing themost rigorous policies for combating moneylaundering that are a feature of the SantanderGroup in all parts of the world. All the Bank’sstaff are trained to identify and report anysuspicious transactions, there are specialintelligence units to investigate suspiciousaccounts and there is strict observance of theprinciple of having extensive and conclusiveknowledge of the activities of the client(“Know your customer”).
COMPLIANCE COMMITTEE
The Compliance Committee is responsible foridentifying situations involving the non-observance of regulations, examining potentialconflicts of interest and enforcing the strictcode of conduct over securities, that governsstaff working in areas that allow access toprivileged information about the Bank and/orits customers. The committee determines thepolicies regarding disclosure and staff trainingin compliance, and studies the specialrequirements of the regulatory bodies, as wellas any sanctions imposed by them.
Next Page: Administrative Center Santo Amaro (House 2) – São Paulo, SP
Shareholder Structure
BANCO SANTANDER S.A.BANCO SANTANDER MERIDIONAL S.A.
BANCO SANTANDER BRASIL S.A.
BANCO DO ESTADO DE SÃO PAULO S.A. – BANESPA
SANTANDER SEGURADORA S.A.
SANTANDER BANESPA SEGUROS S.A.
SANTANDER CAPITALIZAÇÃO S.A.
SANTANDER BANESPA COMPANHIA DE ARRENDAMENTOMERCANTIL
BANESPA S.A. CORRETORA DE CÂMBIO E TÍTULOS
SANTANDER DISTRIBUIDORADE TÍTULOS E VALORESMOBILIÁRIOS LTDA.
SANTANDER BRASIL S.A.CORRETORA DE CÂMBIOE VALORES MOBILIÁRIOS
SANTANDER BRASILARRENDAMENTOMERCANTIL S.A.
Structure only for financial companies.
The stakes as presented are totals.
GRUPO EMPRESARIALSANTANDER S.L.
BANCO SANTANDERCENTRAL HISPANO S.A.
96.71%96.91%0.01%95.31%
0.66% 3.28% 97.41%
67.4
3%99
.99%
99.9
9%
99.9
9%99
.98%
0.77%
98.98%
99.9
9%99
.99%
The performance of Santander Banespaexpresses the Group’s commitment to theCountry. It is, for example, the only privateinstitution to finance various stages ofagribusiness, in operations such as theconcession of directed rural credit as well as thecommercialization of the Rural Product Notes(RPNs). This policy reflects the Group’s proximityto the agribusiness chain of production, whichderives from the roots of Banespa itself.
Other programs and products offered confirmthis commitment. In 2003, Santander Banespabet on the Country’s vocation for foreign tradeand launched “Exportar,” an innovativeprogram aimed at small companies with noreal exporting tradition. Attention ispersonalized and the institution developed aspecific credit analysis model for the segment.
Loans Discounted from Paychecks, regulatedby the government in 2003, is another type ofcredit that has gained momentum. SantanderBanespa was the first private bank in theCountry to release the product in the secondsemester of 2003, and to sign agreementswith central labor unions. By December, someR$ 35 million had been loaned to 6,000customers through the program.
The concern regarding individual access tobanking services is also a commitment thatleads the bank to maintain pioneer branchesin the state of São Paulo – at the end of2003, there were 88 such branches; abranch is considered to be a pioneer when itis the only banking facility functioning in asingle municipality.
A Bank Committed to Brazil18 AnnualReport
SantanderBanespa
A Bank Committed to Brazil 19AnnualReport
SantanderBanespa
Next Page: Venturing fomented by capital from Santander Banespa | Micro-credit Action in São Mateus – São Paulo, SP On this page: Children from the SOS Children’s Village (Aldeia Infantil SOS) in Rio Bonito – São Paulo, SP
SOCIAL RESPONSIBILITY
Engaged in initiatives such as Portal Universiaand the Universities Program and in projectssuch as the Unified Education Center (CEU)and the Bank at School Program, SantanderBanespa received the Corporate Citizen Sealissued by the Municipal Chamber of São Pauloon October 2003. During the year, the Groupinvested R$ 38 million in social responsibilityactions destined to improve the quality of lifeof low-income populations in communitieswhere it has operations.
EDUCATION
Education, the priority area of these actions, isfostered through two main sources. The first isthe Universities Program, which sponsorsprojects of local and international scope – suchas scholarships and student exchange programs,covenants with Spanish and Latin Americanuniversities – and maintains the intelligentuniversity student card, through which universitystudents gain access to a series of resourceswithin the university. The program has alreadyestablished covenants with 63 higher educationinstitutions in the Country in order to supportacademic, cultural, administrative and socialresponsibility initiatives.
A Bank Committed to Brazil20 AnnualReport
SantanderBanespa
The second source is Universia, an educationportal aimed at university and collegestudents. Introduced in Spain in 2001, itencompasses 739 universities in ten countries.The objective is to follow up on all thephases of academic life, supporting studentswith information, news and promoting thefree exchange of knowledge. The projectwas implemented in Brazil in 2002; it alreadyhas 150,000 registered users and maintainspartnerships with higher educationinstitutions that comprise approximately halfthe university students in the Country.Universia Brasil (www.universiabrasil.net) ispart of the Universia.net network(www.universia.net).
The Bank, in ground-breaking partnershipwith the city of São Paulo, donated 21,359musical instruments, computers, accessories,complete photographic laboratories andtheater equipment, to equip the culturalcenters supported by the Unified EducationCenters (UECs).
Since 2003, the Bank has also supported theBank at School Program of the Social Alliancefor Education, a group of seven financialinstitutions that assumed the responsibility ofcontributing to the quality of education inmunicipal public schools. The priority is toenhance the management of resources thatare being used. In order to do so, the Group’semployees voluntarily give classes tostudents, parents and teachers on how tomanage and budget their personal finances.In 2003, the program attended 327 schools,with enrollment of 450 volunteers from allthe participating financial institutions – with150 being from Santander Banespa.
A Bank Committed to Brazil 21RelatórioAnual
SantanderBanespa
From left to right: Santander Banespa Cultural Center – Porto Alegre, RS | Universia Portal
INCOME
In the projects it sponsors, Santander Banespais systematically concerned about encouraginginitiatives that establish conditions that helppeople become self-sufficient and that createincome. This is true with the partnershipmaintained with the State of São Paulo SocialSolidarity Fund through the Handicraft BakeryProgram, for the distribution of baking kits. Inaddition to the donation of 2,400 of the3,400 kits distributed by the program beforethe end of 2003, Santander Banespa startedto purchase products from these bakeries toserve at the events it promotes as a practicalway to lead to the self-sufficiency of thosebenefited by the program.
The same type of concern permeates themodel developed for micro-loans: thecommunity itself must be capable of managingthese loans. It is with such a concept that theBank defines the investments, the programsand the socially responsible campaignsdeveloped by its administration. The ever-present idea is to help train better citizenswho, in turn, will multiply these efforts andthus enlarge the impact on society.
Similarly, there is insertion of the CisternsProject as part of an agreement signed in2003 between the Brazilian Bank Federation(Febraban) and many of its memberinstitutions. The project calls for theinstallation of 10,000 water cisterns in theSemi-Arid Region of Brazil – an area of morethan 900,000 square kilometers – that areprojects with the potential to enhance thequality of health, hygiene, education,generation of income and direct and indirectemployment conditions.
22 RelatórioAnual
SantanderBanespa A Bank Committed to Brazil
CULTURE
Support of culture and sports is also importantto the company, which strives for excellence inthese fields. The Institution fosters, articulatesand backs a busy agenda of programs andactivities at Santander Cultural in Porto Alegre,also maintaining an important collection at themuseum at the Altino Arantes Building in SãoPaulo, spaces that are increasingly being morevisited by the general population. In 2003,Santander Cultural received approximately400,000 people and put on five majorexhibitions, among them the first exhibit ofworks by Pablo Picasso in the state capital. Itwas a part of the 4th Mercosul Visual ArtsBiennial, a project that is included in the mainaxis of world culture – and that mobilizedsome 1 million people. It also put on out aretrospective show of artist Carlos Vergara,with a traveling exhibit for the Tomie OhtakeInstitute in São Paulo.
In the field of music, Santander promoted 89shows and 55 workshops and seminars;,highlights of which included the BrazilianPopular Music Project in Question, bringingtogether important journalists and writers,among them Nelson Motta, Zuza Homem deMello and Tárik de Souza.
Its dynamic film program presented topicalfeatures, new film releases, courses, aninternational exchange with the CataluñaUniversity Cinema School, state universities andSESC Rio de Janeiro, encouraging youngSpanish-Latin American film-makers in additionto organizing the 2nd edition of the a featurefilm contest in partnership with the PortoAlegre city government – which attracted 23registered projects with three awards in 2003.In education projects Santander Culturalconsolidated a network of partnerships with2,000 public and private schools, attending72,620 students and training 1,069 teachers.
In São Paulo, the Banespa museum has beencataloguing important historical documents inits collection and it was enriched with newshow pieces, offering permanent educationalactivities to visitors. Some 78,000 personsvisited the Altino Arantes building tower andthe museum.
In the Brazilian Film Incentive Program,Santander Banespa is the leading investmentinstitution for national productions, establishingimportant partnerships with the State of SãoPaulo Culture Secretariat that resulted in thesupport for the making of 10 films.
More than R$ 10 million was destined forcultural programs out of a total of R$ 38million invested in the social area last year.
1 Personalized service at a São
Paulo branch – São Carlos, SP
2 Banespa Share Trading Room –
São Carlos, SP
3 Focus on university students –
BSP USP – São Paulo, SP
4 Banespa Cards Program –
São Carlos, SP
5 Branch façade – São Carlos, SP
2 3
1
5
4
GROWTH
“IN 21 YEARS IN BRAZIL, SANTANDER BANESPA HAS HAD A HISTORY OF UNPRECEDENTED
ACQUISITIONS. WITH BASES ESTABLISHED IN THE SOUTH AND SOUTHEASTERN REGIONS, THE
BANK GOES TO GREAT LENGTHS TO CONSOLIDATE SERVICES AND CUSTOMER LOYALTY.”
SANTANDER BANESPA.
A Flexible Bank Close to its Customers
26 RelatórioAnual
SantanderBanespa
Constant investments in operating systems,covenants and agreements with suppliersensures that channels of access to the Bank– telephone, Internet and ATM terminals –ensure elevated levels of efficiency.
The expansion of one of the Altair Platformmodules was the highlight in the technologyarea in 2003, one of the most modernoperating systems in the world for managingcurrent accounts. Starting fromapprenticeship-branches, regional-schools andon site processes, more than 12,000 peoplewere trained to use the system. The completeplatform set will only be fully installed in mid-2005, although the most critical step for itsimplementation has already been taken, sincecurrent accounts are the interface of almostall banking operations.
All these advances in human qualifications andtechnological capacity converge on the Bank’snumber one priority of customer service. InRetail, Project A+ is the initiative that allows aclearer view of the effort being made towardsoffering differentiated services. It involves anintegrated project, encompassing various Banksectors – Channels, Solutions Center, HumanResources, Technology and Corporate Matters– aiming at the development of a standardbased on total customer service. Furthermore,it seeks to enhance processes in order toreduce waiting time at branches, BankingService Centers (BSCs) and automated tellermachines (ATMs).
O projeto, que começou em cinco agências ePABs, expandiu-se para boa parte da rede em2003. As agências-piloto continuam servindode laboratório para que novas idéias sejamtestadas antes da implementação na rede.
As ações do Santander Banespa na área demelhoria do atendimento são orientadas apartir de uma pesquisa realizada com osnossos clientes. Com base em opiniões sobreprodutos, tarifas, serviços e atendimento, aárea de Qualidade define os procedimentos e processos mais adequados, além deprospectar novos produtos.
A comunicação com os clientes se dátambém no dia-a-dia, através de canaisespecíficos. A Central de Soluções, que seconsolidou em 2003 como um eficienteveículo de comunicação entre o cliente e o Banco, pode ser acionada via agência,telefone ou internet.
A Flexible Bank Close to its Customers 27AnnualReport
SantanderBanespa
The project that started in five branches andBSCs expanded to a major portion of thenetwork in 2003. Pilot branches continue toserve as laboratories to test new ideas priorto their implementation throughout theentire network.
Santander Banespa service enhancementactions have been based on a customer survey.The Quality area defines the most adequateprocedures and processes, in addition to theprospecting of new products, based on theopinion on products, fees and services.
Communication with customers also takesplace on a day-by-day basis through specificchannels. The Solutions Center, consolidated in2003 as an efficient communication vehiclebetween customers and the Bank, may beactivated via branch, telephone or the Internet.
HUMAN RESOURCES
Santander Banespa considers the managementof Human Resources one of the main pillars ofits business strategy. Human Resourcesmanagement is carried out with a culture basedon teamwork, transparency and meritocracy.The Bank continuously seeks to strengthen itsteams through a strong development andtraining of its employees and concentrating onattracting suitably qualified professionals.Santander Banespa has a group of qualifiedprofessionals, with a wide variety of skills andexperience, committed to the Bank’s mission.
At the end of 2003, Santander Banespa had21,976 employees working for its variouscompanies. The average age of employees is38 and they have worked for the Group foran average of 12 years. Total payroll in 2003was R$ 1.9 billion, with R$ 1.6 billion in fixedcompensation plus charges and benefits andR$ 247 million in variable remunerationpayments (profit sharing, bonuses,commissions and other items).
From left to right: University student at the Banespa BSC at USP | Servers, House 1 | Solutions Central Team
Dentro do contínuo trabalho de aprimorar a gestão dos Recursos Humanos, diversasmedidas foram tomadas ao longo de 2003.Destaca-se, por exemplo, o enriquecimentodos processos de avaliação de executivos. Em larga escala, esses processos passaram aincluir uma avaliação conjunta de potencial e desempenho por colégios de avaliadoresformados por pares, clientes internos,fornecedores internos e supervisores. Estesprocessos não apenas permitem melhortransparência e justiça na avaliação dosprofissionais, como também propiciam ummelhor e mais transparente aproveitamentodestes executivos nas seguidas oportunidadesprofissionais que o Grupo gera em sua expansão.Destaca-se, também, a intensificação dosprocessos de remuneração variável baseadosem critérios objetivos de desempenho.
Ao longo de 2003, o Santander Banespainvestiu R$ 37 milhões em atividades detreinamento e desenvolvimento em diversasáreas, como vendas, operações, produtos,plataforma tecnológica, riscos, prevenção àlavagem de dinheiro e legislação. Além daformação técnica diretamente ligada aprodutos e processos, o Banco patrocinatambém a formação complementar de seuscolaboradores através de cursos de mestrado edoutorado no Brasil e no exterior. Em 2003 oGrupo tinha 120 colaboradores em programasde MBA, mestrado ou doutorado, eminstituições nacionais e estrangeiras.
O apoio ao quadro de funcionários é umponto-chave na política de gestão do SantanderBanespa. Em julho de 2003, começou afuncionar o Fale com o RH, uma central desoluções e aconselhamento que recebeu maisde 23 mil chamadas telefônicas e mais de 6 milmensagens eletrônicas até dezembro 2003.
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SantanderBanespa
Various measures were adopted in 2003 aspart of the continuous effort to streamlinethe management of Human Resources. Onehighlight was the optimizing of the executiveevaluation processes. On a large scale, theseprocesses went on to include the jointevaluation for potential and performance byspecific evaluators set up in pairs made up ofinternal customers, internal suppliers andsupervisors. These processes not only bringabout greater transparency and fairness in theevaluation of our professionals, they alsoprovide a better and more transparent use ofthese executives in the continuing jobopportunities that the Group generates duringits expansion. Another highlight during the yearwas the intensification of variablecompensation programs based on objectiveperformance criteria.
In 2003, Santander Banespa invested R$ 37million in training and development activitiesin a number of areas, such as sales,operations, products, technological platform,risks, money laundering prevention andlegislation. In addition to the technicaltraining directly tied to products andprocesses, the Bank also offers supplementarytraining to employees through Masters andDoctorate courses in Brazil and overseas. In2003, the Group had 120 employees in MBA,Masters or Doctoral programs, in domesticand overseas institutions.
Support of employees is a key element inSantander Banespa’s management policy. July2003 marked the beginning of its Talk toHuman Resources program, a solutions andadvice center that received more than 23,000telephone calls and more than 6,000messages to December 2003.
“THE BANK ALSO SPONSORS THE SUPPLEMENTARY TRAINING OF
ITS EMPLOYEES THROUGH MASTERS AND DOCTORATE COURSES
IN BRAZIL AND OVERSEAS.”
Next page: Nighttime visit to the Altino Arantes Building | Niagara Ranch, Catapani Family – Araraquara, SP
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SantanderBanespaA Flexible Bank Close to its Customers
BUSINESS EVOLUTION IN 2003
Retail Banking
In 2003, the Bank completed the customerportfolio segmentation process in its network.Each manager is responsible and disposes ofdetailed information on a given number ofcustomers, which provides more efficientcustomer service overall.
Retail customers are segmented as PrivateIndividuals (Preferential, Exclusive and Classic),Corporate Entities (small businesses andmedium-size companies), Institutional andGovernment. Segmentation allowsspecialization in service, with specific treatmentand value that is appropriate for eachcustomer’s requirements.
In addition to a general manager, the branchesmaintain specialist managers who are responsiblefor small and medium-sized companies.
A manager is assigned to follow up the entirerelationship process, with the task ofidentifying opportunities for improved service,detecting problems, proposing solutions and,in each case, striving to adjust the Bank’sproducts to the customer’s needs.
The preferential segment deserved specialattention in 2003. The number of managersdedicated to this segment increased from 748to 998. In addition, a new service concept wasestablished: Preferential Space, installed in 226branches, the aim of which is to provide morecomfort, service availability and get closer tothe Bank’s customers.
Another highlight was the establishment ofmore than 123 service centers in companyfacilities, by virtue of agreements entered intowith large companies for the rendering ofservices for their employees.
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SantanderBanespa A Flexible Bank Close to its Customers
The result was a marked increase in pre-approved personal credit limits andoverdraft facilities.
The volume of personal credit increased 21%over 2002 and ended 2003 at R$ 1.3 billion.Overdraft facilities totaled R$ 743 million, anincrease of 7.7% in comparison with 2002.
Furthermore, other products were introducedto expand business in this area, with onehighlight being the new loans deducteddirectly from paychecks. The pioneeringaction by the Bank and its agility in makingagreements with labor unions werefundamental in the rapid penetration of thisproduct in the marketplace. At the end of2003, after a little over three months inoperation, the volume of contracted loansreached R$ 35 million.
In 2004, the objective is to accelerate growthin practically all retail areas, focusing on theevolution of the active customer base and onthe increase in the volume of loans.
CreditPrivate Individuals
At the end of 2003, loans to privateindividuals corresponded to 39% ofSantander Banespa’s portfolio, totaling R$ 6.4 billion. registered a growth of 21.1%in relation to 2002, integrated withdevelopments in the areas of credit analysisand the range of products on offer.
The Bank instituted credit analysisinstruments for Banespa’s customer base(credit and behavior scores) and reviewed itsloan concession policies.
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SantanderBanespaA Flexible Bank Close to its Customers
Santander Banespa, which already offeredcredit linked to employee paychecks forpublic employees, started to act in a moreaggressive manner in this segment, as well.Result: the portfolio more than doubledduring the year, rising from R$ 47 million inDecember 2002 to R$ 107 million inDecember 2003. In all, the payroll loanportfolios for the private and public sectorstotaled R$ 142 million in December of 2003.
Santander Banespa also was a market leader invehicle financing. Despite the modest growth ofthe automobile industry, the vehicle financingmarket grew 11.6% in 2003 compared to2002, according to the Central Bank. AtSantander Banespa, the expansion was some45%, the result of stronger relationships withauto dealers and the positioning of localoperators in areas where the Bank did notpreviously operate. In December 2003, thisportfolio totaled R$ 923 million.
Corporate Entities
Credit analysis models were implemented in theSmall and Medium-sized Company segmentthat perfected risk management and speededup the granting of loans and financing.
The corporate entity short-term loanportfolio is composed of Invoice Collection,Check Compensation, Guaranteed Account,Company Checks and Working Capital lines.This portfolio grew 10.5% in 2003 incomparison to 2002.
The long-term loans, related to theonlending of BNDES/Finame lines, posted anincrease of 18.7%, ending the year with avolume of R$ 273 million, compared to R$ 230 million in 2002.
Santander Banespa maintains a specificcredit line for leasing of machinery andequipment and corporate vehicle fleets. Thecorporate entity segment accounted for30.6% of leasing/financing operations.
From left to right: Regional Superintendent visiting Waldemar Mathias, partner-owner of the Fernandópolis Shopping Center – Fernandópolis, SP | Shopping Center
Fernandópolis – Fernandópolis, SP | Personalized service, customer trust – Macedônia, SP
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SantanderBanespa A Flexible Bank Close to its Customers
Agribusiness
Financing agriculture and agribusiness is aspecialty niche business at Banespa, a bankthat throughout its history has developed aprofound knowledge of this sector. TheInstitution ended 2003 with R$ 1.7 billionapplied in rural credit and a bad debt index ofonly 1%. The operating structure in this areahas a staff of 61 agronomy engineers thatassesses the risks associated with theconcession of credit.
Santander Banespa was the first private bank tooffer an extra credit line in the form of a newproduct, the Rural Producer Note (RPNs). TheInstitution started to work with this product asof July 2003, as a complement to rural credit.The RPN business was the highlight of the areathroughout the year. From R$ 10 million inAugust, it grew to R$ 100 million by December.
The Bank took advantage of its knowledge inthe field to become a significant private on-lender of BNDES funds, which are used tosupply the demand for agricultural investments.
Credit Cards
In 2003, Santander Banespa repositioned theCredit Card area and focused on its nationalgrowth plan. The Group invested in thedevelopment of a specific risk managementsystem, in the unification of various platformsderiving from each unit of the conglomeratein Brazil, in training of personnel and theestablishment of a specialized team.
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SantanderBanespaA Flexible Bank Close to its Customers
From left to right: Benedito Aparecido Marsola, farmer, meets the General Manager and Coordinator for Regional Production of Santander Banespa on his cotton plantation – Macedônia, SP |
Niagara Ranch, Catapani Family – Araraquara, SP | Santander Banespa cCustomer Galiotto Vineyard – Flores da Cunha, RS
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SantanderBanespa A Flexible Bank Close to its Customers
The performance of savings accountsremained in line with the market, which wasstable in comparison to the end of 2002. Theyear also marked the groundbreaking releaseof products structured to meet the specificneeds of preferential customers (those withmonthly income over R$ 4,000). Theseproducts also allow investments in the stockor foreign exchange markets, without placingcapital applied in Brazilian reais at risk.
In the Retail Banking segment, SantanderBanespa ended the year with R$ 11.8 billionin cash, term and savings deposits.
CapitalizationThe capitalization segment recorded anincrease in the order of 25% in the portfolio volume compared to 2002,surpassing the mark of 1 millioncapitalization products sold, placingSantander fifth in the market.
On this page: Façade of the Patriarca branch – São Paulo, SP | Pioneer branch – Pedranópolis, SP Next page: Proximity and trust in service
A new card was launched in 2003, under theMasterCard flag. At the end of the year, theproduct already represented 11.4% of theBank’s total sales and 18.7% of the Group’ssales of R$ 2.6 billion with credit cards. Sucha result in such a short period of time wasdue to a combination that allowed creditand debit operations with the same card andan attractive menu of services and premiums,such as the “Super bonus,” which convertspurchases and withdrawals into prizes.
Deposits2003 marked the recovery of the fundsindustry after problems related to theintroduction of the “marking to market” ruleregarding securities, which affected thesector in 2002. The migration of resourcesfrom certain deposit types to funds was anatural outcome of such a recovery.
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SantanderBanespaA Flexible Bank Close to its Customers
Capitalization revenues totaled R$ 425 million,representing an increase of 8% over theprevious year. The Bank distributed R$ 9.6million in awards to 17,439 customers.
InsurancePremiums collected in 2003 totaled R$ 656million, an increase of some 7% compared to2002. In termos of the insurance percustomer ratio, the institution had evenhigher indices. In the banking market, thebest practices indicate that, on average, 20%of customers have insurance; at SantanderBanespa, approximately 40% of its customerstake out products in this segment.
The highlight was the Life Insurance segment:Santander Seguros was first placed in theNational Insurance and Pension AgencyAward (ANSP) as the best insurer in thiscategory. One out of every three customershas such insurance.
Cash ManagementIn order to assist companies in themanagement of financial and operating cashflows, Santander Banespa maintains aportfolio of structured products and services.In 2003, revenues in this segment totaled R$ 333 million. Collections (billing, collectionsof values, collection of taxes, check custody)and payments (to suppliers, wages andconfirmation) are part of the product portfolio.
Brokerage for Private IndividualsIn a year in which the Stock Exchange roseto historical heights and the financial tradingvolume rose 50%, Santander Banespa’sPrivate Individuals Broker posted growth of120%, reaching R$ 3.6 billion for the year.Revenues were R$ 22.5 million in 2003,compared to the R$ 13.2 million in 2002 –an increase of some 70%.
The Broker has 43,000 customers registeredwith the Bovespa – 7.3% more than inDecember 2002.
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SantanderBanespa
”Share shops” (rooms reserved exclusively forprivate stock market transactions) are the maindistinguishing characteristic of the Group inthis field in Brazil, since they were a traditionat Banespa; they have subsequently gainedmore agility and technological updating,greatly enhancing the quality of services. Thereare 77 share shops in the country, 70% ofthem in the state of São Paulo.
Governments and InstitutionsBusiness with the public sector is organizedinto a specialized area, in which the highlightof 2003 was the conquering of the São PauloCity Hall as a customer.
Activities in fund management, the collectionof taxes and in governmental on-lendingconsolidated its position as a financial servicesprovider to the government sector.
The Government and Institutions areafurthermore offers services to private sectororganizations operating in the fields ofeducation and health, in addition to religiousinstitutions, associations and non-governmental organizations (NGOs).
UniversitiesUniversities are another business area wherethe Bank makes use of the synergy between aBanespa tradition – the relationship withuniversities in the state of São Paulo – and theGroup’s similar focus in Spain. In addition tofostering long-term loyalty, the Bank’srelationship with teaching institutions is yetanother indicator of Santander Banespa’scommitment to Brazil. The academic, cultural,administrative and social responsibilityinitiatives are supported through partnershipswith higher education institutions.
The Santander Banespa Universities Programclosed 2003 with 63 formal arrangements –43 of them involving issuance of a UniversityCard. This product aggregates, in a singleinstrument, academic and financial functions.It is used by the university community foridentification, book loans at the library andother services and it also serves students,teachers and administrative employees as theiraccount bank card. By December 2003, morethan 118,000 University Cards had beenissued with a forecast of reaching more than350,000 by the end of 2004.
On this page: Treasury team and structure House 1 – São Paulo, SP | Santander Banespa marks presence between university students in the BSP at USP
Next page: Santander Banespa Treasury | Meeting room House 2 – São Paulo, SP
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SantanderBanespa
WHOLESALE BANKING
The Wholesale Bank is one of the marketleaders and a benchmark in financial servicesfor its 1,500 customers, a select group ofcompanies and institutional investors.
The Wholesale Bank’s mission is to providecustomers a universal offering of high qualityproducts and services, developed for theirspecific needs and requirements. The WholesaleBank currently provides its customers a widerange of products and services, from largeinternational financing operations or coverageof liabilities to a billing solution of receivablesfrom its thousands of customers.
The Wholesale Bank’s performance is basedupon long-term relationships with customersand deep understanding of these customers’needs – and the commitment to meet theseneeds. Ithas a dedicated and specializedstructure that permits meeting the needsand requirements at all levels of complexityand volumes.
From service to operations, the WholesaleBank’s team is formed of highly qualified andexperienced professionals. The management ofthese resources in a culture of teamwork,transparency and meritocracy is one of thefundamental pillars of our business.
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SantanderBanespa A Flexible Bank Close to its Customers
The Wholesale Bank allies the strength of asolid capital and liquidity base to a strongpresence and international recognition of agroup that acts in all the principal financialcenters of the world and that has deeprelationships in this market. The SantanderGroup is currently one of the 15 largest banksin the world in terms of market capitalization.
2003 once again demonstrated that thedeepening of relationships between theWholesale Bank and its customers was itsprincipal characteristic. We participated inmore operations and with a higher level ofinvolvement with our customer base and weconfirmed for yet another year ourcommitment to supporting customers in theirvarious activities.
Corporate Banking
Corporate Banking is responsible for therelationship with customers. Its focus is toguarantee and coordinate the formulationand implementation of solutions in order tomeet our customers’ needs, while its functionis to place the entire array of products andservices of the local and international financialmarket at the disposal of these customers.
The growth of credit assets wasapproximately 14.4% compared to our 2002portfolio, rising from R$ 5.7 billion to R$ 6.5billion. Given the importance of the loansindexed to the U.S. dollar before theappreciation of the Brazilian real in 2003,the natural trend would be for a reductionof loan volume in national currency. Such apositive performance was only possible dueto the significant expansion of business withthe customer base during the year.
Next page: Treasury in action – House 1
“ALSO ON THE INTERNATIONAL MARKET, THE STRONG PRESENCE OF
THE SANTANDER GROUP IN THE MOST IMPORTANT FINANCIAL VENUES
LET US PROVIDE SIGNIFICANT SUPPORT TO OUR CUSTOMERS,
INVOLVING OPERATIONS TOTALING US$ 1.7 BILLION.”
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SantanderBanespaA Flexible Bank Close to its Customers
The growth in operations was reflected in asignificant increase of revenues, totaling R$ 337.1 million in 2003 against R$ 280million in 2002, an increase of 20.6%.
Corporate Finance
In 2003, Santander continued its outstandingwork with customers in the Capital Marketarea. Actively participating in importantoperations, the Bank confirmed its position asone of the leaders in Brazil in the fixed andvariable income markets.
In fixed income operations, Santander acted ina creative manner in significant operations,with a total subscription value of R$ 4.5 billionfor its customers. Of particular note amongthese operations, was the Investment FundQuota Credit Rights Offer of Chemical Trust,which established a new source for Braskemto raise capital; and the Real EstateReceivables Certificates offerings, whichallowed Nestlé and Telesp to raise capital interms above those normally achieved on theBrazilian market. This work put the WholesaleBank in third place in terms of the number offunding operations carried out in Brazil(source: Anbid).
In equities income, Santander participated inoperations that raised R$ 1.4 billion. Seekingto act as a provider of original solutions, theWholesale Bank structured innovativeoperations such as a Secondary Offer ofPreferred Shares for Coteminas. Among theinstitutions that act on the Brazilian market,Santander was second place in terms of thetotal number of operations (source: Anbid).
Similarly, the Wholesale Bank helped itscustomers as consultant for Project Financeand Mergers and Acquisitions operations, withprojects in the pulp and paper, mining,metallurgy, telecommunications, petroleum,energy and financial services areas.
Also on the international market, the strongpresence of the Santander Group in the mostimportant financial venues allowed us torender relevant support to our customers,including a Euro Commercial Paper operationfor Gerdau and a Eurobond offering onbehalf of Petrobras.
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SantanderBanespa A Flexible Bank Close to its Customers
Treasury
The Treasury department is responsible forthe management of Santander Banespa’sfinancial statements, manages the liquidityand term separations, currencies and interestrates of all assets and liabilities andestablishes the policies for the pricing offunds for the various commercial productsand segments.
The Treasury at Santander Banespaparticipates vigorously and is the leader invarious segments of the financial market.Through intermediation of the Treasury, theWholesale Bank offers customers productssuch as investments, foreign exchange andswap, options and futures – particularlyinvolving hedging operations to provideprotection against oscillations in theexchange rate market.
As part of a financial group with globalactivities, the Wholesale Bank can offercustomers the same diversity of products andservices also available in the offshore market.
In 2003, the Bank’s Treasury actively workedwith the 1,500 corporate customers inexchange operations involving US$ 9.6 billionand in derivative operations totaling someUS$ 8 billion. In the interbank market,particularly notable were foreign exchangeoperations totaling US$ 23.1 billion,operations with public bonds totaling US$ 55.7 billion, and derivatives operations ofapproximately US$ 216.1 billion on the stockexchange and over-the-counter markets.
The Treasury follows and executes the strictrisk control policies valid for the entireSantander Group throughout the world. Allpositions are monitored and controlled bythe Market Risk and Financial Control area inan independent and parallel manner.mpapel,siderurgia, mineração, energia elétrica,petróleo, bancos, consumo e aeronáutica.
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SantanderBanespa
Foreign Trade and Overseas Funding
The Wholesale Bank is one of the leaders intransactions related to foreign trade, withactivities in all segments. The Foreign Tradearea assesses customers with a team ofspecialists in the structuring of services andproducts to secure their import or exportfinance operations requirements. Throughout2003, the volume of foreign trade businesswith our customers increased 30% and thevolume of assets went up from US$ 1.89billion to US$ 2.66 billion. With this, onDecember 2003 Santander Banespa wasamong the three largest banks in foreigntrade structured operations.
The Wholesale Bank is responsible forSantander Banespa’s overseas fundingarrangements, which in 2003 totaled aboutUS$ 500 million in six separate operations.
Wholesale Broker
Santander Banespa provides stockbrokingservices in 12 countries to a wide customerbase. It has a team of analysts focused onthe Spanish-American markets. It coversinternational institutional customers from theNew York and London offices, in closecoordination with the local units. It servicesinstitutional customers and physical entitiesin the various countries where it is present.
In Brazil, our customer service model seeks tocombine strict compliance, impeccableexecution and a team of relationshipmanagers that understands the market andneeds of customers as well as a qualifiedstaff of analysts that reports about more than500 companies listed on the Bovespa.
In 2003, the volume traded through thebrokerage house totaled R$ 12.8 billion,representing an increase of 73% over 2002,and 47% higher than the Bovespa itself. Themarket quota grew from 2.7% in 2002 to3.2% in 2003. Broker revenue rose 52% in2003 compared to 2002.
A Flexible Bank Close to its Customers
From left to right: Corporative Environment – Porto Alegre, RS | Personalized Service | Patriarca branch– São Paulo, SP
A Flexible Bank Close to its Customers 42 RelatórioAnual
SantanderBanespa
On this page: Employees at House Casa 1 | Treasury of House 1
The research area is divided into macro-economic analysis, strategy and sectorcoverage of companies. Acting jointly withother analysts in Santander Banespa’s researchunits, we cover telecommunications, pulp andpaper, metallurgy, mining, electric energy,petroleum, banks, consumer and aeronauticalcompanies. Santander’s analysts have beenhighlighted in specialized publicationsthroughout the years, the result of their in-depth knowledge of institutional customersand the consistency of the work they carry out.
There are separate relationship andperformance strategies for the institutional –foreign and domestic – and PrivateIndividuals segments.
For foreign institutions, the Broker offersperformance and operating servicesequivalent to the international market’s bestpractices. It also is an important informationsource on the trends in the Brazilian market,due to its proximity to local companies, theeconomic situation and the secondary marketflows. In the local institutional segment, oneof the Broker’s objectives is to be in the topthree in terms of customer base, distinguishedfor performance, operations and analysis.
3
21
6
54
1, 2, 3, 4, 6House 1 and House 2:
Santander Banespa
Employees
5Santander Banespa
Employees – Porto Alegre, RS
FLEXIBILITY
“SANTANDER BANESPA UNDERSTANDS THE IMPORTANCE OF SERVICE QUALITY AND, THUS,
INVESTS IN TECHNOLOGY TO DEVELOP MORE EFFICIENT SOLUTIONS FOR THE EXTERNAL
PUBLIC AND TO OFFER MORE DETAILED INFORMATION TO ITS INTERNAL PUBLIC.”
SANTANDER BANESPA.
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SantanderBanespa A Flexible Bank Close to its Customers
In the Private Individuals segment, the Brokeris the clear market leader. The number ofactive customers grew 45% and the tradingvolume increased 117% over 2002. TheBroker is unique in the segment: strictcompliance, quick and efficient performance,analysis similar to that offered the mostsophisticated investors, extensive educationaleffort – realized in hundreds of events,individual investor meetings with companiesand courses – and one of the best homebrokerage services in the country.
ASSET MANAGEMENT
The Santander Group manages almost US$ 140 billion in Third-Party funds. Thisamount represents an increase of 17%compared to 2002.
Santander Banespa manages funds fromcustomers in all segments, reaching R$ 23billion in December 2003, an increase of54% over December 2002. Net fundingsurpassed R$ 4 billion, with the Retail sectora particular highlight – the Bank was placedfifth in the ANBID ranking.
It offers professional management that seeksdifferent market opportunities that yieldfinancial gains for its customers over theyears. This goal can only be achieved throughstrict risk management and with rigorouscompliance standards.
Santander Banespa is aware that the fundsentrusted to it, the product of hard labor andefforts to save, must be treated with thediligence of a good parent. It recognizes itsfiduciary responsibility, of strict respect to themandate appointed to it, and itsmanagement is ruled by prudence that seeksto preserve purchasing power.
The principal service is investment fundmanagement, in the DI and Fixed Incomecategories that concentrate more than 80%of the funds under management.
On this page: Meeting Room | Alcoeste Distillery – Fernandópolis, SP
On the next page: Celso, Executive Superintendent of Alcoeste – Luiz Arakaki, owner of Alcoeste – Regional Superintendent Votuporanga – Titoshi
Uehara, President of Alcoeste – Luiz Antonio Arakaki – Fernandópolis, SP
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SantanderBanespaA Flexible Bank Close to its Customers
In 2003, the funds management areaemphasized six priorities: First, to maintainsolid profitability within a strict riskdistribution discipline; second, supported byits strong retail distribution platform andstrengthening of customer relationships –especially the Preferential segment – theBank expanded its market share from 7.1%in 2002 to 8.2% in 2003 and the PrivateIndividuals customer base grew 24%; third,there was consolidation of the managementof funds for Private Banking customers;fourth, the risks areas – markets, credit andoperations – was reinforced, to ensure thatthe risks taken were recognized, reportedand discussed.
The Bank’s investment models follow the bestinternational practices; however, they arebased upon solid experience and on the criteriaof risk professionals, who question, check, andverify processes, look at positions, examinebalance sheets and carry out their work withcharacter and independence; fifth, animportant quality leap was taken in theoperating areas – review of processes, qualitycontrols, segregation, including physical, of theOperations area, now dedicated exclusively toThird-Party funds management; sixth,consolidation of corporate governance:guidelines, management, sales, risks andhuman resources committees. Procedures andregulations were written, monitored andfollowed while substantial improvements weremade to the technology platform.
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SantanderBanespa A Flexible Bank Close to its Customers
PRIVATE PENSIONS
The Santander Group is the principal managerof supplementary pension funds in LatinAmerica, servicing more than 10 millioncustomers and managing almost US$ 15 billion.
Santander Banespa manages complementaryindividual and group pension plans. There isan adequate offer of products – PGBL, VGBL– for the different segments, in the fixedincome, currency and compound categories.
In less than 30 months, we consolidated abusiness that did not previously exist andwhich led our customers to purchase theirpension plans through competitors.
The Bank’s retail distribution platformpermitted substantial growth of pensionplans: the number of customers rose 78%,surpassing 130,000 in December 2003; thevolume of reserves grew 146%, reaching R$1.2 billion; commission revenues grew 171%,and we moved into 7th place in the SUSEPranking, while market share of the new PGBLand VGBL funds reached approximately 7%.
The first phase of the pension technologicalplatform was implemented, redesigningoperating processes and enhancing the qualityof customer services.
On the next page: Santander Banespa Private Banking – São Paulo, SP | Resources management Table – São Paulo, SP
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SantanderBanespaA Flexible Bank Close to its Customers
PRIVATE BANKING
The Santander Group is an importantmanager of private customer funds in theworld, in local markets and offshore. Thebusiness model is based on a customerfinancial assessment of customers through aspecialized relationship manager who has alimited number of customers and anobjective understanding of the needs, lifeplan and tolerance to risk of the customerbase. We offer funds and financial productsfrom different fund managers, covering abroad range of risk and diversification ofassets and locations.
In Brazil, Santander Banespa services thePrivate Banking segment through a team ofqualified managers; each manager with nomore than 40 customers, to whom they offerdifferent products and services.
The principal product is the individual profileFAQ, conducted by the Fund Managementarea, which follows up on more than 40managers. The authorized managers areselected after a rigorous due diligenceprocess approved by a risk committee, inobservance with their capacity to manage,their experience and character, thetransparency of information, the soundnessof processes and risk control. There isconstant oversight, with observance ofprofitability, risks policy and adherence tothe management of their mandates.
The managed volume surpassed R$ 1.4billion, representing an increase of 40% inrelation to 2002. The number of customersgrew 40% and revenues rose 45%,compared to 2002.
In 2004, there will be technologicalrestructuring in the segment to ensure thatexpected growth does not compromise thequality of services offered our customers.
“THE MANAGED VOLUME SURPASSED R$ 1.4 BILLION, REPRESENTING
AN INCREASE OF 40% IN RELATION TO 2002.”
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SantanderBanespa Santander Group
Our Business
Santander Group's three lines of businessended 2003 with better results than foreseen.
Commercial Banking, Wholesale Banking,Asset Management and Private Bankingexpanded their commercial activity in 2003,with growing profits which, in the case ofWholesale Banking, increased by 28%.
"We've made up for certain exceptionally lowinterest rates by better cost controls and bythe generation of income through greatercommercial aggressiveness in all our lines ofbusiness," said Francisco Gómez Roldan, theSantander Group’s General Director.
This aggressiveness was seen in the launchingof innovative new products in real estatecredit, credit cards, and treasury andinvestment funds.
COMMERCIAL BANKING
Santander Group's commercial bankingbusiness made profits in 2003 of 2,826million euros, a 6.1% improvement over2002. This result combines a 12.5% increasein Europe, and a 3.1% reduction in America,the product of the dollar's depreciationagainst the euro.
The positive results are attributable to thelaunching of successful products, as well asto the continuity of cost saving policies.
Outstanding among products launched in2003 were the Super Selection funds atSantander Central Hispano, the SuperBusiness, in Mexico, and the DVD ConsumerCampaign, in Chile.
In 2003 a special effort was also made in thecorporation segment, with the launching ofspecially designed products such asBanesto's Banespyme.
"We have winning products in every country,"commented Jesús Zabalza, of the AmericasDivision, "designed to suit clients and whichare one step ahead of our competitors."
Especially worthy of mention is theSantander Group's mortgage business, whichgrew by 28.8% in Spain. According toEnrique García Candelas, General Director ofSantander Central Hispano's CommercialBanking, "the launching of successfulproducts, such as the SuperoportunidadMortgage, which in the first six months of itslifetime totalled real estate loans of 5,000million euros, has permitted us to gainmarket share in the most dynamic segmentof Spanish banking in 2003."
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SantanderBanespaSantander Group – Our Business
"For yet another year, the results ofConsumer Banking were excellent", observedJuan Rodríguez Inciarte, General Director ofSantander Consumer Finance. These are theheadquarters from which all bodiesspecialized in this activity in Europe aremanaged (Hispamer, CC-Bank, Finconsumo),with a strategy which is highly focused onspecific segments, such as vehicle financing.
In the card activity, Santander Group hasissued a total of 29 million, of which 13million are credit cards and 16 million are fordirect debit. The strategy consists of offeringunique products, such as the Serfín Light cardin Mexico, or the Visa Banesto 1-2-3 in Spain.As far as the second of these is concerned,200,000 new cards have been issued and thisrepresents, according to Ana Patricia Botín,Banesto's President, a clear case of "aworking philosophy which sets us apart fromthe competition, a winning spirit whereanything is possible."
GLOBAL WHOLESALE BANKING
Global wholesale Banking includes theactivities of Corporate Banking, InvestmentBanking and Treasury Operations. The 7%profit in operational areas in 2003 came fromthese areas, which, at 226 million euros, was28% higher than the previous year. This waspartly the result of a better performance offinancial markets and partly due toimprovements in management.
Corporate Banking is focused on providingfinancial services to large multinationalcompanies. "In 2003 we changed our strategyby introducing a procedure in which only oneperson is responsible for managing all theneeds of a single client," said Adolfo Lagos,General Director of Global Wholesale Banking.
Investment Banking improved its results as theyear progressed. "One has to point out," saidAdolfo Lagos, "that 2003 was positive, withclear recoveries in the businesses of CorporateFinance, Equity Income, Custody, andStructured Financing. In each of them, weattained respectable positions in the rankingsof the countries where we are present."
The strategy of the Treasury Area in 2003was focused on providing value-addedservices to corporate clients and support todifferent commercial networks.
ASSET MANAGEMENT – INSURANCE AND PRIVATE BANKING
Asset Management and Private Bankingproduced net profits in 2003 of 320 millioneuros, down 2.3% compared with theprevious year. If the effects of the exchangerate are excluded, an increase of 15.4 %would have been registered.
"During 2003 we widened the range ofinvestment and pension funds we manage inEurope and America by 16.7%, reaching thefigure of 100,000 million euros," said JorgeMorán, head of Assets and SecuritiesManagement. "These volumes make us oneof the largest fund managers in the world",he concluded.
The acceleration of this business has beendue, according to Jorge Morán, "to thesuccess of investment funds with guaranteedcapital and to real estate funds in the firsthalf of the year, and in the second, to therecovery of equity investments and to theintroduction of the new alternativemanagement funds."
For its part, the activity of Insurance increasedin 2003 over the previous year in terms of thenumber of policies as well as premiumvolume. The strategy followed in this area,focused on life and home products, "hasproduced acceptable results, and has enabledus to gain market share from our competitorsin a very significant way," Morán said.
In Private Banking, Banif, the Group'sspecialized unit in Spain, is a market leader ofparticular note. In the words of Javier Marín,Banif's chief executive, "in 2003 we managed20,000 million euros in resources, with a 20%increase in the balances of our target clients."
During 2003, International Private Bankingposted a 19% increase in the funds itmanages, in dollar terms. The purchase ofCoutts' Latin American business was a highpoint, "bringing in 1,400 new clients and2.6 billion dollars in managed assets,"observed José Manuel Maceda, director ofthis business unit.
The main line of business of the Group isCommercial Banking, which accounts for 84%of the profits obtained in the operational areas.The importance of our Commercial Bankingarea is one of our singular characteristicscompared with other large international banks.
Our solid base in this business is a source ofcompetitive advantages when it comes tocarrying out global activities - WholesaleBanking, Asset Management, and PrivateBanking - in those countries in which weconcentrate our activities.
COMPOSITION OF NET BENEFIT ATTRIBUTED BY BUSINESS LINE %
52%Commercial Bank Europe
32%Commercial Bank America
9%Asset Management and Private Banking
7%Global Wholesale Bank
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SantanderBanespaSantander Group
Our Geographical Presence
A MULTIPLE LOCATION STRATEGY AS ABASE FOR LEADERSHIP
The Santander Group defines itself as a Euro-Latin American Group which combines thebest local management – in markets whichjointly represent more than 400 millioninhabitants – with a common business model,based on efficiency, strength and the capacityto get ahead of its competitors.
Europe
The Santander Group's presence in Europe ismainly felt in Spain and Portugal, in terms ofcommercial banking, and in Germany andItaly, in the consumer banking segment.
In Spain, the business is shared between twocommercial banks – Santander CentralHispano and Banesto – and specialized bodies– BANIF, in Private Banking, Hispamer inConsumer Banking, and Patagon in Bankingthrough the Internet, all of which occupyleading positions in their respective areas.
Santander Central Hispano's networkincreased its operating margin by a spectacular19.8% in 2003. Its market share, combinedwith that of Banesto, stands at 18%.
Moreover, Spain is where the Group's centralservices and global areas are located; itcontributes over 50% to the operatingmargin, and is home to 34% of all employees.
The Santander Group in Portugal – Totta – isthe third largest financial organisation in thecountry, with a market share of 11%. "Ourmain business is commercial banking, anarea in which we have over two millionclients," explained Antonio Horta, Totta'sPresident, "and our aim is to become thebest and most profitable bank in Portugal."
In Germany, Italy, Austria, Poland, the CzechRepublic and Hungary, the presence of theSantander Group is centred on offeringconsumer financing deals coordinated bySantander Consumer Finance. In Germany,by way of the CC-Bank financingorganization, the Group is in second place inthis business activity, with a market share of16%, and 2.5 million clients. Finconsumo,the Group's organization in Italy, has a 5%market share, and a little more than half amillion clients.
Our strategy in Europe is rounded off by our alliance with the Royal Bank ofScotland, a unique agreement in the world'sbanking system.
Santander Group – Our Geographical Presence
Latin America
“We are the leading financial group in LatinAmerica," explained Francisco Luzón, AdvisingGeneral Director in charge of the AmericanDivision, "with a strong presence in themarkets with the greatest potential – Brazil andMexico – as well as in the most mature – Chileand Puerto Rico". "In Argentina, Colombia andVenezuela we also have a relevant presence inthe Commercial Banking sector," he added.
In Luzón's view, "this is the moment tounfurl our sails, because in Latin America, togrow is to win."
The Santander Group's Commercial Banking inLatin America is centered on over 12 millionprivate clients and half a million companies,which are served by 4,052 branch offices.
In 2003, business in this area generatedprofits of 1.064 billion euros, or 3.1% lessthan in 2002.
Countries in which the GroupConcentrates its Commercial BankingActivities
Moreover, the Santander Group is theregion's second largest Corporate Bank, andits Asset Management area has a total of30.3 billion dollars under management. It isalso backed by the most powerful treasuriesin each of the local markets.
Branches Share Clients(Number) (%) (Million)
Spain 4,369 18 12,5
Portugal 670 11 2
Germany 523 16 2,5
Italy 25 5 0,5
Brazil 1,854 4.5 6,2
Mexico 1,018 13.1 2,8
Chile 370 18.5 1,6
Puerto Rico 72 12 0,3
Venezuela 248 11.7 1,8
Colombia 87 4,6 0,4
Argentina 312 10.6 0,7
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SantanderBanespaSantander Group – Our Geographical Presence
In Brazil, the Santander Banespa Group hasincreased its profits by 4.8% in dollar terms. Itshas almost 22,000 employees and 6.2 millionclients and 1,800 points of sale. "Weconcentrate our activities in the regions andsectors with the country's greatest potential,"said Gabriel Jaramillo, President of SantanderBanespa, "and we are already the country'sforemost organization in terms of profitability."
Santander Serfín Group, in Mexico, hasapproximately 1,000 branches and threemillion customers. "Our main line of businessis commercial banking," explained MarcosMartínez, General Director in charge ofSantander Serfín. "Furthermore," he added,"we also manage assets through SantanderAFORE, which already has three millionclients and manages around 3.0 billiondollars of funds."
"Our commercial activity during 2003 hasallowed us to gain market share in the creditsegment, which was one of our main goals,and we want to reach the 20% mark",concludes Marcos Martínez.
In Chile, the Group operates under theSantander Santiago, Banefe, and SummaSantander logos. Mauricio Larraín, theGroup's President in Chile, clarifies that"Santander Santiago is the foremost bank inthe country in terms of both size andprofitability, while Banefe is leader in activitiessuch as consumer financing and micro credits.Furthermore, AFP Summa Santander managesfunds worth more than 5.0 billion dollars forover half a million clients.
Having concluded the merger, in April 2003,of the Santander Chile and the Santiagobanks, as Mauricio Larraín explained, "wenow operate under the sole name ofSantander Santiago, and we have directedour activities towards the more profitableretail segments.
"This merger", he added, "apart fromboosting our commercial capabilities, hasbrought us important savings in costs, as isevident when one considers that our profitsincreased by 27.5% in 2003 over theprevious year."
Apart from the above mentioned countries,the Santander Group has an importantpresence in Puerto Rico, Venezuela,Colombia and Argentina, where our activitiesare centered on Commercial Banking. InBolivia, Paraguay, Peru and Uruguay, theGroup pursues a more selective andspecialized model of banking.
The Santander Group's leadership in Spain isstrengthened by its outstanding position inPortugal, a growing presence in consumerbanking in Europe and a unique alliance withthe world's fifth largest bank, the Royal Bankof Scotland.
In Latin America, Santander Group is the firstfranchise in financial services. Its activities areconcentrated in the most promisingcountries, Brazil and Mexico, as well as in themore stable ones, Chile and Puerto Rico, witha more selective presence in other countries.
Financial Management
In the Treasury, the Financial Managementarea is responsible for the activeadministration of the Bank’s balance sheet.These duties are delegated by the Assets andLiabilities Committee (ALCO) but the areaalso answers to the sector that centralizesthese activities at the Group’s headquarters.
Furthermore, the Treasury is charged withmanaging liquidity in different currencies,management of interest rates and foreignexchange gaps and the pricing of variousproducts for the remaining areas, in additionto the optimization of the Group’s capitalstructure and hedging structural foreignexchange positions. Coordination of theseactivities is aimed at preserving stability inthe results of the Bank’s commercialoperations and assuring that liquidity isaligned with business requirements.
MANAGEMENT OF INTEREST RATE GAPS
The Financial Management area analyzes all theproducts that present interest rate risks, and allthe Group’s positions, whether or not they bederivatives, are included in the generation of thegap structure. Each reference index – includingfixed rate ones such as the PTAX, IGP-M, TR etc.– generates a gap structure, according to therepricing period for the contract rate. Theexposure to each type of interest-rate risk isadministered using the futures markets. There isalso a methodology for dealing with unlimited-term deposits, which takes into accountvariations in value and the margin thesedeposits generate on the balance sheet.
MANAGEMENT OF LIQUIDITY
Liquidity management enables the financing ofassets and the development of the business,optimizing costs and time limits. Twelve-monthprojections of liquidity are prepared, based onthe Group’s business plans, and these arereviewed every quarter. These plans are used asa basis for the pricing of the liquidityconsumption of each product.
The Bank maintains a comfortable liquiditystructure, with a reserve of liquid assets –basically sovereign debt instruments – and avariety of maturity dates for the illiquid assets,the aim of which is to minimize risk. Inaddition, contingency plans are drawn up inanticipation of market crises that may affect thesystem’s liquidity.
CAPITAL MANAGEMENT
Capital management is done in such a wayas to preserve a comfortable level of capital.Internally, capital consumption is priced so asto encourage operations that are less capital-intensive. Credit operations are submitted tothe RORAC (Return On Risk AdjustedCapital) methodology, developed at headoffice in order to establish a minimum levelof return on capital consumption. Derivativeoperations also have their capitalconsumption defined according to acorporate methodology.
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1 Santander Banespa, façade
of House 2
2 Branch – Macedônia, SP
3 Branch – São Carlos, SP
4 Headquarters branch –
Porto Alegre, RS
5 Transparency, value present
in architecture, House 1
6 Santander Banespa, façade
of House 1
32
1
6
54
SOLIDITY
“STATE OF THE ART TECHNOLOGY, HIGH EMPLOYEE QUALIFICATION AND EFFICIENT RISK
CONTROL MAKE SANTANDER BANESPA A BANK PREPARED FOR THE FUTURE.”
SANTANDER BANESPA.
Risk Management 60 RelatórioAnual
SantanderBanespa
ORGANIZATION OF RISK FACTORS
The Santander Banespa Group considers the effective management of risk to be a fundamental condition for the generation of value in a sustainable manner over the long-term.
The risk management model is standard inall the units of the Santander Group. Ofmedium / low risk, the model has been inuse for a number of years and has proven tobe extremely effective. The homogeneityfacilitates the acceptance of new risk andthe comparison of different units within theGroup, even though there is frequentupdating and adaptation to each market inwhich the Group operates.
The integral treatment of the different typesof risk – credit risk, market risk, interest-raterisk, liquidity risk, operational risk, etc. –makes it possible for risks to be identifiedand evaluated according to homogeneouscriteria, facilitating the process ofdetermining and managing the Group’sexposure in all the different categories(products, groups of customers, segments,economic sectors, business etc.).
The Executive Commission for Risks performsthe following functions:
• Defines the risk policies for the Group inaccordance with the Country’s ExecutiveCommittee;
• Defines the limits of autonomy for the RiskCommittees within the country;
• Approves or rejects operations within thelimits of its authority, as well asrecommends operations outside itsauthority to the Delegate Commission forRisk, in Spain;
• In meetings, held at least once a week,ensures that the assumed risk levels,individual as well as global, comply withthe established objectives;
• Receives regular information, throughdetailed reports, on important matters thatit should be aware of or on which it mustbase decisions;
• Conducts systematic reviews of exposure toleading customers, economic sectors,geographical areas and types of risks;
• Supervises the fulfillment of the riskobjectives, management tools, initiativesfor the betterment of risk managementand any other pertinent activity related tothis subject.
The role described above complies with theguidelines suggested by the competentauthorities in the revision of the Basel Accord,and guarantees the authority andindependence necessary for the Commissionbodies to be able to supervise the execution ofthe Group’s overall strategy in accordance withthe decisions taken by Executive Management.
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BREAKDOWN OF THE LOAN PORTFOLIO BY SEGMENT
CREDIT RISK
The management of credit risk covers theidentification, gauging, integration, controland quantifying of the different exposures, aswell as the return, adjusted for risk, both fromthe global perspective of the Group and foreach sector of activity.
The organization of risk factors for theSantander Banespa Group follows theprinciples and basic organizational structureestablished by the parent company.
On December 31, 2003, the credit portfoliowas distributed in the following manner:26.1%, Large Corporate; 15.7%, Corporate;14.4%, Medium and Small Companies; 42.3%,Private Individuals; and 1.4% Institutional.
In 2003, the percentage of consolidated pastdue loans was 7.7%, representingconsiderable improvement over 2002, whenthis figure was 10.6%.
Credit risk management evolves in differentways, according to the distinct customersegments and product characteristics. Thehandling of customers of a global nature(governments, multinational corporations andeconomic groups) is done in a centralizedmanner for the whole of Santander Group, soas to be able to set global exposure limits forthe Group as a whole.
The Bank’s risk model makes a distinctionbetween risk relating to personalized servicesand global management (large and medium-sized companies) and risk relating tostandardized services (private individuals andmicro and small businesses).
For the corporate segment, the managementand monitoring of risk makes use of a systemof client monitoring, known as FEVE (Firms forSpecial Vigilance), which determines the riskpolicy to be adopted for each client (monitor,reduce, seek guarantees or cancel). Thissystem is adapted to the necessities andcharacteristics of the Brazilian credit market.
42,3%Individuals
26,1%Large Corporate
15,7%Corporate
1,4%Institutional14,4%Small and Medium -Sized Companies
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On December 31, 2003, the risks classified inspecial vigilance represented 15.0% of thevigilance portfolio, with 3.7% beingconcentrated in the more severe categories(reduce, seek guarantees and cancel).
Credit risk management incorporates, in itsfinal phase, the recovery of loans that are indefault. Past due loans of lower value arerecovered through telephone collectionagencies. These collection agencies havepowerful information and communicationssystems, resulting in a high level of success inrecovering debt.
Once in telephone contact with the customer,it takes only a few days to accomplish therenegotiation or settlement of the debt.Specialized managers are used for therecovery of higher value past due loans.
Internal Rating Systems
The management of risk is carried out usinga proprietary system for classifying solvencythat makes it possible to gauge the level ofrisk for each client. The client’s classification,obtained following the analysis of all therelevant risk factors, once an application hasbeen accepted, is subsequently adjustedaccording to the tangible characteristics ofthe operations (term, guarantees and typesof operations), and is subject to periodicalreviews during the monitoring of the risk.
Each solvency classification, or rating,establishes a determined probability of default,in keeping with past experience, which,combined with the nature of the transaction,makes it possible to determine the anticipatedloss on the transaction, and this cost will thenbe incorporated within the calculation of theadjusted return on the risk to which capital isexposed, the RORAC, utilized by theCorporate and Company segments.
Master Scale
The Bank has at its disposal what is knownas a Master Scale, the purpose of which is toprovide a measure of equivalence betweenthe anticipated default rate and the distinctgraduations of the ratings that are beingused homogeneously in dealing with risk. Itis a tool that allows the utilization of acommon language or yardstick, bytranslating any point system into a scale,from 1 to 9. The Master Scale is linked tothe values of external rating agencies.
Level of FEVE 2002 2003
Cancel 2.3% 1.9%
Seek Guarantees 1.0% 0.1%
Reduce 5.1% 1.7%
Total FEVE - Serious 8.5% 3.7%
Monitor 14.1% 11.3%
Normal (not Feve) 77.4% 85.0%
Total 100.0% 100.0%
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Financing Operations for Private Individuals
For the last three years, the SantanderBanespa Group has had at its disposalautomated systems for the acceptance andselection of different financing products forprivate individuals. They are still in the processof development at Banespa, and are expectedto be implemented during 2004. Thesesystems automatically assign a rating, that isto say, the classification of the individual, orgroup of Private Individuals, and of theoperation itself.
This bottom up form of appraisal makes itpossible to predict the anticipated default ratefor each case and, together with the statisticsfor collection, the estimated loss on theportfolio, thus enabling the calculation ofprovisions, in accordance with BrazilianCentral Bank resolutions and prices adjustedfor the risk at the moment of acceptance.
RISK-ADJUSTED RETURN
The Group’s risk management is based on theRORAC methodology, as much for theportfolios as a whole as in the case ofindividual clients, with the following objectives:
• To perform analysis and set prices as partof the decision-making process;
• To estimate the capital consumption for eachcustomer portfolio or business segment;
• To calculate the level of provisions basedon anticipated losses.
The Bank regularly reviews the RORACobjective, or minimum requirement, in its riskoperations, in order to ensure that they aregenerating value for shareholders. TheRORAC objective is presently set at 29%,approximately equivalent to a 15% net returnon capital, after deducting thetransformation costs incurred.
The introduction of RORAC methodology, asmentioned above, is described by the BaselCommittee of the Bank for InternationalSettlements (BIS II) as one of the fundamentalpillars of internal risk models.
QUALIFYING THE RISK PROFILE
The Santander Banespa Group’s policy onrisk is directed towards maintaining amedium / low risk profile, in regard to bothcredit risk and market risk. In the case ofcredit risk, this qualitative definition can bemeasured in terms of anticipated loss.
ANTICIPATED LOSS AND VENTURE CAPITAL
The determination of anticipated loss isessential for quantifying the loan portfolio’slatent risks, recognizing them and making anaccounting provision for them before theywind up in default. This is the reasoningbehind the provisions introduced by theBrazilian Central Bank.
Two vital elements are involved in theanticipated loss calculation: the anticipateddefault rate and the average recovery rate,adjusted for the seasonal effects of theeconomic cycle.
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MARKET RISKS
The market risks area, operating in line withglobal policies and within the risk positionlimits permitted by top management,performs its control activities with a view tofacilitating transactions with customers,optimizing the benefits to the institution andcontinually improving the Risk / Return ratio.
Included within the context of appraisal,control and monitoring of market risks arethose operations involving assumed capitalrisk. This risk arises from the price variationsof various risk factors: interest rates, foreign-exchange rates, variable income, volatility inany of the diverse elements, and theinsolvency risk and liquidity risk of thedifferent products and of the markets inwhich the Group operates.
In keeping with their risk characteristics, thearea’s activities are segmented, as follows:
Trading Portfolios:
Includes the fixed and equity-incomeportfolios, the foreign-exchange rate riskpositions and the volatility of these riskfactors, all accounted for in the results atmarket prices.
Balance Sheet Administration:
Distinguished by the use of financialinstruments to hedge the asset and liabilityimbalance deriving mainly from the operationof the client portfolio, as well as to administerthe Group’s structural liquidity.
Investment Portfolios:
Comprises fixed-income portfolios, mainlyfor margin gains, the object of which is notthe obtaining of profits from price variations.
Strategic Positions:
• Exchange Rates: Positions adopted toprovide cover for capital, earnings, dividendsand fulfilling regulatory requirements.
• Equity Income: Permanent investments in companies.
Each one of these activities is appraised andanalyzed, using various different tools, inorder to demonstrate their risk profiles withmore precision.
Methodologies
Trading ActivitiesThe Value at Risk (VaR) is the standardmethodology applied in 2002 by TheSantander Group for the negotiation activity.The standard methodology applied in 2002 bythe Santander Group in its trading activitieswas Value at Risk (VaR). It utilizes, as a base,the Historical Simulation standard, with aconfidence interval of 99% and a timehorizon of one day. Statistical adjustmentshave been made so as to allow recent eventsthat affect the levels of assumed risk to bequickly and effectively included.
Other methodologies, such as the MonteCarlo Simulation or the Parametric Models,may be adopted if required, due to the size ornature of the portfolios.
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The VaR is not necessarily the ideal method,bearing in mind that its model is not fullyrepresentative, particularly for the emergingmarkets in which the Group has considerableinvolvement. This method is being utilizedbecause of its ease of use and quality as areference for the level of risk incurred, butthere are other measurements in use thatallow us greater control over risk.
Among these measurements is the Analysis ofScenarios, which involves defining behaviorscenarios for different financial variables, inorder to measure the impact on the resultswhen applied to the portfolios. Thesescenarios can reproduce the effects of pastevents (like crises) or create plausiblescenarios for which there is no earlierprecedent. They are able to define at leastthree different types of scenario – plausible,severe and extreme – that, together with theVaR, provide a much more complete pictureof the risk profile involved.
Balance Sheet Administration /Investment Portfolios
Interest Rate Risk – The Group performssensitivity analysis of the Financial or NetInterest Margin (NIM) and Equity Value (MVE)before variations in interest rates. Thissensitivity is a function of time lags betweenmaturity and interest rate review dates thatarise among different balance sheet entries.The Assets and Liabilities Committee (ALCO)manages the investments using hedge cover inorder to keep the level of sensitivity within thetarget category.
The measures used by the Group to controlinterest-rate risk in the administration of thebalance sheet are: the interest-rate gap, thesensitivities of the Financial Margin and theEquity Value to variations in interest rates, theValue at Risk (VaR) and Scenario Analysis.
Assets and Liabilities Interest Rate GapsThe analysis of interest-rate gaps deals withdisparities between time limits for therevaluation of items among the balance sheetentries (assets and liabilities) and evenelsewhere. It provides a basic picture of thebalance sheet structure and makes it possibleto detect concentrations of interest-rate riskwithin different time spans. Moreover, it is auseful tool for calculating the potential impacton the Group’s Financial Margin and EquityValue of possible movements in interest rates.
The flows of all the balance sheet and off-balance sheet items should be broken downand placed at their repricing / maturity date. Inthe case of those items that have no definedcontractual maturity, such as demandaccounts, an internal model is used foranalysis and estimation of the durations andsensitivities of the same (excluding stable andunstable balances for reasons of liquidity).
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Financial Margin Sensitivity (NIM)The Financial Margin sensitivity is amedium/short term index that measures thealterations in anticipated profits over adeterminate period (12 months), in light of achange in the interest rate curve. Thecalculation is carried out through the marginsimulation, both for a scenario with achange in the interest rate curve and for thecurrent scenario. The sensitivity is thedifference between the two margins.
Equal Value (MVE) SensitivityThe Equal Value sensitivity is a long-termmeasurement relating to the entire operationperiod, and thus complementary to theFinancial Margin sensitivity of the year inquestion. It measures the interest-rate riskimplied in the Equal Value (own resources),against the impact of the changes in interestrates on the current values of financial assetsand liabilities.
Value at Risk (VaR)The Value at Risk for balance sheet activities iscalculated using the same standard applied toTrading: Historical Simulation, with aconfidence interval of 99% and a time horizonof one day. Here also, statistical adjustmentshave been made so as to allow recent eventsthat affect the levels of assumed risk to bequickly and effectively included.
Scenario AnalysisEstablishing scenarios for the behavior ofinterest rates – maximum volatility andsudden crisis – which, applied to the balancesheet, determine the impact on the EquityValue and the projections of the FinancialMargin for the year.
Liquidity Risk
The liquidity risk relates to the Group’scapacity to finance its commitments, at fairmarket prices, and to proceed with itsbusiness plans while counting on stablesources of financing. The Bank maintains aconstant vigilance over the maximum time-lagprofiles. The measures used to control liquidityrisk in the administration of the balance sheetare: the liquidity gap, liquidity indices, stressscenarios and contingency plans.
Liquidity GapThe liquidity gap provides information aboutthe contractual and expected cash inflowsand outflows over a determined period oftime, in each of the currencies in which theGroup operates. It measures the net shortfallor surplus of funds on any given day andreflects the level of liquidity maintainedunder normal market conditions.
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Two kinds of analysis of the liquidity gap areperformed:
1. Contractual Liquidity Gap: All balancesheet and off-balance sheet items,whenever there are cash inflows, areplaced at their maturity date;
2. Operating Liquidity Gap: Represents a viewof the liquidity profile scenario undernormal conditions, as the balance sheetentry cash flows are placed at the probablesettlement date, rather than at the contractmaturity date. In this analysis, the definitionof the behavioral scenario (renewal ofliabilities, discounts on portfolio sales andrenewal of assets) is essential.
Liquidity IndicesThe Liquidity Coefficient compares net assetsavailable for sale or transfer (after applying therelevant discounts and adjustments) with totalliabilities (including contingencies). Itdemonstrates, per currency (that cannot befurther consolidated), the entity’s capacity forimmediate response regarding thecommitments it has assumed.
The Accumulated Net Liquidity Coefficient isthe quotient of the accumulated 30-day gap,obtained from the modified liquidity gap,divided by the total of liabilities falling duewithin 30 days. Calculation of the modifiedcontractual liquidity gap involves taking thecontractual liquidity gap and placing the netassets at their liquidation or transfer date,rather than at the maturity date. This coefficientshows the degree of short-term illiquidity.
Scenario Analysis /Contingency PlanThe administration of liquidity at the Bank isbased on the adoption of all the measuresnecessary in order to prevent a crisis. It is notalways possible to anticipate the causes of aliquidity crisis, so, for this reason, thepreparations focus on modeling potentialcrises, with the analysis of different scenarios,on the identification of different types of crisis,on internal and external communications andon individual responsibilities.
The Contingency Plan deals with themanagement of a local unit in relation to headoffice management. At the first sign of crisis,specific lines of communication are opened upand a broad range of responses come intoplay, according to the level of the crisis.
As the crises may be played out at a local orglobal level, it is necessary for each local unitto develop its own Financial ContingencyPlan, indicating the amount of help orfinancing that could feasibly be required fromthe central unit during a crisis.
Each local unit’s Contingency Plan must bepresented to the central unit, in Madrid, atleast once every six months, for review andupdating. However, these plans need to beupdated more frequently than this, whenevermarket circumstances dictate.
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Strategic Positions
Due to their nature, strategic positions willnot be allowed to fluctuate unless this hasbeen previously approved by the local /global offices in Committee. Position limitswill be determined, and these will bemonitored by the VaR, Loss Trigger and StopLoss indicators.
Foreign-Exchange Rates: The structuralforeign-exchange position may be permanentor temporary. A permanent position is abasic reflection of the theoretical book valueof the investments net of initial goodwill,while a temporary position basically comesabout through the currency buy – selloperations performed to cover foreign-exchange risk. The foreign-exchangedifferences that each of these positionsgenerates are recorded in the accountsunder capital assets and under losses andgains, respectively.
Complementary Measures
Calibration and Contrasting Measures –Back-testing is a comparative analysis thatcompares the Value at Risk (VaR) estimateswith the actual daily results. Such testingseeks to check and fine-tune the modelsused for the VaR calculation.
Collaboration with other areas takes placeon a daily basis, leading to a potentialdiminishing of operational risk. This involvesthe regular reconciliation of positions.
Debt Maturity Profile – Analysis of thematurity profile of securities in portfolio(trading and investment) is conducted once afortnight in order to identify the time periodsof greater cash flow concentrations.
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69AnnualReport
SantanderBanespaRisk Management
• To grant flexibility to the trading areas intaking on market risk in an efficient andopportune manner, according to marketchanges and their business strategies, butalways within the levels of risk the Groupconsiders acceptable;
• Allow business generators a prudent butsufficient margin of risk for them to beable to achieve the budgeted results;
• To introduce investment alternatives, while limiting the consumption of Group’sown resources.
Trading Activities
Quantitative Analysis of VaR in the YearChanges of the risk related to the tradingactivity in financial markets, in 2003,quantified through VaR, are shown below:
Control System
Definition of Limits The process of setting limits takes place afterthe budgeting and is the instrument used todefine the capital assets that will be availableto each activity. The fixing of limits is lookedupon as being a dynamic process thatresponds to the risk acceptance leveldetermined by the top management.
Objectives of the Limit StructureThe following considerations are taken into consideration in order to define the limit structure:
• To identify and define the limits in anefficient and comprehensive manner, of theprincipal types of market risks incurred, sothat they are consistent with themanagement of the business and with thedefined strategy;
• To quantify and notify the trading areasthe risk levels and profile that topmanagement consider acceptable to avoidincurring undesired risks;
DAILY VaR
70 AnnualReport
SantanderBanespa Risk Management
VaR HISTOGRAM
It can be seen that the Bank maintained amedium risk profile throughout 2003. Suchdynamic management allowed SantanderBanespa to enjoy the opportunities andarbitrations offered by the market, in a quickand responsible manner, always following thescenario changes, which were predominantlypositive during the year. During the period,there were increase in the Banks exposure,which illustrates the capacity to follow thechanges and growth of global prospects inrelation to the local situation.
The following chart illustrates the growingdevelopment of the VaR before a reductionof the market risk perspective, representedby appreciation of the real against the dollar.
Observation of the VaR evolution throughout2003 reveals the flexibility and agility ofSantander Banespa in adapting its risk profilein light of strategy changes brought about bya different perception of market expectations.
The histogram below shows the frequencydistribution of medium risk in terms of VaRduring 2003. Thus, a slight elevation isnoticed in risk levels in comparison to thoseof 2002, following the positive change ofthe local and external scenarios.
However, near minimum levels were reached only on nine occasions, with the risklevel, throughout the year, remaining at 60%of the limit.
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VaR X DOLLAR – EVOLUTION OFMONTHLY AVERAGE
Analysis of the Results
73 SantanderBanespa
FinancialStatements
R$ Million
Financial Intermediation margin 2003 2002 Variation
Financial Intermediation Revenues 9,092 13,157 -30.9%
Financial Intermediation Expenses (3,994) (8,156) -51.0%
FINANCIAL INTERMEDIATION RESULT (PRIOR TO THE PROVISION FOR BAD DEBT) 5,098 5,001 1.9%
Provision for Bad Debt (522) (643) -18.8%
FINANCIAL INTERMEDIATION RESULT (AFTER PROVISION FOR BAD DEBT) 4,576 4,358 5.0%
Total Average Assets (-) Average Fixed Assets 55,479 54,957 0.9%
NET FINANCIAL INTERMEDIATION MARGIN 9.2% 9.1% -
R$ Million
Provision for Bad Debt 2003 2002 Variation
Balances on January 1st 1,037 1,111 -6.7%
Provision Expenses Constituted in the Year 522 643 -18.8%
Transfer of Losses in the Year (641) (773) -17.1%
Other Movements (25) 56 -144.6%
BALANCE ON DECEMBER 31ST 893 1,037 -13.9%
CREDITS RECOVERED IN THE YEAR 403 178 126.4%
CREDITS WITH AA-C RATING ON THE PORTFOLIO TOTAL 92.3% 89.4% -
ECONOMIC ANALYSIS
The increase in international liquidity and the consistent macroeconomic policies implemented by the government in 2003 determined a reversal of negative
expectations that had prevailed the previous year. The exchange rate appreciated 18%, which contributed to containing inflation and permitted the reduction of the
economy’s base interest rate (Selic) to 16.5% p.a. at the end of 2003 – the Selic ended 2002 at 25% p.a.
Fiscal austerity, once again, was the main pillar of the government’s economic policy. The primary surplus objective was raised from 3.9% to 4.2% of the GDP and
achieved, principally, by reducing expenditures. Such a factor, together with the elevated trade balance (US$ 24.8 billion), lessened further the reduction on external
dependence, resulting in greater credibility of the Brazilian economy. The significant changes deriving from Social Security reform and by the first stage of the Tax
Reform also contributed to an improvement in Brazil’s credibility.
The Central Bank promoted very tight monetary policy during the first half of the year, necessary to combat the generalized pass through of costs to consumers. The
main inflation indicator (IPCA) closed at 9.3%, significantly lower than the most optimistic projections, although higher than to the price variation as measured by the
IGP-M (8.7%), which is more sensitive to swings in the exchange rate. Thus, control of inflation gave way to a beginning of an easing of monetary controls at mid-year.
Economic activity suffered the impact of the restrictive fiscal and monetary policies. The negative growth of the economy at 0.2% – the first decline in the GDP since 1992 –
was attenuated in the second half of the year, when the first signs of recovery were evident. The bases for a more solid growth in 2004 have, therefore, been established.
ANALYSIS OF RESULTS
Santander Banespa ended the 2003 fiscal period with a net profit of R$ 1,706 million, corresponding to a return on equity of 24.7%.
Shareholder Equity rose 30.3%, reaching R$ 7,816 million, positively impacted by two factors: profit over the period and the effects of the market value adjustment of
securities and real estate values and derivatives, the result of a reversal of prevailing negative expectations about the Brazilian economy in 2002.
Income from Financial Intermediation rose 5% to R$ 4,576 million, compared to the R$ 4,358 million in 2002. The increase was principally the result of the 18.8% decline
in provisions for the settlement of bad debt. The net financial margin, excluding the provision effect for bad debt, was in line with the previous year at 9.2% (9.1% in 2002).
74 SantanderBanespa
FinancialStatements
Deposits and investment funds and managed portfolios rose 20.7%, in the comparison with December 2002. The highlight in terms of capital injection was the strong
performance of investment funds, which rose 55.0% in the period, recovering the loss incurred in 2002 after introduction of the marking-to-market.
The Group’s Basel index ended the period at 18.1%, significantly higher than the 15.1% posted at the end of 2002.
R$ Million
Credit Operations 2003 2002 Variation
Credit Operations AA-C 15,079 13,483 11.8%
Credit Operations D-H 1,260 1,607 -21.6%
Credit Operations AA-C on the Portfolio Total 92.3% 89.4% -
Credit Operations D-H on the Portfolio Total 7.7% 10.6% -
Provision for Bad Debt 893 1,037 -13.9%
Coverage Index 70.9% 64.5% -
Provision on the Portfolio Total 5.5% 6.9% -
The expense base was expanded 4.4% compared to 2002, below the period’s inflation rate (9.3%, as per the IPCA). Personnel expenses fell 4.8%. In the case of
other administrative expenses, there was an increase on the order of 17.2%, principally the result of large investments in technology, in addition to the contracting
of consultants in order to establish and perfect processes. The electric energy and telecommunications rate readjustments, as well as the increase of leased branches
after the real estate sale auctions in 2002, also contributed for the growth in expenses.
The positive evolution of outserviced revenues and the effective management of the expenses base lead to an improvement in the recurrence index – an indicator
that measures the relation between services revenues and expenses – which went up from 44.8% in 2002 to 48.0% in 2003.
The other operating revenues (expenses) showed a decrease of approximately 125%, as a reflex of two factors: the non-repetition of the extraordinary revenue
booked in 2002 as a result of an agreement with the Brazilian Tax Authority – R$ 841 million – and the exchange loss of R$ 308 million in offshore investments,
recorded in 2003, as a consequence of the appreciation of the real in the period (before an exchange profit of R$ 532 million the previous year).
The total assets of Santander Banespa presented a growth of approximately 6.3% reaching R$ 58,940 million on December 31, 2003.
Credit Operations increased 8.3% in the year, totaling R$ 16,339 million. The sound performance of this portfolio came about principally due to the increase of
24.4% in credits destined to the Private Individuals segment.
The growth in these operations was followed by an improvement in the portfolio’s quality. The credits classified as AA-C went from 89.4% of the portfolio total on
December 31, 2002, to 92.3%, on December 31, 2003.
Such performance had a positive impact on the coverage index of the provision on credits D-H: 70.9% compared to 64.5% in 2002.
Service performance revenues increased 11.8%, with positive development in practically all modalities, as shown in the following table. Of note was the growth of fund
management revenues, with an increase 32% in compared to 2002.
R$ Million
Service Performance Revenues 2003 2002 Variation
Current Account Services 515 512 0.6%
Credit Operations 261 239 9.2%
Insurance 233 223 4.5%
Fund Administration 326 247 32.0%
Credit Cards 89 106 -16.0%
Billing 89 81 9.9%
Others 120 52 130.8%
TOTAL 1,633 1,460 11.8%
SantanderBanespa 75Financial
Statements
2003 2002 2001
INCOME AND SHAREHOLDERS’ EQUITY – R$ MILLION
Net Profit 1,706 2,736 1,298
Assets 58,940 55,462 57,577
Lending and Commercial Leasing 16,339 15,090 13,507
Customer Deposits 18,049 19,158 15,640
Investment Funds 23,017 14,852 15,356
Shareholders’ Equity 7,816 5,997 5,426
FINANCIAL INDICES
Return on Average Net Equity 24.7% 47.9% 26.9%
Return on Average Total Assets 3.0% 4.8% 2.3%
Recurrence (1) 48.0% 44.8% 32.1%
Efficiency (2) 53.2% 42.5% 67.1%
Loan Portfolio Quality (3) 92.3% 89.4% 88.4%
Solubility Coefficient (Basel Index) 18.1% 15.1% 14.7%
TIER I 18.1% 15.1% 14.7%
OTHER INFORMATION
Points-of-Sale 18,54 18,07 19,36
Number of 24hr Service Booths 7,382 7,553 7,506
(1) Income from Services Rendered / (Personnel Expenses – Profit Sharing + Other Administrative Expenses).
(2) (Personnel Expenses – Profit Sharing + Other Administrative Expenses) / (Income from Financial Intermediation + Loss Provisions + Income from ServicesRendered + Net Insurance and Private Pension Income + Other Income (Operating Expenses).
(3) Lending classified as AA-C / Total Portfolio.
76 SantanderBanespa
FinancialStatements
Santander Banespa – Pro FormaBalance Sheet – Quarterly Evolution (R$ thou)
Assets Dec 31, 2002 Mar 31, 2003 Jun 31, 2003 Sep 30, 2003 Dec 31, 2003
CURRENT AND LONG-TERM ASSETS 53,914,721 51,324,298 51,214,913 57,196,500 57,043,901
CASH AND CASH EQUIVALENTS 860,810 1,101,675 606,828 837,295 871,264
INTERBANK DEPOSITS 4,097,235 3,964,123 6,141,743 8,605,444 6,052,351
TITLES AND REAL ESTATE VALUES AND INSTRUMENTS 21,834,997 18,106,778 18,478,811 19,752,775 22,670,329
INTERBANK AND INTERBRANCH ACCOUNTS 3,201,265 3,948,521 3,918,571 3,622,190 3,331,165
INTERDEPENDENCE RELATIONS 11,128 4,535 10,099 2,210 1,571
CREDIT AND COMMERCIAL LEASING OPERATIONS 12,082,227 12,094,143 11,960,521 13,219,868 13,567,723
Credit Operations:
Public Sector 152,552 194,110 124,952 125,755 117,680
Private Sector 12,886,929 12,743,699 12,649,578 13,915,677 14,311,107
(Provision for Loan Losses) (957,254) (843,666) (814,009) (821,564) (861,064)
OTHER CREDITS 11,279,761 11,567,519 9,580,470 10,625,490 10,026,615
Credit for Honored Surety Bond and Security 126 124 38 39 42
Foreign Exchange Portfolio 4,402,057 4,660,840 2,111,710 3,172,826 3,297,116
Other receivables 62,382 56,429 48,151 50,846 63,895
Negotiation and Intermediation of Values 459,916 724,438 1,023,067 999,677 738,108
Specific Credits 1,336 1,337 186 10,985 6,737
Sundry Credits 6,433,226 6,197,307 6,454,209 6,422,216 5,952,500
(Provision for Other Doubtful Settlement Credits) (79,282) (72,956) (56,891) (31,099) (31,783)
OTHER VALUES AND ITEMS 547,298 537,004 517,870 531,228 522,883
FIXED 1,547,081 1,553,889 1,595,789 1,694,618 1,896,167
INVESTMENTS 75,669 76,846 85,888 87,700 82,312
USE FIXED ASSETS 663,793 617,876 573,306 626,968 670,042
DEFERRED 807,619 859,167 936,595 979,950 1,143,813
TOTAL ASSETS 55,461,802 52,878,187 52,810,702 58,891,118 58,940,068
SantanderBanespa 77Financial
Statements
Santander Banespa – Pro FormaBalance Sheet – Quarterly Evolution (R$ thou)
Liabilities Dec 31, 2002 Mar 31, 2003 Jun 30, 2003 Sep 30, 2003 Dec 31, 2003
CURRENT AND LONG-TERM LIABILITIES 49,291,158 45,443,605 45,043,696 50,500,748 50,890,638
DEPOSITS 19,157,593 18,821,934 18,119,354 16,692,533 18,049,266
Demand Deposits 3,455,086 2,926,457 2,982,379 3,095,531 3,675,795
Savings Account Deposits 4,234,695 4,236,148 4,147,511 4,166,601 4,194,538
Interbank Deposits 62,591 66,180 5,512 59,347 10,561
Time Deposits 11,405,221 11,593,149 10,983,952 9,371,054 10,168,372
OPEN MARKET FUNDING 5,802,465 1,927,679 3,635,588 7,747,592 7,724,370
FUNDS FROM ACCEPTANCES AND ISSUANCE OF SECURITIES 1,824,031 1,901,334 2,281,731 2,513,490 2,376,648
INTER-FINANCIAL RELATIONS 87,911 443,278 483,689 337,129 1,380
INTERDEPENDENCE RELATIONS 275,306 306,643 218,834 227,225 311,338
LOAN LIABILITIES 5,060,039 5,088,159 5,355,268 6,987,724 6,373,837
LOCAL ON-LENDING LIABILITIES – PUBLIC INSTITUTIONS 1,495,878 1,397,023 1,358,154 1,478,151 1,622,640
INSTRUMENTOS FINANCEIROS DERIVATIVOS 832,567 547,326 316,330 365,254 279,553
OTHER LIABILITIES 14,755,368 15,010,229 13,274,748 14,151,650 14,151,606
Billing and Collection of Taxes and Similar 21,819 135,089 123,239 138,354 34,046
Foreign Exchange Portfolio 3,278,223 3,354,121 1,067,231 1,927,474 1,984,640
Corporate and Statutory 97,579 80,218 493,572 58,027 143,360
Tax and Social Security 2,156,928 2,061,101 2,037,593 2,230,676 2,334,710
Negotiation and Intermediation of Values 429,040 622,946 941,958 922,615 585,838
Provision for Insurance Operations, Private Pension and Capitalization 623,427 756,325 848,041 1,074,167 1,466,336
Sundries 8,148,352 8,000,429 7,763,114 7,800,337 7,602,676
INCOME FROMFUTURE PERIODS 37,436 38,047 37,940 40,696 52,310
MINORITY INTERESTS 136,322 141,108 163,453 178,528 180,871
CONTROLLING SHAREHOLDER’S EQUITY 5,996,886 7,255,427 7,565,613 8,171,146 7,816,249
SHAREHOLDER’S EQUITY MANAGED BY THE CONTROLLER 6,133,208 7,396,535 7,729,066 8,349,674 7,997,120
TOTAL LIABILITIES 55,461,802 52,878,187 52,810,702 58,891,118 58,940,068
78 SantanderBanespa
FinancialStatements
Santander Banespa – Pro FormaStatement of Results – Quarterly Evolution (R$ thou)
2003
2002 1st quarter 2nd quarter 3rd quarter 4th quarter Period
FINANCIAL INTERMEDIATION REVENUES 13,156,930 2,240,846 1,966,055 2,506,636 2,378,287 9,091,824
Credit Operations 3,893,751 931,442 842,640 1,001,802 1,083,111 3,858,995
Commercial Leasing Operations 79,697 8,812 (131) 12,226 10,648 31,555
Result of Operations withTitles and Real Estate Values 10,596,748 746,218 275,378 1,217,440 940,460 3,179,496
Result with Derivative Financial Instruments (1,804,494) 277,195 575,200 154,373 202,790 1,209,558
Result from Exchange Operations 68,239 178,526 178,147 29,468 71,024 457,165
Result from Compulsory Applications 322,989 98,653 94,821 91,327 70,254 355,055
FINANCIAL INTERMEDIATION EXPENSES (8,798,930) (1,134,410) (895,089) (1,345,740) (1,140,567) (4,515,806)
Market Funding Operations (7,183,950) (982,738) (880,378) (1,133,655) (885,457) (3,882,228)
Loan and Re-pass Operations (972,077) (40,421) 88,014 (97,181) (61,617) (111,205)
Provision for Doubtful Credits Settlement (642,903) (111,251) (102,725) (114,904) (193,493) (522,373)
GROSS RESULT OF FINANCIAL INTERMEDIATION 4,358,000 1,106,436 1,070,966 1,160,896 1,237,720 4,576,018
OTHER OPERATING REVENUES (EXPENSES) (1,133,318) (403,958) (626,536) (695,449) (887,740) (2,613,683)
Service Performance Revenues 1,459,656 388,627 371,156 417,742 455,111 1,632,636
Result from Insurance, Private Pension and Capitalization 58,831 8,083 (34,051) (17,316) 293 (42,991)
Personnel Expenses (1,952,929) (403,610) (468,698) (459,778) (527,580) (1,859,666)
Other Administrative Expenses (1,399,930) (355,676) (365,204) (423,051) (496,627) (1,640,558)
Tax Expenses (513,384) (96,987) (84,729) (125,979) (144,704) (452,399)
Result from Participations in Affiliates and Associated Companies 54,889 1,372 39,613 2,210 1,765 44,960
Other Operating Revenues (Expenses) 1,159,549 54,233 (84,623) (89,277) (175,998) (295,665)
OPERATING RESULTS 3,224,682 702,478 444,430 465,447 349,980 1,962,335
NON-OPERATING RESULTS 168,210 15,176 20,148 11,665 (14,023) 32,966
RESULT PRIOR TO TAXATION ON PROFIT AND PARTICIPATIONS 3,392,892 717,654 464,578 477,112 335,957 1,995,301
Income Tax and Social Contribution (602,917) (122,601) (29,643) (42,966) (59,173) (254,383)
RESULT FOR THE PERIOD PRIOR TOMINORITY SHAREHOLDER PARTICIPATIONS 2,789,975 595,053 434,935 434,146 276,784 1,740,918
Minority Shareholders Participation (54,413) (9,311) (11,257) (9,733) (4,821) (35,122)
NET PROFIT 2,735,562 585,742 423,678 424,413 271,963 1,705,796
Pro formaFinancial Statements
80 SantanderBanespa
FinancialStatements
Santander Banespa GroupBalance Sheets (R$ thou)
Assets Dec 31, 2003 Dec 31, 2002
CURRENT AND NONCURRENT ASSETS 57,043,901 53,914,721
CASH 871,264 860,810
INTERBANK INVESTMENTS 6,052,351 4,097,235
Money Market Investments 5,139,908 2,675,457
Interbank Deposits 912,643 1,421,978
Allowance for Losses (200) (200)
SECURITIES AND DERIVATIVE FINANCIAL INSTRUMENTS 22,670,329 21,834,997
Own Portfolio 14,918,181 11,418,654
Subject to Resale Commitments 2,436,031 4,898,991
Linked to Central Bank of Brazil 1,921,603 2,233,820
Linked to Guarantees 2,643,776 2,177,862
Derivative Financial Instruments 750,738 1,105,670
INTERBANK ACCOUNTS 3,331,165 3,201,265
Payments and Receipts Pending Settlement 2,996 7,359
Restricted Deposits:
Central Bank of Brazil 3,289,753 3,160,329
National Housing System 34,379 32,323
Correspondents 4,037 1,254
INTERBRANCH ACCOUNTS 1,571 11,128
Third-party Funds in Transit 61 64
Internal Transfers of Funds 1,510 11,064
LENDING OPERATIONS 13,567,723 12,082,227
Public Sector 117,680 152,552
Private Sector 14,311,107 12,886,929
Allowance for Loan Losses (861,064) (957,254)
SantanderBanespa 81Financial
Statements
Assets Dec 31, 2003 Dec 31, 2002
OTHER RECEIVABLES 10,026,615 11,279,761
Receivables for Guarantees Honored 42 126
Foreign Exchange Portfolio 3,297,116 4,402,057
Income Receivable 63,895 62,382
Trading Account 738,108 459,916
Specific Receivables 6,737 1,336
Other 5,952,500 6,433,226
Allowance for Other Losses (31,783) (79,282)
OTHER ASSETS 522,883 547,298
Temporary Investments 274,865 316,375
Allowance for Losses (116) (21,818)
Other Assets 247,173 343,336
Allowance for Valuation (161,925) (208,894)
Prepaid Expenses 162,886 118,299
PERMANENT ASSETS 1,896,167 1,547,081
INVESTMENTS 82,312 75,669
Investments in Subsidiaries and Affiliates:
Domestic 12,366 9,115
Other Investments z 97,259 97,399
Allowance for Losses (27,313) (30,845)
PROPERTY AND EQUIPMENT IN USE 670,042 663,793
Real Estate 359,484 458,932
Other 991,653 830,155
Accumulated Depreciation (681,095) (625,294)
DEFERRED CHARGES 1,143,813 807,619
Organization and Expansion Costs 1,645,501 1,151,778
Accumulated Amortization (501,688) (344,159)
Total Assets 58,940,068 55,461,802
82 SantanderBanespa
FinancialStatements
Santander Banespa GroupBalance Sheets (R$ thou)
Liabilities Dec 31, 2003 Dec 31, 2002
CURRENT AND LONG-TERM LIABILITIES 50,890,638 49,291,158
DEPOSITS 18,049,266 19,157,593
Demand Deposits 3,675,795 3,455,086
Savings Deposits 4,194,538 4,234,695
Interbank Deposits 10,561 62,591
Time Deposits 10,168,372 11,405,221
MONEY MARKET FUNDING 7,724,370 5,802,465
Own Portfolio 2,402,815 4,551,342
Third Parties 5,321,555 1,251,123
FUNDS FROM ACCEPTANCE AND ISSUANCE OF SECURITIES 2,376,648 1,824,031
Mortgage Notes - 2
Securities Issued Abroad 2,376,648 1,824,029
INTERBANK ACCOUNTS 1,380 87,911
Receipts and Payments Pending Settlement 121 14
Interbank Onlendings - 83,837
Correspondents 1,259 4,060
INTERBRANCH ACCOUNTS 311,338 275,306
Third-party Funds in Transit 307,565 271,827
Internal Transfers of Funds 3,773 3,479
BORROWINGS 6,373,837 5,060,039
Foreign Borrowings 6,373,837 5,060,039
DOMESTIC ONLENDINGS – OFFICIAL INSTITUTIONS 1,622,640 1,495,878
National Treasury - 41
National Economic and Social Development Bank (BNDES) 500,701 516,443
Federal Savings and Loan Bank (CEF) 79,418 89,389
National Equipment Financing Authority (FINAME) 892,682 820,192
Other Institutions 149,839 69,813
DERIVATIVE FINANCIAL INSTRUMENTS 279,553 832,567
Derivative Financial Instruments 279,553 832,567
OTHER LIABILITIES 14,151,606 14,755,368
Collected Taxes and Other 34,046 21,819
Foreign Exchange Portfolio 1,984,640 3,278,223
Social and Statutory 143,360 97,579
Taxes and Social Security 2,334,710 2,156,928
Trading Account 585,838 429,040
Accruals for Insurance, Pension and Capitalization Plans 1,466,336 623,427
Other 7,602,676 8,148,352
DEFERRED INCOME 52,310 37,436
Deferred Income 52,310 37,436
MINORITY INTEREST 180,871 136,322
SHAREHOLDERS' EQUITY – CONTROLLING GROUP 7,816,249 5,996,886
CAPITAL: 5,402,009 5,413,290
Brazilian Residents 315,789 194,993
Foreign Residents 5,086,220 5,218,297
Capital Reserves 17,528 9,484
Revaluation Reserves 2,022 2,439
Profit Reserves 234,246 140,097
Adjustment to Market Value – Securities and Derivative Financial Instruments 73,641 (1,333,238)
Retained Earnings 2,086,803 1,764,814
STOCKHOLDERS' EQUITY MANAGED BY CONTROLLING GROUP 7,997,120 6,133,208
Total Liabilities and Shareholders' Equity 58,940,068 55,461,802
SantanderBanespa 83Financial
Statements
Santander Banespa GroupStatements of Income (R$ thou)
Dec 31, 2003 Dec 31, 2002
FINANCIAL INCOME 9,091,824 13,156,930
Lending Operations 3,858,995 3,893,751
Leasing Operations 31,555 79,697
Securities Transactions 3,179,496 10,596,748
Derivative Financial Instruments 1,209,558 (1,804,494)
Foreign Exchange Operations 457,165 68,239
Compulsory Investments 355,055 322,989
FINANCIAL EXPENSES (4,515,806) (8,798,930)
Funding Operations (3,882,228) (7,183,950)
Borrowings and Onlendings (111,205) (972,077)
Provision for Loan Losses (522,373) (642,903)
GROSS PROFIT FROM FINANCIAL OPERATIONS 4,576,018 4,358,000
OTHER OPERATING (EXPENSES) INCOME (2,613,683) (1,133,318)
Income from Services Rendered 1,632,636 1,459,656
Insurance and Pension Plans (42,991) 58,831
Personnel Expenses (1,859,666) (1,952,929)
Other Administrative Expenses (1,640,558) (1,399,930)
Tax Expenses (452,399) (513,384)
Equity in Subsidiaries and Affiliates 44,960 54,889
Other Operating Income 1,579,253 3,374,408
Other Operating Expenses (1,874,918) (2,214,859)
INCOME FROM OPERATIONS 1,962,335 3,224,682
Nonoperating Income 32,966 168,210
INCOME BEFORE TAXES ON INCOME 1,995,301 3,392,892
Income and Social Contribution Taxes (254,383) (602,917)
INCOME BEFORE MINORITY INTEREST 1,740,918 2,789,975
Minority Interest (35,122) (54,413)
Net Income 1,705,796 2,735,562
84 SantanderBanespa
FinancialStatements
Santander BanespaNotes to the Financial Statements for the Years Ended December 31, 2003 and 2002(Amounts in Thousands of Brazilian Reais – R$, Unless Otherwise Indicated)
1. OPERATIONS
Santander Banespa, controlled by Santander Central Hispano, operates through its financial institutions; its operations include commercial, foreign exchange,
investment, credit and financing, mortgage loan and leasing portfolios. Through affiliates, it also operates in the insurance, private pension plan and capitalization
markets. Transactions are conducted within the context of a group of financial institutions which operate on an integrated basis in the financial markets.
2. PRESENTATION OF FINANCIAL STATEMENTS
The pro forma financial statements have been prepared for the purpose of providing additional information on Santander Banespa and do not include the statements
of changes in shareholders’ equity and changes in financial position, nor the segregation between current and non-current long-term assets and liabilities.
The financial statements of Santander Banespa were prepared in accordance with instructions of the Central Bank of Brazil (Bacen) and accounting practices emanating
from Brazilian corporate law. The preparation of the consolidated financial statements considered not only the ownership control, as established by corporate law, but
also the effective operating control characterized by common administration or management or by operation in the market under the same branch name.
3. CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements include the accounts of domestic and foreign branches and subsidiaries. In consolidation, intercompany balances and transactions
were eliminated. Minority interest in subsidiaries’ net equity and results is presented separately.
Adjusted NetShareholders’ Total Income Ownership
Subsidiaries Equity Assets (Loss) %
FINANCIAL SECTOR
Banco Santander Brasil S.A. 1,589,198 28,926,998 22,049 95.97
Banco Santander S.A. 5,203,073 7,447,990 1,580,831 99.99
Banco do Estado de São Paulo S.A. – Banespa 4,756,675 30,807,049 1,746,997 98.18
Banco Santander Meridional S.A. 964,936 3,185,050 73,641 96.92
Santander Brasil S.A. Corretora de Câmbio e Valores Mobiliários 76,296 119,976 5,663 100.00
Banespa S.A. Corretora de Câmbio e Títulos 50,944 215,546 71,296 99.99
Santander Distribuidora de Títulos e Valores Mobiliários Ltda. 10,262 14,931 631 99.99
Santander Brasil Arrendamento Mercantil S.A. 47,704 265,153 5,491 99.99
Santander Banespa Companhia de Arrendamento Mercantil (1) 386,019 548,665 34,811 99.99
INSURANCE SECTOR
Santander Seguros S.A. 234,029 1,539,412 88,388 98.98
Santander Capitalização S.A. 55,669 321,402 47,011 100.00
Santander Brasil Investimentos e Serviços S.A. 108,426 124,899 9,715 100.00
Banespa S.A. – Serviços Técnicos, Administrativos e de Corretagem de Seguros – Baneser 93,430 325,119 231,565 99.99
OTHER SECTORS
Banco Santander Central Hispano S.A. - - 264 100.00
Santander de Negócios S.A. - - 2,184 100.00
Norchem Participações e Consultoria S.A. 24,262 90,709 4,680 50.00
Santander Asset Management Ltda. 46,066 54,225 32,693 100.00
Santander Brasil Participações e Empreendimentos S.A. 18,571 22,112 2,336 100.00
Santander Brasil Participações e Serviços Técnicos Ltda. 217,073 225,048 (43,996) 100.00
Santander Companhia Securitizadora de Créditos Financeiros 162,453 165,515 (108,426) 100.00
Universia Brasil S.A. 5,431 5,861 (3,570) 99.99
Bozano, Simonsen Uk Limited - - (52) 100.00
Bozano, Simonsen Latin American S.A. 138 138 (3) 99.99
AGRICULTURE SECTOR
Agropecuária Tapirapé S.A. 4,745 4,929 587 99.04
(1) Formerly Santander Leasing S.A. Arrendamento Mercantil.
SantanderBanespa 85Financial
Statements
4. MAIN ACCOUNTING PRACTICES
a) Results of Operations
Determined on accrual basis of accounting.
b) Assets and Liabilities
Stated at their realizable or settlement amounts, respectively, and include income, charges and monetary or exchange variations earned or incurred to the balance
sheet date, determined on a daily “pro rata” basis. When applicable, allowances for valuation are recorded to reflect market or realizable values. The allowance for
doubtful accounts is based on analyses of outstanding lending operations (past due and current), past experience, future expectations, and specific portfolio risks, as
well as on the risk assessment policy of management for recognition of allowances, including requirements under Bacen standards and instructions.
Securities
Securities are presented in accordance with the following recognition and accounting valuation criteria:
I – Trading securities.
II – Securities available for sale.
III – Held to maturity.
The “Trading securities” category includes securities acquired for the purpose of being actively and frequently traded. The “Securities available for sale” category
includes those which cannot be classified in categories I and III. The “Held to maturity” category includes those which the Bank intends to maintain in its portfolio
to maturity. Securities classified in categories I and II are stated at cost plus income earned to the balance sheet date, calculated on a daily “pro rata” basis, and,
when applicable, adjusted to market value, reflecting the increase or decrease arising from this adjustment in:
(1) the related income or expense account, in income for the period, when related to securities classified in the “Trading securities” category;
(2) separate caption in shareholders’ equity when related to securities classified in the “Securities available for sale” category, net of tax effects.
Securities classified in the “Held to maturity” category are stated at cost, plus income earned to the balance sheet date, calculated on a daily “pro rata” basis, and
recorded in income for the period; allowances for losses are recognized whenever there are permanent losses on the realizable value of these securities.
Derivative Financial instruments
Derivative financial instruments are recorded at their respective market values, reflecting the increase or decrease arising from this adjustment to market value in an
appropriate income or expense account, except for derivative instruments considered as hedge transactions which may be classified as follows:
I – Market risk hedge.
II – Cash flow hedge.
Derivative financial instruments for hedge transactions and the respective items subject to hedge are adjusted to market value, considering the following:
(1) for those classified in category I, the increase or decrease is recorded in income for the period;
(2) for those classified in category II, the increase or decrease is recorded in a separate caption in shareholders’ equity, net of tax effects.
c) Permanent Assets
Stated at cost and include:
c.1) Investments
Adjustments to investments in subsidiaries and affiliates are determined under the equity method of accounting and recorded as equity in subsidiaries and affiliates.
Other investments are stated at cost and reduced to market value, when applicable.
c.2) Property and equipment
Depreciation of property and equipment is determined under the straight-line method at the following annual rates: buildings – 4%, installations, furniture,
equipment in use, communication and security systems – 10%, and data processing systems and vehicles – 20%.
c.3) Deferred charges
Costs classified under deferred charges are amortized over a maximum period of 5 years when applicable to the acquisition and development of software, and 10 years
for other costs, considering the benefit period of the expense and the terms of rental contracts.
Goodwill on the acquisition of investments is being amortized over ten years, based on the expectation of future income. For Banco Santander Brasil S.A., goodwill
totaled R$ 252,043 (2002 – R$ 312,054), net of amortization. R$ 60,411 (2002 – R$ 34,241) was charged to income as amortization for the year. For Banco Santander
Meridional S.A. and Banco do Estado de São Paulo S.A., goodwill from the merger and the reserve for maintenance of the merging company’s shareholders’ equity
amounted to R$ 643,960 and R$ 4,523,109 (2002 – R$ 729,415 and R$ 5,419,051), respectively. The amount realized in the year was R$ 85,455 (2002 – R$ 31,778)
for Banco Santander Meridional S.A. and R$ 895,942 (2002 – R$ 1,492,414) for Banco do Estado de São Paulo S.A.
86 SantanderBanespa
FinancialStatements
d) Income Tax and Social Contribution
Income tax is calculated at the rate of 15% plus a 10% surcharge; social contribution is calculated at the rate of 9%, after adjustments determined by tax legislation.
As provided for by Bacen Circular Nº 3,171 of December 31, 2002, CVM (Brazilian Securities Commission) Resolution Nº 273 of August 20, 1998, and CVM Instruction Nº 371
of June 27, 2002, the Bank’s expected realization of tax credits, shown in note 12, is based on the projection of future results and is supported by a technical study.
5. OPERATING RATIOS
a) Basel Agreement (Operating Limit)
Brazilian financial institutions are required to maintain shareholders’ equity commensurate with their asset exposure risk, weighted by factors varying from 0 to 300%,
and an equity-weighted asset ratio of at least 11%, in accordance with CMN (National Monetary Council) Resolution Nº 2,099/94 and supplementary instructions.
This ratio is determined on a consolidated basis. As of December 31, 2003, the Santander Banespa in Brazil, represented by Banco Santander Brasil S.A. as the lead
institution, is in compliance with the aforementioned limit, with an equity-weighted asset ratio of 18.08 % (15.08% in 2002).
Operating (1)
Risk-weighted Assets 2003 2002
RISK-WEIGHTED FACTOR:
Reduced Risk: 20% 112,297 116,959
Reduced Risk: 50% 2,749,897 3,936,654
Normal Risk: 100% 23,701,751 20,732,820
Normal Risk: 300% 9,599,765 10,793,418
TOTAL RISK-WEIGHTED ASSETS 36,163,710 35,579,851
BASEL AGREEMENT RATE X 11% X 11%
3,978,008 3,913,784
Credit Risk – Swaps 101,171 45,178
Foreign Exchange Risk 264,675 -
Fixed Interest Rate Risk 338,688 357,227
REQUIRED SHAREHOLDERS’ EQUITY 4,682,542 4,316,189
ADJUSTED SHAREHOLDERS’ EQUITY 7,695,466 5,919,374
MARGIN 3,012,924 1,603,185
RATIO 18.08 15.08
(1) Ratio calculated based on consolidated financial statements of Group’s financial institutions.
b) Fixed Assets to Equity Ratio
Brazilian financial institutions are required to maintain shareholders’ equity commensurate with their investments in permanent assets. The fixed assets to equity ratio
cannot exceed 50% of shareholders’ equity, adjusted pursuant to prevailing regulations. As of December 31, 2003, Santander Banespa is in compliance with the
aforementioned ratio, with a fixed assets to equity ratio of 29.23% (2002 – 32.14%).
6. INTERBANK INVESTMENTS
Up to From 3 to Over3 Months 12 Months 12 Months 2003 2002
MONEY MARKET INVESTMENTS 5,139,908 - - 5,139,908 2,675,457
OWN PORTFOLIO 372,787 - - 372,787 1,358,596
Treasury Bills 94,414 - - 94,414 1,089,581
National Treasury Notes 8,800 - - 8,800 -
Central Bank Notes 34,735 - - 34,735 239,009
Securities Issued Abroad by the Brazilian Government – Brady Bonds 234,838 - - 234,838 30,006
THIRD-PARTY PORTFOLIO 4,767,121 - - 4,767,121 1,316,861
Treasury Bills 2,275,257 - - 2,275,257 66,076
National Treasury Bills 1,926,359 - - 1,926,359 1,250,735
National Treasury Notes - - - - 50
Central Bank Notes 565,505 - - 565,505 -
INTERBANK DEPOSITS 740,475 71,115 28,396 839,986 683,210
FOREIGN-CURRENCY INVESTMENTS 72,657 - - 72,657 738,768
ALLOWANCE FOR LOSSES - - (200) (200) (200)
INTERBANK INVESTMENTS 5,953,040 71,115 28,196 6,052,351 4,097,235
SantanderBanespa 87Financial
Statements
7. SECURITIES
2003 2002
Effect of AdjustmentAdjustment to to Market Value on: Book Book
Summary Cost Market Value Income Equity Value Value
GOVERNMENT SECURITIES 16,534,925 522,898 12,369 510,529 17,057,823 17,529,534
National Treasury Bonds 10,844 3,139 - 3,139 13,983 14,858
Brady Bonds 37,602 1,906 1,906 - 39,508 126,646
Treasury Certificates 1,747,862 36,316 - 36,316 1,784,178 2,005,426
Securitized Credit 203,412 4,016 - 4,016 207,428 242,761
National Treasury Bills 2,181,315 34,869 52 34,817 2,216,184 10,373
Treasury Bills 1,359,425 3,392 1,815 1,577 1,362,817 626,284
Central Bank Notes 3,865,327 324,372 5,378 318,994 4,189,699 8,152,383
National Treasury Notes NTN C 6,461,103 38,917 148 38,769 6,500,020 5,400,058
National Treasury Notes NTN D 648,606 76,500 3,070 73,430 725,106 926,268
National Treasury Notes NTN P 68 (22) - (22) 46 62
Samurai Bonds 19,158 (507) - (507) 18,651 22,764
Agricultural Debt Securities 203 - - - 203 1,651
PRIVATE SECURITIES 4,987,330 (125,562) 139,713 (265,275) 4,861,768 3,199,793
Shares 1,270,507 (129,736) 135,942 (265,678) 1,140,771 811,473
Bank Deposit Certificates 53,120 - - - 53,120 38,812
Investment Fund Quotas 2,583,687 - - - 2,583,687 1,645,691
Debentures 466,845 (16) - (16) 466,829 463,450
Eurobonds 150,662 3,771 3,771 - 154,433 31,559
Real Estate Bonds 67,003 - - - 67,003 -
Mortgage Notes 321,851 - - - 321,851 186,712
Other 73,655 419 - 419 74,074 22,096
TOTAL 21,522,255 397,336 152,082 245,254 21,919,591 20,729,327
DERIVATIVES (ASSETS) 946,402 (195,664) (195,664) - 750,738 1,105,670
Call Option Premiums 136,308 (77,534) (77,534) - 58,774 125,665
Swap Differentials Receivable 808,746 (118,130) (118,130) - 690,616 934,197
Forward Purchases Receivable 1,348 - - - 1,348 45,808
TOTAL 22,468,657 201,672 (43,582) 245,254 22,670,329 21,834,997
DERIVATIVES (LIABILITIES) (442,205) 162,652 188,801 (26,149) (279,553) 832,567
Put option Premiums (214,683) 141,399 141,399 - (73,284) 273,633
Swap Differential Payable (218,386) 21,253 47,402 (26,149) (197,133) 532,273
Forward Purchases Payable (9,136) - - - (9,136) 26,661
88 SantanderBanespa
FinancialStatements
Without Up to From 3 to Over Composition by Maturity Maturity 3 Months 12 Months 12 Months Total
GOVERNMENT SECURITIES - 162,511 2,077,692 14,817,620 17,057,823
National Treasury Bonds - 1,703 1,645 10,635 13,983
Brady Bonds - - - 39,508 39,508
Treasury Certificates - 132,587 350,906 1,300,685 1,784,178
Securitized Credit - - 16,152 191,276 207,428
National Treasury Bills - - 6,128 2,210,056 2,216,184
Treasury Bills - 10,685 546,253 805,879 1,362,817
Central Bank Notes - 17,536 1,111,407 3,060,756 4,189,699
National Treasury Notes NTN C - - - 6,500,020 6,500,020
National Treasury Notes NTN D - - 45,165 679,941 725,106
National Treasury Notes NTN P - - - 46 46
Samurai Bonds - - - 18,651 18,651
Agricultural Debt Securities - - 36 167 203
PRIVATE SECURITIES 3,724,458 127,327 468,017 541,966 4,861,768
Shares 1,140,771 - - - 1,140,771
Bank Deposit Certificates - - 7,900 45,220 53,120
Investment Fund Quotas 2,583,687 - - - 2,583,687
Debentures - - 208,697 258,132 466,829
Eurobonds - - 2,994 151,439 154,433
Real Estate Bonds - - - 67,003 67,003
Mortgage Notes - 114,384 187,295 20,172 321,851
Other - 12,943 61,131 - 74,074
TOTAL SECURITIES 3,724,458 289,838 2,545,709 15,359,586 21,919,591
2003 2002Effect of Adjustment to
Adjustment to Market Value: Book Book Categories Cost Market Value Income Equity Value Value
Trading Securities 4,942,124 152,083 152,083 - 5,094,207 2,967,481
Securities Available for Sale 10,279,744 245,255 - 245,255 10,524,999 11,957,936
Held to Maturity 6,300,385 - - - 6,300,385 5,803,910
TOTAL SECURITIES 21,522,253 397,338 152,083 245,255 21,919,591 20,729,327
Adjustment to Market Value Book Without Up to From 3 to Over
Trading Securities Cost (Income) Value Maturity 3 Months 12 Months 12 Months
GOVERNMENT SECURITIES 1,745,960 12,370 1,758,330 - 3,781 585,446 1,169,103
Brady Bonds 37,602 1,906 39,508 - - - 39,508
National Treasury Bills 71,665 52 71,717 - - 6,128 65,589
Treasury Bills 1,115,233 1,815 1,117,048 - 3,781 497,213 616,054
Central Bank Notes 198,061 5,378 203,439 - - 55,098 148,341
National Treasury Notes NTN C 265,422 148 265,570 - - - 265,570
National Treasury Notes NTN D 57,977 3,071 61,048 - - 27,007 34,041
PRIVATE SECURITIES 3,196,164 139,713 3,335,877 3,184,801 - - 151,076
Shares (2) 465,172 135,942 601,114 601,114 - - -
Investment Fund Quotas 2,583,687 - 2,583,687 2,583,687 - - -
Eurobonds 142,617 3,771 146,388 - - - 146,388
Mortgage Notes 4,688 - 4,688 - - - 4,688
TOTAL 4,942,124 152,083 5,094,207 3,184,801 3,781 585,446 1,320,179
SantanderBanespa 89Financial
Statements
Adjustment to Market Value Book Without Up to From 3 to Over
Securities Available for Sale Cost (Income) Value Maturity 3 Months 12 Months 12 Months
GOVERNMENT SECURITIES 8,541,702 510,529 9,052,231 - 158,180 1,342,646 7,551,405
National Treasury Bonds 10,844 3,139 13,983 - 1,703 1,645 10,635
Treasury Certificates (1) 943,757 36,316 980,073 - 132,036 201,306 646,731
Securitized Credit 203,413 4,016 207,429 - - 16,152 191,277
National Treasury Bills 2,109,650 34,817 2,144,467 - - - 2,144,467
Treasury Bills 244,192 1,577 245,769 - 6,905 49,040 189,824
Central Bank Notes 3,667,267 318,994 3,986,261 - 17,536 1,056,309 2,912,416
National Treasury Notes NTN C 752,522 38,769 791,291 - - - 791,291
National Treasury Notes NTN D 590,628 73,430 664,058 - - 18,158 645,900
National Treasury Notes NTN P 68 (22) 46 - - - 46
Samurai Bonds 19,158 (507) 18,651 - - - 18,651
Agricultural Debt Securities 203 - 203 - - 36 167
PRIVATE SECURITIES 1,738,042 (265,274) 1,472,768 539,657 127,326 460,117 345,668
Shares (2) 805,335 (265,678) 539,657 539,657 - - -
Debentures 466,844 (16) 466,828 - - 208,697 258,131
Eurobonds 8,045 - 8,045 - - 2,994 5,051
Real Estate Bonds 67,003 - 67,003 - - - 67,003
Mortgage Notes 317,162 - 317,162 - 114,384 187,295 15,483
Other 73,653 420 74,073 - 12,942 61,131 -
TOTAL 10,279,744 245,255 10,524,999 539,657 285,506 1,802,763 7,897,073
Without Up to From 3 to OverHeld to Maturity Cost Maturity 3 Months 12 Months 12 Months
GOVERNMENT SECURITIES 6,247,265 - 551 149,599 6,097,115
Treasury Certificates 804,105 - 551 149,599 653,955
National Treasury Notes NTN C (3) 5,443,160 - - - 5,443,160
PRIVATE SECURITIES 53,120 - - 7,900 45,220
Bank Deposit Certificates 53,120 - - 7,900 45,220
TOTAL 6,300,385 - 551 157,499 6,142,335
(1) The Treasury certificates are held in custody of the Clearinghouse for the Custody and Financial Settlement of Securities (CETIP) and are restated based on thedomestic general price index (IGP-DI) plus interest of 12% per year.
(2) Refers principally to shares of CESP – Cia Energética de São Paulo – R$ 253,779 (R$ 135,061 in 2002) and AES Tietê S.A. – R$ 265,592 (R$ 244,181 in 2002).
(3) Restated based on the general market price index (IGP-M) plus interest of 12% per year, paid semiannually, maturing to January 1, 2031.
Market value of securities is computed based on the average quotation on organized markets and their estimated cash flows, discounted to present value using
applicable interest rate curves which are considered representative of market conditions at balance sheet date.
The principal interest rate curves are obtained from futures and swap contracts traded on the Commodities and Futures Exchange (BM&F). Adjustments to these
curves are made whenever certain points are considered illiquid or when due to unusual reasons they do not fairly represent market conditions.
8. INTERBANK ACCOUNTS
Balance is composed of “Payments and receipts pending settlement”, represented basically by checks and other documents sent to clearinghouses (assets and liabilities)
and by restricted deposits with Bacen to cover compulsory obligations for demand deposits, savings deposits, time deposits and foreign exchange transactions.
90 SantanderBanespa
FinancialStatements
9. CREDIT PORTFOLIO AND ALLOWANCE FOR LOSSES
a) Composition of Credit Portfolio
2003 2002
COMPOSITION OF CREDIT PORTFOLIO 16,339,163 15,089,566
LENDING OPERATIONS 14,026,308 12,497,171
Loans and Discounted Receivables 6,480,880 6,191,194
Financing 5,168,586 4,163,540
Rural, Agricultural and Industrial Financing 1,586,177 1,345,007
Real Estate Financing 725,281 745,975
Securities Financing 19,855 -
Infrastructure and Development Financing 45,529 51,455
LEASING OPERATIONS 402,479 542,310
ADVANCES ON FOREIGN EXCHANGE CONTRACTS (1) 1,322,032 1,718,913
OTHER RECEIVABLES (2) 588,344 331,172
(1) Classified as a reduction of “Other liabilities”.
(2) Include receivables for guarantees honored, debtors for purchase of assets, notes and credits receivable, and income receivable from advances on foreignexchange contracts.
b) Composition by Business Sector
2003 2002
COMPOSITION BY BUSINESS SECTOR 16,339,163 15,089,566
PRIVATE SECTOR 16,221,483 14,875,812
Industrial 3,873,622 4,400,886
Commercial 1,671,089 1,646,912
Financial Institutions 355,364 38,426
Services and Other 3,046,011 2,708,902
Individuals 4,963,525 3,989,697
Housing 725,695 747,146
Rural 1,586,177 1,343,843
PUBLIC SECTOR 117,680 213,754
Federal 72,127 98,522
State 1 61,216
Municipal 45,552 54,016
c) Changes in Allowance for Doubtful Accounts
2003 2002
BALANCES JANUARY 1 1,036,536 1,111,137
Allowances Recognized 522,373 642,903
Transfer Due to Merger (25,376) 15,224
Write-offs (640,967) (773,321)
Other Changes 281 40,593
BALANCES DECEMBER 31 892,847 1,036,536
RECOVERIES 403,296 178,102
SantanderBanespa 91Financial
Statements
d) Classification of Credit Portfolio by Risk Level and Respective Allowance for Doubtful Accounts (CMN Resolution Nº 2,682/99).
Balance Allowance RequiredMinimum Allowance 2003 2002
Risk Level Required (%) Current Past Due Total Total 2003 2002
AA - 7,469,067 - 7,469,067 6,759,031 - -
A 0.5 6,693,792 - 6,693,792 5,536,201 33,469 27,681
B 1 474,298 163,729 638,027 905,588 6,380 9,056
C 3 145,809 132,758 278,567 281,636 8,357 8,449
D 10 194,125 115,836 309,961 513,718 30,996 51,372
E 30 34,415 82,102 116,517 169,941 34,955 50,982
F 50 19,264 49,493 67,757 84,237 33,879 42,119
G 70 32,740 41,659 74,399 121,229 52,079 84,860
H 100 198,585 492,491 691,076 717,985 691,076 717,985
TOTAL 15,262,095 1,078,068 16,339,163 15,089,566 891,191 992,504
ADDITIONAL ALLOWANCE 1,656 44,032
ALLOWANCE 892,847 1,036,536
10. FOREIGN EXCHANGE PORTFOLIO
2003 2002
ASSETS 3,297,116 4,402,057
Exchange Purchased Pending Settlement 2,278,325 2,999,715
Rights to Foreign Exchange Sold 1,027,313 2,207,725
Advances in Foreign Currencies - (656,767)
Advances in Local Currency (37,861) (186,538)
Term Bills in Foreign Currency 2,886 545
Income Receivable from Advances 26,091 37,330
Income Receivable from Import Financing 362 47
LIABILITIES 1,984,640 3,278,223
Exchange Sold Pending Settlement 1,026,523 2,132,029
Foreign Exchange Purchased 2,289,863 2,915,412
Advances in Foreign Currencies - (60,052)
Liabilities for Sales Made 1,329 1,915
Advances on Foreign Exchange Contracts (1,336,472) (1,718,913)
Payables in Foreign Currency 3,397 7,573
Income Unearned from Advances - 259
MEMORANDUM ACCOUNTS
Open Import Credits 155,001 105,475
Confirmed Export Credits 35,599 8,064
92 SantanderBanespa
FinancialStatements
11. TRADING ACCOUNT
2003 2002
ASSETS 738,108 459,916
Stock Exchanges – Guarantee Deposits 503,825 361,064
Clearinghouse Transactions 6,505 1,227
Debtors Pending Settlement (1) 54,864 36,133
Transactions Pending Settlement 172,429 39,070
Third-party Interbank Investments for Redemption - 97
Other 485 22,325
LIABILITIES 585,838 429,040
Clearinghouse Transactions 13,552 1,302
Commissions and Brokerage Fees Payable 2,486 1,857
Creditors Pending Settlement (1) 51,185 25,836
Transactions Pending Settlement 124,267 90,448
Creditors for Loan of Shares 394,244 309,594
Other 104 3
(1) Receivables (payables) arising from the purchase (sale) of financial assets.
12. OTHER RECEIVABLES
2003 2002
OTHER RECEIVABLES – OTHER 5,952,500 6,433,226
Tax Credits (1) 3,263,512 3,688,668
Recoverable Income and Social Contribution Taxes 381,933 350,129
Salary Advances/Other 21,871 22,052
Sundry Advances/Other 26,111 20,466
Receivables from Export Contracts 62,921 50,293
Debtors for Purchase of Assets 165,491 135,542
Escrow Deposits for:
Tax Appeals 762,059 1,163,185
Labor Appeals 490,720 377,194
Other 124,859 107,686
Tax Incentive Options 33,168 17,426
Reimbursable Payments 35,870 39,947
Notes and Credits Receivable 490,356 389,055
Other Foreign Debtors 7,776 7,078
Other Local Debtors 85,853 64,505
SantanderBanespa 93Financial
Statements
Detailed information on tax credits:
Balance as of Balance as ofI – Nature and Origin of Recorded Tax Credits 12/31/2002 Recognition Realization 12/31/2003
Allowance for Loan Losses 594,806 131,283 (113,154) 612,935
Reserve for Civil Contingencies 169,408 25,151 (78,531) 116,028
Reserve for Tax Contingencies 316,409 96,699 (42,926) 370,182
Reserve for Labor Contingencies 580,792 45,273 (100,551) 525,514
Reserve for Maintenance of Shareholders’ Equity 2,090,478 - (333,675) 1,756,803
Adjustment to Market Value of Trading Securities and Derivative Financial Instruments 246,160 13,435 (124,392) 135,203
Accrual for Supplementary Pension Plan 883,378 - (23,913) 859,465
Other Temporary Differences 408,863 99,835 (202,347) 306,351
TOTAL TAX CREDITS ON TEMPORARY DIFFERENCES 5,290,294 411,676 (1,019,489) 4,682,481
Tax Loss Carryforwards 301,301 8,754 (54,865) 255,190
Social Contribution Tax – Executive Act Nº 2,158-35 (08/24/2001) 810,820 - (14,602) 796,218
SUBTOTAL TAX CREDITS 6,402,415 420,430 (1,088,956) 5,733,889
Adjustment to Market Value of Securities Available for Sale and Derivative Financial Instruments 691,925 386 (528,494) 163,817
Total Tax Credits 7,094,340 420,816 (1,617,450) 5,897,706
Reserve for Realization (3,405,671) (206,264) 977,741 (2,634,194)
Tax Credits, Net 3,688,669 214,552 (639,709) 3,263,512
Reserve for realization is recognized and adjusted based on expected realization of these credits and respective total present value, as shown below:
II – Expected Realization of Recorded Tax Credits
Temporary Temporary Tax loss Year Additions IRPJ Additions CSLL Carryforwards CSLL 18% Total
2004 607,034 204,258 17,440 6,862 835,594
2005 516,855 169,247 30,119 11,858 728,079
2006 548,026 181,941 38,301 12,964 781,232
2007 502,841 169,463 147,739 32,895 852,938
2008 503,265 184,049 16,758 24,965 729,037
2009 to 2011 144,166 38,547 1,212 177,281 361,206
2012 to 2013 68,258 6,848 - 260,097 335,203
2014 to 2016 116,307 14,559 2,173 201,318 334,357
2017 to 2018 77,537 9,707 1,448 67,978 156,670
after 2018 551,629 67,944 - - 619,573
TOTAL 3,635,918 1,046,563 255,190 796,218 5,733,889
IRPJ – Corporate Income Tax
CSLL – Social Contribution Tax
III – Present Value of Tax Credits
Present value of the total tax credits is R$ 3,657,527. Present value was calculated taking into account the expected realization of temporary differences, tax loss carryforwards,
and social contribution tax at the rate of 18% (Executive Act Nº 2,158/01), based on the average interbank deposit (CDI) rate projected for the corresponding periods.
94 SantanderBanespa
FinancialStatements
IV – Nature and Origin of Deferred Tax Liabilities
Balance as of Balance as of12/31/2002 Recognition Realization 12/31/2003
Adjustment to Market Value of Trading Securities and Derivative Financial Instruments 198,361 12,274 (60,985) 149,650
Adjustment to Market Value of Securities Available for Sale and Derivative Financial Instruments 64,318 130,932 (54,245) 141,005
Deferred Income Tax and Social Contribution 40,102 9,158 (5,034) 44,226
Excess Depreciation of Leased Assets 48,938 - (34,121) 14,817
Others 9,271 - (3,690) 5,581
TOTAL DEFERRED TAX LIABILITIES 360,990 152,364 (158,075) 355,279
13. FUNDING AND BORROWINGS AND ONLENDINGS
2003 2002
Without Up to From 3 to OverMaturity 3 Months 12 Months 12 Months Total Total
Deposits 8,866,303 3,774,435 2,908,321 2,500,207 18,049,266 19,157,593
Money Market Funding - 7,724,370 - - 7,724,370 5,802,465
Securities Issued Abroad - 163,774 748,757 1,464,117 2,376,648 1,824,031
Borrowings and Onlendings - 1,799,127 4,194,870 2,002,480 7,996,477 6,555,917
TOTAL 8,866,303 13,461,706 7,851,948 5,966,804 36,146,761 33,340,006
2003 2002
Without Up to From 3 to Overa) Deposits Maturity 3 Months 12 Months 12 Months Total Total
Demand Deposits 3,675,795 - - - 3,675,795 3,455,086
Savings Deposits 4,194,538 - - - 4,194,538 4,234,695
Interbank Deposits - 3,866 4,296 2,399 10,561 62,591
Time Deposits 995,970 3,770,569 2,904,025 2,497,808 10,168,372 11,405,221
TOTAL 8,866,303 3,774,435 2,908,321 2,500,207 18,049,266 19,157,593
2003 2002
Without Up to From 3 to Overb) Money Market Funding Maturity 3 Months 12 Months 12 Months Total Total
Own Portfolio - 2,402,815 - - 2,402,815 4,551,342
Third Parties - 5,321,555 - - 5,321,555 1,251,123
TOTAL - 7,724,370 - - 7,724,370 5,802,465
c) Securities Issued Abroad
Represented by funds obtained from the placement of securities (Eurobonds) abroad, for local investment, with maturities through 2005, and subject to financial
charges ranging from 5.25% to 10.37% per year (2002 – financial charges ranging from 8.26% to 10.67% per year).
SantanderBanespa 95Financial
Statements
d) Borrowings and Onlendings
2003 2002
Without Up to From 3 to OverMaturity 3 Months 12 Months 12 Months Total Total
Foreign Borrowings - 1,634,982 3,850,604 888,251 6,373,837 5,060,039
Domestic Onlendings - 164,145 344,266 1,114,229 1,622,640 1,495,878
TOTAL - 1,799,127 4,194,870 2,002,480 7,996,477 6,555,917
2003 2002
FOREIGN BORROWINGS 6,373,837 5,060,039
Export 1,190,690 913,055
Import 1,543,184 1,126,034
Other Credit Lines 110,934 168,615
Other Liabilities – Floating Rates 161,393 163,548
Foreign Loans 3,367,636 2,688,787
Foreign borrowings are represented by funds obtained from foreign banks for application in foreign exchange operations for the purchase and sale of foreign
currencies, related to discount of export invoices, prefinancing of exports and imports, and other loans, maturing up to 2017 (2002 – maturing up to 2007) and
subject to financial charges, equivalent to exchange variation plus interest ranging from 1.00 % to 9.70% per year (2.19% to 8.68% per year in 2002).
14. OTHER ACCOUNTS
a) Other Assets
Refer principally to assets not in use, composed of real estate and vehicles received in settlement of debts in the amount of R$80,452 (2002 – R$ 130,105), net of
allowance for valuation, prepaid expenses in amount of R$ 162,866 (2002 – R$ 118,299) and temporary investments of R$ 274,749 (2002 – R$ 294,557).
Temporary investments refers principally to equity investment in Bozano, Simonsen Centros Comerciais S.A. carried at cost, in amount of R$ 274,748 (2002 – R$ 274,748),
transferred from permanent assets – investments, due to a contractual commitment for realization at cost.
b) Other Liabilities – Other
2003 2002
OTHER LIABILITIES – MISCELLANEOUS 7,602,675 8,148,352
Cashiers’ Checks 4,840 4,131
Creditors for Unreleased Funds 16,038 8,071
Debt Assumption Agreements 16,679 50,678
Payables for Acquisition of Assets and Rights 182,943 159,714
Liabilities Under Government Agreements 34,874 34,426
Payables for Collection of Services Rendered 4,634 3,184
Accruals (Vacation and Other) 400,658 472,053
Reserve for Other Contingent Liabilities (1) 585,724 935,939
Reserve for Labor Contingencies (2) 1,583,325 1,744,136
Retirement Benefit Plan (Note17) 3,968,811 4,061,076
Pension Plan (Note 17) 110,274 109,568
FGTS for Amortization 3,382 2,060
Other Foreign Creditors 32 8,383
Other Local Creditors 690,461 554,933
Reserves for civil and labor contingencies are determined based on an analysis of each pending issue and on the opinion of legal counsel and specialized technical
advisors; reserves are considered sufficient to cover possible losses arising from judicial decisions.
(1) Refers principally to civil contingencies. Most lawsuits in which Santander Banespa is a defendant refer to the review of contracts involving bank transactions and
indemnities for property damages and pain and suffering.
(2) The most recurring claims refer to overtime and the respective effects, and differences in supplementary pension benefits.
96 SantanderBanespa
FinancialStatements
c) Other Liabilities – Accruals for Insurance, Pension and Capitalization Plans
2003 2002
OTHER LIABILITIES – ACCRUALS FOR INSURANCE, PENSION AND CAPITALIZATION PLANS 1,466,336 623,427
Unearned Premiums 12,311 5,763
Unexpired Risks 416 309
Risk Fluctuation 531 200
Unvested Benefits 1,155,427 469,376
Vested Benefits 906 467
Unsettled Claims 29,678 25,277
Social Security Contributions 1,801 1,024
Insurance 28,747 19,259
Retrocession 389 462
Capitalization Securities Past-due - 658
Capitalization Securities – Demand 56,056 20,391
Capitalization Securities – Time 180,074 80,241
d) Other Liabilities – Taxes and Social Security
2003 2002
OTHER LIABILITIES – TAXES AND SOCIAL SECURITY 2,334,710 2,156,928
Taxes Payable 209,419 132,574
Reserve for Tax Contingencies (1) 1,731,881 1,632,570
Accrued Taxes on Income 38,131 30,794
Deferred Income Tax 355,279 360,990
Reserves for tax contingences are determined based on an analysis of each pending issue and on the opinion of legal counsel and specialized technical advisors; the
reserves are considered sufficient to cover possible losses arising from judicial decisions.
(1) Represented basically by income and social contribution taxes not paid under temporary injunctions.
e) Income from Services Rendered
2003 2002
INCOME FROM SERVICES RENDERED 1,632,636 1,459,656
Checking Account Services 514,518 511,849
Lending Operations 261,459 238,694
Insurance 232,809 222,836
Fund Management Income 325,522 246,841
Collection Charges 89,265 81,263
Credit Cards 89,002 105,608
Brokerage on Stock Exchange Transactions 36,577 22,341
Income from Guarantees Provided 34,501 19,340
Other 48,983 10,884
f) Personnel Expenses
2003 2002
PERSONNEL EXPENSES 1,859,666 1,952,929
Compensation 1,080,456 1,298,230
Payroll Charges 515,172 384,355
Benefits 218,173 247,790
Training 36,573 19,904
Other 9,292 2,650
SantanderBanespa 97Financial
Statements
g) Other Administrative Expenses
2003 2002
OTHER ADMINISTRATIVE EXPENSES 1,640,558 1,399,930
Depreciation and Amortization 335,531 252,878
Financial System Services 51,504 44,731
Outside Services 451,059 358,295
Advertising and Publicity 32,098 66,910
Rentals 107,366 74,748
Communications 163,203 125,663
Transportation and Travel 100,181 76,871
Data Processing 117,205 141,955
Utilities 47,184 37,872
Supplies 18,702 15,076
Security Services 64,632 54,506
Asset Maintenance 56,046 48,390
Promotion and Public Relations 38,658 39,779
Other 57,189 62,256
h) Other Operating Income
2003 2002
OTHER OPERATING INCOME 1,579,253 3,374,408
Restatement of Escrow Deposits (1) 158,943 655,361
Restatement of Recoverable Taxes 15,585 29,515
Dividends and Bonuses 3,467 2,590
Interest Received 129,061 48,168
Recovery of Charges and Expenses 141,823 131,676
Income from Specific Credits 5,485 15,545
Income from Purchase of Assets 28,812 5,745
Reversal of Operating Accruals (2) 1,019,352 1,650,943
Exchange Variation 17,482 596,635
Monetary Variations on Assets 20,543 150,382
Other 38,700 87,848
(1) In 2002, the balance includes R$ 544,387 related to restatement of escrow deposits on the contingency regarding tax deductibility of supplementary pensionplan liabilities.
(2) In 2002, the balance includes R$ 841,371 related to charges on a tax assessment for to the supplementary pension plan, eliminated under the provisions ofExecutive Act Nº 66.
98 SantanderBanespa
FinancialStatements
i) Other Operating Expenses
2003 2002
OTHER OPERATING EXPENSES 1,874,918 2,214,859
Commissions 13,307 7,953
Brokerage Fees 20,058 15,419
CPMF/IOF (Taxes on Bank Account Transactions) 20,761 10,150
Discounts Granted 131,808 141,969
Credit Cards 26,238 23,117
Serasa (Credit Reporting Agency) 4,028 4,884
Updating of Taxes 9,921 12,342
Legal Fees and Costs 10,756 10,953
Fees on Issuance of Commercial Paper 6,078 14,459
Financing of Privatization Certificates 12,402 9,690
Updating of Pension Plan 467,925 465,701
Operating Accruals (1) 493,562 875,011
Exchange Variation 325,754 64,555
Monetary Variations on Liabilities 147,267 388,667
Other 185,053 169,989
(1) Operating accruals are comprised basically of restatement/recognition of reserves for civil, tax and labor contingencies.
j) Nonoperating Income (Expenses)
2003 2002
NONOPERATING INCOME (EXPENSES) 32,966 168,210
Capital Gains 3,529 2,672
Income From Rentals 6,739 6,985
Gain (Loss) on Sale of Investments (34,696) 1,360
Gain on Sale of Assets (1) 55,714 206,835
Gain (Loss) on Sale of Ownership Interest (4,333) 2,831
Reversal of Nonoperating Accruals 163,860 63,056
Capital Losses (47,761) (32,353)
Provision for Losses on Other Assets (70,199) (45,992)
Provision for Losses on Tax Incentives (28,866) (14,920)
Provision for Other Losses (8,399) (10,773)
Other, Net (2,622) (11,491)
(1) Derived mainly from sale of real estate.
SantanderBanespa 99Financial
Statements
15. CAPITAL
Fully paid-up capital is represented by registered shares, without par value, as follows:
In Thousands of Shares
Banco Santander Brasil S.A. Common Preferred Total
Domiciled in Brazil 54,575 106,278 160,853
Domiciled Abroad 1,789,120 1,478,827 3,267,947
TOTAL 1,843,695 1,585,105 3,428,800
In Thousands of Shares
Banco Santander S.A. Common Preferred Total
Domiciled in Brazil 81,389 81,389 162,778
Domiciled Abroad 2,397,243 2,397,243 4,794,486
TOTAL 2,478,632 2,478,632 4,957,264
In Thousands of Shares
Banco Santander Meridional S.A. Common Preferred Total
Domiciled in Brazil - 483,277 483,277
Domiciled Abroad 9,965,459 5,197,186 15,162,645
TOTAL 9,965,459 5,680,463 15,645,922
In Thousands of Shares
Banco do Estado de São Paulo S.A. Common Preferred Total
Domiciled in Brazil 19,372,698 19,373,220 38,745,918
Domiciled Abroad 1,223 701 1,924
TOTAL 19,373,921 19,373,921 38,747,842
16. DERIVATIVE FINANCIAL INSTRUMENTS
Santander Banespa follows the policy of reducing market risks arising from its operations through derivative financial instruments. Market risk management is
performed by an independent area, whose practices include measurement and monitoring of limits formally established by internal committees, portfolio risks,
sensitivity to interest rate fluctuations, exchange risk exposure and liquidity gaps, among other practices, providing for the monitoring of risks related to fluctuations
in asset prices and interest rates and other factors which may affect the portfolio positions in the different markets in which it operates. Derivative financial
instruments used as hedges have credit risks equal to or less than the related financial instrument risk.
Market value for swaps is computed based on the estimated cash flow, discounted to present value according to the applicable interest rate curves, representative
of the market conditions at the balance sheet date. For options, Santander Banespa adopts statistical models which consider the volatility of the asset price and
interest rates representative of the market conditions at the balance sheet date.
The principal interest rate curves are obtained from futures and swap contracts traded on the BM&F. Adjustments to these curves are made whenever certain points
are considered illiquid or when due to unusual reasons they do not fairly represent market conditions.
100 SantanderBanespa
FinancialStatements
As of December 31, derivative financial instruments were as follows:
2003 2002
Trades Trades
Swaps Asset Liability Net Asset Liability Net
CDI (Interbank Deposit Rates) 11,135,586 4,813,215 6,322,371 6,521,636 4,340,689 2,180,947
Fixed Interest Rate – R$ 1,188,932 1,023,005 165,927 1,662,363 1,788,805 (126,442)
Fixed Interest Rate – Foreign Currency 76,168 464,870 (388,702) - - -
Indexed to Referential Rate (TR) - 70,406 (70,406) 16,768 17,699 (931)
Indexed to Euro 18,537 143,428 (124,891) - 91,147 (91,147)
Indexed to Dollar – PTAX 2,432,259 7,764,995 (5,332,736) 5,016,449 6,465,535 (1,449,086)
Indexed to IGPM 2,284,659 2,536,437 (251,778) 68,813 247,103 (178,290)
Indexed to Bovespa - 387 (387) - - -
Indexed to LIBOR 460,261 122,828 337,433 362,120 170,850 191,270
Other Indices 36,692 202,985 (166,293) - 94,829 (94,829)
TOTAL 17,633,094 17,142,556 490,538 13,648,149 13,216,657 431,492
MARKET VALUE 419,810 355,038
COMPOSITION BY COUNTERPARTY:
Customers 12,253,259 11,729,052 524,207 8,856,432 9,057,279 (200,847)
Financial Institutions 5,379,835 5,413,504 (33,669) 4,791,717 4,159,378 632,339
17,633,094 17,142,556 490,538 13,648,149 13,216,657 431,492
COMPOSITION BY MATURITY:
Up to 3 Months 5,385,199 5,185,053 200,146 4,610,187 4,456,004 154,183
From 3 to 12 Months 9,441,005 9,252,433 188,572 6,104,788 5,917,475 187,313
Over 12 Months 2,806,890 2,705,070 101,820 2,933,174 2,843,178 89,996
17,633,094 17,142,556 490,538 13,648,149 13,216,657 431,492
COMPOSITION BY MARKET
BM&F 9,074,645 9,103,010 (28,365) 6,146,604 5,437,287 709,317
Over the Counter 8,558,449 8,039,546 518,903 7,501,545 7,779,370 (277,825)
17,633,094 17,142,556 490,538 13,648,149 13,216,657 431,492
2003 2002
Cash Flow Hedge (a)/(b) Cash Flow Hedge (a)/(b)
Hedge Asset Liability Net Asset Liability Net
Fixed Interest Rate – R$ - - - 13,234 14,892 (1,658)
Fixed Interest Rate – Foreign Currency - 475,574 (475,574) - 849,407 (849,407)
Indexed to Euro 937,848 - 937,848 957,165 - 957,165
Indexed to Dollar – PTAX - 827,473 (827,473) - 1,740,108 (1,740,108)
Indexed to LIBOR 465,021 - 465,021 1,556,034 - 1,556,034
TOTAL 1,402,869 1,303,047 99,822 2,526,433 2,604,407 (77,974)
MARKET VALUE 73,673 46,886
(a) Swap operations classified as cash flow hedges refer to operations over the counter.
(b) Financial instruments designated for cash flow hedges consist of:
Book Market Value Value Maturity Counterparty
Securities issued abroad 937,848 937,848 Through Nov. 2005 Financial institutions
Foreign borrowings 465,022 461,855 Through June 2007 Affiliated financial institutions
SantanderBanespa 101Financial
Statements
2003 2002
Premium Premium
Market Market Options – Dollar Notional Cost Value Notional Cost Value
Call Option Purchased Position 5,300,575 116,383 23,261 847,100 57,254 116,669
Call Option Sold Position 323,500 2,446 2,032 296,200 1,074 685
Put Option Purchased Position (5,369,400) (175,123) (30,437) (1,693,417) (164,899) (245,174)
Put option Sold Position (305,000) (4,726) (2,961) (647,180) (14,249) (9,276)
(50,325) (61,020) (8,105) (1,197,297) (120,820) (137,096)
Composition by Maturity 2003 2002
Up to 3 Months (611,175) (787,449)
From 3 to 12 Months 560,850 (409,848)
(50,325) (1,197,297)
2003 2002
Premium Premium
Market Market Options – Other (1) Notional Cost Value Notional Cost Value
Call Option Purchased Position 2,355,278 11,787 27,350 2,007,485 40,840 8,311
Call Option Sold Position 1,040,928 5,692 6,131 118,200 275 -
Put Option Purchased Position (5,923,031) (16,886) (19,645) (1,110,716) (19,303) (18,732)
Put Option Sold Position (1,531,529) (17,948) (20,241) (673,483) (1,420) (451)
(4,058,354) (17,355) (6,405) 341,486 20,392 (10,872)
(1) Includes shares, indexes and Brady bonds.
2003 2002
Nominal Nominal Futures Contracts Amount Amount
INTEREST-RATE SWAPS (DDI, “CUPOM FISCAL”)
Asset Position 8,172,532 1,716,031
Liability Position (5,010,104) (7,512,264)
INTEREST RATES (DI1 AND DIA)
Asset Position 16,300,950 6,064,475
Liability Position (2,276,109) (5,055,022)
DOLLAR (DOL)
Asset Position 480,469 952,337
Liability Position (785,064) (1,004,331)
C BOND (BCB)
Asset Position 160,036 (30,919)
INDEX
Asset Position 143,210 -
Liability Position (51,687) (24,416)
EURO
Liability Position - (43,548)
S&P INDEX
Asset Position - 8,851
MEXICAN PESO
Liability Position - (4,193)
TREASURY BONDS
Liability Position (179,636) -
16,954,597 (4,932,999)
102 SantanderBanespa
FinancialStatements
Composition by Maturity 2003 2002
Up to 3 Months 8,657,297 (6,310,974)
From 3 to 12 Months 6,406,704 1,483,640
Over 12 Months 1,890,596 (105,665)
TOTAL 16,954,597 (4,932,999)
2003 2002
ASSETS 750,738 1,105,670
Swap Differentials Receivable 690,616 934,197
Forward Purchases Receivable 1,348 20,798
Forward Sales Receivable - 25,010
Exercisable Option Premiums – Shares 2,242 1,463
Exercisable Option Premiums – Transactions Pending Settlement 56,532 124,202
LIABILITIES 279,553 832,567
Swap Differentials Payable 197,133 532,273
Forward Purchases Payable 9,136 26,661
Option Premiums – Shares 10,198 6,926
Option Premiums – Transactions Pending Settlement 63,086 266,707
17. SUPPLEMENTARY PENSION PLANS
a) Banco Santander Brasil S.A. and Affiliaties
Effective July 16, 1998, the Santander Group in Brazil became a sponsor of a pension benefit plan for its employees, administered by Sanprev – Santander Associação
de Previdência, a private pension foundation established for the purpose of granting pension benefits supplementary to those granted by social security, in conformity
with Supplementary Law Nº 109/2001. The plan has the following characteristics:
Sponsors: Banco Santander Brasil S.A., Sanprev – Santander Associação de Previdência, Santander Brasil S.A. Investimentos e Serviços S.A., Santander Brasil Arrendamento
Mercantil S.A., Santander Brasil S.A. – Corretora de Câmbio e Valores Mobiliários, Santander Seguros S.A. (in process of a name change), Santander de Negócios S.A. (in
process of withdrawal from sponsorship), Santander Brasil Participações e Empreendimentos S.A., Santander Asset Management Ltda and Santander Brasil Participações
e Serviços Técnicos Ltda.
Types of Plans: Plan II, which covers 6 vested participants, 9 retirees and 4,012 active participants, is funded exclusively the sponsors through monthly contributions
equivalent to 1.06% (2002 – 1.34%) of payroll, and is structured as a defined benefit plan; Plans I and III, which provide a programmed term coverage and monthly
retirement income for life, structured as a defined contribution plan, covering 174 vested participants and 4,091 active participants (Plan III), and a defined benefit
plan, covering 133 vested participants, 18 retirees and 10 active participants (Plan I). Contributions are established by the participants, starting at a 2% rate for Plan
III. Plan I, in process of discontinuance, is no longer receiving contributions from the sponsors.
Financial and Actuarial Methods: Plan II – capitalization (supplementary benefits for disability), capital coverage method (supplementary benefits for temporary
pension and death) and simple coverage method (supplementary benefits for sickness and birth grants); Plan III – capitalization (monthly retirement income for life).
Percentage of sponsors’ contributions in relation to the total is 24.57% (2002 – 30.36%) and 75.43% (2002 – 69.64%) for the participants.
In conformity with CVM Resolution Nº 371, which established new criteria for the recognition of employee benefits and the results of benefit plans, and based on
the independent actuary’s report, position of the benefit plans as of December 31 is as follows:
2003 2002
PLAN ASSETS 413,832 329,213
PRESENT VALUE OF LIABILITIES, PER PLAN: 306,837 273,710
DEFINED BENEFIT 77,915 102,763
Plan I 39,436 65,071
Plan II 1,957 10,611
Plan III 36,522 27,081
DEFINED CONTRIBUTION 215,987 170,947
Plan III 215,987 170,947
RISK FLUCTUATION RESERVE 12,935 -
NET ASSETS 106,995 55,503
Expense Recognized in Income:
Current Service Cost – Net 2.1 Million 2.65 Million
Cost of Interest on Actuarial Liabilities 7.4 Million 6.44 Million
9.5 Million 9.09 Million
SantanderBanespa 103Financial
Statements
Pursuant to article 49, item “g”, of CVM Resolution Nº 371, no actuarial asset was recorded in the sponsors’ financial statements as a result of the plan surplus.
Actuarial Assumptions Adopted in the Calculations
Interest Rate for Present Value Calculation 10% per year
Estimated Rate of Return on Assets 10% per year +INPC
Mortality Table IBGE-2001, with a 20% safety margin
Benefit Increase Rate INPC
Financial Method Capitalization
INPC – National Consumer Price Index
b) Banco do Estado de São Paulo S.A. and Affiliaties
a) Since 1962, Banespa has maintained a supplementary pension plan, granted to employees hired through May 22, 1975. The plan covers 578 active participants
and 12,958 retirees. For recognition of accounting effects, charges arising from this plan are calculated based on an actuarial valuation performed by an independent
actuary, in accordance with the provisions of CVM Resolution Nº 371.
b) For employees hired starting May 23, 1975, the Bank and its subsidiaries sponsor other plans through Banesprev – Fundo Banespa de Seguridade Social, for
granting pension benefits supplementary to those granted by social security, as defined in basic regulations of each plan.
b.1) Defined Benefit Plan
Plan I, fully defrayed by the Bank, covers employees hired after May 22, 1975 (361 active participants and 627 retirees), and those hired up to May 22, 1975 who
are also entitled to death benefits.
Effective July 27, 1994, when the new text of the Statutes and Basic Regulations of Plan II came into effect, Plan I participants who opted for the new plan (9,959 active
participants and 3,675 retirees) began contributing 44.94% of the costing rate established by the actuary for each year.
Due to the privatization process, the Banespa Pension Plan was created, managed by Banesprev and granted only to employees hired up to May 22, 1975, with the
participation of 851 employees (684 vested employees) previously covered by the in-house pension fund.
b.2) Defined Contribution Plan
Banespa also sponsors Plan III, a defined contribution plan, offered to employees of the BANESPA Group hired after May 23, 1975, previously enrolled in Plans I and
II (916 active participants). In this plan, contributions are made both by sponsor and participants.
Results of the independent actuary’s valuation in accordance with CVM Resolution Nº 371 are as follows:
Actuarial Assumptions Adopted in the Calculations Banespa Banesprev
Nominal Discount Rate for Actuarial Liabilities 17.6% (12% Actual and 5% for Inflation) 15.5% (10% + 5% for Inflation)
Estimated Nominal Rate of Return on Assets 17.6% (12% Actual and 5% for Inflation) 15.5% (10% + 5% for Inflation)
Estimated Long-term Inflation Rate 5% 5%
Estimated Nominal Salary Increase 5% 5%
Estimated Nominal Benefit Increase 5% 5%
General Mortality Biometric Table UP84 Rated Up One Year UP84 Rated up One Year
Invalidity Entrance Biometric Table Mercer Invalidity Entrance Table Mercer Invalidity Entrance Table
Estimated Turnover Rate 0.10/(Employment Time + 1) Up to 50 Years Old 2%
Retirement Probability 100% When First Eligible for a Plan Benefit 100% When First Eligible
Reconciliation of Assets and Liabilities Banespa
2003 2002
Present Value of Actuarial Liabilities 4,101,560 4,026,737
Adjustments for Allowed Deferrals –
Unrecognized Actuarial Gains (Losses) (132,749) 47,978
ACTUARIAL LIABILITIES RESERVED 3,968,811 4,074,715
Payments Made in the Year (563,095) 540,875
Expenses Recognized in the Year 457,191 438,125
Cost of Current Service (with Interest) 3,754 6,412
Interest on Actuarial Liabilities 453,437 431,713
Expense to be Recognized in 2004
Cost of Current Service (with Interest) 3,321
Interest on Actuarial Liabilities 676,824
104 SantanderBanespa
FinancialStatements
Banesprev
2003 2002
Present Value of Actuarial Liabilities Including Coverage (1,929,474) (1,641,302)
Fair Value of Plan Assets 2,554,588 2,040,718
Difference Between Present Value of Liabilities and Fair Value of Assets 625,114 399,416
Adjustments for Allowed Deferrals:
Unrecognized Actuarial Gains (425,538) (339,103)
NET ACTUARIAL ASSETS (1) 199,576 60,313
Sponsor’s Contributions for the Year 67,448 42,730
(1) Pursuant to article 49, item “g”, of CVM Resolution Nº 371, the aforementioned surplus was not recorded in the financial statements of Banespa.
c) Banco Santander Meridional S.A.
The Bank, as successor to predecessor financial institutions, is the sponsor of a pension plans for employees, established as a defined benefit plan (2 active participants
and 1,548 retirees). Balance of the accruals is equivalent to 100% of the actuarial liabilities, computed based on valuations made by an independent actuary, under
provisions established by CVM Resolution Nº 371. As of December 31, position of the plan was as follows:
Actuarial Assumptions Adopted in the Calculations
Nominal Discount Rate for Actuarial Liabilities 17.6% (12% Actual and 5% for Inflation)
Estimated Nominal Rate of Return on Assets 17.6% (12% Actual and 5% for Inflation)
Estimated Long-term Inflation Rate 5%
Estimated Nominal Salary Increase 5%
Estimated Nominal Benefit Increase 5%
General Mortality Biometric Table UP84 Rated Up One Year
Retirement Probability 100% When First Eligible for a Plan Benefit
Reconciliation of Assets and Liabilities 2003 2002
Present Value of Actuarial Liabilities 156,024 145,605
Adjustments for Allowed Deferrals –
Unrecognized Actuarial Losses (45,750) (39,199)
ACTUARIAL LIABILITIES RESERVED 110,274 106,406
Payments Made in the Year 22,141 20,562
Expenses Recognized in the Year –
Interest on Actuarial Liabilities 26,009 23,989
Expense to be Recognized in 2004 28,371
Cost of Amortization of Unrecognized Actuarial Loss 2,938
Interest on Actuarial Liabilities 25,433
18. OTHER INFORMATION
a) Co-responsibility and risks on guarantees provided on behalf of customers, recorded in memorandum accounts, amounted to R$ 3,185,210 (R$ 2,803,90 in 2002).
b) Total net book value of investment funds managed by Santander Banespa is R$ 23,016,874 (2002 – R$ 14,852,000).
c) Insurance coverage in effect as of December 31, 2003, covering global bank risks, fire, vehicle and other risks, amounts to R$ 857,675.
Project Planning and Coordination: Marisa Monteiro
Text Coordination: André Loes | Fernanda Maluf
Concept and Graphic Design: Ana Couto Branding & Design
Photographs: Emmanuelle Bernard
Printing: Pancrom Indústria Gráfica Ltda.
Market Relations Rua Amador Bueno, 474 – 4º andar São Paulo SP Brazil 04752 000
Tel.: 55 11 5538 7232 Fax: 55 11 5538 8453 E-mail: [email protected]