Rule 12g3 – 2(b) Exemption #82-35186

Free English Translation

2Q16 Earnings Conference Call

August 11th, 2016

OPERATOR: Good morning, everyone and thank you for waiting. Welcome to

Banco do Brasil’s 2Q2016 earnings conference call. This event is being

recorded and all participants will in a listen-only mode during the Company’s

presentation. After this there will be a Q&A session. At that time further

instructions will be given. Should any participant need assistance during this

call, please press *0 to reach the operator. This event is also being broadcast

live via webcast into Banco do Brasil’s website at www.bb.com.br/ir, where the

presentation is also available. Participants may view the slides in any order

they wish. Before proceeding let me mention that this presentation may

include references and statements, planned synergy, estimate projections and

forward-looking strategy concerning Banco do Brasil, its associated and

affiliated companies and subsidiaries. These expectations are highly

dependent on market conditions and on the performance of domestic and

international markets, the Brazilian economy and banking system. Banco do

Brasil is not responsible for updating any estimate in this presentation. With us

today we have Mr. José Maurício Pereira Coelho, CFO and Mr. Bernardo

Rothe, Head of Investor Relations. Mr. Bernardo, you may now begin.

BERNARDO – Good morning. Thank you for participating in this conference

call of the earnings release of Banco do Brasil.

I would like to start in page 3, where we have the highlights for this quarter.

Starting with the pre-tax, pre-provision earnings that increased by 14.9% in

comparison to the 2Q2015. NII grew by 17.5% in the same comparison.

Income also grew by 12.8%. Administrative expenses continue under control

with a 2.7% growth. And cost income ratio, as a result, improved to 39.7%.

On page 4, we have the net income and how we got to the adjusted net

income, in the 1H, of R$ 3,87 billion. Starting with the last year, 1H, of R$ 6.0

billion, we have a positive impact of R$ 3.8 billion in NII, a negative impact of

R$ 3.1 billion in provisions. Fee income contributed positively with R$ 824.0

million. Administrative expenses R$ -402.0 million. Other items and taxes are

R$ -2.3 billion, where we get to R$ 4.8 billion in adjusted net income, before

specific cases of increase of provisions. These specific cases, net of tax got to

R$ 1.8 billion. Then we get R$ 3.7 billion adjusted net income. One-off items,

R$ 1.7 billion, in this half, getting to R$ 4.8 billion in the booking net income.

On this quarter we also bring to you some other measures of ROE. The

adjusted ROE that Banco do Brasil calculated is little bit different from what the

analysts calculate. We have here the booking ROE of 12.3% in the 2Q. The

adjusted ROE, the way that we calculate, that is 7.7%. The market adjusted

ROE, that is 9.2%. And we also include here, the shareholders ROE of 10.2%.

These shareholders ROE doesn’t consider the impacts of the instruments that

is eligible for capital in that profit and also in the equity side, to really give to

everyone what we have, what the shareholders have as ROE, 10.2%.

In page 5, we bring to you the pre-tax, pre-provision earnings. As you can see

it grew 14.9% in comparison to the 2Q2015, to R$ 10.7 billion, a growth of

3.9% in comparison with the 1Q2016. If we look at the accumulated earnings

before provisions, 12 months, a comparison between the 2Q2016 and

2Q2015, that growth is 13.5%. These earnings before provisions came in line

as made by analysts. All the analysts that cover Banco do Brasil came pretty

much in line with what we forecast.

Market ratio is in page 6. Earnings per share R$ 0.88 cents and R$ 0.63 cents

for adjusted earnings per share. Dividend yield came at 7.62%, price earnings

12 months, 4.6%. And price book value R$ 0.57. All of these indicators, at the

end of June 16.

In page 7, funding. We reached R$ 624.0 billion at the end of last quarter. The

highlight is the growth in savings of 0.7% nominal against June 15. And for

agribusiness letters of credit, mortgage bonds of 1.7% growth, the same

period. Funding expenses as percentage of SELIC reached 74.7%, stable in

relation to previous quarters. And the adjusted net loan portfolio to commercial

funding, it is also stable at 91.3%.

In page 8, we have other sources of funding through our subsidiaries. Starting

with BBDTVM in the left side, reached R$ 668.0 billion of assets in the

management, 20.0% market share. A continuing leadership in the market. And

BrasilPrev, also a leader in the market, with 59.1 market share and net inflow

reaching R$ 9.5 billion in the quarter.

Page 9, loan portfolio in a broad concept decreased by 1.2%, reaching R$

751.0 billion. The highlight here is the agribusiness with a growth of 9.6% and

individuals, 6.3%. Nowadays, agribusiness, individuals almost amounts to

50.0% of our total portfolio, against 45.0% that we had 12 months ago.

Page 10, we bring you more information in the individuals portfolio and the

concentration that we have in lower risk lines of credit. Starting with mortgages

on the left side, a growth of 17.1% to R$ 51.6 billion at the end of June 16.

Being 5.7% growth in the mortgage with companies and individuals growing

20.9% over June 15. Delinquency ratio in this portfolio is 1.29, still very low.

Payroll loans, we are leaders in the market, with a market share of 22.6%. We

had a growth of 3.1% against June 15, reaching R$ 63.0 billion. Delinquency

ratio for this portfolio is 1.25%. Salary loans grew by 9.0%, R$ 20.0 billion and

delinquency ratio in this portfolio is 2.52%. Auto loans had a decrease of

12.0%, reaching R$ 21.5 billion and a delinquency ratio of 0.95%.

Slide 11, we have loans to companies, where we have this decrease of 5.4%,

R$ 327.0 billion at the end of June 16. By type of company, very small, small

companies had a decrease of 13.7%, and the rest of the portfolio -2.4%.

Slide 12, we bring you the agribusiness portfolio, growth of 9.6%, reaching R$

184.0 billion. The growth in the companies portfolio was 11.8% and individuals

portfolio, 8.7%. Still number one in the market with 62.0% market share. We

still use a lot of mitigators in our working capital transactions, reaching almost

65.0% of all these types of transactions. And the last harvest we had R$ 82.4

billion in disbursements, 12.4% growth compared to the previous harvests.

Slide 13, given that a new resolution by the Central Bank of Brazil was

published recently, the 4512, we decided to bring to you some information

about our guarantees portfolio. We had, at the end of last quarter, R$ 19.3

billion in guarantees provided and a provision for this portfolio of R$ 430.0

million, represent 2.2 of the total portfolio.

Slide 14, we start to talk about, you know, the quality of the portfolio, with all

delinquency ratios. Given that Banco do Brasil decided to treat a specific case

in oil and gas as delinquency for more than 90 days, different from our peers in

the market, we decide to bring you these ratio taking out the impact of this

particular case. As you can see, our delinquency ratio without the particular

case would be 2.85% at the end of June. Considering this case in oil and gas,

the delinquency ratio reaches 3.27%. By segments, individuals is still stable at

2.4, companies increased to 4.82. Here we have also a calculation what would

be the delinquency of this portfolio if the portfolio stays stable in the same level

as of March 16. So we have an impact of 20 bps that comes from the

decreasing portfolio, the delinquency ratio would be 4.62%. Agribusiness

decreased 2.94, 0.95%, again below 1.0%, like in the previous quarters before

March 16.

Slide 15, asset quality. We have here cover ratios and the balance of

provisions. We reached almost R$ 37.0 billion in provisions at the end of the

quarter and we have a cover ratio of 109.0% for delinquency over 15 days and

163.0% for delinquency over 90 days. Here also is important to consider the

impact of this particular case, so that you have a number that can be

comparable to our peers. So taking out the impact of this particular case, the

cover ratio for transactions delinquent more than 15 days would go to 119.0%

and for more than 90 days, would go to 187.0%. And below in this slide, you

can see that most of the provisions were made for companies in the quarter.

Slide 16, we have the average risk and the evolution of provisions. We

highlight here what came in this flow of provisions for each quarter in the last

two quarters, what came from specific case and increasing risk for some

transactions, involving separate segments in the corporate portfolio. If you

consider only the organic flow of provisions in our portfolio, in this quarter, it

would have R$ 6.9 billion in provisions, instead of 8,3; 8.9 is lower than what

we had in December 15. Every risk reached 5.36, still lower than the market as

a whole. And also to make things easier to compare, we bring to you what

would be the average risk without the specific case that we have been

mentioning. That ratio would be 4.94 and that is more comparable to 6.3, given

that this specific case is booked in our offshore branches. So 6.3 does not

consider offshore branches of Brazilian banks.

Slide 17, NPL formation. We start on the top of the NPL formation, excluding

the specific case that I mentioned, so the index would come at 0.28, below

than the previous quarter and the cover ratio for the NPL formation would turn

at 120.0%, this quarter. Below in this same page we have the same calculation

including this specific case. So with that, including this specific case, the index

would be 1.39.

Slide 18, again, more exercise of the NPL formation. Now, including the

portion of the renegotiated loan portfolio that is due more than 90 days. So, for

some of you that would like to make this adjustment in the NPL formation. We

have done the calculation for you and then the index would be close to the

March 16, at 1.19 and the cover ratio would be 98.84%.

Slide 19, we have the renegotiated overdue loan portfolio. Details on that

particular portfolio. In the last quarter, we had R$ 5.0 billion in new contracts

and we received almost R$ 1.0 billion in cash as payments of principal and

interest, net capitalized interest. A very high volume, almost 5.0% of the

previous portfolio. NPL 90 days for this portfolio reached 22.5%. Cover ratios,

183.3% and this particular portfolio now represents 3.6 of our total portfolio.

Below in the slide, we have the NPL formation rates for renegotiated overdue

loan portfolio. It stands at 10.78 at the end of quarter.

Slide 20, we start up showing that the net interest income and net interest

margin. At the end of the quarter, we had 17.5% growth in the NII, reaching R$

14.6 billion. Looking at the 1H as a whole, R$ 28.9 billion, a growth of 15.6%

against the 1H2015. Global spread reached 4.9%. Spread by segments, the

highlight here is individuals that increased by 50 bps to 16.3. The total portfolio

also grew by 20 bps, 7.7. Companies portfolio stable at 5.9. And have a small

increase in the agribusiness as well, to 4.9.

Page 21, fee income. We ended the quarter with 6 billion in fees, a growth of

12.8% against 2Q2015 and 9.1% against the 1Q2016. Looking at the 1H2016,

it’s R$ 11.6 billion, 7.6 growth against 1H2015. Highlights here, account fees

and asset management fees growing 24.0%, 11.0% against the 1H2015.

Page 22 have some information about our insurance arm, BB Seguridade.

Adjusted net income reached more than R$ 1.0 billion, a growth of 9.3%. And

we are still leaders in certain segments, like pension plans, rural insurance and

life insurance.

Slide 23, we have our service channels, more than 64 million clients and

counting on more than 66,000 points of service, present in 99.30% of the

Brazilian municipalities. And we have, as a highlight, been even increasing

more digital bank. Our app is the number 5 most present in all, you know,

smartphones in Brazil, losing only to WhatsApp, Facebook, Google and

Instagram. Our new cycle of serving clients through the digital world of Estilo

Digital and Exclusivo keep growing. Estilo Digital now has 552,000 clients,

through a 143 digital branches; 240 branches by the end of 2016, that is our

goal to support 1,3 million clients. Exclusivo that covers individuals that have

earnings R$ 4.0 to 8,000 per month. Now have a 52,000 clients through six

Exclusivo offices and the idea is to have 32 offices by the end of 2016, to

support 650,000 clients. Automated service channels is still the main way of

our clients to deal with Banco do Brasil. Mobile is the highlight with 33.8%

participation, a incredible growth of 51.0% in 12 months, reaching 2.5 billion

transactions.

Page 24, we have administrative expenses and cost income ratio. In cost

income ratio, in the quarter, reached 39.7% and comparing 1H2016 against

1H2015, that indicator would be 39.1. You can see our expenses continue

under control. Other expenses are flat quarter against quarter. Comparing

1H2016 to 1H2015, a very small increase.

Slide 25, we have the Basel III BIS ratio, where we reached 16.45% and the

core capital reached 8.42%, growing for fourth quarter in a row.

Slide 26, we have the full application of Basel III rules under the BIS ratio,

going from 16.45 to 15.42, fully loaded. And considering the use of tax credits,

we go back to 16.59. Tier I 11.34. Same behavior we reached 11.42.

Slide 27 we have the guidance of Banco do Brasil and how we are performing

against the guidance. Adjusted return on equity, 6.6, below the guidance, but

we still believe that we are going to be within the guidance until the end of the

year. Given that we expect a better behavior in the 2H2016. Net interest

income came over the guidance, at 15.6. Given that is, now, 11.0% seems to

be the base of the guidance, we decided to change to 11-15. The net loan

portfolio, in a broad concept, came up with 1.2% growth, below the guidance

of 3-6, impacted by the companies portfolio, that grew only 5.4, below the

guidance as well. Given what we expect for the rest of the year, impact of the

foreign exchange behavior, in Brazil, recently, and the lack of demand, we

decided to change the guidance to -10 to -6%. With that change, there is in an

impact in the domestic loan portfolio as well, as a whole. So we decided to

change to -2 to 1.0%. Individuals portfolio grew inside the guidance and we

expect to be inside the guidance until the end of the year. Agribusiness, a little

bit over the guidance and we expect that agribusiness is going to move to the

guidance until the end of the year. Allowance for loan losses, inside the

guidance at 4.3. Although we had a very high level provisions in the 1H, we

don’t expect to change this guidance. We believe that the 2H, we are going to

have a better behavior, in terms of loan provisions. Fee income, 7-11. We

came at 7.6, inside the guidance. And administrative expenses, 2.6, below the

guidance of 5-8. But we expect that, until the end of the year, the

administrative expenses should move to being inside the guidance. With that

we finish the presentation and we would like to open for Q&A. Thank you very

much.

OPERATOR – Ladies and gentlemen, we will now begin the Q&A session. If

you have a question, please press *1 on your touch tone phone now.

Our first question comes from Mr. Tito Labarta from Deutsch Bank.

LABARTA - Hi. Good morning. Thanks for the call. A couple of questions.

First, with the use of excess reserves, now that you are pretty much depleted

your excess reserves. Is it safe to assume that you feel comfortable, I guess,

with the outlook for provisions and asset quality for the rest of the year, that

you may not need any or see any other specific cases that we saw in the

1H2016? I just want to get a sense, because otherwise it could impact, you

know, provision levels going forward. And just to make sure that the use of

excess reserves is not included in your ROE and cost of risk items. Is that

correct?

BERNARDO – Hi, Tito. Yes, talking about the excess reserves, the additional

reserves, provisions that we used to have. Just to clarify and make it a bit

clearer, when we create the additional provisions and when we use it, it

doesn’t go through the recurring net income. As we create as a one-off item

when we transform the required provision, it is also a one-off item. So, the

existence or not of additional provisions makes no difference for you, guys,

when you project our recurring net income. So, you know, something that we

do when we believe it’s necessary and, as I mentioned before, we have rules

to do that, and how we are going to use it, when we are going to use it. The

privilege for transforming additional in required provision and that’s exactly

what we did now. We don’t see the need of doing additional provision at this

point in time as our guidance indicates the level of provision in the 2H needs is

going to be lower than what we had in the 1H2016. So, we are very

comfortable with our guidance for allowance for loan losses, for provisions

and, even performance in the 2H2016 is going to be better than what we had

the 1H. But, again, excess reserves makes no difference in terms of the

recurring net income of the bank. Nor when we create and also when we

transform that in require.

TITO LABARTA – Alright. Thanks. That’s very helpful. And then just a

question in terms of capital. We have seen you have reduced your risk with

assets around 10% already, so far this year. Is there room to reduce risk with

assets further? And do you still feel confident that you won’t need to issue

equity to reset 9.5% core Tier I by 2019, meaning that you can too retain

earnings, grow your capital base through the control of growth and risk with

assets? Also issuing the pressure we have seen that you are looking to sell

your stake in Patagonia. Any other asset sales that you think you would need,

can happen as well?

BERNARDO – Ok, Tito. About capital, we are going to still be managing our

growth in the RWA. The idea is that density to go down in the near future. You

know, we are shifting our asset, not only credit but our asset strategy that

consume that capital. We are going to continue doing that. In the credit side,

as you can see, you have been growing through lines that comes from that

capital. And we have, you know, a decrease on lines that are, you know, have

a high consumption of credit as well. So [27:38] behind that. So, our WA’s

should go down overtime and in terms of density, the ROE should go up, as

we are saying, with the provisions going down, the pre-provisions, pre-tax

earnings going up. We have been doing for quite a while now. You know, so,

both, you know, behaviors are going to help us reach the 9.5% by 2019 and

that’s what we expect. We don’t consider selling assets to reach the 9.5%.

TITO LABARTA – Ok. Does that include the potential sale of Patagonia?

Would you mention? And how much do you think that would help?

BERNARDO – What we have right now is what we informed to the market,

that we are now rising the possibility of doing something with our, you know,

other shareholders of Banco Patagonia. That’s what we have at this time.

Exactly what we informed to the market last August 5th.

TITO LABARTA – Ok. Great. Thank you.

OPERATOR – Our next question comes from Mr. Carlos Macedo from

Goldman Sachs.

CARLOS MACEDO - Good morning, Bernardo, gentlemen. A couple of

questions. First, could you give us some color on your NPL’s and SME book?

We know that the corporate had a big one time provision for the large

corporate that went bad. But the SME book, from we can see in your vintage

line, it’s turning the wrong way. How much of that is just your pull back, with

your portfolio coming down? And how much of that is actually the quality? If

you could give us some color, that would be great. And then, once you’re done

with that I will ask second question.

BERNARDO – Ok, Macedo. Thank you for the question. As we don’t have the

breakdown of the company’s portfolio, the delinquency by size, you know,

would be very hard to give you the exact figures on that. But what I can tell you

is the book of the delinquency in the company’s portfolio comes from the very,

small, small companies. That’s the bulk of the delinquency, that’s the segment

that, you know, suffers more with the economy downturn that we are

experiencing. So, the new vintage is suffering as well with the decrease in the

portfolio. That’s why, you know, you can see in the vintage graphic that we

have in the MD&A that for the first time the new vintage is running over the

previous vintages. By the way, that’s what our performance that anyone would

expect given two years of recession in Brazil. So, you know, still we have good

things in the portfolio. Portfolio suffering with a decrease in the denominator,

when we calculate the delinquency ratio but, you know, that’s the bulk of the

delinquency that we have.

CARLOS MACEDO – Ok. So, second question is on the guidance. I mean,

you have been pretty clear that you are keep 9-12 guidance on the adjusted

capital. You know, just doing the math here, a lot of this contingent on your

cost of risk coming down from the 1H2016, which shouldn’t be too difficult

given that one time provisions that went into those two quarters. But from

what I calculated, maybe the calculation is wrong, it would have to come down

to the average of the 2H2015, around 3.5% cost of risk. Isn’t that a little bit

challenging given the environment now, compared to the 2H2015? I mean you

just mentioned that, you know, asset quality, SME is weak, probably we’re

going to see more weakness in consumer through the end of the year,

beginning of next, with unemployment still being high. Now, wouldn’t it be

more conservative to guide for a slightly lower ROE, given all these headwinds

that you are facing?

BERNARDO – Well, Macedo, we have several things to consider here. One is

level, the flow of the provisions over the SME portfolio. As the SME portfolio is

going down, the forward provision would go down, if we keep the same levels

risk in the portfolio. Just to give an idea, so we have impact of the decrease in

the portfolio, with provisions as well. So we have a much lower level, a much

lower balance in SMEs right now, than what we had in the 2H2015. Second

thing, 2H2015 is when the program really started, when we had the pickup in

delinquency and so on. So, somehow the 2H already represents you know, a

high level of provisions and to keep at that high level difficult is not difficult. In

fact, as we showed in one of the slides in the presentation, the level of

provisions without some specific cases that we mentioned, would be below the

4Q2015 already. The R$ 6.9 billion that we mentioned, we are not excluding

the, you know, chapter 11 that happened in the 2Q. You know, even the big

chapter 11 that we had in the 2Q are included in the R$ 6.9. Without one

specific case that balance would be R$ 6.3, as you can see, much lower than

what we had in the 4Q. So, you know, we believe that the guidance is correct

and we are going to move to the guidance until the end of the year.

CARLOS MACEDO – But, just as follow up, I mean, you have 9-12. To get to

the bottom end of the guidance would imply on R$ 5.6 billion in earnings for

the 2H2016. That’s a big pickup. I mean, what’s the, is the up end of the

guidance realistic? Or are we here targeting the bottom end at this point?

BERNARDO – You know, we believe that the guidance is the one that we

have. We are going to be inside the guidance until the end of the year.

CARLOS MACEDO – Ok. Thanks, Bernardo.

OPERATOR – Our next question comes from Mr. Nicolas Riva from Citibank.

NICOLAS RIVA – Yes. Thank you, Bernardo, for taking my question. So, the

first one is in loan loss provisions. So, your guidance for this year implies

about R$ 6.6 billion in loan loss provisions for the next two quarters. My

question goes more to 2017, because assuming that we have some real GDP

growth in 2017 and the economy gets out of the recession, then, if you run at

about R$ 6.6 billion, even with some growth in that number, maybe loan

growth, we could see a decline in loan loss provisions in 2017 versus 16. So,

my question is if you are seeing that, if you are seeing a decline in 2017

versus 16, based on what you are seeing already for the 2H2016. And then,

my second question on the ROE guidance. So the guidance for this year

remains at 9.0%- 12.0%, given that in the 1H your ROE was 6.6%, what it

implies for the 2H2016 is about 14.0% in the ROE 2H2016. So, my question

once again more going to 2017, assuming things get a bit better, if you see

that 14.0% ROE, which is expected to get in the 2H are to be with your

guidance as, maybe, the floor for next year. And the minimum level maybe

being 14.0% ROE for next year. Thank you.

BERNARDO – Thank you, Nicolas. Well, I am not going to give any indication

for 2017 as we don’t have the guidance approved. So anything that I say

would be speculation on my side. But talking about the loan loss provisions,

yes, we are going to reduce the floor of loan loss provisions in the 2H. And we

are going to be inside the guidance that we have. So we are comfortable with

the guidance that we have right now. I am not going to confirm your figures.

You know, depending on how we calculate can have very different figures. So

what I can say to you that you can expect us to be inside the guidance until the

end of the year. About the ROE, same thing. We believe that with the, you

know, continue improving pre-provisions and results that we are still seeing

that flow through the 2H and also to next year. And the decrease in the flow of

provisions, the guidance is going to be achieved by the end of the year. For

next year, you know, we are going to see a continue improvement in terms of

provisions as the economy should pick up, according to what you can see in

the [36:16] report. So, provisions should behave better than this year, overall.

And our results, you know, should reflect that.

NICOLAS RIVA – Ok. Thanks, Bernardo. Maybe my only follow up, this in

terms of NPL formation or the NPL cycle. Do you see more the peak being 3Q

or 4Q2016, you know, things improving next year?

BERNARDO – As you can see, you know, if we take out this particular case in

[36:42] get the NPL formation already decreased. So, you know, we expect

that NPL should still go up until the end of the year, then we are going to have

a big impact, because this particular case is going to be in losses until the end

of the year. Then, only with that, NPL ratio should go down. So what we are

saying, and we are confirming that NPL should go up until the end of the year,

and be stable in 2017.

NICOLAS RIVA – Thank you.

OPERATOR – Our next question from Mr. Mário Pierre from Bank of America.

MARIO PIERRE – Hi, everybody. Good morning. Let me ask you two

questions as well. Let me go back to the capital ratio. You do have your target

of 9.5%, common equity Tier I ratio by 2019 and the ratio is moving in the

right direction now, although it is lower than one year ago. So, my question is,

if you could provide us with guidance rather than 2019 is, where do you expect

to be at the end of 2017? This would help us or this would make it easier for us

to understand your need to sell assets to get to your target. So, you know, if

you can provide us more like a shorter term target that would be very helpful.

Second question is related to, you know, if I understand, your message is that

things are improving, [39:00] feeling more comfortable with asset quality, but at

the same time, those are significant change in the risk rating of your corporate

book. So, what I don’t understand is why now? What happened that made you

become a lot more cautious of your corporate book, that you are now

classifying your portfolio as much more riskier than you were one quarter ago?

What happened in this quarter to make you more cautious? Thank you.

BERNARDO – Ok. Starting with the capital ratio, the only goal that we

released to the market is the 9.5 by 2017. So that’s the figure that we have.

Sorry. And about what we did this quarter, you know, it’s very simple. We

analyze the portfolio all the time. We check what we have and what we expect

for the near future. We don’t wait for companies to release their balance

sheets or interim balance sheets to take decisions in terms of risk. And we

decide to downgrade some risk that we have in our portfolio that are nothing

judicial recovery, chapter 11 or delinquency. That’s the decision that we took

this quarter based on our expectations for the portfolio. But we are pleased

that what we have right now is the right level of risk in the portfolio, represents

what we really are running in terms of risk.

MARIO PIERRE – Ok. So if you could be more specific then. Which sectors in

particular have you become more concerned about?

BERNARDO – Ok. The sectors are oil and gas, steal and mining too and

ethanol and a little bit of construction as well.

MARIO PIERRE – Ok. Thank you.

OPERATOR – Our next question comes from Mr. Olavo Arthuzo from Banco

Safra.

OLAVO ARTHUZO – Hi everyone. Thank you for taking my question. I would

like to raise here [40:15] about dynamic the 2Q related to the revenue

generation. Despite the strong [40:47] net interest growth, if we look the bank’s

results, we can notice a significant distinction between the segment of

individuals and companies. The individual portfolio is growing in almost all

lines and credit spread is increasing at a strong pace. For example, at the

beginning of the last year, it was 13.5% and in this quarter it reached 15.3%.

And finally, the segment is presenting a significant [41:23] impact on the NPL

in comparison to the corporate segment. By contrast, the corporate portfolio

has shrunk and the credit spread increased only 30 base points compared to

the same period of the last year. And this is the main segment responsible for

the peak in default. In this sense, my question is, to adjust the increase of the

risk in the corporate segment, is the bank discussing some increase in credit

spread in the segment, in the corporate segment? And was there some

specific issue that was, that have presented to the bank to adjust over that

period as the same way it was done with the individual segment? And finally,

can we expect that are demands of this strategy for the next quarters? Thank

you.

BERNARDO – Thank you, Olavo. In terms of credit spreads for the companies

portfolio, if you compare what’s going on, given the size of the companies in

the portfolio, you know, the very small, small companies decreased by 13.0%.

The rest of the portfolio -2.0%. Where we have the highest spread, in this

portfolio, is exactly in the very small, small companies. So there is a big

change in make that everything else is the same would go against that the

spread, making the spreads go down, not up. Right? So, the small increase

seems small but it’s not that small if you compare the change in the [42:57] of

the portfolio. Sorry. So, credit spread in companies are going up as well, but

the change in the mix is affecting the growth, the total growth in spread, in this

comparison that you are making. If you don’t mind, could you repeat the

second question, please?

OLAVO ARTHUZO – Was there some specific? Sorry. Can we expect the

[43:29] of this strategy for the next quarter growing your loan portfolio in

individuals? Is there some room for increasing spreads in the segment? And

the dynamics of the corporate segment should continue to be the same one?

BERNARDO – Ok. Well, the individuals’ size, you know, we have, you know,

repricing loans that we gave two years ago. So, a big portion of our portfolio

can see that these loan types lines of credits which represents more than

75.0% of the portfolio with individuals, are loans that have a higher duration,

but it tends to go to five years or even more, in case of mortgages. But it’s a

type of loan, the salary loans and payroll loans that the clients, usually, they

pay and take a new loan every two years. So, on average, we reprice the

portfolio every two years. So, what we are doing now is repricing what we did

in 2014. So we still have room to keep repricing this portfolio to be in line with

the interest rate that we have in the market right now. So, that is a process,

still going that direction. The rest of the portfolio, you know, we have lines of

credit that are repriced very quickly, like the credit cards and overdraft are

repriced immediately, repricing was done and we control the growth for this

line because they are the higher risk in our portfolio. So we are not going to

increase, just make, you know, more interest through these lines of credit. We

are serving our clients in a controlled way, to avoid, you know, increase in the

risk of the total portfolio. And, if you look at the MD&A, just to give an idea how

we are performing, for example, in credit cards, you know, delinquency ratio

was 3.9, is going down. I would say stable. So the very low delinquency ratio

compared to the rest of the market. So, it’s a good line of credit but we have to

keep it under control, to keep the delinquency ratio as good as it is right now.

So, both individuals are coming through lines of credit with low risk. So

mortgages are going to perform better than the average of the rest of the

portfolio. Payroll loans and sallary loans are still going to be our focus but we

make some increase in other parts of the portfolio as well. Even the demand

that we have coming from our clients. The companies segment, you know, we

are serving our clients with the demand that comes to us. But there’s a

decrease in terms of demand as well. Another thing that impact the companies

portfolio is the FX rates. So, FX rates [47:02] a portion of the decrease. If you

compare quarter to quarter, around 40.0% of the decrease in portfolio came

from FX rates. So, you know, we are serving our clients, clients that have the

capacity to take, you know, loans from Banco do Brasil, that reached the

guidelines that we have to underwrite loans. So there’s no change in strategy,

we are still doing FX.

OLAVO ARTHUZO – Ok. Thank you, Bernardo. It was very helpful.

OPERATOR – Our next question comes from Marcelo Telles from Credit

Suisse.

TELLES – Hi. Good morning, gentlemen. Thanks for your time. I have two

questions. The first question when you look in terms of your NII performance in

the quarter, we see that it was very much driven, you know, on a quarter on

quarter base by, you know, higher credit recoveries, right? Once we exclude

that, your NII actually went down, quarter over quarter. So what is the, you

know, the expectation for, you know, NII, you know, going forward? I’m

excluding your credit recoveries, now that, I mean, [48:15] to the leverage,

optimizing RWA. Would you expect, you know, the NII environment to be a

little bit more difficult? I have, you know, in light of what you are doing to

optimize RWA, in spite of your performance in spreads. And the other question

is related on the credit recoveries. We saw a big spike in credit recoveries, you

know, in the quarter. Some of your peers, in the past, when they had some of

those big spikes, in some cases, they had, you know, like, specific recoveries

that were only provision, right? So, pretty much, they were non-cash

recoveries. So just to try to understand the sustainability of that. You know,

can you disclose to us if there was anything that was no-cash in these

recoveries that was a 100.0% provision? So those are my questions. Thank

you.

BERNARDO – Thank you, Telles, for your questions. Starting with the credit

recovery, you know, you have all the data in the MD&A. How much we

recovered in cash. How much we recovered in installments. So, usually, you

know, close to 50.0% in cash. The information there we can compare with the

performance in the previous quarters as well. So it’s a 50.0% recovery in cash

versus losses. So as there are recovery in installments, they have to go to the

renegotiation overdue loan portfolio, 100.0% provided [49:46]. So that is

exactly what is going on. It happens like that. It goes back to the book as

100.0% provision.

MARCELO TELLES – So, the remaining, what is not cash, of course I need to

look, you know, through history, right, but that I should assume that was

100.0% provision. Is that a good assumption?

BERNARDO – It has to be, you know, according to the resolutions of the

Central Bank. So it has to be 100.0%. Ok? And it impacts the renegotiated

overdue loan portfolio. Part of the new contract that we have there comes from

recoveries in installments. All the recovery in installments in order to get the

portion of the recovery has to be paid in cash, in a way it’s not 100.0% going to

renegotiate overdue loan portfolio, that, you know, without any payment in

cash to be considered recovery. So, even though, there is installments on that,

a portion of this has to be paid in cash when we do the recovery. So,

performance in this quarter was higher than the 1Q quarter because, you

know, 1Q usually we have lower recoveries. We have two months that are not

considered for recovery, January and February. Also, 3Q you have July

vacation, so recoveries in July, usually, you know, every year, is lower than the

previous months. So it should have a lower level recovery in the 3Q. But in the

4Q is usually the highest level recovery that we have every year. So it should

pick up in the 4Q again. In terms of the NII, we are comfortable with our

guidance. The guidance represents what we expect for the full year. The level

of NII that we have with the, you know, credit operations is stable. More

reduction given the impact of the FX in some of the lines that we have outside

of Brazil. You know, foreign branches, they are making the same amount of

money but impact in NII was lower, given the FX. So it’s not something that,

depending on the FX to even go up or stay stable, you are going to see a

pickup again in the 3Q. So we are not worried about that. We are very

comfortable with the guidance that we provide you, guys.

TELLES – Excellent. Very helpful. One final question if I may. Just on the

asset quality side, I mean, we’ve seen you have a more constructed view

regarding the provisions’ outlook for the 2H2016 and you are going to have

this for next year as well. So, how do you reconcile that, you know, with the

fact that, you know, those are big, if you look in your NPL formation numbers,

there was a big spike in the renegotiated portfolio, you know, in the 1Q and the

2Q. If you look at the NPL formation, including renegotiating portfolio, not only

90 days but, you know, your overall number, that was, probably, about R$ 8.5

billion, already excluding the specific oil and gas case, which is more like

similar to the levels of provisions that you had in the 2Q. And given that, you

know, the formation rates of bad loans were being negotiated in the portfolio

has actually been quite high, compared to historical levels. You still feel

comfortable that you don’t see a risk that, maybe, you know, provisions could

be stable or maybe higher in the 2H, that the risk is just out there?

BERNARDO – First of all, you know, as I mentioned before in our

conversations, we don’t agree that we should put back all the renegotiated

overdue loan portfolio in the NPL formation. It’s totally incorrect. Just one

example, you know, we have a big portion of the renegotiated overdue loan

portfolio that came from losses. So there is no delinquency there. We are

recovering things. So if you put that back you are distorting the number. To

consider that NPL formation over 90 days, what would be in the NPL that

wasn’t because we negotiated, ok, we agree that, like, if you do that

calculation to give you a number that is not close to what would be NPL

formation, without that particular cases. But we provide you also the

breakdown of the portfolio to give some level of comfort that, not everything

that we have is bad loans. You can see that we have double A, transactions A,

B, C, D, E and so on. The levels of B-H increased by 10%, if you compare with

the previous quarter last year. So the policy of the portfolio is better. Of course,

it is a stressed portfolio and some of the renegotiations that we did before, you

know, the 2H2015 was done given a particular scenario that changed pretty

much after that. So, you know, there is things that we have to do, but we

recovered a big portion of the renegotiated overdue loan portfolio. Just to give

an example, you know, the historical level of delinquencies 18-20.0%, let’s say

20.0% and that is all the NPL [54:59] renegotiated overdue loan portfolio. It is

going to be a lot. So we are recovering 80.0% of it. It’s not correct, the number

is even higher than that. So, you know, to assume that everything that we are

renegotiating to be back and it seems, in spite of the NPL formation, my point

of view, it’s not really the right way of looking at it. Going back to [55:21] we

are very comfortable with our guidance. So we are going to be inside the

guidance.

TELLES – Yeah. You know, the part I make on the NPL formation on the

renegotiated portfolio is that, historically, you were, you know, about 30.0%

would fall back to NPL. You look today, depending on which base you use,

because [55:48] would get something between like 58.0% and 87.05%, you

know, formation rates, using, you know, [55:58]. But we can discuss that more,

off line. I appreciate your answers. Thank you very much.

BERNARDO – Thank you, Telles.

OPERATOR – Our next question comes from Mr. Anibal Valdez from

Barclays.

ANIBAL VALDEZ – Hi. Good morning, Bernardo. I have a similar question to

one previously asked. Just trying to assess the apparent stability on recovery

of the individuals portfolio. Pretty much because we saw the spike in the

delinquency loans in the 1Q, then a drop in this 2Q, which I assume it has to

be explained by some seasonality. But also we see the increase in the

renegotiated loans. So, the question is, I’m trying to assess the merits of the

apparent stability of the delinquency rates of the retail portfolio, and just to

understand if it is just because during the quarter, renegotiated loans

increased and that kind of explains the reduction in the early delinquency rates

for that portfolio. I mean, that line, I know, everybody seems to be more

optimistic about the next quarters, but we continue to see companies to make

material adjustments in their payrolls. For example, Odebrecht yesterday there

is a headline that they fired 75,000 people. So it seems like the adjustment

cycle for the labor market is likely to continue. So, what gives the comfort that

the apparent stability in your delinquency rates, the quality of that portfolio is

likely to continue to improve and not get worse later in this cycle? And then the

second question, it is regarding the potential sale of your stake in Banco

Patagonia. Have you run a theoretical scenario? What would be the impact

today or after the 2Q if you were to sell your stake in Banco Patagonia? What

would be the impacts on Tier I capital ratio? Thank you.

BERNARDO – Ok. Thank you, Anibal. First, you know, if you look at table 37,

in our MD&A, we have the breakdown of the renegotiated portfolio for

individuals and you can see what happened, in terms of increase in balance in

this quarter against quarter. So the increase was not that big and it is just a

small part of the new contract of the renegotiated overdue loan portfolio comes

from individuals. I didn’t mention this call on the previous, anyway, 75.0% is

companies, 25 comes from agribusiness. So most of [58:56] not individuals

and agro are in companies portfolio. But anyway, you have the balance, the

renegotiated credit for individuals in the table 37. You can see the behavior of

that portfolio. The first question also, you were talking about the companies

portfolio, right? So going for that, we have that concentration of, you know,

downgrades for some big risk that we have in the portfolio, that we are not

expecting to happen again in the 2H. And about Banco Patagonia, the answer

to your question is no. As we mentioned, we are analyzing the possibility of,

eventually, doing something.

ANIBAL VALDEZ – Alright. Thank you. So just part of my question, is it in

your view that we might be ahead of a late deterioration cycle in the asset

quality portfolio? What I really need, want to understand is that once making

sure, after we get off the cycle of the corporate portfolio, we don’t enter

another one in the individuals portfolio. This concerns comes from the fact that

we continue to see companies and the corporate side to reduce their payroll,

their employees. So, if it’s not the case, tell me why. But what really assures

that the asset quality in the individuals portfolio is not going to get worse as

unemployment continues to rise?

BERNARDO – Ok. You know, we have very low risk type of portfolio with

individuals. You know, payroll loans is totally concentrated in pensioners and

retirees and civil servants. You know, the overall [1:00:47] individuals end up

being like that. As we shifted to be like that as the economic downturn

approached. So we didn’t start in 2015, we started changing the mix way

before that. So our individuals loan portfolio concentrates in people that

receive their salaries through the bank, also by the sector. I mean,

unemployment impacts the low income portion of the population much more

than the medium income and high income portion of the population, it’s

affecting everyone but it’s disproportional, unfortunately. So, socially speaking

it’s unfortunately that people less resilient, they are the ones that are suffering

the most. But that is a segment that has no access to bank. In fact, in the end,

they don’t finance themselves through banks. So that is why, you know,

delinquency goes first in other places of the economy, it doesn’t come to

banks as the same proportion as the unemployment goes up. But the way we

prepare our booking for individuals is to be, you know, a less risky portfolio.

That reflects in the spread that we have in our portfolio, compared to the other

players in the market. It is very different because we run a low risk type of

portfolio so we don’t expect the delinquency rate for individuals to go up as the

economic scenario plays up. Ok?

ANIBAL VALDEZ – Ok. So we are clear. Thank you.

OPERATOR – Our next question comes from Mr. Carlos Gomes from HSBC.

CARLOS GOMES – Hello. Good morning. Thank you for taking my questions.

I have a question about the payroll lend. As you mentioned on page 37, we

can see that it has grown 1.2% year on year. You have, actually, a slightly

declining market share. Now, we know that some of the states and

municipalities in Brazil are having financial difficulties. Has that changed your

willingness to lend to some of these entities? Or have you created any

provisions for them? Or have you had it changed the pricing for these entities?

BERNARDO – Hi, Carlos. [1:03:04] clarification, just to let your know, what

you have on the page 37 is considered the overall payroll, including not only

what we generate through our branches but also, you know, a transaction

acquired from the market, so the decrease coming from, you know, the

portfolio that we bought in the market, you can see in table 39 that it went

down by, you know, 46.0% against June-15. So to take that out, you get to a

growth we had in the presentation, that is 3.2, that is basically what we are

doing in our own branches and we are doing, we are still serving our clients

and this is important line of credit. It’s very low delinquency ratio. We don’t

have any problem with any of the employers in the market. So it’s very

comfortable business for us.

CARLOS GOMES - We know that there are some States that have had to

delay the payments of their payroll. Have you had any such cases? And have

you made any provisions in case some of these entities do have that problem?

BERNARDO – The level of delays from employers to Banco do Brazil is less

than one bps.

CARLOS GOMES – Thank you very much.

OPERATOR – This concludes today’s Q&A session. I would like to invite Mr.

Bernardo Rothe to proceed with his closing statement. Please, go ahead sir.

BERNARDO ROTHE – I just want to thank everyone for participating in our

conference call and to say, have a good afternoon. Thank you.

OPERATOR – That does conclude Banco do Brasil conference call for today.

As a reminder, the material used in this conference call is available on Banco

do Brasil investor relations website. Thank you very for your participation and

have a nice day. You may now disconnect.