risk management report - bb · risk management report 3q17 9 banco do brasil founded in 1808, banco...

Risk Management Report Pillar 3 3Q17

Risk Management Report 3Q17

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Summary

Banco do Brasil ........................................................................................................................................................ 9

1. Introduction ............................................................................................................................................. 10

1.1 Objective ................................................................................................................................................. 10

1.2 Main Regulatory Indicators ...................................................................................................................... 11

2 Risks and Capital Governance ....................................................................................................................... 12

2.1 Risk and Capital Internal Governance ..................................................................................................... 12

2.2 Strategic Definitions ................................................................................................................................ 15

2.2.1 Relevant Risks ............................................................................................................................... 15

2.2.2 Risk Appetite and Tolerance .......................................................................................................... 16

2.2.3 Risk and Capital Management Policies ......................................................................................... 17

2.3 Reports .................................................................................................................................................... 18

2.4 Risk Management Processes .................................................................................................................. 18

3 Prudential Conglomerate ................................................................................................................................ 20

3.1 Balance Sheets ....................................................................................................................................... 20

3.2 Composition of the Prudential Conglomerate .......................................................................................... 24

3.3 Composition of the Disclosed Balance Sheet .......................................................................................... 26

4 Capital ............................................................................................................................................................ 28

4.1 Referential Equity (RE) Details ................................................................................................................ 28

4.2 Minimum Required Reference Equity (MRRE) ........................................................................................ 32

4.3 Capital Adequacy Ratio ........................................................................................................................... 33

4.4 Assessment of Sufficiency and Adequacy of Reference Equity (PR) ...................................................... 34

4.5 Leverage Ratio ........................................................................................................................................ 35

5 Shareholdings ................................................................................................................................................ 37

5.1 Entities Linked to Banco do Brasil (ELBB) Assessment .......................................................................... 39

6 Risk Management .......................................................................................................................................... 40

6.1 Credit Risk ............................................................................................................................................... 40

6.1.1 Specific Credit Policy ..................................................................................................................... 40

6.1.2 Mitigation Policy ............................................................................................................................. 40

6.1.3 Management Strategies and Credit Risk Management Framework ............................................... 40

6.1.4 Measurement Systems .................................................................................................................. 41

6.1.5 Mitigating instruments .................................................................................................................... 41

6.1.6 Exposure to Credit Risk ................................................................................................................. 43

6.1.7 Exposure to counterparty credit risks ............................................................................................. 51

6.1.8 Acquisition, Sale or Transfer of Financial Assets ........................................................................... 53

6.1.9 Securities (TVM) operations derived from securitization processes .............................................. 54

6.2 Market Risk ............................................................................................................................................. 55

6.2.1 Market Risk Policy ......................................................................................................................... 55

6.2.2 Management Strategies and Market Risk Framework ................................................................... 55

6.2.3 Hedge Policies ............................................................................................................................... 56

6.2.4 Derivative Financial Instruments .................................................................................................... 56

6.2.5 Negotiable Portfolios ...................................................................................................................... 58

6.2.6 Non-negotiable Portfolios .............................................................................................................. 59


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6.2.7 Risk measuring systems and communication and information processes ..................................... 61

6.3 Liquidity Risk ........................................................................................................................................... 62

6.3.1 Liquidity Risk Policy ....................................................................................................................... 62

6.3.2 Liquidity Risk Processes and Strategies ........................................................................................ 62

6.3.3 Liquidity Coverage Ratio (LCR) Calculation .................................................................................. 65

6.3.4 Liquidity Risk measuring systems .................................................................................................. 68

6.4 Operational Risk ...................................................................................................................................... 69

6.4.1 Policies .......................................................................................................................................... 69

6.4.2 Operational Risk Management Process ........................................................................................ 69

6.5 Environmental Risk ................................................................................................................................. 70

6.5.1 Environmental Responsibility Policy .............................................................................................. 70

6.5.2 Environmental Risk Management Strategies ................................................................................. 70

6.6 Other Risks ............................................................................................................................................. 71

6.6.1 Strategy Risk ................................................................................................................................. 71

6.6.2 Reputational Risk ........................................................................................................................... 71

6.6.3 Complementary Pension Fund Entities and Private Health Insurance Plan Operators for Employees

Risk (EFPPS Risk) ......................................................................................................................................... 72

6.6.4 Legal Risk ...................................................................................................................................... 72

6.6.5 Model Risk ..................................................................................................................................... 72

6.6.5.1 Specific Risk Policy Model .................................................................................................................. 72

6.6.5.2 Strategies for Model Risk Management .............................................................................................. 73

6.6.6 Contagion Risk .............................................................................................................................. 73

6.6.7 Compliance Risk ............................................................................................................................ 73

7 Stress Test Program ...................................................................................................................................... 74


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List of Tables

Table 1 - Prudential Balance Sheet x Disclosed Balance Sheet........................................................... 21 Table 2 - Composition of the Prudential Conglomerate ........................................................................ 24 Table 3 - Composition of the Disclosed Balance Sheet ........................................................................ 26 Table 4 - Hybrid Capital and Debt Instruments ..................................................................................... 29 Table 5 - Hybrid Capital and Debt Instruments authorized to compose RE ......................................... 29 Table 6 - Total Subordinated Debts ...................................................................................................... 30 Table 7 - Reference Equity (RE) Details ............................................................................................... 31 Table 8 - Regulatory Adjustments ......................................................................................................... 32 Table 9 - Capital Minimun Requirements in relation to RWA ................................................................ 33 Table 10 - Required Minimun Reference Equity ................................................................................... 33 Table 11 - Basel Ratio (Total Capital Ratio) and PR margin ................................................................. 34 Table 12 - Commom model of information disclosure on Leverage Ratio ............................................ 35 Table 13 - Comparative summary between Disclosed Financial Statements and Leverage Ratio ...... 36 Table 14 - Shareholdings - Banking Book ............................................................................................. 38 Table 15 - Collateral coverage .............................................................................................................. 42 Table 16 - Mitigated value of exposure, weighted by the respective risk factor .................................... 42 Table 17 - Concentration of the ten and of the hundred largest customers in relation to the total of transactions with credit granting feature ................................................................................................ 43 Table 18 - Credit risk average exposure ............................................................................................... 43 Table 19 - PJ credit risk exposure by geographic regions .................................................................... 44 Table 20 - PF credit risk exposure by geographic regions .................................................................... 44 Table 21 - Credit risk exposure of the prudential conglomerate, by economic sector .......................... 45 Table 22 - Credit risk exposure of the agribusiness portfolio, segregated by economic sector and businesses portfolio (PJ) - 3Q17 ........................................................................................................... 46 Table 23 - Credit risk exposure of the agribusiness portfolio, segregated by economic sector and businesses portfolio (PJ) - 2Q17 ........................................................................................................... 46 Table 24 - Credit risk exposure of the agribusiness portfolio, segregated by economic sector and businesses portfolio (PJ) - 1Q17 ........................................................................................................... 47 Table 25 - Credit risk exposure of PF and PJ portfolios by maturity of the transactions - 3Q17 .......... 47 Table 26 - Credit risk exposure of PF and PJ portfolios by maturity of the transactions - 2Q17 .......... 47 Table 27 - Credit risk exposure of PF and PJ portfolios by maturity of the transactions - 1Q17 .......... 48 Table 28 - Amount of overdue transactions by geographical regions ................................................... 48 Table 29 - Amount of overdue transactions, segregated by economic sector - 3Q17 .......................... 49 Table 30 - Amount of overdue transactions, segregated by economic sector - 2Q17 .......................... 49 Table 31 - Amount of overdue transactions, segregated by economic sector - 1Q17 .......................... 50 Table 32 - Write-off transactions by economic sector ........................................................................... 50 Table 33 - Total allowances for loan and lease losses in the quarter and variations ........................... 51 Table 34 - Credit risk exposure by FPR ................................................................................................ 51 Table 35 - Notional value of contracts to be liquidated in clearing houses, in which the clearing house acts as central counterparty .................................................................................................................. 52 Table 36 - Notional value of contracts subject to counterparty credit risk in which clearing houses do not act as central counterparty .............................................................................................................. 52 Table 37 - Positive gross value of contracts subject to counterparty credit risk ................................... 52 Table 38 - The value of collaterals that cumulatively meet the requirements of paragraph VII, Art.9, of Bacen Circular n° 3,678/13 ................................................................................................................... 53 Table 39 - The value of collaterals that cumulatively meet the requirements of paragraph VII, Art.9, of Bacen Circular nº 3,678/13 .................................................................................................................... 53 Table 40 - Loss operations assigned, with substantial transfer of risks and benefits ........................... 53 Table 41 - Value of the portfolio granted with co-obligation, recorded in the off balance sheet ........... 54 Table 42 - Balance of exposures acquired WITH retention of risks and benefits by the transferor ...... 54 Table 43 - Balance of exposures acquired WITHOUT retention of risks and benefits by the transferor ............................................................................................................................................................... 54 Table 44 - Value of the exposures derived from acquiring FIDC and CRI ............................................ 55 Table 45 - Derivative financial instruments in the country and abroad, by market risk factor, with and without a central counterpart - 3Q17 ..................................................................................................... 56 Table 46 - Derivative financial instruments in the country and abroad, by market risk factor, with and without a central counterpart - 2Q17 ..................................................................................................... 57 Table 47 - Derivative financial instruments in the country and abroad, by market risk factor, with and without a central counterpart - 1Q17 ..................................................................................................... 57 Table 48 - Derivative financial instruments in the country and abroad, by market risk factor, with and without a centralcounterpart - 4Q17 ...................................................................................................... 57


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Table 49 - Derivative financial instruments in the country and abroad, by market risk factor, with and without a central counterpart - 3Q16 ..................................................................................................... 58 Table 50 - Negotiable Portfolio by relevant market risk factor, divided into positions purchased and positions sold. ........................................................................................................................................ 59 Table 51 - Impact on the result or on the assessment of the institution value due to the shocks in interest rates, segmented by risk factor - Economic Value of Equity methodology .............................. 60 Table 52 - LCR Implementation Schedule ............................................................................................ 66 Table 53 - Information on the Liquidity Coverage Ratio (LCR) ............................................................. 67 Table 54 - Operational losses monitoring by loss events category ....................................................... 70


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List of Figures

Figure 1 - Regulatory Capital Indicators ................................................................................................ 11 Figure 2 - Corporate Governance Structure .......................................................................................... 12 Figure 3 - Organizational Structure involved in the capital and risk management ................................ 13 Figure 4 -Decision making and process ................................................................................................ 19 Figure 5 - Liquidity in Local Currency .................................................................................................... 63 Figure 6 - Liquidity in Foreign Currency ................................................................................................ 64 Figure 7 - DRL Indicator ........................................................................................................................ 65

List of Charts

Chart 1 - Main Purposes of the Advisory committees to the Board of Directors ................................... 13 Chart 2 - Main Purposes of the Committees involved with risks and capital management .................. 14 Chart 3 - Main Purposes of the Forums involved with risk and capital management ........................... 14 Chart 4 - Banco do Brasil`s Prudential Conglomerate Relevant Risks Set Concept ............................ 16 Chart 5 - Criteria and parameters for classification of the capital condition .......................................... 35


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Abbreviations Glossary

ACP Core Capital Additional

Audit Internal Audit

Bacen Central Bank of Brazil

CA Board of Directors

CD Board of Officers

CF Fiscal Council

Coaud

Coris

Corem

Audit Committee

Risks and Capital Committee

Remuneration and Elegibility Comitee

Coger Accounting Directorship

CEGAPC

CEGRC

CSGRC

Asset, Liability, Liquidity and Capital Management Executive Committee

Risk Management and Internal Controls Executive Committee

Risk, Assets, Liabilities, Liquidity and Capital Management Superior Committee

Dicoi Internal Controls Directorship

Dicre Credit Directorship

Difin Finance Directorship

Dirco Controlling Directorship

Direo Strategy and Organization Directorship

Diris Risk Management Directorship

Disin Institutional Security Directorship

DRL Availability of Free Resources Indicator

ECBB Banco do Brasil Corporative Strategy

ELBB Banco do Brasil Linked (Related) Entities

EMLI Liquidity Maximum Requirement Intraday

FPR Risk Weighting Factor

HIBP IBP projected mismatching minimum time horizon

HICN1 ICNI projected mismatching minimum time horizon

HICP ICP projected mismatching minimum time horizon

IB Capital Adequacy Ratio

IBP Prudential minimum Capital Ratio (Minimum IB defined by management)

Icaap Internal Capital Adequacy Assessment Process

ICN1 Tier 1 Capital Ratio

ICP Core Capital Ratio

Icred90 Credit as of 90 days default ratio

IDS Subordinate Debt Instrument

IHCD Capital and Debt Hybrid Instruments

Iprov Provisioning Ratio (PCLD balance over the portfolio balance)

MCC Capital Contingency Measures

MCL Liquidity Contingency Measures

MP Prudential Margin in reais equivalent to the difference between the IBP and the IBR

PR Reference Equity

PRMR

Redex

Minimum Required Reference Equity to cover Pillar I risks

External Network

RL Liquidity Reserve

RSPL Shareholder Equity Return

RWA Risk-Weighted Assets

RWAACS Risk Weighted Assets for the Shares Market Risk exposures

RWACAM Risk Weighted Assets for the Exchange Market Risk exposures

RWACIRB Risk Weighted Assets for the Credit Risk ascertained by internal models based approach

RWACOM Risk Weighted Assets for the Commodities Market Risk exposures

RWACPAD Risk Weighted Assets for the Credit Risk ascertained by standardized approach

RWAJUR Risk Weighted Assets for the Interest Rate Market Risk exposures

RWAMINT Risk Weighted Assets for the Market Risk ascertained by internal models

RWAMPAD Risk Weighted Assets for the Market Risk ascertained by standardized approach

RWAOPAD Risk Weighted Assets for the Operational Risk ascertained by standardized approach

Vicri Risk Management and Internal Controls Vice-President


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Banco do Brasil

Founded in 1808, Banco do Brasil (BB) is a mixed-capital company that is controlled by the Brazilian Government and has been listed in B31 (Brasil, Bolsa e Balcão) New Market, which is a segment that gathers the companies with the best corporative governance practices.

Banco do Brasil was also certified as a State-Owned Enterprises Governance Program, aimed at public State-Owned Companies (SOE) or SOEs with ongoing of IPO, created with the objective of encouraging them to improve their corporate governance practices and structures.

As one of the main economic and social development agent, as well as public policies executor in the country, BB supports agribusiness, infrastructure, small and micro companies and the foreign trade, by acting in a responsible way to promote social inclusion by means of labor and income generation.

Our belief, “a better society requires a public spirit in each one of us”, based on the constant search for the conciliation of the necessities and interests of the Bank and all its relationship public. In that sense, the individual and collective dimensions are considered, by acting as a market bank, doing social businesses or as a protagonist of the country development.

Mission: “Market Bank with public spirit. Being a profitable and competitive bank, working with public spirit in each one of its actions with clients, shareholders and the society as a whole.”

Vision: “To be the most reliable and relevant Bank to the lives of customers, employees and the development of Brazil”.

Values: Public Spirit, Ethics, Efficiency, Innovation, Human Potential and Customer View.

1 Company formed from the merger of BMF & Bovespa with Cetip.


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1. Introduction

Banking system sustainability is indissolubly linked to risk-management and capital policies and mechanisms. The methods of identifying, assessing, controlling, mitigating and monitoring risk safeguard financial institutions in adverse situations and provide support for the generation of positive results that are recurring in the long run. Banco do Brasil (BB) considers essential risk and capital management to the process of decision-making, providing optimization of risk-return ratio to the operations.

Changes in the global financial environment, such as market integration through globalization, the emergence of new transactions and products, increasing technological sophistication and new regulations have made financial activities and their risks more and more complex.

Brazil’s participation in the Basel Committee on Banking Supervision stimulates the timely implementation of international prudential norms in the Brazilian regulatory framework.

Additionally, the lessons learned from financial disasters reinforce the importance of risk and capital management in the banking industry.

Those factors influence regulatory agencies and financial institutions to invest in risk management, seeking to strengthen their financial health.

In line with that perspective, BB has invested in the continuous improvement of its risk and capital management process and practices, in line with international market benchmarks of regulation and supervision.

BB remains continuously aligned with the best management practices, among which, the risk management architecture with multidimensional scope whose specificities are described in this report.

1.1 Objective

The current report aims to disclose the information related to risk management, to the measurement of the amount of Risk Weighted Assets (RWA) and to the Reference Equity (PR), in accordance with Circular nº 3,678, published by the Central Bank of Brazil (Bacen) on 10.31.2013, and it is aligned with the guidelines of Pillar III of Basel II. This report includes information about structures, processes and risk and capital management policies of Banco do Brasil (BB).

The measurement of PR and RWA considers the consolidation scope of the Prudential Conglomerate2.

2 Prudential Regulation Details on the chapter 3.


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1.2 Main Regulatory Indicators

BB Prudential Conglomerate main risks and capital indicators are shown below considering the position of the previous three quarters:

Figure 1 - Regulatory Capital Indicators


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2 Risks and Capital Governance

2.1 Risk and Capital Internal Governance

Banco do Brasil`s corporate governance structure has:

a) The Shareholder’s General Meeting, the Board of Directors (CA), assisted by the Audit Committee (Coaud), by the Remuneration and Eligibility Committee (Corem), by the Capital and Risks Commitee (Coris)and by the Internal Audit (Audit);

b) the Executive Board, composed by the Board of Officers (CD) and by the Statutory Directors;

c) the Fiscal Council (CF).

Figure 2 - Corporate Governance Structure

The decisions, in any level of the Company, are made in a collegiate way, except for the situations in which a minimum organizational structure does not allow it. Aiming to involve all officers with the definition of strategies and the appreciation of proposals for Banco do Brasil`s different businesses, the Management uses strategic level committee, which warrant speed, quality and safety to decision making.

Decisions are reported to participating units through documents that objectively express the position taken by the Senior Management, guaranteeing application throughout the Bank.

The risk and capital governance model adopted by BB involves a superior committee and executive committee structure, with the participation of many units at the Bank, addressing the following issues:

a) separation of duties: business versus risk;

b) specific structure for risk management;

c) defined management process;

d) decisions in several hierarchical levels;


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e) clear rules and authority structure; and

f) reference to best management practices.

The figure below represents BB`s structure of risk and capital governance:

Figure 3 - Organizational Structure involved in the capital and risk management

The Committees involved with BB`s risk and capital management, as well as their main purposesare described in the following chart:

Chart 1 - Main Purposes of the Advisory committees to the Board of Directors

Advisory committees to the Board of

Directors Main Purposes

Audit Comitee (CoAud)

Evaluate the effectiveness of the internal control systems of Banco do Brasil;

Evaluate and monitor Banco do Brasil’s exposures to risk,

Evaluate reports addressed to the Board of Directors that approach the internal control systems;

Capital and Risks Comitee (Coris)

advise the Board of Directors regarding management of risks and capital

supervise the compliance by the Bank’s Executive Board with the terms of the Risk Appetite Statement;

evaluate the degree of compliance of the risks management structure’s processes with the policies related to management of risks and capital;


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Chart 2 - Main Purposes of the Committees involved with risks and capital management

Strategic Committees Main Purposes

Risk, Assets, Liabilities, Liquidity and Capital Management Superior Committee - CSGRC

approve strategies for management of asset, liabilities and liquidity, risks, internal controls and capital management.

Risk Management and Internal Controls Executive Committee - CEGRC

approve methodologies for risk management and risk mitigation’s actions;

to manifest about methodologies for identify and classify deficiencies in the internal controls system and measures of correction;

instrumentalize the CSGRC in its assignments.

Asset, Liability, Liquidity and Capital Management Executive Committee - CEGAPC

approve guidelines for the funding and collectabilities management and models, methodologies, criteria and parameters applied to capital management

approve the scenarios to be used in the capital management process;

instrumentalize the CSGRC in its assignments.

Chart 3 - Main Purposes of the Forums involved with risk and capital management

Forums Main Purposes

Capital Forum assist the Asset, Liability, Liquidity and Capital Management Executive Committee - CEGAPC with technical

analyses on topics related to capital management, the Internal Capital Adequacy Assessment Process (Icaap) and the Capital Plan;

Scenarios Forum

analyse the corporate scenarios and their integration with the strategy, the budget and relevant risks incurred by the Conglomerate;

promote the unicity and synergy in the usage of macroeconomic scenarios, including in relation to stress tests;

assist theAsset, Liability, Liquidity and Capital Management Executive Committee - CEGAPCwith the deliberations that require an analysis of the assumptions and variables from the macroeconomic scenarios.

PCLD Forum

identify incorrections in the operations risk classification;

propose proactive actions that can prevent improper variations in the Allowance for Loan Losses (PCLD) and correct inconsistencies in the operations risk classification;

identify the origin, evolution and tendency of PCLD and the usage of provisions (losses);

monitor indicators related to PF and PJ credit portfolio default;

Legal and Operational Risks Integrated Management Forum

assess the operational and legal risks of greater relevance to the Bank and discuss possible control measures;

promote the integration and alignment of actions related to the management of operational and legal risks;

assess the models used by the Bank to identify the legal and operational risks and the models of Contingent Demands Provision (PDC), methodologies and backtesting results.

Liquidity Risk Forum pomote, whenever required, the assessment of the Liquidity situation and recommendation to either adopt

or not the Liquidity Risk Prudential Measures (MPRL).

Operational Risk Models Assessment Technical Forum

analyse the proposals of definition, change or maintenance of the operational risk scenarios and the results of the operational risk models backtesting reports.

Internal Controls and Risk Management in ELBB and External Network Forum

promote discussions on models and methodologies of internal controls and risk management, on identified relevant risks and on internal controls implemented in Banco do Brasil Linked Entities (ELBB) and in the External Network;

integrate the actions developed by the internal control and risk management areas related to ELBB and External Network.

Banco do Brasil`s Prudential Conglomerate risks and capital management is made based on the Market best practices and observes the banking regulation and supervision rules.

The risk management structure involves: specific policies, the Risks Appetite and Tolerance Statement, the strategies, the processes, the procedures and the management structures, by observing the specificities of each risk.

Considering the requirements associated with the risk management structure standardized in CMN Resolution 4,557, the CA indicated the Vice President of Internal Controls and Risk Management as the Chief Risk Officer (CRO) of the Conglomerate.

Banco do Brasil`s capital management consists of a continuous process of planning, assessment, control and monitoring of the capital that is necessary to cover the company relevant risks and bear the capital requirements made by the regulator, or


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the ones that are internally defined by the Institution, by considering the strategic planning and budget, aiming to optimize its allocation and structure.

The capital management process is done based on the policies and strategies of the Bank`s Senior Management and permeates several areas, in the Institution`s governance levels, covering the Board of Directors, the Board of Officers, the Strategic Committees, Directorships and the Capital Forum.

Controlling (Dirco), Finance (Difin), Accounting (Coger) and Risk Management (Diris) are part of the capital management structure. The Board of Directors (CA) of BB indicated the Controlling Director as responsible for Capital Management with the Central Bank.

The areas that were defined in the capital management structure are collective or individually responsible for:

a) identification of relevant risks;

b) assessment of the capital required to bear them;

c) projection of risk and capital indicators;

d) calculation of the Referential Equity (PR);

e) elaboration of the capital plan and contingency plan and;

f) evaluating capital sources and its restoration.

g) Icaap (Internal Capital Adequacy Assessment Process);

h) Stress Tests;

i) Managerial Reports; and

j) Capital Management Specific Policy.

Banco do Brasil’s capital management structure enables the monitoring and control of the capital kept by the Institution, the assessment of capital necessity to cover the risks the Institution is exposed to and the planning of goals and capital necessity, by considering the Institution`s strategic goals. That way, BB adopts a forward-looking position, by anticipating the capital necessity derived from the market conditions possible changes.

The Internal Controls Directorship (Dicoi) is responsible for the certification of controls, validation of risk measurement models, evaluation and certification of the Bank's internal control system and Compliance Risk management.

The Internal Audit (Audit) periodically assesses the risk management processes aiming to check if they are in accordance with the strategic guidelines, the specific policies and the internal and regulatory rules.

2.2 Strategic Definitions

2.2.1 Relevant Risks

BB has a process of identification of risks wihich are part of the risks inventory and for the definition of corporate set of relevant risks. That process is quite important for the risks and capital management, as well as for the business management.

BB`s risks inventory and the corporate set of relevant risks are annually revised, considering the risks incurred by the several business segments explored by the Bank or by its subsidiaries, which can affect Banco do Brasil`s Prudential Conglomerate Reference Equity (PR).


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The classification of the relevant risks is based on quantitative and qualitative criteria.

The risks below are part of Banco do Brasil`s Prudential Conglomerate Relevant Risks Corporate Range:

Chart 4 - Banco do Brasil`s Prudential Conglomerate Relevant Risks Set Concept

Risk Concepts

Credit Risk Possibility of losses associated with the non-fulfillment by a borrower or a counterparty of their corresponding financial obligations according to negotiated terms, the devaluation of a loan agreement due to a drop in the borrower’s risk rating, a decline in gains or earnings, benefits granted in renegotiation, and recovery costs.

Credit Concentration Risk Possibility of credit losses arising from significant exposure to counterparty, a risk factor or groups of counterparties related by common characteristics.

Counterparty Credit Risk Possibility of a certain counterparty not fulfilling its obligations related to the settlement of transactions that involve trading financial assets, including those related to the settlement of financial derivatives.

Market Risk Possibility of financial or economic losses resulting from the fluctuation of market values of positions held by the financial institution.

Banking Book Interest Rate Risk

Possibility of losses related to the fluctuations of the operations interest rates that are not classified in the trading portfolio (trading book).

Liquidity Risk Possibility of imbalances between tradable assets and liabilities - "mismatches" between payments and receipts - which can affect the institution’s payment ability, taking into account the different currencies and settlement terms of its rights and obligations.

Operational Risk Possibility of losses due to failures, deficiencies, or improper internal processes, people and systems or external events. That includes the possibility of losses arising from legal risk.

Legal Risk Possibility of losses derived form the inadequacy of deficiency in contracts signed by the institution, as well as the penalties due to the infringement of legal mechanisms and the compensation for losses to third parties derived from the activities done by the institution.

Environmental Risk Possibility of losses arising from social and environmental impacts resulting from administrative and business practices of BB.

Strategy Risk Possibility of losses arising from adverse changes in the business environment, or use of inappropriate assumptions in decision making.

Reputational Risk Possibility losses associated with the negative perception about the Institution by its customers, counterparties, shareholders, investors, government agencies, community or supervisors, which can adversely affect the sustainability of the business.

Complementary Pension Fund Entities and Private Health Insurance Plan Operators for Employees Risk

Possibility of negative impact derived from the mismatching between actuarial liabilities and assets in the entities sponsored by complementary pension fund and private health insurance plan operators for employees.

Model Risk Possibility of losses derived from the inadequate development or use of models, as a result of the inaccuracy or insufficiency of data or the incorrect formulation in its construction.

Contagion Risk Possibility of negative impact on capital due to adverse events in related companies and/or relevant equities, other than the Prudential Conglomerate.

Compliance Risk Possibility of financial or reputational losses resulting from failure to comply with laws, regulations, internal standards, codes of conduct and guidelines established for the business and activities of the organization.

2.2.2 Risk Appetite and Tolerance

Banco do Brasil`s risk appetite and tolerance indicators and their corresponding limits consider, in their definition, the exposure to the risks, the business strategies and the projections of capital necessity that subsidize the Capital Plan.


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The definition of the risk appetite considers the capability to take risks, the risks tolerance and the Institution´s risk profile.

The Risk Appetite and Tolerance Statement covers the capital adequacy indicators: Core Capital Ratio (ICP), Tier l Capital Ratio (ICNI) and the Capital Adequacy Ratio (IB), among others, which can be accessed by all strategic units.

2.2.3 Risk and Capital Management Policies

The policies that are specific for capital and risk management, approved by the Board of Directors, aim to lead the development of functions or behaviors, by means of strategic directives that guide the Risk and Capital Management actions.

Those specific policies are applied to all the businesses that involve risks and capital in the Bank, are avaliable to be checked by all the Bank`s employees and their contents are revised, at least, yearly.

The Capital Management Specific Policy guides Banco do Brasil`s capital management, by means of a continuous process of planning, assessment, control and monitoring of the capital to cover all the relevant risks.

Banco do Brasil`s Risk and Capital Management Specific Policies are quoted as follows:

a) Capital Management Specific Policy;

b) Credit Specific Policy;

c) Market Risks Specific Policy;

d) Liquidity Risk Specific Policy;

e) Derivative Financial Instruments Usage Specific Policy;

f) Specific Strategy Risk Policy;

g) Specific Reputation Risk Policy;

h) Specific Risk Policy for Closed Entities of Complementary Pension Plans and Private Pension Plans for Employees (EFPPS);

i) Specific Interest Rate Risk Policy for the Non-Trading Portfolio

j) Model Risk Policy

k) Banco do Brasil`s Specific Policies associated to the Operational Risk Management:

i. Operational Risk Specific Policy;

ii. Anti Money-Laundering, Corruption and Terrorism Financing Specific Policy;

iii. Business Continuity Management Specific Policy;

iv. Relationship Between the Bank and Suppliers Specific Policy;

v. Information Security Specific Policy;

vi. Legal Risk Specific Policy;

l) Socio-environmental Responsibility Specific Policy; and

m) Risk and Capital Management Information Disclosure Specific Policy.


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2.3 Reports

Risk and capital management reports support the risk and capital decision-making process and are presented to:

a) Risk Management and Internal Controls Executive Committee (CEGRC);

b) Asset, Liability, Liquidity and Capital Management Executive Committee (CEGAPC);

c) Risk, Assets, Liabilities, Liquidity and Capital Management Superior Committee (CSGRC);

d) Board of Officers (CD);

e) Audit Committee;

f) Capital and Risks Committee;

g) Board of Directors (CA).

The reports are periodically elaborated and have managerial qualitative and quantitative information, such as the monitoring of risk exposure and the capital planning, the consumption of global and specific limits, mitigating actions, projection of indicators and the necessity or not to recompose capital, whenever necessary. Among the internal reports, the following ones are quoted:

a) Risk Dashboard; and

b) Capital Adequacy Managerial Report.

The information destined to the external public is available in a public access location and can easily be found on the Bank`s website. Information about risks are published in the following documents:

a) Management Discussion & Analysis;

b) Risk Management Report - Pillar III;

c) Reference Sheet;

d) Explanatory Notes to Financial Statements; and

e) Annual Report.

2.4 Risk Management Processes

The risk management process involves a continuous information flow, by observing the following stages:


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Figure 4 -Decision making and process

It is important to mention that BB has a corporate tool to control and assess the Risks of Products, Services and Self-Service Channels (Carps), which is managed by Strategy and Organization Directorship (Direo), of mandatory usage by strategic units and external network, except for the subsidiary companies when there is the creation or revitalization of:

a) a product of service;

b) a type of product or service; and

c) self-service channels.

The usage of the tool aims to:

a) provide decision makers with information, by aggregating products, services and self-service channels with safety when they are launched in the Market, through the participation of the intervening areas;

b) identify and assess the several types of risks defined by the Bank for the creation and revitalization of a product/service/self-service channel;

c) search for control and compliance solutions that minimize risks;

d) promote synergy among managers and intervening parties of products/services/self-service channels, in a way it provides operational efficiency.

In the approval of new products, Carps corporate tool adopts the principle that a manager must assess risks and implemente controls, with the assistance of areas that are involved in the process, seeking a higher profitability and the reduction of losses.


20

3 Prudential Conglomerate

The CMN Resolution nº 4,192, published on March 01, 2013, in its 3rd article, item ll, establishes thatthe calculation of Reference Equity (RE) must be performed in consolidated bases for institutions that belong to the Prudential Conglomerate.

The CMN Resolution nº 4,280, published on October 31, 2013, governs the preparation, disclosure and submission requirements of Prudential Conglomerate’s consolidated financial statements. This Resolution was amended by the CMN Resolution 4,517, on August 24, 2016.

According to the mentioned Resolutions, financial institutions and other institutions authorized by Bacen shall prepare financial statements in a consolidated basis, including data relative to the following entities, either located in Brazil or abroad, over which the institution has direct or indirect control:

a) financial institutions;

b) other institutions authorized by Bacen;

c) consortium administrators;

d) payment institutions;

e) companies that perform the acquisition of credit operations, including real estate, or credit rights, like factoring companies, securitization companies and exclusive purpose societies;

f) other legal entities domiciled in Brazil that have, as an exclusive objective, an equity interest in the entities mentioned in items a through e.

The CMN Resolution 4,280/13 also determines that investment funds in which the entities that compose the Prudential Conglomerate, under any form, take or retain substantial risks and benefits, shall be consolidated.

According to the CMN Resolution 4,517/16, investments in joint ventures must be accounted by the equity method from January 2017. They were previously proportionally consolidated.

3.1 Balance Sheets

The table below shows the composition of the Prudential Balance Sheet compared to the Consolidated Balance Sheet prepared in accordance with the Bank’s accounting policies, as well as references to the figures presented in the "Attachment 1 - Composition of the Reference Equity".


21

Table 1 - Prudential Balance Sheet x Disclosed Balance Sheet

3Q17

In thousands of Reais Reference

in RE Prudential Conglomerate

Disclosed Financial Statements

ASSETS

CURRENT ASSETS AND LONG-TERM-RECEIVABLES 1,362,503,465 1,368,997,329

Cash and Cash Equivalents 14,266,793 14,267,230

Short-term Interbank Investments 411,324,497 411,344,256

Open market investments 385,024,243 385,024,243

Interbank deposits 26,300,254 26,320,013

Securities and Derivative Financial Instruments 133,190,363 137,490,768

Own portfolio 91,694,515 101,528,211 Funding instruments issued by institution authorized by Banco Central do

Brasil (s) 19,403

--

Other 91,675,112 --

Subject to repurchase agreements 37,658,922 32,125,631

Pledged in guarantee 2,386,047 2,386,047

Derivative financial instruments 1,450,879 1,450,879

Interbank accounts 78,101,241 78,101,241

Payments and receipts pending settlement 3,161,384 3,161,384

Restricted deposits 72,209,298 72,209,298

Deposits with Banco Central do Brasil 69,441,849 69,441,849

National Treasury - rural credits resources 52,822 52,822

National Housing Finance System 2,714,627 2,714,627

Interbank onlendings 646,014 646,014

Correspondent banks 2,084,545 2,084,545

Interdepartmental Accounts 129,464 129,464

Loan Operations 541,487,371 541,457,759

Public sector 48,011,520 72,824,193

Private sector 529,552,777 504,710,492

Loan operations linked to assignment 521,524 521,524

(Allowance for loan losses) (36,598,450) (36,598,450)

Leasing Transactions 239,061 424,054

Private sector 265,508 450,501

(Allowance for leasing transactions losses) (26,447) (26,447)

Other Receivables 183,265,550 185,259,973

Receivables from guarantees honored 604,775 604,775

Foreign exchange portfolio 16,567,668 16,567,668

Accrued Income 2,033,859 2,938,024

Securities trading 945,412 945,412

Specific credits 408,713 408,713

Sundry 165,466,849 166,573,969

Tax credits 41,851,959 -- Resulting from tax losses and negative basis of social contribution on

net income (g) 1508,321 --

Resulting from temporary differences 40,343,638 --

Excess of 10% from Common Equity Tier 1 Capital (k1) 7,162,196 --

Excess of 15% from Common Equity Tier 1 Capital (m) 4,359,983 -- Tax credits resulting from temporary differences not deducted from

RE (u) 3,982,110 --

Tax credits resulting from temporary differences for loan losses 24,839,349 --

Actuarial assets related to defined benefit pension funds (h1) 162,754 --

Other 123,452,137 --

(Allowance for other losses) (2,761,726) (2,778,588)

Other Assets 499,124 522,584

Assets not for own use and materials in stock 335,998 366,357

(Allowance for losses) (152,408) (159,858)

Prepaid expenses 315,534 316,085


22

3Q17




PERMANENT ASSETS 35,147,062 30,893,426

Investments 20,785,834 16,853,215

Investments in subsidiaries and associates 20,644,589 16,704,248

Domestic 20,592,316 16,651,975

Goodwill (e1) 350,407 --

Investments 20,241,909 --

Investments in insurance companies 11,128,897 --

(j) 2,786,804 --

Excess of 15% from Common Equity Tier 1 Capital (l1) 4,359,983 --

Investments not deducted from RE (t) 3,982,110 --

Other Investments 9,113,012 -- Funding instruments issued by institution authorized for Banco

Central do Brasil deducted from PR (l2) 2,400,256 --

Other 6,712,756 --

Abroad 52,273 52,273

Goodwill (e2) 6,558 --

Other 45,715 --

Other investments 168,075 168,099

(Accumulated impairment) (26,830) (19,132)

Property and equipment 7,128,118 7,213,478

Land and buildings 7,525,636 7,531,520

Other property and equipment 9,923,438 10,076,499

(Accumulated depreciation) (10,320,956) (10,394,541)

Property and equipment by leases (1) 406,732 --

Leased assets 471,659 --

(Accumulated depreciation) (64,927) --

Intangible 6,826,378 6,826,733

Intangible assets 20,021,618 20,037,113

Goodwill (e3) 4,961,028 --

Other Intangible assets 15,060,590 --

Constituted from October 1, 2013 (f1) 10,377,465 --

Constituted before October 1, 2013 (f2) (n1) 4,683,125 --

(Accumulated amortization) (13,195,240) (13,210,380)

Goodwill Amortization (e4) (4,709,163) --

Other Amortization (8,486,077) --

Intangible assets amortization constituted from October 1, 2013 (f3) (4,338,314) --

Intangible assets amortization constituted before October 1, 2013 (f4) (n2) (4,147,763) --

Deferred -- --

Organization and expansion costs 2,098 2,098

(Accumulated amortization of Deferred) (2,098) (2,098)

TOTAL ASSETS 1,397,650,527 1,399,890,755 (1) Leasing transactions were considered based on the financial method, and the amounts were reclassified from the heading of leased assets to the heading of leasing transactions, after deduction of residual amounts received in advance.


23

3Q17




LIABILITIES

CURRENT LIABILITIES AND LONG-TERM LIABILITIES 1,306,559,572 1,305,910,897

Deposits 437,136,543 437,122,989

Demand deposits 61,800,213 61,793,371

Savings deposits 154,516,749 154,516,749

Interbank deposits 19,648,913 19,648,913

Time deposits 201,046,977 201,040,265

Other deposits 123,691 123,691

Securities Sold Under Repurchase Agreements 423,555,024 417,870,284

Own portfolio 47,136,116 41,451,376

Third-party portfolio 376,418,908 376,418,908

Funds from Acceptance and Issuance of Securities 134,437,263 137,132,224

Bonds backed by real estate, mortgage and other credits 116,723,653 116,723,653

Foreign securities 17,584,968 20,279,929

Certificates of structured operations 128,642 128,642

Interbank Accounts 2,524,476 2,524,476

Receipts and payments pending settlement 2,524,476 2,524,476

Interdepartmental Accounts 2,388,368 2,388,368

Thrid-party funds in transit 2,387,169 2,387,169

Internal transfers of funds 1,199 1,199

Borrowings 18,368,358 18,368,358

Domestic Onlending - Official Institutions 82,673,663 82,673,663

National Treasury 158,557 158,557

BNDES 28,003,364 28,003,364

Caixa Econômica Federal 25,858,655 25,858,655

Finame 21,131,155 21,131,155

Other institutions 7,521,932 7,521,932

Foreign Onlending 477 477

Derivative Financial Instruments 1,719,626 1,719,626

Other Liabilities 203,755,774 206,110,432

Billing and collection of taxes and contributions 4,902,252 4,902,252

Foreign exchange portfolio 12,104,100 12,104,100

Shareholders and statutory distributions 1,078,343 1,080,171

Taxes and social security 11,820,587 12,711,347

Deferred tax liabilities associated to defined benefit pension funds assets (h2) 41,434 --

Deferred tax liabilities deducted of the deferred tax assets value (k2) 2,030,224 --

Other 9,748,929 --

Securities trading 1,159,107 1082,846

Financial and development funds 14,841,867 14,841,867

Special operations 2,216 2,216

Subordinated debts 55,440,167 55,440,167 In accordance with regulations preceding the CMN Resolution

No.4,192/2013 as Tier II (FCO) 27,149,284 -- In accordance with regulations preceding the CMN Resolution

No.4,192/2013 as Tier II (r) (w) 28,170,592 --

Other Subordinated debts 120,291 --

Equity and debt hybrid securities 5,808,085 5,808,085 In accordance with regulations preceding the CMN Resolution

No.4,192/2013 as Additional Tier 1 Capital (p) (v) 4,593,600 --

Other 1,214,485 --

Debt instruments eligible as capital 24,848,035 24,848,035

Instruments eligible as Additional Tier 1 Capital (o) 17,344,800 --

Instruments eligible as Tier II 7,503,235 --

Instruments considered in RE after applying reducer (q) 4,475,632 --

Value of REdisregarded due to application of the reducer 3,027,603 --

Other liabilities 71,751,015 73,289,346

DEFERRED INCOME 415,661 415,661

Shareholder's Equity 90,675,294 93,564,197

Capital (a1) 67,000,000 67,000,000

Local residents 52,261,049 52,261,049

Domiciled abroad 14,738,951 14,738,951

Instrument Qualifying as Common Equity Tier 1 Capital (a2) 8,100,000 8,100,000

Capital Reserves (c1) 12,436 12,436

Revaluation Reserves (c2) 2,389 2,389

Profit Reserves (b1) 31,124,786 31,124,786

Accumulated Other Comprehensive Income (c3) (16,481,629) (16,481,629)

Retained earnings/accumulated losses (b2) 1,977,009 1,977,009

(Treasury Shares) (i) (1,850,043) (1,850,043)

Noncontrolling Interests (d) 790,346 3,679,249

TOTAL LIABILITIES 1,397,650,527 1,399,890,755


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3.2 Composition of the Prudential Conglomerate

The following table shows the institutions that comprise the Prudential Balance Sheet:

Table 2 - Composition of the Prudential Conglomerate

3Q17 2Q17 1Q17 4Q16 3Q16

R$ Thousand Activity

Total Assets

Equity Total

Assets Equity

Total Assets

Equity Total

Assets Equity

Total Assets

Equity

Financial Institutions Banco do Brasil S.A. - Agências no País e no Exterior

(1) Banking

1,517,191,663 89,707,998

1,570,527,817

87,270,925

1,525,537,066

85,492,399 1,572,896,574 83,042,501 1,589,247,806 80,463,010

Banco do Brasil - AG (2) Banking 65,123,705 775,940 66,990,492 824,910 64,316,397 741,771 66,222,784 748,647 68,699,963 801,258 BB Leasing S.A. - Arrendamento Mercantil (2) Leasing 20,171,512 4,527,948 19,814,515 4,474,015 23,808,449 4,444,293 63,544,809 4,376,690 61,805,962 4,331,534 BB Securities Asia Pte. Ltd. (2) Broker 23,146 22,154 22,473 21,837 21,306 20,703 21,869 20,392 21,852 20,179 Banco do Brasil Securities LLC. (2) Broker 219,923 213,569 217,807 213,077 201,588 198,699 204,689 201,037 202,760 199,107 BB Securities Ltd. (2) Broker 543,343 193,170 472,402 190,513 445,046 178,223 390,715 176,786 396,197 176,816 BB USA Holding Company, Inc. (2) Holding 661 661 693 693 665 665 706 702 704 699 Brasilian American Merchant Bank (2) Banking 1,528,322 1,488,652 1,880,531 1,505,833 2,838,415 1,461,590 3,323,932 1,510,626 3,336,040 1,512,860 Banco do Brasil Americas (2) Banking 1,772,462 152,192 1,796,621 157,046 1,691,405 146,158 1,655,312 148,073 1,507,522 147,087 Besc Distribuidora de Títulos e Valores Mobiliários S.A.

(2) Asset

Management 7,201 7,145 7,229 7,176 7,356 7,201 7,422 7,197 7,403 7,250

Banco Patagonia S.A. (2) Banking 15,695,931 1,926,342 18,729,549 1,941,962 15,453,637 2,165,021 15,157,939 2,003,966 14,307,800 1,888,279 Banco CBSS S.A. (3) Banking -- -- -- -- -- -- 882,109 299,702 598,581 99,534

BB Banco de Investimento S.A. (2) Investment

Bank 7,652,194 3,496,265 7,408,979 3,014,376 7,454,063 3,321,463 7,379,400 3,018,815 7,206,342 3,243,938

BB Gestão de Recursos-Distribuidora de Títulos e Valores Mobiliários S.A.

(2) Asset

Management 1,333,696 394,148 1,295,747 131,633 752,541 379,129 1,262,881 131,629 1,039,191 340,820

Consortium Manager BB Administradora de Consórcios S.A. (2) Consortium 537,904 301,916 540,320 197,078 385,368 277,983 452,168 197,078 388,622 239,008 Payment Institutions

BB Administradora de Cartões de Crédito S.A. (2) Service

Rendering 107,464 33,236 103,962 28,905 92,791 24,508 119,778 18,977 113,076 36,158

Companhia Brasileira de Soluções e Serviços CBSS - Alelo

(3) Service

Rendering -- -- -- -- -- -- 5,256,154 1,514,529 4,715,807 1,548,141

Cielo S.A. (3) Service

Rendering -- -- -- -- -- -- 24,039,387 9,078,094 22,498,741 8,584,625

Braspag Tecnologia em Pagamento Ltda. (3) Service

Rendering -- -- -- -- -- -- 44,809 35,161 41,879 33,210

Paggo Soluções e Meios de Pagamentos S.A. (3) Service

Rendering -- -- -- -- - - 411 71 424 85

Cateno Gestão de Contas de Pagamento S.A. (3) Service

Rendering -- -- -- -- -- -- 12,721,902 12,182,681 12,548,604 12,095,746

Aliança Pagamentos e Participações Ltda. (3) Service

Rendering -- - -- - -- - 3,807 461 3,677 3,216

Stelo S.A (3) Service

Rendering -- -- -- -- -- -- 91,909 30,593 76,615 31,060

Merchant E-Solutions, Inc. (3) Service

Rendering -- -- -- -- -- -- 1,319,327 494,776 1,262,019 501,726

Securitization Companies

Ativos S.A. Securitizadora de Créditos Financeiros (2) Credits

Acquisition 1,160,722 1,080,465 1,104,014 1,044,860 1,304,215 1,008,759 1,292,242 988,653 1,278,805 1,164,160

BB Asset Management Ireland Limited (2) Credits

Acquisition 2,357 1,782 2,443 1,857 2,080 1,626 2,597 1,714 2,506 1,906

Other Institutions

Fundo Fenix (4) Investment

Fund 1,300,658 1,295,880 1,298,056 1,294,113 1,310,600 1,301,130 1,295,489 1,295,212 1,309,735 1,300,253


25

Fundo Compesa (4) Investment

Fund 118,782 118,725 122,395 122,337 125,958 125,898 129,500 129,398 133,464 132,893

BB Fund Class A (4) Investment

Fund 10,584 10,545 9,316 9,284 9,776 9,544

BB Fund Class D (4) Investment

Fund 88,738 88,659 91,472 91,347 88,189 88,094 92,906 89,859 94,348 93,612

BB Elo Cartões Participações S.A. (3) Holding -- -- -- -- -- -- 6,603,464 6,111,394 6,410,647 6,283,250 Elo Holding Financeira S.A. (3) Holding -- -- -- -- -- -- 163 162 172 168 Farly Participações Ltda. (5) Holding -- -- -- -- -- -- -- -- 512,576 470,567

(1) Leader Institution.

(2) Subsidiaries.

(3) Companies evaluated by the equity method from January, 2017, in accordance with CMN Resolution 4,517 as on August 2016.

(4) The investment funds in which the entities that compose a prudential conglomerate, under any form, take or retain substantial risks and benefits must be included in the financial statements of the Prudential Conglomerate. (5) On November 30, 2016, the company was merged into Banco CBSS S.A.


26

3.3 Composition of the Disclosed Balance Sheet

As follows, the institutions included in the scope of consolidation of the disclosed balance sheet, segregated by business segments:

Table 3 - Composition of the Disclosed Balance Sheet

3Q17 2Q17 1Q17 4Q16 3Q16

R$ Thousand Activity Total Assets Equity Total Assets Equity Total Assets Equity Total Assets Equity Total Assets Equity

Banking Segment

Banco do Brasil S.A. - Agências no País e no Exterior

(1) Banking 1,517,191,663 89,707,998

1,570,527,817

87,270,925 1,525,537,066 85,492,399 1,572,896,574 83,042,501 1,589,247,806 80,463,010

Banco do Brasil - AG (2) Banking 65,123,705 775,940 66,990,492 824,910 64,316,397 741,771 66,222,784 748,647 68,699,963 801,258

BB Leasing S.A. - Arrendamento Mercantil (2) Leasing 20,171,512 4,527,948 19,814,515 4,474,015 23,808,449 4,444,293 63,544,809 4,376,690 61,805,962 4,331,534

BB Securities Asia Pte. Ltd. (2) Broker 23,146 22,154 22,473 21,837 21,306 20,703 21,869 20,392 21,852 20,179

Banco do Brasil Securities LLC. (2) Broker 219,923 213,569 217,807 213,077 201,588 198,699 204,689 201,037 202,760 199,107

BB Securities Ltd. (2) Broker 543,343 193,170 472,402 190,513 445,046 178,223 390,715 176,786 396,197 176,816

BB USA Holding Company, Inc. (2) Holding 661 661 693 693 665 665 706 702 704 699

Brasilian American Merchant Bank (2) Banking 1,528,322 1,488,652 1,880,531 1,505,833 2,838,415 1,461,590 3,323,932 1,510,626 3,336,040 1,512,860

Banco do Brasil Americas (2) Banking 1,772,462 152,192 1,796,621 157,046 1,691,405 146,158 1,655,312 148,073 1,507,522 147,087

Banco Patagonia S.A. (2) Banking 15,695,931 1,926,342 18,729,549 1,941,962 15,453,637 2,165,021 15,157,939 2,003,966 14,307,800 1,888,279

Investment Segment

BB Banco de Investimento S.A. (2) Investment

Bank 7,652,194 3,496,265 7,408,979 3,014,376 7,454,063 3,321,463 7,379,400 3,018,815 7,206,342 3,243,938

Fund Management Segment

BB Gestão de Recursos-Distribuidora de Títulos e Valores Mobiliários S.A.

(2) Asset

Management 1,333,696 394,148 1,295,747 131,633 752,541 379,129 1,262,881 131,629 1,039,191 340,820

Besc Distribuidora de Títulos e Valores Mobiliários S.A.

(2) Asset

Management 7,201 7,145 7,229 7,176 7,356 7,201 7,422 7,197 7,403 7,250

Insurance, Private Pension Fund and Capitalization Segment

BB Seguridade Participações S.A. (2) Holding 8,604,484 8,588,350 8,956,094 7,382,697 8,001,363 7,992,871 8,787,827 7,107,397 7,691,025 7,683,771

BB Cor Participações S.A. (3) Holding -- -- -- -- -- -- -- -- 445,921 445,670

BB Corretora de Seguros e Administradora de Bens S.A.

(2) Broker 2,698,305 456,851 2,805,182 47,069 2,297,434 466,847 3,117,825 61,966 2,691,198 418,950

BB Seguros Participações S.A. (2) Holding 6,601,973 6,478,821 6,779,610 6,675,562 6,525,223 6,515,762 7,247,468 6,637,561 7,027,236 7,001,841

Payment Methods Segment

BB Administradora de Cartões de Crédito S.A.

(2) Service

Rendering 107,464 33,236 103,962 28,905 92,791 24,508 119,778 18,977 113,076 36,158

BB Elo Cartões Participações S.A. (2) Holding 6,773,019 6,659,135 6,618,929 6,517,470 6,365,077 6,310,601 6,603,464 6,111,394 6,410,647 6,283,250

Other Segments

Ativos S.A. Securitizadora de Créditos Financeiros

(2) Credits

Acquisition 1,160,722 1080,465 1,104,014 1044,860 1,304,215 1008,759 1,292,242 988,653 1,278,805 1,164,160

Ativos S.A. Gestão de Cobrança e Recuperação de Crédito

(2) Credits

Acquisition 3,962 2.314 2,974 1.649 7,921 505 8,971 6 8,357 5,124

BB Administradora de Consórcios S.A. (2) Consortium 537,904 301,916 540,320 197,078 385,368 277,983 452,168 197,078 388,622 239,008

BB Tur Viagens e Turismo Ltda. (2) (4) Tourism 39,175 (7,776) 39,515 (5,149) 35,667 (2,409) 37,267 1,792 39,771 4,715

BB Asset Management Ireland Limited (2) Credits

Acquisition 2,357 1,782 2,443 1,857 2,080 1,626 2,597 1,714 2,506 1,906

BB Tecnologia e Serviços (2) IT 470,312 257,465 491,374 251,380 443,986 239,951 481,131 243,607 486,036 231,711

(1) Leader Institution. (2) Subsidiaries. (3) On November 27, 2016, the company was merged into BB Corretora de Seguros e Administradora de Bens S.A.

(4) The Financial Statements refers to august, 2017.


27

The Bank’s Consolidated Financial Statements also include the results of the special purpose entities (Dollar Diversified Payment Rights Finance Company and Loans Finance Company Limited) and of the investment financial funds (Fênix Fundo de Investimento em Direitos Creditórios do Varejo, Fundo de Investimento em Direitos Creditórios da Companhia Pernambucana de Saneamento – Compesa, BB Fund Class A e BB Fund Class D) which the Bank controls directly or indirectly.


28

4 Capital

4.1 Referential Equity (RE) Details

Tier 1

Common Equity Tier 1 Capital

The Bank’s Common Equity Tier 1 Capital is composed by Shareholders’ Equity and income accounts and it is deducted from Regulatory Adjustments.

On August 28, 2014, the Hybrid Instrument in the amount of R$ 8,100,000 thousand, was authorized by Bacen to compose the Bank’s Common Equity Tier 1 Capital.

Regulatory Adjustments

The Regulatory Adjustments are deductions from the Common Equity Tier 1 Capital of elements that can degrade its quality due to their low liquidity, difficulty to evaluate or reliance on future profits to be realized.

From January/17, the percentage of deduction of prudential adjustments listed below increased to 80%:

a) goodwill;

b) intangible assets constituted from October 1, 2013;

c) actuarial assets related to defined benefit pension funds net of deferred tax liabilities;

d) non-controlling interest;

e) investments, directly or indirectly, greater than 10% of the capital of unconsolidated entities similar to financial institutions, and insurance companies, reinsurance companies, capitalization companies and open pension entities (superior investments);

f) tax credits resulting from temporary differences that rely on the generation of future taxable profits or revenues for its realization;

g) tax credits resulting from tax loss of excess depreciation;

h) tax credits resulting from tax losses and negative basis of social contribution on net income.

According to CMN Resolution nº 4,192/13, these deductions will be gradually implemented, 20% per year, from 2014 to 2018, with the exception of deferred assets and funding instruments issued by institutions authorized to operate by Bacen which have already been fully deducted since October 2013.

Additional Tier 1 Capital

Hybrid Capital and Debt Instruments that meet the CMN Resolution nº 4,192/13 requirements can make up Tier 1, as long as they are authorized by Bacen.


29

Table 4 - Hybrid Capital and Debt Instruments

3Q17 2Q17 1Q17 4Q16 3Q16

R$ thousand Issued Value

(1) Remuneration

p.a. Date of Funding

Book Value Book Value Book Value Book Value Book Value

Perpetual Bonds USD 1,498,500 8.50% 10/2009 4,917,521 5,028,660 4,916,288 4,954,528 5,037,582 USD 1,398,727 9.25% 01 e 03/2012 4,694,661 4,792,762 4,697,552 4,731,512 4,817,081

USD 1,988,000

6.25% 01/2013

6,443,788 6,622,635 6,444,444 6,538,397 6,612,282 USD 2,169,700 9.00% 06/2014 7,026,715 7,163,500 7,025,819 7,065,637 7,192,040 Total 23,082,685 23,607,557 23,084,103 23,290,074 23,658,985 (1) It refers, in funding in US dollars, the outstanding value, as occurred partial repurchases of these instruments.

Table 5 - Hybrid Capital and Debt Instruments authorized to compose RE 3Q17 2Q17 1Q17 4Q16 3Q16

R$ Thousand Issued

Value (1)

Value authorized to compose RE

Remuneration p.a.

Issue Date

Value considered in

RE

Value considered

in RE

Value considered

in RE

Value considered

in RE

Value considered

in RE

Perpetual Bonds USD 1,498,500 1,450,000 8.50% 10/2009 4,593,600 4,796,890 4,594,180 4,724,825 4,706,120

USD 1,398,727 1,375,000

9.25% 01 and

03/2012 4,356,000 4,548,775 4,356,550 4,480,437 4,462,700 USD 1,988,000 1,950,000 6.25% 01/2013 6,177,600 6,450,990 6,178,380 6,354,075 6,328,920

USD 2,169,700 2,150,000 9.00% 06/2014 6,811,200 7,112,630 6,812,060 7,005,775 6,978,040 Total 21,938,400 22,909,285 21,941,170 22,565,112 22,475,780 (1) It refers, in funding in US dollars, the outstanding value, as occurred partial repurchases of these instruments.

Of the amount of R$ 23,082,685 thousand of Perpetual Bonds, R$ 21,938,400 thousand makes up the RE on September 30, 2017, being the amount of R$ 17,344,800 thousand in accordance with CMN Resolution No, 4,192/13.

The amount of R$ 4,593,600 thousand, which makes up the RE on September 30, 2017, does not meet the requirements of CMN Resolution No, 4,192/13, so that it should meet the requirements specified in the article 28 of this Resolution.

To learn more about the composition of Additional Tier 1 Capital consult the “Attachment 2 – Referential Equity’s Participant Instruments".

Tier 2

Subordinated Debt Instruments that meet the CMN Resolution nº 4,192/13 requirements can make up Tier 2, as long as they are authorized by Bacen.


30

Table 6 - Total Subordinated Debts

3Q17 2Q17 1Q17 4Q16 3Q16

R$ Thousand

Issued Value

Date of Funding

Maturity Subordinated

Debts on 12.31.2012

Subordinated Debts on 12.31.2012 with the limit of 50% (1)

Book Value

Current value and

with the dacay factor

Book Value

Current value and


Book Value

Current value and


Book Value

Current value and


Book Value

Current value and


Subordinated Debts issued before Resolution 4,192/2013

FCO – Fundo Constitucional do Centro-Oeste

27,149,284 27,149,284 26,591,388 26,591,388 25,945,497 25,945,497 25,237,153 25,237,153 24,331,884 24,331,884

Subordinated CDs issued in the Country

1,615,432 807,715 --

-- --

-- --

-- --

-- --

--

R$ 900,000 2009 2014 268,989 134,494 -- -- -- -- -- -- -- -- -- --

R$

1,335,000 2009 2015 800,309 400,154

-- --

-- --

-- --

-- --

-- --

R$

1,000,000 2009 2015 546,134 273,067

-- --

-- --

-- --

-- --

-- --

Subordinated Financial Bills 8,181,144 4,090,572 19,046,750 1,840,171 18,608,673 2,123,783 18,826,169 2,941,693 20,226,421 4,950,872 19,588,302 5,038,614

R$

1,000,000 2010 2016 798,803 399,401 -- -- -- -- -- -- -- -- -- --

R$ 700,000 2011 2017 1,933,246

966,623 1,393,059

-- 1,358,765

-- 2,020,599

-- 3,918,702

--

3,781,633 246,751

R$ 4,844,900 2012 2018 5,065,127 2,532,564 8,733,417 -- 8,548,842 ,328,741 8,343,783 1,066,576 8,120,026 1,624,005 7,904,695 1,580,939 R$ 215,000 2012 2019 225,565 112,783 400,610 80,122 390,660 78,132 379,808 151,923 367,374 146,949 354,410 141,764 R$ 150,500 2012 2020 158,403 79,201 280,580 112,232 274,146 109,658 266,998 160,198 258,947 155,369 250,674 150,404

R$ 4,680,900

2013 2019 -- --

8,239,084 1,647,817 8,036,260 1,607,252 7,814,981 1,562,996 7,561,372

3,024,549

7,296,890

2,918,756

Subordinated Debt Abroad 6,001,027 3,000,515 9,244,131 7,356,096 9,790,136 7,681,640 9,241,629 7,357,025 9,637,972 8,960,875 9,473,147 9,329,474 USD 300,000 2004 2014 117,476 58,738 -- -- -- -- -- -- -- -- -- --

USD 660,000 2010 2021 1,327,885 663,943 2,105,940 1,235,520 2,229,771

1,290,198 2,107,790 1,235,676 2,195,675 1,694,420

2,153,897

2,104,262

USD

1,500,000 2011 2022 3,043,921 1,521,961

4,764,110 3,776,256 5,045,245

3,943,374 4,761,890

3,776,733 4,966,571 4,855,165

4,873,740 4,825,065

USD 750,000 2012 2023 1,511,745 755,873 2,374,081 2,344,320 2,515,120

2,448,068 2,371,949 2,344,616 2,475,726

2,411,290

2,445,510

2,400,147

Subordinated Debts issued in accordance to Resolution 4,192/2013

Subordinated Financial Bills -- -- 7,503,236 4,475,632 7,315,391 4,935,513 7,109,210 5,349,224 6,874,205

5,466,093

6,633,217

5,285,933

R$ 163,523 2014 2020 -- -- 256,344 102,537 249,921 99,968 242,917 145,750 234,894 140,936 226,533 135,920 R$ 377,100 2014 2020 -- -- 575,085 230,034 560,561 336,337 544,727 326,836 526,593 315,956 507,698 304,619

R$ 2,273,806 2014 2021 -- -- 3,615,324 2,169,195 3,523,598 2,114,159 3,423,607

2,738,886 3,309,117

2,647,294

3,189,845

2,551,876

R$

1,594,580 2014 2021

-- -- 2,413,767 1,459,693 2,352,260

1,881,808 2,285,221

1,525,014

2,208,470

1,766,776

2,128,526

1,712,903

R$ 400,000 2014 2022 -- -- 642,716 514,173 629,051 503,241 612,738

612,738

595,131

595,131

580,615

580,615

Total Subordinated Debts

15,797,603 7,898,802

62,943,401 40,821,183 62,305,588

41,332,324 61,122,505

41,593,439 61,975,751

44,614,993

60,026,550

43,985,905

Subordinated Debts issued before December 31, 2012, applying on it the decay factor due to maturity date (current value)

9,196,267 9,805,423 10,298,718 13,911,747 14,368,088

Subordinated Debts issued after December 31, 2012, applying on it the decay factor due to maturity date (Basel III)

4,475,632 4,935,513 5,349,224 5,466,093 5,285,933


31

On September 30, 2017, Subordinated Debt totalized R$ 62,943,401 thousand, of this amount, R$ 39,523,718 thousand makes up the Reference Equity, of which:

1 - R$ 27,149,284 thousand are related to the resources of the Fundo Constitucional do Centro Oeste – FCO, and integrally compose the RE.

2 - R$ 4,475,632 thousand are related to the Subordinated Debt authorized in accordance with CMN Resolution nº 4,192/13 - Financial Bills, and integrally compose the RE (applied the reduction by maturity, according to article 27 of the Resolution nº 4,192/13).

3 - According to article 29 of the Resolution nº 4,192/13, for the subordinated debt instruments, authorized according to the rules previously to the CMN Resolution n° 4,192/2013, the lowest value between what is described as follows will be considered:

a) the value of the subordinated debts with the reducers, totalizing R$ 9,196,267 thousand, on September 30, 2017;

b) the value that composed the RE on December 31, 2012 (R$ 15,797,603 thousand) by applying the limiting factor from the article 28, which means 10% a year, from 2013 through 2022, resulting in R$ 7,898,802 thousand (value used in the RE), on September 30,2017.

To learn more about the composition of Tier 2 (Subordinated Debt Instruments), check the “Attachment 2 – Referential Equity Participant Instruments ".

Table 7 - Reference Equity (RE) Details

In thousands of Reais 3Q17 2Q17 1Q17 4Q16 3Q16

RE - Referential Equity 129,152,387 127,047,617 124,049,367 130,453,208 127,060,689 Tier I 89,648,072 87,643,046 84,867,246 90,283,551 87,975,915

Common Equity Tier 1 Capital 67,709,672 64,733,761 62,926,076 67,718,439 65,500,135 Shareholders' Equity 82,575,294 80,199,982 79,031,521 76,702,977 75,039,488 Instrument Qualifying as Common Equity Tier 1 Capital 8,100,000 8,100,000 8,100,000 8,100,000 8,100,000 Regulatory adjustments (22,965,622) (23,566,221) (24,205,445) (17,084,538) (17,639,353)

Additional Tier 1 Capital 21,938,400 22,909,285 21,941,170 22,565,112 22,475,780 Hybrid instruments authorized in accordance with CMN Resolution

No. 4,192/2013 17,344,800 18,112,395 17,346,990 17,840,287 17,769,660

Hybrid instruments authorized in accordance with regulations preceding the CMN Resolution No. 4,192/2013 (1)

4,593,600 4,796,890 4,594,180 4,724,825 4,706,120

Tier II 39,504,315 39,404,571 39,182,121 40,169,657 39,084,774 Subordinated Debt Qualifying as Capital 39,523,718 39,425,703 39,193,523 40,181,808 39,096,379

Subordinated Debt authorized in accordance with CMN Resolution No. 4,192/2013 - Financial Bills

4,475,632 4,935,513 5,349,224 5,466,093 5,285,933

Subordinated Debt authorized in accordance with regulations preceding the CMN Resolution No. 4,192/2013

35,048,086 34,490,190 33,844,299 34,715,715 33,810,446

Funds obtained from the FCO (2) 27,149,284 26,591,388 25,945,497 25,237,153 24,331,884 Funds raised in Financial Bills and CD (3) 7,898,802 7,898,802 7,898,802 9,478,562 9,478,562

Deduction from Tier II (19,403) (21,132) (11,402) (12,151) (11,605) Funding instruments issued by financial institution (19,403) (21,132) (11,402) (12,151) (11,605)

(1) On September 30, 2017, based on Bacen's guidance, the balance of the hybrid capital and the debt instrument authorized by Bacen to compose Tier 1 Capital of Reference Equity was considered in accordance with CMN Resolution 3,444 / 2007 and does not meet the relevant entr y criteria , also related to the orientation established in article 28, sections I to X of CMN Resolution 4,192 / 2013. (2) According to CMN Resolution No. 4,192/2013, balances of the FCO are eligible to compose the RE. (3) It was considered the balance of subordinated debt instruments that composed the RE in December 31, 2012, applying on it the limit of 50%, as determined by CMN Resolution No. 4,192/2013.


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Table 8 - Regulatory Adjustments

In thousands of Reais 3Q17 2Q17 1Q17 4Q16 3Q16

Significant investments and tax credits resulting from temporary differences that rely on the generation of future taxable profits or revenues for their realization (amount exceeding the 15% threshold)(1) (2)

(9,376,228) (9,148,813) (9,046,318) (4,636,849) (5,049,484)

Intangible assets constituted after October 2013 (1) (4,831,321) (5,104,774) (5,232,847) (4,258,360) (3,514,052) Tax credits resulting from temporary differences that rely on the generation of future taxable profits or revenues for its realization (amount above 10% threshold) (1)

(4,105,578) (4,852,491) (4,803,076) (6,099,094) (6,877,262)

Significant investments (amount above 10% threshold) (1) (2,229,443) (1,757,550) (2,070,414) -- -- Tax credits resulting from tax losses and negative base for social contribution on net income (1)

(1,129,204) (1,159,676) (1,194,540) (500,439) (336,467)

Goodwill (1) (3) (487,064) (726,506) (965,689) (954,281) (1,232,724) Non-controlling interests (1) (632,276) (637,403) (710,615) (493,315) (464,838) Tax credits resulting from tax loss of excess depreciation (1) (77,453) (84,327) (91,648) (76,391) (76,522) Actuarial assets related to defined benefit pension funds net of deferred tax liabilities (1)

(97,055) (94,681) (90,298) (65,809) (76,988)

Deferred assets -- -- -- -- (11,016) Total (22,965,622) (23,566,221) (24,205,445) (17,084,538) (17,639,353)

(1) Regulatory Adjustments subject to phase-in, according to the CMN Resolution No. 4,192/13. (2) On September 30,2017, related to the investment in Financial Institutions (Banco Votorantim and CBSS Bank), R$ 2,400,256 thousand were integrally deducted from the Referential Equity and R$ 2,192,230 thousand were risk-weighted at 250%. (3) The base value for calculating the goodwill is composed of: R$ 356,965 thousand in the investment line and R$ 251,865 thousand in the intangible assets line. The value in Intangible assets refers to the goodwill paid for the acquisition of Banco Nossa Caixa, merged in November/09.

For further information on the composition of the Reference Equity (RE), see the “Attachment 1 – Composition of the Reference Equity”.

4.2 Minimum Required Reference Equity (MRRE)

The Minimum Required Reference Equity (MRRE) is the equity required (capital volume required) of institutions, conglomerates, and other institutions authorized to operate by Bacen, to face the risks to which they are exposed due to the activities they are involved in, and it is definied by CMN Resolution nº 4,193/13.

The MRRE, corresponds to the application of the factor "F" to the amount of RWA, with:

a) 11% of RWA, from 10.01.2013 to 12.31.2015;

b) 9.875% from RWA 01.01.2016 to 12.31.2016,

c) 9.25% of RWA from 01.01.2017 to 31.12.2017;

d) 8.625% of RWA from 01.01.2018 to 31.12.2018; and

e) 8% of the RWA from 01.01.2019.

In determining the amount of risk-weighted assets (RWA), we consider the sum of the following portions:

a) RWACPAD concerning credit risk exposures subject to the calculation of capital requirements under the standardized approach;

b) RWAMPAD concerning market risk exposures subject to the calculation of capital requirements under the standardized approach, and,

c) RWAOPAD on the calculation of the capital requirement for operational risk under the standardized approach.

The scope of consolidation used as a basis for the verification of operational limits considers the Financial Conglomerate, from 10.01.2013 thru 12.31.2014, and the Prudential Conglomerate, defined by the CMN Resolution nº 4,280/13, as of 01.01.2015.

PR, Core Capital and Tier l Capital minimum limits, in line with the timetable to implant the new capital requirements, are the following:


33

Table 9 - Capital Minimun Requirements in relation to RWA

Indicator

out/13 jan/14 jan/15 jan/16 jan/17 jan/18 jan/19

a) Common Equity Capital 4.5% 4.5% 4.5% 4.5% 4.5% 4.5% 4.5% b) Additional Common Equity Capital (b.1 + b.2 + b.3) 0% 0% 0% 0.625% 2.75% 4.25% 6%

b.1) Conservation - Capital Buffer 0% 0% 0% 0.625% 1.25% 1.875% 2.5% b.2) Countercyclical - Capital Buffer (upper limit)1 0% 0% 0% 0% 1.25% 1.875% 2.5% b.3) Domestic Systemically Important Banks - Capital Buffer (upper

limit)2 0% 0% 0% 0% 0.25% 0.5% 1% c) Requirements A + B 4.5% 4.5% 4.5% 5.125% 7.25% 8.75% 10.5% d) Minimum Tier I Capital 5.5% 5.5% 6% 6% 6% 6% 6% e) Requirements D + B 5.5% 5.5% 6% 6.625% 8.75% 10.25% 12% f) Minimum Total Capital 11% 11% 11% 9.875% 9.25% 8.625% 8% g) Requirements F + B 11% 11% 11% 10.5% 12% 12.875% 14%

(1) Countercyclical - Capital Buffer 0% in 2016 as Circular Bacen 3,769.

(2) Limit applicable to the intermediate category , given the relationship Exhibition / GDP of Brazilian banks , according to BACEN Circular No. 3,768 / 15 .

Table 10 - Required Minimun Reference Equity R$ thousand 3Q17 2Q17 1Q17 4Q16 3Q16

Cre

dit

Ris

k

RWACPAD 602,898,952 633,781,384 618,942,361 643,214,021 668,871,950

2% 47,234 50,567 40,857 22,037 30,649

20% 2,756,504 2,835,250 3,351,759 3,134,839 3,476,453

35% 13,503,965 13,340,421 12,952,516 12,796,987 12,457,028

50% 16,901,985 16,345,807 17,029,314 18,970,003 18,462,330

75% 191,772,181 194,997,681 189,375,729 193,643,390 198,863,590

85% 126,869,757 137,035,719 137,064,037 143,678,685 149,909,403

100% 220,455,343 234,195,590 227,274,919 239,377,401 255,521,661

250% 25,391,122 24,275,157 23,597,274 25,394,409 24,562,547

300% 904,992 933,002 964,641 1153,659 825,978

1.250% 3,923,577 9,327,613 6,693,146 4,447,039 3,690,953

Credit Value Adjustment (CVA) ,372,292 ,444,578 ,598,168 ,595,572 1,071,359

Op

era

tio

nal

Ris

k

RWAOPAD 55,737,907 54,986,312 54,986,312 43,792,910 37,151,992

Asset Management 1,770,032 1,660,609 1,660,609 1,540,543 1,540,447

Commercial 26,093,286 26,434,128 26,434,128 25,012,598 25,012,098

Retail Brokerage 50,455 54,338 54,338 50,503 50,803

Corporate Finance (,490,918) ,256,083 ,256,083 ,927,730 (6,184,095)

Trading and Sales 8,199,599 6,703,383 6,703,383 (2,085,967) (2,758,803)

Payments and Settlements 3,446,440 3,499,197 3,499,197 2,927,139 4,065,768

Financial Agent Services 1,748,668 1,799,753 1,799,753 1,650,783 1,655,794

Retail 14,920,344 14,578,819 14,578,819 13,769,579 13,769,979

Ma

rket

Ris

k

RWAMPAD 15,831,399 16,644,771 9,722,873 18,844,349 16,417,959

Prefixed interest rate, in reais - RWAJUR[1] 2450,272 2844,123 501,534 450,012 410,752

Foreign currency coupons - RWAJUR[2] 2,500,091 1,422,021 ,929,247 1,624,172 7,127,309

Price index coupons - RWAJUR[3] 356,660 261,160 106,867 350,814 11,149

Interest rate coupons - RWAJUR[4] - - - - -

Share price fluctuations - RWAACS 40.720 8.613 - - -

Commodity price fluctuations - RWACOM ,660 3,669 4,243 2,927 1,923

Exchange rate fluctuations - RWACAM 10,482,995 12,105,186 8,180,981 16,416,423 8,866,827

Risk Weighted Assets (RWA)(1) 674,468,258 705,412,467 683,651,545 705,851,279 722,441,901

Minimum Referential Equity Requirement (MRER)(2) 62,388,314 65,250,653 63,237,768 69,702,814 71,341,138

(1) According to CMN Resolution 4,193/2013, since 01.01.2015 the calculation of RWA applies to institutions of the prudential conglomerate. (2) According to CMN Resolution 4,193/2013, corresponds to the application of the factor "F" to the amount of RWA, with "F" equals to 11% of RWA, from 10.01.2013 to 12.31.2015; 9.875% from RWA 01.01.2016 to 12.31.2016, 9.25% of RWA from 01.01.2017 to 31.12.2017; 8.625% of RWA from 01.01.2018 to 31.12.2018, and 8% of the RWA from 01.01.2019.

4.3 Capital Adequacy Ratio

The Capital Adequacy Ratio was determined according to the criteria established by CMN Resolutions nº 4,192/13 and nº 4,193/13, which refer to the calculation of the Referential Equity (RE) and Minimum Reference Equity Required (MRER) in relation to Risk Weighted Assets (RWA), respectively.

The CMN Resolution n° 4,193/13 established the Core Capital Minimum Requirements (4,5% of RWA) and Tier l (5,5% of RWA until 12.31.2014 and 6%, as of 01.01.2015). In the first quarter of 2016, the Core Capital Additional was brought to pass, according to the CMN Resolution n° 4,193/13 requirements and Bacen Circular Letters n° 3,768/15 and 3,769/15.


34

The following table shows the evolution of the ratio (IB), Core Capital Ratio (ICP), Tier 1 Capital Ratio (ICN1), the RBAN portion and the margin of compatibility of RE and the Core Capital Additional:

Table 11 - Basel Ratio (Total Capital Ratio) and PR margin

3Q17 2Q17 1Q17 4Q16 3Q16

Referential Equity (RE) (R$ thousand)(1) 129,152,387 127,047,617 124,049,367 130,453,208 127,060,689 Tier I (R$ thousand) 89,648,072 87,643,046 84,867,245 90,283,551 87,975,915

Core Capital (R$ thousand) 67,709,672 64,733,761 62,926,075 67,718,439 65,500,135 Risk Weighted Assets (RWA) (R$ thousand)(3) 674,468,258 705,412,467 683,651,545 705,851,279 722,441,901 Additional Common Equity Capital (R$ thousand)(4) 10,117,024 10,581,187 10,254,773 4,411,570 4,515,262 Conservation - Capital Buffer 8,430,853 8,817,656 8,545,644 4,411,570 4,515,262 Countercyclical - Capital Buffer 0 0 0 - 0

Domestic Systemically Important Banks - Capital Buffer

1.686.171 1.763.531 1.709.129 - 0

Capital Adequacy Ratio 19.15% 18.01% 18.15% 18.48% 17.59% Tier I Ratio 13.29% 12.42% 12.41% 12.79% 12.18%

Core Capital Ratio 10.04% 9.18% 9.20% 9.59% 9.07% Minimum Referential Equity Requirements (MRER) (R$ thousand)(2)

62,388,314 65,250,653 63,237,768 69,702,814 71,341,138

Interest rate risk of operations not classified under negotiable portfolio (RBAN) (R$ thousand)

7,188,077 5,997,610 6,403,594 4,947,302 4,693,193

Compatibility Margin of RE (RE - MRER - RBAN) (R$ thousand)(5) 59,575,996 55,799,353 54,408,005 55,803,092 51,026,358

(1) According to CMN Resolution 4,192/2013. (2) According to CMN Resolution 4,193/2013, corresponds to the application of the factor "F" to the amount of RWA, with "F" equal to 11% of RWA, from 10.01.2013 to 12.31.2015; 9.875% from RWA 01.01.2016 to 12.31.2016, 9.25% of RWA from 01.01.2017 to 31.12.2017; 8.625% of RWA from 01.01.2018 to 31.12.2018, and 8% of the RWA from 01.01.2019. (3) According to CMN Resolution 4,193/2013, since 01.01.2015 the calculation of RWA applies to institutions of the prudential conglomerate. (4) According CMN Resolution 4,193/2013, in 03.31.2016 became effective the Additional Commom Equity Capital. (5) According Filling Instructions of Operacional Threshold Statement (DLO) - Account 953 - Source: www.bcb.gov.br.

4.4 Assessment of Sufficiency and Adequacy of Reference Equity (PR)

Banco do Brasil annually prepares and reviews its capital planning considering a minimum time horizon of 36 months and linking the matter to the business and economic guidelines from its Corporate Strategy, aiming to ensure that its capital is sufficient to support, beyond relevant risks, the business growth, so it guarantees the Institution solvency ratios, by also considering the stress scenarios, without compromising its result, being approved by the Board of Officers (CD) and the Board of Directors (CA) of BB.

The Capital Plan covers all entities, located in Brazil and abroad, which integrate Banco do Brasil’s Prudential Conglomerate, taking into account what is read in the CMN Resolution nº 4,280/13.

In order to subsidize the elaboration of the Capital Plan, the RE and RWA projections are referenced in regulatory aspects, strategic documents, business dynamics and technical information that were discussed at the Capital Forum.

Besides that, capital simulations, integrating risk and business stress testing results, based on one stress macroeconomic scenario, which is severe and based on plausible assumptions, in order to subsidize the elaboration of the Capital Contingency Plan (PCC).

The Capital Contingency Plan aims to ensure the alignment of the Bank to regulatory and prudential capital levels if the sources of capital defined in the Capital Plan are insufficient or not viable or even in the occurrence of unanticipated events.

The monitoring of the Capital Plan operation is made by the Capital Forum monthly and reported to the Senior Management. In that monitoring, the projections and the necessities of strategy realignment are assessed, considering the values that are realized, stress tests, eventual regulatory changes and the businesses expectancies.

In that context, the Bank assesses the projections based on the limits of each indicator and the deadline for any breach, as follows:


35

Chart 5 - Criteria and parameters for classification of the capital condition

Capital Index Period of noncompliance (months)

From 31st month 25 to 30 19 to 24 13 to 18 7 to 12 0 to 6

Common Equity Tier 1 Index SURVAILLANCE ALERT CRITICAL

Tier 1 Index SURVAILLANCE ALERT CRITICAL

Basel Prudential Index SURVAILLANCE ALERT CRITICAL

According to the chart above, the projections indicate that when extrapolating the Core Capital Ratio (ICP) or another indicator of capital, the Company will have enough time to promote strategic changes to avoid their extrapolation, according to the deadlines established for each indicator.

The capital status is monitored and reported at the Capital Forum and it must be reported to the strategic risk committees that are linked to the capital management structure (CEGAPC and CSGRC), which contains, whenever necessary, suggestions on capital contingency measures to be adopted.

Finally, for the capital management process, the Bank uses an indicator named Risk Adjusted Return (RAR), which aims to ensure the sustainability of BB`s growth in the long run, as well as to improve the Bank`s capital allocation, prioritizing the growth of businesses that generate profit in a way that is consistent to the capital consumption.

4.5 Leverage Ratio

In October 2015, Bacen Circular No. 3.748 came into effect and established the leverage ratio calculation methodology (RA), defined as the rate between Tier 1 capital and the total exposure of the institution. The RA aims to prevent excessive leverage of financial institutions and the consequent increase in systemic risk, with undesirable impacts on the economy. As provided in that Circular, the Common Model of disclosing the information about the Levarage Ratio and the Comparative Summary of the published Financial Statements and the Leverage Ratio.

Table 12 - Commom model of information disclosure on Leverage Ratio

R$ thousand 3Q17

Items accounted in the Balance Sheet Equity items other than derivative financial instruments, securities received on loan and resale to settle in repos 1,023,242,174 Adjustments related to equity items deducted from Tier 1 Capital (24,363,570)

Total exposures accounted in the Balance Sheet 998,878,604

Transactions with derivative financial instruments Gross positive value with derivative financial instruments ,783,958 Potential future gains from transactions 717,929 Adjustment related to given guarantees on derivative financial instruments -- Adjustment related to the provided daily collateral margin -- Derivatives on behalf of clients where there is no contractual obligation to refund in case of bankrupcy or default of the entities responsible for the settlement system

--

Adjusted notional value in credit derivatives -- Adjustment under the adjusted notional value in credit derivatives --

Total exposures related to derivative financial instruments 1,501,887

Repurchase Agreements and Lending of Securities Transactions with repurchase agreements and securities lending 8,198,523 Adjustment related to repurchases agreements and creditors for securities lending -- Value related to the counterparty credit risk ,730,838 Value related to the counterparty credit risk in intermediation transactions 73,628,588

Total exposures related to repurchase agreements and securities lending (sum of lines 12 to 15) 82,557,949

Items not accounted in the Balance Sheet Reference value of transactions not accounted in the Balance Sheet 127,011,315 Adjustement related to the application of specific CCF to transactions no accounted in the Balance Sheet (94,507,903)

Total Exposures not accounted in the Balance Sheet 32,503,412

Capital and Total Exposure Tier 1 89,648,072 Total Exposure 1,115,441,853 Leverage Ratio Basel III Leverage Ratio 8.04%


36

Table 13 - Comparative summary between Disclosed Financial Statements and Leverage Ratio

R$ thousand 3Q17

Total Assets according to Disclosed Financial Statements 1,397,670,989 Adjustment resulting from accounting consolidation differences -- Adjustment related to accounted assets that were donated, or transferred, with substantial transfer of risks and benefits

(4.762)

Adjustment related to adjusted notional value and potential future gains on derivatives financial instruments

51,007

Adjustment related to repurchase agreements and securities lending (302,466,293) Adjustment related to transactions not accounted in the total assets of the prudential conglomerate

32,503,412

Other Adjustments (12,312,501)

Total Exposure 1.115.441.853


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5 Shareholdings

Banco do Brasil S.A. has a wide and diversified set of businesses, products, services, activities and clients. Because of the organizational nature, strategic option or legal and regulatory requirements, the operationalization of businesses and processes is distributed between the Multiple Bank3 and its Linked Entities (ELBB)4, located in Brazil and abroad, under several organizational and judicial forms.

Below is the equity holdings not classified in the trading portfolio, segregated by business segments:

3 Refers to Banco do Brasil SA (BB). 4 The ELBB group consists of subsidiaries, wholly-owned subsidiaries, affiliates, investees (simple participations), sponsored, managed and foundations.


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Table 14 - Shareholdings - Banking Book

3Q17 2Q17 1Q17 4Q16 3Q16

R$ Thousand

% of Total

Shares

Book Value of

Equity Interests

Value of Capital

Requirement (1)

% of Total

Shares

Book Value of

Equity Interests

Value of Capital

Requirement (1)

% of Total

Shares

Book Value of

Equity Interests

Value of Capital

Requirement (1)

% of Total

Shares

Book Value of

Equity Interests

Value of Capital

Requirement (1)

% of Total

Shares

Book Value of

Equity Interests

Value of Capital

Requirement (1)

Banking Segment

Banco Votorantim S.A. (2) (3) 50.00% 4,388,391 484,424 50.00%

4,253,916 464,639 50.00% 4,179,000 452,406 50.00% 4,212,969 629,698 50.00% 4,207,493 598,492

Banco CBSS S.A. (3) 49.99% 204,095 22,530 49.99% 205,380 22,433 49.99% 214,454 23,216 -- -- -- -- --

Investment Segment

Kepler Weber S.A. (3) 17.45% 79,351 7,087 17.45% 79,996 7,147 17.45% 80,865 7,227 17.45% 82,725 7,899 17.45% 83,747 8,000

Neoenergia S.A. (3) 9.35% 1,317,687 121,886 11.99% 1,155,058 106,843 11.99% 1,167,250 107,971 11.99% 1,154,899 114,046 11.99% 1,172,593 115,794 Insurance, Private Pension Fund and Capitalization Segment

BB Seguridade Participações S.A. (4) 66.36% 5,699,481 539,100 66.36% 4,899,350 477,402 66.36% 5,302,538 495,702 66.36% 4,716,654 778,493 66.36% 5,099,283 810,711

Seguradora Brasileira de Crédito à Exportação - SBCE

(5) 12.09% 2,220 210 12.09% 2,583 252 12.09% 2,595 243 12.09% 2,589 427 12.09% 2,547 405

Payment Methods Segment

Tecnologia Bancária S.A. - Tecban

(5) (6) 12.52% 57,303 5,301 12.52% 55,593 5,142 12.52% 53,720 4,969 12.52% 50,603 4,997 12.52% 49,238 4,862

Companhia Brasileira de Soluções e Serviços CBSS - Alelo

(3) 49.99% 664,804 62,925 49.99% 627,201 61,116 49.99% 607,688 56,809 -- -- -- -- --

Cielo S.A. (3) 28.68% 3,015,179 285,393 28.70%

2,981,622 290,535 28.70% 2,839,628 265,460 -- -- -- -- --

Cateno Gestão de Contas de Pagamento S.A.

(3) 50.07% 1,747,140 165,371 50.09%

1,735,363 169,097 50.09% 1,720,075 160,799 -- -- -- -- --

Other Segments

Ativos S.A. Gestão de Cobrança e Recuperação de Crédito

(4) 100.00% 2.314 214 100.00% 1.649 153 100.00% 505 47 100.00% 6 1 100.00% 5,124 506

BB Tur Viagens e Turismo Ltda. (4) 100.00% -- -- 100.00% (5,149) (476) 100.00% (2,409) (223) 100.00% 1,792 177 100.00% 4,715 466

BB Tecnologia e Serviços (4) 99.99% 257,439 23,813 99.99% 251,355 23,250 99.99% 239,927 22,193 99.97% 243,583 24,054 99.97% 231,688 22,879

Cadam S.A. (5) 21.64% 15,483 1,059 21.60% 16,569 1,159 21.60% 16,288 1,133 21.64% 15,663 1,148 21.64% 15,261 1,108

Cia Hidromineral Piratuba (5) 14.13% 2,710 251 14.13% 2,720 252 14.13% 2,733 253 14.13% 2,717 268 14.13% 2,611 258

Estruturadora Brasileira de Projetos - EBP

(5) 11.11% 4,716 436 11.11% 4,717 436 11.11% 4,755 440 11.11% 5,533 546 11.11% 6,243 616

Elo Holding Financeira S.A. (3) 49.99% 72 7 49.99% 81 8 49.99% 83 8 -- -- -- -- --

Provision for investments (7) (8,965) (8,965) (6,770) (6,770) (6,770)

(1) Value for the minimum capital requirement for equity interests registered in the fixed assets and included in the calculation of risk-weighted assets regarding exposure to credit risk (RWACPAD) under Central Bank Circular No. 3,644/2013. (2) On September 30,2017, related to the investment in Financial Institutions (Banco Votorantim and CBSS Bank), R$ 2.400.256 thousand were integrally deducted from the Referential Equity and R$ 2.192.230 thousand were risk-weighted at 250%.

(3) Joint venture, evaluated by the equity method. (4) Subsidiaries, evaluated by the equity method.

(5) Associated companies, evaluated by the equity method. (6) Companies which are not classified as “Payment Institutions”. (7) Unrealized, but acknowledged losses, referring to companies Cadam S.A. and Kepler Weber S.A., whose value is computed in the calculation of Common Equity.


39

5.1 Entities Linked to Banco do Brasil (ELBB) Assessment

The current regulation imposes the need for the Prudential Conglomerate integrated structure of risk management to identify and monitor the risks associated with the other entities controlled by its member or in wich they participate.

In line with the current regulation, the Bank evaluates the risk management of the linked entities, according to the activities or business segments of the companies, issuing guidelines for the adequacy of the companies regarding risk management and their alignment with the practices adopted by the Institution.

The assessments are carried out through yearly cycles by means of the information provided by the companies, and quantitative and qualitative aspects are analyzed.

At the end of the assessments, reports are prepared, which are sent to BB governance areas, for submission to the companies or their directors appointed by the Bank to consider the issued guidelines and take the necessary actions.

The assessments results are reported to the executive committees on risk and governance, to the CSGRC, CD, Coris, Coaud and CA.


40

6 Risk Management

6.1 Credit Risk

6.1.1 Specific Credit Policy

Banco do Brasil’s specific credit policy contains strategic guidelines to direct credit-risk management actions in the prudential conglomerate. It is approved by the Board of Directors and reviewed every year. It applies to all businesses that involve credit risk and is available to all employees. It is expected that the Subsidiaries, Affiliates and Investment companies define their paths from these guidelines, taking into account the specific needs and legal and regulatory issues to which they are subject.

The specific credit policy guides the credit process, including scope, credit risk taking, Credit collections and recovery, and credit risk management. It contains a comprehensive set of statements which encompasses all stages of credit-risk management at Banco do Brasil. Important topics addressed in Banco do Brasil’s specific credit policy are listed below:

a) concept of credit risk;

b) separation of duties;

c) guidelines for credit collections and recovery;

d) joint decisions;

e) risk appetite;

f) conditions for risk taking;

g) capital planning;

h) allowance and capital levels;

i) stress tests.

6.1.2 Mitigation Policy

Banco do Brasil is conservative towards credit risk. In conducting any business subject to credit risk, the bank’s general rule is to tie it to a mechanism that provides partial or complete hedging of risk incurred. In managing credit risk on the aggregate level, to keep exposure within the risk levels established by the Senior Management, the Bank has the prerogative to transfer or to share credit risk.

The use of credit risk mitigating instruments is stated in the Specific Credit Policy, present in strategic decisions, and formalized in credit rules, reaching all levels of the organization and covering all stages of credit risk management.

Credit rules provide clear, comprehensive guidelines for the operational units. Among other aspects, the rules address ratings, requirements, choices, assessments, formalization, control, and reinforcement of guarantees, ensuring the adequacy and sufficiency of the mitigator throughout the transaction cycle.

6.1.3 Management Strategies and Credit Risk Management Framework

Aligned with the objectives of credit risk management, the Board of Directors (CA) establishes the Specific Credit Policy and the Risk Appetite and Tolerance of Banco do Brasil, which covers guidelines for credit risk.

As of the guidelines approved by the CA, the credit-risk management strategies, described below are defined and aim to guide the actions in the operational level:


41

a) approving credit risk management models;

b) setting goals for timely payment, recovery, maximum loss, and quality of the loan portfolio;

c) setting risk limits, concentration limits and exposure with foreign countries limits; and

d) keeping appropriate levels of allowances and capital.

6.1.4 Measurement Systems

The credit risk measurement is made by means of several indicators: default, delays, portfolio quality, allowance for loans and lease losses, concentration, capital requirement, among others, which reflect the Bank`s risk appetite and tolerance.

The quantity and nature of the operations, the diversity and complexity of our products and services, and the volume exposed to credit risk require systematic measurement of credit risk at Banco do Brasil. The Bank has enough databases and corporate system infrastructure to ensure comprehensive measurement of credit risk.

6.1.4.1 Regulatory Capital Requirement

The Bank measures the regulatory capital requirement for credit risk coverage through Regulatory Simplified Standardized Approach, whose procedures for calculating the potion of risk-weighted assets (RWA) regarding exposure to credit risk (RWACPAD) were released by the Bacen through Circular nº 3,644/13.

Those procedures were implemented in a proprietary system that determines the capital requirements quickly and securely, allowing timely evaluation of the bank’s solvency under the regulator’s rules. The Bank uses Regulatory Capital information to assess the efficiency of capital allocation and planning.

6.1.4.2 Concentration

The Bank has the credit portfolio concentration risk measurement process and monitoring. Besides the monitoring of the portfolio different segments concentration level indicators, ascertained according to the Herfindahl-Hirshman Ratio, the impact of concentration in the capital allocation for credit risk in an individual viewand in a sectorial one (considering groups segmented by activity and size).

6.1.5 Mitigating instruments

When accepting guarantees in loans, preference is given to guarantees which help the operation self-liquidate.

In order to accept a guaranty, the maximum value considered is reached by applying a certain percentage on the value of the goods or right. Below, the percentages used are shown:


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Table 15 - Collateral coverage

Asset Coverage (%)

Credit rights

- Receipt for bank deposit 100% - Certificate of bank deposit (1) 100% - Saving deposits 100% - Fixed income investiment founds 100% PledgeAgreement – cash collateral(2) 100% - Standby letter od credit 100% - Others 80% Guerantee Funds - Guarantee Fund for Generation of Employment and Income (Funproger) 100% - Guarantee Fund for Micro and Small Business (Fampe) 100% - Guarantee Fund for Operations (FGO) 100% - Guarantee Fund for Investments (FGI) 100% - Others 100% Guarantee(3) 100% Credit insurance 100% PledgeAgreement – securities(4) 77% Offshore Funds - BB Fund(5) 77% Livestock(6) 70% Others (7) 50% (1)Except the ones possessing swap agreement (2) In the same currency of the operation. (3) Provided by a banking institution taht has a credit limit at the bank, with sufficient margin to suport the co-obligation. (4) Contract of deposit / Transfer of Customer funds (5) Exclusive or retail. (6) Excpet in Rural Product Notes Transactions (CPR). (7) According to certain characteristics, real state, vehicle, machinery and equipment can be received with highest percentage of guarantee.

The credit rights guarantees represented by financial investments must be internalized at the Bank and are blocked by the institution. This blockage must remain until the operation is concluded.

Besides credit assignment or credit rights assignment clauses, the credit instrument, for linked mitigators, the credit instrument has a guarantee reinforcement clause to ensure, for the duration of the operation, the coverage percentage agreed on when it was contracted.

Considering the credit risk mitigating instruments defined in articles 36 to 39 of Bacen Circular nº 3,644/13, the following table shows the total mitigated value in terms of exposure, weighted by risk factor, and segmented by type and FPR mitigator.

Table 16 - Mitigated value of exposure, weighted by the respective risk factor

R$ thousand 3Q17 2Q17 1Q17 4Q16 3Q16

Total(1) Mitigator 43,765,391 44,399,775 45,157,154 44,857,862 46,039,077

Guarantee given by the National Treasury or the Banco Central do Brasil

0% 36,162,772 36,856,111 36,097,852 35,776,926 36,084,769

Guarantee given by Guarantee Funds 0% - - - - 13 Guarantee given by Guarantee Funds 50% -- -- 1,602,153 2,085,050 2,639,342 Deposits held by the institution itself 0% 1,251,041 1,313,001 1,342,158 952,890 1,171,160 Guarantee from financial institutions 50% 173,851 198,640 288,402 278,970 366,251 Payroll Discount Transfers(2) 50% 6,177,727 6,032,023 5,826,590 5,764,026 5,777,542 (1) Total value mitigated by the instruments defined by Bacen Circular 3.809/16 for exposures in loans, leasing, commitments after applying the conversion factor, credits to release and guarantees rendereds. (2) Credit risk mitigation instrument represented by payroll discount transfers was established by Bacen Circular 3,714, which became effective on Aug /14.

6.1.5.1 Processes for Monitoring the Effectiveness of Mitigators

Monitoring the effectiveness of mitigators is part of the Bank’s credit risk management processes. We quote, as an example, monitoring exposures subject to credit risk, the risk ratings of loans, and credit collection and recovery.

The processes of monitoring credit risk exposure and rating loans risks produce important information for verifying the effectiveness of mitigating instruments. The low


43

default ratio in certain segments of the credit portfolio and the lowest level of allowances in certain transactions may mean that the existence of guarantees tied to exposure reducing credit risk and capital requirements for its coverage.

6.1.6 Exposure to Credit Risk

The table below shows the concentration levels of the ten largest customers in relation to total transactions with credit granting feature.

Table 17 - Concentration of the ten and of the hundred largest customers in relation to the total of transactions with credit granting feature

1st to 10th 1st ao 100th

3Q17 12.43% 25.81% 2Q17 12,59% 25.80% 1Q17 12.74% 25.89% 4Q16 12.58% 26.09% 3Q16 13.58% 28.93%

The following table shows credit risk average exposure of individual portfolios (PF) and businesses (PJ).

It is important to mention that, in Banco do Brasil, the concepts that were used for the Credit Releasing and Loan Portfolio - Broad Concept are:

a) BB’s Loan Portfolio – Broad Concept: BB`s Classified Portfolio (BB`s Internal Portfolio + BB`s External Portfolio), BB`s Collaterals and BB`s Bonds and Securities; and

b) Releasing Credits: They stand for portions of credit limits that can not be cancelled unilaterally by BB, such as the limits of special checks and credit cards (balance of credit to be released in limits that can not be cancelled) and the portions on the timetable of releasing that can not be cancelled unilaterally by BB, such as: Finame, BNDES with the timetable of releasing resources (balance of credits to be released in timetable operations).

Table 18 - Credit risk average exposure

R$ million 3Q17 2Q17 1Q17 4Q16 3Q16

Exposure Balance

* Average Balance

Balance *

Average Balance

Balance *

Average Balance

Balance *

Average Balance

Balance *

Average Balance

Individuals Agrobusiness 137,481 137,482 140,528 138,950 135,680 134,307 132,698 130,786 130,309 130,875 Mortgage 43,698 43,455 43,116 42,935 42,736 42,603 42,178 41,831 41,292 40,871 Payroll Loan 65,600 65,125 64,219 63,429 62,442 62,240 62,596 62,634 62,838 62,988 Auto Loans 5,093 5,207 5,433 5,528 5,771 5,922 6,233 6,413 6,804 6,991 Credit Cards 62,900 62,440 60,853 59,656 59,291 58,977 58,198 62,531 64,693 65,608 Others 54,764 55,011 55,886 55,674 55,378 55,360 59,787 56,703 57,366 57,343 Total Individuals 369,537 368,720 370,034 366,172 361,298 359,409 361,690 360,897 363,301 364,675

Companies Agrobusiness 45,230 46,450 49,847 47,975 46,164 46,926 49,179 49,561 51,308 52,400 Investments 69,974 70,160 71,410 71,348 73,384 74,716 78,183 77,536 78,400 80,219 Import/Export. 14,422 14,241 14,168 13,695 13,427 13,493 14,487 14,961 16,938 17,603 Working Capital 163,185 163,631 166,295 167,061 170,318 171,576 176,283 180,429 186,704 188,676 Others 117,534 120,229 127,714 125,675 126,462 128,993 136,622 141,127 153,255 156,156 Total Companies 410,345 414,711 429,434 425,754 429,755 435,704 454,754 463,614 486,605 495,054

Total 779,881 783,431 799,468 791,925 791,054 795,113 816,444 824,512 849,907 859,729

* Includes BB internal portfolio and loans to concede

The next table presents the credit risk exposure of the businesses portfolio (PJ), segregated by geographic regions in Brazil:


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Table 19 - PJ credit risk exposure by geographic regions

R$ million 3Q17

Region Agribusiness Investments Import/Export. Working Capital Others

Midwest 1,555 20,299 317 10,896 6,727 Northeast 862 3,484 267 10,287 6,895 North 129 2,749 40 3,505 3,056 Southeast 34,094 33,352 10,805 116,406 67,081 South 8,589 8,339 2,992 14,923 10,990 Foreign - 1,751 - 7,169 22,785

Total 45,230 69,974 14,422 163,185 117,534

R$ million 2Q17



Total 49,847 71,410 14,168 166,295 127,714

R$ million 1Q17



Total 46,164 73,384 13,427 170,321 126,463

R$ million 4Q16


Midwest 1,222 23,169 311 12,656 6,438 Northeast 425 3,931 226 11,990 8,525 North 93 3,131 52 4,083 3,593 Southeast 39,387 36,092 10,791 121,132 79,702 South 8,052 9,586 3,098 17,979 13,044 Foreign - 2,275 8 8,444 25,320

Total 49,179 78,184 14,486 176,284 136,622

R$ million 3Q16


Midwest 1,207 21,238 418 12,660 6,370 Northeast 380 4,080 269 12,801 8,987 North 113 3,281 47 4,305 3,591 Southeast 41,365 36,833 13,030 128,614 89,270 South 8,242 10,138 3,164 19,434 14,025 Foreign - 2,832 10 8,890 31,013

Total 51,308 78,400 16,938 186,704 153,255

The table below presents the credit risk exposure of the individuals portfolio (PF), segregated by geographic regions in Brazil:

Table 20 - PF credit risk exposure by geographic regions

R$ million 3Q17

Region Agribusiness Mortgage Payroll Loans Auto Loans Credit Cards Others

Midwest 35,601 7,284 6,864 801 9,420 7,904 Northeast 10,278 9,575 16,504 1,281 11,447 10,331 North 8,873 1,580 5,065 485 3,419 3,319 Southeast 40,462 18,279 30,650 1,628 27,011 23,703 South 42,267 6,980 6,516 ,898 11,604 8,582 Foreign - -- - -- -- ,925

Total 137,481 43,698 65,600 5,093 62,900 54,764

R$ million 2Q17


Midwest 36,506 7,217 6,731 855 9,127 7,858 Northeast 10,356 9,328 16,129 1,340 11,023 10,550 North 8,642 1,556 4,910 514 3,298 3,399 Southeast 40,651 18,106 30,161 1,755 26,210 24,296 South 44,372 6,909 6,287 ,969 11,194 8,755 Foreign - -- - -- -- 1,029

Total 140,528 43,116 64,219 5,433 60,853 55,886


45

R$ million 1Q17


Midwest 35,070 7,147 6,503 897 8,940 7,451 Northeast 9,798 9,101 15,663 1,402 10,734 10,506 North 8,216 1,536 4,768 538 3,239 3,367 Southeast 39,398 18,080 29,529 1,882 25,546 24,253 South 43,198 6,871 5,979 1,052 10,832 8,752 Foreign - -- - -- -- 1,049

Total 135,680 42,735 62,442 5,771 59,291 55,378

R$ million 4Q16


Midwest 33,034 7,083 6,589 958 8,757 7,970 Northeast 9,554 8,759 15,624 1,500 10,508 11,264 North 7,833 1,517 4,771 576 3,182 3,527 Southeast 39,576 18,002 29,686 2,046 25,146 26,302 South 42,701 6,816 5,926 1,153 10,605 9,602 Foreign -- -- -- -- -- 1,121

Total 132,698 42,177 62,596 6,233 58,198 59,786

R$ million 3Q16


Midwest 31,842 6,983 6,533 1,038 9,698 7,550 Northeast 9,286 8,370 15,640 1,632 11,610 10,850 North 7,549 1,476 4,768 625 3,497 3,500 Southeast 39,755 17,734 29,997 2,248 28,085 25,304 South 41,877 6,729 5,900 1,260 11,802 8,966 Foreign -- -- -- -- -- 1,196

Total 130,309 41,292 62,838 6,804 64,693 57,366

The next tables show the behavior of the total credit risk exposure, segregated by economic sector:

Table 21 - Credit risk exposure of the prudential conglomerate, by economic sector

R$ million 3Q17 2Q17 1Q17 4Q16 3Q16

Government 41.059 41,946 40,592 40,835 40,742 Agribusiness - Animal Origin 15.993 16,561 16,403 17,354 17,486 Agribusiness -Vegetable Origin 34.257 34,308 31,844 33,330 34,924 Construction Specific Activities 12.495 13,378 13,742 14,623 15,566 Automotive 21.672 22,621 22,790 24,081 27,355 Beverages 1,880 1,999 2,000 2,046 2,169 Wholesale Trade and Industries 6.341 6,380 6,427 7,206 8,055 Retail Trade 14,754 15,511 16,114 18,113 20,465 Heavy Construction 4.299 5,352 5,537 7,635 8,042 Leather and Shoes 2,621 3,033 3,116 3,331 3,459 Other Activities 31 18 14 47 20 Electrical and Electronic Goods 9,304 9,885 10,078 10,847 9,975 Eletricity 29.843 31,154 32,013 36,286 39,071 Housing 19,171 20,718 22,146 24,134 25,543 Banks and Financial Services 25.345 26,293 24,881 28,296 32,228 Agricultural Consumables 9,897 10,305 9,675 10,614 11,375 Timber and Furniture 6.096 6,453 6,734 7,077 7,787 Metalw orking and Steel 33,892 35,607 37,218 38,619 41,669 Pulp and Paper 6.318 7,108 7,515 8,434 9,668 Oil and Gas 40,763 40,810 40,635 41,243 46,833 Chemicals 8.318 8,280 8,525 9,070 9,730 Services 24,581 26,576 28,023 25,265 26,239 Telecommunication 6.063 7,925 6,313 6,444 6,380 Textile and Garments 8,644 9,394 9,502 10,455 11,659 Transport 26.706 27,820 27,918 29,371 30,163 Individuals 369,537 370,034 361,298 361,690 363,301

Total(1) 779.882 799,468 791,053 816,444 849,907

(1)* Includes BB internal portfolio and loans to concede

The table below shows the behavior of the total credit risk exposure of the agribusiness portfolio, segregated by economic sector and businesses portfolio (PJ):


46

Table 22 - Credit risk exposure of the agribusiness portfolio, segregated by economic sector and businesses portfolio (PJ) - 3Q17

3Q17

Agribusiness Investments Import/Export Working Capital Others

R$ million

Government -- 7,680 ,0 27,524 5,854 Agribusiness - Animal Origin 7,952 ,875 2,602 2,626 1,937 Agribusiness -Vegetable Origin 13,678 5,036 4,974 5,961 4,607 Construction Specific Activities ,114 2,303 ,417 3,418 6,242 Automotive ,123 3,420 ,703 10,981 6,444 Beverages ,298 ,233 ,157 ,919 ,272 Wholesale Trade and Industries 1,246 ,651 ,159 2,947 1,339 Retail Trade ,389 1,446 ,23 7,672 5,225 Heavy Construction ,23 ,559 ,293 1,150 2,275 Leather and Shoes -- ,179 ,444 1,185 ,814 Other Activities -- ,1 -- ,7 ,24 Electrical and Electronic Goods -- ,581 ,210 3,301 5,212 Eletricity 1,952 6,917 ,45 10,951 9,978 Housing ,26 ,809 ,2 3,171 15,163 Banks and Financial Services ,315 12,096 -- 3,529 9,405 Agricultural Consumables 2,448 1,152 ,799 2,852 2,646 Timber and Furniture ,462 1,827 ,377 2,245 1,185 Metalworking and Steel 1,467 1,667 1,974 20,843 7,942 Pulp and Paper ,373 ,648 ,156 2,600 2,541 Oil and Gas 12,934 2,401 ,330 19,329 5,770 Chemicals ,75 1,054 ,285 4,341 2,563 Services ,123 4,354 ,72 13,652 6,381 Telecommunication -- ,86 ,2 3,558 2,417 Textile and Garments ,640 ,708 ,377 4,187 2,732 Transport ,593 13,290 ,21 4,237 8,565

Total(1) 45,230 69,974 14,422 163,185 117,534


Table 23 - Credit risk exposure of the agribusiness portfolio, segregated by economic sector and businesses portfolio (PJ) - 2Q17

2Q17


R$ million

Government 7,879 ,0 28,714 5,353 Agribusiness - Animal Origin 8,104 ,880 2,687 2,896 1,995 Agribusiness -Vegetable Origin 13,267 5,592 4,341 6,351 4,757 Construction Specific Activities ,113 2,426 ,457 3,791 6,591 Automotive ,121 3,492 1,222 10,948 6,837 Beverages ,320 ,264 ,174 ,930 ,310 Wholesale Trade and Industries ,944 ,674 ,164 3,160 1,437 Retail Trade ,438 1,500 ,6 8,032 5,535 Heavy Construction ,13 ,598 ,267 1,236 3,238 Leather and Shoes ,194 ,517 1,352 ,971 Other Activities ,2 ,1 ,4 ,11 Electrical and Electronic Goods ,615 ,282 3,514 5,473 Eletricity 2,129 7,037 ,45 11,170 10,773 Housing ,25 ,847 ,2 3,501 16,343 Banks and Financial Services ,398 11,009 3,661 11,226 Agricultural Consumables 2,511 1,280 ,731 2,892 2,891 Timber and Furniture ,401 1,873 ,389 2,455 1,336 Metalworking and Steel 1,592 1,873 1,659 22,267 8,217 Pulp and Paper ,651 ,696 ,153 2,806 2,801 Oil and Gas 17,419 2,560 ,216 14,909 5,706 Chemicals ,84 1,098 ,283 4,519 2,296 Services ,123 4,535 ,90 14,570 7,258 Telecommunication ,88 ,1 3,639 4,196 Textile and Garments ,615 ,759 ,442 4,558 3,019 Transport ,577 13,641 ,40 4,418 9,145

Total(1) 49,847 71,410 14,168 166,295 127,714



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Table 24 - Credit risk exposure of the agribusiness portfolio, segregated by economic sector and businesses portfolio (PJ) -

1Q17

1Q17


R$ million

Government -- 8,041 -- 27,744 4,807 Agribusiness - Animal Origin 7,366 ,907 2,636 3,148 2,347 Agribusiness -Vegetable Origin 11,513 5,339 3,724 6,626 4,642 Construction Specific Activities ,100 2,532 ,381 3,958 6,772 Automotive ,116 3,841 1,379 10,845 6,608 Beverages ,237 ,281 ,303 ,866 ,313 Wholesale Trade and Industries ,755 ,695 ,157 3,316 1,504 Retail Trade ,195 1,557 ,22 8,423 5,916 Heavy Construction -- ,657 ,322 1,428 3,130 Leather and Shoes -- ,214 ,440 1,398 1,063 Other Activities -- ,2 -- ,4 ,9 Electrical and Electronic Goods -- ,606 ,286 3,641 5,544 Eletricity 1,911 7,151 ,43 11,720 11,189 Housing ,25 ,885 -- 3,906 17,330 Banks and Financial Services ,450 12,018 -- 3,716 8,697 Agricultural Consumables 2,069 1,197 ,608 2,747 3,056 Timber and Furniture ,411 1,903 ,359 2,583 1,477 Metalworking and Steel 1,555 1,925 1,679 23,642 8,418 Pulp and Paper ,642 ,747 ,148 3,063 2,915 Oil and Gas 17,539 2,654 ,145 14,434 5,767 Chemicals ,57 1,130 ,248 4,530 2,560 Services ,104 4,679 ,92 15,556 7,593 Telecommunication -- ,93 ,1 3,655 2,564 Textile and Garments ,529 ,787 ,417 4,761 3,008 Transport ,591 13,543 ,40 4,503 9,242

Total(1) 46,165 73,384 13,430 170,213 126,471


The next tables present the credit risk exposure of individuals (PF) and businesses (PJ) portfolios, segregated by maturity of the transactions:

Table 25 - Credit risk exposure of PF and PJ portfolios by maturity of the transactions - 3Q17

R$ million 3Q17

Exposure up to 6 months 6 months to 1 year 1 to5 years Above 5 years

Agribusiness 22,798 16,654 44,086 53,944 Credit Cards 12,160 ,243 ,176 50,321 Payroll Loan ,514 1,253 27,015 36,818 Mortgage ,17 ,9 ,304 43,369 Auto Loans ,175 ,384 4,475 ,60 Others 13,236 10,140 20,064 11,325 Total Individuals 48,898 28,681 96,121 195,836

Agribusiness 6,698 7,577 22,792 8,162 Working Capital 47,004 10,690 64,482 41,010 Import/Export. 9,792 4,499 ,131 ,0 Investments 2,669 ,919 22,283 44,103 Others 24,214 10,216 55,003 28,422 Total Companies 90,378 33,901 164,691 121,697

Total 139,276 62,582 260,811 317,533


R$ million 2Q17



Agribusiness 7,172 5,300 28,708 8,667 Working Capital 47,109 12,426 63,181 43,579 Import/Export. 8,825 5,191 ,152 -- Investments 2,707 1,416 21,452 45,834 Others 28,783 10,071 59,151 29,708 Total Companies 94,596 34,405 172,645 127,788

Total 154,144 63,551 266,025 315,749


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R$ million 1Q17



Agribusiness 5,524 6,237 24,656 9,747 Working Capital 48,768 11,123 66,370 44,058 Import/Export. 9,524 3,734 ,170 - Investments 2,080 1,607 23,405 46,292 Others 27,362 8,931 59,846 30,324 Total Companies 93,257 31,631 174,446 130,420

Total 137,738 74,172 260,250 318,893

The table below shows the amount of overdue transactions, gross of allowances and excluded the write-offs, segregated by geographical regions in Brazil:

Table 28 - Amount of overdue transactions by geographical regions

R$ million 3Q17

Region 15 to 60

days 61 to 90

days 91 to 180

days 181 to 360

days Above 360 days

Midwest 1,577 ,458 ,964 1,198 ,679 Northeast 1,650 ,552 ,927 1,624 ,760 North ,476 ,160 ,399 ,625 ,259 Southeast 4,188 1,812 2,945 8,516 2,262 South 1,176 ,682 1,250 1,754 ,733 Foreign ,120 ,13 ,43 ,7 ,11

TOTAL 9,186 3,677 6,528 13,724 4,704

R$ million 2Q17

Region 15 to 60

days 61 to 90

days 91 to 180

days 181 to 360

days Above 360 days

Midwest 1,492 ,448 ,831 1,475 ,496 Northeast 1,608 ,515 1,250 1,619 ,735 North ,471 ,178 ,400 ,672 ,238 Southeast 3,768 1,699 4,685 7,580 2,339 South 1,484 ,519 1,131 1,889 ,685 Foreign ,121 ,0 ,27 ,276 ,62

TOTAL 8,944 3,359 8,324 13,513 4,555

R$ million 1Q17

Region 15 to 60

days 61 to 90

days 91 to 180

days 181 to 360

days Above 360 days

Midwest 1,860 ,492 1,034 1,562 ,320 Northeast 2,236 ,711 1,077 1,670 ,554 North ,574 ,240 ,437 ,669 ,162 Southeast 7,321 3,316 6,426 5,039 1,680 South 1,644 ,734 1,408 1,734 ,539 Foreign ,5 ,0 ,374 ,9 ,124

TOTAL 13,640 5,494 10,754 10,683 3,378

R$ million 4Q16

Region 15 to 60

days 61 to 90

days 91 to 180

days 181 to 360

days Above 360 days

Midwest 1,461 ,486 1,108 1,434 ,261 Northeast 1,377 ,458 1,217 1,751 ,360 North ,496 ,175 ,492 ,634 ,109 Southeast 7,016 1,501 3,998 5,242 1,129 South 1,407 ,561 1,365 1,812 ,400 Foreign ,86 ,442 ,1 ,121 ,40

TOTAL 11,843 3,624 8,181 10,993 2,299

R$ million 3Q16

Region 15 to 60

days 61 to 90

days 91 to 180

days 181 to 360

days Above 360 days

Midwest 1,977 ,443 1,290 1,300 ,188 Northeast 2,121 ,678 1,183 1,631 ,238 North ,712 ,221 ,454 ,576 ,84 Southeast 5,588 1,880 3,609 5,707 ,736 South 1,909 ,795 1,378 1,771 ,231 Foreign ,1 ,0 ,71 ,145 2,917

TOTAL 12,307 4,017 7,983 11,129 4,394


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Below, the amount of overdue transactions, gross of allowances and excluded the write-offs, segregated by economic sector are presented:

Table 29 - Amount of overdue transactions, segregated by economic sector - 3Q17

R$ million 3Q17

Macro-sector 15 to 60

days 61 to 90

days 91 to 180

days 181 to 360

days Above 360 days

Government ,1 ,0 ,0 ,0 ,0 Agribusiness - Animal Origin ,39 ,13 ,66 ,220 ,92 Agribusiness -Vegetable Origin ,163 ,41 ,409 ,204 ,182 Construction Specific Activities ,139 ,59 ,138 ,376 ,175 Automotive ,215 ,82 ,128 ,547 ,177 Beverages ,17 ,3 ,3 ,16 ,3 Wholesale Trade and Industries ,95 ,25 ,78 ,331 ,188 Retail Trade ,187 ,77 ,228 ,578 ,242 Heavy Construction ,212 ,194 ,66 ,213 ,45 Leather and Shoes ,24 ,8 ,38 ,59 ,29 Other Activities ,0 ,0 ,0 ,2 ,1 Electrical and Electronic Goods ,80 ,45 ,164 ,227 ,189 Eletricity ,620 ,1 ,9 ,9 ,2 Housing ,628 ,414 ,517 ,812 ,246 Banks and Financial Services ,121 ,1 ,38 ,3 ,1 Agricultural Consumables ,40 ,15 ,75 ,119 ,96 Timber and Furniture ,79 ,28 ,94 ,221 ,138 Metalw orking and Steel ,195 ,346 ,207 ,305 ,322 Pulp and Paper ,33 ,12 ,54 ,93 ,51 Oil and Gas ,64 ,44 ,81 ,358 ,113 Chemicals ,60 ,16 ,60 ,160 ,69 Services ,253 ,121 ,312 ,668 ,351 Telecommunication ,25 ,2 ,12 2,711 ,16 Textile and Garments ,84 ,89 ,160 ,385 ,188 Transport ,186 ,116 ,212 ,773 ,142

Total 3,561 1,750 3,148 9,390 3,059


R$ million 2Q17


days 61 to 90

days 91 to 180

days 181 to 360

days Above 360 days

Government ,0 ,0 ,0 ,0 ,0 Agribusiness - Animal Origin ,95 ,42 ,99 ,213 ,89 Agribusiness -Vegetable Origin ,269 ,96 ,281 ,272 ,155 Construction Specific Activities ,194 ,84 ,300 ,454 ,248 Automotive ,142 ,57 ,281 ,565 ,173 Beverages ,5 ,2 ,11 ,10 ,4 Wholesale Trade and Industries ,86 ,31 ,273 ,238 ,189 Retail Trade ,230 ,126 ,393 ,670 ,237 Heavy Construction ,86 ,27 ,247 ,181 ,52 Leather and Shoes ,31 ,17 ,36 ,84 ,34 Other Activities ,0 ,0 ,1 ,1 ,1 Electrical and Electronic Goods ,91 ,82 ,147 ,268 ,195 Eletricity ,5 ,8 ,4 ,10 ,1 Housing ,521 ,336 ,526 ,574 ,199 Banks and Financial Services ,40 ,1 ,2 ,4 ,3 Agricultural Consumables ,50 ,33 ,62 ,149 ,95 Timber and Furniture ,98 ,44 ,150 ,262 ,161 Metal working and Steel ,196 ,204 ,213 ,401 ,365 Pulp and Paper ,43 ,27 ,78 ,108 ,56 Oil and Gas ,89 ,42 ,420 ,540 ,107 Chemicals ,62 ,26 ,101 ,205 ,113 Services ,346 ,147 ,443 ,764 ,363 Telecommunication ,16 ,5 ,17 2,715 ,20 Textile and Garments ,137 ,73 ,238 ,416 ,206 Transport ,348 ,270 ,691 ,340 ,156

Total 3,181 1,781 5,013 9,443 3,221


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R$ million 1Q17


days 61 to 90

days 91 to 180

days 181 to 360

days Above 360 days

Government ,0 ,0 ,0 ,0 -- Agribusiness - Animal Origin ,99 ,33 ,180 ,92 ,76 Agribusiness -Vegetable Origin ,244 ,99 ,316 ,532 ,90 Construction Specific Activities ,284 ,236 ,270 ,469 ,169 Automotive ,236 ,218 ,390 ,484 ,157 Beverages ,12 ,3 ,4 ,9 ,6 Wholesale Trade and Industries ,189 ,193 ,110 ,248 ,140 Retail Trade ,396 ,193 ,369 ,708 ,194 Heavy Construction ,345 ,210 ,137 ,153 ,111 Leather and Shoes ,40 ,15 ,43 ,93 ,31 Other Activities ,1 ,0 ,1 ,1 ,0 Electrical and Electronic Goods ,146 ,72 ,154 ,340 ,115 Eletricity ,645 ,2 ,9 ,6 ,4 Housing ,560 ,478 ,560 ,569 ,132 Banks and Financial Services ,1 ,1 ,29 ,2 ,3 Agricultural Consumables ,54 ,35 ,96 ,152 ,53 Timber and Furniture ,139 ,81 ,158 ,296 ,136 Metal working and Steel ,287 ,257 ,369 ,504 ,304 Pulp and Paper ,57 ,50 ,52 ,124 ,57 Oil and Gas ,303 ,190 ,420 ,267 ,83 Chemicals ,98 ,47 ,118 ,218 ,91 Services 1,075 ,230 ,493 ,847 ,244 Telecommunication ,19 ,7 2,717 ,43 ,16 Textile and Garments ,399 ,116 ,220 ,444 ,180 Transport 1,089 ,771 ,226 ,357 ,113

Total 6,716 3,538 7,441 6,958 2,507

The following table shows the flow of write-off transactions, segmented by economic sector:

Table 32 - Write-off transactions by economic sector

R$ millions 3Q17 2Q17 1Q17 4Q16 3Q16

Economic Sector (Write-off)

Government 0.14 0.01 0.00 0.04 0.00 Agribusiness - Animal Origin 61.77 36.29 139.70 61.59 82.54 Agribusiness -Vegetable Origin 293.31 247.12 394.88 300.69 233.02 Construction Specific Activities 366.04 225.27 343.48 266.75 269.79 Automotive 263.66 283.50 340.30 376.76 432.36 Beverages 6.97 5.16 7.18 4.85 12.34 Wholesale Trade and Industries 173.53 78.86 151.84 108.53 128.81 Retail Trade 436.28 336.51 447.51 346.42 328.28 Other Activities 4.06 3.95 11.31 9.70 9.00 Heavy Constructions 149.16 72.05 79.10 71.31 226.11 Leather and Shoes 61.82 47.44 52.18 48.08 60.44 Electrical and Electronic Goods 164.72 143.74 225.98 175.04 204.71 Eletricity 3.05 6.72 6.76 295.11 9.43 Housing 271.17 275.35 199.90 188.48 223.21 Agricultural Consumables 84.74 48.74 79.84 52.25 75.56 Timber and Furniture 200.18 156.18 216.28 142.29 159.16 Metalworking and Steel 321.08 201.94 293.29 274.92 302.58 Pulp and Paper 91.47 66.18 88.73 71.08 65.34 Oil and Gas 151.21 119.69 348.94 115.13 136.53 Chemicals 144.77 98.01 149.20 119.02 119.17 Services 512.15 416.40 576.76 408.21 397.23 Telecomunication 22.35 36.83 22.78 27.82 30.43 Textile and Garments 283.97 221.77 311.31 247.38 343.64 Transport 232.41 154.88 237.00 190.11 234.52

Total 4,300.01 3,282.59 4,724.22 3,901.56 4,084.19

Others

Individuals 1,940.68 1,850.03 1,662.24 2,037.13 1,989.21

Total 6,240.69 5,132.62 6,386.46 5,938.69 6,073.40


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The table below shows the amount of allowances for loan and lease losses, segmented by economic sector and its quarterly variations:

Table 33 - Total allowances for loan and lease losses in the quarter and variations

R$ million

Macro-sector over 1Q17 3Q17 2Q17 1Q17 4Q16 3Q16

Government -2.12 ,3 ,3 ,3 ,6 ,4 Agribusiness - Animal Origin -3.18 ,465 ,480 ,454 ,525 ,481 Agribusiness -Vegetable Origin -0.51 1,691 1,700 1,637 1,850 1,764 Construction Specific Activities -9.37 1,089 1,202 1,189 1,250 1,176 Automotive -5.73 1,212 1,286 1,288 1,307 1,269 Beverages 84.97 ,76 ,41 ,36 ,33 ,30 Wholesale Trade and Industries -9.81 ,664 ,736 ,688 ,676 ,623 Retail Trade -10.20 1,380 1,536 1,560 1,629 1,503 Heavy Construction -12.56 ,767 ,878 ,834 ,923 ,914 Leather and Shoes -12.08 ,159 ,181 ,193 ,199 ,184 Other Activities -2.12 ,3 ,3 ,2 ,7 ,5 Electrical and Electronic Goods 0.46 ,746 ,743 ,716 ,769 ,765 Eletricity 95.59 ,332 ,170 ,191 ,230 ,469 Housing 13.44 2,571 2,267 1,931 1,713 1,324 Banks and Financial Services 67.46 ,136 ,81 ,79 ,111 ,123 Agricultural Consumables -13.56 ,401 ,464 ,438 ,413 ,342 Timber and Furniture -13.12 ,573 ,659 ,683 ,733 ,671 Metalw orking and Steel -15.51 1,523 1,803 1,854 1,826 1,773 Pulp and Paper -22.15 ,245 ,315 ,310 ,318 ,303 Oil and Gas -9.57 1,375 1,520 1,355 1,561 4,369 Chemicals -21.05 ,448 ,568 ,560 ,581 ,524 Services -6.69 2,126 2,279 2,238 2,306 2,008 Telecommunication 28.75 1,230 ,955 ,954 ,963 ,911 Textile and Garments -8.61 1,054 1,154 1,136 1,208 1,136 Transport 0.95 2,024 2,005 1,901 1,585 1,396

TOTAL -3.18 22,295 23,028 22,228 22,720 24,066

The behavior of credit risk exposure is presented below, considering settings of Bacen Circular nº 3,644/13, segmented by Risk-Weighting Factor (FPR), along with the average exposure of the quarters.

Table 34 - Credit risk exposure by FPR

R$ thousand

Exposure by Risk Factor 3Q17 2Q17 1Q17 4Q16 3Q16

0% 8,416 148,872 149,350 146,293 143,688 20% 345,081 322,427 191,302 660,278 728,419 35% 38,582,756 38,115,489 37,007,187 36,562,820 35,591,508 50% 8,267,300 8,963,553 9,689,036 11,467,343 11,517,007 75% 241,728,255 245,926,444 240,230,627 245,702,481 255,067,941 85% 157,376,404 168,023,726 167,129,082 172,525,796 179,843,691 100% 123,583,581 125,042,204 127,131,471 129,394,718 135,049,302

Total(1) 569,891,793 586,542,716 581,528,056 596,459,728 617,941,556

Average Exposure in the Quarter(1) 572,546,086 581,603,698 584,377,858 603,937,597 623,836,562

(1) Includes loans, leasing, commitments after applying the conversion factor, credits to release and guarantees rendered. (2) According to CMN Resolution 4,193/2013, since 01.01.2015 the calculation of RWA applies to institutions of the prudential conglomerate.

6.1.7 Exposure to counterparty credit risks

Banco do Brasil admits assuming counterparty credit risks with clients who have been previously analyzed by the risk calculation methodology, with a credit limit applicable to their profile established, subject to the existence of a sufficient operational margin to cover such operations.

In this way, the counterparty credit risk exposures fall in line with other exposures in the customer’s loans on the credit limit assigned to it.


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These types of operations affect the client’s credit risk according to the estimated value of the counterparty credit risk exposure in the event of a default, applicable credit risk mitigators being taken into consideration, such as the adjacent asset issuer risk, the volatility of the asset, deposited collaterals, the percentage subtracted from the assets used as collateral (haircut), and the rules for additional collateral margin calls, according to the characteristics of the operation performed.

In operations conducted via Clearing Houses (Clearings), there is a risk transfer, where the value of the operations is reflected in the credit limit of the Clearing House.

For operations that are subject to the counterparty credit risk, Banco do Brasil follows what is quoted by Bacen Circular n° 3,068/01, considering the risk as a parameter for the calculation of the market value adjustment of such exposures, affecting the result of the period or in an account apart from the Net Equity, according to the classification of the exposure.

Below is the notional value of contracts subject to counterparty credit risk to be liquidated in clearing house liquidation systems, in which clearing houses acts as central counterparty.

Table 35 - Notional value of contracts to be liquidated in clearing houses, in which the clearing house acts as central

counterparty R$ thousand

Stock Market Negotiation Counterparty 3Q17* 2Q17* 1Q17* 4Q16* 3Q16*

Futures Contracts 8,964,687 7.270.990 5,761,290 12,675,732 11,966,935

Purchase commitments B 8,964,687 7.270.990 5,761,290 12,675,732 11,966,935

Options Market 205,231 184.115 172,893 194,283 292,020

Short Position B 205,231 184.115 172,893 194,283 292,020

Note: Counterparty (B) = Stock Market *From 1Q16 Banco Votorantim is consolidated by the asset equivalence method

In the next table, the notional value of the contracts subject to the counterparty credit risk, in which there’s no work of the clearing houses as central counterparty is shown, segmented in uncollateralized agreements and collateralized agreements.

Table 36 - Notional value of contracts subject to counterparty credit risk in which clearing houses do not act as central counterparty

3Q17 2Q17 1Q17 4Q16 3Q16

Without guarantees

Derivatives Operations 6,780,483 6,396,885 7,758,922 9,336,844 11,975,527 Currency Operations 73,319 295,219 217,594 395,360 243,014

With guarantees

Derivatives Operations 7,510,933 5,878,436 4,546,664 6,916,975 9,385,163 Currency Operations -- 1,705,508 -- 1,637,802 -- Repos 787,418,243 845,993,996 782,544,438 616,926,346 774,599,492

The following table shows the positive gross value of contracts subject to counterparty credit risk, including derivatives, outstanding operations, asset loans and repo transactions, disregarding the positive values from compensation agreements, as set forth in CMN Resolution nº 3,263/05.

Table 37 - Positive gross value of contracts subject to counterparty credit risk

R$ thousand 3Q17 2Q17 1Q17 4Q16 3Q16

Total Gross Positive Value ,860,965 ,928,590 1,107,615 1,631,532 2,574,719 Derivative Financial Instruments ,783,958 ,882,084 1,040,463 1,612,563 2,532,084 Currency Operations 16 4.084 779 1,074 549 Repos 76,991 42,422 66,373 17,895 42,086


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Next, the positive gross collateral received in operations subject to credit risk that cumulatively attends the following requirements, as art.9, section VII, of the Central Bank Circular nº 3,678/13:

a) be kept or held in custody by the institution itself;

b) whose exclusive purpose is to guarantee operations to which they are linked;

c) are subject to movement, exclusively, by order from the depositary institution; and

d) are immediately available to the depositary institution in the event default by the debtor or need for its realization.

Table 38 - The value of collaterals that cumulatively meet the requirements of paragraph VII, Art.9, of Bacen Circular n° 3,678/13

R$ thousand 3Q17 2Q17 1Q17 4Q16 3Q16

Internalized Resources 420,728,189 449,767,373 410,555,074 374,756,453 408,380,147

Brazilian Governement Securities 311,706,161 331,951,149 317,554,603 312,647,135 322,138,886

Total 732,434,350 781,718,522 728,109,677 687,403,588 730,519,032

According to the classification of types of collaterals accepted by Bacen, we have identified those that cumulatively meet the conditions established in Bacen Circular nº 3,678/13, considering the value committed as collateral to the linked operation for the purpose of collaterals calculation.

As follows, the global exposure to the counterparty credit risk is shown, net of compensation agreements effects and the collaterals received.

Table 39 - The value of collaterals that cumulatively meet the requirements of paragraph VII, Art.9, of Bacen Circular nº 3,678/13

R$ thousand

Counterparty Credit Risk 3Q17 2Q17 1Q17 4Q16 3Q16

Guarantees Rendered Value 732,434,350 781,718,522 728,109,677 687,403,588 730,519,032 Global Exposure(1) 117,823,211 123,523,461 109,108,310 97,945,031 112,028,260 (1) Net of the effects from the guarantees value. (2) According to CMN Resolution 4,193/2013, since 01.01.2015 the calculation of RWA applies to institutions of the prudential conglomerate.

6.1.8 Acquisition, Sale or Transfer of Financial Assets

It is BB’s policy to assign credits from non-performing loans, recorded in losses and for which the bank has full risk, after all collection procedures defined in the collections and credit-recovery process have been exhausted, and the selected transactions have reached the savings point, that is, the cost-benefit ratio, does not justify keeping the transactions under collections at the commercial bank.

Credit assignment is also used punctually to dispose of specific credits, when such an operation is considered a viable alternative for its recovery, even if partial.

It should be noted that, in the 3nd quarter of 2017, on 25.08.2017, the assignment described in column 3T17 occurred, as shown in the table below:

Table 40 - Loss operations assigned, with substantial transfer of risks and benefits

R$ thousands 3Q17 2Q17 1Q17 4Q16 3Q16

Operation Quantity (in thousands) 334 895 - 38 384 Value 1,224,879 2,848,624 - 1,240,133 785,203

Observation: The data refers to credit assigments ceded to Ativos S.A. Write-off Portfolio Values

BB has no exposure in the following categories:

a) exposures assigned with no substantial transfer or retention of risks and benefits;


54

b) exposures assigned with substantial retention of risks and benefits; and

c) exposures assigned in the last 12 months with substantial retention of risks and benefits, which were written off as losses.

Below, the value of the portfolio granted with a co-obligation, recorded in the off balance sheet, not in the Assets:

Table 41 - Value of the portfolio granted with co-obligation, recorded in the off balance sheet

R$ thousands 3Q17 2Q17 1Q17 4Q16 3Q16

Risk Retention in Loan operations - Operations written off 4,646 4,689 4,740 4,764 5,145

The procedures to acquire financial assets are similar to the standard adopted by the market, which covers the assessment of assigning institution credit risk, the acquired operations and the corresponding debtors. The financial assets acquisitions aim to increase the Bank`s credit portfolio diversification.

In compliance with the CMN Resolution nº 3,533 and the related norms, as of January 2012, the accounting registrations started being made by considering the substantial transfer or retention of the acquired financial assets risks and benefits.

Table 42 - Balance of exposures acquired WITH retention of risks and benefits by the transferor

R$ million 3Q17 2Q17 1Q17 4Q16 3Q16

a) By type of exposure 12,517 12,558 12,697 15,089 13,111

Physical Person - Payroll Loan 448 589 734 906 1,050

Physical Person - Vehicles 12,069 10,969 11,963 14,183 12,061

b) By type of transferor 12,517 11,558 12,697 15,089 13,111

Financial Institutions 12,517 11,558 12,697 15,089 13,111

Table 43 - Balance of exposures acquired WITHOUT retention of risks and benefits by the transferor

R$ million 3Q17 2Q17 1Q17 4Q16 3Q16

a) By type of exposure 0,1 0,3 0,9 1,6 3 Physical Person - Payroll Loan 0 0,2 0,4 0,6 1 Physical Person - Vehicles 0,1 0,1 0,5 1 2 b) By type of transferor 0,1 0,3 0,9 1,6 3 Financial Institutions 0,1 0,3 0,9 1,6 3

6.1.9 Securities (TVM) operations derived from securitization processes

The securities acquired by BB are classified in the following categories:

a) category I - securities for trading - securities acquired with the intent of actively and frequently trading must be registered here;

b) category II - securities available for sale - securities that do not fall under categories I or III must be registered here; and

c) category III - securities held to maturity – securities, except non-redeemable shares, which the institution has the intent and financial capacity to keep in its portfolio until maturity must be registered here.

As follows, the exposures due to TVM operations derived from securitization processes are shown:

a) types of securities:

i) Receivables Investment Funds (FIDC): resource pool that allots most of its net assets to be applied in receivables. These are the rights and securities representing rights arising from operations carried out in the financial, commercial, industrial and real-estate, mortgage, financial leasing, and service-provision sectors, as well as other financial assets and investment


55

modes admitted under the terms of CVM Instructions nos 356/01 and 444/06; and

ii) Real Estate Receivables Certificates (CRI): these are fixed-income securities backed by real estate credits - counter installments flows of payments to purchase real estate properties or rent - issued by securitization companies.

b) type of credit backing the issue:

i) FIDC: vehicles financing, company cash flow receivables, debentures, promissory notes, bank credit certificates, bank credit bill certificates, real estate credit certificates, real estate letters of credit, export and other credit rights credit bills; and

ii) CRI: real estate loans.

c) type of security:

i) FIDC and CRI = senior quota.

Table 44 - Value of the exposures derived from acquiring FIDC and CRI

R$ thousand 3Q17 2Q17 1Q17 4Q16 3Q16

Qtde Valor Qtde Valor Qtde Valor Qtde Valor Qtde Valor

FIDC 6 1480,829,957 6 1491,496,005 6 1505,359,618 6 1503,077,438 6 1,514,806

CRI - category II 8 201,209,781 8 202,252,073 9 287,794,978 9 345,056,678 9 342,676

CRI - category III 3 156,948,249 4 159,827,117 4 253,749,374 4 147533,374 4 138,640

TOTAL 17 1,838,987,987 18 1,853,575,195 19 2046,903,971 19 1995,667,490 19 1,996,121

Note: Information includes BB branches in Brazil and abroad (BB-Multiple Bank).

6.2 Market Risk

6.2.1 Market Risk Policy

The Bank establishes policies and strategies for managing market and liquidity risks, and to manage derivative financial instruments. These policies and strategies determine the Company’s operating guidelines in these risks management process.

The market and liquidity risks management process uses mechanisms set forth in regulatory systems which detail the operational procedures that are necessary to implement the organizational decisions concerning the Company’s business and activities and to meet legal, as well as regulatory and oversight bodies’ requirements.

6.2.2 Management Strategies and Market Risk Framework

It is relevant to mention that, for the market risk management, systems are used to guarantee that positions registered in negotiable and non-negotiable portfolios are measured, monitored, and controlled, as are operations aimed at meeting the hedge objectives established.

Banco do Brasil uses statistical and simulation methods to analyze the market risk of its exposures. Among the metrics used in the application of those methods, we highlight the following:

a) Sensitivities;

b) Value at Risk (VaR); and,

c) Stress.

Sensitivity metrics simulate the effects in the value of exposures resulting from variations in the level of market risk factors.


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VaR and Stress are metrics used to estimate the potential loss under routine or extreme market conditions, respectively, dimensioned in monetary values, under a confidence interval and time frame.

The risk factors used in VaR metrics to measure the market risk of exposures are classified into the following categories:

a) interest rates;

b) exchange rates;

c) share prices; and,

d) commodity prices.

The VaR metrics performance is monthly evaluated by a backtesting process.

6.2.3 Hedge Policies

With respect to hedging policies adopted for market and liquidity risks management, the objectives to be achieved with hedging operations on a consolidated basis are defined, assuring the individual effectiveness of each transaction, subject to the regulations of each jurisdiction.

6.2.4 Derivative Financial Instruments

At the Bank, the derivative financial instruments are used for hedging own positions, meeting the clients` needs and for intentional positions making, considering limits, competence and procedures that were previously established.

The tables below represent the total exposure to derivative financial instruments by category of market risk factor, segmented into positions bought and sold in the following way:

a) Derivative financial instrument transactions carried out with a central counterpart, subdivided into those in Brazil and those abroad; and

b) Derivative financial instrument transactions carried out without a central counterpart, subdivided into those in Brazil and those abroad.

Table 45 - Derivative financial instruments in the country and abroad, by market risk factor, with and without a central counterpart - 3Q17

R$ thousand 3Q17 Risk Factor

Negotiation location

Brazil Abroad Consolidated-BB

Reference

value Cost value

Market value

Reference value

Cost value

Market value

Reference value

Cost value Market value

Long position 16,923,965 1,531,210 1,390,313 6,537,370 70,830 60,567 23,461,335 1,602,040 1,450,880

Interest rates Stock market 4,247,833 -- -- -- -- -- 4,247,833 -- -- Counter 3,710,940 1,084,120 1,076,028 -- -- -- 3,710,940 1,084,120 1,076,028 Exchange rates Stock market 4,696,081 113 158 -- -- -- 4,696,081 113 158 Counter 4,007,248 ,123,255 ,108,961 6,537,370 70,830 60,567 10,544,618 ,194,085 ,169,527 Share price Stock market 199,831 319,480 199,201 -- -- -- 199,831 319,480 199,201 Counter -- -- -- -- -- -- -- -- -- Commodities price Stock market

26,174 -- -- -- -- -- 26.174 -- --

Counter 35,858 4,242 5,966 -- -- -- 35,858 4,242 5,966

Short position 14,679,298 (1,512,436) (1,404,085) 6,524,551 (334.477) (315.542) 21,203,849 (1,846,914) (1,719,627)

Interest rates Stock market 1,716,766 -- -- -- -- -- 1,716,766 -- -- Counter 3,655,380 (879,720) (895,078) 228.081 -- -- 3,883,461 (879,720) (895,078) Exchange rates Stock market ,639,336 -- -- -- -- -- 639.336 -- -- Counter 8,602,757 (,630,318) (,504,898) 6,296,470 (334,477) (315,542) 14,899,226 (,964,796) (,820,440) Share price Stock market 22,200 (712) (2.380) -- -- -- 22.200 (712) (2.380) Counter -- -- -- -- -- -- -- -- -- Commodities price Stock market 20,903 (,101) (155) -- -- -- 20,903 (,101) (155) Counter 21,957 (1,585) (1,575) -- -- -- 21,957 (1,585) (1,575)

Net position 2,244,667 3,043,646 2,794,399 405,308 376,108 2,257,486 3,448,954 3,170,507


57

Table 46 - Derivative financial instruments in the country and abroad, by market risk factor, with and without a central counterpart - 2Q17




Reference

value Cost value

Market value

Reference value

Cost value

Market value

Reference value


Long position 14,853,349 (6,056,078) (12,992,152) 4,877,077 7585,655 14381,693 19,730,426 1,529,577 1,389,542

Interest rates Stock market 3,973,906 -- -- -- -- -- 3,973,906 -- -- Counter 2,284,611 ,787,117 ,775,692 -- -- -- 2,284,611 ,787,117 ,775,692 Exchange rates Stock market

3,277,870 -- -- -- -- --

3,277,870 -- --

Counter

5,076,177 (7,158,164) (13,927,578) 4,877,077

7585,655

14381,693 9,953,254 ,427,491 ,454,115

Share price Stock market 184,115 310,742 153,404 -- -- -- 184,115 310,742 153,404 Counter -- -- -- -- -- -- -- -- -- Commodities price Stock market

19,214 -- -- -- -- -- 19.214 -- --

Counter 37,456 4,227 6,331 -- -- -- 37,456 4,227 6,331

Short position

16,905,165 (1,410,822) (1,281,916) 8,697,308 (684.876) (688.043)

25,602,473 (2,095,698) (1,969,960)

Interest rates Stock market 1,407,882 -- -- -- -- -- 1,407,882 -- -- Counter 3,484,987 (694,318) (688,635) 33.002 -- -- 3,517,989 (694,318) (688,635) Exchange rates Stock market

,741,203 -- -- -- -- -- 741.203 -- --

Counter

9,620,040 (,711,940) (,586,897) 8,664,306

(684,876) (688,043) 18,284,346 (1,396,816) (1,274,940)

Share price Stock market ,580 (14) -- -- -- -- 580 (14) -- Counter -- -- -- -- -- -- -- -- -- Commodities price Stock market 1621,394 (,238) (182) -- -- -- 1621,394 (,238) (182) Counter 29,080 (4,312) (6,202) -- -- -- 29,080 (4,312) (6,202)

Net position (2,051,816) (4,645,257) (11,710,235) (3820,231) 8270,531 15069,736 (5,872,048) 3,625,275 3,359,501

Table 47 - Derivative financial instruments in the country and abroad, by market risk factor, with and without a central counterpart

- 1Q17




Reference

value Cost value

Market value

Reference value

Cost value

Market value

Reference value


Long position 13,224,186 1,317,919 1,127,805 6,099,621 42,749 44,330 19,323,807 1,360,668 1,172,135

Interest rates Stock market

3,797,288 -- -- -- -- --

3,797,288 -- --

Counter 2,832,872 ,558,331 ,558,540 -- -- -- 2,832,872 ,558,331 ,558,540 Exchange rates

Stock market

1,953,455 -- -- -- -- --

1,953,455 -- --

Counter 4,417,484 ,458,359 ,388,015 6,099,621 42,749 44,330 10,517,105 ,501,107 ,432,344

Share price Stock market

172,894 298,102 172,894 -- -- --

172,894 298,102 172,894

Counter -- -- -- -- -- -- -- -- -- Commodities price

Stock market

10,546 -- -- -- -- -- 10.546 -- --

Counter 39,647 3,127 8,357 -- -- -- 39,647 3,127 8,357

Short position 15,667,168 (1,547,686) (1,282,337) 10,805,804 (828.892) (875.007) 26,472,972 (2,376,578) (2,157,343)


2,509,423 -- -- -- -- --

2,509,423 -- --

Counter 2,841,498 (423,402) (424,269) 69.887 -- -- 2,911,385 (423,402) (424,269) Exchange rates

Stock market

,918,727 -- -- -- -- -- 918.727 -- --

Counter 9,316,394 (1,121,923) (,852,253) 10,735,917 (828,892) (875,007) 20,052,312 (1,950,815) (1,727,259)


-- -- -- -- -- -- -- -- --


Stock market 49,590 (,206) (379) -- -- -- 49,590 (,206) (379)

Counter 31,535 (2,155) (5,436) -- -- -- 31,535 (2,155) (5,436)

Net position (2,442,982) 2,865,605 2,410,142 (4706,183) 871,640 919,336 (7,149,165) 3,737,245 3,329,478

Table 48 - Derivative financial instruments in the country and abroad, by market risk factor, with and without a


58

centralcounterpart - 4Q17




Reference

value Cost value

Market value

Reference value

Cost value

Market value

Reference value


Long position 22,670,960 1,665,017 1,534,760 5,187,996 60,624 61,545 27,858,955 1,725,641 1,596,305

Interest rates Stock market 3,767,529 -- -- -- -- -- 3,767,529 -- -- Counter 4,590,057 ,821,079 ,845,682 -- -- -- 4,590,057 ,821,079 ,845,682 Exchange rates Stock market 8,900,072 25 67 -- -- -- 8,900,072 25 67 Counter 5,175,187 ,555,835 ,484,751 5,187,996 60,624 61,545 10,363,183 ,616,459 ,546,296 Share price Stock market 193,333 285,437 193,333 -- -- -- 193,333 285,437 193,333 Counter -- -- -- -- -- -- -- -- -- Commodities price Stock market

9,082 (25) 14 -- -- -- 9.082 (25) 14

Counter 35,699 2,666 10,912 -- -- -- 35,699 2,666 10,912

Short position 14,708,298 (1,187,147) (,842,915) 11,040,426

(933.610)

(1.027.476)

25,748,725 (2,120,757) (1,870,390)

Interest rates Stock market 1,264,307 (17,244) (30,354) -- -- -- 1,264,307 (17,244) (30,354) Counter 2,767,938 (133,610) (164,126) 111.061 -- -- 2,878,999 (133,610) (164,126) Exchange rates Stock market ,947,282 (2,679) (,176) -- -- -- 947.282 (2,679) (,176) Counter 9,690,833 (1,032,700) (,647,865) 10,929,365 (933,610) (1027,476) 20,620,198 (1,966,310) (1,675,341) Share price Stock market -- -- -- -- -- -- -- -- -- Counter -- -- -- -- -- -- -- -- -- Commodities price Stock market 32,233 (125) -- -- -- 32,233 (125) Counter 5,706 (1,014) (,268) -- -- -- 5,706 (1,014) (,268)

Net position 7,962,661 2,852,164 2,377,674 (5852,431) 994,234 1089,021 2,110,231 3,846,397 3,466,696

Table 49 - Derivative financial instruments in the country and abroad, by market risk factor, with and without a central

counterpart - 3Q16




Reference

value Cost value

Market value

Reference value

Cost value

Market value

Reference value


Long position 28,989,839 3,112,153 2,941,208 4,629,806 33,115 44,062 33,619,645 3,145,268 2,985,270


3,749,672 -- -- -- -- --

3,749,672 -- --

Counter 6,312,632 1,517,073 1,460,013 -- -- -- 6,312,632 1,517,073 1,460,013

Exchange rates Stock market

8,205,251 13 86 -- -- --

8,205,251 13 86

Counter 10,389,557 1,229,933 1,180,466 4,629,806 33,115 44,062 15,019,363 1,263,048 1,224,528


289,615 362,753 289,186 -- -- --

289,615 362,753 289,186


Stock market

14,417 43 20 -- -- -- 14.417 43 20

Counter 28,695 2,338 11,437 -- -- -- 28,695 2,338 11,437

Short position 15,306,263 (2,047,785) (1,623,281) 10,009,456 (697.724) (676.714) 25,315,719 (2,745,509) (2,299,995)


1,761,452 (16,827) (31,965) -- -- --

1,761,452 (16,827) (31,965)

Counter 3,839,542 (695,271) (670,206) 165.922 -- -- 4,005,464 (695,271) (670,206)

Exchange rates Stock market

1,111,431 (4,119) (,691) -- -- -- 1.111.431 (4,119) (,691)

Counter 8,535,978 (1,329,816) (,915,594) 9,843,534 (697,724) (676,714) 18,379,512 (2,027,540) (1,592,308)


11,580 (453) (247) -- -- -- 11.580 (453) (247)


Stock market 34,590 (,237) (174) -- -- -- 34,590 (,237) (174)

Counter 11,690 (1,062) (4,404) -- -- -- 11,690 (1,062) (4,404)

Net position 13,683,576 5,159,938 4,564,489 (5379,650) 730,839 720,776 8,303,926 5,890,777 5,285,265

6.2.5 Negotiable Portfolios

The Negotiable Portfolio is divided into groups and books, always observing the internal rules, approved by the Risk, Assets, Liabilities, Liquidity and Capital Management Superior Committee (CSGRC), which establish the objectives, the composition, the financial limits and market risk limits for each group or book.


59

The main types of limits used for the market risk management are: Value at Risk (VaR) and stress tests.

In the case of the Negotiable Book VaR limits, aiming to evidence the level of the market risk that is generated by the exposures and the corresponding impact on the capital requirement for its coverage, the VaR and Stressed VaR metrics are considered.

For measuring the VaR of the Negotiable Portfolio, Banco do Brasil adopts the Historical Simulation technique, and the following parameters:

a) Total VaR: (VaR + Stressed VaR) x Multiplier, where:

i) VaR: the potential expected loss considering a series of 252 daily shocks (business days), a confidence level of 99% and a holding period of 10 business days (Central Bank of Brazil, Circular 3,568/11);

ii) Stressed VaR: the potential expected loss considering series of daily shocks under stress scenarios within 12 month periods starting at January 2nd, 2004, a confidence level of 99% and a holding period of 10 business days (Central Bank of Brazil, Circular 3,568/11); and

iii) Multiplier: M, as defined by Central Bank of Brazil, Circular 3,568/11.

The following table shows the total value of the Negotiable Portfolio by relevant market risk factor, divided into positions purchased and positions sold:

Table 50 - Negotiable Portfolio by relevant market risk factor, divided into positions purchased and positions sold.

R$ thousand

Risk Factor 3Q17 2Q17 1Q17 4Q16 3Q16

Prefixed purchased 3,329,655 3,833,379 3,619,693 1,410,347 1,830,961 sold 2,076,632 2,352,279 2,480,259 1,388,106 1,762,596 CDI/TMS/FACP purchased 271,865 238,734 214,801 328,093 318,873 sold -- -- -- 171,170 448,115 Price index purchased 134,192 113,808 82,789 112,746 36,083 sold - - - - - Foreign currency /gold purchased 2859,358 557,220 2750,256 667,729 11,532,131 sold 145,709 92,879 113,002 77,152 515,384 Shares purchased - 71 - - - sold - - - - -

Note: Patagonia Bank included.

6.2.6 Non-negotiable Portfolios

The Financial Conglomerate own position operations not classified under the Negotiable Portfolio are considered components of the Non-negotiable Portfolio. It`s noticeable that the own positions held by the companies that are not a part of the Financial Conglomerate cannot be classified under the Negotiable Portfolio.

In accordance with best market practices and the requirements of regulators, the Bank sets policies for managing market risk, including interest rate risk transactions classified in the non-negotiable portfolio. These policies are in accordance with the strategic guidelines of the institution and the general objectives of the management process and predict:

a) control of exposures by setting limits; b) portfolio management considering the best risk-return relationship and the

internal and external scenarios;


60

c) performing operations to reduce the risks arising from changes in market value or cashflows of the assets and liabilities;

d) management of foreign exchange exposure to minimize the effects on the outcome of the institution;

e) assessment of impacts on exposures during the creation or modification of products and services; and

f) performing monthly stress testing of interest rate exposures.

The Non Negotiable Portfolio (Banking Book) is divided into groups and book, observing the internal rules approved by the Risk, Assets, Liabilities, Liquidity and Capital Management Superior Committee (CSGRC), which establish the objectives, the composition, the financial limits and the market risk limits for each group or book.

Banco do Brasil uses the Economic Value of Equity (EVE) metric, in order to calculate banking book interest rate risk.

EVE consists in estimating the variation of the economic value of assets, liabilities and derivative instruments of the Institution, comparing the value that was obtained through the use of domestic interest rate shock scenario with the value that was calculated in the current rates scenario.

Among other aspects, it is relevant to highlight that the EVE calculating metric:

a) includes all the operations that are sensitive to the variation of interest rates and uses risk measuring techniques and financial concepts that are widely accepted;

b) considers data relevant to rates, deadlines, prices, optionalities and other information that was adequately specified;

c) requires the definition of adequate premises to turn positions into cash flows;

d) measures the sensitivity to changes in the temporal structure of interest rates, between different rate structures and premises;

e) is integrated in the daily practices of risk management;

f) allows the simulation of market extreme conditions (stress tests);

g) make it possible to estimate the need of capital for risk coverage.

In order to deal with the products that do not have a defined maturity, Banco do Brasil adopts statistical and econometric methods, from the literature to analyze temporal series, more specifically the methods called ARIMA (Autoregressive, Integrated and Moving Averages).

Such methods assume the hypothesis that a retrospective behavior of the variations that are observed in the balances are important information for the prediction of the future behavior of the cash flow bailouts (random variable of interest) of the balances of funding products that are under a reference. So, those methods assume as feasible the possibility of future occurrence of fluctuations of balances (financial amount of partial bailouts) with a range that is similar to the ones that are observed in the historical series.

The table below shows the impact on the result or on the value assessment of the institution due to shocks in interest rates segmented by risk factors:

Table 51 - Impact on the result or on the assessment of the institution value due to the shocks in interest rates, segmented by


61

risk factor - Economic Value of Equity methodology

R$ thousand Hypothetical Results (EVE)

Risk Factor-Interest Rate

3Q17

Prefixed (12,354,964) US Dollar (280,113) Euro (6,646) TR 7,105,184 TJLP (151,499) TBF 2,668 INPC (415,022) Other (1087,686)

6.2.7 Risk measuring systems and communication and information processes

The market risk measuring process uses corporate systems and the application “Riskwatch”, which primarily aim to:

a) consolidate managerial information for market risk management;

b) simulate market scenarios; and

c) calculate market risk measures.

Riskwatch functions that deserve special emphasis are:

a) the calculation of market risk indicators, such as Value-at-Risk (parametric and nonparametric), duration, yield;

b) the elaboration of cash flow reports, either consolidated or by product, marked to market or nominal;

c) the determination of the portfolio sensitivity to the fluctuations in national and international interest rates;

d) the calculation of the theoretical result of portfolios after the application of historical and stress scenarios; and

e) the elaboration of the reports on the mismatching of maturities, rates, indexes and currencies.

At the Bank, the own positions are segregated in Trading Portfolio and Non-Trading Portfolio. The criterion to classify the operations in the Trading Portfolio is defined by CSGRC, which also sets, in the sphere of the Prudential Conglomerate, the policy for the classification of operations in the Trading Portfolio.

The own positions held by companies that are not part of the Prudential Conglomerate are not subject to the classification in the Trading Portfolio.

For the market risk management process, the Bank makes use of a structure of management groups and books, both for the domestic area and for the international area, with specific objectives and limits of exposure to risks.

Regarding the limits of exposure to market risks, the CSGRC establishes the following classification criteria:

Global limits: applied to the Trading and Banking Book Portfolios, to the set of transactions subject to capital requirements and to the interest rate risk in the Banking Book Portfolio (RTJBB) and approved by CSGRC, The main metrics used for management are Value-at-Risk (VaR), stress and financial volume, both for trading and for banking book, and EVE, for banking book.

Specific limits: applied to the management groups and books of the Trading and Banking Book Portfolios or to both Portfolios, to the market risk factors of transactions subject to capital requirements and to the market risk factors sensitive to the interest


62

rate risk in the Banking Book Portfolio (risk factors of RTJBB) and approved by the CEGRC, The main metrics used for management are Value-at-Risk and stress, both for trading and for banking book, and EVE, for banking book.

Operational limits: applied to transactions that make up the management groups and books, enabling the disclosure of the effective risk level of assumed exposures and aiming to ensure compliance with the strategies and the global and specific limits established, They are defined and approved by Diris presenting as main metrics the Value-at-Risk and operating bands of exposure to market risks.

Diris reports the consumption of the specific and operational limits to the managers of the groups and books of the Trading and Banking Book Portfolios daily. It reports the consumption of overall limits to the strategic committees monthly, through the Market and Liquidity Risk Management Report and Risks Dashboard.

In case limits are exceeded, Diris, responsible for controlling and monitoring the portfolio, issues a document called "Limit Exceeding Form". The managers of groups and books should submit their reasons for exceeding limits and specify the deadline for regularization. In turn, the hierarchical level with the authority to manage the case should issue an opinion on the manager's pronouncement. The team responsible for monitoring the limit is responsible for keeping track of the categorization actions.

6.3 Liquidity Risk

6.3.1 Liquidity Risk Policy

Banco do Brasil has a liquidity risk policy which comprises the guidelines of the Company in its liquidity risk management process.

The liquidity risk policy presents the liquidity risk of operations recorded on assets, liabilities and offset accounts that are carried out in the financial and capital market, as well as possible contingent or unexpected exposures, taking into account different time horizons and estimating losses associated with different scenarios, internal and external, including stress scenarios. It also considers funding strategies that provide adequate diversification of funding sources, maturity and currency terms and liquidity contingency plan.

6.3.2 Liquidity Risk Processes and Strategies

BB maintains appropriate levels of liquidity for its commitments in Brazil and abroad, resulting from its broad and diversified depositor base and the quality of its assets, a well-diversified branches network and its ability to access the international capital market. Strict control over liquidity risk is in accordance with the Liquidity Risk Policy established by the Board of Directors, complying with the requirements of Brazilian banking supervision and that of the other countries where BB operates.

The liquidity risk management process involves continuous flow of information, according to the phases presented in the risk management process chapter.

BB’s liquidity risk management segregates liquidity in Reais from liquidity in foreign currencies. The instruments used in the management are:

a) Liquidity Projections;

b) Stress Tests;

c) Liquidity Risk Limits; and


63

d) Liquidity Contingency Plan.

The liquidity risk management instruments are monitored periodically and reported in BB’s strategic committees.

The Liquidity Projections ensure a forward-looking assessment of the effect of mismatching between funding and investments, in order to identify situations that could compromise the liquidity of the Institution, taking into account both budgetary planning and market conditions.

Liquidity Projections are assessed periodically under alternative and stress scenarios. If the result of any of these liquidity projection scenarios remains below the adopted liquidity level limit, then the previously established Contingency Measures Potential are put into effect, in order to recover the Institutions’ liquidity.

Furthermore, Banco do Brasil uses the following metrics for Liquidity Risk limits:

a) Liquidity Reserve (RL); b) Liquidity Cushion; and c) Availability of Free Resources Indicator (DRL); and d) Liquidity Coverage Ratio (LCR).

Liquidity Reserve is the metric used in short-term liquidity risk management. It is the minimum level of high liquidity assets the Bank must maintain, compatible with the risk exposure arising from the nature of its operations and market conditions. The Liquidity Reserve methodology is used as a parameter to identify a liquidity contingency and to activate the Liquidity Contingency Plan, being monitored daily.

The following figure shows BB’s monthly monitoring of the Liquidity Reserve in local currency.

Figure 5 - Liquidity in Local Currency

sep/16 oct/16 nov/16 dec/16 jan/17 feb/17 mar/17 apr/17 may/17 jun/17 jul/17 aug/17 sep/17

Monthly Average Liquidity Liquidity Reserve


64

The following figure shows BB’s monthly monitoring of the Liquidity Reserve in foreign currency:

Figure 6 - Liquidity in Foreign Currency

The Liquidity Cushion limit aims to monitor the daily observed liquidity in addition to the daily monitoring of liquidity projections in various scenarios: base and stress, using the Liquidity Reserve limit.

The Availability of Free Resources indicator (DRL), used in planning and in the execution of its annual budget, is intended to ensure a balance between funding and the investment of resources in the commercial portfolio and ensure liquidity financing with stable resources.

The DRL limit used to guide the execution and planning of the budget, according to the funding and investment goals, is defined annually by the CEGRC (Risk Management Executive Committee), and its monitoring occurs on a monthly basis.


Monthly Average Liquidity Liquidity Reserve


65

Figure 7 - DRL Indicator

The Liquidity Contingency Plan, on its turn, establishes procedures and responsibilities to be adopted in liquidity stress situations. In that case, one or more contingency measures may be adopted so that the institution can assure its payment capacity. The potential of liquidity contingency measures is verified monthly.

6.3.3 Liquidity Coverage Ratio (LCR) Calculation

The Liquidity Coverage Ratio (LCR) is a requirement for banks with more than R$ 100 billion total assets, in accordance with CMN Resolution nº 4.401/15.

The LCR calculation fallows the standardized stress scenario model established by the Central Bank of Brazil (Bacen) through Circular nº 3.749/15. This model complies with international guidelines and aims to guarantee the existence of sufficient high quality liquid assets to support a financial stress scenario with a 30 - day term.

The standardized stress scenario used to calculate the LCR considers idiosyncratic and market shocks that results in:

a) partial funding loss from:

i. retail operations;

ii. wholesale operations without collaterals.

b) partial loss in the institution`s ability to raise short - term funds;

c) additional outflow of funds under agreement due to three levels credit risk downgrade, including additional collateral requirement;

d) increase in the volatility of prices, rates or indexes that impact the quality of a collateral or the potential future exposure of derivative positions, resulting in the application of greater discounts to a collateral or additional collateral call, or other demands for liquidity;


DRL DRL Limit


66

e) withdrawals higher than expected in lines of credit and liquidity granted; and

f) the potential need to repurchase bonds issued or honor non-contractual obligations aiming to mitigate reputational risk.

Thus, LCR is the ratio between high quality liquid assets (HQLA) and the expected total net cash outflow for the next 30 days, as the following formula shows:

𝐿𝐶𝑅 = 𝐻𝑖𝑔ℎ 𝑄𝑢𝑎𝑙𝑖𝑡𝑦 𝐿𝑖𝑞𝑢𝑖𝑑 𝐴𝑠𝑠𝑒𝑡𝑠 (𝐻𝑄𝐿𝐴)

𝑁𝑒𝑡 𝐶𝑎𝑠ℎ 𝑂𝑢𝑡𝑓𝑙𝑜𝑤𝑠

Where: Net Cash Outflows = Cash Outflows (-) Cash Inflows Cash Inflows is limited to 75% of cash outflows

The HQLA are assets that remain liquid in markets during periods of stress, which are easily and immediately converted into cash with low or without losses, it has no impediments, with a low risk and whose pricing is easy and right, i.e. that meet the minimum requirements set by the regulator.

Net cash outflows are the cash outflows minus the cash inflows. Cash outflows are calculated by multiplying the balances of the various categories of obligations and commitments, recorded to liabilities or off balance sheet, by weighting factors.

Cash inflows are calculated as of the multiplication by weighting factors, the balances of the various categories of receivables without default, for which there is no expectation of counterparty failure in the next 30 days.

The following table presents the LCR implementation schedule in Brazil, in which the minimum requirement of the indicator will increase gradually to reach 100% from January 2019.

Table 52 - LCR Implementation Schedule

Indicator

oct/15 jan/16 jan/17 jan/18 jan/19

LCR Requirement 60% 70% 80% 90% 100%

The following table shows LCR figures calculated using the average values of 64 daily observations sent to Bacen from July to September 2017:


67

Table 53 - Information on the Liquidity Coverage Ratio (LCR)

3Q17 2Q17

Average Amount¹

Weighted Average Amount²

Average Amount¹

Weighted Average Amount²

High Quality Liquid Assets (HQLA)

1 Total High Quality Liquid Assets (HQLA) 114,274,582 109,068,869

Cash Outlows

2 Retail funding: 333,161,762 21,757,290 336,566,343 18,583,855

3 Stable funding 222,147,941 9,706,428 223,992,447 6,719,773

4 Less stable funding 111,013,821 12,050,862 112,573,895 11,864,082

5 Non-collateralized wholesale funding: 73,209,156 31,184,347 73,052,998 29,723,078

6 Operating deposits (all counterparties) and affiliated cooperative deposits

0 0 0 0

7 Non-operating deposits (all counterparties) and affiliated cooperative deposits

68,273,648 26,248,839 70,361,802 27,031,883

8 Other non-collateralized wholesale funding 4935,508 4935,508 2691,195 2691,195

9 Collateralized wholesale funding 9262,273 10201,361

10 Additional requirements: 75,121,248 9,657,883 70,856,326 7,666,447

11 Related to exposure to derivatives and other collateral requirements ,841,948 ,841,948 -- --

12 Related to funding losses through the issue of debt instruments 2460,922 2460,922 1451,916 1451,916

13 Related to lines of credit and liquidity 71,818,377 6,355,012 69,404,410 6,214,531

14 Other contractual obligations 28399,053 28399,053 29857,295 29857,295

15 Other contingent obligations 7,764,816 1,896,412 7,515,666 1,087,796

16 Total cash ouftlows 102,157,257 97,119,833

Cash Inflows

17 Collateralized loans 284,067,101 - 303,047,124 -

18 Outstanding loans whose payments are fully up-to-date 25,997,729 12,723,962 25,533,764 13,423,229

19 Other cash inflows 51,495,357 45,511,364 50,343,601 44,926,334

20 Total cash inflows 361,560,187 58,235,325 378,924,489 58,349,563

Total

Adjusted Amount3

Total

Adjusted Amount3

21 Total HQLA 114,274,582 109,068,869

22 Total net cash outflow 43,921,931 38,770,271

23 LCR (%) 260.18% 281.32%

1 - Total balance of cash inflow/outlow item 2 - Total balance of cash inflow/outlow item after application of weighting factors. 3 - Total balance of cash inflow/outlow item after application of weighting factors and limits.

The average Banco do Brasil LCR for 3Q17 recorded to 260.2%, compared to 281.3% recorded in the previous quarter. The observed fall in the ratio was mainly due the changes implemented by Circular Bacen 3.841 of 7th July 2017, that had raised cash outflows.

High Quality Liquid Assets are represented mainly by Brazilian Government securities in addition to the amounts considered as a return from compulsory reserve collected to the Central Bank of Brazil. The average HQLA volume for the quarter was R$ 114.3 billion, compared to the average value of R$ 109.1 billion recorded in the previous quarter.

Cash Outflows, considering the regulatory stress scenario, recorded to an average amount of R$ 102.2 billion in 3Q17 and were mainly composed by (approximately 80%):

a) retail and non-collateralized wholesale funding, as presented on items 2 and 5 of the above table;

b) credit card payments to merchants, as presented on item 14 of the above table.

In the previous quarter Cash Outflows reached an average amount of R$ 97.1 billion.

Cash Inflows amounted to an average value of R$ 58.2 billion in 3Q17. The value of

cash inflows from loans amounted for R$ 12.7 billion, or 22% of total Cash Inflows


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(item 18). In the previous quarter the average value of Cash Inflows amounted for R$

58.3 billion.

Accordingly, it is possible to conclude that Banco do Brasil has sufficient liquid assets to support the standardzided stress scenario proposed by the regulator.

The current calculation of BB LCR has some limitations:

a) absence of amounts given or received as collateral and margin calls linked to derivative financial instruments;

b) absence of all subsidiaries that forms BB Prudential Conglomerate (the current calculation considers more than 99% of this view in terms of total assets);

c) absence of cash outflows related to market maker operations; d) segregation of cash inflows referring to directed credit in operations that should

be and should not be redirected in 30 days; e) segregation of cash inflows related to BB deposits in deposits related to and not

related to trade finance; f) analytical documentation of the process.

An action plan is underway aiming to do all needed adjusts.

6.3.4 Liquidity Risk measuring systems

Liquidity risk measuring process makes use of corporate systems, the Riskwatch application and the Statistical Analysis System - SAS. The main objectives of these applications are:

a) consolidate management information of the Bank, ascertaining and providing information for liquidity risk management and for assets and liabilities management;

b) provide liquidity risk measurements (products/cash flows by currency and index), as well as assets and liabilities management.

The main functions of the RiskWatch application are the same mentioned for market risk.

The SAS tool is responsible for the current calculation of the LCR. The tool combines extractions from the corporate system called Liquidity Risk Management (GRL) with corporate tables, to calculate the indicator.

The GRL system is the corporate solution under development that covers all the stages of calculation and reporting of the LCR indicator, from the extraction of data, classifications and parameterizations needed and the report generation as demanded by Central Bank of Brazil.

The measurements and report terms of management tools adopted in the liquidity risk management process, presented in the previous chapter, are performed in accordance with the models and methodologies approved by the strategic risk committees.

Diris and the areas responsible for liquidity management assess the consumption of limits for local and foreign currency liquidity daily. In the event of extrapolations, they are treated according to established governance, including both the Liquidity Forum and strategic risk committees.

The communication of the Bank liquidity risk management to Senior Management occurs in the ordinary meetings of the strategic risk committees, as it happens to the “Risk Dashboard”.


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Regarding the assessment of capital requirement, it is not the practice to allocate capital to cover liquidity risk. The effects of liquidity risk are given in cash availability, even if the company has a robust capital structure.

6.4 Operational Risk

Banco do Brasil manages operational risk by segregating risk and business management functions and by adopting the best practices on risk management, in accordance with rules and regulations of supervision and banking regulation.

There is an operational risk management structure and policies approved by the Board of Directors compatible with its business model and the complexity of its processes, products and services.

In line with the strategy to reduce operational losses and to maintain the level of exposure to operational risk, observing the established appetite and tolerance, a Global Limit is defined annually, which is segmented into Specific Limits, distributed by the operational risk categories and the responsible managers of those risks.

The Governance of operational risk involves the Board of Directors, the Superior Committee for Assets, Liabilities, Liquidity, Capital and Risk Management (CSGRC) and the Executive Committee for Internal Controls and Risk Management (CEGRC).

6.4.1 Policies

The Bank adopts a Specific Operational Risk Policy that contains guidelines to the various areas to ensure the effectiveness of the operational risk management model. The subsidiaries, affiliates and holdings are expected to define their directions based on these guidelines, considering the specific needs and also legal and regulatory aspects to which they are subject.The Bank also has other policies that make up the list of policies associated to the management of the operational risk:

a) Prevention and Combat against Money Laundering, Terrorism Financing and Corruption;

b) Business Continuity Management;

c) the Bank Relationship with Suppliers;

d) Legal Risk Management; and

e) Information Security.

6.4.2 Operational Risk Management Process

The roles and responsibilities for operational risk management are defined in accordance with the Lines of Defense Model that involves the entire Organization at its various levels.

The 1st Line is composed of the organization's production chain, responsible for identifying the risks of its processes, products and services, establishing the controls to mitigate them and monitor their effectiveness and performance.

The 2nd Line of Defense is organized to: advise 1st Line managers in the identification and mitigation of risks; to evaluate the identified risks by quantifying the exposure to operational risk in order to consider the impact on the Bank's business; measure; control the Bank's exposure; monitor the adequacy and effectiveness of operational risk management; and report their results.


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The 3rd Line of Defense is the Internal Audit, responsible for the independent evaluation of governance, risk management and internal controls.

Risk identification relies on the corporate dictionary of operational risk that has the risks mapped and classified into four levels, in order to facilitate and standardize the process. From the identified risks, certification and evaluation are carried out, where the calculations of the risk criticity and its potential impact are executed and mitigation actions must be implemented. To make operational risk management more effective, priority is given to the most relevant losses and the risks of greater criticity, which are also accompanied by the highest levels of governance.

The Operational Risk Panel is the instrument used to manage operational losses and to follow the framework of the Global Limit and Specific Limits established, being reported monthly to CEGRC and CSGRC, and quarterly brought to the CA's attention. The panel presents monthly and annual position, with the respective detail of the limits, monitoring the history of operational losses and main occurrences by category.

The following table presents the monitoring of the operational losses of the Bank held by categories of risk events, in percentage terms:

Table 54 - Operational losses monitoring by loss events category

3Q17 2Q17 1Q17 4Q16 3Q16

Clients, Products & Business Practices 48,90% 19,94% 50.12% 51.35% 51.6% Employment Practices and Workplace Safety 37,96% 56,15% 32.69% 29.53% 29.64% External Fraud and Theft 11,06% 21,1% 14.37% 14.56% 15.69% Damage to Physical Assets and Public Safety 2,52% 0,19% 0.06% 0.05% 0.12% Internal Fraud and Theft 0,32% 1,4% 1.01% 0.26% 0.85% Technology and Systems Failures 0,01% 0,00% 0.02% 0.02% 0.01% Disruption of Activities 0,00% 0,00% 0% 0% 0% Execution, Delivery & Process Management -0,77% 1,2% 1.73% 4.22% 2.1%

Total 100,0% 100,0% 100% 100% 100%

6.5 Environmental Risk

6.5.1 Environmental Responsibility Policy

In compliance with requirements of CMN Resolution nº 4,327, dated 04.25.2014 and the SARB Regulation (Self - Regulation Bank) n.14, dated 08.28.2014, of the Brazilian Federation of Banks (Febraban), Banco do Brasil established Specific Socio-Environmental Responsibility Policy (PRSA).

The PRSA guides the behavior of the Bank, which, in turn, guided by the principles of relevance, proportionality and efficiency, commits itself to collaborate with subsidiaries, affiliates and simple participations in order to define their guidelines, taking into account the specific needs and legal and regulatory aspects to which they are subject.

6.5.2 Environmental Risk Management Strategies

The Bank’s performance is based on policies and processes approved by the Senior Management and the management structure segregates the risk management process from the other corporate processes.

The Bank adopts socio-environmental risk governance structure compatible to its size, business type, complexity of the products and services, and relations established with the interested public.

The socio-environmental risk management structure aims to identify, measure, evaluate, monitor, report, control and mitigate socio-environmental risk and includesDirectorships and


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Units with defined roles and responsibilities, with the participation of the Management Bodies and the Strategic Committees.

In the socio-environmental risk management model, the Directorships and Units provide necessary information to the management so that Diris can identify exposures and advise the decision-making process.

The Bank has processes that contribute with the implementation of socio-environmental responsibility actions. Like examples the Dow Jones Sustainability Index (DJSI) ,Entrepreneurial Sustainability Index (ISE), 30 Agenda, Sustainability for Executive Officer’s Forum, Equator Principles and the International Finance Corporation (IFC) Performance Standards.

6.6 Other Risks

In the model of the strategy, reputational, Complementary Pension Fund Entities and Private Health Insurance Plan Operators for Employees Risk (EFPPS) and legal risks management, the intervening directorships provide the necessary information for the management, so the risk area can identify exposures and assist the decision-making process in a risk situation.

The way the Bank acts is based on policies and processes approved by the Senior Management. The report and risks control is periodically made and the results are communicated to the competent instances.

6.6.1 Strategy Risk

The Bank defines strategy risk as the possibility of losses derived from adverse changes in the business environment or the usage of inadequate assumptions in strategic decision making.

The strategy risk management structure segregates the risk management process from the Strategy management corporate processes in Banco do Brasil, by bringing into evidence the responsibility of the involved areas and aiming to ensure the sustainable feedback to stakeholders.

The strategy risk management policy guides the corporate resources applied to its management, defines the scope and specifies the need to establish governance tools.

BB periodically monitors indicators that reflect the strategy risk level incurred by the Institution. The control of those indicators is made by pre-established tolerance limits, in order to ensure that the risk remains in the acceptable levels. The objective of this process is to promote the proactive management in decision making.

Besides the monitoring of indicators, the Bank elaborates macroeconomical scenarios and the financial industry, aiming to better assess the market threats and mitigate the risk in strategic decisions. In addition, strategy risk stress tests are performed every six months to assess the impact of adverse or severe scenarios.

6.6.2 Reputational Risk

The Bank defines reputational risk as the possibility of losses derived from the negative perception about the Institution from clients, counterparties, shareholders, investors, governamental agencies, the community or supervisors that can adversely affect the business sustainability. This concept is subdivided into the categories “businesses and relations” and “controls and compliance”.


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The reputational risk management structure segregates the risk management structure from the brand management corporate processes, evidencing the responsibility of the areas that are involved and aims to ensure a sustainable feedback to shareholders.

The reputational risk management policy guides the corporate resources applied to its management, defines the scope and specifies the need to establish governance tools.

BB periodically monitors indicators that reflect the reputational risk level incurred by the Institution. The control of those indicators is made by pre-established tolerance limits, in order to ensure that the risk remains in the acceptable levels. The objective of this process is to promote the proactive management in decision making.

In the category “businesses and relations”, indicators about the quality of mentions in the press, social media, internet, digital consumer complaints channels, customer experience surveys and the perception from investors are monitored.

In the category “controls and compliance”, indicators related to the perception from regulators, the occurrences registered in the external ombudsman, the quality of the anti-money laundering process, the allegations of corruption and consumer service are monitored.

Besides the indicators monitoring, the Bank works on reputational risk stress tests to assess the impact of adverse or severe scenarios monthly.

6.6.3 Complementary Pension Fund Entities and Private Health Insurance Plan

Operators for Employees Risk (EFPPS Risk)

The EFPPS risk is managed in the dimensions: sponsor, pension fund plans and health insurance plans, aiming to assess the negative impact which is consolidated in the Bank`s net equity and actuarial, economic-financial balance of the pension fund plans of defined benefits and sponsored health insurance plans.

It is important to mention that the EFPPS risk management structure segregates the risk management process from Banco do Brasil`s corporate processes, by establishing the responsibility of the areas that are involved, with the engagement of the Management Board and the Strategic Committees.

6.6.4 Legal Risk

As it is regulated by the CMN Resolution n° 4.557, from 02.23.2017, the legal risk is part of the operational risk definition, so the operational risk management structure, when defining its model, predicts its management, which have already been detailed in the item 6.4 of this report.

6.6.5 Model Risk

6.6.5.1 Specific Risk Policy Model

This Policy guides the management of model risk, which deals with the possibility of

losses arising from the inadequate development or use of models, due to the

inaccuracy or insufficiency of data or the incorrect formulation in its construction, which

may adversely affect the sustainability of business.

In this sense, the policy contributes to the improvement of risk management, making

the nature of operatios compatible, complexity of products and processes and the

extent of risk exposure, allowing alignment with best market practices.


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6.6.5.2 Strategies for Model Risk Management

The model risk management structure aims to identify, measure, evaluate, monitor,

report, control and mitigate model risk, and segregates the activities of evaluation and

monitoring of development, independent validation and Internal Audit activities,

preserving the independence of the lines of defense.

The management of exposure to model risk is obtained by information extracted from

the results of evaluations and monitoring of the models used by the Bank.

In addition, the Model Life Cycle and the Corporate Model Inventory are used as model

risk management tools.

6.6.6 Contagion Risk

Banco do Brasil, as the leading institution of the Prudential Conglomerate, has an established process to supervise the risk management structure of its Linked Entities (ELBB), ensuring the effectiveness and integrity of the business model by instituting corporate governance mechanisms capable of promote the alignment of the guidelines and performance of the Linked Entities to those of the conglomerate.

The supervision process aims at knowing and analyzing the corporate risk

management of the Entities Linked to Banco do Brasil (ELBB), in order to allow the

identification and monitoring of its risks, with the issuance of guidelines and feedback

to improve its management structure of risks in relation to identified deficiencies,

ensuring the mitigation of Contagion Risk

6.6.7 Compliance Risk

Compliance risk is defined as the possibility of financial or reputational loss resulting

from failure to comply with laws, regulations, internal standards, codes of conduct, and

guidelines established for the business and activities of the organization.

In the Bank, the process of structuring new risk management is subdivided into five

stages, according to the Corporate Risk Identification Manual - IN 410, which

compliance risk is in stage 3, that provides a definition of a framework for risk

management.


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7 Stress Test Program

The Basel Committee for Banking Supervision (CBSB)5 defined Stress Tests as an assessment of the Bank`s financial position under adverse or severe conditions, but plausible to occur. So the capital integrated stress test model adopted by Banco do Brasil aims to test the resilience before the possibility of macroeconomic adverse or severe or idiosyncratic events occurrence.

So, BB works on stress test exercises considering:

a) Stress Tests per Category of Risk: stress tests used in the management of each risk, by considering their specificities;

a) Capital Integrated Stress Tests (TEIC): stress tests based on an only scenario of adverse or severe macroeconomic conditions or based an idiosyncratic scenario, depending on the case, applicable to risk variables in an integrated way, to business variables and their impacts on the results, on the Net Equity (PL) and on the Institution`s capital indicators.

For the exercise to accomplish its objective, the Bank uses assumptions that produce extreme situations, although plausible, capable of generating results in which solvency requirements are extrapolated.

It is importante to mention that, for the accomplishment of TEIC, the Bank uses corporate stress scenarios, which are approved by CEGAPC and define the intensity of different shocks.

The usage of the stress test as a management tool aims to provide the risks foward-looking assessment, aiming to evaluate the adherence to the Bank`s risk apetite level, subsidize the development of contingency plans and risk mitigation processes and support capital and liquidity planning processes.

5 Principles for sound Stress Testing practices and supervision (may/09).

risk management report - bb · risk management report 3q17 9 banco do brasil founded in 1808, banco...

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