Brazilian Banks and Liquidity Peter Shaw Managing Director, Latin America Financial Institution Brazilian Chamber of Commerce New York, October 27, 2008

Loan Growth Leads to Diversified Portfolio Loan GrowthLoan by Segment, June 2008 Source: Fitch Ratings Source: Brazil Central Bank

Asset Quality – Adequate to Date, But Will Be Challenged Non Performing Loans*/ Gross Loans Loan Loss Reserves/ Non-Performing Loans* * For Brazilian System and banks HSBC were considered loans classified from E-H Source: Fitch Ratings.

Capital Compares Well Regionally Total CapitalCapital Tier 1 Source: Fitch Rating

Funding Largely Made in Brazil Source: Fitch Ratings Third Party Funding Composition Top 10 Banks

Focus on Liquidity – Talking Points >Flight to quality vs. Flight from the system, benefiting larger banks –Beneficiaries starting to deploy liquidity >Funding largely “Made in Brazil” –Less than 10% of total funding is cross border >Like the rest of the world, a broad funding base is proving its worth –Most vulnerable are those dependent on institutional funding >Inherent mismatch, exacerbated by longer term consignado lending >Regulators proactive in providing tools for managing through liquidity pressures THEREFORE >Approach ahead will be to rate fundamentals, not volatility >Banks are actively managing individual situations – generally realistic in their approach, prioritizing liquidity over prior strategic goals, and assets are proving good source of liquidity –Successful in managing liability outflow, but may damage franchises in medium, term >National ratings express our view of relative creditworthiness, and make use of broad range of scale

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