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Slide 1: 12º FORO LATIBEX 17th November 2010
Slide 2: 2 • Table of Contents Macro and Social Dynamics Brazil Financial System: Key Features
Slide 3: For the first time in a long period, we are living in a truly DUAL WORLD Need for PUBLIC SECTOR to adjust large fiscal deficits LOW HIGH Leverage MATURE MARKETS MATURE MARKETS have started to behave like mature markets… i.e., not growing… HIGH Need for PRIVATE SECTOR to deleverage LOW Balanced EMERGING MARKETS …and EMERGING MARKETS have started to behave like emerging markets… i.e., delivering DIFFERENTIAL GROWTH…
Slide 4: Brazil took its macro fundamentals to a new level… Inflation under control FHC 1 916.4% 22.5% 9.6% 5.2% 1997 8.9% 1.7% 1998 1999 6.0% 2000 7.7% FHC 2 Lula 1 Lula 2 Investiment Grade 12.5% 9.3% 7.6% 5.7% 2005 3.1% 2006 4.5% 2007 5.9% 2008 4.3% 2009 5.3% 2010E 5.0% 2011E 1994 1995 1996 2001 2002 2003 2004 Interest Rates Reduction Selic Taxa Nominal (%) Selic Taxa Real (%) GDP (Annual Real Growth %) 6.1 7.6 5.1 4.5 18 18 13 8 13 12 14 11 7 6 9 5 10.75 5.5 11.75 6.75 -0.2 2004 2005 2006 2007 2008 2009 2010E 2011E 2007 2008 2009 2010E 2011E Source: IPCA-IBGE, The Brazilian Central Bank Projections: FOCUS- The Brazilian Central Bank 4
Slide 5: … with less macroeconomic volatility and showing resilience to the international crisis… Duration in months of the Brazilian economic expansion and contraction periods Largest expansion period Most brief contraction 48 28 20 8 30 36 9 25 16 22 9 13 8 61 6 21 Feb83 Jan87 Oct80 Jan83 Oct88 May89 Feb87 Sep88 Jun89 Nov91 Dec91 Nov94 Sep95 Sep97 Feb99 Nov00 Sep01 Sep02 Jun03 Jun08 Jan09 Oct10 Jul08 Dec08 Dec94 Aug95 Oct97 Jan99 Dec00 Oct02 Aug01 Mai03 Source: The Brazilian Central Bank
Slide 6: Unemployment at historic lows…. Annual Average Unemployment Rate(%) 11.5 9.8 10.0 9.3 7.9 8.1 6.7 2004 2007 2010E Source: FGV-CPS; IBGE PNAD 2008 Projection: Santander Economic Research
Slide 7: 7 Social dynamics leverages growth… Favorable Demographic Transiction1 200 90% 80% 70% 60% 50% 40% 1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050 Social Mobility Trends2 ∆abc= 36 20 ∆abc= 29 31 Millions of People Demographic Bonus 13 150 66 100 47 50 49 0 +44.0% 95 +19.0% 113 44 40 29 2009 E D C A/B 16 2014* Population in Active Ages= 15-64 years Dependence Ratio 2003 Sources: 1 - IBGE 2 - Ministry of Finance; * estimated
Slide 8: Leading to more access to banking services… More 24 million people had access to bank Milion “Cadastro Positivo” (Positive credit list) An information system that allows banks to know about the creditworthiness of a person and the likelihood that this person will pay his or her debts. 120 108.8 100 84.0 80 60 30% 40 20 It’s possible that over 26 million Brazilians will be included in the banking sector, according to Serasa Sep.09 0 Jul.05 research. Source: The Brazilian Central Bank, SERASA
Slide 9: 9 • Table of Contents Macro and Social Dynamics Brazil Financial System: Key Features
Slide 10: Brazilian Financial System Well Capitalized – BIS Ratio 20% 16% 12% 8% 4% 0% 2004 2005 2006 2007 2008 jul/09 2005 2006 2007 2008 2009 Jun 10 High Profitability - ROE 17.2% 21.8% 21.7% 23.7% 18.8% 15.5% 16.2% 18.5% 17.4% 17.8% 17.3% 16.4% Legal Requirement = 11% Basel Committee = 8% Banking Sector Consolidation – % on Assets of the 5 largest Banks 73.6% 57.3% 59.1% 59.0% 77.8% 75.5% Balance of Reserve Requirements R$ Billons 350 300 250 200 150 100 50 0 Dec 05 Dec 06 Dec 07 Dec 08 Dec 09 Jun 10 Securities Cash
Slide 11: Deposit market highly regulated: High reserve requirements and mandatory lending - Reserve requirements Demand Deposits Savings Pricing regulated Pricing regulated Free Competition 51% Earmarked Loans 31% Free Funding 18% 30% 65% 5% Time Deposits 23% 77% Source: The Brazilian Central Bank
Slide 12: Although credit growth has been robust in the last years, credit penetration is still relatively low Total Loans to GDP 50% 45% 40% 35% 30% 25% 20% México Crisis Russian Crisis Presidential Elections 9/11 & Energy Crisis Subprime Crisis Asian Crisis Real Free Float Argentina Crisis 15% 10% Sep-06 Sep-93 Sep-94 Sep-95 Sep-96 Sep-97 Sep-98 Sep-99 Sep-00 Sep-01 Sep-02 Sep-03 Sep-04 Sep-05 Sep-07 Sep-08 Sep-09 Mar-04 Mar-94 Mar-95 Mar-96 Mar-97 Mar-98 Mar-99 Mar-00 Mar-01 Mar-02 Mar-03 Mar-05 Mar-06 Mar-07 Mar-08 Mar-09 Source: The Brazilian Central Bank Mar-10 Sep-10
Slide 13: Total Loans – Banking System Public vs. Private Banks (YoY) Loans per Type of Ownership 26.1% Foreign Banks 18% Private Banks 40% 18.3% Public Banks 42% Mar-08 Mar-09 Mar-10 Jun-08 Jun-09 Dec-07 Dec-08 Dec-09 Sep-08 Sep-07 Sep-09 Jun-10 Public Banks Private and Foreign Banks Source: The Brazilian Central Bank Sep-10
Slide 14: 14 Resilient Spreads – Corporate x Individuals 60 50 40 30 28.0 24.1 20 18.4 10 0 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 May-05 May-06 May-07 May-08 May-09 Corporate Individuals Total Source: The Brazilian Central Bank May-10 Sep-10 Sep-04 Sep-05 Sep-06 Sep-07 Sep-08 Sep-09
Slide 15: jan/04 abr/04 jul/04 out/04 jan/05 abr/05 jul/05 out/05 jan/06 abr/06 jul/06 out/06 jan/07 abr/07 jul/07 out/07 jan/08 abr/08 jul/08 out/08 jan/09 46% 47% 48% 48% 50% 51% 52% 48% 49% 50% 52% 52% 53% Loans to Individuals – Secured* x Unsecured Lending Source: The Brazilian Central Bank 54% 52% 54% 54% 57% 57% 59% 59% 60% 61% 61% 48% 46% 46% 43% 43% 41% 41% 40% 39% 39% Secured Lending* *Payroll Loan + Mortgage + Auto Loans divided by total loans to individuals. Interest Rate Reference Credit Operations. 61% 60% 60% 60% abr/09 jul/09 out/09 jan/10 abr/10 jul/10 ago/10 set/10 39% 40% 40% 40% 60% 62% 63% 64% 65% 66% 67% 67% 40% 38% 37% 36% 35% 34% 33% 33% Unsecured Lending
Slide 16: Household Debt Ratio with healthy leverage and longer durations % 40,0 39.1 35,0 30,0 25,0 23.8 20,0 15,0 Household Debt Ratio* Household Debt Service Ratio* Source: The Brazilian Central Bank * MSA (Massa Salarial Ampliada)
Slide 17: Delinquency (%) 3,5 4,0 4,5 5,0 5,5 6,0 6,5 3,0 Jan-04 May-04 Sep-04 Jan-05 May-05 Sep-05 Jan-06 Banking Spreads and Delinquency Rates normalazing Source: The Brazilian Central Bank Spreads May-06 Sep-06 Jan-07 May-07 Sep-07 Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10 22,5 25,0 27,5 30,0 32,5 Delinquency 20,0 Spreads (p.p)
Slide 18: Cashing in on the unique environment in Brazil The banking sector has a big opportunity The triple Multiplier X X X (not involved in the excesses of the past cycle) Differential GDP growth (development of middle classes) Increased bancarisation (Low leverage, conservative, good profitability, supervision) Sound Financial System
Slide 19: Investor Relations (Brazil) 2,235 Juscelino Kubitschek Avenue - 10º floor São Paulo | SP | Brazil | 04543-011 Phone. 55 11 3553-3300 Fax. 55 11 3553-7797 e-mail: ri@santander.com.br