6-K 1 bbd20210524_6k.htm FORM 6-K

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 

 
FORM 6-K
 
REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16 UNDER THE
SECURITIES EXCHANGE ACT OF 1934
 
For the month of May, 2021
Commission File Number 1-15250
 

 
BANCO BRADESCO S.A. 
(Exact name of registrant as specified in its charter)
 
BANK BRADESCO
(Translation of Registrant's name into English)
 
Cidade de Deus, s/n, Vila Yara
06029-900 - Osasco - SP
Federative Republic of Brazil
(Address of principal executive office)
 

Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.  Form 20-F ___X___ Form 40-F _______

 Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.  

Yes _______ No ___X____

 .

 
 

 

 
 

 

Summary

   
1. INDIVIDUALS RESPONSIBLE FOR THE FORM  7 
1.1 – DECLARATION AND IDENTIFICATION OF THE INDIVIDUALS IN CHARGE  7 
1.1 – CEO’STATEMENT  8 
1.2 – INVESTOR RELATIONS OFFICERSTATEMENT  9 
1.3 – STATEMENT OF THE CEO / INVESTOR RELATIONS OFFICER  10 
2. INDEPENDENT AUDITORS  11 
2.1/2.2 – IDENTIFICATION AND REMUNERATION OF AUDITORS  11 
2.3 – OTHER RELEVANT INFORMATION  11 
3. SELECTED FINANCIAL INFORMATION  12 
3.1 – FINANCIAL INFORMATION – CONSOLIDATED  12 
3.2 – NON-GAAP EARNINGS  12 
3.3 – SUBSEQUENT EVENTS TO THE LATEST FINANCIAL STATEMENTS  12 
3.4 – INCOME ALLOCATION POLICY  13 
3.5 – DIVIDEND PAYOUTS  15 
3.6 – DECLARATION OF DIVIDENDS TO THE WITHHELD PROFITS OR THE RESERVES ACCOUNT  17 
3.7 – LEVEL OF INDEBTEDNESS  17 
3.8 – OBLIGATIONS  17 
3.9 – OTHER RELEVANT INFORMATION  18 
4. RISK FACTORS  19 
4.1 – DESCRIPTION OF RISK FACTORS  19 
4.2 – DESCRIPTION OF THE MAIN MARKET RISKS  33 
4.3 – NON-CONFIDENTIAL AND RELEVANT LITIGATIONARBITRATION OR ADJUDICATORY PROCEEDINGS  38 
4.4 – NON-CONFIDENTIAL AND RELEVANT LITIGATIONARBITRATION OR ADJUDICATORY PROCEEDINGS WHOSE APPELLEES ARE   
MANAGERS, FORMER MANAGERS, CONTROLLERS, FORMER CONTROLLERS OR INVESTORS 47 
4.5 – CONFIDENTIAL RELEVANT PROCEEDINGS  47 
4.6 – NON-CONFIDENTIAL AND RELEVANT JOINT LITIGATIONARBITRATION OR ADJUDICATORY PROCEEDINGSRECURRING OR ANCILLARY  48 
4.7 – OTHER RELEVANT CONTINGENCIES  49 
4.8 – RULES OF THE COUNTRY OF ORIGIN AND THE COUNTRY WHERE THE SECURITIES ARE GUARDED  49 
5. RISK MANAGEMENT AND INTERNAL CONTROLS  50 
5.1 RISK MANAGEMENT POLICY  50 
5.2 – MARKET RISK MANAGEMENT POLICY  57 
5.3 – DESCRIPTION OF THE INTERNAL CONTROLS  60 
5.4 – INTEGRITY PROGRAM  62 
5.5 – SIGNIFICANT CHANGES  66 
5.6 – OTHER RELEVANT INFORMATION – RISK MANAGEMENT AND INTERNAL CONTROLS  66 
6. ISSUER’S HISTORY  67 

 

 
 

   
6.1 / 6.2 / 6.4 – ESTABLISHMENT OF THE ISSUERTERM OF DURATION AND DATE OF REGISTRATION AT THE CVM  67 
6.3 – BRIEF HISTORY  67 
6.5 – BANKRUPTCY INFORMATION FOUNDED ON RELEVANT VALUE OR JUDICIAL OR EXTRAJUDICIAL RECOVERY  68 
6.6 – OTHER RELEVANT INFORMATION  68 
7. ISSUER’S ACTIVITIES  69 
7.1 – DESCRIPTION OF THE MAIN BUSINESS ACTIVITIES OF THE ISSUER AND ITS SUBSIDIARIES  69 
7.2 – INFORMATION ON OPERATING SEGMENTS  69 
7.3 – INFORMATION ON PRODUCTS AND SERVICES RELATING TO THE OPERATIONAL SEGMENTS  73 
7.4 – CLIENTS RESPONSIBLE FOR MORE THAN 10% OF THE TOTAL NET REVENUE 99 
7.5 – RELEVANT EFFECTS OF THE STATE REGULATION OF ACTIVITIES  100 
7.6 – RELEVANT REVENUES COMING FROM FOREIGN COUNTRIES  136 
7.7 – EFFECTS OF FOREIGN CONTROL ON ACTIVITIES  136 
7.8 – SOCIO-ENVIRONMENTAL POLICIES  137 
7.9 – OTHER RELEVANT INFORMATION  137 
8. EXTRAORDINARY BUSINESS  138 
8.1 – EXTRAORDINARY BUSINESS  138 
8.2 – SIGNIFICANT ALTERATIONS IN THE ISSUERS MANNER OF CONDUCTING BUSINESS  138 
8.3 – SIGNIFICANT CONTRACTS NOT DIRECTLY RELATED TO OPERATING ACTIVITIES ENTERED INTO BY THE ISSUER OR BY ITS SUBSIDIARIES .  138 
8.4 – OTHER RELEVANT INFORMATION  138 
9. RELEVANT ASSETS  139 
9.1 – RELEVANT NON-CURRENT ASSETS – OTHERS  139 
9.2 – OTHER RELEVANT INFORMATION  141 
10. OFFICERS’ NOTES  143 
10.1 – GENERAL FINANCIAL AND EQUITY CONDITIONS  143 
10.2 – FINANCIAL AND OPERATING INCOME  166 
10.3 – EVENTS WITH RELEVANT EFFECTSOCCURRED AND EXPECTEDIN THE FINANCIAL STATEMENTS  168 
10.4 – SIGNIFICANT CHANGES IN ACCOUNTING PRACTICES – CAVEATS AND EMPHASIS IN THE AUDITORS OPINION  170 
10.5 – CRITICAL ACCOUNTING POLICIES  177 
10.6 – RELEVANT ITEMS NOT EVIDENCED IN THE FINANCIAL STATEMENTS  179 
10.7 – COMMENTS ON OTHER ITEMS NOT EVIDENCED IN THE FINANCIAL STATEMENTS  180 
10.8 – BUSINESS PLAN  180 
10.9 – OTHER FACTORS WITH RELEVANT INFLUENCE  181 
11. PROJECTIONS  182 
11.1 – DISCLOSED PROJECTIONS AND ASSUMPTIONS  182 
11.2 – MONITORING AND CHANGES TO THE DISCLOSED PROJECTIONS  184 
12. SHAREHOLDERS’ MEETING AND MANAGEMENT  186 

 
 
   
12.1 – DESCRIPTION OF THE ADMINISTRATIVE STRUCTURE  186 
12.2 – RULESPOLICIES AND PRACTICES RELATING TO SHAREHOLDERS’ MEETINGS  200 
12.3 – RULESPOLICIES AND PRACTICES RELATING TO THE BOARD OF DIRECTORS  203 
12.4 – DESCRIPTION OF THE ARBITRATION CLAUSE TO RESOLVE CONFLICT THROUGH ARBITRATION  205 
12.5/6 – COMPOSITION AND PROFESSIONAL EXPERIENCE OF THE MANAGEMENT AND FISCAL COUNCIL  206 
12.7/8 COMPOSITION OF COMMITTEES  258 
12.9 – EXISTENCE OF A MARITAL RELATIONSHIPSTABLE UNION OR KINSHIP UP TO THE SECOND DEGREE RELATED TO ISSUERS MANAGERSSUBSIDIARIES AND CONTROLLING COMPANIES  263 
12.10 – RELATIONSHIPS OF SUBORDINATIONPROVISION OF SERVICE OR CONTROL BETWEEN MANAGERSSUBSIDIARIESCONTROLLING COMPANIES AND OTHER  264 
12.11 – AGREEMENTSINCLUDING ANY INSURANCE POLICIESFOR THE PAYMENT OR REIMBURSEMENT OF EXPENSES INCURRED BY DIRECTORS AND OFFICERS  271 
12.12 – OTHER RELEVANT INFORMATION  272 
13. MANAGEMENT REMUNERATION  273 
13.1 – DESCRIPTION OF THE POLICY OR COMPENSATION PRACTICEINCLUDING THE NON-STATUTORY BOARD OF EXECUTIVE OFFICERS  273 
13.2 – TOTAL COMPENSATION OF THE BOARD OF DIRECTORS, STATUTORY BOARD OF EXECUTIVE OFFICERS AND FISCAL COUNCIL  280 
13.3 – VARIABLE COMPENSATION OF THE BOARD OF DIRECTORS, STATUTORY BOARD OF EXECUTIVE OFFICERS AND FISCAL COUNCIL  282 
13.4 – COMPENSATION PLAN BASED ON SHARES OF THE BOARD OF DIRECTORS AND OF THE STATUTORY BOARD OF EXECUTIVE OFFICERS  285 
13.5 - COMPENSATION BASED ON SHARES OF THE BOARD OF DIRECTORS AND OF THE STATUTORY BOARD OF EXECUTIVE OFFICERS  285 
13.6 - INFORMATION ON OPTIONS (OPENHELD BY THE BOARD OF DIRECTORS AND STATUTORY BOARD OF EXECUTIVE OFFICERS  285 
13.7 - OPTIONS EXERCISED AND SHARES DELIVERED RELATED TO COMPENSATION BASED ON SHARES OF THE BOARD OF DIRECTORS AND OF THE STATUTORY BOARD OF EXECUTIVE OFFICERS  285 
13.8 - INFORMATION NECESSARY FOR UNDERSTANDING THE DATA DISCLOSED IN ITEMS 13.5 TO 13.7 – METHOD OF PRICING THE VALUE OF SHARES AND OPTIONS  285 
13.9 - NUMBER OF SHARESQUOTAS AND OTHER SECURITIES CONVERTIBLE INTO SHARES HELD BY MANAGERS AND MEMBERS OF THE FISCAL COUNCIL – BY BODY  286 
13.10 - INFORMATION ON PRIVATE PENSION PLANS GRANTED TO THE MEMBERS OF THE BOARD OF DIRECTORS AND OF THE STATUTORY BOARD OF EXECUTIVE OFFICERS  286 
13.11 - HIGHESTLOWEST AND THE AVERAGE INDIVIDUAL COMPENSATION FOR THE BOARD OF DIRECTORS, STATUTORY BOARD OF EXECUTIVE OFFICERS AND FISCAL COUNCIL  287 
13.12 - COMPENSATION OR INDEMNITY MECHANISMS FOR MANAGERS IN CASE OF REMOVAL FROM OFFICE OR RETIREMENT  287 
13.13 - PERCENTAGE IN TOTAL COMPENSATION HELD BY MANAGEMENT AND MEMBERS OF THE FISCAL COUNCIL THAT ARE RELATED PARTIES TO THE CONTROLLING COMPANIES  288 
13.14 - COMPENSATION OF MANAGERS AND FISCAL COUNCILS MEMBERSGROUPED BY BODYRECEIVED FOR ANY REASON OTHER THAN THE POSITION THEY OCCUPY  288 
13.15 – COMPENSATION OF MANAGERS AND FISCAL COUNCILS MEMBERS RECOGNIZED IN THE INCOME OF THE CONTROLLING SHAREHOLDERSDIRECT OR INDIRECTOF COMPANIES UNDER COMMON CONTROL AND OF THE ISSUERS SUBSIDIARIES  288 
13.16 – OTHER RELEVANT INFORMATION  289 
14. HUMAN RESOURCES  290 
14.1 – DESCRIPTION OF HUMAN RESOURCES  290 

 
 
   
14.2 – RELEVANT CHANGES – HUMAN RESOURCES  292 
14.3 – DESCRIPTION OF EMPLOYEE REMUNERATION POLICY  292 
14.4 – DESCRIPTION OF THE RELATIONSHIP BETWEEN THE ISSUER AND UNIONS  295 
14.5 – OTHER RELEVANT INFORMATION  285 
15. CONTROL AND ECONOMIC GROUP  296 
15.1 / 15.2 – EQUITY POSITION  296 
15.3 – CAPITAL DISTRIBUTION  300 
15.4 – ORGANIZATION CHART OF SHAREHOLDERS AND ECONOMIC GROUP  301 
15.5 – SHAREHOLDERS’ AGREEMENT FILED AT THE HEADQUARTERS OF THE ISSUER OR OF WHICH THE CONTROLLING SHAREHOLDER IS A PART OF  304 
15.6 – RELEVANT CHANGES IN THE SHAREHOLDINGS OF MEMBERS OF THE CONTROL GROUP AND THE ISSUERS MANAGERS  304 
15.7 – MAIN CORPORATE TRANSACTIONS  305 
15.8 – OTHER RELEVANT INFORMATION  309 
16. TRANSACTIONS WITH RELATED PARTIES  310 
16.1 – DESCRIPTION OF THE RULESPOLICIES AND PRACTICES OF THE ISSUER WITH REGARD TO THE REALIZATION OF TRANSACTIONS WITH RELATED PARTIES  310 
16.2 – INFORMATION ABOUT TRANSACTIONS WITH RELATED PARTIES  310 
16.3 – IDENTIFICATION OF MEASURES TAKEN TO DEAL WITH CONFLICTS OF INTEREST AND THE DEMONSTRATION OF STRICTLY COMMUTATIVE CONDITIONS AGREED OR OF THE APPROPRIATE COMPENSATORY PAYMENT MADE  321 
16.4 – OTHER RELEVANT INFORMATION  321 
17. SHARE CAPITAL  322 
17.1 – INFORMATION ON THE SHARE CAPITAL  322 
17.2 – CAPITAL INCREASES  322 
17.3 – INFORMATION ABOUT DEVELOPMENTSGROUPING AND SHARE BONUSES  323 
17.4 – INFORMATION ON THE SHARE CAPITAL  324 
17.5 – OTHER RELEVANT INFORMATION  324 
18. SECURITIES  325 
18.1 – SHARE RIGHTS  325 
18.2 – DESCRIPTION OF ANY STATUTORY RULES THAT SIGNIFICANTLY LIMIT THE VOTING RIGHTS OF SHAREHOLDERS OR THAT LEAD THEM TO CARRY OUT PUBLIC OFFERING  326 
18.3 – DESCRIPTION OF THE EXCEPTIONS AND SUSPENSE CLAUSES THAT RELATE TO POLITICAL OR ECONOMIC RIGHTS LAID DOWN IN THE BYLAWS  326 
18.4 – VOLUME OF NEGOTIATIONS AND MAJOR AND MINOR QUOTES OF TRADED SECURITIES  326 
18.5 – OTHER SECURITIES ISSUED IN BRAZIL  327 
18.6 – BRAZILIAN MARKETS IN WHICH SECURITIES ARE ADMITTED TO TRADING  327 
18.7 – INFORMATION ABOUT CLASS AND THE KINDS OF SECURITIES ADMITTED FOR TRADING IN FOREIGN MARKETS  327 
18.8 – SECURITIES ISSUED ABROAD  329 

 
 

 

   
18.9 – DISTRIBUTION OF PUBLIC OFFERINGS MADE BY THE ISSUER OR BY THIRD PARTIESINCLUDING CONTROLLING AND AFFILIATE COMPANIES AND SUBSIDIARIESRELATING TO THE SECURITIES OF THE ISSUER  331 
18.10 – USE OF PROCEEDS FROM PUBLIC OFFERINGS FOR DISTRIBUTION AND ANY DEVIATIONS  331 
18.11 – DESCRIPTION OF THE TAKEOVER BIDS MADE BY THE ISSUER IN RESPECT OF SHARES ISSUED BY THIRD PARTIES  331 
18.12 – OTHER RELEVANT INFORMATION  332 
19. REPURCHASE PLANS/TREASURY  343 
19.1 – INFORMATION ON THE ISSUERS SHARE BUYBACK  343 
19.2 – MOVEMENT OF SECURITIES HELD IN TREASURY  344 
19.3 – OTHER RELEVANT INFORMATION  347 
20. TRADING POLICY  348 
20.1 – INFORMATION ABOUT THE SECURITIES TRADING POLICY  348 
20.2 – OTHER RELEVANT INFORMATION  349 
21. DISCLOSURE POLICY  350 
21.1 – DESCRIPTION OF THE STANDARDSOR INTERNAL PROCEDURES OR CHARTERS RELATING TO THE DISCLOSURE OF INFORMATION  350 
21.2 – DESCRIPTION OF THE POLICY FOR DISCLOSURE OF RELEVANT ACT OR FACT AND ANY PROCEDURES CONCERNING THE MAINTENANCE OF SECRECY REGARDING UNDISCLOSED RELEVANT INFORMATION  351 
21.3 – MANAGERS RESPONSIBLE FOR THE IMPLEMENTATIONMAINTENANCEEVALUATION AND SUPERVISION OF THE POLICY FOR DISCLOSURE OF INFORMATION  352 
21.4 – OTHER RELEVANT INFORMATION  352 

 

 

1. Individuals responsible for the form


1. Individuals responsible for the Form

1.1 – Declaration and identification of the individuals in charge

Name of the person in charge of the form’s contents: Octavio de Lazari Junior

Position: Chief Executive Officer

Name of the person in charge of the form’s contents: Leandro de Miranda Araujo

Position: Investor Relations Officer

The aforementioned Officers hereby state:

a)to have revised the reference form of Banco Bradesco S.A. – “Bradesco,” “Company” or “Organization;”
b)that all information contained in the form meets the provisions of CVM (Securities and Exchange Commission) Instruction No. 480, particularly those set out in articles 14 to 19; and
c)that the set of information contained therein is a true, accurate, and complete description of the issuer’s economic financial outcomes and of the risks inherent to its activities and securities issued.

 

7 – Reference Form – 2020

1. Individuals responsible for the form


1.1 – CEO’s Statement

 

S T A T E M E N T

 

 

 

Cidade de Deus, Osasco/SP, May 31, 2021.

 

 

 

 

 

 

I, Octavio de Lazari Junior – CEO of Banco Bradesco S.A., declare that:

 

 

1.                I have reviewed Banco Bradesco S.A.’s annual reference form for 2020;

2.All of the information in the form complies with the CVM Instruction No. 480 in particular with articles 14 to 19; and
3.The information herein provides a true, accurate and complete picture of the issuer’s financial situation and the risks inherent in its activities and its issue of securities.

 

 

 

 

 

 

 


Octavio de Lazari Junior

CEO

8 – Reference Form – 2020

1. Individuals responsible for the form


1.2 – Investor Relations Officer’s Statement

 

S T A T E M E N T

 

 

 

Cidade de Deus, Osasco/SP, May 31, 2021.

 

 

 

 

 

 

I, Leandro de Miranda Araujo – Deputy Officer and Investor Relations Officer of Banco Bradesco S.A., declare that:

 

 

1.                I have reviewed Banco Bradesco S.A.’s annual reference form for 2020;

2.All of the information in the form complies with the CVM Instruction No. 480 in particular with articles 14 to 19; and
3.The information herein provides a true, accurate and complete picture of the issuer’s financial situation and the risks inherent to its activities and its issue of securities.

 

 

 

 

 

 


Leandro de Miranda Araujo

Deputy Officer and Investor Relations Officer

9 – Reference Form – 2020

1. Individuals responsible for the form


1.3 – Statement of the CEO / Investor Relations Officer

The individual statements of the CEO and of the Investor Relations Officer are described, respectively, in items 1.1 and 1.2 of this Reference Form.

 
 

10 – Reference Form – 2020

2. Independent auditors


2. Independent auditors

2.1/2.2 – Identification and remuneration of auditors

Identification and remuneration of Auditors
Is there an auditor?

Yes

 

CVM Code 

418-9

 

Type of auditor

Local

 

Name/Corporate name

KPMG Auditores Independentes

 

CPF/CNPJ [Individual/Corporate Taxpayer's Registry] 57.755.217/0022-53
Service period

March 21, 2011

 

Description of contracted services
(last three fiscal years)

The services referring to the fiscal year of 2020, 2019 and 2018, include accounting certification reports requested by our management, issue of comfort letters for placement of securities abroad, procedures for issuance of due diligence, for assurance, technical consultancy and previously agreed procedures reports

 

Total amount of compensation of independent auditors divided by service

Auditing services contracted in 2020: R$44,806 thousand
Other Services: R$3,475 thousand
Total: R$48,281 thousand

 

Justification for the replacement

Not Applicable

 

Reason presented by the auditor in case of disagreement with the justification provided by the issuer Not Applicable
Service period

01/01/2016 to 12/31/2018

 

Name of the technician in charge 

Rodrigo de Mattos Lia

 

CPF [Individual Taxpayer's Registry]

132.892.398-37

 

Address

Av. Dionysia Alves Barreto, 500 - Conj. 1001, 10º andar, Centro, Osasco, SP, Brasil, CEP 06086-050, Phone +55 (011) 2856-5300, Email: rlia@kpmg.com.br

 

Service period

01/01/2016 to 12/31/2020

 

Name of the technician in charge 

André Dala Pola

 

CPF [Individual Taxpayer's Registry]

261.954.908-65

 

Address

Av. Dionysia Alves Barreto, 500 - Conj. 1001, 10º andar, Centro, Osasco, SP, Brasil, CEP 06086-050, Phone +55 (011) 2856-5300, Email: apola@kpmg.com.br

 

Service period

January 1, 2021

 

Name of the technician in charge 

Cláudio Rogélio Sertório

 

CPF [Individual Taxpayer's Registry]

094.367.598-78

 

Address Av. Dionysia Alves Barreto, 500 - Conj. 1001, 10º andar, Centro, Osasco, SP, Brasil, CEP 06086-050, Phone +55 (011) 2856-5300, Email: apola@kpmg.com.br

  

2.3 – Other relevant information

The Audit Committee recommends to the Board of Directors for approval, the entity to be hired to provide us and our subsidiaries independent audit services, and their compensation, as well as its replacement. The engagement of an independent auditor for non-audit services is not subject to the Board of Directors. However, it must be previously reviewed by the Audit Committee in respect to compliance with independence rules.

More information on the Audit Committee’s duties is available in item 12.1.a of this Reference Form.

11 – Reference Form – 2020

3. Selected financial information


3. Selected financial information

3.1 – Financial Information – Consolidated

 

(In accordance with International Accounting Standards - IFRS) In R$  Fiscal Year Fiscal Year Fiscal Year
12/31/2020 12/31/2019 12/31/2018
Shareholders’ Equity 146,117,374,000.00 135,543,574,000.00 124,676,120,000.00
Total Assets 1,604,653,790,000.00 1,378,527,685,000.00 1,305,543,714,000.00
Net revenue / Revenue from financial intermediation / Gains from insurance premiums 224,342,248,000.00 233,386,698,000.00 216,034,813,000.00
Gross earnings 4,075,295,000.00 13,381,078,000.00 19,442,015,000.00
Net earnings 16,033,961,000.00 21,173,207,000.00 16,748,439,000.00
Number of shares, excluding Treasury 8,835,526,885 8,032,297,167 6,693,580,972
Share equity value (Reais per unit) 16.54 16.87 18.63
Basic Earnings per Share 1.71 2.27 1.79
Diluted Earnings per Share 1.71 2.27 1.79

 

3.2 – Non-GAAP earnings

The non-GAAP earnings were not disclosed in the course of the last fiscal year.

3.3 – Subsequent events to the latest financial statements

On March 1, 2021, Provisional Measure No. 1,034/2021 was published, which increased the rate of the Social Contribution on Net Income in five per cent, with validity for the period from July 1, 2021 to December 31, 2021, for financial institutions and private insurance companies, of capitalization and of credit cooperatives. The impacts of this Provisional Measure are being analyzed.

12 – Reference Form – 2020

3. Selected financial information


3.4 – Income allocation policy

(R$ thousand) Income Allocation
2020 2019 2018
A) Rules on withholding profits

Legal reserve

The allocation of a portion of the net income, for legal reserves, is set out by Article 193 of Law No. 6,404/76 and is intended to ensure the integrity of the share capital, and may only be used to offset losses or to increase capital.

The net income for the year, five percent (5%), shall be applied before any other allocation, in the constitution of the legal reserve, which shall not exceed twenty percent (20%) of the share capital.

The legal reserve may no longer be constituted in the year in which the balance of this reserve, increased by the amount of the capital reserves provided for in paragraph 1 of Article 182, exceeds thirty percent (30%) of the share capital.

Statutory Reserves

Article 194 of Law No. 6,404/76 regulates the creation of statutory reserves. Pursuant to such legal document, the Company’s bylaws may create reserves based on the following specific conditions:

- the purpose is accurately and completely indicated;

- the criteria for determining the portion of annual net income that will be allocated for its constitution is established; and

- the maximum reserve limit is set.

Pursuant to applicable laws, Article 28 of the Bylaws sets out that the balance of the net income, after every statutory allocation, will have the allocation proposed by the Board of Executive Officers, approved by the Board and deliberated in the Shareholders’ Meeting, and one hundred percent (100%) of this balance may be allocated to the Profits Reserve – Statutory, aimed at keeping the operating margin compatible with the development of active operations of the Company, up to the limit of ninety-five percent (95%) of the value of the paid-in share capital.

In case a proposal by the Board of Executive Officers, on the allocation of the Net Income for the year, includes the payout of dividends and/or the payment of interest on own capital in an amount greater than the mandatory dividend established in Article 27, item III, of the Bylaws, and/or the withholding of profits in accordance with Article 196 of Law No. 6,404/76, the balance of Net Income for purposes of constituting this reserve will be determined after the full deduction of these allocations.

Amounts referring to the Withholding of Profits (R$ thousand) Net Income for the Year 16,546,577 22,582,615 19,084,953
Legal Reserve 827,328 1,129,131 954,247
Statutory Reserves 10,171,278 13,589,708 10,832,110
Gross Interest on Own Capital 5,547,971 7,372,858 7,298,596
Dividends (1) - 8,490,918 -
(1) Payment of extraordinary dividends in the amount of R$8 billion, occurred on October 23, 2019, using part of the balance of the “Profit Reserves – Statutory” account and R$490,918 thousand in complementary dividends related to the fiscal year of 2019.

13 – Reference Form – 2020

3. Selected financial information


 

B) Rules on the distribution of dividends

With the advent of Law No. 9,249/95, which entered into force on January 1, 1996, companies can pay interest on own capital, to be imputed, net of withholding income tax, to the amount of the minimum mandatory dividend.

Minimum Mandatory Dividend

In accordance with item III of Article 27 of Bradesco’s Bylaws, shareholders are entitled to thirty percent (30%) of the net income as minimum mandatory dividends, in each fiscal year, adjusted by reducing or increasing the values specified in items I, II and III of Article 202 of Law No. 6,404/76 (Brazilian Corporate Act). Therefore, the minimum percentage of thirty percent (30%), established in the Bylaws, is above the minimum percentage of twenty-five percent (25%), which is established in paragraph 2 of Article 202 of Law No. 6,404/76.

Shareholders Holding Preferred Shares

Preferred shares grant their holders dividends of ten percent (10%) higher than those that are attributed to common shares (letter “b” of paragraph 2 of Article 6 of the corporate Bylaws).

Re-Application of Dividends or Interest on Own Capital

The Re-application of Dividends and/or Interest on Own Capital is a product that allows Bradesco’s depositor shareholders, registered in the Bradesco Corretora, either individuals or legal entities, to invest the amount received, credited to checking accounts, in new shares (currently only for preferred shares), thereby increasing shareholding interest.

Shareholders have the option of re-applying the monthly and/or special (complementary and intermediary) dividends. There is no ceiling for this re-application and the minimum limit should be enough for the acquisition of at least one (1) share.

C) Frequency of dividend payouts

Bradesco has distributed Dividends and/or Interest on Own Capital (from January 1, 1996 with the advent of Law No. 9,249/95) on a monthly basis since 1970, becoming the first Brazilian financial institution to adopt such a practice.

Interim Dividends

The Board of Executive Officers, upon approval by the Board of Directors, is authorized to declare and pay interim Dividends, twice a year or on a monthly basis, to the existing Accrued Profits or Profit Reserves accounts (Article 27, paragraph 1 of the Bylaws).

They may also authorize the distribution of Interest on Own Capital to replace interim dividends, either integrally or partially (Article 27, paragraph 2 of the Bylaws).

Interest on Own Capital Monthly Payment System

For the purposes set out in Article 205 of Law No. 6,404/76, shareholders that are entered into the records of the Company on the date of the statement, which occurs on the first business day of each month, shall be deemed beneficiaries.

Payments are made on the first business day of the subsequent month, one month in advance of the mandatory dividend, by credit into the account that has been informed by the shareholder or provided to the Company.

D) Any restrictions on the distribution of dividends, imposed by special laws or regulations applicable to the issuer, as well as contracts, judicial or administrative decisions or arbitration. There are no restrictions on the distribution of dividends.
E) If the issuer has a policy of destination of results formally approved, they should inform the body responsible for the approval, the date of approval and, if the issuer discloses the policy, the locations on the global computer network where the document can be consulted The Company has a document entitled “Practices for the Payment of Dividends and/or Interest on Own Capital of Banco Bradesco S.A.” approved by the Board of Directors on April 1, 2015 and publicly available on the site of the Securities and Exchange Commission (Comissão de Valores Mobiliários – CVM) (www.cvm.gov.br), of B3 S.A. – Brazilian Exchange & OTC (www.b3.com.br) and on the Company’s Investor Relations website (www.bradescori.com.br), which establishes, among other aspects, the periodicity for the payment of dividends and the parameter of reference to be used to define the amount that will be distributed. In the specific case of Bradesco, the Company establishes the payment of Dividends and/or Interest on Own Capital on a monthly basis.

 

 

14 – Reference Form – 2020

3. Selected financial information


 

3.5 – Dividend payouts

In R$  Fiscal Year Fiscal Year Fiscal Year
12/31/2020 12/31/2019 12/31/2018
Adjusted Net Income 15,719,247,557.48 21,453,484,504.85 18,130,705,306.69
Dividends distributed in relation to adjusted net income 35.294118 73.944987 40.255443
Rate of return in relation to the equity of the issuer  10.938733  16.043201  14.969101
Total distributed dividends 5,547,969,704.75 15,863,776,318.38 7,298,595,772.74
Withheld net income 11,182,625,536.97 14,718,838,952.60 11,786,357,181.70
Date of approval of the withholding 3/10/2021 3/10/2020 3/11/2019

 

Withheld net income Amount Dividend Payout Amount Dividend Payout Amount Dividend Payout
Mandatory Dividend
Common   -  -         
Preferred   -  -         
Common      234,327,039.70 2/28/2020    
Preferred      256,591,287.09 2/28/2020    
Common           - -
Preferred           - -

 

15 – Reference Form – 2020

3. Selected financial information


Withheld net income Amount Dividend Payout Amount Dividend Payout Amount Dividend Payout
Interest on Shareholders’ Equity
Common       69,434,974.18 2/3/2020        
Common       69,434,961.35 3/2/2020        
Common       69,434,936.91 4/1/2020        
Common       69,434,861.16 5/4/2020        
Common       76,378,152.40 6/1/2020        
Common       76,378,117.88 7/1/2020        
Common       76,378,058.50 8/3/2020        
Common       76,378,008.01 9/1/2020        
Common       76,377,965.36 10/1/2020        
Common       76,377,934.91 11/3/2020        
Common       76,377,933.60 12/1/2020        
Common       76,377,971.02 1/4/2021        
Common  1,671,591,099.52 1/4/2021        
Common       87,835,790.70 3/8/2021        
Preferred       76,030,838.40 2/3/2020        
Preferred       76,030,738.48 3/2/2020        
Preferred       76,030,658.83 4/1/2020        
Preferred       76,030,429.11 5/4/2020        
Preferred       83,633,666.29 6/1/2020        
Preferred       83,633,468.00 7/1/2020        
Preferred       83,633,226.18 8/3/2020        
Preferred       83,632,970.95 9/1/2020        
Preferred       83,632,770.62 10/1/2020        
Preferred       83,632,639.36 11/3/2020        
Preferred       83,632,678.77 12/1/2020        
Preferred       83,632,879.05 1/4/2021        
Preferred  1,830,412,919.04 1/4/2021        
Preferred       96,179,056.17 3/8/2021        
Common             57,862,437.78 2/1/2019    
Common             57,862,433.69 3/1/2019    
Common             57,862,426.83 4/1/2019    
Common             69,435,024.96 5/2/2019    
Common             69,435,018.41 6/3/2019    
Common             69,435,015.87 7/1/2019    
Common           694,506,242.08 7/15/2019    
Common             69,435,013.97 8/1/2019    
Common             69,435,001.07 9/2/2019    
Common             69,434,986.35 10/1/2019    
Common             69,434,985.16 11/1/2019    
Common             69,434,976.84 12/2/2019    
Common        2,026,239,860.85 12/30/2019    
Common             69,434,971.29 1/2/2020    
Preferred             63,358,870.41 2/1/2019    
Preferred             63,358,863.41 3/1/2019    
Preferred             63,358,846.02 4/1/2019    
Preferred             76,031,175.51 5/2/2019    
Preferred             76,031,131.54 6/3/2019    
Preferred             76,031,127.07 7/1/2019    
Preferred           760,493,757.92 7/15/2019    
Preferred             76,031,103.38 8/1/2019    
Preferred             76,030,996.49 9/2/2019    
Preferred             76,030,934.45 10/1/2019    
Preferred             76,030,902.57 11/1/2019    
Preferred             76,030,871.50 12/2/2019    
Preferred        2,218,760,202.60 12/30/2019    
Preferred             76,030,813.57 1/2/2020    

16 – Reference Form – 2020

3. Selected financial information


Withheld net income Amount Dividend Payout Amount Dividend Payout Amount Dividend Payout
Interest on Shareholders’ Equity
Common                 52,602,311.01 2/1/2018
Common                 52,602,311.09 3/1/2018
Common                 52,602,309.24 4/2/2018
Common                 57,862,460.57 5/2/2018
Common                 57,862,454.99 6/1/2018
Common                 57,862,452.07 7/2/2018
Common               578,516,328.78 7/16/2018
Common                 57,862,447.67 8/1/2018
Common                 57,862,446.42 9/3/2018
Common                 57,862,442.05 10/1/2018
Common                 57,862,439.75 11/1/2018
Common                 57,862,438.58 12/3/2018
Common                 57,862,438.71 1/2/2019
Common            2,226,715,697.79 3/8/2019
Preferred                 57,599,006.04 2/1/2018
Preferred                 57,599,006.83 3/1/2018
Preferred                 57,598,997.64 4/2/2018
Preferred                 63,358,891.29 5/2/2018
Preferred                 63,358,883.41 6/1/2018
Preferred                 63,358,884.54 7/2/2018
Preferred               633,484,567.86 7/16/2018
Preferred                 63,358,869.83 8/1/2018
Preferred                 63,358,872.13 9/3/2018
Preferred                 63,358,849.23 10/1/2018
Preferred                 63,358,847.13 11/1/2018
Preferred                 63,358,856.33 12/3/2018
Preferred                 63,358,868.81 1/2/2019
Preferred            2,438,283,392.95 3/8/2019

3.6 – Declaration of dividends to the withheld profits or the reserves account

In 2019, extraordinary dividends were declared / paid in the amount of R$8 billion, occurred on October 23, 2019, using part of the balance of the “Profit Reserves – Statutory” account.

In relation to years of 2020 and 2018, no dividends were declared against retained earnings or reserves recorded in previous fiscal years.

3.7 – Level of indebtedness

Fiscal Year * Sum of Current and Non-Current Liabilities  Index type Level of indebtedness Description and reason for the use of other indexes
12/31/2020   1,458,536,416,000.00 Level of indebtedness 9.9819506 -
*In accordance with International Accounting Standards - IFRS      

3.8 – Obligations

Fiscal year December 31, 2020 (In accordance with International Accounting Standards-IFRS)
Type of Obligation Type of Guarantee Other guarantees or privileges Less than one year One to three years Three to five years More than five years Total
Loans Unsecured - 17,945,167,000.00 6,021,303,000.00                            -                               -    23,966,470,000.00
Debt Security Unsecured - 926,187,015,000.00 375,178,585,000.00 36,640,356,000.00 22,441,654,000.00 1,360,447,610,000.00
Total   - 944,132,182,000.00 381,199,888,000.00 36,640,356,000.00 22,441,654,000.00 1,384,414,080,000.00
Note:
The information refers to the Consolidated Financial Statements. It is important to stress that the financial institutions operate, basically, as financial mediators, raising funds from clients, and sharing these funds with clients. Therefore, the obligations informed as “Debt Securities” in item 3.8 are composed basically, of (i) Captures, that include: (a) Deposits; (b) Debentures; (c) On-lending operations; (d) Obligations through the Issuance of Bonds and Securities and (e) Subordinated debt, besides the (ii) Provisions for insurance and pension plans.

17 – Reference Form – 2020

3. Selected financial information


3.9 – Other relevant information

The selected financial information described in Section 3 refers to consolidated financial statements.

Item 3.1:

i.        Composition of Net Income – Consolidated

      In R$ 
Composition (In accordance with International Accounting Standards-IFRS) 2020 2019 2018
Revenue from financial intermediation  119,743,371,000.00  124,417,705,000.00   122,053,139,000.00
Fees and Commission income 24,936,454,000.00 25,337,676,000.00  23,831,590,000.00
Income from insurance and pension plans 68,410,501,000.00 71,191,410,000.00  66,270,095,000.00
Result from investment in affiliated companies and joint ventures  444,858,000.00  1,201,082,000.00 1,680,375,000.00
Other operating income 16,139,105,000.00 17,566,864,000.00 7,787,238,000.00
Contribution for Social Security Financing - COFINS (3,599,115,000.00) (4,377,130,000.00)   (3,855,324,000.00)
Service Tax - ISS (1,138,490,000.00) (1,224,157,000.00)   (1,093,891,000.00)
Social Integration Program (PIS) contribution (594,436,000.00) (726,752,000.00)   (638,409,000.00)
Total   224,342,248,000.00  233,386,698,000.00   216,034,813,000.00

ii.Number of Shares, Ex-Treasury (Units)

The number of shares presented were adjusted to reflect the share split, approved at the Special Shareholders’ Meeting of March 11, 2020, in the proportion of one new share for every 10 possessed.

iii.Basic Result per Share and Result Diluted per Share

The basic earnings per share is calculated by dividing the net income, attributable to the controlling shareholders, by the weighted average of shares that are in circulation during the year, excluding the average number of shares that are acquired by Bradesco and held in treasury. The diluted income per share does not differ from the basic earnings per share, because there are no potential dilutable instruments.

Items 3.4 and 3.5: Dividend payouts and the withholding of net income

We highlight the fact that the financial statements used for the policy of allocating incomes and for the distribution of dividends and interest on own capital, pursuant to items 3.4 and 3.5, respectively, were prepared in accordance with accounting practices adopted in Brazil, which are applicable to institutions authorized to operate by the Central Bank of Brazil.

In addition to the mandatory dividend informed in item 3.5, there was a declaration / payment of extraordinary dividends in the amount of R$8 billion, which occurred on October 23, 2019, using part of the balance of the “Profit Reserve – Statutory” account, of which R$3,818,591,022.46 intended for payment in common shares and R$4,181,408,977.53 in preferred shares.

18 – Reference Form – 2020

4. Risk factors


4. Risk factors

4.1 – Description of risk factors

Below are the main risk factors that the Organization considers relevant, on the date of this Reference Form, and that could influence the decision of investment. If they materialize, these risks could have an adverse effect on our business, our financial situation and equity, and the price of our securities. Therefore, possible investors could evaluate the risks described below thoroughly, as well as other information contained in this Reference Form.

We observed that the risks described below are not the only risks to which the Organization is subject. Other risks that we are not aware of, in case they materialize, can generate similar effects to those mentioned previously.

It is important to highlight that, the order in which the risks are presented reflect a criterion of relevance established by the Organization.

a)Risks relating to the issuer

Our financial and operating performance may be adversely affected by epidemics, natural disasters and other catastrophes, such as the current Covid-19 pandemic, which had a significant impact on our 2020 results from the end of the first quarter.

The Covid-19 pandemic has generated great challenges and uncertainties worldwide, and Brazil has been strongly impacted both in terms of the number of cases and deaths. In the economic sphere, the government stimuli used throughout 2020, in scope and magnitude not seen before, contributed to the resumption of growth in the second half of 2020. Direct transfers of income, temporary suspension of certain taxes, incentives for the expansion of loans and the renegotiation of debts and subsidies, were some of the instruments used. Risks arising from the economic impacts of the Covid-19 pandemic allowed the Central Bank to reduce the basic interest rate from 4.5% per annum at the end of 2019 to 2.0% per annum at the end of 2020, the lowest historical level. This process has been corroborated by the increase of idleness of the goods and labor markets and by a deceleration in inflation. At the end of 2020, specific price pressures on electrical energy and food accelerated the inflation to the consumer: the Extended Consumer Price Index (Índice Nacional de Preços ao Consumidor Amplo – IPCA) ended the year with a high of 4.52%, above the center of the goal – determined by the National Monetary Council (CMN) at 4.0% - but still within the tolerance intervals. A process is expected for 2021, of reduction of part of the monetary stimuli, in a context of economic recovery. At the same time, the gross debt increased from 74% of the GDP at the end of 2019, to 89% at the end of 2020. Once the challenges posed by the Covid-19 pandemic are overcome, it is expected that the fiscal deterioration will be reversed. This premise is essential so that the expected process of normalization of the monetary policy may be gradual, keeping the financial conditions at comfortable levels.

At the end of 2020 and at the beginning of 2021, the resurgence of the Covid-19 pandemic, in Brazil and in the world, increased the short-term risks of the economic activity. As a result, a contraction of the domestic GDP is expected in the first quarter. Even though the base scenario has as premise an acceleration of immunization of the population in the coming months, a possible worsening of the Covid-19 pandemic could generate negative impacts on the business, especially in the service sector, employment, income and banking delinquency, with possible adverse consequences on on our results of operations and financial condition. Accordingly, a new round of the emergency aid (through a direct transfer of income to the most disadvantaged people), approved in March by the Congress, should minimize these impacts. The same proposal for renewal of the aid (Emergency PEC – Proposed Constitutional Amendment) brought some tax counterparts, for moments in which public spending is growing above established limits.

Once the expectation of advancement in the immunization of the Brazilian population is maintained, the scenario of the resumption of the economic activity throughout the subsequent quarters should still be present. A fundamental aspect for the materialization of this scenario is the improvement in perceptions especially in comparison to the fiscal policy, in an environment of increasing demand of society for the increase of public expenditure. The perspective that Brazil should go ahead at the beginning of the normalization of the monetary policy in relation to its peers and the expected resumption of the agenda of structural reforms, should contribute to the exchange rate appreciation over the coming months. The scenario of a gradual return to normality in the global economy and the maintenance of commodity prices at high levels tend to maximize this trend.

19 – Reference Form – 2020

4. Risk factors


As a result of the various economic stimuli adopted, as discussed above, our loan portfolio expanded at a much higher rate. This was particularly evident in the growth of our portfolio of loans to companies. For 2021, we expect certain changes in the components of our growth, with an acceleration of loans for families and a deceleration in the loan portfolio for companies. However, we believe that the prospects remain favorable, with the institutions that integrate the National Financial System (SFN) remaining well capitalized and liquid. The delinquency indicators also remain relatively low as a result of the debt renegotiation. As a result of the Covid-19 pandemic, provision expenses increased in 2020, totaling R$25.8 billion, of which R$9.1 billion were in connection with the adverse economic scenario resulting from the Covid-19 pandemic. However, as we cannot guarantee the duration, future impacts or measures implemented by the government to combat the economic effects of the Covid-19 pandemic, we cannot assure that our financial and operating performance will not be adversely affected in the future.

Adverse conditions in the credit and capital markets, just like the value and/or perception of value of Brazilian government securities, may adversely affect our ability to access funding in a cost effective and/or timely manner.

Volatility and uncertainties in the credit and capital markets have generally decreased liquidity, with increased costs of funding for institutions. These conditions may impact our ability to replace, in a cost effective and/or timely manner, maturing liabilities and/or access funding to execute our growth strategy. We did not observe this impact as a result of the Covid-19 pandemic as our liquidity was mitigated by actions implemented by the Central Bank of Brazil, which reduced the need for compulsory deposits and avoided account holders withdrawing their money from the large banks.

Part of our funding originates from repurchase agreements, which are largely guaranteed by Brazilian government securities. These types of transactions are generally short-term and volatile in terms of volume, as they are directly impacted by market liquidity. As these transactions are typically guaranteed by Brazilian government securities, the value and/or perception of value of the Brazilian government securities may be significant for the availability of funds. For example, if the quality of the Brazilian government securities used as collateral is adversely affected, due to the worsening of the credit risk of the Brazilian government, the cost of these transactions can increase, making this source of funding inefficient for us.

If the market shrinks, which could cause a reduction in volume, or if there is increased collateral credit risk and we are forced to take and/or pay unattractive interest rates, our financial condition and the results of our operations may be adversely affected.

The increasingly competitive environment in the Brazilian banking and insurance segments may have a negative impact on our business prospects.

The markets for financial, banking and insurance services in Brazil are highly competitive. We face significant competition in all of our main areas of operation from other large banks and insurance companies, both public and private, based in Brazil and abroad, in addition to new players, such as fintechs and startups that begin to operate with a differentiated and reduced level of regulation. It should be noted that major technology companies “bigtechs” are also strong competitors, seeking to invest in online payment systems and financial transactions tools by means of various types of applications. In addition, we note that the implementation of Open Banking in Brazil, in 2021 may further intensify this competition through the possibility of sharing information between institutions.

This competitive environment combined with the accelerated process of digital innovation observed in the sector may impact our speed of adaptation to this ecosystem and consequently the performance of certain lines of business, which may negatively affect our financial condition, the result of our operations and the market value of our shares.

20 – Reference Form – 2020

4. Risk factors


We may experience increases in our level of past due loans as our loans and advances portfolio becomes more seasoned.

Historically, our loans and advances to customers portfolios registered an increase due to new operations, interrupted in 2017 due to the recession in the Brazilian economy experienced during the year, and resuming growth in 2018. Any corresponding rise in our level of non-performing loans and advances may lag behind the rate of loan growth, as loans typically do not have due payments for a short period of time after their origination. Levels of past due loans are normally higher among our individual customers than our corporate customers.

Our delinquency ratio, calculated based on information prepared in accordance with accounting practices adopted in Brazil (BR GAAP), which is defined as the total loans overdue for over ninety days in relation to the total portfolio of loans and advances, decreased to 2.2% as of December 31, 2020, compared to 3.3% as of December 31, 2019. The reduction in the default rate continues to be related to the effects of the loan renegotiation policies we adopted throughout 2020, to give liquidity to our customers, aiming at the readjustment of their cash flows during the Covid-19 pandemic, in addition to the extension of loans in previous quarters, leading to a reduction in our level of past due loans.

Rapid loan growth may also reduce our ratio of non-performing loans to total loans until growth slows or the portfolio becomes more seasoned. Adverse economic conditions and a slower growth rate for our loans and advances to customers may result in increases in our impairment of loans and advances and our ratio of non-performing loans and advances to total loans and advances, which may have an adverse effect on our business, financial condition and results of operations.

Losses in our investments in financial assets at fair value through profit or loss and at fair value through other comprehensive income may have a significant impact on our results of operations and are not predictable.

The fair value of certain investments in financial assets may decrease significantly and may fluctuate over short periods of time. As of December 31, 2020, the investments classified as “fair value through profit or loss” and as “fair value through other comprehensive income” represented 28.8% of our assets, and realized and unrealized gains and losses originating from these investments have had and may continue to have a significant impact on the results of our operations.

Eventually, investment prices in financial assets, which are supported by models, may not predict some more sharp fluctuations in market movements, so that the profitability of these operations is likely to, at certain times, cause negative effects on our profit and equity, despite the fact that reflect the investment policies, asset and liability management (ALM) and appetite for defined risks for the Organization.

Our trading activities and derivatives transactions may produce material losses.

We engage in the trading of securities, buying debt and equity securities principally to sell them in the short term with the objective of generating profits on short-term differences in price. These investments could expose us to the possibility of material financial losses in the future, as securities are subject to fluctuations in value. In addition, we enter into derivatives transactions, mainly, to manage our exposure to interest rate and exchange rate risk. Such derivatives transactions are designed to protect us against increases or decreases in exchange rates or interest rates. However, these investments and transactions may also expose us to the possibility of significant financial losses in the future, since they are subject to fluctuations in value.

A failure in, or breach of, our operational, security or technology systems could temporarily interrupt our businesses, increasing our costs and causing losses.

One of our objectives is to provide adequate security for the proper running of the business and to achieve the objectives established in accordance with applicable laws and regulations, ensuring processes have efficient controls. We constantly invest in the improvement and evolution of safety controls, resilience, continuity and management of our information technology systems and as a result have created an environment with a high capacity to process data for our business operating systems and our financial and accounting systems. 

21 – Reference Form – 2020

4. Risk factors


Due to the nature of our operations, the wide range of products and services offered, and the significant volume of activities and operations performed, as well as the global context, where there is an ever-increasing integration among platforms, dependency on technology and on the internet, our information technology systems are exposed to various types of risks, due to internal or external factors.

Our capacity to maintain and implement our security systems depends on our capacity to attract and retain qualified professionals in various areas of activity, such as, but not limited to, the area of information technology (IT), which is undergoing a period of great demand on the part of employees in all markets (not restricted to the financial market). We cannot guarantee that we will succeed in attracting and retaining qualified staff to integrate our security systems, nor that there will be market demands for specific professionals (such as IT professionals), which may have a significant adverse effect on our operations and on our capacity to implement strategies.

We and other financial institutions, including governmental entities, have already experienced cyber security events in relation to our information technology systems. Due to the controls we have in place, we have not experienced any material loss of data from these attacks to date, neither from hardware nor from a data information loss perspective. However, considering the use of new technologies, the increasing dependency on the internet and the changing and sophisticated nature of cyber security events, it is not possible to predict all the means that will be used by individuals or organizations with harmful intent. As a result, all the risks mentioned above could result in customer attrition, regulatory fines, penalties or intervention, reimbursement or other administrative penalties and damage to our reputation.

We may incur penalties in case of non-compliance with data protection laws.

In August 2018, Law No. 13,709/18 – General Data Protection Law (LGPD, in Portuguese) was enacted, which creates a set of rules for the use, protection and transfer of personal data in Brazil, in the private and public spheres, and establishes responsibilities and penalties in the civil sphere. In addition to including existing rules on the subject, the LGPD followed the global trend of strengthening the protection of personal data, restricting its unjustified use, and guaranteeing a series of rights to holders of data, as well as imposing important obligations on so-called “treatment agents”. In particular, the LGPD was inspired by recent European legislation on the subject, reproducing central points of the Directive No. 95/46/EC and of the General Data Protection Regulation (GDPR).

The impact of this law has been significant as any processing of personal data will be subject to the new rules, whether physical or digital, by any entity established in Brazil, any entity who has collected personal data in Brazil, any individual located in Brazil – even if not residents – or any entity that offers goods and services to Brazilian consumers. In short, the adaptation to the LGPD required structural changes in our customer relationship, business partners, service providers and employees, and in virtually all internal areas of Brazilian companies. The LGPD has been in force since December 28, 2018 as regards the creation of the National Data Protection Authority (Autoridade Nacional de Proteção de Dados or ANPD), the public administrative body responsible for ensuring, implementing and supervising compliance with the LGPD and the National Council for the Protection of Personal Data and Privacy, created by Provisional Measure converted in 2019 into Law No. 13,583/19. The remainder of the law came fully into force without administrative sanctions on September 18, 2020. As a result of the Covid-19 pandemic, the National Congress approved Law No. 14,010/20 postponing the entry into force of Articles 52, 53 and 54 of Law No. 13,583/19 until August 1, 2021, concerning administrative penalties.

We operate in a preventive, detective and corrective manner in order to protect our own and our customers’ information. As a result, we have evolved our security framework in light of the new digital environment, with a focus on cyber security being key and a pillar of the technology and processes to establish data protection for our customers, resiliency, and structure for threat identification, detection, and response and recovery procedures in cases of cyber-attacks.

However, possible failures or attacks on our systems and processes of prevention and/or detection and/or correction in the fight against fraud and in providing information security, and the consequent non-compliance with applicable legislation, which may in turn negatively affect our reputation, our financial condition, the result of our operations and the market value of our shares. 

22 – Reference Form – 2020

4. Risk factors


Cyber risk in an environment of third parties/service providers, may cause temporary unavailability, loss or leakage of information of the Organization or disruption in data confidentiality/integrity and/or services.

CyberSecurity and its risk in relevant service providers in the Bradesco Organization, is treated at the highest strategic level, in the Board of Directors, Executive Board and in the Executive Committees of Risks, Risk Monitoring and AML-TF/Sanctions and Information Security/Cyber. In February 2020, cyber risk in relevant service providers was scaled as Very High and due to concern about the difficulty of visibility and monitoring on the control environment of relevant service providers. The possibility of loss, theft or alteration of data processed and stored in relevant service providers due to the exploitation of vulnerabilities and weaknesses in systems, devices, networks or other digital media in the third environment was considered to be elevated. (E.g. Ransomware).

The risk in service providers include so but not limited to: hacking into Information Technology systems and platforms by malicious third parties, infiltration of malware such as computers with viruses into our systems, intentional or accidental contamination of our networks and systems by third parties with whom we exchange data, unauthorized access to confidential customer data, and or organization data , and cyber attacks can cause service degradation and or outage that can result in business losses.

The Department of Corporate Security - Information Security for Third Parties, performs the prior analysis in the environment of third-party controls. New contracts and or renewal of relevant data processing and storage and cloud computing services contain specific cybersecurity clauses for the protection of Information Assets, including after termination of the contract.

Brazilian regulatory bodies have stepped up data leakage regulations that include high fines for non-compliance events with terms and conditions of the General Data Protection Law. A failure to protect data stored on our systems and third-party systems could adversely affect us. If the risk materializes in a cyber security incident, we have adequate capital allocation to the Organization's appetite.

The Brazilian Supreme Court (“STF”) is currently deciding cases relating to the application of inflation adjustments which may increase our costs and cause losses.

The STF, which is the highest court in Brazil and is responsible for judging constitutional matters, is currently deciding whether savings account holders have the right to obtain adjustments for inflation related to their deposits due to the economic plans Bresser, part of Verão, Collor I and Collor II, implemented in the 1980s and 1990s, before the Plano Real, in 1994. The trial began in November 2013 but was interrupted without any pronouncement on the merits of the subject under discussion by its Members. According to the institutions representing the savings account holders, banks misapplied the monetary adjustments when those economic plans were implemented, and should be required to indemnify the savings account holders for the non-adjustment of those amounts.

In addition, in connection with a related sentence, the Brazilian Supreme Court of Justice (STJ) decided, in May 2014, that the starting date for counting default interest for compensating savings account holders must be the date of summons of the related lawsuit (rather than the date of settlement of the judgment), therefore increasing the amount of possible losses for the affected banks in the event of an unfavorable decision by the STF.

In December 2017, with the mediation of the Executive branch’s attorney (Advocacia Geral da União or AGU) and the intervention of the Central Bank of Brazil, the representatives of the banks and the savings account holders entered into an agreement related to the economic plans aiming to finalize the claims and established a timeline and conditions for the savings account holders to accede to such agreement. The STF affirmed the agreement on March 1, 2018. This approval determined the suspension of legal actions in progress for the duration of the collective bargaining agreement (24 months). On March 11, 2020, the signatories to the Collective Bargaining Agreement agreed to an amendment extending the agreement for a further 60 months. The amendment was taken to the Supreme Court for approval, its extension was approved by the plenary of the court, on May 28, 2020, for a period of 30 months (renewable for a further 30 months), from March 12, 2020, to adhere to the terms of the agreement by means of a digital platform specially created for this purpose. As this is a voluntary settlement, which does not oblige the savings account holder to join, we are unable to predict how many savings account holders will accede to it. 

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4. Risk factors


We may incur losses associated with counterparty exposures.

We face the possibility that a derivative counterparty will be unable to honor its contractual obligations. Counterparties may default on their obligations due to bankruptcy, lack of liquidity, operational failure or other reasons. This risk may arise, for example, as a result of entering into swap or other derivative contracts under which counterparties have obligations to make payments to us, executing currency or other trades that fail to settle at the required time due to non-delivery by the counterparty or systems failure by clearing agents, exchanges, clearing houses or other financial intermediaries. Such counterparty risk is more acute in complex markets where the risk of default by counterparties is higher.

Our risk management structure may not be fully effective.

Our objective is to fully incorporate the risk management process into all of our activities, developing and implementing methodologies, models and other tools for the measurement and control of risks, looking to continuously improve them in order to mitigate the risks that we identify. However, there may be limitations to this risk management framework in foreseeing and mitigating all the risks to which we are subject, or may in the future become, subject. If our risk management structure is not completely effective in adequately preventing or mitigating risks, we could suffer material unexpected losses, adversely affecting our financial condition and results of operations.

We may face significant challenges in possessing and realizing value from collateral with respect to loans in default.

If we are unable to recover sums owed to us under secured loans in default through extrajudicial measures such as restructurings, our last recourse with respect to such loans may be to enforce the collateral secured in our favor by the applicable borrower. Depending on the type of collateral provided, we either have to enforce such collateral through the courts or through extrajudicial measures. However, even where the enforcement mechanism is duly established by the law, Brazilian law allows borrowers to challenge the enforcement in the courts, even if such challenge is unfounded, which can delay the realization of value from the collateral. In addition, the Covid-19 pandemic may also affect the timing of resumption and sale of collateral, due to restrictions on economic activities. Our secured claims under Brazilian law will in certain cases rank below those of preferred creditors such as employees and tax authorities. As a result, we may not be able to realize value from the collateral, or may only be able to do so to a limited extent or after a significant amount of time, thereby potentially adversely affecting our financial condition and results of our operations.

We may incur losses due to impairments on goodwill from acquired businesses.

We record goodwill from acquisitions of investments whose value is based on estimates of future profitability pertaining to business plans and budgets prepared by us. Annually, we assess the basis and estimates of profitability of the Cash-Generating Units (Unidades Geradoras de Caixa or UGC) in respect of which goodwill is allocated. These evaluations are made through cash flow projections based on growth rates and discount rates, with those projections then being compared to the value of goodwill in order to conclude whether there is a basis to record impairments in relation to these assets. However, given the inherent uncertainty in relation to predictions of future cash flow projections, we cannot provide assurances that our evaluation of goodwill will not require impairments to be recorded in future, which may negatively affect, the result of our operations, our financial condition and the market value of our shares.

We may be subject to negative consequences in the event of an adverse conclusion in the judicial process arising from Zealots (“Zelotes”) and Car Wash (“Lava Jato”) Operations, including the filing of a class-action lawsuit.

Due to the so-called “Operação Zelotes” (“Zealots Operation”), which investigates the alleged improper performance of members of CARF – Administrative Council of Tax Appeals, a criminal proceeding against two former members of Bradesco’s Board of Executive Officers was opened in 2016 and received by the 10th Federal Court of Judicial Section of the Federal District. The investigation phase of the process was already completed, and is currently waiting for the decision of the first-degree court, Bradesco is not part of this process. 

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4. Risk factors


The Company's Management conducted an internal evaluation of records and documents related to the matter and found no evidence of any illegal conduct practiced by its former representatives.

As a result of Operação Zelotes, the Corregedoria Geral do Ministério da Fazenda (General Internal Affairs of the Ministry of Finance) promoted an investigative administrative procedure to verify the need for the establishment of an Administrative Accountability Process ("PAR"). The filing decision of the related procedure was published in Section 2 of the Diário Oficial da União (Federal Official Gazette) on February 3, 2020. The decision given by the Official of the Ministry of Economy accepted in full the Final Report of the Processing Committee, the Opinion of the National Treasury Attorney General's Office and the Joint Order of the General Coordination of Management and Administration, and of the Leadership of the Advisory and Judgment Division, which confirmed, expressly recognizing, the lack of evidence that Bradesco had promised, offered or given, directly or indirectly, an unfair advantage to public agents involved in the related operation, in accordance with the provisions laid down in Article 5, section I, of Law No. 12,846, of 2013.

The progress of Operation Zealots and other on-going investigations or investigations that may be initiated in the future, any consequent events and the possibility of new accusations may negatively affect our reputation, our financial condition and the market value of our shares preferred and common.

Financial institutions, such as us, may be subject to legal proceedings arising due to certain actions by third parties related to anticorruption, money laundering and terrorism financing (AML/TF).

Brazil’s anti-corruption agenda, which includes the prevention of money laundering and the financing of terrorism (AML/TF), include the lead of operations and investigations by regulatory and supervisory authorities. Despite our current unconditional commitment, engagement and our compliance with the applicable anti-corruption obligations (including internal policies), financial institutions, including ourselves, could be involved in such operations and investigations, including legal proceedings, as a result of the actions of individuals or legal entities including the inappropriate use of financial systems or other unlawful acts. Involvement in these actions, a risk inherent to the activities of financial institutions, may result in negative publicity for us, and any adverse judgement may negatively affect our financial condition, operational results and the market value of our shares.

In 2019, as part of operation “Câmbio Desligo”, a follow on from operation Lava-Jato, two of our former managers were investigated and indicted by the Public Prosecutor’s Office for alleged involvement in the opening and maintenance of current accounts for companies with irregularities. We subsequently conducted a thorough internal investigation and adopted the required governance measures as well as making ourselves available to the authorities to contribute to the verification of the facts.

We may be subject to the need to make extraordinary contributions to cover deficits of pension funds

We are sponsors of benefit plans derived exclusively from banks incorporated and managed by Closed Supplementary Pension Entities. Our process of managing this risk is performed on a centralized basis and takes into account actuarial, tax, legal and accounting issues. Studies are made of Asset Liability Management (ALM), considering the current investment portfolio of the plans, in order to observe possible mismatches between assets and liabilities of the plans. In addition, analyses are made of suggestions of investment portfolios that meet the needs of cash flows of benefit payments, minimizing the risk of mismatch and liquidity. Actuarial assessments of second opinion are also made to the actuaries responsible for the plans. However, given the characteristic of these plans, we are subject to the need of making extraordinary contributions to equate any of these deficits. 

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4. Risk factors


b)Risks related to its direct or indirect controlling shareholder or control group

A majority of our common shares are held, directly and indirectly, by one shareholder and our Board of Directors is composed of 09 members, including three independent members; accordingly, the interests of non-independent members may conflict with those of our other investors.

As of March 10, 2021, Fundação Bradesco directly and indirectly held 59.07% of our common shares. As a result, Fundação Bradesco has the power, among other things, to prevent a change in control of our company, even if a transaction of that nature would be beneficial to our other shareholders. Fundação Bradesco may also elect the majority of our Board of Directors, as well as approve related party transactions or corporate reorganizations. Under the terms of Fundação Bradesco’s bylaws, members of our Diretoria Executiva, that have been working with us for more than ten years serve as members of the board of trustees of Fundação Bradesco. The board of trustees has no other members.

Our Board of Directors has nine members, three of which are independent, in other words they are not associated with Fundação Bradesco, in accordance with the criteria included in Law No. 6,404/76, in the regulation issued by the CVM (Brazilian Corporate Law). Brazilian Corporate Law states that only individuals may be appointed to a company’s Board of Directors. Accordingly, there is no legal or statutory provision requiring us to have independent directors, however, to exercise good corporate governance, our Board of Directors has three independent directors. Since the majority of members are not independent, the interests of our Board of Directors may not always be aligned with the interests of part of our other shareholders and these holders do not have the same protections they would have if most of the directors were independent. Furthermore, our non-independent directors are associated with Fundação Bradesco and circumstances may arise in which the interests of Fundação Bradesco, and its associates, conflict with our other investors’ interests.

Fundação Bradesco and our Board of Directors could make decisions in relation to our policy towards acquisitions, divestitures, financings or other transactions, which may be contrary to the interests of our shareholders of common shares and have a negative impact on the interests of those shareholders.

c)Risks related to its shareholders

If we issue new shares or our shareholders sell shares in the future, the market price of your preferred share and common share may be reduced.

Sales of a substantial number of shares, or the belief that this may occur, could decrease the market price of our shares, preferred share and common share, by diluting their value. If we issue new shares or our existing shareholders sell the shares they hold, the market price of our shares and therefore the market price of our preferred share and common share, may decrease significantly.

Under Brazilian Corporate Law, holders of preferred shares have limited voting rights, accordingly, holders of preferred share will have similar limitations on their ability to vote.

Under the Brazilian Corporate Law (Law No. 6,404/76, amended by Law No. 9,457/97, which we refer to as Brazilian Corporate Law) and our Bylaws, our preferred shareholders are not entitled to vote at our shareholders’ meetings, except in limited circumstances. As such, in contrast to common shareholders, preferred shareholders are not entitled to vote on corporate transactions, including any proposed merger or consolidation with other companies, among other things.

d)Risks related to its subsidiaries and associated companies

Below we highlight the main risks that could affect the business of our main subsidiary, Grupo Bradesco Seguros, Previdência e Capitalização, which contributed almost 26% of our income.

Our losses in connection with insurance claims may vary from time to time. Differences between the losses from actual claims, underwriting and reserving assumptions and the related provisions may have an adverse effect on us.

The results of our operations depend significantly upon the extent to which our actual claims are consistent with the assumptions we used to assess our potential future policy and claim liabilities and to price our insurance products. We seek to limit our responsibility and price our insurance products based on the expected payout of benefits, calculated using several factors, such as assumptions for investment returns, mortality and morbidity rates, cancellations, conversion into pension income, administrative, operational, brokerage and claims expenses, persistency, and certain macroeconomic factors, such as inflation and interest rates. These assumptions may deviate from our prior experience, due to factors beyond our control such as natural disasters (floods, explosions and fires), man-made disasters (riots, gang or terrorist attacks), changes in mortality and morbidity rates as a result of advances in medicine and increased longevity, pandemics such as the Covid-19 pandemic, which can have a systemic effect on the business (particularly insurance products), or related and economic effects (other products), among others. Therefore, we cannot determine precisely the amounts that we will ultimately pay to settle these liabilities, when these payments will need to be made, or whether the assets supporting our policy liabilities, together with future premiums and contributions, will be sufficient for payment of these liabilities. These amounts may vary from the estimated amounts, particularly when those payments do not occur until well in the future, which is the case with certain of our life insurance products. Accordingly, the establishment of the related provisions is inherently uncertain and our actual losses usually deviate, sometimes substantially, from such estimated amounts. To the extent that incurred losses are less favorable than the underlying assumptions used in establishing such liabilities, we may be required to increase our provisions, which may have an adverse effect on our financial condition and results of our operations. 

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4. Risk factors


We are liable for claims of our customers if our reinsurers fail to meet their obligations under the reinsurance contracts.

The purchase of reinsurance does not hold us harmless against our liability towards our clients if the reinsurer fails to meet its obligations under the reinsurance contracts. As a result, reinsurers’ insolvency or failure to make timely payments under these contracts could have an adverse effect on us, given that we remain liable to our policyholders.

e)Risks related to its suppliers

Eventual dependence on services rendered by outsourced companies and suppliers/partners may negatively impact our business performance.

Due to the complexity of some services, we may become dependent or encounter difficulty replacing some suppliers/partners. We are also subject to operational risks that are beyond our control but that nonetheless may impact negatively on our operations, making the delivery of products and services to our customers more difficult. There is also the possibility of interruptions in the provision of our services due to the difficulty of finding replacements for some suppliers or other issues beyond our control arising from outsourced companies.

These situations may adversely affect our reputation, our financial condition, the result of our operations and the market value of our shares preferred and common.

f)Risks related to its customers

We consider a risk relating to “the customers” as a risk related to the “issuer,” as described in item “a” of this section, which reads as “We may face an increase in our level of delinquency in the payment of loans, to the measure that our loans and advance payment portfolio matures.

g)Risks relating to the economic sectors in which the issuer operates

The government exercises influence over the Brazilian economy, and Brazilian political and economic conditions have a direct impact on our business.

Abrupt changes in monetary or fiscal policies, which are not justified by changes in the economic scenario, can generate uncertainties about economic policy, leading to the deterioration of expectations, amplifying the volatility and negatively impacting the prices of domestic assets. In this sense, actions and signs of economic policy that are credible and transparent tend to maintain macroeconomic volatility at low levels.

Historically, the country’s political scenario has influenced the performance of the Brazilian economy and the political crises have affected the confidence of investors and the general public, which has resulted in a deceleration in the economy and greater volatility in the securities of Brazilian companies issued abroad. Any uncertainties about the economic policies, especially fiscal, can generate negative impacts on the prices of domestic assets, such as the depreciation of the currency, elevation of long rates of interest and the retreat of the stock exchange. In this sense, it becomes relevant to signalize the credible commitment on the part of the government, with decreasing trajectories for public debt. 

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4. Risk factors


Until the outbreak of Covid-19, the government had been following an economic agenda to reduce government spending, preparing the economy to compete in international markets, improving the commercial environment and promoting privatizations and infrastructure concessions. At the beginning of 2021, with the outbreak of the second wave of the Covid-19 virus, tax concerns returned to investors’ radar, with negative impacts on the domestic prices of assets. This process accelerated with the perception of greater interventionism of the government in state-owned companies.

Any of the above factors may create additional political uncertainty, which could harm the Brazilian economy and, consequently, our business, results of operations and financial condition. In addition, uncertainties about the current Brazilian government can influence market perception of risk of foreign investment in Brazil, which in turn may adversely affect the market value of our securities. For example, the market value of Brazilian companies experienced volatility during the recent presidential elections. The current weakness in Brazilian macroeconomic conditions and market perception of certain economic and political risks and uncertainties relating to Brazil, including high-profile anti-corruption investigations, may have a material adverse effect on our financial condition and results of operations.

Currency exchange variations may have an adverse effect on the Brazilian economy and on our results and financial condition.

Fluctuations in the value of the real may impact our business. After an extended period of appreciation, interrupted only in late 2008 as a reflection of the global crisis, the Brazilian real started to weaken in mid-2011, a trend which continued until mid-2016. After a brief period of stable exchange rates, the real was once again devalued against the U.S. dollar, which was intensified in 2020 because of the increased global aversion to risk, due to the Covid-19 pandemic. Looking at 2021, we expect a partial standardization of domestic monetary policy and certain progress in the reform agenda, resumption of the trajectory of sustainable public debt and a gradual return to normality in the global scenario tend to favor the appreciation of the Brazilian currency against the U.S. dollar. Weaker currency periods make certain local manufacturers (particularly exporters) more competitive, but also make managing economic policy, particularly inflation, increasingly difficult, even with a decelerated growth. A weaker real also adversely impacts companies based in Brazil with U.S. dollar indexed to and/or denominated debt.

If the Brazilian currency devalues or depreciates, we may incur losses on our liabilities denominated in, or indexed to, foreign currencies, such as our long-term debt denominated in U.S. dollars and loans in foreign currency, and experience gains on our monetary assets denominated or indexed to foreign currencies, since liabilities and assets are converted into reais. Consequently, if our liabilities denominated in, or indexed to, foreign currencies significantly exceed our monetary assets denominated in or indexed to foreign currencies, including any financial instruments entered into for hedging purposes, a large devaluation or depreciation of the Brazilian currency could significantly and adversely affect our financial results, and the the market value of our shares, preferred share ADSs and common share ADSs, even if the value of the liabilities has not changed in their original currency. In addition, our credit operations depend significantly on our ability to match the cost of funds indexed to the U.S. dollar with the rates charged to our customers. A significant devaluation or depreciation of the U.S. dollar may affect our ability to attract customers on these terms or to charge rates pegged to the U.S. dollar.

On the other hand, when the Brazilian currency appreciates, we may incur losses on our monetary assets denominated in, or indexed to, foreign currencies, such as the U.S. dollar, and we may experience reductions in our liabilities denominated in or indexed to foreign currencies, as liabilities and assets are converted into reais. Therefore, if our monetary assets denominated or indexed to foreign currencies significantly exceed our liabilities denominated or indexed in foreign currencies, including any financial instruments entered into for hedge purposes, a large appreciation of the Brazilian currency could be material and adversely affect our financial results, even if the value of monetary assets has not changed in their original currency. 

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4. Risk factors


Changes in base interest rate by the Central Bank of Brazil may materially adversely affect our margins and results of operations.

The economic impacts of the Covid-19 pandemic created the conditions available for the Central Bank of Brazil to reduce the basic interest rate to its lowest level in history, leveraging other actions of stimulus, tax and credit. This movement was possible due to a combination of risks of severe recession, anchoring of inflation expectations and adoption of monetary stimulus, in Brazil and in the world, in view of the expectations of an unprecedented crisis. The SELIC (Special System for Settlement and Custody) rate, which closed 2019 at 4.5%, was reduced to 2.0% in August 2020, where it remained until December 31, 2020. The monetary authority issued a forward guidance, signaling that the interest would be kept stable if certain predetermined conditions continued to be present, including the maintenance of the tax regime.

This process of reducing the SELIC to the lowest historical level was influenced by the high level of inactivity in the goods and labor markets, despite the initial strong exchange rate depreciation between April and May 2020, reflecting the risk aversion of investors in the most recent critical period of the Covid-19 pandemic. We have no control over the basic interest rates established by the Central Bank of Brazil or the frequency with which they are adjusted.

In January 2021, recognizing the increase in inflationary pressures, the Central Bank of Brazil withdrew its forward guidance, without yet generating an automatic increase in interest rates. In March, the institution begins the process of normalizing monetary policy, with the basic rate going from 2.0% to 2.75%. Despite the short-term risk associated to the outbreak of the pandemic in the country, this process is expected to continue in the course of the year, given the expectation of a resumption of economic activity in the coming quarters. The risk in relation to the high magnitude of the basic interest are very much associated with the fiscal evolution, which perceptions have deteriorated in the last months.

Increases in the basic SELIC interest rate fixed by COPOM may have an adverse effect on us, reducing the demand for our credit and increasing our funding costs, internal debt expenses and the risk of default by customers. Reductions in the SELIC rate may also have an adverse effect on us, reducing the interest income we earn on our interest-earning assets and reducing our revenues and margins.

The exit of the United Kingdom (the “U.K”) from the European Union could adversely impact global economic or market conditions.

The Agreement on the withdrawal of the United Kingdom of Great Britain and Northern Ireland (the UK), from the European Union granted to UK a transitional period until December 31, 2020, during which the UK was bound by the rules of the European Union (EU), although it was not a member state and remained in the single market, while the future terms of the UK’s relationship with the EU was being negotiated.

On December 24, 2020, the EU and the UK reached an agreement on the Trade and Cooperation Agreement (the Trade and Cooperation Agreement), which establishes the principles of relations between the EU and the UK after the end of the period of transition. The UK left the European Union on January 31, 2020 and the European Union Treaty and the Treaty on the Functioning of the European Union no longer apply to the UK. The European Commission has proposed to apply the Trade and Cooperation Agreement for a limited period until February 28, 2021, the date on which the Trade and Cooperation Agreement must be approved by the European Parliament.

Given the recent agreement on the wording of the Trade and Cooperation Agreement and its provisional application, from the date of filing of this report, the exact terms of the Trade and Cooperation Agreement, its practical application and the general relationship of the UK and the EU are not entirely clear. Any delays in the approval of the Trade and Cooperation Agreement by the European Parliament, their potential problematic provisions or their potential uncertain interpretation could significantly adversely affect the economic conditions either of the European or world market and could contribute to instability in the global financial markets and exchange rates. In addition, it would probably create legal uncertainty and divergent national laws and regulations. Any one of these effects, and others that could not be foreseen, may adversely affect our business, results of our operations, our financial condition, the market value of our shares, preferred share and common share. 

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4. Risk factors


Our investments in debts securities issued by the Brazilian government expose us to additional risks associated with Brazil.

We invest in debt securities issued by the Brazilian government. The trading price of these securities is affected by, among other things, market conditions in Brazil, the perception of Brazil and the related perception of the Brazilian government’s ability to repay principal and/or make interest payments. Accordingly, adverse developments or trends in any of these areas could have a knock-on adverse effect on the value of our securities portfolio, thereby affecting our financial condition and results of our operations, which may affect the market value of our shares, preferred share and common share.

If Brazil experiences substantial inflation in the future, our revenues and our ability to access foreign financial markets may be reduced.

Brazil has, in the past, experienced extremely high rates of inflation. Inflation and governmental measures to combat inflation have had significant negative effects on the Brazilian economy and have contributed to increased economic uncertainty and increased volatility in the Brazilian securities markets, which may have an adverse effect on us.

The memory of, and the potential for inflation, is still present, despite the monetary stability achieved in the mid-1990s, intensified as a result of the adoption of inflation targeting measures, with concerns that inflation levels might rise again. Current economic policy in Brazil is premised on a monetary regime which the Central Bank of Brazil oversees in order to ensure that the effective rate of inflation stays in line with a predetermined and previously announced target. Brazil’s rates of inflation reached 4.5% in 2020 and 4.3% in 2019, as measured by the Extended Consumer Price Index (Índice Nacional de Preços ao Consumidor Amplo – IPCA).

Faced with high expectations and high levels of economic inactivity, which had been gradually reducing since 2017, inflation had been maintained below the middle of the target, but it was above the center of the target in 2020 (4.0% for 2020). For 2021, an inflation target of 3.75% was set, with a tolerance interval of 1.50 percentage points above and below the target, by means of Resolution No. 4,671/18. Despite the short-term risks to economic activity, due to the worsening of the pandemic, the Central Bank began in March 2021 the process of normalizing monetary policy, with the basic rate rising from 2.0% to 2.75%, above expectations. In the assessment of the Monetary Policy Committee (Copom), the risk balance has become asymmetrical towards the direction of higher inflation. Accordingly, given that the Covid-19 pandemic will have temporary effects and given the risks to inflation, the Central Bank of Brazil signaled a "partial normalization" of monetary policy. Analysts' expectations point to an increase in interest rates in the coming months, but to levels below those observed in the recent history (14.25% in 2015). The evolution of the fiscal trends will play a relevant role in the magnitude of this increase, as has been explained by the Central Bank of Brazil.

Between the end of 2020 and the beginning of 2021, inflation concerns were more evident, reflected mainly by the increase in international prices of commodities and exchange rate depreciation. The discourse of the Central Bank of Brazil, whose independence was recently passed in February 2021, significantly changed, pointing to greater concern of the risks of secondary effects from price shocks. Thus, in March 2021, the process of normalizing monetary policy began, with an initial increase in the basic interest from 2.0% to 2.75%, which was greater than expected. This process of monetary normalization is expected to continue in 2021, reducing the stimulus of negative real interest, but without the expectation of returning to the levels of interest verified in 2015-2016, of 14.25% per year. Accordingly, we expect an increase in the final cost of credit in Brazil, which might be mitigated as competition intensifies.

If Brazil experiences inflation rate fluctuations in the future, our costs and net margins may be affected and if investor confidence lags, the price of our securities may fall. Inflationary pressures may also affect our ability to access foreign financial markets and may lead to counter-inflationary policies that may have an adverse effect on our business, financial condition, results of operations and the market price of our shares, preferred share and common share. 

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4. Risk factors


h)Risks related to the regulation of sectors in which the issuer operates

The government regulates the operations of Brazilian financial institutions and insurance companies. Changes in existing laws and regulations or the imposition of new laws and regulations may negatively affect our operations and revenues.

Brazilian banks and insurance companies are subject to extensive and continuous regulatory review by the government. We have no control over government regulations, which govern all facets of our operations, including the imposition of:

·       minimum capital requirements;

·       compulsory deposit/reserve requirements;

·       investment limitations in fixed assets;

·       lending limits and other credit restrictions;

·       earmarked credit transactions, such as housing loans and rural loans;

·       accounting and statistical requirements;

·       minimum coverage;

·       mandatory provisioning policies;

·       limits and other restrictions on rates; and

·       limits on the amount of interest that banks can charge and the period for which they can capitalize on interest.

The regulatory structure governing banks and insurance companies based in Brazil is continuously evolving. Existing laws and regulations could be amended, the manner in which laws and regulations are enforced or interpreted could change, and new laws or regulations could be adopted. Such changes could materially adversely affect our operations and our revenues.

In particular, the government has historically enacted regulations affecting financial institutions in an effort to implement its economic policies. These regulations are intended to control the availability of credit and reduce or increase consumption in Brazil. These changes may adversely affect us because our returns on compulsory deposits are lower than those we obtain on our other investments. Regulations issued by the Central Bank of Brazil are not subject to a legislative process. Therefore, those regulations can be enacted and implemented in a very short period of time, thereby affecting our activities in sudden and unexpected ways.

Changes in regulations regarding reserve and compulsory deposit requirements may reduce operating margins.

The Central Bank of Brazil has periodically changed the level of compulsory deposits that financial institutions in Brazil are required to abide by.

Compulsory deposits generally yield lower returns than our other investments and deposits because:

·a part of our compulsory deposits with the Central Bank of Brazil do not bear interest; and
·the remainder is paid at the SELIC rate or rate of return of the savings account.

Rules related to compulsory deposits have been changed from time to time by the Central Bank of Brazil.

As of December 31, 2020, our compulsory deposits in connection with demand, savings and time deposits and additional compulsory deposits were R$ 83.8 billion. Compulsory reserve requirements were used by the Central Bank of Brazil to control liquidity as part of monetary policy in the past, and we have no control over such imposition. Any increase in the compulsory deposit requirements may reduce our ability to lend funds and to make other investments and, as a result, may adversely affect us. 

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4. Risk factors


Changes in taxes and other fiscal assessments may adversely affect us.

The government regularly enacts reforms to the tax and other assessment regimes to which we and our customers are subject. Such reforms include changes in the rate of assessments and, occasionally, the enactment of temporary taxes, the proceeds of which are earmarked for designated governmental purposes. The effects of these changes and any other changes that result from the enactment of additional tax reforms have not been, and cannot be, quantified. There can be no assurance that these reforms will not, once implemented, have an adverse effect upon our business. Furthermore, such changes may produce uncertainty in the financial system, increasing the cost of borrowing and contributing to the increase in our non-performing portfolio of loans and advances.

In times of constantly changing fiscal trends, with increased public spending and public debt increasing as a proportion of GDP, interest rates may rise at a pace higher than expected, hampering loan expansion and increasing volatility. Moreover, the risk of changes in taxes and fiscal assessments may materialize as the government may target taxation towards certain sectors, such as the financial markets, with negative impacts on the results and investments of businesses operating in the segment, such as ours.

The Brazilian Constitution used to establish a ceiling on loan interest rates and if the government enacts new legislation with a similar effect in the future, our results of operations may be adversely affected.

Article 192 of the Brazilian Constitution, enacted in 1988, established a 12.0% p.a. ceiling on bank loan interest rates. However, since the enactment of the Brazilian Constitution, this rate had not been enforced, as the regulation regarding the ceiling was pending. The understanding that this ceiling is not yet in force has been confirmed by Súmula Vinculante No. 7, a final binding decision enacted in 2008 by the Brazilian Supreme Court (STF), in accordance with such Court’s prior understanding on this matter. Since 1988, several attempts were made to regulate the limitation on loan interest, and especially bank loan interest rates, but none of them were implemented nor have been confirmed by Brazilian superior courts.

On May 29, 2003, Constitutional Amendment No. 40 (EC 40/03) was enacted and revoked all subsections and paragraphs of Article 192 of the Brazilian Constitution. This amendment allows the Brazilian Financial System to be regulated by specific laws for each sector of the system rather than by a single law relating to the system as a whole.

With the enactment of Law No. 10,406/02 (or the Civil Code), unless the parties to a loan have agreed to use a different rate, in principle the interest rate ceiling has been pegged to the base rate charged by the National Treasury Office (Tesouro Nacional). There is currently an uncertainty as to whether such base rate which is referred to in the Civil Code is: (i) the SELIC rate, the base interest rate established by COPOM, which was 2.0% p.a. as of December 31, 2020 and 4.5% p.a. as of December 31, 2019; or (ii) the 12.0% p.a. rate established in Article 161, paragraph 1, of Law No. 5,172/66, as amended (Brazilian Tax Code), which is the default interest rate due when taxes are not paid on time.

i)Risks related to foreign countries where the issuer operates

The risks to which our offices abroad are exposed are not characterized as relevant insofar as they generate significant impacts that could influence our decision of investment.

There is a proviso that the operations of our Offices Abroad are supported by policies, standards and procedures issued by the Organization. 

j)Socio-environmental issues

The socio-environmental risk is represented by the potential damages that an economic activity may cause to society and the environment. The socio-environmental risks associated to financial institutions are, in their majority, indirect and stem from the business relations, including those with the supply chain and with clients, through activities of financing and investment, observing the principles of relevance and proportionality of activities of the Organization.

Funding for large projects carried out by clients can generate socioenvironmental impacts that could affect the results and the reputation of the Organization negatively.

We promote credit and financing operations, acting in several sectors, which may significantly affect an entire ecosystem, involving communities and the local flora and fauna. If a client, in the development of their activities, causes environmental impacts, such as the contamination of soil and water pollution above the legally acceptable limit and/or environmental disasters, it has a direct obligation to repair the damage caused financially. Consequently, depending on the magnitude of the socioenvironmental impact, this client can have their economic-financial structure compromised, which could adversely affect our financial status, the result of our operations and the market value of our shares, preferred share and common share. 

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4. Risk factors


 

4.2 – Description of the main market risks

The Organization monitors and controls the possibility of financial losses due to fluctuating prices and interest rates of the financial instruments, as its asset and liability portfolios may have mismatched maturities, currencies and indexes. Considering the dynamics of this type of risk and the characteristics of each investment portfolio, various limits of risks and results were established.

The proposals for risk limits are validated in specific Committees, supported by the Integrated Risk Management and Capital Allocation Committee, and submitted for approval by the Board of Directors, according to the characteristics of the business, which are segregated into the following Portfolios:

·Trading Portfolio: comprised by every operation that is carried out with financial instruments, including derivatives, held with trading intent or to hedge other instruments in the portfolio itself, and which are not subject to the limitation of their negotiability. Operations held with trading intent are those intended for resale, attainment of benefits from effective or expected price variation, or for arbitration; and
·Banking Portfolio: comprised by operations that are not classified in the Trading Portfolio from the other business of the Organization and their respective hedges.

Market Risk Measurement Models

The measurement and control of market risk are made through the methodologies of Stress, Value at Risk (VaR), and Sensitivity Analysis, in addition to the Results Management and Financial Exposure limits. The use of several methodologies for risk measurement and assessment is important, because they are always complementary and their combined use allows you to capture various scenarios and situations.

Trading and Regulatory Portfolio

The risks of the Trading Portfolio are mainly controlled by Stress and VaR. In the case of Stress, which aims to quantify the negative impact of shocks and extreme economic events that are financially unfavorable to the positions of the Organization, the analysis uses stress scenarios that are prepared by the area of Market Risk and Economic Area of the Organization from historical and prospective data for the risk factors in which the Organization is positioned.

For the calculation of VaR, the Delta-Normal methodology is adopted, with a 99% confidence level, and the applied horizon takes into account the number of days taken to undo any existing exposure. The methodology is applied to Trading and Regulatory Portfolios (Trading Portfolio positions plus exposure in foreign currency and commodities of the Banking Portfolio). Additionally, for the measurement of all risk factors of the options portfolio, the models of historic simulation and the Delta-Gama-Vega are applied, whereby the most conservative between the two prevails. For the calculation of the volatilities, correlations and historical returns, a window of at least 252 working days was adopted.

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4. Risk factors


For regulatory purposes, the need for capital, relating to Banking Portfolio shares, is realized through the evaluation of credit risk, as determined by the Central Bank of Brazil, i.e., they are not included in the calculation of market risk.

Interest Rate Risk in the Banking Portfolio

The measurement and control of the interest rate risk of the Banking Portfolio are mainly made from the Economic Value of Equity (EVE) and Net Interest Income (NII) variation methodologies, which measures the economic impact on the positions and the impact in the Organization’s income respectively, according to the scenarios drawn up by the Economic area of the Organization. These scenarios seek to determine positive and negative movements that may occur in the curves of interest rates and, consequently, affect the applications and funding of the Organization.

The EVE methodology consists of re-pricing the portfolio, subject to a variation in interest rates and taking into consideration any increases or decreases in the rates used for the calculation of the present value and the total duration of assets and liabilities. Therefore, the economic value of the portfolio is calculated with both the market interest rates on the date of the analysis and with the scenarios designed. Therefore, the difference between the values obtained for the portfolio will be the Delta EVE.

In the case of the NII – Net Interest Income, the methodology intends to calculate the Organization’s variation in the net revenue interest (gross margin) due to eventual variations in the interest rate level through the same scenarios mentioned above, that is, the difference between the calculated NII in the base scenario and the calculated NII in the scenarios of increase or decrease of the interest rate will be Delta NII.

For the measurement of interest rate risk in the Banking Portfolio, behavioral premises of the clients are used whenever necessary. As a reference, in the case of deposits and savings, which have no maturity defined study for the verification of historical behaviors, are carried out as well as the possibility of their maintenance. Through these studies, the stable amount (core portion) as well as the criterion of allocation over the years are calculated.

Evolution of Risk Exposure

In this section, we present the evolution of the VaR that is calculated by the internal model, Stress Analysis and Sensitivity Analysis.

VaR Internal Model – Trading Portfolio

The Trading Portfolio VaR for the 1-day horizon and net of tax effects of 2019 was higher than it was at the end of 2018, mainly due to the increase of the exposure in the foreign currencies.

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4. Risk factors


      R$ million
Risk Factors 2020 2019 2018
Fixed rates   5   2   1
IPCA (Consumer Price Index - Broad) / IGP-M (General Market Price Index)   4   3  -
Exchange coupon  -   -  -
Foreign Currencies   5   5   1
Equities   2   1   1
Sovereign/Eurobonds and Treasuries   7   4   4
Other  -    2   2
Correlation/diversification effect (12)  (7)  (2)
VaR at end year  12  10   6
       
Average VaR in the year  39  10  22
Minimum VaR in the year   8   6   4
Maximum VaR in the year   105  15  77

Note: VaR for the 1-day horizon and net of tax effects.

The “Other” risk factor includes investment funds, commodities, non-linear instruments and the negative goodwill of the public security (LFT).

VaR Internal Model – Regulatory Portfolio

Since January 2013, Bradesco has used its internal market risk models, which were used for their management, in the calculation of the regulatory capital requirement(1) for every risk factor and for all of the Organization’s business. For the calculation of VaR, the Delta-Normal methodology is adopted, with a 99% confidence level, and the applied horizon takes into account the number of days taken to undo any existing exposure. The methodology is applied to Trading and Regulatory Portfolios (Trading Portfolio positions plus exposure in foreign currency and commodities of the Banking Portfolio). It is important to highlight that to measure all of the options portfolio’s risk factors, the risk models of historical simulation and the Delta-Gama-Vega are applied, whereby the most conservative of the two prevails, which is the risk of options added to the VaR of the Portfolio. It is important to note that the value at risk is extrapolated for the regulatory horizon(2) (the highest between ten days and the horizon of the portfolio) based on the time root method. The values of VaR and Stressed VaR demonstrated below are for the horizon of ten days and are net of tax effects.

(1)In order to calculate the share of the Market Risk, the capital requirement will be the maximum between the internal model and 80% of the standard model, according to Circulars No. 3,646/13 and No. 3,674/13 of the Central Bank of Brazil; and
(2)The maximum between the maintenance period (holding period) of the portfolio and 10 days, which is the regulatory minimum horizon required by the Central Bank of Brazil, is adopted.

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4. Risk factors


            R$ million
Risk Factors 2020 2019 2018
VaR Stressed VaR VaR Stressed VaR VaR Stressed VaR
Interest Rate  33  43  15  59   8  48
Exchange Rate  28  28  35   104   6  21
Price of Goods (Commodities)  -  -  -   2   8  15
Stock Prices   9   8   3   4   3   5
Correlation/diversification effect (26) (26) (10) (30)  (8)  33
VaR at end year  44  54  43   139  18   122
             
Average VaR in the year   117   118  43   107  70   118
Minimum VaR in the year  25  33  17  35  18  58
Maximum VaR in the year   351   251   123   299   253   231

Note: VaR for the 10-day horizon and net of tax effects.

For the purposes of the calculation of the regulatory capital requirement, in accordance with the internal model, one must take into consideration the rules described in Circular Letters No. 3,646/13 and No. 3,674/13 of the Central Bank of Brazil (Bacen), such as the use of VaR and Stressed VaR without tax purposes, of the average of the last 60 days and the multiplier.

Stress Analysis – Trading Portfolio

The Organization evaluates, also daily, the possible impact on positions in stress scenarios to a horizon of 20 working days, with a limit set in the governance process. Thus, considering the effect of diversification between the risk factors and the net amounts of tax effects, the possibility of an estimated average loss in stress outcomes would be R$188 million in 2020 (2019 – R$161 million), and the estimated maximum loss would be R$380 million (2019 – R$286 million).

      R$ million
  2020 2019 2018
At end of the year 90 103 59
Average in the year 188 161 185
Minimum in the year 56 68 53
Maximum in the year 380 286 420

Note: Net amounts of tax effects.

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4. Risk factors


Sensitivity analysis

The Trading Portfolio is also monitored daily by sensitivity analyses that measure the effect of market shifts and price curves on our positions. Furthermore, a sensitivity analysis of the Organization’s financial exposures (Trading and Banking Portfolio) is performed on a quarterly basis.

Note that the impact of the financial exposure on the Banking Portfolio (notably interest rates and price indexes) do not necessarily represent a potential accounting loss for the Organization because a portion of loan operations, held in the Banking Portfolio, is financed by demand and/or savings deposits, which are “natural hedges” for any future variations in interest rates and, moreover, interest rate variations do not represent a material impact on the institution’s result, as Loans are held to maturity. In addition, due to our strong presence in the insurance and pension plan market, Bradesco holds a large volume of assets on which price adjustments would also impact the linked technical reserves.

                  R$ million
Scenario 1 - shock of 1 base point on rates and 1% on market prices Trading and Banking portfolios (1)
Scenario 2 - shock of 25% on rates and market prices 2020 2019 2018
Scenario 3 - shock of 50% on rates and market prices 1 2 3 1 2 3 1 2 3
Interest Rate in Reais Exposure subject to variations in fixed interest rates and interest rate coupons.  (12)   (1,553)   (2,974)  (15)   (1,896)   (3,775)  (16)   (2,973)   (5,760)
Price indexes Exposure subject to variations in price index coupon rates.  (27)   (2,227)   (4,031)  (17)   (1,313)   (2,398) (8)   (914)   (1,630)
Exchange coupon Exposure subject to variations in foreign currency coupon rates.   (2)  (72)   (142) (1)  (72)   (140) (1)   (119)   (229)
Foreign Currency Exposure subject to exchange rate variations.   (2)  (66)   (131) (3)  (71)   (142)   -  (10)  (20)
Equities Exposure subject to variation in stock prices.  (43)   (1,084)   (2,168)  (29)   (720)   (1,440)  (21)   (531)   (1,061)
Sovereign/Eurobonds and Treasuries Exposure subject to variations in the interest rate of securities traded on the international market.   (1)  (14)  (28) (1)  (53)   (104) (2)  (92)   (185)
Other Exposure not classified in other definitions.   -   (1)   (1)   - (2) (3)   -  (10)  (21)
Total without correlation  (89)   (5,017)   (9,476)  (66)   (4,126)   (8,003)  (50)   (4,649)   (8,907)
Total with correlation  (73)   (4,169)   (7,884)  (42)   (3,038)   (5,920)  (38)   (3,906)   (7,500)
(1) Amounts net of tax effects.        

The sensitivity analysis of the Trading Portfolio, which represents exposures that may have a material impact on the Organization’s results, is presented below. Note that the results show the current impact for each scenario on a static portfolio position. However, the market is highly dynamic, which currently results in continuous changes in these positions but does not necessarily reflect the position shown here. Moreover, as previously mentioned, the Organization has an ongoing process of market risk management, which constantly seeks to adjust positions, in order to mitigate related risks according to the strategy determined by Senior Management. Therefore, in cases of deterioration indicators in a certain position, proactive measures are taken to minimize any potential negative impact, aimed at maximizing the risk/return ratio for the Organization.

                  R$ million
Scenario 1 - shock of 1 base point on rates and 1% on market prices Trading portfolio (1) 
Scenario 2 - shock of 25% on rates and market prices 2020 2019 2018
Scenario 3 - shock of 50% on rates and market prices 1 2 3 1 2 3 1 2 3
Interest Rate in Reais Exposure subject to variations in fixed interest rates and interest rate coupons.   -  (12)  (23)   -  (14)  (27)   -  (11)  (22)
Price indexes Exposure subject to variations in price index coupon rates.   (2)  (42)  (84) (1)  (29)  (56)   - (2) (5)
Exchange coupon Exposure subject to variations in foreign currency coupon rates.   -   (3)   (6)   - (1) (1)   -   -   -
Foreign Currency Exposure subject to exchange rate variations.   (2)  (40)  (80) (3)  (75)   (149)   - (8)  (17)
Equities Exposure subject to variation in stock prices.   -   (9)  (18)   - (6)  (11)   - (2) (4)
Sovereign/Eurobonds and Treasuries Exposure subject to variations in the interest rate of securities traded on the international market.   -  (12)  (23) (1)  (29)  (57)   -  (93)   (130)
Total without correlation   (4)   (118)   (235) (5)   (154)   (302) (1)   (118)   (178)
Total with correlation   (3)  (74)   (148) (3)  (72)   (145)   -  (93)   (130)
(1) Amounts net of tax effects.        

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4. Risk factors


The sensitivity analysis of the financial exposures (Trading and Banking Portfolios) of the Organization were carried out, based on scenarios prepared for the respective dates, always considering market data at the time and scenarios that would adversely affect our positions, according to the examples below:

§  Scenario 1: Based on market information (B3, Anbima, etc.), stresses were applied for 1 basis point on the interest rate and a 1.0% variation on prices. For example: for a Real/U.S. dollar exchange rate of R$5.63 a scenario of R$5.69 was used, while for a 1-year fixed interest rate of 5.10%, a 5.11% scenario was applied;
§  Scenario 2: 25.0% of stresses were determined based on market information. For example: for a Real/U.S. dollar exchange rate of R$5.63 a scenario of R$7.04 was used, while for a 1-year fixed interest rate of 5.10%, a 6.37% scenario was applied. The scenarios for other risk factors also accounted for 25.0% of stresses in the respective curves or prices; and
§  Scenario 3: 50.0% of stresses were determined based on market information. For example: for a Real/U.S. dollar exchange rate of R$5.63 a scenario of R$8.45 was used, while for a 1-year fixed interest rate of 5.10%, a 7.65% scenario was applied. The scenarios for other risk factors also account for 50.0% of stresses in the respective curves or prices.

4.3 – Non-confidential and relevant litigation, arbitration or adjudicatory proceedings

The Organization is party to a number of labor, civil and tax lawsuits, arising from the normal course of business.

In our relevance analysis of the lawsuits, which considers: (i) the opinion of the legal advisors; (ii) the nature of the shares; (iii) the similarity with previous lawsuits; (iv) the complexity; and (v) the opinion of courts (whenever the loss is assessed as probable), we did not identify relevant lawsuits that could have an influence on the investment decision. In addition, the Management understands that the provision constituted is sufficient to meet the losses that result from the respective lawsuits.

Although we do not have relevant lawsuits, according to the criteria mentioned above, we have listed below the processes that have values, assets or rights involved, above the materiality of R$679 million, which represents 0.5% of the Reference Equity of the issuer (R$135,724 million). It is important to note that possible differences found between the proceedings disclosed below and the values disclosed in the Notes refer to proceedings that, individually, have lower materiality than that which we consider relevant.

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4. Risk factors


Judicial Proceeding: Tax Execution  nº 6016-63.2015.4.03.6130
a. court Federal
b. jurisdiction TRF 3rd Region
c. date brought December 14, 2011
d. parties to the proceeding Plaintiff: Federal Government (Brazil’s Federal Revenue Department)
Defendant: Banco Bradesco S.A.
e. sums, goods or rights involved R$ 4,291,432,217.12
f. principal facts Judicial Proceeding: Tax  enforcement No. 6016-63.2015.4.03.6130, of collection of values monitored in the Administrative Proceeding No. 16327.000190/2011-83 – Disallowance of COFINS loan compensations resulting from the success in ordinary action No. 2006.61.00.003422-0 (enlargement of the basis of calculation – Law No. 9,718/98), whose authorization was deferred by the RFB in 2011, after the judgment of the court action, but the compensation made also in 2011 was rejected.
After the favorable judgment obtained in the ordinary action, on June 30, 2011 the company filed a petition to authorize the credit, whose request was accepted on August 22, 2011. Thus, the company began to use the credit recognized by the Brazil’s Federal Revenue, however on December 14, 2011 the company was notified of the court order ruling that, wrongly, it had rejected the compensations performed.
Once the discussion was exhausted in the administrative sphere, the noncompliance with the "res judicata" is being discussed in the proceeding of ordinary action No. 2006.61.00.003422-0 and  bill of review No. 0014403-27.2015.4.03.0000. The tax credit is guaranteed by a bond of the full amount of the debt, offered in the tax enforcement proceeding No. 0006016-63.2015.4.03.6130.
g. chance of losing (probable, possible or remote) Possible
h. analysis of impact if case is lost If there is a loss in the possible judicial proceeding the value involved must be paid, affecting the income statement for the fiscal year.
   
   
Judicial Proceeding:  16327.720937/2019-71
a. court Administrative
b. jurisdiction First Instance – Federal Revenue Service Office Judgment (local acronym DRJ)
c. date brought October 4, 2019
d. parties to the proceeding Plaintiff: Federal Government (Brazil’s Federal Revenue Department)
Defendant: Banco Bradesco S.A.
e. sums, goods or rights involved R$ 4,271,800,772.91
f. principal facts Administrative Proceeding: IRPJ and CSLL deficiency note, in the fiscal years of 2014 and 2015, under the heading funding expenses with interbank deposits, whose resources were capitalized in BERJ in 2012, considered as non-essential by the audit inspection.
The DRJ filed a partial motion to deny, restoring the tax loss and negative base of the CSLl consumed in previous entries already canceled by the CARF, and the negative base of the CSLL of 2015. There was a mandatory review. Awaiting trial of the mandatory and voluntary review by the CARF.
g. chance of losing (probable, possible or remote) Possible
h. analysis of impact if case is lost If there is a loss in the proceeding in the administrative sphere, the case will be discussed in justice, where the chances of success are good, due to the foundations of fact and law involved.
In the case of an eventual loss in the judicial proceeding, the value involved will have to be paid, with an impact on the income for the fiscal year.

 

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4. Risk factors


Judicial Proceeding:  16327.720939/2019-60
a. court Administrative
b. jurisdiction First Instance – Federal Revenue Service Office Judgment (local acronym DRJ)
c. date brought October 4, 2019
d. parties to the proceeding Plaintiff: Federal Government (Brazil's Federal Revenue Department)
Defendant: Banco Bradesco S.A. (successor of Banco Bradesco Cartões S/A)
e. sums, goods or rights involved R$ 3,925,194,912.07
f. principal facts Administrative Proceeding: IRPJ and CSLL deficiency note, in the fiscal years of 2014 and 2015, under the heading funding expenses with interbank deposits, whose resources were capitalized in BERJ in 2012, considered as non-essential by the audit inspection.
The DRJ filed a partial motion to deny, determining the appropriation of the sum of R$246,613.56 of the negative balance of the IRPJ of 2015, reducing the value of the notification. There was no mandatory review. Awaiting trial of the voluntary appeal by the CARF.
g. chance of losing (probable, possible or remote) Possible
h. analysis of impact if case is lost If there is a loss in the proceeding in the administrative sphere, the case will be discussed in justice, where the chances of success are good, due to the foundations of fact and law involved.
In the case of an eventual loss in the judicial proceeding, the value involved will have to be paid, with an impact on the income for the fiscal year.
   
   
Judicial Proceeding: Writ of Mandamus 1999.61.00.009282-1
a. court Federal
b. jurisdiction TRF 3rd Region – 2nd Section
c. date brought March 4, 1999
d. parties to the proceeding Plaintiff: Banco BMC S.A (currently known as Banco Bradesco Financiamentos S.A.)
Defendant: Special Representative of the Financial Institutions in SP
e. sums, goods or rights involved R$ 2,905,130,117.27
f. principal facts Judicial Proceeding: Writ of Mandamus 1999.61.00.009282-1, where there is a plea to calculate and collect the COFINS, from February 1999, on the effective turnover, whose concept is stated in article 2 of Supplementary Law No. 70/91, moving away from the unconstitutional expansion of the calculation basis intended by paragraph 1 of article 3 of Law No. 9,718/98. The discussion is restricted to the generating facts until December 2014.
After the Judgment in favor of the company, as adjudicated in August 7, 2006, discussions began about the interpretation of the judgment, where there has already been a final decision in favor of the company, against which the Federal Government perpetrated the motion to set aside judgment No. 0024478-62.2014.4.03.0000, duly contested by the company, which is awaiting a decision. The amounts discussed are fully deposited.
g. chance of losing (probable, possible or remote) Remote
h. analysis of impact if case is lost If there is a loss in the proceeding, the values should be paid upon the conversion of the judicial deposit into income of the Federal Government, affecting the income.

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4. Risk factors


Judicial Proceeding: 0021377-79.2016.4.03.6100
a. court Federal
b. jurisdiction 9th Court – Federal Justice/SP
c. date brought April 13, 2012
d. parties to the proceeding Plaintiff: Quixaba Empreendimentos e Participações Ltda. (successor of Ferrara Participações Ltda.)
Defendant: Federal Government (Brazil’s Federal Revenue Department)
e. sums, goods or rights involved R$ 2,386,695,952.56
f. principal facts Judicial Proceeding: Action for annulment for the cancellation of the collection of the controlled values in the Administrative Proceeding No. 16327.720430/2012-41 with the registry of the IRPJ and CSLL regarding the taxation of the supposed capital gain on the disposal of investment.
After judgment in the CARF, discussions are underway in the administrative sphere only regarding the recovery of interest on the fine, object of special appeal, which is awaiting judgment from the High Court of Appeals for Fiscal Matters – CSRF.
As to the discussion on the amortization of the goodwill paid on the acquisition of investment, action of annulment No. 0021377-79.2016.4.03.6100 was filed, and is awaiting expert evidence.
The chargeability of the tax credit is suspended by the administrative appeal partly by early tutelage obtained in the bill of review No. 0018549-77.2016.4.03.0000.
g. chance of losing (probable, possible or remote) Possible
h. analysis of impact if case is lost If there is a loss in the possible judicial proceeding the value involved must be paid, affecting the income statement for the fiscal year.
   
   
Judicial Proceeding: Writ of Mandamus  0005360-09.2015.4.03.6130
a. court Federal
b. jurisdiction TRF 3rd Region
c. date brought February 3, 2012
d. parties to the proceeding Plaintiff: Federal Government (Brazil’s Federal Revenue Department)
Defendant: Banco Bradesco S.A.
e. sums, goods or rights involved R$ 1,755,015,348.54
f. principal facts Judicial Proceeding: Writ of Mandamus No. 6016-63.2015.4.03.6130, of collection of values monitored in the Administrative Proceeding No. 16327.000190/2011-83 – Disallowance of COFINS  loan compensations resulting from the success in ordinary action No. 2006.61.00.003422-0 (enlargement of the basis of calculation – Law No. 9,718/98), whose authorization was deferred by the RFB in 2011, after the judgment of the court action, but the compensation made also in 2011 was rejected.
After the favorable judgment obtained in the ordinary action, on June 30, 2011 the company filed a petition to authorize the credit, whose request was accepted on August 22, 2011. Thus, the company began to use the credit recognized by the Brazil’s Federal Revenue, however on February 3, 2012 the company was notified of the infraction related to the isolated fine of 50% wrongly imposed as a result of offsets not approved.
Once the discussion was exhausted in the administrative sphere, the noncompliance with the "res judicata" is being discussed in the proceeding of ordinary action No. 2006.61.00.003422-0 and  bill of review No. 0014403-27.2015.4.03.0000. The chargeability of the tax credit is suspended by the guarantee insurance offered in the writ of mandamus No. 0005360-09.2015.4.03.6130, with appeal on the merits of the case of the Federal Government awaiting trial in the TRF of the 3rd Region.
g. chance of losing (probable, possible or remote) Remote
h. analysis of impact if case is lost If there is a loss in the possible judicial proceeding the value involved must be paid, affecting income statement for the fiscal year.

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4. Risk factors


Judicial Proceeding: Administrative Proceeding 16327.720842/2020-91
a. court Administrative
b. jurisdiction First Instance – Federal Revenue Service Office Judgment (local acronym DRJ)
c. date brought July 21, 2020
d. parties to the proceeding Plaintiff: Federal Government (Brazil’s Federal Revenue Department)
Defendant: Banco Bradesco S.A.
e. sums, goods or rights involved R$ 1,624,486,744.76
f. principal facts IRRF deficiency note, July 2016, in the quality of tax-responsible person, about alleged difference in the capital gain earned on the sale of the operations from HSBC to Bradesco. HSBC (London) calculated the capital gain on the basis of the cost of the investment in foreign currency registered in the BACEN. In the understanding of the tax office the gain should have been determined on the basis of the original cost in Brazilian real.
With the appeal pending trial by the DRJ, the amount involved has the chargeability suspended.
g. chance of losing (probable, possible or remote) Remote
h. analysis of impact if case is lost If there is a loss in the proceeding in the administrative sphere, the case will be discussed in justice, where the chances of success are good, due to the foundations of fact and law involved.
In the case of an eventual loss in the judicial proceeding, the value involved will have to be paid, with an impact on the income for the fiscal year.
   
   
Judicial Proceeding: Writ of Mandamus 2006.61.00.027475-9
a. court Federal
b. jurisdiction TRF 3rd Region – 3rd Bench
c. date brought December 14, 2006
d. parties to the proceeding Plaintiff: Banco IBI S.A. – Banco Múltiplo (currently known as Banco Bradescard S.A.)
Defendant: Special Representative of the Financial Institutions in São Paulo
e. sums, goods or rights involved R$ 1,369,486,542.67
f. principal facts Judicial Proceeding, in which a plea was made since January 2007: (i) to recognize and declare the non-enforceability of the COFINS and of the contribution to the PIS, in the modality required by Law No. 9,718/98, preventing it, because its incidence on income earned its inconsistent with the concept of turnover (production of sales of merchandise and of services provided); (ii) to recognize and declare the non-enforceability of the COFINS levied at 3%, maintaining the levy at 2%; and (iii) to recognize the existence of amount unduly collected as PIS (basis of calculation) and as COFINS (basis of calculation and levy) and the consequent credit rights, and authorize the compensation of the values in reference against the installments due of taxes and contributions managed by the Brazil's Federal Revenue Department.
The discussion is restricted to the triggering events until December 2014.
On March 23, 2007 a partial injunction was obtained, moving away from only the requirement of the collection of the PIS and COFINS on the basis of calculation as determined by Law No. 9,718/98.
On November 23, 2007 the sentence was given as unfounded, re-establishing the Injunction following the favorable decision obtained through a bill of review.
On January 21, 2011 judgment was given as partially favorable, declaring as unconstitutional the incidence of the PIS and COFINS of Law No. 9,718/98 for other income that is not of turnover.
The company filed special and extraordinary appeals with the STJ and STF, which are awaiting an examination of admissibility and are suspended until the judgment of RE (Extraordinary Appeal) No. 656,089 (General Repercussion).
The amounts discussed are fully deposited.
g. chance of losing (probable, possible or remote) Possible – There was a provisional constitution under the understanding of it being a legal obligation
h. analysis of impact if case is lost If the case is lost, the amounts provisioned will have to be converted according to the judicial deposit and paid to the Federal Government, affecting their income.

 

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4. Risk factors


 

Judicial Proceeding: 16327.720219/2019-02
a. court Administrative
b. jurisdiction Second instance – Administrative Tax Appeals Council – CARF
c. date brought March 26, 2019
d. parties to the proceeding Plaintiff: Federal Government (Brazil’s Federal Revenue Department)
Defendant: Banco Bradesco S.A.
e. sums, goods or rights involved R$ 1,265,824,563.17
f. principal facts Administrative Proceeding: Notification of pension contribution, in the period from 03/2014 to 12/2015, on values paid with the food card. Brazil’s Federal Revenue understood that the value paid with the food card under the concept of payment "in natura" is not inserted in the employee’s salary and, therefore, is subject to a levy on pension contributions.
The entry was maintained in the motion to deny. Awaiting judgement of the voluntary appeal from CARF.
The chargeability of the tax credit is suspended by the voluntary appeal that awaits the ruling in the CARF.
g. chance of losing (probable, possible or remote) Possible
h. analysis of impact if case is lost If there is a loss in the proceeding in the administrative sphere, the case will be discussed in justice, where the chances of success are good, due to the foundations of fact and law involved.
In the case of an eventual loss in the judicial proceeding, the value involved will have to be paid, with an impact on the income for the fiscal year.
   
   
Administrative Proceeding: 16327.720390/2018-22
a. court Administrative
b. jurisdiction Second Instance – Administrative Council of Tax Resources – CARF
c. date brought June 4, 2018
d. parties to the proceeding Plaintiff: Federal Government (Brazil's Federal Revenue Department)
Defendant: Banco Bradesco S.A. (successor of Banco Bradesco Cartões S/A)
e. sums, goods or rights involved R$ 1,253,626,915.43
f. principal facts IRPJ and CSLL deficiency note, calendar year 2013, related to the disallowance of expenses from funds raised with interfinancial deposits, whose resources have been capitalized on BERJ in 2013, considered as unnecessary by supervision.
DRJ ruled and partially upheld the appeal. The Federal Revenue has filed a letter of appeal, to the company with the appellee's brief of the part retained. The CARF converted the trial into diligence. In progress.

The chargeability of the tax credit is suspended by the appeals presented that are pending trial in the CARF.
g. chance of losing (probable, possible or remote) R$  1,209,028,258.63 – Possible
R$      18,291,436.35 – Remote
R$  1,227,319,694.98
h. analysis of impact if case is lost If there is loss of the judicial proceeding in the administrative sphere, the case will be discussed in court, where the chances of success are good, due to the pleas of fact and law involved.
If there is a loss in the possible judicial proceeding the value involved must be paid, affecting the  income statement for the fiscal year.

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4. Risk factors


 

Tax enforcement proceeding: 0100563-94.0700.8.26.0090
a. court Municipal
b. jurisdiction Court of Municipal Tax Collections of the Capital/SP
c. date brought May 2, 2011
d. parties to the proceeding Plaintiff: City Hall of the Municipality of São Paulo
Defendant: Bradesco Leasing S.A. Arrendamento Mercantil
e. sums, goods or rights involved R$ 1,104,701,442.85
f. principal facts Tax Enforcement Proceeding: Filed by the Municipality of São Paulo (SP) against Bradesco Leasing on June 8, 2007, originating from notices of infraction issued against BCN Leasing, extinct by incorporation.
The tax execution is based on the nullity of precedent administrative proceeding, illegitimacy of party, decay and prescription, in the stage of expert evidence.
The tax credit is guaranteed by a bond of the full amount of the debt, offered in the the records of the embargoes of tax enforcement proceeding No.  0007752-59.2014.8.26.0090.
g. chance of losing (probable, possible or remote) Possible
h. analysis of impact if case is lost If there is a loss in the possible judicial proceeding the value involved must be paid, affecting the income statement for the fiscal year.
   
   
Judicial Proceeding: Writ of Mandamus  0571168-65.2015.8.05.0001
a. court Court of Justice – Bahia
b. jurisdiction Fourth Civil Chamber
c. date brought January 13, 2014
d. parties to the proceeding Plaintiff: Banco Alvorada S.A. (successor of Banco Alvorada S.A)
Defendant: City Hall of the Municipality of Salvador/BA
e. sums, goods or rights involved R$ 1,093,102,470.03
f. principal facts Judicial Proceeding: Writ of Mandamus aiming at the cancellation of the values collected by the City Hall of the Municipality of Salvador through launch notification No. 1667.2013 concerning the ISS values for the period from December 2008 to December 2012 supposedly due on the leasing revenues of Banco Alvorada.
Once the discussion was exhausted in the administrative sphere (launch notification No. 1667/2013), Writ of Mandamus No. 0571168-65.2015.8.05.0001 was filed, at appellate level by the Federal Revenue of the Municipality of Salvador, to be judged by the Court of Justice of Bahia.
The chargeability of the tax credit has been suspended by a favorable judgment.
g. chance of losing (probable, possible or remote) Possible
h. analysis of impact if case is lost If there is a loss in the possible judicial proceeding the value involved must be paid, affecting the income statement for the fiscal year.

 

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4. Risk factors


 

Administrative Proceeding: Writ of Mandamus 1017029-36.2018.4.01.3400
a. court Administrative
b. jurisdiction Second Instance – High Court of Appeals for Fiscal Matters
c. date brought November 30, 2011
d. parties to the proceeding Plaintiff: Tempo Serviços S.A.
Defendant: Federal Government (Brazil's Federal Revenue Department)
e. sums, goods or rights involved R$ 1,007,923,612.88
f. principal facts Judicial Proceeding: Writ of Mandamus pleading a new outcome for the judgment of special appeal filed in administrative proceeding No. 10970.720351/2011-88 with the registry of the IRPJ and CSLL regarding the disallowance of the amortization of the goodwill paid in the acquisition of investment, whereby the vote of quality by the President of the 1st Class of the Higher Chamber of Fiscal Resources – CSRF was not computed.
Having obtained a favorable judgment recognizing the invalidity of the vote of quality, declaring the judgment delivered by the Higher Chamber of the CARF to be null and void, determining the return of administrative proceeding No. 10970.720351/2011-88 to the CARF for re-judgment, without using the quality vote as tie-breaker.
The chargeability of the tax credit has been suspended by the appeal awaiting a new judgment by the CARF.
g. chance of losing (probable, possible or remote) Possible
h. analysis of impact if case is lost If there is a loss in the possible judicial proceeding the value involved must be paid, affecting the income statement for the fiscal year.
   
   
Judicial Proceeding: 10903.720005/2019-51
a. court Administrative
b. jurisdiction First Instance – Federal Revenue Service Office Judgment (local acronym DRJ)
c. date brought May 2, 2019
d. parties to the proceeding Plaintiff: Federal Government (Brazil's Federal Revenue Department)
Defendant: Kirton Bank S.A.
e. sums, goods or rights involved R$ 969,412,799.78
f. principal facts Administrative Proceeding: IRPJ and CSLL deficiency note, in the period of 2014 to 2016, as the supposed disguised distribution of income, through hedge operations made through an investment fund abroad.
The DRJ converted the trial of the impugnation into diligence. After completion of the diligence, a new trial is awaited.
g. chance of losing (probable, possible or remote) Remote
h. analysis of impact if case is lost If there is a loss in the proceeding in the administrative sphere, the case will be discussed in justice, where the chances of success are good, due to the foundations of fact and law involved.
In the case of an eventual loss in the judicial proceeding, the value involved will have to be paid, with an impact on the income for the fiscal year.

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4. Risk factors


 

Judicial Proceeding: Writ of Mandamus  0047693-88.2012.4.02.5101
a. court Federal
b. jurisdiction TRF 2nd Region – 3rd Bench
c. date brought November 16, 2012
d. parties to the proceeding Plaintiff: Banco Bradesco BERJ S.A.
Defendant: Special Representative of the Financial Institutions in RJ
e. sums, goods or rights involved R$ 845,395,968.06
f. principal facts Judicial Proceeding, where there is a plea to calculate and collect the PIS and COFINS, from October 2012, on its effective billing, whose concept executed by private law and accepted by the STF is mentioned explicitly in article 2 of Complementary Law No. 70/91, referred to in articles 1 and 2 of Law No. 9,718/98, thus moving away from the requirement of these contributions on the entirety of the operating revenues, in particular financial revenues. The discussion is restricted to the triggering events until December 2014.
The value involved has the enforcement suspended due to the full judicial deposit involved, made with the decline of the appeal that was initially granted.
The company made an appeal which awaits trial in the Federal Regional Court of the 2nd Region. The Special and Extraordinary appeals have been presented to the STF and STJ and are awaiting judgment of admissibility in the Federal Regional Court of the 2nd Region.
g. chance of losing (probable, possible or remote) Possible – Provision was made because we believe this is a legal obligation
h. analysis of impact if case is lost If the case is lost, the amounts provisioned should be paid upon the conversion of the realized judicial deposit into income of the Federal Government.
   
   
Judicial Proceeding: Administrative Proceeding 16327.720091/2020-11 
a. court Federal
b. jurisdiction First Instance – Federal Revenue Service Office Judgment (local acronym DRJ)
c. date brought February 6, 2020
d. parties to the proceeding Plaintiff: Federal Government (Brazil’s Federal Revenue Department)
Defendant: Banco Bradesco S.A.
e. sums, goods or rights involved R$ 775,204,629.38
f. principal facts Administrative Proceeding: Notification of social security contribution, in 2016, on values paid through the food card.
The Federal Revenue Service understood that the value paid through the food card is not inserted in the concept of "in natura" payment of wages to employees and therefore is subject to the incidence of social security contributions.
With the appeal pending trial by the DRJ, the amount involved has the chargeability suspended.
g. chance of losing (probable, possible or remote) Possible
h. analysis of impact if case is lost If there is a loss in the proceeding in the administrative sphere, the case will be discussed in justice, where the chances of success are good, due to the foundations of fact and law involved.
In the case of an eventual loss in the judicial proceeding, the value involved will have to be paid, with an impact on the income for the fiscal year.

 

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4. Risk factors


Judicial Proceeding: 1011290-82.2018.4.01.3400
a. court Federal
b. jurisdiction 17th Civil Court of SJ/DF
c. date brought December 7, 2011
d. parties to the proceeding Plaintiff: Nova Paiol Participações Ltda.  
Defendant: Federal Government (Brazil's Federal Revenue Department)
e. sums, goods or rights involved R$ 679,318,494.09
f. principal facts Judicial Proceeding: Action for annulment for the cancellation of the collection of the controlled values in administrative proceeding No. 16327.721663/2011-80 with the registry of the IRPJ and CSLL related to the taxation of the supposed capital gain on the disposal of investment.
Once the discussion was exhausted in the administrative sphere, the action for annulment No. 1011290-82.2018.4.01.3400 was filed, which is awaiting judgment.
The chargeability of the tax credit is suspended by the early tutelage.
g. chance of losing (probable, possible or remote) Possible
h. analysis of impact if case is lost If the judicial proceeding is lost the value involved must be paid, which will affect the income for the year.

In 2020, the total value of provisioned processes described in this item was R$2,214,883 thousand.

Below, we highlight the lawsuit that is no longer considered in this item, compared to the 2020 Reference Form (base date December 31, 2019), and the reason for its exclusion:

·Administrative Proceeding No. 16327.721507/2012-08 – Tax Assessment challenging the deduction of certain mark-to-market gains from securities in the calculation of IRPJ and CSLL in 2007.

Date of establishment – December 19, 2012

The proceedings no longer met the criterion of materiality mentioned previously (R$679 million).

4.4 – Non-confidential and relevant litigation, arbitration or adjudicatory proceedings whose appellees are managers, former managers, controllers, former controllers or investors

We do not have any proceedings under the conditions mentioned in item 4.4.

 

4.5 – Confidential relevant proceedings

We do not have any proceedings under the conditions mentioned in item 4.5.

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4. Risk factors


4.6 – Non-confidential and relevant joint litigation, arbitration or adjudicatory proceedings, recurring or ancillary

Labor claims

These are claims brought across by former employees and outsourced employees seeking indemnifications, most significantly for unpaid overtime, pursuant to Article 224 of the Brazilian Labor Laws (CLT). Whereas the base of proceedings is basically composed by proceedings with similar characteristics and that are not judged, the provision is recorded considering the following factors, among others: date of entry of the processes (before or after the labor reform of November 2017), based on the average calculated value of payments made for labor complaints settled in the past 12 months, before and after the labor reform, monetary restatement of the calculated averages.

Overtime is monitored by using electronic time cards and is paid regularly during the employment contract and, accordingly, the claims filed by former employees do not represent individually significant amounts.

Civil claims

These are claims for pain and suffering and property damages, relating to banking products and services, the inclusion of information regarding debtors in the credit restriction registry and the replacement of inflation adjustments, which are excluded as a result of the government’s economic plans. These lawsuits are individually controlled using a computer-based system and are provisioned whenever the loss is deemed as probable, considering the opinion of Management and their legal counsel, the nature of the lawsuits, any similarity with previous lawsuits, the complexity and the positioning of the courts. Most of these lawsuits are brought to the Special Civil Court (JEC), in which the claims are limited to 40 times the minimum.

In relation to the legal claims pleading alleged differences in adjustment for inflation on savings account balances due to the implementation of economic plans that were part of the federal government’s economic policy to reduce inflation in the ‘80s and ‘90s, although Bradesco complied with the law and regulation in force at the time, has provisioned these lawsuits, taking into consideration the claims where Bradesco is the defendant and the perspective of loss of each demand, in view of the decisions and subjects still under analysis in the Superior Court of Justice (STJ), such as, for example, the application of interest in executions arising from Public Civil Actions and succession.

In December 2017, with the mediation of the Attorney’s General Office (AGU), the entities representing the bank and the savings accounts, entered into an agreement related to litigation of economic plans, with the purpose of closing these claims, in which conditions and schedule were established for savings accounts holders may to accede the agreement. This agreement was approved by the Federal Supreme Court (STF) on March 1, 2018. On March 11, 2020, the signatory entities signed an amendment extending the collective agreement for a period of 5 (five) years, the Federal Supreme Court approved the extension of the agreement for 30 months, an opportunity in which it will evaluate the results and may extend it for another 30 months. As this is a voluntary agreement, Bradesco is unable to predict how many savings account holders will choose to accept the settlement offer. It is important to note that Bradesco understands that the provisioning was made to cover the eligible proceedings to the related agreement. The proceedings that are not in the context of the agreement, including those related to incorporated banks are re-evaluated individually based on the procedural stage they are in.

Note that, regarding the disputes relating to economic plans, the Federal Supreme Court (STF) suspended the prosecution of all lawsuits at the cognizance stage, until the Court issues a final decision regarding the right under litigation.

Provision for tax risks

The Organization is disputing the legality and constitutionality of certain taxes and contributions in court, for which provisions have been recorded in full, although there is good chance of a favorable outcome, based on the opinion of Management and of their legal counsel. The processing of these legal obligations, and the provisions for cases for which the risk of loss is deemed as probable, is regularly monitored in the legal court. During or after the conclusion of each case, a favorable outcome may arise for the Organization, resulting in the reversal of the related provisions.

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4. Risk factors


In general, the provisions relating to lawsuits are classified as non-current, due to the unpredictability of the duration of the proceedings in the Brazilian justice system. For this reason, the estimate has not been disclosed with relation to the specific year in which these lawsuits will be closed.

In 2020, the total provisioned value for the proceedings described in this item was:

·Labor proceedings: R$6,890,498 thousand;
·Civil proceedings: R$9,092,421 thousand; and
·Provision for tax risks: R$8,271,112 thousand.

 

4.7 – Other relevant contingencies

There are no other relevant contingencies that have not been covered in the previous items.

 

4.8 – Rules of the country of origin and the country where the securities are guarded

Not applicable due to fact that Bradesco is not categorized as a foreign issuer.

 

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5. Risk management and internal controls


5. Risk management and internal controls

5.1 Risk management policy

In relation to the risks indicated in item 4.1, report the following:

a)if the issuer has a formal policy of risk management, highlighting, if affirmative, the agency that approved it and the date of its approval, and, if negative, the reasons for which the issuer did not adopt a policy

Regarding the spread of the culture of risks, the Organization has policies, standards and procedures for the management of risks and of capital. These instruments establish the basic guidelines of activity expressed by Senior Management in line with the standards of integrity and ethical values of the institution and cover all of the activities of the Organization and related companies.

The policies, standards and procedures shall ensure that the Organization maintains a control framework that is compatible with the nature of its operations, the complexity of its products and services, activities, processes, systems and the size of their risk exposure.

The risk management and capital policies are aligned with the strategic objectives of the Organization, with the best national and international practices, in accordance with laws and regulations issued by the supervisory agencies, reviewed, at least annually, by the Board of Directors and made available to all of the employees and companies that are associated through the corporate intranet.

 

Corporate Policies Approving agent Date of approval
Corporate Governance Board of Directors March 25, 2019
Risk Management of the Bradesco Organization Board of Directors December 23, 2020
Credit Risk Management Board of Directors December 23, 2020
Market Risk Management Board of Directors December 23, 2020
Liquidity Risk Management Board of Directors December 23, 2020
Operational Risk Management Board of Directors December 23, 2020
Underwriting Risk Management of Grupo Bradesco Seguros Board of Directors of BradesSeg December 15, 2020
Management and Model Risk Board of Directors December 23, 2020
Strategic Risk Management Board of Directors December 23, 2020
Business Continuity Management Board of Directors December 23, 2020
Third Party Risk Board of Directors January 14, 2021
Corporate Sustainability Sustainability and Diversity Committee May 21, 2020
Capital Management Board of Directors December 23, 2020
Internal Control Board of Directors December 23, 2020
Compliance Board of Directors December 23, 2020

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5. Risk management and internal controls


b)the objectives and strategies of the risk management policy, if applicable, including:
i.the risks against which one seeks protection:

The management corporate process allows the risks to be proactively identified, measured, evaluated in the specific governance, monitored and reported, which is necessary in view of Bradesco’s complex financial products and services as well as its activity profile, and is composed of the following stages:

 

In relation to the risks indicated in item 4.1, the objectives and strategies of the risk management policies are aimed at ensuring compliance with the Organization’s risk appetite. The risk appetite refers to the types and levels of risks that the Organization proposes to admit in running its business and achieving its objectives. The Risk Appetite Statement (RAS) is an important tool that synthesizes the risk culture of the Organization.

At the same time, RAS emphasizes the existence of an efficient process of assignments in the operational risk management and in the performance of control functions, as well as for mitigation and disciplinary actions and processes of scheduling and reporting to Senior Management upon breach of the risk limits or control processes established.

The Risk Appetite Statement is reviewed on annual basis1, or whenever necessary, by the Board of Directors and permanently monitored by forums of the Senior Management and business and control areas.

RAS reinforces the dissemination of the risk culture by disclosing the main aspects of risk appetite of the Organization to all its members.


1 The Risk Committee, in relation to Risk Appetite Statement (RAS), has the following duties: a) to assess the risk appetite levels set out in the RAS and the strategies for its management, taking risks into account individually and in an integrated manner; and b) to supervise compliance, by the institution’s Board of Executive Officers, with the terms of the RAS. 

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5. Risk management and internal controls


For the many types of risks, whether measurable or not, the Organization established control approaches, observing the main global dimensions: Capital, Liquidity, Profitability, Credit, Market, Operational, Reputation, Model, and Qualitative Risks.

The monitoring of appetite is done by means of effective control processes, in which the managers are informed about the risk exposures and the respective use of the existing limits. The reporting is carried out by means of a system of alerts, which facilitates the communication and highlights the possible exceptions to the limits, which require discussion, authorization for exceptions and/or measures of adequacy, permeating all spheres of the Organization, supporting the Senior Management in evaluating whether the results are coherent with the risk appetite.

ii.the instruments used for protection:

In addition to the policy of risk and capital management, the Organization also has a norm of Hedging transactions made by the Treasury whose goal is to define the criteria for the protection of Bradesco’s Treasury to exposures to market risk factors and to manage liquidity risks. The content of this norm is stated in item 5.2 (b) of this document.

Detailed information regarding risk management process, reference equity as well as our risk exposures, can be found in the Report “Risk Management – Pillar 3,” available on the Investor Relations website (bradescori.com.br – Notice to the Market).

iii.         the organizational structure of risk management:

The structures of our risk and capital management function consist of a number of committees, commissions and departments responsible for assisting our Board of Directors, the Chief Executive Officer, the Chief Risk Officer and the Board of Executive Officers of the Organization in making decisions.

The Organization has the Integrated Risk Management and Capital Allocation Committee – COGIRAC, whose role is to advise the Board of Directors on the performance of its roles related to the management policies and limits of exposure to risks and ensure within the scope of the Organization compliance with the related processes, policies, related standards and compliance with regulations and legislation applicable to the Organization.

The committee is assisted by the Executive Committees for: a) Risk Monitoring; b) Risk Management; c) AML-TF/Sanctions and Information Security/Cyber; it also has the support of the BradSeg’ Risk Management, Actuarial Control and Compliance Committee, the Products and Services Executive Committee, and the Executive Committees for our business units, whose tasks include suggesting limits for any exposure to their related risks and devising mitigation plans to be submitted to the Integrated Risk Management and Capital Allocation Committee and to the Board of Directors.

In the governance structure it is also notable the Risk Committee, whose main purpose is to assess the structure of risk management of the Organization and occasionally propose improvements.

COGIRAC and the Risk Committee advise the Board of Directors in the performance of its assignments related to the management and control of risks, capital, internal controls and compliance.

Highlighted in this structure is the Integrated Risk Control Department (DCIR), whose mission is to promote and facilitate the control of risks and the allocation of capital through robust practices and through the certification of existence, execution and effectiveness of controls to ensure acceptable levels of risks in the processes of the Organization, in an independent, consistent, transparent and integrated manner. This Department is also responsible for meeting the requirements of the Central Bank of Brazil related to risk management activities.

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5. Risk management and internal controls


Corporate Governance of the Organization counts on the participation of all of its hierarchical levels, which aim to optimize the performance of the Company and to protect interested parties, as well as to facilitate access to capital, add value to the Organization and contribute to its sustainability, mainly involving the aspects that focus on transparency, and equality of treatment and accountability. This framework meets the guidelines established by the Board of Directors.

In this context, the management of risks and capital is carried out by means of collective decision-making, supported by specific committees. This process counts on the participation of all the layers that are encompassed by the scope of Corporate Governance, which comprises Senior Management and the various areas of business, operations, products and services.

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5. Risk management and internal controls


Board of Directors ·        Approves and reviews the risk management strategies, policies and structures of risk and capital management, including appetite and exposure limits according to the types of risks, as well as the program of stress tests, their results and the scenarios and assumptions applied.
Integrated Risk Management and Capital Allocation Committee

·         Validates and submits, for the approval of the Board of Directors, the appetite and exposure limits according to the types of risks;

·         Validates and submits, for the approval of the Board of Directors, any policies for risk and capital management;

·         Validates and submits, for the approval of the Board of Directors, the program of stress tests, the parameters, scenarios and assumptions, their results and the management actions to mitigate the impacts;

·         Ensures compliance with the all-risk and capital management policies;

·         Monitors the risk profile, performance, need for capital and sufficiency, exposures versus limits and control of the risks;

·         Acknowledges the rules issued by the Basel Committee on Banking Supervision (BCBS), evaluates the impacts of its adequacy and monitors its implementation;

·         Submits the Yearly Reports of Internal Controls and Compliance for the Organization’s companies to the Board of Directors;

·         Evaluates the effectiveness and compliance of the Organization’s Internal Controls System and the management process of the compliance risk;

·         Evaluates the action plans that will mitigate/address the residual risks that are too high and/or residual risks of high level with an action plan exceeding 12 months.

Risk Committee

·         Assesses the risk appetite levels set out in the Risk Appetite Statement (RAS) and the strategies for its management;

·         Supervises the activities and performance of the Chief Risk Officer (CRO);

·         Supervises the compliance, by the Organization’s Board of Executive Officers, with the terms of the RAS;

·         Evaluates the level of adherence of the processes of the risk management structure to the established policies;

·         Proposes recommendations to the Board of Directors on policies, strategies, and the limits of risk and capital management, stress test program, business continuity policy, liquidity and capital contingency plans, and capital plan.

BradSeg’ Risk Management, Actuarial Control and Compliance Committee ·         Analyzes, deliberates and informs regularly to the Chief Executive Officer of Bradesco Seguros S.A., to the COGIRAC and to the Board of Directors of Bradseg Participações S.A., about its activities, making appropriate recommendations, whenever necessary.
Audit Committee

·         Reviews the integrity of the financial statements;

·         Makes recommendations to the Board of Executive Officers for correcting or improving policies, practices and procedures identified within the ambit of their attributions.

 

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5. Risk management and internal controls


Integrity and Ethical Conduct Committee

·        Ensures that infractions and violations of the Codes of Ethical Conduct, both corporate and sector-based, and the breaches of anti-corruption and competitive conduct are followed by applicable disciplinary acts, regardless of the hierarchical level, without prejudice to the legal penalties due;

·        Ensures that the Board of Directors is aware of matters that may cause significant impact to the image of the Organization;

·        Forwards for the approval of the Board of Directors the matters related to the Officers of the Organization.

General Inspectorate Department

·        Certifies the risk management process of the business;

·        Ensures compliance with the policies, norms, standards, procedures and internal and external regulations;

·        Recommends improvements in the internal control environment.

 

Executive Committees
Disclosure

·         Supports Senior Management to appraise the disclosure of significant transactions and information relating to the Organization;

·         Examines reports in order to ensure that they are prepared in accordance with controls and procedures defined for their preparation.

Risks of:

 

– Risk Monitoring

– Risk Management

 

·         Ensure compliance with the policies and ensure the efficacy of the risk and capital management processes;

·         Approve, monitor and submit to COGIRAC for examination in definitions, criteria and procedures to be adopted, as well as methodologies, models and tools that focus on the risk and capital management and measurement;

·         Approve and monitor the information on the level of exposure to risk, consolidated and by office;

·         Evaluate and submit for validation of the COGIRAC the policy, structure, roles and responsibilities, risk appetite, assessment of the adequacy and capital plans;

·         Follow the behavior and evolution of the market, as well as evaluating the impacts and risks and capital;

·         Approve the action plans that will mitigate/address the residual risks with date of implantation of up to 12 months;

·         Take note of the rules, guidelines and orientation issued by National and International regulatory entities;

·         Take note of the work carried out by internal and external audits that pertain to risk management.

Anti-money Laundering and Financing of Terrorism (AML-TF)/Sanctions and Information Security/Cyber

·         Ensures both compliance with policies and effectiveness of the processes of corporate security, prevention and combating of money laundering and terrorism financing;

·         Evaluates and submits for validation by the COGIRAC the policies and guidelines relating to corporate security, information governance and the prevention and combating of money laundering and terrorism financing.

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5. Risk management and internal controls


Products and Services ·         Evaluates whether every risk has been identified and whether it is acceptable, deliberating on the creation, modification, suspension or discontinuity of products and services, considering the client profile.
Collection and Recovery of Loans

·         Deliberates on proposals of renegotiation of matured debts or with the potential risk of loss;

·         Approves standards, procedures, measures and guidelines of corporate character, related to the subject of Collection and Recovery of Loans;

·         Defines limits of authority for approval in the renegotiation of debts.

Credit ·         Takes collective decisions on the consultation of limits or operations involving credit risk, proposed by Offices and Companies of the Organization.
Treasury for Asset and Liability Management

·         Defines strategies of expertise in the asset and liability management based on the analysis of the political-economic scenarios, at national and international levels, and of pricing of active, passive and derivative operations with clients of the Bradesco Organization;

·         Assess strategies of expertise in the hedge management of foreign heritage;

·         Validates and submits, for the approval of the Integrated Risk Management and Capital Allocation Committee, proposals for limits of tolerance to exposure to risks and rule of liquidity.

Treasury

·         Defines Treasury’s strategies to optimize results, based on analyzing domestic and foreign political-economic scenarios;

·         Validates proposed risk exposure tolerance limits for Treasury and submits them for approval of the Integrated Risk Management and Capital Allocation Committee;

·         Monitors the results, behaviors and risks in the Trading Portfolio, of the mismatches of assets and liabilities and the clients’ trading desk.

Strategic Planning ·         Evaluates positions about the risk of strategy, as well as defines actions for its mitigation.

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c)adequacy of the operational structure and internal controls for the verification of the effectiveness of the policy adopted

The integrated management of risks and internal controls is structured in three lines of defense, as mentioned in item 5.3 of this Reference Form.

In the second line of defense, it highlights mainly, the actuation of the DCIR – Internal Controls and DCCE (Department of Compliance, Conduct and Ethics), which act proactively in the process of verification of the effectiveness of the policies adopted by the Organization and management and mitigation of risks in order to maintain them at acceptable levels. Both areas are segregated matricially from the areas of business, aiming to maintain independence in the conduct of their activities.

The results of the activities carried out by the second line of defense are periodically submitted to the Committees of the Organization in line with the process of governance established.

 

5.2 – Market risk management policy

a)if the issuer has a formal market risk management policy, highlighting, if affirmative, the agency that approved it and the date of its approval, and, if negative, the reasons why the issuer did not adopt a policy

The Organization obtains the Market Risk Management Policy, approved by the Board of Directors, and the latest review was made on December 23, 2020.

b)the objectives and strategies of the risk management policy, if applicable, include
i.market risks for which protection is sought

The Treasury Department (Treasury) is the only unit of the Organization that has a mandate to take risks in the Trading Portfolio. In addition, the Treasury is responsible for the decision to mitigate the risks of the trading portfolio of the Conglomerate, which includes the volatility risks, currency risk, liquidity risk, stock prices and commodity risks and interest rate risk.

All of the Organization’s market risk exposures are admitted up to the limits established by the Board of Directors, which are reviewed at least annually, and that such limits are monitored independently in time.

ii.asset protection strategy (hedge)

The hedge operations performed by the Organization Treasury Department must, compulsorily, cancel or mitigate the risks of the mismatching of amounts, deadlines, currencies or indexers of the positions of the Treasury books, with the assets and derivatives authorized for trading in each of his books being used for this purpose, aiming to:

·Control and frame operations, respecting the limits for exposure and current risks;
·Change, modify, or reverse positions due to market changes and operational strategies; and
·Reduce or mitigate exposures to dead markets, operations in stress conditions or low liquidity.

In the implementation of its objective, the Treasury uses the instruments available on the market with the same indexer or those that are co-related to the original risk. As there are often no instruments available that have characteristics identical to the original assets, or due to the concentration of liquidity on certain maturities, the Treasury may mitigate the market risk using calculations like co-relation, duration or DV01.

In order to hedge the equity abroad, we adopted the hedge multiplier (1.9x), due to the existing fiscal rates. For the other hedges, the strategies are discussed and approved in the Executive Treasury Committee for the Asset and Liability Management.

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iii.instruments used for asset protection (hedge)

Due to the characteristics of its businesses and of its international activities, the Organization uses various financial instruments to hedge, which include transactions with securities issued by Governments and private companies, as well as stock exchange or counter derivatives.

The Organization Treasury Department can use standardized derivatives (Exchange-traded) and those of continuous use (OTC-traded) with the purpose of achieving results and also with the purpose of the construction of hedges. Derivatives of continuous use are those that are usual for the OTC-traded market, such as vanilla swaps (interest rates, currencies, Credit Default Swap – CDS, among others), term operations (currencies, for example), vanilla options (currency, Bovespa index), among others. As for non-standard derivatives that are not classified as continuous use or the structured operations, their use is subject to the authorization by the competent Committee.

iv.parameters used for the management of these risks

All transactions exposing the Organization to market risk are mapped, measured and classified by probability and importance, and the whole process is approved by the corporate governance structure.

The proposals for market risk limits are validated in specific Committees, supported by the Integrated Risk Management and Capital Allocation Committee, and submitted for approval by the Board of Directors, according to the business characteristics, which are segregated into the Trading and Banking portfolios.

The Integrated Risk Control Department, regardless of the business management, monitors compliance with the limits established and provides daily management reports for the controlling of the business areas and positions to the Senior Management, in addition to weekly reports and periodic presentations to the Board of Directors.

The reports are carried out with a system of alerts, which determines the recipients of the risk reports in accordance with the percentage of use of limits. Thus, the higher the risk-limit consumption, the more members of the Senior Management will receive the reports.

For the Trading Portfolio, the following limits are monitored:

·Value at Risk – VaR;
·Stress (measurement of negative impact of extreme events, based on historical and prospective scenarios);
·Results; and
·Financial Exposure/Concentration.

For the Banking Portfolio, the following limits are monitored:

·         Change in economic value due to changes in interest rates – ∆EVE (Economic Value of Equity); and

·         Variation of the net revenue of interest due to the variation in the rate of interest – ∆NII (Net Interest Income).

In addition to the limits mentioned above, there are specific limits for each operator of the Treasury Department.

v.   if the issuer operates financial instruments with diverse goals of asset protection (hedge) and what these goals are

In the proposal of a financial institution, the Organization meets the demands of clients by offering swap operations, forward among others, as well as proprietary trading of treasury, respecting the limits of exposure to market risk established by the Board of Directors.

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vi.organizational structure of market risk management control

The process of market risk management is performed at the corporate level, from business areas to the Board of Directors. This process involves several areas, with specific assignments. This ensures an efficient structure, with the measurement and control of market risk being performed centrally and independently. This process enabled the Organization to become the first financial institution in the country, to be authorized by the Central Bank of Brazil to use, from January 2013, their internal market risk models for the calculation of regulatory capital requirements. The management process, approved by the Board of Directors, is reviewed at least annually by the Committees and by the Board of Directors.

In the process of market risk management, the Integrated Risk Control Department – DCIR is responsible for:

·Proposing methodologies for the measurement of risks;
·Identifying, calculating, and reporting risks;
·Controlling risks calculated vis a vis limits;
·Calculating Capital allocation;

Proposing the establishment and review of policies, rules and procedures pertaining to the management of market risks and liquidity.

Macro process of market risk management

Market risk is accompanied by the meetings between the Executive Committees of Treasury for Asset and Liability Management, Treasury and Risk Management. In addition, the monitoring is also done by the Integrated Risk Management and Capital Allocation Committee, which is still responsible for special meetings for the analysis of positions and situations where the risk exposure limits are exceeded, leading to Board of Directors measures and strategies adopted for validation when needed.

The main responsibilities of the Executive Committees of Treasury for Asset and Liability Management, Treasury, Risk Management and Integrated Risk Management and Capital Allocation Committee are available in item 5.1.b.iii of this Reference Form:

c)adequacy of the operational structure and the internal controls for verifying the effectiveness of the policy adopted

In the Organization, the DCIR – Integrated Risk Control Department, which is also responsible for the measurement and control of business risks, has an area dedicated to activities that focus on internal controls, while the DCCE – Department of Compliance, Conduct and Ethics has an area dedicated to the Independent Validation of Models, which carries out the measurement of adequacy and the adherence of models used in risk management. In addition, all departments and enterprises of the Organization have people responsible for establishing, evaluating and executing controls, and for the performance of the applicable adherence tests.

There is, also, the General Inspectorate Department, which is responsible for the Organization’s internal audit.

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5.3 – Description of the internal controls

In relation to internal controls used to ensure that reliable financial statements are prepared, the Officers should comment on:

a)    the main practices of the Internal Controls, level of efficiency of such controls, indicating any imperfections and measures adopted to correct them

The effectiveness of the Internal Controls of the Organization is sustained by qualified professionals, well-defined processes implemented with technology that is compatible with the business needs.

The methodology of the Internal Controls is aligned with the Frameworks issued by the Sponsoring Organizations of the Treadway Commission Committee COSO (Internal Control – Integrated Framework 2013) as well as with the guidelines established by the Information Systems Audit and Control Association (ISACA) by means of the Control Objectives for Information and Related Technology (COBIT 5 – 2012). The planning, implantation, implementation and effective maintenance of the accounting systems and internal controls adopted by the Organization are the responsibility of the operations management departments, since internal controls in the 1LODs and 2LODs were established in order to provide reasonable security in relation to the reliability of the Organization’s consolidated financial statements and to provide security for the proper running of the business and the reach of objectives established in accordance with applicable laws and regulations, external policies, internal standards and procedures, in addition to applicable codes of conduct and self-regulation codes.

The monitoring and adherence of such controls are performed by the Integrated Risk Control Department (DCIR), whose conclusion for the semester and year ended December 31, 2020 was that they were effective and appropriate to the type of activity, volume of transactions, as well as the nature, complexity and risk of the Organization’s operations, whereby no deficiencies that might have a material impact in the Organization’s consolidated financial statements were identified.

b)    the organizational structures involved

The structure of the Internal Controls, defined by the Organization, combines the observance of the applicable regulatory requirements with the adoption of the best practices of Corporate Governance, to ensure the necessary focus and the effective management of the Internal Controls.

The responsibilities are presented as follows:

·Board of Directors: Main responsibilities: establish the strategic guidance of the Company, with the aim of, within the best practices of Corporate Governance, protect and maximize the return on investment of the shareholder and to ensure that the Board of Executive Officers is always fit to perform their duties with competence, transparency and respect to the strictest ethical principles.
·Committees: Advise the Board of Directors or the CEO on issues that require specific knowledge and/or the establishment of collective decision-making.
·CEO: Is responsible for the management of the Company and co-ordination of the Board of Executive Officers, and the link with the Board.
·Board of Executive Officers: To observe and enforce the guidelines and strategic guidelines established by the Board and by the Meetings, to conduct the daily operations of the Company exercising their duties with competence and transparency, among other duties.
·Owners of the Rights to the Offices: Responsible for activities and for the existence and effectiveness of the Internal Controls of their Office, as well as the identification, classification, measurement and monitoring of controls and risks. For this purpose, create and maintain appropriate structures for the demands and other conditions necessary to safeguard compliance with laws, regulations, standards and procedures.
·Managers in the Offices: Define and document the flows of processes, identifying and assessing the events of risks, defining the proper response for the risks. Acting on risks, identifying gaps, preparing and following up on the implementation of Action Plans to correct or to improve existing controls.

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oEnsure that the laws, regulations, policies, rules and procedures, as well as the codes of conduct and self-regulation, which are necessary for the execution of the activities, are accessible and are complied with by all those involved.
oDefine, implement and ensure the effectiveness of the controls, communicating promptly to the Integrated Risk Control Department (DCIR) any creation or alteration in the flow of the processes and/or in the controls exercised, as well as in the identification of new risks.
·Integrated Risk Control Department: Independently certify the existence, implementation and effectiveness of the controls that ensure acceptable levels of risk in the processes of the Organization.
oRespond for the consolidation of the results of the effectiveness tests applied in the scope of the financial conglomerate and by drafting the Report of the Internal Controls. The Risk Analyst should have access and should report directly to the Departmental Board or to the Board of Executive Officers if the case so requires, and its role must be exercised without any restriction of access to systems, data, information, documents and areas and, above all, without any connection with existing commercial, operational or administrative activities in its area of operation.
oPromote and facilitate the control of risks and the allocation of capital for the activities of the Organization, independently, consistently, transparently and in an integrated manner. This Office is also responsible for meeting the requirements of the Regulating Agencies that relate to risk management activities.
·Inspectorate Department (Internal Audit): Independently assess the processes of the Organization, in order to contribute to the mitigation of risks and to the suitability and the effectiveness of the Internal Controls, in compliance with the Policies, Standards and Internal and External Regulations.

c)     if and how the effectiveness of internal controls is supervised by the administration of the issuing authority, indicating the position of the people responsible for this monitoring

Risk management permeates the entire Organization and is aligned with the guidelines that are established by the Board of Directors and by the structure of the Committees that define the global objectives, expressed in targets and limits for the risk management business units. The control and capital management units, in turn, support the management by means of monitoring processes and the analysis of risk and capital.

The Internal Controls are part of the responsibility of all of the Organization’s employees. When service providers (employees) perform controls on behalf of the Organization, the contracting parties of the Offices are liable for these controls.

DCIR, through the Internal Controls area, performs the risk monitoring involved in the processes, as well as the effectiveness of controls so as to maintain them at acceptable levels for the Organization.

The main information on activities, assessments and diagnosis about the effectiveness of the Internal Controls System are, at least every six months, consolidated into a Report and submitted to the Executives Responsible. Reports on the evaluation and compliance of the Risk and Control Environment are presented to the Audit Committee and the Integrated Risk Management and Capital Allocation Committee and submitted to members of the Board of Directors.

d)    deficiencies and recommendations on internal controls included in the detailed report of the independent auditor, prepared and forwarded to the issuer by the independent auditor, in accordance with the CVM-issued regulation that provisions on the registry and exercise of the independent audit activity

The overall assessment of both the independent auditors regarding the Management on the Environment of Controls of the Organization was that it was effective and appropriate to the nature, complexity and scale of operations of the Organization and that it offered reasonable assurance on the consolidated financial statements closed on December 31, 2020, not presenting any material weaknesses or significant deficiencies. 

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In the course of the evaluations made, deficiencies were identified in the controls that aim to contribute to improve the internal controls and accounting procedures of the Organization. For such remarks, action plans were devised, which are monitored by the Management through forums of governance, including the Risk Committee and the Audit Committee. 

e)     comments of the Officers on the weaknesses found in the detailed report prepared by the independent auditor and on the corrective measures adopted

From the Management’s perspective, the deficiencies and recommendations appointed in the independent auditors’ report do not compromise the control environment of the Organization. 

5.4 – Integrity Program

In relation to the internal mechanisms and procedures of integrity adopted by the issuer to prevent, detect and remedy deviations, fraud, irregularities and illegal acts perpetrated against the public administration, national or foreign, to inform:

a)if the issuer has rules, policies, procedures or practices focused on prevention, detection and remediation of fraud and illegal acts performed against the public administration, identifying, if affirmative:
i.the main mechanisms and procedures of integrity adopted and their suitability to the profile and risks identified by the issuer, stating how often the risks are reassessed and the policies, procedures and practices are adapted;

The Organization has the Bradesco Integrity Program composed by a code of ethical conduct, policies, standards, procedures, booklets, video-training sessions, training courses in person, e-learning, Centralized Whistleblowing Channel and performs regular communications for the prevention, monitoring, detection and response in relation to harmful acts foreseen in Anti-Corruption Law No. 12,846/13 and under international law, in particular the Foreign Corrupt Practices Act and United Kingdom Bribery Act and in countries where it has business units, strengthening in this way, the governance of the Bradesco Integrity Program. These instruments establish the basic guidelines of activity expressed by Senior Management in line with the standards of integrity and ethical values of the institution and cover all the activities of the Bradesco Organization.

Annually, we evaluate the Bradesco Integrity Program by means of interviews; application of an integrity questionnaire; evaluation of international laws to which the bank is submitted; and the governance structure, policies, standards, risks, controls, roles and responsibilities.

This Program is structured to permeate all areas of the Bradesco Organization. In the case of units located abroad, adaptations can be made to increment the Integrity Program to suit specific local laws, but maintaining, at least, the conducts already required in Brazil.

ii.the organizational structures involved in the monitoring of the operation and efficiency of the internal mechanisms and procedures of integrity, indicating their assignments, if their creation was formally approved, institutions of the issuer to which they report, and mechanisms to guarantee the independence of its leaders, if existent; and

The Board of Directors and the Board of Executive Officers support the Bradesco Integrity Program, where the main operating activities and all business practices of the Organization were considered in the elaboration of the Program and are divided into strategic pillars of operation, which are the Corruption Risk Prevention, the Monitoring and Detection of Inappropriate Behavior and the Response of Senior Management.

It is up to the Board of Directors to determine the institutional guidelines on the subject and to support the Integrity Program so that its effectiveness is met. All ethics- and anticorruption-related policies and standards are ratified at Board meetings and must be complied with by the Managers, Employees, Interns and Apprentices of the Bradesco Organization and all its subsidiaries in Brazil and abroad in all their activities and transactions, and also apply to all Associates (suppliers and service providers), based on the values and principles established in the Code of Ethical Conduct of the Bradesco Organization.

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It is up to the Board of Executive Officers to establish and monitor the actions necessary to achieve the guidelines established by the Board of Directors, promoting high standards of integrity and ethics and the dissemination of a culture that emphasizes and demonstrates to all Managers, Employees, Interns, Apprentices and Associates the importance of preventing, detecting and remedying deviations, fraud, irregularities and illegal acts committed, especially against domestic or foreign public administration.

The Integrity and Ethical Conduct Committee proposes actions with respect to the dissemination and compliance with the Codes of Ethical Conduct of the Bradesco Organization, both corporate and sector-based, and to the rules of conducts related to the themes of anti-corruption and competition, in order to ensure the efficiency and effectiveness. The Committee is also responsible for: assessing the reports on the infringement and violation of the corporate and departmental Codes of Ethical Conduct and the disruption of anticorruption and competitive conduct; adopting the necessary actions by issuing an opinion addressed to the relevant Offices, as recorded in the minutes of its meetings; ensuring that the infringements and violations are followed by applicable disciplinary actions, regardless of the offender’s hierarchical level, notwithstanding the applicable legal penalties; ensuring that the Board of Directors is aware of the matters that could have a tangible impact on Bradesco Organization’s reputation; and forwarding matters involving Bradesco Organization’s Officers to be handled and remedied by the Board of Directors.

The Department of Compliance, Conduct and Ethics is responsible for the management and annual maintenance of the Bradesco Integrity Program. And, also, to support the Offices and Companies Associated to the Bradesco Organization in the implementation of procedures and to advise when identified early warning signals in the process of business, in order to comply with the prevention and fight against corruption and bribery, and the enhancement of the Bradesco Integrity Program.

Any cases of non-compliance, consummated or not, in respect of the Integrity Program, the Department of Compliance, Conduct and Ethics acts directly and independently with those responsible for the immediate correction, reporting, in a timely manner to higher levels up to the level of Board of Directors.

In the execution of the assignments, it can use the support of other control areas, which include: General Inspectorate (IGL), Integrated Risk Control Department, Legal Department, and Corporate Security, among others.

Both Bradesco Integrity Program’s document and video are published on the Bradesco’s Investor Relations website (www.bradescori.com.br > Corporate Governance > Compliance and Ethics > Code of Ethical Conduct).

iii.if the issuer has a code of ethics or of conduct formally approved, indicating:
·if it applies to all officers, fiscal council members, board members and employees and also covers third parties, such as suppliers, service providers, intermediary agents and associates;

The Organization has a Code of Ethical Conduct that applies to all managers and employees, interns, and apprentices of the Organization, composed by the Banco Bradesco S.A. and its subsidiaries, in Brazil and Abroad, and extends to Associates who are providing services on behalf of the Organization or for the Organization; in addition to other four Sector-based Codes of Ethical Conduct, which are:

oProfessional from the Financial and Capital Market Areas;
oProfessional in Purchases;
oFrom Grupo Bradesco Seguros (Insurance Group) and BSP Empreendimentos Imobiliários S.A. (Real Estate); and
oCode of Conduct of the Sector of Auditors and Inspectors of the Bradesco Organization.
·if and with what frequency the officers, fiscal council members, board members and employees are trained in relation to the code of ethics or of conduct and to other standards related to the subject;

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All of the Codes of Ethical Conduct, both Corporate and Sector-based, are available for consultation on the tab “Institutional” of the Normative System, contained on the Corporate IntraNet. Until May 15, 2017, the Code of Ethical Conduct of the Bradesco Organization was handed to all the new employees, upon their admission, in the form of a booklet, and they had to sign the Term of Responsibility and Commitment. This practice was interrupted with the launch of the new edition, on May 16, 2017, when it was defined that the content would be disclosed in the format of distance learning training given to all the employees of the Organization, classified as a required course.

In the catalog of “compulsory courses” there is, also, the following course:

·Ethics.

It is also available, on the Video Portal:

·Series “Speaking of Ethics,” presented by Professor Clóvis de Barros Filho, composed of five themes:
oAbdicate;
oAchieving Goals;
oTrust;
oRespect; and
oRevealing yourself.
·Series “Choices,” composed of seven episodes on the theme of “Ethics”:
oHow a rumor starts;
oIt looks like fraud;
oToxic environment;
oGive and take!;
oPig in a poke;
oA quick fix for everything; and
oBeing Ethical.
·Video clip “The best place;” and
·Video training “Freedom and Respect.”

Endomarketing actions are used across the Organization, disclosing the ethical culture through the Code itself and also strengthening the availability of the other instruments of training mentioned above. There is also the insertion of the theme on the list of courses in person.

·the sanctions applicable in the event of violation of the code or other standards related to the subject matter, identifying the document where these sanctions are provisioned;

The IGL exercises the duty of examining, in the periodic audit and inspection assignments, the fulfillment of the ethical precepts contained in the Code of Conduct, besides investigating reports received via the Centralized Whistleblowing Channel and fraud involving activities, employees and associates of the Organization, in compliance with the current norms of discipline at work.

Every quarter, in the ordinary meetings of the Integrity and Ethical Conduct Committee, the IGL presents the consolidated report of the audit and inspection assignments regarding ethical rupture, and the DRH and the Ombudsman report on the results obtained.

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·body that approved the code, date of approval and, if the issuer discloses the code of conduct, locations in the global network of computers where the document can be consulted.

The Codes of Conduct are approved by the Board of Directors and the last re-edition of the Code of Ethical Conduct of the Bradesco Organization was approved on February 10, 2020.

The Codes of Ethical Conduct, both Corporate and Sector-based, are available on the Bradesco’s Investor Relations website (www.bradescori.com.br).

b)if the issuer has a whistleblowing channel, indicating, if affirmative:
·if the whistleblowing channel is internal or whether it is controlled by third parties;

The whistleblowing channel is internal.

·if the channel is open to receive complaints from third parties or if it receives complaints only from employees;

The whistleblowing channel is open to receive internal reports and also for third parties.

·if there are mechanisms of anonymity and protection to whistleblowers in good faith;

Protection is ensured to whistleblowers in good faith that manifest themselves on any violation or suspect of acts that could be related, directly or indirectly, to the mere attempt or actual practice of unlawful acts such as fraud, money laundering, corruption (according to Anti-corruption Law No. 12,846/2013), conflict of interest, misconduct, evidence of illegal activity of controllers, qualified shareholders, members of related statutory and contractual entities, among other illegal activities.

For the formalization of the complaints, the Electronic form can be used, available on:

Portal Corporativo > O Bradesco > Canais de Denúncias e Manifestação (Corporate Portal> Bradesco > Whistleblowing Channels and Manifestation);

Bradesco Relações com Investidores (www.bradescori.com.br) > Governança Corporativa > Canais de Denúncia (Bradesco’s Investor Relations (www.bradescori.com.br) > Corporate Governance > Whistleblowing Channels); or

By the phone 0800 776 4820 (call center from Monday to Friday: from 8am to 6pm, except public holidays).

In the Bradesco Organization, all complaints investigated are carefully examined with independence, transparency, integrity and ethics, aiming to ensure the adequate treatment and correcting any distortions identified.

The treatment of complaints received via the Centralized Whistleblowing Channel relating to communication channels of the Bradesco Organization or other means must be carried out in three phases: Evaluation, Examination and Reports/Reporting.

·the issuing body responsible for investigating complaints.

The Department of Compliance, Conduct and Ethics (DCCE) is the corporate manager of the Centralized Whistleblowing Channel, available on the Corporate Portal, Bradesco’s Investor Relations website and by the phone 0800 776 4820. All of the manifestations received on this channel are previously analyzed and directed to the respective areas of management, which are responsible for responding to the verification of the reports.

Every quarter, in the ordinary meetings of the Integrity and Ethical Conduct Committee, the IGL presents the consolidated report of the audit and inspection assignments regarding ethical rupture, and the DRH and Ombudsman report on the results obtained.

The Integrity and Ethical Conduct Committee composed of members nominated by the Board of Directors of Bradesco, is the body responsible for proposing actions as to the disclosure and fulfillment of the Codes of Ethical Conduct of the Bradesco Organization, both Corporate and Sector-based, in order to ensure its efficiency and effectiveness.

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c)    if the issuer adopts procedures in merger, acquisition and corporate restructuring processes, aiming to identify vulnerabilities and risk of irregular practices in the legal entities involved

In processes of mergers, acquisitions, divestitures and partnerships, due diligence is required, focused specifically on anti-corruption, in order to identify liabilities or activities that may involve risks arising out of acts of corruption and bribery, and also, to provide specific contractual clauses to the business that safeguard the Organization.

d)    if the issuer has no rules, policies, procedures or practices focused on prevention, detection and remediation of fraud and illegal acts performed against the public administration, verify the reasons why the issuer did not adopt controls in this regard

Not applicable. 

5.5 – Significant changes

Revisions and improvements were made in certain controls over financial reporting related to the process of calculation of expected losses on financial assets measured at amortized cost during the fiscal year of 2020. There is expectation that the work will continue to produce implementations of improvements over 2021, according to the schedule.

In addition, in response to the impacts produced by the Covid-19 pandemic, the Management has reviewed and adapted some business processes to the current scenario of the Organization’s operations that required changes to parameters for which certain controls operate or additional control procedures.

The Integrated Risk Control Department (DCIR) has been monitoring, actively, the internal control environment with the aim of providing relevant maintenance of the internal controls of the Organization, reporting timely assessments and subsidies on the evolution of the pandemic and their reflections on our operations and of society. In addition, we have an Executive Committee for Risk Management, which plays an important role in verifying the various points and scope of these actions in the Organization. 

5.6 – Other relevant information

Corporate Governance of the Organization counts on the participation of all of its hierarchical levels, which aim to optimize the performance of the Company and to protect interested parties, as well as to facilitate access to capital, add value to the Organization and contribute to its sustainability, mainly involving the aspects that focus on transparency, and equality of treatment and accountability. This framework meets the guidelines established by the Board of Directors.

In this context, the management of risks and capital is carried out by means of collective decision-making, supported by specific committees. This process counts on the participation of all the layers that are encompassed by the scope of Corporate Governance, which comprises Senior Management and the various areas of business, operations, products and services.

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6. Issuer’s history


6. Issuer’s history

6.1 / 6.2 / 6.4 – Establishment of the issuer, term of duration and date of registration at the CVM

Establishment of the issuer, term of duration and date of registration at the CVM
Issuer Incorporation Date January 5, 1943
Issuer Incorporation Method Joint-stock company, established as a Commercial Bank.
Country of Incorporation Brazil
Term Indefinite Term
CVM Registration Date July 20, 1977

 

6.3 – Brief History

Bradesco was founded in 1943 as a commercial bank under the name of Banco Brasileiro de Descontos S.A. In 1948, we entered a period of intense expansion, which, by the end of the 1960s, led us to become the largest commercial bank in the private sector in Brazil. We expanded our activities across the country in the 1970s, winning Brazilian urban and rural markets.

In 1988, as provided for by the Central Bank of Brazil, the reorganization of the Company took place in the form of a Multiple Bank, with the incorporation of the real estate loans company, to operate with the Commercial and Real Estate Loan Portfolios, changing its corporate name to Bradesco S.A. – Banco Comercial e de Crédito Imobiliário, which was again changed to Banco Bradesco S.A. on January 13, 1989.

In 1989, Financiadora Bradesco S.A. Crédito, Financiamento e Investimentos changed its object and corporate name, resulting in the cancellation of the authorization to operate as a financial institution, followed by the creation of Carteira de Crédito, Financiamento e Investimentos and, in 1992, Banco Bradesco de Investimento S.A. (BBI) was incorporated by Bradesco, an occasion in which the investment portfolio was established.

We are one of the largest banks in Brazil in terms of total assets. We provide a wide range of banking, financial products and services in Brazil and abroad, for individuals and legal entities (small, medium and large enterprises). We have the widest network of branches and services in the private sector in Brazil, which allows us to cover a diverse client base. Our services and products include banking operations, such as: loan operations and collection of deposits, issuance of credit cards, insurances, capitalization, consortium, leasing, billing and payment processing, pension plans, asset management and brokerage services as well as securities brokerage.

Macroeconomic and Sectorial Policies

Considering the two most recent episodes of contraction of the global economy, the behavior of credit was quite distinct. In the period 2015-2016, the GDP growth slowdown contributed to the downturn of credit, while the increase in the prime rate raised the raising costs in the activity of banking intermediation. In 2020, due to the pandemic, the loan portfolio registered expansion, favored by regulatory stimulus measures – such as the reduction of the reserve requirement rate and the increase of the payroll loan limits, among other measures –, renegotiations of spread payments, increase of guarantees in loan operations, creation of subsidized lines and fall in the basic interest rate. At the same time, the bank inflows have increased, in a scenario of accumulation of savings, especially for families, due to the pandemic. For 2021, it is expected that the acceleration in the pace of immunization of the population will lead to a more extensive and sustainable economy reopening, with potential positive impacts on the expansion of credit. If, on the one hand, the interest rates are in the process of normalization in Brazil, on the other hand, more expressive increases of cost to the end borrower tend to be mitigated by the expansion of competitiveness in the Financial System.

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Possible risks to this scenario of recovery expected for the Brazilian economy in 2021 are mainly associated to two factors. The first is a more permanent possible deterioration of perceptions in relation to the Brazilian public accounts. The second is related to a possible tightening of the global financial conditions, in an atmosphere of anticipation of the elevation of interest, as a result of the acceleration of immunization, overcoming the pandemic and stronger expansion of the main economies, especially the United States. These two factors tend to be mitigated with the resumption of the domestic agenda of reforms and credible advances on the tax issue.

It is important to highlight that the structural vision in relation to Brazil remains constructive for the banking sector, which should continue advancing in terms of efficiency gains, in an environment of expansion of the competition.

 

6.5 – Bankruptcy information founded on relevant value or judicial or extrajudicial recovery

There was and there is no event of this nature related to the Company.

 

6.6 – Other relevant information

There is no other information deemed relevant at this time.

 

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7. Issuer’s activities


7. Issuer’s activities

7.1 – Description of the main business activities of the issuer and its subsidiaries

Currently, we are one of the largest banks in country in terms of total assets, loan operations and volume of deposits and funding. We offer a wide range of banking and financial products and services in Brazil and abroad, to individuals, large, medium, small, micro-sized enterprises and major local and international corporations and institutions. Our products and services comprise of banking and non-banking operations such as loans and advances, deposit-taking, credit card issuance, purchasing consortiums, insurance, capitalization, leasing, payment collection and processing, pension plans, asset management and brokerage services. For a better view of the main companies that are part of the Issuer’s Economic Group, and its respective activities, please see items 15.4.b and 9.1.c of this Reference Form.

 

7.1.a – Specific information on mixed-capital companies

Not applicable.

 

7.2 – Information on operating segments

a)products and services marketed

We operate and manage our business through two segments: (i) the banking sector; and (ii) insurance, pension plans and capitalization bonds.

Banking products and services

With the objective of meeting the needs of each client, we offer a range of products and services, such as:

·deposit-taking, including checking accounts, savings accounts and time deposits;
·loans and advances (individuals and companies, real estate financing, microcredit, onlending BNDES/Finame funds, rural credit – leasing, among others);
·credit cards, debit cards and pre-paid cards;
·cash management solutions;
·solutions for the public authorities;
·third-party asset management and administration;
·services related to capital markets and investment banking activities;
·complete investment platform;
·intermediation and trading services;
·solutions for the capital markets;
·international banking services;
·import and export financings; and
·purchasing consortiums.

69 – Reference Form – 2020

7. Issuer’s activities


Insurance, pension plans and capitalization bonds products and services

We offer insurance, pension plans and capitalization bonds products through different segments, which we refer to collectively as “Grupo Bradesco Seguros,” leader in the Brazilian insurance market. The insurance, pension plans and capitalization products offered in our service channels are:

·life and personal accident insurance;
·health insurance;
·automobile insurance, property and casualty and liability insurance lines;
·reinsurance;
·pension plans; and
·capitalization bonds.
b)segment revenue and its participation in the issuer’s net revenue

The following information about segments was prepared on the basis of reports that were provided to the Management to assess performance and to make decisions regarding the allocation of resources for investment and for other purposes. Our Management uses a variety of information, including financial information, which is prepared in accordance with BR GAAP, and non-financial information, measured on a different basis. Therefore, the information contained in the segments has been prepared in accordance with accounting practices adopted in Brazil and the consolidated information has been prepared in accordance with IFRS.

The main assumptions of the segment for income and expenses include: (i) the excess of cash held by insurance, private pensions and capitalization, which are included in this segment, resulting in an increase in net revenue interest; (ii) wages and benefits and administrative costs included within the insurance segment, pension plans and capitalization, which consist only of costs associated directly with these operations; and (iii) the costs incurred in the banking segment, related to the infrastructure of the branch network and other overhead, that are not allocated.

Composition of Net Revenues
2020
Banking sector
(1) (2)
Insurance, Pension Plans and Capitalization Bonds
(2)
Other transactions, adjustments and eliminations
(3)
Total
Revenue from financial intermediation  74,336   22,244   1,849 98,429
Fee and Commission income  30,207  1,876  (7,147) 24,936
Premiums retained from insurance and pension plans   -  8,075 24   8,099
Equity in the earnings (losses) of unconsolidated companies and Joint Venture   - 99   346   445
Other operating income 9,265  6,443   431 16,139
Contribution for Social Security Financing - COFINS   (2,876) (701)   (22)  (3,599)
Service Tax - ISS   (1,110)   (18)   (10)  (1,138)
Social Integration Program (PIS) contribution   (479) (110)  (5)  (594)
  Total     109,343   37,908  (4,534)  142,717
  Participation in net revenue   76.6% 26.6% -3.2% 100.0%

70 – Reference Form – 2020

7. Issuer’s activities


        R$ million
Composition of Net Revenues
2019
Banking sector
(1) (2)
Insurance, Pension Plans and Capitalization Bonds
(2)
Other transactions, adjustments and eliminations
(3)
Total
Revenue from financial intermediation   113,402   22,936   (12,032)  124,306
Fee and Commission income  31,136  2,028  (7,826) 25,338
Premiums retained from insurance and pension plans   -  8,936 40   8,976
Equity in the earnings (losses) of unconsolidated companies and Joint Venture  13  276   912   1,201
Other operating income 7,960  1,494   8,113 17,567
Contribution for Social Security Financing - COFINS   (3,507) (701)  (169)  (4,377)
Service Tax - ISS   (1,167)   (13)   (44)  (1,224)
Social Integration Program (PIS) contribution   (597) (116)   (14)  (727)
  Total     147,240   34,840   (11,020)  171,060
  Participation in net revenue   86.1% 20.4% -6.4% 100.0%
         
         
        R$ million
Composition of Net Revenues
2018
Banking sector
(1) (2)
Insurance, Pension Plans and Capitalization Bonds
(2)
Other transactions, adjustments and eliminations
(3)
Total
Revenue from financial intermediation   110,639   18,612   (16,704)  112,547
Fee and Commission income  30,023  2,170  (8,361) 23,832
Premiums retained from insurance and pension plans   -  8,321 40   8,361
Equity in the earnings (losses) of unconsolidated companies and Joint Venture 7  206   1,467   1,680
Other operating income 8,425  1,903  (2,541)   7,787
Contribution for Social Security Financing - COFINS   (3,890) (793)   828  (3,855)
Service Tax - ISS   (1,277)   (18)   201  (1,094)
Social Integration Program (PIS) contribution   (661) (132)   155  (638)
  Total     143,266   30,269   (24,915)  148,620
  Participation in net revenue   96.4% 20.4% -16.8% 100.0%
1)The banking sector is comprised of financial institutions, holding companies – which are mainly responsible for managing financial resources – and credit card and asset management companies;
2)The asset, liability, income and expense balances among companies from the same segment are eliminated; and
3)They refer to the amounts that were eliminated among companies from different segments, as well as among operations carried out in Brazil and overseas.

71 – Reference Form – 2020

7. Issuer’s activities


 

c)     profit or loss resulting from the segment and participation in the issuer’s net income

R$ million
Income Statement
2020
Banking Insurance,
pension and
capitalization
bonds
Other
Activities
Eliminations Managerial
Income
Statement
Proportionately
consolidated
(1)
Adjustments
of
Consolidation
(2)
Adjustments
(3)
Consolidated
in
accordance
with IFRS
Revenue from financial intermediation   74,336  22,444 110  (111)  96,778 485  (3,521)   4,687   98,429
Expenses from financial intermediation (4)  (23,937) (18,341)  -    119 (42,160)  (41)   1,052  (7,427)  (48,576)
Financial margin   50,399 4,103 110   8  54,619 444  (2,469)  (2,740)   49,853
Allowance for loan losses  (25,268)  -  -  - (25,268)   (104)  -   5,827  (19,545)
Gross income from financial intermediation   25,130 4,103 110   8  29,351 340  (2,469)   3,087   30,308
Income from insurance, pension plans and capitalization bonds  - 8,075  - 24 8,099  -  -  - 8,099
Fee and commission income   30,307 1,876 448  (204)  32,427  4,031   2,164   (13,686)   24,936
Personnel expenses  (17,714)   (1,904)   (174)   0 (19,792)   (632)  -   1,459  (18,965)
Other administrative expenses (5)  (19,350)   (1,524)   (340)   675 (20,540) (1,442)  218   359  (21,405)
Tax expenses (5,477)   (1,039)  (75)  -   (6,590)   (541)  -   1,083   (6,049)
Share of profit (loss) of unconsolidated and jointly controlled companies (0)  99   16  -   115   (634)  -   964 445
Other operating income / expenses  (15,634)   (1,034) 102  (503) (17,068)   (678) 87   4,861  (12,799)
Operating profit (2,738) 8,652   87  - 6,001 443  -  (1,874) 4,570
Non-operating income   (284)   (197)  1  -  (481)  (14)  -  -   (495)
IT/SC (Income Tax/Soc. Contrib.) and non-controlling interests   14,509   (3,425)  (57)  -  11,026   (429)  -   1,361   11,959
Net Income   11,486 5,029   31  -  16,547 -  -  (513)   16,034
  Participation in net income (Managerial Income Statement)  69.4% 30.4% 0.2%  -   - -  -  -   -
                   
R$ million
Income Statement
2019
Banking Insurance,
pension and
capitalization
bonds
Other
Activities
Eliminations Managerial
Income
Statement
Proportionately
consolidated
(1)
Adjustments
of
Consolidation
(2)
Adjustments
(3)
Consolidated
in
accordance
with IFRS
Revenue from financial intermediation 113,402  22,936 228  (2,652)   133,915   (818)  125  (8,916) 124,306
Expenses from financial intermediation (4)  (49,683) (16,930)   -   2,652 (63,962) 105   2,404   2,835  (58,618)
Financial margin   63,719 6,006 228  -  69,953   (714)   2,530  (6,081)   65,688
Allowance for loan losses  (18,891)   -   -  - (18,891) 171  -   4,716  (14,005)
Gross income from financial intermediation   44,827 6,006 228  -  51,062   (543)   2,530  (1,365)   51,684
Income from insurance, pension plans and capitalization bonds - 8,936   - 33 8,969 (7)  - 14 8,976
Fee and commission income   31,136 2,028 307  (136)  33,335 (4,129)  (2,254)  (1,614)   25,338
Personnel expenses  (23,073)   (2,030)   (391)  - (25,494) 711  -   256  (24,526)
Other administrative expenses (5)  (20,328)   (1,496)   (194)   612 (21,406)  1,419 (249)  (2,119)  (22,355)
Tax expenses (6,203)   (1,110)  (73)  -   (7,386) 528  -  -   (6,858)
Share of profit (loss) of unconsolidated and jointly controlled companies   13 276  8  -   297 906  -  (2) 1,201
Other operating income / expenses  (21,082)   (735)   99  (509) (22,226) 663   (26)   2,012  (19,577)
Operating profit  5,291  11,875  (15)  -  17,150   (451)  -  (2,817)   13,882
Non-operating income   (537)  27   -  -  (511)  (10)  - 19   (501)
IT/SC (Income Tax/Soc. Contrib.) and non-controlling interests   10,431   (4,491)  2  - 5,943 460  -   1,389 7,792
Net Income   15,185 7,411  (13)  -  22,582 -  -  (1,409)   21,173
  Participation in net income (Managerial Income Statement)  67.2% 32.8% -0.1%  -    - -  -  -   -

72 – Reference Form – 2020

7. Issuer’s activities


Income Statement
2018
Banking Insurance,
pension and
capitalization
bonds
Other
Activities
Eliminations Managerial
Income
Statement
Proportionately
consolidated
(1)
Adjustments
of
Consolidation
(2)
Adjustments
(3)
Consolidated
in
accordance
with IFRS
Revenue from financial intermediation 110,639  18,612 256  (1,727)   127,780 (1,085)  (1,084)   (13,065) 112,547
Expenses from financial intermediation (4)  (52,958) (13,366)   -   1,727 (64,597)   89   3,730   5,534  (55,245)
Financial margin   57,681 5,247 256  -  63,184   (996)   2,646  (7,531)   57,302
Allowance for loan losses  (18,320)   -   -  - (18,320)   94  -   1,961  (16,265)
Gross income from financial intermediation   39,361 5,247 256  -  44,864   (901)   2,646  (5,570)   41,037
Income from insurance, pension plans and capitalization bonds - 8,321   - 40 8,361 -  -  - 8,361
Fee and commission income   30,023 2,170 355  (222)  32,326 (4,578)  (2,527)  (1,388)   23,832
Personnel expenses  (18,102)   (1,644)   (239)  - (19,986) 855  -   260  (18,871)
Other administrative expenses (5)  (19,126)   (1,610)   (205)   650 (20,291) 972 (120)  (2,244)  (21,682)
Tax expenses (5,661)   (960)  (74)  -   (6,695) 598  -  -   (6,097)
Share of profit (loss) of unconsolidated and jointly controlled companies  7 206  (15)  -   198  1,421  - 62 1,680
Other operating income / expenses  (11,943)   (998) 194  (468) (13,216) 892   1   4,376   (7,947)
Operating profit   14,557  10,731 272  -  25,561   (743)  (0)  (4,505)   20,313
Non-operating income   (929)  32  2  -  (895)   24  -  -   (871)
IT/SC (Income Tax/Soc. Contrib.) and non-controlling interests (1,134)   (4,375)  (72)  -   (5,581) 719  -   2,168   (2,694)
Net Income   12,494 6,389 202  -  19,085 -  -  (2,337)   16,748
  Participation in net income (Managerial Income Statement)  65.5% 33.5% 1.1%  -   - -  -  -   -

They refer to: (1) Adjustments of consolidation, originating from proportionally consolidated companies (Grupo Cielo, Grupo Alelo, Crediare, etc.) for management purposes; (2) Adjustments of consolidation originating from the “non-consolidation” of exclusive funds; (3) Adjustments due to the differences of the accounting standards used in the management reports and in the financial statements of the Organization that were prepared in the IFRS. The main adjustments refer to the impairment of loans and advances, effective interest rate and business combinations; (4) It includes, in the Consolidated IFRS, the balances related to “Net gains/(losses) on financial assets and liabilities at fair value through income,” “Net gains/(losses) on financial assets at fair value through other comprehensive income” and “Net gains/(losses) on foreign currency transactions;” and (5) It includes, in the Consolidated IFRS, the balances referring to depreciation and amortization.

7.3 – Information on products and services relating to the operational segments

a)Characteristics of the product process

We present below some characteristics of the main products and services of Bradesco.

Banking segment

Deposits Accounts

We offer a variety of deposit accounts, including:

·       Checking accounts, such as:

- Easy Account (Conta Fácil) – A checking account and a savings account under the same bank account number, using the same card for both accounts, destinated to individuals and companies;

- Click Account (Click Conta) – Checking accounts for children and young people from 0 to 17 years of age, with exclusive website and debit card, automatic pocket money service and free online courses, exclusive partnerships, among other benefits; and

- Academic Account (Conta Universitária) – Checking account for undergraduate students with low fees, student finance, exclusive website, free online courses, exclusive partnerships, among other benefits.

·       traditional savings accounts, which currently earn interest at the Brazilian reference rate, or taxa referencial, known as the TR, plus 0.5% monthly interest in case the SELIC rate target is higher than 8.5% p.a. or TR plus 70.0% of the SELIC rate target if the SELIC rate target is equal to or lower than 8.5% p.a; and

·       time deposits, which are represented by Bank Deposit Certificates (certificados de depósito bancário – or “CDBs”), and earn interest at a fixed or floating rate. 

73 – Reference Form – 2020

7. Issuer’s activities


As of December 31, 2020, we had 32.3 million checking account holders, 30.6 million of which were of individuals and 1.7 million of which were of companies. As of the same date, we had 69.9 million savings accounts.

In 2020, in line with Circular No. 3,988/20 creating procedures and additional conditions for the opening, maintenance and closure of deposit accounts by financial institutions, we must suspend the authorization of the respective representative, agent or proxy to the transactions of the deposit accounts of a company's ownership we hold, if some serious irregularities are verified in the registration of these agents in the Individual Taxpayer’s ID (CPF).

Loans and advances to customers

The following table shows loans and advances to customers broken down by type of product on the indicated dates:

                  R$ million
  2020 2019 2018 Vertical Analysis % Horizontal Analysis
2020 2019 2018 2020 x 2019 2019 x 2018
R$ % R$ %
Companies 256,810  226,976  218,944  50.0 49.6 53.2   29,834 13.1  8,032   3.7
Financing and On-lending 108,462  104,138  105,672  21.1 22.8 25.7 4,324   4.2 (1,534)  (1.5)
Financing and export   51,462 47,485 47,627  10.0 10.4 11.6 3,977   8.4 (142)  (0.3)
Real Estate Financing   18,539 16,822 22,415 3.6   3.7   5.4 1,717 10.2 (5,593)   (25.0)
Onlending BNDES/Finame   16,692 16,643 18,948 3.3   3.6   4.6   49   0.3 (2,305)   (12.2)
Vehicle loans   13,590 12,040   7,828 2.6   2.6   1.9 1,550 12.9  4,212 53.8
Import  5,697   8,398   6,850 1.1   1.8   1.7   (2,701)   (32.2)  1,548 22.6
Leases  2,482   2,750   2,004 0.5   0.6   0.5   (268)  (9.7)  746 37.2
Borrowings 140,385  111,328  102,615  27.4 24.3 24.9   29,057 26.1  8,713   8.5
Working capital   91,405 57,887 55,740  17.8 12.7 13.5   33,518 57.9  2,147   3.9
Rural loans  4,957   5,526   5,460 1.0   1.2   1.3   (569)   (10.3) 66   1.2
Other   44,023 47,915 41,415 8.6 10.5 10.1   (3,892)  (8.1)  6,500 15.7
Operations with limits (1)  7,963 11,510 10,657 1.6   2.5   2.6   (3,547)   (30.8)  853   8.0
Credit card  3,966   4,001   3,105 0.8   0.9   0.8  (35)  (0.9)  896 28.9
Overdraft for corporates/ Overdraft for individuals  3,997   7,509   7,552 0.8   1.6   1.8   (3,512)   (46.8)   (43)  (0.6)
Individuals 256,407  230,416  192,548  50.0 50.4 46.8   25,991 11.3 37,868 19.7
Financing and On-lending   93,135 78,616 67,862  18.1 17.2 16.5   14,519 18.5 10,754 15.8
Real Estate Financing   59,064 44,176 38,179  11.5   9.7   9.3   14,888 33.7  5,997 15.7
Vehicle loans   27,818 28,351 23,247 5.4   6.2   5.6   (533)  (1.9)  5,104 22.0
Onlending BNDES/Finame  6,106   5,872   6,223 1.2   1.3   1.5 234   4.0 (351)  (5.6)
Other  147   217   213 0.0   0.0   0.1  (70)   (32.3)   4   1.9
Borrowings 118,656  105,427 83,968  23.1 23.0 20.4   13,229 12.5 21,459 25.6
Payroll-deductible loans   69,897 63,145 51,284  13.6 13.8 12.5 6,752 10.7 11,861 23.1
Personal loans   24,034 24,339 16,858 4.7   5.3   4.1   (305)  (1.3)  7,481 44.4
Rural loans  8,419   8,543   7,894 1.6   1.9   1.9   (124)  (1.5)  649   8.2
Other   16,306   9,400   7,932 3.2   2.1   1.9 6,906 73.5  1,468 18.5
Operations with limits (1)   44,616 46,373 40,718 8.7 10.1   9.9   (1,757)  (3.8)  5,655 13.9
Credit card   41,230 41,353 36,448 8.0   9.0   8.9   (123)  (0.3)  4,905 13.5
Overdraft for corporates/ Overdraft for individuals  3,386   5,020   4,270 0.7   1.1   1.0   (1,634)   (32.5)  750 17.6
Total portfolio 513,217  457,392  411,492   100.0  100.0  100.0   55,825 12.2 45,900 11.2
(1) It refers to outstanding operations with pre-established limits linked to current account and credit card, whose limits are automatically recomposed as the amounts used are paid.

74 – Reference Form – 2020

7. Issuer’s activities


Financing and Onlending

Import and export financing

Our Brazilian foreign-trade related business consists of giving finance services to our clients in their export and import activities.

In import financing/refinancing, we directly transfer funds in foreign currency to foreign exporters, fixing the payment in local currency for Brazilian importers. In export financing, exporters obtain advances in reais on closing an export forex contract for future receipt of foreign currency on the contract due date. Export finance arrangements prior to shipment of goods/performance of services are known locally as Advances on Exchange Contracts or ACCs, and the sums advanced are used to manufacture goods or provide services for export. If advances are paid after goods/performance of services have been delivered, they are referred to as Advances on Export Contracts, or ACEs.

There are other forms of export financing, such as Export Prepayments, onlendings from BNDES-EXIM funds, Export Credit Notes and Bills (referred to locally as NCEs and CCEs), and Export Financing Program with rate equalization – PROEX.

Our foreign trade portfolio is funded primarily by credit lines from correspondent banks. We maintain relations with various American, European, Asian and Latin American financial institutions for this purpose, using our network of approximately 914 correspondent banks abroad, 37 of which credit/guarantee lines as of December 31, 2020.

Housing loans

As of December 31, 2020, we had 259.3 thousand financing contracts.

Housing loans are provided for: (i) the acquisition of residential and commercial real estate, and urban plots; and (ii) construction of residential and commercial developments.

Financings for the acquisition of residential real estate have a maximum term of up to 30 years and annual interest rates of 6.7% to 12.0% p.a., plus TR, while commercial real estate financings have a maximum term of up to ten years and annual interest rates of 10.5% to 15.0% p.a. plus TR. In addition, in 2020 we launched the pricing in savings rate plus 3.99% p.a.

Financings for construction, also known as the Businessman Plan, have a construction term of up to 36 months and interest rate of 8.5% to 16% p.a. plus TR, and a six-month grace period for the realization of transfers to borrowers. We also launched for that line the pricing with floating rates.

Central Bank of Brazil regulations require us to provide at least 65.0% of the balance of savings accounts in the form of housing loans. The remaining funds are to be used for financings and other operations permitted under the terms of the legislation in force.

BNDES/Finame Onlending

The BNDES is the main instrument of the Federal Government to support entrepreneurs of all sizes, including individuals, in carrying out their plans for modernization, expansion and implementation of new business, with the potential of generating jobs, income and social inclusion in Brazil. Its portfolio has certain products and programs to provide government-funded long-term loans with different interest rates, focusing on economic development. We are one of the structuring agents of BNDES funds, to borrowers in several sectors of the economy. We determine the margin of return on the loans based on the borrowers’ credit. Although we bear the risk for these BNDES and Finame onlending transactions, these transactions are always secured.

In 2020, we disbursed R$6.2 billion, 94.5% of which were loaned to micro, small and medium-sized enterprises. 

75 – Reference Form – 2020

7. Issuer’s activities


Vehicle financings

We are acting through partnerships in the consumer financing for the purchase of new and used vehicles for individuals and companies in the chain, which comprises assembler, dealers and consumers. In addition to offering these services through our extensive network of branches, Bradesco Financiamentos also offers loans and leasing for the acquisition of light vehicles, motorcycles, trucks, buses, machinery and equipment.

Leasing

As of December 31, 2020, we had 5,289 active leasing agreements. According to ABEL, our leasing companies were among the sector leaders, with a 23.3% market share in Brazil, considering the current value of R$11.3 billion on the market portfolio.

Financial leasing involves trucks, cranes, aircraft, ships and heavy machinery. In this same period, 33.0% of our transactions were for vehicles (vehicle, bus, micro-buses and trucks).

We conduct our leasing transactions through our primary leasing subsidiary, Bradesco Leasing and also through Bradesco Financiamentos.

Loans

Working Capital

Line of credit destined to companies with the aim of covering expenses or investments inherent in the company’s working capital, such as: payment of 13th salary, stock renewal, training and other.

Personal loans/Payroll-deductible loans

They are loans with a pre-approved limit to meet needs without a specific purpose. It also includes payroll-deductible loans to Social Security National Service (INSS) pension plan beneficiaries and retirees, to public servants and to the private sector.

The average term of these operations is 57 months and interest rates range from 1.5% to 3.0% p.a., as of December 31, 2020.

Rural loans

The provision of loans and financing to the Agribusiness sector is carried out with resources:

·       From the demand deposit, where there is a requirement by the Central Bank of Brazil for the investment of 27.5% of the Value Subject to Collection (VSR), which is called RO – Obligatory Resources, with a portfolio of R$9.4 billion on December 31, 2020, with maximum rates from 2.75% p.a. to 6.0% p.a. as the rule of investment of the MCR (Manual of Rural Credit), whereby the average rate of the portfolio is 5.4% p.a.

·       From the Bank’s Treasury for the operations, with a portfolio of R$3.9 billion on December 31, 2020 and the average rate of the portfolio of 7.9% p.a.

·       BNDES onlending, through lines directed to the sector of Agribusiness, which is destined for investments in equipment, machinery, infrastructure, recovery of pasture, etc., with a term of up to 10 years, with an average rate of 7.4% p.a.

The operations are in their majority, half-yearly or annual payments and with matching flow to periods of the cycle of harvest, and the guarantees are usually formed with alienation of property/mortgage and machines when they are for the financing of goods.

In April 2020, Law No. 13,986/20 was enacted allowing Bank Credit Bills (CCB) and Rural Credit Bills (CCR) to be issued in book-entry form, as an alternative to written form, whereby the Central Bank of Brazil is responsible for establishing the conditions for the electronic bookkeeping activity, authorizing its exercise and supervising the entities that will execute it. Accordingly, the Central Bank of Brazil issued Circular No. 4,036/20, which regulates the bookkeeping activities by financial institutions. Under these new standards, the financial institutions may only perform the bookkeeping of CCBs and CCRs representing their own loans, in which the bookkeeping issuance of the CCB and CCR will be carried out through the electronic bookkeeping system of the financial institutions

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7. Issuer’s activities


Outstanding operations

Credit cards

We offer a range of credit cards to our clients including Elo, American Express, Visa, MasterCard brands and private label cards, which stand out due to the extent of benefits and convenience offered to associates.

We earn revenues from our credit card operations through:

·       exchang fees on purchases carried out in commercial establishments;

·       issuance fees and annual fees;

·       interest on credit card balances;

·       interest and fees on cash withdrawals through ATMs; and

·       interest on cash advances to cover future payments owed to establishments that accept credit cards.

We offer our customers a complete line of credit cards and related services, including:

·international credit cards for different audiences, accepted in Brazil and abroad;
·credit cards directed toward high-net-worth customers, such as “The Platinum Card”, “Infinite”, “Black”, “Nanquim”, “Diners” and “Aeternum” from Elo, Visa, American Express and MasterCard brands;
·cards destined for corporate customers, geared for business expenses and control of expenditure;
·multiple cards that combine credit and debit features in a single card, which may be used for traditional banking transactions and shopping;
·co-branded credit cards, which we offer through partnerships with companies;

·      private label credit cards, which we only offer to customers of retailers, designed to increase business and build customer loyalty for the corresponding retailer, which may or may not have a restriction on making purchases elsewhere, among others.

We hold 50.01% of the shares of Elopar, an investment holding company which investments include Alelo (benefit cards, pre-paid and money card), Livelo (coalition loyalty program), as well as participations in Elo Serviços (brand) and Banco CBSS (credit card issuance and other financial products). We hold 30.06% of the shares of Cielo S.A.

We also have a card business unit abroad, Bradescard Mexico, highlighting the partnership with C&A.

As of December 31, 2020, we had several partners with whom we offered co-branded and private label/hybrid credit cards. That has allowed us to integrate our relationships with our customers and offer our credit card customers banking products, such as financing and insurance.

The following table shows our volume of transactions and total number of transactions of credit cards for the years indicated:

In millions 2020 2019 2018
Volume traded - R$   192,814.1   205,845.0   189,155.0
Number of transactions   1,969.6   2,262.9   2,104.8

 

77 – Reference Form – 2020

7. Issuer’s activities


Overdraft

The overdraft limit is a line of credit available on the current account with automatic renewal for emergency situations when there is no available balance in the account. For legal entity customers, we offer the business check to meet the emergency needs of companies.

Guaranteed account

Overdraft for companies is a revolving credit limit for corporate entities to meet the emergency needs of a customer. The limit of the overdraft for companies allows the negotiation of more attractive rates. However, in most cases, it requires a guarantee which can be; a surety, disposal of assets, guarantees of contracts or anticipation of receivables, and investments, among others.

Emergency Employment Support Program

In April 2020, the President of the Republic amended Provisional Measure No. 944/20 (PM No. 944/20), instituting the Emergency Employment Support Program, for the implementation of loans for entrepreneurs, corporations and cooperatives, with the exclusion of loan companies, to finance the payment of their payroll to their employees, converted into Law No. 14,043/20. Law No. 14,043/20 establishes the requirements for the lines of credit to be granted as part of the framework of the Emergency Program, which will cover the entire payroll of the contractor, for a period of four months, limited to the equivalent of up to two times the minimum salary per employee. The law also establishes the requirements that financial institutions must observe when lending under the program, which has (i) an interest rate of 3.75% per annum on the amount granted; (ii) a period of 36 months for the payment; and (iii) a grace period of six months to start paying, with capitalization of interest during this period.

As a result of the Provisional Measure No. 944/20, the CMN issued Resolution No. 4,800/20, later revoked by Resolution No. 4,846/20, which updated the provisions of Resolution No. 4,800/20 in line with conversion of PM No. 944/20 in Law No. 14,043/20. Such resolutions provide for guidelines, limits and conditions for participation in loans to finance as part of the framework of the Emergency Program. The financial institutions that participate in the Emergency Program will fund the payroll, and should observe the annual gross revenues of the entity financed, in addition to conditions relating to amounts, maturity and interest.

Cash Management Solutions

Management of accounts payable and receivable – In order to meet the cash management needs of our customers in both public and private sectors, we offer a broad portfolio of high-quality products and services of accounts payable and receivable, supported by our network of branches, banking correspondents, electronic channels and mobile, all of which provided more speed, stability and security for customer data and transactions. Our solutions include receipt and payment services; and resource management, enabling our customers to pay suppliers, salaries, and taxes and other levies to governmental or public entities.

These solutions, which can also be customized, facilitate our customers’ day-to-day tasks and help to generate more business. We also earn revenues from fees and investments related to collection, check custody, credit order, collection and payment processing services, and by funds in transit received up to its availability to the related recipients.

Solutions for receipts and payments – In 2020, we settled 1.3 billion invoices through the services of Cobrança Bradesco and 538.6 million of receipts by the tax collection systems and utility bills (such as water, electricity, telephone and gas), check custody service, identified deposits and credit orders. The corporate systems processed 1.2 billion documents related to payments to suppliers, salaries and taxes.

Global Cash Management – Global Cash Management aims at structuring solutions to foreign companies that want to operate in the Brazilian market and to Brazilian companies making business in the international market. By way of customized solutions, partnerships with international banks and access to the Society for Worldwide Interbank Financial Telecommunication (SWIFT) network, our exclusive customer service team offer customized products and services to identify solutions for companies.

Niche Markets – We operate in various niche markets, such as franchise business, Individual Microentrepreneur (MEI), education, health, condominiums, country clubs, transportation, religion, and among others, where our customers have the support of a specialized team with the mission of structuring custom solutions that add value to their business. 

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7. Issuer’s activities


As an example, the franchising niche has a team of franchising specialists that, through their relationship with franchising companies, identify opportunities for financing and providing services to all franchisees and their employees. The partnership with the franchise networks occurs through structured commercial activities in synergy with the managing departments, commercial segments, and affiliated companies. The focus on the peculiarities of this sector creates a competitive and sustainable position by structuring appropriate solutions and, in particular, through the strategy of providing differentiated and specialized service. We have approximately 500 agreements in place with franchising companies, generating numerous opportunities to open new checking accounts and leveraging business with the respective franchisees.

Another important feature in this area is the support we provide towards the development of Local Production Groups (APLs), by providing service to businesses and assistance to these customers. Participating in an APL strengthens the companies, because together they can form an articulated and important group for local development, allowing for greater competitive and sustainable advantages for micro and small businesses. Currently, we service 423 APLs throughout the country.

Microentrepreneurs use the MEI Portal in addition to products and services that fit their business, including free services provided by partners to meet their day-to-day needs.

 

Public authority solutions

We have a specific area dedicated to serving public administration, which offers specialized services to identify business opportunities and structuring customized solutions to entities and bodies of the Executive, Legislative and Judiciary branches at federal, state and municipal levels, in addition to independent governmental agencies, public foundations, state-owned and mixed companies, the armed forces (army, navy and air force) and the auxiliary forces (federal and state police forces).

Our exclusive website, developed for our customers, offers corporate solutions for federal, state and municipal governments for payments, receipts, human resources and treasury services.

Our commercial relationships with such public authorities are developed by specialized business managers located in distribution platforms throughout the country, which can be identified on our website. We have 9 Specialized Platforms to assist governments, capitals, courts, class councils, chambers, prosecutors, public defenders and the largest municipalities according to the Brazilian GDP, in addition to 35 Platforms that operate in the Retail sector providing services to the City Halls and other Authorities.

In 2020, we took part and were successful in payroll bidding processes sponsored by the Brazilian government. Furthermore, according to INSS, we continue to be leaders in payments of INSS benefits, with more than 11.5 million retirees and pensioners.

Management and administration of third-party funds

BRAM manages third-party funds through:

·       mutual funds;

·       managed portfolios;

·       exclusive funds; and

·       receivable funds (FIDCs – Fundos de Investimento em Direitos Creditórios), FIIs (Real Estate Investment Funds) and ETFs (Exchange Traded Funds).

Management of funds and portfolios – On December 31, 2020, BRAM managed 1,573 funds and 618 portfolios, providing services to 3.0 million investors. Among its biggest customers are all the main segments of Bradesco, like Prime, Corporate One, Corporate, Large Corporate, Private and Varejo (Retail) and Grupo Bradesco Seguros, in addition to institutional investors in Brazil and abroad. These funds comprise a wide group of fixed-income, non-fixed income, investments abroad and multimarket funds, among others. 

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7. Issuer’s activities


 

      R$ million
Distribution of the Shareholders' Equity 2020 2019 2018
Financial investment funds - Total 529,081 560,425 606,845
   Fixed Income  453,017 492,730 548,782
   Variable income 21,133 18,593 9,498
   Multimarket 54,931 49,102 48,565
Managed Portfolios - Total 81,888 67,465 60,713
   Fixed Income  68,862 57,833 53,121
   Variable income 13,026 9,632 7,592
Overall Total 610,969 627,890 667,558

  2020 2019 2018
  Quantity Quotaholders Quantity Quotaholders Quantity Quotaholders
Investment funds 1,573   2,953,465 1,282   3,137,303 1,230   3,468,304
Managed Portfolios   618 1,069   490 1,079   300 1,138
Overall Total 2,191   2,954,534 1,772   3,138,382 1,530   3,469,442

 

Management of third-party funds – On December 31, 2020, BEM DTVM and Bradesco provided administration service to 3,828 funds, 518 portfolios and 64 investment clubs, providing services to 3.0 million investors.

The following tables show the equity of funds and portfolios which are under management, the number of investors and of investment funds, portfolios under management and investment clubs for each period: 

      R$ million
Distribution of the Shareholders' Equity 2020 2019 2018
Financial investment funds - Total 915,366 909,448 856,410
   Fixed Income  720,886 724,191 745,189
   Variable income 91,311 86,297 51,958
   Third party share funds 103,169 98,960 59,263
Managed Portfolios - Total 107,921 91,370 84,129
   Fixed Income  68,862 57,833 53,121
   Variable income 13,026 9,632 7,592
   Third party share funds 26,033 23,905 23,416
Overall Total