HSBC J.P. Morgan Standard Chartered Bank - bicbanco

The profile of the Bank’s lending portfolio may suffer due to a decline in Brazilian or international economic
conditions.
The Bank’s lending portfolio was R$9,119.2 million as of December 31, 2009, compared to R$8,066.4
million as of December 31, 2008 and R$7,617.9 million as of December 31, 2007, in each case including only those
CCBs which were retained in its lending portfolio and excluding contingent obligations. As of December 31, 2009,
the Bank’s allowance for loan losses was R$418.8 million, representing 4.6% of its total lending portfolio. As of
December 31, 2008, the Bank’s allowance for loan losses was R$310.9 million, representing 3.9% of its total
lending portfolio, compared to R$133.4 million as of December 31, 2007, representing 1.8% of its total lending
portfolio. The quality of the Bank’s lending portfolio is dependent on domestic and, to a lesser extent, international
economic conditions. The increase of allowance for loan losses was due to the Bank’s decision to make additional
provisions during the period due to the Bank’s perception of the negative impact of the global financial crisis on the
Brazilian economy and in some of its clients’ financial conditions in the period. The Bank lends domestically in
Brazilian currency mainly to corporate and middle-market borrowers in the commercial, services and industrial
sectors. The ten largest customers of the Bank had loans outstanding in the amount of R$813.7 million and
accounted for 42.0% of the Bank’s referential equity value as of December 31, 2009. Adverse changes affecting any
of the sectors or individual borrowers to which the Bank has significant lending exposure, political events within
and external to Brazil or the variability of economic activity may have an adverse impact on the Bank.
Mismatches in the Bank’s credit portfolio compared to its sources of funding may adversely affect the Bank’s
operating results and the Bank’s ability to expand its credit operations.
The Bank is exposed to some mismatches between its credit portfolio and obligations in relation to interest
rates and maturities. Mismatches between the maturity of the Bank’s credit portfolio and its sources of funding
would increase the probability of imbalances related to interest rates, which also represents a liquidity risk if the
Bank is not able to obtain funding to meet its obligations and operational needs. An increase in the cost of funds
may increase the interest rates on the Bank’s loans, which may, as a result, affect the Bank’s ability to attract new
customers. If the Bank fails to attract new borrowers or if the Bank’s costs of funds increase and the Bank cannot
pass along these increases to its borrowers, the Bank’s operating results and financial condition could be materially
adversely affected.
Problems in raising funds may negatively affect the Bank’s operating results.
The structure that the Bank has adopted to raise funds involves raising funds in the domestic and
international capital markets. An international liquidity crisis could increase the costs of raising funds in foreign
currencies, which would negatively affect the results of the Bank’s operations. Moreover, there can be no assurance
that time deposits in the local market will continue to remain available under favorable conditions. In the event that
the Bank is not able to raise new funds, it may not be able to increase the volume of its credit portfolio or to
efficiently respond to changes in business conditions and competitive pressures, which may adversely affect the
Bank’s business, financial condition and operating results.
A reduction of the Bank’s credit rating may increase its borrowing costs, which may negatively affect the Bank’s
operating results.
The Bank’s borrowing costs depend on several factors, including some factors beyond its control, such as
macroeconomic conditions and the regulatory environment for banks in Brazil. Any unfavorable change in these
factors may negatively affect the Bank’s credit rating. An adverse impact in the Bank’s credit rating may limit the
Bank’s ability to borrow funds or issue securities under favorable conditions, thereby increasing its borrowing costs.
The factors and contingencies that may affect the Bank’s borrowing costs are frequently the same ones that may lead
it to raise additional capital.
If the Bank’s credit ratings were to be adversely affected, the Bank might be unable to obtain funding on
acceptable terms, if at all, on occasions where it requires additional funding.
AMR-248898-v2
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95-40469277