The main figures reported by Bradesco in 2016, with emphasis on the consolidation, from July 1, 2016, of HSBC Bank Brasil S.A. and its subsidiaries (HSBC Brasil):

1.   Adjusted Net Income⁽¹⁾ for 2016 stood at R$17.121 billion (a 4.2% decrease compared to the Adjusted Net Income of R$17.873 billion recorded in 2015), corresponding to earnings per share of R$3.09 and Return on Average Adjusted Shareholders’ Equity⁽²⁾ of 17.6%⁽²⁾.

2.   As for the source, the Adjusted Net Income is composed of R$11.570 billion from financial activities, representing 67.6% of the total, and of R$5.551 billion from insurance, pension plans and capitalization bond operations, which together account for 32.4%.

3.   In December 2016, Bradesco’s market capitalization stood at R$160.813 billion⁽³⁾, showing a growth of 60.7% over December 2015.

4.   Total Assets, in December 2016, stood at R$1.294 trillion, an increase of 19.8% over the December 2015 balance. The return on Average Assets was 1.5%.

5.   In December 2016, the Expanded Loan Portfolio⁽⁴⁾ reached R$514.990 billion, an increase of 8.6% over December 2015. Operations with individuals totaled R$172.045 billion (an increase of 16.4% over December 2015), while operations with companies totaled R$342.945 billion (a 5.1% increase over December 2015).

6.   Assets under Management stood at R$1.905 trillion, a 26.1% increase over December 2015.

7.   Shareholders’ Equity totaled R$100.442 billion in December 2016, 13.0% higher than in December 2015. The Basel III Ratio, based on the Prudential Conglomerate stood at 15.4% in December 2016, 12.0% of which is Tier I Capital.

8.   A total of R$6.976 billion was paid and provisioned to shareholders as Interest on Shareholders’ Equity for the profit generated in 2016, of which R$2.168 billion was paid monthly and in interim periods, and R$4.808 billion was provisioned as extraordinary and complementary, to be paid on March 8, 2017.

9.   The Interest-earning portion of the NII stood at R$63.059 billion, an increase of 15.1% compared with 2015.

10.  The 90-day Delinquency Ratio was 5.5% in December 2016 (4.1% in December 2015).

11. The Operating Efficiency Ratio (ER)⁽⁵⁾ in December 2016 was 39.5% (37.5% in December 2015), while the “risk-adjusted” efficiency ratio stood at 52.2% (46.5% in December 2015).

12. Insurance Written Premiums, Pension Plan Contributions and Capitalization Bond Incomes totaled R$71.419 billion in 2016, up 10.5% when compared with 2015. Technical provisions stood at R$223.342 billion, an increase of 25.6% compared with the balance in December 2015.

13. Investments in infrastructure, information technology and telecommunications amounted to R$6.595 billion in 2016, up 15.3% over 2015.

14. Taxes and contributions paid or provisioned, including social security, totaled R$32.202 billion in 2016, of which R$13.782 billion was related to taxes withheld and collected from third parties, and R$18.420 billion, was calculated based on activities developed by the Bradesco Organization, equivalent to 107.6% of the Adjusted Net Income⁽¹⁾.

15. Bradesco has an extensive Customer Service Network in Brazil, with 5,314 Branches and 3,821 Customer Service Points (PAs). Customers of Bradesco can also count on 1,013 ATMs located on company premises (PAEs), 38,430 Bradesco Expresso customer service points, 36,119 Bradesco ATMs, and 19,991 Banco24Horas Network ATMs.

16. Payroll, plus charges and benefits totaled R$15.540 billion in 2016. Social benefits provided to all 108,793 employees of the Bradesco Organization and their dependents amounted to R$3.792 billion, while investments in education, training and development programs totaled R$175.583 million.

·

Brazil’s largest private-sector business group (Anuário Grandes Grupos/ Valor Econômico newspaper);

·

·

·

it was the winner of the 18th Abrasca award with the “Best Annual Report”, in the “Public Company” category – companies with net revenues equal to or greater than R$3 billion”;

· 

it was the leader of the “Folha Top of Mind’ survey, in the “Top Finances” category, as one of the most remembered brands in savings, health insurance, insurance, and credit cards (Datafolha);

·

it featured in the “The Best in Personnel Management” survey (Valor Econômico newspaper with technical support from Aon);

·

·  

Bradesco Corretora led the ranking with the “Top 10” recommended portfolio, which ensured greater profitability to investors, from January to September 2016, and also achieved best return in 2016, in the “Value Portfolio” category (Valor Econômico newspaper);

· 

BRAM was recognized in 23 investment funds managed as excellent in the “Best Funds for Institutional Investors” ranking (Luz Engenharia Financeira); and

·   

R$ million

4Q16

3Q16

2Q16

1Q16

4Q15

3Q15

2Q15

1Q15

Variation %

4Q16 x 3Q16

4Q16 x 4Q15

Income Statement for the Period

Book Net Income

3,592

3,236

4,134

4,121

4,353

4,120

4,473

4,244

11.0

(17.5)

Adjusted Net Income

4,385

4,462

4,161

4,113

4,562

4,533

4,504

4,274

(1.7)

(3.9)

Total Net Interest Income

15,669

16,931

14,962

14,892

14,512

13,735

13,541

13,599

(7.5)

8.0

Gross Credit Intermediation Margin

13,403

13,600

11,408

11,486

11,313

10,806

10,427

10,242

(1.4)

18.5

Net Credit Intermediation Margin

7,878

7,858

6,384

6,038

7,121

6,954

6,877

6,662

0.3

10.6

Allowance for Loan Losses (ALL) Expenses

(5,525)

(5,742)

(5,024)

(5,448)

(4,192)

(3,852)

(3,550)

(3,580)

(3.8)

31.8

Fee and Commission Income

7,545

7,450

6,624

6,405

6,597

6,380

6,118

5,744

1.3

14.4

Administrative and Personnel Expenses

(10,482)

(10,267)

(8,152)

(7,870)

(8,413)

(7,997)

(7,544)

(7,084)

2.1

24.6

Insurance Written Premiums, Pension Plan Contributions and Capitalization Bond Income

21,247

17,733

17,253

15,186

19,130

15,125

16,723

13,634

19.8

11.1

Statement of Financial Position

Total Assets ⁽¹⁾

1,293,559

1,270,139

1,105,244

1,101,763

1,079,755

1,050,983

1,029,762

1,034,815

1.8

19.8

Securities

549,873

509,184

437,580

414,926

407,584

364,472

356,115

344,430

8.0

34.9

Loan Operations ⁽²⁾

514,990

521,771

447,492

463,208

474,027

474,488

463,406

463,305

(1.3)

8.6

- Individuals

172,045

171,067

148,919

147,759

147,749

145,234

143,461

142,051

0.6

16.4

- Companies

342,945

350,704

298,573

315,449

326,278

329,253

319,945

321,254

(2.2)

5.1

Allowance for Loan Losses (ALL) ⁽³⁾

(40,714)

(40,416)

(31,875)

(30,497)

(29,499)

(28,670)

(23,801)

(23,618)

0.7

38.0

Total Deposits

234,214

239,937

179,436

189,192

195,760

203,637

195,926

211,702

(2.4)

19.6

Technical Provisions

223,342

213,608

190,649

182,973

177,835

168,629

164,566

157,295

4.6

25.6

Shareholders' Equity

100,442

98,550

96,358

93,330

88,907

86,233

86,972

83,937

1.9

13.0

Assets under Management

1,904,912

1,865,755

1,589,319

1,589,307

1,510,396

1,452,528

1,443,989

1,431,090

2.1

26.1

Performance Indicators (%)

Adjusted Net Income per Share - R$ ^{(4) (5)}

3.09

3.13

3.14

3.20

3.23

3.15

3.05

2.92

(1.1)

(4.2)

Book Value per Common and Preferred Share - R$ ⁽⁵⁾

18.16

17.81

17.42

16.87

16.07

15.59

15.71

15.16

1.9

13.0

Annualized Return on Average Equity ^{(6) (7)}

17.6

17.6

17.4

17.5

20.5

20.7

20.8

20.6

-

(2.9) p.p.

Annualized Return on Average Assets ⁽⁷⁾

1.5

1.5

1.5

1.5

1.7

1.7

1.7

1.7

-

(0.2) p.p.

12-month Net Interest Margin - NIM = Adjusted Net Interest Income /Average Assets – Repos – Permanent Assets

7.5

7.6

7.5

7.5

7.5

7.6

7.6

7.5

(0.1) p.p.

-

Fixed Asset Ratio ⁽¹³⁾

44.8

44.4

33.8

34.0

35.2

38.6

39.6

47.9

0.4 p.p.

9.6 p.p.

Combined Ratio - Insurance ⁽⁸⁾

85.9

90.0

89.6

86.1

86.5

86.9

86.5

86.8

(4.1) p.p.

(0.6) p.p.

Efficiency Ratio (ER) ⁽⁴⁾

39.5

38.2

37.4

37.2

37.5

37.9

37.9

38.3

1.3 p.p.

2.0 p.p.

Coverage Ratio (Fee and Commission Income/Administrative and Personnel Expenses) ⁽⁴⁾

76.2

78.0

80.2

80.1

80.0

79.1

78.7

77.4

(1.8) p.p.

(3.8) p.p.

Market Capitalization - R$ million ⁽⁹⁾

160,813

160,472

144,366

143,720

100,044

113,288

142,098

150,532

0.2

60.7

Loan Portfolio Quality % ⁽¹⁰⁾

ALL / Loan Portfolio ⁽³⁾

10.4

10.1

9.3

8.6

8.0

7.8

6.7

6.7

0.3 p.p.

2.4 p.p.

Non-performing Loans (> 60 days ⁽¹¹⁾ / Loan Portfolio)

6.5

6.4

5.8

5.3

5.0

4.7

4.6

4.5

0.1 p.p.

1.5 p.p.

Delinquency Ratio (> 90 days ⁽¹¹⁾ / Loan Portfolio)

5.5

5.4

4.6

4.2

4.1

3.8

3.7

3.6

0.1 p.p.

1.4 p.p.

Coverage Ratio (> 90 days ⁽¹¹⁾) ⁽³⁾

188.4

189.1

201.0

204.2

198.0

205.7

180.4

187.0

(0.7) p.p.

(9.6) p.p.

Coverage Ratio (> 60 days ⁽¹¹⁾) ⁽³⁾

158.8

158.3

160.7

162.9

161.7

168.4

146.5

149.8

0.5 p.p.

(2.9) p.p.

Operating Limits %

Basel Ratio - Total ^{(12) (13)}

15.4

15.3

17.7

16.9

16.8

14.5

16.0

15.2

0.1 p.p.

(1.4) p.p.

Tier I Capital

12.0

11.9

13.7

12.9

12.7

11.4

12.8

12.1

0.1 p.p.

(0.7) p.p.

- Common Equity

11.2

11.1

13.7

12.9

12.7

11.4

12.8

12.1

0.1 p.p.

(1.5) p.p.

- Additional Capital

0.8

0.8

-

-

-

-

-

-

-

-

Tier II Capital

3.4

3.4

4.0

4.0

4.1

3.0

3.2

3.1

-

(0.7) p.p.

                   Press Release

Main Information   

To provide a better understanding and for comparison purposes of Bradesco results, in chapters 1 and 2 of this report we use the Adjusted Income Statement, which is obtained from adjustments made to the Managerial Income Statement, detailed at the end of this Press Release.

It should be noted that, for the accounts of the Adjusted Income Statement, six months of the consolidation of HSBC Brasil are covered, from July 1, 2016. As additional information, we are show, at the end of chapter 2 of this report, a comparison of the Financial Statements, taking into account consolidated "pro forma" financial information for 2015 and 2016, including the consolidation of HSBC Brasil in the first half of 2016 and in 2015, for purposes of comparison.

Efficiency Ratio (ER)

In December 2016, the 12-month ER⁽¹⁾ reached 39.5%, a 1.3 p.p. increase compared to the previous quarter and a 2.0 p.p. increase in the annual comparison. If we disregard the effect of financial assets impairment (previously marked in the Shareholders’ Equity) in the fourth quarter of 2016, in the amount of R$1,264 million, this ratio would be 38.9%. The factors that contributed the most to this performance were mainly: (i) the increase in operating expenses during the period, impacted by the effect of the consolidation of HSBC Brasil as of the third quarter of 2016; offset by: (ii) the growth in (a) the fee and commission income, prompted by the increase in the volume of business and services provided; and (b) the net interest income.

In the fourth quarter of 2016, the quarterly ER reached 43.2%, and if we were to disregard the aforementioned impairment effect, the ratio would have been 41.0%, remaining stable when compared to the previous quarter.

The risk adjusted ER reflects the impact of the risk associated with loan operations⁽²⁾ and reached 52.2% (51.2% disregarding the effect of impairment), impacted primarily by the leveling of provisions for corporate clients carried out in the first semester of 2016.

Disregarding the impacts of HSBC Brasil’s consolidation and financial assets impairment, the ER performance reflects the strategy of sustainable growth, which includes, among others, (i) the availability of appropriate products and services for clients through the base segmentation and the digital channels, (ii) the optimization of the customer service network, and (iii) the strict control of operating expenses, arising from the actions of the Efficiency Committee and the investments in Information Technology, in the amount of R$6.595 billion in 2016.

R$ million

12M16

12M15

Interest

Average Balance

Average Rate

Interest

Average Balance

Average Rate

Credit Intermediation

49,897

383,242

13.0%

42,788

366,001

11.7%

Insurance

5,895

199,691

3.0%

5,558

164,894

3.4%

Securities/Other

7,267

440,329

1.7%

6,431

395,896

1.6%

0

NII - Interest-Earning Portion

63,059

-

7.5%

54,777

-

7.5%

0

R$ million

4Q16

3Q16

Interest

Average Balance

Average Rate

Interest

Average Balance

Average Rate

Credit Intermediation

13,403

398,804

13.0%

13,600

407,559

12.7%

Insurance

1,471

218,715

3.0%

1,534

211,380

3.2%

Securities/Other

1,869

468,281

1.7%

1,665

451,501

1.6%

0

NII - Interest-Earning Portion

16,743

-

7.5%

16,799

-

7.5%

Expanded Loan Portfolio ⁽¹⁾

In December 2016, the expanded loan portfolio of Bradesco totaled R$515.0 billion, representing a 1.3% decrease in comparison with September 2016. Individuals and Large Corporates presented an increase of 0.6% and 0.1%, respectively, during the period, while Micro, Small and Medium-sized Enterprises showed a reduction of 7.3% in the quarter.

In the last 12 months, the portfolio increased 8.6%, considering the consolidation of HSBC Brasil as of the third quarter of 2016, while Companies registered a growth of 5.1%, impacted by the segment of Large Corporates, and loans to Individuals grew 16.4%. For Individuals, the products that had the strongest growth in the last 12 months were: (i) real estate financing; and (ii) credit card. For Companies, the notable products were: (i) operations bearing credit risk – commercial portfolio (debentures and promissory notes); and (ii) export financing.

Allowance for Loan Losses (ALL) Expenses

In 2016, allowance for loan losses expenses totaled R$21,739 million, registering a variation of 43.3%, or R$6,565 million, compared with the previous year, mainly due to the: (i) higher delinquency ratio, mainly impacted by the further deceleration of economic conditions in the period; (ii) leveling of provisions for certain corporate clients, particularly a specific case, whose downgraded rating had an impact of R$1,201 million in the first semester of 2016; and (iii) effect of the consolidation of HSBC Brasil as of the third quarter of 2016.

In the fourth quarter of 2016, allowance for loan losses expenses amounted to R$5,525 million, a decrease of 3.8%, or R$217 million, mainly due to the increased income from credit recovery in the quarter.

It is important to note that the balance of the Bacen loan operations presented a 6.9% increase in the annual comparison and a 1.8% decrease in the quarterly comparison. The reinforcement of the credit granting policies, quality of guarantees, as well as the improvement of the credit recovery processes mitigated the effect in the growth of delinquency ratios.

Delinquency Ratio ⁽¹⁾

90-day Delinquency Ratio

The total delinquency ratio, which refers to operations that are more than 90 days overdue, increased in the quarter, mainly due to the low demand for credit, as well as the intensified deceleration of economic activities, which has impacted the repayment capacity, mainly of companies. Nonetheless, we highlight an improvement in large corporates delinquency in the quarter, which decreased from 2.03% in September 2016, to 1.24% in December 2016.

In the fourth quarter of 2016, R$2.0 billion loan assignments (previously written-off) were carried out without the retention of risks and benefits, which did not alter the rates of delinquency in the period, nor had a relevant impact on the results.

Net Income for the fourth quarter of 2016 totaled R$1.505 billion (R$1.502 billion in the third quarter of 2016), in line with the previous quarter, presenting an annualized return on Adjusted Shareholders’ Equity of 24.9%⁽¹⁾.

In 2016, the Net Income totaled R$5.551 billion, 5.0% higher than the Net Income presented in the previous year (R$5.289 billion), with an annualized return on the Adjusted Shareholders’ Equity of 23.0%⁽¹⁾.

In the fourth quarter of 2016, in comparison with the previous quarter, revenues showed an increase of 19.8%, driven by the “Life and Pension Plans” product, which increased 41.0%.

In 2016, the revenues registered an increase of 10.5% in comparison with the previous year, influenced by “Health”, "Life and Pension" and “Capitalization Bonds” products, which increased by 14.7%, 10.7% and 6.5%, respectively.

Net income for the fourth quarter of 2016 is in line with the results presented in the previous quarter, due to: (i) the increase of 19.8% in revenue; (ii) the decrease of 4.3 p.p. in the claims ratio index; (iii) the maintenance of the expense ratio; (iv) the maintenance of the administrative efficiency ratio; and partly offset by: (v) the effect of R$101.9 million arising from the review of the extended

warranty operation’s business plan; (vi) the decreased financial income due to the behavior of economic and financial indexes in the fourth quarter of 2016, compared to the previous quarter; and (vii) the decrease in equity income.

Net income in 2016 was 5.0% higher than the results presented in the previous year, due to: (i) the increase of 10.5% in revenue; (ii) the increase in the financial and equity results; (iii) the decrease of 0.4 p.p. in the expense ratio; (iv) the increase in the administrative efficiency ratio, considering the collective bargaining agreement of the category in January 2016; partly offset by: (v) the increase of 2.7 p.p. in the claims ratio; (vi) the effect of R$101.9 million arising from the review of the extended warranty operation’s business plan; and (vii) the effect of the increase in the Social Contribution (CSLL) rate.

According to CNSP Resolution No. 321/15, corporations should demonstrate the adjusted shareholders’ equity (ASE) equal to or higher than the minimum capital required (MCR). MCR is equivalent to the highest value between the base capital and the risk capital. For companies regulated by the ANS, Normative Resolution No. 373/15 establishes that corporations should demonstrate the adjust shareholders’ equity (ASE) equal to or higher than the Solvency Margin

The capital adjustment and management process is continuously monitored and aims to ensure that Grupo Bradesco Seguros keeps a solid capital base

 to support the development of activities and cope with the risks in any market situation, in compliance with regulatory requirements and Corporate Governance principles. Companies must permanently maintain capital compatible with the risks for their activities and operations, according to the characteristics and peculiarities of each company belonging to Grupo Bradesco Seguros, represented by adequate capital levels. Grupo Bradesco Seguros permanently monitors the limits required by the respective regulatory entities. The Minimum Capital Required in November 2016 was R$9.183 billion.

In the annual comparison, the increase of R$3,185 million, or 12.8%, in fee and commission income was mainly due to: (i) an increase in the volume of operations arising from continuous investment in customer service channels and in technology, coupled with the growth provided by the acquisition of HSBC Brasil in the third quarter of 2016; and (ii) an advance in the client segmentation process aimed at improving the ability to offer products and services. It must be noted that the sources that have significantly contributed to this result were derived from: (i) an increase in checking account fees, mainly due to an improvement in the client segmentation process; (ii) the good performance of the card business, as a result of (a) the increase in financial volume traded; and (b) the highest volume of transactions performed; and increased fees arising from: (iii) asset management; (iv) consortium management; (v) underwriting / financial advisory services; (vi) collections; and (vii) custody and brokerage services.

In the fourth quarter of 2016, fee and commission income totaled R$7,545 million, showing an increase of R$95 million, or 1.3%, in comparison with the previous quarter, due to the increase in the volume of operations, with emphasis on the performance of fees arising from: (i) cards; (ii) underwriting/ financial advisory services; and (iii) consortium management; partly offset by lower income with: (iv) loan operations, particularly income from collaterals; (v) asset management; and (vi) collections.

In the annual comparison, the increase of R$2,938 million, or 20.0%, in personnel expenses, is mainly due to the variations in the following expenses: (i) "structural" portion due to the increase in expenses with payroll, social charges and benefits, impacted by (a) higher salaries, in accordance with the 2015 and 2016 collective bargaining agreements; and (b) the effect of the consolidation of HSBC Brasil as of the third quarter of 2016; and (ii) "non-structural" portion, due to higher expenses with (a) employee and management profit sharing; and (b) employment termination costs.

In the fourth quarter of 2016, personnel expenses totaled R$5,071 million, a variation of 2.9%, or R$141 million, compared to the previous quarter, mainly due to: (i) the increase in the “structural” portion, in the amount of R$178 million, or 4.4%, related to the increase in expenses relating to payroll, social charges and benefits, affected by higher salaries, in accordance with the collective bargaining agreement; and offset, partly, by: (ii) the decrease in the “non-structural” portion, in the amount of R$37 million, or 4.3%, due to lower expenses with provision for labor claims, which mitigated the effect of increased expenses with (a) employment termination costs; and (b) employee and management profit sharing.

In the annual comparison, administrative expenses presented an increase of 17.1%, or R$2,795 million, reflecting an increase in expenses from: (i) a growth in the business volume and services within the period, impacted by the effect of the consolidation of HSBC Brasil as of the third quarter of 2016; (ii) contractual adjustments; and (iii) the effect of advertising and marketing campaigns, mainly related to the "Rio 2016 Olympic and Paralympic Games", occurred in the third quarter of 2016.

In the fourth quarter of 2016, administrative expenses totaled R$5,411 million, with a variation of 1.4%, or R$74 million, over the previous quarter, mainly due to the increase in the business and service volumes, which resulted in higher expenses with: (i) outsourced services; and (ii) communication; partly offset by lower expenses with: (iii) advertising and marketing; and (iv) financial system services.

In 2016, other net operating expenses totaled R$7,015 million, an R$307 million, or 4.6% increase over the previous year, primarily due to: (i) tax contingency expenses, net of reversal, in the first semester of 2016, in the amount of R$485 million; (ii) the increase in civil provision expenses; and (iii) the effect of the consolidation of HSBC Brasil as of the third quarter of 2016. In the first semester of 2015, expenses were impacted by the constitution of provision for tax contingency, in the amount of R$571 million.

In the fourth quarter of 2016, these expenses totaled R$1,634 million, remaining stable compared to the third quarter.

In 2016, income tax and social contribution expenses presented a decrease of R$1,595 million, or 17.9%, compared to the previous year, related mainly to: (i) an increase in provisioning/ payment of interest on shareholders’ equity, due to the increase in the Federal Government Long-Term Interest Rate (TJLP) in the period (from an average of 6.25% in 2015 to 7.5% in 2016); (ii) a lower taxable income, impacted by higher nontaxable income; (iii) the increased use of deductibility (a) of goodwill amortization in the acquisition of HSBC Brasil and (b) due to the realization of assets as a result of the spin-off and incorporation of assets and liabilities of HSBC Brasil in October 2016; being partly offset by: (iv) the increase in the Social Contribution (CSLL) rate.

In the fourth quarter of 2016, income tax and social contribution expenses decreased by R$791 million, or 40.6%, as compared to the previous quarter, due to: (i) the decrease in taxable income; (ii) the increased use of deductibility of goodwill amortization in the acquisition of HSBC Brasil and (b) due to the realization of assets as a result of the spin-off and incorporation of assets and liabilities of HSBC Brasil in October 2016; and (iii) the effect of the provisions for supplementary payment of interest on shareholders’ equity, approved in the period.

Unrealized gains totaled R$17,291 million at the end of the fourth quarter of 2016, a decrease of R$3,069 million, or 15.1%, over the previous quarter. Such a variation was mainly due to the devaluation of the investments, mainly impacted, by Cielo shares, which decreased 14.2% in the quarter.

In December 2016, the Regulatory Capital of the Prudential Conglomerate stood at R$101,127 million, against risk-weighted assets totaling R$656,189 million. The Basel Ratio reached 15.4%, and, Tier I Capital ratio, 12.0%, presenting an increase of 0.1 p.p. compared to September 2016.

The table below shows the main events that impacted the Tier I Capital ratio in the fourth quarter of 2016

We calculated a Basel III simulation, considering some of the main future adjustments, which include: (i) deductions of 100% according to the schedule of phase-in arrangements; (ii) the allocation of resources, obtained via payment of dividends, by our Insurance Group; (iii) the use of tax credits; (iv) the decrease in the market and operational risk multiplier (early adoption), from

9.875% to 8% and the impact of CMN Resolution No. 4,517/16; and (v) the impact of the acquisition of HSBC Brasil (amortization of goodwill/ intangible assets and synergy in the process of integration), reaching a Tier I Capital ratio of 12.2%, which, added to potential funding obtained via subordinated debt, may reach a Tier I Capital ratio of approximately 12.9% at the end of 2018.

The international scenario gained a certain level of ambiguity in the last quarter of the previous year. If, on the one hand, the risks of deflation and uncertainties related to the pace of growth in relevant economies have diminished, on the other, the risks on the political front have increased. In this context, the external environment presents greater economic growth, higher inflation rates and, consequently, higher interest rates. It is evident that the various economies are at different stages of the economic and monetary cycles, but, even so, there has recently been an upward movement in long-term global interest rates, with some effect on the broad liquidity of recent years.

The United States is at a more advanced stage in the recovery cycle, with the unemployment rate approaching full employment, gradual wage acceleration and a possible tax boost beginning next year. Europe, on the other hand, is in an intermediate stage of economic recovery, with a gradual improvement in activity. In the case of emerging countries, which are very heterogeneous, there are signs of a gradual recovery, with the dilution of negative terms of trade shocks that occurred between 2014 and 2015. China will probably continue to succeed in managing a soft economic slowdown with its active credit policy.

Conversely, the political situation has become more complex in countries of great importance to the world economy in the last quarter. Significant potential changes in countries such as the United States stand out with the victory of Republican candidate Donald Trump; the UK, which over the next few years will redefine its relationship with the euro zone after Brexit; in addition to a series of elections in Europe that will take place throughout 2017 (France, Germany, the Netherlands, and possibly Italy).

Albeit, broadly speaking, despite the risks on the global political front, there are forces that should drive the international economy towards a somewhat more robust pace of growth in 2017, reflecting the prospect of fiscal impetus in the United States and the easing of monetary and financial conditions in certain emerging countries. The stabilization of commodity prices throughout 2016 is an additional factor sustaining the improvement of the global economy in 2017, and may reverse the downward trend of investments in this sector.

The domestic scenario, in the fourth quarter, was marked by weaker activity indicators than expected. Even though the government has obtained important approvals such as the Proposed Constitutional Amendment (“PEC”), which imposes a ceiling on public spending, the increased confidence of the agents has not yet translated into effective GDP growth. However, despite the greatest challenge of the country continues to be economic strengthening, progressive quarterly growths are expected during 2017.

In this sense, the economic agenda has proved to be adequate, featuring the beginning of the process of Social Security Reform. It is also important to mention the package of microeconomic measures announced, aimed at stimulating the economy by reducing bureaucracy, improving the financial situation of companies, and reducing interest rates for consumers.

On the other hand, economic moderation will allow the inflation to reach the set target more quickly. The price of food and services declined in the last quarter of 2016. Thus, the process of deflation of the economy, already underway, has fulfilled the 2016 inflation target (the IPCA was of 6.29%, below the target of 6.5%) and culminated with the fulfillment of the center of the target in 2017 (from 4.5%). With this, the conditions for intensifying the easing of the monetary policy have already been given. Thus, we expect the SELIC to reach 9.5% in 2017 and 8.5% in 2018.

Macroeconomic adjustments on the right path, additional actions of a structural nature that can affect potential future growth continue to be essential. The constant search for excellence in education is Brazil’s top priority in its struggle to become more competitive and to expedite its efforts to upgrade infrastructure. Investments will tend to play an increasingly important role in the composition of growth in coming years, especially in the process of the recovery of economic activity. This would benefit more from greater participation of the capital market in financing these projects. Bradesco maintains a positive outlook towards Brazil, with favorable perspectives for its operating sections. Credit volume is evolving at risk-compatible rates, even when faced with a cyclical upswing in delinquency rates, due to the reduction of activity and the increase of the unemployment rate this year. The circumstances are still very promising for Brazilian banking and insurance sectors in the medium and long term.