April 21, 2023

BANCO BNP PARIBAS BRASILLouis Bazire

Brazil: Stable and Foreseeable

April 21, 2023

Marcelo Carvalho Head of Latam Economic Research marcelo.carvalho@br.bnpparibas.com55-11-3841-3418

Agenda

3

Brazil – A comparison with other BRIC economies

Brazil – Stable and Foreseeable Investors want to finance the next expansion cycle in Brazil Medium and long term scenario – a positive growth outlook Short term scenario – “Brazilian Quarterly Outlook: Reaping Rewards” Inflation – convergence toward targets Fiscal and monetary policy outlook – Tug of war Political landscape – elections in October 2010.

Forecasts

Brazil: A comparison with other BRIC economies

4

BRIC economies: General characteristics

Brazil Russia India China

8514 17075 3287 9561

1574 1229 1313 49088121 8662 1122 3678194 141 1170 1334

Agriculture 7 5 17 11

Industry 28 37 26 49

Services 65 58 56 40

12.0 23.0 19.0 29.0

2009

External openness (%) (I + X) / (Pib x2)

GDP breakdown by sector

(%)

Land area (thousands sq km)

GDP (USD Bn)GDP per Capita (USD)Population (Mn)

5

BRIC economies: real GDP growth varies

6

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

14%

Brazil Russia India China

1991-1999

2000-2009

2004-2007

Average real GDP growth rates

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

14%

Brazil Russia India China

Annual average

Sources: BNPP, national statistics

BRICs: Investment and Saving rates are still relatively low in Brazil

• Differences in investment rates, also in saving rates

Saving rates

0

10

20

30

40

50

60

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

per

cen

t o

f G

DP

Brazil Russia India* ChinaSources: National Statistics, BNPP calculations

* India : fiscal years

7

Investment rates

0

10

20

30

40

50

60

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

pe

rce

nt

of

GD

P

Brazil Russia India* ChinaSources: National Statistics, BNPP calculations* India - fiscal years

What has changed within BRICs since 2003?

• All BRICs have become global players on both economic and geopolitical fronts

– With similarities and differences in the globalisation process

• Similarities in the process, even if differences in the magnitude

– Increase in potential growth: increase in saving and investment to GDP ratios, but to a lesser extent for Brazil

– Increase in globalisation: trade and financial integration and Foreign Direct Investment

– Decrease in country risk(1) : increase in foreign exchange reserves, decrease in external public debt

8

(1) In the narrow sense: sovereign risk and transfer risk

What has changed within BRICs since 2003?

Differences in terms of growth sustainability

• Brazil: Higher potential growth, probably sustainable

• India: New model of growth (more linked to manufactured goods), sustainable under certain key conditions

• China: Current growth model not sustainable in the medium term

• Russia: Growth still highly dependent on oil price

Differences in terms of external financial vulnerability

• China: Very low external financial vulnerability

• Brazil: Strong decrease in external financial vulnerability

• India: Moderate decrease in external financial vulnerability– Large companies still depend on the financing in foreign currency

• Russia: No decrease in external financial vulnerability– Even if the problem of external public debt has been solved, large private companies have

become overindebted, mainly in foreign currency. Dollarization of the economy is still high.

9

What has changed within BRICs since 2003?• Similarities and differences: quantitative illustration

10

Brazil Russia India China

2003 2008 2003 2008 2003/04 2008/09 2003 2008

External public debt/GDP (%)

21.7 4.2 25 2 8.6 4.8 3.2 0.8

External private sector debt/GDP (%)

21.3 15.5 18 27 13 14 8.5 9.0

Foreign exchange reserves (USD billion)

49 193 73 413 108.8 242.6 408 1 946

Inflation rate (average) (%)

9.3 5.9 12 12.5 5.5 8.4 1.2 5.9

Public debt/GDP (gross) (%)

70.4 64.3 30 5 86 76.8 28.8 21.9

Domestic credit total/GDP (%)

23 38 28 45 63.9 81.0 147.9 122.5

Saving/GDP (%) 16.5 17.1 29 31 29.8 37.3 43.4 51.3

Invest./GDP (%) 15.8 18.9 20.5 25 27.6 39.0 41.2 43.2

Sources: IIF, National statistiques, BNP Paribas calculations

BRICs: Summary

• Brazil: from moderate GDP growth (2.5%-3% per year) with high vulnerabilities to slightly higher growth (4%), more sustainable and less vulnerable

• Russia: no significant changes during the decade: fairly high growth (3%-6%) but still very vulnerable to commodity prices and financial shocks

• India: from fairly high growth (5%-6%) with vulnerabilities to high and more sustainable growth (7%-8%)

• China: very high growth relatively stable (roughly 10%) and not too much vulnerable(1). But the growth model relying on exports and investment may not be sustainable in the medium-long term

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(1) Low vulnerability to external financial shocks, high vulnerability to downturn in the global business cycle

Conclusion: What next in the medium term? (3)

Brazil: Probably the best “mix” within BRICs in terms of growth potential and risks

• GDP growth potential is accelerating progressively to 4-5% per year but probably not to 7-9% as India or China

– The process of acceleration has started recently (saving, public and private investment, financial intermediation, decrease in real interest rate …). The pursuing of this movement, notably for infrastructure investment, is key to consolidate this evolution

• Nevertheless, Brazil’s growth has become more sustainable and less vulnerable to external shocks than that of China and, to a lesser extent, that of India

– From 1994-2007(1), Brazil has solved huge problems of macro economic imbalances, established credible economic policies, strongly increased its State and corporate governance, diversified its export base (both on a geographical and sector point of view) and reduced its external financial vulnerability

• Even if is GDP growth potential considered closer to that of Russia, its sustainability is higher and its vulnerability is much lower

– Notably in terms of export diversification, State and corporate governance, monetary policy capability, financial sector robustness and external financial vulnerability

12

(1) Particularly since 2003-04

BNP PARIBAS GROUP IN BRAZIL

13

BNP Paribas in Brazil: A group of 2.328 employees

14

– Since 1998 – Employees:

35– Intern: 7

Asset Management

Personal Finance

Since 1998

Employees: 1619

Since 1999

Employees: 341

Insurance

Since 1998

Employees: 38

Intern: 1

Wealth Management

Since 2006

Employees: 50

Equipment Solutions

Corporate & Investment Banking

Since 1950

Employees: 254

Intern: 36

São Paulo

Rio de Janeiro

Curitiba

Belo Horizonte

Brasilia

BNP Paribas Brazil: 4th Largest Foreign Bank by Total Assets

15

2006 20072007 20082008 2009

Total Assets 7,500 15,400 26,391 14,245

Net Worth 626 792 983 993

Net Income 77 176 266 250

ROE 12.2% 22.2% 27.1% 25.2%

Financial Highlights of Banco BNP Paribas Brasil SA (R$ million)

Brazil-National Scale (since 28 Oct 2008)

AAA

1950 1996 1999 2001 2006 20082010

1981-95 1998 2000 2007 2009

Minority stake in Banco Cidade Launching of Asset

Management and Cetelem Activities

Merger of BNP and Paribas in Brazil

Acquisition of local asset management activities of UBS, ABC and IAMEX

Representative Office in Brazil

Establishment of a wholly owned

subsidiaryLaunching of Cardif

activities

Implementation of a reinforced organic

growth strategyLaunching of Arval

activities

Cetelem acquired Banco BGN, specialized in

consumer credit (Total Assets BRL 2

Billion)

Evolution of Group BNP Paribas Presence in Brazil

Cetelem and MasterCard

parternership

BNPP Acquired Fortis

Launching of Securities Services

Activities