votorantim bank limited bank 2009.pdf · votorantim bank limited statement of comprehensive income...

Votorantim Bank LimitedFinancial Statements atDecember 31, 2009and Report of Independent Auditors

Votorantim Bank Limited

Statement of Comprehensive IncomeFor the Year Ended December 31, 2009Expressed in thousands of U.S. dollars

The accompanying notes are an integral part of these financial statements.

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Note 2009 2008

Interest incomeFinancial assets at fair value through profit or loss 22 492Bank deposits 9 467

Total interest income 31 959

Interest expenseTime deposits - customers (6) (600)

Total interest expense (6) (600)

Net interest income 25 359

Non-interest income (expenses)Net fee and commission income 12 1,962 1,482Net trading loss (6) (86)General and administrative expenses 13 (801) (802)Other income 21 14Other expenses (78) (89)

1,098 519

Net income for the year 1,123 878

Other comprehensive income - -

Total comprehensive income 1,123 878


Statement of Changes in EquityFor the Year Ended December 31, 2009Expressed in thousands of U.S. dollars


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Number of Number ofordinary preferred Share Retainedshares shares capital earnings Total

Balances at December 31, 2007 242,186 5,760,534 10,000 7,164 17,164

Net income for the year - - - 878 878


Net income for the year - - - 1,123 1,123



Statement of Cash FlowsFor the Year Ended December 31, 2009Expressed in thousands of U.S. dollars


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Cash flows from operating activities Note 2009 2008

Total comprehensive income 1,123 878

Adjustments for non-cash items:Depreciation of equipment 7 10 10Amortization of intangible assets 8 168 150

Adjusted net income 1,301 1,038

Decrease (Increase) in operating assetsFinancial assets at fair value through profit or loss 2 20,084Other assets 216 (151)

(Decrease) Increase in operating liabilitiesDemand deposits - customers (200) (4,267)Time deposits - customers (1,519) (9,604)Other liabilities (141) (691)

Net cash (used in) operating activities (341) 6,409

Cash flows from investing activitiesPurchase of equipment 7 - (9Purchase of intangible assets 8 (10) (132)Disposal of intangible assets 8 - 168

Net cash (used in) from investing activities (10) 27

Net (decrease) increase in cash and cash equivalents (351) 6,436

Cash and cash equivalents, beginning of year 22,180 15,744

Cash and cash equivalents, end of year 3 21,829 22,180

Supplemental informationInterest received 34 959Interest paid 55 642


Note to the Financial Statementsat December 31, 2009Expressed in thousands of United States dollars

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1 Incorporation and Background Information

Votorantim Bank Limited ("the Bank") is incorporated under the laws of the Commonwealth ofThe Bahamas ("The Bahamas") and was licensed on March 8, 1995 by the Central Bank ofThe Bahamas ("the Central Bank") to conduct unrestricted banking business.

The Bank's business activities consist exclusively of private banking activities.

On January 9, 2009, Banco Votorantim S.A. and Banco do Brasil S.A. entered into apartnership that involved the selling of 50% of Banco Votorantim S.A. to Banco do Brasil. Thistransaction was approved by the Brazilian Central Bank on September 23, 2009.

As at December 31, 2009, Banco Votorantim, S.A. incorporated in Brazil, owns 100% of theordinary shares which represents 4.03% of the total shares issued by the Bank. Therefore, theBank is controlled by Banco Votorantim S.A. The remaining shares, represented only bypreferred shares, are 95.84% owned by Votorantim Finanças S.A. and 0.13% by the minorityshareholders.

Banco Votorantim S.A.’s governance is shared with the formation of an Administrative Councilcomprised of three members from each partner. The partnership does not change the currentbusiness direction of the Bank.

As part of the integration process of the partnership between Banco Votorantim S.A. andBanco do Brasil, preferred shares of the Bank will be transferred to Banco Votorantim S.A.This transfer has been approved by the Central Bank of Brasil on December 4, 2009 and bythe Central Bank of The Bahamas on March 8, 2010. Following the final approval by theCentral Bank of The Bahamas, Banco Votorantim S.A. became the owner of 99.99% of thetotal shares of the Bank.

The registered office of the Bank is located at Saffrey Square Building, Suite 204, Bay Street,Nassau, The Bahamas. A related party provides administrative and accounting services to theBank.

These financial statements have been approved for issue by the Board of Directors on April 7,2010.



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2 Summary of Significant Accounting Policies

(a) Statement of compliance

The financial statements have been prepared in accordance with International FinancialReporting Standards ("IFRS") as promulgated by the International Accounting StandardsBoard. The preparation of the financial statements in conformity with IFRS requires the use ofcertain critical accounting estimates. It also requires management to exercise its judgment inthe process of applying the Bank’s accounting policies. Changes in assumptions may have asignificant impact on the financial statements in the period the assumptions changed.Management believes that the underlying assumptions are appropriate and that the Bank’sfinancial statements therefore present the financial condition and results fairly. The areasinvolving a higher degree of judgement or complexity, or areas where assumptions andestimates are significant to the financial statements, are disclosed in Note 2 c (iv).

The accounting policies have been consistently applied by the Bank and are consistent withthose used in the previous year. The presentation of the statement of cash flows has changedin 2009 from the direct to the indirect method. The change in the accounting policy have beenalso applied in 2008 for comparative purposes.

(b) Basis of preparation

The financial statements are presented in United States dollars rounded to the nearestthousand. The financial statements have been prepared under the historical cost convention,as modified by revaluation of financial assets and liabilities held-for-trading.

In the current year, the Bank adopted IAS 1 (Revised) Presentation of Financial Statements andthe amendment to IFRS 7 Financial Instruments: Disclosures which became effective for fiscalperiods beginning on or after January 1, 2009.

The remaining standards and amendments and interpretations to published standards thatbecame effective for fiscal periods beginning on or after January 1, 2009 were not relevant tothe Bank’s operations and accordingly did not impact the Bank’s accounting policies or financialstatements.

The application of new standards and amendments and interpretations to existing standardsthat have been published but are not yet effective are not expected to have a material impacton the Bank’s accounting policies or financial statements in the period of initial application.



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2 Summary of Significant Accounting Policies (continued)

(b) Basis of preparation (continued)

(i) Standards, amendments and interpretations applicable to the Bank and effective on orafter 1 January 2009

Standard/interpretation

ContentApplicable for financial

years beginningon/after

IFRS 7 Improving disclosures about financialinstruments

January 1, 2009

IFRS 8 Operating segments January 1, 2009

IAS 1 Presentation of financial statements January 1, 2009

Amendments to IFRS 7, ‘Financial instruments: Disclosures’

The IASB published amendments to IFRS 7 in March 2009. The amendment requiresenhanced disclosures about fair value measurements and liquidity risk. In particular, theamendment requires disclosure of fair value measurements by level of a fair valuemeasurement hierarchy. The adoption of the amendment results in additional disclosurespresented on Note 2 (c) item (iv), but does not have an impact on the financial position or thecomprehensive income of the Bank.

IFRS 8, ‘Operating segments’

IFRS 8 was issued in November 2006 and excluding early adoption would first be required tobe applied to the Bank’s accounting period beginning on January 1, 2009. The standardreplaces IAS 14, ‘Segment reporting’, with its requirement to determine primary and secondaryreporting segments. Under the requirements of the revised standard, the Bank’s externalsegment reporting will be based on the internal reporting to the Bank executive board (in itsfunction as the chief operating decision-maker), which makes decisions on the allocation ofresources and assess the performance of the reportable segments. The application of IFRS 8does not have any material effect for the Bank due to the fact that the Bank is itself a businessunit of Banco Votorantim S.A. in charge of providing to the clients an off-shore private bankingservices. Therefore, the Bank present only one operating and reportable segment, the privatebanking.



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IAS 1 (revised), ‘Presentation of financial statements’

A revised version of IAS 1 was issued in September 2007. It prohibits the presentation of itemsof income and expenses (that is, ‘non-owner changes in equity’) in the statement of changes inequity, requiring ‘non-owner changes in equity’ to be presented separately from ownerchanges in equity in a statement of comprehensive income. Comparative information hasbeen re-presented so that it also conforms with the revised standard. According to theamendment of IAS 1 in January 2008, each component of equity, including each item of othercomprehensive income, should be reconciled between carrying amount at the beginning andthe end of the period. Since the change in accounting policy only impacts presentationaspects, there is no impact at retained earnings. The Bank does not have any comprehensiveincome related to non-owner changes in equity.

(ii) Standards and interpretations issued but not yet effective

The following standards and interpretations have been issued and are mandatory for theaccounting periods beginning on or after 1 July 2009 or later periods and are expected to berelevant to the Bank:

Standard/interpretation

Content Applicable for financialyears beginning on/after

IAS 39 Financial instruments:Recognition andmeasurement – eligiblehedged items

July 1, 2009

IFRIC 17 Distribution of non-cashassets to owners

July 1, 2009

IFRIC 18 Transfers of assets fromcustomers

July 1, 2009

IFRS 9 Financial instruments part 1:Classification andmeasurement

January 1, 2013



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IAS 39, ‘Financial instruments: Recognition and measurement – Eligible hedged items’

The amendment ‘Eligible hedged items’ was issued in July 2008. It provides guidance for twosituations. On the designation of a one-sided risk in a hedged item, IAS 39 concludes that apurchased option designated in its entirety as the hedging instrument of a one-sided risk willnot be perfectly effective. The designation of inflation as a hedged risk or portion is notpermitted unless in particular situations. This will not give rise to any changes to the Bank’sfinancial statements.

IFRIC 17, 'Distribution of non-cash assets to owners'

IFRIC 17 was issued in November 2008. It addresses how the non-cash dividends distributedto the shareholders should be measured. A dividend obligation is recognized when thedividend was authorised by the appropriate entity and is no longer at the discretion of theentity. This dividend obligation should be recognised at the fair value of the net assets to bedistributed. The difference between the dividend paid and the amount carried forward of thenet assets distributed should be recognised in profit and loss. Additional disclosures are to bemade if the net assets being held for distribution to owners meet the definition of adiscontinued operation. The application of IFRIC 17 has no impact on the financial statementsof the Bank.

IFRIC 18, ‘Transfers of assets from customers’

IFRIC 18 was issued in January 2009. It clarifies how to account for transfers of items ofproperty, plant and equipment by entities that receive such transfers from their customers. Theinterpretation also applies to agreements in which an entity receives cash from a customerwhen that amount of cash must be used only to construct or acquire an item of property, plantand equipment, and the entity must then use that item to provide the customer with ongoingaccess to supply of goods and/or services. The Bank is not impacted by applying IFRIC 18.

IFRS 9, ‘Financial instruments part 1: Classification and measurement’

IFRS 9 was issued in November 2009 and replaces those parts of IAS 39 relating to theclassification and measurement of financial assets. Key features are as follows:

Financial assets are required to be classified into two measurement categories: thoseto be measured subsequently at fair value, and those to be measured subsequently atamortised cost. The decision is to be made at initial recognition. The classificationdepends on the entity’s business model for managing its financial instruments and thecontractual cash flow characteristics of the instrument.



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An instrument is subsequently measured at amortised cost only if it is a debt instrumentand both the objective of the entity’s business model is to hold the asset to collect thecontractual cash flows, and the asset’s contractual cash flows represent only paymentsof principal and interest (that is, it has only ‘basic loan features’). All other debtinstruments are to be measured at fair value through profit or loss.

All equity instruments are to be measured subsequently at fair value. Equityinstruments that are held for trading will be measured at fair value through profit or loss.For all other equity investments, an irrevocable election can be made at initialrecognition, to recognize unrealised and realised fair value gains and losses throughother comprehensive income rather than profit or loss. There is to be no recycling offair value gains and losses to profit or loss. This election may be made on aninstrument-by-instrument basis. Dividends are to be presented in profit or loss, as longas they represent a return on investment.

While adoption of IFRS 9 is mandatory from January 1, 2013, earlier adoption ispermitted.

The Bank is considering the implications of the standard, the impact on the Bank and thetiming of its adoption by the Bank.

(iii) Early adoption of standards

The Bank did not early-adopt new or amended standards in 2009.

(c) Financial instruments

(i) Classification

The Bank classifies its financial assets as financial assets at fair value through profit or loss.Management determines the classification of its investments at initial recognition.

Financial assets at fair value through profit or loss consist of financial assets held-for-tradingand those designated at fair value through profit or loss at inception. A financial asset isclassified in this category if acquired principally for the purpose of short-term profit taking or ifso designated by management.

Liabilities evidenced by demand and time deposits are classified as non-trading liabilities.



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(c) Financial instruments (continued)

(ii) Recognition

The Bank recognizes financial assets at fair value through profit or loss on the date itcommits to purchase the assets (trade date).

(iii) Measurement

Financial assets are measured initially at fair value plus transaction costs for all financialassets not carried at fair value through profit or loss.

Subsequent to initial recognition all financial assets at fair value through profit or loss aremeasured at fair value, except that any instrument that does not have a quoted market price inan active market and whose fair value cannot be reliably measured isstated at cost including transaction costs, less impairment losses.

Non-trading financial instruments including demand deposits with banks, due from banks,receivables from brokers, payables to brokers and demand and time deposits-customers aremeasured at historical cost plus accrued interest less impairment losses.

(iv) Fair value measurement principles

IFRS 7 specifies a hierarchy of valuation techniques based on whether the inputs to thosevaluation techniques are observable or unobservable. Observable inputs reflect market dataobtained from independent sources; unobservable inputs reflect the Bank’s marketassumptions. These two types of inputs have created the following fair value hierarchy:

• Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities. Thislevel includes listed equity securities and debt instruments on exchanges (for example, LondonStock Exchange, Frankfurt Stock Exchange, New York Stock Exchange) and exchange tradedderivatives like futures (for example, Nasdaq, S&P 500).

• Level 2 – Inputs other than quoted prices included within Level 1 that are observable for theasset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices).This level includes the majority of the OTC derivative contracts, traded loans and issuedstructured debt. The sources of input parameters like LIBOR yield curve or counterparty creditrisk are Bloomberg and Reuters.



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• Level 3 – inputs for the asset or liability that are not based on observable market data(unobservable inputs). This level includes equity investments and debt instruments withsignificant unobservable components.

Financial assets at fair value through profit or loss in the Bank are valued according to Level 1criteria using current bid prices available at the balance sheet date.

(v) Gains and losses on subsequent measurement

The change in fair value of trading securities and losses/gains from their sales are included in"net trading loss" in the statement of comprehensive income.

(vi) Derecognition

A financial asset is derecognized when the Bank loses control over the contractual rights overthe asset. This occurs when the contractual rights to receive cash flows from the financialasset cease to exist or where the Bank has transferred substantially all risks and rewards ofownership. A financial liability is derecognized when it is redeemed or otherwise extinguished.

Financial assets held-for-trading that are sold are derecognized and corresponding receivablesfrom the buyer for the payment are recognized as of the date the Bank commits to sell theassets. The Bank uses the specific identification method to determine the gain or loss onderecognition.

(vii) Impairment

Financial assets are reviewed at each balance sheet date to determine whether there isobjective evidence of impairment. If any such evidence exists, the assets recoverable amountis estimated and the carrying amount of the asset is reduced to its estimated recoverableamount either directly or through the use of an allowance account. The amount of the loss isincluded in the statement of comprehensive income.

If in a subsequent period the amount of an impairment loss decreases and the decrease canbe linked objectively to an event occurring after the write-down, the write-down or allowance isreversed through the statement of comprehensive income.



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(viii) Specific instruments

Cash and cash equivalents

Cash and cash equivalents in the statement of cash flows include cash on hand, cash held ondemand with banks, interest-bearing deposits with banks and United States treasury billswhich have maturities of three months or less from the date of acquisition.

(d) Intangible assets and equipment

All intangible assets and equipment are stated at historical cost less accumulated amortizationand depreciation, respectively. Historical cost includes expenditure that is directly attributableto the acquisition of the items.

Amortization and depreciation are calculated using the straight-line method to allocate theircost to their residual values over their estimated useful lives as follows:

Software: 5-10 years Equipment: 5 years

The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at eachbalance sheet date. Assets that are subject to amortization are reviewed for impairmentwhenever events or changes in circumstances indicate that the carrying amount may not berecoverable. An asset’s carrying amount is written down immediately to its recoverable amountif the asset’s carrying amount is greater than its estimated recoverable amount. Therecoverable amount is the higher of the asset’s fair value less costs to sell and value in use.

Gains and losses on disposals are determined by comparing proceeds with carrying amount.These are included in general and administrative expenses in the statement of comprehensiveincome.

(e) Segment reporting

A business segment is a group of assets and operations engaged in providing products orservices that are subject to risks and returns that are different from those of other businesssegments. A geographical segment is engaged in providing products or services within aparticular economic environment that are subject to risks in returns different from those ofsegments operating in other economic environments. The application of IFRS 8 does not haveany material effect for the Bank due to the fact that it is an off-shore private banking servicesunit of Banco Votorantim S.A. and therefore it has only one operating and reportable segment.



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(f) Foreign currency

Items included in the financial statements of the Bank are measured using the currency of theprimary economic environment in which the entity operates (“the functional currency”). Thefinancial statements are presented in United States dollars, which is the Bank’s functional andpresentation currency.

Transactions in foreign currencies are translated to United States dollars at the foreignexchange rate prevailing at the date of the transaction. Monetary assets and liabilitiesdenominated in currencies other than the United States dollar at the balance sheet date aretranslated to United States dollars at the foreign exchange rate ruling at that date. Foreignexchange differences arising on translation are recognised in "other income/expenses" in thestatement of comprehensive income.

(g) Interest income and expense

Interest income and interest expense are recognised in the statement of comprehensiveincome on the accrual basis, taking into account the effective interest method.

Interest income and interest expense include the amortisation of any discount or premium orother differences between the initial carrying amount of an interest bearing instrument and itsamount at maturity calculated on an effective interest rate basis.

(h) Fee and commission income

Fee and commission income is generally recognized on an accrual basis when the service hasbeen provided and is related to the private banking activities of the Bank.

(i) Income tax

The Bank's financial statements reflect no provision for taxes, as there are no corporate,income or capital gains taxes imposed in The Bahamas. However, the Bank may be subject tocapital gains tax on financial instruments in other jurisdictions.

(j) Preferred and Ordinary shares

Preferred shares are non-voting and in a winding up of the Bank, are given priority forrepayment of capital over all other shares. In all other respects, ordinary shares and preferredshares rank "pari passu" and both classes participate in the surplus profits of the Bank whichare from time to time distributed by way of dividends at the discretion of the directors.



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(k) Related parties

Related parties comprise the Bank's shareholders and affiliated entities, which are related onthe basis of common management/ownership and control, as well as directors and officers ofthese entities and the Bank.

(l) Fair value estimates

Fair value estimates are made at a specific point in time, based on relevant market informationand information about the financial instrument. These estimates do not reflect any premium ordiscount that could result from offering for sale at one time the Bank's entire holdings of aparticular financial instrument. These estimates are subjective in nature and involveuncertainties and matters of significant judgement and, therefore, cannot be determined withprecision. Changes in assumptions could significantly affect the estimates.

The carrying amounts of the Bank's significant financial instruments approximate their fairvalues because of one or more of the following reasons:

Immediate or short-term maturity Interest rates approximate current market rates

3 Cash and cash equivalents

Cash and cash equivalents comprise the following balances at the year-end:

2009 2008Cash and demand deposits with banks 311 189Due from banks (note 4) 7,516 7,991Financial assets at fair value through profit or loss 14,002 14,000

Total 21,829 22,180

4 Due from Banks

Balances included in this caption, as of December 31, 2009, represent deposits placed withbanks maturing within one month of the balance sheet date and earning interest at ratesranging from 0% to 0.12% (2008 - 0% to 0.125%) per annum.



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5 Financial assets at fair value through profit or loss

6 Other Assets

Other assets consist mainly of account receivables in the amount of $220 (2008- $271) andreceivable from brokers of $Nil (2008 - $109).

7 Equipment

The table below presents an analysis of equipment:

Year ended December 31, 2008Opening net book value 37Additions 9Depreciation charge (10)Closing net book value 36

At December 31, 2008Cost 46Accumulated Depreciation (10)Net book value 36

Year ended December 31, 2009Opening net book value 36Depreciation charge (10)Closing net book value 26

At December 31, 2009Cost 46Accumulated Depreciation (20)Net book value 26

2009 2008

United States Treasury Bill 14,002 14,000

Total financial assets at fair value through profit or loss 14,002 14,000



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8 Intangible assets

The table below presents an analysis of intangible assets:

Year ended December 31, 2008Opening net book value 1,563Additions 132Disposals (168)Amortization charge (150)Closing net book value 1,377

At December 31, 2008Cost 1,527Accumulated Amortization (150)Net book value 1,377

Year ended December 31, 2009Opening net book value 1,377Additions 10Amortization charge (168)Closing net book value 1,219

At 31 December 31, 2009Cost 1,537Accumulated Amortization (318)Net book value 1,219

9 Demand Deposits - Customers

The balances under this caption represent money market deposits. At December 31, 2009,interest paid to the Bank's depositors was at rates ranging from 0.00% to 0.20% (2008 –0.00% to 2.60%) per annum.

10 Time Deposits - Customers

Balances under this caption represent deposits made by customers. At December 31, 2009the Bank does not have any time deposits outstanding. At December 31, 2008, time depositsbore interest at fixed rates ranging from 3.42% to 3.85% per annum.



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11 Other Liabilities

Other liabilities at December 31, 2009 comprise account payables in the amount of $343 (2008- $375) and payable to brokers of $Nil (2008 - $109).

12 Net Fee and commission income

2009 2008IncomeBrokerage fee 704 271Custody fee 36 88Management fee 1,224 1,012Other commission fees 6 134

1,970 1,505ExpenseTax expenses - (1)Brokerage fee (8) (22)

(8) (23)

Net fee and commission income 1,962 1,482

13 General and administrative expenses

2009 2008Amortization of intangible assets 168 150Depreciation of equipment 10 10Technical services 431 386Processing expenses 76 109Staff expenses 43 52Other administrative expenses 73 95

801 802



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14 Related Party Transactions and Balances (Banco Votorantim S.A., BancoVotorantim S,A, - Nassau Branch and Raltic S.A.)

Assets 2009 2008Cash and demand deposits with banks 1 1Due from banks 2,531 -Other assets 71 177

2,603 178

LiabilitiesOther liabilities 19 30

Income StatementGeneral and administrative expenses 228 235

General and administrative expenses represent technical services rendered by Raltic S.A., anaffiliate,during the year in accordance with a service agreement.

15 Share Capital

On December 31, 2009, the Bank has authorized capital of US$ 10,000 (2008 - US$ 10,000)divided into 242,186 ordinary shares with no par value (2008 - 242,186) and 5,760,534preferred shares (2008 - 5,760,534). All of the shares have been issued and are fully paid asfollows:

2009 2008Ordinary shares 403 403Preferred shares 9,597 9,597

10,000 10,000

The common shares are entitled to one vote per share. The preferred shares are non-voting,do not have a stated interest rate and do not have stated terms of redemption.



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16 Foreign Currency Exposure

The Bank's assets and liabilities were denominated in United States dollars, except for thefollowing which were denominated in other currencies:

BahamianAssets Euro GBP BRL Dollars Total

Cash and demand deposits 81 20 1 79 181

Total financial assets 81 20 1 79 181

Liabilities

Demand deposits - customers 29 2 - - 31

Total financial liabilities 29 2 - - 31

Net financial position 52 18 1 79 150

At December 31, 2008Total financial assets 33 16 1 25 75Total financial liabilities 18 - - - 18Net financial position 15 16 1 25 57

Foreign currency gain for the year was $21 (2008 - gain $14) and is included in "other income"in the statement of comprehensive income.

17 Financial Risk Management

The Votorantim Finanças Group ("the Group") administration has developed strict policies andprocedures in order to implement a risk management system capable of managing, assessingand mitigating risks to their business. The concept of Integrated Risk Management providesthe Executive Board with an overview of all the risks incurred by companies that comprise theGroup.

An established Risk Management Committee ('RMC') meets periodically to assess the risksand define operating limits. Three sub-committees were constituted under the RMC, onecreated for the management of financial risks (market and liquidity), another to act as managerof credit risk and the third focuses on the management of operational risk.



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17 Financial Risk Management (continued)

The Bank has a risk management system that uses the best market practices, and in turnmeets the requirements according to Basel II.

Market risk is related to possible losses arising from fluctuations in the market prices offinancial investments, including those related to currencies and interest rates.

Credit risk arises from the failure of counterparties to perform according to the terms of thecontract. The gross notional or contract amounts of these financial instruments do notrepresent the Bank's exposure to credit risk. The Bank's credit risk exposures at any giventime is defined as the gross replacement value of the total receivable balance underoutstanding contracts, which are marked to market on a daily basis.

The basic procedures used for managing risk are: a) integrity in the pricing of financialinstruments; b) assessment of market risk with "Value at Risk" methodology and the simulationof scenarios; and c) daily monitoring of results with tests of adherence to the methodology("back-test").

The Bank specializes in wealth management, offering a wide range of products and servicesfrom portfolio management and investment advisory to securities custody and trading.

Due to it being focused exclusively on private banking activities, the Bank does not holdsignificant positions in financial instruments that generate significant exposure to market andcredit risks. This is evidenced by our sensitivity analysis below.

The surplus cash is invested in overnight deposits with top ranking banks and in USgovernment treasuries, decreasing the risk of liquidity as indicated below.

The management of the Operational Risk Committee uses a methodology that provides theidentification, categorization of events, risk assessment, control and monitoring of action plansand the capture of all loss events related with risk. The creation of a loss database is used incalculating the allocation of capital to cover operational risk, provided by the Basel IIagreement.

The combination of mapping and monitoring risks along with the information provided by therecords of losses, allows a continuous improvement in policies and procedures adopted by theGroup.

The management of capital risk aims to optimize the risk-return trade-off in order to minimizelosses through well defined business strategies in search of greater efficiency in thecomposition of the factors that would impact the Solvency Index (Basel).



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(a) Market Risk - Sensitivity analysis

The sensitivity analysis involves the institution's portfolio exposed to market risks in a readilyavailable market. Three possible scenarios were used in the sensitivity analysis on the portfolioas shown below. In all scenarios the results revealed similar behavior to that first scenariowhich comprises stability of the inherent market risks. We emphasize that the institution hasfinancial investments in low risk securities only, maintaining a conservative profile on themanagement of its cash flows:

Risk exposures Figures expressed in US DollarsRiskfactors Definition Scenarios for December 31, 2009

1 2 3

Interestrates

Exposure subject to changes ininterests rates of financialinstruments (8,055) (32,723) (57,386)

Risk exposures Figures expressed in US Dollars

Riskfactors Definition Scenarios for December 31, 2008

1 2 3

Interestrates

Exposure subject to changes ininterests rates of financialinstruments 111 110 110

The sensitivity analysis was performed within the following scenarios:

Scenario 1 – Probable scenario generated by the Risk Management area as follows:

Interest rates:A shift of +0.96% (2008 +1%) was applied, considering that the expected BRL exchangerate is +3.30% (2008 -2%) and the shift in the Brazilian fixed interest rate is +2.50% (2008 -1%).



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Scenario 2 - Shock of 25% (2008 – 25%) in all market risk factors described in scenario 1.

Scenario 3 - Shock of 50% (2008 – 50%) in all market risk factors described in scenario 1.

(b) Liquidity risk

This is the risk that the Bank has the necessary liquidity to meet its obligations as they fall due.The Bank manages its liquidity by matching as far as possible liabilities with assets of similarmaturity periods. The relevant maturity groupings of the Bank’s financial instruments based onthe remaining period at the balance sheet date to the contractual maturity date are as follows,on an undiscounted cash flow basis:

As of December 31, 2009

Up to onemonth

One month to

Threemonthsto one

One tofive

Totalthree months year yearsDemand deposits-customers 3,799 - - - 3,799Other liabilities 22 - 180 141 343

Total liabilities 3,821 - 180 141 4,142Total assets 22,051 6 5 - 22,062

As of December 31, 2008

Up to onemonth

One month toUp toone

One tofive

Totalthree months year yearsDemand deposits-customers 3,999 - - - 3,999Time deposits - customers 45 1,474 - - 1,519Other liabilities 143 200 141 - 484

-Total liabilities 4,187 1,674 141 - 6,002Total assets 22,476 132 19 4 22,631



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(c) Credit risks - Concentration of risks of financial assets with credit risk exposure

(i) Geographical Sectors

The following table summarises the Bank’s credit exposure at their carrying amounts (withouttaking into account any collateral held or other credit support), as categorised by geographicalregion as of December 31, 2009 and 2008. For this table, the Group has allocated exposuresto regions based on the country of domicile of its counterparties:

December 31, 2009

EuropeCaribbeanUnitedStates

SouthAmerica Total

Cash and demand deposits with banks 107 90 113 1 311Due from Banks - 2,531 4,985 - 7,516

Financial assets at fair value through profit orloss - - 14,002 - 14,002Other assets 22 104 14 93 233As at December 31, 2009 129 2,725 19,114 94 22,062

December 31, 2008

EuropeCaribbeanUnitedStates

SouthAmerica Total

Cash and demand deposits with banks 40 35 113 1 189Due from banks - - 7,991 - 7,991Financial assets at fair value through profit orloss - - 14,000 - 14,000Other assets 114 187 49 101 451As at December 31, 2008 154 222 22,153 102 22,631

(ii) Industry Sectors

The following table summarises the Bank’s credit exposure at carrying amounts (withouttaking into account any collateral held or other credit support), as categorised by the industrysectors of the Bank’s counterparties.



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Financial Real Public Investment OtherInstitutionsEstate SectorCompaniesServicesIndividuals Total

Cash and demand depositswith banks 311 - - - - - 311Due from banks 7,516 - - - - - 7.516Financial assets at fair valuethrough profit or loss - - 14,002 - - - 14.002Other assets 100 10 - 93 30 1 233As at December 31, 2009 7,926 10 14,002 93 30 1 22.062

Financial Real Public Investment OtherInstitutionsEstate SectorCompaniesServicesIndividuals Total

Cash and demand depositswith banks 189 - - - - - 189Due from banks 7,991 - - - - - 7,991Financial assets at fair valuethrough profit or loss - - 14,000 - - - 14,000Other assets 274 10 - 80 83 4 451As at December 31, 2008 8,454 10 14,000 80 83 4 22,631

(d) Capital Management

The Bank’s objectives when managing capital, which is a broader concept than “equity” on theface of the balance sheet, are:

To comply with the capital requirements set by the Central Bank; To safeguard the Bank’s ability to continue as a going concern so that it can continue to

provide returns for its shareholders and benefits for other stakeholders; and to maintain astrong capital base to support the development of its business;

Capital adequacy and the use of regulatory capital are monitored by the Bank’smanagement, employing techniques designed to ensure compliance with guidelinesestablished by the Central Bank. The required information is filed with the Central Bank ona quarterly basis.

At December 31, 2009, the Central Bank requires the Bank to maintain a ratio of totalregulatory capital to risk- weighted assets at or above a minimum of 20% (2008 – 20%).



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The table below summaries the composition of regulatory capital and shows the capitaladequacy ratio of the Bank as of the balance sheet date. During 2009 and 2008, the Bankcomplied with all of the externally imposed capital requirements to which it was subject.

2009 2008Tier 1 capitalShare capital 10,000 10,000Retained earnings 9,165 8,042

Total 19,165 18,042

Risk-weghted assets 5,770 6,151

Capital adequacy ratio 332% 293%

18 Employee benefits

The Bank has no employee benefits for its directors and key management personnel as theseexpenses are paid by other companies in the Votorantim Finanças Group.

votorantim bank limited bank 2009.pdf · votorantim bank limited statement of comprehensive income...

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