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SECURITIES
  AND EXCHANGE COMMISSION**Washington, D.C. 20549**

**FORM 20-F**

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| | REGISTRATION STATEMENT PURSUANT TO SECTION
      12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
| | ----------------------------------------------------------------------------------------------------

| |                                                                                                                                             
| | --------------------------------------------------------------------------------------------------------------------------------------------
| | OR                                                                                                                                          
| |                                                                                                                                             
| | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
      OF THE SECURITIES EXCHANGE ACT OF 1934
      For the fiscal year ended December 31, 2002

| |                                                                                               
| | ----------------------------------------------------------------------------------------------
| | OR                                                                                            
| |                                                                                               
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR
      15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
| |                                                                                               
| | OR                                                                                            

For the transition period from
  ______________ to __________

Commission file number: 1-12526

**BANCO
  ESPÍRITO SANTO, S.A.**(Exact name of Registrant as specified in its charter)

**REPUBLIC OF PORTUGAL**(Jurisdiction of incorporation or organization)

**Avenida da Liberdade, 195,
  1250  142 Lisbon, Portugal
  (Address of principal executive offices)**

Securities registered or to be registered
  pursuant to Section 12(b) of the Act:

|Title of
      each class Non-Cumulative
        Guaranteed Preference Shares,
        Series A and Series B (par value $25 each)*                                 | Name of each exchange
      on which registered
      New
        York Stock Exchange
|------------------------------------------------------------------------------------------------------------------------------------------------------------------ | -------------------------------------------------------------------------------------
|                                                                                                                                                                  
|*      Issued
      by Espírito Santo Overseas Limited, a wholly owned subsidiary of the Registrant
      and guaranteed as to certain payments by the Registrant.
|                                                                                                                                                                   |                                                                                      

Securities registered or to be registered
  pursuant to Section 12(g) of the Act:**None**

Securities for which there is a
  reporting obligation pursuant to Section 15(d) of the Act:**None**

The number of outstanding shares of
  each of the issuer’s classes of capital or common stock as of December 31,
  2002:



|**Ordinary Shares, nominal
      value euro 5.00 each:**300,000,000
|-------------------------------------------------------------------

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Indicate by check mark whether the
  Registrant (1) has filed all reports required to be filed by Section 13 or 15(d)
  of the Securities Exchange Act of 1934 during the preceding 12 months (or for
  such shorter period that the Registrant was required to file such reports) and
  (2) has been subject to such filing requirements for the past 90 days.



|Yes |  | No
|--- |  | --

Indicate by check mark which financial
  statement item the registrant has elected to follow.



|Item 17 |  | Item 18
|------- |  | -------



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INTRODUCTION

Banco Espírito Santo, S.A. is a limited
  liability banking corporation (sociedade anónima) incorporated under
  the laws of Portugal. As used herein, except as the context otherwise requires,
  the term the “Bank” or “BES” refers to Banco Espírito
  Santo, S.A. and the term “BES Group” or the “Company”
  refers to the Bank and its consolidated subsidiaries. The Bank publishes its consolidated financial statements expressed in euro (“EUR” or “euro”), the currency of Portugal and other members of the European Union that have adopted the single currency.  Effective January 1, 1999 the euro (“€”) was introduced as the common legal currency of the member states of the European Economic and Monetary Union, including Portugal (the “Participating Countries”).  Beginning with the 1999 financial year, the Bank adopted the euro as its reporting currency in its consolidated financial statements.  The Portuguese Escudo had previously been utilized for financial reporting purposes.  Because the euro did not exist prior to January 1, 1999, there are no historical exchange rates for the euro in prior periods.  As a result, the Bank has used the official fixed exchange rate at January 1, 1999 of euro 1 = PTE 200.482 in retroactively restating the financial statements for all periods
 presented for which the Portuguese Escudo had been the reporting currency.  The comparative financial statements, reported in euro, depict the same trends as would have been presented if the Bank had presented its financial statements in Portuguese Escudos.  However, the financial statements for the periods prior to January 1, 1999 will not be comparable to the financial statements of other companies that report in euro and that have restated amounts from a currency other than the Portuguese Escudo. In this Annual Report on Form 20-F
    (the “Form 20-F”), references to “U.S. dollars”, “U.S.$”
    or “$” are to United States (“U.S.”) currency. On
    June 25, 2003, the noon buying rate in The City of New York for cable
    transfers as certified for customs purposes by the Federal Reserve Bank of
    New York (the “Noon Buying Rate”) was $1.1592 per euro. For historical
    information regarding rates of exchange between U.S. dollars, Portuguese escudos
    and the euro, see “Item 3. Key Information Exchange Rates”. The financial statements of the BES Group are prepared in accordance with accounting principles and practices, established by the Bank of Portugal, as applicable for the financial services sector (“Portuguese GAAP”).  In this Form 20-F, the financial statements of the BES Group have been reclassified, in all material respects, to comply with the presentation prescribed by Article 9 of Regulation S-X of the US Securities and Exchange Commission (the “SEC”).  As a result, certain financial information presented in this Form 20-F differs from financial information published by the BES Group in Portugal. The BES Group bases its estimates of market share and other operating and statistical data included in this Form 20-F on information supplied by the Bank of Portugal and the Portuguese Banking Association, as well as information made public by other market participants or associations. The Bank’s fiscal year ends on December 31, and references herein to “fiscal year” refer to the year ended December 31 of the year specified.


Forward-Looking information

This document contains forward-looking
    statements within the meaning of Section 21E of the US Securities Exchange
    Act of 1934, as amended (the “Exchange Act”) and Section 27A of
    the US Securities Act of 1933, as amended (the “Securities Act”)
    with respect to certain of the BES Group’s plans and its current goals
    and expectations relating to its future financial condition and performance.
    These forward-looking statements can be identified by the fact that they do
    not relate only to historical or current facts. Forward-looking statements
    often use words such as “anticipate,” “target,” “expect,”
    “estimate,” “intend,” “plan,” “goal,”
    “believe,” or other words of similar meaning. In particular, this
    document includes forward-looking statements relating, but not limited to,
    the BES Group’s potential exposures to various types of market risks,
    such as interest rate risk, foreign exchange rate risk and equity price risk.
    See “Item 11. Quantitative and Qualitative Disclosures About Market
    Risk”. By their nature, forward-looking statements involve risk and
    uncertainty because they relate to future events and circumstances, a number
    of which are beyond the BES Group’s control. As a result, the BES Group’s
    actual future results may differ materially from the plans, goals and expectations
    set forth in the forward-looking statements.


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Factors that could cause actual results to differ materially from those estimated by the forward-looking statements contained in this document include changes in: general economic conditions in Portugal and in other countries in which the BES Group has significant business activities or investments; the monetary and interest rate policies of the European Central Bank (“ECB”) and other central banks; inflation; deflation; unanticipated volatility in interest rates, foreign currency exchange rates and equity prices; changes in Portuguese, EU and other laws, regulations and taxes; changes in competition and pricing environments; the inability to hedge certain risks economically; the adequacy of loan loss reserves; acquisitions or restructurings; technological changes; changes in consumer spending and saving habits; the occurrence of a natural calamity or political crisis and the success of the BES Group in managing the risks inv
olved in the foregoing.  See “Item 3. Key InformationRisk Factors” for additional information on factors that could cause actual results to differ materially from those that may be indicated by the forward-looking statements contained in this document. Any forward-looking statements made by or on behalf of the BES Group speak only as of the date they are made.  The BES Group does not undertake to update forward-looking statements to reflect any changes in the BES Group’s expectations with regard thereto or any changes in events, conditions or circumstances on which any such statement is based.  The reader should, however, consult any further disclosures the BES Group may make in documents it files with the SEC.


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TABLE OF CONTENTS

Page

|INTRODUCTION | i                                                                                 
|------------ | ----------------------------------------------------------------------------------
|             | Forward-Looking
      information                                                 
|PART I       |                                                                                   
|ITEM 1.      | IDENTITY OF DIRECTORS,
      SENIOR MANAGEMENT AND ADVISORS                       
|ITEM 2.      | OFFER STATISTICS
      AND EXPECTED TIMETABLE                                     
|ITEM 3.      | KEY INFORMATION                                                                   
|             | Selected Data                                                                     
|             | Exchange Rates                                                                    
|             | Risk Factors                                                                      
|ITEM 4.      | INFORMATION ON THE
      COMPANY                                                  
|             | Background                                                                        
|             | Commercial Banking                                                                
|             | Investment Banking
      and Stockbrokerage                                       
|             | Other Activities                                                                  
|             | Competition                                                                       
|             | Selected Statistical
      Information                                            
|             | Supervision and
      Regulation                                                  
|             | Organizational
      Structure                                                    
|             | Plants and Equipment                                                              
|ITEM 5.      | OPERATING AND
      FINANCIAL REVIEW AND PROSPECTS                                
|             | Exchange Rates                                                                    
|             | The Portuguese
      Economy                                                      
|             | Results of Operations                                                             
|             | 2002 compared
      with 2001                                                     
|             | 2001 compared with
      2000                                                     
|             | Liquidity and Capital
      Resources                                             
|             | Critical Accounting
      Policies                                                
|             | Off-balance Sheet
      Transactions                                              
|ITEM 6.      | DIRECTORS, SENIOR
      MANAGEMENT AND EMPLOYEES                                  
|             | Directors and
      Senior Management                                             
|             | Compensation                                                                      
|             | Board Practices                                                                   
|             | Employees                                                                         
|             | Share Ownership                                                                   
|ITEM 7.      | MAJOR SHAREHOLDERS
      AND RELATED PARTY TRANSACTIONS                           
|             | Major Shareholders                                                                
|             | Related Party Transactions                                                        
|ITEM 8.      | FINANCIAL INFORMATION                                                             
|             | Financial Statements                                                              
|             | Legal Proceedings                                                                 
|             | Significant Changes                                                               
|ITEM 9.      | THE OFFER AND
      LISTING                                                       
|ITEM 10.     | ADDITIONAL INFORMATION                                                            
|             | Memorandum and
      Articles of Association                                      
|             | Material Contracts                                                                
|             | Exchange Controls                                                                 
|             | Taxation                                                                          
|             | Documents on Display                                                              
|ITEM 11.     | QUANTITATIVE AND
      QUALITATIVE DISCLOSURES ABOUT MARKET RISK                  
|             | Introduction                                                                      
|             | Nature of Primary
      Market Risk Exposures                                     
|             | Measurement of
      Market Risk                                                  
|             | Credit Risk Management                                                            
|             | Operating Risk                                                                    
|ITEM 12.     | DESCRIPTION OF
      SECURITIES OTHER THAN EQUITY SECURITIES                      
|PART II      |                                                                                   
|ITEM 13.     | DEFAULTS, DIVIDEND
      ARREARAGES AND DELINQUENCIES                             
|ITEM 14.     | MATERIAL MODIFICATIONS
      TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
|ITEM 15.     | CONTROLS AND PROCEDURES                                                           
|ITEM 16A.    | AUDIT COMMITTEE
      FINANCIAL REPORT                                            
|ITEM 16B.    | CODE OF ETHICS                                                                    
|ITEM 16C.    | PRINCIPAL ACCOUNTANT
      FEES AND SERVICES                                      
|PART III     |                                                                                   
|ITEM 17.     | FINANCIAL STATEMENTS                                                              
|ITEM 18.     | FINANCIAL STATEMENTS                                                              
|ITEM 19.     | EXHIBITS                                                                          
|SIGNATURES   | 90                                                                                

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PART I

|ITEM 1. | IDENTITY OF DIRECTORS, SENIOR MANAGEMENT
      AND ADVISORS
|------- | -----------------------------------------------------------

Not applicable.


|ITEM 2. | OFFER STATISTICS AND EXPECTED TIMETABLE
|------- | ---------------------------------------

Not applicable.


|ITEM 3. | KEY INFORMATION
|------- | ---------------

Selected Consolidated
  Financial Data

The selected consolidated financial data as of and for the years ended December 31, 1998, 1999, 2000, 2001, 2002 set forth below are derived from the Bank’s consolidated financial statements.  The Bank’s consolidated financial statements as of and for the years ended December 31, 1998, 1999, 2000 and 2001 have been audited by PricewaterhouseCoopers, and the Bank’s consolidated financial statements as of and for the year ended December 31, 2002 have been audited by KPMG. The selected financial data set forth below should be read in conjunction with, and is qualified in its entirety by reference to, the Bank’s consolidated financial statements and notes thereto included elsewhere in this annual report. The Bank’s consolidated financial statements have been prepared in accordance with Portuguese GAAP, which differs in certain significant respects from U.S. GAAP. See “Item 5. Operating and Financial Review
 and ProspectsU.S. GAAP Reconciliation” and Note 23 to the Consolidated Financial Statements.


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|                                                                         | As of and for the year
      ended December 31,    |     
|------------------------------------------------------------------------ | -------------------------------------------------- | ----
|                                                                        
|1998                                                                     |                                                    | 1999
|                                                                         |                                                    |     
|                                                                         | (in
      thousand of euro, except per share data) |     
|In accordance with Portuguese
      GAAP:                                |                                                    |     
|                                                                         |                                                    |     
|INCOME STATEMENT DATA:                                                   |                                                    |     
|Total interest income                                                    | 1,276,473                                          |     
|Total interest expense                                                   | 794,690                                            |     
|Net interest income                                                      | 481,783                                            |     
|Provision for loan losses                                                | 128,296                                            |     
|Net interest income after provision
      for loan losses                | 353,487                                            |     
|Total other income                                                       | 435,322                                            |     
|Total other expenses                                                     | 571,708                                            |     
|Income before minority interests,
      equity earnings and income taxes | 217,101                                            |     
|Income taxes                                                             | 42,627                                             |     
|Minority interests (1)                                                   | 10,694                                             |     
|Equity in earnings of associated
      companies                         | 4,579                                              |     
|Net income                                                               | 168,359                                            |     
|Number of shares at the end of
      period (thousands)                  | 117,500                                            |     
|Weighted average number of shares
      (thousands)                      | 104,456                                            |     
|Net income per share (2)                                                 | 1.612                                              |     
|Gross dividend per share (euro)
      (2)                                | 0.691                                              |     
|Gross dividend per share (US
      dollar) (2)                           | 0.741                                              |     
|BALANCE SHEET DATA:                                                      |                                                    |     
|Assets                                                                   |                                                    |     
|Cash and cash equivalents                                                | 4,383,994                                          |     
|Trading account securities                                               | 816,592                                            |     
|Investment account securities                                            | 4,413,376                                          |     
|Net loans                                                                | 13,903,503                                         |     
|Investments in other equity holdings
      and associated companies      | 94,383                                             |     
|Other                                                                    | 1,446,732                                          |     
|Total Assets                                                             | 25,058,580                                         |     
|Liabilities and Shareholders'
      Equity                               |                                                    |     
|Deposits                                                                 | 18,582,786                                         |     
|Short-term borrowings                                                    | 2,320,657                                          |     
|Long-term debt                                                           | 2,192,022                                          |     
|Other liabilities                                                        | 484,379                                            |     
|Total Liabilities                                                        | 23,579,844                                         |     
|Minority interests (3)                                                   | 375,156                                            |     
|Shareholders' equity                                                     | 1,103,580                                          |     
|Total Liabilities and shareholders'
      equity                         | 25,058,580                                         |     
|                                                                         |                                                    |     

|   
|---
|   
|(1)
|   
|(2)
|   
|(3)

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|                                                                                         |                                                            | As of and for the year
      ended December 31,                    |           
|---------------------------------------------------------------------------------------- | ---------------------------------------------------------- | ------------------------------------------------------------------ | ----------
|                                                                                         |                                                            |                                                                    |           
|                                                                                         |                                                            | 1998                                                               |           
|                                                                                         |                                                            |                                                                    |           
|                                                                                         |                                                            | (in
      thousand of euro, except percentages and per share data) |           
|In accordance
      with Portuguese GAAP:                                                |                                                            |                                                                    |           
|Ratios:                                                                                  |                                                            |                                                                    |           
|Profitability
      ratios:                                                              |                                                            |                                                                    |           
|                                                                                         | Return on average
      assets (1)                         | 0.75                                                               | %         
|                                                                                         | Return on average equity (2)                               | 16.55                                                              | %         
|                                                                                         | Net interest
      margin (3)                              | 2.45                                                               | %         
|Capital ratios:                                                                          |                                                            |                                                                    |           
|                                                                                         | Average shareholders'
      equity to average total assets | 4.54                                                               | %         
|                                                                                         | Shareholders' equity to total
      assets at period end   | 4.40                                                               | %         
|Risk-weighted
      Assets Ratios: (4)                                                   |                                                            |                                                                    |           
|                                                                                         | Tier 1 Capital Ratio:                                      |                                                                    |           
|                                                                                         | Basle (5)                                                  | 4.00                                                               | %         
|                                                                                         | BES                                                        | 6.87                                                               | %         
|                                                                                         | Total Capital Ratio:                                       |                                                                    |           
|                                                                                         | Basle (5)                                                  | 8.00                                                               | %         
|                                                                                         | BES                                                        | 10.93                                                              | %         
|                                                                                         | Solvency Ratio:                                            |                                                                    |           
|                                                                                         | Bank of Potugal
      (6)                                  | 8.00                                                               | %         
|                                                                                         | BES                                                        | 9.22                                                               | %         
|Ratio of earnings
      to combined fixed charges and preference share dividends(7)      |                                                            |                                                                    |           
|                                                                                         | Including interest
      on deposits                       | 1.27                                                               | %         
|                                                                                         | Excluding interest on deposits                             | 2.41                                                               | %         
|                                                                                         |                                                            |                                                                    |           
|Credit Quality
      Data:                                                               |                                                            |                                                                    |           
|Allowance
      for loan losses                                                          | 424,761                                                    |                                                                    | 516,480   
|Allowance for loan
      losses as a percentage of total loans and advances to customers | 2.95                                                       | %                                                                  | 2.97      
|Overdue
      loans (8)                                                                  | 338,918                                                    |                                                                    | 392,180   
|Overdue loans as
      a percentage of total gross loans                                 | 2.35                                                       | %                                                                  | 2.26      
|Allowance for loan losses as a percentage of overdue loans                               | 125.30                                                     | %                                                                  | 131.69    
|In accordance
      with US GAAP: (9)                                                    |                                                            |                                                                    |           
|Net
      income                                                                         | 133,483                                                    |                                                                    | 159,347   
|Shareholders' equity
      (4)                                                           | 1,181,182                                                  |                                                                    | 1,267,482 
|Total
      assets (4)                                                                   | 25,230,081                                                 |                                                                    | 29,380,667
|                                                                                         |                                                            |                                                                    |           

|   
|---
|   
|(1)
|   
|(2)
|   
|(3)
|   
|(4)
|   
|(5)
|   
|(6)
|   
|(7)
|   
|(8)
|   
|(9)

Subject to shareholders’ approval, the Bank expects to continue to pay dividends equal to at least 50% of the Bank’s net income each year.  However, the payment of any future dividend will depend upon the earnings and financial condition of the BES Group and such other factors as the Board of Directors deem relevant.


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Exchange Rates

The vast majority of the BES Group’s assets, liabilities and revenues are denominated in euro.  See “Item 5. Operating and Financial Review and ProspectsExchange Rates”. The following tables show certain information regarding the U.S. dollar per euro noon buying rates and the Portuguese escudo/U.S. dollar exchange rates for the periods and dates indicated, based on the Noon Buying Rate.  Because the euro did not exist prior to January 1, 1999, there are no actual historical exchange rates for the euro for years ended before that date.


|Month                              |                      | High   |  | Low    | 
|---------------------------------- | -------------------- | ------ |  | ------ | 
|                                   |                      |        |  |        | 
|                                   | (euro
      per US$) |       
|June (through
      June 25, 2003) |                      | 1.1869 |  | 1.1498 | 
|May 2003                           |                      | 1.1852 |  | 1.1199 | 
|April 2003                         |                      | 1.1179 |  | 1.0621 | 
|March 2003                         |                      | 1.1062 |  | 1.0545 | 
|February 2003                      |                      | 1.0875 |  | 1.0708 | 
|January 2003                       |                      | 1.0861 |  | 1.0361 | 

|Year ended
      December 31, |  | Period End          |  | Average
      Rate (1) |  | High   |  | Low    | 
|----------------------------- |  | ------------------- |  | ---------------------- |  | ------ |  | ------ | 
|                              |  |                     |  |                        |  |        |  |        | 
|                              |  | (PTE
      per US$) | 
|1998                          |  | 170.65              |  | 180.15                 |  | 190.00 |  | 164.85 | 
|                              |  |                     |  |                        |  |        |  |        | 
|                              |  | (US$ per euro)      | 
|1999                          |  | 1.0752              |  | 1.0587                 |  | 1.1811 |  | 1.0016 | 
|2000                          |  | 0.9387              |  | 0.9207                 |  | 1.0334 |  | 0.8269 | 
|2001                          |  | 0.8900              |  | 0.8909                 |  | 0.9534 |  | 0.8370 | 
|2002                          |  | 1.0485              |  | 0.9495                 |  | 1.0485 |  | 0.8594 | 

|   
|---
|   
|(1)

Risk Factors

This section describes some of the risks that could affect the BES Group’s businesses.  The factors below should be considered in connection with any forward-looking statements in this annual report and the cautionary statements contained in “Introduction” on page i. The risks below are not the only
    ones that the BES Group facessome risks are not yet known to the BES
    Group and some that the BES Group does not currently believe to be material
    could later turn out to be material. All of these risks could materially affect
    the BES Group’s business, its revenues, operating income, net income,
    net assets and liquidity and capital resources.


Economic Environment

As a financial group whose core business is taking deposits and using them to make loans, primarily in Portugal, the performance of the BES Group, its results of operations and its financial condition are materially affected by the state of the Portuguese economy.  To a lesser extent, the BES Group’s performance, results of operations and financial condition are also affected by the economic conditions and levels of economic activity in other countries where the BES Group operates, such as the United States, Spain, the United Kingdom and Brazil.  A downturn in the economy of any of these countries could lead to an increase in the defaults by the BES Group’s customers on the loans extended to them.  In addition, protracted economic declines could reduce the level of activity in the market, thereby reducing the BES Group’s liquidity.


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Regulatory Environment and Restrictions

The BES Group is subject to extensive regulation by the European Central Bank and the Bank of Portugal, including with respect to minimum levels of liquidity, solvency and provisioning.


The minimum cash requirement is currently fixed at 2% of the total amount of deposits. An increase in the minimum cash requirement or a decline in the interest rate accrued on these cash reserves could have an adverse impact on the BES Group’s results of operations.


Portuguese banks are required to maintain a solvency ratio, i.e., Tier I capital plus Tier II capital divided by risk-weighted assets, of at least 8.0%.  At December 31, 2002, BES Group’s solvency ratio was 10.74%.  The capital adequacy requirements applicable to the BES Group limit its ability to extend loans to customers and may require it to issue additional equity capital or subordinated debt in the future, which are expensive sources of funds.  Any change in the existing, or the introduction of new, capital adequacy requirements could have an adverse impact on the BES Group’s results of operations.


In addition, the Bank of Portugal
    has established minimum provisioning requirements regarding current loans,
    overdue loans, securities, equity holdings, sovereign risk and other contingencies.
    Therefore, any change in these requirements could have a material adverse
    impact on the BES Group’s results of operations. See “Item 4.
    Information on the CompanySelected Statistical InformationProvision
    and Allowance for Loan Losses” for more information on the BES Group’s
    provisioning policies with respect to loans.


Market Risk, Interest Rate Risk and Currency Risk

The BES Group is subject to the
    risks typical of banking activity, such as fluctuations in the prevailing
    levels of interest rates and exchange rates and capital market volatility.
    For more information on these risks, see “Item 11. Quantitative and
    Qualitative Disclosures About Market Risk”.


Credit Risk

In addition to the risks described
  above, the BES Group is subject to credit risk, i.e., the risk that the
  group’s borrowers and other counterparties may become unable to meet their
  payment obligations to the BES Group. Although the BES Group regularly reviews
  its exposure to specific borrowers and other counterparties and to specific
  industries and countries that it believes present special concerns, defaults
  may arise from events and circumstances that are difficult or impossible to
  predict or detect. In addition, the BES Group’s collateral may be insufficient
  to cover its exposure, for example, as a result of sudden market declines that
  reduce the value of the collateral. Accordingly, if a major borrower or other
  counterpart were to default on its obligations, the BES Group’s results
  of operations and financial condition could suffer.


The BES Group’s provisions for
  credit losses provide a reserve against potential losses inherent in loans and
  advances. Estimating potential losses, however, is inherently uncertain and
  depends on many factors, including general economic conditions, changes in the
  ratings assigned to the BES Group’s borrowers and other counterparties,
  structural changes in industries that alter the competitive positions of the
  companies operating in these industries as well as other external factors, such
  as legal and regulatory requirements. An increase in the BES Group’s provisions
  for loan losses or any loan losses in excess of these provisions could have
  an adverse effect on the BES Group’s financial condition and results of
  operations.


Competition

Structural changes in the Portuguese economy over the past several years have significantly increased the scope and intensity of competition in the Portuguese banking sector.  These changes were mainly related to the privatization of large sectors of the economy, including banking and insurance, as well as Portugal’s integration into the European Union and the introduction of the euro.


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The BES Group faces intense competition
  in all of the principal markets in which it is active, especially in the Portuguese
  banking market (deposits, mortgages, leasing, investment banking and asset management),
  where it competes with Portuguese commercial banks, savings and investment banks,
  foreign banks (many of which have recently entered the Portuguese market). In
  recent years, mergers and acquisitions involving some of the largest Portuguese
  banks have resulted in significant market concentration and additional competition
  to the BES Group. The BES Group’s principal competitors are Caixa Geral
  de Depósitos, Banco Comercial Português Group, BPI Group and Santander
  Central Hispano Group. Competition has further increased as a result of the
  emergence of non-traditional distribution channels, such as Internet and telephone
  banking.


|ITEM 4. | INFORMATION ON THE COMPANY
|------- | --------------------------

Background

BES is a limited liability banking
  corporation (sociedade anónima) incorporated under the laws of Portugal.
  According to the Portuguese Banks Association, the BES Group, with total consolidated
  assets at December 31, 2002 of euro 40.8 billion is the third largest full-service
  financial group operating in Portugal in terms of total assets. At that date
  the BES Group’s consolidated gross loan portfolio totalled euro 25.9 billion
  and, net of loan loss provisions, represented approximately 62% of its total
  assets.


The Bank’s origins date from
  1884, when José Maria do Espírito Santo Silva founded a bank in Lisbon,
  which was BES predecessor. After the Second World War, the Bank became one of
  Portugal’s largest commercial banks under the direction and leadership
  of the Espírito Santo family. In 1975, virtually all institutions in the banking
  and insurance industries, including the Bank, were nationalized by the Portuguese
  government. The Espírito Santo family, deprived of its Portuguese base, began
  operations outside of Portugal, primarily in the financial services market,
  and in 1984 established the predecessor of Espírito Santo Financial Group S.A.
  (“ESFG”), an integrated financial services group.


In 1986, the Portuguese government
  embarked upon a privatization program and, in 1991, began the privatization
  of the Bank. ESFG reacquired control of the Bank in 1992 in association with
  Crédit Agricole, S.A. (“Crédit Agricole”), a major
  French financial services group, and other investors. See “Item 7. Major
  Shareholders and Related Party Transactions”.


ESFG and its subsidiaries (the “ESFG
  Group”) hold a 48.4% voting and a 32.1% economic interest in the Bank.
  Crédit Agricole is a minority investor in the Bank and is the ESFG Group’s
  strategic partner in the Bank’s management and operation, particularly
  in connection with the development of products in the retail sector. The general
  public owns approximately 36% of the Bank’s ordinary shares. The Bank’s
  ordinary shares are listed on the Euronext-Lisbon (formerly the Lisbon and Oporto
  Stock Exchange) and ESFG’s ordinary shares are listed on the New York,
  London and Luxemburg Stock Exchanges as well as Euronext-Lisbon.


The legal name of the Bank is Banco
  Espírito Santo, S.A. The principal executive office of the Bank is located at
  Avenida da Liberdade, 195, 1250  142 Lisbon, Portugal, and its telephone
  number is (011-351-21) 359 70 00.


Through its subsidiaries, ESFG engages
  in a broad range of banking activities, including commercial banking, investment
  banking, asset management, stock brokerage and private banking, and a full line
  of insurance operations. ESFG conducts its commercial banking activities primarily
  through the Bank and the Bank’s wholly owned subsidiary Banco Internacional
  de Crédito, S.A. (“BIC”), a commercial bank specializing
  in Portuguese government subsidized residential mortgage loans (including the
  former government subsidized mortgages). The ESFG Group’s investment banking
  business is managed primarily through the Bank’s wholly owned subsidiary
  Banco Espírito Santo de Investimento, S.A. (“BESI”), which is based
  in Portugal and is part of the BES Group, while its asset management activities
  are operated through Espírito Santo Activos Financeiros S.A. (“ESAF”)
  (also based in Por tugal and part of the BES Group), Compagnie Bancaire Espírito
  Santo S.A. (formerly Compagnie Financiére Espírito Santo S.A.) (“CBESSA”),
  which is based in Switzerland and is not part of the BES Group, and Espírito
  Santo Activos Financieros, S.A., which is based in Spain and is part of the
  BES Group. ESFG conducts its stockbrokerage activities through Espírito Santo
  Dealer, S.A. (“ES Dealer”), a subsidiary of the Bank, and Benito
  y Monjardin, SVB, S.A., which operates in Spain and is part of the BES Group.
  The two companies based in Spain coordinate their activities closely with BESI.
  ESFG conducts its insurance operations through Companhia de Seguros Tranquilidade,
  S.A. (“Tranquilidade”), which is not part of the BES Group.


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The Bank’s commercial
  banking network also serves as the marketing core of the ESFG Group’s
  integrated financial services group in Portugal. The Bank works closely with
  Tranquilidade to promote the sale of Tranquilidade’s life and more recently
  non-life insurance products through the Bank’s branch network (“bancassurance”). As part of the ESFG Group’s
    strategy to integrate its inter-related businesses, the Bank has consolidated
    its control over other ESFG Group entities in recent years. In 1997, the Bank
    increased its shareholding in BIC from 47% to 100%. In 2000, the Bank increased
    its shareholding in BESI from 48.6% to 100%. During the past several years, the
    Bank has also achieved some growth by acquisition outside Portugal. In September
    1997, the BES Group acquired an indirect interest in a private commercial
    bank in Brazil which has since been renamed Banco Boavista Interatlântico,
    S.A. (“BBIA”). The BES Group acquired BBIA together with the Brazilian
    group Monteiro Aranha S.A., its strategic partner in the area, through Interatlântico,
    S.A. (“IASA”), a holding company that owned 94% of BBIA. In 2000,
    IASA entered into an agreement with Bradesco, S.A. (“Bradesco”)
    a Brazilian bank, pursuant to which it swapped its entire interest in BBIA
    for 6.5% of Bradesco shares. During 2001, the Monteiro Aranha group and Crédit
    Agricole divested their interest in IASA, in exchange for a 3.25% interest
    in Bradesco. As a result of these transactions the BES Group increased its
    shareholding in IASA to 100% and acquired an indirect interest in Bradesco
    of 3.29%. During 2002, in order to concentrate in BES all significant financial
    equity holdings, the shares representing 3.29% of Bradesco were transferred
    to the Bank. As a result, BES reduced its participation in IASA from 100%
    to 19% of its voting interests. During 2000, BES acquired Espírito
    Santo Bank (“ES Bank”), formerly an ESFG subsidiary, located in
    Miami (Florida), and engaged in private banking for Latin American customers,
    particularly in Brazil and Venezuela (investment of euro 71 million), Benito
    y Monjardin, a Spanish asset management and brokerage company, and Espírito
    Santo Activos Financieros, a Spanish asset management company (together an
    investment of euro 95 million). BES also increased its stake in the Kredyt
    Bank (euro 50 million) and acquired a 2.8% stake in Banque Marocaine du Commerce
    Exterieur (euro 30 million) as well as a minority stake in Bradesco (euro
    99 million) described above. During the first quarter of 2002, BES sold its
    stake in Kredyt Bank in order to concentrate its resources in Portugal and
    Spain. The sale generated a gain of euro 18 million. BES Group comprises two groups of
    companies: (i) operational units, comprising companies providing financial
    services and (ii) outsourcing and other units, comprising companies providing
    support services, cleaning services, research and consultancy services, IT
    support, real estate management and other related services. The first of these groups accounts
    for almost all of the assets, income and net income of BES Group and for management
    purposes is divided into the following segments:


| | • | Banking, which includes BES (private
      and corporate banking), BIC (mortgage loans), BESI (investment banking),
      BESSA (private and corporate banking in Spain), BES ORIENTE (private and
      corporate banking in Macao) and ES Bank (private and corporate banking in
      the United States), BEST (on-line bank specializing in asset management),
      BES Azores (private and corporate banking), BES International SGPS (holding
      company, controlling 100% of Bank Espírito Santo International Limited 
      BESIL) and ES PLC (non-bank finance company domiciled in Dublin, Ireland).
      This segment also includes securities issuers (BES Finance, ESOL, BESOL
      and BESNAC); | 
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | 
| | • | Leases, which comprises Besleasing Mobiliária
      and Besleasing Imobiliária, companies with activities in Portugal;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | 
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | 
| | • | Consumer credit, which includes CREDIBOM and
      CREDIFLASH (consumer loans and credit cards);                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | 
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | 
| | • | Asset Management funds, comprising ESAF SGPS
      and ESAF, S.A. (Spain);                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | 
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | 
| | • | Brokerage, represented by ES Dealer, Benito
      & Monjardin and BES Securities (Brasil); and                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | 
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | 
| | • | Factoring, which includes EUROGES.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | 

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The following table shows total revenues, which comprises the sum total of interest income, other income and equity earnings of affiliates, by segment for each of the three years ended December 31, 2000, 2001 and 2002.  See note 24 to Financial Statements “ Segment and Geographic Information” for information on each segment’s total revenues.


|                             | 2000      |  | 2001      |  | 2002      | 
|---------------------------- | --------- |  | --------- |  | --------- | 
|                             |           | 
|(in
      thousands of euro)
|Banking                      | 1,970,449 |  | 2,254,505 |  | 2,157,997 | 
|Leasing                      | 52,130    |  | 65,966    |  | 55,717    | 
|Consumer credit              | 69,552    |  | 86,747    |  | 100,245   | 
|Asset management             | 42,367    |  | 43,206    |  | 46,723    | 
|Brokerage                    | 18,329    |  | 79,279    |  | 23,087    | 
|Factoring                    | 16,640    |  | 22,940    |  | 24,216    | 
|Others                       | 22,731    |  | 26,615    |  | 21,827    | 
|                             |           |  |           |  |           | 
|                             | 2,192,198 |  | 2,579,258 |  | 2,429,812 | 
|                             |           |  |           |  |           | 

The following table shows total revenues by geographic market in each of the three years ended December 31, 2000, 2001 and 2002.


|                                     | 2000      |  | 2001      |  | 2002      | 
|------------------------------------ | --------- |  | --------- |  | --------- | 
|                                     |           | 
|(in
      thousands of euro)        
|Portugal                             | 1,538,720 |  | 2,044,847 |  | 1,713,114 | 
|Other European
      Union Countries | 383,031   |  | 278,510   |  | 332,757   | 
|Rest of Europe                       | 6,830     |  | 3,521     |  | 38,976    | 
|North America                        | 200,740   |  | 141,032   |  | 312,500   | 
|Latin America                        | 51,350    |  | 97,586    |  | 20,166    | 
|Asia                                 | 11,527    |  | 13,762    |  | 6,720     | 
|Africa                               |          |  |          |  | 5,579     | 
|                                     |           |  |           |  |           | 
|                                     | 2,192,198 |  | 2,579,258 |  | 2,429,812 | 
|                                     |           |  |           |  |           | 

The BES Group’s main source of revenue is banking, which in 2002 generated euro 2,158 million in revenues, or 88.8% of the Group’s total revenues.  Specialized consumer credit activity, asset management and leasing are also significant sources of revenue.  Approximately 70% of total revenue for 2002 was derived from units in Portugal, reflecting the location and focus of the Group’s main operational units.  See Note 24 to the Consolidated Financial Statements for additional information.


Commercial Banking

The BES Group provides a full range
    of banking and related financial services in Portugal, as well as in Spain
    and abroad through its international branches and representative offices in
    Europe, in other countries with significant Portuguese communities, and since
    2000, through ES Bank in Miami, Florida. The Group conducts operations in
    China through Banco Espírito Santo do Oriente (“BESOR”),
    a joint venture with China’s Everbright Group in Macao. The BES Group’s
    diverse customer base is comprised of large Portuguese corporations, subsidiaries
    of foreign corporations, public sector institutions, small to medium-sized
    Portuguese businesses and individuals. The BES Group’s financial services
    include wholesale and retail deposit-taking, commercial and consumer lending,
    funds transmissions, credit card facilities, foreign exchange, distribution
    of mutual funds and trading and investment securities, including corporate
    and government debt securities and providing securities custodial services.
    In addition to traditional banking services, the BES Group, through its subsidiaries
    and other related entities, engages in various complementary higher margin
    activities, such as leasing, factoring, asset management and life insurance.
    These complementary activities allow the BES Group to extend its services
    to a broader clientele and to enhance its service to its existing client base.
    See “Item 4. Information on the CompanyOther Activities”.


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The Bank’s network in Portugal
    consisted of 469 branches at December 31, 2002. Including BIC, Banco BEST
    and Banco Espírito Santo dos Açores (“BAC”), the BES Group
    had a network of 602 branches throughout Portugal at December 31, 2002. Banco
    Espírito Santo, S.A. (“BESSA”) currently has 32 branches in Spain,
    primarily along the Portuguese border. The Group also has eight other foreign
    branches and nine representative offices. Strategy.  The Bank’s principal aims are to increase profitability, market share and productivity, while maintaining strong solvency and liquidity ratios, adequate loan quality and a conservative provisioning policy with respect to non-performing loans.  In order to achieve these goals, the Bank has sought to strengthen its position within the Portuguese commercial banking sector by (i) increasing penetration of its existing client base through enhanced customer service, (ii) substantially expanding its commercial banking network to accommodate increasing demand and to ensure adequate marketing capabilities, (iii) consolidating its existing operations in an effort to control expenses and boost productivity and (iv) expanding loan volumes in the mortgages business while maintaining its traditionally strong position with small and medium-sized companies. Based on internal studies, the BES Group believes that in 2002 it had an average market share of approximately 17%, compared with 16.8% in 2001. The BES Group calculates its average market share as the non-weighted average of the market shares it holds in deposits, individual pension plans, mutual funds, production of mortgage loans, consumer loans, loans to corporations, credit card turnover and internet banking.  In calculating market share data, the BES Group uses relevant  available official sources of information, including publications by the Bank of Portugal, the Portuguese Banks Association (APB), the Association of Mutual Funds Management Companies (APFIN), the Portuguese Association of Insurance Companies (APS).  Where no official sources exist, (e.g., Internet Banking), the BES Group relies on its own estimates. In 2002, the BES Group achieved a return on equity of 13.1% (on a statutory and Portuguese GAAP basis) and a cost to income ratio of 53%,
 down from 58% in 2001. In order to increase the penetration of its existing client base, the Bank has sought to take advantage of synergies among its operations and the other banking and insurance operations of the ESFG Group by distributing insurance, investment and other financial products through its branch network.  In doing so, the Bank has increasingly focused on the retail sector as a means of achieving higher lending margins and greater cross selling of fee-generating financial services.  Through its branches, the Bank now markets, among other things, both life and non-life insurance products underwritten by Tranquilidade and ES Seguros and investment management products developed by ESAF and subsidized mortgage loans offered by BIC (until September 2002 when the Government decided to stop subsidizing these products).  As part of its effort to provide enhanced customer service, the Bank has also engaged in a program of modernizing and reconfiguring existing branches using a segme
nt-oriented approach in order to better address the needs of clients. Efficiency is a focal point in the strategic development of the BES Group.  Since privatization, management has undertaken an ambitious program for improving productivity levels.  The Bank is developing several reorganization initiatives, such as centralizing back offices, improving employees’ competencies and streamlining office operations through continuing investments in IT systems.  These measures have had a positive impact on the BES Group’s efficiency indicators.  According to statutory and Portuguese standards, the ratio of operating costs to total assets declined from 1.69% in 1997 to 1.36% in 2002; assets per employee increased from euro 3.7 million in 1997 to euro 7.0 million in 2002, and cost to income decreased from 56.2% in 1997 to 53.4% in 2002. Lending.  The BES Group has consistently aimed to develop a balanced and diversified loan portfolio, while maintaining what management considers to be a conservative provisioning policy with respect to non-performing loans.


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The BES Group believes its success
    in broadening its customer base is evidenced by the expansion in loans to
    individuals, including mortgages and consumer credit, over the last decade.
    These loans represented a negligible amount of the total in 1992, and grew
    to represent 41% of the BES Group’s total loan portfolio by the end
    of 2002. As of December 31, 2002, the BES Group’s
    loan portfolio represented approximately 62% of its total assets. Net of allowances
    for loan losses, the BES Group’s loans amounted to euro 25.2 billion. The BES Group’s total gross domestic loan portfolio amounted to euro 22.6 billion as of December 31, 2002 and was directed to the following principal business sectors: real estatemortgage, 37%; wholesale and retail, 10%; construction and public works, 10%; instalment loans to individuals, 8%; services provided to corporate clients, 5%; real estateconstruction, 5%; transport and communications, 3%; energy, 2%; textile and clothing, 2%; foodstuffs industry, 2%.  Each other economic sector individually accounted for less than 2% of the total domestic loans.  See “Selected Statistical InformationLoan Portfolio”.  As of December 31, 2002, total gross international loans amounted to euro 3.4 billion and were directed to the following principal business sectors: investment management, 22%; real-estate construction, 11%; commercial, 8%; transport and communications, 6%; banks and other financial institutions, 3%. In recent years, the BES Group’s loan maturity profile has moved towards medium- and long-term loans.  This trend is part of the Bank’s strategy to increase its lending activity to individuals, particularly in the areas of mortgages and consumer credit, where maturities are longer-term.  As a result, the percentage of the loan portfolio with a maturity of less than one year has decreased from 63% as of December 31, 1995 to 37% as of December 31, 2002. Approximately 13% of total BES Group loans are to non-resident customers, mainly through BES’s overseas branches (London, New York, Nassau, Lausanne, Cayman Islands and Madeira-offshore), BIC’s overseas branches (Cayman Islands and Madeira-offshore) and BES subsidiaries (BESSA, in Spain, BESOR, in Macao, ES PLC, in Ireland and ES Bank, in USA). Most of the trade finance lending is conducted through these entities. As of December 31, 2002, the BES Group
    reported a return on average equity and return on average assets of 11.9%
    and 0.65%, respectively, as calculated under Portuguese GAAP. The comparable
    U.S. GAAP figures were -8.93% and -0.32%, respectively. See “Item 4.
    Information on the Company  Selected Statistical InformationReturn
    on Equity and AssetsU.S. GAAP Reconciliation”. These results were
    achieved while maintaining Tier I and total capital ratios of 7.19% and 12.81%,
    respectively, at year-end 2002. Deposit Taking.  At December 31, 2002, the BES Group’s deposits from customers totalled euro 19.5 billion, which were held by over 1.4 million individuals and 116,000 corporate depositors. For 2002, approximately 60% of deposits were from individuals, 20% were from domestic small- and medium-sized companies and 20% were from major corporations.  Deposits from non-resident customers (mainly corporate customers) accounted for 21% of the BES Group’s total deposits.  See “Item 4. Information on the CompanySelected Statistical InformationDeposits”. For more information on the BES Group’s
    banking activities, see “Item 4. Information on the Company  Selected
    Statistical Information”. Internet.  Management expects the number of Internet users to continue to grow significantly, and the volume of transactions effected through the Internet is also expected to grow, particularly with the increase in new Internet access technologies (e.g., through cable, ADSL and interactive television).  The Bank is developing a two-fold strategy: (i) an “incumbent” approach involving the enhancement of its multi-channel distribution network, particularly internet banking, as a complement to the relationship with its customer base (both individual and corporate customers); and (ii) an “innovator” approach involving the creation of an investment vehicle, BES.Com (which was recently renamed ES TECH Ventures) to develop new business models that will allow the BES Group to take advantage of opportunities for growth in the online sector.


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As part of its multi-channel distribution policy, the BES Group is intensifying efforts to migrate customers to the web-based channels BESnet PC and BESnet WAP.  At December 31, 2002, there were approximately 586,000 BESnet users, making the BES Group the leader of the online-banking market in Portugal (own estimate based on available information from the main banks operating in Portugal).  In the corporate segment, since launching BESnet Negócios an innovative internet banking service directed toward small- and medium-sized enterprises at the end of 1999, the BES Group has been developing an increasing number of features to adapt its banking services to the needs of corporate customers.  At December 31, 2002, there were approximately 20,000 BESnet Negócios users, representing approximately 51% of the BES Group’s medium-sized corporate clients. In April 2000, a strategic partnership agreement was signed with the Portugal Telecom Group and Caixa Geral de Depositos.  The BES Group and its partners recognized the increasing convergence of technology, communications and contents, and considered that it was essential to establish stronger and closer mutual collaboration ties with strategic allies in Portugal.  Under this agreement a number of initiatives are being launched jointly by the BES Group, the Portugal Telecom Group and by Caixa Geral de Depósitos. Among these initiatives is Banco BEST, an Internet bank launched in June 2001 through ES TECH Ventures and specializing in asset management, deposits, brokerage, funds and assurance products.  Banco BEST’s product range includes products of the BES Group and the ESFG Group, as well as third parties’ products.  Banco BEST started its activities with a share capital of euro 32.4 million, and its shareholders are BES Group, with a 66% stake, and Portugal Telecom, with a 34% stake. As of December 31, 2002, Banco BEST share capital amounted to euro 43.0 million, net assets amounted to euro 187 million and customer deposits amounted to euro 154 million. Additionally, a portal for small- and medium-sized enterprises called PME link was launched in May 2001 as the first Portuguese online business center. Throughout 2002 PME link strongly consolidated its business: the client base grew 80% to 25.000 registered clients, of which 7.500 were transactional (330% gro
wth); the sales volume grew 300%, reaching euro 4.5 million. As part of the alliance with Portugal Telecom, BES has appointed two members to the board of directors of Portugal Telecom, and Portugal Telecom has appointed one member to the board of BES. The Bank has also appointed two members to the PT Multimédia board of directors.


Investment Banking and Stockbrokerage

The BES Group conducts investment-banking operations in Portugal through BESI, of which the Bank is now the sole shareholder.  BESI’s primary investment banking and advisory activities are in domestic as well as international markets (Brazil, Spain and the UK) and are mainly focused on project finance, structured finance, M&A, corporate finance and capital markets (privatizations, primary and secondary market securities trading as well as underwriting of equity and debt issues). On a Portuguese GAAP basis BESI had total consolidated assets of euro 872 million at December 31, 2002 and net income of euro 2.8 million for the 12 months then ended.  BESI accounted for 2.1%of the BES Group’s total assets at December 31, 2002 and 1.2% of the BES Group’s net income for 2002. The BES Group’s stockbrokerage activities are conducted through ES Dealer and Benito Y Monjardin in Spain.  In 2002, ES Dealer’s net income was adversely affected by stock market conditions; commissions decreased 52% to euro 4.1 million from euro 8.6 million in 2001.  ES Dealer had a net loss of euro 0.125 million in 2002. Since 2000, the BES Group has expanded its stock brokerage activities through the acquisition of Benito Y Monjardin, an independent Spanish asset management and brokerage company, referred to above.


Other Activities

The Bank is engaged in the insurance business through the joint-venture partnerships of other ESFG Group affiliates, namely, Tranquilidade and Tranquilidade-Vida.


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The Bank believes that cross-selling opportunities among its subsidiaries and with its affiliates will become increasingly important to its development.  Tranquilidade-Vida and the Bank are parties to a marketing agreement that enables the Bank to sell Tranquilidade’s products, particularly life products, through the Bank’s branch network (bancassurance).  Sales of life insurance products through the Bank amounted to euro 588 million in 2002 compared to euro 551 million in 2001; this moderate increase was mainly due to the persistence of less favourable economic conditions, particularly lower interest rates which affected the sale of guaranteed fixed rate products. Fee income received by the Bank in respect of such sales was 20.9 million for the year ended December 31, 2002. The BES Group is also developing a strategic arrangement to sell banking products through Tranquilidade agents (assurfinance).  This new initiative aims to attract those Tranquilidade clients that do not already use the BES Group’s banking services.  In 2002, only around 30% of Tranquilidade clients were also clients of the BES Group.  The assurfinance project goals include selling mortgage loans, consumer loans, investment funds, credit cards and deposits to Tranquilidade clients through Tranquilidade’s 400 mostly exclusive agents.  In 2002, the contracts entered into through this channel represented 11% of the BES Group’s new mortgage loans for the year as compared to 10% in 2001. The BES Group has a direct 65% interest and an indirect 20% interest in ESAF, the subsidiaries of which are involved in various fund management activities in Portugal.  During 2000, the BES Group acquired 100% of two Spanish asset management companies  Gescapital and GES-BM  to better develop BESSA’s private banking activity.  During 2001, Gescapital and GES-BM were combined and the new merged entity was renamed Espírito Santo Gestion, which, together with Espírito Santo Pensiones, formed the holding company Espírito Santo Activos Financieros.  The total volume of assets under the BES Group’s management was euro 10.4 billion at December 31, 2002 (an increase of euro 746 million from 2001). In recent years, the BES Group established new financial enterprises and acquired interests in companies performing interrelated activities.  Besleasing Mobiliária, S.A. was ranked second in terms of new contracts in 2002 according to the Portuguese Association of Lease Corporations.  Besleasing Imobiliária, S.A. is active in real estate leasing in Portugal and ranked third in terms of total portfolio according to the same source.  Euroges, a factoring company, had total assets of euro 469 million at December 31, 2002 and net income of euro 4.8 million for the 12 months then ended.  The BES Group is also involved in the credit card business, through Crediflash, a credit card management company, with assets of euro 125 million, loans to customers of euro 115 million as of December 31, 2002 and net income of euro 4.0 million in 2002.  In-store consumer credit operations are conducted by Credibom, which as of December 31, 2002, had a loan portfolio
of euro 453 million and net income of euro 9.1 million.


Competition

The BES Group faces intense competition in each of its principal areas of operation; however, competition in the Portuguese banking markets has the most significant effect on the Bank’s results and operations.  The Bank’s competitors in the Portuguese banking markets are Portuguese commercial banks, savings and investment banks, foreign banks (many of which have recently entered the Portuguese market) and non-deposit-taking financial institutions (investment companies).  The Portuguese banking industry has been characterized by increasing consolidation through mergers and acquisitions among the major Portuguese banks and by foreign financial institutions.  Currently, the five principal financial groups in the banking sector are:  Caixa Geral de Depósitos, the BCP Group, the BES Group, the BPI Group and Santander. Under current law, all Portuguese banks are permitted to provide all types of financial services.  In addition, EU banking directives allow cross-border reciprocity within EU countries for any bank formed within the EU.  In the major corporate markets and in international markets generally, therefore, the Bank faces competition from other commercial investment banks and financial institutions, particularly those with ties to Portugal. Management believes that competition will continue to intensify as a result of the integration of European markets, the enlargement of the European Union to include many Eastern European countries and economic globalisation.


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The Bank intends to continue to pursue opportunities for expansion through organic growth and will consider, in appropriate circumstances, the possibility of external growth by acquisition in Portugal or external markets relevant to its business.


Selected Statistical Information

The Selected Statistical Information is presented on a consolidated basis for the Bank and its subsidiaries (together the “BES Group”). Banco Espírito Santo Açores (“BAC”), the assets of which represented 0.5% of the BES Group’s consolidated net assets at December 31, 2002, has been included in the consolidated financial statements as of and for the year ended December 31, 2002 but has not been included in the consolidated financial statements as of and for the years ended December 31, 2001 and December 31, 2000.


|I. | Average Balance Sheets and Interest Rates
|-- | -----------------------------------------

The following table shows the average balances of the BES Group, the related interest income and expense and the average interest rates for the three years ended December 31, 2000, 2001 and 2002, net of inter-company balances and transactions eliminated in consolidation. In this table and elsewhere in the Selected Statistical Information, average balances have been calculated using monthly balances. The Bank believes that the average balances presented below are representative of the operations of the BES Group. Out-of-period items and adjustments as well as loan fees have been excluded from the calculation of interest income and expense. In 2000, 2001 and 2002, out-of period items and adjustments were not material. Overdue loans and shareholders’ loans have been excluded from the category “Loans to customers” and included in “Non-interest-earning assets”. Related provisions have been included in the ca
tegory “Non-interest-bearing liabilities”.  (See “ Description of Assets and LiabilitiesLoan Portfolio”).


|                                                    | Year
      ended December 31, |     
|--------------------------------------------------- | ----------------------------- | ----
|                                                   
|2000                                                |                               | 2001
|                                                    |                               |     
|Average                                             |                               |     
|balance                                             | Interest                      | rate
|                                                    |                               |     
|(euro
      thousands, except percentages )        
|Interest-earning
      assets                       |                               |     
|Deposits
      with banks: (1)                      |                               |     
|Domestic                                            | 1,313,211                     |     
|International                                       | 1,951,388                     |     
|Trading
      account securities: (2)               |                               |     
|Domestic                                            | 118,087                       |     
|International                                       | 213,634                       |     
|Investment
      securities available-for-sale: (3) |                               |     
|Domestic                                            | 1,245,504                     |     
|International                                       | 2,305,040                     |     
|Loans
      to customers:                           |                               |     
|Domestic                                            | 16,268,571                    |     
|International                                       | 2,861,708                     |     
|Other
      interest-earning assets: (4)            |                               |     
|Domestic                                            | 329,641                       |     
|International                                       | 779,307                       |     
|                                                    |                               |     
|Total interest-earning
      assets                 | 27,386,091                    |     
|                                                    |                               |     
|Non-interest-earning
      assets: (5)              |                               |     
|Domestic                                            | 2,816,419                     |     
|International                                       | 194,351                       |     
|                                                    |                               |     
|Total non-interest-earning
      assets             | 3,010,770                     |     
|                                                    |                               |     
|Total assets                                        | 30,396,861                    |     
|                                                    |                               |     
|Domestic
      (%)                                  | 72.68                         | %   
|International
      (%)                             | 27.32                         | %   

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|                                           |                                  |               | December 31,                               |        
|------------------------------------------ | -------------------------------- | ------------- | ------------------------------------------ | -------
|                                           |                                  |               |                                            |        
|                                           |                                  |               | 2000                                       |        
|                                           |                                  |               |                                            |        
|                                           |                                  |               | Average                                    |        
|                                           |                                  |               | balance                                    |        
|                                           |                                  |               |                                            |        
|                                           |                                  |               | (euro thousand,
      except percentages ) |        
|Interest-bearing
      liabilities         |                                  |               |                                            |        
|                                           | Deposits from
      banks: (1)   |               |                                            |        
|                                           |                                  | Domestic      | 299,162                                    |        
|                                           |                                  | International | 4,170,976                                  |        
|                                           | Demand deposits:                 |               |                                            |        
|                                           |                                  | Domestic      | 4,757,477                                  |        
|                                           |                                  | International | 345,784                                    |        
|                                           | Time deposits:                   |               |                                            |        
|                                           |                                  | Domestic      | 8,208,819                                  |        
|                                           |                                  | International | 3,022,393                                  |        
|                                           | Short-term borrowings:
      (6) |               |                                            |        
|                                           |                                  | Domestic      | 631,067                                    |        
|                                           |                                  | International | 1,425,134                                  |        
|                                           | Long-term borrowings:
      (7)  |               |                                            |        
|                                           |                                  | Domestic      | 2,126,230                                  |        
|                                           |                                  | International | 2,387,521                                  |        
|                                           |                                  |               |                                            |        
|Total
      interest-bearing liabilities   | 27,374,563                       |               | 1,049,166                                  |        
|                                           |                                  |               |                                            |        
|Non-interest-bearing
      liabilities (8) | 1,793,711                        |               |                                            |        
|                                           |                                  |               |                                            |        
|Total
      liabilities                    | 29,168,274                       |               |                                            |        
|                                           |                                  |               |                                            |        
|Shareholders'
      equity (9)             | 1,228,587                        |               |                                            |        
|                                           |                                  |               |                                            |        
|Total
      liabilities and share-         |                                  |               |                                            |        
|holders' equity                            | 30,396,861                       |               |                                            |        
|                                           |                                  |               |                                            |        
|                                           | Domestic
      (%)               | 62.65         | %                                          | 44.99  
|                                           | International
      (%)          | 37.35         | %                                          | 55.01  
|Interest Spread:                           |                                  |               |                                            |        
|                                           | Domestic                         |               |                                            | 681,736
|                                           | International                    |               |                                            | (72,231
|                                           |                                  |               |                                            |        
|                                           |                                  |               |                                            |        
|                                           |                                  |               |                                            |        
|Net
      interest margin: (10)            |                                  |               |                                            |        
|                                           | Domestic                         |               |                                            |        
|                                           | International                    |               |                                            |        
|                                           |                                  |               |                                            |        
|                                           |                                  |               |                                            |        
|                                           |                                  |               |                                            |        
|                                           |                                  |               |                                            |        

|   
|---
|(1)
|   

| |                                               | % (a) | 
| | --------------------------------------------- | ----- | 
| |                                               |       | 
| |                                               |       | 
| |                                               | 2000  | 
| |                                               |       | 
| | Discount with
      the European Central Bank | 3.981 | 
| | Euro                                          | 4.317 | 
| | British sterling                              | 6.178 | 
| | U.S.dollar                                    | 6.499 | 
| | Japanese yen                                  | 0.272 | 
| |                                               |       | 

| | (a) | The interest rates for the
      main currencies presented above are based on the monthly averages of three-month
      interest rates.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------

|    |                                                                                                                                                                                                                                       
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | The increase in the average
      interest rates for “Trading account securitiesInternational”
      in 2001 and 2002, reflects the trading activities of Bes Investimento (Brazilian
      subsidiary) during each of these periods.

|    |                                                                                                                                                                                                                                                                                                                                                                                                                               
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(3) | The decrease in the average
      interest rate for “Investment securities available for saleDomestic”
      in 2002 reflects the fact that the importance of fixed-interest rate securities
      in the BES Group’s domestic portfolio of investment securities available
      for sale declined relative to the importance of marketable securities, which
      do not bear interest but instead may generate dividends.

| |                                                                                                                                                                                                                                                                                                                                                    
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The decrease in the average interest
      rate for “Investment securities available for saleInternational”
      in each of 2001 and 2002 is in line with the general trend for interest
      rates during these periods, mainly those outside the euro zone. See note 1
      to this table for additional information on interest rate trends.

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(4) | “Other interest-earning
      assets” includes investments in other equity holdings and securities
      held to maturity. The interest income generated by these assets includes
      dividends in the amount of euro 10.8 million. At each of December 31, 2000,
      2001 and 2002, the BES Group’s investments in securities held to maturity
      consisted primarily of securities held by BES’s New York branch, BESI
      and ES Bank (see “Investment, Trading, and Equity Holdings Portfolio”
       Equity Holdings Portfolio for more detailed information on the BES
      Group’s equity holdings).

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The increase in interest income
      from “Other interest-earning assetsInternational” in 2001
      reflects (i) the first full-year consolidation of ES Bank’s portfolio
      of securities held to maturity in that period and (ii) long-term foreign
      investments in Bradesco, a Brazilian company, in August 2000, and the BES
      Group’s participation in the capital increase of Kredyt Bank, a Polish
      bank, in October 2001. In 2002, the BES Group increased its share in Bradesco
      and sold its stake in Kredyt Bank. The decrease in the average interest
      rate for “Other Interest-Earning AssetsInternational”
      in 2002 reflects the strong decline in the interest rate levels prevailing
      in the United States during that period, which reduced the interest income
      derived from the BES Group’s U.S. securities

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|(5) | “Non-interest-earning
      assets” comprise:
|--- | ---------------------------------------------

|                                          | 2000         |  | 2001 |  | 2002 | 
|----------------------------------------- | ------------ |  | ---- |  | ---- | 
|                                          |              |  |      |  |      | 
|                                          | (% of total) | 
|Cash and due
      from banks (a)         | 26           |  | 31   |  | 25   | 
|Fixed assets                              | 19           |  | 22   |  | 16   | 
|Overdue loans                             | 14           |  | 17   |  | 15   | 
|Accounts receivable
      and prepayments | 10           |  | 10   |  | 14   | 
|Accrued interest
      income             | 9            |  | 3    |  | 7    | 
|Participation
      units                 | 5            |  | 1    |  | 4    | 
|Other                                     | 17           |  | 16   |  | 19   | 
|                                          |              |  |      |  |      | 
|Total                                     | 100          |  | 100  |  | 100  | 
|                                          |              |  |      |  |      | 

| |  | (a)Includes mainly deposits
      with the Bank of Portugal.
| |  | -------------------------------------------------------------

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               | 
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
|The significant
        increase in “Non-interest-earning assets” in 2002 reflects:
        (i) actuarial losses suffered in connection with pension plan assets as
        a result of stock market declines (under Portuguese GAAP, such losses
        are recorded as a deferred cost in Other assets, and (ii) the implicit
        interest expense resulting from the issuance of zero-coupon bonds (according
        to Bank of Portugal rules, the maturity value of a zero-coupon bond (as
        opposed to the issue price)) should be recorded as a liability and the
        implicit interest on the bond should be recorded as a receivable.

|    |                                                                                                                                                                                                                                
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(6) | The principal components of
      “Short-term borrowings” are overdrafts, securities sold under
      repurchase agreements and interbank borrowings (see “Description of
      Assets and LiabilitiesShort-term Borrowings”).

|    |                                                                                                                                                                                                                                                                                                                                                             
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(7) | “Long-term borrowingsDomestic”
      includes corporate bonds and subordinated corporate bonds, while “Long-term
      borrowingsInternational” consists mainly of the Euro Medium
      Term Notes Program of BES Finance, under which euro 5.3 billion was outstanding
      at December 31, 2002 (compared with euro 4.8 billion at December 31, 2001).

|    |                                                   
|--- | --------------------------------------------------
|(8) | “Non-interest-bearing
      liabilities” comprise:

|                                                   |              |  |      |  |      | 
|-------------------------------------------------- | ------------ |  | ---- |  | ---- | 
|                                                   | 2000         |  | 2001 |  | 2002 | 
|                                                   |              |  |      |  |      | 
|                                                   | (% of total) | 
|Minority interests                                 | 26           |  | 27   |  | 26   | 
|Allowance for
      non-performing loans           | 25           |  | 22   |  | 23   | 
|Other loan
      allowances and pension reserve    | 16           |  | 16   |  | 18   | 
|Accrued interest
      expense and deferred income | 13           |  | 14   |  | 14   | 
|Accounts payable
      and accruals                | 4            |  | 4    |  | 4    | 
|Other                                              | 16           |  | 17   |  | 15   | 
|                                                   |              |  |      |  |      | 
|Total                                              | 100          |  | 100  |  | 100  | 
|                                                   |              |  |      |  |      | 

| | Minority interests include non-cumulative guaranteed preference shares of BESOL (US$ 250 million) and ESOL (US$ 250 million).
| | -----------------------------------------------------------------------------------------------------------------------------

|    |                                                                                                                                             
|--- | --------------------------------------------------------------------------------------------------------------------------------------------
|(9) | The growth in the average balance
      of shareholders’ equity is due mainly to the increase in BES’s
      share capital in February 2002.

|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(10) | “Net interest margin”
      represents net interest income as a percentage of average total interest-earning
      assets. For purposes of this calculation, interest income and interest expense
      are classified as domestic or international based on the domicile of customers
      and the deposit location. Because the BES Group accepts funds from outside
      Portugal to finance lending to Portuguese residents, the interest expense
      payable on deposits from non-Portuguese customers is classified as international
      while the interest income generated by the related loan inside Portugal
      is classified as domestic. As a result, such transactions affect the calculation
      of both the domestic and international interest margins. The following table
      presents the net interest margin adjusted to eliminate this effect:

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|                                      |              | December 31,                              |          
|------------------------------------- | ------------ | ----------------------------------------- | ---------
|                                      |              |                                           |          
|                                      |              | 2000                                      |          
|                                      |              |                                           |          
|                                      |              |                                           |          
|                                      |              | Average                                   |          
|                                      |              | balance                                   |          
|                                      |              |                                           |          
|                                      |              | (euro thousand,
      except percentages) |          
|Domestic                              |              |                                           |          
|                                      |              |                                           |          
|Interest-earning
      assets         | 19,275,014   |                                           | 1,153,808
|Interest-bearing
      liabilities    | (16,022,754  | )                                         | (472,072 
|Transfer
      to international       | (3,046,380   | )                                         | (136,056 
|Non-interest-earning
      assets     | 2,816,419    |                                           |         
|Equity
      & non-interest-bearing   |              |                                           |          
|liabilities                           | (3,022,298   | )                                         |         
|                                      |              |                                           |          
|                                      | Margin       |                                           |          
|                                      |              |                                           |          
|                                      |              |                                           |          
|International                         |              |                                           |          
|                                      |              |                                           |          
|Interest-earning
      assets         | 8,111,077    |                                           | 504,863  
|Interest-bearing
      liabilities(a) | (11,351,808  | )                                         | (577,094 
|Transfer
      from domestic          | 3,046,380    |                                           | 136,056  
|Non-interest-earning
      assets     | 194,351      |                                           |         
|                                      |              |                                           |          
|                                      | Margin       |                                           |          
|                                      |              |                                           |          
|                                      | Total margin |                                           |          
|                                      |              |                                           |          

|   
|---
|(a)

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|II. | Analysis of Changes in Net Interest Income
|--- | ------------------------------------------

The following table provides an analysis
  of the estimated change in the BES Group’s net interest income attributable
  to changes in the average volume of interest-earning assets and interest-bearing
  liabilities and to changes in their respective interest rates for the periods
  presented. Volume and rate variances have been calculated based on movements
  in the average balances over the period and on changes in interest rates on
  average interest-earning assets and average interest-bearing liabilities. Variances
  caused by changes in both volume and rate have been allocated to changes in
  rate/volume.




|                                                |               | 2000/2001                                    |   | 2001/2002                                    |   |        
|----------------------------------------------- | ------------- | -------------------------------------------- | - | -------------------------------------------- | - | -------
|                                                |               |                                              |   |                                              |   |        
|                                                |               | Increase/(decrease)
      due to changes in: |   | Increase/(decrease)
      due to changes in: |   |        
|                                                |               |                                              |   |                                              |   |        
|                                                |               |                                              |   |                                              |   | Average
|                                                |               | Average                                      |   | Average                                      |   | rate/  
|                                                |               | volume                                       |   | rate                                         |   | volume 
|                                                |               |                                              |   |                                              |   |        
|                                                |               | (euro
      thousand)                        |  
|INTEREST-EARNING
      ASSETS                   |               |                                              |   |                                              |   |        
|                                                |               |                                              |   |                                              |   |        
|Deposits
      with banks:                      |               |                                              |   |                                              |   |        
|                                                | Domestic      | (5,685                                       | ) | 9,755                                        |   | (1,081 
|                                                | International | 37,733                                       |   | (9,874                                       | ) | (3,760 
|                                                |               |                                              |   |                                              |   |        
|Trading account
      securities:               |               |                                              |   |                                              |   |        
|                                                | Domestic      | 1,717                                        |   | (250                                         | ) | (256   
|                                                | International | 8,983                                        |   | 3,570                                        |   | 3,733  
|                                                |               |                                              |   |                                              |   |        
|Investment
      securities available for sale: |               |                                              |   |                                              |   |        
|                                                | Domestic      | (5,165                                       | ) | 15,867                                       |   | (2,221 
|                                                | International | 25,077                                       |   | (42,502                                      | ) | (7,008 
|                                                |               |                                              |   |                                              |   |        
|Loans to customers:                             |               |                                              |   |                                              |   |        
|                                                | Domestic      | 215,802                                      |   | 55,302                                       |   | 10,464 
|                                                | International | 38,864                                       |   | 21,020                                       |   | 4,429  
|                                                |               |                                              |   |                                              |   |        
|Other
      interest-earning assets:            |               |                                              |   |                                              |   |        
|                                                | Domestic      | 3,860                                        |   | (1,293                                       | ) | (1,168 
|                                                | International | 35,540                                       |   | (11,561                                      | ) | (6,499 
|                                                |               |                                              |   |                                              |   |        
|Total                                           |               |                                              |   |                                              |   |        
|                                                | Domestic      | 210,529                                      |   | 79,381                                       |   | 5,738  
|                                                | International | 146,197                                      |   | (39,347                                      | ) | (9,105 
|                                                |               |                                              |   |                                              |   |        
|                                                |               | 356,726                                      |   | 40,034                                       |   | (3,367 
|                                                |               |                                              |   |                                              |   |        
|INTEREST-BEARING
      LIABILITIES              |               |                                              |   |                                              |   |        
|                                                |               |                                              |   |                                              |   |        
|Deposits
      from banks:                      |               |                                              |   |                                              |   |        
|                                                | Domestic      | (962                                         | ) | (1,530                                       | ) | 127    
|                                                | International | 19,650                                       |   | 8,421                                        |   | 804    
|                                                |               |                                              |   |                                              |   |        
|Demand deposits:                                |               |                                              |   |                                              |   |        
|                                                | Domestic      | 5,082                                        |   | 16,799                                       |   | 1,375  
|                                                | International | 2,223                                        |   | (2,285                                       | ) | (745   
|                                                |               |                                              |   |                                              |   |        
|Time
      deposits:                            |               |                                              |   |                                              |   |        
|                                                | Domestic      | 2,565                                        |   | 48,851                                       |   | 149    
|                                                | International | 25,927                                       |   | (14,775                                      | ) | (2,081 
|                                                |               |                                              |   |                                              |   |        
|Short-term borrowings:                          |               |                                              |   |                                              |   |        
|                                                | Domestic      | 3,902                                        |   | 538                                          |   | 75     
|                                                | International | 14,978                                       |   | (19,338                                      | ) | (4,056 
|                                                |               |                                              |   |                                              |   |        
|Long-term
      borrowings:                     |               |                                              |   |                                              |   |        
|                                                | Domestic      | 6,822                                        |   | (581                                         | ) | (35    
|                                                | International | 140,191                                      |   | 10,291                                       |   | 13,542 
|                                                |               |                                              |   |                                              |   |        
|Total                                           |               |                                              |   |                                              |   |        
|                                                | Domestic      | 17,409                                       |   | 64,077                                       |   | 1,691  
|                                                | International | 202,969                                      |   | (17,686                                      | ) | 7,464  
|                                                |               |                                              |   |                                              |   |        
|                                                |               | 220,378                                      |   | 46,391                                       |   | 9,155  
|                                                |               |                                              |   |                                              |   |        
|                                                |               |                                              |   |                                              |   |        
|Net interest income                             |               |                                              |   |                                              |   |        
|                                                | Domestic      | 193,120                                      |   | 15,304                                       |   | 4,047  
|                                                | International | (56,772                                      | ) | (21,661                                      | ) | (16,569
|                                                |               |                                              |   |                                              |   |        
|                                                |               | 136,348                                      |   | (6,357                                       | ) | (12,522
|                                                |               |                                              |   |                                              |   |        

In 2001, net interest income increased,
  due primarily to a substantial increase in the volume of the underlying assets.
  In 2002, interest income decreased, as a result of the decline of the interest
  rate levels prevailing in the BES Group’s principal markets. However,
  during the same period, interest expense decreased even more, resulting in an
  increase in the BES Group’s net interest margin from 2.19% to 2.23% in
  2002. This development was driven by the group’s loans and deposits pricing
  policy and its international securities trading activities.




|III. | Description of Assets and Liabilities
|---- | -------------------------------------

The following discussion provides
  information with respect to the BES Group’s investment, trading and equity
  holding portfolios, loan portfolio, deposits, return on equity and assets and
  short-term borrowings. The Bank’s strategy in respect of its assets and
  liabilities is largely designed to limit the degree of interest rate and counterparty
  risk in order to minimize the effect of such risks on the Bank’s profitability
  levels. See “ Selected Statistical InformationLoan Portfolio”.
  Additional factors influencing the Bank’s management strategy are the
  liquidity and solvency ratios established by the Bank of Portugal. (See “Item
  5. Operating and Financial Review and ProspectsLiquidity and Solvency
  Ratios”).




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Investment, Trading and Equity Holdings Portfolios

Investment portfolio

Under present Bank of Portugal guidelines, investment
  securities are defined as securities that will not be traded for a period of
  six months from the date of acquisition. The following tables present the book
  and market value of the BES Group’s investment securities at December 31,
  2000, 2001 and 2002.



|                                    |                             |                                                         |                                                   | December 31,    |          
|----------------------------------- | --------------------------- | ------------------------------------------------------- | ------------------------------------------------- | --------------- | ---------
|                                    |                             |                                                         |                                                   |                 |          
|                                    |                             |                                                         |                                                   | 2000            |          
|                                    |                             |                                                         |                                                   |                 |          
|                                    |                             |                                                         |                                                   | (euro thousand) |          
|Investment
      Portfolio:         |                             |                                                         |                                                   |                 |          
|                                    |                             |                                                         |                                                   |                 |          
|Domestic:                           |                             |                                                         |                                                   |                 |          
|                                    |                             |                                                         |                                                   |                 |          
|                                    | Available-for-sale:         |                                                         |                                                   |                 |          
|                                    |                             | Government agency
      securities  Portuguese issuers | 100,668                                           |                 | 445,873  
|                                    |                             | Corporate
      debt securities                         | 632,036                                           |                 | 132,565  
|                                    |                             | Marketable equity
      securities:                     |                                                   |                 |          
|                                    |                             |                                                         | Shares and other variable income
      securities | 370,492         |          
|                                    |                             |                                                         | Trade investments                                 | 51,581          |          
|                                    |                             |                                                         |                                                   |                 |          
|Total domestic                      | 1,154,777                   |                                                         | 975,593                                           |                 | 671,116  
|                                    |                             |                                                         |                                                   |                 |          
|                                    |                             |                                                         |                                                   |                 |          
|International:                      |                             |                                                         |                                                   |                 |          
|                                    |                             |                                                         |                                                   |                 |          
|                                    | Available-for-sale:         |                                                         |                                                   |                 |          
|                                    |                             | Government agency
      securities  Foreign issuers    | 491,141                                           |                 | 402,480  
|                                    |                             | Corporate
      debt securities                         | 1,393,998                                         |                 | 2,711,355
|                                    |                             | Subordinated debt                                       | 7,660                                             |                 | 5,673    
|                                    |                             | Marketable
      equity securities:                     |                                                   |                 |          
|                                    |                             |                                                         | Shares and other variable income
      securities | 42,519          |          
|                                    |                             |                                                         | Trade investments                                 | 20,252          |          
|                                    |                             |                                                         |                                                   |                 |          
|                                    |                             |                                                         |                                                   | 1,955,570       |          
|                                    |                             |                                                         |                                                   |                 |          
|                                    | Held-to-maturity:
      (1) |                                                         |                                                   |                 |          
|                                    |                             | Government agency
      securities  Foreign issuers    | 892,597                                           |                 | 847,171  
|                                    |                             | Corporate
      debt securities                         | 22,453                                            |                 | 63,083   
|                                    |                             |                                                         |                                                   |                 |          
|                                    |                             |                                                         |                                                   | 915,050         |          
|                                    |                             |                                                         |                                                   |                 |          
|Total international                 | 2,870,620                   |                                                         | 4,100,623                                         |                 | 3,879,116
|                                    |                             |                                                         |                                                   |                 |          
|Total cost of acquisition
      (2) | 4,025,397                   |                                                         | 5,076,216                                         |                 | 4,550,232
|Gross
      unrealized losses (2)   | (148,327                    | )                                                       | (142,765                                          | )               | (194,146 
|                                    |                             |                                                         |                                                   |                 |          
|Total book value                    | 3,877,070                   |                                                         | 4,933,451                                         |                 | 4,356,086
|                                    |                             |                                                         |                                                   |                 |          
|Total market value                  | 3,894,028                   |                                                         | 4,955,395                                         |                 | 4,410,197
|                                    |                             |                                                         |                                                   |                 |          

|   
|---
|(1)
|   
|(2)

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At December 31, 2002, government agency securities represented 25% of the investment portfolio (compared with 33% at December 31, 2001). In 2001, the BES Group  increased its exposure to fixed interest rate bonds issued by the Portuguese government in the available for sale portion of its investment portfolio.  In 2002, it sold these securities.



The value of the BES Group’s portfolio of debt securities of international corporate issuers increased in 2001, mainly as a result of its acquisition of deleveraged credit-linked notes, the underlying collateral for which primarily consists of notes issued by financial institutions and credit-default swaps that do not exceed 50% of their nominal amount.



Except as indicated in the table below, at December 31, 2000, 2001 and 2002, the BES Group’s investment portfolio did not include securities of any single issuer with a book value exceeding 10% of the BES Group’s shareholders’ equity:



|                                      | December 31,          | 
|------------------------------------- | --------------------- | 
|                                      |                       | 
|                                      | 2000                  | 
|                                      |                       | 
|                                      | Book value            | 
|                                      |                       | 
|                                      | (euro
      thousand) | 
|US Treasury                           | 934,466               | 
|Rock Ltd. (1)                         |                       | 
|Portuguese government debt instrument |                      | 
|Fungere (2)                           |                       | 
|German Treasury                       | 177,628               | 

|   
|---
|(1)
|   
|(2)

The
  following table categorizes the acquisition cost of the BES Group’s investment
  securities portfolio by maturity and presents the weighted average yield for
  each maturity range and each category of investment security within each maturity
  range as of December 31, 2002.



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|                                |                     |                                                         | December 31,
      2002 (1) |  
|------------------------------- | ------------------- | ------------------------------------------------------- | --------------------------- | -
|                                |                     |                                                         |                             |  
|                                |                     |                                                         | 1 year or less              |  
|                                |                     |                                                         |                             |  
|                                |                     |                                                         | euro                        |  
|                                |                     |                                                         | thousand                    |  
|                                |                     |                                                         |                             |  
|Domestic:                       |                     |                                                         |                             |  
|                                | Available-for-sale: |                                                         |                             |  
|                                |                     | Government
      agency securities  Portuguese issuers | 15,056                      |  
|                                |                     | Corporate debt securities                               | 3,109                       |  
|                                |                     | Marketable equity securities:
      (2)                 |                             |  
|                                |                     | Shares
      and other variable income securities       |                            |  
|                                |                     | Trade
      investments                                 |                            |  
|                                |                     |                                                         |                             |  
|Total
      domestic            | 18,165              |                                                         | 6.78                        | %
|                                |                     |                                                         |                             |  
|International:                  |                     |                                                         |                             |  
|                                | Available-for-sale: |                                                         |                             |  
|                                |                     | Government
      agency securities  Foreign issuers    | 65,353                      |  
|                                |                     | Corporate debt securities                               | 277,803                     |  
|                                |                     | Subordinated
      debt                                 |                            |  
|                                |                     | Marketable equity securities:
      (2)                 |                             |  
|                                |                     | Shares
      and other variable income securities       |                            |  
|                                |                     | Trade
      investments                                 |                            |  
|                                |                     |                                                         |                             |  
|                                |                     |                                                         | 343,156                     |  
|                                |                     |                                                         |                             |  
|                                | Held-to-maturity:   |                                                         |                             |  
|                                |                     | Government
      agency securities  Foreign issuers    | 81,409                      |  
|                                |                     | Corporate debt securities                               | 61,822                      |  
|                                |                     |                                                         |                             |  
|                                |                     |                                                         | 143,231                     |  
|                                |                     |                                                         |                             |  
|Total
      international       | 486,387             |                                                         | 2.02                        | %
|                                |                     |                                                         |                             |  
|Total
      cost of acquisition | 504,552             |                                                         | 2.19                        | %
|                                |                     |                                                         |                             |  

|   
|---
|(1)
|(2)

Trading Portfolio

Trading
  securities are securities that either have original maturities, or are held
  for sale, for less than six months. The following table presents the book value
  along with the historic acquisition cost of the BES Group’s trading securities
  at December 31, 2000, 2001 and 2002. The book value of a security is determined
  on the basis of its market value at the end of the period (in the case of securities
  listed on a stock exchange) or on the basis of its fair value (in the case of
  unlisted securities).



|                         |                                        | December 31,    |        
|------------------------ | -------------------------------------- | --------------- | -------
|                         |                                        |                 |        
|                         |                                        | 2000            |        
|                         |                                        |                 |        
|                         |                                        | Acquisition     |        
|                         |                                        | cost            |        
|                         |                                        |                 |        
|                         |                                        | (euro thousand) |        
|Listed
      securities: |                                        |                 |        
|                         | Government
      agency securities     | 82,662          |        
|                         | Corporate debt
      securities        | 157,237         |        
|                         | Marketable
      equity securities (1) | 156,493         |        
|                         |                                        |                 |        
|                         |                                        | 396,392         |        
|                         |                                        |                 |        
|Non-listed securities:   |                                        |                 |        
|                         | Government agency securities           |                |        
|                         | Corporate debt securities              | 20,871          |        
|                         | Marketable equity securities(1)        | 138,164         |        
|                         |                                        |                 |        
|                         |                                        | 159,035         |        
|                         |                                        |                 |        
|Total                    | 555,427                                |                 | 548,083
|                         |                                        |                 |        

|   
|---
|(1)

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At
  December 31, 2002, the BES Group’s trading portfolio did not include securities
  of any single issuer with a book value exceeding 10% of the BES Group’s
  shareholders’ equity.



Equity Holdings Portfolio

BES Group has some minority interests in non-consolidated and associated companies  see detailed information in Note 7 to the Consolidated Financial Statements. These investments relate to strategic alliances (as in the case of Portugal Telecom Group), cross participations (in the case of Bradesco) and other long-term interests in banks (BES Vénétie and Banque Marocaine du Commerce Exterieur (BMCE bank)).



The following table presents the book value along with the historic acquisition cost of the BES Group’s portfolio of investments in other equity holdings:



|                    | December 31,    |  
|------------------- | --------------- | -
|                    |                 |  
|                    | 2000            |  
|                    |                 |  
|                    | (euro thousand) |  
|Cost of acquisition | 706,177         |  
|Less: allowances    | (47,386         | )
|                    |                 |  
|Book value          | 658,791         |  
|                    |                 |  
|Market value        | 569,768         |  
|                    |                 |  

At December 31, 2002, the only investments in other equity holdings that represented more than 10% of the BES Group’s shareholders’ equity were the BES Group’s investments in Portugal Telecom, which had a book value of euro 319.9 million and a market value of euro 220.4 million at December 31, 2002, and in PT Multimédia, which had a book value of euro 280.7 million and a market value of euro 127.6 million at that date.



Under Portuguese GAAP these investments used to be booked at acquisition cost. In order to reflect the potential losses associated with these investments in the financial statements, in 2002, the Bank of Portugal adopted Regulation no. 4/2002 relating to investments in other equity holdings. See Notes 2.2 c) and 7 to the Consolidated Financial Statements for more detailed information.



In accordance with SFAS 115, for U.S. GAAP purposes, all securities are carried at market value. Changes in the value of trading securities are reflected in income and temporary changes in the value of other securities considered “available for sale” are reflected in shareholders’ equity. Declines in the fair value of available for sale securities that are not merely temporary are considered impaired and reflected in income. See Note 23 to the Consolidated Financial Statements for more detailed information).



Loan Portfolio

At December 31, 2002, the BES Group’s loan portfolio, net of loan loss provisions, was euro 25,209 million (compared with euro 24,221 at December 31, 2001 and euro 21,447 million at December 31, 2000), or approximately 62% of the BES Group’s total consolidated assets (compared with 64% at each of December 31, 2001 and 2000).



The total gross domestic loan portfolio at December 31, 2002 amounted to euro 22,571 million and was distributed across the following principal business sectors: real estate  mortgage, 37%; wholesale and retail, 10%; construction and public works, 10%; instalment loans to individuals, 8%; real estate  construction, 5%; services provided to companies, 5%; transport and communications, 3%; energy, 2%; textile and clothing, 2%; food, beverage and tobacco industry, 2%. No other sector accounted for 2% or more of domestic loans at December 31, 2002.  Although the BES Group has customers in all geographic areas of Portugal, its customers are concentrated in the central and northern areas of the country, where the main industries are located.  At December 31, 2002, international loans aggregated to euro 3,370 million and were distributed across the following principal business sectors: banks and other financial ins
titutions, 22%; real estateconstruction, 11%; commercial, 8%; real estate  mortgage, 8%; transport and communications, 6%; construction and public works, 4%; services provided to companies, 4%; and installment loans to individuals, 3%. The BES Group’s policy is to maintain a balanced and diversified loan portfolio, and to avoid excessive concentration.



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The continuous growth of the BES Group’s loan portfolio over the past several years is a result of its strategy to capture a higher share of certain sectors of the private market, primarily real estate mortgages and commercial loans, and its focus on small and medium sized enterprises. Until 2000, the BES Group also benefited from the continued growth of the Portuguese economy.  In 2000, Portugal’s GDP grew at a rate of  3.7% (compared with 3.8% in 1999). However, the slowdown of the Portuguese economy in 2001 and 2002, with GDP growth rates of 1.6% and 0.5%, respectively, as well as BES Group’s more restrictive credit policy and securitization transactions, resulted in a lower rate of increase in the BES Group’s loan portfolio in 2002 (4% compared to 13% in 2001 and 27% in 2000). During 2002, the BES Group securitized euro 150 million of consumer loans, euro 300 million of corporate loans (leasing) and eu
ro 1,000 million of mortgage loans. The BES Group’s credit policies in sectors that it considers not to form part of its strategic focus, particularly consumer loans, have recently been tightened.  The BES Group continues to follow a policy of growth and expansion, especially with regard to mortgage loans.



Approximately 13% of the BES Group’s loans are accounted for by loans to non-resident customers.  These loans mainly have been granted through BES’s overseas branches (London, New York, Nassau, Lausanne, Cayman Islands and Madeira-offshore), BIC (Cayman Islands and Madeira-offshore) and foreign subsidiaries. The BES Group conducts most of its trade finance lending through these entities.



The BES Group’s five largest loans represent 3.39% of its total gross loans. These loans are current as to payment of principal and interest.  Three of these largest loans are to Electricidade de Portugal, SA (“EDP”), a partially state-owned company that is the sole provider of electricity in Portugal, and to two Portuguese groups whose main activities relate to the construction of large public works and real estate in the middle/high residential segment. The remaining two largest loans are to offshore special purposes entities, being their principal purpose the investment in the privatization of Portuguese state-owned companies, principally in the communication and banking sectors, and other listed and unlisted companies. See Item 7. “Major Shareholders and Related Party Transactions” for additional information about the loan to one of these special purpose entities. The ultimate beneficial owners o
f the special purpose entities are private individuals. BES holds the securities purchased as collateral for the loans, which were fully collateralised when they were granted. As the market prices of the securities held as collateral can vary, different levels of collateral coverage result, and at times, the amount of the these loans may exceed the value of the collateral. The Bank may request the borrowers to make cash payments to increase the value of the collateral. The securities held by these entities include equities listed on OECD stock exchange markets and structured products where the underlying assets are listed in the same markets; the most representative equities involved are Portugal Telecom, PT Multimedia, Banco Português de Investimento and BES and unlisted shares in BES-related parties. Management believes that it has made sufficient allowances to cover potential losses resulting from a decline in the market value of the collateral.



The Bank of Portugal has adopted special procedures for monitoring the BES Group’s exposure to entities defined as “large risks” for Portuguese regulatory purposes.  These procedures apply to the BES Group’s eligible net exposure under loans, guarantees, securities and other assets. Large risks are defined as exposures that individually exceed 10% of the BES Group’s “Own Funds” (defined as eligible total Tier I and Tier II capital). Until 1998, the limit was 15%. In addition, on a consolidated basis, the BES Group’s total exposure to any one customer may not surpass 25% of the BES Group’s Own Funds, and the aggregate amount of risk assets may not exceed twelve times the amount of the BES Group’s Own Funds. At December 31, 2002, the BES Group’s loans complied with these requirements. Large risk assets totaled euro 2.7 billion at December 31, 2002 and included loans, debt and equity securities and guarantees.



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As noted above, the Bank continues
  to develop its lending policies and practices to facilitate the management and
  control of its credit risks in light of the changing economic environment that
  has characterized the Portuguese market in recent years. The Bank has a Credit
  and Financial Committee, which meets on a daily basis, and a Credit Risk Analysis
  Committee (“CRAC”). The Credit and Financial Committee’s main
  function is the approval of all credit transactions that are not under the credit
  approval powers delegated to the different functional levels within the Bank
  as well as its subsidiaries. The Credit and Financial Committee is composed
  of the Executive Board Members and the heads of the different commercial departments
  and business units, as well as a representative of the Risk Department. In addition,
  regional managers analyse the risk inherent in the BES Group’s loan portfolio,
  follow “watch list” customers, recommend management policies and
  deal with situations where a customer defaults on its payments when they become
  due. The key elements of the credit review process are: analysis of the customer
  business activity and each sector in which the Bank is involved; diversification
  of the loan portfolio by sector with lending policies designed to manage the
  particular risks within each sector; reduction of the BES Group’s loan
  exposure to identified problematic sectors; and monthly analysis of the overall
  credit risk. The Bank’s management uses the monthly and quarterly analysis
  of the loan portfolio and its risk profile performed by the Global Risk Department,
  based on the monitoring procedures described above, as well as semi-annual meetings
  of the CRAC with the business areas at which potential problem loans and troubled
  debt restructurings are discussed. The Recovery Loans Department also produces
  reports regarding overdue loans. The gathering of this information helps the
  Bank’s management to determine which allowances are necessary and appropriate
  to cover potential quality problems. The risk assessment analysis is comprised
  of three components: (a) a qualitative analysis of the borrower; (b) an economic
  and financial risk assessment based on quantitative results, focused primarily
  on the borrower’s financial statements and annual reports; and (c) a measure
  of the applicable industry risk. The risk inherent in the BES Group’s
  corporate loan portfolio is determined based on the internal rating systems
  used by the BES Group. This system is currently being adapted in the light of
  the Basle Committee’s recommendations on the basis of the proposed New
  Capital Accord, and on international rating agencies’ practices. For more
  information on the Basle Committee and the New Capital Accord, see “ 
  Supervision and Regulation  Supervision and Regulation in Portugal 
  Capital Adequacy Requirements”. Based on this development, to assess the
  risk of the corporate segment efficiently, and in keeping with the complexity
  and magnitude of exposures in this segment, the BES Group assigns internal ratings
  using two distinct methodologies: (i) medium-sized customers are analysed under
  a standardized rating model, the accuracy of which is reviewed periodically;
  (ii) large corporate customers and project finance transactions are analysed
  by the Rating Board, which consists of a team of specialized technical staff,
  organized by business sectors. Internal ratings as well as risk analysis not
  only play an important role in the loan approval process, but are also used
  for monitoring the risks inherent in the loan portfolio on an ongoing basis
  as well as in connection with pricing decisions and in determining the risk-adjusted
  return of the BES Group’s segments and commercial units. The BES Group usually requires collateral
  for most loans (corporate, project finance, structured finance, real estate,
  mortgages, consumer, etc), especially loans with maturities over 180 days. In
  the case of loans extended to subsidiaries, a guarantee by the parent in an
  amount equivalent to the amount of the loan is almost always required. In addition,
  project finance transactions are secured by mortgages on assets and financial
  covenants (ownership clause, debt to equity ratios, debt service cover ratios,
  cash reserves account, hedging strategies, etc). If a loan is secured by a mortgage,
  the underlying real estate is subject to an independent appraisal, and the loan-to-value
  (“LTV”) ratio may not exceed 90%. Qualitative factors such as the
  average outstanding loan balance for the account, and the profession and marital
  status of the borrower are also taken into consideration. For installment loans to individuals,
  the BES Group uses origination scorings for consumer loans and credit cards.
  These statistical models are used to assess a customer’s risks and allow
  the BES Group to focus on less risky and higher value customers. The experience
  gained in the fine-tuning of these tools has permitted the BES Group to improve
  the quality of the loan portfolio. The Bank and its subsidiary BIC hold
  for sale numerous small properties recovered from customers who defaulted on
  their loans. These properties are recorded as real estate held for disposal
  at the lower of cost or market, based on judicially arranged public auctions
  and negotiated settlements at the time of legal foreclosure. If the properties
  are not sold within five years, the total value of such properties is deducted
  from the BES Group’s Own Funds. The aggregate acquisition cost for such
  properties at December 31, 2002 was euro 64.1 million (including properties
  held by BES subsidiaries of euro 46.6 million) compared with euro 53.9 million
  at December 31, 2001 (including properties with a value of euro 37.4 million
  held by BES subsidiaries). At December 31, 2002, the current market value of
  these properties was estimated to be euro 9.4 million less than their acquisition
  cost (compared with euro 6.9 million at December 31, 2001). This amount
  has been fully provisioned by the BES Group.


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Net Loans to Customers

The breakdown of the BES Group lending activities by category of borrower/business sector is set out in the tables below.  Figures for domestic and international are based on the domicile of the customer.


|                                                         |                                             |                                           |            | December 31,    |           
|-------------------------------------------------------- | ------------------------------------------- | ----------------------------------------- | ---------- | --------------- | ----------
|                                                         |                                             |                                           |            |                 |           
|                                                         |                                             |                                           |            | 1998            |           
|                                                         |                                             |                                           |            |                 |           
|                                                         |                                             |                                           |            | (euro thousand) |           
|Domestic:                                                |                                             |                                           |            |                 |           
|                                                         | Commercial
      (1)                        |                                           | 5,643,330  |                 | 6,669,536 
|                                                         | Financial                                   |                                           | 27,095     |                 | 43,211    
|                                                         | Agricultural                                |                                           | 162,369    |                 | 224,252   
|                                                         | Real
      estate  Construction            |                                           | 734,046    |                 | 760,017   
|                                                         | Real
      estate  Mortgage (2)            |                                           | 3,856,915  |                 | 5,621,765 
|                                                         | Installment
      loans to individual (3)   |                                           | 1,731,038  |                 | 1,752,811 
|                                                         |                                             |                                           |            |                 |           
|                                                         | Total
      domestic (gross)                |                                           | 12,154,793 |                 | 15,071,592
|                                                         |                                             |                                           |            |                 |           
|                                                         | Allowance
      for loan losses:            |                                           |            |                 |           
|                                                         |                                             | Specific allowance                        |            | (238,400        | )         
|                                                         |                                             | Category risk
      allowance             |            | (154,383        | )         
|                                                         |                                             |                                           |            |                 |           
|                                                         |                                             | Total allowances                          |            | (392,783        | )         
|                                                         |                                             |                                           |            |                 |           
|                                                         | Total
      domestic (net)                  |                                           | 11,762,010 |                 | 14,629,245
|                                                         |                                             |                                           |            |                 |           
|International:                                           |                                             |                                           |            |                 |           
|                                                         | Commercial                                  |                                           | 774,493    |                 | 658,472   
|                                                         | Financial                                   |                                           | 179,891    |                 | 207,341   
|                                                         | Industrial                                  |                                           | 402,001    |                 | 545,740   
|                                                         | Governments
      and official institutions |                                           | 16,286     |                 | 48,072    
|                                                         | Other
      loans (4)                       |                                           | 872,063    |                 | 845,969   
|                                                         |                                             |                                           |            |                 |           
|                                                         | Total
      international (gross)           |                                           | 2,244,734  |                 | 2,305,594 
|                                                         |                                             |                                           |            |                 |           
|                                                         | Allowance
      for loan losses:            |                                           |            |                 |           
|                                                         |                                             | Specific allowance                        |            | (6,888          | )         
|                                                         |                                             | Category risk
      allowance             |            | (15,054         | )         
|                                                         |                                             | Sovereign and
      other risks allowance |            | (10,036         | )         
|                                                         |                                             |                                           |            |                 |           
|                                                         |                                             | Total allowances                          |            | (31,978         | )         
|                                                         |                                             |                                           |            |                 |           
|                                                         | Total
      international (net)             |                                           | 2,212,756  |                 | 2,231,461 
|                                                         |                                             |                                           |            |                 |           
|Total
      gross loans to customers (5)                 |                                             | 14,399,527                                |            | 17,377,186      |           
|                                                         |                                             |                                           |            |                 |           
|Total
      allowances for loan losses                   |                                             | (424,761                                  | )          | (516,480        | )         
|                                                         |                                             |                                           |            |                 |           
|Total net loans to customers as per financial statements |                                             | 13,974,766                                |            | 16,860,706      |           
|                                                         |                                             |                                           |            |                 |           
|Off-balance
      sheet items:                           |                                             |                                           |            |                 |           
|                                                         | Guarantees
      provided: (5)              |                                           |            |                 |           
|                                                         |                                             | Domestic                                  |            | 2,204,642       |           
|                                                         |                                             | International                             |            | 463,069         |           
|                                                         |                                             |                                           |            |                 |           
|Total
      guarantees                                   |                                             | 2,667,711                                 |            | 2,966,232       |           
|                                                         |                                             |                                           |            |                 |           
|                                                         |                                             |                                           |            |                 |           

|   
|---
|(1)

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The following table sets forth the percentage of
  loans by business sector included in the “Domestic-Commercial” category.
  Loans granted to borrowers in other business sectors individually represented
  less than 3% of the total loans included in this category.


|                                     |  | December 31, |  
|------------------------------------ |  | ------------ | -
|                                     |  |              |  
|                                     |  | 2001         |  
|                                     |  |              |  
|Wholesale/retail
      trade         |  | 18           | %
|Construction/public
      works      |  | 20           | %
|Services provided
      to companies |  | 9            | %
|Transports
      and communications  |  | 6            | %
|Food, beverages
      and tobacco    |  | 3            | %
|Energy                               |  | 4            | %
|Textiles and
      clothing          |  | 3            | %
|Tourism                              |  | 2            | %
|                                     |  |              |  

|(2) | At December 31, 2002, this item
      mainly comprised loans granted by BES and BIC in the amount of euro 3,892.5
      million (compared with 3,369.8 million at December 31, 2001) and euro
      4,413.8 million (compared with euro 4,865.1 million at December 31,
      2001), respectively.                                                                                                                                                                                          
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|(3) | At December 31, 2002, this item
      mainly comprised loans granted by BES, Credibom, BIC and Crediflash in the
      amount of euro 846.1 million (compared with euro 1,080.9 million at December
      31, 2001), euro 477.1 million (compared with euro 418.0 million at December
      31, 2001), euro 287.2 million (compared with euro 243.6 million at December
      31, 2001), and euro 118.1 million (compared with euro 113.2 million at December
      31, 2001), respectively.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|(4) | The growth in this item in 2000
      and 2001 is due principally to loans granted to several privately owned
      companies the activity of which consists mainly of trading in securities
      listed on OECD stock exchanges.                                                                                                                                                                                                                                                          

The following table
  breaks down the loans included in this category by business sector as of the
  dates indicated. Loans granted to borrowers in other business sectors individually
  represented less than 3% of the total loans included in this category:


|                                       |  | December 31, |  
|-------------------------------------- |  | ------------ | -
|                                       |  |              |  
|                                       |  | 2001         |  
|                                       |  |              |  
|Investment
      management            |  | 32           | %
|Real estate
      construction         |  | 8            | %
|Real estate
      mortgage             |  | 9            | %
|Transport and
      communications     |  | 7            | %
|Installment
      loans to individuals |  | 7            | %
|Services provided
      to companies   |  | 5            | %
|Construction
      and public works    |  | 4            | %
|                                       |  |              |  

|(5) | The following table shows the
      growth of guarantees compared with the growth of all loans during the years
      1998 through 2002:
|--- | ----------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                         

|                               |  | 1998  |   | 1999  |   | 2000  |   | 2001  |   | 2002 |  
|------------------------------ |  | ----- | - | ----- | - | ----- | - | ----- | - | ---- | -
|                               |  |       |   |       |   |       |   |       |   |      |  
|Gross loans
      to customers |  | 40.06 | % | 20.68 | % | 26.90 | % | 12.61 | % | 4.46 | %
|Guarantees                     |  | 14.44 | % | 11.19 | % | 14.55 | % | 12.70 | % | 5.21 | %

In accordance with
  regulations from the Bank of Portugal, the caption “Guarantees - International”
  includes guarantees granted to ESOL and BESOL preference shareholders. At December 31,
  2002 each of these guarantees was for euro 238.4 million. See detailed information
  on Note 14 to the Consolidated Financial Statements.


Guarantees as of December
  31, 2002 in the amount of euro 3,201 million (December 31, 2001: euro 2,977
  million) and in the amount of euro 828 million (December 31, 2001: euro 852
  million) had been granted by the BES Group to resident and to non-resident customers,
  respectively. The following table provides a breakdown of the BES Group’s
  guarantees by type of guarantee as of December 31, 2002:


|                                           |  | December 31, |  
|------------------------------------------ |  | ------------ | -
|                                           |  |              |  
|                                           |  | 2001         |  
|                                           |  |              |  
|Borrowings                                 |  | 19           | %
|Civil construction
      performance bonds |  | 15           | %
|Letters of
      credit                    |  | 12           | %
|EU related
      grants                    |  | 5            | %
|Customers guarantees                       |  | 3            | %
|Value-added
      tax (VAT) guarantees     |  | 2            | %

The Bank’s loss
  experience with respect to guarantees was approximately 0.21% of the total amount
  outstanding for the year (compared with 0.02% in 2001).




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Maturity Distribution of Net Loans to Customers

At December 31, 2002, 63% of the BES
  Group’s gross loans had maturities of one year or more. The high proportion
  of loans with maturities of one year or more reflects the BES Group’s
  strategy described above. This strategy has led to a change in the composition
  of the loan portfolio toward longer maturities, mainly as a result of the growth
  in real estate mortgages and focus on investment management clients. The following table sets forth the
  maturity profile of the BES Group’s loans to customers by economic sector
  as of December 31, 2002:


|                                            | December 31,
      2002 | 
|------------------------------------------- | ----------------------- | 
|                                            |                         | 
|                                            |                         | 
|                                            | 3 months                | 
|                                            | or less
      (1)       | 
|                                            |                         | 
|                                            | (euro thousand)         | 
|Domestic:                                   |                         | 
|Commercial
      (4)                        | 3,894,868               | 
|Financial                                   | 11,773                  | 
|Agricultural                                | 91,661                  | 
|Real
      estate  construction            | 314,295                 | 
|Real
      estate  mortgage                | 12,053                  | 
|Instalment
      loans to individuals       | 70,354                  | 
|                                            |                         | 
|Total
      Domestic                        | 4,395,004               | 
|                                            |                         | 
|International:                              |                         | 
|Commercial                                  | 48,217                  | 
|Financial                                   | 6,852                   | 
|Industrial                                  | 99,811                  | 
|Governments
      and official institutions |                        | 
|Other
      loans                           | 546,664                 | 
|                                            |                         | 
|Total International                         | 701,544                 | 
|                                            |                         | 
|Total loans to customers as per             |                         | 
|financial
      statements                  | 5,096,548               | 
|                                            |                         | 
|Off-balance sheet items:                    |                         | 
|Guarantees
      provided                   |                         | 
|°  Domestic                                 | 173,497                 | 
|°  International                            | 38,792                  | 
|                                            |                         | 
|Total guarantees                            | 212,289                 | 
|                                            |                         | 

|    |                                                                                                                                                                                                                                           
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(1) | Loans with no stated schedule of repayments
      and maturity are reported as due in three months or less.                                                                                                                               
|    |                                                                                                                                                                                                                                           
|(2) | Loans classified as loans with an undetermined
      maturity are overdue loans.                                                                                                                                                          
|    |                                                                                                                                                                                                                                           
|(3) | In the “International” category,
      allowances at December 31, 2002 included sovereign risk allowances in the
      amount of euro 9.6 million.                                                                                        
|    |                                                                                                                                                                                                                                           
|(4) | The following table provides a breakdown of
      the BES Group’s domestic portfolio of commercial loans by business
      sector for those sectors that accounted for the majority of loan loss allowances
      in the period indicated:



|                                    | December 31, |  
|----------------------------------- | ------------ | -
|                                    |              |  
|                                    | 2001         |  
|                                    |              |  
|Wholesale and retail                | 34           | %
|Construction and public
      works | 13           | %
|Manufacture of machinery appliance  | 2            | %
|Services provided to companies      | 4            | %
|Textile                             | 5            | %
|Food, beverage and tobacco          | 2            | %

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Interest rate sensitivity

Interest rate sensitivity is a measure
  for the relationship between market interest rates and net interest income resulting
  from the periodic repricing of assets and liabilities. A negative gap denotes
  liability sensitivity and normally means that a decline in interest rates would
  have a positive effect on net interest income, while an increase in interest
  rates would have a negative effect on interest income. As discussed below, in
  the case of the BES Group, because the vast majority of assets and liabilities
  are matched on a maturity basis and reprice within three to six months, there
  is no material positive or negative interest rate gap. The vast majority of the BES Group’s
  interest-earning assets and interest-bearing liabilities have repricing periods
  of less than six months. All loans with maturities exceeding six months have
  floating interest rates and are substantially supported by matched borrowings
  and deposits. As a general policy, the BES Group revises interest rates on borrowings
  and deposits in accordance with market conditions. As a result, the BES Group
  is able to minimize the potential for a mismatch of the interest rates on its
  assets and liabilities. The following table shows the interest
  rate sensitivity of the BES Group’s loans to customers based on the loans’
  maturity:


|                                                                   | December 31,
      2002 | 
|------------------------------------------------------------------ | ----------------------- | 
|                                                                   |                         | 
|                                                                   |                         | 
|                                                                   | 3 months                | 
|                                                                   | or less                 | 
|                                                                   |                         | 
|                                                                   | (euro thousand)         | 
|Interest
      rate sensitivity of loans to customers by maturity: |                         | 
|Variable
      interest rates (1)                                  | 3,726,694               | 
|Fixed
      interest rates (2)                                     | 1,369,854               | 
|                                                                   |                         | 
|Total by maturity                                                  | 5,096,548               | 
|                                                                   |                         | 

|    |                                                                                                                                                                                                                                                                                                                                                                               
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(1) | Variable interest rate loans include floating
      and adjustable rate instruments. The interest rates are determined according
      to market rates.                                                                                                                                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                                                                               
|(2) | Fixed interest rate loans include euro 1,191
      million of discounted trade bills, euro 1,401.5 million of instalment loans
      to individuals, euro 707 million of credit for investment, euro 88 million
      of collateralised loans, euro 51 million of advances to related companies,
      euro 15 million of lease contracts and euro 101 million of other loans.

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Non-accrual, Past Due 90 Days and Troubled Debt Restructuring Loans

The following discussion provides
  detailed information with respect to the risk inherent in the BES Group’s
  loan portfolio, based on guidelines adopted by the SEC. The BES Group’s
  policies with respect to charge-offs and allowances for loan losses are described
  below in the section “Provision and Allowance for Loan Losses”.
  The BES Group’s loan control and review procedures generally do not classify
  loans as non-accrual, past due 90 days, troubled debt restructuring and potential
  problem loans, as defined by the SEC. However, the BES Group has estimated,
  as set forth below, the amount of these loans (without giving effect to available
  security, which would have been so reported had the SEC’s classifications
  been employed):


|                                                                                           | December 31,    | 
|------------------------------------------------------------------------------------------ | --------------- | 
|                                                                                           |                 | 
|                                                                                           | 1998            | 
|                                                                                           |                 | 
|                                                                                           | (euro thousand) | 
|Loans accounted for as overdue
      loans ( non-accrual )                                 |                 | 
|Domestic
      (1)                                                                         | 318,846         | 
|International                                                                              | 20,072          | 
|Remaining principal amount
      (not due yet) of loans accounted for as overdue loans (2) | 46,343          | 
|Loans not included above which
      are "troubled debt restructurings":                   |                 | 
|Domestic
      (3)                                                                         | 113,432         | 
|International                                                                              |                | 
|                                                                                           |                 | 
|Total loans at risk                                                                        | 498,693         | 
|                                                                                           |                 | 

|    |                                                                                                                                                                                                                                              
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(1) | Includes loans granted by subsidiaries. At
      December 31, 2000, 2001 and 2002, such loans amounted to euro 168.7 million,
      euro 188.7 million and euro 241.0 million, respectively.                                                 
|    |                                                                                                                                                                                                                                              
|(2) | Excludes fully collateralized mortgage loans.
      The increase in 2002 is in line with loans accounted for on a non-accrual
      basis and is a consequence of a deterioration of the economic environment.                               
|    |                                                                                                                                                                                                                                              
|(3) | The substantial increase in 2002 reflects
      the continued weak economic environment in Portugal, which created financial
      difficulties for many corporations and necessitated the initiation of debt
      restructuring procedures.

The BES Group’s accounting treatment
  of overdue loans is in accordance with the rules of the Bank of Portugal. Loans
  are classified as overdue when principal payments are due but not paid for a
  period of up to 30 days. The Bank of Portugal generally requires overdue loans
  to be placed on “non-accrual” status. Accordingly, no interest is
  accrued on overdue loans, and all overdue interest is instead carried in a special
  “overdue” account for the next 60 days. After 90 days from the original
  due date, the overdue interest is reversed. Further interest is recognized in
  income only if and when received. “Troubled debt restructurings”
  are loans in respect of which the lender has granted the borrower a concession
  that it would not otherwise consider. We may restructure these loans by, among
  other things, reducing the stated interest rate for the remaining portion of
  the original life of the debt, or extending the maturity date (or dates) at
  an interest rate lower than the current market rate for new debt with a similar
  risk profile. Interest on troubled debt restructurings
  is accrued in accordance with the new terms agreed in connection with the restructuring.
  If these terms are not fulfilled, the debt is reclassified as an overdue loan
  and pursued judicially. The following table compares the gross
  interest income that would have been recorded on loans classified as non-accruing
  loans or troubled debt restructurings in 2002 had they been fulfilled in accordance
  with their original terms and conditions with the interest income actually recorded
  in connection with these loans in 2002:


|                             | December 31,
      2002       | 
|---------------------------- | ----------------------------- | 
|                             |                               | 
|                             | Interest income               | 
|                             | in accordance with loans'     | 
|                             | original terms and conditions | 
|                             |                               | 
|                             | (euro thousand)               | 
|Non-accrual loans:           |                               | 
|Domestic                     | 29,286                        | 
|International                | 1,171                         | 
|Troubled debt restructuring: |                               | 
|Domestic                     | 7,541                         | 
|International                |                              | 
|                             |                               | 
|Total                        | 37,998                        | 
|                             |                               | 

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Potential Problem Loans

The credit risk committee has identified certain potential problem loans. None of these loans is currently at risk.  Therefore, none of these loans is discussed above in the section “Non-accrual, Past Due 90 Days and Troubled Debt Restructuring Loans”. The loans identified by the committee have been placed on a watch list, which is monitored by the relevant segment’s commercial director, or by the Global Risk Department within the BES Group, for special review and follow-up.  At December 31, 2002, the domestic and international loans placed on this watch list amounted to euro 1,242 million (compared with euro 1,012 million at December 31, 2001). The BES Group believe that all of these loans have been adequately provisioned in the consolidated financial statements.


Distribution of Cross-Border Outstanding and Foreign Country Related Assets

The following tables provide a breakdown of the BES Group’s non-Portuguese outstanding by geographic region and type of borrower as of December 31, 2000, 2001, and 2002. Outstanding are defined as loans (including accrued interest), acceptances, interest-earning deposits with other banks, other interest-earning investments, other monetary assets and investments in associated companies. Outstanding are included in a particular geographic region according to the location of the borrower. Total non-Portuguese outstandings at December 31, 2002 amounted to euro 12,919.0 million.


|                                              |                        |                                              |           |                                            |           |                                |           |                                         |            |           |        |       |  
|--------------------------------------------- | ---------------------- | -------------------------------------------- | --------- | ------------------------------------------ | --------- | ------------------------------ | --------- | --------------------------------------- | ---------- | --------- | ------ | ----- | -
|                                              |                        | December 31,
      2002                      |          
|                                              |                        |                                              |          
|                                              |                        | Banks
      and other financial institutions |           | Government
      and official institutions |           | Loans
      to other customers |           | Trading
      and investment securities |            | Total     |        | %     |  
|                                              |                        |                                              |           |                                            |           |                                |           |                                         |            |           |        |       |  
|Europe:                                       |                        |                                              |           |                                            |           |                                |           |                                         |            |           |        |       |  
|                                              | Spain                  | 1,661,388                                    |           | 69,235                                     |           | 1,184,842                      |           | 71,360                                  |            | 2,986,825 |        | 6.99  | %
|                                              | United Kingdom         | 1,104,282                                    |           | 30,782                                     |           | 383,308                        |           | 501,769                                 |            | 2,020,141 |        | 4.73  | %
|                                              | France                 | 532,841                                      |           | 10,000                                     |           | 90,877                         |           | 63,922                                  |            | 697,640   |        | 1.63  | %
|                                              | Gibraltar              |                                             |           |                                           |           | 98,522                         |           | 329,593                                 |            | 428,115   |        | 1.00  | %
|                                              | Germany                | 32,688                                       |           | 151,508                                    |           | 33,119                         |           | 20,797                                  |            | 238,112   |        | 0.56  | %
|                                              | Luxembourg             | 286,234                                      |           |                                           |           | 45,755                         |           | 18,000                                  |            | 349,989   |        | 0.82  | %
|                                              | Others (1)             | 756,073                                      |           | 3,439                                      |           | 142,944                        |           | 488,073                                 |            | 1,390,529 |        | 3.25  | %
|                                              |                        |                                              |           |                                            |           |                                |           |                                         |            |           |        |       |  
|                                              | Total                  | 4,373,506                                    |           | 264,964                                    |           | 1,979,367                      |           | 1,493,514                               |            | 8,111,351 |        | 18.97 | %
|                                              |                        |                                              |           |                                            |           |                                |           |                                         |            |           |        |       |  
|South America:                                |                        |                                              |           |                                            |           |                                |           |                                         |            |           |        |      
|                                              | Brazil                 | 20,243                                       |           | 32,275                                     |           | 59,011                         |           | 284,598                                 |            | 396,127   |        | 0.93  | %
|                                              | Others(1)              | 59,019                                       |           |                                           |           | 147,410                        |           | 14,240                                  |            | 220,669   |        | 0.52  | %
|                                              |                        |                                              |           |                                            |           |                                |           |                                         |            |           |        |       |  
|                                              | Total                  | 79,262                                       |           | 32,275                                     |           | 206,421                        |           | 298,838                                 |            | 616,796   |        | 1.44  | %
|                                              |                        |                                              |           |                                            |           |                                |           |                                         |            |           |        |       |  
|North America:                                |                        |                                              |           |                                            |           |                                |           |                                         |            |           |        |      
|                                              | United States          | 496,885                                      |           | 787,413                                    |           | 301,511                        |           | 489,738                                 |            | 2,075,547 |        | 4.86  | %
|                                              | British Virgin Islands |                                             |           |                                           |           | 613,795                        |           | 8,942                                   |            | 622,737   |        | 1.46  | %
|                                              | Cayman Islands         | 367,269                                      |           |                                           |           | 24,452                         |           | 830,299                                 |            | 1,222,020 |        | 2.86  | %
|                                              | Others(1)              | 896                                          |           | 3,555                                      |           | 353                            |           | 2,401                                   |            | 7,205     |        | 0.02  | %
|                                              |                        |                                              |           |                                            |           |                                |           |                                         |            |           |        |       |  
|                                              | Total                  | 865,050                                      |           | 790,968                                    |           | 940,111                        |           | 1,331,380                               |            | 3,927,509 |        | 9.19  | %
|                                              |                        |                                              |           |                                            |           |                                |           |                                         |            |           |        |       |  
|Africa                                        |                        | 73,581                                       |           | 8,614                                      |           | 106,368                        |           | 16,798                                  |            | 205,361   |        | 0.48  | %
|                                              |                        |                                              |           |                                            |           |                                |           |                                         |            |           |        |       |  
|Others
      (1) (2)                          | 5,896                  |                                              | 7,641     |                                            | 22,216    |                                | 22,250    |                                         | 58,003     |           | 0.14   | %    
|                                              |                        |                                              |           |                                            |           |                                |           |                                         |            |           |        |      
|Total
      international outstandings        | 5,397,295              |                                              | 1,104,462 |                                            | 3,254,483 |                                | 3,162,780 |                                         | 12,919,020 |           | 30.22  | %    
|                                              |                        |                                              |           |                                            |           |                                |           |                                         |            |           |        |      
|Total
      Gross Assets                      | 5,397,295              |                                              |           |                                            | 3,254,483 |                                |           |                                         | 42,749,888 |           | 100.00 | %    
|                                              |                        |                                              |           |                                            |           |                                |           |                                         |            |           |        |      
|Developing
      countries                    |                        |                                              |           |                                            |           |                                |           |                                         | 777,100    |           | 1.82   | %    
|                                              |                        |                                              |           |                                            |           |                                |           |                                         |            |           |        |      
|Countries
      with repayment agreements (3) |                        |                                              |           |                                            |           |                                |           |                                         | 889,512    |           | 2.08   | %    
|                                              |                        |                                              |           |                                            |           |                                |           |                                         |            |           |        |      
|                                              |                        |                                              |           |                                            |           |                                |           |                                         |            |           |        |      

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|                                              |                              | December 31,
      2001                      |          
|--------------------------------------------- | ---------------------------- | -------------------------------------------- | ---------
|                                              |                              |                                              |          
|                                              |                              | Banks
      and other financial institutions |          
|                                              |                              |                                              |          
|Europe:                                       |                              |                                              |          
|                                              | Spain                        | 816,032                                      |          
|                                              | United Kingdom               | 123,147                                      |          
|                                              | France                       | 365,725                                      |          
|                                              | Gibraltar                    |                                             |          
|                                              | Germany                      | 11,340                                       |          
|                                              | Luxembourg                   | 279,826                                      |          
|                                              | Others (1)                   | 229,090                                      |          
|                                              |                              |                                              |          
|                                              | Total                        | 1,825,160                                    |          
|                                              |                              |                                              |          
|South
      America:                          |                              |                                              |          
|                                              | Brazil                       | 63,025                                       |          
|                                              | Others(1)                    | 10,779                                       |          
|                                              |                              |                                              |          
|                                              | Total                        | 73,804                                       |          
|                                              |                              |                                              |          
|North
      America:                          |                              |                                              |          
|                                              | United States                | 265,922                                      |          
|                                              | British Virgin
      Islands | 247                                          |          
|                                              | Cayman Islands               | 371,972                                      |          
|                                              | Others(1)                    | 1,326                                        |          
|                                              |                              |                                              |          
|                                              | Total                        | 639,467                                      |          
|                                              |                              |                                              |          
|Africa                                        | 91,667                       |                                              | 5,648    
|                                              |                              |                                              |          
|Others
      (1) (2)                          | 9,840                        |                                              | 9,582    
|                                              |                              |                                              |          
|Total
      international outstandings        | 2,639,938                    |                                              | 1,510,857
|                                              |                              |                                              |          
|Total
      Gross Assets                      |                              |                                              |          
|                                              |                              |                                              |          
|Developing
      countries                    |                              |                                              |          
|                                              |                              |                                              |          
|Countries
      with repayment agreements (3) |                              |                                              |          
|                                              |                              |                                              |          
|                                              |                              |                                              |          

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|                                              |                              | December 31,
      2000                      |          
|--------------------------------------------- | ---------------------------- | -------------------------------------------- | ---------
|                                              |                              |                                              |          
|                                              |                              | Banks
      and other financial institutions |          
|                                              |                              |                                              |          
|Europe:                                       |                              |                                              |          
|                                              | Spain                        | 1,687,896                                    |          
|                                              | United Kingdom               | 173,637                                      |          
|                                              | France                       | 1,140,141                                    |          
|                                              | Gibraltar                    | 24                                           |          
|                                              | Germany                      | 6,935                                        |          
|                                              | Luxembourg                   | 254,339                                      |          
|                                              | Others (1)                   | 279,922                                      |          
|                                              |                              |                                              |          
|                                              | Total                        | 3,542,894                                    |          
|                                              |                              |                                              |          
|South
      America:                          |                              |                                              |          
|                                              | Brazil                       | 18,098                                       |          
|                                              | Others(1)                    | 14,226                                       |          
|                                              |                              |                                              |          
|                                              | Total                        | 32,324                                       |          
|                                              |                              |                                              |          
|North
      America:                          |                              |                                              |          
|                                              | United States                | 110,067                                      |          
|                                              | British Virgin
      Islands |                                             |          
|                                              | Cayman Islands               | 169,993                                      |          
|                                              | Others(1)                    | 848                                          |          
|                                              |                              |                                              |          
|                                              | Total                        | 280,908                                      |          
|                                              |                              |                                              |          
|Africa                                        |                              | 120,248                                      |          
|                                              |                              |                                              |          
|Others
      (1) (2)                          | 168,875                      |                                              | 9,076    
|                                              |                              |                                              |          
|Total
      international outstandings        | 4,145,249                    |                                              | 1,474,588
|                                              |                              |                                              |          
|Total
      Gross Assets                      |                              |                                              |          
|                                              |                              |                                              |          
|Developing
      countries                    |                              |                                              |          
|                                              |                              |                                              |          
|Countries
      with repayment agreements (3) |                              |                                              |          
|                                              |                              |                                              |          
|                                              |                              |                                              |          

|
|

|(1) | At December 31, 2002, no single
      country included in this category accounted for more than 1% of the BES
      Group’s total assets.                                                                                                                       
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                 
|(2) | At December 31, 2002, this category
      comprised outstandings in respect of Asian countries (mainly South Korea
      and Hong Kong) and Australia, none of which accounted for more than 1% of
      the BES Group’s total assets.                          
|    |                                                                                                                                                                                                                                                                 
|(3) | This category comprises
      outstandings with respect to countries with sovereign debt problems, as
      defined by the Bank of Portugal. At December 31, 2002, no country in this
      category accounted for more than 1% of the BES Group’s total assets.

At December 31, 2002, approximately
    1.8% of the BES Group’s total assets related to obligors whose domicile
    was in countries classified by the World Bank as “developing countries”
    with low and middle income (compared with 2.8% at December 31, 2001).
    These countries primarily include Brazil, Angola, Morocco, Panama, South Korea,
    and several Latin American countries. Since the BES Group’s international
    business is concentrated in Europe and North America, its exposure to countries
    experiencing repayment difficulties was only 2.08% of its total outstandings
    at December 31, 2002 (compared with 2.80% at December 31, 2001). In absolute
    terms, this exposure was euro 889.5 million at December 31, 2002 (compared
    with euro 1,111.7 million at December 31, 2001). As set forth in the table under the
    heading “Non-accrual, Past Due 90 Days and Troubled Debt Restructuring
    Loans”, the BES Group’s foreign overdue loans totalled euro 40.4
    million, or 1.2% of total gross international loans at December 31, 2002,
    euro 41.0 million or 1.2% at December 31, 2001, and euro 42.6 million or 1.3%
    at December 31, 2000.


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Provision and Allowance for Loan Losses

Portuguese regulations require that debt for which any payment is overdue for more than 30 days must be classified as overdue and placed on non-accrual status. Allowance for loan losses and sovereign risk for the Bank and its subsidiaries is made in accordance with the applicable regulatory requirements issued by the Bank of Portugal.  These regulatory requirements comprise:


| | (i) | A loan-specific allowance based on the amount
      of time that has passed since the date on which the principal or interest
      of the overdue loan was due. Loans are defined as overdue when they are
      overdue with respect to principal or interest for 30 days. The allowance
      ranges from 1% to 100%, depending on the age of the loan in relation to
      its repayment date and varies according to whether or not the credit is
      collateralised. The following table provides an overview of the required
      allowances:
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

|                                          |       |                           |  | Allowance (% of
      the |  
|----------------------------------------- | ----- | ------------------------- |  | ------------------------- | -
|                                          |       | Amount
      Outstanding)
|                                          |       |                          
|Period Since Payment Due                  | Class | Unsecured (1)             |  | Secured (1)              
|                                          |       |                           | 
|Up to 3 months overdue (2)                |       | I                         |  | 1                         | %
|Over 3 months but within 6 months         |       | II                        |  | 25                        | %
|Over 6 months but within 12 months        |       | III                       |  | 50                        | %
|Over 12 months but within 36
      months |       | IV                        |  | 100                       | %
|Over 36 months (3)                        |       | V                         |  | 100                       | %

|    |                                                                                                                                                                                                                                                       
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(1) |  For Bank of
      Portugal purposes, secured loans comprise all credits that are either collateralised
      or personally guaranteed. However, the BES Group classifies loans benefiting
      only from personal guarantees as unsecured loans.
|    |                                                                                                                                                                                                                                                       
|(2) | For consumer loans to individuals,
      the rate of allowance is 1.5% for Class I unsecured and secured loans.                                                                                                                                       
|    |                                                                                                                                                                                                                                                       
|(3) | In the case of a loan secured
      by a building or an apartment/flat, the 100% provision is applicable only
      if the period overdue exceeds four years, unless the debtor lives in the
      property, in which case the period is five years.  

| |  | 
| |  | 

| | (ii) | If the overdue component (principal and interest)
      is greater than 25% of the total outstanding balance of any such loan or
      of the total loans to a specific customer, an additional loan-specific allowance
      determined by applying one-half of the average of the provision percentages
      applicable to the overdue payments on such loan or on the total loans to
      a specific customer, according to the above table to the amount of the then
      non-overdue outstanding balance of such loan. The purpose of this additional
      allowance is to provide for the possible non-collection of the portion of
      the loan that is not yet due for repayment. In accordance with applicable
      Bank of Portugal regulations, overdue loans that have been written off are
      considered fully provisioned for purposes of this specific allowance.
| | ---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | ----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (iii) | A category risk allowance to cover probable
      loan losses that are present in any portfolio of bank loans, including guarantees
      and other indirect exposures, but that have not been specifically identified
      in categories (i) and (ii) discussed above and for which no specific provision
      was made. In accordance with Bank of Portugal rules, this allowance must
      not amount to less than 1% of the total performing loans and guarantees,
      except for consumer loans to individuals, for which the minimum allowance
      is 1.5%. Management may decide, however, to make additional provisions,
      in order to, among other things, safeguard against a potential deterioration
      in the financial and economic situation of the Group’s customers as
      a result from economic downturns.

| |      |                                                                                                                                                                                                         
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (iv) | A sovereign risk allowance for financial
      assets and off-balance sheet credit facilities granted to foreign companies
      or governments considered to be of risk, with the following exceptions:

| |  |   |                                                                                                                                                              
| |  | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |  | Assets in foreign branches denominated in
      local currency of that country, which are financed through liabilities expressed
      in that same currency;

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| |  |  | Capital investments;
| |  | - | --------------------

| |  |   |                                                                                          
| |  | - | -----------------------------------------------------------------------------------------
| |  |  | Foreign branches of banks headquartered in
      the member states of the European Union;

| |  |   |                                                                                                                                          
| |  | - | -----------------------------------------------------------------------------------------------------------------------------------------
| |  |  | Items guaranteed by certain entities, as
      specified in current legislation, provided the guarantee includes transfer
      risk; and

| |  |   |                                                                                                           
| |  | - | ----------------------------------------------------------------------------------------------------------
| |  |  | Foreign short-term commercial loans that
      comply with the Bank of Portugal regulations for exemption.

The management of the BES Group believes that the provisions that have been made in accordance with the Bank of Portugal regulations are sufficient to cover the BES Group’s estimated losses in its loan portfolio. The aggregate amount of provisions as of December 31, 2002 was euro 731.4 million (compared with euro 612.0 million at December 31, 2001 and euro 605.8 million at December 31, 2000). Allowances are adjusted on a monthly basis. For the purposes set out above, secured loans that involve a security interest that the BES Group considers subordinate to material governmental liens (such as unpaid taxes and social security contributions) are treated as unsecured. The following table shows the allowances made by the BES Group to comply with the Bank of Portugal guidelines as of December 31, 2002:


|Class
      of overdue debt                                          | Specific
      allowance at December 31, 2002 |      
|-------------------------------------------------------------------- | --------------------------------------------- | -----
|                                                                    
|I                                                                    |                                               | II   
|                                                                     |                                               |      
|Secured
      loans (1)                                              | 12,397                                        |      
|                                                                     | Specific allowance
      required             | 86   
|Unsecured
      loans                                                | 54,611                                        |      
|                                                                     | Specific allowance
      required             | 7,175
|                                                                     |                                               |      
|Total specific allowance
      for overdue debt at December 31, 2002 | 7,261                                         |      
|                                                                     |                                               |      
|Total
      specific allowance for doubtful debt                     |                                               |      
|                                                                     |                                               |      
|Total specific allowance
      at December 31, 2002                  |                                               |      
|                                                                     |                                               |      

|   
|---
|(1)

The following table shows details of the movements in the BES Group’s loan loss allowances for each of the past five fiscal years:


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Analysis of the Allowance for Loan Losses

|                                                                   | December 31,   |                               
|------------------------------------------------------------------ | -------------- | ------------------------------
|                                                                  
|1998                                                               |                | 1999                          
|                                                                   |                |                               
|(euro thousand,
      except percentages )                        
|Allowance
      for loan losses at beginning of year:              |                |                               
|                                                                   | Domestic:      |                               
|                                                                   |                | Specific allowance            
|                                                                   |                | Category risk                 
|                                                                   | International: |                               
|                                                                   |                | Specific allowance            
|                                                                   |                | Category risk                 
|                                                                   |                | Sovereign and
      other risk
|                                                                   |                |                               
|                                                                   |                |                               
|                                                                   |                |                               
|Additions/ Reversals
      (1):                                    |                |                               
|                                                                   | Domestic:      |                               
|                                                                   |                | Specific allowance            
|                                                                   |                | Category risk                 
|                                                                   | International: |                               
|                                                                   |                | Specific allowance            
|                                                                   |                | Category risk                 
|                                                                   |                | Sovereign and
      other risk
|                                                                   |                |                               
|                                                                   |                |                               
|                                                                   |                |                               
|Exchange
      rate movements, transfers and other adjustments(2): |                |                               
|                                                                   | Domestic:      |                               
|                                                                   |                | Specific allowance            
|                                                                   |                | Category risk                 
|                                                                   | International: |                               
|                                                                   |                | Specific allowance            
|                                                                   |                | Category risk                 
|                                                                   |                | Sovereign and
      other risk
|                                                                   |                |                               
|                                                                   |                |                               
|                                                                   |                |                               
|Recoveries (3):                                                    |                |                               
|                                                                   | Domestic:      |                               
|                                                                   |                | Specific allowance            
|                                                                   |                | Category risk                 
|                                                                   | International: |                               
|                                                                   |                | Specific allowance            
|                                                                   |                | Category risk                 
|                                                                   |                | Sovereign and
      other risk
|                                                                   |                |                               
|                                                                   |                |                               
|                                                                   |                |                               
|Loans
      charged off (1):                                       |                |                               
|                                                                   | Domestic:      |                               
|                                                                   |                | Specific allowance            
|                                                                   |                | Category risk                 
|                                                                   | International: |                               
|                                                                   |                | Specific allowance            
|                                                                   |                | Category risk                 
|                                                                   |                | Sovereign and
      other risk
|                                                                   |                |                               
|                                                                   |                |                               
|                                                                   |                |                               
|Allowance for loan
      losses at the end of the year:            |                |                               
|                                                                   | Domestic:      |                               
|                                                                   |                | Specific allowance            
|                                                                   |                | Category risk                 
|                                                                   | International: |                               
|                                                                   |                | Specific allowance            
|                                                                   |                | Category risk                 
|                                                                   |                | Sovereign and other risk      
|                                                                   |                |                               
|Total
      allowances for loan losses                             | 424,761        |                               
|                                                                   |                |                               
|Average gross loans                                                | 11,436,553     |                               
|                                                                   |                |                               
|Net
      charge-off as a percentage of average loans              | 0.51           | %                             
|                                                                   |                |                               
|Total allowance as
      a percentage of average loans             | 3.71           | %                             
|                                                                   |                |                               

|   
|---
|(1)

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In 1999, additions to allowances
      for domestic loan losses decreased, due mainly to the securitization of
      consumer loans with a book value of euro 250 million, which led to a reversal
      of loan loss allowances previously established in the amount of euro 3.1
      million. At the same time, allowances for losses on international loans
      increased, reflecting the full provisioning of a loan to a Chinese trust
      and investment company in the amount of euro 11.4 million.

| |                                                                                                                                                                                                                                                                                                                                                                                
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The slowdown of the Portuguese
      economy led to a significant growth in loan loss provisions in 2001 and
      2002. In each of these years, the BES Group wrote off several loans that
      were fully provided for. These loans are not totally unrecoverable. Any
      payments on these loans in the future would be recognized in income if and
      when received.

|    |                                                                                                                                                          
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Exchange rate movements and
      other adjustments include the loan loss allowances of BAC at the date of
      the first consolidation (July 31, 2002).

|    |                                                                           
|--- | --------------------------------------------------------------------------
|(3) | Recoveries of loans previously
      written off are recognized in income.

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The following table shows overdue
  loans and other loans at risk in absolute terms and as a percentage of total
  loans as well as the aggregate amount of loan loss allowances for overdue and
  other at risk loans (including interest):


Loans at Risk and Respective Allowances


|                                                                                         | December
        31, |     
|---------------------------------------------------------------------------------------- | -------------------- | ----
|                                                                                        
|1998                                                                                     |                      | 1999
|                                                                                         |                      |     
|Amount                                                                                   |                      | %   
|                                                                                         |                      |     
|(euro
        thousand, except percentages)                                             
|                                                                                         |                      |     
|Gross loans                                                                              | 14,399,527           |     
|Performing loans                                                                         | 13,900,834           |     
|Total loans
      at risk **(1)**                                                        | 498,693              |     
|Overdue
      loans **(2)**                                                              | 338,918              |     
|Other
      loans at risk                                                                | 159,775              |     
|Loan loss allowances:                                                                    |                      |     
|Specific allowances
      **(3)**                                                        | 245,288              |     
|Category, sovereign
      and other
               risk-related allowances
      **(4)** | 179,473              |     
|Total allowances**(5)**                                                                  | 424,761              |     
|Total allowances as a percentage
         of total loans at risk                         |                      |     
|Total allowances as a percentage
         of overdue loans **(6)**                       |                      |     
|                                                                                         |                      |     

|   
|---
|(1)
|   
|(2)
|   
|(3)
|   
|(4)
|   
|(5)
|   
|(6)
|   

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The BES Group’s largest overdue
  loans, each of which exceeds euro 5 million in principal amount and all
  of which are fully provided for, were granted to companies in the following
  sectors:


|                         | Amount | 
|------------------------ | ------ | 
|                        
|(euro
      million)    
|Domestic:                |        | 
|Electric
      equipment | 6.3    | 
|International:           |        | 
|Electric
      equipment | 6.4    | 

The management of the BES Group believes that at December 31, 2002, total loan loss allowances were sufficient to cover the risks associated with the  total loans at risk as described above. The following tables provide a breakdown
    of the charge-offs, recoveries and loan loss allowances as a percentage of
    total average gross loans by category of borrower:


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|                                          | December 31, |     
|----------------------------------------- | ------------ | ----
|                                         
|1998                                      |              | 1999
|                                          |              |     
|(euro thousand,
      except percentages)
|                                          |              |     
|Total average
      gross loans           | 11,436,553   |     
|                                          |              |     
|Loans charged-off (amount):**(1)**        |              |     
|Domestic:                                 |              |     
|Commercial**(2)**                         | 48,383       |     
|Financial                                 | 55           |     
|Agricultural                              | 564          |     
|Real estate  construction                | 878          |     
|Real estate  mortgage                    |             |     
|Instalment loans to individuals           | 5,706        |     
|                                          |              |     
|Total
      domestic                      | 55,586       |     
|International                             | 2,818        |     
|                                          |              |     
|Total                                     | 58,404       |     
|                                          |              |     
|Loans charged-off
      (percent):        |              |     
|Domestic:                                 |              |     
|Commercial                                | 0.42         | %   
|Financial                                 |             |     
|Agricultural                              |             |     
|Real estate  construction                | 0.01         | %   
|Real estate  mortgage                    |             |     
|Instalment loans to individuals           | 0.05         | %   
|                                          |              |     
|Total
      domestic                      | 0.48         | %   
|International                             | 0.02         | %   
|                                          |              |     
|Total                                     | 0.50         | %   
|                                          |              |     
|Recoveries (amount): (1)                  |              |     
|Domestic                                  | 3,751        |     
|International                             | 788          |     
|                                          |              |     
|Total                                     | 4,539        |     
|                                          |              |     
|Recoveries (percent):                     |              |     
|Domestic                                  | 0.03         | %   
|International                             | 0.01         | %   
|                                          |              |     
|Total                                     | 0.04         | %   
|                                          |              |     
|Allowances at end of period:              |              |     
|Domestic:                                 |              |     
|Commercial                                | 284,769      |     
|Financial                                 | 6,883        |     
|Agricultural                              | 9,472        |     
|Real estate  construction                | 22,326       |     
|Real estate  mortgage                    | 34,093       |     
|Instalment loans to individuals           | 35,240       |     
|                                          |              |     
|Total
      domestic                      | 392,783      |     
|International                             | 31,978       |     
|                                          |              |     
|Total                                     | 424,761      |     
|                                          |              |     
|Loan loss allowance
      (percent):      |              |     
|Domestic:                                 |              |     
|Commercial                                | 2.49         | %   
|Financial                                 | 0.06         | %   
|Agricultural                              | 0.08         | %   
|Real estate  construction                | 0.20         | %   
|Real estate  mortgage                    | 0.30         | %   
|Instalment loans to individuals           | 0.31         | %   
|                                          |              |     
|Total
      domestic                      | 3.44         | %   
|International                             | 0.28         | %   
|                                          |              |     
|Total                                     | 3.72         | %   
|                                          |              |     

|   
|---
|(1)
|   
|(2)

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The following table provides a breakdown of actual charge-offs by business segment and size for each of the years presented:


|                                      | 1998                                      |  | 1999   |   | 2000   |  | 2001   |   | 2002   | 
|------------------------------------- | ----------------------------------------- |  | ------ | - | ------ |  | ------ | - | ------ | 
|                                      |                                           |  |        |   |        |  |        |   |        | 
|                                      | Amount                                    |  | %      |   | Amount |  | %      |   | Amount | 
|                                      |                                           |  |        |   |        |  |        |   |        | 
|                                      | (euro
      thousand, except percentages) | 
|Business
      segments:              |                                           |  |        |   |        |  |        |   |        | 
|Small
      and medium sized          |                                           |  |        |   |        |  |        |   |        | 
|companies                             | 41,221                                    |  | 71     | % | 41,976 |  | 83     | % | 42,301 | 
|Major
      corporations              | 11,417                                    |  | 19     | % | 3,696  |  | 7      | % | 9,148  | 
|Private
      individuals             | 5,766                                     |  | 10     | % | 5,126  |  | 10     | % | 8,254  | 
|Foreign
      governments             |                                          |  |       |   |       |  |       |   |       | 
|                                      |                                           |  |        |   |        |  |        |   |        | 
|Total                                 | 58,404                                    |  | 100    | % | 50,798 |  | 100    | % | 59,703 | 
|                                      |                                           |  |        |   |        |  |        |   |        | 
|                                      |                                           |  |        |   |        |  |        |   |        | 
|                                      |                                           |  |        |   |        |  |        |   |        | 
|                                      |                                           |  |        |   |        |  |        |   |        | 
|                                      | 1998                                      |  | 1999   |   | 2000   |  | 2001   |   | 2002   | 
|                                      |                                           |  |        |   |        |  |        |   |        | 
|                                      |                                           |  | Total  |   |        |  | Total  |   |        | 
|                                      | No.                                       |  | amount |   | No.    |  | amount |   | No.    | 
|                                      |                                           |  |        |   |        |  |        |   |        | 
|                                      | (euro
      thousand, except percentages) | 
|Size of
      charge-offs             |                                           |  |        |   |        |  |        |   |        | 
|Less
      than euro 0.05 million (1) | 3,214                                     |  | 12,315 |   | 4,623  |  | 11,638 |   | 8,932  | 
|Euro
      0.05  0.5 million         | 174                                       |  | 17,977 |   | 174    |  | 22,102 |   | 155    | 
|Euro
      0.5  1.5 million          | 14                                        |  | 11,053 |   | 15     |  | 10,524 |   | 11     | 
|More
      than euro 1.5 million      | 6                                         |  | 17,059 |   | 3      |  | 6,534  |   | 6      | 
|                                      |                                           |  |        |   |        |  |        |   |        | 
|Total                                 | 3,408                                     |  | 58,404 |   | 4,815  |  | 50,798 |   | 9,104  | 
|                                      |                                           |  |        |   |        |  |        |   |        | 

| | 
| | 

|(1) | The
      significant number of charge-offs of less than euro 0.05 million relate
      mainly to charge-offs of Crediflash’s loans (credit card balances
      that are individually very small).
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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Deposits

The following table shows details of average deposits and interest rates paid for each of the years indicated:


|                                          | Year ended
      December 31, |        
|----------------------------------------- | ----------------------------- | -------
|                                         
|2000                                      |                               | 2001   
|                                          |                               |        
|Average                                   |                               | Average
|balance                                   | rate %                        | balance
|                                          |                               |        
|(euro thousand,
      except percentages)
|Domestic:                                 |                               |        
|Non-interest-bearing:                     |                               |        
|Deposits
      from banks                 | 67,260                        |        
|                                          |                               |        
|Total non-interest-bearing                | 67,260                        |        
|                                          |                               |        
|Interest-bearing:                         |                               |        
|Deposits
      from banks                 | 299,162                       |        
|Demand
      deposits                     | 4,757,477                     |        
|Time
      deposits                       | 8,208,819                     |        
|                                          |                               |        
|Total interest-bearing                    | 13,265,458                    |        
|                                          |                               |        
|International:                            |                               |        
|Non-interest-bearing:                     |                               |        
|Deposits
      from banks                 | 14,869                        |        
|                                          |                               |        
|Total non-interest-bearing                | 14,869                        |        
|                                          |                               |        
|Interest-bearing:                         |                               |        
|Deposits
      from banks                 | 4,170,976                     |        
|Demand
      deposits                     | 345,784                       |        
|Time
      deposits                       | 3,022,393                     |        
|                                          |                               |        
|Total interest-bearing                    | 7,539,153                     |        
|                                          |                               |        
|Total non-interest-bearing                | 82,129                        |        
|Total interest-bearing                    | 20,804,611                    |        
|                                          |                               |        
|Total deposits(1)                         | 20,886,740                    |        
|                                          |                               |        

| | 
| | 

|(1) | At December 31,
      2002 the deposits held by BES subsidiaries, mainly BIC and BESSA, were euro
      5.9 billion.
|--- | --------------------------------------------------------------------------------------------------------------------

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The following table shows the maturities
  and categories of the BES Group’s total deposits at December 31,
  2002:




|                                                 |                                  |                               | December 31,
      2002 |          
|------------------------------------------------ | -------------------------------- | ----------------------------- | ----------------------- | ---------
|                                                 |                                  |                               |                         |          
|                                                 |                                  |                               | 3 months                |          
|                                                 |                                  |                               | or less                 |          
|                                                 |                                  |                               |                         |          
|                                                 |                                  |                               | (euro thousand)         |          
|Domestic:                                        |                                  |                               |                         |          
|                                                 | Non-interest-bearing:            |                               |                         |          
|                                                 |                                  | Deposits from
      banks     | 59,166                  |          
|                                                 |                                  |                               |                         |          
|                                                 | Total
      non-interest-bearing | 59,166                        |                         |         
|                                                 |                                  |                               |                         |          
|                                                 | Interest-bearing:                |                               |                         |          
|                                                 |                                  | Deposits from
      banks     | 222,009                 |          
|                                                 |                                  | Demand deposits               | 6,702,195               |          
|                                                 |                                  | Time deposits
      (2)       | 6,131,788               |          
|                                                 |                                  |                               |                         |          
|                                                 | Total interest-bearing           | 13,055,992                    |                         | 1,262,418
|                                                 |                                  |                               |                         |          
|International:                                   |                                  |                               |                         |          
|                                                 | Non-interest-bearing:            |                               |                         |          
|                                                 |                                  | Deposits from
      banks     | 9,651                   |          
|                                                 |                                  |                               |                         |          
|                                                 | Total non-interest-bearing       | 9,651                         |                         |         
|                                                 |                                  |                               |                         |          
|                                                 | Interest-bearing:                |                               |                         |          
|                                                 |                                  | Deposits from
      banks (1) | 3,071,000               |          
|                                                 |                                  | Demand deposits               | 618,832                 |          
|                                                 |                                  | Time deposits
      (2)       | 3,392,452               |          
|                                                 |                                  |                               |                         |          
|                                                 | Total interest-bearing           | 7,082,284                     |                         | 1,239,427
|                                                 |                                  |                               |                         |          
|Total
      deposits as per financial statements | 20,207,093                       |                               | 2,501,845               |          
|                                                 |                                  |                               |                         |          

|   
|---
|(1)
|   
|(2)



The following table shows the distribution
  of all deposits, including deposits from customers and amounts borrowed by the
  BES Group from Portuguese financial institutions and foreign banks (including
  commercial paper), in euros and other currencies as of December 31, 2000,
  2001 and 2002:




|                                 | December 31,    | 
|-------------------------------- | --------------- | 
|                                 |                 | 
|                                 | 2000            | 
|                                 |                 | 
|                                 | (euro thousand) | 
|                                 |                 | 
|Euro                             | 17,111,114      | 
|US dollars                       | 2,324,965       | 
|Other foreign currencies **(1)** | 740,059         | 
|                                 |                 | 
|Total deposits                   | 20,176,138      | 
|                                 |                 | 

|   
|---
|(1)

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The following table provides
  an analysis of the maturity of time deposits in the amount of $100,000 or more
  as of December 31, 2002:




|                          | December 31,
      2002 | 
|------------------------- | ----------------------- | 
|                          |                         | 
|                          | 3 months                | 
|                          | or less                 | 
|                          |                         | 
|                          | (euro thousand)         | 
|                          |                         | 
|Domestic                  | 3,020,761               | 
|International             | 676,955                 | 
|                          |                         | 
|Total time
      deposits | 3,697,716               | 
|                          |                         | 

Return on Equity and Assets

The following table presents certain
  selected financial ratios, based on the statutory accounts of the BES Group,
  as reclassified to U.S. format of presentation but before any US GAAP adjustment,
  for the periods indicated:




|                                       | December 31,  | 
|-------------------------------------- | ------------- | 
|                                       |               | 
|                                       | 2000          | 
|                                       |               | 
|                                       | (Percentages) | 
|                                       |               | 
|Return on average
      assets **(1)** | 0.75          | 
|Return on average equity **(2)**       | 18.56         | 
|Dividend payout
      ratio **(3)**    | 37.90         | 
|Equity to assets ratio **(4)**         | 4.04          | 

Under U.S. GAAP, the percentages would be as
    follows:


|                                 | December 31,  | 
|-------------------------------- | ------------- | 
|                                 |               | 
|                                 | 2000          | 
|                                 |               | 
|                                 | (Percentages) | 
|                                 |               | 
|Return on average assets (1)     | 0.33          | 
|Return on average equity **(2)** | 7.18          | 
|Dividend payout ratio **(3)**    | 86.77         | 
|Equity to assets ratio **(4)**   | 4.54          | 

|   
|---
|(1)
|   
|(2)
|   
|(3)
|   
|(4)

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Short-term Borrowings

The following table shows details of the BES Group short-term borrowings for each of the past three years:

|                                                               |                                                                                                                                 | December 31,                              |          
|-------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------- | ---------
|                                                               |                                                                                                                                 |                                           |          
|                                                               |                                                                                                                                 | 2000                                      |          
|                                                               |                                                                                                                                 |                                           |          
|                                                               |                                                                                                                                 | (euro thousand,
      except percentages) |          
|Securities
      Transferred Under Repurchase Agreements (2):  |                                                                                                                                 |                                           |          
|                                                               | Outstanding                                                                                                                     | 699,472                                   |          
|                                                               | Approximate
      average amount outstanding during the period                                                                  | 400,621                                   |          
|                                                               | Approximate
      weighted average interest rate during the period                                                              | 5.65                                      | %        
|                                                               | Approximate
      weighted average interest rate at the end of the period                                                       | 3.75                                      | %        
|Interbank Money
      Market Funds From Domestic Institutions: |                                                                                                                                 |                                           |          
|                                                               | Outstanding                                                                                                                     | 320,483                                   |          
|                                                               | Approximate
      average amount outstanding during the period                                                                  | 202,229                                   |          
|                                                               | Approximate
      weighted average interest rate during the period                                                              | 4.88                                      | %        
|                                                               | Approximate
      weighted average interest rate at the end of the period                                                       | 4.78                                      | %        
|Short
      Term Loans:                                        |                                                                                                                                 |                                           |          
|                                                               | Outstanding                                                                                                                     | 279,070                                   |          
|                                                               | Approximate
      average amount outstanding during the period                                                                  | 193,264                                   |          
|                                                               | Approximate
      weighted average interest rate during the period                                                              | 4.37                                      | %        
|                                                               | Approximate
      weighted average interest rate at the end of the period                                                       | 4.86                                      | %        
|Overdrafts (3):                                                |                                                                                                                                 |                                           |          
|                                                               | Outstanding                                                                                                                     | 1,202,400                                 |          
|                                                               | Approximate
      average amount outstanding during the period                                                                  | 1,016,596                                 |          
|                                                               | Approximate
      weighted average interest rate during the period                                                              | 5.43                                      | %        
|                                                               | Approximate
      weighted average interest rate at the end of the period                                                       | 3.73                                      | %        
|Others:                                                        |                                                                                                                                 |                                           |          
|                                                               | Outstanding                                                                                                                     | 267,548                                   |          
|                                                               |                                                                                                                                 |                                           |          
|Total Outstanding                                              | 2,768,973                                                                                                                       |                                           | 2,631,584
|                                                               |                                                                                                                                 |                                           |          
|                                                               |                                                                                                                                 |                                           |          
|(1)                                                            | The
      maximum amount of borrowings in each category outstanding at any month-end
      during the year 2002 was as follows:

|                                                              |           | 
|------------------------------------------------------------- | --------- | 
|                                                              | 2002      | 
|                                                             
|(euro
        thousand)                                      
|Securities
      transferred under repurchase agreements      | 2,186,769 | 
|Interbank money
      market funds from domestic institutions | 423,846   | 
|Short-term
      loans                                        | 755,202   | 
|Overdrafts                                                    | 1,163,953 | 

|   
|---
|(2)
|   

|(3) | At
      December 31, 2000, 2001 and 2002, overdrafts were taken mainly by BES, BIC
      and BESI.
|--- | ---------------------------------------------------------------------------------------------------

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Supervision and Regulation

The Bank of Portugal

The Bank of Portugal is a part of
  the European System of Central Banks (ESCB), which was created in connection
  with the European Economic and Monetary Union (EMU). The EMU implies a single
  monetary policy, the main features of which are a single currency  the
  euro  and the creation of a European Central Bank (ECB) and the ESCB.
  According to the European Union (EU) treaty, the primary objective of the ESCB
  shall be to maintain price stability, such goal pursued through monetary policy. The Bank of Portugal is directed to “provide for the stability of the domestic financial system, performing for this purpose the function of lender of last resort”. This goal is achieved through the supervision of credit institutions, financial companies and some holding companies of credit institutions and financial companies. According to the «Regime Geral das Instituições de Crédito e Sociedades Financeiras», or Legal Framework of Credit Institutions and Financial Companies (Decree-Law NR 298/92 of December 31, 1992), the Bank of Portugal authorizes the setting up of credit institutions and financial companies based solely on technical-prudential criteria, monitors the activity of the institutions under its supervision and their compliance with the rules governing their activities, issues recommendations for the correction of any deviations from such rules, sanctions breaches, should they occur, and takes extraordinary measures of reorganization. The Bank of Portugal has established rules governing solvency ratios, reserve requirements, control of major risks and provisions for specific and general credit risks. It monitors compliance with these rules through periodic inspections, review of regularly filed financial statements and reports, and continuing assessment of adherence to current legislation. The Bank of Portugal is also charged with the duty to “regulate, oversee and promote the smooth operation of payment systems, namely within the scope of its participation in the ESCB”. Membership in the EU subjects Portugal to compliance with legislation which may be either in the form of regulations, which are directly enforceable in any member state, or directives addressed to the member states, which may require the enactment of implementing legislation or whichas established by the European Court of Justice in several decisionsmay be deemed to be directly enforceable in a member state in the event they are clear, precise and unconditional. In addition, the European Commission and the Council of Ministers issue non-binding recommendations to the member states. The Portuguese authorities have introduced EU directives and recommendations into legislation to adapt Portuguese laws to European regulatory standards.


Capital Adequacy Requirements

Capital and Solvency Ratios.
    Portuguese banks are subject to solvency ratio requirements. These requirements
    conform to the EU directives establishing, respectively, common standards
    for the measurement of capital (generally referred to as the “Own Funds
    Directive”) and a system for weighting assets according to credit risk
    (generally referred to as the “Solvency Ratio Directive”) with
    the requirement that, since December 31, 1992, all credit institutions must
    maintain capital of at least 8% of risk-weighted assets. In particular cases,
    the Bank of Portugal may impose a higher solvency ratio to ensure weighting
    assets according to credit risk. Banks that fail to comply with these requirements
    are subject to various measures that may be imposed by the Bank of Portugal,
    including possible restrictions on dividends and imposition of fines and other
    sanctions on, not only the Bank, but also on its directors and executive officers.
    The BES Group is in compliance with the solvency ratio requirements and as
    of December 31, 2002 maintained capital (as defined by the Bank of Portugal)
    of 10.74% of its equivalent risk-weighted assets. The Basle II Capital Accord.
    Because Portugal is not a party to the 1988 capital accord of the Basle Committee
    on Banking Supervision (the “Basle Committee”), the capital adequacy
    requirements established by that accord are not applicable to the Bank or
    other BES Group companies based in Portugal. Nonetheless, the BES Group discloses
    certain capital adequacy ratios provided by that accord on a voluntary basis.
    The Basle Committee is composed of central banks and bank supervisors/regulators
    from the major industrialized countries. It develops broad policy guidelines
    that each country’s supervisors may use to determine the supervisory
    policies they apply. In January 2001, the Basle Committee published proposals
    for an overhaul of the existing international capital adequacy standards.
    The two principal goals of the proposals are: (i) to align capital requirements
    more closely with the underlying risks; and (ii) to introduce a capital charge
    for operational risk (comparing, among other things, risks related to certain
    external factors, as well as to technical errors and errors of employees).
    The proposals are expected to be adopted by the Basle Committee by the end
    of 2003 and to become effective in the various countries that participate
    in the Basle Committee in 2006. If these proposals become effective, the Bank
    may need to maintain higher levels of capital for bank regulatory purposes,
    which could increase its financing costs.


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Minimum Cash Requirements

The minimum cash requirement is set by the ECB, and the rate of interest is the rediscount rate at which the ECB lends to the other European central banks.  The failure of a bank to maintain adequate liquidity may result in (i) an increase in the cash amount required (of up to three times the original amount); or (ii) an additional payment of up to double the rediscount rate or (iii) up to 5 basis points over that market rate.


Depositors’ Guarantee

The Deposit Guarantee Fund was established in December 1994 and has administrative and financial autonomy. All institutions that accept deposits must participate in this fund. The financial resources of the Deposit Guarantee Fund are mainly composed of initial contributions from the Bank of Portugal and the participating credit institutions and, thereafter, periodic contributions from the participating credit institutions. The annual contributions are defined according to the monthly average of the deposits made in the previous year and to the fixed contribution rate, weighted by the solvency ratio of each institution (the lower an institution’s ratio, the higher its contribution). The payment of up to 75% of the annual contributions may be partly replaced by an irrevocable contract, guaranteed where necessary by securities having a low credit risk and high liquidity. If the resources are insufficient to comply with its commitments, the Deposit Guarantee Fund may ask for special contributions or resort to loans. When a credit institution is unable to comply with its commitments, the Deposit Guarantee Fund guarantees the total repayment to depositors up to euro 25,000 per deposit (limit determined by the Decree-Law 222/99,  June 22, 1999). The deposits made in Portuguese territory are guaranteed regardless of the currency in which they are denominated, and whether the depositor is resident or non-resident in Portugal. However, some deposits are excluded from the guarantee scheme  such as those of credit institutions, financial companies, insurance companies, investment funds, pension funds and central or local administration bodies. Moreover, in order to prevent a conflict of interests, the Fund does not cover deposits made by an institution’s managing bodies, qualifying shareholders, external auditors and non-financial companies under the control of the credit institution at issue, or which together with the latter belong to the same group. Unlike the systems existing in other countries, the Deposit Guarantee Fund is not responsible for any procedures aimed at the reorganization and recovery of the participating credit institutions. The annual contribution is determined by multiplying 0.1% by the average balance of qualifying deposits; 75% of the annual contribution can be made in the form of riskless securities, as defined by the Bank of Portugal, given in guarantee.


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Borrowing from the Bank of Portugal

The Bank of Portugal has followed a policy of intervening as a lender of last resort in cases of liquidity shortfalls in the banking system. The basic method of lending employed is advances and overdrafts against collateral. For this purpose the Bank of Portugal discloses a list of securities eligible as collateral. The rediscount rate is now set by the ECB.


International Capital Flows

The Portuguese authorities have established a program of liberalization of international capital flows in furtherance of the country’s integration into the single market of the EU.


Restrictions on Acquisition of Capital Stock of a Bank

According to the Legal Framework of Credit Institutions and Financial Companies, any legal or natural person who proposes either to acquire directly or indirectly a qualified direct or indirect holding (5% or more of the capital or the voting rights, or a holding which makes it possible to exercise significant influence over management) in a credit institution is required to give the Bank of Portugal prior notice of such intention.


Prior notice must also be given to the Bank of Portugal by any such person intending to increase an existing qualified holding as a result of which the percentage of the voting rights or of the share capital held by such person would reach or exceed 5%, 10%, 20%, 33% or 50%, or when such credit institution would become a subsidiary of such person.


The Bank of Portugal may oppose any such acquisition or increase, in the event it does not consider the concerned person to meet certain conditions designed to ensure sound and prudent management of the credit institution.


All acquisitions of holdings as a result of which the percentage of the voting rights or of the share capital held by such person would reach or exceed 2% must be notified to the Bank of Portugal within a period of 15 days after they occur. The Bank of Portugal will then determine if the holding is qualified or not.


Similarly, any legal or natural person who proposes either to dispose of a qualified holding in a credit institution or to reduce the percentage of the voting rights and/or of the share capital directly or indirectly held in a credit institution as a result of which: (i) such person’s holding in the credit institution would fall below any of the percentages referred to above, (ii) such person would no longer be able to exercise a significant influence over the credit institution, or (iii) such credit institution would cease to be a subsidiary of such person, is also required to give the Bank of Portugal notice prior to proceeding with the proposed transaction.  The notification must include information on the new amount of the holding.


Under the Código dos Valores Mobiliários,or Portuguese Securities Code, any natural or legal person or persons acting in concert (including companies and their affiliates) who reach or exceed a holding of 10%, 20%, 33%, 50%, 66% or 90% of the voting rights attributable to the share capital of any public company («sociedade aberta») or reduce their holding below any of the above referred limits, must notify the Portuguese securities market authority (“CMVM”) and the company within three days from the occurrence of the event.  The notice must identify the chain of entities to which, according to law, such holding is attributed.  In the event the company is the issuer of shares or of other securities that grant the holder the right to subscribe or acquire shares listed on regulated markets located or operating in Portugal, the respective stock exchange authorities must also be notified.


In addition, these requirements also apply in the case of a listed company in Portugal if any natural or legal person or persons acting in concert (including companies and their affiliates) reach or exceed a holding of 2% or 5% of the voting rights attributable to the share capital of the company or reduce such holding to an amount below either of these limits.


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The Portuguese Securities Code provides that any natural or legal person or persons acting in concert (including companies and their affiliates) whose holding reaches or exceeds 33% or 50% of the voting rights attributable to the share capital of a public company, are required to launch a takeover for all the shares and other securities issued by the company that grant the holder the right to subscribe for or acquire shares.  Such offer must be for cash or have a cash alternative.  These provisions would apply in the event that ESFG increased its voting control of the Bank to more than 50%. The ESFG Group’s current voting interest in the Bank of 48.4% allows it to maintain control of the Bank, and, to the Bank’s knowledge, the ESFG Group has no present intention of increasing its percentage shareholding.


There is no clause in the Company’s by-laws and, as far as the Bank is aware, there is no shareholder agreement bearing on the Bank or on any of the companies in which it has equity holdings and whose shares are listed on the stock exchange regarding the exercise of rights in the company or the transferability of BES shares.


Investment in Non-Banking Companies

According to the Legal Framework of Credit Institutions and Financial Companies, no credit institutions may, in principle, have any direct or indirect qualified holding exceeding 15% of its own funds. In addition, the total amount of qualified holdings by a credit institution in such non-banking companies may not exceed 60% of its own funds (qualifying capital and reserves).


The Legal Framework of Credit Institutions and Financial Companies also provides that no credit institution may directly or indirectly own more than 25% of the capital of any single non-financial company for a period longer than three years.  The Bank is currently in compliance with these laws.


Treasury Shares

Portuguese law prohibits a company from subscribing for its own shares and generally from issuing guarantees or lending money to any third party in connection with the subscription for or acquisition of such shares, except for loans made in the ordinary course of business by banks and other financial institutions.  In the event the by-laws of a company do not prohibit the acquisition of its own shares, the company may only acquire or sell its own shares on terms and conditions determined at a general meeting of shareholders and, with certain exceptions, such shares, together with shares held by the company as collateral, may not exceed 10% of its capital. During the period the company owns such shares, all rights attendant on the ownership of such shares are suspended except for the right to receive additional, free or bonus shares. With certain exceptions, a Portuguese subsidiary is prohibited from subscribing for or acquiring shares of
 its parent.


Treasury shares of a company that exceed the 10% limit must be sold within one year (if unlawfully acquired) or within three years (if lawfully acquired). Failure to sell shares in accordance with these provisions will subject such shares to cancellation and the directors of the company to potential personal liability for damages to the company, to the creditors of the company or to third parties.


Issuers subject to Portuguese or foreign personal law with shares or other securities that confer rights of subscription, acquisition or disposal and that are admitted to trading in spot markets domiciled or operating in Portugal must notify the managing body of that market and the CMVM of any acquisitions or disposals by them of such securities:


| | a) | within the national territory or abroad, where
      such transactions, either individually or together with any effected since
      the last previous notice, amount to or exceed 1% of the equity capital;                                        
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                      
| | b) | in the same trading session of a spot market
      domiciled or operating in Portugal, where such transactions, either individually
      or together with any already effected, amount to or exceed 0.05% of the
      quantity admitted to trading.

Controlling companies must give notice, in accordance with the terms of the preceding article, of all acquisitions and disposals of securities issued by the controlling company itself and executed by a company controlled by it.


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Foreign Ownership of Shares

The purchase by a non-resident (or by a Portuguese company more than 20% of which is owned or otherwise controlled by a non-resident) of the capital of a Portuguese company (including a Portuguese bank or other credit institution) constitutes a “foreign investment transaction”, where, as a result of the transaction, (a) more than 20% of the shares of such company in the aggregate will be owned by non-residents, or (b) more than 10% will be owned by a single non-resident. Foreign investment transactions require post-acquisition informational filings within 30 days to the Instituto do Comércio Externo de Portugal. Acquisitions by non-residents, which are not foreign investment transactions, do not require any such filings.


Under Portuguese law, the limit of foreign ownership in a privatized Portuguese company, including the Bank, is 25%.  This restriction applies only to shares issued directly by the Bank and does not apply to the preference shares issued by Espírito Santo Overseas Limited, a Cayman Islands company, and guarantor of certain payments by the Bank.


Ownership interests in Portuguese companies are regularly monitored by the Bank of Portugal through the mandatory provision of monthly capital account position statements.


Other Controls

The Bank of Portugal imposes a number of other controls covering various aspects of a bank’s business.  It administers these controls through reporting requirements and ongoing supervision, including periodic examinations of the operations and asset portfolios of individual banks and consolidated banking groups.


As part of the internal market program, the European Commission and the European Council have proposed and adopted a number of regulations, directives and recommendations with respect to banking and financial services, including enacted and proposed legislation regarding capital movements, depositors’ guarantees, payment systems, collective investment companies, investment firms, public disclosure of acquisitions and dispositions of holdings in listed companies, prospectuses for the public issuance of securities, consumer credit, insider trading, mortgage credit, insurance, publication of annual accounting documents and taxation. The legislation is promoting greater competition in financial services, including areas such as securities brokerage, dealing and underwriting and providing investment advice and management in which the Bank competes.


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Organizational Structure

The BES Group has subsidiaries that operate in a number of countries throughout the world.  The following table provides information as of December 31, 2002, with respect to the BES Group’s current significant subsidiaries:


|Significant
      Subsidiaries                                                              
|--------------------------------------------------------------------------------------------
|                                                                                            
|Corporate name                                                                              
|                                                                                            
|                                                                                            
|Banco Internacional de Crédito,
      S.A.                                                  
|Banco Espírito Santo, SA (Spain)                                                            
|Espírito Santo Bank                                                                         
|Banco Espírito Santo do Oriente,
      SARL                                                 
|Banco Espírito Santo Angola,
      SARL                                                     
|BES International, SGPS, SA                                                                 
|BESTBanco Electrónico
      de Serviço Total, SA                                           
|Banco Espírito Santo dos Açores                                                             
|Banque Espírito Santo et de la
      Vénétie                                                
|Banco Espírito Santo de Investimento,
      SA                                              
|Espírito Santo PLC                                                                          
|Espírito Santo DealerSociedade
      Financeira de Corretagem, SA                          
|GESFINC  Espírito Santo
      Estudos Financeiros e de Mercado de Capitais, SA             
|CREDIFLASH  Sociedade Financeira
      para Aquisições a Crédito, SA                       
|CREDIBOMSociedade Financeira
      para Aquisições a Crédito, SA                           
|BESLEASING MOBILIÁRIASociedade
      de Locação Financeira, SA                             
|BESLEASING IMOBILIÁRIASociedade
      de Locação Financeira, SA                            
|EUROGES  Aquisição
      de Créditos a Curto Prazo, SA                                     
|Espírito Santo Activos Financeiros,
      SGPS, SA                                          
|Espírito Santo Financial Consultants,
      SA                                              
|ES CapitalSociedade de
      Capital de Risco, SA                                          
|ES TECH Ventures                                                                            
|JampurTrading Internacional                                                                
|ES InteractionSistemas
      de Informação Interactiva, SA                                 
|ESGESTEspírito Santo Gestão
      de Instalações, Aprovisionamento e Comunicações,
      SA
|Espírito Santo Cobranças,
      SA                                                          
|Espírito Santo Contact Center,
      Gestão de Call Centers, SA                             
|Espírito Santo Data, SGPS, SA                                                               
|FIDUPRIVATESociedade de
      Serviços, Consultadoria e Administração de Empresas,
      SA
|ESUMÉDICAPrestação
      de Cuidados Médicos, SA                                           
|Espírito Santo, Companhia de
      Seguros, SA                                              
|EUROP ASSISTANCE  Companhia
      Portuguesa de Seguros de Assistência, SA                 

|   
|---
|   
|(1)

During 2002 the BES Group registered
  the entrance of a new banking unit, BES Açores, and Jampur, a holding
  company that holds, indirectly, the BES Group’s interests in non-financial
  companies in Brazil.


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Property, Plants and Equipment

The Bank owns the building where its headquarters are located in the centre of Lisbon, as well as 148 of the buildings in which its branches are located. The remaining branch premises are leased on a yearly renewable basis according to local market practice. Rentals are reviewed once a year using the Portuguese government’s official inflation index as a measure for rental increases. All such buildings are located in principal central locations within the respective area served.


|ITEM 5. | OPERATING AND FINANCIAL REVIEW AND PROSPECTS
|------- | --------------------------------------------

Exchange Rates

A significant proportion of the BES Group’s assets and liabilities are denominated in currencies other than the euro.  Accordingly, exchange rate fluctuations may cause the BES Group’s reported net revenues to vary significantly from period to period.  At December 31, 2002, approximately 26% of the BES Group’s assets and approximately 24% of its liabilities were denominated in currencies other than the euro, principally the U.S. dollar and the British pound.


Following the launch of the European Monetary Union at the beginning of 1999, the euro depreciated significantly against the U.S. dollar.  In 2002, this trend reversed, and the euro strengthened relative to the U.S. dollar.  At December 31, 2002, the noon buying rate for the U.S. dollar per euro, as announced by the Federal Reserve Bank of New York for customs purposes as the rate in the city of New York for cable transfers in foreign currencies, was $ 1.0485 per € 1.00, compared with $ 0.8901 per € 1.00 at December 31, 2001.  For more information on movements between the euro and the Portuguese escudo (the predecessor currency to the euro in Portugal) on the one hand and the U.S. dollar on the other hand over the past five years, see “Item 3. Key Information”. The euro has continued to appreciate significantly since December 31, 2002.


To hedge its exchange rate exposure, the BES Group conducts foreign exchange transactions.  In 2002, the BES Group achieved foreign exchange transaction gains in the amount of 11.6 million euros, due primarily to transactions carried out in the spot market.  See “Item 11. Quantitative and Qualitative Disclosures About Market RiskForeign Currency Exchange Risk” for more information regarding the BES Group’s exchange rate exposure and hedging policy.


Assets and liabilities denominated in foreign currencies have been translated into euros at the exchange rates prevailing on the balance sheet date. Income statement items denominated in foreign currencies have been translated into euros at the average exchange rate during the financial period.


The Portuguese
  Economy

Portuguese GDP grew at a real rate of only 0.5% in 2002, compared with 1.6% in 2001, representing the lowest level of economic activity since the recession of 1993. The Portuguese economy’s sluggish performance in 2002 primarily reflected weak internal demand.  On the other hand, exports, although at weaker levels than in previous years, continued to be an important driver of demand.


In 2002, private consumption grew modestly at a rate of 0.7%, compared with 1.2% in 2001.  The lower growth in 2002 compared with 2001 reflects a deterioration in consumer confidence, which was due largely to a rise in the Portuguese unemployment rate and level of personal indebtedness.  The average rate of unemployment rose from 4.1% in 2001 to 5.1% in 2002.  In 2002, the average indebtedness of individuals is estimated to have risen to close to 100% of their disposable income, compared with approximately 60% five years ago.  This development had its most profound impact on the consumption of durable goods and investments in housing. Overall, gross fixed-capital formation fell by 5.1%, after remaining flat in 2001.


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Although the average inflation rate
    declined to 3.6% in 2002, compared with 4.4% in 2001, the magnitude of the
    decline was below expectations. The principal reasons why the rate of inflation
    declined less than expected were the introduction of euro notes and coins,
    the rise in fuel prices, the increase in the top bracket VAT rate by two percentage
    points and the continuously relatively high levels of labour unit prices. In the capital markets area, one of
  the most significant developments in 2002 was the launch of the Euronext-Lisbon
  stock exchange, which resulted from the integration of Bolsa de Valores de Lisboa
  e Porto (“BVLP”) into Euronext. Despite the launch of this new trading
  platform, the Portuguese capital markets followed the international trend and
  did not perform well. On the equity side, which currently accounts for 92% of
  the entire Portuguese market, prices also dropped by almost 30%. The Portuguese
  Stock Index (“PSI”) dropped again by approximately 25%, after declines
  of about 25% in 2001 and about 13% in 2000.


Results of Operations

The information in this section
  should be read together with the BES Group’s consolidated financial statements
  and notes thereto that are included elsewhere in this annual report. See the
  financial statements beginning on page F-1. The BES Group’s financial
  statements and notes have been prepared in accordance with Portuguese GAAP,
  which differs in certain significant respects from U.S. GAAP. See Note 23 to
  the Consolidated Financial Statements for a discussion of these differences
  and a reconciliation of the BES Group’s Portuguese GAAP net income and
  shareholders’ equity to U.S. GAAP. The following table includes the
    main indicators of performance, financial strength and profitability of the
    BES Group during the last three years (values in million euros and percentage
    where indicated):


|                            |  | 2000  |   | 2001  |   | 2002  |  
|--------------------------- |  | ----- | - | ----- | - | ----- | -
|                            |  |       |   |       |   |       |  
|Net Interest Income         |  | 609.5 |   | 727.0 |   | 793.6 |  
|Net Interest Margin         |  | 2.23  | % | 2.19  | % | 2.23  | %
|Provisions for loans losses |  | 139.1 |   | 142.6 |   | 216.3 |  
|Other Income                |  | 533.5 |   | 521.7 |   | 594.5 |  
|Other Expenses              |  | 662.2 |   | 826.9 |   | 878.7 |  
|Minority Interests          |  | 54.5  |   | 48.4  |   | 32.3  |  
|Net Income                  |  | 228.0 |   | 197.7 |   | 222.5 |  
|BIS Ratio                   |  | 10.96 | % | 10.75 | % | 12.81 | %
|Return on Equity            |  | 18.56 | % | 14.12 | % | 11.86 | %

2002 compared
  with 2001

General. Notwithstanding the
  sluggish performance of the capital markets and the unfavourable economic environment
  in 2002, the BES Group’s net income increased by 12.5%, from euro 197.7
  million in 2001 to euro 222.5 million in 2002. This development was primarily
  driven by increases in the BES Group’s net interest income and net gains
  on foreign currency and financial derivatives transactions, the effects of which
  more than offset a substantial increase in loan loss provisions and an increase
  in other expenses. The BES Group’s main operational
  units are:


| | • | Banking, which in 2002 accounted for around
      89% of the BES Group’s total revenues from external customers and
      its net income;  
| | - | -------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                            
| | • | Consumer credit, representing 4% of the BES
      Group’s total revenues and 9.6% of net income in 2002; and                               
| |   |                                                                                                                                            
| | • | Leasing, asset management and factoring, representing
      together, 5.2% of total revenues and 22.4% of net income in 2002, respectively;
| |   |                                                                                                                                            

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In addition, the BES Group comprises
  several outsourcing units, which provide, among other things, support services,
  cleaning services, research and consultancy services, IT support, real estate
  management and other related services to the operational units. For financial
  reporting purposes, these support units are treated as separate cost centers.
  However, given the importance of banking activities, the costs attributable
  to these units do not materially impact the BES Group’s results of operations
  in any given period. The BES Group fully hedges its exposure
  to foreign exchange risk. As a result, foreign exchange rate fluctuations did
  not materially influence the BES Group’s results of operations in 2002.
  In 2002, the BES Group achieved foreign exchange transaction gains in the amount
  of 11.6 million euros, due primarily to transactions carried out in the spot
  market. Net Interest Income. Net interest
  income increased by 9.2%, from euro 727.0 million in 2001 to euro 793.6
  million in 2002. This increase reflects the fact that while both interest income
  and interest expense decreased in 2002, the decrease in interest expense was
  proportionally greater. Interest income declined by 10.6%, from euro 2,052
  million to euro 1,835 million, whereas interest expense declined by 21.4%,
  from euro 1,325 million to euro 1,042 million. The decline in interest income mainly
  reflects a decrease in interest income from loans, which decreased by 6.9%,
  from euro 1,538.0 million in 2001 to euro 1,431.2 million in 2002,
  and from deposits with banks, which decreased by 48.9%, from euro 250.4
  million in 2001 to euro 128.0 million in 2002. In each case, the decrease
  was primarily the result of lower interest rates. Although the BES Group continued
  to pursue an aggressive pricing policy, it had to lower interest rates in line
  with the overall market trend. In the case of loans to customers, the effect
  of lower interest rates was partially offset by higher volumes. The volume of
  net loans to customers rose from euro  24.2 billion at December 31,
  2001 to euro  25.2 billion at December 31, 2002, generating an additional
  euro 158.4 million in interest income in 2002. In 2002, the BES Group’s
  lending activities continued to focus on mortgage loans and loans to small and
  medium sized corporate clients. The decline in interest income also reflects
  a decrease in interest income from investment securities, which decreased by
  24.4%, from euro 235.8 million in 2001 to euro 178.3 million in 2002.
  This decrease mainly reflects the fact that the portion of fixed-rate securities
  in the BES Group’s portfolio of investment securities declined relative
  to that of marketable securities, which do not bear interest but generate dividends.
  The decline in interest income resulting from the factors discussed above was
  partially offset by an increase in interest income from trading securities,
  which increased by 251.8%, from euro 27.8 million in 2001 to euro 97.8
  million in 2002 and which was primarily rate-driven. As a result of these changes,
  the average interest rate on the BES Group’s interest-earning assets dropped
  by 102 basis points, from 6.18% in 2001 to 5.16% in 2002. The decline in interest expense
    reflects a decrease in interest expense on deposits, which decreased by 37.3%,
    from euro 847.3 million in 2001 to euro 531.6 million in 2002, and
    short-term borrowings, which decreased by 21.7%, from euro 100.9 million
    in 2001 to euro 78.9 million in 2002. In each case, the decrease was primarily
    attributable to lower interest rates, which fell in line with the overall
    market trend. The decline in interest expense resulting from these factors
    more than offset an increase in interest expense on long-term debt, which
    increased by 14.4%, from euro 377.0 million in 2001 to euro 431.1
    million in 2002. This increase was primarily driven by higher volumes of borrowings
    to finance the BES Group’s lending activities. As a result of these
    changes, the average interest rate on the BES Group’s interest-bearing
    liabilities fell by 113 basis points, from 4.09% in 2001 to 2.96% in 2002. The fact that the average interest
  rate on the BES Group’s interest-earning assets declined less than the
  average interest rate on its interest-bearing liabilities reflects the BES Group’s
  aggressive pricing policy on loans to customers. This policy is closely monitored
  by the Assets and Liabilities Committee. See “Item 4. Information on
  the CompanySelected Statistical InformationAverage Balance Sheets
  and Interest Rates” for statistical information on the BES Group’s
  interest-earning assets and interest-earning liabilities and the interest income
  and expense associated with them.


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Lending. Gross loans grew by
  4.5% in 2002, from euro 24.8 billion at December 31, 2001 to euro 25.9
  billion at December 31, 2002, compared with growth rates of 12.6% in 2001
  and 27.0% in 2000. Gross domestic loans increased by 6.0%, from euro 21.3
  billion at December 31, 2001 to euro 22.6 billion at December 31,
  2002, whereas gross international loans decreased by 4.7%, from euro 3.5
  billion at December 31, 2001 to euro 3.4 billion at December 31, 2002.
  The continued growth of total gross loans reflects the BES Group’s efforts
  to expand its lending activities, especially with respect to mortgage and commercial
  loans in the domestic segment. The fact that the overall growth rate in 2002
  was significantly lower than in 2001 and 2000 was due primarily to the weak
  economic environment in Portugal and abroad. In addition, it reflects the fact
  that the BES Group securitized euro 150 million in consumer loans and euro 300
  million in corporate loans (leasing) in April 2002 and an additional euro 1,000
  million in mortgage loans in December 2002. These transactions reduced
  the size of the BES Group’s loan portfolio by a total of euro 1.45
  billion. Provision for Loans Losses.
    Loan loss provisions, i.e., additions to loan loss allowances less
    reversals of allowances previously made and recoveries, increased by 51.7%,
    from euro 142.6 million in 2001 to euro 216.3 million in 2002. As
    a percentage of net interest income, loan loss provisions increased from 19.6%
    in 2001 to 27.3% in 2002. Specific loan loss provisions increased by 33.2%,
    from euro 108.3 million in 2001 to euro 144.2 million in 2002. Category
    loan loss provisions increased by 132.8%, from euro 31.2 million in 2001
    to euro 72.5 million in 2002. The substantial increase in loan loss provisions,
    and, in particular, category risk provisions, to a level in excess of the
    level that would have been required by the relevant Bank of Portugal regulations,
    was considered necessary to cover the BES Group against a possible future
    deterioration in the financial and economic situation of its customers as
    a result of the economic slowdown both in Portugal and globally. As a result
    of these provisions, loan loss allowances as a percentage of total gross loans
    moved from 2.46% in 2001 to 2.82% in 2002. See “Item 4. Information
    on the CompanySelected Statistical InformationNon-performing Loans
    and Respective Allowances” for more information on the BES Group’s
    loan loss provisioning and an explanation of the underlying policies. Overdue loans increased by 21.2%,
  from euro 452.8 million in 2001 to euro 548.8 million in 2002, principally,
  management believes, because of the unfavourable macroeconomic environment.
  The ratio of overdue loans to total gross loans rose to 2.12% in 2002, compared
  with 1.82% in 2001. Given the substantial increase in loan loss provisions in
  2002, loan loss allowances as a percentage of overdue loans remained at what
  management believes is a comfortable level, 133.3%, in 2002, compared with 135.1%
  in 2001. The high coverage ratios reflect the combined effect of the Bank of
  Portugal’s rules and the BES Group’s conservative policies regarding
  the management of its loan portfolio. See “Item 4. Information on the
  CompanySelected Statistical InformationLoan Portfolio” for
  more information on these rules and policies. The BES Group continues to invest
  in the development of new risk control techniques, to develop a lending policy
  aimed at maintaining a well-diversified loan portfolio, thereby reducing its
  exposure to historically problematic sectors, and to expand its lending activities
  in the mortgage segment. Other Income. Other income
  increased by 14.0%, from euro 521.7 million in 2001 to euro 594.5 million
  in 2002. This increase mainly reflects a substantial increase in net gains on
  foreign currency and financial derivatives transactions, especially interest
  rate swaps, which increased by 35.1 %, from euro 136.1 million in 2001
  to euro 183.8 million in 2002. To a lesser extent, the increase in other
  income also reflects higher levels of fee and commission income, which rose
  by 6.1%, from euro 273.6 million in 2001 to euro 290.2 million in
  2002, and of other operating income, which rose by 7.6%, from euro 111.9
  million in 2001 to euro 120.4 million in 2002. The rise in fee and commission
  income was driven by fees and commissions generated from traditional banking
  services, such as the administration of current accounts, loans, guarantees,
  collections on discount bills purchased from third parties and project finance
  transactions. Other Expenses. Other expenses
  increased by 6.3%, from euro 826.9 million in 2001 to euro 878.7 million
  in 2002. This increase was driven by substantially higher losses from trading
  account securities, investment securities and investments in affiliated companies,
  which rose by 49.9%, from euro 49.3 million in 2001 to euro 73.9 million
  in 2002, due primarily to the negative overall performance of the capital markets,
  especially with respect to credit spreads and equity securities. To a lesser
  extent, the increase in other expenses reflects higher salaries and benefits,
  which rose by 5.3%, from euro 335.3 million in 2001 to euro 353.1
  million in 2002. The rise in salaries and benefits was due mainly to higher
  levels of pension plan expenses, which totaled euro 53.8 million in 2002,
  compared with euro 41.3 million in 2001. The growth of pension plan expenses
  reflects the impact of new regulations adopted by the Bank of Portugal regarding
  the accounting for pension plans as well as the effects of the BES Group’s
  early retirement program. The higher levels in pension plan expenses more than
  offset lower levels of salaries and benefits resulting from the BES Group’s
  reduction of its staff by 800 employees during the last two years. The increase
  in other expenses also reflects higher levels of depreciation and amortization,
  which rose by 10.3%, from euro 122.2 million in 2001 to euro 134.7
  million in 2002, due primarily to extraordinary depreciation charges in the
  amount of euro 6.7 million in intangible assets (software). The effect of the
  aforesaid changes was partially offset by lower levels of administrative expenses,
  which dropped by 2.4%, from euro 271.4 million in 2001 to euro 264.9 million
  in 2002, reflecting the BES Group’s efforts to cut costs.


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Minority Interests.
  Minority interests consist of that portion of the earnings and losses of less-than-wholly-owned
  consolidated subsidiaries that is attributable to the other shareholders of
  these subsidiaries. In 2002, the share of minority shareholders in the earnings
  of the BES Group’s consolidated subsidiaries declined by 33.3%, from euro 48.4
  million in 2001 to euro 32.3 million in 2002, reflecting a reduction in
  the interest paid on preference shares issued by these subsidiaries, especially
  ESOL and BESOL, due to the overall decline in interest rates and the devaluation
  of the U.S. dollar against the euro. Income Taxes. Income taxes
    consist of corporate income tax, municipal taxes and similar foreign taxes.
    Income taxes remained virtually unchanged in 2002, declining by only 0.2%,
    from euro 38.6 million in 2001 to euro 38.5 million in 2002. The
    BES Group’s effective tax rate declined from 16.32% in 2001 to 14.75%
    in 2002. The main reason for that decrease is due to the reduction in the
    statutory base tax rate. See Note 27 of Notes to Consolidated Financial Statements. Shareholders’ Equity. In 2002, the Bank increased its share capital from euro 1,000 million to euro 1,500 million by


| |  | transferring an amount equal to euro 250
      million from reserves and share premiums to the Bank’s stated share
      capital and in connection therewith issuing to the Bank’s shareholders
      one additional share for every four shares held by them, resulting in the
      issuance of 50 million shares and an increase of the Bank’s share
      capital by euro 250 million; and
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                                               
| |  | issuing to the Bank’s existing shareholders
      one additional share for every four shares held by them at a price of euro 11
      per share, resulting in the issuance of 50 million shares, an increase of
      the Bank’s share capital by euro 250 million and a cash in-flow
      of euro 550 million.                                                                              
| |   |                                                                                                                                                                                                                                                                                                                                                                                               

On a Portuguese GAAP basis,
  return on average shareholder’s equity was 11.86% in 2002 compared to
  14.12% in 2001. On U.S. GAAP basis, return on average shareholder’s equity
  was -8.93% in 2002 compared to -1.26% in 2001. See “Item 4. Information
  on the CompanySelected Statistical InformationReturn on Equity and
  Assets” and Notes 15 and 23 of Notes to Consolidated Financial Statements.


2001 compared with 2000

General. The BES
  Group’s total assets increased to euro 38.1 billion at December 31, 2001,
  compared to euro 33.5 billion at December 31, 2000. In line with general trends in Portugal and the strengthening of the domestic economy, the BES Group’s results had improved for several years until the year 2000. The climate in the international capital markets during the year 2001 and particularly after the events of September 11 had a negative impact on the performance of the Group.  In particular, net income from asset management declined by 34% (from euro 24.5 million in 2000 to euro 16.3 million in 2001), brokerage activities registered losses of euro 7.8 million (from positive net income of euro 6.5 million in 2000) and net income from investment banking decreased by 74% (from euro 38.3 million in 2000, to euro 10.1 million in 2001).  Consequently, consolidated net income decreased 13% to euro 197.7 million for the year ended December 31, 2001, compared to euro 228 million for the year ended December 31, 2000.


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Net Interest Income.
  Net interest income increased to euro 727.0 million in 2001 from euro 609.5
  million in 2000, primarily due to increased loan volumes, which more than offset
  the negative impact from margin reduction. Net loan volume increased to euro 24.2 billion in 2001 from euro 21.4 billion in 2000, principally reflecting the BES Group’s focus on the mortgage and small and medium size corporate market. The increase in net interest income reflected an increase of euro 393.4 million in interest income that more than offset an increase of euro 275.9 million in interest expense.  The increase in interest income was principally due to volume growth and to a shift in the loan portfolio towards more profitable segments.  The average rate on interest-earning assets rose by 12 basis points from 6.06% in 2000 to 6.18% in 2001. Interest expense increased from euro 1,049.2 million in 2000 to euro 1,325.1 million in 2001 due to long term borrowings and, in particular, issuances under the Group’s EMTN program.  Banks also had to pay higher interests on deposits because of the shortage of liquidity in the financial system until the last quarter of 2001.  Consequently, the BES Group had an increase of euro 65.6 million in interest due on demand and time domestic deposits.  In this context, the average rate on interest-bearing liabilities increased from 3.83% in 2000 to 4.09% in 2001. In 2001, additional funding needs were met by accessing the international debt capital markets, particularly for long-term borrowings, which increased by 131% in 2001.  Interest paid on these borrowings in 2001 increased to euro 377 million, compared to euro 220 million in 2000. The need for substantially increased funds, to support the expansion of lending activity and competition, was the main drivers of the decline in net interest margin, from 2.23% in 2000 to 2.19% in 2001.  See “Item 4. Information on the CompanySelected Statistical InformationAverage Balance Sheets and Interest Rates.” Lending.The BES Group’s total gross loan portfolio grew by 12.6% in 2001 (27% in 2000) with domestic loans growing 13.7%.  The growth in the loan portfolio was significantly lower than in previous years as a result of the general slowdown of the global and Portuguese economies in 2001.  The BES Group, however, has continued its efforts to capture a higher market share in mortgage lending.  The growth in corporate loans also experienced a deceleration in 2001 (2001: 11%; 2000: 31%) due to the deterioration of the economic environment in Portugal and the application of more selective credit policies. Provision for Loan Losses.  The BES Group made loan loss provisions in the amount of euro 142.6 million in 2001 compared to euro 139.1 million in 2000.  This increase was principally due to the growth in the size of the loan portfolio and to the provisions taken pursuant to Bank of Portugal regulations.  Specific allowances reflect the Bank of Portugal’s provisioning requirements and amounted to 68.5% of total  overdue loans in 2001 compared to 75.8% in 2000.  Allowances above the levels established by the Bank of Portugal are not tax deductible except with its approval.  See “Item 4.  Information on the CompanySelected Statistical InformationDescription of Assets and Liabilities”. Overdue loans increased 10.2% to euro 452.8 million in 2001 compared to euro 411.0 million in 2000 and total gross loans grew by 12.6%.  Consequently, the ratio of  overdue loans to gross loans declined from 1.86% in 2000 to 1.82% in 2001.  The downward trend reflected improvements in the overall quality of the loan portfolio as a result principally of the introduction of new risk control techniques, the increase in mortgage loans, and the reduction in loans to historically problematic sectors.  Its total allowance as a percentage of  overdue loans was 135.1% in 2001 compared to 147.4% in 2000.  The high coverage ratios over this period are principally attributable to the combination of the Bank of Portugal’s provisioning requirements and the BES Group’s  approach to the management of its loan portfolio.  See “Item 4.  Information on the CompanySelected Statistical InformationLoan Portfolio”. Loans charged-off totalled euro 140.5 million in 2001 compared to euro 59.7 million in 2000 due to a focused management effort to eliminate loans previously fully provisioned. Investment and Stockbrokerage.The stagnation of the capital markets in Portugal and the rest of the world in 2001 significantly affected BESI investment banking activities.  In particular, the approximately 25% decrease in the Portuguese stock index curtailed investment activities in the country and the launch of new issuances significantly.


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Other income. In
  2001, total other operating income decreased by 2.2% to euro 521.7 million from
  euro 533.5 million in 2000. The negative developments in the capital markets
  reduced the contribution of fees and commissions to banking income: asset management
  fees declined by 39% (2001: euro 43.9 million; 2000: euro 72.1 million), securities
  services decreased by 50% (2001: euro 23.4 million; 2000: euro 47.0 million);
  banc assurance fees grew only 1% (2001: euro 22.4 million; 2000: euro 22.1 million);
  and net trading results were negative in 2001 (euro 49.3 million compared to
  positive results of euro 58.9 million in the year 2000). Current account fees,
  collections and guarantees, on the other hand, performed strongly. Other Expenses.  Total other expenses grew by 22.7% in 2001 (from euro 708.2 million in 2000 to euro 869.2 million in 2001) due to negative net trading results, the consolidation of Gescapital and BM (full year 2001 consolidation), the cost of the new initiatives in the e-economy and charges of euro 1.3 million for institutional advertising.  Salaries and benefit costs showed an increase in 2001 of euro 40.8 million or 13.8%; excluding the effect of the consolidations and initiatives, these costs increased by approximately 7.4%.  Administrative expenses grew 16.5% to euro 271.4 million.  Excluding the effects of the consolidations and initiatives and the additional charges of euro 6 million relating to the transition to the euro, administrative expenses would have increased by 7.5%.  Depreciation and amortization increased 12.2% (2000: 17.6%) from euro 108.9 in 2000 to euro 122.2 in 2001, due to the completion of upgrades of information systems. Minority Interests.  Minority interests in income of consolidated subsidiaries declined from euro 8.6 million to euro 6.1 million due to the general decrease in profits in subsidiaries, namely ESAF. Income Taxes.  Income taxes decreased 40% to euro 38.5 million in 2001 from euro 64.0 million in 2000.  The effective tax rate was 16.3% in 2001 compared to 21.9% in 2000.  The reduction in effective tax rate was due mainly to the write-off against reserves of extraordinary charges related to early retirements that are tax deductible.  See Note 22 of Notes to Consolidated Financial Statements. Shareholders’ Equity.  On a Portuguese GAAP basis, return on average shareholders’ equity was 14.1% in 2001 compared to 18.6% in 2000.  On a U.S. GAAP basis, return on average shareholders’ equity was 1.26% in 2001 compared to 7.2% in 2000.  See “Item 4. Information on the CompanySelected Statistical InformationReturn.


U.S. GAAP Reconciliation

The Bank prepares its
  financial statements in accordance with Portuguese GAAP, which vary in certain
  significant aspects from U.S. GAAP. As a result of the various adjustments required
  in accordance with U.S. GAAP, the BES Group’s net income as calculated
  in accordance with U.S. GAAP varies substantially from its statutory net income
  calculated under Portuguese GAAP. The BES Group’s U.S. GAAP net income
  typically differs from its Portuguese GAAP net income as a result of different
  accounting treatments mainly relating to valuation differences, employee bonuses,
  recognition of unrealized gains and losses on investment securities, pension
  costs and other post-retirement costs, loans and securities impairment, contributions
  to the depositors’ guarantee fund, goodwill depreciation and impairment,
  deferred taxes, securitization transactions, treasury stock, derivative instruments
  and property revaluations. See Note 23 to the Consolidated Financial Statements
  for additional information on the differences between the accounting policies
  of the BES Group under Portuguese GAAP and those under U.S. GAAP. Under U.S. GAAP, the BES Group showed
    a net loss in 2002 of euro 162.0 million, compared with net income of euro
    222.5 million under Portuguese GAAP. This difference mainly reflects the different
    valuation principles under Portuguese GAAP and U.S. GAAP applicable to the
    BES Group’s equity holdings, and, in particular, to its investments
    in PT Group, Bradesco, BMCE Bank, Bradespar and Novabase. Because the BES
    Group considers these investments strategic investments, under Portuguese
    GAAP, it records them as long-term investments, valued at their acquisition
    cost less provisions in accordance with the Bank of Portugal’s Regulation
    4/2002. See Notes 2.2 c) and 7 to the Consolidated Financial Statements for
    more detailed information on the provisioning requirements of this regulation.
    Under U.S. GAAP, the BES Group is required to reclassify these investments
    as securities available for sale. Under Portuguese GAAP, unrealised losses
    on investment securities available for sale ordinarily would be charged against
    income in the year to which they relate, whereas unrealised gains are not
    recognized. However, under U.S. GAAP, unrealised gains and losses on investment
    securities available for sale must be recorded net of applicable taxes in
    shareholders’ equity except when there has been an “other than
    temporary impairment” of the fair value of these securities. Any such
    non-temporary impairments must be reflected in income. At December 31,
    2002, the market price of the BES Group’s equity holdings in PT Group,
    Bradesco, BMCE Bank, Bradespar and Novabase was significantly below their
    carrying value. The BES Group determined that this impairment was not merely
    temporary and, accordingly, took impairment charges of euro 106.9 million
    for PT Group, euro 120.7 million for Bradesco, euro 11.8 million for BMCE
    Bank, euro 20.8 million for Bradespar and euro 9.9 million for Novabase. Additional
    losses of euro 56.1 million were recorded in other available for sale securities.
    In 2002, these differences resulted in a negative reconciliation item of euro
    326.2 million.


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The BES Group is permitted to distribute a portion of its profit to its employees.  Under Portuguese GAAP, such distributions are charged against retained earnings in the year in which the amounts are paid. Under U.S. GAAP, profit distributions to employees are considered an expense and are recorded in the year in which the profit is achieved.  In 2000, 2001 and 2002, these differences resulted in negative reconciliation items of euro 23.7 million, euro 20.1 million and euro 23.3 million, respectively. Under Portuguese GAAP, until December 31,
    2001, extraordinary costs relating to early retirements were charged against
    retained earnings. Since December 2001, these costs are deferred and amortized
    over a period of ten years. Under U.S. GAAP, however, they are charged directly
    against earnings. In 2000, 2001 and 2002, the different treatment under Portuguese
    GAAP and U.S. GAAP of pension costs resulted in negative reconciliation items
    of 45.5 million, euro 73.5 million and euro 100.3 million, respectively. Under
    U.S. GAAP, under FAS 114, loans that are considered impaired are required
    to be accounted for at the present value of the anticipated future cash flows
    from such loans or at the fair value of collateral for collateral-dependent
    loans. The carrying value of loans under Portuguese GAAP is determined by
    applying the provisioning requirements of the Bank of Portugal. As a result,
    under U.S. GAAP, euro 19.6 million and euro 3.7 million were added to income
    in 2000 and 2001, respectively. In 2002, an additional charge of euro 35.5
    million was recorded. Under Portuguese GAAP, the costs
    incurred in connection with the adoption of the euro were deferred in the
    balance sheet and amortized over the three years ended December 31, 2001,
    as required by the Bank of Portugal. Additionally, the costs specifically
    related to the resolution of the Year 2000 problem were accounted for in property
    and equipment or intangible assets, according to the nature of the cost, and
    are being depreciated over a period of either three or four years. Under U.S.
    GAAP, both of these costs were expensed when incurred. These differences resulted
    in positive reconciliation items of euro 5.0 million, euro 7.8 million and
    euro 5.0 million in 2000, 2001 and 2002, respectively. Under Portuguese GAAP, fixed assets may be revalued in certain circumstances.  Amortization charges with respects to revalued assets are calculated on the basis of these assets’ adjusted carrying value, rather than their historical acquisition cost, and are fully recognized in income.  By contrast, under U.S. GAAP, revaluations are not permitted, and depreciation charges on fixed assets are calculated on the basis of the assets’ acquisition costs.  In 2000, 2001 and 2002, these differences resulted in positive reconciliation items of euro 3.3 million, euro 2.6 million and euro 2.5 million, respectively. Under Portuguese GAAP, goodwill is defined as the excess of an asset’s acquisition cost over the shareholder’s equity of the acquired company. Until 1998, for statutory purposes, the BES Group treated goodwill as an asset and amortized it over 25 years. In 1998, the BES Group changed its accounting for goodwill and in June 1998 wrote off all remaining goodwill against shareholders’ equity.  From 1999 onwards, goodwill arising on new acquisitions is charged against shareholders’ equity directly.  Under U.S. GAAP, until December 31, 2001, goodwill was capitalized and amortized over a period not to exceed its estimated useful life.  Effective January 1, 2002, the BES Group adopted SFAS 142. As a result, goodwill is no longer amortized but instead is annually tested for impairment, based on the asset’s expected future cash flows and, to the extent available, market prices. Any impairment charges taken with respect to goodwill are recognized in income.  In 2002, the BES Group took impairment charges of euro 15.3 million with respect to Jampur, euro 4.7 million with respect to Portline and euro 8.8 million with respect to Oblog.  All of these entities were consolidated in the BES Group’s financial statements for the first time in 2002, representing only 0.2% of BES Group total assets.


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The treatment of securitization transactions and credit-linked notes under Portuguese GAAP is significantly different from U.S. GAAP.  The adjustment at December 31, 2001, a charge to income of euro 17.6 million results from:  (i) a consumer loans securitization in August 1999, for which no initial gain or loss was recognized on the derecognition of the consumer loans under Portuguese GAAP, whilst under U.S. GAAP a loss of euro 5.9 million was recognized at December 31, 2001 and a gain of euro 3.1 million was recognized at December 31, 2000; (ii) a corporate bond securitization made during 2001, which under Portuguese GAAP qualified for treatment as a sale, whereas for U.S. GAAP purposes it had to be reconsolidated in the BES Group financial statements; and (iii) credit-linked notes purchased during 2001, which mainly included debt issued by the Bank’s subsidiaries, recorded in the Bank’s consolidated balance sheet under Portuguese GAAP.  Under U.S. GAAP, the Credit Linked Notes, the debt and the related interest and expense were eliminated upon consolidation.  See “Off-balance Sheet TransactionsSecuritizations” below. In 2002, the adjustment resulted in a charge to income of euro 51.0 million, reflecting the impact of a consumer loan securitization (a charge of euro 10.0 million), a corporate bond securitization (a charge of euro 5.1 million), finance lease and consumer loans securitizations (a charge of euro 5.2 million), mortgage loans securitization (a income of euro 1.2 million) and credit-linked notes (a charge of euro 31.9 million). Under Portuguese GAAP, own shares are held within Other assets with changes in fair value recorded in the income statement.  Under U.S. GAAP, treasury stock is deducted from shareholders’ equity, resulting in a deduction of euro 73.3 million at December 31, 2000.  At December 31, 2001 and 2002, there was no treasury stock. On January 1, 2001, the BES Group
    adopted FAS 133, which introduced significant changes in the accounting for
    derivatives. Under U.S. GAAP, all derivatives must be recorded on the balance
    sheet at their fair value with any changes in the fair value charged or credited
    directly against the income statement. This valuation principle also applies
    to hedging derivatives, in which case the any changes in the fair value of
    the hedged item should offset the corresponding changes in the value of the
    derivative. Under Portuguese GAAP, only trading derivatives are recognized
    at fair value, whereas for hedging derivatives receipts and payments are accrued
    and recognized in the income statement on the same basis as changes in the
    related hedged item. Another relevant difference relates to stricter criteria
    to meet hedge accounting under U.S. GAAP, therefore some transactions classified
    as hedging derivatives under Portuguese GAAP were reclassified as trading
    derivatives for U.S. GAAP purposes, and accounted for accordingly. The transitional
    adjustment on the adoption of FAS 133 as at January 1, 2001 resulted in a
    charge to income of euro 19.9 million; whilst at December 31, 2001 and 2002,
    the total adjustment resulted in a charge to income of euro 54.4 million and
    a gain of euro 45.2 million, respectively. In the light of the requirements of the Depositors' Guarantee Fund, the Bank annually provides, as a guarantee, certificates of deposit issued by the Bank of Portugal, to cover its responsibility for the portion of the annual contribution that it might be required to pay in the future depending on the Fund's needs. According to Portuguese GAAP, this responsibility is shown as an off-balance sheet item. For U.S. GAAP purposes, the Bank in 2000, 2001 and 2002 recognized charges of euro 7.2 million, euro 8.1 million and euro 14.6 million, respectively, to cover this responsibility.


Recent Developments

As of May 22, 2003, it was decided to merge Besleasing Mobiliária (83.72% BES Group stake), Besleasing Imobiliaria (82.70% BES Group stake) and Euroges Factoring (100% BES Group owned) into a single entity called “Instituição Financeira de Crédito” (a non-bank credit institution), which will combine the business of those three entities. This transaction is not expected to materially impact the BES Group’s business operations and results of operations. As of May 30, 2003, the BES Group decided to merge Espirito Santo Dealer into BESI in order to concentrate its investment banking and brokerage activities in a single entity . Under the Euro Medium Term Notes programme, BES Finance issued euro 1,100 million, as described in note 28 to the consolidated financial statements. On January 30, 2003, the Bank of Portugal published the Regulation no. 8/2003, which establishes new rules regarding the establishment of provisions for loans to customers.  See more details in Note 28 to the Consolidated Financial Statements.


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Liquidity and Capital Resources

Sources and Use of Funds

The BES Group’s primary source
    of funds is its deposit base, which consists primarily of demand and time
    deposits and deposits from other banks. Funding is also provided by the net
    proceeds from the issuance of debt securities, corporate borrowings and cash
    flow. For a discussion of the increase in the BES Group’s deposit base,
    see “Item 5. Operating and Financial Review and ProspectsResults
    of Operations” and “Item 4. Information on the CompanySelected
    Statistical InformationDeposits”. In 2002, the Bank increased
    its Euro Medium Term Note program to U.S.$7.0 billion. In total, the Bank
    has issued, and has an outstanding as of December 31, 2002, euro 4.0 billion
    in senior debt and euro 1.2 billion in subordinated debt under the program.
    The Bank, BIC and BESI have also issued bonds in the domestic Portuguese market.
    For information on these and other borrowings, see Note 12 to the Consolidated
    Financial Statements. At December 31, 2002, the Bank’s share capital comprised 300 million shares with a nominal value of euro 5 each. In 2002, the Bank increased its share capital by issuing 100 million of new shares with a nominal value of euro 5 each.  The transaction consisted of: (1) the issuance of 50 million shares to the Bank’s existing shareholders at a price of euro 11 per share and a ratio of one new share for each four shares held by them, and (2) 50 million shares issued to the Bank’s existing shareholders at a ratio of one new share for each four shares held, representing the capitalization of a portion of the Bank’s reserves.  As a result of this transaction, the Bank’s share capital increased to euro 1,500 million and total shareholders’ equity increased by euro 598 million to euro 2,001 million as of December 31, 2002.  See Note 15 of Notes to Consolidated Financial Statements for more information on the Bank’s share capital.  The Bank intends to use the proceeds from the transactions described above to finance its ongoing activities as well as
for investment activities in international markets and the upgrade of its information system. The Bank expects capital expenditures
  for 2003 to be approximately euro 116 million, the majority of which will be
  used for the continued updating of the Bank’s management information system
  and to implement a new layout for branches located in Portugal. The Bank expects
  that these capital expenditures will be met by using existing financial resources
  and through internally generated funds.


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Liquidity and Solvency Ratios

The following table provides an overview of the BES Group’s on- and off-balance sheet contractual obligations:


|Contractual
      Obligations |                           |                       |          
|----------------------------- | ------------------------- | --------------------- | ---------
|                             
|Payments                      |                           | Due by period        
|                              |                          
|Total                         | <1 year                   |                       | 1-3 years
|                              |                           |                       |          
|Balance
      Sheet           |                           | (euro
      millions) |          
|                              | Deposits
      from Banks |                       | 4,228    
|                              | Time
      Deposits       |                       | 12,152   
|                              | Long
      Term Debt      |                       | 11,058   
|                              |                           |                       |          
|                              |                           | Total                 |          
|Off-balance
      Sheet       |                           | 1,180                 |          
|                              |                           |                       |          

The Bank conducts a quarterly liquidity analysis, which it reports to the Bank of Portugal.  In this analysis the Bank reports the assets and liabilities from on and off balance sheet activities that may mature within the following 12 months.  All those assets and liabilities are classified in one of four maturity categories:  less than one month; from one to three months; from three to six months; or from six months to one year. A liquidity ratio is then calculated by dividing all the assets in a maturity class by the liabilities in that same class adjusted for the estimated negative mismatches of the subsequent periods.  The Bank also reports information on the concentration of deposits and of money market counterparties, as well as on the coverage of deposits from foreign institutions by liquid assets, and on the coverage of the loan portfolio by stable funding. This analysis is prepared quarterly on an individual and consolidated basis. The BES Group is also subject to solvency ratio requirements. These requirements have been fixed by the Bank of Portugal and conform with the EU directives fixing common standards for the measurement of capital (generally referred to as the “Own Funds Directive”) and establishing a system for weighing assets according to credit risk (generally referred to as the “Solvency Ratio Directive”). All credit institutions in Portugal are required to maintain capital of at least 8% of risk-weighted assets. The BES Group is in compliance with these solvency ratio requirements and maintained capital (as defined by the Bank of Portugal) of 10.74% of its equivalent risk-weighted assets. While Portugal is not a party to the Basle Accord, if the BES Group were to calculate its consolidated capital ratios in accordance with the capital framework adopted by the Basle Committee, at December 31, 2002, its capital ratios would have been (i) a total capital to risk-weighted assets ratio of 12.81% (compared to the Basle requirement of 8.0%) and (ii) a Tier I capital to risk-weighted assets ratio 7.19% (compared to the Basle requirement of 4.0%). See “Item 3. Key Information”.


Critical Accounting Policies

The accounting policies of the BES Group comply with the rules established by the Bank of Portugal, the entity that determines generally accepted accounting principles for banks in Portugal (Portuguese GAAP). Both Portuguese GAAP and U.S. GAAP
  set forth a range of accounting treatments, although both have rules that require
  management to apply judgment and make estimates in preparing the financial statements.
  The most significant of these accounting treatments are discussed in this section,
  as a basis for a better understanding of how their application affects the reported
  results and related disclosure. A broader description of the accounting policies
  employed by the BES Group is shown in Notes 1 and 23 to the financial statements
  appearing elsewhere in this Annual Report on Form 20-F. The existence of alternatives
  and the application of judgment mean that any selection of different alternatives
  or estimates would cause reported results to differ. Management believes that
  the choices made are appropriate, and that the financial statements therefore
  present BES Group’s financial position and results fairly, in all material
  respects. The alternative outcomes discussed below are presented solely to assist
  the reader in understanding the financial statements, and are not intended to
  suggest that other alternatives or estimates would be more appropriate. Many
  of the judgments made in applying accounting principles depend on an assumption,
  which management believes to be correct, that BES Group maintains sufficient
  liquidity to hold positions or investments until a particular trading strategy
  matures  i.e. that positions do not need to be realized at unfavourable
  prices in order to fund immediate cash needs. Liquidity is discussed in more
  detail under the caption “ Liquidity and Capital Resources”.


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Available for sale securities

Investments include fixed maturity and equity securities, and other similar instruments. Under Portuguese GAAP, potential gains are not recognized while potential losses are recognized in full through the income statement.  Valuations are generally obtained through market quotation or valuation models that may require assumptions or judgment in making estimates of fair value.  More pessimistic assumptions would have result in higher estimated potential losses, which would in turn have negatively impacted the income statement   In addition, under Portuguese GAAP, BES Group’s strategic investments are classified as long-term investments (other equity holdings) and used to be recorded at acquisition cost. During 2002, Bank of Portugal issued the Regulation no4 /2002 and established a new framework to cover potential losses in non-consolidated equity holdings. This new regime includes a transitory regime that allows banks to provide for eligible potential losses until 2006 for long-term investments in non-financial companies and until 2011 for financial companies. The BES Group is observing this new requirement and charged a total amount of euro 31.9 million during 2002 (of which euro 29.2 million were allocated to reserves) to provide for its eligible potential losses in these investments. Under U.S. GAAP, investments considered available for sale are recorded at fair value with unrealised gains and losses recorded as a component of shareholders’ equity.  Fair value is determined based on market quotations. If any of the available for sale securities is considered other than temporarily impaired, the relevant security is written down to fair value, with the fair value becoming the security’s new adjusted cost basis.  Under U.S. GAAP, a decline that is considered other than temporary is based generally on factors including a) the length of time and extent to which the fair value of the security has been below cost, b) the financial condition and near term prospects of the issuer of the security, and c) the intent and ability of the holder to retain the security to allow sufficient time for the security to recover in value.   These factors involve assumptions and estimates on the part of management. Changes in fair value of securities due to impairment can adversely affect BES Group operations for the period and therefore the reported results would be adversely affected if less favourable assumptions or different estimates were used.


Derivatives

BES Group uses financial derivative
  instruments either for trading or hedging purposes. Under Portuguese GAAP, the
  recognition of gains and losses on these operations depends on the classification
  of trading or hedging:


| | − | For hedging derivatives, which are used to
      reduce the market risk of assets and liabilities, receipts and payments
      are accrued and recognized in the income statement on the same basis as
      changes in the related hedged item.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | − | Trading derivatives are recorded at fair
      value and unrealized gains and losses are recognized directly in the income
      statement. Fair values are based on listed market prices if available; otherwise
      fair value is determined either by dealer price quotations (both for that
      transaction or for similar instruments traded) or by pricing models, based
      on net present value of estimated future cash flows or which take into account
      market conditions for the underlying instruments, time value, yield curve
      and volatility factors. These pricing models may require assumptions or
      judgments in estimating their values. Consequently, the use of a different
      model or of different assumptions or judgments in applying a particular
      model may have produced different financial results for a particular period.

Under U.S. GAAP, all derivatives, including hedging derivatives, must be recorded on the balance sheet at fair value and any changes in that fair value charged or credited directly to the income statement.  In the case of hedging derivatives, the recognition of the fair value of the hedged item should offset the income statement impact. Another relevant difference relates to stricter criteria to meet hedge accounting under U.S. GAAP, as a result of which some transactions classified as hedging derivatives under Portuguese GAAP were reclassified as trading derivatives for U.S. GAAP purposes of hedging derivatives, and accounted for accordingly.  To the extent the derivatives do not qualify for hedge accounting, operations can be negatively impacted based on changes in their fair value.


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Pension charges

Prior to November 2001, the Bank of Portugal permitted companies to write-off unamortized costs related to pension plans or extraordinary costs relating to early retirement directly against reserves.  During December 2001, new rules were issued and some important changes were made, namely in respect of the recognition of liabilities, mechanisms of funds financing and costs that should be recognized each year.  As a result of the new rules, extraordinary costs for early retirement are accounted as deferred costs and depreciated for a period of up to 10 years.  For U.S. GAAP purposes, these charges are consequently adjusted through costs as a curtailment.  Determining pension liabilities requires the use of assumptions and estimates, including the use of actuarial projections, estimated returns on investment, and other factors that could impact the cost and liability of the pension plan.  Changes in these assumptions could adversely affect these values.


Goodwill

Under Portuguese GAAP, goodwill arising on acquisitions can either be capitalized or amortized to the income statement, or written-off directly against reserves.  In the case of the BES Group, acquired goodwill is written-off directly against reserves without an income statement effect. Until December 31, 2001, under U.S. GAAP, the goodwill arising on acquisitions was reclassified as an intangible asset to be amortized over a maximum period of 25 years. On January 1, 2002, the BES Group adopted SFAS 142, which establishes that goodwill, including previously existing goodwill, does not need to be amortized but rather tested for impairment. Under U.S. GAAP, goodwill is reviewed for impairment on an annual basis and any impairment is recorded in the income statement during the period.  Impairment is determined using several methods, including a discounted cash flow basis for each acquisition using appropriate discount rates and periods.  The use of different assumptions regarding, for example, lives of the goodwill, could have adversely affected these values.


Valuation of financial instruments with no ready markets

For the substantial majority of the BES Group’s portfolios, fair values are determined based upon externally verifiable model inputs and quoted prices. All financial models, which are used for updating BES Group’s published financial statements, or for independent risk monitoring, must be validated and periodically reviewed by qualified personnel independent of the area that created the model.    Under U.S. GAAP, impairment losses that are considered other than temporary are recognized in earnings. BES conducts regular reviews to assess whether other-than-temporary impairments exist. These determinations require certain assumptions as to the financial condition of specific issuers and market and other conditions.   The use of different assumptions could have produced different results. Changes in the fair value of trading are recognized in earnings. If available, quoted market prices provide the best indication of value. If quoted market prices are not available for fixed maturity securities, derivatives or commodities, the BES Group discounts the expected cash flows using market interest rates commensurate with the credit quality and maturity of the investment. Alternatively, matrix or model pricing may be used to determine an appropriate fair value. The determination of market or fair value considers various assumptions and factors, including time value and volatility factors, underlying options, warrants, and derivatives; price activity for equivalent synthetic instruments; counterpart credit quality; the potential impact on market prices or fair value of liquidating BES Group’s positions in an orderly manner over a reasonable period of time under current market conditions; and derivative transaction maintenance costs during the period. Changes in assumptions could affect the fair values of investment
s.


Provisions for loan losses

The provisioning policy is determined by the rules issued from Bank of Portugal. As described in item “2.3 Key accounting principles of the Bank and BES Group” in the Notes to the Financial Statements there are four types of allowances: (i) specific allowances for  overdue loans; (ii) specific allowance for the possible non-collection of the remaining principal amount (not due yet) of each loan accounted for as overdue or of the total  loans to a particular customer with an overdue balance representing 25% or more of its total credit; (iii) a category risk allowance for current loans, including guarantees, not charged with a specific provision and; (iv) sovereign risk allowance for assets and off balance sheet exposures with risky countries. Under U.S. GAAP, the allowance for loan losses follows a specific risk-based approach that represents management’s estimate of probable losses inherent in the portfolio. This evaluation process is subject to numerous estimates and judgments. The frequency of default, risk ratings, and the loss recovery rates, among other things, are considered in making this evaluation, as are the size and diversity of individual large loans. Changes in these estimates could have resulted in different provisions and consequently different amounts of net income for the Group.


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Under Portuguese GAAP allowances are
  determined by supervision of the Bank of Portugal. Consequently, any change
  in regulatory framework has an impact on BES Group’s financial statements;
  on the other hand, economic risk can vary significantly from that recognized
  and determined each year pursuant to the regulatory framework and, according
  to management’s judgment, additional provisioning charges can be made
  to account for this potential variance in economic risk.


Securitizations

Under Portuguese GAAP, securitized assets are not shown on the balance sheet. The retained interests are booked at the acquisition cost and the gain or loss realized in connection with the securitization transaction is calculated by comparing the proceeds from the sale of the securitized assets with their book value immediately preceding the transaction. For U.S. GAAP purposes, securitization transactions are analyzed in light of SFAS 140.  Most of the Group’s securitization transactions do not qualify for derecognition and are therefore included in the Group’s total assets under U.S. GAAP.  Accordingly, the Group’s total assets calculated in accordance with Portuguese GAAP may differ from its total assets calculated in accordance with U.S. GAAP.


Off-balance Sheet Transactions

The BES Group’s conducts a variety of off-balance transactions, including securitization transactions and the issuance of credit-linked notes.


Securitizations

The BES Group relies on securitization transactions primarily to manage its liquidity. Following the establishment of a new legal framework at the end of 2001, securitization is still in an early stage in Portugal and is subject to strict regulations adopted by the Bank of Portugal. In a typical securitization transaction, the BES Group sells a financial asset to a special purpose entity, which funds the acquisition by issuing debt to investors. The sale is structured such that neither the BES Group nor its creditors have any claim to the asset after its sale to the securitization entity. The BES Group may provide administrative and/or other services to the securitization entity and may continue to service the financial assets sold to the securitization entity.   BES also provides financial support in its securitization transactions by keeping subordinated interests in the securitized assets. In addition, the BES Group sometimes sells financial assets issued by the Bank or its subsidiaries to financial institutions, which through the use of a special purpose entity issue asset-backed securities, which are debt instruments that are collateralized by the financial assets, to investors to fund the purchase. BES has no control over these entities since it is the financial institutions that purchase the underlying securities and that decide which entity will issue the debt. Any swap agreement involving the original assets sold and the debt issued does not involve the Bank since its is not associated with the special purpose entity and/or entity issuing the debt other than through the sale of the original debt used as collateral. The amount of leverage, type of credit and coupon are defined by the special purpose entity or issuing entity.  Investors in these products analyze the credit risk(s) involved and the yield enhancement provided by these type of structures.


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The BES Group’s use of special purpose entities creates limited liquidity risk as payments on the debt securities are directly tied to payments received from the securitized assets and are not affected by the changes in the BES Group’s credit rating. However, any decline in investor demand for these debt instruments could restrict future securitizations and ultimately the BES Group’s liquidity. Under Portuguese GAAP, a securitization generally qualifies as a sale of the underlying asset to the special purpose vehicle.  The asset is eliminated from the BES Group’s balance sheet once the buyer has obtained the right to sell or pledge the beneficial interest in the securitized assets.  See Note 23 (j) to the Consolidated Financial Statements for an explanation of the accounting treatment for the above securitizations transactions for U.S. GAAP purposes. Through December 31, 2002 BES Group had securitized:


| |  | euro 250 million of consumer loans through Lusitano No. 1 Limited, in August 1999;
| | - | ----------------------------------------------------------------------------------

| |  | euro 1,144.3 million of domestic bonds and eurobonds through Lusitano Global CDO No. 1, PLC in August 2001;
| | - | -----------------------------------------------------------------------------------------------------------

| |  | euro 450 million of consumer loans (euro 150 million) and finance lease loans (euro 300 million) through Lusitano Finance No. 2 Limited in April 2002; and
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | euro 1,000 million of mortgages loans through Lusitano Mortgages No. 1 PLC in December 2002.
| | - | --------------------------------------------------------------------------------------------

None of these securitization entities mentioned above is consolidated in the BES Group’s financial statements. Additional information on the BES Group’s securitization activities may be found in Notes 5 and 25 of the Notes to the Consolidated Financial Statements.


Credit Linked Notes

Credit-linked notes are debt instruments, usually with a floating interest rate.  Unlike traditional yield instruments, credit-linked notes are structured such that investors in these instruments assume credit risk not only with respect to the primary credit but also with respect to additional reference credits. At December 31, 2002, the BES Group held a series of credit-linked notes with underlying assets consisting of fixed-rate debt issued by the Bank’s subsidiaries, interest rate swaps and credit default swaps of certain sovereign issuers and major U.S. and European corporations.  All credit-linked notes are de-leveraged in terms of credit risk exposure, meaning that the notional amount of the notes is less than the total value of the notes issued.  The credit-linked notes are mainly comprised of floating rate notes indexed to Euribor or U.S. Libor.  The BES Group holds these notes because it acts as a market maker in these notes for its clients, both institutional and private. Under Portuguese GAAP, because the entities issuing the credit-linked notes are not subsidiaries of the Bank and consequently are not consolidated, the notes and the related debt are recorded on the BES Group’s balance sheet as assets and liabilities, respectively. Under U.S. GAAP, the notes, debt and related interest income and expenses are eliminated upon consolidation and both the interest rate swaps and the credit default swaps underlying the credit-linked notes are separately recorded at fair value on the balance sheet. As of December 31, 2002, interest receivable and payable under these arrangements amounted to euro 6.4 million and euro 39.3 million, respectively, compared with euro 24.4 million and 30.9 million at December 31, 2001. The total amount of assets and liabilities that were eliminated in consolidation  at December 31, 2002 was approximately euro 1,369 million, compared with euro 1,190 million at December 31, 2001. The fair value of the
derivatives was euro (83.1) million at December 31, 2002 compared with euro (12.2) million at December 31, 2001. The consolidation of the credit-linked notes resulted in a loss of euro 31.9 million in the income statement and a loss of euro 11.7 million in retained earnings. The consolidation of the remaining credit-linked notes would have a negative impact of euro 0.6 million in total assets against other comprehensive income. See note 23, k) to the financial statements for more details.


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|**ITEM 6**. | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
|----------- | ------------------------------------------

Directors and
  Senior Management

The Bank is administered by a Board of Directors (the “Board”).  According to the Bank’s by-laws, the Board meets at least quarterly and whenever convened by the Chairman or by two board members.  Pursuant to amendments to the Bank’s Articles of Association that were approved at the annual general meeting in June 2000, the Board consists of an odd number of at least 11 but no more than 31 members, who may also be shareholders. Their term of office is four years. At December 31, 2002, the Board comprised 31 members.  Set forth below are the names and functions of the Directors, their ages, the year in which their current terms expire and their principal business activities outside of the Bank, if any. António Luís Roquette
    Ricciardi, age 83, has served as Chairman of the Board since 1992. He
    is a member of the board of directors of other companies, including BES Vénétie
    (Chairman), BESPAR (Vice Chairman), E.S. Control (BVI) S.A. (Chairman), E.S.
    Control Holding S.A. (Chairman), E.S. International Holding (Chairman), E.S.
    International Panamá (Chairman), Espírito Santo Financial (BVI)
    S.A., ESFG, Espírito Santo Industrial (BVI) S.A., Espírito Santo
    International (BVI) S.A, (Chairman), Espírito Santo Property (BVI)
    S.A., Espírito Santo Resources Limited (Chairman), Espírito
    Santo Services S.A., Espírito Santo Tourism (Europe), S.A. (Chairman),
    Espírito Santo Tourism Limited, Gespetro SGPS, S.A. (Honorary Chairman),
    PARTRAN (Vice Chairman) and Compagnie Bancaire Espírito Santo, S.A.
    He is an uncle of Ricardo Espírito Santo Silva Salgado, a cousin of
    José Manuel Pinheiro Espírito Santo Silva and the father of
    José Maria Espírito Santo Silva Ricciardi. His current term
    of service as a Director expires in 2003. Ricardo Espírito Santo Silva Salgado, age 58, has served on the Board since 1991 and is currently its Vice Chairman.  He is Chairman of its Executive Committee in charge of its Financial and Credit Committee, Assets and Liabilities Committee (ALCO), Planning and Accounts, Asset Management, Purchases and Property (CGC), Corporate Communication, the General Secretariat to the Board and Management Information.  He is also Chairman of ESFG, BESPAR, Bank Espírito Santo International Limited, Casa dos Pórticos, Espírito Santo Financial (Portugal), Espírito Santo Overseas Limited, Espírito Santo Saúde SGPS, Sociedade de Administração de Bens Pedra da Nau, S.A. PARTRAN, Banco Espírito Santo de Investimento, BEST-Banco Electrónico de Servigo Total and ES TECH Ventures and Vice Chairman of Esírito Santo Bank (Florida) and E.S. Holding Administração e Participações, S.A.  He is a a director of Espírito Santo International Holding, Compagnie Bancaire Espírito Santo, S.A., Banque Espírito Santo et de la Vénétie, Banco Espírito Santo do Oriente, BES Finance Ltd., Cariges, S.A., E.S. Control (BVI) S.A., E.S. Control Holding, ESCA Participation Limited, Espírito Santo BP Invest S.A., Esfint Holding S.A., Espírito Santo BVI Participation Limited, Espírito Santo Financial Services Inc., Espírito Santo Industrial (BVI) S.A, Espírito Santo International (BVI) SA, Espírito Santo Property (BVI) S.A, Espírito Santo Resources Limited, Gespetro, SGPS, S.A., Maes-Administração, Participacõese Consultoria and Novagest Assets Management and Banco Espírito Santo (Spain). He is also a member of the Supervisory Board of Euronext NV and the European Advisory Committee of the New York Stock Exchange.  Mr.  Salgado is a cousin of José Manuel Pinheiro Espírito Santo Silva, José Maria Espírito Santo Silva Ricciardi, Manuel Fernando de Moniz Galvão Espírito Santo Silva and Ricardo Abecassis Espírito Santo Silva and a nephew of António Luís Roquette Ricciardi. His current term of service as a Director expires in 2003. Jean Gaston Pierre Marie Victor Laurent, age 58, was appointed to the Board in September 1999 and has been Vice Chairman since that time.  He is also General Manager of Credit Agricole S.A, Chairman of Crédit Agricole Indosuez, Vice Chairman of Banca Intesa BCI and a director of Credit Lyonnais and Rue Imperiale. His current term of service as a Director expires in 2003. Mário Mosqueira do Amaral, age 70, has served on the Board since 1991 and is a member of the Executive Committee in charge of Transactional Banking and International Business, Corporate International, and External Branches. He serves as Chairman of Amaral & Pinto  Empreendimentos Immobiliários and Banco Espírito Santo North America Capital Corporation.  He is also Vice Chairman of Espírito Santo International Holding S.A and E.S. Control Holding S.A. and a director of BESPAR, PARTRAN, Banque Espírito Santo et de la Vénétie, Banque Marrocaine du Commerce Exterieur, E.S. Services S.A., Espírito Santo Financial Group S.A., Espírito Santo Investment Management, Espírito Santo Overseas, Ltd, Espírito Santo Resources Limited, Gespetro  SGPS, S.A., and Compagnie Bancaire Espírito Santo S.A.  Mr. Amaral joined the Espírito Santo family enterprises in 1956. His
current term of service as a Director expires in 2003.


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José Manuel
  Pinheiro Espírito Santo Silva, age 57, has served on the Board since
  1992 and is a member of the Executive Committee in charge of Private Banking
  (Group BES Coordination), Residents Abroad, Financial Consultants and Banco
  Espírito Santo, S.A. (Spain). He is currently Chairman of Banco Espírito
  Santo, S.A. (Spain), Espírito Santo Agriculture and Development Limited,
  Espírito Santo Financial Consultants, Fiduprivate, Quinta dos Cónegos
  and Sociedade Imobiliária e Turística da Quinta do Peru, Vice
  Chairman of ESFG, Espírito Santo Enterprises, and Espírito Santo
  Financial (Portugal), SGPS, S.A. and a director of Espírito Santo International
  Holding, BESPAR, BES Vénétie, BESI, Compagnie Bancaire Espírito
  Santo, E.S. Control Holding S.A., E.S. Holding  Administração
  e Participaçoes, ESAF, ESFG Overseas Limited, Espírito Santo Bank,
  Espírito Santo BVI Participation Limited, Espírito Santo Control
  (BVI), S.A., Espírito Santo Industrial (BVI) S.A., Espírito Santo
  Internacional (BVI) S.A., Espírito Santo Internacional Panamá
  S.A., Espírito Santo Overseas Ltd., Espírito Santo Property (BVI),
  S.A., Espírito Santo Resources Limited, Espírito Santo Services
  S.A., Europ Assistance  Companhia Portuguesa Seguros Assistência,
  S.A., Gespetro, SGPS, S.A. and Parfil  Sociedade de Gestão de Participações
  Financeiras, SGPS, Lda. He is a cousin of Ricardo Salgado, António Luís
  R. Ricciardi and José Maria Espírito Santo Silva Ricciardi and
  an uncle of Manuel Fernando de Moniz Galvão Espírito Santo Silva
  and Ricardo Abecassis Espírito Santo Silva. His current term of service
  as a Director expires in 2003. António José Baptista do Souto, age 52, has served on the Board since 1989 and is a member of the Executive Committee in charge of Large Companies, Corporate Banking and Municipals and Institutionals.  Mr. Souto has held various positions in the Bank since 1978 and is currently a director of Angra Moura, Tranquilidade-Vida, Tranquilidade, Espírito Santo  Empresa de Prestaçao de Serviços, Espírito Santo Overseas, Ltd. SIBS  Sociedade Interbancária de Serviços, Unicre  Cartão Internacional de Crédito, S.A. and Espírito Santo  Companhia de Seguros.  He is Chairman of Besleasing Mobiliária, Besleasing Imobiliária, Espírito Santo Data and Euroges  Aquisição de Créditos a Curto Prazo, S.A.. His current term of service as a Director expires in 2003. Jorge Alberto Carvalho Martins, age 45, has served on the Board since 1993 and is a member of the Executive Committee in charge of the Commercial Department for North Portugal, the Personal Credit and Auto Loans Department and the Executive Unit.  Mr. Martins is Chairman of CREDIBOM and a director of Banco Espírito Santo (Spain). His current term of service as a Director expires in 2003. Manuel António Gomes de Almeida Pinho, age 48, was appointed to the Board in March 1996 and is a member of the Executive Committee in charge of the Financial Department, Markets and Surveys. He joined the Bank in 1994 as Director coordinating capital market activities.  He is Vice Chairman of BESI and a member of the Board of Directors of ESAF, BES Finance, BES Overseas, Ltd. and Gesfinc, S.A.  Mr. Pinho is aboard member of the European Investment Bank and the Social Development Fund of the Council of Europe and Chairman of the Advisory Board of the Stock Exchange Commission.  He was Vice Chairman of Banco Manufacturers Hanover in Portugal from 1987 to 1989, Assistant General Manager of Crédit Lyonnais, Portugal from 1989 to 1992 and Director General of the Treasury, (Ministry of Finance), and Chairman of the Instituto de Gestão do Crédito Público in Portugal from 1992 to 1994. His current term of service as a Director
 expires in 2003. Yves Henri Camille Barsalou,
    age 70, joined the Board in 1994. He has had a distinguished career in banking
    in France and is presently the Chairman of Credit Foncier de Monaco, Fondation
    du Crédit Agricole and Groupe Val d’Orbieu Listel and a director
    of Sodagri  Société de Dévelopement Agricole, STE
    Caves de Roquefort, Total-Fina-Elf, S.A. and Ui, S.A. His current term of
    service as a Director expires in 2003. Aníbal da Costa Reis de Oliveira, age 67, has served on the Board since 1992. Mr. Oliveira has been a director of several major companies of the Riopele textile group in Portugal. Currently, he serves as Chairman of several corporations, namely, Fábrica Têxtil Riopele, S.A., Filatex Têxteis, S.A., Diliva  Sociedade de Investimentos Imobilários, S.A., Olicor Têxteis, S.A., Olinveste, SGPS, Lda., Saramagos  Sociedade Produtora de Energia, S.A., Urpor  Imboliária S.A. and Acro SGPS, S.A. His current term of service as a Director expires in 2003.


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José Manuel
  Ferreira Neto, age 65, has served on the Board since 1994 and is a member
  of the Executive Committee in charge of the Mortgage Credit Division (CGC).
  He is also Chairman of BIC and a director of ESAF and Espírito Santo
  Empresa de Prestação de Serviços  ACE. He currently
  serves as a Member of the Council of Fundacão Cultursintra. After a long
  career at the Bank, where he was director from 1976 to 1986, he moved to Crédito
  Predial Português where he was Chairman from 1986 to 1993. During this
  time he was also Chairman of Lusitânia Vida. Mr. Ferreira Neto joined
  the Espírito Santo family enterprises in 1960. His current term of service
  as a Director expires in 2003. Manuel de Magalhães Villas-Boas, age 57, has served on the Board since 1992.  He is also Vice Chairman of Espírito Santo Overseas Limited and a director of Espírito Santo Financial Group, S.A., BESI, BESIL, Espírito Santo Investment Management, ESFG Overseas Limited and BES Overseas Limited.  Mr. Villas-Boas worked at the Bank in Portugal from 1972 until 1976, and, following a period in investment banking in London, rejoined the ESFG in 1983. His current term of service as a Director expires in 2003. Manuel Fernando de Moniz Galvão Espírito Santo Silva, age 44, was appointed to the Board in 1994. He was General Manager of the Bank, London Branch, from 1992 to 1995. He is also Chairman of Academia de Música de Santa Cecíla, Espírito Santo Health & SPA, S.A., Espírito Santo Hoteis, SGPS, S.A., Espírito Santo Tourism (Portugal)  Consultoria de Gestão Empresarial, S.A., Espírito Santo Tourism.Com S.A., Espírito Santo.Com S.A., Euroamerican Finance Corporation, Inc., Herdade do Reguengo  Exploração de Propriedades, S.A., Hoteis Tivoli, S.A., Spread.Com S.A. and The Atlantic Company, Vice Chairman of Espírito Santo Resources Ltd and Espírito Santo Tourism (Europe) and a director of Espírito Santo International Holding, ESFG, E.S. Control (BVI) S.A., E.S. Control Holding S.A., Espírito Santo Agriculture and Development Ltd.,Espírito Santo Financial (BVI) S.A., Espírito Santo Industrial (BVI) S.A., Espírito Santo International (BVI) S.A., Espírito Santo Property (BVI) S.A., Espírito Santo Services, S.A., Espírito Santo Tourism Limited, GES Finance Limited, Gespetro  SGPS, S.A., Santogal  SGPS, S.A., Sociedade de Investimentos Imobiliários Sodim, S.A., Telepri  Telecomunicações Privadas, SGPS, S.A., BESPAR, PARTRAN and Espírito Santo Bank (Florida) as well as several other companies in Portugal. From 1984 to 1987, he worked with Morgan Grenfell & Co. in London before joining the family businesses in 1988. He is a nephew of José Manuel Pinheiro Espírito Santo Silva and a cousin of José Maria Espírito Santo Silva Ricciardi and Ricardo Espírito Santo Silva Salgado. His current term of service as a Director expires in 2003. Jackson Behr Gilbert, age 70, joined the Board in 1992 and is also Chairman of Espírito Santo Bank (Florida) and Espírito Santo Financial Services, Inc., and a director of Espírito Santo Financial Holding, Espírito Santo Overseas, Ltd., Espírito Santo Properties, E.S. Private Equity Ltd. and Banco Espírito Santo (Spain).  Prior to his association with the ESFG Group, Mr. Gilbert served from 1983 to 1989 as Vice Chairman of Riggs National Bank in the United States.  He has almost three decades of experience in the banking industry. His current term of service as a Director expires in 2003. Manuel António Ribeiro Serzedelo de Almeida, age 59, was appointed to the Board in March 1999 and resigned on March 25, 2003. José Maria Espírito Santo Silva Ricciardi, age 48, was appointed to the Board in March 1999 and is a member of the Executive Committee in charge of Global Risk Management, the Company Monitoring and Credit Recovery Department, and Internal Audit.  Mr. Ricciardi is Chairman of E.S. Investment, Plc, ESSI-Comunicações, SGPS, S.A., ESSI-Investimentos, SGPS, S.A., ESSI, SGPS, S.A., and Multiger  Sociedade de Compra, Venda e Administração de Propriedades, S.A., Vice Chairman of BESI, ESAF and Palácio do Correio Velho and a director of ESFG and BESPAR.  Mr. Ricciardi worked at Banco Interatlântico (Brazil), in the GES Holding Company in Brazil and in Luxembourg.  Mr. Ricciardi is the son of Antonio Luís R. Ricciardi and a cousin of Ricardo Salgado, José Manuel Pinheiro Espírito Santo Silva, Manuel Fernando de Moniz Galvão Espírito Santo Silva and Ricardo Abecassis Espírito Santo Silva. His current term of service as a Director expires in 2003. Jean-Luc Louis Marie Guinoiseau, age 48, was appointed to the Board in October 1999 and is a member of the Executive Committee in charge of the Organization and Execution of Operations Division (CGC).  He is also the Chairman of Crediflash and a director of Credibom, Besleasing Mobiliária, Besleasing Imobiliária, Espírito Santo Data and Espírito Santo Empresa de Prestação de Serviços  ACE .  Mr. Guinoiseau worked as the Chief Marketing Officer of Caisse Regionale du Crédit Agricole de l’Anjou et du Maine from 1994 to 1999. His current term of service as a Director expires in 2003.


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Gilles François
  Gramat, age 51, was appointed to the Board in June 2000. He is Central Manager
  of Crédit Agricole, Manager of Idia Participations and supervises international
  relations for the Crédit Agricole Group. He is Chairman of Crédit
  Agricole Deveurope BV, Sofagri-SPAS, Sofagri Participations-SPAS, Sofipar, S.A.,
  Union D’etudes et D’investissements, S.A., and Unipar (Ex Kappa
  30)-SPAS and a director of Agos-Itafinco, BESPAR, Banca Intesa BCI, Banque Libano-Française,
  Eurazeo, S.A. and François Charles Oberthur Fiduciaire. Mr. Gramat resigned
  on May 29, 2003. Rui Manuel Duarte Sousa da Silveira, age 48, was appointed to the Board in March 2000 and is a member of the Executive Committee in charge of the BES Group’s Legal Division.  Mr. Silveira is a director of Espírito SantoUnidades de Saúde e Apoio à Terceira Idade, S.A. Mr. Silveira serves as the chairman, vice chairman or secretary of the general meeting for numerous companies of the BES Group. His current term of service as a Director expires in 2003. Joaquim AníbalBrito
    Freixial de Goes, age 36, was appointed to the Board in March 2000 and
    is a member of the Executive Committee in charge of Strategic Marketing, the
    Direct and Self-Banking Division, Human Resources and Virtual Banking. He
    is also a director of Crediflash, Espírito Santo Data, ES TECH Ventures,
    E.S. Interaction-Sistemas de Informação Interactivos, BEST-Banco
    Electrónico de Serviço Total, Portugal Telecom, PT Multimedia
    and Tranquilidade-Vida. He is also the Chairman of ES Interaction-Sistemas
    de Informação Interactivas. His current term of service as a
    Director expires in 2003. Francisco Luís Murteira
    Nabo, age 63, was appointed to the Board in June 2000. He is Chairman
    of the Portugal-China Chamber of Commerce and Vice-President of the General
    Board of the Portuguese Industry Association. He serves as a member of the
    Lisbon Commercial Association, the Portugal Chamber of Commerce, the Business
    Administrators Forum and the Portugal-Africa Foundation and is Chairman of
    the Permanent Committee of the Board of Curators of the Portugal-Spain Foundation.
    In addition, he has held a number of positions in the Portuguese and Macau
    governments. His current term of service as a Director expires in 2003. Pedro José de Sousa Fernandes Homem, age 54, was appointed to the Board in June 2000 and is a member of the Executive Committee in charge of Private Banking (BES).  He is also director of ESAF, Espírito Santo Financial Consultants and Empresa de Servicios de Inversión HISCAPITAL A.V., S.A.  Mr. Homem was the Chairman of Citibank Portugal from 1985 to 1991 and worked as the Private Banking Director Western Hemisphere Europe at Citibank Switzerland from 1991 to 1999. His current term of service as a Director expires in 2003. Ilídio da Costa Leite de Pinho,age 64, was appointed to the Board in June 2000. He is Chairman of Asiainvest, S.A., Fomentinvest, SGPS, S.A., IP Holding SGPS, S.A., IP Agro, IP Vale, S.A. and IP Cinegetica and a director of Spiering, SGPS, S.A. His current term of service as a Director expires in 2003. Herman Agneessens,age 53, was appointed to the Board in June 2000.  He is also a director of KBC Bankvergzekeringsholding NV KBC (Singapore) Ltd., Kereskedelmi és Hitelbank, Fin.Force, lib Finance Ireland Unltd, lib International Finance Ireland Unltd, KB (International) Nominee Ltd, KBC Bank NV, KBC Ifima, KBC International Finance, KBC North American Finance Corporation, CSOB Bank (Vice Chairman), Kredyt Bank, Nova Llubljanska Banka, KBC Finance Ireland Unltd and Banksys and a Supervisory Director of Cerinvest NV.  His current term of service as a Director expires in 2003. Patrick Gérard Daniel Coudène, age 51, became a member of the Board in March 2001 (by co-option) and is a member of the Executive Committee in charge of the Commercial Department for South Portugal, Operational Marketing and the Executive Unit.  He is also vice-chairman of Espírito Santo Companhia de Seguros S.A. and Banco Espírito Santo dos Açores and director of BESPAR, ES TECH Ventures, BES (Spain),  and Tranquilidade-Vida.  His current term of service as a Director expires in 2003. Michel Victor François Villatte, age 57, became a member of the Board in March 2002.  He is also the Non-executive General Manager of PREDICA (a life insurance company and a subsidiary of Crédit Agricole), Chairman of Predical-Europe, Vice Chairman of Emporiki Life Insurance Company and director of PARTRAN, Bancassurance Sal (Liban), Ifcam, Pacifica, Unimo (Permanent Chairman of Predica Administrateur) and CAES  Ca Epargne Salariale (Permanent Chairman of Predica Administrateur). His current term of service as a Director expires in 2003.


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Mário Martins Adegas,
  age 67, became a member of the Board in March 2002. His current term of service
  as a Director expires in 2003. Luis António Burnay Pinto
  de Carvalho Daun e Lorena, age 58, became a member of the Board in March
  2002. He is also manager of Campeque, Lda. His current term of service as a
  Director expires in 2003. Lázaro de Mello Brandão,
  age 76, became a member of the Board in March 2002. He is Chairman of numerous
  companies, including Banco Bradesco S.A., ABS-Empreendimentos Imob., Partic.
  EServ. S.A., Altântica Capitalização S.A., Atria Participações,
  S.A., Babié Participações Ltda., Banco Baneb S.A., Banco
  BEA S.A., Banco Bradesco Luxembourg S.A., Banco de Credito Real de Minas Gerais
  S.A., Banco Mercantil de São Paulo International S.A., Banco Mercantil
  de São Paulo S.A., Bancocidade  Leasing Arrendamento Mercantil
  S.A., Boavista Arrendamento Mercantil S.A., Bradesco Capitalizaçao S.A.,
  Bradesco Leasing Arrendamento Mercantil S.A., Bradesco Saúde S.A., Bradesco
  Seguros, S.A., Bradesco Vida e Previdência S.A., Bradespar S.A., Bradesplan
  Participações S.A., Bram-Bradesco Asset Management Ltda., Cidade
  de Deus  Cia. Comercial de Participações, Eletron S.A.,
  Elo Participações S.A., Finasa Holding S.A., Finasa Leasing Arrendamento
  Mercantil S.A., Finasa Seguradora S.A., Fundação Inst. De Molést.
  Do Ap. Dig. e da Nutrição, G.E.Bê Vidigal (Luxembourg) S.A.,
  Nova Paiol Participações, e Prédios S.A., Portal do Campo
  S.A., Scopus Tecnologia S.A., Scopus. Com Ltda and União Novo Hamburgo
  Seguros S.A. He is also Chairman of the Governing Board of Fundação
  Bradesco. His current term of service as a Director expires in 2003. Ricardo Abecassis Espírito
  Santo Silva, age 44, became a member of Board in March 2002. He is a member
  of the board of directors of BES Investimento do Brasil, ES Holding, Espírito
  Santo International Holding, Espírito Santo Investimentos, SA, Espírito
  Santo Financial (Portugal), Bradespar SA, Espírito Santo Bank (Florida)
  and Monteiro Aranha and serves as Chairman of Banco Espírito Santo Angola
  and Companhia Agrícola Botucatu. He is also Chairman of the Supervisory
  Board of Banco Espírito Santo do Oriente and a member of the Supervisory
  Board of Bradesco. He is a nephew of José Manuel Espírito Santo
  Silva and a cousin of Ricardo Salgado, José Maria Ricciardi and Manuel
  Fernando Moniz Galvão Espírito Santo Silva. His current term of
  service as a Director expires in 2003. Bernard Henri Georges De Witt,
  age 43, became a member of Board in May 2002. He is also a director of Deveurope,
  S.A., Banco Acac- Montevideo, Banco Del Desarollo, Santiago and Lukas Bank S.A,
  Wroclav. He was a partner in CSC Peat Marwick France between 1992 and 2001.
  His current term of service as a Director expires in 2003. José Manuel Ruivo da Pena and
  Michel Marin Le Masson were appointed by co-option on May 30, 2003, to replace
  Manuel António Ribeiro Serzedelo de Almeida and Gilles François
  Gramat, respectively. However, their appointment is still subject to ratification
  by the general meeting and registration by the Bank of Portugal. Amilcar Carlos Ferreira de Morais
  Pires, age 41, has served as the Bank’s Chief Financial Officer in
  charge of the Finance Department since 1996. He serve as a director of Tranquilidade,
  ESAF, Espírito Santo Data, Espírito Santo plc, BESOR, Espírito
  Santo Overseas Ltd. and MTS Portugal. He is not a member of the Board. Manuel José Dias de Freitas,
  age 47, has served as the Bank’s Chief Financial Officer in charge of
  the Planning and Accounting Department since 2002. He is not a member of the
  Board.


Compensation

During the year ended December 31,
  2002, the total compensation paid to BES Group Directors was euro 8,515 thousand,
  including a fixed component amounting to euro 7,974 thousands and a variable
  component (as described below) of euro 541 thousand.


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The Bank and its subsidiaries have
  established a discretionary profit sharing plan known as the Objectives and
  Incentives System (SOI) pursuant to which a part of the net income of the year
  is distributed during the year immediately succeeding to Directors, officers
  and staff. The total amount for distribution, if any, is proposed by the Board
  of Directors and approved by the shareholders in a general assembly. The allocation
  of the total amount approved by the shareholders is determined by the Board
  of Directors on a discretionary basis in accordance with its assessment of the
  performance of each Director, officer and staff member. The amount distributed
  to Directors during the year 2002, related to profits of the year ended December
  31, 2001, was euro 541,000. Euro 21,079 was distributed to employees. The Bank and its subsidiaries have
  also established a “Stock Based Incentive Scheme” (SIBA). This incentive
  scheme consists in the sale to BES Group employees of one or more blocks of
  BES ordinary shares with deferred settlement. From the start, the universal
  nature of this system together with its medium-term perspective has proven effective
  in retaining the most talented employees and including BES Group employees in
  the sharing of value created within the BES Group. The employees eligible to
  benefit from the SIBA are the members of the Executive Committee and BES active
  workers, the employees and executive board members of the Banco Espírito
  Santo Group (understood as the universe of companies comprising of BES, all
  Credit Institutions and Financial Companies included in the banking supervision
  consolidation scope, and the Banking Complementary Grouping of Companies in
  which BES participates). The Board, based on a proposal submitted by the Executive
  Committee, selects the potential beneficiaries and determines the quantity of
  shares to be made available to each of them. When the potential beneficiaries
  are members of the Executive Committee, selection and allocation of shares under
  the SIBA is made by the Remuneration Committee. The unit selling price of shares sold
  under the SIBA is that which results from dividing the value of the share’s
  closing price in the Euronext-Lisbon Stock Exchange session immediately prior
  to the date of the sale by the total number of shares, plus the value corresponding
  to the dividends that may be attributed to these shares up to their full redemption,
  plus the value equivalent to financial charges on eventual loans granted under
  capital increases by cash inflows. Each program has two components, which
  expire according to the following schedule:


|SIBA
      schedule                          
|---------------------------------------------
|                                             
|year (N) of the programme                    
|                                             
|2000                                         
|                                             
|                                             
|2001                                         
|                                             
|                                             
|*
      it can be extended for two more years

During 2002, there was a new sale
  of BES ordinary shares under the SIBA, whereby 4,527,165 shares were attributed
  to eligible employees, of which 353,650 shares were sold to BES Directors. Since
  the implementation of the SIBA, a total of 7,367,437 shares have been sold to
  approximately 7,300 employees. At December 31, 2002 the total amount
    of pension benefits accrued for Directors was euro 207,834 There are no other
    post-retirement benefits for Directors.


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Board Practices

The Bank does not have agreements
  with its directors that provide for payments or benefits upon termination. The Board’s Executive Committee
    meets as a rule at least once a week, also ensuring day-to-day monitoring
    that on occasion requires extraordinary meetings. There are currently 13 members
    of the Executive Committee. For information on the individual members of this
    committee and their respective responsibilities as members of the committee,
    see “—Directors and Senior Management” above. The Bank’s Remuneration Committee,
  composed of three members elected by the General Meeting, determines the fixed
  amount of the compensation of the members of the Board. Currently, the Remuneration
  Committee is composed of Carlos Fernando Olavo Correia de Azevedo (President),
  António Maria Pereira and José Luís Sapateiro. Each member
  of the Remuneration Committee must be a shareholder of the Bank. The current
  members of the Remuneration Committee were elected at the Shareholders Meeting
  on December 20, 2002. The Bank has a Board of Auditors («Conselho
  Fiscal») consisting of Jacques dos Santos, Chairman, José Queirós
  Lopes Raimundo, and Inês Maria Bastos Viegas Clare Neves Girão
  de Almeida, representing João Augusto & AssociadosSROC, Sociedade
  de Revisores Oficiais de Contas (Chartered Accountant). Pursuant to Portuguese
  company law, the members of the Board of Auditors are appointed by the shareholders
  at a shareholders’ meeting, and one of its members has to be a certified
  auditor or a certified auditing company. The Board of Auditors is required to
  supervise the administration of the Bank, monitor compliance with the law and
  the statutes and verify:


| |  | that the accounts books and accounting registers
      and supporting documents are kept in order;                        
| | - | --------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                           
| |  | that when considered necessary and to the
      extent considered adequate, the Bank’s assets and guarantees are received;
| |   |                                                                                                                           
| |  | the accuracy of the balance sheet and income
      statement; and                                                         
| |   |                                                                                                                           
| |  | that the valuation criteria adopted by the
      Bank are appropriate.                                                    

The Board of Auditors is also required
  to prepare an annual report on its work and issue an opinion on the annual statutory
  auditor’s report and financial accounts. The Bank also has an Audit Committee.
  The Audit Committee was created as a committee of BES’s Board by resolution
  of the same Board on 26 October 2001. The Audit Committee’s main task
  is to assist the Board in the fulfilment of its supervisory responsibilities
  with regard to (i) the process of preparing regular financial and account rendering
  reports, at both statutory and consolidated levels, (ii) the internal and external
  audit processes, including the appointment, remuneration, performance assessment
  and retention of the external auditors, (iii) the professional qualifications
  and independence of the external auditors, (iv) the system adopted by the Bank
  to verify compliance with the laws and regulations that are applicable to it
  as well as to the companies in which it has equity holdings and which are included
  in the banking supervision consolidation scope to which the Bank is subject,
  and (v) the compliance of all board members, managers and other employees with
  any codes of conduct. The Code of Conduct is a formal document approved for
  BES and its associated companies. The Audit Committee is also responsible for
  the pre-approval of any relevant non-audit services that BES external auditors
  propose to provide to the Bank or to any of its associated companies. The Audit Committee currently comprises
  three members (Mário Martins Adegas, Luís António Burnay
  Pinto de Carvalho Daun e Lorena and José Manuel Ruivo da Pena). All of
  them are non-executive members of the Board. Mr. Pena has been co-opted as member
  of the Board in May 30, 2003. Audit Committee members are appointed for an initial
  period of two years, renewable one or more times. The Audit Committee meets
  at least four times a year, having full powers and autonomy to meet more often,
  as dictated by circumstances. Decisions of the Audit Committee are generally
  approved by consensus. If a consensus cannot be reached, the chair, having the
  decisive vote, will approve decisions. Minutes are drawn up for every Committee
  meeting, which, after being signed by the respective members, are sent to the
  Board. The Audit Committee’s functions
  are essentially of a supervisory nature. The Audit Committee has full powers
  to conduct or authorize investigations within the sphere of its responsibilities.
  Among others, the Audit Committee has the power to:


| |  | obtain from any employee of BES Group companies
      all the information it may deem necessary to carry out its functions, all
      employees being authorized and obliged to provide such information without
      any restrictions whatsoever;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                    
| |  | meet with board members, managers, external
      auditors and/or members of the audit boards of BES Group companies whenever
      and in so far as it so deems necessary to carry out its functions;                                             
| |   |                                                                                                                                                                                                                                                    
| |  | obtain independent opinions and contract
      specialized advisory services or external consultancy services, as it may
      deem necessary for carrying out its functions.                                                                      

The Audit Committee’s powers
  and responsibilities concern the following principal areas:


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Internal Control

| |  | to assess the effectiveness of BES’s
      internal control system in the process of preparing annual and interim accounts
      and financial reports, including the respective control and security from
      a technological standpoint;                    
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                 
| |  | to obtain a clear understanding of the scope
      and findings of internal control examinations produced by internal and external
      audits over the process of preparing annual and interim accounts and financial
      reports;                          
| |   |                                                                                                                                                                                                                                                                 
| |  | to revise the results of the assessment undertaken
      by the executive management of the financial reporting internal control
      structure and procedures, as well as the internal control reports required
      by applicable standards and regulations.
| |   |                                                                                                                                                                                                                                                                 

Internal Audit

| |  | to analyse the reference terms, the action
      plans, the activities, the human resources and the organizational structure
      of the internal audit and inspection function;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                  
| |  | to meet regularly with the officers in charge
      of global risk control and internal audit and inspection and assess the
      effectiveness of such functions.               
| |   |                                                                                                                                                                                  

External Audit

| |  | to participate in the process of the appointment
      or resignation of external auditors and to decide on their retention based
      on the assessment of their performance and professional independence, subject
      to applicable laws and regulations;                                                                                       
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                       
| |  | to analyse the external auditors’ annual
      work planning proposal;                                                                                                                                                                                                                                                                                
| |   |                                                                                                                                                                                                                                                                                                                                                       
| |  | to approve the fees and remaining conditions
      of the professional audit relationship with the external auditors, and to
      give a prior opinion on the provision of other services proposed by the
      external auditors;                                                                                                                   
| |   |                                                                                                                                                                                                                                                                                                                                                       
| |  | to examine and confirm the professional independence
      of the external auditors;                                                                                                                                                                                                                                                                  
| |   |                                                                                                                                                                                                                                                                                                                                                       
| |  | to examine the external auditors’ performance
      and assess the qualifications, performance and professional independence
      (including with regard to the provision of non-audit services) of the principal
      officer in charge of the work;                                                                                               
| |   |                                                                                                                                                                                                                                                                                                                                                       
| |  | to assess any reports or communications addressed
      by the external auditors to the Audit Committee, as well as the answers
      thereto provided by the executive managers and/or the internal audit and
      inspection;                                                                                                                      
| |   |                                                                                                                                                                                                                                                                                                                                                       
| |  | to meet regularly with the external auditors;                                                                                                                                                                                                                                                                                                         
| |   |                                                                                                                                                                                                                                                                                                                                                       
| |  | to check the external auditors’ confirmation
      of internal control reports and discuss the consequences that may arise
      therefrom;                                                                                                                                                                                                           
| |   |                                                                                                                                                                                                                                                                                                                                                       
| |  | to discuss with the Board opportunities for,
      and the process of, regular rotation of the external auditor’s main
      representatives in charge of executing and examining their work, as required
      by applicable standards or regulations, and to consider the eventual need
      for the rotation of the external auditing firm itself.
| |   |                                                                                                                                                                                                                                                                                                                                                       

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Coordination with the Executive Committee, Internal Audit and Inspection and External Auditors

| |  | to examine, together with the Planning and
      Accounting Department (PAD), the most significant aspects of interim and
      annual accounts, including any new accounting regulations and respective
      impact on the Bank’s financial statements;                
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                          
| |  | to analyse, together with the Executive Committee
      and the external auditors, the conclusions reached in the latter’s
      work on the interim and annual accounts;                                                                                                
| |   |                                                                                                                                                                                                                                                                          
| |  | to examine, together with the Executive Committee,
      the PAD and the external auditors, the financial statements as well as the
      remaining chapters of interim and annual financial reports, prior to their
      regulatory public presentation and disclosure;
| |   |                                                                                                                                                                                                                                                                          
| |  | to review, together with the external auditors,
      any problems they may have found in carrying out their work;                                                                                                                                                       
| |   |                                                                                                                                                                                                                                                                          
| |  | to discuss and solve any differences of opinion
      arising between the Executive Committee and the external auditors with regard
      to financial reporting;                                                                                                        
| |   |                                                                                                                                                                                                                                                                          
| |  | to analyse the external auditors’ draft
      report before its final version is submitted to the Board and the shareholders;                                                                                                                                            
| |   |                                                                                                                                                                                                                                                                          
| |  | to discuss any proposals to change principles,
      policies, internal accounting control procedures and/or practices submitted
      by the external auditors, the Internal Audit or the Executive Committee,
      prior to their definitive adoption;                
| |   |                                                                                                                                                                                                                                                                          
| |  | to inquire into the possible existence of
      exposure to significant risks as well as into the steps given to monitor,
      control and minimize such exposure.                                                                                                      

Compliance with laws, standards and regulations

| |  | to analyse the effectiveness of BES’s
      system for guaranteeing compliance with legal and regulatory requirements,
      as well as the findings and conclusions of eventual investigations led by
      the Executive Committee;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                      
| |  | to analyse the findings of examinations conducted
      by inspectors from governmental or regulatory entities, as well as observations
      on non-performance made by BES’ s external auditors;                                   
| |   |                                                                                                                                                                                                                                      
| |  | to follow-up the disclosure of the Code of
      Ethics and monitor the compliance with its rules and principles;                                                                                                                    
| |   |                                                                                                                                                                                                                                      
| |  | to analyse any issues that may arise regarding
      compliance with the law and the standards and regulations applying to BES.                                                                                                      

Complaints

| |  | to establish procedures for collecting, filing and treating, on a confidential and anonymous basis, any criticisms concerning accounting matters and problems, or relating to internal control or auditing.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Providing information

| |  | to keep the Board regularly informed of the
      Audit Committee’s work, problems faced and solutions proposed or recommended;                                                                                                                                         
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                         
| |  | to confirm that efficient and regular communication
      has been established and maintained between the Internal Audit Department,
      the Planning and Accounting Department, the Global Risk Department, the
      external auditors and BES’s Board of Directors;
| |   |                                                                                                                                                                                                                                                                         
| |  | to prepare information on the composition
      of the Audit Committee, its responsibilities and duties and how these have
      been fulfilled, for inclusion in BES annual financial report;                                                                          
| |   |                                                                                                                                                                                                                                                                         
| |  | to analyse any other reports that may be issued
      by the Bank or any of its associated companies regarding the Committee’s
      responsibilities and duties.                                                                                                       
| |   |                                                                                                                                                                                                                                                                         

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Activity of the Audit Committee in 2002

The Audit Committee commenced its activity on April 1, 2002. The Audit Committee’s activity in 2002 included:


| |  | besides its own regular formal meetings,
      attendance of all Board meetings since May 2002 and some of the Executive
      Committee’s weekly meetings;                                                                                                                                                                                                    
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                
| |  | analysis of the last report of the external
      auditors (PwC), concerning their audit of the 2001 financial year;                                                                                                                                                                                                                                           
| |   |                                                                                                                                                                                                                                                                                                                                                                
| |  | participation in the process of selecting,
      issuing an opinion, and forming a decision on the engagement of BES Group’s
      new official auditors and external auditors (KPMG) and subsequent monitoring
      and assessment of their work;                                                                                                            
| |   |                                                                                                                                                                                                                                                                                                                                                                
| |  | analysis of BES’s annual report to the
      Bank of Portugal on internal controls, and of the systematic mechanisms
      for monitoring internal controls and the effectiveness achieved by these;                                                                                                                                                           
| |   |                                                                                                                                                                                                                                                                                                                                                                
| |  | analysis of the decisions taken regarding
      some of the Internal Audit Department (IAD) reports, namely those considered
      more important;                                                                                                                                                                                                             
| |   |                                                                                                                                                                                                                                                                                                                                                                
| |  | assessment of BES’s annual internal
      and external auditing plans for 2002; these deserved a favourable opinion,
      specifically in what concerns the resources made available to reach adequate
      effectiveness levels;                                                                                                                            
| |   |                                                                                                                                                                                                                                                                                                                                                                
| |  | specific analysis and active participation
      in the preparation of proposals/suggestions concerning the ongoing implementation
      of the U.S. law “SarbanesOxley Act of 2002” with a view
      to being prepared for actual and/or potential effects on BES Group of the
      new rules applying to foreign companies listed on U.S. stock exchanges;
| |   |                                                                                                                                                                                                                                                                                                                                                                
| |  | participation in several work meetings with
      senior officers to discuss matters of transparency, adequate compliance
      with good accounting and internal control practices, as well as the correct
      observance of ethical and good professional conduct principles;                                                                              
| |   |                                                                                                                                                                                                                                                                                                                                                                
| |  | examination, together with the Executive Committee,
      the external auditors and the official auditors, of the interim consolidated
      accounts as of June 30, 2002 and the annual consolidated accounts as of
      December 31, 2002, as well as of the these bodies’ opinions on these
      accounts;                                                
| |   |                                                                                                                                                                                                                                                                                                                                                                
| |  | analysis of the findings of the inspections
      carried out by the Bank of Portugal in 2002;                                                                                                                                                                                                                                                                 
| |   |                                                                                                                                                                                                                                                                                                                                                                
| |  | issuing opinions on a number of matters formally
      submitted to the Committee for such purpose;                                                                                                                                                                                                                                                            
| |   |                                                                                                                                                                                                                                                                                                                                                                
| |  | assessment of the level of adoption of the
      Code of Ethics of BES and of other entities of BES Group, as well as of
      the systems used to permanently monitor the general compliance with these
      codes; and                                                                                                                                      
| |   |                                                                                                                                                                                                                                                                                                                                                                
| |  | submitting to the Board of Directors a proposal
      to amend the provisions of the Audit Committee Regulation.                                                                                                                                                                                                                                               
| |   |                                                                                                                                                                                                                                                                                                                                                                

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Employees

The Bank, on a non-consolidated basis,
  employed an aggregate of approximately 4,267 persons at December 31, 2002,
  compared with 5,206 at December 31, 2001. Certain terms and conditions
  of employment in private sector banks in Portugal are negotiated with trade
  unions, and wage negotiations occur on an industry-wide basis. The Bank has
  not experienced any material labour problems, and believes that its relations
  with its employees are generally satisfactory. The number of persons employed by the BES Group overall in the financial sector in 2002 decreased from 8,071 to 7,570 due to the effects of the integration of the main operating units, the creation of shared services units and the restructuring of operations.  In addition, the BES Group also decreased the number of employees working in non-financial services to 953 persons (from 1,241 in 2001). The tables below show the distribution of employees for each of the years ended December 31, 2000, 2001 and 2002 by geographic location, activities and employment categories.


|Geographic Location      | 2000  |  | 2001  |  | 2002  | 
|------------------------ | ----- |  | ----- |  | ----- | 
|                         |       |  |       |  |       | 
|Portugal                 | 8,235 |  | 8,427 |  | 7,903 | 
|European Union           | 508   |  | 583   |  | 432   | 
|Rest of Europe           | 17    |  | 20    |  | 0     | 
|North America            | 102   |  | 102   |  | 80    | 
|Latin America            | 77    |  | 168   |  | 96    | 
|Asia                     | 13    |  | 12    |  | 12    | 
|                         |       |  |       |  |       | 
|                         | 8,952 |  | 9,312 |  | 8,523 | 
|                         |       |  |       |  |       | 
|                         |       |  |       |  |       | 
|Activities               | 2000  |  | 2001  |  | 2002  | 
|                         |       |  |       |  |       | 
|Banking                  | 7,239 |  | 7,109 |  | 6,713 | 
|Leasing                  | 103   |  | 106   |  | 109   | 
|Consumer credit          | 240   |  | 271   |  | 278   | 
|Asset management         | 111   |  | 113   |  | 104   | 
|Brokerage                | 231   |  | 338   |  | 248   | 
|Factoring                | 47    |  | 53    |  | 53    | 
|Others                   | 981   |  | 1,322 |  | 1,018 | 
|                         |       |  |       |  |       | 
|                         | 8,952 |  | 9,312 |  | 8,523 | 
|                         |       |  |       |  |       | 
|                         |       |  |       |  |       | 
|Employment Categories    | 2000  |  | 2001  |  | 2002  | 
|                         |       |  |       |  |       | 
|Senior management        | 503   |  | 641   |  | 639   | 
|Middle management        | 1,294 |  | 1,217 |  | 1,062 | 
|Specialists              | 2,736 |  | 3,164 |  | 2,464 | 
|Administrative personnel | 4,032 |  | 3,955 |  | 3,733 | 
|Auxiliary personnel      | 190   |  | 148   |  | 484   | 
|Others                   | 197   |  | 187   |  | 141   | 
|                         |       |  |       |  |       | 
|                         | 8,952 |  | 9,312 |  | 8,523 | 
|                         |       |  |       |  |       | 

Share Ownership

The following table shows the Directors’
    beneficial ownership of ordinary shares of the Bank, as reported in accordance
    with Portuguese law, and includes interests in ordinary shares held by each
    such Director’s immediate family. However, the amounts presented below
    do not otherwise reflect the relationships among the Directors noted above.
    See “Item 6. Directors, Senior Management and Employees”.


|                                                        | Ordinary
      SharesBeneficially
      Owned atMay 31, 2003 | 
|------------------------------------------------------- | ------------------------------------------------------------ | 
|                                                        |                                                              | 
|António
      Luís R. Ricciardi                         | 80,000                                                       | 
|Ricardo Espírito
      Santo Silva Salgado              | 257,338                                                      | 
|Mário
      Mosqueira do Amaral                         | 60,090                                                       | 
|José
      Manuel Pinheiro Espírito Santo Silva         | 71,529                                                       | 
|António
      José Baptista do Souto                    | 54,368                                                       | 
|Jorge Alberto
      Carvalho Martins                    | 53,673                                                       | 
|Manuel António
      Gomes de Almeida Pinho             | 54,249                                                       | 
|Aníbal
      da Costa Reis de Oliveira                  | 110,000                                                      | 
|José
      Manuel Ferreira Neto                         | 61,567                                                       | 
|Manuel de Magalhães
      Villas-Boas                   | 576                                                          | 
|Manuel Fernando
      Moniz Galvão Espírito Santo Silva | 912                                                          | 
|Jackson Behr
      Gilbert                              | 1,200                                                        | 
|José
      Maria Espírito Santo Silva Ricciardi         | 53,673                                                       | 
|Jean-Luc Louis
      Marie Guinoiseau                   | 53,673                                                       | 
|Rui Manuel
      Duarte Sousa da Silveira               | 54,686                                                       | 
|Joaquim Aníbal
      Brito Freixial de Goes             | 54,768                                                       | 
|Francisco Luís
      Murteira Nabo                      | 1,200                                                        | 
|Pedro José
      de Sousa Fernandes Homem               | 53,673                                                       | 
|Mário
      Martins Adegas                              | 97,394                                                       | 
|Ricardo Abecassis
      Espírito Santo Silva            | 52,348                                                       | 
|Patrick Gerard
      Daniel Coudene                     | 37,173                                                       | 
|                                                        |                                                              | 
|Total                                                   | 1,308,594                                                    | 
|                                                        |                                                              | 

The Directors of the Bank
  disclaim beneficial ownership of any ordinary shares of the Bank owned by other
  companies of which they are directors.


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|**ITEM 7.** | MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
|----------- | -------------------------------------------------

Major Shareholders

All of the Bank’s ordinary shares
  are in registered form. The following table identified all persons who, to the
  best of the Bank’s knowledge, owned 5% or more of the Bank’s ordinary
  shares as of May 31, 2003:


|Title
      and Class |  | Identity
      of Person or Group                |  | Number
      of 
      Ordinary 
      Shares Owned |  | Percent
      of Class |  
|--------------------- |  | ------------------------------------------------ |  | --------------------------------------------------- |  | ---------------------- | -
|                      |  |                                                  |  |                                                     |  |                        |  
|Ordinary Shares       |  | BESPAR (1)                                       |  | 125,929,168                                         |  | 41.98                  | %
|Ordinary Shares       |  | Crédit Agricole S.A.                             |  | 26,419,710                                          |  | 8.81                   | %
|Ordinary Shares       |  | Companhia de Seguros Tranquilidade
      Vida(1) |  | 19,352,488                                          |  | 6.45                   | %

|
|

|(1) | ESFG
      controls 48.4% of the voting interest in the ordinary shares of the Bank
      through its holdings in BESPAR and Tranquilidade. ESFG is 53.0% owned by
      E.S. International Holding, S.A. (“ESIH”). ESIH is 43.6% owned
      by members of the Espírito Santo family and certain Portuguese nationals
      close to the family through E.S. Control Holding S.A., a Luxembourg corporation,
      which is wholly owned by members of the Espírito Santo family (including
      certain of the directors of ESIH and ESFG).
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

To the best of the Bank’s
  knowledge, there are 26 shareholders residents in the United States holding
  3,383 million of BES shares. Except as set forth in the table above, the Bank is not aware of any holders of more than 5% of its ordinary shares.  Nor is the Bank aware of any significant changes in the percentage ownership of its major shareholders over the course of the past three years.  In addition, the Bank does not know of any arrangements the operation of which may at a subsequent date result in a change of its control. See “Item 4. Information on the CompanySupervision and RegulationRestrictions on Acquisition of Capital Stock of a Bank” for a description of certain transfer restrictions applicable to the Bank’s ordinary shares. In 1991, BESPAR SGPS, S.A. (“BESPAR”) was formed by the ESFG Group and Crédit Agricole as a vehicle for the acquisition of control of the Bank, the financing of which was to be provided by the ESFG Group and Crédit Agricole.  BESPAR is controlled by the ESFG Group, which has agreed to maintain an interest in BESPAR of at least 51%. As of December 31, 2002, the ESFG Group held a 66.9% voting interest, directly or indirectly, in BESPAR.  Subject to several restrictions (in particular, the ESFG Group’s maintenance of at least a 51% interest in BESPAR), third parties may become shareholders of BESPAR.


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In recognition of the role played
  by Crédit Agricole in the formation of BESPAR, the Articles of Association
  of BESPAR provide certain protections for minority shareholders. Pursuant to
  the provisions, any two directors voting against a resolution of the Board as
  being contrary to the shareholders’ interests have the right to request
  a general meeting of shareholders. Such resolution will be suspended unless
  and until it is approved by a majority of 76% of the shareholders. The same
  supermajority is required for the transfer of shares of the Bank by BESPAR or
  any company in which BESPAR directly or indirectly holds a majority interest,
  for amendments of the Articles of Association, for the issuance of convertible
  bonds, and for the election and removal of corporate officers. As of June 2003
  Crédit Agricole had a voting interest of 32.6% in BESPAR. Therefore,
  Crédit Agricole’s votes are necessary to obtain the required supermajority.


Related Party Transactions

The BES Group has business relationships
  with a number of entities in which it owns significant equity interests or with
  which it is otherwise associated. The BES Group also has business relationships
  with a number of entities where members of its Board of Directors hold management
  positions. The BES Group’s business relationships with these entities
  cover many of the financial services that the BES Group provides to its clients
  generally. With the exception of the business relationships described below,
  none of these relationships is material to the BES Group. Moreover, the BES
  Group conducts all of its business with these entities on terms equivalent to
  those that would exist if it did not have equity interests in them or management
  members in common, and that it has conducted business with these companies on
  that basis in each of 2000, 2001 and 2002. At December 31, 2002, the BES Group had balance sheet positions with related parties of euro 927.3 million in assets and euro 1,573.8 million in liabilities.  In 2002, the BES Group had income from related party transactions in the amount of euro 23.9 million and expenses in the amount of euro 44.3 million.  As of December 31, 2002, total loans and interest-earning assets with BES Venetie amounted to euro 503.2 million and total deposits from this entity amounted to euro 395.1 million.  ES Financiere is the second largest exposure with assets of euro 278.6 million and deposits from this company of euro 103.6 million.  All of the outstandings with respect to BES Venetie and ES Financiere represent current money market transactions at inter-bank market rates. Transactions with Tranquilidade Vida, a company active in the life insurance business, primarily consist of deposits and amounted to euro 953.1 million. See note 19 to Financial Statements for more details. As of December 31, 2002, the BES Group had loans outstanding to the Bank’s Directors of euro 1.3 million (December 31, 2001: euro 1.1 million).  Total loans to related parties at December 31, 2002 amounted to euro 189.9 million  (December 31, 2001: euro 171.0 million) and principally related to an offshore special purpose entity with investments in the privatization of Portuguese state-owned companies, mainly in the communications and banking sectors. For a discussion of these loans see “Item 4.  Information on the Company−Selected Statistical Information−III. Description of Assets and Liabilities−Loan Portfolio”. There are no outstanding guarantees provided by the BES Group for the benefit of the Bank’s Directors. See Notes 6 and 19 of Notes to Consolidated Financial Statements. All of the loans described in the previous paragraph:


| |  | were made in the ordinary course of business;
| | - | ---------------------------------------------

| |  | were made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons; and
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | did not involve more than the normal risk of collectability or  present other unfavourable features.
| | - | ----------------------------------------------------------------------------------------------------

Moreover, all of these loans are currently
  performing.


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ITEM 8.  FINANCIAL INFORMATION

Financial Statements

See “Item 18. Financial Statements”.

Legal Proceedings

The Bank is not aware of any legal or arbitration proceedings, which may have, or have had, in the recent past, significant effects on the Bank’s financial position or profitability.

Significant
  Changes

None.

ITEM 9.  
  THE OFFER AND
  LISTING

The ordinary shares of the Bank are listed on the Main Market of the Euronext-Lisbon. The ordinary shares are not registered under the Securities Exchange Act of 1934.

On December 17, 1993, trading commenced on the New York Stock Exchange for the 8.5% Non-cumulative Guaranteed Preference Shares, Series A (the “Series A Preference Shares”) issued by Espírito Santo Overseas Limited (“ESOL”) and guaranteed as to certain payments by the Bank. On August 20, 1999, trading commenced on the New York Stock Exchange for the 8.5% Non-cumulative Guaranteed Preference Shares, Series B (the “Series B Preference Shares”, and together with the Series A Preference Shares, the “Preference Shares”) issued by ESOL and guaranteed as to certain payments by the Bank.  ESOL is a wholly owned subsidiary of the Bank organized under the laws of the Cayman Islands and created for the purpose of raising capital for and otherwise financing, the operations of the Bank and its subsidiaries. The tables below set forth, for the periods indicated, the reported high and low quoted prices for the outstanding Series A Preference Shares on the New York Stock Exchange for the fiscal quarters indicated and for the outstanding Series B Preference Shares on the New York Stock Exchange since August 20, 1999.

|Series A Preference
      Shares             |                                          
|-------------------------------------------- | -----------------------------------------
|                                             | Price Per Series
      A Preference Share
|                                             |                                          
|Fiscal year ended December
      31          | High                                     
|                                             |                                          
|                                             | (dollars)                                
|                                             |                                          
|1998                                         | 26.94                                    
|1999                                         | 27.06                                    
|2000                                         | 24.63                                    
|2001                                         | 26.75                                    
|2002                                         | 26.19                                    
|                                             |                                          
|                                             | Price Per Series
      A Preference Share
|                                             |                                          
|Calendar Period                              | High                                     
|                                             |                                          
|                                             | (dollars)                                
|2001                                         |                                          
|First Quarter                                | 26.00                                    
|Second Quarter                               | 25.85                                    
|Third Quarter                                | 26.75                                    
|Fourth Quarter                               | 26.50                                    
|2002                                         |                                          
|First Quarter                                | 26.19                                    
|Second Quarter                               | 25.80                                    
|Third Quarter                                | 25.90                                    
|Fourth Quarter                               | 25.68                                    
|2003                                         |                                          
|First Quarter                                | 26.10                                    
|Second Quarter (through June
      23, 2003) | 26.40                                    
|                                             |                                          
|                                             | Price Per Series
      A Preference Share
|                                             |                                          
|Calendar Period                              | High                                     
|                                             |                                          
|                                             | (dollars)                                
|                                             |                                          
|January 2003                                 | 25.99                                    
|February 2003                                | 26.10                                    
|March 2003                                   | 26.05                                    
|April 2003                                   | 26.40                                    
|May 2003                                     | 26.09                                    
|June 2003 (through June 23, 2003)            | 25.88                                    
|                                             |                                          

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|Series B Preference
      Shares             |                                          
|-------------------------------------------- | -----------------------------------------
|                                             | Price
      Per Series B Preference Share
|                                             |                                          
|Fiscal
      year ended December 31          | High                                     
|                                             |                                          
|                                             | (dollars)                                
|                                             |                                          
|1998                                         |                                         
|1999                                         | 25.37                                    
|2000                                         | 24.50                                    
|2001                                         | 26.30                                    
|2002                                         | 26.42                                    
|                                             |                                          
|                                             | Price
      Per Series B Preference Share
|                                             |                                          
|Calendar
      Period                        | High                                     
|                                             |                                          
|                                             | (dollars)                                
|2001                                         |                                          
|First Quarter                                | 25.65                                    
|Second Quarter                               | 26.00                                    
|Third Quarter                                | 26.30                                    
|Fourth Quarter                               | 26.00                                    
|                                             |                                          
|2002                                         |                                          
|First Quarter                                | 26.42                                    
|Second Quarter                               | 25.97                                    
|Third Quarter                                | 26.25                                    
|Fourth Quarter                               | 26.24                                    
|2003                                         |                                          
|First Quarter                                | 26.50                                    
|Second Quarter
      (through June 23, 2003) | 26.68                                    
|                                             |                                          
|                                             | Price
      Per Series B Preference Share
|                                             |                                          
|Calendar
      Period                        | High                                     
|                                             |                                          
|                                             | (dollars)                                
|                                             |                                          
|January 2003                                 | 26.90                                    
|February 2003                                | 26.80                                    
|March 2003                                   | 26.50                                    
|April 2003                                   | 26.55                                    
|May 2003                                     | 26.73                                    
|June 2003 (through
      June 23)            | 26.68                                    
|                                             |                                          

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ITEM 10.  ADDITIONAL INFORMATION

Memorandum and
  Articles of Association

The following information is a summary of the Bank’s ordinary shareholders’ rights under the material provisions of the Bank’s articles of association and Portuguese law.  This summary is qualified in its entirety by reference to the general legislation on sociedades anónimas and the Bank’s articles of association.  Holders of the Bank’s ordinary shares are encouraged to read the full articles of association, which are filed as an exhibit to this annual report.

Purpose and Objects

The Bank was established to perform all banking industry related activities and to transact and do all matters and things incidental thereto.  The objects for which the Bank was established are set forth in Article 3 paragraphs 1 and 2 of its articles of association.

Authorized Capital

As of December 31, 2002, the authorized share capital of the Bank was euro 1,500 million represented by three hundred million shares, each with a face value of 5 euro.

Description of Shares

Shareholders holding at least 50% of the share capital, whether present in person or by proxy, are necessary to obtain a quorum for a general meeting on first call.  If a quorum is not present a general meeting may be held on second call regardless of the number of shareholders present in person or by proxy or of the percentage of the share capital represented.  Resolutions may be passed at both first and second call meetings.

An ordinary resolution passes if it receives a majority of the votes represented at a general meeting, which meets the quorum requirements.

Certain matters, including changes to the articles of association, mergers, spin-offs, transformation or winding-up, or on any other matters for which Portuguese law requires special resolutions which only pass upon the affirmative vote of two thirds of the votes at a general meeting.

Only holders of nominal shares that have been registered in their name or, in the case of book entry shares, recorded in their names, no later than 15 business days prior to the date of the meeting can attend a general meeting.  Shareholders without voting rights and bondholders cannot attend the general meeting.

Each block of 100 shares represents one vote.  However, shareholders who own less than 100 shares may pool their shares in accordance with the provisions of Portuguese law for voting purposes.

Portuguese law requires 30 days advance notice of general meetings.  BES must notify holders of nominal shares residing abroad by means of a registered letter mailed to the address furnished to the Bank for that purpose.  This notice must specify the requirements for participation in the meeting as well as any other applicable conditions.  As referred to above, only holders of nominal shares who have registered their name or, in the case of book-entry shares, have recorded their names no later than 15 business days prior to the date of the meeting may attend a general meeting.  Shareholders without voting rights and bondholders may not attend the general meeting. Each block of 100 shares represents one vote.  However, shareholders who own less than 100 shares may pool their shares in accordance with the provisions of Portuguese law for voting purposes.

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Postal votes are permitted under Portuguese
  law. Voting instructions, enclosed in a sealed envelope and addressed to the
  Chairman of the General Meeting, should be delivered to BES’s head office
  no later than 6:00 p.m. of the fifth business day prior to the day designated
  for the General Meeting. Shareholder’s signatures must be authenticated
  by a notary public or certified by BES’s Secretary. A form for postal
  voting is available for consulation from BES’s Secretary or on BES’s
  web site.


Directors

Members of the Board may be shareholders
  or outsiders elected at the general meeting. Directors are elected for four-year
  periods and may be re-elected. The Board represents the Bank in and outside
  the court and has full management authority. A majority of Directors either present
  or represented must vote in favour of a Board resolution in order for it to
  pass. In case of a tie, the chairman has the casting vote. Directors are not required to retire
  at a particular age.


Limitations on Voting and Shareholding

Apart from the limitation referred
  to in the Item relative to “Foreign Ownership of Shares” there are
  no limitations imposed by Portuguese law or the Bank’s memorandum and
  articles of association on the right of non-residents or foreign persons to
  hold or vote the Bank’s ordinary shares, other than limitations generally
  applicable to all shareholders.


Material Contracts

There are no material contracts, other
  than those entered into in the ordinary course of business, to which BES or
  any member of the BES Group is a party and which were or will be entered into
  at any time during the two years preceding the date of filing of this annual
  report.


Exchange Controls

Portugal

Portugal is not subject to foreign
  exchange controls. A non-resident of Portugal who wishes
  to invest in Portuguese securities must open a special share portfolio account
  with a commercial bank or other institution duly authorized for such purpose
  and operating in Portugal. The investor may then buy and sell quoted securities
  with some restrictions, see “Item 4. Information on the CompanySupervision
  and Regulation”, and repatriate the proceeds. The individual buying and
  selling decisions are not subject to consent. However, ownership interests in
  Portuguese companies are regularly monitored by the Bank of Portugal through
  mandatory provision of monthly capital account position statements. Dividends
  may be freely transferred to a foreign country.


Cayman Islands

In connection with the Preference
  Shares issued by ESOL, there are no exchange controls or foreign exchange restrictions
  applicable under the laws of the Cayman Islands relating to transfers of capital,
  income, dividends or interest.


Taxation

The following summary of the material
  Cayman Islands, Portuguese and United States federal income tax consequences
  is not a comprehensive description of all of the tax considerations that may
  be relevant to a holder of Preference Shares who is a U.S. Holder (as defined
  below), and does not deal with the tax consequences applicable to all categories
  of investors, some of which may be subject to special rules. Investors therefore
  should consult their tax advisors with respect to the Cayman Islands, Portuguese,
  United States and other tax consequences of the purchase, ownership and disposition
  of Preference Shares, including the effect of any foreign, state or local tax
  laws. The discussion with respect to United
  States federal tax law set out below is based on the Income Tax Treaty between
  Portugal and the United States (the “Treaty”) and the laws in force
  as of the date of this annual report and is subject to any changes in United
  States law occurring after such date. As of the date of this annual report,
  there is no inheritance or gift tax treaty in effect between Portugal and the
  United States.


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Cayman Islands

Under current Cayman Islands law,
  there are no income, capital, transfer, profits or other taxes that would apply
  to the profits of ESOL nor would any such taxes apply on dividend, redemption
  or liquidation payments by ESOL to any holder of Preference Shares.


Portugal

Under current Portuguese law, neither
    the guarantee nor guarantee payments made by the Bank to a holder of Preference
    Shares that is not resident of Portugal for Portuguese tax purposes will be
    subject to any Portuguese income, capital, transfer, wealth, estate, gift
    inheritance or other tax or duty. In addition, payments made by ESOL in respect
    of the Preference Shares are not subject to Portuguese withholding tax. There is a general withholding tax
  of 25% on dividends paid by a Portuguese company to a non-resident holder. However,
  this rate is subject to reduction if there is a double taxation agreement with
  the country in which the investor is resident. A double taxation treaty has
  been signed and ratified by Portugal and the United States, under which the
  investor can benefit from a 15% withholding tax if the conditions mentioned
  in the Treaty are observed. Until 2001, listed companies were subject to a withholding
  tax of 20% (which was abolished in 2002). There is an additional dividend withholding
  of 5% in respect of inheritance and gift tax. There are presently no taxes on capital
  gains if the non-resident investor is a company. According to Portuguese laws, banks must
  account for withholding taxes at the source and must issue annual information
  to the holders.


United States

Dividends

Under United States federal income
    tax laws and subject to the Passive foreign investment company rules discussed
    below, dividends paid with respect to the Preference Shares will be subject
    to United States federal income taxation for a beneficial owner of Preference
    Shares that is, for United States federal income tax purposes, (i) a citizen
    or resident of the United States; (ii) a domestic corporation; (iii) an estate
    the income of which is subject to United States federal income tax without
    regard to its source; or (iv) a trust if a court within the United States
    is able to exercise primary supervision over the administration of the trust
    and one or more United States persons have the authority to control all substantial
    decisions of the trust (a “U.S. Holder”), to the extent paid out
    of current or accumulated earnings and profits of the ESOL (as determined
    under United States federal income tax principles). Dividends paid to a non-corporate
    U.S. holder in taxable years beginning after December 31, 2002 and before
    January 2, 2009 that constitute qualified dividend income will be taxable
    to the holder at a maximum tax rate of 15% provided the Preference Shares
    are held for more than 90 days during the 180 period beginning 90 days before
    the ex-dividend date and the U.S. holder meets other holding period requirements.
    Dividends ESOL pays with respect to the Preference Shares generally will be
    qualified dividend income if, in the year that the U.S. holder receives the
    dividend, the Preference Shares are readily tradable on an established securities
    market in the United States. Dividends will not be eligible for the dividends-received
    deduction otherwise allowed to a United States corporation. Distributions
    in excess of current and accumulated earnings and profits, as determined for
    United States federal income tax purposes, will be treated as a non-taxable
    return of capital to the extent of the U.S. Holder’s basis in the Preference
    Shares and thereafter as capital gain. Dividends will generally constitute
    foreign source “passive” or “financial services” income,
    which is treated separately from other types of income for purposes of computing
    the foreign tax credit allowable to U.S. Holders. Special rules apply in determining
    the foreign tax credit limitation with respect to dividends that are subject
    to the maximum 15% tax rate.


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Sale, Redemption or Disposition of the Preference Shares

Subject to the rules discussed below,
  a U.S. Holder will recognize gain or loss upon a sale, redemption or other taxable
  disposition of Preference Shares measured by the difference between such U.S.
  Holder’s tax basis (determined in U.S. dollars) in the Preference Shares
  and the U.S. dollar value of the amount realized on the disposition. Such gain
  or loss will be capital gain or loss if the Preference Shares are held as capital
  assets. Capital gain of a non-corporate U.S. holder that is recognized on or
  after May 6, 2003 and before January 1, 2009 is generally taxed at a maximum
  rate of 15% where the property is held for more than one year. The gain or loss
  will generally be income or loss from sources within the United States for foreign
  tax credit limitation purposes.


Passive Foreign Investment Company Rules

ESOL and the Bank believe that Preference
  Shares should not be treated as stock of a passive foreign investment company,
  or PFIC, for United States federal income tax purposes, but this conclusion
  is a factual determination made annually and thus may be subject to change. In general, Preference Shares would
  be treated as shares in a PFIC with respect to a U.S. Holder if, for any taxable
  year in which the U.S. Holder held Preference Shares, either (i) at least 75%
  of the gross income of ESOL for the taxable year is passive income or (ii) at
  least 50% of the value (determined on the basis of a quarterly average) of the
  ESOL assets is attributable to assets that produce or are held for the production
  of passive income. For this purpose, passive income generally includes dividends,
  interest, royalties, rents (other than certain rents and royalties derived in
  the active conduct of a trade or business), annuities and gains from assets
  that produce passive income. If a foreign corporation owns at least 25% by value
  of the stock of another corporation, the foreign corporation is treated for
  purposes of the PFIC tests as owning its proportionate share of the assets of
  the other corporation, and as receiving directly its proportionate share of
  the other corporation’s income. In addition, payments of interest and
  dividends received from certain related parties are treated for purposes of
  the PFIC tests as income that is not passive income to the extent that such
  income is properly allocable to income of a related party that is not passive
  income. Therefore, income received by ESOL from the Bank, BESSA or any other
  subsidiary of the Bank would not be considered passive income to the extent
  that such income is properly allocable to income of the Bank, BESSA or such
  other subsidiary that is not passive income. If the Preference Shares were treated
  as shares of a PFIC, a U.S. Holder generally would be subject to special rules
  with respect to (a) any gain realized on the sale or other disposition of Preference
  Shares and (b) any “excess distribution” by ESOL to the U.S. Holder
  (generally, any distributions to the U.S. Holder in respect of the Preference
  Shares during a single taxable year that are greater than 125% of the average
  annual distributions received by the U.S. Holder in respect of the Preference
  Shares during the three preceding taxable years or, if shorter, the U.S. Holder’s
  holding period for the Preference Shares). Under these rules, (i) the gain or
  excess distribution would be allocated rateably over the U.S. Holder’s
  holding period for the Preference Shares, (ii) the amount allocated to the taxable
  year in which the gain or excess distribution was realized would be taxable
  as ordinary income; (iii) the amount allocated to each prior year, with certain
  exceptions, would be subject to tax at the highest tax rate in effect for that
  year; and (iv) the interest charge generally applicable to underpayments of
  tax would be imposed in respect of the tax attributable to each such year. If
  a U.S. Holder owns Preference Shares in a PFIC that are treated as marketable
  stock, the U.S. Holder may also make a mark-to-market election. If such an election
  is made, the U.S. Holder will not be subject to the PFIC rules described above.
  Instead, in general, the U.S. Holder will include as ordinary income each year
  the excess, if any, of the fair market value of its Preference Shares at the
  end of the taxable year over its adjusted basis in the Preference Shares. These
  amounts of ordinary income will not be eligible for the favorable tax rates
  applicable to qualified dividend income or long-term capital gains. The U.S.
  Holder will also be allowed to take an ordinary loss in respect of the excess,
  if any, of the adjusted basis of its Preference Shares over their fair market
  value at the end of the taxable year (but only to the extent of the net amount
  of previously included income as a result of the mark-to-market election). The
  U.S. Holder’s basis in the Preference Shares will be adjusted to reflect
  any such income or loss amounts.


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In addition, notwithstanding any election the U.S. holder makes with regard to the Preference Shares, dividends that the holder receives from ESOL will not constitute qualified dividend income to the holder if ESOL is a PFIC either in the taxable year of the distribution or the preceding taxable year.  Dividends that do not constitute qualified dividend income are not eligible for taxation at the 15% maximum rate applicable to qualified dividend income.  Instead, the U.S. holder must include the gross amount of any such dividend paid by ESOL of its accumulated earnings and profits (as determined for United States federal income tax purposes), in gross income, and it will be subject to tax at rates applicable to ordinary income. Special rules apply with respect to the calculation of the amount of the foreign tax credit with respect to excess distributions by a PFIC. A U.S. Holder who owns Preference Shares during any year that the Bank is a PFIC must file Internal Revenue Service Form 8621.


Documents on Display

It is possible to read and copy documents referred to in this annual report on Form 20-F that have been filed with the SEC at the SEC’s public reference room located at 450 Fifth Street, NW, Washington, D.C. 20549.  Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms and their copy charges.  The Bank’s Securities and Exchange Commission filings made after November 4, 2002 are also available over the Internet at the Securities and Exchange Commission’s website at http://www.sec.gov.  In addition, material filed by the Bank may be inspected at the offices of the New York Stock Exchange at 20 Broad Street, New York, NY 10005.


|ITEM | 11. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|---- | --- | ----------------------------------------------------------

Introduction

The BES Group is exposed to market, credit and operational risk due to the nature and scope of its operations.  Success in managing these risks is essential to the BES Group; accordingly, a Global Risk Department was created in 1999, independent of the business units, in order to propose to the Bank’s management policies and procedures, and to identify, quantify and monitor each major type of risk at the group level. The BES Group conducts activities domestically throughout Portugal and in Spain (through the Bank’s subsidiary BESSA), in London (foreign branch), in New York (foreign branch), in Florida (through the Bank’s subsidiary ES Bank), in Macao (subsidiary BESOR) and in Switzerland (foreign branch), and accordingly, the risk management procedures consider the specifics of each market in which the BES Group operates.  The Global Risk Department is responsible for integrating the various risk management procedures across various entities. The foundation of the BES Group’s risk management practices is the experience and knowledge of the Bank’s senior management.  Senior management in the BES Group companies and foreign branches and the managing directors in each trading department within the BES Group have extensive knowledge of the markets and activities in which they do business. The experience and knowledge of the Bank’s senior management is augmented by risk management policies and procedures intended to monitor and evaluate the BES Group’s risk profile. The credit and market risk management process is controlled and supervised by the Bank’s Credit and Financial Committee.  The Credit and Financial Committee meets daily, is composed primarily of the Executive Committee of the Board of Directors and is chaired by Dr. Ricardo Salgado, Chairman of the Executive Committee.  The Credit and Financial Committee is responsible for establishing the BES Group’s risk tolerance parameters through the setting of market and credit risk limits, monitoring current market and credit risk positions and approving all major business decisions which increase the BES Group’s market or credit risk.


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Nature of Primary Market Risk Exposures

Market risk generally represents the risk of loss that may result from the potential change in the value of a financial instrument as a result of fluctuations in interest and foreign currency exchange rates and in equity prices as well as changes in the liquidity in the markets.  Market risk is inherent to both derivative and non-derivative financial instruments, and accordingly, the scope of the BES Group’s market risk management procedures extends beyond derivatives to include all market risk sensitive financial instruments.  The BES Group’s exposure to market risk is directly related to its proprietary trading and arbitrage activities and to its role as a financial intermediary in customer-related transactions.  The main sources of market risk are its portfolio of long-term fixed rate bonds and its portfolio of equity and fixed income derivatives. The Bank seeks to mitigate its market risk exposures using derivative financial instruments that provide a cost effective alternative to traditional on-balance sheet instruments (such as securities, customer credit, and customers’ and other deposits). Transactions are conducted mainly through the Bank’s head office in Lisbon, Portugal and in its overseas branches.  Derivative financial instruments used to reduce the Bank’s market risk involve, to varying degrees, credit risk.  Credit risk is the possibility that a loss may occur because a party to a transaction fails to perform according to the terms of the contract.  See “Credit Risk Management”. Following is a summary of the BES Group’s primary market risk exposures as of December 31, 2002, including a discussion of how those exposures are currently managed:


Foreign currency exchange risk

Foreign currency exchange risk includes
    transaction exposure (the exposure arising from fluctuations in foreign currency
    exchange rates on the reported value of revenues and expenses and certain
    assets and liabilities denominated in foreign currencies) and translation
    exposure (the exposure arising from the translation of investments in the
    net assets of foreign subsidiaries and offices). The BES Group’s revenues
    and expenses can be affected, as reported in euro, by fluctuations in foreign
    currency exchange rates, primarily relative to the U.S. dollar and the pound
    sterling. However, the impact of such fluctuations is limited because as of
    December 31, 2002 approximately 74% of the Bank’s assets and 76% of
    its liabilities were denominated in euro. The BES Group seeks to manage its exposure from the risk of adverse foreign currency fluctuations by hedging certain of its currency exchange exposures with respect to identifiable assets, liabilities or commitments denominated in foreign currency, which are firm.  The BES Group primarily uses forward exchange contracts, currency swaps, and, to a lesser extent, foreign currency options to manage its foreign currency transaction and translation exposure.


Interest rate risk

Interest rate risk is the potential loss in a position value due to the inherent volatility of interest rates.  Interest rate risk is a consequence of a mismatch between the durations of assets and liabilities within the BES Group. The BES Group uses several types of financial instruments to manage its interest rate risk, including interest rate swaps, cross-currency interest rate swaps, forward rate agreements, futures and options.  The extent to which the BES Group uses these instruments is determined by reference to the net exposure of the BES Group’s assets and liabilities that are subject to interest rate risk.  The BES Group uses such instruments to manage its interest rate risk and protect the interest rate margin between interest-bearing assets and interest-bearing liabilities.


Equity price risk

The BES Group is exposed to equity price risk as a consequence of its proprietary trading activity in stock markets and in related derivative financial instruments.  Equity price risk results from changes in the level or volatility of equity prices, which affect the value of equity securities or instruments that derive their value from a particular stock, a basket of stocks or a stock index.


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Liquidity risk

The BES Group is subject to liquidity risk, which is a measure of the BES Group’s capacity to meet its short-term financial obligations without incurring losses or resulting in an adverse impact on the fair value of the Bank’s financial assets and liabilities.  Liquidity risk is managed by the Executive Committee and by the Bank’s Treasury Department using a daily liquidity gap analysis and liquidity limits for balance sheet assets and liabilities, and by Bank management’s careful selection of the types of financial instruments used and markets entered.


Measurement of Market Risk

The BES Group estimates the potential losses that could arise from changes in market conditions using both sensitivity analysis and value at risk. Sensitivity analysis is a methodology whereby hypothetical changes to market conditions are used to predict reasonably possible near-term (up to one year) results. Sensitivity analysis is used to estimate potential losses based on parallel and non-parallel shifts in the relevant interest rate yield curves, foreign currency exchange rates and equity prices, and based on extreme changes in market conditions through stress testing.  Losses are defined as the reduction in the fair value of the BES Group’s financial assets and liabilities caused by these hypothetical changes.  For interest rate risk, potential losses are determined by comparing the fair value of financial assets and liabilities based upon discounted cash flows with the fair value originated by a simulated interest rate.  For foreign currency exchange risk, potential losses are determined by comparing the fair value in euro of the Bank’s open foreign currency position with the fair value of a hypothetical exchange rate.  For equity price risk, potential losses are calculated as a percentage of the equity security’s current market value, or, in the case of related derivative financial instruments, the change in the fair value of the derivative financial instrument based on a hypothetical change in the value of the underlying equity, basket of equities or index. Interest rate sensitivity analysis is complemented by a value at risk calculation. Value at risk is a methodology based on statistical models that estimates the risk of loss using historical price and volatility patterns.  The approach utilizes statistical concepts to estimate the probability of the value of a financial instrument falling above or below a specified amount.  The calculation utilizes the standard deviation of historical change in value to estimate the amount of change in the current value that could occur at a specified probability level.  The BES Group calculates value at risk using the base assumptions recommended by the Bank for International Settlements: a 99% confidence level with an investment period of ten days. The Monte Carlo simulation value at risk methodology is used based upon a correlation matrix with one year’s historical information.  The calculated value at risk is then compared to the Bank’s shareholders’ equity to assess the level of capital at risk.  Currently, the BES Group performs value at risk calculations and analysis on a daily basis, and the BES Group uses value at risk as its primary tool to measure market risk. The Bank has performed an entity-wide sensitivity analysis of all of the BES Group financial assets and liabilities, except for the interest rate risk analysis, which analysis includes financial assets and liabilities whose next repricing date is more than one year from December 31, 2002.  Management believes that the estimated market risk of financial assets that reprice within one year is immaterial to the BES Group.  The interest rate risk calculation assumed both a +10% and -10% parallel shift in the relevant interest rate yield curves at December 31, 2002; the foreign currency exchange risk calculation assumed both a +10% and -10% change in the foreign currency exchange rates at December 31, 2002; and the equity price risk calculation assumed a +10% and -10% change in equity prices at December 31, 2002.  The amounts presented in the tables below represent the aggregate of the worst case impacts of the two modelling parameters for each type of market risk as computed for each of the BES Group’s individual financial assets and liabilities covered by the analysis at December 31, 2001 and 2002.


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|Interest rate
      risk |                      
|------------------------ | ---------------------
|                         | 2001                 
|                         |                      
|                         | Trading              
|                         |                      
|                         | (euro
      millions)
|EUR                      | (27.61               
|GBP                      | (2.03                
|AUD                      | (0.15                
|PNL                      | (2.22                
|SEK                      | (1.09                
|USD                      | (5.34                

|Foreign
      exchange risk |                
|--------------------------- | ---------------
|                            | 2001           
|                            |                
|                            | Trading        
|                            |                
|                            | (euro millions)
|BRL                         |               
|CAD                         |               
|GBP                         | (0.24          
|JPY                         |               
|SEK                         |               
|USD                         | (0.73          

|Equity
      risk |                
|----------------- | ---------------
|                  | 2001           
|                  |                
|                  | Trading        
|                  |                
|                  | (euro millions)
|EUR               | (34.38         
|GBP               | (0.11          
|USD               | (1.65          

Credit Risk Management

Credit risk arises from the potential
  inability of counterparties to perform on an obligation in accordance with the
  terms of the contract. The BES Group is exposed to credit risk in various capacities:
  primarily as a direct lender, as holder of securities, and as a counterpart
  in financial contracts. As a lender and as a holder of debt securities, the
  BES Group is exposed to the risk of non-payment of interest or principal by
  the borrower. As a counterpart in financial contracts, the BES Group is exposed
  to risk of non-performance by a counterpart obligated to perform under the contract. The identification, quantification,
    integration, monitoring and control of risk exposures from a multi-dimensional
    perspective are some of the tasks involved in credit risk management. The management of credit risk relies
    on effective coordination between the various teams involved throughout the
    successive phases of the credit’s life cycle, complemented by the ongoing
    introduction of improvements at both the level of policies, standards and
    methodologies, and at the level of procedures, decision circuits and tools
    used in assessing and monitoring risk. In 2002, BES implemented on a test
    basis an overall project for redesigning and differentiating the credit analysis,
    assessment and approval processes and for revising delegated credit powers.
    This project is based on the perspective of economic risk and seeks to increase
    the accuracy, speed and cost-effectiveness of credit decisions. To this end,
    internal ratings were assigned, viewing the full coverage of the credit portfolio.
    The new credit process was rolled out at the beginning of 2003, fully aligned
    to the increasingly stricter criteria employed for risk management. In light of the rather adverse macroeconomic
    context, special care was taken in the everyday deployment of credit risk
    monitoring and control actions involving all the commercial divisions, so
    as to permit the early definition and implementation of focused risk management
    measures adjusted to those customers whose risk profile during this period
    showed signs of deteriorating. The success of this process relied on the combined
    use of the multiple analysis tools available to and continuously developed
    by BES Group.


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The various risk and scoring models
    employed in the corporate and retail segments have proven very important tools
    for use in quantifying and assessing risk, by permitting improvements in the
    BES Group’s ability to discriminate between the quality of various categories
    of customers, with immediate repercussions on differentiated offers of credit
    based on risk metrics, namely expected losses and economic capital.


Operating Risk

Operational risk usually represents
    the possibility of losses resulting from failures in internal procedures due
    to the behaviour of individuals or information systems, or even to events
    external to the organization. The BES Group has been following the
    debate on the revision of capital adequacy requirements currently taking place
    at the Basle Committee, namely in what concerns the capital allocation for
    operational risk, and the recommendations put forward, which, if followed
    by the institutions, will permit movement away from the customary operational
    risk management practices to an integrated and systematic management, including
    the identification, monitoring, quantification and mitigation of this type
    of risk. Because of its growing importance,
    BES has established an exclusively dedicated area to monitor operational risk
    within the BES Group. It operates across other relevant Departments, and,
    among other things, takes into account the best management practices with
    regard to this type of risk. Following a preliminary review focusing
    on some areas of the organization, a number of initiatives were launched,
    specifically: (i) data collection and database categorization for some typologies
    of events resulting from operational risk; (ii) identification and qualitative
    analysis of critical points in terms of operational risk, in some processes
    of specific business areas; (iii) revision of procedures associated to the
    treatment of information as set out in the Security Policy and the Information
    Security Manual. The revision of surveys and processes analysis, currently
    under way, will contribute to the success of these initiatives.


|ITEM 12. | DESCRIPTION OF SECURITIES OTHER THAN EQUITY
      SECURITIES
|-------- | ------------------------------------------------------------

Not applicable.


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PART II

|ITEM 13. | DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
|-------- | -----------------------------------------------

None.


|ITEM 14. | MATERIAL MODIFICATIONS TO THE RIGHTS OF
      SECURITY HOLDERS AND USE OF PROCEEDS
|-------- | ----------------------------------------------------------------------------------

None.


|ITEM 15. | CONTROLS AND PROCEDURES
|-------- | -----------------------

Within 90 days prior to the date of
  this annual report, the Bank, under the supervision and with the participation
  of its chief executive officer (“CEO”) and chief financial officers
  (each a “CFO”), evaluated the effectiveness of the design and operation
  of the Bank’s disclosure controls and procedures. These controls and procedures
  are designed to ensure that all material financial and non-financial information
  that the Bank is required to disclose in documents filed with, or submitted
  to, the Securities and Exchange Commission is recorded, processed, summarized
  and reported in a timely manner. Although the Bank believes that its pre-existing
  disclosure controls and procedures were adequate to enable it to comply with
  applicable disclosure obligations, it is in the process of implementing some
  changes responding to recent legislation and regulations, primarily to formalize
  and document the controls and procedures that are already in place. In evaluating the Bank’s disclosure
  controls and procedures, the CEO and CFOs recognized that any controls and procedures,
  no matter how well-designed and operated, can provide only reasonable, rather
  than absolute, assurance of achieving the desired objectives. In recognition
  of this fact, the CEO and CFOs concluded, based on their evaluation, that the
  Bank’s disclosure controls and procedures are effective at the reasonable
  assurance level. Since the date of the evaluation there
  have been no significant changes in the BES Group’s internal controls
  or in other factors that could significantly affect these controls.


|ITEM 16A. | AUDIT COMMITTEE FINANCIAL REPORT
|--------- | --------------------------------

Not yet applicable.


|ITEM 16B. | CODE OF ETHICS
|--------- | --------------

Not yet applicable.


|ITEM 16C. | PRINCIPAL ACCOUNTANT FEES AND SERVICES
|--------- | --------------------------------------

Not yet applicable. 88


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PART III

|ITEM 17. | FINANCIAL STATEMENTS
|-------- | --------------------

Not
  applicable.


|ITEM 18. | FINANCIAL STATEMENTS
|-------- | --------------------

The following financial statements, together with the reports of KPMG and PricewaterhouseCoopers thereon, are filed as part of this Annual Report.  The Bank’s consolidated financial statements as of and for the years ended December 31, 2000 and 2001 have been audited by PricewaterhouseCoopers, and the Bank’s consolidated financial statements as of and for the year ended December 31, 2002 have been audited by KPMG.


|Report
      of KPMG, Independent Accountants                   | F-1                                                                                                   
|--------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------
|Report
      of PricewaterhouseCoopers, Independent Accountants | F-2                                                                                                   
|Consolidated Financial
      Statements                         |                                                                                                       
|                                                                | Consolidated Balance
      Sheets as of December 31, 2001 and 2002                                    
|                                                                | Consolidated Statements
      of Income for the years ended December 31, 2000, 2001 and 2002          
|                                                                | Consolidated Statements
      of Cash Flows for the years ended December
      31, 2000, 2001 and 2002
|                                                                | Notes to Consolidated
      Financial Statements                                                      

|         |         
|-------- | --------
|ITEM 19. | EXHIBITS
|         |         

|Exhibit 1 | English translation of Articles
      of Association of Banco Espírito Santo, S.A., as in effect on June
      30, 2003
|--------- | -----------------------------------------------------------------------------------------------------------------------
|          |                                                                                                                        
|Exhibit 8 | List of Subsidiaries (See “Item
      4. Information on the Company-Organizational Structure”.)                        

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SIGNATURES

The registrant hereby certifies that it meets all of the requirements for filing
  on Form 20-F and has duly caused and authorized the undersigned to sign this
  annual report hereby on its behalf.




|Dated:
      June 30, 2003 |  | BANCO ESPÍRITO SANTO
      S.A.(Registrant)   
|-------------------------- |  | ----------------------------------------------
|                           |  |                                               
|By :                       |  | /s/ Ricardo Espírito
      Santo Silva Salgado
|                           |  |                                               
|                           |  | Name:                                         
|                           |  | Title:                                        



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| | I, Ricardo Espírito Santo
      Silva Salgado, certify that:
| | ------------------------------------------------------------
| |                                                             
| | 1.                                                          
| |                                                             
| | 2.                                                          
| |                                                             
| | 3.                                                          
| |                                                             
| | 4.                                                          
| |                                                             

| |    |                                                                                                                                                                                                                                                                                                                                                                                                                      | (a) | designed such disclosure controls and procedures
      to ensure that material information relating to the registrant, including
      its consolidated subsidiaries, is made known to us by others within those
      entities, particularly during the period in which this annual report is
      being prepared;  
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                      |     |                                                                                                                                                                                                                                                                                                                       
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                      | (b) | evaluated the effectiveness of the registrant’s
      disclosure controls and procedures as of a date within 90 days prior to
      the filing date of this annual report (the “Evaluation Date”);
      and                                                                                                          
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                      |     |                                                                                                                                                                                                                                                                                                                       
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                      | (c) | presented in this annual report our conclusions
      about the effectiveness of the disclosure controls and procedures based
      on our evaluation as of the Evaluation Date;                                                                                                                                      
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                      |     |                                                                                                                                                                                                                                                                                                                       
| | 5. | The registrant’s other
      certifying officers and I have disclosed, based on our most recent evaluation,
      to the registrant’s auditors and the audit committee of the registrant’s
      board of directors (or persons performing the equivalent function):                                                                                                                                                
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                      |     |                                                                                                                                                                                                                                                                                                                       
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                      | (a) | all significant deficiencies in the design
      or operation of internal controls which could adversely affect the registrant’s
      ability to record, process, summarize and report financial data and have
      identified for the registrant’s auditors any material weaknesses in
      internal controls; and
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                      |     |                                                                                                                                                                                                                                                                                                                       
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                      | (b) | any fraud, whether or not material, that
      involves management or other employees who have a significant role in the
      registrant’s internal controls; and                                                                                                                                                    
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                      |     |                                                                                                                                                                                                                                                                                                                       
| | 6. | The registrant’s other
      certifying officers and I have indicated in this annual report whether or
      not there were significant changes in internal controls or in other factors
      that could significantly affect internal controls subsequent to the date
      of our most recent evaluation, including any corrective actions with regard
      to significant deficiencies and material weaknesses.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                      |     |                                                                                                                                                                                                                                                                                                                       



| | /s/ Ricardo Espírito
      Santo Silva Salgado
| | ----------------------------------------------
| |                                               
| | Title:                                        
| |                                               
| |                                               
| | Date: June 30, 2003                           



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I, Amilcar Carlos Ferreira de Morais
    Pires, certify that:


| | 1. | I have reviewed this annual report
      on Form 20-F of Banco Espírito Santo, S.A.;                                                                                                                                                                                                                                                                                                                                
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                     
| | 2. | Based on my knowledge, this annual
      report does not contain any untrue statement of a material fact or omit
      to state a material fact necessary to make the statements made, in light
      of the circumstances under which such statements were made, not misleading
      with respect to the period covered by this annual report;                                                                    
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                     
| | 3. | Based on my knowledge, the financial
      statements, and other financial information included in this annual report,
      fairly present in all material respects the financial condition, results
      of operations and cash flows of the registrant as of, and for, the periods
      presented in this annual report;                                                                                       
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                     
| | 4. | The registrant’s other certifying
      officers and I are responsible for establishing and maintaining disclosure
      controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14)
      for the registrant and have:                                                                                                                                                                            
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                     
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                     
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                     
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                     
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                     
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                     
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                     
| | 5. | The registrant’s other certifying
      officers and I have disclosed, based on our most recent evaluation, to the
      registrant’s auditors and the audit committee of the registrant’s
      board of directors (or persons performing the equivalent function):                                                                                                                                                
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                     
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                     
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                     
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                     
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                     
| | 6. | The registrant’s other certifying
      officers and I have indicated in this annual report whether or not there
      were significant changes in internal controls or in other factors that could
      significantly affect internal controls subsequent to the date of our most
      recent evaluation, including any corrective actions with regard to significant
      deficiencies and material weaknesses.

| |                                                   |                                                                  
| | ------------------------------------------------- | -----------------------------------------------------------------
| | /s/ Amilcar Carlos Ferreira
      de Morais Pires
| |                                                   |                                                                  
| | Title:                                            | Chief Financial Officer in charge of the Finance
      Department
| |                                                   | (Principal Financial Officer)                                    
| |                                                   |                                                                  
| | Date: June 30, 2003                              

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| | I, Manuel José Dias de
      Freitas, certify that:
| | ---------------------------------------------------
| |                                                    
| | 1.                                                 
| |                                                    
| | 2.                                                 
| |                                                    
| | 3.                                                 
| |                                                    
| | 4.                                                 
| |                                                    
| |                                                    
| |                                                    
| |                                                    
| |                                                    
| |                                                    
| |                                                    
| | 5.                                                 
| |                                                    
| |                                                    
| |                                                    
| |                                                    
| |                                                    
| | 6.                                                 

| |                                      
| | -------------------------------------
| | /s/ Manuel José Dias
      de Freitas
| |                                      
| | Title:                               
| |                                      
| |                                      
| | Date: June 30, 2003                  

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BANCO ESPÍRITO SANTO,
  S.A.REPORT OF INDEPENDENT AUDITORS

To the Shareholders and Board of Directors of
  BANCO ESPÍRITO SANTO, S.A.

We have audited the accompanying consolidated balance
  sheet of Banco Espírito Santo, S.A. and subsidiaries (The “Banco
  Espírito Santo Group”) as of December 31, 2002, and the related
  consolidated statements of income, cash flows and changes in shareholders’
  equity for the year ended December 31, 2002. These consolidated financial statements
  are the responsibility of the Company’s management. Our responsibility
  is to express an opinion on these consolidated financial statements based on
  our audit.

We conducted our audit in accordance with auditing
  standards generally accepted in the United States of America. Those standards
  require that we plan and perform the audit to obtain reasonable assurance about
  whether the financial statements are free of material misstatement. An audit
  includes examining, on a test basis, evidence supporting the amounts and disclosures
  in the financial statements. An audit also includes assessing the accounting
  principles used and significant estimates made by management, as well as evaluating
  the overall financial statement presentation. We believe that our audit provides
  a reasonable basis for our opinion.

In our opinion, the accompanying financial statements
  present fairly, in all material respects, the financial position of the Banco
  Espírito Santo Group at December 31, 2002, and the results of its operations
  and the cash flows for the year ended December 31, 2002, in conformity with
  generally accepted accounting principles in Portugal for the banking sector,
  as referred to in note 2 to the financial statements.

Without affecting our opinion expressed in the
  previous paragraph we draw attention to the fact that we were appointed as auditors
  of Banco Espírito Santo, S.A. in July 2002 for performing an audit of
  the consolidated financial statements for the year ending December 31, 2002.
  The consolidated comparative figures for the year ended December 31, 2001 are
  presented in accordance with the requirements of the Bank of Portugal and were
  subject to an audit performed by another audit firm, who issued an unqualified
  audit report dated March 11, 2002. That audit report included the following
  emphases of matter:

|• | In 2001, with the authorization of the Bank
      of Portugal, Banco Espírito Santo, S.A. accounted for the curtailment
      losses related to early retirements occurred in that period and the unrecognised
      prior service costs as a charge against Additional Paid-in Capital.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|• | At December 31, 2001, the strategic investment
      in PT Multimédia, SGPS, S.A. was carried at cost in the balance sheet,
      following the rules of the Bank of Portugal in place at that time. This
      cost was above the respective market price by approximately 198 million
      euros. Following the issuance of the Regulation 4/2002, under which the
      Bank of Portugal established the basis for the provisioning of the unrealised
      losses associated with the strategic investments held by financial institutions,
      Banco Espírito Santo, S.A. provided for an amount of 15.3 million
      euros, corresponding to a part of the unrealised losses with the investment
      in PT Multimédia, SGPS, S.A., determined as at December 31, 2002
      following the transitional provisions of the referred Regulation. The effect
      of the application of Regulation 4/2002 is disclosed in note 7 of the Notes
      to the Financial Statements.

The financial statements have been prepared in
  accordance with generally accepted accounting principles in Portugal. The generally
  accepted accounting principles in Portugal vary in certain material respects
  from accounting principles generally accepted in the United States of America.
  The application of accounting principles generally accepted in the United States
  of America would have affected the determination of net income for the year
  ended December 31, 2002 and the determination of shareholders’ equity
  at December 31, 2002 to the extent summarized in note 23 of the notes to the
  financial statements.

Lisbon, Portugal
  February 25, 2003
  (Except for notes 23 and 28 which are as of June 30, 2003)



KPMG

F-1

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To the Shareholders and Board of Directors ofBanco Espirito Santo, SA

Report of Independent Accountants

1     We have audited
  the accompanying consolidated balance sheet of Banco Espirito Santo, SA
  and its subsidiaries as of December 31, 2001 and the related consolidated statements
  of income, of cash flows and of changes in shareholders equity for each
  of the two years in the period ended December 31, 2001. These consolidated financial
  statements, prepared and presented on the basis described in Note 2 to the financial
  statements are the responsibility of the Banks management. Our responsibility
  is to express an opinion on these financial statements based on our audits.

2     We conducted our
  audits in accordance with generally accepted auditing standards in the United
  States of America. Those standards require that we plan and perform the audit
  to obtain reasonable assurance about whether the financial statements are free
  of material misstatement. An audit includes examining, on a test basis, evidence
  supporting the amounts and disclosures in the financial statements. An audit
  also includes assessing the accounting principles used and significant estimates
  made by management, as well as evaluating the overall financial statement presentation.
  We believe that our audits provide a reasonable basis for our opinion.

3     In our opinion,
  the consolidated financial statements referred to above present fairly, in all
  material respects, the financial position ofBanco Espirito Santo, SA
  and its subsidiaries at December 31, 2001, and the results of their operations
  and their cash flows for each of the two years in the period ended December
  31, 2001, in conformity with accounting principles and other requirements in
  force in Portugal for the banking sector.

4     The Banks
  strategic investment in PT Multimédia, SGPS was recorded as at December
  31, 2001 at acquisition cost of € 296 million, as permitted by the rules
  issued by the Bank of Portugal and in accordance with the Banks accounting
  policies. However, at that date the market value of this investment amounted
  to € 98 million, giving rise to an unrealized loss amounting of €
  198 million.

5     As referred to in
  Note 2.3 h) to the financial statements, BES Group wrote-off against Share premium
  the cost of early retirements in 2001, amounting to € 67 million. In addition,
  in 2001 BES Group also wrote off an unamortized pension fund deficit from prior
  years, amounting to € 34 million against Share premium. In accordance with
  the Portuguese tax rules and for the purposes of its corporate income tax calculations
  of 2001, the Bank has treated the amount of early retirement costs referred
  to above as tax deductible.

6     Accounting principles
  generally accepted in Portugal vary in certain important respects from accounting
  principles generally accepted in the United States of America. The application
  of the latter would have affected the determination of consolidated net income
  for each of the two years in the period ended December 31, 2001 and the determination
  of consolidated shareholders equity and consolidated financial position
  at December 31, 2001 to the extent summarised in Note 23 to the consolidated
  financial statements.

/s/ PRICEWATERHOUSECOOPERS

March 11, 2002





F-2

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BANCO
  ESPÍRITO SANTO, SA (BES) AND CONSOLIDATED SUBSIDIARIES

CONSOLIDATED
  BALANCE SHEETS AS OF DECEMBER 31, 2001 AND 2002

|                                                                                                                                                      | Notes                         |  | 2001       |  | 2002       | 
|----------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------- |  | ---------- |  | ---------- | 
|                                                                                                                                                      |                               |  |            |  |            | 
|                                                                                                                                                      | (in
      thousands of euros) | 
|ASSETS                                                                                                                                                |                               |  |            |  |            | 
|Cash
      and due from banks                                                                                                                         |                               |  | 1,568,261  |  | 1,106,693  | 
|Deposits
      with the Central Bank                                                                                                                  |                               |  | 397,207    |  | 734,050    | 
|Interest-earning
      deposits with other banks                                                                                                      | 3                             |  | 3,676,574  |  | 5,547,353  | 
|Trading
      account securities                                                                                                                      | 4                             |  | 511,866    |  | 401,577    | 
|Investment
      securities                                                                                                                           |                               |  |            |  |            | 
|Available-for-sale
      (fair value of euro 4,045,100 thousandand
                  
      euro 3,612,540 thousand)                                  | 5                             |  | 4,026,453  |  | 3,561,801  | 
|Held-to-maturity
      (fair value of euro 910,295 thousandand euro 797,657 thousand)                                                                 | 5                             |  | 906,998    |  | 794,285    | 
|Loans
      and advances to customers (net of allowance for loan losses
           of euro 611,962 thousand and euro 731,425
      thousand)          | 6                             |  | 24,220,570 |  | 25,209,121 | 
|Investments
      in other equity holdings and associated companies (fair value ofeuro
      523,464 thousand and 
            euro 553,264 thousand) | 7                             |  | 762,904    |  | 832,461    | 
|Accrued
      interest receivable                                                                                                                     |                               |  | 213,543    |  | 207,554    | 
|Property
      and equipment                                                                                                                          | 22                            |  | 427,136    |  | 426,620    | 
|Other
      assets                                                                                                                                    | 9                             |  | 1,380,209  |  | 1,994,929  | 
|                                                                                                                                                      |                               |  |            |  |            | 
|TOTAL
      ASSETS                                                                                                                                    |                               |  | 38,091,721 |  | 40,816,444 | 
|                                                                                                                                                      |                               |  |            |  |            | 
|LIABILITIES
      AND SHAREHOLDERS’ EQUITY                                                                                                            |                               |  |            |  |            | 
|                                                                                                                                                      |                               |  |            |  |            | 
|LIABILITIES                                                                                                                                           |                               |  |            |  |            | 
|                                                                                                                                                      |                               |  |            |  |            | 
|Deposits
      from banks                                                                                                                             | 10                            |  | 4,097,618  |  | 4,228,410  | 
|Deposits
      from customers                                                                                                                         |                               |  |            |  |            | 
|Demand
      deposits                                                                                                                                 | 10                            |  | 6,879,626  |  | 7,321,027  | 
|Time
      deposits                                                                                                                                   | 10                            |  | 11,928,312 |  | 12,152,034 | 
|Short-term
      borrowings                                                                                                                           | 11                            |  | 2,631,584  |  | 2,544,375  | 
|Accrued
      interest payable                                                                                                                        |                               |  | 258,701    |  | 270,377    | 
|Other
      liabilities                                                                                                                               | 9                             |  | 706,413    |  | 701,487    | 
|Long-term
      debt                                                                                                                                  | 12                            |  | 9,570,200  |  | 11,058,358 | 
|Accrued
      pension liability                                                                                                                       | 13                            |  | 47         |  | 4,660      | 
|                                                                                                                                                      |                               |  |            |  |            | 
|TOTAL
      LIABILITIES                                                                                                                               |                               |  | 36,072,501 |  | 38,280,728 | 
|                                                                                                                                                      |                               |  |            |  |            | 
|MINORITY
      INTERESTS                                                                                                                              | 14                            |  | 615,536    |  | 534,236    | 
|                                                                                                                                                      |                               |  |            |  |            | 
|SHAREHOLDERS’
      EQUITY                                                                                                                            |                               |  |            |  |            | 
|Common
      stock, euro 5 par value; 300,000,000 shares authorised,issued
      and outstanding                                                      | 15                            |  | 1,000,000  |  | 1,500,000  | 
|Additional
      paid-in capital                                                                                                                      | 15                            |  | 192,950    |  | 300,000    | 
|Retained
      earnings and reserves                                                                                                                  | 16                            |  | 210,734    |  | 201,480    | 
|                                                                                                                                                      |                               |  |            |  |            | 
|TOTAL
      SHAREHOLDERS’EQUITY                                                                                                                       |                               |  | 1,403,684  |  | 2,001,480  | 
|                                                                                                                                                      |                               |  |            |  |            | 
|TOTAL
      LIABILITIES AND SHAREHOLDERS’EQUITY                                                                                                       |                               |  | 38,091,721 |  | 40,816,444 | 
|                                                                                                                                                      |                               |  |            |  |            | 
|OFF-BALANCE
      SHEET ACCOUNTS                                                                                                                      |                               |  |            |  |            | 
|                                                                                                                                                      |                               |  |            |  |            | 
|Commitments,
      contingencies and derivative financial instruments with
      off-balance sheet risk                                               | 17                            |  | 7,193,026  |  | 7,917,879  | 

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

F-3

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BANCO ESPÍRITO SANTO, SA (BES) AND CONSOLIDATED SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 2000, 2001 AND 2002

|                                                                           | Notes                         |  | 2000      |  | 2001      |  | 2002      | 
|-------------------------------------------------------------------------- | ----------------------------- |  | --------- |  | --------- |  | --------- | 
|                                                                           |                               |  |           |  |           |  |           | 
|                                                                           | (in
      thousands of euros) | 
|INTEREST
      INCOME                                                      |                               |  |           |  |           |  |           | 
|Interest
      on loans                                                    |                               |  | 1,239,163 |  | 1,538,044 |  | 1,431,158 | 
|Interest
      and dividends on securities–                                |                               |  |           |  |           |  |           | 
|•
      Trading securities                                                 |                               |  | 10,319    |  | 27,816    |  | 97,847    | 
|•
      Investment securities                                              |                               |  | 257,893   |  | 235,820   |  | 178,292   | 
|Interest
      on deposits with banks                                      |                               |  | 151,296   |  | 250,384   |  | 127,964   | 
|                                                                           |                               |  |           |  |           |  |           | 
|Total
      interest income                                                |                               |  | 1,658,671 |  | 2,052,064 |  | 1,835,261 | 
|INTEREST
      EXPENSE                                                     |                               |  |           |  |           |  |           | 
|Interest
      on deposits                                                 |                               |  | 720,137   |  | 847,258   |  | 531,587   | 
|Interest
      on short-term borrowings                                    |                               |  | 108,951   |  | 100,851   |  | 78,927    | 
|Interest
      on long-term debt                                           |                               |  | 220,078   |  | 376,981   |  | 431,137   | 
|                                                                           |                               |  |           |  |           |  |           | 
|Total
      interest expense                                               |                               |  | 1,049,166 |  | 1,325,090 |  | 1,041,651 | 
|                                                                           |                               |  |           |  |           |  |           | 
|NET
      INTEREST INCOME                                                  |                               |  | 609,505   |  | 726,974   |  | 793,610   | 
|                                                                           |                               |  |           |  |           |  |           | 
|Provision
      for loan losses                                            | 6                             |  | 139,112   |  | 142,582   |  | 216,260   | 
|                                                                           |                               |  |           |  |           |  |           | 
|NET
      INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES                  |                               |  | 470,393   |  | 584,392   |  | 577,350   | 
|                                                                           |                               |  |           |  |           |  |           | 
|OTHER
      INCOME                                                         |                               |  |           |  |           |  |           | 
|Fee
      and commission income                                            | 20                            |  | 290,845   |  | 273,649   |  | 290,225   | 
|Net
      trading result on trading account securities, investment         |                               |  |           |  |           |  |           | 
|securities
      and investment in affiliated companies                    | 20                            |  | 58,950    |  | —         |  | —         | 
|Net
      gains on foreign currency and financial derivatives transactions | 20                            |  | 91,999    |  | 136,115   |  | 183,826   | 
|Other
      operating income                                               | 20                            |  | 91,733    |  | 111,910   |  | 120,423   | 
|                                                                           |                               |  |           |  |           |  |           | 
|Total
      other income                                                   |                               |  | 533,527   |  | 521,674   |  | 594,474   | 
|                                                                           |                               |  |           |  |           |  |           | 
|OTHER
      EXPENSES                                                       |                               |  |           |  |           |  |           | 
|Salaries
      and benefits                                                | 26                            |  | 294,490   |  | 335,258   |  | 353,101   | 
|Administrative
      expenses                                              |                               |  | 232,921   |  | 271,413   |  | 264,877   | 
|Depreciation
      and amortization                                        |                               |  | 108,943   |  | 122,186   |  | 134,716   | 
|Net
      trading result on trading account securities, investment         |                               |  |           |  |           |  |           | 
|securities
      and investment in associated companies                    | 20                            |  | —         |  | 49,286    |  | 73,864    | 
|Other
      expenses                                                       | 21                            |  | 25,888    |  | 48,794    |  | 52,110    | 
|                                                                           |                               |  |           |  |           |  |           | 
|Total
      other expenses                                                 |                               |  | 662,242   |  | 826,937   |  | 878,668   | 
|                                                                           |                               |  |           |  |           |  |           | 
|INCOME
      BEFORE MINORITY INTERESTS, EQUITY EARNINGS ANDINCOME TAXES    |                               |  | 341,678   |  | 279,129   |  | 293,156   | 
|                                                                           |                               |  |           |  |           |  |           | 
|LESS:
      MINORITY INTERESTS IN INCOME OF CONSOLIDATEDSUBSIDIARIES       | 8                             |  | 54,526    |  | 48,386    |  | 32,296    | 
|                                                                           |                               |  |           |  |           |  |           | 
|ADD:
      EQUITY IN EARNINGS OF ASSOCIATED COMPANIES                      | 8                             |  | 4,828     |  | 5,520     |  | 77        | 
|                                                                           |                               |  |           |  |           |  |           | 
|INCOME
      BEFORE INCOME TAXES                                           |                               |  | 291,980   |  | 236,263   |  | 260,937   | 
|                                                                           |                               |  |           |  |           |  |           | 
|INCOME
      TAXES                                                         | 27                            |  | 63,987    |  | 38,554    |  | 38,476    | 
|                                                                           |                               |  |           |  |           |  |           | 
|NET
      INCOME                                                           |                               |  | 227,993   |  | 197,709   |  | 222,461   | 
|                                                                           |                               |  |           |  |           |  |           | 
|NET
      INCOME PER SHARE OF COMMON STOCK (IN EUROS)                      |                               |  | 1.5389    |  | 0.9885    |  | 0.9205    | 
|                                                                           |                               |  |           |  |           |  |           | 
|WEIGHTED
      AVERAGE NUMBER OF SHARES OUTSTANDING – ADJUSTED             |                               |  |           |  |           |  |          
|FOR
      CAPITALIZATION OF RESERVES (IN THOUSANDS OF UNITS)               |                               |  | 148,156   |  | 200,000   |  | 241,667   | 
|                                                                           |                               |  |           |  |           |  |           | 

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

F-4

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BANCO
  ESPÍRITO SANTO, SA (BES) AND CONSOLIDATED SUBSIDIARIES

CONSOLIDATED
  STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2000, 2001 AND 2002

|                                                                                | Notes                        |  | 2000        |   | 2001        |   | 2002         |  
|------------------------------------------------------------------------------- | ---------------------------- |  | ----------- | - | ----------- | - | ------------ | -
|                                                                                |                              |  |             |   |             |   |              |  
|                                                                                | (in
      thousand of euros) | 
|CASH
      FLOWS FROM OPERATING ACTIVITIES                                      |                              |  |             |   |             |   |              |  
|Net
      income                                                                |                              |  | 227,993     |   | 197,709     |   | 222,461      |  
|                                                                                |                              |  |             |   |             |   |              |  
|Adjustments
      to reconcile net income to net cash provided                  |                              |  |             |   |             |   |              |  
|by
      operating activities:                                                  |                              |  |             |   |             |   |              |  
|•
      Provisions for loans losses                                             | 6                            |  | 139,112     |   | 142,582     |   | 216,260      |  
|•
      Depreciation and amortization                                           |                              |  | 108,943     |   | 122,186     |   | 134,716      |  
|•
      Pension liability provision                                             |                              |  | 996         |   | 1,593       |   | 727          |  
|•
      Net gains on sale of subsidiaries, associated and                       |                              |  |             |   |             |   |              |  
|affiliated
      companies                                                      |                              |  | (9,298      | ) | —           |   | —            |  
|•
      Net (gains)/losses on sale of property and equipment                    |                              |  | 268         |   | (1,189      | ) | (136         | )
|•
      Minority interests in income of consolidated                            |                              |  |             |   |             |   |              |  
|subsidiaries                                                                    | 8                            |  | 8,585       |   | 6,145       |   | 2,963        |  
|•
      Equity in earnings of affiliates                                        | 8                            |  | (4,828      | ) | (5,520      | ) | (77          | )
|Bonuses
      paid to employees                                                 |                              |  | (23,263     | ) | (24,703     | ) | (21,620      | )
|Contribution
      to pension fund by utilisation of pension liability accrual  |                              |  | (772        | ) | (5,280      | ) | (3,679       | )
|Contribution
      to pension fund                                              |                              |  | (48,961     | ) | (196,833    | ) | (300,044     | )
|Net changes
      in accrued interest                                           |                              |  | 30,343      |   | 40,912      |   | 17,665       |  
|Net changes
      in trading securities                                         |                              |  | 322,020     |   | 36,217      |   | 110,289      |  
|                                                                                |                              |  |             |   |             |   |              |  
|Net
      cash provided by operating activities                                 |                              |  | 751,138     |   | 313,819     |   | 379,525      |  
|                                                                                |                              |  |             |   |             |   |              |  
|                                                                                |                              |  |             |   |             |   |              |  
|CASH
      FLOWS FROM INVESTING ACTIVITIES                                      |                              |  |             |   |             |   |              |  
|Net change
      in interest-earning deposits with other banks and Central Bank |                              |  | 394,677     |   | (82,049     | ) | (2,207,622   | )
|Proceeds
      from sales and maturities of investment securities               |                              |  | 11,558,689  |   | 21,804,498  |   | 737,507,700  |  
|Investment
      securities purchased                                           |                              |  | (11,501,193 | ) | (22,907,642 | ) | (736,900,872 | )
|Net increase
      in loans and advances to customers                           |                              |  | (4,725,108  | ) | (2,916,450  | ) | (1,204,811   | )
|Proceeds
      from sale of property and equipment                              |                              |  | 2,415       |   | 9,141       |   | 2,910        |  
|Purchase
      of property and equipment                                        |                              |  | (58,365     | ) | (44,641     | ) | (38,307      | )
|Net (investments)/disinvestments
      in real estate                           |                              |  | 9,881       |   | 8,141       |   | (7,709       | )
|Net (investments)/disinvestments
      in subsidiaries, associated              |                              |  |             |   |             |   |              |  
|and
      affiliated companies                                                  |                              |  | (244,702    | ) | (57,350     | ) | (99,020      | )
|Increase
      in other investing activities                                    |                              |  | (11,151     | ) | (200,793    | ) | (391,059     | )
|                                                                                |                              |  |             |   |             |   |              |  
|Net
      cash used in investing activities                                     |                              |  | (4,574,857  | ) | (4,387,145  | ) | (3,338,790   | )
|                                                                                |                              |  |             |   |             |   |              |  
|CASH
      FLOWS FROM FINANCING ACTIVITIES                                      |                              |  |             |   |             |   |              |  
|Net increase/(decrease)
      in deposits from banks                            |                              |  | (3,620,926  | ) | 1,499,183   |   | 130,792      |  
|Net increase
      in demand deposits                                           |                              |  | 836,370     |   | 503,183     |   | 441,401      |  
|Net increase
      in time deposits                                             |                              |  | 1,234,724   |   | 727,052     |   | 223,722      |  
|Cash provided
      by/(used for) minorities for acquisition of companies       |                              |  |             |   |             |   |              |  
|and
      equity investments in affiliates                                      |                              |  | (41,489     | ) | 39,967      |   | (84,263      | )
|Net increase/(decrease)
      in short term borrowings                          |                              |  | 1,261,267   |   | (137,389    | ) | (87,209      | )
|Payments
      of long-term debt                                                |                              |  | (77,968     | ) | (2,979,466  | ) | (2,401,546   | )
|Proceeds
      from the issuance of long-term debt                              |                              |  | 4,301,763   |   | 4,794,172   |   | 3,889,704    |  
|Proceeds
      from capital contributions and additional paid-in capital        |                              |  | 453,594     |   | —           |   | 550,000      |  
|Dividends
      paid                                                            |                              |  | (83,453     | ) | (88,249     | ) | (75,200      | )
|Cash provided
      by/(used in) other financing activities                     |                              |  | (190,860    | ) | 185,900     |   | (89,704      | )
|                                                                                |                              |  |             |   |             |   |              |  
|Net
      cash provided by financing activities                                 |                              |  | 4,073,022   |   | 4,544,353   |   | 2,497,697    |  
|                                                                                |                              |  |             |   |             |   |              |  
|Net increase/(decrease)
      in cash and due from banks                        |                              |  | 249,303     |   | 471,027     |   | (461,568     | )
|Cash and
      due from banks at beginning of the year                          |                              |  | 847,931     |   | 1,097,234   |   | 1,568,261    |  
|                                                                                |                              |  |             |   |             |   |              |  
|Cash
      and due from banks at end of the year                                |                              |  | 1,097,234   |   | 1,568,261   |   | 1,106,693    |  
|                                                                                |                              |  |             |   |             |   |              |  
|SUPPLEMENTAL
      DISCLOSURES OF CASH FLOW INFORMATION                         |                              |  |             |   |             |   |              |  
|Cash paid
      during the year:                                                |                              |  |             |   |             |   |              |  
|Interest
      received                                                         |                              |  | 1,603,761   |   | 2,066,738   |   | 1,841,250    |  
|Interest
      paid                                                             |                              |  | (963,913    | ) | (1,298,852  | ) | (1,029,975   | )
|Income
      taxes paid                                                         |                              |  | (38,442     | ) | (17,691     | ) | (23,477      | )

The
  accompanying notes form an integral part of these financial statements

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BANCO ESPÍRITO
  SANTO, SA (BES) AND CONSOLIDATED SUBSIDIARIES

CONSOLIDATED
  STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY 
  FOR THE YEARS ENDED DECEMBER 31, 2000, 2001 AND 2002 (Expressed in thousands of euros)

|                                                        |  |           |  | Additional |   | Other Reserves |   | Reserves    |   | Total         |  
|------------------------------------------------------- |  | --------- |  | ---------- | - | -------------- | - | ----------- | - | ------------- | -
|                                                        |  | Capital   |  | paid-in    |   | and Retained   |   |             |   | shareholders’ |  
|                                                        |  | stock     |  | capital    |   | earnings       |   | Revaluation |   | Legal         |  
|                                                        |  |           |  |            |   |                |   |             |   |               |  
|Balance as of December
      31, 1999                   |  | 587,500   |  | 221,788    |   | 272,986        |   | 30,680      |   | 41,100        |  
|                                                        |  |           |  |            |   |                |   |             |   |               |  
|                                                        |  |           |  |            |   |                |   |             |   |               |  
|Dividends
      paid                                    |  | —         |  | —          |   | (83,453        | ) | —           |   | —             |  
|Transfer
      to legal reserve                         |  | —         |  | —          |   | (16,262        | ) | —           |   | 16,262        |  
|Contribution
      to pension fund                      |  | —         |  | —          |   | (16,460        | ) | —           |   | —             |  
|Write-off
      of pension deferred costs               |  | —         |  |            |   | (138,935       | ) |             |   |               |  
|Capital
      increase by:                              |  |           |  |            |   |                |   |             |   |               |  
|–
      capitalization of reserves                      |  | 30,686    |  | —          |   | —              |   | (30,686     | ) |               |  
|–
      capitalization of additional paid-in capital    |  | 192,564   |  | (192,564   | ) | —              |   | —           |   | —             |  
|–
      contribution in cash                            |  | 189,250   |  | —          |   | —              |   | —           |   | —             |  
|Additional
      paid-in capital                        |  | —         |  | 264,338    |   | —              |   | —           |   | —             |  
|Bonus
      paid to staff and executive committee       |  | —         |  | —          |   | (23,263        | ) | —           |   | —             |  
|Write-off
      of goodwill                             |  | —         |  | —          |   | (129,894       | ) | —           |   | —             |  
|Other                                                   |  | —         |  | —          |   | (4,208         | ) | 6           |   | —             |  
|Net
      income                                        |  | —         |  | —          |   | 227,993        |   | —           |   | —             |  
|                                                        |  |           |  |            |   |                |   |             |   |               |  
|Balance as of December
      31, 2000                   |  | 1,000,000 |  | 293,562    |   | 88,504         |   | —           |   | 57,362        |  
|                                                        |  |           |  |            |   |                |   |             |   |               |  
|                                                        |  |           |  |            |   |                |   |             |   |               |  
|Dividends
      paid                                    |  | —         |  | —          |   | (88,249        | ) | —           |   | —             |  
|Transfer
      to legal reserve                         |  | —         |  | —          |   | (13,438        | ) | —           |   | 13,438        |  
|Contribution
      to pension fund                      |  | —         |  | —          |   | (10,000        | ) | —           |   | —             |  
|Write-off
      of pension costs                        |  | —         |  | (100,612   | ) | —              |   | —           |   | —             |  
|Bonus
      paid to staff and executive committee       |  | —         |  | —          |   | (24,703        | ) | —           |   | —             |  
|Write-off
      of Goodwill                             |  | —         |  | —          |   | (11,210        | ) | —           |   | —             |  
|Other                                                   |  | —         |  | —          |   | 1,321          |   | —           |   | —             |  
|Net
      income                                        |  | —         |  | —          |   | 197,709        |   | —           |   | —             |  
|                                                        |  |           |  |            |   |                |   |             |   |               |  
|Balance as of December
      31, 2001                   |  | 1,000,000 |  | 192,950    |   | 139,934        |   | —           |   | 70,800        |  
|                                                        |  |           |  |            |   |                |   |             |   |               |  
|                                                        |  |           |  |            |   |                |   |             |   |               |  
|Dividends
      paid                                    |  | —         |  | —          |   | (75,200        | ) | —           |   | —             |  
|Transfer
      to legal reserve                         |  | —         |  | —          |   | (14,115        | ) | —           |   | 14,115        |  
|Increase
      in share capital:                        |  |           |  |            |   |                |   |             |   |               |  
|by
      incorporation of reserves and share premium    |  | 250,000   |  | (192,950   | ) | —              |   | —           |   | (57,050       | )
|by
      subscription at 11 Euros per share             |  | 250,000   |  | 300,000    |   | —              |   | —           |   |               |  
|Pension
      fund of BESSA                             |  | —         |  | —          |   | (3,029         | ) | —           |   | —             |  
|Bonus
      paid to staff and executive committee       |  | —         |  | —          |   | (21,620        | ) | —           |   | —             |  
|Goodwill
      arising on consolidation                 |  | —         |  | —          |   | (34,261        | ) | —           |   | —             |  
|Provisions
      to investments under Regulation 4/2002 |  | —         |  | —          |   | (29,233        | ) | —           |   | —             |  
|Exchange
      differences arising on consolidation     |  | —         |  | —          |   | (6,042         | ) | —           |   | —             |  
|Other
      reserves arising on consolidation           |  | —         |  | —          |   | (5,280         | ) | —           |   | —             |  
|Net
      income                                        |  | —         |  | —          |   | 222,461        |   | —           |   | —             |  
|                                                        |  |           |  |            |   |                |   |             |   |               |  
|Balance as of December
      31, 2002                   |  | 1,500,000 |  | 300,000    |   | 173,615        |   | —           |   | 27,865        |  
|                                                        |  |           |  |            |   |                |   |             |   |               |  

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

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BANCO ESPÍRITO
  SANTO, SA (BES) AND CONSOLIDATED SUBSIDIARIES

NOTES
  TO THE CONSOLIDATED FINANCIAL STATEMENTS AT DECEMBER 31, 2001 AND 2002
  (Expressed in thousands of euros except where indicated)

NOTE 1 - BACKGROUND
  AND BUSINESS

Banco Espírito
  Santo, SA (“BES” or the “Bank”) was incorporated in 1937. The Bank is authorized
  by the Ministry of Finance to operate according to the laws and regulations
  of the Ministry, the Bank of Portugal and the Central Banks of other countries
  in which its branches are based. The Bank was nationalized by the Portuguese
  state in 1975, but in July 1991, the state disposed of 40% of the Bank’s shares
  to the private sector and a further 60% was privatized in February 1992. On
  June 6, 1999, the Bank changed its name from Banco Espírito Santo e Comercial
  de Lisboa, SA to Banco Espírito Santo, SA. Historically the Bank
  has obtained most of its funding from deposits which, together with its own
  funds, are invested in loans, securities and other assets. The Bank also provides
  other banking services and has a network of 469 branches throughout Portugal
  (2001: 482 branches), and branches in London, New York, Nassau, Lausanne and
  Cayman Islands, an offshore branch in Madeira and nine representative offices
  overseas. The BES Group (the consolidated
  entity) comprises the Bank and subsidiaries and associated companies providing
  financial and other services in Portugal and abroad (as described in Note 8). Ordinary shares of BES
  are listed on the Euronext Lisbon Stock Exchange. In November 1993, the Banks
  subsidiary Espírito Santo Overseas, Ltd (ESOL) issued four million non-cumulative
  guaranteed preference shares that are listed on the New York Stock Exchange.
  In August 1999, ESOL issued another six million non-cumulative guaranteed preference
  shares, which are also listed on the New York Stock Exchange. Another Bank subsidiary,
  BES Overseas, Ltd (BESOL), issued ten million non-cumulative guaranteed preference
  shares that are listed on the London Stock Exchange (see Note 14).


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NOTE 2 - BASIS OF PRESENTATION,
  CONSOLIDATION PRINCIPLES ANDSUMMARY OF
  THE KEY ACCOUNTING POLICIES

2.1 Basis of presentation

The financial statements
  of BES Group have been prepared for all years presented in accordance with accounting
  principles and practices established by the Bank of Portugal, as applicable
  for the banking sector (Portuguese GAAP). These financial statements
  have been reclassified, in all material respects, to comply with the presentation
  format prescribed by Article 9 of Regulation S-X of the US Securities and Exchange
  Commission. The preparation of financial
  statements requires management to make estimates and assumptions that affect
  the reported amounts of assets and liabilities and disclosure of contingent
  assets and liabilities at the date of the financial statements and the reported
  amounts of revenues and expenses during the reported period. Actual results
  could differ from those estimates. Significant differences
  between Portuguese GAAP and the accounting principles generally accepted in
  the United States (US GAAP) and their effect on the net income and on shareholders
  equity of the Group for the three years ended December 31, 2002, are set forth
  in Note 23.


2.2 Principles of consolidation

The financial statements
  reflect the assets, liabilities as at December 31, 2002 and 2001 and results
  for the years ended December 31, 2002, 2001 and 2000 of BES and of its subsidiaries,
  as well as its share in the results of associated companies. The financial statements
  of subsidiaries and associated companies with headquarters abroad were prepared
  under the respective statutory accounting records, in accordance with local
  regulations. For that reason, when considered material, appropriate adjustments
  were made to the financial statements of the consolidated entities in order
  to apply consistent accounting principles with those of the parent company. Subsidiary companies and
  all holdings where control is exercised by the Bank (see Note 2.2 (a)) are consolidated
  under the purchase method. Major intercompany balances and transactions, including
  corresponding costs and revenues, are eliminated in the consolidation process.
  The amounts that correspond to the investment of third parties in subsidiary
  companies are shown under minority interests. In the consolidated financial
  statements, the Banks investment in subsidiaries excluded from consolidation
  under the purchase method, due
  to the dissimilarity of its activities and investments in associated companies
  were accounted for under the equity method, with their value equal to the attributable
  share of capital, reserves and retained earnings of these companies.


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|a)                                                                                                                                                                                                                                                                                   | Investments
      in subsidiaries                                                                                                                                                         
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                           
|                                                                                                                                                                                                                                                                                     | Equity
      holdings in which the Group has a voting interest of more than 50%, or in
      which BES exercises a controlling position, are consolidated under the purchase
      method.
|                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                           
|b)                                                                                                                                                                                                                                                                                   | Investments
      in associated and affiliated companies                                                                                                                                  
|                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                           
|Equity
      holdings of less than 50% and greater than or equal to 20%, in companies
      where the Group does not exercise control, but in which the Group has a
      significant influence are treated as associated companies and are consolidated
      by the equity method.
|                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                           
|c)                                                                                                                                                                                                                                                                                   | Other
      investments                                                                                                                                                                   
|                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                           
|Investments
      in unconsolidated companies are accounted for at cost (less any provisions
      required for permanent impairment according to the Bank of Portugal rules)
      if the following conditions exist:                                                              
|                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                           
|                                                                                                                                                                                                                                                                                     | •                                                                                                                                                                                         
|                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                           
|                                                                                                                                                                                                                                                                                     | •                                                                                                                                                                                         
|                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                           
|Income
      is recognized on these investments as and when received.                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                           
|Regulation
      no. 4/2002, effective from 30 June 2002, establishes the following rules
      for the provision of equity holdings:                                                                                                                                               
|                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                           
|                                                                                                                                                                                                                                                                                     | •                                                                                                                                                                                         
|                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                           
|                                                                                                                                                                                                                                                                                     | •                                                                                                                                                                                         
|                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                           
|                                                                                                                                                                                                                                                                                     | •                                                                                                                                                                                         
|                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                           
|                                                                                                                                                                                                                                                                                     | •                                                                                                                                                                                         

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Increases
  in unrealised losses that occur after 30 June 2002, during the transition period,
  related to the equity holdings existing as at 31 December 2001, will be charged
  during this period.  Decreases
    in the unrealised losses after 30 June 2002, that occur during the transition
    period, with reference to the equity holdings as at 31 December 2001, cannot
    result in a reduction in the levels of provisions set up in the transition
    period, except if the value of the provision set up exceeds what would be
    necessary if the transition rules were not applied. Unrealised
    losses provided for in 2002 for equity holdings held as at 31 December 2001
    were, in accordance with Regulation no. 4/2002, recognised against Reserves. The impact
    of the implementation of Regulation no. 4/2002 by BES, is disclosed in Note
    7.


|d) | Goodwill
|-- | --------

Goodwill represents
  the difference between the acquisition cost of the investments and the corresponding
  share of the underlying net assets acquired and is directly written-off against
  Reserves and Retained earnings. Positive and
  negative differences, calculated at the acquisition date or at the date of the
  first consolidation, between the cost of the investment and the corresponding
  share of the fair value of the net assets acquired are offset against reserves
  and retained earnings (Goodwill and Capital Reserve). As a result,
    during 2002, there was a decrease in BES Groups retained earnings amounting
    to euro 27,810 thousand (2001  euro 11,180 thousand; 2000  euro
    129,924 thousand; 1999  euro 46,344 thousand; 1998  euro 93,739
    thousand). As at 31 December 2002 the accumulated amount of Goodwill written-off
    against reserves and retained earnings, net of the amount of Capital Reserve,
    amounted to euro 253,377 thousand, of which, euro 34,261 thousand are related
    to the acquisitions or first consolidations in 2002 (see Note 16). In June 1998,
  BES Group decided to change, with reference to January 1, 1998, its method of
  accounting for goodwill from capitalization (amortization under the straight-line
  method over a period of 25 years) to direct write-off of goodwill arising
  on acquisition.
  In connection with this change in accounting, which had the prior agreement
  of the Bank of Portugal and was also adopted in November 1997 by Espírito
  Santo Financial Group (ESFG), the parent company of the Bank, BES Group wrote
  off against retained earnings all unamortized goodwill remaining on its books
  as at that date.


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|e) | Foreign
      currency translation
|-- | ----------------------------------

The financial
  statements of subsidiary and associated companies that are expressed in foreign
  currencies were translated into Euros at the spot exchange rates as at 31 December
  2002, 2001 and 2000. As at 31 December 2002 exchange rate differences arising
  from the application of year-end exchange rates for the conversion to Euros
  of the opening balance net assets of foreign subsidiaries and associated companies
  are accounted for in reserves.

Until 31 December
  2001 these exchange rate differences were accounted for under Other assets.

|2.3                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | Key
      accounting principles of the Bank and BES Group
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ---------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |                                                          
|a)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | Income
      and expense recognition                     
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |                                                          
|The
      Bank and its subsidiaries follow the accrual principle in preparing their
      financial statements, specifically with reference to interest income and
      interest expense, which are recognized when earned or incurred, irrespective
      of the time of collection or payment. However, where loans are more than
      30 days overdue (or 90 days when collateralised), or, although not overdue,
      there is reasonable doubt of collectibility, the Bank and its subsidiaries
      cease to accrue interest, which is only recognized when and if received.
      Commission income from financial guarantees, letters of credit and services
      are taken to income as the service is provided.
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |                                                          

|b) | Trading,
      investment securities and treasury stock
|-- | -------------------------------------------------------
|   |                                                        
|•  | Trading account securities                             

Trading securities
  are those securities which are acquired with the intent of being resold within
  a period not exceeding six months. Debt securities
  held for trading, which comprise mainly national and foreign government bonds
  and other fixed-income securities are marked to market, plus accrued and uncollected
  interest. Unquoted bonds are valued at the lower of cost or estimated
  value on realization, plus accrued interest, calculated at the nominal interest
  rate. Differences in valuation and interest are accounted for as income or expenses
  of the period.


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Equity securities
    held for trading (shares and other variable-income securities) are marked
    to market, or if unquoted are valued, at the lower of cost or presumed market
    value. Gains or losses in shares that feature in the indices of the Euronext
    Lisbon or in shares traded on other stock exchanges with adequate liquidity
    are recognised directly in the statement of income. Gains or losses in other
    securities are deferred in the balance sheet, with full provisions against
    potential losses charged to earnings.


|• | Investment
      securities
|- | ---------------------------

Investment
  securities include(a)those available-for-sale within a period of not less than six months and(b)those which the Bank and its subsidiaries have the positive intent and ability
  to hold until maturity. Bonds and
  other fixed-income securities are shown at amortized cost. The difference between
  cost and par, representing the premium or discount at time of purchase, is amortized
  over the remaining life, and recorded in the statement of income. Accrued interest
  is recognized as income and shown under Prepayments and accrued income. Unrealised
  losses resulting from the difference between cost and market value, or if unquoted,
  between cost and presumed realizable value, is fully provided and charged to
  earnings. The value of securities with automatic capitalization of interest
  includes their respective accruals of interest. Shares and
  other variable-income securities are recorded at cost. Unrealised losses resulting
  from the differences between cost and market value, or if unquoted, between
  cost and the estimated realizable value, is fully provided against earnings. Investment
  securities held-to-maturity are stated at lower of cost and market. Shares transferred
  from investment securities available-for-sale to long term investments (see
  Note 7) are recorded at book value.


|• | Treasury stock
|- | --------------

Treasury
    stock is accounted for in Other assets, at market value. Capital gains or
    losses are recorded directly to the statement of income.


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|c)                                                                                                                                                                                      | Loans
      and advances to customers and allowance for loan losses and sovereign risk
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------
|                                                                                                                                                                                        |                                                                                       
|Loans
      and advances to customers are reported at their outstanding principal amount.                                                                                              
|                                                                                                                                                                                        |                                                                                       
|Allowances for loan losses for the Bank and its subsidiaries are set up
      on a monthly basis and in accordance with the Bank of Portugal regulatory
      requirements and include:
|                                                                                                                                                                                        |                                                                                       

| | (i) | A
      specific allowance based on an aged analysis of overdue loans and interest.
      Loans are defined as being overdue after a period of 30 days. The rate of
      allowance ranges from 1% to 100%, depending on the age of the debt in relation
      to its repayment date and varies according to whether or not the credit
      is collateralised as described in the following table:
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                    

|                                          |  |       |  | Allowance
      (% of the |  
|----------------------------------------- |  | ----- |  | ------------------------- | -
|                                          |  |       |  | amount
      outstanding) |  
|                                          |  |       |  |                           |  
|Period
      since payment due            |  | Class |  | Unsecured                 |  
|                                          |  |       |  |                           |  
|Up
      to 3 months overdue (1)          |  | I     |  | 1                         | %
|Over
      3 months but within 6 months   |  | II    |  | 25                        | %
|Over
      6 months but within 12 months  |  | III   |  | 50                        | %
|Over
      12 months but within 36 months |  | IV    |  | 100                       | %
|Over
      36 months                      |  | V     |  | 100                       | %

---

|(1) | For consumer
      loans to individuals and securitized loans, the rate of allowance is 1.5%
      for unsecured and secured loans
|--- | ----------------------------------------------------------------------------------------------------------------------------------

| |  | (ii)  | A
      specific allowance for doubtful loans, at a percentage no less than 50%
      of the average coverage provision of overdue loans, applied to the outstanding
      instalments of loans to any single customer, where it is ascertained that
      the overdue instalments of principal and interest exceed 25% of principal
      outstanding plus overdue interest. In accordance with the Bank of Portugal
      rules, overdue loans written off directly are also considered fully provisioned
      for the purposes of this specific allowance for doubtful loans;                                    
| |  | ----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |  | (iii) | A
      category risk allowance to cover latent bad and doubtful debts which are
      present in any loan portfolio, including acceptances, guarantees, and other
      indirect exposures, but which have not been specifically identified as overdue
      or doubtful. In accordance with the Bank of Portugal rules, the allowance
      must amount to not less than 1% of the total performing loans, including
      acceptances, guarantees, and other indirect exposures, except for consumer
      credit to individuals and securitized loans for which the minimum allowance
      required is 1.5%; and
| |  |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |  | (iv)  | A
      sovereign risk allowance for financial assets and off-balance sheet credit
      facilities granted to foreign companies or governments considered to be
      of risk, in accordance with the Bank of Portugal rules, with the following
      exceptions:                                                                                                                                                                                                                                                                                                                                                  
| |  |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

| |  | •                                                                                                                               | items
      in foreign branches that are expressed and are payable in the local currency
      of that country, which are covered by resources expressed in that same currency;
| |  | ------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |                                                                                                                                 |                                                                                                                                                                                
| |  | •                                                                                                                               | equity
      investments;                                                                                                                                                      
| |  |                                                                                                                                 |                                                                                                                                                                                
| |  | •                                                                                                                               | foreign
      branches of banks headquartered in the member states of the European Union;                                                                                      
| |  |                                                                                                                                 |                                                                                                                                                                                
| |  | •                                                                                                                               | items
      guaranteed by certain entities, as specified in current legislation, provided
      that the guarantee includes transfer risk; and                                 
| |  |                                                                                                                                 |                                                                                                                                                                                
| |  | •                                                                                                                               | foreign
      short-term commercial loans which comply with the Bank of Portugal rules
      for exemption.                                                                    
| |  |                                                                                                                                 |                                                                                                                                                                                
| |  | For
      the Banks foreign subsidiaries, sovereign risk allowances are determined
      in accordance with local regulations.

The level
    of allowances determined in accordance with the procedures summarized above
    is considered by the Management of BES Group to be sufficient to cover credit
    risks and country risks identified as of this date based on the economic and
    commercial analysis performed.


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|d) | Property
      and equipment
|-- | ----------------------------

Property and
  equipment are valued at cost, less accumulated depreciation. However, the property
  and equipment of the Bank and of certain subsidiaries have been periodically
  revalued in accordance with applicable legislation, by applying government approved
  inflation indices to the historical cost and related accumulated depreciation.
  During 1991, the Bank also recorded a revaluation increment of euro 93,146 thousand
  based on the market value of premises used in its own activities. This revaluation,
  which was made prior to the privatization of the Bank, was based on the lower
  of the market values, on a property-by-property basis, as determined by two
  third party real estate appraisers working independently of each other. The
  net increment arising from these revaluations were credited to the revaluation
  reserves under shareholders equity. However, by the end of 2000, all the
  revaluation reserves had been incorporated into issued share capital. Depreciation
  is calculated by the straight-line method, on a duodecimal basis on historic
  or revalued cost, at annual rates permitted for tax purposes, according to the
  periods shown below, which are not believed to differ materially from the assets’
  estimated useful lives:


|                                      | Estimated
      usefullife (years) | 
|------------------------------------- | ---------------------------------- | 
|                                      |                                    | 
|Buildings                             | 50                                 | 
|Improvements
      in leased property | 10                                 | 
|Computer
      equipment              | 4
      - 5                        | 
|Furniture
      and fittings          | 4
      - 12                       | 

A
  percentage equal to 40% of the increase in depreciation resulting from revaluations
  recorded by the Bank is not accepted as a tax-deductible expense.


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|e) | Intangible
      assets
|-- | -----------------------

Branch installation
  expenses, electronic data-processing system expenses, capital increases, and
  preferred stock issuance expenses are amortized on a duodecimal basis over three
  years from the financial year in which they are incurred, by the straight-line
  method.


|f) | Foreign
      exchange transactions
|-- | -----------------------------------

Currency
    transactions are recorded in accordance with multi-currency principles, each
    transaction being recorded exclusively as a function of the respective currency.
    This method requires that all foreign currency balances, except for notes
    and coins, are to be translated into euros at the spot reference rate of exchange
    published by the Bank of Portugal. Spot and forward
  foreign currency purchases and sales are immediately recorded in the exchange
  position on date of closing. Whenever changes in the net balances in the various
  currencies arise from these transactions, entries are made in the spot and forward
  exchange accounts in accordance with the following revaluation criteria:


| | ° | Spot
      exchange position
| | - | ----------------------------

The spot exchange
  position in each currency is the net balance of assets and liabilities in that
  currency, excluding the spot exchange position that is covered by forward operations,
  plus spot operations awaiting settlement and forward operations falling due
  within the following two business days. The spot position is revalued daily,
  based on the reference rates of the day as announced by the Bank of Portugal,
  being the exchange differences accounted for as gains or losses in the statement
  of income.


| | ° | Forward
      exchange position
| | - | -------------------------------

The forward
  exchange position in each currency represents the net balance of forward operations
  awaiting settlement, which are not intended to cover the spot position, except
  those that mature within the following two business days. All such exchange
  contracts (currency forwards) are revalued at forward market exchange rates,
  or in the absence of these, on the basis of interest rates applicable to the
  remaining life of each operation. The differences between the Euro equivalents
  at the contracted rates represent the income or expense arising from revaluation
  of the forward position, and are recognised in the statement of income.


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|g) | Derivative
      financial instruments
|-- | --------------------------------------

The Bank classifies
  derivative financial instruments according to whether they are contracted for
  trading purposes or purposes other than trading (hedging). Derivative instruments
  used for hedging risks inherent in trading operations are classified as trading
  operations. The derivative
  instruments used for hedging purposes, identified as such in a contract at the
  outset, are intended for eliminating or substantially reducing exposure to market
  risk, or to modify risk profiles in exposures to interest rate changes inherent
  in certain assets, liabilities, cash flows or off-balance-sheet items. Derivative
  financial instruments are classified as hedging instruments if they comply,
  cumulatively, with the following conditions:


| | • | the
      position to be hedged is clearly identified and exposes the Bank to the
      risk of losses arising from potential changes in interest rates, prices
      and credit risk that certain assets, liabilities, off-balance sheet items
      and cash-flows might be exposed to;                                                                   
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                             
| | • | are specifically
      classified as hedging in the Banks internal documentation;                                                                                                                                                                                                                                                                          
| |   |                                                                                                                                                                                                                                                                                                                                                             
| | • | that changes
      in value in the derivative financial instrument are correlated with changes
      in opposite direction in the position to be hedged, such that the hedging
      instrument is efficient, eliminating or reducing considerably the risk of
      a loss in the hedged position, from the beginning of the contract until
      maturity.

If a derivative
  instrument classified as hedge is sold or abandoned before its maturity, the
  realized gain or loss is immediately recognised in the statement of income.
  If the hedged item is sold or abandoned, or the hedge ceases to be effective,
  the corresponding derivative instrument is immediately reclassified as a trading
  instrument.


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Results obtained
  from hedging contracts are accounted for in accordance with the same principle
  followed to the results with the opposite sign of the hedged items. Derivate financial
  instruments that do not comply with the above-mentioned conditions are accounted
  for, as trading positions. Gains or losses
  in derivative financial instruments are accounted for, as described for each
  type of instrument:


| | o | Currency
      Swaps
| | - | --------------------

Currency swaps
  and operations involving coverage of spot positions by forward operations, designed
  to eliminate or substantially reduce risk inherent in assets and liabilities
  (hedging operations) are not taken into account in the revaluation of spot and
  forward positions. Premiums and discounts on these operations are amortized
  up to their maturity, as an offset to costs or income.


| | o | IRS,
      CIRS, Equity Swaps, Credit Default Swaps and FRA
| | - | -----------------------------------------------------------

Interest
  rate swaps, currency and interest rate swaps, equity swaps, credit default swaps
  and forward rate agreements are recorded under the off-balance-sheet headings
  at their notional value up to maturity, and are classified as either trading
  or hedging instruments. Trading operations,
  including those initially classified as hedging and subsequently transferred
  to the trading portfolio as they ceased to comply with the requirements for
  their classification as such, are marked to market and gains and/or losses resulting
  from these operations are recognized as costs or revenues for the period. Hedging operations
  are valued and recognized as revenues/costs in accordance with the criterion
  applicable to the hedged assets or liabilities.


| | o | Futures
| | - | -------

Trading positions
  in future contracts traded in organized markets are recorded in the off-balance-sheet
  accounts at their notional value and are marked to market. Realized and unrealised
  gains and losses (the gain or loss that arises on closing out the position)
  are recorded in the statement of income for the period.


| | o | Currency
      options, Interest rate options, Equity options, Swaptions and Interest Rate
      Caps and Floors
| | - | ----------------------------------------------------------------------------------------------------------------

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Options
traded in organized markets Currency options,
    interest rate options and equity options are recorded under the off-balance-sheet
    headings at their notional value up to maturity. These contracts are marked
    to market and realized and unrealised gains and losses derived from their
    daily revaluation are recorded in the statement of income for the period. Options
    traded in Over the Counter (OTC) markets Currency options,
    interest rate options, equity options and swaptions, as well as interest rate
    caps and floors are recorded under the off-balance-sheet headings at their
    notional value up to maturity. Premiums on
    options are recorded under Accruals and Deferred income, up to the time of
    the exercise, sale, or abandonment of the option, when they are recorded in
    the statement of income. These contracts are valued under an appropriate prudent
    valuation being recorded in the statement of income the potential gain or
    loss determined based on its market value. Hedging option
  contracts are valued and recognized as income/costs in accordance with the criterion
  applicable to the assets or liabilities covered.


|h) | Retirement
      pensions
|-- | -------------------------

In light of
  the liabilities assumed by the Bank and its subsidiaries within the framework
  as stipulated in the ACTV "Acordo Colectivo de Trabalho Vertical" for the Banking
  Sector, Pension funds (ACTV Pension Funds) designed to cover retirement benefits
  on account of age, including widows and orphans benefits and disability were
  set up for the entire work force. In 1998 the
  Bank and the Groups subsidiaries decided to set up an autonomous open-end
  pension fund - the Fundo de Pensões Aberto GES - to cover complementary
  pension benefits of employees and pensioners. Both funds,
  Fundos de Pensões ACTV and Fundo de Pensões
  Aberto GES are managed by ESAF  Espírito Santo Fundos de
  Pensões, S.A., a subsidiary of the Bank.


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In
accordance with Regulation no. 12/2001 of the Bank of Portugal, effective from
31 December 2001, the projected benefit obligation is determined using the projected
unit credit method, and following the actuarial and financial assumptions in compliance
with those required by the Bank of Portugal, as described in Note 13. In accordance
  with the referred Regulation, the annual pension expense that includes service
  cost, interest cost and the expected return on plan assets is recognized in
  the profit and loss account. The actuarial
  gains and losses determined annually, arising from differences between the actuarial
  and financial assumptions used and real values obtained are recognized as an
  asset or liability and its accumulated value is recognised in the profit and
  loss account using the corridor method. This method
  establishes that the actuarial gains and losses accumulated at the beginning
  of the year that exceed the greater of 10% of the pension liabilities or the
  fair value of plan assets, as at the beginning of the year, are recognised under
  Receivables and prepayments  Deferred costs (pensions) and charged to
  the profit and loss account over a ten year period. The actuarial gains and
  losses accumulated at the beginning of the year that are within the above-mentioned
  limit, are accounted for under Receivables and prepayments - Fluctuations (pensions)
  and are not subject to amortization. In accordance
  with Regulation no. 12/2001, the expenses with pre-retirements incurred in 2002
  are accounted for as an asset and amortized over 10 years. On 23 May 2001 the
  Bank of Portugal, through its Circular Letter no 12/01/DSBDR, allowed the
  costs with pre-retirements liabilities to be recorded against retained earnings.
  In 2001, the Bank requested the authorization of the Bank of Portugal, which
  was granted, to recognize these costs, in the amount of euro 66.8 millions,
  against the share premium balance. The amortization
  of the shortfall calculated as at 31 December 1994, regarding employees with
  estimated retirement date after 31 December 1997, is being charged against the
  profit and loss account, on a systematic basis during their expected service
  years. Annually, extraordinary charges (anticipation charges) are made as a
  result of the reduction of the population covered by this scheme. The Bank and
  its subsidiaries make payments to the fund in order to maintain its solvency
  and to comply with the minimum levels required by the Bank of Portugal, which
  based on Regulation no. 12/2001 are the following:


| | • | the liability
      with pensioners shall be totally funded at the end of each year;    
| | - | ----------------------------------------------------------------------------------------
| |   |                                                                                         
| | • | the liability
      with employees in service shall be funded at a minimum level of 95%.

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|i) | Distribution
      of profits to employees
|-- | ------------------------------------------

In accordance
  with the by-laws of the Bank and certain subsidiaries, a majority vote of shareholders
  present at the Annual General Meetings is required to approve any percentage
  distribution of the profits to be paid to the employees. The Board of Directors
  decides on the most appropriate criteria for allocation of this amount among
  employees. In Portugal,
  the amounts payable to the employees are considered to be a distribution of
  profits on the same basis as dividends payable to the shareholders because they
  are legally a reallocation of entitlements from shareholders to employees. This payment
  is charged to retained earnings in the financial statements but is deductible
  for tax purposes from the profits of the year to which it relates.


|j) | Depositors
      Guarantee Fund
|-- | --------------------------------

In accordance
  with Decree-Law no 298/92, of December 31, the Depositors' Guarantee Fund
  was established by the Portuguese regulatory authorities in 1994 which required
  the participation of the Portuguese banks of BES Group. The initial
  contribution to the Fund was made in December 1994, and was recorded within
  other assets. Because the contribution represents a form of protection for the
  participating institutions against risks to the stability of the Portuguese
  banking industry, the initial contribution was amortized to the income statement
  in equal monthly installments over 60 months commencing on January 1, 1995,
  as required by the regulatory authorities. From January
  1, 1995, the amount of the annual contribution has been determined based on
  0.1% of the prior year's average monthly eligible deposits established by the
  Portuguese regulatory authorities. Annual contributions are recognized as expenses
  for the financial year in which they are paid. The unpaid portion of annual
  contribution that is guaranteed by certificates of deposit will be recognized
  by the Group as an expense, when and if the Depositors Guarantee Fund
  requires its payment.


|k) | Year
      2000 and euro implementation costs
|-- | ---------------------------------------------

The costs specifically
  associated with the implementation of the euro were deferred in the balance
  sheet, within other assets, and amortized on a straight-line basis until the
  end of 2001, in accordance with regulatory requirements from the Bank of Portugal. The costs
  specifically associated with the resolution of the year 2000 issues were recorded
  in the balance sheet, in property and equipment or intangible assets, in accordance
  with their nature. Depreciation or amortization is calculated in accordance
  with the policies defined above for these categories of assets (between 3 and
  4 years).


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|l) | Provisions
      for other assets
|-- | ---------------------------------

On 31 December
    2002, complying with Article 11 of Bank of Portugal Regulation no. 3/95, the
    Group set up provisions in the amount of euro 9,374 thousand (31 December
    2001  euro 6,908 thousand), to cover potential losses determined by
    the difference between the book value of assets arising out of recovered loans,
    included under Other debtors, and the expected selling price of those assets,
    less anticipated selling expenses. These properties are not subject to depreciation.


|m) | Finance
      lease
|-- | -------------------

| |   |                
| | - | ---------------
| | ° | As
      lessee

Finance lease contracts
    are recorded at the inception date, under Tangible assets and Other liabilities,
    at the cost of asset leased, which is equal to the present value of outstanding
    lease installments. The tangible asset is depreciated as described in Note
    2.3 d). Installments
    comprise(i)an interest charge, and(ii)amortization of principal, which is deducted from Other liabilities. Financial
    charges are recognized as costs over the lease period, in order to produce
    a constant periodic rate of interest on the remaining balance of liability
    for each financial year.


| | ° | As
      lessor
| | - | ---------------

Assets leased out are
    recorded in the balance sheet as loans granted, for the amount equal to the
    net investment made in the leased assets. Interest included
  in installments charged to customers is recorded as revenue, while amortization
  of principal, also included in the installments, is deducted from the global
  amount of the capital financed. The recognition of the financial earnings reflects
  a constant periodic rate of return on the lessor's net outstanding investment.


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|n) | Marketable
      securities received for deposit
|-- | ------------------------------------------------

Marketable
  securities received for deposit are recorded in off-balance sheet accounts at
  market price, or where unquoted, at the corresponding nominal value.


|o) | Statements
      of cash flows
|-- | ------------------------------

For the purpose
  of reporting cash flows, Cash and due from banks represents the amounts included
  in the balance sheet captions Cash and due from banks.


|p) | Securitization
      of financial assets
|-- | ----------------------------------------

The Group
  carries out asset securitization transactions with specific financial entities,
  set up by third parties for that purpose, whose funding is financed by debt
  issuance, by those entities in international financial markets. The Groups
  accounting policy relative to these transactions is to record the sale of assets
  and derecognise them from the balance sheet whenever the buyer (financial entity)
  acquires, without recourse, all rights and obligations inherent to these assets
  (see Note 25). The gain or loss generated in these operations if any, measured
  by the difference between the proceeds and the book value of the assets sold
  is recognized as a gain or loss for the period. The Notes
  acquired by the Group following these transactions are recognized as investment
  securities, as defined in Note 2.3 b). With respect
  to Instruction no. 27/2000 of Bank of Portugal, provisions are recorded against
  the Notes or other assets acquired, by an equivalent amount to the provisions
  for general and specific risks that the assets sold would require if they had
  remained in the balance sheet, considering as a limit the book value of the
  notes and of the other assets acquired.


|q) | Income
      taxes
|-- | ------------------

The Bank and
  its subsidiaries headquartered in Portugal are subject to the tax regime considered
  in the Corporate Income Tax Code (IRC). However, the financial branches in the
  Madeira Free Zone (BES and BIC) will enjoy exemption of IRC up to 31 December
  2011, based on article 41 of the Tax Benefit Statute, as stated in Decree-Law
  no. 84/93, 18 March. Subsidiaries
  headquartered abroad are subject to taxation in accordance with local tax regulations. Where there
  are substantial differences between accounting and taxable earnings, the respective
  deferred taxes are recorded.


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NOTE
  3 - INTEREST-EARNING DEPOSITS WITH OTHER BANKS

|                                                  | 2001      |  | 2002      | 
|------------------------------------------------- | --------- |  | --------- | 
|                                                  |           |  |           | 
|Certificates
      of deposits - Bank of Portugal | 259,204   |  | 175,552   | 
|Deposits
      with financial institutions        |           |  |           | 
|°
      Domestic                                  | 473,152   |  | 224,496   | 
|°
      Foreign                                   | 1,320,629 |  | 3,076,587 | 
|Interbank
      money market                      | 183,448   |  | 294,397   | 
|Other                                             | 1,440,141 |  | 1,776,321 | 
|                                                  |           |  |           | 
|                                                  | 3,676,574 |  | 5,547,353 | 
|                                                  |           |  |           | 

As of December
  31, 2002, the average annual interest rate received on certificates of deposits
  with the Bank of Portugal was approximately 3.4% (December 31, 2001: approximately
  4.6%). As of December
    31, 2002, Deposits with financial institutions – domestic had an average
    annual interest rate of 2.86% (December 31, 2001: 4.52%). Deposits with financial
    institutions – foreign are remunerated at international market interest
    rates. The total
  amount of certificates of deposit, 39,962 thousand Euros (2001  25,386
  thousand Euros) are pledged in guarantee of the irrevocable commitment for payment
  of the remaining portion of annual contribution from 1997 to 2002 to the Depositors
  Guarantee Fund.


NOTE
  4 - TRADING ACCOUNT SECURITIES

The following
  table summarizes the book value and the acquisition cost for the trading account
  securities portfolio as at December 31, 2001 and 2002.


|                                   | 2001        |  | 2002    | 
|---------------------------------- | ----------- |  | ------- | 
|                                   |             |  |         | 
|                                   | Acquisition |  | Book    | 
|                                   | cost        |  | value   | 
|                                   |             |  |         | 
|Listed
      securities            |             |  |         | 
|Government
      agency securities | 270,725     |  | 269,934 | 
|Corporate
      debt securities    | 104,471     |  | 105,944 | 
|Equity
      securities            | 103,351     |  | 104,506 | 
|                                   |             |  |         | 
|                                   | 478,547     |  | 480,384 | 
|                                   |             |  |         | 
|Non-listed
      securities        |             |  |         | 
|Government
      agency securities | 5,278       |  | 5,278   | 
|Corporate
      debt securities    | 22,443      |  | 22,443  | 
|Equity
      securities            | 3,676       |  | 3,761   | 
|                                   |             |  |         | 
|                                   | 31,397      |  | 31,482  | 
|                                   |             |  |         | 
|                                   | 509,944     |  | 511,866 | 
|                                   |             |  |         | 

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NOTE
  5 - INVESTMENT SECURITIES

The investment securities portfolio of BES Group is analyzed as follows:




|                                               |    | Amortizedacquisitioncost |  | Unrealizedlosses
      recorded |   | Bookvalue |  | Unrealizedgains/(losses) |  | Fairvalue | 
|---------------------------------------------- | -- | ------------------------ |  | ------------------------------- | - | --------- |  | ------------------------ |  | --------- | 
|                                               |    |                          |  |                                 |  
|                                               |    |                          |  |                                 |  
|                                               |    |                          |  |                                 |   |           |  |                          |  |           | 
|AS
      OF DECEMBER 31, 2001                  |    |                          |  |                                 |   |           |  |                          |  |           | 
|Investment
      securities available-for-sale |    |                          |  |                                 |   |           |  |                          |  |           | 
|Government
      agency securities -           |    |                          |  |                                 |   |           |  |                          |  |           | 
|Portuguese
      issuers                       |    | 445,873                  |  | (6,482                          | ) | 439,391   |  | 581                      |  | 439,972   | 
|Foreign
      issuers                          |    | 402,480                  |  | (5,992                          | ) | 396,488   |  | 2,904                    |  | 399,392   | 
|Corporate
      debt securities                |    | 2,843,920                |  | (60,895                         | ) | 2,783,025 |  | 11,747                   |  | 2,794,772 | 
|                                               |    |                          |  |                                 |   |           |  |                          |  |           | 
|                                               |    | 3,692,273                |  | (73,369                         | ) | 3,618,904 |  | 15,232                   |  | 3,634,136 | 
|Marketable
      equity securities             |    | 468,016                  |  | (64,835                         | ) | 403,181   |  | 3,415                    |  | 406,596   | 
|Subordinated
      debt                        |    | 5,673                    |  | (1,305                          | ) | 4,368     |  | —                        |  | 4,368     | 
|                                               |    |                          |  |                                 |   |           |  |                          |  |           | 
|                                               |    | 4,165,962                |  | (139,509                        | ) | 4,026,453 |  | 18,647                   |  | 4,045,100 | 
|                                               |    |                          |  |                                 |   |           |  |                          |  |           | 
|Investment
      securities held-to-maturity   |    |                          |  |                                 |   |           |  |                          |  |           | 
|Government
      agency securities             | 1) | 847,171                  |  | (3,194                          | ) | 843,977   |  | 3,005                    |  | 846,982   | 
|Corporate
      debt securities                | 2) | 63,083                   |  | (62                             | ) | 63,021    |  | 292                      |  | 63,313    | 
|                                               |    |                          |  |                                 |   |           |  |                          |  |           | 
|                                               |    | 910,254                  |  | (3,256                          | ) | 906,998   |  | 3,297                    |  | 910,295   | 
|                                               |    |                          |  |                                 |   |           |  |                          |  |           | 
|                                               |    | 5,076,216                |  | (142,765                        | ) | 4,933,451 |  | 21,944                   |  | 4,955,395 | 
|                                               |    |                          |  |                                 |   |           |  |                          |  |           | 



|                                               |             | Amortized |                       |          |       |           |                |        |       |           | 
|---------------------------------------------- | ----------- | --------- | --------------------- | -------- | ----- | --------- | -------------- | ------ | ----- | --------- | 
|                                               | acquisition |           | Unrealized            |          | Book  |           | Unrealized     |        | Fair 
|                                               | cost        |           | losses
      recorded |          | value |           | gains/(losses) |        | value
|                                               |             |           |                       |          |       |           |                |        |       |           | 
|AS
      OF DECEMBER 31, 2002                  |             |           |                       |          |       |           |                |        |       |           | 
|Investment
      securities available-for-sale |             |           |                       |          |       |           |                |        |       |           | 
|Government
      agency securities -           |             |           |                       |          |       |           |                |        |       |           | 
|Portuguese
      issuers                       |             | 79,677    |                       | (410     | )     | 79,267    |                | 176    |       | 79,443    | 
|Foreign
      issuers                          |             | 314,650   |                       | (2,945   | )     | 311,705   |                | 1,423  |       | 313,128   | 
|Corporate
      debt securities                |             | 2,727,826 |                       | (74,785  | )     | 2,653,041 |                | 31,576 |       | 2,684,617 | 
|                                               |             |           |                       |          |       |           |                |        |       |           | 
|                                               |             | 3,122,153 |                       | (78,140  | )     | 3,044,013 |                | 33,175 |       | 3,077,188 | 
|Marketable
      equity securities             |             | 620,700   |                       | (109,883 | )     | 510,817   |                | 15,423 |       | 526,240   | 
|Subordinated
      debt                        |             | 10,256    |                       | (3,285   | )     | 6,971     |                | 2,141  |       | 9,112     | 
|                                               |             |           |                       |          |       |           |                |        |       |           | 
|                                               |             | 3,753,109 |                       | (191,308 | )     | 3,561,801 |                | 50,739 |       | 3,612,540 | 
|                                               |             |           |                       |          |       |           |                |        |       |           | 
|Investment
      securities held-to-maturity   |             |           |                       |          |       |           |                |        |       |           | 
|Government
      agency securities             | 1)          | 721,221   |                       | (2,773   | )     | 718,448   |                | 2,898  |       | 721,346   | 
|Corporate
      debt securities                | 2)          | 75,902    |                       | (65      | )     | 75,837    |                | 474    |       | 76,311    | 
|                                               |             |           |                       |          |       |           |                |        |       |           | 
|                                               |             | 797,123   |                       | (2,838   | )     | 794,285   |                | 3,372  |       | 797,657   | 
|                                               |             |           |                       |          |       |           |                |        |       |           | 
|                                               |             | 4,550,232 |                       | (194,146 | )     | 4,356,086 |                | 54,111 |       | 4,410,197 | 
|                                               |             |           |                       |          |       |           |                |        |       |           | 
|                                               |             |           |                       |          |       |           |                |        |       |           | 

|  
|--
|1)
|2)

F-24

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The analysis of investment securities by period to maturity, as at December 31, 2002, is as follows:


|                                                   | Up
      to 1 year |  | 1
      to 5 years |  | 5
      to 10 years |  | Over
      10 years |  | Total     | 
|-------------------------------------------------- | ------------------ |  | ------------------ |  | ------------------- |  | ------------------- |  | --------- | 
|                                                   |                    |  |                    |  |                     |  |                     |  |           | 
|                                                   |                    |  |                    |  |                     |  |                     |  |           | 
|Available-for.sale:                                |                    |  |                    |  |                     |  |                     |  |           | 
|Government
      agency securities - Domestic      | 15,056             |  | 37,139             |  | 1,487               |  | 25,995              |  | 79,677    | 
|Government
      agency securities - International | 65,353             |  | 47,485             |  | 188,940             |  | 12,872              |  | 314,650   | 
|Corporate
      debt securities                    | 280,912            |  | 547,525            |  | 1,236,614           |  | 662,775             |  | 2,727,826 | 
|Marketable
      equity securities                 | —                  |  | —                  |  | —                   |  | 620,700             |  | 620,700   | 
|Subordinated
      debt                            | —                  |  | —                  |  | —                   |  | 10,256              |  | 10,256    | 
|                                                   |                    |  |                    |  |                     |  |                     |  |           | 
|                                                   | 361,321            |  | 632,149            |  | 1,427,041           |  | 1,332,598           |  | 3,753,109 | 
|                                                   |                    |  |                    |  |                     |  |                     |  |           | 
|Held-to-maturity:                                  |                    |  |                    |  |                     |  |                     |  |           | 
|Government
      agency securities                 | 81,409             |  | 591,224            |  | 48,588              |  | —                   |  | 721,221   | 
|Corporate
      debt securities                    | 61,822             |  | 14,080             |  | —                   |  | —                   |  | 75,902    | 
|                                                   |                    |  |                    |  |                     |  |                     |  |           | 
|                                                   | 143,231            |  | 605,304            |  | 48,588              |  | —                   |  | 797,123   | 
|                                                   |                    |  |                    |  |                     |  |                     |  |           | 
|Total                                              | 504,552            |  | 1,237,453          |  | 1,475,629           |  | 1,332,598           |  | 4,550,232 | 
|                                                   |                    |  |                    |  |                     |  |                     |  |           | 

Net gains from investment securities sold in 2000, 2001 and 2002 are as follows:


|          | 2000    |   | 2001     |   | 2002    |  
|--------- | ------- | - | -------- | - | ------- | -
|          |         |   |          |   |         |  
|          |         |   |          |   |         |  
|Gains     | 184,167 |   | 155,212  |   | 122,637 |  
|Losses    | (50,860 | ) | (149,516 | ) | (96,350 | )
|          |         |   |          |   |         |  
|Net gains | 133,307 |   | 5,696    |   | 26,287  |  
|          |         |   |          |   |         |  

During the years ended
December 31, 2001 and 2002, the allowance for unrealized losses in investment
securities had the following movements:


|                                                               | 2001    |   | 2002    |  
|-------------------------------------------------------------- | ------- | - | ------- | -
|                                                               |         |   |         |  
|                                                               |         |   |         |  
|Opening
      balance                                          | 148,327 |   | 142,765 |  
|Provisions
      charged to income                             | 29,950  |   | 74,236  |  
|Provisions
      recognized against reserves (See note 2.2 c)) | —       |   | 3,804   |  
|Charge-offs                                                    | (37,373 | ) | (50,959 | )
|Transfers                                                      | 1,325   |   | 26,519  |  
|Exchange
      differences                                     | 536     |   | (2,219  | )
|                                                               |         |   |         |  
|Closing
      balance                                          | 142,765 |   | 194,146 |  
|                                                               |         |   |         |  

The amortized cost,
  fair value and average annual yield of securities (other than marketable equity
  securities) as of December 31, 2002, by contractual maturity, are summarized
  below:


|                                             | Securities
      available for sale |  | Securities
      held to maturity | 
|-------------------------------------------- | ----------------------------------- |  | --------------------------------- | 
|                                             |                                     |  |                                   | 
|                                             | Cost                                |  | Fair
      value                  | 
|                                             |                                     |  |                                   | 
|Due within
      in one year                 | 361,321                             |  | 360,749                           | 
|Due after
      one year through five years  | 632,149                             |  | 634,319                           | 
|Due after
      five years through ten years | 1,427,041                           |  | 1,408,310                         | 
|Due after
      ten years                    | 711,898                             |  | 682,922                           | 
|                                             |                                     |  |                                   | 
|                                             | 3,132,409                           |  | 3,086,300                         | 
|                                             |                                     |  |                                   | 

As referred in Note
  2.3 p), securities acquired by the Group following securitization transactions
  are accounted for under Investment securities. Provisions are made complying
  with Instruction no. 27/2000, of the Bank of Portugal, and are included in specific
  provisions for investment securities (see Note 25).


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NOTE
  6 - LOANS AND ADVANCES TO CUSTOMERS

|                                              | 2001       |   | 2002       |  
|--------------------------------------------- | ---------- | - | ---------- | -
|                                              |            |   |            |  
|Domestic                                      |            |   |            |  
|Commercial
      lines of credit              | 7,243,524  |   | 8,055,245  |  
|Mortgage
      loans                          | 8,235,028  |   | 8,241,439  |  
|Instalment
      loans to individuals         | 1,736,722  |   | 1,659,571  |  
|Commercial
      bills discounted             | 932,468    |   | 1,053,293  |  
|Overdrafts                                    | 375,574    |   | 530,915    |  
|Finance
      leases                          | 1,058,258  |   | 911,073    |  
|Other
      credit instruments and bills      | 325,173    |   | 420,004    |  
|Factoring                                     | 409,842    |   | 531,769    |  
|Loans
      to financial institutions         | 92,727     |   | 26,553     |  
|Other
      loans                             | 476,554    |   | 632,354    |  
|                                              |            |   |            |  
|                                              | 20,885,870 |   | 22,062,216 |  
|                                              |            |   |            |  
|Foreign                                       |            |   |            |  
|Commercial
      loans                        | 3,364,332  |   | 3,228,477  |  
|Loans
      to foreign financial institutions | 129,488    |   | 101,084    |  
|                                              |            |   |            |  
|                                              | 3,493,820  |   | 3,329,561  |  
|                                              |            |   |            |  
|Overdue
      loans and interest              |            |   |            |  
|Domestic                                      | 411,837    |   | 508,322    |  
|Foreign                                       | 41,005     |   | 40,447     |  
|                                              |            |   |            |  
|                                              | 452,842    |   | 548,769    |  
|                                              |            |   |            |  
|Loans and
      advances to customers, gross  | 24,832,532 |   | 25,940,546 |  
|                                              |            |   |            |  
|Less - Allowance
      for loan losses        | (611,962   | ) | (731,425   | )
|                                              |            |   |            |  
|Loans and
      advances to customers, net    | 24,220,570 |   | 25,209,121 |  
|                                              |            |   |            |  

During 2002, BES Group carried out two securitization transactions, one of consumer credit (150 million Euros) and leasing (300 million Euros) and a second transaction of mortgage loans in the amount of 1,000 million Euros (see Note 25). As of December 31, 2001 and 2002, the Group's total exposure to countries with sovereign debt problems as defined by the Bank of Portugal, including loans, investment securities, other assets and financial instruments with off-balance sheet risk and the related allowances are as follows:


F-26

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|             | **2001**   |                | **2002**     |           
|------------ | ---------- | -------------- | ------------ | ----------
|             |           
|             | **Gross**  |                |              |           
|**exposure** |            | **exposure**   | **exposure** |           
|**Country**  | **amount** | **Allowances** | **amount**   | **amount**
|             |            |                |              |           
|             |            | **1)**         | ****         | **2)**    
|Angola       |            | 101,808        |              | (9,205    
|Brazil       |            | 440,721        |              | (4,353    
|Hong Kong    |            | 31,224         |              | (209      
|Bahamas      |            | 18,867         |              | (84       
|South Korea  |            | 20,427         |              | (483      
|Panama       |            | 33,117         |              | —         
|Morrocco     |            | 59,201         |              | (4        
|Others       |            | 192,331        |              | (2,997    
|             |            |                |              |           
|Total        |            | 897,696        |              | (17,335   
|             |            |                |              |           

---

|1) | The gross exposure
      amount does not include (i) securities issued by entities resident
      in the countries above mentioned and listed in organized markets and (ii)
      BES Group investment in companies with head offices in those countries.
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2) | Calculated in accordance
      with the Bank of Portugal regulations (see Note 2.3 c) (iv)).                                                                                                                                                             

The allowance for loan
  losses comprises:


|                                                 |          |                 |         |   | Sovereign |   |          |  
|------------------------------------------------ | -------- | --------------- | ------- | - | --------- | - | -------- | -
|Specific                                         | Category | and
      other |        
|allowance                                        | risk     | risks           | Total  
|                                                 |          |                 |         |   |           |   |          |  
|Balance
      as of December 31, 1999            | 290,320  |                 | 204,956 |   | 21,204    |   | 516,480  |  
|Provisions
      charged to income               | 70,139   |                 | 57,389  |   | 11,584    |   | 139,112  |  
|Charge-offs                                      | (58,852  | )               | (851    | ) | —         |   | (59,703  | )
|Transfers                                        | 2,804    |                 | (3,207  | ) | (1,612    | ) | (2,015   | )
|Exchange
      differences and other adjustments | 7,148    |                 | 3,134   |   | 1,596     |   | 11,878   |  
|                                                 |          |                 |         |   |           |   |          |  
|Balance
      as of December 31, 2000            | 311,559  |                 | 261,421 |   | 32,772    |   | 605,752  |  
|Provisions
      charged to income               | 108,291  |                 | 31,152  |   | 3,139     |   | 142,582  |  
|Charge-offs                                      | (115,504 | )               | —       |   | (24,977   | ) | (140,481 | )
|Transfers                                        | (97      | )               | (8,047  | ) | (146      | ) | (8,290   | )
|Exchange
      differences and other adjustments | 5,963    |                 | 3,493   |   | 2,943     |   | 12,399   |  
|                                                 |          |                 |         |   |           |   |          |  
|Balance
      as of December 31, 2001            | 310,212  |                 | 288,019 |   | 13,731    |   | 611,962  |  
|Provisions
      charged to income               | 144,219  |                 | 72,528  |   | (487      | ) | 216,260  |  
|Charge-offs                                      | (98,934  | )               | (756    | ) | —         |   | (99,690  | )
|Transfers                                        | (2,627   | )               | (10,980 | ) | 973       |   | (12,634  | )
|Exchange
      differences and other adjustments | 20,302   |                 | (135    | ) | (4,640    | ) | 15,527   |  
|                                                 |          |                 |         |   |           |   |          |  
|Balance
      as of December 31, 2002            | 373,172  |                 | 348,676 |   | 9,577     |   | 731,425  |  
|                                                 |          |                 |         |   |           |   |          |  

During the years 2000,
  2001 and 2002 the recoveries of loans previously written-off were taken directly
  into income and amounted to euro 4,337 thousand, euro 4,913 thousand and euro
  8,412 thousand, respectively. The gross interest
  income that would have been recorded during the year ended December 31, 2002,
  on non-accrual loans (including overdue loans) and troubled debt restructuring
  (being loans whose interest rates are below market rates) in accordance with
  their original terms and conditions, amounted to euro 30,651 thousand (2001:
  euro 30,428 thousand; 2000: euro 25,999 thousand).


F-27

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The maturity profile
  of the loan portfolio, as of December 31, 2002, can be analyzed as follows:


|                                            | Up to     |  | 3 to 6    |  | 6 months  |  | 1 to      |  | After      |  |              |  |            | 
|------------------------------------------- | --------- |  | --------- |  | --------- |  | --------- |  | ---------- |  | ------------ |  | ---------- | 
|                                            | 3 months  |  | months    |  | to 1 year |  | 5 years   |  | 5 years    |  | Undetermined |  | Total      | 
|                                            |           |  |           |  |           |  |           |  |            |  |              |  |            | 
|Domestic:                                   |           |  |           |  |           |  |           |  |            |  |              |  |            | 
|Commercial                                  | 3,894,868 |  | 1,227,644 |  | 1,593,353 |  | 2,050,385 |  | 2,049,383  |  | 262,264      |  | 11,077,897 | 
|Financial                                   | 11,773    |  | 12,121    |  | 106       |  | 2,546     |  | 7          |  | —            |  | 26,553     | 
|Agricultural                                | 91,661    |  | 27,322    |  | 36,698    |  | 36,398    |  | 34,695     |  | 5,103        |  | 231,877    | 
|Real
      estate - construction            | 314,295   |  | 248,442   |  | 215,326   |  | 237,695   |  | 76,488     |  | 8,899        |  | 1,101,145  | 
|Real
      estate - mortgage                | 12,053    |  | 12,336    |  | 30,065    |  | 125,376   |  | 8,061,609  |  | 131,474      |  | 8,372,913  | 
|Installment
      loans to individuals      | 70,354    |  | 37,935    |  | 235,312   |  | 1,116,173 |  | 199,797    |  | 100,582      |  | 1,760,153  | 
|                                            |           |  |           |  |           |  |           |  |            |  |              |  |            | 
|Total domestic                              | 4,395,004 |  | 1,565,800 |  | 2,110,860 |  | 3,568,573 |  | 10,421,979 |  | 508,322      |  | 22,570,538 | 
|                                            |           |  |           |  |           |  |           |  |            |  |              |  |            | 
|International:                              |           |  |           |  |           |  |           |  |            |  |              |  |            | 
|Commercial                                  | 48,217    |  | 15,001    |  | 54,627    |  | 127,275   |  | 30,276     |  | 2,691        |  | 278,087    | 
|Financial                                   | 6,852     |  | 4,583     |  | 8,961     |  | 5,330     |  | 75,358     |  | —            |  | 101,084    | 
|Industrial                                  | 99,811    |  | 46,608    |  | 120,319   |  | 197,595   |  | 105,428    |  | 11,112       |  | 580,873    | 
|Governments
      and official institutions | —         |  | —         |  | 10,480    |  | 3,961     |  | —          |  | —            |  | 14,441     | 
|Other
      loans                           | 546,664   |  | 305,034   |  | 244,436   |  | 529,966   |  | 742,779    |  | 26,644       |  | 2,395,523  | 
|                                            |           |  |           |  |           |  |           |  |            |  |              |  |            | 
|Total international                         | 701,544   |  | 371,226   |  | 438,823   |  | 864,127   |  | 953,841    |  | 40,447       |  | 3,370,008  | 
|                                            |           |  |           |  |           |  |           |  |            |  |              |  |            | 
|Total loans                                 | 5,096,548 |  | 1,937,026 |  | 2,549,683 |  | 4,432,700 |  | 11,375,820 |  | 548,769      |  | 25,940,546 | 
|                                            |           |  |           |  |           |  |           |  |            |  |              |  |            | 

F-28

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NOTE
  7 - INVESTMENTS IN OTHER EQUITY HOLDINGS AND ASSOCIATED COMPANIES

|****                                           | **Participation
      (%)** | **** | **Book
      value** | ****
|---------------------------------------------- | --------------------------- | ---- | -------------------- | ----
|****                                           | **2001**                    | **** | **2002**             | ****
|                                               |                             |      |                      |     
|INTERATLÂNTICO,
      SA (IASA) (**1**)        | 100.00                      |      | 19.00                |     
|Kredit Bank
      BPI(**5**)                   | 19.86                       |      | —                    |     
|BES Vénétie
      (**4**)                      | 21.00                       |      | 40.00                |     
|BMCE Bank                                      | 2.77                        |      | 2.77                 |     
|Bradesco(**1**)                                | 1.43                        |      | 3.29                 |     
|Portugal
      Telecom(**2**)                  | 1.45                        |      | 2.80                 |     
|PT Multimédia
      (PTM)(**2**)
      (**3**) | 8.13                        |      | 8.13                 |     
|Others                                         | —                           |      | —                    |     
|                                               |                             |      |                      |     
|                                               |                             |      |                      |     
|**Less:**Provision
      for unrealised losses |                             |      |                      |     
|                                               |                             |      |                      |     
|Book Value                                     |                             |      |                      |     
|                                               |                             |      |                      |     
|Fair Value                                     |                             |      |                      |     
|                                               |                             |      |                      |     

---

|(1) | Interatlântico
      was acquired in September 1997 and was accounted for under the equity method
      since that date. In September 1999, BES Groups proportionate share
      of the losses of IASA, reduced the investment in the equity of this associated
      company to zero. During 2002, the restructuring process of IASA was concluded.
      As a result, BES concentrated its stake in Banco Bradesco SA (3.29%), and
      disposed of its 81% stake capital in IASA. Currently, BES holds 19% of the
      voting rights in IASA and 12.4% of the economic interest.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | As
      at December 31, 2002, BES held 12,762 thousand shares of PT Multimedia,
      SGPS (PTM) and 33,642 thousand shares of Portugal Telecom, corresponding
      to a cost of holding of 296,052 thousand (Market value  euro 127,576
      thousand) and euro 327,223 thousand (Market value  euro 220,353 thousand),
      respectively. These holdings are part of the strategic agreement signed
      with Portugal Telecom Group on April 5, 2000. The agreement was created
      to seize opportunities in the New Economy.                                          
|(3) | During
      2001 PTM made a tender offer for PT Multimédia.com shares. The exchange
      ratio was 1 share of PTM for 2.7589 shares of PT Multimédia.com.                                                                                                                                                                                                                                                                                                                                                                                                                           
|(4) | BES
      Vénétie: BES increased its share from 21% to 40%, with an
      investment of 10,286 thousand Euros. This acquisition generated a Capital
      reserve of 1,611 thousand Euros.                                                                                                                                                                                                                                                                                                                                                                                            
|(5) | Kredyt
      Bank: Since the beginning of 2002, the sale of this investment was being
      considered, therefore it was transferred to the Securities portfolio at
      the beginning of 2002. The sale was completed at the end of the first quarter
      and it generated a gain of approximately 18 million Euros, which is accounted
      for under Profits arising from trading activity.                                                                                                                                                                                    

F-29

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For the investments presented above, the book value for BES Vénétie (and for IASA in 2001) represents recognition under the equity method. The remaining investments presented are recorded at acquisition cost. The application of
    Regulation no. 4/2002 resulted in the identification of unrealized losses
    which were calculated following the requirements of the Bank of Portugal using
    the average of the daily stock price over the last six months. These unrealized
    losses are as follows


|                             |             |         |        |         |            |                     |                    |                        |       |                       |           | Provisions              |                      
|---------------------------- | ----------- | ------- | ------ | ------- | ---------- | ------------------- | ------------------ | ---------------------- | ----- | --------------------- | --------- | ----------------------- | ---------------------
|                             |             |         |        |         |            |                     |                    |                        |       |                       |           |                         |                      
|                             |             |         |        |         |            |                     |                    |                        |       |                       |           |                         | Remaining            
|                             |             |         |        |         |            |                     | 15%
        of the |                        |       |                       | Minimum   |                         | (Deduction
        in
|                             | Acquisition |         | Market |         | Unrealised |                     | acquisition        |                        |       |                       | Provision |                         | regulatory           
|                             | cost        |         | value  |         | losses     |                     | cost               |                        | Total |                       | (a)       |                         | capital              
|Company                      |             | (1)     |        | (2)     |            | (3)
        = (1-2) |                    | (4)
        = (1x 15%) |       | (5)
        = (3 - 4) |           | (6)
        = (40% x 5) |                      
|                             |             |         |        |         |            |                     |                    |                        |       |                       |           |                         |                      
|BMCE                         |             | 25,123  |        | 14,642  |            | 10,481              |                    | 3,768                  |       | 6,713                 |           | 2,685                   |                      
|Banco Bradesco
      - Pref. |             | 71,588  |        | 51,842  |            | 19,746              |                    | 10,739                 |       | 9,007                 |           | 3,604                   |                      
|Transition
      rule        |             | 50,330  |        | 39,567  |            | 10,763              |                    | 7,550                  |       | 3,213                 |           | 1,286                   |                      
|Normal
      rule            |             | 21,258  |        | 12,275  |            | 8,983               |                    | 3,189                  |       | 5,794                 |           | 2,318                   |                      
|Banco Bradesco
      - Ord   |             | 91,193  |        | 59,217  |            | 31,976              |                    | 13,679                 |       | 18,297                |           | 7,319                   |                      
|Portugal
      Telecom       |             | 327,224 |        | 205,480 |            | 121,931             |                    | 49,084                 |       | 72,963                |           | 29,185                  |                      
|Transition
      rule        |             | 326,452 |        | 204,521 |            | 121,931             |                    | 48,968                 |       | 72,963                |           | 29,185                  |                      
|Normal
      rule            |             | 772     |        | 959     |            |                    |                    | 116                    |       |                      |           |                        |                      
|PT Multimedia                |             | 296,052 |        | 98,533  |            | 197,519             |                    | 44,408                 |       | 153,111               |           | 61,244                  |                      
|                             |             |         |        |         |            |                     |                    |                        |       |                       |           |                         |                      
|                             |             | 811,180 |        | 429,714 |            | 381,653             |                    | 121,678                |       | 260,091               |           | 104,037                 |                      
|                             |             |         |        |         |            |                     |                    |                        |       |                       |           |                         |                      

|    
|----
|(a)

During 2002, the Group
  charged against reserves and net income provisions for investments in the amount
  of euro 26,009 thousand, in accordance with Regulation no. 4/2002, as referred
  in Note 2.2 c). The provisions charged against reserves and net income are analyzed
  as follows:


|                          |         |          | Provisions |                    |     |        |         |      
|------------------------- | ------- | -------- | ---------- | ------------------ | --- | ------ | ------- | -----
|Acquisition               |         |          |            | Book               |     | Market
|Cost                      |         | Reserves |            | Net
        Income |     | Value  |         | Value
|                          |         |          |            |                    |     |        |         |      
|BMCE Bank                 | 25,123  |          | 671        |                    | —   |        | 24,452  |      
|Bradesco                  | 162,781 |          | 2,151      |                    | 580 |        | 160,050 |      
|Portugal
      Telecom    | 327,224 |          | 7,296      |                    | —   |        | 319,928 |      
|PT Multimédia
      (PTM) | 296,052 |          | 15,311     |                    | —   |        | 280,741 |      
|                          |         |          |            |                    |     |        |         |      
|                          | 811,180 |          | 25,429     |                    | 580 |        | 785,171 |      
|                          |         |          |            |                    |     |        |         |      

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NOTE 8 - BANK’S CONSOLIDATED
  SUBSIDIARIES

The main activity and date
  of incorporation / acquisition of each of the Bank’s subsidiaries consolidated
  as at December 31, 2002 are as follows:

|                                                                                |  |                      |  |                                           |               |               |             | Date
      of     | 
|------------------------------------------------------------------------------- |  | -------------------- |  | ----------------------------------------- | ------------- | ------------- | ----------- | ----------------- | 
|                                                                                |  |                      |  |                                           | Date
      of |               | acquisition
|Company                                                                         |  | Location             |  | Activity                                  |               | incorporation |             | by
      the Bank
|                                                                                |  |                      |  |                                           |               |               |             |                   | 
|Banco Internacional
      de Crédito, SA (BIC)                                  |  | Portugal             |  | Banking                                   |               | 1986          |             | 1995              | 
|Banco Espírito
      Santo de Investimento, SA (BESI)                           |  | Portugal             |  | Banking                                   |               | 1993          |             | 1997              | 
|Banco Espírito
      Santo, SA (BESSA)                                          |  | Spain                |  | Banking                                   |               | 1972          |             | 1992              | 
|Spainvest,
      SA (SPAINVEST)                                                 |  | Luxembourg           |  | Holding
      company                     |               | 1993          |             | 1994              | 
|Banco Espírito
      Santo Oriente, SA (BES ORIENTE)                            |  | Macau                |  | Banking                                   |               | 1995          |             | 1995              | 
|Besleasing
      Imobiliária - Sociedade de Locação Financeira, SA              |  |                      |  |                                           |               |               |             |                   | 
|(BESLEASING
      IMOBILIÁRIA)                                                  |  | Portugal             |  | Leasing                                   |               | 1990          |             | 1990              | 
|Besleasing
      Mobiliária - Sociedade de Locação Financeira, SA               |  |                      |  |                                           |               |               |             |                   | 
|(BESLEASING
      MOBILIÁRIA)                                                   |  | Portugal             |  | Leasing                                   |               | 1990          |             | 1990              | 
|CREDIFLASH,
      SA                                                            |  | Portugal             |  | Consumer
      credit                     |               | 1991          |             | 1991              | 
|CREDIBOM,
      SA                                                              |  | Portugal             |  | Consumer
      credit                     |               | 1995          |             | 1995              | 
|ESAF - Espírito
      Santo Activos Financeiros, SGPS, SA (ESAF SGPS)           |  | Portugal             |  | Holding
      of management funds         |               | 1992          |             | 1992              | 
|ESDATA -
      Espírito Santo Data Informática, SA                              |  | Portugal             |  | IT services                               |               | 1990          |             | 1995              | 
|ESGEST
      - Espírito Santo Gestão de Instalações, Aprovisionamentos          |  |                      |  | Management
      of office administration |               |               |             |                   | 
|e
      Comunicações, SA                                                        |  | Portugal             |  | and communications                        |               | 1995          |             | 1995              | 
|CENTIMO
      - Sociedade de Serviços, SA                                       |  | Portugal             |  | Security
      services                   |               | 1988          |             | 1995              | 
|GESFINC
      - Espírito Santo Estudos Financeiros e de Mercado de Capitais, SA |  | Portugal             |  | Underwriting
      and sectorial surveys  |               | 1992          |             | 1995              | 
|Espírito
      Santo Representações, Ltd (ES REPRESENT.)                        |  | Brazil               |  | Representative
      office               |               | 1996          |             | 1996              | 
|Espírito
      Santo e Comercial de Lisboa, Inc. (ESCLINC)                      |  | United
      States  |  | Representative
      office               |               | 1982          |             | 1997              | 
|ESOL                                                                            |  | Cayman
      Islands |  | Issuance
      of preference shares       |               | 1993          |             | 1993              | 
|BESNAC -
      Banco Espírito Santo North American Corporation                  |  | United
      States  |  | Issuance
      of commercial paper        |               | 1990          |             | 1990              | 
|BESOL                                                                           |  | Cayman
      Islands |  | Issuance
      of preference shares       |               | 1996          |             | 1996              | 
|BES FINANCE,
      Ltd                                                          |  | Cayman
      Islands |  | Issuance
      of bonds                   |               | 1997          |             | 1997              | 
|EUROGES
      - Aquisição de Créditos a Curto Prazo, SA                         |  | Portugal             |  | Factoring                                 |               | 1989          |             | 1991              | 
|Espírito
      Santo Cobranças, SA (ES COBRANÇAS)                               |  | Portugal             |  | Recovery
      of overdue loans           |               | 1998          |             | 1998              | 
|ES DEALER-Sociedade
      financeira de corretagem, SA                          |  | Portugal             |  | Brokerage                                 |               | 1989          |             | 1991              | 
|ES CAPITAL
      - Sociedade de capital de risco, SA                            |  | Portugal             |  | Capital
      risk investment company     |               | 1996          |             | 1996              | 
|ES PLC                                                                          |  | Ireland              |  | Non-bank
      finance company            |               | 1999          |             | 1999              | 
|E.S.Financial
      Consultants, SA                                             |  | Portugal             |  | Portofolio
      management               |               | 1994          |             | 2000              | 
|ES Contact
      Center, gestão de Call Centers, SA (ES CONTACT CENTER)         |  | Portugal             |  | Management
      of call centers          |               | 2000          |             | 2000              | 
|BES.COM,
      SA                                                               |  | Portugal             |  | Holding
      company                     |               | 2000          |             | 2000              | 
|Esprito
      Santo Bank, SA (ES Bank)                                          |  | United
      States  |  | Banking                                   |               | 1963          |             | 2000              | 
|Espirito
      Santo Prestação de Serviços, ACE (ES ACE)                        |  | Portugal             |  | Property
      and equipment maintenance  |               | 1998          |             | 1998              | 
|Banco Electrónico
      de Serviço Total, SA (BEST)                             |  | Portugal             |  | Internet
      banking                    |               | 2001          |             | 2001              | 
|BES ANGOLA,
      SA                                                            |  | Angola               |  | Banking                                   |               | 2001          |             | 2001              | 
|Quinta dos
      Conegos-Sociedade Imobiliária, SA                              |  | Portugal             |  | Real Estate                               |               | 1991          |             | 2000              | 
|JAMPUR Trading
      Internacional, Soc. Unipessoal, Lda                        |  | Portugal             |  | Holding
      Company                     |               | 1999          |             | 2001              | 
|Banco Espirito
      Santo dos Açores, SA (BAC)                                 |  | Portugal             |  | Banking                                   |               | 2002          |             | 2002              | 
|BES Internacional
      SGPS. SA (BES INT SGPS)                                 |  | Portugal             |  | Holding
      Company                     |               | 2002          |             | 2002              | 

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The major
    acquisitions made by BES Group and new subsidiaries established during 2000,
    2001 and 2002 were as follows:


|Company                             |  | Year of acquisition   |     | Consideration |  | Total Cost |    
|----------------------------------- |  | --------------------- | --- | ------------- |  | ---------- | ---
|                                    |  |                       |     |               |  |            |    
|BESI                                |  | 2000                  |     | stock         |  | 111,783    |    
|ES Bank                             |  | 2000                  |     | stock         |  | 71,027     | (1)
|Benito y Monjardim
      / ESAF, SA |  | 2000                  |     | stock         |  | 95,242     |    
|BES Angola                          |  | 2001                  |     | stock         |  | 11,342     |    
|BES.Com/BEST                        |  | 2000
        and 2001 | (2) | stock         |  | 50,000     |    
|BES Açores                          |  | 2002                  |     | stock         |  | 10,066     |    
|BES INT SGPS/BESIL                  |  | 2002                  |     | stock         |  | 75,040     |    
|                                    |  |                       |     |               |  |            |    

|   
|---
|(1)
|(2)

Had the
      companies been acquired at the beginning of each respective year, proforma
      results would not have been materially different from actual results.


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The composition
      of the Group, being those companies in which the Bank has a direct or indirect
      participation greater or equal to 20% which were included in the consolidation
      is as follows:





a)      The
    structure of the main companies owned by BESI (1), BESSA (2), ESAF SGPS (3),
    BES.COM (4) and ESDATA SGPS (5) are shown on the following page.

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|(1) | BESI subsidiaries
        are as follows:
|--- | -----------------------------------------
|    |                                          

|                                        |  | Date
        of |  |                           |  |                       |  |                              | 
|--------------------------------------- |  | --------------- |  | ------------------------- |  | --------------------- |  | ---------------------------- | 
|                                        |  | incorporation   |  | Effective                 |  |                       |  |                              | 
|Company                                 |  | /acquisition    |  | participation
        (%) |  | Location              |  | Activity                     | 
|                                        |  |                 |  |                           |  |                       |  |                              | 
|                                        |  |                 |  |                           |  |                       |  |                              | 
|Espírito Santo
        Securities, Inc  |  | 1998            |  | 100.0                     |  | United
        States |  | Financial                    | 
|ESSI SGPS, SA                           |  | 1997            |  | 100.0                     |  | Portugal              |  | Holding
        company      | 
|ESSI Comunicações
        SGPS, SA      |  | 1998            |  | 100.0                     |  | Portugal              |  | Holding
        company      | 
|Espírito Santo
        Investments, Plc |  | 1996            |  | 100.0                     |  | Ireland               |  | Financial                    | 
|ESSI Investimentos
        SGPS, SA     |  | 1998            |  | 100.0                     |  | Portugal              |  | Holding
        company      | 
|Benito y Monjardin,
        SVB, SA     |  | 2000            |  | 50.0                      |  | Spain                 |  | Portfolio
        management | 
|ESI Investimentos                       |  | 1996            |  | 100.0                     |  | Brazil                |  | Holding
        company      | 
|o
        BES Investimento (a)          |  | 2000            |  | 80.0                      |  | Brazil                |  | Investment
        banking   | 

|   |                                                                                           
|-- | ------------------------------------------------------------------------------------------
|  
|a) | This entity owns
        an effective participation of 100% of BES Securities (Brokerage).

|    |                                                                    
|--- | -------------------------------------------------------------------
|(2) | BESSA subsidiaries
        and associated companies are as follows:
|    |                                                                    

|                                               |    |               | Date
        of |           |                           |  |          |  |                                            | 
|---------------------------------------------- | -- | ------------- | --------------- | --------- | ------------------------- |  | -------- |  | ------------------------------------------ | 
|                                               |    | incorporation |                 | Effective |                           |  |          | 
|Company                                        |    |               | /acquisition    |           | participation
        (%) |  | Location |  | Activity                                  
|                                               |    |               |                 |           |                           |  |          |  |                                            | 
|                                               |    |               |                 |           |                           |  |          |  |                                            | 
|Espírito Santo
        Servicios, SA           |    |               | 1997            |           | 99.98                     |  | Spain    |  | Financial                                  | 
|Benito y Mojardin
        SVB, SA              | a) |               | 2000            |           | 50.00                     |  | Spain    |  | Portfolio
        management               | 
|Espirito Santo Activos
        Financieros, SA | b) |               | 2000            |           | 50.00                     |  | Spain    |  | Assistant
        and consultancy services | 
|Espirito Santo Pensiones,
        SGFP         |    |               | 2001            |           | 100.00                    |  | Spain    |  | Management
        of pension funds        | 

|   |                                                                                                                                       
|-- | --------------------------------------------------------------------------------------------------------------------------------------
|  
|a) | This entity owns
        an effective participation of 100% of Benito y Monjardim, SBV, SA (Brokerage).                               
|b) | This entity owns
        an effective participation of 100% of GES BM, SA and Gescapital, SA (Portfolio
        management companies).

|    |                                                                        
|--- | -----------------------------------------------------------------------
|(3) | ESAF SGPS subsidiaries
        and associated companies are as follows:
|    |                                                                        

|                                                                             |  | Date
        of |  |                           |  |                                | 
|---------------------------------------------------------------------------- |  | --------------- |  | ------------------------- |  | ------------------------------ | 
|                                                                             |  | incorporation   |  | Effective                 |  |                                | 
|Company                                                                      |  | /acquisition    |  | participation
        (%) |  | Location                       | 
|                                                                             |  |                 |  |                           |  |                                | 
|Management
        of investment funds                                       |  |                 |  |                           |  |                                | 
|Espírito
        Santo Fundos de Investimento Mobiliário, SA (ESAF FIM)      |  | 1987            |  | 100.0                     |  | Portugal                       | 
|Espírito
        Santo International Management, SA (ESAF IM)                |  | 1995            |  | 99.8                      |  | Luxembourg                     | 
|Management
        of real estate funds                                      |  |                 |  |                           |  |                                | 
|Espírito
        Santo Fundos de Investimento Imobiliário, SA (ESAF FII)     |  | 1992            |  | 100.0                     |  | Portugal                       | 
|Management
        of pension funds                                          |  |                 |  |                           |  |                                | 
|Espírito
        Santo Fundo de Pensões, SA (ESAF FP)                        |  | 1989            |  | 100.0                     |  | Portugal                       | 
|Espírito
        Santo Pensiones, SGFP                                       |  | 2001            |  | 50.0                      |  | Spain                          | 
|Assistant
        and consultancy services                                   |  |                 |  |                           |  |                                | 
|Capital
        Mais - Assessoria Financeira, SA (CMAF)                      |  | 1998            |  | 100.0                     |  | Portugal                       | 
|Espírito
        Santo International Asset Management, Ltd (ESIAM)           |  | 1998            |  | 49.0                      |  | British
        Virgin Islands | 
|Espirito
        Santo Activos Financieros, SA                               |  | 2000            |  | 50.0                      |  | Spain                          | 
|Portfolio
        management                                                 |  |                 |  |                           |  |                                | 
|Espírito
        Santo Gestão de Patrimónios, SA (ESGP)                      |  | 1987            |  | 100.0                     |  | Portugal                       | 
|Holding companies                                                            |  |                 |  |                           |  |                                | 
|ESAF
        - Holding GMBH                                                  |  | 1997            |  | 100.0                     |  | Austria                        | 
|ESAF
        - Espírito Santo Participações Internacionais, SGPS,
        SA |  | 1997            |  | 100.0                     |  | Madeira
        Island         | 
|Fund management
        companies                                            |  |                 |  |                           |  |                                | 
|ESAF
        - Capital Management, Ltd                                       |  | 1997            |  | 100.0                     |  | Ireland                        | 
|Assets management                                                            |  |                 |  |                           |  |                                | 
|ESAF
        - International Distributors, Ltd                               |  | 1997            |  | 100.0                     |  | Isle
        of Man            | 
|ESAF
        - International Distributors Associates, Ltd                    |  | 2001            |  | 100.0                     |  | British
        Virgin Islands | 

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|    |                                                     
|--- | ----------------------------------------------------
|(4) | BES.COM associated
        companies are as follows:
|    |                                                     

|                                                             |  | Date
        of |  |                           |  |                       |  |                                        | 
|------------------------------------------------------------ |  | --------------- |  | ------------------------- |  | --------------------- |  | -------------------------------------- | 
|                                                             |  | incorporation   |  | Effective                 |  |                       |  |                                        | 
|Company                                                      |  | /acquisition    |  | participation
        (%) |  | Location              |  | Activity                               | 
|                                                             |  |                 |  |                           |  |                       |  |                                        | 
|                                                             |  |                 |  |                           |  |                       |  |                                        | 
|oBES.COM
        - Desenvolvimento                           |  |                 |  |                           |  |                       |  |                                        | 
|Empresarial
        e Serv. de Gestão, SA                    |  | 2000            |  | 100.00                    |  | Portugal              |  | Advisory
        services              | 
|oClarity
        Incentive Sistems, INC                      |  | 2000            |  | 31.90                     |  | United
        States |  | Payment
        solutions development  | 
|oSGPICE
        Soc. de Serviços de Gestão                   |  |                 |  |                           |  |                       |  |                                        | 
|de
        portais na internet e Consultoria de empresas, SA |  | 2001            |  | 33.3                      |  | Portugal              |  | Management
        of internet portals | 
|oQuadriga
        - Telemática e Comunicações, SA            |  | 2000            |  | 46.5                      |  | Portugal              |  | Software
        development           | 

|    |                                                                          
|--- | -------------------------------------------------------------------------
|(5) | ESDATA SGPS subsidiaries
        and associated companies are as follows:
|    |                                                                          

|                                     |  | Date
        of |  |                           |  |          |  |                             | 
|------------------------------------ |  | --------------- |  | ------------------------- |  | -------- |  | --------------------------- | 
|                                     |  | incorporation   |  | Effective                 |  |          |  |                             | 
|Company                              |  | /acquisition    |  | participation
        (%) |  | Location |  | Activity                    | 
|                                     |  |                 |  |                           |  |          |  |                             | 
|                                     |  |                 |  |                           |  |          |  |                             | 
|Espírito
        Santo Inovation, SA |  | 2002            |  | 100.00                    |  | Portugal |  | Informatic
        services | 
|OBLOG Software,
        SA           |  | 1993/2002       |  | 66.30                     |  | Portugal |  | Informatic
        services | 
|ES Interaction,
        SA           |  | 2000            |  | 30.00                     |  | Portugal |  | Informatic
        services | 

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Key financial information,
      extracted from the statutory financial statements of the Bank and its subsidiaries
      after reconciliation and adjustments for the purposes of the preparation
      of the consolidated financial statements of BES Group, is as follows:


|                                                                                               |    |  |                      |   |                           |   |                              |   |            |   | Net
        Income/(loss) |  
|---------------------------------------------------------------------------------------------- | -- |  | -------------------- | - | ------------------------- | - | ---------------------------- | - | ---------- | - | ------------------------- | -
|                                                                                               |    |  | Total
        assets |   | Total
        liabilities |   | Shareholders'
        equity |   | Revenues   |   | for
        the year      |  
|                                                                                               |    |  |                      |   |                           |   |                              |   |            |   |                           |  
|                                                                                               |    |  | 2001                 |   | 2002                      |   | 2001                         |   | 2002       |   | 2001                      |  
|                                                                                               |    |  |                      |   |                           |   |                              |   |            |   |                           |  
|                                                                                               |    |  |                      |   |                           |   |                              |   |            |   |                           |  
|BIC                                                                                            |    |  | 8,157,564            |   | 7,974,302                 |   | 7,900,276                    |   | 7,702,053  |   | 257,288                   |  
|BESI                                                                                           | 1) |  | 850,503              |   | 869,950                   |   | 688,063                      |   | 713,428    |   | 162,440                   |  
|BESSA                                                                                          | 1) |  | 2,355,586            |   | 2,981,194                 |   | 2,262,084                    |   | 2,951,415  |   | 93,502                    |  
|SPAINVEST                                                                                      |    |  | 18,941               |   | 18,209                    |   | —                            |   | —          |   | 18,941                    |  
|BES ORIENTE                                                                                    |    |  | 171,645              |   | 118,845                   |   | 141,595                      |   | 92,236     |   | 30,050                    |  
|BESLEASING IMOB.                                                                               |    |  | 462,459              |   | 566,637                   |   | 445,337                      |   | 547,098    |   | 17,122                    |  
|BESLEASING MOB.                                                                                |    |  | 627,166              |   | 387,810                   |   | 601,057                      |   | 361,106    |   | 26,109                    |  
|CREDIFLASH                                                                                     |    |  | 122,177              |   | 124,639                   |   | 107,910                      |   | 108,901    |   | 14,267                    |  
|CREDIBOM                                                                                       |    |  | 417,897              |   | 471,848                   |   | 391,318                      |   | 442,226    |   | 26,579                    |  
|ESAF SGPS                                                                                      | 1) |  | 60,067               |   | 60,265                    |   | 28,188                       |   | 31,485     |   | 31,879                    |  
|ESDI                                                                                           |    |  | 11,623               |   | 10,576                    |   | 2,862                        |   | 1,681      |   | 8,761                     |  
|ESGEST                                                                                         |    |  | 274                  |   | 245                       |   | 89                           |   | 50         |   | 185                       |  
|CÊNTIMO                                                                                        |    |  | 388                  |   | 423                       |   | 106                          |   | 123        |   | 282                       |  
|BEST                                                                                           |    |  | 149,442              |   | 186,908                   |   | 120,394                      |   | 157,961    |   | 29,048                    |  
|GESFINC                                                                                        |    |  | 227                  |   | 166                       |   | 18                           |   | 9          |   | 209                       |  
|ES REPRESENT.                                                                                  |    |  | 105                  |   | 140                       |   | 96                           |   | 134        |   | 9                         |  
|ESCLINC                                                                                        |    |  | 1,253                |   | 995                       |   | 2                            |   | —          |   | 1,251                     |  
|ESOL                                                                                           |    |  | 285,884              |   | 251,126                   |   | 1,802                        |   | 12,151     |   | 284,082                   |  
|BESNAC                                                                                         |    |  | 1,237                |   | 1,043                     |   | 1,144                        |   | 962        |   | 93                        |  
|BESOL                                                                                          |    |  | 285,729              |   | 239,986                   |   | 1,463                        |   | 1,046      |   | 284,266                   |  
|ES ACE                                                                                         |    |  | 2,296                |   | 4,544                     |   | 2,296                        |   | 4,544      |   | —                         |  
|ES COBRANÇAS                                                                                   |    |  | 9,297                |   | 11,515                    |   | 7,834                        |   | 10,714     |   | 1,463                     |  
|BES FINANCE                                                                                    |    |  | 5,162,375            |   | 5,397,722                 |   | 5,161,864                    |   | 5,397,099  |   | 511                       |  
|EUROGES                                                                                        |    |  | 418,370              |   | 468,865                   |   | 399,732                      |   | 446,950    |   | 18,638                    |  
|ES DEALER                                                                                      |    |  | 33,755               |   | 119,663                   |   | 27,286                       |   | 113,319    |   | 6,469                     |  
|ES CAPITAL                                                                                     |    |  | 37,255               |   | 38,849                    |   | 6,122                        |   | 6,539      |   | 31,133                    |  
|ES PLC                                                                                         |    |  | 535,721              |   | 214,470                   |   | 519,942                      |   | 209,248    |   | 15,779                    |  
|BES.COM                                                                                        | 1) |  | 59,161               |   | 59,842                    |   | 18,777                       |   | 25,944     |   | 40,384                    |  
|ESPIRITO SANTO BANK                                                                            | 1) |  | 465,992              |   | 497,068                   |   | 425,603                      |   | 463,729    |   | 40,389                    |  
|ES CONTACT CENTER                                                                              |    |  | 5,998                |   | 5,079                     |   | 2,457                        |   | 2,442      |   | 3,541                     |  
|ES INTERACTION                                                                                 |    |  | 1,089                |   | 1,367                     |   | 535                          |   | 667        |   | 554                       |  
|BES ANGOLA                                                                                     |    |  | 11,347               |   | 67,232                    |   | —                            |   | 58,803     |   | 11,347                    |  
|ES FINANCIAL CONSULTANTS                                                                       |    |  | 1,722                |   | 2,528                     |   | 301                          |   | 481        |   | 1,421                     |  
|BES AÇORES                                                                                     | 2) |  | —                    |   | 205,291                   |   | —                            |   | 179,959    |   | —                         |  
|BES INTERNATIONAL,
        SGPS                                                                | 2) |  | —                    |   | 157,714                   |   | —                            |   | 82,714     |   | —                         |  
|JAMPUR                                                                                         | 2) |  | —                    |   | 101,499                   |   | —                            |   | 116,800    |   | —                         |  
|QUINTA DOS CÓNEGOS                                                                             | 2) |  | —                    |   | 4,362                     |   | —                            |   | 1,672      |   | —                         |  
|                                                                                               |    |  |                      |   |                           |   |                              |   |            |   |                           |  
|Gross contribution
        of subsidiaries                                                     |    |  | 20,724,545           |   | 21,622,917                |   | 19,266,553                   |   | 20,245,689 |   | 1,457,992                 |  
|Associated companies
        contribution                                                      |    |  | —                    |   | —                         |   | —                            |   | —          |   | 4,334                     |  
|BES contribution                                                                               |    |  | 27,589,834           |   | 29,415,826                |   | 26,147,921                   |   | 27,414,542 |   | 1,441,913                 |  
|                                                                                               |    |  |                      |   |                           |   |                              |   |            |   |                           |  
|                                                                                               |    |  |                      |   |                           |   |                              |   |            |   |                           |  
|Add/(Deduct) intergroup transaction
          eliminations and other consolidation adjustments |    |  | (9,791,749           | ) | (9,804,920                | ) | (8,911,064                   | ) | (8,962,124 | ) | (1,500,555                | )
|                                                                                               |    |  |                      |   |                           |   |                              |   |            |   |                           |  
|                                                                                               |    |  | 38,522,630           |   | 41,233,823                |   | 36,503,410                   |   | 38,698,107 |   | 1,403,684                 |  
|                                                                                               |    |  |                      |   |                           |   |                              |   |            |   |                           |  
|Add/(deduct) reclassifications                                                                 | 3) |  | (430,909             | ) | (417,379                  | ) | (430,909                     | ) | (417,379   | ) | —                         |  
|Allocated in income
        statements as to                                                   |    |  |                      |   |                           |   |                              |   |            |   |                           |  
|Minority
        Interest                                                                      |    |  | —                    |   | —                         |   | 615,536                      |   | 534,236    |   | —                         |  
|                                                                                               |    |  |                      |   |                           |   |                              |   |            |   |                           |  
|Total consolidated                                                                             |    |  | 38,091,721           |   | 40,816,444                |   | 36,688,037                   |   | 38,814,964 |   | 1,403,684                 |  
|                                                                                               |    |  |                      |   |                           |   |                              |   |            |   |                           |  
|                                                                                               |    |  |                      |   |                           |   |                              |   |            |   |                           |  
|                                                                                               |    |  |                      |   |                           |   |                              |   |            |   |                           |  

|1) | Consolidated financial
        information. The consolidation of BES.COM excludes BEST, which was presented
        separately.                                              
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2) | Companies consolidated
        for the first time in 2002.                                                                                                                   
|3) | Reclassifications
        made to comply with the presentation prescribed by Article 9 of Regulation
        S-X of the US Securities and Exchange Commission (see Note 2.1).

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At December
      31, 2001 and 2002, the Banks direct investments were as follows:


|                                             |           | 2001       |            | 2002   |      
|-------------------------------------------- | --------- | ---------- | ---------- | ------ | -----
|                                             |           |            |            |        |      
|                                             |           | Number     |            | Direct |      
|                                             | of shares |            | investment |        | value
|                                             |           |            |            |        |      
|BIC                                          |           | 30,000,000 |            | 100.00 | %    
|BESI                                         |           | 14,000,000 |            | 100.00 | %    
|BESSA                                        |           | 9,687,500  |            | 89.60  | %    
|BAC                                          | 2)        | —          |            | —      |      
|BEST                                         | 3)        | —          |            | —      |      
|SPAINVEST                                    |           | 399,999    |            | 100.00 | %    
|BESLEASING MOB.                              |           | 3,368,448  |            | 77.79  | %    
|BES ORIENTE                                  |           | 199,500    |            | 99.75  | %    
|ES CAPITAL                                   |           | 3,964,060  |            | 79.28  | %    
|BESLEASING IMOB.                             |           | 1,977,256  |            | 76.64  | %    
|ESAF SGPS                                    |           | 1,527,500  |            | 65.00  | %    
|EUROGES                                      |           | 2,400,000  |            | 100.00 | %    
|ESDATA                                       |           | 486,000    |            | 34.71  | %    
|ES DEALER                                    |           | 285,000    |            | 57.00  | %    
|CREDIBOM                                     |           | 1,199,540  |            | 59.98  | %    
|Quinta dos Cónegos                           | 2)        | 377,400    |            | 51.00  | %    
|CREDIFLASH                                   |           | 849,997    |            | 84.94  | %    
|ESCLINC                                      |           | 100        |            | 100.00 | %    
|CÊNTIMO                                      | 1)        | 1          |            | 55.00  | %    
|ES COBRANÇAS                                 |           | 75,000     |            | 46.88  | %    
|GESFINC                                      |           | 28,000     |            | 35.00  | %    
|ESGEST                                       |           | 20,000     |            | 100.00 | %    
|ES REPRESENT.                                |           | 49,995     |            | 99.99  | %    
|BESNAC                                       |           | 1,000      |            | 100.00 | %    
|BES FINANCE                                  |           | 25,000     |            | 100.00 | %    
|E.S. PLC                                     |           | 29,994     |            | 99.98  | %    
|ESOL                                         |           | 1,000      |            | 100.00 | %    
|BESOL                                        |           | 1,000      |            | 100.00 | %    
|E.S. BANK                                    |           | 6,377,050  |            | 98.45  | %    
|E.S.F. CONSULTANTS                           |           | 450,100    |            | 90.02  | %    
|BES.COM                                      |           | 50,000,000 |            | 100.00 | %    
|E.S. CONTACT CENTER                          |           | 945,000    |            | 26.25  | %    
|BES ANGOLA                                   |           | 9,996,000  |            | 99.96  | %    
|JAMPUR                                       | 2)        | 1          |            | 75.00  | %    
|BES INTERNACIONAL, SGPS                      | 2)        | 50,000     |            | 100.00 | %    
|                                             |           |            |            |        |      
|                                             |           |            |            |        |      
|                                             |           |            |            |        |      
|Less Provision for unrealized
        losses |           |            |            |        |      
|                                             |           |            |            |        |      
|                                             |           |            |            |        |      
|                                             |           |            |            |        |      

|  
|--
|1)
|2)
|3)

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NOTE
    9 – OTHER ASSETS AND LIABILITIES

The balance
      Other assets is analyzed as follows:


|                                                      |  | 2001      |   | 2002      |  
|----------------------------------------------------- |  | --------- | - | --------- | -
|                                                      |  |           |   |           |  
|Receivables and prepayments                           |  |           |   |           |  
|Deferred costs related to
        bonds issued        |  | 1,611     |   | 609,338   |  
|Deferred costs (pensions)                             |  | 4,787     |   | 223,861   |  
|Fluctuations (pensions)                               |  | 82,526    |   | 113,518   |  
|Stock exchange transaction
        pending settlement |  | 338,541   |   | 163,208   |  
|Other receivables and prepayments(1)                  |  | 615,426   |   | 581,037   |  
|                                                      |  |           |   |           |  
|                                                      |  | 1,042,891 |   | 1,690,962 |  
|                                                      |  |           |   |           |  
|Intangible assets (see Note 23 g))                    |  | 477,693   |   | 544,125   |  
|Accumulated amortization(2)                           |  | (263,982  | ) | (339,371  | )
|                                                      |  |           |   |           |  
|                                                      |  | 213,711   |   | 204,754   |  
|                                                      |  |           |   |           |  
|Real estate held for disposal (3)                     |  | 47,016    |   | 54,725    |  
|                                                      |  |           |   |           |  
|Other                                                 |  | 76,591    |   | 44,488    |  
|                                                      |  |           |   |           |  
|                                                      |  | 1,380,209 |   | 1,994,929 |  
|                                                      |  |           |   |           |  

|   
|---
|(1)
|   
|(2)
|(3)

The balance
      Other liabilities is analyzed as follows:


|                                       | 2001    |  | 2002    | 
|-------------------------------------- | ------- |  | ------- | 
|                                       |         |  |         | 
|Interest and other costs payable       | 465,604 |  | 318,590 | 
|Amounts payable on trading activity    | 59,689  |  | 185,902 | 
|Deferred income                        | 60,155  |  | 58,671  | 
|Holiday pay and subsidies              | 39,239  |  | 42,982  | 
|Income taxes payable                   | 15,848  |  | 13,811  | 
|Other taxes payable                    | 20,326  |  | 21,415  | 
|Provisions for other risks and charges | 37,800  |  | 45,522  | 
|Other sundry liabilities               | 7,752   |  | 14,594  | 
|                                       |         |  |         | 
|                                       | 706,413 |  | 701,487 | 
|                                       |         |  |         | 

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Provisions
      for other risks and charges are analyzed as follows:


|                          | 2001   |   | 2002   | 
|------------------------- | ------ | - | ------ | 
|                          |        |   |        | 
|Balance on January 1      | —      |   | 37,800 | 
|Charge for the year       | 1,022  |   | 4,840  | 
|Transfers                 | 37,202 |   | 2,492  | 
|Exchange rate differences | —      |   | 390    | 
|Write back for the year   | (424   | ) | —      | 
|                          |        |   |        | 
|Balance on December 31    | 37,800 |   | 45,522 | 
|                          |        |   |        | 

NOTE
    10  DEPOSITS

|                                                | 2001       |  | 2002       | 
|----------------------------------------------- | ---------- |  | ---------- | 
|                                                |            |  |            | 
|DEPOSITS FROM BANKS                             |            |  |            | 
|Non-interest bearing                            |            |  |            | 
|°
        Domestic                              | 38,533     |  | 59,166     | 
|° Foreign                                       | 3,254      |  | 9,651      | 
|                                                |            |  |            | 
|                                                | 41,787     |  | 68,817     | 
|                                                |            |  |            | 
|Interest bearing                                |            |  |            | 
|° Domestic                                      | 356,101    |  | 279,688    | 
|°
        Foreign                               | 3,699,730  |  | 3,879,905  | 
|                                                |            |  |            | 
|                                                | 4,055,831  |  | 4,159,593  | 
|                                                |            |  |            | 
|Total
        deposits from banks               | 4,097,618  |  | 4,228,410  | 
|                                                |            |  |            | 
|DEPOSITS FROM CUSTOMERS                         |            |  |            | 
|Interest bearing deposits                       |            |  |            | 
|Demand deposits                                 |            |  |            | 
|°
        Domestic                              | 6,375,493  |  | 6,702,195  | 
|° Foreign                                       | 504,133    |  | 618,832    | 
|                                                |            |  |            | 
|Total
        demand deposits                   | 6,879,626  |  | 7,321,027  | 
|                                                |            |  |            | 
|Time deposits                                   |            |  |            | 
|°
        Domestic                              | 7,611,252  |  | 7,841,361  | 
|° Foreign                                       | 4,317,060  |  | 4,310,673  | 
|                                                |            |  |            | 
|Total
        time deposits                     | 11,928,312 |  | 12,152,034 | 
|                                                |            |  |            | 
|Total
        deposits from customers           | 18,807,938 |  | 19,473,061 | 
|                                                |            |  |            | 
|Total
        deposits from banks and customers | 22,905,556 |  | 23,701,471 | 
|                                                |            |  |            | 

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The analysis of Deposits
      by the period to maturity, as of December 31, 2002, is as follows:


|                                   | Up
        to    |  | 3
        to 12 |  | After             |  |            | 
|---------------------------------- | ---------------- |  | --------------- |  | ----------------- |  | ---------- | 
|                                   | 3
        months |  | months          |  | 12
        months |  | Total      | 
|                                   |                  |  |                 |  |                   |  |            | 
|Domestic:                          |                  |  |                 |  |                   |  |            | 
|Non-interest
        bearing:      |                  |  |                 |  |                   |  |            | 
|Deposits
        from banks        | 59,166           |  | —               |  | —                 |  | 59,166     | 
|                                   |                  |  |                 |  |                   |  |            | 
|Total
        non-interest bearing | 59,166           |  | —               |  | —                 |  | 59,166     | 
|                                   |                  |  |                 |  |                   |  |            | 
|Interest
        bearing:          |                  |  |                 |  |                   |  |            | 
|Deposits
        from banks        | 222,009          |  | 57,679          |  | —                 |  | 279,688    | 
|Demand
        deposits            | 6,702,195        |  | —               |  | —                 |  | 6,702,195  | 
|Time
        deposits              | 6,131,788        |  | 1,643,037       |  | 66,536            |  | 7,841,361  | 
|                                   |                  |  |                 |  |                   |  |            | 
|Total
        interest bearing     | 13,055,992       |  | 1,700,716       |  | 66,536            |  | 14,823,244 | 
|                                   |                  |  |                 |  |                   |  |            | 
|International:                     |                  |  |                 |  |                   |  |            | 
|Non-interest
        bearing:      |                  |  |                 |  |                   |  |            | 
|Deposits
        from banks        | 9,651            |  | —               |  | —                 |  | 9,651      | 
|                                   |                  |  |                 |  |                   |  |            | 
|Total
        non-interest bearing | 9,651            |  | —               |  | —                 |  | 9,651      | 
|                                   |                  |  |                 |  |                   |  |            | 
|Interest
        bearing:          |                  |  |                 |  |                   |  |            | 
|Deposits
        from banks        | 3,071,000        |  | 808,905         |  | —                 |  | 3,879,905  | 
|Demand
        deposits            | 618,832          |  | —               |  | —                 |  | 618,832    | 
|Time
        deposits              | 3,392,452        |  | 886,401         |  | 31,820            |  | 4,310,673  | 
|                                   |                  |  |                 |  |                   |  |            | 
|Total
        interest bearing     | 7,082,284        |  | 1,695,306       |  | 31,820            |  | 8,809,410  | 
|                                   |                  |  |                 |  |                   |  |            | 
|Total
        deposits             | 20,207,093       |  | 3,396,022       |  | 98,356            |  | 23,701,471 | 
|                                   |                  |  |                 |  |                   |  |            | 

NOTE
    11  SHORT-TERM BORROWINGS

|                                                    | 2001      |  | 2002      | 
|--------------------------------------------------- | --------- |  | --------- | 
|                                                    |           |  |           | 
|Securities sold under
        repurchase agreements | 761,920   |  | 1,536,334 | 
|Financing from interbank
        money market       | 222,290   |  | 104,410   | 
|Overdrafts                                          | 689,160   |  | 359,160   | 
|Short-term loans                                    | 316,267   |  | 339,884   | 
|Others                                              | 641,947   |  | 204,587   | 
|                                                    |           |  |           | 
|                                                    | 2,631,584 |  | 2,544,375 | 
|                                                    |           |  |           | 

F-40

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NOTE
    12  LONG-TERM DEBT

|                               | 2001      |  | 2002       | 
|------------------------------ | --------- |  | ---------- | 
|                               |           |  |            | 
|                               |           |  | (4)        | 
|Long-term borrowings:          |           |  |            | 
|°
        Corporate bonds (1)  | 6,892,028 |  | 7,519,354  | 
|°
        Others (3)           | 1,234,879 |  | 1,843,205  | 
|                               |           |  |            | 
|                               | 8,126,907 |  | 9,362,559  | 
|                               |           |  |            | 
|Subordinated debt
        (2): |           |  |            | 
|°
        Corporate bonds      | 1,443,293 |  | 1,695,799  | 
|                               |           |  |            | 
|                               | 9,570,200 |  | 11,058,358 | 
|                               |           |  |            | 

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(1)The
    components of the Long-term borrowings - Corporate bonds as of December 31,
    2002 are analysed as follows:

|                                                             |  |                                    |  |          |  |           |  | Payment/              |  |                                       |  |           |  |         
|------------------------------------------------------------ |  | ---------------------------------- |  | -------- |  | --------- |  | --------------------- |  | ------------------------------------- |  | --------- |  | --------
|Issue                                                        |  |                                    |  |          |  | interest  |  |                       |  |                                       |  | Stock    
|Issuer
        Description                                   |  | date                               |  | Currency |  | Amount    |  | rate                  |  | Coupon                                |  | Maturity  |  | exchange
|                                                             |  |                                    |  |          |  |           |  |                       |  |                                       |  |           |  |         
|BES                                                          |  |                                    |  |          |  |           |  |                       |  |                                       |  |           |  |         
|Corporate
        Bonds                                      |  |                                    |  |          |  |           |  |                       |  |                                       |  |           |  |         
|Corporate
        Bond BES Savings - 2ndIssue                |  | Mar
        / 99                   |  | EUR      |  | 5,986     |  | 3.165%                |  | at
        the maturity date          |  | 2004      |  | -       
|Corporate
        Bond Euro Stoxx - 2004                     |  | Dec /
        99                   |  | EUR      |  | 10,000    |  | (a)                   |  | at the
        maturity date          |  | 2004      |  | -       
|Corporate
        Bond First Portuguese Opportunity Ltd      |  | Nov /
        99                   |  | EUR      |  | 5,000     |  | (a)                   |  | at the
        maturity date          |  | 2005      |  | -       
|Corporate
        Bond BES Savings - 1stand
        2ndIssue |  | Oct &
        Nov/99               |  | EUR      |  | 15,000    |  | 3.95%                 |  | at the
        maturity date          |  | 2004      |  | -       
|Corporate
        Bond Rendimento Mais - 1stIssue          |  | Jun/00                             |  | EUR      |  | 10,857    |  | 5.80%                 |  | annually                              |  | 2008      |  | -       
|Corporate
        Bond Rendimento Mais - 2ndIssue          |  | Jun/00                             |  | EUR      |  | 4,950     |  | 5.95%                 |  | annually                              |  | 2008      |  | -       
|Corporate
        Bond DSL Companies Basket                  |  | May/00                             |  | EUR      |  | 8,600     |  | a)                    |  | at the
        maturity date          |  | 2003      |  | -       
|Corporate
        Bond Eurostoxx 50                          |  | Jan-Jun/00                         |  | EUR      |  | 9,700     |  | a)                    |  | at the
        maturity date          |  | 2002-2005 |  | -       
|Corporate
        Bond Electricity                           |  | May/00                             |  | EUR      |  | 1,800     |  | a)                    |  | at the
        maturity date          |  | 2003      |  | -       
|Corporate
        Bond Dax 2003                              |  | Apr/00                             |  | EUR      |  | 8,750     |  | a)                    |  | at the
        maturity date          |  | 2003      |  | -       
|Corporate
        Bond BES Savings - 1stand
        2ndIssue |  | Jan/00                             |  | EUR      |  | 7,500     |  | 3.75%                 |  | at the
        maturity date          |  | 2003      |  | -       
|Corporate
        Bond Basket WAP Sept/00                    |  | Sept/00                            |  | EUR      |  | 5,789     |  | a)                    |  | at the
        maturity date          |  | 2003      |  | -       
|Corporate
        Bond Rendimento Mais - 3rdIssue          |  | Jul/00                             |  | EUR      |  | 6,865     |  | 6.47%                 |  | annually                              |  | 2008      |  | -       
|Corporate
        Bond Rendimento Mais - 4thIssue          |  | Aug/00                             |  | EUR      |  | 7,118     |  | 5.79%                 |  | annually                              |  | 2008      |  | -       
|Corporate
        Bond Rendimento Mais - 5thIssue          |  | Sept/00                            |  | EUR      |  | 5,142     |  | 5.70%                 |  | annually                              |  | 2008      |  | -       
|Corporate
        Bond Euro Stoxx 50 - 1stand 2ndIssues      |  | Aug/00                             |  | EUR      |  | 9,742     |  | a)                    |  | at the
        maturity date          |  | 2003      |  | -       
|Corporate
        Bond Euro Stoxx 50                         |  | Aug/00                             |  | EUR      |  | 10,896    |  | a)+
        1%        |  | at the
        maturity date/annually |  | 2005      |  | -       
|Corporate
        Bond Euro Stoxx 50                         |  | Jul/00                             |  | EUR      |  | 3,750     |  | a)                    |  | at the
        maturity date          |  | 2003      |  | -       
|Corporate
        Bond Euro Stoxx 50                         |  | Dec/00                             |  | EUR      |  | 1,102     |  | a)                    |  | at the
        maturity date          |  | 2003      |  | -       
|Corporate
        Bond with interest linked to a             |  |                                    |  |          |  |           |  |                       |  |                                       |  |           |  |         
|world
        indices basket                               |  | Dec/00                             |  | EUR      |  | 5,715     |  | a)+
        1%        |  | at the
        maturity date/annually |  | 2005      |  | -       
|Corporate
        Bond Basket 2003                           |  | Feb/01                             |  | EUR      |  | 15,000    |  | a)                    |  | at the
        maturity date          |  | 2003      |  | -       
|Corporate
        Bond Basket Global Telecom                 |  | Mar/01                             |  | EUR      |  | 10,648    |  | a)                    |  | at the
        maturity date          |  | 2003      |  | -       
|Corporate
        Bond Basket Global Industria Base        |  | Mar/01                             |  | EUR      |  | 2,816     |  | a)                    |  | at the
        maturity date          |  | 2003      |  | -       
|Corporate
        Bond Basket Global Utilities               |  | Mar/01                             |  | EUR      |  | 2,649     |  | a)                    |  | at the
        maturity date          |  | 2003      |  | -       
|Corporate
        Bond Eurostoxx 50                          |  | May 01                             |  | EUR      |  | 4,879     |  | a)                    |  | at the
        maturity date          |  | 2004      |  | -       
|Corporate
        Bond BES Mix Eurostoxx 50                  |  | Jul/01                             |  | EUR      |  | 16,261    |  | a)                    |  | at the
        maturity date          |  | 2004      |  | -       
|Corporate
        Bond Bes Corredor Euribor 2003           |  | Aug/01                             |  | EUR      |  | 6,040     |  | a)                    |  | semi-annually                         |  | 2003      |  | -       
|Corporate
        Bond Bes Super Fundos                    |  | Jul/01                             |  | EUR      |  | 14,195    |  | a)                    |  | at the
        maturity date          |  | 2004      |  | -       
|Corporate
        Bond Bes Mercury Selected Fund           |  | Jul/01                             |  | EUR      |  | 6,000     |  | a)+
        1%        |  | at the
        maturity date/annually |  | 2006      |  | -       
|Corporate
        Bond Bes Euro Renda                      |  | Aug/01                             |  | EUR      |  | 15,000    |  | 5.50%                 |  | annually                              |  | 2009      |  | -       
|Corporate
        Bond Bes Euro Fundos                     |  | Aug/01                             |  | EUR      |  | 13,424    |  | a)                    |  | semi-annually                         |  | 2004      |  | -       
|Corporate
        Bond Bes Euro Fundos                     |  | Sep/01                             |  | EUR      |  | 8,264     |  | a)                    |  | semi-annually                         |  | 2004      |  | -       
|Corporate
        Bond Basket 2004                           |  | Dec/01                             |  | EUR      |  | 7,305     |  | a)                    |  | at the
        maturity date          |  | 2004      |  | -       
|Corporate
        Bond BES Euro 5 + 45%                    |  | Jan/02                             |  | EUR      |  | 2,476     |  | a)                    |  | at the
        maturity date          |  | 2005      |  | -       
|Corporate
        Bond BES Euro BESt 50                   |  | Feb/02                             |  | EUR      |  | 2,000     |  | a)                    |  | at the
        maturity date          |  | 2004      |  | -       
|Corporate
        Bond BES Euro Stoxx 2005                 |  | Mar-02                             |  | EUR      |  | 5,925     |  | a)
        + 3.5%     |  | annually                              |  | 2005      |  | -       
|Corporate
        Bond BES Euro Renda                      |  | Apr/02                             |  | EUR      |  | 22,306    |  | 5.32%                 |  | semi-annually                         |  | 2010      |  | -       
|Corporate
        Bond BES DJ Global Titans                |  | May/02                             |  | EUR      |  | 14,650    |  | a)
        + 0.85%    |  | annually                              |  | 2007      |  | -       
|Corporate
        Bond BES Mix 2002                        |  | Feb to
        May/02              |  | EUR      |  | 73,706    |  | a)                    |  | at the
        maturity date          |  | 2005      |  | -       
|Corporate
        Bond BES Mix Mundial 2002                |  | Jul/02                             |  | EUR      |  | 3,664     |  | a)
        + 2.04%    |  | at the
        maturity date          |  | 2005      |  | -       
|Corporate
        Bond BES Rendimento Private 2007         |  | Jul/02                             |  | EUR      |  | 11,098    |  | a)
        + 3.9%     |  | at the
        maturity date/annually |  | 2007      |  | -       
|Corporate
        Bond BES Mix 2002                        |  | Sept to
        Nov/02             |  | EUR      |  | 13,806    |  | a)                    |  | at the
        maturity date          |  | 2005      |  | -       
|Corporate
        Bond BES Mix Executive 2002              |  | Nov/02                             |  | EUR      |  | 2,026     |  | a)                    |  | at the
        maturity date          |  | 2005      |  | -       
|Corporate
        Bond BES-SFE Euro Stoxx50                  |  | Jun/00                             |  | EUR      |  | 700       |  | a)                    |  | at the
        maturity date          |  | 2005      |  | -       
|Corporate
        Bond Emigrant Savings                      |  | Jan; Feb
        and Jun/00        |  | EUR      |  | 15,250    |  | 3.75%
        - 4.66% |  | at the
        maturity date          |  | 2003      |  | -       
|Corporate
        Bond Euro Stoxx 50                         |  | May; Jul;
        Sept; and Dec/00 |  | EUR      |  | 12,091    |  | a)                    |  | at the
        maturity date          |  | 2003      |  | -       
|Corporate
        Bond SFE Basket WAP (International)        |  | Sept/00                            |  | EUR      |  | 2,886     |  | a)                    |  | at the
        maturity date          |  | 2003      |  | -       
|Corporate
        Bond BES-SFE Basket Global Utilities       |  | Mar/01                             |  | EUR      |  | 201       |  | a)                    |  | at the
        maturity date          |  | 2003      |  | -       
|Corporate
        Bond BES-SFE Basket Global Industries    |  | Mar/01                             |  | EUR      |  | 366       |  | a)                    |  | at the
        maturity date          |  | 2003      |  | -       
|Corporate
        Bond BES-SFE Basket Global Telecom         |  | Mar/01                             |  | EUR      |  | 1,137     |  | a)                    |  | at the
        maturity date          |  | 2003      |  | -       
|Corporate
        Bond BES-SFE Mix Eurostoxx 50            |  | Jul, Aug/01                        |  | EUR      |  | 7,527     |  | a)                    |  | at the
        maturity date          |  | 2004      |  | -       
|Corporate
        Bond BES-SFE Euro Fundos                 |  | Aug/01                             |  | EUR      |  | 9,256     |  | a)                    |  | semi-annually                         |  | 2004      |  | -       
|Corporate
        Bond BES-SFE Euro Fundos                 |  | Sep/01                             |  | EUR      |  | 4,683     |  | a)                    |  | at the
        maturity date          |  | 2004      |  | -       
|Corporate
        Bond BES-SFE Euro Fundos                 |  | Jan; Feb;
        Apr; May/02      |  | EUR      |  | 3,179     |  | a)                    |  | at the
        maturity date          |  | 2005      |  | -       
|Corporate
        Bond BES-Cayman Fixed Interest Rate        |  | Nov/01                             |  | USD      |  | 190,712   |  | 3.51%
        - 5.22% |  | at the
        maturity date          |  | 2004/2011 |  | -       
|Corporate
        Bond BES-Cayman Fixed Interest Rate        |  | Dec/01                             |  | EUR      |  | 25,000    |  | 4.66%                 |  | at the
        maturity date          |  | 2006      |  | -       
|Corporate
        Bond BES-Cayman Zero Coupon                |  | Jul and
        Sept/02            |  | EUR      |  | 800,000   |  | 5.01%                 |  | at the
        maturity date          |  | 2007      |  | -       
|Corporate
        Bond BES-Cayman MIX                        |  | Sep/02                             |  | EUR      |  | 142       |  | a)                    |  | at the
        maturity date          |  | 2005      |  | -       
|                                                             |  |                                    |  |          |  |           |  |                       |  |                                       |  |           |  |         
|                                                             |  |                                    |  |          |  | 1,491,530 |  |                       |  |                                       |  |           |  |         
|                                                             |  |                                    |  |          |  |           |  |                       |  |                                       |  |           |  |         

F-42

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|                               |  |                                                             |          |                                 |              |     |            |           |   | **Payment/**                  |           |                                        |  |                     |  |          
|------------------------------ |  | ----------------------------------------------------------- | -------- | ------------------------------- | ------------ | --- | ---------- | --------- | - | ----------------------------- | --------- | -------------------------------------- |  | ------------------- |  | ---------
|**Issue**                      |  |                                                             |          |                                 | **Interest** |     |            |           |   |                               | **Stock**
|**Issuer**                     |  | **Description**                                             | **Date** |                                 | **Currency** |     | **Amount** | **rate**  |   | **Coupon**                    |           | **Maturity**                           |  | **exchange**       
|                               |  |                                                             |          |                                 |              |     |            |           |   |                               |           |                                        |  |                     |  |          
|BIC                            |  |                                                             |          |                                 |              |     |            |           |   |                               |           |                                        |  |                     |  |          
|                               |  | Corporate
        Bonds                                     |          |                                 |              |     |            |           |   |                               |           |                                        |  |                     |  |          
|                               |  | Corporate
        Bond BIC 98 - 3rd Issue Series (A, B, C)  |          | Jul/98;
        Aug/98; Sept/98 |              | EUR |            | 56,983    |   | 6M
        Euribor +15bp      |           | semi-annually                          |  | 2003                |  | —        
|                               |  | Corporate
        Bond BIC 99 - 3rd Issue Series (A, B)     |          | Sept/99;
        Nov/99         |              | EUR |            | 200,000   |   | 6M
        Euribor +65bp      |           | semi-annually                          |  | 2008                |  | —        
|                               |  | Corporate
        Bond BIC/SFE 00 - 1st Issue               |          | Sept/00                         |              | EUR |            | 75,000    |   | 6M
        Euribor +32bp      |           | semi-annually                          |  | 2005                |  | —        
|                               |  | Corporate
        Bond BIC - Cayman 01 (1st to 23rd Issue)  |          | Feb/01
        to Jun/01        |              | EUR |            | 1,200,000 |   | 5.4%
        - 6.075%         |           | annually                               |  | 2008
        - 2013 |  | —        
|                               |  | Corporate
        Bond BIC - Cayman 01 (24th to 27th Issue) |          | Jul/01                          |              | EUR |            | 300,000   |   | 6.01%
        - 6.16%         |           | annually                               |  | 2014
        - 2015 |  | —        
|                               |  | Corporate
        Bond BIC - Cayman 01 (28th to 30th Issue) |          | Aug/01
        to Nov/01        |              | EUR |            | 150,000   |   | 4.29%
        - 5.42%         |           | annually                               |  | 2004
        - 2011 |  | —        
|                               |  | Corporate
        Bond BIC - Cayman 02 (1st Issue)          |          | Mar/02                          |              | EUR |            | 70,000    |   | 5.915%                        |           | annually                               |  | 2012                |  | —        
|                               |  | Corporate
        Bond BIC - Cayman 02 (2nd Issue)          |          | Mar/02                          |              | EUR |            | 5,000     |   | 4.65%                         |           | quaterly                               |  | 2012                |  | —        
|                               |  | Corporate
        Bond BIC - Cayman 02 (3rd to 5th Issue)   |          | Mar/02
        to Jun/02        |              | EUR |            | 130,000   |   | 5.23%
        - 5.42%         |           | annually                               |  | 2007                |  | —        
|                               |  |                                                             |          |                                 |              |     |            |           |   |                               |           |                                        |  |                     |  |          
|                               |  |                                                             |          |                                 |              |     |            | 2,186,983 |   |                               |           |                                        |  |                     |  |          
|                               |  |                                                             |          |                                 |              |     |            |           |   |                               |           |                                        |  |                     |  |          
|BESLEASING
        IMOBILIÁRIA |  |                                                             |          |                                 |              |     |            |           |   |                               |           |                                        |  |                    
|                               |  | Corporate Bonds                                             |          |                                 |              |     |            |           |   |                               |           |                                        |  |                     |  |          
|                               |  | Corporate
        Bond BLI 99                               |          | Dec
        / 99                |              | EUR |            | 12,000    |   | 3.58%                         |           | semi-annually                          |  | 2009                |  | —        
|                               |  | Corporate
        Bond BLI 00                               |          | Nov
        / 00                |              | EUR |            | 60,000    |   | 3.659%                        |           | semi-annually                          |  | 2010                |  | —        
|                               |  |                                                             |          |                                 |              |     |            |           |   |                               |           |                                        |  |                     |  |          
|                               |  |                                                             |          |                                 |              |     |            | 72,000    |   |                               |           |                                        |  |                     |  |          
|                               |  |                                                             |          |                                 |              |     |            |           |   |                               |           |                                        |  |                     |  |          
|BESLEASING
        MOBILIÁRIA  |  |                                                             |          |                                 |              |     |            |           |   |                               |           |                                        |  |                    
|                               |  | Corporate Bonds                                             |          |                                 |              |     |            |           |   |                               |           |                                        |  |                     |  |          
|                               |  | Corporate
        Bond BLM 00                               |          | Nov
        / 00                |              | EUR |            | 50,000    |   | 6M
        Euribor            |           | semi-annually                          |  | 2005                |  | —        
|                               |  |                                                             |          |                                 |              |     |            |           |   |                               |           |                                        |  |                     |  |          
|                               |  |                                                             |          |                                 |              |     |            | 50,000    |   |                               |           |                                        |  |                     |  |          
|                               |  |                                                             |          |                                 |              |     |            |           |   |                               |           |                                        |  |                     |  |          
|BES FINANCE                    |  |                                                             |          |                                 |              |     |            |           |   |                               |           |                                        |  |                     |  |          
|                               |  | Corporate Bonds                                             |          |                                 |              |     |            |           |   |                               |           |                                        |  |                     |  |          
|                               |  | Euro
        Medium Term Notes Programme (b)                |          | Feb
        / 99                |              | EUR |            | 400,000   |   | 3M
        Euribor +15bp      |           | quarterly                              |  | 2004                |  | Luxemburg
|                               |  | Euro
        Medium Term Notes Programme (b)                |          | Jan
        / 00                |              | USD |            | 286,068   |   | 3M
        USD Libor +15bp    |           | quarterly                              |  | 2005                |  | Luxemburg
|                               |  | Euro
        Medium Term Notes Programme (b)                |          | Sep
        / 00                |              | EUR |            | 500,000   |   | 3M
        Euribor +15bp      |           | quarterly                              |  | 2003                |  | Luxemburg
|                               |  | Euro
        Medium Term Notes Programme (b)                |          | Nov
        / 00                |              | EUR |            | 225,000   |   | 3M
        Euribor +18.75bp   |           | quarterly                              |  | 2005                |  | Luxemburg
|                               |  | Euro
        Medium Term Notes Programme (b)                |          | Nov
        / 00                |              | USD |            | 286,068   |   | 3M
        USD Libor +20bp    |           | quarterly                              |  | 2005                |  | Luxemburg
|                               |  | Euro
        Medium Term Notes Programme (b)                |          | Jan
        / 01                |              | EUR |            | 400,000   |   | 3M
        Euribor +17.5bp    |           | quarterly                              |  | 2006                |  | Luxemburg
|                               |  | Euro
        Medium Term Notes Programme (b)                |          | Jun
        / 01                |              | EUR |            | 600,000   |   | 3M
        Euribor +10bp      |           | quarterly                              |  | 2004                |  | Luxemburg
|                               |  | Euro
        Medium Term Notes Programme (b)                |          | Sep
        / 01                |              | EUR |            | 600,000   |   | 3M
        Euribor +20bp      |           | quarterly                              |  | 2006                |  | Luxemburg
|                               |  | Euro
        Medium Term Notes Programme (b)                |          | Jan
        / 02                |              | EUR |            | 100,000   |   | 3M
        Euribor +17bp      |           | quarterly                              |  | 2004                |  | Luxemburg
|                               |  | Euro
        Medium Term Notes Programme (b)                |          | Jun
        / 02                |              | EUR |            | 600,000   |   | 3M
        Euribor +20bp      |           | quarterly                              |  | 2007                |  | Luxemburg
|                               |  | Euro
        Medium Term Notes Programme (b)                |          | Jul
        / 02                |              | HKD |            | 21,400    |   | 3
        M HKD Hibor +25.5bp |           | quarterly                              |  | 2006                |  | Luxemburg
|                               |  |                                                             |          |                                 |              |     |            |           |   |                               |           |                                        |  |                     |  |          
|                               |  |                                                             |          |                                 |              |     |            | 4,018,536 |   |                               |           |                                        |  |                     |  |          
|                               |  |                                                             |          |                                 |              |     |            |           |   |                               |           |                                        |  |                     |  |          
|BESI                           |  |                                                             |          |                                 |              |     |            |           |   |                               |           |                                        |  |                     |  |          
|                               |  | Corporate Bonds                                             |          |                                 |              |     |            |           |   |                               |           |                                        |  |                     |  |          
|                               |  | Corporate
        Bond “Super Rendimento BEST”              |          | Nov/01                          |              | EUR |            | 3,071     |   | 6.25%                         |           | annually                               |  | 2003/2004           |  | Lisbon   
|                               |  | Euro
        Medium Term Notes Programme (b)                |          | Several                         |              | EUR |            | 167,483   |   | 7.85%                         |           | quarterly
        / semi-an / annually |  | Several             |  | —        
|                               |  |                                                             |          |                                 |              |     |            |           |   |                               |           |                                        |  |                     |  |          
|                               |  |                                                             |          |                                 |              |     |            | 170,554   |   |                               |           |                                        |  |                     |  |          
|                               |  |                                                             |          |                                 |              |     |            |           |   |                               |           |                                        |  |                     |  |          
|Corporate
        Bonds        |  |                                                             |          |                                 |              |     |            | 7,989,603 |   |                               |           |                                        |  |                     |  |          
|                               |  |                                                             |          |                                 |              |     |            |           |   |                               |           |                                        |  |                     |  |          
|Eliminations                   |  |                                                             |          |                                 |              |     |            | (470,249  | ) |                               |           |                                        |  |                     |  |          
|                               |  |                                                             |          |                                 |              |     |            |           |   |                               |           |                                        |  |                     |  |          
|Group                          |  |                                                             |          |                                 |              |     |            | 7,519,354 |   |                               |           |                                        |  |                     |  |          
|                               |  |                                                             |          |                                 |              |     |            |           |   |                               |           |                                        |  |                     |  |          

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | Interest
        rate varies in accordance with the respective index defined in the indicative
        summary terms                                                                                                                                                                                                                                                                                                                                      
|(b) | These
        bonds were issued under a Euro Medium Term Note Programme dated February
        1997, under which the issuer may from time to time issue notes up to the
        maximum aggregate nominal value of US$ 4,000 million. The Notes, which
        include Senior Guaranteed Notes and Dated Subordinated Guaranteed Notes,
        can be denominated in any currency and are unconditionally and irrevocably
        guaranteed by the Bank.
|(c) | Call option
        on the 12th and 16th
        coupon dates with a premium of 0.25% and 0.1% over the nominal value,
        respectively.                                                                                                                                                                                                                                                                                                              

F-43

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(2)   The components of the
    Subordinated debt as of December 31, 2002 are analysed as follows:

|                                                                                                                          |  |                           |  | ****      |  |              |   |            |  |                  |   |                  | **Interest
        rate** |                        |  | **Call
        Option** | ****     
|------------------------------------------------------------------------------------------------------------------------- |  | ------------------------- |  | --------- |  | ------------ | - | ---------- |  | ---------------- | - | ---------------- | ------------------------- | ---------------------- |  | ----------------------- | ---------
|                                                                                                                          |  |                           |  | **Issue** |  |              |   |            |  |                  |   |                  |                           |                        |  |                         | **Stock**
|                                                                                                                          |  | **Issuer**                |  | **Date**  |  | **Currency** |   | **Amount** |  | **Eliminations** |   | **Consolidated** |                           | **Index
        rate** |  | **Spread**              |          
|                                                                                                                          |  |                           |  |           |  |              |   |            |  |                  |   |                  |                           |                        |  |                         |          
|                                                                                                                          |  |                           |  |           |  |              |   |            |  |                  |   |                  |                           |                        |  |                         |          
|Subordinated corporate
        bonds                                                                                      |  | BES                       |  | Nov/93    |  | EUR          |   | 34,997     |  |                  |   | 34,997           |                           | Lisbor 6m              |  | +0.125                  | %        
|Subordinated corporate
        bonds                                                                                      |  | BES                       |  | April/96  |  | EUR          |   | 59,856     |  |                  |   | 59,856           |                           | Lisbor 6m              |  | +0.15                   | %        
|Subordinated corporate
        bonds                                                                                      |  | BES                       |  | Jun/97    |  | EUR          |   | 99,760     |  |                  |   | 99,760           |                           | Lisbor 6m              |  | +0.15                   | %        
|Perpetual subordinated
        corporate bonds                                                                            |  | BES                       |  | Jun/97    |  | EUR          |   | 99,760     |  |                  |   | 99,760           |                           | Lisbor 3m              |  | +0.68                   | %        
|                                                                                                                          |  |                           |  |           |  |              |   |            |  |                  |   |                  |                           | Lisbor 3m              |  | +2.18                   | %        
|Subordinated debt                                                                                                         |  | BES
        (Cayman)      |  | Nov/00    |  | USD          |   | 47,678     |  | (47,678          | ) | —                |                           | —                      |  | —                       |          
|Subordinated debt                                                                                                         |  | BES
        (Cayman)      |  | Nov/00    |  | EUR          |   | 300,000    |  | (300,000         | ) | —                |                           | —                      |  | —                       |          
|Subordinated debt                                                                                                         |  | BES
        (Cayman)      |  | Nov/01    |  | USD          |   | 238,390    |  | (238,390         | ) | —                |                           | —                      |  | —                       |          
|Subordinated debt                                                                                                         |  | BES
        (Cayman)      |  | May/02    |  | EUR          |   | 400,000    |  | (400,000         | ) | —                |                           | —                      |  | —                       |          
|Subordinated debt                                                                                                         |  | BES
        (Cayman)      |  | May/02    |  | EUR          |   | 500,000    |  | (500,000         | ) | —                |                           | Libor
        3m       |  | +1.95                   | %        
|                                                                                                                          |  |                           |  |           |  |              |   |            |  |                  |   |                  |                           |                        |  |                         |          
|                                                                                                                          |  |                           |  |           |  |              |   | 1,780,441  |  | (1,486,068       | ) | 294,373          |                           |                        |  |                         |          
|                                                                                                                          |  |                           |  |           |  |              |   |            |  |                  |   |                  |                           |                        |  |                         |          
|Subordinated corporate
        bonds                                                                                      |  | BIC                       |  | Mar/93    |  | EUR          |   | 9,553      |  |                  |   | 9,553            |                           | TBA                    |  | x 1.055                 |          
|Perpetual subordinated
        corporate bonds                                                                            |  | BIC                       |  | Nov/97    |  | EUR          |   | 49,880     |  | (340             | ) | 49,540           |                           | Lisbor
        3m      |  | +0.73                   | %        
|                                                                                                                          |  |                           |  |           |  |              |   |            |  |                  |   |                  |                           | Lisbor
        3m      |  | +2.23                   | %        
|Perpetual subordinated
        corporate bonds                                                                            |  | BIC                       |  | Nov/98    |  | EUR          |   | 24,940     |  | (765             | ) | 24,175           |                           | Lisbor
        3m      |  | +1.95                   | %        
|                                                                                                                          |  |                           |  |           |  |              |   |            |  |                  |   |                  |                           | Lisbor
        3m      |  | +2.95                   | %        
|Subordinated debt                                                                                                         |  | BIC
        (Cayman)      |  | Jan/00    |  | EUR          |   | 40,000     |  | (40,000          | ) | —                |                           | Euribor
        3m     |  | +1.80                   | %        
|Subordinated debt                                                                                                         |  | BIC
        (Cayman)      |  | Dec/00    |  | EUR          |   | 60,000     |  | (60,000          | ) | —                |                           | Euribor
        3m     |  | +1.80                   | %        
|                                                                                                                          |  |                           |  |           |  |              |   |            |  |                  |   |                  |                           |                        |  |                         |          
|                                                                                                                          |  |                           |  |           |  |              |   | 184,373    |  | (101,105         | ) | 83,268           |                           |                        |  |                         |          
|                                                                                                                          |  |                           |  |           |  |              |   |            |  |                  |   |                  |                           |                        |  |                         |          
|Subordinated corporate
        bonds                                                                                      |  | BES
        Finance       |  | Nov/99    |  | USD          |   | 47,678     |  |                  |   | 47,678           |                           | —                      |  | —                       |          
|Subordinated corporate
        bonds                                                                                      |  | BES
        Finance       |  | Mar/00    |  | EUR          |   | 300,000    |  |                  |   | 300,000          |                           | —                      |  | —                       |          
|Subordinated corporate
        bonds                                                                                      |  | BES
        Finance       |  | May/01    |  | EUR          |   | 400,000    |  |                  |   | 400,000          |                           | —                      |  | —                       |          
|Perpetual Subordinated
        corporate bonds                                                                            |  | BES
        Finance       |  | May/02    |  | EUR          |   | 500,000    |  |                  |   | 500,000          |                           | —                      |  | —                       |          
|                                                                                                                          |  |                           |  |           |  |              |   |            |  |                  |   |                  |                           |                        |  |                         |          
|                                                                                                                          |  |                           |  |           |  |              |   | 1,247,678  |  | —                |   | 1,247,678        |                           |                        |  |                         |          
|                                                                                                                          |  |                           |  |           |  |              |   |            |  |                  |   |                  |                           |                        |  |                         |          
|Subordinated corporate
        bonds                                                                                      |  | Besl.
        Imobiliária |  | May/01    |  | EUR          |   | 7,000      |  | (7,000           | ) | —                |                           | Euribor
        6m     |  | +1.25                   | %        
|                                                                                                                          |  |                           |  |           |  |              |   |            |  |                  |   |                  |                           |                        |  |                         |          
|Subordinated corporate
        bonds                                                                                      |  | Besl.
        Mobiliária  |  | Dec/99    |  | EUR          |   | 12,000     |  |                  |   | 12,000           |                           | Euribor
        6m     |  | +1.12                   | %        
|                                                                                                                          |  |                           |  |           |  |              |   |            |  |                  |   |                  |                           |                        |  |                         |          
|Perpetual subordinated
        corporate bonds                                                                            |  | Credibom                  |  | Nov/99    |  | EUR          |   | 9,000      |  | (400             | ) | 8,600            |                           | Euribor
        3m     |  | +1.50                   | %        
|                                                                                                                          |  |                           |  |           |  |              |   |            |  |                  |   |                  |                           | Euribor
        3m     |  | +2.50                   | %        
|                                                                                                                          |  |                           |  |           |  |              |   |            |  |                  |   |                  |                           |                        |  |                         |          
|Subordinated corporate
        bonds                                                                                      |  | BESI                      |  | Dec/96    |  | PTE          |   | 29,928     |  |                  |   | 29,928           |                           | Lisbor
        6m      |  | +0.5                    | %        
|Subordinated corporate
        bonds                                                                                      |  | BESI                      |  | Dec/98    |  | EUR          |   | 19,952     |  |                  |   | 19,952           |                           | Euribor
        6m     |  | +0.6                    | %        
|                                                                                                                          |  |                           |  |           |  |              |   |            |  |                  |   |                  |                           |                        |  |                         |          
|                                                                                                                          |  |                           |  |           |  |              |   | 49,880     |  | —                |   | 49,880           |                           |                        |  |                         |          
|                                                                                                                          |  |                           |  |           |  |              |   |            |  |                  |   |                  |                           |                        |  |                         |          
|                                                                                                                          |  |                           |  |           |  |              |   | 3,290,372  |  | (1,594,573       | ) | 1,695,799        |                           |                        |  |                         |          
|                                                                                                                          |  |                           |  |           |  |              |   |            |  |                  |   |                  |                           |                        |  |                         |          
|TOTAL                                                                                                                     |  |                           |  |           |  |              |   |            |  |                  |   |                  |                           |                        |  |                         |          
|Perpetual
        subordinated corporate bonds                                                                            |  |                           |  | 683,580   |  | (1,505       | ) | 682,075    |  |                  |   |                  |                           |                        |  |                         |          
|Subordinated
        corporate bonds                                                                                      |  |                           |  | 1,020,724 |  | (7,000       | ) | 1,013,724  |  |                  |   |                  |                           |                        |  |                         |          
|Subordinated
        debt                                                                                                 |  |                           |  | 1,586,068 |  | (1,586,068   | ) | —          |  |                  |   |                  |                           |                        |  |                         |          
|                                                                                                                          |  |                           |  |           |  |              |   |            |  |                  |   |                  |                           |                        |  |                         |          
|                                                                                                                          |  |                           |  |           |  |              |   | 3,290,372  |  | (1,594,573       | ) | 1,695,799        |                           |                        |  |                         |          
|                                                                                                                          |  |                           |  |           |  |              |   |            |  |                  |   |                  |                           |                        |  |                         |          
|                                                                                                                          |  |                           |  |           |  |              |   |            |  |                  |   |                  |                           |                        |  |                         |          
|(a)The
        interest rate for these bonds can not be less than the reference annual
        rate (TBA) for the period.
|(b)  The interest of the 1st
        coupon were calculated
        based on the interest of 15%.                        
|(c)  The interest of the 1st
        coupon were calculated
        based on Lisbor 6m plus 0.60%.                       

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|(3)   The
        interest rates and maturities of Long-term borrowings – Others as
        of Decemnber 31, 2002 are analyzed as follows:**** |             |                   |  
|---------------------------------------------------------------------------------------------------------------------------------------------- | ----------- | ----------------- | -
|                                                                                                                                               |             |                   |  
|********                                                                                                                                       |             | **2002**          |  
|                                                                                                                                               | **Average** |                   |  
|**Issue
        date**                                                                                                                         |             | **interest rate** |  
|                                                                                                                                               |             |                   |  
|                                                                                                                                               |             |                   |  
|1991                                                                                                                                           |             | 3.73              | %
|1992                                                                                                                                           |             | 3.74              | %
|1993                                                                                                                                           |             | 3.36              | %
|1994                                                                                                                                           |             | 3.22              | %
|1997                                                                                                                                           |             | 3.28              | %
|1998                                                                                                                                           |             | 3.61              | %
|1999                                                                                                                                           |             | 4.71              | %
|2000                                                                                                                                           |             | 3.44              | %
|2001                                                                                                                                           |             | 3.64              | %
|2002                                                                                                                                           |             | 3.68              | %
|                                                                                                                                               |             |                   |  
|                                                                                                                                               |             |                   |  
|                                                                                                                                               |             |                   |  
|                                                                                                                                               |             |                   |  
|(4)   
        The maturities of the Long-term debt can be analyzed as follows:                                                                |             |                   |  

|                                                                                        | Year
        of maturity |  |           | 
|--------------------------------------------------------------------------------------- | ------------------------ |  | --------- | 
|                                                                                        |                          |  |           | 
|                                                                                        | 2003                     |  | 2004      | 
|                                                                                        |                          |  |           | 
|                                                                                        |                          |  |           | 
|Long-term
        borrowings:                                                           |                          |  |           | 
|°
        Corporate bonds                                                               | 670,070                  |  | 1,331,948 | 
|°
        Others                                                                        | 378,756                  |  | 133,285   | 
|                                                                                        |                          |  |           | 
|Subordinated
        debt:                                                              |                          |  |           | 
|°
        Corporate bonds                                                               | 9,553                    |  | —         | 
|                                                                                        |                          |  |           | 
|                                                                                        |                          |  |           | 
|                                                                                        | 1,058,379                |  | 1,465,233 | 
|                                                                                        |                          |  |           | 
|                                                                                        |                          |  |           | 
|The
        maturities presented in this caption consider the contracts original terms. |                          |  |           | 

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As described in Note 2.3
  h), BES Group operates a defined benefit pension plan for its Portuguese employees
  and their dependants under which the benefits only vest on the earlier of retirement,
  death or disability.

As of December 31, 2002,
  the retirement pension benefit obligations of the BES Group were covered by
  funds and accruals representing some 94% (December 31, 2001: 91%) of the obligations.

In accordance with the
  legislation introduced by the regulatory authority (see Note 2.3 h)), the key
  assumptions considered in the actuarial valuations in December 31, 2001 and
  2002, used to determine the present value of the pension benefits for the BES
  Group's employees, are as follows:

|                                 |  | 2001                        |   | 2002 |  
|-------------------------------- |  | --------------------------- | - | ---- | -
|                                 |  |                             |   |      |  
|Method of estimation             |  | Projected
      unit credit |  
|                                 |  |                             |   |      |  
|Mortality table                  |  | TV
      73/77              |  
|                                 |  |                             |   |      |  
|Salaries
      increase rate     |  | 4.0                         | % | 3.0  | %
|                                 |  |                             |   |      |  
|Rate of return on
      assets   |  | 7.0                         | % | 6.0  | %
|                                 |  |                             |   |      |  
|Rate of growth of
      pensions |  | 3.0                         | % | 2.0  | %
|                                 |  |                             |   |      |  
|Discount rate                    |  | 7.0                         | % | 6.0  | %

The foregoing assumptions
  are also in accordance with guidelines issued by the Instituto de Seguros de
  Portugal. The projected benefit
  obligations for pensions to current employees and the accumulated benefit obligation
  to retired employees, as of December 31, 2001 and 2002, as determined by the
  actuarial valuations, are as follows:


|                                                                          |  | 2001      |  | 2002      | 
|------------------------------------------------------------------------- |  | --------- |  | --------- | 
|                                                                          |  |           |  |           | 
|Bank                                                                      |  |           |  |           | 
|Related
      to retirement benefits that accrued after December 31, 1987 |  |           |  |           | 
|•
      From retired employees                                            |  | 708,208   |  | 847,625   | 
|•
      From employees on active service as of December 31                |  | 222,607   |  | 199,832   | 
|                                                                          |  |           |  |           | 
|Total
      Bank                                                          |  | 930,815   |  | 1,047,457 | 
|                                                                          |  |           |  |           | 
|Subsidiaries                                                              |  | 86,323    |  | 104,679   | 
|                                                                          |  |           |  |           | 
|Total
      BES Group obligations                                         |  | 1,017,138 |  | 1,152,136 | 
|                                                                          |  |           |  |           | 

It is the practice of the
  Bank and its subsidiaries to perform annual actuarial valuations in order to
  update the calculations of its pension obligations and to validate the assumptions
  used.


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The accrued pension liability
    recorded by the BES Group and the value of the pension funds as of December
    31, 2001 and 2002, are as follows:


|                              |  | 2001    |  | 2002      | 
|----------------------------- |  | ------- |  | --------- | 
|                              |  |         |  |           | 
|Bank                          |  |         |  |           | 
|Fund
      assets             |  | 847,769 |  | 984,465   | 
|                              |  |         |  |           | 
|Subsidiaries                  |  |         |  |           | 
|Fund
      assets             |  | 73,529  |  | 99,027    | 
|                              |  |         |  |           | 
|                              |  | 73,529  |  | 99,027    | 
|                              |  |         |  |           | 
|Total
      BES Group funding |  | 921,298 |  | 1,083,492 | 
|                              |  |         |  |           | 

The BES Group pension funds
    had the following movements during the years ended December 31, 2001 and 2002:


|                                         |  | 2001    |   | 2002         |  
|---------------------------------------- |  | ------- | - | ------------ | -
|                                         |  |         |   |              |  
|                                         |  | Bank    |   | Subsidiaries |  
|                                         |  |         |   |              |  
|Value at the beginning
      of the year |  | 713,428 |   | 59,431       |  
|Contribution to the
      fund           |  | 219,824 |   | 16,514       |  
|Return on fund assets                    |  | (28,323 | ) | (1,580       | )
|Integration of BES Açores                |  | —       |   | —            |  
|Pensions paid                            |  | (57,160 | ) | (836         | )
|                                         |  |         |   |              |  
|                                         |  | 847,769 |   | 73,529       |  
|                                         |  |         |   |              |  

At December 31, 2002, the
  pension funds of the Bank were invested primarily in international corporate
  debt securities  40% (December 31, 2001: 28%), in domestic marketable
  equity securities  11% (December 31, 2001: 14%), in deposits  24%
  (December 31, 2001: 27%) and in participation units in international investment
  funds  4% (December 31, 2001: 11%). In 1999, 2000 and 2001,
    BES shareholders voted to distribute euro 16,460 thousand, euro 16,460 thousand
    and euro 10 000 thousand from 1998, 1999 and 2000 BES net income as a contribution
    to the pension fund. These distributions reduced the effective cost charged
    to income for the years 1999, 2000 and 2001 in respect of BES Group pension
    plans to euro 27,362 thousand, euro 33,474 thousand and euro 37,832 thousand,
    respectively. The above tables do not
  include BESSAs pension information, given that Spanish regulations are
  different from Portuguese regulations. The combined liabilities
  of the Bank and its subsidiaries, including BESSA, for retirement pensions which,
  as of December 31, 2002, amounted to euro 1,157,894 thousand (2001: euro 1,017,238
  thousand) are covered by pension funds and provisions in the amount of euro
  1,089,044 thousand (2001: euro 925,669 thousand).


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NOTE 14 - MINORITY
  INTERESTS

As at December 31, 2001
  and 2002, the minority interests can be analyzed as follows:


|                      |  | 2001    |  | 2002    | 
|--------------------- |  | ------- |  | ------- | 
|                      |  |         |  |         | 
|BESOL                 |  | 284,263 |  | 238,938 | 
|ESOL                  |  | 284,079 |  | 238,973 | 
|BEST                  |  | 9,877   |  | 9,842   | 
|BESLEASING MOBILIÁRIA |  | 4,782   |  | 4,066   | 
|ESAF SGPS             |  | 9,821   |  | 9,085   | 
|ESDATA                |  | 4,467   |  | —       | 
|CREDIBOM              |  | 10,640  |  | 11,859  | 
|BAC                   |  | —       |  | 10,138  | 
|Others                |  | 7,607   |  | 11,335  | 
|                      |  |         |  |         | 
|                      |  | 615,536 |  | 534,236 | 
|                      |  |         |  |         | 

Minority interests of
    ESOL represent ten million non-cumulative guaranteed preference shares each
    with a nominal value of US$25, of which four million shares were issued in
    November 1993, and the remaining six million shares were issued in August
    1999, with a total nominal value of US$250 million. ESOLs preference
    shares, which have been listed on the New York Stock Exchange since December
    1993 (the first issue) and November 1999 (the second issue), pay a quarterly
    non-cumulative preferential cash coupon at an annual rate of 8.5% of the par
    value, which began on March 31, 1994 and December 1, 1999, respectively. Minority interests of
    BESOL represent ten million non-cumulative guaranteed preference shares each
    with a nominal value of US$25 (total nominal value US$250 million), issued
    by the company in November 1996. BESOLs preference shares are listed
    in the London Stock Exchange, and pay a quarterly non-cumulative preferential
    cash coupon based on the three month US dollar LIBOR plus 1.95%, which began
    on February 15, 1997. ESOL and BESOL are exempted
  companies under the companies law (revised) of the Cayman Islands and were created
  for the purpose of raising capital for, and financing of, the operations of
  BES and its subsidiaries. ESOL’s and BESOLs ordinary shares, which are
  its only class of securities with full voting rights, are owned entirely by
  BES. These preference share
  issues are redeemable, at the option of the issuer, subject to the prior consent
  of the Bank of Portugal, for ESOL on or after December 1, 2003 (the first issue)
  and September 1, 2004 (the second issue), and for BESOL, on or after May 15,
  2002, in whole or in part from time to time.


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The payment of the coupon
  in each year and the redemption of the preference shares are unconditionally
  guaranteed by BES, providing that at the end of the preceding year, the Bank
  has distributable earnings available for distribution as cash dividends to its
  shareholders. In 2002, BES Group expensed
    euro 29,333 thousand being the total amount to be paid to ESOLs and
    BESOLs preference shareholders (2001: euro 42,241 thousand; 2000: euro
    45,941 thousand). These amounts are included in other expenses. The preference shares
  rank junior to all liabilities of the Bank and “pari passu” with the most senior
  preference shares, if any, issued by the Bank.


NOTE 15 - COMMON STOCK
  AUTHORIZED, SUBSCRIBED AND ADDITIONAL PAID-IN CAPITAL

During 2002, the Bank
    increased its share capital from 1,000,000 thousand Euros to 1,500,000 thousand
    Euros through the issue of 100,000,000 new bearer common shares, with a face
    value of 5 Euros each, as follows:


| | – | 50,000,000 new shares
      through incorporation of reserves and additional paid-in capital as a scrip
      issue in the proportion of one new share per four held;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                      
| | – | 50,000,000 new shares
      as a rights issue, in the proportion of one new share for each four held,
      at the price of 11 Euros each.                           

As at December 31, 2002
  the Banks share capital, in the amount of 1,500,000 thousand Euros, was
  represented by 300,000 thousand common shares, with a face value of 5 Euros
  each, which were subscribed and fully paid by the following entities:


|                                                              | Percentage
      of shares |       
|------------------------------------------------------------- | -------------------------- | ------
|                                                              |                            |       
|                                                              |                            | 2001  
|                                                              |                            |       
|Espírito Santo
      Financial Group (ESFG) companies         |                            |       
|BESPAR
       Sociedade Gestora de Participações Sociais, SA |                            | 41.98 
|Companhia
      de Seguros Tranquilidade Vida, SA             |                            | 6.14  
|                                                              |                            |       
|                                                              |                            | 48.12 
|                                                              |                            |       
|Caisse Nationale du
      Crédit Agricole                     |                            | 8.81  
|Banco Bradesco, SA                                            |                            | —     
|Others                                                        |                            | 43.07 
|                                                              |                            |       
|                                                              |                            | 100.00
|                                                              |                            |       

As referred in Note
    2.3 h), and after the concurrence of the Bank of Portugal, in 2001 the Bank
    wrote-off against additional paid-in capital the total amount of euro 100,612
    thousand related with pensions (euro 66,844 thousand related with early retirement
    costs in 2001 and euro 33,768 thousand with unamortized pension fund deficit
    from prior years).


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NOTE 16 - RETAINED
  EARNINGS AND RESERVES

|                                           |  | 2001    |   | 2002    |  
|------------------------------------------ |  | ------- | - | ------- | -
|                                           |  |         |   |         |  
|Net income                                 |  | 197,709 |   | 222,461 |  
|Other reserves and retained
      earnings |  | (57,775 | ) | (48,846 | )
|Legal reserve                              |  | 70,800  |   | 27,865  |  
|                                           |  |         |   |         |  
|                                           |  | 210,734 |   | 201,480 |  
|                                           |  |         |   |         |  

Other reserves and retained
  earnings include the undistributed results of previous years, the write-off
  of restructuring costs with pensions (2000: euro 138,935 thousand) and the write-off
  of all unamortized goodwill (total of euro 253,377 thousand). The movements in Goodwill
    (net of Capital Reserve), for the year ended December 31, 2002, were as follows:


|                                          |  | Group   | 
|----------------------------------------- |  | ------- | 
|                                          |  |         | 
|                                          |  | 2001    | 
|                                          |  |         | 
|Subsidiaries                              |  |         | 
|•
      BESSA                             |  | 8,899   | 
|•
      BESLEASING MOBILIÁRIA             |  | 5,442   | 
|•
      BIC                               |  | 54,768  | 
|•
      BESI                              |  | 43,715  | 
|•
      ES DEALER                         |  | 1,852   | 
|•
      ES Bank                           |  | 37,035  | 
|•
      ES Inversiones                    |  | 58,952  | 
|•
      JAMPUR                            |  | —       | 
|•
      PORTLINE                          |  | —       | 
|•
      OBLOG                             |  | —       | 
|•
      Others                            |  | 13,766  | 
|                                          |  |         | 
|                                          |  | 224,429 | 
|                                          |  |         | 
|Associated and affiliated
      companies |  |         | 
|•
      BES VÉNÉTIE                       |  | 1,277   | 
|•
      INTERATLANTICO                    |  | 55,481  | 
|                                          |  |         | 
|                                          |  | 56,758  | 
|                                          |  |         | 
|Total goodwill                            |  | 281,187 | 
|                                          |  |         | 

|• | Legal reserve
|- | -------------

The sole permitted uses
    of legal reserve are the coverage of accumulated losses or the increase of
    capital. Portuguese legislation applicable to the banking sector (Article
    97 of Decree-Law no. 298/92, 31 December) requires that the legal reserve
    be credited with a minimum of 10% of each year's net earnings until it is
    equal to the registered capital. During 2002, the Bank made use of 57,050
    thousand Euros for its capital increase.


|• | Employee
        benefit scheme based in shares distribution
|- | ------------------------------------------------------------

The Banks General Meeting of 20 June 2000 approved the implementation of a stock-based incentive scheme. The first stock bonus plan was carried out in 2000. As at December 31, 2002, 5,327 thousand shares (1.78% of total share capital) are allocated (December 31, 2001  1,735 thousand shares, 0.87% of total share capital), for an overall amount of Euro 56.1 million (December 31, 2001  31.0 million Euros). This amount is included under Other assets  Receivables and prepayments (see Note 9).


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NOTE 17 – COMMITMENTS,
  CONTINGENCIES AND DERIVATIVE FINANCIAL INSTRUMENTS
  WITH OFF-BALANCE SHEET RISK

|Commitments
        and guarantees     |           |  |           | 
|-------------------------------------- | --------- |  | --------- | 
|                                       | 2001      |  | 2002      | 
|Contingent liabilities                 |           |  |           | 
|Guarantees
      and letters of credit | 4,111,083 |  | 4,282,956 | 
|Open
      documentary credits         | 223,095   |  | 224,381   | 
|Others                                 | 37,204    |  | 20,137    | 
|                                       |           |  |           | 
|                                       | 4,371,382 |  | 4,527,474 | 
|                                       |           |  |           | 
|Commitments                            |           |  |           | 
|Irrevocable
      credit lines granted | 704,413   |  | 664,267   | 
|Revocable
      credit lines granted   | 2,117,231 |  | 2,726,138 | 
|                                       |           |  |           | 
|                                       | 2,821,644 |  | 3,390,405 | 
|                                       |           |  |           | 
|                                       | 7,193,026 |  | 7,917,879 | 
|                                       |           |  |           | 

Documentary
  credits and guarantees are conditional commitments issued by BES Group to guarantee
  the performance of the customer to a third party. Documentary credits are
  primarily issued as credit
  enhancements for public and private borrowing arrangements. The credit risk
  involved in issuing documentary credits is similar to that involved in extending
  credit facilities to customers. Risks associated with documentary credits and
  guarantees are usually reduced by the participation of third parties.


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At December 31, 2002,
    Guarantees and letters of credit included an amount of euro 130 million (2001:
    euro 130 million) representing the value of securities owned by the BES Group,
    which are pledged to the Bank of Portugal under the SPGT system (Large Transaction
    Settlement System), to collateralize irrevocable credit lines. Commitments are short-term
    contractual agreements to extend credit which generally have fixed expiration
    dates or other termination clauses and usually require payment of a fee. Substantially
    all of BES Groups commitments to extend credit are contingent upon the
    customers meeting specific criteria at the time of loan funding. Because many of the
    commitments, guarantees and documentary credits are expected to expire without
    being called, the total amounts do not necessarily represent future cash requirements. BES Group requires collateral
    to support off-balance sheet financial instruments when it is deemed necessary.
    Collateral may include deposits held in financial institutions, securities
    or other assets. For a discussion of
    the fair value methodologies used see Note 23.


Legal risk

The companies of BES Group are involved in a number of legal proceedings in the normal course of their operations. Management does not expect the aggregate liability or loss, if any, resulting from these proceedings to have a material adverse effect on the consolidated financial condition of BES Group.


Derivative financial instruments with off-balance sheet risk

In the normal course of business, BES Group is party to a variety of derivative financial instruments with off-balance sheet risk for trading purposes, to manage its exposure to fluctuations in interest and foreign exchange rates and equity prices and to meet the financing needs of its customers. Derivative financial instruments represent contracts with counterparties where payments are made to or from the counterparty based upon specific terms predetermined by the contract.  Such derivatives and foreign exchange financial instruments involve, to varying degrees, credit risk, market risk and liquidity risk.


|• | Credit risk
|- | -----------

Credit risk represents
    the maximum potential accounting loss due to possible non-performance by obligors
    and counterparties under the terms of the contracts. BES Group considers the
    true measure of credit risk to be the replacement cost of the derivative should
    the counterparty default prior to the settlement date.


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Credit risk on derivatives
    is, therefore, small in relation to a comparable balance sheet risk. Additionally,
    credit exposure with individual counterparties can be reduced by closeout
    netting agreements which allow for positive and negative marked-to-market
    values on different transactions to be settled by a single payment in the
    event of default by either party. These agreements are enforceable in most
    jurisdictions where BES Group is active and BES Group has entered into closeout
    netting agreements with the majority of its counterparties.


|• | Market risk
|- | -----------

Market risk represents
  the possibility that a change in interest rates, currency exchange rates or
  equity prices will cause the value of a financial instrument to decrease or
  become more costly to settle. The market risk associated with derivatives can
  be significant since large exposures can be created with a reduced initial investment
  compared to the investment required for similar exposures in the cash markets.
  Recognizing this, BES Group transacts derivative financial instruments mainly
  through the Banks head office in Lisbon, three overseas branches (London,
  New York and Lausanne), its off-shore branch in Madeira and its subsidiary BESI
  (Lisbon). These entities have sufficient derivative product expertise and appropriate
  control systems to trade derivative products. The management of market risk
  arising from derivatives business is monitored by the Global Risk Department.


|• | Liquidity risk
|- | --------------

Liquidity risk represents the capacity to meet short-term financial obligations without incurring adverse impacts. Most of the Banks forward currency contracts are conducted with regulated financial institutions, within defined counterparty limits set for each overseas branch, subsidiary and head office, and for the BES Group on an overall basis, and settle within six months. The estimated fair values of both on and off-balance sheet derivatives and foreign exchange instruments are included in the table below. For a discussion of the fair value methodologies used see Note 23.


Derivative and foreign exchange instruments used for trading purposes

The credit risk, estimated fair value and carrying amount associated with the Banks trading activities are disclosed in the table below. The effects of changes in market conditions, namely interest, currency exchange rates and equity prices, on the Banks trading activities have been reflected in trading revenue (unrealized and realized gains or losses), when the transactions are accounted for on a daily marked-to-market basis.


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Derivatives
  and foreign exchange instruments used for purposes other than trading

BES Groups
  principal objective in using derivatives for purposes other than trading is
  for its asset/liability management activities, which include setting guidelines
  for the balance sheet structure and capital allocation and management of interest
  rate, foreign exchange, equity price and liquidity risk for the entire balance
  sheet, the main goal of which is to protect its net interest margin. For that
  purpose, BES Group mainly uses interest rate swaps, currency swaps, currency
  and interest rate swaps and forward rate agreements to hedge the interest rate
  and foreign exchange risk of certain assets and liabilities. Also, BES Group
  uses derivatives for the creation of hedging structures to immunize or reduce
  market risk associated with bonds issued or held by it. For that purpose, it
  utilizes interest rate swaps, currency interest rate swaps, currency and equity
  options, interest rate caps, floors and futures contracts. The aggregate
  notional amount, estimated fair value, carrying amount and credit risk exposure
  of the financial instruments described above, as at December 31, 2001 and 2002,
  are as follows:


|                                        |          | 2001       |           | 2002             |         
|--------------------------------------- | -------- | ---------- | --------- | ---------------- | --------
|                                        |          |            |          
|                                        | Notional |            | Estimated |                  | Carrying
|Overthe counter
      (OTC) Derivatives |          | amount     |           | fair
      value |         
|                                        |          |            |           |                  |         
|                                        |          | (1)        |           | (2)              |         
|Foreign
      exchange contracts        |          |            |           |                  |         
| Forward                               |          |            |           |                  |         
| Trading                               |          |            |           |                  |         
|
      Purchase                        |          | 34,923     |           | 367              |         
| Sell                                  |          | 34,731     |           |                  |         
| Other
      than trading              |          |            |           |                  |         
|
      Purchase                        |          | 72,001     |           | (210             | )       
| Sell                                  |          | 72,194     |           |                  |         
|Currency
      Swaps -                  |          |            |           |                  |         
| Trading                               |          |            |           |                  |         
|
      Purchase                        |          | 35,748     |           | (128             | )       
| Sell                                  |          | 36,287     |           |                  |         
| Other
      than trading              |          |            |           |                  |         
|
      Purchase                        |          | 10,128,581 |           | (672             | )       
| Sell                                  |          | 10,107,784 |           |                  |         
|Interest
      Rate Swaps -             |          |            |           |                  |         
|
      Trading                         |          | 23,515,546 |           | 96,455           |         
| Other
      than trading              |          | 1,889,556  |           | (21,053          | )       
|Credit
      Default Swaps -            |          |            |           |                  |         
|
      Trading                         |          | 1,213,695  |           | (7,724           | )       
| Other
      than trading              |          | 3,404      |           | 1,594            |         
|Equity/index
      Swaps -              |          |            |           |                  |         
|
      Trading                         |          | 348,857    |           | (19,448          | )       
| Other
      than trading              |          | 401,717    |           | (10,342          | )       
|Currency
      Interest Rate Swaps -    |          |            |           |                  |         
| Trading                               |          |            |           |                  |         
|
      Purchase                        |          | 96,569     |           | 4,036            |         
| Sell                                  |          | 90,571     |           |                  |         
| Other
      than trading              |          |            |           |                  |         
|
      Purchase                        |          | 107,206    |           | 3,516            |         
| Sell                                  |          | 100,527    |           |                  |         
|Forward
      Rate Agreements -         |          |            |           |                  |         
|
      Trading                         |          | 23,433     |           | (7               | )       
| Other
      than trading              |          | 56,734     |           | (40              | )       
|Currency
      options -                |          |            |           |                  |         
| Trading                               |          |            |           |                  |         
|
      Purchase                        |          | 260,347    |           | 2,285            |         
| Sell                                  |          | 260,483    |           | (1,401           | )       

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|                                      |  | 2001       |  | 2002             |  
|------------------------------------- |  | ---------- |  | ---------------- | -
|                                      |  |            | 
|                                      |  | Notional   |  | Estimated        |  
|Overthe counter (OTC) Derivatives     |  | amount     |  | fair
      value |  
|                                      |  |            |  |                  |  
|                                      |  | (1)        |  | (2)              |  
|Swaption
      -                      |  |            |  |                  |  
| Trading                             |  |            |  |                  |  
| Purchase                            |  | 60,000     |  | (567             | )
| Sell                                |  | 60,000     |  | 567              |  
| Other
      than trading            |  |            |  |                  |  
| Sell                                |  | 10,000     |  | (1               | )
|                                      |  |            |  |                  |  
|Equity
      Options -                |  |            |  |                  |  
| Trading                             |  |            |  |                  |  
| Purchase                            |  | 54,305     |  | 21,323           |  
| Sell                                |  | 26,803     |  | 14               |  
|                                      |  |            |  |                  |  
|Index
      Options                   |  |            |  |                  |  
| Trading                             |  |            |  |                  |  
| Purchase                            |  | 108,082    |  | (9,034           | )
| Sell                                |  | 95,163     |  | 635              |  
| Other
      than trading            |  |            |  |                  |  
| Sell                                |  | 3,473      |  | (603             | )
|                                      |  |            |  |                  |  
|Interest
      Rate Caps and Floors - |  |            |  |                  |  
| Trading                             |  |            |  |                  |  
| Purchase                            |  | 2,323,751  |  | 8,185            |  
| Sell                                |  | 3,198,639  |  | (9,065           | )
|                                      |  |            |  |                  |  
|Exchange
      traded Derivatives     |  |            |  |                  |  
|                                      |  |            |  |                  |  
|Currency
      options -              |  |            |  |                  |  
| Trading                             |  |            |  |                  |  
| Purchase                            |  | 5,673      |  | —                |  
| Sell                                |  | —          |  | —                |  
|                                      |  |            |  |                  |  
|Interest
      Rate Options -         |  |            |  |                  |  
| Trading                             |  |            |  |                  |  
| Purchase                            |  | 18,246,858 |  | —                |  
| Sell                                |  | 26,425,198 |  | —                |  
|                                      |  |            |  |                  |  
|Equity
      Options -                |  |            |  |                  |  
| Trading                             |  |            |  |                  |  
| Purchase                            |  | 4,779      |  | —                |  
| Sell                                |  | 13,816     |  | —                |  
|                                      |  |            |  |                  |  
|Financial
      futures               |  |            |  |                  |  
| Trading                             |  | 1,021,753  |  | —                |  

|   
|---
|(1)
|(2)
|(3)
|(4)

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As of 31 December
  2002, the financial instruments by type and respective notional and market values
  were as follows (in Euro million):


|                                   | BES     |  | Consolidated |  
|---------------------------------- | ------- |  | ------------ | -
|                                   |         |  |              |  
|                                   | Nominal |  | Market       |  
|                                   | value   |  | value        |  
|                                   |         |  |              |  
|Contracts
      over exchange rate |         |  |              |  
|
      Over the counter market    | 10,597  |  | (31          | )
|
      Organized market           | —       |  | —            |  
|Contracts
      over interest rate |         |  |              |  
|
      Over the counter market    | 24,467  |  | (127         | )
|
      Organized market           | 9,286   |  | 34           |  
|Contracts
      over shares/index  |         |  |              |  
|
      Over the counter market    | 1,571   |  | 2            |  
|
      Organized market           | —       |  | —            |  
|Contracts
      over credits       |         |  |              |  
|
      Over the counter market    | 1,058   |  | (3           | )
|
      Organized market           | —       |  | —            |  
|                                   |         |  |              |  
|TOTAL                              | 46,979  |  | (125         | )
|                                   |         |  |              |  

The maturity
  of contracts at notional amount as of December 31, 2002 was as follows:


|                                   | Consolidated |                
|---------------------------------- | ------------ | ---------------
|                                  
|                                   |              | From           
|Up
      to                        |              | 3
      months 
|3
      months                     |              | to
      1 year
|                                   |              |                
|                                   |              |                
|Contracts
      over exchange rate |              |                
|
      Over the counter market    | 6,503        |                
|
      Organized market           | 17           |                
|Contracts
      over interest rate |              |                
|
      Over the counter market    | 1,671        |                
|
      Organized market           | 5,770        |                
|Contracts
      over shares/index  |              |                
|
      Over the counter market    | 235          |                
|
      Organized market           | 25           |                
|Contracts
      over credits       |              |                
|
      Over the counter market    | 20           |                
|
      Organized market           | —            |                
|                                   |              |                
|TOTAL                              | 14,241       |                
|                                   |              |                

Classes
  of derivative and foreign exchange instruments

The following
  classes of derivative and foreign exchange instruments refer to instruments
  that are used by BES Group for purposes of both trading and other than trading,
  namely hedging and asset/liability management. The fair value
  of the various products is intended to mirror their market value. Therefore
  for those products which are traded on liquid markets, BES Group uses the market
  value. For the other Over-the-counter (OTC) products, BES Group uses standard
  methods. In the case of fixed rate instruments and foreign exchange, BES Group
  works with models based on discounted cash flow analysis (FRAs, Swaps,
  Futures, Bonds, FX). For options instruments BES Group employs standard methods
  such as Black-Scholes and Binomial Trees.


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|• | Foreign
      exchange forward contractsare
      contracts for the future receipt or delivery of foreign currency at previously
      agreed-upon terms. The risks inherent in these contracts are the potential
      inability of a counterparty to meet the delivery terms of its contract and
      the risk associated with changes in the market values of the underlying
      currencies resulting from normal changes in both underlying interest and
      exchange rates.                                                                                                                                                                                     
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|• | Interest
      rate swapsare
      contracts in which a series of interest rate determined cash flows in a
      specified currency are exchanged over a prescribed period. The notional
      amount on which the interest payments are based is not exchanged and most
      interest rate swaps involve the exchange of fixed and floating interest
      payments. The risks inherent in interest rate swap contracts are the potential
      inability of a counterparty to meet the delivery terms of its contract and
      the risk associated with changes in the market values of the contract due
      to movements in the underlying interest rates.         
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|• | Cross-currency
      interest rate swapsare
      contracts that involve the exchange of both interest and principal amounts
      in two different currencies. The risks inherent in interest rate and cross-currency
      swap contracts are the potential inability of a counterparty to meet the
      delivery terms of its contract and the risk associated with changes in the
      market values of the contracts due to movements in the underlying interest
      and exchange rates.                                                                                                                                                                         
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|• | Currency
      swapsare
      agreements in which cash in one currency is converted into a different currency
      through a spot transaction and, simultaneously, a forward exchange agreement
      is transacted to provide for a future exchange of the two currencies in
      order to recover the currency initially converted. The risks inherent in
      currency swaps are the potential inability of a counterparty to meet the
      delivery terms of the swap forward leg and the risk associated with changes
      in the market values of the underlying currencies resulting from normal
      changes in both underlying interest and exchange rates.
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|• | Equity/Index
      swapsare
      contracts where one party agrees to pay the other the total return of a
      defined underlying equity or index in return for receiving a stream ofinterest
      rate based cash-flows. No notional amounts are exchanged. The risks inherent
      in these contracts are the potential inability of a counterparty to meet
      the delivery terms of the contract and the risk associated with changes
      in the market value of the contract due to movements in the underlying equity
      or index price.                                                                                                                  
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|• | Credit
      default swapsare
      contracts where one counterparty, the protection buyer, pays a periodic
      fee in return for a contingent payment by the protection seller following
      a credit event of a reference entity. The risks inherent in these contracts
      are the potential inability of the protection seller to meet the delivery
      terms of the contract and the risk associated with the occurrence of a credit
      event for the protection buyer.                                                                                                                                                                                   
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

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|• | Options,
      including interest rate caps and floorsare
      contracts that allow the holder of the option to purchase or sell a financial
      instrument or currency at a specified price within a specified period of
      time from or to the seller of the option. The purchaser of the option pays
      a premium at the outset to the seller of the option, who then bears the
      risk of an unfavourable change in the price of the financial instrument
      or currency underlying the option.                                                                                                                           
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|• | Forward
      rate agreementsare
      contracts to exchange payments on a certain future date, based on a market
      change in interest rates from trade date to contract settlement date. The
      notional amount on which the interest payments are based is not exchanged.
      The maturity of these agreements is typically less than two years. The risk
      inherent in forward rate agreements are the potential inability of a counterparty
      to meet the terms of its contract and the risk associated with changes in
      the market values of the contracts due to movements in the underlying interest
      rate.
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|• | Financial
      futuresare
      exchange traded contracts for delayed delivery of securities in which the
      seller agrees to make delivery at a specified future date of a specified
      instrument at a specified price or yield or to settle, financially, the
      future contract. Futures contracts are settled in cash daily by a clearing
      house and, therefore, there is minimal credit risk to the organisation.
      Futures are subject to the risk of movements in interest rates, stock indices
      or the value of the underlying securities or instruments.                                                   
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

To reduce
  its exposure to market risk related to the above mentioned classes of derivative
  and foreign exchange instruments, BES Group may enter into offsetting positions. BES Groups
  portfolio of off-balance sheet financial instruments is broadly diversified
  and is managed with similar practices to those utilized for on-balance sheet
  instruments for the purpose of precluding material concentration of credit risk.


Significant
  concentrations of credit risk

Vulnerability
  from concentrations of credit risk arises because an entity is exposed to risk
  of loss greater than if it had mitigated its risk through further diversification.
  Such risks of loss manifest
  themselves differently, depending on the nature of the concentration, and vary
  in significance. In the normal course of its operations, BES Group is exposed
  to certain concentrations of credit risk which are further disclosed in Notes
  5, 6 and 18.


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NOTE 18 - FOREIGN EXCHANGE
  EXPOSURES

As at December 31, 2002,
  BES Groups assets, liabilities and off-balance sheet items expressed in
  foreign currencies, as well as their aggregate percentage of total consolidated
  assets and liabilities, were as set forth below:


|                                          |  | 2002      |  
|----------------------------------------- |  | --------- | -
|                                          |  |           |  
|                                          |  |           |  
|                                          |  |           |  
|                                          |  | US dollar |  
|                                          |  |           |  
|Assets                                    |  | 7,167,657 |  
|Liabilities                               |  | 6,422,195 |  
|                                          |  |           |  
|Net assets/(liabilities)                  |  | 745,462   |  
|Forward foreign exchange
      position   |  | (506,226  | )
|                                          |  |           |  
|Total net foreign exchange
      position |  | 239,236   |  
|                                          |  |           |  
|Total foreign exchange
      position is  |  |           |  
|represented
      by:                     |  |           |  
|•
      Strategic position (1)            |  | —         |  
|•
      Trading position (2)              |  | 239,236   |  

|    |                                                                                                                                                                                                                                                                                                                                                                        
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(1) | Foreign
      exchange strategic position represents investments in BES Groups associated
      companies abroad;                                                                                                                                                                                                                                                     
|(2) | Foreign
      exchange trading position in each currency represents the net open position,
      considering that the Banks branches and subsidiaries abroad, manage
      their currency exposures by hedging their positions against functional currencies
      and not against the currency in which BES Groups financial statements
      are presented (euros).

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NOTE 19 - RELATED PARTY
  TRANSACTIONS

The following is a summary
    of significant balance sheet and statement of income positions with related
    parties:


|                                             |  | 2001      |  | 2002      | 
|-------------------------------------------- |  | --------- |  | --------- | 
|                                             |  |           |  |           | 
|Assets                                       |  |           |  |           | 
|Other
      interest-earning deposits        |  | 725,724   |  | 779,417   | 
|Investment
      securities                  |  | 22,292    |  | 37,877    | 
|Loans
      and advances to customers        |  | 96,711    |  | 105,633   | 
|Other
      assets                           |  | 6,103     |  | 4,417     | 
|                                             |  |           |  |           | 
|Total assets                                 |  | 850,830   |  | 927,344   | 
|                                             |  |           |  |           | 
|Liabilities                                  |  |           |  |           | 
|Deposits
      from banks                    |  | 341,785   |  | 442,310   | 
|Demand
      and time deposits               |  | 788,315   |  | 664,510   | 
|Other
      borrowings                       |  | 237,068   |  | 428,491   | 
|Accrued
      interest and other liabilities |  | 685       |  | 38,467    | 
|                                             |  |           |  |           | 
|Total liabilities                            |  | 1,367,853 |  | 1,573,778 | 
|                                             |  |           |  |           | 
|Total interest
      income                  |  | 38,633    |  | 17,889    | 
|                                             |  |           |  |           | 
|Total interest
      expense                 |  | 22,664    |  | 34,758    | 
|                                             |  |           |  |           | 
|Other income                                 |  | 23,292    |  | 5,985     | 
|                                             |  |           |  |           | 
|Other expenses                               |  | 3,242     |  | 9,548     | 
|                                             |  |           |  |           | 
|Off-balance sheet
      accounts             |  | 25,080    |  | 11,115    | 
|                                             |  |           |  |           | 

The most significant balance
  sheet and statement of income positions with related parties as at and for the
  year ended December 31, 2002 were as follows:


|                   |  | Assets  |  | Liabilities |  | Income |  | Expenses | 
|------------------ |  | ------- |  | ----------- |  | ------ |  | -------- | 
|                   |  |         |  |             |  |        |  |          | 
|BES Vénétie        |  | 503,166 |  | 395,112     |  | 10,477 |  | 8,413    | 
|ES Financiere      |  | 278,590 |  | 103,578     |  | 5,914  |  | 3,396    | 
|CBESSA             |  | 16,121  |  | 117,006     |  | 2      |  | 377      | 
|Tranquilidade      |  | 190     |  | 55,299      |  | 2,511  |  | 10,442   | 
|Tranquilidade Vida |  | 38,930  |  | 869,110     |  | 3,312  |  | 17,005   | 
|Others             |  | 90,347  |  | 33,673      |  | 1,658  |  | 4,673    | 
|                   |  |         |  |             |  |        |  |          | 
|                   |  | 927,344 |  | 1,573,778   |  | 23,874 |  | 44,306   | 
|                   |  |         |  |             |  |        |  |          | 

Additionally, as at December
    31, 2002, BES Group had loans outstanding to Directors and related parties
    amounting to euro 1,275 thousand (December 31, 2001: euro 1,112 thousand)
    and euro 189,920 thousand (December 31, 2001: euro 170,988 thousand), respectively.
    There are no outstanding guarantees provided by BES Group for the benefit
    of the Directors.


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NOTE 20 - OTHER INCOME

|                                                                        |  | 2000       |   | 2001       |   | 2002       |  
|----------------------------------------------------------------------- |  | ---------- | - | ---------- | - | ---------- | -
|                                                                        |  |            |   |            |   |            |  
|Fee and commission
      income                                         |  |            |   |            |   |            |  
|Commission
      income                                                 |  | 338,111    |   | 342,739    |   | 343,387    |  
|Commission
      expenses                                               |  | (47,266    | ) | (69,090    | ) | (53,162    | )
|                                                                        |  |            |   |            |   |            |  
|                                                                        |  | 290,845    |   | 273,649    |   | 290,225    |  
|                                                                        |  |            |   |            |   |            |  
|Net trading result
      on trading account securities,                 |  |            |   |            |   |            |  
|investment securities
      and in associated companies                 |  |            |   |            |   |            |  
|Gains
      on trading operations                                       |  | 452,836    |   | 479,699    |   | 353,236    |  
|Losses
      on trading operations                                      |  | (393,886   | ) | (528,985   | ) | (427,100   | )
|                                                                        |  |            |   |            |   |            |  
|                                                                        |  | 58,950     |   | (49,286    | ) | (73,864    | )
|                                                                        |  |            |   |            |   |            |  
|Net gains on foreign
      currency and financial                       |  |            |   |            |   |            |  
|derivatives transactions                                                |  |            |   |            |   |            |  
|Gains
      on foreign currency and financial derivatives transactions  |  | 4,105,299  |   | 4,024,449  |   | 3,619,886  |  
|Losses
      on foreign currency and financial derivatives transactions |  | (4,013,300 | ) | (3,888,334 | ) | (3,436,060 | )
|                                                                        |  |            |   |            |   |            |  
|                                                                        |  | 91,999     |   | 136,115    |   | 183,826    |  
|                                                                        |  |            |   |            |   |            |  
|Other operating
      income                                            |  |            |   |            |   |            |  
|Disbursements
      recovered                                           |  | 4,747      |   | 3,356      |   | 2,917      |  
|Services
      rendered                                                 |  | 66,990     |   | 86,114     |   | 91,206     |  
|Interest
      income on non-accrual loans                              |  | 4,629      |   | 2,906      |   | 2,364      |  
|Others                                                                  |  | 15,367     |   | 19,534     |   | 23,936     |  
|                                                                        |  |            |   |            |   |            |  
|                                                                        |  | 91,733     |   | 111,910    |   | 120,423    |  
|                                                                        |  |            |   |            |   |            |  

NOTE 21 - OTHER EXPENSES

|                                                             |  | 2000   |  | 2001   |  | 2002   | 
|------------------------------------------------------------ |  | ------ |  | ------ |  | ------ | 
|                                                             |  |        |  |        |  |        | 
|Contribution
      to the Depositors’ guarantee fund         |  | 2,873  |  | 3,147  |  | 3,272  | 
|Direct and indirect
      taxes                              |  | 6,196  |  | 12,382 |  | 10,364 | 
|Losses
      on sale of investments and fixed assets         |  | 1,104  |  | 2,388  |  | 1,978  | 
|Discharge active interest                                    |  | 918    |  | 1,786  |  | 6,723  | 
|Annual amortization
      of the initial contribution to the |  |        |  |        |  |        | 
|Depositors’
      guarantee fund                             |  | 32     |  | 112    |  | 62     | 
|Donations and quotations                                     |  | 1,961  |  | 2,151  |  | 2,077  | 
|Provisions
      for liabilities and charges                 |  | —      |  | 1,022  |  | 4,840  | 
|Others                                                       |  | 12,804 |  | 25,806 |  | 22,794 | 
|                                                             |  |        |  |        |  |        | 
|                                                             |  | 25,888 |  | 48,794 |  | 52,110 | 
|                                                             |  |        |  |        |  |        | 

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NOTE 22  PROPERTY
  AND EQUIPMENT

|                                      |  | 2001      |   | 2002      |  
|------------------------------------- |  | --------- | - | --------- | -
|                                      |  |           |   |           |  
|Land and buildings                    |  |           |   |           |  
|For
      own use                     |  | 432,553   |   | 442,192   |  
|Improvements
      in leased property |  | 132,296   |   | 144,718   |  
|Other                                 |  | 2,023     |   | 2,107     |  
|                                      |  |           |   |           |  
|                                      |  | 566,872   |   | 589,017   |  
|                                      |  |           |   |           |  
|Equipment                             |  |           |   |           |  
|Computer
      equipment              |  | 180,132   |   | 203,940   |  
|Furniture                             |  | 86,244    |   | 91,306    |  
|Office
      equipment                |  | 17,386    |   | 17,068    |  
|Fixtures                              |  | 78,162    |   | 81,462    |  
|Motor
      vehicles                  |  | 16,461    |   | 14,178    |  
|Security
      equipment              |  | 20,359    |   | 23,611    |  
|Other                                 |  | 1,141     |   | 2,256     |  
|                                      |  |           |   |           |  
|                                      |  | 399,885   |   | 433,821   |  
|                                      |  |           |   |           |  
|Other fixed assets                    |  |           |   |           |  
|Works
      of art                    |  | 8,153     |   | 8,254     |  
|                                      |  |           |   |           |  
|                                      |  | 974,910   |   | 1,031,092 |  
|                                      |  |           |   |           |  
|Work in progress                      |  | 35,843    |   | 24,505    |  
|                                      |  |           |   |           |  
|                                      |  | 1,010,753 |   | 1,055,597 |  
|Accumulated depreciation              |  | (583,617  | ) | (628,977  | )
|                                      |  |           |   |           |  
|                                      |  | 427,136   |   | 426,620   |  
|                                      |  |           |   |           |  

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During the year ended December
    31, 2002, the movement of Property and equipment was as follows:


|                   |  | Net             |  |              |  |           |   |              |   |           |   | Exchange        |   | Net               | 
|------------------ |  | --------------- |  | ------------ |  | --------- | - | ------------ | - | --------- | - | --------------- | - | ----------------- | 
|                   |  | balance         |  |              |  |           |   |              |   |           |   | differences     |   | balance           | 
|                   |  | as
      at     |  |              |  |           |   |              |   |           |   | and
      other |   | as
      at       | 
|                   |  | January
      1 |  | Acquisitions |  | Disposals |   | Depreciation |   | Transfers |   | movements       |   | December
      31 | 
|                   |  |                 |  |              |  |           |   |              |   |           |   |                 |   |                   | 
|Land and buildings |  | 295,612         |  | 8,801        |  | (1,117    | ) | (15,973      | ) | 12,982    |   | 2,362           |   | 302,667           | 
|Equipment          |  | 87,528          |  | 17,879       |  | (1,428    | ) | (37,351      | ) | 23,152    |   | 1,414           |   | 91,194            | 
|Other assets       |  | 8,153           |  | 301          |  | (140      | ) | (1           | ) | —         |   | (59             | ) | 8,254             | 
|Work in progress   |  | 35,843          |  | 13,439       |  | (89       | ) | —            |   | (24,521   | ) | (167            | ) | 24,505            | 
|                   |  |                 |  |              |  |           |   |              |   |           |   |                 |   |                   | 
|                   |  | 427,136         |  | 40,420       |  | (2,774    | ) | (53,325      | ) | 11,613    |   | 3,550           |   | 426,620           | 
|                   |  |                 |  |              |  |           |   |              |   |           |   |                 |   |                   | 

The cumulative effect of
    the revaluation of Property and equipment, as of December 31, 2002, is analyzed
    as follows:


|                                        |  | 2002      |  | 2001      | 
|--------------------------------------- |  | --------- |  | --------- | 
|                                        |  |           |  |           | 
|                                        |  | Buildings |  | Equipment | 
|                                        |  |           |  |           | 
|Acquisition cost                        |  | 323,539   |  | 420,874   | 
|Revaluation                             |  | 278,693   |  | 32,491    | 
|                                        |  |           |  |           | 
|Revalued
      cost                     |  | 602,232   |  | 453,365   | 
|                                        |  |           |  |           | 
|Depreciation at cost                    |  | 117,082   |  | 310,689   | 
|Depreciation of the
      revaluation   |  | 169,337   |  | 31,869    | 
|                                        |  |           |  |           | 
|Total
      depreciation                |  | 286,419   |  | 342,558   | 
|                                        |  |           |  |           | 
|Net value of the acquisition
      cost |  | 206,457   |  | 110,185   | 
|                                        |  |           |  |           | 
|Net revaluation included
      in       |  |           |  |           | 
|tangible
      assets                   |  | 109,356   |  | 622       | 
|                                        |  |           |  |           | 
|Net assets revalued                     |  | 315,813   |  | 110,807   | 
|                                        |  |           |  |           | 

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NOTE 23 - RECONCILIATION
  OF STATUTORY AND US ACCOUNTING PRINCIPLES

The accompanying financial
  statements are prepared in accordance with the statutory accounting principles
  and other pronouncements applicable to the financial services sector in Portugal
  (Portuguese GAAP), which vary from US GAAP in the following significant aspects:


|a) | Revaluation of
      property and equipment                                                                                                                                                                                                                                                                                                                                               
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                           
|   | As described in Note
      2.3 d), the Bank and certain subsidiaries have revalued through approved
      government indices the cost and accumulated depreciation of tangible fixed
      assets in accordance with applicable legislation. Under US GAAP, these assets
      are carried at historical cost less depreciation.                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                           
|   | The adjustments indicated
      below for US GAAP purposes have been calculated to reflect the reversal
      of the revaluation referred to above and the additional income that would
      have resulted had the BES Group not restated the fixed assets that have
      been sold each year and not charged the additional depreciation to income
      on the remaining fixed assets.
|   |                                                                                                                                                                                                                                                                                                                                                                                           
|   | In accordance with
      Portuguese GAAP, depreciation of fixed assets is computed on the revalued
      amount and the total amount of depreciation is charged to income.                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                           
|   | The adjustment for
      US GAAP purposes can be analyzed as follows:                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                           

| |                                             | Increase/(decrease)
      in |         
| | ------------------------------------------- | ---------------------------- | --------
| |                                             | Net Income                   |         
| |                                             |                              |         
| |                                             |                              | 2001    
| |                                             |                              |         
| | Total
      depreciation booked in the year |                              | 2,579   
| | Sales in the period                         |                              | 4       
| |                                             |                              |         
| |                                             |                              | 2,583   
| |                                             |                              |         
| | Reversal
      of revaluation reserve       |                              | (108,913
| |                                             |                              |         

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|b) | Bonus paid to employees                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | The Bank’s statutes
      allow the Banks shareholders to approve the distribution of profits
      to its employees. This distribution of profits is recorded in the local
      financial statements as a distribution of earnings only in the period in
      which it is paid and charged against retained earnings (see Note 2.3 i)).
      Under US GAAP, such distributions of profits to employees are considered
      as an expense in the year to which they relate.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | On the basis of the
      proposed profit distribution for 2002 made by the Board of Directors and
      approved by the General Shareholders Meeting of BES and subsidiaries,
      the bonus to employees to be paid in 2003, amount to approximately 21.7
      million euros.                                                                                                                                                                                              

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The differences in
  the bonus values for the years 2002 and 2001 are reconciled as follows:


|                                                                                                                    | 2002                           | 
|------------------------------------------------------------------------------------------------------------------- | ------------------------------ | 
|                                                                                                                    |                                | 
|                                                                                                                    | Increase/(decrease)
        in | 
|                                                                                                                    |                                | 
|                                                                                                                    | Net                            | 
|                                                                                                                    | Income                         | 
|                                                                                                                    |                                | 
|Bonus accrued
      under US GAAP in 2001                                                                           | 20,050                         | 
|Actual amount
      paid by BES and subsidiaries and charged against reserves in local accounts                     | 21,620                         | 
|                                                                                                                    |                                | 
|Over-accrual
      in 2001 charged in the 2002 US GAAP income statement (a)                                         | 1,570                          | 
|                                                                                                                    |                                | 
|Bonus accrued
      under US GAAP in 2002, to be paid and recorded against reserves in 2003
      in local accounts | 21,696                         | 
|                                                                                                                    |                                | 
|Impact on
      US GAAP 2002 income statement                                                                       | 23,266                         | 
|                                                                                                                    |                                | 

|                                                                                                                    |                                | 
|------------------------------------------------------------------------------------------------------------------- | ------------------------------ | 
|                                                                                                                    | 2001                           | 
|                                                                                                                    |                                | 
|                                                                                                                    | Increase/(decrease)
        in | 
|                                                                                                                    |                               
|                                                                                                                    | Net                            | 
|                                                                                                                    | Income                         | 
|                                                                                                                    |                                | 
|Bonus accrued
      under US GAAP in 2000                                                                           | 23,705                         | 
|Actual amount
      paid by BES and subsidiaries and charged against reserves in local accounts                     | 24,703                         | 
|                                                                                                                    |                                | 
|Over-accrual
      in 2000 charged in the 2001 US GAAP income statement (a)                                         | 998                            | 
|                                                                                                                    |                                | 
|Bonus accrued
      under US GAAP in 2001, to be paid and recorded against reserves in 2002
      in local accounts | 20,050                         | 
|                                                                                                                    |                                | 

|   
|---
|(a)



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|c) | Investment
      securities
|-- | ---------------------------

BES Group
    adopted SFAS 115 Accounting for Certain Investments in Debt and Equity
    Securities, which addresses the accounting for investments in equity
    and debt securities. Investment
    securities available-for-sale - According to Portuguese GAAP, net unrealized
    losses determined on an individual investment basis are recognized in the
    income statement, and net unrealized gains are not recorded. US GAAP requires
    that securities classified as available-for-sale be carried at fair value.
    Unrealized gains and losses are recorded in shareholders equity, net
    of applicable taxes, except where there has been a decline in fair value of
    available for sale securities, which is judged to have been other-than temporary,
    for which the amount of the write-down is included directly in earnings. For US GAAP
    purposes, held to maturity securities are carried at amortized cost less a
    provision for any other-than temporary impairment. Long-term
    strategic investments are classified as Other equity holdings and, under Portuguese
    GAAP, must be recorded at acquisition cost less provisions calculated in accordance
    with the Bank of Portugal rules, which are described in Note 2.2 c). Under
    US GAAP these investments are treated as securities available for sale and
    accounted under the criteria referred to above. The adjustments
    in Investment securities and Other equity holdings, as of December 31, 2002,
    in order to bring their valuation in line with US GAAP, can be analyzed as
    follows:


|                                                            | Increase/(decrease)
        in |              
|----------------------------------------------------------- | ------------------------------ | -------------
|                                                           
|Net                                                         |                                | Shareholders
|Income                                                      |                                | Equity       
|                                                            |                                |              
|Unrealized/Impairment
      losses on Other equity holdings |                                |              
|not
      recognized under Local GAAP                       |                                |              
|Portugal
      Telecom                                      | (106,870                       | )            
|PTM                                                         | —                              |              
|Bradesco                                                    | (120,711                       | )            
|BMCE                                                        | (11,803                        | )            
|Bradespar                                                   | (20,777                        | )            
|Novabase                                                    | (9,931                         | )            
|Others                                                      | (3,511                         | )            
|                                                            |                                |              
|Other
      equity holdings                                 | (273,603                       | )            
|                                                            |                                |              
|Unrealized
      gains/Impairment losses                    |                                |              
|not
      recognized under Local GAAP                       |                                |              
|Available
      for sale portfolio                          | (52,143                        | )            
|Held
      to maturity portfolio                            | (421                           | )            
|                                                            |                                |              
|Investment
      securities                                 | (52,564                        | )            
|                                                            |                                |              
|Total
      investment securities                           | (326,167                       | )            
|                                                            |                                |              

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|d) | Pensions
      and other post retirement costs
|-- | ----------------------------------------------

As referred to in Note
  2.3 h), the Group is liable for pensions, including widows and orphans benefits
  and permanent disability as stipulated in the ACTV  Acordo Colectivo
  de Trabalho Vertical do Sector Bancário. The funding policy in
  place is to make annual contributions so as to cover the project benefit obligation.
  This funding policy is in line with the requirements of the Bank of Portugal. Additionally, it also
  provides supplemental health care benefits to employees and retirees. Under
  this health care plan, the Group is required to make annual contributions to
  a health care organization that covers the entire banking system. These benefits
  are provided through a multi-employer plan. The costs of this supplemental health
  care benefits are accounted for on a cash basis under Portuguese GAAP. The accounting
    policy for pensions under Portuguese GAAP is explained in Note 2.3 h) and
    follows the rules established by the Bank of Portugal in Regulation no. 12/2001.
    This regulation in force since December 2001, introduced several changes in
    the accounting for pensions allowing the deferral, under the corridor method,
    of actuarial gains and losses generated after 2001. Therefore, until that
    date the Group charged these actuarial gains and losses to the statement of
    income for Portuguese GAAP purposes and deferred them, under the corridor
    method, for US GAAP purposes. Additionally, under
  this Regulation, for local purposes banks are allowed to capitalize early retirement
  costs and amortize over a period of 10 years which is not allowed under US GAAP. The major impacts on
  the Groups consolidated financial statements of the application of SFAS
  87 Employers Accounting for Pensions and of SFAS 106 Employers Accounting
  for Post Retirement Benefits Other than Pensions are analyzed and follows:


|                                             | Increase/(decrease)
        in |  
|-------------------------------------------- | ------------------------------ | -
|Net
        Income                          
|                                             |                                |  
|Early retirements
      (Pensions)           | (70,379                        | )
|Health benefits
      - Net periodic cost(1) | (31,260                        | )
|Other                                        | 1,353                          |  
|                                             |                                |  
|                                             | (100,286                       | )
|                                             |                                |  

|   
|---
|(1)



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|                                                                      | Increase/(decrease)
        in |  
|--------------------------------------------------------------------- | ------------------------------ | -
|Shareholders
        equity                                         
|                                                                      |                                |  
|Accrual
      for health benefits                                     | (31,260                        | )
|Actuarial
      losses(2)                                             | 230,277                        |  
|Other                                                                 | 2,536                          |  
|                                                                      |                                |  
|                                                                      | 201,553                        |  
|Additional
      minimum liability (in Other Comprehensive Income)(3) | (10,296                        | )
|                                                                      |                                |  
|                                                                      | 191,257                        |  
|                                                                      |                                |  

|   
|---
|(2)
|(3)

Until December
    31, 2001 Management believed that no liability needed to be recognized under
    US GAAP for the health care benefits as it was expected that this health benefit
    plan was not legally binding and would be integrated in the future under the
    State Social Security System. During 2002 the Group has reassessed the accounting
    of the health benefit plan under paragraph 8 of SFAS 106 and has concluded
    that based on the practice of paying postretirement health benefits an obligation
    should be recorded by the Group. On this basis, the Group charged to the Statement
    of income in 2002, the projected benefit obligation as at December 31, 2001
    net of the transition obligation calculated under the rules of SFAS 106 and
    excluding the actuarial losses as at that date. The projected benefit
  obligations as at December 31, 2001 and 2002 of the Group, for the pension and
  postretirement health plan, were calculated based on the Projected Unit Credit
  Method and considered the actuarial assumptions described in Note 13. The reconciliation
  of the funded status can be analyzed as follows:


|                                         | 2000                   |   | 2001                   |   | 2002                   |  
|---------------------------------------- | ---------------------- | - | ---------------------- | - | ---------------------- | -
|                                         |                        |   |                        |   |                        |  
|                                         | Pension
      Benefits |   | Pension
      Benefits |   | Pension
      Benefits |  
|                                         |                        |   |                        |   |                        |  
|Accumulated
      Benefit Obligation     | 774,645                |   | 856,545                |   | 1,039,557              |  
|Projected
      Benefit Obligation       | 920,453                |   | 1,017,138              |   | 1,174,560              |  
|Plan
      Assets                        | 772,859                |   | 925,622                |   | 1,089,044              |  
|                                         |                        |   |                        |   |                        |  
|Funded
      status                      | (147,594               | ) | (91,516                | ) | (85,516                | )
|Unrecognized
      transition obligation | 80,998                 |   | 65,431                 |   | 58,153                 |  
|Unrecognized
      prior service cost    | 17,526                 |   | 15,347                 |   | 14,311                 |  
|Unrecognized
      net actuarial loss    | 311,232                |   | 398,656                |   | 584,322                |  
|                                         |                        |   |                        |   |                        |  
|Prepaid/(accrued)
      benefit cost     | 262,162                |   | 387,918                |   | 571,270                |  
|                                         |                        |   |                        |   |                        |  
|Minimum
      liability recognized       | —                      |   | —                      |   | —                      |  
|Intangible
      asset                   | —                      |   | —                      |   | —                      |  
|Other
      Comprehensive Income         | —                      |   | —                      |   | —                      |  
|                                         |                        |   |                        |   |                        |  

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The unrecognized net
  obligations at transition, the unrecognized prior service costs, and the net
  gains or losses, are being amortized over 23 years, as this is the average remaining
  service life of active employees. The change in the benefit
  obligation and plan assets can be analyzed as follows:


|                                                         | 2000                   |   | 2001                   |   | 2002                   |  
|-------------------------------------------------------- | ---------------------- | - | ---------------------- | - | ---------------------- | -
|                                                         |                        |   |                        |   |                        |  
|                                                         | Pension
      Benefits |   | Pension
      Benefits |   | Pension
      Benefits |  
|                                                         |                        |   |                        |   |                        |  
|Change
      in benefit obligation                       |                        |   |                        |   |                        |  
|Benefit
      obligation at the beginning of year        | 843,690                |   | 920,453                |   | 1,017,138              |  
|                                                         |                        |   |                        |   |                        |  
|Increase
      resulting from business combination       | —                      |   | —                      |   | 7,474                  |  
|Service
      cost                                       | 12,179                 |   | 12,100                 |   | 14,400                 |  
|Interest
      cost                                      | 57,320                 |   | 61,698                 |   | 59,993                 |  
|Plan participants
      contribution                    | 1,839                  |   | 2,228                  |   | 1,962                  |  
|Curtailment
      losses related to early retirements    | 45,939                 |   | 77,950                 |   | 78,963                 |  
|Actuarial
      loss/(gain)                              | 5,612                  |   | 674                    |   | 60,592                 |  
|Benefits
      paid by Fund                              | (46,126                | ) | (57,965                | ) | (65,962                | )
|Benefits
      paid by the Company                       | —                      |   | —                      |   | —                      |  
|                                                         |                        |   |                        |   |                        |  
|Benefit
      obligation at the end of year              | 920,453                |   | 1,017,138              |   | 1,174,560              |  
|                                                         |                        |   |                        |   |                        |  
|Change
      in Plan Assets  2002                       |                        |   |                        |   |                        |  
|Fair Value
      of Plan Assets at the beginning of year | 742,200                |   | 772,859                |   | 925,622                |  
|                                                         |                        |   |                        |   |                        |  
|Business
      combination                               | —                      |   | —                      |   | 7,474                  |  
|Actual return
      on Plan Assets                       | (10,474                | ) | (29,903                | ) | (85,069                | )
|Employer
      contributions                             | 82,435                 |   | 234,665                |   | 305,017                |  
|Plan participants
      contributions                   | 4,856                  |   | 5,997                  |   | 1,962                  |  
|Benefits
      paid by Fund                              | (46,158                | ) | (57,996                | ) | (65,962                | )
|                                                         |                        |   |                        |   |                        |  
|Fair Value
      of Plan Assets at the end of year       | 772,859                |   | 925,622                |   | 1,089,044              |  
|                                                         |                        |   |                        |   |                        |  

Separate Net
    Periodic Benefit Costs have been produced for pensions and healthcare.


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A summary of the components
  of the net periodic pension and post-retirement benefit cost for the plans is
  given below.


|                                                                | 2000     |          | 2001     |   | 2002    |  
|--------------------------------------------------------------- | -------- | -------- | -------- | - | ------- | -
|                                                                |          |          |          |   |         |  
|                                                                | Pension  |          | Pension  |   | Pension |  
|Benefits                                                        | Benefits | Benefits | Benefits
|                                                                |          |          |          |   |         |  
|Service
      cost                                              | 12,178   |          | 12,100   |   | 14,400  |  
|Interest
      cost on projected benefit obligations            | 57,320   |          | 61,698   |   | 59,993  |  
|Expected
      return on plan assets                            | (53,001  | )        | (59,239  | ) | (52,826 | )
|Amortization
      of the initial unfunded obligation           | 7,278    |          | 7,278    |   | 7,278   |  
|Amortization
      of the unrecognized prior
      service cost | 1,036    |          | 1,036    |   | 1,036   |  
|Amortization
      of the unrecognized net (gain)/loss          | 7,470    |          | 10,593   |   | 12,821  |  
|Curtailment
      losses related to early retirements           | 45,939   |          | 77,950   |   | 78,963  |  
|                                                                |          |          |          |   |         |  
|Net periodic
      benefit cost                                 | 78,220   |          | 111,416  |   | 121,665 |  
|                                                                |          |          |          |   |         |  

The development of prepaid
  / (accrued) benefit cost can be analyzed as follows:


|                                                                | 2002     |  
|--------------------------------------------------------------- | -------- | -
|                                                                |          |  
|                                                                | Pension  |  
|Benefits                                                        | Benefits
|                                                                |          |  
|Prepaid
      / (accrued) benefit cost at the beginning of year | 387,918  |  
|Net periodic
      cost                                         | (121,665 | )
|Employer
      contributions and other contributions            | 305,017  |  
|                                                                |          |  
|Benefit
      obligation at the end of year                     | 571,270  |  
|                                                                |          |  



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|e) | Impairment
      of loans
|-- | -------------------------

SFAS 114 Accounting
  by Creditors for Impairment of a Loan as amended by SFAS 118 was implemented
  for US GAAP purposes. These statements require that impairment of large balance,
  non-homogenous loans be measured by comparing the net carrying amount of the
  loan to the present value of the expected future cash flows discounted at the
  loans effective rate, the secondary market value of the loan, or the fair value
  of the collateral for collateral-dependent loans. A valuation allowance
  is established, if necessary, within the overall allowance for credit losses.
  Small balances, homogenous portfolios, including consumer mortgages, are collectively
  evaluated for impairment. For US GAAP purposes, the allowance deemed necessary
  to cover the impairment calculated as described above is charged against net
  income. The following table
  sets forth information regarding BES Group impaired loans:


|                                                         | 2000      |   | 2001      |   | 2002      |  
|-------------------------------------------------------- | --------- | - | --------- | - | --------- | -
|                                                         |           |   |           |   |           |  
|Loans under
      SFAS 114 scope with an allowance       | 833,068   |   | 1,482,525 |   | 2,204,911 |  
|Loans under
      SFAS 114 scope without an allowance(1) | 284,809   |   | 423,615   |   | 534,317   |  
|                                                         |           |   |           |   |           |  
|Total loans
      under SFAS 114 scope                   | 1,117,877 |   | 1,906,140 |   | 2,739,228 |  
|Allowance
      for loans under SFAS 114 scope           | (532,940  | ) | (566,454  | ) | (721,456  | )
|                                                         |           |   |           |   |           |  
|Total loans
      under SFAS 114 scope, net              | 584,937   |   | 1,339,686 |   | 2,017,772 |  
|                                                         |           |   |           |   |           |  

|   
|---
|(1)

As of December 31, 2001,
  based on the application of SFAS 114 in the calculation of impairment losses
  on a loan by loan basis, the Group identified an excess provision on a consolidated
  basis amounting to approximately 45 million euros. Due mainly
    to the economic environment in Portugal and in Europe, the application of
    the same rule in 2002 led to the conclusion that there is no excess provision
    to be reverted for US GAAP purposes, except a provision booked in BESSA, the
    Spanish subsidiary, amounting to 9.9 million euros. This provision in BESSA
  is set up above the specific and statistical provisions and does not reflect
  the credit quality of the loan portfolio or the Companys own experience
  of impairment. Therefore this provision was written-back for US GAAP purposes.




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|f) | Depositors
      guarantee fund
|-- | --------------------------------

For
  US GAAP purposes, the portion of the Banks annual contribution to the
  Depositors guarantee fund that is not expensed for statutory purposes
  (see Note 2.3 j)), but is guaranteed through certificates of deposit and accounted
  for in off balance sheet items, is charged to annual income.


|g) | Goodwill
|-- | --------

Under Portuguese GAAP,
  Goodwill arising on the acquisition of subsidiary and associated companies is
  determined as the excess of acquisition cost over the underlying net assets
  and is charged against retained earnings in the year of acquisition. Until December 31,
  2001, under US GAAP, the Goodwill arising on acquisitions was reclassified as
  an intangible asset to be amortized over a period of 25 years, which was the
  managements estimate of the useful life. On January 1, 2002, the Group
  adopted SFAS 142, which establishes that Goodwill, including previously existing
  Goodwill, and intangible assets with indefinite useful lives, does not need
  to be amortized but rather tested for impairment at least annually. Under SFAS
  142, all recorded Goodwill must be assigned to one or more reporting units of
  the entity and evaluated for impairment at that level. BES Group reviews its
  Goodwill annually for other than temporary impairment. If such impairment is
  indicated, a loss is recognized in the year. The reconciliation
  of Goodwill between Portuguese GAAP and US GAAP can be analyzed as follows:


|                                                                                         | Increase/(decrease)
        in |  
|---------------------------------------------------------------------------------------- | ------------------------------ | -
|Shareholders
        equity                                                            
|                                                                                         |                                |  
|                                                                                         | 2001                           |  
|                                                                                         |                                |  
|Goodwill
        written off against reserves for Portuguese GAAP purposes (see Note 16) | 281,187                        |  
|US GAAP
      adjustments:                                                               |                                |  
|Amortization
      up to December 31, 2001                                               | (31,450                        | )
|Impairment
        losses recognized in prior years (1)                                  | (54,549                        | )
|Capital
      reserve charged to the statement of income                                 | 4,597                          |  
|                                                                                         |                                |  
|Goodwill
        capitalized under US GAAP as of December 31                             | 199,785                        |  
|Impairment
      losses recognized in the year                                           | —                              |  
|                                                                                         |                                |  
|Net
        balance of Goodwill as of December 31                                        | 199,785                        |  
|                                                                                         |                                |  

|   
|---
|(1)



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During the period ending
  December 31, 2002, there were not any significant changes in the carrying amount
  of Goodwill (see Note 16). The impact on the statement
  of income for the year ended December 31, 2002 of the adjustments made for the
  US GAAP reconciliation purposes can be analyzed as follows:


|                                               | Increase/(decrease)
        in |  
|---------------------------------------------- | ------------------------------ | -
|Net
        Income                            
|                                               |                                |  
|New Goodwill
      of Interatlântico           | (6,500                         | )
|Capital
      reserve charged to net income    | 4,436                          |  
|Impairment
      losses recognized in the year | (28,792                        | )
|                                               |                                |  
|                                               | (30,856                        | )
|                                               |                                |  

In 2002 BES Group increased
  its Goodwill in Interatlântico by an amount of euro 6,500 thousand. However,
  this fully owned subsidiary was sold in December 2002 and therefore this Goodwill
  was charged against income for US GAAP purposes in order to adjust the gain
  arising from this sale. In 2002 BES Group entered
  into a business combination from which resulted an excess of fair value of acquired
  net assets over cost. For US GAAP purposes this excess was considered a gain
  following the rules of SFAS 141. Impairment losses identified
  as of December 31, 2002 can be analyzed as follows:


|                     | Other  | 
|-------------------- | ------ | 
|operating           
|business
      units
|                     |        | 
|Jampur               | 15,306 | 
|Portline             | 4,693  | 
|Oblog                | 8,793  | 
|                     |        | 
|                     | 28,792 | 
|                     |        | 

The impairment of the
  operating business units disclosed above was determined based on the estimated
  fair value of the respective businesses calculated as the present value of expected
  future cash flows and quoted market prices when available.


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The Intangible assets
  disclosure requirements in accordance with SFAS 142 for the years ended December
  31, 2001 and 2002, can be analyzed as follows:


|                                                            | 2001     |   | 2002     |  
|----------------------------------------------------------- | -------- | - | -------- | -
|                                                            |          |   |          |  
|Intangible
      assets subject to amortization             |          |   |          |  
|Set
      up costs                                          | 19,145   |   | 23,107   |  
|Software                                                    | 290,935  |   | 395,885  |  
|Other                                                       | 41,849   |   | 25,759   |  
|                                                            |          |   |          |  
|Gross
      Carrying Amount                                 | 351,929  |   | 444,751  |  
|Accumulated
      Amortization                              | (263,982 | ) | (339,371 | )
|                                                            |          |   |          |  
|                                                            | 87,947   |   | 105,380  |  
|                                                            |          |   |          |  
|Unamortized
      intangible assets                         |          |   |          |  
|Work
      in progress                                      | 94,401   |   | 78,368   |  
|Other                                                       | 31,363   |   | 21,006   |  
|                                                            |          |   |          |  
|Gross
      Carrying Amount                                 | 125,764  |   | 99,374   |  
|                                                            |          |   |          |  
|Total
      intangible assets recognized for local purposes | 213,711  |   | 204,754  |  
|                                                            |          |   |          |  

The aggregate amortization
  expense for the year ended December 31, 2002 amounted to euro 81,391 thousands
  (2001: euro 71,279 thousand). For US GAAP
    purposes, Intangible assets are reviewed and adjustments are included when
    appropriate, under Other adjustments (see Note 23 l)). The amortization
    expense for the years 2003 up to 2005 are not expected to be significantly
    different of those of 2002.


|h) | Derivative
      instruments
|-- | ----------------------------

On January 1, 2001,
  the Bank adopted SFAS 133, as amended by SFAS 137 and 138, which require all
  derivatives to be recorded on the balance sheet at fair value. According to
  SFAS 133, changes in derivatives fair value, for hedging transactions, are either
  recognized in earnings as offsets to the changes in fair value of related hedged
  assets, liabilities and firm commitments or, for hedges of forecasted transactions
  and cash flow hedges, deferred and recorded as a component of other shareholders
  equity until the hedged transaction occurs and is recognized in earnings. The
  ineffective portion of a hedging derivatives change in fair value is immediately
  recognized in earnings. For the purpose of
  applying the hedge accounting provisions of SFAS 133, the Bank has designated
  certain fair value hedges of interest rate risk under the short-cut method.
  The Bank has not designated cash flow hedges. For a discussion of the Banks
  use of derivatives, see note 17. The transition adjustment
  on the date of adoption of SFAS 133 resulted in a charge to income of euro 19,863
  thousand.




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The application of
  SFAS 133 had the following impact in earnings for the years ended December 31,
  2002 and 2001:


|                                                                                         | Increase/(decrease)
        in |  
|---------------------------------------------------------------------------------------- | ------------------------------ | -
|                                                                                         |                                |  
|                                                                                         | Net
        Income             |  
|                                                                                         |                                |  
|                                                                                         | 2001                           |  
|                                                                                         |                                |  
|Transition
      adjustment                                                              | (19,863                        | )
|Revaluation
      at fair value of hedging activities                                    | (3,276                         | )
|Revaluation
      at fair value of derivatives not designated as hedging derivatives (1) |                                |  
|                                                                                         | (31,266                        | )
|                                                                                         |                                |  
|                                                                                         | (54,405                        | )
|                                                                                         |                                |  

|   
|---
|(1)

BES Group issues financial
  instruments containing embedded derivatives. The embedded derivative is separated
  from the host contract and carried at fair value if the economic characteristics
  of the derivative are not clearly and closely related to the economic characteristics
  of the host contract.


|i) | Foreign
      currency translation
|-- | ----------------------------------

Until December 31,
  2001, foreign currency translation adjustments resulting from the translation
  of financial statements of associated and affiliated companies, originally expressed
  in currencies outside the euro-zone, were recognized under Portuguese GAAP in
  the balance sheet in other assets. For US GAAP purposes
  such translation adjustments were recognized in other comprehensive income. In 2002 BES Group changed
  its accounting policy for statutory purposes and foreign translation differences
  resulting from the translation of net assets and net income of associated and
  affiliated companies were charged against shareholders equity. Therefore,
  no adjustment is needed in 2002 for US GAAP purposes.


|j) | Securitization
|-- | --------------

SFAS 140 Accounting
  for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities
  requires disclosures about securitization transactions and collateral for fiscal
  years ending after December 15, 2000. BES Group has entered
  into securitization transactions under which it transferred loans and securities
  portfolio to third parties. Under the referred transactions the Group has retained
  interests in these securitized financial assets mainly under the form of subordinated
  bonds and cash reserves.


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Under Portuguese GAAP,
  all assets transferred were removed from the balance sheet. The retained interests
  were booked at their acquisition cost and the gain or loss on the transaction
  was calculated comparing the proceeds from the sale with the book value of the
  assets transferred. However, following the rules of the Bank of Portugal, BES
  Group made provisions in its financial statements, for both the loans and the
  securities portfolio transferred up to a maximum amount equivalent to the acquisition
  cost of the residual notes acquired. BES Group has, as of December
  31, 2002, the following securitization transactions in place:


|Bonds                          |  | Date            |  | Amount |               | Financial
      asset |                                       
|------------------------------ |  | --------------- |  | ------ | ------------- | --------------------- | --------------------------------------
|                               |  |                 |  |        |               |                       |                                       
|Lusitano
      No. 1           |  | Aug.
      1999 |  | EUR    | 250,000,000   |                       | Consumer
      loans                  
|Lusitano Global CDO
      No.1 |  | Aug.
      2001 |  | EUR    | 1,144,300,000 |                       | Eurobonds
      and other bonds       
|Lusitano Finance No.
      2   |  | Apr.
      2002 |  | EUR    | 450,000,000   |                       | Finance
      lease and consumer loans
|Lusitano Mortgages
      No. 1 |  | Dec.
      2002 |  | EUR    | 1,000,000,000 |                       | Mortgage
      loans                  

BES Group Management considered
  that although the Lusitano Global CDO No.1, the Lusitano Finance No. 2 and the
  Lusitano Mortgages No. 1 transactions might meet the requirements set out in
  SFAS 140 for sale treatment, regarding the consolidation rules for Special Purpose
  Entities, for the transactions occurred in 2002, the acquiring entities must
  be consolidated for US GAAP purposes. If the assets transferred under these
  transactions were restated as of December 31, 2002, consolidated assets and
  liabilities would be increased by approximately euro 2,378.3 million and euro
  2,380.4 million, respectively. Moreover, BES Group would recognize an additional
  loss of 9.1 million and other comprehensive income of 7 million. For US GAAP purposes Lusitano
  No. 1 was recognized as a sale, and the gain or loss on the sale of loans was
  calculated measuring all the proceeds and reductions of the proceeds at their
  fair value at the date of the transfer. To obtain fair values, quoted market
  prices were used if available. Due to the fact that quotes are generally not
  available for retained interests, BES estimated their fair value as the present
  value of the future expected cash flows, projected based on key assumptions
  made by Management regarding credit losses, timing of prepayment, yield curves
  and discount rates. In relation to Lusitano
  No. 1 the transferor acts as servicer. However, no servicing asset or liability
  was accounted for, as Management estimates that the benefits of servicing are
  just adequate to compensate the Bank for its servicing responsibilities. No
  gain or loss was recorded in this transaction, as the underlying assets were
  sold at their book value, which was approximately their fair value at the date
  of the transaction.


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The retained interests
  over the securitized assets, which were received, can be analyzed as follows:


|               | Acquisition |  | Fair Value   | 
|-------------- | ----------- |  | ------------ | 
|               | cost        |  | Dec 31, 2002 | 
|               |             |  |              | 
|Lusitano No. 1 | 50          |  | 4,320        | 
|               |             |  |              | 
|               | 50          |  | 4,320        | 
|               |             |  |              | 

For US GAAP purposes these
  retained interests, which are kept at acquisition cost less provision for Portuguese
  GAAP purposes, were revalued at fair value as of December 31, 2002. For US GAAP
  purposes BES Group recognized a cost of euro 10 million (2001: euro 5.9 million)
  that reflects the change in fair value occurred in the year. The main assumptions used
  in the calculation of the fair value of the retained interest were:


|                                    | 2002                   |  
|----------------------------------- | ---------------------- | -
|                                    |                        |  
|Discount rates                      | Euribor
      3 months |  
|Expected prepayments                | 18                     | %
|Weighted average life
      (years) | 2.25                   |  
|Anticipated credit losses           | 4.1                    | %

Sensitivity analysis was
  carried out for Lusitano No. 1 transaction considering unfavorable combined
  variations of the write-offs and prepayments. The discount rate was held constant.
  The results obtained were as follows:


|Variation |   | Write-offs |   | Prepayments |   | Fair Value   | 
|--------- | - | ---------- | - | ----------- | - | ------------ | 
|          |   |            |   |             |   | Dec 31, 2002 | 
|          |   |            |   |             |   |              | 
|50        | % | 3.75       | % | 27          | % | 3,031        | 
|100       | % | 5%         |   | 36          | % | 1,650        | 

Cash flows of Lusitano
  No.1 transaction were:






|Sale
      of |  | Servicing |  | Cash-flow
      received from | 
|------------- |  | --------- |  | ----------------------------- | 
|Assets        |  | Fees      |  | retained interests            | 
|              |  |           |  |                               | 
|—             |  | 879       |  | 7,338                         | 



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As of December 31, 2002,
  total amount outstanding, delinquencies and defaults of the securitized assets
  considered as sales can be analyzed as follows:


|               | Principal |  | Delinquencies |  | Defaults | 
|-------------- | --------- |  | ------------- |  | -------- | 
|               | amount    |  |               |  |          | 
|               |           |  |               |  |          | 
|Lusitano No. 1 | 116,570   |  | 4,921         |  | 9,550    | 
|               |           |  |               |  |          | 

The adjustment made for
  US GAAP purposes, can be analyzed as follows:


|                               | Increase/(decrease)
      in |  
|------------------------------ | ---------------------------- | -
|                               |                              |  
|                               | Net Income                   |  
|                               |                              |  
|                               | 2001                         |  
|                               |                              |  
|Lusitano No. 1                 | (5,868                       | )
|Lusitano Global CDO
      No.1 | —                            |  
|Lusitano Finance No.
      2   | —                            |  
|Lusitano Mortgages No.
      1 | —                            |  
|                               |                              |  
|                               | (5,868                       | )
|                               |                              |  
|                               |                              |  

|k) | Credit Linked
      Notes
|-- | -------------------------

Included in the securities
  portfolio of BES Group are included Credit Linked Notes (CLN) issued
  by Special Purpose Entities. The Group reviewed the
  CLN in the light of the US GAAP consolidation rules for Special Purpose Entities
  and concluded that a significant part of the CLN are issued by entities that
  must be included in consolidation as they are held/controlled by BES or its
  subsidiaries. The major part of these
  CLN includes debt that is the obligation of the Banks subsidiaries. These
  CLN and related debt are recorded on the Banks consolidated balance sheet
  under Portuguese GAAP. Under US GAAP, the CLN and debt, and related interest
  income and expense, are eliminated upon consolidation as an intercompany transaction.
  The derivatives contained in the CLN are separately recorded at fair value on
  the balance sheet. As of December 31, 2002, the interest receivable and payable
  was euro 6.4 million and euro 39.3 million, respectively (2001: euro 24.4 million
  and 30.9 million, respectively). The assets and liabilities eliminated at December
  31, 2002 was approximately euro 1,369 million (2001: euro 1,190 million). As
  of December 31, 2002, the fair value of the derivatives was euro (83.1) million
  (2001: euro (12.2) million). The effect in the statement of income of consolidating
  these CLN amounts to a loss of euro 31.9 million and in retained earnings amounts
  to a loss of euro 11.7 million. Additionally, the consolidation
  of the remaining CLN would have a negative impact of euro 0.6 million in total
  assets against Other comprehensive income.


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The adjustments made for
  US GAAP purposes, can be analyzed as follows:


|                    | Increase/(decrease)
      in |  
|------------------- | ---------------------------- | -
|                    |                              |  
|                    | Net Income                   |  
|                    |                              |  
|                    | 2001                         |  
|                    |                              |  
|Credit Linked Notes | (11,704                      | )
|                    |                              |  
|                    | (11,704                      | )
|                    |                              |  
|                    |                              |  

|l) | Other adjustments
|-- | -----------------

Costs related to increases
  in share capital and to debt issuance

In accordance with Portuguese
    GAAP, costs related to the issue or increase in share capital are deferred
    and amortized over a period of three years (see Note 2.3 e)). Under US GAAP,
    such costs are charged against shareholders equity, as incurred. Under Portuguese GAAP,
    debt issuance costs are also amortized over a period of three years (see Note
    2.3 e)), whereas under US GAAP those costs are amortized over the period of
    the debt.


Adaptation costs for
  the Euro and the Year 2000 problem

As described in Note 2.3
  k), the costs incurred during 1998, 1999 and 2000 with the adoption of the Euro
  were deferred in the balance sheet and were amortized over the three years ending
  December 31, 2001, as required by the Bank of Portugal. Additionally, the costs
  specifically related with the resolution of the year 2000 problem were accounted
  for in property and equipment or intangible assets, according to the nature
  of the cost, and will be depreciated over a three to four year period. Under US GAAP, both these
  costs were expensed when incurred.


Indemnity Fund

Indemnity fund corresponds
  to an allowance for restructuring set up by BESSA, which does not comply with
  the requirements of US GAAP due to the fact that no plan was completed nor the
  respective details disclosed to the employees.


Advertising and other
  deferred costs

Certain advertising and
  deferred costs are capitalized and amortized for Portuguese GAAP purposes. For
  US GAAP purposes these types of costs are expensed when incurred.


Treasury stock

Under Portuguese GAAP,
    treasury stock is presented under assets in the financial statements, with
    changes in fair value recorded in the income statement. Under US GAAP, treasury
    stock should be presented as a reduction in shareholders equity and
    gains or losses arising
    from trading should be accounted for as part of equity. As of December 31,
    2002 there was no treasury stock.


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The following tables show
    the adjustments made for US GAAP purposes:


|                                           | 2002                         |  
|------------------------------------------ | ---------------------------- | -
|                                           |                              |  
|                                           | Increase/(decrease)
      in |  
|                                           |                              |  
|                                           | Net                          |  
|                                           | Income                       |  
|                                           |                              |  
|Euro and Y2K costs                         | 4,959                        |  
|Stock issue costs                          | 1,314                        |  
|Debt issue costs                           | (277                         | )
|Reversal
      of the indemnity fund       | 2,300                        |  
|Advertising and other
      deferred costs | (2,423                       | )
|                                           |                              |  
|                                           | 5,873                        |  
|                                           |                              |  
|                                           |                              |  
|                                           | 2001                         |  
|                                           |                              |  
|                                           | Increase/(decrease)
      in |  
|                                           |                              |  
|                                           | Net                          |  
|                                           | Income                       |  
|                                           |                              |  
|Euro and Y2K costs                         | 7,762                        |  
|Stock issue costs                          | 419                          |  
|Debt issue costs                           | 109                          |  
|Advertising and other
      deferred costs | (5,118                       | )
|Treasury stock                             | (1,119                       | )
|                                           |                              |  
|                                           | 2,053                        |  
|                                           |                              |  
|                                           |                              |  

|m) | Deferred income
      taxes
|-- | ---------------------------

In accordance with SFAS
  109 Accounting for Income Taxes, BES Group has assessed its evaluation
  of the deferred tax assets and concluded that there is a reasonable basis to
  account for deferred taxes on the US GAAP adjustments which are deductible temporary
  differences. For US GAAP purposes,
  the deferred tax is determined based on enacted tax rates applicable when the
  underlying items of income and expense are expected to be reported to tax authorities.
  Deferred tax assets are recognized in full but a valuation allowance is established
  when it is more likely than not that some or all of the deferred tax assets
  will not be realized. As of December 31, 2002, 2001 and 2000 no allowance was
  set up for the deferred tax asset, as management believes that it will be realized
  in the future. The components of income
  tax expense applied in the determination of the consolidated net income for
  December 31, 2002, 2001 and 2000 for Portuguese GAAP purposes are summarized
  below:


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|                                  | 2000   |  | 2001   |  | 2002   | 
|--------------------------------- | ------ |  | ------ |  | ------ | 
|                                  |        |  |        |  |        | 
|Current income tax expense        | 46,199 |  | 4,970  |  | 38,476 | 
|Deferred income tax
      expense | 17,788 |  | 33,584 |  | —      | 
|                                  |        |  |        |  |        | 
|                                  | 63,987 |  | 38,554 |  | 38,476 | 
|                                  |        |  |        |  |        | 

The reconciliation between
  the Portuguese statutory tax rate and effective tax rate for Portuguese purposes
  can be analyzed in Note 27. The deferred tax adjustments arising for US GAAP
  purposes were made at the statutory tax rate and have no significant impact
  on the effective rate for the income statement on a US GAAP basis. The additional net deferred
  tax liabilities/(assets), which would have been recorded on a US GAAP basis,
  are as follows:


|            | 2000   |   | 2001    |   | 2002     |  
|----------- | ------ | - | ------- | - | -------- | -
|            |        |   |         |   |          |  
|Current     | (3,756 | ) | (28,957 | ) | (107,415 | )
|Non-current | 21,434 |   | 276     |   | (43,400  | )
|            |        |   |         |   |          |  
|            | 17,678 |   | (28,681 | ) | (150,815 | )
|            |        |   |         |   |          |  

The components of deferred
  tax assets and liabilities as determined under SFAS 109 are as follows:


|                                                                                           | 2000    |   | 2001    |  | 2002    | 
|------------------------------------------------------------------------------------------ | ------- | - | ------- |  | ------- | 
|                                                                                           |         |   |         |  |         | 
|Gross deferred
      tax assets                                                            |         |   |         |  |         | 
|Unrealized
      gains/losses and other than temporary impairment on investment securities | 42,770  |   | 53,890  |  | 129,112 | 
|Revaluation
      of property and equipment                                                | 12,995  |   | 11,816  |  | 11,362  | 
|Euro
      and Y2K costs                                                                   | 5,224   |   | 2,337   |  | 701     | 
|Derivative
      instruments                                                               | —       |   | 18,238  |  | 3,520   | 
|Credit
      Linked Notes                                                                  | —       |   | —       |  | 14,177  | 
|Tax
      losses carried forward (1)                                                       | —       |   | 47,181  |  | 52,125  | 
|Others                                                                                     | 7,177   |   | 9,535   |  | 14,924  | 
|                                                                                           |         |   |         |  |         | 
|                                                                                           | 68,166  |   | 142,997 |  | 225,921 | 
|                                                                                           |         |   |         |  |         | 
|Gross deferred
      tax liabilities                                                       |         |   |         |  |         | 
|Impairment
      of loans                                                                  | 14,754  |   | 15,913  |  | —       | 
|Pensions
      and other post retirement costs                                             | 53,039  |   | 88,453  |  | 73,976  | 
|Securitization                                                                             | 7,099   |   | 857     |  | 741     | 
|Others                                                                                     | 10,834  |   | 9,093   |  | 389     | 
|                                                                                           |         |   |         |  |         | 
|                                                                                           | 85,726  |   | 114,316 |  | 75,106  | 
|                                                                                           |         |   |         |  |         | 
|Net deferred tax
      assets/(liabilities)                                                | (17,560 | ) | 28,681  |  | 150,815 | 
|                                                                                           |         |   |         |  |         | 
|                                                                                           |         |   |         |  |         | 

|(1)
       | Refers to tax
      losses carried forward, which will be set off against the Banks Portuguese
      income tax in future years and cannot be recognized under Portuguese GAAP.
|----------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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|n) | Summary of significant
      adjustments to net income
|-- | ------------------------------------------------------

The following is a summary
  of the significant adjustments to net income of BES Group which would be required
  if US GAAP had been applied:


|                                                                               | Notes |  | 2000    |   | 2001     |   | 2002     |  
|------------------------------------------------------------------------------ | ----- |  | ------- | - | -------- | - | -------- | -
|                                                                               |       |  |         |   |          |   |          |  
|Net Income under
      Portuguese GAAP                                         |       |  | 227,993 |   | 197,709  |   | 222,461  |  
|Revaluation of property
      and equipment                                    | a)    |  | 3,291   |   | 2,583    |   | 2,460    |  
|Goodwill                                                                       | g)    |  | (17,690 | ) | (13,449  | ) | (30,856  | )
|Bonus to employees                                                             | b)    |  | (23,705 | ) | (20,050  | ) | (23,266  | )
|Depositors guarantee
      fund                                               | f)    |  | (7,271  | ) | (8,124   | ) | (14,576  | )
|Pensions and other post
      retirement costs                                 | d)    |  | (45,467 | ) | (73,477  | ) | (100,286 | )
|Investment securities                                                          | c)    |  | (70,819 | ) | (103,266 | ) | (326,167 | )
|Securitization                                                                 | j)    |  | 3,120   |   | (5,868   | ) | (19,083  | )
|Credit Linked Notes                                                            | k)    |  | —       |   | (11,704  | ) | (31,884  | )
|Derivative instruments                                                         | h)    |  | (127    | ) | (54,405  | ) | 45,246   |  
|Impairment of loans                                                            | e)    |  | 19,612  |   | 3,706    |   | (35,539  | )
|Other adjustments                                                              | l)    |  | 4,141   |   | 2,053    |   | 5,873    |  
|                                                                               |       |  |         |   |          |   |          |  
|Income before tax effect                                                       |       |  | 93,078  |   | (84,292  | ) | (305,617 | )
|Deferred income taxes                                                          | m)    |  | 6,494   |   | 64,273   |   | 143,641  |  
|                                                                               |       |  |         |   |          |   |          |  
|Net Income in accordance
      with US GAAP                                    |       |  | 99,572  |   | (20,019  | ) | (161,976 | )
|                                                                               |       |  |         |   |          |   |          |  
|Net income in accordance
      with US GAAP per share of capital stock (units) |       |  | 0.67    |   | (0.10    | ) | (0.67    | )
|                                                                               |       |  |         |   |          |   |          |  
|Weighted average number
      of shares outstanding                            |       |  | 148,156 |   | 200,000  |   | 241,667  |  
|                                                                               |       |  |         |   |          |   |          |  

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|o) | Summary of significant
      adjustments to shareholders' equity
|-- | ----------------------------------------------------------------

The following is a summary
  of the significant adjustments to shareholders' equity of BES Group which would
  be required if US GAAP had been applied:


|                                                 | Notes |  | 2000      |   | 2001      |   | 2002      |  
|------------------------------------------------ | ----- |  | --------- | - | --------- | - | --------- | -
|                                                 |       |  |           |   |           |   |           |  
|                                                 |       |  |           |   |           |   |           |  
|Shareholders
      Equity under Portuguese GAAP |       |  | 1,439,428 |   | 1,403,684 |   | 2,001,480 |  
|Revaluation of property
      and equipment      | a)    |  | (111,493  | ) | (108,913  | ) | (106,453  | )
|Goodwill                                         | g)    |  | 199,565   |   | 199,785   |   | 203,100   |  
|Bonus to employees                               | b)    |  | (23,705   | ) | (20,050   | ) | (21,696   | )
|Depositors guarantee
      fund                 | f)    |  | (17,262   | ) | (25,386   | ) | (39,962   | )
|Pensions and other
      post retirement costs   | d)    |  | 257,721   |   | 301,839   |   | 191,257   |  
|Investment securities
      available for sale   | c)    |  | (113,103  | ) | (186,041  | ) | (390,695  | )
|Securitization                                   | j)    |  | 20,169    |   | 14,301    |   | 2,248     |  
|Credit Linked Notes                              | k)    |  | —         |   | (11,704   | ) | (42,962   | )
|Derivative instruments                           | h)    |  | (959      | ) | (55,912   | ) | (10,666   | )
|Impairment of loans                              | e)    |  | 40,040    |   | 45,508    |   | 9,969     |  
|Foreign currency translation                     | i)    |  | 11,459    |   | 22,655    |   | —         |  
|Other adjustments                                | l)    |  | (86,934   | ) | (10,432   | ) | (6,758    | )
|                                                 |       |  |           |   |           |   |           |  
|Shareholders
      Equity                       |       |  |           |   |           |   |           |  
|in accordance with
      US GAAP                 |       |  | 1,614,926 |   | 1,569,334 |   | 1,788,862 |  
|Deferred income taxes                            | m)    |  | (17,560   | ) | 28,681    |   | 150,815   |  
|                                                 |       |  |           |   |           |   |           |  
|Shareholders
      Equity                       |       |  |           |   |           |   |           |  
|in accordance with
      US GAAP - net of taxes  |       |  | 1,597,366 |   | 1,598,015 |   | 1,939,677 |  
|                                                 |       |  |           |   |           |   |           |  

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|p) | Consolidated
      statement of changes in shareholders' equity under US GAAP
|-- | -----------------------------------------------------------------------------
|   |                                                                              

|                                                                                                                               |               |   |           |   |          |   |         |   |          |   | Accumulated   |  
|------------------------------------------------------------------------------------------------------------------------------ | ------------- | - | --------- | - | -------- | - | ------- | - | -------- | - | ------------- | -
|                                                                                                                               | Total         |   |           |   |          |   |         |   |          |   | Other         |  
|                                                                                                                               | Shareholders |   | Capital   |   | Paid-in  |   | Legal   |   | Retained |   | Comprehensive |  
|                                                                                                                               | Equity        |   | Stock     |   | Capital  |   | Reserve |   | Earnings |   | Income        |  
|                                                                                                                               |               |   |           |   |          |   |         |   |          |   |               |  
|Balance
      on December 31, 1999                                                                                             | 1,267,482     |   | 587,500   |   | 217,385  |   | 41,100  |   | 418,436  |   | 3,061         |  
|Transfer
      to Legal reserve                                                                                                | —             |   | —         |   | —        |   | 16,262  |   | (16,262  | ) | —             |  
|Dividends
      paid                                                                                                           | (83,453       | ) | —         |   | —        |   | —       |   | (83,453  | ) | —             |  
|Increase
      in share capital by the issue of 82,500,000 new shares                                                          | 483,979       |   | 412,500   |   | 71,479   |   | —       |   | —        |   | —             |  
|Treasury
      stock                                                                                                           | (74,402       | ) | (74,402   | ) | —        |   | —       |   | —        |   | —             |  
|Net income                                                                                                                     | 99,572        |   | —         |   | —        |   | —       |   | 99,572   |   | —             |  
|Net change in unrealised gains
        and losses on investment securities available for sale  net of taxes                   | (84,002       | ) | —         |   | —        |   | —       |   | —        |   | (84,002       | )
|Excess of additional minimum
        liability over unrecognised prior service cost  additional charge
         net of taxes | (289          | ) | —         |   | —        |   | —       |   | —        |   | (289          | )
|Translation
      adjustment                                                                                                   | 22,915        |   | —         |   | —        |   | —       |   | —        |   | 22,915        |  
|Other reserves                                                                                                                 | (34,436       | ) | —         |   | —        |   | —       |   | (34,436  | ) | —             |  
|                                                                                                                               |               |   |           |   |          |   |         |   |          |   |               |  
|Balance
      on December 31, 2000                                                                                             | 1,597,366     |   | 925,598   |   | 288,864  |   | 57,362  |   | 383,857  |   | (58,315       | )
|Transfer
      to Legal reserve                                                                                                | —             |   | —         |   | —        |   | 13,438  |   | (13,438  | ) | —             |  
|Dividends
      paid                                                                                                           | (88,249       | ) | —         |   | —        |   | —       |   | (88,249  | ) | —             |  
|Treasury
      stock                                                                                                           | 74,402        |   | 74,402    |   | —        |   | —       |   | —        |   | —             |  
|Net
      income                                                                                                               | (20,019       | ) | —         |   | —        |   | —       |   | (20,019  | ) | —             |  
|Net change in unrealised gains
        and losses on investment securities available for sale  net of taxes                   | 35,022        |   | —         |   | —        |   | —       |   | —        |   | 35,022        |  
|Excess of additional minimum
        liability over unrecognised prior service cost  additional charge
         net of taxes | 4,311         |   | —         |   | —        |   | —       |   | —        |   | 4,311         |  
|Translation
      adjustment                                                                                                   | 7,754         |   | —         |   | —        |   | —       |   | —        |   | 7,754         |  
|Other
      reserves                                                                                                           | (12,572       | ) | —         |   | —        |   | —       |   | (12,572  | ) | —             |  
|                                                                                                                               |               |   |           |   |          |   |         |   |          |   |               |  
|Balance
      on December 31, 2001                                                                                             | 1,598,015     |   | 1,000,000 |   | 288,864  |   | 70,800  |   | 249,579  |   | (11,228       | )
|Transfer
      to Legal reserve                                                                                                | —             |   | —         |   | —        |   | 14,115  |   | (14,115  | ) | —             |  
|Dividends
      paid                                                                                                           | (75,200       | ) | —         |   | —        |   | —       |   | (75,200  | ) | —             |  
|Net income                                                                                                                     | (161,976      | ) | —         |   | —        |   | —       |   | (161,976 | ) | —             |  
|Increase
      in share capital by the issue of 100,000,000 new shares:                                                        |               |   |           |   |          |   |         |   |          |   |               |  
|By
      incorporation of reserves and share premium                                                                           | —             |   | 250,000   |   | (192,950 | ) | (57,050 | ) | —        |   | —             |  
|By
      subscription at 11 euros per share                                                                                    | 550,000       |   | 250,000   |   | 300,000  |   | —       |   | —        |   | —             |  
|Stock
      issue costs                                                                                                        | (1,581        | ) | —         |   | —        |   | —       |   | (1,581   | ) | —             |  
|Net change
      in unrealised gains and losses on investment securities available for sale
       net of taxes               | 62,137        |   | —         |   | —        |   | —       |   | —        |   | 62,137        |  
|Translation
      adjustment, net of taxes                                                                                     | (21,216       | ) | —         |   | —        |   | —       |   | —        |   | (21,216       | )
|Pensions
      adjustment, net of taxes                                                                                        | (6,893        | ) | —         |   | —        |   | —       |   | —        |   | (6,893        | )
|Credit
      linked notes, net of taxes                                                                                        | 419           |   | —         |   | —        |   | —       |   | —        |   | 419           |  
|Securitization,
      net of taxes                                                                                             | 4,714         |   | —         |   | —        |   | —       |   | —        |   | 4,714         |  
|Other
      reserves                                                                                                           | (8,742        | ) | —         |   | —        |   | —       |   | (8,742   | ) | —             |  
|                                                                                                                               |               |   |           |   |          |   |         |   |          |   |               |  
|Balance
      on December 31, 2002                                                                                             | 1,939,677     |   | 1,500,000 |   | 395,914  |   | 27,865  |   | (12,035  | ) | 27,933        |  
|                                                                                                                               |               |   |           |   |          |   |         |   |          |   |               |  

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|q) | Comprehensive
      income
|-- | --------------------------

Comprehensive
  income for the year equals net income plus changes in accumulated comprehensive
  income. The amounts for 2002, 2001 and 2000 are as follows:


|                                                      | 2000    |   | 2001    |   | 2002     |  
|----------------------------------------------------- | ------- | - | ------- | - | -------- | -
|                                                      |         |   |         |   |          |  
|Net
      Income/(Loss) in accordance with US GAAP    | 99,572  |   | (20,019 | ) | (161,976 | )
|                                                      |         |   |         |   |          |  
|Credit linked
      notes                             | —       |   | —       |   | 419      |  
|Unrealized
      gains/(losses) on securities         | (84,002 | ) | 35,022  |   | 62,137   |  
|Pensions
      and other post retirement costs        | (289    | ) | 4,311   |   | (6,893   | )
|Translation
      adjustment                          | 22,915  |   | 7,754   |   | (21,216  | )
|                                                      |         |   |         |   |          |  
|Total Comprehensive
      Income/(Loss), net of taxes | 38,196  |   | 27,068  |   | (127,529 | )
|                                                      |         |   |         |   |          |  

The income
  tax benefit/(expense) allocated to other comprehensive income component is:


|                                               | 2000    |   | 2001    |   | 2002    |  
|---------------------------------------------- | ------- | - | ------- | - | ------- | -
|                                               |         |   |         |   |         |  
|Credit linked
      notes                      | —       |   | —       |   | 206     |  
|Unrealized
      gains/(losses) on securities  | 46,854  |   | (20,362 | ) | (30,590 | )
|Pensions
      and other post retirement costs | (61     | ) | (2,340  | ) | 3,403   |  
|Translation
      adjustment                   | (13,289 | ) | (3,442  | ) | 7,481   |  
|                                               |         |   |         |   |         |  

|r) | Fair
      value of financial Instruments
|-- | -----------------------------------------

SFAS
    107, “Disclosures about Fair Value of Financial Instruments” requires
    disclosure, in addition to the carrying value, of fair value information about
    financial instruments, whether or not recognized on the balance sheet, for
    which it is practicable to estimate fair value. Certain financial instruments
    and all non-financial instruments are excluded from the scope of SFAS 107.
    Accordingly, the fair value disclosures required by SFAS 107 provides only
    a partial estimate of the fair value of the Bank. SFAS 107 defines
  a financial instrument as cash, evidence of an ownership in an entity or a contract
  that conveys or imposes on an entity the contractual right or obligation to
  either receive or deliver cash or another financial instrument. Fair value is
  defined as the amount at which a financial instrument could be exchanged in
  a current transaction between willing parties, other than in a forced sale or
  liquidation, and is best evidenced by a quoted market price, if one exists. In cases where
  quoted market prices are not available, fair value estimates are based on the
  quoted market price of a financial instrument with similar characteristics,
  the present value of expected future cash flows, or other valuation techniques,
  all of which are significantly affected by the assumptions used. Although management
  uses its best judgment in estimating the fair value of these financial instruments,
  there are inherent weaknesses in any estimation technique. As a result, the
  fair value may not be indicative of the net realizable or liquidation value.


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SFAS 107 excludes
  certain financial instruments from its disclosure requirements such as obligations
  for pension and other post retirement benefits, deferred compensation and leases.
  In addition, disclosure of fair values is not required for non-financial assets
  and liabilities such as fixed assets, intangibles and anticipated future business.
  As a result, the following fair values may not reflect the underlying value
  of the BES Group. A significant
  portion of the BES Group's assets and liabilities are in short-term financial
  instruments, namely with a remaining maturity of under six months. These short-term
  financial instruments, with the exception of those for which an active market
  exists, are considered to have a fair value equivalent to their carrying value
  at the balance sheet date. These financial instruments include balances recorded
  under the following captions:


|Assets     
|-----------
|–          
|–          
|–          
|           
|Liabilities
|–          
|–          
|–          
|–          
|–          

For the other
  financial instruments, the following methods and assumptions were used to estimate
  their fair value:


Investment
  securities

The fair value
  of investment securities is based on quoted market prices, dealer quotes or
  pricing models.


Loans

Fair values
  were estimated for groups of similar loans based upon type of loan, credit quality,
  and maturity. For short-term loans and variable rate loans with no significant
  credit concerns and frequent repricings, estimated fair values are based upon
  carrying values. For other
  types of loans, fair value was estimated by discounting future cash flows using
  the current rates at which loans would be made to borrowers with similar credit
  ratings and for the same remaining maturities.


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Time
  deposits and other short-term borrowings



The
  book value of time deposits with a remaining maturity under six months is considered
  to approximate fair value. For other time deposits, the fair value is determined
  using discounted cash flows, at the prevailing interest rate at December 31,
  2002 and 2001, and for similar deposits.


Long-term
  debt



Fair
  value for long-term debt is based upon quoted market prices at December 31,
  2002 and 2001, or quoted market prices of financial instruments with similar
  characteristics. To the extent that quoted market prices are not available,
  fair value is estimated using discounted cash flows, at the interest rate prevailing
  in the market for similar borrowings at December 31, 2002 and 2001.


Derivatives
  and foreign exchange contracts



The
  fair values of financial derivative instruments and foreign exchange instruments
  are based on quoted market prices, dealer quotes, and pricing models, and include
  accrued interest receivable and payable.


Commitments
  and guarantees



Based
  on the present creditworthiness of the counterparties and on their maturities,
  interest rates and low incidence of realizations, the aggregate fair value of
  commitments is not considered material. Because of the uncertainty involved
  in assessing the likelihood and timing of guarantees being drawn, coupled with
  the lack of an established market, it is not practicable for the BES Group to
  determine the estimated fair value for outstanding guarantees.  The fair
    values of the BES Group financial assets and financial liabilities are as
    follows:


|                            | 2001             |  | 2002             | 
|--------------------------- | ---------------- |  | ---------------- | 
|                            |                  |  |                  | 
|                            | Book
      value |  | Book
      value | 
|                            | as
      under   |  | in               | 
|                            | Portuguese       |  | accordance       | 
|                            | GAAP             |  | with
      US    | 
|                            |                  |  | GAAP             | 
|                            |                  |  |                  | 
|Financial
      assets      |                  |  |                  | 
|Investment
      securities | 5,696,355        |  | 5,175,198        | 
|Loans,
      net            | 24,220,570       |  | 24,266,078       | 
|                            |                  |  |                  | 
|Financial
      liabilities |                  |  |                  | 
|Time
      deposits         | 11,928,312       |  | 11,928,312       | 
|Long
      term debt        | 9,570,200        |  | 9,235,084        | 

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|s) | Employee
      benefits scheme based in shares distribution
|-- | -----------------------------------------------------------



The Bank and
  its subsidiaries have established a Stock Based Incentive Scheme
  (SIBA). This incentive scheme consists in the sale to BES Group employees of
  one or more blocks of BES ordinary shares with deferred settlement. The employees
  eligible to benefit from the SIBA are the members of the Executive Committee
  and BES active workers, the employees and executive board members of Group Banco
  Espírito Santo. The Board of Directors, based on a proposal submitted
  by the Executive Committee, selects the potential beneficiaries and determines
  the quantity of shares to be made available to each of them. When the potential
  beneficiaries are members of the Executive Committee, selection and allocation
  of shares under the SIBA is made by the Remuneration Committee.  The unit selling
  price of shares sold under the SIBA is that which results from dividing the
  value of the shares closing price in the Euronext-Lisbon Stock Exchange
  session immediately prior to the date of the sale by the total number of shares,
  plus the value corresponding to the dividends that may be attributed to these
  shares up to their full redemption, plus the value equivalent to financial charges
  on eventual loans granted under capital increases by cash inflows. Each program
  has two components, which expire according to the following schedule:


|SIBA schedule                   
|--------------------------------
|                                
|year (N) of the 
      programme
|                                
|2000                            
|                                
|                                
|2001                            
|                                
|                                

---

|* | it can be extended for two more years
|- | -------------------------------------

During 2002,
  there was a new sale of BES ordinary shares under the SIBA, whereby 4,527,165
  shares were attributed to eligible employees, of which 353,650 shares were sold
  to BES Directors. Since the implementation of the SIBA scheme, a total of 7,367,437
  shares have been sold to approximately 7,300 employees. The impact of this plan
  to the shareholders equity as at December 31, 2002, is not material.


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|t) | Recently
      issued US GAAP pronouncements                
|-- | ------------------------------------------------------------
|   |                                                             
|   | SFAS
      143 Accounting for Asset Retirement Obligations



SFAS
  143 requires a provision to be raised for the legal obligation in relation to
  the other-than-temporary removal of a tangible fixed asset, at fair value, when
  incurred. It is effective for the BES Group beginning January 1, 2003. Management
  does not believe adoption of this statement will have a material impact on the
  financial statements.


| | SFAS
        146 Accounting for Costs Associated with Exit or Disposal Activities
| | -----------------------------------------------------------------------------------



SFAS
  146 was issued in June 2002 and is effective for exit or disposal activities
  that are initiated after December 31, 2002. This statement nullifies Emerging
  Issues Task Force (EITF) Issue No. 94-3, Liabilities Recognition for Certain
  Employee Termination Benefits and Other Costs to Exit an Activity (including
  Certain Costs Incurred in a Restructuring) and prescribes the way in which costs
  associated with the sale or termination of a line of business and the closure
  of business activities at a particular location are to be determined and the
  timing of their recognition. SFAS 146 requires that a liability for a cost associated
  with an exit or disposal activity be recognized when the liability, as defined
  in Concepts Statement 6, is incurred. BES is currently reviewing the prospective
  impact of this standard.


| | FASB
      Interpretation No. 45 Guarantors Accounting and Disclosure Requirements
      for Guarantees, Including Indirect Guarantees of Indebtedness of Others
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------

This Interpretation was issued in November 2002 and is an interpretation of FASB Statement No. 5,
  57 and 107 and has superseded FASB Interpretation No. 34. This Interpretation
  elaborates on the existing disclosure requirements for most guarantees, including
  loan guarantees such as standby letters of credit. It also clarifies that at
  the time a company issues a guarantee, the company must recognize an initial
  liability for the fair value, or market value, of the obligations it assumed
  under that guarantee and must disclose that information in its interim and annual
  financial statements. BES is currently
  reviewing the impact of applying the initial recognition and initial measurement
  provisions. These apply on a prospective basis to guarantees issued or modified
  after December 31, 2002, regardless of the guarantors fiscal year end.
  The disclosure requirements in the interpretation are for financial statements
  of interim or annual periods ending after December 15, 2002.


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| | FASB
      Interpretation No. 46 Consolidation of Variable Interest Entities
| | ------------------------------------------------------------------------------

This interpretation
  was issued in January 2003 and clarifies the application of Accounting Research
  Bulletin No. 51 Consolidated Financial Statements to certain entities
  in which equity investors do not have the characteristics of a controlling financial
  interest or do not have sufficient equity at the risk for the entity to finance
  its activities without additional subordinated financial support from other
  parties. This interpretation explains how to identify variable interest entities
  and how an enterprise assesses its interest in a variable interest entity to
  decide whether to consolidate that entity, and requires existing unconsolidated
  variable interest entities to be consolidated by their primary beneficiaries
  if the entities do not effectively disperse risks among parties involved. This interpretation
  applies immediately to variable interest entities created after January 31,
  2003 or to variable interest entities in which an enterprise obtains an interest
  after that date. It applies in the first fiscal year or interim period beginning
  after June 15, 2003, to variable interest entities obtained before February
  1, 2003. BES owns
    interests in variable interest entities due to securitization transactions
    (see Note 23 j)) and other transactions (see Note 23 k)) entered into in the
    past. The major part of these variable interest entities was already consolidated
    following the application of SFAS 140 and Topic D-14. BES is currently analyzing
    the remaining variable interest entities in the light of this interpretation,
    and it is reasonably possible that it will consolidate these entities when
    this interpretation becomes effective. However, BES believes that no material
    impact is expected with the adoption of this interpretation.


| | SFAS
      149 Amendment of Statement 133 on Derivative Instruments and Hedging
      Activities
| | --------------------------------------------------------------------------------------------------

FASB Statement
    No. 149 was issued on April 30, 2003 and amends and clarifies accounting for
    derivative instruments, including certain derivative instruments embedded
    in other contracts, and for hedging activities under Statement 133. The new guidance
    amends SFAS 133 for decisions made: (i) as a part of the Derivatives Implementation
    Group process that effectively required amendments to SFAS 133, (ii) in connection
    with other Board projects dealing with financial instruments, and (iii) regarding
    implementation issues raised in relation to the application of the definition
    of a derivative, particularly regarding the meaning of an underlying
    and the characteristics of a derivative that contains financing components. The amendments
  set forth in SFAS 149 improve financial reporting by requiring that contracts
  with comparable characteristics be accounted for similarly. In particular, this
  Statement clarifies under what circumstances a contract with an initial net
  investment meets the characteristics of a derivative as discussed in SFAS 133. In addition,
  it clarifies when a derivative contains a financing component that warrants
  special reporting in the statement of cash flows. SFAS 149 amends certain other
  existing pronouncements. Those changes will result in more consistent reporting
  of contracts that derivatives in their entirety or that contain embedded derivatives
  that warrant separate accounting.


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This Statement
  is effective for contracts entered into or modified after June 30, 2003, excepted
  as stated below and for hedging relationships designated after June 30, 2003.
  The guidance should be applied prospectively. The provisions
  of this Statement that relate to SFAS 133 Implementation Issues that have been
  effective for fiscal quarters that began prior to June 15, 2003, should continue
  to be applied in accordance with their respective dates. In addition, certain
  provisions relating to forward purchases or sales when-issued securities or
  other securities that do not yet exist, should be applied to existing contracts
  as well as new contracts entered into after June 30, 2003. No significant adjustment
  is expected from the adoption of SFAS 149 in comparison to the impact of SFAS
  133.


| | SFAS
      150 Accounting for Certain Financial Instruments with Characteristics
      of both Liabilities and Equity
| | -----------------------------------------------------------------------------------------------------------------------

On May 15,
  2003, the FASB issued FASB Statement No. 150 that establishes standards for
  how an issuer classifies and measures certain financial instruments with characteristics
  of both liabilities and equity. Statement
  150 is effective for all financial instruments entered into or modified after
  May 31, 2003. For unmodified financial instruments existing at May 31, 2003,
  Statement 150 is effective at the beginning of the first interim period beginning
  after June 15, 2003, except for mandatory redeemable financial instruments of
  nonpublic entities. For nonpublic entities, mandatory redeemable financial instruments
  are subject to the provisions of this Statement for the first fiscal period
  beginning after December 15, 2003. The BES Group
  continues to monitor the additional effect, if any, that the adoption of the
  above standards will have on the Groups financial statements.


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NOTE
  24  SEGMENT AND GEOGRAPHIC INFORMATION

BES Group
    comprises two main groups of companies:(i)operational units of business, which are constituted by a group of companies
    related with financial services and(ii)outsourcing
    units and other services, that provide security services, cleaning services,
    research and consultancy services, real estate management and other related
    services. The first
    group that represents almost the total amount of assets, income and net income
    of BES Group, is divided for management purposes into different segments:


|• | Banking,
        which includes BES (private and corporate banking), BIC (mortgage loans),
        BESI (investment banking), BESSA (private and corporate banking in Spain),
        BES ORIENTE (private and corporate banking in Macau) and ES Bank (private
        and corporate banking in the United States), BEST (on-line based bank
        specialized in asset management), BES Açores (private and corporate
        banking), BES International SGPS (holding company, controlled 100% of
        Bank Espírito Santo International Limited - BESIL) and ES PLC (non-bank
        finance company domiciled in Dublin, Ireland). This segment also includes
        securities issuers (BES Finance, ESOL, BESOL and BESNAC);
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|• | Leases,
        which comprises Besleasing Mobiliária and Besleasing Imobiliária,
        companies with activities in Portugal;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|• | Consumer
        credit, that includes CREDIBOM and CREDIFLASH (consumer loans and credit
        cards);                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|• | Asset
        Management funds, comprising the ESAF SGPS and ESAF, SA (Spain) activity;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|• | Brokerage,
        represented by ES DEALER, Benito & Monjardin and BES Securities (Brasil);
        and                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|• | Factoring,
        which includes EUROGES.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

The accounting
  policies for these segments are the same as described in Note 2.


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The total assets and
  net income of the segments stated on the Portuguese Statutory basis of accounting
  but excluding the eliminations of inter-group transactions, are summarized as
  follows:


Balance sheet

|                                                                       | 2001                               | 
|---------------------------------------------------------------------- | ---------------------------------- | 
|                                                                       |                                    | 
|                                                                       | Operational
        business units | 
|                                                                       |                                    | 
|                                                                       | Banking                            | 
|Total                                                                  |                                   
|                                                                       |                                    | 
|Cash and
      due from banks and Deposits
      with the Central Bank | 1,923,697                          | 
|Interest
      earning deposits with banks                             | 2,927,953                          | 
|Trading
      securities                                               | 493,032                            | 
|Investment
      securities                                            | 4,902,881                          | 
|Loans and
      advances to customers (net)                            | 22,281,160                         | 
|Investments
      in other equity holdings                             | 734,152                            | 
|Other assets                                                           | 1,888,368                          | 
|                                                                       |                                    | 
|Total
      assets                                                     | 35,151,243                         | 
|                                                                       |                                    | 

|                                                                       |                                    | 
|---------------------------------------------------------------------- | ---------------------------------- | 
|                                                                       | 20002                              | 
|                                                                       |                                    | 
|                                                                       | Operational
        business units | 
|                                                                       |                                    | 
|                                                                       | Banking                            | 
|                                                                       |                                    | 
|Cash and
      due from banks and Deposits
      with the Central Bank | 1,779,535                          | 
|Interest
      earning deposits with banks                             | 4,510,468                          | 
|Trading
      securities                                               | 401,572                            | 
|Investment
      securities                                            | 4,230,961                          | 
|Loans and
      advances to customers (net)                            | 23,295,205                         | 
|Investments
      in other equity holdings                             | 782,809                            | 
|Other assets                                                           | 2,340,682                          | 
|                                                                       |                                    | 
|Total
      assets                                                     | 37,341,232                         | 
|                                                                       |                                    | 

Income statement

|                                                                                                        | 2000                                |  
|------------------------------------------------------------------------------------------------------- | ----------------------------------- | -
|                                                                                                        |                                     |  
|                                                                                                        | Operational
        bbusiness units |  
|                                                                                                        |                                     |  
|                                                                                                        |                                     |  
|                                                                                                        | Banking                             |  
|                                                                                                        |                                     |  
|Interest
      income                                                                                   | 1,546,483                           |  
|Interest
      expenses                                                                                 | 1,010,444                           |  
|Net
      interest income                                                                               | 536,039                             |  
|Provisions
      for loan losses                                                                        | 124,244                             |  
|Net
      interest income after provision for loan losses                                               | 411,795                             |  
|Other income                                                                                            | 423,966                             |  
|Other
      expenses                                                                                    | 569,085                             |  
|(of
      which depreciation)                                                                           | (101,986                            | )
|Minority
      interests                                                                                | 48,961                              |  
|Equity in
      earnings of affiliates                                                                  | 4,067                               |  
|Income before
      taxes                                                                               | 221,782                             |  
|Income taxes                                                                                            | 47,533                              |  
|                                                                                                        |                                     |  
|Net
      income                                                                                        | 174,249                             |  
|                                                                                                        |                                     |  
|Revenues
      from external customers (Interest income + Other income + Equity earnings of affiliates) | 1,970,449                           |  
|Intercompany
      revenues eliminated in the consolidation process                                     | 503,423                             |  

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|                                                                    | 2001                             | 
|------------------------------------------------------------------- | -------------------------------- | 
|                                                                    |                                  | 
|                                                                    | Operational
      business units | 
|                                                                    |                                  | 
|                                                                    |                                  | 
|                                                                    | Banking                          | 
|                                                                    |                                  | 
|Interest
      income                                               | 1,881,986                        | 
|Interest
      expenses                                             | 1,251,806                        | 
|Net interest
      income                                           | 630,180                          | 
|Provisions
      for loan losses                                    | 126,933                          | 
|Net interest
      income after provision for loan losses           | 503,247                          | 
|Other income                                                        | 366,306                          | 
|Other expenses                                                      | 648,550                          | 
|(of which
      depreciation)                                       | 105,132                          | 
|Minority
      interests                                            | 42,524                           | 
|Equity in
      earnings of affiliates                              | 6,213                            | 
|Income before
      taxes                                           | 184,692                          | 
|Income taxes                                                        | 23,856                           | 
|                                                                    |                                  | 
|Net
      income                                                    | 160,836                          | 
|                                                                    |                                  | 
|                                                                    |                                  | 
|Revenues
      from external customers (Interest income +           |                                  | 
|+
      Other income + Equity earnings of affiliates)               | 2,254,505                        | 
|Intercompany
      revenues eliminated in the consolidation process | 473,372                          | 



|                                                                    | 2002                             | 
|------------------------------------------------------------------- | -------------------------------- | 
|                                                                    |                                  | 
|                                                                    | Operational
      business units | 
|                                                                    |                                  | 
|                                                                    |                                  | 
|                                                                    | Banking                          | 
|                                                                    |                                  | 
|Interest
      income                                               | 1,688,102                        | 
|Interest
      expenses                                             | 1,001,081                        | 
|Net
      interest income                                           | 687,021                          | 
|Provisions
      for loan losses                                    | 193,296                          | 
|Net
      interest income after provision for loan losses           | 493,725                          | 
|Other income                                                        | 469,662                          | 
|Other
      expenses                                                | 717,842                          | 
|(of
      which depreciation)                                       | 126,166                          | 
|Minority
      interests                                            | 25,921                           | 
|Equity in
      earnings of affiliates                              | 233                              | 
|Income
      before taxes                                           | 219,857                          | 
|Income taxes                                                        | 21,133                           | 
|                                                                    |                                  | 
|Net
      income                                                    | 198,724                          | 
|                                                                    |                                  | 
|Revenues
      from external customers (Interest income +           |                                  | 
|+
      Other income + Equity earnings of affiliates)               | 2,157,997                        | 
|Intercompany
      revenues eliminated in the consolidation process | 354,098                          | 

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The following
    table presents the income by country where the business units have their main
    activity, segregating the income resulting from external clients and from
    operations within BES Group:


|                           |           |  | 2001    |   |           |  |           |  | 2002    |   |           | 
|-------------------------- | --------- |  | ------- | - | --------- |  | --------- |  | ------- | - | --------- | 
|                           |           |  |        
|                           | Gross     |  | Inter-  |   | External  |  | Gross     |  | Inter-  |   | External  | 
|                           | revenues  |  | company |   | customers |  | revenues  |  | company |   | customers | 
|                           |           |  |         |   |           |  |           |  |         |   |           | 
|Portugal                   | 2,239,240 |  | 194,393 |   | 2,044,847 |  | 1,849,928 |  | 136,814 |   | 1,713,114 | 
|Other European
      Union | 334,736   |  | 56,226  |   | 278,510   |  | 338,662   |  | 5,905   |   | 332,757   | 
|Rest of
      Europe       | 3,521     |  | —       |   | 3,521     |  | 38,976    |  | —       |   | 38,976    | 
|North America              | 383,106   |  | 242,074 |   | 141,032   |  | 549,278   |  | 236,778 |   | 312,500   | 
|Latin America              | 85,231    |  | (12,355 | ) | 97,586    |  | 20,166    |  | —       |   | 20,166    | 
|Asia                       | 13,110    |  | (652    | ) | 13,762    |  | 6,285     |  | (435    | ) | 6,720     | 
|Africa                     | —         |  | —       |   | —         |  | 5,944     |  | 365     |   | 5,579     | 
|                           |           |  |         |   |           |  |           |  |         |   |           | 
|Total                      | 3,058,944 |  | 479,686 |   | 2,579,258 |  | 2,809,239 |  | 379,427 |   | 2,429,812 | 
|                           |           |  |         |   |           |  |           |  |         |   |           | 

The activity
    and the income resulting from the business units is being monitored monthly
    by the Banks Executive Committee, which evaluates the performance as
    it relates to market share, productivity goals and return on equity goals.


NOTE
  25  SECURITIZATION TRANSACTIONS

a)Securitization
  of loans and advances to customers

Lusitano
  No. 1, Limited

In August 1999
  BES carried out its first asset securitization transaction, selling to Lusitano
  No. 1 Limited a consumer loans portfolio recorded in its balance sheet for the
  amount of 250,000 thousand Euros. At the time of sale, no gain or loss was accounted
  for in the Banks statement of income. Lusitano No. 1 Limited financed
  this acquisition through the issue of bonds in international financial markets,
  which were secured by the set of loans transacted. Under the issues terms,
  the bondholders have no right of recourse. BES cannot
  be held responsible for any amount of non-performing loans in the consumer loans
  portfolio sold that exceeds the collateral deposited with Lusitano No. 1 Limited.
  This collateral deposit will correspond to a maximum of 5% of the nominal value
  of the loans portfolio sold. Lusitano No.
  1 Limiteds only activity will be to hold the consumer loans portfolio
  purchased from BES. The payment of capital and interest relative to the bonds
  issued by this entity will depend exclusively on this portfolio and on the collateral
  deposited by the Bank. Through the purchase of residual certificates issued
  by Lusitano No. 1 Limited, the Bank became entitled to the residual value of
  this entitys assets, after liabilities towards the bondholders have been
  settled. The interest paid quarterly on these residual certificates is recorded
  in the statement of income.


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This securitization
  transaction also presents the following features:


| | a) | Notes
      issued by Lusitano No. 1 Limited
| | -- | --------------------------------------------
| |    |                                             

|                                    | Senior           |  | Junior           |  | Residual    
|----------------------------------- | ---------------- |  | ---------------- |  | ------------
|                                    | Notes            |  | Notes            |  | Certificates
|                                    |                  |  |                  |  |             
|Rating                              |                  |  |                  |  |             
|–
      FITCH Ratings               | AAA              |  | A                |  | —           
|–
      Moodys                     | Aaa              |  | A2               |  | —           
|–
      Standard & Poors           | AAA              |  | A                |  | —           
|Face value
      (thousand Euros)   | 233,700          |  | 16,300           |  | 0.05        
|Coupon
      rate/return            | Euribor
      3m |  | Euribor
      3m |  | Excess     
|                                    | +
      0.36% pa |  | +
      0.75% pa |  | spread     
|Reimbursement                       | Until            |  | Until            |  | Until       
|                                    | Sept/2007        |  | Sept/2007        |  | Sept/2007   
|Securities
      held by BES Group: |                  |  |                  |  |             
|Book value
      (thousand Euros)   | —                |  | —                |  | 0.05        

| |    |                                        
| | -- | ---------------------------------------
| | b) | Commitments
      retained by BES Group
| |    |                                        
| |    | •                                      
| |    |                                        
| |    | •                                      
| |    |                                        
| | c) | Provisions:                            
| |    |                                        
| |    | •                                      
| |    |                                        
| | d) | Entities
      involved:               
| |    |                                        
| |    | •                                      
| |    |                                        
| |    | •                                      

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Lusitano Finance
  No. 2, Plc

In April, 2002,
    BES Group entered into the third securitization transaction, having sold to
    Lusitano Finance no.2 Plc Company a portfolio of loans, in the global amount
    of 450,000 thousand Euros, composed of two portfolios, a consumer loans portfolio,
    recorded in BES accounts, in the amount of 150,000 thousand Euros and a leasing
    portfolio, recorded in BESLEASING Mobiliária accounts, in the amount
    of 300,000 thousand Euros. At the time
  of the sale, no gains or losses were recorded both by BES or BESLEASING Mobiliária.
  Lusitano Finance no. 2 Plc Company financed this acquisition through a bond
  issue in international financial markets guaranteed by the portfolio of loans
  acquired. The holders of the bonds have no right of recourse, in accordance
  with the terms of the issue. BES and BESLEASING Mobiliária cannot be
  made responsible for any amounts of non-performing of the loans portfolio sold
  exceeding the face value of Class D notes issued by Lusitano Finance no. 2 Plc
  for the purposes of setting up a collateral deposit. This collateral deposit
  will assume the maximum value of 4.5% of the nominal value of the loan portfolio
  acquired. Lusitano Finance
    no. 2 Plc Companys only activity will be to hold the loan portfolio
    acquired to BES and BESLEASING Mobiliária and, the payment of principal
    and interest of the bonds issued by this entity will depend exclusively of
    the portfolio and the collateral deposit made with the issue of Class D notes
    acquired by BES and BESLEASING Mobiliária. The Class D notes give to
    its holders the right to receive on a quarterly basis, the excess spread calculated
    by Lusitano Finance no 2. Plc, after having paid the liabilities arising from
    the other notes and after having deducted the operational costs. This excess
    spread is estimated and is recognised on an accrual basis in the financial
    statements of BES and BESLEASING Mobiliária.


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This securitization
  transaction also presents the following features:


| | a) | Securities
      issued by Lusitano Finance No. 2 Plc
| | -- | -----------------------------------------------------
| |    |                                                      

|                                    | Class
      A    |  | Class
      B    |  | Class
      C    |  | Class
      D
|----------------------------------- | ---------------- |  | ---------------- |  | ---------------- |  | -------------
|                                    |                  |  |                  |  |                  |  |              
|Rating                              |                  |  |                  |  |                  |  |              
|–
      FITCH Ratings               | AAA              |  | AA               |  | A-               |  | —            
|–
      Moodys                     | Aaa              |  | Aa2              |  | A2               |  | —            
|–
      Standard & Poors           | AAA              |  | AA               |  | A-               |  | —            
|                                    |                  |  |                  |  |                  |  |              
|Face value
      (thousand Euros)   | 409,720          |  | 11,250           |  | 29,030           |  | 20,250       
|                                    |                  |  |                  |  |                  |  |              
|Coupon
      rate/return            | Euribor
      3m |  | Euribor
      3m |  | Euribor
      3m |  | Excess      
|                                    | +
      0.27% pa |  | +
      0.45% pa |  | +
      0.83% pa |  | spread      
|                                    |                  |  |                  |  |                  |  |              
|Reimbursement                       | Until            |  | Until            |  | Until            |  | Until        
|                                    | Apr/2010         |  | Apr/2010         |  | Apr/2010         |  | Apr/2010     
|                                    |                  |  |                  |  |                  |  |              
|Securities
      held by BES Group: |                  |  |                  |  |                  |  |              
|Book value
      (thousand Euros)   | —                |  | —                |  | —                |  | 20,250       

| |    |                                         
| | -- | ----------------------------------------
| | b) | Commitments
      retained by the Group:
| |    |                                         
| |    | •                                       
| |    |                                         
| |    | •                                       
| |    |                                         
| | c) | Provisions:                             
| |    |                                         
| |    | •                                       
| |    |                                         
| | d) | Entities
      involved:                
| |    |                                         
| |    | •                                       
| |    |                                         
| |    | •                                       

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Lusitano Mortgages
  No. 1, Plc

In December
  2002, BES Group performed the fourth securitization transaction, it sold to
  Lusitano Mortgages No 1 fund, managed by Sociedade Gestora de Fundos de Titularização
  de Créditos, Navegator, SGFTC, SA, a mortgage portfolio in the amount
  of 1,000 million Euros that was recorded in BICs balance sheet. At the time
  of the sale, no gains or losses were recorded by BIC. Lusitano Mortgages No.
  1 Fund financed this acquisition through the issue of participation units, entirely
  subscribed by Lusitano Mortgages No 1, Plc that financed itself through a bond
  issue in international financial markets, divided in five classes. The holders
  of the bonds have no right of recourse, in accordance with the terms of the
  issue. BIC cannot be made responsible for any amounts of non-performing loans
  portfolio sold exceeding the face value of Class F acquired by BIC and issued
  by Lusitano Mortgages No. 1, Plc with the objective of setting up collateral
  deposit (cash reserve). The face value of this note will have a maximum value
  of 1% of the portfolio sold. Lusitano Mortgages
  No. 1 Fund has the sole activity of owning the portfolio acquired to BIC and
  the payment of principal and interest of the bonds issued by this entity will
  depend exclusively on the portfolio. Lusitano Mortgages No. 1, Plc only activity
  is holding the participation units in Lusitano Mortgages No.1 Fund. The amount
  of principal and interest paid on the Class A, B, C, D and E notes issued by
  this entity depends exclusively on the participation units and the cash reserve,
  constituted by the issue of Class F acquired by BIC. This Class F note provides
  the holder with the right to the quarterly payment of the excess spread of Lusitano
  Mortgages No. 1, Plc, after liquidation of the liabilities with note holders
  of Class A, B, C, D and E, and its operational costs, which, when possible to
  be estimated, is accrued and recognized in BICs statement of income.


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This securitization
  transaction also presents the following features:


| | a) | Notes
      issued by Lusitano Mortgages No. 1 Plc
| | -- | --------------------------------------------------
| |    |                                                   

|                                    | Class
      A    |  | Class
      B    |  | Class
      C    |  | Class
      D    |  | Class
      E    |  | Class
      F
|----------------------------------- | ---------------- |  | ---------------- |  | ---------------- |  | ---------------- |  | ---------------- |  | -------------
|                                    |                  |  |                  |  |                  |  |                  |  |                  |  |              
|Rating                              |                  |  |                  |  |                  |  |                  |  |                  |  |              
|–
      FITCH Ratings               | AAA              |  | AA               |  | A                |  | BBB              |  | BB               |  | —            
|–
      Moodys                     | Aaa              |  | Aa3              |  | A2               |  | Baa2             |  | Ba1              |  | —            
|–
      Standard & Poors           | AAA              |  | AA               |  | A                |  | BBB              |  | BB               |  | —            
|                                    |                  |  |                  |  |                  |  |                  |  |                  |  |              
|Face value
      (thousand Euros)   | 915,000          |  | 32,500           |  | 25,000           |  | 22,500           |  | 5,000            |  | 10,000       
|                                    |                  |  |                  |  |                  |  |                  |  |                  |  |              
|Coupon rate/return                  | Euribor
      3m |  | Euribor
      3m |  | Euribor
      3m |  | Euribor
      3m |  | Euribor
      3m |  | Excess      
|                                    | +
      0.28% pa |  | +
      0.48% pa |  | +
      0.65% pa |  | +
      1.35% pa |  | +
      3.90% pa |  | spread      
|                                    |                  |  |                  |  |                  |  |                  |  |                  |  |              
|Reimbursement                       | Until            |  | Until            |  | Until            |  | Until            |  | Until            |  | Until        
|                                    | Dec/2035         |  | Dec/2035         |  | Dec/2035         |  | Dec/2035         |  | Dec/2035         |  | Dec/2035     
|                                    |                  |  |                  |  |                  |  |                  |  |                  |  |              
|Securities
      held by BES Group: |                  |  |                  |  |                  |  |                  |  |                  |  |              
|Book value
      (thousand Euros)   | —                |  | —                |  | —                |  | —                |  | —                |  | 13,318       

| |    |                                         
| | -- | ----------------------------------------
| | b) | Commitments
      retained by the Group:
| |    |                                         
| |    | •                                       
| |    |                                         
| |    | •                                       
| |    |                                         
| | c) | Provisions:                             
| |    |                                         
| |    | •                                       
| |    |                                         
| | d) | Entities
      involved:                
| |    |                                         
| |    | •                                       
| |    |                                         
| |    | •                                       
| |    |                                         
| |    | •                                       
| |    |                                         
| |    | •                                       
| |    |                                         
| |    | •                                       
| |    |                                         
| |    | •                                       

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|b) | Securitization
      of securities
|-- | ----------------------------------

Lusitano Global CDO
  No. 1, Plc

During the second half
    of 2001, BES Group performed a securitization transaction of domestic bonds
    and euro bonds, having sold to Lusitano Global CDO n. 1 Plc a portfolio of
    securities, whose book value was 1,144.3 million Euros. These securities were
    recorded in the investment portfolio of the BES Group. Lusitano Global CDO
    no. 1 Plc financed this acquisition through a bond issue in international
    financial markets guaranteed by the portfolio of securities. The holders of
    the bonds have no right of recourse, in accordance with the terms of the issue. BES Group cannot be
    made responsible for any amounts of non-performing of the loans portfolio
    sold exceeding the face value of Class D and the cash reserve that was acquired
    and set up by BES. The face value of this note will have a maximum value of
    9.6% of the face value of the note sold. Lusitano Global CDO
    No. 1 Plcs only activity is owning the portfolio acquired to BES Group
    and the payment of principal and interest of the bonds issued by this entity
    will depend exclusively on the portfolio and of Class D that includes the
    cash reserve acquired by BES Group. This Class D note provides the holder
    with the right to the quarterly payment of the excess spread of Lusitano Global
    CDO No. 1, Plc, after liquidation of the liabilities with note holders of
    Class A, B, C and its operational costs, which, when possible to be estimated,
    is accrued and recognized in BES Group statement of income.


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This securitization operation also presents the following features:


|a) | Securities issued
      by Lusitano Global CDO No. 1 Plc
|-- | --------------------------------------------------------
|   |                                                         

|                                  | Class
      A1   |  | Class
      A2   |  | Class
      B    |  | Class
      C    |  | Class
      D  
|--------------------------------- | ---------------- |  | ---------------- |  | ---------------- |  | ---------------- |  | ---------------
|                                  |                  |  |                  |  |                  |  |                  |  |                
|Rating                            |                  |  |                  |  |                  |  |                  |  |                
|-
      FITCH Ratings             | AAA              |  | AAA              |  | AA               |  | A                |  | —              
|- Moodys                         | Aaa              |  | Aaa              |  | Aa1              |  | A1               |  | —              
|-
      Standard & Poors         | AAA              |  | AAA              |  | AA               |  | A+               |  | —              
|Face value                        |                  |  |                  |  |                  |  |                  |  |                
|(thousand Euros)                  | 350,000          |  | 623,800          |  | 42,300           |  | 25,200           |  | 103,000        
|                                  |                  |  |                  |  |                  |  |                  |  |                
|Coupon
      rate/return          | Euribor
      3m |  | Euribor
      3m |  | Euribor
      3m |  | Euribor
      3m |  | Excess         
|                                  | +
      0,25% pa |  | +
      0,45% pa |  | +
      0,65% pa |  | +
      1,10% pa |  | spread         
|                                  |                  |  |                  |  |                  |  |                  |  | until
      10%
|                                  |                  |  |                  |  |                  |  |                  |  |                
|Reimbursement                     | Until            |  | Until            |  | Until            |  | Until            |  | Until          
|                                  | Dec/
      2015  |  | Dec/2015         |  | Dec/2015         |  | Dec/2015         |  | Dec/2015       
|Securities held by                |                  |  |                  |  |                  |  |                  |  |                
|BES Group:                        |                  |  |                  |  |                  |  |                  |  |                
|Book
      value (thousand Euros) | 7,255            |  | 500              |  | —                |  | 15,300           |  | 99,956         

|   |                                   
|-- | ----------------------------------
|b) | Commitments retained by the Group:
|   |                                   
|   | •                                 
|   |                                   
|   | •                                 
|   |                                   
|   | •                                 
|   |                                   
|c) | Entities involved:                
|   |                                   
|   | •                                 

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NOTE 26  SALARIES
  AND BENEFITS

As of December 31, 2001
  and 2002, BES Groups workforce was distributed among the following broadly
  defined business areas:


|                                                        | 2001  |  | 2002  | 
|------------------------------------------------------- | ----- |  | ----- | 
|                                                        |       |  |       | 
|BES
      employees                                     | 5,206 |  | 4,267 | 
|Group financial subsidiaries
      employees            | 2,865 |  | 3,303 | 
|                                                        |       |  |       | 
|Total
      financial subsidiaries employees            | 8,071 |  | 7,570 | 
|                                                        |       |  |       | 
|Employed
      by other companies essentially providing |       |  |       | 
|services
      to customers outside the Group           | 1,241 |  | 953   | 
|                                                        |       |  |       | 
|                                                        | 9,312 |  | 8,523 | 
|                                                        |       |  |       | 

By category, it can
  be analyzed as follows:


|                         | 2001  |  | 2002  | 
|------------------------ | ----- |  | ----- | 
|                         |       |  |       | 
|                         |       |  |       | 
|Management               | 641   |  | 639   | 
|Managerial staff         | 1,217 |  | 1,062 | 
|Specific functions       | 3,164 |  | 2,464 | 
|Administrative functions | 3,955 |  | 3,733 | 
|Auxiliary functions      | 148   |  | 484   | 
|In branches abroad       | 187   |  | 141   | 
|                         |       |  |       | 
|                         | 9,312 |  | 8,523 | 
|                         |       |  |       | 

The amount included
  under Salaries and benefits attributed to the Board of Directors and Supervisory
  Board is as follows:


|                   | 2001  |  | 2002  | 
|------------------ | ----- |  | ----- | 
|                   |       |  |       | 
|Board of directors | 5,899 |  | 7,737 | 
|Supervisory board  | 111   |  | 237   | 
|                   |       |  |       | 
|                   | 6,010 |  | 7,974 | 
|                   |       |  |       | 

Additionally, during 2002 a variable remuneration of euro 541 thousand (2001: euro 620 thousand) was attributed to BESs Board of Directors.


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NOTE 27  INCOME
  TAXES

The Bank and its subsidiaries
  domiciled in Portugal are subject to taxation in accordance with the corporate
  income tax code (IRC) and to local taxes. BES Group determined
    its income tax liability for the 2002 and 2001 financial years on the basis
    of a nominal rate of 33% and 35% (Law 30  G/2000, 29 December and Law
    3  B/2000, 4 April), respectively. The tax authorities have the power to review the Banks determination of its annual taxable earnings, as well as those of its subsidiaries domiciled in Portugal, for a period of four years. Hence it is possible that some additional taxes may be assessed, mainly as a result of differences of interpretation of the tax law. However, the Board of Directors of the Bank, and those of its subsidiaries domiciled in Portugal, are confident that there will be no further material tax assessments within the context of the financial statements. A reconciliation of the differences between the Portuguese statutory income tax rate and the effective tax rate is shown in the following table (in percentages):


|                                        | 2000                                                                  |        | 2001  |        | 2002  |      
|--------------------------------------- | --------------------------------------------------------------------- | ------ | ----- | ------ | ----- | -----
|                                        |                                                                       |        |       |        |       |      
|Statutory
      rate                    | 35.20                                                                 |        | 35.20 |        | 32.90 |      
|(i)                                     | Tax exempt income                                                     | (12.20 | )     | (9.25  | )     | (11.0
|(ii)                                    | Tax benefit on investment
      securities                            | (0,82  | )     | (1.26  | )     | (0.62
|(iii)                                   | Tax benefit on bonus
      payable to employees in the following year | (2.66  | )     | (3.16  | )     | (2.43
|(iv)                                    | Equity earnings on
      affiliated companies                         | 0.58   |       | (0.11  | )     | (0.12
|(v)                                     | Write-offs related
      to early retirements                         | —      |       | (12.63 | )     | (8.01
|(vi)                                    | Other taxable costs
      and non-tax income (net)                    | 1.81   |       | 7.53   |       | 4.03 
|                                        |                                                                       |        |       |        |       |      
|Effective
      payable income tax rate | 21.91                                                                 |        | 16.32 |        | 14.75 |      
|                                        |                                                                       |        |       |        |       |      

Considering that Portuguese
    corporate income tax is calculated on the basis of the net profit per financial
    statements, adjusted, where applicable, for non-deductible or other items
    registered in the financial statements, the corporate income tax provision
    is calculated taking into account these adjustments. The adjustments considered
    as having significant impact in the calculation of the taxable income were:
    tax benefits related to dividends obtained from financial participations,
    to shares purchased in the scope of public companies privatisation and to
    listed shares and Portuguese government bonds; the gains obtained by SFE;
    and the negative net worth variations related to extraordinary contribution
    to the pensions funds. On this last aspect, the Bank considered as deductible
    charges for the calculation of the taxable income in 2001 and 2000, the amount
    of extraordinary costs related with early retirement, that were deducted to
    reserves in 2001 and 2000 (67 millions Euros and 139 millions Euros, respectively). Additionally, the Bank considered as deductible in 2002 the amount of early retirements that were included in the balance sheet in accordance with Regulation no. 12/2001 of the Bank of Portugal.


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NOTE 28  SUBSEQUENT
  EVENTS

|a) | BES
      Finance Euro Medium Term Note Programme                      
|-- | -----------------------------------------------------------------------
|   |                                                                        
|   | Subsequent
      to December 31, 2002, the following notes were issued:
|   |                                                                        
|   |                                                                        
|   |                                                                        
|   |                                                                        
|   |                                                                        
|   |                                                                        
|b) | New
      provisions regulation applicable in 2003                     

The Bank of Portugal published
  on 30 January 2003, Regulation no. 8/2003 that establishes new rules to set
  up provisions for Loans and advances to customers. In accordance with this regulation,
  there were changes in the method of setting up provisions for loans overdue,
  depending on the type of guarantee, and the application of minimum levels of
  provisioning. The concept of doubtful credits was also reformulated as a function
  of the initial maturity of the loan and of the probability given to future defaults. For provisions for general
  credit risks, a new risk class was introduced, in mortgage loans. The rate applicable
  is now 0.5% instead of 1%. Provisions released as a consequence of this change
  have to be reallocated to reinforce the provisions for specific credit risk. The
    Bank is currently performing an analysis in order to determine the impact
    of the application of this regulation, and the Board of Directors believes
    that the impact will not be significant in the 2003 financial statements.


|c) | Recent developments
|-- | -------------------

As of May 22, 2003, the
    Group decided to merge Besleasing Mobiliária (83.72% BES Group stake),
    Besleasing Imobiliária (82.70% BES Group stake) and Euroges Factoring
    (100% BES Group owned) into one only entity denominated Instituição
    Financeira de Crédito (credit institution) that will aggregate
    the business of those three entities. This transaction is not expected to
    bring significant changes in BES Group businesses and profitability levels. As of May 30, 2003, the
  Group decided to merge Espírito Santo Dealer (100% BES Group stake) into
  Banco Espírito Santo de Investimento (BESI), the Groups investment
  bank. Espírito Santo Dealer, with a share capital of euro 3,500,000,
  is presently owned in 57% by BES and in 43% by ESSI SGPS (a fully owned company
  by BESI). Before the merger, BESI will acquire BES and ESSI SGPS shares in Espírito
  Santo Dealer.


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