# **Appendix I: Description of Methodology**

## **Financial statements of the Brazilian banking system**

The broadest definition of the Brazilian banking system (the so-called ‘consolidated – level III’) is adopted for purposes of analysis, which covers all banks (including BNDES), finance companies, and credit cooperatives. In this way, all directed lending schemes are properly accounted for as part of the banking system. The financial statements for 2006 and 2007 are collected, tabulated and re-arranged into a suitable format (Table II.1).

Table II.1: Brazilian Banking System – Consolidated Financial Statements (2006-2007)

|**ASSETS (LESS BROKERAGE)**|**2006**|**2007**|**INCOME STATEMENT**|**2007**|
|---|---|---|---|---|
|Cash and due from banks|23,721|29,306|Interest revenues|318,664|
|Repos & Interbank placements|213,172|344,131|_Loans and leases (and on-lendings)_|_201,610_|
|Securities and derivatives|509,765|560,189|_Securities, repos and interbank placements_|_97,369_|
|Bacen Compulsory Depos & On-Lendings (B|236,540|276,973|_Derivatives_|_3,033_|
|Branches due transfers|834|1,486|_F/X_|_5,756_|
|Net loans and leases|644,058|812,864|_Required deposits_|_10,896_|
|_Gross loans and leases_|_690,868_|_865,405_|Interest expenses|168,916|
|_Loan loss provisions_|_46,810_|_52,541_|_Deposits, acceptances, reverse repos & interbank tran_|_120,436_|
|Other credit outstanding|228,407|333,550|_Borrowings (and on-lendings)_|_24,953_|
|Other assets|11,544|23,223|_Lease_|_22,792_|
|Leased assets|54,352|100,017|_F/X_|_735_|
|Fixed assets|75,345|77,369|Net interest income|149,749|
|**Total Assets**|**1,997,736**|**2,559,107**|Non-interest income|115,480|
||||_Service charges_|_59,058_|
||||_Method equity_|_10,016_|
|**LIABILITIES**|**2006**|**2007**|_Other operating revenues_|_46,407_|
|Deposits|781,486|926,734|Gross income|265,229|
|_Demand_|_122,113_|_174,363_|Operating expenses|156,437|
|_Savings_|_187,432_|_234,267_|_Payroll expenses_|_46,343_|
|_Interbank_|_29,451_|_38,058_|_Overhead_|_57,721_|
|_Time_|_372,313_|_404,634_|_Other operating expenses_|_52,373_|
|_Other_|_70,178_|_75,413_|Tax expenses|14,096|
|Reverse repos|337,008|457,044|Net operating income before provisions|94,696|
|Acceptances|45,347|49,090|Allowance for bad credits|33,433|
|Interbank transactions|10,581|11,954|Net operating income after provisions|61,263|
|Suspense accounts branches|11,703|12,810|Non-operating income|12,936|
|Borrowings and On-Lendings|173,104|227,766|Pre-tax income|74,199|
|Derivatives|27,226|41,153|Income tax and social security contributions|11,227|
|Other liabilities|412,447|582,637|Profit sharing|5,549|
|Net worth|198,834|249,919|**Net after-tax income**|**57,423**|
|**Total Liabilities**|**1,997,736**|**2,559,107**|||

_Source: Bacen._

## **Allocation of Deposits, Acceptances and Reverse Repos**

Given the unavailability of deposit information by business line, the allocation of deposits and acceptances is based on interviews with banks, complemented by data from Bacen, the Brazilian deposit insurance agency ( _Fundo Garantidor de Créditos_ or FGC) and the IMF’s _International Financial Statistics_ (IFS).

In particular, the general Government’s demand deposits are derived from Bacen reports, while the IFS are the source of total central Government deposits as of end-2007; these two figures are used to arrive at an estimate of total general Government deposits. Based on bank interviews, non-Government demand deposits are assigned evenly 26