# **Table of Contents**

|Exe|cutive Summary.............................................................................................................3|
|---|---|
|1.|Introduction.................................................................................................................5|
|2.|Estimation of Performance by Market Segment.........................................................7|
|2.1|<br>Overview of the Approach....................................................................................7|
|2.2|<br>Main Findings.......................................................................................................9|
|2.3|<br>Discussion of Findings........................................................................................16|
|3.|Drivers of Performance by Market Segment ............................................................18|
|3.1|<br>Retail Banking ....................................................................................................18|
|3.2|<br>Corporate Banking..............................................................................................20|
|4.|Conclusions and Policy Implications........................................................................23|
|App|endix I: Description of Methodology..........................................................................26|
|App|endix II: Sensitivity Analysis......................................................................................33|
|Refe|rences..........................................................................................................................38|

# **List of Figures**

|Figure 2.1: Structure of Assets.......................................................................................... 11|
|---|
|Figure 2.2: Structure of Liabilities.................................................................................... 11|
|Figure 2.3: Net Interest Income for Retail Business Line (BRL million) ........................ 12|
|Figure 2.4: Net Interest Income for Corporate Business Line (BRL million).................. 12|
|Figure 2.5: Margin Decomposition for Retail (BRL million).......................................... 13|
|Figure 2.6: Margin Decomposition for Corporate (BRL million).................................... 13|
|Figure 2.7: Net Income Decomposition for Retail Business Line (BRL million)............ 14|
|Figure 2.8: Net Income Decomposition for Corporate Business Line (BRL million)...... 14|
|Figure 2.9: Estimated Return on Capital for Different Business Lines............................ 15|
|Figure I.1: Decomposition of Interest Margin between Lending and Borrowing<br>Activities........................................................................................................................... 32|

# **List of Tables**

|Table 2.1: Banking System Balance Sheet (December 2007) – Allocation by|
|---|
|Business Line...................................................................................................................... 9|
|Table 3.1: Profitability and Drivers for Different Market Segments................................ 22|
|Table II.1: Brazilian Banking System – Consolidated Financial Statements|
|(2006-2007)....................................................................................................................... 26|
|Table II.1a: Sensitivity Analysis in the Performance Estimation..................................... 36|
|Table II.1b: Sensitivity Analysis in the Performance Estimation (cont.) ......................... 37|

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