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Loyal Clients and a new Management Plan

Loyal clients and a new management plan (Valor Financeiro magazine / São Paulo - Ed: July 2009 Pages 40, 41 and 42)

Even though there is a historical affinity − and even an affectionate relationship − between the population of the state of Rio Grande do Sul and the octogenarian Banco do Estado do Rio Grande do Sul (Banrisul), this alone does not explain the fact that the Bank has recently become a model of efficiency among Brazilian state-owned banks. Profitable, using state-of-the-art information technology, respected worldwide, and apparently immune to maladies from which several of its peers have suffered, Banrisul is far from being considered an old-fashioned bank.

Today 70% of all banking clients living in the Rio Grande do Sul State are

Banrisul’s clients, totaling 3 million people who find branches in 80% of the State’s 496 cities. Banrisul also relies on dozens of branches in other Brazilian states, the major capitals and the state of Santa Catarina − a market that the bank considers an area of natural expansion. The fact that Banrisul sponsors the two most important soccer teams of the state of Rio Grande do Sul − Internacional and Grêmio − is not merely a marketing plan that lacks meaning. It is about concretizing through the shirts of soccer players the historical identity of the people from Rio Grande do Sul as “ their” bank. Banrisul’s CEO Fernando Guerreiro de

Lemos likes to use a word that, in his opinion, brings together the whole transformation and good results: “ management” . With a law degree from the University of Brasília (UnB) and 49 years old, he became the Bank’s CEO 2003, in after working with Pedro Simon (PMDB) at the Senate and state government, who appointed Lemos to the position.

In July 2007, Banrisul carried out a successful fund-raising operation on the São Paulo Stock Exchange (Bovespa) and strengthened its cash position − and consequently, the cash position of the government of the state of Rio Grande do Sul, the Bank’s controlling − withshareholder R$2 billion, in the “ largest IPO performed by a bank in all Latin America,” as written in the report celebrating the 80th anniversary of the Bank. The capitalization could not have taken place at a better time: the following year the world would suffer the effects of a global financial crisis that lingers until today.

The succession of important events like this is not something totally new to Banrisul’s history . In August 1928 − a year before the Great American Depression caused markets all over the world to crash − the Brazilian government authorized

the operation of the newly-created bank (fulfilling the demand of ranchers in the state of Rio Grande do Sul), which the following year already counted on 29 branches, and it did not stop growing, in spite of the fear atmosphere generated by the New York Stock Exchange crash. After only three years in operation Banrisul grew to 65 branches in the interior of the state of Rio Grande do Sul. Surrounded by renowned financial institutions going out of business, such as Banco Popular and Banco Pelotense, Banrisul continued its trajectory of success and conquered the hearts of the people of Rio Grande do Sul. In the first quarter of 2009, the Bank’s income totaled R$106.5 million, with a 33.6% increase in loan operations (totaling R$11.8 billion).

Lemos says that the management model that was implemented under his leadership “prepared the bank safely.” And to continue safety includesthis a certain protection of the institution’s , preparing them for most a possible change in its senior positions, so that these areas may undergo changes without discontinuing the Bank’s business activities. “It is possiblereplace the

CEO and executive officers without altering .

According to Lemos, in the beginning, this seemed like an impossible task, something similar to changing an airplane’ s turbines while flying. The goal − which was finally achieved − was to establish a managerial process based on the strengthening and specialization of the committees, composed of technicians, increasing the safety level during the decision-making process.

The key operating decisions, such as loan granting, do not depend on the Bank’s CEO or executive officers. Thus, despite the state government stake and the CEO position being appointed by a politician, the Bank is insulated from state interference. Since all decisions are made by “ credit committees” and those who are involved in them are technicians, professionalism prevails. This management model has allowed, for instance, despite the growth in loan operations (42.7% in 2008, totaling R$11.5 billion), the non-performing loan ratio to remain at 3%.

To Banrisul’s CEO , another important fact is that the variable compensation is calculated over the actual result, in other words, “only theover bottom line amount.” This would beto thethe Bank’ secret s profitability and everybody’s commitment to the best results and to a low non-performing loan ratio.

checking balance inquiries − may provide a different experience for Banrisul clients: it is possible to “see” any thatcheck is on the account; and not only the data, but the image of the check. This visualization of checks by the client has been available since 2006. The inclusion of other checks is a new service that has been provided since 2009.

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