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PRIVATIZATION ANNUAL REPORT 2018 ANNUAL REPORT Safra RELATÓRIO ANUAL 2018 “If you choose to sail upon the seas of banking, build your bank as you would your boat, with the strength to sail safely through any storm.” Jacob Safra, founder (1891-1963) J. Safra Group Key financial indicators (BRL million) BRAZIL Total assets Equity Banco Safra S.A. 11,792 182,167 9,508 9,769 Banco J. Safra S.A. 154,788 160,460 8,734 8,915 151,756 142,898 Safra Leasing S.A. Arrendamento Mercantil Dec/14 Dec/15 Dec/16 Dec/17 Dec/18 Dec/14 Dec/15 Dec/16 Dec/17 Dec/18 Safra Asset Management Ltda. Safra Corretora de Valores e Câmbio Ltda. Net income Raised and managed assets(1) SafraPay Credenciadora Ltda. 2,146 1,915 1,654 1,698 233,139 Safra Serviços de Administração Fiduciária Ltda. 1,547 216,398 184,620 198,883 165,867 Safra Seguros Gerais S.A. Safra Vida e Previdência S.A. Accum. Accum. Accum. Accum. Accum. Dec/14 Dec/15 Dec/16 Dec/17 Dec/18 Dec/14 Dec/15 Dec/16 Dec/17 Dec/18 SIP Corretora de Seguros Ltda. Expanded credit portfolio(2) Non performing loans - NPL90 Sercom Comércio e Serviços Ltda. 1.5% Turmalina Gestão e Administração de Recursos S.A. 107,054 87,718 Banco Safra (Cayman Islands) Limited 76,474 75,560 77,547 0.7% 0.7% 0.4% 0.5% Banco Safra S.A., Luxembourg Branch Dec/14 Dec/15 Dec/16 Dec/17 Dec/18 Dec/14 Dec/15 Dec/16 Dec/17 Dec/18 Banco Safra S.A., Cayman Islands Branch (1) Represented by raised and managed funds + repurchase agreements + foreign exchange portfolio + collection of taxes and similar. (2) Included Transactions with credit characteristics and Garantees and sureties. 2 | J. Safra Group 2018, Annual Report J. Safra Group Key financial indicators J. Safra Group 2018, Annual Report | 3 J. Safra Group worldwide Switzerland Netherlands Austria Monaco Germany Luxembourg Poland United States United Kingdon of America Ireland Guernsey Gibraltar The Bahamas Cayman Islands Brazil Israel United Turkey Arab Emirates Mexico Qatar Republic of Panama Uruguay Hong Kong Argentina Chile Singapore 4 | J. Safra Group 2018, Annual Report J. Safra Group worldwide J. Safra Group worldwide J. Safra Group 2018, Annual Report | 5 Contents J. Safra Group | 27 – 43 Locations around Brazil 108 – 111 Message from the CEO | 8 – 11 | Global and brazilian economy | 12 – 25 Financial statements | 44 – 107 6 | J. Safra Group 2018, Annual Report Contents Contents J. Safra Group 2018, Annual Report | 7 Message from the CEO 9 Message from the CEO Optimism about the economic outlook predominated at the start of in 2018. Net income in the year was BRL 2.1 billion, advance loan contracts, enabling our finance house to 2018. As the year proceeded, however, GDP growth projections were resulting in annualized return on equity of 20.3% in the achieve one of the highest growth rates in the market. revised down in response to intensifying uncertainty and continuing period. Assets totaled BRL 182.2 billion at December We will increasingly offer clients self-service solutions concern regarding the fiscal situation. The final result was a similar pace 31, 2018, and net equity reached BRL 11.8 billion, aligned with society’s demands for agility and conve- of economic growth to the previous year’s. Nevertheless, we remain maintaining Banco Safra as the fourth-largest private nience. We are also convinced that relationships will play optimistic about the outlook for the coming period. bank in Brazil. The level of liquidity remained significant, a fundamental role in adding value to our services, and The new government has displayed a disposition to conduct a very reaching BRL 27.7 billion or 2.3 times net equity on for this reason we continue to expand and qualify our important agenda of structural reforms, especially pension reform. This December 31, 2018. staff, who now comprise more than 8,000 professionals is the main challenge Brazil faces in the current year, as pension reform In the credit segment, Safra continued to focus on throughout Brazil. is key to controlling public debt and achieving a sustainable economic extending credit to low-risk corporates and individuals. We will undoubtedly face new challenges in 2019, recovery. Once the debate about pension reform is concluded, we will Loans rated AA, A and B on the Central Bank of but this will also be a year of many opportunities. We be in a position to discuss other important structural reforms, laying the Brazil’s scale accounted for 95.0% of the portfolio. are convinced this will be a crucial period to pave the foundations for a new growth cycle. Non-performing loans accounted for only 0.5% at end- way to sustainable growth in the years ahead. We are Inflation remains under control. Our forecasts suggest that prices will 2018. This was certainly one of the lowest delinquency prepared to proceed with our strategic plan and capture remain well-behaved in the years ahead, allowing the Central Bank of rates among Brazilian banks. Similarly, problem loans the opportunities that present themselves. Brazil to continue pursuing the accommodative monetary policy begun accounted for 1.1% of the total, compared with the in 2016. If this scenario plays out, interest rates will reach the lowest market average of 7.5%. level ever in this country, and the credit and consumer markets will In recent years Banco Safra has intensified its activities recover more strongly, while the capital markets will see an increase in both in segments involving individual clients and in stock and bond issues. corporate segments. This strategic decision is aligned The prospect of economic stabilization, combined with progress in with the principle of diversification, which has always implementing important structural reforms, also favors a resumption been very important to the institution and its clients. We of confidence and clearer visibility for companies, which still have very have achieved robust growth on all business fronts and high levels of idle capacity. The return of short-, medium and long-term will continue to seek leading positions in all markets. planning capabilities enables firms to resume investment. We know banking will be more digital in future and have Banco Safra, faithful as always to its business management strategy, implemented several digital transformation initiatives in all Alberto Corsetti once again achieved a solid and consistent balance-sheet position segments, including reformulation of auto loan and payroll Chief Executive Officer 10 | J. Safra Group 2018, Annual Report Message from the CEO Message from the CEO J. Safra Group 2018, Annual Report | 11 Global and brazilian economy 13 Global economy Economic environment in 2018 and outlook for 2019 With regard to monetary policy, the world’s main cen- There are several threats to this scenario. In the po- The unemployment rate fell from 4.1% in December World GDP growth in 2018 was similar to that seen in tral banks embarked on a gradual reduction of their ac- litical arena, a deterioration of the US-China dispute, 2017 to 3.9% at end-2018. 2017. The median rate projected by market analysts for commodative policies. In the eurozone, the ECB ended which is not our basic scenario, could again have a neg- The continuing economic recovery, alongside the la- 2018 was 3.7%. In 2017 world GDP grew 3.8%. The its asset buying program (quantitative easing or QE) in ative impact on confidence. If Chinese economic growth bor market’s strong performance, allowed the Fed to developed economies grew more slowly than in the pre- December, but signaled that it would leave interest rates slows more sharply owing to the trade war, risk aver- proceed with monetary policy normalization. The fed vious year, with the noteworthy exception of the United on hold until at least the second half of 2019. sion will probably intensify considerably, impacting the funds rate was hiked four times during the year, reaching States, while the emerging economies grew faster. As On the other side of the Atlantic, the strong dynam- emerging economies in particular. 2.25%-2.50% p.a. shown by Table 1, GDP grew 2.3% in the developed ics of US economic data and labor market data, despite Another risk to watch is the possibility of a sharper pick- While the Fed indicated that a pause in the process of economies in 2018, or 0.1 percentage point (pp) less surprisingly low inflation during part of the year, led the up in inflation than expected, especially in the US. If this monetary policy normalization was likely in the coming than in the previous year, while GDP in the emerging Federal Reserve to proceed with gradual monetary nor- entailed a more substantial response from central banks, year, in December the median forecast of the FOMC’s economies grew 5.0%, 0.1 pp more than in 2017. malization, raising the fed funds rate four times in 2018. driving up interest rates, global economic growth could members pointed to two rate hikes in 2019. We expect In 2018, economic growth decelerated in all the de- At the end of the year, however, the Fed indicated that it be slower than expected, with a negative impact on com- rates to be left on hold, however. veloped economies except the US, which accelerated to might pause the process to evaluate the effects of tight- modity prices. Brazil’s economic recovery might also be Consumer inflation measured by the PCE deflator 2.9%, from 2.2% in the previous year. US acceleration ening on the real economy.

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