Corporate Governance Report

13 CORPORATE GOVERNANCE REPORT

The information on corporate governance that follows complies with the provisions of Regulation no. 1/2010 of the Securities Exchange Commission and article 245-A of the Securities Code.

Except where expressly indicated otherwise, all the information in this report refers to the 2012 fiscal year and/or the date of 31 December 2012.

CHAPTER 0 STATEMENT OF COMPLIANCE

0.1. Identification of the place where the public may access the texts of the corporate governance codes that the issuer is subject to and, if so be the case, those that the issuer has voluntarily chosen to subject itself to.

Besides the Corporate Governance Code issued by the CMVM, the company is not subject to any other corporate governance codes or specific conduct codes to which it has voluntarily subjected itself.

0.2. Detailed description of the recommendations in the CMVM Corporate Governance Code that have or have not been adopted. 1

For the purposes, non-adoption has been taken to mean those recommendations which are not adhered to in their entirety.

0.3. Notwithstanding the provisions of the previous point, the company may also make a global assessment, provided this is well-founded, as to the degree of adoption of groups of recommendations that address the same issue.

0.4. When the structure or corporate governance practices diverge from the recommendations of the CMVM or of other codes to which the company is subject or has voluntarily adhered to, the parts of each code that are not complied with or which the company believes are not applicable should be specified, with the corresponding justification and other important observations, as well as a clear indication of the part of the Report in which the description of this situation can be found.

1 In those situations deemed relevant, additional clarification is to be provided.

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I. GENERAL MEETING

I.1 General Meeting Committee

I.1.1 The Chairman of the general meeting should have at their disposal all necessary and suitable human and logistical resources, bearing in mind the financial position of the company . Recommendation adopted

I.1.2 The remuneration of the Chairman of the general meeting should be disclosed in the annual report on corporate governance . Recommendation adopted

I.2 Participation in the assembly

I.2.1 Prior notice to the committee of share deposit or blocking for the purposes of participation in the general meeting should not exceed five working days. Recommendation not applicable

With the coming into force of article 23-C of the Securities Code (amended by Decree-Law no. 49/2010, of 19 May), the blocking of shares for the purposes of participation in general meetings and the exercise of voting rights is no longer requisite.

Shareholders who, at 00.00 hours (GMT) on the fifth business day preceding the date of the meeting, are holders of sufficient shares to have the right to at least one vote are eligible to participate, discuss and vote in the general meeting.

To this end, each shareholder should declare in writing, to the Chairman of the general meeting and to the financial institution at which they hold their individual account of record, their intention to participate in the meeting, by the day preceding the day the date referred to in the paragraph above.

The Financial Intermediary must send the Chairman of the general meeting, up to the end of the 5th business day, a notification with the number of shares registered in the name of the customer at 00.00 hours (GMT) of the 5th business day preceding the date scheduled for the corresponding meeting.

I.2.2 Should the general meeting be suspended, the company shall not compel share blocking during the interim period until the meeting is resumed and shall then prepare itself in advance as required for the first session . Recommendation not applicable

With the coming into force of article 23-C of the Securities Code (amended by Decree-Law no. 49/2010, of 19 May), the blocking of shares for the purposes of participation in general meetings

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and the exercise of voting rights is no longer requisite (cf. comment on previous recommendation).

I.3 Voting and exercising voting rights

I.3.1 Companies shall not impose any statutory restriction on postal voting and whenever adopted or admissible, on electronic voting . Recommendation adopted

I.3.2 The statutory deadline for receiving early voting ballots by mail may not exceed three working days . Recommendation adopted

I.3.3 Companies shall ensure the level of voting rights and the shareholder s participation is proportional, ideally through the statutory provision that obliges the one share-one vote principal. Companies that: i) issue shares that do not confer voting rights; ii) stipulate that voting rights above a certain number shall not count, when these are held by a single shareholder or by shareholders related to this shareholder, are not counted. Recommendation adopted

I.4 Quorum

Companies should not set a quorum that is higher than that stipulated by law . Recommendation adopted

I.5 Minutes and information on resolutions passed

Extracts from the minutes of general meetings or documents with such content must be made available to shareholders on the company s website within the five days following the General Meeting, irrespective of whether or not such information has been classified as material information. The information disclosed shall cover the resolutions passed, the represented capital and the voting results. The information should be kept on file on the company s website for no less than three years. Recommendation adopted

I.6 Measures on corporate control

Measures aimed at preventing successful takeover bids should respect the interests of both the company and its shareholders. Company articles of association that, in complying with this principle, provide for restrictions on the number of votes that may be held or exercised by a single shareholder, either individually or in concert with other shareholders, should also ensure that, at least once every five years, the general meeting discusses whether this statutory

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provision is to be amended or remain in force without quorum requirements above those legally required in that, for this resolution, all votes issued be counted, without applying said restriction. . Recommendation adopted

No measures have been adopted which might block any takeover bid.

The articles of association do not stipulate any limit as to the number of votes that may be held or exercised by a single shareholder or by a shareholder acting in concert with other shareholders.

I.6.2 In cases such as change of control or changes to the composition of the Board of Directors, defensive measures shall not be adopted that instigate an immediate and serious asset erosion in the company, and further disturb the free transmission of shares and voluntary performance assessment by the shareholders of the members of the Board of Directors . Recommendation adopted

II. BOARD OF DIRECTORS AND SUPERVISORY BOARD

II.1 General issues

II.1.1 Structure and competence

II.1.1.1 “The board of directors should assess the adopted model in its annual report on Corporate Governance, pinpoint possible constraints on its proper functioning and propose suitable measures for overcoming any such obstacles”. Recommendation adopted

II.1.1.2 “Companies shall set up internal control and risk management systems in order to safeguard the company’s worth and which will identify and manage the risk. Said systems shall include at least the following components: i) setting of the company’s strategic objectives as regards risk assumption; ii) identification of the main risks associated with the company’s activity and any events that might generate risk; iii) analysis and determination of the likelihood of each potential risk and the extent of its impact; iv) risk management designed to bring risks that actually occur in line with the company’s strategy for risk assumption; v) control mechanisms for the risk management measures and their effectiveness; vi) adoption of internal information and communication mechanisms for various components of the system and risk alerts; vii) periodic assessment of the system and the adoption of the amendments that are deemed necessary”. Recommendation adopted

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The internal control system is described in point 2.5 of the 2012 Report on Corporate Governance.

II.1.1.3 “The board of directors should oversee the setting up and operation of the internal control and risk management systems. The supervisory board will be responsible for assessing the functioning of these systems and proposing any necessary adjustment designed to meet the company’s needs”. Recommendation adopted

II.1.1.4 “In their annual report on corporate governance, companies should: i) identify the main economic, financial and legal risk that the company is exposed to in its business activity; ii) describe the performance and effectiveness of their risk management systems”. Recommendation adopted

II.1.1.5 “The board of directors and the supervisory board should establish internal operating regulations that are also disclosed on the company’s website”. Recommendation not adopted.

The Company is preparing operating regulations for the board of directors and operating regulations for supervisory board, which are due to be concluded shortly, during the 1st half of 2013.

II.1.2 Incompatibility and independence

II.1.2.1 The board of directors should include a number of non-executive members that ensure the efficient supervision, auditing and assessment of executive members activity . Recommendation adopted

II.1.2.2 Non-executive members must include an adequate number of independent members. The size of the company and its shareholder structure must be taken into account when devising this number and may never be less than a fourth of the total number of Board Directors . Recommendation adopted

Given the time period covered by the information in this report, this recommendation is taken to be adopted, since of the total of 10 directors there were 3 non-executive directors, the three considered independent.

Furthermore, at the present date, the board of directors has 4 non-executive directors, 3 of whom are considered independent, which represents one fourth of the total number of directors (12).

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II.1.2.3 The assessment of the independence of non-executive members, carried out by the board of directors, should take into account the legal and regulatory rules in force concerning independence requirements and the incompatibility framework applicable to members of other corporate boards, thus assuring a systematic and timely coherence of the application of independence criteria throughout the company. An executive may not be considered independent, if the applicable rules dictate that the person cannot be independent while a member of any other statutory body . Recommendation adopted

II.1.3 Eligibility and appointment

II.1.3.1 Depending on the model in use, the Chairman of the supervisory board, the audit committee or the committee for financial matters should be independent and competent to carry out the relevant duties . Recommendation not adopted

The Chairman of the supervisory board (elected for a new three-year mandate (2012- 2014) at the general meeting of 23 March 2012) is no longer considered independent, given the number of times that this mandate has been renewed, as stipulated by no. 2(b) of article 415 of the Commercial Companies Code.

II.1.3.2 The selection process for non-executive directors should be carried out in such a way as to prevent any possibility of interference by executive directors . Recommendation adopted

The selection of (any) directors is a process entirely undertaken by the company s shareholder structure (which is responsible for drawing up and submitting election lists), without any intervention on the part of any executive member of the board of directors.

II.1.4 Policy for reporting irregularities

II.1.4.1 The company shall adopt a policy whereby irregularities occurring within the company are reported. Such reports shall contain the following information: i) the means by which such irregularities are to be reported internally, including the persons that are entitled to receive such reports; ii) how the report is to be handled, including confidential treatment, should it be required by the person reporting . Recommendation adopted

The company s policy on reporting irregularities is detailed in point 2.35 of this report

II.1.4.2 The general guidelines for this policy should be disclosed in the report on corporate governance . Recommendation adopted

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The general outline of the policy on reporting irregularities is given in point 2.35 of this report.

II.1.5 Remuneration

II.1.5.1 The remuneration of the Members of the Board of Directors shall be structured so that the formers interests are capable of being aligned with the long-term interests of the company. Furthermore, the remuneration shall be based on performance assessment and shall discourage taking on extreme risk. Thus, remunerations shall be structured as follows:

(i) The remuneration of the Board of Directors carrying out executive duties should include a variable element which is determined by a performance assessment carried out by the competent corporate bodies according to predetermined quantifiable criteria that take into account any real growth in the company and the wealth created for shareholders, its long-term sustainability and the risks taken, as well as compliance with the rules applicable to the company s business activity.

(ii) The variable component of the remuneration shall be reasonable overall as regard the fixed component of the remuneration and maximum limits shall be set for all components.

(iii) A significant part of the variable remuneration should be deferred for a period of not less than three years and payment of this should depend on continued positive performance by the company over the period in question.

(iv) Members of the Board of Directors shall not enter into contracts with the company or third parties that will have the effect of mitigating the risk inherent in the variability of the remuneration established by the company.

(v) Until the end of their mandate, executive directors should hold those shares in the company that were allocated to them under a variable remuneration scheme, up to twice the value of their total annual remuneration, except for those shares that need to be sold for the payment of taxes on the gains of said shares.

(vi) When the variable remuneration includes stock options, the right to exercise these should be deferred for a period of not less than three years

(vii) The appropriate legal instruments shall be established so that in the event of a director s dismissal without due cause, the envisaged compensation shall not be paid out if the dismissal or termination by agreement is due to the director s inadequate performance.

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(viii) The remuneration of non-executive directors shall not include any component which is subject to the performance or the value of the company. Recommendation adopted

II.1.5.2 A statement on the remuneration policy for the board of directors and the supervisory board, as referred to in Article 2 of Law No. 28/2009 of June 19, should contain, in addition to the content therein stated, appropriate information on: i) which groups of companies with remuneration policies and practices which were taken as a baseline for setting the remuneration; ii) the payments for the dismissal or termination by agreement of a director s contract . Recommendation not adopted

The remuneration committee does not believe it is appropriate to disclose any comparative information that may have been used in defining the company s remuneration policy and practices.

II.1.5.3 The remuneration policy statement referred to in Article 2 of Law No. 28/2009 shall also include the directors remunerations which contain an important variable component, within the meaning of Article 248-B(3) of the Portuguese Securities Code. The statement should be detailed and the policy should specifically take into account the long-term performance of the company, compliance with the rules applicable to its business activities and restraint in taking risks . Non-applicable recommendation.

The remuneration of directors does not include an important variable component.

II.1.5.4 The proposal for the approval of plans for the allocation of shares and/or options for share purchase or options based on variations in share price, to members of the board of directors, the supervisory board and other managers, within the meaning of no. 3 of article 248-B of the Securities Code should be submitted to the general meeting The proposal should continue all the information necessary to a proper assessment of the plan. The proposal should contain the regulation for the plan or, where this has yet to be drawn up, the conditions under which the plan is to operate. The main features of the retirement benefit plans established for members of the board of directors, the supervisory board and other managers, within the meaning of no. 3 of article 248-B of the Securities Code, should also be approved by the general meeting . Non-applicable recommendation

There are currently no plans, nor are any foreseen, for the allocation of shares and/or options for share purchase or options based on variations in share price process, to members of the board of directors or the supervisory board nor is there a retirement benefits system for members of the board of directors or the supervisory board.

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II.1.5.5 At least one member of the remuneration committee s should be present at the shareholders general meeting . Recommendation adopted

II.1.5.6 The amount of remuneration received and pension rights acquired, as a whole and individually, from other companies in the group during the financial year in question should be disclosed in the annual report on corporate governance . Recommendation adopted

II.2 Board of Directors

II.2.1 Within the limits established by law for each management and supervisory structure, and unless the company is of a reduced size, the board of directors shall delegate the day-to-day running of the company and the delegated duties should be identified in the annual report on corporate governance . Recommendation adopted

II.2.2 The board of directors should ensure that the company acts in accordance with its goals, and should not delegate its duties, particularly as regards: i) definition of the company s strategy and general policies; ii) definition of the corporate structure of the group; iii) decisions taken that are considered to be strategic due to the amounts or risk involved or their particular characteristics . Recommendation adopted

II.2.3 Should the Chairman of the board of directors carry out executive duties, the board of directors should set up efficient mechanisms for coordinating the work of non-executive members which should be designed to ensure that non-executive directors can take independent and informed decisions. of those mechanisms should be explained to shareholders in the report on corporate governance . Non-applicable recommendation

The Chairman of the board of directors does not carry out any executive duties.

II.2.4 The annual management report should include a description of the activity carried out by the non-executive board members and should mention any constraints encountered . Recommendation adopted

II.2.5 In its annual report on corporate governance, the company should explain its policy for rotating posts of responsibility amongst the members of the board of directors, particularly as regards the management of finances . Recommendation not adopted

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Given the corporate governance model that has been in place, the board of directors is of the opinion that it is not necessary to impose or submit the rotation of posts of responsibility to any predetermined policy or criteria. The board of directors is of the opinion that any alteration/rotation of posts of responsibility among its members should be determined by that board on a case-by-case basis, depending on the evolution of the company s activities and the abilities of its members.

II.3 CEO, executive committee and executive board of directors

II.3.1 When directors that carry out executive duties are requested by other board members to supply information, they should do so in a timely manner and the information supplied must respond suitably to this request . Recommendation adopted

The board of directors has sought to create optimal conditions for the supervisory board to carry out its supervisory duties, with access to all relevant information and close oversight of all issues and, to this end, the Chairman of the supervisory board is invited to all meetings of the board of directors and has attended the majority of these. The supervisory board is made aware of the agendas for all meetings of the board of directors, given access to all the documentation analysed during such meetings, informed of all decisions taken and supplied with a copy of the minutes. The board of directors is also available to answer questions, offer clarifications or supply complementary information, whether as part of the meetings or as requested, at any other time, by the audit board.

On the same lines, the executive committee of the board of directors seeks to maintain the non-executive members of the board of directors and the member of the supervisory board duly informed, particularly on management activities and the situation of the company.

II.3.2 The Chairman of the executive committee should send the convening notices and minutes of the meetings to the Chairman of the board of the directors and, where applicable, to the Chairman of the supervisory board or the audit committee . Recommendation adopted

The Chairman of the board of directors and the Chairman of the supervisory board have access to all relevant documents related to the activities of the executive committee, in particular the agendas and minutes of its meetings.

II.3.3 The Chairman of the executive board of directors should send the convening notices and minutes of the meetings of to the Chairman of the general and supervisory board and the Chairman of the finance committee . Non-applicable recommendation

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This recommendation is not applicable, given the company s governance model which does not include a Chairman of the executive board of directors or a Chairman of the general and supervisory board .

II.4 General and supervisory board, finance committee, audit committee and audit board

II.4.1 In addition to fulfilling its supervisory duties, the general and supervisory board shall advise on, oversee and assess, on an on-going basis, the management of the company by the executive board of directors. Included in the issues to be addressed by the general and supervisory board are: i) definition of the company s strategy and general policies; ii) the corporate structure of the group; and iii) decisions that should be thought of as strategic due to the amounts or risk involved or their specific characteristics. Non-applicable recommendation

Non-applicable recommendation under the governance model, which does not include a general and supervisory board .

II.4.2 The annual reports on the activities of the general and supervisory board, the finance committee, the audit committee and the audit board should be disclosed on the company s website, together with the financial statements. Recommendation adopted

II.4.3 The annual reports on the activities of the general and supervisory board, the finance committee, the audit committee and the audit board should include a description of the supervisory activities engaged in and, particularly, any constraints found . Recommendation adopted

II.4.4 Depending on the governance model, the general and supervisory board, the audit committee or the audit board should represent the company, for all purposes, before the external auditor. The competences involved include proposing the service provider and the respective remuneration, ensuring that suitable conditions for the exercise of these services exist within the company and liaising between the company and the first recipient of the reports in question . Recommendation adopted

II.4.5 Depending on the governance model, the finance committee, the audit committee or the audit board, should assess the external auditor on an annual basis and advise the general meeting that he/she be discharged, should the situation warrant it . Recommendation adopted

II.4.6 The internal audit services and those that ensure compliance with the rules applicable to the company (compliance services) should report directly to the audit committee, the

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general and supervisory board or, in the case of companies adopting the Latin model, an independent director or supervisory board, regardless of the hierarchical relationship that these services have with the executive management of the company . Recommendation not adopted.

By virtue of the integration of Banif SGPS SA and of it becoming the ultimate parent company in the Group, the audit function under Banif SA has gained certain responsibilities of a type that was previously entrusted to the corporate auditing body of Banif SGPS. For this reason, in the context of the adjustments the mechanisms of governance under consideration and in implementation, following the conclusion of the merger, in December 2012, a specific functional reporting chain of Audit and Compliance Functions has been assigned to a non-executive director and/or to the supervisory board.

II.5 Special committees

II.5.1 Unless the company is of a reduced size, and depending on the governance model in use, the board of directors and the general and supervisory committees, should set up the necessary committees to: i) ensure the competent and independent assessment of executive directors performance, its own overall performance and that of all committees in existence; ii) study the governance system in use, verify its efficiency and propose improvement measures to the competent bodies; iii) identify, in good time, potential candidates with the right profile for the position of director . Recommendation not adopted

The need to create these Committees in the board of directors of Banif SA was felt in particular after the incorporation of Banif SGPS SA after which the Bank became the ultimate parent company in the Group, in December 2012. The creation of these committees is currently being studied, with a view to their implementation.

II.5.2 Members of the remuneration committee, or equivalent, should be independent from the members of the board of directors and include at least one member with knowledge and experience in matters of remuneration policy . Recommendation adopted

II.5.3 Any natural or legal person which provides or has provided, over the past three years, services to any structure subject to the board of directors or to the board of directors itself or which has a relationship with a current consultant to the company should not be recruited to assist the remuneration committee. This recommendation also applies to any natural or legal person that has an employment contract with, or provides services to, these bodies . Recommendation adopted

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II.5.4 All committees should draw up minutes of their meetings . Recommendation adopted

III. INFORMATION AND AUDITING

III.1 General disclosure obligations

III.1.1 Companies shall maintain permanent contact with the market thus upholding the principle of equality for shareholders and ensure that investors are able to access information in a uniform fashion. To this end, the company should set up an investor relations unit . Recommendation adopted

III.1.2 The following information should be made available on the company s website in English:: a) The company, public company status, headquarters and remaining data provided for in article 171 of the Commercial Companies Code b) Articles of association; c) Identity of the members of the board of directors and the market liaison officer; d) Investor relations unit its functions and contact information; e) Accounts documents; f) Half-yearly calendar of company events g) Proposals for discussion and voting in the general meeting; h) Notices convening general meetings . Recommendation adopted

III.1.3 Companies should try to rotate auditors after two or three terms (of four and three years respectively). Any extension of this period should be substantiated through the issuance of a specific opinion by the supervisory board which evaluates the auditor s level of independence and the advantages and costs of replacement . Recommendation not adopted

The company has no specific policy as regards rotating auditors. The external auditor is nominated in the general meeting, in accordance with the recommendation/proposal made by the audit board.

III.1.4 The external auditor must, as part of its function, verify the implementation of remuneration policies and systems, the efficiency and functioning of internal control mechanisms and report any shortcomings to the company s supervisory board . Recommendation adopted

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III.1.5 The company shall not contract the external auditor, or any entity with which this has cross-holdings or which belongs to the same network, any services other than audit services. Where such services need to be contracted, having been previously approved by the audit board and later explained in its annual report on corporate governance, they should not exceed 30% of the value of services rendered to the company . Recommendation adopted

The company did not contract the external auditor for any services, with the exception of reliability assurance and tax consultancy services, as explained in point 3.17 below.

IV. Conflicts of interest

IV.1 Relationships with shareholders

IV.1.1 Where business is transacted between the company and shareholders with qualifying holdings, or entities with which these are linked, under the terms of article 20 of the Securities Code, such business should be carried out under normal market conditions . Recommendation adopted

IV.1.2 Where business is transacted between the company and shareholders with qualifying holdings, or entities with which these are linked, under the terms of article 20 of the Securities Code, such business should be carried out under normal tax control conditions. The procedures and criteria required to define the relevant level of significance of these deals and other conditions shall be established by the Supervisory Board . Recommendation adopted

Since the company is a credit institution, all loans to shareholders with qualifying holding of over 10% are subject to the additional scrutiny provided for in Article 109 of the General Regulations for Credit Institutions and Finance Companies. There are no other transactions of significance with qualifying shareholders.

CHAPTER 1 GENERAL MEETING

1.1 Names of the members of the general meeting committee.

In accordance with article 14 no. 1 of the company s articles of association, the general meeting committee is composed of a Chairman and one or two secretaries, elected for three-year periods, by the general meeting.

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On 23 March 2012, the following members were appointed to the general meeting committee for the 2012-2014 three-year period:

Chairman: Miguel José Luís de Sousa Secretary: Bruno Miguel dos Santos de Jesus

1.2 Indication of the start and end dates for the respective mandates The election of both members of the general meeting committee was decided at the general meeting held on 23 March 2012. The members of the committee were appointed for the 2012-2014 three-year period, which ends on 31 December 2014.

1.3 Indication of the remuneration of the Chairman of the general meeting committee.

During 2012, the Chairman of the general meeting received 5,000.00 euros from attendance fees and the secretary of the committee of the general meeting received 1,500.00 euros from attendance fees.

1.4 Indication of the notice required for blocking shares for the purposes of participating in the general meeting

Shareholders entitled to attend the general meeting and to discuss and vote are those who, in accordance with the law and the memorandum, have the right to at least one vote, and the entities referred to in the law and those authorised by the Chairman may also attend, without objections from the general meeting. The attendance and voting by shareholders depend on shares certified in their name that grant the right to at least one vote, at 00.00 (GMT) on the 5th (fifth) day, before the date scheduled for the meeting.

The shareholders that meet these conditions and intend to actually attend and vote in the general meeting must inform the financial intermediary where the individual account of record is held and the Chairman of the general meeting, by the day preceding the date referred to in the paragraph above. The Financial Intermediary must send the Chairman of the general meeting, up to the end of the 5th business day, a notification with the number of shares registered in the name of the customer at 00.00 (GMT) of the 5th business day preceding the date scheduled for the corresponding meeting.

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1.5 Indication of the rules applying to the blocking of shares when the general meeting is suspended

With the coming into force of article 23-C of the Securities Code (amended by Decree-Law no. 49/2010 of 19 May), the blocking of shares for the purposes of exercising voting rights in the general meeting is no longer a requirement. Equally, article 17.7 of the articles of association states that, in the event of suspension of the general meeting, blocking of the shares is not required during the period preceding resumption of the meeting. The normal notice period, as required for the first session, shall suffice .

1.6 Number of shares corresponding to a vote.

Under the provisions of no. 2 of article 17 of the company s articles of association, each share corresponds to 1 (one) vote.

This wording of no. 2 of article 17 of the articles of association, introduced at the general meeting on 8 October 2012, in the context of the merger of Banif SGPS, SA into Banif Banco Internacional do Funchal, SA, incorporates the recommendations of the CMVM in this matter, thus emphasising the efforts made by the company to involve shareholders in decision-making.

1.7 Indication of the bylaw rules providing for actions that do not confer voting rights or which enable voting rights over a certain number not to be counted, when issued by a single shareholder or shareholders related thereto.

No, 4 of article 5 of the articles of association stipulates the issue of non-voting preference shares and other preference shares, in the following terms: The company may issue any category of shares, specifically non-voting preferential shares or other preferential shares, redeemable or not, such redemption being at the nominal value, with, or not, the addition of a premium, as decided by the competent body .

1.8 Existence of bylaw rules on the exercise of voting rights, including constitutive and decision-making quorums or systems for the stripping of equity rights.

The bylaw rules on the exercise of voting rights, and specifically as regards constitutive and decision-making quorums, are in line with the provisions of the Commercial Companies Code (CCC). Parity exists between the bylaws (as per article 18, no. 1 of the articles of association) and the legal regulations (as per articles 383 and 386 of the Commercial Companies Code). There are no bylaw rules relating to the stripping of equity rights.

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1.9 Existence of by-law rules on the exercising of voting rights via postal voting.

The articles of association stipulate that shareholders have the right to vote in general meetings via postal vote.

In compliance with the stipulations of paragraph f) of no. 5 of article 377 of the Commercial Companies Code, the articles of association (article 17) regulate the procedures for postal voting as well as the security measures that should be followed in order to ensure that such votes may be counted towards a constitutive quorum

1.10 Provision of a form for voting by post.

The company provides a form containing all the fields required for postal voting on its website www.grupobanif.pt.

Note that, in compliance with article 17, no 5 para. c) of the articles of association, the fact that there is a standard voting form for each general meeting does not invalidate a postal vote made using a non-standard form, provided this is received before the deadline and that it is intelligible and unequivocal.

1.11 Time interval requirement for the period between receipt of the postal ballots and the date on which the general meeting is held.

As stipulated in article 17.6 a) of the articles of association, the vote must be received by the company up to 17.00 of the business day before the general meeting, otherwise it shall not be accepted.

1.12 Exercising of voting rights by electronic means.

There is no provision for electronic voting for the general meeting.

1.13 Possibility of shareholders having access, on the company s website, to excerpts from the minutes of general meetings within five days of the general meeting

In compliance with recommendation I.5 of the CMVM s Corporate Governance Code (2010), the company posts a document on its website for shareholders and the public in general. This document details the resolutions passed, the share capital represented and the voting results and is available on the website for at least three years. Additionally, shareholders may request access to the minutes of general meetings in the 5 days following the date of the meeting.

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1.14 Existence of a historical record, for the previous 3 years, on the company s website containing the resolutions passed at the company s general meetings, the share capital represented and voting results.

Up until 17 December 2012, the Company was (only) an issuer of tradable securities and its share capital was held by a single shareholder, for which reason compliance with its legal and statutory duties of disclosure did not require (and would not make sense in this context of a single shareholder) the disclosure of the quorum at meetings and the results of the voting. Given its current status as a company issuing tradable shares, this procedure has been implemented as was the case with Banif SGPS, SA.

1.15 Identification of the remuneration committee representative present at general meetings.

The Remuneration Committee was represented at the company s annual general meeting, held on 5 April 2012, by one of its three members: Dr. Fernando José Inverno da Piedade.

1.16 Information on the general meeting s intervention in the company s remunerations policy and the assessment of the performance of members of the board of directors and other managers.

The remuneration of members of statutory bodies is set by a remuneration committee whose (3) members are elected directly by the general meeting (article 31, no 1 of the articles of association). Moreover, the general meeting may decide, following a proposal from the board of directors, on the distribution of profits to company staff and employees (article 31, no. 4 of the articles of association). Additionally, and in compliance with the provisions of point II.1.5.2 of the Corporate Governance Code, published by the Portuguese Securities Market Commission in September 2007, and with article 2 of Law no. 28/2009, of 19 June, the remuneration committee will submit to the shareholders annual general meeting, each year, a statement on the remuneration policy for the board of directors and the supervisory board.

1.17 Information on the general meeting s intervention in the proposed plans for the allocation of shares and/or options for share purchase or options based on variations in share price to members of the board of directors, the supervisory board and other managers, within the meaning of no. 3 of article 248-B of the Securities Code, as well as on the details provided to the general meeting for the purposes of correctly assessing said plans.

Any system for options on shares representing the company s equity capital is subject to resolution in the general meeting (article 31, no. 5 of the articles of association)

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1.18 Information on the general meeting s intervention in the approval of the main features of the retirement benefit system offered to members of the board of directors, the supervisory board and other managers, within the meaning of no. 3 article 248-B of the Securities Code

The awarding to members of statutory bodies of retirement pensions, survivor s pensions or complementary retirement pension or survivor entitlements depends on decisions taken at the general meeting (article 31, no. 6 of the articles of association). However, the general meeting may decide to delegate such decisions to the remuneration committee.

1.19 Existence of a statutory provision to submit, at least every five years, a proposal to maintain or withdraw the statutory provision that limits the number of votes that can be held or exercised by a single shareholder, individually or jointly with other shareholders to a resolution in the general meeting.

The articles of association do not envisage any limit on the number of votes that may be held through voting rights by any individual shareholder or by any group of shareholders acting in concert.

1.20 Indication of the defensive measures that would have the automatic effect of causing serious erosion of company assets in the case of transfer of control or changes to the composition of the board of directors.

There are no, nor are there plans for, defensive measures that would have the automatic effect of causing serious erosion of company assets in the case of transfer of control or changes to the composition of the board of directors.

1.21 Important agreements to which the company is a party and that come into force, are changed or terminated should there be a change in company control (and the effect of this), unless the disclosure of the same, due to their nature, would be highly damaging to the company and except when the company is specifically obliged to disclose said information by virtue of other legal requirements.

There are no agreements in the situations described, in other words, which take effect, are altered or terminate in the case of or by mere effect of change of control.

1.22 Agreements between the company and members of the board of directors or other managers, within the meaning of no. 3 of article 248-B of the Securities

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Code, that provide for compensation in cases of dismissal, unfair dismissal or termination of employment following a change in company control.

There are no, nor are there plans for, agreements with such characteristics.

CHAPTER 2 Board of directors and supervisory board SECTION 1 General issues

2.1 Identification and composition of statutory bodies.

In terms of governance, the company is structured according to the Latin Model (Reinforced), as per paragraph a) of no. 1 of article 278 of the Commercial Companies Code.

Management of the company is entrusted to a board of directors (cf. article 20 and following of the articles of association) composed of a minimum of 3 and a maximum of 15 members, elected by the general meeting for three-year mandates, without prejudice to their reelection.

In a meeting on 23 March 2012, the board of directors delegated the duties of day-to-day management of the company to an executive committee, under the terms of article 24 of the articles of association.

Supervision of the company is entrusted to a supervisory board (article 27 and following of the articles of association) composed of a minimum of 3 members and by one or two alternates, elected by the general meeting for three-year mandates and a statutory auditor, in accordance with paragraph b) of no. 1 of article 413 of the Commercial Companies Code.

2.2 Identification and composition of special committees entrusted with the management and supervision of the company.

At the present time, the only special committee within the board of directors is the executive committee referred to in the previous point.

2.3 Organisational charts or functional maps illustrating the division of competences amongst the various statutory bodies, committees and/or company departments, including information on the delegation of competences, specifically as regards the delegation of powers for the day-to-day running of the company, or the distribution of roles amongst the members of the board of directors or the supervisory board and the list of matters that may not be delegated and those competences that are actually delegated.

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As stipulated in article 24 of the articles of association, the Board may delegate to the Chairman and to one of the Vice-Chairmans, jointly, or to an Executive Committee, comprising an odd number of directors, the day-to-day management of the company, this decision to establish the limits of such delegation.

On 23 March 2012 the board of directors appointed its Chairman and Vice-Chairmen and approved the rules applicable to its meetings. On the same date, the board of directors also decided to create an executive committee, to which were conferred the widest possible administrative and management powers allowed under the law and the articles of association, the board of directors still having exclusive responsibility for the following:

a. co-opt directors. b. approve reports from the board of directors or the annual accounts. c. request that the general meeting be convened. d. approve the posting of personal or real bonds or guarantees by the company, with the exception of bank guarantees and sureties related with the company s business activities. e. approve a change of head offices or an increase in share capital in accordance with the terms of the articles of association. f. approve the opening or closure of subsidiaries, branches, agencies, delegations or other forms of company representation in foreign countries. g. approve projects to merge, demerge or transform the company. h. approve annual budgets or plans. i. approve the issue of securities; j. approve proposals to change the articles of association and the articles of association of subsidiary companies; k. decide on increases in liabilities or reduction of guarantees in credit operations/limits (by disbursement or off-balance sheet) that involve total credit exposures for clients or groups of clients, where these are not credit institutions, of over 20 million Euros. The executive committee does, however, have the necessary powers to decide on the alternative use of modes of credit, within the overall amounts stipulated for the lines or any limits in effect, interest rates or commissions, the carrying out of extra-limit or occasional operations which do not, in sum, exceed 10% of the maximum limit approved for a client or a group of clients. l. decide on investments, investment or disinvestment projects involving amounts over 5 million Euros and the acquisition of disposal of qualified shareholdings or shareholdings involving more than the amount mentioned here. m. contract staff with the rank of director or appoint or dismiss heads of bodies in the first-line of the bank s organisational structure. n. allocate sponsorship money, or make donations, over 25 thousand Euros, and approve advertising campaigns involving amounts over 100 thousand euros; o. pay fines, penalties and fines of amounts more than 50 thousand euros;

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p. relate institutionally with the holders of securities issued by the bank, without prejudice to the competences of the investor relations officer. q. approve, in global terms, the policies and activity plans drawn up annually by the areas of Risk, Compliance and Auditing, as well as the annual report on internal control; r. set up and periodically revise the exposure tolerance limits for each risk category; s. appoint members of the statutory bodies of companies controlled by the Bank or of members to represent the Bank as members of the Statutory bodies of third parties; t. resolve any issue on which any director requires a decision from the board of directors.

It was also decided that the powers provided for in paragraphs d., f., i., k., l.,m., p. and s. can be ratified by the board of directors whenever, for reasons of urgency or when in the manifest best interest of the bank, these powers are to be exercised by the executive committee which, for the purposes, may not further delegate such powers.

It is further set out in the articles of association that the Board of Directors may especially entrust one or more directors with matters of administration, within the limits established by law, and mandate any of its members or other people to engage in any of the acts included among its responsibilities and powers

According to the statutory regulations, the board of directors also has the power of distribute duties among the directors. At 31 December 2012, the duties of the members of the Board of Directors were distributed as follows:

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Dr. Jorge Humberto Correia Tomé Coordination of the Executive Committee Auditing and Inspection Department Global Risk Department Secretariat of the Board of Directors Legal Department Dr. Vitor Manuel Farinha Nunes Credit Recovery Department Credit Department Human Resources Department Procurement and Assets Department Dr. Nuno José Roquette Teixeira Treasury Department

Dr. João Paulo Pereira Marques de Almeida Accounting and Planning Department Customer Ombudsman Compliance Department Dr. Carlos Pais Jorge Operations Executive Department Information Systems Department Organisation Department Communication and Image Department Quality and Sustainability Dr. João José Gonçalves de Sousa Operational Products Department Commercial Department North Commercial Department South Direct Network Department Dr. Gonçalo Vaz Gago da Câmara de Medeiros Commercial Department Azores Botelho Commercial Department Madeira International Business Department Marketing Department Corporate Banking Department

2.4 Reference to the fact that annual reports on the activities undertaken by the general and supervisory board, the finance committee, the audit committee and the audit board include the description of the supervisory activity and indicate any constraints encountered, and will be disclosed on the company website, together with the financial statements.

The annual reports from the supervisory board include a description of the supervisory activity for the year and refer to any constraints detected (where these exist). These reports are available on the company s website, together with the financial statements.

The company does not have a general and supervisory board, a finance committee or an audit committee.

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2.5 Description of the Company s internal control and risk management systems, particularly with regard to financial reporting and the functioning and effectiveness of this system.

In accordance with the changes in the internal governance structure of the Group carried out in 2012, reflected in significant changes in terms of the Management Team and its strategy, changes were also made in the internal governance structure for risk management at a corporate level, as a way of ensuring integrated and cross-cutting management of Risk, with the following objectives:

- To ensure the alignment, standardisation and cross-cutting supervision of developments in risks, equity and solvency; - To incorporate an integrated and cross-cutting view of risk, particularly in the application of policies, reporting and the development and application of risk models and their validation.

These changes will also make it possible to strengthen the independence of the risk function from other areas of the organisation, ensuring impartiality, credibility and effective support for decision taking by management bodies.

The changes described above can be summarised in the following diagram:

1. Corporate . Dissemination of a risk culture in line with Governance regulatory requirements and international best practices;

. Definition of management and decision taking 2. Risk mechanisms, for the Banif Group, in line with Governance regulatory requirements and sensitive to risk parameters;

3. Organisational and Functional . Review and proposal for restructuring the Structure of Risk in the Banif organisational structure of Risk, taking into account Group the challenges of risk management (current and future);

. Identification of important projects to be 4. Roll –Out Plan developed in the area of Risk Management

The mission of Corporate Risk, assumed in the Global Risk Management Department, is to advise the board of directors and executive committee on the integrated management of the inherent risk in the business activities of the Banif Financial Group, in line with the requirements and recommendations of the supervisory bodies, in order to mitigate such risk and take it into account in decision-making.

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Given that its function is basically one of control, its main concern has been, above all, the gathering and logical structuring of information which will allow it to control the various business risks that the group may be exposed to, as well as the definition of global and structuring risk policies and the promotion and development of risk projects that operate across the Banif Financial Group,

In line with international recommendations from supervisory bodies and with best practices, the group recognises the need to engage in risk management, both in terms of processes and technologies and in terms of people and cultures. In its business context, this is a relatively complex undertaking given the diverse nature of the entities making up the group and the various geographic markets in which it does business.

In terms of identification, measurement, mitigation and monitoring of risks, the Group s risk management system is implemented in each of its entities. There is similar work on a corporate level to aggregate risks, essentially aimed at all control activities, in which the Group has sought to improve the levels and the nature of information reporting. Essentially, this is proportional to the size, nature and complexity of the activities involved, being in line with the nature and magnitude of the risks that the group takes on or intends to take on.

The group has defined the global guidelines of its risk strategy on the basis of a conservative attitude to risk and of approaches to risk management which are best suited to its business activities.

Last year, the group continued to work on the development of its internal control system, encouraging synergies with operational risk activities and maintaining the following objectives to be achieved and improved on:

 To establish the organisation s control environment, imposing discipline and structure on the underlying internal control function, at both the central level and at subsidiaries.  To encourage effectiveness and efficiency in operations.  To ensure that the information reported is objective, reliable and correct.  To comply with the relevant legal and regulatory standards.

The methodology for implementing internal control is based on international principles and an internally-developed framework and is designed to ensure the attainment of five main components:

 Control environment Establishing the degree to which the bank influences its staff s awareness of control, imposing discipline and structure.  Risk assessment Identifying and analysing relevant risks (internal and external) so organisational objectives may be achieved and that a suitable basis for risk management can be set up.  Control activities Based on appropriate policies and procedures, with the objective of ensuring that the premises established for management are followed and they allow the

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necessary actions to be taken, so that the risks inherent to the group s activities may be identified.  Information & communication Ensuring the identification, capture and communication of pertinent and relevant information that allows decisions to be taken and ensures that implementation of these is appropriate.  Monitoring Assessing the performance quality of internal control

As regards corporate internal control, a number of regulatory and management initiatives were supported and followed in 2012. These included:

 The completion of Self-Assessment questionnaires in compliance with requirements for structural functions stipulated in Bank of Portugal Notice No. 5/2008 of 1 July 2008;  In compliance with the above-mentioned Notice no. 5/2008, the internal control report for the Group was produced in the first half of the year, as were the individual reports for all the subsidiaries (15) deemed pertinent under the terms of the assessment model for group risks as defined by the regulatory authority.  Implementation of the remediation project with subsidiaries and definition of the tasks to be carried out and their priorities.  Implementation of follow-up tasks for the remediation projects with bimonthly and half- yearly situation reports on shortcomings to the board of directors of the Group and to the regulatory body.

In line with the regulatory guidelines and in particular with Bank of Portugal Notice No. 5/2008, the Group uses a computer application to monitor and control actions in each subsidiary, which enables it to continuously monitor the status of each deficiency and of each mitigation action and also provides support information, whenever considered necessary. The corporate support team for the internal control system is in systematic dialogue with those responsible for internal control at the subsidiaries, promoting dissemination of group-wide guidelines and collaborating to ensure the improvement of the group s risk management system.

On a regular basis, the group carries out sensitivity and scenario analyses. It implements idiosyncratic and systemic tests in order to evaluate their impact on major activity measures and indicators at the consolidated level. In particular, in 2012 these tests were mainly carried out under the Capital and Liquidity Plan implemented quarterly under the EFAP.

As part of ongoing work on the initiatives relating to the Basel II agreement, an interim report on the internal capital adequacy self-assessment process (ICAAP) was drawn up in March 2012, in conformity with Instruction no. 15/2007, thus complying with the Pillar 2 requirements established by the agreement.

The ICAAP process offers the Banif Financial Group an economic capital assessment model, clearly integrating the calculation of internal capital with the process of planning and allocating capital, which enabled to identify the capital needs earlier than envisaged.

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Also in 2012, and in the context of the adoption of Pillar 3 - Basel II Market Discipline into the national standards framework, the group published more detailed information on its solvency, the risks it faces and the assessment and management processes and systems in place throughout the various entities making up the Group. Thus, it offered the market decision- makers a much broader range of information while helping to improve the transparency, stability and solidity of the financial system.

It is to be noted that the corporate simplification of the Group in conjunction with ongoing projects will guarantee more effective and efficient mechanisms of risk control and internal control.

In the current context of prudent regulation, the group believes that the type of information it has made available is crucial to strengthening the involvement of market players, generating favourable pressures and encouraging practices that promote a higher degree of security in the financial system.

2.6 Responsibility of the board of directors and of the supervisory board in establishing and operating the company s internal control and risk management systems, and also in assessing the way these systems function and adapt to the company s requirements.

The board of directors, and the supervisory board, recognise the importance that the risk management and internal control systems have for the organisation. It works to ensure the right human and technological resources are in place to encourage a level of control proportional and suitable to the risks of the business.

2.7 Indication of the existence of regulations on the functioning of the corporate boards or other internally defined rules on incompatibility and the maximum number of positions that a member is entitled to hold and the place where said rules may be consulted.

The operating regulations for the board of directors and of the supervisory board respectively are defined in the articles of association.

There are no internally defined rules on incompatibilities or the maximum number of positions that can be held by members of the board of directors or the supervisory board. The limits established in the applicable legislation, namely the Commercial Companies Code and the General Regulations for Credit Institutions and Finance Companies, are applied.

Since the shares representing the company s share capital have been traded on Euronext-Lisbon, the company has been preparing operating regulations for the board of directors and the

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supervisory board similar to those previously available for Banif SGPS, SA. It is estimated that these regulations will be concluded and put into effect during the 1st half of 2013.

SECTION 2 BOARD OF DIRECTORS

2.8 Where the Chairman of the board of directors has an executive role, indication of the mechanisms coordinating the tasks of non-executive members to ensure independent and informed decision-making.

The Chairman of the board of directors does not carry out any executive duties and the Executive Committee is Chairmaned by one of the vice-Chairmans of the Board of Directors. 2.9 Identification of the major economic, financial and legal risks to which the company is exposed in pursuing its business activity.

Given its area of business, the Banif Financial Group is mostly subject to risks typical of the type of business it pursues, namely, credit risk, liquidity risk, business and strategy risk, operational risk, compliance, IT systems risk, risk to reputation.

In addition to these risks there are other types of risks to which the group is exposed, including real estate risk, takeover risk and spread risk on bond issues and interest rate risk.

All these types of risk and their specific characteristics are described in detail in the company s annual report, in the chapter Risk Management .

2.10 Powers of the management body, particularly as regards decisions on increasing the company s share capital.

The powers of the board of directors are stipulated in article 22 of the articles of association This article stipulates that the board of directors is responsible for ensuring the management of the company s business . In order to do so, it has the power to decide on any company-related issue that does not fall, in law or under the articles of association, under the exclusive competence of another body, namely, to:

a) Carry out any operations relating to its business purpose b) Represent the company, actively and passively, both before the law and elsewhere, propose and follow through on actions, admit, desist, settle and commit to arbitration c) Acquire, sell, lease or exchange or, by any other means, encumber assets or rights, fixed or non-fixed, including its own shares or bonds or those of others, as well as holdings in other companies, even where the business purpose of these is different d) Draw up and assign mandates e) Decide on the opportuneness and conditions for the issuance of company bonds and other debt instruments f) Appoint members of the executive committee referred to in article twenty-four below;

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g) Draw up the annual management report, balance sheet and accounts, submitting these to the general meeting h) Decide on advances on profit that may be made to shareholders, whilst complying with the provisions of article 297 of the CCC

Since 16 January 2013, the articles of association, in no. 1 of article 5, has stated the conditions under which the board of directors may use its powers/duties to decide on an increase in capital, as follows:

After the injection of public funds corresponding to the first stage of the recapitalisation operation, approved by the general meeting on 16 January 2013, the Board of Directors should decide to increase the share capital of the company by EUR 450,000,000, through cash injections until 30 June 2013, by means of one or more increases in capital .

2.11 Information on the policy for rotating functions amongst members of the board of directors, specifically as regards the finance portfolio, as well as on the rules applicable to the appointment and replacement of members of the board of directors and of the supervisory board.

The board of directors is composed of a minimum of three and a maximum of fifteen members, as decided by the general meeting. Supplementary directors may be elected, up to a number equal to a third of the existing number of elected permanent directors.

Members of the board of directors are appointed by the general meeting for a three-year mandate and may be re-elected. In the first meeting of each term of office, the board should appoint a Chairman and one or more vice-Chairmans from amongst its members.

The articles of association stipulate that should a director miss three board meetings, whether consecutive or not, without due justification, acceptable to that body, the director in question will be construed to have definitively quit the position.

The articles of association do not specify the means of replacing members of the board of directors, such replacement taking place in accordance with the terms of no. 3 of article 393 of the Commercial Companies Code. In the same way, and in compliance with the final part of paragraph h) of article 245-A of the SC, there are no specific rules relating to any changes made to the articles of association.

There is no formal policy for rotating duties amongst the members of the board of directors.

The supervisory board is composed of a minimum of three members, with one or two alternate members. Members may be re-elected, without prejudice to the legally imposed limits for the purposes of ensuring independence (cf. article 28 of the articles of association). The majority of members must be independent, in the legal sense.

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The composition of the supervisory board should respect the legal definition of incompatibility and members may be drawn from law firms, accountancy firms or shareholders who, in this last case, are individual persons with the legal right and suitable qualifications and professional experience to carry out the required duties.

The Chairman of the supervisory board will be appointed by the general meeting or, where this does not occur, by the members of the board themselves.

The articles of association do not provide any specific method of substituting members of the supervisory board, such substitution taking place in accordance with article 415 of the Commercial Companies Code.

Recently, on 4 March 2013 during the process of capitalisation of Banif through public investment, pursuant to Law No. 63-A/2008 of 24 August (in its current wording) and pursuant to the Order of the Minister for Finance (Order No. 3454-A/2013), the State appointed a non-executive member to the board of directors and a member to the supervisory board, effective from 22 February 2013. These members are currently awaiting the conclusion of their registration with the Bank of Portugal, in order to take up their duties.

2.12 Number of meetings held by the board of directors and the audit board as well as reference to the minutes of these meetings.

In 2012 there were 13 meetings of the board of directors and 14 meetings of the company s supervisory board Minutes were drawn up for each of these meetings. The Chairmanman of the board of directors and the Chairman of the supervisory board have access to the agendas, minutes and support documents for meetings of the Executive Committee.

2.13 Indication of the number of meetings held by the executive committee or the executive board of directors, as well as reference to the drawing up of the minutes of those meetings and, as applicable, submission of same with the convening notices to the Chairman of the board of directors, the Chairman of the audit board or of the audit committee, the Chairman of the general and audit board and the Chairman of the finance committee.

During 2012 there were 53 meetings of the Executive Committee.

Minutes were drawn up for each of these meetings.

2.14 Distinction between executive and non-executive members and, among these, differentiation of those members who would meet the incompatibility criteria

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provided for in no. 1 of article 414-a of the Commercial Companies Code, with exception of subparagraph b), and the independence criteria provided for in no. 5 of article 414, both of the Commercial Companies Code.

On 23 March 2012 an executive committee was set up, with its members drawn from the board of directors elected for the 2012-2014 three-year period. The following were the executive and non- executive members of the board at 31 December 2012:

Executive Directors Jorge Humberto Correia Tomé (Chairman of the Executive Committee) Vitor Manuel Farinha Nunes Nuno José Roquette Teixeira João Paulo Pereira Marques de Almeida Carlos Eduardo Pais Jorge João José Gonçalves de Sousa Gonçalo Vaz Gago da Câmara de Medeiros Botelho

Non-Executive Directors Luís Filipe Marques Amado (Chairman) Diogo António Rodrigues da Silveira Manuel Carlos de Carvalho Fernandes

Of the non-executive directors, Luís Filipe Marques Amado, Diogo António Rodrigues da Silveira and Manuel Carlos de Carvalho Fernandes meet all the criteria for independence stipulated in no. 5 of article 414 of the Commercial Companies Code and also would comply, where applicable, with the incompatibility rules stipulated in no. 1 of article 414 of the Commercial Companies Code, with the exception of the stipulations made in paragraphs b) and c), as they carry out non-executive duties at other companies in the Banif Financial Group.

In addition it is to be noted that, at the general meeting of 8 October 2012, Maria Teresa Henriques da Silva Moura Roque dal Fabbro, Paula Cristina Moura Roque, Fernando José Inverno da Piedade and José António da Silva Mouquinho were also elected to the Board of Directors, although up to the end of the year they had not yet actually taken up their duties since their special registration with Bank of Portugal had not been concluded.

2.15 Description of the legal and regulatory rules and other criteria that have been used by the board of directors as a basis for assessing the independence of its members.

There are no legal rules, regulations or other criteria that have been used to determine the independence of the members of the boards of directors, with the exception of those mentioned in the previous point.

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2.16 Description of the selection rules for candidates to non-executive member positions and how these rules ensure that executive members do not interfere in this process.

2.17 Reference to the fact that the company s annual management report includes a description of the activity carried out by non-executive members and possible constraints detected.

The activities of the non-executive directors over the course of 2012 are described in the Annual Report of the Company, in the chapter Activities of Non-Executive Directors .

2.18 Professional qualifications of the members of the board of directors, professional activities carried out by them during the last five years (at least), number of company shares they hold, date of first appointment and date of end of mandate.

Note: Given that the answer to point 2.19 covers the current duties of each of the members of the management bodies in other companies, at 31 December 2012, the answer to this point only covers those duties that have been carried out for other entities in the last five years but which are not, at the reference date and in the case of any of the members of the board of directors, being carried out during 2012.

LUÍS FILIPE MARQUES AMADO

Degree in Economics Instituto Superior de Economia, Universidade Técnica de Lisboa (1976).

Assembly of the Republic (Deputy, 1991-2009), Minister of Foreign Affairs in the 17th and 18th Constitutional Governments (2006-2011).

On the reference date he did not hold any shares in Banif Banco Internacional do Funchal SA.

He was appointed, for the first time, to the board of directors of Banif - Banco Internacional do Funchal, SA on 23-03-2012.

The current mandate is for the three-year period 2012/2014, ending on appointment of the new board of directors (article 391, no. 4 of the Commercial Companies Code).

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JORGE HUMBERTO CORREIA TOMÉ

Degree in Company Management and Organisation ISCTE-IUL Instituto Universitário de Lisboa (1979); Master of Applied Economics Faculdade de Economia da Universidade Nova de Lisboa, (1993).

Caixa Banco de Investimento, SA (Chairman of the executive committee, from March 2002 to January 2008 and Chairman of the board of directors, March 2008 to February 2012), Caixa Capital Sociedade de Capital de Risco, SA (Chairman of the board of directors, March 2008 to February 2012), Credip Instituição Financeira de Crédito, SA (Chairman of the board of directors, April 2008 to February 2012), Portugal Telecom, SGPS, SA (member (non-executive) of the board of directors, March 2009 to February 2012), Banco Caixa Geral Brasil, SA (Vice- Chairman of the board of directors, April 2009 to February 2012), Parcaixa, SGPS, SA (Member (non-executive) of the Board of Directors, April 2009 to February 2012), Cimpor Cimentos de Portugal SGPS, SGPS, SA (Member (non-executive) of the Board of Directors, May 2009 to February 2012), Gerbanca, SGPS, SA (Chairman of the board of directors, May 2009 to February 2012), Caixa Desenvolvimento, SA (Chairman of the board of directors, May 2011 to February 2012), Caixa Geral de Aposentações (Member of the Executive Committee, July 2011 to February 2012), Caixa Seguros e Saúde, SA (Chairman of the board of directors, October 2011 to February 2012), Banco Nacional de Investimentos (in Mozambique) (Vice-Chairman, November 2011 to February 2012), Caixa Geral de Depósitos (Member of the Executive Committee, July 2011 to February 2012, Member of the Board of Directors, January 2008 to February 2012). Trem Aluguer Material Circulante, ACE, (Chairman of the Board of Directors, March 2002 to February 2011), Trem II Aluguer Material Circulante, ACE, (Chairman of the Board of Directors, March 2002 to February 2011), Monitoring Committee and Strategy of Fomentinvest SGPS, S.A., (Member (non-executive) May 2008 to April 2010).

On the reference date he did not hold any shares in Banif Banco Internacional do Funchal SA, he held 1 share in Banif Banco Internacional do Funchal (Brasil), SA and 1 share in Banif Banco de Investimento (Brasil), SA.

He was appointed, for the first time, to the board of directors of Banif - Banco Internacional do Funchal, SA on 23-03-2012.

The current mandate is for the three-year period 2012/2014, ending on appointment of the new board of directors (article 391, no. 4 of the Commercial Companies Code).

DIOGO ANTÓNIO RODRIGUES DA SILVEIRA

Diplôme d Ingenieur École Centrale de Lille; Research Scholar Berkeley UC, USA; Master of Business Administration (MBA) INSEAD, France.

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ONI SGPS, SA (Member of the board of directors/Chairman of the executive committee, 2005 to 2007), Onitelecom - Infocomunicações, SA (Chairman of the board of directors, 2005 to 2007), Oni Madeira - Infocomunicações, SA (Chairman of the board of directors, 2005 to 2007), Oni Açores - Infocomunicações, SA (Chairman of the board of directors, 2005 to 2007), Comunitel Global, SA (Chairman of the board of directors, 2005 to 2007).

On the reference date he did not hold any shares in Banif Banco Internacional do Funchal SA.

He was appointed, for the first time, to the board of directors of Banif - Banco Internacional do Funchal, SA on 21-05-2007.

The current mandate is for the three-year period 2012/2014, ending on appointment of the new board of directors (article 391, no. 4 of the Commercial Companies Code).

VITOR MANUEL FARINHA NUNES

Degree in Business Management Instituto Superior de Gestão (1989).

- Banco Pecúnia (Brasil), SA (Member of the board of directors, 2007 to 2010), TCC Investments, Ltd. (Member of the board of directors, 1999 to 2009), Tecnicrédito Cayman, Inc. (Member of the board of directors, 1999 to 2009), Tecnicrédito ALD, Aluguer de Automóveis, SA (Member of the board of directors, 1996 to 2012), Core Investments, Consultoria e Serviços, Lda (Manager, 2008 to 2012).

On the reference date he did not hold any shares in Banif Banco Internacional do Funchal, SA. Indirectly, through Sociedade FN Participações, SA, which he controls, he hold a total of 1,836,504 shares and 1,820,000 MCS.

He was appointed, for the first time, to the board of directors of Banif - Banco Internacional do Funchal, SA on 03-11-2009.

The current mandate is for the three-year period 2012/2014, ending on appointment of the new board of directors (article 391, no. 4 of the Commercial Companies Code).

NUNO JOSÉ ROQUETTE TEIXEIRA

Degree in Company Management and Administration from Universidade Católica Portuguesa (Lisbon - 1987-1992).

Banif Gestão de Activos - Sociedade Gestora de Fundos de Investimento Mobiliário, SA (Member of the board of directors, March 2003 to June 2008), Beta Securitizadora, SA (Member of the board of directors, September 2004 to November 2009), Banif Securities Holdings, Ltd. (Member of the board of directors, April 2002 to September 2010), Banif

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Corretora de Títulos e Valores Mobiliários e Câmbio, SA (Member of the board of directors, September 2005 to December 2010), Gamma - Sociedade de Titularização de Créditos, SA (Member of the board of directors, June 2006 to July 2010), Banco de la Pequeña y Mediana Empresa, SA (Member of the board of directors, November 2007 to July 2010), Banif Investment Bank, SA (Vice-Chairman of the executive committee, December 2008 to July 2010).

He was appointed, for the first time, to the board of directors of Banif - Banco Internacional do Funchal, SA on 21-07-2010.

The current mandate is for the three-year period 2012/2014, ending on appointment of the new board of directors (article 391, no. 4 of the Commercial Companies Code).

JOÃO PAULO PEREIRA MARQUES DE ALMEIDA

Degree in Company Management and Administration from Universidade Católica Portuguesa (Lisbon - 1981).

Banif Açor Pensões Sociedade Gestora de Fundos de Pensões, SA (Director, December 2000 to June 2008), Banif Banco de Investimento, SA (Director, December 2000 to June 2008), Banif Gestão de Activos Sociedade Gestora de Fundos de Investimento Mobiliário, SA (Director, August 2001 to June 2008), Banif Capital Sociedade de Capital de Risco, SA (Director, April 2003 to June 2008), Banif International Asset Management, Ltd. (Director, May 2004 to June 2008), Banif Multifund, Ltd. (Director, May 2004 to June 2008), Banif Securities Holdings, Ltd. (Director, February 2005 to June 2008), Banif Securities Inc. (Director, May 2005 to June 2008), Centro Venture Sociedade de Capital de Risco, SA (Director, March 2006 to June 2008), Banif Banco de Investimento (Brasil), SA (Director, April 2006 to June 2008), Banif Corretora de Valores e Câmbio, SA (Director, April 2006 to June 2008), Gamma Sociedade de Titularização de Créditos, SA (Director, June 2006 to June 2008), Vestiban Gestão e Investimentos, SA (Director, June 2002 to May 2010), BanifServ Empresa de serviços, Sistemas e Tecnologias de Informação, ACE (Director, March 2010 to March 2012), Bankpime (Director, March to October 2012).

On the reference date he held 24,807 shares in Banif Banco Internacional do Funchal SA.

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He was appointed, for the first time, to the board of directors of Banif - Banco Internacional do Funchal, SA on 27-06-2008.

The current mandate is for the three-year period 2012/2014, ending on appointment of the new board of directors (article 391, no. 4 of the Commercial Companies Code).

MANUEL CARLOS DE CARVALHO FERNANDES

Degree in Economics Faculdade de Economia do Porto (1975).

Banco Português do Atlântico (1979 to 1976), Secretariat of State of the Treasury (1986 to 1988), Banco Comercial de Macau (Chairmanman, 1989 to 1995), Companhia de Seguros Bonança (1992 to 1995), União dos Bancos Portugueses (1993 to 1995), Finibanco (Director, 2004 to 2006), Companhia de Seguros Sagres (Member of the board of directors, 2006 to 2008), Banco Banif Mais, SA (Member of the Board of Directors, 1997 to 2011).

On the reference date he did not hold any shares in Banif Banco Internacional do Funchal SA.

He was appointed, for the first time, to the board of directors of Banif - Banco Internacional do Funchal, SA on 23-03-2012.

The current mandate is for the three-year period 2012/2014, ending on appointment of the new board of directors (article 391, no. 4 of the Commercial Companies Code).

CARLOS EDUARDO PAIS JORGE

Degree in Company Management and Administration - Universidade Católica Portuguesa (Lisbon - 1982).

Barclays Bank Portugal (Member of the executive committee and the general board, 1998 - 2008), Barclays ACE and Barclays Gestão de Fundos Mobiliários (Member of the board of directors, 1998 - 2008), Banif Banco de Investimento, SA (Member of the board of directors and of the executive committee, August 2008 to March 2012), Banif Gestão de Activos, SA (Director, August 2008 to March 2012), Banif Açor Pensões, SA (Director, August 2008 to March 2012), Banif Capital, SA (Director, August 2008 to March 2012), Gamma Sociedade de Titularização de Créditos, SA (Director, August 2008 to March 2012), Banif Banco de Investimento (Brasil), SA (Director, August 2008 to March 2012), Banif Corretora de Valores e Câmbio, SA (Director, August 2008 to March 2012).

On the reference date he did not hold any shares in Banif Banco Internacional do Funchal SA.

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He was appointed, for the first time, to the board of directors of Banif - Banco Internacional do Funchal, SA on 23-03-2012.

The current mandate is for the three-year period 2012/2014, ending on appointment of the new board of directors (article 391, no. 4 of the Commercial Companies Code).

JOÃO JOSÉ GONÇALVES DE SOUSA

Degree in Economics - Universidade do Porto (1977).

On the reference date he did not hold any shares in Banif Banco Internacional do Funchal SA.

He was appointed, for the first time, to the board of directors of Banif - Banco Internacional do Funchal, SA on 23-03-2012.

The current mandate is for the three-year period 2012/2014, ending on appointment of the new board of directors (article 391, no. 4 of the Commercial Companies Code).

GONÇALO VAZ GAGO DA CÂMARA DE MEDEIROS BOTELHO

Degree in Company Management and Administration from Universidade Católica Portuguesa (1984-1989).

Caixa Banco de Investimento, SA (Member of the board of directors and of the executive committee, 2005 to 2012).

On the reference date he did not hold any shares in Banif Banco Internacional do Funchal SA.

He was appointed, for the first time, to the board of directors of Banif - Banco Internacional do Funchal, SA on 23-03-2012.

The current mandate is for the three-year period 2012/2014, ending on appointment of the new board of directors (article 391, no. 4 of the Commercial Companies Code).

2.19 Duties that the members of the board of directors carry out in other companies and a description of duties carried out in other companies of the same group.

Information in respect of members who were in these posts at the reference date of 31 December 2012.

LUÍS FILIPE MARQUES AMADO

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a) Companies in the Rentipar Financeira SGPS, SA group

Chairman of the board of directors  Banif - Banco de Investimento, SA

Chairman of the supervisory board Banif Plus Bank ZRT

b) Other entities

Director (non-executive) Sociedade de Desenvolvimento da Madeira

Professor (Guest) Instituto Superior de Ciências Sociais e Políticas Business School of Universidade Nova de Lisboa

Curator Fundação Oriente

Member of the management board D Dinis, Business School

JORGE HUMBERTO CORREIA TOMÉ

a) Companies in the Rentipar Financeira SGPS, SA group

Chairman of the board of directors Banif - Banco de Investimento (Brasil), SA Banif Imobiliária, SA Banif - Banco Internacional do Funchal (Brasil), SA Banif Finance, Ltd.

Chairman of the executive committee Banco Banif Mais, SA  Banif - Banco de Investimento, SA

Vice-Chairman of the board of directors  Banif - Banco de Investimento, SA

Member of the board of directors Banif Bank (Malta), PLC Banif International Bank, Ltd.

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b) Other entities

Member of the board Associação Portuguesa de Bancos (representing Banif - Banco Internacional do Funchal, SA)

Monitoring Committee  FomentInvest, SGPS, SA (representing of Banif - Banco de Investimento, SA)

DIOGO ANTÓNIO RODRIGUES DA SILVEIRA

a) Companies in the Rentipar Financeira SGPS, SA group

Member of the board of directors (non-executive) Banif Imobiliária, SA

b) Other entities

Chairman of the executive committee Companhia de Seguros Açoreana, SA Chairman of the board of directors - Giga Grupo Integrado de Gestão de Acidentes - Cria Centro de Reabilitação Integrada de Acidentes

Vice-Chairman Bureau des Conseillers du Commerce Extérieur de la France in Portugal

Member of the board Associação Portuguesa de Seguradores (representing Companhia de Seguros Açoreana, SA)

Partner Firma Shilling Capital Partners, SGPS

VITOR MANUEL FARINHA NUNES

a) Companies in the Rentipar Financeira Group SGPS, SA

Chairman of the board of directors Banif Rent Aluguer Gestão e Comércio de Veículos Automóveis, SA

Member of the board of directors Banif Mais, SGPS, SA Banco Banif Mais, SA Banif Banco de Investimento, SA Banif Plus Bank ZRT TCC Investments Luxembourg, SARL

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Manager Margem - Mediação de Seguros, Lda

b) Other entities

Sole director FN Participações, SGPS, SA

NUNO JOSÉ ROQUETTE TEIXEIRA

a) Companies in the Rentipar Financeira SGPS, SA group

Chairman of the board of directors Gamma Sociedade de Titularização de Créditos, SA

Vice-Chairman of the board of directors Banif - Banco de Investimento (Brasil), SA

Member of the board of directors Banif - Banco de Investimento, SA Banif - Banco Internacional do Funchal (Brasil), SA Banco Banif Mais, SA Banif - Banco Internacional do Funchal (Cayman), Ltd Banif International Bank, Ltd Banif Finance, Ltd Banif Securities, Inc

Member of the remuneration committee Banif Imobiliária, SA Banif Capital - Sociedade de Capital de Risco, SA Banif Gestão de Activos - Sociedade Gestora de Fundos de Investimento Mobiliário, SA

b) Other entities

Member of the board of directors (non-executive) Companhia de Seguros Açoreana, SA

JOÃO PAULO PEREIRA MARQUES DE ALMEIDA

a) Companies in the Rentipar Financeira SGPS, SA group

Member of the board of directors Banif Banco de Investimento, SA Banif Banco Internacional do Funchal (Brasil), SA

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Banif Finance, Ltd

MANUEL CARLOS DE CARVALHO FERNANDES

b) Other entities

Director Afsa SGPS, SA Faceril Fábrica Cerâmica do Ribatejo, SA Coeprimob Promoção Imobiliária, SA Coepar Consultadoria e Investimentos SGPS, SA S2IS Serviços e Investimentos SGPS, SA Brasilimo Invest. Imobiliários no Brasil SGPS, SA SSL Serviços e Investimentos, SA QMetrics Serv. Cons. e Avaliação da Satisfação, SA Finpro SGPS, SA Mygon, SA

CARLOS EDUARDO PAIS JORGE a) Companies in the Rentipar Financeira SGPS, SA group

Member of the board of directors Banif Rent Aluguer, Gestão e Comércio de Veículos Automóveis, SA Banif - Banco de Investimento (Brasil), SA Banif Banco Internacional do Funchal (Brasil), SA Banif Securities Inc. Banif Multifund, Ltd Banif International Asset Management, Ltd Banif Securities Holdings, Ltd Banif Ecoprogresso Trading, SA b) Other entities

Member of the board of directors Gestarquipark Sociedade Imobiliária, SA SIBS SGPS, SA and SIBS FPS (representing Banif Banco Internacional do Funchal, SA)

JOÃO JOSÉ GONÇALVES DE SOUSA

Did not hold positions in other companies.

GONÇALO VAZ GAGO DA CÂMARA DE MEDEIROS BOTELHO

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a) Companies in the Rentipar Financeira SGPS, SA group

Member of the board of directors (non-executive) Banif Banco de Investimento, SA

Member of the Audit Board Committee Banif Bank (Malta), Plc b) Other entities

Representative Remuneration Committee ZON TV Cabo Madeirense, SA

SECTION 3 GENERAL AND SUPERVISORY BOARD, FINANCE COMMITTEE AND AUDIT BOARD

2.21. Identification of the members of the supervisory board and statement indicating that they comply with the incompatibility rules provided for in no. 1 of article 414-a, and that they comply with the independence criteria in no. 5 of article 414 of the Commercial Companies Code. The supervisory board self-assesses this point.

At the beginning of 2012, the supervisory board of Banif Banco Internacional do Funchal, SA had the following members:

Fernando Mário Teixeira de Almeida Chairman António Ernesto Neto da Silva Member José Lino Tranquada Gomes Member

José Pedro Lopes Trindade Alternate Member At the general meeting of 23 March 2012, the following were elected to the supervisory board for the 2012-2014 three-year period:

Fernando Mário Teixeira de Almeida Chairman António Ernesto Neto da Silva Member Thomaz de Mello Paes de Vasconcellos Member

José Pedro Lopes Trindade Alternate Member

Declaration by the supervisory board2

2 The statement reproduced in this point is transcribed from the original document which is signed and kept on file at the company

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The supervisory board of Banif SGPS, SA, declares, under the terms and for the purposes of the provisions of CMVM Regulation no. 1/2010 that, with reference to 31 December 2012, it had carried out an assessment of the independence (as understood in the provisions of no. 5 of article 414 of the Commercial Companies Code) of all of its members appointed for the three-year period of 2012/2014. It concluded that the members António Ernesto Neto da Silva and Thomaz de Mello Paes de Vasconcellos, should be considered independent as they fulfilled all the legal requirements for such a designation, given that they are not associated with any specific interest groups within the company nor are they susceptible to influence over their analytical or decision-making roles. The Chairman, Fernando Mário Teixeira de Almeida, does not fulfil the requirements for independence, given the provisions of no. 5 of article 414 of the Commercial Companies Code and the number of times that he has been re-elected to corporate bodies.

The Supervisory Board

Fernando Mário Teixeira de Almeida Chairman António Ernesto Neto da Silva Member Thomaz de Mello Paes de Vasconcellos Member

2.22. Professional qualifications of the members of the supervisory board, professional activities carried out by them over the last five years (at least), number of company shares they hold, date of the first appointment and date of the end of mandate.

Note: Given that in the reply given in point 2.23, reference is made to the functions performed by members of the supervisory board in other companies, at the reference date of 31 December 2012, the answer to this point only covers those functions carried out in the last five years but which are not, at the reference date and in the case of any of the members of the audit board, being carried out during 2012.

FERNANDO MÁRIO TEIXEIRA DE ALMEIDA

Degree in Economics from the Faculdade de Economia da Universidade do Porto. PhD in Economics from the Universidade de Santiago de Compostela. Chartered Accountant.

Universidade Lusíada (Director of the Faculdade de Ciências Económicas e da Empresa (until September 2009), Instituto Superior de Formação Bancária (teacher, since 2000), Banif Comercial SGPS, SA (Chairman of the supervisory board, from 2009 to 20/07/2012), Banif SGPS, SA (Chairman of the supervisory board, from 2009 to 17/12/2012).

On the reference date he held 213,847 shares in Banif Banco Internacional do Funchal SA.

He was appointed, for the first time, to the supervisory board of Banif SGPS, SA on 21-03- 2005.

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The current mandate is for the three-year period 2012/2014, ending on appointment of the new supervisory board.

ANTÓNIO ERNESTO NETO DA SILVA

Degree in Economics from the Faculdade de Economia da Universidade do Porto. Master in Contemporary European Studies (Economics) from the University of Reading, UK

Secretariat of State for Foreign Trade (Secretary of State - April 1990 to October 1991), European Economic and Social Committee and EURATOM (Chairmanman of the section for external relations, trade and development policy, 1988 to 1990), European Economic Community and European Atomic Energy Community (Member of the Committee, 1986 to 1990), Socifa, SA (Shareholder-Founder and Chairman of the board of directors, 1988 to 1990), author of the book O Triplo Conflito Globalização, Fundamentalismo Islâmico e Desenvolvimento Sustentável (Booknomics, Lisbon, 2007), Banif Comercial SGPS, SA (Chairman of the supervisory board, 2009 to 20/07/2012), Banif SGPS, SA (Chairman of the supervisory board, 2009 to 17/12/2012).

On the reference date he did not hold any shares in Banif Banco Internacional do Funchal SA.

He was appointed, for the first time, to the supervisory board of Banif Banco Internacional do Funchal, SA on 30-03-2007.

The current mandate is for the three-year period 2012/2014, ending on appointment of the new supervisory board.

THOMAZ DE MELLO PAES DE VASCONCELLOS

Degree in Business Management - Universidade Católica.

Portugal Telecom SGPS (Member of the board of directors and of the audit committee, 2004 to 2009), Banco Millennium BCP (Member of the general and supervisory committee and finance committee, from 2009 to 2010), Serfingest SGPS (Chairmanman of the board of directors, from 2010 to 2012), Multiauto Galilei SGPS (member of the board of directors, from 2010 to 2012).

On the reference date he did not hold any shares in Banif Banco Internacional do Funchal SA.

He was appointed, for the first time, to the supervisory board of Banif SGPS, SA on 23-03- 2012.

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The current mandate is for the three-year period 2012/2014, ending on appointment of the new audit board.

2.23. Duties that the members of the audit board carry out in other companies and a description of duties carried out in other companies of the same group.

Information in respect of members who were in these posts at the reference date of 31 December 2012.

FERNANDO MÁRIO TEIXEIRA DE ALMEIDA

a) Companies in the Rentipar Financeira SGPS, SA group

Chairman of the supervisory board Banif - Banco de Investimento, SA

a) Other entities

Chairman of the supervisory board Companhia de Seguros Açoreana, SA

António Ernesto Neto da Silva

b) Other entities

Chairman of the board of directors Deimos Engenharia, SA Financetar - Sociedade de Serviços Financeiros, Empresariais e Imobiliários, SA

Vice-Chairman of the general meeting committee CIP Confederação Empresarial de Portugal, SA

Thomaz de Mello Paes de Vasconcellos

b) Other entities

Member of the Audit Board Companhia de Seguros Açoreana, SA

Member of the board of directors and Chairman of the audit committee and the remuneration committee TimeW SGPS

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2.24. Reference to the fact that the audit board assesses the external auditor on an annual basis and the possibility of proposing to the general meeting that the external auditor be discharged, should this be justifiable.

The supervisory board assesses the external auditor annually. The current external auditor was appointed by the general meeting, following a proposal from the supervisory board, and this board has the possibility of proposing to the general meeting that the external auditor be discharged, should this be justifiable.

2.25. to 2.29. Not applicable.

SECTION 4 REMUNERATION

2.30. Description of the remuneration policy for the management and supervisory bodies, as referred to in article 2 of Law no. 28/2009, of 19 June.

In compliance with the provisions of article 2 of Law no. 28/2009, of 19 June, the ordinary general meeting of 5 April 2012 approved a statement on the remuneration policy for the management and supervisory bodies, as presented by the remuneration committee and with the following content:

Under the terms of article 31, no. 1 of the articles of association, the remuneration committee of Banif Banco Internacional do Funchal, SA ( remuneration committee ) has the power to set the level of remuneration offered to members of the company s statutory bodies, exercised under mandate from the general meeting and without prejudice to the recommendations made by the regulatory authorities or the directives implemented across all Banif Financial Group companies. Under the terms of article 2 of Law no. 28/2009, of 19 June, and article 16 of Bank of Portugal Notice no. 10/2011, the remuneration committee should submit for approval, at each year s general meeting, a statement on the remuneration policy used in determining the remuneration of members of the company s management and supervisory bodies.

In view of the above, the Banif Banco Internacional do Funchal SA remuneration committee submits, for the approval of the general meeting, the following statement on the remuneration policy for members of the management and supervisory bodies:

1. Objectives of the remuneration Policy for members of the management and supervisory bodies at Banif – Banco Internacional do Funchal, SA (‘Remuneration Policy’)

The remuneration policy has the following objectives:

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- to allow the bank, at all times and given the competitive environment within which it operates, to attract, motivate and build a loyal team of top-level, high potential, management staff; - to motivate the achievement of performance objectives which coincide with the interests of both the bank and its shareholders in the short, medium and long term. - to stimulate and reward significant individual contributions as well as good group performance; - to avoid excessive exposure to risk and any potential conflicts of interest, by promoting the institution s objectives, values and long-term interests. and is designed to set: - The level and structure of remuneration offered to members of the management and supervisory bodies. - The mechanisms for aligning the interests of members of the statutory bodies with those of the company.

2. Approval of the Remuneration Policy

The remuneration policy was approved at the meeting of the Banif Banco Internacional do Funchal, SA remuneration committee meeting held on 30 March 2012, by unanimous decision of the members of that body.

The remuneration committee was elected at the general meeting held on 23 March 2012, for a three-year mandate running through to the end of 2014. The following are members of the committee:

Rentipar Financeira, SGPS, SA, represented by Maria Teresa Henriques da Silva Moura Roque Dal Fabbro. Maria Teresa Henriques da Silva Moura Roque Dal Fabbro has a degree in politics, philosophy and economics from the University of Oxford (United Kingdom). She holds a master s degree in international relations from John Hopkins University (Bologna, Italy). She is a doctoral candidate at the Universidade Católica Portuguesa s Instituto de Estudos Políticos. She currently carries out management duties in a number of companies in the Rentipar Group, particularly at Rentipar Financeira SGPS, SA, Rentipar Indústria SGPS, SA, Rentipar Investimentos SGPS, SA Rentipar Seguros SGPS, SA and Banif SGPS, SA..

Renticapital Investimentos Financeiros, SA represented by Fernando José Inverno da Piedade. Fernando José Inverno da Piedade has a degree in business management from the Instituto Superior de Línguas e Administração (1982). Between 1981 and 1988 he was a member of the executive team at Arthur Andersen, Portugal. He currently carries out management duties in a number of companies in the financial sector. He is Chairman of the board of directors at Rentipar Financeira SGPS, SA, Rentipar Indústria SGPS, SA, Rentipar Investimentos SGPS, SA and Rentipar Seguros SGPS, SA and member of the board of directors at Banif SGPS, SA.

Fundação Horácio Roque, represented by José Marques de Almeida

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José Marques de Almeida has a degree in Finance from the Instituto Superior de Ciências Económicas e Financeiras (1966). He has been a director of a number of banking institutions and a number of companies on the Rentipar Group, including Banif Banco Internacional do Funchal, SA itself, until 23 March 2012. He currently carries out management duties at Rentipar Financeira, SGPS, SA and Vestiban Gestão e Investimentos, SA.

None of the above representatives, appointed by the member entities of the remuneration committee to carry out the functions of that committee for the period in question, is a member of any Banif Banco Internacional do Funchal, SA management or supervisory body.

The remuneration committee did not make use of the services of any experts, consultants or external entities in preparing, drawing up or approving the remuneration policy. It took into consideration the remuneration practices of businesses in general and the remuneration practices in the financial sectors and at other Portuguese banks that operate in both the national and international markets.

3. Description of the Remuneration Policy

3.1. Board of Directors

3.1.1. Chairman of the Board of Directors

The remuneration of the Chairman of the board of directors is established exclusively in accordance with his or her attendance at the meetings of that body. It is never dependent on, or related to, the company s results. This remuneration, comprising a fixed amount, will be paid by the end of the month in which the meeting() occurred and up to a limit of 12 (twelve) per year.

3.1.2. Members of the Executive Committee (‘Executive Directors’)

a) Breakdown of the remuneration

The Remuneration Committee considers that the executive members of the management body should receive remuneration that can (i) properly remunerate the responsibility assumed, the availability and the competence placed at the disposal of the company, (ii) guarantee conduct in line with the long-term interests of the society and (iii) reward the performance obtained. For this reason, the remuneration of executive directors is based on the concept of an overall remuneration package made up of 3 key elements:

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A fixed component to remuneration The base remuneration (basic salary) A variable component to remuneration The performance bonus

A mechanism to align the interests of the executive members of the Deferral of the variable management body with the best long term interests of the component company. Limits on the variable component

The total remuneration package mentioned above may be formalised for each executive member of the management body through a contract which stipulates the level and structure of the remuneration (fixed and variable components), the respective term and methods of rescission, confidentiality, non-competition and exclusivity clauses and any contractual limits for compensation paid in the case of dismissal without due cause.

This fixed component is designed to reward executive directors for accepting the responsibilities inherent in their position and their specific competences.

The variable component of remuneration, based on performance, should be the lesser part of the total remuneration package. In a situation where objectives are fully achieved, it is estimated that this would represent around 30% of the total remuneration package.

The variable component of remuneration performance bonuses - should consist solely of a cash amount, given that Banif Banco Internacional do Funchal, SA does not have traded shares and, for this reason, it would not be appropriate to implement a share allocation plan or share purchase options plan for members of the management body.

The underlying objective of the variable component of remuneration is to recognise and reward the individual contribution made by each executive member of the management body as well as their performance as a member of the bank s collective management team. The amounts allocated for the performance bonus should relate directly to the successful meeting of preset qualitative and quantitative targets. These targets should be set in accordance with the various strategies in place (global group strategy and specific strategies for Banif Banco Internacional do Funchal, SA)

b) Setting and payment of the fixed component of remuneration

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The remuneration committee should set the fixed component of remuneration for each executive director on an annual basis, in accordance with the levels offered in the market for similar duties, and may be reviewed annually. There are no mechanisms for automatically adjusting such remuneration to market levels.

The Chairman of the board of directors receives a fixed monthly salary, paid 14 times per year, with two monthly payments being made in the months of April and November, each year.

c) Conditions and criteria used in setting and paying the variable component of remuneration3

The Remuneration Committee is aware that the particular circumstances of the institution s governance and the current economic and financial context in which it is operating represent strong constraints and introduce factors of uncertainty that make it difficult to properly establish, on this date, criteria and models to determine the variable remuneration.

To this end, it should be noted that Banif - Banco Internacional do Funchal, SA, as an entity that is part of the Banif Financial Group, is involved in a global process of reorganisation and recapitalisation of the Group, in order to comply with the capital requirements of Bank of Portugal Notice No. 3/2011, which may entail the adoption of measures on a Group level, likely to make it eligible for mechanisms for recapitalisation of credit institutions under European Union initiatives to increase financial stability and the availability of liquidity in financial markets. In addition, the potential use of such recapitalisation mechanisms (envisaged in Law no. 63-A/2008, of 24 November, as amended by Law no. 4/2012 of 11 January), may imply the need to revise the model of remuneration of members of the management bodies, in accordance with paragraph l) of no. 24 of Point XI of the annex to Decree-Law no. 104/2007 of 3 April as amended by Decree-Law no. 88/2011 of 20 July.

Moreover, the company very recently (at the general meeting of 23 March 2012) made significant changes in the composition of its Board of Directors, now in office for the three-year period 2012- 2014, which may to have implications for the strategies to be implemented, goals to be set and the budget to be drawn up.

For these reasons, the remuneration committee considered it appropriate at the present time and in the face of the evidence available, to maintain the model for determination and paying variable remuneration adopted for 2011, without prejudice to its revision during 2012, if justified by the circumstances and situation of the company.

In view of the above, the rule that the variable component of remuneration for a given year/reporting period ( Reference Period ) is set/allocated annually by the remuneration

3 All financial indicators used are as accounted for under IAS/IFRS rules and are taken into consideration in accordance with the extent to which they contribute to the Banif Financial Group’s overall results.

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committee as a function of the following criteria and subject to the following conditions shall remain in effect:

Definitions and abbreviations:

Variable Component (‘RV’) That part of overall remuneration which is calculated on the basis of performance-related criteria.

Reference period (‘Exerc. Ref.’) Period/year of the performance used in allocating the variable component of remuneration (generally, the year prior to that in which the decision is taken to add a variable component to the remuneration package)

Allocation Reference (‘Ref. 1’) Average Euribor 12 month rate over the reference period, plus 2% (1)

Allocation Reference (‘Ref. 2’) Average Euribor 12 month rate over the reference period, plus 6% (2)

Reference budget (‘Budget’) Budget for the reference period, as approved by the board of directors and the salaries committee. This budget serves as the basis for setting the performance objectives for executive directors.

Selected Indicators (‘ISs’) Financial indicators deemed relevant to the assessment of executive director performance and, consequently, the calculation of the variable component of remuneration (currently, these are return on equity and cost-to-income 2)

Return on Equity (‘ROE’) The bank’s return on equity over the reference period4

Return on Equity (‘ROEObj) The forecast value of the return on equity indicator in the reference Objective budget 2

Cost-to-Income (‘CtI’) The bank’s cost-to-income ratio for the reference period 2

Cost-to-Income (‘CtIObj’) The forecast value of the cost-to-income indicator in the reference Objective budget 2

Net Profits (‘RL’) The bank’s net profit for the reference period 2

Net Profits Objective (‘RLObj’) The forecast for the bank’s net profits in the reference budget 2

Variable (‘RVObj’) The variable component of remuneration owed where set objectives Remuneration have been 100% met. Equivalent to 30% of the total remuneration Objective package.

c,(i) Prior condition for the awarding of variable remuneration

4 Amounts calculated on the basis of IAS/IFRS

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There will only be a variable component to remuneration where the bank s return on equity indicator for the reference period is higher than the average value of the 12 month Euribor rate for the same year, plus 2% ( Ref. 1 ). [ RV > 0 if ROE > Ref. 1 ] c. (ii) Formula for calculating the variable component of remuneration when return on equity is higher than Ref. 1 but lower than Ref. 2.

RL CtIObj ROE RV = x x x RVObj RLObj CtI Ref.2

c. (iii) Condition under which the variable component of remuneration may exceed 30% of the total remuneration package. As mentioned above, and in accordance with the proposed remuneration structure, in a situation in which the set objectives are fully met (that is, 100% achievement of the selected indicators for the reference budget), the variable component of the directors remuneration package will equate to 30% of the total remuneration package. If the real/effective value of these indicators exceeds the value forecast in the reference budget (i.e., achievement of over 100%), the variable component of each director s remuneration package may only exceed 30% of the total remuneration package if the bank s return on equity for the reference period is higher than the average value of the 12 month Euribor rate for the reference period, plus 6%.

[ RV > RVObj if ROE > Ref. 2 ] c. (iv) Formula for calculating the variable component of remuneration when return on equity is higher than Ref. 2

Obj RL CtI RV = x x RVObj RLObj CtI c. (v) Limits on the total amount of the variable component of remuneration

- The variable component of the remuneration awarded to each executive director, as calculated according to the above guidelines, may not exceed 36% of the total remuneration package. - The overall amount awarded to all the 7 members of the executive committee as a variable component of their remuneration may not exceed 5% of the net profits for the reference period. If it should exceed this amount, it will be reduced to match this limit and paid proportionally to directors as a function of their fixed remuneration.

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c. (vi) Method of payment of the variable component of remuneration

At the present time, and given the moderate weighting that the variable components of remuneration have in the bank s remuneration policy, as well as the fact that there is a sufficiently long service history between most members of the management body and the institution (the overwhelming majority of these directors are members of staff that have been drawn from the bank s management structure and are subject to an employment contract), the deferral of the above-mentioned part or the variable remuneration may be dispensed with.

Notwithstanding the above, and in line with the remuneration policy approved in the 2011 annual general meeting on, the remuneration committee has established that, in those cases where the variable component of remuneration, as calculated in the manner described above, should exceed 30% of the total remuneration package, the payment of this excess shall be deferred until after submission of the accounts for each of the three following reporting periods (with one third of the amount being paid in each of these periods).

Moreover, in each of the three following reporting periods mentioned in the previous paragraph, such payment of any excess amount shall only take place if the results for that period warrant the payment of a variable component of remuneration, as a function of the remuneration policy in force during the reporting period in question.

Fixed Component (approx. 70%)

Total Remuneration Up to 30% Payment as awarded Variable Component

Above 30% payment deferred across 3 subsequent years (1/3 + 1/3 + 1/3)

3.1.3. Members of the Board of Directors (Non-executive Directors)

Non-executive members of the board of directors are exclusively remunerated through the payment of fixed amount fees for attending board meetings.

These members may also be remunerated by other companies within the group for whom they work, when the level and complexity of that work, market practices or other circumstance so justify it.

3.2. Supervisory Board

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In order to ensure the independence and thoroughness of the audit board s supervisory work, remuneration of its members will be exclusively based on their attendance at meetings of this body and shall not be, in any way, dependent on, or related to, the company s results.

4. Disclosures required by Law no. 28/2009 of 19 June

a. Mechanisms which ensure that the interests of the members of the management body are aligned with the interests of the company.

The remuneration committee believes that the current remuneration policy incorporates a number of mechanisms that ensure that the interests of the members of the management body are aligned with those of the company, in that: (i) The award of a variable component to executive directors remuneration packages is dependent on there being substantial net profits for the period, given that, for the reference period, the return on equity indicator must be higher than the average 12 month Euribor rate plus 2%. (ii) The set of indicators selected for the assessment of executive director performance includes not only the component referring to the results for the period (return on equity) but also a component that reflects the optimisation of costs structures and the organisation s level of efficiency (cost-to-income). This factor is believed to be of critical importance to the medium and long-term sustainable development of the institution. (iii) There are, on the one hand, two reference hurdles (Ref. 1 and Ref. 2) which the company s return on equity indicator must get over before a variable component is added to an executive director s remuneration package. On the other hand, there is the fact that this component can rise above 30% of the total remuneration package. Moreover, both of these hurdles depend on factors external to the company. Together, these hurdles work to minimise the risk of the variable component of remuneration increasing disproportionally as the result of a less than ambitious objective/budget. (iv) With a similar purpose, there is also a requirement that the remuneration committee checks the reference budget submitted by the board of directors. It may also carry out an annual review of the percentage of the total remuneration package that is fixed under the variable remuneration objective. (v) The fact that there are maximum limits to the variable component of remuneration (36% of the total remuneration package and 5% of net profits for the period) mitigates against excessive risk-taking. (vi) The deferral of the payment of the variable component of remuneration, in that part that exceeds the variable remuneration objective (30% of the total remuneration package), and the fact that this is tied to the company continuing to turn in positive results reduces the risk that unwarrantedly high amounts could be paid out in one given period only for substantially reduced profits to then be earned in following periods. (vii) The fact that there is no variable remuneration for non-executive directors, whose remuneration is delinked from the company s performance in any given period, increases

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the ability of these directors to carry out their supervision of the executive directors in such a way as to ensure that company grows both prudently and sustainably.

b. Criteria used to setting the variable component of remuneration;

The criteria used In setting the variable component of remuneration are described in paragraph c) of point 3.1.2 above. c. The existence of a share allocation plan or a share purchase options plan for members of the management and supervisory bodies.

Banif Banco Internacional do Funchal, SA does not have, nor does it plan to have, any share allocation plans or share purchase options plans for members of the management or supervisory bodies. Given that Banif Banco Internacional do Funchal, SA has no tradable shares and that its share capital is fully held by a single shareholder, it has been deemed neither appropriate nor viable to implement any such share allocation plans or share purchase options plans for members of the management or supervisory bodies.

d. The possibility of paying the variable component of remuneration, where such exists, in whole or in part, after submission of the accounts for all the reporting periods that constitute the mandate.

The way in which the payment of part of the variable component of remuneration may be deferred until after submission of the accounts for all the reporting periods that constitute the mandate is described in paragraph c. (v) of point 3.1.2 above.

e. Mechanisms designed to limit the variable component of remuneration, should results show a significant deterioration in the company’s performance in the previous period or where such a deterioration may be expected for the current period.

The mechanism for limiting the variable component of remuneration (in that part for which payment has been deferred) for when the results show a significant deterioration in the company s performance i

2.31. Indication of the amount of annual remuneration of individual members of the company s board of directors and audit board, including fixed and variable compensation and, as to the latter, mentioning the different components it consists of and the parts that have been deferred and paid.

The annual amount of the remunerations received individually by the members of the administrative and supervisory bodies of the society is described below (this information considers the total amount paid by Banif SA and by Banif SGPS SA, given the fact that the latter was merged into the former on 17 December 2012):

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Board of Directors (January to March 2012) Joaquim Filipe Marques dos Santos - €84,950.90 Carlos David Duarte de Almeida - €81,600.74 António Manuel Rocha Moreira - €72,337.98 Manuel Isidoro Martins Vaz - €57,868.02 José Marques de Almeida - €31,580.00 José António Machado de Andrade - €61,734.52 João Manuel da Silva Machado dos Santos - €57,868.00 Diogo António Rodrigues da Silveira - €13,060.00 Vítor Manuel Farinha Nunes - €25,980.00 Nuno José Roquette Teixeira - €66,590.88 João Paulo Pereira Marques de Almeida - €57,868.02

Board of Directors (April to December 2012) Luís Filipe Marques Amado - €292,500.00 Jorge Humberto Correia Tomé - €316,229.17 Diogo António Rodrigues da Silveira - €90,500.00 Vítor Manuel Farinha Nunes - €297,000.00 Nuno José Roquette Teixeira - €297,000.00 João Paulo Pereira Marques de Almeida - €278,015.21 Manuel Carlos de Carvalho Fernandes - €76,000.00 Carlos Eduardo Pais e Jorge - €176,000.00 João José Gonçalves de Sousa - €175,104.05 Gonçalo Vaz Gago da Câmara de Medeiros Botelho - €168,666.67

There are no grounds on which to make payment of any variable component of remuneration to executive directors for 2012 as the Prior condition for the awarding of variable remuneration detailed in point c. (i) of the approved remuneration policy was not met. This condition stipulates that There will only be a variable component to remuneration where the bank s return on equity indicator for the reference period is higher than the average value of the 12 month Euribor rate for the same year, plus 2% ( Ref. 1 ) .

Supervisory Board (January to March 2012) (The remuneration indicated below relates exclusively to attendance fees and considers the total amounts paid by Banif SA and by Banif SGPS SA)

Fernando Mário Teixeira de Almeida - €13,800.00 António Ernesto Neto da Silva - €4,000.00 José Lino Tranquada Gomes - €9,400.00

Supervisory Board (April to December 2012) (The remuneration indicated below relates exclusively to attendance fees and considers the total amounts paid by Banif SA and by Banif SGPS SA)

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Fernando Mário Teixeira de Almeida - €52,000.00 António Ernesto Neto da Silva - €12,000.00 Thomaz de Mello Paes de Vasconcellos - €30,000.00 José Lino Tranquada Gomes - €1,000.00

Disclosures in compliance with Bank of Portugal Notice No. 10/2011

- Decision-making process used in setting out the remuneration policy, including, where appropriate, information on the mandate and composition of the remuneration committee, the identification of any external consultants whose services were contracted for the purposes of drawing up the remuneration policy and any additional services provided by such consultants to the company or to members of the management or supervisory bodies

The remuneration policy for 2012 was unanimously approved in a meeting of the Banif Banco Internacional do Funchal, SA remuneration committee held on 30 March 2012.

The aforementioned remuneration committee was elected at the general meeting held on 23 March 2012, for a three-year mandate running through to the end of 2014. The following are members of the committee: - Rentipar Financeira, SGPS, SA, represented by Maria Teresa Henriques da Silva Moura Roque Dal Fabbro - Renticapital Investimentos Financeiros, SA represented by Fernando José Inverno da Piedade - Fundação Horácio Roque, represented by José Marques de Almeida

2.32. Information on the way remuneration is structured, so as to allow the interests of members of the board of directors to be aligned with the long-term interests of the company, the way in which it is based on performance assessment and how it discourages excessive risk-taking.

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This information may be found in the statement on remuneration policy approved by the company s general meeting of 5 April 2012 and quoted above in point 2.30.

2.33. Regarding the remuneration of executive directors:

a) Reference to the fact that the remuneration of executive directors includes a variable component and information on how this component depends on performance assessment.

This information may be found in the statement on remuneration policy approved by the company s general meeting of 5 April 2012 and quoted above in point 2.30. As noted in that statement, the remuneration of executive directors is based on the concept of an overall remuneration package made up of 3 key elements: a fixed component, a variable component and a mechanism to align the interests of the executive members of the management body with the best long term interests of the company.

The fixed component of remuneration should be the larger part of the total remuneration package. In a situation where objectives are fully achieved, it is estimated that this would represent around 70% of the total remuneration of the executive directors. This fixed component is designed to reward executive directors for accepting the responsibilities inherent in their position and their specific competences.

b) Indication of the corporate bodies with responsibility for assessing the performance of executive directors.

There is no institutional body with specific responsibility for assessing the performance of executive directors. The remuneration committee assesses the performance of most members of the executive committee by applying the criteria established in the remuneration policy for the calculation of the variable component of remuneration. Nevertheless, the shareholders are responsible for assessing the performance of the executive directors.

c) Indication of the preset criteria for assessing the performance of executive directors.

This information may be found in the statement on remuneration policy approved by the company s general meeting of 5 April 2012 and quoted above in point 2.30. As mentioned in this point, the criteria used in determining the variable component of remuneration are

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applied to the performance of the executive committee as a whole and not to each director individually. d) Explanation of the relative importance of the variable and fixed components of directors remuneration as well as indication of any maximum limit for each component.

This information may be found in the statement on remuneration policy approved by the company s general meeting of 5 April 2012 and quoted above in point 2.30. In addition to this, we would point out that, taking into account the fixed remuneration paid to executive directors in 2012 and the level of variable remuneration set for the same reporting period, indicated in paragraph above, the fixed component of remuneration equated to 100% of the total executive director remuneration package and the variable component to 0% of the same package. e) Indication of deferred payment of the variable component of remuneration, with mention of the deferral period

This question is not applicable as there is no variable component to the remuneration for 2012. f) Explanation of how the payment of the variable component of remuneration is dependent on continued positive performance by the company throughout the deferral period.

This question is not applicable as there is no variable component to the remuneration for 2012. g) Sufficient information on the criteria for allocating shares as variable remuneration, as well as on the keeping, by executive directors, of shares in the company they hold, on any possible signing of contracts involving those shares, namely hedging or risk transfer contracts, limits on the same and their relation vis-à-vis the amount of the total annual compensation.

Banif Banco Internacional do Funchal, SA does not have, or plan to have, any plans to allocate shares to members of the management or supervisory bodies h) Sufficient information on the criteria for allocating share options as variable remuneration, the deferral period and the price of the operation.

Banif Banco Internacional do Funchal, SA does not have, or plan to have, any share purchase options plans for members of the management or supervisory bodies. i) Identification of the main parameters and principles of any annual bonus schemes and any other non-monetary benefits.

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There are no annual bonus schemes beyond the variable component of executive director remuneration (with the limitations described above and the parameters and principles contained in the statement of remuneration policy approved by the general meeting as transcribed above - no such component having been payable in 2012) or other significant non-monetary benefits.

j) Remuneration paid in the form of profit-sharing and/or bonuses and the reasons for awarding such bonuses or profit-sharing.

The company did not pay remuneration in the form of profit-sharing and/or bonuses.

l) Compensation paid or due to ex-executive directors on early termination of contract

No amounts/compensation were paid, or are owed, to ex-executive directors as a result of termination in question contract during the year in question.

m) Reference to any contractual limit for compensation paid in regard of summary dismissal of any executive and the relationship of such payment to the variable component of remuneration.

The company has no formal policy on negotiated remunerations in the case of dismissal or other payments linked to early termination of contract, each situation being dealt with on an individual basis.

n) Amounts paid on any basis by other controlling or group companies. The amounts paid to each executive director of Banif Banco Internacional do Funchal, SA, on any basis, by other control or group-related companies are as follows (this disclosure does not consider the amounts paid by Banif SGPS SA, given the fact that this company was merged into Banif SA on 17 December 2012, following which the amounts are totalled, in accordance with the disclosure made in point 2.30 of this Report on Corporate Governance).

Amounts in Euros

FIXED REMUNERATION VARIABLE BOARD OF DIRECTORS (*) (INCLUDING ATTENDANCE FEES)) REMUNERATION

80,367.68 0,000.00 Joaquim Filipe Marques dos Santos Carlos David Duarte de Almeida 90,500.00 0,000.00

António Manuel Rocha Moreira 44,257.92 0,000.00

Manuel Isidoro Martins Vaz 37,500.00 0,000.00

José Marques de Almeida 137,023.34 0,000.00

José António Machado de Andrade 15,000.00 0,000.00

João Manuel da Silva Machado dos Santos 15,000.00 0,000.00

(*) Left office in March 2012

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Amounts in Euros

FIXED REMUNERATION VARIABLE BOARD OF DIRECTORS (**) (INCLUDING ATTENDANCE FEES)) REMUNERATION

0,000.00 0,000.00 Luís Filipe Marques Amado Jorge Humberto Correia Tomé 0,000.00 0,000.00

Diogo António Rodrigues da Silveira 10,500.00 0,000.00

Vitor Manuel Farinha Nunes 69,000.00 0,000.00

Nuno José Roquette Teixeira 29,200.00 0,000.00

João Paulo Pereira Marques de Almeida 20,000.00 0,000.00

Manuel Carlos de Carvalho Fernandes 0,000.00 0,000.00

Carlos Eduardo Pais e Jorge 34,660.14 0,000.00

João José Gonçalves de Sousa 0,000.00 0,000.00 Gonçalo Vaz Gago da Câmara de Medeiros 0,000.00 0,000.00 Botelho

(**) Appointed in March 2012 o) Description of the main features of supplementary pension or early retirement schemes for directors indicating, where these are, or are not, subject to approval of the general meeting.

The executive directors of Banif Banco Internacional do Funchal, SA listed below are covered by pension funds that complement those of the social security system. Eight of the thirteen executive directors or former executive directors are covered by the company-wide agreement published in BTE, no. 32, 1st Series on 29 August 2008, specifically clauses 12 to 26.

The directors or former directors - Carlos David Duarte de Almeida, António Manuel Rocha Moreira, Manuel Isidoro Martins Vaz, João Manuel da Silva Machado dos Santos, José António Machado de Andrade, João Paulo Pereira Marques de Almeida, Jorge Humberto Correia Tomé, Vítor Manuel Farinha Nunes, João José Gonçalves de Sousa, Gonçalo Vaz Gago C. de Medeiros Botelho and José António Vinhas Mouquinho are members of the Fixed Contribution Plan of the Banif Pensions Fund, managed by Banif Açor Pensões Sociedade Gestora de Fundos de Pensões, SA.

The executive directors Nuno José Roquette Teixeira and Carlos Eduardo Pais e Jorge are also members of the Fixed Contribution Plan of the Banif Pensions Fund, managed by Banif Açor Pensões Sociedade Gestora de Fundos de Pensões, SA.

These funds are complementary to the social security system.

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As their participation in these funds is identical to that of all other employees participating in the fund, the matter has not been referred to the general meeting for approval.

p) Estimate of the value of any relevant non-monetary benefits that could be considered remuneration and not covered by the points above.

There are no relevant non-monetary benefits that could be considered remuneration.

q) Existence of mechanisms which prevent executive directors from entering into contracts which would bring into question their entitlement to variable remuneration.

There are no mechanisms with the characteristics described.

2.34. Reference to the fact that the remuneration of non-executive members of the board of directors is not included in the variable component.

The remuneration earned by non-executive directors in 2012 contains no variable component (which is understood to mean a component linked to the company s performance).

Despite the information provided below not being mandatory for inclusion in this Report, Banif SA believes that as it is an integral part of the accounting, this is the most appropriate place to publicise the information referred to in Bank of Portugal Notice No. 10/2011, when it does not appear in other parts of this report.

Remuneration of employees who are not members of management or supervisory bodies but who meet some of the following criteria: a. They carry out duties which involve assuming a risk burden, on behalf of the company or its clients, which might have a material impact on the institution s risk profile. b. Their total remuneration package places them on the same remuneration scale as the members of the management or supervisory bodies c. They carry out the control functions indicated in Bank of Portugal Notice no. 5/2008.

a. Employees covered

Point II.4 covers Banif Banco Internacional do Funchal, SA staff who (i) head bodies in the bank s top-line structure, to the extent that they carry out professional duties that might impact on the institution s risk profile, and those who (ii) belong to the institution s management structure (directors, assistant directors and sub-directors) and who work in the areas of auditing, compliance and risk. There are no employees whose total remuneration package places them on the same remuneration scale as the members of

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the management or supervisory bodies who are not already covered by one of the other preconditions. b. The process used in setting the remuneration policy and the identification of any external consultants whose services were used in setting the remuneration policy and any additional services provided by such consultants to the company or to members of the management or supervisory bodies.

The Remuneration policy for Banif Banco Internacional do Funchal, SA staff. ( PRCBNF ) was proposed by the bank s own services and approved by the board of directors in its meeting on 29 June 2011. This is the policy currently in force for all employees covered in Point II.4.

No use was made of any experts, consultants or external entities. The institution s own remuneration practices and those of the financial sector and other Portuguese banks that operate in both the national and international markets were taken into consideration. c. As regards the variable component of remuneration: the various components that go into this, the proportion that is deferred and the proportion that has already been paid.

There was no variable component to staff remuneration in 2012. d. Information on the way current remuneration policy is structured to allow the proper alignment of the interests of members of the board of directors with the long-term interests of the company and how it discourages excessive risk-taking as well as information on the criteria used in performance assessment.

The PRCBNF does not include any variable remuneration which is dependent on the company s performance and which is calculated in the basis of preset criteria.

Remuneration of these employees is fixed and is composed of a basic salary plus the same type of general supplements that are paid to other company employees (e.g. seniority payments, subsidies) and, thus, there is no incentive for these employees to take excessive risks.

The PRCBNF does foresee the payment of a variable component of remuneration in the form of a performance bonus , which as a rule, does not amount to more than 10% of the total remuneration package. The determination and award of any such bonus is entirely at the discretion of the institution s board of directors. An exception is made for employees in the commercial area and credit recovery who, with the approval and implementation of the new incentives policy in 2012, began to receive variable remuneration directly dependent on the degree of achievement of the objectives set.

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This system is designed to promote and encourage improved individual employee performance of their professional duties without directly linking any bonus to the company s results, particularly in the short-term.

Given the relatively low weighting of the variable component of remuneration in the total staff remuneration package, it is believed that the current remuneration policy does not compromise the institution s long-term interest nor does it encourage excessive risk- taking.

No such bonus was decided upon or distributed to these employees, under the terms described above, in 2012.

The criteria used in assessing those members of staff responsible for heading the bank s top-line structures are performance and conduct criteria which are applied through direct interaction between these staff members and the management body. For those staff members who are not in this group, but who do work in the areas of audit, compliance and risk, the criteria are written into the bank s current performance assessment process, as implemented by the various line management structures. e. Competent bodies for assessing individual performance

The competent body for assessing those members of staff responsible for the bank s top-line structures is the management body itself, in the form of the director responsible for the area in question. For those staff members not in this group, but who do work in the areas of audit, compliance and risk, the criteria are written into the bank s current performance assessment process, as implemented by the various line management structures. f. Preset criteria used in assessing performance and on which the right to a variable component of remuneration is based

As mentioned above, the award of any performance bonus is at the entire discretion of the board of directors and, as such, there are no preset criteria to be used in assessing the individual performance of any member of staff on which the right (in the sense of an acquired right) to a variable component of remuneration might be based.

g. The way in which the payment of the variable component of remuneration is subject to the continuing good performance of the institution.

Given the low weighting that the variable component of remuneration (performance bonus) has in the bank s remuneration policy, plus the fact that most employees have

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worked for the bank for a considerable length of time, it has not been deemed necessary to defer payment of this component.

h. The criteria used in awarding the variable component of remuneration in the form of options and indication of the deferral period and then option price

The PRCBNF does not contemplate the awarding of the variable component of remuneration in the form of options.

i. The main parameters and principles of any annual bonus scheme or any other non- monetary benefits.

There is no other annual bonus scheme besides the performance bonus, which has been detailed in the preceding points. The other benefits extended to bank employees, all of which are written into the PRCBNF, are as follows:  Life insurance, in accordance with clause 142 of the Collective Labour Agreement for the Banking Sector (ACT)  Medical Assistance Services (SAMS), under the terms of clause 114 of the ACT  Accident at work insurance, under the terms of clause 38 of the ACT  Pensions fund, which offers a supplementary pension, as per clause 13 of the company-wide agreement

II.5 Disclosure of quantitative information, in compliance with the stipulations of article 17 of Bank of Portugal Notice no. 10/2011

i. Total annual earnings of the employee covered and the number of beneficiaries

Other Employees Amounts in Euros

Total Annual Amounts Fixed remuneration Variable remuneration

All employees 3,239,891.15 0,00

Number of beneficiaries covered 45.

ii. The amounts and types of variable components in the remuneration package, separated into monetary, shares, share-linked instruments and other types of remuneration.

This question is not applicable as there is no variable component to the remuneration for 2012.

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iii. The amount of deferred remuneration not paid, separated into vested and non-vested amounts.

This question is not applicable as there is no variable component to the remuneration for 2012.

iv. The annual amounts of remuneration owed, paid or subject to reduction following adjustments made as a result of individual employee performance

This question is not applicable as there is no variable component to the remuneration for 2012.

v. The number of new hirings in the period in question

There were no new hirings in 2012.

vi. The amounts relating to payments made or owed as a result of early termination of work contracts, the number of beneficiaries of any such payments and the highest payment for any single employee. vii.

Largest Payment Payments due to early termination of the Number of made to an employment contract Beneficiaries Involved Employee

796,030.32 5 263,712.69

viii. Total annual employee earnings, by business area

Other Employees Amounts in Euros

Variable Total Annual Amounts Fixed remunerations remunerations

Positions of Responsibility 2,650,859.27 0.00

Other Employees Amounts in Euros

Variable Total Annual Amounts Fixed remunerations remunerations

Positions of Control 132,281.93 0.00 (Compliance)

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Other Employees Amounts in Euros

Variable Total Annual Amounts Fixed remunerations remunerations

Positions of Control 417,532.88 0.00 (Risk Management)

Other Employees Amounts in Euros

Variable Total Annual Amounts Fixed remunerations remunerations

Positions of Control 39,217.07 0.00 (Auditing)

2.35. Information on the company s policy for reporting irregularities (reporting methods, persons entitled to receive reports, how reports are to be handled and names of the persons or bodies having access to the information and relevant involvement in the procedure)

The Banif Financial Group, in its belief that a policy for the reporting of irregularities can make a significant contribution to the building, across its institutions, including Banif Banco Internacional do Funchal, of a culture of responsibility and compliance, has, since 2009, implemented in Banif - SGPS SA a policy for the reporting of irregularities which is designed to prevent, detect and act on irregularities. This helps avoid losses aggravated by the continuance of such practices and ensures, simultaneously, the confidentiality and protection of those who make such reports.

Given the system for reporting irregularities under the new article 116-G of the General Regulations for Credit Institutions and Finance Companies, introduced by the publication of Decree-Law no. 31-A/2012 and also because of the fact that Banif - Banco Internacional do Funchal SA is now the ultimate parent company in the Group, the policy for reporting irregularities referred to above and described below will be revised in due course, in order to adapt it to new legal requirements and the new situation.

Irregularities are taken to be the employment, by staff at companies in the group, of management practices in the areas of accounts, internal accounts control, the fight against corruption and banking and finance crime that may cause serious damage to the business activity of Banif Banco Internacional do Funchal, SA or any other company in the group.

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Irregularities may be reported using the e-mail address [email protected], which is exclusively used for receiving this type of communication and can only be accessed by the audit board, in accordance with legal provisions.

Alternatively, reports can be sent by letter to the char of the audit board (Av. José Malhoa, 22, 9.º Andar, 1099-012 Lisboa).

All reports are initially scrutinised for truthfulness and consistency. On the basis of this the audit board may then decide to instigate an investigation or dismiss the report. If it decides to open an investigation, this will be led by internal corporate auditing who may request the collaboration of the audit bodies in the group companies that are implicated by the facts and, where justified, external auditors.

Once the investigative process has ended, a final report will be drawn up and sent to the board of directors and the audit board.

The board of directors, having consulted the audit board, will consider the final report and internal corporate auditing will then oversee the implementation of any decisions arising.

The identity of reporters will be kept confidential, unless they expressly declare otherwise. Banif Banco Internacional do Funchal, SA gives particular emphasis to confidentiality and protecting those reporting irregularities.

SECTION 5 SPECIAL COMMITTEES

2.36. Identification of members of those committees involved in the individual and overall performance assessment of the executive directors, discussion on the company s governance system and identification of suitable potential candidates for directorships.

In 2012, there were no committees with such powers under the management or supervisory bodies.

2.37. Number of meetings held by the management and supervisory committees in the year, as well as reference to the minutes of these meetings.

During 2012 there were 53 meetings of the Executive Committee.

Minutes were drawn up for each of these meetings.

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2.38. Reference to the fact that at least one member of the remuneration committee has knowledge of, and experience in, remunerations policy.

We are of the opinion that, as a result of their professional curricula, the three members of the remuneration committee at the reference date of 31 December 2012 have the necessary knowledge and experience of remuneration policies. António Gonçalves Monteiro has over 30 years of professional experience in the fields of auditing, the legal review of accounts and management consultancy, Enrique Santos has held administrative positions in a number of financial and non- financial businesses and business associations and Filipe de Andrade e Silva Lowndes Marques is a lawyer with experience in the financial sector.

2.39. Reference to the independence of natural or legal persons, contracted through a labour contract to the remuneration committee or providing services to the board of directors as well as, when applicable, to any relationship these persons have with any company consultant.

None of the members of the remuneration committee has an employment or service provision contract nor are they in any way related to any entity providing consultancy services to the company.

CHAPTER 3 INFORMATION AND AUDITING

3.1. Equity structure including those shares that are not admitted to trading, the different categories of shares, rights and obligations of these shares and the equity percentage that each category represents.

At the reference date of 31 December 2012, the share capital was represented by 570,000,000 ordinary book entry nominative shares, without nominal value.

The general meeting on 16 January 2013 decided on an increase of EUR 700,000,000 in the share capital, implemented on 25 January 2013 when the Portuguese State subscribed to 70,000,000,000 shares without nominal value, for the unit price of 1 cent, under the regime provided for in Law No. 63-A/2008 of 24 November and in Ministerial Order No. 150-A/2012, of 17 May.

Following this operation, the share capital is now represented by 70,570,000,000 shares of which 570,000,000 are ordinary shares traded on a regulated market (ISIN PTBAF0AM0002) and 70,000,000,000 special shares with preferential dividend owned by the Portuguese State (ISIN PTBAF0VM0007)

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3.2. Qualifying holdings in the issuers share capital, calculated under the terms of article 20 of the Securities Code.

ESTATE OF HORÁCIO DA SILVA ROQUE.5 On 31 December 2012, the estate held 808,888 shares in Banif Banco Internacional do Funchal, SA., equal to 0.142% of the share capital and voting rights. Under article 20 of the Securities Code, the estate also held the voting rights for the following shares:

307,063,133 shares, equal to 53.871% of the share capital and voting rights of Banif Banco Internacional do Funchal, SA held by Rentipar Financeira, SGPS, SA, a company controlled (under the terms of article 20, no. 1, para. b) and 21, both of the SC) by the estate of Horácio da Silva Roque;

1,152,997 shares, equal to 0.202% of the share capital and voting rights of Banif Banco Internacional do Funchal, SA, held by members of the board of directors of Rentipar Financeira, SGPS, SA Fernando José Inverno da Piedade: 20,082 shares, José Marques de Almeida: 1,117,440 shares and Vitor Hugo Simons: 15,475 actions - (art. 20, no. 1, para. b), d) and i) of the SC);

27,583,051 shares, equal to 4.839% of the share capital and voting rights of Banif Banco Internacional do Funchal, SA held by Vestiban Gestão e Investimentos, SA, a company controlled by Rentipar Financeira, SGPS, SA (article 20, no. 1, paras. b), and i) of the SC);

267,750 shares, equal to 0.047% of the share capital and voting rights of Banif Banco Internacional do Funchal, SA held by Espaço Dez Sociedade Imobiliária, Lda., a company controlled (under the terms of article 20, no. 1, para. b) and 21.º, both of the SC) by the estate of Horácio da Silva Roque;

162,049 shares, equal to 0.028% of the share capital and voting rights of Banif Banco Internacional do Funchal, SA, held by Renticapital Investimentos Financeiros, SA, a company controlled by Rentipar Financeira, SGPS, SA (art.º 20.º, n.º 1, paras.. b), and i) of the SC).

To a total of 337,037,868 shares, equal to 59.128% of the share capital and voting rights of do Banif Banco Internacional do Funchal, SA.

AUTO-INDUSTRIAL, INVESTIMENTOS E PARTICIPAÇÕES, SGPS, SA Collective person no. 505 025 752, with registered offices at Av. Fontes Pereira de Melo, no. 14, in Lisbon, was holder of 76,377,857 shares, equal to 13.400% of the share capital and voting rights of the Banif Banco Internacional do Funchal, SA.

JOAQUIM FERREIRA DE AMORIM

5 The executor of the estate of Horácio da Silva Roque is Maria Teresa Henriques da Silva Moura Roque Dal Fabbro, daughter of Comendador Horácio Roque.

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Domiciled at Rua da Corticeira, 34, 4536-902, Mozelos, taxpayer no. 174.303.050, who holds the voting rights for the following shares:

11,803,959 shares, equal to 2.07% of the share capital and voting rights of Banif Banco Internacional do Funchal, SA held by Evalesco, SGPS, SA, a company which he controls (under the terms of article 20, no. 1, para. b) and article 21, both of the SC).

3.3. Identification of shareholders with special rights and description of these rights.

With reference to 31.12.2012, there are no shareholders with special rights. The shares subscribed by the Portuguese State on 25 January 2013 are subject to the regime provided for in Law No. 63-A/2008, of 24 November, and in Ministerial Order No. 150-A/2012, of 17 May.

3.4. Possible restrictions on share transfer, such as consent clauses or limits on share ownership.

There are no restrictions on the transfer of shares representing the company s share capital, at the reference date of 31 December 2012. The shares subscribed by the Portuguese State are subject to the restrictions on their transfer provided for in Law No. 63-A/2008, of 24 November, and in Ministerial Order No. 150-A/2012, of 17 May.

3.5. Shareholder agreements that the company may be aware of and that may restrict the transfer of securities or voting rights.

Contract made on 10 June 2009 Integration of the Tecnicrédito Group

This point covers the contract signed on 10 July 2009 between Banif - SGPS, SA and the then controlling shareholders of Tecnicrédito, SGPS, SA [ Tecnicrédito ] (replaced by Auto Industrial Investimentos e Participações, SGPS, SA [ AI SGPS ], by addendum dated 7 August 2009) concerning the take-over of Tecnicrédito by Banif - SGPS, SA, insofar as, as a consequence of the merger of Banif - SGPS, SA with Banif Banco Internacional do Funchal, SA, this contract then also applied to the latter.

Under this contract, there are restrictions on AI SGPS selling its shares and mandatory convertible bonds (MCBs) which it subscribed to as part of the increase in the share capital of Banif SGPS, SA, in consideration of the shares representing the share capital of Tecnicrédito. Remaining in force among these restrictions is the commitment of AI SGPS to, on the date of the effective conversion of the MCS (into shares in Banif Banco Internacional do Funchal, SA) not to reduce, in any form whatsoever, its economic interest to a percentage below two thirds of the economic interest acquired on the occasion of the transactions provided for in that contract.

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Excluded from this are any transactions of shares or MCBs between AI SGPS and companies it directly or indirectly controls, or between such companies, provided that the purchaser is also bound by the same contract.

Secured Subscription Commitments

In the context of the recapitalisation of Banif Banco Internacional do Funchal, SA through public investment, pursuant to Law No. 63-A/2008 of 24 November, in its current wording, each of the shareholders Rentipar Financeira SGPS, SA and AI SGPS subscribed on 31 December 2012 a document designated Secured Subscription Commitment, under which the shareholder undertakes, in particular, not to trade/transfer any shares of Banif Banco Internacional do Funchal, SA (or securities convertible into the Bank s shares or rights to acquire or subscribe to these shares) until 31 October 2013, inclusive.

3.6. Rules applying to changes in company bylaws.

There are no specific rules, in terms of company bylaws, that apply to the making of changes to the articles of association. Any such changes will be subject to the legal provisions in force, namely those of the Commercial Companies Code.

3.7. Control mechanisms for a possible employee shareholder system in which employees do not directly exercise voting rights.

There is no scheme for employee participation in the company s share capital.

3.8. Description of the changes undergone by the issuers share price, bearing in mind: a) The issuing of shares or other securities that give the right to subscribe to or acquire shares. b) The reporting of results. c) The payment of dividends by category of share with an indication of the net payment per share. Banif SGPS gained entry to the PSI 20 index on 21 March 2011. One year later the fall in value of the shares, reduced their liquidity and on 16 March 2012 Banif SGPS left the PSI 20 index. On 24 September 2012, Banif SGPS rejoined the PSI 20 index, which represented greater visibility and more liquidity for its shares. At a general meeting of 24 August 2012, it was decided that the shares representing the share capital of Banif SA would be converted into shares without nominal value.

At the general meeting of Banif SGPS on 8 October 2012, the decision was taken to merge Banif SGPS into Banif SA by acquisition. This merger was registered on 17 December 2012, leading to a suspension of the trading of Banif SGPS shares and their replacement by the new Banif SA shares. The new Banif SA shares were allocated to holders of Banif SGPS shares at a 1:1 ratio.

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The new shares were admitted to trading on 21 December 2012, the share capital of Banif SA being represented by five hundred and seventy million shares, without nominal value.

The graph below shows the changes to the quoted price of Banif SGPS, SA, shares along the year of 2012, with added notes on important events.

0.4 Moody's downgrade of rating B1/NP (28 Mar.)

Results 1H2012 Fitch downgrade of rating (17 Aug.) EGM (8 Oct.) VR for cc (18 Jun.)

AGM Results 3Q2012 0.2 (22 Mar.) (30 Nov.)

EGM Moody's downgrade of (30 May.) rating B2/NP (4 Dec.)

Results 2011 (30 Abp.) Aproved of Results 1Q2012 (31 Fitch downgrad rating Recapitalisation Plan May.) VR para c (21 Dec.) (31 Dec.) 0 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12

On 31 December 2012, the Portuguese State announced the approval of the recapitalisation of Banif SA, which led to an increase in capital of 700,000.00 euros, approved at the general meeting of 16 January 2013 and implemented on 25 January 2013.

Changes in key indicators in the last 6 years

31/12/2007 31/12/2008 31/12/2009 31/12/2010 31/12/2011 31/12/2012 No. shares issued 250,000,000 350,000,000 490,000,000 570,000,000 570,000,000 570,000,000 No. of shares quoted 250,000,000 350,000,000 490,000,000 570,000,000 570,000,000 570,000,000

Share Price (€) 4.00 1.09 1.25 0.87 0.34 0.15 Capitalisation (€^3) 1,000,000 381,500 612,500 495,900 193,800 83,220 Net earnings per share (€) 0.4043 0.1692 0.1104 0.0682 -0.2835 -1.0111

Book value per share (€) 2.4603 1.6668 1.9219 2.1116 1.4593 0.5122 Price/book value (PBV) 1.63 0.65 0.65 0.41 0.23 0.29 Price/earnings ratio per share (PER) 9.89 6.44 11.33 12.76 -1.20 -0.14 Gross dividend per share (€) 0.150 0.065 0.040 * - - Net dividend per share (€) 0.12 0.52 0.32 * - - Gross dividends / Net Profit (Payout) 37.1% 38.4% 36.2% * - - Dividend per share / Average price (Dividend yield) 2.8% 3.1% 3.2% * - - * 2010 earnings w ere transferred to reserves

3.9. Description of the company s dividend distribution policy, including the value per share of the dividend distributed during the last three years.

The company s dividend distribution policy was based on the principle of distributing those profits which were not required for reinforcing legal reserves and/or financing business activity. Up to 2009, this resulted in an annual distribution of dividends of between 35 and 40% of consolidated profits for the year. In 2010, the short-term and regulatory requirements to strengthen the equity of the Banif Financial Group prevented the distribution of dividends for that year. In 2011, the existence of a net loss and the need for equity meant it was impossible to distribute

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dividends. The future distribution of dividends is conditional, on the one hand, on the generation of distributable profits and, on the other hand, on commitments given in this matter to the Portuguese State on the context of the recapitalisation operation.

3.10. Description of the main characteristics of the share and stock option plans adopted or valid for the financial year in question, the reason for adopting said scheme and details of the category and number of persons included in the scheme, share-assignment conditions, non-transfer of share clauses, criteria on share-pricing and the exercising option price, the period during which the options may be exercised, the characteristics of the shares to be distributed, the existence of incentives to purchase and/or exercise options, and the responsibilities of the Board of Directors for executing and/or changing the plan. Indication: a) Of the number of shares necessary to satisfy the options allocated during the year and the number of shares necessary to satisfy the exercisable options during the year, referenced to the year beginning and year end. b) Of the number of options allocated, exercisable and expired during the year c) Of the opinion of the general meeting on new or existing plans for the year.

No share allocation plans or stock option plans were in operation during the year, nor were there plans for any such plans of options.

3.11. Description of the main business deals and transactions carried out between the company and members of the board of directors and audit board or controlled or group companies, where the amount is of financial significance to any of the parties involved, except for those business deals or transactions that cumulatively are conducted under normal market conditions for similar transactions and are part of the company s current business.

There have been no operations/business dealings of the nature described, in other words no in normal market conditions and/or that do not correspond to the normal activity of the company,

3.12. Description of the main business deals and transactions carried out outside normal market conditions between the company and owners of qualifying holdings or entities having any type of relation with the former, in accordance with article 20 of the Securities Code.

The deals existing between the company and qualifying shareholders and/or entities having a controlling or group relation with them are exclusively credit facility operations, normal in the company s banking activities.

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3.13. Description of the procedures and criteria via which the audit body makes prior assessment of the business deals to be carried out between the company and holders of qualifying holdings or entities having any type of relationship with the former, in accordance with article 20 of the Securities Code.

As mentioned in the previous point, deals existing between the company and qualifying shareholders and/or entities having a relation with them are exclusively credit facility operations, normal in the company s banking activities. In the case of qualifying shareholders having a share of more than 10%, there is a procedure specifically provided for this purpose in article 109 of the General Regulations for Credit Institutions and Finance Companies, requiring a prior opinion of the supervisory board, as well as other requirements of additional confirmation and scrutiny.

3.14. Statistical description (number, average value, and maximum value) of business transactions requiring the prior intervention of the audit board.

Number of transactions: 66 Average Value: EUR 16,963,654.32 Maximum Value: EUR 250,000,000.00

3.15. Indication of the availability on the Company s website, of annual activity reports drawn up by the general and supervisory board, by the financial matters committee, the audit committee and the supervisory board, including constraints that might be encountered, as well as financial information documents.

The annual reports on the activity carried out by the audit board are available on the company s website. The company does not have a general and supervisory board, a finance committee or an audit committee.

3.16. Reference to the existence of an investor relations office, or similar, with mention of: a) The office s functions; b) Type of information offered by the office; c) Ways of accessing the Office; d) The company s website; e) Identification of the person responsible for investor relations .

The investor relations office is responsible for the regular preparation of information and its circulation, in order to comply with legislative and statutory market reporting obligations. In this respect, the investor relations office publicises its press releases through the CMVM and Banif

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websites, responds to requests from shareholders, investors, financial analysts and other agents, and participates in conferences, roadshows, private meetings with analysts and institutional meetings. In addition, it is responsible for support the executive committee in the context of events that represent the company and for preparing information related to the status of the listed entity.

Banif has a website (www.banif.pt), in Portuguese and English, that offers a full range of institutional, public and material information.

The press releases with relevant information, besides being published on the website, under Investor Relations, are in electronic format and may be requested by telephone, e-mail, fax or letter. Investor Relations Office contacts:

Banif s Representative for investor relations is Bruno Miguel dos Santos de Jesus.

Gabinete de Relações com Investidores e Institucionais (Investor and Institutional Relations Office) Address: Address: Av. Jose Malhoa, 22 1099-012 Lisboa Telephone: + 351 217 211 970 Fax: + 351 217 211 584 Email: [email protected] Website: www.banif.pt

3.17. Indication of the annual compensation paid to the auditor and to other individuals or groups that belong to the same network supported by the company and/or by any group that bears with it a control or group relationship and the percentage of the total amount paid for the following services: a) Statutory audit services; b) Further assurance services; c) Tax advisory services;

If the auditor provides any of the services described in c) and d) above, the means employed to ensure the auditor s independence should be described. For the purposes of this information, the concept of network used is as defined in the European Commission Recommendation no. C (2002) 1873, of 16 May.

Amounts (before VAT) Services € Total % Legal review of accounts 1,024,991.64 72% Other reliability assurance services 235,405.00 17% Tax advisory services 165,200.00 12%

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Total 1,425,596.64 100%

The services included in each category are as follows:

Legal review of accounts This includes the fees for the 2012 tax year, for the legal review of accounts and for the external auditing of the consolidated accounts of Banif Banco Internacional do Funchal, SA and the individual accounts of its subsidiaries.

Other reliability assurance services This includes the fees paid for the services of reporting to the Bank of Portugal (on internal control systems and economic provisions), to CMVM (reporting on financial intermediation procedures) and the sending of letters of comfort on specific issues (such as securitisation operations and the issuance of debt).

Tax advisory services This includes fees charged for technical tax-related consultancy services

Measures taken to ensure the independence of the auditor Ernst & Young has set up an internal control and monitoring system for its policies relating to independence. These take into account both local and international independence standards, threats to independence and their safeguards. This policy lists those services which cannot be provided as they might put independence at risk. All Ernst & Young staff are made aware of these policies via their own intranet.

The monitoring of compliance with such policies on a global basis is carried out by each partner, manager or staff member who must formally acknowledge their awareness and compliance with the rules or any alterations made to these policies. Compulsory training courses on these policies are run periodically.

In concrete terms, the Ernst & Young internal control system incorporates the following mechanisms:

- Deployment, via the intranet, of an updated list of public interest clients and a prior approval mechanism for the partner responsible for potential proposals of additional services to audit clients;

- Prohibition on any Ernst & Young partners or staff members having a financial interest in audit clients. This prohibition extends to the spouses and children (minors) of staff or partners.

- Independence policy and procedure compliance tests as part of the international quality control programme.

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Ernst & Young has also implemented an internal control process that requires the Partner responsible for auditing the group to authorise any entity in the Ernst & Young network to provide services to any entities within the group. The authorisation request must include a description of the work requested and an assessment of its fit with the services allowed under the definition of independence. Additionally, the partner responsible for the audit receives a monthly overview of all projects undertaken by all entities within the group.

In following the established policy and in providing consultancy services, no decisions were taken nor was any part taken in taking decisions in the name of Banif Banco Internacional do Funchal, SA or any of its subsidiaries or associates in any material or other matter.

3.18. Reference to the rotation of the external auditor. The company has no specific policy as regards rotating auditors. The external auditor is nominated in the general meeting, in accordance with the recommendation/proposal made by the audit board.

4. ASSESSMENT OF THE GOVERNANCE MODEL BY THE BOARD OF DIRECTORS

In line with best corporate governance practice, the board of directors carries out regular assessments of the company s governance model. In this domain, the structural initiative undertaken with the support of an external consultant in 2007 resulted in a reconfiguration of the governance model of the Banif Financial Group, approved at the end of that year and which, in its essential elements and duly updated, was presented at the Annual General Meeting on 15 April 2011 to the shareholders of the then Group holding company, Banif - SGPS SA, since incorporated by merger into Banif - Banco Internacional do Funchal SA. The Group s governance model then presented was essentially based on the following pillars: i. The board of directors would remain as the highest executive body in the Group, implementing a more hands-on supervision of business activity and having a more structured internal organisation and operating procedure. ii. The Group companies (including Banif Banco Internacional do Funchal SA) implemented a set of initiatives designed to ensure greater compliance with corporate governance best practices and recommendations; iii. The board of directors of the Group was supported by a Corporate Centre, composed of corporate offices which were small in scale but highly competent. Each office head reported to a member of the board of directors. iv. The integrating role of the corporate offices was reinforced by cross-cutting committees already set up to cover key issues for the Group s competitiveness and risk management. v. This governance model implied a closer relationship between the holding company and the various companies, so that these may act in a concerted manner in implementing cross-cutting strategies.

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These structural pillars were gradually brought into place through a range of initiatives covering the various areas of governance within the Group.

During 2012, the Banif Group underwent several alterations that determined the need to adjust the governance model it had implemented.

At the general meeting of Banif - Banco Internacional do Funchal SA on March 23, the company statutory bodies for the new three-year period 2012/2014 were elected, which led to a change in the composition of these bodies, particularly in the executive bodies.

At the general meeting on 8 October 2012, the decision was taken to approve the merger proposed by the boards of directors of the companies Banif - SGPS, SA and Banif - Banco Internacional do Funchal, SA, dated 29 August 2012 (Merger Project), which envisaged the merger of Banif - SGPS, SA into Banif - Banco Internacional do Funchal, SA (acquiring company), including, inter alia: i) the extinction of Banif - SGPS, SA and the transfer of its rights and obligations to the acquiring company; ii) the Allocation to the Banif - SGPS, SA shareholders of the new shares in the Acquiring Company; iii) As changes envisaged in the Merger Project for the articles of association of the acquiring company; iv) The changes envisaged in the Merger Project for the composition of the company boards of the acquiring company.

As a result of the completion of that merger, following its permanent registration at the Register of Companies on 17 December 2012, the statutes of Banif - Banco Internacional do Funchal SA were amended in order to adapt the company to its new situation as an open company. The composition of the company s board of directors and remuneration committee was also changed and a new Strategic Council was created.

In this context, substantial changes have been made to the corporate centre and the existing governance structure, various units in the Group have been encouraged to share services and structures, as part of a rationalisation and optimisation process that will continue to be implemented throughout 2013 and beyond.

Underlying this step was the fact that the rapid changes that have taken place in recent years, both in terms of the economic situation and in terms of regulatory and governance requirements, have shown the need for a deeper and more structured involvement of the company s corporate bodies. This involvement must be implemented in terms that will allow it to effectively oversee the company s business activities as well as promote concrete initiatives in a range of areas, reflected in a more contribution.

Given the current phase of consolidation of the group s governance model, and the abovementioned developments, the board of directors is of the opinion that the governance framework at Banif Financial Group, although quite naturally subject to development and maturation, continues to be properly suited to the reality within which it operates.

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14 ADDITIONAL DISCLOSURES

1. DISCLOSURES REQUIRED UNDER ARTICLE 447 OF THE COMMERCIAL COMPANIES CODE

Information on shares and bonds required under article 447 of the Commercial Companies Code, and no. 7 of article 14 of CMVM Regulation no. 5/2008, with reference to 31 December 2012, including all share and bond transactions carried out during the period in question.

BOARD OF DIRECTORS

LUÍS FILIPE MARQUES AMADO

He was not a holder, either directly or through any related entities, of any securities issued by Banif Banco Internacional do Funchal, SA (including shares and/or financial instruments related to these) and/or any companies with which this is related by control or by group membership.

During the period in question, he did not transact, either directly or through any related entities, any securities issued by Banif - Banco Internacional do Funchal, SA (including shares and/or financial instruments related to these) and/or any companies with which this is related by control or by group membership.

JORGE HUMBERTO CORREIA TOMÉ

He was holder of 1 share in Banif - Banco Internacional do Funchal (Brasil), SA and 1 share in Banif - Banco de Investimento (Brasil), SA.

DIOGO ANTÓNIO RODRIGUES DA SILVEIRA

During the period in question, he did not transact, either directly or through any related entities, any securities issued by Banif - Banco Internacional do Funchal, SA (including shares and/or

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financial instruments related to these) and/or any companies with which this is related by control or by group membership.

VITOR MANUEL FARINHA NUNES

FN Participações, SGPS, SA, a company he owns, was holder of 1,836,504 shares and 1,820,000 mandatory convertible bonds, in Banif Banco Internacional do Funchal, SA.

NUNO JOSÉ ROQUETTE TEIXEIRA

He was holder of 1 share in Banif - Banco Internacional do Funchal (Brasil), SA and 1 share in Banif - Banco de Investimento (Brasil), SA.

JOÃO PAULO PEREIRA MARQUES DE ALMEIDA

He was holder of 24,807 shares in Banif - Banco Internacional do Funchal, SA.

MANUEL CARLOS DE CARVALHO FERNANDES

Directly, he was holder of 361,388 shares and indirectly (through AFSA, SGPS, SA), he was holder of 6,955,000 shares and 6,955,000 mandatory convertible bonds, in Banif - Banco Internacional do Funchal, SA.

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CARLOS EDUARDO PAIS JORGE He was not a holder, either directly or through any related entities, of any securities issued by Banif Banco Internacional do Funchal, SA (including shares and/or financial instruments related to these) and/or any companies with which this is related by control or by group membership.

JOÃO JOSÉ GONÇALVES DE SOUSA

GONÇALO VAZ GAGO DA CÂMARA DE MEDEIROS BOTELHO

SUPERVISORY BOARD

FERNANDO MÁRIO TEIXEIRA DE ALMEIDA

He was holder of 213,847 shares in Banif Banco Internacional do Funchal, SA.

The company Quinta do Sourinho Agricultura e Turismo, Lda, fully owned by him and by the persons stipulated in paragraphs a) and b) of no. 2 of article 447 of the Commercial Companies Code, was holder of 220,238 shares in Banif - Banco Internacional do Funchal, SA.

During the period in question, he did not transact, either directly or through any related entities, any securities issued by Banif - Banco Internacional do Funchal, SA (including shares and/or

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financial instruments related to these) and/or any companies with which this is related by control or by group membership.

ANTÓNIO ERNESTO NETO DA SILVA

THOMAZ DE MELLO PAES DE VASCONCELLOS

2. TRANSACTIONS IN SHARES OR RELATED FINANCIAL INSTRUMENTS CARRIED OUT BY RENTIPAR FINANCEIRA SGPS, SA, ITS MANAGERS OR PERSONS DIRECTLY RELATED TO THEM

In compliance with the provisions of nos. 6 and 7 of article 14 of CMVM regulation no. 5/2008, details are given below of the transactions in reference to Banif Banco Internacional do Funchal, SA shares or related financial instruments carried out in 2012 by Rentipar Financeira SGPS, SA, its managers or persons directly related to them1.

RENTICAPITAL INVESTIMENTOS FINANCEIROS, SA ( Renticapital ) A company controlled by Rentipar Financeira, SGPS, SA and which has, on its board of directors, directors who are also directors of Rentipar Financeira, SGPS, SA.

Renticapital did not carry out any transactions with shares of Banif Banco Internacional do Funchal, SA or with related financial instruments.

1 This company is considered to have control over Banif Banco Internacional do Funchal, SA, under the terms and for the purposes of article 21 of the Securities Code.

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BOARD OF DIRECTORS OF RENTIPAR FINANCEIRA, SGPS, SA

FERNANDO JOSÉ INVERNO DA PIEDADE

He is holder of 20,082 shares in Banif Banco Internacional do Funchal, SA.

He did not transact, either directly or through any related entities, any shares in Banif Banco Internacional do Funchal, SA or related financial instruments

VICTOR HUGO SIMONS

He is holder of 15,475 shares in Banif Banco Internacional do Funchal, SA.

He did not transact, either directly or through any related entities, any shares in Banif Banco Internacional do Funchal, SA or related financial instruments

JOSÉ MARQUES DE ALMEIDA

He is holder of 1,117,440 shares in Banif Banco Internacional do Funchal, SA.

He did not transact, either directly or through any related entities, any shares in Banif Banco Internacional do Funchal, SA or related financial instruments

MARIA TERESA HENRIQUES DA SILVA MOURA ROQUE DAL FABBRO

She is not a holder of shares in Banif Banco Internacional do Funchal, SA.

She is the executor of the Estate of Comendador Horácio da Silva Roque, which directly owns 808,888 shares in Banif Banco Internacional do Funchal, SA and to which are attributable, under the terms of article 20 of the Securities Code, voting rights referring to a total of 337,037,868 shares in Banif Banco Internacional do Funchal, SA.

She did not transact, either directly or through any related entities, any shares in Banif Banco Internacional do Funchal, SA or related financial instruments

PAULA CRISTINA MOURA ROQUE

She is not a holder of shares in Banif Banco Internacional do Funchal, SA.

447

She did not transact, either directly or through any related entities, any shares in Banif Banco Internacional do Funchal, SA or related financial instruments

SUPERVISORY BOARD OF RENTIPAR FINANCEIRA, SGPS, SA

JOSÉ LUÍS PEREIRA DE MACEDO

He did not transact, either directly or through any related entities, any shares in Banif Banco Internacional do Funchal, SA or related financial instruments

CARLOS ALBERTO DA COSTA MARTINS

He did not transact, either directly or through any related entities, any shares in Banif Banco Internacional do Funchal, SA or related financial instruments

TERESA LUCINDA CAMOESAS CASTELO

She did not transact, either directly or through any related entities, any shares in Banif Banco Internacional do Funchal, SA or related financial instruments

The positions held by members of the board of directors in other companies are detailed in Chapter VII of this report on corporate governance (Point II. 19 of the Corporate Governance Report) as are those of members of the supervisory board (Point II. 23 of the Corporate Governance Report).

Listed below are the details of the shares and bonds in Banif Financial Group companies, which were transacted and/or held during the reporting period by companies in the same group (except for the shares in Banif SGPS, SA, which are detailed in point 3 above, in a separate table).

448

(Amounts in Euros, except where other currencies are given)

Transactions Position 31/12/2012 Securities Operation Date Quantity Amount Quantity Amount Investaçor SGPS, SA 1,183,900 7,595,477.38 Quota Espaço Dez 1 0 Shares in Banif - Banco de 17,000,000 86,878,624.84 Investimento, SA Shares in Banif (Cayman), 26,000,000 17,112,064.18 Shares in Banif Securities 2,108 0 Holding, Ltd Shares in Banif 25,000,000 15,891,457.36 International Bank, Ltd Shares in Banif (Cayman), 120,000 0 Shares in Banif - Banco de 208,853,246 26,607,367.96 Investimento (Brasil), SA Shares in Banif 15,008,874 0.00 International Holdings Shares in Banif Mais, SGPS, 17,500,000 216,741,739.51 Shares in Banif Rent 60,000 0 Shares in Banif Banco Internacional do Funchal 298,676,122 25,801,609.89 (Brasil), SA Shares in Banco Banif Mais, 1,000,000 1,223,847.10 Shares in Banif - 16,000,000 123,743,824.68 Imobiliária, SA Shares in Rentipar Seguros, 12,930,529 72,243,800.49 SGPS, SA Shares in Banco Caboverdiano de Negócios, 465,182 5,129,647.00 SA Shares in Banif Bank Malta 25,500,000.00 25,500,000.00 PLC Shares in Banca Pueyo, SA 9,996,000 34,569,833.20 Banif Holding (Malta) PLC 9,991,998 0 Shares in Inmobiliária 669 2,499,632.58 Habiprede, SA 5,000 1,250,000.00 Preferential Shares: Banif Finance FLT PRP Pref. Entry 22/03/2012 12 12,000 Shares Entry 03/05/2012 10 10,000 Entry 15/05/2012 5 5,000 Entry 04/06/2012 40 40,000 1.244 1.244.000 Banif Finance 2009 USD 29 13,188 Pref. Shares

Non-Resident Bonds:

Banif Finance Sub DEZ 19 Entry 27/01/2012 75,000 75,000 Bonds Exit 30/03/2012 50,000 50,000 Entry 18/05/2012 69,000 69,000 186,000 139,206 Banif Finance Sub DEZ 14 500,000 438,336 Bonds

449

Resident Bonds: Banif 05/15 (ex-Leasing) 6,000,000 6,081,360 Bonds INV.TX VR 2016 Bonds 15,000,000 15,001,224

Rentipar 2008/2012 Bonds Entry 15/03/2012 135,000 135,000

Entry 30/03/2012 5,000 5,000 Exit 25/05/2012 1,455,000 1,455,000 Entry 09/07/2012 2,500 2,500 Entry 11/07/2012 2,500 2,500 Exit 29/08/2012 2,500 2,500 Redemption 28/09/2012 12,480,000 12,480,000 0 0 Açoreana TX VR DEZ 17 Entry 02/01/2012 88,000 88,000 Bonds Entry 13/02/2012 90,000 90,000 Entry 21/06/2012 200,000 200,000 Merger Banif 31/12/2012 950,000 950,000 3,175,000 3,176,873 SGPS, SA Rentipar Seguros 2015 Entry 30/03/2012 5,000,000 5,000,000 Exit 02/04/2012 5,000,000 5,000,000 Merger Banif 31/12/2012 4,000,000 4,000,000 28.500.000 28.710.583 SGPS, SA Banif Banco Inv. Sub. Perp. Entry 22/03/2012 150,000 150,000 Bonds Entry 11/06/2012 434,000 434,000 726.000 648.217 Açoreana Sub. Perp. 30/03/2012 8,000,000 8,000,000 BondsEntry Redemption 31/12/2012 8,000,000 8,000,000 0 0 Rentipar Inv. 2011/13 Entry 12/12/2012 50,000 50,000 50,000 50,000 Open-ended Resident Infrainvest FEIA Entry 30/03/2012 68,647 2,832,100 129,627 4,601,370 Banif ImoPredial Entry 31/01/2012 1,336,728 9,999,995 Entry 28/02/2012 668,297 4,999,998 Entry 31/03/2012 1,002,981 7,499,996 Entry 30/04/2012 603,938 4,499,993 Entry 31/05/2012 268,506 1,999,994 Entry 30/06/2012 1,605,513 11,949,988 Entry 31/07/2012 914,076 6,800,000 Entry 30/09/2012 540,606 3,999,998 6,940,645 48,957,922 Closed-ended Resident Fundo de Capital de Risco 150 145,759 Capven Banif Renda Habitação Entry 31/12/2012 95,180 97,101,873 95,180 97,096,602 Banif Property FEIIF Merger Banif SGPS,31/12/2012 SA 18,765 18,765,000 18,765 18,765,000 SGPS, SA

Banif International Asset Management

TRANSACTIONS Quantity / Nominal Amount SECURITIES at 31/12/2012 Operation Date Quantity Amount Shares in Banif Multifund, 100 USD Ltd

Numberone, SGPS, Lda

TRANSACTIONS Quantity / Amount SECURITIES at 31/12/2012 Operation Date Quantity Amount Shares in Banif Finance, 99.000 / 68.721,38 Ltd. EUR

450

TRANSACTIONS SECURITIES Position Operation Date Quantity Amount Currency 31/12/2012 BANIF 08/18 CX SUB Bonds 0 Sale 28/12/2012 507,000.00 507,000.00 EUR PTBAFOXE0003 CX BCA 2007/2017 Bonds 0 Sale 28/12/2012 612,800.00 585,224.00 EUR PTBCAIXE0004 CX BCA 2007/2017 Bonds 0 Sale 28/12/2012 1,488,250.00 1,488,250.00 EUR PTBCAFXE0007 BANIF FIN FLT DEZ14 Bonds 0 Sale 18/06/2012 650,000.00 542,750.00 EUR XS0208463306 BANIF FIN ACC PRF 07 Shares 0 Sale 20/12/2012 3,661 3,093,545.00 EUR XS0337503154 BANIF FIN ACC PRF 09 Shares 0 Sale 20/12/2012 683 683,000.00 USD XS0433814158 BANIF FIN ACC PRF 09 Shares 0 Sale 20/12/2012 7,173 7,173,000.00 EUR XS0433827994 BANIF FIN ACC PRF 08 Shares 0 Sale 20/12/2012 25,000 20,000,000.00 EUR XS0407145886 BANIF FIN ACC PRF 08 Shares 0 Acquisition 22/06/2012 15,000 15,000,000.00 USD XS0406452929 Acquisition 27/06/2012 20,000 20,000,000.00 USD Sale 20/12/2012 35,000 35,000,000.00 USD BANIF FIN ACC PRF 08 Shares 0 Acquisition 27/06/2012 20,000 20,000,000.00 EUR XS0406452689 Sale 20/12/2012 20,000 20,000,000.00 EUR BANIF FIN 5% USD JAN 14 bonds 0 Subscription 30/07/2012 55,000,000.00 55,000,000.00 USD XS0804318482 Sale 30/07/2012 43,517,000.00 43,517,000.00 USD Sale 31/07/2012 1,556,000.00 1,556,000.00 USD Sale 01/08/2012 2,332,000.00 2,332,000.00 USD Sale 03/08/2012 518,000.00 518,000.00 USD Sale 07/08/2012 631,000.00 631,000.00 USD Sale 08/08/2012 552,000.00 552,000.00 USD Sale 14/08/2012 38,000.00 38,000.00 USD Sale 16/08/2012 193,000.00 193,000.00 USD Sale 21/08/2012 113,000.00 113,000.00 USD Sale 23/08/2012 277,000.00 277,000.00 USD Sale 28/08/2012 350,000.00 350,000.00 USD Sale 01/09/2012 17,000.00 17,000.00 USD Sale 03/09/2012 477,000.00 477,000.00 USD Sale 04/09/2012 317,000.00 317,000.00 USD Sale 06/09/2012 15,000.00 15,000.00 USD Sale 17/09/2012 88,000.00 88,000.00 USD Sale 01/10/2012 101,000.00 101,000.00 USD Sale 03/10/2012 40,000.00 40,000.00 USD Sale 17/10/2012 694,000.00 694,000.00 USD Sale 18/10/2012 140,000.00 140,000.00 USD Sale 23/10/2012 227,000.00 227,000.00 USD Sale 26/10/2012 205,000.00 205,000.00 USD Sale 05/11/2012 55,000.00 55,000.00 USD Sale 13/11/2012 217,000.00 217,000.00 USD Sale 06/12/2012 2,230,000.00 2,230,000.00 USD Sale 28/12/2012 100,000.00 100,000.00 USD

451

BANIF FIN 5.75% EUR JAN 14 0 Subscription 30/07/2012 55,000,000.00 55,000,000.00 EUR bonds XS0804318136 Sale 30/07/2012 39,451,000.00 39,451,000.00 EUR Sale 31/07/2012 3,958,000.00 3,958,000.00 EUR Sale 01/08/2012 1,565,000.00 1,565,000.00 EUR Sale 02/08/2012 196,000.00 196,000.00 EUR Sale 03/08/2012 327,000.00 327,000.00 EUR Sale 06/08/2012 20,000.00 20,000.00 EUR Sale 07/08/2012 204,000.00 204,000.00 EUR Sale 08/08/2012 123,000.00 123,000.00 EUR Sale 09/08/2012 112,000.00 112,000.00 EUR Sale 10/08/2012 60,000.00 60,000.00 EUR Sale 13/08/2012 222,000.00 222,000.00 EUR Sale 14/08/2012 422,000.00 422,000.00 EUR Sale 16/08/2012 138,000.00 138,000.00 EUR Sale 17/08/2012 8,000.00 8,000.00 EUR Sale 21/08/2012 87,000.00 87,000.00 EUR Sale 24/08/2012 40,000.00 40,000.00 EUR Sale 28/08/2012 22,000.00 22,000.00 EUR Sale 30/08/2012 121,000.00 121,000.00 EUR Sale 31/08/2012 100,000.00 100,000.00 EUR Sale 03/09/2012 472,000.00 472,000.00 EUR Sale 04/09/2012 137,000.00 137,000.00 EUR Sale 05/09/2012 93,000.00 93,000.00 EUR Sale 06/09/2012 186,000.00 186,000.00 EUR Sale 07/09/2012 330,000.00 330,000.00 EUR Sale 10/09/2012 290,000.00 290,000.00 EUR Sale 12/09/2012 60,000.00 60,000.00 EUR Sale 17/09/2012 167,000.00 167,000.00 EUR Sale 27/09/2012 10,000.00 10,000.00 EUR Sale 28/09/2012 275,000.00 275,000.00 EUR Sale 01/10/2012 836,000.00 836,000.00 EUR Sale 02/10/2012 320,000.00 320,000.00 EUR Sale 03/10/2012 49,000.00 49,000.00 EUR Sale 04/10/2012 60,000.00 60,000.00 EUR Sale 08/10/2012 150,000.00 150,000.00 EUR Sale 09/10/2012 140,000.00 140,000.00 EUR Sale 10/10/2012 600,000.00 600,000.00 EUR Sale 17/10/2012 125,000.00 125,000.00 EUR Sale 18/10/2012 80,000.00 80,000.00 EUR Sale 19/10/2012 39,000.00 39,000.00 EUR Sale 22/10/2012 811,000.00 811,000.00 EUR Sale 23/10/2012 153,000.00 153,000.00 EUR Sale 24/10/2012 160,000.00 160,000.00 EUR Sale 25/10/2012 16,000.00 16,000.00 EUR Sale 29/10/2012 70,000.00 70,000.00 EUR Sale 31/10/2012 29,000.00 29,000.00 EUR Sale 02/11/2012 100,000.00 100,000.00 EUR Sale 05/11/2012 66,000.00 66,000.00 EUR Sale 06/11/2012 250,000.00 250,000.00 EUR Sale 09/11/2012 150,000.00 150,000.00 EUR Sale 27/11/2012 1,600,000.00 1,600,000.00 EUR BANIF CAYMAN 10,1% 29 DEZ 2014 0 Acquisition 22/06/2012 116,000.00 116,000.00 USD bonds CYM63030200A Exit 29/06/2012 116,000.00 0 USD BANIF CAYMAN 14% DEZ 2018 0 Acquisition 28/06/2012 20,000,000.00 20,000,000.00 USD bonds CYM63040200A Exit 29/06/2012 20,000,000.00 0 USD BANIF CAYMAN 14% DEZ 2014 0 Acquisition 28/06/2012 21,100,000.00 21,100,000.00 USD Bonds CYM63050200A Exit 29/06/2012 21,100,000.00 0 USD BANIF CAYMAN 6.75% 29 DEZ 2014 0 Acquisition 09/04/2012 1,267,000.00 1,267,000.00 USD bonds CYM63060200A Sale 10/04/2012 237,000.00 237,000.00 USD Sale 10/04/2012 115,000.00 115,000.00 USD Sale 10/04/2012 43,000.00 43,000.00 USD Sale 10/04/2012 300,000.00 300,000.00 USD Sale 10/04/2012 63,000.00 63,000.00 USD Sale 16/04/2012 269,000.00 269,000.00 USD Internal 22/06/2012 165,000.00 0 USD Transf. Entry Call Option 29/06/2012 369,000.00 369,000.00 USD

452

Banif International Bank, Ltd (Bahamas) TRANSACTIONS SECURITIES Position Operation Date Quantity Amount Currency 31/12/2012 BANIF SIS 5% USD JAN14 bonds 100,000.00 Acquisition 28-12-012 100,000.00 37,788.27 USD XS0804318482 BANIF CX SUBOR. 2008/2018 bonds 507,000.00 Acquisition 28-12-012 507,000.00 507,000.00 EUR PTBAFOXE0003 BCA CX SUBORD. bonds 2007/2017 612,800.00 Acquisition 28-12-012 612,800.00 585,224.00 EUR PTBCAIXE0004 BCA CX SUBORD. bonds 2006/2016 1,488,250.00 Acquisition 28-12-012 1,488,250.00 1,488,250.00 EUR PTBCAFXE0007 BANIF PRIMUS DEZ14 bonds 5,720,000.00 External Transf. 31/12/2012 5,720,000.00 0.00 USD

Banif Bank (Malta) PLC TRANSACTIONS POSITION 31/12/12 SECURITIES Operation Date Quantity Amount Quant. BANIF INT.FUNC.3,25% MAI12 bonds Final Redemption 08/05/2012 10,000,000 10,000,000.00 0 0 PTBAFPOE0003 BANIF FIN FLT MAI12 BONDS Final Redemption 22/05/2012 4,000,000 4,000,000.00 0 XS0300795746 BONDS 0 BANIF FIN 6% NOV 13 BONDS 271,000 271,000.00 XS0568463367 BANIF FIN 5% NOV 13 bonds 9,196,000 USD 1,564.000 XS0568466030

Banif Finance Ltd TRANSACTIONS POSITION 31/12/12 SECURITIES Operation Date Quantity Amount Quant. Amount

Banif SFE 09 FIT PRP bonds 10,000 10,000,000.00

BIB 6,5% PERP bonds 10,000 10,000,000.00

Banif Mais - SGPS, SA TRANSACTIONS POSITION 31/12/12 SECURITIES Operation Date Quantity Amount Quant. Amount

Shares in Banco Banif Mais, SA 100,000,000 100,000,000.00

Sale 02/04/2012 200,000 1,998,196.85 0

6,234.97 3

Shares in TCC Investments Luxembourg SARL 100 12,500.00

Banco Banif Mais, SA TRANSACTIONS POSITION 31/12/12 SECURITIES Operation Date Quantity Amount Quant. Amount

Shares in Banif Plus Bank Zártkoruen Mukodo Reszvenytársaság 3.000.000.000 HUF 1,500,000

BMORE 4 Class E bonds Total Amortisation 20/05/2012 757,224.60 757,224.60 0 BMORE 5 Class B bonds Partial Amortisation 20/08/2012 3,261,309.45 3,261,309.45 Total Amortisation 20/11/2012 5,162,503.61 5,162,503.61 0

Shares in TCC Investments Luxemburg SARL 900 112,500.00 Banco Mais, SA 3Y Floating Rate Government Guaranteed Notes 250 25.000.000,00, Banif Leasing, SA 2005 / 2015 Subordinated Treasury Bonds 6,000 6,000,000.00 Atlantes Finance 3 Class C bonds Total Amortisation 01/04/2012 1 6,125,173.00 0 Atlantes Finance 4 Class D bonds 69.02 6,901,526.75

Acquisition 02/04/2012 1,998,196.85 200,000

Sale 29/06/2012 1,998,196.85 0 200,000

Atlantes Finance 4 Class B bonds 11,257,539.77 113 Atlantes Finance 4 Class C bonds 206 20,574,124.40

Atlantes Finance 5 Class B bonds Financial Investment 16/07/2012 165 16,500,000.00 16,500,000.00 165 Atlantes Finance 5 Class C bonds Financial Investment 16/07/2012 41 4,100,000.00 41 4,100,000.00

453

TCC Investments Luxembourg, SARL TRANSACTIONS POSITION 31/12/12 SECURITIES Operation Date Quantity Amount Quant. Amount BMORE 4 Class D bonds Partial Amortisation 20/02/2012 786,693.18 Partial Amortisation 21/05/2012 889,923.31 Partial Amortisation 20/08/2012 347,409.87

Partial Amortisation 20/11/2012 304,542.25 556,000.00 11.12 Amortisation BMORE 4 Classe E bonds 20/05/2012 300,052.71 300,052.71 Total 0 BMORE 5 Class C bonds Partial Amortisation 20/08/2012 217,420.63 217,420.63

Partial Amortisation 20/11/2012 344,166.91 344,166.91 2,188,412.46 2,188,412.46

Banif - Banco de Investimento, SA

Transactions Quantity / nominal Security amount at 31/12/12 Type of Transaction Date Quantity Amount

Banif Gestão de Activos, SA 400,000

Banif Açor Pensões, SA Acquisition 02-03-12 10.000 106.800 209,000

Banif Capital, SA 150,000

Gamma STC, SA 250,000

Banif International Asset USD 50.000 Acquisition 01/03/2012 250 435 USD 435 Shares in Banif SGPS Acquisition 26/01/2012 5,000 1,490 Disposal 07/02/2012 5,000 1,595 Acquisition 08/02/2012 25,000 8,745 Disposal 08/02/2012 25,000 9,115 Disposal 09/02/2012 20,000 6,836 Acquisition 10/02/2012 20,000 6,678 Acquisition 12/03/2012 1,413 439 Disposal 13/03/2012 1,413 445 Acquisition 16/03/2012 5,000 1,525 Acquisition 11/04/2012 3,622 906 Disposal 11/04/2012 3,622 942 Acquisition 18/04/2012 1,000 190 Disposal 19/04/2012 1,000 200 Acquisition 01/06/2012 5,000 500 Disposal 02/07/2012 23,000 2,760 Disposal 04/07/2012 10,000 1,200 Disposal 07/09/2012 2,500 475 Disposal 10/09/2012 2,500 475 Disposal 14/09/2012 15,000 3,150 Disposal 17/09/2012 10,800 2,276 Disposal 18/09/2012 10,000 2,100 Disposal 19/09/2012 10,000 2,100 Disposal 21/09/2012 20,000 4,100 Disposal 25/09/2012 15,173 2,857 Disposal 26/09/2012 3,173 562 Disposal 27/09/2012 5,000 890 Acquisition 04/10/2012 821,951 132,334 Disposal 08/10/2012 5,000 920 Merger by 20/12/2012 821,951 132,334 Merger by acquisition (withdrawal) 20/12/2012 30,000 13,547 0

454

Shares in Banif SA Merger by 20/12/2012 821,951 132,334 Merger by 20/12/2012 30,000 13,547 851.951 Banif Imobiliária, SA 6,400,000 Euro Invest 12/29/49 110,000 Banif Finance 2004 F/R PERP Acquisition 24/04/2012 5,166,000 1,394,820 Disposal 24/04/2012 5,166,000 1,394,820 Acquisition 09/05/2012 655,000 176,850 Disposal 22/05/2012 655,000 176,850 0 Banif Finance 2006 F/R PERP S- Acquisition 19/03/2012 550,000 247,500 Disposal 28/03/2012 550,000 247,500 0 Banif Banco de Investimento Acquisition 05/01/2012 16,000 8,000 Acquisition 09/01/2012 40,000 20,000 Acquisition 13/01/2012 190,000 95,000 Acquisition 16/01/2012 100,000 50,000 2,465,000 Banif SA 2008-2018 10,000 Banif Invest. Brasil 03/26/12 Disposal 31/01/2012 200,000 199,381

Redemption 1,415,000 1,415,000 0 26/03/2012 Banif SGPS 2009-2012 Redemption 08/05/2012 48,186,000 48,186,000 0 Acquisition 18/04/2012 50,000,000 47,075,000 Disposal 18/04/2012 50,000,000 47,075,000 0

3. DISCLOSURE REQUIRED UNDER ARTICLE 448 OF THE COMMERCIAL COMPANIES CODE

In compliance with article 448 no. 4 of the Commercial Companies Code, and in accordance with company records and the information provided, it is hereby disclosed that, at the end date for the period to which this annual report relates:

Rentipar Financeira, SGPS, SA was holder of more than half but less than two thirds of the share capital of Banif Banco Internacional do Funchal, SA; Auto-Industrial, Investimentos e Participações SGPS, SA, was holder of more than one tenth but less than one third of the share capital of Banif Banco Internacional do Funchal, SA.

4. INFORMATION ON OWN SHARES UNDER ARTICLE 324 NO. 2 OF THE COMMERCIAL COMPANIES CODE

During 2012 Banif Banco Internacional do Funchal, SA did not enter into any transactions regarding its own shares, and it does not directly hold any own shares.

Indirectly, through its subsidiary Banif - Banco de Investimento, SA, it owned on 31 December 2012 851,951 shares in Banif, SA, a position resulting from conversion of Banif SGPS, SA shares into Banif SA, occurring on 20/12/2012, following the merger by acquisition of Banif SGPS, SA into Banif - Banco Internacional do Funchal, SA.

5. QUALIFYING HOLDINGS

Under the terms of article 8, no. 1, paragraph b) of CMVM Regulation no. 5/2008, it is hereby stated that, at the reference date of 31 December 2012, the shareholders who were owners of qualifying holdings at the end of the reporting period in question, in accordance with article 20 of the Securities Code and the information held on record at the company, were as follows:

455

ESTATE OF HORÁCIO DA SILVA ROQUE.2 On 31 December 2012, the estate held 808,888 shares in Banif Banco Internacional do Funchal, SA, equal to 0.142% of the share capital and voting rights. Under article 20 of the Securities Code, the estate also held the voting rights for the following shares:

To a total of 337,037,868 shares, equal to 59.128% of the share capital and voting rights of do Banif Banco Internacional do Funchal, SA.

AUTO-INDUSTRIAL, INVESTIMENTOS E PARTICIPAÇÕES, SGPS, SA VAT no. 505 025 752, with registered offices at Av. Fontes Pereira de Melo, no. 14, in Lisbon, was holder of 76,377,857 shares, equal to 13.400% of the share capital and voting rights of the Banif Banco Internacional do Funchal, SA.

2 The executor of the estate of Horácio da Silva Roque is Maria Teresa Henriques da Silva Moura Roque Dal Fabbro, daughter of Comendador Horácio Roque.

456

JOAQUIM FERREIRA DE AMORIM Domiciled at Rua da Corticeira, 34, 4536-902, Mozelos, taxpayer no. 174.303.050, who holds the voting rights for the following shares:

6. FSF AND EBA RECOMMENDATIONS ON TRANSPARENCY OF INFORMATION AND ASSET VALUATION

In its circular no. 58/2009/DSB of 5/8/2009, the Bank of Portugal reiterated the need for continued compliance with recommendations from the Financial Stability Forum (FSF) and the European Banking Authority (EBA), an entity officially set up on 1 January 2011 that took over the duties and responsibilities of the Committee of European Banking Supervisors (CEBS), in regard to transparency of information and asset valuation, taking into account the principle of proportionality outlined in Circular no. 46/08/DSBDR, of 15/7/2008, and Circular no. 97/2008/DSB, of 3/12/2008.

For the purpose of the present disclosures, we consider relevant consolidated information from the Group that, in general, is already disclosed throughout the Management Report or in 1.6 Notes to the Financial Statements in the chapter 12. FINANCIAL STATEMENTS (hereinafter Notes), for which reason, when this is the case, a references will be made to those parts.

I. Business Model

1. Description of the business model

The group s business model is described in detail in Chapter 6. BANIF MANAGEMENT REPORT. The changes over the year in the group s main business areas (operational segments) are presented in 5. REPORT BY SEGMENT in the Notes.

2. Description of strategies and objectives

The group s strategy and objectives are described in detail in Chapter 6. BANIF MANAGEMENT REPORT. The strategies and objectives specifically relating to securitization operations and structured products are described, respectively, in 28. DEBT SECURITIES IN ISSUE and 25. OTHER FINANCIAL LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS , respectively, in the Notes.

3. Description of the importance of activities and their contribution to the business

The Group s activities and their contribution to the business are described in detail in Chapter 6. BANIF MANAGEMENT REPORT.

457

4. Description of the type of activities engaged in, including a description of the instruments used, the way these work and the qualifying criteria that products/investments have to meet.

The type of activities engaged in, the instruments and the products/investments are described in detail in Chapter 6. BANIF MANAGEMENT REPORT.

5. Description of the objective and the extent of the involvement of the institution (i.e. commitments and obligations) in each activity engaged in.

The objectives and involvement of the institution in each activity are described in detail in Chapter 6. BANIF MANAGEMENT REPORT.

II. Risks and Risk Management

6. Description of the nature and extent of the risks incurred in relation to the activities engaged in and instruments used.

The nature and extent of the risks incurred in relation to the activities engaged in and instruments used by the Group are described in detail in Chapter 6. BANIF MANAGEMENT REPORT.

7. Description of risk management practices (including, in particular, liquidity risk in the current economic situation) of relevance to the business activities, of any identified weaknesses and of any corrective measures taken to address these.

The risk management practices are described in detail in RISK MANAGEMENT in Chapter 06. BANIF MANAGEMENT REPORT.

III. Impact of the period of financial instability on the results

8. Qualitative and quantitative description of results, with a focus on losses (where applicable) and the impact of write-downs on results.

See the next point.

9. Breakdown of the write-downs/losses by product type and instruments affected by the period of instability, in particular commercial mortgage-backed securities (CMBS), residential mortgage-backed securities (RMBS), collateralised debt obligations (CDO), asset-backed securities (ABS).

The table below shows the amounts recognised in the results (potential and realised) and in reserves, for each product type, namely: commercial mortgage-backed securities (CMBS), residential mortgage-backed securities (RMBS), collateralised debt obligations (CDO) and asset-backed securities (ABS), for the reporting periods in question.

458

(amounts in euros) 31/12/11 31/12/12 Product Type Potential Gain/Loss Actual Gain/Loss Reserves Potential Gain/Loss Actual Gain/Loss Reserves ABS 0 492,974 0 0 0 0 CDO 0 -501,000 0 0 0 0 CLO 829,628 1,046,929 607,447 -840,500 0 -25,297 CMBS -704,065 13,096 154,500 -1,382,046 0 -2,350 RMBS 14,719 305,671 14,909 0 -195,496 0 Grand Total 140,282 1,357,669 776,856 -2,222,546 -195,496 -27,648

The losses recorded following the crisis that affected the sovereign debt of various European countries is described in Note 50. SPECIAL CONDITIONS CONCERNING SOVEREIGN RISK IN PORTUGAL, GREECE, IRELAND, SPAIN, ITALY AND CYPRUS in the Notes.

10. Description of the causes of the impact and the factors involved.

The losses in the North American subprime mortgage market were the main trigger for the crisis which began in the summer of 2007. This led to a significant widening of spreads and a generalised reduction in market liquidity. Heavy losses were sustained by complex asset structures in particular. Investor risk aversion grew substantially and manifested itself in an entrenched reluctance to trade in any type of structured instruments and market liquidity evaporated, thus increasing the pressure on market prices. The collapse of Lehman Brothers in September 2008 further aggravated the situation, triggering an unprecedented crisis in the financial sector, with a particular impact on liquidity. Lending spreads worsened and investor risk aversion reached historic levels. The impact was particularly severe on financial sector and more complex assets, including structured products or securitised assets.

One of the main impacts of the turmoil in the financial markets on the Banif Financial Group came, therefore, from the market risk associated with exposure to structured products, which were all re-valued and marked to market by the first half of 2008. This asset class suffered sharp significant depreciation, with a consequent negative impact on the group s results and shareholders equity.

The first years post-crisis

In 2009, there was a strong general recovery in the structured product market, particularly in the CDO segment. Although the first four months of the year were relatively quiet, these products traded at high volumes in the secondary market for the year as a whole, with spreads falling sharply from May. Default rates for CLOs, which had been increasing steadily since 2008 and in the first few months of 2009, began to drop off gradually. Mirroring the impressive rally during the year, especially in the second half, most securitised assets achieved a much higher return in 2009 than investments in investment-grade bonds did.

2010 was also marked by an across-the-board recovery for certain classes of securitised assets, in both absolute and relative terms, although this recovery was markedly different for different product types. For American consumer financing ABS, the markets returned to almost pre-crisis levels in terms of spreads and new issues. RMBS prices grew strongly, and

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CMBS, CLO and European ABS managed a mid-level performance. Overall, the helpful and copious liquidity injection policy practiced by central banks contributed to the fact that risk- heavy assets managed to generate positive returns. Securitised assets (asset-backed securities or ABS, in a broad sense), however, performed even better in terms of overall profitability, coming in above those offered by Investment Grade (IG) and even High Yield (HY) credit. The first half of the year was marked by a continuation of the positive trend that had begun in 2009, leading to the narrowing of spreads for structured products and a corresponding price increase. This market improvement was also seen in the growth of new transactions placed with third party investors by international issuers, with the amount issued in March 2010 the highest since December 2007.

In the second half of 2010, ABS spreads remained constant and relatively stable, except for the narrowing of CMBS spreads, in contrast with the volatility seen in the corporate bond and CDS markets. However, this stability merely reflected the low liquidity and inactivity in the secondary market. At the end of the year, RMBS spreads in some Euro Zone periphery countries with larger budget deficits hit higher levels than those reached after the collapse of Lehman Brothers in September 2008. As a result, the securitisation market remained at a low ebb in 2010, a situation which was reflected in the reduced issue volumes in the ABS market, which fell to their lowest level since 2003.

The year 2011

For the third consecutive year, since the financial crisis began to make itself felt in the autumn of 2008, risk levels remained high in the Euro Zone. The most prevalent of these was the risk of the more peripheral economies contaminating the more developed ones with, once again, the focus being on the intersection of the financial and sovereign sectors. In 2011, the structured products market continued the gradual recovery it has managed since the abrupt fall of 2008-2009, as did the other markets, but with signs of increased volatility and under negative economic pressures. The volume of new issues totalled somewhat less than in the year before, although the number of transactions was higher than in 2010.

Macroeconomic events brought negative pressure to bear on the securitised products markets in 2011, with the year being marked by far higher volatility than had been expected at its outset. Globally, the prices for these assets trended downwards, although there were upward spikes in some months, particularly between February and April. The group took advantage of these higher prices to dispose of large quantities of the assets in its portfolio, as part of its overall deleveraging strategy.

In the ABS market, both primary and secondary activity was quiet in 2011. This limited the bank s ability to refinance through the issuing of instruments of this type. This was particularly true of those institutions whose ratings fell below investment grade level (as in Greece and Portugal). Far fewer ABS issues, which banks normally hold in their portfolios to be used as collateral for refinancing operations within the Eurosystem, took place during the year, primarily as a result of the ECB tightening up its eligibility criteria. Regulatory impositions on the banks, which penalised the risk-weighting of structured products, also

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brought these securities under pressure. The sector was faced with the negative effects of a regulatory regime that was both harsh and somewhat uncertain, specifically as regards the implementation of the Volker rule and Basel III legislation on risk retention and capital requirements. This situation affected liquidity, volatility and the relative pegging of the value of the various classes of securitised assets, something that was particularly evident among the securities bearing the greatest credit risk.

RMBS spreads continued to vary significantly across the different countries in the Euro Zone. Those countries in severe economic recession or dealing with the aftermath of the real estate bubble, found themselves doing business at high spreads, while those countries with a more favourably positioned economy found spreads coming down. As a result, the residential sector faced a period of over-correction, mirroring a generalised increase in default indicators provoked by the economic slowdown (in some cases this was actually recessive) and the increase in unemployment rates, particularly in Europe.

The erosion of liquidity in the market, together with the deleveraging strategies adopted by the banks, placed strong constraints on the behaviour of these markets, for example, through the forced sale of real estate which impacted negatively on CMBS. In doctrinal terms, the base behaviour of the commercial real estate market is seen as following in the footsteps of the economy, in the sense that economic slowdown and recession are negatively mirrored by a lowering of rental and occupancy rates. Thus, the increasingly negative macroeconomic outlook for Euro Zone countries throughout 2011 is reflected in a widening of CMBS spreads. The year was also marked by various CMBS restructurings, with servicers finding themselves with a larger and larger pool of problematic loans to deal with, often handled through an extension of terms and deadlines.

For the future, keeping ABS spreads at low levels is a precondition for recovery of the securitisation market as a source of funding. It is important to note that the higher volumes of new issues are to be found in those markets where spreads are the lowest, i.e. ABS collateralised by automobile financing and RMBS issued by banks with high ratings.

2012 in analysis

The first half of 2012 was marked by the debt crisis in Europe which spread to Spain and Italy, which saw lending spreads widen considerably, and in the case of Spain a specific plan was drawn up to fund the banking sector.

Against a background of high risk aversion, following the sovereign debt crisis in Europe and the consequent radical change in the perception of investors with regard to assets considered risk-free, there was a flight-to-quality that led Treasuries and Bunds, as refuge assets, to renew historical minimums in terms of yields. In this context, securitisation products, particularly subprime RMBS and agency MBS performed well in the first half of the year. This was the result, on the one hand, of low yields on Treasuries which were passed on to mortgage loan rates, providing stimulus for the US economy and the residential market. On the other hand, the erosion of yields from Treasuries and Bunds led to an increase in the demand for higher-yield assets, although few alternatives were available, which was reflected

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in the increase in the price of ABS. Indeed, in some classes of these assets, spreads reached levels comparable to those of 2007 and, across the board, spreads narrowed significantly in 2012, to levels of between 30% and 70%.

In global terms, since the appearance of the subprime crisis, the positive performance of this class of asset in recent times has made it possible to offset losses from previous years. In 2010, there was an inversion in the potential results from the Banif Group s structured products portfolio, particularly in reserves, which were recorded at positive levels for the first time since the post-Lehmann crisis began.

In 2011, as part of its strategy to deleverage the balance sheet, the Banif Group disposed of a significant number of the securitised positions held in its portfolio, particularly during the first half of the year. These operations resulted, in overall terms, in potential gains being materialised as actual gains. In 2012, with the ABS portfolio values now significantly reduced, sales continued and at the end of the year there was only one outstanding security in its portfolio. In addition, as a relevant negative fact, during the year there was an event of default with a CMBS held in the portfolio of the Banif Group with an outstanding nominal value of 1.7 million Euros and a balance value of 1.6 million Euros. It was fully provisioned, for which reason end-of-year exposure in this respect was null.

At 31 December 2012, net exposure to securitised assets was limited to just one security (CDO) with a nominal value of 5 million Euros.

11. Comparison of i) impacts between (relevant) periods and of ii) income statement balances before and after the impact of the period of instability.

The comparison of impacts across (relevant) periods is detailed in point 9 of this annexe. The balance sheet and income statement items in which these impacts can be measured are described in detail in 8. FINANCIAL ASSETS HELD FOR TRADING , 9. OTHER FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS AND 10. FINANCIAL ASSETS AVAILABLE FOR SALE , in the Notes.

12. Breakdown of write-downs into realised and unrealised amounts.

This information is given in point 9 of this annexe.

13. Description of the influence of the financial instability on the company s share price.

The movements in the Banif Banco Internacional do Funchal, SA share price and the events that affected its performance are described in point 3.8 Description of the changes undergone by the issuers share price of the chapter 13. CORPORATE GOVERNANCE REPORT .

14. Disclosure of maximum loss risk and description of how the institution s situation could be affected by a further downturn or by a market recovery.

At 31 December 2012, the portfolio of structured products of the Banif Group, which is based at Banif - Banco de Investimento (BBI), in Portugal, amounted to only 2.75 million Euros, measured in terms of market value, reflecting a reduction of 60% compared with 6.8 million

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Euros in the previous year. This corresponds to an immaterial value in terms of the consolidated net assets of the Banif Group and equity. In parallel, the nominal value of the portfolio fell again in 2012 from 8.5 million Euros to 6.7 million Euros with continued sales of this type of security. Nevertheless, it should be noted that mass sell-off of these assets occurred during the first half of 2011 as part of the bank s strategy of deleveraging investment , while the amortisations and reimbursements of securities, made early in some cases, demonstrated the credit quality of the original portfolio.

In retrospective terms, and from the spike in June 2007 when the bank s exposure to structured products reached around 114 million Euros at both nominal values and market prices, the trajectory over the last four years has not just been downwards but increasingly so and has reached the point today where these products have a residual market value of less than 2.75 million Euros and a nominal value of 5 million Euros (excluding the security in default, which is fully provisioned, for which reason balance sheet exposure is null). In the first half of 2012, the protection purchase (Credit Default Swap) that had previously existed to cover the credit risk of these assets in the portfolio was no longer outstanding.

It is to be noted that, as there is no longer a market for structured products, mirrored in the critical lack of liquidity, and given the alterations to IAS 39 issued by IASB in October 2008 - Amendments to IAS 39 Financial Instruments: Recognition - Banif Investment Bank (BBI) reclassified most of the structured products to the LaR (Loans and Receivables) portfolio, given the objective of keeping these in the portfolio for the foreseeable future. In terms of accounting procedure, they are treated just like a loans portfolio.

Thus, there has been a significant change in terms of the impact of this portfolio, as the group stopped being affected by price variations in these securities and, therefore, by market risk.

The credit risk remains, however, in the sense of potential losses arising from defaults on the securities. Notwithstanding the accounting treatment, the allocation of capital to the Banif Financial Group s structured product portfolio has been based on prudent capital requirements for credit risk hedging, specific to this type of asset, in accordance with current Basel II rules. This represents a more conservative position than the allocation of capital based on capital requirements for market risk hedging and is in line with the FSF requirements published in the April 2008 report.

In June 2010, the Basel Committee announced certain amendments to the Basel II Accord. One of these involved securitisation positions held in the trading portfolio being treated in a similar way to other portfolios. In other words, the committee required the adoption of a uniform treatment for the allocation of capital to securitisation positions. The adoption of this measure did not have any impact on the allocation of the capital of positions held in portfolio by the Banif Group. In the same way, the new rules which increase the risk weighting to be applied to positions that may be defined as re-securitisations also had no impact on the consumption of capital, given that none of the assets in the portfolio match this definition.

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15. Disclosure of the impact of credit spread movements in the institution s own liabilities on results, and of the methods used to determine this impact.

This information is included in note 46. FAIR VALUE OF FINANCIAL INSTRUMENTS in the notes.

IV. Levels and types of exposure affected by the period of instability

16. Nominal amount (or amortised cost) and fair values of outstanding exposures.

Details of the outstanding nominal amounts and fair value for outstanding positions in the instruments identified above.

(amounts in euros) 31/12/11 31/12/12 Product Type Market Value Nominal Value Market Value Nominal Value ABS 0 0 0 0 CDO 0 0 0 0 CLO 3,590,500 5,000,000 2,750,000 5,000,000 CMBS 1,419,295 1,725,797 0 1,721,051 RMBS 1,829,375 1,767,440 0 0 Grand Total 6,839,170 8,493,237 2,750,000 6,721,051

The exposures to sovereign debt of various European countries are described in 50. SPECIAL CONDITIONS CONCERNING SOVEREIGN RISK IN PORTUGAL, GREECE, IRELAND, SPAIN, ITALY AND CYPRUS in the Notes.

17. Information on credit risk protection (e.g. through credit default swaps) and the effect of this on existing exposures.

At 31 December 2012 there was no outstanding purchase of protection for the instruments under consideration.

18. Detailed disclosure of exposure.

At 31 December 2012, the group s exposure to structured products, lodged at BBI, stood at just 2.75 million Euros at market values, corresponding to a single security (CLO) held in portfolio, following significant sales of securities from the group s own portfolio, as part of the bank s overall strategy of deleveraging its balance sheet. As already mentioned, during the year there was default on a security, a CMBS the underlying assets of which were buildings situated mainly in Holland and also in Belgium. It is fully provisioned for which reason net exposure on the Group s balance sheet is null.

In terms of seniority of the positions held, as a rule, the group invested in the more senior tranches. From the initial portfolio, the group held just one first loss position exposure, with a market value of 1.4 million Euros, which has since been sold. At the end of 2012 the only position held corresponded to the most senior tranche.

The group s significant sell-off of securitised assets in the first half of 2011 resulted naturally in a lower exposure to risk. However, it had a pernicious effect in terms of the ratings distribution across the portfolio as it now stands, as the asset base has been reduced and so the relative weight of these products is considerably higher. In the first half of 2011 alone, 19 securities/tranches were sold, and two more in 2012, meaning that only on position

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corresponding to securitisation assets remains in the group s portfolio. As such, a comparison cannot be made of the change in the portfolio s ratings over time.

At 31 December 2012, there was only one securitisation outstanding in the portfolio, a CDO with a BB rating, in other words Non-Investment Grade, but which had maintained its rating from the previous year. However, in comparison with the year before, only one of the securities was downgraded to default (D), in a period marked by string ratings downgrades for various risk classes. Notable amongst these was the deterioration in sovereign ratings, which had a knock-on effect on securities ratings, particularly RMBS.

All exposures were acquired in the primary market, with the exception of the positions regarding the Banif group s own securitisations, such as Azor Mortgage and Atlantes Mortgage, which are cancelled out in the group s consolidated position (consolidation is done with the SPEs/securitisation vehicles). In terms of vintage analysis, most of the portfolio was acquired by 2005, with no new acquisitions being made after 2007, the year in which the sub-prime crisis was triggered (except for the group s own securitisation assets). The oldest tranche, from 2003, was reimbursed in 2010.

It is to be noted that all the positions acquired in 2007, at the height of the market bubble, were sold in the first half of the year. The only security outstanding held in the portfolio corresponds to the 2005 vintage, with a WAL of 7.6 years.

18.1 BREAKDOWN OF THE PORTFOLIO BY TYPE/SECTOR

Product Market Value Type Amount Weight CLO 2,750,000 100.0% CMBS 0 0.0% TOTAL 2,750,000 100.0%

Amounts in Euros.

18.2 BREAKDOWN OF THE PORTFOLIO S MARKET VALUE BY ISSUE RATING

Ratings CLO CMBS TOTAL Weight BB 2,750,000 2,750,000 100.0% D 0 0 0.0% TOTAL 2,750,000 0 2,750,000 1.0

Amounts in Euros. Average ratings of the issues attributed by Moody s, S&P and Fitch.

18.3 BREAKDOWN OF THE PORTFOLIO S MARKET VALUE BY REGION/COUNTRY OF ORIGIN

Region / CLO CMBS TOTAL Weight Country of Origin Europe 2,750,000 2,750,000 100.0% Netherlands 0 0 0.0% TOTAL 2,750,000 0 2,750,000 100.0%

Amounts in Euros.

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18.4 BREAKDOWN OF THE PORTFOLIO S MARKET VALUE BY VINTAGE

Vintage CLO CMBS TOTAL Weight

2005 2,750,000 0 2,750,000 100.0% TOTAL 2,750,000 0 2,750,000 100.0%

Amounts in Euros.

18.5 AVERAGE WAL AND DISTRIBUTION BY BUCKETS

WAL Mean Buckets INDT. >= 5 years TOTAL (years)

CLO 2,750,000 2,750,000 7.6 CMBS 0 0 --- TOTAL 0 2,750,000 2,750,000 7.6 Weight 0.0% 100.0% 100.0% --

Amounts in Euros. Weighted Average Life (WAL) of the structures is based on the information supplied in investors reports and Bloomberg.

19. Movements of exposures between relevant reporting periods and the underlying reasons for these (sales, write-downs, purchases etc.).

The movements occurring during the reference periods were as follows:

(amounts in euros) Product Type Transaction Type 31/12/11 31/12/12 ABS REIMBURSEMENT 4,500,000 SALE 6,425,500 CDO SALE 1,260,000 CLO SALE 14,778,100 CMBS SALE 8,073,000 RMBS SALE 6,763,750 2,437,300

20. Explanation of exposures (including vehicles and, in this case, the related activities) that have not been consolidated (or that have been recognised in the course of the crisis) and the related reasons.

There were no exposures of this type.

21. Exposure to monoline insurers and quality of insured assets.

Not applicable. The only exposure of this type matured in July 2010.

V. Accounting policies and valuation methods

22. Classification of the transactions and structured products for accounting purposes and the related accounting treatment.

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The policy on classification of financial instruments is described in 2.10 financial instruments in the Notes.

23. Consolidation of Special Purpose Entities (SPE) and other vehicles and a reconciliation of these to the structured products affected by the period of instability.

The SPE and other vehicles included in the consolidation perimeter are detailed in 4. GROUP COMPANIES in the Notes.

24. Detailed disclosures on the fair values of financial instruments.

The criteria for determining the fair value of financial instruments and the other information requested are described in 2.10 financial instruments and 46. FAIR VALUE OF FINANCIAL INSTRUMENTS in the Notes.

25. Description of the modelling techniques used for the valuation of financial instruments.

Information included in the previous point.

VI. Other relevant disclosure issues

26. Description of disclosure policies and principles used in disclosures and financial reporting.

The policies, principles and procedures for disclosure of financial information are described in points 3.15 and 3.16. in the chapter 13. CORPORATE GOVERNANCE REPORT .

7. ACTIVITIES BY NON-EXECUTIVE DIRECTORS

In 2012, most of the non-executive directors participated assiduously at Board of Directors

Consequently, they followed up and actively contributed to the various strategic decisions emphasis on the merger by incorporation of Banif SGPS, SA into new role as the top company in the Banif Financial Group. It must also be pointed out that the non- executive directors closely (pursuant to Law no. 63-A/2008 of November 24 and Ordinance no. 150-A/2012, of May 17), insofar as the main discussions and decisions about this matter took place at the Board of Directors meetings.

Non-executive directors also carefully monitored the activities carried out by the Banif SA control services, in particular risk, auditing and compliance, whose supervisors, according to the internal regulations and in line with the best practices, report to the Board of Directors, without loss to also reporting to the Executive Committee through the director of the respective division.

In fulfilling their duties, non-executive directors did not face any constraint.

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