How to CASH MANAGEMENT in Brazil

How to CASH MANAGEMENT in Brazil American Chamber of Commerce for Brazil AMCHAM International Affairs Department Brazil, 2010

FINANCE ACKNOWLEDGMENTS Santander has built its own business model, which is supported by the following pillars: a strong focus on retail banking through the largest international network of branches in international banking; geographical diversification; prudence in risk management; cuttingedge technology at the service of commercial efficiency; capital discipline; and the best management team. The aim of this model is to offer the greatest added value to its 90 million customers, 3 million shareholders and more than 170.000 employees, in the whole world. In Brazil, Santander Group is the third largest private bank. The bank has over 10 million current accounts, 2.000 Branches, 1.500 mini-branches and 18.000 ATMs. Fabio C. Barbosa President The American Chamber of Commerce for Brazil, being the largest Amcham outside the United States is constantly serving its members by building bridges for Brazilian businesses worldwide. Our foreign investment attraction efforts have also been a key leading point for Amcham. The How To Series is part of this initiative; with the support of some of our corporate members we are putting together strategic information on the most various aspects of doing business in Brazil. Over the last year the Brazilian economy has clearly demonstrated an outstanding economic performance. The country s business environment as well as foreign investment numbers are also very positive. The International Monetary Fund estimates that crisis apart; the Brazilian economy should grow on a 3.5% basis. It is now more than ever, a strategic time for businesses opportunities in Brazil, we welcome you and hope that the information you are about to read serves you best. Gabriel Rico Executive Director

How to CASH MANAGEMENT in Brazil

FINANCE CONTENTS BRAZIL COUNTRY DETAILS...06 BRAZILIAN CENTRAL BANK...06 BRAZILIAN PAYMENT / CLEARING SYSTEM...07 CASH MANAGEMENT IN BRAZIL...08 CASH MANAGEMENT - COLLECTION METHODS...10 CASH MANAGEMENT - PAYMENT METHODS...13 ELECTRONIC BANKING SYSTEM...15 ABOUT OUR SPONSOR...16

6 How to CASH MANAGEMENT in Brazil BRAZIL COUNTRY DETAILS Population: 187 million Currency: Real (BRL) Capital: Brasília Language: Portuguese Central Bank: Banco Central do Brasil - BACEN Main financial centers: São Paulo and Rio de Janeiro Brazil s Central Bank plays leading role in monitoring and regulating banking infrastructure. All foreign investments transactions are under the direct control of Central Bank registration in order to determine the amounts available for dividend remittance, capital repatriation and withholding taxes calculation. The domestic transactions (debits & credits) are allowed only in Brazilian Reais (BRL) to operate on the foreign exchange, all incoming financial transactions must be converted to Brazilian Real. This is a country regulation where Central Bank prohibits banks from opening accounts in other currencies and beyond the country of residence. BRAZILIAN CENTRAL BANK

FINANCE 7 BRAZILIAN CLEARING / PAYMENT SYSTEM The local banks in Brazil offers the widest range of payment options and the main payment mechanisms to fulfill it s different payment needs: supplier payment, payroll and taxes services. The Brazilian Payment System was modified in 2002 in order to reduce the interbank settlement risk (credit and liquidity). The local clearing houses in the brazilian market are:

8 How to CASH MANAGEMENT in Brazil CIP Câmara Interbancária de Pagamento Private clearing house owned by 48 banks, provides real-time clearing and settlement of interbank payments. COMPE Centralizadora da Compensação de Cheques e Outros Papéis Regulated by Central Bank and operated by the Federal Bank. Clearing Schedules: - Checks if the place is part of the national clearing system, available in 48 hours (R$299.99 and below) or 24 hours (R$300 and higher); if it is not part of the system, available in 5 to 7 days. - Low value electronic transfers (DOCs) and collection documents (bloqueto) available in the same day. STR Sistema de Transferência de Reservas Real-time gross settlement system (RTGS), regulated by the Central Bank. Critical payments in terms of value or urgency can be fully settled on a real-time gross basis, reducing systemic risk in the financial sector. Banks settle payments by making use of their reserves at the Central Bank, while clearinghouses use special settlement accounts registered at Central Bank. Settlements can be: (a) payments ordered by banks or banking clients; (b) securities gross settlements; (c) net settlements from clearinghouses. TECBAN Private clearing and settlement system, used for electronic fund transfers (credit and debit orders) and ATM transactions. CASH MANAGEMENT IN BRAZIL

FINANCE 9 Cash management is defined in Brazil as the management of cash balances and funds flow. In this context, the cash manager aims to manage the cash position, keeping the costs arising from cash flows as low as possible, while minimizing interest costs and maximizing interest income. The following sub-tasks are distinguished in this context: Liquidity management: cash balances management and funds investments; Cash flow management; or Working capital management. Liquidity Management Liquidity management can be divided into cash balances management and funds management. Cash balances management refers to the day-to-day management of the current s accounts. Every day the cash manager seeks to control the company s cash balances in such a manner that the interest result on these balance is optimized. Funds management refers to the management of the company s cash positions. In contrast with cash balances management, this involves cash positions that exist for a longer period of time (for instance longer than a week). Cash Flow Management Organization of commercial payments is another important cash management task. Cash flow management aims to reduce the number of payments, cutting the transfer costs per payment and effectively managing the outgoing payments while accelerating the income payments. Another task for the cash manager is to support accounts payable and accounts receivable administration. Working Capital Management In some companies, working capital management is also one of the cash manager s tasks. Working Capital is the difference between current assets (cash and quickly realizable assets, including investments) and current liabilities (liabilities that are repayable within one year). The size and composition of working capital largely determines the company s liquidity. Working Capital management breaks down into: Accounts receivable management; Accounts payable management; and Stock management. Important considerations for the cash management are: how quickly do customers pay their bills? How long do stocks remain on the balance sheet? How long can the company wait before paying its suppliers? Some of these activities can be delegated to other specialists or departments. A separate department can, for instance, be set up under the direction of a credit manager to manage accounts payable. Stock management is usually entrusted to the production department. However, the cash manager will always keep close track of all variables that influence cash flows. This is natural considering the company s cash positions depends largely on the quality of its working capital management. Account Services Current Accounts The banks in Brazil offers local currency current accounts, disposal accounts, time deposits, with no minimum balance requirements. The conditions for a current account in Brazil are:

10 How to CASH MANAGEMENT in Brazil For companies legally established in Brazil, with local representation; Only allowed in local currency (Brazilian Real, represented by R$), except for air, cargo, tourism, insurance, power, oil and gas companies, under very specific situations; Banks are not allowed to deal with multi-currency accounts; Pre-negotiated overdraft facilities are available; and Neither netting nor interest compensation cash pooling are allowed. Non-Resident accounts: although regulated by law, banks in Brazil do not usually provide non-resident accounts. Statements Electronic Statements with local specific layout. Additionaly some banks are prepared to send the MT-940 information to any SWIFT address on a daily basis. CASH MANAGEMENT COLLECTION METHODS Collections The Brazilian market officers several products and solutions for the company needs. With it, the company can provide convenience to it s payees, receive payments when the payee doesn t have an invoice, adopts identified deposit solutions, claim securities and receive overdue payments. The most popular collection method in Brazil is the Boleto. It s nationwide clearable bar-encoded deposit slip. It is usually issued by the bank, based on a manual or computer-generated collections list, delivered physical or electronically by the client. The Boleto is sent to the payor, who can use it to pay the amount owed through any bank or even by electronic tools, since clearing is nationwide. It assures that the funds will be credited to the beneficiary s central account. The Information is available in T+1. All information needed for reconciliation is in the barcode.

FINANCE 11 Types of boletos a) Registered Collection for companies demands strict control over its collection and needs rigorous rules for claiming unpaid securities. According to a collection file sent by client, the bank is able to register the invoices in its system, print and distribute the boletos (deposit slips) to client s customers. You can have additional services: Up to the due date, client can pay the boletos at any branch of any bank; Post dated boletos must be paid only at issuer bank; Under Internet it is possible to reprint post dated boletos; A return file with detailed information will be provided to the client; or Client can also send through the collection file instructions of penalty interest, prompt payment discount and automatic public notary. b) Non Registered Collection for companies have a number of receivables and there is no need for security claims. It works based on file transfer return which allows the identifications of the performed payments. In this kind of collection, the Bank manages the settlements and your company is responsible for managing the process of conciliation. Boleto overdue If the drawee for some reason was unable to pay the boleto on the due date, or he had a problem to read it, he can retrieve and print out the boleto by accessing the issuer bank internet portal. Other types of receivables Identified deposits If the company has a close relationship with it s business partners and performs advance sash sales, Identified deposit is the ideal product which also applies to branches, regional units and commercial representatives to perform transfers of large amount; The banks can provide client s customers with an extensive branch network where direct deposits into client s collection accounts can be made; Specific codes can be created to provide at the client with an appropriate information; and The information is available via internet banking on D-0, credit on D+1, return file on D+1.

12 How to CASH MANAGEMENT in Brazil Check Custody The custody service seeks to offer a better security for post dated checks of Client, because the checks are maintained in a secure place and deposited on an agreed date, with this, the company reduces operational costs and can control in an efficient manner your collection flow. Main Characteristics Delivery of checks to the Bank can be done by the company or by a specialist collection company. The company can send instructions usually (prolonging the due date or exclusion) up to 72 hours before the deposit date (through the Branch). The checks to be kept in custody should have a due date of 2-3 working days. The checks can be classified in 2 custody types: - Traditional custody: which means the checks after being cleared, are credited into the current account; and - Guaranteed custody: which means the checks after being cleared, end a loan /financing operation. Client can electronically capture the checks before sending them to the Bank and in the case of loss can be used for electronic settlement. Information about checks in custody and returned can be made easily by the Santander Internet Banking. Automatic debit This service allows Client receive the owed values through automatic debit from the current account of their clients (previously authorized). The debit information to be made is sent by the Company through file transfer. The automatic debit process can only be started after the client takes the authorization. Main Advantages Cost reduction. By eliminating manual processes, issue and transit of documents. Easy and Fast. All information of authorizations, debits and possible cancellations are sent by file transfer. Coverage. This allows debits to be made in any Bank branch, independently of the operating area of the Company. Debit information should be sent at least 5 (five days) before their effective start date. Available Information - This generates a return file, identifying if each debit was made or not, with the motives regarding refusal. Direct debit is not a local practice.

FINANCE 13 CASH MANAGEMENT PAYMENTS METHODS Supplier s Payments A product that provides an automated payment system, making ready payments to suppliers, reducing the operational load in the accounts payable area and gives better security in making payments. The use of Internet Banking also allows the management of your future payment flow (scheduled electronic payments). The types of payments are: Book Transfer - only for suppliers who have an account with a same bank in Brazil. Credit is made on-line; Electronic Funds Transfer: - DOC (ach): for suppliers which operates with other banks and can receive their credit through Bank clearing. Used for transfers of values less than R$ 3,000.00; and - TED (wire): for suppliers who have accounts with other banks and need to receive their credit in reserve for values larger than R$ 3,000.00. Bloqueto Bank payment slip: through the input of a barcode it is possible to make bank slip payments electronically at any bank; Payment order: payment method aimed at making available, in the branch chosen by the client, the supplier s resources so it can withdraw it directly; Utilities: watter, heat, gas; Standard Cut-off Time - Branches: - Payments are accepted from 10 AM to 4 PM (local time); - File Transfer: Payments are accepted from 7 AM to 6 PM* (local time); - Internet Banking Payments are accepted from 7 AM to 7 PM* (local time); and * Except TED: File Transfer until 3 PM. Payroll The Payroll solution seeks to meet the many needs of the Human Resources areas of companies, covering salary and/or benefit payments and income information. Salary Payment It s an automatic electronic salary payment with file manager. This service allows the company to make, by debt account, its employees payments. Benefits Improve security for employees and for the company. Speed up the process and make easier to manage the payroll. Bank can offer other value added product and services. Tax Payments Some banks in Brazil are authorized to receive several types of taxes such as DARF [Document for the Receipt of Collection of Federal Income], DARF Simples, GPS [Social Security Form], GUIAS DE FGTS [Government Severance Indemnity Fund for Employees Form]. These payments can be made in two distinct ways: Through Internet Banking using single transactions; or Through the Supplier s Payment Agreement.

14 How to CASH MANAGEMENT in Brazil In both cases, the payment slips are available when the payment is made, they can be printed through Internet Banking. It is worth commenting that they have legal validity with the inspecting bodies. When paying through supplier s payments product, your company can count on the same resources of the referred agreement, such as: Files returned daily; Payment Report; or Authorization through Internet Banking. Import Tax Payment Through Siscomex (Integrated Foreign Trade System) We can make available automated payments of IMPORT TAXES and IPI [Industrialized Product Tax], through SISCOMEX, using accounts/convention, specifically for this service provision. In this case, Client registers and authorizes their Customs Broker so they can directly debit the account to pay the taxes. The bank passes on the information to the Federal Revenue Service about the payment of the referred taxes. This information is then sent to the SISCOMEX system, which immediately releases the merchandise in the respective part of the Customs. DDA Authorized Direct Debit It s a new Brazilian product. It s an integrated system for electronic delivery and settlement, operated by CIP (clearing house). It will centralize all the financial information between who want to receive (for a service done or for a product sold-payee) and who has to pay (payer). Will allow banks to offer a new service for clients. It s not a direct debit - It s an Electronic Billing Presentment and Payment.

FINANCE 15 Cross-border Payments In Brazil there is no free flow of hard currencies. All international payments must be previously registered with the local Central Bank. These transactions have an FX contract and are supported by specific documentation. Usually these transactions are highly taxed. ELECTRONIC BANKING SYSTEM Internet Banking was specially developed to provide convenience, agility and practicality to the company. With Internet Banking, Client can access all accounts of its companies; perform investments, payments, transfers, etc. All files exported and imported by Internet Banking are recognized by ERP systems. Nevertheless, Brazil has many other peer to peer solutions that are directly integrated to ERP. The core modules are: Current Account: verification of balances, statements, future entries, TEDs statements, etc; Payments and Transfers: DOCs, TEDs, transfers between accounts, taxes, utilities accounts, boletos etc; Investments: investment and redemption in savings account, funds, CDB/RDB/DRA, besides balances, statements and consolidated position; Automatic Debit: inclusion, exclusion, maintenance of accounts and temporary suspension of debits; and Collection: verification of portfolio and complete maintenance of instruments, besides sending individual or instructions in lot. Web platform consists in systems that work through browser and navigation systems. It uses internet as a manner to traffic its information, online information. Every access and data transfer is safely performed by HTTPS, so data can traffic more safely, making difficult any malicious intervention on information.

16 How to CASH MANAGEMENT in Brazil ABOUT OUR SPONSOR In 2008, Santander became the third largest bank in the world in terms of profits, and the seventh in stock market capitalisation. In 2008, the Group earned ordinary attributable profit of 8,876 billion, 9% more than in 2007, excluding extraordinary income.

FINANCE 17 Geographical Diversification One of the Group s defining features is its international scope, reflected in the geographical diversification of its businesses. Santander develops its business in three core areas: Continental Europe - The main commercial units are: the Santander Network, with 2,933 branches, Banesto (1.915 branches) in Spain; Santander Totta in Portugal, with 770 branches, and Santander Consumer Finance, which is between the leading entities in consumer finance in: Spain, Germany, Italy, and Nordic countries; The United Kingdom - Following the acquisition of Alliance & Leicester and Bradford & Bingley s branch network and retail deposits in 2008, Santander has become the third largest bank in the country in terms of deposits, with a market share of 10%, 1,303 branches in total, and 25 million customers. In 2008, it doubled its number of retail banking outlets; and Latin America - Santander is the largest financial franchise in the region, with 6,089 branches, and holds a position of leadership in economies with the highest potential, such as Brazil, Mexico, Chile and Argentina. In Brazil, following the integration of Banco Real, Grupo Santander Brazil secured its position as the third largest private bank in the country, with 3,551 branches and 22 million customers.

18 How to CASH MANAGEMENT in Brazil In 2008, the Santander Group achieved another important milestone with the acquisition of the US bank Sovereign, with strong presence in the retail banking market in the north east of the country with 747 branches. The Bank also has divisions that operate on a global scale: Santander Global Banking & Markets, Santander Asset Management, Santander Insurance, Global Private Banking, and Santander Cards. Business Model Santander has built its own business model, which is supported by the following pillars: a strong focus on retail banking through the largest international network of branches (over 14,000, including Sovereign) in international banking; geographical diversification; prudence in risk management; cutting-edge technology at the service of commercial efficiency; capital discipline; and the best management team. The aim of this model is to offer the greatest added value to its 90 million customers, 3 million shareholders and 170,961 employees. Santander is also committed to society in all its operational countries. Its main focus in terms of corporate social responsibility is Santander Universities, which has signed over 700 agreements of cooperation so far, with universities around the world. Santander Value Proposition Santander has the largest retail banking infrastructure in Latin America. Strongest collection capabilities: electronic collections, paperbased collections, cards, direct debit, pick up services, etc. Complete payment solutions: all types of domestic and international suppliers payments, but also the widest range of tax payment and Payroll services. Local services, regional delivery and global relationship. Relationship Model allows for resource allocation and mobilization at Global, Regional and Local levels. A highly experienced team of implementation and client service professionals for both local and regional management. Supply Chain Finance solutions: range of payables and receivables financing options, like Factoring, Confirming, etc.

FINANCE 19 SANTANDER IN BRAZIL Santander is uniquely positioned in Brazil combining strong local presence with a full global network. - 2.000 Branches - 18.000 ATMs - 10,2 million current accounts - 54.000 employees - Maintains relationship with over 1.000 of the largest group corporation Major presence in Brazil through Banco Santander and Banco Real. Focus on Wholesale Banking and Consumer & Commercial Clients, providing solutions that integrate the value chain of its clients. Santander in Brazil is the largest private bank by number of mini-branches. Santander presence in the Southeast region and in large cities covers 77% of Brazil s GDP.

20 How to CASH MANAGEMENT in Brazil Products and Services offered by Santander, Brazil Local Contacts Grupo Santander, Brasil Leonardo Ribeiro Tel: 55 11 3353 0878 leonardo.ribeiro@santander.com.br Alexandre Madrid Tel.: 55 11 3553 0880 alexandre.madrid@santander.com.br Charleen Baumgart Tel.: 55 11 3553 0890 charleen.baumgart@santander.com.br Mario Parra Tel.: 55 11 3012 6644 mario.parra@santander.com.br

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