Corporate Governance

According to the Resolution No. 4.557/17, the National Monetary Council (CVM), has defined credit risk as the possibility of losses associated to the failure of the borrower or its counterparty to their respective financial obligations agreed on, the devaluation of the credit agreement due to the deterioration in the borrower‘s risk rating, reduction in profit or remuneration, the benefits granted in renegotiation and cost recovery.

The process of Banco Industrial's Credit Risk Management is, basically, conducted by Compliance & Risk's internal structure, counting on the support and collaboration of the Departments of processing, control and accounting of operations portfolios (Back Offices of Wholesale, Retail, International Section/ Exchange and Financial / Derivatives credit operations), prepared by Compliance Sectoral Agents and by the Compliance head itself.

The area of Risk & Compliance is the main responsible for the Credit Risk Management, it uses an automated system capable of ensuring the identification, assessment and mitigation of risks.

The company’s units of the Industrial of Conglomerate in Brazil must maintain in an orderly documented and adequately the structure established to control credit risk. These controls allow periodic evaluations of the risk positions, in accordance with current regulations and the Credit Committee.

IV.1 - Board and Executives Directors

Approve and review annually, the institutional policy of credit risk, as well as establishing the guidelines for the management of the risks and capital.

IV.2 - Chief Risk Officer (CRO)

Responsible for supporting the Board of Directors in the performance of its activities related to risk and capital management, as well as responding to Risks issues, ensuring compliance with internal and external regulation, mitigating events that may threaten Banco Industrial do Brasil.

IV.3 - Credit Risk Committee

Analyze the macroeconomic scenarios for the national and international sectors, be aware of the managerial reports issued periodically by the Compliance area to the Board about the performance of risk management as a result of policies and strategies, and determine appropriate action adjustment and ensure compliance with Policy Management Credit Risk and effectiveness of their processes.

IV.4 - Area of Compliance and Risk Management

Deliberate on the propositions of credit risk management; guarantee on the credit limits control; ensure compliance for the methodology and measurement tools; elaborate scenarios, management reports and "Stress test" periodically; report informations and analysis to the board, as well as the conclusion and actions to be taken; monitor the risks of companies of the Industrial conglomerate in relation to its limits and monitor the excess risk in relation to its limits.

IV.5 - Credit Analysis

Responsible to comply with the Institutional Policy for Credit Risk Management, disseminate the importance of Credit Risk Management in its area, acting as agent of acculturation through the dissemination of responsibilities and commitments, to ensure the existence of comprehensive, adequate, reliable, timely and accessible information on Credit Risk, systematically analyze the processes with the objective of identifying existing or potential risks and propose mitigation action plans, guarantee the adherence of the form and content of the operation to its constituent instruments approval, contracting and associated guarantees and management of delinquents, as well as the recovery of exposures characterized as problematic assets.

IV.6 - Internal Audit

Develops independent and periodic checks on the process of Market Risk Management.

The control of liquidity risk is the dimensioning of the amount of resources necessary to settle the obligations in stressful situations during turbulence, which consists, predominantly, of high quality liquid assets.

The structure of Liquidity Risk management is under the responsibility of the Compliance and Risks area. The Markets Area has the function of operating the strategies defined by the Market Risk and Liquidity Committee, and must remain informed about the operational limits in force.

In the activities related to the daily cash management process, the area must identify and evaluate the framework within the current operational limits, in order to mitigate the exposure to Liquidity Risk.

VI.1 - Board and Executives Directors

Approve and review annually, the institutional policy of liquidity risk, as well as establishing the guidelines for the management of the risks and capital.

VI.2 - Chief Risk Officer (CRO)

Responsible for supporting the Board of Directors in the performance of its activities related to risk and capital management, as well as responding to Risks issues, ensuring compliance with internal and external regulation, mitigating events that may threaten Banco Industrial do Brasil.

VI.3 - Liquidity Risk Committee

Responsible, among other duties, for establishing guidelines to be observed by Banco Industrial do Brasil, regarding processes, risks and operational limits in force, promoting the development of environment and structure of controls of Market Risk and Liquidity Risk.

VI.4 - Area of Compliance and Risk Management

Responsible for deliberating on proposals for liquidity risk management, evaluating the limits in force and informing the Committee when they are extrapolated or there is a possibility of dislocation, in the face of the "stress" scenarios, to prepare cash flow management reports with short and long term horizon, subjecting these "stress" scenarios periodically, reporting to the Market Risk and Liquidity Committee the excess risk in relation to the established limits, as well as the conclusions and recommended measures.

VI.5 - Market Area

Measure and evaluate the liquidity risks involved in controlling the cash, price the maintenance of minimum cash, and evaluate the maturity flow of operations on a daily basis, which may influence compliance with the obligations and limits established.

VI.6 - Internal Audit

Develops independent and periodic checks on the process of Market Risk Management.

According to the Resolution No. 4.557/17, the National Monetary Council (CVM) has defined market risk as potential loss occurrence from market-value fluctuation on a position held by a financial Institution, including in it operation risks subject to exchange rate variation from interest rate, share prices, and product prices (commodities).

The level of risk exposition is controlled by using analysis tools based on methodologies highly used by most financial market institutions, both national and international. The Bank uses an specific and controlled electronic system, from a renowned development company, to measure, monitor, and control market risk exposition, as well as generating analysis reports opportunely.

The area of Compliance is responsible for the coordination of the management process. The methodology description and others reference tools used by the Institution can be found publicized by internal communication channels.

IV.1 - Board and Executives Directors

Approve and review annually, the institutional policy of market risk, as well as establishing the guidelines for the management of the risks and capital.

VI.2 - Chief Risk Officer (CRO)

Responsible for supporting the Board of Directors in the performance of its activities related to risk and capital management, as well as responding to Risks issues, ensuring compliance with internal and external regulation, mitigating events that may threaten Banco Industrial do Brasil.

IV.3 - Market Risk Committee

Among other activities, responsible on defining market risk policies, macroeconomic, national and international scenario analysis, and limit review - e.g. V@R.

IV.4 - Area of Compliance and Risk Management

Among other activities, the Area answers for calculate and analyze market position risk, by means of specific methodology; assessing active limits and informing to the Market Risk Committee when they be exceeded; monitoring Hedge operation effectiveness and identifying risks linked to new activities and products.

IV.5 - Management Information Area

Responsible for carrying out the verification of the market to market of the operations, daily disclosure of the GAP of the exposures so that the Compliance and Risks area monitors the Bank's positions.

IV.6 - Market Area

Responsible for daily monitoring of the institution's GAP positions, as well as reporting to the various sectors involved in the management and monitoring of market risk, the excess risk in relation to the limits established as well as the conclusions and measures adopted.

IV.6 - Internal Audit

Develops independent and periodic checks on the process of Credit Risk Management.

According to the Resolution No. 4.557/17, the National Monetary Council (CVM) has defined Operational Risk as potential loss occurrence from fault, deficiency or inadequacy on internal processes, persons, and systems, or from external events;.

Such definition includes legal risk linked to inadequacy or deficiency regarding executed contracts by the institution, as well as sanctions considering breach of legal provisions and third party damage redress, from activities performed by institution.

The area of Compliance is responsible to centralize all operational risk management regarding Directorship and Management Board.

The process also count on effective participation of several bank areas by its Managers and Compliance Officers, furthering recognition, assessment, monitoring, risk mitigation and control, incurred loss record, creating action plan to correct faults and result communication opportunely.

The activities are performed through the Internal Compliance structure, with responsibility for the implementation of processes, formalization of policies and procedures, and development of management reports. Resolution No. 4,557 / 17 of the Central Bank defines the types of events as being the following:

• Internal Fraud;
• External Fraud;
• Labor claims and poor workplace safety;
• Inadequate practices regarding customers, products and services;
• Damages to physical assets owned or in use by the institution;
• Events that cause interruption of the institution's activities;
• Failures in Information Technology Systems;
• Failure to Execute, Meet Deadlines, and Manage Activities.

The System operates through the use of the CRSA (Control Risk Self-Assessment) methodology, applied to analyze processes, identify risks related to processes, calculate the impact of risks, identify controls and identify residual risks.

In addition, Banco Industrial do Brasil takes into account the Basel recommendations based on the 25 principles developed by the Banking Supervision Committee, the COBIT - Control Objectives for Information and Related Information, an international practice for implementation of IT process targeting and monitoring, the Internal Control systems required by CMN Resolution 2,554 / 98 and the COSO - Committee of Sponsoring Organizations methodology.

VI.1 - Board and Executives Directors

Approve and review annually, the Operational Risk Management Policy, as well as expresses about the actions to be implemented to timely correction of any deficiencies pointed out in the Operational Risk Management Reports.

VI.2 - Chief Risk Officer (CRO)

Responsible for supporting the Board of Directors in the performance of its activities related to risk and capital management, as well as responding to Risks issues, ensuring compliance with internal and external regulation, mitigating events that may threaten Banco Industrial do Brasil.

VI.3 - Internal Control Committees

There are two Committees established: The first consists of Board members and Compliance staff and has to assimilate Internal and External Audit work results, as well as control and operational risk processes, assessing it and fixing other measures, if necessary.

The second consists of Compliance Staff, Compliance Officers and Internal Audit representatives, aiming to discuss and improve work plan exhaustion, internal and external audit processes, reports, and results, before rising information to the Board Committee to assess it.

VI.4 - Area of Compliance and Risks Management

Responsible for managing, coordinating, implementing, and reviewing processes; formalizing policies and procedures, as well as management reports within one year to abide by Directorship and Management Board.

VI.5 - Local Managers and Compliance Officers

Have effective participation to further recognition, assessment, monitoring, risk control and mitigation, incurred loss record, creating action plan to correct faults, and result communication opportunely.

VI.6 - Internal Audit

Develops independent and periodic checks on the process of Operational Risk Management.

Socioenvironmental risks are defined as the possibility of occurrence of losses for financial institutions, due to social and environmental damages. Socioenvironmental risks, which permeate projects, have a very high potential for losses due to delays and work stoppages, negative publicity, threats of cancellation of licenses and unforeseen expenses. At the same time, damage to a company's reputation can considerably outweigh the immediate costs of the project.

All financial institutions are exposed to environmental or social risks, through their clients, whether they are credit borrowers or resource investors. The lack of management of these risks can lead to image losses, legal losses and reduced revenues.

In line with the efforts made by national and international organizations, the Conglomerate understands that the best way to contribute to Social and Environmental Risk is to establish policies, standards and procedures, ensuring that business is carried out in accordance with the guidelines established by both top management and to regulations issued by official bodies, mainly by the Central Bank. In perfect alignment with its internal governance process, and in order to manage the direct and indirect impacts and prevent these aspects from negatively influencing corporate performance and reputation, Banco Industrial has adopted some fronts in its lending process, in addition to continuous monitoring of its customers, regardless of size and operating conditions.

VI.1 - Board and Executives Directors

Approve and review annually, the institutional policy of market risk, as well as establishing the guidelines for the management of the risks and capital.

VI.2 - Chief Risk Officer (CRO)

Responsible for supporting the Board of Directors in the performance of its activities related to risk and capital management, as well as responding to Risks issues, ensuring compliance with internal and external regulation, mitigating events that may threaten Banco Industrial do Brasil.

VI.3 - Area of Compliance and Risks Management

Analysis and research with regulatory agencies (social or environmental aspects), involvement in news reports in the media related to social and environmental crimes, send the restrictions identified for analysis and justification of the company responsible, as well as to its Board of Executive Officers, to record the identified financial losses , related to Socio-environmental events.

VI.4 - Back Office - AOC

Provide the Social-Environmental Assessment questionnaire to the client. If there are any positive mark, the registration area forwards the form to the Compliance area to carry out the analysis of the response sent and ensure that there is no risk in social or environmental aspects.

VI.5 - Credit Analysis

Send weekly to the area of ??Compliance the list of possible clients to carry out the consultation on Socio- environmental Risk, analyze the restrictive information contained in an internal report, weighting the actual size of the information found, resubmit the Credit Proposition (s) to the Committee, in case the restrictive information detected in the Reports is considered relevant and risky to the Bank's image vis-à-vis the public, from the point of view of social and environmental policies and procedures in the business relationship with its clients.

VI.6 - Investor Relation Area

Prepare the annual Sustainable Management Report, required by the multilateral banks.

VI.7 - Internal Audit

Develops independent and periodic checks on the process of Socio-Environmental Risk Management.

According to the Resolution No. 4.557/17, the National Monetary Council (CVM) has defined Capital Risk as the continuous process of monitoring and controlling capital held by the institution, assessing the need for capital to face the risks to which the institution is exposed, and planning goals and capital requirements, taking into account the Bank's strategic objectives.

The Capital Management structure is basically under the responsibility of the Compliance and Risks area, adopting a forward-looking approach, anticipating the need for capital arising from possible changes in market conditions. A statutory director responsible for Capital Management represents the companies that are part of the Brazilian Industrial conglomerate before the regulatory body.

VI.1 - Board and Executives Directors

Approve and review annually, the institutional policy of capital risk, as well as establishing the guidelines for the management of the risks and capital.

VI.2 - Chief Risk Officer (CRO)

Responsible for supporting the Board of Directors in the performance of its activities related to risk and capital management, as well as responding to Risks issues, ensuring compliance with internal and external regulation, mitigating events that may threaten Banco Industrial do Brasil.

VI.3 - Area of Compliance and Risks Management

Deliberate and submit capital management proposals for approval, analyze the national and international macroeconomic scenario and the performance sectors, issue periodic management reports on capital adequacy for the Board of Directors and the Board of Directors and carry out simulations of severe events, and extreme market conditions (stress tests).

VI.4 - Internal Audit

Develops independent and periodic checks on the process of Capital Risk Management.