2013 Annual Report

6 Annual Report 2013 MESSAGE FROM THE CHAIRMAN OF THE BOARD OF DIRECTORS 64-1 THE QUALITY OF THE CREDIT PORTFOLIO HAS IMPROVED; NPL RATIO IS DOWN AND THE NET SPREAD IS BACK IN THE GROWTH PATH, BENEFITTING BOTH CLIENTS AND OUR BUSINESS ☐ ☐ Initially let me highlight the changes we made in the format of our Annual Report, in order to make it more streamlined and explanative with infographics on both the sector and Bank activities. These changes reflect a number of suggestions we received and we hope this will increase reader interest in a more dynamic, explanatory reading. The modest scenario for the economic activity in 2013, with lower credit growth rates and lower spreads led all players in the local financial sector to adapt their strategy while striving for increased operational efficiency and improving the quality of their asset portfolio. The continued grow of interest rates, the devaluation of the Brazilian real and the potential spike in inflation rates were offset by low unemployment rates, the stable consumer market and the gradual improvement in the external environment. Aware of the transformations in the economic environment, for us at Santander Brazil was a key year in search of two objectives: adjusting our structure to the new realities in the local financial industry while becoming a bank with a focus on client satisfaction. We were already working on this topic since the previous year and our transition was reinforced in the second semester of 2013 when our new CEO Jesús Zabalza took office - he was the former Head of Grupo Santander for Latin America and brought to us his international experience to complete the transaction initiated by the successful tenure of his predecessor Marcial Portela. In order to meet the provisions of the tenure as defined by shareholders, including strong, recurring and profitable growth rates, the Board of Directors and the Executive Board are committed to the execution of sustainable change that improves performance and results. The Executive Board implemented a new business focus, targeting the improvement in the credit portfolio while increasing efficiency, productivity and building client loyalty. The results of the two last quarters in 2013 show the benefits of this model, which is more sustainable both for the Bank and the clients. An example of this is that with the strong growth of lower credit cost products, the quality of our credit portfolio improved, NPL ratio dropped and the net spread resumed its growth path, even after a material reduction in the gross spread, while benefitting both clients and the business. Upon the implementation of this new business focus, we at Santander Brazil have adapted to a new economic/ financial environment, and prepared to capture opportunities in every segment we operate in, in such a way as to enlarge our operations and compensating our shareholders in a strong manner. In 2013 the capital optimization plan, the dividend payout and the improvements in corporate governance were well-accepted by shareholders. Not only did we announce over R$ 2.4 billion payout in both dividends and interest on equity for year 2013 but we also structured a bonus payment plan and the grouping of common and preferred shares (completed in 2014), which meets minority shareholder aspirations while eliminating the trading in cents for these shares, increasing their liquidity and reducing transaction costs. In 2013, the Board of Directors made a special effort to implement shares in connection with the 2012 assessment while it conducted a new assessment via independent consultants for continuous improvement going forward. In line with our mission, the Board of Directors worked with the Executive Board to review and approve the long-term strategy, with key focus on the strong execution of the priorities set out for improving the quality of the credit portfolio; boosting efficiency; client loyalty; and productivity. All of this in addition to the renewed action in employee training and availability of growth opportunities for all. We have confidence in Brazil while relying on a long-term strategy that prioritizes selective growth, a close, long-lasting relationship with shareholders and the alignment with the economic and social development agenda of the country, to take place via aspects such as a sustainable credit expansion model, strong support to entrepreneurship and considerable investment in infrastructure projects. The long-term vision aligned with the priorities for the country is strongly associated to our commitment with sustainability, under the assumption of the joint continued development of our business and the country. We are aware that this is a time of deep transformation, whether social (with a strong class mobility in the last few years), or environmental, considering the implications of climate changes. We also know that a bank such as Santander Brazil, with over 29 million clients in every segment, has both the tools and the duty of contributing with the development of the area. This is our agenda and our main challenge in the years to come: capturing opportunities aligned with the phase this country is going through while delivering the best outcomes to our shareholders and the society at large. Celso Clemente Giacometti Chairman of the Board São Paulo, March 2014. 7

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