Risk Factors

An investment in securities involves a high degree of risk. All investors should carefully consider the following factors in addition to the other information in this investor relations website before investing in Paraná Banco‘s securities. In general, investing in the securities of issuers in emerging market countries, such as Brazil, involves a higher degree of risk than investing in the securities of U.S. issuers or issuers in other countries with highly developed capital markets. Paraná Banco‘s business, financial condition, results of operations and prospects may be materially adversely affected by any of these risks.

The risks briefly described below are those that the Company currently believes most likely may materially affect its performance

1) Risks Relating to the Company and to the brazilian banking industry

  • Paycheck deductible loans, Paraná Banco‘s main activity, is subject to changes in the laws and regulations or their interpretation by the courts or policies of public entities related to paycheck deduction
  • The increasingly competitive banking environment in Brazil and growing competition in the paycheck deductible loan segment could adversely affect the Company
  • Interest rate increases by the Central Bank could adversely affect the Company
  • Changes in existing banking laws and regulations or the imposition of new laws and regulations may negatively affect Paraná Banco
  • Limits on the maximum interest rates applicable to the entities with which the Company has entered into paycheck deductible loan agreements could adversely affect Paraná Banco
  • Any decrease in the credit quality of the public sector entities as well as any failures in the internal data processing system of these public sector entities could result in increased losses on Paraná Banco‘s paycheck deductible loan portfolio

Any decrease in the credit quality of the companies that Paraná Banco granted credit could result in increased losses on Paraná Banco’s SME loan portfolio.

  • Mismatches between its loan portfolio and its sources of funds could adversely affect the Company and its capacity to expand Paraná Banco’s loans
  • The loss of members of its management, or its inability to attract and maintain additional personnel may have a material adverse effect on the Company.
  • A downgrading in Paraná Banco’s credit rating may increase its costs of funding.
  • The Company’s liquidity and financial condition may be adversely affected as a consequence of future intervention by the Central Bank in another Brazilian financial institution.

2) Risks Relating to the insurance Company and the brazilian insurance industry

  • The Insurance Company’s business is highly concentrated on certain economic sectors, and an economic crisis affecting these sectors may adversely affect the Insurance Company.
  • The concentration of the Insurance Company’s business on the surety bonds market may increase its vulnerability to any unfavorable conditions in this niche market.
  • If the number of claims increase significantly or if retained losses exceed the technical provisions of the Insurance Company, it may be adversely and materially affected.
  • Potential changes in the insurance regulatory environment may materially and adversely affect the Insurance Company.
  • As a result of the end of the Instituto de Resseguros do Brasil (IRB) monopoly , the lack of access to the customers concentration exposure database may have a material adverse effect on the JMalucelli Seguradora S.A. results and forecasts.

3) Risks relating to the reinsurance Company

  • An active and liquid market for the Company’s preferred shares may not develop, and that could limit investor’s ability to resell Paraná Banco’s preferred shares at the price and time they desire.
  • The Company is controlled by its controlling shareholders whose interests may conflict with the interests of its other shareholders.
  • Substantial sales of Paraná Banco’s preferred shares could cause the market price of its preferred shares to decline.
  • The Company may need additional resources in the future, which may be obtained through increases in its capital stock and these increases would dilute investors’ ownership in Paraná Banco.
  • The Company may not obtain all required authorizations to migrate to the Level 2 of differentiated corporate governance practices of Bovespa, which could cause a negative impact on the trading value of its preferred shares.

4)Risks relating to Brazil

  • The Brazilian government has exercised, and continues to exercise, significant influence over the Brazilian economy. This influence as well as Brazilian political and economic conditions could adversely affect the Company and the market price of its preferred shares.
  • Developments and the perception of risk in other countries may adversely affect the market price of Brazilian securities, including Paraná Banco’s preferred shares.
  • Inflation and government efforts to combat inflation may contribute significantly to economic uncertainty in Brazil and could adversely affect Paraná Banco and the market price of its preferred shares.
  • Exchange rate instability may adversely affect the Company and the market price of its preferred shares.

5)Risks relating to Paraná Banco’s preferred shares

  • An active and liquid market for the Company’s preferred shares may not develop, and that could limit investor’s ability to resell Paraná Banco’s preferred shares at the price and time they desire.
  • The Company is controlled by its controlling shareholders whose interests may conflict with the interests of its other shareholders.
  • Substantial sales of Paraná Banco’s preferred shares could cause the market price of its preferred shares to decline.
  • The Company may need additional resources in the future, which may be obtained through increases in its capital stock and these increases would dilute investors’ ownership in Paraná Banco.
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