The expansion of personal credit in Brazil is a continuation of the maturation of Brazilian financial disintermediation, which is especially crucial in the high-inflation environment (tending to increase spreads) that this country faces.

Unibanco's loan portfolio is particularly oriented toward retail loans -- specifically payroll loans, in which the borrower's payroll, from which the interest is automatically deducted, serves as a form of collateral. Such loans increased by 152% between 2006 and 2007, while the bank managed to keep credit quality high: The proportion of category D-H loans (with the highest level of credit risk) declined to 4.9% of the total loan portfolio from 6.7% the year prior; the non-accrual loan portfolio (delinquent 60 days or longer) also declined to 4.1% of the total loan portfolio from 5.4% the year before.

The bank achieved all of this while increasing its earnings by 124%, to 0.94 Brazilian reals (51 cents per share); its return on assets by 140 basis points, to 3%; and its net interest margin to 10.4% from 8.9%. All in all, an impressive performance.

Unibanco's ratios also compare favorably to its competitors. The following table, regarding nine-month data extracted from the third-quarter 2007 reports of Unibanco and Banco Bradesco, show Unibanco better positioned in almost all the ratios -- the exceptions being the efficiency ratio and deposit growth. In particular, it seems that credit quality is much higher for Unibanco while the claims ratio (claims-to-premiums) in its insurance department, at 45.5%, is better than Bradesco's 75.3%. Both banks have adequate Tier 1 ratios.