FINANCIAL INSTITUTIONS

CREDIT OPINION4 July 2018

Update

RATINGS

Banco BMG S.A.Domicile Sao Paulo, Sao Paulo,

Brazil

Long Term Debt B1

Type Senior Unsecured - FgnCurr

Outlook Negative

Long Term Deposit B1

Type LT Bank Deposits - FgnCurr

Outlook Negative

Please see the ratings section at the end of this reportfor more information. The ratings and outlook shownreflect information as of the publication date.

Contacts

Farooq Khan +55.11.3043.6087Analystfarooq.khan@moodys.com

Henrique S Ikuta +55.11.3043.7354Associate Analysthenrique.ikuta@moodys.com

Ceres Lisboa +55.11.3043.7317Senior Vice Presidentceres.lisboa@moodys.com

CLIENT SERVICES

Americas 1-212-553-1653

Asia Pacific 852-3551-3077

Japan 81-3-5408-4100

EMEA 44-20-7772-5454

Banco BMG S.A.Update to credit analysis

SummaryBanco BMG S,A.'s (BMG) ratings have a negative outlook to reflect the challenges BMGcontinues to face to improve earnings generation and capitalization, while it refocusesits strategy towards a predominantly payroll credit card banking business. Moody'sacknowledges BMG's leading position in this market segment, as well as the better risk profileof payroll credit card operations relative to riskier commercial lending. However, its businessmodel has yet to prove capable of generating sustainable earnings, while the reliance onone line of business will likely reduce revenue diversification, potentially exposing the bank'searnings to volatility. At the same time, BMG's ratings took into consideration the improvedand more predictable risk profile of payroll credit card loans, which represented 74% of totalloans in March 2018, up from 57% in 2016, and is expected to further increase. Also, BMG'sreliance on market funds and large institutional depositors has consistently declined, offsetby growing share of more granular deposits from individuals, which are however, sourcedfrom brokers.

The B1 deposit and senior unsecured debt ratings are in line with BMG's b1 BCA, and do notbenefit from government support uplift given its modest market share of domestic deposits.

On 22 June 2018, Moody’s assigned long and short-term local and foreign currencycounterparty risk ratings (CRRs) of Ba3 and Not-Prime. Moody’s CRRs are opinions of theability of entities to honor the uncollateralized portion of non-debt counterparty financialliabilities and also reflect the expected financial losses in the event such liabilities are nothonored.

Exhibit 1

Key Financial Ratios - Banco BMG

4.0% 7.7%0.8%

10.5% 18.9%

0%

5%

10%

15%

20%

25%

30%

35%

0%

2%

4%

6%

8%

10%

12%

14%

Asset Risk:Problem Loans/

Gross Loans

Capital:Tangible Common

Equity/Risk-WeightedAssets

Profitability:Net Income/

Tangible Assets

Funding Structure:Market Funds/

Tangible BankingAssets

Liquid Resources:Liquid Banking

Assets/TangibleBanking Assets

Solvency Factors (LHS) Liquidity Factors (RHS)

Banco BMG (BCA: b1) Median b1-rated banks

So

lve

ncy F

acto

rs

Liq

uid

ity F

acto

rs

Source: Moody's Financial Metrics

MOODY'S INVESTORS SERVICE FINANCIAL INSTITUTIONS

Credit strengths

» Improved asset risk profile as the payroll credit card loans represent the majority of loan portfolio

» The bank maintains an adequate volume of liquid resources, while the reliance on market funds is reduced given the growingproportion of deposits obtained with households

Credit challenges

» Profitability remains challenged as the bank keeps redirecting its strategic focus that will be more predominantly dedicated topayroll credit card lending

» Low capital position weighted by deferred tax assets and reduced internal earnings generation

Rating outlookThe negative outlook reflects the challenges the bank faces to manage to improve its profitability and capital. Also, the increased focuson payroll credit card lending likely reduces revenue diversification, potentially exposing the bank's earnings to volatility.

Factors that could lead to an upgrade

» Given the negative outlook, we do not anticipate upward pressures on BMG's ratings at this time.

Factors that could lead to a downgrade

» BMG's ratings could be downgraded if its profitability and capitalization ratios deteriorate. Sustainable core earnings generationwould be key to stabilize its ratings. Also, downward pressure on its financial profile could arise from a higher reliance on marketfunds or on large investors, as well as by a reduction in its liquid resources.

Key indicators

Exhibit 2

Banco BMG S.A. (Consolidated Financials) [1]3-182 12-172 12-162 12-152 12-142 CAGR/Avg.3

Total Assets (BRL billion) 16 16 16 17 17 -1.54

Total Assets (USD billion) 4.9 4.9 4.8 4.3 6.4 -8.14

Tangible Common Equity (BRL billion) 0.8 0.8 0.6 0.5 1.2 -11.04

Tangible Common Equity (USD billion) 0.3 0.2 0.2 0.1 0.5 -16.94

Problem Loans / Gross Loans (%) 4.0 4.0 3.9 2.4 2.5 3.45

Tangible Common Equity / Risk Weighted Assets (%) 7.7 7.4 5.0 4.2 9.5 6.86

Problem Loans / (Tangible Common Equity + Loan Loss Reserve) (%) 25.7 25.2 29.1 22.0 11.7 22.85

Net Interest Margin (%) 15.5 12.7 7.1 6.1 10.2 10.35

PPI / Average RWA (%) 7.4 3.8 -2.4 0.8 3.2 2.56

Net Income / Tangible Assets (%) 0.8 0.2 0.3 0.5 1.9 0.75

Cost / Income Ratio (%) 60.4 78.1 152.0 87.7 56.6 87.05

Market Funds / Tangible Banking Assets (%) 10.5 11.6 23.8 23.3 21.5 18.15

Liquid Banking Assets / Tangible Banking Assets (%) 18.9 21.1 18.5 15.4 18.2 18.45

This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page onwww.moodys.com for the most updated credit rating action information and rating history.

2 4 July 2018 Banco BMG S.A.: Update to credit analysis

MOODY'S INVESTORS SERVICE FINANCIAL INSTITUTIONS

Gross Loans / Due to Customers (%) 102.1 101.8 147.0 157.6 174.6 136.65

[1] All figures and ratios are adjusted using Moody's standard adjustments [2] Basel III - fully-loaded or transitional phase-in; LOCAL GAAP [3] May include rounding differences due toscale of reported amounts [4] Compound Annual Growth Rate (%) based on time period presented for the latest accounting regime [5] Simple average of periods presented for the latestaccounting regime. [6] Simple average of Basel III periods presentedSource: Moody's Financial Metrics

ProfileBanco BMG SA (BMG) is a São Paulo-based bank that focuses on payroll credit card loans, loans to companies and unsecured consumerfinance operations. In the corporate segment the bank supplies with structured financial services, financing, derivative instruments andguarantee insurance.

As of 31 March 2018, the bank held a market share of 0.19% of the banking system total assets and 0.36% in terms of deposits.BMG does not operate a retail branch network, but distributes its products and services in Brazil through a sales force comprisingits own officers throughout its offices, independent agents and third-party service providers. In January 2016, the bank launched anew distribution channel – help! loja de crédito, a franchise network that offers credit solutions to retirees and public sector workersthroughout Brazil.

The bank’s largest shareholder is Flávio Pentagna Guimarães, who owned 38.9% of its total share capital in March 2018.

Detailed credit considerationsIncreasing share of payroll credit card loans enhances asset riskOur assessment for asset risk at ba2 reflects the bank’s shifting loan exposure to the lower-risk payroll credit card loans.

BMG's loan book mix is consistently changing as the payroll credit card loans share increased to 74% in March 2018, from 24% in 2015,which has a lower risk profile than its remaining business lines. BMG is one of the largest players in the payroll credit card product,which penetration is supported by its network of branded franchises, as well as by the loan brokers. In the corporate segment, BMGkeeps diminishing exposures given the increasing problem loans in this segment, currently representing 14.5% of total portfolio. Also,loans labeled as non-core reduced to a very low level (11.6% of total loan portfolio) following the sale of remaining car loans, while thecurrent exposure mainly includes the legacy payroll loans. Going forward, we expect the bank to keep growing its payroll credit cardsegment as the other business lines continue to shrink.

BMG’s 90-day past due loan ratio increased by 31 basis points in the last 12 months, achieving 4.0% in March 2018, mainly pressuredby higher delinquency in the corporate loan portfolio. The corporate segment was impacted by the effects of the economic contractionin the last years, but we expect that most of the problems in this portfolio are captured in the bank’s asset quality metrics. The payrollcredit card loans experienced some fluctuation in the last years following initial ramp up from its implementation, as the risks areseasoning, which could lead the delinquency in this segment to accommodate at a slightly higher level than currently.

The bank's asset risk is supported by appropriate loan loss reserves that covered 148% of 90-day past due loans.

Future earnings generation capacity remains uncertainProfitability score of caa1 incorporates uncertainties related to earnings generation as the bank’s current business model keepsmaturing.

The bank’s net income to tangible assets was equivalent to 0.8% in March 2018, from 0.17% in 2017, which was favored by the lowerexpenses with loan loss provisions and operating expenses, while negatively pressured by the almost stable volume of loans. The bankreported an operating result of BRL 72.6 million operating income, versus a BRL 13.7 million net loss in the same period of previousyear.

In the next 12 months, the profitability improvement could derive from a combination of several aspects, such as: (i) higher yields onloans, given the shifting portfolio mix towards the higher margin payroll credit card loans; (ii) lower cost of funds, as most of its fundingis linked to the Selic rate; (iii) credit costs accommodate at lower levels as the problems with corporate and non-core exposures reduce.At the same time, we note that the bank’s strategy of predominantly operating as a payroll credit card player incorporates challenges,such as the higher reliance on one single product, the bank's ability to keep growing this business, the potential entrance of new

3 4 July 2018 Banco BMG S.A.: Update to credit analysis

MOODY'S INVESTORS SERVICE FINANCIAL INSTITUTIONS

competitors, and unexpected increases in expenses as the operational requirements to execute the payroll credit card product keepsmaturing.

Capital remains a challenge given the high volume of DTAs and low internal earnings generationBMG’s caa1 score reflects Moody’s tangible common equity to risk weighted assets ratio, which is negatively weighted by the largeamount of deferred tax assets and goodwill held by the bank. Also, it reflects the uncertainties of potential capital improvementthrough internal earnings generation.

Moody's capital measure of tangible common equity to risk weighted assets (TCE / RWA) increased significantly in the last 12 months,to 7.75% in March 2018, from 4.71% in March 2017. Although the bank accounted a capital gain following the sale of its 40% stake inthe payroll joint-venture, Banco Itau BMG Consignado S.A. (unrated) in October 2016, it was almost entirely offset by shareholders'decision to reduce the capital by BRL 400 million in the fourth quarter of 2016. The regulatory capital ratios, however, recorded ahigher improvement, with common equity tier 1 capital (CET1) achieving 11.8% in March 2018, from 11.6% in March 2017, as the equityinvestment in the bank subsidiary is no longer deducted from its capital.

The reduced capital ratio under Moody's measure, represented by TCE / RWA, is mainly weighted by the bank's large stock of deferredtax assets (DTAs), amounting to BRL 2.4 billion in March 2018, which includes the DTAs from temporary differences related to loanloss provisions, as per our analytical approach that DTAs are only available to absorb losses in limited circumstances. The ratio is alsoadjusted to exclude goodwill and include risk weighting factor of 100% on the bank's holdings of government securities.

Going forward, we expect BMG will manage to maintain at least stable capital ratios as the growing exposures to payroll creditcard loans will be offset by ongoing reduction of non-core loans and declining exposures to the corporate segment. The ongoingimprovement on capital is directly linked to the bank's capacity to improve internal earnings generation, as well as to lower distributionof dividends or capital to shareholders after the meaningful payments carried out in the last years.

Liquidity and funding structures stabilized but balance sheet growth could create challengesBMG's funding structure score of b1 incorporates the increasing volume of resources obtained via brokers, which invest mainly indeposits and deposit-like instruments. As of March 2018, the outstanding amount of time deposits and deposit-like instruments (LCIsand LCAs) was BRL8.6 billion, accounting for about 75% of its total funding. The remaining portion is largely consisted of subordinatedbonds, loan assignments and financial banknotes. The bank is also making efforts to diversify and extend the duration of its fundingstructure, evidenced by the 5-year BRL 502 million debenture issuance in September 2017, which was placed in the local market andis backed by payroll credit card loans. The funding obtained in the local market has been also supporting the replacement of externalbonds that have been coming due such as the senior bonds that matured in April 2018.

The ba3 score for liquid resources reflects the stock of liquid assets held by the bank coupled with the expectation that it will remainstable given the relatively reduced volume of bond repayments scheduled for the next 12 months.

We note that the bank’s capacity to maintain a reasonable volume of liquid resources supports its maturity transformation risk as mostof its loans have a longer duration loans, particularly the payroll credit card operations. In this sense, we note the bank maintains liquidresources that are equivalent to the funding maturing in the following 12 months.

BMG's rating is supported by the “Moderate -” Macro Profile on BrazilBrazil's “Moderate - “ macro profile reflects the country's large and diversified economy, strong international reserves, and the improvedeffectiveness of monetary policy. However, the country's economic performance remains weak following two years of recession.Following an aggressive expansion in lending, particularly at the public sector banks, which led to concerns of a possible credit bubble,lending has been contracting steadily since midyear 2016 and asset risks have remained relatively contained despite the depth andlength of the country's recession. The slowdown in lending has also limited banks' needs for market funding. Although government-owned banks' account for a 56% share of the loan market, their growth rate has been consistently declining, which will help reducepricing distortion created by their previous loose lending policies.

Support and structural considerationsGiven the absence in Brazil of an operational going-concern resolution regime (ORR) wherein banks are resolved by bailing-in creditors,the impact of failure on a bank‘s different debt classes absent government support (i.e. bail-out) is unclear as we believe that resolution

4 4 July 2018 Banco BMG S.A.: Update to credit analysis

MOODY'S INVESTORS SERVICE FINANCIAL INSTITUTIONS

procedures will be determined on an ad-hoc basis, rather than being clearly defined ex ante. The expected loss of each debt class isderived from a standardized instrument notching for all non-ORR banks.

Government supportWe believe there is a low likelihood of government support for BMG's rated deposits, which reflects the bank's small share of depositsand assets in Brazil's banking system.

Counterparty risk assessmentCR Assessments are opinions of how counterparty obligations are likely to be treated if a bank fails and are distinct from debt anddeposit ratings in that they (1) consider only the risk of default rather than both the likelihood of default and the expected financial losssuffered in the event of default and (2) apply to counterparty obligations and contractual commitments rather than debt or depositinstruments. The CR assessment is an opinion if the counterparty risk related to a bank’s covered bonds, contractual performanceobligations (servicing), derivatives (e.e., swaps), letters of credit, guarantees and liquidity facilities.

BMG's CR Assessment is positioned at Ba3(cr) / NP(cr)The CR assessment is one- notch above the bank's Adjusted BCA of b1, and, therefore, above the deposit rating of the bank, reflectingMoody's view that its probability of default is lower at the operating obligations than of deposits. The CR Assessment at Banco BMGdoes not benefit from government support, as the government support is not incorporated in the bank's deposit ratings.

About Moody's bank ScorecardOur Scorecard is designed to capture, express and explain in summary form our Rating Committee’s judgment. When read inconjunction with our research, a fulsome presentation of our judgment is expressed. As a result, the output of our Scorecardmay materially differ from that suggested by raw data alone (though it has been calibrated to avoid the frequent need for strongdivergence). The Scorecard output and the individual scores are discussed in rating committees and may be adjusted up or down toreflect conditions specific to each rated entity.

Rating methodology and scorecard factors

Exhibit 3

Banco BMG S.A.Macro FactorsWeighted Macro Profile Moderate

-100%

Factor HistoricRatio

MacroAdjusted

Score

CreditTrend

Assigned Score Key driver #1 Key driver #2

SolvencyAsset RiskProblem Loans / Gross Loans 4.0% ba1 ← → ba2 Quality of assets

CapitalTCE / RWA 7.7% b3 ← → caa1 Risk-weighted

capitalisationProfitabilityNet Income / Tangible Assets 0.4% b1 ↓ ↓ caa1 Return on assets Earnings quality

Combined Solvency Score b1 b2LiquidityFunding StructureMarket Funds / Tangible Banking Assets 11.6% baa3 ← → b1 Deposit quality

Liquid ResourcesLiquid Banking Assets / Tangible Banking Assets 21.1% ba2 ← → ba3 Stock of liquid assets

Combined Liquidity Score ba1 b1

5 4 July 2018 Banco BMG S.A.: Update to credit analysis

MOODY'S INVESTORS SERVICE FINANCIAL INSTITUTIONS

Financial Profile b2Business Diversification 0Opacity and Complexity 0Corporate Behavior 0

Total Qualitative Adjustments 0Sovereign or Affiliate constraint: Ba2Scorecard Calculated BCA range b1-b3Assigned BCA b1Affiliate Support notching 0Adjusted BCA b1

Instrument class Loss GivenFailure notching

AdditionalNotching

Preliminary RatingAssessment

GovernmentSupport notching

Local CurrencyRating

ForeignCurrency

RatingCounterparty Risk Rating 1 0 ba3 0 Ba3 Ba3Counterparty Risk Assessment 1 0 ba3 (cr) 0 Ba3 (cr) --Deposits 0 0 b1 0 B1 B1Senior unsecured bank debt 0 0 b1 0 -- (P)B1Dated subordinated bank debt -1 0 b2 0 -- B2Source: Moody's Financial Metrics

Ratings

Exhibit 4Category Moody's RatingBANCO BMG S.A.

Outlook NegativeCounterparty Risk Rating Ba3/NPBank Deposits B1/NPNSR Bank Deposits Baa3.br/BR-3Baseline Credit Assessment b1Adjusted Baseline Credit Assessment b1Counterparty Risk Assessment Ba3(cr)/NP(cr)Senior Unsecured MTN (P)B1Subordinate B2Other Short Term (P)NP

Source: Moody's Investors Service

6 4 July 2018 Banco BMG S.A.: Update to credit analysis

MOODY'S INVESTORS SERVICE FINANCIAL INSTITUTIONS

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7 4 July 2018 Banco BMG S.A.: Update to credit analysis

MOODY'S INVESTORS SERVICE FINANCIAL INSTITUTIONS

CLIENT SERVICES

Americas 1-212-553-1653

Asia Pacific 852-3551-3077

Japan 81-3-5408-4100

EMEA 44-20-7772-5454

8 4 July 2018 Banco BMG S.A.: Update to credit analysis