Banco do Estado do Espírito Santo was originally founded as the Instituto de Crédito Agrícola do Espírito Santo (Espírito Santo Rural Credit Institute). In his first term as federally appointed head of the Espírito Santo government, between 1930 and 1935, João Punaro Bley did not give the state a bank that, together with Banco do Brasil, could finance economic activity, especially the new coffee plantations and the raising of beef and dairy cattle, which were the state's main sources of income at the time. In addition, the state government needed a bank under its control in which it could deposit its revenues.

However, during the administration elected indirectly by the state legislature, Punaro Bley created the Instituto de Crédito Agrícola do Espírito Santo, the embryo of Banco de Crédito Agrícola do Espírito Santo (Espírito Santo Rural Credit Bank - Ruralbank), which would later become Banco do Estado do Espírito Santo (Banestes).

The purpose of the Institute was to undertake farming and land-purchase loans, deposits, discounts and collections, among others. In other words, its role was identical to that of a bank, whose creation was already on the political agenda.

On June 17, 1936, Law 68 established that the amounts that would go towards the foundation or initial capital of the Institute would preferably be invested in the formation of a state-owned company or bank which would maintain a portfolio of farming loans at reasonable interest to encourage agricultural development, help with harvest costs and fund agricultural production.

Banco de Crédito Agrícola

In April 1937, two years after its creation in April 1937, the Instituto de Crédito Agrícola do Espírito Santo became Banco de Crédito Agrícola do Espírito Santo.

Banco de Crédito Agrícola do Espírito Santo Contract

By the same act, Bley declared the Instituto extinct. The new institution was authorized to operate by the Internal Revenue Department of the State Finance Ministry and began operations on October 15, 1937.

The state government was the Bank's major shareholder among its 93 members, with 49,249 shares. The first Executive Board was composed of Mário Aristides Freire, as Chief Financial Officer, and Jones dos Santos Neves, as Commercial Portfolio Officer.

The commercial portfolio began operating soon after the Bank's inauguration, focusing on the retail sector and industry. Investments were undertaken through efficient registration and rigorous client selection.

The pioneer Mário Aristides Freire served as the Bank's Chief Executive Officer from 1937 to 1946, except when his mandate was interrupted between February and December 1944, when the post was occupied by Ivan de Oliveira.

The then manager of the central branch, José Ferrari Valls, also played an important role in the Bank's early years. Originally from Uruguaiana, in Rio Grande do Sul, he became the Bank's interim CEO between February and April 1947 and the auditorium of the Ruralbank Building was named after him in recognition of his contribution to the Bank's history.

Without official recognition as an agricultural bank

Banco de Crédito Agrícola's first report, published in February 1938, shows that the Institution was established without detailed information on its specific target public and it appealed to the Ministry of Agriculture in order to remedy this situation. Nevertheless, despite the lack of official registration, funds and planning, it was already considering opening branches in Cachoeiro de Itapemirim and Colatina.

First branch:
Banestes' branch in Colatina,
inaugurated on July 1, 1938

In fact, it was only in 1962 that the rural portfolio was created and fully structured, encompassing also the industrial sector of Espírito Santo's economy. Pedro Merçon Vieira was the architect of the rural loan portfolio and its first officer. The portfolio became operational in 1964.

The Bank began operations under adverse conditions. Even though it bore the name of an agricultural bank, it operated mainly with advances on trade bills in the retail and industrial sectors or with loans in the form of promissory notes, including to farmers.

The Bank's first withdrawal took place on October 16, 1937 - a check in the amount of 875 contos de réis, made out to Theodor Wile e Companhia Ltda. At that time, the Bank had seven different types of account: low-income deposit accounts, overdraft accounts, non-overdraft accounts, guaranteed accounts, interest-bearing and non-interest-bearing accounts, and prior notice accounts. A curiosity: as decreed by the federal government, all checks were sealed, with the seal functioning as a tax.

Farming prosperity:
agriculture was the inspiration
for the Bank's first checkbooks

Despite the initial difficulties, the Executive Board began considering the acquisition of the Bank's own headquarters as early as 1937. In order to get the project off the ground, the state government granted 150 contos de réis for the purchase of a site, where the actual headquarters would be built in the following year.

First anniversary:
Despite the adversities, the Bank's
employees celebrate its first anniversary in 1938

The Vitória municipal government proposed that the Bank acquire two properties. The site was on the seafront on the corner of Beco do Douto.

The early 1940s were not easy for the Bank. "This atypical period, racked by severe problems and a deep commercial depression, nevertheless highlights the countless benefits that a regional bank like ours can bring, either through helping drought-stricken farmers or retailers suffering from the inevitable credit squeeze," declared the Bank's CEO in his report.

In 1940, the scenario remained the same - war, drought and stagnation. "As a consequence of the prolonged drought that hit the state's agricultural output in 1939 and the profound repercussions of the war on our foreign trade, 1940 was a particularly difficult year," explained the Executive Board in 1941 in its annual report on the previous year's activities.

Independent headquarters

Stagnation was not the only factor in the Bank's trajectory in the early 1940s, however. In 1942, it inaugurated its first independent headquarters on Avenida Jerônimo Monteiro, which nowadays houses its central branch.

The Bank's independent headquarters: less than five years after startup

This event was accompanied by another important change in the Institution's business, when the Getúlio Vargas administration implemented a monetary reform, replacing the mil réis with the cruzeiro. As a result, the Bank not only had to effect the monetary exchange for its clients, but it also had to adapt its entire accounting system to the new currency.

Punaro Bley's dictatorial leadership of the Espírito Santo executive came to an end in January 1943 after more than a decade. Various federal appointees filled the post in the next few years until Carlos Lindenberg was elected governor and took up office in 1947.

Farming was still the flagship of the state economy, while industry played a minor role and cattle-raising was essentially geared towards local needs. Nevertheless, the government began to see the first signs of demand for economic diversification.

The mid-20th century saw the beginning of a period in the state's history when economic growth policies alternately prioritized industrialization and agriculture, with important repercussions for Banestes.

The next administration, headed by governor Francisco Lacerda de Aguiar, known as Chiquinho, took up office in 1955 and put agricultural center stage once again. In October 1957, the Bank's operational life was extended for another 10 years, the original Bylaws having established a period of 20 years.

Banco de Crédito Agrícola sustained its growth pace in the 1960s, despite several adverse factors, including the troubled administrations of Jânio Quadros and João Goulart, the military coup and the subsequent dictatorship, as well as the credit squeeze and the fight against inflation.

At state level, a policy to eradicate the coffee plantations was implemented, thereby eliminating one of the main reasons for the Bank's creation in the first place, and industrialization based on export commodities became the main driver of the economy thanks to state incentives.

In line with the political directives of the military regime, Governor Christiano Dias Lopes Filho (1967-1971), followed this line to the letter, attracting national and foreign investors to install industrial projects geared towards foreign trade. The Bank also played an important agricultural role in this period, advising on and financing the formation of new coffee plantations to replace the eradicated ones. In fact, 54% of the state's coffee plantations disappeared in the 1960s, prompting the migration of 150,000 people to Greater Vitória and other states.

New headquarters, new name

As a result of economic developments and the Bank's new attributions, its headquarters were no longer sufficient to meet its needs. In 1962, therefore, during Mário Augusto Ayres Nicoletti's term as CEO, the first headquarters were demolished to make way for a new building in the same location.

The Bank's second headquarters were inaugurated on December 30, 1967, when Luiz Teixeira was CEO. Known as Ruralbank (the Bank's telegraphic address), the 19-story building was one of the most modern in downtown Vitória.

From the cornerstone ceremony,
on October 16, 1962,
to the beginning of a new head office...

to the monumental Ruralbank Building,
delivered in 1967,
Vitória's most modern building.

Expanding at an accelerated pace, the Bank obtained a US$2 million loan from the Inter-American Development Bank (IDB) to foster agriculture in the state, a pilot project in Latin America.

At the end of the decade, the Central Bank standardized the names of state Banks and, after a shareholders' meeting and the due amendment of the Bylaws, in 1969 Banco de Crédito Agrícola do Espírito Santo (Ruralbank) became known as Banco do Estado do Espírito Santo (Banestes). In fact, the new name was much more in line with the institution's profile, given that it had never focused exclusively on the agricultural sector.

The 1970s was marked by the height of Brazil's military dictatorship. During this era that came to be known as the "Brazilian economic miracle," Espírito Santo state also experienced its own version of the economic miracle, which was characterized by intense urbanization and industrialization.

The Bank lived up to its new name by expanding into several sectors of the state economy, implementing several administrative changes until 1975. "It became clear at the time that Banestes would become the State's banking institution," said Jorge Eloy, president of the Espírito Santo State Bank Representatives' Association (Arbes).

The Bank's achievements during the 1970s include: creating a foreign exchange portfolio; setting up a securities brokerage and a state insurer; implementing the product Cheque Confiança, which become one of the institution's important brands; and expanding the branch network, including outside the state.

Until 1975, Banestes had only one credit portfolio, called the Rural and Industrial Credit Portfolio. In September that year, due to the growth in the industrial credit operations, the portfolio was split into a Rural Credit Portfolio and an Industrial Credit Portfolio. Later, during a new period of difficulties, these portfolios were once again combined and called the Rural and Industrial Credit Department.

Rural Credit: the state's agriculture sector is a priority for Banestes

Demonstrating the important advances it had achieved, in 1978 Banestes was ranked first in overall performance among all the banks in Brazil (state-owned and private), according to a report in the May 23, 1979 issue of the magazine Exame.

The 1980s ushered in many changes and challenges for Banestes. The good news in this decade was a return to democracy after decades of military dictatorship, but the economic crisis in which Brazil was sinking would have repercussions for the state.

In the 1980s, Banestes interspersed favorable moments with times of crisis. However, despite the unstable scenario, the bank automated its processes, ceased to be a financial conglomerate and became a multiple-service bank. It also created a unified cash system, enabling greater mobility of funds to the state government.

With Central Bank Resolution 1524 of December 19, 1989, Banestes became a multiple-service bank and the following divisions were created: Commercial Portfolio, Foreign Exchange Portfolio, Real Estate Credit Portfolio, Credit, Financing and Investment Portfolio, and Development Portfolio. Banestes Seguros S.A. and Banestes Distribuidora de Títulos e Valores Mobiliários were maintained.

A multiple-service bank is a single financial entity that operates in several market segments through various portfolios, thereby facilitating management and consequently improving results.

The crisis that loomed in the 1980s reached a climax in the 1990s. For Banestes, this decade, especially the period between 1995 and 1998, marked a decisive moment for its future. Between September 1996 and December 1998, there were intense efforts to capitalize the Bank with the implementation of a restructuring process.

According to Sebastião Bussular Júnior, the Bank's chief financial officer between 1996 and 2002, up until the implementation of the economic stabilization measures known as the Real Plan in 1994, due to hyperinflation a large part of the banks' revenues came from investment in government bonds using funds raised from client deposits. However, following the newfound economic stabilization, this situation changed drastically and nominal interest rates fell from close to 80% per month to 40% per year. In other words, banks had to adapt to the new low-inflation scenario, which deprived them of an important source of revenue.

According to Bussular, this adjustment was considered necessary ever since the failed Cruzado Plan was implemented in 1986. The private sector made a concerted effort to automate processes, cut costs, develop new products and services and train personnel, while in the case of state-owned banks, this effort did not receive much attention.

The challenges of adapting to the newfound stability were further aggravated by the international economic crises (Asian tigers, Russian, Argentine, etc.) and by (particularly in the case of Banestes) the imbalances arising from the allocation of funds to the Real Estate Credit Portfolio, which was very important to the Bank's asset structure at that time.

During this period of caution in the financial system, which included state-owned and private-sector banks, and given the success of the Stimulus Program for the Restructuring and Strengthening of the Financial System (Proer) in restructuring private banks, the Brazilian government created for state-owned banks the Stimulus Program to Reduce Government Ownership in the Banking Industry (Proes), which envisaged three principal measures: privatization, transfer to federal control and maintenance of control with the capitalization of the institution. Espírito Santo opted for the third option.

Modernization

In 1996, the Bank captured a new, unexplored niche of the Espírito Santo market with the launch of Banestes Leasing S.A. The following year, it launched its savings bond product, Banescap, in partnership with Icatu Hartfort, and expanded the processing capacity of its central computer.

In 1998, the bank linked its systems to the Rede Shop network and installed the first ATM service points (PAEs). These units, together with the Banestes Internet Banking channel and Home Office Banking application, made up the service network known as Banesfácil.

In 1999, Banestes became the first bank in the country to adopt a digital certification system for its Internet Banking channel. In partnership with Icatu Hartford, it also launched private pension products.

Two other points deserve mention: the direct election in 1991 of Carlos Roberto Tannure do Valle, the first employee representative to the bank's Board of Directors, and the creation in 1993 of the Banestes choir called Banescanto.

The change in Brazil's government led to changes in the path of Banestes. A new chapter began in 2003 with an all-new script punctuated by success and achievement, as you will read below.

"The future is what we are doing now." The words of poet Mario Quintana at once inspired and translated the march forward that began on January 1, 2003, following the changes brought about by the choice Brazil made in its 2002 presidential elections. And the future was all new, with the pursuit and consolidation of a new beginning in social and economic as well as political and administrative terms.

2003
Reconstruction in 2003

In 2003, João Felício Scárdua took over as the Bank's CEO and immediately adopted a plan to cut costs, rationalize spending, improve efficiency and strengthen planning and financial operations.

The strategy adopted by this management was the same one followed by others at that time: to revert the situation, partnerships were sought with employees, municipal governments, the business community and clients. After stabilizing its administration, the Bank embarked on a new phase, with, for example, a stronger focus on farm lending.

The Bank innovated its customer service. On June 16, 2003, it launched the so-called Banking Correspondents, which consist of units where the public can perform various banking transactions. Installed in stores, supermarkets, drugstores and other commercial establishments, banking correspondents represent an alternative for taking banking services to regions where the Bank's branches or units are not located.

2004
Highlights

On October 5, 2004, Banestes current CEO, Roberto da Cunha Penedo, assumed command of the bank. He was faced with a formidable goal: to grow the bank's shareholders' equity by three-fold within two years and instill performance-based management at the bank.

To achieve these objectives, Banestes had to work on three important fronts. The first was the creation of a taskforce to take urgent measures to cut costs and rationalize expenses within a short span of three months. The second front was expanding the Bank's commercial portfolio and focusing on products and services with higher returns to assure competitiveness. Banestes once again intensified its operations in the corporate segment. The last, and definitely not least, front was a concentrated effort to recover the Bank's outstanding loans, which was based on norms and regulations that guided the negotiations. All these actions were approved by the Bank's Board of Directors. The Bank also resumed negotiations to resume the onlending of Brazilian Development Bank (BNDES) financing lines. This happened in 2005, with a credit limit of R$19.9 million, which was increased to R$1.26 billion in 2007.

By yearend, the Bank not only had remained profitable but had also increased its profits, recording net income of R$41.4 million in 2004. In addition to reversing its losses, in 2004 Banestes had already attracted attention at the national level by positioning itself as one of the most important drivers of Espírito Santo's social and economic development. For the first time in its history, the Bank's net equity surpassed the R$100 million mark.

In the analysis of the prestigious Austin Rating, published by Gazeta Mercantil in its Balanço Financeiro, the Bank had made various achievements. The Banestes System was ranked third in the category "Highest Return On Equity" among 20 state-owned and private-sector financial institutions in Brazil. Considering that the top two institutions were private institutions, Banestes became the first government bank in the ranking of ROE, the ratio for which is calculated by dividing net income by net equity.

Banestes also invested in its technological infrastructure. The installation of a new modern mainframe in August 2004 resulted in a 50% savings in processing time. The R$16 million investment enabled the Bank to expand its business and focus on improving customer satisfaction indices. The system generated quicker responses both for branch managers and online operations, and for customers using online channels.

2005
Advances in 2005

In 2005, new and ongoing initiatives produced increasingly better results. The best proof of this was the bank's Operating Efficiency Index, which fell from 76.4% in 2004 to 61.3% in 2005. And demonstrating the solid nature of the recovery, Banestes increased the total volume of its loan operations from R$681 million in 2004 to R$960 million in 2005, for growth of 40%.

In March, the Bank merged its leasing and credit card administration companies to reduce costs and consolidate products bearing the Banestes brand. With this merger, the Product Superintendence, which is linked to the Commercial Department, was created.

In March 2004, the Bank implemented the Project to Restructure the Credit Risk Policy. There were two basic initiatives: the adoption of statistical models for classifying client risk and the modernization of processes involving the attribution of credit and other limits for clients. This effort, which was concluded in December 2005, enabled the Bank to safely expand its business, implement financial market best practices and provide its clients with pre-approved credit limits.

Among the many notable facts of 2005, one stands out: all 78 cities in Espírito Santo state, irrespective of their size and economic importance, were now served by Banestes branches.

Banestes has been improving its indices and results year after year. The 2005 national ranking published by Gazeta Mercantil in its Balanço Financeiro in partnership with the Austin Rating consulting firm, ranked Banestes third-best in Brazil, ahead of large state-owned banks and important foreign banks.

2006
Excelling in 2006

In the last year of the governor's administration (from 2003 to 2006), which was mainly dedicated to rebuilding the government apparatus, Banestes, which had already done its homework and was setting records, crowned its performance by excelling in all areas.

With financial equilibrium restored, Banestes fulfills its ideal of becoming a competent and competitive institution while reinforcing its role as an agent of public policy. In line with the state government's Strategic Plan for Agribusiness (Pedeag), the Bank worked with rural producers, providing them with rural credit. Between 2003 and 2006, it lent a total of R$243.80 million to 20,244 rural producers.

The Banking Correspondents represent an important service channel for the Bank. In May 2006, they averaged 1.5 million transactions per month, exceeding those handled by all of the bank's branches combined. The creation of the Banking Correspondents earned for Banestes and the Brazilian State and Regional Banks Association (Asbace) the Marketing Best 2006 award, which is given to companies that excel in planning and executing marketing strategies.

In 2006, Banestes conducted the first public tender for the sale of some of its properties, since they generate financial expenses and are not part of the Bank's core operations. This, together with the regular property auctions that began in November 2004, strengthened the Bank's cash position to enable it to make loans that would bolster the state's social and economic development.

In terms of its technological infrastructure, in 2006 the Bank commenced operations at the backup site, which required investment of R$10 million and for which the studies began in 2005. The site is a second datacenter that takes over in the event of faults at the first, ensuring the continuity of banking services and transactions. The backup site is the biggest and most complex IT project at Banestes. In 2007, in addition to projects to complement the backup site, Banestes invested R$400,000 to acquire 319 personal computers to upgrade the infrastructure of its back office.

2007
70^th anniversary in 2007 - Reaping the rewards

In 2007, Banestes completed 70 years of operations. The year also marked four straight years since 2003 of reaping the rewards made possible by previous efforts. In addition to its other important recognitions for its performance in 2006, in 2007 Banestes was ranked first in return on equity among all state-owned banks in Brazil.

As a result of its greater focus on more profitable products, the Bank's commercial portfolio ended 2007 at R$1.60 billion, growing from R$1.27 billion in the previous year, driven by higher demand for working capital loans, overdraft facilities, supplier financing and payroll loans.

The resumption of the Bank's relations with the corporate segment significantly boosted this segment of the commercial portfolio, whose mix was 75% individuals and 25% legal entities three months earlier and which was reversed in 2007 when legal entities represented 60% of the Bank's commercial portfolio. To meet the demand for banking services in the state's biggest industrial complex, Banestes opened the unit called Banestes Civit Corporate Branch in the city of Serra, constituting the first branch in the state specialized in serving corporate clients.

To further expand its commercial portfolio and take its products and services to a segment identified as a hidden asset, Banestes intensified its focus in 2007 on non-clients, that is, those who do not have a checking account or any kind of relationship with the Bank. After this it restructured Banestes Financeira and improved its auto loan product, making contracting the loans quicker and easier.

2008

The year 2008 was marked by financial crises in markets around the world, especially in the United States, with the initial signs surfacing at the start of the second half of 2007. Investor fears of a recession led the U.S. Federal Reserve and other central banks to implement measures to balance markets through monetary loosening. Despite the crisis, Banestes continued to improve its numbers, crowning its performance in all areas.

To better align the Banestes Strategic Plan for 2008-10, the Bank drafted an action plan to operate in the states of Bahia and Minas Gerais, anticipating Central Bank authorization. In the addition to their proximity to Espírito Santo, these states offer extensive opportunities.

Another highlight in 2008 was the launch of the Banescard, the first own-brand debit and credit card in Brazil launched by a commercial bank. Banescard is the new card for Banestes accountholders and already has a base of around 820,000 cards. The new product has the potential to leverage new business with the existing client base, together with Banestes' extensive service network covering 100% of cities in Espírito Santo state.

2009

The year of 2009 began on the fears of the worsening international financial crisis, it was feared by the intensification of deceleration in economic activity and negative surprises in the financial institutions in Europe and the United States. However, the adoption of monetary and fiscal expansionary brought relief to those economies that started a revival in its main sectors, after reaching the bottom.

Internally, the adoption of tax incentives through the reduction of federal taxes, especially the IPI - Excise Tax - and the high supply of credit by public banks, kept the economy growing in important sectors such as automobiles and appliances, contributing to the maintenance of income and improves the expectations of consumers and entrepreneurs.

The economy of Espirito Santo, strongly affected by the drop in activity, mainly by reducing the price of commodities, given their high correlation with the external market, should experience strong growth in 2010 due to improvement in mining, steel mills, driven the recovery of international market prices and rising domestic demand.

Regarding Banestes, the Banescard headed straight on its path of success and consolidation in the cards market. Product that placed Banestes in the condition of the first commercial bank in Brazil to have a debit and credit card with its own brand, the Banescard finished 2009 with 19,500 establishments and it is the second largest brand in operation in the State of Espírito Santo. The Banestes also crossed the boundaries of the territory of Espirito Santo, opening branches in Minas Gerais (Nanuque) and Bahia (Teixeira de Freitas). In this year is also launched Banestes Auto, originated from the CDC vehicles, contemplating partnership with 36 dealers in the state of Espirito Santo.

2010

Internationally, 2010 was marked by remnants of the financial crisis of 2008/2009. The mature economies (U.S., Europe and Japan) had low growth rates compared to previous years, and high unemployment. The crisis of sovereign debt of the group of countries known as PIIGS (Portugal, Italy, Ireland, Greece and Spain) gave the keynote of the period, marked by doubts about the ability to pay of these countries, its contagion to other economies, and the fiscal and monetary expansionists policies. The United States opted for a policy of drastic devaluation of the dollar to reduce its huge current account deficit - mainly about China. Moreover, in emerging economies, it has consolidated the process of post-crisis recovery with the BRICs (Brazil, Russia, India and China), showing high growth rates and rising prices, a situation close to full employment.

In Brazil, 2010 was characterized by great acceleration in the growth rate of Gross Domestic Product and the country will probably have the highest rate in decades, growing around 8.00%. The target of 3.30% of GNP primary surplus was not met and the market estimated that this percentage has been around 2.00%.

In the state of Espírito Santo, the GDP grew 10.10% in the third quarter of 2010 compared with the same period in 2009 and racked up 12.60% over four quarters. According to the Jones dos Santos Neves Institute (IJSN), the growth rate of state economy was approximately 10.00%, specially due to the good performance of the Extractive Industry which had anchored the result in the expansion of iron ore, crude oil and natural gas.