Independent Auditors' Report

Independent auditors’ report
The President and the Board of Directors
Banco Central do Brasil
Brasília - DF
1. We have examined the balance sheet of Banco Central do Brasil as of June 30, 2002 and the related statements of income and changes in shareholders’ equity, for the period from January 1 to June 30, 2002, which are the responsibility of its Management. Our responsibility is to express an opinion on these financial statements. The financial statements of the financial institutions in liquidation, with which Banco Central do Brasil holds credits receivable, in the amount of R$ 27,774,783 thousand, were examined by other independent auditors. A provision for losses in the amount of R$ 8,303,431 thousand was recorded for these credits, on the basis of specific accounting rules adopted by Banco Central do Brasil. These rules require the determination of the net assets of these institutions available to the Bank as being the total assets reduced by the preferred liabilities, obtained from those financial statements. Our opinion on the sufficiency of the provision for losses on credits with the institutions in liquidation is based on the opinions of those auditors on the financial statements used as a basis for their calculation (Note 6).
2. With the exception of that reported in next paragraph, our examination was conducted in accordance with auditing standards generally applied in Brazil and included: (a) planning of the audit work, considering the materiality of the balances, the volume of transactions and the accounting systems and internal controls of the Bank; (b) verification, on a test basis, of the evidence and records which support the amounts and accounting information disclosed; and (c) evaluation of the most significant accounting policies and estimates adopted by the management of Banco Central do Brasil, as well as the presentation of the financial statements taken as a whole.
3. As reported in Note 17-a, Banco Central do Brasil now evaluates legal contingencies for purposes of recording a provision for losses, based on the expectation of occurring. This evaluation process had not been concluded at the balance sheet closing date. Therefore, it was not practicable to extend our audit procedures to conclude as to their effects on the financial statements.
4. As stated in Note 17-b, Banco Central do Brasil is responsible for paying the retirement pensions to its employees, who have retired since 1991 land do not participate in the CENTRUS pension plan. This obligation, justified by the legislation that establishes the “Sole Legal System” - RJU, is settled on a monthly basis, from the budgetary appropriation provided in the Administrative Budget.  Banco Central do Brasil did not record this obligation as a liability, based on their understanding of the rules contained in Supplementary Law 101/2000, which provides that this actuarial obligation should be evaluated within the context of the social security situation for the federal public servants as a whole.
5. The financial statements for the semester ended June 30, 2002 were prepared in accordance with the accounting practices described in Note 2, which do not differ significantly from the accounting practices adopted in Brazil. Since this semester, with the approval of the National Monetary Council, and in order to approximated to best international practices, Banco Central do Brasil implemented certain changes in these accounting practices, mainly in relation to: (i) Allocation of all expenses related to the obligations from covering actuarial reserves with CENTRUS, in amount of R$619.647 thousands - Note 8; and (ii) Identification and segregation of the portfolio of securities held to maturity, with consequent adaptation of its criteria of valuation to corrected cost. If the criteria of valuation to fair value were kept, the result would be an additional expense in amount of R$5.442.237 thousands - Note 4b.
6. In our opinion, based on our examinations and on the opinion of other independent auditors, as stated in paragraph 1, and except for the adjustments which might result from the matters discussed in paragraphs 3 and 4, the above-mentioned financial statements present fairly, in all material respects, the financial position of Banco Central do Brasil as of June 30, 2002, and the results of its operations for the six-month period ended, in accordance with the accounting practices adopted in Brazil, complemented by the specific rules applicable to Banco Central do Brasil, described in Note 2.
7. The financial statements for the semester ended June 30, 2001, presented for comparison purposes, were examined by us, and we issued an opinion a qualified opinion in relation to a limitation in scope since it was nor presented to us the audited financial statements of financial institutions in liquidation used as basis for calculating the provision for losses described in the introductory paragraph above, which was resolved during the second semester of 2001, and a qualification with respect to the matter presented in paragraph 4.
August 16, 2002
KPMG Auditores Independentes
CRC SP014428/O-6-F-DF
Ricardo Anhesini Souza
Accountant CRC SP152233/O-S-DF