The partnership between Bancodo Brasil SA and the Brazilian postal service, Correios, which providesbanking services through Banco Postal, is likely to end this year, O Estado de S. Paulo reported, citing unnamedsources following the matter.

The main issue of disagreement between the two state-run companiesis the business value, in addition to the purpose of the agreement, the report said.

Banco Postal operates from local post offices and was previouslymanaged by Banco Bradesco SAfor a fixed term. It has been under Banco do Brasil's administration since 2011,after a 2.3 billion Brazilian reais bid was awarded for a 5-year contract.

Banco do Brasil has disbursed some 1 billion reais in bankingtransactions through post offices under the present contract, but does not considerthe deal advantageous amid the country's adverse economic scenario and changes incustomer behavior due to the advance of internet banking in Brazil.

Another challenge is making the business profitable amid highoperational costs. Correios' head, Guilherme Campos, said Banco Postal's steep operationalcosts stem mainly from labor and safety expenses, according to the July 10 report.

The contract between Banco do Brasil and Correios expires inDecember. If the bank doesn't renew the contract, Correios will need to launch apublic tender offer for a new provider, but banking sources claim there isn't muchappetite for the service, the publication noted.

In April 2015, Brazil's former Communications Minister RicardoBerzoini had said the government was evaluating the creation of a new financialinstitution to assume the managementof Banco Postal services.

As of July 8, US$1 wasequivalent to 3.30 Brazilian reais.